Reports to the Stock Exchange
The Management's Discussion and Analysis for the 1st quarter of 2011
Management Discussion and Analysis
Ref.No.IVL010/05/2011
May 18, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures
Public Company
Limited for the 1st quarter of 2011 and the Management's Discussion and
Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Reviewed Financial Statements for
the 1st quarter of 2011 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the 1st quarter of 2011 (a
copy in Thai and English)
3. Company's performance report, Form F45-3 for the 1st quarter of 2011 (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 1Q 2011 (CONSOLIDATED)
IVL is delighted to report another record quarter with a stronger financial and
operating performance. Polyester chain witnessed strong demand with sharply
rising prices and widening margins in the quarter. On the back of strong global
demand, Polyester chain continued to benefit in the quarter from global shortage
of cotton availability and sharp increase in cotton prices which resulted in
higher substitution demand for Polyester fibers & yarns and PTA, a key raw
material for Polyesters. During the quarter IVL completed announced acquisitions
of PET polymers and Polyester fibers and yarns plants in China, Indonesia,
Mexico, Poland and USA and a rights issue to shareholders, which was fully
subscribed. The total capacity at end of quarter 1 increased to around 5.40
million tons per annum with capacity addition from acquisitions of around 1.75
million tons per annum of which around 1.40 million tons per annum in PET
polymers and 0.35 million tons per annum in Polyester fibers and yarns. IVL
continues to deliver on its growth plans and its business model of a global
platform with integration.
In the first quarter of 2011, Indorama Ventures PCL (SET: "IVL") announces a
consolidated EBITDA of US$ 215 million (Baht 6,554 million) and a consolidated
Net profit after tax and minority of US$ 362 million (Baht 11,057 million). The
consolidated financial position has strengthened at the end of March 31, 2011
despite large investment for acquisitions, the net gearing reduced from 48% to
35% and sufficient liquidity of around US$ 1.8 billion which includes cash and
cash equivalents and unutilized credit lines.
Key Financial Information
US$ in Millions 1Q11 vs. LTM 1Q11 vs.
1Q11 4Q10 1Q10 4Q10 1Q10 LTM 1Q11 LTM 1Q10 LTM 1Q10
Exchange Rate Baht vs US$ 30.30 30.15 32.37 0% -6% 30.30 32.37 -6%
Exchange Rate Baht vs Euro 42.86 39.94 43.41 7% -1% 42.86 43.41 -1%
Consolidated Sales 1,328 838 733 59% 81% 3,643 2,567 42%
PET resins 869 483 434 80% 100% 2,262 1,456 55%
Polyester & wool 189 120 105 57% 80% 512 381 34%
PTA 269 234 194 15% 39% 869 730 19%
Consolidated EBITDA 215 141 92 52% 134% 557 335 66%
PET resins 117 70 51 68% 130% 303 179 69%
Polyester & wool 48 27 13 78% 273% 104 44 135%
PTA 55 45 29 21% 91% 155 113 38%
*Core profit after tax and minority 159 95 47 67% 242% 368 149 146%
*Net profit after tax and minority 362 134 47 171% 678% 646 156 315%
CAPEX 713 120 13 494% 5559% 898 94 854%
Net Debt 1,088 996 955 9% 14% 1,088 955 14%
Net Debt to Equity 0.5 0.9 1.1 -42% -53% 0.5 1.1 -53%
Interest Coverage 16.4 12.0 9.3 36% 76% 12.7 7.8 63%
ROCE 28% 22% 16% 29% 81% 19% 15% 27%
Note: "LTM" is last twelve months
*Net profit after tax and minority for Q1, 2011 includes net extraordinary gain
of US$ 203 million (Baht 6,199 million) of which US$ 214 (Baht 6,523 million) is
towards income from gain on a bargain purchase or Negative goodwill on
completed acquisitions (details are provided in the Note 4 - Acquisitions of
subsidiaries in the Reviewed Financial Statements) and US$ 11 million (Baht 324
million) towards transaction expenses incurred on acquisitions completed during
the quarter.
