Good morning, everybody. This is Vikash Jalan. I'm Vice President at Indorama Ventures. Welcome all to our fourth quarter 2021 and full year 2021 financial results. Today, joining me, Mr. DK Agarwal, our CEO and Group CFO, to take us through the results. A quick disclaimer that this meeting is being recorded and a transcript and a recording of this event will be available after the meeting on our website.
We have made some forward-looking statements. There might be some slides which have some forward-looking statements. Of course, these are based on our views and facts at this point in time. We recently had our capital markets day on 10th of February 2022. Many of you had attended that event. If you could not make it, the recording is available on our website.
I encourage all of you to please go and have a look. It talks about our strategy and roadmap and our vision also up to 2030. With that, I would request to play a small video, and after that request Mr. Agarwal to take us through the presentation. Thank you.
Well, a very good day to our viewers. Today I'm joined by Mr. D.K. Agarwal, the CEO of IVL, and also more recently, the CFO as well. Very good day to you, sir.
Very good morning.
Well, let's kick off by talking about the full year 2021 result, which was a record, so it's an outstanding performance. Please take us through some of the key drivers of that result.
Well, Stuart, I'm very pleased with the results of 2021. This has been two years since pandemic. What really drives is the product resiliency which we have, the portfolio which we have. We touch the lives of the people. We serve them. This is not a discretionary expenditure, this is a necessity.
As the pandemic started, we never thought that the demand will be so stronger. I mean, 2021 resulted into a record year. Strong margins across all our product portfolio. The very good margins, even there is a supply chain disruption which we could not unlock full value. Crude oil was rising, which gives us an advantage. I think the management agility, which is the most important, because management was very reactive to the circumstances.
We are going for a reported EBITDA of $2 billion in a year of pandemic, and a core EBITDA of nearly $1.73 billion, and a net profit of THB 26 billion, which translates into earnings per share of THB 4.5. I'm very excited about my product portfolio. Similarly, the geographical distribution, you know, the footprint which we have is very important. As we sell to customers in different geographies, supply chain disruptions made it possible that we could serve our customers better in those regions.
We could price the product against their other alternatives which they have. Although we had a very strong headwind of energy cost, which nearly cost us $170 million in 2021. I think the countries have still not opened up fully. The lifestyle fibers didn't unlock their full value because main shopping street was not open. The crude has just started moving up, so a lot to come still.
You mentioned a lot of forces in there which were perhaps macroeconomic or outside of our control, but there are a lot of things that are within our control. For example, over the two years, we continue to pace with this vast suite of transformation projects. What kind of a role did they play in that result?
Absolutely. This we started in 2019, and we said people, platform, and systems are the key thing. We focused on people. We empowered the people to run their businesses. We put a very strong management information system where we can monitor their returns on a unit-wise. We drive the Project Olympus program to bring the Project Olympus means the excellence, operational excellence, the commercial excellence, Organize for Performance.
I'm very pleased to report that has gone deep-rooted in the organization. We talked about $600 million to be unlocked in 2023. Today, when we built our business plan for 2024, I'm very happy to know that we are talking of $640 million getting unlocked. It's a combination of good market conditions and improving the cost structure across the portfolio.
I think we need to remember that we bought a lot of legacy assets, and entire synergy benefit was not unlocked. This transformation in the systems is going great. We are rolling out the SAP S/4HANA. The release one has been already rolled out. Digitalization and all these enabling function will make us more smarter and more analytical decision-making, which will ultimately translate into the bottom line. Fantastic transformation which has gone through.
Mr. Agarwal, the record result, as good as it is a point in time.
Yeah.
That point in time has now passed, and we're already into 2022. What does that result signify for IVL's longer-term journey?
Absolutely. You know, when we made the acquisitions, we became the largest player of Combined PET. We went into shale gas. We bought many fiber units. The key focus was that creating a product portfolio, which is the daily lives of people, which, you know, grows in multiple of GDP.
That was very important, that it grows in addition to the GDP. We have the right cost structure. This last two years has given us such a strong confidence to us in our business model, which we have built across, the talent which we have. I have no doubt that going forward, more values will get unlocked. As you know, the world is ever-changing, and we will roll out different products if we have, and innovation will be another area.
Oxiteno is a fantastic acquisition in this case, because this gives us a footprint in Brazil, access to the bio-feedstock, a very interesting market. We expect to close by 31st March of this deal, and that rolls out into our profitability. I think our portfolio is very good in the business and there will be, of course, opportunities of bolt-on acquisitions.
Let's bring it back into the near term a little bit. You mentioned some of the key drivers of the record results in our first question. How many of those are already evident in the first couple of months of 2022? What do you see the short-term outlook for this financial year?
Very good. In 2021, we could not unlock the entire value. Few reasons. You know, we have a big presence in the Western market. The Western market contracts were locked in 2020 for 2021, where the supply chain disruption did not start. In 2022, now we have significant margin improvement in the Combined PET as we have reset the contracts.
As I'm sitting with you at the end of February, we have a good visibility of the first quarter. I think 2022 will have a significant improvement in the profitability versus 2021. Remember that as we are going into 2022, the supply chain disruption still continues, as likely to continue for the whole year. The product is short, particularly in the PET segment. You look at the crude oil. Crude oil is nearly $100 a barrel.
Now, what does it mean for IVL? We have a shale gas play. We basically price our product based on the oil alternative while we have ethane as a feedstock, and that becomes an arbitrage between gas and oil. Lake Charles, I think we had a substantial delay in the Lake Charles, so which is now running at 70% capacity. The value of Lake Charles profitability will get unlocked in 2022. You have Oxiteno, nine months operations coming from 1st April, which is running at $200 million EBITDA run rate for the year.
You add up three months, nine months of Oxiteno, fantastic improved profitability in combined PET and Lake Charles and overall market sentiments. The world is opening up with all the vaccinations rolled out. 2022 will be a very exciting year. I think first quarter will be a fantastic quarter for us, as there's a clear visibility on the first quarter results.
Well, Mr. Agarwal, you've clearly had a very good 2021. Congratulations to you, sir. Here's all the best for a very good 2022. Thank you for joining us here today.
Thank you very much.
