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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 333-87974 INEOS GROUP HOLDINGS plc  INEOS HOLDINGS 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 registeredNone
    
    N/A
 Securities registered or to be registered pursuant to Section 12 (g) of the Act: None
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15 (d) of the Act:10 1/2% Senior Notes due 2010 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: 11,499,950 ordinary shares of £1 each 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
    
    þ
    
    No
    
    o
 Indicate by check mark which financial statement items the Registrant has elected to follow: Item 17
    
    o
    
    Item 18
    
    þ




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TABLE OF CONTENTS PagePART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    5ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    5ITEM 3. KEY INFORMATION
    
    
    5ITEM 4. INFORMATION ON THE COMPANY
    
    
    15ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    35ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    58ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    62ITEM 8. FINANCIAL INFORMATION
    
    
    63ITEM 9. THE OFFER AND LISTING
    
    
    63ITEM 10. ADDITIONAL INFORMATION
    
    
    64ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    69ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    69PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    69ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    69ITEM 15. CONTROLS AND PROCEDURES
    
    
    69ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    69ITEM 16B. CODE OF ETHICS
    
    
    70ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    70ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    70ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    70PART IIIITEM 17. FINANCIAL STATEMENTS
    
    
    71ITEM 18. FINANCIAL STATEMENTS
    
    
    71ITEM 19. EXHIBITS
    
    
    72EX-12.1EX-12.2
 2




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PART I PRESENTATION OF INFORMATION As used in this annual report: the terms Ineos Group Holdings, our, we and us refer to
Ineos Group Holdings plc 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 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. 3




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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 Item 3D Risk Factors. 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 Item 3D 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 table below sets forth the selected historical consolidated financial data as of and for
each of the periods indicated. The selected financial data for the three years ended December 31,
2004 and as at December 31, 2003 and 2004 is derived from the consolidated financial statements of
Ineos Group Holdings 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 HoldingsResults of Operations and the consolidated financial statements in Item 18 of this
annual report. 5




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Year EndedDecember 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in  millions)Profit and Loss Account
Data:Amounts in accordance
with
UK GAAP:Turnover
    
    
    337.0
    
    
    
    1,530.7
    
    
    
    2,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1Cost of sales
    
    
    (270.0
    )
    
    
    (1,255.8
    )
    
    
    (1,833.9
    )
    
    
    (2,130.3
    )
    
    
    (2,928.4
    )Gross profit
    
    
    67.0
    
    
    
    274.9
    
    
    
    401.9
    
    
    
    400.1
    
    
    
    467.7Distribution costs
    
    
    (13.4
    )
    
    
    (104.4
    )
    
    
    (161.8
    )
    
    
    (151.7
    )
    
    
    (150.3
    )Administrative
expenses
    
    
    (8.2
    )
    
    
    (68.5
    )
    
    
    (65.9
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Exceptional
administrative
expenses
    
    
    
    
    
    
    (19.6
    )
    
    
    (24.6
    )
    
    
    
    
    
    
    (8.2
    )
    
    
    (88.1
    )
    
    
    (90.5
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Other operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.1
    
    
    
    Operating profit
    
    
    45.4
    
    
    
    82.4
    
    
    
    149.6
    
    
    
    220.8
    
    
    
    268.6Profit/(loss) on
ordinary activities
after taxation
    
    
    28.5
    
    
    
    (16.9
    )
    
    
    39.0
    
    
    
    150.6
    
    
    
    167.9Profit/(loss) for the
financial year
    
    
    19.1
    
    
    
    (19.0
    )
    
    
    39.0
    
    
    
    129.8
    
    
    
    123.8Amounts in accordance
with US GAAP:Profit/(loss) for the
financial year
    
    
    29.2
    
    
    
    (41.3
    )
    
    
    26.8
    
    
    
    136.6
    
    
    
    195.8Other Financial Data:Amounts in accordance
with
UK GAAP:Depreciation and
amortisation
    
    
    (7.7
    )
    
    
    (77.4
    )
    
    
    (81.4
    )
    
    
    (77.6
    )
    
    
    (79.0
    )Cash flows
Operating
    
    
    35.2
    
    
    
    177.7
    
    
    
    211.0
    
    
    
    268.2
    
    
    
    214.0Dividend received
from associate
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    Returns on
investments and
servicing of finance
    
    
    (8.3
    )
    
    
    (115.0
    )
    
    
    (61.3
    )
    
    
    (61.3
    )
    
    
    (49.7
    )Taxation paid
    
    
    (6.6

    )
    
    
    (11.9
    )
    
    
    (11.1
    )
    
    
    (12.3
    )
    
    
    (24.9
    )Capital expenditures
    
    
    (17.0
    )
    
    
    (42.9
    )
    
    
    (47.5
    )
    
    
    (55.0
    )
    
    
    (95.2
    )Acquisitions and
disposal
    
    
    
    
    
    
    (777.0
    )
    
    
    (5.0
    )
    
    
    1.4
    
    
    
    Equity dividends paid
    
    
    (13.6
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    (10.0
    )
    
    
    (39.8
    )Financing
    
    
    
    
    
    
    879.8
    
    
    
    (91.4
    )
    
    
    (81.1
    )
    
    
    (75.5
    )
 6




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Year EndedDecember 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in  millions)Balance Sheet Data
(at period end):Amounts in accordance
with
UK GAAP:Cash
    
    
    12.0
    
    
    
    121.2
    
    
    
    108.9
    
    
    
    153.3
    
    
    
    79.5Net current assets
    
    
    44.9
    
    
    
    219.8
    
    
    
    221.7
    
    
    
    228.0
    
    
    
    285.2Total assets
    
    
    228.9
    
    
    
    1,443.0
    
    
    
    1,382.5
    
    
    
    1,400.2
    
    
    
    1,586.8Total debt
    
    
    (104.1
    )
    
    
    (981.2
    )
    
    
    (866.1
    )
    
    
    (761.2
    )
    
    
    (681.9
    )Equity
shareholders funds
    
    
    55.8
    
    
    
    87.9
    
    
    
    86.4
    
    
    
    179.2
    
    
    
    280.5Amounts in accordance
with US GAAP:Shareholders equity
    
    
    55.2
    
    
    
    63.5
    
    
    
    49.9
    
    
    
    143.9
    
    
    
    276.8
 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. High
    
    
    Low$/
    
    
    $/As of Months EndedMarch 2005
    
    
    1.35
    
    
    
    1.29February 2005
    
    
    1.33
    
    
    
    1.28January 2005
    
    
    1.35
    
    
    
    1.30December 2004
    
    
    1.36
    
    
    
    1.32November 2004
    
    
    1.33
    
    
    
    1.27October 2004
    
    
    1.28
    
    
    
    1.23
 Average(1)$/As of Year EndedDecember 31, 2004
    
    
    1.25December 31, 2003
    
    
    1.14December 31, 2002
    
    
    0.95December 31, 2001
    
    
    0.89December 31, 2000
    
    
    0.93
   (1)
    
    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. As of April 25, 2005, the noon buying rate of the Federal Reserve Bank of New York for
euros was $1 = 0.77 ($1.30 = 1.00). 7




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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 leverage3⁄4Our 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, 2004: As of December 31, 2004(in millions)Total Debt (net of debt issuance costs)
    
    
     681.9Shareholders Equity
    
    
     280.5
 For further information, you should read Item 5 of this annual report titled Operating
and Financial Review and Prospects. Additional borrowings available3⁄4Despite 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. 8




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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 as at December 31, 2004. 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. Ability to service debt3⁄4To 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 9




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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 cyclical3⁄4Changing 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 suppliers3⁄4If 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, 2003 and 2004. 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. 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 10




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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, Syndial, 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)
    they will provide meaningful protection for our trade secrets or proprietary
know-how, or(3)
    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. Environmental matters3⁄4We 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 11




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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 Overview3⁄4Environmental, Health and Safety Matters. 12




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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:  (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 fluctuations3⁄4We 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. 13




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Inability to implement our business and cost reduction strategies3⁄4We may be adversely
affected if we are unable to implement our business and cost reduction strategies. 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 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 regulation3⁄4Our 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 Overview3⁄4Environmental Health, and Safety Matters. Product liability3⁄4We 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. 14




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ITEM 4. INFORMATION ON THE COMPANY A. HISTORY AND DEVELOPMENT OF THE COMPANY Ineos Group Holdings plc was incorporated in England and Wales on May 14, 2001 as a public
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. Our ultimate parent
company is Ineos Group Limited. Ineos Group Holdings is a holding company that does not directly conduct any operations.
Prior to January 1, 2001, the only business of Ineos Group Holdings 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 ultimate
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. We have made more than 260.8 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 86.1 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 74.9 million, 45.7 million and 54.1 million, respectively, since
acquiring these businesses in 2001. These expenditures have principally been for scheduled
maintenance and specific debottlenecking and capacity expansion projects. In addition, Ineos
Phenol invested 16.4 million in 2002 to rebuild 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 16 manufacturing facilities located in nine 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. 15




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We operate through four discrete businesses as shown in the table below: Ineos Oxide
    
    Ineos Phenol
    
    Ineos Fluor
    
    Ineos SilicasMajor specialty products
    
    Ethylene oxide
(EO), EO
derivatives
(including
ethanolamines
(EOA)), ethylidene
norbornene (ENB)
acetate esters and
third party
services
    
    3⁄4
    
    CFC-replacement HFC
134a, HCFC 22 and
other specialty
fluorochemicals
    
    Silicates, zeolites
and silicasMajor intermediate products
    
    EG and antifreeze
    
    Phenol and acetone
    
    3⁄4
    
    3⁄4Key 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,
desiccants, matting
agents, beer
filtration aids,
dental abrasives
and polyolefin
catalystsPrincipal end-use markets
    
    Consumer products,
oil and gas and
general industrial
    
    CDs, glazing,
optical lenses,
plywood, adhesives,
nylons, paints and
coatings
    
    Automotive air
conditioning,
refrigeration and
pharmaceuticals
    
    Washing powder,
coatings, brewing,
toothpaste,
polyethylene
production
 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 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 ofProducts
    
    2004 Turnover
    
    End-UsesSpecialty Products
    
    70%Ethylene Oxide
    
    
    
    EO derivativesEO
derivatives

EOA, alkoxylates, glycol

ethers and
GasSpecTM
gas

treating amines
    
    
    
    Agrochemicals, surfactants, cosmetics,
pharmaceuticals, synthetic lubricants
and oil and gas processingENB
    
    
    
    Surface coatings, inks,
pharmaceuticals and EPDM rubberThird party services and other
    
    
    
    Provision of utilities, operations and
raw materials to third party chemical
companiesIntermediate Products
    
    30%EG
    
    
    
    Polyester (PET) resins, fibers and filmAntifreeze
    
    
    
    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 16




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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 2004 while sales of its intermediate chemicals accounted
for approximately 30% of its turnover in 2004. 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 65% since October 1998 through a series of expansion projects. In 2004, Ineos Oxide
used approximately 63% 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. 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, GE, Air Liquide 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. 17




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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,
Cognis, Monsanto, DSM, Bayer, Voridian and DuPont. No single customer accounted for more than ten
percent of Ineos Oxides turnover in 2004 except for Dow due to the long-term EO for EG swap
associated with the EOA acquisition. Its five largest customers represented approximately 26% of
its total turnover. 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 only competitor in the ENB merchant
market is Nippon Petrochemicals. 18




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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 60% of its
total cost of sales in 2004 (percentage includes ethylene content of EO purchased from Dow in
Plaquemine). 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. During 2004, the ICIS North Western Europe contract price for ethylene was 580 per tonne
in the first quarter, 607 per tonne in the second quarter, 635 per tonne in the third quarter and
increased significantly in the fourth quarter to 700 per tonne. The North American CMAI contract
price for ethylene was 31.5 cts/lb for the first 8 months and increased significantly to 39.5
cts/lb in December 2004. 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 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 180 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. 19




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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 1,540 kilotonnes of phenol and 955 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. The following chart illustrates Ineos Phenols products: Percentage of2004TurnoverProducts
    
    Applications
    
    (Volume)
    
    End-UsersPhenol
    
    Bisphenol A, for the
production of
polycarbonates and
epoxy resins
    
    
    63
    %
    
    DVDs, CDs, optical lenses,
automotive, glazing, computer and
printed circuit boards and adhesivesPhenolic resins
    
    
    22
    %
    
    Plywood, oriented strand board and
foundry materialsCaprolactam, for the
production of nylons
    
    
    13
    %
    
    Fibers and engineering plasticsOther
    
    
    2
    %
    
    Engineering plastics, foams and
detergentAcetone
    
    MMA, PMMA and acrylate
    
    
    33
    %
    
    Acrylic sheet, Plexiglas, mouldings
and extrusion compoundsBisphenol A, for the
production of
polycarbonates and
epoxy resins
    
    
    33
    %
    
    DVDs, CDs, spectacle lenses,
automotive, glazing, computer and
printed circuit boards and adhesivesAcetone-based solvents
    
    
    18
    %
    
    Chemicals industry, paints, coatings
and printing inksOther
    
    
    16
    %
    
    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. 20




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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. 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 60% of its total sales from its ten largest customers.
Bayer accounted for approximately 16% of Ineos Phenols total sales by volume in 2004, 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 four locations in Germany, the
United States, Brazil 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. 21




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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 2004, 45% 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 2004,
Ineos Phenol made 30% of its European and 20% of its US phenol sales under formula contracts. It
also made 5 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 2004, Ineos Phenol made 25% of
its European and 80% of its US phenol sales under market contracts and arrangements. 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 79% of total
North American production capacity. In the North American merchant market, Shell, Sunoco and Ineos
Phenol enjoy approximately 22%, 40% and 17% of the merchant market, respectively. The difficult
market conditions of the last few years have forced the closure of four smaller phenol plants in
North America in 2002 and 2003: Fenoquimia, Frontier, the Pasedena plant of Georgia Gulf and one of
the Sunoco plants in Haverhill. 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 70% of its cost of sales in 2004, while the costs of Ineos Phenols other raw
materials and utilities accounted for only 3% of cost of sales in 2004. 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 22




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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. 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 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 630 kilotonnes of phenol and 390 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. The plant has been further expanded
to 470 kilotonnes per annum for phenol in 2004. 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. 23




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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 cost of
approximately 400 million. Ineos Fluor is now in the process of converting its UK HFC 134a asset
into an HFC 125 asset. The lost HFC 134a production will be taken up by our other HFC 134a plants
in Japan and the US. HFC 125 is a blend product used in low temperature cooling systems. This
will enable us to replace product that is currently purchased externally. We believe that Ineos
Fluor is now the worlds largest producer of HFC 134a, with production volumes of more than 50
kilotonnes per annum. The following chart illustrates Ineos Fluors products: Percentageof 2004Products
    
    Turnover
    
    
    End-UsesIndustrial Fluorocarbons
    
    
    87
    %HFC 134a
    
    
    
    
    
    Commercial, industrial and automotive air conditioning and propellantsHCFC 22
    
    
    
    
    
    Low-temperature refrigeration and air conditioning, foam blowing, feedstockHFC Blends
    
    
    
    
    
    Low-temperature replacement for CFCs and HCFCs for refrigeration and air conditioningSpecialty Fluorochemicals
    
    
    9
    %
    
    Pharmaceuticals and anaestheticsHydrogen Fluoride
    
    
    3
    %
    
    Raw materials for both HFCs and HCFCs and in the manufacture of fuel rods for the nuclear industryEnvironmental
    
    
    1
    %
    
    Projects driven by tightening waste treatment requirements and regulations for fluorine based chemicals
 Products HFC 134a HFC 134a, which accounted for the majority of Ineos Fluors turnover in 2004, was developed in
the late 1980s and introduced commercially in the early 1990s 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 2004, is used
in low-temperature refrigeration and air conditioning, foam blowing, and as a feedstock in the
production of fluoropolymers, such as polytetrafluoroethylene. 24




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Specialty Fluorochemicals Ineos Fluor produces several other specialty fluorochemicals, including halothane, a
fluorinated inhalation anaesthetic; and medical grade HFC 134a, a propellant in medical inhalers. HFC Blends HFC blends are being developed to replace existing CFC and HCFC products for various
refrigeration and air conditioning 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. 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 2010. The use of HCFC 22 as a feedstock is still
permitted worldwide. 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. Draft European
legislation proposes to regulate the use of HFC 134a in automotive air conditioning from 2011. 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 134a sales
value in 2004, 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 Europe, Asia (excluding Japan) and Latin America. 25




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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 Arkema 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 licence 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
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. In Asia patent coverage is sporadic and
Ineos Fluor will target sales in patent free territories. 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, Arkema and Honeywell. Raw Materials and Suppliers Ineos Fluors key raw materials are trichloroethylene, HF and chloroform. Ineos Fluor
purchases trichloroethylene 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, Ying Peng (China), Arkema (China), and a range of smaller suppliers in China and
Korea. Ineos Fluor purchases all its requirements for chloroform from Ineos Chlor. Prices for
each of these raw materials have been fairly stable in recent years but in 2004 saw prices
beginning to rise in the global trichloroethylene market. 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, stock
profiles fluctuate, peaking in February/March and again pre plant overhauls in October. 26




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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 HCFC 22, HF and several other fluorine-based
chemicals, with a new HFC 125 plant due to come on line by the end of 2005. 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. 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: Percentageof 2004Products
    
    Turnover
    
    
    End-UsesSilicates
    
    
    29
    %
    
    Paper adhesives, civil engineering, consumer laundryand dishwasher detergents, water treatmentZeolites
    
    
    33
    %
    
    Consumer laundry detergentsSilicas
    
    
    38
    %
    
    Paints and coatings, brewing, edible oils, desiccants,personal care products, plastics, water treatments andpolymerisation catalysts
 27




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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. 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
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 exports 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. 28




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Customers, Sales and Marketing Customers Ineos Silicas derived approximately 34% of its turnover in 2004 from Unilever, with whom we
believe we have a 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, SAB-Miller, Proctor & Gamble and SABIC. 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 and Japan. 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 2004, Ineos Silicas sold approximately 90% of its zeolites and 25% 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. 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 polymers 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 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 70% 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. 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. 29




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Operations and Manufacturing Facilities Ineos Silicas has eight production sites in six 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.
Investment since 2002 has averaged 14 million per annum. Ineos Silicas entered into a nine-year agreement with Unilever for A24 zeolite in 2001. 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, the emphasis on investment has moved to silica where substantial expansions in
capacity in Warrington and Joliet have been implemented since 2003. 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 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 31,2002
    
    
    2003
    
    
    2004( in millions)TurnoverEurope
    
    
    1,534.1
    
    
    
    1,680.6
    
    
    
    2,220.9Americas
    
    
    450.0
    
    
    
    569.1
    
    
    
    866.8Rest of World
    
    
    251.7
    
    
    
    280.7
    
    
    
    308.42,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1
 30




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Turnover by business unit is as follows: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)TurnoverIneos Oxide
    
    
    507.4
    
    
    
    500.1
    
    
    
    590.6Ineos Phenol
    
    
    1,189.0
    
    
    
    1,542.3
    
    
    
    2,316.5Ineos Fluor
    
    
    304.8
    
    
    
    273.8
    
    
    
    275.5Ineos Silicas
    
    
    234.6
    
    
    
    214.2
    
    
    
    213.52,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1
 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 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 2004, 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 20.6 million. We expect to
spend a similar amount in 2005. 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. 31




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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
Factors3⁄4Risks Relating to Business Operations3⁄4Environmental matters3⁄4We 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 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 2,026 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 752 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. 32




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##### Table of Contents



C. ORGANISATIONAL STRUCTURE Ineos Group Holdings 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: (FLOW 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. 33




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##### Table of Contents



The following is a list of the principal subsidiaries of Ineos Group Holdings: Country of
    
    
    PercentageCompany
    
    Incorporation
    
    
    HoldingIneos Holdings Limited
    
    UK
    
    
    100
    %Ineos US Finance LLC
    
    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 Overseas Company I Limited
    
    UK
    
    
    100
    %Ineos Overseas Company II Limited
    
    UK
    
    
    100
    %Ineos Partners
    
    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 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
    %IFJ Korea Limited
    
    Korea
    
    
    100
    %Ineos Fluor Canada Inc.
    
    Canada
    
    
    100
    %Ineos Fluor Partners Limited
    
    UK
    
    
    100
    %Ineos Fluor Delaware Limited
    
    UK
    
    
    100
    %Ineos Fluor Americas LLC
    
    US
    
    
    100
    %Ineos Fluor Mexico S de RL de CV
    
    Mexico
    
    
    100
    %Ineos Mexico S de RL de CV
    
    Mexico
    
    
    100
    %Ineos Silicas Holding Limited
    
    UK
    
    
    100
    %Ineos Silicas Limited
    
    UK
    
    
    100
    %Ineos Silicas International Limited
    
    UK
    
    
    100
    %Ineos Silicas Netherlands BV
    
    Holland
    
    
    100
    %Ineos Silicas Sales and Distribution BV
    
    Holland
    
    
    100
    %Ineos Silicas Asia Pacific Pte Limited
    
    Singapore
    
    
    100
    %Ineos Silicas 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
    %Ineos Silicas Healthcare Limited
    
    UK
    
    
    100
    %Ineos US DSS Limited
    
    UK
    
    
    100
    %Ineos US Holding Company II LLC
    
    US
    
    
    100
    %Ineos US Intermediate Holding Company LLC
    
    US
    
    
    100
    %Ineos Americas LLC
    
    US
    
    
    100
    %Ineos US Investment Holding Company LLC
    
    US
    
    
    100
    %
 34




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##### Table of Contents



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 16 manufacturing facilities in nine countries
throughout the world. The following chart provides information regarding our plants: Capacity (in
    
    
    Approximatekilotonnes
    
    
    area (squareProperty/Location(1)
    
    Principal Products Manufactured
    
    per year)
    
    
    meters)Ineos OxideAntwerp, Belgium
    
    EO, EG, EO derivatives, ENB
    
    
    1,200
    
    
    
    1,360,000Plaquemine, LA, US
    
    EOA and gas treating amines
    
    
    175
    
    
    
    40,000Ineos PhenolGladbeck, Germany
    
    Phenol, acetone
    
    
    1,020
    
    
    
    330,000Antwerp, Belgium(2)
    
    Phenol, acetone
    
    
    760
    
    
    
    270,000Mobile, AL, US
    
    Phenol, acetone
    
    
    710
    
    
    
    486,000Ineos FluorRocksavage, UK
    
    HCFC 22, HF
    
    
    57
    
    
    
    300,000St. Gabriel, LA, US
    
    HFC 134a
    
    
    30
    
    
    
    330,000Mihara, Japan(3)
    
    HFC 134a
    
    
    19
    
    
    
    18,000Ineos SilicasWarrington, UK
    
    Silicas, silicates, zeolites
    
    
    382
    
    
    
    223,000Eijsden, Netherlands
    
    Silicates, zeolites
    
    
    330
    
    
    
    85,000Joliet, IL, US
    
    Silicas, silicates, zeolites
    
    
    230
    
    
    
    162,000Pasuran, Indonesia
    
    Silicas
    
    
    10
    
    
    
    20,000Jacana, Brazil
    
    Silicates
    
    
    175
    
    
    
    12,100Rio Claro, Brazil
    
    Silicas
    
    
    7
    
    
    
    85,000Jacobs, South Africa
    
    Silicates
    
    
    100
    
    
    
    12,100Wadeville, South Africa
    
    Silicates
    
    
    120
    
    
    
    28,000
   (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. Ineos Fluor is constructing an HFC 125 production facility in the UK. Production is
expected to commence at the end of 2005. Ineos Oxide is intending to expand its EO and EO
derivatives capabilities at its site in Antwerp, Belgium. The expansions will include additional
EO capacity in combination with world-scale ethanolamine (EOA) and alkoxylation units. Production
from these facilities is planned to commence in early 2007. Ineos Phenol is intending to expand
its phenol production capabilities at both its Antwerp and Mobile sites. Additional production
from these expansions is expected to commence in late 2006/early 2007. 
 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 acquired and combined by our principal shareholders, the 35




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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. 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. 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 1996 to 2003, Ineos Oxides
design capacity for EO has grown from approximately 140,000 tonnes per annum to 420,000
tonnes per annum, while its design capacity for EG has grown from approximately 180,000
tonnes per annum to 340,000 tonnes per annum. The ENB unit was expanded in 2002 by a
further 5ktpa to 18ktpa, with the next 5ktpa expansion scheduled to be undertaken in
2005. In addition, the EOA unit in Plaquemine has been expanded by a further 25ktpa in
2003 to 160ktpa. In 2004 the Alkox capacity has been expanded by another 30Ktpa
through low cost debottlenecking of existing assets and the acquisition of an alkox
unit from a third party on the Antwerp. 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 significant step-change has been
announced in December 2004 to expand the EO unit further and build an EOA unit in
Antwerp by 2007.
    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 continue to be
strong during 2005 due to a short global supply/demand balance, underpinned by a
continuing 6-7% demand growth rate for EG from global polyester markets and the lack of
sufficient new glycol capacity to cover this demand growth being commissioned in 2005. 36




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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 70% of Ineos Phenols cost of
sales in 2004. 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 went up significantly during 2004 and reached new historical
highs. Prices are expected to stay at these high levels for most of 2005.
    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 and 2003, bringing the North American market into a
more balanced position. In Europe DSM closed their phenol plant towards the end of
2004 (120 ktpa). In Europe, Ineos Phenol expanded its phenol capacity at its Antwerp
plant to 470 kilotonnes per annum in 2004 and at its Gladbeck plant to 630 kilotonnes
per annum in 2003. Some increases in available plant capacity in the market are
expected for 2005 mainly in Asia. Market demand in 2004 increased mainly due to
significant growth in the BPA segment. Market demand in 2005 is expected to be higher
than 2004 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.
    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
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 37




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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 in 2003 and 2004. Industry MORM levels improved
during 2004 and are expected to remain stable during 2005.
    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 2005 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. 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%, 33% and 38%, respectively, of Ineos Silicas
turnover for the year ended December 31, 2004. 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:  
    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 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. 38




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##### Table of Contents




    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 Holdings3⁄4Results of Operations The results of the Ineos Group Holdings for the year ended December 31, 2003 and December 31,
2004 are comprised of Ineos Oxide, Ineos Fluor, Ineos Silicas and Ineos Phenol. The results of
Ineos Group Holdings 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. Discussions of the results of operations of each of Ineos Oxide, Ineos Phenol, Ineos Fluor and
Ineos Silicas for the years ended December 31, 2002, 2003 and 2004 are presented herein. 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. 39




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The following table sets forth, for the periods indicated, turnover and expenses and such
amounts as a percentage of turnover: Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %(in millions, except percentages)Turnover
    
    
    2,235.8
    
    
    
    100.0
    
    
    
    2,530.4
    
    
    
    100.0
    
    
    
    3,396.1
    
    
    
    100.0Cost of sales
    
    
    (1,833.9
    )
    
    
    (82.0
    )
    
    
    (2,130.3
    )
    
    
    (84.2
    )
    
    
    (2,928.4
    )
    
    
    (86.2
    )Gross profit
    
    
    401.9
    
    
    
