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

Good morning, ladies and gentlemen. This is Vikash Jalan, Vice President, Investor Relations and Strategic Planning for IVL. I welcome you all to Indorama Ventures Fourth quarter and Full Year Results for 2020. Joining me today in our earnings call is our group CEO, Mr. Aloke Lohia, along with IVL's executive team members; Mr. D.K. Agarwal, CEO; Mr. Sanjay Ahuja, CFO; and also joining me today are our group CHRO, Mr. Roberto Bettini. So just a quick disclaimer that this presentation is being recorded, and a replay of this will be available on the website after the call. We might have some forward-looking statements, the presentation, which are made -- based on the industry trends and data, which is available at this point in time. So please take a note of that. Let me quickly go through the agenda for the call. So Mr. Lohia will start the presentation and followed up by Mr. D.K. Agrawal, who will give us the business updates. Then the finance will be done by Mr. Sanjay Ahuja, our Group CFO. And at the end, Mr. Aloke Lohia will come back and give us the outlook for 2021. So before I hand over to Mr. Lohia, as you know, that this year, we have done our biggest ever acquisition, Spindletop deal, Huntsman acquisition. Now we call it as I V O X, IVOX. So we have prepared a 3-minute video for all of you to see the facility, see the management talking. So we'll start with that video, and then Mr. Lohia will start the presentation. So can we have the video, please? [ Presentation ]

So now I invite Mr. Lohia to start the presentation, please.