Thank you for attending the fourth quarter 2021 and the full year 2021. I'm very happy to report that IVL has achieved a record EBITDA of nearly $1.98 billion and a core EBITDA of $1.74 billion in 2021. As you saw, this is a substantial growth year-on-year for both reported and core basis. Reported EBITDA grew 111% and core EBITDA grew 55%. As I mentioned in the recorded video, thanks to the volume growth of 5% and higher spreads in all of our businesses. However, higher energy and acetic acid cost, along with the lag losses in the higher raw material prices in our Hygiene Fibers business, verticals negatively impacted the performance.
If you look at reported net profit for the year in terms of Thai baht was THB 26.3 billion and core net profit, as you know, we exclude the inventory gain loss when we look at the core net profit, was THB 21.9 billion. Both were significantly higher over the last year. The company achieved a reported EPS of THB 4.55 per share and core EPS of 3.76 for the year 2021. Core return on capital employed was 12% for the full year. Looking at the fourth quarter especially, company achieved a reported EBITDA of $471 million and a core EBITDA of $462 million, both higher quarter-on-quarter and year-on-year. Fourth quarter 2021 particularly saw higher energy prices.
As you know, in fourth quarter, energy prices were very high, which we were able to mitigate with a strong business performance and partially pass on to our customers. As mentioned earlier, 2021 benefited from strong demand across all our product portfolio, higher polyester value chain margin due to market tightness from supply chain disruptions. Rising crude oil resulted in a return of shale gas advantage, leading to significant improvement in IOD segment performance. As you know, the crude has started going up and it's above $100 a barrel, so 2022 will have much more advantage. Company also experienced a lot of headwinds during the year, including the polar vortex during first quarter 2021 and record high energy costs. This high energy costs led to additional costs of $119 million in 2021 versus 2020.
As I talked about Project Olympus, that delivered $291 million. During the year, we identified much more internal projects and have increased the ambition in excess of $650 million in recurring EBITDA uplift by 2024, as shown to you during our Capital Markets Day. A very important discipline, capital allocation, reduced our leverage by 20 basis points during the year with reduction in debt. Increase in retained earnings in our equities. That was the 2021 key takeaways. Let's move to the next slide. Well, 2020 was an interesting year as we talked. We saw a lot of tailwinds supporting our businesses and also faced headwinds which capped our full potential performance of the business. Let us talk about tailwinds first.
We saw spread recovered to pre-pandemic level across businesses because of very strong demand and supply chain disturbances. Robust demand fueled by economic recovery. High freight, container freights, driving up import parity and IVL margins in the Western markets for the spot business only, portions only. As I mentioned, the contracts are still unlocked in 2022. The Project Olympus delivered marginally better than our budgets. One of the most strategic development we saw on our customer engagement, customer preference for IVL improved due to our local footprints and growth ESG and sustainability aspirations. We had significant headwinds. COVID was there. The entire demand for PET wasn't there. We had a very strong headwind of high energy costs in Europe and Asia, which negatively impacted our performance.
We spent $190 million higher energy costs in 2021 over 2020. In the fourth quarter itself, this impact was $106 million. That's why you can see that fourth quarter, in spite of higher margin, was got impacted. Surge in prices of chemicals and additives, especially acetic acid, because of the disruption in the supply chain, costed us $70 million over 2020. Natural calamities like polar vortex and unplanned outage impacted volumes, loss of 5%. Slow recovery of auto sector, as we have been talking, driven by semiconductor shortage, impacted our airbag yarn OEM business in the mobility fiber while the replacement fiber remained strong. Inflation in developed market led to increase in overhead and fixed costs.
Inflation has certainly kicked in, and we paid higher costs for employee costs, and we also factored in 2022 for this. Let's move to the next slide. I think this is the most important slide when we talk of the resiliency of the portfolio, and which I talked in the video. Resiliency of IVL business were tested very well in last two years of pandemic. When pandemic started, IVL's strategy of global manufacturing footprint, integration of key raw materials and end products serving daily necessities in hygiene, health and safety applications are well appreciated by our customer. This is clearly visible in our volume, which grew year-on-year in 2020, and then again in 2021. You saw no relationship with GDP. GDP was negative in 2020, our growth was positive.
61% of our revenue come from food and beverage packaging application, which continue to grow around 3%-4% per annum, our money-spinning PET business. Next big segment was home, personal care and hygiene space, where our revenue were 12% and saw a spike in sustained growth around 3% per annum. Our new growth engine, surfactant business, serves this segment, as you know. Actually, as you know, the agriculture economy is also pretty strong where the surfactants go. With rebound of oil, again, the surfactant demands for oil application is going up. Oxiteno acquisition is very timely addition to this segment of application and shall bring more strength to our product offering.
Around 20% of our revenue that goes into automotive, apparel, oil and gas, and housing and construction were impacted negatively in 2020 due to the emergence of COVID and panic created by it. I'm happy to inform that all these segments have shown a V-type recovery and have returned back to the pre-pandemic level. This shows you the resiliency of the portfolio. Next slide, please. 2021 was also a year of creating new milestone for our platform, people and processes or system. Our platform got stronger with the acquisition of CarbonLite recycling assets in the USA and Oxiteno acquisition in America. Oxiteno deal is near to the completion, and we expect the closing of the transaction by the end of March 2022.
The second important dimension, Project Olympus, our company-wide, business-wide, geographical-wide, highly diversified and bottom-up transformation project led to a cultural change in the company. Every site and senior managers are now the project owners under the Project Olympus to extract efficiency gain and meet the targets set by the company. Our balance sheet improved with deleveraging by 20 basis points. After we announced the acquisition of Oxiteno deal, we had our meeting with our trust local agencies and appreciated with upgrade on our rating from A with a stable outlook. IVL is recognized for leading the industry's sustainability drive, and we continue to expand our leadership position through substantial investment into sustainability and circularity. As you know, the highlights of 2021 were launch of Deja carbon neutral PET, first time in the industry. Dallas acquisition of recycling assets. Green field recycling assets in Indonesia.
Formation of decarbonization SOP and introduction of internal carbon price. We were also recognized and awarded platinum medal for EcoVadis sustainability assessments as highest award, ranking IVL in the top 1% of the companies assessed worldwide. I think the journey continues, and you saw the number of achievements in 2021. Let's move to the next slide. This talks about Project Olympus a little bit. You know, we rolled out in 2019. Project Olympus delivered in last two years have reinforced the confidence of our management and motivated them to dig even deeper and find internal projects for higher efficiency gains. Efficiency gains are built up in the KPIs of the managers, where they are motivated and rewarded on a successful delivery.
