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Edited Transcript of IVL.BK earnings conference call or presentation 12-May-20 1:05am GMT

Q1 2020 Indorama Ventures PCL Earnings Call

Bangkok May 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Indorama Ventures PCL earnings conference call or presentation Tuesday, May 12, 2020 at 1:05:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aloke Lohia

Indorama Ventures Public Company Limited - Vice Chairman & Group CEO

* Deepak Rasiklal Parikh

Indorama Ventures Public Company Limited - Chief Strategy Officer

* Dilip Kumar Agarwal

Indorama Ventures Public Company Limited - Executive Director and CEO of Feedstock & PET Business

* Sanjay Ahuja

Indorama Ventures Public Company Limited - CFO & Executive Director

* Vikash Jalan

Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance

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Conference Call Participants

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* Komsun Suksumrun

Phatra Securities Public Co. Ltd., Research Division - Assistant MD and Energy, Utilities & Petrochemicals Analyst

* Mayank Maheshwari

Morgan Stanley, Research Division - Research Analyst

* Paworamon Suvarnatemee

Crédit Suisse AG, Research Division - Director

* Sumedh Samant

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [1]

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I'm Vice President, Investor Relations of IVL. I welcome you to our virtual Indorama Ventures quarterly results for first quarter '20. Joining me today in our virtual meeting earnings call, our group CEO, Mr. Aloke Lohia; along with IVL executive team members, Mr. D. K. Agarwal, CEO for Integrated PET and Integrated Oxides and Derivatives; Mr. Udey Gill, CEO for Fibers; Mr. Sanjay Ahuja, our Group CFO; and Dr. Deepak Parikh, our Chief Strategy Officer.

As a reminder, this results briefing is being recorded. The slides for today's presentation can be found on our website. I would like to remind the participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties. Participants and readers are, therefore, encouraged to refer to the disclaimer on Slide #2 of today's presentation. A replay of this call will be available on the Indorama Ventures website. I'd like to request that you send your questions to me via text message option on the MS Team, and we respond to it at the end of the prepared presentation.

I would now like to invite Mr. Aloke Lohia, Group Chief Executive Officer of IVL, to take you through the presentation.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [2]

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Thank you, Vikash. Good afternoon, everyone. This is Aloke Lohia. Thank you for joining IVL's virtual quarterly results update. Let me first start by saying I really want to thank each and every one of you to take the time to be with us for this call. These are unprecedented times for all of us. We will be covering 3 topics today: reflections of the new IVL, which includes the acquired business of Huntsman; second part would be the first quarter 2020 results and performance; and the final deck on 2020 outlook.

Let me first reflect on our newly transformed IVL. Going forward, we will be reporting our IVL's group performance under 3 business segments of Combined PET, Fibers and Integrated Oxide and Derivatives. We have spent quite a bit of quality time during the first quarter for the seamless integration of Huntsman business, assets and people into IVL. We also had 2 major events to deal with during first quarter, which are ongoing. And they are COVID-19 global pandemic as well as the historical collapse in crude oil prices. I must say that I'm very glad to see resiliency of our IVL during these unparalleled times.

We had a solid start entering into 2020 during January and February. We felt some early headwinds starting mid-February due to COVID as some of our sites in China, India and Italy felt the impact. We took quick and decisive actions to manage our working capital. And we have taken proactive steps to reduce our inventories, reduce our CapEx by $300 million and improve our total conversion cost.

Project Olympus is on track and will bring in $76 million run-rate cost savings in 2020. We decided to remain focused on our 5 strategic priorities as these will help us build sustainable advantages for the long term. These include signing off on a single source of truth via ONE SAP across our businesses, setting up a global shared service center in India and taking a deep dive into our Fibers business to achieve asset full potential.

IVL achieved a core EBITDA of USD 304 million and an operating cash flow of USD 340 million, an increase quarter-on-quarter driven by resilient sales and margins in Integrated PET, our PX operations in U.S.A. and improved PIA business. Core net profit grew to THB 1.6 billion. Core EBITDA grew in all segments and in all regions as our products primarily go into daily necessities, and nondurable consumer goods having inelastic demands. Liquidity in the company remains high, with cash and cash equivalent of USD 600 million and unutilized credit lines of USD 1.9 billion. Interest cost is expected to come down for year 2020, thanks to the lower benchmark rates.

Combined PET segment, which also comprises our flagship PET business, has seen resilient demand and improved margins in Asia. Overall sales have increased despite lockdown in various countries with COVID-19, reinforcing essentials nature of our business. Lower oil prices have led to an improvement in earnings of our U.S.A.-based paraxylene and our global PIA business as feedstock costs have come down. Our Integrated Oxides and Derivative business has seen significant growth in volumes and earnings, primarily driven by the first-time consolidation of Huntsman integrated EO, PO and derivatives business.

Though core EBITDA grew but not at the full potential due to planned turnaround of PO/MTBE business for 75 days, which has led to an EBITDA impact of around USD 51 million. Low oil prices starting from March 2020 has led to significant fall in margins in around 30% of IOD business as integrated MEG and MTBE prices have fallen with lower crude oil prices.

Hygiene fibers improved with better demand and stronger outlook. Lifestyle and Mobility Fibers improved in early part of year, though felt the headwinds in March 2020 from lower demand in Mobility and value chain disruptions in Lifestyle. We will also see how the things are shaping up in our industry during our conference call, and we will share some thoughts on what to expect during 2020.

Next, please. Before I talk about our business quarterly updates and outlook, I want to reflect back and share a few thoughts about our employees, assets and our response to the COVID-19. IVL is built by our employees. It was the safety of our employees and their families that was a single utmost thing on mine and my leadership's mind as the pandemic started to spread. I'm extremely glad to share with you that amongst our 23,800-plus employees in 32 countries, 13 employees got affected by the virus, and one employee was in critical condition at one stage, but he has recovered. And all of our employees are safe.

I want to take this opportunity to share a very proud and inspirational real-life story about my colleagues in China. 76 of my employees worked and lived in our plant with proper sanitation and without going home for 21 days from February 5 to 25 to make the products that are needed by customers and for society during the peak of the crisis in China. I have other several such stories to share, but what matters the most is that our empowered employees rose to the occasion across the world and make me proud to realize the true power of IVL.

IVL has 119 plants across the globe in 32 countries. In most cases, we source our raw materials and produce our finished products within each continent. Thus, while we have a global business, but our business is very region-centric. This business model has proven to be highly resilient when the global supply chain is disrupted during COVID-19.

During the peak of the crisis in March and April, production was temporarily affected at 12 of our plants due to lockdowns in some of these countries. Today, all but 2 sites are affected, and rest of the plants are having close-to-normal operations, in sync with demand. This was possible with the proactive planning and scheduling to safeguard our manufacturing colleagues. I would like to share that our team in Texas, USA has developed hand sanitizers in our IOD surfactant business, and they reconfigured one of our facilities in the U.S. to manufacture hand sanitizers.