Q4, 2010 net profit after tax and minority of US$ 134 million (Baht 4,008
million) included the share of equity income from jointly controlled entity -
UAB Ottana Polimeri Europe of US$ 38 million (Baht 1,152 million), which mainly
comprises of gain on a bargain purchase or negative goodwill from business
acquired in Italy on July 1, 2010.
LTM 1Q11 net profit after tax and minority of US$ 646 million includes net
extraordinary gain of US$ 278 million (Baht 8,650 million) of which US$ 214
million (Baht 6,523 million) towards income from gain of bargain purchase or
negative goodwill on completed acquisitions in 1Q 2011, US$ 14 million (Baht 563
million) towards income from bargain purchase or negative goodwill on
acquisition of utility assets in Rotterdam in 2Q 2010, US$ 61 million (Baht
1,888 million) equity income from jointly controlled entity - UAB Ottana
Polimeri Europe which mainly comprises of gain on a bargain purchase or negative
goodwill from business acquired in Italy on July 1, 2010 and US$ 11 million
(Baht 324 million) towards transaction expenses incurred on acquisitions
completed during the quarter.
Beginning from January 1, 2011, IVL has adopted and applied new and revised Thai
Financial Reporting Standards (TFRS) in accordance with the announcement by
Federation of Accounting Policy "FAP", Thailand. The adopted new and revised
TFRS are in the following areas: Presentation of financial statements,
Accounting for business combinations, Accounting for property, plant and
equipment and Accounting for employee benefits. The total shareholders equity as
on January 1, 2011 has been restated by Baht 284 million. The previous periods
are restated for comparison purpose; details are provided in the Note 3 -
Changes in Accounting Policies in the Reviewed Financial Statements.
Segment 1Q 2011 Results
PET - Sales revenue in US dollar terms increased by 80% over 4Q 2010 and 100% 1Q
2010, due to higher sales volume and higher selling prices. The sales volume
increased by 44% QoQ and 48% YoY. The higher sales volume was mainly attributed
to higher utilization rate at AlphaPet and additional volume for partial quarter
on acquisitions completed at end of January, 2011 in China and in the beginning
of March, 2011 in Indonesia, Mexico, Poland and USA. Further, the growth in
revenue was driven by higher selling prices in this quarter which were in line
with the increase in prices of the feedstock in the polyester value chain. The
segment achieved Operating EBITDA of US$ 117 million in 1Q 2011, an increase of
68% QoQ and 130% YoY.
Polyester fibers and Wool yarns - Sales revenue in US dollar terms increased by
57% QoQ and 80% YoY, due to higher sales volume and selling prices. The sales
volume increased by 30% QoQ and 33% YoY. The higher sales volume was mainly
attributed to high utilization rate at our facility's in Thailand and additional
volume for partial quarter on acquisitions completed in the beginning of March,
2011 in Indonesia and USA. Further, the growth in revenue was driven by higher
selling prices in this quarter from accelerated substitution demand for
polyester fibers and yarns in view of higher cotton prices on shortage of cotton
providing conditions conducive for Polyester makers to increase prices and
expand margins. These factors resulted in Operating EBITDA margin improving to
25.4% in 1Q 2011 from 22.4% in 4Q 2010 and 12.3% in 1Q 2010. The segment
achieved Operating EBITDA of US$ 48 million in 1Q 2011, an increase of 78% QoQ
and 273% YoY.
PTA - The segment achieved Operating EBITDA of US$ 55 million in 1Q 2011, an
increase of 21% QoQ and 91% YoY, mainly due to increase in margins supported by
strong demand from polyesters. Stronger demand from Polyesters allowed to expand
margins in PTA. The Operating EBITDA margin improved to 20.3% in 1Q 2011 from
19.3% in 4Q 2010 and 14.7% in 1Q 2010. Further, new acquisitions in this quarter
have led to higher captive consumption of PTA in 1Q 2011 to 52% of PTA sales,
comparing with 48% in 4Q 2010 and 1Q 2010.