    18.0
    
    
    
    400.1
    
    
    
    15.8
    
    
    
    467.7
    
    
    
    13.8Distribution costs
    
    
    (161.8
    )
    
    
    (7.2
    )
    
    
    (151.7
    )
    
    
    (6.0
    )
    
    
    (150.3
    )
    
    
    (4.4
    )Administrative expenses before exceptional
items
    
    
    (65.9
    )
    
    
    (2.9
    )
    
    
    (45.7
    )
    
    
    (1.8
    )
    
    
    (48.8
    )
    
    
    (1.5
    )Exceptional administrative expenses
    
    
    (24.6
    )
    
    
    (1.1
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Other operating income
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    18.1
    
    
    
    0.7
    
    
    
    3⁄4
    
    
    
    3⁄4Operating profit
    
    
    149.6
    
    
    
    6.8
    
    
    
    220.8
    
    
    
    8.7
    
    
    
    268.6
    
    
    
    7.9Share of operating profit of associate
    
    
    0.6
    
    
    
    3⁄4
    
    
    
    0.6
    
    
    
    3⁄4
    
    
    
    0.5
    
    
    
    3⁄4Profit on disposal of fixed assets
    
    
    1.9
    
    
    
    3⁄4
    
    
    
    1.3
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Profit on disposal of business
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    0.1
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Net finance charges
    
    
    (72.7
    )
    
    
    (3.3
    )
    
    
    (64.5
    )
    
    
    (2.5
    )
    
    
    (46.7
    )
    
    
    (1.4
    )Profit on ordinary activities before taxation
    
    
    79.4
    
    
    
    3.5
    
    
    
    158.3
    
    
    
    6.2
    
    
    
    222.4
    
    
    
    6.5Taxation on profit on ordinary activities
    
    
    (40.4
    )
    
    
    (1.8
    )
    
    
    (7.7
    )
    
    
    (0.3
    )
    
    
    (54.5
    )
    
    
    (1.6
    )Profit on ordinary activities after taxation
    
    
    39.0
    
    
    
    1.7
    
    
    
    150.6
    
    
    
    5.9
    
    
    
    167.9
    
    
    
    4.9
 Year Ended December 31, 2004, Compared to Year Ended December 31, 2003 Turnover. Turnover increased by 865.7 million, approximately 34.2% to 3,396.1 million
for the year ended December 31, 2004 as compared to 2,530.4 million for the same period in
2003. This increase largely reflects an increase in sales volumes for phenol and acetone and
increased sales prices for Ineos Phenol. Ineos Oxide has also experienced increased volumes and
sales prices compared to 2003. Cost of sales. Cost of sales increased by 798.1 million, approximately 37.5% to
2,928.4 million for the year ended December 31, 2004 as compared to 2,130.3 million for the
same period in 2003. This increase mainly reflects increased raw material prices in the Ineos
Phenol and Ineos Oxide business segments, plus the increased volume sold in these segments. Gross profit. Gross profit increased by 67.6 million, approximately 16.9% to 467.7
million for the year ended December 31, 2004 as compared to 400.1 million for the same period
in 2003. This increase is primarily due to increased volumes and increased sales prices, partially
offset by increased raw material prices, particularly in the Ineos Phenol and Ineos Oxide business
segments. Distribution costs. Distribution costs decreased by 1.4 million, approximately 0.9% to
150.3 million for the year ended December 31, 2004 as compared to 151.7 million for the
same period in 2003. The slight decrease is mainly due to lower airfreight costs and a higher
proportion of ex works sales in Ineos Silicas in 2004. This is partly offset by increased
distribution costs due to higher sales volumes in Ineos Phenol. Administrative expenses. Administrative expenses increased by 3.1 million, approximately
6.8% to 48.8 million for the year ended December 31, 2004 as compared to 45.7 million for
the same period in 2003. This is a result of income recognised in 2003 in Ineos Oxide, not
repeated in 2004, plus decreased levels of currency retranslation gains in Ineos Phenol. There has
also been a reduction of negative goodwill amortisation due to exchange rate retranslation in Ineos
Phenol. This is offset by increased negative goodwill amortisation in Ineos Fluor due to
accelerated amortisation of negative goodwill associated with the UK HFC 134a asset. 40




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##### Table of Contents



Other operating income.On September 9, 2002 there was an explosion and fire at the Ineos
Phenol plant in Mobile, USA. The relevant part of the plant was subsequently rebuilt and put back
into full operation by January 2003. The claim was settled with our insurers and a final
settlement of 18.1 million was received in 2003 in respect of business interruption as a result
of the incident. Operating profit. Operating profit increased by 47.8 million, approximately 21.6% to
268.6 million for the year ended December 31, 2004 as compared to 220.8 million for the
same period in 2003. The increase primarily reflects increased sales volumes and sales prices in
Ineos Phenol and Ineos Oxide. This is partially offset by increased administration costs and the
omission of business interruption insurance proceeds in 2004 compared to 2003. Share of operating profit of associate.Share of operating profit of associate remained
consistent with 0.5 million for the year ended December 31, 2004 as compared to 0.6 million
for the same period in 2003. Profit on disposal of fixed assets.Profit on disposal of fixed assets was nil million
for the year ended December 31, 2004, as compared to 1.3 million for the same period in 2003.
In 2003 this represented the impact of the incident at our Ineos Phenol plant in Mobile, USA. In
addition to the amounts received on account in 2002, a final amount of 1.3 million was received
from insurers for property damage in 2003. Profit on disposal of business.On April 17, 2003 contracts were signed for the sale of Ineos
Silicas Italia srl and the associated silicate business to its management. After expenses, 1.4
million sales proceeds were received. After taking into account net assets disposed of and
associated goodwill, the profit on disposal was 0.1 million in 2003. Net finance charges. Net finance charges decreased by 17.8 million, approximately 27.6%
to 46.7 million for the year ended December 31, 2004, as compared to 64.5 million for the
same period in 2003. This decrease is a result of exchange gains of 6.3 million in 2004,
compared to exchange losses of 1.9 million in 2003. In addition interest payable has reduced
due to lower debt levels in 2004 compared to 2003 as a result of scheduled and voluntary debt
repayments. Profit on ordinary activities before taxation. Profit on ordinary activities increased by
64.1 million, approximately 40.5% to 222.4 million for the year ended December 31, 2004, as
compared to 158.3 million for the same period in 2003. This increase primarily reflects the
increase in sales volumes and sales prices and the reduction of net finance charges due to lower
levels of debt and exchange gains in the year. This increase is offset by the inclusion in 2003 of
business interruption insurance proceeds of 18.1 million. Taxation. Taxation increased by 46.8 million, approximately 607.8% to 54.5 million
for the year ended December 31, 2004, as compared to 7.7 million for the same period in 2003.
This increase is due to an increase in profit made in 2004; a decrease in the level of non-taxable
credits; plus an increase in deferred tax due to a reduction in the losses available for
utilisation. Profit on ordinary activities after taxation. Profit on ordinary activities after taxation
increased by 17.3 million, approximately 11.5% to 167.9 million for the year ended December
31, 2004, as compared to 150.6 million for the same period in 2003. This increase reflects the
increase in sales volumes and sales prices and the reduction of net finance charges due to lower
levels of debt and exchange gains in the year. This increase is offset by the inclusion in 2003 of
business interruption insurance proceeds of 18.1 million; and additional taxation charges due
to a decrease in the level of non-taxable credits and an increase in deferred tax due to a
reduction in losses available for utilisation. 41




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Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 Turnover. Turnover increased by 294.6 million, approximately 13.2% to 2,530.4 million
in 2003 as compared to 2,235.8 million in 2002. This increase largely reflects an increase of
volumes sold for intermediate chemicals in the Ineos Phenol business segment. Ineos Phenol has
also experienced price increases in line with the increases in market prices for its products.
This has been partially offset by reductions in turnover in Ineos Oxide, Ineos Fluor and Ineos
Silicas due to the impact of exchange rate retranslation as a result of the strong euro compared to
the US dollar and sterling, together with reduced sales volumes in Ineos Oxide. Cost of sales. Cost of sales increased by 296.4 million, approximately 16.2% to
2,130.3 million in 2003 as compared to 1,833.9 million in 2002. This increase largely
reflects increased sales volumes in the intermediate business segment of Ineos Phenol. Ineos
Phenol has also experienced increased raw material prices in line with the increase in market
prices for benzene and propylene. This has been partially offset by reductions in cost of sales in
Ineos Oxide and Ineos Silicas due to the impact of exchange rate retranslation as a result of the
strong euro compared to the US dollar and sterling, together with reduced sales volumes in Ineos
Oxide. Gross profit. Gross profit decreased by 1.8 million, approximately 0.4% to 400.1
million in 2003 as compared to 401.9 million in 2002. This decrease reflects the increase in
sales volumes and improved margins in Ineos Phenol, especially in the United States, together with
higher margins achieved on MEG volumes sold by Ineos Oxide, offset by the impact of the stronger
euro compared to the US dollar across all four business segments. Distribution costs. Distribution costs decreased by 10.1 million, approximately 6.2% to
151.7 million in 2003 as compared to 161.8 million in 2002. This decrease is a combination
of reduced distribution costs as a result of our continuing cost saving projects together with the
impact of exchange rate retranslation as a result of a stronger euro against the US dollar and
sterling. Administrative expenses. Administrative expenses decreased by 20.2 million, approximately
30.7% to 45.7 million in 2003 as compared to 65.9 million in 2002. This decrease is
primarily due to the combined impact of lower costs incurred as a result of a number of cost saving
projects across the group, together with the impact of exchange rate retranslation as a result of a
stronger euro against the US dollar and sterling. In addition, there was an increase of 7.5
million in negative goodwill amortisation as a result of the accelerated amortisation of the Ineos
Fluor HFC134a assets in the UK. Exceptional administrative expenses. Exceptional administrative expenses were nil million
in 2003 compared to 24.6 million in 2002. These expenses primarily reflect severance costs
incurred in 2002 in connection with our ongoing business reorganisations in Ineos Silicas and Ineos
Phenol. Other operating income.On September 9, 2002 there was an explosion and fire at the Ineos
Phenol plant in Mobile, USA. The relevant part of the plant was subsequently rebuilt and put back
into full operation by January 2003. We have now settled our claim with our insurers and have
received a final settlement of 18.1 million in respect of business interruption as a result of
the incident. Operating profit. Operating profit increased by 71.2 million, approximately 47.6% to
220.8 million in 2003 compared to 149.6 million in 2002. This increase primarily reflects
the reduction in exceptional restructuring charges by 24.6 million in 2003 compared to 2002,
together with the inclusion of business interruption insurance proceeds of 18.1 million in 2003
and the reduction in administrative expenses in 2003 compared to 2002 as a result of cost saving
projects across the group. Share of operating profit of associate.Share of operating profit of associate remained
constant with 0.6 million in 2003 as compared to 0.6 million in 2002. 42




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Profit on disposal of fixed assets.Profit on disposal of fixed assets decreased by 0.6
million, approximately 31.6% to 1.3 million in 2003 as compared to 1.9 million in 2002.
Profit on disposal of fixed assets represents the impact of the incident at our Ineos Phenol plant
in Mobile, USA. In addition to the amounts received on account in 2002, a final amount of 1.3
million has been received from the insurers for property damage. Profit on disposal of business.On April 17, 2003 contracts were signed for the sale of Ineos
Silicas Italia srl and the associated silicate business to its management, supported financially by
an Italian chemical company Marchi Industriali spa. After expenses, 1.4 million sales proceeds
have been received by the Company. After taking into account net assets disposed of and associated
goodwill the profit on disposal was 0.1 million. Net finance charges. Net finance charges decreased by 8.2 million, approximately 11.3% to
64.5 million in 2003 as compared to 72.7 million in 2002. This decrease primarily reflects
the reduction in the variable interest rates on the senior credit facility together with lower debt
levels in 2003 compared to 2002 as a result of scheduled and voluntary debt repayments. Profit on ordinary activities before taxation. Profit on ordinary activities increased by
78.9 million, approximately 99.4% to 158.3 million in 2003 as compared to 79.4 million
in 2002. This increase primarily reflects the reduction in exceptional restructuring charges by
24.6 million in 2003 compared to 2002; the inclusion of business interruption insurance
proceeds of 18.1 million in 2003 and the reduction in interest charges due to lower variable
interest rates and lower debt levels in 2003 compared to 2002. Taxation. Taxation decreased by 32.7 million, approximately 80.9% to 7.7 million in
2003 as compared to 40.4 million in 2002. This decrease primarily reflects a decrease in the
deferred tax charge from 23.9 million in 2002 to a credit of 14.5 million. The movement
reflects the recognition for the first time in 2003 of deferred tax assets in respect of tax losses
in the United States which the Company now considers will be utilised in the foreseeable future. Profit on ordinary activities after taxation. Profit on ordinary activities after taxation
increased by 111.6 million, approximately 286.2% to 150.6 million in 2003 as compared to
39.0 million in 2002. This increase primarily reflects the reduction in exceptional
restructuring charges by 24.6 million in 2003 compared to 2002; the inclusion of business
interruption insurance proceeds of 18.1 million in 2003; the reduction in interest charges due
to lower variable interest rates and lower debt levels in 2003 compared to 2002 and the overall
reduction in the effective tax rate in 2003 compared to 2002. 43




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##### Table of Contents



Supplemental Disclosure Ineos Oxide3⁄4Results 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 31,2002
    
    
    2003
    
    
    2004
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %(in millions, except percentages)Turnover
    
    
    507.4
    
    
    
    100.0
    
    
    
    500.1
    
    
    
    100.0
    
    
    
    590.6
    
    
    
    100.0Cost of sales
    
    
    (378.1
    )
    
    
    (74.5
    )
    
    
    (375.2
    )
    
    
    (75.0
    )
    
    
    (441.8
    )
    
    
    (74.8
    )Gross profit
    
    
    129.3
    
    
    
    25.5
    
    
    
    124.9
    
    
    
    25.0
    
    
    
    148.8
    
    
    
    25.2Distribution costs
    
    
    (50.7
    )
    
    
    (10.0
    )
    
    
    (47.7
    )
    
    
    (9.5
    )
    
    
    (47.8
    )
    
    
    (8.1
    )Administrative expenses
    
    
    (13.4
    )
    
    
    (2.6
    )
    
    
    (7.1
    )
    
    
    (1.4
    )
    
    
    (10.6
    )
    
    
    (1.8
    )Exceptional
administrative
expenses
    
    
    (0.1
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Operating profit
    
    
    65.1
    
    
    
    12.9
    
    
    
    70.1
    
    
    
    14.0
    
    
    
    90.4
    
    
    
    15.3
 Year Ended December 31, 2004, Compared to Year Ended December 31, 2003 Turnover. Turnover increased by 90.5 million, approximately 18.1%, to 590.6 million
for the year ended December 31, 2004, as compared to 500.1 million for the same period in 2003. This increase reflects 8.5% additional volume sold in 2004 compared to 2003, as a consequence
of the Force Majeure declaration early 2003, due to a mechanical breakdown in the EO unit at the
Antwerp plant. In addition the EO/EG unit was shutdown twice in 2003 for recatalyzation, as
compared to only once in 2004. The additional capacity of EOA in our Plaquemine unit was available
from late 2003. At the same time sales prices, especially EG, attained historical high levels due
to the global shortage as a consequence of the fast growing Chinese imports. The average of the North Western Europe contract price for EO as per ICIS LOR increased to
1061 per tonne in 2004, as compared to 940 per tonne in 2003. Please note that the
official ICIS LOR price for EO has been corrected downwards by 120 per tonne on April 14, 2004.
For comparison reasons we have added back the 120 tonne, so the average official quoted ICIS
LOR price for EO in 2004 equals 941 per tonne. Whereas the average North Western Europe prices
for monoethylene glycol (MEG) as per ICIS LOR increased to 835 per tonne in 2004 as compared to
675 per tonne in 2003. Cost of sales. Cost of sales increased by 66.6 million, approximately 17.8%, to 441.8
million for the year ended December 31, 2004, as compared to 375.2 million for the same period
in 2003. This increase primarily reflects the above mentioned volume increase in almost all
business units, but mainly in EO, EOAs, and EG and increasing raw material prices. The average of the ICIS North Western Europe contract price for ethylene increased to 631
per tonne in 2004, as compared to 527 per tonne in 2003. Gross profit. Gross profit increased by 23.9 million, approximately 19.1%, to 148.8
million for the year ended December 31, 2004, as compared to 124.9 million for the same period
in 2003. This increase primarily reflects the increased volumes and increased sales prices partially
offset by the increased raw materials prices. Due to the high margins on EG, some of the gross
profit margin 44




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##### Table of Contents



lost last year, was regained (0.2%). The business also received 5.0 million compensation
from a supplier to settle a commercial dispute in 2004. Distribution costs. Distribution costs increased by 0.1 million, approximately 0.2%, to
47.8 million for the year ended December 31, 2004, as compared to 47.7 million for the same
period in 2003. The increase reflects the increase in volumes sold, almost completely offset by
the continued efforts to reduce distribution costs through an improved supply chain. Administrative expenses. Administrative expenses increased by 3.5 million, approximately
49.3%, to 10.6 million for the year ended December 31, 2004, as compared to 7.1 million for
the same period in 2003. Due to other income recorded in 2003 for a one-off sale of a piece of
land to a co-siting third party, and a business interruption insurance settlement related to the
ENB accident, the increase does not reflect the results of our fixed costs savings programme.
However by comparing current year expenditure with 2002, we clearly see a reduction of
administration expenses by 20.9% over two years. Operating profit. Operating profit increased by 20.3 million, approximately 29.0%, to
90.4 million for the year ended December 31, 2004, as compared to 70.1 million for the same
period in 2003. The increase reflects the sustainable Oxide business, an EG market at its peak of
the cycle and the continuous efforts to keep our cost base under control. Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 Turnover. Turnover decreased by 7.3 million, approximately 1.4%, to 500.1 million for
the year ended 31 December, 2003, as compared to 507.4 million for the same period in 2002. This decrease reflects a 5% reduction in volume sold in 2003 compared to 2002, as a
consequence of the Force Majeure declaration early 2003, due to a mechanical breakdown in the EO
unit at the Antwerp plant and the fact that the EO/EG unit was shutdown twice in 2003 for
recatalyzation, as compared to once in 2002. This decrease in volume was partially offset by an
increase in sales prices, especially MEG, due to the global shortage. The average of the North Western Europe contract price for EO as per ICIS LOR increased to
940 per tonne in 2003, as compared to 915 per tonne in 2002. Whereas the average North
Western Europe prices for monoethylene glycol (MEG) as per ICIS LOR increased to 675 per tonne
in 2003 as compared to 520 per tonne in 2002. Cost of sales. Cost of sales decreased by 2.9 million, approximately 0.8%, to 375.2
million for the year ended December 31, 2003, as compared to 378.1 million for the same period
in 2002. This decrease primarily reflects the above mentioned volume reduction, mainly in EO and
EG offset by increased sales volumes of Alkoxylates, EOA and ENB and increasing raw material
prices. The average of the ICIS North Western Europe contract price for ethylene increased to 527
per tonne in 2003, as compared to 517 per tonne in 2002. Gross profit. Gross profit decreased by 4.4 million, approximately 3.4%, to 124.9
million for the year ended December 31, in 2003, as compared to 129.3 million for the same
period in 2002. This decrease primarily reflects the decreased volumes and increased raw material
prices partially offset by the increased sales prices. Due to the weak economic environment,
margins were under pressure which is reflected in the loss of 0.5% of gross profit. Distribution costs. Distribution costs decreased by 3.0 million, approximately 5.9%, to
47.7 million for the year ended December 31, 2003, as compared to 50.7 million for the same
period in 2002. The decrease reflects the decrease in volumes sold and the continued efforts to
reduce distribution costs by making the supply chain more efficient. 45




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Administrative expenses. Administrative expenses decreased by 6.3 million, approximately
47.0%, to 7.1 million for the year ended December 31, 2003, as compared to 13.4 million for
the same period in 2002. The decrease reflects the results of our fixed costs savings programme by
sharing services with other business and other income recorded through the year for a one-off sale
of a piece of land to a co-siting third party and a business interruption insurance settlement
related to the ENB accident in 2002. Operating profit. Operating profit increased by 5.0 million, approximately 7.7%, to
70.1 million for the year ended December 31, 2003, as compared to 65.1 million for the same
period in 2002. The increase reflects the sustainable Oxide business and the efforts to keep our
cost base under control in a weak business environment. Ineos Phenol3⁄4Results 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 31,2002
    
    
    2003
    
    
    2004
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %(in millions, except percentages)Turnover
    
    
    1,189.0
    
    
    
    100.0
    
    
    
    1,542.3
    
    
    
    100.0
    
    
    
    2,316.5
    
    
    
    100.0Cost of sales
    
    
    (1,084.5
    )
    
    
    (91.2
    )
    
    
    (1,397.5
    )
    
    
    (90.6
    )
    
    
    (2,121.6
    )
    
    
    (91.6
    )Gross profit
    
    
    104.5
    
    
    
    8.8
    
    
    
    144.8
    
    
    
    9.4
    
    
    
    194.9
    
    
    
    8.4Distribution costs
    
    
    (63.6
    )
    
    
    (5.3
    )
    
    
    (61.1
    )
    
    
    (4.0
    )
    
    
    (62.2
    )
    
    
    (2.7
    )Administrative expenses
    
    
    7.4
    
    
    
    0.6
    
    
    
    4.3
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    3⁄4Exceptional
administrative
expenses
    
    
    (6.1
    )
    
    
    (0.5
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Other operating income
    
    
    
    
    
    
    
    
    
    
    18.1
    
    
    
    1.2
    
    
    
    3⁄4
    
    
    
    3⁄4Operating profit
    
    
    42.2
    
    
    
    3.6
    
    
    
    106.1
    
    
    
    6.9
    
    
    
    132.8
    
    
    
    5.7
 Year Ended December 31, 2004, Compared to Year Ended December 31, 2003 Turnover. Turnover increased by 774.2 million, approximately 50.2%, to 2,316.5
million for the year ended December 31, 2004, as compared to 1,542.3 million for the same
period in 2003. This increase reflects increased sales volumes for both phenol and acetone linked
with increased utilisation levels at all three production facilities, together with increased sales
prices. Western European phenol and acetone prices (per CMAI) increased to 1,008 per metric tonne
and to 657 per metric tonne, respectively, for the year ended December 31, 2004, as compared to
724 per metric tonne and 556 per metric tonne, respectively, for the same period in 2003.
US phenol and acetone prices (per CMAI) increased to $1,122 per metric tonne and $770 per metric
tonne, respectively, for the year ended December 31, 2004, as compared to $901 per metric tonne and
$548 per metric tonne, respectively, for the same period in 2003. Cost of sales.Cost of sales increased by 724.1 million, approximately 51.8%, to
2,121.6 million for the year ended December 31, 2004, as compared to 1,397.5 million for
the same period in 2003. This increase mainly reflects increased raw material prices and a higher
raw material consumption due to higher plant utilisation. Western European benzene and propylene contract prices (per CMAI) increased to 676 per
metric tonne and 551 per metric tonne, respectively, for the year ended December 31, 2004, as
compared to 415 per metric tonne and 476 per metric tonne, respectively, for the same
period in 2003. US benzene and propylene contract prices (per CMAI) increased to $864 per metric
tonne and 46




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##### Table of Contents



$737 per metric tonne, respectively, for the year ended December 31, 2004, as compared to $462
per metric tonne and $497 per metric tonne, respectively, for the same period in 2003. Gross profit.Gross profit increased by 50.1 million, approximately 34.6% to 194.9
million for the year ended December 31, 2004, as compared to 144.8 million for the same period
in 2003. This increase reflects the increase in sales volume and increased sales prices, partially
offset by increased costs of sales due to higher raw material consumption and increased raw
material prices. Distribution costs.Distribution costs increased by 1.1 million, approximately 1.8%, to
62.2 million for the year ended December 31, 2004, as compared to 61.1 million for the same
period in 2003. This increase is a combination of increased distribution costs as a result of
higher sales volumes partially offset by the favourable impact of exchange rate retranslation as a
result of a stronger euro against the US dollar, together with reduced fixed cost as a result of
our continuing cost saving projects. Administrative expenses.Administration expenses, including the amortisation of negative
goodwill, increased by 4.2 million, approximately 97.7%, to a credit of 0.1 million for the
year ended December 31, 2004, as compared to a credit of 4.3 million of the same period in
2003. This increase is due to a reduction in negative goodwill amortisation of 1.7 million as
a result of exchange rate retranslation, together with decreased levels of currency translation
gains made in 2004 as compared to 2003. Other operating income.Other operating income decreased by 18.1 million for the year
ended December 31, 2004, to exactly nil, as compared to 18.1 million for the same period in
2003. This income represented the business interruption insurance proceeds recognised in the year
ended December 31, 2003, following the incident at the Mobile plant in September 2002. There has
been no comparable income in the period ended December 31, 2004. Operating profit.Operating profit increased by 26.7 million, approximately 25.2%, to
132.8 million for the year ended December 31, 2004, as compared to 106.1 million for the
same period in 2003. This increase primarily reflects increased sales volumes and sales prices,
combined with costs savings, partially offset by increased distribution costs and the omission of
business interruption insurance proceeds in 2004 as compared to 2003. Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 Turnover increased by 353.3 million, approximately 29.7%, to 1,542.3 million for the
year ended December 31, 2003, as compared to 1,189.0 million for the same period in 2002. This
increase reflects increased sales volumes for both phenol and acetone and increased sales prices,
except for acetone in Europe. Western European phenol prices (per CMAI) increased to 724 per tonne for the year ended
December 31, 2003, as compared to 559 per tonne for the same period in 2002. Western European
acetone prices (per CMAI) decreased to 556 per tonne for the year ended December 31, 2003, as
compared to 565 per tonne for the same period in 2002. US phenol and acetone prices (per CMAI)
increased to $901 per metric tonne and $548 per metric tonne, respectively, for the year ended
December 31, 2003, as compared to $737 per metric tonne and $374 per metric tonne, respectively,
for the same period in 2002. Cost of sales.Cost of sales increased by 313.0 million, approximately 28.9%, to
1,397.5 million for the year ended December 31, 2003, as compared to 1,084.5 million for
the same period in 2002. This increase reflects higher raw material consumption due to higher
plant utilisation (mainly in the USA) and increased raw material prices, partially offset by lower
depreciation related to fair market value adjustments on acquisition. The utilisation increase in
the USA is mainly due to the incident on September 9, 2002, which caused a production loss for the
remainder of 2002 compared to full production in the same period of 2003. 47




