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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


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


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

(Exact Name of Registrant as Specified in Its Charter)

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 registered
None		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

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.

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.

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.


	Year Ended
	December 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			3,396.1
Cost 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			467.7
Distribution 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			268.6
Profit/(loss) on ordinary activities after taxation		28.5			(16.9	)		39.0			150.6			167.9
Profit/(loss) for the financial year		19.1			(19.0	)		39.0			129.8			123.8
Amounts in accordance with US GAAP:
Profit/(loss) for the financial year		29.2			(41.3	)		26.8			136.6			195.8


Other 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			214.0
Dividend 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	)


	Year Ended
	December 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			79.5
Net current assets		44.9			219.8			221.7			228.0			285.2
Total assets		228.9			1,443.0			1,382.5			1,400.2			1,586.8
Total debt		(104.1	)		(981.2	)		(866.1	)		(761.2	)		(681.9	)
Equity shareholders’ funds		55.8			87.9			86.4			179.2			280.5
Amounts 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 Ended
March 2005		1.35		1.29
February 2005		1.33		1.28
January 2005		1.35		1.30
December 2004		1.36		1.32
November 2004		1.33		1.27
October 2004		1.28		1.23


	Average⁽¹⁾
	$/€
As of Year Ended
December 31, 2004		1.25
December 31, 2003		1.14
December 31, 2002		0.95
December 31, 2001		0.89
December 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).

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 leverage¾Our 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)		€ 681.9
Shareholders’ Equity		€ 280.5

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

Additional borrowings available¾Despite 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.

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 debt¾To service our debt, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

The ability of our subsidiaries to transfer monies upstream to us, as well as to pay operating expenses and to fund planned capital expenditures, any future acquisitions and research and development efforts, will depend on our businesses’ ability to generate cash in the future. This, to an

extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our and our subsidiaries’ control.

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

Risks Relating to Business Operations

The chemicals industry is cyclical¾Changing 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 suppliers¾If 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

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 matters¾We will have ongoing costs and may have additional costs, obligations and liabilities.

The chemicals business is highly regulated in all of the jurisdictions in which we operate. Increasingly stringent laws and regulations govern our manufacturing processes, the storage, handling, treatment, transportation and disposal of wastes, water discharges and air emissions, health and safety and the sale and use of products manufactured by us. These laws and regulations require and will continue to require material ongoing costs. Given the nature of our business, violations of environmental laws and regulations may result in substantial fines or penalties, the imposition of other

civil or criminal sanctions, damages or other costs, or restrictions on or the suspension of our operating activities. In addition, potentially significant expenditures could be necessary in order to comply with future environmental laws and regulations, or the more stringent enforcement of existing ones.

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

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

For additional related disclosure, see Item 4.B of this annual report under the caption titled “Business Overview¾Environmental, Health and Safety Matters.”

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

(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 fluctuations¾We are exposed to economic downturns and local business risks in several different countries as well as to currency fluctuation risks that could adversely affect our profitability.

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

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

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

Inability to implement our business and cost reduction strategies¾We 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 regulation¾Our 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 Overview¾Environmental Health, and Safety Matters.”

Product liability¾We may be liable for damages based on product liability claims.

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

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Ineos Group 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.

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


	Ineos Oxide	Ineos Phenol	Ineos Fluor	Ineos Silicas
Major specialty products	Ethylene oxide (EO), EO derivatives (including ethanolamines (EOA)), ethylidene norbornene (ENB) acetate esters and third party services	¾	CFC-replacement HFC 134a, HCFC 22 and other specialty fluorochemicals	Silicates, zeolites and silicas
Major intermediate products	EG and antifreeze	Phenol and acetone	¾	¾
Key applications	Agrochemicals, surfactants, synthetic lubricants and PET resins, fibers and film	Bisphenol A (BPA), phenolic resins, solvents and MMA	Refrigerants, propellant gases and polymer feedstock	Laundry and dishwasher detergents, desiccants, matting agents, beer filtration aids, dental abrasives and polyolefin catalysts
Principal end-use markets	Consumer products, oil and gas and general industrial	CDs, glazing, optical lenses, plywood, adhesives, nylons, paints and coatings	Automotive air 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 of
Products	2004 Turnover	End-Uses
Specialty Products	70%
Ethylene Oxide		EO derivatives

EO derivatives EOA, alkoxylates, glycol ethers and GasSpec^TM gas treating amines		Agrochemicals, surfactants, cosmetics, pharmaceuticals, synthetic lubricants and oil and gas processing

ENB		Surface coatings, inks, pharmaceuticals and EPDM rubber

Third party services and other		Provision of utilities, operations and raw materials to third party chemical companies

Intermediate Products	30%
EG		Polyester (PET) resins, fibers and film
Antifreeze		Antifreeze

Products and Services

Ineos Oxide produces specialty and intermediate chemicals. While all of its chemicals are used in the manufacture of further downstream chemicals and applications, Ineos Oxide defines specialty chemicals as those chemicals, which are typically characterised by lower volumes and greater margin stability. In contrast, Ineos Oxide defines intermediate chemicals as those chemicals, which are typically characterised by higher volumes and a relatively higher degree of margin

volatility. Ineos Oxide’s specialty chemicals products include EO, EO derivatives, acetate esters and ENB, and it also provides management and operating services for third party chemical companies with plants on its sites, which it treats as part of its specialty business, while its intermediate chemicals products include EG and antifreeze. Ineos Oxide’s products are used in a wide variety of applications, including polyesters, antifreeze, agrochemicals, surfactants, cosmetics, pharmaceuticals, synthetic lubricants, oil and gas processing and specialty synthetic rubbers. Sales of Ineos Oxide’s specialty chemicals and third party services accounted for approximately 70% of its turnover in 2004 while sales of its intermediate chemicals accounted for approximately 30% of its turnover in 2004.

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 GasSpec^TM 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. GasSpec^TM 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.

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 GasSpec^TM 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.

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.

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 of
		2004
		Turnover
Products	Applications	(Volume)			End-Users
Phenol	Bisphenol A, for the production of polycarbonates and epoxy resins		63	%	DVDs, CDs, optical lenses, automotive, glazing, computer and printed circuit boards and adhesives

	Phenolic resins		22	%	Plywood, oriented strand board and foundry materials

	Caprolactam, for the production of nylons		13	%	Fibers and engineering plastics

	Other		2	%	Engineering plastics, foams and detergent

Acetone	MMA, PMMA and acrylate		33	%	Acrylic sheet, Plexiglas, mouldings and extrusion compounds

	Bisphenol A, for the production of polycarbonates and epoxy resins		33	%	DVDs, CDs, spectacle lenses, automotive, glazing, computer and printed circuit boards and adhesives

	Acetone-based solvents		18	%	Chemicals industry, paints, coatings and printing inks

	Other		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.

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.

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

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.

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:


	Percentage
	of 2004
Products	Turnover			End-Uses
Industrial Fluorocarbons		87	%
HFC 134a				Commercial, industrial and automotive air conditioning and propellants

HCFC 22				Low-temperature refrigeration and air conditioning, foam blowing, feedstock

HFC Blends				Low-temperature replacement for CFCs and HCFCs for refrigeration and air conditioning

Specialty Fluorochemicals		9	%	Pharmaceuticals and anaesthetics

Hydrogen Fluoride		3	%	Raw materials for both HFCs and HCFCs and in the manufacture of fuel rods for the nuclear industry

Environmental		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.

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.

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.

