Indorama Ventures Public Company Limited (IVL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. this is Vikash Jalan. I'm Vice President of Investor Relations of IVL. I welcome you to Indorama Ventures quarterly results of second quarter '20. Joining me today in our earnings call are our good CEO, Mr. Aloke Lohia; along with IVL executive team members: Mr. D.K. Agarwal, CEO; Mr. Udey Gill, CEO of Fibers; Mr. Sanjay Ahuja, CFO; and Dr. Deepak Parikh, Chief Strategy Officer. As a reminder, this results briefing is being recorded. The slides for today's presentation can be found on our website along with our media release. I would like to remind the participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Participants and readers are therefore encouraged to refer to the disclaimer on Page #2, Slide #2 of today's presentation. [Operator Instructions] I'd like to now invite Mr. Lohia, Group Chief Executive Officer of IVL, to take you through the presentation. Thank you.

Thanks, Vikas. Good afternoon, everyone. I'm Aloke Lohia. Thank you for joining IVL's quarterly results update. Let me first start by saying that this is an unprecedented time for all of us. COVID-19, a global crisis. The first half of 2020 has seen a global crisis that shook the market in February and March, especially in Asia and then in Europe. Currently, U.S., Brazil and India are still working to control it. Asset values in all classes saw a whopping drop, and this pandemic has further been complicated by the collapse of crude oil. COVID led to lockdowns and demand destruction, whereas crude impacted the refinery and petrochemical businesses in an uneven way, where naphtha-based petrochemicals advantaged over gas-based. On the supply/demand dynamics and global impact in second quarter '20, China has shown some remarkable recovery in production and to some level on consumption. I believe that production in second quarter exceeded consumption and will potentially negatively impact the supply/demand dynamics in the second half of this year. Emergence from COVID and looking forward. The global situation in my opinion is extremely fragile, and it is too early for us to let our guards down. Nevertheless, I am expecting consumer spending to increase in the second half of this year, but, selectively since the economic impact of jobs lost, especially in the services sector, will be a dampening factor. I believe that liquidity issues will be on the top of everyone's mind, and therefore, there will be a shift in consumer behavior where the durable industry will take longer to recover. As I reflect on what this means to IVL, I put my thoughts into these important areas: management of unexpected global pandemic by IVL. At IVL, we have experienced a mixed impact on our business. Firstly and foremost, our people have demonstrated their resilience by keeping our supply chains intact and our customers served. This is significant, considering that IVL volumes that are sold every year are 13 million to 14 million tons and are produced at 120 sites in 33, 34 countries and distributed to perhaps every corner of the world. It is a blessing for me to work alongside this leadership and their global teams who manage the IVL businesses against the COVID backdrop, a black swan event, which hopefully will never repeat. We are very proud of our managements, our sites and the front line workers. We are gratified that the resilience of IVL model of global footprint serving the daily necessities of the consumers is reaffirmed. The portfolio of IVL, we are proud that about 80% of our portfolio is resilient and it caters to non-durable and inelastic market segments, where the demands are basic to the needs of the consumers and society. Emerging from the COVID, we know the importance of consumer food packaging, beverage bottles, personal hygiene in all respects with PPE, air purification, sanitization materials and overall human hygiene, with personal consumer products like detergents and hand sanitizers. We are one of the solution providers in the above segments. And with our latest acquisition, we got even more deep roots to serve the basic needs of society with personal and consumer care chemicals importance to hygiene. We will ensure our portfolio is integrated and serves the end-use consumers basic demand in a responsible manner, while always keeping in mind the importance and our commitment to the circular economy. Importance of plastic and IVL's role in climate control. As the pandemic spreads, the importance of plastics in food packaging, food delivery, personalized beverages, use in medical and hygiene areas with gowns and personal protective equipment became very evident. This was a reaffirmation that plastics is an important material to mankind. And what matters, as we emerge from this crisis, is even stronger commitment by all in plastics waste management. Going forward, we, one, reaffirm our commitment to plastic bottle recollection; number two, chemical and mechanical recycling of plastic aided with societal education; and three, conducting the business as one of the leading global PET producers with sustainability at the core of our values. World needs plastics, and we will be involved in the ecosystem in all respects to ensure world's climate is protected while serving consumer needs now and beyond. Future readiness of IVL and its entrepreneurship. Over the past 2 decades, we have grown with diverse acquisitions across the world, and now have evolved to be one of the leading global and integrated petrochemical company. With the size comes complexities at times and we've embarked a journey to be standardize and synchronize many of our internal work processes across the 120 sites around the world, along with the leadership development to be even more agile, digitally empowered, sharper and nimble going forward. Our employees are our most important human capital. They are digitally enabled to work from home, while managing regional and global aspects of entire value chain. IVL's core DNA of growth and entrepreneurship is intact. And we will merge the newer and additional businesses to our well-oiled work processes, governance and with strong focus on efficiency and shareholder return. Based on the pro forma 2019 look at our portfolio and the end markets that we cater to, it is evident that our growth over the last 10 years has been well conceived and well structured. 80% of our products cater to nondurable sector, where the demand impact caused back COVID and margin melt down due to the crude collapse has not been felt. Roughly half of our remaining 20% of our business, I believe, will see a V-shape recovery starting second half of this year as people leave their homes. And I think that approximately 10% of our portfolio, especially catering to automotive, will drag well into 2021. Our portfolio serving end markets of food, beverages, personal care and hygiene were positively influenced. I was also pleasantly surprised that our material which goes into electronics and screens was steady. The automotive and oil-related segment saw severe drops in offtake. And for the first time, we saw the shutdown of the retail segment hit our apparel segment. Our 2019 portfolio contributed to 76% of IVL's pro forma EBITDA. That portfolio of nondurables in second half -- or second quarter of 2020 has actually contributed to more than 95% of our EBITDA. It just goes to show the dramatic impact of the durable on our business. IVL has demonstrated resilience in its financial scorecard during these unprecedented times and our first half 2020 results beat sequentially every metric based on which we judge our performance. Our sales volume exceeded our deliberate cut in production in order to reduce excessive inventory built up in 2019. Our core EBITDA margin and our core ROCE grew sequentially as well. Our core EPS was 50% better over second half 2019. We had a positive EPS in first half of 2020, which has been a welcome improvement against a negative EPS sequentially. More importantly, we completed our USD 2 billion acquisition of Spindletop and $1 billion investment in our Lake Charles cracker in January. These assets provide us a strong franchise in Oxides and Derivatives businesses and has the potential to compete and to grow in the differentiated space of olefins. IVL will groom this vertical over this decade like we grew our combined PET business in the previous decade. As a whole, IVL surpassed all our financial metrics in first half although we could not achieve the returns in IOD anywhere near the 12% ROCE that Spindletop delivered in 2019. 2020 is again playing out that IVL's resilient business supports the leverage that we deliberately built. And we intend to continue to groom ourselves consistently as a growth business, run by talented teams, creating value for our customers and, therefore, our shareholders in the long run. Our acquisition of Spindletop and the start-up of Lake Charles cracker did not provide us a typical earnings, which we had built in our business case. Our strong balance sheet and strategic fit of these gas-based olefin businesses, serving our MEG integration, and importantly, our diversification in growth businesses of surfactants, green fuels and urethanes, is reaffirmed and has allowed us to diversify our portfolio for long-term growth, while remaining focused on supporting, supplementing and leveraging our core business of PET. The combined PET segment was the star performer in first half 2020. The demand impact due to COVID was muted as food packaging growth offset the marginal decline seen in beverages packaging during the lockdown mode. The core EBITDA and the margin sequentially improved across the segment in every component, over the second half 2019. The highlights for the first half 2020 was the discipline our management demonstrated in raising the sales volume sequentially as well as over the same period of last year and simultaneously lowering our combined inventory, and thus, releasing working capital, resulting in a ROCE of 17%. Our Fibers portfolio was profoundly impacted with Mobility and Lifestyle components coming to a grinding halt, both due to the fact that consumers were working from home, and the main street was locked down. Again, the resilience of this vertical got reflected due to the boost that our Hygiene component contributed. And therefore, the overall EBITDA of our Fiber segment was marginally improved sequentially over second half 2019. I want to recap our 2023 IVL strategy, which I shared during our Capital Markets Day earlier in the year, to steer IVL through the cycle and beyond. Our vision remains steadfast, to be a world-class chemicals company making great products for society. Our core values are as relevant today. We see change as an opportunity, and we are even more agile and nimble. Customer centricity is at the heart of everything we do. Safety in all aspects is critical. We have pulled the highest health and safety standards in all our locations across the world. Diversity is our strength. We have citizens of about 70 countries in our IVL, and IVL is the best amalgam of global culture. Our people is our strength, they make the difference. Unique differentiators today are: our global scale; our local presence; integration across the chain; diversified sources of earnings; and M&A capabilities. We have set out 5 major strategic priorities. And staying steadfast in its execution: launching Olympus, a company-wide cost and cash transformation program to support our performance in this low-spread environment; driving the commercial full potential of our assets, to grow volumes and our margins; exploring selective adjacency opportunities to incubate our future engines of growth; doubling down or recycling, to be the leader of PET recycling and set new bar for sustainability in our industry; and investing and developing the best leadership team in the industry. We've been preparing ourselves for this decade of 2020s over the last 12 months. We first set up our senior leadership in what we call our Indorama Management Council, with the induction of a senior strategy officer and a senior global HR officer to prepare our journey towards a sustainable growth as a world-class leader in creating value for our people, our customers and our shareholders. Post to the announcement of Spindletop in August 2019, we put our thoughts to lay the framework and announced our strategic priorities in February 2020 at our Capital Markets Day, well before the COVID-19 implications started to surface. It was clear in our strategy setting that we will have to strengthen the infrastructure at IVL and have strong processes and governance worthy of a world-class enterprise. Therefore, we decided that the future IVL design will be built on a strong IT platform and hence the investment in SAP's S/4/HANA across our 120 sites globally. Equally, it was clear to us that to target doubling of EBITDA in a methodical and transparent manner, we needed to sincerely develop our future leaders and to provide them with tools and means to leverage on IVL's scale. And therefore, we have introduced 6 enabling functions that cut across IVL segments. They are: communications; EHS; business continuity management; digital platform; lean excellence; and sustainability leaders. We agreed that we need to have measurable targets and decided that the size of the prize is our pro forma financials of 2019, consisting of, sales volume as a percentage of capacity, our contribution margin, or COMA, fixed costs, maintenance CapEx, which would be measurable tools. Improvements in each of these norms will organically increase our EBITDA, our ROCE and our cash flows, which will be directed towards bringing leverage below 1x D/E and reward shareholders with a surplus post strategic growth projects. We then have leveraged the best of experts with domain knowledge. For example, BCG for organization design, Accounts & Finance Excellence and full potential planning for our Mobility and our Hygiene verticals. Similarly, Bain is working with 7 of our largest -- -- actually, 13 of our -- 13, right?

