According to the company’s website press release on October 26, 2022, Orbia Advance Corporation, S.A.B. de C.V. (BMV: ORBIA*) (“the Company” or “Orbia”) 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)
- Net revenues of $2.3 billion were flat year-over-year, with higher sales in Connectivity Solutions and Fluorinated Solutions, offset by lower sales in Polymer Solutions, Building and Infrastructure and Precision Agriculture.
- EBITDA of $381 million decreased 28%, driven by higher input costs, lower volumes in certain segments and currency headwinds, partially offset by higher profitability in Connectivity Solutions and Fluorinated Solutions.
- Net majority income of $86 million decreased 56%, driven by lower EBITDA.
- Free cash flow of $101 million increased by $11 million, reflecting effective working capital management, which more than offset lower EBITDA and increases in capital expenditures and taxes paid.
“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 longterm growth opportunities.
Net revenues of $2,291 million remained flat.
Revenue growth in Connectivity Solutions was driven by favorable industry trends while Fluorinated Solutions benefitted 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.
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.
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.
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.
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.
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-overyear, 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).
For all company news, please visit www.orbia.com/this-is-orbia/newsroom.
