Le Lézard
Classified in: Business
Subjects: EARNINGS, Conference Call, Webcast

Orbia Announces Third Quarter 2022 Financial Results


Orbia Advance Corporation, S.A.B. de C.V. (BMV: ORBIA*) ("the Company" or "Orbia") today released unaudited results for the third quarter of 2022.

Orbia delivered flat revenues year-over-year while facing macroeconomic challenges including high inflation, pockets of economic stagnation, the energy crisis in Europe, COVID lockdowns in China and currency headwinds. This resulted in lower profitability in the quarter, with decreases in Polymer Solutions, Building and Infrastructure and Precision Agriculture partially offset by strength in Fluorinated Solutions and Connectivity Solutions. Orbia continues to demonstrate resilience in its businesses and maintains a strong balance sheet with robust long-term fundamentals for its businesses.

Q3 2022 Financial Highlights
(All metrics are compared to Q3 2021 unless otherwise noted)

"I would like to thank the entire Orbia team for their continued commitment to delivering value for our shareholders. Our team remained dedicated to serving our customers' needs while addressing key world problems in a highly challenging environment," said Sameer Bharadwaj, CEO of Orbia. "Our results this quarter demonstrate our resilience, as strong results in Connectivity Solutions and Fluorinated Solutions and our vertical integration helped mitigate issues across the other business groups."

Added Bharadwaj, "During the quarter, we continued to execute on our strategy and our goal to be a recognized provider of sustainable solutions, which we detailed at our Investor Day in May. Connectivity Solutions completed the acquisition of Biarri Networks, a leading technology-enabled service provider specializing in fiber optic network design solutions, as the business group broadens to full-suite solutions. Building and Infrastructure acquired Bow Plumbing Group, a leading North American manufacturer of plastic pipes and fittings for the residential and commercial construction industry, further enabling the business group's geographical reach and expanded product offering. In addition, Building and Infrastructure broke ground on a greenfield site in Indonesia, with the President of Indonesia, His Excellency Joko Widodo himself leading the ceremony, underscoring the importance of our investment to the Indonesian economy. We maintained a healthy balance sheet that will enable us to take advantage of both short-term and long-term growth opportunities."

Q3 2022 Consolidated Financial Information1
(All metrics are compared to Q3 2021 unless otherwise noted)

mm US$ Third Quarter
Financial Highlights

2022

 

2021

 

%Var.

Net sales

2,291

 

2,287

 

0%

Selling, general and administrative expenses

290

 

273

 

6%

Operating income

234

 

388

 

-40%

EBITDA

381

 

532

 

-28%

EBITDA margin

16.6%

 

23.3%

 

-663 bps

Financial cost

100

 

71

 

41%

Earnings before taxes

132

 

319

 

-59%

Income tax

25

 

93

 

-73%

Consolidated net income (loss)

107

 

226

 

-53%

Net majority income

86

 

197

 

-56%

Operating cash flow

225

 

185

 

22%

Capital expenditures

(118)

 

(73)

 

63%

Free cash flow

101

 

90

 

13%

Net debt

3,295

 

2,847

 

16%

1Unless noted otherwise, all figures in this release are derived from the Consolidated Financial Statements of the Company as of September 30, 2022 and are prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting" of the International Financial Reporting Standards (IFRS), which have been published in the Bolsa Mexicana de Valores (BMV). See Notes and Definitions at the end of this release for further explanation of terms used herein.

Net revenues of $2,291 million remained flat.

Revenue growth in Connectivity Solutions was driven by favorable industry trends while Fluorinated Solutions benefited from strong pricing. This improvement was offset by a decrease in Polymer Solutions, Building and Infrastructure and Precision Agriculture, primarily driven by weaker end markets in the context of the current macroeconomic environment and the devaluation of major currencies. Excluding the impact of foreign exchange, revenues increased by approximately 7%.

Cost of goods sold of $1,767 million increased 9%.

This increase was primarily due to higher input, energy, freight and labor costs under the current inflationary environment.

Selling, general and administrative expenses of $290 million increased 6%. As a percentage of sales, SG&A increased approximately 70 basis points to 12.6%.

The increase in selling, general and administrative expenses as a percentage of sales was primarily due to inflation impacts and to continued investment in executing the Company's growth strategy.

EBITDA of $381 million decreased 28%, while EBITDA margin decreased approximately 660 basis points to 16.6%.

