________________________________________________________________
INOVYN Limited
Three month period ended June 30, 2016
________________________________________________________________
INOVYN LIMITED
PRO FORMA INCOME STATEMENT (INCLUDING REMEDY ASSETS) (UNAUDITED)
Three-Month Period
Ended June 30,
2016 2015
(€ in millions)
Revenue .............................................................................................................................................................................. 712.6 1,048.2
Cost of sales before exceptional items ................................................................................................................................ (521.8) (811.7)
Exceptional cost of sales ..................................................................................................................................................... - -
Total cost of sales ............................................................................................................................................................... (521.8) (811.7)
Gross profit ........................................................................................................................................................................ 190.8 236.5
Distribution costs and administrative expenses ................................................................................................................... (105.8) (115.5)
Exceptional administrative expenses .................................................................................................................................. (1.1) 0.1
Total expenses..................................................................................................................................................................... (106.9) (115.4)
Operating profit ................................................................................................................................................................ 83.9 121.1
Share of profit of associated undertakings using the equity method ................................................................................... 0.1 1.8
Loss on disposal of businesses ............................................................................................................................................ - (9.8)
Profit before net finance costs .......................................................................................................................................... 84.0 113.1
Net finance costs ................................................................................................................................................................. (44.9) (26.8)
Profit before tax ................................................................................................................................................................ 39.1 86.3
Tax charge .......................................................................................................................................................................... (19.7) (11.9)
Profit for the period .......................................................................................................................................................... 19.4 74.4
EBITDA before exceptional items ................................................................................................................................... 118.9 167.5
Six-Month Period
Ended June 30,
2016 2015
(€ in millions)
Revenue .............................................................................................................................................................................. 1,464.7 2,004.9
Cost of sales before exceptional items ................................................................................................................................ (1,079.1) (1,612.1)
Exceptional cost of sales ..................................................................................................................................................... - -
Total cost of sales ............................................................................................................................................................... (1,079.1) (1,612.1)
Gross profit ........................................................................................................................................................................ 385.6 392.8
Distribution costs and administrative expenses ................................................................................................................... (218.3) (234.3)
Exceptional administrative expenses .................................................................................................................................. (1.1) 0.1
Total expenses..................................................................................................................................................................... (219.4) (234.2)
Operating profit ................................................................................................................................................................ 166.2 158.6
Share of profit/(loss) of associated undertakings using the equity method ......................................................................... 0.2 (1.2)
Loss on disposal of businesses ............................................................................................................................................ - (9.8)
Profit before net finance costs .......................................................................................................................................... 166.4 147.6
Net finance costs ................................................................................................................................................................. (87.5) (38.0)
Profit before tax ................................................................................................................................................................ 78.9 109.6
Tax charge .......................................................................................................................................................................... (47.0) (26.5)
Profit for the period .......................................................................................................................................................... 31.9 83.1
EBITDA before exceptional items ................................................................................................................................... 234.9 249.5
Because of difficulties removing the effects of the Remedy Assets from INOVYN’s and the Kerling
Business’s results of operations, our pro forma Revenue and EBITDA before exceptional items in the
three and six month periods ended June 30, 2015 includes the effects of the Remedy Assets on
INOVYN’s results of Operations.
INOVYN LIMITED
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Three-Month Period
Ended June 30,
2016 2015
(€ in millions)
Revenue .............................................................................................................................................................................. 712.6 -
Cost of sales before exceptional items ................................................................................................................................ (521.8) -
Exceptional cost of sales ..................................................................................................................................................... - -
Total cost of sales ............................................................................................................................................................... (521.8) -
Gross profit ........................................................................................................................................................................ 190.8 -
Distribution costs ................................................................................................................................................................ (72.8) -
Administrative expenses before exceptional items ............................................................................................................. (33.0) -
Exceptional administrative expenses .................................................................................................................................. (3.1) -
Total administrative expenses ............................................................................................................................................. (36.1) -
Total expenses..................................................................................................................................................................... (108.9) -
Operating profit ................................................................................................................................................................ 81.9 -
Share of profit of associated undertakings using the equity method ................................................................................... 0.1 -
Profit before net finance costs .......................................................................................................................................... 82.0 -
Finance income .................................................................................................................................................................. (9.9) -
Finance costs ....................................................................................................................................................................... (35.0) -
Net finance costs ................................................................................................................................................................. (44.9) -
Profit before tax ................................................................................................................................................................ 37.1 -
Tax charge .......................................................................................................................................................................... (19.7) -
Profit for the period .......................................................................................................................................................... 17.4 -
Profit/(loss) attributable to:
- Owners of the parent ................................................................................................................................................... 17.6 -
- Non-controlling interest .............................................................................................................................................. (0.2) -
17.4 -
INOVYN LIMITED
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Six-Month Period
Ended June 30,
2016 2015
(€ in millions)
Revenue .............................................................................................................................................................................. 1,464.7 -
Cost of sales before exceptional items ................................................................................................................................ (1,079.1) -
Exceptional cost of sales ..................................................................................................................................................... - -
Total cost of sales ............................................................................................................................................................... (1,079.1) -
Gross profit ........................................................................................................................................................................ 385.6 -
Distribution costs ................................................................................................................................................................ (155.6) -
Administrative expenses before exceptional items ............................................................................................................. (62.7) -
Exceptional administrative expenses .................................................................................................................................. (3.5) -
Total administrative expenses ............................................................................................................................................. (66.2) -
Total expenses..................................................................................................................................................................... (221.8) -
Operating profit ................................................................................................................................................................ 163.8 -
Share of profit of associated undertakings using the equity method ................................................................................... 0.2 -
Profit before net finance costs .......................................................................................................................................... 164.0 -
Finance income .................................................................................................................................................................. (7.4) -
Finance costs ....................................................................................................................................................................... (80.1) -
Net finance costs ................................................................................................................................................................. (87.5) -
Profit before tax ................................................................................................................................................................ 76.5 -
Tax charge .......................................................................................................................................................................... (47.0) -
Profit for the period .......................................................................................................................................................... 29.5 -
Profit/(loss) attributable to:
- Owners of the parent ................................................................................................................................................... 30.0 -
- Non-controlling interest .............................................................................................................................................. (0.5) -
29.5 -
INOVYN LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three-Month Period
Ended June 30,
2016 2015
(€ in millions)
Profit for the period ................................................................................ 17.4 -
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Cash flow hedges .................................................................................................................... - -
Foreign exchange translation differences of subsidiaries ......................... (0.4) -
(0.4) -
Total comprehensive income for the year ........................................................................... 17.0 -
Six-Month Period
Ended June 30,
2016 2015
(€ in millions)
Profit for the period ................................................................................ 29.5 -
Other comprehensive income:
Items that may be subsequently reclassified to profit or loss
Cash flow hedges .................................................................................................................... 0.1 -
Foreign exchange translation differences of subsidiaries ......................... 4.4 -
4.5 -
Total comprehensive income for the year ........................................................................... 34.0 -
INOVYN LIMITED
CONSOLIDATED BALANCE SHEET
June 30, 2016 December 31, 2015
(Unaudited) (Audited)
(€ in millions)
Non-current assets
Property, plant and equipment ............................................................................................ 1,068.7 1,078.5
Intangible assets.................................................................................................................. 3.9 5.1
Investments accounted for using equity method ................................................................. 1.0 1.0
Other investments ............................................................................................................... 0.3 0.3
Other receivables ................................................................................................................ 31.9 30.2
Deferred tax assets .............................................................................................................. 123.7 136.3
Employee benefits .............................................................................................................. 7.3 8.1
Total non-current assets ................................................................................................... 1,236.8 1,259.5
Current assets
Inventories .......................................................................................................................... 222.3 261.6
Trade and other receivables ................................................................................................ 583.9 573.6
Cash and cash equivalents .................................................................................................. 381.8 48.8
Total current assets .......................................................................................................... 1,188.0 884.0
Total assets ........................................................................................................................ 2,424.8 2,143.5
Equity attributable to owners of the parent
Share capital ....................................................................................................................... - -
Share premium reserve ....................................................................................................... 77.5 77.5
Merger reserve .................................................................................................................... (354.8) (354.8)
Retained earnings ............................................................................................................... (36.3) (65.8)
Other reserves ..................................................................................................................... 49.7 45.2
Total shareholders’ deficit ............................................................................................... (263.9) (297.9)
Attributable to owners of the parent ................................................................................... (263.6) (298.1)
Attributable to non-controlling interest .............................................................................. (0.3) 0.2
Total equity ....................................................................................................................... (263.9) (297.9)
Non-current liabilities
Interest-bearing loans and borrowings ................................................................................ 1,156.2 843.6
Trade and other payables .................................................................................................... 51.3 50.1
Employee benefits .............................................................................................................. 400.2 432.1
Provisions ........................................................................................................................... 55.0 66.4
Deferred tax liabilities ........................................................................................................ 71.5 71.8
Total non-current liabilities ............................................................................................. 1,734.2 1,464.0
Current liabilities
Interest-bearing loans and borrowings ................................................................................ 2.3 8.0
Trade and other payables .................................................................................................... 492.4 555.2
Tax liabilities for current tax .............................................................................................. 93.4 67.8
B ordinary shares ................................................................................................................ 335.0 311.4
Other financial liabilities .................................................................................................... 1.2 1.1
Provisions ........................................................................................................................... 30.2 33.9
Total current liabilities ..................................................................................................... 954.5 977.4
Total liabilities .................................................................................................................. 2,688.7 2,441.4
Total equity and liabilities ............................................................................................... 2,424.8 2,143.5
INOVYN LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Share capital
Share premium reserve
Merger reserve
Retained earnings
Other reserves
Total equity
(€ in millions)
Balance at January 1, 2016 (as
previously reported) .......................................................................................................................................................... - 77.5 (355.9) (65.8) 45.2 (299.0)
Prior year adjustment ......................................................................................................................................................... (Loss)/profit - - 1.1 - - 1.1
Balance at January 1, 2016
(restated) ............................................................................................................................................................................ - 77.5 (354.8) (65.8) 45.2 (297.9)
Profit for the period ............................................................................................................................................................ (Loss)/profit - - - 29.5 - 29.5
Other comprehensive income:
Cash flow hedges ................................................................................................................................................................ - - - - 0.1 0.1
Foreign exchange translation
differences of subsidiaries ...................................................................................................................................................
- - - - 4.4 4.4
Balance at June 30, 2016................................................................................................................................................... - 77.5 (354.8) (36.3) 49.7 (263.9)
INOVYN LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six-Month Period
Ended June 30,
2016 2015
(€ in millions)
Cash flows from operating activities
Profit for the period .................................................................................................................. 29.5 -
Adjustments for:
Depreciation and impairment ................................................................................................... 67.5 -
Amortization ............................................................................................................................. 0.1 -
Net finance costs....................................................................................................................... 87.5 -
Share of profit of equity-accounted investees ........................................................................... (0.2) -
Tax charge ................................................................................................................................ 47.0 -
Increase in trade and other receivables ..................................................................................... (30.0) -
Decrease in inventories ............................................................................................................. 33.4 -
Decrease in trade and other payables ........................................................................................ (27.8) -
Decrease in provisions and employee benefits ......................................................................... (28.3) -
Tax paid .................................................................................................................................... (24.0) -
Net cash from operating activities ......................................................................................... 154.7 -
Cash flows from investing activities
Proceeds from sale of property, plant and equipment............................................................... - -
Interest and other finance income received .............................................................................. - -
Acquisition of intangible assets ................................................................................................ - -
Acquisition of property, plant and equipment .......................................................................... (65.7) -
Net cash used in investing activities ..................................................................................... (65.7) -
Cash flows from financing activities
Redemption of Senior Secured Notes due 2017 ....................................................................... (785.0) -
Proceeds from Senior Secured Notes due 2021 ........................................................................ 300.0
Proceeds from new Senior Secured Term Loans due 2021 ...................................................... 775.0
Debt issue costs ........................................................................................................................ (15.9) -
Securitization facility ................................................................................................................ 42.0 -
Other loans ............................................................................................................................... 0.7 -
Interest paid .............................................................................................................................. (70.4) -
Capital element of finance lease payments ............................................................................... (2.0) -
Net cash used in financing activities ..................................................................................... 244.4 -
Net increase in cash and cash equivalents ................................................................................ 333.4 -
Cash and cash equivalents at January 1 .................................................................................... 48.8 -
Effect of exchange rate fluctuations on cash held .................................................................... (0.4) -
Cash and cash equivalents at June 30 ................................................................................... 381.8 -
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
1. BASIS OF PREPARATION
INOVYN Limited was incorporated on September 18, 2013 and was a dormant company until July 1,
2015 when INEOS Group Investments Limited (“INEOS”) and Solvay Chlorovinyls Holdings S.a.r.l.
(“Solvay”) combined their European chlor-vinyls activities in a joint venture headed by INOVYN
Limited. The condensed financial information presents the financial records of INOVYN Limited and
its subsidiaries, which together form the “Group”. The activity of the Group resulted from the
acquisition of the “Kerling Business” from INEOS, and the “Solvay Business” from Solvay, effective as
of July 1, 2015.
The formation of a joint venture is not included within the scope of IFRS 3, "Business combinations"
and IFRS 2, "Share based payments", and therefore an accounting policy choice has been made to adopt
predecessor accounting. A further choice has been made to include the results and balance sheet
prospectively from the date on which the INOVYN joint venture formed on July 1, 2015. The
condensed financial information includes no comparatives for the Kerling Business or Solvay Business
for the period from January 1, 2015 to June 30, 2015. The financial result for INOVYN for the six
month period to December 31, 2015 is the same as the year to date result.
The Kerling Business relates to the chlor-alkali, PVC, hypochlorite, hydrochloric acid, chlorinated
paraffins, chloromethane and brine and water businesses of Kerling Limited (“Kerling”).
The Kerling Business acquired also included the Olefins and Enterprises businesses; but these
businesses were subsequently divested on July 1, and July 2, 2015, respectively. These acquisitions and
subsequent disposals have been deemed to be linked transactions and, accordingly, the substance of the
arrangement has been reflected as being an acquisition of the retained businesses only. Additionally, the
income statement includes no results from the Olefins and Enterprises businesses, nor does it include
any gain on disposal.
The Kerling Business includes the “Remedy Assets” up until the date of divestment on August 1, 2015.
The Solvay Business relates to the chloromethane and European epichlorohydrin businesses, the salt
business in Belgium, France and Spain, the European chlor-alkali and PVC assets and the 42.5% interest
in the Feyzin cracker but excludes Solvay’s Povoa, Torrelavega and Bussi sites and SolVin S.A.’s 50%
interest in RusVinyl, its compounds business and its vinyls and chlorine technology which were not
contributed into INOVYN.
The condensed financial information of INOVYN Limited consolidates the financial information of the
Company and its subsidiaries, equity accounts the Group’s interest in associated undertakings and
recognizes its joint arrangements as joint operations. Intra-group transactions and balances have been
eliminated on consolidation. The financial and operating results for any period less than a year are not
necessarily indicative of the results that may be expected for a full year.
This condensed interim financial information does not comprise statutory accounts within the meaning
of Section 434 of the Companies Act 2006. The accompanying condensed interim financial information
is unaudited.
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
1. BASIS OF PREPARATION (continued)
There was no trading within INOVYN prior to July 1, 2015, and therefore a pro forma combined
income statement has been prepared for the six and three month periods ending June 30, 2015 by
combining unaudited income statements for the Kerling Business and the Solvay Business for the six
and three month periods ended June 30, 2015. No adjustment has been made to remove the Remedy
Assets from the Kerling Business results.
The following adjustments have been made in deriving the pro forma income statement for the six and
three month periods ended June 30, 2015.
Elimination of intra-INOVYN transactions between the Solvay Business and the Kerling Business.