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:


	Percentage
	of 2004
Products	Turnover			End-Uses
Silicates		29	%	Paper adhesives, civil engineering, consumer laundry
				and dishwasher detergents, water treatment

Zeolites		33	%	Consumer laundry detergents

Silicas		38	%	Paints and coatings, brewing, edible oils, desiccants,
				personal care products, plastics, water treatments and
				polymerisation catalysts

Products

Silicates

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

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

Zeolites

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

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.

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.

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)
Turnover
Europe		1,534.1		1,680.6		2,220.9
Americas		450.0		569.1		866.8
Rest of World		251.7		280.7		308.4

		2,235.8		2,530.4		3,396.1

Turnover by business unit is as follows:


	Year Ended December 31,
	2002		2003		2004
	(€ in millions)
Turnover
Ineos Oxide		507.4		500.1		590.6
Ineos Phenol		1,189.0		1,542.3		2,316.5
Ineos Fluor		304.8		273.8		275.5
Ineos Silicas		234.6		214.2		213.5

		2,235.8		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.

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 Factors¾Risks Relating to Business Operations¾Environmental matters¾We 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.

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


	Country of	Percentage
Company	Incorporation	Holding
Ineos 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	%

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		Approximate
		kilotonnes		area (square
Property/Location⁽¹⁾	Principal Products Manufactured	per year)		meters)
Ineos Oxide
Antwerp, Belgium	EO, EG, EO derivatives, ENB		1,200		1,360,000
Plaquemine, LA, US	EOA and gas treating amines		175		40,000
Ineos Phenol
Gladbeck, Germany	Phenol, acetone		1,020		330,000
Antwerp, Belgium⁽²⁾	Phenol, acetone		760		270,000
Mobile, AL, US	Phenol, acetone		710		486,000
Ineos Fluor
Rocksavage, UK	HCFC 22, HF		57		300,000
St. Gabriel, LA, US	HFC 134a		30		330,000
Mihara, Japan⁽³⁾	HFC 134a		19		18,000
Ineos Silicas
Warrington, UK	Silicas, silicates, zeolites		382		223,000
Eijsden, Netherlands	Silicates, zeolites		330		85,000
Joliet, IL, US	Silicas, silicates, zeolites		230		162,000
Pasuran, Indonesia	Silicas		10		20,000
Jacana, Brazil	Silicates		175		12,100
Rio Claro, Brazil	Silicas		7		85,000
Jacobs, South Africa	Silicates		100		12,100
Wadeville, South Africa	Silicates		120		28,000

(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

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.

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

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.

• 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 Holdings¾Results 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.

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			100.0
Cost 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			13.8

Distribution 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	)		¾			¾			¾			¾
Other operating income		¾			¾			18.1			0.7			¾			¾

Operating profit		149.6			6.8			220.8			8.7			268.6			7.9
Share of operating profit of associate		0.6			¾			0.6			¾			0.5			¾
Profit on disposal of fixed assets		1.9			¾			1.3			¾			¾			¾
Profit on disposal of business		¾			¾			0.1			¾			¾			¾
Net 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			6.5
Taxation 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.

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.

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.

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.

Supplemental Disclosure

Ineos Oxide¾Results 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			100.0
Cost 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			25.2

Distribution 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	)		¾			¾			¾			¾			¾

Operating 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

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.

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 Phenol¾Results 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			100.0
Cost 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			8.4

Distribution 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			¾
Exceptional administrative expenses		(6.1	)		(0.5	)		¾			¾			¾			¾
Other operating income		—			—			18.1			1.2			¾			¾

Operating 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

$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.

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.

Ineos Fluor¾Results 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			100.0
Cost 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			18.0

Distribution 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	)		¾			¾			¾			¾

Operating 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.

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 Silicas¾Results 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			100.0
Cost of sales		(144.0	)		(61.4	)		(133.4	)		(62.3	)		(139.1	)		65.2

Gross profit		90.6			38.6			80.8			37.7			74.4			34.8

Distribution 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

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.

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

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.

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		15.9
Ineos Phenol		17.8		25.7
Ineos Fluor		7.3		21.5
Ineos Silicas		17.7		13.7

		56.6		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		83.8
Ineos Phenol		92.6		65.1
Ineos Fluor		52.0		41.1
Ineos Silicas		33.6		24.0

		268.2		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

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.

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.

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)
											After
	2005		2006		2007		2008		2009		2009		Total
Contractual commitments

Senior credit facilities		95.5		67.4		97.2		122.8		46.2		—		429.1

Other loan		—		—		—		—		—		1.1		1.1

Finance lease obligations		0.8		1.4		0.4		0.4		0.3		1.2		4.5

Senior Notes		—		—		—		—		—		260.0		260.0

Operating lease commitments		15.7		8.0		6.5		5.2		3.7		29.0		68.1

Capital expenditure		29.9		—		—		—		—		—		29.9
Non-cancellable purchase contracts		1,659.6		993.4		940.3		438.1		313.2		324.0		4,668.6

		1,801.5		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.

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		Position
James A. Ratcliffe		52	Chairman
Andrew Currie		49	Director
Antoine Verrijckt		57	Director
John Reece		47	Director
William Madden		70	Director
William Reid		41	CEO-Ineos Oxide
Peter Bickert		49	CEO-Ineos Phenol
David Price		52	CEO-Ineos Fluor
Brian Foster		47	CEO-Ineos Silicas

James A. Ratcliffe has 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 Currie has 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 Verrijckt has 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 Reece joined 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 Madden became 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 Reid has 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.

Peter Bickert has 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 Price has 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 Foster has 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.

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		2004
Ineos Group Holdings employees		2,494		2,442		2,430
Of which
Administrative/ Sales and marketing		463		427		637
Research and development		120		118		111
Operations 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		2004
Ineos Group Holdings
Europe		1,825		1,783		1,761
United States		385		385		385
Asia/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.

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 of
	Oxide			Phenol			Fluor			Silicas			Total Ineos
	Tracking			Tracking			Tracking			Tracking			Group Limited
	Shares			Shares			Shares			Shares			Share Capital
James A. Ratcliffe		10,125,000	⁽¹⁾		7,972,500	⁽²⁾		7,972,500	⁽²⁾		7,972,500	⁽²⁾		56.7	%⁽³⁾
Antoine Verrijckt		300,000			914,980			914,980			914,980			5.1	%
Andrew Currie		200,000			869,990			869,990			869,990			4.7	%
John Reece		—			780,000			780,000			780,000			3.9	%
William Madden		74,500			277,220			277,220			277,220			1.5	%
Other Shareholders		4,360,500	⁽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.

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.

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.

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.

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

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:

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

Events of Default

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

(1) non-payment of principal or interest,

(2) failure to observe certain undertakings set forth in the Senior Credit Facilities,

(3) making an incorrect representation, warranty or statement, and

(4) certain bankruptcy related events.

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:

• 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:

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.

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		0.7
Taxation fees (a)		0.5		0.5

Total fees paid to principal accountants		1.2		1.2

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.

ITEM 19. EXHIBITS


Exhibit No.		Description of Exhibit
1.1		Memorandum and Articles of Association of Ineos Group Holdings plc¹

2.1		Indenture, dated July 19, 2001, among Ineos Group Holdings plc, as issuer, Ineos Holdings Limited, as guarantor, and The Bank of New York, as trustee²

4.1		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 Agent³

4.2		Intercreditor Deed, dated May 23, 2001, among Ineos Group Holdings, Ineos Holdings Limited, Barclays Bank plc, Merrill Lynch Capital Corporation and UBS AG⁴

4.3		Purchase and Sale Agreement, dated March 30, 2001, among Degussa AG, Creanova, Inc., Ineos Group Holdings and Ineos Phenol Limited⁵

4.4		Service Contract with Jim Ratcliffe⁶

4.5		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.⁷

8.1		List of subsidiaries of Ineos Group Holdings plc⁸

12.1		Certification of the Chairman pursuant to Rule 13a – 14(a) or Rule 15d – 14(a)⁹

12.2		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.

