Indorama Ventures Public Company Limited

Good morning, welcome everyone and thank you for taking time for joining us for Indorama Ventures full year 2024 reserves briefing meeting. My name is Vikas Jalan, Investor Relations and Planning at IDL. Joining me today, Mr. D.K. Agarwal, Deputy Group CEO. Muthu Kumar, Parmasivam and Kumar Radha, President and Co-Leaders for CPAC segment. Alistair Amphor, joining us online from the U.S., Executive President for Indovina. And Diago Bori, Executive President for Fibers. A quick disclaimer, 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 industry and business trends based on an analysis of available information at this point in time. So with that, I now invite Mr. Agarwal to first share the business and financial highlights and after the prepared presentation, we will open up the session, the floor for Q&A. Over to you, please, Mr. Agarwal.

Thank you, Vikas. Very good morning to all of you joining us on the year-end analyst meet. As we always present, let us review the microeconomic landscape which directly or indirectly impacted the industry as well as our business. The world is passing through one of the biggest turmoil periods. In quarter four, the U.S. and China saw some marginal improvement. supported by rising production and new orders, while Europe remained challenging due to weak demand, as you can see on the extreme left top graph. The freight rates declined due to additional vessel capacity which got added, and we also saw improvement in Red Sea crisis. On energy front, weak demand and ample supply kept oil prices lower. They have been very volatile in fourth quarter 2024. Meanwhile, interest rate marginally declined and inflation continues to be moderated. Although, as you know, post-Trump policies, we see that interest rates may remain elevated for some time. Looking at what is the recent U.S. elections has impact on our business, are expected to support the U.S. economy in the coming years. As you know, the IVL has been a geographically diversified company. As a local producer in the United States, generating nearly 40% of the revenue of IVL and 50% of the EBITDA. And if you take entire Americas, include Brazil and America, Brazil and Mexico, it is 70% of IVL EBITDA. So IVL, we believe, will tend to benefit from potential tariff increases which may happen, potential corporate tax reductions and lower shale gas prices driven by increased oil and gas production. as drill baby drill works. However, this wind also brings headwinds, starting with inflationary pressure that could impact demand for certain products, particularly in the consumer demands like endovenia and fibre. Additionally, potential trade barriers would benefit IVL operation due to local production waste, as I mentioned. With these challenges, our significant presence in the United States provides us a strong advantage and overall we expect positive impact for IVL from this move in the United States. Now let me walk you through the financial results for the entire year. In 2024, we know that industry has been very challenging. IVL took decisions, timely actions to fortify its market leadership. and secure a sustainable growth path as the company pilots towards systemic generational change in the chemical industry. In a year of alignment, mobilization and launch management began executing a company's three years IVL 2.0 transformation strategy. As you can remember, in CMD, we announced in March, with a singular focus on optimizing global assets, this means shutting down high-cost assets, reducing debt, enhancing cash flows, and implementing next-generation digital and leadership program to achieve our stated 2026 targets. Now this, I am very happy to report that this disciplined self-help management actions helped bolstered full-year earning as global chemical markets continue to struggle through 2024 in one of the most challenging downturns in the recent industry history, as you might have noticed from results of many chemical industries. The industry's future is being irrevocably shaped by long-term macroeconomic themes, including the unequal impact of peak oil between East and West, as we know the feedstock disparity between East and West, China's ambition to continue to expand its own production, India's enormous growth engine, and one of the most unstable geopolitical environments in a generation. Amid this volatile backdrop, We are satisfied that I will post a full year reported EBITDA of $1.4 billion in 2024, which is an increase of 26%, an adjusted EBITDA of $1.522 billion, an increase of 10% year-on-year. Though performance varied from business to business, improved volume across all segments and proactive management actions resulted in the overall improved earning for the year. The pivots made this year from the assessment of make versus buy decision. As you know, we shut down a lot of PTA capacity. We went into buying PTA. Resulted in a 4% year-on-year rise in volumes. So we protected our end market on a like-to-like basis. Persistent overcapacity, particularly in our petrochemical business and PET, kept benchmark spreads under pressure, affecting the integrated PET and MTV businesses. There were some elements as polyester fiber and integrated MEG spreads improved through the year, boosting lifestyle fiber and maintaining intermediate chemical performance. You will see this in coming slides. Although there was an increase in volumes, industry challenges offset disadvantages. Steps taken by the management and a strong emphasis on cost control have significantly contributed to the improved performance this year. The asset optimization plan outlined in March, where we decided to rationalize few high-cost facilities, has thus far yielded an additional 48 million in fixed cost reduction in 2024, with further enhancement expected as rationalization progresses and additional savings materialize to support earning growth in 2025. We expect another 100 million additional fixed cost savings coming in 2025. These actions have contributed to higher operating rate for the group, climbing 8% in this year. Still in light of continued industry pressure, the company has determined that further management actions are necessary in addition to the significant measures already undertaken in 2024 in a sustained drive to achieve our stated 2000 IVL 2.0 objectives. And we will discuss these further details in the upcoming chemical markets in March 25, which is a week ahead. Lower energy