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

And welcome you to Indorama Ventures Third Quarter Results Meeting for 2022. I'm Vikash Jalan, Vice President, Investor Relations and Planning for the group. Joining me today, Mr. D.K. Agarwal, our CEO and CFO; Sanjay Ahuja, Executive President for combined PET segment; and Chris Kenneally, Executive President for the Fiber segment. A quick disclaimer that this meeting is being recorded, and a replay of this session will be available on our website after the meeting. We have made a few assumptions and estimates on the future trends and industry trends in business, which, of course, which are based on our analysis and available information at this point in time. So with that, I now invite Mr. Agarwal to start the prepared presentation. And after that, we'll open up the session for the Q&A. Over to you, Mr. Agarwal.

Thanks, Vikash. So let's go to the slide, please. So good afternoon, ladies and gentlemen, and welcome to the third quarter earnings. If we can move to the next slide, please. So as you can see, we are very pleased with our performance for the first 9 months and third quarter of 2022, in spite of very volatile market situation. Our revenue for the quarter was $4.9 billion, an increase of 27% year-on-year, a decline of 10% quarter-on-quarter, but this is -- volume drop is only 4%. The majority is due to the price drop because of crude oil. Our core EBITDA was $606 million, an increase of 39% year-on-year, a decline of 20% quarter-on-quarter. As I said, sales volume declined by 4% quarter-on-quarter. Core EPS of THB 1.81. And if you take last 12 months ending third quarter '22 of THB 6.92. And this shows the resiliency of the business as we go into the third quarter of core, the second quarter was peak. Looking at the highlights of each business segment. If you look at CPET, YTD Core EBITDA is about $1.19 billion, an increase of 42% year-on-year with YTD core EBITDA margin of 13%, very strong results. Our largest segment, CPET has seen steady demand and actually, if you see in the last 2 years, post-pandemic '20 and '21, the business grew [Technical Difficulty] [ perhaps in Branum ] which shows the strength of the business. This can be seen across all regions, apart from Europe, which is presently in the midst of an energy crisis because of geopolitical situation, both on demand and margin. Suppression in Europe will continue as long as energy markets remain quite volatile, as you know. If you come to Integrated Oxides and Derivatives, this is a business which is developing very strongly in our portfolio. YTD core EBITDA of $604 million, an increase of 137% year-on-year with a YTD core EBITDA margin of 18%. And if you analyze this business, the integrated downstream portfolio has performed above expectation in the first 9 months of this year. The acquisition of Oxiteno has brought further strength to this portfolio through its regional market leadership in surfactants as well as with the addition of natural fatty alcohols. So Oxiteno performance has been fantastic. In the integrated intermediate portfolio, I mean ethylene and MEG spread has continued to see weakness ever in the history of the last 10 years, the [ MEG spreads ] are terrible. Driven by China lockdown and overcapacity, hovering at unsustainable level [Audio Gap] [Technical Difficulty] production who are based on [ naphtha ], because it's no more physical to run at those margins. On the other hand, MTBE, an octane booster, has been very strong performance this year and is operating at normalized margin in the third quarter. But as we go to the fourth quarter, we are seeing again strength in the octane value. In Fibers business, YTD core EBITDA of $189 million, a [ municipal ] increase of 2% year-on-year with YTD core EBITDA margin of 6%. So this business is certainly affected. The severity of China's zero-COVID policy has continued to hurt polyester fiber demand and margins, impacting the Lifestyle fiber business. Both Hygiene and Mobility fibers have been performing relatively stable year-on-year despite the high energy cost in Europe. As you know, a number of our assets are in Europe. Management has shown good agility in passing the higher energy prices. If you look at the balance sheet of the company, our balance sheet has been strengthened at the end of third quarter '22. Our net debt: equity has reduced to 1.1x from 1.21x at the start of this year. And this is after nearly $2 billion of capital expenditure, mainly for completion of the Oxiteno and Vietnam packaging and recently [ a woolen farm ]. As well as $389 million got lumped into working capital because of the increase in working capital, particularly in third quarter, which will get liquidated in the fourth quarter. So our liquidity position of the company is pretty strong with $2.06 (sic) [ 2.60 ] million (sic) [ billion ] in cash and cash under management plus unutilized banking lines. So this is a pretty strong balance sheet. So go to the next slide. I think the economic indicators are very important. As you know, the [ 3Q ] indicators which we are following this last few years has been very volatile. Number of unprecedented macroeconomic factors in the last 18 months, we have seen very volatile movement of crude oil, strengthening of dollar, dollar index, as you can see, has gone and which is helping us because our cost in dollars has come down in the weaker currency areas and supply chain disruption, all picking in second quarter '22. Now you can see the freight rates have come down which is certainly impacting the import parity, particularly in the European market. So IVL had exceptionally strong second quarter, which has started normalizing in third quarter '22. The Ukraine crisis brought more upheaval in the form of volatile energy prices, predominantly in Europe, as you know what has happened in Europe. While on the other hand, China's zero-COVID policy has dramatically reduced consumption that impacted market globally. As we hear in the marketplace that China may soon remove the zero-COVID policy, which will certainly help in the market conditions of improving the demand. To the next slide. One of the worries as you'll now want to know about gas supplies in Europe, which we continuously keep you updated. In the grand scheme of things, European Union only represents 10% of IVL EBITDA based on 9 months '22, as you can see on the left-hand side of the graph. We don't see much supply risk for most of the European countries where we operate inas (sic) [ inasmuch as ] they are supplied by either LNG or pipeline gas from Africa. We also have multiple sites around Europe like Egypt and Turkey, which are totally independent of Russian supplies. And in unforeseen circumstances, we would be able to ramp up those more and supply our customers. On the other hand, Germany and Czech Republic are where we have risk of energy supply disruption this winter season, as Russia has now cut off their supplies but we have been working on alternative sources, particularly in Germany with a very small CapEx. So basically -- but as you know, in Germany now, 90% of the storage is full and we saw a very strong traction in the spot gas prices, which will in the fourth quarter. On the cost side, on the right-hand side, you can see a bridge here that the energy cost for 9 months has impacted us $484 million, requiring significant pricing and volume. So you can see $1 billion has come from margin and volume while $192 million came from new acquisitions. So management has been resigned, [ but that ] certainly gas is quite volatile, which will certainly have an impact in the European operation. Next slide, please. Just to explain you on the slides we have been showing, we have been following a systematic hedging policy in our business of gas now from since last year. Our aim is to hedge 50% planned of '22 for '23. And you can see that our hedge price is significantly lower, which benefited. In both, we have hedged third quarter 40% and fourth quarter at much lower cost than spot prices. In U.S., we hedged 48% in third quarter and 