As soon as we realized the potential of global spread of the virus, we established global emergency management team for the first time. And with that, we developed global guidelines and empowered our local leadership to enable prompt response throughout this turbulence period, working with local laws in each country and states. Now our teams around the world are evaluating different options as part of the reopening of offices as the lockdown eases.

Let me explain about IVL's portfolio post full integration. The newly transformed portfolio is now about $13 billion in consolidated revenue with about $1.5 billion and 12% margin on the 2019 pro forma basis, assuming it was a typical year. This is derived from 3 businesses of Combined PET, IODs and Fibers.

Combined PET consists of Integrated PET, Specialty Chemicals and Packaging. This being our flagship franchise makes up for about 55% of our EBITDA and yields attractive returns commensurate with its leading global position. PET is established in the circular economy, and its resilience is further reinforced during this pandemic, which has been further hit harder by the crude oil disaster. We are well on our way to building a leading franchise in recycling with equivalent returns. And thus, together, this business of virgin and recycled PET will continue to deliver strong value to our shareholders.

Our Integrated Oxides and Derivatives portfolio consists of 4 areas: integrated MEG, integrated purified ethylene oxide, PO/MTBE and Integrated Surfactants. IOD makes up about 30% of our EBITDA, and on one hand, gives relevance to our Integrated PET and polyester business, and on the other hand, is a play on U.S. shale gas. Undoubtedly, the shale advantage is challenged today with the unusual steep drop in crude prices. But this politically driven event is considered to be short term and should return to normalcy within -- with shale reverting to its advantage over oil.

As COVID-19-related lockdowns ease, it is common belief that consumers will prefer to opt to drive at the expense of mass transit, driving up gasoline consumption and eventually driving up crude pricing and therefore, reinstating the shale advantage. While we deal with short term PO/MTBE losses, which should correct with automotive recovery, our Integrated Oxides and surfactants business continues to remain resilient as they cater to cleaning and personal care markets and represent around 70% of IOD's portfolio.

Our Fibers portfolio consists of Hygiene, Mobility and Lifestyle. Fibers make up for 15% of our EBITDA and houses some of our most innovative HVA businesses. Mobility, which is presently stressed, will recover for the same reasons as crude recovery, although the catastrophic fall in global GDPs will take a few years depending on government support to this industry and customers. We have commissioned a deep review on the asset full potential of our Mobility business to improve its asset and commercial and operational potential to yield returns commensurate with its specialty nature.

The Lifestyle business is having very strong cost advantage in line with our Integrated PET with captive feedstocks and should return to normalcy as soon as Main Street opens up with the easing of lockdown. Our Hygiene business is advantaged during this COVID-19 situation. But nevertheless, we have commissioned a deep analysis on how to configure our playbook for the longer term.

Thus, we have today 3 business verticals and a total of 10 subsegments, which blend in well together. This portfolio makes our IVL much more integrated than ever before with diversified earnings streams. We participate in about a dozen end-use market segments, and our business now has scale, which creates tremendous resiliency and opportunity.

As I look forward for 2020 and beyond, we feel confident in our business model with our global footprint having regionalized ecosystems coupled with inelastic nature of products that allow us to continue to sell at all times and create a steady stream of operating cash flows. Our visibility of cash flow and enhanced focus to deleverage by improving our costs and managing our inventory creates a tailwind for us to continue on our growth path as many new opportunities are on the horizon.

Given the current dynamics with crude oil price collapse and the COVID-led lockdowns, I would like to share and explain what does this mean to our IVL. We are now a company with 119 sites globally, serving our global customers in the regional markets. Our business impact could be just in 3 buckets of crude oil-related, cyclicals and the stable HVA products. Impact in our crude-oil bucket has some near-term adverse impact on MEG and MTBE. This is partially offset by PIA and paraxylene due to cheaper mixed xylenes. This creates a natural hedge for us and provides us resiliency with shale gas vis-à-vis naphtha feedstock.

We see that as transportation, primarily auto driven, takes off, crude prices will recover in second half 2020. The negative and rather sharp decline in consumption of April would pick up as we move towards quarter 3 with social distancing still very much in our minds. I believe that road travel will boom. And along with that, our products in oxyfuels and on-the-go packaging. Within MEG, there is a hope for recovery as coal to chemicals are hit the hardest. And hopefully, there would be some supply discipline and supply restriction by gas-based producers at these unsustainable margins.

Our flagship business of Integrated PET is moving to fairly resilient in terms of demand and margin during these unprecedented times. This creates inherent resiliency for our portfolio, and the global supply chain disruptions during COVID has had relatively minor effect on our Integrated PET business as it is regionalized business. Packaging industry, which serve food, beverages and household needs, are critical during this time and are in strong demand. Demand spikes as consumers resort to panic buying and stockpiling supported PET demand in March. And currently, its cost advantage has replaced recycled flakes in food containers to offset certain volumes lost to on-the-go consumption. Temporarily, the Lifestyle business is negatively impacted in volumes due to the disruption of Main Street and is soon expected to bounce back with easing of the lockdowns.

Our third bucket of specialties are steady in margins and are proving resilient except for our Mobility business. Strong surfactants demand in hygiene and personal care formulations due to heightened sanitation habits are offsetting lower sales in oil-related activities. Increased sales and margins in hygiene fibers due to strong demand from medical mask and gowns application would see a structural improvement. Mobility Fibers, adversely impacted from declining car sales, would take a few years depending on government support to consumers.

As the component of our EBITDA in quarter 1 '20 reflects that for PO/MTBE, our annualized 2020 is about 8% below pro forma 2019 EBITDA. And largely, our businesses are contributing in similar pattern, which gives me a great deal of satisfaction considering the uncharted waters we are testing. During the rest of 2020, the lower volume and margins in certain businesses are being partially offset by across-the-board lower costs due to reduced energy costs and chemical prices.

Now let me share about our drive with ESG. ESG and sustainability are our core values. We are steadfast in our pursuit of our sustainability goals. It is the purpose of the business and at the core of what we do. Our key initiatives, ESG initiatives are 750,000 tons of recycled -- of recycling of postconsumer bottles by 2025. Life-cycle management is part of our product stewardship plan, and we continue to drive additional data gathering for management decisions.

The Task Force on Climate-related Financial Disclosures, TCFD, includes governance-focused strategic decision-making to mitigate transition; physical such as floods, water shortage, typhoons, et cetera; and regulatory risks; scenario analysis that includes all these risks to model distinct probability scenarios for management's decision-making; water stress analysis, including WRI Aqueduct tool, to identify areas of potable water shortage which would affect our production either in increased water prices or shutdowns.

