Reports to the Stock Exchange
Management Discussion and Analysis for year 2012
Management Discussion and Analysis
Ref. No. IVL001/02/2013
22 Feb 2013
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, 2012 and the Management
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Audited Financial
Statements for the year ended December 31, 2012 (a copy in Thai and English)
2. Management Discussion and Analysis (MD&A) for the year ended December 31,
2012 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2012
(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 2012 AND THE YEAR ENDED DECEMBER 31, 2012 (CONSOLIDATED)
Indorama Ventures PCL (SET: "IVL") achieved consolidated sales of US$ 6,780
million (Baht 211 Billion) for the Year 2012, an increase of 11% over 2011. The
2012 consolidated reported EBITDA of US$ 453 million (Baht 14.1 Billion),
consolidated net profit after tax and minority of US$ 148 million (Baht 4.6
Billion), consolidated operating cash flow of US$ 471 million (Baht 14.6
Billion) and consolidated return on average net operating capital employed of
7%.
US$ in Millions THB in Millions
4Q12 4Q11 2012 2011 2012 2011
*Consolidated Sales 1,647 1,394 6,780 6,102 210,785 186,096
PET resins 985 975 4,294 4,252 133,478 129,671
Fibers & Yarns 353 196 1,359 826 42,236 25,184
Feedstock 613 438 2,210 2,056 68,693 62,696
*Consolidated EBITDA 123 46 453 561 14,097 17,121
PET resins 42 34 197 285 6,130 8,686
Fibers & Yarns 13 16 70 83 2,184 2,544
Feedstock 69 - 182 200 5,649 6,114
**Core EBITDA 100 82 451 555 14,023 16,933
PET resins 26 56 198 288 6,160 8,794
Fibers & Yarns 11 25 72 80 2,231 2,438
Feedstock 64 6 177 194 5,509 5,927
Net profit before JV & Extra ordinaries 21 (10) 116 316 3,655 9,648
JV Income (loss) (12) (9) (29) (10) (911) (303)
***Extraordinary income/(expense) (4) (54) 61 204 1,868 6,212
Net profit after tax and minority 5 (73) 148 510 4,612 15,557
****CAPEX and investment 101 177 1,387 1,032 43,127 31,487
Net Operating Debt 2,321 1,166 2,321 1,166 71,099 36,947
Net Operating Debt to Equity 1.2 0.6 1.2 0.6 1.2 0.6
Net Operating ROCE 6% 1% 7% 16% 7% 16%
EPS (Baht) 0.96 3.28
See note on page 8
* Consolidated financials are based upon elimination of intra-company (or intra
business segment) transactions.
** Core EBITDA is Consolidated EBITDA less Inventory gain/ (loss), ***
Extraordinary income/(expenses) includes gain on bargain purchases, flood
insurance claims etc.**** Capex & Investments are on an accrual basis
In 4Q 2012 production volume increased by 24% over 4Q11, from 1.05 million
tonnes to 1.31 million tonnes and production volume for year 2012 achieved is
5.3 million tonnes an increase of 20% over the full year 2011. The Fourth
Quarter is seasonally the weakest quarter as was witnessed in 2011 and again in
2012. Against this backdrop, IVL achieved a core EBITDA per tonne of US$ 77 in
4Q 2012 against US$ 78 in the same quarter last year. Core earnings continued to
be in trough territory and had impacts across the value chain of PTA, PET and
Polyester especially in Asia (see margin analysis) due to the:
- Impact from sentiments on continuing Chinese slowdown, reflected by quarter on
quarter drop in their economy for many quarters on all major economic
indicators and exacerbated by;
- Continuing oversupply of PTA in Asia, which is weakening spreads across the
value chain in the region and is marginally impacting the western markets, in
particular the South European markets for PET, which seems to have larger
appetite for the risk associated with imports.
- Newly integrated Polyester Value Chain companies in China are increasing their
market share during a period of weak economic climate and therefore pushing
margins to un-sustainable levels and in many cases below the cash cost of
independent operators in both the PTA and PET segments.
Notwithstanding the Industry situation, IVL strategy is to have diversity in its
revenue stream (see details in sections below) that has been helping the
company to out-perform its peers (please see margin analysis later). In the last
twelve months the company's operations have significantly improved its cost
position and ongoing strategic investments in accretive capacity build up in
select markets will have a lasting benefit going forward;
- Integration into the EO and MEG business in North America which has the lowest
cost feedstock; the timing of entry coincides with the uptrend in EO and MEG
margins due to increasing utilization rates globally. The Company is in the
process of adding AlphaPet 2 PET capacity with virtual integration to BP at
Decatur, Alabama and repositioning legacy assets to meet the growing specialty
demand.
