INEOS, High Leverage in a Cyclical Sector

Background:

• • INEOS Group Holdings S.A. (INEOS), global commodity chemicals producer headquartered in Luxembourg, LTM EBITDA €2,048.4mm before exceptionals and Total Net Leverage c.5.55x; Moody’s Ba3 (negative), Fitch BB (negative), S&P rates subsidiary Ineos Quattro at BB (negative)
• • INEOS manufactures olefins, polyolefins and chemical intermediates across Europe and North America with 39 manufacturing sites; products are sold into packaging, construction, automotive, durables and pharma end-markets

o FY2024 EBITDA before exceptionals €2,048.4mm, down from €2,840.6mm in 2022; EBITDA margin 12.7% on revenue €16,179.7mm; FY2024 EBITDA including exceptionals €2,138.6mm due to a net €90.2mm exceptional gain

o Key leadership: Chairman of INEOS Capital Sir Jim Ratcliffe; Directors of INEOS Group Holdings S.A. include Peter Huyck and Florence Bardot; senior leaders across the wider group include Andrew Currie (Director), John Reece (Finance Director, INEOS Capital), Jonathan Ginns (Head of M&A) and Simon Morland (Director). Recent changes include 2023 appointments to the board of INEOS Limited; no FY2024 disclosure of a new Group CFO at IGH level

• • Segmental breakdown: FY2024 segment revenue and EBITDA before exceptionals
• • Olefins & Polymers North America: revenue €4,232.2mm; EBITDA €796.0mm (38.9% of group EBITDA)
• • Olefins & Polymers Europe: revenue €7,851.4mm; EBITDA €470.2mm (22.9% of group EBITDA)
• • Chemical Intermediates: revenue €7,190.2mm; EBITDA €782.2mm (38.2% of group EBITDA)
• • Intersegment eliminations on revenue €3,094.1mm; segment EBITDA is the cleanest proxy for operating earnings before exceptionals
• • Geographic breakdown: Economic exposure skewed to Europe (O&P Europe and large parts of Chemical Intermediates); North America provides a material earnings hedge via advantaged feedstock and stronger margins. Exact country-level EBITDA not disclosed; by EBITDA contribution NA and Chemical Intermediates together deliver c.77% of group EBITDA
• • Revenue model and contractual structure:
• • Predominantly commodity pricing with short-duration, volume-based contracts; pricing resets often include feedstock formulae but with lag, exposing margins to rapid oil/gas swings
• • Revenue is weakly protected from inflation; partial pass-through exists but is imperfect and lagged, particularly in Europe where energy surges compress spreads
• • No disclosed churn or recurring revenue KPIs; business is inherently cyclical and volume/price driven
• • Cost structure:
• • FY2024 COGS €14,368.1mm (88.8% of revenue) reflecting raw materials and energy; gross margin 11.2%
• • Distribution and administrative expenses before exceptionals €789.7mm (4.9% of revenue)
• • Cost base is predominantly variable (naphtha/ethane/butane feedstock, energy, logistics); fixed costs include labor, maintenance and site overheads; personnel cost split not disclosed
• • Shareholders and valuation:
• • INEOS Group Holdings S.A. is privately held under INEOS Holdings Luxembourg S.A. and ultimately INEOS AG, controlled by Sir Jim Ratcliffe and partners via INEOS Limited
• • A saved DCF model as of 30 Aug 2025 indicates Enterprise Value $14,210mm and Equity Value $1,776mm (Net Debt $12,434mm), implying debt comprises c.87% of EV; peer public comps in commodity chemicals typically trade mid- to high-single-digit EV/EBITDA through the cycle, but cycle-adjusted multiples for European-exposed assets screen tighter
• • Strategy:
• • Operate large-scale, integrated assets at high utilization; maximize feedstock flexibility (ethane, butane, naphtha) and advantaged sourcing in NA; deliver cash via cost reduction and capex discipline
• • Portfolio actions: integrate Lavéra assets; progress Project ONE (ethane steam cracker, Antwerp) with up to €3.5bn project facilities; shift product mix to higher value polymers; deleverage over the cycle
• • Sustainability: committed to reduce Scope 1 and 2 GHG emissions by 33% by 2030 vs 2019 baseline and target net zero by 2050; plan to achieve recycled/bio content in polymers of 850kt by 2030, subject to feedstock availability and technology scaling
• • Competitive landscape:
• • Global peers include LyondellBasell, Dow, ExxonMobil Chemical, SABIC, BASF and Borealis. INEOS claims leading positions in Europe for ethylene and propylene integration and top-3 polyolefins capacities; however, market share is pressured in downcycles by imported material and Middle East/US Gulf Coast expansions. European cost competitiveness deteriorated with post-2022 energy dynamics
• • Corporate actions:
• • FY2024 exceptional gain arising on acquisition €119.7mm and profit on disposal of investments €52.5mm; share of loss of associates and JVs €145.7mm led by SECCO; dividends paid were €0mm in 2024 vs €250mm in 2023, signaling cash preservation
• • Current trading:
• • Q2 2025 versus Q2 2024: revenue declined to €3,784.4mm from €4,353.8mm; operating profit fell to €56.6mm from €435.6mm; loss before tax €42.9mm versus profit €291.8mm; weaker spreads and larger JV losses drove the deterioration

Risks and mitigants:

• • Customer concentration: Not disclosed; given the commodity nature, customer base is typically diversified, but automotive and construction end-markets concentration creates demand cyclicality
• • EBITDA adjustments:
• • Company-reported FY2024 EBITDA including exceptionals €2,138.6mm includes a net €90.2mm exceptional gain; “EBITDA before exceptionals” €2,048.4mm is the better proxy
• • Clean EBITDA definition used for leverage: start with segment EBITDA €2,048.4mm; exclude exceptional gains and avoid adding back recurring “one-off” costs; do not add JV losses back to EBITDA; do not pro forma acquisitions beyond run-rate if not closed at the start of period
• • Clean EBITDA €2,048.4mm vs adjusted €2,138.6mm implies adjustments of 4.4% of adjusted EBITDA; we view the exceptional gain as non-cash and non-recurring, hence excluded
• • Cyclicality:
• • Highly cyclical with margins driven by supply/demand, energy and feedstock spreads; 2023–2024 demonstrated weak spreads in Europe and tougher Asia imports; North America provides partial counterbalance via ethane cracking economics
• • Litigation and provisions:
• • Project ONE faced permitting challenges; a new permit was granted in January 2025 but appeals remain ongoing; adverse outcomes could disrupt timelines and increase capex
• • Environmental compliance costs are material and rising under EU ETS and prospective CBAM; provisions on balance sheet are modest (FY2024 provisions €34.3mm combined current and non-current)
• • FCF and leverage risk:
• • FY2024 CFO €2,048.8mm; capex €1,754.6mm; pre-M&A FCF c.€294.2mm; after €936.7mm net acquisitions, FCF negative c.€642.5mm; continued heavy capex for Project ONE and acquisitions strains deleveraging
• • Net debt including IFRS-16 leases remains high; deleveraging is contingent on cycle recovery and project execution
• • Regulatory/legislative risk:
• • EU ETS tightening, CBAM rollout and plastic packaging recycled-content mandates add cost and capex needs; pass-through is uncertain; failure to scale recycling technologies risks compliance and market access
• • Geopolitics and tariffs:
• • European energy exposures, potential tariffs, and trade frictions can compress margins and disrupt flows; exposure to China via the SECCO JV adds macro and policy risk
• • Accounting and governance:
• • No disclosed accounting irregularities; however, reliance on exceptional items and JV equity-accounted losses complicates earnings quality assessment
• • Financial distress history:
• • The group has historically navigated cycles but currently operates with elevated leverage; ratings outlooks are negative, reflecting pressure on deleveraging trajectory
• • Other risks:
• • Supply chain finance disclosure requirements adopted; supplier finance can mask working capital stress if not transparently reported; limited disclosure granularity to date

Capital structure:

• • Total gross debt including IFRS-16:
• • Interest-bearing loans and borrowings €12,821.2mm (non-current €12,066.3mm; current €754.9mm)
• • IFRS-16 lease liabilities €1,029.9mm (non-current €828.0mm; current €201.9mm)
• • Total gross debt including leases €13,851.1mm
• • Net debt and TNL:
• • Cash and cash equivalents €2,477.0mm; Net debt including leases €11,374.1mm
• • Total Net Leverage on Clean EBITDA 5.55x; on adjusted EBITDA including exceptionals 5.32x
• • Weighted Average Cost of Debt:
• • FY2024 finance costs before exceptionals €1,343.2mm on year-end gross debt including leases €13,851.1mm implies a WACD of c.9.7%; elevated and likely reflective of higher EUR rates, secured debt mix and FX
• • Near-term maturities and refinancing:
• • €754.9mm due within 12 months of March 19, 2025; a receivables securitization program matures December 2026; continued market access is necessary given negative outlooks and high spreads
• • Contingent liabilities and provisions:
• • Provisions modest; main contingent risks arise from permitting and potential cost overruns at Project ONE and from JV obligations (SECCO)
• • Supply chain financing:
• • Company has adopted disclosure standards for supplier finance; quantum not disclosed publicly in FY2024 statements provided
• • Total liquidity:
• • Cash €2,477.0mm; undrawn committed facilities not disclosed in provided materials; management asserts sufficient headroom to meet obligations for the next 12 months, but cushion is sensitive to spreads and capex timing

Conclusion:

• • Free Cash Flow outlook:
• • Pre-M&A FCF generation in FY2024 was positive (€294.2mm), but heavy capex and acquisitions drove negative post-M&A FCF. Near-term FCF will remain thin until spreads recover and Project ONE capex peaks; management’s deleveraging depends on cycle normalization and disciplined capex outside Project ONE
• • Valuation and capital mix:
• • A saved valuation model as of 30 Aug 2025 indicates EV $14.21bn and Equity Value $1.78bn, with Net Debt $12.43bn; debt comprises roughly 87% of EV, underscoring financial risk and limited equity cushion in a downcycle
• • Capital structure sustainability:
• • With TNL 5.55x on Clean EBITDA and WACD near 9.7%, the balance sheet is stretched but manageable if EBITDA recovers toward mid-cycle and capex moderates; negative ratings outlooks and rising financing costs argue for accelerated deleveraging and curtailed distributions (dividends were €0mm in 2024)
• • Indicative Moody’s and S&P rating mapping based on Clean EBITDA:
• • Debt/EBITDA at c.5.6x and EBITDA-to-interest coverage around 1.5x (EBITDA €2,048.4mm vs finance costs before exceptionals €1,343.2mm) align with a Ba–B category under the grids, skewing toward Ba3/B1 only if deleveraging is credible; weak EBIT/interest (<1x) further pressures the profile
• • Our through-the-cycle view supports a Ba3/BB– equivalent if spreads normalize and FCF turns sustainably positive pre-M&A; absent that, a B1/B+ stance would be more appropriate
• • Bottom line:
• • INEOS remains a scale, integrated commodity chemicals platform with improving North American mix, but FY2024 results show pronounced cyclicality, high finance costs, JV drag and capex intensity. Clean EBITDA of €2,048.4mm against net debt €11,374.1mm leaves little room for execution slippage. Deleveraging hinges on spread recovery, disciplined capex and timely, uncontested execution of Project ONE.