Indorama Ventures Public Company Limited

Good afternoon, welcome and thank you for taking time to join us for Indorama Ventures third quarter's 24 results briefing. My name is Vikas Jalwan, Vice President, Investor Relations and Planning at IGL. Joining me today, we have Mr. D.K. Agarwal, Deputy Group CEO and Group CFO, Muthu Kumar and Kumar Radha, Presidents and Co-Leaders for CPAT, Alistair Empord, Executive President for Indovenia, and Diego Brawley, Executive President for Fibers segment. Quick disclaimer that this meeting is being recorded and a replay of this session will be available on our website after the meeting. Of course, we have made a few assumptions and estimates on future trends for our industry and business, which are based on analysis of available information at this point in time. So with that, I now invite Mr. Agarwal first to share business and financial highlights for third quarter. Over to you, please, Mr. Agarwal.

Good afternoon. Thank you, Vikash. I think let's first discuss the macroeconomic backdrop, which is directly or indirectly impacts this industry as well as our businesses. We always bring you the slide. In third quarter, the U.S. experienced a slowdown in growth, while economic condition in China remained lackluster with poor domestic demand, as you know, with the housing bubble which they have. Geopolitical uncertainty and a cautious economic outlook are causing continued overall softness in the world, except India is a sweet spot where we see good growth. Freight rates remain elevated due to disruption in the Red Sea and making imports expensive. As you see this graph, after slight decline in October, we have seen 15% increase in Shanghai Freight Index in last couple of weeks. Crude oil price declined to $75 a barrel in September, leading to some inventory losses, which you will see in our reported EBITDA. However, low gas prices are sustaining the U.S. gas advantage. You are all aware, recent U.S. elections saw the strong win for Republicans, and this will support U.S. economy in coming few years. IVL being a local producer in the United States with around 40% revenue and 51% of EBITDA is expected to benefit with likely increase in tariffs as you have seen the new administration announced that there will be increase in tariffs even from outside other countries, China as well as other countries. Reduction in corporate taxes and lower shale gas prices with more ONG production as they say drill baby drill. Though FED has recently reduced 25 basis points, but we expect the pace of rate cuts might be a bit slowing down forward due to inflationary fears. As you know, the treasury yields have gone up. So, there is inflation fear and we may see how things move in the coming quarters. Now, let me walk you through the key highlights in financial for third quarter 24. This is after consecutive eight quarters of low performance. Indorama Ventures achieved an adjusted EBITDA of $427 million in third quarter 24, a solid 15% increase quarter on quarter, and 32% increase year on year, driven by study volumes. As you can see, the volume growth is only 1% year on year. Cost reductions laid by proactive actions, which we detailed out in CMD, and improved benchmark spreads across all segments. This quarter makes the first year-on-year improvement in performance for the year following, as I mentioned, prolonged period of challenges related to destocking and the industry down cycle. This signals recovery moment across all three segments, as you will see the performance of three segments. The company has demonstrated that our diverse global business portfolio enables resilient results through different market cycles because of geographical and product diversification. End product demand remains robust, keeping our volumes intact. PET and fiber volumes have remained steady through the years, while actually Indorevenia experienced peak season in the crop solutions market. If we look at reported EBITDA, reported EBITDA was affected by a 38 million inventory loss this quarter, largely due to decline in the crude oil prices, as well as perazoline prices. As you know, perazoline margins collapsed, and that resulted in our valuation of inventory being lower. Additionally, our operating cash flow was lower in third quarter 24, impacted by net working capital outflows resulting from increased inventories, including in transit due to extended lead time from ongoing supply chain disruptions. As you know, we import PTA in some of our European locations. I'm very pleased to inform the company has made substantial progress on initiatives online in the IWL 2.0 vision in line with expectation, focusing on deleveraging and improving quality of funding. Management's relentless focus on cost is beginning to yield results. The asset rationalization program that IVL took action on last quarter has begun delivering fixed cost savings of $19 million this quarter and sequentially increase as into the next year as the full benefit of $170 per annum is fully realized in 2025. As you know, we shut down the assets in different timings, so the full benefit will come in 2025. It is important to note that the out-time actions for the CPAT and Indovenia segments has now been completed with FIBERS yet to be implemented. Diago will cover that what actions are being taken in FIBER and probably $40 million of additional savings will flow in 2025. Operating rates for the group increased from 69% in third quarter 2023 to 82% this quarter. And for CPAT, they increased from 69% to 84% in the same period year. This program aligns with our long-term strategy to optimize the asset base as we go into first quartile cost of production, improve operational efficiency, and strengthen profitability over the cycle. As I mentioned, fiber has made concerted effort over the past year to reduce fix across the entire portfolio. This is before the rationalization of any assets, which as I mentioned. In addition, within the hygiene and mobility verticals, management took aggressive actions to gain back lost market share through price adjustment by enhancing volumes and reducing costs, including improved utility costs significantly over the years. We continue to be a market leader in our key areas. And once volume capture and cost structure initiatives are fully stabilized, Mandarin will shift its focus on further margin improvements. So we really see a big journey in the fiber and an improvement going forward. I am pleased to inform that our digital journey has accelerated the implementation of a digital core in the form of S4HANA. The company is engaged in the implementation of our digital initiatives, which are progressing in line with the schedule. North America is already benefiting from a new AI-driven source-to-contract solution in the procurement excellence journey. Our manufacturing excellence program has started to bring in results by improving our workforce productivity through our connected work platform. The first supply, sales and supply chain solutions are expected to go live in first quarter 25. We have strengthened both existing and new partnerships to expedite value delivery throughout the entire organization. Moreover, significant efforts are being put into changes management to facilitate smooth transition and ensure the adaptability of our workforce to new processes and technology. So this is the beginning of our journey for digitalization. Underpinning the company's resiliency in the management team to this end, this year, as you know, company has initiated pivotal changes in the organization structure. In order to sustainably drive the initiatives under IVL 2.0 and growth beyond, company is creating focused and dedicated management teams across each of the businesses, led by empowered and accountable leaders. We have nearly completed the restructuring of Seapade Fiber in Indovenia and further restructuring is in place. These transitions push operational delivery to the respective businesses, leaving a leaner corporate that is reducing the overall cost and that will focus on strategic delivery. As we look ahead, the global economic environment still remains uncertain with potential impacts from continued inflationary pressure, geopolitical tension and supply chain destruction. However, as we rolled out in our CMD, our strategic focus on cost management, asset rationalization and leveraging market opportunities through our global network position as well as to navigate these challenges and capitalize upturn as economic conditions improve. We certainly see the trough behind us and we see the recoveries happening. In line with our IOL 2.0 plan, Indorama Venture remains committed to enhancing the quality of earning, creating free cash flows and driving value creation across our stakeholders. Now let us look at closer look at the sales volume. In third quarter as you can see overall sales volume was stable at 3.54 million tons year on year and lower 3% quarter on quarter due to lower PTA volumes from asset rationalization. As you know we count PTA in the volumes. Now PTA assets have been rationalized in Europe. However, end demand for PET, endovenia and fiber products remain strong. If you look at CPET volume, decline this quarter mainly driven by lower PTA volume, post-asset rationalization. As I said, it is make or buy decision. We are buying PTA rather than making it. As we progress further with this rationalization in Q4, PTA volumes are expected to remain lower. However, steady PET demand even during the traditionally low season is helping to balance the impact and maintain stable CPET volume. So basically we have migrated from high cost to low cost countries like Turkey, Lithuania and Poland. Indo-Venia volume shows continued recovery with a 10% year-on-year increase after