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

Good morning. Welcome, everyone, and thank you for taking time for joining us for Indorama Ventures Full Year 2024 Results Briefing Meeting. My name is Vikash Jalan, Investor Relations and Planning at IVL. Joining me today, Mr. D.K. Agarwal, Deputy Group CEO; Muthukumar Paramasivam and Kumar Ladha, President and Co-leader for CPET segment; Alastair Port joining us online from the U.S., Executive President for Indovinya; and Diego Boeri, Executive President for Fibers. A quick disclaimer. 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 future industry and business trends based on our analysis of available information at this point in time. So with that, I now invite Mr. Agarwal to first share the business and financial highlights. And after the prepared presentation, we'll open up the floor for Q&A. Over to you, please, Mr. Agarwal.

Thank you, Vikash. A very good morning to all of you joining us on the year-end analyst meet. As we always present, let us review the macroeconomic landscape, which directly or indirectly impacted the industry as well as our business. The world is passing through one of the biggest turmoil periods. In quarter 4, the U.S. and China saw some marginal improvement, supported by rising production and new orders, while Europe remained challenging due to weak demand, as you can see on the extreme left top graph. The freight rates declined due to additional vessel capacity, which got added, and we also saw improvement in the Red Sea crisis. On energy front, weak demand and ample supply kept oil prices lower. They have been very volatile in fourth quarter '24. Meanwhile, interest rates marginally declined as inflation continues to be moderated, although, as you know, post-Trump policies, we see that interest rates may remain elevated for some time. Looking at what is the recent U.S. elections and impact on our business are expected to support the U.S. economy in the coming years. As you know, the IVL has been a geographically diversified company as a local producer in the United States, generating nearly 40% of the revenue of IVL and 50% of the EBITDA. And if you take the entire Americas, include Brazil and America -- Brazil and Mexico, it is 70% of IVL EBITDA. So IVL, we believe, will stand to benefit from potential tariff increases, which may happen, potential corporate tax reductions, and lower shale gas prices driven by increased oil and gas production as [indiscernible] works. However, this also brings headwinds, starting with inflationary pressure that could impact demand for certain products, particularly in the consumer demands like Indovinya and Fiber. Additionally, potential trade barriers would benefit IVL operation due to local production base, as I mentioned. With these challenges, our significant presence in the United States provides us a strong advantage, and overall, we expect a positive impact for IVL from this move in United States. If we go -- now let me walk you through the financial results for the entire year. In 2024, we know that industry has been very challenging. IVL took decisions, timely actions to fortify its market leadership and secure a sustainable growth path as the company pivots towards seismic generational change in the chemical industry. In a year of alignment, mobilization, and launch, management began executing a company's 3 years IVL 2.0 transformation strategy. As you remember, in CMD, we announced in March with a singular focus on optimizing global assets. This means shutting down high-cost assets, reducing debt, enhancing cash flows, and implementing next-generation digital and leadership programs to achieve our stated 2026 targets. Now this -- I'm very happy to report that these disciplined self-help management actions helped bolster full-year earnings, as global chemical markets continue to struggle through 2024 in one of the most challenging downturns in the recent history, as you might have noticed from the results of many chemical industries. The industry's future is being irrevocably shaped by long-term macroeconomic themes, including the unequal impact of peak oil between East and West, as you know, the feedstock disparity between East and West. China's ambition to continue to expand its own production, India's NMS growth engine, and one of the most unstable geopolitical environments in the generation. Amid this volatile backdrop, we are satisfied that IVL posted a full-year reported EBITDA of $1.4 billion in 2024, which is an increase of 26%, and adjusted EBITDA of $1.522 billion, an increase of 10% year-on-year. Though performance varied from business to business, improved volume across all segments and proactive management actions resulted in the overall improved earnings for the year. The pivots made this year from the assessment of make versus buy decision. As you know, we shut down a lot of PTA capacity. We went into buying PTA, resulted in a 4% year-on-year rise in volumes. So we protected our end market on a like-to-like basis, persistent overcapacity, particularly in our petrochemical business and PET kept benchmark spreads under pressure, affecting the integrated PET and MTBE businesses. There were some tailwinds as polyester fiber and integrated MEG spreads improved through the year, boosting Lifestyle fiber and maintaining intermediate chemical performance. You will see this in the coming slides. Although there was an increase in volumes, industry challenges offset disadvantages, steps taken by the management and a strong emphasis on cost control have significantly contributed to the improved performance this year. The asset optimization plan outlined in March, where we decided to rationalize a few high-cost facilities has thus far yielded an additional $48 million in fixed cost reduction in '24 with further enhancement expected as rationalization progresses and additional savings materialize to support earnings growth in 2025. We expect another $100 million additional fixed cost savings coming in '25. These actions have contributed to a higher operating rate for the group, climbing 8% in this year. Still in light of continued industry pressure, the company has determined that further management actions are necessary in addition to the significant measures already undertaken in 2024 in a sustained drive to achieve our stated 2000 IVL 2.0 objectives. And we'll discuss the further details in the upcoming capital markets in March '25, which is a week ahead. Lower energy costs, especially in Europe, provided an uplift of $55 million year-on-year across the group. Moreover, significant currency movements in certain markets, as you know, when the currencies weakened, Brazil, Nigeria, and Egypt brought a $48 million reduction in our fixed conversion cost, including variable and fixed. In 2024, looking at cash flow, IVL generated $1.33 billion of cash flow from operation, of which $110 million was used for one-time severance and related expenses. As you know, we shut down some facilities, and $229 million was spent on higher short-term working capital to stabilize the supply chain for PTA and PX purchases. We landed up with some high inventories in the CPET business, and this extra working capital outflow is expected to reverse as cash flows in 2025, as the supply chain stabilizes. You will please note that fiber nearly improved their working capital by $100 million. So CPET increased by $300 million plus, and I think that will get normalized very soon in the next coming 2 quarters. The consolidated fourth-quarter adjusted EBITDA year-on-year was higher by 29% from improved operation, but lower quarter-on-quarter by 16% due to seasonality. So that's on the fourth quarter. Now it's important to get an update on IVL 2.0. It's a quick snapshot, summarizing the update on asset optimization program. In the second quarter '24, we executed a comprehensive asset rationalization program, aimed at strengthening our asset base, improving cash flow and enhancing the quality of earnings. We took the bold steps of shutting down our PET/PTA assets in Rotterdam, PTA assets in Canada, EO assets in Australia, and others where already impairments were taken in the second quarter '24. These actions, as I mentioned earlier, are already yielding results with initial fixed cost saving of $48 million realized in '24 on track to achieve a saving of $160 million to $170 million per annum, which will basically translate into an EBITDA upliftment of $130 million to $140 million per annum by '25, '26. Alongside these cost savings, operating rates improved to 82% in the second half '24, and 495 manpower reductions achieved in 2024 on these sites. This excludes the people which whom we are further rationalizing in the fiber business. We also anticipate a one-time cash inflow of $150 million to $200 million from land sales related to these rationalized assets. Now these are not accounted at present. This will be accounted on cash basis except for Rotterdam, where we have accounted for $51 million as a firm agreement is getting reached with the buyer. We will further provide an update on IVL 2.0 in our coming CMD next week. Now let us see our results in 2024 in more detail versus 2023. As I mentioned, IVL delivered 2024 adjusted EBITDA of $1.52 billion, which is an increase of 10% year-on-year from the performance -- against the performance year of 2023. As I mentioned, supported by a reduction in destocking challenges, a moderate recovery in volume growth by 4%, and fixed cost savings from rationalization efforts. If you look at it segment-wise, CPET performance improved benefiting from a stronger performance in specialty chemicals. Cost savings from rationalization efforts helped offset the softer China benchmark spreads. As you know, China benchmark spreads have been very weak, demonstrating the effectiveness of our ongoing efficiency initiatives. Despite external market challenges, static cost controls and specialty product strength help maintain the profitability of this segment. Looking ahead, the segment expects improved earnings supported by further fixed cost reduction, as you will get annualized benefits from asset rationalization. Intermediate chemical performance got impacted due to lower MTBE margins because MTBE margins dropped but they were offset with improved integrated MEG margins due to shale gas advantage. Indovinya delivered a strong performance with adjusted EBITDA up 29% year-on-year, sales volume grew 4% driven by destocking normalization, and demand recovery in South America. So North America benefited from higher integrated margins, while South America saw gains from stronger sales mix. COMA growth was supported by Crop Solutions and Home & Personal Care, with an additional $100 million in licensing income from downstream products. These are PO licensing. Now looking at the fiber business, the growth in fiber segment was primarily driven by improved lifestyle benchmark spreads. We have seen improvement in the fiber benchmark spreads in China, and higher volumes in all market segments, showing positive momentum in all 3 verticals. Moreover, the segment benefited from reduced fixed costs through various management actions. The consolidated fourth-quarter adjusted EBITDA year-on-year was higher by 29%, as you can see $358 million, from improved operation but lower quarter-on-quarter by 15% due to seasonality factors. As you know, fourth quarter is normally weaker. Now this is an important side to look regional break-up of IVL performance. Looking at performance on a regional level, in 2024, the company demonstrated robust regional performance across key markets, and I think there was the geographical diversity paid. You can see that Asia delivered a stronger performance, primarily supported by better lifestyle fibers, benefited from improved PSF margins. CPET performance remained resilient due to increased volumes and higher premiums, despite lower benchmark spreads. In Americas, which constitutes 70% of the IVL EBITDA, continued to be a core strength due to its consolidated and well-protected market environment, which contributes nearly, as I mentioned, 70% of the EBITDA. Operations in Indovinya, which is basically entirely in Americas, delivered relatively better results, while, CPET faced some challenges in MTBE performance, which were normalized and offset with the improvement in integrated MEG margins. Meanwhile, the EMEA regions, and you can see a big string in EMEA regions, experienced a significant turnaround, and this is the impact of our rationalization of the asset. So the strategic asset rationalization of CPET enabled the company to adopt a make-or-buy approach for PTA procurement, thereby replacing the high-cost production with more cost-efficient purchasing. And additionally, fiber business achieved cost savings through transformation actions, further enhancing the region's recovery. So this gives you a reasonable regional break-up of the earnings. Now I hand over to Muthu to take us through the CPET performance. Thank you.