- Increased specialty (non-commodity) revenue to US$ 1.3 billion or 19% of sales
in 2012 versus 10% in 2011. These non-commodity sales have lower margins
volatility and lesser seasonal impact (see margin analysis).
- Expanded the Rotterdam site with an additional 187kt per year of PET, which
makes the site the most competitive across Europe and will fully leverage the
on-site PTA production, resulting in logistic savings that will benefit the
bottom line.
- Initiated new expansion projects in PTA and PET in Europe as de-bottleneck
capex rather than as a new build at much lower capital cost and better
incremental conversion cost that will further improve the Rotterdam site's
integrated PTA and PET footprint and cost competitiveness. Similar initiative
ongoing at our Polish site where a 60kt PET expansion will be ready in early
2014.
- Completed in 4Q 2012 the de-bottleneck expansion of our GIVL China PET site,
which is now the largest site in IVL group with over 500kt of PET, commensurate
with scale required to be profitable in China.
- IVL completed the acquisition of the formerly named Polypet in Indonesia, a
rapidly emerging market, to command a 44% capacity share in line with our
strategic objective to play the leadership role in Polyester Value Chain in
Thailand and Indonesia and to serve the better margin domestic markets as our
first priority. The Greenfield Polyester expansion in Indonesia is in an
advanced stage of construction and commercial output is expected in the second
half 2013 that will further enhance IVL's cost competitiveness in commodity
segments as well as help us gain leadership position in the rapidly expanding
textile segment in Indonesia.
- Entered a new Continent, Africa by starting an 84kt per year PET plant in
Nigeria to gain first mover advantage in a region which is expected to grow at
the most rapid rates in this century.
- The revitalized focus on cost excellence has resulted in synergy benefits of
$40 million on an annualized basis in 2012 and there are ongoing projects for
similar size savings in 2013 across the various acquisitions made to date.
The trend is that the benefits of PET and Polyester continue to increase the
overall demand, in line with historical rates and therefore the underlying
fundamentals for Polyester value chain remains attractive. The IVL business
model of global diversity, product diversity and integration creates meaningful
hedges against weakness in a particular region or segment as reflected in our
results (see margin analysis). The operating cash flow remains healthy and has
increased Year on Year as seen below. IVL compares on par with regional and
global peers in chemicals despite trough earnings in 2012.
Margin analysis
The graph below show industry margins historically (except Specialty margins
which are IVL actual) and IVL portfolio share as a percentage of its
consolidated capacity. The specialty segment has continued to grow in capacity,
revenue and margin per tonne and represents 14% share of capacity. The Western
hemisphere business has grown to 48% of capacity share with relatively stable
and premium margins. IVL continues to develop accretive business portfolios in
all its business segments to reduce the volatility typically associated with
Asian commodity business as well as focus on operational excellence to give
sustainable above average earnings across the cycle.
Source: Industry data, IVL analysis, "% of IVL" is % to IVL capacities, * 2%
Fibers & Yarns in NA is Commodity which is not included here
Exposure to premium segments + Geographic diversity in Revenue + Operating
excellence
(US$ MM) Specialty
West Commodity
Asia Commodity
IVL
Year 2012
Revenue 1,306 4,062 2,580 6,780
Adjusted EBITDA** 101 300 52 453
% Contribution 22% 66% 12%
Value Add (%)* 27% 20% 13% 22%
Year 2011
Revenue 585 3,809 2,801 6,102
Adjusted EBITDA** 53 295 213 561
% Contribution 9% 53% 38%
Value Add (%)* 20% 18% 18% 22%
Year 2010
Revenue 166 1,826 1,833 3,055
Adjusted EBITDA 14 167 254 435
% Contribution 3% 39% 58%
Value Add (%)* 21% 21% 26% 30%
*Value Add (%) = Delivered Delta/Sales, ** Adjusted EBITDA excludes non
operational expenses during flooding period in Lopburi
The indicators in green, yellow and red visually explain the state of these IVL
segments. The highlights from this table are;
? IVL businesses created the same Value add percentage in 2012 as in 2011
despite Asian margins falling off a cliff in 2012. This was achieved by the
addition of higher Value add businesses that blended well with our Polyester
chain business and offset the drop in Asian commodity Value add. The EBITDA
could not be totally protected as lower utilization rates, increases in manpower
cost, higher energy costs in Asia and stronger Asian currencies have resulted
in overall higher cost which are in the process of being optimized and therefore
our thrust is on operational excellence measures in 2012 and 2013 with
activities identified and either completed or in advanced stages of completion.
