Reports to the Stock Exchange
Management's Discussion and Analysis Q3-2012
Management Discussion and Analysis
Ref. No. IVL001/11/2012
14 Nov 2012
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures Public
Company Limited for the third quarter of 2012 and the ninth months ended
September 30, 2012 and the Management Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Reviewed Financial Statements for
the third quarter of 2012 and the ninth months ended September 30, 2012 (a copy
in Thai and English)
2. Management Discussion and Analysis (MD&A) for the third quarter of 2012 and
the ninth months ended September 30, 2012 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the third quarter of 2012 and
the ninth months ended September 30, 2012 (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 3Q 2012 AND 9 MONTHS ENDED SEPTEMBER 30, 2012 (CONSOLIDATED)
Indorama Ventures PCL (SET: "IVL") for the third quarter of 2012 achieved a
consolidated sales of US$ 1,697 million (Baht 53,249 million), consolidated
reported EBITDA of US$ 122 million (Baht 3,818 million), consolidated net profit
after tax and minority of US$ 50 million (Baht 1,566 million), and a
consolidated return on average net operating capital employed of 6% on an
annualized basis.
The volume increased by 5% over 2Q12, from 1.35 million tonnes to 1.41 million
tonnes in 3Q12, and the reported EBITDA increased by 17% to US$ 122 million in
3Q12.
Key Financial Information
US$ in Millions THB in Millions
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
*Consolidated Sales 1,697 1,741 1,689
53,249 54,495 50,909
PET resins 1,080 1,105 1,214 33,895 34,600 36,569
Fibers & Yarns 330 327 230 10,356 10,227 6,927
Feedstock 553 576 509 17,352 18,022 15,343
*Consolidated EBITDA 122 105 153
3,818 3,271 4,616
PET resins 49 45 86
1,544 1,398 2,601
Fibers & Yarns 18 16 19
577 511 559
Feedstock 56 41 45
1,742 1,287 1,354
**Core EBITDA 110 151 136
3,442 4,711 4,085
PET resins 47 69 78
1,477 2,154 2,349
Fibers & Yarns 14 27 13
447 836 384
Feedstock 50 53 41
1,560 1,647 1,239
Net profit after tax and minority 50 39 139 1,566 1,226
4,158
CAPEX and investment 172 848 74 5,449 26,453
2,163
Net Operating Debt 2,103 2,111 1,159 64,823 67,172
36,128
Net Operating Debt to Equity 1.1 1.1
0.6 1.1 1.1 0.6
ROCE 6% 5% 15% 6% 5% 15%
EPS - annualized (Baht) 1.30 1.02 3.45
1.30 1.02 3.45
See note on page 9
* Consolidated financials are based upon elimination of intra-company (or intra
business segment) transactions.
** Core Ebitda is Consolidated Ebitda less Inventory gain/(loss)
IVL achieved a core EBITDA per tonne of US$ 78 in 3Q 2012 against US$ 112 in 2Q
2012. Core earnings were primarily impacted by significantly weak margins in our
Asian business across the value chain of PTA, PET and Polyester due to the:
- Continuing Chinese slowdown, reflected by quarter on quarter drop in their
economy for last many quarters on all major economic indicators.
- Continuing oversupply of PTA in Asia, weakening margins across the value chain
in Asia in particular and to a lesser extent in Europe.
The MEG business and the North American PET and Polyester business were stable
during the period. The overall demand for PET and Polyester was in line with
historical trend and therefore the underlying fundamentals for Polyester value
chain remains attractive.
IVL's business model of global and product diversity as well as backward
integration creates a meaningful hedge against weakness in a particular region
or segment as reflected by its performance.
The table below provides details on Consolidated EBITDA and Core EBITDA:
US$ in Millions THB in million
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
Consolidated EBITDA 122 105 153
3,818 3,271 4,616
Inventory (gain) loss (12) 46 (18) (377) 1,440 (531)
Core EBITDA 110 151 136 3,442 4,711 4,085
The table below gives details of exceptional items:
US$ in Millions THB in million
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
Gain on a bargain purchase 4 - 34
121 - 1,033
Acquisition related costs (2) (5)
(1) (60) (169) (20)
Flood related and other extraordinary items 14 37
- 431 1,150 -
Total Exceptional Income 16 32 33
492 981 1,013
Feedstock segment (PTA and Oxides & Glycols)
PTA business
The graph below portrays the volatility that commodities have faced over the
last few quarters. Asian PTA margins in 3Q12 continued to remain below industry
conversion costs, like first half of 2012. IVL is taking steps to put in place
new contracts for 2013 with floor mechanisms in order to protect its margin
during this down cycle.
