##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F

|      |  |                                                                                                                                  
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------
|[   ] |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934                                  
|     
|      |  | OR                                                                                                                               
|     
|[X]   |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
|     
|      |  | OR                                                                                                                               
|     
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934                                        

COMMISSION FILE NUMBER 0-31228

INEOS GROUP LIMITED

(Exact Name of Registrant as Specified in Its Charter)


ENGLAND and WALES
(Jurisdiction of Incorporation or Organisation)

HAWKSLEASE, CHAPEL LANE, LYNDHURST
HAMPSHIRE, SO43 7FG
UNITED KINGDOM
(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12 (b) of the Act:

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  | N/A                                      

Securities registered or to be registered pursuant to Section 12 (g) of the Act:

Class D Oxide Shares
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act:

NONE

Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by this annual
report:

Class B Oxide Shares, 3,225,000; Class C Oxide Shares, 1,650,000; Class C
Oxide US Shares, 60,000; Class D Oxide Shares, 10,125,000; Class B Phenol
Shares, 2,201,250; Class C Phenol Shares, 742,500; Class C Phenol Regional
Tracker Shares, 1,500,000; Class D Phenol Shares, 10,556,250; Class B Fluor
Shares, 2,201,250; Class C Fluor Shares, 742,500; Class C Fluor Regional
Tracker Shares, 1,500,000; Class D Fluor Shares, 10,556,250; Class B
Silicas Shares, 2,201,250; Class C Silicas Shares, 742,500; Class C Silicas
Regional Tracker Shares, 1,500,000; Class D Silicas Shares, 10,556,250.

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days:

|    |     |    |      
|--- | --- | -- | -----
|Yes | [X] | No | [   ]

Indicate by check mark which financial statement items the Registrant has elected to follow:

|        |       |         |    
|------- | ----- | ------- | ---
|Item 17 | [   ] | Item 18 | [X]





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TABLE OF CONTENTS



|                                                                                      |                                        |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | -------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                               
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|ITEM 3. KEY INFORMATION                                                              
|ITEM 4. INFORMATION ON THE COMPANY                                                   
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|ITEM 8. FINANCIAL INFORMATION                                                        
|ITEM 9. THE OFFER AND LISTING                                                        
|ITEM 10. ADDITIONAL INFORMATION                                                      
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                                                              
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|ITEM 15. CONTROLS AND PROCEDURES                                                     
|ITEM 16. [RESERVED]                                                                  
|PART III                                                                             
|ITEM 17. FINANCIAL STATEMENTS                                                        
|ITEM 18. FINANCIAL STATEMENTS                                                        
|ITEM 19. EXHIBITS                                                                    
|SIGNATURE                                                                            
|CERTIFICATIONS                                                                       
|CONSOLIDATED PROFIT AND LOSS ACCOUNTS                                                
|CONSOLIDATED BALANCE SHEETS                                                          
|CONSOLIDATED CASH FLOW STATEMENTS                                                    
|STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES                                      
|NOTES TO THE FINANCIAL STATEMENTS                                                    
|                                                                                      | 6. EXCEPTIONAL ADMINISTRATIVE EXPENSES
|SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT                           
|REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE                    
|CONDENSED PARENT COMPANY PROFIT AND LOSS ACCOUNTS                                    
|CONDENSED PARENT COMPANY BALANCE SHEETS                                              
|CONDENSED PARENT COMPANY CASH FLOW STATEMENTS                                        
|NOTES TO THE CONDENSED FINANCIAL STATEMENTS                                          
|906 Certifications                                                                   



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##### Table of Contents



TABLE OF CONTENTS

|         |  |                                                                              |  |  |    |  |  |      |  | 
|-------- |  | ---------------------------------------------------------------------------- |  |  | -- |  |  | ---- |  | 
|         |  |                                                                              |  |  |    |  |  | Page
|         |  |                                                                              |  |  |    |  |  |     
|PART I  
|        
|ITEM 1.  |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                        |  |  | 5  | 
|ITEM 2.  |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  |  | 5  | 
|ITEM 3.  |  | KEY INFORMATION                                                              |  |  | 5  | 
|ITEM 4.  |  | INFORMATION ON THE COMPANY                                                   |  |  | 15 | 
|ITEM 5.  |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  |  | 36 | 
|ITEM 6.  |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  |  | 59 | 
|ITEM 7.  |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  |  | 63 | 
|ITEM 8.  |  | FINANCIAL INFORMATION                                                        |  |  | 64 | 
|ITEM 9.  |  | THE OFFER AND LISTING                                                        |  |  | 64 | 
|ITEM 10. |  | ADDITIONAL INFORMATION                                                       |  |  | 64 | 
|ITEM 11. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  |  | 70 | 
|ITEM 12. |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  |  | 70 | 
|        
|PART II 
|        
|ITEM 13. |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  |  | 70 | 
|ITEM 14. |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS |  |  | 70 | 
|ITEM 15. |  | CONTROLS AND PROCEDURES                                                      |  |  | 70 | 
|ITEM 16. |  | [RESERVED]                                                                   |  |  | 70 | 
|        
|PART III
|        
|ITEM 17. |  | FINANCIAL STATEMENTS                                                         |  |  | 70 | 
|ITEM 18. |  | FINANCIAL STATEMENTS                                                         |  |  | 71 | 
|ITEM 19. |  | EXHIBITS                                                                     |  |  | 72 | 

2



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##### Table of Contents






PART I

PRESENTATION OF INFORMATION

As used in this annual report: the terms Ineos Group Limited, our,
we and us refer to Ineos Group Limited and, unless the context otherwise
requires, its subsidiaries and predecessor businesses as a combined entity; and
the term Ineos Capital refers to Ineos Capital Limited.

In this annual report, unless otherwise indicated: all references to the
EU are to the European Union; all references to
euro or   are to the
lawful currency of the European Union; all references to the UK are to the
United Kingdom; all references to pounds sterling, sterling or £ are to
the lawful currency of the United Kingdom; all references to the United
States or the US are to the United States of America; all references to
US$, US dollars, dollars or $ are to the lawful currency of the United
States.

Market data used throughout this annual report was obtained from internal
company surveys and industry surveys and publications. Industry surveys and
publications generally state that the information contained therein has been
obtained from sources believed to be reliable, but we have not independently
verified such market data. Similarly, internal company surveys, while believed
to be reliable, have not been verified by any independent sources.

Unless otherwise stated, references to capacities of our facilities refer
to the nameplate capacities, or theoretical maximum production capacity of
such facilities; the effective capacity of such facilities may, however,
actually be less than the nameplate capacity due to the current operating
conditions and asset configuration of each facility.

All references to tonnes are to metric tonnes.

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FORWARD-LOOKING STATEMENTS

This annual report 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
annual report including, without limitation, statements regarding our future
financial position, risks and uncertainties related to our business, 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,
including those identified under the heading Risk Factors beginning on page
9. 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), filings with the US
Securities and Exchange Commission, reports to our securityholders 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.

The risks described in Risk Factors are not exhaustive. Other sections
of this annual report describe additional factors that could adversely affect
our business, financial condition or results of operations. Moreover, we
operate in a very competitive and rapidly changing environment. New risk
factors emerge from time to time and it is not possible for us to predict all
such risk factors, nor can we assess the impact of all such risk factors on our
business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any
forward-looking statements. Given these risks and uncertainties, you should
not place undue reliance on forward-looking statements as a prediction of
actual results.

4



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|ITEM 1. |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
|------- |  | -----------------------------------------------------

Not applicable.






|ITEM 2. |  | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- |  | ---------------------------------------

Not applicable.






|ITEM 3. |  | KEY INFORMATION        
|------- |  | -----------------------
|       
|A.      |  | SELECTED FINANCIAL DATA

The selected historical consolidated financial data presented below for
the period prior to April 6, 1998 relates to the operations of the predecessors
of Ineos Group Limited. The selected financial data for the three years ended
December 31, 2002 and as at December 31, 2001 and 2002 is derived from the
consolidated financial statements of Ineos Group Limited appearing elsewhere in
this annual report.

Our financial statements have been prepared in accordance with UK GAAP,
which differs in certain respects from US GAAP. See note 36 to our audited
consolidated financial statements for a summary of the main differences between
UK GAAP and US GAAP as they relate to us. You should read the data below in
conjunction with Item 5, Operating and Financial Review and ProspectsIneos
Group LimitedResults of Operations and the consolidated financial statements
in Item 18 of this annual report. The information for the years ended December
31, 2000 and 2001 has been restated for the effects of FRS 19 Deferred tax 
see note 2 to our audited consolidated financial statements.

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|                                    |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |          |       |  
|----------------------------------- | --------------------------------------------------- | ----------------------------------------------- | ---- | ------------------------------ | ---- | ------------ | ---- | ----------------------- | ------ | --------------- | ---- | --------------- | ----- | ---- | ---- | ------ | ----- | - | ----- | -------- | ------ | - | ----- | -------- | ----- | -
|                                    |                                                     |                                                 |      | Period from                    |      | Period from  |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |  
|                                    |                                                     |                                                 |      | January 1,                     |      | April 6,     |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |  
|                                    |                                                     |                                                 |      | 1998 to                        |      | 1998 to      |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |  
|                                    |                                                     |                                                 |      | April 5,                       |      | December 31, |      | Year Ended December 31,
|                                    |                                                     |                                                 |      |                                |      |              |      |                        
|                                    |                                                     |                                                 |      | 1998                           |      | 1998         |      | 1999                    |        | 2000 (restated) |      | 2001 (restated) |       | 2002
|                                    |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |     
|                                    |                                                     |                                                 |      | (in  millions, except ratios)
|Profit and Loss Account
Data:       |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |         
|Amounts in accordance
with UK GAAP: |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |         
|                                    | Turnover                                            |                                                 |      | 55.7                           |      |              |      | 149.1                   |        |                 |      | 230.6           |       |      |      | 337.0  |       |   |       | 1,530.7  |        |   |       | 2,235.8  |      
|                                    | Cost of sales                                       |                                                 |      | (40.3                          | )    |              |      | (120.4                  | )      |                 |      | (182.5          | )     |      |      | (270.0 | )     |   |       | (1,255.8 | )      |   |       | (1,833.9 | )    
|                                    |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |          |      
|                                    | Gross profit                                        |                                                 |      | 15.4                           |      |              |      | 28.7                    |        |                 |      | 48.1            |       |      |      | 67.0   |       |   |       | 274.9    |        |   |       | 401.9    |      
|                                    | Distribution costs                                  |                                                 |      | (2.2                           | )    |              |      | (6.9                    | )      |                 |      | (11.5           | )     |      |      | (13.4  | )     |   |       | (104.4   | )      |   |       | (161.8   | )    
|                                   
|                                    | Administrative
expenses before
exceptional items    |                                                 |      | (1.3                           | )    |              |      | (6.4                    | )      |                 |      | (7.9            | )     |      |      | (8.5   | )     |   |       | (68.7    | )      |   |       | (65.9    | )    
|                                    | Exceptional
administrative
expenses                 |                                                 |      |                               |      |              |      |                        |        |                 |      |                |       |      |      |       |       |   |       | (19.6    | )      |   |       | (24.6    | )    
|                                   
|                                    |                                                     |                                                 | (1.3 | )                              |      |              | (6.4 | )                       |        |                 | (7.9 | )               |       |      | (8.5 | )      |       |   | (88.3 | )        |        |   | (90.5 | )       
|                                    | Operating profit                                    |                                                 |      | 11.9                           |      |              |      | 15.4                    |        |                 |      | 28.7            |       |      |      | 45.1   |       |   |       | 82.2     |        |   |       | 149.6    |      
|                                    | Profit/(loss) on
ordinary activities
after taxation |                                                 |      | 10.4                           |      |              |      | 7.6                     |        |                 |      | 12.7            |       |      |      | 27.6   |       |   |       | (21.1    | )      |   |       | 35.2     |      
|                                    | Profit/(loss) for the
financial year                |                                                 |      | 10.4                           |      |              |      | 7.6                     |        |                 |      | 12.7            |       |      |      | 27.6   |       |   |       | (21.1    | )      |   |       | 35.2     |      
|Amounts in accordance
with US GAAP: |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |         
|                                    | Operating Profit                                    |                                                 |      | 11.6                           |      |              |      | 13.2                    |        |                 |      | 29.5            |       |      |      | 45.8   |       |   |       | 66.7     |        |   |       | 138.4    |      
|                                    | Net income/(loss)                                   |                                                 |      | 7.1                            |      |              |      | 5.4                     |        |                 |      | 13.6            |       |      |      | 28.3   |       |   |       | (42.0    | )      |   |       | 23.0     |      
|                                    |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |          |      
|Other Financial Data:               |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |         
|Amounts in accordance
with UK GAAP: |                                                     |                                                 |      |                                |      |              |      |                         |        |                 |      |                 |       |      |      |        |       |   |       |          |        |   |       |         
|                                    | EBITDA(1)(2)                                        |                                                 |      | 13.3                           |      |              |      | 20.3                    |        |                 |      | 35.6            |       |      |      | 52.8   |       |   |       | 179.4    |        |   |       | 256.2    |      
|                                    | Depreciation and
amortisation                       |                                                 |      | (1.4                           | )    |              |      | (4.9                    | )      |                 |      | (6.9            | )     |      |      | (7.7   | )     |   |       | (77.4    | )      |   |       | (81.4    | )    
|                                    | Cash flows
Operating                                |                                                 |      | 12.1                           |      |              |      | 28.8                    |        |                 |      | 23.2            |       |      |      | 49.4   |       |   |       | 177.9    |        |   |       | 210.8    |      
|                                    |                                                     | Returns on
investments and
servicing of finance |      |                                | (1.5 | )            |      |                         | (6.7   | )               |      |                 | (9.7  | )    |      |        | (8.8  | ) |       |          | (115.0 | ) |       |          | (61.3 | )
|                                    |                                                     | Dividend received
from associate                |      |                                |     |              |      |                         |       |                 |      |                 |      |      |      |        |      |   |       |          |       |   |       |          | 0.4   |  
|                                    |                                                     | Taxation paid                                   |      |                                |     |              |      |                         |       |                 |      |                 | (0.1  | )    |      |        | (6.6  | ) |       |          | (11.9  | ) |       |          | (11.1 | )
|                                    |                                                     | Capital expenditures                            |      |                                | 1.8  |              |      |                         | (3.3   | )               |      |                 | (10.0 | )    |      |        | (17.1 | ) |       |          | (42.9  | ) |       |          | (47.5 | )
|                                    |                                                     | Acquisitions and
disposal                       |      |                                |     |              |      |                         | (123.5 | )               |      |                 | (4.3  | )    |      |        |      |   |       |          | (777.0 | ) |       |          | (5.0  | )
|                                    |                                                     | Equity dividends paid                           |      |                                |     |              |      |                         |       |                 |      |                 |      |      |      |        |      |   |       |          |       |   |       |          |      |  
|                                    |                                                     | Financing                                       |      |                                |     |              |      |                         | 131.6  |                 |      |                 | (4.8  | )    |      |        | (26.8 | ) |       |          | 877.4  |   |       |          | (91.4 | )

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|                                    |                            |  |  |                                |  |              |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   |  |  |         |   | 
|----------------------------------- | -------------------------- |  |  | ------------------------------ |  | ------------ |  | ----------------------- | - | --------------- |  | --------------- | - | ---- |  | ------ | - |  |  | -------- | - |  |  | ------- | - | 
|                                    |                            |  |  | Period from                    |  | Period from  |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   | 
|                                    |                            |  |  | January 1,                     |  | April 6,     |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   | 
|                                    |                            |  |  | 1998 to                        |  | 1998 to      |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   | 
|                                    |                            |  |  | April 5,                       |  | December 31, |  | Year Ended December 31,
|                                    |                            |  |  |                                |  |              |  |                        
|                                    |                            |  |  | 1998                           |  | 1998         |  | 1999                    |   | 2000 (restated) |  | 2001 (restated) |   | 2002
|                                    |                            |  |  |                                |  |              |  |                         |   |                 |  |                 |   |     
|                                    |                            |  |  | (in  millions, except ratios)
|Balance Sheet Data (at
period end): |                            |  |  |                                |  |              |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   |  |  |        
|Amounts in
accordance with
UK GAAP: |                            |  |  |                                |  |              |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   |  |  |        
|                                    | Cash                       |  |  |                               |  |              |  | 26.9                    |   |                 |  | 21.2            |   |      |  | 12.4   |   |  |  | 121.5    |   |  |  | 109.0   |  
|                                    | Net current assets         |  |  |                               |  |              |  | 41.2                    |   |                 |  | 26.6            |   |      |  | 29.6   |   |  |  | 231.7    |   |  |  | 209.0   |  
|                                    | Total assets               |  |  |                               |  |              |  | 177.7                   |   |                 |  | 202.8           |   |      |  | 214.6  |   |  |  | 1,428.1  |   |  |  | 1,367.7 |  
|                                    | Total debt                 |  |  |                               |  |              |  | (130.5                  | ) |                 |  | (128.3          | ) |      |  | (112.6 | ) |  |  | (1,036.1 | ) |  |  | (927.9  | )
|                                    | Equity
shareholders
funds |  |  |                               |  |              |  | 10.3                    |   |                 |  | 23.0            |   |      |  | 41.1   |   |  |  | 17.6     |   |  |  | 12.3    |  
|Amounts in
accordance with
US GAAP: |                            |  |  |                                |  |              |  |                         |   |                 |  |                 |   |      |  |        |   |  |  |          |   |  |  |        
|                                    | Total assets               |  |  |                               |  |              |  | 175.4                   |   |                 |  | 206.5           |   |      |  | 218.6  |   |  |  | 1,434.5  |   |  |  | 1,272.7 |  
|                                    | Equity
shareholders
funds |  |  |                               |  |              |  | 8.1                     |   |                 |  | 25.9            |   |      |  | 40.5   |   |  |  | (3.3     | ) |  |  | (20.7   | )



---

|(1) |  | EBITDA is defined as earnings before exceptional operating items, profit
on disposal of fixed assets, interest, taxation, depreciation and
amortisation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | EBITDA is included as supplemental disclosure as providing useful
information regarding a companys ability to service and incur debt.
EBITDA is not a measurement of operating performance calculated in
accordance with UK GAAP or US GAAP, and should not be considered a
substitute for operating income, net income, cash flows from operating
activities or other income statement data as determined in accordance with
UK GAAP or US GAAP, or as a measure of profitability or liquidity. EBITDA
does not necessarily indicate whether cash flow will be sufficient or
available for cash requirements. EBITDA may not be indicative of our
historical operating results nor is it meant to be predictive of potential
future results. The computation of EBITDA is as follows:

|                                                 |  |                 |      |              |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |   |  |  |       |  
|------------------------------------------------ |  | --------------- | ---- | ------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ----- | - |  |  | ----- | -
|                                                 |  | Period from     |      | Period from  |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |  
|                                                 |  | January 1,      |      | April 6,     |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |  
|                                                 |  | 1998 to         |      | 1998 to      |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |  
|                                                 |  | April 5,        |      | December 31, |  | Year Ended December 31,
|                                                 |  |                 |      |              |  |                        
|                                                 |  | 1998            |      | 1998         |  | 1999                    |      | 2000 |  | 2001 |      | 2002
|                                                 |  |                 |      |              |  |                         |      |      |  |      |      |     
|                                                 |  | (in  millions)
|Profit/(loss) for the
financial year             |  |                 | 10.4 |              |  |                         | 7.6  |      |  |      | 12.7 |      |  |  | 27.6 |  |  |  | (21.1 | ) |  |  | 35.2  |  
|Net finance charges                              |  |                 | 1.5  |              |  |                         | 6.2  |      |  |      | 12.8 |      |  |  | 9.9  |  |  |  | 68.7  |   |  |  | 79.8  |  
|Taxation on profit/(loss)
on ordinary activities |  |                 |     |              |  |                         | 1.6  |      |  |      | 3.2  |      |  |  | 7.6  |  |  |  | (6.1  | ) |  |  | 37.1  |  
|Depreciation of tangible
fixed assets            |  |                 | 1.4  |              |  |                         | 4.5  |      |  |      | 6.3  |      |  |  | 6.4  |  |  |  | 110.9 |   |  |  | 114.8 |  
|Amortisation of intangibles                      |  |                 |     |              |  |                         | 0.4  |      |  |      | 0.6  |      |  |  | 1.3  |  |  |  | (33.5 | ) |  |  | (33.4 | )
|Profit on disposal of
fixed assets               |  |                 |     |              |  |                         |     |      |  |      |     |      |  |  |     |  |  |  |      |   |  |  | (1.9  | )
|Exceptional administrative
expenses              |  |                 |     |              |  |                         |     |      |  |      |     |      |  |  |     |  |  |  | 19.6  |   |  |  | 24.6  |  
|Exceptional finance charges                      |  |                 |     |              |  |                         |     |      |  |      |     |      |  |  |     |  |  |  | 40.9  |   |  |  |      |  
|                                                 |  |                 |      |              |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |   |  |  |       |  
|                                                 |  |                 | 13.3 |              |  |                         | 20.3 |      |  |      | 35.6 |      |  |  | 52.8 |  |  |  | 179.4 |   |  |  | 256.2 |  
|                                                 |  |                 |      |              |  |                         |      |      |  |      |      |      |  |  |      |  |  |  |       |   |  |  |       |  

7



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##### Table of Contents



Exchange Rate Information

The following table sets forth, for the periods indicated, certain
information concerning the noon buying rates of the Federal Reserve Bank of New
York for euro expressed in dollars per euro.

These rates are provided solely for the convenience of the reader and
should not be construed as a representation that such euro amounts actually
represent such dollar amounts or that such euro amounts could have been, or
could be, converted into dollars at that rate or at any other rate. These
rates were not used to prepare the financial statements included in this annual
report.

|                         |  |            |      |            |  |      |      |     |  |  |      |  |  |  |      | 
|------------------------ |  | ---------- | ---- | ---------- |  | ---- | ---- | --- |  |  | ---- |  |  |  | ---- | 
|                         |  | Period End |      | Average(1) |  | High |      | Low
|                         |  |            |      |            |  |      |      |    
|                         |  | $/        |      | $/        |  | $/  |      | $/
|As of Months Ended       |  |            |      |            |  |      |      |     |  |  |      |  |  |  |      | 
|May
2003 (through May 5) |  |            | 1.13 |            |  |      | 1.12 |     |  |  | 1.13 |  |  |  | 1.12 | 
|April 2003               |  |            | 1.12 |            |  |      | 1.09 |     |  |  | 1.12 |  |  |  | 1.06 | 
|March 2003               |  |            | 1.09 |            |  |      | 1.08 |     |  |  | 1.11 |  |  |  | 1.05 | 
|February 2003            |  |            | 1.08 |            |  |      | 1.08 |     |  |  | 1.09 |  |  |  | 1.07 | 
|January 2003             |  |            | 1.07 |            |  |      | 1.06 |     |  |  | 1.09 |  |  |  | 1.04 | 
|December 2002            |  |            | 1.05 |            |  |      | 1.02 |     |  |  | 1.05 |  |  |  | 0.99 | 
|November 2002            |  |            | 0.99 |            |  |      | 1.00 |     |  |  | 1.01 |  |  |  | 0.99 | 

|                  |  |            |      |            |  |      |      |     |  |  |      |  |  |  |      | 
|----------------- |  | ---------- | ---- | ---------- |  | ---- | ---- | --- |  |  | ---- |  |  |  | ---- | 
|                  |  | Period End |      | Average(1) |  | High |      | Low
|                  |  |            |      |            |  |      |      |    
|                  |  | $/        |      | $/        |  | $/  |      | $/
|As of Year Ended  |  |            |      |            |  |      |      |     |  |  |      |  |  |  |      | 
|December 31, 2002 |  |            | 1.05 |            |  |      | 0.95 |     |  |  | 1.05 |  |  |  | 0.86 | 
|December 31, 2001 |  |            | 0.88 |            |  |      | 0.89 |     |  |  | 0.95 |  |  |  | 0.84 | 
|December 31, 2000 |  |            | 0.94 |            |  |      | 0.93 |     |  |  | 1.03 |  |  |  | 0.83 | 
|December 31, 1999 |  |            | 1.01 |            |  |      | 1.06 |     |  |  | 1.18 |  |  |  | 1.00 | 
|December 31, 1998 |  |            |     |            |  |      |     |     |  |  |     |  |  |  |     | 



---

|(3) |  | The yearly averages of the noon buying rates for dollars per euro were
calculated using the average noon buying rate on the last business day of
each month during the year, and the monthly averages of the noon buying
rates for dollars per euro were calculated using the average of the daily
noon buying rates within each month.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of April 22, 2003, the noon buying rate of the Federal Reserve Bank of
New York for euros was $1 =
0.89.

8



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##### Table of Contents





|B. |  | CAPITALISATION AND INDEBTEDNESS
|-- |  | -------------------------------

Not applicable.



|C. |  | REASONS FOR THE OFFER AND USE OF PROCEEDS
|-- |  | -----------------------------------------

Not applicable.



|D. |  | RISK FACTORS
|-- |  | ------------

Risks Relating to Our Capital Structure

Substantial
leverageOur substantial debt could adversely affect our
financial health and prevent us from fulfilling our debt obligations.

Our substantial debt could have important consequences. For example, it
could, among other things:



| |  |  | require us to dedicate a substantial portion of our operating cash
flow to making periodic principal and interest payments on our debt,
thereby limiting our ability to take advantage of significant business
opportunities and placing us at a competitive disadvantage compared to
our competitors that have less debt;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | make it more difficult for us to satisfy our obligations with respect to our debt;                                                                                                                                                                                                                                        
|
| |  |  | increase our vulnerability to general adverse economic and industry conditions;                                                                                                                                                                                                                                           
|
| |  |  | limit our ability to borrow money or to sell or transfer assets in
order to fund future working capital, capital expenditures, any future
acquisitions, research, development and technology process costs and
other general business requirements; or                                                                    
|
| |  |  | limit our flexibility in planning for, or reacting to, changes in
our businesses and the industries in which we operate.                                                                                                                                                                                                  

In addition, all of our debt under the Senior Credit Facilities bears
interest at a variable rate which is based on EURIBOR or LIBOR, as applicable,
plus an agreed margin plus certain additional costs, as defined in the Senior
Credit Facilities, including any applicable reserve asset and liquidity costs.
Although we are required to hedge a portion of our interest rate exposure,
fluctuations in EURIBOR or LIBOR, as applicable, may nevertheless increase our
overall debt obligation and could have a material adverse effect on our ability
to service our debt obligations.

The following chart shows total debt and shareholders equity as of
December 31, 2002:

|                     |  |                        
|-------------------- |  | -----------------------
|                     |  | As of December 31, 2002
|                     |  |                        
|                     |  | (in millions)          
|Total Debt           |  |  927.9                
|Shareholders Equity |  |    12.3               

For further information, you should read Item 5 of this annual report
titled Operating and Financial Review and Prospects.

Additional borrowings availableDespite current debt levels, we may still
be able to incur substantially more debt. This could further exacerbate the
risks described above.

We may be able to incur substantial additional debt in the future. The
terms of the indenture governing our Senior Notes and the terms of the Senior
Credit Facilities permit our subsidiaries to do so, in each case, subject to
certain limitations. If new debt is added to our current debt levels, the
risks that we now face could intensify.

9



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##### Table of Contents



For additional related disclosure, see Item 3.A of this annual report
titled Selected Financial Data.

Restrictive covenants in our debt instrumentsWe are subject to
restrictive debt covenants. If we default under these covenants, we will not
be able to meet our payment obligations.

The Senior Credit Facilities contain a number of significant covenants
that restrict some of our and our subsidiaries corporate activities, including
our and their ability to:



| |  |  | incur debt;                                                     
| | - |  | ----------------------------------------------------------------
|
| |  |  | give guarantees and indemnities;                                
|
| |  |  | make loans to others;                                           
|
| |  |  | create security interests in their assets;                      
|
| |  |  | make acquisitions and investments;                              
|
| |  |  | dispose of assets other than in the ordinary course of business;
|
| |  |  | issue shares;                                                   
|
| |  |  | pay dividends and make payments to shareholders; or             
|
| |  |  | change their accounting policies.                               

The Indenture contains a number of significant covenants that restrict
some of our and our subsidiaries corporate activities, including our and their
ability to:



| |  |  | incur additional debt;                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | pay dividends on, redeem or repurchase our capital stock;                                               
|
| |  |  | make certain investments;                                                                               
|
| |  |  | issue or sell capital stock of restricted subsidiaries;                                                 
|
| |  |  | create certain liens;                                                                                   
|
| |  |  | transfer or sell assets;                                                                                
|
| |  |  | enter into sale and leaseback transactions;                                                             
|
| |  |  | enter into agreements limiting the ability of our subsidiaries to
make dividend or other payments to us;



| |  |  | in the case of our subsidiaries, guarantee debt;
| | - |  | ------------------------------------------------
|
| |  |  | engage in transactions with affiliates;         
|
| |  |  | create unrestricted subsidiaries; and           



| |  |  | consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries on a consolidated basis.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

In addition, the Senior Credit Facilities require us to comply with
specified financial ratios and tests.

We believe that we are in compliance with the covenants and restrictions
contained in the Senior Credit Facilities. However, our ability to continue to
comply with these covenants and restrictions may be affected by events beyond
our control. These include prevailing economic, financial and industry
conditions. If we breach any of these covenants or restrictions, we could be
in default under the Senior Credit Facilities. This would permit the lending
banks to take certain actions, including declaring all amounts that we have
borrowed under the Senior Credit Facilities to be due and payable, together
with accrued and unpaid interest. This would also result in an event of
default under the indenture governing the Senior Notes. The lending banks
could also refuse to extend further credit under the Senior Credit Facilities.
If we are unable to repay our debt to the lending banks, they could proceed
against the collateral that secured the debt.

10



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##### Table of Contents



Ability to service debtTo service our debt, we will require a significant
amount of cash. Our ability to generate cash depends on many factors beyond
our control.

The ability of our subsidiaries to transfer monies upstream to us, as well
as to pay operating expenses and to fund planned capital expenditures, any
future acquisitions and research and development efforts, will depend on our
businesses ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our and our subsidiaries control.

If our subsidiaries are unable to generate sufficient cash flow to meet
their payment obligations, they may be forced to reduce or delay planned
expansions or capital expenditures, sell significant assets, discontinue
specified operations, obtain additional equity capital or attempt to
restructure or refinance all or a portion of their indebtedness on or before
maturity. If they are unsuccessful in any of these efforts, we may not have
sufficient cash to meet our obligations.

Risks Relating to Business Operations

The chemicals industry is cyclicalChanging market demands and prices may
negatively affect our operating margins and impair our cash flow which, in
turn, could affect our ability to make payments on our debts or to make further
investments in the business.

Cyclicality and volatility in supply and demand in the chemicals industry
may affect our prices and may negatively impact our operating margins and cash
flows. This, in turn, may impair our ability to make debt payments.

A significant portion of our turnover is attributable to sales of phenol,
acetone and EG, the prices of which have been historically cyclical and
sensitive to relative changes in supply and demand, the availability and price
of raw materials and general economic conditions. Historically, the markets
for some of our products have experienced alternating periods of tight supply,
causing prices and margins to increase, followed by periods of capacity
additions, resulting in oversupply and declining prices and margins. We do not
know whether prices will remain firm or whether the recent economic recovery
will continue. If future growth in demand for phenol, acetone and EG is not
sufficient to alleviate any existing or future conditions of excess industry
capacity or if any of these conditions are further aggravated by anticipated or
unanticipated capacity additions or other events, our business could experience
increased pressure on margins. For additional information, see Item 5 of this
annual report, titled Operating and Financial Review and Prospects and Item
4.B of this annual report, titled Business Overview.

Raw materials and suppliersIf we are unable to pass on increases in raw
material prices, or to retain or replace our key suppliers, our results of
operations may be negatively affected.

The prices for a large portion of our raw materials are cyclical. After
falling during the years from 1996 through 1999, prices for most raw materials
increased throughout the year 2000, fell again during the year 2001 and then
increased again in 2002. While we attempt to match raw material price
increases with corresponding product price increases, our ability to pass on
increases in the cost of raw materials to our customers is, to a large extent,
dependent upon market conditions. There may be periods of time in which we are
not able to recover increases in the cost of raw materials due to our
contractual arrangements or to weakness in demand for or oversupply of our
products. In addition, we obtain a significant portion of our raw materials
from selected key suppliers. If any of these suppliers is unable to meet its
obligations under present supply agreements, we may be forced to pay higher
prices to obtain the necessary raw materials and we may not be able to increase
prices for our finished products. Therefore, increases in raw material prices
or interruptions in supply could place increased pressure on our margins and
reduce our cash flow, which could impair our ability to make debt payments or
make further investments in our business.

11



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##### Table of Contents



Significant competition in the chemicals industry, whether through efforts
of new and current competitors or through consolidation of existing customers,
may adversely affect our competitive position, sales and overall operations.

The markets for most of our products are highly competitive. We are
exposed to the competitive characteristics of several different geographic
markets and industries. Some of our competitors have greater financial,
technical and marketing resources than we do. As the markets for our products
expand, we expect that existing competitors may commit more resources to the
markets in which we participate. We may not be able to compete effectively in
these various areas in the future and our competitive position and results of
operations may suffer as a result.

Our principal competitors vary from business to business and range from
large international companies, such as Shell, EniChem, Erista, Dow Chemical,
BASF, W.R. Grace, Atofina and DuPont, to a large number of smaller regional
companies of varying sizes.

The failure of our trademarks, patents and confidentiality agreements to
protect our intellectual property could adversely affect our business.

Proprietary protection of our processes, apparatuses and other technology
is important to our business. Our actions to protect our proprietary rights
may be insufficient to prevent others from developing similar products to ours.
In addition, the laws of many foreign countries do not protect our
intellectual property rights to the same extent as the laws of Germany, The
Netherlands, the United States or the United Kingdom. Furthermore, any pending
patent application filed by us may not result in an issued patent, or if
patents are issued to us, such patents may not provide meaningful protection
against competitors or against competitive technologies. You should be aware
that the expiration of a patent or the failure of our patents to protect our
formulations, processes, apparatuses, technology, trade secrets or proprietary
know-how could result in intense competition with consequent erosion of profit
margins.

We also rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While it is our policy to enter into confidentiality
agreements with our employees and third parties to protect our intellectual
property, there can be no assurances that:



| | (1) |  | our confidentiality agreements will not be breached,                                                                           
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | that they will provide meaningful protection for our trade
secrets or proprietary know-how, or                                 
|
| | (3) |  | that adequate remedies will be available in the event of an
unauthorised use or disclosure of these trade secrets and know-how.

In addition, there can be no assurances that others will not obtain knowledge
of these trade secrets through independent development or other access by legal
means.

In the past we have received communications asserting that our products or
their applications infringe on a third partys proprietary rights. Currently,
there is no material pending litigation against us regarding any intellectual
property claim but we cannot assure you that there will not be future claims.
Such claims, with or without merit, could subject us to costly litigation and
divert our technical and management personnel from their regular
responsibilities. Furthermore, if such claims are adversely determined against
us, we could be forced to suspend the manufacture of products using the
contested invention and our business, financial condition and operating results
could be adversely affected if any such products are material to our business.

12



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##### Table of Contents



Environmental mattersWe will have ongoing costs and may have additional
costs, obligations and liabilities.

The chemicals business is highly regulated in all of the jurisdictions in
which we operate. Increasingly stringent laws and regulations govern our
manufacturing processes, the storage, handling, treatment, transportation and
disposal of wastes, water discharges and air emissions, health and safety and
the sale and use of products manufactured by us. These laws and regulations
require and will continue to require material ongoing costs. Given the nature
of our business, violations of environmental laws and regulations may result in
substantial fines or penalties, the imposition of other civil or criminal
sanctions, damages or other costs, or restrictions on or the suspension of our
operating activities. In addition, potentially significant expenditures could
be necessary in order to comply with future environmental laws and regulations,
or the more stringent enforcement of existing ones.

We incur substantial capital and operating costs in our efforts to comply
with these laws and regulations. At some of our sites, many of which have an
extended history of industrial chemical processing, we are required to
undertake the investigation and remediation of contamination from past
operations. Under some environmental laws, we may be liable for the costs of
investigating and cleaning up environmental contamination migrating from our
properties existing at off-site locations where we disposed of or arranged for
the disposal or treatment of hazardous wastes or at our formerly occupied
properties. The nature of the chemicals industry also exposes us to risks of
liability under these laws and regulations due to the production, storage,
transportation and sale of materials that can cause harm to human health, the
environment and natural resources. In addition, such laws and regulations
permit governmental authorities, individuals and other third parties to seek
damages for alleged personal injury or property damage due to exposure to or
contamination by chemicals at, on or from our facilities or to chemicals
otherwise produced, owned, controlled or sold by us.

We expect that our operations will continue to be subject to increasingly
stringent environmental and health and safety laws and regulations. We
anticipate that these laws and regulations will continue to require increased
costs and impose additional liabilities. We have budgeted capital expenditures
for environmental improvement projects. We also have established provisions
for environmental remediation activities that we are aware are required and
that we can reliably estimate. However, it is not possible to predict
accurately the amount or timing of costs of any future compliance, remediation
requirements or private claims. Such costs could have a material adverse
effect on our competitive or financial position or our ongoing results of
operations.

For additional related disclosure, see Item 4.B of this annual report
under the caption titled Business OverviewEnvironmental, Health and Safety
Matters.

As part of the acquisitions of the Ineos Phenol, Ineos Fluor and Ineos
Silicas businesses, Degussa and ICI agreed to indemnify us for certain
environmental matters that are related to conditions existing before the
acquisitions, and we in turn have agreed to indemnify Degussa and ICI for
certain environmental matters arising after the acquisitions. The
indemnification agreements in our favor provide that Degussa and/or ICI will
contribute a percentage of the costs associated with certain covered
pre-acquisition environmental matters. These agreements further provide that
Degussas and/or ICIs percent share of these covered pre-acquisition costs
will gradually decrease, so that Degussa and ICI will indemnify us for most of
these costs in the early years of the agreements effective periods and we will
be responsible for most of these costs in later years. In addition, both
Degussas and ICIs indemnification obligations are subject to de minimis
exclusions, thresholds or baskets, caps and time limits. Although we believe
that the indemnities given by Degussa and ICI will help defray the costs
associated with preacquisition environmental matters, our financial results may
still be adversely affected by these matters to the extent that:

13



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##### Table of Contents





| | (1) |  | either Degussa and/or ICI does not fulfil its indemnification
obligations,
| | --- |  | --------------------------------------------------------------------------



| | (2) |  | we breach our obligations not to undertake certain activities
that may aggravate existing conditions,
| | --- |  | -----------------------------------------------------------------------------------------------------





| | (3) |  | we breach our obligations to mitigate associated losses,                                                                                            
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (4) |  | we incur significant costs for pre-acquisition conditions
that are not covered by the Degussa and ICI indemnities, or                               
|
| | (5) |  | the costs we incur for covered pre-acquisition environmental
matters, notwithstanding Degussas and/or ICIs contributions
thereto, are significant.

We may be exposed to liability, and our financial results may be adversely
affected to the extent that liability for an historic environmental matter
arises.

International operations and currency fluctuationsWe are exposed to
economic downturns and local business risks in several different countries as
well as to currency fluctuation risks that could adversely affect our
profitability.

We derive substantial turnover from international operations. As such,
our businesses are subject to risks normally associated with international
operations. These risks include the need to convert currencies which we may
receive for our products into currencies required to pay our debt, or into
currencies in which we purchase raw materials or pay for services, which could
result in a gain or loss depending on fluctuations in exchange rates. Other
risks of international operations include trade barriers, tariffs, exchange
controls, national and regional labor strikes, social and political risks,
general economic risks, required compliance with a variety of foreign laws,
including tax laws and the difficulty of enforcing agreements and collecting
receivables through foreign legal systems.

The nature of our operations are subject to hazards which could result in
significant liability to us.

We are not fully insured against all potential hazards inherent in our
businesses and the occurrence of any of these events could result in
significant liability to us. Our operations are subject to the hazards
associated with chemical manufacturing and the related storage and
transportation of raw materials, products and wastes. These hazards include
explosions, fires, natural disasters, mechanical failure, remediation and
chemical spills, discharges or releases of toxic or hazardous substances or
gases and other environmental risks. These hazards can cause personal injury
and loss of life, severe damage to or destruction of property and equipment and
environmental damage, and may result in suspension of operations and the
imposition of civil and criminal liabilities.

Inability to implement our business and cost reduction strategiesWe may
be adversely affected if we are unable to implement our business and cost
reduction strategies.

We are currently involved in developing our business strategies and will
be developing independent strategies for our various businesses. Our future
financial performance and success will largely depend on our ability to
implement successfully our business strategies. We may not be able to
successfully implement the business strategies described in this annual report
or those to be developed by our businesses or implement strategies that will
sustain or improve and not harm our results of operations in targeted sectors.
In particular, we may not be able to lower our production costs, increase our
manufacturing efficiency, enhance our current portfolio of products or achieve
other cost savings.

Our business strategies are based on our assumptions about future demand
for our products and the new products and applications we are developing and on
our continuing ability to produce our products profitably. Each of these
factors depends, among other things, on our ability to finance our

14



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##### Table of Contents



operations and product development activities, maintain high quality and
efficient manufacturing operations, access quality raw materials in a
cost-effective and timely manner, protect our intellectual property portfolio
and retain and attract skilled personnel.

We may be unable to implement on a timely basis our business strategies,
including the reductions or rationalisations envisaged by our cost reduction
strategy, in accordance with our plans or at all. In the process of
implementing our business strategies, we may experience business disruption,
loss of key personnel and difficulties with respect to the gathering and
processing of accounting information. In addition, the costs involved in
implementing our strategies may be significantly greater than we currently
anticipate and our cost savings plans may not produce the results we are
anticipating. Any failure to develop, revise or implement our business
strategies in a timely and effective manner may adversely affect our ability to
service our debt and could have a material adverse effect on our results of
operations and financial condition. For additional information, see Item 4.B
of this annual report titled Business Overview.

Health and safety regulationOur business could be adversely affected by
regulation to which our products are subject.

Our products, including the raw materials we handle, are subject to
rigorous industrial hygiene regulations and investigation. There is a risk
that a key raw material, chemical or substance or one of our products may be
recharacterised as having a toxicological or health related impact on the
environment or on our customers or employees. Industrial hygiene regulations
are continually strengthened and if such recharacterisation occurred, the
relevant raw material, chemical or product may be banned or we may incur
increased costs in order to comply with new requirements. Change in industrial
hygiene regulations also affect the marketability of certain of our products.
Changes in industrial hygiene regulations in the future may have a material
adverse effect on our business. For additional related disclosure, see Item
4.B in this annual report under the caption Business OverviewEnvironmental
Health, and Safety Matters.

Product liabilityWe may be liable for damages based on product liability
claims.

Because many of our products provide critical performance attributes to
our customers applications and products, the sale of these products involves
the risk of product liability claims. A successful product liability claim or
series of claims against us in excess of our insurance coverage for payments
for which we are not otherwise indemnified or have not otherwise provided could
have a material adverse effect on our financial condition or results of
operations. In particular, we could be required to increase our debt or divert
resources from other investments in our business in order to discharge any such
claims.






|ITEM 4. |  | INFORMATION ON THE COMPANY            
|------- |  | --------------------------------------
|       
|A.      |  | HISTORY AND DEVELOPMENT OF THE COMPANY

Ineos Group Limited was incorporated in England and Wales on March 19,
1998 as a private limited company. The registered office is located at
Hawkslease, Chapel Lane, Lyndhurst, Hampshire SO43 7FG, United Kingdom and can
be reached by telephone at +44-2380-287-063.

Ineos Group Limited is a holding company that does not directly conduct
any operations. Prior to January 1, 2001, the only business of Ineos Group
Limited was conducted through its indirect subsidiary Ineos Oxide Limited
(formerly Ineos plc), which was acquired from Inspec on April 14, 1998. On
January 9, 2001, Ineos Fluor and Ineos Silicas were acquired by our controlling
shareholder, James A. Ratcliffe, and were subsequently contributed to us with
an effective acquisition date of January 1, 2001. In addition, Ineos Oxide
acquired the ethanolamines and gas treating amines business of Dow Chemical on
February 12, 2001 and we acquired Ineos Phenol on May 23, 2001 from Degussa AG.
Ineos Oxide acquired the acetate esters business from BP Belgium on March 1,
2002.

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We have made more than 127.4 million in capital expenditures since
December 31, 1998 to progress our further growth and expansion. In the Ineos
Oxide business, we have made capital expenditures of approximately 56.4
million, which are principally related to debottlenecking and capacity
expansion projects conducted to increase EO/EG plant capacity, as well as to
routine maintenance, including rectalyzations. In addition, Ineos Oxide has
invested approximately 13.4 million to increase production in its antifreeze
and alkoxylation units. We have made capital expenditures in each of the Ineos
Phenol, Ineos Fluor and Ineos Silicas businesses of approximately 31.4
million, 16.9 million and 22.7 million, respectively, since acquiring these
businesses in 2001. These expenditures have principally been for scheduled
maintenance. In addition, Ineos Phenol has invested 16.4 million in
rebuilding the cleavage unit at its Mobile, USA plant after this was destroyed
by a fire on September 9, 2002.



|B. |  | BUSINESS OVERVIEW
|-- |  | -----------------

We are a leading global chemical manufacturer of specialty and
intermediate chemicals. We believe we hold leading market positions in each of
our core products by volume. Our company is comprised of Ineos Oxide (formerly
Ineos plc) and three other chemical businesses that have been acquired and
combined by our principal shareholders, the directors of Ineos Capital. Our
products include a wide range of ethylene-based, fluorine-based and inorganic
specialty chemicals, as well as intermediate chemicals, such as phenol, acetone
and ethylene glycol (EG). We believe our businesses are distinguished by the
broad experience of our shareholders and our management teams, leading market
positions, high quality and low-cost production facilities and operating
diversity.

Our production network is comprised of 17 manufacturing facilities located
in ten countries throughout the world. We sell most of our products to a wide
range of well-known multinational companies, such as Bayer, GE Plastics, Ford,
General Motors, GlaxoSmithKline, Unilever and Anheuser-Busch.

We operate through four discrete businesses as shown in the table below:

|                            |  |                                                                                                                                          |  |                                                                               |  |                                                                    |  |                                                                                               
|--------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------
|                            |  | Ineos Oxide                                                                                                                              |  | Ineos Phenol                                                                  |  | Ineos Fluor                                                        |  | Ineos Silicas                                                                                 
|                            |  |                                                                                                                                          |  |                                                                               |  |                                                                    |  |                                                                                               
|Major specialty products    |  | Ethylene oxide
(EO), EO
derivatives
(including
ethanolamines
(EOA)), ethylidene
norbornene (ENB)
acetate esters and
third party
services |  |                                                                              |  | CFC-replacement HFC
134a, HCFC and
other specialty
fluorochemicals |  | Silicates, zeolites
and silicas                                                               
|Major intermediate
products |  | EG and antifreeze                                                                                                                        |  | Phenol and acetone                                                            |  |                                                                   |  |                                                                                              
|Key applications            |  | Agrochemicals,
surfactants,
synthetic
lubricants and PET
resins, fibers and
film                                                         |  | Bisphenol A (BPA),
phenolic resins,
solvents and MMA                          |  | Refrigerants,
propellant gases
and polymer
feedstock               |  | Laundry and
dishwasher
detergents,
plastics,
desiccants, water
treatment, paints
and catalysts
|Principal end-use markets   |  | Consumer products,
oil and gas and
general industrial                                                                                    |  | CDs, glazing,
optical lenses,
plywood, adhesives,
nylons, paints and
coatings |  | Automotive air
conditions,
refrigeration and
pharmaceuticals       |  | Washing power,
healthcare products
and brewing                                                

Ineos Oxide

General

Ineos Oxide is one of Europes largest manufacturers of specialty and
intermediate chemicals based on ethylene-derived petrochemicals, by volume,
according to the belief of management. Its specialty chemicals business
includes the production of EO, a variety of EO derivatives, acetate esters and
ENB and the provision of management and operating services to third party
chemical plants co-located on its Antwerp and Plaquemine sites. Its
intermediate chemicals business includes the production of EG and antifreeze.
We believe that Ineos Oxide has leading market positions in each of

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its core products, including number one in North Western Europe in EO/EG,
number one in Europe for acetate esters, number two globally in ENB and number
three globally in EOA.

The following chart illustrates Ineos Oxides products:

|                                                                   |  |               |    |          |  |                                                                                                        
|------------------------------------------------------------------ |  | ------------- | -- | -------- |  | -------------------------------------------------------------------------------------------------------
|                                                                   |  | Percentage of |    |         
|Products                                                           |  | 2002 Turnover |    | End-Uses
|                                                                   |  |               |    |         
|Specialty Products                                                 |  |               | 70 | %        |  |                                                                                                        
|Ethylene Oxide                                                     |  |               |    |          |  | EO derivatives                                                                                         
|EO derivatives                                                     |  |               |    |          |  |                                                                                                        
|EOA, alkoxylates, glycol
ethers      GasSpecTM gas
treating amines |  |               |    |          |  | Agrochemicals, surfactants, cosmetics,
pharmaceuticals, synthetic lubricants
and oil and gas processing
|ENB                                                                |  |               |    |          |  | Surface coatings, inks,
pharmaceuticals and EPDM rubber                                                
|Third party services and other                                     |  |               |    |          |  | Provision of utilities, operations and
raw materials to third party chemical
companies                 
|Intermediate Products                                              |  |               | 30 | %        |  |                                                                                                        
|EG                                                                 |  |               |    |          |  | Polyester (PET) resins, fibers and film                                                                
|Antifreeze                                                         |  |               |    |          |  | Antifreeze                                                                                             

Products and Services

Ineos Oxide produces specialty and intermediate chemicals. While all of
its chemicals are used in the manufacture of further downstream chemicals and
applications, Ineos Oxide defines specialty chemicals as those chemicals which
are typically characterised by lower volumes and greater margin stability. In
contrast, Ineos Oxide defines intermediate chemicals as those chemicals which
are typically characterised by higher volumes and a relatively higher degree of
margin volatility. Ineos Oxides specialty chemicals products include EO, EO
derivatives, acetate esters and ENB, and it also provides management and
operating services for third party chemical companies with plants on its sites,
which it treats as part of its specialty business, while its intermediate
chemicals products include EG and antifreeze. Ineos Oxides products are used
in a wide variety of applications, including polyesters, antifreeze,
agrochemicals, surfactants, cosmetics, pharmaceuticals, synthetic lubricants,
oil and gas processing and specialty synthetic rubbers. Sales of Ineos Oxides
specialty chemicals and third party services accounted for approximately 70% of
its turnover in 2002 while sales of its intermediate chemicals accounted for
approximately 30% of its turnover in 2002.

EO

EO is the principal feedstock in the production of a wide range of
intermediate and specialty chemicals, including EG and EO derivatives such as
EOA, alkoxylates, glycol ethers and other specialty and intermediate chemicals.
Ineos Oxide has increased EO production capacity by approximately 60% since
October 1998 through a series of expansion projects. In 2002, Ineos Oxide used
approximately 64% of its EO production for the captive production of EG, with
the remainder used for the captive production of EO derivatives and sold to
third parties.

EO has a high level of reactivity, flammability and toxicity, which makes
it difficult and expensive to transport. EO producers, therefore, tend either
to use their EO for captive production or to sell it to third parties located
close to their plants. As a result, approximately 80% of all EO produced in
Western Europe is used for captive production and there are virtually no EO
imports into, or exports out of, Western Europe.

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EO derivatives

Ineos Oxides EO derivatives include EOA, alkoxylates, glycol ethers and
GasSpecTM gas treating amines. The major EOA applications are agrochemicals,
surfactants (used in personal care products and detergent formulations), cement
additives, textile chemicals and pigments. Alkoxylates are used in household
detergents, herbicides, industrial cleaners, petroleum production, cosmetics,
pharmaceuticals, synthetic lubricants and surface coating intermediates.
GasSpecTM gas treating amines are high performance specialty chemicals used in
oil and gas processing to remove noxious impurities from natural gas, gasoline
and ammonia.

Acetate esters

Acetate esters are used as solvents in surface coatings, inks and
pharmaceutical manufacturing.

ENB

ENB is used in the production of ethylene propylene diene monomer (EPDM)
rubber, a high performance rubber that is both wear and weather resistant.
EPDM rubber is increasingly used in place of conventional rubber, for example,
in automobiles, roofing materials and household appliances.

Third Party Services

In addition to its own manufacturing operations, at its Antwerp and
Plaquemine sites, Ineos Oxide provides a range of management and operating
services to nine third party chemical manufacturers, including Kuraray, Dow
Chemical, BASF, Crompton and Nippon Shokubai. These third party services range
from the complete management and full operational responsibility of the third
party plants and assets, to the supply of raw materials, utilities, waste
handling facilities and site infrastructure. Ineos Oxide receives a management
fee for these services and benefits from reduced fixed costs, economies of
scale with respect to the purchase of raw materials and utilities and an
ability to sell its products to end-users on site.

EG

EG is used primarily as a feedstock for polyester polymers made from
polyethylene terephthalate (PET), and in a variety of other industrial
applications. The polyester polymers prepared from PET are manufactured into
PET resins, fibers and film. EG also has widespread uses in antifreeze
solutions, which we also produce and which provides Ineos Oxide with a
distribution channel for its EG.

Customers, Sales and Marketing

Customers

Ineos Oxide sells most of its products to leading chemical manufacturers,
including Dow, Laporte, Monsanto, Exxon, Shell, DSM, Bayer, Eastman and DuPont.
No single customer accounted for more than ten percent of Ineos Oxides
turnover in 2002 except for Dow due to the long-term EO for EG swap associated
with the EOA acquisition. Its five largest customers represented approximately
25% of its total turnover.

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Sales and Marketing

Ineos Oxide has a sales and marketing force of 22 employees world-wide
located in Europe, North America and Asia. In North America, Ineos Oxide has
its own sales team with offices in the United States. Certain key accounts are
managed directly by the business manager of each line. In the rest of the
world, Ineos Oxide shares the sales teams of some of our other businesses and
utilises a network of distributors and agents.

Contracts and Pricing

The majority of Ineos Oxides sales are made pursuant to medium-term
market contracts of three to five years. Under a long-term swap agreement
entered into with Dow Chemical as part of the EOA and
GasSpecTM gas treating
amines acquisition in February 2001, Ineos Oxide will sell an increasingly
significant portion of its EG production to Dow Chemical. Dow Chemical
supplies Ineos Oxides Plaquemine facility with EO for EOA production in
exchange for EG from Ineos Oxides Antwerp facility.

Ineos Oxide generally determines the prices for its chemicals on a monthly
or quarterly basis based on current market conditions, including raw material
costs. Other than EO prices, which are based on the European market price,
Ineos Oxides prices are generally based on the international market price and
factor in freight costs. EG and antifreeze pricing is cyclical and depends on
global supply and demand, while pricing for EO and EO derivatives is more
stable.

Competition

The chemicals markets in which Ineos Oxide operates are highly
competitive, with competition based primarily on price and reliability of
supply. Competition in the EO market is principally based upon security of
supply and pricing. Competition in EO derivatives is focused on product
quality, security of supply and price. Competition for ENB sales is based upon
security of supply and product quality. Competition in the EG market is based
primarily upon price, security of supply and established customer
relationships. Antifreeze competition is largely based on price and
technology.

The main competitors of Ineos Oxide in the EG, antifreeze, EO and EO
derivatives markets are BASF, Shell, Dow Chemical, British Petroleum and
Clariant. Its main competitor in the ENB merchant market is Nippon
Petrochemicals.

Competition in providing management and operating services in the chemical
industry is based largely on location of facilities, potential cost savings and
security of supply of feedstocks to the managed facility. The cost of
switching sites is generally prohibitive.

Raw Materials and Suppliers

Ineos Oxides principal raw material is ethylene, which accounted for
approximately 44% of its total cost of sales in 2002. The price of ethylene
fluctuates depending upon several factors, including supply and demand and the
price of ethylene feedstocks such as crude oil, naphtha and ethane. As a
result, increases and decreases in ethylene costs can have a significant impact
on Ineos Oxides operating results. The ICIS North Western Europe contract
price for ethylene, which was 473 per tonne in the first quarter of 2002, has
been increasing since the end of 2001, with price levels at 515 per tonne by
the fourth quarter of 2002.

Ineos Oxides Antwerp site is part of the Antwerp complex, the largest
chemical site in Europe. The Antwerp complex is the largest ethylene consumer
in Europe, and Ineos Oxide benefits from the purchasing power and ready access
that this position affords. Through its direct and indirect connections to
four alternative ethylene pipeline networks, which allow Ineos Oxide to be
supplied by all major north-western European refineries, the Antwerp site has a
secure and continuous ethylene

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supply. Ineos Oxide has short- and medium-term contracts of one to five
years that generally specify minimum and maximum volumes with several different
suppliers that cover up to 100% of its ethylene requirements. This arrangement
allows Ineos Oxide the flexibility to purchase ethylene on the spot market when
pricing is advantageous. The cost of its ethylene supply is based on a
discount to the current North Western European contract price.

Operations and Manufacturing

Facilities

Ineos Oxide manufactures its products in Antwerp, Belgium and Plaquemine,
Louisiana. With more than 139 million having been invested to modernise and
expand capacity since 1989, we believe that Ineos Oxidess facilities are
adequate for its present and projected operations.

Antwerp

Ineos Oxides largest production facility is at Antwerp. Its Antwerp site
is part of the Antwerp complex, the largest chemical site in Europe and the
second largest in the world. The sites strategic location facilitates its
ability to be a low-cost manufacturer of specialty and intermediate chemicals
by its proximity to customers, feedstocks, utilities infrastructure and
distribution facilities. Ineos Oxides Antwerp site has direct or indirect
connections to four major ethylene pipelines and connections to pipelines for
nitrogen, oxygen, natural gas and bulk feedstocks of propylene oxide,
butadiene, acetic acid and alcohols. In addition, the site has its own jetty
facility on the Schelde River which links it to the port of Antwerp. The site
also has modern rail and road tanker loading facilities and convenient
connections with roads to Europes industrial centers.