The accounting policies adopted by the Kerling Business and the Solvay Business differ in relation
to Government grants and the treatment of European Union allowances (“EUAs”). Adjustments
have been made to make the Kerling Business and Solvay Business policies consistent with the
accounting policies of INOVYN Limited.
Joint venture adjustments:
o removal of management fees which have been included in the Solvay Business unaudited
financial information and replaced with the anticipated costs under the Transitional Services
Agreements and removal of management fees which have been included in the Kerling
Business unaudited financial information;
o removal of costs for professional fees incurred as part of the formation of INOVYN and the
divestment of the Remedy Assets, as they are non-recurring in nature; and
o recognition of tax on the above adjustments, calculated at the statutory rate of tax in each
jurisdiction.
The pro forma combined income statement for the six and three month periods ended June 30, 2016 is
the same as the consolidated income statement of INOVYN Limited for the six and three month periods
ended June 30, 2016, except for the removal of exceptional costs for professional fees relating to the
formation of INOVYN.
The unaudited pro forma financial information does not include adjustments for any revenue or cost
savings synergies that may be achievable subsequent to the formation of the joint venture.
The unaudited pro forma financial information is for illustrative purposes only and is not intended to
represent or to be indicative of the consolidated results of operations or financial position that INOVYN
would have reported had the combination transaction been completed as of the dates set forth in this pro
forma financial information and should not be taken as indicative of our future consolidated results of
operations or financial position.
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
2. PRINCIPAL ACCOUNTING POLICIES
The financial information has been prepared and approved by the directors in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by the European Union in response to
the IAS regulation (EC 1606/2002) effective as of December 31, 2015. In compliance with IAS 34 -
Interim Financial Reporting, the Company has opted for a condensed scope of reporting in the interim
financial statements compared with the consolidated annual financial statements. The accounting
policies are set out in the Group’s financial statements for the year ended December 31, 2015.
3. SEGMENTAL INFORMATION
Revenue and EBITDA before exceptional items are key measures used by the chief-operating decision
makers of the Group to assess the performance of the Business segments.
We divide our operations into four businesses:
- General Purpose Vinyls, consisting of a portfolio of Suspension PVC products and PVC
Resins, and output that we both consume and sell from our interest in the Feyzin cracker.
- Speciality Vinyls, consisting of Emulsion PVC and specialty grade Suspension PVC products
- Organic Chlorine Derivatives, consisting of various chlorine derivatives including chlorinated
paraffins, chloromethanes, allyl chloride and epichlorohydin.
- Chlor-Alkali, consisting of caustic soda and caustic potash, chlorine and chlorine by-products,
brine and water and hydrochloric acid
However, our financial reporting is limited to three Business segments; General Purpose Vinyls,
Speciality Vinyls, and Other Chemicals. The Other Chemicals segment includes the Organic Chlorine
Derivatives business, plus all products in the Chlor-Alkali business excluding caustic soda and caustic
potash. Revenues from caustic soda and caustic potash are then attributed to the three Business
Segments based on the quantities of chlorine contained in the respective products.
For segmental reporting of EBITDA, the results of our caustic soda and caustic potash products (which
are co-produced with chlorine in the electrolysis manufacturing process) included within the Chlor-
Alkali operating Business are allocated out to the three segments based on the quantities of chlorine
contained in each of their products.
For segmental reporting of revenue, caustic soda and caustic potash revenues are shown both before and
after allocation to three Business segments.
The revenue attributable to each business segment as measured under IFRS is as follows:
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
3. SEGMENTAL INFORMATION (continued)
The EBITDA before exceptional items attributable to each business segment as measured under IFRS is
as follows:
Three-Month Period
Ended June 30,
2016 2015
Revenue
before caustic
soda/potash
allocation
Caustic soda/potash
revenue
allocation
Revenue after caustic
soda/potash
allocation
Revenue
before caustic
soda/potash
allocation
Caustic soda/potash
revenue
allocation
Revenue after caustic
soda/potash
allocation
(€ in millions)
Revenue
General Purpose Vinyls ......................................................................................................................... 320.9 87.1 408.0 - - -
Speciality Vinyls ................................................................................................................................... 90.6 19.7 110.3 - - -
Other Chemicals .................................................................................................................................... 118.5 75.8 194.3 - - -
530.0 182.6 712.6 - - -
Caustic soda and caustic
potash .................................................................................................................................................... 182.6 (182.6) - - - -
712.6 - 712.6 - - -
Six-Month Period
Ended June 30,
2016 2015
Revenue
before caustic
soda/potash
allocation
Caustic soda/potash
revenue
allocation
Revenue after caustic
soda/potash
allocation
Revenue
before caustic
soda/potash
allocation
Caustic soda/potash
revenue
allocation
Revenue after caustic
soda/potash
allocation
(€ in millions)
Revenue
General Purpose Vinyls ......................................................................................................................... 680.6 177.8 858.4 - - -
Speciality Vinyls ................................................................................................................................... 177.3 37.5 214.8 - - -
Other Chemicals .................................................................................................................................... 242.7 148.8 391.5 - - -
1,100.6 364.1 1,464.7 - - -
Caustic soda and caustic
potash .................................................................................................................................................... 364.1 (364.1) - - - -
1,464.7 - 1,464.7 - - -
Three-Month Period
Ended June 30,
Six-Month Period
Ended June 30,
2016 2015 2016 2015
(€ in millions) (€ in millions)
EBITDA before exceptionals
General Purpose Vinyls ......................................................................................................................... 60.7 - 118.5 -
Speciality Vinyls ................................................................................................................................... 27.7 - 53.2 -
Other Chemicals .................................................................................................................................... 30.5 - 63.2 -
118.9 - 234.9 -
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
3. SEGMENTAL INFORMATION (continued)
Reconciliation of earnings before operating exceptional items, interest, taxation, depreciation and
amortisation (‘EBITDA before exceptional items’) to operating profit is shown below:
4. EXCEPTIONAL ITEMS
Three-Month Period
Ended June 30,
Six-Month Period
Ended June 30,
2016 2015 2016 2015
(€ in millions) (€ in millions)
EBITDA before exceptionals ................................................................................................................ 118.9 - 234.9 -
Depreciation and amortization .............................................................................................................. (33.9) - (67.6) -
Exceptional administrative expenses ..................................................................................................... (3.1) - (3.5) -
Operating profit ................................................................................................................................... 81.9 - 163.8 -
Three-Month Period
Ended June 30,
Six-Month Period
Ended June 30,
2016 2015 2016 2015
(€ in millions) (€ in millions)
Consultancy fees associated with synergy and cost
reduction projects .................................................................................................................................. 0.8 - 0.8 -
Professional fees associated with the formation of
INOVYN and divestment of the Remedy Assets .................................................................................. 2.0 - 2.4 -
Other ...................................................................................................................................................... 0.3 - 0.3 -
3.1 - 3.5 -
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
5. NET FINANCE COSTS
Three-Month Period
Ended June 30,
Six-Month Period
Ended June 30,
2016 2015 2016 2015
(€ in millions) (€ in millions)
Finance income
Interest receivable from associated
undertakings ..........................................................................................................................................
0.9 - 1.8 -
Net fair value gain on derivatives .......................................................................................................... 0.4 0.4
Unwind of discount on long term
debtors ................................................................................................................................................... (11.2) - (9.6) -
(9.9) - (7.4) -
Finance costs
Interest payable on Senior Secured
Notes ..................................................................................................................................................... 15.3 - 36.1 -
Interest payable on Senior Secured
Term loans ............................................................................................................................................. 6.0 - 6.0 -
Interest payable on securitization
facility ................................................................................................................................................... 0.7 - 1.7 -
Interest payable to related parties .......................................................................................................... 0.5 - 1.0 -
Amortization of issue costs ................................................................................................................... 4.6 - 6.0 -
Interest payable on finance leases ......................................................................................................... 0.3 - 0.5 -
Unwind of discount on provisions ......................................................................................................... 0.1 - 0.1 -
Unwind of discount on B ordinary
shares ..................................................................................................................................................... 2.1 - 8.4 -
Net fair value loss on derivatives .......................................................................................................... (1.1) - - -
Other finance charges ............................................................................................................................ (0.5) - (0.5) -
Interest on Employee benefits ............................................................................................................... 2.8 - 6.0 -
Borrowing costs capitalized in
property, plant and equipment ............................................................................................................... - - - -
Total finance costs before
exchange movements ........................................................................................................................... 30.8 - 65.3 -
Exchange movements ............................................................................................................................ 4.2 - 14.8 -
Total finance costs ............................................................................................................................... 35.0 - 80.1 -
Net finance costs .................................................................................................................................. 44.9 - 87.5 -
6. TAXATION
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the
expected total annual profit or loss.