? IVL's Western hemisphere commodity business has significantly grown in the
last 2 years even in the face of very weak economic conditions. There is a
relative growth in absolute EBITDA reflecting the resilience in these markets
and the brand value of IVL. This segment is relatively stable as reflected in
the Value add percentage over the last 3 years.
? The Asian commodity segment has materially underperformed and has been hit by
a 'perfect storm'. At its peak in 2010 and first half of 2011, mostly driven by
the cotton shortage, this segment represented 26% Value add. In 2012 the value
add has dropped to a low 13%. The Asian region is also facing cost pressures and
a stronger currency that IVL has mitigated through substantial operating
excellence projects but requires further improvements in 2013 that have been
identified. China has been substantially debottlenecked to become our lowest
cost platform and the largest PET site in the world. The 300kt Polyester plant
in Indonesia will have the lowest cost and will cater to growing demand in
Indonesia as well as replace some export markets that were catered from
Thailand. The Thai assets are being restructured to cater to specialties that
better absorb the high costs in Thailand. The weak PTA environment in Asia will
take longer to balance out and IVL is currently focused on maximizing internal
sales and improving the cost structure to compete efficiently with the new crop
of plants.
Topline Growth
The charts below provide details of annual production volumes and US Dollar
sales, both regional and segment wise. IVL has continued to grow its market
share in each of its segments year on year. The strong diversified global
platform of scale assets and competitive market reach allows IVL to focus on
delivering premium value to stakeholders and in turn a sustainable business.
Scale has been leveraged in supply chain management and has resulted in above
average sustainable earnings. The global reach and our portfolio of specialty
and sustainable products have provided the platform for accretive growth Year on
Year.
Note: EMEA includes Europe, Middle East, Africa and rest of the world
Bottomline
The charts below provide details of the EBITDA for the preceding quarters. IVL
has continued to shape its mix of businesses and geographic diversity to enable
the company to achieve high level of sustainable earnings over the long-term.
Fundamentally the core margins in Asia for commodity PTA, PET and Polyester were
weaker QonQ in 2012 due to significant over build of capacity in an already
fragmented region. Although the demand grew in line with historical trend but
the excess build of new capacity in China was aggravated due to slow economic
activity and has put unprecedented pressure on margins. New producers chasing
reduced pipeline inventory of customers who were buying on need base only, in
anticipation of lower prices, significantly lowered margins to below cash costs
in H2 2012 for the Industry.
IVL has been alert to this situation since 2011 and has improved its cost
position and its overall inventory management and therefore releasing cash as
well as avoiding any mark to market losses at the expense of temporary lower
utilization rates. The company increased overall production by 20% in 2012
including timely addition of an EO/EG business and hygiene portfolio that has
led to EBITDA growth QonQ and a significant 166% growth in 4Q 2012 YonY.
Regionally, North America remained the top performer while Europe was slightly
weak in light of the continued economic slowdown that has engulfed most of South
Europe. Operational excellence measures at Spartanburg, a Brownfield PET
capacity addition at Rotterdam, acquisition of a global hygiene business as well
as the addition of the Oxide and Glycol business in North America, have
potentially offset the weak Polyester chain margins in Asia.
Outlook / Targets for management / Guidance for 2013
IVL's core end products are PET and Polyester fibers and specialty products
therein. We have an established supply chain and a strong financial profile. We
have global leadership in this segment.
Our end products are the most competitive alternative in their space with strong
growth due to the high performance and ample R&D potential to innovate PET and
Polyester to enhance end use. PET has the lowest effective cost in the packaging
sector, where as Polyester is the most affordable fiber with limited
competition from cotton due to its scarcity. Therefore growth in the Polyester
chain continues at high historical rates shows resilience. The structural
tightness in MEG and Paraxylene will limit over supply of PET and Polyester.
Current Asian margins are below cash cost and are not sustainable. The industry
will squeeze marginal producers in the Polyester value chain in all regions
leading to gradual recovery of margins through 2013 and beyond.
We believe that there is going to be a substantial rationalization of older,
non-strategic assets across Asia, Europe and North America. The buildup
(inclusive of IVL projects) of new, state of the art, competitive capacity in
all regions that is underway will force these rationalizations in PET, Polyester
and Film segments. IVL has already invested in upgrading its assets in all
regions and has reviewed and renewed its strategy going forward of "smart
growth" and "smart operations".
