Reports to the Stock Exchange
Management's Discussion and Analysis
Management Discussion and Analysis
Ref.No.IVL004/08/2011
August 10, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures
Public Company
Limited for the 2nd quarter of 2011 and the 6 months ended June 30, 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 2nd quarter of 2011 and the 6 months ended June 30, 2011 (a copy in Thai
and English)
2. Management's Discussion and Analysis (MD&A) for the 2nd quarter of 2011 and
the 6 months ended June 30, 2011 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the 2nd quarter of 2011 and the
6 months ended June 30, 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 2Q 2011 AND 6 MONTHS ENDED JUNE 30, 2011 (CONSOLIDATED)
For the first six months of 2011, Indorama Ventures PCL (SET: "IVL") announces a
consolidated EBITDA of US$ 362 million (Baht 11,007 million) and a consolidated
Core net profit after tax and minority of US$ 238 million (Baht 7,247 million).
The consolidated financial position has continued to strengthen and at the end
of June 30, 2011 the net gearing reduced from 48% to 37% with strong liquidity
of around US$ 1,454 million which includes cash and cash equivalents and
unutilized credit lines.
Key Financial Information
US$ in Millions 2Q11 vs. 6M11 vs.
2Q11 1Q11 2Q10 1Q11 2Q10 6M11 6M10 6M10
Exchange Rate Baht vs US$ 30.75 30.30 32.44 1% -5% 30.75 32.44 -5%
Exchange Rate Baht vs Euro 44.52 42.86 39.59 4% 12% 44.52 39.59 12%
*Consolidated Sales 1,692 1,328 737 27% 130% 3,019 1,469 105%
PET resins 1,199 869 456 38% 163% 2,066 889 132%
Polyester & wool 212 189 100 12% 111% 400 205 95%
PTA 285 269 180 6% 58% 555 375 48%
*Core EBITDA 181 157 94 15% 93% 339 176 93%
PET resins 127 84 56 51% 127% 211 103 105%
Polyester & wool 30 38 13 -21% 131% 68 23 196%
PTA 27 42 23 -36% 17% 69 51 35%
*Consolidated EBITDA 147 215 88 -31% 67% 362 179 103%
PET resins 103 117 54 -12% 89% 224 105 113%
Polyester & wool 25 48 11 -47% 121% 68 24 178%
PTA 22 55 22 -60% -1% 78 51 54%
*Core profit before tax and minority 122 111 59 10% 107% 234 108 116%
Net profit after tax and minority 79 362 63 -78% 25% 441 109 306%
CAPEX 67 713 56 -91% 21% 781 68 1052%
Net Debt 1,168 1,088 1,019 7% 15% 1,168 1,019 15%
Net Debt to Equity 0.6 0.5 1.2 9% -52% 0.6 1.2 -52%
Interest Coverage 9.3 16.4 9.9 -43% -5% 12.5 9.5 32%
Core ROCE 18% 19% 16% -5% 12% 20% 15% 33%
ROCE 13% 28% 15% -53% -7% 22% 15% 47%
*See note 1) on page 7
? The management has decided to report from this quarter onwards to reflect
realistically its earnings from operations both Consolidated EBITDA and Core
EBITDA and Net profit after tax and minority and Core profit before tax and
minority.
Q2 2011 results were in line with management's expectations. IVL reported
consolidated EBITDA of US$ 147 million in 2Q 2011, which was lower comparing
with 1Q 2011 which reported US$ 215 million and higher compared to 2Q 2010 which
reported US$ 88 million. While, the consolidated Core EBITDA excluding impact
from inventory gain/loss would be US$ 181 million in 2Q 2011, higher than US$
157 million in 1Q 2011. 2Q, 2011. Core EBITDA increase is from higher volumes
but slightly lower margins. The YoY results of 2Q 2011 were positively impacted
by the strategic growth in volumes from acquisitions and the margin improvement
in Europe and USA led by consolidation in the Industry and strong demand
reflecting the affordable nature of Polyester. The chart below shows the core
EBITDA generated from operations:
IVL Core EBITDA and Core EBITDA/ton Q1 vs Q2, 2011
IVL reported core profit before tax and minority (excluding exceptional items
and inventory gain/loss) of US$ 122 million in 2Q 2011 which was higher
comparing to 1Q 2011 of US$ 111 million and higher comparing to 2Q 2010 of US$
59 million. While, the net profit after tax and minority (including exceptional
items and inventory gain/loss) of US$ 79 million in 2Q 2011 was lower comparing
to 1Q 2011 of US$ 362 million but higher than 2Q 2010 of US$ 63 million.
