1st Quarter Results

FRANKFURT, Germany--()--

Styrolution Group GmbH

Unaudited Interim Financial Statements – the three months ended 31 March 2014

Forward Looking Statements

The following report includes “forward-looking statements”, based on our current expectations and projections about future events, including:

  • the cyclical nature of our businesses and their sensitivity to changes in supply and demand;
  • raw material availability and costs, as well as supply arrangements, including arrangements with principal feedstock suppliers;
  • the highly competitive nature of our principal industries;
  • current or future environmental requirements, including those related to greenhouse gas and other air emissions, and the related costs of maintaining compliance and addressing liabilities;
  • currency fluctuations and economic downturns in the countries in which we operate;
  • our ability to implement our business and cost reduction strategies;
  • our ability to successfully integrate our businesses and realize anticipated synergies and cost savings; and
  • our substantial indebtedness following the consummation of the Joint Venture Transaction may affect our ability to service our outstanding indebtedness, which would likely impact the way we operate our business.

All statements other than statements of historical facts included in this report, without limitation, statements regarding our future financial position, risks and uncertainties related to our Company 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.

Styrolution Group GmbH – Unaudited Interim Financial Statements

Consolidated Statement of Income for the three months ended 31 March 2014 and 2013

In millions of EUR   1 Jan - 31 Mar 2014   1 Jan - 31 Mar 2013
 
Revenue 1.411,8 1.520,1
Cost of sales (1.265,0) (1.382,5)
Gross profit 146,8 137,6
 
Selling expenses (66,3) (66,4)
General and administrative expenses (23,6) (23,3)
Research and development expenses (3,3) (3,3)
Other operating expenses (net) (10,1) (4,5)
Result from operating activities 43,5 40,1
 
Interest income 0,5 0,9
Interest expense (12,8) (12,5)
Other finance gain (loss) (net) 0,9 12,4
Net finance costs (11,4) 0,8
     
Income before tax 32,1 40,9
Income tax benefit (expense) (2,8) (14,1)
Net income 29,3 26,8
Attributable to:
Non-controlling interests 0,2 0,3
Owners of the company 29,1 26,5

Styrolution Group GmbH – Unaudited Interim Financial Statements

Consolidated Statement of Comprehensive Income for the three months ended 31 March 2014 and 2013

In millions of EUR   1 January –

31 March 2014

  1 January –

31 March 2013

 
Net income 29.3 26.8
Foreign currency translation reserve 5.7 20.2
Total other comprehensive income 5.7 20.2
Total comprehensive income 35.0 47.0
Attributable to:

Non-controlling interests

0.6

0.6

Owners of the company 34.4 46.4

Styrolution Group GmbH – Unaudited Interim Financial Statements

Consolidated Statement of Financial Position

In millions of EUR   31 March 2014   31 December 2013
 
Assets
Property, plant and equipment 763,4 790,0
Intangible assets and goodwill 1.175,4 1.195,7
Deferred tax assets 29,1 22,3
Other receivables and miscellaneous non-current assets 17,0 17,0
Non-current assets 1.984,9 2.025,0
Inventories 538,1 499,6
Accounts receivable, trade 749,8 651,9
Other receivables and miscellaneous current assets 149,8 147,2
Cash and cash equivalents 288,1 288,1
Current assets 1.725,8 1.586,8
Total assets 3.710,7 3.611,8
Equity
Share capital 10,0 10,0
Contributed Surplus 1.641,4 1.641,4
Other reserves (34,2) (39,5)
Accumulated deficit 113,4 84,3
Equity attributable to owners of the Company 1.730,6 1.696,2
Non-controlling interest 13,2 12,6
Total equity 1.743,8 1.708,8
Liabilities
Financial indebtedness 482,0 481,0
Employee benefits 32,5 35,5
Deferred tax liabilities 330,0 334,1
Other liabilities and other long term provisions 45,1 51,0
Non-current liabilities 889,6 901,6
Accounts payable, trade 533,1 506,7
Financial indebtedness 281,0 268,7
Current tax liabilities 64,4 59,2
Other liabilities and short term provisions 198,8 166,8
Current liabilities 1.077,3 1.001,4
Total liabilities 1.966,9 1.903,0
Total equity and liabilities 3.710,7 3.611,8