Management has reviewed the operations of 2012 and has established targets for
2013. The key drivers for 2013 are;
? Enhancing operating rates to 90% gradually and an average of 87% in 2013 from
84% in 2012.
? Completing ongoing growth projects on schedule and on budget.
? Delivering additional savings from operating excellence projects to the tune
of US$ 35 million.
? Address the loss making JV and seek an aggressive improvement plan
? Successfully complete EO/EG turnaround in March/April and optimize the
operations to benefit from the industry upside. Turnaround is planned to change
the Catalyst and will see lower production in the first half of 2013. After the
completion of turnaround in March/April, the efficiency and productivity will be
improved significantly benefitting from the high performing new catalyst
change. The lost production in the first half of 2013 will be recovered in the
second half.
? Fully leverage IVL's leading platform in Recycling and Innovation to grow
specialties at legacy assets in line with our 'fit for purpose' drive and
migrate our knowledge base and customer intimacy to emerging market assets of
IVL.
? Continue to monitor and improve working capital management and grow operating
cash flow.
Guidance 2013 2013 % change to 2012
Production (mm tonnes) ~6.0 +15%
Revenue (US$ bn) ~8.1 +19%
EBITDA (US$ mm) ~575* +27%
Capex (US$ mm) ~300 (78%)
* Based on management estimates including the strategic actions planned in 2013
and approved budget by the Board of Directors. (Please see 'Notes" on the next
page)
IVL business model of global diversity, product diversity and integration
creates meaningful hedges and as such delivers sustainable returns. Management
is focused on the consolidation of businesses acquired to bring about
significant gains from synergies and as well from new products by leveraging on
our industry leading innovation platform. We remain very optimistic about the
Polyester Value Chain and IVL leadership within this chain. We are
well-positioned to improve our cost structure and take significant advantage as
the global recovery takes place. Meanwhile, we are confident that our portfolio
will continue to deliver the lowest cost quartile results.
Notes
Starting from 2Q12 onward, we began looking at IVL business as three segments:
PET resins, Fibers & Yarns, and Feedstocks. The Feedstock segment comprises PTA
and Oxide & Glycols businesses, of which the majority constitutes key raw
materials for the other two downstream segments. In addition, there is no
allocation of PTA earnings to PET and Polyester segment (based on the proportion
of sales) in this quarter and its comparable period.
The consolidated financials are based upon the elimination of intra-company (or
intra-business segment) transactions. For this reason the total of each segment
may not tally with consolidated financials.
Certain comparative numbers for year 2011 have been restated based upon the
completion & finalization of fair value report in year 2012, for various
acquisitions done in year 2011. This is in line with the requirements under the
Thai Accounting GAAP.
Net profit after tax and minority includes exceptional items as below:
US$ in Millions THB in millions
2012 2011 2012 2011
Gain on a bargain purchase income 27 274 847 8,359
Acquisition related costs (12) (20) (387) (613)
Flood related and other extraordinary income/(expenses) 46 (50) 1,408 (1,534)
Extraordinary income/(expense) 61 204 1,868 6,212
Add: Minority share of Extraordinary income/(expense) 6 (7) 181 (211)
Reported Extraordinary items 67 197 2,049 6,001
Core EBITDA is after excluding inventory gains/losses from reported EBITDA.
Inventory gains/losses in a period result from the movement in prices of raw
materials and products from the end of the last reported period to the end of
the current reported period. The cost of sales is impacted by inventory
gains/losses wherein inventory gains decrease cost of sales and inventory losses
increase cost of sales.
Net operating debt is defined as Net debt (Total debt minus cash and cash under
management) minus the project spending for various expansions underway which are
not completed and have not yet started contributing to the earnings of IVL.
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.
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 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.
DATA ANNEXURES
Ongoing Major Projects under Implementation
Announced Project Location Segment Capacity Timeline
(tonnes per annum)
March'2011 Investment in continuous polymerization resin plant in
Indonesia Purwakarta, Indonesia Fibers & Yarns 300,000 2H13
The company's most dynamic polyester site is under construction in Indonesia.