IVL 1Q 2011 Results
Cash Flow
IVL generated US$ 210 million of cash from operating activities in 1Q 2011,
higher than cash from operating activities of US$ 82 million generated in 1Q
2010. The higher prices of all our products and higher volumes from acquisitions
led to cash outflow for working capital of US$ 132 million. The free cash flow
before capex was US$ 67 million compared to US$ 63 million in 1Q 2010. During 1Q
2011, there was net cash outflow for capex and investments of US$ 713 million
primarily for the acquisitions of PET plant in China, the Invista PET and
Polyester plants in USA & Mexico, the SK Chemicals PET and Polyester plants in
Indonesia and Poland. The capex and investments are funded by loan drawdown. IVL
raised US$ 564 million in cash proceeds from the rights issue of shares in
February 2011. The consolidated cash and cash equivalents as on March 31, 2011
are US$ 785 million (Baht 23,784 million).
Net Profit after Tax and Minority
The Net Income after tax and minority was US$ 362 million in 1Q 2011 which
includes net extraordinary gain of US$ 203 million of which US$ 214 is towards
income from gain on a bargain purchase or Negative goodwill on completed
acquisitions and US$ 11 million towards transaction expenses incurred on
acquisitions completed during the quarter. The net profit after tax and minority
excluding net extraordinary items in 1Q 2011 is US$ 159 million which is higher
than US$ 95 million in 4Q 2010 (after excluding extraordinary gain of US$ 38
million) and US$ 47 million in 1Q 2010.
Financial Status and Ratios
IVL Net Debt stands at US$ 1,088 million as on March 31, 2011, which was
slightly higher than the net debt as on 31st December 2010, despite completion
of major acquisitions of PET polymers and Polyester fibers and yarns business
which combined have added capacity of 1.75 million tons per annum. The Net
Gearing ratio decreased to 35% as at 31st March 2011 from 48% at the end of year
2010. The annualized ROCE is 28% in 1Q 2011, which does not include
extraordinary income, against 22% in 4Q 2010 and 16% in 1Q 2010. The current
ratio has improved to 1.7 times as at 31st March 2011 from 1.1 times at the end
of year 2010. As at 31st March 2011, IVL had unutilized credit facilities of
around USD 990 million, ensuring high liquidity in the group.
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. On February 24, 2011 the subscription of TSRs was
completed with 99.67% of TSRs being exercised into shares. Total new 479,986,198
shares started trading on the SET on March 3, 2011. The company received net
proceeds from this rights issue of US$ 564 million.
2Q 2011 Outlook
The focus of major central banks is to control inflation, which could lead to
lower growth. In recent quarters, inflation rate has increased globally with
sharp increase in commodity prices including crude and petrochemicals that we
witnessed in 1Q 2011. During 2Q 2011 measures to curb inflation have resulted in
crude and petrochemical prices being volatile and trending sharply downwards.
Polyester value chain prices and margins for PTA and Polyester fibers and yarns
which had widened in 1Q 2011 are returning to normal levels seen in 2010 on
softening of cotton price. The price trend is shown in the chart below:
Indexed Industry Price Movement of Cotton, Polyester Staple Fiber "PSF" and PTA
Source: Industry data
2Q 2011 will be the first full quarter of operations of the completed
acquisitions in 1Q 2011. The completed acquisitions include a PET plant in
China, PET and Polyester plants in US & Mexico, PET and Polyester plants in
Indonesia and Poland will add to increase in production volume. The completion
of acquisitions has resulted in total capacity increase from around 3.65 million
tons per annum at end of 4Q 2010 to around 5.40 million tons per annum at end
of 1Q 2011.
AlphaPet plant in Decatur, Alabama is restarting the operations after a
temporary shutdown due to severe tornado passing through Alabama State in USA,
which resulted in a total power outage. There has not been any material damage
identified and we believe our assets and business interruption is adequately
covered under All Risk Insurance. The full commercial production is expected to
be achieved during 2nd half of May, 2011. Our 3 other locations in North America
i.e. Starpet Inc., in North Carolina, Auriga Polymers Inc., in South Carolina
and Arteva Specialties S. de R.L. de C.V. in Queretaro, Mexico are under normal
operations. During 2Q 2011 there will also be lower production of Polyester
Fiber in Indorama Polyester Industry (IPI) Rayong facility, which was partially
closed due to breakdown in the process plant leading to production loss. Rayong
facility is now operational but at a lower rate of around 90% and will be able
to return to full capacity in 4Q 2011. We believe that IPI Rayong is adequately
insured.