Styrolution Group GmbH – Unaudited Interim Financial Statements

Consolidated Statement of Changes in Equity

 

 

In millions of EUR

  Share Capital   ContributedSurplus   Retained Earnings / (Accumulated deficit)   Other Reserves   Equity attributable to owners of the company   Non-controlling interest   Total
Equity
31 December 2013 10.0 1,641.4 84.3 (39.5) 1,696.2 12.6 1,708.8
 
Net income 29.1 29.1 0.2 29.3
Other Comprehensive income       5.3 5.3 0.4 5.7
Total comprehensive income     29.1 5.3 34.4 0.6 35.0
31 March 2014 10.0 1,641.4 113.4 (34.2) 1,730.6 13.2 1,743.8

 

             
31 December 2012 10.0 1,641.4 (38.0) 17.3 1,630.7 6.8 1,637.5
 
Net income 26.5 26.5 0.3 26.8
Other Comprehensive income       19.9 19.9 0.3 20.2
Total comprehensive income     26.5 19.9 46.4 0.6 47.0
31 March 2013 10.0 1,641.4 (11.5) 37.2 1,677.1 7.4 1,684.5

Styrolution Group GmbH – Unaudited Interim Financial Statements

Consolidated Statement of Cash Flows

In millions of EUR   1 January – 31 March 2014   1 January – 31 March 2013
Cash flows from operating activities
Income before tax 32,1 40,9
Adjustment for:
Depreciation and impairment of property, plant and equipment 30,7 24,6
Amortization and impairment of intangible assets 24,1 25,4
Change in Other receivables 3,4 (9,9)
Change in pension provisions, other liabilities and charges 11,0 (1,6)
Net finance cost 11,4 (0,8)
Current income tax paid (10,7) (17,5)
Working capital adjustments:
- Inventories (37,4) (1,7)
- Trade receivables (97,5) (99,8)
- Trade payables 44,7 118,5
Cash generated from operating activities 11,8 78,1
Interest paid (1,1) (1,9)
Net cash flows from operating activities 10,7 76,2
 
Cash flows from investing activities
Investments in property, plant and equipment and intangible fixed assets (22,0) (15,5)
Net cash flows used in investing activities (22,0) (15,5)
 
Cash flows from financing activities
Repayments of asset securitization, net (0,3) (82,7)
Repayment of borrowings from related parties - -
Receipts of receivables from related parties - 10,2
Receipt of other borrowings 16,8 0,5
Repayment of other borrowings (5,2) (5,8)
Net cash flows used in financing activities 11,3 (77,8)
     
Net changes in cash and cash equivalents (0,0) (17,1)
 
Cash and cash equivalents at prior year end 288,1 190,1
Effect of exchange rate fluctuations on cash held (0,0) 1,4
Total Cash and cash equivalents 288,1 174,4

* Investments in property, plant and equipment in Q1-2014 includes EUR 17.3 million of payments for the Texas City turnaround completed in December 2013.

Styrolution Group GmbH – Unaudited Interim Financial Statements

Notes

1. Reporting entity

Styrolution Group GmbH (the ‘Company’) is an intermediate holding Company which is wholly owned by Styrolution Beteiligungs GmbH, a wholly owned subsidiary of Styrolution Holding GmbH. Styrolution Holding GmbH is a joint venture ultimately owned by two shareholders. INEOS Industries Holdings Ltd. (“INEOS”), a subsidiary of INEOS AG owns 50% of the shares of Styrolution Holding GmbH. BASF SE directly owns 18.09% of the shares of Styrolution Holding GmbH and indirectly through BASF Antwerpen N.V. (a wholly owned subsidiary) another 31.91%. The Company is domiciled in Germany and has its registered office at Erlenstrasse 2, 60325 Frankfurt am Main, Germany.

The consolidated interim financial statements of the Company comprise the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). The Group is the leading global producer, marketer and merchant seller of styrene monomer and styrenics polymers.

2. Basis for preparation

(a) Statement of compliance

These consolidated interim financial statements of Styrolution Group GmbH for the period ended 31 March 2014 have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not provide all of the information and disclosures included in complete consolidated financial statements and are therefore to be read in conjunction with the consolidated financial statements as of and for the period ending 31 December 2013.