Source: Industry Data, IVL Analysis
Oxides and Glycols business
The charts below help explain the IVL Oxides and Glycols business in North
America. The key difference between Asia and North America is the sourcing and
economics of ethylene feedstock and premium MEG prices.
Ethylene in Asia is priced off Naphtha feed whereas in North America it is based
on gas, which, due to shale gas discoveries, is in abundance.
MEG prices in North America are at a premium because they track Asian prices due
to the large consumption in of Polyesters in Asia, especially in China.
Therefore MEG margins in North America are higher and less volatile than Asia as
can be seen in the charts.
Source: Industry Data, IVL Analysis
Topline
The charts below provide details of quarterly production volumes and US Dollar
sales, both regional and segment wise. IVL continues to gain market share in all
regions and segments.
Note: Revenue of each region and segment is after inter-region and inter-segment
elimination.
Bottomline
The chart below provides details of the EBITDA for last few quarters.
The losses due to Lopburi floods, the severe decline in PTA margins and the
subdued sentiment in Asia have significantly impacted EBITDA in Asia since 4Q11,
roughly on a third of our business. Management believes that overall
improvement can be anticipated firstly from the operational improvement projects
that have taken place in 2012; the debottlenecking of our China capacity to
522kt per annum, the start up of the Nigeria SSP plant, and the acquisition of
PET capacity in Indonesia in 3Q 2012. Secondly, the improvement in the macro
environment in China and India is anticipated to lead to an improved sentiments
and therefore partial recovery of PTA margins that are currently below cash
costs for the majority of the industry in Asia.
Regionally, North America remained the top performer while Europe was slightly
weaker in light of the continued Greek-led crisis that has engulfed most of
South Europe. Operational excellence measures at Spartanburg, a Brownfield
capacity addition at Rotterdam, which is due to commence operations in 4Q 2012,
as well as the addition of the Oxide and Glycols business in North America, will
potentially offset the weak PTA and PET margins in Asia.
Outlook
The last 12 months has witnessed extreme volatility that closely shadows what we
experienced in the second half of 2008. This time, though, we are also
experiencing a slowdown in Asia, particularly China and India. The severity
highly correlated to Chinese overcapacity across the downstream petrochemicals,
including PTA, PET and Polyester fibers.
The tightness in MEG and Paraxylene will limit over supply of PET and Polyester.
Current Asian margins below cash cost will squeeze marginal producers of
Polyester value chain leading to gradual recovery of margins during 2013.
IVL core end products are PET and Polyester fibers. We have an established
supply chain and a strong financial profile. We have global leadership in this
segment.
These end products are the lowest cost, in their space with high performance and
ample R&D potential to innovate and enhance end use. Among conventional
packaging materials like glass and aluminum, PET is the most affordable, whereas
Polyester is cheaper then cotton. Therefore growth in Polyester chain continues
at historical rates showing resilience.
Our continuing top-line growth, despite the turbulent global markets, is a
testament to Indorama Ventures' business, which is a "bridge" between upstream
chemical suppliers and consumer staple products. IVL products primarily go to
consumer necessities and affordable segments and therefore are much more
resilient in economic downturns. IVL products are truly everywhere in the daily
necessities that each one of us uses every day. We are an industrial segment
with integration into chemicals, which are our feedstocks like PTA and MEG. The
integration allows us to secure sufficient feedstock and to be more reliable to
our customers, whereby we gain market share.
Asian PTA margins will remain low throughout 2012 but our plants continue to
operate at high utilization rates and benefit from the increase in captive
demand from PET & Polyester business. The management focus is on consolidation
and operational excellence to translate each business to be accretive to IVL
earnings. Various Brownfield growth plans are underway which will further
improve our cost structure. Please see each segment commentary that further
explains the improvements underway.
In line with the affordable nature of Polyester and its application in daily
consumer staples (food, beverage and clothing), we expect to benefit from a
favorable geographical mix in key regions where we have attained market
leadership and consolidation. Our investments in innovation or value-added
product lines are expected to gain traction going forward and to provide new
growth areas for IVL, especially in emerging markets.
IVL business model of global and product diversity as well as backwards
integration creates meaningful hedges and as such delivers above average
returns. Management is focused on the consolidation of businesses acquired to
bring about significant gains from synergies and as well from new products by
leveraging on our industry leading innovation platform. We remain very
optimistic about the Polyester Value Chain and IVL leadership within this chain.
We are well-positioned to take significant advantage when the global recovery
takes place. Meanwhile, we are confident that our portfolio will continue to
deliver the lowest cost quartile results.