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

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			3,396.1
Cost of sales				(1,833.9	)		(2,130.3	)		(2,928.4	)

Gross profit				401.9			400.1			467.7
Distribution 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			268.6
Share of operating profit of associate				0.6			0.6			0.5
Profit 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			222.4
Taxation on profit on ordinary activities		11		(40.4	)		(7.7	)		(54.5	)

Profit on ordinary activities after taxation				39.0			150.6			167.9
Equity 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

INEOS GROUP HOLDINGS

CONSOLIDATED BALANCE SHEETS


		As at
		December 31,
	Notes	2003			2004
		(€ in millions)
Fixed assets
Investments	13		1.7			2.0
Tangible fixed assets	14		855.8			791.1
Intangible fixed assets	15		12.1			10.9
Negative goodwill	15		(217.4	)		(169.4	)

			652.2			634.6

Current assets
Cash at bank and in hand			153.3			79.5
Stocks	16		151.0			238.9
Debtors: amounts due within one year	17		370.0			549.6
Debtors: amounts due after one year	17		73.7			84.2

			748.0			952.2
Creditors—amounts falling due within one year	18		(520.0	)		(667.0	)

Net current assets			228.0			285.2


Total assets less current liabilities			880.2			919.8
Creditors—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			280.5


Capital and reserves
Called up equity share capital	24		17.7			17.7
Share premium account	25		51.1			51.1
Profit and loss account	25		110.4			211.7

Equity shareholders’ funds	26		179.2			280.5

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

F-3

INEOS GROUP HOLDINGS

CONSOLIDATED CASH FLOW STATEMENTS


		Year Ended December 31,
	Notes	2002			2003			2004
		(€ in millions)
Operating profit			149.6			220.8			268.6
Depreciation of tangible assets			114.8			114.4			119.0
Amortisation 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	)		0.1

Net cash flow from operating activities			211.0			268.2			214.0

Dividend received from associate undertaking			0.4			—			—

Returns on investments and servicing of finance
Interest received			3.0			2.9			2.3
Interest 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 expenditure
Purchase 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 disposal
Acquisition 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			4.4

Financing
Capital repayment of finance leases			(3.5	)		(2.1	)		(0.5	)
Repurchase of ordinary share capital			—			—			—

New loans:
Senior credit facilities			—			—			28.0
Senior loan notes			—			—			—
Other bank loans			—			0.3			0.9

			—			0.3			28.9

Repayment 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

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

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 charge
Land		Nil
Freehold 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

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

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

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

F-10

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.

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

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)
Turnover
Ineos Oxide		507.4		500.1		590.6
Ineos Phenol		1,189.0		1,542.3		2,316.5
Ineos Fluor		304.8		273.8		275.5
Ineos Silicas		234.6		214.2		213.5

		2,235.8		2,530.4		3,396.1


EBITDA
Ineos Oxide		76.5		82.8		103.2
Ineos Phenol		80.7		128.8		157.8
Ineos Fluor		57.9		48.9		52.2
Ineos Silicas		41.1		38.5		34.9

		256.2		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			348.1
Exceptional administrative expenses		(24.6	)		—			—
Depreciation		(114.8	)		(114.4	)		(119.0	)
Amortisation		33.4			36.8			40.0

Operating profit (including share of operating profit of associate)		150.2			221.4			269.1


	Year Ended December 31,
	2003			2004
	(€ in millions)
Net assets
Ineos Oxide		151.9			166.9
Ineos Phenol		89.6			160.5
Ineos Fluor		(21.7	)		(36.8	)
Ineos Silicas		(3.7	)		(15.0	)
Ineos Holdings		(36.9	)		4.9

		179.2			280.5

F-12

INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS

4. SEGMENT INFORMATION (Continued)


	Year Ended December 31,
	2003		2004
	(€ in millions)
Capital expenditure
Ineos Oxide		13.8		15.9
Ineos Phenol		17.8		25.7
Ineos Fluor		7.3		21.5
Ineos Silicas		17.7		13.7

		56.6		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		2,220.9
Americas		450.0		569.1		866.8
Rest of World		251.7		280.7		308.4

		2,235.8		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		2,332.6
Americas		511.5		651.9		972.9
Rest of World		81.8		90.6		90.6

		2,235.8		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		442.8
Americas		163.2		139.8
Rest of World		55.2		50.0

		650.5		632.6

F-13

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			89.9
Amortisation 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			0.1
Amortisation of goodwill		0.8			0.6			0.7
Write back of negative goodwill		(34.8	)		(38.0	)		(41.1	)
Amortisation of other intangibles		0.6			0.6			0.4
Profit/(loss) on disposal of fixed assets		—			(0.4	)		0.1
Employee costs (see Note 10)		188.1			164.6			170.3
Research and development expenditure		9.7			9.8			9.8
Auditors’ remuneration:
— audit services		0.7			0.7			0.7
— non audit services		0.6			0.5			0.5
Operating lease rental charges:
— other		1.4			2.3			3.2
— plant, machinery and equipment		8.2			6.6			11.6
Amortisation of government grants		(0.2	)		(0.1	)		(0.1	)

F-14

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

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

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			27.3
Interest payable on bank loans and overdrafts		44.0			33.5			23.1
Amortisation of issue costs		6.8			4.5			4.8
Interest payable on finance leases		0.4			0.2			0.2

		78.4			65.5			55.4

Exchange 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		138.5
Social security and other benefits		20.4		20.3		20.4
Pension and early retirement costs		12.1		10.5		11.4

Total		188.1		164.6		170.3

The average number of employees was:
Operations		1,904		1,897		1,891
Administration		471		444		437
Research and development		120		118		111

Total		2,495		2,459		2,439

11. TAXATION

Analysis of charge/(credit) in period:


	Year Ended December 31,
	2002			2003			2004
	(€ in millions)
United Kingdom
Corporation tax at 30%		7.2			11.9			11.9
Adjustments in respect of previous periods		—			—			—
Double taxation relief		(7.2	)		(11.9	)		(11.9	)
Group relief payable		3.3			2.3			2.4

		3.3			2.3			2.4

Foreign tax
Corporation taxes		16.1			19.8			32.6
Adjustments in respect of previous periods		(2.9	)		0.1			(0.2	)

		13.2			19.9			32.4

Total current tax		16.5			22.2			34.8

Deferred tax
Origination and reversal of timing differences		18.8			11.1			20.8
Adjustments in respect of previous periods		5.1			(25.6	)		(1.1	)

Total deferred tax		23.9			(14.5	)		19.7

Tax on profit/(loss) on ordinary activities		40.4			7.7			54.5

F-16

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			222.4
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30%.		23.9			47.5			66.7
Effects of:
Expenses not deductible for tax purposes		1.9			2.7			2.8
Non 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			5.6
Deferred 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

INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS

13. INVESTMENTS


	Associated		Other
	Undertakings		Investments			Total
	(€ in millions)
At December 31, 2003		0.9		0.8			1.7
Exchange movements		0.1		(0.1	)		—
Share of profits retained		0.3		—			0.3

