AGM 2022

Apr 26, 2022

Slides

Good afternoon, ladies and gentlemen. Thank you for joining us today. A special thank you to all for the support you have given the management team, as well as for your continued investment in IVL. It has been 12 years since the formation of IVL. As we know, 12 is an auspicious number in Buddhism. In that regard, I would not only talk about our future, but reflect on the strong platform we have built since inception. As we continue to rapidly and successfully grow, our now 26,000 employees are bound by our single purpose of reimagining chemistry together to create a better world. At the onset, I would like to assure you that 2021 has been a milestone year for us. It has also created favorable tailwinds that will propel us in the next cycle, beginning with 2022 to 2025 period. A new beginning and a new era of growth. We have order backlog of capital projects, of which $1.9 billion has been deployed in various initiatives, including our ethane cracker in Louisiana and the joint venture Corpus Christi, Texas project, a world-scale integrated PTA and PET plant due to start up in 2025. In the beginning of this month, we announced the completion of our $1.3 billion acquisition of Oxiteno in Brazil. We continue to invest, and at a quicker pace, in the circularity of PET. We are on track to fulfill our ambition of 750 kilotons recycled PET capacity by 2025. rPET is supported by strong market fundamentals, strong growth, and demand. Your company, IVL, is now considered one of the leading companies in this space. Thirdly, our business model built over the last 12 years through both integration and geographic expansion has served us well. It has insulated us from the supply disruptions that many of our peers face. More than two-thirds of our businesses today are outside Asia, where we have full integration and high market share. The current environment with crude oil at high levels tends to benefit IVL in 2 key ways. The cost advantage coming from shale arbitrage, as well as higher protection from import parity for goods imported from Asia to Europe, North America, and South America. The current environment with high inflation usually means a stronger dollar. As all our businesses are traded in dollar, a strong dollar benefits IVL. At the same time, it reduces our fixed costs, which are in local currencies. Inflation, on the other hand, causes our variable cost to go up and is universally applicable to all the industry, and therefore justifies in cost passthrough. Fourth, in each cycle, we have invested heavily in our infrastructure and in our people, and at heightened intensity over the last four years. S/4HANA, our cloud business enablement will be completed in the current cycle. This will help our teams exploit a vast amount of data to find and create value-accretive opportunities. Finally, our business is built around our people. In order to ensure their motivation and commitment to our values and to align with the interests of the shareholders, we intend to start the ESOP program for the top 100 leaders of the firm to share in the prosperity of the firm and be aligned with the prosperity of the shareholders. We have been able to successfully crisis-proof our company because we deal in everyday necessities. Our products touch and make a difference in the daily lives of people. The COVID pandemic has been a testament to the resiliency we have created in our portfolio. 2021 has been our best year yet. Our flagship PET business enables convenient access to clean drinking water and to keep our food fresh. Our global leadership in surfactants are found in your shampoos and in your detergents. Our fibers go into the shirts on your back and in the diapers you use for your children. These are just to name a few of the countless other applications. Megatrends, such as appreciation for sustainable solutions, prioritizing health, safety, and well-being, plus a rising middle class income, supports the demand growth for IVL products at 4% per annum. Delivery of our numbers is by our people. Our single most important asset are our people. All the business success we can achieve is due to the hard work from our team. We have three segments at IVL. Combined PET run by Sanjay Ahuja, IOD run by Alastair Port, and Fibers run by Christopher Kenneally. Mr. Agarwal looks after all three segments as well as is the Group's CFO. At the core of it all, we have our Indorama Management Council or IMC. This group consists of myself, Mrs. Lohia, the aforementioned CEOs, our Chief Strategy Officer, Mr. Gill, and our Chief HR Officer, Klaus. The way the organization is set up is aimed to allow for straightforward and streamlined leadership. It allows management of each segment to be accountable and responsible for their business with full ownership. IMC focuses on the future readiness of all businesses and the growth prospects for IVL. The following 3 slides give an introduction to our 3 segments, which are bound at the hip and have interdependencies. Even with a stellar 2021, we expect our CPET segment to perform even better in 2022. We were able to achieve a core EBITDA of $1.1 billion and a ROC just over 19% in 2021. 