The beauty of the transformation project is it spans diversity across businesses, geographies, and functions with over 2,400 internal projects or initiatives. We expect to touch the milestone of $500 million run rate efficiency gain in year 2022. Our new SAP S/4HANA rollout, as I mentioned in the recorded video, completed and will enable our managers to use system and make meaningful benchmarks to extract value from our 124 operating sites globally. We are operating on many different IT systems. SAP S/4HANA will unlock this value of synergy. Next slide. Next slide, please. Well, our Chief Sustainability Officer, Yash, has been working very hard on this ambition of sustainability. There are five core strategies.
Our operational eco-efficiencies and reduce scope one emissions, upgrading inefficiencies in our existing sites and expect a payback of five years on such investments. Enhancing renewable energy consumption and reduce scope two emissions. This is through on-site ownership and power purchase agreements. Coal phase out strategy, and then switching to natural gas or carbon biomass. Carbon capture utilization and storage. We shall work with industrial hubs to use pipelines to store carbon that we shall capture. We're also looking at a project if we can convert into a value-added product like ethylene carbonate in the United States. Green hydrogen. In Portugal, we are working for a project through subsidy although it is a very small project, through partnership and available subsidy. That makes us confident for our target for 2025 as well as the 2030 vision rollout, which we did. Next slide.
Our journey of recycling continues. The company is confident in achieving its 2025 target of bale input of 750,000 tons. We expect that we shall be able to meet this target comfortably. You know that we announced in our capital market day, doubling that capacity. We recently added another milestone by partnering with French company, Carbios, to set up a bio-enzymatic decomposable recycling facility. Here depolymerized by enzymatic reaction. It is going to be one of a kind project and supported by the French government with subsidies for setting up this facility. It will open up new avenues for IVL in addition to the mechanical recycling, where you're gonna see 600,000 tons is committed. IVL added nine new sites in the last two years despite pandemic. This shows our resiliency and commitment to the pledge we made to the Ellen MacArthur Foundation.
All brand owners are supporting this initiative, and we are excited for the growth that the business continues to offer for future in profitable manner. We are still not unlocked the value in terms of return, and you will see that this will roll up in the future years. Thanks. Well, this is an important slide. We continue to invest in people and systems with sustainable growth mindset. It cuts across all strategy, deployment, tools and practices, people and culture. We are working to set up organizations that can independently drive the functions and businesses under the culture and value for IVL. These leaders are empowered, motivated, and incentivized to work towards our vision to our 2030, which we published our capital market day on 10 February 2022.
As you might have noticed that the board has recently approved an ESOP scheme to keep a long-term engagement and LTI scheme. Next please. Now let's go to the 2021 business and financial results. If we can go to the next slide, please. The total volume is 14.8 million tons, a growth of 5%. Revenue is up by 38% to $14.6 billion. As you know, revenue is linked to the crude oil prices. The core EBITDA went up to $1.743 billion, 55% year-on-year. Reported EBITDA close to $2 billion, 111%, and if you see in Thai baht terms is THB 63.4 billion. Our core EPS THB 3.76 per share.
THB 2.48 greater year-on-year, and reported EPS of THB 4.55. The growth, as I mentioned in reported EBITDA, was driven by improved core performance and higher inventory gains, however, got negatively impacted by higher energy costs of $190 million. Next slide, please. If you look at the fourth quarter, specifically, fourth quarter result was another testimony for the underlying strength of our business. As you know, fourth quarter is normally weak. Revenue grew 46%, sales volume grew 33%, and core EBITDA grew 72%, and core EPS grew to 61 satang year on year. Reported EBITDA grew 81% to $471 million. Quarterly particularly saw excellent performance in our joint ventures in India and Egypt. You know you have to reduce the minority part when you take the net EPS.
However, please note that the fourth quarter was particularly impacted with high energy cost of $106 million, as I mentioned, over the average price of last year, 2020. I'm very pleased with the fourth quarter 2021 results, which shows very strong margins in spite of a very strong headwind of energy cost. Let's move to the next slide, please. This is an important slide to show you the volume growth, how sequentially 2020, 2021, 2022, and which shows the resiliency of our product portfolio. We have seen all around growth in 2021 in our sales volume in all of our three segments and three continents of Asia, Europe, and Americas. We see this growth trend continues since 2020, as well in all three segments, as well as all three continents.
We have given you some ideas of volume growth of 12% from 14.8 million- 16.6 million. In Combined PET, strong volume in 2021 are underpinned by robust demand across the portfolio, good progress on asset Full Potential project and reliability issues. You know, last year we had this Brazil fire incident under Project Olympus and some growth from normalization of COVID impact. In IOD segment, volume upside from IVOL startup, the Lake Charles startup. More ethylene will be available for captive consumption. Normalization of natural calamities like polar vortex and nine months performance of Oxiteno is expected to be captured once we complete the deal by end of March 2022. In Fiber segments, uplift comes from the investment coming on stream and Full Potential plant benefit under the Project Olympus.
Our first quarter of 2022 is already showing strong quarter-on-quarter on volumes as well as margin. We are very excited by the stronger business outlook of 2022, first quarter is expected to show good growth, which will further improve with the consolidation of Oxiteno performance, starting from second quarter once we complete the deal by end of March. That slide shows you the expected volume growth in 2022. Next slide, please. Now let's deep dive into the results. All three segments delivered a strong performance in 2021 and led to record results with core EBITDA of $1.743 billion, as well as a record production of 14.7 million tons. Strong demand across our broad product portfolio. Higher polyester chain margin due to market tightness from supply chain disruption.
You know, that's what resulted into improved profitability. Rising crude oil resulted in a return of shale gas advantage, leading to significantly improved IOD performance. As you can see how the IOD has resulted in $377 million EBITDA. Higher energy cost impacted us $106 million in fourth quarter, year-on-year, and $58 million quarter-on-quarter, if you look at the energy impact. The Project Olympus delivered $291 million efficiency gain during 2021. This shows you what has been our consolidated results of IVL in core EBITDA terms. If you go to the next slide, which talks about reported EBITDA. If you look at the results on reported basis, we even see better performance because we had the inventory gain.