2Q 2011 operational results are likely to be influenced due to all the factors
mentioned above and to improve significantly in the 2nd Half of 2011 assuming
normal trading environment.
Projects update
In May, 2010, the IVL approved expansion of 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 integrate with the PTA capacity at
Rotterdam and utilities at the same location and benefit from economies of
scale. It is expected to be value accretive to earnings.
In August, 2010, the IVL approved implementation of a new PET plant by 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. 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, the IVL Board of Directors approved implementation of 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 and will not have a
material impact on net gearing. Also, the project meets CSR objectives of IVL to
protect environment and to promote recycling.
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.
In March 2011, IVL's subsidiary - PT Indorama Ventures Indonesia (formerly PT SK
Keris) agreed to set up a new 300,000 tons per annum Continuous Polymerization
resin Plant at Purwakarta, Indonesia. The output from this plant will cater to
the growing demand of the Polyester Fiber, Yarn and Chips market in Indonesia
and Asian region. The plant is expected to commercially start operation in Q1,
2013.
In April 2011, IVL announced a Brownfield expansion of PET polymers production
in Europe with a capacity 220,000 tons per annum. This expansion, which is
expected to be completed in 2013 will be cost competitive and take IVL's total
capacity in Europe for PET Polymers to 1.3 million tons per annum. IVL has PET
polymer plants in five strategic locations to cover Europe. The expansion is
driven by favorable demand/supply dynamics within EU wherein demand outstrips
capacity, steady demand growth and the need for competitive assets to improve
service to customers.
In the board of directors meeting held on May 18, 2011, IVL board approved a
Brownfield expansion of PTA production at the site of its existing plant, owned
and operated by its subsidiary Indorama Holdings Rotterdam BV. It will add a new
production line with an annual capacity of PTA of 250,000 tons per annum thus
bringing the total capacity at the site to 550,000 tons per annum. This
expansion, which is expected to be completed in 2013 will be cost competitive
and enhance integration with key raw material for production of PET polymers in
Europe. IVL's total capacity of PTA in Europe will increase to 742,000 tons per
annum.
On completion of the above stated acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business. Currently, based on
announced expansions and acquisitions total capacity will increase to 6.7
million tons per annum. IVL has a leading market position in Thailand, North
America and Europe. The regional capacity distribution of IVL will be as below:
End 2010 End 2011 End 2013
Million tpa % Million tpa % Million tpa %
Asia 1.8 50% 2.4 42% 2.7 40%
MEA - - 0.1 1% 0.1 1%
Europe 1.2 33% 1.5 27% 2.2 33%
North America 0.6 17% 1.7 30% 1.7 26%
Total 3.6 100% 5.7 100% 6.7 100%
Note: "tpa" is tons per annum
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
1Q11 vs.
Baht in millions 1Q11 1Q10 1Q10
EBITDA 6,554 3,010 118%
Net working capital and others (4,066) (503) 708%
Net financial expenses (370) (407) -9%
Income tax (71) (46) 54%
Free cash flow before Capex 2,047 2,054 0%
Capital expenditures (1,248) (408) 206%
Net (acquisitions) disposals of subsidiaries (20,537) 0 n/a
Free cash flow after Capex (19,738) 1,646 -1299%
Dividends 0 (1) -100%
Proceeds from issues of shares 17,224 3,856 347%
Changes in net debt 2,514 (5,501) -146%
Note: The consolidated financials are based upon elimination of intra-company
(or intra business segment)
transactions reason which the total of each segment may not tally with
consolidated financials.