Thank you, Vikash. Good morning to all of you. Just -- we just saw the video of IOD, so let me start with IOD. And it's been a very tough year for IOD, especially. They faced every challenge, they had a huge turnaround, a plant turnaround in the first quarter as soon as we bought it, it was known. But that was remarkable that the turnaround went on cost and on time. So that gave me a full confidence in this management team that we have got, number one. Number two, then, okay, we had a series of unfortunate events. And that has really put -- delayed the returns that we expect from this business. But when I say delayed, I really mean delayed. I'll come to that more, and D.K. will also cover that. But basically, in the MD&A, we have shown you a table where we show our commodity portfolio and the HVA portfolio in the IOD segment. And the HVA platform, which is the downstream of purified ethylene oxide, of surfactants and of propylene oxide. They have remained steady, and the volumes have remained good. On the commodity side, it was a disaster, I must admit. Both from a volumetric point of view, not because of demand, but because of the shutdowns led by weather and also because of the oil collapse. So the oil collapse has really hurt the business quite significantly in energy and in MTBE, as the slide in front of you shows. We obviously had this occasion to really make a deep dive into what really is MTBE, for instance. And MEG, obviously, we consume it, so we know it. But we also established what drives -- what are the drivers for MTBE and MEG. And what I can confirm today to all of you is that we have come from all our learnings in a very simple way. That the EG and the MTBE business are quite alike. The prices of both of these are set in Asia. China is the largest consumer of both MTBE and EG. And therefore, it is crude oil-based pricing. As the crude oil collapsed, the final prices of MEG and MTBE shrank. Against that, our economics are based on shale gas. So our shale gas advantage got totally lost, I would say. And therefore, we have this very poor returns from the commodity platform. As we all have seen in the last couple of weeks, and even maybe in the last couple of months, the price of crude is coming up quite significantly, I must say, and that is bringing back the type of returns that we expect from both MTBE and from MEG. Will they be long lasting? I would say, at least for the first half of 2021, with MEG because of our peak season approaching in the second quarter. MEG was tight in the marketplace from the hurricane effect in the third quarter and going into the fourth quarter last year. So there is a total, how do you call it, the pipeline is quite bare as far as MEG is concerned. And now with the vortex, the freezing weather in Texas, which thankfully now is behind us, but that has also led to further contraction. Just to talk about the vortex, can we go to the slide which shows the impact on the industry in North America? Yes. So this is a third-party report, which covers the amount of businesses that were in the Gulf Coast and in -- which got impacted. And over here, as you would see, a significant part of the total EG in U.S.A. has got negatively impacted. Now North America, for people who have not followed this very closely, supplies a lot of EG to both Europe and to Asia. And therefore, I see that there's going to be a constraint in the supply chain across the world as far as MEG is concerned, and that we are seeing reflected in the pricing of MEG already. So that is that. With the price of crude oil going up, even our shale gas advantage is coming, that for the correct margins have improved. So all in all, our integrated MEG business is now back to where it should be in terms of margins. Let's go back to the start. Sorry for this detour. On MTBE, I said that this business is very similar to the MEG business. Again, because the largest consumers are in China, therefore, the price is set by crude oil. Our advantage, disadvantage lies in the shale gas. And both MEG and MTBE in 2020 got impacted on demand side. The MEG got impacted on the demand side, primarily coming from the reduction in Lifestyle fibers or polyester fibers sales in the second quarter and going into the third quarter. We see in the fourth quarter a lot of that returning. But that was a huge deficit in consumption of polyester fiber, which a third of that is MEG. And also because of the ban on travel, et cetera, the demand for antifreeze MEG have reduced. So these 2 factors -- and of course, there was new capacity of MEG that came online. So therefore, it was a perfect storm for MEG. On the MTBE, the demand contraction was also there because MTBE basically is an octane booster, which goes into automobile and miles driven and miles driven globally has come down. So as with the COVID vaccination, as the world opens up, we anticipate improved demand for MTBE, which will result in a premium over the bare gasoline pricing. This covers for me, the third bullet point on this slide that all is good. No structural damage. Coming to our combined PET business, this has been the hallmark of IVL. And 2020, we saw very good returns from this business. I mean I see very good returns. Obviously, they were not as good as what we had in 2019. But the difference in the returns all came from paraxylene and PTA. And again, for the same reason that the polyester demand was quite significantly impacted, polyester fiber demand, and therefore, there was a challenge of margins in both paraxylene and in PTA. Shortly, basically, as we speak, the margins of both paraxylene and PTA have improved. And again, as we see the full Lifestyle fibers business coming back onstream, therefore, we see continued upside in that and into the second quarter, which is a peak for our PET section. On the positive side, the specialty business is better. The packaging business was fine and PET by itself was also fine. So no demand disruptions anywhere in our business, apart from very short-term due to good and well-known reasons. On the fiber as a portfolio for us, it was a mixed bag. Overall, let me go into the fiber plan that Mr. Agarwal will explain. What we see is that Hygiene had good results, Mobility had equally bad results. Our Lifestyle fiber more or less in the later part recovered. So there is a slight reduction, but nothing significant. So our fiber platform has done well, I would say, our combined PET platform has done well in 2020. And this all gives me a lot of renewed confidence in the business that IVL has built over the last many years. And all our businesses are businesses that will continue to throw strong cash flows. As we saw in 2020, the discipline was on liquidity. We did manage to get 6% more operating cash flow in 2020 over 2019, despite a 3% drop in our core EBITDA. Volumes, as you can see, we were plus 18% higher, but largely, that was because of the new acquisition of IOD. On a like-to-like basis, I believe the volume growth was at 3% or 5%, but it was on the positive side. Very significantly, in 2020, we -- at the corporate level, we have done a lot of long-term thinking, let's say, and we have made significant progress in Project Olympus that we had announced at the last Capital Market Day in 2020. And we also did get better savings in Project Olympus than which was targeted. We talked about the platform already, by platform, I mean, businesses. So we do have a strengthened platform. You saw the video. We have a great management team in IOD. And this IOD platform is a platform that has significant chance of growth. Growth is all about management. And with -- stay there, please. Growth is all about management, in my mind, I mean, if you have the right business, we have the right business and we have the right management. And we have further empowered our people. This is the tagline for IVL empowerment. And we have delegated more authority and more ownership down to our 16 verticals. So IVL business is broadly under 3 segments. And within those 3 segments, there are 16 businesses. And these 16 businesses have formed their PMOs with their teams and taken ownership and responsibility. We shared with you just a couple of weeks ago at the Capital Market Day in 2021, our 2023 business plan. And this business plan, I mentioned at that time, is a business then that is bottoms up and therefore, I have full faith that we will deliver on that business plan. To support our platforms and our people, we are investing in the future of IVL, the new era of IVL and further growth -- sorry, further growth of IVL. To materialize this growth, this announcement of IVL, we need a good infrastructure. And therefore, we are putting this one single ERP across IVL. It's a big journey. It's a big project. But I'm so glad that my team when we approved it at the last -- in early 2020, we sat down again with the project management team that with COVID should be slowing down. And the team, full credit to them, they said let us try. So in this 9 months they made significant progress. We are on track and that is so happening for me. So that is the key takeaway for 2020. Let's go ahead. Next slide, please, Vikash. So what happened during COVID. It impacted quite a few of my employees, my colleagues? We have 24,000 of them. And again, the empowered leadership, they were meeting regularly, even practically every day, ensuring that we were passing on the best practices across the sites and keeping our people safe. And I'm very glad that I think we have done a marvelous job of that. And still this is not behind us. We continue to have cases. We have the second wave and third wave. So IVL in head office and Bangkok was working from home till last week, 100%. Only starting this week, we have now come to 25% work from office. So we are being quite diligent about it, being quite -- keeping safety on the top of our minds. All 120-plus sites are operating, no issues. I mean, no issues because our people are great. I mean, they are working extra hours where necessary, they have broken down the shifts. If we do a 4-shift system, they made it into 3 shift system. They have ensured that our customers remain served. 99-plus percent of those orders were served. So we have not starved any customer of us, despite all the difficulties both from a COVID point of view, from a work front point of view, from a frontline point of view and from the weather point of view. And all of this has seen $300 million of cash release from the system. So we continue to support the communities around our sites. And I think this is what cooperations can do, and I feel very proud of our cooperation in this respect. Next, please. So we just did the CMD, and most of these things were spoken at that time. Just to reiterate, basically, we had great volumes. All our businesses are safe, all our businesses have regular need of the products that we make. On sustainability, we continue to make progress. We did 4 acquisitions. We are more active underlying discussions with our key customers. And our key customers have also shown their resolve by understanding the price difference between recycled PET and virgin PET in 2020 and have honored and supported us, and we had a positive EBITDA in this business despite the low resin prices. We do not disclose, I believe, in recycling, but within recycling, we have 2 chains. We have the recycled fiber and the recycled PET. So recycled PET actually has done much better than what the numbers show, but it was offset by the weak fiber side. So all in all, we had a positive, but PET side was stronger than the fiber side as is understandable. Project Olympus, I mentioned, delivered 21% ahead of savings, which is great, off to a great start. We have 2,500 initiatives. And we have also implemented a software called Key, K E Y. And this software tracks these initiatives and it's sort of stage-gate so that we know which initiatives is where in this journey. And it basically aligns the sites to the delivery. And again, it was remarkable that we were able to implement the Key software in a matter of 4 months. I'm quite proud of that. The Spindletop integration, let me not say more. I think I've said confidently that this is a business that was our largest acquisition ever, and nothing has changed as far as the strategy of the business is concerned. It's a gap year. We have learned a lot about the business. We understand the business much deeper now, and we continue to see and look for opportunities to grow this business. What did not help was obviously the polyester fibers. That was a huge impact. The reduction in polyester fiber is -- generally grows at 5%, 6% globally, reduced by 9%. And that's huge because all the value chain, the supply chain was geared to supply a larger demand. And obviously, that resulted in a huge drop in paraxylene and PTA and MEG spreads. The decline in shale gas advantage. We spoke about that. So I don't think I need to go deeper or talk more about it. The mobility fiber division was the least performing in Fibers segment, and that is understandable. But -- when I said but, basically, in quarter 4, we have seen a good recovery, and we continue to see that recovery in the first few months of 2021. Okay. Next slide, please. Just to reiterate, you have seen this slide in the CMD, talks about our final -- the product that goes into the finished products. And as you would see on the green -- that all of these businesses are back to its potential. So next, please. This has been a great -- again, talking about the company, the culture, the people and the business that we are in. The advantaged IVL portfolio basically is around is sustainability. Amongst all plastics, PET -- PET, the recycling number of number one, the 127 symbols. And PET is number one, only because from day 1, from beginning. It has seen that PET is the most recyclable and fully recyclable plastic. And that's a huge advantage that IVL carries or the industry carries. And we are at the forefront of investing in ESG, not only from a mechanical recycling standpoint. But also on the emissions, we are developing our standards. We are developing our targets. And I would say, at the moment, our 2025 targets are achievable, but they can be even more aggressive. So every day, we are having this deliberation. The amount of time that the senior management is devoting to sustainability is a nice feeling to have that is not only business as usual for us, but what other things that IVL needs to do to be a front-runner in its field. And this is one of them. And perhaps the most important one. Next, please. I think this is a good slide, I think it's the first time we are sharing this slide with you. And as it shows where we started in quarter 1 with 1 ERP investment which management, project management team said they will go ahead with it. And virtually, truly virtually, they have got all the few thousand people who are directly impacted by the 1 ERP involved in this. The first rollout has been of success factors. SuccessFactors is a part of the ERP, which is HR-related, or manpower-related. And this will help us a lot because now we have a better visibility of our colleagues around the world. And this will help us to set the right rewards. So at the moment, we only have a short-term incentive plan, but this will help us to understand and have a very formal approach and a size-based approach to the reward system for our colleagues. We have 6 enabling rules, which we call the future-ready organization. And this is around safety, which is EHS, sustainability of costs, then we have BCM, business continuity planning, and we -- all the 6 pillars have been now manned by some -- half of them by existing passionate people from within the firm, and half of them from outsourced or new colleagues joining IVL. And it's very impressive. It's very impressive. We just take the vortex, the freeze in the Gulf Coast, for instance, there was such a good collaborative work between Texas and our BCM Head, Ms. [ Nonni ]. And Ms. [ Nonni ] comes from the industry. She comes on the petrochemical industry. She was at Petronas, I believe, and she has a fair knowledge about what BCM means for a chemical company. And because it is not only the direct impact of lost mandates or lost production, but it's all the collateral damage or the collateral impacts. And I mentioned MEG, for instance. So MEG, a lot of MEG globally is sourced from North America, and North America was tight before the vortex. And therefore, you can assume that it's going to be quite limited in supply, which will impact the downstream, which means it will impact the polyester value chain globally, not only in the U.S. It is -- but it's really heartening to see the true collaboration between corporate and businesses. The transformation management office to deliver on the Project Olympus has been set up and I mentioned the program, the Key program. This is helpful because it keeps us on track and knowledgeable. This $600-odd million of savings with the 2,500 initiatives. Most of them are etched in stone, but some of them will continue to get improved. And I'm sure our teams are going to find even more opportunities as they go deeper dive into their businesses. We have also streamlined our accounting and finance excellence as a growing company and with our -- we have a lot of respect for our MIS. And we just needed to ensure that we are in sync with each other globally. And also for better working capital management, better supply chain management, better tax planning and all of that. So we also then in the fourth quarter, have gone live with our global services. And I don't know what to say, but our people have done a wonderful job taking on a lot more initiatives than this is as usual of the past. We took a deep dive in both IOD as well as in the fiber business, the fiber, we call it the full fiber potential, a full potential plan. And in IOD, we've got it a asset full potential. And therefore, when I said that we used 2020 quite productively because we made a better understanding of what we own, our asset footprint, our competitiveness and our value to the market. Thank you. The last slide for me. Yes, basically, I've mentioned this in the last couple of slides. But essentially, it's all about the platform, the people, and the systems. And the way I'm thinking about it and the way I'm sharing with our colleagues and the people in IVL is that when these 3 things come together, you will have inspiration, you'll have ideation and you will have implementation. With those 3 I's, that is what is going to be a growth IVL. Thank you. Over to you, D.K.