Plaquemine

Ineos Oxide produces EOA at its Plaquemine plant in the United States.
The site is located on the Gulf Coast of Mississippi and is a prime location
for chemicals production due to its raw material and distribution
infrastructure, particularly its direct access to sea jetties and close
proximity to its customer base.

Production Process

EO is manufactured by oxidising ethylene over a silver catalyst. EG is
produced by the non-catalytic hydration of EO. EO derivatives are manufactured
by several different processes involving EO, EG and other chemicals. ENB is
manufactured by reacting butadiene and dicyclopentadiene in a four-step
process. Acetate esters are produced by reacting alcohols with acetic acid.

Ineos Phenol

General

Ineos Phenol is the worlds largest producer of phenol and acetone, by
volume, with an annual capacity of approximately 1,480 kilotonnes of phenol and
915 kilotonnes of acetone, according to the belief of management. It has a
long history of producing and marketing phenol and acetone in Europe, having
commenced production in Germany in 1954, and opened its first plant in the
United States in April 2000, after increasing phenol and acetone sales to
US-based customers throughout the previous five years.

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The following chart illustrates Ineos Phenols products:

|         |  |                                                                    |  |                    |  |                                                                                                    
|-------- |  | ------------------------------------------------------------------ |  | ------------------ |  | ---------------------------------------------------------------------------------------------------
|         |  |                                                                    |  | Percentage of 2002 |  |                                                                                                    
|Products |  | Applications                                                       |  | Turnover (Volume)  |  | End-Users                                                                                          
|         |  |                                                                    |  |                    |  |                                                                                                    
|Phenol   |  |                                                                    |  |                    |  |                                                                                                    
|         |  | Bisphenol A, for the
production of
polycarbonates and
epoxy resins |  | 50%                |  | DVDs, CDs, optical lenses,
automotive, glazing, computer and
printed circuit boards and adhesives  
|         |  | Phenolic resins                                                    |  | 25%                |  | Polywood, oriented strand board and
foundry materials                                              
|         |  | Caprolactam, for the
production of nylons                          |  | 15%                |  | Fibers and engineering plastics                                                                    
|         |  | Other                                                              |  | 10%                |  | Engineering plastics, foams and
detergent                                                          
|Acetone  |  |                                                                    |  |                    |  |                                                                                                    
|         |  | MMA, PMMA and acrylate                                             |  | 40%                |  | Acrylic sheet, Plexiglas, mouldings
and extrusion compounds                                        
|         |  | Bisphenol A, for the
production of
polycarbonates and
epoxy resins |  | 20%                |  | DVDs, CDs, spectacle lenses,
automotive, glazing, computer and
printed circuit boards and adhesives
|         |  | Acetone-based solvents                                             |  | 25%                |  | Chemicals industry, paints, coatings
and printing inks                                             
|         |  | Other                                                              |  | 15%                |  | Various, including moulding compounds                                                              

Products

Phenol and acetone are produced simultaneously in a single process and are
essential starting materials for a wide range of applications in the
electrical/electronics, automotive, construction and household/furniture
industries.

Phenol

Phenol is a primary material for a large number of chemical products. In
recent years, the use of phenol for the production of BPA, an intermediate
product used to produce polycarbonate and epoxy-resins, has increased
substantially and is now the largest phenol application. Polycarbonate is an
engineering thermoplastic material which, due to its superior optical
qualities, structural strength and weight, has a wide range of uses, including
CDs and DVDs, optic-fibers, optical lenses, structural parts in cars and trucks
and housings for electrical household appliances and office equipment. The
primary end-use for epoxy resins is for printed circuit boards and adhesives.

Phenol is also combined with formaldehyde to produce phenolic resins and
is used in the production of caprolactam, which is a precursor for polyamide
(nylon). Phenolic resins, which represent the second largest commercial use of
phenol, are used in a wide range of applications, including the manufacturing
of plywood for use in housing construction and furniture, as binders in the
production of insulation materials and laminates for the construction industry,
as moulds in the foundry industry and as adhesives. Polyamide is used in the
textile industry and in a range of industrial applications, primarily due to
its resistance to corrosive chemicals.

Acetone

The largest commercial use of acetone is the manufacture of
methylmethacrylate (MMA). MMA is used to manufacture polymethylmethacrylate
(PMMA) resins, including acrylic sheets and compounds for moulding and
extrusion. Acrylic sheets and compounds are used in a wide range of
architectural and industrial applications, ranging from point of sale retail
displays to glazing and decorative light panels. The second largest use of
acetone is for solvents, either through the use of acetone itself as a solvent
or through the acetone-based production of solvents. The third major use of
acetone is in the production of BPA.

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Customers, Sales and Marketing

Customers

Ineos Phenol sells to most of the major phenol and acetone consumers in
Europe and North America and is establishing a market presence in Asia.
Customers in Europe and North America include Bayer, GE Plastics, DSM,
Bakelite, Röhm, Dow Chemical and Georgia-Pacific. Following completion of its
production facility in Mobile, Alabama in 2000, Ineos Phenol is increasing
sales volumes to many of its existing customers and is attracting new customers
in the United States. In Asia, customers include Dynea and Bayer Thailand,
which commenced production at its new 165 kilotonnes capacity BPA plant in
March 2002.

Ineos Phenol generates approximately 63% of its total sales from its ten
largest customers. Bayer accounted for approximately 17% of Ineos Phenols
total sales by volume in 2002, while no other customer accounted for more than
10%. Ineos Phenol has developed strong relationships with these customers,
most of whom have been customers of Ineos Phenol for more than 25 years.

Sales and Marketing

Ineos Phenols marketing strategy is based on building long-term
relationships based on security of supply, quality of product and pricing
competitiveness. In addition, Ineos Phenol has targeted its marketing efforts
at the leading BPA producers in order to take advantage of the growing demand
in the BPA segment.

Ineos Phenol has a sales team of ten people operating out of five
locations in Germany, the United States, Brazil, Singapore and Thailand. The
company supplements its sales and marketing efforts through a network of
regional and local representatives, some of whom are independent and are paid
on a commission basis. Regional representatives are located in the United
States, Singapore, France, the United Kingdom, Italy, Thailand and South
America. A network of tank farms ensures that Ineos Phenol can serve its
customers on a global basis.

Contracts and Pricing

Most of Ineos Phenols sales are made under either long-term contracts or
long-standing informal arrangements with its customers. These arrangements
include toll, formula and market contracts and arrangements.

Under toll contracts, which typically vary in term from five to ten years,
customers pay for or provide raw materials to Ineos Phenol and receive, in
return for a toll fee, corresponding phenol and/or acetone outputs in fixed
proportions. The toll fee reflects Ineos Phenols labor, energy, and overhead
costs and includes a profit component. Consequently, toll contracts can
insulate Ineos Phenol against raw material and market price fluctuations. In
2002, 48% of Ineos Phenols European phenol production and the corresponding
acetone production was sold under such contracts. There are currently no toll
contract arrangements in the United States.

Under formula contracts, which vary in term from three to ten years, the
phenol selling price is linked by a formula to published benzene prices plus an
agreed upon additional amount. In 2002, Ineos Phenol made 25% of its European
and 30% of its US phenol sales under formula contracts. It also made 7 percent
of its European acetone sales under such contracts.

Market contracts and arrangements range from long-term agreements to
incidental sales. In both cases, selling prices are based on published market
prices. In 2002, Ineos Phenol made 27% of its European and 20% of its US
phenol sales under market contracts and arrangements. It also made 65% of its
European and 40% of its US acetone sales under such contracts.

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Competition

In Europe, the three leading manufacturers, Ineos Phenol, Polimeri Europa
and Ertisa, together account for approximately 80% of total European production
capacity (both captive and merchant). In the European merchant market,
Polimeri Europa, Ertisa and Ineos Phenol enjoy approximately 10%, 20% and 50%
of the merchant market, respectively. In North America, the three leading
manufacturers, Shell, Sunoco and Ineos Phenol, together account for
approximately 65% of total North American production capacity. In the North
American merchant market, Shell, Sunoco and Ineos Phenol enjoy approximately
24%, 36% and 13% of the merchant market, respectively. The difficult market
conditions of the last few years has forced the closure of three smaller phenol
plants in North America in 2002: Fenoquimia, Frontier and the Pasedena plant of
Georgia Gulf.

The markets for phenol and acetone are traditionally viewed as regional
because of the physical difficulty of transporting and storing phenol and the
resulting high freight costs, with regional production responding to regional
demand. Individual regions go through independent price and margin cycles,
unless there are inter-regional price imbalances which exceed freight costs.
In each region, Ineos Phenols products compete on the basis of price, product
quality, security of supply and customer service.

Raw Materials and Suppliers

Raw materials are Ineos Phenols most significant cost category. Cumene,
which is made from the combination of benzene and propylene, is Ineos Phenols
main raw material, accounting for approximately 69% of its cost of sales in
2002, while the costs of Ineos Phenols other raw materials and utilities
accounted for only 4 percent of cost of sales in 2002.

Ineos Phenol acquires cumene pursuant to four different types of
contractual arrangements. Under the first type of contractual arrangement,
Ineos Phenol supplies the benzene and propylene required for the production of
cumene to its suppliers, who convert these inputs into cumene. For this
service, Ineos Phenol is charged a conversion fee reflecting the suppliers
costs and a margin. Under the second type of contractual arrangement, the
suppliers charge Ineos Phenol for cumene according to contractually agreed
formulas based on benzene and propylene market prices and agreed yield factors.
A conversion fee is added to the charge. The third type of arrangement is the
toll contract, discussed above, pursuant to which customers pay for or provide
raw materials to Ineos Phenol and receive, in exchange for a toll fee,
corresponding phenol and acetone outputs in fixed proportions. Finally, Ineos
Phenol also makes some incidental purchases of cumene in the open market. As a
result of these arrangements, Ineos Phenol has some exposure to changes in the
market contract and spot rates for benzene and propylene. Ineos Phenol
believes that its use of toll contracts and formula-based contracts can reduce
its exposure to raw material price fluctuations.

Ineos Phenol has entered into an agreement with Dow Chemical that it
believes will significantly reduce its cumene costs. Under the agreement,
Ineos Phenol has invested approximately $26 million (approximately 28 million)
in the expansion of Dow Chemicals European cumene plant in exchange for the
right to purchase specified amounts of its European cumene requirements at
preferential rates beginning in May 2002. As a result and based on current
market prices, Ineos Phenol expects to ultimately realise cumene cost savings
of approximately 13 million per annum.

Pipelines supply the Gladbeck site with almost all of its cumene, while
the Antwerp and Mobile sites receive all of their cumene by ship.

Operations and Manufacturing

Facilities

Ineos Phenol manufactures phenol and acetone at three sites in Gladbeck,
Germany; Antwerp, Belgium; and Mobile, Alabama. With more than 450 million
having been invested to build new

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phenol and acetone production facilities since 1993, we believe Ineos
Phenols facilities are adequate for its present and projected operations.

Gladbeck. With an annual capacity of 620 kilotonnes of phenol and 380
kilotonnes of acetone, Ineos Phenols Gladbeck site is the largest single-train
unit in the world. The site benefits from its proximity to key raw material
suppliers. Pipelines to BP Chemicals cumene plant in Marl and Veba Oils
cumene plant supply the Gladbeck site with cumene. The site is accessible by
rail and road and is located close to the large German phenol and acetone
consumers. Production capacity at the Gladbeck site has been significantly
increased since the plants start-up in 1954 through expansions and
de-bottlenecking projects. Recent capacity expansions have been achieved
without a corresponding increase in the fixed cost base and have contributed to
the sites leading position on the European industry curve.

Antwerp. In 1993, Ineos Phenol opened a second European production plant
within the Antwerp Complex in the harbour area of Antwerp on the left bank of
the Schelde River with direct deep-water access to optimise the transport
logistics necessary for supplying customers on a global basis. The original
capacity of 200 kilotonnes per annum for phenol was expanded in 1997 to 420
kilotonnes per annum for phenol and 260 kilotonnes per annum for acetone. All
of the cumene reaches the site via ship. About 90% of the sites end-products
are transported to its customers by ship, with the balance being transported by
road.

Mobile. After a two-year construction phase, Ineos Phenols newest
production site in Mobile, Alabama began production in April 2000. It has an
annual capacity of 440 kilotonnes for phenol and 270 kilotonnes for acetone
after the plant was expanded in January 2003. The site is located in the
Theodore area on the Gulf of Mexico, close to such major phenol consumers as GE
Plastics, Georgia-Pacific and Dynea. All cumene is supplied via ship mainly
from producers on the Gulf Coast. About 50% of the phenol and acetone produced
are transported via ship, and the balance by rail and road.

Production Process

Ineos Phenol uses the Hock Process, which uses cumene as a raw material to
produce phenol and acetone at a constant ratio of one part phenol to 0.62 parts
acetone at the end of a four-stage production process. The four stages are
oxidation, concentration, decomposition and distillation. The oxidation stage
in the production process triggers the oxidation of cumene and compressed air
through a chemical reaction that produces an intermediate substance called
cumene hydroperoxide. In the concentration stage, the cumene hydroperoxide is
concentrated to approximately 70%. The concentrated hydroperoxide is then
decomposed using a catalyst in the third stage. The result of the
decomposition is a mixture that consists primarily of phenol and acetone, with
a significantly smaller amount of alpha-methylstyrene and acetophenone. In the
final stage, the individual products are separated by distillation achieving
purity levels of more than 99.9% of phenol. The cumene recovered throughout
the process is recycled into the oxidation stage.

Ineos Fluor

General

Ineos Fluor is a leading international manufacturer of fluorine-based
chemical products, by volume, according to the belief of management. Its
hydrofluorocarbon (HFC) business was established in 1989 to exploit the
opportunity presented by the mandatory phasing out of ozone-depleting chemicals
such as chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs) under
the Montreal Protocol. HFCs are ozone-benign replacements for CFCs and HCFCs.
From the late 1980s, substantial investments were made to develop a commercial
process for HFC 134a, the most common CFC replacement product. Subsequently,
three commercial scale HFC 134a plants were built for Ineos Fluor in the United
Kingdom, the United States and Japan during the 1990s at a

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cost of approximately 400 million. We believe that Ineos Fluor is now
the worlds largest producer of HFC 134a, with production volumes of
approximately 50 kilotonnes per annum.

The following chart illustrates Ineos Fluors products:

|                          |  |                    |    |          |  |                                                                                                     
|------------------------- |  | ------------------ | -- | -------- |  | ----------------------------------------------------------------------------------------------------
|                          |  | Percentage of 2002 |    |         
|Products                  |  | Turnover           |    | End-Uses
|                          |  |                    |    |         
|Industrial Fluorocarbons  |  |                    | 90 | %        |  |                                                                                                     
|HFC 134a                  |  |                    |    |          |  | Commercial,
industrial and
automotive air
condition and
propellants                                 
|HCFC 22                   |  |                    |    |          |  | Low-temperature
refrigeration, foam blowing, feedstock                                              
|HFC Blends                |  |                    |    |          |  | Low-temperature
replacement for CFCs
and HCFCs for
refrigeration                                    
|Specialty Fluorochemicals |  |                    | 7  | %        |  | Pharmaceuticals,
anesthetics and HFC
extraction
technology for
flavours, fragrances
and antioxidants
|Hydrogen Fluoride         |  |                    | 3  | %        |  | Raw materials for
both HFCs and HCFCs
and in the
manufacture of fuel
rods for the nuclear
industry  

Products

HFC 134a

HFC 134a, which accounted for the majority of Ineos Fluors turnover in
2002, was developed in the late 1980s and introduced commercially in the early
1990s as a replacement for ozone-depleting CFCs. HFC 134a is widely regarded
as the only practical substitute for CFC-12 in automobile air conditioning
systems, as it is the only ozone benign non-flammable product available and is
now widely used in automotive, commercial and industrial air conditioning.

HCFC 22

HCFC 22, which was the second largest contributor to Ineos Fluors
turnover in 2002, is used in low-temperature refrigeration, foam blowing, and
as a feedstock in the production of fluoropolymers, such as
polytetrafluoroethylene.

Specialty Fluorochemicals

Ineos Fluor produces several other specialty fluorochemicals, including
halothane, a fluorinated inhalation anaesthetic; medical grade HFC 134a, a
propellant in medical inhalers; and high purity fluorochemicals that extract
flavours, fragrances and anti-oxidants from natural materials.

HFC Blends

HFC blends are being developed to replace existing CFC and HCFC products
for various refrigeration applications that require lower temperature
characteristics than available with HFC 134a.

Regulation

Demand for fluorocarbons is closely tied to changing environmental
regulations on substances that deplete the ozone layer, in particular the
Montreal Protocol (1987), which, following various revisions, required that all
production of CFCs cease in developed countries by 1996, subject to certain
exceptions for essential uses, and in developing countries by 2010. HCFCs,
already widely used in air conditioning, emerged as temporary alternatives to
CFCs, but are also controlled by the Montreal Protocol.

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In 1999, the Montreal Protocol was amended to phase out the use of HCFCs
for non-feedstock applications, such as foam blowing agents and refrigerants,
beginning with a freeze on consumption in developed countries in 1996, and in
developing countries in 2016. The European Union approved the agreement in
2002 and has adopted its own accelerated HCFC phase-out schedule, which began
in 2000 and will effectively be completed by 2005. The use of HCFC 22 as a
feedstock is still permitted world-wide. The most common replacements for HCFC
22 are various HFC blends, many of which contain HFC 134a.

Although HFCs and HFC blends are not controlled by the Montreal Protocol,
they are one of six types of gases included in the Kyoto Protocol, an
international treaty adopted in 1997 aimed at reducing emissions of
greenhouse gases. The US government has not signed the Kyoto Protocol, whereas
the European Union has agreed to cut its emissions of all global warming gases
by a total of eight percent from their 1990 level in the commitment period of
2008 to 2010.

Customers, Sales and Marketing

Ineos Fluor sells its fluorine-based chemicals to a broad range of
customers in over 50 countries, including some of the largest consumers in the
automotive, and pharmaceutical industries such as Ford, General Motors, Toyota,
Asahi Glass and GlaxoSmithKline. It supplies a significant amount of its
automotive customers HFC 134a requirements, and it has a key relationship with
GlaxoSmithKline, for which it acts as sole supplier for the supply of
inhalation grade HFC 134a used in asthma drug delivery.

Its largest end-market is the automotive industry, which accounted for 60%
of its 2002 sales, and is divided between original equipment manufacturers and
after-market sales. The HFC 134a market is highly seasonal, with a significant
increase in demand in the early summer months.

Most of Ineos Fluors sales are made under contracts of one to five years.
Its sales are made by either its sales force, which consists of 22 employees
operating in the three key regions, Europe, Asia Pacific and the United States,
or by a network of independent sales agents and distributors covering Asia
(excluding Japan) and Latin America.

Competition

The markets for some of Ineos Fluors products are highly competitive,
even if the total number of participants in any given product market may be
quite small. The high capital cost (approximately 160 million for a
global-scale HFC 134a plant), technical complexity and long lead times (up to
four years to bring new capacity on-stream from conception to production)
required to manufacture HFCs and HCFCs act as significant barriers for
potential new entrants to the market.

HFC 134a

Ineos Fluor competes in the HFC 134a market on the basis of overall supply
capability, which is particularly important to original equipment
manufacturers, price and quality. The leading competitors of Ineos Fluor are
DuPont and Atofina who have approximately 45% of the HFC 134a market between
them. Our competitors in the medical grade HFC 134a market are DuPont and
Solvay.

HFC Blends

Our competitors in the emerging market for HFC blends are the same as in
the HFC 134a market. While Ineos Fluor has a portfolio of patents covering
unique blends of fluorocarbons and mixtures of fluorocarbons with other
compounds for use in low-temperature refrigeration, a number of our competitors
have comparable or superior patent protection in this area. In Europe, we have
entered into license agreements with certain of these competitors that grant us
the right to sell the HFC blends for use in their primary applications. In
North America, however, our competitors have

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patent protection for the primary HFC blend applications currently in use.
As a result, we do not intend to focus on sales of HFC blends in North
America.

HCFC 22

Competition in the HCFC 22 market is generally based on price, although
product quality is also important in fluoropolymer applications. In the HCFC
22 market, which is more fragmented than the HFC 134a market, the main
competitors of Ineos Fluor are DuPont, Atofina and Honeywell.

Raw Materials and Suppliers

Ineos Fluors key raw materials are trichloroethylene, HF and chloroform.
Ineos Fluor purchases trichloroethylene for all of its requirements in the
United Kingdom from Ineos Chlor, in the United States from PPG, Dow Chemical
and Ineos Chlor and in Japan from Toa Gosei, Kanto Denka and Ineos Chlor. It
manufactures its own HF in the United Kingdom and purchases HF from Honeywell
in the United States and from Stella Chemicals, Morita Central Glass and a
range of smaller suppliers in Japan. Ineos Fluor purchases all it requirements
for chloroform from Ineos Chlor. Prices for each of these raw materials have
been fairly stable in recent years. Ineos Fluor purchases its raw materials
under contractual arrangements with terms of one to five years. As a result,
prices tend to be relatively stable.

Operations and Manufacturing

Facilities

Ineos Fluor has three production sites in the United Kingdom, the United
States and Japan. Since 1990, over 400 million has been invested to build and
expand Ineos Fluors production facilities. As a result of the highly seasonal
demand for air conditioning products, utilisation rates only approach 100%
during the peak production periods in the early summer months and are lower
during the remainder of the year.

We believe that the facilities of Ineos Fluor are modern, well maintained
and operated to high standards of health, safety and environmental practice and
are adequate for its present and projected operations. The facilities in the
United States and Japan focus on the production of HFC 134a, while the site in
the United Kingdom produces HFC 134a, HCFC 22, HF and several other
fluorine-based chemicals.

Production Process

HFC 134a is produced by reacting trichloroethylene and HF over a zinc
chromia catalyst, a patented process owned by Ineos Fluor. Hydrochloric acid
is also produced by the process and is sold as a by-product.

HCFC 22 is produced by reacting chloroform and HF using an antimony
catalyst. Hydrochloric acid is also produced by the process and is sold as a
by-product.

Intellectual Property

Ineos Fluor has a portfolio of process and application patents for its
products. The base patents are supported by a range of regional and national
filings.

The primary process technology used by Ineos Fluor is the manufacture of
HFC 134a from trichloroethylene by catalytic hydrofluorination. This core
technology is protected by fundamental catalyst patents and a range of process
patents. Downstream from these core reactions, the business has patents
covering separation and distillation.

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Ineos Fluor has a portfolio of patents covering unique blends of
fluorocarbons and mixtures of fluorocarbons with other compounds for use in
refrigeration. However, a number of our competitors have superior patent
protection in this area.

Ineos Silicas

General

Ineos Silicas is a leading global manufacturer of specialty chemicals
derived from sand (impure silica) and alumina, by volume, according to the
belief of management. Founded in 1815 in the United Kingdom as a soap company
and operated as a subsidiary of Unilever for more than 70 years, Ineos Silicas
has three primary products, namely silicates, zeolites and silicas, which it
sells globally to more than 1,500 customers. We believe that Ineos Silicas has
leading market positions in each of its products, which are used in a wide
variety of end-markets, and in particular is the sole producer of a patented
added value proprietary zeolite A24.

The following chart illustrates Ineos Silicas products:

|          |  |                    |    |          |  |                                                                                                                                       
|--------- |  | ------------------ | -- | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|          |  | Percentage of 2002 |    |         
|Products  |  | Turnover           |    | End-Uses
|          |  |                    |    |         
|Silicates |  |                    | 34 | %        |  | Paper, civil engineering,
consumer laundry and dishwasher
detergents                                                                  
|Zeolites  |  |                    | 27 | %        |  | Consumer laundry detergents                                                                                                           
|Silicas   |  |                    | 39 | %        |  | Paints and coatings, brewing,
edible oils, desiccants,
personal care products,
plastics, water treatments and
polymerisation catalysts

Products

Silicates

Silicates are sold into a wide variety of applications as well as being
used as a raw material for zeolites and silicas. The main downstream use for
silicates is in household and industrial detergents, where they are used for
their binding and carrying properties with active cleaning ingredients.
Silicates are also used in numerous industrial applications, including soil
consolidation, paper laminating adhesives, refractory cements, mineral
processing and specialty grouts. Ineos Silicas uses approximately 40% of its
silicate production internally as a feedstock for the production of zeolites
and silicas.

While silicates manufacturing capacity generally exceeds market demand,
the relatively high distribution costs for silicates make it uneconomical to
transport more than a few hundred kilometres. Accordingly, silicates markets
tend to be regional, with manufacturers either being located in close proximity
to their key customers or using silicates for internal production.

Zeolites

Zeolites are key components of household detergents and powders. Zeolites
act as a builder in detergents and as a carrier of liquid surfactants to soften
water, provide alkalinity, assist with powder structuring and keep dirt in
suspension. Ineos Silicas principal European zeolite product is A24 zeolite,
a patented product sold at a premium price due to its technical advantages over
the industry standard 4A zeolite, and a number of patent-protected A24
derivatives. It also manufactures mainly 4A zeolite in the United States.

Zeolite demand is driven by the detergent market, which is the primary
end-use application for zeolite products. For environmental reasons, zeolites
have generally replaced polyphosphates in

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detergent applications in most of the developed world, although France,
Spain and the UK have not yet banned the use of polyphosphates in detergent
applications. Because detergents are a necessity level item, zeolites tend to
be characterised by low growth rates and highly stable demand regardless of the
macroeconomic cycle. Although we believe that Europe still faces over-capacity
in 4A zeolite, Ineos Silicas has been generally protected from the effects of
this over-capacity as a result of its focus on its patented A24 zeolite.
Market rationalisation and plant closures are bringing supply and demand of
zeolite products closer to a balanced situation. Since the relatively higher
value of zeolites permits it to be shipped further than silicates, zeolite
markets are less regional than silicates markets. Ineos Silicas does export
product to South America and Asia from Europe.

Silicas

Silicas are highly specialised chemical products used in a diverse range
of products across several different industries. Because silica products are
often tailored to each customers specifications, Ineos Silicas commands
significant price premiums for these products, with a high gross margin
relative to other products. Key applications for silicas include: thickeners
and abrasives in personal care products such as toothpaste, shampoos and body
wash products; clarifiers and stabilisers for beer, fruit juices and edible
oils; and matting agents for specialty surface coatings. Silicas are also used
as catalyst supports in the production of plastics, particularly high-density
polyethylene (HDPE).

The global market for silicas is driven by many niche applications that
primarily depend upon superior performance, rather than price. Since
transportation costs comprise a relatively minor percentage of the overall
selling price, the silicas market is global, rather than regional in nature.

Customers, Sales and Marketing

Customers

Ineos Silicas derived approximately 38% of its turnover in 2002 from
Unilever, with whom we believe we have a particularly strong relationship.

Since the divestiture of Ineos Silicas by Unilever, we have expanded our
customer base, in part by seeking to develop or expand our relationships with
other detergent manufacturers. While continuing to foster the Unilever
relationship, Ineos Silicas is actively seeking to expand its customer base by
continuing to develop new products. Ineos Silicas now sells to over 1,500
customers in more than 100 countries, including Anheuser-Busch, Exxon-Mobil,
Asahi Brewers, McBride, BP Chemicals and Borealis.

Sales and Marketing

Ineos Silicas markets its products primarily on the basis of product
performance and customer relations. Ineos Silicas has an international sales
force of 60 employees. It maintains sales offices at each of its production
facilities, with additional sales offices in Singapore, Australia, China,
Italy, Japan and France. Its geographically focused sales efforts and its
local manufacturing presence allow Ineos Silicas to cooperate closely with its
customers and to respond to its customer base world-wide.

Contracts and Pricing

In 2002, Ineos Silicas sold approximately 85% of its zeolites and 23% of
its silicates pursuant to written sales contracts. Its zeolite contracts with
Unilever range in duration from four to nine years, while its silicates
contracts with Unilever tend to be short- to medium-term. Its zeolite and
silicates contracts with other customers are generally for a duration of one to
two years. Prices for zeolites and for silicates used in detergent
applications are generally set on a pass-through basis for raw material cost
changes.

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Ineos Silicas sells a majority of its silicas pursuant to purchase orders,
rather than on a contracted basis, but the trend for contractual arrangements
is increasing. Sales to customers in the brewing and personal care products
industries under short- to medium-term contracts, and to customers in the
plastics industry under contracts ranging from one to five years.

Competition

In many of the niche markets in which it competes, Ineos Silicas is either
the exclusive producer, with patent protection, or one of only a few producers.

The fragmented nature of the market makes it difficult to assess specific
market shares by producer. The key competitors in silicates and zeolites are
PQ, IZL, Oxychem, Albermarle and Zeolin, although there are also several
smaller regional producers. In silicas, W.R. Grace currently enjoys the
largest market share. Other significant competitors include Huber, Rhodia and
Degussa. PQ is the only competitor of Ineos Silicas that has a comparably broad
portfolio of silicates, zeolites and silicas products.

Raw Materials and Suppliers

Ineos Silicas key raw materials are caustic soda, aluminium trihydrate
(ATH), soda ash, natural gas and sand. These raw materials account for about
50% of Ineos Silicas variable product costs. Ineos Silicas purchases all of
its caustic soda requirements in the United Kingdom and a portion of its
caustic soda requirements in the Netherlands from Ineos Chlor. It has a
contract with PPG to supply a majority of its US caustic soda requirements
through 2003. The remainder of its caustic soda requirements are bought from
several suppliers on a quarterly basis or on the spot market. ATH is only used
in the production of zeolites and its cost is largely passed on to customers.

Operations and Manufacturing

Facilities

Ineos Silicas has nine production sites in seven countries. We believe
the facilities of Ineos Silicas are well maintained and operated to high
standards of health safety and environmental practice. With more than 100
million in total capital expenditures in the ten years up to 2001, we believe
Ineos Silicas facilities are adequate for its present and projected
operations.

Ineos Silicas has entered into a nine-year agreement with Unilever for A24
zeolite which we believe will more than double our current European production
requirements. As a result of this contract, we restarted production at our
Warrington A24 Zeolite plant in November 2001, which had been mothballed since
1997. It was mothballed due to Unilevers decision to discontinue Persil
Power, the problems of which were unrelated to Ineos Silicas A24 zeolite.

In addition, Ineos Silicas completed a 5.8 million project at its Joliet,
Illinois, plant that upgraded the facility to enable the manufacture of A24
zeolite.

Production Process

Ineos Silicas manufactures silicates using two processes: the furnace
process, which is used to manufacture alkaline silicates suitable for use as a
silicas feedstock; and the hydrothermal process, which is used to manufacture
silicates suitable for use as a zeolites feedstock.

Zeolites are produced from the controlled crystallisation of alkaline
silicate liquor and an alkaline solution of ATH followed by filtration and
drying of the resultant zeolites.

Ineos Silicas manufactures its silicas using two processes: the
precipitation process, in which silicate liquor is reacted with sulphuric acid
in a precipitation vessel to manufacture a range of silica

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products; and the gel process, in which silicate liquor is again reacted
with sulphuric acid under different process conditions. The resulting silica
gel material is generally subjected to further treatment, such as drying,
milling, micronising and wax coating.

Intellectual Property

Ineos Silicas has extensive patent protection for its key A24 zeolite
manufacturing process. The key patent expires in 2009 and expiry dates on
supplementary patents extend into 2016. Ineos Silicas also has a royalty-free
right to use A24 zeolite in detergent applications, the key process patent for
which is held by Unilever. In addition, Ineos Silicas holds patents on its
silicates and silicas products and has developed proprietary process
technologies that we believe lead to product differentiation and barriers to
entry.

Breakdown of Revenues

Turnover by geographical destination is as follows:

|         |               |  |                         |       |      |  |         |       |  |  |         |         | 
|-------- | ------------- |  | ----------------------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ------- | 
|         |               |  | Year Ended December 31,
|         |               |  |                        
|         |               |  | 2000                    |       | 2001 |  | 2002   
|         |               |  |                         |       |      |  |        
|         |               |  | ( in millions)        
|Turnover |               |  |                         |       |      |  |         |       |  |  |         |        
|         | Europe        |  |                         | 318.8 |      |  |         | 978.6 |  |  |         | 1,534.1 | 
|         | Americas      |  |                         | 8.1   |      |  |         | 318.6 |  |  |         | 450.0   | 
|         | Rest of World |  |                         | 10.1  |      |  |         | 233.5 |  |  |         | 251.7   | 
|         |               |  |                         |       |      |  |         |       |  |  |         |         | 
|         |               |  | 337.0                   |       |      |  | 1,530.7 |       |  |  | 2,235.8 |        
|         |               |  |                         |       |      |  |         |       |  |  |         |         | 

Turnover by business unit is as follows:

|         |               |  |                         |       |      |  |         |       |  |  |         |         | 
|-------- | ------------- |  | ----------------------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ------- | 
|         |               |  | Year Ended December 31,
|         |               |  |                        
|         |               |  | 2000                    |       | 2001 |  | 2002   
|         |               |  |                         |       |      |  |        
|         |               |  | ( in millions)        
|Turnover |               |  |                         |       |      |  |         |       |  |  |         |        
|         | Ineos Oxide   |  |                         | 337.0 |      |  |         | 432.1 |  |  |         | 507.4   | 
|         | Ineos Phenol  |  |                         |      |      |  |         | 576.2 |  |  |         | 1,189.0 | 
|         | Ineos Fluor   |  |                         |      |      |  |         | 299.5 |  |  |         | 304.8   | 
|         | Ineos Silicas |  |                         |      |      |  |         | 222.9 |  |  |         | 234.6   | 
|         |               |  |                         |       |      |  |         |       |  |  |         |         | 
|         |               |  | 337.0                   |       |      |  | 1,530.7 |       |  |  | 2,235.8 |        
|         |               |  |                         |       |      |  |         |       |  |  |         |         | 

Environmental, Health and Safety Matters

We are subject to extensive, evolving and increasingly stringent
environmental, health and safety laws and regulations governing our operations
and products. The laws and regulations applicable to our operations address,
among other things: emissions to the air; wastewater discharges to surface and
subsurface waters; other releases into the environment; the generation,
handling, use and disposal of hazardous materials; the generation, handling,
storage, transportation, treatment and disposal of wastes; the maintenance of
safe conditions in the workplace; and anti-drug and war export restrictions.

Other environmental, health and safety laws and regulations impose
restriction on some of our products. For example, silica and silicate products
used in the production of foods and personal care products must meet or exceed
minimum quality standards. Obtaining, producing and distributing many of our
products involves the use, storage, transportation and disposal of toxic and
hazardous materials. Although we devote considerable effort to limiting
exposure to or releases of such hazardous materials, there are significant
environmental, health and safety risks inherent in our operations and products,
and we may be subject to liability in the event of harm to human health or the
environment. Many of the raw materials and products manufactured by us,
including phenol, ethylene oxide, ethylidene norbornene and cristobalite, pose
risks of acute and chronic health effects and sensitisation (development of
allergies), as well as being combustible. The high toxicity of many

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of our products, such as phenol, which at higher doses has the potential
to be genotoxic, means that it is imperative that ground and surface water are
protected from contamination therefrom. Many of our raw materials and
products, such as ethylene glycols and ethanolamines can be expected to
attenuate naturally fairly quickly. This means that when released into water
or soil they are relatively easily degraded by micro-organisms, evaporated or
diluted by infiltrating water. Phenol is rapidly biodegradable under
favourable conditions, but our experience has shown that natural attenuation of
phenol in soils can be very slow, thus increasing the likelihood that more
aggressive, and costly, remediation strategies have to be pursued in the event
of a spill or release. In addition, it is possible that certain of our
products, or by-products such as PC-Oil, may be classified as hazardous and
could thus involve costly remediation procedures not currently anticipated.

We devote considerable attention to the health and safety of our employees
and the protection of the public health and the environment in the regions
where we operate. At our sites, advanced processes, controls and waste
handling practices significantly limit current environmental impact from our
operations. We believe we are in substantial compliance with applicable
environmental, health and safety laws and regulations. We also believe that
such compliance has not had an adverse effect on our competitive position or
our results of operations. In 2002, combined world-wide expenditures,
including those with respect to third party and divested sites, for compliance
with environmental, health and safety laws and regulations and internal company
initiatives, including capital expenditures, totalled approximately 21.8
million. We expect to spend a similar amount in 2003. We anticipate that
stringent environmental, health and safety laws and regulations will continue
to be imposed on us and on the industries in which we operate in general.
Although we cannot predict with certainty future expenditures, we believe that
the current spending trends will continue.

We are also subject to environmental laws and regulations that may require
us to investigate and remediate the effects of the disposal or release of
chemical substances at various sites. Under some of these laws and
regulations, a current or previous owner or operator of property may be held
liable for the costs of removal or remediation of hazardous substances on,
under, in or migrating from our property, without regard to whether the owner
or operator knew of or caused the presence of the contaminants, and regardless
of whether the practices that resulted in the contamination were legal at the
time they occurred.

As is typical for chemical businesses, at some of our production sites
with an extended history of industrial use, significant soil and groundwater
contamination has occurred in the past. Contamination requiring, or
anticipated to require, investigation and remediation has been identified at
certain sites, and contamination might occur or be discovered in the future.
It is difficult to estimate the future costs of environmental investigation and
remediation because of many uncertainties, including the possibility that
additional contamination could occur or be identified in the future and future
changes to laws and regulations. Subject to the foregoing, but taking into
consideration our experience to date regarding environmental matters of a
similar nature and facts currently known, we believe that costs of
environmental remediation will not have a material adverse effect on our
competitive or financial position or our ongoing results of operations.
Because of the nature of our operations, however, there can be no assurance
that significant liabilities and costs relating to environmental, safety and
health matters will not be incurred in the future, and will not have a material
adverse effect on our competitive or financial position or our ongoing results
of operations. See Item 3.D of this annual report, Risk FactorsRisks
Relating to Business OperationsEnvironmental mattersWe will have ongoing
costs and may have additional costs, obligations and liabilities.

Although almost every country has its own legal procedures for
registration and import, laws and regulations in the European Union, the United
States and Japan are most significant to our business, including the European
inventory of existing commercial chemical substances, the European list of
notified chemical substances, the United States Toxic Substances Control Act
and the chemical list of the Japanese Ministry of Trade and Industry.
Chemicals which are on one or more of the above

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lists can usually be registered and imported without additional testing in
any other country, although additional administrative hurdles may exist.

As part of the acquisitions of the Ineos Phenol, Ineos Fluor and Ineos
Silicas businesses, Degussa and ICI have agreed to indemnify us for certain
environmental matters related to these businesses. Although we believe that
the indemnities given by Degussa and ICI were commercially reasonable, we may
be exposed to liability, and our financial results may be adversely affected to
the extent that liability for an historic environmental matter arises. See
Item 3.D of this annual report titled Risk FactorsRisks Relating to Business
OperationsEnvironmental mattersWe will have ongoing costs and may have
additional costs, obligations and liabilities.

Insurance

We insure our plant, equipment and other assets in the amount of 2,029
million with an all risk insurance policy which we believe is in accordance
with customary industry practices, including deductibles and coverage amounts.
We also carry policies in the amount of 811 million for consequential loss of
profits and payments of fixed costs as a consequence of fire, explosion,
electrical damage, machinery breakdown, flooding or fuel and/or power
shortages, for specified periods. In addition, we carry third party liability
insurance, transport insurance, computer insurance and life insurance for all
of our employees. Our insurance policies are currently issued by Royal & Sun
Alliance, HDI, AIG, Zürich, Scorr Re and Allianz. For additional information,
see Risk FactorsRisks Relating to Business Operations in Item 3.D of this
annual report.

33



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|C. |  | ORGANISATIONAL STRUCTURE
|-- |  | ------------------------

Ineos Group Limited is a holding company which holds the businesses
conducted by its indirect subsidiaries Ineos Oxide Limited, Ineos Phenol
Limited, Ineos Fluor Limited and Ineos Silicas Limited. The following chart
shows our group structure:

(ORGANISATIONAL STRUCTURE CHART)



|(1) |  | Principal obligor under the Senior Credit Facilities.                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Borrower and/or guarantor under the Senior Credit Facilities. Each of
these businesses has pledged security under the Senior Credit Facilities.

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The following is a list of the principal subsidiaries of Ineos Group Limited:

|                                                      |  |               |  |                    |     |   |  | 
|----------------------------------------------------- |  | ------------- |  | ------------------ | --- | - |  | 
|                                                      |  | Country of    |  |                    |     |  
|Company                                               |  | Incorporation |  | Percentage Holding
|                                                      |  |               |  |                   
|Ineos Investment Holdings Limited                     |  | UK            |  |                    | 100 | %
|Ineos Intermediate Holdings Limited                   |  | UK            |  |                    | 100 | %
|Ineos Group Holdings plc                              |  | UK            |  |                    | 100 | %
|Ineos Holdings Limited                                |  | UK            |  |                    | 100 | %
|Ineos US Finance Inc.                                 |  | US            |  |                    | 100 | %
|Ineos Oxide Limited                                   |  | UK            |  |                    | 100 | %
|Ineos UK Holding Finance Company Limited              |  | UK            |  |                    | 100 | %
|Ineos US Finance Company Limited                      |  | UK            |  |                    | 100 | %
|Ineos Finance BV                                      |  | Holland       |  |                    | 100 | %
|Ineos NV                                              |  | Belgium       |  |                    | 100 | %
|Ineos Belgium BV                                      |  | Belgium       |  |                    | 100 | %
|Ineos Italia Srl                                      |  | Italy         |  |                    | 100 | %
|Ineos OCI Limited                                     |  | UK            |  |                    | 100 | %
|Ineos OCII Limited                                    |  | UK            |  |                    | 100 | %
|Ineos Partners (DGP)                                  |  | US            |  |                    | 100 | %
|Ineos US Holding                                      |  | US            |  |                    | 100 | %
|Ineos LLC                                             |  | US            |  |                    | 100 | %
|Ineos Phenol Limited                                  |  | UK            |  |                    | 100 | %
|Ineos Phenol Verwaltungsgesellschaft mbH              |  | Germany       |  |                    | 100 | %
|Ineos Phenol GmbH & Co KG                             |  | Germany       |  |                    | 100 | %
|Ineos Phenol Asia Pte Limited                         |  | Singapore     |  |                    | 100 | %
|Ineos Phenol (Thailand) Limited                       |  | Thailand      |  |                    | 100 | %
|Ineos Phenol Services (Thailand) Limited              |  | Thailand      |  |                    | 100 | %
|Ineos Phenol Inc.                                     |  | US            |  |                    | 100 | %
|Ineos Investment Holdings (Fluor & Silicas) Limited   |  | UK            |  |                    | 100 | %
|Ineos Intermediate Holdings (Fluor & Silicas) Limited |  | UK            |  |                    | 100 | %
|Ineos Holdings (Fluor & Silicas) Limited              |  | UK            |  |                    | 100 | %
|Ineos Fluor Holdings Limited                          |  | UK            |  |                    | 100 | %
|Ineos Fluor Limited                                   |  | UK            |  |                    | 100 | %
|Ineos Fluor International Limited                     |  | UK            |  |                    | 100 | %
|Ineos Fluor Japan Limited                             |  | Japan         |  |                    | 100 | %
|Ineos Fluor Canada Inc.                               |  | Canada        |  |                    | 100 | %
|Ineos Fluor Partners Limited                          |  | UK            |  |                    | 100 | %
|IC (K) DL LLC                                         |  | US            |  |                    | 100 | %
|Ineos Fluor Americas LLC                              |  | US            |  |                    | 100 | %
|Grangehunter Limited                                  |  | UK            |  |                    | 100 | %
|Ineos Silicas Holding Limited                         |  | UK            |  |                    | 100 | %
|Ineos Silicas Limited                                 |  | UK            |  |                    | 100 | %
|Ineos Silicas International Limited                   |  | UK            |  |                    | 100 | %
|Crosfield Catalysts Limited                           |  | UK            |  |                    | 100 | %
|Ineos Silicas Holdings Netherlands BV                 |  | Holland       |  |                    | 100 | %
|Ineos Silicas Netherlands BV                          |  | Holland       |  |                    | 100 | %
|Ineos Silicas Italia Srl                              |  | Italy         |  |                    | 100 | %
|Ineos Silicas Holdings Asia Pacific                   |  | Singapore     |  |                    | 100 | %
|Ineos Silicas Asia Pacific Pte Limited                |  | Singapore     |  |                    | 100 | %
|Ineos Silicas South Africa Pty Limited                |  | South Africa  |  |                    | 100 | %
|Crosfield South Africa Pty Limited                    |  | South Africa  |  |                    | 100 | %
|PT Ineos Silicas Indonesia                            |  | Indonesia     |  |                    | 100 | %
|Ineos Brazil Limitada                                 |  | Brazil        |  |                    | 100 | %
|Ineos Silicas Partners Limited                        |  | UK            |  |                    | 100 | %
|Ineos Silicas Delaware Limited                        |  | UK            |  |                    | 100 | %
|IC (L) DL LLC                                         |  | US            |  |                    | 100 | %
|Ineos Silicas Americas LLC                            |  | US            |  |                    | 100 | %
|Ineos Trustees Limited                                |  | UK            |  |                    | 100 | %

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|D. |  | PROPERTY, PLANT AND EQUIPMENT
|-- |  | -----------------------------

We currently lease the office space for our principal executive offices,
which are located in Lyndhurst, Hampshire, England. Additionally, we also
lease administrative, technical and sales office space in various locations in
the countries in which we operate.

Our production network is comprised of 17 manufacturing facilities in ten
countries throughout the world.

The following chart provides information regarding our plants:

|                     |                         |                                 |                              |       |  |                 |                |  |                  |         |  |  | 
|-------------------- | ----------------------- | ------------------------------- | ---------------------------- | ----- |  | --------------- | -------------- |  | ---------------- | ------- |  |  | 
|                     |                         |                                 |                              |       |  |                 | Capacity (in   |  |                  |         | 
|                     |                         |                                 |                              |       |  |                 | kilotonnes per |  | Approximate area
|Property/Location(1) |                         | Principal Products Manufactured |                              | year) |  | (square meters)
|                     |                         |                                 |                              |       |  |                
|Ineos Oxide          |                         |                                 |                              |       |  |                 |                |  |                  |         |  | 
|                     | Antwerp, Belgium        |                                 | EO, EG, EO derivatives, ENB  |       |  | 1,200           |                |  |                  | 136,000 | 
|                     | Plaquemine, LA, US      |                                 | EOA and gas treating amines  |       |  | 140             |                |  |                  | 40,000  | 
|Ineos Phenol         |                         |                                 |                              |       |  |                 |                |  |                  |         |  | 
|                     | Gladbeck, Germany       |                                 | Phenol, acetone              |       |  | 1,000           |                |  |                  | 330,000 | 
|                     | Antwerp, Belgium(2)     |                                 | Phenol, acetone              |       |  | 680             |                |  |                  | 270,000 | 
|                     | Mobile, AL, US          |                                 | Phenol, acetone              |       |  | 710             |                |  |                  | 486,000 | 
|Ineos Fluor          |                         |                                 |                              |       |  |                 |                |  |                  |         |  | 
|                     | Rocksavage, UK          |                                 | HFC 134a, HCFC 22, HF        |       |  | 67              |                |  |                  | 300,000 | 
|                     | St. Gabriel, LA, US     |                                 | HFC 134a                     |       |  | 27              |                |  |                  | 330,000 | 
|                     | Mihara, Japan(3)        |                                 | HFC 134a                     |       |  | 18              |                |  |                  | 18,000  | 
|Ineos Silicas        |                         |                                 |                              |       |  |                 |                |  |                  |         |  | 
|                     | Warrington, UK          |                                 | Silicas, silicates, zeolites |       |  | 382             |                |  |                  | 223,000 | 
|                     | Eijsden, Netherlands    |                                 | Silicates, zeolites          |       |  | 330             |                |  |                  | 85,000  | 
|                     | Joliet, IL, US          |                                 | Silicas, silicates, zeolites |       |  | 230             |                |  |                  | 162,000 | 
|                     | Pasuran, Indonesia      |                                 | Silicas                      |       |  | 10              |                |  |                  | 20,000  | 
|                     | Jacana, Brazil          |                                 | Silicates                    |       |  | 175             |                |  |                  | 12,100  | 
|                     | Rio Claro, Brazil       |                                 | Silicas                      |       |  | 7               |                |  |                  | 85,000  | 
|                     | Jacobs, South Africa    |                                 | Silicates                    |       |  | 100             |                |  |                  | 12,100  | 
|                     | Wadeville, South Africa |                                 | Silicates                    |       |  | 120             |                |  |                  | 28,000  | 
|                     | Verona, Italy           |                                 | Silicates                    |       |  | 80              |                |  |                  | 8,000   | 



---

|(1) |  | We own all of our production facilities except where otherwise indicated.                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Ineos Phenol owns the production assets, but leases the land under a
long-term lease that expires in 2040.                                                     
|   
|(3) |  | The Mihara facility is operated by Teijin Limited on behalf of Ineos
Fluor. Ineos Fluor owns the production assets but leases the land under a
long-term lease.




ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



|A. |  | OPERATING RESULTS
|-- |  | -----------------

Overview

We are a leading global chemical manufacturer of specialty and
intermediate chemicals, with leading market positions, by volume, in each of
our core products according to the belief of management. Our company is
comprised of Ineos Oxide (formerly Ineos plc) and three other chemical
businesses that have been recently acquired and combined by our principal
shareholders, the directors of Ineos Capital. Our products include a wide
range of ethylene-based, fluorine-based and inorganic specialty chemicals, as
well as intermediate chemicals, such as phenol, acetone and ethylene glycol
(EG). We believe our businesses are distinguished by the broad experience of
our shareholders and our management teams, leading market positions,
high-quality and low-cost production facilities and operating diversity.

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We acquired Ineos Fluor and Ineos Silicas on January 9, 2001 from ICI and
our results of operations reflect the purchase of Ineos Fluor and Ineos Silicas
from an effective acquisition date of January 1, 2001. In addition, our
results of operations include the results of operations of the EOA and gas
treating amines businesses from Dow Chemical from February 12, 2001, the
results of Ineos Phenol from May 23, 2001 and the results of the acetate esters
business from BP Belgium from March 1, 2002, the dates we acquired those
businesses. Before January 1, 2001, our results of operations reflect only the
business of Ineos Oxide, our predecessor company.

Factors Affecting Our Business

Profitability in each of our businesses is affected significantly by
general economic conditions, prices of our raw materials and global supply and
demand for our products. In addition, environmental legislation and
initiatives affect demand for our products, especially chemicals manufactured
by Ineos Fluor and Ineos Silicas.

Ineos Oxide

Ineos Oxide derives its turnover and cash flow from the sale of specialty
and intermediate chemicals based on ethylene-based petrochemicals and the
provision of management and operating services to third parties with chemical
plants on the Antwerp and Plaquemine sites. The following factors have
historically affected Ineos Oxides results of operations over the periods
shown, and can be expected to continue to affect its business:



| |  |  | Growth in Ineos Oxides volume of sales has been affected by
production capacity increases that have been in excess of market
growth. From 1997 to 2002, Ineos Oxides design capacity for EO has
grown from approximately 140,000 tonnes per annum to 400,000 tonnes per
annum, while its design capacity for EG has grown from approximately
180,000 tonnes per annum to 320,000 tonnes per annum. These increases
in production capacity have allowed Ineos Oxide to increase its
turnover through increased volumes sold, even during recent periods of
decreased selling prices. A further 25,000 tonnes per annum expansion
of the EO unit is planned for 2003 to cover the growth of EO and
EO-derivatives. In addition a 20,000 tonnes per annum expansion in
Alkox capacity is planned for 2003 together with a 25,000 tonnes per
annum expansion of the ethanolamines plant in Plaquemine.                                                                                                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The gross and operating profit of Ineos Oxide is affected by price
cyclicality in its intermediate chemicals operations for both raw
materials and products produced by it. Moreover, the prices for
ethylene and EG often do not follow the same cycles, which can cause
operating margins to fluctuate from period to period. Thus, while
sales volumes have grown in each of the last three years, turnover and
cost of sales figures have fluctuated over that period. We expect that
EG prices will firm during 2003 due to a short global demand and supply
balance based on the expected growth rate of demand for the polyester
markets and the lack of new glycol plants in the next two years. Under
a long-term swap agreement entered into with Dow Chemical as part of
the EOA and gas treating amines acquisition, Ineos Oxide will sell an
increasingly significant portion of its EG production to Dow Chemical
and therefore be able to run the unit at full capacity and at more
stable margins per tonne.

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Ineos Phenol

Ineos Phenol derives its turnover from the manufacture of phenol and
acetone, which are primary materials in the production of a wide range of
industrial applications. Phenol and acetone are produced in fixed proportions
of one tonne of phenol and 0.62 tonnes of acetone from 1.34 tonnes of cumene,
which, in turn, is produced from fixed proportions of 0.9 tonnes of benzene and
0.49 tonnes of propylene. Reflecting this, the industry convention to measure
profitability, Margin over Raw Materials (MORM), is the price of one tonne of
phenol plus the price of 0.62 tonnes of acetone, minus the cost of 0.9 tonnes
of benzene and 0.49 tonnes of propylene and an appropriate cumene conversion
charge. The total cost of cumene accounted for 69% of Ineos Phenols cost of
sales in 2002. Market prices for phenol and acetone are routinely published by
industry consultants for both the Western Europe and the United States markets.
While price movements in its end products and raw materials reflect the
published market prices, the published prices are not necessarily indicative of
the absolute levels of Ineos Phenols product and raw material prices.

The following factors have historically affected Ineos Phenols results of
operations over the periods shown, and can be expected to continue to affect
its business:



| |  |  | Turnover fluctuates from period to period as a result of
cyclicality of pricing for phenol and acetone. These price movements
are mostly a function of fluctuations in the benzene and propylene
market prices and changes in the MORM. Tolling and formula contracts,
which govern most of Ineos Phenols sales, allow it to pass on to its
customers a significant portion of the changes in its raw material
prices, which in turn reduces Ineos Phenols exposure to the industrys
volatility. Ineos Phenol will continue to utilise tolling and formula
contracts wherever possible. Benzene and propylene market prices
increased significantly during the second half of 2002 compared to the
end of 2001 and are expected to remain at that level for the rest of
2003. Industry MORM levels are expected to improve slightly during
2003.                                                                                                                                                                                                                                                                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Turnover and cost of sales are also affected by changes in sales
volumes, which are a function of market demand and available plant
capacity. Ineos Phenols available capacity has been significantly
increased by the opening in April 2000 of the Mobile plant with a
capacity of 400 kilotonnes of phenol. The Mobile plant was expanded to
440 kilotonnes of phenol in January 2003. In addition a number of
competitors smaller plants have been closed in 2002, bringing the
North American market into a more balanced position. In Europe, Ineos
Phenol expanded its phenol capacity at its Antwerp plant from 200
kilotonnes to 420 kilotonnes in 1997 and at its Gladbeck plant from 530
kilotonnes to 620 kilotonnes in 1998 and 1999. No significant
increases in available plant capacity in the market are expected for
2003. Market demand in 2002 was higher than expected due to higher
demand from the caprolactam segment and the BPA segment coming back to
normal levels. Market demand in 2003 is expected to be higher than
2002 with demand from the caprolactam segment expected to stay strong,
moderate growth from the phenolic resins segment and improved demand
from the BPA segment.
|
| |  |  | Cost of sales reflect mostly benzene, propylene and related cumene
conversion costs, as well as variable energy costs and fixed production
costs, including depreciation. Cost of sales fluctuate from period to
period due to the volatility in benzene and propylene market prices and
changes in volumes as discussed above. Ineos Phenol has entered into
an agreement with Dow Chemical that it believes will significantly
reduce its cumene costs. Under the agreement Ineos Phenol has invested
in the expansion of Dow Chemical  ́s European cumene plant in exchange
for the right to purchase specified amounts of cumene at preferential
rates which began in the second half of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Industry MORMs have historically correlated with the ratio of
available capacity and market demand. There have been periods in which
supply has temporarily exceeded demand, which has led to depressed MORM
levels. For example, in 1999 and 2000 the US market experienced the
lowest MORM levels since 1994 due to significant capacity additions.
The European market experienced a period of overcapacity in late 1998
and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |   |  | throughout 1999 when demand slowed and failed to absorb recent
capacity additions. In 2001, MORM levels eroded in the European market
as a result of sharply decreased demand, which resulted from the
general economic downturn world-wide as well as negative developments
in IT-related industries, combined with slightly increased capacity.
MORM levels in the US market recovered moderately in 2001. Industry
MORM levels improved slightly during 2002 and are expected to further
improve during 2003.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The markets for phenol and acetone tend to be regional due to the
difficulty and cost of storage and transportation, with regional
production catering to regional demand. As a result, a region may have
its own price and margin cycles, according to regional demand and
supply imbalances, unless there are inter-regional price imbalances
that exceed freight costs.                                                                                                                                      

Ineos Fluor

Ineos Fluor derives its turnover and cash flow from the manufacture of
specialty fluorocarbon chemicals, particularly HFC 134a and HCFC 22, which are
used in a range of refrigeration and other applications. The following factors
have historically affected Ineos Fluors results of operations over the periods
shown, and can be expected to continue to affect its business:



| |  |  | Demand for Ineos Fluors products has grown due to increased demand
for HFC 134a for use in industrial and medical applications, a shift in
usage of HCFC 22 from non-feedstock to feedstock applications and
growth in demand for HFC blends in low-temperature refrigeration.
Market demand for HFC 134a and blends is expected to grow through 2003
and Ineos Fluor is seeking additional HCFC 22 feedstock business to
offset reductions in non-feedstock applications.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Environmental considerations have resulted in demand shifting away
from ozone-depleting gases towards ozone-benign gases, such as the HFC
products Ineos Fluor manufactures. The shift away from ozone-depleting
gases will continue until full phase-out of both CFCs and HCFCs in
non-feedstock uses is achieved.                                                                                                                                                        
|
| |  |  | Raw material costs compose the largest portion of Ineos Fluors
costs. Ineos Fluor has not, however, seen historically significant
fluctuations in its gross profit margins as a result of raw material
price volatility. The market trends for raw material costs are
expected to remain within historic norms.                                                                                                                                                           

Ineos Silicas

Ineos Silicas derives its turnover and cash flow from the manufacture of
structured fine particles made from sand (impure silica) and alumina.
Silicates, zeolites and silicas are Ineos Silicas major product groups,
accounting for 29%, 32% and 39%, respectively, of Ineos Silicas turnover for
the year ended December 31, 2002. The following factors have historically
affected Ineos Silicas results of operations over the periods shown, and can
be expected to continue to affect its business:



| |  |  | At the time of Ineos Silicas divestiture from Unilever in 1997, an
agreement was reached with Unilever on price and volume levels for
continuing zeolites sales following the separation. The agreement
provided that these prices would step-down on an annual basis
to competitive market price levels. Volumes also declined
particularly in the US as Levers production of powder detergents
fell. These step-downs decreased turnover in 1999 and 2000, but these
decreases have been increasingly offset by sales to other customers.
The final step-downs occurred at the end of 1999. In 2000, and beyond
prices have been on an arms-length basis. The Silicas business
remains sole supplier of Zeolite to Lever in Europe and the US.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Zeolite demand is driven by the detergent market, since detergents
are the primary end-use application for zeolite products.
Environmental pressure including legislation in many countries limiting
or banning phosphate usage has resulted in an on-going shift in                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

39



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| |   |  | demand
from phosphates to zeolites for use in detergents. In addition, some
important detergent manufacturers are seeking to standardise product
formulations across geographical regions, by using zeolites as
detergent builders, even in countries where phosphate use is not yet
prohibited.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Profitability has been affected by increases or decreases in sales
of silica products, which although they are relatively low volume are
very high value and generate a relatively high gross margin.                                                                                           
|
| |  |  | In many of Ineos Silicas key detergent sales contracts for
silicates and zeolites, pass-through pricing offers protection from
price movements in key raw materials.                                                                                                                           

Ineos Group LimitedResults of Operations

The results of Ineos Group Limited for the year ended December 31, 2002
are comprised of Ineos Oxide, Ineos Fluor, Ineos Silicas and Ineos Phenol as
well as the results of the acetate esters business acquired by Ineos Oxide from
BP Belgium on March 1, 2002 for the period March 1, 2002 to December 31, 2002.
The results of operations of Ineos Group Limited for the year ended December
31, 2001 include the results of operation of Ineos Fluor and Ineos Silicas with
effect from January 1, 2001, the results of operation of the EOA
and GasSpecTM
gas treating amines businesses acquired by Ineos Oxide from Dow Chemical from
February 12, 2001 and the results of operation of Ineos Phenol from May 23,
2001. The results of Ineos Group Limited for the year ended December 31, 2000
are comprised solely of Ineos Oxide and do not include the results of Ineos
Fluor, Ineos Silicas, the EOA and gas treating amines businesses or Ineos
Phenol, which were under the ownership of others prior to their respective
dates of acquisition.