Thank you, Agarwal ji. Good morning, everyone. We will cover the CPET segment in specific. CPET, along with intermediate chemicals, delivered an adjusted EBITDA of $1,012 million, a solid 5% year-over-year increase, demonstrating our ability to navigate market headwinds, while executing strategic optimizations, as well as driving resilience through our management actions. Looking at combined PET here, which excludes IC, we will look at intermediate chemicals separately in a slide. Without IC, we delivered an adjusted EBITDA of $768 million, as you can see here. Overall, stronger specialty chemicals performance, as we saw earlier, and the cost savings is quite important. From the asset rationalization, helped offset the weaker China benchmark spreads, which dropped about $22 from $23 to $24. Now, integrated PET was focused on managing the oversupply, while enhancing efficiency, delivering $596 million in adjusted EBITDA, which is a drop of 4% year-over-year. Agile management actions, including $47 million in fixed cost savings from asset rationalization, and stable PET sales volumes, minimize this impact from the oversupply situation and the drop in industry benchmark spreads. As we discussed earlier, we see the full benefit of the rationalization coming in '25-'26. The rationalization efforts, as you all know, in '24, a lot of it was focused on the CPET, this business, resulting from a comprehensive review of make-or-buy opportunities for PTA and the evolving industry landscape. Our management maintained PET sales through these efforts, with volumes improving by 1% on a like-to-like basis through the year, underscoring resilient end-market demand. 2023 globally, there was a contraction in demand, which significantly improved in '24, and we are estimating a growth of about 6% globally on the PET demand, including our PET. Looking ahead, 2025 will see full benefits of these rationalization efforts, including further fixed cost savings and a one-time gain of approximately $100 million from planned land sales from these rationalized assets. Now, looking at packaging, this vertical gave stable margins in a high-value business, with an adjusted EBITDA of $98 million, which is a drop of 5% year-over-year, but a gain of 9% from volume growth, as well as cost reduction measures, were offset by reduced spreads due to the sharp devaluation in Nigerian and Egyptian currencies. Despite this, the business maintained a healthy EBITDA margin of 20%, reinforcing its position as a high-margin, value-driven segment. Now, looking at the Specialty Chemicals, this is a really strong turnaround story, with adjusted EBITDA surging from $7 million in 2023 to $74 million in 2024, and there has been growth both in volumes and spreads, and a lot of that benefit also came from the management actions taken on improving operational efficiency and market strategy. We will have some more detailed discussion on specialty chemicals in the next slide. Now, looking at the recycling, this vertical reported marginal improvement in performance this year, driven by higher volumes and lower energy costs. Similar to specialty chemicals, what we did last year, we have formed a new dedicated management team for the recycling vertical in order to bring more additional focus and forming a strong platform on recycling for future value creation. We just wanted to show highlight what turnaround has been made on the specialty chemicals on this slide as a case study, let's say. Specialty chemicals, which is, you know, we talked about this turnaround, and this -- the reason why you want to show is also to demonstrate our forward-looking business plan for the next 3 years, which has been focused on developing our value-added portfolio. And this slide, you can see the progress that we are making in that trend. Now, after a low point in 2023, where the EBITDA was only $7 million, we have actually worked on making a significant recovery, which has shown the EBITDA increasing to $74 million. Now this has been driven by a clear focus on operational excellence, organizational capacity, and agility as well as the market strategy, how we are optimizing the product value mix and the value pricing. So, on the operational efficiency side, we have, through our management actions of enhanced the plant reliability and yields ensuring more efficient operations as well as a considerable reduction in fixed cost. As far as the organization is concerned, we have reorganized to support innovation and growth, making our business more agile and responsive to evolving customer needs. On the approach to market, go-to-market strategy, it is focused on value pricing and an expanded customer and application base, looking at several new applications and high-value applications in premium markets, leveraging on the strong partnerships that IVL has had with our global base of customers. Now after this performance '24, we do see even greater potential ahead for this vertical with more than 400 customers, including large global brands, 39 patents, and a solid pipeline of innovative products. With some of these new innovations, we have also shown as pictures here. We are actively pursuing new levers for further growth in Specialty Chemicals, and we will make sure that this momentum continues. With that, I'll hand it over to my co-leader, Kumar Ladha.