? The financial performance in Year 2011 has been stronger backed by higher
volumes and increase in Core EBITDA per ton. The chart below reflects on same:
IVL Consolidated Core EBITDA Q1, 2010 to Q2, 2011
? The YoY and the QoQ impacts are tabulated below;
YoY QoQ
Volume Growth in all Segments and Regions Growth in all Segments and Regions
Utilization Rate Negative in PET and Polyester on lost production due to
tornados in USA and breakdown in Rayong. EBITDA impact approximately US$ 16
million after provisions. Negative in PET and Polyester on lost production due
to tornados in USA and breakdown in Rayong. EBITDA impact approximately US$ 16
million after provisions.
Margin in PTA Unchanged globally Sharp correction in Asia from one time surge in
Q1 2011. European and USA margins uniform across quarters
Margin in PET Improved in USA and Europe led by consolidation and demand. Asian
margins were stable Improved in USA and Europe led by consolidation and demand.
Significantly Improved in Asia due to lower PTA margins.
Margin in Polyester and Wool Improved globally on affordability and availability
with respect to cotton. Maintained globally on affordability and availability
with respect to cotton.
Feedstock and Product Price Sharp surge leading to one time inventory gains of
US$ 25 million Sharp decline leading to one time inventory loss of US$ 34
million
3Q 2011 Outlook
Recently we saw the credit rating downgrade of USA and the fear of lower
economic growth in USA and Europe has re-emerged, leading to lower commodity
prices including prices of crude oil and petrochemicals this week. Cotton
futures have come down in line with the general apprehensions about the economic
situation.
In line with the affordable nature of Polyester and application in daily
consumer staples (food & beverage and clothing), all the business segments of
IVL has seen resilient demand in all geographies and all the manufacturing sites
of IVL are running at high utilization rates to-date. Therefore, IVL expects a
positive volume growth sequentially and year on year. The plants of AlphaPet, in
Alabama, USA and Indorama Polyester Industries, in Rayong, Thailand, are fully
operational in the quarter after unplanned shutdown in Q2, 2011 from tornados
and break-down respectively.
IVL had completed major acquisitions in 1Q, 2011 that have been fully integrated
in 2Q, 2011 with positive results and are expected to contribute to growth in
revenues, earnings and cash flows in 3Q, 2011 and subsequent quarters. We expect
to benefit from favorable geographical mix in key regions where we have
attained market leadership and consolidation. Our investments in innovation or
value added product lines are already contributing in enhanced blended margins
and are expected to gain traction going forward. IVL has also seen slightly
improved PTA margins in July and August over 2Q, 2011.
Our view of strengthening Paraxylene pricing is that this has historically been
positive for IVL since IVL is a contractual buyer of Paraxylene in both Asia and
in Europe with committed supply. IVL has consistently benefitted from PTA
integration since this significantly reduces the volatility of margins of PET
especially in Asia and also is a much desired attribute of stability and
reliability to our downstream customers. The production of PTA in IVL group is
virtually for captive consumption as our total PTA production in Asia is
approximately 1.37 million tpa and our Polymer capacity in Asia is 1.30 million
tpa which will increase by end 2013 to 1.65 million tpa. We are also supporting
our PET operations in Europe with Thai PTA because third party PTA in Europe has
suffered from frequent supply disruptions.
Therefore in summary we expect the blended margins of IVL value chain to
maintain and do not see any significant impact on IVL from the global slowdown
or considering the Paraxylene/PTA situation.