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##### Table of Contents



Western European benzene and propylene contract prices (per CMAI) increased to 415 per
tonne and 476 per tonne, respectively, for the year ended December 31, 2003, as compared to
359 per tonne and 441 per tonne, respectively, for the same period in 2002. US benzene and
propylene contract prices (per CMAI) increased to $462 per tonne and $497 per tonne, respectively,
for the year ended December 31, 2003, as compared to $357 per tonne and $397 per tonne,
respectively, for the same period in 2002. Gross profit.Gross profit increased by 40.3 million, approximately 38.6% to 144.8
million for the year ended December 31, 2003, as compared to 104.5 million for the same period
in 2002. This increase reflects the increase in sales volume and increased sales prices, combined
with lower depreciation charges related to fair market value adjustments on acquisition, partially
offset by increased costs of sales due to higher raw material consumption and increased raw
material prices. Distribution costs.Distribution costs decreased by 2.5 million, approximately 3.9%, to
61.1 million for the year ended December 31, 2003, as compared to 63.6 million for the same
period in 2002. This decrease is a combination of reduced distribution costs as a result of our
continuing cost saving projects together with the impact of exchange rate retranslation as a result
of a stronger euro against the US dollar, partially offset by the increased distribution costs due
to increased sales volumes. Administrative expenses.Administrative expenses, including the amortisation of negative
goodwill, decreased by 3.1 million, approximately 41.9%, to a credit of 4.3 million for the
year ended December 31, 2003, as compared to a credit of 7.4 million for the same period in
2002. This decrease is primarily due to the reduction in negative goodwill amortisation of 3.0
million as a result of exchange rate retranslation. Exceptional administrative expenses.Exceptional administrative expenses decreased by
6.1 million, exactly 100.0%, to nil million for the year ended December 31, 2003, as
compared to 6.1 million for the same period in 2002. These expenses reflect severance costs
incurred in 2002 in connection with our business reorganisation following the acquisition of Ineos
Phenol from Degussa. Other operating income.Other operating income increased by 18.1 million for the year
ended December 31, 2003, as compared to no such income for the same period in 2002. This income
represents the business interruption insurance proceeds recognised in the year ended December 31,
2003, following the incident at the Mobile plant in September 2002. Operating profit.Operating profit increased by 63.9 million, approximately 151.4%, to
106.1 million for the year ended December 31, 2003, as compared to 42.2 million for the
same period in 2002. This increase primarily reflects increased sales volumes and sales prices
together with the business interruption insurance proceeds recognised in 2003, following the
incident at the Mobile plant in September 2002, and costs savings as a result of various cost
saving projects. 48




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Ineos Fluor3⁄4Results of Operations The following table sets forth, for the periods indicated, turnover and expenses for Ineos
Fluor and such amounts as a percentage of turnover. Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %(in millions, except percentages)Turnover
    
    
    304.8
    
    
    
    100.0
    
    
    
    273.8
    
    
    
    100.0
    
    
    
    275.5
    
    
    
    100.0Cost of sales
    
    
    (227.3
    )
    
    
    (74.6
    )
    
    
    (224.2
    )
    
    
    (81.9
    )
    
    
    (225.9
    )
    
    
    (82.0
    )Gross profit
    
    
    77.5
    
    
    
    25.4
    
    
    
    49.6
    
    
    
    18.1
    
    
    
    49.6
    
    
    
    18.0Distribution costs
    
    
    (22.6
    )
    
    
    (7.4
    )
    
    
    (21.1
    )
    
    
    (7.7
    )
    
    
    (21.3
    )
    
    
    (7.7
    )Administrative expenses
    
    
    (18.2
    )
    
    
    (6.0
    )
    
    
    (4.9
    )
    
    
    (1.8
    )
    
    
    (1.0
    )
    
    
    (0.4
    )Exceptional administrative expenses
    
    
    (1.7
    )
    
    
    (0.5
    )
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Operating profit
    
    
    35.0
    
    
    
    11.5
    
    
    
    23.6
    
    
    
    8.6
    
    
    
    27.3
    
    
    
    9.9
 Year Ended December 31, 2004, Compared to Year Ended December 31, 2003 Turnover. Turnover increased by 1.7 million, approximately 0.6%, to 275.5 million for
the year ended December 31, 2004, as compared to 273.8 million for the same period in 2003.
The increase reflects record sales volumes on HCFC 134a, A22 and HFC Blends but this was offset by
the impact of a stronger euro when compared to the US dollar. Cost of sales. Cost of sales increased by 1.7 million, approximately 0.8%, to 225.9
million for the year ended December 31, 2004, as compared to 224.2 million for the same period
in 2003. The increase reflects the extra volumes sold and additional accelerated depreciation of
6.5 million on the UK HFC 134a asset offset by a stronger euro when compared to the US dollar.
The UK HFC 134a asset was closed in September 2004 to enable its conversion to an HFC 125 asset. Gross profit. Gross profit was unchanged at 49.6m in 2004 and 2003. Distribution costs. Distribution costs increased by 0.2 million, approximately 0.9%, to
21.3 million for the year ended December 31, 2004, as compared to 21.1 million for the same
period in 2003. This increase reflects the growth in volumes sold. Administrative expenses. Administrative expenses, including research and development
activities and other operating income, decreased by 3.9 million, approximately 79.6%, to
1.0 million for the year ended December 31, 2004, as compared to 4.9 million for the same
period in 2003. Administrative expenses include a 24.9 million credit for amortization of
negative goodwill for the year ended December 31, 2004 as compared to 20.0 million for the same
period in 2003. The increase in amortisation is mainly due to accelerated amortisation of the
negative goodwill associated with the UK HFC 134a asset up to its planned closure in September
2004. Operating profit. Operating profit increased by 3.7 million, approximately 15.7%, to
27.3 million for the year ended December 31, 2004 as compared to 23.6 million for the same
period in 2003. This increase is primarily due to the reduction in administrative expenses in 2004
as compared to 2003. Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 Turnover. Turnover decreased by 31.0 million, approximately 10.2%, to 273.8 million
for the year ended December 31, 2003, as compared to 304.8 million for the same period in 2002.
The decrease reflects increased volumes of industrial grade HFC134a and HCFCs offset by lower
prices and a stronger euro when compared to the US dollar. 49




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Cost of sales. Cost of sales decreased by 3.1 million, approximately 1.4%, to 224.2
million for the year ended December 31, 2003, as compared to 227.3 million for the same period
in 2002. The decrease reflects increased volumes of industrial grade HFCs and HCFCs and additional
accelerated depreciation of 8.1 million on the UK HFC 134a asset which was offset by a stronger
euro when compared to Sterling and the US dollar. Gross profit. Gross profit decreased by 27.9 million, approximately 36.0%, to 49.6
million for the year ended December 31, 2003, as compared to 77.5 million for the same period
in 2002. The decrease reflects increased volumes of industrial grade HFC 134a and HCFCs offset by
lower prices, additional accelerated depreciation on the UK HFC 134a asset and by a stronger euro
when compared to the US dollar. Distribution costs. Distribution costs decreased by 1.5 million, approximately 6.6%, to
21.1 million for the year ended December 31, 2003, as compared to 22.6 million for the same
period in 2002. The decrease reflects the impact of the stronger euro when compared to US dollar
offset by additional distribution costs associated with increased volumes. Administrative expenses. Administrative expenses, including research and development
activities and other operating income, reduced by 13.3 million, approximately 73.1%, to 4.9
million for the year ended December 31, 2003, as compared to 18.2 million for the same period
in 2002. Administrative expenses include a 20.0 million credit for amortization of negative
goodwill for the year ended December 31, 2003 as compared to 12.5 million for the same period
in 2002. The increase in amortisation is mainly due to accelerated amortisation of the negative
goodwill associated with the UK HFC 134a asset. The underlying decrease in administrative expenses
reflects the impact of the ongoing fixed cost reductions and the stronger euro when compared to the
US dollar. Exceptional administrative expenses. Exceptional administrative expenses in 2002 were
nil, compared to 1.7 million in 2002. The 2002 costs primarily reflect severance payments
and other redundancy-related costs incurred in connection with business restructuring. Operating profit. Operating profit reduced by 11.4 million, approximately 32.6%, to
23.6 million for the year ended December 31, 2003 as compared to 35.0 million for the same
period in 2002. Ineos Silicas3⁄4Results 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 31,2002
    
    
    2003
    
    
    2004
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %(in millions, except percentages)Turnover
    
    
    234.6
    
    
    
    100.0
    
    
    
    214.2
    
    
    
    100.0
    
    
    
    213.5
    
    
    
    100.0Cost of sales
    
    
    (144.0
    )
    
    
    (61.4
    )
    
    
    (133.4
    )
    
    
    (62.3
    )
    
    
    (139.1
    )
    
    
    65.2Gross profit
    
    
    90.6
    
    
    
    38.6
    
    
    
    80.8
    
    
    
    37.7
    
    
    
    74.4
    
    
    
    34.8Distribution costs
    
    
    (24.9
    )
    
    
    (10.6
    )
    
    
    (21.8
    )
    
    
    (10.2
    )
    
    
    (19.0
    )
    
    
    (8.9
    )Administrative expenses
    
    
    (41.7
    )
    
    
    (17.8
    )
    
    
    (38.0
    )
    
    
    (17.7
    )
    
    
    (37.3
    )
    
    
    (17.4
    )Exceptional administrative
expenses
    
    
    (16.7
    )
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating profit
    
    
    7.3
    
    
    
    3.1
    
    
    
    21.0
    
    
    
    9.8
    
    
    
    18.1
    
    
    
    8.5
 50




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Year ended December 31, 2004, Compared to year ended December 31, 2003 Turnover. Turnover decreased by 0.7 million, approximately 0.3%, to 213.5 million for
the year ended December 31, 2004, as compared to 214.2 million for the same period in 2003.
Translated at constant exchange rates, turnover increased by 1.0%, with all regions except Europe
growing year on year. In Europe, the sales decline was mostly isolated to a few key customers in
Northern Europe. Sales of precipitated silicas to Unilever were lower than last year, as they have
sourced more product from alternative suppliers, particularly from India. Sales of zeolite to
Unilever declined, where we believe this is due to lower consumer sales of Unilever detergent
powders. Sales of silica gel for beverage applications in Germany were also lower in 2004. This
is a result of a major beer distributor / re-packer of our products ending a long-standing supply
agreement. Growth of sales in North America is mostly a result of supplying Procter and Gamble in
the US. Cost of sales. Cost of sales increased by 5.7 million, approximately 4.3%, to 139.1
million for the year ended December 31, 2004, as compared to 133.4 million for the same period
in 2003. This increase occurred mostly in quarter four 2004, most of which is a result of higher
raw material and utility costs. In addition, repairs and maintenance spend in 2004 has been higher
than last year. Gross profit. Gross profit decreased by 6.4 million, approximately 7.9%, to 74.4
million for the year ended December 31, 2004, as compared to 80.8 million for the same period
in 2003. This decrease is largely due to higher raw material and utility costs eroding product
contribution margins. Distribution costs. Distribution costs decreased by 2.8 million, approximately 12.8%, to
19.0 million for the year ended December 31, 2004, as compared to 21.8 million for the same
period in 2003. Lower airfreight costs in 2004 and a higher proportion of ex works sales are the
key factors behind the decrease. Administrative expenses. Administrative expenses decreased by 0.7 million, approximately
1.8%, to 37.3 million for the year ended December 31, 2004, as compared to 38.0 million for
the same period in 2003. Operating profit. Operating profit decreased by 2.9 million, approximately 13.8% to
18.1 million for the year ended December 31, 2004, as compared to 21.0 million for the same
period in 2003. This decrease is largely due to higher raw material and utility costs, partially
offset by reduced distribution costs. Year ended December 31, 2003, Compared to year ended December 31, 2002 Turnover. Turnover decreased by 20.4 million, approximately 8.7%, to 214.2 million
for the year ended December 31, 2003, as compared to 234.6 million for the same period in 2002.
Of the 20.4 million shortfall compared to last year, approximately 18.7 million was due to
the impact of exchange translation differences in 2003 compared to 2002. The disposal of the
silicate business in Italy in April 2003 reduced sales by 1.8 million as compared to 2002. At
constant exchange rates, global sales of zeolite were behind the levels achieved in 2002, despite
an increase in turnover from the European assets of 2.2%. Sales into North America declined as a
result of lower demand from our key customer. As a result of the US dollar and sterling softening
against the euro in 2003, global silicas turnover decreased in 2003. However, at constant
translation exchange rates, underlying turnover increased by 5.5%. Cost of sales. Cost of sales decreased by 10.6 million, approximately 7.4%, to 133.4
million for the year ended December 31, 2003, as compared to 144.0 million for the same period
in 2002. Most of the decrease relates to exchange translation differences. Additionally,
underlying operating costs were lower in 2003, although the higher gas prices experienced in 2003,
particularly in North America, reduced the impact of the cost savings. 51




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Gross profit. Gross profit decreased by 9.8 million, approximately 10.8%, to 80.8
million for the year ended December 31, 2003, as compared to 90.6 million for the same period
in 2002. Exchange translation differences account for most of the shortfall. Distribution costs. Distribution costs decreased by 3.1 million, approximately 12.4%, to
21.8 million for the year ended December 31, 2003, as compared to 24.9 million for the same
period in 2002. The decrease is mainly due to exchange rate translation, lower global silicate
sales and the lower zeolite volumes in North America, offset by costs of additional silica sales in
2003. Administrative expenses. Administrative expenses decreased by 3.7 million, approximately
8.9%, to 38.0 million for the year ended December 31, 2003, as compared to 41.7 million for
the same period in 2002. The decrease is a result of the restructuring program and the benefit of
exchange rate translation. Exceptional administrative expenses. Exceptional administrative expenses in 2003 were
nil, compared to 16.7 million in 2002. The costs charged in 2002 reflect the anticipated
severance and other redundancy related costs of the global restructuring program. Operating profit. Operating profit increased by 13.7 million, approximately 187.7%, to
21.0 million for the year ended December 31, 2003, as compared to 7.3 million for the same
period in 2002. Excluding exceptional administrative expenses, operating profit decreased by
3.0 million, approximately 12.5%, to 21.0 million for the year ended December 31, 2003, as
compared to 24.0 million for the same period in 2002. 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 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, 2004, 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 52




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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 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 acquisitions of Ineos Fluor, Ineos Silicas and Ineos Phenol, we
incurred substantial debt. As of December 31, 2004, our total debt is 681.9 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 plus an applicable margin. 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, 2004, were 46.7
million. 53




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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, we may be
required to purchase the Senior Notes in the event of a change of control. We may not be able to
do so without the consent of the lenders under the Senior Credit Facilities. Over the next few years, our main capital expenditure requirements will be for general
maintenance together with specific capacity expansion projects. During the years ended December
31, 2003 and 2004, capital expenditures in our four businesses were as follows: 2003
    
    
    2004( in millions)Ineos Oxide
    
    
    13.8
    
    
    
    15.9Ineos Phenol
    
    
    17.8
    
    
    
    25.7Ineos Fluor
    
    
    7.3
    
    
    
    21.5Ineos Silicas
    
    
    17.7
    
    
    
    13.756.6
    
    
    
    76.8
 We currently anticipate that our capital expenditure will be in the aggregate
approximately 150.0 million through 2005. The increase in capital expenditure reflects our
anticipated capacity expansions in EO in Antwerp, phenol in both Antwerp and Mobile and the
conversion of the HFC 134a plant to HFC 125 production in Runcorn. We have agreed to participate in the revised funding package to construct new cellrooms at
Ineos Chlors site at Runcorn, England. Ineos Chlor is a related party. We have made available
facilities to Ineos Chlor of up to £130.0 million (183.0 million) in the form of interest
bearing loans with final maturity in 2010. It is anticipated that most of this facility will be
drawn down through 2005 and 2006 as the project progresses. At December 31, 2004, loans totalling
31.8 million were owed to us by Ineos Chlor Limited. 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 company has drawn down 28 million as at December
31, 2004. The availability of amounts under the Senior Credit Facilities is subject to compliance
with financial and other covenants contained therein. In February 2005 we signed an Interim
Finance Facility for 150.0 million. This additional facility will help to finance our planned
capacity increases across the businesses, together with our commitment to Ineos Chlor during 2005. During the years ended December 31, 2003 and 2004, cash flows from operating activities in
each of our businesses were as follows: 2003
    
    
    2004( in millions)Ineos Oxide
    
    
    90.0
    
    
    
    83.8Ineos Phenol
    
    
    92.6
    
    
    
    65.1Ineos Fluor
    
    
    52.0
    
    
    
    41.1Ineos Silicas
    
    
    33.6
    
    
    
    24.0268.2
    
    
    
    214.0
 The cash flow for Ineos Phenol in 2003 includes the benefit of the receipt of 18.1
million in insurance settlement proceeds from the Mobile incident. Ineos Phenol also experienced a
significant 54




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increase in working capital during 2004 as a result of significant increases in raw material
prices in the year, which reduced the segments operating cash flows. 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 held cash balances of 79.5 million as at December 31, 2004, and we had drawings of 28
million under the 75 million revolving credit facility. The Company repaid a total of 103.9
million of the Senior Credit Agreement in the year ended December 31, 2004. Net debt as at
December 31, 2004 was 602.4 million (December 31, 2003: 607.9 million). We believe that our cash flows from operations, together with borrowings under the revolving
credit facility, the interim finance 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 of which are beyond our control. See
Item 3.D. in this annual report titled Risk Factors for additional disclosure. Recent Accounting Developments In May 2004, the FASB issued FASB Staff Position (FSP) 106-2, Accounting and Disclosure
Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003(the
Act) (which supersedes FSP 106-1). This FSP addresses the accounting implications of the newly
issued Act to an entity that sponsors a post-retirement health care plan that provides prescription
drug benefits. This Act, signed into law in December 2003 in the United States, introduces a
prescription drug benefit under Medicare as well as a federal subsidy to sponsors of certain
retiree health care benefit plans. The FSP states that FASB Statement No. 106 specifies that
health care coverage provided by Medicare shall be taken into account in measuring the employers
post retirement health care benefit obligation. It also requires presently enacted changes in
relevant laws to be considered in the current period measurements of net periodic post-retirement
benefit cost and the accumulated post-retirement obligation (APBO). Therefore, under that
guidance, measures of the APBO and net periodic post-retirement benefit cost on or after the date
of enactment shall reflect the effects of the Act. The FSP is effective for the first interim or
annual period beginning after June 15, 2004. The Company is currently evaluating the impact of
this FSP on its results of operations and financial position. In November 2004, the FASB issued SFAS 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. FAS 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material and requires that these items be recognised as
current-period charges. In addition, FAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the production facilities.
The effective date is for inventory costs incurred during fiscal years beginning after June 15,
2004. The Company is currently evaluating the impact of this statement but does not believe that
any impact will be material. In December 2004, the FASB issued SFAS 123 (revised 2004), Share Based Payment, which
supersedes SFAS 123. The cost of employee services received in exchange for an award of equity
instruments shall be measured based on the grant-date fair value of those instruments. The cost is
recognised over the period during which an employee is required to provide service in exchange for
the award. The effective is as of the beginning of the first annual reporting period that begins
after December 15, 2005. The Company is currently evaluating the impact of this statement on its
results of operations and financial position. In December 2004 the FASB issued Financial Accounting Standard No. 153, Exchanges of
Non-monetary Assets(FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Non-monetary
Transactions, to eliminate the exception for non-monetary exchanges of similar productive 55




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assets and replaces it with a general exception for exchanges of non-monetary assets that do
not have commercial substance. A non-monetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the exchange. FAS 153 is
effective for the Group for the year ended December 31, 2005. We are currently evaluating the
possible impact of this pronouncement for the Group. The European Parliament and Council of the European Union issued a regulation in 2002 that
will require all EU listed companies to prepare their consolidated financial statements in
accordance with International Financial Reporting Standards (IFRS) rather than the existing
national GAAP. This regulation applies to Ineos Group Holdings as our Senior Notes are listed on
the Luxembourg stock exchange. The regulation takes effect for the accounting periods beginning on
or after January 1, 2005 and consequently the accounting framework under which the Company reports
will change. The Company will produce its consolidated financial statements in accordance with
IFRS for the year ended December 31, 2005. We are currently evaluating the areas that will be most
affected by the adoption of IFRS, including assessing the impact on our underlying systems and
financial statements and our US GAAP reconciliations. 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 2004, Ineos Phenol
spent 1.7 million (2003: 1.8 million; 2002: 1.1 million) on research and development activities. Ineos Fluors research and development team, which consists of 26 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 a medical products business.
In 2004, Ineos Fluor charged 2.3 million (2003: 3.2 million; 2002: 3.8 million) on research and
development activities. Ineos Silicas currently has approximately 57 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 worldwide. In 2004, Ineos Silicas charged 4.9 million (2003: 3.8
million; 2002: 4.1 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. 56




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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. E. OFF BALANCE SHEET ARRANGEMENTS We have no off balance sheet arrangements. F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS 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)After2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    TotalContractual commitmentsSenior credit facilities
    
    
    95.5
    
    
    
    67.4
    
    
    
    97.2
    
    
    
    122.8
    
    
    
    46.2
    
    
    
    
    
    
    
    429.1Other loan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    1.1Finance lease obligations
    
    
    0.8
    
    
    
    1.4
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    1.2
    
    
    
    4.5Senior Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260.0
    
    
    
    260.0Operating lease commitments
    
    
    15.7
    
    
    
    8.0
    
    
    
    6.5
    
    
    
    5.2
    
    
    
    3.7
    
    
    
    29.0
    
    
    
    68.1Capital expenditure
    
    
    29.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.9Non-cancellable purchase
contracts
    
    
    1,659.6
    
    
    
    993.4
    
    
    
    940.3
    
    
    
    438.1
    
    
    
    313.2
    
    
    
    324.0
    
    
    
    4,668.61,801.5
    
    
    
    1,070.2
    
    
    
    1,044.4
    
    
    
    566.5
    
    
    
    363.4
    
    
    
    615.3
    
    
    
    5,461.3
 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, 2004 have been used. Due to the significant increase in raw
material prices experienced during 2004 the commitments under purchase contracts has increased
considerably compared to the estimated purchase commitments as at December 31, 2003. G. SAFE HARBOUR The safe harbour provided in Section 21E of the Securities Exchange Act of 1934 applies to the
forward-looking information provided pursuant to item 5.F above. 57




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS AND SENIOR MANAGEMENT Directors and Executive Officers of Ineos Group Holdings The following table sets forth the name, age (as of December 31, 2004) and principal position
of each of our directors and executive officers: Name
    
    Age
    
    PositionJames A. Ratcliffe
    
    
    52
    
    
    ChairmanAndrew Currie
    
    
    49
    
    
    DirectorAntoine Verrijckt
    
    
    57
    
    
    DirectorJohn Reece
    
    
    47
    
    
    DirectorWilliam Madden
    
    
    70
    
    
    DirectorWilliam Reid
    
    
    41
    
    
    CEO-Ineos OxidePeter Bickert
    
    
    49
    
    
    CEO-Ineos PhenolDavid Price
    
    
    52
    
    
    CEO-Ineos FluorBrian Foster
    
    
    47
    
    
    CEO-Ineos Silicas
 James A. Ratcliffehas been a director and the Chairman of Ineos Group Holdings and the
Chairman of Ineos Capital since 1998. Mr. Ratcliffe, who has 28 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 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 33
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. 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 15 years experience in the petrochemicals industry. 58




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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 19 years experience in the chemicals industry. David Pricehas been the CEO of Ineos Fluor since 2004. Prior to that time, he held a number
of senior positions within the business, which he joined in 1989. Prior to joining Ineos Fluor,
Mr. Price was with ICIs Chemicals and Polymers Group and prior to that Courtaulds Limited. Mr.
Price has a degree in chemical engineering from Bath University and has over 30 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 24 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 0.9 million was paid to our executive officers and directors in their
capacity as directors and officers of Ineos Group Holdings in 2004. 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
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. 59




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D. EMPLOYEES As of December 31, 2004, Ineos Oxide had 546 employees, Ineos Phenol had 637 employees, Ineos
Fluor had 346 employees and Ineos Silicas had 901 employees. The table below shows the number of
employees, including distribution by sector, at year-end for the years indicated: At December 31,2002
    
    
    2003
    
    
    2004Ineos Group Holdings employees
    
    
    2,494
    
    
    
    2,442
    
    
    
    2,430Of whichAdministrative/ Sales and marketing
    
    
    463
    
    
    
    427
    
    
    
    637Research and development
    
    
    120
    
    
    
    118
    
    
    
    111Operations and manufacturing
    
    
    1,911
    
    
    
    1,897
    
    
    
    1,682
 The following chart shows our employees by geographic distribution at the dates
indicated: At December 31,2002
    
    
    2003
    
    
    2004Ineos Group HoldingsEurope
    
    
    1,825
    
    
    
    1,783
    
    
    
    1,761United States
    
    
    385
    
    
    
    385
    
    
    
    385Asia/Pacific and rest of the world
    
    
    284
    
    
    
    274
    
    
    
    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 labour 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 co-operation 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. 60




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E. SHARE OWNERSHIP All of the issued share capital of Ineos Group Holdings plc is held directly by Ineos
Intermediate Holdings Limited. Ineos Intermediate Holdings Limited is a wholly owned subsidiary of
Ineos Investment Holdings Limited, which is a wholly owned subsidiary of Ineos Group Limited.
Ineos Oxide, Ineos Phenol, Ineos Fluor and Ineos Silicas are indirect subsidiaries of Ineos Group
Holdings plc. 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, 2005, 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. Number of
    
    
    Number of
    
    
    Number of
    
    
    Number of
    
    
    Percentage ofOxide
    
    
    Phenol
    
    
    Fluor
    
    
    Silicas
    
    
    Total IneosTracking
    
    
    Tracking
    
    
    Tracking
    
    
    Tracking
    
    
    Group LimitedShares
    
    
    Shares
    
    
    Shares
    
    
    Shares
    
    
    Share CapitalJames 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
    
    
    4,360,500
    (4)
    
    
    4,185,310
    (5)
    
    
    4,185,310
    (6)
    
    
    4,185,310
    (7)
    
    
    28.1
    %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 150,950 Ineos Oxide US tracking shares, 440,942 Ineos Phenol tracking shares,
539,754 Ineos Fluor tracking shares and 440,942 Ineos Silicas tracking shares which have been
authorised but have not yet been issued, Mr. Ratcliffe owns 57.7% of Ineos Group Limiteds
share capital, the other directors of Ineos Group Limited own 15.4% and other shareholders own
26.9%.(4)
    
    Includes (A) 1,480,600 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) 150,950 Ineos Oxide US tracking shares which have been authorised but have not yet been
issued.(5)
    
    Includes 440,942 shares which have been authorised but have not yet been issued.(6)
    
    Includes 539,754 shares which have been authorised but have not yet been issued.(7)
    
    Includes 440,942 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 0.11% of our total share capital. 61




