Indorama Ventures Public Company Limited

Good afternoon, everyone. Welcome. And thank you for taking time to join us here for Indorama Ventures first quarter 24 results briefing. My name is Vikas Jalan, Vice President, Investor Relations and Planning. Joining me today, we have Mr. D.K. Agarwal, Deputy Group CEO and Group CFO. Alastair M. Pote, Executive President for newly formed segment Indovina. And Diego Bori, Executive President for our Fibers segment. A quick disclaimer that this meeting is being recorded and a replay of this session will be available on our website after the meeting. We have made a few assumptions and estimates on future trends of industry and businesses, which are based on our analysis of available information at this point in time. So with that, now I invite Mr. Agarwal to share the business and financial highlights for first quarter before opening up the floor for Q&A. Over to you, Mr. Agarwal.

Good afternoon, and thanks for coming in person, a few of our analysts. During the first quarter, this is the first slide we talked to you about the macro indicators, what is happening around the world, macroeconomic. During the first quarter, we have seen signs of economic recoveries, improving U.S. with better PMI. You know, U.S. is really strong with all the data which is coming in. China still remains lackluster and Europe is still lagging behind. So the big worry is the Europe. The second graph shows that destocking has come to an end, positively impacting our volume. So we see this in our different businesses. Geopolitical disruptions continue in various forms like Red Sea crisis. has impacted the supply chain and you can see in the slide there that how the ocean freights are increasing and remain high as seen in the Shanghai container freight and DAX, which is an indicator. While interest rates remain elevated, high inflation in the West has dampened the purchasing power. However, early signs of stability and some decline in core CPI was seen in first quarter 24th. On the other hand, high crude oil price led to inventory gains and supported domestic prices in the net import market like in the West. Lower energy prices improved our conversion cost. You see that energy prices have been low in United States and Europe. That has improved our conversion cost and strengthened our shale gas advantage in United States. On this macroeconomic landscape, which is very dynamic, and very volatile, IOL remains agile and continue to serve our customers and other stakeholders through proved interest management. Now, let me now take you through the highlights for first quarter 24, what the results we have delivered. Just wanted to guide here that we are now going to report adjusted EBITDA. Basically reflect underlying business performance. There are always questions about hedging losses, inventory gain losses. So this will, underlying business performance, that if these events would not happen, then this has the real business performance. So this adjusts for inventory gain loss, any contract lag impacts, spatial items, hedging gain loss, etc. So this is basically replace a core EBITDA. And historical quarters, information are shown on adjusted basis for apple-to-apple comparison. Indorama Ventures posted first quarter adjusted EBITDA of $366 million, an increase of 32% quarter-on-quarter, and a decrease of 2% year-on-year. Remember that last year, same quarter, the PET margins were very strong. After one time special expense of $11 million and an inventory gain of $12 million, first quarter 24 posted a reported EBITDA of $367 million. And if you want to see the reconciliation, full details of reported versus adjusted items are given in the appendix and also in our MDNA, which details out all the adjustments. Sales volume, which is the most important, grew to 3.55 million ton, showing clear recovery of the volume, an increase of 3% quarter-on-quarter and 2% year-on-year. As I said, supported by destocking, easing. Volume growth would have been actually even higher, but were restricted due to winter event freeze in the United States. This is typical what is happening in United States every year, winter freeze. Resulting in a volume loss of approximately 60 KT, basically in intermediate chemicals and endovenia, and resulted into an EBITDA loss of nearly $24 million because of this. We have not adjusted here, so this is not normalized here. This is just an event, so wanted to highlight that. Now, the positive sentiments for our business can be summarized as follows. Volumes have stabilized significantly. and marginally improved, signaling an easing of destocking. Utility costs have lowered in the West, improving our unit contribution margin. Red Sea crisis, which is still hanging on, has improved import parity prices in European EMEA and South America, thereby our margins, particularly in integrated PETA. The gas prices have been low in the United States, so improved shale economics in the US have resulted in improved integrated EOEG and MTB profitability. However, persistent inflation and high interest cost is leading to muted demand and depressed benchmark petrochemical spreads continue to impact profitability in the polyester value chain in both integrated PET and lifestyle fibres. We are very closely monitoring, as presented in the Capital Market Day, our capital allocation and optimizing growth and maintenance capex. Working capital increased quarter on quarter marginally due to increase in volume and prices. In second quarter 24, we are continuing to witness, as you and I may, to witness the positive impact of factors in first quarter 24, as well as better volume as the northern summer approaches. with increased demand for gasoline to support our MTB and beverage consumption which drives our PET business globally. Industry benchmark spreads are expected to remain depressed as overcapacity in China persists, especially for integrated PETs. Margins are expected to improve for Indovenia, and