At 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 Activities
			Formulates and markets
Quaker Chemical South Africa			chemicals and
(Proprietary)			specialised
Limited—South Africa	20,000 Ordinary 1 Rand	49%	lubricants

F-18

INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS

14. TANGIBLE FIXED ASSETS


				Plant,
				Machinery,
	Freehold			Fixtures,			Assets in the
	Land and			Fittings and			course of
	Buildings			Motor Vehicles			construction			Total
	(€ in millions)
Cost
At December 31, 2002		206.1			1,477.1			31.6			1,714.8
Acquisitions		—			0.5			—			0.5
Additions		1.4			23.1			32.1			56.6
Disposals		(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			1,669.9

Acquisitions		—			—			—			—
Additions		1.5			34.2			41.1			76.8
Disposals		(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			1,697.5


Accumulated Depreciation

At December 31, 2002		60.7			666.3			—			727.0
Charge for the period		4.9			109.5			—			114.4
Effects 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			—			814.1

Charge for the period		4.5			114.5			—			119.0
Effects 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			—			906.4


Net Book Amount
At December 31, 2004		129.3			616.1			45.7			791.1

At 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

INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS

15. INTANGIBLE FIXED ASSETS


				Non		Licenses						Negative
	Goodwill			Compete		Fees			Total			Goodwill
	(€ in millions)
Cost
At 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	)		38.0

At 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	)		13.6

At December 31, 2004		13.8			2.3		2.0			18.1			(294.6	)


Aggregate Amortisation
At 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		—			—		—			—			9.7

At 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		—			—		—			—			6.7

At December 31, 2004		4.2			2.3		0.7			7.2			(125.2	)


Net Book Amount
At 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

INEOS HOLDINGS LIMITED
NOTES TO THE FINANCIAL STATEMENTS

16. STOCKS


	2003		2004
	(€ in millions)
Raw materials and consumables		47.2		89.0
Work in progress		13.1		19.3
Finished products		90.7		130.6

		151.0		238.9

17. DEBTORS


	2003		2004
	(€ in millions)
Amounts due within one year
Trade debtors		339.2		491.9
Amounts owed by related parties		0.3		0.9
Other debtors		22.5		46.8
Amounts owed by group undertakings		0.1		—
Prepayments and accrued income		7.9		10.0

		370.0		549.6


Amounts due after more than one year
Amounts owed by related parties		—		31.8
Amounts owed by group undertakings		29.3		29.3
Other debtors		0.2		0.3
Prepayments and accrued income		25.8		22.8
Deferred 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		92.7
Obligations under finance leases		0.5		0.6
Trade creditors		238.8		345.1
Amounts due to related parties		12.8		8.3
Amounts owed to group undertakings		16.4		23.0
Other creditors		18.4		29.1
Corporation tax		15.2		34.3
Other accruals		107.8		133.9

		520.0		667.0

19. CREDITORS—AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR


	2003		2004
	(€ in millions)
Senior notes		255.4		256.2
Senior credit agreement		393.2		328.1
Obligations under finance leases		1.7		3.2
Other loans		0.3		1.1

		650.6		588.6

F-21

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			0.8

Rentals due after more than 1 year:
from 1 to 2 years		2.0			1.4
from 2 to 5 years		—			1.1
More than 5 years		—			1.2

		2.6			4.5
Less amounts representing interest relating to future periods		(0.4	)		(0.7	)


Present value of net minimum lease payments		2.2			3.8
Less 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			Senior
	agreement			Notes			Total
	(€ in millions)
Total debt
Gross borrowings		429.1			260.0			689.1
Less 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 credit
	agreements		Senior Notes		Total
	(€ in millions)
In one year or less		95.5		—		95.5
Between one and two years		67.4		—		67.4
Between two and five years		266.2		—		266.2
In five years or more		—		260.0		260.0

		429.1		260.0		689.1

F-22

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:


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

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

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

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

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 and
	Retirement			Other Retirement			Restructuring
	Costs			Benefits			Costs			Remediation			Other			Total
	(€ in millions)
Balance at December 31, 2002		33.3			6.8			15.0			4.9			10.1			70.1
Reclassifications		0.6			—			(1.0	)		—			(4.6	)		(5.0	)
Charged to the profit and loss account		7.4			1.6			—			—			5.5			14.5
Utilised 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			—			50.4

Reclassifications		0.1			(0.1	)		(0.1	)		—			—			(0.1	)
Charged to the profit and loss account		8.7			1.7			1.2			—			2.5			14.1
Utilised 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

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			16.4
Losses		(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

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		19.7

At 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


	Share
	Premium		Profit and Loss Account
	(€ in millions)
At December 31, 2002		51.1		17.6
Retained profit for the year		—		129.8
Exchange adjustments		—		(37.0	)

At December 31, 2003		51.1		110.4

Retained profit for the year		—		123.8
Exchange adjustments		—		(22.5	)

At December 31, 2004		51.1		211.7

26. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS


	Year Ended
	December 31,
	2003			2004
	(€ in millions)
Profit on ordinary activities after taxation		150.6			167.9
Dividends		(20.8	)		(44.1	)
Other recognised gains/(losses) in the year		(37.0	)		(22.5	)

Net (decrease)/increase in equity shareholders’ funds		92.8			101.3
Opening equity shareholders’ funds		86.4			179.2

Closing equity shareholders’ funds		179.2			280.5

F-27

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		5.7
Expiring between 1 to 2 years		3.0		0.8
Expiring between 2 to 5 years		3.3		4.7
Expiring in more than 5 years		—		2.9

		11.6		14.1

Land and buildings:
Expiring within one year		1.0		0.7
Expiring between 1 to 2 years		0.2		—
Expiring between 2 to 5 years		1.0		0.9

		2.2		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:


	Lease
	Payments
	(€ in millions)
2005		15.7
2006		8.0
2007		6.5
2008		5.2
2009 and after		32.7

		68.1

29. CAPITAL COMMITMENTS


	2003		2004
	(€ in millions)
Contracted capital expenditure		11.0		29.9

F-28

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						Germany
	2004		2003		2002		2004		2003		2002		2004		2003		2002		2004		2003		2001
Major 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		3.50
Rate of increase to pension in payment		2.70		2.60		2.25		—		¾		¾		—		¾		2.00		1.20		1.50		2.00
Discount 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		5.50
Inflation		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

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					Germany
	Expected long term					Expected long term					Expected long term					Expected long term
	rate of return		Market value			rate of return		Market value			rate of return		Market value			rate of return		Market value
	%		€’m			%		€’m			%		€’m			%		€’m
Market value of assets
Equities		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					Germany
	Expected long term					Expected long term					Expected long term					Expected long term
	rate of return		Market value			rate of return		Market value			rate of return		Market value			rate of return		Market value
	%		€’m			%		€’m			%		€’m			%		€’m
Market value of assets
Equities		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				¾					2.8					5.7					—


Net pension liability				(32.5	)				(4.3	)				(11.0	)				(21.1	)

F-30

INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS

30. PENSION SCHEMES (Continued)

As at December 31, 2002


	United Kingdom					United States					Belgium					Germany
	Expected long term					Expected long term					Expected long term					Expected long term
	rate of return		Market value			rate of return		Market value			rate of return		Market value			rate of return		Market value
	%		€’m			%		€’m			%		€’m			%		€’m
Market value of assets
Equities		8.00		46.0			8.50		2.8			8.00		22.0			¾		¾
Bonds		5.00		9.8			6.25		1.4			5.25		11.8			¾		¾
Other		5.00		8.5			4.25		0.2			5.75		3.3			¾		¾