Naturally, inventory gain will come up as the crude oil has started moving up. 2021 delivered record results with reported EBITDA of $1.982 billion. We expect further inventory gain in 2022, as I mentioned, because of rising crude oil prices. However, if you see operating cash flow got impacted due to nearly $848 million deployment in working capital with high prices and volumes, however, partially recovered from inventory gains. That's why you see the operating cash flow being lower. Year 2022, as I mentioned, is expected to be even more stronger year with higher volumes and robust margin.
We shall be able to fully capture the benefit from reset of integrated PET contracts, as I mentioned, in the West at higher spreads, which is already concluded, most of them, and you will see that coming results in the first quarter. IVOL cracker is running since November 2021 and contribute in 2022 for the first full year. Oxiteno consolidation is expected to start from April 2022, once we complete the deal by end of March. That you can say that what 2022 will translate into. Let's move to the next slide. Now let's look at the Combined PET, which is the most important business for us, where the core EBITDA improved from $794 million- $1.1 billion, 39% year-on-year growth. Well, very strong margins in the PET.
Low pipeline inventory and supply chain disruption helped improve performance. Production disruption in Brazil and lower fixed contracts of 2021, as I said, were earlier set in 2020, capped the performance. Now this value will get unlocked in 2022 as the new contracts kicks in. However, this is now regularized, and 2022 is expected to benefit from this resetting of the contract. Fourth quarter 2021, as you can see, experienced headwinds from higher energy cost of $74 million versus fourth quarter 2020 and $41 million versus third quarter 2021. These results are in spite of the high energy cost which we suffered of $41 million in the fourth quarter.
Specialty chemical performance, as you can see there, improved the performance from $71 million to $123 million for the full year with better PIA margins and also to in the specialty polymer. In terms of Olympus, it delivered $83 million Olympus efficiency gain. The EBITDA per ton, which is one of very important yardstick for us, improved from $78 per ton to $103 per ton. Very strong result in Combined PET. Let's go to the next slide. This slide we showed you in the capital market day. We wanted to emphasize what is the ideal geographical model results and versus the benchmark.
Ideal spreads are higher than Asian industry benchmarks due to our global footprint and integration into key feedstock, PTA, puts us in advanced geographies. This helps us to operate more reliably and sustainably over others. You can see that in 2022, we expect these margins to further improve, the spreads to further improve. Our Western portfolio below, if you see, constitutes nearly 76% in terms of Western EBITDA as a share of the total EBITDA, while the volume is 63%. Nearly our Western market constitutes two-thirds of the business, and this part of the business will benefit more in 2022 with reset of the contract. Just wanted to re-emphasize on this slide that what Combined PET profitability results from this higher premium which our management's agility translates into the bottom line. Thanks.
You people always have a question, what is likely to do in 2022? We expect volume from 10.7-12 million tons because of certain debottlenecking, better reliability. Brazil's fire. Brazil's insurance claim is not counted yet, so that will be counted in cash basis. We expect core return on capital to improve from 19.1%. I can't give you the exact numbers, but the arrow can tell you that what is the direction into this. The recycle PET on the right on the top, if you see, recycle will start contributing. It marginally contributed in 2021. We are seeing recycled PET at very higher prices versus the virgin prices. All that will translate with better reliability into a better profitability.
This gives you directionally what 2022 will result in the combined PET, a very strong vertical for IVL. Next, please. Now let's go into IOD business. All three verticals of IOD improved. As you can see, we improved from $115 million- $377 million, which is 228% year-on-year growth. 2020 was not a great year at all because of very low crude oil prices, lot of loss of production due to natural events. It is the first year we are able to show you the strength of Huntsman acquisition in as 2020 was impacted by many external factors, including Covid-led collapse of crude oil prices eroding the shale gas advantage. Upstream benefited. Now, as you can see, moved from $30 million- $99 million, which is basically ethylene earning.
Could not capture full value as IVOL was offline and started in November 2021. Now, with IVOL already started and running at 75%, as I mentioned, that will help into the future earning. MTBE marginally improved with demand recovery, however, was capped and negative by high butane prices. What we suffered was high butane prices in MTBE. This spread is improving now in our capital market day budget presented on February 10. The most encouraging, as you can see, the downstream improved from $172 million- $319 million. You can see in the fourth quarter also, we delivered $98 million EBITDA. Continues to show strength, which is linear alkyl benzene, purified EO, ethylamines, and propylene glycol and all the downstream stuff, surfactants.
Oxiteno will add further to our downstream portfolio in 2022 with new product in green chemistry. Oxiteno has a very strong innovation pipeline and will unlock the synergy once this acquisition is completed. ROCE of this segment improved to 7%. Still not to the double digit as we are targeting, but if you look at fourth quarter, we are at 11%, and our target is to further improve this return on capital employed in IOD business. Next, please. This is just an important slide which gives you the shale gas advantage. With high crude on the left-hand side, you see this is the difference between the integrated margin between shale gas. You know, it's MEG spot minus ethane versus MEG spot minus naphtha. So as the crude oil goes up, this advantage keeps going up.
As you know now, the crude is further improving. Although the MEG margin over naphtha is not great because of the present oversupply situation. This is because of the advantage which we have because of shale gas. On the right-hand side, you see the MTBE margin. I just wanted to show you here in January, February, as the crude oil is moving up. I want to remind here that in the first quarter, because in the winter weather, the butane prices are still high because that is blended in the gasoline in United States. You can see a significant improvement in the MTBE margin, and that will certainly help us in the first quarter results and coming into the second quarter results. There, I mean, 2019 average was $358 per ton.
As we go second quarter, when the butane prices are further likely to come down, they are backwardated, we will see the benefit in MTBE and the demand continues to remain strong. Let's move to the next slide. What does it give me an idea of what looks like 2022. We will have a volume of 3 million tons versus 2.2. Of course, Oxiteno's nine months volume. No polar vortex and the reliability issue, and then you have Lake Charles benefit, which will come. Certainly, we'll have a benefit of MTBE spreads as we just talked about it, and MEG spreads, and downstream portfolio remains as strong as we talked. The demand across ag chemicals, oleo chemicals, surfactants, all remains very strong. Hygiene, I mean, the home and personal care is strong.
