Reports to the Stock Exchange
Management Discussion and Analysis for year 2011
Management Discussion and Analysis
Ref.No.IVL006/02/2012
February 22, 2012
The President
The Stock Exchange of Thailand
Subject: Submission of Annual Audited Financial Statements of Indorama Ventures
Public Company Limited for the year ended December 31, 2011 and the Management's
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Audited Financial
Statements for the year ended December 31, 2011 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the year ended December 31,
2011 and the 4th quarter of 2011 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2011
(a copy in Thai and English)
Please be informed accordingly.
Sincerely yours,
(Mr. Aloke Lohia)
Group Chief Executive Officer
Company Secretary
Tel: +66 (0) 2661-6661
Fax: +66 (0) 2661-6664
INDORAMA VENTURES PUBLIC COMPANY LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
FOR THE PERIOD OF 4Q 2011 AND THE YEAR ENDED DECEMBER 31, 2011 (CONSOLIDATED)
Year 2011 has been a year of landmark achievements for IVL with significant
growth in revenues, earnings and cashflows as well as for setting the tone for
the business going forward. The implementation of IVL's dual business strategy
to firstly integrate within the polyester value chain and secondly expand its
margins in consumer necessities and higher value addition specialty products is
in place. The company in the year 2011 completed the TSR shares and maiden
debentures issue to maintain liquidity and financial discipline. Indorama
Ventures PCL (SET: "IVL") for year 2011 acheived a consolidated sales of US$
6,102 million, consolidated EBITDA of US$ 558 million (Baht 17,021 million),
consolidated net profit after tax and minority (including exceptional items) of
US$ 510 million (Baht 15,568 million) and return on capital employed of 16%. The
consolidated financial position has continued to remain strong and at the end
of December, 2011 the net gearing reduced from 48% to 43% with high liquidity of
around US$ 1,395 million which includes cash and cash equivalents and
unutilized credit lines.
The annual volume growth of 37% over 2010 has translated into growth in both
Consolidated EBITDA and Core EBITDA. In 2011 the reported Consolidated EBITDA
was US$ 558 million a growth of 28% over the last year and the Core EBITDA was
US$ 552 million a growth of 38% over the same period. IVL achieved a Core EBITDA
per ton of US$ 127 in year 2011 and US$ 125 in year 2010.
Key Financial Information
US$ in Millions
4Q11 3Q11 4Q10 FY11 FY10
Exchange Rate Baht vs US$ 31.69 31.17 30.15 31.69 30.15
Exchange Rate Baht vs Euro 41.03 42.24 39.94 41.03 39.94
*Consolidated Sales 1,394 1,689 838 6,102 3,055
PET resins 975 1,214 483 4,252 1,832
Polyester & wool 196 230 120 826 429
PTA 231 255 234 1,040 795
Consolidated EBITDA 43 153 141 558 435
PET resins 33 103 70 358 237
Polyester & wool 15 25 27 107 70
PTA 0 22 45 101 129
*Core EBITDA 79 135 105 552 399
PET resins 55 96 51 361 216
Polyester & wool 23 19 20 108 64
PTA 6 19 33 94 119
Net profit after tax and minority (51) 120 134 510 328
**Extraordinary items (gain) loss 66 (50) (75) (213) (113)
Core Net profit after tax and minority 15 70 59 297 215
CAPEX and investment 177 74 120 1,032 206
Net Debt 1,377 1,238 996 1,377 996
Net Debt to Equity 0.7 0.6 0.9 0.7 0.9
Interest Coverage 2.7 9.1 12.0 9.0 10.6
ROE -11% 25% 55% 35% 42%
ROCE 1% 15% 23% 16% 18%
EPS (Baht) (0.30) 0.75 0.92 3.29 2.46
Normalised EPS (Baht) 0.10 0.44 0.41 1.91 1.61
*See note 1) on page 9, consolidated financials are based upon elimination of
intra-company (or intra business segment) transactions
**See Table of Net Profit on page 4
At the same time year 2011 has seen high volatility in prices of crude and
petrochemicals, impacted by global macro environment, in particular led by
Europe debt crisis, increase in natural disasters (in Australia, Japan, USA and
Thailand) have led to high volatility in crude price and commodity prices and in
the last quarter a phase of de-stocking caused by general hesitancy and
uncertainity in wake of sharply falling product prices.
Despite volatility, IVL business model of global diversity, product diversity
and integration creates meaningful hedges and as such IVL has been able to
maintain high volume growth through completed acquisitions that have been
successfully integrated into the IVL portfolio. The 2011 acquisitions include
PET plant in China, the Invista PET and Polyester plants in USA & Mexico, the SK
Chemicals PET and Polyester plants in Indonesia and Poland, and recently the
recycle and fiber manufacturing businesses of Wellman International in Europe,
driving the total production volume in 2011 to 4.4 million tons or a growth of
37% over last year. During 2011, IVL also completed the joint ventures
investment of Trevira Polyester business in Germany and Polyprima PTA business
in Indonesia, of which production volume are not included. Further, the
end-product demand of PET polymers and Polyester fibers and yarns is linked to
consumer goods for daily necessities, which allows maintaining volume growth and
consistent spreads on an annual basis. The acquisitions have added to the
portfolio of IVL a platform for product innovation, recycling and pool of
experienced management.
