INEOS Styrolution Holding Limited (Registered Company number 09922632) Directors report and Consolidated Financial Statements for the year ended 2017 1
TABLE OF CONTENTS SECTION 1 STRATEGIC REPORT AND DIRECTORS REPORT STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2017... 4 DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2017... 8 SECTION 2 CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF INEOS STYROLUTION HOLDING LIMITED... 13 CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2017... 15 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017... 16 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017.. 17 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017... 19 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017. 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017... 21 SECTION 3 COMPANY FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF INEOS STYROLUTION HOLDING LIMITED... 76 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017... 79 COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017... 80 NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017... 81 2
Section 1 - Strategic Report and Directors Report 3
STRATEGIC REPORT FOR THE YEAR ENDED 31 DECEMBER 2017 The directors present their strategic report on the Group and Company for the year ended 31 December 2017. INEOS Styrolution Holding Limited ( the Company ) is domiciled in the United Kingdom and has its registered office at Chapel Lane, Lyndhurst, Hampshire, SO43 7FG. The Company was incorporated on 18 December 2015 as a subsidiary of INEOS Industries Holdings Limited. Additionally, INEOS Styrolution Financing Limited, domiciled in the United Kingdom with registered office at Chapel Lane, Lyndhurst, Hampshire, SO43 7FG, was founded as subsidiary of the Company on 18 December 2015. On 9 June 2016, INEOS Styrolution Financing Limited became parent of INEOS Styrolution Investment GmbH and INEOS Styrolution Switzerland SA and that created a newly formed consolidation group consisting of INEOS Styrolution Holding GmbH and all its subsidiaries as well as the above mentioned entities INEOS Styrolution Switzerland SA, INEOS Styrolution Investment GmbH, INEOS Styrolution Financing Limited and INEOS Styrolution Holding Limited ( INEOS Styrolution or the Group ). Results for the year The results of the Group are set out in the consolidated income statement on page 15 which shows a profit from continuing operations before taxation for the year of EUR 507.9 million (2016: EUR 486.9 million). Review of business developments The Group is the leading global producer, marketer and merchant seller of styrenics, which is the basis for a wide range of chemical processes and products. INEOS Styrolution wants to further strengthen and expand its position as a leading global supplier of styrenics and to increase the value of the business by generating strong, sustainable and growing cash flows across industry cycles. To achieve these goals we have the following key strategic objectives: The Group implemented a growth strategy to meet its strategic objectives. The aim is to make INEOS Styrolution more resilient, less cyclical and more profitable. The Group's strategy is to develop its portfolio of businesses further with its main focus continuing to maintain the number 1 market position in the styrenics market. 4
During 2017 the Group continued to focus on developing its portfolio of businesses, with a particular focus on its strategic objectives. The objective is to focus on industries and regions with stronger growth expectations and offer in these markets the products and application that add value to the industry and consumers: The Group operates in three polymer segments which are Polymers Americas, Polymers Asia and Polymers EMEA. The Polymers product groups are ABS Standard, Polystyrene (together the standard products) and Specialties. The Group benefitted from solid economic conditions in Europe and the Americas and from improving demand in Asia. The increase was mainly driven by growth in the automotive, healthcare and household industries. Our Group continues to focus on these key industries. As part of its growth strategy, the Group acquired the K-Resin styrene-butadiene copolymers (SBC) business from Chevron Phillips Chemical Company LLC (Chevron Phillips Chemical) and Daelim Industrial Co. Ltd. as of 28 February 2017. In 2017, INEOS Styrolution grew its product groups Specialties, ABS Standard and Styrene compared to the year 2016. The Specialties and ABS Standard products can offer a large variety of added value characteristics to customer products and needs. The Group did see a reduction in sales volumes in its Polystyrene business. The main reason is the cautious buying from customers because of volatile and increasing feedstock prices throughout the year. On 30 March 2017, INEOS Styrolution amended and repriced its outstanding institutional term loans in EUR and USD. The Company extended the maturity of the term loans until March 2024 with improved conditions of E+250 bps (0.75% floor) and L+275 bps respectively. On 30 October 2017, INEOS Styrolution redeemed the entire nominal of the term loan tranche held by INEOS Holdings Limited with EUR 248 million cash, resulting in a gross debt reduction. On 22 November 2017, INEOS Styrolution completed a further amendment and reprice transaction of the outstanding institutional term loans in EUR and USD with improved conditions of E+200 bps (0.5% floor) and L+200 bps. The total volume of the term loans remained unchanged, but the nominal amounts of the EUR and USD tranches slightly shifted. The EUR tranche has been increased to EUR 447 million and the volume of the USD tranche has been reduced to USD 329 million respectively. INEOS Styrolution Group GmbH and INEOS Styrolution US Holding LLC remain the borrowers. The maturity of the term loans has remained unchanged. The outstanding term loan debt is secured and guaranteed by all major entities of the Group including INEOS Styrolution Holding Limited. 5
