Reports to the Stock Exchange
Management Discussion and Analysis
Management Discussion and Analysis
Ref. No. IVL [--/--/2011]
February 21, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Annual Audited Financial Statements of Indorama Ventures
Public Company Limited for the year ended December 31, 2010 and the Management's
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Financial Statements for
the year ended December 31, 2010 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the year ended December 31,
2010 and the 4th quarter of 2010 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2010
and the 4th quarter of 2010 (a copy in Thai and English)
Please be informed accordingly.
Sincerely yours,
(Mr. Aloke Lohia)
Group Chief Executive Officer
Company Secretary
Tel: +66 (0) 2661-6661
Fax: +66 (0) 2661-6664
INDORAMA VENTURES PUBLIC COMPANY LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
FOR THE PERIOD OF 4Q 2010 AND THE YEAR ENDED DECEMBER 31, 2010 (CONSOLIDATED)
The management is pleased to announce record quarterly and annual earnings
surpassing the record set in the previous quarter of 2010. The record earnings
are driven with strong demand globally across all our business lines. Strong
demand in the Polyester value chain has resulted in higher integrated margins.
The IVL business model of global operations, scale and integration continues to
deliver strong growth in revenues and earnings. The depth of our integration
allows us to capture margins in the polyester value chain and our scale provides
for a competitive cost structure. The global shortage of cotton availability
and sharp increase in cotton prices has led to stronger substitution demand in
favor of Polyester fibers & yarns which in turn has resulted in stronger demand
for PTA, a key raw material for Polyesters.
Indorama Ventures PCL (SET: "IVL") announced Net Profit after tax and minority
of US$ 333 million (Baht 10,560 million) for the year 2010 and US$ 134 million
(Baht 4,008 million) for 4Q 2010. In year 2010, Baht continues to strengthen
with weakness in Euro and US Dollars. The Euro has been significantly weak in
2010 ending 16% cheaper YonY, and the US Dollar ended 10% cheaper YonY as on
31st December 2010.
Key Financial Information
US$ in Millions 4Q10 vs. FY10 vs.
4Q10 3Q10 4Q09 3Q10 4Q09 FY10 FY09 FY09
Exchange Rate Baht vs US$ 30.15 30.42 33.37 -1% -10% 30.15
33.37 -10%
Exchange Rate Baht vs Euro 39.94 41.41 47.79 -4% -16% 39.94
47.79 -16%
Consolidated Sales 838 752 628 11% 33% 3,055 2,331 31%
PET resins 483 460 361 5% 34% 1,832 1,307 40%
Polyester & wool 120 104 97 16% 25% 429 328 31%
PTA 234 188 171 24% 37% 795 696 14%
Consolidated EBITDA 141 115 81 23% 75% 435 324 34%
PET resins 70 63 40 10% 75% 237 174 36%
Polyester & wool 27 19 13 39% 110% 70 39 78%
PTA 45 34 27 34% 67% 129 109 18%
Net profit after tax and minority 134 93 41 44% 223% 333 141 137%
CAPEX 120 31 60 286% 100% 206 115 79%
Net Debt 1,001 948 1,125 6% -11% 1,001 1,125 -11%
Net Debt to Equity 0.9 1.0 1.7 -2% -44% 0.9 1.7 -44%
Interest Coverage 12.0 11.3 7.6 6% 58% 10.7 7.0 53%
ROE 54% 46% 33% 18% 64% 43% 32% 33%
ROCE 22% 19% 13% 15% 65% 17% 14% 22%
Net profit after tax and minority for the quarter 4, 2010 and year 2010 includes
the share of equity income from jointly controlled entity - UAB Ottana Polimeri
Europe of US$ 38 million (Baht 1,152 million) and (Baht US$ 60 million (Baht
1,888 million) respectively. It operates an integrated PTA - PET plant located
in Ottana, Italy. The equity income mainly comprises of 'Gain on a bargain
purchase or Negative Goodwill' from the acquisition completed in July, 2010.
IVL 4Q 2010 Results
PET - Sales revenue increased by 34 percent in Dollar terms over 4Q 2009, due to
higher sales volume and higher selling prices. The higher sales volume was
attributed primarily to the startup of AlphaPet in USA for both lines in 2Q
2010. The higher selling prices in this quarter were in line with the increase
in prices of the feedstock in the polyester value chain. The operating EBITDA
was higher from both higher margins and the volume growth of 12% over 4Q 2009.
Also, the Operating EBITDA margin improved to 14.4% in 4Q 2010 from 13.7% in 3Q
2010 and 11.0% in 4Q 2009. The segment achieved 75% growth in 4Q 2010 Operating
EBITDA in dollar terms over same period last year.