destocking has come to an end as you can see from the volumes here. Fiber volumes grew 1% quarter-on-quarter driven by increased demand in hygiene and lifestyle verticals despite a seasonal slowdown in mobility volume during the holiday vacation period in Europe. Looking ahead fourth quarter, we expect higher lifestyle volume, particularly in Asia as demand sequentially recover. You will see that lifestyle and PET margins have improved, which is helping. American volumes are expected to be stable, but lower due to PTA rationalization of Canada assets, which came in fact from 31st August. Now, this is just an update on what is happening on our strategic action. This quick snapshot summarizing the update on strategic actions starting with asset rationalization program. In second quarter of 24, we executed a comprehensive asset rationalization program aimed at strengthening our asset base, improving cash flow and enhanced quality of funding. We shut down high cost PTPT assets in Rotterdam. PTA acids in Canada and ethylene oxide acid in Australia as the upstream ethylene supplier shut down. And others where impairments are already taken in second quarter 24. As we told you, these actions are already yielding results with initial fixed cost saving of approximately 19 million realized in second quarter 24 on track to reach annual saving of 160 to 170 million dollar by 2025 as rationalizations materially take effect. 14% of targeted manpower reduction achieved in third quarter 24 and rest to achieve by 2025 plus other fixed overheads. Alongside this cost saving, our actual EBITDA enhancement, we expect to about $140 to $150 million by 2025. Operating rates will improve to, as I have already seen, 82% in third quarter 2024, reinforcing the positive outcome from our rationalization efforts. Other key financial targets include improved ROSI, higher return on equity, and together with reduced depreciation and maintenance capex. And we remain committed to delivering all the KPIs announced under this initiative and will provide you a regular update on the progress. Please note that we expect to realize around 120 to 140 million dollars from the sale of land and other properties in impaired assets in 2025 or early 2026, which is to be accounted as income on receipt of the cash proceeds. This question has come from few of our investors that what will be that saving and that we think 120 to 140, but we will account that when this is cash realized. Next slide. Another important is the unlocking the value, so progress of IPOs and divestment. Starting with IPOs, we have made significant progress in preparing two major businesses for public listing. First, our downstream pure play business of IOD, which is known as Indovenia, now branded as Indovenia, has reached a critical mass and is well positioned for a public listing as soon as market conditions are favourable. Targeted for first quarter 26, Indovina is currently in the reorganization phase with pre-consultation initiated with market authorities to ensure alignment on regulatory requirements and timelines. Similarly, Indovina, our rebranded packaging business, is also advancing towards an IPO targeted for fourth quarter 25. Preparation are underway with the consultation with the financial advisor. These two IPOs are expected to raise a combined $1 billion. For non-core divestments, we have two key projects, Lusture and Cobra. These are profitable operations with existing interest from buyers. We aim to complete this divestment by fourth quarter 25, targeting a proceeds of around $300 million. These updates reflect our commitment to 2026 target established at the beginning of the year, with each project progressing towards its respective milestone. We remain focused on executing our strategy and will continue to keep you informed of further progress in the quarter's end. So, this was an update on IOL 2.0 on asset rationalization and unlocking the value of subsidiaries. Now, let us see our third quarter results in more detail. In third quarter, we posted an adjusted EBITDA of $427 million, highest since third quarter 2022. With a 32% year-on-year increase, driven by steady volumes, cost reductions led by proactive management actions, and improved benchmark spreads across all segments. We have seen the improvement in the fiber spreads and integrated PET spreads. Quarter on quarter, EBITDA rose by 15% with higher contribution from all three segments. You can see $370 to $427 million. Demonstrating an operational improvement, effective cost-saving initiative, and more favorable market environment. CPET experienced significant growth driven by resilient PET demand, higher China benchmark spreads, and fixed cost-saving from asset rationalization. Looking ahead, the segment expects improved earnings next year, Supported by further fixed cost reductions from their asset rationalizations and better margins