Yes.

13 of our largest sites globally to improve their delivery on operations excellence, maintenance standards and costs as well as on leveraging indirect procurement across our business. Accenture, Deloitte and Cognizant are supporting a transformation on IT and shared services to bring an aligned organization on a single source of truth platform. These initiatives are in addition to the project Olympus with a sustainable savings of $352 million that were announced on CMD, and which are on track. Our future ready organization has to embrace ESG at the core of IVL. We are future-proofing our IVL with ESG at the core, disruptive strategic thinking for PET recycling, sustainable footprint across geographies. We are embedding ESG in our DNA. We are putting significant focus on leveraging renewable energy. Thrive for leadership in developing solutions for PET waste, for rPET, for mechanical and chemical recycling. We believe that with ESG at the core, we would enhance the shareholder returns. The world needs plastics, and we will be involved in the ecosystem in all aspects to ensure world's climate is protected while servicing consumer needs in crises and beyond. I would now request Mr. D. K. Agarwal to take us through the results for this quarter.

Thank you, Mr. Lohia. This is a slide. Let me explain that our combined PET segment here comprises of integrated PET, Packaging and Specialty Chemicals, which now represents PET and related businesses under one segment. Our integrated oxides and derivatives segment comprises of integrated ethylene glycol integrated purified EO, our constant margin business, PO/MTBE and Surfactants under one segment. This segment also includes the performance of recently acquired Spindletop and started Lake Charles gas cracker. Fibers segment comprises of Hygiene, Mobility and Lifestyle under one segment. As you know, in spite of very adverse market conditions due to COVID, we are pleased to announce, quarter-on-quarter, consistent performance, generating an EBITDA of $305 million with an EBITDA margin of 13%. Second quarter 2020, strong performance is mainly on the back of strong PET demand, higher integrated PET spread in spite of low PTA spread, lower conversion costs, higher demand in hygiene fiber segment, coupled with normalization of first quarter 2020 MTBE maintenance shutdown. You know in the first quarter, we had an MTBE shutdown. On the other hand, on the headwind, second quarter '20 has been adversely impacted due to lower crude oil prices -- you saw the crude oil prices getting negative, impacting margins of MTBE and glycol as shale gas lost its advantage versus naphtha-based products. Fiber, Mobility and Lifestyle verticals were severely impacted due to lockouts, less consumer spending on durables and travel restrictions. As you know, with the opening of economy and easing of locked down restrictions and improvement in crude oil prices, we expect to see the upward normalization in the coming quarters. Let us see, this is the bridges, levers that impacted the performance in second quarter 2020. On a quarter-on-quarter basis, you saw that lower sales in Lifestyle, Mobility Fiber, Integrated Oxides and PIA were partially offset with the higher sales in PET resulted in a reduction of $50 million due to COVID-19 pandemic. Overall spread was neutral by, PET, PIA and PX increased margin, offset by weak spread in MTBE, glycol and ethylene crack margin in America. Of course, the weak currencies in emerging economies, coupled with lower utility prices and strict cost discipline, has brought about the overall reduction in the cost, which is reflected in this bridge. The project Olympus, which we launched in the CMD, resulted in an overall saving of $25 million in second quarter '20 alone, an increase of $6 million over first quarter '20. So you can see the cumulative saving of $44 million. However, as you see, year-on-year drop in EBITDA by about $56 million, which is mainly on account of lower Fiber volumes, reduced margin across all segments, especially Integrated PET. Because PTA margins in the second quarter were $185, while this quarter were only $95, so though recovered to some extent by higher PET demand, Spindletop acquisition and cost efficiencies. Let's look at the -- our strongest pillar, which is the PET. Robust performance of combined PET in the time of pandemic, when globally most of the businesses are adversely impacted, as you can see, the results of many petchem companies around the world, reaffirms the essential nature and sustainability of PET and Packaging business. Quarter-on-quarter, our EBITDA increased from $192 million to $225 million, registering a growth of 17%. EBITDA per ton also improved by $17 per ton and core return on capital employed, as Ms. Lohia mentioned, went up to 17%, supported by higher spreads, lower conversion cost and a very strong working capital financial discipline. Strong PET demand is witnessed across all segments, like in carbonated soft drink, where lower preference for fountain drinks -- as you know, you walk into the McDonald's and you'd do the fountain drink, was replaced by the packed drinks. Due to hygiene concerns and shortage of aluminum can has resulted in PET being the preferred packaging material for consumer, offset with lower demand in small packaging formats due to lockdowns. Thermoforming, where demand increased on account of increased home deliveries and food packaging for takeaways -- the takeaway food increase the demand. Personal care, hygiene products, particularly sanitizers and face shields from PET on account of changed consumer behavior. We continue to see a strong PET demand in Q3 as demand kicks off in small format -- now as people are opening up, they're drinking from the small bottles, due to opening of countries and easing down of travel restriction. Further demand, particularly in the hygiene and thermoforming sector continues to stay due to change in consumer behavior. Although Integrated PET spread remains strong, as I mentioned, stand-alone PTA margins were lower due to poor demand for polyester fiber segment and Lifestyle. PIA demand also got impacted due to lower demand in UPR and coating sectors, which are linked to the construction industry. As you can see, our packaging downstream business was resilient with essential and nondurable consumer goods nature of its application, delivering very strong results. So the [ Nigeria ] becomes a very, very strong market for us. Specialty chemicals, which includes PET high value-added products, have also improved with the strong demand for resins for flexible packaging used for snacks, though lower quarter-on-quarter due to onetime insurance income in first quarter 2020. We had in first quarter 2020 insurance income. Let's look at this regional in combined PET, how it shows. Our reasonable presence and geographical spreads have helped in serving our customers, overcoming the supply chain debottleneck in the time of pandemic. With all due credit to our management across the globe, who not only operated the plants at high capacity, but also managed our supply chains efficiently, meeting our customers demand during the COVID-19 crisis, except in India, where plants were shut down for a couple of months due to a stringent lockdown. As we speak, third quarter demand is very strong with Coke and Pepsi coming out with a strong demand. Improved performance quarter-on-quarter in all the 3 regions, as you can see, supported by higher integrated PET spreads, lower conversion cost and better asset utilization. As I mentioned earlier, second quarter '19 had strong Integrated PET spread of $295 per ton, supported by very strong PTA margin of $183 per ton, while we just got $92 in second quarter '20. PTA margins in second quarter '20 got impacted due to lower demand of PTA and polyester fiber. However, PX and PIA spreads were better due to lower feedstock prices. Combined impact of all, this resulted into year-on-year drop in EBITDA by 20%. We were also benefited by higher sales volume of PTA in United States, as you can see, as one of the PIA line indicator was converted into swing line between PIA and PTA. So now we can make both PIA and PTA. The full benefit of this flexibility will be realized in third quarter 2020. As you can see, India recently announced anti-dumping duty. Recent announcement of antidumping duty on Chinese imports to India will help to increase domestic sales and better margins. Our increased focus on cost through Olympus, coupled with weakening FX rates in emerging countries and lower utility prices, have resulted in reduced conversion cost across all the regions. So this gives you how the region have performed. Well sustainability is at the heart of IVL. IVL continues its journey to create an rPET capacity of 750 kt by 2025 to become the leader in recycled PET complementing its virgin PET business. Undoubtedly, as Mr. Lohia mentioned, present pandemic situation has reinforced plastic as a preferred packaging material and offers immense opportunity. Recently, we acquired a 9 kt facility in Brazil and 23 kt capacity in Poland. The 2 projects are located in very strategic location. The project in Brazil is well positioned to serve as a hub for IVL's PET growth and rPET growth in South America and also supports our existing 500 kt virgin PET. While the Poland site gives us a solid platform for growth in Eastern Europe market. The 2 locations are also structurally cost competitive, have secure access to the bottle supply and have shown to provide trusted product quality, a very important development in Europe. Proposed imposition of EUR 800 per tax -- ton per tax on non-recycled plastics in Europe will boost our rPET sales and will create PET as a preferred packaging material in competition with other plastic packaging alternatives, which are less recyclable, which is still to be approved by EU-28. But