2022 will be even better. Within PET, we have 8 verticals as you can see on the graphic on the right. Integrated PET gets split into paraxylene, PTA, and of course, PET. You can also see on the right the linkages PET has to the other 2 segments. IVL's IOD business supplies the MEG that goes into making PET. IVL's fiber business uses the same raw material that go into making PET bottles. Over the years, we have created one of the most efficient business models able to serve our customers across the globe reliably. As you know, we are the largest PET producer and have now a market share of 20%. To put that in perspective, 1 in every 5 PET bottles now use our polymer. The next cycle will see growth coming from PET expansion in India by end of next year and the Corpus Christi project in Texas, U.S.A. in 2025. 2022 will also have the benefit of the recently completed Vietnam packaging acquisition. Further, we are continuously focusing on expanding our HVA and our recycling portfolio, and this will be a major growth driver over the next cycle. Just like in our legacy PET business, IOD also enjoyed a great 2021. A core EBITDA of $400 million with a ROC over 7%. We expect the future and 2022 to be even better. We have the added benefit of now including Oxiteno, our recent acquisition in South America, into our plans. On the right-hand side, you can again see the various products we make in the segment. Utilizing the cheap U.S. shale gas play, we have an integrated business from ethylene to ethylene oxide, going all the way downstream to produce surfactants. A chemical with multiple benefits ranging from home and personal care, to crop solutions, to mining. As previously mentioned, IOD makes the MEG that goes into producing the PET and fibers of our other two segments. Our ethane cracker project is completed and will become an important contributor to our earnings stream going forward. This comes at a good time, given the shale advantage coming from the high crude oil levels. MTBE, our gasoline additive, has begun to show recovery this year as demand for gasoline improves. The downstream businesses will be a substantial portion of the IOD business in this next cycle. With the recent addition of Oxiteno and going forward as we continue to expand our HVA product offering and geographical reach. Our third segment of the fibers achieved an EBITDA of $300 million in 2021, with a ROC just shy of 5%. We expect 2022 to be better and are making a concerted effort to improve our returns. On the right, you can see the three verticals that make up our fiber segment. Mobility, which goes into tires and airbags. Lifestyle, which goes into clothing and home furnishing, as well as hygiene used in diapers, masks, and filtration. The fiber segment has had some headwinds in the form of semiconductor shortages for mobility fibers. Negative raw material lag impact for hygiene fibers. However, with the key leadership in place, the segment will see returns coming from efforts in Project Olympus, our cost excellence program, value pricing and footprint optimization, as well as the growth projects in key markets such as India. Overall, in 2021, we achieved revenues of $14.6 billion and a quarter EBITDA of $1.74 billion. Our platform is stronger than ever before. We continue to make strategic investments that align with the interests of our customers. Apart from Oxiteno, we also acquired CarbonLite recycling assets in the U.S. We continue to have strong delivery of our Project Olympus, which is our cost-saving operational excellence program. We exceeded our targets set out last year, achieving $291 million in efficiency gains to date. With a largely commoditized portfolio, being a low-cost player is crucial for our success. Our ambition is now $650 million in recurring EBITDA uplift by 2024 from this Project Olympus. IVL is leading the industry sustainability drive, and we continue to expand our leadership position through substantial investments into sustainability and circularity. We have been recognized and rewarded for our balance sheet strength. Our rating agency has upgraded us to a stable AA- rating despite the turbulent macro events happening across the world. Let's summarize the first cycle of 12 years since our listing in February 2010. If we list the last 12 years in cycles of four years each, we can see the growth IVL has been able to enjoy. The numbers truly speak for themselves. Scale and integration matters, especially in commodity businesses. In totality, we now have reached 17.4 million metric tons in capacity from 10.5 million metric tons in the prior cycle. This has allowed us to control costs and become much more relevant in the industry. We are geographically much more diverse, have almost double our number of sites from one cycle to the next. This allows us to be close to our customers and serve them well in a chaotic world. Lastly, the delivery effectiveness can be best judged by our absolute growth in book