				64.3					4.4					37.1					¾

Present 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				¾					¾					2.0					¾


Net 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

INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS

30. PENSION SCHEMES (Continued)


	Post-retirement health
	care plans
	2003			2004
	(€ in millions)
Market value of assets		¾			—
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		0.4
Past 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		0.3
Past 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

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	)		0.6

Actuarial 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			1.1
Other finance income		(0.5	)		(0.3	)		(0.1	)		(1.1	)
Actuarial gain/(loss)		(1.2	)		0.6			(10.4	)		0.1
Exchange 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			1.1
Other 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

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	)		0.1
Percentage 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			3.7
Percentage 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	)		0.4
Percentage 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			280.5
Add: net pension liability under SSAP24		39.6			40.9
Related deferred tax asset		(6.0	)		(7.3	)

Group net assets excluding net pension liability under SSAP24		212.8			314.1
Net pension liability under FRS 17		(72.9	)		(76.8	)

Group net assets including net pension liability under FRS 17		139.9			237.3


Reserves:

Group profit and loss reserves		110.4			211.7
Add: net pension liability under SSAP24 (net of deferred taxes)		33.6			33.6

Group reserves excluding net pension liability under SSAP24		144.0			245.3
Net 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

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			75.5

Change in net debt resulting from cash flows		86.2			131.0			4.4
Acquisitions		—			—			—
Other net non-cash transactions		19.8			18.4			1.1
Net 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


							Other
							Non-Cash
	At January 1, 2004			Cash Flow			Charges			At December 31, 2004
	(€ in millions)
Cash at bank and in hand		153.3			(71.1	)		(2.7	)		79.5
Cash overdrafts		—			—			—			—

		153.3			(71.1	)		(2.7	)		79.5

Debt 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

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

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 liabilities
			Floating rate						Weighted average
			financial				Weighted average		period for which
	Total		liabilities		Principal		interest rate		rate is fixed
	€’m		€’m		€’m		%		Years
Euros		543.1		281.4		261.7		10.4		5.6
US Dollars		97.2		97.2		—		—		—
Sterling		—		—		—		—		—
Yen		53.7		51.6		2.1		5.0		3.0

		694.0		430.2		263.8		10.8		5.5

F-37

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 liabilities
									Weighted
			Floating rate				Weighted		average period
			financial				average		for which rate
	Total		liabilities		Principal		interest rate		is fixed
	€’m		€’m		€’m		%		Years
Euros		606.4		344.3		262.1		10.5		6.6
US Dollars		113.3		113.3		—		—		—
Sterling		0.1		—		0.1		3.5		1.0
Yen		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		2004
	Financial		Financial		Undrawn		Undrawn
	Liabilities		Liabilities		Facilities		Facilities
	(€ in millions)
In one year or less, or on demand		109.9		92.6		2.5		2.5
In 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		47.0
In 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

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					2004
	Book Value		Fair Value			Book Value		Fair Value
	(€ in millions)					(€ in millions)
Primary financial instruments held to finance the Group’s operations:
Cash at bank and in hand		153.3		153.3			79.5		79.5
Amounts owed by group undertakings		29.3		29.3			29.3		29.3
Bank and other loans repayable within one year		113.4		113.4			95.5		95.5
Bank and other loans repayable after more than one year		402.5		402.5			334.7		334.7
Senior notes		260.0		295.1			260.0		289.3

Derivative 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 net
	Gains		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			1.8

Gains 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

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			Total
Euros		—		25.9		3.1		(0.2	)		(0.2	)		28.6
US Dollars		0.1		—		—		—			0.4			0.5
Sterling		9.0		3.5		—		1.3			0.6			14.4
Yen		—		4.0		—		—			(0.1	)		3.9
Other				0.9		—		—			—			0.9

Total		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		Total
Euros		—		27.7		3.6		(0.2	)		1.3		32.4
US Dollars		—		—		—		—			0.5		0.5
Sterling		8.1		2.6		—		—			0.4		11.1
Yen		—		2.6		—		—			—		2.6
Other		—		0.5		—		—			—		0.5

Total		8.1		33.4		3.6		(0.2	)		2.2		47.1

F-40

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 of
	Incorporation and	Percentage
Company	operation	Holding
Ineos 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

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		29.2
Additional fair value adjustments under US GAAP:
Tangible fixed assets		(16.5	)
Pension obligations (see (vii) below)		23.6
Acquisition date		1.8
Inventories		1.0


Fair values under US GAAP		39.1

The initial negative goodwill on acquisition as determined on a US GAAP basis has been allocated to non-current, non-monetary assets in accordance with APB 16. This allocation has resulted in a reduction in the fair value of freehold land, which is not subject to depreciation. Accordingly, no further adjustments to the depreciation charge are required under US GAAP as a result of this allocation.

The amortisation of goodwill 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

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.

(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		570.6
Additional fair value adjustments under US GAAP:
Tangible fixed assets		(194.7	)
Research and development in process		2.2
Trade names/trade marks		3.1
Existing technology		9.5
Customer contracts		5.5
Non-compete agreements		4.5
Pensions (see (vii) below)		4.6
Inventories (see (vi) below)		17.4
Restructuring provision (see (x) below)		(12.7	)
Deferred taxation (see (xi) below)		38.7


Fair values under US GAAP		448.7

The initial negative goodwill as determined on a US GAAP basis has been allocated on a pro-rata basis to all non-current, non-monetary assets in accordance with APB 16. This has resulted in a reduction in the fair value of tangible fixed assets acquired and a reduction in the fair value of intangible assets acquired. As a result of the reduction in tangible fixed assets acquired, the depreciation charge is lower under US GAAP as compared to UK GAAP.

F-43

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.


	(€ in millions)
Fair values under UK GAAP		43.8
Additional fair value adjustments under US GAAP:
Tangible fixed assets		(7.4	)
Customer contracts		3.0
Existing technology		2.4
Trade names/trade marks		1.0
Inventories (see (vi) below)		3.3
Deferred taxation (see (xi) below)		(0.7	)


Fair values under US GAAP		45.4

The initial negative goodwill as determined on a US GAAP basis has been allocated on a pro rata basis to all non-current, non-monetary assets in accordance with APB 16. This has resulted in a reduction in the fair value of tangible fixed assets acquired and a reduction in the fair value of intangible fixed assets acquired. As a result of the reduction in tangible fixed assets acquired, the depreciation charge 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

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.


	(€ in millions)
Fair values under UK GAAP		623.6
Additional fair value adjustments under US GAAP:
Tangible fixed assets		(327.3	)
Existing technology		7.4
Customer contracts		19.0
Inventories (see (vi) below)		0.7
Restructuring provision (see (x) below)		(6.5	)
Deferred taxation (see (xi) below)		40.2


Fair values under US GAAP		357.1

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

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		4.4
Inventories (see (vi) below)		0.6


Fair values under US GAAP		5.0

(vi) Inventories

Under UK GAAP finished goods and work in progress are fair valued as part of an acquisition at the lower replacement cost and net realisable value. Replacement cost for this purpose is the current cost of bringing inventories to their present location and condition.