Table 2
IVL : FINANCIAL RATIOS
1Q11 4Q10 1Q10
Current ratio (times) 1.7 1.1 1.0
Net gearing ratio (%) 35% 48% 53%
* Net operating gearing ratio (%) 33% 48% 51%
Interest coverage ratio (times) 16.4 12.0 9.2
** ROE (%) 95.4% 54.6% 29.7%
*** ROCE (%) 28.4% 22.1% 15.7%
* Based on net operating debt which is net debt less debt for capex and
investments not generating revenue and earnings
** Net profit after minority to average total equity attributable to
shareholders
*** Operating income to average capital employed (net operating debt plus total
shareholder's equity)
(more)
Ref.No.IVL010/05/2011
May 18, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures
Public Company
Limited for the 1st quarter of 2011 and the Management's Discussion and
Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Reviewed Financial Statements for
the 1st quarter of 2011 (a copy in Thai and English)
2. Management's Discussion and Analysis (MD&A) for the 1st quarter of 2011 (a
copy in Thai and English)
3. Company's performance report, Form F45-3 for the 1st quarter of 2011 (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 1Q 2011 (CONSOLIDATED)
IVL is delighted to report another record quarter with a stronger financial and
operating performance. Polyester chain witnessed strong demand with sharply
rising prices and widening margins in the quarter. On the back of strong global
demand, Polyester chain continued to benefit in the quarter from global shortage
of cotton availability and sharp increase in cotton prices which resulted in
higher substitution demand for Polyester fibers & yarns and PTA, a key raw
material for Polyesters. During the quarter IVL completed announced acquisitions
of PET polymers and Polyester fibers and yarns plants in China, Indonesia,
Mexico, Poland and USA and a rights issue to shareholders, which was fully
subscribed. The total capacity at end of quarter 1 increased to around 5.40
million tons per annum with capacity addition from acquisitions of around 1.75
million tons per annum of which around 1.40 million tons per annum in PET
polymers and 0.35 million tons per annum in Polyester fibers and yarns. IVL
continues to deliver on its growth plans and its business model of a global
platform with integration.
In the first quarter of 2011, Indorama Ventures PCL (SET: "IVL") announces a
consolidated EBITDA of US$ 215 million (Baht 6,554 million) and a consolidated
Net profit after tax and minority of US$ 362 million (Baht 11,057 million). The
consolidated financial position has strengthened at the end of March 31, 2011
despite large investment for acquisitions, the net gearing reduced from 48% to
35% and sufficient liquidity of around US$ 1.8 billion which includes cash and
cash equivalents and unutilized credit lines.
Key Financial Information
US$ in Millions 1Q11 vs. LTM 1Q11 vs.
1Q11 4Q10 1Q10 4Q10 1Q10 LTM 1Q11 LTM 1Q10 LTM 1Q10
Exchange Rate Baht vs US$ 30.30 30.15 32.37 0% -6% 30.30 32.37 -6%
Exchange Rate Baht vs Euro 42.86 39.94 43.41 7% -1% 42.86 43.41 -1%
Consolidated Sales 1,328 838 733 59% 81% 3,643 2,567 42%
PET resins 869 483 434 80% 100% 2,262 1,456 55%
Polyester & wool 189 120 105 57% 80% 512 381 34%
PTA 269 234 194 15% 39% 869 730 19%
Consolidated EBITDA 215 141 92 52% 134% 557 335 66%
PET resins 117 70 51 68% 130% 303 179 69%
Polyester & wool 48 27 13 78% 273% 104 44 135%
PTA 55 45 29 21% 91% 155 113 38%
*Core profit after tax and minority 159 95 47 67% 242% 368 149 146%
*Net profit after tax and minority 362 134 47 171% 678% 646 156 315%
CAPEX 713 120 13 494% 5559% 898 94 854%
Net Debt 1,088 996 955 9% 14% 1,088 955 14%
Net Debt to Equity 0.5 0.9 1.1 -42% -53% 0.5 1.1 -53%
Interest Coverage 16.4 12.0 9.3 36% 76% 12.7 7.8 63%
ROCE 28% 22% 16% 29% 81% 19% 15% 27%
Note: "LTM" is last twelve months
*Net profit after tax and minority for Q1, 2011 includes net extraordinary gain
of US$ 203 million (Baht 6,199 million) of which US$ 214 (Baht 6,523 million) is
towards income from gain on a bargain purchase or Negative goodwill on
completed acquisitions (details are provided in the Note 4 - Acquisitions of
subsidiaries in the Reviewed Financial Statements) and US$ 11 million (Baht 324
million) towards transaction expenses incurred on acquisitions completed during
the quarter.
Q4, 2010 net profit after tax and minority of US$ 134 million (Baht 4,008
million) included the share of equity income from jointly controlled entity -
UAB Ottana Polimeri Europe of US$ 38 million (Baht 1,152 million), which mainly
comprises of gain on a bargain purchase or negative goodwill from business
acquired in Italy on July 1, 2010.