Polyester fibers and Wool yarns - Operating EBITDA increased by 110% over 4Q
2009 and 39% over 3Q 2010 in US$ terms, due to improvement in margins. Cotton
has become much more expensive than Polyester which creates substitution demand
for Polyester and conditions conducive for Polyester makers to increase prices
and expand margins. Polyester fibers and yarns demand was strong in the year
2010 and the additional demand from cotton substitution has provided greater
strength to demand growth. These factors resulted in Operating EBITDA margin
improving to 22.4% in 4Q 2010 from 18.7% in 3Q 2010 and 13.3% in 4Q 2009. Sales
revenue increased by 25% over 4Q 2009, due to higher selling prices.
PTA - Operating EBITDA increased by 67% over 4Q 2009 and 34% over 3Q 2010 in US$
terms, due to both increase in margins and increase in volumes supported by
strong demand from polyesters and limited PTA capacity availability. The
Operating EBITDA margin improved to 19.3% in 4Q 2010 from 18.0% in 3Q 2010 and
15.9% in 4Q 2009. Our PTA plants were operating at 102% utilization rate in 4Q
2010, comparing with 97% utilization rate in 4Q 2009, resulting in volume growth
of 5% YonY.
IVL 2010 Results
PET - Sales revenue increased by 40 percent in Dollar terms YonY, due to both
higher sales volume and higher selling prices. The higher sales volume was
attributed primarily to the startup of AlphaPet in USA for both lines in 2Q 2010
and improved customer demand globally. The higher selling prices were in line
with the rising prices of the feedstock in the polyester value chain. Operating
EBITDA in dollar terms increased by 36% over last year. In 2010, despite price
increase of 13% over 2009 the Operating EBITDA margin remained relatively stable
at 12.9%, comparing with 13.3% in 2009.
Polyester fibers and Wool yarns - Operating EBITDA in US$ terms increased by 78%
over 2009, due to improvement in margins from product-mix shift to higher value
addition, lower conversion cost and strong demand supported by soaring cotton
prices resulting in greater product substitution in favor of polyester. These
factors resulted in Operating EBITDA margin improving to 16.3% in 2010 from
11.9% last year. Sales revenue increased by 31% over 2009, due to higher selling
prices.
PTA - Operating EBITDA increased by 18% over 2009 in US$ terms, due to
improvement in volume and increase in margins supported by strong demand from
polyesters led by soaring cotton prices and limited PTA capacity availability.
In 2010, despite price increase of 11% over 2009 the Operating EBITDA margin
improved to 16.2% in 2010 from 15.7% in 2009. Our PTA plants were operating at
100%, same as last year, despite 2 of our 4 PTA plants (includes Ottana, Italy)
having scheduled maintenance shutdowns in 2010.
Cash Flow
IVL generated US$ 328 million of cash from operating activities during the year
compared to US$ 269 million in 2009. In 2010, witnessed cash outflow for working
capital of US$ 66 million on higher volumes and selling prices. The free
cashflow before capex was US$ 280 million compared to US$ 216 million in 2009.
During the year, there was cash outflow for capex and investments of US$ 206
million primarily for the purchase of additional shares in TPT Petrochemicals
PCL, the completion of greenfield plant AlphaPet Inc. in USA, acquisition of
utility plant in Rotterdam, Netherlands and equity investment for acquisition of
an integrated PTA-PET plant in Ottana, Italy. In 2010, the company paid US$ 47
million as dividend. The remaining surplus cash has been used for repayment of
debt.
Net Profit after Tax and Minority
The Net Income after tax and minority was US$ 333 million in year 2010, a
tremendous growth of 137% over the same period last year. This included the fair
value adjustment or Negative Goodwill of US$ 17 million on acquisition of the
Utility Plant in Rotterdam and the share of equity income US$ 60 million which
mainly comprises of Negative Goodwill from the acquisition completed in July,
2010 of an integrated PTA and PET plant in Ottana, Italy. The annualized ROE
achieved is 43% in 2010 compared to 32% achieved in 2009.
Financial Status and Ratios
IVL Net Debt stands at US$ 1,001 million as on 31st December 2010, which was 11
percent lower than same time last year. The Net Gearing ratio decreased to 48%
as at 31st December 2010 from 63% same time last year. The annualized ROCE is
17%, which does not include extraordinary income, in 2010 against 14% in 2009.
As at 31st December 2010, IVL had unutilized credit facilities of USD 654
million, ensuring high liquidity in the group.
Annual Dividend
IVL dividend policy is to pay 30% of net profit after appropriation of legal
reserve. The board of IVL has proposed to the shareholders for approval a
dividend of Baht 0.66 per share, amounting to a dividend amount of upto Baht
3,178.5 million (based on increased issued and paid-up capital of IVL after
rights issue of Baht 4,815.8 million). The proposed dividend pay-out is higher
by 122% over year 2009 annual dividend of Baht 1,430.3 million.