that's what is a very important development, creating an invisible barriers for the imports. Investment in recycling -- I know you always have a concern, not only meets our sustainability objectives, but we continue to remain committed to generate ROCE of 12% to 15% on this investment. IOD, the business which had the toughest time, our performance is shown in 4 verticals here: integrated glycol; integrated purified EO; PO/MTBE; and Surfactants, which also includes EOA, LAB and others. Integrated Oxides and derivative results have been severely impacted due to drop in crude oil prices, losing competitive advantage of shale gas versus naphtha, on an interim basis. This can be specifically seen in the integrated MEG margin and MTBE, where our prices are established based on crude oil/naphtha-based production. And this particularly affected the second quarter. The U.S. integrated MEG margins dropped by $143 per ton with drop in crude prices reducing U.S. shale gas competitiveness over naphtha. But we are pleased to report that we have debottlenecked and optimized the production facility of Port Neches and Clear Lake by 60 kt annually of additional glycol. This benefit will be fully realized in fourth quarter onwards. In addition, we have unlocked annual synergy benefit of $20 million with cost optimization. Integrated PO profitability was also impacted due to poor oilfield demand and slowdown in construction sector, so margin remained intact. As you all know, the gasoline demand was very poor. Poor gasoline demand, which has shrunk the overall octane demand, has resulted in drop in c-factor, thus impacting MTBE financial performance, though normalization of MTBE maintenance shutdown taken in first quarter has resulted in quarter-on-quarter gain. So first quarter, we had a shutdown so you see a gain, but we got impacted on the margin side. The financial performance of MTBE continues to see improvement as gasoline inventory gets normalized with the easing of lockdown and improved crude oil prices. Integrated Surfactant business marginally impacted due to poor demand in oil sector, though demand in home and personal care for cleaning remained strong due to increased hygiene awareness. We are seeing a trend in industry, which you might have noticed, that due to very poor margins, a number of crackers and PO/MTBE plants by one of our competitors has been delayed to conserve cash. Now what does it mean? It means that cycles come. This will help to restore the margin to replacement economics as demand and supply gets balanced going forward. Unfortunately, as you are aware, we recently had a lightning strike at our Lake Charles cracker, which might take 3 to 4 months to recover the production. Damage assessment is being done and same is covered under a very comprehensive insurance coverage, including loss of profit. We don't see any impact on downstream production of MEG and other products as spot ethylene is covered, to ensure uninterrupted feedstock supplier. So this is some of the biggest sector which got impacted. Let's look at -- deep dive into MTBE and glycol because this is a major. As you can see, on the left-hand side, given U.S. shale gas advantage, crude oil is a key determent of U.S. MTBE profitability. Left-hand graph shows competitiveness of U.S. shale gas versus crude oil, which got significantly eroded in second quarter 2020 when the crude oil dropped. In the right graph, if you can see here, blue bar signifies U.S. MTBE premium over gasoline, the dark blue. And the gray bar signifies U.S. gasoline premium over Brent crude oil. Historically, as you can see from the slide, the spread between Brent crude oil and MTBE was around $250 per ton, which is reduced to the level of $80 per ton in the first quarter due to lower gasoline demand. MTBE prices are expected to bounce back with the increase in demand of gasoline and improved crude oil prices. Now what is impact financially on this? Improvement in MTBE prices and resultant c-factor has also been seen with the rising crude oil prices. Normalization of same to historical level will result into an incremental annualized EBITDA of $130 million to $160 million. So second quarter, this was the biggest hit for us. Now look at glycol, which is very important. As you know, the MEG prices is determined by naphtha-based MEG producer. Left-hand side shows you what is the spot price. Spot is the -- MEG prices in the red and then you see the cost curve -- cash cost curve from the naphtha-based and gas-based. As you can see on the right-hand side graph, the U.S. integrated MEG margins dropped by $140 per ton in second quarter on account of drop in crude oil prices versus shale gas and lower demand for polyester fiber and antifreeze. The MEG demand also was lower. Present MEG prices are much lower than cash cost of production for naphtha-based producers. So actually, it is not attractive to produce glycol, it makes losses. And we are seeing production cuts and diversion of ethylene for polyethylene. As you know, polyethylene margins are now better. So people are diverting, including one local producer in Thailand has reduced the glycol production. So that's why we are seeing that this is coming at the floor now. On the other hand, coal-based MEG remains very high cost and operating at a very low capacity than 50% utilization. So I think the worst is behind us. So this gives you a little bit idea about what is happening on the glycol world. Let's look at the Fibers. In Fibers, our product offerings are to the global brands and we are among the leading global suppliers. We have a range of products that serve a variety of applications, where some are essentials and nondurables like Hygiene fibers and Lifestyle fibers, where some are high performance, like Mobility Fibers though linked to global GDP and auto manufacturing. So what happened in this COVID-19? Our Hygiene fibers, as you can see, our results were $47 million versus $29 million in the first quarter. But very strong demand and margins were high with its essential nature of application in times of pandemic, disinfecting wipes and personal hygiene awareness for face mask, personal protective equipment, PPE, commonly known, are driving the major part of the growth and margin. So Hygiene got the biggest benefit. On the other hand, Lifestyle, which is being the non-essential consumption, has been impacted in line with the soft demand in global market on account of or retained sales -- all the shops are closed due to lockdown, deferment of purchases by consumers and supply chain disruption. But these are -- we expect a V-type recovery in this segment with easing of lockdown as witnessed in Chinese domestic market. We saw, as soon as Chinese domestic market came up, there was a V-type recovery in China. On the other hand, Mobility demand was impacted due to lower demand for replacement tires and reduced -- less driving, reduced sales of light vehicles, we expect here U-shape recovery with the easing of situation and financial support given to the automobile sector by the European government. As you know, many comments like French, German has come out with support to the automobile sector. So what focus remains here? Cost excellence through project Olympus, product innovation and cost management and also keeping a very strong discipline on the working capital and inventory management. We would like to understand how the growth is shaping in these 3 Fiber segments. So in this chart, we can see growth trend for each Fiber vertical. The first chart, which projects a sales trend of light vehicles, reflects a significant drop in 2020. You can see how much drop in the sale is there due to deferment of consumer purchases and lockdowns. Our outlook is a U-shape recovery with opening of economy and mobility of people. The second chart, as you can see, reflects the demand of polyester fiber, which caters to retail and home furnishing. Polyester fiber demand reduced in 2020 due to poor retail sales on account of lockdowns and deferment of consumer spending. Growth outlook, as you can see here, shows the V-type recovery with the opening of economy and easing of situation, as I mentioned, witnessed in China. On the right-hand side, you see the polypropylene fiber, which is used in the Hygiene segment, showed a strong growth in 2020 on account of new range of products like face masks, wipes and PPE. Outlook shows a forecasted growth of 5% CAGR, mainly on account of increased consumer concern towards safety and hygiene. I think this is going to continue in the consumer behavior. As Mr. Lohia mentioned, we announced Olympus program targeting an annual saving of $352 million by 2023 through various strategic initiatives and corporate transformation. The journey continues. We are pleased to inform that a saving of $44 million has been achieved, as reflected in the EBITDA bridge, in first half '20, and we are on track of the annual saving of $76 million. As Mr. Lohia mentioned, we engaged world-class consultants to deep dive into various saving opportunities. We've made many acquisitions, but haven't unlocked fully the synergy values. So these synergy benefits will come in terms of operational excellence, indirect procurement, which is a big spend, across various vertical, asset footprint optimization, optimization of manpower, efficiency through digitalization, Lean Six Sigma and Fiber full potential for Mobility and Hygiene verticals. Initial results show very promising opportunities across various programs, and our target business-led saving of $250 million looks conservative, as this program will get cross fertilized across IVL. As we'll go into this program across IVL, we think that our initial estimate looks conservative. So we remain committed on this. So this gives you a business outlook. Now let me hand over to Sanjay to take us through the finance project and liquidity. Thank you.