Subsequent events No further subsequent events are to be reported for the period between the reporting date of these Consolidated Financial Statements and their authorization by the Board of Directors on 22 February 2018. Principal risks and uncertainties The management of the business and the execution of the Group s strategy are subject to a number of risks. The key business risks affecting the Group are set out below: Risk from explosion or fire and or injured people or major release of chemicals: INEOS Styrolution s business involves the use, manufacturing, handling and distribution of large volumes of hazardous materials and other chemicals. Accordingly, Safety, Health and Environmental (SHE) risks, such as environmental contamination, property damage and personal injury, are inherent in the business. Management of these risks is therefore identified as one of the strategic priorities as it can lead to property damage, business interruption and reputational damage. Price volatility: Prices for important raw materials used by the Group may significantly change from period to period and impact the EBITDA before Special items respectively with positive or negative COSA effects. Management of volatility is therefore identified as one of the strategic priorities and the Group has implemented several countermeasures. Cyber security: Cyber security imposes an increasing risk on companies. With the growing volume and sophistication of cyber-attacks, the risk is that sensitive business and personal information is not well protected and assets and Group s security is not safeguarded. The Group has a dedicated team to mitigate the risk of a cyber-attack and to recover as soon as possible from any attack that might occur. Loss of current financing and / or the inability to obtain financing: If the Company was unable to obtain external financing or lost its current financing arrangements, it would severely reduce the financial liquidity with a potential of insolvency. The Group s financing principles and financial strategy aim at securing financial liquidity at all times, limiting the risks associated with financing and at the same time optimizing the cost of debt. The core of the financial strategy is to safeguard the Company s strong financial profile, credit rating and thereby its financial stability. It is aligned with the company strategy to promote the strategic and operational performance of INEOS Styrolution. Key performance indicators The main KPI of the business is earnings before interest, taxation, depreciation, amortisation and exceptional items (EBITDA before Special Items). Management closely monitors EBITDA before Special Items compared to budget and prior year. Another important indicator is the SHE related metric, Total Case Incident Rate (TCIR). EBITDA before Special Items EBITDA before Special Items - which is the measure of profit used for internal management purposes increased by 8.5% to EUR 872.2 million. This is a record EBITDA for INEOS Styrolution and emphasizes the positive development of the Group since its formation. The increase in EBITDA before Special Items mainly results from higher sales volumes, positive inventory revaluation effects and improved margins in Specialties and ABS Standard in Asia. 6
The reconciliation of EBITDA before Special Items to Net Income is as following: 2017 2016 EBITDA before Special Items 872.2 803.6 Special items (exceptional expenses) (38.3) (8.0) Depreciation and amortisation (226.9) (219.7) Loss on sale of tangible fixed assets (0.6) - Profit from operations 606.4 575.8 Net finance costs (incl. foreign exchange gains/losses) (98.5) (88.9) Income before income tax 507.9 486.9 Income tax expense (14.8) (109.8) Net Income 493.1 377.1 Special items are mainly related to a liability recognised to the previous shareholder BASF under prior legal agreements. The Group will realize tax benefits and transfer these to BASF. The net finance costs increased mainly because of foreign currency revaluation effects. The weakening of the USD to the EUR resulted in a foreign currency loss in 2017, while the strengthening of the USD to the EUR resulted in a foreign currency gain in 2016. This increase of net finance costs was partly offset by lower interest expenses for the institutional term loans. The Group s year-to-date consolidated tax rate for 2017 is 2.9%. The effective tax rate was significantly lower compared to the rate of 22.6% in the comparative period because of three effects. A positive net effect is caused by the US and the Belgium tax reforms. Both reforms led to a reduction in the deferred tax positions. The other effect relates to the recognition of a tax asset at INEOS Styrolution Investment GmbH resulting from the transfer of assets to INEOS Styrolution from the previous shareholder BASF in 