Ongoing Projects under Implementation
Announced Date Project Location
Segment Capacity
(tonnes per annum) Timeline
Expansion in Existing Location
May'2010 Brownfield expansion of PET production in Rotterdam Rotterdam,
Netherlands
PET 187,000 4Q12
Increased market presence and improves overall cost profile of the site and in
EMEA
Mar'2011 Investment in continuous polymerization resin plant in Indonesia
Purwakarta, Indonesia Fibers & Yarns 300,000 2H13
The company's most dynamic polyester site is under construction in Indonesia.
Amongst lowest cost site in Fiber space and substantially improves cost profile
in Asia
Apr'2011 Debottleneck of PET Polymers production in Poland Poland
PET ~100,000 2014
Better market reach and savings in conversion cost
May'2011 Brownfield expansion of PTA in Rotterdam, enhancing integration for PET
production in Europe Rotterdam, Netherlands
PTA 250,000 2014
Better Integration and improves overall cost profile of the site and in EMEA
Jun'2011 42% joint venture investment in PT Polyprima Karyesreska, a PTA
producer, using Invista technology. The plant is currently under maintenance,
revamping and capacity de-bottlenecking. This investment will secure the PTA
supplies for IVL PET & Polyester plants in Indonesia Cilegon,
West Java, Indonesia
Feedstock 500,000 2013
Better Integration and savings in logistics
Nov'2012 Expansion of PET production in North America USA
PET 540,000 2015
Increased market presence, and substantially improves overall cost profile of
the site and in NA
Recycling and Innovation
Aug'2011 Investment in production of recycled PET in IPI Nakhon Pathom Nakhon
Pathom, Thailand Fibers & Yarns 28,500 2H13
Enhance capabilities to recycle in Asia
Aug'2011 Investment in bi-component fibers project for hygiene application, with
Japan's Toyobo technology (16kt) and CP Boosting (5kt) Rayong, Thailand Fibers
& Yarns 21,000 1H13
Increase Hygiene products to Asian portfolio
Aug'2011 Investment in high quality bi-component yarns "FINNE" through a single
step process at PT IVI plant Tangerang, Indonesia Fibers & Yarns 16,000 1H14
Increase Specialty products to Asian portfolio
All expansions are accretive to earnings and have a clear strategic rationale
for expansion.
On completion of all the announced acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business with a total capacity of
9.0 million tonnes per annum (including joint ventures Ottana Polimeri, Trevira
and Polyprima, which will be accounted for as equity income). IVL has a leading
market position within the Polyester Value Chain in Thailand, North America and
Europe.
Unit: Million tonnes per annum Additions PET Fibers & Yarns PTA EO/EG Total
2011 Capacity
China 0.406 0.406
Europe* 0.921 0.273 0.561 1.755
Indonesia 0.088 0.110 0.198
North America 1.555 0.071 1.626
Thailand 0.281 0.290 1.373 1.944
Global 3.251 0.744 1.934 5.929
*JV capacity included 0.161 0.120 0.184 0.465
Additions in 2012
China China-Exp. 0.116 0.116
Europe IRP-Rotterdam 0.031 0.031
Indonesia Polypet Acqn. 0.101 0.101
Indonesia* Polyprima JV 0.500 0.500
MEA Nigeria Greenfield 0.084 0.084
North America Oxide & Glycols(2) 0.550 0.550
North America Fibervision 0.221 0.221
Thailand TPT-Debottl. 0.011 0.011
Global 0.332 0.221 0.511 0.550 1.614
*JV capacity included 0.500 0.500
Additions in 2013
Europe IRP-Rotterdam 0.156 0.156
Indonesia CP4-Greenfield 0.300 0.300
Thailand IPI- BICO/CP 0.021 0.021
Thailand IPI- Recycling 0.028 0.028
Global 0.156 0.349 0.505
Additions in 2014
Europe Poland-Exp.(3) 0.100 0.100
Europe Rotterdam-Exp. 0.250 0.250
Indonesia FINNE-Exp. 0.016 0.016
Global 0.100 0.016 0.250 0.366
Additions in 2015
North America Expansion 0.540 0.540
Global 0.540 0.540
Committed & Announced Capacity
China 0.522 0.522
Europe* 1.208 0.273 0.811 2.292
Indonesia* 0.189 0.426 0.500 1.115
MEA 0.084 0.084
North America 2.095 0.292 0.550 2.937
Thailand 0.281 0.339 1.384 2.004
Global 4.379 1.330 2.695 0.550 8.954
*JV capacity include 0.161 0.120 0.684 0.965
1. Reported volumes for capacity, production, sales and utilization include only
consolidated volumes and exclude Equity income volume, 2. Glycols & Oxide
capacity is taken at 550kt pa, based on Glycols equivalent derived capacity from
Ethylene feed capacity of 330kt pa.,3. Poland is now expected to be
debottlenecked by 100kt, then earlier 220kt expansion.