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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 which owns 100% of the ordinary share capital of Ineos Group Holdings, are set out in
Item 6.E titled Share Ownership. B. RELATED PARTY TRANSACTIONS Relationship with Ineos Capital and Ineos Group Limited 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. At December 31, 2004 amounts owed
to Ineos Capital were 5.4 million (2003: 6.1 million). Ineos Group Holdings has entered into a service contract with Mr. Ratcliffe pursuant to which
Mr. Ratcliffe will act as Chairman of Ineos Group Holdings 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. The directors of Ineos Capital own a controlling interest in the capital stock of Ineos Group
Limited, our ultimate parent company. In connection with the refinancing of the group in May 2001,
we loaned an aggregate amount of 14 million to Ineos Group Limited. This loan is non-interest
bearing and matures on May 23, 2012. In 2000, Ineos Oxide made a loan in the amount of 15.3 million to Ineos Group Limited to
enable Ineos Group Limited to repurchase all of the equity interests in Ineos Group Limited held by
Murray Johnstone Limited. This loan is non-interest bearing. The outstanding balance of the loan
as of December 31, 2004 was 15.3 million. During 2004, Ineos Oxide paid management and directors fees to Ineos Group Holdings in the
amount of 0.9 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. 62




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The Group has made sales to Ineos Chlor of 1.2 million (2003: 0.3 million), recovered costs
of 2.7 million (2003: 4.6 million) and made purchases of 37.3 million (2003: 32.2 million)
during the year. At December 31, 2004 2.9 million (2003: 6.6 million) was owed to and 0.7
million (2003: nil million) was owed by Ineos Chlor. We have agreed to participate in the revised funding package to construct new cellrooms at
Ineos Chlors site at Runcorn, England. We have made available facilities to Ineos Chlor of £130.0
million (183.0 million) in the form of interest bearing loans with final maturity in 2010. At
December 31, 2004 loans totalling 31.8 million were owed by Ineos Chlor. Relationship with EVC The partners of Ineos Capital own a controlling interest in Ineos Vinyls Group Limited. Ineos
Vinyls Group Limited also has certain common directors with the Company. We have made sales to EVC
International NV, a subsidiary of Ineos Vinyls Group Limited, of 0.3 million (2003: nil million),
recovered costs of 0.9 million (2003: nil million) and made purchases of 1.7 million (2003: nil
million) during the year. At December 31, 2004 0.2 million (2003: nil million) was due from EVC. C. INTERESTS OF EXPERTS AND COUNSEL Not applicable. 
 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 Holdings is privately held as described elsewhere in
this annual report. There is no public market for the shares of Ineos Group Holdings. B. PLAN OF DISTRIBUTION Not applicable. C. MARKETS The Senior Notes are listed on the Luxembourg Stock Exchange. 63




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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 4215862. As set forth in Section 4.1 of our Memorandum of
Association, Ineos Group Holdings plc was established to carry on business as a holding company for
general commercial companies. 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 Our share capital consists of a single class of ordinary shares, the entirety of which is
owned by our parent company, Ineos Intermediate Holdings Limited. The holders of the ordinary
shares are entitled to receive notice of and to attend all meetings of shareholders and have one
vote for each ordinary share held at all meetings of the shareholders. The holders of the ordinary
shares are entitled to receive dividends as and when declared from time to time by the directors
and to be paid in equal amounts per share on all ordinary shares at the time outstanding. In the
event of the dissolution, liquidation or winding-up of our company, the holders of the ordinary
shares are entitled to receive the remaining assets of our company as determined by the liquidator. C. MATERIAL CONTRACTS Debt Service Obligations 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. 64




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Intercreditor Deed, dated May 23, 2001, among Ineos Group Limited, Ineos Holdings Limited,
Barclays Bank plc, Merrill Lynch Capital Corporation and UBS AG. 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. Neither Ineos Group Holdings nor Ineos Holdings Limited
is 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
    
    
    
    
    
    Interest
    
    Final MaturityLoan
    
    Borrowers
    
    Amount
    
    Type
    
    DateTerm A
    
    Ineos Holdings
(Fluor & Silicas)
Limited and Ineos
Phenol Limited
    
    Maximum 440 million(1)
    
    Floating
    
    June 30, 2007Term B
    
    Ineos Phenol Limited
    
    Maximum 180 million
    
    Floating
    
    June 30, 2008Term C
    
    Ineos US Finance LLC
    
    Maximum of the dollar equivalent
of 180 million(2)
    
    Floating
    
    June 30, 2009Revolving
    
    Any Borrower
    
    Maximum 75 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 3.50%. 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 65




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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 (as defined in the Senior Credit Facilities) of Ineos Group Holdings 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, 66




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(3)
    making an incorrect representation, warranty or statement, and(4)
    certain bankruptcy related events. 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, we issued 260.0 million aggregate principal amount of Senior Notes due 2010
bearing interest at a rate of 101/2 % 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, we may redeem all but not less than all of the Senior Notes by paying a
make-whole premium. We 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 to par on and after August 1, 2008. Upon a change of control, each holder of
Senior Notes may require us to repurchase all or a portion of its Senior Notes. The Senior Notes rank equally with our senior debt. Our direct 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 us and our
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;
    engage in transactions with affiliates; 67




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
    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. Interim Finance Facility Interim Finance Facility, dated February 2, 2005 among Ineos Group Holdings, Barclays Bank
plc, Lloyds TSB Bank plc, The Bank of Scotland, Fortis Bank N.V., and KBC Bank N.V. The total
available facility is for 150.0 million with a final maturity of February 2, 2006. Mandatory
prepayment is required upon a change of control or a refinancing of the Company. Loans under the
Interim Finance Facilities bear interest at a rate equal to a margin of 1.50% 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 Interim Finance Facilities). It will rank pari passu with the
Companys existing Senior Notes and will be unsecured and subordinate to existing senior bank debt. Other Agreements Purchase and Sale Agreement, dated March 30, 2001, among Degussa AG, Creanova, Inc., Ineos
Group Holdings 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. 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: 68




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450 Fifth Street N.W.
Room 1024
Washington D.C. 20549 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. 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 Holdings 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.Internal controls and procedures are
evaluated by our Chairman and Finance Director by means of a cascade process throughout the Group.
The cascade process requires all key managers to evaluate the effectiveness of the internal control
framework within their own particular areas of responsibility and report any weaknesses or
breakdown in controls back through the cascade process. Based on an evaluation as at December 31, 2004, our Chairman and Finance Director have
concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the US Securities Exchange Act of 1934) are effective to ensure that information required to
be disclosed in the reports we file or submit under the US Securities Exchange Act of 1934 is
recorded, processed, summarised and reported on a timely basis. 69




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Changes to internal controls.There have been no changes in our internal controls over
financial reporting identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15(e) or a 15d-15(e) or in other factors that have materially affected these
controls during the year ended December 31, 2004, or subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses. 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Companys audit committee does not include a financial expert as that term is defined in
applicable regulations. The members of the Companys audit committee have substantial experience
in assessing the performance of companies and in understanding financial statements, accounting
issues, financial reporting and audit committee functions. However, the Board of Directors does
not consider any of them to be a financial expert as that term is defined in applicable
regulations. Nevertheless, the Board of Directors believes that the members of the Companys audit
committee have the necessary expertise and experience to perform the functions required of the
audit committee and, given their respective backgrounds, it would not be in the best interests of
the Company to replace any of them with another person to qualify a member of the audit committee
as a financial expert. 
 ITEM 16B. CODE OF ETHICS The Board of Directors has not adopted a code of ethics applicable to the Companys principal
executive officer, principal financial officer, principal accounting officer or controller, or for
persons performing similar functions. The Board of Directors believes that the Companys existing
internal control procedures and current business practices are adequate to promote honest and
ethical conduct and to deter wrongdoing on the part of these executives. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Year ended December 31,2003
    
    
    2004( in millions)Audit services fees
    
    
    0.7
    
    
    
    0.7Taxation fees (a)
    
    
    0.5
    
    
    
    0.5Total fees paid to principal accountants
    
    
    1.2
    
    
    
    1.2
   a)
    
    Taxation fees are fees in respect of tax return preparation, consultation on tax
matters and general tax advice relating to specific transactions and other tax
planning. The Audit Committee pre-approved a list of services that could be rendered by the principal
accountant in 2003 pursuant to pre-approval policies and procedures established by the Audit
Committee. For services other than those specified, approval would need to be obtained from the
Audit Committee prior to performance of such services. Services provided by the principal
accountant during 2003 were allowable services that were either pre-approved by the Audit Committee
or were provided under contracts in existence at the date of introduction of our policy and were
grandfathered under rule 20-1(e)(1) of regulation S-X. 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 70




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ITEM 16E.
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS Not applicable. 
 PART III 
 ITEM 17. FINANCIAL STATEMENTS We have responded to Item 18 Financial Statements in lieu of this item. 
 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 Holdings plcReport of Independent Accountants
    
    
    F-1Consolidated Profit and Loss Accounts for the years ended December 31, 2002, 2003 and 2004
    
    
    F-2Consolidated Balance Sheets as at December 31, 2003 and 2004
    
    
    F-3Consolidated Cash Flow Statements for the years ended December 31, 2002, 2003 and 2004
    
    
    F-4Statements of Total Recognised Gains and Losses for the years ended December 31, 2002, 2003 and 2004
    
    
    F-5Notes to the Financial Statements
    
    
    F-6Ineos Holdings LimitedReport of Independent Accountants
    
    
    F-62Consolidated Profit and Loss Accounts for the years ended December 31, 2002, 2003 and 2004
    
    
    F-63Consolidated Balance Sheets as at December 31, 2003 and 2004
    
    
    F-64Consolidated Cash Flow Statements for the years ended December 31, 2002, 2003 and 2004
    
    
    F-65Statements of Total Recognised Gains and Losses for the years ended December 31, 2002, 2003 and 2004
    
    
    F-66Notes to the Financial Statements
    
    
    F-67
 71




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ITEM 19. EXHIBITS Exhibit No.
    
    Description of Exhibit1.1
    
    Memorandum and Articles of Association of Ineos Group Holdings plc12.1
    
    Indenture, dated July 19, 2001, among Ineos Group Holdings plc, as issuer,
Ineos Holdings Limited, as guarantor, and The Bank of New York, as trustee24.1
    
    Senior Credit Facilities, dated May 23, 2001, among Ineos Group Holdings, Ineos
Holdings Limited, Barclays Capital, Merrill Lynch International, UBS Warburg Ltd. and
Barclays Bank plc, as Facility Agent and Security Agent34.2
    
    Intercreditor Deed, dated May 23, 2001, among Ineos Group Holdings, Ineos
Holdings Limited, Barclays Bank plc, Merrill Lynch Capital Corporation and UBS
AG44.3
    
    Purchase and Sale Agreement, dated March 30, 2001, among Degussa AG, Creanova,
Inc., Ineos Group Holdings and Ineos Phenol Limited54.4
    
    Service Contract with Jim Ratcliffe64.5
    
    Interim Finance Agreement dated February 2, 2005 between Ineos Group Holdings,
Barclays Bank plc, Lloyds TSB Bank plc, The Bank of Scotland, Fortis Bank N.V., and KBC
Bank N.V.78.1
    
    List of subsidiaries of Ineos Group Holdings plc812.1
    
    Certification of the Chairman pursuant to Rule 13a  14(a) or Rule 15d 
14(a)912.2
    
    Certification of the Finance Director pursuant to Rule 13a  14(a) or Rule 15d
 14(a)9
   1
    
    Incorporated by reference to Exhibit 3.1 to
the Registration Statement on Form F-4 of Ineos Group Holdings plc, File No.
333-87974, 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
    
    We will file a copy of this agreement upon the
request of the staff of the Securities and Exchange Commission.8
    
    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.9
    
    Filed 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 HOLDINGS PLCBy:
    
    /s/ John ReeceName:
    
    John ReeceTitle:
    
    Finance DirectorDate:
    
    April 29, 2005
 73




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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Ineos Group Holdings We have audited the accompanying consolidated balance sheets of Ineos Group Holdings (the
Company or Ineos Group Holdings) and its subsidiaries as of December 31, 2004 and 2003, and the
related consolidated profit and loss accounts, consolidated cash flow statements and statements of
total recognised gains and losses for each of the three years in the period ended December 31,
2004, 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 the standards of the Public Company Accounting
Oversight Board (United States). 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 Holdings and its subsidiaries at December
31, 2004 and 2003, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2004, in conformity with accounting principles generally
accepted in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant
respects from accounting principles generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 36 to the consolidated
financial statements. PricewaterhouseCoopers LLP
London, United Kingdom April 29, 2005 F-1




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##### Table of Contents



INEOS GROUP HOLDINGS 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS
 Year Ended December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004( in millions)Turnover
    
    
    4
    
    
    
    2,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1Cost of sales
    
    
    
    
    
    
    (1,833.9
    )
    
    
    (2,130.3
    )
    
    
    (2,928.4
    )Gross profit
    
    
    
    
    
    
    401.9
    
    
    
    400.1
    
    
    
    467.7Distribution costs
    
    
    
    
    
    
    (161.8
    )
    
    
    (151.7
    )
    
    
    (150.3
    )Administrative expenses
    
    
    5
    
    
    
    (65.9
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Exceptional administrative expenses
    
    
    6
    
    
    
    (24.6
    )
    
    
    
    
    
    
    (90.5
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Other operating income
    
    
    8
    
    
    
    
    
    
    
    18.1
    
    
    
    Operating profit
    
    
    7
    
    
    
    149.6
    
    
    
    220.8
    
    
    
    268.6Share of operating profit of associate
    
    
    
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.5Profit on disposal of fixed assets
    
    
    8
    
    
    
    1.9
    
    
    
    1.3
    
    
    
    Profit on disposal of business
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    Net finance charges
    
    
    9
    
    
    
    (72.7
    )
    
    
    (64.5
    )
    
    
    (46.7
    )Profit on ordinary activities before
taxation
    
    
    
    
    
    
    79.4
    
    
    
    158.3
    
    
    
    222.4Taxation on profit on ordinary activities
    
    
    11
    
    
    
    (40.4
    )
    
    
    (7.7
    )
    
    
    (54.5
    )Profit on ordinary activities after taxation
    
    
    
    
    
    
    39.0
    
    
    
    150.6
    
    
    
    167.9Equity dividends
    
    
    12
    
    
    
    
    
    
    
    (20.8
    )
    
    
    (44.1
    )Profit for the financial year
    
    
    25
    
    
    
    39.0
    
    
    
    129.8
    
    
    
    123.8
 The accompanying notes are an integral part of these financial statements. F-2




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INEOS GROUP HOLDINGS 
 CONSOLIDATED BALANCE SHEETS
 As atDecember 31,Notes
    
    2003
    
    
    2004( in millions)Fixed assetsInvestments
    
    13
    
    
    1.7
    
    
    
    2.0Tangible fixed assets
    
    14
    
    
    855.8
    
    
    
    791.1Intangible fixed assets
    
    15
    
    
    12.1
    
    
    
    10.9Negative goodwill
    
    15
    
    
    (217.4
    )
    
    
    (169.4
    )652.2
    
    
    
    634.6Current assetsCash at bank and in hand
    
    
    
    
    153.3
    
    
    
    79.5Stocks
    
    16
    
    
    151.0
    
    
    
    238.9Debtors: amounts due within one year
    
    17
    
    
    370.0
    
    
    
    549.6Debtors: amounts due after one year
    
    17
    
    
    73.7
    
    
    
    84.2748.0
    
    
    
    952.2Creditorsamounts falling due within one year
    
    18
    
    
    (520.0
    )
    
    
    (667.0
    )Net current assets
    
    
    
    
    228.0
    
    
    
    285.2Total assets less current liabilities
    
    
    
    
    880.2
    
    
    
    919.8Creditorsamounts falling due after more than one year
    
    19,20,21
    
    
    (650.6
    )
    
    
    (588.6
    )Provisions for liabilities and charges
    
    22
    
    
    (50.4
    )
    
    
    (50.7
    )Net assets
    
    
    
    
    179.2
    
    
    
    280.5Capital and reservesCalled up equity share capital
    
    24
    
    
    17.7
    
    
    
    17.7Share premium account
    
    25
    
    
    51.1
    
    
    
    51.1Profit and loss account
    
    25
    
    
    110.4
    
    
    
    211.7Equity shareholders funds
    
    26
    
    
    179.2
    
    
    
    280.5
 The accompanying notes are an integral part of these financial statements. F-3




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INEOS GROUP HOLDINGS 
 CONSOLIDATED CASH FLOW STATEMENTS
 Year Ended December 31,Notes
    
    2002
    
    
    2003
    
    
    2004( in millions)Operating profit
    
    
    
    
    149.6
    
    
    
    220.8
    
    
    
    268.6Depreciation of tangible assets
    
    
    
    
    114.8
    
    
    
    114.4
    
    
    
    119.0Amortisation of intangibles
    
    
    
    
    (33.4
    )
    
    
    (36.8
    )
    
    
    (40.0
    )(Increase)/decrease in stocks
    
    
    
    
    (18.7
    )
    
    
    (0.9
    )
    
    
    (95.6
    )(Increase)/decrease in debtors
    
    
    
    
    (61.6
    )
    
    
    (62.5
    )
    
    
    (178.9
    )Increase/(decrease) in creditors and provisions
    
    
    
    
    60.3
    
    
    
    33.6
    
    
    
    140.8(Profit)/loss on sale of tangible fixed assets
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    0.1Net cash flow from operating activities
    
    
    
    
    211.0
    
    
    
    268.2
    
    
    
    214.0Dividend received from associate undertaking
    
    
    
    
    0.4
    
    
    
    
    
    
    
    Returns on investments and servicing of financeInterest received
    
    
    
    
    3.0
    
    
    
    2.9
    
    
    
    2.3Interest paid
    
    
    
    
    (63.2
    )
    
    
    (64.0
    )
    
    
    (51.8
    )Interest element of finance lease rentals
    
    
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Issue cost of debt finance raised
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (61.3
    )
    
    
    (61.3
    )
    
    
    (49.7
    )Taxation paid
    
    
    
    
    (11.1
    )
    
    
    (12.3
    )
    
    
    (24.9
    )Capital expenditurePurchase of loan investment
    
    33
    
    
    
    
    
    
    
    
    
    
    (33.0
    )Payments to acquire tangible fixed assets
    
    
    
    
    (51.2
    )
    
    
    (58.2
    )
    
    
    (62.2
    )Receipts from sales of tangible fixed assets
    
    
    
    
    3.7
    
    
    
    3.2
    
    
    
    (47.5
    )
    
    
    (55.0
    )
    
    
    (95.2
    )Acquisitions and disposalAcquisition of business
    
    
    
    
    (5.0
    )
    
    
    
    
    
    
    Cash received on acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    Disposals of businesses
    
    
    
    
    
    
    
    
    1.4
    
    
    
    (5.0
    )
    
    
    1.4
    
    
    
    Equity dividends paid
    
    
    
    
    
    
    
    
    (10.0
    )
    
    
    (39.8
    )Net cash inflow/(outflow) before financing
    
    
    
    
    86.5
    
    
    
    131.0
    
    
    
    4.4FinancingCapital repayment of finance leases
    
    
    
    
    (3.5
    )
    
    
    (2.1
    )
    
    
    (0.5
    )Repurchase of ordinary share capital
    
    
    
    
    
    
    
    
    
    
    
    
    New loans:Senior credit facilities
    
    
    
    
    
    
    
    
    
    
    
    
    28.0Senior loan notes
    
    
    
    
    
    
    
    
    
    
    
    
    Other bank loans
    
    
    
    
    
    
    
    
    0.3
    
    
    
    0.9
    
    
    
    0.3
    
    
    
    28.9Repayment of loans:Senior credit facilities
    
    
    
    
    (85.3
    )
    
    
    (79.4
    )
    
    
    (103.9
    )Senior secured notes
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    Other bank loans
    
    
    
    
    
    
    
    
    
    
    
    
    Loan to associate undertaking
    
    
    
    
    (1.0
    )
    
    
    0.1
    
    
    
    (87.9
    )
    
    
    (79.3
    )
    
    
    (103.9
    )Increase/(decrease) in cash
    
    31
    
    
    (4.9
    )
    
    
    49.9
    
    
    
    (71.1
    )
 The accompanying notes are an integral part of these financial statements. F-4




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INEOS GROUP HOLDINGS 
 STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
 Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Profit for the financial year
    
    
    39.0
    
    
    
    150.6
    
    
    
    167.9Foreign currency translation movements
    
    
    (40.5
    )
    
    
    (37.0
    )
    
    
    (22.5
    )Total recognised gains and losses for the period
    
    
    (1.5
    )
    
    
    113.6
    
    
    
    145.4
 The accompanying notes are an integral part of these financial statements. F-5




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INEOS HOLDINGS LIMITED 
 NOTES TO THE FINANCIAL STATEMENTS
 1. BASIS OF PREPARATION Ineos Group Holdings Plc (Ineos Group Holdings or the Company) was incorporated on 14 May
2001 as a holding company to house 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. 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 Holdings 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 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 statements have been prepared using accounting policies in accordance with
generally accepted principles in the United Kingdom (UK GAAP). The financial statements have been
prepared under the historical cost convention. 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, including 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. Subsidiaries disposed of during the
year are included in the consolidated financial statements up to the effective date of disposal. 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. F-6




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (Continued) 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 either despatched or delivered
depending on the relevant delivery terms, 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 Group charges a toll fee. The Group 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 chargeLand
    
    NilFreehold buildings
    
    2.5-10%Plant, machinery and equipment
    
    2.5-33.3%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 Group is amortising negative goodwill over periods of 5 to 15
years. The Group 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 impairment. Research and development The cost of research and development is written off in the year incurred. F-7




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (Continued) 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. Provision is made for obsolete or excess stocks. 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 Holdings is the local currency of its principal
operating environment. The Groups primary products are sold in an international commodities market
priced and invoiced primarily in euros; therefore the euro is the Group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. 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. F-8




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (Continued) 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 The Group 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 The Group 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 Group 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. 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. F-9




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 2. PRINCIPAL ACCOUNTING POLICIES (Continued) 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 May 2004, the FASB issued FASB Staff Position (FSP) 106-2, Accounting and Disclosure
Requirements Related to Medicare Prescription Drug, Improvement and Modernization Act of 2003(the
Act) (which supersedes FSP 106-1). This FSP addresses the accounting implications of the newly
issued Act to an entity that sponsors a post-retirement health care plan that provides prescription
drug benefits. This Act, signed into law in December 2003 in the United States, introduces a
prescription drug benefit under Medicare as well as a federal subsidy to sponsors of certain
retiree health care benefit plans. The FSP states that FASB Statement No. 106 specifies that
health care coverage provided by Medicare shall be taken into account in measuring the employers
post retirement health care benefit obligation. It also requires presently enacted changes in
relevant laws to be considered in the current period measurements of net periodic post-retirement
benefit cost and the accumulated post-retirement obligation (APBO). Therefore, under that
guidance, measures of the APBO and net periodic post-retirement benefit cost on or after the date
of enactment shall reflect the effects of the Act. The FSP is effective for the first interim or
annual period beginning after June 15, 2004. The Company is currently evaluating the impact of
this FSP on its results of operations and financial position. F-10




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 3. RECENT ACCOUNTING DEVELOPMENTS (Continued) In December 2004 the FASB issued Financial Accounting Standard No. 153, Exchanges of
Non-monetary Assets(FAS 153). FAS 153 amends APB Opinion No. 29, Accounting for Non-monetary
Transactions, to eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets that do not have
commercial substance. A non-monetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange. FAS 153 is effective
for the Group for the year ending December 31, 2005. We are currently evaluating the possible
impact of this pronouncement for the Group. In November 2004, the FASB issued SFAS 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4. FAS 151 clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material and requires that these items be recognised as
current-period charges. In addition, FAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the production facilities.
The effective date is for inventory costs incurred during fiscal years beginning after June 15,
2004. The Company is currently evaluating the impact of this statement but does not believe that
any impact will be material. In December 2004, the FASB issued SFAS 123 (revised 2004), Share Based Payment, which
supersedes SFAS 123. The cost of employee services received in exchange for an award of equity
instruments shall be measured based on the grant-date fair value of those instruments. The cost is
recognised over the period during which an employee is required to provide service in exchange for
the award. The effective is as of the beginning of the first annual reporting period that begins
after December 15, 2005. The Company is currently evaluating the impact of this statement on its
results of operations and financial position. The European Parliament and Council of the European Union issued a regulation in 2002 that
will require all EU listed companies to prepare their consolidated financial statements in
accordance with International Financial Reporting Standards (IFRS) rather than the existing
national GAAP. This regulation applies to Ineos Group Holdings as our Senior Notes are listed on
the Luxembourg stock exchange. The regulation takes effect for the accounting periods beginning
after January 1, 2005 and consequently the accounting framework under which the Company reports
will change. The Company will produce its consolidated financial statements in accordance with
IFRS for the year ended December 31, 2005. We are currently evaluating the areas that will be most
affected by the adoption of IFRS, including assessing the impact on our underlying systems and
financial statements and our US GAAP reconciliations. F-11




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 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 31,2002
    
    
    2003
    
    
    2004( in millions)TurnoverIneos Oxide
    
    
    507.4
    
    
    
    500.1
    
    
    
    590.6Ineos Phenol
    
    
    1,189.0
    
    
    
    1,542.3
    
    
    
    2,316.5Ineos Fluor
    
    
    304.8
    
    
    
    273.8
    
    
    
    275.5Ineos Silicas
    
    
    234.6
    
    
    
    214.2
    
    
    
    213.52,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1EBITDAIneos Oxide
    
    
    76.5
    
    
    
    82.8
    
    
    
    103.2Ineos Phenol
    
    
    80.7
    
    
    
    128.8
    
    
    
    157.8Ineos Fluor
    
    
    57.9
    
    
    
    48.9
    
    
    
    52.2Ineos Silicas
    
    
    41.1
    
    
    
    38.5
    
    
    
    34.9256.2
    
    
    
    299.0
    
    
    
    348.1
 Reconciliation of earnings before operating exceptional items, interest, taxes,
depreciation and amortisation (EBITDA) to operating profit: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)EBITDA
    
    
    256.2
    
    
    
    299.0
    
    
    
    348.1Exceptional administrative expenses
    
    
    (24.6
    )
    
    
    
    
    
    
    Depreciation
    
    
    (114.8
    )
    
    
    (114.4
    )
    
    
    (119.0
    )Amortisation
    
    
    33.4
    
    
    
    36.8
    
    
    
    40.0Operating profit (including share
of operating profit of associate)
    
    
    150.2
    
    
    
    221.4
    
    
    
    269.1
 Year Ended December 31,2003
    
    
    2004( in millions)Net assetsIneos Oxide
    
    
    151.9
    
    
    
    166.9Ineos Phenol
    
    
    89.6
    
    
    
    160.5Ineos Fluor
    
    
    (21.7
    )
    
    
    (36.8
    )Ineos Silicas
    
    
    (3.7
    )
    
    
    (15.0
    )Ineos Holdings
    
    
    (36.9
    )
    
    
    4.9179.2
    
    
    
    280.5
 F-12




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 4. SEGMENT INFORMATION (Continued) Year Ended December 31,2003
    
    
    2004( in millions)Capital expenditureIneos Oxide
    
    
    13.8
    
    
    
    15.9Ineos Phenol
    
    
    17.8
    
    
    
    25.7Ineos Fluor
    
    
    7.3
    
    
    
    21.5Ineos Silicas
    
    
    17.7
    
    
    
    13.756.6
    
    
    
    76.8
 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 31,2002
    
    
    2003
    
    
    2004( in millions)Europe
    
    
    1,534.1
    
    
    