Amongst lowest cost site in Fiber space and substantially improves cost profile
in Asia
April'2011 Debottleneck of PET Polymers production in
Poland Poland PET 61,000 2014
Better market reach and savings in conversion cost
May'2011 Brownfield expansion of PTA in Rotterdam, enhancing integration for PET
production in Europe Rotterdam, Netherlands PTA 250,000 2014
Better Integration and improves overall cost profile of the site and in EMEA
(more)
Ref. No. IVL001/02/2013
22 Feb 2013
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, 2012 and the Management
Discussion and Analysis
We are pleased to submit:
1. A copy of the Consolidated and Company only Annual Audited Financial
Statements for the year ended December 31, 2012 (a copy in Thai and English)
2. Management Discussion and Analysis (MD&A) for the year ended December 31,
2012 (a copy in Thai and English)
3. Company's performance report, Form F45-3 for the year ended December 31, 2012
(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 2012 AND THE YEAR ENDED DECEMBER 31, 2012 (CONSOLIDATED)
Indorama Ventures PCL (SET: "IVL") achieved consolidated sales of US$ 6,780
million (Baht 211 Billion) for the Year 2012, an increase of 11% over 2011. The
2012 consolidated reported EBITDA of US$ 453 million (Baht 14.1 Billion),
consolidated net profit after tax and minority of US$ 148 million (Baht 4.6
Billion), consolidated operating cash flow of US$ 471 million (Baht 14.6
Billion) and consolidated return on average net operating capital employed of
7%.
US$ in Millions THB in Millions
4Q12 4Q11 2012 2011 2012 2011
*Consolidated Sales 1,647 1,394 6,780 6,102 210,785 186,096
PET resins 985 975 4,294 4,252 133,478 129,671
Fibers & Yarns 353 196 1,359 826 42,236 25,184
Feedstock 613 438 2,210 2,056 68,693 62,696
*Consolidated EBITDA 123 46 453 561 14,097 17,121
PET resins 42 34 197 285 6,130 8,686
Fibers & Yarns 13 16 70 83 2,184 2,544
Feedstock 69 - 182 200 5,649 6,114
**Core EBITDA 100 82 451 555 14,023 16,933
PET resins 26 56 198 288 6,160 8,794
Fibers & Yarns 11 25 72 80 2,231 2,438
Feedstock 64 6 177 194 5,509 5,927
Net profit before JV & Extra ordinaries 21 (10) 116 316 3,655 9,648
JV Income (loss) (12) (9) (29) (10) (911) (303)
***Extraordinary income/(expense) (4) (54) 61 204 1,868 6,212
Net profit after tax and minority 5 (73) 148 510 4,612 15,557
****CAPEX and investment 101 177 1,387 1,032 43,127 31,487
Net Operating Debt 2,321 1,166 2,321 1,166 71,099 36,947
Net Operating Debt to Equity 1.2 0.6 1.2 0.6 1.2 0.6
Net Operating ROCE 6% 1% 7% 16% 7% 16%
EPS (Baht) 0.96 3.28
See note on page 8
* Consolidated financials are based upon elimination of intra-company (or intra
business segment) transactions.
** Core EBITDA is Consolidated EBITDA less Inventory gain/ (loss), ***
Extraordinary income/(expenses) includes gain on bargain purchases, flood
insurance claims etc.**** Capex & Investments are on an accrual basis
In 4Q 2012 production volume increased by 24% over 4Q11, from 1.05 million
tonnes to 1.31 million tonnes and production volume for year 2012 achieved is
5.3 million tonnes an increase of 20% over the full year 2011. The Fourth
Quarter is seasonally the weakest quarter as was witnessed in 2011 and again in
2012. Against this backdrop, IVL achieved a core EBITDA per tonne of US$ 77 in
4Q 2012 against US$ 78 in the same quarter last year. Core earnings continued to
be in trough territory and had impacts across the value chain of PTA, PET and
Polyester especially in Asia (see margin analysis) due to the:
- Impact from sentiments on continuing Chinese slowdown, reflected by quarter on
quarter drop in their economy for many quarters on all major economic
indicators and exacerbated by;
- Continuing oversupply of PTA in Asia, which is weakening spreads across the
value chain in the region and is marginally impacting the western markets, in
particular the South European markets for PET, which seems to have larger
appetite for the risk associated with imports.
- Newly integrated Polyester Value Chain companies in China are increasing their
market share during a period of weak economic climate and therefore pushing
margins to un-sustainable levels and in many cases below the cash cost of
independent operators in both the PTA and PET segments.
Notwithstanding the Industry situation, IVL strategy is to have diversity in its
revenue stream (see details in sections below) that has been helping the
company to out-perform its peers (please see margin analysis later). In the last
twelve months the company's operations have significantly improved its cost
position and ongoing strategic investments in accretive capacity build up in
select markets will have a lasting benefit going forward;
- Integration into the EO and MEG business in North America which has the lowest
cost feedstock; the timing of entry coincides with the uptrend in EO and MEG
margins due to increasing utilization rates globally. The Company is in the
process of adding AlphaPet 2 PET capacity with virtual integration to BP at
Decatur, Alabama and repositioning legacy assets to meet the growing specialty
demand.