Yes, very good morning, and hope all you are keeping safe. I think the most critical part is the resiliency of the business. And this slide shows you the volume growth. In 2020, we achieved 14.1 million, which is 18% growth over 11.9 million ton. And if we exclude the Spindletop, which is a same-store business, the growth is 5% which is the testimony of the resiliency of our business. The combined PET, as you see quarter-by-quarter, grew consistently. And for the year grew by 5%. Although the on-go demand wasn't so strong, but it was driven by home consumption, by new application, like face shields and sanitizers. And in the fourth quarter, we lost about 240 kt because we had a scheduled turnaround in the Rotterdam. And also we had some unplanned shutdowns in India. So this shows the strength of the combined PET business. IOD business, if you saw, as Mr. Lohia covered, we had unfortunate incidents, which in spite of that, the growth is 375%, which is primarily driven due to IVOX growth. Now I think the whole headwinds are behind us, as vortex, as we talk about it, it resulted into 14 days turnaround -- shutdown. We are restarting all the plants and all the plants will come back to the production sequentially from next week. And we are very excited as the crude oil prices has gone to $67 a barrel. And the advantage of crude oil versus shale gas is reinstated, and we'll talk more about this when we go to the IOD section. Fibers, interestingly, grew 2%. Now this was driven by the increased demand in Hygiene, but it was offset by the Mobility, which was quite weak because of the conveyance issues. Now it has come back in the fourth quarter. And the Lifestyle, the demand dropped because of the closure of the main street. But what we see interestingly, in the fourth quarter, as you see, and you will see in the financial results, the fiber strongly recovered. And as I speak today, all the 3 verticals are ramping at full capacity because the pipeline is empty and the strong demand is coming up. What do we see in the outlook? Combined PET, as we went into the year, there is a very strong demand, you see the freight rates being very, very high. Being the domestic producers, we have a very, very strong demand and low inventory situation, which is actually improving the margins. And also the cost of the import parity inflated due to the PET coming from China, the domestic premium is increasing. And that's why the PET demand has continued to remain strong. And interestingly, the PTA demand is also coming up as the fiber demand increases, and we have seen the PTA margins recovering to $106 per ton in February. IOD, again, the volume improvement is coming with the higher production, except for this vortex incident which put the production down for 14 days. But now we are saying, as soon as we recover the plant, there's a strong demand for all the product lines which we have. And as I mentioned, about the fiber, Mobility, Lifestyle and Hygiene, all 3 verticals are showing a strong market recovery. And that's what we were trying to explain that there's no structural damage due to the pandemic and there's a strong demand in all product lines and are recovering very strongly. And there's no doubt, as you know, that the demand for all the commodities are increasing rapidly and witnessed in China and elsewhere in the world, we see a very strong 2021 from demand perspective. Let's go to the next slide. This shows you quarter-by-quarter earnings. As you see in the fourth quarter, we had $255 million, which is an increase of $54 million over $201 million in the fourth quarter of '19, which is a significant growth of 27% year-on-year. And if you can see here, we had combined PET 177 million. The laggard was the IOD, which is $13 million. But the fiber division, if you see $59 million is showing a strong recovery in spite of lag impact, which we had on polypropylene. And in first quarter, we'll see all 3 businesses delivering strong reserves. As we were telling, the major impact has been on the PTM margins because of the reduction in the polyester fiber demand, which dropped the 47% drop in the PX PTA spread. But as I was just mentioning, the PTA spreads are strongly recovering back as witnessed in February. As Mr. Lohia has covered, the drop in crude oil prices, eluded our competitiveness of the NGLs. And now as the crude oil has rebounded to $67 a barrel and the MTBE and MEG margins are strongly recovering back. And the COVID impacted the Mobility division. So as you can see, from quarter-to-quarter, now if you look at the year-by-year, our total EBITDA was 1,114 versus 1,147, which is 3% drop. But if you take one-time incident like hurricanes and the COVID impact, it really impacted $170 million because of this unforeseen incidents because of lightning, hurricane and the closure of the plants. Now this -- so this would have normalized by that. This year, I'm not considering what might have been dropped because of the crude oil drop. So this shows the resiliency of the business and what we can think will happen in the first quarter as we move into the first quarter. Next slide. Now if we go into business by business, the Fibers, as you can see, fourth quarter is $59 million versus $43 million in the fourth quarter of '19, which is a $16 million improvement and 37% year-on-year growth. And if you see Hygiene, had $19 million. Of course, this was impacted due to the lag effect, but Mobility has recovered strongly at $15 million. And the Lifestyle, our acquisition of Indian operation, has turned around significantly, and we can see Lifestyle amounting to 25 billion. And in the first quarter, we will see much more stronger results in the Fiber. Fiber, we have unique positions in all the 3 verticals. The Hygiene demand continues to remain very strong. However, in the first quarter, because, as you know, the polypropylene prices are going up rapidly, and we have a lag impact, you will see that in the first quarter. On the yearly basis, $195 million versus $222 million shows a strong result. But if you see, section-wise, the vertical wise, the Hygiene, $121 million versus $90 million. But Mobility was the major impact where you saw $18 million versus $70 million. And the Lifestyle was $56 million. But the major impact in Lifestyle was Q2, Q3 when the main streets got closed. And now we are seeing a pent up demand, and we'll see this momentum continuing. The Fibers Full Potential Plan, which delivered $42 million saving, 26% above target. And as Mr. Lohia covered, we have choked the plant for $600 million to be unlocked across all the verticals and the corporate, and we are strongly on the track with our Key program. So Fiber, as you can see, is strongly recovering back. And you will see in the 2021 and we are on our plan by 2023, as we presented in the Capital Market Day, to have double-digit returns on these assets. Next slide, please. The major business, now if you come to the combined PET in the fourth quarter, has $177 million versus $134 million, which is pre-COVID and you can see this is 31% year-on-year growth, which shows the strength of this business. And if you see section wise, PET was $102 million. So the major impact came because of the complex PX/PTA margin. In the YTD basis, if you see, for the full year, it was $794 million versus $866 million which is 8% drop year-on-year. But PET remained pretty strong at $480 million versus $470 million, but as we mentioned, we lost nearly 200 kt because of the scheduled turnarounds and unplanned shutdowns in the fourth quarter. The major impact came in PX and PTA where it was $134 million versus $261 million, and which was a drop of the PX/PTA margin as the demand reduced due to the polyester fiber demand. Now as we are seeing the recovery in this demand, this [ PTMR ] spreads are coming back. As you will appreciate, the crude linked pricing also has an impact on our business because we sell on import parity and the duties are based on the absolute price. And now as the freight is increasing, just to give you an indication of the freight advantage, quarterly, it tantamounts to about $22 million per quarter, and that's what is going to get unlocked as the freight costs are increasing from China, and we are selling on an import parity basis. Similarly, the IPA margins are quite strongly rebounded as the demand for low mill fiber had recovered, and you will see the IPA margins also improving. We are on track on our Project Olympus of $41 million, which has exceeded the target by $14 million. So this business remains robust. Because of the strong demand growth, margin improvement and the pent-up demand, which is coming up and the unique position, which IVL has in this business across the verticals. Specialty polymers is also doing very good. Even our NDC business has delivered strong results. As you know, from home working requires more, as you know, the iPhone buying and the large-scale screen TVs. Next slide, please. This is a business, which was the maximum affected, as Mr. Lohia covered, Integrated Oxides. Now if you look at 3 different verticals here, $105 million versus $75 million, and if you look at it, the commodity business, that is what got hurt, which is integrated glycol and PO/MTBE, which resulted to negative EBITDA. But integrated PO and integrated surfactants delivered strong results. Now this was all due to the arbitrage between the naphtha based MEG and the MTBE demand being disrupted due to the gasoline. As now the crude oil prices have strongly recovered going to $67 a barrel, entire MTBE facility in the United States are shutdown, MTBE has strongly rebounded and the MTBE margins are quickly coming back. And the glycol today, as Mr. Lohia was explaining, the entire value chain has been very much compressed. And we are seeing the spot price of glycol is already at $780 per ton and recovering strongly. Now certainly, this will get reflected in the second quarter earning of IOD when our full operations will be running. As you note that our shutdown of -- Lake Charles was shut down. This will be started in the second quarter. But if we have a comprehensive insurance and the insurance income has not been accounted in the fourth quarter '20, which will be accounted in first quarter '21 as the cash is received. So IOD has a very, very strong platform, a mix of downstream portfolio and the MEG and MTBE. And as we see the crude oil recovery, we see a strong recovery. Similarly, the Asset Full Potential program and adjacency growth is taking speed in this business, and we are on track to go for a double-digit return by 2023 on this investment. And there are a lot of growth opportunities as you saw in the video in this vertical, which we are excited about. Thank you. I think that covers the business part. Yes, I will hand over to Sanjay, who will cover the finance section. Thank you.

