Strategies: Indorama looks at asset rationalisation, divestures; Evonik to cut 2,000 jobs, not upbeat on 2024 economic recovery

Thailand-headquartered chemical firm Indorama Ventures Public Company Limited has unveiled its business strategy and expects to sell off non-core assets, and has also put on hold its PTA-PET plant in Corpus Christi, Texas, in the face of overcapacity, lower demand in China and declining earnings.

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 fuelling cheap exports, while low feedstock prices in North America are adding to supply due to increased competitiveness.

At the same time, macroeconomic and geopolitical headwinds are weighing on global consumption, impacting Indorama’s margins and volumes in FY23, and leading to a 53% decline in earnings. 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 adds that its integrated manufacturing model allows it to benefit from lower feedstock prices through ‘make or buy’ strategies that reduce working capital and interest costs.

The company will deleverage its business in a prolonged environment of higher interest rates, while right sizing its operations and optimising competitiveness to improve shareholder returns over the next three years and emerge stronger as demand normalises in the longer term. Indorama adds it is accelerating the transformation programs it started in 2021, including implementing new data management tools and intelligent dashboards, it adds.

Under IVL 2.0, the company will optimise its asset footprint, improve cashflow, and significantly reduce debt levels as it switches to new priorities of enhancing earnings quality and maximising shareholder value. Measures include a US$2.5 billion reduction in debt to around US$4.3 billion in 2026, including generating US$0.8 billion in cashflow from operational improvements and a further US$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.

Four strategic objectives will underpin transformation over the next three years. First, the asset optimisation programme 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 the company’s cost optimisation programme, will unlock a further US$450 million run rate efficiency gains by 2026. Third, the sale of non-core assets and other value-unlocking strategies aims to generate about US$1.3 billion in cash proceeds. Finally, the company is leveraging its leadership in sustainability innovation to drive a US$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 optimise and strengthen CPET’s integrated offering.

As part of its asset optimisation program, in Q423 the company undertook a US$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.

Meanwhile, German chemicals group Evonik Industries has announced up to 2,000 job cuts worldwide by 2026 and says it does not expect an economic recovery in 2024.

The job cuts are expected to lead to reduction costs of EUR400 million annually after completion of the programme, the company said, adding that the majority of the cuts - some 1,500 - would be in Germany. Around 80% of these savings will derive from personnel reductions, the rest will come from lower material costs.

Since it does not expect an economic recovery in 2024, Evonik says capital expenditures will be limited to around EUR750 million. It expects 2024 adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) in the range of EUR1.7-2 billion.

This compares with the EUR1.66 billion it reported for 2023, which slightly missed analysts' forecast of EUR1.7 billion in a company-provided poll.

Sales at its performance materials division, which accounted for around 13% of the total, fell by 22% to EUR2.55 billion after the company sold a production site in Luelsdorf last June.

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