Rights issue
In November, 2010, the IVL Board of Directors approved the issuance of
481,585,672 free Transferable Subscription Right (TSRs) or "IVL-T1" to the
Company's existing shareholders (rights issue) at the ratio of 9 existing shares
to 1 TSR. The TSR has an exercise ratio of 1 TSR for 1 share at an exercise
price of Baht 36 per share. The issuance and offering of the TSRs was
subsequently approved in the Extraordinary General Meeting of Shareholders
convening in December, 2010. The exercise of TSRs into shares is ongoing and the
subscription will complete on February 24, 2011. The cash received from rights
issue will increase liquidity in IVL to take-up growth initiatives, acquisitions
and expansions, in year 2011-14 and reduce the net debt-equity ratio to much
below 1 time at end of Q1, 2011.
2011 Outlook
Positive outlook for Polyester Value Chain supported by strong demand and
expanding integrated margins of our end products- PET, PTA and Polyester fibers
& yarns. PTA demand is equally very strong and compliment to integration model
of IVL. The sharp increase in Cotton prices to historical highs has resulted in
shift of demand towards Polyester Fiber and Yarns creating scarcity for PTA
which is one of the major raw materials for polyester fibers and yarns. Further,
the strong demand globally is supported by turnaround of the economy in North
America after the 2008 crisis and is now seeing strong demand growth. The
Polyester value chain has been able to pass through the increase in prices and
expand integrated margins. As shown in chart below, integrated spreads for PTA
and PET in Q4'10 were higher over the last 8 quarters average and continues to
remain strong for IVL:
Polyester fibers and yarns has been taking market share which has increased from
39% in year 2000 to 51% in year 2010E of all fibers. Polyester growth over
other fibers is from more stable and sufficient supply as not dependent on
weather related production impact, more functional as better stretch, durability
and less water absorbency and its lower cost. Cotton is a natural fiber and its
supply is dependent on weather conditions as well as on competing cash crops
and Bio-fuel demand, due to limited supply of land. The proximity of Polyester
Value Chain to consumer necessity has resulted in continuous positive growth in
demand whether it is PET or polyester fibers and yarns. PTA is tight on strong
demand from Polyester and PET and spreads are expected to remain firm. Polyester
fibers and yarns will continue to gain market share among demand for all fibers
and yarns as shown in bar chart below:
Source: Industry data
2011 is expected to see the fast pace of IVL in delivery of both performance and
size growth. The AlphaPet plant is fully operational and has demonstrated its
full nameplate capacity of 1200tpd in November and is expected to ramp-up to
full capacity in the first half of next year. The first full year impact of
volume from AlphaPet will be in year 2011. In addition, IVL has been able to
turnaround the integrated PTA - PET plant in Italy to positive earnings in 4Q
2010, shortly after completed the joint venture investment in July, 2010. IVL
has completed the acquisition of PET plant in China at the end of January,
2011and within 1Q 2011, IVL will complete all the acquisitions announced, namely
the Invista PET and Polyester plants in US & Mexico, the SK PET and Polyester
plants in Indonesia and Poland. Recently announced Trevira is also expected to
be closed within the first half of year 2011. These will add the installed
capacity by 2.1 million tonnes to the IVL current installed capacity of 3.6
million tonnes (excluding joint venture plants in Italy). The management
continues to look at various growth options in all parts of the world,
especially in Asia and Middle East & Africa, in line with its "Aspiration 2014"
plan.
Projects update
In May, 2010, IVL agreed to expand PET production at the site of its existing
plant, owned and operated by its subsidiary Indorama Polymers Rotterdam BV. It
will add a new production line with an annual capacity of PET resin of 190,000
tons thus bringing the total capacity at the site to 390,000 tons. The expansion
is expected to be completed and start operations in quarter 1, 2012. The new
plant will generate employment. The proposed expansion is being taken up to
increase market share in Europe, to fully integrate with the PTA capacity of
350,000 tons and utilities at the same location and benefit from economies of
scale. It is expected to be value accretive to earnings.
In August, 2010, IVL agreed to set up a new PET plant by one of its subsidiary
Indorama Polymers PCL. "IRP". IRP through a new wholly owned subsidiary will be
setting up a 75,000 tons per annum solid state polymerization "SSP" plant to
produce PET at Port Harcourt, Nigeria. This is the first PET investment of IVL
in Africa and thus establishing its foothold in the 450,000 tons per annum
market demand. Currently, there is only one producer of PET in Africa. The plant
is expected to complete and start commercial operations in quarter 4, 2011. It
is expected to be value accretive to earnings.
In August, 2010, IVL agreed to implement a PET Recycling project or Flake to
Resins with a capacity of 36,000 tpa in AlphaPet Inc., USA. The project is in
line with demand from branded beverage companies in the fast moving consumer
goods sector. The process and technology is approved and availability of clean
flakes has been tied-up from within a close proximity of the plant. The project
is expected to complete and start-up in quarter 4, 2011. It is expected to be
value accretive to earnings. Also, the project meets CSR objectives of IVL to
protect environment and to promote recycling.