The volume growth of 37% achieved is after taking into account production loss
from disruption in plant operations from tornados in AlphaPet plant, Alabama,
USA in 2Q 2011, break-down of a production line at Indorama Polyester
Industries, Rayong facility in 2Q 2011 and from floods at Lopburi site in
Thailand which forced Indorama Polymers, Asia Pet, Indorama Holdings and Petform
to shut down since end of September 2011. The impacted assets are all covered
by comprehensive insurance policy for damage to property, plant and equipment,
inventories and loss from business interruption and the claims have been
submitted to insurance company for property, plant and equipment and
inventories.
IVL witnessed growth in production volume QonQ in line with acquisitions upto
Q3, 2011. 4Q 2011 was impacted by a phase of de-stocking of inventories on
sharply falling prices led by the Euro area crisis, which resulted in lower
production volume.
In Thailand, IVL incurred total loss of production volume from plants in
Lopburi, which were shutdown for the full quarter impacted by floods and also
shutdown of its Nakornpathom facility for 3 weeks as a preventive measure to
protect from the raging floods. YonY all quarters maintained growth. Year 2012
will be the first full year of operations for around 2.3 million tons of
capacity acquired in year 2011.
The chart below provides details of quarterly movement in production volume;
The loss of volumes due to floods in Thailand and the production cuts taken in
Europe and USA due to Euro zone crisis in 4Q 2011 resulted in lower reported
Consolidated EBITDA of US$ 43 million a decrease of 72% QonQ and 70% over 4Q
2010 and Core EBITDA (after adjusting for inventory gain/loss) which was US$ 79
million a decrease of 42% QonQ and 24% over 4Q 2010. The impact on Core EBITDA
is due to lower volumes across all segments, lower margins in PET in Europe and
USA and significantly lower PTA margins in Asia. EBITDA was negatively impacted
due to lower utilization rates, which led to higher conversion costs. The Core
EBITDA per ton in 4Q 2011 was lower at US$ 75 per ton due to depressed
sentiments and significantly lower PTA margins.
The table below provides details on movement of Consolidated EBITDA and Core
EBITDA in year 2011:
(in US$ million except per ton data)
2011 2010
Consolidated EBITDA 558 435
Inventory (gain) loss (6) (36)
Core EBITDA 552 399
Reported EBITDA/Ton $128 $136
Core EBITDA/Ton $127 $125
The net profit after tax and minority in 2011 is US$ 510 million which is 55%
higher than US$ 328 million in 2010. The net profit after tax and minority after
excluding extraordinary items in 2011 is US$ 297 million which is 38% higher
than US$ 215 million in 2010 (after excluding extraordinary gain of US$ 113
million). The net profit after tax and minority of US$ 297 million in 2011
excludes net extraordinary gain of US$ 213 million of which US$ 274 million is
towards income from gain on a bargain purchase or Negative goodwill on completed
acquisitions, US$ 20 million towards transaction expenses incurred on
acquisitions completed during the year, US$ 47 million towards impairment loss
due to floods, and US$ 6 million towards inventory gain.
IVL reported net loss after tax and minority in 4Q 2011 of US$ 51 million which
is lower than profit of US$ 120 million in 3Q 2011 and US$ 134 million in 4Q
2010. Without the extraordinary items, the result would be net profit after tax
and minority of US$ 15 million, comparing with US$ 70 million in 3Q 2011 and US$
59 million in 4Q 2010. The net extraordinary loss in 4Q 2011 is US$ 66 million
which comprises of gain of US$ 25 million towards income from gain on a bargain
purchase or Negative goodwill on acquisition of Wellman and joint venture
investment in Trevira and Polyprima, US$ 8 million towards transaction expenses
incurred on acquisitions, US$ 47 million towards impairment loss due to floods,
and US$ 36 million towards inventory loss.
IVL net loss in 4Q 2011 was after considering the impact of US$ 9 million loss
in equity earnings due to the sharply lower prices for Polyester value chain led
by the negative sentiments due to the Euro area crisis that led to de-stocking.