Discussions of the results of operations of each of Ineos Phenol, Ineos
Fluor and Ineos Silicas for the years ended December 31, 2000, 2001 and 2002
are presented herein. Although the results of operations for Ineos Fluor and
Ineos Silicas for the year ended December 31, 2001 are included in the results
of operations for Ineos Group Limited from January 1, 2001, to facilitate an
understanding of the comparative results we have included supplemental
disclosure in this Item 5 discussing the results of Ineos Oxide, Ineos Fluor
and Ineos Silicas under the captions Supplemental DisclosureIneos
OxideResults of Operations, Supplemental DisclosureIneos FluorResults of
Operations and Supplemental DisclosureIneos SilicasResults of Operations,
respectively , for periods prior to January 1, 2001 while Ineos Fluor and Ineos
Silicas were under the ownership of ICI. Likewise, to facilitate an
understanding of the comparative results of Ineos Phenol, we have included
supplemental disclosure under the caption Supplemental DisclosureIneos
PhenolResults of Operations for periods prior to May 23, 2001 while under the
ownership of Degussa AG.

We have not included separate information with respect to the EOA and
GasSpecTM gas treating amines businesses because they are not considered
sufficiently material to us to discuss on a non-consolidated basis. From
February 12, 2001, these businesses are included in the results of the Ineos
Oxide segment.

Operating costs have been allocated to specific categories in accordance
with the requirements of UK GAAP. The main categories are cost of sales,
distribution costs and administrative expenses. Cost of sales includes fixed
and variable production costs. Such production costs typically include the
costs of raw materials, packaging, utilities, direct wages and salaries,
repairs and maintenance, waste disposal and effluent treatment, consumables,
attributable depreciation charges and directly attributable overheads.
Distribution costs typically include the costs of warehousing, carriage and
freight together with sales and distribution wages and salaries and
depreciation on tangible fixed assets used for sales and distribution.
Administrative expenses typically include indirect wages and salaries and
indirect overheads. Indirect overheads would include such items as insurance
costs, legal and professional fees and office supplies. This would also
include the depreciation on tangible fixed assets not directly attributable to
production or sales and distribution, and the amortisation of intangible fixed
assets such as goodwill.

40



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##### Table of Contents



The following table sets forth, for the periods indicated, turnover and
expenses and such amounts as a percentage of turnover:

|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|---------------------------------------------------- |  | --------------------------------- | ------ | ---- |  | ---- | ----- | - |  | - | -------- | - |  |  | ----- | - |  |  | -------- | - |  |  | ----- | -
|                                                     |  | Year Ended December 31,          
|                                                     |  |                                  
|                                                     |  | 2000                              |        | 2001 |  | 2002
|                                                     |  |                                   |        |      |  |     
|                                                     |  |                                  |        | %    |  |     |       | % |  |  |          | %
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |  
|                                                     |  | (in millions, except percentages)
|Turnover                                             |  |                                   | 337.0  |      |  |      | 100.0 |   |  |   | 1,530.7  |   |  |  | 100.0 |   |  |  | 2,235.8  |   |  |  | 100.0 |  
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Cost of sales                                        |  |                                   | (270.0 | )    |  |      | (80.1 | ) |  |   | (1,255.8 | ) |  |  | (82.0 | ) |  |  | (1,833.9 | ) |  |  | (82.0 | )
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Gross profit                                         |  |                                   | 67.0   |      |  |      | 19.9  |   |  |   | 274.9    |   |  |  | 18.0  |   |  |  | 401.9    |   |  |  | 18.0  |  
|Distribution costs                                   |  |                                   | (13.4  | )    |  |      | (4.0  | ) |  |   | (104.4   | ) |  |  | (6.8  | ) |  |  | (161.8   | ) |  |  | (7.2  | )
|Administrative expenses before
exceptional items     |  |                                   | (8.5   | )    |  |      | (2.5  | ) |  |   | (68.7    | ) |  |  | (4.5  | ) |  |  | (65.9    | ) |  |  | (2.9  | )
|Exceptional administrative expenses                  |  |                                   |       |      |  |      |      |   |  |   | (19.6    | ) |  |  | (1.3  | ) |  |  | (24.6    | ) |  |  | (1.1  | )
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Operating Profit                                     |  |                                   | 45.1   |      |  |      | 13.4  |   |  |   | 82.2     |   |  |  | 5.4   |   |  |  | 149.6    |   |  |  | 6.8   |  
|Share of operating profit of associate               |  |                                   |       |      |  |      |      |   |  |   | 0.2      |   |  |  | 0.0   |   |  |  | 0.6      |   |  |  |      |  
|Profit on disposal of fixed assets                   |  |                                   |       |      |  |      |      |   |  |   |         |   |  |  |      |   |  |  | 1.9      |   |  |  |      |  
|Net finance charges                                  |  |                                   | (9.9   | )    |  |      | (2.9  | ) |  |   | (68.7    | ) |  |  | (4.5  | ) |  |  | (79.8    | ) |  |  | (3.6  | )
|Exceptional finance charges                          |  |                                   |       |      |  |      |      |   |  |   | (40.9    | ) |  |  | (2.7  | ) |  |  |         |   |  |  |      |  
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Profit/(loss) on ordinary activities
before taxation |  |                                   | 35.2   |      |  |      | 10.5  |   |  |   | (27.2    | ) |  |  | (1.8  | ) |  |  | 72.3     |   |  |  | 3.2   |  
|Taxation on profit/(loss) on ordinary
activities     |  |                                   | (7.6   | )    |  |      | (2.3  | ) |  |   | 6.1      |   |  |  | 0.4   |   |  |  | (37.1    | ) |  |  | (1.6  | )
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Profit/(loss) on ordinary activities
after taxation  |  |                                   | 27.6   |      |  |      | 8.2   |   |  |   | (21.1    | ) |  |  | (1.4  | ) |  |  | 35.2     |   |  |  | 1.6   |  
|                                                     |  |                                   |        |      |  |      |       |   |  |   |          |   |  |  |       |   |  |  |          |   |  |  |       |  

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

Turnover. Turnover increased by 705.1 million, approximately 46.1% to
2,235.8 million in 2002 as compared to 1,530.7 million in 2001. This
increase primarily reflects the full year inclusion in 2002 of the results of
Ineos Phenol which was acquired on May 23, 2001. Turnover in Ineos Phenol
increased from 576.2 million for the period May 23, 2001 to December 31, 2001
to 1,189.0 million for the year ended December 31, 2002. In addition, this
increase reflects an increase in turnover of 75.3 million in Ineos Oxide due
to increased volumes sold as well as the impact of the acquisition of the
acetate esters business which contributed 39.7 million to the increase.

Cost of sales. Cost of sales increased by 578.1 million, approximately
46.0% to 1,833.9 million in 2002 as compared to 1,255.8 million in 2001.
This increase primarily reflects the full year inclusion in 2002 of Ineos
Phenol. Cost of sales in Ineos Phenol increased from 544.9 million for the
period May 23, 2001 to December 31, 2001 to 1,084.5 million for the year ended
December 31, 2002. In addition this increase reflects an increase in cost of
sales of 39.3 million in Ineos Oxide due to increased sales volumes and
additional cost of sales related to the newly acquired acetate esters business.

Gross profit. Gross profit increased by 127.0 million, approximately
46.2% to 401.9 million in 2002 as compared to 274.9 million in 2001. This
increase primarily reflects the full year inclusion in 2002 of Ineos Phenol.
Gross profit in Ineos Phenol increased from 31.3 million for the period May
23, 2001 to December 31, 2001 to 104.5 million for the year ended December 31,
2002. In addition this increase reflects an increase in gross profit of
36.0 million in Ineos Oxide due to increased sales volumes and the impact of
the newly acquired acetate esters business.

Distribution costs. Distribution costs increased by 57.4 million,
approximately 55.0% to 161.8 million in 2002 as compared to 104.4 million in
2001. This increase primarily reflects the full year inclusion in 2002 of
Ineos Phenol. Distribution costs in Ineos Phenol increased from 30.4 million
for the period May 23, 2001 to December 31, 2002 to 63.6 million for the year
ended December 31, 2002. In addition this increase reflects an increase in
distribution costs of 24.9 million

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in Ineos Oxide due to increased volumes
sold and the export of additional EOA products to Europe and Asia.

Administrative expenses. Administrative expenses decreased by 2.8
million, approximately 4.0% to 65.9 million in 2002 as compared to 68.7
million in 2001. This decrease is primarily due to the net impact of lower
costs incurred as a result of a number of cost saving projects throughout Ineos
Group Limited offset by increased administrative expenses as a result of the
full year effect in 2002 of the acquisition of Ineos Phenol.

Exceptional administrative expenses. Exceptional administrative expenses
were 24.6 million in 2002 compared to 19.6 million in 2001. These expenses
primarily reflect severance and restructuring costs incurred in connection with
our ongoing business reorganisations primarily in Ineos Silicas and Ineos
Phenol. The amounts of these expenses arising from each of Ineos Oxide, Ineos
Phenol, Ineos Fluor and Ineos Silicas were 0.1 million, 6.1 million, 1.7
million and 16.7 million, respectively.

Operating profit. Operating profit increased by 67.4 million,
approximately 82.0% to 149.6 million in 2002 compared to 82.2 million in
2001. This increase primarily reflects the full year inclusion in 2002 of
Ineos Phenol. Operating profit in Ineos Phenol increased from a loss of (3.4)
million for the period May 23, 2001 to December 31, 2001 to a profit of 42.2
million for the year ended December 31, 2002.

Profit on disposal of fixed assets.Profit on disposal of fixed assets
represents the impact of the incident at our Ineos Phenol plant in Mobile, USA.
On September 9, 2002 the cleavage unit was destroyed by an explosion and fire.
A total of $5 million has been received on account from the insurers in
respect of the insurance claim. The amount received (net of disposal costs,
fixed assets and negative goodwill written off) has been accounted for as
proceeds on the disposal of tangible fixed assets. The claims remain to be
finalised with the insurers. Any additional amounts received will be accounted
for in the 2003 fiscal year.

Net finance charges. Net finance charges increased by 11.1 million,
approximately 16.1% to 79.8 million in 2002 as compared to 68.7 million in
2001. This increase primarily reflects the full year effect in 2002 of the new
finance structure put in place to fund the acquisition of Ineos Phenol on May
23, 2001.

Exceptional finance charges. Exceptional finance costs incurred in 2002
were nil million as compared to 40.9 million in 2001. These costs related to
our refinancing which took place on May 23, 2001.

Profit/(loss) on ordinary activities before taxation. Profit/(loss) on
ordinary activities increased by99.5 million, approximately 365.8% to 72.3
million in 2002 as compared to a loss of 27.2 million in 2001. This increase
primarily reflects the net impact of the full year inclusion in 2002 of Ineos
Phenol, the increased exceptional restructuring charges incurred in 2002 as
compared to 2001, increased taxation charges under FRS19 in 2002 and the
exceptional finance costs incurred in 2001.

Taxation. Taxation increased by 43.2 million, approximately 708.2% to
37.1 million in 2002 as compared to a credit of 6.1 million in 2001. The
increase reflects our improved profitability
of the group together with the implementation of FRS 19, Deferred tax
for the first time. The implementation of FRS 19 increased the tax charge by
23.9 million in 2002 compared to an increased credit of 2.1 million in 2001.

Profit/(loss) on ordinary activities after taxation. Profit/(loss) on
ordinary activities after taxation increased by56.3 million, approximately
266.8% to 35.2 million in 2002 as compared to a loss of 21.1 million in 2001.
This increase primarily reflects the net impact of the full year inclusion in
2002 of Ineos Phenol, the increased exceptional restructuring charges incurred
in 2002 as compared

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to 2001, increased taxation charges under FRS 19 in 2002
and the exceptional finance costs incurred in 2001.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Turnover. Turnover increased by 1,193.7 million, approximately 354.2% to
1,530.7 million in 2001, as compared to 337.0 million in 2000. Of this
increase, 576.2 million resulted from the acquisition of Ineos Phenol from
Degussa on May 23, 2001, and 299.5 million and 222.9 million resulted from
the acquisition of Ineos Fluor and Ineos Silicas, respectively, with effect
from January 1, 2001 from ICI. In addition, this increase reflects an increase
in turnover of 95.1 million in Ineos Oxide due to higher prices and sales
volumes, as well as the impact of acquisitions, for its specialty chemical
products.

Cost of sales. Cost of sales increased by 985.8 million, approximately
365.1%, to 1,255.8m in 2001, as compared to 270.0 million in 2000. This
increase reflects the impact of the acquisitions of Ineos Phenol, Ineos Fluor
and Ineos Silicas in the amounts of 544.9 million, 229.2 million and 143.0
million, respectively, as well as an increase in cost of sales of 68.7 million
in Ineos Oxide largely due to higher sales prices and the impact of
acquisitions on its specialty chemical products.

Gross profit. Gross profit increased by 207.9 million approximately
310.3%, to 274.9 million in 2001, as compared to 67.0 million in 2000. This
increase reflects the impact of the acquisitions of Ineos Phenol, Ineos Fluor
and Ineos Silicas in the amounts of 31.3 million, 70.3 million and 79.9
million, respectively, as well as an increase in gross profits of 26.4 million
in Ineos Oxide largely due to higher industry margins and the impact of
acquisitions on its specialty chemicals products.

Distribution costs. Distribution costs increased by 91.0 million,
approximately 679.1%, to 104.4 million in 2001, as compared to 13.4 million
in 2000. This increase reflects the impact of the acquisitions of Ineos
Phenol, Ineos Fluor and Ineos Silicas in the amounts of 30.4 million, 23.6
million and 24.6 million, respectively, as well as an increase in distribution
costs of 12.4 million in Ineos Oxide largely due to higher sales volumes and
the impact of acquisitions in its specialty chemical products.

Administrative expenses. Administrative expenses increased by 60.2
million, approximately 708.2% to
68.7 million in 2001, as compared to 8.5
million in 2000. This increase reflects the impact of the acquisitions of
Ineos Phenol, Ineos Fluor and Ineos Silicas in the amounts of

(0.2)
million, 15.8 million and 44.4 million, respectively, as well as an increase in
administrative expenses of 2.2 million in Ineos Oxide due to the impact of
acquisitions in its specialty chemical products.


Exceptional administrative expenses. Exceptional administrative expenses
incurred in 2001 were 19.6 million as compared to no such charges in 2000.
These expenses primarily reflect severance costs incurred in connection with
our business reorganisations. The amounts of these expenses arising from each
of Ineos Oxide, Ineos Phenol, Ineos Fluor and Ineos Silicas were 0.4 million,
7.1 million, 5.7 million and 7.0 million, respectively.

Operating profit. Operating profit increased by 37.1 million,
approximately 82.3%, to 82.2 million in 2001, as compared to 45.1 million in
2000. This increase reflects the impact of the acquisitions of Ineos Fluor and
Ineos Silicas in the amounts of 25.2 million and 3.9 million, respectively,
partially offset by an operating loss of 3.4 million of Ineos Phenol. This
increase also reflects an increase in operating profit of 11.4 million in
Ineos Oxide largely due to higher sales prices and the impact of acquisitions
in its specialty chemical products.

Net finance charges. Net finance charges increased by 58.8 million,
approximately 593.9%, to 68.7 million in 2001, as compared to 9.9 million in
2000. This increase is largely due to the

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additional borrowings incurred to
finance the acquisitions of Ineos Fluor, Ineos Silicas and Ineos Phenol.

Exceptional finance charges. Exceptional finance charges incurred in 2001
were 40.9 million as compared to no such charges in 2000. These charges
primarily reflect the early repayment of previous financing and bridge loan
break costs; the write-off of the associated unamortised debt issue costs and
bridge facility costs; the tender offer premium on the repayment of the Senior
Secured Notes and the write-off of unamortised debt issue costs on the partial
early repayment of the Senior Credit Facilities.

Profit/(loss) on ordinary activities before taxation. The (loss) on
ordinary activities before taxation increased by 62.4 million in 2001 to a
(loss) of 27.2 million as compared to a profit of 35.2 million in 2000. This
increase is largely due to the acquisitions described above.

Taxation on profit/(loss) on ordinary activities. The taxation on
profit/(loss) on ordinary activities decreased by 13.7 million to a credit of
6.1 million in 2001 as compared to a charge of 7.6 million in 2000.

Profit/(loss) on ordinary activities after taxation. The loss on ordinary
activities after taxation increased by
48.7 million
to a (loss) of(21.1)
million in 2001 as compared with a profit of 27.6 million in 2000. This
increase is largely due to the acquisitions described above.

Supplemental Disclosure

Ineos OxideResults of Operations

The following table sets forth, for the periods indicated, turnover and
expenses and such amounts as a percentage of turnover:

|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|----------------------------------- |  | --------------------------------- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                    |  | Year Ended December 31,          
|                                    |  |                                  
|                                    |  | 2000                              |        | 2001 |  | 2002
|                                    |  |                                   |        |      |  |     
|                                    |  |                                  |        | %    |  |     |       | % |  |  |        | %
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |  
|                                    |  | (in millions, except percentages)
|Turnover                            |  |                                   | 337.0  |      |  |      | 100.0 |   |  |   | 432.1  |   |  |  | 100.0 |   |  |  | 507.4  |   |  |  | 100.0 |  
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Cost of sales                       |  |                                   | (270.0 | )    |  |      | (80.1 | ) |  |   | (338.7 | ) |  |  | (78.4 | ) |  |  | (378.1 | ) |  |  | (74.5 | )
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Gross profit                        |  |                                   | 67.0   |      |  |      | 19.9  |   |  |   | 93.4   |   |  |  | 21.6  |   |  |  | 129.3  |   |  |  | 25.5  |  
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Distribution costs                  |  |                                   | (13.4  | )    |  |      | (4.0  | ) |  |   | (25.8  | ) |  |  | (6.0  | ) |  |  | (50.7  | ) |  |  | (10.0 | )
|Administrative expenses             |  |                                   | (8.5   | )    |  |      | (2.5  | ) |  |   | (10.7  | ) |  |  | (2.5  | ) |  |  | (13.4  | ) |  |  | (2.6  | )
|Exceptional
administrative
expenses |  |                                   |       |      |  |      |      |   |  |   | (0.4   | ) |  |  | (0.0  | ) |  |  | (0.1   | ) |  |  | (0.0  | )
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Operating profit                    |  |                                   | 45.1   |      |  |      | 13.4  |   |  |   | 56.5   |   |  |  | 13.1  |   |  |  | 65.1   |   |  |  | 12.9  |  
|                                    |  |                                   |        |      |  |      |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Turnover. Turnover increased by 75.3 million, approximately 17.4%, to
507.4 million for the year ended December 31, 2002, as compared to 432.1
million for the year ended December 31, 2001. This increase reflects an
increase in volumes sold for speciality chemicals and intermediate chemicals
offset by lower selling prices. Across the business higher volumes and
increased third party services revenues have been offset by decreasing selling
prices. The increased volumes reflect the full impact of the expansion of the
EO/EG plant in Antwerp and the new alkoxylates unit and also
include the recently acquired Ethanolamine and GasSpec TM gas treating
amines business acquired in February 2001 and the acetate esters business
acquired in March 2002. Volumes of EO sold or converted into glycols and
alkoxylates increased by approximately 15% in 2002 compared to 2001, largely as
a result of capacity expansions but also partly as a result of only one
shutdown in 2002 compared to two in 2001.

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The average of the North Western European contract price for EO as per
ICIS LOR decreased to 915 per tonne for the year ended December 31, 2002, as
compared to 967 per tonne for the year ended December 31, 2001. The average
of the North Western European contract prices for monoethylene glycol (MEG) as
per ICIS LOR decreased to 520 per tonne for the year ended December 31, 2002
as compared to 575 per tonne for the year ended December 31, 2001.

Cost of sales. Cost of sales increased by 39.4 million, approximately
11.6%, to 378.1 million for the year ended December 31, 2002, as compared to
338.7 million for the year ended December 31, 2001. This primarily reflects
increased sales volumes in the speciality and intermediate business and the
additional cost of sales related to the newly acquired acetate esters business.
This increase was offset by the decreased ethylene prices.

The average of the North Western European contract price for ethylene as
per ICIS LOR decreased to 517 per tonne for the year ended December 31, 2002,
as compared to 616 per tonne for the year ended December 31, 2001.

Gross profit. Gross profit increased by 35.9 million, approximately
38.4%, to 129.3 million for the year ended December 31, 2002, as compared to
93.4 million for the year ended December 31, 2001. The increase reflects the
increased volumes sold of intermediate and speciality chemicals and includes
the additional volumes sold of acetate esters since March 1, 2002. In addition
higher industry margins over raw materials on speciality chemicals and stable
margins for intermediate chemicals have also been experienced.

Distribution costs. Distribution costs increased by 24.9 million,
approximately 96.5%, to 50.7 million for the year ended December 31, 2002, as
compared to 25.8 million for the year ended December 31, 2001. This increase
reflects the increase in volumes sold of intermediate and speciality chemicals
and the impact of the recently acquired acetate esters business. The
distribution costs increased as a percentage of sales due to the EOA, GasSpecTM
and acetate esters businesses, which have a higher distribution charges and the
export of EOA product to Europe and Asia.

Administrative expenses.Administrative expenses increased by 2.7
million, approximately 25.2%, to 13.4 million for the year ended December 31,
2002 as compared to 10.7 million for the year ended December 31, 2001. This
reflects the impact of the acquisition of the EOA and gas treating amines
business from mid-February 2001 and the acetate esters business from March
2002.

Exceptional administrative expenses.Exceptional administrative expenses
incurred in 2002 were 0.1 million as compared to 0.4 million in 2001. The
costs in 2001 related to costs incurred on disputed contracts.

Operating profit.Operating profit increased by 8.6 million,
approximately 15.2%, to 65.1 million for the year ended December 31, 2002, as
compared to 56.5 million for the year ended December 31, 2001. The increase
reflects the full year effect of the acquisition of the EOA business, the
acetate esters acquisition in 2002 and higher volumes and margins in the
speciality chemical business.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Turnover. Turnover increased by 95.1 million, approximately 28.2%, to
432.1 million in 2001, as compared to 337.0 million in 2000.

This increase reflects the acquisition of the EOA and GasSpecTM gas
treating amines business, higher prices and sales volumes for alkoxylates and
EO. The increase in EO sales volumes reflects the full impact of the expansion
of the EO/EG plant capacity from 245,000 tonnes to 300,000 tonnes in 1999, from
300,000 to 330,000 tonnes in 2000 and from 330,000 to 400,000 tonnes in 2001.
The volumes of EO sold or converted into glycols and alkoxylates increased by
1.5% in the year 2001 as compared to 2000, largely as a result of the capacity
expansions mentioned above but partially offset

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by two shutdowns of the EO/EG
unit in 2001, for recatalyzation and capacity expansion, as compared to one
shutdown in 2000.

The average of the ICIS North Western Europe contract price for EO
increased to 967 per tonne in 2001, as compared to 918 per tonne in 2000.
The contract price at the beginning of the fourth quarter in 2001 was 930 per
tonne for EO.

Cost of sales. Cost of sales increased by 68.7 million, approximately
25.4%, to 338.7 million in 2001, as compared to 270.0 million in 2000.

This increase primarily reflects the acquisition of the EOA and GasSpecTM
gas treating amines business, and increased sales volumes of EO and
alkoxylates, partially offset by decreased sales volumes of EG and lower
ethylene prices.

The average of the ICIS North Western Europe contract price for ethylene
decreased to 616 per tonne in 2001, as compared to 664 per tonne in 2000.

Gross profit. Gross profit increased by 26.4 million, approximately
39.4%, to 93.4 million in 2001, as compared to 67.0 million in 2000.

This increase primarily reflects the acquisition of the EOA and GasSpecTM
gas treating amines business and higher industry margins over raw materials on
specialty chemicals due to decreased raw material costs while sales prices
remained stable or increased.

Distribution costs. Distribution costs increased by 12.4 million,
approximately 92.5%, to 25.8 million in 2001, as compared to 13.4 million in
2000. The increase reflects the increase in volumes sold and the acquisition
of the EOA business. The distribution costs increased as a percentage of sales
due to the EOA and GasSpecTM gas treating amines businesses, which have a
higher average distribution charge, and the export of EOA product to Europe and
Asia.

Administrative expenses. Administrative expenses increased by 2.2
million, approximately 25.9%, to 10.7 million in 2001, as compared to 8.5
million in 2000. The increase reflects the acquisition of the EOA and
GasSpecTM gas treating amines business.

Exceptional administrative expenses. Exceptional administrative expenses
incurred in 2001 were 0.4 million as compared to no such charges in 2000.
These expenses relate to costs incurred on disputed contracts.

Operating profit. Operating profit increased by 11.4 million,
approximately 25.3%, to 56.5 million in 2001, as compared to 45.1 million in
2000. The increase reflects the acquisition of the EOA and GasSpecTM gas
treating amines business and higher volumes and margins in the specialty
chemicals business.

Ineos PhenolResults of Operations

To facilitate discussion and analysis, the historical amounts for the year
ended December 31, 2001, represent an aggregation of the historical amounts of
the Ineos Phenol business for the period from January 1, 2001 to May 22, 2001,
while under the ownership of Degussa AG and for the period from May 23, 2001 to
December 31, 2001, while under the ownership of Ineos Group Limited. The
results of Ineos Phenol for the period after May 22, 2001 include the effects
of purchase accounting
adjustments from the date of acquisition. The historical amounts for the
year ending December 31, 2000 represent the results of Ineos Phenol, while
under the ownership of Degussa AG.

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The following table set forth, for the periods indicated, turnover and
expenses and such amounts as a percentage of turnover:

|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|----------------------------------- |  | --------------------------------- | -------- | ------- |  | ----------- | ----- | ----------------------- |  | ----------- | ------ | ----------- |  | - | ------ | - |  |  | -------- | - |  |  | ----- | - |  |  | -------- | - |  |  | ----- | -
|                                    |  |                                   |          |         |  |             |       |                         |  | Period from |        | Period from |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |  
|                                    |  |                                   |          |         |  |             |       |                         |  | January 1,  |        | May 23,     |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |  
|                                    |  |                                   |          |         |  |             |       |                         |  | 2001 to     |        | 2001 to     |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |  
|                                    |  | Year Ended December 31            |          | May 22, |  | December 31 |       | Year Ended December 31,
|                                    |  |                                   |          |         |  |             |       |                        
|                                    |  | 2000                              |          | 2001    |  | 2001        |       | 2001(1)                 |  | 2002       
|                                    |  |                                   |          |         |  |             |       |                         |  |            
|                                    |  |                                  |          | %       |  |            |       |                        |  |            |        | %           |  |  |        | %
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |  
|                                    |  | (in millions, except percentages)
|Turnover                            |  |                                   | 1,280.3  |         |  |             | 100.0 |                         |  |             | 532.3  |             |  |   | 576.2  |   |  |  | 1,108.5  |   |  |  | 100.0 |   |  |  | 1,189.0  |   |  |  | 100.0 |  
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Cost of sales                       |  |                                   | (1,177.7 | )       |  |             | (92.0 | )                       |  |             | (503.4 | )           |  |   | (544.9 | ) |  |  | (1,048.3 | ) |  |  | (94.6 | ) |  |  | (1,084.5 | ) |  |  | (91.2 | )
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Gross profit                        |  |                                   | 102.6    |         |  |             | 8.0   |                         |  |             | 28.9   |             |  |   | 31.3   |   |  |  | 60.2     |   |  |  | 5.4   |   |  |  | 104.5    |   |  |  | 8.8   |  
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Distribution costs                  |  |                                   | (59.7    | )       |  |             | (4.7  | )                       |  |             | (25.4  | )           |  |   | (30.4  | ) |  |  | (55.8    | ) |  |  | (5.0  | ) |  |  | (63.6    | ) |  |  | (5.3  | )
|Administrative
expenses             |  |                                   | (13.5    | )       |  |             | (1.0  | )                       |  |             | (2.0   | )           |  |   | 2.2    |   |  |  | 0.2      |   |  |  |      |   |  |  | 7.4      |   |  |  | 0.6   |  
|Exceptional
administrative
expenses |  |                                   |         |         |  |             |      |                         |  |             | (0.6   | )           |  |   | (6.5   | ) |  |  | (7.1     | ) |  |  | (0.6  | ) |  |  | (6.1     | ) |  |  | (0.5  | )
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  
|Operating profit                    |  |                                   | 29.4     |         |  |             | 2.3   |                         |  |             | 0.9    |             |  |   | (3.4   | ) |  |  | (2.5     | ) |  |  | (0.2  | ) |  |  | 42.2     |   |  |  | 3.6   |  
|                                    |  |                                   |          |         |  |             |       |                         |  |             |        |             |  |   |        |   |  |  |          |   |  |  |       |   |  |  |          |   |  |  |       |  



---

|(1) |  | Column represents the aggregation of the results of Ineos Phenol for the
period from January 1, 2001 to May 22, 2001, while under the ownership of
Degussa, and the period from May 23, 2001 to December 31, 2001, while
under the ownership of Ineos Group Limited.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31, 2002, Compared to Year Ended December 30, 2001

Turnover. Turnover increased by 80.5 million, approximately 7.3%, to
1,189.0 million for the year ended December 31, 2002, as compared to 1,108.5
million for the year ended December 31, 2001. This increase reflects increased
sales volumes partially offset by decreases in sales prices.

Western European phenol and acetone prices (per CMAI) decreased/increased
to 559 per tonne and 565 per tonne, respectively, for the year ended December
31, 2002, as compared to 685 per tonne and 522 per tonne, respectively for
the year ended December 31, 2001. US phenol and acetone prices (per CMAI)
increased to $737 per metric tonne and $374 per metric tonne, respectively, for
the year ended December 31, 2002, as compared to $689 per metric tonne and $357
per metric tonne, respectively, for the same period in 2001.

Cost of sales. Cost of sales increased by 36.2 million, approximately
3.5%, to 1,084.5 million for the year ended December 31, 2002, as compared to
1,048.3 million for the year ended December 31, 2001. This increase reflects
primarily the increase in raw material prices and increased raw material
consumption due to higher plant utilisations in Europe.

Western European benzene and propylene contract prices (per CMAI)
increased/decreased to 359 per tonne and 441 per tonne, respectively for the
year ended December 31, 2002, as compared to 333 per tonne and 461 per tonne,
respectively, for the year ended December 31, 2001. US benzene and propylene
contract prices (per CMAI) increased to $357 per tonne and $397 per tonne,
respectively, for the year ended December 31, 2002, as compared to $305 per
tonne and $385 per tonne, respectively, for the year ended December 31, 2001.

Gross profit. Gross profit increased by 44.3 million, approximately
73.6%, to 104.5 million in the year ended December 31, 2002, as compared to
60.2 million for the year ended December 31, 2001. This increase reflects an
increase in sales volumes only partially offset by decreases in sales prices
and increases in raw material costs. On September 9, 2002 the cleavage unit at
our Mobile, USA plant was destroyed by an explosion and fire. As a result of
this incident there was no further production from this plant for the remainder
of 2002. Customer commitments were maintained by shipping product over from
our European plants and purchasing product from our fellow producers in Europe
and the USA, which had an overall negative impact on gross profit. No
47Table of Contents

amounts
have been received from the insurers by December 31, 2002 in respect of
increased costs of
working or consequential loss of profits. The insurance claims remain to
be finalised. Amounts received in relation to business interruption will be
accounted for in the 2003 financial year.

Distribution costs. Distribution costs increased by 7.8 million,
approximately 14.0%, to 63.6 million for the year ended December 31, 2002, as
compared to 55.8 million for the year ended December 31, 2001. This increase
reflects primarily the increase in sales volumes and the increased costs of
exports from Europe to the US to support our customer commitments there while
the Mobile plant was out of production.

Administrative expenses. Administrative expenses, including research and
development activities, decreased by 7.2 million, approximately 3,600.0%, to a
credit of 7.4 million for the year ended December 31, 2002, as compared to a
credit of 0.2 million for the year ended December 31, 2001. The increased
credit mainly reflects the increased amortisation of negative goodwill
following the finalisation of the purchase price allocations from 14.9 million
for the period May 23, 2001 to December 31, 2001 to 22.8 million for the year
ended December 31, 2002.

Exceptional administrative expenses. Exceptional administrative expenses
were 6.1 million in 2002 compared to 7.1 million in 2001. These expenses
primarily reflect severance and restructuring costs incurred in connection with
our business reorganisation following the acquisition of Ineos Phenol from
Degussa.

Operating profit. Operating profit increased by 44.7 million,
approximately 1,788.0%, to 42.2 million for the year ended December 31, 2002,
as compared with a loss of 2.5 million for the year ended December 31, 2001.
This increase primarily reflects higher sales volumes and a higher amortisation
of negative goodwill partially offset by increased distribution costs.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Turnover. Turnover decreased by 171.8 million, approximately 13.4%, to
1,108.5 million for the year ended December 31, 2001, as compared to 1,280.3
million for the same period in 2000. This decrease reflects lower selling
prices for phenol and acetone in Europe and for acetone in North America,
partially offset by slight increases in phenol prices in North America, and a
lower phenol sales volume of approximately 3.2% due to the decrease in demand
for BPA/polycarbonate and caprolactam in Europe in the second half of 2001.
The decreased sales volumes in Europe were partially offset by increased sales
volumes in North America due to the full impact of the new plant in Mobile,
Alabama, which began production in April 2000.

Western European phenol and acetone prices decreased to 685 per tonne and
to 522 per tonne, respectively, for the year ended December 31, 2001, as
compared to 772 per tonne and 586 per tonne, respectively, for the same
period in 2000. US phenol prices increased to $689 per tonne for the year
ended December 31, 2001, as compared to $632 per tonne for the same period in
2000. US acetone prices decreased to $357 per tonne for the year period ended
December 31, 2001, as compared to $407 per tonne for the same period in 2000.

Cost of sales. Cost of sales decreased by 129.4 million, approximately
11.0%, to 1,048.3 million for the year ended December 31, 2001, as compared to
1,177.7 million for the same period in 2000. This decrease primarily reflects
lower production costs caused by significantly lower average raw material
prices, partially offset by higher depreciation charges of 5.0 million due to
fair market value acquisition adjustments made for all three plants and certain
charges related to the Mobile plant, which was commissioned in the second
quarter of 2000. This effect is reflected in an increase in fixed production
costs.

Western European benzene and propylene contract prices decreased to 333
per tonne and to 461 per tonne, respectively, for the three-months ended
December 31, 2001, as compared to 410 per tonne and 548 per tonne,
respectively, for the same period in 2000. US benzene and propylene

48



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##### Table of Contents



contract
prices decreased to $305 per tonne and to $385 per tonne, respectively, for the
three-month
ended December 31, 2001, as compared to $417 per tonne and $499 per tonne,
respectively, for the same period in 2000.

Gross profit. Gross profit decreased by 42.4 million, approximately
41.3%, to 60.2 million in the year ended December 31, 2001, as compared to
102.6 million for the same period in 2000. This decrease primarily reflects
lower capacity utilisation in Europe in the second half of 2001 due to the
significantly lower demand from the BPA/polycarbonate and caprolactam sectors,
which suffered from weakness in downstream industries like telecommunication
equipments, personal computers and fibres and the total higher depreciation of
5 million charged in respect of the fair market value acquisition adjustments
and the depreciation related to the Mobile plant in the first half of 2001.

Distribution costs. Distribution costs decreased by 3.9 million,
approximately 6.5%, to 55.8 million for the year ended December 31, 2001, as
compared to 59.7 million for the same period in 2000. This decrease reflects
the decrease in volumes sold from Europe to North America in the first quarter,
following the start up of the Mobile plant, as well as the decrease in volumes
sold from North America to Europe in the fourth quarter 2001 as a result of
lower demand.

Administrative expenses. Administrative expenses decreased by 13.7
million, approximately 101.5%, to a credit of 0.2 million for the year ended
December 31, 2001, as compared to 13.5 million for the same period in 2000.
The credit in 2001 reflects the amortisation of negative goodwill following the
finalisation of purchase price allocations of 14.9 million for the period
after acquisition by Ineos in 2001 compared to no such credit in 2000.

Exceptional administrative expenses. Exceptional administrative expenses
were 7.1 million for the year ended December 31, 2001 as compared to no such
charges in 2000. These expenses primarily reflect severance costs incurred in
connection with our business reorganisation following the acquisition of Ineos
Phenol from Degussa.

Operating profit. Operating profit decreased by 31.9 million,
approximately 108.5%, to a loss of 2.5 million for the year ended December 31,
2001, as compared with a 29.4 million profit for the same period in 2000.
This decrease primarily reflects the lower capacity utilisation in Europe due
to the decrease in demand for BPA/polycarbonate and caprolactam in the second
half of 2001 as well as the higher depreciation of 5.0 million.

Ineos Fluor#Results of Operations

The following discussion, with respect to periods prior to January 1,
2001, relates to the Ineos Fluor business when it was under the ownership of
ICI. Ineos Fluors historical financial results for periods prior to January
1, 2001 include its 50.0% ownership interest in the Japanese company ITFL,
which is now wholly owned by Ineos Fluor, effective January 1, 2001. Because
Ineos Fluor acted as sole distributor for ITFL in Asia Pacific on a
commission-free basis, 100% of sales, which are equal to the costs of sales,
are reflected in the historical financial statements for periods prior to
January 1, 2001. The discussion with respect to periods beginning January 1,
2001 relates to Ineos Fluor since it has been under the ownership of Ineos
Group Limited and includes the effects of purchase accounting from the date of
acquisition.

The share of profits/(losses) from ITFL prior to January 1, 2001 are
accounted for on an equity basis.

49



---



##### Table of Contents



The following table sets forth, for the periods indicated, turnover and
expenses for Ineos Fluor and such amounts as a percentage of turnover. The
information below for the years ended 2002 and 2001 is presented in euro, the
reporting currency of Ineos Group Limited. For the year ended 2000, while
under the ownership of ICI, the results of Ineos Fluor were reported in pounds
sterling. To facilitate a discussion of the results for the year ended
December 31, 2001 as compared to December 31, 2000, the results of December 31,
2000 have also been translated to euro from pounds sterling at the average rate
for the period.

|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|----------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | --------------------------------- | ----- | - |  | - | ------ | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2000                    |        | 2001 |  | 2002
|                                    |  |                         |        |      |  |     
|                                    |  | £                       |        |     |  | %    |        |  |  | %                                 |       |  |  | %
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |  
|                                    |  |                         |        |      |  |      |        |   |  | (in millions, except percentages) |       |   |  |   |        |   |  | 
|Turnover                            |  |                         | 178.0  |      |  |      | 291.8  |   |  |                                   | 100.0 |   |  |   | 299.5  |   |  |  | 100.0 |   |  |  | 304.8  |   |  |  | 100.0 |  
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Cost of Sales                       |  |                         | (133.6 | )    |  |      | (219.0 | ) |  |                                   | (75.1 | ) |  |   | (229.2 | ) |  |  | (76.5 | ) |  |  | (227.3 | ) |  |  | (74.6 | )
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Gross profit                        |  |                         | 44.4   |      |  |      | 72.8   |   |  |                                   | 24.9  |   |  |   | 70.3   |   |  |  | 23.5  |   |  |  | 77.5   |   |  |  | 25.4  |  
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Distribution costs                  |  |                         | (12.1  | )    |  |      | (19.8  | ) |  |                                   | (6.8  | ) |  |   | (23.6  | ) |  |  | (7.9  | ) |  |  | (22.6  | ) |  |  | (7.4  | )
|Administrative expenses             |  |                         | (21.8  | )    |  |      | (35.8  | ) |  |                                   | (12.2 | ) |  |   | (15.8  | ) |  |  | (5.3  | ) |  |  | (18.2  | ) |  |  | (6.0  | )
|Exceptional
administrative
expenses |  |                         |       |      |  |      |       |   |  |                                   |      |   |  |   | (5.7   | ) |  |  | (1.9  | ) |  |  | (1.7   | ) |  |  | (0.5  | )
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Operating profit                    |  |                         | 10.5   |      |  |      | 17.2   |   |  |                                   | 5.9   |   |  |   | 25.2   |   |  |  | 8.4   |   |  |  | 35.0   |   |  |  | 11.5  |  
|                                    |  |                         |        |      |  |      |        |   |  |                                   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

Turnover. Turnover increased by 5.3 million, approximately 1.8%, to
304.8 million for the year ended December 31, 2002, as compared to 299.5
million for the year ended December 31, 2001. This increase reflects an
increase in sales volumes of both medical and industrial grade HFC134a offset
by decreased prices for HFC134a.

Cost of sales. Cost of sales decreased by 1.9 million, approximately
0.8%, to 227.3 million for the year ended December 31, 2002, as compared to
229.2 million for the year ended December 31, 2001. This decrease includes
additional income from the UK governments CO2 emissions reduction programme
offset by the cost of increased sales of HFC134a.

Gross profit. Gross profit increased by 7.2 million, approximately
10.2%, to 77.5 million for the year ended December 31, 2002, as compared to
70.3 million for the year ended December 31, 2001. Average product gross
margins decreased primarily due to lower prices on most HFC and HCFC products
being offset by the income from the UK governments
CO2 emissions reduction
programme.

Distribution costs. Distribution costs decreased by 1.0 million,
approximately 4.2%, to 22.6 million for the year ended December 31, 2002, as
compared to 23.6 million for the year ended December 31, 2001. This decrease
reflects growth in volumes sold of HCFC134a offset by lower transportation
costs arising from increased local production of HFC134a and resulting lower
importation costs.

Administrative expenses. Administrative expenses, including research and
development activities and other operating income, increased by 2.4 million,
approximately 15.2%, to 18.2 million for the year ended December 31, 2002, as
compared to 15.8 million for the year ended December 31, 2001. The increase
is mainly due to increased employee bonuses resulting from the 2002
performance.

Exceptional administrative expenses. Exceptional administrative expenses
in 2002 were 1.7 million, compared to 5.7 million in 2001. These costs
primarily reflect severance payments and other redundancy-related costs
incurred in connection with business restructuring.

50



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##### Table of Contents



Operating profit. Operating profit increased by 9.8 million,
approximately 38.9%, to 35.0 million for the year ended December 31, 2002 as
compared to 25.2 million for the year ended December 31, 2001.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Turnover. Turnover increased by 7.7 million, approximately 2.6%, to
299.5 million in 2001, as compared to 291.8 million in 2000. This increase
reflects an increase in sales volumes of HFC 134a, HCFC 22 and HFC blends,
offset by decreased HFC 134a prices.

Cost of sales. Cost of sales increased by 10.2 million, approximately
4.7%, to 229.2 million in 2001, as compared to 219.0 million in 2000. This
increase included 13.1 million of depreciation charged as a result of the fair
market value review of fixed assets.

Gross profit. Gross profit decreased by 2.5 million, approximately 3.4%,
to 70.3 million in 2001, as compared to 72.8 million in 2000. Average
product gross margins decreased primarily due to higher sales volumes of HCFC
22 and HFC blends, which typically have lower margins than HFC 134a.

Distribution costs. Distribution costs increased by 3.8 million,
approximately 19.2%, to 23.6 million in 2001, as compared to 19.8 million in
2000. This increase reflects growth in volumes sold of HFC 134a, HCFC 22 and
HFC blends and higher export costs of HFC 134a sales in the European Union.

Administrative expenses. Administrative expenses decreased by 20.0
million, approximately 55.9%, to 15.8 million in 2001, as compared to 35.8
million in 2000. This decrease largely results from the inclusion of amortised
negative goodwill of 11.7 million resulting from the acquisition of Ineos
Fluor from ICI as well as a 6.9 million reduction in overheads compared to
those allocated by ICI in 2000.

Exceptional administrative expenses. Exceptional administrative expenses
increased by 5.7 million in 2001, as compared to no such charges in 2000.
These expenses primarily reflect severance costs incurred in connection with
our business restructuring following the acquisition of Ineos Fluor from ICI.

Operating profit. Operating profit increased by 8.0 million,
approximately 46.5%, to 25.2 million in 2001, as compared to 17.2 million in
2000.

Ineos
SilicasResults of Operations

The following discussion, with respect to periods prior to January 1,
2001, relates to the Ineos Silicas business when it was under the ownership of
ICI. The discussion with respect to periods beginning January 1, 2001 relates
to Ineos Silicas while it was under the ownership of Ineos Group Limited and
includes the effects of purchase accounting from the date of acquisition.

51



---



##### Table of Contents



The following table sets forth, for the periods indicated, turnover and
expenses and such amounts as a percentage of turnover. The information below
for the years ended 2002 and 2001 is presented in euro, the reporting currency
of Ineos Group Limited. For the year ended 2000, while under the ownership of
ICI, the results of Ineos Silicas were reported in pounds sterling. To
facilitate a discussion of the results for the year ended December 31, 2001 as
compared to December 31, 2000, the results of Ineos Silicas for the year ended
December 31, 2000 have been translated from pounds sterling to euro at the
average rate for the period.

|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|----------------------------------- |  | --------------------------------- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | - |  | - | ------ | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                    |  | Year Ended December 31,          
|                                    |  |                                  
|                                    |  | 2000                              |       | 2001 |  | 2002
|                                    |  |                                   |       |      |  |     
|                                    |  | £                                 |       |     |  | %    |        |  |  | % |       |  |  | %
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |  
|                                    |  | (in millions, except percentages)
|Turnover                            |  |                                   | 134.1 |      |  |      | 219.9  |   |  |   | 100.0 |   |  |   | 222.9  |   |  |  | 100.0 |   |  |  | 234.6  |   |  |  | 100.0 |  
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Cost of Sales                       |  |                                   | (72.3 | )    |  |      | (118.6 | ) |  |   | (53.9 | ) |  |   | (143.0 | ) |  |  | (64.2 | ) |  |  | (144.0 | ) |  |  | (61.4 | )
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Gross profit                        |  |                                   | 61.8  |      |  |      | 101.3  |   |  |   | 46.1  |   |  |   | 79.9   |   |  |  | 35.8  |   |  |  | 90.6   |   |  |  | 38.6  |  
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Distribution costs                  |  |                                   | (22.0 | )    |  |      | (36.1  | ) |  |   | (16.4 | ) |  |   | (24.6  | ) |  |  | (11.0 | ) |  |  | (24.9  | ) |  |  | (10.6 | )
|Administrative expenses             |  |                                   | (26.9 | )    |  |      | (44.1  | ) |  |   | (20.1 | ) |  |   | (44.4  | ) |  |  | (19.9 | ) |  |  | (41.7  | ) |  |  | (17.8 | )
|Exceptional
administrative
expenses |  |                                   |      |      |  |      |       |   |  |   |      |   |  |   | (7.0   | ) |  |  | (3.2  | ) |  |  | (16.7  | ) |  |  | (7.1  | )
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Operating profit                    |  |                                   | 12.9  |      |  |      | 21.1   |   |  |   | 9.6   |   |  |   | 3.9    |   |  |  | 1.7   |   |  |  | 7.3    |   |  |  | 10.2  |  
|                                    |  |                                   |       |      |  |      |        |   |  |   |       |   |  |   |        |   |  |  |       |   |  |  |        |   |  |  |       |  

Year Ended December 31, 2002, Compared to Year Ended December 31, 2001

Turnover. Turnover increased by 11.7 million, approximately 5.2%, to
234.6 million in 2002, as compared to 222.9 million in 2001. Sales of silica
were higher in 2002 compared to 2001, with most regions showing growth in both
volume and revenue, despite currency devaluation in South Africa and Brazil
during 2002. Zeolite sales in Europe were also ahead of last year, more than
offsetting a decline of zeolite sales in North America. The reformulation by
our key detergent customer to the use of a zeolite builder negatively affected
the sales of silicates in Europe. Silicate sales volumes in 2002 into other
regions were mostly ahead of 2001, although there was a negative impact of
currency movements in both South Africa and Brazil.

Cost of sales. Cost of sales increased by 1.0 million, approximately
0.7%, to 144.0 million in 2002, as compared to 143.0 million in 2001. The
high raw material prices in 2001, mainly caustic soda in Europe and high North
American gas prices in the early part of 2001 were not repeated in 2002.
Additionally, the benefits of restructuring started to flow through into 2002.

Gross profit. Gross profit increased by 10.7 million, approximately
13.4%, to 90.6 million in 2002, as compared to 79.9 million in 2001. The
increase reflects the higher sales, lower raw material prices and savings
flowing through from the restructuring plan.

Distribution costs. Distribution costs increased by 0.3 million,
approximately 1.2%, to 24.9 million in 2002, as compared to 24.6 million in
2001. The increase is relatively small despite the increase in volume and
revenue. A large portion of the increase in revenue relates to zeolites sold
in the UK to our major customer who is also located on the same site. In
addition, the number of rail cars in the US has been reduced during 2002.

Administrative expenses. Administrative expenses decreased by 2.7
million, approximately 6.1%, to 44.4 million in 2002, as compared to 44.4
million in 2001. The decrease is a result of the restructuring program, which
was launched, in the second half of 2001.

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Exceptional administrative expenses. Exceptional administrative expenses
in 2002 were 16.7 million, compared to 7.0 million in 2001. The costs
reflect anticipated severance and other redundancy related costs incurred to
complete the global restructuring program.

Operating profit. Operating profit increased by 3.4 million in 2002 to
7.3 million in 2002, as compared to 3.9 million in 2001. Excluding
exceptional administrative expenses, operating profit
increased by 13.1 million, approximately 120.2%, to 24.0 million in
2002, as compared to 10.9 million in 2001.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Turnover. Turnover increased by 3.0 million, approximately 1.4%, to
222.9 million in 2001, as compared to 219.9 million in 2000. This increase
reflects increased silicas and zeolites sales, partially offset by decreased
silicates sales.

Cost of sales. Cost of sales increased by 24.4 million, approximately
20.6%, to 143.0 million in 2001, as compared to 118.6 million in 2000. This
increase primarily reflects higher raw material prices, particularly caustic
soda in Europe, partially offset by the beneficial effect of restructuring,
which started in July 2001.

Gross profit. Gross profit decreased by 21.4 million, approximately
21.1%, to 79.9 million in 2001, as compared to 101.3 million in 2000. This
decrease is primarily due to lower silicates sales and higher raw material
costs.

Distribution costs. Distribution costs decreased by 11.5 million,
approximately 31.9%, to 24.6 million in 2001, as compared to 36.1 million in
2000. This decrease reflects improvements made by restructuring, partially
offset by increases due to increased sales volume. As a result of the
increased proportion of silica sales into Asia, distribution costs as a
percentage of sales increased by 0.4%.

Administrative expenses. Administrative expenses increased by 0.3
million, approximately 0.7%, to 44.4 million in 2001, as compared to 44.1
million in 2000. This increase is primarily due to a one-time release of 11.0
million in 2000 due to the change of condition in fair value as a result of the
acquisition of Ineos Silicas by ICI from Unilever, partially offset by the
restructuring program and cost saving initiatives launched in 2001.

Exceptional administrative expenses. Exceptional administrative expenses
in 2001 were 7.0 million, as compared to no such expenses in 2000. These
expenses primarily reflect severance costs incurred in connection with our
business restructuring following the acquisition of Ineos Silicas from ICI.

Operating profit. Operating profit decreased by 17.2 million,
approximately 81.5%, to 3.9 million in 2001, as compared to 21.1 million in
2000. Excluding the one time credit discussed above and exceptional expenses
in 2001, operating profit increased by 1.9 million, approximately 18.8%, to
12.0 million in 2001, as compared to 10.1 million in 2000.

Use of Estimates and Critical Accounting Policies

We have reviewed our selection and application of principal accounting
policies and related financial disclosures. The preceding discussion of past
performance is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United Kingdom. Our significant accounting policies are described in note
2  Principal Accounting Policies  to the consolidated financial statements.
The application of these accounting policies requires that management make
estimates and judgements. On an ongoing basis, we evaluate our estimates,
which are based on historical experience and market and other conditions, and
on assumptions that we believe to be reasonable. Actual results may differ
from these estimates
53Table of Contents

due to actual market and other conditions, and assumptions
being significantly different than was anticipated at the time of the
preparation of these estimates. Such differences may affect financial results.
We have chosen to highlight certain policies that we consider critical to the
operations of our business and understanding our consolidated financial
statements. These policies have been discussed and agreed with our audit
committee. We believe the following estimates affect the application of our
most critical accounting policies and require our most significant judgements.

It is our policy to depreciate tangible fixed assets, except land, on a
straight line basis over the life of the asset. A key assumption in this
policy is the life applied to each class of fixed asset, which will in turn
determine the annual depreciation charge. In deciding the appropriate lives to
be applied to the assets, management takes into account various factors
including, amongst other things, the accumulated experience of the effective
asset lives from historical business operations. Variations in the asset lives
used could impact the earnings of the business through an increase or decrease
in depreciation charge.

The amounts recognised in the financial statements related to pension and
other post-retirement benefits are determined from actuarial valuations.
Inherent in these valuations are assumptions including expected return on plan
assets, discount rates at which the liabilities could be settled at December
31, 2002, rate of increase in future compensation levels and health care cost
trend rates. These assumptions are updated annually and are disclosed in Note
30 to the financial statements. These assumptions have been discussed with the
actuaries and we believe that based on our mix of equities and bonds and the
inflation assumptions used that the rates applied are appropriate. Future
actuarial pension expense will depend on future investment performance, changes
in future discount rates and various other factors related to the population of
participants in the pension plans.

We maintain an allowance for doubtful trade accounts receivable for
estimated losses resulting from the inability of our customers to make required
payments. In determining the adequacy of the allowance for doubtful accounts,
we consider historical bad debt experience, customer credit worthiness, market
conditions, and economic conditions. While we perform ongoing evaluations of
our allowance for doubtful accounts, if the financial condition of our
customers deteriorates more than expected, an increase in the allowance may be
required.

We establish allowances for obsolescence of inventory equal to the
difference between the cost of inventory and the estimated market value, based
on assumptions about future demand, market conditions or estimates of costs to
dispose. Changes in economic and market conditions or estimates of costs to
dispose could result in actual inventory obsolescence being materially
different from the amounts provided for in our consolidated financial
statements.

We record asset impairment charges, employee termination benefits and
other exit costs when management having the appropriate level of authority
approves and commits to the exit plan, and when the amounts are estimable.
Management uses estimated cash flows, appraisals or sales contracts in
determining asset impairment charges. Severance benefits are determined
pursuant to established company severance policies or government labor
regulations. We regularly review and reevaluate the assumptions used for
accrual of exit costs and adjust the remaining accrual balance as necessary.

We provide for environmental remediation liabilities when they are
probable and reasonably estimable based on current domestic law and existing
technologies. The provisions are adjusted as further information develops or
circumstances change. Costs of future expenditures do not reflect any claims
for recoveries and are not discounted to their present value.