All this directionally, the return on capital employed should continue to improve, with of course, net capital employed will go up as you know, because of the Oxiteno acquisition. This just gives you a directionally what we look at 2022. Next slide. Now, let's look at fibers. Fibers improved from $195 million- $268 million, 37% year-on-year. Lifestyle volume increased as a result of improved domestic demand in markets such as India and Brazil, partially offset by the negative impact of high price freight rates on Asian exports. You know, here it works negatively because we export from Asia, but sequentially, you can see we made $38 million in fourth quarter versus $23 million in third quarter in the Lifestyle. Mobility demand for OEM market remains weak as shortage of semiconductors continues.
That basically got largely offset by the resilient replacement tire markets. You know, people are selling their second-hand cars, which are now commanding premium by changing the tires, so you know, the replacement tires is pretty strong. Of course, Hygiene, a lot of capacity got ordered and added, found a new normal in 2021, maintaining above pre-pandemic level. This was negatively impacted by lag loss of $35 million in 2021. That's why you see, you didn't see the strong result in Hygiene. Now we are recovering this lag loss. I'm very happy that the transformation plan is running very well, and Olympus delivered $130 million efficiency gain in 2021. We are at nearly 5% return on capital employed in 2021. The fourth quarter is 7% return on capital employed. Next slide, please.
Well, what does it look like directionally? Volume, we expect about 2 million tons. Lifestyle to benefit with improved demand, especially from consumption in emerging markets. Indian market is opening up, Indonesia, Thailand. Mobility, we are still not expecting that OEM demand should come back strongly because semiconductor shortage is there, but replacement tire demand continues to be strong. Hygiene found a new normal for the peak of 2020. Demand remains steady. We have, you know, the two key investments, Russian expansion, Indian expansion, as well as the expansion which we did in United States will unlock full value in 2021. We continue to work on our FPP, which is expected to deliver more and more value. That's why we think return on capital employed will continue to improve in the fiber business. Next slide, please.
These are some of the financials, what has happened. As I mentioned, our credit profile improved in 2021 by rating agencies, upgraded. Underlying cash flow generation, as you can see, the operating cash flow was only $1 billion versus 1.743 of core EBITDA. As I mentioned, $848 million was sucked by working capital due to high absolute prices and slightly higher number of days more. Because we wanted to make sure that we produce more, and so some days got blocked into the supply chain. Use of funds, debt equity, paid down sufficient debt to achieve net debt to equity of 1.2. We have a very strong liquidity of $2 billion in the form of cash and cash under management and unutilized credit lines.
I mean, we can take $125-$150 a barrel, doesn't bother us. Higher crude oil always benefits us. As you can see, our current tax rate was 9% in 2021. We expect this to be around 12%-13% with improved profitability. Our enabling functions, the risk management in today's world of volatility is very, very important, and I'm very proud of our team that they hedge very well. It is further strengthened with a dedicated organization on BCM. While foreign exchange hedging or we talk about the commodity hedge, everything is quite strong. Next slide, please. This shows you how the cash flow got deployed. You had a reported EBITDA of $2 billion. $800 million got sucked into net working capital, as we mentioned.
Cash tax consumed $100 million, leaving operating cash flow $1.1 billion. Now you will don't see that money getting sucked into net working capital so much, as it factored into a lot of increase in the prices. Maintenance CapEx, steady at $400 million. Finance cost, as you saw, $200 million. Cash before growth CapEx was $400 million. We made $500 million in the strategic investments in recycling, greenfield expansions and also CapEx related to Project Olympus. Net debt equity reduced from 1.4 to 1.2. We had a net debt reduction of $200 million. Dividends of $200 million have been recommended in totality, which follows 30% policy.
We have enough liquidity in the systems of $2 billion under the unutilized line and for war chest against any volatility in the business conditions. That shows you the cash flow, how it looked like. Next. I think this slide we showed you after acquisition of Oxiteno, we'll reach a net debt to equity of 1.4. You can see that from fourth quarter 2020, 1.4 reduced to 1.2. We are keeping a very strong discipline as the operating cash flow gets thrown off. Fourth quarter 2022 ending, we are expecting net debt to equity to be 1.1. In 2022, we'll pay $1.15 billion for Oxiteno. $150 million is in deferred payment.
Company strongly deleverages with the cash flows of 2023 and 2024. A very strong capital discipline is being maintained by us. Next slide. What does it translate into Combined PET? We are talking of 17 million ton production versus 14.7. Better reliability, expansions and Lake Charles, Oxiteno, all these things. All that should translate into a better EBITDA than 1.7. We can't give you the exact numbers, but you can calculate yourself. Olympus initiatives, we are looking at run rate of $500 million. Our return on capital employed, we're targeting about 15%-16% of a significant improvement over 2021. Of course, this will be depending on how the crude oil prices moves up in the future.
higher the crude oil, better is the performance, but also increase in the capital employed in terms of working capital. This is pretty same in 2024, what we presented you in the capital market day. Next slide. Just to summarize on 2022 outlook. Next slide, please. Combined PET, well, healthy demand across markets, low inventories, supply chain disruption continues. We have reset our 2022 contracts for PTA and PET both, and it's expected to capture the full benefit of higher freight rates. Of course, we price the product based on import parity, and that will translate into strong results for Combined PET. IOD, our business plan assumes $75 a barrel. We are today at $100 Ukraine-Russia crisis. Brent prices to remain high throughout the year. IOD will benefit from shale gas advantage in MTBE and MEG, as I talked to you.
MTBE is strongly recovering from improved demand and butane prices is getting normalized. I think the turning point will be strong second quarter when the butane goes down. Downstream portfolio, because of alcohols, will benefit from robust demand. LAB, very strong, world capacity utilization. Ethylene margins, strong demand, when you talk of propylene oxides, propylene glycol, and surfactants. Downstream portfolio will benefit from robust demand and Oxiteno integration. In the fibers, lifestyle will continue to benefit with demand growth, and particularly in India and consumption in emerging markets. On the OEM markets, as I said, semiconductor shortage will likely to continue, so the cars. Then eventually when it resolves, we'll see a strong demand for airbag. Replacement tires is great. Hygiene fibers find a new normal, and we continue to focus on Project Olympus program.
Thank you very much for a patient hearing. Now we can take your questions. Just emphasizing our purpose statement, which we rolled out, reimagining chemistry together to create a better world for our customers. Thank you very much.