- Increased specialty (non-commodity) revenue to US$ 1.3 billion or 19% of sales
in 2012 versus 10% in 2011. These non-commodity sales have lower margins
volatility and lesser seasonal impact (see margin analysis).
- Expanded the Rotterdam site with an additional 187kt per year of PET, which
makes the site the most competitive across Europe and will fully leverage the
on-site PTA production, resulting in logistic savings that will benefit the
bottom line.
- Initiated new expansion projects in PTA and PET in Europe as de-bottleneck
capex rather than as a new build at much lower capital cost and better
incremental conversion cost that will further improve the Rotterdam site's
integrated PTA and PET footprint and cost competitiveness. Similar initiative
ongoing at our Polish site where a 60kt PET expansion will be ready in early
2014.
- Completed in 4Q 2012 the de-bottleneck expansion of our GIVL China PET site,
which is now the largest site in IVL group with over 500kt of PET, commensurate
with scale required to be profitable in China.
- IVL completed the acquisition of the formerly named Polypet in Indonesia, a
rapidly emerging market, to command a 44% capacity share in line with our
strategic objective to play the leadership role in Polyester Value Chain in
Thailand and Indonesia and to serve the better margin domestic markets as our
first priority. The Greenfield Polyester expansion in Indonesia is in an
advanced stage of construction and commercial output is expected in the second
half 2013 that will further enhance IVL's cost competitiveness in commodity
segments as well as help us gain leadership position in the rapidly expanding
textile segment in Indonesia.
- Entered a new Continent, Africa by starting an 84kt per year PET plant in
Nigeria to gain first mover advantage in a region which is expected to grow at
the most rapid rates in this century.
- The revitalized focus on cost excellence has resulted in synergy benefits of
$40 million on an annualized basis in 2012 and there are ongoing projects for
similar size savings in 2013 across the various acquisitions made to date.
The trend is that the benefits of PET and Polyester continue to increase the
overall demand, in line with historical rates and therefore the underlying
fundamentals for Polyester value chain remains attractive. The IVL business
model of global diversity, product diversity and integration creates meaningful
hedges against weakness in a particular region or segment as reflected in our
results (see margin analysis). The operating cash flow remains healthy and has
increased Year on Year as seen below. IVL compares on par with regional and
global peers in chemicals despite trough earnings in 2012.
Margin analysis
The graph below show industry margins historically (except Specialty margins
which are IVL actual) and IVL portfolio share as a percentage of its
consolidated capacity. The specialty segment has continued to grow in capacity,
revenue and margin per tonne and represents 14% share of capacity. The Western
hemisphere business has grown to 48% of capacity share with relatively stable
and premium margins. IVL continues to develop accretive business portfolios in
all its business segments to reduce the volatility typically associated with
Asian commodity business as well as focus on operational excellence to give
sustainable above average earnings across the cycle.
Source: Industry data, IVL analysis, "% of IVL" is % to IVL capacities, * 2%
Fibers & Yarns in NA is Commodity which is not included here
Exposure to premium segments + Geographic diversity in Revenue + Operating
excellence
(US$ MM) Specialty
West Commodity
Asia Commodity
IVL
Year 2012
Revenue 1,306 4,062 2,580 6,780
Adjusted EBITDA** 101 300 52 453
% Contribution 22% 66% 12%
Value Add (%)* 27% 20% 13% 22%
Year 2011
Revenue 585 3,809 2,801 6,102
Adjusted EBITDA** 53 295 213 561
% Contribution 9% 53% 38%
Value Add (%)* 20% 18% 18% 22%
Year 2010
Revenue 166 1,826 1,833 3,055
Adjusted EBITDA 14 167 254 435
% Contribution 3% 39% 58%
Value Add (%)* 21% 21% 26% 30%
*Value Add (%) = Delivered Delta/Sales, ** Adjusted EBITDA excludes non
operational expenses during flooding period in Lopburi
The indicators in green, yellow and red visually explain the state of these IVL
segments. The highlights from this table are;
? IVL businesses created the same Value add percentage in 2012 as in 2011
despite Asian margins falling off a cliff in 2012. This was achieved by the
addition of higher Value add businesses that blended well with our Polyester
chain business and offset the drop in Asian commodity Value add. The EBITDA
could not be totally protected as lower utilization rates, increases in manpower
cost, higher energy costs in Asia and stronger Asian currencies have resulted
in overall higher cost which are in the process of being optimized and therefore
our thrust is on operational excellence measures in 2012 and 2013 with
activities identified and either completed or in advanced stages of completion.