Deferred tax assets are recognised to the extent that they are expected to
arise from short-term timing differences between the financial statements and
the tax base of the groups assets and liabilities. The extent to which we
would recognise deferred tax on losses would be dependent on the assumptions
concerning the future taxable profits of the business against which the losses
can be

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relieved. We have not recognised losses where we do not believe that we
will relieve them within a reasonable time horizon.



|B. |  | LIQUIDITY AND CAPITAL RESOURCES
|-- |  | -------------------------------

Our liquidity requirements arise primarily from the need to meet our debt
service requirements, to fund capital expenditures for the general maintenance
and expansion of our production facilities and for new facilities, and to fund
growth in our working capital. Our principal
sources of funds are cash flows from operating activities and amounts
available under the Senior Credit Facilities.

In connection with the acquisition of Ineos Fluor, Ineos Silicas and Ineos
Phenol, we incurred substantial debt. As of December 31, 2002, our total debt
is 927.9 million. Accordingly, we are highly leveraged and have significant
debt service obligations.

Our debt consists mainly of amounts borrowed under the Senior Credit
Facilities as well as the Senior Notes. Borrowings under the Senior Credit
Facilities bear interest at a floating rate based on LIBOR or EURIBOR. The
Senior Notes bear interest at a fixed rate of 10 1/2 % per annum. Our net
interest costs during the year ended December 31, 2002, were 79.8 million.

Our total committed contracts that will affect cash over the next five
years and thereafter is as follows:

|                                   |  |                                |       |      |  |      |       |      |  |      |       |      |  |       |       |  |  |  |       |  |  |       |       |  |  |  |         | 
|---------------------------------- |  | ------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ----- | ----- |  |  |  | ----- |  |  | ----- | ----- |  |  |  | ------- | 
|                                   |  | Expected Cash Payments by Year
|                                   |  |                               
|                                   |  | (in  millions)               
|                                   |  |                                |       |      |  |      |       |      |  |      |       |      |  |       |       |  |  |  |       |  |  | After |       |  |  | 
|Contractual commitments            |  | 2003                           |       | 2004 |  | 2005 |       | 2006 |  | 2007 |       | 2007 |  | Total
|                                   |  |                                |       |      |  |      |       |      |  |      |       |      |  |      
|Senior credit facilities           |  |                                | 82.0  |      |  |      | 75.4  |      |  |      | 74.7  |      |  |       | 74.7  |  |  |  | 154.8 |  |  |       | 161.6 |  |  |  | 623.2   | 
|Deferred consideration             |  |                                |      |      |  |      |      |      |  |      |      |      |  |       |      |  |  |  |      |  |  |       | 61.8  |  |  |  | 61.8    | 
|Finance lease obligations          |  |                                | 2.4   |      |  |      | 1.1   |      |  |      | 1.4   |      |  |       |      |  |  |  |      |  |  |       |      |  |  |  | 4.9     | 
|Senior Notes                       |  |                                |      |      |  |      |      |      |  |      |      |      |  |       |      |  |  |  |      |  |  |       | 260.0 |  |  |  | 260.0   | 
|Operating lease commitments        |  |                                | 15.5  |      |  |      | 6.1   |      |  |      | 4.7   |      |  |       | 3.3   |  |  |  | 2.9   |  |  |       | 2.7   |  |  |  | 35.2    | 
|Non-cancellable purchase
contracts |  |                                | 816.9 |      |  |      | 580.3 |      |  |      | 336.6 |      |  |       | 191.3 |  |  |  | 188.5 |  |  |       | 150.0 |  |  |  | 2,263.6 | 
|                                   |  |                                |       |      |  |      |       |      |  |      |       |      |  |       |       |  |  |  |       |  |  |       |       |  |  |  |         | 
|                                   |  |                                | 916.8 |      |  |      | 662.9 |      |  |      | 417.4 |      |  |       | 269.3 |  |  |  | 346.2 |  |  |       | 636.1 |  |  |  | 3,248.7 | 
|                                   |  |                                |       |      |  |      |       |      |  |      |       |      |  |       |       |  |  |  |       |  |  |       |       |  |  |  |         | 

Finance lease payments are stated gross of interest payable. Future
non-cancellable purchase commitments relate to raw material purchases where the
Company has entered into purchase commitments to purchase a minimum volume at
contracted rates at the time of purchase. In the table above, prices as at
December 31, 2002 have been used.

Under the Senior Credit Facilities, we will be required to make mandatory
prepayments in certain circumstances from the proceeds of certain vendor
payments, surplus cash, asset disposals, insurance claims and on a change of
control. We will also be permitted to make voluntary prepayments on the loans
under the Senior Credit Facilities.

The Senior Notes are scheduled to be repaid in one instalment in 2010.
However, Ineos Group Holdings plc may be required to purchase the Senior Notes
in the event of a change of control. Ineos Group Holdings plc may not be able
to do so without the consent of the lenders under the Senior Credit Facilities.

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Over
the next few years, our main capital expenditure requirements will be for
general maintenance. During the years ended December 31, 2001 and 2002,
capital expenditures in our four businesses were as follows:

|              |  |                 |      |      |  |  |      | 
|------------- |  | --------------- | ---- | ---- |  |  | ---- | 
|              |  | 2001            |      | 2002
|              |  |                 |      |     
|              |  | ( in millions)
|Ineos Oxide   |  |                 | 14.6 |      |  |  | 13.0 | 
|Ineos Phenol  |  |                 | 15.3 |      |  |  | 23.0 | 
|Ineos Fluor   |  |                 | 7.8  |      |  |  | 9.1  | 
|Ineos Silicas |  |                 | 10.8 |      |  |  | 11.9 | 

The capital expenditure for Ineos Phenol in 2001 represents an aggregation
of the periods while under ownership of Degussa and Ineos Group Limited. The
capital expenditure for Ineos Phenol in 2002 includes an investment of 16.4
million to rebuild the cleavage unit of the Mobile, USA plant after it was
destroyed by a fire on September 9, 2002.

We currently anticipate that our capital expenditure will be in the
aggregate approximately 65 million through 2003.

Our working capital requirements fluctuate due to changes in raw material
costs, resulting in higher inventory and accounts receivable, as well as due to
growth in sales.

We intend to finance our liquidity requirements primarily with cash
generated from operating activities, as well as with borrowings under our 75
million revolving credit facility, which is governed by the Senior Credit
Facilities. The revolving credit facility was reduced from 100 million to 75
million on January 29, 2003. The company has never used this facility to date.
The availability of amounts under the Senior Credit Facilities is subject to
compliance with financial and other covenants contained therein.

During the years ended December 31, 2001 and 2002, cash flows from
operating activities in each of our businesses were as follows:

|              |  |                 |       |      |  |  |       | 
|------------- |  | --------------- | ----- | ---- |  |  | ----- | 
|              |  | 2001            |       | 2002
|              |  |                 |       |     
|              |  | ( in millions)
|Ineos Oxide   |  |                 | 95.1  |      |  |  | 77.8  | 
|Ineos Phenol  |  |                 | 63.3  |      |  |  | 44.5  | 
|Ineos Fluor   |  |                 | 44.0  |      |  |  | 50.9  | 
|Ineos Silicas |  |                 | 20.7  |      |  |  | 37.6  | 
|              |  |                 |       |      |  |  |       | 
|              |  |                 | 223.1 |      |  |  | 210.8 | 
|              |  |                 |       |      |  |  |       | 

The cash flow for Ineos Phenol in 2001 represents an aggregation of the
periods whilst under ownership of Degussa and Ineos Group Limited. Our EBITDA
for 2002 was 256.2 million.

On March 1, 2002 Ineos Oxide completed the acquisition of the acetate
esters business from BP Belgium for 5.0 million. The acquisition was financed
out of cash flow.

We held net cash balances of 108.9 million as at December 31, 2002, and
had no drawings under the 75 million revolving credit facility. The Company
repaid a total of 85.3 million of the Senior Credit Agreement in the year
ended December 31, 2002. Net debt as at December 31, 2002 was 819.0 million
(December 31, 2001: 917.9 million).

We believe that our cash flows from operations, together with borrowings
under the revolving credit facility and the ancillary facilities, will be
sufficient for our operating needs (other than future acquisitions) and debt
service requirements as they become due for the foreseeable future. Our future
operating performance and ability to service or refinance our existing debt,
including the Senior Notes, will be subject to future economic conditions and
to financial, business and other factors, many

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of which are beyond our control. See Item 3.D. in this annual report
titled Risk Factors for additional disclosure.

We are required under the Senior Credit Facilities to hedge two-thirds of
our variable interest rate exposure. See note 34 to the Ineos Group Limited
financial statements for further information on interest rate and foreign
currency risk to which we are exposed.

Recent Accounting Developments

In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations.The standard provides the accounting requirements for retirement
obligations associated with tangible long-lived assets. The standard requires
that the obligation associated with the retirement of tangible long-lived
assets be capitalised as part of the asset cost at the time of initial
recognition. The liability is then discounted to its fair value at the time of
recognition using the guidance provided by that standard. The Company is
required to comply with SFAS 143 in its financial statements for the year
ending December 31, 2003. The Company is currently assessing the impact of
SFAS 143 on its financial position and results of operations and does not
believe the financial statements will be materially impacted by its adoption.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.This statement eliminates the automatic classification of gain
or loss on extinguishment of debt as an extraordinary item of income and
requires that such gain or loss be evaluated for extraordinary classification
under the criteria of Accounting Principles Board No. 30 Reporting Results of
Operations.This statement also requires sales-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. The provisions of this statement relating to sales 
leaseback accounting became effective for the Company in the current fiscal
year, the adoption of which had no impact on our results of operations or
financial position. The provisions of this statement relating to the
classification of gains or losses arising on debt extinguishment will become
applicable for the Company for the year ending December 31, 2003 and the
Company does not believe the financial statements will be materially effected
by its adoption.

In July 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities(SFAS 146). SFAS 146 is
effective for exit or disposal activities initiated after December 31, 2002.
This standard will require Companies to recognise costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The standard replaces the existing
guidance provided by EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring).The Company does not have any
immediate plans to initiate any activities in 2003 that would be included
within the scope of this standard.

On November 25, 2002, the FASB issued FASB Interpretation No. 45 (FIN 45
or the Interpretation), Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an
interpretation of FASB Statements No. 5,57, and 107 and rescission of FASB
Interpretation No. 34).FIN 45 clarifies the requirements of FASB Statement
No. 5 (FAS 5), Accounting for Contingencies, relating to a guarantors
accounting for, and disclosure of, the issuance of certain types of guarantees.
The Interpretations provisions for initial recognition and measurement are to
be applied on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors fiscal year-end. The
guarantors previous accounting for guarantees that were issued before the date
of FIN 45s initial application may not be revised or restated to reflect the
effect of the recognition and measurement provisions of the Interpretation.
The disclosure requirements have been adopted by the Company for the year ended
December 31, 2002 (see note 36 to the financial statements). The Company is
currently assessing the impact that the recognition and measurement
requirements will have on future reporting.

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On January 17, 2003, the FASB issued FASB Interpretation No. 46 (FIN 46
or the Interpretation), Consolidation of Variable Interest Entities, an
interpretation of ARB 51.The primary objectives of FIN 46 are to provide
guidance on the identification of entities for which control is achieved
through means other than through voting rights (variable interest entities or
VIEs) and how to determine when and which business enterprise should
consolidate the VIE (the primary beneficiary). This consolidation model
applies to an entity which either (1) the equity investors (if any) do not have
a controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46
requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. The
effective date relating to implementation and disclosure requirements included
in the Interpretation are for VIEs created before February 1, 2003, effective
no later than the beginning of the first interim or annual reporting period
beginning after June 15, 2003 and for VIEs created after January 31, 2003,
effective immediately. The Company is currently assessing the impact of FIN 46
on its financial position and results of operations and does not believe the
financial statements will be materially impacted by its adoption (see note 36
to the financial statements).



|C. |  | RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
|-- |  | ----------------------------------------------

Ineos Oxides research and development team develops new applications for
its specialty chemicals, provides support to Ineos Oxides customers and seeks
to improve the efficiency of its manufacturing processes. The research and
development team also leads Ineos Oxides efforts with respect to the
development and capacity expansions of its plants and maintaining and improving
safety and environmental standards.

We believe that research and development plays an integral role in
maintaining and expanding Ineos Phenols cost leadership position through
process technology and optimised plant layout. Since 1995, Ineos Phenol has
filed 28 patent applications for new process technology, including acetone
recycling, improvements in product quality and process optimisation.

Ineos Phenols research and development department, located in Gladbeck,
employs six experienced research and development professionals. Current
research and development efforts are focused on two areas: the optimisation of
the current cumene oxidation process and the development of proprietary process
technology for the acetone-free production of phenol. In 2002, Ineos Phenol
spent 1.1 million (2001: 3.5 million; 2000: 5.8 million) on research and
development activities.

Ineos Fluors research and development team, which consists of 35
employees, developed the first HFC 134a production process, which is the
process used for most of the HFC 134a production world-wide, and serves as a
platform for Ineos Fluors growth and diversification into innovative new
products and markets. The team has received awards for its technical
achievements, including the MacRobert and Kirkpatrick awards for technical
innovation in recognition of its achievements in the development of HFCs.
Current programs include the development of technology for extraction of
flavour and fragrance essences, and the development of a medical products
business. In 2002, Ineos Fluor charged 3.8 million (2001: 3.3 million; 2000:
4.9 million) on research and development activities.

Ineos Silicas currently has approximately 61 employees involved in product
development, manufacturing support and technical service. Research and
development activities are centred at the Warrington facility, with a small
research and development facility in Eijsden and technical service specialists
located world-wide. In 2002, Ineos Silicas charged 4.1 million (2001: 5.8
million; 2000: 7.4 million) on research and development activities, which were
principally focused on developing new products for variants of A24 zeolite and
new applications for its silicas products.

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|D. |  | TREND INFORMATION
|-- |  | -----------------

See Items 5.A Operating and Financial Review and ProspectsOperating
Results and 5.B Operating and Financial Review and ProspectsLiquidity and
Capital Resources for a discussion of information required by this item.






|ITEM 6. |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- |  | ------------------------------------------
|       
|A.      |  | DIRECTORS AND SENIOR MANAGEMENT           

Directors and Executive Officers of Ineos Group Limited

The following table sets forth the name, age (as of December 31, 2002) and
principal position of each of our directors and executive officers:

|                   |  |     |    |          |  |                  
|------------------ |  | --- | -- | -------- |  | -----------------
|Name               |  | Age |    | Position
|                   |  |     |    |         
|James A. Ratcliffe |  |     | 50 |          |  | Chairman         
|Andrew Currie      |  |     | 47 |          |  | Director         
|Antoine Verrijckt  |  |     | 55 |          |  | Director         
|John Reece         |  |     | 46 |          |  | Director         
|William Madden     |  |     | 68 |          |  | Director         
|William Reid       |  |     | 39 |          |  | CEO-Ineos Oxide  
|Peter Bickert      |  |     | 47 |          |  | CEO-Ineos Phenol 
|Thomas Crotty      |  |     | 47 |          |  | CEO-Ineos Fluor  
|Brian Foster       |  |     | 45 |          |  | CEO-Ineos Silicas

James A. Ratcliffehas been a director and the Chairman of Ineos Group
Limited and the Chairman of Ineos Capital since 1998. Mr. Ratcliffe, who has
26 years experience in the chemicals industry, is experienced in managing
buyouts of chemical companies. In 1992 he led the successful buyout of Inspec
Group plc. In 1998 he left Inspec to lead the acquisition of Ineos plc (now
Ineos Oxide) from Inspec. Mr. Ratcliffe started his career with Exxon
Chemicals before moving to Courtaulds. He then completed his MBA at London
Business School before joining Advent International and then Inspec.

Andrew C. Curriehas been a director of Ineos Capital since 1999. He
serves as Chairman of Ineos Fluor and Ineos Silicas. He was previously
Managing Director, Laporte Performance Chemicals, having served as a director
of the Inspec Group from 1994 until the Laporte acquisition of Inspec in 1998.
Mr. Currie has a degree in natural sciences from Cambridge University and spent
the first 15 years of his career with BP Chemicals in various technical and
business management functions.

Antoine Verrijckthas been a director of Ineos Capital since 1999. He
became a director of Ineos NV, the operating subsidiary of Ineos Oxide, in
1998. He served as Operations Director-Chemicals for Inspec Belgium from 1995
to 1998 and as Operations Manager-Chemicals for BP Chemicals Belgium from 1992
to 1995. Mr. Verrijckt is the Chairman of Ineos Oxide and Ineos Phenol. Mr.
Verrijckt has a degree in chemistry from the University of Ghent, and has over
31 years in the chemicals industry.

John Reecejoined Ineos Capital as Finance Director in January 2000. He
was previously a partner with PricewaterhouseCoopers where he advised companies
in the chemicals industry. Mr. Reece has a degree in economics from Cambridge
University and is an FCA.

William Maddenbecame a Non-Executive Director of Ineos Capital in 1999.
He serves as the Chairman of Ineos Chlor. Dr. Madden served as the Chief
Executive Officer of ICIs Material Business until 1995.

59



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William Reidhas been the CEO of Ineos Oxide since March 2001. Prior to
that time, he served as Business Director-Ineos Oxide from January, 2000 to
March, 2001 and as Business Manager-EO/Glycols from 1998 to 2000. Prior to
joining Ineos Oxide, Dr. Reid held various technical and business positions
with Inspec, Uniroyal, ICI and BP Chemicals. Dr. Reid holds a PhD in chemistry
from Aberdeen University and has 13 years experience in the petrochemicals
industry.

Peter Bickerthas been the CEO of Ineos Phenol since September 2001.
Prior to that time, he served as President and CEO of Ineos Phenols U.S.
subsidiary (formerly Phenolchemie Inc.) from 1997 to 2001. Prior to joining
Ineos Phenol in 1997, Dr. Bickert held various technical and business positions
with Hüls AG. Dr. Bickert holds a PhD in chemistry/chemical engineering from
the Technical University in Darmstadt, Germany, an M.B.A. from Rutgers, New
Jersey, United States, and has 17 years experience in the chemicals industry.

Thomas Crottyhas been the CEO of Ineos Fluor since 1996. Prior to that
time, he held a number of senior positions within the business, which he joined
in 1992. Prior to joining Ineos Fluor, Mr. Crotty was with ICIs Plastics and
Fertiliser businesses. Mr. Crotty has a degree in agriculture from Newcastle
University and has 22 years experience in the chemicals industry.

Brian Fosterhas been the CEO of Ineos Silicas since May 2001. Prior to
that time, Mr. Foster served as General Manager-Performance Chemicals for
Laporte. Mr. Foster had held various technical and business positions at BP
Chemicals and Inspec, where he was a founding member of the management team.
He has a degree in chemistry from Nottingham University and has 22 years
experience in the petrochemical industry.

All of our directors and senior managers have their business address at
our principal executive offices: Hawkslease, Chapel Lane, Lyndhurst, Hampshire
SO43 7FG, United Kingdom.



|B. |  | COMPENSATION
|-- |  | ------------

An aggregate of 1.1 million was paid to our executive officers and
directors in their capacity as directors and officers of Ineos Group Limited in
2002. Directors who are also our employees receive no remuneration for serving
as directors.



|C. |  | BOARD PRACTICES
|-- |  | ---------------

Our board meets on a regular basis to review performance and business
plans of the group. In addition, the board has established policies for the
conduct of the business within the group, including delegations of board
authority to directors and members of senior management. In addition the board
appoints committees to ensure appropriate oversight of the group companies
operations. None of the directors have service contracts that provide for
benefits upon their termination as a director.

Board Committees

We have an audit committee and a remuneration committee. The members of
the audit committee are James Ratcliffe, Antoine Verrijckt, Andrew Currie and
John Reece acting as chairman. The members of the remuneration committee are
James Ratcliffe, Antoine Verrijckt, Andrew Currie and William Madden acting as
chairman.

The audit committee meets at least twice a year. The committee is
responsible for appointing auditors and reviewing the suitability and
effectiveness of internal control systems and the application of corporate
policies.

The remuneration committee meets at least once a year. The primary
function of the remuneration committee is to determine remuneration and other
terms of employment for the directors and senior employees of the company
having due regard for performance. We anticipate that, in setting the
remuneration policy, the committee will consider a number of factors, including
the

60



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salaries and benefits available to senior management in comparable
companies and the need to ensure senior management commitment to the continued
success of the business by means of incentive schemes.



|D. |  | EMPLOYEES
|-- |  | ---------

As of December 31, 2002, Ineos Oxide had 546 employees, Ineos Phenol had
667 employees, Ineos Fluor had 360 employees and Ineos Silicas had 921
employees. The table below shows the number of employees, including
distribution by sector, at year-end for the years indicated:

|                              |                                     |  |                 |     |      |  |       |       |  |  |      |       | 
|----------------------------- | ----------------------------------- |  | --------------- | --- | ---- |  | ----- | ----- |  |  | ---- | ----- | 
|                              |                                     |  | At December 31,
|                              |                                     |  |                
|                              |                                     |  | 2000            |     | 2001 |  | 2002 
|                              |                                     |  |                 |     |      |  |      
|Ineos Group Limited employees |                                     |  | 473             |     |      |  | 2,639 |       |  |  | 2494 |      
|Of which                      |                                     |  |                 |     |      |  |       |       |  |  |      |      
|                              | Administrative/ Sales and marketing |  |                 | 46  |      |  |       | 241   |  |  |      | 463   | 
|                              | Research and development            |  |                 | 7   |      |  |       | 156   |  |  |      | 120   | 
|                              | Operations and manufacturing        |  |                 | 420 |      |  |       | 2,242 |  |  |      | 1,911 | 

The following chart shows our employees by geographic distribution at the
dates indicated:

|                    |                                    |  |                 |     |      |  |      |       |  |  |  |       | 
|------------------- | ---------------------------------- |  | --------------- | --- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                    |                                    |  | At December 31,
|                    |                                    |  |                
|                    |                                    |  | 2000            |     | 2001 |  | 2002
|                    |                                    |  |                 |     |      |  |     
|Ineos Group Limited |                                    |  |                 |     |      |  |      |       |  |  |  |      
|                    | Europe                             |  |                 | 473 |      |  |      | 1,926 |  |  |  | 1,825 | 
|                    | United States                      |  |                 |    |      |  |      | 545   |  |  |  | 385   | 
|                    | Asia/Pacific and rest of the world |  |                 |    |      |  |      | 168   |  |  |  | 284   | 

Each business retains separate responsibility for its employees and their
administration.

Most of our employees are employed pursuant to full-time contracts. As
most operations are relatively complex and require advanced skills and
knowledge, the level of employee commitment is highly valued. Extensive
training programs exist at all locations covering all levels of the workforce,
including senior management.

Historically, we have enjoyed good labor relations and we are committed to
maintaining these relationships. There have been no work stoppages or strikes
at any of our sites during the past five years. We take a constructive
approach to union relationships where there are unionised sites, and have been
able to secure the cooperation of both unions and the workforce with regard to
significant changes and the process of continuous improvement.

Other than management and professional personnel, the majority of our
employees are represented by local trade unions and are covered by collective
bargaining agreements. These agreements primarily cover Ineos Oxides
employees in Belgium, Ineos Phenols employees in Germany and Belgium, Ineos
Fluors employees in the United Kingdom and Ineos Silicas employees in the
United Kingdom and Brazil. In addition, a small number of our employees in
other countries, including The Netherlands, Spain, South Africa and the United
States, are covered by collective bargaining agreements. No single collective
bargaining agreement covers a majority of our employees.

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|E. |  | SHARE OWNERSHIP
|-- |  | ---------------

Ineos Group Limited has established four main categories of tracking
shares to correlate to the economic benefit attributable to each of our four
businesses. All shares of each class entitle their holders to vote for the
election of directors, or on any other matter put to a vote of the
shareholders, of Ineos Group Limited.

The following table sets forth information regarding the ownership of our
share capital, as of February 28, 2003, by the following:



| |  |  | each person or group known by us to be the owner of 5% or more of
the share capital of Ineos Group Limited; and
| | - |  | ---------------------------------------------------------------------------------------------------------------
|
| |  |  | all directors of Ineos Group Limited.                                                                          

|                   |  |                 |            |                  |  |                 |            |                   |  |                     |            |     |  |  |            |     |  |                     |        |    
|------------------ |  | --------------- | ---------- | ---------------- |  | --------------- | ---------- | ----------------- |  | ------------------- | ---------- | --- |  |  | ---------- | --- |  | ------------------- | ------ | ---
|                   |  |                 |            |                  |  |                 |            |                   |  |                     |            |     |  |  |            |     |  | Percentage of Total
|                   |  | Number of Oxide |            | Number of Phenol |  | Number of Fluor |            | Number of Silicas |  | Ineos Group Limited
|                   |  | Tracking Shares |            | Tracking Shares  |  | Tracking Shares |            | Tracking Shares   |  | Share Capital      
|                   |  |                 |            |                  |  |                 |            |                   |  |                    
|James A. Ratcliffe |  |                 | 10,125,000 | (1)              |  |                 | 7,972,500  | (2)               |  |                     | 7,972,500  | (2) |  |  | 7,972,500  | (2) |  |                     | 56.7%  | (3)
|Antoine Verrijckt  |  |                 | 300,000    |                  |  |                 | 914,980    |                   |  |                     | 914,980    |     |  |  | 914,980    |     |  |                     | 5.1%   |    
|Andrew Currie      |  |                 | 200,000    |                  |  |                 | 869,990    |                   |  |                     | 869,990    |     |  |  | 869,990    |     |  |                     | 4.7%   |    
|John Reece         |  |                 | -          |                  |  |                 | 780,000    |                   |  |                     | 780,000    |     |  |  | 780,000    |     |  |                     | 3.9%   |    
|William Madden     |  |                 | 74,500     |                  |  |                 | 277,220    |                   |  |                     | 277,220    |     |  |  | 277,220    |     |  |                     | 1.5%   |    
|Other Shareholders |  |                 | 4,235,500  | (4)              |  |                 | 4,091,570  | (5)               |  |                     | 4,107,980  | (6) |  |  | 4,105,800  | (7) |  |                     | 27.5%  |    
|TOTAL              |  |                 | 15,060,000 |                  |  |                 | 15,000,000 |                   |  |                     | 15,000,000 |     |  |  | 15,000,000 |     |  |                     | 100.0% | (8)



---

|(1) |  | Includes 750,000 Oxide tracking shares that are held by Cannon Nominees
Limited, a trust established for the benefit of family members and other
associates of Mr. Ratcliffe and over which Mr. Ratcliffe exercises
control.                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 337,610 tracking shares that are held by Cannon Nominees
Limited.                                                                                                                                                                                                                                                                                                                 
|   
|(3) |  | Excluding the 60,000 Ineos Oxide US tracking shares, 1,575,000 Ineos
Phenol tracking shares, 630,202 Ineos Fluor tracking shares and 530,538
Ineos Silicas tracking shares which have been authorised but have not yet
been issued, Mr. Ratcliffe owns 59.4% of Ineos Group Limiteds share
capital, the other directors of Ineos Group Limited own 15.9% and other
shareholders own 24.7%.
|   
|(4) |  | Includes (A) 1,620,000 Oxide tracking shares held by Ineos Trustees
Limited, trustees of a trust established for the benefit of employees of
Ineos Oxides European business in 1999, and (B) 60,000 Ineos Oxide US
tracking shares which have been authorised but have not yet been issued to
employees pending finalisation of various employee share plans.                             
|   
|(5) |  | Includes 1,575,000 shares which have been authorised but have not yet
been issued pending finalisation of various employee share plans.                                                                                                                                                                                                                                                    
|   
|(6) |  | Includes 630,202 shares which have been authorised but have not yet been
issued pending finalisation of various employee share plans.                                                                                                                                                                                                                                                      
|   
|(7) |  | Includes 530,538 shares which have been authorised but have not yet been
issued.                                                                                                                                                                                                                                                                                                           
|   
|(8) |  | Our share capital is held for record by two holders in the United States,
who together hold in the aggregate approximately 0.26% of our total share
capital.                                                                                                                                                                                                                               

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|ITEM 7. |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- |  | -------------------------------------------------



|A. |  | MAJOR SHAREHOLDERS
|-- |  | ------------------

The parties who are beneficial owners of 5% or more of the ordinary share
capital of Ineos Group Limited are set out in Item 6.E titled Share
Ownership.



|B. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------

Relationship with Ineos Capital

We have entered into a nine-year management services arrangement with
Ineos Capital Partners pursuant to which we receive certain management
services, as well as strategic support and direction, in exchange for an annual
management fee of up to 8 million (index-linked). The amount paid is reduced
if we fail to achieve certain financial targets.

Ineos Group Limited has entered into a service contract with Mr. Ratcliffe
pursuant to which Mr. Ratcliffe will act as Chairman of Ineos Group Limited for
annual compensation of approximately 390,000. Certain of our subsidiaries
have entered into several service contracts with Andrew Currie and Antoine
Verrijckt who are also directors of Ineos Capital. The aggregate annual
compensation paid under these service agreements is approximately 450,000.

We entered into a lease for office space with Ineos Capital Limited on
terms no less favourable to us than what we would expect to negotiate with
disinterested third parties. The office space is in the new Ineos Group
headquarters at Hawkslease, Chapel Lane, Lyndhurst, for which we currently pay
market rent of approximately 90,000 per year.

During 2002, Ineos Oxide paid management and directors fees to Ineos Group
Limited in the amount of 1.1 million.

Relationship with Ineos Chlor

In January 2001, the directors of Ineos Capital acquired Ineos Chlor, a
manufacturer of chlorine-based chemicals. The directors of Ineos Capital own a
controlling interest in Ineos Chlor. Ineos Fluor purchases trichloroethylene
and chloroform for all of its requirements in the United Kingdom from Ineos
Chlor. In addition, Ineos Fluor leases laboratory space from Ineos Chlor.
Ineos Silicas purchases all of its caustic soda requirements in the United
Kingdom and a significant position of its caustic soda requirements in the
Netherlands from Ineos Chlor. These agreements with Ineos Chlor are on terms
no less favourable to us than what we would expect to negotiate with
disinterested third parties. Other than through these relationships and
certain common directors, we are not affiliated with Ineos Chlor. As a result
of these transactions, aggregate net payments from Ineos Fluor and Ineos
Silicas to Ineos Chlor were 27.6 million in the year ended December 31, 2002
and 25.1 million in the year ended December 31, 2001.



|C. |  | INTERESTS OF EXPERTS AND COUNSEL
|-- |  | --------------------------------

Not applicable.

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|ITEM 8. |  | FINANCIAL INFORMATION                                  
|------- |  | -------------------------------------------------------
|       
|A.      |  | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18.

Legal Proceedings

We are party to various proceedings instituted by governmental authorities
arising under the provisions of applicable laws or regulations relating to the
protection of the environment. In our opinion, none of the proceedings is
material to our financial condition or results of operations.



|B. |  | SIGNIFICANT CHANGES
|-- |  | -------------------

None.






|ITEM 9. |  | THE OFFER AND LISTING    
|------- |  | -------------------------
|       
|A.      |  | OFFER AND LISTING DETAILS

All of the share capital of Ineos Group Limited is privately held as
described elsewhere in this annual report. There is no public market for the
shares of Ineos Group Limited.



|B. |  | PLAN OF DISTRIBUTION
|-- |  | --------------------

Not applicable.



|C. |  | MARKETS
|-- |  | -------

None.



|D. |  | SELLING SHAREHOLDERS
|-- |  | --------------------

Not applicable.



|E. |  | DILUTION
|-- |  | --------

Not applicable.



|F. |  | EXPENSES OF THE ISSUE
|-- |  | ---------------------

Not applicable.






|ITEM 10. |  | ADDITIONAL INFORMATION
|-------- |  | ----------------------
|        
|A.       |  | SHARE CAPITAL         

Not applicable.



|B. |  | MEMORANDUM AND ARTICLES OF ASSOCIATION
|-- |  | --------------------------------------

Our Memorandum and Articles of Association are on file with the Registrar
of Companies for England and Wales under Company Number 3534631. As set forth
in Section 3.1 of our Memorandum of Association, Ineos Group Limited was
established to carry on business as a holding company for general commercial
companies.

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Directors

A director of our company need not be a shareholder. A director is
permitted to vote at any meeting of the directors or of a committee of the
directors on any resolution concerning a transaction or arrangement to which we
may enter and in which the director has a material interest, provided that the
director has disclosed to the directors the nature and extent of his interest.
Each member of the board of directors is appointed at the annual shareholder
meeting.

Share Capital

Rights of Holders of Shares

Each holder of shares, other than holders of Class C Regional Tracker
Shares, is entitled to one vote per share. Holders of Class C Regional
Tracker Shares do not have voting rights.

Each holder of shares is entitled to receive a dividend out of the profits
available for distribution in each financial year, and, upon a return of
capital or liquidation, capital reduction or otherwise, an amount of the
surplus assets in each case out of the profits or surplus assets, as the case
may be, attributable to the business unit corresponding to the class of shares,
as determined by a Special Committee in its absolute discretion.

The Special Committee is appointed by a majority of the Holders of the
Class D shares. The main function of the Special Committee is to determine,
in its absolute discretion, the economic contribution of each business unit,
including each region thereof, to the economic performance of Ineos Group
Limited. In particular, the Special Committee will determine:



| |  |  | how much of Ineos Group Limiteds borrowings, interest
expense and tax charges are attributable to each of the
businesses;                                                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | what, if any, profits of Ineos Group Limited after
attributed interest and tax are attributable to or derived from
each business;                                                                                                      
|
| |  |  | on a return of capital, whether on liquidation or
capital reduction or otherwise, what surplus assets of Ineos
Group Limited remaining after the payment of its liabilities are
attributable to or derived from each of the businesses.



|C. |  | MATERIAL CONTRACTS
|-- |  | ------------------

Debt Service Obligations

In connection with the financing of the acquisitions of Ineos Phenol,
Ineos Fluor and Ineos Silicas discussed in this annual report, we have entered
into the following lending agreements.

Senior Credit Facilities

Senior Credit Facilities, dated May 23, 2001, among Ineos Group Limited,
Ineos Holdings Limited, Barclays Capital, Merrill Lynch International, UBS
Warburg Ltd. And Barclays Bank plc, as Facility Agent and Security Agent.

Intercreditor Deed, dated May 23, 2001, among Ineos Group Limited, Ineos
Holdings Limited, Barclays Bank plc, Merrill Lynch Capital Corporation and UBS
AG.

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Ineos Group Limited, Ineos Holdings Limited and certain of Ineos Holdings
Limiteds subsidiaries, Barclays Capital, Merrill Lynch International and UBS
Warburg Ltd., as joint mandated lead arrangers, the lenders named therein and
Barclays Bank PLC, as facility and security agent, have entered into a
900,000,000 senior credit facilities agreement. Part of the proceeds of the
offering of the outstanding Senior Notes was used to prepay 40 million of the
Term A loan and 10 million of the Term C loan. Ineos Group Limited is not a
direct borrower under the Senior Credit Facilities. We summarise some of the
terms of the Senior Credit Facilities in the following chart.

|             |  |                                                                   |  |                                                     |  |               |  |                    
|------------ |  | ----------------------------------------------------------------- |  | --------------------------------------------------- |  | ------------- |  | -------------------
|Name of Loan |  | Borrowers                                                         |  | Amount                                              |  | Interest Type |  | Final Maturity Date
|             |  |                                                                   |  |                                                     |  |               |  |                    
|Term A       |  | Ineos Holdings
(Fluor & Silicas)
Limited and Ineos
Phenol Limited |  | Maximum
440 million(1)                             |  | Floating      |  | June 30, 2007      
|Term B       |  | Ineos Phenol Limited                                              |  | Maximum 180 million                                |  | Floating      |  | June 30, 2008      
|Term C       |  | Ineos US Finance LLC                                              |  | Maximum of the dollar
equivalent of 180
million(2) |  | Floating      |  | June 30, 2009      
|Revolving    |  | Any Borrower                                                      |  | Maximum 100 million                                |  | Floating      |  | June 30, 2007      



---

|(1) |  | Before prepayment of 40 million from proceeds of the offering of the
Senior Notes.
|--- |  | -----------------------------------------------------------------------------------
|   
|(2) |  | Before prepayment of 10 million from proceeds of the offering of the
Senior Notes.

Term A Loan.The Term A loan was drawn in various tranches and was made
available partially to fund the acquisition of Ineos Phenol, to refinance
certain debt of Ineos Fluor and Ineos Silicas and to settle deferred
consideration payable with respect to the acquisition of Ineos Silicas. The
Term A loan is repayable in 12 semi-annual instalments beginning on December
31, 2001, ranging from 1.14% to 9.73% of the principal amount of the loan.

Term B Loan.The Term B loan was drawn in a single advance and was made
available partially to fund the acquisition of Ineos Phenol. The Term B loan
is repayable in 14 semi-annual instalments beginning on December 31, 2001,
ranging from 0.56% to 46.64% of the principal amount of the loan.

Term C Loan.The Term C loan was drawn in a single advance and was made
available partially to fund the acquisition of Ineos Phenol and to refinance
the debt of Ineos Oxide, Ineos Fluor and Ineos Silicas. The Term C loan is
repayable in 16 semi-annual instalments beginning on December 31, 2001, ranging
from 0.56% to 46.08% of the principal amount of the loan.

Interest Rates and Fees

Loans under the Senior Credit Facilities bear interest at a rate equal to
a margin plus either EURIBOR (in the case of a loan denominated in euro) or
LIBOR (in the case of any other loan) plus certain additional costs (as defined
in the Senior Credit Facilities). The applicable per annum margin for the Term
A loan and the revolving loan is 2.25%, and the applicable per annum margin for
the Term B loan is 2.75%, in each case subject to a margin reduction based on
certain financial tests. The applicable per annum margin for the Term C loan
is 3.25% prior to July 27, 2001, and will be 3.50% from that date and
thereafter.

Ineos Holdings Limited pays a commitment fee of 0.75% per annum on the
aggregate of the daily, undrawn, uncancelled amount on all of the term
facilities and the revolving facility.

Prepayment

All loans under the Senior Credit Facilities require prepayments upon a
change of control (as defined in the Senior Credit Facilities), the listing of
the share capital of Ineos Group Limited or one of its subsidiaries or the sale
of all or substantially all of the assets of Ineos Group Limited and its
subsidiaries. In specified circumstances, prepayments are required from the
net proceeds of asset disposals, insurance claims, certain other claims and an
amount equal to 50% of the excess cash flow

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(as defined in the Senior Credit Facilities) of Ineos Group Limited and
its subsidiaries. All mandatory prepayments will be applied first to the
prepayment of the term loans until the outstanding principal of such loans has
been repaid in full and then to the prepayment of the revolving credit
facility.

Guarantee and Security

Ineos Holdings Limited and substantially all of its material subsidiaries
are guarantors of the Senior Credit Facilities. Their obligations under the
Senior Credit Facilities are secured by fixed and floating charges over all of
the assets of Ineos Holdings Limited and substantially all of the assets of
those material subsidiaries.

Representations and Warranties

Each obligor under the Senior Credit Facilities undertakes to make a
number of representations from time to time, including certain customary
representations and other representations relating to litigation, the
environment, material intellectual property, ownership of assets, pensions,
margin stock, investment companies and taxation.

If at any time these representations are untrue, a default will occur
unless the circumstances giving rise to the misrepresentation are capable of
being remedied and are remedied within 30 days of the earlier of the facility
agent notifying Ineos Holdings Limited of that default, and the relevant
obligor becoming aware of the relevant misrepresentation.

Covenants

The Senior Credit Facilities also contain customary covenants and
restrictions on the ability of Ineos Holdings Limited and its subsidiaries to,
among other things:



| |  |  | incur debt;                                                     
| | - |  | ----------------------------------------------------------------
|
| |  |  | give guarantees and indemnities;                                
|
| |  |  | make loans to others;                                           
|
| |  |  | create security interests in their assets;                      
|
| |  |  | make acquisitions and investments;                              
|
| |  |  | dispose of assets other than in the ordinary course of business;
|
| |  |  | issue shares;                                                   
|
| |  |  | pay dividends and make payments to shareholders; or             
|
| |  |  | change their accounting policies;                               

in each case except as permitted by the Senior Credit Facilities. The Senior
Credit Facilities also contain financial covenants requiring Ineos Holdings
Limited to, among other things, maintain minimum coverage of interest expense,
minimum coverage of total debt service and a maximum leverage ratio.

Events of Default

The Senior Credit Facilities also contain customary events of default,
including, among others:



| | (1) |  | non-payment of principal or interest,                                             
| | --- |  | ----------------------------------------------------------------------------------
|
| | (2) |  | failure to observe certain undertakings set forth in the
Senior Credit Facilities,
|
| | (3) |  | making an incorrect representation, warranty or statement,
and                    
|
| | (4) |  | certain bankruptcy related events.                                                

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Events of default will also arise under the Senior Credit Facilities where
any provision of the Senior Credit Facilities and associated documents becomes
invalid or unenforceable or it becomes unlawful for an obligor to perform its
obligations in a certain jurisdiction. Pursuant to the Senior Credit
Facilities, an event of cross default will arise under the Senior Credit
Facilities where any indebtedness of Ineos Holdings Limited and its
subsidiaries exceeding a specified amount:



| |  |  | is not paid when due or within originally applicable grace period
in any agreement relating to such indebtedness, or                                                                                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | becomes due and payable or capable of becoming due and payable or
is placed on demand or a commitment for such indebtedness is cancelled
or suspended by reason of a default or an event of default relating to
this indebtedness.

Senior Notes due 2010

In July 2001, Ineos Group Holdings plc issued 260.0 million aggregate
principal amount of Senior Notes due 2010 bearing interest at a rate
of 10 1/2
% per annum guaranteed by Ineos Holdings Limited on a senior subordinated
basis, pursuant to an Indenture, dated July 19, 2001 among Ineos Group Holdings
plc, as issuer, Ineos Holdings Limited, as guarantor, and The Bank of New York,
as trustee.

Interest on the Senior Notes is due on February 1 and August 1 of each
year.

The Senior Notes are scheduled to be repaid in one instalment on August 1,
2010. Prior to August 1, 2004, Ineos Group Holdings plc may redeem all but not
less than all the Senior Notes by paying a make-whole premium. Ineos Groups
Holdings plc may also redeem some or all of the Senior Notes at any time on or
after August 1, 2004, at the redemption price of 110.50% of the principal
amount of the Senior Notes, declining thereafter as described in the
registration statement of Ineos Group Holdings plc filed on Form F-4 with the
Securities and Exchange Commission on May 9, 2002. In addition, before August
1, 2004, Ineos Group Holdings plc or one of its parent companies may redeem up
to 35% of the Senior Notes with the net proceeds of a public equity offering.
Upon a change of control, each holder of Senior Notes may require Ineos Group
Holdings plc to repurchase all or a portion of its Senior Notes.

The Senior Notes rank equally with the senior debt of Ineos Group Holdings
plc. Our indirect wholly owned subsidiary, Ineos Holdings Limited, has
guaranteed the Senior Notes on a senior subordinated basis. Ineos Holdings
Limiteds guarantee is unsecured. Ineos Holdings Limiteds guarantee only
becomes due 179 days after an event of default on the Senior Notes has occurred
or earlier under certain circumstances. The Senior Notes and the guarantee are
subordinated to the secured debt of our subsidiaries as to the assets securing
such debt.

Covenants

The Indenture also contains customary covenants and restrictions on the
ability of Ineos Group Holdings plc and its subsidiaries to, among other
things:



| |  |  | incur additional debt;                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------
|
| |  |  | pay dividends on, redeem or repurchase our capital stock;                                               
|
| |  |  | make certain investments;                                                                               
|
| |  |  | issue or sell capital stock of restricted subsidiaries;                                                 
|
| |  |  | create certain liens;                                                                                   
|
| |  |  | transfer or sell assets;                                                                                
|
| |  |  | enter into sale and leaseback transactions;                                                             
|
| |  |  | enter into agreements limiting the ability of our subsidiaries to
make dividend or other payments to us;
|
| |  |  | in the case of our subsidiaries, guarantee debt;                                                        

68



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| |  |  | engage in transactions with affiliates;                                                                                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | create unrestricted subsidiaries; and                                                                                            
|
| |  |  | consolidate, merge or transfer all or substantially all of our
assets and the assets of our subsidiaries on a consolidated basis.

Other Agreements

Purchase and Sale Agreement, dated March 30, 2001, among Degussa AG,
Creanova, Inc., Ineos Group Limited and Ineos Phenol Limited pursuant to which
we acquired Ineos Phenol for 306.0 million in cash and 51.1 million in
deferred consideration including related acquisition costs. For additional
information, see note 27 to the financial statements of Ineos Group Limited in
Item 18Financial Statements.



|D. |  | EXCHANGE CONTROLS
|-- |  | -----------------

There are no UK foreign exchange controls currently in force that restrict
the export or import of capital or that affect the remittance of interest,
dividends or other payments to non UK resident holders of the Companys
securities. There are no limitations imposed by UK law that restrict the right
of non UK resident or non UK citizen owners to hold or vote the securities of
the Company.



|E. |  | TAXATION
|-- |  | --------

Not applicable.



|F. |  | DIVIDENDS AND PAYING AGENTS
|-- |  | ---------------------------

Not applicable.



|G. |  | STATEMENT BY EXPERTS
|-- |  | --------------------

Not applicable.



|H. |  | DOCUMENTS ON DISPLAY
|-- |  | --------------------

We have filed this annual report on Form 20-F with the Securities and
Exchange Commission under the Securities Exchange Act of 1934. Statements made
in this annual report as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to this annual
report, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.

We are subject to the informational requirements of the Exchange Act and
file reports and other information with the Securities and Exchange Commission.
Reports and other information which we file with the Securities and Exchange
Commission, including this annual report on Form 20-F, may be inspected and
copied at the public reference facilities of the Securities and Exchange
Commission at:

|                                                      |  |                                                            |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------------------------------- |  | ---------------------------------------------------------- |  |  |  |  |  |  |  |  |  |  |  | 
|450 Fifth Street N.W.
Room 1024
Washington D.C. 20549 |  | 500 West Madison Street
Suite 1400
Chicago, Illinois 60661

You can also obtain copies of this material by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Additionally, copies of
this material may also be obtained from the Securities and Exchange
Commissions Internet site at http://www.sec.gov. The Commissions telephone
number is 1-800-SEC-0330.

69



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##### Table of Contents





|I. |  | SUBSIDIARY INFORMATION
|-- |  | ----------------------

Not applicable.






|ITEM 11. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- |  | ----------------------------------------------------------

In the ordinary course of our business, we are exposed to a variety of
market risks arising from fluctuations in foreign currency exchange rates,
interest rates and commodity prices. To manage these risks effectively, we
enter into hedging transactions and use derivative financial instruments,
pursuant to established internal guidelines and policies, to mitigate the
adverse effects of these market risks. We do not enter into financial
instruments for trading or speculative purposes.

For additional information about our financial instruments that are
sensitive to changes in interest rates, see Item 5.B under the caption
Operating and Financial Review and ProspectsLiquidity and Capital Resources.
For additional information about our hedging transactions and derivative
financial instruments, see note 34 to the financial statements of Ineos Group
Limited in Item 18 of this annual report.






|ITEM 12. |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- |  | ------------------------------------------------------

Not applicable.




PART II






|ITEM 13. |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- |  | -----------------------------------------------

None.






|ITEM 14. |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- |  | ----------------------------------------------------------------------------

None.






|ITEM 15. |  | CONTROLS AND PROCEDURES
|-------- |  | -----------------------

Evaluation of disclosure controls and procedures.Based on their
evaluation of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date
within 90 days of the filing date of this annual report on Form 20-F, our
Chairman and Finance Director have concluded that our disclosure controls and
procedures are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarised and reported within the time periods specified in the
SECs rules and forms, and are operating in an effective manner.

Changes to internal controls.There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.






|ITEM 16. |  | [RESERVED]
|-------- |  | ----------




PART III






|ITEM 17. |  | FINANCIAL STATEMENTS
|-------- |  | --------------------

We have responded to Item 18 Financial Statements in lieu of this item.

70



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|ITEM 18. |  | FINANCIAL STATEMENTS
|-------- |  | --------------------

The following consolidated financial statements and schedules together
with the auditors reports thereon are part of this annual report.

|                                                                                                       |                                                      |  |     |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- |  | --- |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 
|
|                                                                                                       | Ineos Group Limited                                  |  |     |  | 
|                                                                                                      
|Report of Independent Accountants                                                                      |                                                      |  | F-1 | 
|Consolidated Profit and Loss Accounts for the years ended December 31, 2000, 2001 and 2002             |                                                      |  | F-2 | 
|Consolidated Balance Sheets as at December 31, 2001 and 2002                                           |                                                      |  | F-3 | 
|Consolidated Cash Flow Statements for the years ended December 31, 2000, 2001 and 2002                 |                                                      |  | F-4 | 
|Statements of Total Recognised Gains and Losses for the years ended December 31, 2000, 2001 and 2002   |                                                      |  | F-5 | 
|Notes to the Financial Statements                                                                      |                                                      |  | F-6 | 
|                                                                                                      
|                                                                                                       | Financial Statement Schedule for Ineos Group Limited |  |     |  | 
|                                                                                                      
|Report of Independent Accountants                                                                      |                                                      |  | S-1 | 
|Condensed Parent Company Profit and Loss Accounts for the Years Ended December 31, 2000, 2001 and 2002 |                                                      |  | S-2 | 
|Condensed Parent Company Balance Sheets for the Years Ended December 31, 2001 and 2002                 |                                                      |  | S-3 | 
|Condensed Parent Company Cash Flow Statements for the Years Ended December 31, 2000, 2001 and 2002     |                                                      |  | S-4 | 
|Notes to the Condensed Financial Statements                                                            |                                                      |  | S-5 | 

71



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|ITEM 19. |  | EXHIBITS
|-------- |  | --------

|            |  |                                                                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                              
|1.1         |  | Memorandum and Articles of Association of Ineos Group
Limited1                                                                                                                                                               
|4.1         |  | Indenture, dated July 19, 2001, among Ineos Group Holdings
plc, as issuer, Ineos Holdings Limited, as guarantor, and The Bank
of New York, as trustee2                                                                       
|4.2         |  | Senior Credit Facilities, dated May 23, 2001, among Ineos
Group Limited, Ineos Holdings Limited, Barclays Capital, Merrill
Lynch International, UBS Warburg Ltd. and Barclays Bank plc, as
Facility Agent and Security Agent3
|4.3         |  | Intercreditor Deed, dated May 23, 2001, among Ineos Group
Limited, Ineos Holdings Limited, Barclays Bank plc, Merrill Lynch
Capital Corporation and UBS AG4                                                                  
|4.4         |  | Purchase and Sale Agreement, dated March 30, 2001, among
Degussa AG, Creanova, Inc., Ineos Group Limited and Ineos Phenol
Limited5                                                                                           
|4.5         |  | Service Contract with Jim Ratcliffe6                                                                                                                                                                                         
|8.1         |  | List of subsidiaries of Ineos Group Limited7                                                                                                                                                                                 
|10.1        |  | Resolution, dated April 4, 1998, changing the name of the
Company from JAR Group Limited to Ineos Group Limited8                                                                                                             
|10.2        |  | Certifications pursuant to 18 U.S.C. Section 13509                                                                                                                                                                           



---

|1 |  | Incorporated by reference to Exhibit 1.1 to the Registration Statement on
Form 20-F of Ineos Group Limited, File No. 000-31228, filed with the Securities
Exchange Commission.         
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|2 |  | Incorporated by reference to Exhibit 4.1 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission. 
| 
|3 |  | Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission.
| 
|4 |  | Incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission.
| 
|5 |  | Incorporated by reference to Exhibit 2.1 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission. 
| 
|6 |  | Incorporated by reference to Exhibit 10.3 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission.
| 
|7 |  | Incorporated by reference to Exhibit 12.1 to the Registration Statement on
Form F-4 of Ineos Group Holdings plc, File No. 333-87974, filed with the
Securities and Exchange Commission.
| 
|8 |  | Incorporated by reference to Exhibit 10.1 to the Registration Statement on
Form 20-F of Ineos Group Limited, File No. 000-31228, filed with the Securities
and Exchange Commission.    
| 
|9 |  | Furnished herewith.                                                                                                                                                                    

72



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SIGNATURE

The registrant hereby certifies that it meets all the requirements for filing
on Form 20-F and has duly caused and authorised the undersigned to sign this
annual report on its behalf.

|            |  |                    
|----------- |  | -------------------
|Registrant: |  | INEOS GROUP LIMITED

|      |  |                                          
|----- |  | -----------------------------------------
|By:   |  | /s/ John Reece                           
|      |  |                                          
|      |  | Name:  John Reece
Title: Finance Director
|     
|Date: |  | May 7, 2003                              

73



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CERTIFICATIONS

I, James Ratcliffe, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Ineos Group Limited;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarise and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 7, 2003

| |                    
| | -------------------
| | /s/ James Ratcliffe
| |                    
| | Chairman           

74



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CERTIFICATIONS

I, John Reece, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Ineos Group Limited;                                                                                                                                                                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarise and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: May 7, 2003

| |                 
| | ----------------
| | /s/ John Reece  
| |                 
| | Finance Director

75



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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Ineos Group Limited

We have audited the accompanying consolidated balance sheets of Ineos
Group Limited (the Company or Ineos Group Limited) and its subsidiaries as
of December 31, 2002 and 2001, and the related consolidated profit and loss
accounts, cash flow statements and statements of total recognised gains and
losses for each of the three years in the period ended December 31, 2002, all
expressed in euros. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom and in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ineos Group
Limited and its subsidiaries at December 31, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United Kingdom.

As discussed on page F-6 the Company changed its method of accounting for
deferred taxation in 2002.

Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. The application of the latter would have
affected the determination of the results expressed in euros for each of the
three years in the period ended December 31, 2002, and the determination of
shareholders funds also expressed in euros at December 31, 2002 and 2001, to
the extent summarised in Note 36 to the consolidated financial statements.

PricewaterhouseCoopers LLP
London, United Kingdom

March 28, 2003

F-1



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##### Table of Contents






INEOS GROUP LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNTS

|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|---------------------------------------------------- |  | ----- | -- | --------------- |  | ----------------------- | ------ | ---- |  |  | -------- | - |  |  | -------- | -
|                                                     |  |       |    |                 |  | Year Ended December 31,
|                                                     |  |       |    |                 |  |                        
|                                                     |  | Notes |    | 2000 (restated) |  | 2001 (restated)         |        | 2002
|                                                     |  |       |    |                 |  |                         |        |     
|                                                     |  |       |    |                 |  | ( in millions)        
|Turnover                                             |  |       | 4  |                 |  |                         | 337.0  |      |  |  | 1,530.7  |   |  |  | 2,235.8  |  
|Cost of sales                                        |  |       |    |                 |  |                         | (270.0 | )    |  |  | (1,255.8 | ) |  |  | (1,833.9 | )
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|Gross profit                                         |  |       |    |                 |  |                         | 67.0   |      |  |  | 274.9    |   |  |  | 401.9    |  
|Distribution costs                                   |  |       |    |                 |  |                         | (13.4  | )    |  |  | (104.4   | ) |  |  | (161.8   | )
|Administrative expenses                              |  |       | 5  |                 |  |                         | (8.5   | )    |  |  | (68.7    | ) |  |  | (65.9    | )
|Exceptional administrative expenses                  |  |       | 6  |                 |  |                         |       |      |  |  | (19.6    | ) |  |  | (24.6    | )
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|                                                     |  |       |    |                 |  |                         | (8.5   | )    |  |  | (88.3    | ) |  |  | (90.5    | )
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|Operating profit                                     |  |       | 7  |                 |  |                         | 45.1   |      |  |  | 82.2     |   |  |  | 149.6    |  
|Share of operating profit of associate               |  |       |    |                 |  |                         |       |      |  |  | 0.2      |   |  |  | 0.6      |  
|Profit on disposal of fixed assets                   |  |       | 8  |                 |  |                         |       |      |  |  |         |   |  |  | 1.9      |  
|Net finance charges                                  |  |       | 9  |                 |  |                         | (9.9   | )    |  |  | (68.7    | ) |  |  | (79.8    | )
|Exceptional finance charges                          |  |       | 9  |                 |  |                         |       |      |  |  | (40.9    | ) |  |  |         |  
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|                                                     |  |       |    |                 |  |                         | (9.9   | )    |  |  | (109.6   | ) |  |  | (79.8    | )
|Profit/(loss) on ordinary activities
before taxation |  |       |    |                 |  |                         | 35.2   |      |  |  | (27.2    | ) |  |  | 72.3     |  
|Taxation on profit/(loss) on ordinary
activities     |  |       | 11 |                 |  |                         | (7.6   | )    |  |  | 6.1      |   |  |  | (37.1    | )
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|Profit/(loss) on ordinary activities
after taxation  |  |       |    |                 |  |                         | 27.6   |      |  |  | (21.1    | ) |  |  | 35.2     |  
|Equity dividends                                     |  |       | 12 |                 |  |                         |       |      |  |  |         |   |  |  |         |  
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  
|Profit/(loss) for the financial year                 |  |       | 25 |                 |  |                         | 27.6   |      |  |  | (21.1    | ) |  |  | 35.2     |  
|                                                     |  |       |    |                 |  |                         |        |      |  |  |          |   |  |  |          |  

The accompanying notes are an integral part of these financial statements.