Alastair will address the questions if there are any, as we launch new products and demand improves for our HVA offerings. We are focusing on driving positive free cash flow from operation and strategic action. We also have enhanced our governance structure to deliver our IVL 2.0 evolved strategy by 2026, what we mentioned in Capital Market Day. MSCI recently upgraded our ESG rating to AA from A for 2024. Over the last five years, we have made steady progress on this index, reflecting our efforts to improve our performance in pursuit of our sustainability ambition. Starting from first quarter 24, as you might have noticed in the MD&A, we have renamed our IOD downstream business as Indovenia. which now represents our integrated downstream surfactant business as a separate segment, preparing for IPO. The IOD's intermediate chemical assets consisting of integrated MEG, MTB, and merchant purified ethylene oxide businesses are now under the combined CPET business. So you will see the separate results even in CPET for both CPET and new intermediate chemicals. Now, it is very important to give you a little bit update about the strategic pillars driving our transformation journey to 2026. As we said that we are not relying on improvement on the margins. Management actions are key. Our focus will be on generating healthy free cash flows and reducing net debt EBITDA to three times and below. The first section, as we said in the Capital Market Day, optimizing our assets. Under IVL 2.0, we are process that will optimize seven sites to right sizing, mothballing and other management actions. As you are aware, in fourth quarter 23, we partially impaired one of these sites, the Corpus Christi joint venture in United States to reflect fair market value after all three partners decided to halt the construction. On the remaining six assets, where we are targeting about $190 million of fixed cost savings, Indorama Ventures mottled the PTA sites in Portugal in third quarter 23. And we are now in consultation with the work council regarding the integrated PET PTA site in Rotterdam in the Netherlands. In Europe, there is normally a consultation process with the work councils and the union. And other remaining four assets are at various stage of assessment. The second pillar was Olympus 2.0. We are deploying new digital tools to empower our managers to drive operation excellence through real-time data-laid insights, allowing them to react with greater agility to market changes and inform better decisions in this present volatile situation. We recently actually completed our implementation of SAP S4 HANA enterprise platform, which covers significant, nearly 75% of the revenue. And on this Olympus 2.0, in first quarter 24, these initiatives drove efficiency gain of $27 million, which cuts across procurement, sales and excellence. So we continue our journey on this transformation 2.0 or Olympus 2.0. The third, we had talked about strategic action to unlock value. So as you can see from our first quarter results presentation, we have started preparation for the IPOs of our Indovenia and packaging business, including putting in place governance structure and project management teams. We have also begun preparation for divestiture of two known core businesses, which we mentioned in capital market day. So there is a complete focus on these actions. We continue to focus on maintaining our leadership positions by delivering exceptional service and value to our customers and doubling down on bringing innovative and sustainable solutions to the market. Our hygiene business has started a medical lamination light in the United States as part of our program to bring more high value added products in medical field to our customers. And at Indovina, we are pleased to announce the launch of our latest product line of rheology modifier. These products enable us, our customers, to develop ultra concentrated products, leveraging our stock commitment to the sustainability. So the innovation journey continues. Now, this slide, let's look at the sales volume. Our first quarter 24 sales volume grew to 3.55 million ton, reflecting 3% growth quarter on quarter and 2% year on year. As I mentioned earlier, volume growth was negatively impacted by the winter freeze event in the United States, reducing volume nearly by 60 KT in intermediate chemicals and endovenia business and also a minor plant maintenance in POMTB site. So that impacted that. You can see that we saw signs of volume recovery after experiencing losses from an extended period of destocking since fourth quarter 22. So that also gives a sign that destocking is coming has come to an end. As you can see from the second quarter estimated volume going forward, we anticipate an improvement in volume. As. The volume has de-stocking had eased with no impact from winter freezes. So you can see we are talking about 3.83 million tons from 3.55 million tons in second quarter. And this is across Asia's, America's and EMEA and also in CPAT, Indovenia and fibers. So that because there will be no winter freeze event. So this gives you some indication about the volumes which you are targeting the second quarter. Now, let us look at Indorama Ventures first quarter results in more detail. As I mentioned, we posted first quarter adjusted EBITDA of $366 million, an increase of 32% quarter on quarter and a decrease of 2% year on year. As we noted earlier, the quarter EBITDA was impacted nearly by $24 million due to the winter freeze in United States. An improvement in adjusted EBITDA was primarily driven by volume growth in CPET and fibres, along with a favourable impact from supply chain disruption and reduced energy cost, which we talked about. If you look at segment, in our CPET segment, Asian benchmark spreads remain still very low, below cash cost and Chinese are losing money on that. Supply chain disruption and a consequent spike in global ocean freight supported high prices and margin, especially