The decrease in EBITDA and EBITDA margin in the quarter was due to softening demand across certain markets, coupled with currency devaluation and higher input costs, particularly in Polymer Solutions, Building and Infrastructure, and Precision Agriculture. The decrease was partially offset by higher profitability in Connectivity Solutions and Fluorinated Solutions. Excluding the impact of foreign exchange, EBITDA decreased by approximately 25%.

Financial costs of $100 million increased 41%.

The increase in financial costs was driven by an increase in foreign exchange losses, particularly associated with the Euro, as well as higher interest expense, due to additional borrowing.

Taxes of $25 million decreased 73%. The effective tax rate for the quarter was 18.9%, which is a decrease of approximately 1,010 basis points compared to the same period last year.

The decrease in the tax provision and the effective tax rate for the quarter was driven by the tax benefit related to foreign exchange losses and the release of valuation allowances, partially offset by the tax effect of an adjustment for inflation in Mexico.

Net income to majority shareholders of $86 million decreased 56%, largely due to the decrease in EBITDA noted above.

Operating cash flow of $225 million increased 22% while free cash flow of $101 million increased 13%. During the quarter, cash generated from effective management of working capital was partially offset by lower EBITDA, higher capital expenditures and higher taxes paid.

Net debt of $3,295 million was comprised of total debt of $4,192 million, less cash and cash equivalents of $897 million. The Company's net debt-to-EBITDA ratio increased from 1.39x to 1.57x quarter-over-quarter, driven by the decrease in EBITDA year-over-year, as well as an increase in debt during the quarter.

Q3 2022 Revenues by Region
(All metrics are compared to Q3 2021 unless otherwise noted)

mm US$ Third Quarter
Region

2022

 

2021

 

% Var.

 

% Revenue

North America

910

 

784

 

16%

 

40%

Europe

683

 

765

 

-11%

 

30%

South America

468

 

532

 

-12%

 

20%

Asia

143

 

138

 

4%

 

6%

Africa and others

86

 

68

 

27%

 

4%

Total

2,291

 

2,287

 

0%

 

100%

Q3 2022 Financial Performance by Business Group
(All metrics are compared to Q3 2021 unless otherwise noted)

Polymer Solutions (Vestolit and Alphagary), 34% of Revenues

Orbia's Polymer Solutions business group and businesses Vestolit and Alphagary focus on polyvinylchloride (PVC) general resins, PVC specialty resins and PVC and zero-halogen specialty compounds with a wide variety of applications in everyday products for everyday life, from pipes and cables to household appliances to medical devices. The business group supplies Orbia's downstream businesses and a global customer base.

mm US$ Third Quarter
Polymer Solutions

2022

 

2021

 

%Var.

Total sales*

837

 

909

 

-8%

Operating income

54

 

240

 

-77%

EBITDA

117

 

303

 

-62%

*Intercompany sales were $49 million and $63 million in Q3 2022 and Q3 2021, respectively.

Revenues of $837 million decreased 8% year-over-year. EBITDA of $117 million decreased 62% and EBITDA margin decreased approximately 1,940 basis points to 13.9%.

The decrease in revenues was driven primarily by lower volumes reflecting softening demand and lower prices in general resins due to increased availability of low-cost supply in key markets, partially offset by higher prices in specialty resins and derivatives. COVID lockdowns in China resulted in a significant slowdown in domestic consumption and large exports to other parts of the world, depressing prices.

EBITDA decreased year-over-year due to lower volumes and higher feedstock costs and higher energy costs, particularly in Europe.

Building and Infrastructure (Wavin), 31% of Revenues

Orbia's Building and Infrastructure business group and business Wavin is redefining today's pipes and fittings industry by creating solutions that last longer and perform better, all with less installation labor required. The business group benefits from supply chain integration with the Polymer Solutions business group, a customer base spanning three continents, and investments in sustainable, resilient technologies for water and indoor climate management.

mm US$

Third Quarter

Building & Infrastructure

2022

 

2021

 

%Var.

Total sales

700

 

753

 

-7%

Operating income

39

 

72

 

-46%

EBITDA

70

 

106

 

-34%

Revenues of $700 million decreased 7% year-over-year. EBITDA of $70 million decreased 34% and EBITDA margin decreased approximately 415 basis points to 9.9%.

The decrease in revenues was mainly driven by lower volumes, particularly in Europe, as well as the impact of currency devaluation.