The table below shows movement from reported net profit after tax and minority
interest to normalized net profit after tax and minority interest in US$
million:
4Q11 3Q11 4Q10 2011 2010
Net profit after tax and minority (51) 120 134 510 328
Extraordinary items:
Gain on bargain purchase and acquisition costs (17) (34) (38) (254) (76)
Provision for impairment due to flood 47 - - 47 -
Inventory (gain) loss 36 (16) (37) (6) (37)
Operating net profit after tax and minority 15 70 59 297 215
Floods in Lopburi, Thailand
The Group's operations in Lopburi, directly and indirectly owned by
subsidiaries, have been and continue to be, adversely affected by the unusually
severe flooding in parts of Thailand. The production plants at Lopburi site were
inundated by flood water on 23 September 2011 causing the production at those
plants for PET polymers, Packaging and Wool yarns to stop from that date. The
restroration work is ongoing at site, repairs of equipment and new machinery for
replacement has been ordered. As of the date of the approval of these
consolidated financial statements, management and surveyors have entered and
carried-out out a detailed review of the damage and filed insurance claim for
damages to inventories and property, plant and equipment with the insurance
company. The loss of profit from business interruption is being assessed by the
management and surveyors and a claim in this regard will be later filed with the
insurance company. The Group is protected for Lopburi site by insurance
policies for Industrial All Risk and Business Interruption with sum insured of
Baht 7,277 million and Baht 1,599 million, respectively. The management
believes that any damages will be fully covered by the Group's insurance
policies through which the Group will be able to claim for provisions made and
losses incurred.
The Nakornpathom Polyester facility that took preventive shutdown for 3 weeks
was itself not damaged and is full operation.
In compliance with Thai GAAP, the provision has been set up for impairment loss
of inventories and fixed assets in this quarter amounting to US$ 54 million
(Baht 1,645 million) in the statement of income
(Baht in million)
PET segment Packaging
segment Wool segment Total
(THB million) Total
(US$ million)
Impairment loss on fixed assets 113 487 480 1,080 35
Impairment loss on inventory 175 30 360 565 19
Total impairment loss 288 517 840 1,645 54
To equity holders 286 310 838 1,434 47
To minority interest 2 207 2 211 7
Another, US$ 5 million (Baht 162 million) has been provided as provision
directly under revaluation reserve in the shareholders equity. The recovery of
damages from insurance company is expected in partial payments and not in a
single lump sum amount. The first letter from insurance company has been
received for partial payment of US$ 1 million. IVL expect to resume the
operations from May, 2012 for the PET polymers and Packaging business and Q4,
2012 for Wool yarns business.
Outlook
The management believes that the strategic initiatives taken till date to
implement its business strategy for volume and margin growth through geographic
diversity, product diversity and integration within the Polyester Value Chain
will lead it beyond its Aspiration 2014 plan. IVL business model is evolving
with clear focus on the polyester value chain, which serves the fast moving
consumer goods (FMCG) industry through intermediate products. IVL through its
completed projects and announcements has committed itself to a capacity of 8.3
million tons (including joint ventures with capacity of 1.0 million tons per
annum) by the end of 2013. The China and Rotterdam PET plant expansion will be
completed in 2nd Quarter 2012.
Illustration of our largest acquisitions - Invista and SK assets - acquired in
March 2011 Combined Capacity EV paid EV/ton Core EBITDA for 10 months
2011 EV/EBITDA (annualized)
1,286,600 tpy $639 mln $497 $133 million 4.0 X
EV is defined as Enterprise Value - sum of Fixed Assets and Working Capital
employed.
The announcement to acquire Old World, USA, is a strategic move by IVL to
further integrate within the polyester value chain into its key raw material
Mono Ethylene Glycol "MEG" and Purified Ethylene Oxide "PEO". Strategic location
at Clear Lake site, part of a larger Celanese site with advantageous raw
material and utilities supply. MEG is a raw material in the production of PET
polymers and polyester fibers and yarns. Further, it provides platform for
growth (will be the first EO/EG business in IVL) in new products with higher
margins, Old World has an established production facility, customer base,
supplier network and an experienced management team. The acquisition is expected
to be accretive to earnings of IVL and strengthen the business for long term
sustainability. Further, it is supported by positive global outlook including in
North America for EO/MEG for growth in demand, high utilization rate and
margins. North America has available merchant supply of ethylene through network
of pipelines and advantaged feedstock source based on natural gas and shale
gas. Old World creates an opportunity to realize synergies and operational
efficiencies with IVL's existing operations of PET polymers and polyester fibers
and yarns of around 1.7 million tons in North America.
The completion of acquisition of FiberVisions in January, 2012, adds a new
product line of polypropylene based speciality fibers and in which FiberVisions
is a global market leader for high value applications fibers. The products are
used in non-woven industries and used for various applications in hygiene,
wipes, construction, automotive and textile sectors. These companies have
patents and technologies together with a strong R&D setup with substantial
accumulated research knowledge and an experienced management team. The
acquisition of FiberVisions will significantly enhance IVL's position in the
World's most specialized fibers business for hygiene products and complements
IVL's strength as the World's largest polyester producer with FiberVisions as
the largest producer of polypropylene fiber, who together will better cover
customer needs in all parts of the World.