Thank you, Mr. Agarwal. I can see some hands are raised. Can you please unmute and ask your question, please? Thank you.
Hi, Vikash. Can you hear me?
Yes, we can hear you, Komsun . Please go ahead with your question.
Okay. Thank you for the presentation. I have two question for Mr. DK . First off, what is the utility as a percentage of the cash conversion cost of PET and PDO? You can, you know, lump it together as integrated PET. Secondly, you showed us the split between West and East in terms of volume and EBITDA. What exactly the Europe units accounted for that? Europe is the one who get hit the most from the highest energy cost, while I don't think that Brazil or U.S. will suffer that much. The third question is in terms of the CPET EBITDA, you mentioned about the higher energy cost, which is 41% quarter-on-quarter.
Can you give us some color in terms of how much the surcharge was put in place in fourth quarter and what sort of an increase in acetic acid cost? Follow-up question with that question is, will the new spread be able to offset the higher energy cost in Q1? Another question on the MEG group is that you also mentioned 58% energy increase quarter-over-quarter for the whole group, and 41% of that was CPET. Is the rest going into IOD? For the MEG group, EBITDA doesn't improve that much even if you're excluding the IVOL. You continue to see the benefit of a high crude price towards the MEG unit, particularly that ExxonMobil SABIC just add 1.3 million tons of MEG capacity in Texas this month. Thank you.
Thank you for the question. A number of questions. Let me address one by one. Vikash, can you bring the slide on the energy cost? I think what we have built up in our business plan of 2022 is additional cost of $165 million over 2021. We were very conservative in our forecasting because we thought that energy prices will remain high. This is just to give you. This is 2021 versus 2020, $190 million. Additional cost budgeted in the capital market day is $195 million. This is $385 million, which I just showed you earlier in that page, right? Now on the left-hand side shows the TTF curve and the Brent forward curve. You will see that fourth quarter was the peak.
You know, fourth quarter we recovered practically everything from surcharges, a significant portion of it. In 2022, of course, the margins have been reset, and some of our contracts has an energy component into it, particularly in the tire cord. Plus, it is across Europe. We have put in our margin calculation that what is the energy price difference as compared to what we get. There is enough built up. As soon as the Ukraine crisis started, the Russia-Ukraine crisis, the TTF went up, and then it dropped 25%-30%. Actually today, as we stand, we are more or less as per our business plan. We don't see unless there is a big disturbance in the marketplace on the energy side. Please...
I just want to complete this question on this slide because some people may have a question on Russia-Ukraine. On the right-hand side, you can see that our revenue exposure in Russia is only 0.5% and 0.9%. Even the sanctions, if they come in, it's not going to impact us anyway, because we buy the raw materials from SIBUR locally, and even the exports from Russia is very, very small. If the crude goes up, which is going up actually, as you can see. On the top you can see that $10 a barrel actually gives us a positive benefit of $60 million-$65 million. Why? I will address your MEG question separately. Shale gas advantage in MEG because it is ethane versus naphtha play. Higher is the oil, higher is naphtha.
Ethane is not likely to catch up with that. MTBE, because you're using butane and methanol. Duty advantage in PET in Europe and Americas, because, you know, higher is the prices of PET, the import parity goes up and there are other benefits. High crude oil is always a benefit for us. Now, coming to your, Vikash, can you go to the MEG part, MEG, IOD? You're very right that MEG margins over naphtha are not great. Integrated margin over naphtha is one of the lowest today. It's nearly $200 per ton. But this is the advantage of the shale gas versus this one. If you take MTBE, MEG margins over naphtha, they are very, very poor. I don't know whether you have a graph. Vikash, do you have a graph of MEG integrated naphtha margin, if you can show?
Yes.
You're right, SABIC has started the new plant, but Shell is still at FM. Coal as base MEG is quite expensive. I think MEG margins over naphtha are not good, and with the polyester growth coming up, we think they are at the worst point at present. That was about your MEG demand supply. This gives you the MEG situation. You can see the third graph. The blue line shows North America integrated margin and the green line, you can see Asia. Asia margins is just going below. Today it is not worth producing MEG. It's better to produce polyolefin, and many people are allocating their molecule to polyolefin rather than MEG. You can see historically, this is the worst.
The gap between the two is the advantage of shale gas, and that's where we will see the benefit coming in. Now, your other concern was about the energy prices, the utility of cash conversion cost, on an integrated basis. As an integrated conversion cost portion is about 30%. Actually in Europe, we have built up, as I mentioned to you, a very significant increase in our business plan. Unless there is a big issue in Europe. Vikash, can you go to that Russian slide that how the Russia oil gas is supplied, which will help if you can bring to that slide. Well, this is an important slide. There are three pipelines which serve Russia gas, you know, and you can see the Russian...
Overall Russian pipeline were limited throughout 2021, and the remaining was only 30%. In the sanctions, energy is not included. In January, Europe has imported a significant quantity of LNG from different parts, and they are considering a contingency plan from Algeria, Qatar, U.S. and Australia. We don't believe that Russia will cut off. Good news yesterday was that we saw there's going to be a meeting between Russians and Ukrainians in Belarus. Well, we're not counting anything on it. Just small story, long story short, our business plan has built in quite a significant cost based on the fourth quarter. Even if it goes more than that, then there may be a $40 million-$50 million impact maximum if they skyrocket to numbers of fourth quarter or beyond that.
We don't believe that's gonna happen. I think I answer your most of the questions if I'm not wrong. Did I answer everything? Here you are seeing, just to clarify here one more point, Komsun, that we show cracker profitability separately and MEG and intermediates, what you see, -$41 here, which has improved from -$87, is based out on transfer price of ethylene or bought out ethylene. This is a negative EBITDA. You can see from $30-$99 improvement is mostly cracker. This will significantly improve with IVOL. Then you have $319, which is coming from downstream. This is a pro forma which we wanted to show you, IOD plus Oxiteno, that how does it look like if we add Oxiteno's results in 2021 versus our results and $583 million.
Of course, as we mentioned, IOD will continuously improve in MTBE, intermediates and also better operating rate. Komsun, any other questions if you have? Otherwise, I hope I answered all of your questions.
That's all I have. Thank you.
Thank you.
Thank you, Komsun. Mayank from Morgan Stanley, can you please ask your question?