? IVL's Western hemisphere commodity business has significantly grown in the
last 2 years even in the face of very weak economic conditions. There is a
relative growth in absolute EBITDA reflecting the resilience in these markets
and the brand value of IVL. This segment is relatively stable as reflected in
the Value add percentage over the last 3 years.
? The Asian commodity segment has materially underperformed and has been hit by
a 'perfect storm'. At its peak in 2010 and first half of 2011, mostly driven by
the cotton shortage, this segment represented 26% Value add. In 2012 the value
add has dropped to a low 13%. The Asian region is also facing cost pressures and
a stronger currency that IVL has mitigated through substantial operating
excellence projects but requires further improvements in 2013 that have been
identified. China has been substantially debottlenecked to become our lowest
cost platform and the largest PET site in the world. The 300kt Polyester plant
in Indonesia will have the lowest cost and will cater to growing demand in
Indonesia as well as replace some export markets that were catered from
Thailand. The Thai assets are being restructured to cater to specialties that
better absorb the high costs in Thailand. The weak PTA environment in Asia will
take longer to balance out and IVL is currently focused on maximizing internal
sales and improving the cost structure to compete efficiently with the new crop
of plants.
Topline Growth
The charts below provide details of annual production volumes and US Dollar
sales, both regional and segment wise. IVL has continued to grow its market
share in each of its segments year on year. The strong diversified global
platform of scale assets and competitive market reach allows IVL to focus on
delivering premium value to stakeholders and in turn a sustainable business.
Scale has been leveraged in supply chain management and has resulted in above
average sustainable earnings. The global reach and our portfolio of specialty
and sustainable products have provided the platform for accretive growth Year on
Year.
Note: EMEA includes Europe, Middle East, Africa and rest of the world
Bottomline
The charts below provide details of the EBITDA for the preceding quarters. IVL
has continued to shape its mix of businesses and geographic diversity to enable
the company to achieve high level of sustainable earnings over the long-term.
Fundamentally the core margins in Asia for commodity PTA, PET and Polyester were
weaker QonQ in 2012 due to significant over build of capacity in an already
fragmented region. Although the demand grew in line with historical trend but
the excess build of new capacity in China was aggravated due to slow economic
activity and has put unprecedented pressure on margins. New producers chasing
reduced pipeline inventory of customers who were buying on need base only, in
anticipation of lower prices, significantly lowered margins to below cash costs
in H2 2012 for the Industry.
IVL has been alert to this situation since 2011 and has improved its cost
position and its overall inventory management and therefore releasing cash as
well as avoiding any mark to market losses at the expense of temporary lower
utilization rates. The company increased overall production by 20% in 2012
including timely addition of an EO/EG business and hygiene portfolio that has
led to EBITDA growth QonQ and a significant 166% growth in 4Q 2012 YonY.
Regionally, North America remained the top performer while Europe was slightly
weak in light of the continued economic slowdown that has engulfed most of South
Europe. Operational excellence measures at Spartanburg, a Brownfield PET
capacity addition at Rotterdam, acquisition of a global hygiene business as well
as the addition of the Oxide and Glycol business in North America, have
potentially offset the weak Polyester chain margins in Asia.
Outlook / Targets for management / Guidance for 2013
IVL's core end products are PET and Polyester fibers and specialty products
therein. We have an established supply chain and a strong financial profile. We
have global leadership in this segment.
Our end products are the most competitive alternative in their space with strong
growth due to the high performance and ample R&D potential to innovate PET and
Polyester to enhance end use. PET has the lowest effective cost in the packaging
sector, where as Polyester is the most affordable fiber with limited
competition from cotton due to its scarcity. Therefore growth in the Polyester
chain continues at high historical rates shows resilience. The structural
tightness in MEG and Paraxylene will limit over supply of PET and Polyester.
Current Asian margins are below cash cost and are not sustainable. The industry
will squeeze marginal producers in the Polyester value chain in all regions
leading to gradual recovery of margins through 2013 and beyond.
We believe that there is going to be a substantial rationalization of older,
non-strategic assets across Asia, Europe and North America. The buildup
(inclusive of IVL projects) of new, state of the art, competitive capacity in
all regions that is underway will force these rationalizations in PET, Polyester
and Film segments. IVL has already invested in upgrading its assets in all
regions and has reviewed and renewed its strategy going forward of "smart
growth" and "smart operations".