as you will see in the coming slides. Indovenia continued to deliver a strong performance in third quarter 24. You can see sequentially first quarter was 70, second quarter 98, third quarter 106. Driven by increased contribution from high margin crop solutions due to seasonality in the Americas. Alistair will cover this in detail. Fiber showed positive momentum with improved lifestyle benchmark spreads, particularly polyester staple fiber in China, and enhanced fixed asset productivity through management action. So, this covers your IVL by segments. Now, it is also important to look at regional EBITDA. You can see from 427, nearly $307 million is coming from Americas. Americas means United States, Brazil, Mexico, Canada. So, all the American continent. Year on year, European performance improved, showing a positive EBITDA contribution, primarily driven by asset rationalization, as you can see year on year. In the Americas, we saw improved performance due to higher volumes and better shale gas advantage. In Asia, performance increased as we capitalized on margin spread improvement. As you can see, this is the highest quarter in Asia, which is reflective of basically improvement in the spreads in PET integrated as well as the fibres. On a quarter-on-quarter basis, as I was saying, Asia's performance benefited from higher margins driven by improved benchmark spreads for both PET and fibre, signalling early signs of recovery. Industry spreads have sustained in October after continued losses in last four quarters by industry players in China. And you will see some details in the coming slide. Performance in the Americas improved due to strong seeped demand in North America and Brazil, where extended lead times and costly imports due to ongoing disruption created favorable conditions for local production. Indovenia's robust performance especially in South America further supported the strong regional results in the third quarter. EMEA reason faced challenges this quarter primarily due to seasonal slowdown in mobility fibers during the holiday period because in Europe this is holiday period. These pressures were partially offset by higher import parity from Asia driven by the escalated Red Sea situation and by lower fixed costs from asset rationalization. So this gives you region by region. Now I hand over to Muthu to cover on CPET. Thank you.

Thank you, Mr. Agarwal. Good afternoon, everyone. Between my co-leader Kumar Latha and myself, we will cover the slides on combined PET. I am pleased to share today CPET's strong performance for the third quarter of 24, demonstrating the strength of our segment amidst evolving industry dynamics. Through a combination of proactive management and strategic actions, we delivered and adjusted a beta of $286 million for the third quarter, an increase of 23% quarter over quarter, and 27% year over year. Excluding intermediate chemicals, CPET achieved and adjusted a bid of $215 million, reflecting a solid 25% increase quarter over quarter and an impressive 51% increase year over year. This growth was largely driven by improved benchmark spreads in integrated PET and cost efficiencies, including from the strategic asset optimizations. While we experienced a modest volume decline due to reduced PTA sales from these optimizations, demand for our end products remained robust with stable PET volumes. Now, if you're looking at integrated PET, it delivered and adjusted a bit of $178 million, a 42% quarter over quarter increase, supported by stronger benchmark spreads and lower costs. We observed strong demand in North America and Brazil, fueled by extended lead times for overseas supplies, as well as higher tariffs on imports. Our rationalization efforts have enabled us to maintain PET sales volume while achieving a $17 million reduction in fixed costs this quarter. These fixed cost savings are expected to increase further in future quarters following the completion of actions related to the rationalizations. And we have already provided for all major expenses related to rationalization in second quarter of 24 itself. Now, our extensive global footprint and strong local presence provide a very distinct competitive advantage, enabling us to secure premium spreads above industry benchmarks. This advantage supports sustained positive cash flows, whereas many producers in China face cash break-even or even losses due to the persistently low benchmark spreads over the historical levels. Looking at the packaging business, it reported and adjusted a bit of 26 million for that quarter, a 3% decline quarter over quarter, primarily due to short-term lower demand from adverse weather conditions in Thailand and Nigeria. However, recent expansions we will discuss in the coming slides later are expected to continue packaging strong overall growth trajectory. And in specialty chemicals, adjusted EBITDA was lower quarter over