costs, especially in Europe, provided an uplift of $55 million year-on-year across the group. Moreover, significant currency movements in certain markets, as you know, the currency has weakened. Brazil, Nigeria and Egypt brought a $48 million reduction in our fifth convergent cost, including variable and fixed. In 2024, looking at cash flow, IVL generated $1.33 billion of its cash flow from operation. Of which, 110 million was used for one-time severance and related expenses. As you know, we shut down some facilities. And 229 million was spent on higher short-term working capital to stabilize the supply chain for PTA and PX purchases. You know, we landed up with some high inventories in CPET business. And this extra working capital outflow is expected to reverse as cash flows in 2025 as the supply chain stabilizes. You will be pleased to note that fiber nearly improved their working capital by 100 million. So, CPAT increased by 300 plus and I think they will get normalized very soon in next coming two quarters. The consolidated fourth quarter adjusted EBITDA year on year was higher by 29% from improved operation, but lower quarter on quarter by 16% due to seasonality. So, that is on the fourth quarter. Now, it's important to get an update on IVL 2.0. It's a quick snapshot summarizing the update on asset optimization program. In second quarter 24, we executed a comprehensive asset rationalization program aimed at strengthening our asset base, improving cash flow, and enhancing quality of earnings. We took the bold steps of shutting down our PET, PTA assets in Rotterdam, PTA assets in Canada, EU assets in Australia and others where already impairments were taken in second quarter 2024. These actions as I mentioned earlier are already yielding results with initial fixed cost saving of $48 million realized in 2024 on track to achieve a saving of $160 to $170 million per annum which will basically translate into an EBITDA upliftment of $130 to $140 million per annum by 2025-2026. Alongside this cost savings, operating rates improved to 82% in second half 24 and 495 manpower reductions achieved in 2024 on these sites. This excludes the people whom we are further rationalizing in the fiber business. We also anticipate a one-time cash inflow of $150 to $200 million from land sales related to these racialized assets. Now, these are not accounted at present. This will be accounted on cash basis except for Rotterdam, where we have accounted for $51 million as a firm agreement is getting reached with the buyer. We will further provide update on IVL 2.0 in our coming CMD next week. Now, let us see our results in 2024 in more details versus 2023. As I mentioned, I will deliver 2024 adjusted EBITDA of $1.52 billion, which is an increase of 10% year-on-year against the performance year of 2023. As I mentioned, supported by a reduction in restocking challenges, a moderate recovery in volume growth by 4%, and fixed cost saving from rationalization efforts. If you look at segment-wise, CPAC performance improved, benefiting from a stronger performance in specialty chemicals. Cost savings from rationalization efforts helped offset the softer China benchmark spreads, as you know, China benchmark spreads have been very weak, demonstrating the effectiveness of our ongoing efficiency initiatives. Despite external market challenges, strategic cost controls and specialty product strength and health maintain the profitability of this segment. Looking ahead, the segment expects improved earnings supported by further fixed cost reduction as you will get annualized benefit from asset rationalization. Intermediate chemical performance got impacted due to lower MTB margins because MTB margins dropped, but they were offset with improved integrated MEG margins due to shell gas advantage. Indovenia delivered a strong performance with adjusted EBITDA up 29% year-on-year. Sales volume grew 4%, driven by destocking normalization and demand recovery in South America. North America benefited from higher integrated margins, while South America saw gains from a stronger sales mix. OMA growth was supported by crop solutions and home and personal care, with an additional $100 million in licensing income from downstream products. These are PO licensing. Now looking at the fiber business, the growth in fiber segment was primarily driven by improved lifestyle benchmark spreads. We have seen improvement in the fiber benchmark spreads in China and higher volumes in all market segments showing positive momentum in all three verticals. Moreover, the segment was benefited from reduced fixed costs through various management actions. The consolidated fourth quarter adjusted EBITDA year-on-year was higher by 29%, as you can see, $358 million, from improved operation but lower quarter-on-quarter by 15% due to seasonality factors. As you know, fourth quarter is normally weaker. Now, this is an important side to look at the regional breakup of IVL performance. Looking at performance on a regional level, in 2024, the company demonstrated robust regional performance across key markets. And I think there where the geographical diversity paid. You can see that Asia delivered a stronger performance, primarily supported by better lifestyle fibers, benefiting from improved PSF margins. CPET performance remained resilient due to increased volumes and higher premiums despite lower benchmark spreads. In Americas, which constitutes 70% of the IVL debita, continued to be a core strength due to its consolidated and well-protected market environment, which contributes nearly, as I mentioned, 70% of the EBITDA. Operations in Indovenia, which is basically entirely in Americas, delivered relatively better results, while CPET faced some challenges in MTV performance, which were normalized and offset with the improvement in integrated MEG margins. Meanwhile, the EMEA regions, and you can see a big swing in EMEA regions, experience a significant turnaround and this is the impact of our rationalization of the set. So, the strategic asset rationalization CPET enabled the company to adopt a make-or-buy approach for PTA procurement, thereby replacing the high-cost production with more cost-efficient purchasing. And additionally, fiber business achieved cost savings through transformation actions, further enhancing the region's recovery. So, this gives you a reasonable, a reasonable breakup of the earnings. Now, I hand over to Muthu to take us through the CPAT performance.