    1,680.6
    
    
    
    2,220.9Americas
    
    
    450.0
    
    
    
    569.1
    
    
    
    866.8Rest of World
    
    
    251.7
    
    
    
    280.7
    
    
    

    308.42,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1
 Turnover by geographical origin is as follows: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Europe
    
    
    1,642.5
    
    
    
    1,787.9
    
    
    
    2,332.6Americas
    
    
    511.5
    
    
    
    651.9
    
    
    
    972.9Rest of World
    
    
    81.8
    
    
    
    90.6
    
    
    
    90.62,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1
 Long lived assets by geographical location is as follows: Year Ended December 31,2003
    
    
    2004( in millions)Europe
    
    
    432.1
    
    
    
    442.8Americas
    
    
    163.2
    
    
    
    139.8Rest of World
    
    
    55.2
    
    
    
    50.0650.5
    
    
    
    632.6
 F-13




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INEOS HOLDINGS 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, 2004. 5. ADMINISTRATIVE EXPENSES Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Administrative expenses
    
    
    100.7
    
    
    
    83.7
    
    
    
    89.9Amortisation of negative goodwill
    
    
    (34.8
    )
    
    
    (38.0
    )
    
    
    (41.1
    )65.9
    
    
    
    45.7
    
    
    
    48.8
 6. EXCEPTIONAL ADMINISTRATIVE EXPENSES The Company incurred nil million (2003: nil million; 2002: 24.6 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 31,2002
    
    
    2003
    
    
    2004( in millions)Ineos Oxide
    
    
    0.1
    
    
    
    
    
    
    
    Ineos Phenol
    
    
    6.1
    
    
    
    
    
    
    
    Ineos Fluor
    
    
    1.7
    
    
    
    
    
    
    
    Ineos Silicas
    
    
    16.7
    
    
    
    
    
    
    
    24.6
    
    
    
    
    
    
    
    
 7. OPERATING PROFIT This is stated after charging/(crediting): Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Depreciation of tangible fixed assets:owned assets
    
    
    114.1
    
    
    
    114.0
    
    
    
    118.9finance leased assets
    
    
    0.7
    
    
    
    0.4
    
    
    
    0.1Amortisation of goodwill
    
    
    0.8
    
    
    
    0.6
    
    
    
    0.7Write back of negative goodwill
    
    
    (34.8
    )
    
    
    (38.0
    )
    
    
    (41.1
    )Amortisation of other intangibles
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.4Profit/(loss) on disposal of fixed assets
    
    
    
    
    
    
    (0.4
    )
    
    
    0.1Employee costs (see Note 10)
    
    
    188.1
    
    
    
    164.6
    
    
    
    170.3Research and development expenditure
    
    
    9.7
    
    
    
    9.8
    
    
    
    9.8Auditors remuneration: audit services
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.7 non audit services
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.5Operating lease rental charges: other
    
    
    1.4
    
    
    
    2.3
    
    
    
    3.2 plant, machinery and equipment
    
    
    8.2
    
    
    
    6.6
    
    
    
    11.6Amortisation of government grants
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
 F-14




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 7. OPERATING PROFIT (Continued) Directors emoluments Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Aggregate emoluments
    
    
    1.1
    
    
    
    1.0
    
    
    
    0.9
 The total amount of emoluments payable to the highest paid director for the year ended
December 31, 2002, the year ended December 31, 2003 and for the year ended December 31, 2004, are
as follows: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Highest paid director
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4
 Retirement benefits are accruing to two (2003: two; 2002: two) directors under a money
purchase scheme. One (2003: one; 2002: two) director has retirement benefits accruing under a
defined benefit scheme. The Company paid pension contributions of 37,000 (2003: 38,000; 2002:
38,000) into a personal pension scheme in respect of the highest paid director. 8. PROFIT ON DISPOSAL OF FIXED ASSETS Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Write off of tangible fixed assets
    
    
    (7.0
    )
    
    
    
    
    
    
    Write off of associated negative goodwill
    
    
    5.2
    
    
    
    
    
    
    
    Net proceeds received
    
    
    3.7
    
    
    
    1.3
    
    
    
    1.9
    
    
    
    1.3
    
    
    
    
 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 was received on account from the
insurers in respect of the insurance claim in 2002. The claims with the insurers were settled in
2003. A further 1.3 million was received from the insurers in 2003 in respect of property damage
and was accounted for as proceeds on the disposal of tangible fixed assets. A total of 18.1
million was received in 2003 from the insurers in respect of increased costs of working and
consequential loss of profits and this has been disclosed as other operating income. F-15




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 9. NET FINANCE CHARGES Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Interest payable on senior notes
    
    
    27.2
    
    
    
    27.3
    
    
    
    27.3Interest payable on bank loans and overdrafts
    
    
    44.0
    
    
    
    33.5
    
    
    
    23.1Amortisation of issue costs
    
    
    6.8
    
    
    
    4.5
    
    
    
    4.8Interest payable on finance leases
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.278.4
    
    
    
    65.5
    
    
    
    55.4Exchange movements
    
    
    (2.5
    )
    
    
    1.9
    
    
    
    (6.3
    )Interest receivable
    
    
    (3.2
    )
    
    
    (2.9
    )
    
    
    (2.4
    )72.7
    
    
    
    64.5
    
    
    
    46.7
 10. EMPLOYEE COSTS Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Staff costs comprise:Wages and salaries
    
    
    155.6
    
    
    
    133.8
    
    
    
    138.5Social security and other benefits
    
    
    20.4
    
    
    
    20.3
    
    
    
    20.4Pension and early retirement costs
    
    
    12.1
    
    
    
    10.5
    
    
    
    11.4Total
    
    
    188.1
    
    
    
    164.6
    
    
    
    170.3The average number of employees was:Operations
    
    
    1,904
    
    
    
    1,897
    
    
    
    1,891Administration
    
    
    471
    
    
    
    444
    
    
    
    437Research and development
    
    
    120
    
    
    
    118
    
    
    
    111Total
    
    
    2,495
    
    
    
    2,459
    
    
    
    2,439
 11. TAXATION Analysis of charge/(credit) in period: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)United KingdomCorporation tax at 30%
    
    
    7.2
    
    
    
    11.9
    
    
    
    11.9Adjustments in respect of previous periods
    
    
    
    
    
    
    
    
    
    
    Double taxation relief
    
    
    (7.2
    )
    
    
    (11.9
    )
    
    
    (11.9
    )Group relief payable
    
    
    3.3
    
    
    
    2.3
    
    
    
    2.43.3
    
    
    
    2.3
    
    
    
    2.4Foreign taxCorporation taxes
    
    
    16.1
    
    
    
    19.8
    
    
    
    32.6Adjustments in respect of previous periods
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    (0.2
    )13.2
    
    
    
    19.9
    
    
    
    32.4Total current tax
    
    
    16.5
    
    
    
    22.2
    
    
    
    34.8Deferred taxOrigination and reversal of timing differences
    
    
    18.8
    
    
    
    11.1
    
    
    
    20.8Adjustments in respect of previous periods
    
    
    5.1
    
    
    
    (25.6
    )
    
    
    (1.1
    )Total deferred tax
    
    
    23.9
    
    
    
    (14.5
    )
    
    
    19.7Tax on profit/(loss) on ordinary activities
    
    
    40.4
    
    
    
    7.7
    
    
    
    54.5
 F-16




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 11. TAXATION (Continued) The tax for the period is lower (2003: lower; 2002: lower) than the standard rate of
corporation tax in the UK (30%). The differences are explained below: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Profit on ordinary activities before tax
    
    
    79.4
    
    
    
    158.3
    
    
    
    222.4Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK of 30%.
    
    
    23.9
    
    
    
    47.5
    
    
    
    66.7Effects of:Expenses not deductible for tax purposes
    
    
    1.9
    
    
    
    2.7
    
    
    
    2.8Non taxable credits
    
    
    (24.6
    )
    
    
    (22.7
    )
    
    
    (15.6
    )Capital allowances in excess of depreciation
    
    
    (8.0
    )
    
    
    3.2
    
    
    
    (0.9
    )Other short term timing differences
    
    
    (9.7
    )
    
    
    (14.4
    )
    
    
    (20.1
    )Adjustment in respect of foreign tax rates
    
    
    7.4
    
    
    
    3.8
    
    
    
    5.6Deferred tax not provided
    
    
    28.5
    
    
    
    2.0
    
    
    
    (3.5
    )Adjustments in respect of previous periods
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    (0.2
    )Tax charge for the year
    
    
    16.5
    
    
    
    22.2
    
    
    
    34.8
 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 certain
taxation losses as indicated in note 23. Future tax charges may be affected by the realisation of
other taxable losses not recognised at the balance sheet date. 12. DIVIDENDS Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Equity dividends paid and proposed
    
    
    
    
    
    
    20.8
    
    
    
    44.1
 F-17




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 13. INVESTMENTS Associated
    
    
    OtherUndertakings
    
    
    Investments
    
    
    Total( in millions)At December 31, 2003
    
    
    0.9
    
    
    
    0.8
    
    
    
    1.7Exchange movements
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    Share of profits retained
    
    
    0.3
    
    
    
    
    
    
    
    0.3At December 31, 2004
    
    
    1.3
    
    
    
    0.7
    
    
    
    2.0
 The other investments relate to a 1% investment in ELA GmbH, a 0.1% investment in
ChemConnect, Inc 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. There are no readily available quoted market prices for the investments in ELA GmbH and
ChemConnect, Inc. On 25 October 2004, the Group acquired a 15% investment in INEOS Chlor Limited, a related
company, through its acquisition of ICI Industrial Investments Limited for £1 (see note 27). Details of the investment in associated undertakings is set out below: Associate/Company
    
    Class of shares held
    
    Percentage held
    
    Principal ActivitiesFormulates and marketsQuaker Chemical South Africa
    
    
    
    
    
    chemicals and(Proprietary)
    
    
    
    
    
    specialisedLimitedSouth Africa
    
    20,000 Ordinary 1 Rand
    
    49%
    
    lubricants
 F-18




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 14. TANGIBLE FIXED ASSETS Plant,Machinery,Freehold
    
    
    Fixtures,
    
    
    Assets in theLand and
    
    
    Fittings and
    
    
    course ofBuildings
    
    
    Motor Vehicles
    
    
    construction
    
    
    Total( in millions)CostAt December 31, 2002
    
    
    206.1
    
    
    
    1,477.1
    
    
    
    31.6
    
    
    
    1,714.8Acquisitions
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Additions
    
    
    1.4
    
    
    
    23.1
    
    
    
    32.1
    
    
    
    56.6Disposals
    
    
    (1.5
    )
    
    
    (3.7
    )
    
    
    
    
    
    
    (5.2
    )Transfers
    
    
    0.4
    
    
    
    23.2
    
    
    
    (23.6
    )
    
    
    Exchange adjustments
    
    
    (8.7
    )
    
    
    (85.9
    )
    
    
    (2.2
    )
    
    
    (96.8
    )At December 31, 2003
    
    
    197.7
    
    
    
    1,434.3
    
    
    
    37.9
    
    
    
    1,669.9Acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additions
    
    
    1.5
    
    
    
    34.2
    
    
    
    41.1
    
    
    
    76.8Disposals
    
    
    (0.4
    )
    
    
    (9.6
    )
    
    
    
    
    
    
    (10.0
    )Transfers
    
    
    1.7
    
    
    
    30.8
    
    
    
    (32.5
    )
    
    
    Exchange adjustments
    
    
    (2.7
    )
    
    
    (35.7
    )
    
    
    (0.8
    )
    
    
    (39.2
    )At December 31, 2004
    
    
    197.8
    
    
    
    1,454.0
    
    
    
    45.7
    
    
    
    1,697.5Accumulated DepreciationAt December 31, 2002
    
    
    60.7
    
    
    
    666.3
    
    
    
    
    
    
    
    727.0Charge for the period
    
    
    4.9
    
    
    
    109.5
    
    
    
    
    
    
    
    114.4Effects of disposals in the period
    
    
    
    
    
    
    (3.7
    )
    
    
    
    
    
    
    (3.7
    )Exchange adjustments
    
    
    (0.8
    )
    
    
    (22.8
    )
    
    
    
    
    
    
    (23.6
    )At December 31, 2003
    
    
    64.8
    
    
    
    749.3
    
    
    
    
    
    
    
    814.1Charge for the period
    
    
    4.5
    
    
    
    114.5
    
    
    
    
    
    
    
    119.0Effects of disposals in the period
    
    
    (0.4
    )
    
    
    (9.5
    )
    
    
    
    
    
    
    (9.9
    )Exchange adjustments
    
    
    (0.4
    )
    
    
    (16.4
    )
    
    
    
    
    
    
    (16.8
    )At December 31, 2004
    
    
    68.5
    
    
    
    837.9
    
    
    
    
    
    
    
    906.4Net Book AmountAt December 31, 2004
    
    
    129.3
    
    
    
    616.1
    
    
    
    45.7
    
    
    
    791.1At December 31, 2003
    
    
    132.9
    
    
    
    685.0
    
    
    
    37.9
    
    
    
    855.8
 Included in the above are assets held under hire purchase and finance leases with a net
book value of 2.1 million (2003: 0.1 million). F-19




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 15. INTANGIBLE FIXED ASSETS Non
    
    
    Licenses
    
    
    
    
    
    
    NegativeGoodwill
    
    
    Compete
    
    
    Fees
    
    
    Total
    
    
    Goodwill( in millions)CostAt December 31, 2002
    
    
    14.2
    
    
    
    2.3
    
    
    
    2.4
    
    
    
    18.9
    
    
    
    (344.8
    )Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Exchange adjustments
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.7
    )
    
    
    38.0At December 31, 2003
    
    
    13.9
    
    
    
    2.3
    
    
    
    2.0
    
    
    
    18.2
    
    
    
    (308.2
    )Additions
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exchange adjustments
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    13.6At December 31, 2004
    
    
    13.8
    
    
    
    2.3
    
    
    
    2.0
    
    
    
    18.1
    
    
    
    (294.6
    )Aggregate AmortisationAt December 31, 2002
    
    
    2.9
    
    
    
    1.7
    
    
    
    0.3
    
    
    
    4.9
    
    
    
    (62.5
    )Charge for the period
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    1.2
    
    
    
    (38.0
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.7At December 31, 2003
    
    
    3.5
    
    
    
    2.1
    
    
    
    0.5
    
    
    
    6.1
    
    
    
    (90.8
    )Charge for the period
    
    
    0.7
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    1.1
    
    
    
    (41.1
    )Exchange adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.7At December 31, 2004
    
    
    4.2
    
    
    
    2.3
    
    
    
    0.7
    
    
    
    7.2
    
    
    
    (125.2
    )Net Book AmountAt December 31, 2004
    
    
    9.6
    
    
    
    
    
    
    
    1.3
    
    
    
    10.9
    
    
    
    (169.4
    )At December 31, 2003
    
    
    10.4
    
    
    
    0.2
    
    
    
    1.5
    
    
    
    12.1
    
    
    
    (217.4
    )
 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 cleavage of cumene
hydroperoxide into its products. These license fees are being amortised by equal annual
installments 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. The Ineos Fluor HFC 134a plant in Runcorn, UK is scheduled to be converted for use in the
production of HFC125 in 2004 and 2005. The useful economic life of this plant has therefore been
reduced to the period up to when it will cease in its existing use. This has resulted in
additional negative goodwill amortisation of 14.4 million in 2004 (2003: 8.1 million). F-20




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 16. STOCKS 2003
    
    
    2004( in millions)Raw materials and consumables
    
    
    47.2
    
    
    
    89.0Work in progress
    
    
    13.1
    
    
    
    19.3Finished products
    
    
    90.7
    
    
    
    130.6151.0
    
    
    
    238.9
 17. DEBTORS 2003
    
    
    2004( in millions)Amounts due within one yearTrade debtors
    
    
    339.2
    
    
    
    491.9Amounts owed by related parties
    
    
    0.3
    
    
    
    0.9Other debtors
    
    
    22.5
    
    
    
    46.8Amounts owed by group undertakings
    
    
    0.1
    
    
    
    Prepayments and accrued income
    
    
    7.9
    
    
    
    10.0370.0
    
    
    
    549.6Amounts due after more than one yearAmounts owed by related parties
    
    
    
    
    
    
    31.8Amounts owed by group undertakings
    
    
    29.3
    
    
    
    29.3Other debtors
    
    
    0.2
    
    
    
    0.3Prepayments and accrued income
    
    
    25.8
    
    
    
    22.8Deferred taxation
    
    
    18.4
    
    
    
    73.7
    
    
    
    84.2
 Trade debtors at December 31, 2004, are stated net of an allowance for doubtful trade
debtors of 10.7 million (2003: 9.5 million). 18. CREDITORSAMOUNTS FALLING DUE WITHIN ONE YEAR 2003
    
    
    2004( in millions)Senior credit agreement
    
    
    110.1
    
    
    
    92.7Obligations under finance leases
    
    
    0.5
    
    
    
    0.6Trade creditors
    
    
    238.8
    
    
    
    345.1Amounts due to related parties
    
    
    12.8
    
    
    
    8.3Amounts owed to group undertakings
    
    
    16.4
    
    
    
    23.0Other creditors
    
    
    18.4
    
    
    
    29.1Corporation tax
    
    
    15.2
    
    
    
    34.3Other accruals
    
    
    107.8
    
    
    
    133.9520.0
    
    
    
    667.0
 19. CREDITORSAMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2003
    
    
    2004( in millions)Senior notes
    
    
    255.4
    
    
    
    256.2Senior credit agreement
    
    
    393.2
    
    
    
    328.1Obligations under finance leases
    
    
    1.7
    
    
    
    3.2Other loans
    
    
    0.3
    
    
    
    1.1650.6
    
    
    
    588.6
 F-21




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 20. FINANCE LEASES 2003
    
    
    2004( in millions)Obligations under finance leases comprise:Rentals due within 1 year:
    
    
    0.6
    
    
    
    0.8Rentals due after more than 1 year:from 1 to 2 years
    
    
    2.0
    
    
    
    1.4from 2 to 5 years
    
    
    
    
    
    
    1.1More than 5 years
    
    
    
    
    
    
    1.22.6
    
    
    
    4.5Less amounts representing interest relating to future periods
    
    
    (0.4
    )
    
    
    (0.7
    )Present value of net minimum lease payments
    
    
    2.2
    
    
    
    3.8Less current lease obligations
    
    
    (0.5
    )
    
    
    (0.6
    )Non current obligations
    
    
    1.7
    
    
    
    3.2
 21. LOANS Future maturities of long-term obligations as of December 31, 2004 are as follows: Senior credit
    
    
    Senioragreement
    
    
    Notes
    
    
    Total( in millions)Total debtGross borrowings
    
    
    429.1
    
    
    
    260.0
    
    
    
    689.1Less debt issue costs
    
    
    (8.3
    )
    
    
    (3.8
    )
    
    
    (12.1
    )Net bank and other borrowings
    
    
    420.8
    
    
    
    256.2
    
    
    
    677.0
 Gross borrowings are repayable as follows: Senior creditagreements
    
    
    Senior Notes
    
    
    Total( in millions)In one year or less
    
    
    95.5
    
    
    
    
    
    
    
    95.5Between one and two years
    
    
    67.4
    
    
    
    
    
    
    
    67.4Between two and five years
    
    
    266.2
    
    
    
    
    
    
    
    266.2In five years or more
    
    
    
    
    
    
    260.0
    
    
    
    260.0429.1
    
    
    
    260.0
    
    
    
    689.1
 F-22




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##### Table of Contents



INEOS GROUP HOLDINGS
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 June 21, 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 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: RedemptionYear
    
    Price2004
    
    
    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). 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. F-23




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 21. LOANS (Continued) The Senior Notes are stated net of debt issue costs of 3.8 million (2003: 4.6 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. 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, 2004 were 429.1 million (2003: 515.6 million), of which 95.5 million (2003: 113.4
million) is due within one year. The total amounts outstanding on Term Loan A were 146.1 million
(2003: 233.7 million), Term Loan B were 157.8 million (2003: 168.6 million) and Term Loan C were
97.2 million (2003: 113.3 million) and Revolving Credit Facility were 28.0 million (2003: nil). Term Loan A is repayable in 12 semi-annual installments 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 installments 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 installments 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 as at December 31,
2004 are 1.75%, 2.50% 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 by the ultimate parent
company, Ineos Group Limited, 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. F-24




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 21. LOANS (Continued) The Term Loans are stated net of unamortised debt issue costs of 8.3 million (2003: 12.3
million). These costs are allocated to the profit and loss account in accordance with FRS 4. 22. PROVISIONS FOR LIABILITIES AND CHARGES The movement in the provisions is as follows: Severance andRetirement
    
    
    Other Retirement
    
    
    RestructuringCosts
    
    
    Benefits
    
    
    Costs
    
    
    Remediation
    
    
    Other
    
    
    Total( in millions)Balance at December 31, 2002
    
    
    33.3
    
    
    
    6.8
    
    
    
    15.0
    
    
    
    4.9
    
    
    
    10.1
    
    
    
    70.1Reclassifications
    
    
    0.6
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (4.6
    )
    
    
    (5.0
    )Charged to the profit and loss account
    
    
    7.4
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    14.5Utilised in the year
    
    
    (7.5
    )
    
    
    (0.4
    )
    
    
    (9.4
    )
    
    
    (0.1
    )
    
    
    (10.5
    )
    
    
    (27.9
    )Released in the year
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exchange adjustments
    
    
    (1.3
    )
    
    
    (0.9
    )
    
    
    1.7
    
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (1.3
    )Balance at December 31, 2003
    
    
    32.5
    
    
    
    7.1
    
    
    
    6.3
    
    
    
    4.5
    
    
    
    
    
    
    
    50.4Reclassifications
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Charged to the profit and loss account
    
    
    8.7
    
    
    
    1.7
    
    
    
    1.2
    
    
    
    
    
    
    
    2.5
    
    
    
    14.1Utilised in the year
    
    
    (7.6
    )
    
    
    (0.6
    )
    
    
    (4.2
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (12.7
    )Released in the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Exchange adjustments
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Balance at December 31, 2004
    
    
    33.2
    
    
    
    7.7
    
    
    
    3.2
    
    
    
    4.2
    
    
    
    2.4
    
    
    
    50.7
 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. 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 Group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 was
substantially complete by the end of 2004, except where local employment laws have delayed this.
During the year ended December 31, 2004, the Group had incurred 4.2 million (2003: 9.4 million)
against the restructuring provision. F-25




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 22. PROVISIONS FOR LIABILITIES AND CHARGES (Continued) 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 two 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. This provision
was fully utilised during 2003. 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. These disputes were settled during 2003. In 2004 Ineos Fluor provided for an onerous resale contract. Reservation fees on resale
product no longer required will continue to be incurred on a yearly basis until the contract
expires in 2011. Other provisons also includes a provision for deferred tax (see note 23). 23. DEFERRED TAXATION Deferred tax (asset)/liability provided for: 2003
    
    
    2004( in millions)Accelerated capital allowances
    
    
    18.3
    
    
    
    16.4Losses
    
    
    (22.5
    )
    
    
    (2.1
    )Short term timing differences
    
    
    (11.4
    )
    
    
    (13.0
    )Other
    
    
    (2.8
    )
    
    
    (18.4
    )
    
    
    1.3
 Deferred tax (asset)/liability not provided for: 2003
    
    
    2004( in millions)Losses
    
    
    (19.8
    )
    
    
    (15.0
    )
 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. F-26




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 23. DEFERRED TAXATION (Continued) Analysis of movement in the period: ( in millions)At January 1, 2003
    
    
    (3.9
    )Credited to profit and loss account
    
    
    (14.5
    )At December 31, 2003
    
    
    (18.4
    )Credited to profit and loss account
    
    
    19.7At December 31, 2004
    
    
    1.3
 24. SHARE CAPITAL Allotted, issued and fully paid
    
    2003
    
    
    2004( in millions)11,499,950 (2002: 11,499,950) ordinary shares of £1 each
    
    
    17.7
    
    
    
    17.7
 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. 25. RESERVES SharePremium
    
    
    Profit and Loss Account( in millions)At December 31, 2002
    
    
    51.1
    
    
    
    17.6Retained profit for the year
    
    
    
    
    
    
    129.8Exchange adjustments
    
    
    
    
    
    
    (37.0
    )At December 31, 2003
    
    
    51.1
    
    
    
    110.4Retained profit for the year
    
    
    
    
    
    
    123.8Exchange adjustments
    
    
    
    
    
    
    (22.5
    )At December 31, 2004
    
    
    51.1
    
    
    
    211.7
 26. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Year EndedDecember 31,2003
    
    
    2004( in millions)Profit on ordinary activities after taxation
    
    
    150.6
    
    
    
    167.9Dividends
    
    
    (20.8
    )
    
    
    (44.1
    )Other recognised gains/(losses) in the year
    
    
    (37.0
    )
    
    
    (22.5
    )Net (decrease)/increase in equity shareholders funds
    
    
    92.8
    
    
    
    101.3Opening equity shareholders funds
    
    
    86.4
    
    
    
    179.2Closing equity shareholders funds
    
    
    179.2
    
    
    
    280.5
 F-27




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 27. ACQUISITIONS Ineos Industrial Investments Limited On 25 October 2004, the Group acquired INEOS Industrial Investments Limited (formerly ICI
Industrial Investments Limited) from ICI plc for £1. INEOS Industrial Investments Limited owns 15%
of INEOS Chlor Limited, a related party (see note 33). 28. OPERATING LEASE COMMITMENTS Annual commitments under non-cancellable operating leases comprise: 2003
    
    
    2004( in millions)Plant and equipment:Expiring within one year
    
    
    5.3
    
    
    
    5.7Expiring between 1 to 2 years
    
    
    3.0
    
    
    
    0.8Expiring between 2 to 5 years
    
    
    3.3
    
    
    
    4.7Expiring in more than 5 years
    
    
    
    
    
    
    2.911.6
    
    
    
    14.1Land and buildings:Expiring within one year
    
    
    1.0
    
    
    
    0.7Expiring between 1 to 2 years
    
    
    0.2
    
    
    
    Expiring between 2 to 5 years
    
    
    1.0
    
    
    
    0.92.2
    
    
    
    1.6
 The Company leases plant and equipment under a number of operating leases that expire at
various dates through to 2009 and after. Future minimum lease payments under operating leases with
initial or remaining non-cancellable terms of one or more years at December 31, 2004 totalled 68.1
million and were as follows: LeasePayments( in millions)2005
    
    
    15.72006
    
    
    8.02007
    
    
    6.52008
    
    
    5.22009 and after
    
    
    32.768.1
 29. CAPITAL COMMITMENTS 2003
    
    
    2004( in millions)Contracted capital expenditure
    
    
    11.0
    
    
    
    29.9
 F-28




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 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 December 31, 2005. Prior to this, transitional disclosures are required as set out below. Valuations are carried out annually for the UK, US, Belgium and German 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 SSAP 24, for the
year ended December 31, 2004 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,
2004 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, 2003; Belgium on December
31, 2004 and Germany on December 31, 2002. These valuations have been updated where appropriate to
December 31, 2004 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
    