Thank you, Muthu. In 2024, Intermediate Chemicals delivered an adjusted EBITDA of $244 million, reflecting some stability amid market adjustments. The segment saw good performance in integrated MEG and PEO business, benefiting from improved Asian MEG margins and a sustained shale gas advantage. However, MTBE business did face some headwinds as industry margins normalized from a record high in 2023, declining from $651 per tonne to $445 a tonne, impacted by new capacity additions. From a quarterly standpoint, in the fourth quarter of 2024, Intermediate Chemicals reported an adjusted EBITDA of $49 million, marking a 31% quarter-on-quarter decline that was driven by seasonal shifts in MTBE spreads, partially offset by the normalization of gas cracker operations. We saw MTBE performance softened as spreads fell from $460 a tonne in the third quarter of '24 to $249 a tonne in the fourth quarter of '24, mainly due to seasonal demand weakness and higher winter heating-related feedstock costs. Integrated MEG and PEO rebounded quarter-on-quarter, supported by the resumption of the gas cracker operations. Now I hand it to Alastair, who is joining us online.

Thanks, Kumar. And good morning, everybody. Indovinya delivered a strong financial performance in 2024 with adjusted EBITDA rising to $352 million, which was a robust 29% year-on-year increase. The sales volume grew 4% year-on-year, primarily driven by the destocking normalization and demand recovery in South America. And this all supported a very positive momentum. The North American portfolio benefited from improved integrated margins, while the South American portfolio had a marked boost from an improved sales mix towards higher-margin products. Overall, each end market contributed to contribution margin growth year-on-year, driven primarily by the Crop Solutions business and Home & Personal Care. In 2024, there was an additional licensing income of $11 million from downstream products, as D.K. mentioned. Management action on the Australian facility has been completed in 2024. This brought fixed cost reductions of $1 million in 2024. However, we should see $15 million in 2025 on ongoing. The segment continues to serve our Australian customers through a trading model from its global network of sites, including India, from which benefits are to be reflected in our 2025 results. The segment continues its trajectory towards specialty offerings with an agreement signed in 2024 to acquire 2 well-known brands from cargo for the energy and resource market. These will augment both product offerings and also enhance our margins. Our strategy remains focused on driving sales growth and expanding our market presence, while internal transformation initiatives continue to unlock value. This disciplined approach reinforces our foundation for sustainable growth and long-term success in Indovinya. So, as you know, Indovinya's portfolio is primarily driven by our HPA product portfolio. This makes up about 75% of our sales volume and delivers an EBITDA margin of about 18% in 2024 and 17% in Q4. Our Essentials business, which accounts for the remaining 25% of sales volume is closely integrated with the production of these HPAs, creating operational synergies. The Essentials portfolio follows the commodity life cycle and will gradually improve as the upcycle gains traction. In 2024, Essentials has shown a significant improvement year-on-year amid ongoing market challenges. As we think about our market segments, Home & Personal Care, the demand remained resilient. The segments benefited from the launch of new products and optimized sales mix, which have collectively accumulated in enhanced profitability. On our Crop Solutions business, year-on-year growth was supported by favorable post-destocking conditions and consistent supply service from Indovinya, which is recognized for its competitive local positioning, particularly in facilitating last-minute purchase decisions on low stock levels. These factors have contributed to a notable increase in our market share. For Energy & Resources, despite operating in a more competitive environment in Q4 due to the resumption of operations of key competitors in the U.S. following the force majeure event, the segments continued to deliver solid sales performance. In Coatings & Construction, this segment experienced year-on-year growth driven by a recovering market and increased market share, along with a better product mix. Thank you. I'll hand over to my colleague, Diego.