57% in fourth quarter '22. And you can see in '23 also we have hedged. Sequentially, in third quarter, we had additional impact of $58 million due to the energy and if you see year-on-year, the impact was $181 million in third quarter. As we go to the fourth quarter, sequentially, that should be a lower cost of $15 million to $20 million versus third quarter, while year-on-year cost impact will be still $50 million to $55 million. Now I want to remind that fourth quarter '21 itself, the gas prices had gone up. So this difference you are seeing is lower. So this to just give you an update on our gas situation. Next slide. I think it's important to understand the portfolio of business. Today, each of our segment has scale, market strength and their own growth opportunities. As I mentioned, PET strongly grew 5% per annum in the last 2 years, and we are the leader of the business. As you know, we have 20% market share. And if we exclude China, we have 33%. We are also leader in recycling and continue to shape the industry in this space. We will be focusing on strengthening our leadership position in recycling and we'll be also looking to add biomass in our feedstock as we declared in Vision 2030. Again, we think the peer year PET has remained to go at 4.3%. Interesting development because of very high energy cost, glass and aluminum, both are becoming much more expensive in Europe, and we are seeing some substitution happening to PET there because we are very energy-intensive. In IOD, Integrated Oxides and Derivatives business with big strategic acquisition recent years. We are the most prominent name in surfactants, EO and [ ephoxylation ] in Americas and certainly opens up the potential to grow this business to the rest of the world. Oxiteno will further muster our capabilities in the space going forward. We will be unlocking synergy benefits of Oxiteno integration to the extent of $100 million leveraging on the bio feedstock, doubling down on innovation pipeline and a lot of growth potential in further geographical expansion and into the adjacent businesses like ethylene carbonate, which goes for the electric batteries. In Fibers, we have great capabilities in the Fibers too, as we have nurtured it over many years. There's a barrier to entry. We are now leaders in auto safety, tires and [ viscose ] fibers across the world and we look to strengthen and expand the platform as well as next level R&D partnership on sustainable products and [ circulators ] such as biodegradable. So all 3 verticals are poised for very good growth. Let's go to the next slide. I think we wanted you to understand and differentiate IVL with other chemical companies. And these are 3 differentiating factors. What is the biggest is the geographical diversity. With manufacturing locations in 35 countries, evenly distributed across 3 regions, IVL's widespread presence provides natural mitigation to the increasingly volatile geopolitical landscape. [ Model ] with the recent global disruptions, IVL's ability to provide shorter supply chain and sell from multiple locations brings trust and reliability to our customers. I think this we have seen. It acts as a perfect hedge regional and customers rely us as a very reliable supplier. Another important thing is multiple earning streams. Something goes right, something goes wrong today, you saw MTV being strong, while MEG and ethylene is in trough. So the 3 strong business segments and 10 business verticals, IVL's combined portfolio acts as a meaningful hedge to disruption in one area at any given time. And as we say, the whole is stronger than its parts. As we build on increasing balanced portfolio, IVL is getting further opportunities for growth, especially in downstream portfolio, such as home personal care and food and packaging. The third important element, what markets yourself, and that is attractive end markets. Over 70% of the IVL products serve consumer daily necessities, applications such as food and beverages, as you can see in this graph, packaging, home and customer care and crop solutions. We are not in durable business. We are in the necessity business, and that's where it's sort of what we call recession-proof. Not only are these end markets relatively demand [Technical Difficulty] and elastic, they also have attractive growth, catering to increasingly favorable consumer needs such as safety and hygiene and which we have seen in this last years. The result of the combination -- now if you see on the right-hand side, I just wanted you to focus here. We have made this pro forma consolidation of '18 to '22 in the assets we had. And you can see that our EBITDA per ton would have been $130 per ton, including for last 2018 to '22. [ We know ] 2022 -- '20 was an exceptional year because of pandemic, because of natural calamities in the United States and many other factors. If you exclude that, then it becomes $140 per ton and the variability, which is 20% goes down to 14%. And that is -- shows the resiliency of the earning of IVL through the cycles. And today, for last 12 months, of course, we benefited from import parity and the supply chain disruption, we are at $163 per ton on the same portfolio of the business. Let's move to the next slide. This is another way of looking at the business portfolio. We have split this into commodities, special position and downstream. Commodities, of course, they remain volatile. Sometimes they give you very good money. This 43% volume was 30% of core EBITDA. Special position, when we define a special position is basically where the consolidated market, there's a barrier to entry, there is a deficit in those markets, as you can see, in Europe and Americas, where we enjoy a better position, 37% volume constitutes 34% EBITDA. When we took downstream, these are very [ are reckoned ] high value-added businesses, stable and high margins. Majority, they are secured by long-term contracts. There are thousands of SKUs, 2,000 SKUs in IOD business, surfactants, LAB, propylene oxide, ethanolamines, natural alcohol, synthetic alcohol, propylene oxide. And you have [ long ] customer approval with safety and hygiene sensitivities as you see. So 20% of this business constitutes 36%. This is the pie, which we are increasing with the recent acquisition to remove the volatility in the earnings and improve the quality of the earnings. Next slide, please. We have been talking to you about Project Olympus. We are very proud of this. It has provided an excellent structure and disciplined approach to continuous cost and commercial innovation. As you can see in the graph, we remain on target to achieve $460 million efficiency gain by end of this year. And as you can see on the right-hand side, this cuts across -- and these are sustainable earnings. Operational excellence to deliver $253 million by end of this year through yield improvement, reliability improvement, cost optimization and debottlenecking opportunities. And believe me, there are so many initiatives at this site, and this is managed through a key software. Similarly, on the procurement and supply chain, we delivered $99 million by the end of this year by leveraging economy of scale which we did not unlock [ immediately ], a competitive bidding process and competitive cost efficiency through carrying out activities in house, and this journey continues. Sales excellence, again, by optimizing the product mix, enhance HVA and keep improving by introducing digital tools and organization to perform, to deliver $29 million by the end of this year through organizational improvement. The journey continues. And as you can see, we are not stopping in '23. We continue this in '24, and this has been certainly improving, helping us to be both cost competitive. Go to the next slide. On recycling, we continue to make great progress in our recycling aspiration with 690 KTA of post-consumer PET bottle recycling capacity as [ can ] the end of third quarter, and our target of 750,000 is going to be reached very soon. This is input of bottles. Last month, IVL announced the official opening of PETValue bottle-to-bottle