Projects announced in 2Q 2011 and to-date in 3Q 2011
Capacity re-rating
The capacity of plants have been re-rated to reflect the de-bottlenecking
projects taken-up by the various plants in each business segment (includes joint
venture Ottana Polimeri) from time-to-time. The utilization reports are
reported based on re-rated capacity of plants ine ach business segment. The
capacity re-rating has resulted in total capacity increasing from 5.4 million
tons per annum to 5.7 million tons per annum. The table below provides details:
Earlier Capacity Re-rated Capacity
Million tpa Million tpa
PET 3.2 3.3
Polyester fibers & yarns 0.4 0.5
PTA 1.8 1.9
Total 5.4 5.7
Note : "tpa" is tons per annum
Approved projects in Board Meeting on August 10, 2011
The board in its meeting on August 10, 2011 approved investments in a new
recycling plant in Thailand and high technology business in Polyester fibers and
yarns in Thailand and Indonesia. These projects are in specialty business with
higher value addition and margins to leverage on our existing assets. The
details of approved projects are given below:
Investment in production of recycled polyester fibers and yarns with capacity of
28,500 tons per annum. Under the project, discarded, or "post consumer," PET
bottles will be collected and recycled to produce high quality resin for making
containers for consumer drinks; yarns for premium garments of
environmentally-conscious brands and colored fibers for automotive and non-woven
end applications. Indorama Ventures has launched the ECORAMA brand for its
recycled Polyester Fibres and Yarns products and has recently been awarded a
Green Label certificate by the Thailand Environment Institute. The project will
be located in Nakhon Pathom in Thailand at the site of our existing facility
Indorama Polyester Industries, Nakhon Pathom, Thailand. The total investment
will be around US$ 22.4 million. The project is targeted to commence operations
by the fourth quarter of 2012
Investment in bi-component fibers project for Hygiene Applications with capacity
of 16,000 tons per annum. The company is highly active in the non-woven
materials market and has recently acquired bi-component fiber capacity in Europe
through Trevira, that is targeted mainly at the hygiene sector. Hygiene
products utilize high technology that requires top class manufacturing and close
ties with customers to be able to provide the exacting specifications required
for products that remain in close touch with the skin such as baby diapers,
feminine hygiene, etc. The new project will produce one of the key components of
such applications by tying up technologically with Japan's Toyobo, well-known
company in this field, to make bi-component fibers for hygiene end-use. The
project will be located in Rayong, Thailand. The total investment will be around
US$ 21.2 million. The project is targeted to commence operations by the second
quarter of 2012
Investment in high quality bi-component yarns, FINNE, at its recently acquired
IVI plant (formerly SK Keris) in Tangerang, Indonesia, with capacity of 16,000
tons per annum. IVI owns unique technology to make Bi-component yarns (known as
FINNE) through a single step process. The company enjoys significant competitive
advantage over companies who currently use a two step process and has secured a
leading market share in this segment. The product is very popular for outerwear
and has unique properties of drape and touch which few competitors can offer,
giving it a good potential for growth. The total investment will be around US$
38.0 million. The project is targeted to commence operations by the first
quarter of 2013
On-going projects under implementation
On July 01, 2011, Trevira Holdings GmbH, the joint venture entity (75% held by
IVL : 25% held by Sinterama S.p.A.), has completed the acquisition Trevira GmbH.
of Germany. 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 acquisition
of Trevira GmbH will facilitate the entry of IVL into the branded specialist
filament business and provide access to an outstanding research and development
facility with accompanying intellectual property. Through both partners' global
marketing and sales networks, customers will be presented with a much deeper
portfolio of value-added products and we will be able to attract new customers
seeking to benefit from the unique and comprehensive branded product range.