The consolidated interim financial statements were authorized for issue by the Managing Directors on 12 May 2013.

(b) Basis of measurement

The basis of measurement for the consolidated financial statements is generally the historical cost basis except for those financial instruments categories measured at fair value.

(c) Functional and presentation currency

These consolidated interim financial statements are presented in EUR, which is the Company’s functional currency. All financial information presented in EUR has been rounded to the nearest tenth of a million, except when otherwise indicated.

(d) Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

(e) Segment reporting

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a basis considered reasonable. Unallocated items comprise mainly assets that are used across segments (primarily the Company’s headquarters), head office expenses and tax assets and liabilities. The Company has defined the following operating segments:

  • Polymers EMEA
  • Polymers Americas
  • Polymers Asia
  • Styrene Monomer

Detailed information by segment for the three months ended 31 March 2014 is presented in the following tables. Inter-segment-sales of the Styrene Monomer business contain external sales to other Styrolution entities as well as internal consumption within one legal entity.

In millions of EUR   External sales   Inter-segment sales   EBITDA before Special Items
  3M 2014   3M 2013 3M 2014   3M 2013 3M 2014   3M 2013
Polymers EMEA 492,8 550,2 14,8 22,0 47,1 49,0
Polymers Americas 302,2 309,0 1,2 2,2 24,9 14,3
Polymers Asia 234,4 264,4 1,5 1,5 5,3 9,2
Styrene Monomer 382,4 396,5 606,9 648,4 31,1 21,4
Corporate and eliminations     -624,4 -674,1    
Total 1.411,8 1.520,1 0,0 0,0 108,4 93,9

The reconciliation of EBITDA before special items to Income before tax is as following:

In millions of EUR   1 Jan - 31 Mar 2014   1 Jan - 31 Mar 2013
 
EBITDA before special items 108,4 93,9
Special items (restructuring expenses) (10,1) (3,8)
Depreciation and Amortization (54,8) (50,0)
Results from operations 43,5 40,1
Net finance costs (11,4) 0,8
Income before tax 32,1 40,9

EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before special items represents EBITDA less special items. Although EBITDA and EBITDA before special items should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements. EBITDA and EBITDA before special items may not be comparable to similarly titled measures used by other companies.

3. Financial Indebtedness

In millions of EUR       31 March 2014   31 December 2013
Current liabilities  
Short term borrowings from asset securitizations 251.0 250.6
Short term borrowings other   30.0 18.1
Total   281.0 268.7

4. Related parties

In millions of EUR   Transaction value   Balance outstanding   Transaction value   Balance outstanding
  1 January –
31 March 2014
31 March

2014

1 January –
31 March 2013
31 December

2013

Sale of products
BASF 70.2 76.8
INEOS 24.0 36.6
Purchase of raw materials*
BASF 519.5 503.6
INEOS 100.6 137.6
Services received
BASF 23.9 53.4
INEOS 5.8 5.6
Trade and other receivables
BASF 101.0 54.1
INEOS 9.0 10.6
Shareholder 23.2 22.9
Trade and other payables
BASF (265.5) (259.1)
INEOS   (55.7)   (38.4)

* Q1 2013 figures have been adjusted compared to the Interim Financial Statements for the three months ended 31 March 2013.

5. Income taxes

Income tax expense is recognized based on management’s best estimate of the income tax rate expected for the year 2014 applied to the income before taxes of the first quarter 2014. The Group’s consolidated tax rate for the first quarter of 2014 was 8.7%. The effective tax rate was low due to profits made in low tax jurisdictions and tax losses used. The company views this effective tax rate as incidentally low.

6. Contingencies

In the first half of 2013, Styrolution Americas LLC became defendant in two proceedings having their origin in the termination of a partnership that owns a plant and was contractual partner for certain feedstock processing contracts. The claimants have raised claims for Styrolution’s alleged failure to perform under the contract and filed for arbitration to determine the fair market value of Styrolution’s interest in the partnership. The views of the parties on what is the fair market value of Styrolution’s limited partnership interest vary greatly. A decision by arbitrators is anticipated only in the third quarter of 2014. Management does not expect that a loss is probable and intends to vigorously defend against the claims raised.