    
    Germany2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2001Major assumptions
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %
    
    
    %Rate of general increase in salaries
    
    
    4.20
    
    
    
    4.10
    
    
    
    3.75
    
    
    
    4.50
    
    
    
    4.50
    
    
    
    4.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    3.50Rate of increase to pension in
payment
    
    
    2.70
    
    
    
    2.60
    
    
    
    2.25
    
    
    
    
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    
    
    
    
    3⁄4
    
    
    
    2.00
    
    
    
    1.20
    
    
    
    1.50
    
    
    
    2.00Discount rate for scheme liabilities
    
    
    5.40
    
    
    
    5.60
    
    
    
    5.60
    
    
    
    5.75
    
    
    
    6.25
    
    
    
    6.75
    
    
    
    5.00
    
    
    
    5.50
    
    
    
    5.75
    
    
    
    5.00
    
    
    
    5.50
    
    
    
    5.50Inflation
    
    
    2.70
    
    
    
    2.60
    
    
    
    2.25
    
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    2.00
    
    
    
    1.50
    
    
    
    1.50
    
    
    
    2.00
 F-29




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES 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, 2004 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    GermanyExpected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long termrate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value%
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    mMarket value of assetsEquities
    
    
    8.00
    
    
    
    77.7
    
    
    
    8.50
    
    
    
    4.2
    
    
    
    8.00
    
    
    
    24.0
    
    
    
    
    
    
    
    Bonds
    
    
    5.00
    
    
    
    7.1
    
    
    
    5.75
    
    
    
    2.3
    
    
    
    4.75
    
    
    
    11.1
    
    
    
    
    
    
    
    Other
    
    
    3.50
    
    
    
    6.6
    
    
    
    
    
    
    
    
    
    
    
    3.25
    
    
    
    2.6
    
    
    
    
    
    
    
    91.4
    
    
    
    
    
    
    
    6.5
    
    
    
    
    
    
    
    37.7
    
    
    
    
    
    
    
    Present value of
liabilities
    
    
    
    
    
    
    (134.7
    )
    
    
    
    
    
    
    (14.8
    )
    
    
    
    
    
    
    (58.5
    )
    
    
    
    
    
    
    (23.2
    )Deficit in the plans
    
    
    
    
    
    
    (43.3
    )
    
    
    
    
    
    
    (8.3
    )
    
    
    
    
    
    
    (20.8
    )
    
    
    
    
    
    
    (23.2
    )Related deferred tax
asset
    
    
    
    
    
    
    13.0
    
    
    
    
    
    
    
    3.3
    
    
    
    
    
    
    
    7.1
    
    
    
    
    
    
    
    Net pension liability
    
    
    
    
    
    
    (30.3
    )
    
    
    
    
    
    
    (5.0
    )
    
    
    
    
    
    
    (13.7
    )
    
    
    
    
    
    
    (23.2
    )
 As at December 31, 2003 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    GermanyExpected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long termrate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value%
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    mMarket value of assetsEquities
    
    
    8.00
    
    
    
    69.0
    
    
    
    8.75
    
    
    
    4.1
    
    
    
    8.00
    
    
    
    22.1
    
    
    
    
    
    
    
    Bonds
    
    
    5.00
    
    
    
    9.6
    
    
    
    6.25
    
    
    
    1.7
    
    
    
    5.25
    
    
    
    11.8
    
    
    
    
    
    
    
    Other
    
    
    3.50
    
    
    
    2.6
    
    
    
    4.25
    
    
    
    
    
    
    
    5.50
    
    
    
    2.5
    
    
    
    
    
    
    
    81.2
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    36.4
    
    
    
    
    
    
    
    Present value of
liabilities
    
    
    
    
    
    
    (113.7
    )
    
    
    
    
    
    
    (12.9
    )
    
    
    
    
    
    
    (53.1
    )
    
    
    
    
    
    
    (21.1
    )Deficit in the plans
    
    
    
    
    
    
    (32.5
    )
    
    
    
    
    
    
    (7.1
    )
    
    
    
    
    
    
    (16.7
    )
    
    
    
    
    
    
    (21.1
    )Related deferred tax
asset
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    Net pension liability
    
    
    
    
    
    
    (32.5
    )
    
    
    
    
    
    
    (4.3
    )
    
    
    
    
    
    
    (11.0
    )
    
    
    
    
    
    
    (21.1
    )
 F-30




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 30. PENSION SCHEMES (Continued) As at December 31, 2002 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    GermanyExpected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long term
    
    
    
    
    
    
    Expected long termrate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value
    
    
    rate of return
    
    
    Market value%
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    m
    
    
    %
    
    
    mMarket value of assetsEquities
    
    
    8.00
    
    
    
    46.0
    
    
    
    8.50
    
    
    
    2.8
    
    
    
    8.00
    
    
    
    22.0
    
    
    
    3⁄4
    
    
    
    3⁄4Bonds
    
    
    5.00
    
    
    
    9.8
    
    
    
    6.25
    
    
    
    1.4
    
    
    
    5.25
    
    
    
    11.8
    
    
    
    3⁄4
    
    
    
    3⁄4Other
    
    
    5.00
    
    
    
    8.5
    
    
    
    4.25
    
    
    
    0.2
    
    
    
    5.75
    
    
    
    3.3
    
    
    
    3⁄4
    
    
    
    3⁄464.3
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    37.1
    
    
    
    
    
    
    
    3⁄4Present value of
liabilities
    
    
    
    
    
    
    (96.2
    )
    
    
    
    
    
    
    (14.1
    )
    
    
    
    
    
    
    (43.1
    )
    
    
    
    
    
    
    (20.9
    )Deficit in the plans
    
    
    
    
    
    
    (31.9
    )
    
    
    
    
    
    
    (9.7
    )
    
    
    
    
    
    
    (6.0
    )
    
    
    
    
    
    
    (20.9
    )Related deferred tax
asset
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    3⁄4Net pension
(liability)/asset
    
    
    
    
    
    
    (31.9
    )
    
    
    
    
    
    
    (9.7
    )
    
    
    
    
    
    
    (4.0
    )
    
    
    
    
    
    
    (20.9
    )
 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 5.75% (2003: 6.25%) in the US and 5.00% (2003: 5.5%) in Belgium, and a
long-term health care trend rate of 4.5% (2003: 4.5%). F-31




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 30. PENSION SCHEMES (Continued) Post-retirement healthcare plans2003
    
    
    2004( in millions)Market value of assets
    
    
    3⁄4
    
    
    
    Present value of liabilities
    
    
    (4.0
    )
    
    
    (4.6
    )Deficit in the plans
    
    
    (4.0
    )
    
    
    (4.6
    )
 The costs of the plans for the years ended December 31, 2004 and 2003 would have been as
follows: Analysis of amount charged to operating profit United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(i) Year ended December 31, 2004
    
    ( in millions)Current service cost

    
    
    5.8
    
    
    
    1.1
    
    
    
    3.7
    
    
    
    0.4Past service cost
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    Total operating charge
    
    
    6.7
    
    
    
    1.1
    
    
    
    3.7
    
    
    
    0.4
 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(ii) Year ended December 31, 2003
    
    ( in millions)Current service cost
    
    
    5.1
    
    
    
    1.0
    
    
    
    3.3
    
    
    
    0.3Past service cost
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    Total operating charge
    
    
    9.3
    
    
    
    1.0
    
    
    
    3.3
    
    
    
    0.3
 Analysis of amount credited/(charged) to other finance income United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(i) Year ended December 31, 2004
    
    ( in millions)Interest on pension scheme liabilities
    
    
    (6.5
    )
    
    
    (0.9
    )
    
    
    (2.6
    )
    
    
    (1.1
    )Expected return on pension scheme assets
    
    
    6.4
    
    
    
    0.6
    
    
    
    2.3
    
    
    
    Net return
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (1.1
    )
 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(ii) Year ended December 31, 2003
    
    ( in millions)Interest on pension scheme liabilities
    
    
    (5.3
    )
    
    
    (0.7
    )
    
    
    (2.6
    )
    
    
    (1.1
    )Expected return on pension scheme assets
    
    
    4.8
    
    
    
    0.4
    
    
    
    2.5
    
    
    
    Net return
    
    
    (0.5
    )
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (1.1
    )
 Analysis of amount recognised in statement of total recognised gains and losses United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(i) Year ended December 31, 2004
    
    ( in millions)Actual return less expected return
on pension scheme assets
    
    
    1.2
    
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    Experience gains and losses arising
on scheme liabilities
    
    
    0.2
    
    
    
    (0.7
    )
    
    
    0.7
    
    
    
    (0.1
    )Changes in assumptions
    
    
    (10.6
    )
    
    
    (1.0
    )
    
    
    (4.0
    )
    
    
    (1.6
    )Actuarial gain/(loss) recognised in
statement of total recognised gains
and losses
    
    
    (9.2
    )
    
    
    (1.6
    )
    
    
    (3.8
    )
    
    
    (1.7
    )
 F-32




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 30. PENSION SCHEMES (Continued) United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(ii) Year ended December 31, 2003
    
    ( in millions)Actual return less expected return on
pension scheme assets
    
    
    9.2
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    Experience gains and losses arising
on scheme liabilities
    
    
    (0.6
    )
    
    
    0.5
    
    
    
    (4.7
    )
    
    
    (0.5
    )Changes in assumptions
    
    
    (9.8
    )
    
    
    (0.4
    )
    
    
    (6.2
    )
    
    
    0.6Actuarial gain/(loss) recognised in
statement of total recognised gains
and losses
    
    
    (1.2
    )
    
    
    0.6
    
    
    
    (10.4
    )
    
    
    0.1
 Movement in surplus/(deficit) during the year United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany( in millions)Deficit in schemes at January 1, 2003
    
    
    (31.9
    )
    
    
    (9.7
    )
    
    
    (6.0
    )
    
    
    (20.9
    )Current service cost
    
    
    (5.1
    )
    
    
    (1.0
    )
    
    
    (3.3
    )
    
    
    (0.3
    )Past service cost
    
    
    (4.2
    )
    
    
    
    
    
    
    
    
    
    
    Contributions
    
    
    7.9
    
    
    
    1.9
    
    
    
    3.1
    
    
    
    1.1Other finance income
    
    
    (0.5
    )
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (1.1
    )Actuarial gain/(loss)
    
    
    (1.2
    )
    
    
    0.6
    
    
    
    (10.4
    )
    
    
    0.1Exchange adjustments
    
    
    2.5
    
    
    
    1.4
    
    
    
    
    
    
    
    Deficit in schemes at December 31, 2003
    
    
    (32.5
    )
    
    
    (7.1
    )
    
    
    (16.7
    )
    
    
    (21.1
    )Current service cost
    
    
    (5.8
    )
    
    
    (1.1
    )
    
    
    (3.7
    )
    
    
    (0.4
    )Past service cost
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    Contributions
    
    
    4.6
    
    
    
    1.3
    
    
    
    3.7
    
    
    
    1.1Other finance income
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    (1.1
    )Actuarial gain/(loss)
    
    
    (9.2
    )
    
    
    (1.6
    )
    
    
    (3.8
    )
    
    
    (1.7
    )Exchange adjustments
    
    
    0.6
    
    
    
    0.5
    
    
    
    
    
    
    
    Deficit in schemes at December 31, 2004
    
    
    (43.3
    )
    
    
    (8.3
    )
    
    
    (20.8
    )
    
    
    (23.2
    )
 History of experience gains and losses United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(i) Year ended December 31, 2004
    
    ( in millions)Difference between the actual and
expected return on scheme assets
    
    
    1.2
    
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    Percentage of scheme assets
    
    
    1.3
    %
    
    
    1.5
    %
    
    
    1.3
    %
    
    
    Experience gains and losses on
scheme liabilities
    
    
    0.2
    
    
    
    (0.7
    )
    
    
    0.7
    
    
    
    (0.1
    )Percentage of present value of
scheme liabilities
    
    
    0.1
    %
    
    
    4.7
    %
    
    
    1.2
    %
    
    
    0.4
    %Total amount recognised in statement
of total recognised gains and losses
    
    
    (9.2
    )
    
    
    1.6
    
    
    
    (3.8
    )
    
    
    (1.7
    )Percentage of present value of
scheme liabilities
    
    
    6.8
    %
    
    
    10.8
    %
    
    
    6.5
    %
    
    
    7.3
    %
 F-33




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 30. PENSION SCHEMES (Continued) United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(ii) Year ended December 31, 2003
    
    ( in millions)Difference between the actual and
expected return on scheme assets
    
    
    9.2
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    Percentage of scheme assets
    
    
    11.3
    %
    
    
    8.6
    %
    
    
    1.4
    %
    
    
    Experience gains and losses on scheme
liabilities
    
    
    (0.6
    )
    
    
    0.5
    
    
    
    (4.7
    )
    
    
    (0.5
    )Percentage of present value of scheme
liabilities
    
    
    0.5
    %
    
    
    3.9
    %
    
    
    8.9
    %
    
    
    2.4
    %Total amount recognised in statement
of total recognised gains and losses
    
    
    (1.2
    )
    
    
    0.6
    
    
    
    (10.4
    )
    
    
    0.1Percentage of present value of scheme
liabilities
    
    
    1.1
    %
    
    
    4.7
    %
    
    
    19.6
    %
    
    
    0.5
    %
 United Kingdom
    
    
    United States
    
    
    Belgium
    
    
    Germany(iii) Year ended December 31, 2002
    
    ( in millions)Difference between the actual and
expected return on scheme assets
    
    
    (33.1
    )
    
    
    (1.6
    )
    
    
    (17.0
    )
    
    
    Percentage of scheme assets
    
    
    51.5
    %
    
    
    36.4
    %
    
    
    45.8
    %
    
    
    Experience gains and losses on scheme
liabilities
    
    
    14.8
    
    
    
    0.7
    
    
    
    1.0
    
    
    
    3.7Percentage of present value of scheme
liabilities
    
    
    15.4
    %
    
    
    0.5
    %
    
    
    2.3
    %
    
    
    17.7
    %Total amount recognised in statement
of total recognised gains and losses
    
    
    (18.3
    )
    
    
    (2.0
    )
    
    
    (13.5
    )
    
    
    0.4Percentage of present value of scheme
liabilities
    
    
    19.0
    %
    
    
    14.2
    %
    
    
    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, 2004 and 2003 would be as follows: 2003
    
    
    2004( in millions)Net assets:Group net assets
    
    
    179.2
    
    
    
    280.5Add: net pension liability under SSAP24
    
    
    39.6
    
    
    
    40.9Related deferred tax asset
    
    
    (6.0
    )
    
    
    (7.3
    )Group net assets excluding net pension liability under SSAP24
    
    
    212.8
    
    
    
    314.1Net pension liability under FRS 17
    
    
    (72.9
    )
    
    
    (76.8
    )Group net assets including net pension liability under FRS 17
    
    
    139.9
    
    
    
    237.3Reserves:Group profit and loss reserves
    
    
    110.4
    
    
    
    211.7Add: net pension liability under SSAP24 (net of deferred taxes)
    
    
    33.6
    
    
    
    33.6Group reserves excluding net pension liability under SSAP24
    
    
    144.0
    
    
    
    245.3Net pension liability under FRS 17
    
    
    (72.9
    )
    
    
    (76.8
    )Group profit and loss reserves including net pension liability under FRS 17
    
    
    71.1
    
    
    
    168.5
 F-34




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 31. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Year ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Increase/(decrease) in cash in the period
    
    
    (4.9
    )
    
    
    49.9
    
    
    
    (71.1
    )Cash outflow/(inflow) from increase in debt financing
    
    
    91.1
    
    
    
    81.1
    
    
    
    75.5Change in net debt resulting from cash flows
    
    
    86.2
    
    
    
    131.0
    
    
    
    4.4Acquisitions
    
    
    
    
    
    
    
    
    
    
    Other net non-cash transactions
    
    
    19.8
    
    
    
    18.4
    
    
    
    1.1Net debt at start of period
    
    
    (863.3
    )
    
    
    (757.3
    )
    
    
    (607.9
    )Net debt at end of period
    
    
    (757.3
    )
    
    
    (607.9
    )
    
    
    (602.4
    )
 32. ANALYSIS OF NET DEBT OtherNon-CashAt January 1, 2004
    
    
    Cash Flow
    
    
    Charges
    
    
    At December 31, 2004( in millions)Cash at bank and in hand
    
    
    153.3
    
    
    
    (71.1
    )
    
    
    (2.7
    )
    
    
    79.5Cash overdrafts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153.3
    
    
    
    (71.1
    )
    
    
    (2.7
    )
    
    
    79.5Debt due within one year
    
    
    (110.1
    )
    
    
    75.9
    
    
    
    (58.5
    )
    
    
    (92.7
    )Debt due after more than one year
    
    
    (648.9
    )
    
    
    (0.9
    )
    
    
    64.4
    
    
    
    (585.4
    )Finance leases
    
    
    (2.2
    )
    
    
    0.5
    
    
    
    (2.1
    )
    
    
    (3.8
    )(761.2
    )
    
    
    75.5
    
    
    
    3.8
    
    
    
    (681.9
    )Net debt
    
    
    (607.9
    )
    
    
    4.4
    
    
    
    1.1
    
    
    
    (602.4
    )
 Non cash changes relate primarily to exchange movements, reclassifications between debt
due after more than one year and debt due within one year and amortisation of debt issue costs. 33. RELATED PARTY TRANSACTIONS The Group has a management services agreement with Ineos Capital Partners (Ineos Capital).
The partners of Ineos Capital own a controlling interest in the share capital of Ineos Group
Holdings. Ineos Capital management fees of 8.5 million (2003: 8.3 million) were charged in the
year. At December 31, 2004 amounts owed to Ineos Capital were 5.4 million (2003: 6.1 million). The partners of Ineos Capital also own a controlling interest in Ineos Chlor Group Limited.
Ineos Chlor Group Limited has certain common directors with Ineos Group Holdings. The Group has
made sales to Ineos Chlor Limited, a subsidiary of Ineos Chlor Group Limited, of 1.2 million
(2003: 0.3 million), recovered costs of 2.7 million (2003: 4.6 million) and made purchases from
Ineos Chlor Limited of 37.3 million (2003: 32.2 million) during the year. At December 31, 2004
2.9 million (2003: 6.6 million) was owed to and 0.7 million (2003: nil million) was owed by
Ineos Chlor Limited. The Group has agreed to participate in the revised funding package to construct new cellrooms
at Ineos Chlors site at Runcorn, England. The Group has made available facilities to Ineos Chlor
of up to £130.0 million (183.0 million) in the form of interest bearing loans with final maturity
in 2010. At December 31, 2004 loans totalling 31.8 million were owed by Ineos Chlor Limited. F-35




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 33. RELATED PARTY TRANSACTIONS (Continued) Amounts owed to the Group by Ineos Group Limited at 31 December 2004 were 29.3 million (2003:
29.3 million). The amounts owed represent long-term loans of which 14.0 million is non-interest
bearing and 15.3 million earns interest at EURIBOR plus 0.75%. During the year the Group paid
management and directors fees to Ineos Group Limited of 0.9 million (2003: 1.0 million). The partners of Ineos Capital own a controlling interest in Ineos Vinyls Group Limited. Ineos
Vinyls Group Limited also has certain common directors with Ineos Group Limited. The Group has
made sales to EVC International NV, a subsidiary of Ineos Group Vinyls Limited, of 0.3 million
(2003: nil million) recovered costs of 0.9 million (2003: nil million) and made purchases of
1.7 million (2003: nill million) during the year. At December 31, 2004 0.2 million (2003: nil
million) was due from EVC International NV. 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.  (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 operated 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, which
matured 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%, which matured in January 2004.
The floor rate of 3.755% only applies to a notional principal of US $46.4 million. F-36




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 34. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued)  
    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%,
which matured 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%, which matured in June 2004. Under interest rate swaps, we agreed 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 entitled 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). As at December 31, 2004 the group had no outstanding derivative financial
instruments.  (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.  (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, 2004 and 2003 were: At December 31, 2004 Fixed rate interest financial liabilitiesFloating rate
    
    
    
    
    
    
    
    
    
    
    Weighted averagefinancial
    
    
    
    
    
    
    Weighted average
    
    
    period for whichTotal
    
    
    liabilities
    
    
    Principal
    
    
    interest rate
    
    
    rate is fixedm
    
    
    m
    
    
    m
    
    
    %
    
    
    YearsEuros
    
    
    543.1
    
    
    
    281.4
    
    
    
    261.7
    
    
    
    10.4
    
    
    
    5.6US Dollars
    
    
    97.2
    
    
    
    97.2
    
    
    
    
    
    
    
    
    
    
    
    Sterling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    53.7
    
    
    
    51.6
    
    
    
    2.1
    
    
    
    5.0
    
    
    
    3.0694.0
    
    
    
    430.2
    
    
    
    263.8
    
    
    
    10.8
    
    
    
    5.5
 F-37




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 34. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued) The floating rate liabilities comprise the Euro, Yen and US Dollar portions of the Senior
Credit Agreement. At December 31, 2003 Fixed rate interest financial liabilitiesWeightedFloating rate
    
    
    
    
    
    
    Weighted
    
    
    average periodfinancial
    
    
    
    
    
    
    average
    
    
    for which rateTotal
    
    
    liabilities
    
    
    Principal
    
    
    interest rate
    
    
    is fixedm
    
    
    m
    
    
    m
    
    
    %
    
    
    YearsEuros
    
    
    606.4
    
    
    
    344.3
    
    
    
    262.1
    
    
    
    10.5
    
    
    
    6.6US Dollars
    
    
    113.3
    
    
    
    113.3
    
    
    
    
    
    
    
    
    
    
    
    Sterling
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    3.5
    
    
    
    1.0Yen
    
    
    58.3
    
    
    
    58.3
    
    
    
    
    
    
    
    
    
    
    
    778.1
    
    
    
    515.9
    
    
    
    262.2
    
    
    
    10.5
    
    
    
    6.6
 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 were floating but subject to interest rate floor and caps. The Group has cash balance of 79.5 million (2003: 153.3 million) which earn interest
at prevailing market rates. 34.2 million (2003: 59.0 million) were denominated in US
dollars, 2.4 million (2003: 2.4 million) were denominated in Yen, and 7.6 million
(2003: 11.5 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, 2004 and 2003 was as follows: 2003
    
    
    2004
    
    
    2003
    
    
    2004Financial
    
    
    Financial
    
    
    Undrawn
    
    
    UndrawnLiabilities
    
    
    Liabilities
    
    
    Facilities
    
    
    Facilities( in millions)In one year or less, or on demand
    
    
    109.9
    
    
    
    92.6
    
    
    
    2.5
    
    
    
    2.5In more than one year, but not
more than two years
    
    
    72.2
    
    
    
    65.5
    
    
    
    
    
    
    
    In more than two years, but not
more than five years
    
    
    267.9
    
    
    
    263.8
    
    
    
    75.0
    
    
    
    47.0In more than five years
    
    
    311.2
    
    
    
    260.0
    
    
    
    
    
    
    
    761.2
    
    
    
    681.9
    
    
    
    77.5
    
    
    
    49.5
 The Group has committed overdraft facilities of 2.5 million (2003: 2.5 million)
and unused committed revolving credit facilities of 47.0 million (2003: 75.0 million) at
December 31, 2004. F-38




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 34. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS (Continued) (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, 2003 and at of December 31, 2004. 2003
    
    
    2004Book 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
    
    
    153.3
    
    
    
    153.3
    
    
    
    79.5
    
    
    
    79.5Amounts owed by group undertakings
    
    
    29.3
    
    
    
    29.3
    
    
    
    29.3
    
    
    
    29.3Bank and other loans repayable within one year
    
    
    113.4
    
    
    
    113.4
    
    
    
    95.5
    
    
    
    95.5Bank and other loans repayable after more than one year
    
    
    402.5
    
    
    
    402.5
    
    
    
    334.7
    
    
    
    334.7Senior notes
    
    
    260.0
    
    
    
    295.1
    
    
    
    260.0
    
    
    
    289.3Derivative financial instruments held to manage the
Groups currency profile:Interest rate swaps, floors and caps
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    
 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 netGains
    
    
    Losses
    
    
    gains/(losses)( in millions)Unrecognised gains and losses on hedges at January 1, 2003
    
    
    
    
    
    
    (1.8
    )
    
    
    (1.8
    )Gains and losses arising in previous years that were recognised
in 2004
    
    
    
    
    
    
    1.8
    
    
    
    1.8Gains and losses arising before January 1, 2003 that were not
recognised in 2004
    
    
    
    
    
    
    
    
    
    
    Gains and losses arising in 2003 that were not recognised in 2004
    
    
    
    
    
    
    
    
    
    
    Unrecognised gains and losses on hedges at December 31, 2004
    
    
    
    
    
    
    
    
    
    
    Of which:Gains losses expected to be recognised in 2005
    
    
    
    
    
    
    
    
    
    
    Gains losses expected to be recognised in 2006 or later
    
    
    
    
    
    
    
    
    
    
    
 F-39




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INEOS GROUP HOLDINGS
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, 2004 and December 31, 2003. 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)( in millions)2004:
    
    Euros
    
    
    US Dollars
    
    
    Sterling
    
    
    Yen
    
    
    Other
    
    
    TotalEuros
    
    
    
    
    
    
    25.9
    
    
    
    3.1
    
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    28.6US Dollars
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.5Sterling
    
    
    9.0
    
    
    
    3.5
    
    
    
    
    
    
    
    1.3
    
    
    
    0.6
    
    
    
    14.4Yen
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    3.9Other
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Total
    
    
    9.1
    
    
    
    34.3
    
    
    
    3.1
    
    
    
    1.1
    
    
    
    0.7
    
    
    
    48.3
 Net foreign currency monetary assets/(liabilities)( in millions)2003:
    
    Euros
    
    
    US Dollars
    
    
    Sterling
    
    
    Yen
    
    
    Other
    
    
    TotalEuros
    
    
    
    
    
    
    27.7
    
    
    
    3.6
    
    
    
    (0.2
    )
    
    
    1.3
    
    
    
    32.4US Dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.5Sterling
    
    
    8.1
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    11.1Yen
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6Other
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Total
    
    
    8.1
    
    
    
    33.4
    
    
    
    3.6
    
    
    
    (0.2
    )
    
    
    2.2
    
    
    
    47.1
 F-40




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS  35.
    LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE INEOS GROUP HOLDINGS CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2004. Country ofIncorporation and
    
    PercentageCompany
    
    operation
    
    HoldingIneos Holdings Limited*
    
    UK
    
    
    100
    %Ineos US Finance LLC
    
    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 Overseas Company I Limited
    
    UK
    
    
    100
    %Ineos Overseas Company II Limited
    
    UK
    
    
    100
    %Ineos Partners
    
    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 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
    %IFJ Korea Limited
    
    Korea
    
    
    100
    %Ineos Mexico S de RL de CV
    
    Mexico
    
    
    100
    %Ineos Fluor Mexico S de RL de CV
    
    Mexico
    
    
    100
    %Ineos Fluor Canada Inc.
    
