Trading Statements

Q4, 2009 Trading Statement

INEOS Group Holdings PLC (‘IGH’ or ‘INEOS’) confirms a solid trading performance in the fourth quarter of 2009.

Based on management information INEOS reports that Historical Cost EBITDA (‘HC EBITDA’) for the fourth quarter of 2009 was €294 million, compared to €376 million for the previous quarter.  HC EBITDA for the full year 2009 was €1,222 million.  Refining inventory holding gains amounted to €27 million in the quarter, reflecting the increase in crude oil prices over the period.  Combined Replacement Cost EBITDA for Refining and Historical Cost EBITDA for Chemicals (‘RC/HC EBITDA’) was €267 million for the quarter, compared to €326 million for the previous quarter.  RC/HC EBITDA for the full year 2009 was €985 million.  The Group now uses RC/HC EBITDA to measure its compliance with the financial covenants under its senior banking facility.  The Group was in compliance with its financial covenants as at December 2009.

INEOS has successfully implemented the short term action plan as set out in the lender presentations made last year.  Fixed costs in 2009 for the Group were below plan and the Group has delivered more than the planned €200 million of cost savings in the year.  The Group intends to maintain the fixed cost base at this reduced level in 2010.  Capital expenditure for the Group was €265 million for the full year 2009, which was slightly above the target of €250 million.  

Overall the trend of recent months continues with Refining margins being squeezed, particularly in middle distillates. Chemicals margins and volumes continue to improve however.

Refining experienced a slight improvement in performance compared to the previous quarter.  Margins remained relatively weak over the quarter, although the cold weather in Europe brought a modest improvement in margins at the end of the period.  The assets operated well during the period, with only limited turnaround activity at the Lavera site.  Underlying refining margins continue to be driven by supply and demand fundamentals with continued oversupply and inventory build weighing heavily on middle distillate spreads, although this weakness is partly offset by stronger naphtha margins with improved demand from Asia.

O&P Europe continued the improvements seen in the third quarter in October and November with stable production and the maintenance of margins providing a good financial performance.  The business experienced some production issues in December, mainly due to an outage at Köln, which resulted in a shutdown of one of the crackers and an impact on production at a number of the downstream units.  The issue was resolved in January 2010.  The focus on fixed costs has continued in the quarter with savings ahead of target for the year.

O&P North America continued to benefit from its flexibility to be able to utilise cheaper gas feedstocks, however increased competitive use of light feedstocks across the industry and a general increase in feedstock costs across the quarter compressed margins.  The manufacturing units continued to operate at high levels of utilisation throughout the quarter, balancing sales into an improving domestic market with incremental exports to Asia.

Chemical Intermediates continued with the improved performance seen in the third quarter, but did experience a seasonal dip in December.  The gradual upward trend for Chemical Intermediates has continued with reasonable core demand supported by ongoing export opportunities.  Oxide have benefited from firm demand for MEG and ethylene oxide.  Phenol have experienced solid core demand with increased export opportunities in the period.  Nitriles have benefited from tightness in their market in Asia, where fibre demand is holding up well.  The order book for Oligomers has been relatively strong with good demand to the lubricant and oil field markets.  In contrast the market for PVC has been particularly weak as the construction sector drew business to a close at the end of the year.

The Group has continued to focus on cash management and liquidity.  The Group’s working capital improvement programme has successfully maintained physical inventory levels below their historical norms.  Physical inventory levels at the end of 2009 were 25% lower than at the end of 2008.  Net debt was approximately €7.1 billion at the end of December 2009.  Cash balances at the end of the quarter were €665 million, after a scheduled repayment of term loans of €131 million was made at the end of December 2009.

The Group has completed the disposal of the INEOS ChlorVinyls business to the Kerling Group, a related party.  The disposal has improved the Group’s available liquidity by approximately €100 million, including the cash received from the disposal and the cancellation of approximately €30 million letters of credit that were previously outstanding under the Revolving Credit Facility.  The transaction also included the transfer of the €160 million INEOS Vinyls Senior Notes to the Kerling Group.  These Senior Notes will be redeemed on March 1, 2010.

The Group has recently agreed terms to sell its fluorochemicals business (part of the INEOS Fluor business unit) to Mexichem SA de CV.  The disposal is expected to be completed at the end of March subject to the necessary regulatory filings and approvals, including consent by the senior lenders.  The Group will retain the Clean Development Mechanism (CDM) business of INEOS Fluor.