Good morning, everybody. In 2024, the fiber segment delivered an adjusted EBITDA of $159 million, reflecting a strong 26% year-on-year growth and 57% year-on-year, if we exclude the one-time insurance payment that impacted positively 2023. The growth was primarily driven by improved industry spreads in the Lifestyle and higher volumes across all market segments. Let's now break it down by the market. In Lifestyle, we achieved a significant improvement with adjusted EBITDA of $40 million, marking a robust 205% year-on-year growth. This was driven by improved fibers industry spreads and 5% year-on-year increase in volumes due to higher demand. The European restructuring of our Lifestyle business announced in Q3 will consolidate the filament assets, enhance operating rates, and reduce fixed costs by $13 million. The machine relocation has begun and is expected to be completed by Q2 2025. In the hygiene market, we reported an adjusted EBITDA of $47 million, which is an increase of 17% year-on-year, driven by rising volumes and our margin by using competitive raw materials from Asia. In Mobility, we delivered an adjusted EBITDA of $72 million, a 50% increase from the previous year, excluding the one-time insurance payment, and this is an all-time performance year for us. Growth was driven by a replacement tire demand. OEM demand remained weak, though a rebound has been observed in recent weeks, supported by government stimulus in China. Management action on fixed cost optimization are yielding results with $19 million year-on-year reduction net of inflation. As of now, all fixed cost reductions do not yet include savings from our 4 planned asset rationalization activities in this segment, which will be implemented in 2025. Back to you, D.K.