    Canada
    
    
    100
    %Ineos Fluor Partners Limited
    
    UK
    
    
    100
    %Ineos Fluor Delaware Limited
    
    UK
    
    
    100
    %Ineos Fluor Americas LLC
    
    US
    
    
    100
    %Ineos Silicas Holding Limited
    
    UK
    
    
    100
    %Ineos Silicas Limited
    
    UK
    
    
    100
    %Ineos Silicas International Limited
    
    UK
    
    
    100
    %Ineos Silicas Netherlands BV
    
    Holland
    
    
    100
    %Ineos Silicas Sales and Distribution BV
    
    Holland
    
    
    100
    %Ineos Silicas Asia Pacific Pte Limited
    
    Singapore
    
    
    100
    %Ineos Silicas 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
    %Ineos Silicas Healthcare Limited
    
    UK
    
    
    100
    %Ineos US DSS Limited
    
    UK
    
    
    100
    %Ineos US Holding Company II LLC
    
    US
    
    
    100
    %Ineos US Intermediate Holding Company LLC
    
    US
    
    
    100
    %Ineos Americas LLC
    
    US
    
    
    100
    %Ineos US Investment Holding Company LLC
    
    US
    
    
    100
    %
   *
    
    Held directly by the Company F-41




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (a) Differences in measurement methods 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 Holdings have been addressed. (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
    
    
    29.2Additional fair value adjustments under US GAAP:Tangible fixed assets
    
    
    (16.5
    )Pension obligations (see (vii) below)
    
    
    23.6Acquisition date
    
    
    1.8Inventories
    
    
    1.0Fair 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 reflected in the UK GAAP financial statements has been reversed
for US GAAP. 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. F-42




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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. 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. 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
    
    
    570.6Additional fair value adjustments under US GAAP:Tangible fixed assets
    
    
    (194.7
    )Research and development in process
    
    
    2.2Trade names/trade marks
    
    
    3.1Existing technology
    
    
    9.5Customer contracts
    
    
    5.5Non-compete agreements
    
    
    4.5Pensions (see (vii) below)
    
    
    4.6Inventories (see (vi) below)
    
    
    17.4Restructuring provision (see (x) below)
    
    
    (12.7
    )Deferred taxation (see (xi) below)
    
    
    38.7Fair 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 is lower under US GAAP as compared to UK GAAP. F-43




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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 annual amortisation charge is higher under US
GAAP than under UK GAAP. 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. 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 prior periods.  (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
    
    
    43.8Additional fair value adjustments under US GAAP:Tangible fixed assets
    
    
    (7.4
    )Customer contracts
    
    
    3.0Existing technology
    
    
    2.4Trade names/trade marks
    
    
    1.0Inventories (see (vi) below)
    
    
    3.3Deferred 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 is lower under US GAAP as compared to UK GAAP. 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 annual amortisation charge is higher under US
GAAP than under UK GAAP. 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-44




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INEOS GROUP HOLDINGS
NOTES 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. 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
    
    
    623.6Additional fair value adjustments under US GAAP:Tangible fixed assets
    
    
    (327.3
    )Existing technology
    
    
    7.4Customer contracts
    
    
    19.0Inventories (see (vi) below)
    
    
    0.7Restructuring provision (see (x) below)
    
    
    (6.5
    )Deferred taxation (see (xi) below)
    
    
    40.2Fair 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 is lower under US GAAP as compared to UK GAAP. 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 annual amortisation charge is higher under US
GAAP than under UK GAAP. 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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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)  (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 and 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: ( in millions)Fair values under UK GAAP
    
    
    4.4Inventories (see (vi) below)
    
    
    0.6Fair 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 nil million (2003: nil million; 2002 :
0.6 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. F-46




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)  (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, 2004, the fair value of the
derivative financial instruments was a loss of nil million (2003: loss of 1.8 million;
2002: loss of 4.4 million).  (ix)
    Capitalisation of interest The capitalisation of interest is optional under UK GAAP. Accordingly, Ineos Group Holdings
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, 2004 was 2.7 million (2003: 2.0 million; 2002 :
2.3 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. 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. F-47




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)  (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 nil million (2003: nil million)
receivable separately in debtors would have to be made.  (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 12.1 million asset as at December 31, 2004 (2003: 16.9 million), separately in debtors
would have to be made.  (xv)
    Current assets and liabilities Provisions for liabilities and charges under UK GAAP includes 11.6 million (2003: nil
million) due within one year which would be classified as current liabilities under US GAAP. In
addition, current assets under UK GAAP includes a receivable from the ultimate parent undertaking
in the amount of 29.3 million (2003: 29.3 million) and other debtors and prepayments of
54.9 million (2003: 44.4 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, 2004 totalled 2.7 million (2003:
2.9 million) with net unrealised gains of 1.9 million (2003: 1.2 million). Emission
Credits that would be included within financial liabilities under US GAAP as at December 31, 2004
totalled 1.0 million (2003: 1.7 million). F-48




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INEOS GROUP HOLDINGS
NOTES 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 31,2002
    
    
    2003
    
    
    2004Notes
    
    ( in millions)Profit/(loss) for the financial yearProfit/(loss) for the financial year under UK GAAP
    
    
    
    
    39.0
    
    
    
    150.6
    
    
    
    167.9Goodwill adjustments on acquisitions
    
    (i), (ii), (iii), (iv), (v)
    
    
    (39.4
    )
    
    
    (36.4
    )
    
    
    (40.4
    )Inventories
    
    (vi)
    
    
    (0.6
    )
    
    
    
    
    
    
    Depreciation of tangible fixed assets
    
    (ii), (iii), (iv)
    
    
    41.7
    
    
    
    44.7
    
    
    
    47.0Amortisation of intangibles
    
    (ii), (iii), (iv)
    
    
    (8.6
    )
    
    
    (8.5
    )
    
    
    (8.5
    )In process research and development
    
    (ii)
    
    
    
    
    
    
    
    
    
    
    Pensions
    
    (vii)
    
    
    (2.0
    )
    
    
    (11.6
    )
    
    
    (8.5
    )Derivative financial instruments
    
    (viii)
    
    
    (2.3
    )
    
    
    2.6
    
    
    
    1.8Capitalisation of interest less amortisation
    
    (ix)
    
    
    2.3
    
    
    
    2.0
    
    
    
    2.7Restructuring provisions
    
    (x)
    
    
    
    
    
    
    
    
    
    
    Deferred taxation arising on UK GAAP results
    
    (xi)
    
    
    
    
    
    
    
    
    
    
     arising on US GAAP adjustments
    
    (xi)
    
    
    (3.3
    )
    
    
    (6.8
    )
    
    
    33.8Profit/(loss) for the financial year under US GAAP
    
    
    
    
    26.8
    
    
    
    136.6
    
    
    
    195.8
 Effects on shareholders equity between UK GAAP and US GAAP: As at December 31,2003
    
    
    2004Notes
    
    ( in millions)Shareholders equityShareholders equity under UK GAAP
    
    
    
    
    179.2
    
    
    
    280.5Goodwill adjustments on acquisition
    
    (i), (ii), (iii), (iv)
    
    
    268.0
    
    
    
    227.6Tangible fixed assets
    
    (i), (ii), (iii), (iv)
    
    
    (425.1
    )
    
    
    (375.4
    )Intangible fixed assets
    
    (ii), (iii), (iv)
    
    
    31.7
    
    
    
    23.2Pensions
    
    (vii)
    
    
    14.6
    
    
    
    6.1Derivative financial instruments
    
    (viii)
    
    
    (1.8
    )
    
    
    Deferred taxation
    
    (xi)
    
    
    61.4
    
    
    
    95.2Foreign currency translation differences
    
    (xii)
    
    
    15.9
    
    
    
    19.6Shareholders equity under US GAAP
    
    
    
    
    143.9
    
    
    
    276.8
 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. F-49




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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. Under US GAAP, the following amounts would have been reported: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Net cash provided by operating activities:Under UK GAAP
    
    
    211.0
    
    
    
    268.2
    
    
    
    214.0Interest received
    
    
    3.0
    
    
    
    2.9
    
    
    
    2.3Interest paid
    
    
    (63.6
    )
    
    
    (64.2
    )
    
    
    (52.0
    )Dividend received from associate
    
    
    0.4
    
    
    
    
    
    
    
    Taxation paid
    
    
    (11.1
    )
    
    
    (12.3
    )
    
    
    (24.9
    )Under US GAAP
    
    
    139.7
    
    
    
    194.6
    
    
    
    139.4Net cash used in investing activities:Purchase of loan investment
    
    
    
    
    
    
    
    
    
    
    (33.0
    )Payments to acquire tangible fixed assets
    
    
    (51.2
    )
    
    
    (58.2
    )
    
    
    (62.2
    )Receipts from sales of tangible fixed assets
    
    
    3.7
    
    
    
    3.2
    
    
    
    Acquisitions and disposals of businesses
    
    
    (5.0
    )
    
    
    1.4
    
    
    
    (52.5
    )
    
    
    (53.6
    )
    
    
    (95.2
    )Net cash provided by financing activities:Under UK GAAP
    
    
    (91.4
    )
    
    
    (81.1
    )
    
    
    (75.5
    )Equity dividends paid
    
    
    
    
    
    
    (10.0
    )
    
    
    (39.8
    )Debt issue costs
    
    
    (0.7
    )
    
    
    
    
    
    
    Cash overdraft
    
    
    (1.7
    )
    
    
    (0.1
    )
    
    
    Under US GAAP
    
    
    (93.8
    )
    
    
    (91.2
    )
    
    
    (115.3
    )Net increase/(decrease) in cash and cash
equivalents under US GAAP
    
    
    (6.6
    )
    
    
    49.8
    
    
    
    (71.1
    )
 (b) Additional US GAAP disclosures Goodwill and intangible assets 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 completed its annual goodwill impairment analysis under SFAS 142 as of January
1, 2005, whereby goodwill was deemed not to be impaired. F-50




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) Goodwill on a US GAAP basis of 1.7, 1.7 and 1.7 million as of December 31, 2002,
2003 and 2004, 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, 2005 for impairment are not applicable. The following table sets forth the carrying values and accumulated amortisation under US GAAP
for each major class of intangible asset at December 31, 2004: As at December 31, 2004Gross carrying
    
    
    Accumulated
    
    
    Weighted averagevalue
    
    
    amortisation
    
    
    amortisation period( in millions)
    
    
    YearsAmortised intangible assetsTrade names
    
    
    4.1
    
    
    
    1.3
    
    
    
    17Existing technology
    
    
    19.3
    
    
    
    7.3
    
    
    
    10Customer contracts
    
    
    27.5
    
    
    
    20.0
    
    
    
    8Non compete agreements
    
    
    6.8
    
    
    
    5.9
    
    
    
    5Licence fees
    
    
    2.0
    
    
    
    0.7
    
    
    
    1559.7
    
    
    
    35.2Unamortised intangible assetsGoodwill
    
    
    1.761.4
    
    
    
    35.2
 The amortisation expense for the year ended December 31, 2004, together with the
estimated aggregate amortisation expense for each of the next 5 years is as follows: ( in millions)2004
    
    
    8.92005
    
    
    5.82006
    
    
    3.12007
    
    
    3.12008
    
    
    2.92009
    
    
    2.6
 There were no changes to the carrying value of goodwill during the year ended December
31, 2004. F-51




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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. The Company uses a December 31 measurement date for its plans. (i) Year ended December 31, 2004 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 obligationProjected benefit obligation at the
beginning of the year
    
    
    116.1
    
    
    
    21.1
    
    
    
    53.1
    
    
    
    12.9
    
    
    
    203.2Service cost
    
    
    5.7
    
    
    
    0.4
    
    
    
    3.7
    
    
    
    1.2
    
    
    
    11.0Interest cost
    
    
    6.7
    
    
    
    1.1
    
    
    
    2.7
    
    
    
    0.8
    
    
    
    11.3Employee contributions
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0Plan amendments
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    1.1Benefits paid
    
    
    (2.0
    )
    
    
    (1.1
    )
    
    
    (4.1
    )
    
    
    (0.7
    )
    
    
    (7.9
    )Actuarial (gain)/loss
    
    
    10.8
    
    
    
    1.7
    
    
    
    3.1
    
    
    
    1.7
    
    
    
    17.3Exchange adjustments
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    (3.0
    )Projected benefit obligation at the end of
the year
    
    
    137.5
    
    
    
    23.2
    
    
    
    58.5
    
    
    
    14.8
    
    
    
    234.0Accumulated benefit obligation
    
    
    75.6
    
    
    
    21.0
    
    
    
    37.1
    
    
    
    10.4
    
    
    
    144.1Change in plan assetsFair value of plan assets at beginning of
the year
    
    
    81.2
    
    
    
    
    
    
    
    36.4
    
    
    
    5.8
    
    
    
    123.4Actual return on plan assets
    
    
    7.5
    
    
    
    
    
    
    
    1.7
    
    
    
    0.7
    
    
    
    9.9Employer contributions
    
    
    4.7
    
    
    
    
    
    
    
    3.7
    
    
    
    1.3
    
    
    
    9.7Employee contributions
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0Benefits paid
    
    
    (2.0
    )
    
    
    
    
    
    
    (4.1
    )
    
    
    (0.7
    )
    
    
    (6.8
    )Exchange adjustments
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (1.6
    )Fair value of plan assets at end of the year
    
    
    91.4
    
    
    
    
    
    
    
    37.7
    
    
    
    6.5
    
    
    
    135.6Funded statusFunded status at end of the year
    
    
    (46.1
    )
    
    
    (23.2
    )
    
    
    (20.8
    )
    
    
    (8.3
    )
    
    
    (98.4
    )Unrecognised net actuarial (gain)/loss
    
    
    43.1
    
    
    
    3.2
    
    
    
    33.3
    
    
    
    1.3
    
    
    
    80.9Additional minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid benefit/(accrued cost)
    
    
    (3.0
    )
    
    
    (20.0
    )
    
    
    12.5
    
    
    
    (7.0
    )
    
    
    (17.5
    )
 The principal actuarial assumptions used are as follows: UK
    
    
    Germany
    
    
    Belgium
    
    
    USADiscount rate
    
    
    5.40
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.75
    %Expected long term rate of return
    
    
    7.45
    %
    
    
    
    %
    
    
    7.00
    %
    
    
    7.50
    %Expected increase in future salary levels
    
    
    4.20
    %
    
    
    2.00
    %
    
    
    3.50
    %
    
    
    4.50
    %
 F-52




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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
    
    
    5.7
    
    
    
    0.4
    
    
    
    3.7
    
    
    
    1.2
    
    
    
    11.0Interest cost
    
    
    6.7
    
    
    
    1.1
    
    
    
    2.7
    
    
    
    0.8
    
    
    
    11.3Expected return on assets
    
    
    (6.4
    )
    
    
    
    
    
    
    (2.3
    )
    
    
    (0.6
    )
    
    
    (9.3
    )Amortisation amounts
    
    
    2.7
    
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    4.5Net periodic pension expense
    
    
    8.7
    
    
    
    1.5
    
    
    
    5.9
    
    
    
    1.4
    
    
    
    17.5
 The Company provides post retirement health care benefits for most of its employees in
Belgium and the United States. 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 endedDecember 31, 2004( in millions)Change in benefit obligationProjected benefit obligation at the beginning of the year
    
    
    4.0Service cost
    
    
    0.2Interest cost
    
    
    0.2Actuarial (gain)/loss
    
    
    0.7Benefits paid
    
    
    (0.2
    )Exchange movements
    
    
    (0.3
    )Projected benefit obligation at the end of the year
    
    
    4.6Funded statusFunded status at end of the year
    
    
    (4.6
    )Unrecognised net actuarial (gain)/loss
    
    
    (0.2
    )Prepaid benefit/(accrued cost)
    
    
    (4.8
    )
 The principal actuarial assumption used is a discount rate of 6.25%. The components of the net periodic pension cost are as follows: Year endedDecember 31, 2004( in millions)Service cost
    
    
    0.2Interest cost
    
    
    0.2Expected return on assets
    
    
    Net periodic pension cost
    
    
    0.4
 F-53




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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
    
    
    49
    
    
    
    16Effect on the post retirement benefit obligations
    
    
    450
    
    
    
    (381
    )
 The actual asset allocations for the Companys pension plans, as at December 31, 2004
together with the target allocation were as follows: At December 31, 2004Actual
    
    
    Target%
    
    
    %Equity securities
    
    
    78.1
    
    
    
    40-80Debt securities
    
    
    15.1
    
    
    
    0-40Other
    
    
    6.8
    
    
    
    0100
    
    
    
    100
 The expected rate of return on plan assets in the Companys plans has been determined by
weighted averages of actual holdings in equities, bonds and other assets as at December 31, 2004.
We have assumed the expected returns on equities, bonds and other assets to be 8.00% pa, 5.00% pa
and 4.00% pa respectively as at December 31, 2004. The investment objectives of the Companys pension plans are as follows:  a)
    the acquisition of suitable assets of appropriate liquidity which will generate
income and capital growth to meet, together with new contributions from members and the
employer, the cost of current and future benefits from the plans.b)
    to limit the risk of the assets failing to meet the liabilities over the long
term, in particular in relation to the Minimum Funding Requirement.c)
    to minimise the long term costs of the plans by maximising the return on the
assets whilst having regard to the objective shown under b. The expected employer pension contribution to the Companys pension and post retirement plans
for the year ended December 31, 2005 is 9.6m. The expected future benefit payments for the
Companys pension and post retirement plans are as follows: ( in millions)2005
    
    
    7.92006
    
    
    8.52007
    
    
    9.12008
    
    
    9.82009
    
    
    10.62010 to 2014
    
    
    64.0
 F-54




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) (ii) Year ended December 31, 2003 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 obligationProjected benefit obligation at the
beginning of the year
    
    
    98.2
    
    
    
    20.9
    
    
    
    43.1
    
    
    
    14.1
    
    
    
    176.3Service cost
    
    
    5.0
    
    
    
    0.3
    
    
    
    3.3
    
    
    
    1.0
    
    
    
    9.6Interest cost
    
    
    5.4
    
    
    
    1.1
    
    
    
    2.6
    
    
    
    0.7
    
    
    
    9.8Employee contributions
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Plan amendments
    
    
    4.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2Benefits paid
    
    
    (0.8
    )
    
    
    (1.1
    )
    
    
    (5.8
    )
    
    
    (0.4
    )
    
    
    (8.1
    )Actuarial (gain)/loss
    
    
    11.4
    
    
    
    (0.1
    )
    
    
    9.9
    
    
    
    (0.1
    )
    
    
    21.1Exchange adjustments
    
    
    (8.2
    )
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    (10.6
    )Projected benefit obligation at the end of
the year
    
    
    116.1
    
    
    
    21.1
    
    
    
    53.1
    
    
    
    12.9
    
    
    
    203.2Change in plan assetsFair value of plan assets at beginning of
the year
    
    
    64.3
    
    
    
    
    
    
    
    37.1
    
    
    
    4.4
    
    
    
    105.8Actual return on plan assets
    
    
    14.6
    
    
    
    
    
    
    
    2.0
    
    
    
    0.9
    
    
    
    17.5Employer contributions
    
    
    7.9
    
    
    
    
    
    
    
    3.1
    
    
    
    1.9
    
    
    
    12.9Employee contributions
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Benefits paid
    
    
    (0.8
    )
    
    
    
    
    
    
    (5.8
    )
    
    
    (0.4
    )
    
    
    (7.0
    )Exchange adjustments
    
    
    (5.7
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    (6.7
    )Fair value of plan assets at end of the year
    
    
    81.2
    
    
    
    
    
    
    
    36.4
    
    
    
    5.8
    
    
    
    123.4Funded statusFunded status at end of the year
    
    
    (34.9
    )
    
    
    (21.1
    )
    
    
    (16.7
    )
    
    
    (7.1
    )
    
    
    (79.8
    )Unrecognised net actuarial (gain)/loss
    
    
    35.8
    
    
    
    1.5
    
    
    
    31.4
    
    
    
    (0.1
    )
    
    
    68.6Additional minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid benefit/(accrued cost)
    
    
    0.9
    
    
    
    (19.6
    )
    
    
    14.7
    
    
    
    (7.2
    )
    
    
    (11.2
    )
 The principal actuarial assumptions used are as follows: UK
    
    
    Germany
    
    
    Belgium
    
    
    USADiscount rate
    
    
    5.60
    %
    
    
    5.50
    %
    
    
    5.50
    %
    
    
    6.25
    %Expected long term rate of return
    
    
    7.45
    %
    
    
    
    %
    
    
    7.00
    %
    
    
    8.00
    %Expected increase in future salary levels
    
    
    4.10
    %
    
    
    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
    
    
    
    3.3
    
    
    
    1.0
    
    
    
    9.6Interest cost
    
    
    5.4
    
    
    
    1.1
    
    
    
    2.6
    
    
    
    0.7
    
    
    
    9.8Expected return on assets
    
    
    (4.6
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    (0.4
    )
    
    
    (7.5
    )Amortisation amounts
    
    
    6.3
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    7.8Net periodic pension expense
    
    
    12.1
    
    
    
    1.4
    
    
    
    4.9
    
    
    
    1.3
    
    
    
    19.7
 F-55




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INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) The Company provides post retirement health care benefits for most of its employees in Belgium
and the United States. 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 endedDecember 31, 2003( in millions)Change in benefit obligationProjected benefit obligation at the beginning of the year
    
    
    5.4Service cost
    
    
    0.2Interest cost
    
    
    0.2Actuarial (gain)/loss
    
    
    (1.0
    )Benefits paid
    
    
    (0.2
    )Exchange movements
    
    
    (0.6
    )Projected benefit obligation at the end of the year
    
    
    4.0Funded statusFunded status at end of the year
    
    
    (4.0
    )Unrecognised net actuarial (gain)/loss
    
    
    (1.0
    )Prepaid benefit/(accrued cost)
    
    
    (5.0
    )
 The principal actuarial assumption used is a discount rate of 6.25%. The components of the net periodic pension cost are as follows: Year endedDecember 31, 2003( in millions)Service cost
    
    
    0.2Interest cost
    
    
    0.2Expected return on assets
    
    
    Net periodic pension cost
    
    
    0.4
 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
    
    
    82
    
    
    
    (67
    )Effect on the post retirement benefit obligations
    
    
    769
    
    
    
    (629
    )
 F-56




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##### Table of Contents



INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS 36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) The actual asset allocations for the domestic UK pension plans as at December 31, 2003,
together with the target allocation is as follows: At December 31, 2003Actual
    
    
    Target%
    
    
    %Equity securities
    
    
    85.0
    
    
    
    40-80Debt securities
    
    
    11.8
    
    
    
    0-40Other
    
    
    3.2
    
    
    
    0100
    
    
    
    100
 (iii) Year ended December 31, 2002 The principal actuarial assumptions used are as follows: UK
    
    
    Germany
    
    
    Belgium
    
    
    USADiscount 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
    %
    
    
    3.50
    %
    
    
    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
    
    
    
    9.6Interest cost
    
    
    5.9
    
    
    
    1.3
    
    
    
    2.7
    
    
    
    1.0
    
    
    
    10.9Expected return on assets
    
    
    (6.1
    )
    
    
    
    
    
    
    (3.8
    )
    
    
    (0.7
    )
    
    
    (10.6
    )2.2
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    2.6Net 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. The principal actuarial assumption used is a discount rate of
6.75%. The components of the net periodic pension cost are as follows: Year endedDecember 31, 2002( in millions)Service cost
    
    
    0.3Interest cost
    
    
    0.3Expected return on assets
    
    
    Net periodic pension cost
    
    
    0.6
 F-57




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INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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
    )
 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 31,2002
    
    
    2003
    
    
    2004Statutory UK rate
    
    
    30.0
    %
    
    
    30.0
    %
    
    
    30.0
    %Foreign rate differential
    
    
    10.7
    )%
    
    
    2.6
    %
    
    
    2.5
    %Effect of non-deductible items
    
    
    (9.0
    )%
    
    
    (13.9
    )%
    
    
    (0.6
    )%Valuation allowance for deferred tax assets
    
    
    29.6
    )%
    
    
    (8.8
    )%
    
    
    (22.5
    )%Effect of a change in statutory rate
    
    
    
    )%
    
    
    
    )%
    
    
    
    )%61.3
    %
    
    
    10.0
    %
    
    
    9.4
    %
 US GAAP deferred tax assets and liabilities at December 31, 2004 and 2003 are summarised
as follows: As at December 31,2003
    
    
    2004( in thousands)Deferred tax assets:Operating loss carry forwards
    
    
    42.3
    
    
    
    17.1Post-retirement benefits
    
    
    2.4
    
    
    
    2.4Provisions for expenses
    
    
    3.0
    
    
    
    3.0Accelerated depreciation and amortisation
    
    
    89.2
    
    
    
    81.5Differences between book and tax expense for other current assets
    
    
    7.3
    
    
    
    5.8Gross deferred tax assets
    
    
    144.2
    
    
    
    109.8Valuation allowance
    
    
    (63.6
    )
    
    
    (15.1
    )80.6
    
    
    
    94.7Deferred tax liabilities:Accelerated depreciation and amortisation
    
    
    
    
    
    
    Differences between book and tax expense for other current assets
    
    
    
    
    
    
    Pension benefits
    
    
    (0.8
    )
    
    
    (0.8
    )(0.8
    )
    
    
    (0.8
    )Net deferred tax asset
    
    
    79.8
    
    
    
    93.9
 F-58




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES 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. A
valuation allowance of 4.7 million against operating loss carry forwards and 43.8
million against other timing differences has been reversed in 2004. It is now anticipated that
such operating losses and other timing differences, primarily in the USA, will be utilised in the
foreseeable future and accordingly a valuation allowance is no longer required. 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. 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 may not be indicative of our historical operating results nor
is it meant to be predictive of potential future results. The Company believes that the non-GAAP
financial measures presented best reflect the ongoing performance of the Company during the periods
presented and are more useful to investors for comparative analyses. These measures should not be
viewed as an alternative to GAAP financial measures. Furthermore, these non-GAAP financial measures
may not be consistent with similar measures provided or used by other companies. 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. F-59




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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. 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 34. All other
long-term debt approximates to the carrying value at December 31, 2004. Investment in equity securities The investment in Indaver NV is carried in the balance sheets as at December 31, 2003 and 2004
at its historical cost of #eu#0.7 million. The directors are of the opinion that the fair value of
this investment is not readily determinable. Consolidation In December 2003, the FASB issued FIN 46-R. 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-R, 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-R are immediately effective for variable interest entities created
after February 1, 2003. However, FIN 46-R requires disclosures in financial statements issued after February 1, 2003
about variable interest entities that, when FIN 46-R 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-R. 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. F-60




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##### Table of Contents



INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS  36.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) 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, 2004 were not material to the
business, consequently we have not provided a reconciliation of the movement of product warrant
liabilities for the year ended December 31, 2004. 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 2004 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, 2004 have been used. Year EndedDecember 31,( in millions)2005
    