EBITDA performance declined year-over-year reflecting the decrease in volumes, continued input cost increases and currency depreciation, partially offset by solid pricing.

Precision Agriculture (Netafim), 10% of Revenues

Orbia's Precision Agriculture business group and business Netafim's leading-edge irrigation systems, services and digital farming technologies enable stakeholders to achieve significantly higher and better-quality yields while using less water, fertilizer and other inputs. By helping farmers worldwide grow more with less, the business group is contributing to feeding the planet efficiently and sustainably.

mm US$

Third Quarter

Precision Agriculture

2022

 

2021

 

%Var.

Total sales

224

 

272

 

-17%

Operating income

(13)

 

9

 

N/A

EBITDA

12

 

33

 

-64%

Revenues of $224 million decreased 17% year-over-year. EBITDA of $12 million decreased 64% and EBITDA margin decreased approximately 690 basis points to 5.4%. Excluding one-time items, EBITDA margin for the quarter was 9.4% reflecting a decrease of approximately 285 basis points year-over-year.

The decrease in revenues was due to a slowdown in demand in most markets, except for Latin America, Turkey and China. The slowdown in Europe was directly related to economic weakness relating to the war in Ukraine and high energy costs affecting key market segments. In the United States, the slowdown was partly related to destocking in the customer value chain after inventory build-up in the first half of the year, due to supply chain and logistics concerns.

EBITDA decreased year-over-year, reflecting lower demand, higher raw material and transportation costs, as well as currency devaluation. Additionally, EBITDA for the quarter included a charge of approximately $9 million, or approximately 400 basis points of EBITDA margin, due to the cumulative year-to-date impact of implementing accounting standard IAS 29, related to hyperinflation in Turkey.

Connectivity Solutions (Dura-Line), 16% of Revenues

Orbia's Connectivity Solutions business group, Dura-Line, produces more than 500 million meters of essential and innovative infrastructure per year to bring a world's worth of information everywhere. The business group produces telecommunications conduit, cable-in-conduit and other HDPE products and solutions that create physical pathways for fiber and other network technologies connecting cities, homes and people.

mm US$ Third Quarter
Connectivity Solutions

2022

 

2021

 

%Var.

Total sales

368

 

273

 

35%

Operating income

93

 

25

 

268%

EBITDA

104

 

33

 

214%

Revenues of $368 million increased 35% year-over-year. EBITDA of $104 million increased 214% and EBITDA margin increased approximately 1,615 basis points to 28.3%.

Revenues increased year-over-year primarily in North America, supported by investments in production capacity along with the growing need for fiber infrastructure, combined with stable pricing.

EBITDA also increased significantly year-over-year, driven by higher revenues combined with a stabilization of material costs.

Fluorinated Solutions (Koura), 10% of Revenues

Orbia's Fluorinated Solutions business group and business Koura provides fluorine and downstream products that support modern, efficient living. The business group owns and operates the world's largest fluorspar mine and produces intermediates, refrigerants and propellants used in automotive, infrastructure, semiconductor, health, medicine, climate control, food cold chain, energy storage, computing and telecommunications applications.

mm US$ Third Quarter
Fluorinated Solutions

2022

 

2021

 

%Var.

Total sales

223

 

171

 

30%

Operating income

63

 

40

 

58%

EBITDA

78

 

52

 

49%

Revenues of $223 million increased 30% year-over-year. EBITDA of $78 million increased 49% and EBITDA margin increased approximately 445 basis points to 35.0%.

Growth in revenues reflected strong pricing across our product portfolio, including upstream minerals, chemical intermediates, and downstream products such as refrigerants and propellants.

The increase in EBITDA was driven by revenue growth, improved pricing, and a better product mix, which helped offset higher input and logistics costs.

Balance Sheet, Liquidity and Capital Allocation

Orbia continued to maintain a strong balance sheet. The net debt-to-EBITDA ratio increased from 1.39x to 1.57x during the quarter.

During the quarter Orbia added approximately $150 million of borrowings, which is reflected as new debt in the Company's cash flow statement.

Working capital decreased by $79 million during the quarter, primarily reflecting lower selling prices and proactive management. Capital expenditures of $118 million during the quarter increased 63% year-over-year, including ongoing maintenance spending, and investing to support the Company's growth initiatives.