We are targeting 10% by 2025 and 25% by 2030 reduction in our renewable -- increase in our renewable electricity consumption; water and waste management to reduce intensities; focus on occupation, health and safety, human capital and leadership development. We present our ESG performance via Global Reporting Initiative, which is a standard disclosure for every company. But as we go beyond that, the Sustainability Accounting Standards Board because investors are focused on SASB in addition to GRI Standards. I'm proud to share that we are #1 amongst 364 companies in the Bloomberg universe and #2 in 108 companies in DJSI ESG benchmarks. I'm very proud of our team for driving our behavior with circular economy and being totally responsible in all wakes of our daily lives and business.

I want to recap our 2023 IVL strategy, which I had shared during Capital Market Day earlier in the year, and that is to steer IVL through the cycle and beyond. Our vision remains steadfast: to be a world-class chemical company, making great products for society. Our core values are as relevant today. We see change as an opportunity, and we are even more agile and nimble. Customer-centricity is at the heart of everything we do. Safety in all respects is critical, and we are responsible in all aspects and where we operate around the world. Diversity is our strength. We have citizens of about 70 countries in our IVL, and IVL is the best amalgam of global culture. Our people is our strength. They make the difference.

Unique differentiators today is our global scale, our local presence, our integration across the chain, and our diversified sources of earnings and M&A capabilities. We have set out 5 major strategic priorities and are staying steadfast in its execution: launching Olympus, a company-wide cost and cash transformation program to support our performance in this low-spread environment; driving the commercial full potential of our assets to grow volumes and our margins; exploring selective adjacency opportunities to incubate our future engines of growth; doubling down on recycling and be the leader for PET recycling and set new bars for sustainability in our industry; invest in and develop the best leadership team in the industry.

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Dilip Kumar Agarwal, Indorama Ventures Public Company Limited - Executive Director and CEO of Feedstock & PET Business [3]

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Well, good afternoon. I hope -- this is D. K. Agarwal. Hope you are all well in this very difficult situation of COVID. So I'm glad to share our first quarter 2020. As Mr. Lohia presented, more than 90% of our portfolio is resilient to COVID-19 or crude oil prices decline due to being consumer necessities and inelastic demand. And you saw this in the first quarter, and we see the same in second quarter of being a strong demand.

Our core EBITDA improved by 51% quarter-over-quarter and registered an organic growth of 38% in spite of some challenges in March. Combined PET delivered strong EBITDA driven by steady demand and improved in Integrated PET spread and IVL U.S. PX spread as Mr. Lohia explained that the mixed xylenes prices came down because of the gasoline blend value and the PX prices, the margins improved. Similarly, the PET witnessed a strong growth because of the home consumption of the CSD and water as well as the packed foods.

The Fiber EBITDA benefited from strong Hygiene demand. Lifestyle and Mobility start off well in the quarter, but was adversely impacted by COVID-19 from beginning of March. So Hygiene had a very, very strong results and continue in the second quarter. The crude oil prices drop significantly eroded the U.S. shale gas cost advantage including IVL MEG and oxyfuel, which is MTBE businesses. However, 70% of IOD portfolio, as explained, is resilient and stable, which includes Surfactants, alkylamines, linear alkyl benzene and purified ethylene oxide.

As the need of the hour is, we are actively reducing working capital through inventory management and improved efficiency. You saw the strong operating cash flow of $340 million, recovering the entire inventory losses and plus more than that. Same, the second step, our cost-transformation project, Olympus, delivered savings of $18.7 million in first quarter 2020 and remains on track for the planned $70 million savings during 2020 and $350 million, which we put in the Capital Day, by 2023.

As again, conserve the cash, we reduced our CapEx plan by $300 million for the year 2020 by relooking and renegotiating various maintenance and growth projects, including the delay of Corpus Christi project in the United States on which the decision to start the construction will be taken by the end of the year. So this was the conservation of cash strategy.

Let's look at it what went well and what could have gone better. I think this is a volatile market. The best thing, as our employee demonstrated, that we had minimal supply chain disruption due to very proactive management intervention, and we kept supplying to our customers. Most of our plants kept running. We proactively maintained open communication with our customers and other stakeholders to ensure that we meet their needs in this difficult time. And as you can understand, that this won many credentials for us via continued supply to our customers.

Once again, it is proven that IVL's regional business model to supply its global customer in every market through local production base is very effective. Over 90% of our revenues are generated in the same regions where we produce, and we could serve in this difficult time to our customers. We saw demand for our products remaining very resilient for majority of our product despite COVID-19. As you know, the U.S. reported minus 4.9 negative growth in the first quarter, and the PET grew as they are nondurable consumer staples and IVL operations mostly uninterrupted.

Integration of the largest acquisition, Spindletop, and Lake Charles cracker are well on track. As I mentioned, our cash flow continues to be strong with focus on working capital efficiencies and continuation of CapExes. We initiated and are finding substantial new application for our Fibers segment in this difficult time. Just for example, some life-sized -- Lifestyle fibers can be applied in nonwoven Hygiene products. We have shifted some of our Lifestyle capacity to support the growing demand of hygiene fiber. Like in Russia, now we are giving them the personal protection suits.

Now let's discuss on the right-hand side what could have gone better. We saw reduced cost advantage, which is the biggest impact of U.S. shale gas due to lower crude oil prices, which negatively impacted 2 -- MEG and oxyfuel, which are driven by gasoline prices and by naphtha-based MEG. But they were partially offsetted by improved PIA and paraxylene spread due to lower feedstock led by lower crude oil prices as the mixed xylene in U.S. and Europe significantly dropped.

Started off strongly in January and February, lockdowns disrupted demand for Lifestyle fibers in March as its supply chain got impacted. We expect strong recovery in these verticals post COVID-19 lockdown. Similarly, Mobility Fiber and PO business started off strongly in January and February, though demand lowered in March due to COVID-19 and lower GDP. We expect slower recovery in these segments linked to the constructions and other things, given the strong linkage to GDP. Lockdown in India and China curtailed our operations. China production is resumed already at full speed and very strong demand, domestic demand in China. India, only one Fiber site is currently on shut down, and we expect to restart postlockdown in India as India is going for phased opening of the country.

Noncash inventory loss, I think this is a bigger impact, of $110 million led by declining feedstock prices and offset with cash flow due to lower net working capital requirements. As you saw that our operating cash flow is $340 million in excess of core EBITDA, not the reported EBITDA. So the entire inventory losses were released as a operating cash flow. Currency appreciation of dollar led to an unrealized loss of $7 million on ForEx in Brazil as a part of the loan, which was left unhedged. So this was a small loss. As you know, we have been funding Thai baht to fund, so we don't have any other losses like in dollar borrowings in our IVL balance sheet.

Let's look at that slide. This gives you the comparison. So our production grew 15% during the quarter to 3.3 million tons with higher volume in all the 3 segments of the company. Our sales volume grew faster than production as we liquidated inventory of around 60 kt during the quarter. This includes consolidation of the new assets.