F-2



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##### Table of Contents






INEOS GROUP LIMITED
CONSOLIDATED BALANCE SHEETS

|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|------------------------------------------------------ |  | ----- | ---------- | --------------- |  | ------------------ | ------- | - |  |  | ------ | -
|                                                       |  |       |            |                 |  | Consolidated      
|                                                       |  |       |            |                 |  |                   
|                                                       |  |       |            |                 |  | As at December 31,
|                                                       |  |       |            |                 |  |                   
|                                                       |  | Notes |            | 2001 (restated) |  | 2002              
|                                                       |  |       |            |                 |  |                   
|                                                       |  |       |            |                 |  | ( in millions)   
|Fixed assets                                           |  |       |            |                 |  |                    |         |   |  |  |        |  
|Investments                                            |  |       | 13         |                 |  |                    | 2.1     |   |  |  | 1.8    |  
|Tangible fixed assets                                  |  |       | 14         |                 |  |                    | 1,135.6 |   |  |  | 987.8  |  
|Intangible fixed assets                                |  |       | 15         |                 |  |                    | 15.1    |   |  |  | 14.0   |  
|Negative goodwill                                      |  |       | 15         |                 |  |                    | (366.4  | ) |  |  | (282.3 | )
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|                                                       |  |       |            |                 |  |                    | 786.4   |   |  |  | 721.3  |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Current assets                                         |  |       |            |                 |  |                    |         |   |  |  |        |  
|Cash at bank and in hand                               |  |       |            |                 |  |                    | 121.5   |   |  |  | 109.0  |  
|Stocks                                                 |  |       | 16         |                 |  |                    | 152.3   |   |  |  | 162.4  |  
|Debtors: amounts due within one year                   |  |       | 17         |                 |  |                    | 308.9   |   |  |  | 326.3  |  
|Debtors: amounts due after one year                    |  |       | 17         |                 |  |                    | 59.0    |   |  |  | 48.7   |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|                                                       |  |       |            |                 |  |                    | 641.7   |   |  |  | 646.4  |  
|Creditorsamounts falling due within one year          |  |       | 18         |                 |  |                    | (410.0  | ) |  |  | (437.4 | )
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Net current assets                                     |  |       |            |                 |  |                    | 231.7   |   |  |  | 209.0  |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Total assets less current liabilities                  |  |       |            |                 |  |                    | 1,018.1 |   |  |  | 930.3  |  
|Creditorsamounts falling due after more than one year |  |       | 19, 20, 21 |                 |  |                    | (947.3  | ) |  |  | (847.9 | )
|Provisions for liabilities and charges                 |  |       | 22         |                 |  |                    | (53.2   | ) |  |  | (70.1  | )
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Net assets                                             |  |       |            |                 |  |                    | 17.6    |   |  |  | 12.3   |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Capital and reserves                                   |  |       |            |                 |  |                    |         |   |  |  |        |  
|Called up equity share capital                         |  |       | 24         |                 |  |                    | 0.2     |   |  |  | 0.2    |  
|Share premium account                                  |  |       | 25         |                 |  |                    | 2.4     |   |  |  | 2.4    |  
|Capital redemption reserve                             |  |       | 25         |                 |  |                    | 0.1     |   |  |  | 0.1    |  
|Profit and loss account                                |  |       | 25         |                 |  |                    | 14.9    |   |  |  | 9.6    |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  
|Equity shareholders funds                             |  |       | 26         |                 |  |                    | 17.6    |   |  |  | 12.3   |  
|                                                       |  |       |            |                 |  |                    |         |   |  |  |        |  

The accompanying notes are an integral part of these financial statements.

F-3



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INEOS GROUP LIMITED
CONSOLIDATED CASH FLOW STATEMENTS

|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |       |  
|----------------------------------------------- | ------------------------ |  | ----- |  | ---- |  | ----------------------- | ----- | - |  | ------- | ------ | - |  | ----- | ----- | -
|                                                |                          |  |       |  |      |  | Year Ended December 31,
|                                                |                          |  |       |  |      |  |                        
|                                                |                          |  | Notes |  | 2000 |  | 2001                    | 2002 
|                                                |                          |  |       |  |      |  |                         |      
|                                                |                          |  |       |  |      |  | ( in millions)        
|Operating profit                                |                          |  |       |  |      |  | 45.1                    |       |   |  | 82.2    |        |   |  | 149.6 |      
|Depreciation of tangible assets                 |                          |  |       |  |      |  | 6.4                     |       |   |  | 110.9   |        |   |  | 114.8 |      
|Amortisation of intangibles                     |                          |  |       |  |      |  | 1.3                     |       |   |  | (33.5   | )      |   |  | (33.4 | )    
|(Increase)/decrease in stocks                   |                          |  |       |  |      |  | (5.7                    | )     |   |  | 0.5     |        |   |  | (18.7 | )    
|(Increase)/decrease in debtors                  |                          |  |       |  |      |  | (5.3                    | )     |   |  | 16.5    |        |   |  | (61.6 | )    
|Increase/(decrease) in creditors and provisions |                          |  |       |  |      |  | 7.6                     |       |   |  | 1.3     |        |   |  | 60.1  |      
|(Profit)/loss on sale of tangible fixed assets  |                          |  |       |  |      |  |                        |       |   |  |        |        |   |  |      |      
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Net cash flow from operating activities         |                          |  |       |  |      |  | 49.4                    |       |   |  | 177.9   |        |   |  | 210.8 |      
|Returns on investments and servicing of finance |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Interest received                               |                          |  |       |  |      |  | 0.8                     |       |   |  | 2.5     |        |   |  | 3.0   |      
|Interest paid                                   |                          |  |       |  |      |  | (9.6                    | )     |   |  | (68.4   | )      |   |  | (63.2 | )    
|Interest element of finance lease rentals       |                          |  |       |  |      |  |                        |       |   |  | (0.4    | )      |   |  | (0.4  | )    
|Issue cost of debt finance raised               |                          |  |       |  |      |  |                        |       |   |  | (48.7   | )      |   |  | (0.7  | )    
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                |                          |  |       |  |      |  | (8.8                    | )     |   |  | (115.0  | )      |   |  | (61.3 | )    
|Dividend received from associate undertaking    |                          |  |       |  |      |  |                        |       |   |  |        |        |   |  | 0.4   |      
|Taxation paid                                   |                          |  |       |  |      |  | (6.6                    | )     |   |  | (11.9   | )      |   |  | (11.1 | )    
|Capital expenditure                             |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Acquisition of fixed asset investments          |                          |  |       |  |      |  | (0.1                    | )     |   |  |        |        |   |  |      |      
|Payments to acquire tangible fixed assets       |                          |  |       |  |      |  | (17.0                   | )     |   |  | (42.9   | )      |   |  | (51.2 | )    
|Receipts from sales of tangible fixed assets    |                          |  |       |  |      |  |                        |       |   |  |        |        |   |  | 3.7   |      
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                |                          |  |       |  |      |  | (17.1                   | )     |   |  | (42.9   | )      |   |  | (47.5 | )    
|Acquisitions and disposal                       |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Acquisition of business                         |                          |  | 27    |  |      |  |                        |       |   |  | (800.2  | )      |   |  | (5.0  | )    
|Cash received on acquisitions                   |                          |  | 27    |  |      |  |                        |       |   |  | 23.2    |        |   |  |      |      
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                |                          |  |       |  |      |  |                        |       |   |  | (777.0  | )      |   |  | (5.0  | )    
|Equity dividends paid                           |                          |  |       |  |      |  |                        |       |   |  |        |        |   |  |      |      
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Net cash inflow/(outflow) before financing      |                          |  |       |  |      |  | 16.9                    |       |   |  | (768.9  | )      |   |  | 86.3  |      
|Financing                                       |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Capital repayment of finance leases             |                          |  |       |  |      |  |                        |       |   |  | (2.2    | )      |   |  | (3.5  | )    
|Repurchase of ordinary share capital            |                          |  |       |  |      |  | (9.5                    | )     |   |  | (2.4    | )      |   |  |      |      
|New loans:                                      |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                | Senior credit facilities |  |       |  |      |  |                         |      |   |  |         | 800.0  |   |  |       |      |  
|                                                | Bridge Loan              |  |       |  |      |  |                         |      |   |  |         | 210.0  |   |  |       |      |  
|                                                | Senior loan notes        |  |       |  |      |  |                         |      |   |  |         | 260.0  |   |  |       |      |  
|                                                | Other bank loans         |  |       |  |      |  |                         |      |   |  |         | 433.9  |   |  |       |      |  
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                |                          |  |       |  |      |  |                        |       |   |  | 1,703.9 |        |   |  |      |      
|Repayment of loans:                             |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                | Senior credit facilities |  |       |  |      |  |                         |      |   |  |         | (56.5  | ) |  |       | (85.3 | )
|                                                | Bridge Loan              |  |       |  |      |  |                         |      |   |  |         | (210.0 | ) |  |       |      |  
|                                                | Senior secured notes     |  |       |  |      |  |                         |      |   |  |         | (95.5  | ) |  |       | (1.6  | )
|                                                | Other bank loans         |  |       |  |      |  |                         | (17.3 | ) |  |         | (459.9 | ) |  |       |      |  
|Loan to associate undertaking                   |                          |  |       |  |      |  |                        |       |   |  |        |        |   |  | (1.0  | )    
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|                                                |                          |  |       |  |      |  | (17.3                   | )     |   |  | (821.9  | )      |   |  | (87.9 | )    
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      
|Increase/(decrease) in cash                     |                          |  | 31    |  |      |  | (9.9                    | )     |   |  | 108.5   |        |   |  | (5.1  | )    
|                                                |                          |  |       |  |      |  |                         |       |   |  |         |        |   |  |       |      

The accompanying notes are an integral part of these financial statements.

F-4



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##### Table of Contents






INEOS GROUP LIMITED
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES

|                                                 |  |                         |      |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ----------------------- | ---- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 2000 (restated)         |      | 2001 (restated) |  | 2002
|                                                 |  |                         |      |                 |  |     
|                                                 |  | ( in millions)        
|Profit/(loss) for the financial year             |  |                         | 27.6 |                 |  |      | (21.1 | ) |  |  | 35.2  |  
|Foreign currency translation movements           |  |                         |     |                 |  |      |      |   |  |  | (40.5 | )
|                                                 |  |                         |      |                 |  |      |       |   |  |  |       |  
|Total recognised gains and losses for the period |  |                         | 27.6 |                 |  |      | (21.1 | ) |  |  | (5.3  | )
|Prior year adjustment  FRS 19                   |  |                         |     |                 |  |      |      |   |  |  | 2.1   |  
|                                                 |  |                         |      |                 |  |      |       |   |  |  |       |  
|Total gains and losses since last annual report  |  |                         | 27.6 |                 |  |      | (21.1 | ) |  |  | (3.2  | )
|                                                 |  |                         |      |                 |  |      |       |   |  |  |       |  

The accompanying notes are an integral part of these financial statements.

F-5



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##### Table of Contents






INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|1. |  | BASIS OF PREPARATION
|-- |  | --------------------

Ineos Group Limited (Ineos Group Limited or the Company), is a holding
company which houses the ownership interests in certain chemical businesses
acquired and controlled by a common owner. These businesses are comprised of
Ineos Oxide (formerly Ineos plc), Ineos Fluor, Ineos Silicas and Ineos Phenol.
For the year ended December 31, 2000 these financial statements represent the
financial position and results of operations for Ineos Group Limiteds
predecessor business which is comprised solely of Ineos Oxide. Ineos Fluor and
Ineos Silicas were acquired on January 9, 2001. Our results of operations
reflect the purchase of Ineos Fluor and Ineos Silicas from an effective
acquisition date of January 1, 2001. Ineos Group Limited acquired Ineos Phenol
on May 23, 2001 and the financial statements include the results of operations
of Ineos Phenol from that date.

Ineos Oxide Limited (formerly Ineos plc) was acquired on April 14, 1998
from Inspec Group plc (Inspec) and Inspec Group BV, an affiliate of Inspec
Group plc (the Original Acquisition).

The accompanying financial statements have been prepared on a historical
cost basis in accordance with generally accepted accounting principles in the
United Kingdom (UK GAAP).

The consolidated financial statements include all subsidiaries of the
Company. Intragroup 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.



|2. |  | PRINCIPAL ACCOUNTING POLICIES
|-- |  | -----------------------------

The financial information has been prepared using accounting policies in
accordance with generally accepted principles in the United Kingdom (UK
GAAP). The financial information has been prepared under the historical cost
convention.



| |  | Changes in accounting policies
| |  | ------------------------------

The Group has adopted FRS 19 Deferred tax in these financial statements.
The adoption of this standard represents a change in accounting policy and the
comparative figures have been restated accordingly. FRS 19 introduces a form
of full provision for accounting for deferred tax, known as the incremental
liability approach, which replaces the partial provision approach previously
followed under SSAP 15. The effect of the change in accounting policy was to
increase tax on profit on ordinary activities by 23.9 million (2001: increased
tax credit of 2.1 million; 2000: nil million) and to decrease shareholders
funds by 23.9 million (2001: increase of 2.1 million; 2000: nil million).
As part of the change in accounting policy 25.7 million has been adjusted to
negative goodwill to recognise deferred tax assets upon previous acquisitions.



| |  | Basis of consolidation
| |  | ----------------------

The financial statements represent a consolidation of the Company and its
subsidiary undertakings (the Group) as at the balance sheet date. All
intercompany transactions are eliminated as are any intercompany profits
included in the Group which were not realised at the balance sheet date.
Subsidiaries acquired during the year are included in the consolidated
financial statements from the effective date of acquisition.

F-6



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|2. |  | PRINCIPAL ACCOUNTING POLICIES (Continued)
|-- |  | -----------------------------------------
|  
|   |  | Associates                               

Associated undertakings are companies in which the Group has a particular
interest (usually from 20% to 50%) which is held for the long term and over
whose operating and financial policies it exercises a significant influence.
The consolidated profit and loss account includes the Groups share of profits
less losses of associated undertakings. The consolidated balance sheet
includes interests in associated undertakings at the value of the Groups share
of the net assets of those undertakings.



| |  | Turnover
| |  | --------

Turnover represents the invoiced value of products sold or services
provided to third parties net of sales discounts and value added taxes.

The pricing for products sold is determined by market prices (market
contracts and arrangements) or is linked by a formula to published raw material
prices plus an agreed additional amount (formula contracts). Revenue is
recognised when the goods are shipped, when the prices are determinable and
when collectability is considered probable.

Services provided to third parties include administrative and operational
services provided to other chemical companies with units on our sites and
services under tolling arrangements. Under tolling arrangements, customers pay
for or provide raw materials to be converted into a certain specified product,
for which the Company charges a toll fee. The Company only recognises the toll
fee as revenue earned under such arrangements upon shipment of the converted
product to the customer. For all other services, revenue is recognised upon
completion of the service provided.



| |  | Tangible fixed assets
| |  | ---------------------

Tangible fixed assets are stated at cost less accumulated depreciation and
are depreciated on a straight line basis at the following rates:

|                                     |  |               |       |  
|------------------------------------ |  | ------------- | ----- | -
|                                     |  | Annual charge
|                                     |  |              
|Land                                 |  | Nil          
|Freehold buildings                   |  |               | 2.5-5 | %
|Plant, machinery and equipment       |  |               | 5-20  | %
|Assets in the course of construction |  | Nil          

Reviews are made annually of the estimated remaining lives of individual
productive assets, taking account of commercial and technological obsolescence
as well as normal wear and tear.



| |  | Intangible fixed assets
| |  | -----------------------

Goodwill arising on acquisition, which represents the excess of cost of
acquisitions of subsidiary undertakings and businesses over the fair value
attributed to their net assets, is capitalised and amortised over periods up to
a maximum of 20 years. Negative goodwill is amortised over the periods in which
the non-monetary assets of acquisitions made are recovered, whether through
depreciation or sale. The Company is amortising negative goodwill over periods
of 5 to 15 years.

F-7



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|2. |  | PRINCIPAL ACCOUNTING POLICIES (Continued)
|-- |  | -----------------------------------------

The Company periodically reviews the amortisation period to determine if
events and circumstances warrant revised estimates of the useful lives. Also,
at each balance sheet date, management assesses whether there has been a
permanent impairment in the value of goodwill by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of goodwill. The factors considered by management in the assessment
include operating results, trends and prospects, as well as the effects of
obsolescence, demand, competition and other economic factors.

For pre-existing non-compete agreements and licences acquired in
connection with an acquisition, the fair value of these separable intangible
assets is capitalised and amortised over the period of the agreement.



| |  | Investments
| |  | -----------

Fixed asset investments are stated at cost less provision for any
permanent diminution in value.



| |  | Research and development
| |  | ------------------------

The cost of research and development is written off in the year incurred.



| |  | Stocks and work in progress
| |  | ---------------------------

Stocks and work in progress are stated at the lower of cost and net
realisable value. Cost includes an appropriate proportion of the relevant
production overheads and is attributed to stocks on a first in, first out
(FIFO) basis.



| |  | Grants
| |  | ------

Capital grants are recognised in the profit and loss account on a straight
line basis over the useful economic life of the related asset acquired.



| |  | Debt issue costs
| |  | ----------------

Fees incurred in the raising of finance are capitalised and allocated to
periods over the term of the relevant financing at a constant rate on the
carrying amount.



| |  | Foreign currencies
| |  | ------------------

The functional currency of Ineos Group Limited is the local currency of
its principal operating environment. The Companys primary products are sold in
an international commodities market priced and invoiced primarily in euros;
therefore the euro is the Companys functional currency.

Transactions are translated at the exchange rate ruling at the date of the
transaction. Monetary assets and liabilities in the balance sheet are
translated at the closing rate for the period. All translation gains or losses
on the settlement of monetary assets and liabilities are included in the
determination of profit for the year.

Assets and liabilities of overseas subsidiaries are translated into euros
at the rates of exchange ruling at the balance sheet date. Trading results of
overseas subsidiaries and associated undertakings have been translated at the
average exchange rate for the relevant accounting period. Exchange differences
arising on consolidation of overseas subsidiaries and associates, and on
matching foreign currency loans, are taken to reserves.

F-8



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|2. |  | PRINCIPAL ACCOUNTING POLICIES (Continued)
|-- |  | -----------------------------------------
|  
|   |  | Deferred taxation                        

Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions that
result in an obligation to pay more tax in the future or a right to pay less
tax in the future have occurred at the balance sheet date. An asset is not
recognised to the extent that the transfer of economic benefits in the future
is uncertain. Deferred tax is measured at the average tax rates that are
expected to apply in the periods in which the timing differences are expected
to reverse, based on tax rates and laws that have been enacted by the balance
sheet date. Deferred tax assets and liabilities which have been recognised
have not been discounted.



| |  | Pensions
| |  | --------

Employees of the Group participate in a number of funded defined benefit
pension plans. The group pays contributions to the plans on behalf of the
employees. The cost of providing pensions is charged against profits on a
systematic basis with pension surpluses and deficits arising allocated over the
expected remaining service lives of the current members. Differences between
the amounts charged to the profit and loss account and payments made to the
pension fund are treated as assets or liabilities. Funded arrangements are in
place to bring forward the retirement date for employees in Belgium by up to
seven years.

The Group operates a number of unfunded defined benefit pension schemes
which cover the majority of its employees in Germany. The expected cost of
pensions is charged to the profit and loss account so as to spread the cost of
pensions over the average remaining service period of the employees. The Group
also provides unfunded early retirement benefits and long service awards for
employees in Germany. The benefit cost is charged to the profit and loss
account based on actuarial valuations.

Pension charges related to the defined benefit schemes are assessed in
accordance with the advice of a qualified independent actuary using the
projected unit method.



| |  | Post-retirement benefits other than pensions
| |  | --------------------------------------------

Ineos Group Limited provides health care insurance to eligible retired
employees and their dependants. These benefits relate mainly to employees in
the United States and Belgium. Provision has been made in these financial
statements for the estimated future costs of the related insurance premiums.



| |  | Environmental liabilities
| |  | -------------------------

Ineos Group Limited is exposed to environmental liabilities relating to
its past operations, principally in respect of soil and groundwater remediation
costs. Provision for these costs is made when expenditure on remedial work is
probable and the cost can be estimated within a reasonable range of possible
outcomes.



| |  | Restructuring provisions
| |  | ------------------------

Estimated costs to be incurred in connection with restructuring measures
are provided for when the Company has a constructive obligation, which is
generally the announcement date. The announcement date is the date at which
the plan is announced in sufficient detail to enable employees to estimate the
redundancy payments to which they are entitled.

F-9



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|2. |  | PRINCIPAL ACCOUNTING POLICIES (Continued)
|-- |  | -----------------------------------------
|  
|   |  | Leases                                   

Where assets are financed by leasing agreements that give rights
approximating to ownership, the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payment payable during the lease term. The corresponding lease
commitments are shown as obligations to the lessor. Lease payments are split
between capital and interest elements using the annuity method. All other
leases are operating leases and the annual rentals are charged to operating
profit on a straight line basis over the lease term.



| |  | Finance lease receivables
| |  | -------------------------

Receivables under finance leases represent outstanding amounts due under
these agreements less finance charges allocated to future periods. Finance
lease interest is recognised over the term of the lease so as to produce a
constant return on the net cash investment.



| |  | Financial instruments
| |  | ---------------------

Amounts payable or receivable in respect of interest rate cap, floor and
swap agreements are recognised in the interest payable charge on an accruals
basis. The interest differential amounts due to/from the counterparty on such
agreements are accrued until settlement date and are recognised as an
adjustment to interest expense.



| |  | Emission trading scheme
| |  | -----------------------

The Group is a member of the UK Government Emissions Trading Scheme. The
Scheme encourages companies to reduce carbon emissions by offering financial
incentives if they achieve their annual reduction targets. If a company
reduces emissions beyond their target then the government also allows the
surplus to be traded in the form of emissions permits.

The incentive money due from the UK Government is recognised in the profit
and loss account once the reduction targets have been met. The emissions
permits allocated by the Government are at nil cost. The Group recognises the
revenue from such permits upon their sale to third parties.



| |  | Reclassifications
| |  | -----------------

Certain prior year amounts have been reclassified to conform with the
current years presentation.



|3. |  | RECENT ACCOUNTING DEVELOPMENTS
|-- |  | ------------------------------

In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations.The standard provides the accounting requirements for retirement
obligations associated with tangible long-lived assets. The standard requires
that the obligation associated with the retirement of tangible long-lived
assets be capitalised into the asset cost at the time of initial recognition.
The liability is then discounted to its fair value at the time of recognition
using the guidance provided by that standard. The Company is required to
comply with SFAS 143 in its financial statements for the year ending December
31, 2003. The Company is currently assessing the impact of SFAS 143 on its
financial position and results of operations and does not believe the financial
statements will be materially impacted by its adoption.

F-10



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|3. |  | RECENT ACCOUNTING DEVELOPMENTS (Continued)
|-- |  | ------------------------------------------

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement eliminates the automatic classification of gain
or loss on extinguishment of debt as an extraordinary item of income and
requires that such gain or loss be evaluated for extraordinary classification
under the criteria of Accounting Principles Board No. 30 Reporting Results of
Operations. This statement also requires sales-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This statement will be effective for the Company for
the year ending December 31, 2003. The provisions of this statement relating
to sale  leaseback accounting became effective for the Company in the current
fiscal year, the adoption of which had no impact on our results of operations
or financial position. The provisions of this statement relating to the
classification of gains or losses arising on debt extinguishment will become
applicable for the Company for the year ending December 31, 2003 and the
Company does not believe the financial statements will be materially effected
by its adoption.

In July 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 is
effective for exit or disposal activities initiated after December 31, 2002.
This standard will require Companies to recognise costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. The standard replaces the existing
guidance provided by EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The Company does not have any
immediate plans to initiate any activities in 2003 that would be included
within the scope of this standard.

On November 25, 2002, the FASB issued FASB Interpretation No. 45 (FIN 45
or the Interpretation), Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an
interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34). FIN 45 clarifies the requirements of FASB Statement
No. 5 (FAS 5), Accounting for Contingencies,relating to a guarantors
accounting for, and disclosure of, the issuance of certain types of guarantees.
The Interpretations provisions for initial recognition and measurement are to
be applied on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantors fiscal year-end. The
guarantors previous accounting for guarantees that were issued before the date
of FIN 45s initial application may not be revised or restated to reflect the
effect of the recognition and measurement provisions of the Interpretation.
The disclosure requirements have been adopted by the Company for the year ended
December 31, 2002 (see note 36). The Company is currently assessing the impact
that the recognition and measurement requirements will have on future
reporting.

On January 17, 2003, the FASB issued FASB Interpretation No. 46 (FIN 46
or the Interpretation), Consolidation of Variable Interest Entities, an
interpretation of ARB 51.The primary objectives of FIN 46 are to provide

guidance on the identification of entities for which control is achieved
through means other than through voting rights (variable interest entities or
VIEs) and how to determine when and which business enterprise should
consolidate the VIE (the primary beneficiary). This consolidation model
applies to an entity which either (1) the equity investors (if any) do not have
a controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46
requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. The
effective date relating to implementation and disclosure requirements included
in the Interpretation are for VIEs created before February 1, 2003, effective
no later than the beginning of the first interim or annual reporting period
beginning after June 15, 2003 and for VIEs created after January 31, 2003,
F-11Table of Contents

INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS

effective immediately. The Company is currently assessing the impact of
FIN 46 on its financial position and results of operations and does not believe
the financials statements will be materially impacted by its adoption (see note
36).



|4. |  | SEGMENT INFORMATION
|-- |  | -------------------
|  
|   |  | Class of business  

The Companys business comprises the production and distribution of
intermediate and speciality chemicals, and is made up of four business
segments: Ineos Oxide, Ineos Fluor, Ineos Silicas and Ineos Phenol.

The turnover, operating profit, net assets and capital expenditures
attributable to each different class of business as measured under UK GAAP is
as follows:

|         |               |  |                         |       |      |  |         |       |  |  |         |         | 
|-------- | ------------- |  | ----------------------- | ----- | ---- |  | ------- | ----- |  |  | ------- | ------- | 
|         |               |  | Year Ended December 31,
|         |               |  |                        
|         |               |  | 2000                    |       | 2001 |  | 2002   
|         |               |  |                         |       |      |  |        
|         |               |  | ( in millions)        
|Turnover |               |  |                         |       |      |  |         |       |  |  |         |        
|         | Ineos Oxide   |  |                         | 337.0 |      |  |         | 432.1 |  |  |         | 507.4   | 
|         | Ineos Phenol  |  |                         |      |      |  |         | 576.2 |  |  |         | 1,189.0 | 
|         | Ineos Fluor   |  |                         |      |      |  |         | 299.5 |  |  |         | 304.8   | 
|         | Ineos Silicas |  |                         |      |      |  |         | 222.9 |  |  |         | 234.6   | 
|         |               |  |                         |       |      |  |         |       |  |  |         |        
|         |               |  | 337.0                   |       |      |  | 1,530.7 |       |  |  | 2,235.8 |        
|         |               |  |                         |       |      |  |         |       |  |  |         |        
|EBITDA   |               |  |                         |       |      |  |         |       |  |  |         |        
|         | Ineos Oxide   |  |                         | 52.8  |      |  |         | 68.3  |  |  |         | 76.5    | 
|         | Ineos Phenol  |  |                         |      |      |  |         | 29.6  |  |  |         | 80.7    | 
|         | Ineos Fluor   |  |                         |      |      |  |         | 53.0  |  |  |         | 57.9    | 
|         | Ineos Silicas |  |                         |      |      |  |         | 28.5  |  |  |         | 41.1    | 
|         |               |  |                         |       |      |  |         |       |  |  |         |        
|         |               |  | 52.8                    |       |      |  | 179.4   |       |  |  | 256.2   |        
|         |               |  |                         |       |      |  |         |       |  |  |         |        

Reconciliation of earnings before operating exceptional items, interest,
taxes, depreciation and amortisation (EBITDA) to operating profit:

|                                                                    |  |                         |      |      |  |      |        |   |  |  |        |  
|------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                                    |  | Year Ended December 31,
|                                                                    |  |                        
|                                                                    |  | 2000                    |      | 2001 |  | 2002
|                                                                    |  |                         |      |      |  |     
|                                                                    |  | ( in millions)        
|EBITDA                                                              |  |                         | 52.8 |      |  |      | 179.4  |   |  |  | 256.2  |  
|Exceptional administrative expenses                                 |  |                         |     |      |  |      | (19.6  | ) |  |  | (24.6  | )
|Depreciation                                                        |  |                         | (6.4 | )    |  |      | (110.9 | ) |  |  | (114.8 | )
|Amortisation                                                        |  |                         | (1.3 | )    |  |      | 33.5   |   |  |  | 33.4   |  
|                                                                    |  |                         |      |      |  |      |        |   |  |  |        |  
|Operating profit (including share
of operating profit of associate) |  |                         | 45.1 |      |  |      | 82.4   |   |  |  | 150.2  |  
|                                                                    |  |                         |      |      |  |      |        |   |  |  |        |  

|           |                |  |                         |       |      |  |      |       |  
|---------- | -------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -
|           |                |  | Year Ended December 31,
|           |                |  |                        
|           |                |  | 2001                    |       | 2002
|           |                |  |                         |       |     
|           |                |  | ( in millions)        
|Net assets |                |  |                         |       |      |  |      |      
|           | Ineos Oxide    |  |                         | 67.3  |      |  |      | 114.2 |  
|           | Ineos Phenol   |  |                         | (21.7 | )    |  |      | 21.4  |  
|           | Ineos Fluor    |  |                         | (7.6  | )    |  |      | (23.8 | )
|           | Ineos Silicas  |  |                         | (15.3 | )    |  |      | (20.2 | )
|           | Ineos Holdings |  |                         | (5.1  | )    |  |      | (79.3 | )
|           |                |  |                         |       |      |  |      |      
|           |                |  | 17.6                    |       |      |  | 12.3 |      
|           |                |  |                         |       |      |  |      |      

F-12



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|4. |  | SEGMENT INFORMATION (Continued)
|-- |  | -------------------------------

|                    |               |  |                         |      |      |  |      |      | 
|------------------- | ------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | 
|                    |               |  | Year Ended December 31,
|                    |               |  |                        
|                    |               |  | 2001                    |      | 2002
|                    |               |  |                         |      |     
|                    |               |  | ( in millions)        
|Capital expenditure |               |  |                         |      |      |  |      |     
|                    | Ineos Oxide   |  |                         | 14.6 |      |  |      | 13.0 | 
|                    | Ineos Phenol  |  |                         | 8.4  |      |  |      | 23.0 | 
|                    | Ineos Fluor   |  |                         | 7.8  |      |  |      | 9.1  | 
|                    | Ineos Silicas |  |                         | 10.8 |      |  |      | 11.9 | 
|                    |               |  |                         |      |      |  |      |     
|                    |               |  | 41.6                    |      |      |  | 57.0 |     
|                    |               |  |                         |      |      |  |      |     



| |  | Geographical analysis
| |  | ---------------------

The directors of the Company are of the opinion that disclosure of
operating profit and net assets by geographical location would be seriously
prejudicial to the interests of the Company. Accordingly, they have elected to
exercise the exemption from such disclosure permitted by Statement of Standard
Accounting Practice No. 25 (SSAP 25) Segmental Reporting.

Turnover by geographical destination is as follows:

|              |  |                         |       |      |  |      |         |  |  |  |         | 
|------------- |  | ----------------------- | ----- | ---- |  | ---- | ------- |  |  |  | ------- | 
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2000                    |       | 2001 |  | 2002
|              |  |                         |       |      |  |     
|              |  | ( in millions)        
|Europe        |  |                         | 318.8 |      |  |      | 978.6   |  |  |  | 1,534.1 | 
|Americas      |  |                         | 8.1   |      |  |      | 318.6   |  |  |  | 450.0   | 
|Rest of World |  |                         | 10.1  |      |  |      | 233.5   |  |  |  | 251.7   | 
|              |  |                         |       |      |  |      |         |  |  |  |         | 
|              |  |                         | 337.0 |      |  |      | 1,530.7 |  |  |  | 2,235.8 | 
|              |  |                         |       |      |  |      |         |  |  |  |         | 

Turnover by geographical origin is as follows:

|              |  |                         |       |      |  |      |         |  |  |  |         | 
|------------- |  | ----------------------- | ----- | ---- |  | ---- | ------- |  |  |  | ------- | 
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2000                    |       | 2001 |  | 2002
|              |  |                         |       |      |  |     
|              |  | ( in millions)        
|Europe        |  |                         | 337.0 |      |  |      | 1,063.0 |  |  |  | 1,642.5 | 
|Americas      |  |                         |      |      |  |      | 389.7   |  |  |  | 511.5   | 
|Rest of World |  |                         |      |      |  |      | 78.0    |  |  |  | 81.8    | 
|              |  |                         |       |      |  |      |         |  |  |  |         | 
|              |  |                         | 337.0 |      |  |      | 1,530.7 |  |  |  | 2,235.8 | 
|              |  |                         |       |      |  |      |         |  |  |  |         | 

Long lived assets by geographical location is as follows:

|              |  |                         |       |      |  |  |       | 
|------------- |  | ----------------------- | ----- | ---- |  |  | ----- | 
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2001                    |       | 2002
|              |  |                         |       |     
|              |  | ( in millions)        
|Europe        |  |                         | 413.4 |      |  |  | 451.5 | 
|Americas      |  |                         | 257.7 |      |  |  | 204.2 | 
|Rest of World |  |                         | 113.2 |      |  |  | 63.8  | 
|              |  |                         |       |      |  |  |       | 
|              |  |                         | 784.3 |      |  |  | 719.5 | 
|              |  |                         |       |      |  |  |       | 

F-13



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|4. |  | SEGMENT INFORMATION (Continued)
|-- |  | -------------------------------
|  
|   |  | Major customers                

No single customer represented more than ten percent of the Companys
turnover in any of the three years ended December 31, 2002.



|5. |  | ADMINISTRATIVE EXPENSES
|-- |  | -----------------------

|                                  |  |                         |     |      |  |      |       |   |  |  |       |  
|--------------------------------- |  | ----------------------- | --- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                  |  | Year Ended December 31,
|                                  |  |                        
|                                  |  | 2000                    |     | 2001 |  | 2002
|                                  |  |                         |     |      |  |     
|                                  |  | ( in millions)        
|Administrative expenses           |  |                         | 8.5 |      |  |      | 103.4 |   |  |  | 100.7 |  
|Amortisation of negative goodwill |  |                         |    |      |  |      | (34.7 | ) |  |  | (34.8 | )
|                                  |  |                         |     |      |  |      |       |   |  |  |       |  
|                                  |  |                         | 8.5 |      |  |      | 68.7  |   |  |  | 65.9  |  
|                                  |  |                         |     |      |  |      |       |   |  |  |       |  






|6. |  | EXCEPTIONAL ADMINISTRATIVE EXPENSES
|-- |  | -----------------------------------

The Company incurred 24.6 million (2001: 19.6 million) of exceptional
administrative expenses, which mainly related to business restructuring and the
provision for severance payments. These expenses were incurred by our business
segments as shown below:

|              |  |                         |   |      |  |      |      |  |  |  |      | 
|------------- |  | ----------------------- | - | ---- |  | ---- | ---- |  |  |  | ---- | 
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2000                    |   | 2001 |  | 2002
|              |  |                         |   |      |  |     
|              |  | ( in millions)        
|Ineos Oxide   |  |                         |  |      |  |      | 0.4  |  |  |  | 0.1  | 
|Ineos Phenol  |  |                         |  |      |  |      | 6.5  |  |  |  | 6.1  | 
|Ineos Fluor   |  |                         |  |      |  |      | 5.7  |  |  |  | 1.7  | 
|Ineos Silicas |  |                         |  |      |  |      | 7.0  |  |  |  | 16.7 | 
|              |  |                         |   |      |  |      |      |  |  |  |      | 
|              |  |                         |  |      |  |      | 19.6 |  |  |  | 24.6 | 
|              |  |                         |   |      |  |      |      |  |  |  |      | 



|7. |  | OPERATING PROFIT
|-- |  | ----------------

This is stated after charging/(crediting):

|                                       |                                  |  |                         |     |      |  |       |       |  |  |       |       | 
|-------------------------------------- | -------------------------------- |  | ----------------------- | --- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                       |                                  |  | Year Ended December 31,
|                                       |                                  |  |                        
|                                       |                                  |  | 2000                    |     | 2001 |  | 2002 
|                                       |                                  |  |                         |     |      |  |      
|                                       |                                  |  | ( in millions)        
|Depreciation of tangible fixed assets: |                                  |  |                         |     |      |  |       |       |  |  |       |      
|                                       | owned assets                    |  |                         | 6.4 |      |  |       | 109.8 |  |  |       | 114.1 | 
|                                       | finance leased assets           |  |                         |    |      |  |       | 1.1   |  |  |       | 0.7   | 
|Amortisation of goodwill               |                                  |  | 0.6                     |     |      |  | 0.6   |       |  |  | 0.8   |      
|Write back of negative goodwill        |                                  |  |                        |     |      |  | (34.7 | )     |  |  | (34.8 | )    
|Amortisation of other intangibles      |                                  |  | 0.7                     |     |      |  | 0.6   |       |  |  | 0.6   |      
|Employee costs (see Note 10)           |                                  |  | 39.6                    |     |      |  | 158.2 |       |  |  | 188.1 |      
|Research and development expenditure   |                                  |  | 0.7                     |     |      |  | 11.6  |       |  |  | 9.7   |      
|Auditors remuneration:                |                                  |  |                         |     |      |  |       |       |  |  |       |      
|                                       |  audit services                 |  |                         | 0.2 |      |  |       | 0.7   |  |  |       | 0.7   | 
|                                       |  non audit services             |  |                         | 0.2 |      |  |       | 1.3   |  |  |       | 0.6   | 
|Operating lease rental charges:        |                                  |  |                         |     |      |  |       |       |  |  |       |      
|                                       |  other                          |  |                         |    |      |  |       | 7.4   |  |  |       | 1.4   | 
|                                       |  plant, machinery and equipment |  |                         | 1.4 |      |  |       | 5.0   |  |  |       | 8.2   | 
|Amortisation of government grants      |                                  |  | (0.1                    | )   |      |  | (1.3  | )     |  |  | (0.2  | )    
|                                       |                                  |  |                         |     |      |  |       |       |  |  |       |      

F-14



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|7. |  | OPERATING PROFIT (Continued)
|-- |  | ----------------------------

Directors emoluments

|                     |  |                         |     |      |  |      |     |  |  |  |     | 
|-------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                     |  | Year Ended December 31,
|                     |  |                        
|                     |  | 2000                    |     | 2001 |  | 2002
|                     |  |                         |     |      |  |     
|                     |  | ( in millions)        
|Aggregate emoluments |  |                         | 0.8 |      |  |      | 0.8 |  |  |  | 1.1 | 
|                     |  |                         |     |      |  |      |     |  |  |  |     | 

The total amount of emoluments payable to the highest paid director for
the year ended December 31, 2000, the year ended December 31, 2001 and for the
year ended December 31, 2002, are as follows:

|                      |  |                         |     |      |  |      |     |  |  |  |     | 
|--------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                      |  | Year Ended December 31,
|                      |  |                        
|                      |  | 2000                    |     | 2001 |  | 2002
|                      |  |                         |     |      |  |     
|                      |  | ( in millions)        
|Highest paid director |  |                         | 0.4 |      |  |      | 0.4 |  |  |  | 0.4 | 
|                      |  |                         |     |      |  |      |     |  |  |  |     | 

Retirement benefits are accruing to two (2001: two; 2000: one) directors
under a money purchase scheme. Two (2001: two: 2000: one) directors have
retirement benefits accruing under a defined benefit scheme. The Company paid
pension contributions of 38,000 (2001: 39,000; 2000: 35,000) into a personal
pension scheme in respect of the highest paid director.



|8. |  | PROFIT ON DISPOSAL OF FIXED ASSETS
|-- |  | ----------------------------------

|                                          |  |                 |   |      |  |      |   |  |  |  |      |  
|----------------------------------------- |  | --------------- | - | ---- |  | ---- | - |  |  |  | ---- | -
|                                          |  | 2000            |   | 2001 |  | 2002
|                                          |  |                 |   |      |  |     
|                                          |  | ( in millions)
|Write off of tangible fixed assets        |  |                 |  |      |  |      |  |  |  |  | (7.0 | )
|Write off of associated negative goodwill |  |                 |  |      |  |      |  |  |  |  | 5.2  |  
|Net proceeds received                     |  |                 |  |      |  |      |  |  |  |  | 3.7  |  
|                                          |  |                 |   |      |  |      |   |  |  |  |      |  
|                                          |  |                 |  |      |  |      |  |  |  |  | 1.9  |  
|                                          |  |                 |   |      |  |      |   |  |  |  |      |  

On September 9, 2002 the cleavage unit of the Ineos Phenol plant in
Mobile, USA was destroyed by an explosion and fire. A total of $5 million has
been received on account from the insurers in respect of the insurance claim.
The amount received (net of disposal costs) has been accounted for as proceeds
on the disposal of tangible fixed assets. No amounts have been received from
the insurers by December 31, 2002 in respect of increased costs of working or
consequential loss of profits. The claims remain to be finalised with the
insurers. Additional amounts received will be accounted for in the 2003
financial year.

F-15



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|9. |  | NET FINANCE CHARGES
|-- |  | -------------------

|                                              |  |                         |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                              |  | Year Ended December 31,
|                                              |  |                        
|                                              |  | 2000                    |      | 2001 |  | 2002
|                                              |  |                         |      |      |  |     
|                                              |  | ( in millions)        
|Interest payable on senior secured notes      |  |                         | 8.4  |      |  |      | 2.8  |   |  |  |     |  
|Interest payable on senior notes              |  |                         |     |      |  |      | 12.4 |   |  |  | 27.2 |  
|Interest payable on bank loans and overdrafts |  |                         | 0.7  |      |  |      | 51.3 |   |  |  | 44.0 |  
|Interest payable on other loans               |  |                         | 0.5  |      |  |      |     |   |  |  |     |  
|Interest payable on deferred consideration    |  |                         |     |      |  |      | 3.8  |   |  |  | 6.9  |  
|Amortisation of issue costs                   |  |                         | 0.7  |      |  |      | 1.9  |   |  |  | 6.8  |  
|Interest payable on finance leases            |  |                         |     |      |  |      | 0.4  |   |  |  | 0.4  |  
|Other                                         |  |                         |     |      |  |      | 2.2  |   |  |  |     |  
|                                              |  |                         |      |      |  |      |      |   |  |  |      |  
|                                              |  |                         | 10.3 |      |  |      | 74.8 |   |  |  | 85.3 |  
|Exchange movements                            |  |                         | 0.4  |      |  |      | (3.8 | ) |  |  | (2.5 | )
|Interest receivable                           |  |                         | (0.8 | )    |  |      | (2.3 | ) |  |  | (3.0 | )
|                                              |  |                         |      |      |  |      |      |   |  |  |      |  
|                                              |  |                         | 9.9  |      |  |      | 68.7 |   |  |  | 79.8 |  
|                                              |  |                         |      |      |  |      |      |   |  |  |      |  

Exceptional finance charges

|                            |  |                         |   |      |  |      |      |  |  |  |   | 
|--------------------------- |  | ----------------------- | - | ---- |  | ---- | ---- |  |  |  | - | 
|                            |  | Year Ended December 31,
|                            |  |                        
|                            |  | 2000                    |   | 2001 |  | 2002
|                            |  |                         |   |      |  |     
|                            |  | ( in millions)        
|Exceptional finance charges |  |                         |  |      |  |      | 40.9 |  |  |  |  | 
|                            |  |                         |   |      |  |      |      |  |  |  |   | 

The exceptional finance charges in 2001 related to the early repayment of
previous financing and bridge loan break costs, the write off of the associated
unamortised debt issue costs and bridge facility costs, the Tender Offer
premium and the write off of unamortised debt issue costs on the partial early
repayment of the senior credit facility.



|10. |  | EMPLOYEE COSTS
|--- |  | --------------

|                                     |                                    |       |  |                         |      |      |  |       |       |  |  |       |       | 
|------------------------------------ | ---------------------------------- | ----- |  | ----------------------- | ---- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                     |                                    |       |  | Year Ended December 31,
|                                     |                                    |       |  |                        
|                                     |                                    |       |  | 2000                    |      | 2001 |  | 2002 
|                                     |                                    |       |  |                         |      |      |  |      
|                                     |                                    |       |  | ( in millions)        
|Staff costs comprise:                |                                    |       |  |                         |      |      |  |       |       |  |  |      
|                                     | Wages and salaries                 |       |  | 28.4                    |      |      |  | 125.2 |       |  |  | 155.6 |      
|                                     | Social security and other benefits |       |  | 10.5                    |      |      |  | 23.0  |       |  |  | 20.4  |      
|                                     | Pension and early retirement costs |       |  | 0.7                     |      |      |  | 10.0  |       |  |  | 12.1  |      
|                                     |                                    |       |  |                         |      |      |  |       |       |  |  |      
|                                     |                                    | Total |  |                         | 39.6 |      |  |       | 158.2 |  |  |       | 188.1 | 
|                                     |                                    |       |  |                         |      |      |  |       |       |  |  |      
|The average number of employees was: |                                    |       |  |                         |      |      |  |       |       |  |  |      
|                                     | Operations                         |       |  | 420                     |      |      |  | 2,274 |       |  |  | 1,904 |      
|                                     | Administration                     |       |  | 46                      |      |      |  | 274   |       |  |  | 471   |      
|                                     | Research and development           |       |  | 7                       |      |      |  | 159   |       |  |  | 120   |      
|                                     |                                    |       |  |                         |      |      |  |       |       |  |  |      
|                                     |                                    | Total |  |                         | 473  |      |  |       | 2,707 |  |  |       | 2,495 | 
|                                     |                                    |       |  |                         |      |      |  |       |       |  |  |      

F-16



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|11. |  | TAXATION
|--- |  | --------

Analysis of charge/(credit) in period:

|                                               |  |                 |      |      |  |      |       |   |  |  |      |  
|---------------------------------------------- |  | --------------- | ---- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                               |  | 2000            |      | 2001 |  | 2002
|                                               |  |                 |      |      |  |     
|                                               |  | ( in millions)
|United Kingdom                                 |  |                 |      |      |  |      |       |   |  |  |      |  
|Corporation tax at 30%                         |  |                 | 6.6  |      |  |      | 0.1   |   |  |  | 7.2  |  
|Adjustments in respect of previous periods     |  |                 | (1.2 | )    |  |      |      |   |  |  |     |  
|Double taxation relief                         |  |                 |     |      |  |      | (0.1  | ) |  |  | (7.2 | )
|                                               |  |                 |      |      |  |      |       |   |  |  |      |  
|                                               |  |                 | 5.4  |      |  |      |      |   |  |  |     |  
|Foreign tax                                    |  |                 |      |      |  |      |       |   |  |  |      |  
|Corporation taxes                              |  |                 | 2.2  |      |  |      | 7.7   |   |  |  | 16.1 |  
|Adjustments in respect of previous periods     |  |                 |     |      |  |      |      |   |  |  | (2.9 | )
|                                               |  |                 |      |      |  |      |       |   |  |  |      |  
|Total current tax                              |  |                 | 7.6  |      |  |      | 7.7   |   |  |  | 13.2 |  
|Deferred tax                                   |  |                 |      |      |  |      |       |   |  |  |      |  
|Origination and reversal of timing differences |  |                 |     |      |  |      | (13.8 | ) |  |  | 18.8 |  
|Adjustments in respect of previous periods     |  |                 |     |      |  |      |      |   |  |  | 5.1  |  
|                                               |  |                 |      |      |  |      |       |   |  |  |      |  
|Total deferred tax                             |  |                 |     |      |  |      | (13.8 | ) |  |  | 23.9 |  
|                                               |  |                 |      |      |  |      |       |   |  |  |      |  
|Tax on profit/(loss) on ordinary activities    |  |                 | 7.6  |      |  |      | (6.1  | ) |  |  | 37.1 |  
|                                               |  |                 |      |      |  |      |       |   |  |  |      |  

The tax for the period is lower (2001:higher; 2000: lower) than the
standard rate of corporation tax in the UK (30%). The differences are
explained below:

|                                                                                                          |  |                 |      |      |  |      |       |   |  |  |       |  
|--------------------------------------------------------------------------------------------------------- |  | --------------- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                          |  | 2000            |      | 2001 |  | 2002
|                                                                                                          |  |                 |      |      |  |     
|                                                                                                          |  | ( in millions)
|Profit/(loss) on ordinary activities before tax                                                           |  |                 | 35.2 |      |  |      | (27.2 | ) |  |  | 72.3  |  
|                                                                                                          |  |                 |      |      |  |      |       |   |  |  |       |  
|Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK of
30% (2001: 30%) |  |                 | 10.5 |      |  |      | (8.2  | ) |  |  | 21.7  |  
|Effects of:                                                                                               |  |                 |      |      |  |      |       |   |  |  |       |  
|Expenses not deductible for tax purposes                                                                  |  |                 | 0.5  |      |  |      | (9.2  | ) |  |  | (22.7 | )
|Capital allowances in excess of depreciation                                                              |  |                 |     |      |  |      | (2.3  | ) |  |  | (8.0  | )
|Other short term timing differences                                                                       |  |                 | (1.7 | )    |  |      | 15.9  |   |  |  | (10.8 | )
|Adjustment in respect of foreign tax rates                                                                |  |                 | 1.4  |      |  |      | 1.3   |   |  |  | 7.4   |  
|Deferred tax not provided                                                                                 |  |                 | (1.9 | )    |  |      | 10.2  |   |  |  | 28.5  |  
|Adjustments in respect of previous periods                                                                |  |                 | (1.2 | )    |  |      |      |   |  |  | (2.9  | )
|                                                                                                          |  |                 |      |      |  |      |       |   |  |  |       |  
|Tax charge for the year                                                                                   |  |                 | 7.6  |      |  |      | 7.7   |   |  |  | 13.2  |  
|                                                                                                          |  |                 |      |      |  |      |       |   |  |  |       |  

No deferred tax is recognised on the unremitted earnings of overseas
subsidiaries and associates. As the earnings are continually reinvested by the
group, no tax is expected to be payable on them in the foreseeable future.
Deferred tax has been recognised in respect of taxation losses as indicated in
note 23. Future tax charges may be affected by the realisation of taxation
losses not recognised at the balance sheet date.



|12. |  | DIVIDENDS
|--- |  | ---------

|                                   |  |                         |   |      |  |      |   |  |  |  |   | 
|---------------------------------- |  | ----------------------- | - | ---- |  | ---- | - |  |  |  | - | 
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2000                    |   | 2001 |  | 2002
|                                   |  |                         |   |      |  |     
|                                   |  | ( in millions)        
|Equity dividends paid and proposed |  |                         |  |      |  |      |  |  |  |  |  | 
|                                   |  |                         |   |      |  |      |   |  |  |  |   | 

F-17



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|13. |  | INVESTMENTS
|--- |  | -----------

|                     |                           |  |                 |      |             |  |       |     |  |  |     |      |  
|-------------------- | ------------------------- |  | --------------- | ---- | ----------- |  | ----- | --- |  |  | --- | ---- | -
|                     |                           |  | Associated      |      | Other       |  |       |     | 
|                     |                           |  | Undertakings    |      | Investments |  | Total
|                     |                           |  |                 |      |             |  |      
|                     |                           |  | ( in millions)
|At December 31, 2001 |                           |  | 0.8             |      |             |  | 1.3   |     |  |  | 2.1 |     
|                     | Exchange movements        |  |                 | (0.4 | )           |  |       | 0.1 |  |  |     | (0.3 | )
|                     | Share of profits retained |  |                 |     |             |  |       |    |  |  |     |     |  
|                     |                           |  |                 |      |             |  |       |     |  |  |     |     
|At December 31, 2002 |                           |  | 0.4             |      |             |  | 1.4   |     |  |  | 1.8 |     
|                     |                           |  |                 |      |             |  |       |     |  |  |     |     

The other investments relate to a 1% investment in ELA GmbH, a 0.1%
investment in Envera LLC and a 4.1% shareholding in Indaver NV. Indaver NV is
a company registered in Belgium which specialises in the treatment and disposal
of chemical waste and environmental cleaning. The associated undertakings
investment relates to a holding in Quaker Chemical South Africa (Proprietary)
Limited.

There are no readily available quoted market prices for the investments in
ELA GmbH and Envera LLC.

Details of the investment in associated undertakings is set out below:

|                                                                |  |                        |  |                 |    |                      |  |                                                            
|--------------------------------------------------------------- |  | ---------------------- |  | --------------- | -- | -------------------- |  | -----------------------------------------------------------
|Associate/Company                                               |  | Class of shares held   |  | Percentage held |    | Principal Activities
|                                                                |  |                        |  |                 |    |                     
|Quaker Chemical South
Africa (Proprietary)
LimitedSouth Africa |  | 20,000 Ordinary Rand 1 |  |                 | 49 | %                    |  | Formulates and markets
chemicals and
specialised lubricants

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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|14. |  | TANGIBLE FIXED ASSETS
|--- |  | ---------------------

|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |         |  
|------------------------ | ---------------------------------- |  | --------------- | ----- | -------------- |  | ------------- | ------- | ----- |  | ---- | ----- | - |  | ------- | ------- | -
|                         |                                    |  |                 |       |                |  | Plant,        |         |       |  |      |       |   |  |        
|                         |                                    |  |                 |       |                |  | Machinery,    |         |       |  |      |       |   |  |        
|                         |                                    |  | Freehold        |       | Fixtures,      |  | Assets in the |         |       |  |     
|                         |                                    |  | Land and        |       | Fittings and   |  | course of     |         |       |  |     
|                         |                                    |  | Buildings       |       | Motor Vehicles |  | construction  |         | Total
|                         |                                    |  |                 |       |                |  |               |         |      
|                         |                                    |  | ( in millions)
|Cost                     |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2000     |                                    |  | 78.9            |       |                |  | 196.0         |         |       |  | 16.8 |       |   |  | 291.7   |        
|                         | Acquisitions                       |  |                 | 126.3 |                |  |               | 1,281.7 |       |  |      | 31.8  |   |  |         | 1,439.8 |  
|                         | Additions                          |  |                 | 6.4   |                |  |               | 14.8    |       |  |      | 20.4  |   |  |         | 41.6    |  
|                         | Disposals                          |  |                 | (0.1  | )              |  |               | (2.2    | )     |  |      |      |   |  |         | (2.3    | )
|                         | Transfers                          |  |                 | 1.8   |                |  |               | 28.6    |       |  |      | (30.4 | ) |  |         |        |  
|                         | Exchange adjustments               |  |                 | 0.9   |                |  |               | 7.7     |       |  |      |      |   |  |         | 8.6     |  
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2001     |                                    |  | 214.2           |       |                |  | 1,526.6       |         |       |  | 38.6 |       |   |  | 1,779.4 |        
|                         | Acquisitions                       |  |                 |      |                |  |               | 1.2     |       |  |      |      |   |  |         | 1.2     |  
|                         | Additions                          |  |                 | 0.6   |                |  |               | 36.1    |       |  |      | 20.3  |   |  |         | 57.0    |  
|                         | Disposals                          |  |                 |      |                |  |               | (20.9   | )     |  |      | (0.5  | ) |  |         | (21.4   | )
|                         | Transfers                          |  |                 | 0.7   |                |  |               | 25.2    |       |  |      | (25.9 | ) |  |         |        |  
|                         | Exchange adjustments               |  |                 | (9.4  | )              |  |               | (91.1   | )     |  |      | (0.9  | ) |  |         | (101.4  | )
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2002     |                                    |  | 206.1           |       |                |  | 1,477.1       |         |       |  | 31.6 |       |   |  | 1,714.8 |        
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|Accumulated Depreciation |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2000     |                                    |  | 34.7            |       |                |  | 149.9         |         |       |  |     |       |   |  | 184.6   |        
|                         | Acquisitions                       |  |                 | 15.1  |                |  |               | 336.6   |       |  |      |      |   |  |         | 351.7   |  
|                         | Charge for the period              |  |                 | 6.0   |                |  |               | 96.9    |       |  |      |      |   |  |         | 102.9   |  
|                         | Exceptional charge for the period  |  |                 |      |                |  |               | 8.0     |       |  |      |      |   |  |         | 8.0     |  
|                         | Effects of disposals in the period |  |                 |      |                |  |               | (1.9    | )     |  |      |      |   |  |         | (1.9    | )
|                         | Exchange adjustments               |  |                 | (0.1  | )              |  |               | (1.4    | )     |  |      |      |   |  |         | (1.5    | )
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2001     |                                    |  | 55.7            |       |                |  | 588.1         |         |       |  |     |       |   |  | 643.8   |        
|                         | Charge for the period              |  |                 | 5.6   |                |  |               | 109.2   |       |  |      |      |   |  |         | 114.8   |  
|                         | Effects of disposals in the period |  |                 |      |                |  |               | (13.2   | )     |  |      |      |   |  |         | (13.2   | )
|                         | Exchange adjustments               |  |                 | (0.6  | )              |  |               | (17.8   | )     |  |      |      |   |  |         | (18.4   | )
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2002     |                                    |  | 60.7            |       |                |  | 666.3         |         |       |  |     |       |   |  | 727.0   |        
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|Net Book Amount          |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2002     |                                    |  | 145.4           |       |                |  | 810.8         |         |       |  | 31.6 |       |   |  | 987.8   |        
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        
|At December 31, 2001     |                                    |  | 158.5           |       |                |  | 938.5         |         |       |  | 38.6 |       |   |  | 1,135.6 |        
|                         |                                    |  |                 |       |                |  |               |         |       |  |      |       |   |  |         |        

Included in the above are assets held under hire purchase and finance
leases with a net book value of 0.5 million (2001: 1.3 million).