recycling plant in Philippines, in partnership with Coca-Cola Beverage Philippines and we are very proud of this. This is the bottling arm of Coca-Cola. The plant design is latest recycle PET facility as a global integrated petrochemical company builds on its position as the world's largest producer of recycled resin. And this is located in Philippines. So our journey on recycle, I must remind that we haven't unlocked much value so far, return on these investments as we are still ramping up this production and you will see those getting returns coming up from the next year onwards as we are scaling them up. Next slide. I think we continue to remain recognized. IVL stands out in the industry for our leadership as a sustainable chemical company positioned for long-term growth and returns. And beyond strong financial returns, IVL leads the change in sustainability, continuing to build from strength to strength. In addition, over the years, IVL has been continuously recognized on its corporate governance processes and performances through awards and sentiments as you can see on this slide. And every day, we'll get new news, Kimberly-Clark is going to award us with some supplier awards. So we are very proud, and this has gone into the DNA of the company. Now let's move into the financial results. Go to the next slide, please. Next, please. This gives you a snapshot in a span of 4 years, and you can see that '20 to '22. I mean we're talking about $15.2 billion and LTM is $18.8 billion. [ A see is our ] CAGR of 12%. So we have demonstrated acquisitions, integrated them, successfully turned on -- turned around assets and which has translated into the EBITDA, as you can see, 18% CAGR last 12 months, company has [ churned ] $2.5 billion of EBITDA versus $1.8 and becomes the average of $1.8 for '20 to '22. It's easy to acquire, difficult to integrate and difficult to unlock the value. It also translates into the core earnings per share. As you can see, last 12 months is THB 6.9, an average of '20 to '22 is THB 4 per share. [ Specifically ] which also improves the core return on equity in the last 12 months, third quarter, we have created a return of 24% core return on equity. So it's a [ pure ] track record. And with each cycle, we have improved the quality of the earning and company continues on the growth of -- on the journey of the growth. Next slide. Let's look into some numbers. So revenue of $4.9 billion. This company is now a $20 billion company. Last quarter, we made $5.5 billion of course, because of this correction and the prices linked to the crude oil. So that's a decrease of 10% quarter-on-quarter, increase of 27% year-on-year. Reported EBITDA of $511 million. As you can see in the core EBITDA of $608 (sic) [ $606 ]. So we had inventory losses, which is against $758 million, which is a drop of 20% quarter-on-quarter, but increase of 39% year-on-year. The core EBITDA margin of 12% and core ROCE of 15%. And we see the core net profit is THB 10.3 billion versus 10 point -- 13.2 billion in the second quarter which is 22% drop with 74% increase year-on-year. Our operating cash flow were lower, $279 million. So conversion has not been that great this quarter because, as I said, we really dropped our working capital cycle by 7 days, which -- 6 days, which bumped in $360 million. We'll get this unlocked in the fourth quarter as we liquidate our inventories. The core EPS was THB 1.81 versus THB 2.32 and last quarter was THB 1.02. And core ROCE for third quarter is 14.8% and versus 20.2% in the second quarter. And as I said return on equity is 21.3%. The reported EBITDA, as I said, because of the inventory losses has come to $511 million. We, of course, we got a big gain in the second quarter. The reported net profit is THB 8.1 billion. If you go to the next slide, which gives you LTM basis. So LTM basis, we did 15.1 million tons, $18.8 billion. Just want to remind you here that Oxiteno's -- only 2 parties have been added here because we made the acquisition in April. The core EBITDA is THB2.476 million -- dollars versus $1.55 million for growth of 60% LTM '21, third quarter '21 and core net profit of THB 39.6 billion, which is a growth of 115%. And operating cash flow has been very strong, $1.952 billion. And as I said, that it got blocked in the third quarter, which will get released in the fourth quarter. And core EPS last 12 months has been THB 6.92 versus THB 3.16 and ROCE for the last 12 months has been 16.8% and return on equity is 24.5%. And [ since see ] cumulatively last 12 months, we had inventory gain, which makes reported EBITDA to $2.776 billion, reported net profit of THB 47.9 billion and reported EPS of THB 8.39. So that gives you last 12 months, what is the earnings highlights of the company. Let's move to the next. So look at the volume. So as you can see, CPET saw marginal decline. This is because of lower demand in Europe and also -- but volumes in Asia and America remain steady. In IOD, downstream remained robust. The decline in operating rate was little lower [ today ] we are -- because of MEG margins being very low, we are adjusting the production rate. I mean it doesn't make sense to make more revenue, more losses. Fibers, Lifestyle fiber was impacted by a market slowdown in China and high downstream inventory and with COVID. Mobility fiber saw lower sales volume in third quarter '22 and in line with the European decline and higher utility costs. Hygiene fibers saw demand normalization with easing of COVID pandemic. How do we see the fourth quarter? Of course, fourth quarter is generally seasonally weak and CPET which we have seen in the margin, a little bit drop in the margin, and this normally happens. And we have seen in the past also that [ when ] the margin drops, Chinese are start cutting the production. And then the prebuying happens and then you start with the seasonal improvement in the margins. IOD's integrated intermediates. We are adjusting the MEG production, as I mentioned, to optimize the profitability. So you can see that we are still talking of MEG of 0.7 million -- sorry, 0.7 million tons in fourth quarter production, lowering the MEG production and fibers will be about .4. And regionally, you can see how the fractions will be. So as we are in the middle of November, we have a good visibility of the volumes. Let's move to the next slide. That's about the volumes. So this shows you that we are very pleased with the record LTM core EBITDA as I mentioned of $2.476 million versus $1.55 million. And every quarter, you can see the second quarter was certainly the peak supported by strong MTV and very strong PET margins. And you can see the third quarter, $606 million. So very strong results, and you saw the volume at 15.1. So CPET steady demand, volume across all regions other than Europe, where we see the energy crisis impacted both demand and margin, particularly in third quarter. And we think Europe still has a headwind in terms of -- as energy markets remain volatile. IOD, the downstream performed above expectations. As we mentioned, Oxiteno brought further strength in the business in surfactants and fatty alcohols. Intermediates saw weakness in ethylene and MPG (sic) [ MEG ], as I mentioned and in Fibers, we have China's zero-COVID policy, continue to have positive fiber demand in margin, impacting Lifestyle fiber. As I mentioned, Hygiene and Mobility performed relatively stable year-on-year and despite of high energy costs. So that's on the third quarter. How do we see the outlook? I mean, we see that Europe will remain challenging. There was some drop in the margins in Asia PET, as I said, on the seasonality, but the volumes will remain reasonably strong. Let's go to the next slide. If you look at it regionally, because it's very important to understand which region is contributing. Americas remain star with the addition of Oxiteno assets. Again, I said it is only 2 quarters, $1.4 billion. Ordered $765 million. Europe was $337 million versus $371 million. And you can see the impact in Europe coming in the third quarter where we have only churned $41 million EBITDA