In the board of directors meeting held on June 29, 2011, IVL board approved the
acquisition of a 50% stake by IVL through its subsidiary Indorama Netherlands
B.V. in PT Polyprima Karyesreska ("PT Polyprima"), a PTA producer. PT Polyprima
is located in Cilegon, West Java, Indonesia and has an installed capacity of
465,000 Mts. per annum. The technology used is that of Invista. PT Polyprima is
currently under a debt restructuring process. After the debt restructuring with
creditors and issue of new capital by PT Polyprima, IVL shareholding will be
reduced to 41% in PT Polyprima. PT Indorama Synthetics Tbk, (PTIRS) will hold
another 41% and the balance 18% by others. The restructuring and approval
process is expected to be completed by Q4, 2011. PTIRS is a Group Company of Mr.
SP Lohia and Mr. Amit Lohia, Non-Executive directors of IVL having an annual
polymer capacity of 290,000 Mts. Currently the plant is not operating and is
expected to start commercial production in Q2, 2012 on completion of required
maintenance, revamping and capacity de-bottlenecking. On de-bottlenecking the
capacity will increase to 500,000 Mts per annum. Indonesia is growing to become
one of the large polyester markets and has a shortage of PTA supply. IVL
through its equity stake in PT Polyprima will secure the PTA supplies for its
Polyester plants in Indonesia. The polymer capacity of IVL in Indonesia after
the Greenfield project in Q1 2013 will be approx 500,000 Mts. per annum.
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 600,000 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 792,000 tons per
annum.
In April 2011, IVL announced the location of the Brownfield expansion of PET
polymers production in Europe with a capacity 220,000 tons per annum. The
aforesaid expansion will be at the existing site of our PET polymer plant in
Poland under Indorama Polymers Poland S.p.z.o.o. The expansion will benefit from
economies of scale on our existing site for PET facility and benefit from piped
supply of PTA as co-located with an existing third party PTA supplier. This
expansion, which is expected to be completed by end of 2013 will be cost
competitive and take total capacity in Poland to 370,000 tons per year and IVL's
total capacity in Europe for PET Polymers to 1.4 million tons per annum.
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 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 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 by end of
2011. It is expected to be value accretive to earnings.
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.
On completion of all the announced acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business with a total capacity of
7.6 million tons per annum (including joint ventures Ottana Polimeri, Trevira
and Polyprima). IVL has a leading market position in Thailand, North America and
Europe.
Capacity End 2010 Capacity End 2011 Committed Capacity by End 2013
Million tpa % Million tpa % Million tpa %
Asia 1.9 51% 2.5 43% 3.5 46%
MEA - - 0.1 1% 0.1 1%
Europe 1.2 33% 1.6 28% 2.3 31%
North America 0.6 16% 1.6 28% 1.6 22%
Total 3.7 100% 5.8 100% 7.6 100%
Note : "tpa" is tons per annum
Note 1)
The consolidated financials are based upon elimination of intra-company (or
intra business segment) transactions.
For this reason the total of each segment may not tally with consolidated
financials.
*Net profit after tax and minority for 6M, 2011 includes net extraordinary gain
of US$ 203 million (Baht 6,176 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 347
million) towards transaction expenses incurred on acquisitions completed during
the year. All extraordinary items were recorded within 1Q, 2011, except
additional transaction expenses of US$ 1 million (Baht 23 million) which were
recorded in 2Q, 2011.
Q2 and 6M, 2010 net profit after tax and minority included US$ 17 million (Baht
563 million) of gain on a bargain purchase or negative goodwill on acquisition
of utility assets in Rotterdam, Netherlands in Q2, 2010.
Core EBITDA is after excluding inventory gain/loss from reported EBITDA.
Inventory gain/loss in a period results from movement in prices of raw materials
and products from end of last reported period to the end of current reported
period. The cost of sales are impacted by inventory gain/loss wherein inventory
gain decreases cost of sales and inventory loss increases cost of sales.
Core profit before tax and minority is after excluding exceptional items
extraordinary gains from bargain purchase and excluding inventory gain/loss in a
period which results from movement in prices of raw materials and products from
end of last reported period to the end of current reported period.
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.
