INOVYN Q2 2017 Trading Statement

Q2 2017 Preliminary Trading Statement

INOVYN Limited announces its preliminary trading statement for Q2 2017.

Based on unaudited management information, INOVYN Limited reports that EBITDA for the second quarter of 2017 was €192 million. This represents a quarterly record, and compares to €119 million for the same period last year, and €142 million for the previous quarter. On a last twelve month basis, EBITDA now stands at €555 million, compared to LTM EBITDA at Q1 2017 of €482 million. The strong financial performance is a result of healthy market conditions, underpinned by a synergy programme that is delivering significant financial benefits.

Capital expenditure was €70 million for 2017 year to date, €37 million of which was spent in the second quarter.

The second quarter performance

Total sales volumes were up compared to the same quarter in 2016, which had been negatively impacted by industrial unrest in France, forcing the Tavaux site to run at minimum rates for much of May and June last year.

For General Purpose PVC, the Group is benefiting from a balanced market, and prices were on average higher than both the same period last year and the previous quarter. Ethylene contract prices (as reported by IHS) averaged €1,038 per tonne for the second quarter of 2017, compared to €905 per tonne over the same period last year, and €1,018 per tonne in the first quarter of 2017. Average margins over ethylene in the second quarter of 2017 were higher than both the same quarter last year and the previous quarter.

Low industry stocks and good demand levels resulted in a €30 per tonne increase in European contract caustic soda prices for the second quarter of 2017, and were €45 per tonne higher than the second quarter of 2016. Sales volumes were higher than the same period last year, and the previous quarter. Implied European caustic soda demand (reported chlorine production, less reported caustic soda exports, plus the reported caustic soda stock change) was higher than the same period in 2016. Margins over energy were higher than both the previous quarter, and the second quarter of 2016.

Approximately €19 million of synergy and cost savings have been delivered in the second quarter of 2017, and approximately €134 million since the formation of INOVYN. Improvements have been delivered in many areas of the business, from energy initiatives, transport optimisation, fixed cost reductions, production cost efficiencies and other procurement savings.

Net cash flow from operating activities was an inflow of €109 million for the quarter (and €177 million for the year to date), with higher margins resulting in €44 million of outflows on net working capital balances. Pension deficit contributions, mainly relating to UK schemes of €25 million, and tax payments of €10 million were paid in the quarter.

In May 2017, the group received €84 million from Solvay, being the ‘completion accounts’ settlement in respect of their contribution into the Joint Venture on 1 July, 2015.

Interest totalling €18 million was paid on the Term Loans A and B and 6.250% Senior Secured Notes, and €7 million of Term Loan A quarterly amortisation was paid. The amount of cash and cash equivalents as at June 30, 2017 was €85 million and no amounts had been drawn down against the Group's €300 million Receivable Securitisation Facility. Net debt was approximately €963 million at June 30, 2017, compared to €1,097 million at March 31, 2017 and net debt leverage was approximately 1.7 times.

In May 2017, the Group borrowed an additional €60 million of Term Loan B, the net proceeds of which were used to redeem 20% of its outstanding 6.250% Senior Secured Notes, due 2021 in two increments of €30 million at a redemption price equal to 103% of the principal amount of the Notes redeemed. Early redemption fees totalling €1.8 million were paid. In addition, the interest rate applicable to Term Loan B was decreased and the maturity extended to May 2024. The interest rate applicable to Term Loan A was also reduced. The above amendments will result in annualised interest cost savings of €7 million.