and $379 million in Americas and $175 million in Asia. So regionally, Americas remains very insulated market and as we see European operations certainly will have headwinds, although the European energy prices are coming down in the fourth quarter and volumes in Americas and Asia are expected to remain steady. So this [ value it ] is very important. Americas contributed a significant portion of EBITDA of IVL. If we go to the next slide, this is a bridge between second quarter and third quarter. So we made a $1 billion of EBITDA -- reported EBITDA, of course, $252 million for exceptional items like inventory gains and other insurance gains. So core EBITDA was $758 million. This quarter, we are making $606 million. You can see additional energy cost of $58 million impacted us in the variable cost and margin was only $19 million and volume was $81 million. And we had the inventory loss of $96 million. Fixed cost savings is primarily due to lower temporary manpower costs with lower sales as we optimize the operation. So that gives you a second quarter to third quarter with EBITDA. If we move to the next slide, which gives you third quarter '21 versus third quarter '22, and it's an interesting slide to understand. The core EBITDA of $437 million. So we had an inventory gain last quarter last -- the quarter same year last year, third quarter '21. Volume has been marginally down because of planned turnarounds and also inventory management. The margins improved by [ 300 and ] that shows the agility of the management to pass on the energy increases also benefited from supply chain disruption. The fixed cost was higher, but got neutralized by Olympus. And Oxiteno and Vietnam packaging contributed $104 million. A fantastic acquisition, Oxiteno, and that's where $606 million of EBITDA and inventory loss of $96 million. So it gives you a bridge how did we perform third quarter '21 versus third quarter '22. Let's go to the next slide. So if we dive into each business. Combined PET, as you can see, $1.459 billion in last 12 months, which is a 44% increase year-on-year. And quarter-by-quarter, you can see second quarter was $431 million. Third quarter is $327 million. EBITDA per ton is $162 in second quarter, third quarter is $123 and the EBITDA margins is 13% and 11%. This is margin declined in the volume is as a result of lower demand in Europe, as I mentioned. Also, the Asia and America remained steady. The energy price has certainly impacted our European operations and margin. However, as I speak, I think the -- and I mentioned about recycling, recycling did not churn any EBITDA. And I think we will -- as we are stabilizing the recycling operations and scaling them up, you will see the returns coming up very soon. How do we see the outlook -- the seasonal weakness is there in the fourth quarter, as I mentioned, in Asia. And Europe, of course, because of energy, but America has seen the steady performance and [ volatile ] in '23, with nearly 45% of the contract and some of the contracts are still under negotiation. I think will be done at for Mexico and United States at a better margin or [ same ]. And as I mentioned earlier, the PET margins have significantly improved. So America remains quite protected in the business. So CPET has really performed quite well. If we go to the next business, which is IOD. And you can see, in the last 12 months, $726 million of EBITDA which only includes 2 quarters of Oxiteno. So it's now -- if you normalize it, we are basically talking of $850 million business [ this ], which is a significant improvement, 158% year-on-year. The light gray, which is a difficult part of the business, which has been MTBE and MEG, you'll see the MEG has been contributing negatively, but MTBEs improved in the second quarter with $109 million, and third quarter is $24 million, but there's significant -- I mean, there's a negative EBITDA from MEG basically. And that is due to -- as you can see that in margins are bad and MEG spreads are very low. The ethane margins continue to remain weak with high ethane cost in third quarter. This further negatively impacted the performance of integrated energy in third quarter '22, and we'll show you some immediate graphs that are still continuing to remain bad. However, the silver lining in the downstream business, you can see $194 million in core EBITDA in third quarter, up from $150 million. So that remains quite strong and $99 million was primarily driven by a strong margin across all the product portfolios. And these are the stable margin businesses. And naturally, Oxiteno acquisition has added the value into that. So IOD remains quite a strong business. And I just want to highlight here the downstream demand remains pretty strong: home personal care, crop solution. I don't know if you followed the [ buyer's ] results. The [ buyer ] result has been strong in the third quarter. And we have been doing a lot of price excellence across synergy benefits. We are targeting $100 million of synergy gains on integration of Oxiteno and of course, high oil price also leads to activity in the oil field production. Oilfield surfactants improve oil. So we are really excited about this. As I mentioned, fourth quarter octane still remain short, healthy MTBE spreads. We don't think ethylene and MEG margins are going to improve till the China opens up, which is likely to be very soon, then it will [ in food ] and certainly help in energy margins, more exports of polyethylene from United States, which will pull the ethylene margin also. And surfactant demands remains quite strong. Go to the next slide. This shows you Oxiteno's performance since our acquisition. You see that $79 million in Latin America in the second quarter, $92 million in third quarter and Pasadena has been successfully turned around from negative. To Pasadena will be churning nearly $30 million and the investment and replacement cost is $250 million. So Pasadena is actually, as we are optimizing the production, ramping up, changing the product mix is aimed towards going up to $40 million, $45 million. So strong margin across product portfolios, strong downstream demand for home personal care and agriculture. And as I mentioned, accelerated Pasadena turnaround. And we have a lot of innovation avenues. In the U.S., we recently opened up the new lab facilities. So we have a large number of R&D platform and a lot of pipeline of new products in the marketplace. And then [ frac centrally high contribution market ]. Let's go to the next slide. I think you certainly would like to know what's happening in the United States or the pain as the gas price is reduced, the frac margin went down, the ethane is coming down. But how on the right-hand side, you see the ethane crack margins are very, very low. Today the inventory of ethylene is highest in 5 years, and that's what is pushing this ethylene crack margins pretty [Technical Difficulty] [ impact ], which is certainly impacting our business. We have taken steps to right now to mitigate the losses on ethylene to make a turnaround of the [ lakeshaws capo ] for 45 days. If [ China's san ] opens, these are not sustainable. As you can see, the reinvestment economics is $500, and you saw in '21 [ itself ] when there was disruption, the crack margins were good. But right now, we don't see a nearby future immediate improvement in this. If you go to the next slide, MEG spreads, you can see 5 years, 7 years average was $500 per ton and look at the Asia integrated MEG spreads, it's $77 I mean it's below even variable costs. So we are seeing a lot of people cutting production, and this is driven by a lot of capacity which got built in '21 and polyester demand went down in China because of zero-COVID policy and that resulted in a terrible situation. What we are seeing, we were cutting production on MEG and only U.S.