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,
(more)
Ref.No.IVL004/08/2011
August 10, 2011
The President
The Stock Exchange of Thailand
Subject: Submission of Reviewed Financial Statements of Indorama Ventures
Public Company
Limited for the 2nd quarter of 2011 and the 6 months ended June 30, 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 2nd quarter of 2011 and the 6 months ended June 30, 2011 (a copy in Thai
and English)
2. Management's Discussion and Analysis (MD&A) for the 2nd quarter of 2011 and
the 6 months ended June 30, 2011 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the 2nd quarter of 2011 and the
6 months ended June 30, 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 2Q 2011 AND 6 MONTHS ENDED JUNE 30, 2011 (CONSOLIDATED)
For the first six months of 2011, Indorama Ventures PCL (SET: "IVL") announces a
consolidated EBITDA of US$ 362 million (Baht 11,007 million) and a consolidated
Core net profit after tax and minority of US$ 238 million (Baht 7,247 million).
The consolidated financial position has continued to strengthen and at the end
of June 30, 2011 the net gearing reduced from 48% to 37% with strong liquidity
of around US$ 1,454 million which includes cash and cash equivalents and
unutilized credit lines.
Key Financial Information
US$ in Millions 2Q11 vs. 6M11 vs.
2Q11 1Q11 2Q10 1Q11 2Q10 6M11 6M10 6M10
Exchange Rate Baht vs US$ 30.75 30.30 32.44 1% -5% 30.75 32.44 -5%
Exchange Rate Baht vs Euro 44.52 42.86 39.59 4% 12% 44.52 39.59 12%
*Consolidated Sales 1,692 1,328 737 27% 130% 3,019 1,469 105%
PET resins 1,199 869 456 38% 163% 2,066 889 132%
Polyester & wool 212 189 100 12% 111% 400 205 95%
PTA 285 269 180 6% 58% 555 375 48%
*Core EBITDA 181 157 94 15% 93% 339 176 93%
PET resins 127 84 56 51% 127% 211 103 105%
Polyester & wool 30 38 13 -21% 131% 68 23 196%
PTA 27 42 23 -36% 17% 69 51 35%
*Consolidated EBITDA 147 215 88 -31% 67% 362 179 103%
PET resins 103 117 54 -12% 89% 224 105 113%
Polyester & wool 25 48 11 -47% 121% 68 24 178%
PTA 22 55 22 -60% -1% 78 51 54%
*Core profit before tax and minority 122 111 59 10% 107% 234 108 116%
Net profit after tax and minority 79 362 63 -78% 25% 441 109 306%
CAPEX 67 713 56 -91% 21% 781 68 1052%
Net Debt 1,168 1,088 1,019 7% 15% 1,168 1,019 15%
Net Debt to Equity 0.6 0.5 1.2 9% -52% 0.6 1.2 -52%
Interest Coverage 9.3 16.4 9.9 -43% -5% 12.5 9.5 32%
Core ROCE 18% 19% 16% -5% 12% 20% 15% 33%
ROCE 13% 28% 15% -53% -7% 22% 15% 47%
*See note 1) on page 7
? The management has decided to report from this quarter onwards to reflect
realistically its earnings from operations both Consolidated EBITDA and Core
EBITDA and Net profit after tax and minority and Core profit before tax and
minority.
Q2 2011 results were in line with management's expectations. IVL reported
consolidated EBITDA of US$ 147 million in 2Q 2011, which was lower comparing
with 1Q 2011 which reported US$ 215 million and higher compared to 2Q 2010 which
reported US$ 88 million. While, the consolidated Core EBITDA excluding impact
from inventory gain/loss would be US$ 181 million in 2Q 2011, higher than US$
157 million in 1Q 2011. 2Q, 2011. Core EBITDA increase is from higher volumes
but slightly lower margins. The YoY results of 2Q 2011 were positively impacted
by the strategic growth in volumes from acquisitions and the margin improvement
in Europe and USA led by consolidation in the Industry and strong demand
reflecting the affordable nature of Polyester. The chart below shows the core
EBITDA generated from operations:
IVL Core EBITDA and Core EBITDA/ton Q1 vs Q2, 2011
IVL reported core profit before tax and minority (excluding exceptional items
and inventory gain/loss) of US$ 122 million in 2Q 2011 which was higher
comparing to 1Q 2011 of US$ 111 million and higher comparing to 2Q 2010 of US$
59 million. While, the net profit after tax and minority (including exceptional
items and inventory gain/loss) of US$ 79 million in 2Q 2011 was lower comparing
to 1Q 2011 of US$ 362 million but higher than 2Q 2010 of US$ 63 million.