Thank you, Diego. So now let's look at the summary of the results from '23 to '24. I think you heard all the business segments. This bridge shows you the -- what complete management actions that have been taken and what industry impact has been there. In 2024, as we mentioned, achieved an adjusted EBITDA of $1.52 billion, making an improvement from $1.39 billion in 2023. This growth was driven by a $122 million increase in volumes across all segments, as you saw a presentation by other segments, supported by a recovery in demand following the ease of destocking situation and commercial excellence. So not only value pricing on the volumes, what we got back into the system. As I mentioned, industry benchmark spreads had a negative impact of $131 million, largely due to weaker spreads in integrated PET and MTBE, which is normalized from the record high in 2023. So you can see an impact of an MTBE of $144 million, an integrated PET of $99 million and a positive and integrated MEG by $86 million and $19 million in the fiber. So basically, if you summarize, the MTBE loss was offset by the integrated MEG spread. So the industry impact was $131 million. The contribution margins improved our EBITDA by $60 million, mainly driven by lower energy prices, as energy prices were lower. On the last bucket, our asset rationalization efforts have started to yield benefits, contributing $48 million in fixed cost reductions which is from the shutdown sites. And as I mentioned, another $100 million will roll in '25. Management actions and inflation control measures further supported a $35 million reduction in fixed costs. So the total was nearly $83 million. Our broader transformation journey enabled us to offset cost inflation, while the depreciation of emerging markets currency further contributed to the cost reduction. These combined efforts reflect our strategic focus on driving operational efficiency and enhancing earnings resilience amid market volatility. Now let's look at how our debt profile has evolved. In 2024, IVL generated $1.335 billion as a cash flow from an operation, of which $110 million was used for one-time severance and related expenses on shutdown sites, and $229 million was spent on higher short-term working capital due to higher year-end inventory caused by supply chain disruption due to Red Sea crisis, particularly, as I mentioned, in CPET segment. This extra working capital outflow is expected to reverse as -- in 2025 as the supply chain stabilizes. As I mentioned, CPET has a nearly $300 million impact which we expect to recover soon. As a result, the reported operating cash flow was $996 million, of which $730 million was allocated to maintenance CapEx and financing costs, including perpetual interest. The remaining $257 million free cash flow for IVL shareholders helped reduce net debt from $6.84 billion to $6.58 billion. After dividends and growth CapEx, net debt stood at $6.89 billion, similar to the start of the year and a one-time deferred payment of $150 million for the 2022 Oxiteno acquisition increased the net debt to $7 billion. In 2024, we were affected by the volatility of exchange rate movements on Thai baht-denominated debt. To provide a clear understanding, we have shown net debt after removing such an exchange impact. Management actions remain focused on generating free cash flow and anticipates growth in '25 and '26, driven by management actions, volume improvements, proceeds from the sale of land of rationalized assets, plant IPOs, as we mentioned, and divestiture, leading to net debt reduction in line with the strategic goals. So if you see nearly $500 million of debt got increased due to 3 factors. One is the net working capital outflow of $229 million, $110 million of severances, and $150 million of one-time Oxiteno payment. So these are one-time effects and the working capital we hope to release very soon in '25. Now at the end of 2024, our adjusted net debt equity stood at 1.38x with a DSCR of 1.32x. Our adjusted net debt equity calculation excludes nonoperating debt on the assets with the work in progress and the impact of lease liabilities and noncash exchange rate movements in debt and equity to ensure a more accurate reflection of our financial position by removing non-cash accounting adjustments. We maintain, as you can see, a balanced debt structure with 47% fixed and 53% floating, providing flexibility to optimize financing costs as interest rates stabilize at peak levels across major markets. With benchmark rates expected to decline globally, we saw a recent reduction in Thai baht by 25 basis points yesterday. We are well-positioned to benefit from lower interest costs in the years ahead. We have successfully completed during '24 refinancing of $1.8 billion through bank loans and issuance of Thai baht debentures, achieved increases of debt maturity profile, and saved interest cost by $10 million to $11 million per annum. This has also allowed us to extend our repayment profile, which is now spreading over 10 years with a longer average maturity of 4.5 years. We already have a 2025 refinancing plan, which is progressing very well with a focus on further extending debt maturity, while securing lower spreads. We have further planned $1.9 billion of refinancing in '25, mainly for recapitalization of Indovinya prior to IPO listing. The term sheets have been already negotiated with the bankers. The funds will be utilized to repay outstanding long-term loans and extend the repayment profile. So right-hand side, what you see the long-term debt repayment schedule is after that refinancing. So what is important that we maintain in this difficult time, a strong liquidity of $2.1 billion at the end of '24, providing financial flexibility to navigate the market conditions and support our strategic priorities. It's important to understand a little bit impact on our equity, particularly at the end of the year as the Brazilian real was very weak. Our equity was impacted by the noncash exchange rate movement, as we have investments in the dollar and Brazilian real. Thai baht strengthened against the Brazilian real by 7% in the fourth quarter of '24 and 22% over the year, contributing a total negative equity impact of $409 million in '24. This impact, as you know, is a noncash translation, loss is temporary and has started to reverse in the first quarter of '25 following the current weakening of Thai baht against the USD and Brazilian real. We are reviewing our financial policies to minimize the impact of the FX rate movement, such as in Brazil, where the currency weakened substantially, affecting our closing net debt and other comprehensive income. Our ESG-linked financing accounts for 30% of the total debt reinforcing our strong alignment with sustainability-focused financial strategy. This reflects our commitment to integrate the ECG principles into both our operations and capital structure as a part of our long-term financial roadmap. We didn't look great in working capital. So that's the area where we need to address. Our working capital days increased from 82 to 88 days by year-end, as I mentioned, due to higher year-end inventories caused by supply chain disruption due to the Red Sea crisis, particularly in the CPET segment. This resulted in a working capital outflow of $229 million, which we expect to normalize in '25 and further improve by leveraging on digital tools like IBP. As you can see, CapEx is another key focus area to improve the free cash flow, where we'll invest only in sustainability and high-return projects. Most of our further spending will go towards essential maintenance to ensure operational reliability. In 2024, total CapEx was $190 million lower than the levels announced in CMD in March last year. As you can see, it is $470 million versus $660 million. Looking ahead, we remain committed to optimizing working capital, strengthening cash flow, deleveraging the balance sheet, and maintaining disciplined capital allocation. Now let's summarize -- sorry, there is another slide here. As you might have heard, Indorama Ventures is pleased to announce a 24.9% minority investment in EPL Limited, a listed company in India, who is a leading global packaging company. Through our subsidiary, INBV, we will acquire this stake from Blackstone for approximately $220 million, which is Thai baht 7.44 billion at INR 250 per share. EPL, as you can see on the slide, is a global leader in innovative packaging, producing over 8 billion tubes annually with $498 million revenue as reported last time and $97 million EBITDA for '23-'24. The company operates 21 manufacturing facilities across 11 countries, serving blue-chip customers across 3 key product segments. EPL's strong market position, innovation-driven approach, and sustainability focus complements IVL's global strategy. This transaction is expected to be completed in the next few months after the statutory approvals. IVL remains focused on enhancing shareholders' value through disciplined capital allocation. So let's summarize an introspection of '24 performance. As you know, we'll be soon meeting for CMD. The chemical industry remains very challenging due to overcapacity and benchmark margins remaining below cash cost, as you've seen across all the chemical industries, olefins, aromatics, and refineries. We are happy that timely management actions in rationalizing high-cost assets help in mitigating industry headwinds. We are proactively navigating these complexities through IVL 2.0 with a strong focus on organic growth, operational efficiency, and financial discipline. Cost efficiency and operational optimization supported by asset rationalization and Olympus 2.0 will help maintain our first-quartile cost production, and we'll continue to look at it and mitigate the impact of industry headwinds. So we are not dependent on a revival of the margins. Digital transformation initiatives, including SAP S/4HANA, AI-driven optimization will further enhance operational efficiency, streamline the supply chain, and improve decision-making. Improvement in destocking, as you saw a situation in all the business segments, along with the commercial excellence led to volume recovery across all businesses. Our working capital days increased from 82 to 88 days by year-end, as I mentioned, due to higher year-end inventories, particularly in the CPET segment. This resulted in a working capital outflow of INR 229 million, and we expect this to normalize in '25 and further improve by leveraging on digital tools. As I mentioned, we remain committed to financial discipline, ensuring cash conservation and strategic capital allocation across all businesses. Overall, as a summary, I would say management is pleased with the company's performance in '24, notwithstanding the challenging industry environment. The past year marked a historical milestone in Indovinya Ventures' journey, as it leaned into the fundamental industry shifts and sought boldly to take advantage of the changes. The company has transitioned from its legacy asset acquisition model and management is now focused on directing the pace of transformation in a more mature phase marked by organic growth, cash flow generation, and a new era of partnership towards long-term sustainable growth. Lastly, I'm pleased to invite you all to our Capital Market Day on March 5, where we'll provide deeper insight into our strategic roadmap and long-term growth trajectory. We look forward to seeing you in CMD and thank you for your patience. Now we can take your questions please. Thank you.