F-19



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|15. |  | INTANGIBLE FIXED ASSETS
|--- |  | -----------------------

|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |        |  
|---------------------- | ---------------------------------- |  | --------------- | ---- | ------- |  | ---- | --- | -------- |  | -------- | ---- | - |  | -------- | ---- | - |  | ------ | ------ | -
|                       |                                    |  |                 |      |         |  | Non  |     | Licenses |  |          |      |   |  | Negative
|                       |                                    |  | Goodwill        |      | Compete |  | Fees |     | Total    |  | Goodwill
|                       |                                    |  |                 |      |         |  |      |     |          |  |         
|                       |                                    |  | ( in millions)
|Cost                   |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2000   |                                    |  | 11.9            |      |         |  | 2.3  |     |          |  |         |      |   |  | 14.2     |      |   |  |       |       
|                       | Additions                          |  |                 | 1.7  |         |  |      |    |          |  |          |     |   |  |          | 1.7  |   |  |        | (397.1 | )
|                       | Acquisitions                       |  |                 |     |         |  |      |    |          |  |          | 2.6  |   |  |          | 2.6  |   |  |        |       |  
|                       | Exchange adjustments               |  |                 | 0.1  |         |  |      |    |          |  |          |     |   |  |          | 0.1  |   |  |        | (4.2   | )
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2001   |                                    |  | 13.7            |      |         |  | 2.3  |     |          |  | 2.6      |      |   |  | 18.6     |      |   |  | (401.3 | )     
|                       | Additions                          |  |                 | 0.6  |         |  |      |    |          |  |          |     |   |  |          | 0.6  |   |  |        |       |  
|                       | Disposals                          |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | 6.0    |  
|                       | Acquisitions                       |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | 8.7    |  
|                       | Exchange adjustments               |  |                 | (0.1 | )       |  |      |    |          |  |          | (0.2 | ) |  |          | (0.3 | ) |  |        | 41.8   |  
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2002   |                                    |  | 14.2            |      |         |  | 2.3  |     |          |  | 2.4      |      |   |  | 18.9     |      |   |  | (344.8 | )     
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|Aggregate Amortisation |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2000   |                                    |  | 1.5             |      |         |  | 0.8  |     |          |  |         |      |   |  | 2.3      |      |   |  |       |       
|                       | Charge for the period              |  |                 | 0.6  |         |  |      | 0.5 |          |  |          | 0.1  |   |  |          | 1.2  |   |  |        | (26.7  | )
|                       | Exceptional charges for the period |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | (8.0   | )
|                       | Exchange adjustments               |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | (0.2   | )
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2001   |                                    |  | 2.1             |      |         |  | 1.3  |     |          |  | 0.1      |      |   |  | 3.5      |      |   |  | (34.9  | )     
|                       | Charge for the period              |  |                 | 0.8  |         |  |      | 0.4 |          |  |          | 0.2  |   |  |          | 1.4  |   |  |        | (34.8  | )
|                       | Disposals                          |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | 0.8    |  
|                       | Exchange adjustments               |  |                 |     |         |  |      |    |          |  |          |     |   |  |          |     |   |  |        | 6.4    |  
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2002   |                                    |  | 2.9             |      |         |  | 1.7  |     |          |  | 0.3      |      |   |  | 4.9      |      |   |  | (62.5  | )     
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|Net Book Amount        |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2002   |                                    |  | 11.3            |      |         |  | 0.6  |     |          |  | 2.1      |      |   |  | 14.0     |      |   |  | (282.3 | )     
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       
|At December 31, 2001   |                                    |  | 11.6            |      |         |  | 1.0  |     |          |  | 2.5      |      |   |  | 15.1     |      |   |  | (366.4 | )     
|                       |                                    |  |                 |      |         |  |      |     |          |  |          |      |   |  |          |      |   |  |        |       

Goodwill arising on the acquisitions of Inspec Belgium NV, the Antifreeze
business from BP Amoco in 1999, the Ethanolamines business from The Dow
Chemical Company and the Acetate Esters business from BP Belgium is being
amortised on a straight line basis over 20 years. This period is that over
which the directors estimate that the value of the underlying businesses
acquired are expected to exceed the value of the underlying assets.

The license fees represent amounts paid for the process of homogeneous
clearage of cumene hydroperoxide into its products. These license fees are
being amortised by equal annual instalments over 15 years, being the period of
the agreement.

The non-compete intangible asset relates to the Antifreeze acquisition and
is being amortised on a straight line basis over 5 years, being the period of
the non-compete agreement which started in 1999.

Negative goodwill arising on the acquisition of Ineos Fluor and Ineos
Silicas, and Ineos Phenol is being amortised on a straight line basis over 5 to
15 years. This period represents that over which the non monetary assets are
recovered, whether through depreciation or sale.

As a result of the incident at the Mobile, USA plant, negative goodwill
with a net book value of 5.2 million has been written off. See note 8 for
further details.

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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|16. |  | STOCKS
|--- |  | ------

|                              |  |                 |       |      |  |  |       | 
|----------------------------- |  | --------------- | ----- | ---- |  |  | ----- | 
|                              |  | 2001            |       | 2002
|                              |  |                 |       |     
|                              |  | ( in millions)
|Raw materials and consumables |  |                 | 50.8  |      |  |  | 54.5  | 
|Work in progress              |  |                 | 11.7  |      |  |  | 12.7  | 
|Finished products             |  |                 | 89.8  |      |  |  | 95.2  | 
|                              |  |                 |       |      |  |  |       | 
|                              |  |                 | 152.3 |      |  |  | 162.4 | 
|                              |  |                 |       |      |  |  |       | 



|17. |  | DEBTORS
|--- |  | -------

|                                     |  |                 |       |      |  |  |       | 
|------------------------------------ |  | --------------- | ----- | ---- |  |  | ----- | 
|                                     |  | 2001            |       |      |  | 
|                                     |  | (restated)      |       | 2002
|                                     |  |                 |       |     
|                                     |  | ( in millions)
|Amounts due within one year          |  |                 |       |      |  |  |       | 
|Trade debtors                        |  |                 | 257.5 |      |  |  | 292.7 | 
|Amounts owed by related parties      |  |                 | 2.8   |      |  |  | 0.5   | 
|Other debtors                        |  |                 | 22.5  |      |  |  | 21.7  | 
|Finance lease receivables            |  |                 | 2.4   |      |  |  |      | 
|Prepayments and accrued income       |  |                 | 23.7  |      |  |  | 11.4  | 
|                                     |  |                 |       |      |  |  |       | 
|                                     |  |                 | 308.9 |      |  |  | 326.3 | 
|                                     |  |                 |       |      |  |  |       | 
|Amounts due after more than one year |  |                 |       |      |  |  |       | 
|Amounts owed by related parties      |  |                 | 14.0  |      |  |  | 14.0  | 
|Other debtors                        |  |                 | 1.4   |      |  |  | 0.4   | 
|Prepayments and accrued income       |  |                 | 15.8  |      |  |  | 30.4  | 
|Deferred taxation                    |  |                 | 27.8  |      |  |  | 3.9   | 
|                                     |  |                 |       |      |  |  |       | 
|                                     |  |                 | 59.0  |      |  |  | 48.7  | 
|                                     |  |                 |       |      |  |  |       | 

Trade debtors at December 31, 2002, are stated net of an allowance for
doubtful trade debtors of 8.3 million (2001: 7.2 million).



|18. |  | CREDITORSAMOUNTS FALLING DUE WITHIN ONE YEAR
|--- |  | ---------------------------------------------

|                                 |  |                 |       |      |  |  |       | 
|-------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | 
|                                 |  | 2001            |       | 2002
|                                 |  |                 |       |     
|                                 |  | ( in millions)
|Bank overdraft                   |  |                 | 1.7   |      |  |  | 0.1   | 
|Senior secured notes             |  |                 | 1.6   |      |  |  |      | 
|Senior credit agreement          |  |                 | 85.3  |      |  |  | 77.9  | 
|Obligations under finance leases |  |                 | 3.5   |      |  |  | 2.1   | 
|Trade creditors                  |  |                 | 195.5 |      |  |  | 211.9 | 
|Amounts due to related parties   |  |                 | 5.0   |      |  |  | 6.6   | 
|Other creditors                  |  |                 | 38.7  |      |  |  | 47.1  | 
|Corporation tax                  |  |                 | 5.7   |      |  |  | 7.1   | 
|Other accruals                   |  |                 | 73.0  |      |  |  | 84.6  | 
|                                 |  |                 |       |      |  |  |       | 
|                                 |  |                 | 410.0 |      |  |  | 437.4 | 
|                                 |  |                 |       |      |  |  |       | 



|19. |  | CREDITORSAMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
|--- |  | ------------------------------------------------------

|                                 |  |                 |       |      |  |  |       | 
|-------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | 
|                                 |  | 2001            |       | 2002
|                                 |  |                 |       |     
|                                 |  | ( in millions)
|Senior notes                     |  |                 | 253.6 |      |  |  | 254.7 | 
|Senior credit agreement          |  |                 | 634.3 |      |  |  | 529.2 | 
|Deferred consideration           |  |                 | 54.9  |      |  |  | 61.8  | 
|Obligations under finance leases |  |                 | 4.5   |      |  |  | 2.2   | 
|                                 |  |                 |       |      |  |  |       | 
|                                 |  |                 | 947.3 |      |  |  | 847.9 | 
|                                 |  |                 |       |      |  |  |       | 

F-21



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|20. |  | FINANCE LEASES
|--- |  | --------------

|                                                              |  |                 |      |      |  |  |      |  
|------------------------------------------------------------- |  | --------------- | ---- | ---- |  |  | ---- | -
|                                                              |  | 2001            |      | 2002
|                                                              |  |                 |      |     
|                                                              |  | ( in millions)
|Obligations under finance leases comprise:                    |  |                 |      |      |  |  |      |  
|Rentals due within 1 year:                                    |  |                 | 3.7  |      |  |  | 2.4  |  
|Rentals due after more than 1 year:                           |  |                 |      |      |  |  |      |  
|from 1 to 2 years                                             |  |                 |     |      |  |  | 1.1  |  
|from 2 to 5 years                                             |  |                 | 4.7  |      |  |  | 1.4  |  
|                                                              |  |                 |      |      |  |  |      |  
|                                                              |  |                 | 8.4  |      |  |  | 4.9  |  
|Less amounts representing interest relating to future periods |  |                 | (0.4 | )    |  |  | (0.6 | )
|                                                              |  |                 |      |      |  |  |      |  
|Present value of net minimum lease payments                   |  |                 | 8.0  |      |  |  | 4.3  |  
|Less current lease obligations                                |  |                 | (3.5 | )    |  |  | (2.1 | )
|                                                              |  |                 |      |      |  |  |      |  
|Non current obligations                                       |  |                 | 4.5  |      |  |  | 2.2  |  
|                                                              |  |                 |      |      |  |  |      |  



|21. |  | LOANS
|--- |  | -----

Future maturities of long-term obligations as of December 31, 2002 are as
follows:

|                              |  |                 |       |        |  |               |       |       |  |  |      |  |  |  |       |  
|----------------------------- |  | --------------- | ----- | ------ |  | ------------- | ----- | ----- |  |  | ---- |  |  |  | ----- | -
|                              |  | Senior credit   |       | Senior |  | Deferred      |       |       |  | 
|                              |  | agreement       |       | Notes  |  | Consideration |       | Total
|                              |  |                 |       |        |  |               |       |      
|                              |  | ( in millions)
|Total debt                    |  |                 |       |        |  |               |       |       |  |  |      |  |  |  |       |  
|Gross borrowings              |  |                 | 623.2 |        |  |               | 260.0 |       |  |  | 61.8 |  |  |  | 945.0 |  
|Less debt issue costs         |  |                 | (16.1 | )      |  |               | (5.3  | )     |  |  |     |  |  |  | (21.4 | )
|                              |  |                 |       |        |  |               |       |       |  |  |      |  |  |  |       |  
|Net bank and other borrowings |  |                 | 607.1 |        |  |               | 254.7 |       |  |  | 61.8 |  |  |  | 923.6 |  
|                              |  |                 |       |        |  |               |       |       |  |  |      |  |  |  |       |  

Gross borrowings are repayable as follows:

|                           |  |                 |       |              |  |               |       |       |  |          |      |  |  |  |       | 
|-------------------------- |  | --------------- | ----- | ------------ |  | ------------- | ----- | ----- |  | -------- | ---- |  |  |  | ----- | 
|                           |  |                 |       |              |  |               |       |       |  | Deferred |      |  |  | 
|                           |  | Bank Loans      |       | Senior Notes |  | Consideration |       | Total
|                           |  |                 |       |              |  |               |       |      
|                           |  | ( in millions)
|In one year or less        |  |                 | 82.0  |              |  |               |      |       |  |          |     |  |  |  | 82.0  | 
|Between one and two years  |  |                 | 75.4  |              |  |               |      |       |  |          |     |  |  |  | 75.4  | 
|Between two and five years |  |                 | 262.4 |              |  |               |      |       |  |          |     |  |  |  | 262.4 | 
|In five years or more      |  |                 | 203.4 |              |  |               | 260.0 |       |  |          | 61.8 |  |  |  | 525.2 | 
|                           |  |                 |       |              |  |               |       |       |  |          |      |  |  |  |       | 
|                           |  |                 | 623.2 |              |  |               | 260.0 |       |  |          | 61.8 |  |  |  | 945.0 | 
|                           |  |                 |       |              |  |               |       |       |  |          |      |  |  |  |       | 



| |  | Senior Secured Notes
| |  | --------------------

On
May 5, 1998, the Company issued DM190 million in 8 5/8% Senior Secured
Notes due 2005 pursuant to a private offering. On December 14, 1998, the
Company issued DM186,870,000 new 8 5/8% Senior Secured Notes due 2005 pursuant to
an exchange offer whereby holders of DM186,870,000 of the original notes
received new notes which have been registered under the Securities Act of 1933
as amended, but are otherwise identical to the original notes. On April 11,
2001 the Company announced a Tender Offer to redeem the Senior Secured Notes.
The consent of the Note holders was subsequently obtained and 98.3% of the
Senior Secured Notes were redeemed on May 23, 2001. The outstanding Senior
Secured Notes of 1.6 million at December 31, 2001 were redeemed on April 30,
2002.

F-22



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|21. |  | LOANS (Continued)
|--- |  | -----------------
|   
|    |  | Senior Notes     

On
July 19, 2001, the Company issued
260 million in
10 1/2% Senior Notes
due 2010 pursuant to a private offering. On 21 June 2002 the Company issued
260 million
10 1/2% Senior Notes due 2010 pursuant to an exchange offer
whereby holders of the original notes received new notes which have been
registered under the US Securities Act 1933 as amended, but are otherwise
identical to the original notes. The Senior Notes are listed on the Luxembourg
Stock Exchange.

The
Senior Notes bear interest at 10 1/2% per annum, payable semi
annually in arrears on February 1 and August 1 of each year. Unless previously
redeemed as noted below, the Senior Notes will be redeemed by the Company at
their principal amount on August 1, 2010.

The Senior Notes will be subject to redemption at any time prior to August
1, 2004, at the option of the Company, in whole but not in part, at a
redemption price equal to 100% of the principal amount thereof, plus the
applicable redemption premium and accrued and unpaid interest to the redemption
date.

The Senior Notes will be subject to redemption at any time on or after
August 1, 2004, at the option of the Company, in whole or in part, at the
following redemption prices (expressed as percentages of the principal amount),
if redeemed during the 12-month period beginning August 1 of the years
indicated below:

|                    |  |            |         |  
|------------------- |  | ---------- | ------- | -
|                    |  | Redemption
|Year                |  | Price     
|                    |  |           
|2004                |  |            | 110.500 | %
|2005                |  |            | 107.788 | %
|2006                |  |            | 105.250 | %
|2007                |  |            | 102.625 | %
|2008 and thereafter |  |            | 100.000 | %

In each case, the redemption premium will be in addition to accrued and unpaid
interest, if any, to the redemption date (subject to the rights of holders of
record on relevant record dates to receive interest due on an interest payment
date).

In addition, at any time on or prior to August 1, 2004, the Company, at
its option, may use the net cash proceeds of one or more public equity
offerings to redeem Senior Notes in an amount up to an aggregate of 35% of the
sum of the initial aggregate principal amount of Senior Notes originally issued
under the Indenture at a redemption price equal to 110.50% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date; provided that Senior Notes in an amount equal to at least
65% of the sum of the initial aggregate principal amount of Notes originally
issued under the Indenture remains outstanding immediately after the occurrence
of such redemption.

The Senior Notes are unsecured. The Senior Notes are guaranteed by Ineos
Holdings Limited on a senior subordinated basis. Such a guarantee only becomes
due 179 days after an event of default on the Senior Notes has occurred or
earlier under certain circumstances.

The Senior Notes are stated net of debt issue costs of 5.3 million (2001:
6.4 million) in the balance sheet. These costs are allocated to the profit
and loss account over the term of the Senior Notes in accordance with FRS 4.

F-23



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|21. |  | LOANS (Continued)
|--- |  | -----------------

The Indenture contains a number of operating and financial covenants
including limitations on indebtedness, restricted payments, transactions with
affiliates, liens, sale of assets and dividend payments.



| |  | Senior Credit Agreement
| |  | -----------------------

The Company has outstanding borrowings under a credit agreement (the
Senior Credit Agreement) which consists of Term Loans (Term Loan A, Term
Loan B and Term Loan C) and a revolving credit facility (the Revolving
Credit Facility). The Term Loans outstanding at December 31, 2002 were 623.2
million (2001: 740.7 million), of which 82.0 million (2001: 89.1 million) is
due within one year. The total amounts outstanding on Term Loan A were 312.4
million (2001: 392.1 million), Term Loan B were 172.4 million (2001: 179.0
million) and Term Loan C were 138.4 million (2001: 169.6 million).

Term Loan A is repayable in 12 semi-annual instalments beginning on
December 31, 2001 ranging from 1.14% to 9.73% of the principal amount of the
loan up until the final repayment in June 2007. Term Loan B is repayable in 14
semi-annual instalments beginning on December 31, 2001 ranging from 0.56% to
46.64% of the principal amount of the loan up until the final repayment in June
2008. Term Loan C is repayable in 16 semi-annual instalments beginning on
December 31, 2001 ranging from 0.56% to 46.08% of the principal amount of the
loan up until the final repayment in June 2009.

The Term Loans bear interest at a rate equal to a margin plus either
EURIBOR or LIBOR. The applicable per annum margins for the Term Loan A, Term
Loan B and Term Loan C are 2.25%, 2.75% and 3.50% respectively. The margins on
Term Loans A and B are subject to a reduction based on certain financial tests.
The Company pays a commitment fee of 0.75% per annum on the undrawn amounts of
the revolving credit facility.

Ineos Holdings Limited and substantially all of its material subsidiaries
are guarantors of the Senior Credit Agreement. Their obligations are secured
by fixed and floating charges over all of the assets of Ineos Holdings Limited
and substantially all of the assets of those material subsidiaries.

The Senior Credit Agreement contains numerous operating and financial
covenants including requirements to maintain minimum coverage of interest
expense, minimum coverage of total debt service and a maximum leverage ratio.
In addition, the Senior Credit Agreement includes covenants relating to, among
other things, limitations on indebtedness, ability to give guarantees, creation
of security interests, making acquisitions and investments, disposing of assets
and paying dividends.

The most restrictive covenants relating to the payment of dividends are as
follows:



| |  |  | The ratio of Net Debt to EBITDA shall not be greater than 2:1
after payment of the dividend.
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | The annual cash payment may not exceed 50.0 million.                                       
|
| |  |  | No dividend may be paid prior to December 31, 2004.                                         

The Term Loans are stated net of unamortised debt issue costs of 16.1
million (2001: 21.1 million). These costs are allocated to the profit and
loss account in accordance with FRS 4.

F-24



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|21. |  | LOANS (Continued)     
|--- |  | ----------------------
|   
|    |  | Deferred consideration

The deferred consideration relates to a vendor loan note issued to Degussa
AG on May 23, 2001 to partially fund the purchase of the Phenolchemie Group by
Ineos Phenol Limited, a wholly owned subsidiary. This group comprised
Phenolchemie GmbH & Co KG, Phenolchemie Verwaltungsgesellschaft mbH,
Phenolchemie Asia Pte Limited and Phenolchemie Thailand Limited.

The compound interest on this loan note accrues semi-annually at 12% per
annum up to and including June 30, 2006 and at a rate of 14% per annum for any
periods thereafter until final maturity or until the date of any prepayment of
the loan.

The total loan is due for repayment in full on June 30, 2011, however the
Group is entitled to repay the loan at any time.



|22. |  | PROVISIONS FOR LIABILITIES AND CHARGES
|--- |  | --------------------------------------

The movement in the provisions is as follows:

|                                       |  |            |      |            |  |               |      |               |  |       |       |       |  |  |      |   |  |  |      |   |  |  |       |  
|-------------------------------------- |  | ---------- | ---- | ---------- |  | ------------- | ---- | ------------- |  | ----- | ----- | ----- |  |  | ---- | - |  |  | ---- | - |  |  | ----- | -
|                                       |  |            |      |            |  | Other         |      | Severance and |  |       |       |       |  |  |      |   |  |  |      |  
|                                       |  | Retirement |      | Retirement |  | Restructuring |      |               |  |       |       |       |  |  |      |   |  | 
|                                       |  | Costs      |      | Benefits   |  | Costs         |      | Remediation   |  | Other |       | Total
|                                       |  |            |      |            |  |               |      |               |  |       |       |      
|Balance at December 31, 2000           |  |            | 1.9  |            |  |               | 0.9  |               |  |       |      |       |  |  |     |   |  |  | 1.9  |   |  |  | 4.7   |  
|Acquisitions                           |  |            | 27.4 |            |  |               | 5.4  |               |  |       |      |       |  |  | 5.1  |   |  |  |     |   |  |  | 37.9  |  
|Charged to the profit and loss account |  |            | 2.7  |            |  |               | 1.2  |               |  |       | 19.2  |       |  |  | 0.1  |   |  |  |     |   |  |  | 23.2  |  
|Utilised in the year                   |  |            | (1.2 | )          |  |               |     |               |  |       | (10.5 | )     |  |  | (0.4 | ) |  |  | (0.6 | ) |  |  | (12.7 | )
|Released in the year                   |  |            |     |            |  |               | (0.1 | )             |  |       |      |       |  |  |     |   |  |  |     |   |  |  | (0.1  | )
|Exchange adjustments                   |  |            | 0.3  |            |  |               |     |               |  |       | (0.1  | )     |  |  |     |   |  |  |     |   |  |  | 0.2   |  
|                                       |  |            |      |            |  |               |      |               |  |       |       |       |  |  |      |   |  |  |      |   |  |  |       |  
|Balance at December 31, 2001           |  |            | 31.1 |            |  |               | 7.4  |               |  |       | 8.6   |       |  |  | 4.8  |   |  |  | 1.3  |   |  |  | 53.2  |  
|Acquisitions                           |  |            |     |            |  |               |     |               |  |       |      |       |  |  | 0.8  |   |  |  |     |   |  |  | 0.8   |  
|Reclassifications                      |  |            |     |            |  |               |     |               |  |       | 0.8   |       |  |  |     |   |  |  |     |   |  |  | 0.8   |  
|Charged to the profit and loss account |  |            | 5.5  |            |  |               | 0.6  |               |  |       | 24.6  |       |  |  |     |   |  |  | 9.7  |   |  |  | 40.4  |  
|Utilised in the year                   |  |            | (2.7 | )          |  |               | (0.3 | )             |  |       | (18.7 | )     |  |  | (0.6 | ) |  |  | (0.7 | ) |  |  | (23.0 | )
|Released in the year                   |  |            |     |            |  |               |     |               |  |       |      |       |  |  |     |   |  |  |     |   |  |  |      |  
|Exchange adjustments                   |  |            | (0.6 | )          |  |               | (0.9 | )             |  |       | (0.3  | )     |  |  | (0.1 | ) |  |  | (0.2 | ) |  |  | (2.1  | )
|                                       |  |            |      |            |  |               |      |               |  |       |       |       |  |  |      |   |  |  |      |   |  |  |       |  
|Balance at December 31, 2002           |  |            | 33.3 |            |  |               | 6.8  |               |  |       | 15.0  |       |  |  | 4.9  |   |  |  | 10.1 |   |  |  | 70.1  |  
|                                       |  |            |      |            |  |               |      |               |  |       |       |       |  |  |      |   |  |  |      |   |  |  |       |  



| |  | Retirement costs
| |  | ----------------

The provision for retirement costs represents the legal obligation for the
companies various defined benefit pension schemes, unfunded pension schemes in
Germany and the legal obligation under Belgian law to meet the pension costs of
any employee taking early retirement until the employee achieves the recognised
pensionable age.



| |  | Other retirement benefits
| |  | -------------------------

The provision for other retirement benefits represents the estimated
future costs of health care insurance payable relating to eligible retired
former employees, mainly in the United States and Belgium.

F-25



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|22. |  | PROVISIONS FOR LIABILITIES AND CHARGES (Continued)
|--- |  | --------------------------------------------------
|   
|    |  | Severance and restructuring costs                 

The provision for severance and restructuring costs represents costs
provided for as a result of a restructuring of the Ineos Silicas, Ineos Fluor
and Ineos Phenol business segments upon their acquisition by the group. In
June 2001, the Board of Directors approved the restructuring plan for these
business segments, which followed a thorough review of each segments
activities and overhead bases. Execution of the plan commenced in the third
quarter of 2001 with the announcement of the termination of approximately 308
employment contracts and the planned closures of the Companys leased premises
in Atlanta and Chadds Ford, USA. The restructuring plan was extended in 2002
with the announcement of a further 250 employment contracts to be terminated.
The restructuring will be substantially complete by the end of 2003, except
where local employment laws delay this. As at December 31, 2002, the Company
had incurred 18.7 million against the restructuring provision.



| |  | Remediation costs
| |  | -----------------

The group has provided for the cost of remediation works where there is a
legal or constructive obligation for such work to be carried out. The
provision was established to meet the clean up costs of contaminated soil and
groundwater and the removal of potentially hazardous substances. These costs
relate mainly to the groups production facilities at Runcorn, Warrington and
Eijsden. The provision only covers items of specific work for which a
reasonable estimate can be determined. The required work is expected to be
completed within the next three years.



| |  | Other provisions
| |  | ----------------

Other provisions includes a provision for by-product disposal costs which
were established when the hydroxyethyl-cellulose (HEC) plant on the Antwerp
Site was sold by BP Chemicals to Union Carbide in 1987. BP Chemicals undertook
to dispose of the HEC waste which is a by-product of the chemical process until
2003. This agreement was passed on to Inspec Belgium NV following the
acquisition of Inspec Belgium NV by Inspec in 1995. The provision represents
the excess of the estimated disposal costs over the contributions to be
received from Union Carbide. Other provisions also includes amounts for Ineos
Fluors commercial disputes with third parties and includes managements
estimate of both the final cost of settling the disputes and the associated
legal costs. The method adopted to calculate the provisions was based upon
both managements view of the dispute, including the status of negotiations,
together with specific legal advice on a case by case basis. Cost estimates
for advisors for their professional support have been included in the
provision.



|23. |  | DEFERRED TAXATION
|--- |  | -----------------

Deferred tax (asset)/liability provided for:

|                               |  |                 |   |      |  |      |       |   |  |  |       |  
|------------------------------ |  | --------------- | - | ---- |  | ---- | ----- | - |  |  | ----- | -
|                               |  | 2000            |   | 2001 |  | 2002
|                               |  |                 |   |      |  |     
|                               |  | ( in millions)
|Accelerated capital allowances |  |                 |  |      |  |      | 14.3  |   |  |  | 29.0  |  
|Losses                         |  |                 |  |      |  |      | (31.0 | ) |  |  | (23.2 | )
|Short term timing differences  |  |                 |  |      |  |      | (8.3  | ) |  |  | (6.9  | )
|Other                          |  |                 |  |      |  |      | (2.8  | ) |  |  | (2.8  | )
|                               |  |                 |   |      |  |      |       |   |  |  |       |  
|                               |  |                 |  |      |  |      | (27.8 | ) |  |  | (3.9  | )
|                               |  |                 |   |      |  |      |       |   |  |  |       |  

F-26



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS

Deferred tax (asset)/liability not provided for:

|       |  |                 |      |      |  |      |       |   |  |  |       |  
|------ |  | --------------- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|       |  | 2000            |      | 2001 |  | 2002
|       |  |                 |      |      |  |     
|       |  | ( in millions)
|Losses |  |                 | (1.0 | )    |  |      | (22.9 | ) |  |  | (48.5 | )
|       |  |                 |      |      |  |      |       |   |  |  |       |  

The unprovided deferred tax asset has not been recognised as it is not
considered more likely than not that the losses will be utilised in the
foreseeable future.

Analysis of movement in the period:

|                                    |  |            |       |  
|----------------------------------- |  | ---------- | ----- | -
|                                    |  |  millions
|                                    |  |           
|At January 1, 2001                  |  |            |      |  
|On acquisition                      |  |            | (14.0 | )
|Credited to profit and loss account |  |            | (13.8 | )
|                                    |  |            |       |  
|At December 31, 2001                |  |            | (27.8 | )
|Charged to profit and loss account  |  |            | 23.9  |  
|                                    |  |            |       |  
|At December 31, 2002                |  |            | (3.9  | )
|                                    |  |            |       |  



|24. |  | SHARE CAPITAL
|--- |  | -------------

|                                                                                          |  |       |     |       |  |  |     | 
|----------------------------------------------------------------------------------------- |  | ----- | --- | ----- |  |  | --- | 
|                                                                                          |  | 2001  |     | 2002 
|Authorised                                                                                |  | '000 |     | '000
|                                                                                          |  |       |     |      
|Nil (2001: 100,000) A ordinary shares of 10p each                                       |  |       | 10  |       |  |  |    | 
|3,225,000 (2001: 322,500) B Oxide ordinary shares of 1p each (2001:10p each)            |  |       | 50  |       |  |  | 50  | 
|Nil (2001: 150,000) B Oxide US ordinary shares of 0.01p each                            |  |       |    |       |  |  |    | 
|2,201,250 (2001: 370,125) B Fluor ordinary shares of 0.001p each (2001:0.01p each)      |  |       |    |       |  |  |    | 
|2,201,250 (2001: 370,125) B Silicas ordinary shares of 0.001p each (2001:0.01p each)    |  |       |    |       |  |  |    | 
|2,201,250 (2001: 370,125) B Phenol ordinary shares of 0.001p each (2001:0.01p each)     |  |       |    |       |  |  |    | 
|1,650,000 (2001: 165,000) C Oxide ordinary shares of 1p each (2001:10p each)            |  |       | 26  |       |  |  | 26  | 
|60,000 (2001: Nil) C Oxide US ordinary shares of 0.01p each                             |  |       |    |       |  |  |    | 
|742,500 (2001: 74,250) C Fluor ordinary share of 0.001p each (2001:0.01p each)          |  |       |    |       |  |  |    | 
|742,500 (2001: 74,250) C Silicas ordinary shares of 0.001p each (2001:0.01p each)       |  |       |    |       |  |  |    | 
|742,500 (2001: 74,250) C Phenol ordinary share of 0.001p each (2001:0.01p each)         |  |       |    |       |  |  |    | 
|1,500,000 (2001: Nil) C Fluor Regional Tracker ordinary share of 0.001p each            |  |       |    |       |  |  |    | 
|1,500,000 (2001: Nil) C Silicas Regional Tracker ordinary shares of 0.001p each         |  |       |    |       |  |  |    | 
|1,500,000 (2001: Nil) C Phenol Regional Tracker ordinary share of 0.001p each           |  |       |    |       |  |  |    | 
|10,125,000 (2001: 1,012,500) D Oxide ordinary shares of 1p each (2001:10p each)         |  |       | 155 |       |  |  | 155 | 
|10,556,250 (2001: 1,055,625) D Fluor ordinary shares of 0.001p each (2001:0.01p each)   |  |       |    |       |  |  |    | 
|10,556,250 (2001: 1,055,625) D Silicas ordinary shares of 0.001p each (2001:0.01p each) |  |       |    |       |  |  |    | 
|10,556,250 (2001: 1,055,625) D Phenol ordinary shares of 0.001p each (2001:0.01p each)  |  |       |    |       |  |  |    | 
|                                                                                          |  |       |     |       |  |  |     | 
|                                                                                          |  |       | 241 |       |  |  | 231 | 
|                                                                                          |  |       |     |       |  |  |     | 

|                                                                                          |  |       |     |       |  |  |     | 
|----------------------------------------------------------------------------------------- |  | ----- | --- | ----- |  |  | --- | 
|                                                                                          |  | 2001  |     | 2002 
|Allocated, issued and fully paid                                                          |  | '000 |     | '000
|                                                                                          |  |       |     |      
|3,225,000 (2001: 322,500) B Oxide ordinary shares of 1p each (2001:10p each)            |  |       | 50  |       |  |  | 50  | 
|2,126,250 (2001: 212,625) B Fluor ordinary shares of 0.001p each (2001:0.01p each)      |  |       |    |       |  |  |    | 
|2,126,250 (2001: 212,625) B Silicas ordinary shares of 0.001p each (2001:0.01p each)    |  |       |    |       |  |  |    | 
|2,126,250 (2001: 212,625) B Phenol ordinary shares of 0.001p each (2001:0.01p each)     |  |       |    |       |  |  |    | 
|1,650,000 (2001: 165,000) C Oxide ordinary shares of 1p each (2001:10p each)            |  |       | 26  |       |  |  | 26  | 
|742,500 (2001: 74,250) C Fluor ordinary shares of 0.001p each (2001:0.01p each)         |  |       |    |       |  |  |    | 
|742,500 (2001: 74,250) C Silicas ordinary shares of 0.001p each (2001:0.01p each)       |  |       |    |       |  |  |    | 
|742,500 (2001: 74,250) C Phenol ordinary shares of 0.001p each (2001:0.01p each)        |  |       |    |       |  |  |    | 
|944,798 (2001: Nil) C Fluor Regional Tracker ordinary share of 0.001p each              |  |       |    |       |  |  |    | 
|1,044,462 (2001: Nil) C Silicas Regional Tracker ordinary shares of 0.001p each         |  |       |    |       |  |  |    | 
|10,125,000 (2001: 1,012,500) D Oxide ordinary shares of 1p each (2001:10p each)         |  |       | 155 |       |  |  | 155 | 
|10,556,250 (2001: 1,055,625) D Fluor ordinary shares of 0.001p each (2001:0.01p each)   |  |       |    |       |  |  |    | 
|10,556,250 (2001: 1,055,265) D Silicas ordinary shares of 0.001p each (2001:0.01p each) |  |       |    |       |  |  |    | 
|10,556,250 (2001: 1,055,625) D Phenol ordinary shares of 0.001p each (2001:0.01p each)  |  |       |    |       |  |  |    | 
|                                                                                          |  |       |     |       |  |  |     | 
|                                                                                          |  |       | 231 |       |  |  | 231 | 
|                                                                                          |  |       |     |       |  |  |     | 

As the reporting currency of the Company is the Euro, share capital has
been converted to Euros at the effective rate of exchange ruling at the date of
issuance.

F-27



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|24. |  | SHARE CAPITAL (Continued)
|--- |  | -------------------------

On February 28, 2002 the Company changed its capital structure. The Oxide
shares (as defined below) were split into 10 shares of 1p each. The Fluor,
Silicas and Phenol shares (as defined below) were split into 10 shares of
0.001p each. During the year the Company issued 944, 798 C Fluor Regional
Tracker ordinary shares and 1,044,462 C Silicas Regional Tracker ordinary
shares.

A summary of the rights that attach to each class of shares is as follows:

B, C and D Shares

The Oxide shares represent the B Oxide shares, the C Oxide shares and
the D Oxide shares. The holders of the Oxide shares shall be entitled to
receive dividends as determined by the Company out of the profits derived from
the Oxide business segment. On a return of capital the holders of the Oxide
shares shall be entitled to receive amounts derived from the Oxide business
segment.

The Fluor shares represent the B Fluor shares, the C Fluor shares and
the D Fluor shares. The holders of the Fluor shares shall be entitled to
receive dividends as determined by the Company out of the profits derived from
the Fluor business segment. On a return of capital the holders of the Fluor
shares shall be entitled to receive amounts derived from the Fluor business
segment.

The Silicas shares represent the B Silicas shares, the C Silicas
shares and the D Silicas shares. The holders of the Silicas shares shall be
entitled to receive dividends as determined by the Company out of the profits
derived from the Silicas business segment. On a return of capital the holders
of the Silicas shares shall be entitled to receive amounts derived from the
Silicas business segment.

The Phenol shares represent the B Phenol shares, the C Phenol shares
and the D Phenol shares. The holders of the Phenol shares shall be entitled
to receive dividends as determined by the Company out of the profits derived
from the Phenol business segment. On a return of capital the holders of the
Phenol shares shall be entitled to receive amounts derived from the Phenol
business segment.

The Oxide shares, Fluor shares, Silicas shares and Phenol shares are
entitled to one vote per share at any general meeting.

Regional Tracker Shares

The Regional Tracker Shares represent the C Oxide US shares, the C
Fluor Regional Tracker shares, the C Silicas Regional Tracker shares and the
C Phenol Regional Tracker shares. The holders of the Regional Tracker Shares
shall be entitled to receive dividends as determined by the Company out of the
profits derived from the business segment they relate to up to a maximum of 10%
of such profits available for distribution. On a return of capital the holders
of the Regional Tracker Shares shall be entitled to receive amounts derived
from the business segment they relate to up to a maximum of 10%. The Regional
Tracker Shares are not entitled to a vote.

F-28



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|25. |  | RESERVES
|--- |  | --------

|                     |                                     |  |                 |      |            |  |              |   |            |  |      |       |  
|-------------------- | ----------------------------------- |  | --------------- | ---- | ---------- |  | ------------ | - | ---------- |  | ---- | ----- | -
|                     |                                     |  |                 |      |            |  | Capital      |   | Profit and
|                     |                                     |  | Share           |      | Redemption |  | Loss Account
|                     |                                     |  | Premium         |      | Reserve    |  | (restated)  
|                     |                                     |  |                 |      |            |  |             
|                     |                                     |  | ( in millions)
|At December 31, 2000 |                                     |  | 2.4             |      |            |  | 0.1          |   |            |  | 38.4 |      
|                     | Retained profit/(loss) for the year |  |                 |     |            |  |              |  |            |  |      | (21.1 | )
|                     | Share buy back                      |  |                 |     |            |  |              |  |            |  |      | (2.4  | )
|                     |                                     |  |                 |      |            |  |              |   |            |  |      |      
|At December 31, 2001 |                                     |  | 2.4             |      |            |  | 0.1          |   |            |  | 14.9 |      
|                     |                                     |  |                 |      |            |  |              |   |            |  |      |      
|                     | Retained profit for the year        |  |                 |     |            |  |              |  |            |  |      | 35.2  |  
|                     | Exchange adjustments                |  |                 |     |            |  |              |  |            |  |      | (40.5 | )
|                     | Issue of shares                     |  |                 | 0.1  |            |  |              |  |            |  |      |      |  
|                     | Cost of share issue                 |  |                 | (0.1 | )          |  |              |  |            |  |      |      |  
|                     |                                     |  |                 |      |            |  |              |   |            |  |      |      
|At December 31, 2002 |                                     |  | 2.4             |      |            |  | 0.1          |   |            |  | 9.6  |      
|                     |                                     |  |                 |      |            |  |              |   |            |  |      |      



|26. |  | RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS
|--- |  | ---------------------------------------------------------

|                                                 |  |                         |       |      |  |  |       |  
|------------------------------------------------ |  | ----------------------- | ----- | ---- |  |  | ----- | -
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 2001 (restated)         |       | 2002
|                                                 |  |                         |       |     
|                                                 |  | ( in millions)        
|Profit on ordinary activities after taxation     |  |                         | (21.1 | )    |  |  | 35.2  |  
|Dividends                                        |  |                         |      |      |  |  |      |  
|Other recognised gains/(losses) in the year      |  |                         |      |      |  |  | (40.5 | )
|Shares repurchased during the year               |  |                         | (2.4  | )    |  |  |      |  
|                                                 |  |                         |       |      |  |  |       |  
|Net increase in equity shareholders funds       |  |                         | (23.5 | )    |  |  | (5.3  | )
|Opening equity shareholders funds (as restated) |  |                         | 41.1  |      |  |  | 17.6  |  
|                                                 |  |                         |       |      |  |  |       |  
|Closing equity shareholders funds               |  |                         | 17.6  |      |  |  | 12.3  |  
|                                                 |  |                         |       |      |  |  |       |  

Opening equity shareholders funds in 2002 have been restated from 15.5
million to 17.6 million as outlined in note 2.



|27. |  | ACQUISITIONS                 
|--- |  | -----------------------------
|   
|    |  | Ineos Fluor and Ineos Silicas

On January 9, 2001, a company controlled by the controlling shareholder of
Ineos Group Limited acquired the businesses of ICI Klea and ICI Crosfield from
Imperial Chemical Industries PLC for 448.7 million in cash including related
acquisition costs. These businesses have been renamed Ineos Fluor and Ineos
Silicas respectively. As described in Note 1 the results of Ineos Fluor and
Ineos Silicas have been presented on a consolidated basis with those of Ineos
Group Limited. The acquisition has been accounted for as a purchase in these
consolidated financial statements. The fair values adopted in the prior period
were provisional. The final allocation of the purchase price has now been
completed.

The total adjustments required to the provisional fair values of the
assets and liabilities of the companies acquired and adjustments for the
adoption of FRS 19, together with the resultant amount of goodwill, are set out
below:

F-29



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|27. |  | ACQUISITIONS (Continued)
|--- |  | ------------------------

|                                          |  |                 |        |             |  |            |      |   |  |  |        |  
|----------------------------------------- |  | --------------- | ------ | ----------- |  | ---------- | ---- | - |  |  | ------ | -
|                                          |  | Provisional     |        |             |  |            |      |   |  | 
|Ineos Fluor and Ineos Silicas acquisition |  | Fair Value      |        | Adjustments |  | Fair Value
|                                          |  |                 |        |             |  |           
|                                          |  | ( in millions)
|Intangible fixed assets                   |  |                 | 0.2    |             |  |            |     |   |  |  | 0.2    |  
|Tangible fixed assets                     |  |                 | 524.1  |             |  |            |     |   |  |  | 524.1  |  
|Investments                               |  |                 | 0.6    |             |  |            |     |   |  |  | 0.6    |  
|Stock                                     |  |                 | 66.4   |             |  |            |     |   |  |  | 66.4   |  
|Debtors                                   |  |                 | 105.0  |             |  |            | (8.3 | ) |  |  | 96.7   |  
|Net cash                                  |  |                 | 14.5   |             |  |            |     |   |  |  | 14.5   |  
|Creditors due in less than one year       |  |                 | (102.4 | )           |  |            | 0.4  |   |  |  | (102.0 | )
|Creditors due in more than one year       |  |                 | (2.3   | )           |  |            |     |   |  |  | (2.3   | )
|Provisions for liabilities and charges    |  |                 | (18.6  | )           |  |            | (0.8 | ) |  |  | (19.4  | )
|Deferred taxation                         |  |                 | (11.7  | )           |  |            | 3.5  |   |  |  | (8.2   | )
|                                          |  |                 |        |             |  |            |      |   |  |  |        |  
|Net assets acquired                       |  |                 | 575.8  |             |  |            | (5.2 | ) |  |  | 570.6  |  
|Negative goodwill                         |  |                 |        |             |  |            |      |   |  |  | (121.9 | )
|                                          |  |                 |        |             |  |            |      |   |  |  |        |  
|Consideration                             |  |                 |        |             |  |            |      |   |  |  | 448.7  |  
|                                          |  |                 |        |             |  |            |      |   |  |  |        |  



| |  | The fair value of certain pension scheme surpluses has been reduced to
their recoverable amount based upon independent actuarial advice.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The provision for remediation costs has now been based on more accurate
information.                                                    
|
| |  | Deferred taxation on acquisition has now been accounted for in accordance
with FRS 19 which was adopted for the first time this year.   
|
| |  | Ineos Phenol                                                                                                                            

On May 23, 2001, the Company acquired the businesses of Phenolchemie GmbH
& Co KG, Phenolchemie Verwaltungsgesellschaft mbH, Phenolchemie Inc.,
Phenolchemie Asia Pte Limited and Phenolchemie Thailand Limited for 306.0
million in cash and 51.1 million in deferred consideration including related
acquisition costs. These businesses have been renamed Ineos Phenol. As
described in Note 1 the results of Ineos Phenol have been presented on a
consolidated basis with those of Ineos Group Holdings. The acquisition has
been accounted for as a purchase in these consolidated financial statements.
The fair values adopted in the prior period were provisional. The final
allocation of the purchase price has now been competed.

F-30



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|27. |  | ACQUISITIONS (Continued)
|--- |  | ------------------------

The total adjustments required to the provisional fair values of the
assets and liabilities of the company acquired and adjustments for the adoption
of FRS 19, together with the resultant amount of goodwill, are set out below:

|                                       |  |                 |        |             |  |            |      |  |  |  |        |  
|-------------------------------------- |  | --------------- | ------ | ----------- |  | ---------- | ---- |  |  |  | ------ | -
|                                       |  | Provisional     |        |             |  |            |      |  |  | 
|Ineos Phenol acquisition               |  | Fair Value      |        | Adjustments |  | Fair Value
|                                       |  |                 |        |             |  |           
|                                       |  | ( in millions)
|Intangible fixed assets                |  |                 | 2.4    |             |  |            |     |  |  |  | 2.4    |  
|Tangible fixed assets                  |  |                 | 538.2  |             |  |            |     |  |  |  | 538.2  |  
|Investments                            |  |                 | 0.1    |             |  |            |     |  |  |  | 0.1    |  
|Stock                                  |  |                 | 55.9   |             |  |            |     |  |  |  | 55.9   |  
|Debtors                                |  |                 | 182.0  |             |  |            |     |  |  |  | 182.0  |  
|Cash                                   |  |                 | 8.7    |             |  |            |     |  |  |  | 8.7    |  
|Creditors due in less than one year    |  |                 | (159.8 | )           |  |            |     |  |  |  | (159.8 | )
|Creditors due in more than one year    |  |                 | (7.2   | )           |  |            |     |  |  |  | (7.2   | )
|Deferred taxation                      |  |                 |       |             |  |            | 22.2 |  |  |  | 22.2   |  
|Provisions for liabilities and charges |  |                 | (18.9  | )           |  |            |     |  |  |  | (18.9  | )
|                                       |  |                 |        |             |  |            |      |  |  |  |        |  
|Net assets acquired                    |  |                 | 601.4  |             |  |            | 22.2 |  |  |  | 623.6  |  
|Negative goodwill                      |  |                 |        |             |  |            |      |  |  |  | (266.5 | )
|                                       |  |                 |        |             |  |            |      |  |  |  |        |  
|Consideration                          |  |                 |        |             |  |            |      |  |  |  | 357.1  |  
|                                       |  |                 |        |             |  |            |      |  |  |  |        |  

Deferred taxation on acquisition has now been accounted for in accordance
with FRS 19 which was adopted for the first time this year.



| |  | Acetate Esters business
| |  | -----------------------

On 1 March 2002, the Company acquired the trade and certain assets of the
Acetate Esters business of BP Belgium for 5.0 million in cash including
related acquisition costs. The acquisition has been accounted for as a purchase
in these consolidated financial statements.

The consolidated financial statements presented include managements
allocation of the purchase price which includes certain preliminary
allocations. The final allocation of the purchase price may change after
completion of the valuations performed at the acquisition date.

The total purchase price including fees and expenses has been allocated on
a preliminary basis to the acquired net assets as follows:

|                      |  |                 |     | 
|--------------------- |  | --------------- | --- | 
|                      |  | Provisional    
|                      |  | fair value     
|                      |  |                
|                      |  | ( in millions)
|Tangible fixed assets |  |                 | 1.2 | 
|Stock                 |  |                 | 3.2 | 
|                      |  |                 |     | 
|Net assets acquired   |  |                 | 4.4 | 
|Goodwill              |  |                 | 0.6 | 
|                      |  |                 |     | 
|Consideration         |  |                 | 5.0 | 
|                      |  |                 |     | 

The book values of the assets and liabilities immediately prior to the
acquisition, together with the profit and loss account information for the
business acquired are not available. The company does not possess complete
financial records for the business acquired up to the date of acquisition and
for the previous financial year.

F-31



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|27. |  | ACQUISITIONS (Continued)       
|--- |  | -------------------------------
|   
|    |  | Unaudited pro forma information

The following unaudited pro forma information reflects the results of
operations under UK GAAP of the Company for the years ended December 31, 2000
and December 31, 2001 as though the acquisitions of Ineos Fluor, Ineos Silicas
and Ineos Phenol had been completed on January 1, 2000 and assumes there are no
other changes in the operations of the Company. Such pro forma information
includes adjustments to interest expense; changes in amortisation of goodwill
relating to the allocation of the purchase price and related adjustments to
income tax.

|                                                    |  |                   |         |                   |  |  |         |  
|--------------------------------------------------- |  | ----------------- | ------- | ----------------- |  |  | ------- | -
|                                                    |  | Year Ended        |         | Year Ended       
|                                                    |  | December 31, 2000 |         | December 31, 2001
|                                                    |  |                   |         |                  
|                                                    |  | ( in millions)  
|Turnover                                            |  |                   | 2,109.1 |                   |  |  | 2,063.0 |  
|                                                    |  |                   |         |                   |  |  |         |  
|(Loss)/profit on ordinary activities after taxation |  |                   | 14.0    |                   |  |  | (5.8    | )
|                                                    |  |                   |         |                   |  |  |         |  

These unaudited pro forma results of operations have been prepared for
comparative purposes only. In managements opinion these results are not
necessarily indicative of the actual results that would have occurred had the
acquisition actually taken place on January 1, 2000 or of the future results of
operations.



|28. |  | OPERATING LEASE COMMITMENTS
|--- |  | ---------------------------

Annual commitments under non-cancellable operating leases comprise:

|                              |  |                 |      |      |  |  |      | 
|----------------------------- |  | --------------- | ---- | ---- |  |  | ---- | 
|                              |  | 2001            |      | 2002
|                              |  |                 |      |     
|                              |  | ( in millions)
|Plant and equipment:          |  |                 |      |      |  |  |      | 
|Expiring within one year      |  |                 | 4.7  |      |  |  | 4.4  | 
|Expiring between 1 to 2 years |  |                 | 2.7  |      |  |  | 3.6  | 
|Expiring between 2 to 5 years |  |                 | 6.7  |      |  |  | 4.0  | 
|Expiring in more than 5 years |  |                 | 1.2  |      |  |  | 2.2  | 
|                              |  |                 |      |      |  |  |      | 
|                              |  |                 | 15.3 |      |  |  | 14.2 | 
|                              |  |                 |      |      |  |  |      | 
|Land and buildings:           |  |                 |      |      |  |  |      | 
|Expiring within one year      |  |                 | 1.0  |      |  |  | 1.0  | 
|Expiring between 1 to 2 years |  |                 | 0.2  |      |  |  | 0.1  | 
|Expiring between 2 to 5 years |  |                 | 1.0  |      |  |  | 0.2  | 
|                              |  |                 |      |      |  |  |      | 
|                              |  |                 | 2.2  |      |  |  | 1.3  | 
|                              |  |                 |      |      |  |  |      | 

The Company leases plant and equipment under a number of operating leases
that expire at various dates through to 2007. Future minimum lease payments
under operating leases with initial or remaining non-cancellable terms of one
or more years at December 31, 2002 totalled 35.2 million and were as follows:

|           |  |                 |      | 
|---------- |  | --------------- | ---- | 
|           |  | Lease          
|           |  | Payments       
|           |  |                
|           |  | ( in millions)
|2003       |  |                 | 15.5 | 
|2004       |  |                 | 6.1  | 
|2005       |  |                 | 4.7  | 
|After 2005 |  |                 | 8.9  | 
|           |  |                 |      | 
|           |  |                 | 35.2 | 
|           |  |                 |      | 

F-32



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INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|29. |  | CAPITAL COMMITMENTS
|--- |  | -------------------

|                               |  |                 |     |      |  |  |     | 
|------------------------------ |  | --------------- | --- | ---- |  |  | --- | 
|                               |  | 2001            |     | 2002
|                               |  |                 |     |     
|                               |  | ( in millions)
|Contracted capital expenditure |  |                 | 6.9 |      |  |  | 5.9 | 
|                               |  |                 |     |      |  |  |     | 



|30. |  | PENSION SCHEMES
|--- |  | ---------------

The group operates a number of pension plans throughout the world, devised
in accordance with local conditions and practices. The plans are generally of
the defined benefit type and are funded by payments to separately administered
funds or insurance companies. The principal funded plans are in the United
Kingdom, United States and Belgium.

The group also operates a number of unfunded pension schemes in Germany.
Provision is made in the financial statements for the benefits accruing to
members of unfunded pension schemes in accordance with the advice of
independent actuaries.

The Group has continued to account for pensions and other post employment
benefits in accordance with SSAP 24. FRS17 is not expected to be fully
mandatory for the group until the year ending 31 December 2005. Prior to this,
transitional disclosures are required as set out below.

Valuations are carried out annually for the UK, US, Belgium and Germany
pension plans. All valuations were performed by independent actuaries using
the projected unit method to determine pension costs. The principal
assumptions for the calculation under SSAP24 of the profit and loss account
credit, for the year ended December 31, 2002 were: return on investment 6%;
average salary growth 4.75% and inflation 2% to 2.5%. Surpluses or deficits on
the pension plans arising from the actuarial valuations are spread over the
expected average service lives of the members of the relevant plan on a
straight line basis using the single variation method.

The actuarial value of the assets of the plans outside the United States
was sufficient to cover approximately 111% of the benefits that had accrued to
members after allowing for expected future increases in wages and salaries. The
actuarial value of the assets of the plans in the U.S. cover approximately 58%
of the benefits accrued to the members. The market value at December 31, 2002
of the assets of the principal funds is set out in the FRS 17 disclosures
below.

The most recent full valuations of the significant defined benefits plans
were carried out as follows: United Kingdom on January 1, 2002; United States
on January 1, 2002; Belgium on December 31, 2002 and Germany on December 31,
2002. These valuations have been updated where appropriate to December 31,
2002 by independent qualified actuaries.

The additional disclosures required by FRS 17 for the Companys principal
pension plans are set out below:

|                                       |  |                |      |               |  |         |      |         |  |      |      |      |  |      |      |      |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|-------------------------------------- |  | -------------- | ---- | ------------- |  | ------- | ---- | ------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                       |  | United Kingdom |      | United States |  | Belgium |      | Germany
|                                       |  |                |      |               |  |         |      |        
|                                       |  | 2002           |      | 2001          |  | 2002    |      | 2001    |  | 2002 |      | 2001 |  | 2002 |      | 2001
|                                       |  |                |      |               |  |         |      |         |  |      |      |      |  |      |      |     
|Major assumptions                      |  | %              |      | %             |  | %       |      | %       |  | %    |      | %    |  | %    |      | %   
|Rate of general increase in salaries   |  |                | 3.75 |               |  |         | 3.90 |         |  |      | 4.50 |      |  |      | 4.50 |      |  |  | 3.50 |  |  |  | 3.75 |  |  |  | 3.50 |  |  |  | 3.75 | 
|Rate of increase to pension in payment |  |                | 2.25 |               |  |         | 2.50 |         |  |      |     |      |  |      |     |      |  |  | 2.00 |  |  |  | 2.25 |  |  |  | 2.00 |  |  |  | 2.25 | 
|Discount rate for scheme liabilities   |  |                | 5.60 |               |  |         | 5.80 |         |  |      | 6.75 |      |  |      | 7.25 |      |  |  | 5.75 |  |  |  | 6.50 |  |  |  | 5.50 |  |  |  | 6.50 | 
|Inflation                              |  |                | 2.25 |               |  |         | 2.50 |         |  |      | 3.00 |      |  |      | 3.00 |      |  |  | 2.00 |  |  |  | 2.25 |  |  |  | 2.00 |  |  |  | 2.25 | 

F-33



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|30. |  | PENSION SCHEMES (Continued)
|--- |  | ---------------------------

The expected long term rate of returns and market values of the assets of
the Companys principal defined benefit plans were as follows:



| |  | As at December 31, 2002
| |  | -----------------------

|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|------------------------------ |  | -------------- | --- | ------------- |  | ------- | ----- | --------- |  | ------- | --- | ------ |  | --------- | ----- | ------ |  |  | --- | --------- |  |  | ----- | - |  |  | - |  |  |  | ----- | -
|                               |  | United Kingdom |     | United States |  | Belgium |       | Germany  
|                               |  |                |     |               |  |         |       |          
|                               |  | Expected       |     |               |  |         |       | Expected  |  |         |     |        |  | Expected  |       |        |  |  |     | Expected  |  |  |       |  
|                               |  | long term      |     |               |  |         |       | long term |  |         |     |        |  | long term |       |        |  |  |     | long term |  |  |       |  
|                               |  | rate of        |     | Market        |  | rate of |       | Market    |  | rate of |     | Market |  | rate of   |       | Market
|                               |  | return         |     | value         |  | return  |       | value     |  | return  |     | value  |  | return    |       | value 
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |       
|                               |  | %              |     | 'm           |  | %       |       | 'm       |  | %       |     | 'm    |  | %         |       | 'm   
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |       
|Market value of assets         |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Equities                       |  |                | 8.0 |               |  |         | 46.0  |           |  |         | 8.5 |        |  |           | 2.8   |        |  |  | 8.0 |           |  |  | 22.0  |   |  |  |  |  |  |  |      |  
|Bonds                          |  |                | 5.0 |               |  |         | 9.8   |           |  |         | 6.2 | 5      |  |           | 1.4   |        |  |  | 5.2 | 5         |  |  | 11.8  |   |  |  |  |  |  |  |      |  
|Other                          |  |                | 5.0 |               |  |         | 8.5   |           |  |         | 4.2 | 5      |  |           | 0.2   |        |  |  | 5.7 | 5         |  |  | 3.3   |   |  |  |  |  |  |  |      |  
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|                               |  |                |     |               |  |         | 64.3  |           |  |         |     |        |  |           | 4.4   |        |  |  |     |           |  |  | 37.1  |   |  |  |   |  |  |  |      |  
|Present value of
liabilities   |  |                |     |               |  |         | (96.2 | )         |  |         |     |        |  |           | (14.1 | )      |  |  |     |           |  |  | (43.1 | ) |  |  |   |  |  |  | (20.9 | )
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Surplus/(deficit) in
the plans |  |                |     |               |  |         | (31.9 | )         |  |         |     |        |  |           | (9.7  | )      |  |  |     |           |  |  | (6.0  | ) |  |  |   |  |  |  | (20.9 | )
|Related deferred tax
asset     |  |                |     |               |  |         |      |           |  |         |     |        |  |           |      |        |  |  |     |           |  |  | 2.0   |   |  |  |   |  |  |  |      |  
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Net pension liability          |  |                |     |               |  |         | (31.9 | )         |  |         |     |        |  |           | (9.7  | )      |  |  |     |           |  |  | (4.0  | ) |  |  |   |  |  |  | (20.9 | )
|                               |  |                |     |               |  |         |       |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  



| |  | As at December 31, 2001
| |  | -----------------------

|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|------------------------------ |  | -------------- | --- | ------------- |  | ------- | ------ | --------- |  | ------- | --- | ------ |  | --------- | ----- | ------ |  |  | --- | --------- |  |  | ----- | - |  |  | - |  |  |  | ----- | -
|                               |  | United Kingdom |     | United States |  | Belgium |        | Germany  
|                               |  |                |     |               |  |         |        |          
|                               |  | Expected       |     |               |  |         |        | Expected  |  |         |     |        |  | Expected  |       |        |  |  |     | Expected  |  |  |       |  
|                               |  | long term      |     |               |  |         |        | long term |  |         |     |        |  | long term |       |        |  |  |     | long term |  |  |       |  
|                               |  | rate of        |     | Market        |  | rate of |        | Market    |  | rate of |     | Market |  | rate of   |       | Market
|                               |  | return         |     | value         |  | return  |        | value     |  | return  |     | value  |  | return    |       | value 
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |       
|                               |  | %              |     | 'm           |  | %       |        | 'm       |  | %       |     | 'm    |  | %         |       | 'm   
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |       
|Market value of assets         |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Equities                       |  |                | 7.3 |               |  |         | 83.7   |           |  |         | 9.5 |        |  |           | 4.7   |        |  |  | 8.2 | 5         |  |  | 31.7  |   |  |  |  |  |  |  |      |  
|Bonds                          |  |                | 5.0 |               |  |         | 9.3    |           |  |         | 7.0 |        |  |           | 3.1   |        |  |  | 6.0 |           |  |  | 16.9  |   |  |  |  |  |  |  |      |  
|Other                          |  |                | 7.3 |               |  |         |       |           |  |         | 7.2 | 5      |  |           | 0.7   |        |  |  | 5.2 | 5         |  |  | 3.0   |   |  |  |  |  |  |  |      |  
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|                               |  |                |     |               |  |         | 93.0   |           |  |         |     |        |  |           | 8.5   |        |  |  |     |           |  |  | 51.6  |   |  |  |   |  |  |  |      |  
|Present value of
liabilities   |  |                |     |               |  |         | (106.2 | )         |  |         |     |        |  |           | (16.2 | )      |  |  |     |           |  |  | (42.4 | ) |  |  |   |  |  |  | (20.5 | )
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Surplus/(deficit) in
the plans |  |                |     |               |  |         | (13.2  | )         |  |         |     |        |  |           | (7.7  | )      |  |  |     |           |  |  | 9.2   |   |  |  |   |  |  |  | (20.5 | )
|Related deferred tax
liability |  |                |     |               |  |         |       |           |  |         |     |        |  |           |      |        |  |  |     |           |  |  | 2.8   |   |  |  |   |  |  |  |      |  
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  
|Surplus/(deficit) in
the plans |  |                |     |               |  |         | (13.2  | )         |  |         |     |        |  |           | (7.7  | )      |  |  |     |           |  |  | 6.4   |   |  |  |   |  |  |  | (20.5 | )
|                               |  |                |     |               |  |         |        |           |  |         |     |        |  |           |       |        |  |  |     |           |  |  |       |   |  |  |   |  |  |  |       |  

Deferred tax assets and liabilities in relation to pension liabilities
have only been recognised where it is more likely than not that they would not
be recoverable in the foreseeable future.