Thank you. Thank you, Kavalji. Sawadika. Good morning, everyone. We will cover the CPAT segment in specific. CPET, along with intermediate chemicals, delivered and adjusted a bit of 1.012 million, a solid 5% year-over-year increase, demonstrating our ability to navigate market headwinds while executing strategic optimizations as well as driving resilience through our management actions. Looking at combined PET here, which excludes IC, we will look at intermediate chemicals separately in a slide. Without IC, we delivered and adjusted a bit of 768 million, as you can see here. Overall, stronger specialty chemicals performance, as we saw earlier, and the cost savings is quite important. From the asset rationalization, helped offset the weaker China benchmark spreads, which dropped about $22 from 23 to 24. Now, integrated pet was focused on managing the oversupply, while enhancing efficiency, delivering 596 million in adjusted EBITDA, which is a drop of 4% year over year. Agile management actions, including 47 million in fixed cost savings from asset rationalization and stable PET sales volumes, minimize this impact from the oversupply situation and the drop in industry benchmark spreads. As we discussed earlier, We see the full benefit of the resuscitation coming in 2025-2026. The resuscitation efforts, as you all know, in 2024, a lot of it was focused on the CPET, this business, resulting from a comprehensive review of make-or-buy opportunities for PTA and the evolving industry landscape. Our management maintained PET sales through these efforts with volumes improving by 1% on a like-to-like basis through the year, underscoring resilient end market demand. In 2023, globally, there was a contraction in demand, which significantly improved in 2024, and we are estimating a growth of about 6% globally on the PET demand, including ARPIT. Looking ahead, 2025 will see full benefits of this rationalization efforts, including further fixed cost savings and a one-time gain of approximately 100 million from planned land sales from these rationalized assets. Now, looking at packaging, this vertical gave stable margins in a high-value business with an adjusted EBITDA of 98 million, which is a drop of 5% year-over-year, but a gain of 9% from volume growth as well as cost reduction measures were offset by reduced spreads due to the sharp devaluation in Nigerian and Egyptian currencies. Despite this, the business maintained a healthy EBITDA margin of 20%, reinforcing its position as a high-margin, value-driven segment. Now, looking at the specialty chemicals, this is a really strong turnaround story with adjusted EBITDA surging from 7 million in 2023 to 74 million in 2024. And there has been a growth both in volumes and spreads. And a lot of the benefit also came from the management actions taken on improving operational efficiency and market strategy. We will have some more detailed discussion on specialty chemicals in the next slide. Now, looking at the recycling, this vertical reported marginal improvement in performance this year, driven by higher volumes and lower energy costs. Similar to specialty chemicals, what we did last year, we have formed a new dedicated management team for the recycling vertical in order to bring more additional focus and forming a strong platform on recycling for future value creation. We just wanted to show, highlight what turnaround has been made on the specialty chemicals on this slide as a case study, let us say. Specialty chemicals, which is, you know, we talked about this turnaround. And this, the reason why we want to show is also to demonstrate our forward-looking business plan for the next three years, which has been focused on developing our value-added portfolio. And this slide, you can see the progress that we are making in that trend. Now, after a low point in 23, where the EBITDA was only 7 million, we have actively worked on making a significant recovery, which has shown the EBITDA increasing to 74 million. Now, this has been driven by a clear focus on operational excellence, organizational capacity and agility, as well as the market strategy, how we are optimizing the product value mix and the value pricing. So on the operational efficiency side, we have, through our management actions, have enhanced the plant reliability and yields, ensuring more efficient operations as well as considerable reduction in fixed cost. As far as the organization is concerned, we have reorganized to support innovation and growth, making our business more agile and responsive to evolving customer needs. On the approach to market, go-to-market strategy, it is focused on value pricing and an expanded customer and application base, looking at several new applications and the high-value applications in premium markets, leveraging on the strong partnerships that IVL has had with our global base of customers. Now, after this performance 24, we do see even greater potential ahead for this vertical. With more than 400 customers, including large global brands, 39 patents and a solid pipeline of innovative products. With some of these new innovations, we have also shown us pictures here. We are actively pursuing new levers for further growth in specialty chemicals, and we will make sure that this momentum continues. With that, I'll hand it over to my co-leader, Kumar Lata.