Under US GAAP such inventories should be fair valued at estimated selling prices less costs to complete where appropriate, the costs of disposal and a reasonable profit allowance for the selling effort of the acquiring company. Accordingly, for US GAAP purposes, there has been an uplift in the fair value of the inventories acquired of €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

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

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

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			2004
	Notes	(€ in millions)
Profit/(loss) for the financial year
Profit/(loss) for the financial year under UK GAAP			39.0			150.6			167.9
Goodwill 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			47.0
Amortisation 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			1.8
Capitalisation of interest less amortisation	(ix)		2.3			2.0			2.7
Restructuring provisions	(x)		—			—			—
Deferred taxation
— arising on UK GAAP results	(xi)		—			—			—
— arising on US GAAP adjustments	(xi)		(3.3	)		(6.8	)		33.8

Profit/(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			2004
	Notes	(€ in millions)
Shareholders’ equity
Shareholders’ equity under UK GAAP			179.2			280.5
Goodwill adjustments on acquisition	(i), (ii), (iii), (iv)		268.0			227.6
Tangible fixed assets	(i), (ii), (iii), (iv)		(425.1	)		(375.4	)
Intangible fixed assets	(ii), (iii), (iv)		31.7			23.2
Pensions	(vii)		14.6			6.1
Derivative financial instruments	(viii)		(1.8	)		—
Deferred taxation	(xi)		61.4			95.2
Foreign currency translation differences	(xii)		15.9			19.6

Shareholders’ 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

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			214.0
Interest received		3.0			2.9			2.3
Interest 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			139.4


Net 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

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, 2004
	Gross carrying		Accumulated		Weighted average
	value		amortisation		amortisation period
	(€ in millions)				Years
Amortised intangible assets
Trade names		4.1		1.3		17
Existing technology		19.3		7.3		10
Customer contracts		27.5		20.0		8
Non compete agreements		6.8		5.9		5
Licence fees		2.0		0.7		15

		59.7		35.2

Unamortised intangible assets
Goodwill		1.7

		61.4		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		8.9
2005		5.8
2006		3.1
2007		3.1
2008		2.9
2009		2.6

There were no changes to the carrying value of goodwill during the year ended December 31, 2004.

F-51

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 obligation
Projected benefit obligation at the beginning of the year		116.1			21.1			53.1			12.9			203.2
Service cost		5.7			0.4			3.7			1.2			11.0
Interest cost		6.7			1.1			2.7			0.8			11.3
Employee contributions		1.0			—			—			—			1.0
Plan amendments		1.0			—			—			0.1			1.1
Benefits paid		(2.0	)		(1.1	)		(4.1	)		(0.7	)		(7.9	)
Actuarial (gain)/loss		10.8			1.7			3.1			1.7			17.3
Exchange adjustments		(1.8	)		—			—			(1.2	)		(3.0	)

Projected benefit obligation at the end of the year		137.5			23.2			58.5			14.8			234.0

Accumulated benefit obligation		75.6			21.0			37.1			10.4			144.1


Change in plan assets
Fair value of plan assets at beginning of the year		81.2			—			36.4			5.8			123.4
Actual return on plan assets		7.5			—			1.7			0.7			9.9
Employer contributions		4.7			—			3.7			1.3			9.7
Employee contributions		1.0			—			—			—			1.0
Benefits 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			135.6


Funded status
Funded 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			80.9
Additional 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			USA
Discount 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

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			11.0
Interest cost		6.7			1.1		2.7			0.8			11.3
Expected return on assets		(6.4	)		—		(2.3	)		(0.6	)		(9.3	)
Amortisation amounts		2.7			—		1.8			—			4.5


Net 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 ended
	December 31, 2004
	(€ in millions)
Change in benefit obligation
Projected benefit obligation at the beginning of the year		4.0
Service cost		0.2
Interest cost		0.2
Actuarial (gain)/loss		0.7
Benefits paid		(0.2	)
Exchange movements		(0.3	)

Projected benefit obligation at the end of the year		4.6


Funded status
Funded 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 ended
	December 31, 2004
	(€ in millions)
Service cost		0.2
Interest cost		0.2
Expected return on assets		—

Net periodic pension cost		0.4

F-53

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		16

Effect 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, 2004
	Actual		Target
	%		%
Equity securities		78.1		40-80
Debt securities		15.1		0-40
Other		6.8		0

		100		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		7.9
2006		8.5
2007		9.1
2008		9.8
2009		10.6
2010 to 2014		64.0

F-54

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 obligation
Projected benefit obligation at the beginning of the year		98.2			20.9			43.1			14.1			176.3
Service cost		5.0			0.3			3.3			1.0			9.6
Interest cost		5.4			1.1			2.6			0.7			9.8
Employee contributions		0.9			—			—			—			0.9
Plan amendments		4.2			—			—			—			4.2
Benefits paid		(0.8	)		(1.1	)		(5.8	)		(0.4	)		(8.1	)
Actuarial (gain)/loss		11.4			(0.1	)		9.9			(0.1	)		21.1
Exchange adjustments		(8.2	)		—			—			(2.4	)		(10.6	)

Projected benefit obligation at the end of the year		116.1			21.1			53.1			12.9			203.2


Change in plan assets
Fair value of plan assets at beginning of the year		64.3			—			37.1			4.4			105.8
Actual return on plan assets		14.6			—			2.0			0.9			17.5
Employer contributions		7.9			—			3.1			1.9			12.9
Employee contributions		0.9			—			—			—			0.9
Benefits 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			123.4


Funded status
Funded 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	)		68.6
Additional 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			USA
Discount 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			9.6
Interest cost		5.4			1.1		2.6			0.7			9.8
Expected return on assets		(4.6	)		—		(2.5	)		(0.4	)		(7.5	)
Amortisation amounts		6.3			—		1.5			—			7.8


Net periodic pension expense		12.1			1.4		4.9			1.3			19.7

F-55

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.


	Year ended
	December 31, 2003
	(€ in millions)
Change in benefit obligation
Projected benefit obligation at the beginning of the year		5.4
Service cost		0.2
Interest cost		0.2
Actuarial (gain)/loss		(1.0	)
Benefits paid		(0.2	)
Exchange movements		(0.6	)

Projected benefit obligation at the end of the year		4.0


Funded status
Funded 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 ended
	December 31, 2003
	(€ in millions)
Service cost		0.2
Interest cost		0.2
Expected return on assets		—

Net periodic pension cost		0.4


	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

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, 2003
	Actual		Target
	%		%
Equity securities		85.0		40-80
Debt securities		11.8		0-40
Other		3.2		0

		100		100

(iii) Year ended December 31, 2002

The principal actuarial assumptions used are as follows:


	UK			Germany			Belgium			USA
Discount rate		5.60	%		5.50	%		5.75	%		6.75	%
Expected long term rate of return		7.10	%		—	%		8.00	%		8.00	%
Expected increase in future salary levels		3.75	%		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			9.6
Interest cost		5.9			1.3		2.7			1.0			10.9
Expected return on assets		(6.1	)		—		(3.8	)		(0.7	)		(10.6	)
		2.2			—		0.4			—			2.6

Net periodic pension expense		7.0			1.6		2.4			1.5			12.5

The Company provides post retirement health care benefits for most of its employees in Belgium and the United States. The principal actuarial assumption used is a discount rate of 6.75%.

The components of the net periodic pension cost are as follows:


	Year ended
	December 31, 2002
	(€ in millions)
Service cost		0.3
Interest cost		0.3
Expected return on assets		—

Net periodic pension cost		0.6

F-57

INEOS GROUP HOLDINGS
NOTES TO THE FINANCIAL STATEMENTS

36. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP (Continued)


	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			2004
Statutory 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			17.1
Post-retirement benefits		2.4			2.4
Provisions for expenses		3.0			3.0
Accelerated depreciation and amortisation		89.2			81.5
Differences between book and tax expense for other current assets		7.3			5.8

Gross deferred tax assets		144.2			109.8
Valuation allowance		(63.6	)		(15.1	)

		80.6			94.7

Deferred 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

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

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

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 Ended
	December 31,
	(€ in millions)
2005		1,659.6
2006		993.4
2007		940.3
2008		438.1
2009		313.2
After 2009		324.0

		4,668.6

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

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.