7. INVENTORIES
June 30,
2016
December 31,
2015
(€ in millions)
Raw materials and consumables ............................................................................................................ 94.0 101.2
Work in progress ................................................................................................................................... 30.9 32.3
Finished products .................................................................................................................................. 97.4 128.1
222.3 261.6
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
8. INTEREST BEARING LOANS AND BORROWINGS
Borrowing obligations as of December 31, 2015 and June 30, 2016 are as follows:
June 30, 2016
December 31, 2015
(€ in millions) Non-current liabilities
10.625% Senior Secured Notes due 2017 .......................................................................................... - 785.0
6.250% Senior Secured Notes due 2021 ............................................................................................ 300.0 -
Senior Secured Term Loan A due 2021 ............................................................................................. 240.0 -
Senior Secured Term Loan B due 2021.............................................................................................. 535.0 -
Securitization facility ......................................................................................................................... 96.9 54.9
Other loans ......................................................................................................................................... 3.6 3.7
Finance lease liabilities ...................................................................................................................... 7.1 7.6
Gross borrowings ............................................................................................................................. 1,182.6 851.2
Less: unamortized finance costs ......................................................................................................... (26.4) (7.6)
Net borrowings ................................................................................................................................. 1,156.2 843.6
June 30, 2016
December 31, 2015
Current liabilities (€ in millions)
Current portion of finance lease liabilities ......................................................................................... 2.2 3.8
Other loans ......................................................................................................................................... 0.1 4.2
Gross borrowings ............................................................................................................................. 2.3 8.0
Less: unamortized finance costs ......................................................................................................... - -
Net borrowings ................................................................................................................................. 2.3 8.0
June 30, 2016
Gross loans and
borrowings Issue costs Net loans and borrowings
(€ in millions)
10.625% Senior Secured Notes due 2017 .......................................................................................... - - -
6.250% Senior Secured Notes due 2021 ............................................................................................ 300.0 (3.9) 296.1
Senior Secured Term Loan A due 2021 ............................................................................................. 240.0 (6.7) 233.3
Senior Secured Term Loan B due 2021.............................................................................................. 535.0 (13.6) 521.4
Securitization facility ......................................................................................................................... 96.9 (2.2) 94.7
Finance lease liabilities ...................................................................................................................... 9.3 - 9.3
Other loans ..................................................................................................... 3.7 - 3.7
1,184.9 (26.4) 1.158.5
December 31, 2015
Gross loans and
borrowings Issue costs Net loans and borrowings
(€ in millions)
10.625% Senior Secured Notes due 2017 .......................................................................................... 785.0 (4.8) 780.2
Securitization facility ......................................................................................................................... 54.9 (2.8) 52.1
Finance lease liabilities ...................................................................................................................... 11.4 - 11.4
Other loans ..................................................................................................... 7.9 - 7.9
859.2 (7.6) 851.6
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
8. INTEREST BEARING LOANS AND BORROWINGS (continued)
Terms and debt repayment schedule
Currency Nominal interest rate Year of maturity
10.625% Senior Secured Notes .......................................................................................................... € 10.625% 2017
6.250% Senior Secured Notes due 2021 ............................................................................................ € 6.250% 2021
Senior Secured Term Loan A due 2021 ............................................................................................. € EURIBOR (floor 0%) + 4.50% 2021
Senior Secured Term Loan B due 2021.............................................................................................. € EURIBOR (floor 1.0%) + 5.25% 2021
Securitization facility ......................................................................................................................... $/£/€ Variable 2018
Finance lease liabilities ...................................................................................................................... €/£ 8.67% - 15.00% 2015-2047
Refinancing
On May 13, 2016 a refinancing of the Group was completed with sufficient funds being raised to pay
and discharge the redemption price and accrued interest on its outstanding 10.625% Senior Secured
Notes due 2017. These Senior Secured Notes due 2017 were subsequently redeemed on May 25, 2016
following the applicable notice period. The funds raised were in the form of a €240.0 million Senior
Secured Term loan A, due 2021 (see below for further details), a €535.0 million Senior Secured Term
Loan B, due 2021 (see below for further details), and 6.250% Senior Secured Notes due, 2021 in an
aggregate principal amount of €300.0 million (see below for further details). The net proceeds of the
Senior Secured Notes due 2021 and a portion of the proceeds of the Senior Secured Term Loan B were
used by INOVYN Limited on July 7, 2016 to redeem the entire issued B Ordinary shares held by Solvay
Chlorovinyls Holding S.a.r.l at a redemption price of €335.0 million (see Post balance sheet events note
10).
10.625% Senior Secured Notes On January 28, 2010, INOVYN Finance plc (formerly Kerling Limited, formerly Kerling plc) issued
Senior Secured Notes due 2017 in an aggregate principal amount of €785.0 million, bearing interest at
10.625% per annum.
On May 25, 2016, the 10.625% Senior Secured Notes were redeemed at the aggregate nominal principal
amount of €785.0 million together with accrued interest to redemption.
6.250% Senior Secured Notes On May 13, 2016 (the “Issue Date”), INOVYN Finance plc (the “Issuer”) issued Senior Secured Notes
due 2021 (the “Notes”) in an aggregate principal amount of €300.0 million. The Notes are listed on the
Luxembourg Stock Exchange and bear interest at 6.250% per annum, payable semi-annually in arrears
on May 15 and November 15 of each year, beginning November 15, 2016. Unless previously redeemed
as noted below, the Notes will be repaid by the Group at their principal amount on May 15, 2021.
The Notes will be subject to redemption at any time prior to November 15, 2017, at the option of the
Issuer, in whole or in part, on not less than 10 nor more than 60 days’ prior notice at a redemption price
equal to 100% of the principal amount of the Notes being redeemed, plus a make-whole premium and
accrued and unpaid interest and additional amounts (if any) to, but not including, the redemption date.
The Notes will be subject to redemption at any time on or after November 15, 2017, at the option of the
Issuer, in whole or in part, on not less than 10 nor more than 60 days’ prior notice at the following
redemption prices (expressed as percentages of the aggregate principal amount), if redeemed during the
periods indicated below:
Redemption
price
Six month period beginning on:
November 15, 2017 ................................................................................................................................ 103.125%
Twelve month period beginning on:
May 15, 2018.......................................................................................................................................... 101.563%
May 15, 2019 and thereafter ................................................................................................................... 100.000%
In each case, the redemption premium will be in addition to accrued and unpaid interest and additional
amounts, if any, to, but not including, the redemption date.
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
8. INTEREST BEARING LOANS AND BORROWINGS (continued)
6.250% Senior Secured Notes (continued)
At any time prior to November 15, 2017, the Issuer may, at its option, on not less than 10 nor more than
60 days’ prior notice, redeem during each 12-month period beginning with the Issue Date up to 10% of
the original aggregate principal amount of the Notes, at a redemption price equal to 103% of the
principal amount of the Notes redeemed, plus accrued and unpaid interest and additional amounts (if
any) to, but not including, the redemption date.
In addition, at any time on or prior to November 15, 2017, the Issuer or certain holding companies may
use the net cash proceeds of one or more public equity offerings to redeem up to 40% of the initial
aggregate principal amount of the Notes at a redemption price equal to 106.250% plus accrued and
unpaid interest and additional amounts, if any, to, but not including, the redemption date.