In August, 2010, IVL agreed to implement a 2 MW Solar Power Project in Lopburi,
Thailand. The electricity generated will be supplied to the PEA grid and falls
in the Very Small Power Producer Program "VSPP" under which will avail long term
incentives on investment in renewable energy. Thailand with very good solar
radiation provides opportunity to tap solar energy, a renewable energy source.
The project will be located at our existing site and will utilize for productive
use surplus vacant land which falls in the Green Zone. The project will avail
BOI promotion privileges for exemption of corporate tax, custom duty and other
incentives. The project is expected to complete and start-up in quarter 1, 2011.
Also, the project meets CSR objectives of IVL to protect environment, reduce
carbon footprint and community development.
In November, 2010, IVL agreed to the acquisition of a plant with an installed
capacity of 406,000 tons of PET and Polyester polymers per annum from Guangdong
Shinda UHMWPE Co., Ltd. The plant is located in Kaiping City, Guangdong Province
of China. This is the first investment of IVL in China and will allow IVL to
establish its footprint in one of the fast growing countries for PET. IVL has
completed the acquisition on January 27, 2011. It is expected to be value
accretive to earnings.
In November, 2010, IVL agreed to acquire from Invista S.? r.l., their Polyester
resins and Polyester staple assets located at Spartanburg, South Carolina, USA
and to also acquire their Latin American Polyester resins and Polyester staple
business (Grupo Arteva S. de R.L. de C.V. and certain of their affiliates) in
Queretaro, Mexico. Both sites produce wide ranges of PET, Specialty Polymers,
Fibers and Film. The total capacity is 470,000 tons per annum in Invista's
Spartanburg and 535,000 tons per annum in Invista's Quer?taro. The transaction
is expected to close during the first quarter of 2011. This acquisition is
expected to be value accretive to earnings, making IVL the largest PET producer
in the world and at the same time complement the strategy to increase its
footprint into new higher growth markets of Central and Latin America. Strong
R&D set up in the plants will enable IVL to provide innovative products to its
customers.
In December, 2010, IVL agreed to acquire and for the purpose signed two
definitive Share Purchase Agreements, the first with SK Chemicals, Korea and or
its affiliates to acquire the PET business of SK Eurochem Sp. z o.o. in Poland
and the second with SK Syntec (a subsidiary of SK Chemicals) to acquire the PET
and Polyester business of PT SK KERIS and PT SK Fiber in Indonesia. SK Eurochem
Sp. z o.o. in Poland is a PET chips manufacturing facility having a capacity of
140,000 tons per annum. PT SK Keris, Indonesia is a PET Chips and Polyester
Filament Yarn manufacturing facility with a combined capacity of 160,000 tons
per annum. PT SK Fiber Indonesia is a Polyester Filament Yarn manufacturing
facility having a capacity of 36,000 tons per annum. The transaction is expected
to close during the first quarter of 2011. It is expected to be value accretive
to earnings.
In February, 2011, IVL agreed to acquire 75% equity stake in the Polyester
Staple Fiber, Specialty Filament business of Trevira GmbH having operations in
Germany and Poland. The remaining 25% will be held by Sinterama S.p.A., Italy
(the "JV Partner"). The acquisition of the 100% shares in Trevira GmbH will be
done through a new Joint Venture Company. The formation of the new JV Company
and the transaction are expected to be completed by Q2, 2011. Trevira GmbH is a
fully integrated Polyester Fiber Company in Europe with a capacity of 120,000
tons per annum of Staple Fiber and Filament Yarn at its manufacturing locations
in Germany and Poland. Trevira GmbH is the market leader in Europe in high value
applications of polyester, especially in automotive and home textiles. The
company is a widely known and well-recognized brand both amongst customers and
producers of synthetic fabrics. The company has several valuable patents and
technologies together with a strong R&D setup with substantial accumulated
research knowledge. Trevira's knowledge base developed over a period of time
will be complementary to IVL. The synergy will provide comprehensive and
innovative solutions for apparel and industrial applications of polyester to
customers worldwide through IVL global operations.
On completion of the above stated acquisitions and expansions, IVL will have an
increasingly advantaged portfolio and its capacity will increase by 2.1 million
tons. IVL will have the leading market position in Thailand, North America and
Europe. The regional capacity distribution of IVL will be as shown below in the
pie-chart:
Important Note: 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 of 3Q 2010 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.
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.
FINANCIAL INFORMATION
- IVL consolidated tables
- Business segment tables
- IVL consolidated balance sheet and statement of income
IVL CONSOLIDATED
Table 1
IVL : CASH FLOW
FY10 vs.