Our revenue, it grew in line with the volumes in spite of the drop in the prices. Our core EBITDA, as you can see on the right-hand side, grew 51% over the previous quarter with improved performance in all the 3 segments and all the 3 regions of the company despite 75 days planned turnaround of PO/MTBE site during the quarter, which is now successfully completed and is back in operation. This happens once in 5 years. This PO/MTBE maintenance happen once in 5 years, yes.

Our operating cash flow remains strong, as you can see, $340 million or in baht terms, THB 10.6 billion, grew by 28% quarter-on-quarter with improved segment performance as well as liquidation of the inventory. Our net operating debt-to-equity increased primarily due to the acquisition of Huntsman integrated EO and PO derivative business. This acquisition was completed in the first quarter, 3rd Jan, and the impact of new accounting standards of lease accounting and financial instrument, partially negative with a strong operating cash flow. So the net operating debt-to-equity was 1.35x.

Let's move to the next slide. Now here, you can see that -- let me explain that our Combined PET segment comprises of Integrated PET, Packaging and Specialty Chemical, which now represents PET and related businesses under one segment, as Mr. Lohia explained. Our Integrated Oxide and Derivatives segment comprises of integrated EG, integrated purified EO, when we mean with ethane to glycol and ethane to purified EO, PO/MTBE and surfactant under one segment. This segment includes the performance of the recently acquired Spindletop and started Lake Charles gas cracker. The Fibers segment comprises of Hygiene, Mobility and Lifestyle under one segment.

So core EBITDA, as you can see, is $304 million versus fourth quarter $201 million. This would have been higher by $51 million. You see a number there, $51 million, had we not had a shutdown of PO/MTBE, which was shut down for 75 days. And as I mentioned earlier, this only happens once in 5 years. Our quarter-on-quarter growth of 51% in core EBITDA is primarily led by organic growth, which contributed 38% of the growth, and the rest of the growth came from a Spindletop first-time contribution in IVL, though muted with the planned turnaround as mentioned.

Organic growth is primarily due to, as you can see, improved Integrated PET, U.S. paraxylene and PIA spread across the value chain; improved performance in Fibers segment supported by Hygiene; higher sales volume despite lower operating rate due to planned inventory liquidation and softer Lifestyle and Mobility Fibers in March. And I said that these 2 verticals in Fiber got impacted; and inorganic growth, which is coming due to Spindletop contribution. So this gives you a good feel of how the first quarter results were.

If we look at regioning, next slide, please. I'm very happy to present that we have seen improvements in all the 3 regions, as you can see in the bar there, IVL Asia; EMEA, which includes Europe and Africa; and Americas. Americas benefited from integration of Spindletop and Lake Charles crackers, improved Integrated PET and U.S. paraxylene spread. And U.S. paraxylene spreads remained strong in second quarter because of the lower mixed xylene prices linked to the gasoline. Europe benefited from improved PIA and Hygiene fiber business. Integrated PET business marginally improved due to volume gains. Asia, which is on the green, benefited from improved Integrated PET spreads, better Lifestyle fibers and higher volume. So you can see the gap between this -- how the growth has been.

Let's look at the bridge. Let's now discuss how various factors impacted the performance of the quarter, which is $201 million to $304 million, first quarter '20 versus fourth quarter '19. On a quarter-on-quarter basis, as you can see the green, industry spreads improvement in Integrated PET since January, beginning of the year; U.S. paraxylene since March because that's where the crude dropped; and PIA since March '20, contributed $38 million. Fiber performed better in life cycle (sic) [Lifestyle] and Hygiene. IOD segment improved with contribution of Spindletop and Lake Charles cracker. Project Olympus contributed $18.7 million, as you can see the below graph, from cost and some yield improvement.

Year-on-year performance remained flat due to negative industry specs, as you can see in the bottom, first quarter '20 versus first quarter '19, negative spreads, especially in PTA, particularly in Asia, U.S.A. paraxylene, Lifestyle fiber and Mobility Fiber, offset by volume growth, better premium and cost saving. As you can see, $92 million got offsetted by the different -- volume growth, better premium and cost savings.

Let's look at business by business. As you can see now here, we see $192 million in Combined PET versus $134 million in the first quarter '20. With resilience in the sales volume, our Combined PET segment has improved its performance with better spreads and lower costs. With all due credit to our management globally, they efficiently managed our supply chain. I mean when European borders were shut down, we moved by intermodal. This was railcar. So the entire supply chain was kept efficient in spite of all these interruptions and kept delivering to our customers the essential goods during the serious COVID-19 crisis.

Our PX business in U.S.A. saw improvement with lower feedstock prices driven by lower crude oil and lower gasoline demand as mixed xylene prices started going down since March 2020. So that's what typically happened that as driving stopped, the gasoline inventory built up, pushed the refineries down. The crude oil dropped, and that's resulted in gasoline and mixed xylene being very low. Similarly, our PIA business in U.S.A. as well as in Europe saw improvements in the spread with lower feedstock prices starting from March 2020 and continues in the second quarter. We have, though, seen some demand softness in PIA business, particularly for non-PET application, to the extent it goes on the nonpolyester application like paints and coatings during COVID-19.

On the other hand, our Packaging business remains resilient with essential and nondurable consumer goods nature of its application. This throws roughly $17 million to $18 million EBITDA every quarter. Specialty Chemicals, which includes PET HVA products, are better with large-format packaging, offset by lower PET demand that goes to nonfood and beverage applications. So people stayed at home, they took the 2-liter bottle, so that consumption went up. They prebought, they stocked, the packed foods, all this is helping the PET demand.

Our focus here remains to ensure customers' demand are being met at all the times. Operational excellence, which means asset reliability, lower cost and maintain high operating rates, and second quarter continues the same journey. Working capital management through efficiency improvement, like, for example, we had on purpose inventory liquidation during the quarter to release the cash, and Sanjay will show you how the liquidity of the company is.

Recycling, we are happy to inform that IVL has recycled over 50 billion PET bottles already and achieved this milestone in first quarter 2020. You must have read about the announcement of JV with Coke in Philippines have expanded our recycling footprint in Asia. Our long-term targets remains intact, and we are fully committed. We are looking at various projects to secure profitable growth in the recycling. We have seen softer sales in recycled fiber due to retail sector impacting coming from lockdowns. Long-term targets for rPET for all brand owners remains intact as their virgin prices still come down and the rPET prices holds on. Our priority is to integrate flake into rPET and single-pallet solution. Our chemical recycling initiatives and projects are also ongoing. So the journey of recycling continues.

Now let's go to the Integrated Oxides and Derivatives. As you can see, our Integrated Oxides and Derivatives segment has seen a transformation during the quarter from Spindletop acquisition and the start-up of Lake Charles gas cracker in the U.S.A. With this, we are now, with this acquisition, second-largest EO producer in the U.S.A., more integrated for our captive MEG requirement, gives us stable Surfactants and expands to our stable purified EO business. We are now also integrating from ethane to downstream. And as you can see, $50 million versus $31 million. $51 million got impacted because of PO/MTBE shutdown, as plant was shut down for turnaround.