-based ethane based, you can see there is a slight upward $220 to $253, and that is heartening, primarily because of drop anything prices. And that's what is resulting this. And you can see on the right-hand side, the shell gets advantage slightly improving. So I mean, MEG is not in a good shape. We don't see immediate improvement. But as the fiber opens up in China, certainly, this [ tab in ] really is not sustainable. We go to the next slide. I think MTBE is an interesting -- what is happening in the MTBE world is the octane shortage. An octane shortage -- why octane shortage is happening. It's important to understand, naphtha crack margins, as you might be following, is negative. So all the refineries are adding naphtha into the gasoline blend. And when you add naphtha, you need more octane. The octane is becoming short. And you can see in the second quarter, the peak was $880 per ton of MTB spreads, which got normalized in the third quarter. The right-hand side, you see fourth quarter as October has again improved to $600 and is going to go further up. As I speak today, in November, it is going up. So which is normally fourth quarter is seasonally weak because that's where the butane gets blended to the gasoline and butane is also cheaper. As you can see on the left hand, U.S. North butane versus naphtha. How do we see in '23? On the right-hand side, you can see we have put forward curve that what sort of forward curve is available of gasoline minus butane, so MTBE spreads, MTBE sells for a premium over gasoline, I think we can see a range of $500 to $700 per ton for '23. So '23 is also going to remain short in [Audio Gap] [ butane ]. And this will certainly help in MTBE profitability. So that's a silver lining in the intermediate business. If we go to the next slide, I think this is a business which has been difficult for us. The Fiber segment achieved a core EBITDA of $49 million, $55 million which is in the second quarter, which is 11% decrease and 2% year-on-year. And the majors Life cycle (sic) [ Lifestyle ] segment where we have very competitive assets in Indonesia and in India is due to market slowdown in China with high downstream inventory and COVID lockdowns. And in Europe, in Lifestyle, the utility cost impacted by the performance. Hygiene fiber has seen slightly margin better because we've got the lag gain due to decreasing polypropylene prices, as I speak to you, October polypropylene prices have dropped by $0.12 [ a pound ]. Polypropylene is very long in the world and which certainly will create more lag in the fourth quarter and, of course, makes Hygiene fiber more cost-competitive. The Mobility was negatively impacted by lower sales volume in the third quarter, in line with the seasonal European decline and high utility cost. But however, in quite a significant operation are in Europe, management was very agile in selling -- putting the gas prices [ are there ter ]. But fiber, there's a lot of work which we are doing and hopefully, that will help and with the market improvement this will improve [ the dels ]. But as LTM, you can see, is $271 million versus $245 million. We go to the next slide. This is a debt bridge we made. That $6.2 billion was the net debt at the end of last year, beginning of this year. We created core EBITDA of $2 billion. Our operating cash flow is taxes paid, and you [ see it ] would have deleveraged to 4.4. And basically, Oxiteno and Vietnam packaging took $1.8 billion and interest dividend and we are back to the same $6.6 billion. Now what it indicates that we could fund the Oxiteno and Vietnam packaging from our internal cash flow generation in spite of paying the dividend of $180 million. Company still has very strong liquidity of $2.6 billion as cash and cash under management. So just to show you a debt bridge from last year-end to September '22. If we go to the next slide. The other way of looking at it, we started the year with net debt to equity of [Technical Difficulty] [ 1.5x ], which has improved to 1.1x by end of third quarter. And then as you just saw, this is after capital expenditure of $2 billion and $389 million in net working capital and our -- still liquidity remains very strong. Stronger dollar helps our business in -- not only in time path earning, but the fixed cost where in many countries, where the currencies have weakened like Egypt, like India, and Indonesia, and that has helped because our dollar fixed cost has gone down. And it also improved the equity because of the translation gain, which you get for investments in overseas. And 62% of our debt is fixed rate. I mean, which is very timely because as you know, the Fed has been very, very aggressive. And we have increased our interest cost by $9 million to $10 million this year because of the benchmark increase or the floating portion, but certainly, this has been a very good news where we have frozen in that 62% debt is on fixed basis. And we have a good growth headroom of $5 billion, even at 1x debt to equity. If we go to the next slide, this is the most volatile period -- the currencies have -- it's very important that you have fantastic natural hedge on foreign currencies, and we have been managing a very strong discipline into it. And that's why you don't see FX losses coming into our balance sheet. Rather, we have borrowed Thai baht to fund the acquisition and which goes into translation gain/loss. We also have diversified the funding sources and 20% of our debt comes from sustainability refinancing, which is there's a commitment to our ESG, but also at a lower cost. On the right-hand side, you can see the debt maturity after the refinancing of $500 million which we are planning, and that it is well stewarded and gives you a debt service coverage ratio which is quite good. So this shows the strength of the financials of the company. Next slide, please. So if we go to the next. So as we move into the fourth quarter, to take a stock of the situation, yes, there will be some seasonal weakness in the margin in fourth quarter in Asia. European certainly, operations continue to have headwind because of volatile energy cost and also lower freight, as you saw in the earlier slide. IOD's intermediate portfolio will continue to see healthy MTBE spreads for the region, as I explained, octane shortage. We don't see ethylene and MEG margin to improve in the near future. But certainly, the worst is behind us. And with the opening of China, this will [ help ]. And surfactant demands continue to remain strong, and we have a very good pipeline. In Fibers business, Lifestyle, again continued to remain weak in the fourth quarter because of China lockdown, but as I said, China opens up, this will help. And Hygiene should benefit from polypropylene [ LAN ] situation as we negotiate next year's PP contracts and also the lag gains will come and which will also make the competitive fiber. So that pretty much summary on the fourth quarter. If you go to the next slide. So what is the summary of IVL? We have been -- we have made so many acquisitions around the world, successfully integrated last being Oxiteno, a fantastic acquisition still to unlock the synergy value of $100 million, a lot of initiatives which are going. I think -- there's a summarize 70% of our portfolio caters to consumer daily necessities, which is very important to differentiate us from other chemical companies, which are more in durables. We saw this during COVID, where demand growth rate went positive. And that's why with Corpus Christi project, as you know, we initiated, which is on track for end of quarter '24 and we have seen our chemical peers post year-on-year losses while IVL has shown significant improvement. Geographical spread that insulates us from geographical risks, having created a regional hubs, our supply chains have remained intact, and I think that has differentiated IVL. Today, we have more balanced portfolio with 3 segments, as you saw the 3 different segments and their earning streams. Our platforms grew in track record of withstanding volatility across cycle consistently improving in our EBITDA [ bolt on ] as you saw on the cycle, and we explained to you how this performer would have seen over the last 5 years, and cash flow. So very prudent balance sheet and so thank you very much. That was the last slide. Now we can open to the questions. Thank you very much.

