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INOVYN Q2 2018 Trading Statement

Q2 2018 Preliminary Trading Statement

INOVYN Limited announces its preliminary trading statement for Q2 2018.

Based on unaudited management information, INOVYN Limited reports that EBITDA for the second quarter of 2018 was €209 million. This represents the highest quarterly EBITDA performance since the formation of INOVYN, and compares to €192 million for the same period last year and €188 million for the previous quarter. On a last twelve month basis, EBITDA now stands at €731 million. The record financial performance in the quarter was driven by high prices of caustic soda, which more than compensated for lower caustic soda and General Purpose SPVC volumes and a fall in PVC margins, compared to the same period last year.

Capital expenditure was €93 million for 2018 year to date, €55 million of which was spent in the second quarter.

The second quarter performance

Sales volumes of general purpose SPVC and caustic soda were lower than the same period in 2017 with most of the decrease being attributable to the closure of the Group’s mercury cellrooms at Martorell, Spain in December 2017 and Stenungsund, Sweden in May 2018. Moreover, production volumes in the second quarter of 2018 were negatively impacted by planned turnaround events at VCM assets in Martorell, Spain and Rheinberg, Germany and cellrooms at the Rafnes, Norway and Jemeppe, Belgium sites. Sales volumes of Specialty PVC were lower than the previous quarter due to restricted VCM supplies, but were slightly higher than the same period last year.

Overall demand in the European SPVC market remains subdued and demand for domestic producers in EU28 countries was 3.2% lower for the first 6 months of the year compared to 2017. Total SPVC sales volumes were also lower than both the previous year and the previous quarter due to the aforementioned planned turnaround events. Average prices for General Purpose PVC were slightly lower than the same period last year and ethylene contract prices (as reported by IHS Markit) averaged €1,101 per tonne for the second quarter of 2018, compared to €1,038 per tonne over the same period last year. As a result, General Purpose SPVC margins over ethylene (using ratio of 50% ethylene per tonne of SPVC) decreased slightly in European markets, whilst margins on exports saw more significant reductions. Margins for Specialty PVC remain attractive, although slightly lower than the second quarter of 2017.

Implied European caustic soda demand (reported chlorine production, less reported caustic soda exports, plus the reported caustic soda stock change) was lower than the second quarter of 2017, suggesting that the European market is becoming more balanced. The Group’s total sales volumes were lower due to the cellroom closures at Martorell and Stenungsund. Caustic soda selling prices were higher, resulting in total caustic revenues being approximately 25% higher than the previous year despite the lower volumes. Average energy costs over the second quarter remained at relatively low levels, and consequently caustic soda margins over energy were significantly higher than the second quarter of last year and similar to the prior quarter.

Net cash flow from operating activities was an inflow of €144 million for the quarter (and €240 million for the year to date). EBITDA of €209 million was reduced by €43 million of corporate tax payments and €23 million of pension/other provision outflows. Net Working Capital cash flows were relatively flat in the quarter.

Interest totaling €7.4 million was paid on Term Loans A and B in the quarter, along with €8.9 million of quarterly amortisation. On June 15, 2018 the Group repaid early €87.6 million of outstanding Term Loan A borrowings using cash on balance sheet. The amount of cash and cash equivalents at June 30, 2018 was €154 million. Net debt was approximately €682 million at June 30, 2018, compared to €764 million at March 31, 2018 and net debt leverage was approximately 0.9 times.

On June 29, 2018, the Group renegotiated its Receivable Securitisation Facility with its existing lenders. The facility size reduced from €300 million to €240 million and now matures on June 30, 2021. The Group has also benefitted from reduced interest costs going forward. No amounts had been drawn down against this facility as at June 30, 2018. On July 6, 2018, Moody’s upgraded the Group from a rating of B1 to Ba3, with a stable outlook.

ENDS