LTM 1Q11 net profit after tax and minority of US$ 646 million includes net
extraordinary gain of US$ 278 million (Baht 8,650 million) of which US$ 214
million (Baht 6,523 million) towards income from gain of bargain purchase or
negative goodwill on completed acquisitions in 1Q 2011, US$ 14 million (Baht 563
million) towards income from bargain purchase or negative goodwill on
acquisition of utility assets in Rotterdam in 2Q 2010, US$ 61 million (Baht
1,888 million) equity income from jointly controlled entity - UAB Ottana
Polimeri Europe which mainly comprises of gain on a bargain purchase or negative
goodwill from business acquired in Italy on July 1, 2010 and US$ 11 million
(Baht 324 million) towards transaction expenses incurred on acquisitions
completed during the quarter.
Beginning from January 1, 2011, IVL has adopted and applied new and revised Thai
Financial Reporting Standards (TFRS) in accordance with the announcement by
Federation of Accounting Policy "FAP", Thailand. The adopted new and revised
TFRS are in the following areas: Presentation of financial statements,
Accounting for business combinations, Accounting for property, plant and
equipment and Accounting for employee benefits. The total shareholders equity as
on January 1, 2011 has been restated by Baht 284 million. The previous periods
are restated for comparison purpose; details are provided in the Note 3 -
Changes in Accounting Policies in the Reviewed Financial Statements.
Segment 1Q 2011 Results
PET - Sales revenue in US dollar terms increased by 80% over 4Q 2010 and 100% 1Q
2010, due to higher sales volume and higher selling prices. The sales volume
increased by 44% QoQ and 48% YoY. The higher sales volume was mainly attributed
to higher utilization rate at AlphaPet and additional volume for partial quarter
on acquisitions completed at end of January, 2011 in China and in the beginning
of March, 2011 in Indonesia, Mexico, Poland and USA. Further, the growth in
revenue was driven by higher selling prices in this quarter which were in line
with the increase in prices of the feedstock in the polyester value chain. The
segment achieved Operating EBITDA of US$ 117 million in 1Q 2011, an increase of
68% QoQ and 130% YoY.
Polyester fibers and Wool yarns - Sales revenue in US dollar terms increased by
57% QoQ and 80% YoY, due to higher sales volume and selling prices. The sales
volume increased by 30% QoQ and 33% YoY. The higher sales volume was mainly
attributed to high utilization rate at our facility's in Thailand and additional
volume for partial quarter on acquisitions completed in the beginning of March,
2011 in Indonesia and USA. Further, the growth in revenue was driven by higher
selling prices in this quarter from accelerated substitution demand for
polyester fibers and yarns in view of higher cotton prices on shortage of cotton
providing conditions conducive for Polyester makers to increase prices and
expand margins. These factors resulted in Operating EBITDA margin improving to
25.4% in 1Q 2011 from 22.4% in 4Q 2010 and 12.3% in 1Q 2010. The segment
achieved Operating EBITDA of US$ 48 million in 1Q 2011, an increase of 78% QoQ
and 273% YoY.
PTA - The segment achieved Operating EBITDA of US$ 55 million in 1Q 2011, an
increase of 21% QoQ and 91% YoY, mainly due to increase in margins supported by
strong demand from polyesters. Stronger demand from Polyesters allowed to expand
margins in PTA. The Operating EBITDA margin improved to 20.3% in 1Q 2011 from
19.3% in 4Q 2010 and 14.7% in 1Q 2010. Further, new acquisitions in this quarter
have led to higher captive consumption of PTA in 1Q 2011 to 52% of PTA sales,
comparing with 48% in 4Q 2010 and 1Q 2010.