The Notes rank pari passu in right of payment with the Senior Secured Term Loans. The Notes are
guaranteed by INOVYN Limited and certain of its subsidiaries on a senior secured basis. The Notes and
the guarantees are secured by first ranking liens on the same assets (subject to certain exceptions) that
secure obligations under the Senior Secured Term Loans.
The Notes contain a number of operating and financial covenants including limitations on indebtedness,
restricted payments, transactions with affiliates, liens, sale of assets and dividend payments.
Senior Secured Term Loans
On May 13, 2016, INOVYN Finance plc entered into a Credit Agreement (the “Credit Agreement”)
with, inter alia, J.P.Morgan Europe Limited as Administrative Agent, The Bank of New York Mellon,
London Branch as Security Agent and J.P.Morgan Limited as Global Coordinator.
Under the terms of the Credit Agreement INOVYN Finance plc has fully drawn down on May 13, 2016
the Initial Tranche A Term Commitment of €240.0 million and the Initial Tranche B Euro Term
Commitment of €535.0 million in the form of Senior Secured Term Loans (the “Senior Secured Term
Loans ”) as described below.
The Senior Secured Term Loans rank pari passu with the 6.250% Senior Secured Notes. The obligations
under the Senior Secured Term Loans are guaranteed by INOVYN Limited and certain of its
subsidiaries on a senior secured basis. The obligations under the Senior Secured Term Loans are secured
by first ranking liens on the same assets (subject to certain exceptions) that secure obligations under the
6.250% Senior Secured Notes.
The Credit Agreement contains a number of operating and financial covenants including limitations on
indebtedness, restricted payments, transactions with affiliates, liens, sale of assets and dividend
payments.
The Credit Agreement includes a leverage financial covenant requiring that the ratio of consolidated net
debt to EBITDA over a 12 month period not exceed 4:00 to 1:00 at the end of any fiscal quarter.
Term Loan A
The Initial Term Loan A of €240.0 million bears interest at a rate of EURIBOR (with a floor of 0%)
plus a margin of 4.50%, payable in arrears on August 13, November 13, February 13 and May 13 of
each year.
The Initial Term Loan A is repayable in twenty equal quarterly instalments of €12.0 million
commencing on September 30, 2016 and finishing on May 15, 2021.
Term Loan B
The Initial Term Loan B of €535.0 million bears interest at a rate of EURIBOR (with a floor of 1.0%)
plus a margin of 5.25%, payable in arrears on August 13, November 13, February 13 and May 13 of
each year.
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
8. INTEREST BEARING LOANS AND BORROWINGS (continued)
Senior Secured Term Loans (continued)
The Initial Term Loan B is repayable in nineteen equal quarterly instalments of €1,337,500 commencing
on September 30, 2016 and finishing on March 31, 2021 plus a final instalment of €509,587,500 on May
15, 2021.
Prepayments
INOVYN Finance plc may make voluntary prepayments of all or part of the Terms Loans A and/or of
the Term Loans B subject to certain conditions.
INOVYN Finance plc may be required to make mandatory prepayments of part of the Senior Secured
Term Loans in any one year in an amount of up to 50% of Excess Cash Flow for the previous fiscal year
ending on December 31.
Securitization facility
INOVYN Group Treasury Limited and certain of the other Group companies have entered into a trade
receivables securitization program (the “Securitization Program”) which matures on July 1, 2018.
Barclays Bank PLC, ING Belgium N.V. and HSBC Bank PLC act as lenders, liquidity providers and
program agents.
The maximum amount available under the Securitization Program is €300.0 million, subject to a
borrowing limit that is adjusted periodically based on the amount of our eligible trade receivables at that
time.
The facility bears interest at a rate equal to the cost to the lenders of issuing Commercial Paper plus a
margin of 1.45% except that if any lending is funded other than by issuing Commercial Paper then the
applicable interest rate is EURIBOR / LIBOR plus 1.45%.
The facility is secured on certain of the Group’s trade receivables.
Letter of Credit Facilities
In October and November 2015, INOVYN Group Treasury Limited entered into on-demand letter of
credit facilities with each of ING Bank N.V. and Barclays Bank PLC (each, an “Issuing Bank”), under
which INOVYN Group Treasury Limited may request (on its own behalf or on behalf of other INOVYN
subsidiaries) that the Issuing Banks issue letters of credit, guarantees, performance bonds and
indemnities (or any other instrument in a form agreed by the Issuing Bank) with an aggregate base
currency amount of up to €40.0 million; €30.0 million of which is available under the ING Bank N.V.
facility and €10.0 million of which is available under the Barclays Bank PLC facility. As of June 30,
2016, we had €1.1 million in letters of credit outstanding (December 31, 2015: €1.4 million). Under the
terms of each Letter of Credit Facility, INOVYN Group Treasury Limited will provide cash collateral of
the value of outstanding letters of credit, bonds, guarantees and indemnities when provided.
9. CONTINGENCIES
The Group is subject to various proceedings instituted by governmental authorities arising under the
provisions of applicable laws or regulations relating to the discharge of materials into the environment
or otherwise relating to the protection of the environment. In management’s opinion, none of the
proceedings is material to the financial condition or results of operation of the Group.
10. POST BALANCE SHEET EVENTS
On July 7, 2016 INOVYN Limited redeemed the entire issued B Ordinary shares held by Solvay
Chlorovinyls Holding S.a.r.l for a total price of €335.0 million. After the redemption, INEOS Group
Investments Limited became the 100% shareholder of INOVYN Limited, and the ultimate parent
company became INEOS AG, a company registered in Switzerland and the ultimate controlling party
was Mr J A Ratcliffe by virtue of his shareholding in INEOS AG.
INOVYN LIMITED
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION (UNAUDITED)
FORWARD-LOOKING STATEMENTS
The Company includes “forward-looking statements,” within the meaning of the US securities laws,
based on our current expectations and projections about future events, including:
Our high degree of leverage and significant debt service obligations as well as future cash flow and
earnings;
Our sales growth across our principal businesses and our strategy for controlling costs, growing
margins, increasing manufacturing capacity and production levels and making capital expenditures;
Raw material costs or supply arrangements;
Our technological and manufacturing assets and our ability to utilise them to further increase sales
and the profitability of our businesses;
Our ability to retain existing customers and obtain new customers;
Our ability to develop new products and technologies successfully;
The cyclical and highly competitive nature of our businesses;
Risks related to environmental costs, liabilities or claims; and
Currency fluctuations.
All statements other than statements of historical facts included in this report including, without
limitation, statements regarding our future financial position, risks and uncertainties related to our
business and the notes, strategy, capital expenditures, projected costs and our plans and objectives for
future operations, may be deemed to be forward-looking statements. These forward-looking statements
are subject to a number of risks and uncertainties. Words such as “believe,” “expect,” “anticipate,”
“may,” “intend,” “will,” “should,” “estimate” and similar expressions or the negatives of these
expressions are intended to identify forward-looking statements. In addition, from time to time we or
our representatives, acting in respect of information provided by us, have made or may make forward-
looking statements orally or in writing and these forward-looking statements may be included in but are
not limited to press releases (including on our website), reports to our security holders and other
communications. Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will prove to be correct. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion is based upon the unaudited combined pro forma income statements of INOVYN
Limited prepared in accordance with IFRS. The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results could differ materially from those
discussed in these forward-looking statements.
Overview
We are the largest producer of general purpose polyvinyl chloride (“PVC”), caustic soda, chlorinated
paraffins and epichlorohydrin (“ECH”) in Europe and the second largest producer of Emulsion PVC
and caustic potash in Europe, each as measured by production capacity, according to a third party
source and our internal estimates.