Baht in millions FY10 FY09 FY09
EBITDA 13,777 11,106 24%
Net working capital and others (3,109) (1,554) 100%
Net financial expenses (1,333) (1,884) -29%
Income tax (469) (264) 78%
Free cash flow before Capex 8,866 7,404 20%
Capital expenditures (2,418) (3,785) -36%
Net (acquisitions) disposals of subsidiaries (4,124) (165) 2399%
(more)
Ref. No. IVL [--/--/2011]
February 21, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Annual Audited Financial Statements of Indorama Ventures
Public Company Limited for the year ended December 31, 2010 and the Management's
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Financial Statements for
the year ended December 31, 2010 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the year ended December 31,
2010 and the 4th quarter of 2010 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2010
and the 4th quarter of 2010 (a copy in Thai and English)
Please be informed accordingly.
Sincerely yours,
(Mr. Aloke Lohia)
Group Chief Executive Officer
Company Secretary
Tel: +66 (0) 2661-6661
Fax: +66 (0) 2661-6664
INDORAMA VENTURES PUBLIC COMPANY LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
FOR THE PERIOD OF 4Q 2010 AND THE YEAR ENDED DECEMBER 31, 2010 (CONSOLIDATED)
The management is pleased to announce record quarterly and annual earnings
surpassing the record set in the previous quarter of 2010. The record earnings
are driven with strong demand globally across all our business lines. Strong
demand in the Polyester value chain has resulted in higher integrated margins.
The IVL business model of global operations, scale and integration continues to
deliver strong growth in revenues and earnings. The depth of our integration
allows us to capture margins in the polyester value chain and our scale provides
for a competitive cost structure. The global shortage of cotton availability
and sharp increase in cotton prices has led to stronger substitution demand in
favor of Polyester fibers & yarns which in turn has resulted in stronger demand
for PTA, a key raw material for Polyesters.
Indorama Ventures PCL (SET: "IVL") announced Net Profit after tax and minority
of US$ 333 million (Baht 10,560 million) for the year 2010 and US$ 134 million
(Baht 4,008 million) for 4Q 2010. In year 2010, Baht continues to strengthen
with weakness in Euro and US Dollars. The Euro has been significantly weak in
2010 ending 16% cheaper YonY, and the US Dollar ended 10% cheaper YonY as on
31st December 2010.
Key Financial Information
US$ in Millions 4Q10 vs. FY10 vs.
4Q10 3Q10 4Q09 3Q10 4Q09 FY10 FY09 FY09
Exchange Rate Baht vs US$ 30.15 30.42 33.37 -1% -10% 30.15
33.37 -10%
Exchange Rate Baht vs Euro 39.94 41.41 47.79 -4% -16% 39.94
47.79 -16%
Consolidated Sales 838 752 628 11% 33% 3,055 2,331 31%
PET resins 483 460 361 5% 34% 1,832 1,307 40%
Polyester & wool 120 104 97 16% 25% 429 328 31%
PTA 234 188 171 24% 37% 795 696 14%
Consolidated EBITDA 141 115 81 23% 75% 435 324 34%
PET resins 70 63 40 10% 75% 237 174 36%
Polyester & wool 27 19 13 39% 110% 70 39 78%
PTA 45 34 27 34% 67% 129 109 18%
Net profit after tax and minority 134 93 41 44% 223% 333 141 137%
CAPEX 120 31 60 286% 100% 206 115 79%
Net Debt 1,001 948 1,125 6% -11% 1,001 1,125 -11%
Net Debt to Equity 0.9 1.0 1.7 -2% -44% 0.9 1.7 -44%
Interest Coverage 12.0 11.3 7.6 6% 58% 10.7 7.0 53%
ROE 54% 46% 33% 18% 64% 43% 32% 33%
ROCE 22% 19% 13% 15% 65% 17% 14% 22%
Net profit after tax and minority for the quarter 4, 2010 and year 2010 includes
the share of equity income from jointly controlled entity - UAB Ottana Polimeri
Europe of US$ 38 million (Baht 1,152 million) and (Baht US$ 60 million (Baht
1,888 million) respectively. It operates an integrated PTA - PET plant located
in Ottana, Italy. The equity income mainly comprises of 'Gain on a bargain
purchase or Negative Goodwill' from the acquisition completed in July, 2010.
IVL 4Q 2010 Results
PET - Sales revenue increased by 34 percent in Dollar terms over 4Q 2009, due to
higher sales volume and higher selling prices. The higher sales volume was
attributed primarily to the startup of AlphaPet in USA for both lines in 2Q
2010. The higher selling prices in this quarter were in line with the increase
in prices of the feedstock in the polyester value chain. The operating EBITDA
was higher from both higher margins and the volume growth of 12% over 4Q 2009.
Also, the Operating EBITDA margin improved to 14.4% in 4Q 2010 from 13.7% in 3Q
2010 and 11.0% in 4Q 2009. The segment achieved 75% growth in 4Q 2010 Operating
EBITDA in dollar terms over same period last year.