Notes
Starting from 2Q12 onward, we began looking at IVL business as three segments:
PET resins, Fibers & Yarns, and Feedstocks. The Feedstock segment comprises PTA
and Oxide & Glycols businesses, of which the majority constitutes key raw
materials for the other two downstream segments. In addition, there is no
allocation of PTA earnings to PET and Polyester segment (based on the proportion
of sales) in this quarter and its comparable period.
The consolidated financials are based upon the elimination of intra-company (or
intra-business segment) transactions. For this reason the total of each segment
may not tally with consolidated financials.
Net profit after tax and minority for 3Q 2012 includes net extraordinary gain of
US$ 28 million (Baht 868 million) of which US$ 4 (Baht 121 million) is towards
income from a gain on bargain purchase, or negative goodwill, for completed
acquisitions (details are provided in the Note 3 - Acquisitions of Subsidiaries
in the Reviewed Financial Statements); US$ 2 million (Baht 60 million) goes
towards transaction expenses incurred on acquisitions completed during the year
and pre-operational acquisitions; US$ 14 million (Baht 447 million) towards
insurance income received and a reversal of impairment loss due to flood; US$
0.5 million (Baht 16 million) towards other extraordinary loss, and US$ 12
million (Baht 377 million) towards inventory gain.
Net profit after tax and minority for 2Q 2012 includes a net extraordinary gain
of US$ 15 million (Baht 459 million) of which US$ 5 million (Baht 169 million)
goes towards transaction expenses incurred on acquisitions completed during the
year and pre-operational acquisitions; US$ 37 million (Baht 1,140 million)
towards insurance income received and a reversal of impairment loss due to
flood; US$ 0.4 million (Baht 11 million) towards other extraordinary gains, and
US$ 46 million (Baht 1,440 million) towards inventory loss.
Net profit after tax and minority for 3Q 2011 includes a net extraordinary gain
of US$ 51 million (Baht 1,544 million) of which US$ 34 (Baht 1,033 million) is
towards income from a gain on bargain purchase, or negative goodwill, for
completed acquisitions; US$ 1 million (Baht 20 million) goes towards transaction
expenses incurred on acquisitions completed during the year; and US$ 18 million
(Baht 531 million) towards inventory gain.
Core EBITDA is after excluding inventory gains/losses from reported EBITDA.
Inventory gains/losses in a period result from the movement in prices of raw
materials and products from the end of the last reported period to the end of
the current reported period. The cost of sales is impacted by inventory
gains/losses wherein inventory gains decrease cost of sales and inventory losses
increase cost of sales.
Net operating debt is defined as Net debt (Total debt minus cash and cash under
management) minus the project spending for various Brownfield expansions
underway which are not completed and have not yet started contributing to the
earnings of IVL.
Forward-Looking Statements: This earnings release includes forward-looking
statements concerning current expectations for demand for the company's
products, implementation and impact of previously announced growth initiatives,
Such expectations are based upon certain preliminary information, internal
estimates, and management assumptions, expectations, and plans, and are subject
to a number of risks and uncertainties inherent in projecting future conditions,
events, and results. Actual results could differ materially from expectations
expressed in the forward-looking statements if one or more of the underlying
assumptions or expectations prove to be inaccurate or are unrealized.
The Polyester Chain businesses are generally traded in US dollars and therefore
IVL believes in helping its reader with translated US Dollar figures. IVL
reporting currency is in Thai Baht and the accompanying pages are an integral
part of this report. The accompanying pages report the Reviewed Thai Baht
results and its translation in US Dollars at average exchange rates and closing
exchange rates where applicable. Readers should rely on the Thai Baht results
only.
IVL CONSOLIDATED RESULTS
Financial Status and Ratios
IVL net operating debt to equity remain at 1.1 times in 3Q 2012 [post
acquisition of Indorama Ventures (Oxide and Glycols) Limited in April 2012],
which is higher than 0.6 times at the end of year 2011. In 3Q 2012 IVL spent
total capex and investment of US$ 172 million, primarily for the acquisitions of
Polypet in Indonesia, additional investment in Indonesia Fibers Greenfield
project and other ongoing brownfield expansions. The capex and investments have
been funded with a mix of long term loans, cash proceeds from debentures issue
and cash flow from operations. IVL net operating debt increased from US$ 1,166
million at end of December 31, 2011 to US$ 2,103 million at the end of September
30, 2012.