? The financial performance in Year 2011 has been stronger backed by higher
volumes and increase in Core EBITDA per ton. The chart below reflects on same:
IVL Consolidated Core EBITDA Q1, 2010 to Q2, 2011
? The YoY and the QoQ impacts are tabulated below;
YoY QoQ
Volume Growth in all Segments and Regions Growth in all Segments and Regions
Utilization Rate Negative in PET and Polyester on lost production due to
tornados in USA and breakdown in Rayong. EBITDA impact approximately US$ 16
million after provisions. Negative in PET and Polyester on lost production due
to tornados in USA and breakdown in Rayong. EBITDA impact approximately US$ 16
million after provisions.
Margin in PTA Unchanged globally Sharp correction in Asia from one time surge in
Q1 2011. European and USA margins uniform across quarters
Margin in PET Improved in USA and Europe led by consolidation and demand. Asian
margins were stable Improved in USA and Europe led by consolidation and demand.
Significantly Improved in Asia due to lower PTA margins.
Margin in Polyester and Wool Improved globally on affordability and availability
with respect to cotton. Maintained globally on affordability and availability
with respect to cotton.
Feedstock and Product Price Sharp surge leading to one time inventory gains of
US$ 25 million Sharp decline leading to one time inventory loss of US$ 34
million
3Q 2011 Outlook
Recently we saw the credit rating downgrade of USA and the fear of lower
economic growth in USA and Europe has re-emerged, leading to lower commodity
prices including prices of crude oil and petrochemicals this week. Cotton
futures have come down in line with the general apprehensions about the economic
situation.
In line with the affordable nature of Polyester and application in daily
consumer staples (food & beverage and clothing), all the business segments of
IVL has seen resilient demand in all geographies and all the manufacturing sites
of IVL are running at high utilization rates to-date. Therefore, IVL expects a
positive volume growth sequentially and year on year. The plants of AlphaPet, in
Alabama, USA and Indorama Polyester Industries, in Rayong, Thailand, are fully
operational in the quarter after unplanned shutdown in Q2, 2011 from tornados
and break-down respectively.
IVL had completed major acquisitions in 1Q, 2011 that have been fully integrated
in 2Q, 2011 with positive results and are expected to contribute to growth in
revenues, earnings and cash flows in 3Q, 2011 and subsequent quarters. We expect
to benefit from favorable geographical mix in key regions where we have
attained market leadership and consolidation. Our investments in innovation or
value added product lines are already contributing in enhanced blended margins
and are expected to gain traction going forward. IVL has also seen slightly
improved PTA margins in July and August over 2Q, 2011.
Our view of strengthening Paraxylene pricing is that this has historically been
positive for IVL since IVL is a contractual buyer of Paraxylene in both Asia and
in Europe with committed supply. IVL has consistently benefitted from PTA
integration since this significantly reduces the volatility of margins of PET
especially in Asia and also is a much desired attribute of stability and
reliability to our downstream customers. The production of PTA in IVL group is
virtually for captive consumption as our total PTA production in Asia is
approximately 1.37 million tpa and our Polymer capacity in Asia is 1.30 million
tpa which will increase by end 2013 to 1.65 million tpa. We are also supporting
our PET operations in Europe with Thai PTA because third party PTA in Europe has
suffered from frequent supply disruptions.
Therefore in summary we expect the blended margins of IVL value chain to
maintain and do not see any significant impact on IVL from the global slowdown
or considering the Paraxylene/PTA situation.