2014 where recognition criteria have been met in 2017. Total Case Incidence Rate (TCIR) The Group aims to continuously improve the key performance indicators (KPI) used to measure safety demonstration and maintain company SHE performance on par with industry leaders. In 2017, 11 recordable injuries occurred at the Group s sites globally. The TCIR, which counts injuries per 200,000 worked hours was at 0.17 (measured in line with the U.S. Occupational Safety and Health Administration (OSHA) requirements). This is a significant decrease compared to 2016 and the best SHE performance since the formation of the Group. INEOS Styrolution aims to work and operate in an injury free environment and will work towards that goal in 2018. On behalf of the Board: Kevin McQuade Director 22 February 2018 Registered number 09922632 7
DIRECTORS REPORT FOR THE YEAR ENDED 31 DECEMBER 2017 The directors present their report and audited consolidated and company financial statements of the Group and the Company for the year ended 2017. Principal activities The Group is the leading global producer, marketer and merchant seller of styrenics, which is the basis for a wide range of chemical processes and products. Financial risk management As a responsible approach to risk is an integral part of any good corporate governance practices, the Group has implemented a global Risk and Control Program and has established a governance structure as well as the relevant policies and processes. The Risk and Control Program targets a sustainable and efficient management of all key risks of the Group on a global, regional or local level and to an integrated and harmonized Risk Reporting to all relevant stakeholders of the Group. The Risk and Control Program covers all main risk categories - business, compliance, financial, IT, operational and strategic risks and is designed to identify any relevant risk at an early stage so that appropriate countermeasures can be taken. The Risk and Control Program only covers potential negative effects for the Group (risks) and does not include the assessment of potential positive effects (opportunities). A description of the liquidity risk, market risk, currency risk and relevant sensitivity analysis are included in note 20 of the financial statements. Research and development The Group s research and development team develops new applications mainly for its higher margin and less cyclical specialty polymers, provides support to the Group s customers and seeks to improve the efficiency of the Group s manufacturing processes. The research and development team also leads the Group s efforts with respect to the development and capacity expansions of the plants and maintaining and improving safety and environmental standards. The Group spent approximately EUR 12.4 million (2016: EUR 12.7 million) on research and development during the year. Dividends The directors of the Company have proposed and paid a dividend of EUR 55.0 million during the year 2017 (2016: EUR 255.0 million). All dividends were paid by INEOS Styrolution Holding Limited. The Company does not propose a further dividend for 2017. Strategy and future developments The Group is optimistic about the business development in 2018. However, this will depend on global economic developments and is sensitive to price fluctuations of its main raw materials. The Group's strategy is to develop its portfolio of businesses further with its main focus continuing to maintain its number 1 market position in the styrenics market. This includes a focus on growth regions, growth industries and in more specialized products and product applications. 8
Political and charitable contributions As part of its ongoing investment program, INEOS Styrolution Holding Limited and its subsidiaries actively support a variety of initiatives in communities in which it operates. Charitable donations made during the year amounted to EUR 0.2 million (2016: EUR 0.3 million) for a variety of charitable purposes. Neither the Company nor its subsidiary undertakings made any donations or subscriptions for political purposes. Directors The directors who held office during the year and up to the date of signing of the financial statements were as follows: Mr K McQuade Mr M Fieseler Mr G Leask Mr J Ginns Mr A Currie Employees The Group has developed voluntary practices and procedures for employee involvement appropriate to their own circumstances and needs. The Group encourages this approach to provide information and consultation and believes that this promotes a better understanding of the issues facing the individual business in which the employee works. The Group places considerable value on the involvement of its employees and keeps them informed on matters affecting them as employees and on the various factors affecting the performance of the Group by issuing communications on the Group intranet and holding employee information meetings hosted by the board and operating a bonus scheme linked to the business performance. The Group consults employees or their representatives through the works council on a regular basis so that the views of employees can be taken into account in making decisions that are likely to affect their interests. The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Where existing employees become disabled, it is the Group s policy, wherever practicable, to provide continuing employment under normal terms and