Management has reviewed the operations of 2012 and has established targets for
2013. The key drivers for 2013 are;
? Enhancing operating rates to 90% gradually and an average of 87% in 2013 from
84% in 2012.
? Completing ongoing growth projects on schedule and on budget.
? Delivering additional savings from operating excellence projects to the tune
of US$ 35 million.
? Address the loss making JV and seek an aggressive improvement plan
? Successfully complete EO/EG turnaround in March/April and optimize the
operations to benefit from the industry upside. Turnaround is planned to change
the Catalyst and will see lower production in the first half of 2013. After the
completion of turnaround in March/April, the efficiency and productivity will be
improved significantly benefitting from the high performing new catalyst
change. The lost production in the first half of 2013 will be recovered in the
second half.
? Fully leverage IVL's leading platform in Recycling and Innovation to grow
specialties at legacy assets in line with our 'fit for purpose' drive and
migrate our knowledge base and customer intimacy to emerging market assets of
IVL.
? Continue to monitor and improve working capital management and grow operating
cash flow.
Guidance 2013 2013 % change to 2012
Production (mm tonnes) ~6.0 +15%
Revenue (US$ bn) ~8.1 +19%
EBITDA (US$ mm) ~575* +27%
Capex (US$ mm) ~300 (78%)
* Based on management estimates including the strategic actions planned in 2013
and approved budget by the Board of Directors. (Please see 'Notes" on the next
page)
IVL business model of global diversity, product diversity and integration
creates meaningful hedges and as such delivers sustainable returns. Management
is focused on the consolidation of businesses acquired to bring about
significant gains from synergies and as well from new products by leveraging on
our industry leading innovation platform. We remain very optimistic about the
Polyester Value Chain and IVL leadership within this chain. We are
well-positioned to improve our cost structure and take significant advantage as
the global recovery takes place. Meanwhile, we are confident that our portfolio
will continue to deliver the lowest cost quartile results.
Notes
Starting from 2Q12 onward, we began looking at IVL business as three segments:
PET resins, Fibers & Yarns, and Feedstocks. The Feedstock segment comprises PTA
and Oxide & Glycols businesses, of which the majority constitutes key raw
materials for the other two downstream segments. In addition, there is no
allocation of PTA earnings to PET and Polyester segment (based on the proportion
of sales) in this quarter and its comparable period.
The consolidated financials are based upon the elimination of intra-company (or
intra-business segment) transactions. For this reason the total of each segment
may not tally with consolidated financials.
Certain comparative numbers for year 2011 have been restated based upon the
completion & finalization of fair value report in year 2012, for various
acquisitions done in year 2011. This is in line with the requirements under the
Thai Accounting GAAP.
Net profit after tax and minority includes exceptional items as below:
US$ in Millions THB in millions
2012 2011 2012 2011
Gain on a bargain purchase income 27 274 847 8,359
Acquisition related costs (12) (20) (387) (613)
Flood related and other extraordinary income/(expenses) 46 (50) 1,408 (1,534)
Extraordinary income/(expense) 61 204 1,868 6,212
Add: Minority share of Extraordinary income/(expense) 6 (7) 181 (211)
Reported Extraordinary items 67 197 2,049 6,001
Core EBITDA is after excluding inventory gains/losses from reported EBITDA.
Inventory gains/losses in a period result from the movement in prices of raw
materials and products from the end of the last reported period to the end of
the current reported period. The cost of sales is impacted by inventory
gains/losses wherein inventory gains decrease cost of sales and inventory losses
increase cost of sales.
Net operating debt is defined as Net debt (Total debt minus cash and cash under
management) minus the project spending for various expansions underway which are
not completed and have not yet started contributing to the earnings of IVL.
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.
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 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.
DATA ANNEXURES
Ongoing Major Projects under Implementation
Announced Project Location Segment Capacity Timeline
(tonnes per annum)
March'2011 Investment in continuous polymerization resin plant in
Indonesia Purwakarta, Indonesia Fibers & Yarns 300,000 2H13
The company's most dynamic polyester site is under construction in Indonesia.
Amongst lowest cost site in Fiber space and substantially improves cost profile
in Asia
April'2011 Debottleneck of PET Polymers production in
Poland Poland PET 61,000 2014
Better market reach and savings in conversion cost
May'2011 Brownfield expansion of PTA in Rotterdam, enhancing integration for PET
production in Europe Rotterdam, Netherlands PTA 250,000 2014
Better Integration and improves overall cost profile of the site and in EMEA
(more)