Polyester fibers and Wool yarns - Operating EBITDA increased by 110% over 4Q
2009 and 39% over 3Q 2010 in US$ terms, due to improvement in margins. Cotton
has become much more expensive than Polyester which creates substitution demand
for Polyester and conditions conducive for Polyester makers to increase prices
and expand margins. Polyester fibers and yarns demand was strong in the year
2010 and the additional demand from cotton substitution has provided greater
strength to demand growth. These factors resulted in Operating EBITDA margin
improving to 22.4% in 4Q 2010 from 18.7% in 3Q 2010 and 13.3% in 4Q 2009. Sales
revenue increased by 25% over 4Q 2009, due to higher selling prices.
PTA - Operating EBITDA increased by 67% over 4Q 2009 and 34% over 3Q 2010 in US$
terms, due to both increase in margins and increase in volumes supported by
strong demand from polyesters and limited PTA capacity availability. The
Operating EBITDA margin improved to 19.3% in 4Q 2010 from 18.0% in 3Q 2010 and
15.9% in 4Q 2009. Our PTA plants were operating at 102% utilization rate in 4Q
2010, comparing with 97% utilization rate in 4Q 2009, resulting in volume growth
of 5% YonY.
IVL 2010 Results
PET - Sales revenue increased by 40 percent in Dollar terms YonY, due to both
higher sales volume and higher selling prices. The higher sales volume was
attributed primarily to the startup of AlphaPet in USA for both lines in 2Q 2010
and improved customer demand globally. The higher selling prices were in line
with the rising prices of the feedstock in the polyester value chain. Operating
EBITDA in dollar terms increased by 36% over last year. In 2010, despite price
increase of 13% over 2009 the Operating EBITDA margin remained relatively stable
at 12.9%, comparing with 13.3% in 2009.
Polyester fibers and Wool yarns - Operating EBITDA in US$ terms increased by 78%
over 2009, due to improvement in margins from product-mix shift to higher value
addition, lower conversion cost and strong demand supported by soaring cotton
prices resulting in greater product substitution in favor of polyester. These
factors resulted in Operating EBITDA margin improving to 16.3% in 2010 from
11.9% last year. Sales revenue increased by 31% over 2009, due to higher selling
prices.
PTA - Operating EBITDA increased by 18% over 2009 in US$ terms, due to
improvement in volume and increase in margins supported by strong demand from
polyesters led by soaring cotton prices and limited PTA capacity availability.
In 2010, despite price increase of 11% over 2009 the Operating EBITDA margin
improved to 16.2% in 2010 from 15.7% in 2009. Our PTA plants were operating at
100%, same as last year, despite 2 of our 4 PTA plants (includes Ottana, Italy)
having scheduled maintenance shutdowns in 2010.
Cash Flow
IVL generated US$ 328 million of cash from operating activities during the year
compared to US$ 269 million in 2009. In 2010, witnessed cash outflow for working
capital of US$ 66 million on higher volumes and selling prices. The free
cashflow before capex was US$ 280 million compared to US$ 216 million in 2009.
During the year, there was cash outflow for capex and investments of US$ 206
million primarily for the purchase of additional shares in TPT Petrochemicals
PCL, the completion of greenfield plant AlphaPet Inc. in USA, acquisition of
utility plant in Rotterdam, Netherlands and equity investment for acquisition of
an integrated PTA-PET plant in Ottana, Italy. In 2010, the company paid US$ 47
million as dividend. The remaining surplus cash has been used for repayment of
debt.
Net Profit after Tax and Minority
The Net Income after tax and minority was US$ 333 million in year 2010, a
tremendous growth of 137% over the same period last year. This included the fair
value adjustment or Negative Goodwill of US$ 17 million on acquisition of the
Utility Plant in Rotterdam and the share of equity income US$ 60 million which
mainly comprises of Negative Goodwill from the acquisition completed in July,
2010 of an integrated PTA and PET plant in Ottana, Italy. The annualized ROE
achieved is 43% in 2010 compared to 32% achieved in 2009.
Financial Status and Ratios
IVL Net Debt stands at US$ 1,001 million as on 31st December 2010, which was 11
percent lower than same time last year. The Net Gearing ratio decreased to 48%
as at 31st December 2010 from 63% same time last year. The annualized ROCE is
17%, which does not include extraordinary income, in 2010 against 14% in 2009.
As at 31st December 2010, IVL had unutilized credit facilities of USD 654
million, ensuring high liquidity in the group.
Annual Dividend
IVL dividend policy is to pay 30% of net profit after appropriation of legal
reserve. The board of IVL has proposed to the shareholders for approval a
dividend of Baht 0.66 per share, amounting to a dividend amount of upto Baht
3,178.5 million (based on increased issued and paid-up capital of IVL after
rights issue of Baht 4,815.8 million). The proposed dividend pay-out is higher
by 122% over year 2009 annual dividend of Baht 1,430.3 million.