Orbia completed a net amount of $16 million in share repurchases during the quarter and paid $75 million as the third installment of the ordinary and extraordinary dividend approved at the Annual Shareholders Meeting held on April 1, 2022.

2022 Outlook

Considering the results achieved year-to-date and the continued challenging macroeconomic environment, Orbia reaffirms its EBITDA guidance for 2022 in the range of $1,800 million to $1,900 million, trending toward the high end of the range. The Company also reaffirms its capital expenditure guidance in the range of $400 million to $450 million for 2022, which includes incremental, high-return, growth-related projects but excludes potential larger growth investments.

Conference Call Details

Orbia will host a conference call to discuss Q3 2022 results on October 27, 2022, at 9:00 am Central Time (CT; Mexico City)/10:00 am Eastern Time (ET; New York). To access the call, please dial 001-855-817-7630 (Mexico), 1-888-339-0721 (United States) or 1-412-317-5247 (International).

Participants may pre-register for the conference call here.

The live webcast can be accessed here.

A recording of the webcast will be posted several hours after the call is completed on Orbia's website.

For all company news, please visit www.orbia.com/this-is-orbia/newsroom.

Consolidated Income Statement

mm US$ Third Quarter January - September
Income Statement

2022

2021

% Var.

2022

2021

% Var.

Net sales

2,291

2,287

0%

7,548

6,444

17%

Cost of sales

1,767

1,626

9%

5,488

4,494

22%

Gross profit

524

661

-21%

2,059

1,950

6%

Selling, general and administrative expenses

290

273

6%

892

846

5%

Operating income (loss)

234

388

-40%

1,168

1,104

6%

Financial cost

100

71

41%

214

211

2%

Equity in income of associated entity

(1)

2

N/A

2

2

11%

Income (loss) from continuing operations before income tax

132

319

-59%

955

895

7%

Income tax

25

93

-73%

268

273

-2%

Income (loss) from continuing operations

107

226

-53%

687

622

10%

Discontinued operations

0

(0)

N/A

(1)

(0)

N/A

Consolidated net income (loss)

107

226

-53%

686

622

10%

Minority stockholders

21

29

-28%

84

90

-7%

Majority Net income (loss)

86

197

-56%

602

531

13%

 

 

 

 

 

 

EBITDA

381

532

-28%

1,601

1,543

4%

Consolidated Balance Sheet

mm US$
Balance sheet

Sep 2022

 

Dec 2021

 

Sep 2021

Total assets

11,123

 

10,587

 

10,466

Current assets

4,177

 

3,724

 

3,633

Cash and temporary investments

897

 

782

 

655

Receivables

1,519

 

1,370

 

1,543

Inventories

1,415

 

1,292

 

1,192

Others current assets

345

 

282

 

244

Non current assets

6,946

 

6,862

 

6,832

Property, plant and equipment, net

3,034

 

3,051

 

3,060

Right of use fixed assets, net

345

 

346

 

283

Intangible assets and goodwill

3,181

 

3,130

 

3,152

Long-term assets

387

 

335

 

338

Total liabilities

7,887

 

7,182

 

7,124

Current liabilities

3,035

 

2,643

 

2,583

Current portion of long-term debt

765

 

240

 

213

Suppliers

1,386

 

1,505

 

1,426

Short-term leasings

84

 

86

 

77

Other current liabilities

800

 

812

 

867

Non current liabilities

4,852

 

4,539

 

4,541

Long-term debt

3,427

 

3,280

 

3,289

Long-term employee benefits

185

 

221

 

271

Long-term deferred tax liabilities

333

 

318

 

327

Long-term leasings

272

 

281

 

224

Other long-term liabilities

635

 

440

 

430

Consolidated shareholders' equity

3,236

 

3,404

 

3,342

Minority shareholders' equity

678

 

668

 

679

Majority shareholders' equity

2,559

 

2,737

 

2,663

Total liabilities & shareholders' equity

11,123

 

10,587

 

10,466

Cash Flow Statement

Third Quarter   January - September
mm US$

2022

 

2021

 

%Var.

 

2022

 

2021

 

% Var.

