Indorama Ventures Public Company Limited (SET: IVL), a global sustainable chemical producer, unveiled a significant evolution in its business strategy and outlined how major structural shifts are re-shaping the chemical industry, creating opportunities for the company to emerge stronger from the current downturn and benefit from its unique global model in the longer term.
Ahead of the company’s annual Capital Markets Day (CMD) in Bangkok on 5 March, Mr Aloke Lohia, Group CEO of Indorama Ventures, pointed to industry mega-trends that are forging fundamental long-term changes in global chemical markets, prompting a significant review of the company’s strategy. He described how subdued local demand in China is driving overcapacity and fueling cheap exports, while low feedstock prices in North America are adding to supply due to increased competitiveness. At the same time, unprecedented macroeconomic and geopolitical headwinds are weighing on global consumption, impacting Indorama Ventures’ margins and volumes in FY23, and leading to a 53% decline in earnings. Mr Lohia said feedstock prices in Western markets will increase over time as peak oil demand draws closer and refineries shut down, while the reverse will occur in emerging Asian markets as capacity rises, driving feedstock costs lower. Indorama Ventures’ unique integrated manufacturing model allows it to benefit from lower feedstock prices through ‘make or buy’ strategies that reduce working capital and interest costs.
At its CMD, the company will outline details of its new IVL 2.0 strategy to adapt to the unprecedented industry conditions. It will deleverage its business in a prolonged environment of higher interest rates, while right sizing its operations and optimizing competitiveness to improve shareholder returns over the next three years and emerge stronger as demand normalizes in the longer term. Indorama Ventures is accelerating the transformation programs it started in 2021, including implementing new data management tools and intelligent dashboards that allow its experienced managers to predict market changes in real time and respond to shifts more effectively.
Mr Lohia said: “Change is a constant in our industry. We have embraced similar seismic events in our thirty-year history and emerged stronger than before. In 2023, we recognized that the ecosystem has changed, and what worked for us in the past will not work going forward. We had to devise a new strategy to operate successfully within the new ground rules, leveraging the highly successful global model we built over decades. In recent months, each of our businesses has undergone a stringent review, with detailed plans now in place to optimize our assets, processes, and our organization, and focus on enhancing earnings quality over the next three years.”
Today, Indorama Ventures has an unparalleled global footprint, with leadership in sustainable and growing markets, following a remarkable era of expansion during which it made some 50 acquisitions over 20 years to build its unique global model. Mr Lohia expressed continued confidence in the long-term growth potential of its business, which is tied to macro-consumer trends as populations grow and modernize and demand more sustainable products that improve their lives and the environment.
Under IVL 2.0, the company will optimize its asset footprint, improve cashflow, and significantly reduce debt levels as it switches to new priorities of enhancing earnings quality and maximizing shareholder value. Measures include a $2.5 billion reduction in Net Debt to around $4.3 billion in 2026, including generating $0.8 billion in cashflow from operational improvements and a further $1.7 billion from strategic corporate actions including divestments, asset actions, and select business listings. These steps are aimed at reducing its Debt to EBITDA ratio to less than 3x.
Mr Lohia said: “Our new strategy is a significant financial pivot. Now that we have the scale, we will leverage our global footprint and strong client relationships and optimize our costs so that we can generate enhanced long-term sustainable profit growth. We are also deleveraging our balance sheet, which will give us more flexibility to restore our company to a more sustainable growth path based on strict capital discipline and international standards of leverage.”
Four strategic objectives will underpin transformation over the next three years. First, the asset optimization program aims to increase the company’s operating rate from 74% to 89%, including moving to lower-cost facilities and right-sizing manufacturing capacity. Second, the launch of Project Olympus 2.0, the company’s cost optimization program, will build on the success of Olympus 1.0 to unlock a further $450 million run rate efficiency gains by 2026. Third, the sale of non-core assets and other value-unlocking strategies aims to generate about $1.3 billion in cash proceeds. Finally, the company is leveraging its leadership in sustainability innovation to drive a $350 million per year value uplift.
Integrated Oxides and Derivatives (IOD), the newest of Indorama Ventures’ three business segments, will be renamed ‘Indovinya’ as management focuses its Downstream portfolio in high-potential markets including Home & Personal Care, Crop Solutions, Coatings & Solutions, and Energy & Resources. As part of the action, the segment’s Intermediate Chemicals assets, comprising integrated PEO, integrated EG and MTBE, will move to Indorama Ventures’ Combined PET (CPET) segment. This will further optimize and strengthen CPET’s integrated offering.
These bold measures build on the company’s far-reaching transformation programs already in place since 2021, as well as the strident steps taken in 2023 to improve competitiveness and generate operating cash flow. During the year, Project Olympus 1.0 drove $527 million in run rate efficiency gains by 2023. From 1Q24, the completed rollout of the SAP S/4HANA enterprise system will unlock further value as the spine of the company’s digital transformation strategy. As part of its asset optimization program, in Q423 the company undertook a $308 million non-cash impairment of its partly completed PTA-PET plant in Corpus Christi, Texas, which is on hold while the joint venture partners reassess its future. Indorama Ventures’ succession planning program has identified a next generation of managers as its three business segments work towards becoming increasingly independent operations.