Good afternoon. So I'm going to cover second quarter finance. As is shown on the bullet here, second quarter '20 operational and financial performance reflects on the resilience of the IVL business model. Despite lockdowns and supply chain disruption resulting from COVID-19, high uncertainty due to volatility of crude prices and petrochem prices, we have reported steady sales volume of 3.4 million tons. The total revenue of $2.3 billion is lower from decrease in absolute prices of raw materials and finished goods. We have reported a steady core EBITDA of $305 million, where our EBITDA margin has increased to 13%. We have reported strong operating cash flows, and we target to continue improving upon this. I have a slide on this, I'll cover it later. Our net operating debt-to-equity is 1.32x. We have seen an increase in this ratio this year arising from our largest acquisition of $2 billion of Spindletop assets and the capitalization of Lake Charles cracker. Our long-term cycle target is to keep this at 1 level, and we believe our strong operating cash flows will help us achieve this target as it has in the past. We had lower interest expenses quarter-on-quarter as we started getting the benefit of lower benchmark rates and interest rate swaps. As was mentioned in the last quarter, the benchmark rates had declined somewhere in the middle of March. We took advantage of that prevailing market conditions and entered into IRS for most of our USD term loans at the end of March. More than 70% of our loans are at fixed interest rates now. The ones which are open are in euro currency and the short-term loans, which are used for working capital and which are drawn now and then. We also had lower tax expenses quarter-on-quarter, benefiting from structuring and certain fiscal consolidations, which were -- we were able to use in some of our entities. Inventory losses in certain regions also led to creation of tax losses. I'm saying this because normally, we are always conservative in creating DTAs, deferred tax assets. But certain -- in our best location, which is the U.S. where we have been reporting the best profits, we had losses in PET, just because of inventory losses. So we were able to create deferred tax assets. This quarter was also a bit unique because we were able to -- we had better than previous -- better than prior -- I mean, prior periods profitability in Turkey, Egypt, Thailand, where there is no tax. We have certain tax incentives. So you were not -- we were not recording any tax expense, but the tax -- deferred tax assets were giving us a income here. The strengthening of Thai baht, again, resulted in noncash translation losses in the second quarter. The transformation gain made in the first quarter with the steep depreciation of Thai baht was lost due to this appreciation of Thai baht. We continue to increase our natural hedge on investments into subsidiaries when there is an opportunity available. As always, I draw a lot of confidence from this metric from this slide, the strong operating cash flows we generate. In the first half of 2020, we have not only neutralized the significant inventory losses, which came our way due to drop in crude prices, our focus on working capital has helped us generate operating cash flows of $640 million, $30 million higher than the core EBITDA. Strong operating cash flows during the next 12 months are being mainly used to deleverage certain CapEx required for corporate and business initiatives introduced in our cost transformation program, growth CapEx required in recycling and dividend to the shareholders. We have engaged with BCG to run an Accounts & Finance Excellence transformation program to benchmark our finance organization in terms of working capital, Forex management as well as certain other workflows in the finance organization. While we do stack up quite high when compared to our peers, there is always room to improve. Even though crude prices are expected to move up, implying higher absolute prices of the product we sell, I expect our focus on working capital, which is including the improvements we are bringing through our finance transformation program, to bring down the inventory days along with the absolute values. We are putting some targets here on the slide for 2020, but I believe this transformation program should help us beyond 2020 and into 2021, by which time this transformation program will have run its full journey and got embedded in the culture. We have more than adequate liquidity and have evenly spread out term loan maturities. With no major CapEx, there are no financing requirements. You will, however -- you may, however, see us tap the loan markets if there is a refinancing opportunity to lower the cost or to extend the maturities at the same cost or we are able to increase our overall natural hedge on Forex in our long term portfolio, which is nothing but the investment in our subsidiaries. Major part of our CapEx -- maintenance CapEx for 2020 has been incurred in first half of 2020, with turnaround maintenance of PO/MTBE in the U.S. and PTA plants in Thailand. Excluding the Spindletop acquisition, which happened in first half of '20, we expect positive free cash flows in second half of '20. The reduction of CapEx this year by $200 million is mainly due to deferment of Corpus Christi project and optimization of maintenance Capex. This slide covers the cost transformation program, project Olympus. You saw the overall concept in Mr. Lohia's presentation with Mr. Agarwal presenting on the business-led initiatives. I'm covering here corporate-led initiatives, which can be bucketed into 3 categories. The single platform, ERP S/4/HANA, where we have engaged with Accenture to help implement, and we expect to complete this in 39 months. A big change management, a lot of resources engaged, and we believe the implementation of this will bring in tremendous efficiencies and savings. Global Business Solutions, where we are centralizing some of our back-office functions to help standardize and improve efficiencies as well as drive down costs. Here, I'm supported -- other than my internal team, I'm supported by Deloitte and Cognizant. Accounts & Finance Excellence is supported by Boston Consulting, where our focus is on working capital reduction and Forex management. Digital assessment, which is the third bucket in our plants and supply chain -- sorry, digital assessment in our plants and supply chain is underway. And we should be looking to engage with some consultant next year. There is work going on in the background to prepare for a future-ready organization for this function, which should help scale up digital ideas. Our project Olympus remains on track. Overall savings for 2Q '20 of $25 million is as per our target. We launched project Olympus at the beginning of this year. A cost transformation program, which has a number of business-led and corporate-led initiatives, which build on saving year-on-year and reaches a run rate of $352 million by 2023. For this year, our target is $76 million. The business-led initiatives have yielded approximately $25 million savings, primarily in form of manufacturing excellence and SG&A. The center-led initiatives is in progress despite the lockdown and project implementation is ongoing with online channels. Transformation management office has been set up to monitor the program performance and support the management on delivery of the strategic priorities. There is an initiative tracking software, which will help us to institutionalize the project execution, monitoring discipline. The $352 million as a run rate cost saving by 2023 from Olympus will directly benefit our bottom line. With that, let me hand over to Mr. Lohia to take us through the 2020 developments and the outlook.