Thank you, Mr. Agarwal. So we can take the questions. So I can see Komsun is first. Can you please ask your question?

Thank you, D.K. for the detailed presentation and thank you -- can you hear me?

Yes, please go ahead.

Okay. Thank you, D.K. and the team for the presentation. I have a few questions. First one is, can you be a bit more specific on Oxiteno EBITDA in the third quarter? In particular, Pasadena plant versus the second quarter. And I was just wondering, I didn't catch what you were saying. How did you fix the issue in Pasadena, which is -- has been turning around very good. And secondly, how was the west spread negotiations coming along? You mentioned briefly on Mexico or in the U.S. What about the others? And on the CPET, how was the premium there approaching versus like the first 6 months? Are you seeing the premium is declining because of the Fed rate easing? And the another one on the MEG chain is that what if China is not going to easing the lockdown in the first half of next year, what would the end game there? How would you improve? Or how would you -- how should we approach this issue? Are you going to cut further? Or there should be a consolidation in the industry because everyone was like losing money. And the last one is, when you were mentioning about MTBE outlook. Is that particularly on the U.S. in terms of the naphtha being used in the gasoline pool and the cracker that has been cut production or on a global basis? Because I think that the U.S. is mainly under the ethane. Thank you.

Very good Khun Komsun. Thank you for all your questions. So if you see here, this $92 million is -- $79 million, this is Latin America, okay? This is basically Latin America, fourth quarter '21 is 52, 63, 79, 92 -- so this is only in Latin America, which is Mexico and Brazil. The Pasadena went from negative 6 to 15. This is LTM third quarter '22. Vikash, do you have second quarter and third quarter, the specific performance in Pasadena?

I know it is running at $7 million, 6-7 million to $8 million, but I wanted to be very precise as I should do -- it should create a $30 million positive EBITDA versus $6 million.

