Q1, 2009 Trading Statement
INEOS Group Holdings PLC (‘IGH’ or ‘INEOS’) confirms an improving trend in its trading performance in the first quarter of 2009.
Based on management information INEOS expects that Replacement Cost EBITDA (‘RC EBITDA’ - EBITDA adjusted to exclude inventory holding gains and losses) for the first quarter was in the region of €170 million. Historical cost EBITDA was €200 million, after accounting for the impact of inventory holding gains in the first quarter of €30 million, reflecting the slight increase in oil prices towards the end of the period.
Trading at the start of Q1, 2009 was challenging with some continued customer de-stocking and many end consumers keeping their plants closed for a prolonged period after the seasonal break. Nevertheless, market conditions have shown some signs of slow but steady improvement during the quarter, partly led by increasing demand from Asia. RC EBITDA for March was in the region of €73 million.
INEOS has successfully implemented the short term action plan as set out in the lender presentations made in November 2008. Fixed costs in the Group are line with budget to achieve the planned fixed cost savings of €200 million in 2009. The planned closures of two polypropylene lines at Battleground, Texas and the per/trichlorethylene assets in Runcorn, England have been implemented and the cumene plant in Port Arthur, Texas has been mothballed. The relevant actions have also taken place to reduce capital expenditure levels to the target of €250 million in 2009 although expenditure is likely to be higher in the first quarter of 2009 compared to the remaining quarters, as the Group completes certain projects already started in 2008.
Refining results in the first quarter continued to benefit from a solid demand environment. Both of our refineries have continued to run at maximum rates for most of the quarter, led by firm middle distillate demand and some improvements in demand for gasoline. There was some weakening of margins in March on middle distillates (gasoil, diesel and jet fuel) which impacted results, but these have started to recover in April. The Grangemouth refinery currently has a turnaround which will impact volumes in April.
O&P Europe has continued to experience a relatively weak market in the first quarter with customer de-stocking impacting performance at the start of the period. The vertical integration of the Group has enabled us to run our crackers at rates above the industry level for most of the quarter. Polyolefins has seen some improvement in demand led by sales into packaging applications, whilst off-take into the automotive and durables sectors remains relatively weak. The setting of monthly contract prices for olefins has continued throughout the quarter and has enabled the business to more actively manage prices and margins as raw material prices continue to fluctuate.
The O&P North America segment experienced an improving performance over the quarter. Utilisation rates have continued to improve as domestic demand shows some signs of improvement. Export sales led by demand pull from Asia have also helped maintain wedge utilisations. The business has continued to optimise its advantaged gas feedstock position to maintain margins compared to naphtha based crackers.
Chemical Intermediates also experienced an improving performance over the quarter from the lows experienced in December and January. All of the main businesses in the segment (Phenol, Nitriles, Oligomers, Oxide and ChlorVinyls) experienced improving demand for their products, especially where sales into Asia could be made. Core demand into durables, automotive and construction applications still remains relatively weak, although sales into the consumables sector continues to be relatively firm.
INEOS experienced further operating cash inflows in the quarter as the Group has continued to focus on cash management and liquidity. The Group implemented its working capital improvement programme which has successfully reduced physical inventory levels by 20% on average compared to historical norms by the end of the quarter. Net debt was approximately €7.5 billion at the end of March 2009. Cash balances at the end of the quarter were €560 million. Repayments under the securitisation facility amounted to approximately €210 million in the quarter, and senior bank interest of €210 million was paid in March.
An investor conference call is scheduled for May 2009 which will cover these first quarter results, comments on the Group’s liquidity position, an update on the Group's bank consent process and other initiatives the Group has taken to deal with the current economic conditions.