We have shown our performance in this vertical here, as you can see, integrated glycol, integrated purified EO, PO/MTBE and Surfactants, which also includes alkylamines, LAB and others. We've reported improved performance quarter-on-quarter and year-on-year due to new volumes and change in product mix. The performance during the quarter, however, was not at its optimum level, as explained just now, by $51 million due to 75 days planned turnaround maintenance at PO/MTBE, which happens once in 5 years. The turnaround is successfully completed, on budget, and it's on time.

Decline in crude oil prices because of this COVID as well as the conflicts from March '20 reduced the U.S. shale gas cost advantage and impacted our integrated MEG and MTBE business, which represents 30% of our IOD segment and 10% of the IVL and which is now on the path of recovery. Rest, 70% of portfolio of IOD, is not impacted due to crude oil price movement and also stable growing business verticals. Our focus remains to integrate and realize synergies from Spindletop, Lake Charles cracker and IVOG integration in 2020. So you can see that we did not have full results of IOD because of all these reasons.

Coming to the other vertical, Fiber. In our Fiber, our product offerings are to be -- the global brands, and we are among the leading global suppliers. We have a suite of products that serve a variety of applications, where some are essential and nondurables like hygiene fibers and Lifestyle fibers, whereas some are high-performance like Mobility Fibers, though linked to global GDP and auto manufacturing.

We have seen good rebound in our Fiber business in the early part of the quarter from the lows in the fourth quarter of '19. As you can see, $61 million EBITDA. Our hygiene fibers remains strong, in-demand with its essential nature of application. Some production hiccups in China has now normalized, and we saw an improved performance in the vertical over the previous quarter, and that Hygiene will remain strong in coming quarters.

Our Lifestyle Fiber performance rebounded from fourth quarter '19 with normalized operation, though softened in March 2020 due to supply chain disruption by COVID 2019 (sic) [COVID-19]. Mobility Fiber improved early in the quarter, though softened from March '20 due to lower auto manufacturing, again, led by lockdowns. So again, in the Fiber division, our focus remains operational excellence, product innovation and cost management, working capital and inventory management. And then Mr. Lohia said that we are looking at transformation of this.

So that covers the business. Now I will tell Sanjay to take over on the finance side.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [4]

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Okay. Good afternoon. Thank you, Mr. Agarwal. I'm on Slide 21. This is on Project Olympus. We launched Project Olympus at the beginning of this year. This is a cost transformation program, which has a number of business-led and corporate-led initiatives, builds on incremental savings year-on-year and reaches a run rate of $350 million by 2023. For this year, our target is $76 million. The business-led initiatives have yielded approximately $19 million savings in quarter 1, primarily in the form of manufacturing experience and SG&A functional excellence. The center-led initiatives are in progress despite the lockdown. And the project implementation is ongoing with online channels.

The transformation management office has been set up to monitor the program performance and supports the management on the delivery of strategic priorities. There is an initiative-tracking software, which will help to institutionalize the project execution monitoring discipline. The $350 million as a run rate cost saving by 2023 from Olympus will be a direct benefit to our bottom line.

Moving to the next slide, which is on the operating cash flow. We have taken proactive steps to reduce inventory, which helped in the improvement of our cash flow. The working capital release helped mitigate the impact from inventory losses that we saw in Q1 2020. Our focus here is to maintain higher liquidity through inventory optimization and overall working capital management as well as cost management and CapEx reduction.

The next slide, which is on improved liquidity and lower CapEx. Starting from December 2019, our net debt-to-equity went up by 44 basis points due to acquisition of Spindletop -- sorry, this was in January 2020, 10 basis points due to the implementation of the new TFRS accounting standards, TFRS 9 and TFRS 16, and reduced by 4 basis points with the quarter performance and the translation gains we got.

As of March 2020, we have a liquidity of $2.5 billion in the form of cash and cash equivalents of $0.6 billion and unutilized credit lines of $1.9 billion. As mentioned earlier, we have reduced our CapEx for 2020 by USD 300 million, primarily due to delay of Corpus Christi project and certain other initiatives. Our debt repayments for 2020 are mediocre to the tune of $500 million and is well supported by our cash flows. We see lower interest costs due to lower benchmark spreads and have refinanced certain loans at lower rates. We are the first Thai company to issue a Ninja Bond in Japan for USD 255 million with attractive rates and also fixed our cost on this. On our tax rates, we expect effective cash tax rates to be at 12% for the year.

Let me also cover here the impact of new TFRS. This is Slide 24. As you know, there are -- 2 significant accounting standards got introduced this quarter. Commodity hedge accounting under TFRS 9 is related to the hedges that we take to cover fixed-price sales required by our customers for a certain future period. We booked noncash unrealized loss of USD 9 million in the P&L, have shown these as extraordinary gains -- extraordinary expenses as gains against these will come in the quarters when physical delivery is made to the customer. Around $91 million losses were accounted under other comprehensive income and will be routed through the P&L in the future quarters when corresponding gains will be recorded when physical deliveries are made.

TFRS 16 requires operating leases to be recognized as right-of-use assets and lease liabilities. In the P&L, there's no change other than reclassification. However, our net debt increased by around $335 million. So as I mentioned earlier, our overall net debt-to-equity increased by 10 basis points due to introduction of these new accounting standards.

I'll request Mr. Lohia to take you through this last section, which is 2020 developments and outlook.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [5]

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So this is the last section. And next slide, please. Through this graph, as you know, we do not publish our guidance. But on a volume basis, we are able to share with you the outlook for the second quarter. We have built this graph for our key businesses of PET, IODs, Fibers and our total sales. So as you can see in our virgin PET business, the trend is up in the second quarter, although the CSD demand has decreased from social distancing, and this is offset by increased demand from food packaging. Lower crude oil prices also increased demand for sheet -- from sheets and thermal-forming plastic as virgin PET prices become more competitive versus recycled PET. Our outlook is that we expect this to be a subdued seasonality quarter, although summer is normally a peak season for PET. However, we expect less indoor activities and events this year from COVID-19 and hence the demand for CSD and on-the-line go -- on-the-go demand.

Recycled fibers is also down currently as demand for durable fibers declined with the closure of the Main Street. Within Fibers, we have a strong hygiene fiber demand from medical masks and gowns application. And all our sites are running at max capacity. Within the Mobility and the Lifestyle fibers business, these are both adversely affected for reasons discussed earlier.

In the IOD segment, we are seeing resilient surfactant demand for detergents and personal care products and demand from increased concern for hygiene. For oilfield applications, demand declined from reduced oil demand. Our PO demand decline is from reduced industrial demands. PO is used to make polyurethanes, its end market in construction, furnishing and automotive, of which are durable goods, and demand of these have been on a decline.