We operate four main business units: General Purposes Vinyls Business, offering a portfolio of vinyls
products to a number of industries, including the building and construction, electronics and packaging
industries; Specialty Vinyls Business, developing a number of Emulsion PVC products and specialty
Suspension PVC products; Organic Chlorine Derivatives Business, producing various chlorine
derivatives for use throughout the chemical industry, including chlorinated paraffins, chlorinated
solvents, allylics and epichlorohydrin; and Chlor-Alkali Business, producing chlor-alkali chemicals
including caustic soda, caustic potash, chlorine and chlorine by-products, brine and water, and
hydrochloric acid. Our businesses currently operate in 17 manufacturing sites in eight countries.
Results of Operations
The following table sets forth, for the periods indicated, our revenue and expenses and such amounts as
a percentage of revenue on a pro forma combined basis, as described in the Basis of Preparation.
Because of difficulties removing the effects of the Remedy Assets on the results of operations of
INOVYN, the pro forma income statement below includes the results of the Remedy Assets for the
three months ended June 30, 2015.
Three-Month Period
Ended June 30,
2016 2015
€m % €m %
Revenue .............................................................................................................................................................................. 712.6 100.0 1,048.2 100.0
Cost of sales before exceptional items ................................................................................................................................ (521.8) (73.2) (811.7) (77.4)
Exceptional cost of sales ..................................................................................................................................................... - - - -
Total cost of sales ............................................................................................................................................................... (521.8) (73.2) (811.7) (77.4)
Gross profit ........................................................................................................................................................................ 190.8 26.8 236.5 22.6
Distribution costs and administrative expenses ................................................................................................................... (105.8) (14.8) (115.5) (11.0)
Exceptional administrative expenses .................................................................................................................................. (1.1) (0.2) 0.1 -
Total expenses..................................................................................................................................................................... (106.9) (15.0) (115.4) (11.0)
Operating profit ................................................................................................................................................................ 83.9 11.8 121.1 11.6
Share of profit of associated undertakings using the
equity method ..................................................................................................................................................................... 0.1 - 1.8 0.2
Loss on disposal of businesses ............................................................................................................................................ - - (9.8) (0.9)
Profit before net finance costs .......................................................................................................................................... 84.0 11.8 113.1 10.9
Net finance costs ................................................................................................................................................................. (44.9) (6.3) (26.8) (2.6)
Profit before tax ................................................................................................................................................................ 39.1 5.5 86.3 8.3
Tax charge .......................................................................................................................................................................... (19.7) (2.8) (11.9) (1.1)
Profit for the period .......................................................................................................................................................... 19.4 2.7 74.4 7.2
EBITDA before exceptional items ................................................................................................................................... 118.9 16.7 167.5 16.0
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
An estimate of revenue and EBITDA of the Remedy Assets business, based on internal accounting
records is shown below:
Revenue EBITDA
Three-Month Period Ended June 30,
Three-Month Period Ended June 30,
2016 2015 2016 2015
(€ in millions)
INOVYN group .................................................................................................................................................................. 712.6 824.2 118.9 134.9
Remedy Assets .................................................................................................................................................................... - 224.0 - 32.6
Total in the period ............................................................................................................................................................. 712.6 1,048.2 118.9 167.5
Three-Month Period Ended June 30, 2016, Compared to Three-Month Period Ended June 30, 2015
Revenue. Revenue fell by €335.6 million, approximately 32.0%, to €712.6 million in the three months
ended June 30, 2016 as compared to €1,048.2 million for the same period in 2015 on a pro forma basis.
Revenues from the Remedy Assets of €224.0 million (based on internal accounting records) are
included in the results for the three month period to June 30, 2015 resulting in post Remedy Assets
revenue of €824.2 million. Underlying revenues therefore saw a reduction of €111.6 million or 13.5%.
The reduction in revenue was largely volume driven, with most products including S-PVC and caustic
soda experiencing a reduction in volumes. The volume reduction was a result of turnaround events,
and the effects of industrial action in France which limited the availability of ethylene forcing the
Tavaux site to run at minimum rates for much of May and June 2016. In addition, volumes in the
second quarter of 2016 were lower in comparison to the comparative period due to the closure of the
mercury cell room and the chloromethanes plant at Runcorn in late 2015. Average sales prices for S-
PVC were lower in the second quarter of 2016 than in the second quarter of 2015, whilst the achieved
selling prices of caustic soda were slightly higher in the current period.
Cost of sales. Cost of sales decreased by €289.9 million, approximately 35.7%, to €521.8 million in the
three months ended June 30, 2016 as compared to €811.7 million for the same period in 2015 on a pro
forma basis. In the quarter ended June 30, 2015, cost of sales includes three months from the Remedy
Assets business. In addition, the ethylene contract price averaged €905 per tonne for the second quarter
of 2016 compared to €1,038 per tonne for the second quarter of 2015 (as reported by IHS). Energy
costs were also lower with the average power price on EEX decreasing from €28/MWh in the first
quarter of 2015 to €25/MWh in the equivalent period in 2016. The synergy project has also delivered
benefits in 2016.
Exceptional cost of sales. Exceptional cost of sales was €nil in the three months ended June 30, 2016,
as compared to €nil million for the same period in 2015 on a pro forma basis.
Gross profit. Gross profit decreased by €45.7 million, approximately 19.3%, to €190.8 million in the
three months ended June 30, 2016 as compared to €236.5 million for the same period in 2015 on a pro
forma basis. In the quarter ended June 30, 2015, gross profit includes three months from the Remedy
Assets business. Average PVC over ethylene unitary margins in the second quarter of 2016 were at
similar levels to the first quarter of 2015, but volumes were lower. Average caustic soda over energy
unitary margins also improved but volumes were again lower.
Distribution costs and administrative expenses. Distribution costs and administrative expenses
decreased by €9.7 million, approximately 8.4%, to €105.8 million in the three months ended June 30,
2016 as compared to €115.5 million for the same period in 2015 on a pro forma basis. The three month
period ended June 30, 2015 included distribution and administrative expenses related to the Remedy
Assets.
Exceptional administrative expenses. Exceptional administrative expenses was a charge of €1.1
million in the three months ended June 30, 2016 as compared to a credit of €0.1 million for the same
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
period in 2015 on a pro forma basis. In the second quarter of 2016, consultancy fees relating to
synergy and cost reduction projects totalling €0.8 million were incurred.
Operating profit. Operating profit was €83.9 million for the three months ended June 30, 2016,
compared to an operating profit of €121.1 million for the same period in 2015 on a pro forma basis.
This is driven predominantly be the decrease in gross margin, partly offset by lower distribution and
administrative expenses.
Share of profit of associated undertakings using the equity method. Share of net results of associates
was a profit of €0.1 million in the three months ended June 30, 2016 as compared to a profit of €1.8
million for the same period in 2015 on a pro forma basis. The main decrease has been in the INEOS
Runcorn (TPS) Holdings Limited results.
Loss on disposal of businesses. Loss on disposal of businesses was €nil for the three months ended
June 30, 2016 as compared to €9.8 million for the same period in 2015. On June 1, 2015 the heritage
Kerling Business sold its 35.7% shareholding in Suzhou Huasu Plastics Co Ltd for a cash consideration
of €2.9 million, resulting in a loss of disposal of €9.1 million. In addition, a €0.7 million adjustment
was made to the value of deferred consideration relating the disposal of the trade and assets of the UK
packed chlorine business that was initially recognized in 2014.
Net finance costs. Net finance costs were €44.9 million for the three months ended June 30, 2016 as
compared to €26.8 million for the same period in 2015 on a pro forma basis. There were various
factors contributing to the increase in net finance costs, including higher exchange movement charges,
the write-off of debt issue costs associated with the 10.625% Senior Secured Notes, and discount
unwinding adjustments relating to the subscription amount receivable from Solvay in June 2017.
Interest payable on senior secured debt reduced by approximately €1.4 million in the three months
ended June 30, 2016 compared to the same period in 2015 due to lower interest rates on the new Notes
and Senior Secured Term Loans following the refinancing.
Profit before tax. There is a profit before tax of €39.1 million for the three months ended June 30, 2016
as compared to a profit before tax of €86.3 million for the same period in 2015 on a pro forma basis.