conditions and to provide training and career development and promotion wherever appropriate. Safety, Health and Environment (SHE) INEOS Styrolution s business involves the use, manufacturing, handling and distribution of large volumes of hazardous materials and other chemicals. Accordingly, Safety, Health and Environmental (SHE) risks, such as environmental contamination, property damage and personal injury, are inherent in the business. INEOS Styrolution s facilities and operations are subject to a wide range of SHE requirements in all of the jurisdictions in which the Group operates. These requirements govern, amongst other things, air emissions, wastewater discharges, accidental releases into the environment, human exposure to hazardous materials, the management and disposal of hazardous materials and wastes, the clean-up of contamination, process safety, and the maintenance of safe conditions in the workplace. The Group has incurred, and will continue to incur, substantial capital and operating expenditures to ensure compliance with current and future SHE laws and regulations, including the limits and controls contained in the operating permits. 9
Statement of directors responsibilities in respect of the financial statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have prepared the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 Reduced Disclosure Framework, and applicable law). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company, and of the profit or loss of the group and company for that period. In preparing the financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; state whether applicable IFRSs as adopted by the European Union have been followed for the group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the company financial statements, subject to any material departures disclosed and explained in the financial statements; make judgements and accounting estimates that are reasonable and prudent; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group and company's transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. Disclosure of information to auditors The directors are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In the case of each director in office at the date the Directors Report is approved: so far as the director is aware, there is no relevant audit information of which the group and company s auditors are unaware; and they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the group and company s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006. 10
Independent auditors The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution that they will be reappointed will be proposed at the annual general meeting. On behalf of the Board: Kevin McQuade Director 22 February 2018 Registered number 09922632 11
Section 2 - Consolidated Financial Statements for the year ended 2017 12
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF INEOS STYROLUTION HOLDING LIMITED Report on the audit of the group financial statements Opinion In our opinion, INEOS Styrolution Holding Limited s group financial statements (the financial statements ): give a true and fair view of the state of the group s affairs as at 2017 and of its profit and cash flows for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Directors' report and consolidated financial statements (the Annual Report ), which comprise: the consolidated statement of financial position as at 2017; the consolidated statement of income and the consolidated statement of comprehensive income, the consolidated statement of cash flows, and the consolidated statement of changes in equity for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the directors use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group s ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. 13
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below. Strategic Report and Directors Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors Report for the year ended 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of directors responsibilities set out on page 10, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors report. Use of this report This report, including the opinions, has been prepared for and only for the company s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: we have not received all the information and explanations we require for our audit; or certain disclosures of directors remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Other matter We have reported separately on the company financial statements of INEOS Styrolution Holding Limited for the year ended 2017. Ian C. Marsden (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne February 2018 14
INEOS Styrolution Holding Limited Consolidated statement of income Note 1 January to 31 December 2017 1 January to 31 December 2016 Revenue 3 5,342.4 4,469.7 Cost of sales 3 (4,284.5) (3,506.6) Gross profit 1,057.9 963.1 Selling and distribution expenses* 3 (280.6) (260.1) General and administrative expenses 3 (113.6) (100.7) Research and development expenses 3 (12.4) (12.7) Other operating (expense) / income, net 3 (44.9) (13.8) Profit from operating activities 606.4 575.8 Interest income 6 5.3 5.9 Interest expense 6 (54.2) (120.3) Other finance (loss) / gain, net 6 (49.6) 25.5 Net finance costs (98.5) (88.9) Income before income tax 507.9 486.9 Income tax expense 7 (14.8) (109.8) Net income 493.1 377.1 Attributable to: Non-controlling interests 2.4 2.5 Owners of the company 490.7 374.6 * See note 1 for description of a change in presentation between selling and distribution expenses and cost of sales. The notes on pages 21 to 74 are an integral part of these consolidated financial statements. The Group has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company profit and loss account. 15