quarter, mainly due to the impact of the NDC campaign that was carried out during Q1 and Q2. However, this was partially offset by improved margins in the PIA segment. Now, looking to the industry itself, we would like to share the demand drivers, margin dynamics, and strategic actions that indicate the growth potential. in line with our proactive approach to capture this value. Demand for PET remains robust. As you can see from the chart on the left, in 2024, it is projected to grow steadily at 4.7%, and also expected to remain stable in the coming years in the long term. This year, global pet demand growth is close to 4% for virgin, and about 9% for recycled PET. Together, the growth is 4.7%. Furthermore, IVL benefits from our global presence and expansion in emerging markets like India and Nigeria, where the demand growth is quite strong, around 9% to 10%. Now, key drivers of this growth include population growth, consumer preference for sustainable packaging, unfavorable economic factors such as the recent interest rate cuts in the U.S. and the anticipated further cuts. These are predicted to boost consumption of end products. And with rising global recycling rates, PET's role in the packaging industry is set to strengthen further. In the near term, spreads are stabilizing, supported by industry discipline. Margins have seen consistent recovery through Q3 2024 and we have also seen further improvement in October. While the ongoing Red Sea disruption keeps freight rates elevated, IVL's local presence in Europe and the Americas allows us to capture premiums due to the impact on import pricing. Based on these factors, CPAT management is focused on on sustaining and expanding our market share, maintaining a market premium by leveraging our global footprint, gaining efficiency from asset optimization, and reducing working capital costs to drive long-term value. Now to move to some recent case studies and highlights in overall progress for CPAC. We are looking at this case study on recycling vertical. As you may know, Indorama Ventures has been a pioneer in PET recycling, a vision that has led us to become the global leader in this space, similar to what we are in the Virgin Resin space. We foresaw the value and impact of this business and have strategically invested to make it a core part of our future growth. Today, we have 20 plus facilities across Asia, EMEA and the Americas. Our recent JV with Varun Beverage, PepsiCo's second largest bottling partner globally outside the US, in India is a strong example of how we are positioning for development. We are establishing several greenfield state-of-the-art PET recycling facilities across India. The JV has already begun the construction of two of these recycling facilities, and they are planned for completion in 2025 and early 2026, with potential for more. One of these facilities is located in northern India, in Jammu, while the other is in eastern India, in Odisha. Now, our aim is to reach capacity of 100 plus kilotons. annual capacity of this recycled PET across all the facilities when combined. And India's impressive 90% collection rate and its target of 30% recycled content, the mandate, by 2025, provide very strong momentum for this initiative and for our investments there. By expanding in this strategic market, IVL can leverage its existing ecosystem to drive growth and meet the increasing demand for the recycled content. Now, looking at our packaging business, IndoVida, it is advantageously expanding into high-growth markets, and East Africa is a prime example. Our first converting plant in Tanzania is set to commission in January of 2025, This will complement our existing presence in Nigeria, Ghana, and Egypt, reinforcing our footprint across the continent. Tanzania's large and youthful population, with over 60% under the age of 25, represents a dynamic and growing consumer base and ideal for long-term market growth. Coupled with an annual GDP growth rate of around 6%, Tanzania offers a very favorable economic environment for expanding packaging and consumer goods industries. With substantial capacity, this plant will meet the rising demand for preforms and closures for major beverage companies in Tanzania and nearby countries, including Uganda, Kenya, and Mozambique. Indovida benefits from attractive local fiscal policies, including zero import duties on Dresden. And we are equipped to produce preforms with RPET, aligning with sustainability goals of global brands like Coca-Cola and PepsiCo. We have already secured a multi-year supply contract as well with a major beverage company and similar partnerships are in the pipeline. Now, this expansion positions Indovida as a strong, sustainable partner in Africa's growing packaging market and with more investments being explored in markets like Algeria, Tunisia, and Morocco. With that, I'll hand it over to my co-leader, Kumala Dhah.