What did we do in Pasadena? So let me explain you. The Pasadena basically, we improved the product portfolio, we switched some commodity surfactants from Pasadena to our [ port matches ] and we improved the product mix in Pasadena. Number two, we have some -- still this synergy value is not unlocked yet, which will get unlocked from January '23. They buy a clean oxide from third party, which contract will be coming to end, and we will captively supply from our plant. So that will unlock between EO pricing, what they were paying versus the glycol pricing. And so the Pasadena is because of the capacity utilization, and this will continue to improve. So that is on the Oxiteno performance. Your second question was on the West spread. I did mention to you, so in Mexico and the United States, 80% of the contracts are raw material linked. This means you sell the raw material linked businesses. And 50% of those contracts are already closed. And in next week, we expect to close more contracts. So that are better margin or same margin as last year. And why? Because PTA margins are linked to paraxylene in U.S., so that also helps. Other countries, Europe, certainly, we will have some impact because of the freights. Brazil, there may be the impact of the -- some freight on the impact of the spread, but we are reducing the discount and optimizing the operation. Asia doesn't matter because Asia is anyway FOB+ business. Asia's market -- mostly market linked. So I hope that explained to you and the premiums naturally will narrow down as compared to the historical premium because the Western in Europe, it will get affected. But so CPET will have some impact coming in. And the other question was on MEG. So let's go to the MEG graph. I mean MEG is very worse. This has never happened in the history of MEG. Integrated plants like naphtha and naphtha-based glycol producer, they are losing like hell, as you rightly said. Now when the situation will improve, I mean people are just cutting production. I heard that one producer in Singapore may shut down the plant. Now whether there will be consolidation in the industry, there is a lot of coal-based MEG in China, which may shut down or be operated at very low capacity. Will China, you said opened up last 6 months -- next 6 months, I'm hearing that it will open earlier because naturally, Chinese economy is getting hurt. But West is behind -- I mean you can't have $77 is Asia, MEG spread on naphtha. This one's here, you have to cover the cost of making ethylene and making glycol. And this is a lot of [ it is ] it even doesn't recover the variable cost. So this is much behind us. Worst is behind us. Your last question was on MTBE. So let me explain you what is -- go to the MTBE slide. MTBE is made from butane and basically, this is a [ PUMTB ] technology where you get TBA and then we add butane and methanol to make MTBE. So nothing -- ethane doesn't play a role here, it's the butane, and butane goes in LPG and export of butane has also reduced. And you can see the U.S. butane price versus naphtha is coming down. And it is 42% of the crude oil. So butane is low and MTBE premium over gasoline, which is dark blue left-hand side, you can see is today, $0.80 premium in the dark blue. You can see there, how much is U.S. MTBE minus gasoline. So that is because of octane shortage. And you must have heard that octane is quite short. And there is a forward curve in the market where you can sell [ RBOB ] and buy butane. And that is showing a lot of strength right now, as I just showed you. So ethane has nothing to do here. It's basically butane and methanol is also long, so methanol cost is also expected to go down. So that gives you, hopefully, the answer on MTBE. I hope I covered all your questions.

There was a question on this China reopening if it delays, if you want to give some comments on that Mr. Agarwal.

So China reopening -- I mean even if it delays, MEG demand, I mean they're running at 70% [ polyster ] operating rate. The most -- I mean the PTA margins are bad, the MEG demand is only bad. So I don't see anything worse happening. We saw that same crack margins going so well. So we don't see even if it delays, it's going to get worse than this. And of course, I think here, we have just tried to see a slide, we expect China to start reopening in second quarter, but I was actually talking this morning to one of our Board colleagues, and he mentioned that there may be a possibility that it will open earlier. So let's keep our fingers crossed on China. You saw the domestic manufacturing of Paxlovid pill, which is -- kills -- the [ salt ] secures the Covid, so hopefully, China has to go on/off it. They're having a lot of issues with the housing and all that, so.

We have Sumedh from JPMorgan. Can you ask, please?

Yes. Thank you. Thank you for the detailed presentation. I have, I think, 3 questions. And so firstly, just wanted to check with you on the interest expenses. They increased quite a bit suddenly from 2Q to 3Q, so just wanted to check, is it a function of some of the new M&A that we have [ tenanted ] new debt that has kicked in? Or is it purely a function of interest rate increase and should we assume that this rate [ system ] is going forward in terms of absolute number? So that's my first question. Secondly, the question is on Asia [ PV ] spreads, at least what I've seen in [ Dumbar for ] Asia, PV spreads and prices both have come down quite sharply in the last 2, 3 weeks. So what has happened there? Is it simply the winter demand weakness? Or is it something worse? So I just wanted to check on that, whether you have any views. And thirdly, once again, I think the IOD downstream segment performance is really commendable. But just wanted to check whether increase in EBITDA, especially this quarter, is it a function of weaker ethylene or is it the only like strong spread and if ethylene improves, then actually, that will be a gain towards overall [ parity ].

Sumedh, good questions, and thank you for those questions. So Vikash can we bring on interest expense? Naturally, it's a factor off. No, we had a bridge of interest expense, right, that how much? So 28% is floating, which has resulted in $9 million extra interest expense in third quarter versus second quarter. Then that was a -- we have a deferred consideration of $150 million on the Oxiteno deal. And instead of accounting, we have to provide the interest on those deferred consideration. And that is also actually for 2 quarters, it has gone there. So these are -- the debt, of course, as you saw, the debt is at $6.6 billion. In fourth quarter, there may be still a marginal increase because naturally, the benchmark prices have further increased spot prices. If Fed raises then it will have impact on 38% of the debt, which is floating. So that will have an impact. Vikash, you have exact numbers? if you want to...

Yes, Mr. Agarwal. So Sumedh, this increase in the benchmark in the third quarter is about 1.3% in LIBOR. So that impacted about $8 million to $9 million for the interest cost and then $3 million to $4 million is the variance because of the deferred financing cost which came in, in this quarter. So the impact I'm telling you on the 1- 1.3% benchmark increase is on the floating portion. So 38% of our debt is on floating. So that's the impact. So that's why the increase in the third quarter.