INEOS Styrolution Holding Limited Consolidated statement of comprehensive income Note 1 January to 31 December 2017 1 January to 31 December 2016 Net income 493.1 377.1 Other comprehensive (loss) income: Exchange differences on translation of foreign operations Items that might be subsequently reclassified to profit and loss Remeasurement of post-employment benefit obligations Deferred taxes on remeasurements of post-employment benefit obligations Item that will not be reclassified to profit or loss Other comprehensive (loss) income, net of tax (93.2) 11.4 (93.2) 11.4 16 6.7 (4.0) (1.8) 1.3 4.9 (2.7) (88.3) 8.7 Total comprehensive income 404.8 385.8 Attributable to: Non-controlling interests 1.5 0.7 Owners of the company 403.3 385.1 The notes on pages 21 to 74 are an integral part of these consolidated financial statements. 16
INEOS Styrolution Holding Limited Consolidated statement of financial position Note 2017 2016 Assets Property, plant and equipment 8 888.5 933.3 Intangible assets and goodwill 9 1,463.9 1,549.2 Deferred tax assets 17 54.3 33.6 Other receivables and miscellaneous non-current assets 12 4.9 3.9 Non-current assets 2,411.6 2,520.0 Inventories 11 546.9 452.5 Trade receivables 12 607.2 518.1 Income tax receivables 12 49.6 41.2 Other receivables and miscellaneous current assets 12 67.3 68.5 Cash and cash equivalents 15 295.9 316.9 Current assets 1,566.9 1,397.2 Total assets 3,978.5 3,917.2 The notes on pages 21 to 74 are an integral part of these consolidated financial statements. 17
INEOS Styrolution Holding Limited Consolidated statement of financial position (continued) Note 2017 2016 Equity Share capital 13 0.3 0.3 Share premium 2,389.7 2,389.7 Merger reserve (1,281.2) (1,281.2) Other reserves 58.8 146.2 Retained earnings 741.4 305.7 Equity attributable to owners of the Company 1,909.0 1,560.7 Non-controlling interest 17.8 16.5 Total equity 1,926.8 1,577.2 Liabilities Financial indebtedness 15 813.9 1,106.7 Employee benefits obligations 16 51.0 43.9 Deferred tax liabilities 17 361.7 501.4 Other liabilities and other long-term provisions 18 56.9 39.0 Non-current liabilities 1,283.5 1,691.0 Trade payables 19 467.3 383.9 Financial indebtedness 15 26.1 31.5 Current tax liabilities 7 99.9 63.6 Other liabilities and short-term provisions 18 174.9 170.0 Current liabilities 768.2 649.0 Total liabilities 2,051.7 2,340.0 Total equity and liabilities 3,978.5 3,917.2 The notes on pages 21 to 74 are an integral part of these consolidated financial statements. The financial statements on pages 15 to 74 were approved by the Board of Directors on 22 February 2018 and signed on its behalf by Kevin McQuade Director 22 February 2018 Registered number 09922632 18
INEOS Styrolution Holding Limited Consolidated statement of changes in equity Share Capital Share premium Merger reserve Retained Earnings / (Accumulated deficit) Pension Reserve Other Reserves CTA Reserve Equity attributable to owners of the company Non-controlling interest Total Equity 1 January 2017 0.3 2,389.7 (1,281.2) 305.7 (2.8) 149.0 1,560.7 16.5 1,577.2 Net income - - - 490.7 - - 490.7 2.4 493.1 Other comprehensive (loss) income - - - - 4.9 (92.3) (87.4) (0.9) (88.3) Total Comprehensive Income for the period - - - 490.7 4.9 (92.3) 403.3 1.5 404.8 Transactions with owners in their capacity as owners: Dividends - - - (55.0) - - (55.0) (0.2) (55.2) 2017 0.3 2,389.7 (1,281.2) 741.4 2.1 56.7 1,909.0 17.8 1,926.8 1 January 2016 0.3-1,108.5 186.1 (0.1) 135.8 1,430.6 16.0 1,446.6 Net income - - - 374.6 - - 374.6 2.5 377.1 Other comprehensive (loss) income - - - - (2.7) 13.2 10.5 (1.8) 8.7 Total Comprehensive Income - - - 374.6 (2.7) 13.2 385.1 0.7 385.8 Group reorganization - 2,389.7 (2,389.7) - - - - - - Transactions with owners in their capacity as owners: Dividends - - - (255.0) - - (255.0) (0.2) (255.2) 2016 0.3 2,389.7 (1,281.2) 305.7 (2.8) 149.0 1,560.7 16.5 1,577.2 The notes on pages 21 to 74 are an integral part of these consolidated financial statements. 19
INEOS Styrolution Holding Limited Consolidated statement of cash flows* Cash flows from operating activities 1 January to 31 December 2017 1 January to 31 December 2016 Profit for the year 490.7 374.6 Adjustments for: Depreciation and impairment of property, plant and equipment (note 8) 141.7 137.9 Amortisation and impairment of intangible assets (note 9) 85.2 81.8 Net finance costs 98.5 88.9 Loss from sale of property, plant and equipment 0.6 - Tax charge 14.8 109.8 Minority interest 2.4 2.5 Increase in trade and other receivables (111.5) (35.4) Increase in inventories (90.5) (28.4) Increase in trade and other payables 77.9 57.4 Increase / (decrease) in provisions and employee benefits 24.7 (15.5) Tax paid (145.3) (144.4) Net cash flows generated from operating activities 589.2 629.2 Cash flows from investing activities Proceeds from long-term assets 0.3 - Interest and other finance income received 2.4 7.4 Business acquisition, net of cash acquired (note 2) (98.9) - Acquisition of intangible assets (note 9) (1.3) (4.2) Acquisition