The table below provides movement of total debt and net operating debt in US$
millions:
Details 3Q12 2Q12 3Q11 4Q11
Bank overdraft and short-term loans 352 457 331 432
% of Total Debt 14% 17% 21% 22%
(more)
Ref. No. IVL001/11/2012
14 Nov 2012
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures Public
Company Limited for the third quarter of 2012 and the ninth months ended
September 30, 2012 and the Management Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Reviewed Financial Statements for
the third quarter of 2012 and the ninth months ended September 30, 2012 (a copy
in Thai and English)
2. Management Discussion and Analysis (MD&A) for the third quarter of 2012 and
the ninth months ended September 30, 2012 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the third quarter of 2012 and
the ninth months ended September 30, 2012 (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 3Q 2012 AND 9 MONTHS ENDED SEPTEMBER 30, 2012 (CONSOLIDATED)
Indorama Ventures PCL (SET: "IVL") for the third quarter of 2012 achieved a
consolidated sales of US$ 1,697 million (Baht 53,249 million), consolidated
reported EBITDA of US$ 122 million (Baht 3,818 million), consolidated net profit
after tax and minority of US$ 50 million (Baht 1,566 million), and a
consolidated return on average net operating capital employed of 6% on an
annualized basis.
The volume increased by 5% over 2Q12, from 1.35 million tonnes to 1.41 million
tonnes in 3Q12, and the reported EBITDA increased by 17% to US$ 122 million in
3Q12.
Key Financial Information
US$ in Millions THB in Millions
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
*Consolidated Sales 1,697 1,741 1,689
53,249 54,495 50,909
PET resins 1,080 1,105 1,214 33,895 34,600 36,569
Fibers & Yarns 330 327 230 10,356 10,227 6,927
Feedstock 553 576 509 17,352 18,022 15,343
*Consolidated EBITDA 122 105 153
3,818 3,271 4,616
PET resins 49 45 86
1,544 1,398 2,601
Fibers & Yarns 18 16 19
577 511 559
Feedstock 56 41 45
1,742 1,287 1,354
**Core EBITDA 110 151 136
3,442 4,711 4,085
PET resins 47 69 78
1,477 2,154 2,349
Fibers & Yarns 14 27 13
447 836 384
Feedstock 50 53 41
1,560 1,647 1,239
Net profit after tax and minority 50 39 139 1,566 1,226
4,158
CAPEX and investment 172 848 74 5,449 26,453
2,163
Net Operating Debt 2,103 2,111 1,159 64,823 67,172
36,128
Net Operating Debt to Equity 1.1 1.1
0.6 1.1 1.1 0.6
ROCE 6% 5% 15% 6% 5% 15%
EPS - annualized (Baht) 1.30 1.02 3.45
1.30 1.02 3.45
See note on page 9
* Consolidated financials are based upon elimination of intra-company (or intra
business segment) transactions.
** Core Ebitda is Consolidated Ebitda less Inventory gain/(loss)
IVL achieved a core EBITDA per tonne of US$ 78 in 3Q 2012 against US$ 112 in 2Q
2012. Core earnings were primarily impacted by significantly weak margins in our
Asian business across the value chain of PTA, PET and Polyester due to the:
- Continuing Chinese slowdown, reflected by quarter on quarter drop in their
economy for last many quarters on all major economic indicators.
- Continuing oversupply of PTA in Asia, weakening margins across the value chain
in Asia in particular and to a lesser extent in Europe.
The MEG business and the North American PET and Polyester business were stable
during the period. The overall demand for PET and Polyester was in line with
historical trend and therefore the underlying fundamentals for Polyester value
chain remains attractive.
IVL's business model of global and product diversity as well as backward
integration creates a meaningful hedge against weakness in a particular region
or segment as reflected by its performance.
The table below provides details on Consolidated EBITDA and Core EBITDA:
US$ in Millions THB in million
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
Consolidated EBITDA 122 105 153
3,818 3,271 4,616
Inventory (gain) loss (12) 46 (18) (377) 1,440 (531)
Core EBITDA 110 151 136 3,442 4,711 4,085
The table below gives details of exceptional items:
US$ in Millions THB in million
3Q12 2Q12 3Q11 3Q12 2Q12 3Q11
Gain on a bargain purchase 4 - 34
121 - 1,033
Acquisition related costs (2) (5)
(1) (60) (169) (20)
Flood related and other extraordinary items 14 37
- 431 1,150 -
Total Exceptional Income 16 32 33
492 981 1,013
Feedstock segment (PTA and Oxides & Glycols)
PTA business
The graph below portrays the volatility that commodities have faced over the
last few quarters. Asian PTA margins in 3Q12 continued to remain below industry
conversion costs, like first half of 2012. IVL is taking steps to put in place
new contracts for 2013 with floor mechanisms in order to protect its margin
during this down cycle.