Tax charge. Taxation is a charge of €19.7 million for the three months ended June 30, 2016, as compared
to a charge of €11.9 million for the same period in 2015 on a pro forma basis. Tax is payable on profits
made by the Norwegian, Swedish, German, Belgium, Italian and French entities.
Profit for the period. Profit for the period was €19.4 million for the three months ended June 30, 2016,
compared to a profit for the period of €74.4 million for the same period in 2015 on a pro forma basis.
EBITDA before exceptionals. EBITDA before exceptionals decreased by €48.6 million,
approximately 29.0%, to €118.9 million in the three months ended June 30, 2016 as compared to
€167.5 million (including EBITDA of €32.6 million for the Remedy Assets business) for the same
period in 2015 on a pro forma basis. On a pro forma basis, and after adjusting for the impact of the
divestment of the Remedy Assets, EBITDA before exceptionals was €134.9 million, which is €16.0
million, or 11.9% lower than the same quarter in 2015.
Unitary margins of Speciality PVC over ethylene, and caustic margins over energy were higher in the
second quarter of 2016. Unitary margins of General Purpose SPVC were at similar levels to those
achieved in the second quarter of 2015. The sales volumes of most products were lower due to the
impact of the industrial action in France which limited the availability of ethylene forcing the Tavaux
site to run at minimum rates for much of May and June 2016. The second quarter of 2016 also saw a
significant reduction in stock levels resulting in fixed cost movement in stock charges to the income
statement.
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Business segments
Revenue and EBITDA before exceptional items are key measures used by the chief-operating decision
makers of the Group to assess the performance of the Business segments.
We divide our operations into four businesses:
- General Purpose Vinyls, consisting of a portfolio of Suspension PVC products and PVC
Resins, and output that we both consume and sell from our interest in the Feyzin cracker.
- Speciality Vinyls, consisting of Emulsion PVC and specialty grade Suspension PVC products
- Organic Chlorine Derivatives, consisting of various chlorine derivatives including chlorinated
paraffins, chloromethanes, allyl chloride and epichlorohydin.
- Chlor-Alkali, consisting of caustic soda and caustic potash, chlorine and chlorine by-products,
brine and water and hydrochloric acid
However, our financial reporting is limited to three Business segments; General Purpose Vinyls,
Speciality Vinyls, and Other Chemicals. The Other Chemicals segment includes the Organic Chlorine
Derivatives business, plus all products in the Chlor-Alkali business excluding caustic soda and caustic
potash. Revenues from caustic soda and caustic potash are then attributed to the three Business
Segments based on the quantities of chlorine contained in the respective products.
For segmental reporting of EBITDA, the results of our caustic soda and caustic potash products (which
are co-produced with chlorine in the electrolysis manufacturing process) included within the Chlor-
Alkali operating Business are allocated out to the three segments based on the quantities of chlorine
contained in each of their products.
For segmental reporting of revenue, caustic soda and caustic potash revenues are shown both before
and after allocation to three Business segments. The discussion of revenues for each Business segment
(see below) is performed before any allocation of caustic soda and caustic potash revenues. The review
of caustic soda and caustic potash revenues is discussed separately.
Because of difficulties removing the effects of the Remedy Assets from INOVYN’s and the Kerling
Business’s results of operations, our pro forma Revenue and EBITDA before exceptional items in the
three month period ended June 30, 2015 includes the effects of the Remedy Assets on INOVYN’s
results of Operations.
The following table provides an overview of the pro forma revenue of each of the business segments
for the periods indicated.
Three-Month Period
Ended June 30,
2016 2015
Revenue
before
caustic soda/potash
allocation
Caustic
soda/potash revenue
allocation
Revenue
after
caustic soda/potash
allocation
Revenue
before
caustic soda/potash
allocation
Caustic
soda/potash revenue
allocation
Revenue
after
caustic soda/potash
allocation
(€ in millions)
Revenue
General Purpose Vinyls ........................................................................................................................ 320.9 87.1 408.0 391.2 95.5 486.7
Speciality Vinyls .................................................................................................................................. 90.6 19.7 110.3 91.3 18.5 109.8
Other Chemicals ................................................................................................................................... 118.5 75.8 194.3 140.6 87.1 227.7
530.0 182.6 712.6 623.1 201.1 824.2
Caustic soda and caustic
potash ................................................................................................................................................... 182.6 (182.6) - 201.1 (201.1) -
INOVYN group ................................................................................................................................... 712.6 - 712.6 824.2 - 824.2
Remedy assets ...................................................................................................................................... - - - 224.0 - 224.0
712.6 - 712.6 1,048.2 - 1,048.2
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following table provides an overview of the pro forma EBITDA before exceptionals of each of the
business segments for the periods indicated.
General Purpose Vinyls
Revenue (excluding caustic soda and caustic potash)
Revenue in the General Purpose Vinyls segment decreased by €70.3 million, or 18.0%, to €320.9 million
for the three month period ended June 30, 2016, as compared to €391.2 million for the same period in
2015. The decrease was driven by lower volumes and prices. Industrial action in France had a
significant negative effect on our sales volumes, with limited availability of ethylene forcing the
Tavaux site to run at minimum rates for much of May and June. The timing of the industrial unrest was
unfortunate as the Tavaux stock situation was already depleted following the planned EDC and VCM
turnaround events in April. Average sales prices for S-PVC were lower in the second quarter of 2016
than in the second quarter of 2015, due to lower ethylene feedstock prices.
EBITDA before exceptionals.
EBITDA before exceptionals in the General Purpose Vinyls segment decreased by €7.0 million, or
10.3%, to €60.7 million for the three month period ended June 30, 2016 as compared to €67.7 million
in the same period in 2015. In comparison to the second quarter of 2015, the business segment
achieved similar unitary S-PVC over ethylene unitary margins, whilst the the associated caustic credits
were higher. The business benefited from the impacts of synergy savings but suffered from the
previously mentioned reduction in sales volumes. In addition, the second quarter of 2016 saw a
significant reduction in stock levels (as a consequence of the French industrial action and turnaround
events) resulting in the release of fixed cost movement in stock charges to the income statement. The
ethylene contract price decreased, averaging €905 per tonne for the second quarter of 2016, compared
to €1,038 per tonne for the second quarter of 2015 (as reported by IHS).
Speciality Vinyls
Revenue (excluding caustic soda and caustic potash)
Revenue in the Speciality Vinyls segment decreased by €0.7 million, or 0.8%, to €90.6 million for the
three month period ended June 30, 2016, as compared to €91.3 million for the same period in 2015.
Although volumes of both E-PVC and Specilaity S-PVC increased, average selling prices decreased
resulting in slightly lower absolute revenues in the second quarter of 2016 versus 2015.
EBITDA before exceptionals.
EBITDA before exceptionals in the Speciality Vinyls segment increased by €1.9 million, or 7.4%, to
€27.7 million for the three month period ended June 30, 2016 as compared to €25.8 million in the same
period in 2015. The segment continued to benefit from growth of volumes and margins in the second
quarter of 2016. Although average selling prices fell in the three month period ended June 30, 2016,
average ethylene costs fell by more, resulting in a slight increase in unitary margins. The segment also
benefited from improved caustic soda unitary margins allocated to it based on the chlorine consumed in
the manufacturing process.
Three-Month Period
Ended June 30,
2016 2015
(€ in millions)
EBITDA before exceptionals
General Purpose Vinyls ........................................................................................................................ 60.7 67.7
Speciality Vinyls .................................................................................................................................. 27.7 25.8
Other Chemicals ................................................................................................................................... 30.5 41.4
INOVYN group ................................................................................................................................... 118.9 134.9
Remedy Assets ..................................................................................................................................... - 32.6
118.9 167.5
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Other Chemicals
Revenue (excluding caustic soda and caustic potash)
Revenue in the Other Chemicals segment decreased by €22.1 million, or 15.7%, to €118.5 million for the
three month period ended June 30, 2016, as compared to €140.6 million for the same period in 2015. The
decrease was the result of lower volumes of chloromethanes, chlorine, hydrogen, epichlorohydrin and
chlorinated paraffins, and lower average prices of chloromethanes, hydrogen, eplichlorohydrin and
chlorinated paraffins, which was partially offset by higher average selling prices of chlorine gas. The
reduction in revenues of chloromethanes was mostly attributable to the decision to concentrate production
at our two sites in Tavaux, France and Rosignagno, Italy following the closure of the UK plant in
Runcorn.