of property, plant and equipment (note 8) (145.9) (123.1) Net cash flows used in investing activities (243.4) (119.9) Cash flows from financing activities (note 22) Proceeds from external borrowings (note 15) 145.1 1,067.1 Repayment of external borrowings (note 15) (154.6) (1,383.0) Repayment of related party borrowings (note 15) (249.4) - Interest paid (42.6) (107.2) Debt issue costs (3.2) (3.6) Capital element of finance lease payments (1.0) (0.4) Dividends paid attributable to the owners of the company (note 14) (55.0) (255.0) Dividends paid attributable to minority interest (0.2) (0.2) Net cash flows used in financing activities (360.9) (682.3) Net changes in cash and cash equivalents (15.1) (173.0) Cash and cash equivalents at 1 January (note 15) 316.9 486.7 Effect of exchange rate fluctuations on cash held (5.9) 3.2 Cash and cash equivalents at (note 15) 295.9 316.9 * The presentation of interest received and paid has been changed. This change in presentation policy is described in note 1. The notes on pages 21 to 74 are an integral part of these consolidated financial statements. 20
INEOS Styrolution Holding Limited Consolidated notes 1. Accounting Policies Overview INEOS Styrolution Holding Limited ( the Company ) is a private company, limited by shares, incorporated, registered and domiciled in the United Kingdom and has its registered office at Chapel Lane, Lyndhurst, Hampshire, SO43 7FG. The Company was incorporated on 18 December 2015 as a subsidiary of INEOS Industries Holdings Limited. Additionally, INEOS Styrolution Financing Limited, domiciled in the United Kingdom with registered office at Chapel Lane, Lyndhurst, Hampshire, SO43 7FG, was founded as subsidiary of the Company on 18 December 2015. On 9 June 2016, INEOS Styrolution Financing Limited became parent of INEOS Styrolution Investment GmbH and INEOS Styrolution Switzerland SA. That created a newly formed consolidation group consisting of INEOS Styrolution Holding GmbH and all its subsidiaries as well as the above mentioned entities INEOS Styrolution Switzerland SA, INEOS Styrolution Investment GmbH, INEOS Styrolution Financing Limited and INEOS Styrolution Holding Limited. The Group is the leading global producer, marketer and merchant seller of styrene monomer and styrenic polymers. Basis of accounting The financial statements of INEOS Styrolution Holding Limited and its subsidiaries are included into the consolidated financial statements in compliance with the uniformly applicable group accounting and valuation methods. The Group financial statements have been prepared on a going concern basis and approved by the directors in accordance with International Financial Reporting Standards (IFRSs) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) as adopted by the European Union ( Adopted IFRSs ) effective as of 31 December 2017 and with the Companies Act 2006 as applicable to companies using Adopted IFRSs. The consolidated financial statements were authorized for issue by the Board of Directors on 22 February 2018. The notes below provide a list of the significant accounting policies adopted in the preparation of these consolidated financial statements. The accounting policies set out below have been applied consistently to the period presented in these consolidated financial statements and have been applied consistently by the Group entities. Changes in presentation policies In the course of aligning INEOS wide group accounting methods, there were two main changes in presentation policies. These changes will result in the financial statements providing more reliable and relevant information about the effects of transactions on the entity s financial performance in comparison with other INEOS entities. The accounting of expenses that are incurred for logistic and supply chain costs during the production activity was changed to showing it under Cost of Sales instead of Selling and Distribution expenses. This change was applied retrospectively as if it had always been applied. The reclassification effect for FY 2016 is EUR 42.6 million and for FY 2017 EUR 41.0 million. The presentation of interest and other finance income received and paid was changed in the statement of cash flows. Instead of showing these items in cash flows generated from operating activities, interest and other finance income received is shown in cash flows used in investing activities and interest paid is shown in cash flows used in financing activities. Due to this change, the operating cash flow increased by EUR 40.2 million in FY 2017 and EUR 21
99.8 million in FY 2016. The investing cash flow increased by EUR 2.4 million (2016: EUR 7.4 million) and the financing cash flow decreased by EUR 42.6 million (2016: EUR 107.2 million) respectively. Basis of measurement The financial statements are prepared on the historical cost basis except that the derivative financial instrument and financial instruments classified as fair value through profit and loss are stated at their fair value. Additionally, noncurrent assets and disposal groups held for sale are stated at the lower of previous carrying amount and fair value less costs to sell. Functional and presentation currency These consolidated financial statements are presented in EUR, which is the Company s functional currency. The Group primarily generates income, incurs expenditure and has the majority of its assets and liabilities denominated in EUR and