The group also operates a number of plans, primarily in the United States
and Belgium, which provide employees with other post-employment benefits in
respect of health care. The plans are generally unfunded and the liability in
respect of these benefits is included in provisions. The liability is assessed
by qualified independent actuaries under the projected unit method, assuming a
liability discount rate of 6.75% (2001: 7.25%) in the US and 5.75%
(2001: 6.5%)
in Belgium, and a long-term health care trend rate of 4.5%.

F-34



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|30. |  | PENSION SCHEMES (Continued)
|--- |  | ---------------------------

|                               |  |                        |      |      |  |  |      |  
|------------------------------ |  | ---------------------- | ---- | ---- |  |  | ---- | -
|                               |  | Post-retirement health
|                               |  | care plans            
|                               |  |                       
|                               |  | 2001                   |      | 2002
|                               |  |                        |      |     
|                               |  | ( in millions)       
|Market value of assets         |  |                        |     |      |  |  |     |  
|Present value of liabilities   |  |                        | (5.7 | )    |  |  | (5.4 | )
|                               |  |                        |      |      |  |  |      |  
|Surplus/(deficit) in the plans |  |                        | (5.7 | )    |  |  | (5.4 | )
|                               |  |                        |      |      |  |  |      |  

The costs of the plans for the year ended December 31, 2002 would have
been as follows:



| |  | Analysis of amount charged to operating profit
| |  | ----------------------------------------------

|                       |  |                |     |               |  |                 |     |         |  |  |     |  |  |  |     | 
|---------------------- |  | -------------- | --- | ------------- |  | --------------- | --- | ------- |  |  | --- |  |  |  | --- | 
|                       |  | United Kingdom |     | United States |  | Belgium         |     | Germany
|                       |  |                |     |               |  |                 |     |        
|                       |  |                |     |               |  | ( in millions) |     |         |  | 
|Current service cost   |  |                | 5.1 |               |  |                 | 1.2 |         |  |  | 3.1 |  |  |  | 0.3 | 
|Past service cost      |  |                | 1.5 |               |  |                 |    |         |  |  |    |  |  |  |    | 
|                       |  |                |     |               |  |                 |     |         |  |  |     |  |  |  |     | 
|Total operating charge |  |                | 6.6 |               |  |                 | 1.2 |         |  |  | 3.1 |  |  |  | 0.3 | 
|                       |  |                |     |               |  |                 |     |         |  |  |     |  |  |  |     | 



| |  | Analysis of amount credited/(charged) to other finance income
| |  | -------------------------------------------------------------

|                                         |  |                |      |               |  |                 |      |         |  |  |      |   |  |  |      |  
|---------------------------------------- |  | -------------- | ---- | ------------- |  | --------------- | ---- | ------- |  |  | ---- | - |  |  | ---- | -
|                                         |  | United Kingdom |      | United States |  | Belgium         |      | Germany
|                                         |  |                |      |               |  |                 |      |        
|                                         |  |                |      |               |  | ( in millions) |      |         |  | 
|Interest on pension scheme liabilities   |  |                | (5.9 | )             |  |                 | (1.0 | )       |  |  | (2.7 | ) |  |  | (1.3 | )
|Expected return on pension scheme assets |  |                | 6.2  |               |  |                 | 0.6  |         |  |  | 3.8  |   |  |  |     |  
|                                         |  |                |      |               |  |                 |      |         |  |  |      |   |  |  |      |  
|Net return                               |  |                | 0.3  |               |  |                 | (0.4 | )       |  |  | 1.1  |   |  |  | (1.3 | )
|                                         |  |                |      |               |  |                 |      |         |  |  |      |   |  |  |      |  



| |  | Analysis of amount recognised in statement of total recognised gains and losses
| |  | -------------------------------------------------------------------------------

|                                                                                   |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | -------------- | ----- | ------------- |  | --------------- | ---- | ------- |  |  | ----- | - |  |  | ---- | -
|                                                                                   |  | United Kingdom |       | United States |  | Belgium         |      | Germany
|                                                                                   |  |                |       |               |  |                 |      |        
|                                                                                   |  |                |       |               |  | ( in millions) |      |         |  | 
|Actual return less
expected return on
pension scheme assets                        |  |                | (33.1 | )             |  |                 | (1.6 | )       |  |  | (17.0 | ) |  |  |     |  
|Experience gains and
losses arising on
scheme liabilities                          |  |                | 14.8  |               |  |                 | 0.7  |         |  |  | 1.0   |   |  |  | 3.7  |  
|Changes in assumptions                                                             |  |                |      |               |  |                 | (1.1 | )       |  |  | 2.5   |   |  |  | (3.3 | )
|                                                                                   |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  
|Actuarial gain/(loss)
recognised in
statement of total
recognised gains and
losses |  |                | (18.3 | )             |  |                 | (2.0 | )       |  |  | (13.5 | ) |  |  | 0.4  |  
|                                                                                   |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  



| |  | Movement in surplus/(deficit) during the year
| |  | ---------------------------------------------

|                                                      |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |       |  
|----------------------------------------------------- |  | -------------- | ----- | ------------- |  | --------------- | ---- | ------- |  |  | ----- | - |  |  | ----- | -
|                                                      |  | United Kingdom |       | United States |  | Belgium         |      | Germany
|                                                      |  |                |       |               |  |                 |      |        
|                                                      |  |                |       |               |  | ( in millions) |      |         |  | 
|Surplus/(deficit) in
schemes at beginning
of the year |  |                | (13.2 | )             |  |                 | (7.7 | )       |  |  | 9.2   |   |  |  | (20.5 | )
|Current service cost                                  |  |                | (5.1  | )             |  |                 | (1.2 | )       |  |  | (3.1  | ) |  |  | (0.3  | )
|Past service cost                                     |  |                | (1.5  | )             |  |                 |     |         |  |  |      |   |  |  |      |  
|Contributions                                         |  |                | 5.9   |               |  |                 | 0.6  |         |  |  | 0.3   |   |  |  | 0.8   |  
|Other finance income                                  |  |                | 0.3   |               |  |                 | (0.4 | )       |  |  | 1.1   |   |  |  | (1.3  | )
|Actuarial gain/(loss)                                 |  |                | (18.3 | )             |  |                 | (2.0 | )       |  |  | (13.5 | ) |  |  | 0.4   |  
|Exchange adjustments                                  |  |                |      |               |  |                 | 1.0  |         |  |  |      |   |  |  |      |  
|                                                      |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |       |  
|Surplus/(deficit) in
scheme at end of the
year        |  |                | (31.9 | )             |  |                 | (9.7 | )       |  |  | (6.0  | ) |  |  | (20.9 | )
|                                                      |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |       |  

F-35



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|30. |  | PENSION SCHEMES (Continued)           
|--- |  | --------------------------------------
|   
|    |  | History of experience gains and losses

|                                                                          |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  
|------------------------------------------------------------------------- |  | -------------- | ----- | ------------- |  | --------------- | ---- | ------- |  |  | ----- | - |  |  | ---- | -
|                                                                          |  | United Kingdom |       | United States |  | Belgium         |      | Germany
|                                                                          |  |                |       |               |  |                 |      |        
|                                                                          |  |                |       |               |  | ( in millions) |      |         |  | 
|Difference between the
actual and expected return
on scheme assets        |  |                | (33.1 | )             |  |                 | (1.6 | )       |  |  | (17.0 | ) |  |  |     |  
|Percentage of scheme assets                                               |  |                | 51.4  | %             |  |                 | 36.4 | %       |  |  | 45.8  | % |  |  |     |  
|                                                                          |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  
|Experience gains and
losses on scheme
liabilities                         |  |                | 14.8  |               |  |                 | 0.7  |         |  |  | 1.0   |   |  |  | 3.7  |  
|Percentage of present
value of scheme
liabilities                         |  |                | 15.3  | %             |  |                 | 0.5  | %       |  |  | 2.3   | % |  |  | 17.7 | %
|                                                                          |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  
|Total amount recognised in
statement of total
recognised gains and
losses |  |                | (18.3 | )             |  |                 | (2.0 | )       |  |  | (13.5 | ) |  |  | 0.4  |  
|Percentage of present
value of scheme
liabilities                         |  |                | 19.0  | %             |  |                 | 14.1 | %       |  |  | 31.3  | % |  |  | 1.9  | %
|                                                                          |  |                |       |               |  |                 |      |         |  |  |       |   |  |  |      |  

If the above amounts had been recognised in the financial statements, the
Groups net assets and profit and loss reserve at December 31, 2002 and 2001
would be as follows:

|                                                                |                     |  |                 |      |      |  |       |       |  
|--------------------------------------------------------------- | ------------------- |  | --------------- | ---- | ---- |  | ----- | ----- | -
|                                                                |                     |  | 2001            |      | 2002
|                                                                |                     |  |                 |      |     
|                                                                |                     |  | ( in millions)
|Net assets:                                                     |                     |  |                 |      |      |  |       |      
|Group net assets (as restated)                                  |                     |  | 17.6            |      |      |  | 12.3  |      
|                                                                | Pension prepayments |  |                 | (9.5 | )    |  |       |      |  
|                                                                | Pension provisions  |  |                 | 38.5 |      |  |       | (40.1 | )
|                                                                |                     |  |                 |      |      |  |       |      
|Add: net pension liability under SSAP24                         |                     |  | 29.0            |      |      |  | 40.1  |      
|Related deferred tax asset                                      |                     |  | (1.2            | )    |      |  | (1.6  | )    
|                                                                |                     |  |                 |      |      |  |       |      
|Group net assets excluding net pension liability under SSAP24   |                     |  | 45.4            |      |      |  | 50.8  |      
|Net pension liability under FRS 17                              |                     |  | (40.7           | )    |      |  | (71.9 | )    
|                                                                |                     |  |                 |      |      |  |       |      
|Group net assets including net pension liability under FRS 17   |                     |  | 4.7             |      |      |  | (21.1 | )    
|                                                                |                     |  |                 |      |      |  |       |      
|Reserves:                                                       |                     |  |                 |      |      |  |       |      
|Group reserves (as restated)                                    |                     |  | 14.9            |      |      |  | 9.6   |      
|Add:
net pension liability under SSAP24 (net of deferred taxes) |                     |  | 27.8            |      |      |  | 38.5  |      
|                                                                |                     |  |                 |      |      |  |       |      
|Group reserves excluding net pension liability under SSAP24     |                     |  | 42.7            |      |      |  | 48.1  |      
|Net pension liability under FRS 17                              |                     |  | (40.7           | )    |      |  | (71.9 | )    
|                                                                |                     |  |                 |      |      |  |       |      
|Group reserves including net pension liability under FRS 17     |                     |  | 2.0             |      |      |  | (23.8 | )    
|                                                                |                     |  |                 |      |      |  |       |      



|31. |  | RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
|--- |  | -------------------------------------------------------

|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  
|----------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                      |  | Year ended December 31,
|                                                      |  |                        
|                                                      |  | 2000                    |        | 2001 |  | 2002
|                                                      |  |                         |        |      |  |     
|                                                      |  | ( in millions)        
|Increase/(decrease) in cash in the period             |  |                         | (9.9   | )    |  |      | 108.5  |   |  |  | (5.1   | )
|Cash outflow/(inflow) from increase in debt financing |  |                         | 17.3   |      |  |      | (849.3 | ) |  |  | 91.1   |  
|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  
|Change in net debt resulting from cash flows          |  |                         | 7.4    |      |  |      | (740.8 | ) |  |  | 86.0   |  
|Acquisitions                                          |  |                         |       |      |  |      | (10.2  | ) |  |  |       |  
|Other net non-cash transactions                       |  |                         | (1.2   | )    |  |      | (69.3  | ) |  |  | 12.9   |  
|Net debt at start of period                           |  |                         | (103.8 | )    |  |      | (97.6  | ) |  |  | (917.9 | )
|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  
|Net debt at end of period                             |  |                         | (97.6  | )    |  |      | (917.9 | ) |  |  | (819.0 | )
|                                                      |  |                         |        |      |  |      |        |   |  |  |        |  

F-36



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|32. |  | ANALYSIS OF NET DEBT
|--- |  | --------------------

|                                  |  |                    |          |           |  |         |      |                      |  |          |       |   |  |  |        |  
|--------------------------------- |  | ------------------ | -------- | --------- |  | ------- | ---- | -------------------- |  | -------- | ----- | - |  |  | ------ | -
|                                  |  |                    |          |           |  |         |      |                      |  | Other    |       |   |  | 
|                                  |  |                    |          |           |  |         |      |                      |  | Non-Cash |       |   |  | 
|                                  |  | At January 1, 2002 |          | Cash Flow |  | Charges |      | At December 31, 2002
|                                  |  |                    |          |           |  |         |      |                     
|Cash at bank and in hand          |  |                    | 121.5    |           |  |         | (6.8 | )                    |  |          | (5.7  | ) |  |  | 109.0  |  
|Cash overdrafts                   |  |                    | (1.7     | )         |  |         | 1.7  |                      |  |          | (0.1  | ) |  |  | (0.1   | )
|                                  |  |                    |          |           |  |         |      |                      |  |          |       |   |  |  |        |  
|                                  |  |                    | 119.8    |           |  |         | (5.1 | )                    |  |          | (5.8  | ) |  |  | 108.9  |  
|Debt due within one year          |  |                    | (86.9    | )         |  |         | 86.9 |                      |  |          | (77.9 | ) |  |  | (77.9  | )
|Debt due after more than one year |  |                    | (942.8   | )         |  |         | 0.7  |                      |  |          | 96.4  |   |  |  | (845.7 | )
|Finance leases                    |  |                    | (8.0     | )         |  |         | 3.5  |                      |  |          | 0.2   |   |  |  | (4.3   | )
|                                  |  |                    |          |           |  |         |      |                      |  |          |       |   |  |  |        |  
|                                  |  |                    | (1,037.7 | )         |  |         | 91.1 |                      |  |          | 18.7  |   |  |  | (927.9 | )
|                                  |  |                    |          |           |  |         |      |                      |  |          |       |   |  |  |        |  
|Net debt                          |  |                    | (917.9   | )         |  |         | 86.0 |                      |  |          | 12.9  |   |  |  | (819.0 | )
|                                  |  |                    |          |           |  |         |      |                      |  |          |       |   |  |  |        |  

The cash flow relating to debt is stated net of debt issue costs of 0.7
million.

Non cash changes relate primarily to exchange movements, reclassifications
between debt due after more than one year and debt due within one year and
accrued interest on the deferred consideration.



|33. |  | RELATED PARTY TRANSACTIONS
|--- |  | --------------------------

The Group has a management services agreement with Ineos Capital Partners.
The partners of Ineos Capital own a controlling interest in the share capital
of Ineos Group Limited. Ineos Capital management fees of 8.1 million (2001:
4.7 million) were charged in the year. At December 31, 2002 amounts owed to
Ineos Capital were 6.0 million (2001: 3.8 million). Amounts due from Ineos
Capital were 14.0 million (2001: 14.0 million).

The partners of Ineos Capital also own a controlling interest in Ineos
Chlor Holdings Limited. Ineos Chlor Holdings Limited has certain common
directors with Ineos Group Limited. The Group has made sales to Ineos Chlor
Limited, a subsidiary of Ineos Chlor Holdings Limited, of 0.9 million (2001:
1.3 million) and purchases from Ineos Chlor Limited of 27.6 million (2001:
25.1 million) during the year. At December 31, 2002 0.6 million (2001: 1.2
million) was owed to Ineos Chlor Limited.



|34. |  | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
|--- |  | -------------------------------------------

Set out below are the narrative and numerical disclosures required by
Financial Reporting Standard 13 Derivatives and other financial instruments
(FRS 13). The Group has taken advantage of the exemption available under FRS 13
not to provide numerical disclosures in relation to short term debtors and
creditors, other than for foreign currency risk disclosures.



|(a) |  | Financial instruments
|--- |  | ---------------------

The Groups financial instruments, other than derivatives, comprise
borrowings, cash and liquid resources, and various items such as trade debtors
and trade creditors etc, that arise from its operations. The main purpose of
these financial instruments is to manage the Groups operations. It is, and has
been throughout the period under review, the policy of the Group that no
trading in financial instruments shall be undertaken.

The main risks from the Groups financial instruments are interest rate
risk, liquidity risk and foreign exchange risk. The board reviews and agrees
policies for managing each of these risks and they are summarised below.

F-37



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|34. |  | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)
|--- |  | -------------------------------------------------------



|(b) |  | Interest risk
|--- |  | -------------

The Group finances its operations through a mixture of retained profits,
term loans under the Senior Credit Agreement and Senior Notes. The Groups
exposure to market risk for changes in interest rates relates primarily to its
borrowings under the Senior Credit Agreement upon which interest is paid at
variable rates and to its cash resources which are invested at variable rates.

The Group has entered into a number of interest rate derivative financial
instruments during the year, such as interest rate swaps, caps and floors, in
order to manage its interest rate risk on the senior credit agreement. These
include:



| |  |  | Pay fixed swap with an initial notional amount of Japanese
Yen 8.1 billion amortising to Yen 5.6 billion, with a swap rate of
0.305% payable quarterly, maturing in January 2004;                                                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Amortising interest rate collar with an initial notional
amount of US$96.4 million amortising to US$83.4 million, with a cap
rate of 7.0%, maturing in January 2004. The floor rate of 3.755%
only applies to a notional principal of US $46.4 million.
|
| |  |  | Amortising interest rate collar with an initial notional
amount of 285.6 million amortising to 231.6 million, with a cap
rate of 5.45%, and a floor rate of 3.69%, maturing in June 2004;                                                            
|
| |  |  | Amortising interest rate collar with an initial notional
amount of £32.9 million amortising to £22.7 million with a cap rate
of 7.0%, maturing in June 2004.                                                                                           

Under interest rate swaps, we agree with other counterparties to exchange,
at specified intervals, the difference between fixed-rate and floating interest
amounts calculated by reference to an agreed notional principal amount. Our
interest rate collars entitle us to receive from counterparties the amounts, if
any, by which our interest payments on certain of our floating rate borrowings
exceed 5.45% (Euro denominated) and 7.0% (US$ denominated) or pay to
counterparties the amounts, if any, by which our interest payments fall below
3.69% (Euro denominated) and 3.755% (US$ denominated).



|(c) |  | Liquidity risk
|--- |  | --------------

The Groups exposure to liquidity risk is limited by the fact that it
operates with significant cash resources, and it maintains the most appropriate
mix of short, medium and long-term borrowings from the Groups lenders.



|(d) |  | Foreign currency risk
|--- |  | ---------------------

The currencies most important to the Groups financial position and
results of operations were those which are now linked at fixed exchange rates
to the Euro as well as U.S. Dollars, Sterling and Yen.

To mitigate the effect of the currency exposures arising from its overseas
operations, the Group borrows in the local currencies of its main operating
units.

F-38



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|34. |  | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)
|--- |  | -------------------------------------------------------



|(e) |  | Interest rate and currency profile of financial assets and liabilities
|--- |  | ----------------------------------------------------------------------

After taking into account interest rate swaps as entered into by the
Group, the interest rate and currency profile of the Groups gross financial
liabilities at December 31, 2002 and 2001 was:



| |  | At December 31, 2002
| |  | --------------------

|           |  |       |       |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |          |     |  
|---------- |  | ----- | ----- | ----------- |  | ------------- | ----- | ------------- |  | ----------------------------------------- | ----- | -------- |  | -------------- | ---- | -- |  | -------- | --- | -
|           |  |       |       |             |  |               |       |               |  | Fixed rate interest financial liabilities
|           |  |       |       |             |  |               |       |               |  |                                          
|           |  |       |       |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  | Weighted
|           |  |       |       |             |  | Floating rate |       |               |  |                                           |       | Weighted |  | average period
|           |  |       |       |             |  | financial     |       |               |  |                                           |       | average  |  | for which     
|           |  | Total |       | liabilities |  | Principal     |       | interest rate |  | rate is fixed                            
|           |  |       |       |             |  |               |       |               |  |                                          
|           |  | m   |       | m         |  | m           |       | %             |  | Years                                    
|           |  |       |       |             |  |               |       |               |  |                                          
|Euros      |  |       | 729.9 |             |  |               | 404.3 |               |  |                                           | 325.6 |          |  |                | 10.8 |    |  |          | 7.7 |  
|US Dollars |  |       | 138.4 |             |  |               | 138.4 |               |  |                                           |      |          |  |                |     |    |  |          |    |  
|Sterling   |  |       | 17.8  |             |  |               | 17.3  |               |  |                                           | 0.5   |          |  |                | 5.0  |    |  |          | 1.5 |  
|Yen        |  |       | 63.3  |             |  |               |      |               |  |                                           | 63.3  |          |  |                | 0.3  | 05 |  |          | 2.0 |  
|           |  |       |       |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |         
|           |  |       | 949.4 |             |  |               | 560.0 |               |  |                                           | 389.4 |          |  |                | 9.0  | 6  |  |          | 6.7 | 5
|           |  |       |       |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |          |    

The floating rate financial liabilities comprise Sterling bank overdrafts
which bear interest at prevailing market rates and the Euro, Sterling and U.S.
Dollar portions of the Senior Credit Agreement which are floating but subject
to interest rate floor and caps.



| |  | At December 31, 2001
| |  | --------------------

|           |  |       |         |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |          |     |  
|---------- |  | ----- | ------- | ----------- |  | ------------- | ----- | ------------- |  | ----------------------------------------- | ----- | -------- |  | -------------- | ---- | -- |  | -------- | --- | -
|           |  |       |         |             |  |               |       |               |  | Fixed rate interest financial liabilities
|           |  |       |         |             |  |               |       |               |  |                                          
|           |  |       |         |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  | Weighted
|           |  |       |         |             |  | Floating rate |       |               |  |                                           |       | Weighted |  | average period
|           |  |       |         |             |  | financial     |       |               |  |                                           |       | average  |  | for which     
|           |  | Total |         | liabilities |  | Principal     |       | interest rate |  | rate is fixed                            
|           |  |       |         |             |  |               |       |               |  |                                          
|           |  | m   |         | m         |  | m           |       | %             |  | Years                                    
|           |  |       |         |             |  |               |       |               |  |                                          
|Euros      |  |       | 746.9   |             |  |               | 423.8 |               |  |                                           | 323.1 |          |  |                | 10.5 |    |  |          | 7.8 |  
|US Dollars |  |       | 169.6   |             |  |               | 169.6 |               |  |                                           |      |          |  |                |     |    |  |          |    |  
|Sterling   |  |       | 80.2    |             |  |               | 78.8  |               |  |                                           | 1.4   |          |  |                | 5.0  |    |  |          | 2.5 |  
|Yen        |  |       | 70.2    |             |  |               |      |               |  |                                           | 70.2  |          |  |                | 0.3  | 05 |  |          | 3.0 |  
|           |  |       |         |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |          |    
|           |  |       | 1,066.9 |             |  |               | 672.2 |               |  |                                           | 394.7 |          |  |                | 8.4  | 8  |  |          | 7.4 | 7
|           |  |       |         |             |  |               |       |               |  |                                           |       |          |  |                |      |    |  |          |    

The Group has cash balances of 109.0 million (2001: 121.5 million) which
earn interest at prevailing variable market rates. 42.7 million (2001: 45.2
million) were denominated in US dollars, 4.5 million (2001:  3.6 million)
were denominated in Yen, and 4.8 million (2000: 6.4 million) were denominated
in Sterling.



|(f) |  | Maturity of financial liabilities and undrawn committed facilities
|--- |  | ------------------------------------------------------------------

The maturity profile of the Groups financial liabilities and undrawn
committed facilities at December 31, 2002 and 2001 was as follows:

|                                                     |  |             |         |             |  |                 |       |            |  |  |       |  |  |  |       | 
|---------------------------------------------------- |  | ----------- | ------- | ----------- |  | --------------- | ----- | ---------- |  |  | ----- |  |  |  | ----- | 
|                                                     |  | 2001        |         | 2002        |  | 2001            |       | 2002      
|                                                     |  | Financial   |         | Financial   |  | Undrawn         |       | Undrawn   
|                                                     |  | Liabilities |         | Liabilities |  | Facilities      |       | Facilities
|                                                     |  |             |         |             |  |                 |       |           
|                                                     |  |             |         |             |  | ( in millions) |       |            |  | 
|In one year or less, or on demand                    |  |             | 92.1    |             |  |                 | 77.9  |            |  |  | 113.2 |  |  |  | 113.2 | 
|In more than one year, but not more than two years   |  |             | 76.3    |             |  |                 | 71.4  |            |  |  |      |  |  |  |      | 
|In more than two years, but not more than five years |  |             | 217.8   |             |  |                 | 250.4 |            |  |  |      |  |  |  |      | 
|In more than five years                              |  |             | 653.2   |             |  |                 | 528.3 |            |  |  |      |  |  |  |      | 
|                                                     |  |             |         |             |  |                 |       |            |  |  |       |  |  |  |       | 
|                                                     |  |             | 1,039.4 |             |  |                 | 928.0 |            |  |  | 113.2 |  |  |  | 113.2 | 
|                                                     |  |             |         |             |  |                 |       |            |  |  |       |  |  |  |       | 

F-39



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|34. |  | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)
|--- |  | -------------------------------------------------------

The Group has committed overdraft facilities of 13.2 million and
committed revolving credit facilities of 100.0 million at December 31, 2002.
On January 29, 2003 the Group reduced the revolving credit facility to 75.0
million.



|(g) |  | Fair values of financial assets and liabilities
|--- |  | -----------------------------------------------

Set out below is as comparison by category of book values and fair values
of the Groups financial assets and liabilities as at December 31, 2001 and at
of December 31, 2002.

|                                                                              |  |                 |       |                 |      |            |       |            |  |  |       |  |  |  |       |  
|----------------------------------------------------------------------------- |  | --------------- | ----- | --------------- | ---- | ---------- | ----- | ---------- |  |  | ----- |  |  |  | ----- | -
|                                                                              |  | 2001            |       |                 | 2002 |            |      
|                                                                              |  |                 |       |                 |      |           
|                                                                              |  | Book Value      |       | Fair Value      |      | Book Value |       | Fair Value
|                                                                              |  |                 |       |                 |      |            |       |           
|                                                                              |  | ( in millions) |       | ( in millions)
|Primary financial instruments held to finance the
Groups operations:         |  |                 |       |                 |      |            |       |            |  |  |       |  |  |  |       |  
|Cash at bank and in hand                                                      |  |                 | 121.5 |                 |      |            | 121.5 |            |  |  | 109.0 |  |  |  | 109.0 |  
|Amounts owed by related parties                                               |  |                 | 14.0  |                 |      |            | 14.0  |            |  |  | 14.0  |  |  |  | 14.0  |  
|Bank overdrafts                                                               |  |                 | 1.7   |                 |      |            | 1.7   |            |  |  | 0.1   |  |  |  | 0.1   |  
|Bank and other loans repayable within one year                                |  |                 | 89.1  |                 |      |            | 89.1  |            |  |  | 81.9  |  |  |  | 81.9  |  
|Bank and other loans repayable after more than one year                       |  |                 | 706.5 |                 |      |            | 706.5 |            |  |  | 603.1 |  |  |  | 603.1 |  
|Senior secured notes                                                          |  |                 | 1.6   |                 |      |            | 1.6   |            |  |  |      |  |  |  |      |  
|Senior notes                                                                  |  |                 | 260.0 |                 |      |            | 267.8 |            |  |  | 260.0 |  |  |  | 274.3 |  
|Derivative financial instruments held to manage the
Groups currency profile: |  |                 |       |                 |      |            |       |            |  |  |       |  |  |  |       |  
|Interest rate swaps, floors and caps                                          |  |                 |      |                 |      |            | (2.1  | )          |  |  |      |  |  |  | (4.4  | )
|                                                                              |  |                 |       |                 |      |            |       |            |  |  |       |  |  |  |       |  

The fair value of cash, bank overdrafts, amounts owed by group
undertakings and bank loans approximate their respective book values as they
have floating interest rates.

The fair value of the Senior Notes, interest rate swaps, caps and floors
has been calculated by reference to available market prices.

Changes in the fair value of instruments used as hedges are not recognised
in the financial statements until the hedged position matures. An analysis of
these unrecognised gains and losses is as follows:

|                                                                                 |  |                 |   |        |  |                |      |   |  |           |      |  
|-------------------------------------------------------------------------------- |  | --------------- | - | ------ |  | -------------- | ---- | - |  | --------- | ---- | -
|                                                                                 |  |                 |   |        |  |                |      |   |  | Total net
|                                                                                 |  | Gains           |   | Losses |  | gains/(losses)
|                                                                                 |  |                 |   |        |  |               
|                                                                                 |  | ( in millions)
|Unrecognised gains and losses on hedges at January 1, 2002                       |  |                 |  |        |  |                | (2.1 | ) |  |           | (2.1 | )
|Gains and losses arising in previous years that were recognised
in 2001          |  |                 |  |        |  |                |     |   |  |           |     |  
|                                                                                 |  |                 |   |        |  |                |      |   |  |           |      |  
|Gains and losses arising before January 1, 2002 that were not
recognised in 2002 |  |                 |  |        |  |                | (2.1 | ) |  |           | (2.1 | )
|Gains and losses arising in 2001 that were not recognised in 2002                |  |                 |  |        |  |                | (2.3 | ) |  |           | (2.3 | )
|                                                                                 |  |                 |   |        |  |                |      |   |  |           |      |  
|Unrecognised gains and losses on hedges at December 31, 2002                     |  |                 |  |        |  |                | (4.4 | ) |  |           | (4.4 | )
|                                                                                 |  |                 |   |        |  |                |      |   |  |           |      |  
|Of which:                                                                        |  |                 |   |        |  |                |      |   |  |           |      |  
|Gains losses expected to be recognised in 2003                                   |  |                 |  |        |  |                |     |   |  |           |     |  
|Gains losses expected to be recognised in 2004 or later                          |  |                 |  |        |  |                | (4.4 | ) |  |           | (4.4 | )
|                                                                                 |  |                 |   |        |  |                |      |   |  |           |      |  

F-40



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|34. |  | DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)           
|--- |  | ------------------------------------------------------------------
|   
|(h) |  | Currency exposure of the Groups net monetary assets/(liabilities)

The principal currency exposure of the Groups net monetary
assets/(liabilities) is shown below for the years ending December 31, 2002 and
December 31, 2001. Such exposures comprise the monetary assets and monetary
liabilities that are not denominated in the operating currency of the operating
unit involved. Foreign exchange differences on retranslation of these assets
and liabilities are taken to the profit and loss account of the companies and
the group.

|           |  |                                                    |       |            |  |          |      |     |  |       |       |       |  |  |     |  |  |  |     |  |  |  |       |  
|---------- |  | -------------------------------------------------- | ----- | ---------- |  | -------- | ---- | --- |  | ----- | ----- | ----- |  |  | --- |  |  |  | --- |  |  |  | ----- | -
|           |  | Net foreign currency monetary assets/(Liabilities)
|           |  |                                                   
|2002:      |  | Euros                                              |       | US Dollars |  | Sterling |      | Yen |  | Other |       | Total
|           |  |                                                    |       |            |  |          |      |     |  |       |       |      
|           |  | ( in millions)                                   
|Euros      |  |                                                    |      |            |  |          | 19.9 |     |  |       | (12.6 | )     |  |  | 0.6 |  |  |  | 0.1 |  |  |  | 8.0   |  
|US Dollars |  |                                                    | (35.4 | )          |  |          |     |     |  |       |      |       |  |  |    |  |  |  | 0.4 |  |  |  | (35.0 | )
|Sterling   |  |                                                    | 27.4  |            |  |          | 4.8  |     |  |       |      |       |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 32.4  |  
|Yen        |  |                                                    |      |            |  |          |     |     |  |       |      |       |  |  | 3.2 |  |  |  |    |  |  |  | 3.2   |  
|           |  |                                                    |       |            |  |          |      |     |  |       |       |       |  |  |     |  |  |  |     |  |  |  |       |  
|Total      |  |                                                    | (8.0  | )          |  |          | 24.7 |     |  |       | (12.6 | )     |  |  | 3.9 |  |  |  | 0.6 |  |  |  | 8.6   |  
|           |  |                                                    |       |            |  |          |      |     |  |       |       |       |  |  |     |  |  |  |     |  |  |  |       |  

|           |  |                                                    |      |            |  |          |      |     |  |       |      |       |  |  |   |  |  |  |     |  |  |  |      | 
|---------- |  | -------------------------------------------------- | ---- | ---------- |  | -------- | ---- | --- |  | ----- | ---- | ----- |  |  | - |  |  |  | --- |  |  |  | ---- | 
|           |  | Net foreign currency monetary assets/(Liabilities)
|           |  |                                                   
|2001:      |  | Euros                                              |      | US Dollars |  | Sterling |      | Yen |  | Other |      | Total
|           |  |                                                    |      |            |  |          |      |     |  |       |      |      
|           |  | ( in millions)                                   
|Euros      |  |                                                    |     |            |  |          | (6.2 | )   |  |       | 10.2 |       |  |  |  |  |  |  | 2.0 |  |  |  | 6.0  | 
|US Dollars |  |                                                    |     |            |  |          |     |     |  |       |     |       |  |  |  |  |  |  | 0.3 |  |  |  | 0.3  | 
|Sterling   |  |                                                    | 20.4 |            |  |          | 9.6  |     |  |       |     |       |  |  |  |  |  |  | 1.1 |  |  |  | 31.1 | 
|Yen        |  |                                                    |     |            |  |          | 0.3  |     |  |       | (0.1 | )     |  |  |  |  |  |  |    |  |  |  | 0.2  | 
|           |  |                                                    |      |            |  |          |      |     |  |       |      |       |  |  |   |  |  |  |     |  |  |  |      | 
|Total      |  |                                                    | 20.4 |            |  |          | 3.7  |     |  |       | 10.1 |       |  |  |  |  |  |  | 3.4 |  |  |  | 37.6 | 
|           |  |                                                    |      |            |  |          |      |     |  |       |      |       |  |  |   |  |  |  |     |  |  |  |      | 

F-41



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|35. |  | LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE INEOS GROUP
LIMITED CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

|                                                      |  |               |  |            |     |   |  | 
|----------------------------------------------------- |  | ------------- |  | ---------- | --- | - |  | 
|                                                      |  | Country of    |  | Percentage
|Company                                               |  | Incorporation |  | Holding   
|                                                      |  |               |  |           
|Ineos Investment Holdings Limited*                    |  | UK            |  |            | 100 | %
|Ineos Trustees Limited*                               |  | UK            |  |            | 100 | %
|Ineos Intermediate Holdings Limited                   |  | UK            |  |            | 100 | %
|Ineos Group Holdings plc                              |  | UK            |  |            | 100 | %
|Ineos Holdings Limited                                |  | UK            |  |            | 100 | %
|Ineos US Finance Inc.                                 |  | US            |  |            | 100 | %
|Ineos Oxide Limited                                   |  | UK            |  |            | 100 | %
|Ineos UK Holding Finance Company Limited              |  | UK            |  |            | 100 | %
|Ineos US Finance Company Limited                      |  | UK            |  |            | 100 | %
|Ineos Finance BV                                      |  | Holland       |  |            | 100 | %
|Ineos NV                                              |  | Belgium       |  |            | 100 | %
|Ineos Belgium BV                                      |  | Belgium       |  |            | 100 | %
|Ineos Italia Srl                                      |  | Italy         |  |            | 100 | %
|Ineos OCI Limited                                     |  | UK            |  |            | 100 | %
|Ineos OCII Limited                                    |  | UK            |  |            | 100 | %
|Ineos Partners (DGP)                                  |  | US            |  |            | 100 | %
|Ineos US Holding                                      |  | US            |  |            | 100 | %
|Ineos LLC                                             |  | US            |  |            | 100 | %
|Ineos Phenol Limited                                  |  | UK            |  |            | 100 | %
|Ineos Phenol Verwaltungsgesellschaft mbH              |  | Germany       |  |            | 100 | %
|Ineos Phenol GmbH & Co KG                             |  | Germany       |  |            | 100 | %
|Ineos Phenol Asia Pte Limited                         |  | Singapore     |  |            | 100 | %
|Ineos Phenol (Thailand) Limited                       |  | Thailand      |  |            | 100 | %
|Ineos Phenol Services (Thailand) Limited              |  | Thailand      |  |            | 100 | %
|Ineos Phenol Inc.                                     |  | US            |  |            | 100 | %
|Ineos Investment Holdings (Fluor & Silicas) Limited   |  | UK            |  |            | 100 | %
|Ineos Intermediate Holdings (Fluor & Silicas) Limited |  | UK            |  |            | 100 | %
|Ineos Holdings (Fluor & Silicas) Limited              |  | UK            |  |            | 100 | %
|Ineos Fluor Holdings Limited                          |  | UK            |  |            | 100 | %
|Ineos Fluor Limited                                   |  | UK            |  |            | 100 | %
|Ineos Fluor International Limited                     |  | UK            |  |            | 100 | %
|Ineos Fluor Japan Limited                             |  | Japan         |  |            | 100 | %
|Ineos Fluor Canada Inc.                               |  | Canada        |  |            | 100 | %
|Ineos Fluor Partners Limited                          |  | UK            |  |            | 100 | %
|IC (K) DL LLC                                         |  | US            |  |            | 100 | %
|Ineos Fluor Americas LLC                              |  | US            |  |            | 100 | %
|Grangehunter Limited                                  |  | UK            |  |            | 100 | %
|Ineos Silicas Holding Limited                         |  | UK            |  |            | 100 | %
|Ineos Silicas Limited                                 |  | UK            |  |            | 100 | %
|Ineos Silicas International Limited                   |  | UK            |  |            | 100 | %
|Crosfield Catalysts Limited                           |  | UK            |  |            | 100 | %
|Ineos Silicas Holdings Netherlands BV                 |  | Holland       |  |            | 100 | %
|Ineos Silicas Netherlands BV                          |  | Holland       |  |            | 100 | %
|Ineos Silicas Italia Srl                              |  | Italy         |  |            | 100 | %
|Ineos Silicas Holdings Asia Pacific                   |  | Singapore     |  |            | 100 | %
|Ineos Silicas Asia Pacific Pte Limited                |  | Singapore     |  |            | 100 | %
|Ineos Silicas South Africa Pty Limited                |  | South Africa  |  |            | 100 | %
|Crosfield South Africa Pty Limited                    |  | South Africa  |  |            | 100 | %
|PT Ineos Silicas Indonesia                            |  | Indonesia     |  |            | 100 | %
|Ineos Brazil Limitada                                 |  | Brazil        |  |            | 100 | %
|Ineos Silicas Partners Limited                        |  | UK            |  |            | 100 | %
|Ineos Silicas Delaware Limited                        |  | UK            |  |            | 100 | %
|IC (L) DL LLC                                         |  | US            |  |            | 100 | %
|Ineos Silicas Americas LLC                            |  | US            |  |            | 100 | %



---

|* |  | Held directly by the Company
|- |  | ----------------------------

F-42



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##### Table of Contents





|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
|--- |  | --------------------------------------------------------------



|(a) |  | Differences in measurement methods
|--- |  | ----------------------------------

The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 142, Goodwill and Other Intangible Assets (SFAS 142) effective January
1, 2002. In accordance with SFAS 142, goodwill is no longer amortised to
income. Goodwill is subject to an impairment test to be performed at least
annually, whereby impairment reviews may result in annual goodwill write-downs.
Under the transitional provisions of SFAS 142, all goodwill existing as of
December 31, 2001 ceased to be amortised as of January 1, 2002.

The Company has assigned its goodwill under US GAAP of 1.7 million to its
antifreeze reporting unit of Ineos Oxide. If the fair value of the reporting
unit is less than its carrying value, then a goodwill impairment loss will be
recognised equal to the excess, if any, of the net carrying value of the
reporting units goodwill over its implied fair value. The implied fair value
of the reporting units goodwill would be the amount equal to the excess of the
estimated fair value of the reporting unit over the amount that would be
allocated to the tangible and intangible net assets of the reporting unit
(including unrecognised intangible assets) as if such reporting unit had been
acquired in a purchase business combination as of the date of the impairment
testing.

The Company has determined the estimated fair value of the reporting unit
using discounted cash flows.

The Company has completed its annual goodwill impairment analysis under
SFAS 142 as of January 1, 2003, whereby goodwill was deemed not to be impaired.

A reconciliation of the US GAAP net income amounts reported in the income
statement for each of the three years ended December 31, 2002 to the amounts
that would have been reported under SFAS 142 is presented below:

|                                     |  |                   |      |                   |  |                   |       |   |  |  |      | 
|------------------------------------ |  | ----------------- | ---- | ----------------- |  | ----------------- | ----- | - |  |  | ---- | 
|                                     |  | Year Ended        |      | Year Ended        |  | Year Ended       
|                                     |  | December 31, 2000 |      | December 31, 2001 |  | December 31, 2002
|                                     |  |                   |      |                   |  |                  
|                                     |  | ( in millions)   |      | ( in millions)   |  | ( in millions)  
|Net income (loss) as reported        |  |                   | 28.3 |                   |  |                   | (42.0 | ) |  |  | 23.0 | 
|Amortisation of goodwill, net of tax |  |                   | 0.1  |                   |  |                   | 0.1   |   |  |  |     | 
|                                     |  |                   |      |                   |  |                   |       |   |  |  |      | 
|Net loss as adjusted for SFAS 142    |  |                   | 28.4 |                   |  |                   | (41.9 | ) |  |  | 23.0 | 
|                                     |  |                   |      |                   |  |                   |       |   |  |  |      | 

Goodwill on a US GAAP basis of 1.8, 1.7 and 1.7 million as of December
31, 2000, 2001 and 2002, respectively, related to the Ineos Oxide antifreeze
reporting unit.

The Company does not have any intangible assets that would be classified
as indefinite-lived under FAS 142. Accordingly, the transitional provisions of
FAS 142 and the requirements to test indefinite-lived intangible assets on
January 1, 2003 for impairment are not applicable.

Definite lived intangible assets principally comprise non-compete
agreements, license fees, trade names, existing technology and customer
contracts and have a book value of 1.5, 54.6, and 42.9 million, net of
accumulated amortisation of 0.8, 8.0 and 17.2 million at December 31, 2000,
2001 and 2002, respectively. Amortisation expense recorded in the period in
respect of finite lived intangible assets was 0.7, 7.2 and 9.2 million for
the years ended December 31, 2000, 2001 and 2002, respectively.

The financial statements are prepared in accordance with UK GAAP which
differs in certain significant respects from accounting principles generally
accepted in the United States (US GAAP). These differences principally relate
to the following items and the effect on net income and shareholders equity is
shown in the following tables. All significant differences between UK GAAP and
US GAAP affecting Ineos Group Limited have been addressed.

F-43



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (i) |  | Goodwill adjustments upon the Original Acquisition
| | --- |  | --------------------------------------------------

The Original Acquisition has been accounted for under the purchase method
in accordance with UK and US GAAP. Under UK GAAP the fair value of the
identifiable assets and liabilities acquired was 115.9 million (excluding
assumed debts of 86.7 million) resulting in goodwill on acquisition of 9.9
million.

Under US GAAP the fair values of the identifiable assets and liabilities
acquired have been determined in accordance with the provisions of APB 16. The
resulting differences in determination of the fair values compared to UK GAAP
are illustrated below:

|                                                 |  |                 |       |  
|------------------------------------------------ |  | --------------- | ----- | -
|                                                 |  | ( in millions)
|                                                 |  |                
|Fair values under UK GAAP                        |  |                 | 29.2  |  
|Additional fair value adjustments under US GAAP: |  |                 |       |  
|Tangible fixed assets                            |  |                 | (16.5 | )
|Pension obligations (see (vii) below)            |  |                 | 23.6  |  
|Acquisition date                                 |  |                 | 1.8   |  
|Inventories                                      |  |                 | 1.0   |  
|                                                 |  |                 |       |  
|Fair values under US GAAP                        |  |                 | 39.1  |  
|                                                 |  |                 |       |  

The initial negative goodwill on acquisition as determined on a US GAAP
basis has been allocated to non-current, non-monetary assets in accordance with
APB 16. This allocation has resulted in a reduction in the fair value of
freehold land, which is not subject to depreciation. Accordingly, no further
adjustments to the depreciation charge are required under US GAAP as a result
of this allocation.

The amortisation of goodwill of 0.5 million reflected in the UK GAAP
financial statements has been reversed for US GAAP (2001: 0.5 million; 2000:
0.5 million).

Under UK GAAP the date of acquisition of a subsidiary is the date that
control passes. Control is defined as the ability of an undertaking to direct
the financial and operating policies of another undertaking with a view to
gaining economic benefits from its activities. In relation to the Original
Acquisition control was deemed to pass on April 6, 1998 for UK GAAP purposes.

For US GAAP purposes the acquisition date is ordinarily the date the
acquisition is completed and consideration passes. For convenience, the end of
the accounting period before the completion date may be used as the effective
date of acquisition where this falls between the dates a business combination
is initiated and consummated.

In relation to the Original Acquisition the Stock Acquisition Agreement
was entered into on April 14, 1998 and the consideration was paid upon
completion of the Acquisition on May 5, 1998. Accordingly the date of April 30,
1998, being the end of an accounting period, has been utilised as the effective
date of acquisition for US GAAP purposes.

The change in net assets acquired of 1.8 million between the two
acquisition dates, being the net income for the period concerned has been
reflected as an increase in net assets with a corresponding increase in the
amount of negative goodwill allocated.

Under UK GAAP finished goods and work in progress are fair valued as part
of an acquisition at the lower of replacement cost and net realisable value.
Replacement cost for this purpose is the current cost of bringing inventories
to their present location and condition.

F-44



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

Under US GAAP such inventories should be fair valued at estimated selling
prices less costs to complete where appropriate, the costs of disposal and a
reasonable profit allowance for the selling effort of the acquiring company.
Accordingly, for US GAAP purposes, there has been an uplift in the fair value
of the inventories acquired of 1.0 million. This has been reflected in the
gross cost of goodwill as noted above.



| | (ii) |  | Purchase accounting adjustments upon the acquisitions of
Ineos Fluor and Ineos Silicas
| | ---- |  | --------------------------------------------------------------------------------------

The acquisitions have been accounted for under the purchase method in
accordance with UK and US GAAP. Under UK GAAP the fair value of the
identifiable assets and liabilities acquired was 570.6 million resulting in
negative goodwill on acquisition of 121.9 million. In accordance with UK GAAP
these fair values have been revised in the year ended December 31, 2002 as
described in note 27 to the financial statements.

Under US GAAP the fair values of the identifiable assets and liabilities
acquired have been determined in accordance with the provisions of APB 16. The
resulting differences in the determination of the fair values compared to UK
GAAP are illustrated below:

|                                                 |  |                 |        |  
|------------------------------------------------ |  | --------------- | ------ | -
|                                                 |  | ( in millions)
|                                                 |  |                
|Fair values under UK GAAP (as revised)           |  |                 | 570.6  |  
|Additional fair value adjustments under US GAAP: |  |                 |        |  
|Tangible fixed assets                            |  |                 | (194.7 | )
|Research and development in process              |  |                 | 2.2    |  
|Trade names/trade marks                          |  |                 | 3.1    |  
|Existing technology                              |  |                 | 9.5    |  
|Customer contracts                               |  |                 | 5.5    |  
|Non-compete agreements                           |  |                 | 4.5    |  
|Pensions (see (vii) below)                       |  |                 | 4.6    |  
|Inventories (see (vi) below)                     |  |                 | 17.4   |  
|Restructuring provision (see (x) below)          |  |                 | (12.7  | )
|Deferred taxation (see (xi) below)               |  |                 | 38.7   |  
|                                                 |  |                 |        |  
|Fair values under US GAAP                        |  |                 | 448.7  |  
|                                                 |  |                 |        |  

The initial negative goodwill as determined on a US GAAP basis has been
allocated on a pro-rata basis to all non-current, non-monetary assets in
accordance with APB 16. This has resulted in a reduction in the fair value of
tangible fixed assets acquired and a reduction in the fair value of intangible
assets acquired. As a result of the reduction in tangible fixed assets
acquired, the depreciation charge for the period ended December 31, 2002 has
been reduced by
15.0 million
(2001 : 14.7 million; 2000 : nil million).

Under US GAAP, acquired separately identifiable intangible assets have
been recognised as intangible assets and are being amortised over estimated
useful lives of between 4 and 20 years. The identified intangibles have been
determined based on an independent appraisal. As a result of the recognition
of identifiable intangible assets the amortisation charge for the period ended
December 31, 2002 has been increased by
2.5 million
(2001 : 2.5 million; 2000 :
nil million). Under UK GAAP, these intangibles did not meet the requirements
under FRS 10 to be recognised separately and were therefore considered as part
of goodwill.

F-45



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

The assessment of intangible fixed assets above includes approximately
2.2 million (after the allocation of negative goodwill) for acquired
in-process research and development for projects that did not have future
alternative uses. At the date of the acquisition, the development of these
projects had not yet reached technological feasibility and the in-process
research and development had no alternative future uses. Accordingly these
costs were expensed to the profit and loss account in the period ended December
31, 2001.

Under US GAAP the fair value adjustments made this year under UK GAAP
(excluding the adjustment relating to deferred tax upon the adoption of FRS 19)
have been reversed as they fall outside of the timeframe normally allowed under
FAS 38 or are not allowed under FAS 87.



| | (iii) |  | Purchase accounting adjustments on the acquisition of the
Ethanolamines and GAS/SPEC businesses
| | ----- |  | -----------------------------------------------------------------------------------------------

The acquisition has been accounted for under the purchase method in
accordance with UK and US GAAP. Under UK GAAP the fair value of the
identifiable assets and liabilities acquired were 43.8 million resulting in
goodwill of 1.6 million.

Under US GAAP the fair values of the identifiable assets and liabilities
acquired have been determined in accordance with the provisions of APB 16. The
resulting differences in the determination of the fair values compared to UK
GAAP are illustrated below:

|                                                 |  |                 |      |  
|------------------------------------------------ |  | --------------- | ---- | -
|                                                 |  | ( in millions)
|                                                 |  |                
|Fair values under UK GAAP                        |  |                 | 43.8 |  
|Additional fair value adjustments under US GAAP: |  |                 |      |  
|Tangible fixed assets                            |  |                 | (7.4 | )
|Customer contracts                               |  |                 | 3.0  |  
|Existing technology                              |  |                 | 2.4  |  
|Trade names/trade marks                          |  |                 | 1.0  |  
|Inventories (see (vi) below)                     |  |                 | 3.3  |  
|Deferred taxation (see (xi) below)               |  |                 | (0.7 | )
|                                                 |  |                 |      |  
|Fair values under US GAAP                        |  |                 | 45.4 |  
|                                                 |  |                 |      |  

The initial negative goodwill as determined on a US GAAP basis has been
allocated on a pro rata basis to all non-current, non-monetary assets in
accordance with APB 16. This has resulted in a reduction in the fair value of
tangible fixed assets acquired and a reduction in the fair value of intangible
fixed assets acquired. As a result of the reduction in tangible fixed assets
acquired, the depreciation charge for the period ended December 31, 2002 has
been reduced by
0.5 million
(2001 : 0.5 million; 2000 : nil million).

Under US GAAP, acquired separately identifiable intangible assets have
been recognised as intangible assets and are being amortised over estimated
useful lives of between 7 and 40 years. The identified intangibles have been
determined based on an independent appraisal. As a result of the recognition
of identifiable intangible assets the amortisation charge for the period ended
December 31, 2002 has been increased by
0.7 million
(2001 : 0.6 million; 2000 :
nil million). Under UK GAAP, these intangibles did not meet the requirements
under FRS 10 to be recognised separately and were therefore considered as part
of goodwill.

F-46



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (iv) |  | Purchase accounting adjustments upon the acquisition of Ineos
Phenol
| | ---- |  | --------------------------------------------------------------------

The acquisition of Ineos Phenol has been accounted for under the purchase
method in accordance with UK and US GAAP. Under UK GAAP the fair value of the
identifiable assets and liabilities acquired was 623.6 million, resulting in
negative goodwill on acquisition of 266.5 million. In accordance with UK GAAP
these fair values have been revised in the year ended December 31, 2002 as
described in note 27 to the financial statements.

Under US GAAP the fair values of the identifiable assets and liabilities
acquired have been determined in accordance with the provisions of APB 16. The
resulting differences in the determination of the fair values compared to UK
GAAP are illustrated below:

|                                                 |  |                 |        |  
|------------------------------------------------ |  | --------------- | ------ | -
|                                                 |  | ( in millions)
|                                                 |  |                
|Fair values under UK GAAP (as revised)           |  |                 | 623.6  |  
|Additional fair value adjustments under US GAAP: |  |                 |        |  
|Tangible fixed assets                            |  |                 | (327.3 | )
|Existing technology                              |  |                 | 7.4    |  
|Customer contracts                               |  |                 | 19.0   |  
|Inventories (see (vi) below)                     |  |                 | 0.7    |  
|Restructuring provision (see (x) below)          |  |                 | (6.5   | )
|Deferred taxation (see (xi) below)               |  |                 | 40.2   |  
|                                                 |  |                 |        |  
|Fair values under US GAAP                        |  |                 | 357.1  |  
|                                                 |  |                 |        |  

The initial negative goodwill as determined on a US GAAP basis has been
allocated on a pro rata basis to all non-current, non-monetary assets in
accordance with APB 16. This has resulted in a reduction in the fair value of
tangible fixed assets acquired and a reduction in the fair value of intangible
fixed assets acquired. As a result of the reduction in tangible fixed assets
acquired, the depreciation charge for the period ended December 31, 2002 has
been reduced by
25.2 million
(2001 : 13.8 million; 2000 : nil million).

Under US GAAP, acquired separately identifiable intangible assets have
been recognised as intangible assets and are being amortised over estimated
useful lives of between 4 and 10 years. The identified intangibles have been
determined based on an independent appraisal. As a result of the recognition
of identifiable intangible assets the amortisation charge for the period ended
December 31, 2002 has been increased by
5.4 million
(2001 : 3.5 million; 2000 :
nil million). Under UK GAAP, these intangibles did not meet the requirements
under FRS 10 to be recognised separately and were therefore considered as part
of goodwill.



| | (v) |  | Purchase accounting adjustments on the acquisition of the
acetate esters business
| | --- |  | ---------------------------------------------------------------------------------

The acquisition has been accounted for under the purchase method in
accordance with UK and US GAAP. Under UK GAAP the fair value of the
identifiable assets and liabilities acquired were 4.4 million resulting in
goodwill of 0.6 million.