Thank you, Mr. Agarwal. Good morning, everyone. Let me walk you through our financials. First, on the fourth quarter numbers, if you look at our fourth quarter numbers, these go beyond the portfolio resilience we have been talking about. In the past, Q4 has been relatively a low season for us. But Q4 2020 was different. The V-shape recovery has shown in volumes and EBITDA. Q4 volumes were similar to Q3 volumes and -- but 25% higher year-on-year when compared to Q4 '19. Q4 EBITDA 2% higher on quarter-on-quarter, but 27% higher than 4Q 2019. The overall year-on-year higher EBITDA is despite the lower performance by IOD. Strong operating cash flow delivery in this quarter again, which help keep our net operating debt-to-equity lower. We delivered a core EPS of THB 0.23 per share is significantly below our expectations but higher both on quarter-on-quarter and year-on-year. Now if I move to the full year 2020 highlights, the sales volume here 14.1 metric ton was 18% year-on-year growth. And excluding Spindletop, which was the acquisition in 2020, it was a 5% growth on a same-store basis. Total revenue of $10.6 billion is lower year-on-year as absolute product prices are linked to crude which came down -- which came down over 40%. And just for your benefit, our average selling price is around $200 per ton lower as compared to 2019. Core EBITDA was $1.11 billion, 3% lower year-on-year. But as mentioned earlier, there was no structural damage to the business in our portfolio. It was more COVID driven and also the one-off events in IOD. Recovery is clearly visible starting Q4 '20, further strengthening in Q1 '21, by this vortex impact which would come in Q1. Our operating cash flow of $1.388 billion is 6% higher year-on-year. Let's move to the next slide. And I'll cover the Project Olympus. You may remember we had covered this in our CMD. Our focus on this transformation project has led to some deep dive in the year 2020, along with our domain experts. We have announced Project Olympus delivery from $352 million to $610 million run rate savings by the year 2023. This comprises of 2,400 plus cost transformation and business full potential initiatives. The program touches all segments, across regions, sites. It delivers across business deals like strategic footprint, operational excellence, commercial excellence, procurement and organized for performance. And with this balance across segment sites and across levers, I believe Olympus is not a concentration risk. The PMO RDO, the result delivery office charter has been implemented, with all business heads accountable for their vertical delivery, very closely monitored, as mentioned by Mr. Lohia by the transformation office. And the 6 enabling function support will ensure the certainty and sustainability of these things. Just to remind, the $610 million run rate is a recurring contribution to the bottom line per annum. We are off to a great start, as can be seen, we achieved around $92 million savings in 2020. And the year 2021 should bring an incremental savings of around $200 million. Next slide, please. So this is the slide on the operating cash flow and net working capital. The year 2020 has seen a relentless focus on our working capital optimization. A change in philosophy where the production is done into sales order rather than to stock has paid rich dividends. We have reduced the inventory days and the overall net working capital. Net working capital cycle has gone down to 25 days. And this working capital optimization demonstrates our people capabilities, the process agility. You heard that we delivered 99% plus of our customer requirements in this pandemic situation and we're still able to reduce our inventory. We have benchmarked ourselves in the industry and rank in the first quartile. But that said, we'll continue to focus on working capital going forward. Our operating cash flow for 2020 has been higher than 2019 levels. Our ability to convert 100% of our EBITDA into operating cash flow has been our strength, and that enhances our ability to provide growth capital to the business, reward the shareholders, and deleverage faster. Next slide, please. Our strong balance sheet position, our rating information last year and our sustainability focus helped us to diversify our debt profile as well as lower our costs. We refinanced around $1.3 billion debt post Spindletop acquisition and $300 million of this came from our first blue loan from IFC, ADB, DAG with a tenure of 9 years. This will be used to fund our investments in the recycling business and help IVL do its part in reducing ocean pollution from plastics. And earlier that year, continuing on the sustainability we tapped around $255 million from the Tokyo Ninja Loan market. 2020 also saw a successfully issued Thai Baht denominated debentures of THB 9 billion with an average maturity of 7 years. And the compounding impact of this refinancing activity along with others is that our debt is now spread over 10 years. And the cost of financing is down to 3.25%, 70% of our debt carries fixed costs. We continue to carry strong liquidity in the form of cash and unutilized rents, and that will be maintained in the future. Our budget plan -- business plan 2023 has modest CapEx with around -- $350 million per annum in reliability CapEx and balance in growth and transformation CapEx. Transformation CapEx is for our Asset Full Potential plans where the payback is short and quick. Recycling CapEx also continues to be the focus. Next slide, please. Yes. This is just a slide where our 2020 sources and application of funds are given. The $1.4 billion OpEx generated along with fresh debt was used to acquire the Spindletop assets and the recycling CapEx which was done in 2020. As I mentioned earlier, we will deploy our operating cash flow in core priorities, which are high-impact projects, deleveraging and rewarding the shareholders. Next slide, please. Key messages on our corporate strength. With the growth platform, empowered people enabled with strong systems, we expect to double EBITDA and deliver double-digit ROCE by 2023. Focus on working capital would be there. We expect to do a cash conversion of over 100% in 2021. Operating cash flow would be deployed in the 3 core priorities, which I just mentioned. Financial position continues to remain strong with our AA minus rating and a healthy debt maturity profile. And we remain committed to our building out ramping up our future ready reorganization and investing our efforts on the core projects S4 HANA, GBS rollout and A&FE and ERM. Thank you. I request Mr. Lohia to take over the -- Mr. Lohia to take over the outlook section.

Thank you, Sanjay, and thank you, D.K.. D.K., if you don't mind, can you take this section also, my throat is little sore. So if you don't mind, if you can cover this as well.