After a slow 4Q 2011, we have seen pick-up in volumes, prices and margins in all
our business segments. We expect full year 2012 to achieve growth in revenues,
earnings and cashflows. The acquisitions completed in year 2011 have been fully
integrated and expect to get full year impact in year 2012. Further, growth
initiatives in the committed pipeline will add to the growth. Asian PTA margins
will be lower in 2012 but our plants will continue to operate at high
utilization rates and benefit from increase in captive consumption of PTA from
around 49% in our PET polymers and Polyester fibers and yarns business. The
management focus will be on consolidation and operational excellence to
translate each growth opportunity to be accretive to earnings of IVL. Please see
each segment commentary that explains the improvements underway in 2012 to
mitigate the impact of lower Asian PTA margins in 2012.
Our business today is financially stronger than it ever was with a Net
Debt/Equity of 0.7 times and a liquidity of over US$ 1.4 billion (comprising of
cash and cash equivalents of US$ 559 million and unutilized credit facilities of
around US$ 836 million) which will help us not only operate our business most
optimally but also allow us to continue to grow our business with selective and
accretive acquisitions and organic opportunities.
In line with the affordable nature of Polyester and its application in daily
consumer staples (food, beverage and clothing), all the business segments of IVL
has seen resilient consumer demand in all geographies and therefore all the
manufacturing sites of IVL achieve high utilization rates and our scale allows
for low operating cost. We expect to benefit from favorable geographical mix in
key regions where we have attained market leadership and consolidation. Our
investments in innovation or value added product lines are already contributing
to earnings and are expected to gain traction going forward.
Projects announced to-date in 1Q 2012
Approved projects from 4Q 2011 till date
In February 2012, the Board of Directors approved the acquisition of 100%
partnership interest in Old World Industries I Ltd., and Old World
Transportation Ltd., (collectively called "Old World"), located in Clear Lake,
Texas, USA. IVL has signed a definitive Purchase Agreement on 6 February 2012
with the seller in USA. The total acquisition value is US$ 795 million
(equivalent to Baht 24,645 million) which has been based on the enterprise value
of Old World and the acquisition will be financed with loans from banks and
internal cash. The Company expects the closing of the transaction within first
quarter of 2012 subject to the applicable regulatory approvals. The acquisition
is in line with IVL business strategy of integration within the polyester value
chain, to increase the margins and is the first investment in an Ethylene Oxide
and Mono Ethylene Glycol plant. Mono Ethylene Glycol (MEG) is one of the key
components, together with Purified Terephthalic Acid (PTA), in the manufacture
of Polyethylene Terephthalate (PET) and Polyester Fibers and Yarns, both
downstream products of IVL. Old World is in the business of production and sales
of ethylene oxide "EO" and derivative products from ethylene oxide: purified
ethylene oxide "PEO", monoethylene glycol "MEG", diethylene glycol "DEG", and
triethylene glycol "TEG". The plant is located within a large petrochemical hub
in Clear Lake, Texas, USA. The facility is strategically located within close
proximity of raw materials and utilities. Further, the plant is connected with
an efficient network of logistics including pipelines, deepwater terminal,
railcars and trucks. The product capacity's are as follows;
Product Capacity
(million pounds per annum) *Capacity
(tons per annum)
**EO 960 435,000
Purified EO 450 204,000
MEG 790 358,000
DEG 140 64,000
TEG 14 6,400
Total 1,394 632,400
*2,204.1 pounds is equivalent to 1 ton
**EO is an intermediate product which is further processed into Purified EO,
MEG, DEG and TEG
In January 2012, the Board approved to acquire 100% of FiberVisions Holdings
LLC, a global manufacturer of specialty mono and bi-component fibers based in
Duluth, Georgia, USA. The transaction to acquire 100% of FiberVisions was
completed on January 6, 2012 and the purchase price for business based on
enterprise value is US$ 181 million (equivalent to Baht 5,736 million).
FiberVisions has a total global capacity of 221,000 tons per annum of
specialties, with 117,000 tons per annum capacity in the United States of
America, 90,000 tons per annum capacity in Europe and 14,000 tons per annum
capacity in China. FiberVisions Holdings, LLC and its subsidiaries are the
global market leader in high value applications of fibers. The products are used
in non-woven industries and used for various applications in hygiene, wipes,
construction, automotive and textile sectors. These companies have several
valuable patents and technologies together with a strong R&D setup with
substantial accumulated research knowledge. The acquisition of FiberVisions will
significantly enhance IVL's position in the World's most specialized fibers
business for hygiene products and complements IVL's strength as the World's
largest polyester producer with FiberVisions' as the largest producer of
polypropylene fiber, who together will better cover customer needs in all parts
of the World.