Thank you, Sanjay. So back to how we have built IVL, I mentioned in the beginning of the presentation that we have built IVL purposefully in the first decade through PET, in the last decade, previous decade today by combined PET, and now in this decade, we look forward to continue to build IVL. So what we have built is a vertically integrated and diverse business centered around PET. In 2010, IVL was primarily a PET company. Gradually, but systematically diversified and became with backward integration into PTA to secure our feedstock and increase our cost advantage. Forward integration into packaging started with a small, but profitable business and now contributes handsome EBITDA to IVL. We have continued in the combined PET, especially towards ESG. And since PET is the most recyclable plastic, we have invested in PET recycling and built a circular ecosystem for PET, as only 100% recyclable plastic. We started off in Fibers quite early in 1997. Today, we serve consumers in Lifestyle, Hygiene and Mobility through polyester and other fibers. Our Integrated Oxides and Derivatives business, we entered into the backward integration to secure our MEG supply with IVOG in 2012. Today, we have completed Spindletop which allows IVL to build scale and become the second largest ethylene oxide player in U.S.A. Also diversified our portfolio into higher value-added derivatives such as LAB, ethanolamines, oxyfuels and propylene oxide. Our strong foundation to enter surfactants in customer segments, serving attractive markets such as personal care, agriculture, food processing, et cetera. Growth at IVL is intentional. It is building off our scale PET business at our core. This is my final slide, and I'll leave you with the recent McKensie survey and its implication on certain industries, bodes very well for IVL. As understandable, the miles driven in cars or bikes will drive our momentum for most of our businesses, be it tire cord, beverages, on-the-go, gasoline additives and antifreeze, to name a few. An area where consumption will rise is on the recreational side as we step out of our houses to enjoy the brighter sky and public spaces, which are now less crowded with the absence of tourists. We probably will still be careful of mass transit means. I'm very confident of my people, our portfolio, our strategy, its execution and the resilience of our business model. All put together, our IVL is very well positioned for the rest of 2020 in spite of the turbulent and unsettling market conditions. We are the other company of all seasons, and we'll continue to thrive with our resiliency in 2020 and beyond. Thank you very much for your time today. I really appreciate your support and trust in IVL. Back to Vikash.

Thank you, Mr. Lohia. [Operator Instructions].

This is Komsun from Phatra. Mr. Lohia, I have few questions. Number one is that while Surfactants saw EBITDA margin decline, I thought it was pretty resilient. Which product that contributed to that? Is that EOA, ethoxylates or LAB? And how big is these products exposed to oil and gas segment, which is as opposed to Hygiene or other segment, which is more resilient? And the second question is the -- it is understandable that PO/MTBE volume will be low. Am I correct to assuming that PO volume is relatively stable or it is down because of the poor economic of MTBE or poor economic of polyurethanes end market?

Thank you, Komsun. On surfactants, what you're seeing is integrated surfactants. So this includes the crack margin and the crack margin has come down in second quarter. Surfactants by itself has benefited in the hygiene space, which has been offset by the oil sector. So Surfactants by itself is steady, but integrated surfactants, which includes the crack margin. So therefore, you see that drop. On the second question of PO/MTBE, the -- PO, as you know, goes into urethanes, which goes into construction sector, which was weak in second quarter 2020. So production is a combination of PO and MTBE for our business, for our technology. And therefore, the combined effect of PO demand and MTBE demand -- the MTBE demand was also impacted by the gasoline consumption. So we were running the PO and MTBE -- I will ask Mr. Agarwal to add to this, at a rate which was not very low but below our capacity.