That's the $9 million.

Yes.

Okay. Sumedh, the second question was on Asia PET spread, I guess you're right. The Asia PET spread in fourth quarter clearly dropped. And it is a matter of 2 things. One is the Chinese demand because of the Chinese lockdown, which is continuing. And second, this is a seasonally -- fourth quarter is normally weak in the spreads and destocking. And basically, people have been destocking. And what we have seen in the past -- this is that whenever such spreads drop, the Chinese operating rate goes down and then that goes up. So we think that this is just a one-off thing, there's no structural issue in PET industry. The third question was on IOD downstream. You talked about, is it driven by ethylene cheaper. So downstream -- let me explain you, we have a clean pass-through mechanism in North America. And in South America, we buy ethylene. So there is no benefit of ethylene. We don't manufacture ethylene. South America entire ethylene is bought, including Mexico, EO. So in North America, this just passed on. And this is many, many products in this. So talk about [ ethanolamines ], as I said, ethylene oxide, propylene oxide, linear alkyl benzene, LAB is quite strong. And so all those products are there. This strength certainly is coming from product mix, the applications which we make and particularly like Crop Solutions, Oil field and home and personal care. And as I said, there is a synergy to be unlocked by cross-selling, we cannot [ sustain oil and gas ] so we feel that there is no impact of -- big impact of ethylene being cheaper in North America, because it's mostly pass-through. I answered you all these questions, 3 of you.

Thank you, Sumedh. So Khun Poom from Credit Suisse. Can you ask your question?

Okay. Can I just ask 1 question about Oxiteno. It may look [ a real position the ] asset that you should expect the EBITDA of about $200 million a year. Can you tell us how much are you actually making this quarter on that basis? And how much of that is going into 2023 and yes, then what should we expect from that asset in 2023 because as the [ for example the ] resident real and all that will probably stay right? So we just want to understand the [ size ] a little bit.

Thank you, Yes, you're right. Can we bring the Oxiteno slide? You're right that the way we bought the business at that time, we expected around $200 million, $220 million, and that's why we said we bought the business at 6 EBITDA multiple, 6.2 EBITDA multiple. You can see here since acquisition, second quarter, this in Latin America only, 79 and third quarter is 92 and if you take, including Pasadena, it was roughly $99 [ hundred ] million. Certainly, there were some tailwinds in [ nanochemical ] business. which is also part of this. And as I just said, ethylene, we buy the ethylene. There is MEG, they also have MEG actually, but MEG, we are not running -- running very limited because it doesn't contribute much as you saw in the energy business. How much you think is sustainable going forward? I think, as I said, we have synergy value of $100 million. I feel it's difficult to say, but there is no reason that we should not make $270 million to $300 million EBITDA in this business. And elections when Brazil are over -- we are seeing less volatility in currency. It's a very strong market. We have leadership in those markets. We have a lot of innovative products. We have a highly talented management there. And there's a lot of opportunity of cross-selling, which we are developing. So I feel very encouraged by this acquisition. And you can see on the bottom, there are 160-plus initiatives.

[ 185 ].

So we feel we're really pleasantly very happy with this acquisition and you have seen quarter-by-quarter. So sustainable, I would say there were some extraordinary gain in oleochemicals because oleochemical was pretty strong. Barring that, I don't see any reason why they should not perform equally good.

Just one more question. You mentioned that this was coming with [ state omitting tailwind ] in buying ethylene. Is that what you mentioned?

Tailwind in the Oxiteno business? You're asking Oxiteno? Sorry, you're on mute, I think.

Asking about tailwind in buying ethylene. So is there any tailwind.

No, no, no. There is no tailwind in buying ethylene because we are buying ethylene linked to a formula price, and that is not linked to the United States. So it's more tailwind of oleochemicals. I mean, oleochemicals was strong this year, exceptionally.

Because it's very strong demand?

More it's a mix -- demand, volume and product mix. This is a business where we do value pricing. So let me give you an example. We make certain products which go for insecticides, herbicides, right? And the contribution margin in those businesses is nearly $1,100 per ton or $1,200 per ton. So what value we are creating for the customer. And remember, Brazil is a protected market. The import duties are there. So you have all these advantages in Brazil. And agriculture is very strong in Brazil. The only thing which I feel which is a headwind in '23 is partly the coatings business and paint because the [ sation ] hits, then that's really coating and paint can get affected. So that is the -- and yes, they are good results.

Thank you, Khun Poom. So I don't have any more raise hands here. But if you have any questions, you can ask them now. Anyone, please?

This is [ Pat ]. A follow-up question. When you were talking about Oxiteno performing better on full year. Are you referring to fatty alcohol?

Yes, yes. So they buy [ Pankana oil ] and make fatty alcohols and fatty alcohols and glycerin is a byproduct and fatty alcohols goes for our captive consumption in our surfactants. Yes, they have a fatty alcohol [ blant ], correct.

I have one question on the chat in the [ person ] of what SAP is about the lower taxes in this quarter. So is it the lower taxes in this quarter, why it is so? And is it going to be a new level going forward?

Well, it's not going to be a new level. Certainly, the tax rate was low because we had one extraordinary gain in Brazil because there was a tax loss, which came in from our previous [ alter ] part, which was accounted as deferred tax asset so that was the reason of this. And do you want to give a specific answer with us that what is going to do in the future?

Yes. So just to add to Mr. Agarwal, our tax rate is about 18% to 19%. So if you see historically, we have been in those levels. But in this quarter, it's about around 10% because of this deferred tax assets that we have created in Brazil, and we are going to get that benefit in the next quarters of those assets. So -- but our tax rates going forward is expected to be in the historical range, about 18%, 19%. I think there is no change here. So thank you, everybody, for joining us for this session, and we'll stay connected with you one-on-one and -- okay, take care. Bye-bye.