IVL 1Q 2011 Results
Cash Flow
IVL generated US$ 210 million of cash from operating activities in 1Q 2011,
higher than cash from operating activities of US$ 82 million generated in 1Q
2010. The higher prices of all our products and higher volumes from acquisitions
led to cash outflow for working capital of US$ 132 million. The free cash flow
before capex was US$ 67 million compared to US$ 63 million in 1Q 2010. During 1Q
2011, there was net cash outflow for capex and investments of US$ 713 million
primarily for the acquisitions of PET plant in China, the Invista PET and
Polyester plants in USA & Mexico, the SK Chemicals PET and Polyester plants in
Indonesia and Poland. The capex and investments are funded by loan drawdown. IVL
raised US$ 564 million in cash proceeds from the rights issue of shares in
February 2011. The consolidated cash and cash equivalents as on March 31, 2011
are US$ 785 million (Baht 23,784 million).
Net Profit after Tax and Minority
The Net Income after tax and minority was US$ 362 million in 1Q 2011 which
includes net extraordinary gain of US$ 203 million of which US$ 214 is towards
income from gain on a bargain purchase or Negative goodwill on completed
acquisitions and US$ 11 million towards transaction expenses incurred on
acquisitions completed during the quarter. The net profit after tax and minority
excluding net extraordinary items in 1Q 2011 is US$ 159 million which is higher
than US$ 95 million in 4Q 2010 (after excluding extraordinary gain of US$ 38
million) and US$ 47 million in 1Q 2010.
Financial Status and Ratios
IVL Net Debt stands at US$ 1,088 million as on March 31, 2011, which was
slightly higher than the net debt as on 31st December 2010, despite completion
of major acquisitions of PET polymers and Polyester fibers and yarns business
which combined have added capacity of 1.75 million tons per annum. The Net
Gearing ratio decreased to 35% as at 31st March 2011 from 48% at the end of year
2010. The annualized ROCE is 28% in 1Q 2011, which does not include
extraordinary income, against 22% in 4Q 2010 and 16% in 1Q 2010. The current
ratio has improved to 1.7 times as at 31st March 2011 from 1.1 times at the end
of year 2010. As at 31st March 2011, IVL had unutilized credit facilities of
around USD 990 million, ensuring high liquidity in the group.
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. On February 24, 2011 the subscription of TSRs was
completed with 99.67% of TSRs being exercised into shares. Total new 479,986,198
shares started trading on the SET on March 3, 2011. The company received net
proceeds from this rights issue of US$ 564 million.
2Q 2011 Outlook
The focus of major central banks is to control inflation, which could lead to
lower growth. In recent quarters, inflation rate has increased globally with
sharp increase in commodity prices including crude and petrochemicals that we
witnessed in 1Q 2011. During 2Q 2011 measures to curb inflation have resulted in
crude and petrochemical prices being volatile and trending sharply downwards.
Polyester value chain prices and margins for PTA and Polyester fibers and yarns
which had widened in 1Q 2011 are returning to normal levels seen in 2010 on
softening of cotton price. The price trend is shown in the chart below:
Indexed Industry Price Movement of Cotton, Polyester Staple Fiber "PSF" and PTA
Source: Industry data
2Q 2011 will be the first full quarter of operations of the completed
acquisitions in 1Q 2011. The completed acquisitions include a PET plant in
China, PET and Polyester plants in US & Mexico, PET and Polyester plants in
Indonesia and Poland will add to increase in production volume. The completion
of acquisitions has resulted in total capacity increase from around 3.65 million
tons per annum at end of 4Q 2010 to around 5.40 million tons per annum at end
of 1Q 2011.
AlphaPet plant in Decatur, Alabama is restarting the operations after a
temporary shutdown due to severe tornado passing through Alabama State in USA,
which resulted in a total power outage. There has not been any material damage
identified and we believe our assets and business interruption is adequately
covered under All Risk Insurance. The full commercial production is expected to
be achieved during 2nd half of May, 2011. Our 3 other locations in North America
i.e. Starpet Inc., in North Carolina, Auriga Polymers Inc., in South Carolina
and Arteva Specialties S. de R.L. de C.V. in Queretaro, Mexico are under normal
operations. During 2Q 2011 there will also be lower production of Polyester
Fiber in Indorama Polyester Industry (IPI) Rayong facility, which was partially
closed due to breakdown in the process plant leading to production loss. Rayong
facility is now operational but at a lower rate of around 90% and will be able
to return to full capacity in 4Q 2011. We believe that IPI Rayong is adequately
insured.