value and return on equity. The pie has become bigger, and we are able to retain more of the pie. We achieved a ROE of 14% in the last cycle. Finally, all of these leads to less volatility and more resilience. To show the numbers in a bit more detail in the next layers, we can see that we have shown consistent growth and improvements from cycle to cycle, increasing our top line, but also achieving higher absolute EBITDA and margins. We have also grown the bottom line, creating value for the shareholders in each cycle, as you can see with the core EPS growth. Our capital work in progress grew in each cycle, which means that we reinvested in advance for the next cycle. You will see the next cycle reap the benefits of the $1.9 billion of capital work in progress today, coming from the ethane cracker and the Corpus Christi PTA/PET projects in the U.S., to name a few. With each cycle, we have grown the company in size, bottom line, as well as the quality of earnings through the EBITDA margin growth. Talking a bit about the new acquisition in South America. The acquisition of South America, or acquisition of Oxiteno in South America, pushes IVL and the IOD segment to become a more diversified player, a hybrid model, more specialty-focused, while enjoying the benefits of integration. It sets up a path to continue to invest in becoming more specialty and attract higher margins. The deal also helps in our sustainability targets and adds integration into natural alcohols. For this acquisition, we have taken a more structured approach. We set up a new integration management office in order to ensure a seamless integration of our two businesses with a clear first 100-day plan. This IMO structure has been very successful for a systematic process as well as for development of our teams, and this structure will be replicated for all future M&A deals at IVL. We strongly believe in PET over the alternatives, given it is the material of choice for sustainability and affordability. Sentiments that are echoed by our global customers. Along the three key parameters, PET is better than aluminum and glass. PET is two times more cost competitive than glass and 30% more than aluminum packaging. It has the lowest carbon footprint among the three packaging materials. It is the most versatile and can be used for both single and multiple use packaging sizes. Going forward, recycled PET will play a large part in IVL's sustainability drive as we expand our mechanical recycling capabilities globally, invest in advanced recycling, and thereby enlarge the portion of our feedstocks coming from recycled sources. As mentioned, Project Olympus, our operation excellence program, has ambitions to reach $650 million in run rate efficiency gains by 2024. Delivery in last 2 years have reinforced the confidence of our management and motivated them to dig even deeper and find internal projects for higher efficiency gains. Management KPIs are linked to the success of the project. Beauty of this transformation project is its span diversity across businesses, geographies, and functions with over 2,400 internal projects or initiatives. This diversity reduces the delivery risk of the program. It is crucial for IVL to remain in the first quartile cost position, especially in the commodity business. We have always been doing cost innovation, but Olympus allows us a structured approach. Moreover, Olympus is an important tool for people development. With the formation of the transformation management office that oversees and monitors Olympus, we are building important project management capabilities in our teams. We have been able to rapidly expand while keeping our debt-to-equity ratios at a healthy, sustainable level. Even with the large acquisition of Oxiteno, our debt-to-equity ratio will be at 1.1 times, but expected to decrease in the following years. On average, the ratio stands at 0.8 times across the cycles. The result of the business has allowed us to expand the IVL pie. In the past, there have been some game-changing deals, such as the Huntsman acquisition, entry into Brazil, and entry into India, that we have successfully consolidated. In this next cycle, we have favorable tailwinds and sizable capital projects that will start generating extra earnings. No presentation nowadays is complete without addressing sustainability, a key attribute for our future success. By 2030, as outlined in my Vision 2030 plan, we expect to make large strides across various initiatives. We will increase our rPET capacity and invest heavily in biomass feedstock, targeting 2.4 million tons of capacity. We will reduce our GHG emissions, our energy intensity, and our water intensity. We will consume 25% renewable electricity by 2030, up from 10% in 2025. Finally, thank you for your patient listening and for your trust in IVL and our people. I hope I was able to clearly explain our journey over the last 12 years and demonstrate the resilient crisis-proof platform that we have created. The next few years will be exciting and propel IVL to even greater heights. Thank you.