Yes, thank you, Komsun, for asking this question. Second quarter had a typical situation where MTBE prices went down significantly and it was creating negative contribution. And the PO demand was poor. In third quarter, we are seeing PO demand coming strongly back. Similarly, the MTBE demand coming back. And we are right now operating at about 90% capacity utilization. So second quarter was a very strange quarter. As you know, gasoline demand went down, MTBE went even lower than -- because most of the market is South American market. So now we are seeing that recovery coming back. And surprisingly, PO, as you rightly mentioned, linked construction. But we are seeing demand coming back into the third quarter. And Ms. Lohia mentioned, this is integrated surfactant. So it is from ethane to Surfactant. That's why since the crack margin in second quarter in U.S. were low, that's why it is reflecting the lower margin. Same gets reflected in integrated glycol and all these products.

Okay. Thank you, D. K. I think I was going to ask a follow-up question on that because I saw that the volume run or capacity of PO is also reducing from what you already have even before Spindletop and also same thing on glycol, is also the production -- capacity was also lower. Do you have any restructuring? Or do you reroute or divert some of the PO to other product?

So if I got you correctly, the third quarter, as I mentioned, glycol is running full. It creates positive contribution naturally because the -- we also buy a lot of ethylene and still the crack margin is slightly higher, about $0.08 a pound. And because of this Lake Charles, we will -- in fourth quarter, we'll be buying ethylene. So glycol, as I mentioned, we debottleneck running the glycol at full. And PO/MTBE in the fourth quarter, we still don't have a visibility, but third quarter is clear 90% operating rate. It will be fully operating -- at 90%. And we have, as you know, some tolling agreements of PO. So our customers are showing a strong recovery back. So you will see in the third quarter that benefit coming in fully in the fourth quarter.

I'm sorry, am I understanding correctly, the crack margin was spread out between integrated surfactants and PO/MTBE businesses?

So with the way we do that integrated surfactant and integrated EO has 100% crack margin because that is integrated. Glycol decision is made based on purchased ethylene. So glycol, you will see less impact. So whatever we have at lean production, we show it as an integrated from ethane to glycol, rest is based on purchased ethylene. So that is how it is shown. Because we are short of ethylene, as you know.

Let me add. So we're talking about the second quarter. In the second quarter, we had our own captive ethylene. So it's integrated. So as a business, we'll be reporting integrated MEG, integrated PEO, integrator surfactants and PO/MTBE. What D. K. is saying is, since the Lake Charles cracker is offline now, we'll be buying ethylene in the second half.

And second quarter also, we had this Port Neches crackers down.

Any other questions? Yes, Naphat.

Yes, Naphat from Krungsri Securities. First question is on the stock loss in the second quarter because I see the THB 3.3 billion stock loss comparing to the first quarter, THB 3.4 billion. But when the -- if you look at the first quarter, the product price and the oil price is one-way down. But in the second quarter, it's actually bottom out in April and then it's recovering. So I wonder why the stock loss is about the same as the first quarter? That is just my observation.

Sanjay, you want to take that question?

So I think we have seen the overall product prices, I'm just talking about the full year. In the January 1 and February, we had the product prices hold quite well. And then when the crude came down in March, we saw the overall product prices come down. And then in April and May, so it's on the inventory we hold which is around 1.5 million tons globally. The product price, which is there at the beginning of the period to the end of the period. So that's the inventory losses, which we report.

So the volume is ...

I think -- let me add. So we follow a weighted-average valuation methodology. So because of the weighted-average methodology, we are still carrying high-cost inventory in the second quarter. The impact when you see the inventory loss of $100 million -- it's because of the weighted-average methodology. So I've asked Sanjay and Vikash to look at this for other companies. That -- other companies are following a FIFO or LIFO what methodology, but our methodology being weighted average causes the inventory loss in the second quarter being very high. Because -- just to give you an example, and again, Sanjay, as CFO, you probably can explain. Jan, Feb, March, our weighted average price would still be $60, let's say. But the second half -- second quarter weighted average was $37?

Yes. So it is the weighted average impact because we don't do the net realizable value, NRV concept. So you're inventory loss gets spread out. And inventory loss is 2 components, remember: one is, the crude oil drop; second, the paraxylene margin also dropped significantly from $300 to $150, and MEG margin drop. So our inventory loss consists of crude component and the margin drop of MEG and PX. So second quarter all has gone now. Now any third quarter because of the crude oil and the margin, you will see the inventory gain is coming back.

But in month of July, we have a gain?

Yes, in July we already have a gain. So now it's all impact gone with the weighted average, April, May, June. So that is the difference between. So third quarter onwards, at present oil prices, you will see a gain coming up.

One more question is on the second half outlook, because based on what we have seen in the operations quarter to date, and when I look at your presentation, 80% of your portfolio seems to have no impact on the COVID. And even another 9% is likely to show a V-shaped recovery. And so I -- how much better in terms of operations that we -- should we expect in the second half this year?

So absolutely, that was a purpose of this slide. That 80% of our revenues or 76% of our EBITDA in 2019 on a pro forma basis, came from nondurable businesses. I briefly mentioned that in the second quarter, these nondurable businesses contributed 95% of EBITDA, implying that the 20% of our portfolio hardly contributed to the EBITDA. So that portion, the 20% is now gradually improving. But the markets are very volatile, markets are still very uncertain. The restriction on travel is still quite in place. So I will be -- I'm hesitant to give you guidance beyond that. My guidance on the second half is that 80% of the portfolio has contributed 95% of the EBITDA in the second quarter. 20% of the portfolio hardly contributed to EBITDA. All of that 20% -- not all of that, let's say, the automotive is still slow. But at least half of the balanced portfolio, be it PO/MTBE, be it Lifestyle Fibers, they are getting better. So I would not guide you that it's going to be far better in the second half, but it will be better than the first half. So, sequentially, as first half was better than second half '19, similarly, I would expect that second half will be better than first half '20. It -- for this 20% of our portfolio, it depends quite a lot on how the crude oil recovery takes place and how the -- how the people go back to driving. As people go back to driving, gasoline consumption helps our MTBE business. When people are on the road, people consume more small packaged beverages. And people also need more Lifestyle Fibers. So people going back on the road is important for that 20% of our business.

Any more questions, please? Yes, Yupapan.

Yupapan from Macquarie. Can we have more detail on insurance? Should we expect that all of the revenue loss will be covered by insurance? And when we could expect that the [HRM] will come in? Is it going to be in the third quarter or fourth quarter?

So we have -- as we mentioned, we have a comprehensive insurance coverage. But on the insurance, there is always a deductible. So the deductible is something, which the company will have to bear. On the property damage, there is around $9 million and on the loss of profit, there is around $15 million. So depending on how much the loss is -- it is still under assessment. This is something maximum which we could incur. And it will -- as we say that if it's going to take a few months, then you should expect this coming in the fourth quarter.

Sumedh?

Sumedh from JPMorgan. I had 3 questions. So specifically on IOD business, we had so many disruptions in first half and even now the cracker is shut. So could you tell us what is the EBITDA expectation coming into second half? I mean, how much should we expect a gain from MTBE and maybe a loss from cracker? And going into 2021, when or whenever -- when do we expect the earnings from this business coming back to the pro forma earnings that we have seen, historically? That's first. Secondly, you also shared some color on PET business. How the margins are moving? And what do you see in second half, both in PET as well as PTA? And thirdly, specifically to third -- sorry, second quarter, where have we -- where we have seen production utilization coming to roughly around 80% when it's usually a seasonally better quarter. So what happened there? And when do we expect utilization rates to pick up going into next quarter?