2Q 2011 operational results are likely to be influenced due to all the factors
mentioned above and to improve significantly in the 2nd Half of 2011 assuming
normal trading environment.
Projects update
In May, 2010, the IVL approved expansion of 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 integrate with the PTA capacity at
Rotterdam and utilities at the same location and benefit from economies of
scale. It is expected to be value accretive to earnings.
In August, 2010, the IVL approved implementation of a new PET plant by 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. 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, the IVL Board of Directors approved implementation of 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 and will not have a
material impact on net gearing. Also, the project meets CSR objectives of IVL to
protect environment and to promote recycling.
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.
In March 2011, IVL's subsidiary - PT Indorama Ventures Indonesia (formerly PT SK
Keris) agreed to set up a new 300,000 tons per annum Continuous Polymerization
resin Plant at Purwakarta, Indonesia. The output from this plant will cater to
the growing demand of the Polyester Fiber, Yarn and Chips market in Indonesia
and Asian region. The plant is expected to commercially start operation in Q1,
2013.
In April 2011, IVL announced a Brownfield expansion of PET polymers production
in Europe with a capacity 220,000 tons per annum. This expansion, which is
expected to be completed in 2013 will be cost competitive and take IVL's total
capacity in Europe for PET Polymers to 1.3 million tons per annum. IVL has PET
polymer plants in five strategic locations to cover Europe. The expansion is
driven by favorable demand/supply dynamics within EU wherein demand outstrips
capacity, steady demand growth and the need for competitive assets to improve
service to customers.
In the board of directors meeting held on May 18, 2011, IVL board approved a
Brownfield expansion of PTA production at the site of its existing plant, owned
and operated by its subsidiary Indorama Holdings Rotterdam BV. It will add a new
production line with an annual capacity of PTA of 250,000 tons per annum thus
bringing the total capacity at the site to 550,000 tons per annum. This
expansion, which is expected to be completed in 2013 will be cost competitive
and enhance integration with key raw material for production of PET polymers in
Europe. IVL's total capacity of PTA in Europe will increase to 742,000 tons per
annum.
On completion of the above stated acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business. Currently, based on
announced expansions and acquisitions total capacity will increase to 6.7
million tons per annum. IVL has a leading market position in Thailand, North
America and Europe. The regional capacity distribution of IVL will be as below:
End 2010 End 2011 End 2013
Million tpa % Million tpa % Million tpa %
Asia 1.8 50% 2.4 42% 2.7 40%
MEA - - 0.1 1% 0.1 1%
Europe 1.2 33% 1.5 27% 2.2 33%
North America 0.6 17% 1.7 30% 1.7 26%
Total 3.6 100% 5.7 100% 6.7 100%
Note: "tpa" is tons per annum
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
1Q11 vs.
Baht in millions 1Q11 1Q10 1Q10
EBITDA 6,554 3,010 118%
Net working capital and others (4,066) (503) 708%
Net financial expenses (370) (407) -9%
Income tax (71) (46) 54%
Free cash flow before Capex 2,047 2,054 0%
Capital expenditures (1,248) (408) 206%
Net (acquisitions) disposals of subsidiaries (20,537) 0 n/a
Free cash flow after Capex (19,738) 1,646 -1299%
Dividends 0 (1) -100%
Proceeds from issues of shares 17,224 3,856 347%
Changes in net debt 2,514 (5,501) -146%
Note: The consolidated financials are based upon elimination of intra-company
(or intra business segment)
transactions reason which the total of each segment may not tally with
consolidated financials.
Table 2
IVL : FINANCIAL RATIOS
1Q11 4Q10 1Q10
Current ratio (times) 1.7 1.1 1.0
Net gearing ratio (%) 35% 48% 53%
* Net operating gearing ratio (%) 33% 48% 51%
Interest coverage ratio (times) 16.4 12.0 9.2
** ROE (%) 95.4% 54.6% 29.7%
*** ROCE (%) 28.4% 22.1% 15.7%
* Based on net operating debt which is net debt less debt for capex and
investments not generating revenue and earnings
** Net profit after minority to average total equity attributable to
shareholders
*** Operating income to average capital employed (net operating debt plus total
shareholder's equity)
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