in Europe and South American market. Western markets also benefited due to lower energy cost. In the intermediate chemicals portfolio, MTB spreads for higher quarter on quarter, but lower year on year, supported by a tight gasoline market, low feedstock prices and resetting of methanol contract at a favorable terms, which begin from the beginning of the year. As the northern hemisphere summer approaches, we expect increased demand for gasoline also to support MTB in second quarter 24. Despite some improvement in the integrated MEG spread, they remain under pressure due to significant global overcapacity in MEG. So you will see in MEG improved results, but still not because of the, to that level due to significant overcapacity. Indo-Venia volumes dropped 2% quarter-on-quarter due to the winter freeze and a mini turnaround, which impacted adjusted EBITDAs nearly by circa $5 million. We expect volume growth in second quarter following a period of significant destocking throughout 2023, which is reflected in the last three quarters results. In the fiber segment, volumes and margins improved as demand grew across all three business verticals. Now looking at performance on a regional level, which is very important and how reasonably we are doing, there has been a variety of factors at play this quarter. You see that EMEA has performed significantly better. So despite high feedstock prices, EMEA operations performed significantly better quarter on quarter, benefiting from supply chain disruptions, lower energy prices and also the anti-dumping duties on PET imports from China. The improvement in performance was seen in both CPAT and Fibers, particularly in the mobility. The American market remains intact, as you can see the results, $257 million in Americas, by strong MTB profitability and improved MEG performance, while integrated PET margins softened from annual contract reset results. You know, the new contracts for PET in America, particularly Mexico and the United States, has started kicking in from January, so it has some negative impact. Integrated intermediates and Indovina experienced volume and EBITDA loss of $24 million from the U.S. winter freeze, as I mentioned. Otherwise, the U.S. results would have been even better. In CPAT business, North American margins were lower due to contract resets. However, South America saw an increase in margins on supply chain disruption and trade barriers. Recently, Mexico has actually increased duties on PET from 25 to 35 percent from China. This is the most of the countries are trying to protect their markets from dumping from China, which will help our domestic Mexican business. As you can see, Asia remains stable, supported by improved volume, which was partially negated by China. continuously compressed benchmark spreads. So this gives you some idea on reasonably how we are operating. Now coming to CPAT, posted and adjusted EBITDA of $187 million, an increase of 32% quarter-on-quarter, and a decrease of 6% year-on-year. Integrated PET posted adjusted EBITDA of $125 million. an increase of 5% quarter-on-quarter and a decrease of 23% year-on-year because integrated PET spreads were quite low in first quarter, continue to remain low. Driven by improved performance in EMEA due to supply chain disruptions, anti-dumping duties on PET imports into the EU from China, higher volumes and lower energy prices. This was, as I mentioned earlier, partially offset by the resetting of contracts in North America. Continued pressure of benchmark margin Asia and high MXPX feedstock prices in the Western market compared to Asia. The challenge of high paraxialin price continues in the Western market due to the gasoline blend value. As per our strategy, we continue to invest in circular and bio-based material, including expanding our mechanical recycling capacity in major emerging markets such as India and Africa, We recently did the groundbreaking ceremony for our first recycling plant in India with a JV partner, Varun Beverages, and we anticipate commercial production to start in the second half of 2025. So we are steadfast in our commitment to the Ellen MacArthur Foundation and giving solutions to the customers. The packaging business posted a stable adjusted EBITDA of $21 million in first quarter 24, a modest decrease of 4% quarter-on-quarter and increase of 1% year-on-year. Specialty chemicals, the section which was moved from IOD, posted adjusted EBITDA of $40 million and improvement from the, sorry, this is specialty chemicals, not intermediate chemicals. So this is covering NDC and IPA. and specialty polymers. So this posted an adjusted EBITDA of $40 million, an improvement from the negative performance in the last quarter. The improvement in profitability was mainly due to higher volume, and I would like to guide here that this is a one-time annual gain from campaign production of NDC. So normally we do a campaign production of NDC, and there were quarterly balanced deliveries to the customer. That's why this extraordinary profit has come in. and an improved performance in the high-value-added PET. Higher aromatic feedstock costs in the West continue to negatively impact this vertical, especially PIA. A dedicated vertical management team, as we hired a new gentleman, who is shaping an EBITDA improvement plan to optimize costs and maintain profitability as the volumes pick up with enhanced economic activity. So this gives you combined PETs. Now, this graph will always show you how the benchmark spreads, what premiums are. As you can see in this chart, despite compressed, the dark blue line, you can see that how compressed are the Asian reference spreads. We continue to maintain a strong market premium in first quarter 24. And that's what differentiates IVL. The North American region was strong. In spite, this premium has come, which was negatively impacted by resetting of the U.S. contracts, but has a positive impact from EMEA and South American contracts. As a result, we