Oxyfuels volume expected to decline in gasoline demand and lower crude oil price. And the PO/MTBE demand work in tandem as these are combined unit. Both PO and oxyfuel demand declined. We are not losing out on any sales if we reduce our production. PO/oxyfuel volume impacted by a planned turnaround in fourth quarter '19 and 1 quarter '20 due to the planned turnaround.

On the last slide, in summary, here is our playbook going forward with 3 key themes: managing the near-term risks and capture the gains due to our resilient portfolio; being prepared for extended lockdown from a second wave; and lastly, getting ready for reopenings as well as the new normal.

In order to address the above 3 themes, myself and my team are working on 6 dimensions. On our finance resilience, ensuring liquidity, lowering our finance cost helped by the lower benchmark rates and improved FX position globally; tightening our working capital and inventory reduction; credit discipline reinforced for receivables; and fiscal and monetary incentives tracked to maximize the benefit. Stress tests: operational strategy across globe under prolonged lockdown situation; production consolidation across sites to optimize cost; deep dive into each revenue stream for alternate scenario and recalibrating; understanding the consumer sentiments to align our operational strategies.

On the cost discipline, be diligent on our CapEx spend; focus Project Olympus delivery; drive asset-full-potential projects; and increased digitalization across functions. The offensive approach would be to maximize necessity volumes of PET, hygienes and within the IODs; explore and implement new operating models; the formation of Indorama Management Council and Indorama Business Council at the beginning of last year has tremendously helped us to manage through this crisis in this year. And the management teams have shown their resilience and their proactive approach and dealing with the crisis in a humane and a practical manner.

The oil price collapse: combination of demand impact from COVID-19 and OPEC price war; gain from arbitrage opportunities, regional presence and integrated cost curve; keep a tab on Chinese industry and attune ourselves; reduce our inventory exposure to be on the safe side. Our innovation platform has been actually been delivering very good results as we speak. We have a collaborative R&D effort to supplement across our businesses. Capture product needs are emerging from new trends, for example, e-commerce; fast pace adjacency growth projects as the demand surfaces.

So I'm very confident of my people, our portfolio, our strategy, its execution and the resiliency of our business model. All put together, our IVL is very well positioned for the rest of 2020 in spite of the turbulent and unsettling market conditions. We are the company of all seasons, and we will continue to thrive with our resiliency in 2020 and beyond. Thank you very much for your time today. I really appreciate your support and trust in IVL. Back to Vikash.

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Questions and Answers

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [1]

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Thank you, Mr. Lohia. (Operator Instructions) I've got some questions on the message, but I request you to please start asking questions now. Thank you.

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Komsun Suksumrun, Phatra Securities Public Co. Ltd., Research Division - Assistant MD and Energy, Utilities & Petrochemicals Analyst [2]

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This is Komsun from Phatra. Can you add some color on the outlook of the IPA? Did you mean that the improvement in IPA EBITDA is mostly due to the price collapse in March? We saw that mix side in price continued to drop in the second quarter. Is that going to be a big help? And secondly, how -- what is the split between polyester and paint and coating when it comes in terms of the volume from the IPA?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [3]

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Thank you, Khun Komsun. As we have discussed earlier, we were making strategic changes in our PIA. We have started calling it PIA because IPA now is seen as isopropyl alcohol, which goes into the cleaning. So our PIA business, we were making big overtures in the last 6 months to improve the profitability. So part of the profitability improvement in the first quarter is led because of the margin -- because of the mixed xylene price coming down in March, which will have a larger beneficial impact in the second quarter. And part of the benefit is coming because of the strategic changes we have made in our production platform.

So we have gone in the swing line in our Decatur plant. We had converted our Decatur -- one of our Decatur lines from PTA into IPA, and now we are running that as a swing line. So in that sense, we are able to benefit both from a -- we can run that line fully depending on PIA demand and the remaining time for our PTA needs.

So the mixed-xylene-based profitability would probably be short term because as oil price recovers, the mixed xylene -- as the gasoline demand goes up, the mixed xylene prices would go up. But the structural changes that we have made to the PIA business are structural and will stay with us. The demand between PET and non-PET applications is about 55% PET-related and 45% non-PET-related. This is a rough number. So 55-45 in favor of PET.

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Sumedh Samant, JP Morgan Chase & Co, Research Division - Analyst [4]

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This is Sumedh from JPMorgan. I just have one quick question for now. I see that interest cost in Thai baht terms is THB 2.1 billion, which is roughly $70 million. And I know that the guidance is roughly $220 million. So can you reconcile why the number was so high in 1Q?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [5]

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Sanjay?

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [6]

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Yes. Sumedh, can you hear me?

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Sumedh Samant, JP Morgan Chase & Co, Research Division - Analyst [7]

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Yes, I can.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [8]

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So first of all, I think the TFRS 16 has given that impact. So almost $16 million is going to be additional in terms of what we reported earlier. So it's coming from the other part of P&L to interest cost. So interest cost goes up, and other operating expense goes down. That's one reconciliation. And there was -- also in Q2 -- so whatever we have done, the fixing of interest has been mostly at the end of March. So it will start showing you the impact from second quarter onwards. So yes, first quarter was high. I would want to -- let's say, with the TFRS 16 also, I would say the total is now revised to around $240 million. $16 million plus another $4 million or $5 million additional costs. So I would request you to take the guidance for the whole year as $240 million, which includes the TFRS 16 impact.

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Paworamon Suvarnatemee, Crédit Suisse AG, Research Division - Director [9]

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Can you hear me well?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [10]

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Yes, we can.

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Paworamon Suvarnatemee, Crédit Suisse AG, Research Division - Director [11]

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Okay. This is Poom from Credit Suisse. I have 3 questions. The first one for D. K. Perhaps you can comment a little bit on the competition situation in EU and U.S. Like, wondering, things have changed. Like in first quarter, when China has a lockdown, and Asia probably cannot export there. And how the situation has changed in the second quarter. That's the first question.

The second question will be on the PTA margins as to how do you think that. And why do you think that it's so strong right now? I would expect that there would be a lot of supply coming through, and it should have been weaker than current level.

Third question is on the thermoforming application that you mentioned before. Just wondering how big is it compared to the whole PET market and what's the growth that you are seeing in this part of business and whether that benefits you. So that's it. Yes.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [12]

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Yes, D. K.?

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Dilip Kumar Agarwal, Indorama Ventures Public Company Limited - Executive Director and CEO of Feedstock & PET Business [13]

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So thank you very much for the question. On the demand side, as you rightly said, January, February, there was impact in China. But as China opened up, there is a very strong demand in the China itself. And that's why we see the exports did go up from China in March, but still there is a good demand, particularly, and as Mr. Lohia mentioned, thermoforming, large formats, CSD bottles, water bottles, and sanitizers. And everywhere, we hear that sanitizers, all this, going into PET bottles. Orange juice, vitamin C, that's what people are drinking today. So all this is helping in the PET segment.