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.

PricewaterhouseCoopers LLP
London, United Kingdom

April 29, 2005

F-62

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			3,396.1
Cost of sales			(1,833.9	)		(2,130.3	)		(2,928.4	)

Gross profit			401.9			400.1			467.7
Distribution 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			268.6
Share of operating profit of associate			0.6			0.6			0.5
Profit 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			213.7
Taxation on profit on ordinary activities	12		(37.3	)		(5.4	)		(52.1	)

Profit on ordinary activities after taxation			35.2			145.1			161.6
Equity 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

INEOS GROUP HOLDINGS

CONSOLIDATED BALANCE SHEETS


		As at
		December 31,
	Notes	2003			2004
		(€ in millions)
Fixed assets
Investments	14		1.7			2.0
Tangible fixed assets	15		855.8			791.1
Intangible fixed assets	16		12.1			10.9
Negative goodwill	16		(217.4	)		(169.4	)

			652.2			634.6

Current assets
Cash at bank and in hand			153.3			79.5
Stocks	17		151.0			238.9
Debtors: amounts due within one year	18		370.0			549.6
Debtors: amounts due after one year	18		73.7			84.2

			748.0			952.2
Creditors—amounts falling due within one year	19		(504.5	)		(644.8	)

Net current assets			243.5			307.4
Total assets less current liabilities			895.7			942.0
Creditors—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			224.4


Capital and reserves
Share capital	25		17.7			17.7
Profit and loss account	26		107.4			206.7

Equity shareholders’ funds	27		125.1			224.4

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

F-64

INEOS HOLDINGS LIMITED

CONSOLIDATED CASH FLOW STATEMENTS


			Year Ended December 31,
	Notes		2002			2003			2004
			(€ in millions)
Operating profit				149.6			220.8			268.6
Depreciation of tangible assets				114.8			114.4			119.0
Amortisation 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 on disposal of fixed assets				—			(0.4	)		0.1

Net cash flow from operating activities				211.0			268.2			214.0

Dividend received from associate undertaking				0.4			—			—
Returns on investments and servicing of finance
Interest received				3.0			2.9			2.3
Interest 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 expenditure
Payments 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 disposal
Acquisition of business				(5.0	)		—			—
Cash received on acquisitions				¾			—			—
Disposals of business				¾			1.4			—

				(5.0	)		1.4			—
Equity dividends paid				¾			(10.0	)		(39.8	)

Net cash inflow/(outflow) before financing				86.5			131.0			4.4

Financing
Capital repayment of finance leases				(3.5	)		(2.1	)		(0.5	)

New Loans:
Senior credit facilities				¾			—			28.0
Senior loan notes				¾			—			—
Other bank loans				¾			0.3			0.9

				¾			0.3			28.9

Repayment of loans:
Senior credit facility				(85.3	)		(79.4	)		(103.9	)
Senior secured notes				(1.6	)		—			—
Other bank loans				¾			—			—
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

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 PREPARATION

    Refer to footnote 1 of the financial statements of Ineos Group Holdings

3.   PRINCIPAL ACCOUNTING POLICIES

    Refer to footnote 2 of the financial statements of Ineos Group Holdings.

4.   RECENT ACCOUNTING DEVELOPMENTS

    Refer 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			2004
Ineos Oxide		151.9			166.9
Ineos Phenol		89.6			160.5
Ineos Fluor		(21.7	)		(36.8	)
Ineos Silicas		(3.7	)		(15.0	)
Ineos Holdings		(91.0	)		(51.2	)

		125.1			224.4

6.   ADMINISTRATIVE EXPENSES

    Refer to footnote 5 of the financial statements of Ineos Group Holdings.

7.   EXCEPTIONAL ADMINISTRATIVE EXPENSES

    Refer to footnote 6 of the financial statements of Ineos Group Holdings.

8.   OPERATING PROFIT

    Refer to footnote 7 of the financial statements of Ineos Group Holdings.

9.   PROFIT ON DISPOSAL OF FIXED ASSETS

    Refer to footnote 8 of the financial statements of Ineos Group Holdings.

F-67

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			23.1
Interest payable to group undertakings		33.9			35.1			36.0
Amortisation of issue costs		6.8			4.5			4.8
Interest payable on finance leases		0.4			0.2			0.2

		85.3			73.3			64.1
Exchange movements		(2.5	)		1.9			(6.3	)
Interest receivable		(3.2	)		(2.9	)		(2.4	)

		79.6			72.3			55.4

11.   EMPLOYEE COSTS

    Refer 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 Kingdom
Corporation tax at 30%		7.2			11.9			14.5
Adjustments in respect of previous periods		—			—			—
Double taxation relief		(7.2	)		(11.9	)		(14.5	)
Group relief payable		0.2			—			—

		0.2			—			—

Foreign tax
Corporation taxes		16.1			19.8			32.6
Adjustments in respect of previous periods		(2.9	)		0.1			(0.2	)

Total current tax		13.4			19.9			32.4
Deferred tax
Origination and reversal of timing differences		18.8			11.1			20.8
Adjustments in respect of previous periods		5.1			(25.6	)		(1.1	)

Total deferred tax		23.9			(14.5	)		19.7

Tax 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			213.7

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30%		21.8			45.2			64.1
Effects of:
Expenses not deductible for tax purposes		1.9			2.7			2.8
Non 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			5.6
Deferred 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

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.   INVESTMENTS

    Refer to footnote 13 of the financial statements of Ineos Group Holdings.

15.   TANGIBLE FIXED ASSETS

    Refer to footnote 14 of the financial statements of Ineos Group Holdings.

16.   INTANGIBLE FIXED ASSETS

    Refer to footnote 15 of the financial statements of Ineos Group Holdings.

17.   STOCKS

    Refer to footnote 16 of the financial statements of Ineos Group Holdings.

18.   DEBTORS

    Refer 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		92.7
Obligations under finance leases		0.5		0.6
Trade creditors		238.8		345.1
Amounts owed to group undertakings		12.3		12.0
Amounts owed to related parties		12.8		8.3
Other creditors		18.4		29.1
Corporation tax		15.2		34.3
Other accruals		96.4		122.7

		504.5		644.8

20. CREDITORS—AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR


	2003		2004
	(in millions)
Amounts owed to group undertakings		325.0		334.5
Senior credit agreement		393.2		328.1
Obligations under finance leases		1.7		3.2
Other loans		0.3		1.1

		720.2		666.9

21. FINANCE LEASES

Refer to footnote 20 of the financial statements of Ineos Group Holdings.

F-69

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 Credit
	Agreement
	(€ in millions)
Total Debt

Gross borrowings		429.1
Less debt issue costs		(8.3	)

Net bank and other borrowings		420.8


Gross borrowings are repayable as follows:

In one year or less		95.5
Between one or two years		67.4
Between two and five years		266.2
In five years or more		—

		429.1

23.   PROVISIONS FOR LIABILITIES AND CHARGES

    Refer to footnote 22 of the financial statements of Ineos Group Holdings.

24.   DEFERRED TAXATION

    Refer to footnote 23 of the financial statements of Ineos Group Holdings.

