Cash flow analysis

Ratio 2008 Net income (dollars in GBP) After-tax net interest expense (income) Non-operating losses (gains) Long-term operating accruals Operating cash flow before working capital investments Net (investments in) or liquidation of operating working capital Operating cash flow before investment in long-term assets Net (investment in) or liquidation of operating long-term assets Free cash flow available to debt and equity After-tax net interest (expense) or income Net debt (repayment) or issuance Free cash flow available to equity Dividend (payments) Net stock issuance (repurchase), and other equity changes Net increase (decrease) in cash balance Cash flow from Discontinued Operations Net increase (decrease) in cash balance - As reported 8.21 (51.80) (1.22) 88.59 (47.35) 17.6 (12.65) (19.22) 0 0 0 0 0 0 0 0 8.21 (51.80) (1.22) 88.59 (47.35) 17.6 (12.65) (19.22) (12.82) (15.59) (12.94) (43.60) (12.42) (32.05) (13.60) (24.35) (14.13) (0) 0.85 (2.91) 1.61 (8.49) 1.44 36.62 4.74 43.25 126.54 (35.00) 16.75 (11.35) (12.17) (24.65) (23.18) (12.63) (40.21) (135.00) (88.00) (63.00) (164.00) (3.11) (1.61) (2.42) (2.61) (10.50) (9.90) (7.80) (11.60) 64.38 29.53 58.30 169.36 110.50 114.65 59.45 163.43 (19.01) (28.76) (9.07) (8.45) (17.71) (8.69) (10.59) (24.25) 83.39 58.29 67.37 177.81 128.21 123.34 70.04 187.68 46.5 49.59 26.44 74.64 51.88 93.23 4.70 171.46 0 13.98 36.89 0 42.74 8.70 0 (7.51) 40.93 0 23.48 103.17 0 11.35 76.33 0 10.52 30.11 0 7.84 65.34 0 11.57 16.22 3.11 1.61 2.42 2.61 10.50 9.90 7.80 11.60 19.80 2009 (35.65) Elementis 2010 46.02 2011 77.08 2008 54.48 2009 9.69 Yule 2010 49.70 2011 (6.95)

1.78

From the above table, it is noticeable that for Elementis, the operating cash flow before working capital investments is 36.89 million in 2008, and then it increased a lot in the next three years, reaching 103.17 million in 2011. This cash flow is the addition of net income, after-tax net interest expense, non-operating losses and long-term operating accruals. In all four years,

Elementis managed to squeeze additional cash from its operating working capital, with an upward trend, reaching 74.64 million in 2011, despite a sudden fall in 2010, mainly because of enlarging its investment in accounts receivable and inventory. The above cash flow table shows that the operating cash flow before long-term investments are enough adequate to meet its total investment in long-term assets in target years, except in 2009, resulting a negative free cash flow available to debt and equity. In all four years, the company was a net debtor. Then the free cash flow is used for dividend payment and stock repurchase, leading to the final net increase in cash balance of 8.21 million in 2008, 88.59 million in 2011, while net decrease of 51.80 million and 1.22 million in 2009, 2010 respectively. The main reason for the negative figure in cash balance in 2008 owning to its negative net income and in 2009 is for its large amount of stock repurchase. In terms of operating cash flow before working capital investments, Yule does not differ much with Elementis, and the figure keeps increasing for Elementis while it keeps dropping for Yule, at the lowest level, 16.22 million in 2011. Yule increased its investments in operating working capital, similar to Elementis, because of stretched payables and accrued expenses. Similar to Elementis, Yule was able to fund all its long-term investments in operating assets from its own operating cash flow. Therefore, it had positive amount free cash flow available to debt and equity holders. However, as the great amount of debt paid out, free cash flow available to equity for Yule was positive only in 2009, of 16.75 million. After reducing dividend payments and adding new stocks issued, cash left in balance has a decrease of 47.35 million, 12.65 million, and 19.22 million in 2008, 2009, 2011 respectively while an increase of 17.6 million in 2010. Therefore, according to the annual report of Elementis, the company acquired Deuchem in Taiwan and China in 2009, resulting in very large increased costs Elementis 2010:6 , which may be the reason for the negative cash left in balance. And then the company started to gain profits in the next two years.