PRESENTATION OF THE STYROLUTION FIRST QUARTER 2013 BUSINESS RESULTS OF

OPERATION

The Company prepared this discussion and analysis of its results of operations by comparing its unaudited consolidated interim financial statements of income and cash flows for the first quarters of 2014 and 2013.

In millions of EUR   1 Jan - 31 Mar 2014   1 Jan - 31 Mar 2013   %
 
Revenue 1.411,8 1.520,1 (7,1)
Cost of sales (1.265,0) (1.382,5) (8,5)
Gross profit 146,8 137,6 6,7
 
Selling expenses (66,3) (66,4) (0,2)
General and administrative expenses (23,6) (23,3) 1,3
Research and development expenses (3,3) (3,3) -
Other operating expenses (net) (10,1) (4,5) >100.0
Result from operating activities 43,5 40,1 8,5
 
Interest income 0,5 0,9 (44,4)
Interest expense (12,8) (12,5) 2,4
Other finance gain (loss) (net) 0,9 12,4 (92,7)
Net finance costs (11,4) 0,8 n/a
       
Income before tax 32,1 40,9 (21,5)
Income tax benefit (expense) (2,8) (14,1) (80,1)
Net income 29,3 26,8 9,3
Attributable to:
Non-controlling interests 0,2 0,3 (33,3)
Owners of the company 29,1 26,5 9,8

Revenue in the first quarter of 2014 amounts to EUR 1,411.8 million a decrease of EUR (108.3) million or (7.1%) compared to EUR 1,520.1 million in the first quarter of 2013. Revenue reduced due to lower standard products polymers and styrene sales volumes, and lower sales prices resulting from lower feedstock prices.

Revenue in Polymers Americas decreased slightly due to Styrolution’s value approach and continued restrained customer buying behavior in expectation of further falling prices. Lower Polystyrene sales were partly offset by increased ABS Standard and Specialties sales.

Revenue in Polymers EMEA decreased. Weak economic market conditions in the region, lower sales prices because of lower feedstock prices and lower market demand for Polystyrene were the main reasons for the decrease.

Revenue in Polymers Asia decreased as a result of lower sales volumes in ABS Standard and lower sales prices because of lower feedstock prices. The ABS market continues to be impacted by capacity increases which occured in 2012 and 2013. The decrease in revenue was partly offset by higher sales volumes in Specialties.

Revenue in Styrene Monomer decreased because of cold wheather conditions restricting transportation capabilities in North America.

Cost of Sales: Cost of sales decreased by EUR 117.5 million or 8.5% to EUR (1,265.0) million compared to EUR (1,382.5) million in the previous year. This decrease was due to lower sales volumes and lower raw material prices. Depreciation and amortization mainly related to the purchase price allocation increased by EUR 4.8 million because of accelatered depreciation of the Indian Orchard tangible fixed assets as a result of the announced monthballing of the site.

Gross profit: Gross profit increased by EUR 9.2 million or 6.7% to EUR 146.8 million compared to EUR 137.6 million in the previous year.

During 2013 the Company adopted a value approach in its polymers businesses. This resulted in improved profitability and gross profit in most of its business segments. Gross profit was also positively impacted by increasing feedstock prices, as the Group was able to benefit from selling the inventory which was carried at lower cost of the feedstock at higher sales prices when converted into finished products. This so-called flow-through effect contributed approximately EUR 8 million in Q1-2014. In Q1-2013, however, feedstock prices decreased slightly, leading to a negative flow-through of approximately EUR 5 million.

Partially offsetting effects relate to depreciation and amortization (see ‘Cost of Sales’) and reduced sales volumes (see ‘revenue’).

Selling expenses: Selling expenses remained stable at EUR (66.3) million in Q1-2014 compared to EUR (66.4) million in the previous year. The small decrease resulted mainly from lower sales volumes offset by higher freight costs due to the extreme winter conditions in the Americas and higher variable freight costs as a result of this.

General and administrative expenses: General and administrative expenses increased slightly by EUR 0.3 million or 1.3% to EUR (23.6) million compared to EUR (23.3) million in the previous year. Expenses were lower than the quarterly average of 2013 of € 25.2 million.