EBITDA before exceptionals.
EBITDA before exceptionals in the Other Chemicals segment decreased by €10.9 million, or 26.3%, to
€30.5 million for the three month period ended June 30, 2016 as compared to €41.4 million in the same
period in 2015. This was mostly driven by the lower sales volumes mentioned above. In addition as a
consequence of the aforementioned French industrial action, the second quarter of 2016 saw a
significant reduction in stock levels resulting in large fixed cost movement in stock charges.
Caustic soda and caustic potash
Revenue Caustic soda and caustic potash revenues decreased by €18.5 million, or 9.2%, to €182.6 million for the
three month period ended June 30, 2016, as compared to €201.1 million for the same period in 2015.
Caustic soda sales volumes were lower than the second quarter of 2015 following the closure of the
Runcorn mercury cell room and availability issues caused by the French industrial action and
turnaround events, but achieved selling prices were slightly higher in 2016 compared to 2015. Caustic
potash sales volumes and average selling prices were lower in the three month period ended June 30,
2016 compared to the same period in 2015.
Liquidity and Capital Resources
Capital Resources
Our liquidity needs are expected to arise primarily from the need to meet debt service requirements, to
fund capital expenditures, to fund working capital and to pay taxes. Our primary sources of liquidity
are expected to be cash flows from operations and the Securitization Program. Our ability to generate
cash from operations depends on future operating performance which is, in turn, dependent to some
extent on general economic, financial, competitive market, legislative, regulatory and other factors,
many of which are beyond our control.
We believe that our operating cash flows, together with future borrowings under the Securitization
Program, will be sufficient to fund our debt service requirements as they become due and to fund
anticipated capital expenditures and working capital requirements. However, our ability to borrow
under the Securitization Program is limited by our compliance with certain restrictions and covenants
in the governing instrument and by the amount of trade receivables that we have that are eligible for
sale under the program at any given time.
Financing Arrangements
On May 13, 2016 a refinancing of the Group was completed with sufficient funds being raised to pay
and discharge the redemption price and accrued interest on its outstanding 10.625% Senior Secured
Notes due 2017. These Senior Secured Notes due 2017 were subsequently redeemed on May 25, 2016
following the applicable notice period. The funds raised were in the form of a €240.0 million Senior
Secured Term loan A, due 2021, a €535.0 million Senior Secured Term loan B, due 2021, and 6.250%
Senior Secured Notes due 2021 in an aggregate principal amount of €300.0 million. The net proceeds
of the Senior Secured Notes due 2021 and a portion of the proceeds of the Senior Secured Term loan B
were used by INOVYN Limited on July 7, 2016 to redeem the entire issued B Ordinary shares held by
Solvay Chlorovinyls Holding S.a.r.l at a redemption price of €335.0 million.
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
As at June 30, 2016 the Group had a total of €300.0 million Senior Secured Notes and €775.0 million
Senior Secured term loans outstanding.
Certain bank guarantees of the Group are provided via a €10.0 million cash-backed bank guarantee
facility with Barclays Bank plc, and a €30.0 million cash backed bank guarantee facility with ING
Bank NV. As at June 30, 2016, the amount provided was €1.1 million.
We also have a Securitization Program with a maximum amount available of €300.0 million, subject to
a borrowing limit that is adjusted periodically based on the amount of our eligible trade receivables at
that time. As of June 30, 2016, €96.9 million was utilized under the Securitization Program. As of June
30, 2016, we had cash and cash equivalents of €381.8 million, of which €335.0 million had been placed
in escrow to fund the Solvay exit payment, pending regulatory approvals.
Working capital
We anticipate that our working capital requirements will fluctuate, primarily due to changes in raw
material (including feedstock) and energy costs, resulting in changes to inventory and levels of
accounts payable, which will be offset to a lesser or greater extent by changes in accounts receivable.
We expect to fund our working capital requirements with cash generated from operations and the
Securitization Program.
Capital Expenditures
We manage our capital expenditures to maintain our well-invested asset base. Our management
reviews all of our existing capital expenditure programs and reviews and approves any future
programs.
Capital expenditures incurred during the six months ended June 30, 2016 was €65.7 million, analysed
by business segment as follows:
In some circumstances, the group receives cash from customers as a contribution towards the
construction of an item of property, plant and equipment in order to provide the customer with ongoing
access to a supply of goods. In accordance with IFRIC 18, the contribution from the customer for
financial reporting purposes is credited to deferred income and released to the income statement over
the life of the asset. We have also disclosed the value of cash received from customers towards the
construction of property, plant and equipment to arrive at the net capital expenditure spend.
The main expenditures in the Other business segment (Chlor-Alkali and Organic Chlorine Derivatives
operations) for the six month period ended June 30, 2016 related to the extension of the membrane
electrolysis plant at Lillo, initial spend on the new caustic potash cell room at Lillo, initial spend on the
new membrane cell room in Stenunsgund, and sustenance spend. The main expenditures in the
General Purpose Vinyls business related to planned turnaround events at the EDC and VCM plants at
the Tavaux site, a number of smaller projects, and sustenance expenditure.
Six-month
period ended
June 30,
2015
(€ in millions)
General Purpose Vinyls ........................................................................................................................ 16.3
Speciality Vinyls .................................................................................................................................. 4.8
Other ..................................................................................................................................................... 44.6
INOVYN group ................................................................................................................................... 65.7
Contribution from customers ................................................................................................................ (4.8)
INOVYN pro-forma capital expenditure net of contributions from
customers .............................................................................................................................................
60.9
INOVYN LIMITED (INCLUDING REMEDY ASSETS)
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Cash flows
The following commentary is based on the unaudited statement of cash flows for the INOVYN Limited
group.
Net cash flow from operating activities was an inflow of €154.7 million for the six months ended June
30, 2016. The strong cash flow performance is attributed to the EBITDA result of €234.9 million,
offset by net working capital (trade receivables, inventories and trade payables) outflows of €24.4
million, provision and employee benefit outflows of €28.3 million, tax payments of €24.0 million and
exceptional outflows of €3.5 million.
The tax payments of €24.0 predominantly relates to the Belgian, French, Norwegian and Swedish
businesses.
Acquisition of property, plant and equipment in the six months ended June 30, 2016 was €65.7 million
(refer to the “Capital Expenditure” section).
On May 13, 2016 a refinancing of the Group was completed with sufficient funds being raised to pay
and discharge the redemption price and accrued interest on its outstanding 10.625% Senior Secured
Notes due 2017. These Senior Secured Notes due 2017 were subsequently redeemed on May 25, 2016
following the applicable notice period. The funds raised were in the form of a €240.0 million Senior
Secured Term loan A, due 2021, a €535.0 million Senior Secured Term loan B, due 2021, and 6.250%
Senior Secured Notes due 2021 in an aggregate principal amount of €300.0 million. Debt issue costs of
€15.9 million were paid as part of the above transactions.
The Group made a drawdown of €42.0 million on the Securitization Program in the six month period
ended June 30, 2016.
Interest payments of €70.4 million were made in the six months ended June 30, 2016. The interest
payments mainly relate to interest on the 10.625% Senior Secured Notes of €68.1 million (including
settlement of unpaid accrued interest up to the redemption date of May 25, 2016) and €1.4 million of
interest paid on the Securitization Program.
Net debt
Total net debt as at June 30, 2016 was €1,138.2 million (after adjusting for the Solvay exit payment of
€335.0 million). The Group held cash balances of €381.8 million as at June 30, 2016, or €46.8 million
excluding the €335.0 million of cash held in escrow for the Solvay exit payment.