Rights issue
In November, 2010, the IVL Board of Directors approved the issuance of
481,585,672 free Transferable Subscription Right (TSRs) or "IVL-T1" to the
Company's existing shareholders (rights issue) at the ratio of 9 existing shares
to 1 TSR. The TSR has an exercise ratio of 1 TSR for 1 share at an exercise
price of Baht 36 per share. The issuance and offering of the TSRs was
subsequently approved in the Extraordinary General Meeting of Shareholders
convening in December, 2010. The exercise of TSRs into shares is ongoing and the
subscription will complete on February 24, 2011. The cash received from rights
issue will increase liquidity in IVL to take-up growth initiatives, acquisitions
and expansions, in year 2011-14 and reduce the net debt-equity ratio to much
below 1 time at end of Q1, 2011.
2011 Outlook
Positive outlook for Polyester Value Chain supported by strong demand and
expanding integrated margins of our end products- PET, PTA and Polyester fibers
& yarns. PTA demand is equally very strong and compliment to integration model
of IVL. The sharp increase in Cotton prices to historical highs has resulted in
shift of demand towards Polyester Fiber and Yarns creating scarcity for PTA
which is one of the major raw materials for polyester fibers and yarns. Further,
the strong demand globally is supported by turnaround of the economy in North
America after the 2008 crisis and is now seeing strong demand growth. The
Polyester value chain has been able to pass through the increase in prices and
expand integrated margins. As shown in chart below, integrated spreads for PTA
and PET in Q4'10 were higher over the last 8 quarters average and continues to
remain strong for IVL:
Polyester fibers and yarns has been taking market share which has increased from
39% in year 2000 to 51% in year 2010E of all fibers. Polyester growth over
other fibers is from more stable and sufficient supply as not dependent on
weather related production impact, more functional as better stretch, durability
and less water absorbency and its lower cost. Cotton is a natural fiber and its
supply is dependent on weather conditions as well as on competing cash crops
and Bio-fuel demand, due to limited supply of land. The proximity of Polyester
Value Chain to consumer necessity has resulted in continuous positive growth in
demand whether it is PET or polyester fibers and yarns. PTA is tight on strong
demand from Polyester and PET and spreads are expected to remain firm. Polyester
fibers and yarns will continue to gain market share among demand for all fibers
and yarns as shown in bar chart below:
Source: Industry data
2011 is expected to see the fast pace of IVL in delivery of both performance and
size growth. The AlphaPet plant is fully operational and has demonstrated its
full nameplate capacity of 1200tpd in November and is expected to ramp-up to
full capacity in the first half of next year. The first full year impact of
volume from AlphaPet will be in year 2011. In addition, IVL has been able to
turnaround the integrated PTA - PET plant in Italy to positive earnings in 4Q
2010, shortly after completed the joint venture investment in July, 2010. IVL
has completed the acquisition of PET plant in China at the end of January,
2011and within 1Q 2011, IVL will complete all the acquisitions announced, namely
the Invista PET and Polyester plants in US & Mexico, the SK PET and Polyester
plants in Indonesia and Poland. Recently announced Trevira is also expected to
be closed within the first half of year 2011. These will add the installed
capacity by 2.1 million tonnes to the IVL current installed capacity of 3.6
million tonnes (excluding joint venture plants in Italy). The management
continues to look at various growth options in all parts of the world,
especially in Asia and Middle East & Africa, in line with its "Aspiration 2014"
plan.
Projects update
In May, 2010, IVL agreed to expand PET production at the site of its existing
plant, owned and operated by its subsidiary Indorama Polymers Rotterdam BV. It
will add a new production line with an annual capacity of PET resin of 190,000
tons thus bringing the total capacity at the site to 390,000 tons. The expansion
is expected to be completed and start operations in quarter 1, 2012. The new
plant will generate employment. The proposed expansion is being taken up to
increase market share in Europe, to fully integrate with the PTA capacity of
350,000 tons and utilities at the same location and benefit from economies of
scale. It is expected to be value accretive to earnings.
In August, 2010, IVL agreed to set up a new PET plant by one of its subsidiary
Indorama Polymers PCL. "IRP". IRP through a new wholly owned subsidiary will be
setting up a 75,000 tons per annum solid state polymerization "SSP" plant to
produce PET at Port Harcourt, Nigeria. This is the first PET investment of IVL
in Africa and thus establishing its foothold in the 450,000 tons per annum
market demand. Currently, there is only one producer of PET in Africa. The plant
is expected to complete and start commercial operations in quarter 4, 2011. It
is expected to be value accretive to earnings.
In August, 2010, IVL agreed to implement a PET Recycling project or Flake to
Resins with a capacity of 36,000 tpa in AlphaPet Inc., USA. The project is in
line with demand from branded beverage companies in the fast moving consumer
goods sector. The process and technology is approved and availability of clean
flakes has been tied-up from within a close proximity of the plant. The project
is expected to complete and start-up in quarter 4, 2011. It is expected to be
value accretive to earnings. Also, the project meets CSR objectives of IVL to
protect environment and to promote recycling.