Research and development expenses: Research and development expenses were stable at EUR (3.3) million. The Group considers it important to continuously invest in new products or product applications.

Other operating expenses: Other operating expenses were EUR (10.1) million, an increase of EUR (5.6) million compared to other operating expenses of EUR (4.5) million in the previous year. The increase was mainly due to the provision for mothballing costs of the Indian Orchard site, USA.

EBITDA before special items: EBITDA before special items increased by EUR 14.5 million or 15.4% from EUR 93.9 million to EUR 108.4 million. The first quarter of 2014 was a good margin quarter in an uncertain economic environment. The increase mainly resulted from the value approach and positive flow through. In the special items an amount of USD 8.9 million (or EUR 6.5 million) was included for the mothballing of the Indian Orchard site, United States. These costs include, among others, severance payments and contract termination costs.

Net finance results: Interest income and expense were at a similar level compared to the first quarter of 2013. Other finance gains and losses that result from foreign currency gains decreased to EUR 0.9 million compared to a gain of EUR 12.4 million in Q1 2013. Foreign currency effects mainly came from translation effects on intra-group loans.

The development of the product groups on a global level for the three months period ended 31 March was as following:

In millions of EUR   External sales   EBITDA before Special Items
  3M 2014   3M 2013   % 3M 2014   3M 2013   %
Polystyrene 541,7 601,1 (9,9 ) 32,2 24,3 32,5
ABS Standard 187,6 219,3 (14,5 ) 13,1 16,2 (19,1)
Specialties 300,1 303,2 (1,0 ) 32,0 32,0 -
Styrene Monomer 382,4 396,5 (3,6 ) 31,1 21,4 45,3
Total 1.411,8 1.520,1 (7,1 ) 108,4 93,9 15,5

* EBITDA represents income from operations plus depreciation of property, plant and equipment and amortization of intangible assets. EBITDA before special items represents EBITDA less special items. Although EBITDA and EBITDA before special items should not be considered substitute measures for profit and net cash flow from operating activities, we believe that they provide useful information regarding our ability to meet future debt service requirements, EBITDA and EBITDA before special items may not be comparable to similarly titled measures used by other companies.

LIQUIDITY AND CAPITAL RESOURCES

The cash flow statement was prepared in accordance with the indirect method. Cash and cash equivalents do not include deposits and guarantees that are not immediately available. These amounts are included in other receivables.

Cash provided from operating activities

Cash provided from operating activities by Styrolution in the first three month of 2014, excluding interest payments, was EUR 11.8 million. The cash flows provided from operations were significantly lower than the result from operations on the income statement due to working capital impacts included in the cash generated from operations. The main impact from the working capital in Q1-2014 resulted from the start up of the Texas City site after the turnaround completed in January 2014. The working capital at the end of December 2013 was very low because of seasonally low trading activities in December 2013 and the reduced inventory at the Texas City site during its turnaround.

Cash used in investing activities

The cash used in investing activities consists of Investment activities in tangible fixed assets (EUR 21.5 million) and its internal use software (EUR 0.1 million). Investments in property, plant and equipment in Q1-2014 includes EUR 17.3 million of payments for the Texas City turnaround completed in January 2014.

Cash used in financing activities

The Group used cash flow in financing activities primarily to finance the operating and investing activities. There were no material movements in Q1-2014.

Financing of Styrolution

The financing of the Group is through the issuance of Senior Secured Notes of EUR 480 million, a Trade Receivables Securitization Facility (up to EUR 500 million) and ancillary lines for instruments such as guarantees and letters of credit.

The financing of Styrolution and the use of funds at the end of March 2014 of the Group was as follows:

In millions of EUR       31 March 2014   31 December 2013
Senior secured bond*   480.0 480.0
Short term borrowings from asset securitizations 251.0 250.6
Other financing 38.9 26.0
Total Financing 769.9 756.6
Cash and cash equivalents   (288.1) (288.1)
Net Debt*   481.8 468.5

* Net debt includes the notional amount of the senior secured bond rather than the carrying amount in accordance with IFRS which is lower than the notional amount due to debt issuance cost that are amortized over the term of the bond.

Short Name: STYROLUTION
Category Code: QRF
Sequence Number: 418958
Time of Receipt (offset from UTC): 20140527T074700+0100

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