Source: Industry Data, IVL Analysis
Oxides and Glycols business
The charts below help explain the IVL Oxides and Glycols business in North
America. The key difference between Asia and North America is the sourcing and
economics of ethylene feedstock and premium MEG prices.
Ethylene in Asia is priced off Naphtha feed whereas in North America it is based
on gas, which, due to shale gas discoveries, is in abundance.
MEG prices in North America are at a premium because they track Asian prices due
to the large consumption in of Polyesters in Asia, especially in China.
Therefore MEG margins in North America are higher and less volatile than Asia as
can be seen in the charts.
Source: Industry Data, IVL Analysis
Topline
The charts below provide details of quarterly production volumes and US Dollar
sales, both regional and segment wise. IVL continues to gain market share in all
regions and segments.
Note: Revenue of each region and segment is after inter-region and inter-segment
elimination.
Bottomline
The chart below provides details of the EBITDA for last few quarters.
The losses due to Lopburi floods, the severe decline in PTA margins and the
subdued sentiment in Asia have significantly impacted EBITDA in Asia since 4Q11,
roughly on a third of our business. Management believes that overall
improvement can be anticipated firstly from the operational improvement projects
that have taken place in 2012; the debottlenecking of our China capacity to
522kt per annum, the start up of the Nigeria SSP plant, and the acquisition of
PET capacity in Indonesia in 3Q 2012. Secondly, the improvement in the macro
environment in China and India is anticipated to lead to an improved sentiments
and therefore partial recovery of PTA margins that are currently below cash
costs for the majority of the industry in Asia.
Regionally, North America remained the top performer while Europe was slightly
weaker in light of the continued Greek-led crisis that has engulfed most of
South Europe. Operational excellence measures at Spartanburg, a Brownfield
capacity addition at Rotterdam, which is due to commence operations in 4Q 2012,
as well as the addition of the Oxide and Glycols business in North America, will
potentially offset the weak PTA and PET margins in Asia.
Outlook
The last 12 months has witnessed extreme volatility that closely shadows what we
experienced in the second half of 2008. This time, though, we are also
experiencing a slowdown in Asia, particularly China and India. The severity
highly correlated to Chinese overcapacity across the downstream petrochemicals,
including PTA, PET and Polyester fibers.
The tightness in MEG and Paraxylene will limit over supply of PET and Polyester.
Current Asian margins below cash cost will squeeze marginal producers of
Polyester value chain leading to gradual recovery of margins during 2013.
IVL core end products are PET and Polyester fibers. We have an established
supply chain and a strong financial profile. We have global leadership in this
segment.
These end products are the lowest cost, in their space with high performance and
ample R&D potential to innovate and enhance end use. Among conventional
packaging materials like glass and aluminum, PET is the most affordable, whereas
Polyester is cheaper then cotton. Therefore growth in Polyester chain continues
at historical rates showing resilience.
Our continuing top-line growth, despite the turbulent global markets, is a
testament to Indorama Ventures' business, which is a "bridge" between upstream
chemical suppliers and consumer staple products. IVL products primarily go to
consumer necessities and affordable segments and therefore are much more
resilient in economic downturns. IVL products are truly everywhere in the daily
necessities that each one of us uses every day. We are an industrial segment
with integration into chemicals, which are our feedstocks like PTA and MEG. The
integration allows us to secure sufficient feedstock and to be more reliable to
our customers, whereby we gain market share.
Asian PTA margins will remain low throughout 2012 but our plants continue to
operate at high utilization rates and benefit from the increase in captive
demand from PET & Polyester business. The management focus is on consolidation
and operational excellence to translate each business to be accretive to IVL
earnings. Various Brownfield growth plans are underway which will further
improve our cost structure. Please see each segment commentary that further
explains the improvements underway.
In line with the affordable nature of Polyester and its application in daily
consumer staples (food, beverage and clothing), we expect to benefit from a
favorable geographical mix in key regions where we have attained market
leadership and consolidation. Our investments in innovation or value-added
product lines are expected to gain traction going forward and to provide new
growth areas for IVL, especially in emerging markets.
IVL business model of global and product diversity as well as backwards
integration creates meaningful hedges and as such delivers above average
returns. Management is focused on the consolidation of businesses acquired to
bring about significant gains from synergies and as well from new products by
leveraging on our industry leading innovation platform. We remain very
optimistic about the Polyester Value Chain and IVL leadership within this chain.
We are well-positioned to take significant advantage when the global recovery
takes place. Meanwhile, we are confident that our portfolio will continue to
deliver the lowest cost quartile results.