[Operator Instructions] In the meantime Alastair is joining us for the Q&A. So while we wait, I have one question online. It says that if the Russian war ends, what kind of impact do we estimate on IVL?

If the Russian war ends, naturally, as you know, the Russian crude has been flowing into China and India. There has been an impact in the refinery operations in the diesel because the diesel crack margins went up. Naturally, we see the refinery still remain under pressure. But from the IVL perspective, we don't see except the movement in the oil price because, as you know, in Russia, we have a very -- we have a hygiene business, which is quite profitable. And we continue to run those operations. So I don't see any major negative or impact. Rather, it will help in the recovery in the European demand. Diego, do you want to add something?

No. As you said, we have an operation in Russia. I think if the wars end, I think it will be positive for us. We'll be able to get some of the demand that this plant used to supply, and we will also have less difficulty to find workers, which is one of our biggest issues today, and some stabilization in raw materials. So overall, for the engine business, that's a few million dollars positive.

Thank you. [indiscernible] I can see that you have raised your hand. Can you ask your question?

Yes. May I ask how much is the cost-saving that reflects in the fourth quarter results compared to the third quarter? And the second question is what is the situation of the Crop Solution or the -- also this segment for surfactant because the EBITDA we see quite a drop in the fourth quarter? And could you give the outlook for the first and second quarter of the year?

So I think the first question if I got correct, is the fourth quarter fixed cost saving, right?

Yes.

Yes.

So that is about -- how much it is Vikash?

Yes. So the total fixed cost saving for 6 months in the third and fourth quarter is $48 million and the third quarter was [ $19 million ], and the rest has come in the fourth quarter.

And as I mentioned that next year, we will have the full year fixed cost saving, which will be nearly incremental $100 million. As you know, Australia, Canada, Rotterdam, and Portugal. I'll leave it now to Alastair to address the Crop Solutions question. Alastair, please.

So the full question was the drop in EBITDA and then what do we see in quarter 1. Is that correct?

Yes, the Crop Solutions drop in the fourth quarter EBITDA, right.

Yes. So normally, the Crop Solutions business works on seasons. In Q4, it's the normal ramping down of the end of the crop season in South America. And Q1 and Q2 are normally the peak seasons for crop season in North America. So you see the North and South hemispheres changing. I think what we saw was -- I mean, it wasn't a bad quarter at all based on '23 versus '24. So still a very, very good quarter, I think. But we did see that tail off as we were expecting. So it was nothing that we weren't surprised at. Q1, I think, is starting off reasonably strong. We're only halfway through the quarter. So it's a little bit early to give any forecast, but we're seeing some pretty good demand coming through. But obviously, that will be in North America. South America will kick in on quarter 3, and quarter 4 again next year -- this year, sorry.

Sorry, can I ask further? So we would see Indovinya to report a better EBITDA in the first quarter compared to the fourth, right? And also the second because you said the first and the second quarter would be the peak season for surfactant.

Yes. What we normally see is Q1 and Q4 being the weaker quarters and Q2, Q3 being the stronger quarters. So that's our normal profile. Q4, obviously, as people are destocking and getting their stock levels right for year-end and then the end of the crop seasons. And then Q1 is the normal ramp-up into the North American season. So what you see is Q1, Q4 being the weakest quarters, Q2, Q3 being the strongest quarters. That said, we're seeing Q1 starting off quite robustly. Given we've had a winter challenge in North America, as you will have read, that's had some impact. We're still expecting Q1 to be quite strong.

I've got one question online. It says that can you explain more on the temporary CPET supply chain disruption that we have seen in the second half? Can be a little bit more expand on that?

Muthu, this is a question for you to recover $300 million. Go ahead and explain well.

Yes. So when this Israel-Gaza war started, of course, a lot of shipments got diverted through the Cape of Good Hope instead of the Red Sea, which resulted in a significant increase in the transit times from 30 to 40 days to almost 80 days plus, and some of the vessels even took 100 days. So there was a significant impact to the transit time and thus the working capital. The other reason was also because the uncertainty of volatility in the transit times also. So that resulted in an unexpected increase in working capital. Now, what we have done is we have streamlined those as much as possible through dedicated charter vessels so that we have better control on these transit times, even going through the Cape of Good Hope. But for the past few weeks, there has already been a lot of shift from the Cape of Good Hope to the Red Sea. And now with a lot more improvement and progress on this settlement, then there is more and more vessels now going through the Red Sea. There are still some operators, who still are avoiding risk and going through the Cape of Good Hope, but a major part is already shifting to Red Sea, which will then directly reduce the transit time for our imported material. And that is what Mr. D.K. was mentioning that should help us to reduce the working capital and release it during the first quarter. I hope that answers the question.

Yes. And we're very hopeful to get it back. As you know, we rationalized our assets. So we went into PTA buying mode than the manufacturing in Rotterdam, which actually further aggravated the situation. And as Muthu explained the transit time now and the entire planning is being very rigorously looked into. So we hope to release this working capital.

And that is both for Europe, the make-versus-buy PTA. But also we have a large operation in Egypt, and that cargo is also going through the same dynamics. So it should help quite a bit both in Europe as well as for our Egypt raw material imports.

Thank you. Since we are on CPET, I'll take the question on CPET. So Komsun is asking, can we provide a breakdown of our EBITDA in region? So he's asking for PET, but I think we have overall IVL that we can show. And then what is the indicated breakeven cost for MTBE? And the third question is that the Chinese petrochemical can operate because they're getting a cheaper petroleum from Russia. So can we further explain on the Chinese petrochemical situation?