have been able to maintain our spread premium at a similar level to 2023. So Europe, you had improvement. South America, you had improvement. In Japan market, we had improvement. But there was, because of the resetting of the contract, there was a negative impact from America, United States and Mexico. So we remain a preferred supplier to our customer based on our global footprint, multiple manufacturing sites, proximity to customers, capability to offer recycled PET together with virgin, high-value PET resin for specialty application, and advantage shell gas to PET integration in the United States. These are the key strengths of our PET business. And this reflects in our premium over benchmark spreads. These are spreads. These are not prices. So this straightway translates into profitability. Ocean Freight's trade and non-trade barriers and Indorama Ventures' differentiated position compared to peers globally has helped us to expand our premium in recent times, where benchmark spreads in Asia have been compressed by new supply in China. Overall, we expect a sequential improvement in earning for the CPAT segment, with approaching, as I mentioned, seasonal demand in the United States, which normally uplifts the demand for beverages and cost improvement plans by different management teams. Now, this is the intermediate chemicals, which is moved from IOD. What does intermediate chemicals consist of? It consists of cracker, the ethylene in lake shawls, the clarified ethylene oxide, and integrated glycol and MTB business. This vertical, which basically, as you can see, is MTB, integrated MEG and verified EO, posted and adjusted a bit of $62 million in first quarter 24, an increase of 38% quarter-on-quarter and 48% year-on-year, despite loss of volume due to winter freeze, which was nearly $19 million. Newly formed vertical management team is working in collaboration with specialists from Indovenia to improve MEG plant reliability. Now the plants are running at higher capacities, all the MEG. So you will see the improved MEG production coming out because in United States, because of lower gas prices and ethane prices, the MEG margins are better. And we have also taken the operations from third party who was managing the assets of IWOG. As you know, MEG serves as an integrated component in our CPET segment, mainly to fulfill our captive needs. And we also export from there. Integrated MEG spreads, as I mentioned, because of lower gas prices. From $355 per ton improved quarter on quarter to $435, $80 improvement due to higher MEG prices and lower cost of ethane. MTB and MX trading prices are highly correlated and both, as we mentioned, are used as gasoline plants, which provide us a hedge between two chemicals. And our purchase for MX for PX and PI production and sales of MTB. So it acts as a perfect hedge. And that's why we are now reporting this into the CPET as we prepare Indovina for listing. MTB spread in the United States improved from $512 in fourth quarter 23 to $544 in first quarter 24. Again, because of the tightness in the gasoline market. This is an octane booster, as you know. Now I'll head over to Alistair to talk about Indovina and then Diogo will take over the fibre and then come back.

Thank you, DK, and good afternoon, everybody. So I'm pleased to share with you the first quarter results of our new Indovina segment. The adjusted EBITDA was $70 million despite the winter freeze and the mini turnaround, as DK mentioned, at the POPG unit, which contributed to a 2% decrease in volumes quarter and quarter. and impacted EBITDA by $5 million during the quarter. The home and personal care volumes grew 6% quarter-on-quarter as customers resumed purchasing after typical destocking in quarter four. The 9% drop in volumes year-on-year is primarily driven by consumer down-tiering influenced by tightening consumer spending in the US. Crop solutions volumes marginally lower quarter and quarter with farmers delaying purchasing until the new seasons amid high pricing and high interest rates. Energy and resource volumes improved 3% quarter and quarter and should remain buoyant with higher crude prices. Coatings and construction volumes were impacted by the US winter freeze and the turnaround affecting our POPG production. The solvents and coatings business showed signs of improvement due to improved exports to Europe, the US and also Asia. So Indovina consists of a strong HVA portfolio comprising of 80% of our volumes and operating with EBITDA margins in the high teens. Plus an essentials business consisting of lower margin co-products such as oleochemical byproducts. In our essentials business, we're creating a roadmap for improving our margins. In Indivinia's HVA business, this operates in multiple markets. Our HVA portfolio achieved an EBITDA margin of 15% in the first quarter of 24, lower quarter on quarter due to the freeze impact and the mini turnaround on the POPG product line. This HVA portfolio is driven by product launches, and maintaining our customer intimacy by providing them superior product solutions. This portfolio continues to deliver the high Teens EBITDA margins throughout 2024. As DK mentioned, our innovation programs continue and our latest products are well received by our customers. For example, this launch of the latest product line of rheology modifiers, which enable our customers to develop this ultra concentrated product, leverages our strong commitment to both sustainability and price. After the mini turnaround for POPG, we expect volumes and revenue to improve in coatings and construction, together with an overall sequential improvements in volumes and EBITDA in endovinium. We expect high single-digit quarter-and-quarter growth in the volume in second quarter of 24, mainly in crop solutions, proteins, and energy and resources, which also means better sales mix and higher unit contribution margins, as well as the customer approvals with our new pharma products being launched.