Yes, I'll do that, Aloke. So as we were talking, what's happening in these 3 verticals and the pandemic really tested the resiliency, if you look at the Fibers, there's a very strong rebound. I didn't talk to you about cotton. But cotton prices are going up, with the reduced cotton prices and man-made fiber consumption is increasing, which also basically improves the margins in this. The Indian acquisition, which is a very strategic market in India, we have actually turned the tables. Now the assets are utilized at 80% capacity. We are on a run rate far exceeding our budget, and we are going to expand this portfolio of assets in India to capture unlock more value, which has been put into the 2023 plans. Mobility, as I was mentioning, the tire cord has strongly rebounded and then also benefited from this freight advantage because we are producers in Europe and we are able to serve our customers like Michelin, Goodyear in those markets, and we are getting a better import parity. And today, our Chinese plant is running at full capacity. The Hygiene with the new consumer behavior, as you can imagine, with the face mask demand, and you saw the second quarter Hygiene results being very, very strong. The hygiene fiber demand remains very, very strong, and we are actually further expanding the hygiene capacity into Russian market. The polypropylene prices, which got disrupted because of the lot of shutdowns in United States and now got aggravated by vortex, has actually should -- is expected to peak in first quarter. Now what is relevant here because we sell on a quarterly lag system basis, and that's why the fourth quarter, you saw the earnings were lower, and which will also affect first quarter. But as the polypropylene recovers back or the lower it goes, the prices goes lower, we'll have a better lag in second quarter, so whatever we have a negative impact on first quarter, we recover back in second quarter. But structurally, the heightened demand remains very, very strong as we are struggling to meet the demand. What I wanted to convey in the fiber business that this is a very, very strong demand penting up in all the 3 key verticals. Our Asset Full Potential plan, what we call as Fiber Full Potential is on track, and we are on our track to unlock the value of double-digit ROCE. Coming to combined PET, you saw that combined PET business is very, very smooth and strong business. The demand grew by 5% in spite of shutdowns, which we had in the fourth quarter. As we are going into the New Year, the demand is very strong in the value chain. The Chinese prices have already reached $1,000 FOB, and the margins are improving. And I just mentioned, PTA demand is coming up and the Lifestyle demand is going up. So the PTA margins are also on the improving trend. As the crude oil prices goes up, some of our PTA pricing investment also get benefit because of the paraxylene discount. So we are seeing an improved spread across value chain. I'm sure you are tracking the paraxylene margins also. Paraxylene margins have also rebounded to nearly $240. The Chinese demand is very, very strong. In the fourth quarter itself, the Lifestyle grew by 10%, and the Chinese PET capacity growth will be absorbed basically by the domestic demand. Outside China, no new PTA plants are getting built and actually, the outside PTA pricing is practically delinked from the domestic Chinese prices. And as I mentioned about the freight cost, which is strong, very strong, whether we go to Latin America, and they've gone up by 100%, is going to give us a benefit on negotiated contract to the extent of $22 million per quarter. And that's why we are seeing this benefit coming to roll in the first quarter onwards. We also see a very strong demand in the specialty PET. As you know, we are in the barriers. We're in the Extrusion Blow Molding. The new application is helping into the specialty PET business. And NDC did fantastic. On the circularity, as we were talking about the recycled PET, we have a niche presence in all the continents. And the Europe is taking the pace and with plastic tax not being there on the PET, recycled PET, PET spends out against other polymers. So our recycled assets, which we are on our track of 750 kt will also give a strong return on capital employed. So combined PET, as you know, we have a geographical footprint, we have a unique position in this business in the value chain. And not -- as I mentioned to you, IPA was suffering for the last 2 years. IPA has strongly rebounded back because of low melt fiber demand, other applications, paints. People were painting their home during the lockout. So this demand has capped up and the IPA demand is also strong. Coming to IOD, which was the most impacted business in 2020. You saw the crude oil going from negative. Nobody imagined that we will see crude oil rebounding to $67. I was looking at today's number, and it crossed $67 a barrel. So the gasoline demand is recovering as the vaccinations rollout, the more demand is coming up. MEG demand is very strong. As I mentioned, MEG prices have reached $780, we will see this value chain unlocking. Unfortunately, we had this vortex incident in the first quarter, which will impact us about $24 million in terms of 14-day shutdown, but maybe partially it'll get recovered because of the higher margins as we go. And second quarter will show very, very strong results. Combined PET is not getting affected because of this polar vortex as we are able to manage our supply chain, and we have recently announced a surcharge in the marketplace in the United States. As Mr. Lohia was covering, that cost of the crude oil now bouncing back. We are regaining our shale gas advantage and MEG margins over ethanes has improved. We also saw the improvement in the crack margin, which gone up to $0.26 per ton which benefits our cracker. The Lake Charles, as we said, will start in second quarter, but our business continuity risk is covered under the insurance policy, and we will get the benefit in the first quarter as the cash comes in and also in the second quarter. MTBE has now again rebounded because of this vortex, 100% of the MTBE capacity got shut down, whether that was purpose made MTBE or by other producers who make it as a coproduct. And we are seeing MTBE prices rebounding back and getting a premium over the gasoline. And this will basically benefit us in the MTBE value chain. And as you saw, HVA business continued to provide the resilient earning, as you saw in the integrated surfactant business and integrated PO business. And to summarize, there's no doubt, as you can see, pent up demand across all the commodities will benefit all our 3 verticals as the demand is going up. So this gives you a summary of what we are looking at outlook of the different businesses. Thank you.

D.K., I'll just cover that later on. So I think we did announce earlier that D.K. now is the single CEO for all the 3 segments. And that's a very important move for me because this allows us now to cross leverage across all the platforms that we have. That's number one. So basically, we are now -- what you heard from me basically is that we are prepared for growth and now talking about the next era of IVL. And it is centered around the 3 levers of platform, people and systems. On the people side, we are developing very well. You've heard a lot about Fibers today. In the past, you heard less about it. Now we are talking more about the Fibers. We have also appointed Chris Kenneally as our Chief Operating Officer for the Fibers business. He's joined us on January 1 and it just strengthens the entire management of all our 3 verticals. So with that, let me pause and hand it back to Vikash. Thank you.

Thank you. Mr. Lohia. [Operator Instructions] So I see a hand raised from Komsun. So please go ahead Komsun.

Insightful presentation. I've got a few questions. #1 is the -- you mentioned about the PET in the West that benefited from the container shortages. I think since around Jan. Asia PET hasn't really been reflecting that. Do you think Asia PET spread will follow suit? And in terms of the benefit, I understand that the bulk of West PET of your business has been fixed. So net-net, would you benefit from this trend? And the second question is the -- how do you think the shortages that will continue June, July or going into the third quarter? And the third question is we were talking a lot about improvement in MEG because of the oil price pushing MEG prices in Asia, in propriety pricing in the U.S. things like that. Would it be correct to assume that your benefit from MEG will not be fully in Q1 because of 14 planned shutdown in the U.S.? And number two, your cracker hasn't really been started. So the margin that we are seeing, however ethane is not going to be reflected in the number. Rather, you are depending on ethylene price from the merchant market.

Thank you, Kun Komsun. I'll take part of the question, and then I'll ask D.K. to support. But what we are looking at is underlying business conditions. You're right, we have a volume loss in quarter 1 because of the vortex and because of Lake Charles not being in operation. But nevertheless, what we are looking at is structurally is the business reviving, is the shale gas advantage reviving and what's happening to the MEG globally. So we -- I personally have a full confidence on this revival. And therefore, yes, we would have this vortex-related volume loss, but that's a onetime thing, and that's a short-term -- a very short-term impact and something that is beyond our control. So on the MEG and also on the MTBE in the same breath. I see a good turnaround in 2021. On PET Asia, yes, when you look at the benchmark rates or benchmark margins, you don't see that growth. You see the growth in paraxylene, and you see the growth of margins in PTA. Notwithstanding the growth of margins and the push of feedstock prices, benchmark PET margins have held steady. But in reality, when it comes to what on the operations side, we are able to get in our demand, in our regional businesses in Asia is much higher. So our premiums in quarter 1 are higher than what they are historically. I don't think this slide tells it. The point is that we will not discuss our Q1 results on expectation. But Kun Komsun, you're right. On the benchmark, it does not reflect the improvement, but I can confirm that in reality, we are getting better values and better premiums in our domestic market after pass-through of all the cost increase. Whether this will go on till quarter 3 is a good question and -- but a difficult answer. But if we just look at the tailwinds and if we look at the pipeline inventory, and if we look at the ability for the industry to operate at the low margins of 2020, for me, the producer discipline will evolve. And therefore, it will be a healthy MEG market, it will be a healthy aromatic market. And it will be a healthy PET market. Our advantage would obviously be even more because of our shale gas play. So what I read and what I see is basically that on the crude oil side, there is not any motivation by the -- by OPEC to pump too much. And therefore, if they keep a healthy supply-demand balance, it will reflect in the pricing of crude oil and a good price of crude oil is very healthy for IVL. D.K., you would like to add something more to that?