Ongoing Projects under Implementation
Announced Date Project Location
Segment Capacity
(tonnes per annum) Timeline
Expansion in Existing Location
May'2010 Brownfield expansion of PET production in Rotterdam Rotterdam,
Netherlands
PET 187,000 4Q12
Increased market presence and improves overall cost profile of the site and in
EMEA
Mar'2011 Investment in continuous polymerization resin plant in Indonesia
Purwakarta, Indonesia Fibers & Yarns 300,000 2H13
The company's most dynamic polyester site is under construction in Indonesia.
Amongst lowest cost site in Fiber space and substantially improves cost profile
in Asia
Apr'2011 Debottleneck of PET Polymers production in Poland Poland
PET ~100,000 2014
Better market reach and savings in conversion cost
May'2011 Brownfield expansion of PTA in Rotterdam, enhancing integration for PET
production in Europe Rotterdam, Netherlands
PTA 250,000 2014
Better Integration and improves overall cost profile of the site and in EMEA
Jun'2011 42% joint venture investment in PT Polyprima Karyesreska, a PTA
producer, using Invista technology. The plant is currently under maintenance,
revamping and capacity de-bottlenecking. This investment will secure the PTA
supplies for IVL PET & Polyester plants in Indonesia Cilegon,
West Java, Indonesia
Feedstock 500,000 2013
Better Integration and savings in logistics
Nov'2012 Expansion of PET production in North America USA
PET 540,000 2015
Increased market presence, and substantially improves overall cost profile of
the site and in NA
Recycling and Innovation
Aug'2011 Investment in production of recycled PET in IPI Nakhon Pathom Nakhon
Pathom, Thailand Fibers & Yarns 28,500 2H13
Enhance capabilities to recycle in Asia
Aug'2011 Investment in bi-component fibers project for hygiene application, with
Japan's Toyobo technology (16kt) and CP Boosting (5kt) Rayong, Thailand Fibers
& Yarns 21,000 1H13
Increase Hygiene products to Asian portfolio
Aug'2011 Investment in high quality bi-component yarns "FINNE" through a single
step process at PT IVI plant Tangerang, Indonesia Fibers & Yarns 16,000 1H14
Increase Specialty products to Asian portfolio
All expansions are accretive to earnings and have a clear strategic rationale
for expansion.
On completion of all the announced acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business with a total capacity of
9.0 million tonnes per annum (including joint ventures Ottana Polimeri, Trevira
and Polyprima, which will be accounted for as equity income). IVL has a leading
market position within the Polyester Value Chain in Thailand, North America and
Europe.
Unit: Million tonnes per annum Additions PET Fibers & Yarns PTA EO/EG Total
2011 Capacity
China 0.406 0.406
Europe* 0.921 0.273 0.561 1.755
Indonesia 0.088 0.110 0.198
North America 1.555 0.071 1.626
Thailand 0.281 0.290 1.373 1.944
Global 3.251 0.744 1.934 5.929
*JV capacity included 0.161 0.120 0.184 0.465
Additions in 2012
China China-Exp. 0.116 0.116
Europe IRP-Rotterdam 0.031 0.031
Indonesia Polypet Acqn. 0.101 0.101
Indonesia* Polyprima JV 0.500 0.500
MEA Nigeria Greenfield 0.084 0.084
North America Oxide & Glycols(2) 0.550 0.550
North America Fibervision 0.221 0.221
Thailand TPT-Debottl. 0.011 0.011
Global 0.332 0.221 0.511 0.550 1.614
*JV capacity included 0.500 0.500
Additions in 2013
Europe IRP-Rotterdam 0.156 0.156
Indonesia CP4-Greenfield 0.300 0.300
Thailand IPI- BICO/CP 0.021 0.021
Thailand IPI- Recycling 0.028 0.028
Global 0.156 0.349 0.505
Additions in 2014
Europe Poland-Exp.(3) 0.100 0.100
Europe Rotterdam-Exp. 0.250 0.250
Indonesia FINNE-Exp. 0.016 0.016
Global 0.100 0.016 0.250 0.366
Additions in 2015
North America Expansion 0.540 0.540
Global 0.540 0.540
Committed & Announced Capacity
China 0.522 0.522
Europe* 1.208 0.273 0.811 2.292
Indonesia* 0.189 0.426 0.500 1.115
MEA 0.084 0.084
North America 2.095 0.292 0.550 2.937
Thailand 0.281 0.339 1.384 2.004
Global 4.379 1.330 2.695 0.550 8.954
*JV capacity include 0.161 0.120 0.684 0.965
1. Reported volumes for capacity, production, sales and utilization include only
consolidated volumes and exclude Equity income volume, 2. Glycols & Oxide
capacity is taken at 550kt pa, based on Glycols equivalent derived capacity from
Ethylene feed capacity of 330kt pa.,3. Poland is now expected to be
debottlenecked by 100kt, then earlier 220kt expansion.