In January 2012, the management announced the strategic reorganization plan of
Trevira GmbH in Germany. To improve the production and marketing efficiencies of
the Company's joint venture Trevira GmbH, management will reorganize and
consolidate the strategic location of all its filament yarn production by moving
its texturizing capacity from Zielona Gira in Poland to Guben in Germany, where
Trevira already has production facilities. This reorganization is expected to
(more)
Ref.No.IVL006/02/2012
February 22, 2012
The President
The Stock Exchange of Thailand
Subject: Submission of Annual Audited Financial Statements of Indorama Ventures
Public Company Limited for the year ended December 31, 2011 and the Management's
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Audited Financial
Statements for the year ended December 31, 2011 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the year ended December 31,
2011 and the 4th quarter of 2011 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2011
(a copy in Thai and English)
Please be informed accordingly.
Sincerely yours,
(Mr. Aloke Lohia)
Group Chief Executive Officer
Company Secretary
Tel: +66 (0) 2661-6661
Fax: +66 (0) 2661-6664
INDORAMA VENTURES PUBLIC COMPANY LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
FOR THE PERIOD OF 4Q 2011 AND THE YEAR ENDED DECEMBER 31, 2011 (CONSOLIDATED)
Year 2011 has been a year of landmark achievements for IVL with significant
growth in revenues, earnings and cashflows as well as for setting the tone for
the business going forward. The implementation of IVL's dual business strategy
to firstly integrate within the polyester value chain and secondly expand its
margins in consumer necessities and higher value addition specialty products is
in place. The company in the year 2011 completed the TSR shares and maiden
debentures issue to maintain liquidity and financial discipline. Indorama
Ventures PCL (SET: "IVL") for year 2011 acheived a consolidated sales of US$
6,102 million, consolidated EBITDA of US$ 558 million (Baht 17,021 million),
consolidated net profit after tax and minority (including exceptional items) of
US$ 510 million (Baht 15,568 million) and return on capital employed of 16%. The
consolidated financial position has continued to remain strong and at the end
of December, 2011 the net gearing reduced from 48% to 43% with high liquidity of
around US$ 1,395 million which includes cash and cash equivalents and
unutilized credit lines.
The annual volume growth of 37% over 2010 has translated into growth in both
Consolidated EBITDA and Core EBITDA. In 2011 the reported Consolidated EBITDA
was US$ 558 million a growth of 28% over the last year and the Core EBITDA was
US$ 552 million a growth of 38% over the same period. IVL achieved a Core EBITDA
per ton of US$ 127 in year 2011 and US$ 125 in year 2010.
Key Financial Information
US$ in Millions
4Q11 3Q11 4Q10 FY11 FY10
Exchange Rate Baht vs US$ 31.69 31.17 30.15 31.69 30.15
Exchange Rate Baht vs Euro 41.03 42.24 39.94 41.03 39.94
*Consolidated Sales 1,394 1,689 838 6,102 3,055
PET resins 975 1,214 483 4,252 1,832
Polyester & wool 196 230 120 826 429
PTA 231 255 234 1,040 795
Consolidated EBITDA 43 153 141 558 435
PET resins 33 103 70 358 237
Polyester & wool 15 25 27 107 70
PTA 0 22 45 101 129
*Core EBITDA 79 135 105 552 399
PET resins 55 96 51 361 216
Polyester & wool 23 19 20 108 64
PTA 6 19 33 94 119
Net profit after tax and minority (51) 120 134 510 328
**Extraordinary items (gain) loss 66 (50) (75) (213) (113)
Core Net profit after tax and minority 15 70 59 297 215
CAPEX and investment 177 74 120 1,032 206
Net Debt 1,377 1,238 996 1,377 996
Net Debt to Equity 0.7 0.6 0.9 0.7 0.9
Interest Coverage 2.7 9.1 12.0 9.0 10.6
ROE -11% 25% 55% 35% 42%
ROCE 1% 15% 23% 16% 18%
EPS (Baht) (0.30) 0.75 0.92 3.29 2.46
Normalised EPS (Baht) 0.10 0.44 0.41 1.91 1.61
*See note 1) on page 9, consolidated financials are based upon elimination of
intra-company (or intra business segment) transactions
**See Table of Net Profit on page 4
At the same time year 2011 has seen high volatility in prices of crude and
petrochemicals, impacted by global macro environment, in particular led by
Europe debt crisis, increase in natural disasters (in Australia, Japan, USA and
Thailand) have led to high volatility in crude price and commodity prices and in
the last quarter a phase of de-stocking caused by general hesitancy and
uncertainity in wake of sharply falling product prices.
Despite volatility, IVL business model of global diversity, product diversity
and integration creates meaningful hedges and as such IVL has been able to
maintain high volume growth through completed acquisitions that have been
successfully integrated into the IVL portfolio. The 2011 acquisitions include
PET plant in China, the Invista PET and Polyester plants in USA & Mexico, the SK
Chemicals PET and Polyester plants in Indonesia and Poland, and recently the
recycle and fiber manufacturing businesses of Wellman International in Europe,
driving the total production volume in 2011 to 4.4 million tons or a growth of
37% over last year. During 2011, IVL also completed the joint ventures
investment of Trevira Polyester business in Germany and Polyprima PTA business
in Indonesia, of which production volume are not included. Further, the
end-product demand of PET polymers and Polyester fibers and yarns is linked to
consumer goods for daily necessities, which allows maintaining volume growth and
consistent spreads on an annual basis. The acquisitions have added to the
portfolio of IVL a platform for product innovation, recycling and pool of
experienced management.