25.   SHARE CAPITAL

2003

2004

(€ in

Number

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			107.4
Profit for the year		134.4			121.8
Exchange adjustments		(37.0	)		(22.5	)

Balance carried forward		107.4			206.7

F-70

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			161.6
Dividends		(10.7	)		(39.8	)
Other recognised gains/(losses) in the year		(37.0	)		(22.5	)

Net increase in equity shareholders’ funds		97.4			99.3
Opening shareholders’ funds		27.7			125.1

Closing shareholders’ funds		125.1			224.4

28.   ACQUISITIONS

    Refer to footnote 27 of the financial statements of Ineos Group Holdings.

29.   OPERATING LEASE COMMITMENTS

    Refer to footnote 28 of the financial statements of Ineos Group Holdings.

30.   CAPITAL COMMITMENTS

    Refer to footnote 29 of the financial statements of Ineos Group Holdings.

31.   PENSION SCHEMES

    Refer to footnote 30 of the financial statements of Ineos Group Holdings

32.   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			75.5

Change in net debt resulting from cash flows		86.2			131.0			4.4
Acquisitions		—			—			—
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


							Other
	At 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	)		79.5
Cash overdrafts		—			—			—			—

		153.3			(71.1	)		(2.7	)		79.5

Debt 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

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 INSTRUMENTS

    Refer 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 of
	Incorporation and
Company	Operation	Percentage Holding
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%

F-72

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 of
	Incorporation and
Company	Operation	Percentage Holding
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

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 year
Profit/(loss) for the financial year under UK GAAP		35.2			145.1			161.6
Goodwill adjustments on acquisitions		(39.4	)		(36.4	)		(40.4	)
Inventories		(0.6	)		¾			¾
Depreciation of tangible fixed assets		41.7			44.7			47.0
Amortisation of intangibles		(8.6	)		(8.5	)		(8.5	)
In process research and development		¾			¾			¾
Pensions		(2.0	)		(11.6	)		(8.5	)
Derivative financial instrument		(2.3	)		2.6			1.8
Capitalisation of interest less amortisation		2.3			2.0			2.7
Restructuring provisions		¾			¾			¾
Deferred taxation
–– arising on UK GAAP results		¾			¾			¾
–– arising on US GAAP adjustments		(3.3	)		(6.8	)		33.8

Profit/(loss) for the financial year under US GAAP		23.0			131.1			189.5

F-73

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’ equity
Shareholders’ equity under UK GAAP		125.1			224.4
Goodwill adjustments on acquisitions		268.0			227.6
Tangible fixed assets		(425.1	)		(375.4	)
Intangible fixed assets		31.7			23.2
Pensions		14.6			6.1
Derivative financial instruments		(1.8	)		¾
Deferred taxation		61.4			95.2
Foreign currency translation differences		15.9			19.6

Shareholders’ 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

F-74


	Page
PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS		5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		5
ITEM 3. KEY INFORMATION		5
ITEM 4. INFORMATION ON THE COMPANY		15
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		35
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		58
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		62
ITEM 8. FINANCIAL INFORMATION		63
ITEM 9. THE OFFER AND LISTING		63
ITEM 10. ADDITIONAL INFORMATION		64
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		69
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		69

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		69
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		69
ITEM 15. CONTROLS AND PROCEDURES		69
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		69
ITEM 16B. CODE OF ETHICS		70
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		70
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		70
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		70

PART III

ITEM 17. FINANCIAL STATEMENTS		71
ITEM 18. FINANCIAL STATEMENTS		71
ITEM 19. EXHIBITS		72
EX-12.1
EX-12.2

	•	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.

	•	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.

	•	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.

	•	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.

	(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.

	(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.

(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.

	•	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.

	•	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

		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.

	•	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.

	•	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.

	•	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.

	(1)	non-payment of principal or interest,

	(2)	failure to observe certain undertakings set forth in the Senior Credit Facilities,

	(3)	making an incorrect representation, warranty or statement, and

	(4)	certain bankruptcy related events.

	•	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.


ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS


Ineos Group Holdings plc

Report of Independent Accountants			F-1
Consolidated Profit and Loss Accounts for the years ended December 31, 2002, 2003 and 2004			F-2
Consolidated Balance Sheets as at December 31, 2003 and 2004			F-3
Consolidated Cash Flow Statements for the years ended December 31, 2002, 2003 and 2004			F-4
Statements of Total Recognised Gains and Losses for the years ended December 31, 2002, 2003 and 2004			F-5
Notes to the Financial Statements			F-6

Ineos Holdings Limited

Report of Independent Accountants			F-62
Consolidated Profit and Loss Accounts for the years ended December 31, 2002, 2003 and 2004			F-63
Consolidated Balance Sheets as at December 31, 2003 and 2004			F-64
Consolidated Cash Flow Statements for the years ended December 31, 2002, 2003 and 2004			F-65
Statements of Total Recognised Gains and Losses for the years ended December 31, 2002, 2003 and 2004			F-66
Notes to the Financial Statements			F-67


Registrant:		INEOS GROUP HOLDINGS PLC

By:	/s/ John Reece
	Name:	John Reece
	Title:	Finance Director

Date:	April 29, 2005

	•	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.

	•	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.


35.	LIST OF PRINCIPAL SUBSIDIARY COMPANIES INCLUDED IN THE INEOS GROUP HOLDINGS CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2004.

	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.

2.	BASIS OF PREPARATION

	Refer to footnote 1 of the financial statements of Ineos Group Holdings

3.	PRINCIPAL ACCOUNTING POLICIES

	Refer to footnote 2 of the financial statements of Ineos Group Holdings.

4.	RECENT ACCOUNTING DEVELOPMENTS

	Refer to footnote 3 of the financial statements of Ineos Group Holdings.

5.	SEGMENT INFORMATION

6.	ADMINISTRATIVE EXPENSES

	Refer to footnote 5 of the financial statements of Ineos Group Holdings.

7.	EXCEPTIONAL ADMINISTRATIVE EXPENSES

	Refer to footnote 6 of the financial statements of Ineos Group Holdings.

8.	OPERATING PROFIT

	Refer to footnote 7 of the financial statements of Ineos Group Holdings.

9.	PROFIT ON DISPOSAL OF FIXED ASSETS

	Refer to footnote 8 of the financial statements of Ineos Group Holdings.

11.	EMPLOYEE COSTS

	Refer to footnote 10 of the financial statements of Ineos Group Holdings.

12.	TAXATION

14.	INVESTMENTS

	Refer to footnote 13 of the financial statements of Ineos Group Holdings.

15.	TANGIBLE FIXED ASSETS

	Refer to footnote 14 of the financial statements of Ineos Group Holdings.

16.	INTANGIBLE FIXED ASSETS

	Refer to footnote 15 of the financial statements of Ineos Group Holdings.

17.	STOCKS

	Refer to footnote 16 of the financial statements of Ineos Group Holdings.

18.	DEBTORS

	Refer to footnote 17 of the financial statements of Ineos Group Holdings.

19.	CREDITORS—AMOUNTS FALLING DUE WITHIN ONE YEAR

21.	FINANCE LEASES

	Refer to footnote 20 of the financial statements of Ineos Group Holdings.

23.	PROVISIONS FOR LIABILITIES AND CHARGES

	Refer to footnote 22 of the financial statements of Ineos Group Holdings.

24.	DEFERRED TAXATION

	Refer to footnote 23 of the financial statements of Ineos Group Holdings.

25.	SHARE CAPITAL