Good. So I'll take one of the questions on the China's petrochemical situation. I think China do have a very huge overhang of the entire petrochemical. When you talk of olefins, you talk of integrated PET, aromatics, which the capacities got built up. Today, as you know, olefin, the world capacity utilization is 80%. So we do see these challenges of overcapacity in China continuing. But as you know, our business has been a geographically diversified model. We have been working on a lot of trade barriers. And naturally, the Americas business is highly protected. So Chinese products cannot go, but this challenge on Chinese will continue. I don't think we have a breakdown from CPET EBITDA, but you can see from here that 70% of IVL EBITDA is predominantly made in Americas, which is U.S., Mexico, and Brazil. And maybe the third question was the breakeven cost of MTBE. Kumar, do you want to take that?

I think we'll revert on that point, get back to you with the breakeven on the cost of MTBE.

But just if I can add, how do we make MTBE? MTBE is made from butane. It's a PO/MTBE technology. So basically a byproduct of PO/STBA, and we make butane and methanol and then MTBE. So you see the MTBE margins seasonally in the fourth quarter are weak because you blend basically butane in the gasoline pool, and which gets corrected in first quarter, second quarter. And you see when the blending stops, the butane as a percentage of oil comes down significantly. So you see always quarter-by-quarter, second-quarter, third-quarter earnings bigger, and it is also because the refinery margins in the second quarter and third quarter are high and this octane is linked to the refining margins and it has a premium over it. So I think the breakeven cost, we can provide you more specific data. But yes, the margins in the fourth quarter were remained under pressure. And this is basically PO/MTBE combined, and it still contributes, as you saw, the quarterly EBITDA even at the weak MTBE margin.

And maybe just to add on this Chinese use of cheaper crude. One dynamic that we have seen is as compared to the peak refinery margins in 2024, towards the later part of the year, they have been reducing. So the refinery margins are not as robust as before. And -- how that is relevant is because of 1/3 of the Chinese capacity, PET, is fully integrated, then it should have less impact on the subsidization of downstream spreads on PET. So that is directly linked to that.

Yes, I think -- Vikash, you have that integrated slide. I think this is an important point, which is that today, the entire polyester value chain margin has compressed. You see this is a refinery margin, which has compressed. But we have another slide, Vikash, where it compresses entire polyester value chain margins, whether it is paraxylene, PTA, PET are compressed. They are much below the cost. People are losing money. So the question is, how they became sustainable? So these are the typical problem right now of the industry.

I can see Naphat from CLSA. Can you ask your question, Naphat?

Since we were talking about the PET industry, I may have one more question on PET. So what is the industry situation of the PET in China? Because I remember that we were talking about the declining of the upstream PX spread will pressure the Chinese producers which should see them cutting their run rate. And looking at the spread in January and February, I think it's down quarter-on-quarter quite a bit. So I wonder when should we see -- how is the industry situation in China?

Yes. Muthu, you can take that question, please?

Yes. If you can go back to that slide, Vikash, the one that we were just showing. So here, we have provided the quarter-wise margins and operating rate up to December of '24 or the fourth quarter. You are absolutely right that after peaking in November and the early part of December, the integrated spreads have come down considerably in January and February. Now that has been driven mainly because a lot of the capacity -- new capacities came on stream that part of the year. And a large part of that capacity addition is also fully integrated by the Rongsheng Group. So that has resulted in this drop in margins. The other reason is also because the Chinese New Year was earlier than usual. So, many of the manufacturing units, they took the shutdown earlier than planned, and they have not -- I mean there has been a deferral in their restarting. So, combined these 2, the margins have declined. Now, what we are seeing is that after the inventory levels increased because of these reasons, now with the units starting back up and the downstream demand coming again, then the inventory levels should start reducing and the operating rate should start improving. So, now if you see that the operating rate, which went highest in -- I mean high in Q4, that has come down below 70%, that is expected to now start going up again. And that should help March onwards with the seasonal demand coming, downstream units starting back up, then we expect improvement in the margins from these lows. Overall, for the year, we expect similar margins, integrated margins as '24. We don't expect a large improvement on an annual basis. But from the current levels in January, February, certainly, we should see an improvement. And the other reason is, if you go to the capacity addition, Vikash? So this will show you that the peak capacity addition already happened in '24. What you can see here almost to 5 million tonnes of capacity got added and a lot of that came during the second half, the effective basis. And that is what resulted in this temporary. Now 2025, if you see that is dropping quite a bit. And in '26, it's less than 1 million tonnes. So going forward, although the capacity overhang will be there, the sharp drop in addition of new capacities that should also help on the spreads. But overall, as I said earlier, '25 on an annual basis, we expect to be similar to '24. I hope that answers.

Yes. One more question, maybe D.K. Can address this issue. I think about the asset divestment that we -- the asset that we impaired last year, and then we are thinking of divesting those assets. I wonder, is there any update on this?

So I think that is -- as you can see, our asset divestment, we are expecting $150 million to $200 million onetime cash flow. For Rotterdam, we already agreed for a sale of our land and the jetty. The plant and machinery is still being discussed. So that will get -- and that's where the $51 million was accounted in the fourth quarter audited reversed, but no cash flow came in. Then another big piece is Australia land, which has a significant value in terms of $100 million to $110 million, Canada land. So all this $150 million to $200 million cash, we expect to realize in '25 and latest in the first quarter '26. So it's going -- divestment is going as planned of the shutdown assets. And in addition, as you know, we are looking at divesting certain core assets. So that will keep you updated on Capital Market Day.

Thank you. I can see some more questions which are related to more petrochemical and CPET, so I'll take them first. So [ Khun Jakapong ], you are asking that can we give a guideline related to the new pricing of contracts in 2025? There's another question that what is the change in U.S. policy on petrochemical imports to the U.S., the tariff and restriction that's across IVL? And the third one from [ Jakapong ] is, what's the progress of listing the packaging business?