Projects announced in 2Q 2011 and to-date in 3Q 2011
Capacity re-rating
The capacity of plants have been re-rated to reflect the de-bottlenecking
projects taken-up by the various plants in each business segment (includes joint
venture Ottana Polimeri) from time-to-time. The utilization reports are
reported based on re-rated capacity of plants ine ach business segment. The
capacity re-rating has resulted in total capacity increasing from 5.4 million
tons per annum to 5.7 million tons per annum. The table below provides details:
Earlier Capacity Re-rated Capacity
Million tpa Million tpa
PET 3.2 3.3
Polyester fibers & yarns 0.4 0.5
PTA 1.8 1.9
Total 5.4 5.7
Note : "tpa" is tons per annum
Approved projects in Board Meeting on August 10, 2011
The board in its meeting on August 10, 2011 approved investments in a new
recycling plant in Thailand and high technology business in Polyester fibers and
yarns in Thailand and Indonesia. These projects are in specialty business with
higher value addition and margins to leverage on our existing assets. The
details of approved projects are given below:
Investment in production of recycled polyester fibers and yarns with capacity of
28,500 tons per annum. Under the project, discarded, or "post consumer," PET
bottles will be collected and recycled to produce high quality resin for making
containers for consumer drinks; yarns for premium garments of
environmentally-conscious brands and colored fibers for automotive and non-woven
end applications. Indorama Ventures has launched the ECORAMA brand for its
recycled Polyester Fibres and Yarns products and has recently been awarded a
Green Label certificate by the Thailand Environment Institute. The project will
be located in Nakhon Pathom in Thailand at the site of our existing facility
Indorama Polyester Industries, Nakhon Pathom, Thailand. The total investment
will be around US$ 22.4 million. The project is targeted to commence operations
by the fourth quarter of 2012
Investment in bi-component fibers project for Hygiene Applications with capacity
of 16,000 tons per annum. The company is highly active in the non-woven
materials market and has recently acquired bi-component fiber capacity in Europe
through Trevira, that is targeted mainly at the hygiene sector. Hygiene
products utilize high technology that requires top class manufacturing and close
ties with customers to be able to provide the exacting specifications required
for products that remain in close touch with the skin such as baby diapers,
feminine hygiene, etc. The new project will produce one of the key components of
such applications by tying up technologically with Japan's Toyobo, well-known
company in this field, to make bi-component fibers for hygiene end-use. The
project will be located in Rayong, Thailand. The total investment will be around
US$ 21.2 million. The project is targeted to commence operations by the second
quarter of 2012
Investment in high quality bi-component yarns, FINNE, at its recently acquired
IVI plant (formerly SK Keris) in Tangerang, Indonesia, with capacity of 16,000
tons per annum. IVI owns unique technology to make Bi-component yarns (known as
FINNE) through a single step process. The company enjoys significant competitive
advantage over companies who currently use a two step process and has secured a
leading market share in this segment. The product is very popular for outerwear
and has unique properties of drape and touch which few competitors can offer,
giving it a good potential for growth. The total investment will be around US$
38.0 million. The project is targeted to commence operations by the first
quarter of 2013
On-going projects under implementation
On July 01, 2011, Trevira Holdings GmbH, the joint venture entity (75% held by
IVL : 25% held by Sinterama S.p.A.), has completed the acquisition Trevira GmbH.
of Germany. 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 acquisition
of Trevira GmbH will facilitate the entry of IVL into the branded specialist
filament business and provide access to an outstanding research and development
facility with accompanying intellectual property. Through both partners' global
marketing and sales networks, customers will be presented with a much deeper
portfolio of value-added products and we will be able to attract new customers
seeking to benefit from the unique and comprehensive branded product range.