Competitive landscape in -- particularly in America, as you know now, the Corpus Christi has been delayed by all the 3 partners for the CapEx reduction. And in Europe, we don't see any assets coming up. So we don't see any change in the competitive landscape. China is still operating at 80%, 85%. So I don't see a big change. And as we see second quarter, quite robust demand of PET.

PTA market, you said, are high. It's not really high. Actually, first quarter was only $85 in the overall PTA demand. And that is -- PTA demand is driven by Fibers as well as PET. This is lifestyle demand and all that. So they are pretty low, the PTA margins. And once the demand picks up, actually, last week only we got the PTA operating rate in China is in excess of 88%. So -- and paraxylene capacities are coming up in China. So we -- normally, outside China, the paraxylene is now beneficial. As you know, that gasoline is so bad, so people want to make the paraxylene. So PTA margins are not very high at present. And we are assuming same unless -- there can be a spike if the demand for fiber goes up.

And third, thermoforming application, it's about 10% to 12%, but it is going up rapidly actually as we see that sheet customers, particularly those who made for food packaging and others, are increasing and more applications are coming in. As you know, polystyrene is not a preferred product, and we are seeing that this demand will remain strong as the second wave comes and people will still go back to home and drive or go back to home. So this lockout and lock-in will continue on those. However, main purpose is today that our customers are also investing into the machines to make more thermoforming. And that's a very strong application. I hope that answers your questions.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [14]

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Let me add to what D. K. mentioned, Poom. On the competition from Asia into Europe or into the U.S., it was subdued. One is because of the supply chain. And what we have noticed in our first quarter and currently is that there is a discipline amongst those regions where they would rather buy domestic and rely less on imported material. That has clearly shown up in our analysis.

And secondly, on the thermoforming side, on the sheet side, that business was primarily driven by recycled flakes. We have mentioned that in our prepared statement that because of the low crude oil price, the virgin PET prices are far more competitive and affordable today. So there is a loss of recycled flakes. So at the cost of recycled flakes, virgin PET has benefited. Where virgin PET has lost ground is on on-the-go demand and in the CSD market. So they have compensated each other in some manner. So our overall demand has remained resilient.

On the recycle business, just to complete that equation for you, our business for IVL is to make from flakes either rPET, which are capsules that go blended into the virgin PET, or put it into our machines as single-pellet solution, or thirdly, to make rFiber, recycled fiber. The recycled fiber demand is lower now because of the Main Street, there is no shop sales, malls open at the moment, which will come back. On the recycling, the bill collection has got impacted because of social distancing, and -- which has led to reduction of flake production, but that is matching with the loss in recycled fiber business as well. So there is no business lost for us.

Our primary business for IVL is to convert the flakes into either rPET or into SPS, single-pallet solution, or into recycled fibers. On the thermoforming side, they are traditionally using recycled flakes as input. But now with the virgin PET prices being so low, they have replaced the recycled flakes with virgin PET. And therefore, at IVL, we are able to compensate the loss of on-the-go PET with thermoform PET -- virgin PET going to thermoforming.

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Unidentified Analyst, [15]

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Can you hear me?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [16]

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Yes, we can.

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Unidentified Analyst, [17]

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This is [Ambrish from T. Rowe]. I just had one question around the outlook for deleveraging in 2020. Are there any targets that you're looking at for organic deleveraging from here on, given that the cash flows have still remained fairly robust in the first quarter still?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [18]

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I'll ask Sanjay to answer that.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [19]

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Yes, we -- I think, as you know, that we do have...

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [20]

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Let me answer that for Sanjay. The second half outlook is still not very clear, [Ambrish]. So I would hesitate to give you a target. Our target is to deleverage. Our first half has turned out pretty well. Hopefully, with the COVID easing and with the mobility, let's say, with the people going back on the roads, if -- when that happens, you should see enhanced profitability of our business in the second half. So it's quite dependent on the business outlook for the second half.

So in general, we would be able to deleverage because we have a focused attention on our working capital management and our cost management. And how much of that will translate into cash flow will depend on the price of crude oil and will depend on the easing of the COVID. So I hesitate to give you a number on how much would be our targeted deleveraging. I hope you understand.

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [21]

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While we are waiting for the question, I'll ask a question, which I got via text message.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [22]

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Yes. Go ahead.

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [23]

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What is the impact of single-use plastic ban on Asia business? Is there an impact? Or do we see any impact post-COVID or -- so what is our view on that?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [24]

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So I think obviously what we all can see is that the consumer today probably better appreciates the hygienic level of plastics. So from that sense, there has been an easing of the ban on the single-use plastic. Whether this is a structural improvement in the sense -- in the minds of the consumer, it's very early to say. But what is clear is that during this lockdown, the virtues of plastic is clearly visible to the consumer.

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Dilip Kumar Agarwal, Indorama Ventures Public Company Limited - Executive Director and CEO of Feedstock & PET Business [25]

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Just to add, in European plastic manufacturer association actually is requesting government to delay all the initiatives or whatever the regulations by a year and 2. So that is also on the plate in addition to that. So...

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [26]

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This is Mayank. A few questions from my end. First and foremost, I think on recycling and what we have seen recently in terms of behavior and demand from consumers as well as shift to single-use plastic bag, the target of 45% that you have right now, do you think it is still something that you want to achieve very fast at the pace you're targeting right now? Or do you think there is a reshift or readjustment in the target in terms of time lines at least?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [27]

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Mayank, on that, the brand owners' targets are still intact. The demand on SPS, single-pallet solution, and the demand on rPET remain consistent. So the brand owners were willing to pay the premium against virgin even at this time. I think the issue of plastics as we have -- as we all know, it's not an issue of plastics, it's an issue of waste. Mayank, should I repeat the answer on recycling? It's a waste problem, not a -- and the consumers are still driven towards their targets, and so are we.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [28]

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Okay. Okay. So that's clear. The other question I had was more related to the financials itself. Just in terms of inventory management because this time, you have had the consolidation of Huntsman assets. Can you just kind of help us understand of how much has been the inventory days reduced or the working capital days reduced on a like-to-like basis sequentially for first quarter over the fourth quarter?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [29]

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In my head, it's 4 days. But on a like-to-like basis, the inventory days have been reduced by 4 days, from 42 days to 38 days.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [30]

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Okay. And is there a target that you have on this number? Or where do you want to be by end of this year?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [31]

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My target is 20, but D. K.'s target is maybe 35.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [32]

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Okay. And sir, the other thing related to, again, a bit more on the accounting side was when you look at your operating cost on a per-unit basis, we are not really seeing a reduction, I suppose, primarily because of Huntsman assets as well. So again, on a like-to-like basis, is there a comparison you can kind of give us how much has been the decline sequentially?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [33]

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Yes. Basically, why we don't see a reduction because one is that the Project Olympus savings have been segregated. Within first quarter, we did have lower operating rates as you would see in the MD&A. So that has increased our cost per unit. So all in all, there was a slight reduction, which is in the waterfall. But I would say that in the next 9 months, you would see considerably more savings, including the savings coming out of the weak emerging market currencies like the Mexican, the Brazilian, the Turkish, the Indian and the Thai currencies. So we are going to continue to see lower energy cost, better conversion cost because of exchange rates and the whole focus, internal focus to drive our cost down. But what we are driving our cost down would fall under the Project Olympus bracket and therefore, not visible on the IVL cost directly.