    
    1,659.62006
    
    
    993.42007
    
    
    940.32008
    
    
    438.12009
    
    
    313.2After 2009
    
    
    324.04,668.6
 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 Holdings.  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, 2004 have not yet been delivered to the Registrar of
Companies for England and Wales. F-61




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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Ineos Holdings Limited We have audited the accompanying consolidated balance sheets of Ineos Holdings Limited (the
Company or Ineos Holdings) and its subsidiaries as of December 31, 2004 and 2003, and the
related consolidated profit and loss accounts, consolidated cash flow statements and statements of
total recognised gains and losses for each of the three years in the period ended December 31,
2004, 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 the standards of the Public Company Accounting
Oversight Board (United States). 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 Holdings and its subsidiaries at December 31,
2004 and 2003, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2004, in conformity with accounting principles generally accepted
in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant
respects from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented in Note 36 to the
consolidated financial statements. PricewaterhouseCoopers LLP
London, United Kingdom April 29, 2005 F-62




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##### Table of Contents



INEOS GROUP HOLDINGS 
 CONSOLIDATED PROFIT AND LOSS ACCOUNTS Year Ended December 31,Notes
    
    2002
    
    
    2003
    
    
    2004( in millions)Turnover
    
    5
    
    
    2,235.8
    
    
    
    2,530.4
    
    
    
    3,396.1Cost of sales
    
    
    
    
    (1,833.9
    )
    
    
    (2,130.3
    )
    
    
    (2,928.4
    )Gross profit
    
    
    
    
    401.9
    
    
    
    400.1
    
    
    
    467.7Distribution costs
    
    
    
    
    (161.8
    )
    
    
    (151.7
    )
    
    
    (150.3
    )Administrative expenses
    
    6
    
    
    (65.9
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Exceptional administrative expenses
    
    7
    
    
    (24.6
    )
    
    
    
    
    
    
    (90.5
    )
    
    
    (45.7
    )
    
    
    (48.8
    )Other operating income
    
    9
    
    
    
    
    
    
    18.1
    
    
    
    Operating profit
    
    8
    
    
    149.6
    
    
    
    220.8
    
    
    
    268.6Share of operating profit of associate
    
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.5Profit on disposal of fixed assets
    
    9
    
    
    1.9
    
    
    
    1.3
    
    
    
    Profit on disposal of business
    
    
    
    
    
    
    
    
    0.1
    
    
    
    Net finance charges
    
    10
    
    
    (79.6
    )
    
    
    (72.3
    )
    
    
    (55.4
    )Profit on ordinary activities before
taxation
    
    
    
    
    72.5
    
    
    
    150.5
    
    
    
    213.7Taxation on profit on ordinary activities
    
    12
    
    
    (37.3
    )
    
    
    (5.4
    )
    
    
    (52.1
    )Profit on ordinary activities after taxation
    
    
    
    
    35.2
    
    
    
    145.1
    
    
    
    161.6Equity dividends
    
    13
    
    
    
    
    
    
    (10.7
    )
    
    
    (39.8
    )Profit for the financial year
    
    26
    
    
    35.2
    
    
    
    134.4
    
    
    
    121.8
 The accompanying notes are an integral part of these financial statements. F-63




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##### Table of Contents



INEOS GROUP HOLDINGS 
 CONSOLIDATED BALANCE SHEETS As atDecember 31,Notes
    
    2003
    
    
    2004( in millions)Fixed assetsInvestments
    
    14
    
    
    1.7
    
    
    
    2.0Tangible fixed assets
    
    15
    
    
    855.8
    
    
    
    791.1Intangible fixed assets
    
    16
    
    
    12.1
    
    
    
    10.9Negative goodwill
    
    16
    
    
    (217.4
    )
    
    
    (169.4
    )652.2
    
    
    
    634.6Current assetsCash at bank and in hand
    
    
    
    
    153.3
    
    
    
    79.5Stocks
    
    17
    
    
    151.0
    
    
    
    238.9Debtors: amounts due within one year
    
    18
    
    
    370.0
    
    
    
    549.6Debtors: amounts due after one year
    
    18
    
    
    73.7
    
    
    
    84.2748.0
    
    
    
    952.2Creditorsamounts falling due within one year
    
    19
    
    
    (504.5
    )
    
    
    (644.8
    )Net current assets
    
    
    
    
    243.5
    
    
    
    307.4Total assets less current liabilities
    
    
    
    
    895.7
    
    
    
    942.0Creditorsamounts falling due after more than one year
    
    20, 21, 22
    
    
    (720.2
    )
    
    
    (666.9
    )Provisions for liabilities and charges
    
    23
    
    
    (50.4
    )
    
    
    (50.7
    )Net assets
    
    
    
    
    125.1
    
    
    
    224.4Capital and reservesShare capital
    
    25
    
    
    17.7
    
    
    
    17.7Profit and loss account
    
    26
    
    
    107.4
    
    
    
    206.7Equity shareholders funds
    
    27
    
    
    125.1
    
    
    
    224.4
 The accompanying notes are an integral part of these financial statements. F-64




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INEOS HOLDINGS LIMITED 
 CONSOLIDATED CASH FLOW STATEMENTS Year Ended December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004( in millions)Operating profit
    
    
    
    
    
    
    149.6
    
    
    
    220.8
    
    
    
    268.6Depreciation of tangible assets
    
    
    
    
    
    
    114.8
    
    
    
    114.4
    
    
    
    119.0Amortisation of intangibles
    
    
    
    
    
    
    (33.4
    )
    
    
    (36.8
    )
    
    
    (40.0
    )(Increase)/decrease in stocks
    
    
    
    
    
    
    (18.7
    )
    
    
    (0.9
    )
    
    
    (95.6
    )(Increase)/decrease in debtors
    
    
    
    
    
    
    (61.6
    )
    
    
    (62.5
    )
    
    
    (178.9
    )Increase/(decrease) in creditors and provisions
    
    
    
    
    
    
    60.3
    
    
    
    33.6
    
    
    
    140.8Profit on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    0.1Net cash flow from operating activities
    
    
    
    
    
    
    211.0
    
    
    
    268.2
    
    
    
    214.0Dividend received from associate undertaking
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    Returns on investments and servicing of financeInterest received
    
    
    
    
    
    
    3.0
    
    
    
    2.9
    
    
    
    2.3Interest paid
    
    
    
    
    
    
    (63.2
    )
    
    
    (64.0
    )
    
    
    (51.8
    )Interest element of finance lease recitals
    
    
    
    
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Issue cost of debt finance raised
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (61.3
    )
    
    
    (61.3
    )
    
    
    (49.7
    )Taxation paid
    
    
    
    
    
    
    (11.1
    )
    
    
    (12.3
    )
    
    
    (24.9
    )Capital expenditurePayments to acquire tangible fixed assets
    
    
    
    
    
    
    (51.2
    )
    
    
    (58.2
    )
    
    
    (62.2
    )Receipts from sales of tangible fixed assets
    
    
    
    
    
    
    3.7
    
    
    
    3.2
    
    
    
    Purchase of loan investment
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    (33.0
    )(47.5
    )
    
    
    (55.0
    )
    
    
    (95.2
    )Acquisitions and disposalAcquisition of business
    
    
    
    
    
    
    (5.0
    )
    
    
    
    
    
    
    Cash received on acquisitions
    
    
    
    
    
    
    3⁄4
    
    
    
    

    
    
    
    Disposals of business
    
    
    
    
    
    
    3⁄4
    
    
    
    1.4
    
    
    
    (5.0
    )
    
    
    1.4
    
    
    
    Equity dividends paid
    
    
    
    
    
    
    3⁄4
    
    
    
    (10.0
    )
    
    
    (39.8
    )Net cash inflow/(outflow) before financing
    
    
    
    
    
    
    86.5
    
    
    
    131.0
    
    
    
    4.4FinancingCapital repayment of finance leases
    
    
    
    
    
    
    (3.5
    )
    
    
    (2.1
    )
    
    
    (0.5
    )New Loans:Senior credit facilities
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    28.0Senior loan notes
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    Other bank loans
    
    
    
    
    
    
    3⁄4
    
    
    
    0.3
    
    
    
    0.93⁄4
    
    
    
    0.3
    
    
    
    28.9Repayment of loans:Senior credit facility
    
    
    
    
    
    
    (85.3
    )
    
    
    (79.4
    )
    
    
    (103.9
    )Senior secured notes
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    Other bank loans
    
    
    
    
    
    
    3⁄4
    
    
    
    
    
    
    
    Loan to associate undertaking
    
    
    
    
    
    
    (1.0
    )
    
    
    0.1
    
    
    
    (87.9
    )
    
    
    (79.3
    )
    
    
    (103.9
    )Increase/(decrease) in cash
    
    
    32
    
    
    
    (4.9
    )
    
    
    49.9
    
    
    
    (71.1
    )
 The accompanying notes are an integral part of these financial statements. F-65




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##### Table of Contents



INEOS HOLDINGS LIMITED 
 STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Retained profit for the period before dividends
    
    
    35.2
    
    
    
    145.1
    
    
    
    161.6Foreign currency translation movements
    
    
    (40.5
    )
    
    
    (37.0
    )
    
    
    (22.5
    )Total recognised gains and losses for the period
    
    
    (5.3
    )
    
    
    108.1
    
    
    
    139.1
 The accompanying notes are an integral part of these financial statements. F-66




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##### Table of Contents



INEOS HOLDINGS LIMITED 
 NOTES TO THE FINANCIAL STATEMENTS  1.
    BUSINESS DESCRIPTION Ineos Holdings Limited (the Company) is a wholly owned subsidiary of Ineos Group Holdings
plc. The separate financial statements of the Company have been included since the Company has
guaranteed the 101/2% Senior Notes due 2010 of its parent company on a senior subordinated basis.
The consolidated financial statements of Ineos Group Holdings are included elsewhere in this annual
report. Ineos Group Holdings has no operations, assets or liabilities of its own other than
investments in subsidiaries. As a result, the footnotes to the financial statements of Ineos Group
Holdings as presented elsewhere in this annual report are equally applicable to the Company except
as described herein as are references to Ineos Group Holdings plc in those footnotes.  2.
    BASIS OF PREPARATIONRefer to footnote 1 of the financial statements of Ineos Group Holdings3.
    PRINCIPAL ACCOUNTING POLICIESRefer to footnote 2 of the financial statements of Ineos Group Holdings.4.
    RECENT ACCOUNTING DEVELOPMENTSRefer to footnote 3 of the financial statements of Ineos Group Holdings.5.
    SEGMENT INFORMATION Refer to footnote 4 of the financial statements of Ineos Group Holdings in addition to the
table below. The net assets attributable to each different class of business measured under UK GAAP are as
follows: As at December 31,2003
    
    
    2004Ineos Oxide
    
    
    151.9
    
    
    
    166.9Ineos Phenol
    
    
    89.6
    
    
    
    160.5Ineos Fluor
    
    
    (21.7
    )
    
    
    (36.8
    )Ineos Silicas
    
    
    (3.7
    )
    
    
    (15.0
    )Ineos Holdings
    
    
    (91.0
    )
    
    
    (51.2
    )125.1
    
    
    
    224.4
  6.
    ADMINISTRATIVE EXPENSESRefer to footnote 5 of the financial statements of Ineos Group Holdings.7.
    EXCEPTIONAL ADMINISTRATIVE EXPENSESRefer to footnote 6 of the financial statements of Ineos Group Holdings.8.
    OPERATING PROFITRefer to footnote 7 of the financial statements of Ineos Group Holdings.9.
    PROFIT ON DISPOSAL OF FIXED ASSETSRefer to footnote 8 of the financial statements of Ineos Group Holdings. F-67




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  10.
    NET FINANCE CHARGES Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Interest payable on bank loan and overdrafts
    
    
    44.2
    
    
    
    33.5
    
    
    
    23.1Interest payable to group undertakings
    
    
    33.9
    
    
    
    35.1
    
    
    
    36.0Amortisation of issue costs
    
    
    6.8
    
    
    
    4.5
    
    
    
    4.8Interest payable on finance leases
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.285.3
    
    
    
    73.3
    
    
    
    64.1Exchange movements
    
    
    (2.5
    )
    
    
    1.9
    
    
    
    (6.3
    )Interest receivable
    
    
    (3.2
    )
    
    
    (2.9
    )
    
    
    (2.4
    )79.6
    
    
    
    72.3
    
    
    
    55.4
  11.
    EMPLOYEE COSTSRefer to footnote 10 of the financial statements of Ineos Group Holdings.12.
    TAXATION Analysis of charge/(credit) in period: 2002
    
    
    2003
    
    
    2004( in millions)United KingdomCorporation tax at 30%
    
    
    7.2
    
    
    
    11.9
    
    
    
    14.5Adjustments in respect of previous periods
    
    
    
    
    
    
    
    
    
    
    Double taxation relief
    
    
    (7.2
    )
    
    
    (11.9
    )
    
    
    (14.5
    )Group relief payable
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    Foreign taxCorporation taxes
    
    
    16.1
    
    
    
    19.8
    
    
    
    32.6Adjustments in respect of previous periods
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    (0.2
    )Total current tax
    
    
    13.4
    
    
    
    19.9
    
    
    
    32.4Deferred taxOrigination and reversal of timing differences
    
    
    18.8
    
    
    
    11.1
    
    
    
    20.8Adjustments in respect of previous periods
    
    
    5.1
    
    
    
    (25.6
    )
    
    
    (1.1
    )Total deferred tax
    
    
    23.9
    
    
    
    (14.5
    )
    
    
    19.7Tax on profit/(loss) on ordinary activities
    
    
    37.3
    
    
    
    5.4
    
    
    
    52.1
 The tax for the period is lower (2003: lower; 2002: lower) than the standard rate of
corporation tax in the UK (30%). The differences are explained below: 2002
    
    
    2003
    
    
    2004( in millions)Profit/(loss) on ordinary activities before tax
    
    
    72.5
    
    
    
    150.5
    
    
    
    213.7Profit on ordinary activities multiplied by
standard rate of corporation tax in the UK of
30%
    
    
    21.8
    
    
    
    45.2
    
    
    
    64.1Effects of:Expenses not deductible for tax purposes
    
    
    1.9
    
    
    
    2.7
    
    
    
    2.8Non taxable credits
    
    
    (24.6
    )
    
    
    (22.7
    )
    
    
    (15.6
    )Capital allowances in excess of depreciation
    
    
    (8.0
    )
    
    
    3.2
    
    
    
    (0.9
    )Other short term timing differences
    
    
    (10.7
    )
    
    
    (14.4
    )
    
    
    (19.9
    )Adjustment in respect of foreign tax rates
    
    
    7.4
    
    
    
    3.8
    
    
    
    5.6Deferred tax not provided
    
    
    28.5
    
    
    
    2.0
    
    
    
    (3.5
    )Adjustments in respect of previous periods
    
    
    (2.9
    )
    
    
    0.1
    
    
    
    (0.2
    )Tax charge for the year
    
    
    13.4
    
    
    
    19.9
    
    
    
    32.4
 F-68




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  13.
    DIVIDENDS Year ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Equity dividends paid
    
    
    
    
    
    
    10.7
    
    
    
    39.8
  14.
    INVESTMENTSRefer to footnote 13 of the financial statements of Ineos Group Holdings.15.
    TANGIBLE FIXED ASSETSRefer to footnote 14 of the financial statements of Ineos Group Holdings.16.
    INTANGIBLE FIXED ASSETSRefer to footnote 15 of the financial statements of Ineos Group Holdings.17.
    STOCKSRefer to footnote 16 of the financial statements of Ineos Group Holdings.18.
    DEBTORSRefer to footnote 17 of the financial statements of Ineos Group Holdings.19.
    CREDITORSAMOUNTS FALLING DUE WITHIN ONE YEAR 2003
    
    
    2004(in millions)Senior Credit Agreement
    
    
    110.1
    
    
    
    92.7Obligations under finance leases
    
    
    0.5
    
    
    
    0.6Trade creditors
    
    
    238.8
    
    
    
    345.1Amounts owed to group undertakings
    
    
    12.3
    
    
    
    12.0Amounts owed to related parties
    
    
    12.8
    
    
    
    8.3Other creditors
    
    
    18.4
    
    
    
    29.1Corporation tax
    
    
    15.2
    
    
    
    34.3Other accruals
    
    
    96.4
    
    
    
    122.7504.5
    
    
    
    644.8
  20.
    CREDITORSAMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2003
    
    
    2004(in millions)Amounts owed to group undertakings
    
    
    325.0
    
    
    
    334.5Senior credit agreement
    
    
    393.2
    
    
    
    328.1Obligations under finance leases
    
    
    1.7
    
    
    
    3.2Other loans
    
    
    0.3
    
    
    
    1.1720.2
    
    
    
    666.9
  21.
    FINANCE LEASESRefer to footnote 20 of the financial statements of Ineos Group Holdings. F-69




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  22.
    LOANS Refer to footnote 21 of the financial statements of Ineos Group Holdings and the additional
information below. Future maturities of long-term obligations as of December 31, 2004 are as follows: Senior CreditAgreement( in millions)Total DebtGross borrowings
    
    
    429.1Less debt issue costs
    
    
    (8.3
    )Net bank and other borrowings
    
    
    420.8Gross borrowings are repayable as follows:In one year or less
    
    
    95.5Between one or two years
    
    
    67.4Between two and five years
    
    
    266.2In five years or more
    
    
    429.1
  23.
    PROVISIONS FOR LIABILITIES AND CHARGESRefer to footnote 22 of the financial statements of Ineos Group Holdings.24.
    DEFERRED TAXATIONRefer to footnote 23 of the financial statements of Ineos Group Holdings.25.
    SHARE CAPITAL 2003
    
    
    2004( in
    
    
    
    
    
    
    ( inNumber
    
    
    millions)
    
    
    Number
    
    
    millions)Authorised,
allotted, issued
and fully paid
ordinary shares of
£1 each
    
    
    11,500,231
    
    
    
    17.7
    
    
    
    11,500,231
    
    
    
    17.7
 Ineos Holdings share capital consists of one class of ordinary shares with a nominal
value of £1 per share. As the functional currency of the holding Company is the euro, the amount of the share capital
has been converted to euro with 17.7 million shown on the balance sheet.  26.
    PROFIT AND LOSS ACCOUNT Year Ended December 31,2003
    
    
    2004( in millions)Balance brought forward
    
    
    10.0
    
    
    
    107.4Profit for the year
    
    
    134.4
    
    
    
    121.8Exchange adjustments
    
    
    (37.0
    )
    
    
    (22.5
    )Balance carried forward
    
    
    107.4

    
    
    
    206.7
 F-70




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  27.
    RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS Year Ended December 31,2003
    
    
    2004( in millions)Profit on ordinary activities after taxation
    
    
    145.1
    
    
    
    161.6Dividends
    
    
    (10.7
    )
    
    
    (39.8
    )Other recognised gains/(losses) in the year
    
    
    (37.0
    )
    
    
    (22.5
    )Net increase in equity shareholders funds
    
    
    97.4
    
    
    
    99.3Opening shareholders funds
    
    
    27.7
    
    
    
    125.1Closing shareholders funds
    
    
    125.1
    
    
    
    224.4
  28.
    ACQUISITIONSRefer to footnote 27 of the financial statements of Ineos Group Holdings.29.
    OPERATING LEASE COMMITMENTSRefer to footnote 28 of the financial statements of Ineos Group Holdings.30.
    CAPITAL COMMITMENTSRefer to footnote 29 of the financial statements of Ineos Group Holdings.31.
    PENSION SCHEMESRefer to footnote 30 of the financial statements of Ineos Group Holdings32.
    RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Year ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Increase/(decrease) in cash in the period
    
    
    (4.9
    )
    
    
    49.9
    
    
    
    (71.1
    )Cash outflow/(inflow) from increase in debt financing
    
    
    91.1
    
    
    
    81.1
    
    
    
    75.5Change in net debt resulting from cash flows
    
    
    86.2
    
    
    
    131.0
    
    
    
    4.4Acquisitions
    
    
    
    
    
    
    
    
    
    
    Other net non-cash transactions
    
    
    12.9
    
    
    
    10.6
    
    
    
    (7.6
    )Net debt at start of period
    
    
    (918.2
    )
    
    
    (819.1
    )
    
    
    (677.5
    )Net debt at end of period
    
    
    (819.1
    )
    
    
    (677.5
    )
    
    
    (680.7
    )
  33.
    ANALYSIS OF NET DEBT OtherAt January 1,
    
    
    
    
    
    
    Non-Cash
    
    
    At December,2004
    
    
    Cash Flow
    
    
    Charges
    
    
    31, 2004( in millions)Cash at bank and in hand
    
    
    153.3
    
    
    
    (71.1
    )
    
    
    (2.7
    )
    
    
    79.5Cash overdrafts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153.3
    
    
    
    (71.1
    )
    
    
    (2.7
    )
    
    
    79.5Debt due within one year
    
    
    (110.1
    )
    
    
    75.9
    
    
    
    (58.5
    )
    
    
    (92.7
    )Debt due after more than one year
    
    
    (718.5
    )
    
    
    (0.9
    )
    
    
    55.7
    
    
    
    (663.7
    )Finance leases
    
    
    (2.2
    )
    
    
    0.5
    
    
    
    (2.1
    )
    
    
    (3.8
    )(830.8
    )
    
    
    75.5
    
    
    
    (4.9
    )
    
    
    (760.2
    )Net debt
    
    
    (677.5
    )
    
    
    4.4
    
    
    
    (7.6
    )
    
    
    (680.7
    )
 F-71




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  34.
    RELATED PARTY TRANSACTIONS Refer to footnote 33 of the financial statements of Ineos Group Holdings and the additional
information below. The Group was charged interest of 36.0 million (2003: 35.1 million) to Ineos Group Holdings
Plc during the year. The Group owed 350.3 million (2003: 341.9 million) to Ineos Group Holdings
Plc at the year end.  35.
    DERIVATIVES AND OTHER FINANCIAL INSTRUMENTSRefer to footnote 34 of the financial statements of Ineos Group Holdings.36.
    LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE INEOS HOLDINGS CONSOLIDATED FINANCIAL
STATEMENTS AT DECEMBER 31, 2004. Country ofIncorporation andCompany
    
    Operation
    
    
    Percentage HoldingIneos US Finance LLC*
    
    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 Overseas Company I Limited
    
    UK
    
    
    100%Ineos Overseas Company II Limited
    
    UK
    
    
    100%Ineos Partners
    
    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 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%IFJ Korea Limited
    
    Korea
    
    
    100%Ineos Mexico S de RL de CV
    
    Mexico
    
    
    100%Ineos Fluor Mexico S de RL de CV
    
    Mexico
    
    
    100%Ineos Fluor Canada Inc.
    
    Canada
    
    
    100%Ineos Fluor Partners Limited
    
    UK
    
    
    100%Ineos Fluor Delaware Limited
    
    UK
    
    
    100%Ineos Fluor Americas LLC
    
    US
    
    
    100%Ineos Silicas Holding Limited
    
    UK
    
    
    100%Ineos Silicas Limited
    
    UK
    
    
    100%Ineos Silicas International Limited
    
    UK
    
    
    100%Ineos Silicas Netherlands BV
    
    Holland
    
    
    100%Ineos Silicas Sales and Distribution BV
    
    Holland
    
    
    100%Ineos Silicas Asia Pacific Pte Limited
    
    Singapore
    
    
    100%Ineos Silicas South Africa Pty Limited
    
    South Africa
    
    
    100%PT Ineos Silicas Indonesia
    
    Indonesia
    
    
    100%
 F-72




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  36.
    LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE INEOS HOLDINGS CONSOLIDATED
FINANCIAL STATEMENTS AT DECEMBER 31, 2003. (Continued) Country ofIncorporation andCompany
    
    Operation
    
    
    Percentage HoldingIneos Brazil Limitada
    
    Brazil
    
    
    100%Ineos Silicas Partners Limited
    
    UK
    
    
    100%Ineos Silicas Delaware Limited
    
    UK
    
    
    100%Ineos Silicas Healthcare Limited
    
    UK
    
    
    100%Ineos US DSS Limited
    
    UK
    
    
    100%Ineos US Holding Company II LLC
    
    US
    
    
    100%Ineos US Intermediate Holding Company LLC
    
    US
    
    
    100%Ineos Americas LLC
    
    US
    
    
    100%Ineos US Investment Holding Company LLC
    
    US
    
    
    100%
   *
    
    Held directly by the Company  37.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP Refer to footnote 36 of the financial statements of Ineos Group Holdings in addition to the
information below: Effects on net income of differences between UK GAAP and US GAAP: Year Ended December 31,2002
    
    
    2003
    
    
    2004( in millions)Profit/(loss) for the financial yearProfit/(loss) for the financial year under UK GAAP
    
    
    35.2
    
    
    
    145.1
    
    
    
    161.6Goodwill adjustments on acquisitions
    
    
    (39.4
    )
    
    
    (36.4
    )
    
    
    (40.4
    )Inventories
    
    
    (0.6
    )
    
    
    3⁄4
    
    
    
    3⁄4Depreciation of tangible fixed assets
    
    
    41.7
    
    
    
    44.7
    
    
    
    47.0Amortisation of intangibles
    
    
    (8.6
    )
    
    
    (8.5
    )
    
    
    (8.5
    )In process research and development
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Pensions
    
    
    (2.0
    )
    
    
    (11.6
    )
    
    
    (8.5
    )Derivative financial instrument
    
    
    (2.3
    )
    
    
    2.6
    
    
    
    1.8Capitalisation of interest less amortisation
    
    
    2.3
    
    
    
    2.0
    
    
    
    2.7Restructuring provisions
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Deferred taxation arising on UK GAAP results
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4 arising on US GAAP adjustments
    
    
    (3.3
    )
    
    
    (6.8
    )
    
    
    33.8Profit/(loss) for the financial year under US GAAP
    
    
    23.0
    
    
    
    131.1
    
    
    
    189.5
 F-73




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##### Table of Contents



INEOS HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS  37.
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued) Effects on shareholders equity between UK GAAP and US GAAP: As at December 31,2003
    
    
    2004( in millions)Shareholders equityShareholders equity under UK GAAP
    
    
    125.1
    
    
    
    224.4Goodwill adjustments on acquisitions
    
    
    268.0
    
    
    
    227.6Tangible fixed assets
    
    
    (425.1
    )
    
    
    (375.4
    )Intangible fixed assets
    
    
    31.7
    
    
    
    23.2Pensions
    
    
    14.6
    
    
    
    6.1Derivative financial instruments
    
    
    (1.8
    )
    
    
    3⁄4Deferred taxation
    
    
    61.4
    
    
    
    95.2Foreign currency translation differences
    
    
    15.9
    
    
    
    19.6Shareholders equity under US GAAP
    
    
    89.8
    
    
    
    220.7
  38.
    ULTIMATE PARENT COMPANY AND CONTROLLING PARTY The ultimate parent company is Ineos Group Limited. The ultimate controlling party is Mr.
James Ratcliffe by virtue of his majority shareholding in Ineos Group Limited.  39.
    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, 2004 have not yet been delivered to the Registrar of
Companies for England and Wales. F-74