Financial position

Analysis of cash flow statement

The amounts taken into account in the cash flow statement correspond to the balance sheet item "Cash and cash equivalents".

There was a cash outflow from operating activities of €860 million in the reporting period, compared with €169 million in the corresponding prior-year period. The roughly €691 million deterioration in operating cash flows was mainly due to a €340 million decrease in net income before impairment losses/reversals in connection with non-current assets as well as before deferred taxes, combined with a €364 million increase in net working capital.

Cash outflow from investing activities increased by €150 million to €999 million. This was due in particular to an increase of €183 million to €1,050 million in capital expenditure on property, plant and equipment (including advance payments), mainly relating to the construction of the steel mills in Brazil and the USA.

As in the corresponding prior-year period, free cash flow – i.e. the sum of operating cash flows and cash flows from investing activities – was negative. Compared with the prior-year quarter, free cash flow decreased by €841 million to €(1,859) mill

There was a cash inflow from financing activities of €2,507 million in the reporting quarter, compared with a cash outflow of €217 million a year earlier. This was due in particular to the €2,760 million increase in borrowings.

Analysis of the balance sheet structure

Compared with September 30, 2008, the balance sheet total increased by €383 million to €42,025 million. Included in this increase is an exchange rate-related reduction in the amount of €420 million.

Non-current assets increased overall by €583 million, taking into account an exchange rate-related reduction of €138 million. This increase was mainly due to a €375 million increase in property, plant and equipment as well as a €197 million increase in advance payments on property, plant and equipment recognized under other non-current non-financial assets; both effects related in particular to construction progress on the major projects in Brazil and the USA.

Current assets decreased in total by €200 million. This reduction was mainly due to in part opposing developments in inventories, trade accounts receivable, other current non-financial assets as well as cash and cash equivalents.

Inventories increased in total by €112 million to €9,606 million. There were reductions as a result of exchange rate effects (€101 million) and significant writedowns of inventories, particularly in the Stainless (€194 million) and Services (€54 million) segments. By contrast, the Steel segment reported a €484 million increase in inventories due to the sharp decline in business in the course of the reporting quarter.

The €1,269 million reduction in trade accounts receivable mainly resulted from the Steel (€436 million), Stainless (€141 million) and Services (€506 million) segments due to the significant weakening of business activity. This was reinforced by a €184 million fall in trade accounts receivable in the Technologies segment due to declining business in the automotive and construction machinery sectors.

The €337 million increase in other current non-financial assets mainly related to higher refund claims in connection with value added tax and other taxes not based on income.

The €602 million rise in cash and cash equivalents to €3,327 million was mainly the result of a negative free cash flow (€(1,859) million) due to weaker business activity and high capital expenditure, which was set against net borrowings in the amount of €2,555 million.

The €683 million reduction in total equity to €10,806 million was due in particular to expenditure in connection with actuarial losses associated with the valuation of pensions recognized directly in equity (€688 million before taxes). In addition, expenditures in connection with currency translation (€185 million before taxes) and unrealized losses from derivative financial instruments (€147 million before taxes) were recognized directly in equity. Running counter to this were tax effects (€265 million) and the net income for the reporting period of €163 million.

Non-current financial liabilities increased in total by €2,716 million. Of this, €2,401 million related to the increase in non-current financial debt and €593 million to the increase in accrued pension and similar obligations through the revaluation carried out at December 31, 2008 as a result of the significant changes in interest rates and plan assets compared with September 30, 2008 in connection with the international financial crisis. Running counter to this was a €320 million reduction in deferred tax liabilities.

Current liabilities decreased by €1,650 million. This was due in particular to the €1,734 million reduction in trade accounts payable. This mainly related to the Steel (€317 million), Stainless (€537 million) and Services (€557 million) segments as a result of declining business activity. The weakness of the automotive and construction machinery sectors also resulted in a significant decrease at the Technologies segment (€300 million). Running counter to this was a €136 million increase in current financial debt.