I think Mr. Lohia covered it well. But Komsun, you're right, in Asia it is not reflected, but nearly 3 million tons we sell based on import parity, particularly as you know, in Brazil, it's totally import parity. In Europe, there is a 45%, which is sold on import parity. And because of the freight increase and the duty percentage, which is linked to the absolute price, we certainly benefit. And I just gave you a number of $20 million to $22 million a quarter is the benefit which is flowing in. And on the cracker, you mentioned, yes, we have a cracker. As you know, in Port Neches, 250 kt cracker is there, which will continue to benefit from the higher crack margin. Lake Charles is under shutdown. But as you know, that we have a comprehensive insurance policy, which covers the loss of profit based on the purchase price of ethylene, versus the ethane. And that claim will be accounted on a cash basis. And so that -- even if it is not running, basically, it will be -- come as insurance claim. And so that would be my answer to you. We also have some ethylene favored contracts, which are a link to ethane and which will also advantage us. So it is not reflecting because as insurance claim is not accounted.

Okay. I have a follow-up question to Mr. Lohia. So basically, the whole thesis of integrated EG or MEG is you have a tug of war with oversupply situation from MEG. At the same time, demand is improving somewhat. Still, everyone was saying, MEG is going to be very long. But now you're seeing a higher oil price, which is pushing MEG price. And then you get a stable ethane price in the U.S. So your margin will be improving. That is your conclusion?

Yes. Kun Komsun. Absolutely. That is my mind. And I have done a lot of deep dives. I've used deep dive quite productively to understand and simplify our drivers. I do believe that the rest of the world who don't have the shale gas advantage, would also be trying to push the MEG spreads higher. Because at the spreads that it was prevailing, it just takes the molecules away from MEG into polyolefins. And therefore, there's an option for the olefin companies in Asia as well. So I think we are going to see a robust 2021.

And just to add, Komsun, that olefin polyethylene margins over ethane are also high. So people were diverting ethylene to make more polyethylene and less MEG. So that also created demand supply. Because you have to look at margin pattern of ethylene, what gives better value. So that's why it is catching up.

I mean Kun Komsun, everything plays into it. The housing demand, the housing demand is robust. Housing requires a lot of plastics, not PET, but ethylene-based plastics. And therefore, I think the demand scenario for 2021, we talk about reflation a lot nowadays. The stimulus is still coming in. So 2021 is going to be aided by a lot of reflation. And I think the key for 2021 would be how strong would be the price of crude oil.

Okay. Thank you. And then D.K., I have -- my last question is for you. You mentioned an improvement in PTA spread in Q1, which should help integrated PET margins. Was that because of the freight or the genuine demand from polyester chain, which is picking up? PET still have similar situation to MEG, which is that they have oversupply situation. Do you think that will continue or just stop at $100, which is maybe the cash cost?

Yes. So the PTA margins, as Mr. Lohia mentioned, last year, the PT margins got reduced by 8% due to very poor polyester demand. But we are seeing now strong recovery in the polyester fiber, which is creating a much better PTA demand. And actually, as I mentioned, this PET rate is $106. But you actually can't buy even PTA at that price. That is the shortage. I mean people are offering at higher prices than benchmark prices. Because outside, as you can know, that outside, there is no PTA availability. So even entire system is quite tight. So yes, the recovery is there. And you can see in the previous years, when the operating rate was high, the margins were high. So it will be a balance between the demand and the operating rate eventually. And also just to make sure that you know that as crude oil improves, that will translate into inventory gains as we move into the quarter.

Komsun, I hope that one point that D.K. made is very important. That you can't buy PTA, you can't buy PET at the moment. So the benchmarks are not reflecting the value that we are getting in the market.

Thank you. Kun Poom from Credit Suisse. I see you hand raised. Can you please unmute and ask your question.

Okay. Okay. I just want to ask a question related to the shutdown that is happening in Texas area. You mentioned earlier that you will be starting up next week, right? Maybe can you just give us a recap as to how many plants got shut and for how long? And also your plan of startup? And when do you think that you will get back to normal. And also, you mentioned earlier that some of the losses in the first quarter will be compensated in the second quarter. Maybe if you could give us like estimate some dollars amount? Just I know that it's an estimate right now. But perhaps we can now also to get a feel of the situation and what to expect.

Kun Poom, On the lag impact, if that was your second question, I'll ask D.K. to prepare to answer for the first question on each of our businesses in Texas. But on the second question, polypropylene is what we use to make our hygiene vertical. And polypropylene prices in the last 4 months have been extremely strong. And that is what our team and I, we are talking that, is there something that we can expect in the PET value chain? There's no reason why we should not be thinking like that because as I said to Komsun, there is no PET available. There is no PTA available. The entire supply chain, and I'm not only talking about Asia, I'm talking about Europe and the U.S. So this tight position, and we did mentioned that we have announced a big surcharge in the U.S. already. So the lag impact is all coming from the polypropylene. You saw in the fibers, in the hygiene, our quarter 4 EBITDA was lower than previous quarters and even lower than quarter 4 2019. That is not the underlying adjusted EBITDA, but that is what we call core EBITDA, which we don't adjust for lag. There was -- if somebody can meanwhile work it out, I believe there was a significant lag impact in quarter 4, and we anticipate to see the same lag impact in quarter 1. But the pricing of quarter 1 of polypropylene will get reflected in quarter 2's sales price. And I do expect that the polypropylene has hit its peak in February. So as the polypropylene prices come off, we would get the positive lag impact in quarter 2. So we do not publish adjusted EBITDA -- adjusted to lag, but we are explaining that to you. That was your question on the lag. Back to you, D.K.

Yes. So in Texas, as we have seen the slide, a significant capacity went down. What is this incident as the temperature went down to minus 24 degrees and the pipelines got frozen. There was damage to the utilities. Our Port Neches facility and Clear Lake Texas, both were shutdown. Port Neches is on the process of recovery. Today, we are starting the Dayton plant, which is there. And on the weekend, we are starting the first glycol plant. And sequentially over a week, all the plants will come back at full operations at Port Neches. Clear Lake, which is located and operated by Celanese, will have 4 to 5 days delay because that will -- there where we have the glycol plant. And because their utilities are a little bit damaged. So that will take 4 days. But overall impact of this is going to be $24 million to $26 million. Lake Charles, as you know, is under the reinstatement after lighting strike, will start in second quarter. And of course, now the work has again started, and we only expect 2 days delay, but we will be able to recover back that. And as I said, this is covered under the insurance claim.

Just one follow-up question to Mr. Lohia. You talked about PET market that it will become very tight, especially in the second quarter. And is that like seeing margins going up. But this would only be reflected in the spot volume, which is around, like 20% to 30% of your volume in the West, right? Am I understanding it right?