So I'll take a couple of them, and then I'll ask Muthu to cover. So U.S. imports tariffs positive for IVL. As you know, let's understand that the U.S. has paid a deficit in terms of PET, nearly 1 million tonnes comes. Even from Mexico, there's a lot of PAT and PET comes in. We don't know yet whether the duties will be slapped on the Mexico and Canada. So naturally, this will have a positive impact because U.S. operating rates will go up. Also, we see that de minimis imports, there are some duties like diapers and all that end products. We also see this will help in the fibers business. So overall, tariffs will certainly help in the entire IVL business portfolio. The listing of packaging business is on track. We are working on it. As you know, the packaging business has delivered consistent EBITDA. We have growth plans, we have a building plant in Tanzania, we are looking at other countries. So that is targeted in the first quarter '26, raising $250 million. The, third, on the new contract pricing, I think the U.S. is -- on the North America is on the positive side, but let Muthu answer that question in more detail.

Yes, thank you Agarwal ji. Yes, on the contract freight, we have been able to lock in the contracts as we had planned in terms of volumes and the projected growth in demand should support that. In terms of margins, Americas, certainly '25 versus '24, we see an improvement. In case of Europe, where there is also a large contract volume, also in the base spreads, we have been able to improve from '24 to '25. However, as you know, that Europe also has a lot of influence from the Asian spreads, what happens on the Asian spread as well as on the freight rates so that we will need to closely monitor. But overall, based on the dynamics, we've been able to improve the base spreads in Europe as well. And just to add on what the Trump administration, the new regulations, and the tariffs that are coming in. If you look at CPET, maybe I can break it into, let's say, 3, 4 factors. One is on the material flow that is coming into U.S. on PET and PTA, IVL does not have direct exposure on that as compared to some of our peers. So any tariffs or disruption to that should help us as a large domestic player. Now if there are going to be any cost increases on feedstock further upstream, that we should be in a position to pass it through to the customers either through change in the published indices or other pass-through mechanisms we have in place. So that should be overall positive for IVL in U.S. Now we are also carefully monitoring how the retaliatory measures would impact our business. So it is not only the tariffs that U.S. is putting in place but also what happens if the partners -- trading partners add retaliatory measures. So we are already taking actions first to make sure that there is no disruption on our supplies to our customers, but then also how we mitigate any type of cost impact. The third factor is that because of the change in the approach of the U.S. administration, which basically is becoming more protectionist, we expect many of the other countries, and we do see that, taking a similar approach, ensuring fair trade and that the domestic industry is protected. And this should help IVL because of our presence, domestic presence -- large domestic presence in key markets in terms of tariffs or trade measures in those markets, it should directly benefit us. And the last one I just wanted to highlight is also -- you all must have also seen the announcement on -- of tariff -- increased tariff, [ 25% ] on aluminum and steel imports. And as compared to the last time, this time, it is also including countries which have FTA, free trade agreement, with the U.S. So we are monitoring that. And we believe that based on some of the comments made by large brand owners, we expect some type of pivoting shifting of demand, if it continues to PET from aluminum. So we will continue to monitor that and see what we need to do to take benefit from that. So those are some of the areas how we are managing the new approach.

Thank you, Muthu. And I think the last one is quite important. As you know, the aluminum constitutes nearly [ about 50% ] of the CSD sales in the U.S., and you've seen the comment. So let's keep our fingers crossed. Thank you.

Thank you, Muthu, Mr. Agarwal. So Kaushal, thanks for your patience. So from Macquarie, asking the question, given focus on deleveraging for IVL, what are the thought process on the IEPL investment? What would be the guidance for further growth of CapEx in '25? And there's an accounting question, the cash conversion cost in fourth quarter '24 dropped significantly. Can you please give some color on the cash conversion cost in the fourth quarter?

So on deleveraging, I think as you know, the IVL is committed on our deleveraging of debt over EBITDA of below 3x. So our IPOs of Indovinya and packaging and also the divestment, we are working on that. Naturally, this year, we could not deleverage because of the working capital increase, as you saw, $229 million, severance onetime of $100 million and $150 million. Otherwise, we would have been deleveraged by $500 million. And EPL investment is a minority stake in the high-growth market. As you can see, it's a very strong business, we don't have any plans to further invest in this business and have this minority stake. As far as growth CapEx is concerned, you are seeing that reduced as compared to '24, $190 million. '25 and '26, we'll provide you update in CMD. '25 is going to be higher because there are 3 turnarounds. One is for IVOG, which is the glycol plant, IVOL, which is the ethylene cracker plant and MTBE, which comes once in 5 years, but we'll give you a further update. I didn't understand the, third, cash conversion cost...

Yes. So this is -- there's a clarification. This is cash conversion. So operating cash flow to EBITDA in the fourth quarter. That's working capital. Yes.

So OCF conversion has been poor. As you know that our working capital deployment of $229 million has been a big hit for us. And -- although if you take below -- before that is $1.3 billion. And I think this will improve as we release more working capital in the coming years. So you can see $1.3354 billion, $1.4 billion, but the major hit has been this 2 factors, working capital flow and the severance payment. So this cash conversion ratio will certainly improve in the coming years '25, '26.

Thank you. Audience, I don't see any other questions left. But if you have any questions, you can ask them now. There are no more questions online as well. So I think we can close the meeting today, and thank you very much for joining us, and we look forward to seeing you on 5th of March for our Annual Capital Market Day event. It's being held at Sofitel in Bangkok. And for the overseas participants, you get the online link to join in. Please do join. Thank you.

Thank you very much.

Thank you all so much.

Thank you.