EBITDA

381

 

532

 

-28%

 

1,601

 

1,543

 

4%

Taxes paid, net

(104)

 

(73)

 

42%

 

(434)

 

(193)

 

125%

Net interest / bank commissions

(68)

 

(85)

 

-20%

 

(157)

 

(220)

 

-29%

Change in trade working capital

79

 

(184)

 

N/A

 

(323)

 

(570)

 

-43%

Others (other assets - provisions, net)

(9)

 

20

 

N/A

 

(54)

 

11

 

N/A

CTA and FX

(54)

 

(25)

 

116%

 

(81)

 

(38)

 

114%

Operating cash flow

225

 

185

 

22%

 

552

 

533

 

4%

Capital expenditures

(118)

 

(73)

 

63%

 

(328)

 

(189)

 

74%

Leasing payments

(5)

 

(22)

 

-76%

 

(65)

 

(74)

 

-12%

Free cash flow

101

 

90

 

13%

 

158

 

269

 

-41%

FCF conversion (%)

26.6%

 

16.9%

 

 

 

9.9%

 

17.4%

 

 

Dividends to shareholders

(75)

 

(100)

 

-25%

 

(224)

 

(150)

 

49%

Buy-back shares program

(16)

 

(37)

 

-56%

 

(142)

 

(69)

 

106%

New debt (paid)

157

 

(295)

 

N/A

 

670

 

(137)

 

N/A

Minority interest payments

(48)

 

(46)

 

4%

 

(105)

 

(104)

 

2%

Mergers & acquisitions

(109)

 

-

 

 

 

(217)

 

(37)

 

490%

Financial instruments and others

(12)

 

(16)

 

-26%

 

(23)

 

7

 

N/A

Net change in cash

(1)

 

(404)

 

-100%

 

116

 

(220)

 

N/A

Initial cash balance

898

 

1,059

 

-15%

 

782

 

875

 

-11%

Cash balance

897

 

655

 

37%

 

897

 

655

 

37%

Notes and Definitions

Starting this quarter Orbia's Data Communications business will be referred to as Connectivity Solutions.

The results contained in this release have been prepared in accordance with International Financial Reporting Standards ("NIIF" or "IFRS") with U.S. Dollars as the reporting currency. Figures are presented in millions, unless specified otherwise.

Figures and percentages have been rounded and may not add up.

About Orbia

Orbia is a company driven by a shared purpose: to advance life around the world. Orbia operates in the Polymer Solutions (Vestolit and Alphagary), Building and Infrastructure (Wavin), Precision Agriculture (Netafim), Connectivity Solutions (Dura-Line) and Fluorinated Solutions (Koura) sectors. The five Orbia business groups have a collective focus on expanding access to health and wellness, reinventing the future of cities and homes, ensuring food and water security, connecting communities to information and accelerating a circular economy with basic and advanced materials, specialty products and innovative solutions. Orbia has commercial activities in more than 110 countries and operations in over 50, with global headquarters in Boston, Mexico City, Amsterdam and Tel Aviv. To learn more, visit: orbia.com.

Prospective Information

In addition to historical information, this press release contains "forward-looking" statements that reflect management's expectations for the future. The words "anticipate," "believe," "expect," "hope," "have the intention of," "might," "plan," "should" and similar expressions generally indicate comments on expectations. The forward-looking statements included in this press release are subject to a number of material risks and uncertainties, and our results may be materially different from current expectations due to factors, which include, but are not limited to, global and local changes in politics, economic factors, business, competition, market and regulatory factors, cyclical trends in relevant sectors as well as other factors affecting our operations, markets, products, services and prices that are highlighted under the title "Risk Factors" in the annual report submitted by Orbia to the Mexican National Banking and Securities Commission (CNBV) and available on our website at https://www.orbia.com/investor-relations/financial-reports/annual-reports-and-filings/. The forward-looking statements included herein represent Orbia's views as of the date of this press release. Orbia undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law."

Orbia has implemented a Code of Ethics that helps define our obligations to and relationships with our employees, clients, suppliers, and others. Orbia's Code of Ethics is available for consultation at the following link: http://www.Orbia.com/Codigo_de_etica.html. Additionally, according to the terms contained in the Mexican Securities Exchange Act No 42, the Orbia Audit Committee has established a "hotline" system permitting any person who is aware of a failure to adhere to applicable operational and accounting records guidelines, internal controls or the Code of Ethics, whether by the Company itself or any of its controlled subsidiaries, to file a complaint (including anonymously). This system is operated by an independent third-party service provider. The system may be accessed via telephone in Mexico, via internet at http://www.ethics.orbia.com or via email at [email protected]. Orbia's Audit Committee has oversight responsibility for ensuring that all such complaints are appropriately investigated and resolved.


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