The volume growth of 37% achieved is after taking into account production loss
from disruption in plant operations from tornados in AlphaPet plant, Alabama,
USA in 2Q 2011, break-down of a production line at Indorama Polyester
Industries, Rayong facility in 2Q 2011 and from floods at Lopburi site in
Thailand which forced Indorama Polymers, Asia Pet, Indorama Holdings and Petform
to shut down since end of September 2011. The impacted assets are all covered
by comprehensive insurance policy for damage to property, plant and equipment,
inventories and loss from business interruption and the claims have been
submitted to insurance company for property, plant and equipment and
inventories.
IVL witnessed growth in production volume QonQ in line with acquisitions upto
Q3, 2011. 4Q 2011 was impacted by a phase of de-stocking of inventories on
sharply falling prices led by the Euro area crisis, which resulted in lower
production volume.
In Thailand, IVL incurred total loss of production volume from plants in
Lopburi, which were shutdown for the full quarter impacted by floods and also
shutdown of its Nakornpathom facility for 3 weeks as a preventive measure to
protect from the raging floods. YonY all quarters maintained growth. Year 2012
will be the first full year of operations for around 2.3 million tons of
capacity acquired in year 2011.
The chart below provides details of quarterly movement in production volume;
The loss of volumes due to floods in Thailand and the production cuts taken in
Europe and USA due to Euro zone crisis in 4Q 2011 resulted in lower reported
Consolidated EBITDA of US$ 43 million a decrease of 72% QonQ and 70% over 4Q
2010 and Core EBITDA (after adjusting for inventory gain/loss) which was US$ 79
million a decrease of 42% QonQ and 24% over 4Q 2010. The impact on Core EBITDA
is due to lower volumes across all segments, lower margins in PET in Europe and
USA and significantly lower PTA margins in Asia. EBITDA was negatively impacted
due to lower utilization rates, which led to higher conversion costs. The Core
EBITDA per ton in 4Q 2011 was lower at US$ 75 per ton due to depressed
sentiments and significantly lower PTA margins.
The table below provides details on movement of Consolidated EBITDA and Core
EBITDA in year 2011:
(in US$ million except per ton data)
2011 2010
Consolidated EBITDA 558 435
Inventory (gain) loss (6) (36)
Core EBITDA 552 399
Reported EBITDA/Ton $128 $136
Core EBITDA/Ton $127 $125
The net profit after tax and minority in 2011 is US$ 510 million which is 55%
higher than US$ 328 million in 2010. The net profit after tax and minority after
excluding extraordinary items in 2011 is US$ 297 million which is 38% higher
than US$ 215 million in 2010 (after excluding extraordinary gain of US$ 113
million). The net profit after tax and minority of US$ 297 million in 2011
excludes net extraordinary gain of US$ 213 million of which US$ 274 million is
towards income from gain on a bargain purchase or Negative goodwill on completed
acquisitions, US$ 20 million towards transaction expenses incurred on
acquisitions completed during the year, US$ 47 million towards impairment loss
due to floods, and US$ 6 million towards inventory gain.
IVL reported net loss after tax and minority in 4Q 2011 of US$ 51 million which
is lower than profit of US$ 120 million in 3Q 2011 and US$ 134 million in 4Q
2010. Without the extraordinary items, the result would be net profit after tax
and minority of US$ 15 million, comparing with US$ 70 million in 3Q 2011 and US$
59 million in 4Q 2010. The net extraordinary loss in 4Q 2011 is US$ 66 million
which comprises of gain of US$ 25 million towards income from gain on a bargain
purchase or Negative goodwill on acquisition of Wellman and joint venture
investment in Trevira and Polyprima, US$ 8 million towards transaction expenses
incurred on acquisitions, US$ 47 million towards impairment loss due to floods,
and US$ 36 million towards inventory loss.
IVL net loss in 4Q 2011 was after considering the impact of US$ 9 million loss
in equity earnings due to the sharply lower prices for Polyester value chain led
by the negative sentiments due to the Euro area crisis that led to de-stocking.