In August, 2010, IVL agreed to implement a 2 MW Solar Power Project in Lopburi,
Thailand. The electricity generated will be supplied to the PEA grid and falls
in the Very Small Power Producer Program "VSPP" under which will avail long term
incentives on investment in renewable energy. Thailand with very good solar
radiation provides opportunity to tap solar energy, a renewable energy source.
The project will be located at our existing site and will utilize for productive
use surplus vacant land which falls in the Green Zone. The project will avail
BOI promotion privileges for exemption of corporate tax, custom duty and other
incentives. The project is expected to complete and start-up in quarter 1, 2011.
Also, the project meets CSR objectives of IVL to protect environment, reduce
carbon footprint and community development.
In November, 2010, IVL agreed to the acquisition of a plant with an installed
capacity of 406,000 tons of PET and Polyester polymers per annum from Guangdong
Shinda UHMWPE Co., Ltd. The plant is located in Kaiping City, Guangdong Province
of China. This is the first investment of IVL in China and will allow IVL to
establish its footprint in one of the fast growing countries for PET. IVL has
completed the acquisition on January 27, 2011. It is expected to be value
accretive to earnings.
In November, 2010, IVL agreed to acquire from Invista S.? r.l., their Polyester
resins and Polyester staple assets located at Spartanburg, South Carolina, USA
and to also acquire their Latin American Polyester resins and Polyester staple
business (Grupo Arteva S. de R.L. de C.V. and certain of their affiliates) in
Queretaro, Mexico. Both sites produce wide ranges of PET, Specialty Polymers,
Fibers and Film. The total capacity is 470,000 tons per annum in Invista's
Spartanburg and 535,000 tons per annum in Invista's Quer?taro. The transaction
is expected to close during the first quarter of 2011. This acquisition is
expected to be value accretive to earnings, making IVL the largest PET producer
in the world and at the same time complement the strategy to increase its
footprint into new higher growth markets of Central and Latin America. Strong
R&D set up in the plants will enable IVL to provide innovative products to its
customers.
In December, 2010, IVL agreed to acquire and for the purpose signed two
definitive Share Purchase Agreements, the first with SK Chemicals, Korea and or
its affiliates to acquire the PET business of SK Eurochem Sp. z o.o. in Poland
and the second with SK Syntec (a subsidiary of SK Chemicals) to acquire the PET
and Polyester business of PT SK KERIS and PT SK Fiber in Indonesia. SK Eurochem
Sp. z o.o. in Poland is a PET chips manufacturing facility having a capacity of
140,000 tons per annum. PT SK Keris, Indonesia is a PET Chips and Polyester
Filament Yarn manufacturing facility with a combined capacity of 160,000 tons
per annum. PT SK Fiber Indonesia is a Polyester Filament Yarn manufacturing
facility having a capacity of 36,000 tons per annum. The transaction is expected
to close during the first quarter of 2011. It is expected to be value accretive
to earnings.
In February, 2011, IVL agreed to acquire 75% equity stake in the Polyester
Staple Fiber, Specialty Filament business of Trevira GmbH having operations in
Germany and Poland. The remaining 25% will be held by Sinterama S.p.A., Italy
(the "JV Partner"). The acquisition of the 100% shares in Trevira GmbH will be
done through a new Joint Venture Company. The formation of the new JV Company
and the transaction are expected to be completed by Q2, 2011. Trevira GmbH is a
fully integrated Polyester Fiber Company in Europe with a capacity of 120,000
tons per annum of Staple Fiber and Filament Yarn at its manufacturing locations
in Germany and Poland. Trevira GmbH is the market leader in Europe in high value
applications of polyester, especially in automotive and home textiles. The
company is a widely known and well-recognized brand both amongst customers and
producers of synthetic fabrics. The company has several valuable patents and
technologies together with a strong R&D setup with substantial accumulated
research knowledge. Trevira's knowledge base developed over a period of time
will be complementary to IVL. The synergy will provide comprehensive and
innovative solutions for apparel and industrial applications of polyester to
customers worldwide through IVL global operations.
On completion of the above stated acquisitions and expansions, IVL will have an
increasingly advantaged portfolio and its capacity will increase by 2.1 million
tons. IVL will have the leading market position in Thailand, North America and
Europe. The regional capacity distribution of IVL will be as shown below in the
pie-chart:
Important Note: 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 of 3Q 2010 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.
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.
FINANCIAL INFORMATION
- IVL consolidated tables
- Business segment tables
- IVL consolidated balance sheet and statement of income
IVL CONSOLIDATED
Table 1
IVL : CASH FLOW
FY10 vs.
Baht in millions FY10 FY09 FY09
EBITDA 13,777 11,106 24%
Net working capital and others (3,109) (1,554) 100%
Net financial expenses (1,333) (1,884) -29%
Income tax (469) (264) 78%
Free cash flow before Capex 8,866 7,404 20%
Capital expenditures (2,418) (3,785) -36%
Net (acquisitions) disposals of subsidiaries (4,124) (165) 2399%
(more)