In the board of directors meeting held on June 29, 2011, IVL board approved the
acquisition of a 50% stake by IVL through its subsidiary Indorama Netherlands
B.V. in PT Polyprima Karyesreska ("PT Polyprima"), a PTA producer. PT Polyprima
is located in Cilegon, West Java, Indonesia and has an installed capacity of
465,000 Mts. per annum. The technology used is that of Invista. PT Polyprima is
currently under a debt restructuring process. After the debt restructuring with
creditors and issue of new capital by PT Polyprima, IVL shareholding will be
reduced to 41% in PT Polyprima. PT Indorama Synthetics Tbk, (PTIRS) will hold
another 41% and the balance 18% by others. The restructuring and approval
process is expected to be completed by Q4, 2011. PTIRS is a Group Company of Mr.
SP Lohia and Mr. Amit Lohia, Non-Executive directors of IVL having an annual
polymer capacity of 290,000 Mts. Currently the plant is not operating and is
expected to start commercial production in Q2, 2012 on completion of required
maintenance, revamping and capacity de-bottlenecking. On de-bottlenecking the
capacity will increase to 500,000 Mts per annum. Indonesia is growing to become
one of the large polyester markets and has a shortage of PTA supply. IVL
through its equity stake in PT Polyprima will secure the PTA supplies for its
Polyester plants in Indonesia. The polymer capacity of IVL in Indonesia after
the Greenfield project in Q1 2013 will be approx 500,000 Mts. per annum.
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 600,000 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 792,000 tons per
annum.
In April 2011, IVL announced the location of the Brownfield expansion of PET
polymers production in Europe with a capacity 220,000 tons per annum. The
aforesaid expansion will be at the existing site of our PET polymer plant in
Poland under Indorama Polymers Poland S.p.z.o.o. The expansion will benefit from
economies of scale on our existing site for PET facility and benefit from piped
supply of PTA as co-located with an existing third party PTA supplier. This
expansion, which is expected to be completed by end of 2013 will be cost
competitive and take total capacity in Poland to 370,000 tons per year and IVL's
total capacity in Europe for PET Polymers to 1.4 million tons per annum.
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 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 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 by end of
2011. It is expected to be value accretive to earnings.
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.
On completion of all the announced acquisitions and expansions, IVL will have an
increasingly advantaged portfolio of regional business with a total capacity of
7.6 million tons per annum (including joint ventures Ottana Polimeri, Trevira
and Polyprima). IVL has a leading market position in Thailand, North America and
Europe.
Capacity End 2010 Capacity End 2011 Committed Capacity by End 2013
Million tpa % Million tpa % Million tpa %
Asia 1.9 51% 2.5 43% 3.5 46%
MEA - - 0.1 1% 0.1 1%
Europe 1.2 33% 1.6 28% 2.3 31%
North America 0.6 16% 1.6 28% 1.6 22%
Total 3.7 100% 5.8 100% 7.6 100%
Note : "tpa" is tons per annum
Note 1)
The consolidated financials are based upon elimination of intra-company (or
intra business segment) transactions.
For this reason the total of each segment may not tally with consolidated
financials.
*Net profit after tax and minority for 6M, 2011 includes net extraordinary gain
of US$ 203 million (Baht 6,176 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 347
million) towards transaction expenses incurred on acquisitions completed during
the year. All extraordinary items were recorded within 1Q, 2011, except
additional transaction expenses of US$ 1 million (Baht 23 million) which were
recorded in 2Q, 2011.
Q2 and 6M, 2010 net profit after tax and minority included US$ 17 million (Baht
563 million) of gain on a bargain purchase or negative goodwill on acquisition
of utility assets in Rotterdam, Netherlands in Q2, 2010.
Core EBITDA is after excluding inventory gain/loss from reported EBITDA.
Inventory gain/loss in a period results from movement in prices of raw materials
and products from end of last reported period to the end of current reported
period. The cost of sales are impacted by inventory gain/loss wherein inventory
gain decreases cost of sales and inventory loss increases cost of sales.
Core profit before tax and minority is after excluding exceptional items
extraordinary gains from bargain purchase and excluding inventory gain/loss in a
period which results from movement in prices of raw materials and products from
end of last reported period to the end of current reported period.
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.
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,
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