The table below shows movement from reported net profit after tax and minority
interest to normalized net profit after tax and minority interest in US$
million:
4Q11 3Q11 4Q10 2011 2010
Net profit after tax and minority (51) 120 134 510 328
Extraordinary items:
Gain on bargain purchase and acquisition costs (17) (34) (38) (254) (76)
Provision for impairment due to flood 47 - - 47 -
Inventory (gain) loss 36 (16) (37) (6) (37)
Operating net profit after tax and minority 15 70 59 297 215
Floods in Lopburi, Thailand
The Group's operations in Lopburi, directly and indirectly owned by
subsidiaries, have been and continue to be, adversely affected by the unusually
severe flooding in parts of Thailand. The production plants at Lopburi site were
inundated by flood water on 23 September 2011 causing the production at those
plants for PET polymers, Packaging and Wool yarns to stop from that date. The
restroration work is ongoing at site, repairs of equipment and new machinery for
replacement has been ordered. As of the date of the approval of these
consolidated financial statements, management and surveyors have entered and
carried-out out a detailed review of the damage and filed insurance claim for
damages to inventories and property, plant and equipment with the insurance
company. The loss of profit from business interruption is being assessed by the
management and surveyors and a claim in this regard will be later filed with the
insurance company. The Group is protected for Lopburi site by insurance
policies for Industrial All Risk and Business Interruption with sum insured of
Baht 7,277 million and Baht 1,599 million, respectively. The management
believes that any damages will be fully covered by the Group's insurance
policies through which the Group will be able to claim for provisions made and
losses incurred.
The Nakornpathom Polyester facility that took preventive shutdown for 3 weeks
was itself not damaged and is full operation.
In compliance with Thai GAAP, the provision has been set up for impairment loss
of inventories and fixed assets in this quarter amounting to US$ 54 million
(Baht 1,645 million) in the statement of income
(Baht in million)
PET segment Packaging
segment Wool segment Total
(THB million) Total
(US$ million)
Impairment loss on fixed assets 113 487 480 1,080 35
Impairment loss on inventory 175 30 360 565 19
Total impairment loss 288 517 840 1,645 54
To equity holders 286 310 838 1,434 47
To minority interest 2 207 2 211 7
Another, US$ 5 million (Baht 162 million) has been provided as provision
directly under revaluation reserve in the shareholders equity. The recovery of
damages from insurance company is expected in partial payments and not in a
single lump sum amount. The first letter from insurance company has been
received for partial payment of US$ 1 million. IVL expect to resume the
operations from May, 2012 for the PET polymers and Packaging business and Q4,
2012 for Wool yarns business.
Outlook
The management believes that the strategic initiatives taken till date to
implement its business strategy for volume and margin growth through geographic
diversity, product diversity and integration within the Polyester Value Chain
will lead it beyond its Aspiration 2014 plan. IVL business model is evolving
with clear focus on the polyester value chain, which serves the fast moving
consumer goods (FMCG) industry through intermediate products. IVL through its
completed projects and announcements has committed itself to a capacity of 8.3
million tons (including joint ventures with capacity of 1.0 million tons per
annum) by the end of 2013. The China and Rotterdam PET plant expansion will be
completed in 2nd Quarter 2012.
Illustration of our largest acquisitions - Invista and SK assets - acquired in
March 2011 Combined Capacity EV paid EV/ton Core EBITDA for 10 months
2011 EV/EBITDA (annualized)
1,286,600 tpy $639 mln $497 $133 million 4.0 X
EV is defined as Enterprise Value - sum of Fixed Assets and Working Capital
employed.
The announcement to acquire Old World, USA, is a strategic move by IVL to
further integrate within the polyester value chain into its key raw material
Mono Ethylene Glycol "MEG" and Purified Ethylene Oxide "PEO". Strategic location
at Clear Lake site, part of a larger Celanese site with advantageous raw
material and utilities supply. MEG is a raw material in the production of PET
polymers and polyester fibers and yarns. Further, it provides platform for
growth (will be the first EO/EG business in IVL) in new products with higher
margins, Old World has an established production facility, customer base,
supplier network and an experienced management team. The acquisition is expected
to be accretive to earnings of IVL and strengthen the business for long term
sustainability. Further, it is supported by positive global outlook including in
North America for EO/MEG for growth in demand, high utilization rate and
margins. North America has available merchant supply of ethylene through network
of pipelines and advantaged feedstock source based on natural gas and shale
gas. Old World creates an opportunity to realize synergies and operational
efficiencies with IVL's existing operations of PET polymers and polyester fibers
and yarns of around 1.7 million tons in North America.
The completion of acquisition of FiberVisions in January, 2012, adds a new
product line of polypropylene based speciality fibers and in which FiberVisions
is a global market leader for high value applications fibers. The products are
used in non-woven industries and used for various applications in hygiene,
wipes, construction, automotive and textile sectors. These companies have
patents and technologies together with a strong R&D setup with substantial
accumulated research knowledge and an experienced management team. The
acquisition of FiberVisions will significantly enhance IVL's position in the
World's most specialized fibers business for hygiene products and complements
IVL's strength as the World's largest polyester producer with FiberVisions as
the largest producer of polypropylene fiber, who together will better cover
customer needs in all parts of the World.
