John Reece talks about financing and the performance of INEOS

It did turn into a game of two halves, which is what we thought we were seeing at the time. We had a record first half of the year, two record quarters. Q3, which I think I probably had the numbers in November, was slowing down, and Q4 was quite a weak quarter across the group. Two main reasons for that were the issues with the Eurozone in Europe created a lot of uncertainty, of course — Greece, Spain, Italy, and the rest of it — and also China. The Chinese government putting the brakes on a bit definitely suppressed demand for some of our products in the Far East, and then we had the flow-through back into Europe. Overall it was still a good year in recent context. INEOS Group EBITDA was over 1.7 billion euros, that's almost the same level as 2010, and certainly a good year, but as I say, a year of two halves. We weren't helped in the fourth quarter with a couple of issues on the Cologne site where we had assets coming back from turnaround and the turnarounds took longer because of problems with a contractor. But even without that, it was a slower quarter. I think the quarter as a whole was very similar to Q4 2010.

Just that issue in Cologne, really. Without going into a lot of detail, we plan these site turnarounds quite a long time in advance, and we plan how long the assets are going to be down for, and then that one took longer to come back, but as I said, mainly because of issues with a contractor.

Yeah, definitely. We saw quite a rapid pickup in January, actually. We track the four-weekly moving average order book, and for the first four weeks of January we were seeing record volume intake, which is very encouraging. And it's carried on. It's particularly led from the US, where they're benefiting from lower feedstock prices and a very strongly recovering economy. But we've also seen it in some of the chemical intermediates businesses. Businesses like phenol and N-trials have picked up since the year end, so that's very encouraging.

Most of the debt in INEOS Group was put in place in 2005-06 when we bought Ineos from BP, and that was a series of loans with six- to eight-year maturity. So we're coming up to that time and we're looking at refinancing that debt package. At the same time, trying to keep an eye on the credit markets because they're very seasonal, and because of what I said about the US economy, the credit markets in the US in particular have got off to a great start in 2012. So we went out at the end of January and refinanced the earliest maturing tranche of debt, which would have matured in 2013, and we raised about a billion dollars of fixed-rate bonds and 500 million euros of floating-rate notes. It was very well received.

It was better than we expected. You have to pick your timing, and we chose that window at the end of January. Off the back of a good set of US economic numbers, the credit markets were in good shape, and consequently we had very strong demand. I think we had about five billion of demand, and we decided to upsize the amount we were raising because the pricing was attractive. So it was very well received.

That is the plan. We're obviously focused on the cost of the debt as well, and we're trying to make sure we do it in a way that reduces our interest cost over time. But the credit markets — you really have to take advantage of them while they're there. So far they've continued to be very good, mainly led from the US. So we are looking at a second stage that we may well launch in the not-too-distant future.

We're a private company. The choice of how you finance a company is either in the equity markets or in the debt markets. To finance in the equity markets would mean we'd have to do an IPO, which would mean that we would lose control of the company. We would then be faced with the typical kind of IPO cycle of, you know, next quarter needs to be better than the previous quarter, because that's what equity analysts are looking for, and that's very difficult for a cyclical, commodity chemical business where we are very much focused on long-term rather than quarter-to-quarter. We've always taken the view that if the debt markets are open and the prices are attractive, then it's a better way to run the business and it's a more efficient way to run the business. We've had that model for 12 years and it seems to have worked reasonably well.

For a business that is cyclical and that can't guarantee what the next quarter is going to be like, then it fits very well. I think other businesses where the objectives are different — perhaps private equity looking for an IPO exit — then clearly the equity markets are attractive. But we don't have any plans to exit INEOS, so the model works quite well.

That's not on the agenda at all, really. From the kind of involuntary side of the fence, if the credit markets closed up completely and you couldn't raise and refinance the borrowings, then that would be something to think about. But that's unlikely to happen. The debt markets are actually stronger than the equity markets for the time being, so I think we'll just carry on as we are.

I've just had a week off, actually, but I can't say I was entirely banker-free. Yeah, well, you know, at INEOS it's kind of work hard, play hard, so we try and make the most of the windows that we have, usually in between refinancing projects. So we can make it work.