I will take the inventory question, and I'll take the IOD question. And I'll request Mr. Agarwal to take the PTA-PET question. So on the capacity utilization, we made a determined effort to conserve cash. And as you would see in the first half -- can you take me through the beginning of the presentation where we have half yearly numbers? So as you can see, we had the production in 2019, we produced more than we sold. So we made a conscious decision to get -- or to sell our excessive inventory. So we made a determined effort to reduce our production. As you can see from sales quantity, our sales quantity has been steady. So no impact on the sales, just inventory liquidation. And that is one of the disciplines that we want to now deploy in IVL going forward. We're very conscious about what we produce and how much we produce and not produce to stock. So that's an answer on the inventory and on the capacity utilization. So yes, the second quarter, which typically has a seasonal boost, did not see that seasonal boost, which is quite understandable during the COVID-19 with the lockdowns. But what is happening is that even with the lockdowns, the first quarter demand was continuing in the second quarter, where most of the world was shut down except China, probably. So we are quite pleased, I would say, with the demand on our products. Like I said, 80% of our businesses saw very steady demand. On the IOD, basically -- can we go back to the IOD slide? So the $473 million pro forma data in 2019 is our target. You ask when. So this is based on, let's say, the oil prices in 2019. If we discounted that oil prices may not get back to the 2019 levels, then we probably would not hit this EBITDA -- or, no, let me amend that statement. It depends also on the MEG margin. So the MEG margin in 2019 in the first half was good. Second half was not good. So by 2023, the way I look at the business is more on a medium term. So I'm looking at 2023 plan. So I would still think that even if the oil price was at $55, we would still aim for this $470-odd million, probably even a bit higher because of all the cost transformation initiatives that we have. If you go to the cost transformation initiatives where we have now $352 million, and we are quite comfortable with that number. And we believe that number is conservative. So we believe that 50% to 100% upside is on that number based on the last 3 months of deep dive into our businesses. So I would think that I would still -- we are making our business plan as we speak now. So during the next CMD, towards the beginning of next year, Jan, Feb, we'll be sharing that with you. But at the moment, I can just give you rough guidance on the way I look at the business. So it's oil -- crude oil, what we judge would be, on the cost transformation projects and on the MEG. The -- those are the drivers for the IOD. Mr. Agarwal on PTA-PET?

Yes. So PET utilization rate, integrated PET, for the second quarter, as Mr. Lohia has mentioned, is 81%, where we took a conservative approach on keeping -- not building the inventories. We are seeing a very strong demand in third quarter in PET. We are running our assets at full capacity today, including Egypt, globally. We are actually -- with this lockout open, we are seeing that small format demand, particularly for water and due to aluminum can shortage, it's -- PET it's very strong. Fourth quarter normally is just seasonally weak, but we will -- as you know, fourth quarter is weak. But the value chain margins are -- PTA margins will remain low so far at present we see because until this Lifestyle demand comes back, which influences the Integrated PET. But PET demand, the margin should hold on. I agree when Mr. Lohia was saying if -- PO/MTBE is a major contributor, which is gasoline recovery, which is linked to the -- not only crude, but the premium over crude as MTBE demand premium. For the purpose the MTBE which is made, is a more crude cost. So it's a timing gap as you recover. Of course, arbitrage between oil and gas, that's critical. And that's what will drive this profitability of glycol and MTBE both.

And the crack margins.

And the crack margins. Basically it's the arbitrage between the two.

We have a question from Mayank from Morgan Stanley.

Sure. Vikash, can you hear me?

Yes, we can hear you, Mayank.

Okay. So I had 2 questions, actually. First was related to the cost side of -- I think both Sanjay and Mr. Lohia have talked about the transformation program. When you look at from a per unit basis, at least in second quarter, we have not really seen much of a reduction on a Y-o-Y basis despite, I suppose, lower energy costs. Is it primarily because of utilization rates? Or is there any specific division which is causing it to kind of keep it reasonably high levels on a Y-o-Y basis?

You want to answer, Agarwal?

Mayank, good question. Our utilization rate of Fiber remained very, very low in second quarter, which impacts the per ton cost. The utilization rate of fiber was only -- was very low. This was only a 78% and similarly was the IOD. So this impacts. But on the per ton cost of the integrated PET was lower because of the -- so you can see this bridge where you see a variable cost saving of $5 million and a $31 million fixed cost saving because this also includes some savings on -- against the loss of production. So per ton, if you're calculating, maybe that is due to the mix rather than anything. And this gives you a good bridge that how the 3 or 4 -- first quarter versus 3 or 5 second quarter. $50 million, we said because of lower Mobility production and the Lifestyle volume. And then you can see $9 million costs we got because of an inventory liquidation. PET margins were stronger, IOD, where we got hit on the MTBE and MEG margins. And the Fibers actually margins were stronger because of the overall margin being there. But the variable cost and fixed cost, you see the savings. And what you see is a project Olympus, $6 million is incremental over first quarter, which is in the below, you can see $25 million coming up.

Mayank, just to -- on Slide #13. Because you're on the... Yes, slide 13.

Yes, yes, I was on that. Yes. And just to understand this a bit better. So is it fair to say that if the fiber volumes do not improve -- because fiber has been a challenging business for quite a few years, does it mean that the impact that you're kind of saving in the other businesses will kind of get negated because of Fiber?

Mayank, we would fix the Fiber business. I will only say that. And Fiber business is not big enough to offset the rest of our IVL. So that's not the explanation for me. So for me, the explanation is that we did have better costs the second quarter, as you can see year-on-year despite lower utilization rates. So as the utilization rates improve, the cost improvements should be better. And this is just at the beginning of our cost transformation initiatives. There are a lot more projects happening. Our deep dives -- I think we are very fruitfully using this lockdown period, work-from-home period. And we had deployed experts in -- covering more than 50% of our businesses, which generate the 50% of the EBITDA, 13 sites, global sites and IOD and in combined PET. And these are our largest 13 sites, plus our Mobility plus Hygiene. So the sites that are now under review in a very detailed manner is throwing up lots of good information. And therefore, when we say in our presentation that the $352 million cost transformation, we believe now is conservative. And we expect a 50% to 100% improvement on that number by 2023. We seriously believe that.

Got it. This was very clear, Mr. Lohia. And the second question was more related to inventory and debt. If you look at your inventory number of days has been pretty flattish in second quarter versus first quarter? So just wanted to understand what is causing that? Because obviously, you were liquidating inventory. So is there something else that's negated that effect?

This is a whole culture thing, Mayank. In the past, our inventory levels had gone up from 36 days to 43 days. And now to bring the whole culture at 120 sites to de-inventorize, they have to do the supply chain fixes. So therefore, in Sanjay's slide, when he was targeting 39 days by the year-end, I believe we will achieve the 39 days or better. So again, I think the message, Mayank, is that there's a lot of culture, cost culture, inventory culture, cash flow generation culture that is being emphasized in the company at the moment. We have done our growth projects. We have now all the footprint to take us where we want to be. 80% of our portfolio is resilient, 20% of our portfolio is HVA, which can create very good value depending on the year, depending on where we are in the cycle. So we had a top line, let's say, revenue base. Now we are spending time on improving our cost base.

Okay. Sir, the final question was on debt. When you look at, I think, from a free cash flow generation perspective, obviously, I think despite COVID, you did do some amount of FCF generation this quarter. But it's not getting purely -- fully reflected on your net debt numbers for the quarter. Is there something that we are missing here when we are looking at it from that perspective?