Under US GAAP the fair values of the identifiable assets and liabilities
acquired have been determined in accordance with the provisions of FAS 141.
The resulting differences in the determination of the fair values compared to
UK GAAP are illustrated below:

F-47



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

|                             |  |                 |     |  | 
|---------------------------- |  | --------------- | --- |  | 
|                             |  | ( in millions)
|                             |  |                
|Fair values under UK GAAP    |  |                 | 4.4 | 
|Inventories (see (vi) below) |  |                 | 0.6 | 
|                             |  |                 |     | 
|Fair values under US GAAP    |  |                 | 5.0 | 
|                             |  |                 |     | 



| | (vi) |  | Inventories
| | ---- |  | -----------

Under UK GAAP finished goods and work in progress are fair valued as part
of an acquisition at the lower replacement cost and net realisable value.
Replacement cost for this purpose is the current cost of bringing inventories
to their present location and condition.

Under US GAAP such inventories should be fair valued at estimated selling
prices less costs to complete where appropriate, the costs of disposal and a
reasonable profit allowance for the selling effort of the acquiring company.
Accordingly, for US GAAP purposes, there has been an uplift in the fair value
of the inventories acquired of
0.6 million
(2001 : 21.4 million; 2000 : nil
million). This has been reflected in the purchase accounting adjustments as
noted in (ii), (iii), (iv) and (v) above. This non recurring uplift is
utilised as the stock is sold and was fully utilised during the period ended
December 31, 2002.



| | (vii) |  | Pensions
| | ----- |  | --------

In respect of defined benefit pension obligations, US GAAP requires the
use of a discount rate, which reflects current market conditions in determining
the provision for pension benefits. UK GAAP permits the use of longer-term
discount rates. Furthermore, the amortisation procedure required under US GAAP
applies a corridor approach for recognising gains and losses in the
determination of periodic pension expense. Additionally, for UK funding and
accounting purposes it is satisfactory to carry out actuarial valuations on a
three year interval whereas annual valuations are required under US GAAP.

In accordance with FAS No. 87 the assignment of the purchase consideration
to the individual assets acquired shall include an asset for plan assets in
excess of the projected benefit obligation of a single employer defined benefit
pension plan, thereby eliminating any previously unrecognised net gain existing
at the date of acquisition. The excess of the plan assets over the projected
benefit obligation at the date of the Original Acquisition (as determined in
accordance with US GAAP) was 23.6 million. This has been reflected in
calculating the purchase accounting adjustments noted in (i) above.

In relation to the acquisitions of Ineos Fluor and Ineos Silicas, an
additional asset for pension plan assets as determined in accordance with FAS
No. 87 of 4.6 million has been recognised. This has been reflected in the
purchase accounting adjustments noted in (ii) above.



| | (viii) |  | Derivative financial instruments
| | ------ |  | --------------------------------

In May 2001, the Company entered into an interest rate swap to exchange,
at specified intervals, the differences between fixed-rate and floating rate
interest amounts calculated by reference to an agreed notional principal
amount. In addition, in May 2001 the Company entered into two interest rate
cap and collars related to the Senior Credit Agreement. For purposes of the US
GAAP these derivative financial instruments are recorded on the balance sheet
with the related gain or loss recorded in the profit and loss account. At
December 31, 2002, the fair value of the derivative financial instruments was a
loss of
4.4 million
(2001 : loss of 2.1 million; 2000 : nil million).

F-48



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (ix) |  | Capitalisation of interest
| | ---- |  | --------------------------

The capitalisation of interest is optional under UK GAAP. Accordingly,
Ineos Group Limited does not capitalise interest in its financial statements.
Under US GAAP, SFAS No. 34, Capitalisation of Interest Cost, requires
interest incurred as part of the cost of constructing fixed assets to be
capitalised and amortised over the life of the asset. Interest capitalised
less amortisation in the year ended December 31, 2002 was 2.3 million
(2001: 1.4 million; 2000 : nil million).



| | (x) |  | Restructuring provisions
| | --- |  | ------------------------

Under UK GAAP costs incurred in restructuring the operations of businesses
that have been acquired are expensed to the profit and loss account.

Under US GAAP such restructuring costs are recognised as liabilities in a
purchase business combination and included in the allocation of the purchase
price. If certain specified conditions are met then the costs to terminate and
relocate employees together with the costs of exiting leased properties would
be recognised on acquisition. Total restructuring charges of 19.2 million
have been recognised on the acquisitions of Ineos Fluor, Ineos Silicas and
Ineos Phenol.



| | (xi) |  | Deferred tax
| | ---- |  | ------------

The Group adopted FRS 19 Deferred Tax in 2002 for UK GAAP purposes.
Consequently, the consolidated financial statements as of December 31, 2001 and
2000, and the three year period ended December 31, 2002 have been restated and
disclosures have been modified to reflect retroactively the impact of the
adoption of FRS 19 on such financial statements as required by UK GAAP. FRS 19
requires that full provision for deferred tax is recognised in the financial
statements. The adoption of FRS 19 has eliminated virtually all of the
differences that previously existed between UK GAAP and US GAAP. As a result,
the adjustment for taxation now primarily relates to the tax effect of other US
GAAP adjustments.

Deferred income taxes have been provided at the statutory tax rate for
differences between the book and tax bases of assets and liabilities. A
valuation allowance has been established for deferred tax assets that are more
likely than not to expire unutilised. The deferred tax adjustments included in
the reconciliation also contains the tax effects of the above US GAAP
adjustments where appropriate.



| | (xii) |  | Foreign currency translation differences
| | ----- |  | ----------------------------------------

Under US GAAP any negative goodwill on acquisitions is allocated to
non-current non-monetary assets. In relation to the acquisitions in notes
(ii), (iii) and (iv) above, tangible fixed assets have been reduced accordingly
and the negative goodwill recognised under UK GAAP has been reversed. These
balances would have been included in the determination of foreign currency
translation differences on consolidation under UK GAAP, and an adjustment is
therefore required to reflect the changes to fixed assets and negative goodwill
under US GAAP on those translation differences on consolidation.



| | (xiii) |  | Netting
| | ------ |  | -------

Amounts receivable from Union Carbide in respect of the Companys
liability for waste disposal costs as described in note 22 have been presented
in the accompanying UK GAAP financial statements netted from the provision
made. Under US GAAP such amounts cannot be offset and therefore an adjustment
to gross up the liability and show the 0.7 million (1.2 million in 2001)
receivable separately in debtors would have to be made.

F-49



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (xiv) |  | Debt issue costs
| | ----- |  | ----------------

Under UK GAAP issued debt is stated on the balance sheet net of the
associated unamortised issue costs.

Under US GAAP such debt issue costs are capitalised as an asset and
reported as deferred charges in the balance sheet. Therefore an adjustment to
gross up the debt liability and to show the 21.4 million (27.5 million in
2001) asset as at December 31, 2002, separately in debtors would have to be
made.



| | (xv) |  | Current assets and liabilities
| | ---- |  | ------------------------------

Provisions for liabilities and charges under UK GAAP includes 1.6 million
(2001 : 1.6 million) due within one year which would be classified as current
liabilities and
0.7 million
(2001 : 0.7 million) receivable within one year
which would be classified as current assets under US GAAP. In addition, current
assets under UK GAAP includes other debtors and prepayments of 48.7 million
(2001 : 59.0 million) which would be classified as non-current under US GAAP.



| | (xvi) |  | Emissions credits and incentive receivables
| | ----- |  | -------------------------------------------

Amounts receivable under the UK Emissions Trading Scheme are recorded as a
reduction to cost of sales in the period in which revenue is earned.

Under UK GAAP, no entries are made to record Emission Credits received
under the scheme and held by the Company at the balance sheet date or to record
Emission Credits payable at the balance sheet date.

Under US GAAP, Emission Credits received under the scheme and held by the
Company at the balance sheet date are classified as available-for-sale
securities. Accordingly, Emission Credits are recorded as financial assets and
held at fair value. Unrealised gains and losses arising at the balance sheet
date are initially recorded within Other Comprehensive Income with subsequent
recognition in income upon eventual sale. Emission Credits payable at the
balance sheet date are recorded at their fair value as financial liabilities.
Emission credits that would be included within financial assets under US GAAP
as at December 31, 2002 totalled 8.0 million (2001 : nil) with net unrealised
gains of 2.9 million (2001 : nil). Emission credits that would be included
within financial liabilities under US GAAP as at December 31, 2002 totalled
5.1 million (2001 : nil).

F-50



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

Effects on net income of differences between UK GAAP and US GAAP:

|                                                   |                                  |                            |       |  |            |   |                         |  |       |                 |       |   |       |      |      |  | 
|-------------------------------------------------- | -------------------------------- | -------------------------- | ----- |  | ---------- | - | ----------------------- |  | ----- | --------------- | ----- | - | ----- | ---- | ---- |  | 
|                                                   |                                  |                            |       |  |            |   | Year Ended December 31,
|                                                   |                                  |                            |       |  |            |   |                        
|                                                   |                                  |                            |       |  |            |   | 2000                    |  | 2001  |                 |       |   |      
|                                                   |                                  |                            | Notes |  | (restated) |   | (restated)              |  | 2002 
|                                                   |                                  |                            |       |  |            |   |                         |  |      
|                                                   |                                  |                            |       |  |            |   |                         |  |       | ( in millions) |       |   |      
|Profit/(loss) for the financial year               |                                  |                            |       |  |            |   |                         |  |       |                 |       |   |       |      |      | 
|Profit/(loss) for the financial year under UK GAAP |                                  |                            |       |  |            |   | 27.6                    |  |       |                 | (21.1 | ) |       |      | 35.2 | 
|Goodwill adjustments on acquisitions               |                                  | (i), (ii), (iii),(iv), (v) |       |  | 0.5        |   |                         |  | (34.2 | )               |       |   | (39.4 | )   
|Inventories                                        |                                  | (vi)                       |       |  |           |   |                         |  | (21.4 | )               |       |   | (0.6  | )   
|Depreciation of tangible fixed assets              |                                  | (ii), (iii), (iv)          |       |  |           |   |                         |  | 29.0  |                 |       |   | 41.7  |     
|Amortisation of intangibles                        |                                  | (ii), (iii), (iv)          |       |  |           |   |                         |  | (6.6  | )               |       |   | (8.6  | )   
|In process research and development                |                                  | (ii)                       |       |  |           |   |                         |  | (2.2  | )               |       |   |      |     
|Pensions                                           |                                  | (vii)                      |       |  | 0.2        |   |                         |  | (0.7  | )               |       |   | (2.0  | )   
|Derivative financial instruments                   |                                  | (viii)                     |       |  |           |   |                         |  | (2.1  | )               |       |   | (2.3  | )   
|Capitalisation of interest less amortisation       |                                  | (ix)                       |       |  |           |   |                         |  | 1.4   |                 |       |   | 2.3   |     
|Restructuring provisions                           |                                  | (x)                        |       |  |            |  |                         |  |       | 19.2            |       |   |       |     |     
|Deferred taxation                                  |                                  |                            |       |  |            |   |                         |  |       |                 |       |   |       |      |      | 
|                                                   |  arising on UK GAAP results     |                            | (xi)  |  |            |  |                         |  |       | (0.4            | )     |   |       |     |     
|                                                   |  arising on US GAAP adjustments |                            | (xi)  |  |            |  |                         |  |       | (2.9            | )     |   |       | (3.3 | )   
|                                                   |                                  |                            |       |  |            |   |                         |  |       |                 |       |   |       |      |      | 
|Profit/(loss) for the financial year under US GAAP |                                  |                            |       |  |            |   | 28.3                    |  |       |                 | (42.0 | ) |       |      | 23.0 | 
|                                                   |                                  |                            |       |  |            |   |                         |  |       |                 |       |   |       |      |      | 

F-51



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##### Table of Contents



INEOS GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

Effects on shareholders equity between UK GAAP and US GAAP:

|                                         |  |                        |  |            |        |                    |      |   |        |   |       |  
|---------------------------------------- |  | ---------------------- |  | ---------- | ------ | ------------------ | ---- | - | ------ | - | ----- | -
|                                         |  |                        |  |            |        | As at December 31,
|                                         |  |                        |  |            |        |                   
|                                         |  |                        |  |            |        | 2001               |      |   |        |  
|                                         |  | Notes                  |  | (restated) |        | 2002              
|                                         |  |                        |  |            |        |                   
|                                         |  |                        |  |            |        | ( in millions)   
|Shareholders equity                     |  |                        |  |            |        |                    |      |   |        |   |       |  
|Shareholders equity under UK GAAP       |  |                        |  |            |        |                    | 17.6 |   |        |   | 12.3  |  
|Goodwill adjustments on acquisition      |  | (i), (ii), (iii), (iv) |  |            | 327.0  |                    |      |   | 304.0  |  
|Tangible fixed assets                    |  | (i), (ii), (iii), (iv) |  |            | (492.4 | )                  |      |   | (471.4 | )
|Intangible fixed assets                  |  | (ii), (iii), (iv)      |  |            | 51.1   |                    |      |   | 40.2   |  
|Pensions                                 |  | (vii)                  |  |            | 19.9   |                    |      |   | 19.7   |  
|Derivative financial instruments         |  | (viii)                 |  |            | (2.1   | )                  |      |   | (4.4   | )
|Deferred taxation                        |  | (xi)                   |  |            | 75.0   |                    |      |   | 71.7   |  
|Foreign currency translation differences |  | (xii)                  |  |            | 0.6    |                    |      |   | 7.2    |  
|                                         |  |                        |  |            |        |                    |      |   |        |   |       |  
|Shareholders equity under US GAAP       |  |                        |  |            |        |                    | (3.3 | ) |        |   | (20.7 | )
|                                         |  |                        |  |            |        |                    |      |   |        |   |       |  



| |  | Cash flow information
| |  | ---------------------

The definition of cash flows differs between UK and US GAAP. Cash flow
under UK GAAP represents increases or decreases in cash, which is comprised
of cash in hand and repayable on demand less overdrafts. Under US GAAP cash
flow represents increases or decreases in cash and cash equivalents, which
include short term, highly liquid investments with remaining maturities of less
than 90 days when acquired, and exclude overdrafts.

There are also certain differences in classification of items within the
cash flow statement between UK and US GAAP. Under UK GAAP, cash flows are
presented in the following categories: (i) operating activities; (ii) returns
on investments and servicing of finance; (iii) taxation; (iv) capital
expenditure; (v) acquisitions and disposals; (vi) equity dividends paid; (vii)
management of liquid resources; and (viii) financing activities.

Cash flows from taxation, returns on investments, and servicing of finance
would be, with the exception of any interest paid but capitalised and equity
dividends paid, included as operating activities under US GAAP. Capitalised
interest would be included under investing activities for US GAAP.
Additionally, under US GAAP, cash flows from the purchase and sale of tangible
fixed assets and the acquisition of businesses would be shown within investing
activities. The payment of equity dividends and debt issue costs and financing
from overdrafts would be included under financing activities.

F-52



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

Under US GAAP, the following amounts would have been reported:

|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|------------------------------------------------------------------ |  | ----------------------- | ----- | ---- |  | --------------- | ------ | - |  |  | ----- | -
|                                                                   |  | Year Ended December 31,
|                                                                   |  |                        
|                                                                   |  | 2000                    |       | 2001 |  | 2002           
|                                                                   |  |                         |       |      |  |                
|                                                                   |  |                         |       |      |  | ( in millions) |        |   |  | 
|Net cash provided by operating activities:                         |  |                         |       |      |  |                 |        |   |  |  |       |  
|Under UK GAAP                                                      |  |                         | 49.4  |      |  |                 | 177.9  |   |  |  | 210.8 |  
|Interest received                                                  |  |                         | 0.8   |      |  |                 | 2.5    |   |  |  | 3.0   |  
|Interest paid                                                      |  |                         | (9.6  | )    |  |                 | (68.8  | ) |  |  | (63.6 | )
|Dividend received from associate                                   |  |                         |      |      |  |                 |       |   |  |  | 0.4   |  
|Taxation paid                                                      |  |                         | (6.6  | )    |  |                 | (11.9  | ) |  |  | (11.1 | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|Under US GAAP                                                      |  |                         | 34.0  |      |  |                 | 99.7   |   |  |  | 139.5 |  
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|Net cash used in investing activities:                             |  |                         |       |      |  |                 |        |   |  |  |       |  
|Acquisition of fixed asset investments                             |  |                         | (0.1  | )    |  |                 |       |   |  |  |      |  
|Payments to acquire tangible fixed assets                          |  |                         | (17.0 | )    |  |                 | (42.9  | ) |  |  | (51.2 | )
|Receipts from sales of tangible fixed assets                       |  |                         |      |      |  |                 |       |   |  |  | 3.7   |  
|Acquisition of business                                            |  |                         |      |      |  |                 | (777.0 | ) |  |  | (5.0  | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|                                                                   |  |                         | (17.1 | )    |  |                 | (819.9 | ) |  |  | (52.5 | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|Net cash provided by financing activities:                         |  |                         |       |      |  |                 |        |   |  |  |       |  
|Under UK GAAP                                                      |  |                         | (26.8 | )    |  |                 | 877.4  |   |  |  | (91.4 | )
|Equity dividends paid                                              |  |                         |      |      |  |                 |       |   |  |  |      |  
|Debt issue costs                                                   |  |                         |      |      |  |                 | (48.7  | ) |  |  | (0.7  | )
|Cash overdraft                                                     |  |                         | 1.1   |      |  |                 | 0.6    |   |  |  | (1.7  | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|Under US GAAP                                                      |  |                         | (25.7 | )    |  |                 | 829.3  |   |  |  | (93.8 | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  
|Net increase/(decrease) in cash and cash
equivalents under US GAAP |  |                         | (8.8  | )    |  |                 | 109.1  |   |  |  | (6.8  | )
|                                                                   |  |                         |       |      |  |                 |        |   |  |  |       |  



|(b) |  | Additional US GAAP disclosures       
|--- |  | -------------------------------------
|   
|    |  | Pensions and post retirement benefits

The Company maintains a number of defined benefit pension plans. The
principal pension plans within the Company are the plans in the United Kingdom,
the United States, Germany and Belgium. Provision has also been made for the
benefit obligation of a small number of funded pension plans in other parts of
the group. The principal post retirement plans are for the Companys employees
in Belgium and the United States. The cost of pension benefits granted to
employees is accrued as an expense over the period in which the employee
renders services and becomes eligible to receive benefits. The cost of these
plans for current and future retirees is determined using the projected unit
credit actuarial method.

F-53



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##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (i) |  | Year ended December 31, 2002
| | --- |  | ----------------------------

The following table sets forth the reconciliation of projected benefit
obligation and plan assets, the funded status of the principal plans and
amounts recognised in the Companys balance sheet.

|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|--------------------------------------------------------- |  | -- | ----- | ------- |  | --------------- | ----- | --- |  | ----- | ----- | - |  |  | ---- | - |  |  | ----- | -
|                                                          |  | UK |       | Germany |  | Belgium         |       | USA |  | Total
|                                                          |  |    |       |         |  |                 |       |     |  |      
|                                                          |  |    |       |         |  | ( in millions) |       |     |  |      
|Change in benefit obligation                              |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Projected benefit obligation at the
beginning of the year |  |    | 106.1 |         |  |                 | 20.5  |     |  |       | 42.4  |   |  |  | 16.2 |   |  |  | 185.2 |  
|Service cost                                              |  |    | 5.0   |         |  |                 | 0.3   |     |  |       | 3.1   |   |  |  | 1.2  |   |  |  | 9.6   |  
|Interest cost                                             |  |    | 5.9   |         |  |                 | 1.3   |     |  |       | 2.7   |   |  |  | 1.0  |   |  |  | 10.9  |  
|Employee contributions                                    |  |    | 0.8   |         |  |                 |      |     |  |       |      |   |  |  |     |   |  |  | 0.8   |  
|Benefits paid                                             |  |    | (1.1  | )       |  |                 | (0.8  | )   |  |       | (1.6  | ) |  |  | (2.6 | ) |  |  | (6.1  | )
|Actuarial (gain)/loss                                     |  |    | (11.0 | )       |  |                 | (0.4  | )   |  |       | (3.5  | ) |  |  | 0.6  |   |  |  | (14.3 | )
|Exchange adjustments                                      |  |    | (7.5  | )       |  |                 |      |     |  |       |      |   |  |  | (2.3 | ) |  |  | (9.8  | )
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Projected benefit obligation at the end of
the year       |  |    | 98.2  |         |  |                 | 20.9  |     |  |       | 43.1  |   |  |  | 14.1 |   |  |  | 176.3 |  
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Change in plan assets                                     |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Fair value of plan assets at beginning of
the year        |  |    | 91.8  |         |  |                 |      |     |  |       | 51.6  |   |  |  | 8.5  |   |  |  | 151.9 |  
|Actual return on plan assets                              |  |    | (27.0 | )       |  |                 |      |     |  |       | (13.2 | ) |  |  | (0.8 | ) |  |  | (41.0 | )
|Employer contributions                                    |  |    | 5.9   |         |  |                 |      |     |  |       | 0.3   |   |  |  | 0.6  |   |  |  | 6.8   |  
|Employee contributions                                    |  |    | 0.8   |         |  |                 |      |     |  |       |      |   |  |  |     |   |  |  | 0.8   |  
|Benefits paid                                             |  |    | (1.1  | )       |  |                 |      |     |  |       | (1.6  | ) |  |  | (2.6 | ) |  |  | (5.3  | )
|Exchange adjustments                                      |  |    | (6.1  | )       |  |                 |      |     |  |       |      |   |  |  | (1.3 | ) |  |  | (7.4  | )
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Fair value of plan assets at end of the year              |  |    | 64.3  |         |  |                 |      |     |  |       | 37.1  |   |  |  | 4.4  |   |  |  | 105.8 |  
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Funded status                                             |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Funded status at end of the year                          |  |    | (33.9 | )       |  |                 | (20.9 | )   |  |       | (6.0  | ) |  |  | (9.7 | ) |  |  | (70.5 | )
|Unrecognised net actuarial (gain)/loss                    |  |    | 39.3  |         |  |                 | 1.7   |     |  |       | 25.8  |   |  |  | 4.9  |   |  |  | 71.7  |  
|Additional minimum pension liability                      |  |    | (6.5  | )       |  |                 |      |     |  |       |      |   |  |  |     |   |  |  | (6.5  | )
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  
|Prepaid benefit/(accrued cost)                            |  |    | (1.1  | )       |  |                 | (19.2 | )   |  |       | 19.8  |   |  |  | (4.8 | ) |  |  | (5.3  | )
|                                                          |  |    |       |         |  |                 |       |     |  |       |       |   |  |  |      |   |  |  |       |  

The principal actuarial assumptions used are as follows:

|                                          |  |    |      |         |  |         |      |     |  |  |      |   |  |  |      |  
|----------------------------------------- |  | -- | ---- | ------- |  | ------- | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                                          |  | UK |      | Germany |  | Belgium |      | USA
|                                          |  |    |      |         |  |         |      |    
|Discount rate                             |  |    | 5.60 | %       |  |         | 5.50 | %   |  |  | 5.75 | % |  |  | 6.75 | %
|Expected long term rate of return         |  |    | 7.10 | %       |  |         |     | %   |  |  | 8.00 | % |  |  | 8.00 | %
|Expected increase in future salary levels |  |    | 3.75 | %       |  |         | 2.00 | %   |  |  | 3.50 | % |  |  | 4.50 | %

The components of the net periodic pension costs which arise under FAS No.
87 are as follows:

|                             |  |    |      |         |  |                 |     |     |  |       |      |   |  |  |      |   |  |  |       |  
|---------------------------- |  | -- | ---- | ------- |  | --------------- | --- | --- |  | ----- | ---- | - |  |  | ---- | - |  |  | ----- | -
|                             |  | UK |      | Germany |  | Belgium         |     | USA |  | Total
|                             |  |    |      |         |  |                 |     |     |  |      
|                             |  |    |      |         |  | ( in millions) |     |     |  |      
|Service cost                 |  |    | 5.0  |         |  |                 | 0.3 |     |  |       | 3.1  |   |  |  | 1.2  |   |  |  | 9.6   |  
|Interest cost                |  |    | 5.9  |         |  |                 | 1.3 |     |  |       | 2.7  |   |  |  | 1.0  |   |  |  | 10.9  |  
|Expected return on assets    |  |    | (6.1 | )       |  |                 |    |     |  |       | (3.8 | ) |  |  | (0.7 | ) |  |  | (10.6 | )
|Amortisation amounts         |  |    | 2.2  |         |  |                 |    |     |  |       | 0.4  |   |  |  |     |   |  |  | 2.6   |  
|                             |  |    |      |         |  |                 |     |     |  |       |      |   |  |  |      |   |  |  |       |  
|Net periodic pension expense |  |    | 7.0  |         |  |                 | 1.6 |     |  |       | 2.4  |   |  |  | 1.5  |   |  |  | 12.5  |  
|                             |  |    |      |         |  |                 |     |     |  |       |      |   |  |  |      |   |  |  |       |  

The Company provides post retirement health care benefits for most of its
employees in Belgium and the United States.

F-54



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

The following table sets forth the reconciliation of the accumulated post
retirement benefit obligations (APBO), the funded status of the plan and the
amounts recognised in the Companys balance sheet.

|                                                          |  |                   |      |  
|--------------------------------------------------------- |  | ----------------- | ---- | -
|                                                          |  | Year ended       
|                                                          |  | December 31, 2002
|                                                          |  |                  
|                                                          |  | ( in millions)  
|Change in benefit obligation                              |  |                   |      |  
|Projected benefit obligation at the beginning of the year |  |                   | 5.4  |  
|Service cost                                              |  |                   | 0.3  |  
|Interest cost                                             |  |                   | 0.3  |  
|Actuarial (gain)/loss                                     |  |                   | 0.1  |  
|Benefits paid                                             |  |                   | (0.2 | )
|Exchange movements                                        |  |                   | (0.5 | )
|                                                          |  |                   |      |  
|Projected benefit obligation at the end of the year       |  |                   | 5.4  |  
|                                                          |  |                   |      |  
|Funded status                                             |  |                   |      |  
|Funded status at end of the year                          |  |                   | (5.4 | )
|Unrecognised net actuarial (gain)/loss                    |  |                   | 0.4  |  
|                                                          |  |                   |      |  
|Prepaid benefit/(accrued cost)                            |  |                   | (5.0 | )
|                                                          |  |                   |      |  

The principal actuarial assumption used is a discount rate of 6.75%.

The components of the net periodic pension cost are as follows:

|                          |  |                   |     | 
|------------------------- |  | ----------------- | --- | 
|                          |  | Year ended       
|                          |  | December 31, 2002
|                          |  |                  
|                          |  | ( in millions)  
|Service cost              |  |                   | 0.3 | 
|Interest cost             |  |                   | 0.3 | 
|Expected return on assets |  |                   |    | 
|                          |  |                   |     | 
|Net periodic pension cost |  |                   | 0.6 | 
|                          |  |                   |     | 

Assumed health care cost trend rates have a significant effect on the
amounts reported for the Companys health care plans. A 1% change in the
assumed health care cost trend will have the following effects:

|                                                     |  |                  |     |             |  |  |      |  
|---------------------------------------------------- |  | ---------------- | --- | ----------- |  |  | ---- | -
|                                                     |  | 1% increase      |     | 1% decrease
|                                                     |  |                  |     |            
|                                                     |  | ( in thousands)
|Effect on total service and interest cost components |  |                  | 85  |             |  |  | (71  | )
|                                                     |  |                  |     |             |  |  |      |  
|Effect on the post retirement benefit obligations    |  |                  | 694 |             |  |  | (570 | )
|                                                     |  |                  |     |             |  |  |      |  

F-55



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------



| | (ii) |  | Year ended December 31, 2001
| | ---- |  | ----------------------------

The following table sets forth the reconciliation of projected benefit
obligation and plan assets, the funded status of the principal plans and
amounts recognised in the Companys balance sheet.

|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|--------------------------------------------------------- |  | --------------- | ----- | ------- |  | ------- | ----- | --- |  | ----- | ---- | - |  |  | ---- | - |  |  | ----- | -
|                                                          |  | UK              |       | Germany |  | Belgium |       | USA |  | Total
|                                                          |  |                 |       |         |  |         |       |     |  |      
|                                                          |  | ( in millions)
|Change in benefit obligation                              |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Projected benefit obligation at the
beginning of the year |  |                 |      |         |  |         |      |     |  |       | 37.3 |   |  |  |     |   |  |  | 37.3  |  
|Projected benefit obligation on acquisition               |  |                 | 87.8  |         |  |         | 17.9  |     |  |       | 2.5  |   |  |  | 18.3 |   |  |  | 126.5 |  
|Service cost                                              |  |                 | 6.4   |         |  |         | 0.2   |     |  |       | 2.8  |   |  |  | 1.7  |   |  |  | 11.1  |  
|Interest cost                                             |  |                 | 5.1   |         |  |         | 0.6   |     |  |       | 2.2  |   |  |  | 1.4  |   |  |  | 9.3   |  
|Employee contributions                                    |  |                 | 0.5   |         |  |         |      |     |  |       |     |   |  |  |     |   |  |  | 0.5   |  
|Benefits paid                                             |  |                 | (0.3  | )       |  |         | (0.3  | )   |  |       | (2.1 | ) |  |  | (0.6 | ) |  |  | (3.3  | )
|Actuarial (gain)/loss                                     |  |                 | 6.6   |         |  |         | 2.1   |     |  |       | (0.3 | ) |  |  | (4.6 | ) |  |  | 3.8   |  
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Projected benefit obligation at the end of
the year       |  |                 | 106.1 |         |  |         | 20.5  |     |  |       | 42.4 |   |  |  | 16.2 |   |  |  | 185.2 |  
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Change in plan assets                                     |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Fair value of plan assets at beginning of
the year        |  |                 |      |         |  |         |      |     |  |       | 59.2 |   |  |  |     |   |  |  | 59.2  |  
|Fair value of plan assets acquired                        |  |                 | 95.4  |         |  |         |      |     |  |       | 2.3  |   |  |  | 10.3 |   |  |  | 108.0 |  
|Actual return on plan assets                              |  |                 | (8.2  | )       |  |         |      |     |  |       | (8.0 | ) |  |  | (1.6 | ) |  |  | (17.8 | )
|Employer contributions                                    |  |                 | 4.4   |         |  |         |      |     |  |       | 0.2  |   |  |  | 0.4  |   |  |  | 5.0   |  
|Employee contributions                                    |  |                 | 0.5   |         |  |         |      |     |  |       |     |   |  |  |     |   |  |  | 0.5   |  
|Benefits paid                                             |  |                 | (0.3  | )       |  |         |      |     |  |       | (2.1 | ) |  |  | (0.6 | ) |  |  | (3.0  | )
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Fair value of plan assets at end of the year              |  |                 | 91.8  |         |  |         |      |     |  |       | 51.6 |   |  |  | 8.5  |   |  |  | 151.9 |  
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Funded status                                             |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Funded status at end of the year                          |  |                 | (14.3 | )       |  |         | (20.5 | )   |  |       | 9.2  |   |  |  | (7.7 | ) |  |  | (33.3 | )
|Unrecognised net actuarial (gain)/loss                    |  |                 | 21.4  |         |  |         | 2.1   |     |  |       | 10.3 |   |  |  | (2.1 | ) |  |  | 31.7  |  
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  
|Prepaid benefit/(accrued cost)                            |  |                 | 7.1   |         |  |         | (18.4 | )   |  |       | 19.5 |   |  |  | (9.8 | ) |  |  | (1.6  | )
|                                                          |  |                 |       |         |  |         |       |     |  |       |      |   |  |  |      |   |  |  |       |  

The principal actuarial assumptions used are as follows:

|                                          |  |    |      |         |  |         |      |     |  |  |      |   |  |  |      |  
|----------------------------------------- |  | -- | ---- | ------- |  | ------- | ---- | --- |  |  | ---- | - |  |  | ---- | -
|                                          |  | UK |      | Germany |  | Belgium |      | USA
|                                          |  |    |      |         |  |         |      |    
|Discount rate                             |  |    | 5.90 | %       |  |         | 6.25 | %   |  |  | 6.00 | % |  |  | 7.50 | %
|Expected long term rate of return         |  |    | 6.90 | %       |  |         |     |     |  |  | 6.00 | % |  |  | 8.00 | %
|Expected increase in future salary levels |  |    | 3.90 | %       |  |         | 2.75 | %   |  |  | 4.75 | % |  |  | 4.50 | %

The components of the net periodic pension costs which arise under FAS No.
87 are as follows:

|                             |  |                 |      |         |  |         |     |     |  |       |      |   |  |  |      |   |  |  |       |  
|---------------------------- |  | --------------- | ---- | ------- |  | ------- | --- | --- |  | ----- | ---- | - |  |  | ---- | - |  |  | ----- | -
|                             |  | UK              |      | Germany |  | Belgium |     | USA |  | Total
|                             |  |                 |      |         |  |         |     |     |  |      
|                             |  | ( in millions)
|Service cost                 |  |                 | 6.4  |         |  |         | 0.2 |     |  |       | 2.8  |   |  |  | 1.7  |   |  |  | 11.1  |  
|Interest cost                |  |                 | 5.1  |         |  |         | 0.6 |     |  |       | 2.2  |   |  |  | 1.4  |   |  |  | 9.3   |  
|Expected return on assets    |  |                 | (6.6 | )       |  |         |    |     |  |       | (3.6 | ) |  |  | (0.8 | ) |  |  | (11.0 | )
|                             |  |                 |      |         |  |         |     |     |  |       |      |   |  |  |      |   |  |  |       |  
|Net periodic pension expense |  |                 | 4.9  |         |  |         | 0.8 |     |  |       | 1.4  |   |  |  | 2.3  |   |  |  | 9.4   |  
|                             |  |                 |      |         |  |         |     |     |  |       |      |   |  |  |      |   |  |  |       |  

The Company provides post retirement health care benefits for most of its
employees in Belgium and the United States.

F-56



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

The following table sets forth the reconciliation of the accumulated post
retirement benefit obligations (APBO), the funded status of the plan and the
amounts recognised in the Companys balance sheet.

|                                                    |  |                   |      |  
|--------------------------------------------------- |  | ----------------- | ---- | -
|                                                    |  | Year ended       
|                                                    |  | December 31, 2001
|                                                    |  |                  
|                                                    |  | ( in millions)  
|Change in benefit obligation                        |  |                   |      |  
|Projected benefit obligation on acquisition         |  |                   | 4.9  |  
|Service cost                                        |  |                   | 0.4  |  
|Interest cost                                       |  |                   | 0.4  |  
|Actuarial (gain)/loss                               |  |                   | (0.3 | )
|                                                    |  |                   |      |  
|Projected benefit obligation at the end of the year |  |                   | 5.4  |  
|                                                    |  |                   |      |  
|Funded status                                       |  |                   |      |  
|Funded status at end of the year                    |  |                   | (5.4 | )
|Unrecognised net actuarial (gain)/loss              |  |                   | (0.3 | )
|                                                    |  |                   |      |  
|Prepaid benefit/(accrued cost)                      |  |                   | (5.7 | )
|                                                    |  |                   |      |  

The principal actuarial assumption used is a discount rate of 7.50%.

The components of the net periodic pension cost are as follows:

|                          |  |                   |     | 
|------------------------- |  | ----------------- | --- | 
|                          |  | Year ended       
|                          |  | December 31, 2001
|                          |  |                  
|                          |  | ( in millions)  
|Service cost              |  |                   | 0.4 | 
|Interest cost             |  |                   | 0.4 | 
|Expected return on assets |  |                   |    | 
|                          |  |                   |     | 
|Net periodic pension cost |  |                   | 0.8 | 
|                          |  |                   |     | 

Assumed health care cost trend rates have a significant effect on the
amounts reported for the Companys health care plans. A 1% change in the
assumed health care cost trend will have the following effects:

|                                                     |  |                  |     |             |  |  |      |  
|---------------------------------------------------- |  | ---------------- | --- | ----------- |  |  | ---- | -
|                                                     |  | 1% increase      |     | 1% decrease
|                                                     |  |                  |     |            
|                                                     |  | ( in thousands)
|Effect on total service and interest cost components |  |                  | 28  |             |  |  | (33  | )
|                                                     |  |                  |     |             |  |  |      |  
|Effect on the post retirement benefit obligations    |  |                  | 269 |             |  |  | (318 | )
|                                                     |  |                  |     |             |  |  |      |  



| | (iii) |  | Year ended December 31, 2000
| | ----- |  | ----------------------------

The amounts calculated in 2000 relate only to the Companys plan in
Belgium.

The principal actuarial assumptions used are as follows:

|                                          |  |                   |      |  
|----------------------------------------- |  | ----------------- | ---- | -
|                                          |  | As at            
|                                          |  | December 31, 2000
|                                          |  |                  
|Discount rate                             |  |                   | 6.00 | %
|Expected long-term rate of return         |  |                   | 6.00 | %
|Expected increase in future salary levels |  |                   | 4.75 | %

F-57



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
(Continued)
|--- |  | --------------------------------------------------------------------------

The components of net periodic pension expense which arise under FAS No.
87 are as follows:

|                             |  |                   |      |  
|---------------------------- |  | ----------------- | ---- | -
|                             |  | Year Ended       
|                             |  | December 31, 2000
|                             |  |                  
|Service cost                 |  |                   | 2.1  |  
|Interest cost                |  |                   | 1.8  |  
|Expected return on assets    |  |                   | (3.7 | )
|Net amortisation             |  |                   |     |  
|                             |  |                   |      |  
|Net periodic pension expense |  |                   | 0.2  |  
|                             |  |                   |      |  

Employees are also eligible for certain post retirement health care
benefits and a provision of 0.9 million as at December 31, 2000 is recognised
on the balance sheet. There are no material differences in measurement of this
obligation under US GAAP.



| |  | Income taxes
| |  | ------------

The US GAAP provision for income taxes differs from the amount of income
taxes determined by applying the applicable UK statutory income tax rate to
pre-tax income, as a result of the following differences:

|                                            |  |                         |       |      |  |      |       |    |  |  |       |   
|------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                            |  | Year Ended December 31,
|                                            |  |                        
|                                            |  | 2000                    |       | 2001 |  | 2002
|                                            |  |                         |       |      |  |     
|Statutory UK rate                           |  |                         | 30.0  | %    |  |      | (30.0 | )% |  |  | 30.0  | % 
|Foreign rate differential                   |  |                         | 3.8   | %    |  |      | 2.4   | %  |  |  | 13.7  | % 
|Effect of non-deductible items              |  |                         | 1.6   | %    |  |      | (6.7  | )% |  |  | (11.7 | )%
|Valuation allowance for deferred tax assets |  |                         | (13.5 | )%   |  |      | 27.4  | %  |  |  | 42.2  | % 
|Effect of a change in statutory rate        |  |                         |      | %    |  |      |      | %  |  |  |      | % 
|                                            |  |                         |       |      |  |      |       |    |  |  |       |   
|                                            |  |                         | 21.9  | %    |  |      | (6.9  | )% |  |  | 74.2  | % 
|                                            |  |                         |       |      |  |      |       |    |  |  |       |   

US GAAP deferred tax assets and liabilities at December 31, 2001 and 2002
are summarised as follows:

|                                                                  |  |                    |       |      |  |  |       |  
|----------------------------------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | -
|                                                                  |  | As at December 31,
|                                                                  |  |                   
|                                                                  |  | 2001               |       | 2002
|                                                                  |  |                    |       |     
|                                                                  |  | ( in millions)   
|Deferred tax assets:                                              |  |                    |       |      |  |  |       |  
|Operating loss carry forwards                                     |  |                    | 32.0  |      |  |  | 24.2  |  
|Post-retirement benefits                                          |  |                    | 2.4   |      |  |  | 2.4   |  
|Provisions for expenses                                           |  |                    | 3.0   |      |  |  | 3.0   |  
|Accelerated depreciation and amortisation                         |  |                    | 111.0 |      |  |  | 90.6  |  
|Differences between book and tax expense for other current assets |  |                    |      |      |  |  | 0.9   |  
|                                                                  |  |                    |       |      |  |  |       |  
|Gross deferred tax assets                                         |  |                    | 148.4 |      |  |  | 121.1 |  
|Valuation allowance                                               |  |                    | (44.7 | )    |  |  | (44.7 | )
|                                                                  |  |                    |       |      |  |  |       |  
|                                                                  |  |                    | 103.7 |      |  |  | 76.4  |  
|Deferred tax liabilities:                                         |  |                    |       |      |  |  |       |  
|Accelerated depreciation and amortisation                         |  |                    |      |      |  |  |      |  
|Differences between book and tax expense for other current assets |  |                    | (0.2  | )    |  |  |      |  
|Pension benefits                                                  |  |                    | (0.8  | )    |  |  | (0.8  | )
|                                                                  |  |                    |       |      |  |  |       |  
|                                                                  |  |                    | (1.0  | )    |  |  | (0.8  | )
|                                                                  |  |                    |       |      |  |  |       |  
|Net deferred tax asset                                            |  |                    | 102.7 |      |  |  | 75.6  |  
|                                                                  |  |                    |       |      |  |  |       |  

F-58



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------

The net operating loss carry forwards are not subject to expiration. A
valuation allowance has been provided for deferred tax assets that are more
likely than not to expire unutilised.

The valuation allowance includes 0.9 million that represents a 100%
provision against net operating losses arising as a result of foreign exchange
losses incurred on intra-group loans. In order to be utilised, such losses
must be accepted by the relevant tax authority. At this time it is considered
more likely than not that the losses will not be accepted by such authority.

The remaining 43.8 million represents a valuation allowance against
operating loss carry forwards in jurisdictions for which, due to the history of
its operating losses in those jurisdictions, the company believes it is more
likely than not that the benefits of the net operating loss carry forwards will
not be immediately realised.



| |  | Segment information
| |  | -------------------

See Note 4 for the disclosure of segment information. The Company is
organised on the basis of four business segments  Ineos Oxide, Ineos Fluor,
Ineos Silicas and Ineos Phenol. The accounting policies of the segments are
the same as those described in Note 2, Principal accounting policies.
Inter-segment turnover are not considered material.

The Company evaluates the performance of its segments and allocates
resources to them based upon EBITDA. Reconciliations of total segment sales to
total consolidated sales and of total EBITDA to consolidated operating profit
are disclosed in Note 4.



| |  | Accounting estimates
| |  | --------------------

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of turnover and expenses during the
reporting period. Actual results could differ from those estimates.



| |  | Current vulnerability due to certain concentrations
| |  | ---------------------------------------------------

The prices for Ineoss main products have historically been cyclical and
sensitive to overall supply relative to demand, the level of general business
activity and the availability and price of ethylene, and cumene the main
feedstocks and commodity products. Future prices are expected to fluctuate and
any prolonged or severe market downturn would affect operating results
adversely.

The Company currently buys the majority of its feedstocks (ethylene and
cumene) from its four largest suppliers. Any significant increase in the cost
of these feedstocks, that Ineos was unable to pass onto its customers, or
interruption in the supply of these feedstocks would affect operating results
adversely.

Certain of the Companys largest customers account for a significant
percentage of turnover. Loss of a significant customer or a number of
significant customers would affect operating results adversely.

The Company maintains cash balances in excess of local insurance limits at
certain large financial institutions. The Company monitors the financial
condition of such institutions and considers the potential risk of loss to be
remote.

F-59



---



##### Table of Contents



INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------
|   
|    |  | Fair value of financial instruments                                       

The fair values of cash, accounts receivable and accounts payable
approximate to the respective book values as a result of the short-term nature
of these assets and liabilities.

The fair value of the Companys long-term debt is estimated based on the
current rates offered to the Company for debt of similar terms and maturities
as disclosed in note 21. All other long-term debt approximates to the carrying
value at December 31, 2002.



| |  | Investment in equity securities
| |  | -------------------------------

The investment in Indaver NV is carried in the balance sheets as at
December 31, 2001 and 2002 at its historical cost of 0.7 million. The
directors are of the opinion that the fair value of this investment is not
readily determinable.



| |  | Consolidation
| |  | -------------

In January 2003, the FASB issued FIN 46. This pronouncement modifies the
framework for determining consolidation of certain entities that meet the
definition of a variable interest entity. This is met where the entity
either does not have sufficient equity of the appropriate nature to support its
expected losses, or the third party equity capital lacks certain
characteristics which would be expected to be present within a controlling
financial interest.

Entities which do not meet this definition would continue to apply the
voting interest model and the Company would generally consolidate when it has a
controlling financial interest.

Under the variable interest model promulgated by FIN 46, all ownership,
contractual and other pecuniary interests in the entity are evaluated to
determine which of the holders, if any, hold a variable interest which will
absorb the majority of the expected losses, expected residual returns, or both.
This holder is the primary beneficiary of the variable interest entity and
would be required to consolidate the entity.

The provisions of FIN 46 are immediately effective for variable interest
entities created after January 31, 2003.

However, FIN 46 requires disclosures in financial statements issued after
January 31, 2003 about variable interest entities that, when FIN 46 becomes
effective, it is reasonably possible that the reporting entity will consolidate
or about which the entity will disclose information in accordance with FIN 46.
The Group has undertaken a review to identify variable interest entities in
which it is the primary beneficiary or in which it has a significant variable
interest. The Group has concluded that it does not have any interests in
variable interest entities for which it would be either the primary beneficiary
in the arrangement or for which it would have a significant variable interest.



| |  | Product warranty liability
| |  | --------------------------

The Company warrants to the original purchaser of its products that it
will, at its option, repair or replace, without charge, such products if they
fail due to a manufacturing defect. The term of these warranties are typically
up to twelve months after sale. The Company accrues for product warranties
when, based on available information, it is probable that customers will make
claims under warranties relating to products that have been sold, and a
reasonable estimate of the costs (based on historical claims experience
relative to sales) can be made. The cost of claims made under product
warranties for the year ended December 31, 2002 were not material to the
business, consequently we have not provided a reconciliation of the movement in
product warrant liabilities for the year ended December 31, 2002.

F-60



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INEOS GROUP LIMITEDNOTES TO THE FINANCIAL STATEMENTS



|36. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|--- |  | --------------------------------------------------------------------------
|   
|    |  | Contingencies and commitments                                             

The Company has various purchase commitments for materials and supplies
incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market.

Future non-cancellable purchase commitments over the next five years are
set out in the table below. Beyond 2002 these relate to raw material purchases
where the Company has entered into purchase commitments to purchase a minimum
volume at the contract price ruling at the time of purchase. In the table
below, prices as at December 31, 2002 have been used.

|           |  |                 |         | 
|---------- |  | --------------- | ------- | 
|           |  | Year Ended     
|           |  | December 31,   
|           |  |                
|           |  | ( in millions)
|2003       |  |                 | 816.9   | 
|2004       |  |                 | 580.3   | 
|2005       |  |                 | 336.6   | 
|2006       |  |                 | 191.3   | 
|2007       |  |                 | 188.5   | 
|After 2007 |  |                 | 150.0   | 
|           |  |                 |         | 
|           |  |                 | 2,263.6 | 
|           |  |                 |         | 

The Company 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 Company.



|37. |  | ULTIMATE CONTROLLING PARTY
|--- |  | --------------------------

The ultimate controlling party is Mr. James Ratcliffe, director and
majority shareholder of Ineos Group Limited.



|38. |  | COMPANIES ACT 1985
|--- |  | ------------------

The consolidated financial statements included herein do not comprise the
Companys statutory accounts within the meaning of section 240 of the Companies
Act 1985 of Great Britain. Statutory accounts for the year ended December 31,
2002 have not yet been delivered to the Registrar of Companies for England and
Wales.

F-61



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SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Ineos Group Limited:

Our audits of the consolidated financial statements referred to in our report
dated March 28, 2003 appearing in this 20-F Annual Report of Ineos Group
Limited also included an audit of the financial statement Schedule 1 included
in this Form 20-F. In our opinion, the financial statement schedule presents
fairly, in all material respects, the information set forth therein when read

in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP
London, United Kingdom
March 28, 2003

S-1



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SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

INEOS GROUP LIMITED
CONDENSED PARENT COMPANY PROFIT AND LOSS ACCOUNTS

|                                                     |  |                         |      |      |  |      |      |   |  |  |      |  
|---------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                     |  | Year Ended December 31,
|                                                     |  |                        
|                                                     |  | 2000                    |      | 2001 |  | 2002
|                                                     |  |                         |      |      |  |     
|                                                     |  | ( in millions)        
|Operating profit                                     |  |                         | 9.2  |      |  |      | 1.9  |   |  |  |     |  
|Net finance charges                                  |  |                         | (1.2 | )    |  |      | (0.3 | ) |  |  | (0.2 | )
|                                                     |  |                         |      |      |  |      |      |   |  |  |      |  
|Profit/(loss) on ordinary activities before taxation |  |                         | 8.0  |      |  |      | 1.6  |   |  |  | (0.2 | )
|Taxation on profit/(loss) on ordinary activities     |  |                         | 0.4  |      |  |      |     |   |  |  | 0.2  |  
|                                                     |  |                         |      |      |  |      |      |   |  |  |      |  
|Profit/(loss) for the financial year                 |  |                         | 8.4  |      |  |      | 1.6  |   |  |  |     |  
|                                                     |  |                         |      |      |  |      |      |   |  |  |      |  

See notes to the condensed financial statements.

S-2



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SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

INEOS GROUP LIMITED
CONDENSED PARENT COMPANY BALANCE SHEETS

|                                                        |  |                    |       |      |  |  |       |  
|------------------------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | -
|                                                        |  | As at December 31,
|                                                        |  |                   
|                                                        |  | 2001               |       | 2002
|                                                        |  |                    |       |     
|                                                        |  | ( in millions)   
|Fixed assets investments                                |  |                    | 17.7  |      |  |  | 17.7  |  
|                                                        |  |                    |       |      |  |  |       |  
|Current assets                                          |  |                    |       |      |  |  |       |  
|Cash at bank and in hand                                |  |                    | 0.3   |      |  |  | 0.1   |  
|Debtors: amounts due within one year                    |  |                    | 0.7   |      |  |  | 0.2   |  
|Debtors: amounts due after more than one year           |  |                    | 14.0  |      |  |  | 14.0  |  
|Creditors: amounts due within one year                  |  |                    | (0.5  | )    |  |  | (0.4  | )
|                                                        |  |                    |       |      |  |  |       |  
|Net current assets                                      |  |                    | 14.5  |      |  |  | 13.9  |  
|                                                        |  |                    |       |      |  |  |       |  
|Total assets less current liabilities                   |  |                    | 32.2  |      |  |  | 31.6  |  
|Creditors: amounts falling due after more than one year |  |                    | (29.9 | )    |  |  | (29.3 | )
|                                                        |  |                    |       |      |  |  |       |  
|Net assets                                              |  |                    | 2.3   |      |  |  | 2.3   |  
|                                                        |  |                    |       |      |  |  |       |  
|Share capital and reserves                              |  |                    |       |      |  |  |       |  
|Called up share capital                                 |  |                    | 0.2   |      |  |  | 0.2   |  
|Share premium account                                   |  |                    | 2.4   |      |  |  | 2.4   |  
|Capital redemption reserve                              |  |                    | 0.1   |      |  |  | 0.1   |  
|Profit and loss account                                 |  |                    | (0.4  | )    |  |  | (0.4  | )
|                                                        |  |                    |       |      |  |  |       |  
|Equity shareholders funds                              |  |                    | 2.3   |      |  |  | 2.3   |  
|                                                        |  |                    |       |      |  |  |       |  

See notes to the condensed financial statements.

S-3



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SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

INEOS GROUP LIMITED
CONDENSED PARENT COMPANY CASH FLOW STATEMENTS

|                                               |  |                         |      |      |  |      |      |   |  |  |      |  
|---------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                               |  | Year Ended December 31,
|                                               |  |                        
|                                               |  | 2000                    |      | 2001 |  | 2002
|                                               |  |                         |      |      |  |     
|                                               |  | ( in millions)        
|Net cash flow from operating activities        |  |                         | (3.7 | )    |  |      | 0.2  |   |  |  | (0.2 | )
|Equity dividends received                      |  |                         | 13.6 |      |  |      | 2.1  |   |  |  |     |  
|                                               |  |                         |      |      |  |      |      |   |  |  |      |  
|Net cash inflow/(outflow) before financing     |  |                         | 9.9  |      |  |      | 2.3  |   |  |  | (0.2 | )
|Financing repurchase of ordinary share capital |  |                         | (9.5 | )    |  |      | (2.4 | ) |  |  |     |  
|                                               |  |                         |      |      |  |      |      |   |  |  |      |  
|Increase/(decrease) in cash                    |  |                         | 0.4  |      |  |      | (0.1 | ) |  |  | (0.2 | )
|                                               |  |                         |      |      |  |      |      |   |  |  |      |  

See notes to the condensed financial statements.

S-4



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##### Table of Contents






SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

INEOS GROUP LIMITED
NOTES TO THE CONDENSED FINANCIAL STATEMENTS



|1. |  | BASIS OF PREPARATION
|-- |  | --------------------

These condensed parent company financial statements have been prepared in
accordance with Rule 12-04, Schedule 1 of Regulation S-X, as the restricted net
assets of the subsidiaries of Ineos Group Limited exceed 25% of the
consolidated net assets of Ineos Group Limited. As disclosed in Note 21 to the
Ineos Group Limited consolidated financial statements, in order to repay its
obligations, Ineos Group Limited is dependent upon either dividends from its
subsidiary companies, which are restricted by terms contained in the indenture
governing the Senior Subordinated Notes and the Senior Secured Credit Facility
as described in Note 21 to the Ineos Group Limited consolidated financial
statements, or through a refinancing or equity transaction.

Dividends received from subsidiary companies were nil million (2001: 2.1
million; 2000: 13.6 million).



|2. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
|-- |  | --------------------------------------------------------------

The financial statements are prepared in accordance with UK GAAP which
differs in certain significant respects from accounting principles generally
accepted in the United States (US GAAP). These differences principally relate
to the following items and the effect on net income and shareholders equity is
shown in the following tables. All significant differences between UK GAAP and
US GAAP affecting Ineos Group Limited have been addressed.



| | (i) |  | Effect of equity accounting for subsidiary undertakings
| | --- |  | -------------------------------------------------------

Under UK GAAP investments in subsidiary undertakings are stated in the
financial statements using the historical cost basis of measurement.
Consequently, such investments are stated at their historical cost less
provision for diminution in value of 17.7 million (2001: 17.7 million).

For US GAAP purposes such investments in subsidiary undertakings are
stated in the balance sheet using the equity method pursuant to Rule 12-04,
Schedule 1 of Regulation S-X such that the carrying value would be 10.0
million (2001: 15.3 million).



| | (ii) |  | Effect of applying US GAAP to equity method investments
| | ---- |  | -------------------------------------------------------

The adjustments include the aggregate effect on profit and loss and
shareholders equity of applying US GAAP to the subsidiary undertakings
accounted for under the equity method of accounting. See footnote 36 to the
Ineos Group Limited consolidated financial statements for a detailed discussion
of the individual differences.

S-5



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##### Table of Contents



SCHEDULE 1  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)

INEOS GROUP LIMITED
NOTES TO THE CONDENSED FINANCIAL STATEMENTS



|2. |  | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)
|-- |  | --------------------------------------------------------------------------

Effects on net income of differences between UK GAAP and US GAAP:

|                                                        |  |       |      |      |  |                         |      |      |  |  |       |   |  |  |       |  
|------------------------------------------------------- |  | ----- | ---- | ---- |  | ----------------------- | ---- | ---- |  |  | ----- | - |  |  | ----- | -
|                                                        |  |       |      |      |  | Year Ended December 31,
|                                                        |  |       |      |      |  |                        
|                                                        |  | Notes |      | 2000 |  | 2001                    |      | 2002
|                                                        |  |       |      |      |  |                         |      |     
|                                                        |  |       |      |      |  | ( in millions)        
|Profit/(loss) for the financial year                    |  |       |      |      |  |                         |      |      |  |  |       |   |  |  |       |  
|Profit/(loss) for the financial year under UK GAAP      |  |       |      |      |  |                         | 8.4  |      |  |  | 1.6   |   |  |  |      |  
|Effect of equity accounting for subsidiary undertakings |  |       | (i)  |      |  |                         | 19.2 |      |  |  | (22.7 | ) |  |  | 35.2  |  
|Effect of applying US GAAP to equity method investments |  |       | (ii) |      |  |                         | 0.7  |      |  |  | (20.9 | ) |  |  | (12.2 | )
|                                                        |  |       |      |      |  |                         |      |      |  |  |       |   |  |  |       |  
|Profit/(loss) for the financial year under US GAAP      |  |       |      |      |  |                         | 28.3 |      |  |  | (42.0 | ) |  |  | 23.0  |  
|                                                        |  |       |      |      |  |                         |      |      |  |  |       |   |  |  |       |  

Effects on shareholders equity between UK GAAP and US GAAP:

|                                                        |  |       |      |      |  |                    |       |   |  |  |       |  
|------------------------------------------------------- |  | ----- | ---- | ---- |  | ------------------ | ----- | - |  |  | ----- | -
|                                                        |  |       |      |      |  | As at December 31,
|                                                        |  |       |      |      |  |                   
|                                                        |  | Notes |      | 2001 |  | 2002              
|                                                        |  |       |      |      |  |                   
|                                                        |  |       |      |      |  | ( in millions)   
|Shareholders equity                                    |  |       |      |      |  |                    |       |   |  |  |       |  
|Shareholders equity under UK GAAP                      |  |       |      |      |  |                    | 2.3   |   |  |  | 2.3   |  
|Effect of equity accounting for subsidiary undertakings |  |       | (i)  |      |  |                    | 15.3  |   |  |  | 10.0  |  
|Effect of applying US GAAP to equity method investments |  |       | (ii) |      |  |                    | (20.9 | ) |  |  | (33.0 | )
|                                                        |  |       |      |      |  |                    |       |   |  |  |       |  
|Shareholders equity under US GAAP                      |  |       |      |      |  |                    | (3.3  | ) |  |  | (20.7 | )
|                                                        |  |       |      |      |  |                    |       |   |  |  |       |  

There are no differences in cash flows between UK and US GAAP.

S-6