Thanks, Vikash. Thanks, DK, sir. Two questions, sir, from my end. One was in terms of if I kind of look back to what 2021 started and what the guidance was, correct, on the net debt side. You talked about around $600 million of reduction in debt. Obviously, things have moved quite a bit around commodity prices, et cetera. If I look at, I think, the bridge that you were showing us, that, if it was not for the acquisitions, you could have actually kind of hit your target of $600 million reduction in net debt rather than the $200 million you're ending in 2021.
Is there a thinking process now that this new bridge that you have shown in net debt to equity reduction, will that be met despite moves around commodity markets, or you think there could be some downside risk to these numbers on debt reduction?
Okay. Mayank, good question. I think you saw that we had $200 million reduction in the debt, but we made $500 million on the strategic acquisitions. If you add up, then it becomes $700 million. And that's what would have happened. You know, $800 million got sucked into the working capital because of the increased prices and increased number of days, but particularly because of supply chain issues. You know, we wanted like Egypt and all that, we put PTA in the pipeline. That was the reason. Coming to your question, whether we have any risk of, as you know, our equity portion is quite significantly increasing with the retained earnings. I don't think.
The needle won't move much with what we are projecting at $1.2, unless the crude goes up to $150 a barrel and I have to put $400 million-$500 million more into working capital. I don't think this needle will move much from $1.1, what we are forecasting here, but it is assuming a $75 a barrel. I mean, it may be $1.15, but our results, I mean, if crude is higher, our profitability can be better. I think we are very confident that we should be able to achieve this results of $1.1.
Just a follow-up, sir. How much is the absolute reduction in net debt are we talking about for 2022 now?
Vikash, you want to answer that?
Yeah, I'm sure. Well, Mayank, in 2021, we were targeting around $400 million. In 2022, if I give you the absolute reduction, because there would be a cash flow creation and then, the Oxiteno and all that. Just give me a minute.
He's asking absolute reduction, yeah?
Yeah, yeah, absolute reduction. Our net debt is going to be, as per the business plan we have. At the end of 2021, our net debt was $6.2 billion. In 2022, it is expected to be around minus just
Plus it-
Debt will increase, Mayank, because we are going to pay $1.1 billion for the Oxiteno acquisition, and then there would be interest payments, dividend payments, and certain CapEx that we have on the Olympus. Net debt absolute will go up, and absolute equity will also go up, and net debt to equity will come down.
I think, Mayank, don't think like that because $1.1 billion we are paying, we are also doing the strategic investments for expansions and all that. Maybe the free cash flow may not be positive, but still the net equity goes down because equity builds up. Our policy of dividend is still remains low, you know.
Okay. Definitely it will not be a big increase in net debt numbers in absolute terms for 2022. Is that fair?
Oh, absolutely. This is the reason, you know, there were a lot of speculation whether we need a fresh equity and all that. That's all behind us. You're absolutely right on that.
Okay. Sir, the second question was more related to the corporate governance issues around the announcement that you have made on insider trading. Can you just give us a bit of a background of what has happened, and can you just tell us on what are the steps, stringent steps, if any, that you guys have taken already?
Good question. Mayank, I think IVL maintains a very high degree of corporate governance. I just wanted to make you understand that this is not related to IVL. This was related to another company called TPAC. Of course, some of the IVL executives were alleged to be involved in the securities insider trading for that company. We've deliberated at the board. Naturally, individually, they have to pay their fines to SEC. We will investigate internally also, and we will take necessary action as per the company's rules and regulations. There's nothing related to IVL, as you know. Yes, absolutely, this news came last year and we deliberated a lot at the board meeting.
Got it. Okay. Thank you.
Thank you, Mayank. Yupapan from Thanachart, I can see you have raised your hand. Please ask your question.
Thank you, Vikash. Actually, I have only one question. Like, do you have any like hedging position in your in terms of the energy cost? I see that you already put in a quite aggressive assumption on the energy cost increase this year, but that's nearly $200 million. In the fourth quarter alone this last year, the energy cost increased by $100 million. So do you think that there could be more downside risk on that? Also, what is the assumption that you put in in terms of the energy cost that you put in the 2022 budget?
Good question. Let us understand this graph properly first. This is 2021 versus 2020, okay? $190 million incremental. We have built up $195 over 2020, additional cost built in. Cumulatively, we have built $385 million till 2020. We have actually hedged 25%-30% in Europe already the energy prices, and that's the policy which we are following. There is enough buffer in these energy prices in Europe, America or Asia, as all you rightly said, that U.S. and Asia may not get that much impacted, because, you know, we still have a lot of coal base. We have considered higher coal prices, higher energy prices across everywhere.
If situation goes up that in Europe it becomes too high, you know, if you see the left-hand side curve, which gives you the yellow line is the TTF, you know. TTF. You can see what happened in the fourth quarter. It just from $10 per million BTU, it went to $40 per million BTU. The gas in America is $4 per million BTU. You can imagine that the people who are transporting LNG, how much money they were making. Then it became very volatile. You saw it went up and now it's come down. We have built on the forward curve basis. If when in a worst scenario, if further there is a big crisis in Europe, we may have $40 million-$50 million hit on top of $385, if that is at all, I think. In first quarter, we have no extra cost. We are online with the budget.
Thank you, DK. I have one more question, actually. Could you provide us in terms of the gas price sensitivity to IVL?
Sorry, gas prices for?
Like, for the cost to IVL.
It is different in different regions. In America, we buy based on Henry Hub, which is hedged against the Henry Hub, and then you have a transportation cost, which ranges from $4-$5 a million BTU. In Europe, as you can see, it is a $40 a million BTU, which is factored in up to $25-$30 a million BTU, $30 a million BTU in the second quarter, third quarter, fourth quarter, because that is backwardated. We have considered gas price based on different regions, you know, where we buy and hedge accordingly. We have a robust hedging policy. As you might have seen, results of many companies in Europe very badly hit by this gas prices.
Thank you. Yupapan , do you have any follow-up question? Hope you answered.
No, thank you.
Thank you. Kunpung, can you please ask your question?
Hi. Hi, DK. Good morning. I have a few questions. The first one, I just want to understand how the energy costs, how you can pass it through, like, so the surcharge mechanism. If you can, you know, for example, you show that in the fourth quarter, your cost has gone up by $41 million quarter-over-quarter. Of that amount, are you able to pass it on as surcharge or that $41 million is the net, after the surcharge it's taken into account already?