Yes. Yes, absolutely. So I don't know exactly the breakup of our 5 million tons of PET, but all of Asia is spot. So -- and it won't get tight in second quarter, it's already very tight. So I don't think the industry would be able to build up the inventory for second quarter. Because there is less MEG available. The impact of the hurricanes last year had already impacted the supply of MEG, and that's why we saw the price of MEG go up even before the vortex. And with the vortex, it has further compounded the supply. And North America supplies quite substantial volumes of MEG to Europe and to China. So it's going to have collateral issues as we are facing it now, which means that we won't be able to build built inventory for the second quarter, which is our peak season. And therefore, I'm thinking of it as something similar to a polypropylene situation that we are facing in the last 4 months, if that helps.

I didn't quite follow the dynamic of Asia. You mentioned that in Asia will also be tight, right? And that because of the MEG situation, same thing?

Yes, same thing. So do we have data on where the North American MEG goes? A substantial volume, 600,000 tons or more is coming to China. And we follow the inventory levels in China for MEG, and those are at quite a low number today. During COVID in second quarter, they had peaked to a very high inventory level. Now the MEG inventory level in China is -- and I'm guessing over here, I'm not -- I don't have the graph in front of me, but I think it's a 2-year low or something. So with a low inventory in the tanks, no pipeline inventory and this vortex. The impact of the vortex on production would be sort of like a 4-week impact. Because people started shutting down in Gulf Coast on 14 of Feb, and now they are restarting. And then you restart and it'll take them another 10, 12 days to come back to full volumes. So MEG is going to be a big constraint for sure.

And just to add, Kun Poom, that as Mr. Lohia was mentioning, MEG becomes very, very short, which is making PET short in -- and fiber short in China, and that's why the prices are moving up in spite of the rapid increase in the raw material cost. And Europe is tighter because there are some FM incidents also. One of the PTA producer has announced FM, and people are not importing the product because of high freight from Asia. So European system is tight. And American system gets very tight again because of glycol shortage. So whole system is very tight, and we are entering into a new seasonal peak. And that's what is changing.

Mayank from Morgan Stanley, you wanted to ask some questions. Can you please go ahead?

I think it was quite interesting to hear the thoughts around the industry. A few things I thought I'll clarify. One was in terms of the premiums that you were kind of putting in on PET in U.S. And if -- can you give us a bit more detail around how you're kind of doing it? And obviously, how are the contracts for 2021 shaping out in terms of the premiums for PET in general?

Go ahead, D.K.

Yes. So Mayank, this surcharge, which we announced, which is actually a public knowledge, is $0.045 per pound. This is applicable on all the contracts including whatever contracts we have. Overall, '21 already had some improvement over 2020 in contractual terms, and there are some spot volumes also. So this recharge will get applicable on all the shipments. And that is because of this extreme tightness and all that. And as we are saying, the system is pretty tight. We did in the fourth quarter also, a little bit of surcharge, and we were successful. So this is all driven because of the high prices of the feedstock and as well as logistic costs. So that's what this announcement is about. And it will be applicable on all the sales.

Okay. So this is more a push from a cost perspective rather than anything in terms of tightness of the market?

It's a combination of push plus tighter margin, not only cost, but it's push from tighter margins, tighter supply situation, both.

Mayank sorry, sorry, to interrupt, but good morning to you first. Our formulas are cost plus. So cost would have got passed on in any case. It's a margin improvement because there is issues with availability of product as well, I mean. So there is cost push more from the utility side. And since we are integrated, we have our own PTA, and we have our own MEG, so those will get reflected by the formula.

Okay. And sir, the second question was on IPA. You were talking about how it's recovering. Can you give us some numbers around it of how much are the IPA margin is now versus what you had seen in the fourth quarter?

D.K., you said in the earlier part that it will further improve, I don't want to say that.

Well, today -- so let's understand what happened in IPA. IPA, when the margins were low, one of the producers in America rationalized the assets. And we also converted one line back into PT/IPA to take the full benefit of swing facility. And the demand for low melt fiber in China grew by 10%, which goes into the -- mobiles, construction sector actions which we have. So all the demand supply disbalance, and the new capacity, which was coming in China also got slow down. So earlier, the margins were the -- I don't know, if you have Vikash, the margin chart of IPA? But I can tell you the absolute prices moved up by $400. Today, in Asia it's $1,250 per ton. But in margin terms, this will be an improvement of $250 per ton. But that will be a ballpark figure.

Yes, it improved about more than $200 in the last 1 month, yes.

And this is very recent, okay.

Okay. Okay. And the other question was on the financials, more housekeeping kind of questions. Like if you look at -- you had seen a significant increase in your SG&A in the fourth quarter, like 25% Y-o-Y. So on a per ton basis, it looked extremely big increase. Can you just highlight on what's driving this big delta?

Go ahead, Sanjay.

Mayank, when you compare Y-on-Y, it will always have the new acquisitions which come up. So maybe just to give you a full year impact, which I would say. And when you look at the SG&A, meaning the distribution as well as admin expenses, both have an impact of new acquisition of almost THB 7 billion to THB 8 billion. But then it is showing a lower impact in terms of increase in the financials, which is around THB 6 billion. So that THB 2 billion is actually a Project Olympus savings. So when you compare Y-on-Y, you will have one -- on a same-store basis, I'm saying, it has actually gone lower, but it shows higher because of the new assets.

Okay. And sir, even on a quarter-on-quarter basis, gone from about 8.7% to 10.3%, 18% increase. So is there something specific in the fourth quarter that we -- there's additional cost related to, either shutdowns in Europe on Rotterdam, et cetera, anything related to that?

I need to come back, but I think you are looking at between the distribution and admin, both put together are similar. Distribution shows lower and admin shows higher. But both put together against Q3 are similar, but I can take this off-line and maybe come back to you if I'm wrong.

Sure, sir. And Sanjay, so I'll take that off-line. But the second question was more related to your inventory and tax rate. So this year, you had a tax rate of about 25%. So I just wanted to check if what would be a normalized tax rate you're thinking for 2021? And on the inventory side, as you highlighted, your working capital has gone down to nearly 25 days now. Is that something that can sustain going forward if demand improves?

Yes. So it's -- first of all, I think on the tax, it's a negative tax, as you see. And that's mainly because of the Q4, we have created certain deferred tax assets in India. As you know, the Indian performance has improved. We've not been creating any deferred tax assets before. So the auditors themselves were saying that we should create. And in the U.S., we have reversed certain tax provisions when we -- so when you do our 2019 returns, et cetera, on the previous -- the full year returns, you have -- we have reversed certain tax provisions which were there. This is a certain benefit which has come due to COVID. We have been able to carry back our losses. So in 2021 actually, you will see tax paid as less because we are going to get a certain refund, which the payment which was done in 2019, we are going to get a certain refund. If you want to take -- going forward, I would still stick to around 20% as effective tax rate and 10% on current tax. So that would be my response on tax. I hope it answers.

Yes.

And inventory, yes, inventory is days. So I mean, you see we have actually optimized inventory days by around 16 days moving from Q1 '19 to where we are, and we believe it is sustainable. We have -- you see a lower operating rate in 2019, but we are continuing to be similar on the first quarter. So in terms of dollar value, you can see it's lower, maybe with the increase in product prices, impact increased here to what 4Q '20 is showing. But net working capital days cycle, we expect it to be -- we expect to maintain this.

I can say many hands raised by Sumedh, Yupapan and and Wattana. So Sumedh, can you go first and ask your question?

Yes, sure, Vikash. So my questions are specific to specialty chemicals. Firstly, on the fourth quarter strength, is it simply because of NDC? Or was there any impact from PIA as well? So that is one question. And secondly, whether the NDC volumes will continue to come in 2021? And will it be only first half or the entire year? That's the first part of question. And secondly, on broader PET industry, do you believe that the current tightness is about building inventory when the crude prices are moving up? And why I ask this question is because if we come into second quarter, do you see a risk that the inventory build has already happened and then there will not be any seasonal demand building up? So that is pretty much it.