After a slow 4Q 2011, we have seen pick-up in volumes, prices and margins in all
our business segments. We expect full year 2012 to achieve growth in revenues,
earnings and cashflows. The acquisitions completed in year 2011 have been fully
integrated and expect to get full year impact in year 2012. Further, growth
initiatives in the committed pipeline will add to the growth. Asian PTA margins
will be lower in 2012 but our plants will continue to operate at high
utilization rates and benefit from increase in captive consumption of PTA from
around 49% in our PET polymers and Polyester fibers and yarns business. The
management focus will be on consolidation and operational excellence to
translate each growth opportunity to be accretive to earnings of IVL. Please see
each segment commentary that explains the improvements underway in 2012 to
mitigate the impact of lower Asian PTA margins in 2012.
Our business today is financially stronger than it ever was with a Net
Debt/Equity of 0.7 times and a liquidity of over US$ 1.4 billion (comprising of
cash and cash equivalents of US$ 559 million and unutilized credit facilities of
around US$ 836 million) which will help us not only operate our business most
optimally but also allow us to continue to grow our business with selective and
accretive acquisitions and organic opportunities.
In line with the affordable nature of Polyester and its application in daily
consumer staples (food, beverage and clothing), all the business segments of IVL
has seen resilient consumer demand in all geographies and therefore all the
manufacturing sites of IVL achieve high utilization rates and our scale allows
for low operating cost. We expect to benefit from favorable geographical mix in
key regions where we have attained market leadership and consolidation. Our
investments in innovation or value added product lines are already contributing
to earnings and are expected to gain traction going forward.
Projects announced to-date in 1Q 2012
Approved projects from 4Q 2011 till date
In February 2012, the Board of Directors approved the acquisition of 100%
partnership interest in Old World Industries I Ltd., and Old World
Transportation Ltd., (collectively called "Old World"), located in Clear Lake,
Texas, USA. IVL has signed a definitive Purchase Agreement on 6 February 2012
with the seller in USA. The total acquisition value is US$ 795 million
(equivalent to Baht 24,645 million) which has been based on the enterprise value
of Old World and the acquisition will be financed with loans from banks and
internal cash. The Company expects the closing of the transaction within first
quarter of 2012 subject to the applicable regulatory approvals. The acquisition
is in line with IVL business strategy of integration within the polyester value
chain, to increase the margins and is the first investment in an Ethylene Oxide
and Mono Ethylene Glycol plant. Mono Ethylene Glycol (MEG) is one of the key
components, together with Purified Terephthalic Acid (PTA), in the manufacture
of Polyethylene Terephthalate (PET) and Polyester Fibers and Yarns, both
downstream products of IVL. Old World is in the business of production and sales
of ethylene oxide "EO" and derivative products from ethylene oxide: purified
ethylene oxide "PEO", monoethylene glycol "MEG", diethylene glycol "DEG", and
triethylene glycol "TEG". The plant is located within a large petrochemical hub
in Clear Lake, Texas, USA. The facility is strategically located within close
proximity of raw materials and utilities. Further, the plant is connected with
an efficient network of logistics including pipelines, deepwater terminal,
railcars and trucks. The product capacity's are as follows;
Product Capacity
(million pounds per annum) *Capacity
(tons per annum)
**EO 960 435,000
Purified EO 450 204,000
MEG 790 358,000
DEG 140 64,000
TEG 14 6,400
Total 1,394 632,400
*2,204.1 pounds is equivalent to 1 ton
**EO is an intermediate product which is further processed into Purified EO,
MEG, DEG and TEG
In January 2012, the Board approved to acquire 100% of FiberVisions Holdings
LLC, a global manufacturer of specialty mono and bi-component fibers based in
Duluth, Georgia, USA. The transaction to acquire 100% of FiberVisions was
completed on January 6, 2012 and the purchase price for business based on
enterprise value is US$ 181 million (equivalent to Baht 5,736 million).
FiberVisions has a total global capacity of 221,000 tons per annum of
specialties, with 117,000 tons per annum capacity in the United States of
America, 90,000 tons per annum capacity in Europe and 14,000 tons per annum
capacity in China. FiberVisions Holdings, LLC and its subsidiaries are the
global market leader in high value applications of fibers. The products are used
in non-woven industries and used for various applications in hygiene, wipes,
construction, automotive and textile sectors. These companies have several
valuable patents and technologies together with a strong R&D setup with
substantial accumulated research knowledge. The acquisition of FiberVisions will
significantly enhance IVL's position in the World's most specialized fibers
business for hygiene products and complements IVL's strength as the World's
largest polyester producer with FiberVisions' as the largest producer of
polypropylene fiber, who together will better cover customer needs in all parts
of the World.
In January 2012, the management announced the strategic reorganization plan of
Trevira GmbH in Germany. To improve the production and marketing efficiencies of
the Company's joint venture Trevira GmbH, management will reorganize and
consolidate the strategic location of all its filament yarn production by moving
its texturizing capacity from Zielona Gira in Poland to Guben in Germany, where
Trevira already has production facilities. This reorganization is expected to
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