USD. All financial information presented in EUR has been rounded to the nearest tenth of a million, except when otherwise indicated. The exchange rate as at 2017 was $1:EUR 0.8377, 1:EUR 1.1257 and KRW1:EUR 0.0008 (2016: $1:EUR 0.9533, 1:EUR 1.1656 and KRW1:EUR 0.0008). Changes in accounting policies There were no new standards applied during the year ended 2017 by the Group. The Group has applied the following amendments to accounting standards for the first time in 2017 with effect from 1 January 2017 (with material prior period comparative information restated, to the extent required and as explained below): Amendments to IAS 7: Disclosure Initiative (mandatory for year commencing on or after 1 January 2017) The amendment introduces a requirement to reconcile cash flows arising from financing activities to the corresponding liabilities in the opening and closing statements of financial position. This disclosure is included in the reconciliation of net cash flow to movement in net debt in note 22. Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (mandatory for year commencing on or after 1 January 2017) The amendment clarifies how to account for deferred tax assets related to debt instruments measured at fair value. Basis of consolidation (i) Subsidiaries Subsidiaries are all entities controlled by the Group (including structured entities). The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The consideration transferred for the acquisition of a subsidiary usually comprises the fair values of the assets transferred, liabilities incurred to the former owners of the acquired business, equity interests issued by the group, fair value of any asset or liability resulting from a contingent consideration arrangement, and fair value of any pre-existing equity interest in the subsidiary. The consideration transferred does not include amounts related to the settlement of pre-existing business relationships. Such amounts generally are recognised in profit or loss. 22
Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss. The Group measures goodwill at the acquisition date as: the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; less the recognised amount (fair value) of the identifiable assets acquired less the liabilities assumed. Acquisitions and disposals of non-controlling interest Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result. Adjustments to non-controlling interests arising from disposal transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. Transactions eliminated on consolidation Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. (ii) Special purpose entity ( SPE ) A SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPE s risks and rewards, the Group concludes that it controls the SPE. The Group has established two SPEs, INEOS Styrolution Receivable Finance Designated Activity Company and Deutsche Bank Mexico F/1787 Styrolution, for an asset securitization program. The Group does not have any direct or indirect shareholdings in these SPEs. INEOS Styrolution Receivables Finance DAC is a special-purpose entity formed by the Group to purchase receivables from Group entities for purposes of a securitization of such financial assets and is, in substance, controlled by the Group. Deutsche Bank Mexico F/1787 Styrolution is a Mexican Trust established by INEOS Styrolution Receivables Finance DAC to purchase receivables from INEOS Styrolution Mexicana S.A. de C.V. for the purposes of securitization of such assets. INEOS Styrolution Receivables Finance DAC is the first beneficiary of this Trust. It is therefore also, in substance, controlled by the Group. (i) Foreign currency Foreign currency translations Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill, are translated to EUR at rates at the reporting date. The income and expenses of foreign operations are translated to EUR at monthly average exchange rates. Foreign currency differences are recognised in other comprehensive income, and presented in other reserves in equity. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising from such item are considered to form 23
part of a net investment in the foreign operation and are recognised in other comprehensive income, and presented in other reserves in equity. (i) Financial instruments Non-derivative financial assets The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within Other finance gain/(loss), net in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the group s right to receive payments is established. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. The Group s non-derivative financial assets generally fall into the loans and receivables category. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses (see note impairment). Loans and receivables comprise cash and cash equivalents, and trade and other receivables. Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits with maturities of three months or less from the acquisition date and money market funds that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Pledged balances on accounts used for payment transactions related to the securitization of receivables are classified as cash. The amount of these balances is disclosed in the notes. (ii) Non-derivative financial liabilities The Group initially recognises debt securities issued on the date that they are originated. All other financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. 24