Go ahead, D.K., please.

Yes. Thank you for this question. Let me tell you about NDC. Our production is done on a phases manner. So in fourth quarter, we started the production. So when you have a higher production and that builds up, absorbs more fixed costs. So it is more because of NDC and some specialty polymer gain. The IPA benefit did not come in the fourth quarter. I think we'll that see in the first quarter. NDC demand increased by nearly 8%. We are expecting further growth. We are investing into downstream product, which is PNDA, which will start production in April, and which will also create more demand for NDC. As you know, we are the only producer of NDC in the world, and we are also producing PEN, which is a polymer of NDC. So this vertical will continue to show stronger growth. You had about the PET question, whether it is due to inventory build up. Well, I can tell you, no analyst in the world could ever imagine that the crude oil will go to $65 a barrel. Of course, the people are buying the material, but I don't see the inventories are very, very tight. Today, normally, a month back people are buying. But today, we can see the demand coming for March. So I don't think there's a lot of inventory in the system, as you mentioned about the pre-buying by people in anticipation of price increase. I don't see that situation right now. I hope that answers you.

Yupapan, can you please go ahead from Macquarie.

I would like to ask whether do you have any insurance gain in this quarter? And if you book, how much? And do you expect to book more in the first quarter?

Sanjay, yes, go ahead, please.

Yes. So first claim the only book once we receive the money, in Q4, we have Q4 '20, we have put in some impairment. But at the same time, certain income was received. Between Q1 and Q2, I can say that we'll receive around $40 million. It's difficult to estimate how much would be received in first quarter and how much in the second. But we expect between -- $35 million to $40 million between Q1 and Q2.

Thank you. And I saw that in the fourth quarter, your tax gain. Could you explain why it's turned positive?

Yes. So as I mentioned earlier, that we had certain -- we created certain deferred tax assets in India. So we had losses, but we have not created a deferred tax asset. Now with the business performance when you are able to see a clear visibility that you will be able to use those losses, you can create deferred tax assets. So the auditors have asked us to create this deferred tax assets. In the U.S., there is a certain reversal of provisions, which is the provisions made earlier during that year. But once the returns are filed, we see that we don't need to have those returns, so those have been reversed. And so those are the reason for negative tax in fourth quarter. Additionally, I mentioned that we will get certain refunds in 2021, which actually relates to 2019 taxes paid. So you will see a lower tax payment in 2021.

And as a suggestion maybe offline also, you can go into some discussion with Vikash and his team.

Thank you, Kun Yupapan. [Operator Instructions] Okay. Well, we got some questions on the message box, but I guess it's all been answered during the course of Q&A. So we don't have any more questions from the floor?

Vikash, maybe I can just ask, again, respond to Mayank. Mayank, if you see quarter-on-quarter movements on the selling and admin. In the first quarter it was $10 million, in the second quarter it was $9 million, third was $9.5 million and fourth is again $10 million. So they are very much in the similar range. There are certain times when you have certain reversals of expenses and some sort. If you put both distribution and admin expenses together, all 4 quarters are pretty similar.

Sure, Sanjay, I was just referring to the space that you had in the MD&A. So on the selling and admin expense on Page 14, the -- I think the sixth line there. So -- but I'll take it off-line with you on that.

And then, just to add, the freight cost is also there. So freight has been higher. But we can take it offline.

So again, I think as I said, $10.3 million to $9.5 million is what is showing in Q4 versus Q3. And that's not a big difference. That much varies between the quarters. And as compared to Q4 '19, again, there was no Spindletop at that time. So Q4 operating would show that difference. But yes, if you have any additional question, we can take it off.

Vikash. This is Sumedh again. So this is again about the whole freight cost aspect, right? I mean, I understand obviously, Indorama is a big local producer within United States as well as Europe. But there are obviously imports coming from some of your other facilities into U.S. and as well as Europe. So could you please explain this dynamic, as in how much of your sales are impacted by the freight cost? And how much are local, which tend to benefit from the higher local spreads?

Sumedh, let me take that. So basically, we import into -- in Brazil, let's say, we have our own PET manufacturing, but the pricing is based on import parity. Only in the U.S., we bring in some product, I believe, from Egypt. And we bring it from Egypt because from Egypt we don't have any taxation. Most of that product is sold on a spot basis. So our U.S. production is done on a contract basis. And we bring in because the demand has been healthy in the U.S., we bring in the product from Egypt. And since that is on spot, we can recover the entire cost from the market.

Okay. So just to be clear, the U.S. production on contract basis do not have a fleet cost portion, right? So that doesn't benefit at all from this arbitrage because of the freight costs?

Yes. That is clear. Though D.K. did mention to a previous question that how was a rollover of contracts in '21 -- for '21. So at that time, when we were negotiating the contracts for '21, at that time, this component was part of the discussion with the customers. So D.K. mentioned that the margins in '21 are better than over '20. And partially, that would be because of the freight element.

And Sumedh, just to add, you understand like this that China exports of about 2.5 million tons globally and where the fleet costs have gone up. Identical increase is not from some of our other operations like India, Egypt. So we get that advantage because of the freight reduction when we are exporting to those countries. Europe is a deficit country, okay? So Europe, again, 40% was all basis of negotiated prices or market linked, which gets reflected because it gets immediately because of the import parity. So it gets moved up and Brazil as Mr. Lohia has mentioned, entire business is based on. So roughly, there's about 2.5 million ton, which goes into this way calculated. So this is how the dynamics work. The advantage being there because of local producers. I hope you got the dynamics of the market, right?

Yes, I did you and sorry, maybe I'll just clarify one last thing. So the $0.045 per pound increase that you highlighted was on contract -- contract sales. Is that right?

Yes. This is across all the contracts.

Okay. And that is essentially reflecting the higher logistic costs and the feedstock cost rate.

But feedstock is transferred back because the contracts are linked to the ROCE link. So it's basically tightness, extra costs, so it will tantamount to some margin improvement.

Okay. But just to be clear, that margin improvement wouldn't be entire $0.045 because you will have some costs associated.

That's right. That's right.

Mr. Lohia, we have got that slide on the MEG exports from U.S. You want to discuss that for a minute? We don't have any more questions.

Sure, please. D.K., would you be able to explain it?

Yes. So understand this that United States is one of the most efficient producer after Middle East or actually close to Middle East because of shale gas advantage. And what you see over many plants are -- got built in the United States. And the net rate, if you see the export, U.S. exports, which shows on the top line, where it goes, China, 643,000 tons, Mexico, the Turkey and all these countries are the importers. And U.S. imports, is basically is a Canadian import. So net export is 1.5 million tons. Now this export got affected because of the shutdown of the U.S. Gulf Coast. And where the system was already tight because of hurricane, the last hurricane. So that has disturbed the entire MEG trade balance around the globe. And that is impacting the MEG tightness. And as Mr. Lohia mentioned, the stock, there's a published stock of MEG in China which lies in the tanks, and that has significantly reduced over the years. So low stocks in China, disruption in the production in United States had made an extremely tight situation of glycol. This glycol was only $540 a month back, now it's $740. So that is what is impacting the entire system and what is importance of U.S. MEG in the international market.

Thank you, Mr. Agarwal. So any more questions from the audience? Okay. So I think we don't have any more questions. So thank you very much, and stay safe and stay healthy. And if you have any follow-up questions, please do contact us, and we'll be in touch. Thank you, have a good day.

Thank you, everybody.

Thank you. Be safe.

Thank you.