So we're trying to keep a very good discipline that we are not trying to do double accounting. We want to make sure that the Project Olympus, there was a target, and the same costs are only taken into account in Project Olympus, and the rest of the costs go into operations. But there is a operating rate deficiency in first quarter. India was down both the PTA -- sorry, both the PET and the Fibers. China was down for a while. Operating rates in Indonesia are down. In Italy, we had some shutdowns. By and large, the Mobility business is underutilized. So all of that is impacting our fixed cost obviously.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [34]

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So sir, I think these issues may stay for the first half, for most of first half. So do you think you can catch up in the second half of this year?

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [35]

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I mean in terms of our Project Olympus, we are on track. So that $78 million (sic) [$76 million] that we are aspiring to on a run-rate basis, we believe we are on track. So we'll cut that.

On top of that, we believe that we would have a further savings, primarily because it was not budgeted to have a lower energy cost, and we did not budget for weak emerging market currencies. So there would be a cost saving in the remaining 9 months. And I believe we have mentioned that in our prepared statements, too.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [36]

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Yes. Okay. And sir, the last question was more related to the balance sheet. There is a separate line item of right-of-use this time, which I think is according to this new accounting standard. So can you just explain as to what exactly it is?

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [37]

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Yes, Mayank. This is Sanjay. Can you hear me?

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [38]

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Yes.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [39]

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So it's -- this is -- yes, this is the new accounting standard, TFRS 16, where any contracts, which are -- yes, you can hear me now, right?

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [40]

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I can hear you well.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [41]

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Sorry. So TFRS 16, you have any contracts, which are operating -- which are like leases or any operating leases, these are backed off as operating lease expenses, and they get into depreciation and interest costs. And then these are treated -- in the balance sheet, they are treated as right-of-use in the asset side. And on the liabilities, you will see the similar amount, almost similar amount in the liability side as financial lease. So it's around $335 million, which has gone up in terms of lease liabilities and around $340 million on ROU as assets.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [42]

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Do you want to explain the hedge accounting, too?

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [43]

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Yes, okay.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [44]

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Okay. Sir, is there a reason -- that's the reason why the depreciation this quarter has actually not increased as much because your assets have gone up quite a bit with Huntsman assets, but the depreciation really has not moved too much.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [45]

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The depreciation is a different point. The depreciation is -- we have gone and reviewed, and we do it every few years, the residual life of our assets. And as you know, we have been acquiring assets. These have come with different life. So we went out and did a kind of a consistency test with our technical people, with our technology suppliers. And we have revised the years. I think you can see that in the PTE note that the depreciation or the residual life, which was between 25 and 35 years is now 50 years for certain assets from the time they are commissioned, not from the time they are acquired. So there is a depreciation impact of around THB 0.8 billion per quarter, which is given in the PTE note.

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [46]

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Please ask ahead a question. But in the meantime, I'll take one, which I have on the message. It is a very general question that do we see any downside risk on margins or any new opportunities going forward. So if you have any thoughts on that.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [47]

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I think in our prepared statement, we have been quite candid about our business. We admit that MTBE and MEG are impacted at the moment. We believe that the MTBE would depend on how fast the gasoline prices come up. The MTBE demand would also impact the margins. So as soon as the COVID restrictions are eased out and lifted, then the demand would impact the margin for MTBE. The crude oil impact, similarly, on MEG is related. As we have said in the prepared note that the coal-to-chemical-based MEG is hurt the most. So depending on their resilience, and then depending on the major MEG producers, gas-based MEG producers, on how they do the inventory management. So both MTBE and MEG, which are the 2 businesses that are dramatically impacted in current times, we have discussed.

On our PET business, Integrated PET business. It's a cyclical business. At the moment, we are benefiting from our Western portfolio where they are less reliant on imported material. Whether that is habit-forming is -- so it's quite difficult to predict on our cyclical businesses exactly. But since a substantial part of IVL business is in our HVA. On the HVA, apart from Mobility part, other businesses are stable. And perhaps in this low-oil environment, we get some lag gains. So I would think that polypropylene fibers, NDC, surfactants, these businesses are having stable margins. The Mobility business have stable margins, but much lower volume as you would see in the volume chart.

So I think the strength of IVL is basically, we've got these 3 large verticals -- sorry, 10 businesses within them, our diversified markets. So all in all, I feel that we are quite resilient and as you would see over here, our first quarter '20 -- can you stay on the same slide? Yes. Our first quarter '20 EBITDA components are more or less matching with our 2019 EBITDA components. And the world is quite a different place today than what it was in 2019. So this is what really gives me great satisfaction and confidence in our business model.

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Deepak Rasiklal Parikh, Indorama Ventures Public Company Limited - Chief Strategy Officer [48]

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Mr. Lohia, this is Deepak. I want to add one important element to complement what you are saying is that in this -- while we're talking about the portfolio, but also we are very region-centric. So it became very obvious during the COVID crisis that sourcing locally is very, very critical. So we source U.S. for U.S., Europe for Europe and Asia within Asia. So that really was one of our strengths. While we're a global company, but our regionalization supply chain really helped us significantly during the time of the crisis and managing the entire production while taking care of the people. So that was found to be highly resilient in terms of how we can continue doing business even during the peak of the crisis.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [49]

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Deepak, thank you.

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Vikash Jalan, Indorama Ventures Public Company Limited - Joint VP of Strategy, ECM and Corporate Finance [50]

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Thank you. Any further questions? (Operator Instructions) So if there are not any further questions, then -- so thank you very much for joining today. So we have been getting a lot of questions on this crude oil in the past few months. So on this slide, you can see that the impact due to volatility is less than 10% we have seen in 2019 and also in the first quarter 2020. And there's a hedge because there's some negative impact on the IOD segment, but there is a positive impact on the PIA and PX. So we have a natural hedge on this.

So with that, I will thank everybody for joining today. Thank you very much.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [51]

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Thank you very much.

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Sanjay Ahuja, Indorama Ventures Public Company Limited - CFO & Executive Director [52]

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Thank you.

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Aloke Lohia, Indorama Ventures Public Company Limited - Vice Chairman & Group CEO [53]

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Sorry for the disturbance. We'll try to do a better job next time.