Trading Statements

Q2, 2009 Trading Statement

INEOS Group generated second quarter earnings ahead of expectations, bringing it in line to meet its full year EBITDA target. HC EBITDA was reported down 25% on 2Q08 but up more than 100% on 1Q09 highlighting strong underlying growth.

  • Trading over the Quarter has continued to improve on a month-by-month basis
  • Cost reductions and cash conservation measures successfully implemented

Based on management information, INEOS Group Holdings PLC has reported that the Historical Cost EBITDA (“HCEBITDA”) for the second quarter of 2009 was €352m, compared to €475m for the same period in 2008. Refining inventory holding gains amounted to €113m versus €130m in the second quarter of 2008, reflecting the increase in crude oil prices over the period. The adjusted RC/HC EBITDA value, against which the Group reports to its investors for covenant compliance, was €239m for the quarter.

Trading over the Quarter has continued to improve on a month-by-month basis, rebounding from the low levels of order entry achieved at the start of the year. Market conditions in core markets have shown steady improvement, supported by firm levels of demand for petrochemicals from Asia. Overall capacity utilisation for the Group has thus increased by over 10%, from below 72% in the first quarter to 82% at the end of June.

The Refining business experienced a relatively weak demand over the quarter, leading to much weaker margins than experienced at the start of the year. Middle distillates, such as gasoil, diesel and jet fuel, were particularly adversely affected. Results were also impacted by the extended planned turnaround at the Grangemouth Refinery during April and May. Both Refineries were fully operational by June

O&P America benefited from its flexibility to be able to source cheaper gas feedstock, rather than higher priced liquid naphtha. This allowed the manufacturing units to operate at high levels of utilisation throughout the quarter, balancing sales into an improving domestic market with incremental exports to Asia. Business performance as a result was in line with the same period last year, even after including the effect of appreciation of the US dollar versus the Euro of approx 12%.

The O&P Europe business continues its improvement from the beginning of the year, business performance being similar to that for the second quarter of 2008. The new monthly contract price mechanism, introduced to the market by INEOS in 2009, has been of significant benefit, allowing price increases in naphtha to be passed through to the monomers more quickly and hence into the final polymer derivatives. A weak domestic market and low co-product values has led to tight margins, but the business has benefited, as have the other Divisions, from a clear focus on fixed cost reduction. Together with the closure of the lower quartile polypropylene assets in Sarralbe and Bamble, this focus has been beneficial to the results. As a Group, INEOS remains on track to deliver the budgeted €200m reduction in costs versus 2008.

Chemical Intermediates experienced an improving performance over the quarter, although down on the results delivered in 2008. This was due to lower margins and volumes, driven by weaker total global demand versus last year for Nitriles, Oxide, Phenol and Oligomers. ChlorVinyls benefited from improving margins following a fall in raw material and energy costs. All businesses benefited from achieving target fixed cost reductions.

In addition to cost reductions, other Group cash conservation measures have been successfully implemented over the quarter. Capital expenditure is now in line to meet the annual target of €250m, with weekly spend in June at less than 40% of the average rate for 2008. The working capital improvement programme has reduced physical inventories by 28% on average compared to the last quarter of 2008, with a plan in place to maintain these levels on an ongoing basis. Progress has also been made in removing cash consuming businesses from the Group, for implementation over the coming months. Net debt was approximately €7.5bn at the end of June 2009. Cash balances at the end of the quarter were €469m.