Notes
Starting from 2Q12 onward, we began looking at IVL business as three segments:
PET resins, Fibers & Yarns, and Feedstocks. The Feedstock segment comprises PTA
and Oxide & Glycols businesses, of which the majority constitutes key raw
materials for the other two downstream segments. In addition, there is no
allocation of PTA earnings to PET and Polyester segment (based on the proportion
of sales) in this quarter and its comparable period.
The consolidated financials are based upon the elimination of intra-company (or
intra-business segment) transactions. For this reason the total of each segment
may not tally with consolidated financials.
Net profit after tax and minority for 3Q 2012 includes net extraordinary gain of
US$ 28 million (Baht 868 million) of which US$ 4 (Baht 121 million) is towards
income from a gain on bargain purchase, or negative goodwill, for completed
acquisitions (details are provided in the Note 3 - Acquisitions of Subsidiaries
in the Reviewed Financial Statements); US$ 2 million (Baht 60 million) goes
towards transaction expenses incurred on acquisitions completed during the year
and pre-operational acquisitions; US$ 14 million (Baht 447 million) towards
insurance income received and a reversal of impairment loss due to flood; US$
0.5 million (Baht 16 million) towards other extraordinary loss, and US$ 12
million (Baht 377 million) towards inventory gain.
Net profit after tax and minority for 2Q 2012 includes a net extraordinary gain
of US$ 15 million (Baht 459 million) of which US$ 5 million (Baht 169 million)
goes towards transaction expenses incurred on acquisitions completed during the
year and pre-operational acquisitions; US$ 37 million (Baht 1,140 million)
towards insurance income received and a reversal of impairment loss due to
flood; US$ 0.4 million (Baht 11 million) towards other extraordinary gains, and
US$ 46 million (Baht 1,440 million) towards inventory loss.
Net profit after tax and minority for 3Q 2011 includes a net extraordinary gain
of US$ 51 million (Baht 1,544 million) of which US$ 34 (Baht 1,033 million) is
towards income from a gain on bargain purchase, or negative goodwill, for
completed acquisitions; US$ 1 million (Baht 20 million) goes towards transaction
expenses incurred on acquisitions completed during the year; and US$ 18 million
(Baht 531 million) towards inventory gain.
Core EBITDA is after excluding inventory gains/losses from reported EBITDA.
Inventory gains/losses in a period result from the movement in prices of raw
materials and products from the end of the last reported period to the end of
the current reported period. The cost of sales is impacted by inventory
gains/losses wherein inventory gains decrease cost of sales and inventory losses
increase cost of sales.
Net operating debt is defined as Net debt (Total debt minus cash and cash under
management) minus the project spending for various Brownfield expansions
underway which are not completed and have not yet started contributing to the
earnings of IVL.
Forward-Looking Statements: This earnings release includes forward-looking
statements concerning current expectations for demand for the company's
products, implementation and impact of previously announced growth initiatives,
Such expectations are based upon certain preliminary information, internal
estimates, and management assumptions, expectations, and plans, and are subject
to a number of risks and uncertainties inherent in projecting future conditions,
events, and results. Actual results could differ materially from expectations
expressed in the forward-looking statements if one or more of the underlying
assumptions or expectations prove to be inaccurate or are unrealized.
The Polyester Chain businesses are generally traded in US dollars and therefore
IVL believes in helping its reader with translated US Dollar figures. IVL
reporting currency is in Thai Baht and the accompanying pages are an integral
part of this report. The accompanying pages report the Reviewed Thai Baht
results and its translation in US Dollars at average exchange rates and closing
exchange rates where applicable. Readers should rely on the Thai Baht results
only.
IVL CONSOLIDATED RESULTS
Financial Status and Ratios
IVL net operating debt to equity remain at 1.1 times in 3Q 2012 [post
acquisition of Indorama Ventures (Oxide and Glycols) Limited in April 2012],
which is higher than 0.6 times at the end of year 2011. In 3Q 2012 IVL spent
total capex and investment of US$ 172 million, primarily for the acquisitions of
Polypet in Indonesia, additional investment in Indonesia Fibers Greenfield
project and other ongoing brownfield expansions. The capex and investments have
been funded with a mix of long term loans, cash proceeds from debentures issue
and cash flow from operations. IVL net operating debt increased from US$ 1,166
million at end of December 31, 2011 to US$ 2,103 million at the end of September
30, 2012.
The table below provides movement of total debt and net operating debt in US$
millions:
Details 3Q12 2Q12 3Q11 4Q11
Bank overdraft and short-term loans 352 457 331 432
% of Total Debt 14% 17% 21% 22%
(more)