To be very clear, we added $3 billion of net debt, $2 billion for Spindletop and $1 billion for the Lake Charles cracker. That will take some time to pare off.

So there is no incremental maintenance or CapEx going on into these existing projects, which were going on? All that is now kind of behind us?

All that is behind us. I mean, we won't do on a very safe side, very reliable business and cater to the customer needs. That's 1 of the positives of Indorama that we have multiple sites, and we don't disrupt our customer needs. But we have to improve our culture on these same practices, whether reliability or on safety. And I think I mentioned to all of us here, that one of the reasons we acquired Spindletop was to acquire better practices. And now we have deployed experts to look at all of these larger sites, the 13 sites in the world that contribute to a significant amount of our EBITDA to improve and standardize and codify the best practices. And together with the ERP, together with the global shared services, we'll have this single source of truth. It's not going to happen overnight. It's not going to happen next quarter. But year-on-year, there will be significant improvements. So just a fact that we would be able to increase our COMA with better yield, better utilization rates, improve our fixed cost, which means improve our EBITDA, decrease our maintenance cost, which will increase the ROCE, and therefore, better shareholder returns. It's going to happen sequentially. Expect that from us quarter-on-quarter. We have a huge program going on leadership development, on accountability from every site.

We have one question from Kun Poom from Crdit Suisse. So what is the impact of the accident? Is it cheaper to buy ethane today or to produce at this point?

Yes. It's a good question. We make about 30,000 tons a month in Lake Charles, We are making. Our contribution of today's crack margin is only $100. So it is -- impact is $3 million. There was a question on the -- from the floor about the insurance also. So we will -- downstream, we are going to run harder. Still we'd have contributed $3 million if the cracker would have run, but it all depends on the future crack margins, but we'll continue to run downstream completely. So it is not that painful, as I would say, shutdown of this cracker because of the present cracker environment in the United States. And there is enough availability of ethylene, which we have tied up during this interim period. So impact, you can see the EBITDA impact is about $3 million a month. Of course, depends on the crack margin going forward.

Any other question from the online? [Operator Instructions] Any more questions from the audience here?

I'm Dara from Phatra Asset. I have a question about MTBE. I have seen that the MTBE spread dropped below the breakeven level in quarter 2. I would like to know what is the breakeven for the MTBE spread. And also, could you give the breakeven level for the MEG overall integrate?

So, the MTBE breakeven margin, as you can see, April 2020 was negative $6. As you can see, it was showing negative. In May also it became negative because -- what happened in the world, when the crude was surplus, crude became negative. So there was no place to put. And then the gasoline was very bad. As the gasoline demand came up, the crack margin of gasoline improved. And now the MTBE price -- so you can see in June, it became $83 -- $112. But it's still very far from the previous history. So as the MTBE gasoline demand and the octane demand increases, the driving season, this you will see getting normalized depending on the crude oil price. So it will be gradual as the gasoline comes up, demand comes up, the octane demand comes up. Today, it creates positive contribution. So there is no negative. That's why you see, if you go to the previous slide that PO's historical EBITDA, $217 million were created by PO/MTBE business, the core, which is $50 million a quarter we're talking about. And so this all depends on how the oil price goes up, the MTBE premium goes up over gasoline because you need octane. The octane booster is always higher. So it's a timing gap, which is happening. And of course, depends on the demand of the gasoline, which will drive as Mexico opens, United States opens up, which -- overall gasoline opens up. Asia, already MTBE price is $420 per ton today. Normally, United States remains a premium over Asia. Today, United States is lower than Asia presently because of this demand issue. So you will see this gradually normalizing.

Any more questions from the audience? I have one question on the WhatsApp that what is the outlook of the demand and supply balance in the Integrated PET business? Do you see a major imbalance? Or what's the view?

Very good question. Outside China, there was no PET plant getting built today. Even the Corpus Christi is delayed. In Vietnam, we had 2 plants come in, which is already running faster than billion. Chinese export of PET in the first half dropped by $172. So there's no plant under the construction. The growth is there. And the 172 kt exports from China were lower. So -- and demand is stronger. So if I see demand supply -- and even in China, we saw the domestic demand very strong in China as the country recovered from COVID crisis, of the people's behavior, face shield, all these sanitizers, all this. So Chinese domestic demand was strong, that's why that spot dropped. So of course, first half also benefited because 1 or 2 plants were not running, 1 had Far Eastern [indiscernible]. But we think demand supply from PET perspective remains robust. PTA, yes, it is still long because PTA, a lot of capacity got built. Paraxylene is long. You know that paraxylene margin never saw $150 over naphtha. But that is the reality today of the business. So PTA, we don't think that it will be a strong rebound like last year what we had $180 per ton in the second quarter. But PET demand looks stronger. We don't see new investments coming in. In outside China and China is still restricted many antidumping duties. In the United States, we are having a review of second dumping case where ITC will take decision by November. So all this is -- within China and outside China, you have to split the business.

One more question that what are the 3 major concerns that IVL has today? So that's a more general question, but if you want to give some view on that.

We have lots of concerns. The first concern is when will the vaccine be found, when we'll be back on the roads. When will life go back to normal? And what will be the new normal. So all the concerns are around that, not around our business. We have shown that our business is very resilient. 80% of our business caters to nondurable industry or consumers. And the remaining 25% -- or 20% of our business is somewhat cyclical and some GDP-driven. But by intention, the portfolio of IVL has been built in that manner because we are a growth company. We target to double our EBITDA, and therefore, we need the legs. So we have the legs in our company. What we are doing at the moment, internally, is, as I've said, we have a lot of initiatives. We have our 5 strategic priorities that we are working on very diligently. So none of them are concerns. We have a great talent. We have great leadership. We managed the situation over the last 5, 6 months being in the COVID with 13 million tons, 14 million tons of external sales and a few million tons of internal sales quite efficiently. So my concern are the same as your concerns, I would say. It's more revolving around COVID than externally. Yes, we will amend our plans for 2023, depending on what view we take for crude oil. So when we made our 2023 plan in the beginning of this year, or late last year, at that time, we were assuming crude oil to be at, I believe, $65. Now, let's see, the next couple of months, how it goes and what the experts have to say. We most likely are going to trim the price of crude oil. So that will be the only variable, I would think. But that variable's impact on our business would, I believe, more than offset by all the 5 strategic priorities that we have. So from business sense, from an industry sense, from IVL point of view, I think I'm quite pleased with our management and our portfolio.

[Operator Instructions] I have one clarification for Kunmaria from Maybank Kim Eng. So Kunmaria, our inventory loss for first quarter was $110 million, and second quarter is $103 million. So any more questions from the audience?

So with that, I would like to thank all the participants in our call today. I would also like to thank that this is our first live as well as virtual meeting after a long time. Thank you. Thank you for joining this call. And this is sort of our inauguration of our IVL 360 center. And the people who could be present here today got a brief view of our IVL 360 gallery, which as time opens up, I will be asking Vikash and our Investor Relations team to keep in touch with you and invite you, even in small groups, to come and visit us. Again, thank you. Good luck, keep safe.

Thank you very much. Stay safe.

Thank you.

And just one request to all of you. On your table, you have this the feedback form. There's a QR code. If you can give us your feedback on the visit, it will help us to improve. Thank you very much.