Kunpung, good morning. That question on $41 million, if you go to the fourth quarter, I think you're referring to the PET.
Yes.
You know, the PET, you know, in 2021 we had a contract settled in 2020. You remember that, right?
Yes.
We had to announce the surcharge. We actually recovered only, probably I don't have the rough numbers, but about 25%-30% recovered out of it. That's why you don't see fourth quarter. Otherwise, I would have shown a better results. From 2022, the margin itself in Europe, now the margins have gone up by EUR 110 per ton, and the energy impact is only EUR 30-EUR 35 per ton on the first quarter. Our margin improvement which we have taken up is significantly higher. Which is already locked in actually.
In case of other product lines like fibers, tire cord and all that, where we also produce in Europe, in formula we have built up that if energy price settlement is based on quarterly, that what is the energy price versus the within the band, you know. If there's a higher energy price, our margins get basically increased. To answer your question that do we have enough hedge against the energy increases if possible in Europe, there are two ways to look into it. Number one, we are hedging our energy anyway to the extent 25%-30%. We plan to hedge up to 50%. Second, our margins in Europe, which are basically now set into 2021, already takes care of this high energy cost significantly. Much more than that, significantly.
That's why we have built in $195 million already into this. Some contracts have energy components, some are dictated by the market prices, and market prices are reflective of the high energy cost already. That's how it works. We have a good hedging mechanism against the expected if there is any further spurt in the energy prices.
Okay, thank you. Actually, I have one more question on the IOD, the IVOL in fact, to be specific. I noticed that you have reported the IVOL performance as non-core operation. I would expect that this item, you know, like in 2022 would be considered as your core because right now everything is running at 75% already. Is this a fair expectation?
Absolutely correct, Kunpung. This will be shown as a core business going from first quarter 2022, and we expect to contribute about $60 million-$100 million EBITDA from IVOL cracker, depending on the ethylene crack margins. You know, ethylene crack margins are dictated by local ethane prices and the local energy, basically the ethylene price. Remember one thing is very important that here in this graph we show cracker separately.
You can see in the fourth quarter, the intermediates have gone positive. When even if ethylene is dropped but our glycol prices are high, you will see glycol margins going up. You, this -11 has already become +8 in intermediates, which is MEG and MTBE. When you will see first quarter, this pie will further increase. Like Charles, absolutely we will show it as a performing assets coming from first quarter 2022 and it is running quite smoothly.
Okay, thank you very much.
Thank you, Kunpung. Sumedh from JP Morgan, can you ask your question, please?
Sure. Actually my question was similar to the one question asked earlier, but let me broaden my thought, right? Given the fact that Brent prices have gone up, we should expect PX PTA to move up as well. How confident is Indorama in passing on these high costs to PET prices? Could you please give us some understanding of PET spot market? I understand the contract, but spot market dynamics will also be helpful to know. Thank you.
Good question, good Sumedh. Can we go to the margin chart, Vikash? You know, the crude oil, you're absolutely right. Paraxylene PTA margin. When the margins go up, the cost goes up, the PET goes up. You can see on the left-hand side how the integrated PET spreads keep going up because the market is short, and you can see below the Brent price. Now, if it becomes $150 a barrel, forget about $100 a barrel, right? $150 a barrel. $50 a barrel increase increases the naphtha cost by $300, okay? PET price can go up by 320, 300 dollars. Now, today, the PET price in China is about $1,120. We have seen PET prices gone up to $1,700, $1,800.
We will be able to pass on the entire increases. The margins in the PET are dictated by demand supply, and where you can see here left why the integrated spreads are gone up, because the market is very short of PET. Many reasons: demand is good across the world. There has been a lot of interruption in the supply chain. China, even because of China's dual policy, the production is not, the exports are not increasing significantly. They exported about 400 KT in December. Whether you take Europe, you take Brazil, you take USA, everywhere the product is short. Remember the second quarter when the demand kicks in because of the seasonality, we are at actually a very dangerous situation where product availability can become a question.
I'm not worried whether the crude goes to $100 or $150 a barrel. Our spreads, which we will be able to pass on. Higher oil price does not affect our PET spreads. We will be able to pass on them. Actually, the benefit will come only from MEG and MTBE. The only benefit in PET we get is because of import parity. Because, you know, higher is import parity, the duties becomes higher. Both Europe and America is a deficit market.
Got it. Thanks.
Thank you, Sumedh. Anybody, if you have any questions, anyone, please, you can ask them now. While we are waiting, I have one question on the WhatsApp that someone has sent to me about, there's one more announcement on the ESOP scheme for the management. Can you explain a little bit more about that?
On ESOP scheme, you know, many Thai companies have this ESOP scheme. We have been deliberating at the board level, how do we align the management. Of course, we have a short-term incentive, which is linked to that year's performance. We wanted to bring a long-term incentive scheme. We have classified this long-term incentives into warrant one, warrant two. In the first warrant one, we are talking of 19.95 million. These are allocated to the people who have been in the service for more than 15 years. They are given at 0 cost to them. They will give an exercise price at a discount of 15%, which is THB 37.74.
The condition is that 20% will be after two years of allotment, 20% after three years, and 60% after four years of the issuing. Warrant two will have 36.2 million warrants, which are those who are less than 15 years. Exercise price, there is no discount. This is the market price, which is calculated based on 180 days average price of THB 44.39. So the blended exercise becomes THB 42.03. The same conditions apply on exercise date.
The dilution impact, if all these are exercised, will be 1%, 0.99%. If they are not exercised naturally, it will depend if they are in the money on the date. The objective is that management's objectives and are aligned here. They are of course subject to the approval in the annual general meeting, which will be approved in April 2022.
Thank you, Mr. Agarwal. We don't have any more questions on the chat room. Also, nobody has raised hands. Okay. Any last comments, Mr. Agarwal? Otherwise we can
No, I think thank you very much for taking out the time to hear our quarterly earnings calls in 2021. As we mentioned, we are very excited about 2022 earnings. Be safe as the countries are opening up now. Thailand still have 25,000 cases. But hopefully, we can see you physically sometime in the quarterly earnings calls. Be safe with your families. Thank you very much for attending today's earnings call. Thank you.
Thank you. Thank you so much.