Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sequential improvement across all businesses compared to the previous quarter.
- Cost optimization efforts resulted in a $35 million reduction in manufacturing and SG&A costs year-to-date.
- Progress on strategic projects, including the US PVDF capacity investment and the LiPF6 project.
- New building and infrastructure facility in Indonesia and expansion of the specialty compounds plant in India nearing completion.
- Strong demand and results in the polymer solution specialty compounds business.
Negative Points
- Revenues decreased by 9% year-over-year to $2 billion.
- EBITDA decreased by 25% year-over-year to $334 million, including $13 million of non-operating charges.
- Operating cash flow decreased by $212 million compared to the prior year quarter.
- Free cash flow was negative $130 million, a decrease of $160 million year-over-year.
- Net debt to EBITDA increased from 2.96 times to 3.39 times in the quarter.
Q & A Highlights
Q: The improvement is expected to come mainly from the building and infrastructure and connectivity solution segments. What are the risks involved in these assumptions, and could you provide an update on the PVDF and LiPF6 projects?
A: The improvements will come from seasonality in the building and infrastructure business and demand recovery in connectivity solutions. Risks include PVC pricing fluctuations. For the PVDF project, we are in the engineering phase with a timeline around 2027-2028. The LiPF6 project has received Board approval to proceed with engineering.
Q: How should we see the $35 million savings from optimization efforts evolving in the second half of this year and into 2025?
A: We have rolled out extensive optimization efforts across Orbia, including SG&A and manufacturing cost reductions. The full-year impact could be around $70 million or more. Our goal is to restore baseline earnings power to $1.45 billion to $1.5 billion, independent of market recovery.
Q: What is the long-term maintenance CapEx need?
A: Maintenance CapEx typically ranges between $270 million and $300 million annually, depending on the year. For 2024, total capital expenditures are expected to be around $520 million, with $270 million for maintenance and the rest for growth.
Q: How much of the $520 million CapEx guidance is allocated to the energy division?
A: Approximately $50 million of the $250 million growth capital is allocated to the energy division, primarily for engineering efforts in the PVDF and LiPF6 projects.
Q: What are the reasons for the revision in EBITDA guidance, and what can we expect in terms of EBITDA margin for the datacom segment in the second half of the year?
A: The revision is due to one-off impacts like the water situation in Mexico and $13 million in legal provisions and restructuring costs. For the datacom segment, we expect margins around 19% to 20% in the second half.
Q: What are the potential impacts of the upcoming elections in Mexico and the US on Orbia?
A: We are optimistic about engaging with the new administration in Mexico and believe in the nearshoring story. For the US, we are prepared for either election outcome and do not foresee any material long-term impact on our businesses.
Q: What are Orbia's plans for the debt capital markets, especially post-2025 US elections?
A: We have no immediate plans to access the markets but will address the $300 million Mexican sabores notes due in 2025 and other maturities in 2026 and 2027. We aim to maintain our investment-grade ratings and reasonable leverage levels.
Q: Can you provide more color on the volume dynamics in the fluor segment, especially regarding the HFC phase-out and exports to the US?
A: We are production-limited at the mine and can sell whatever we produce. The negative volume impact is on refrigerants due to the planned HFC phase-down. We expect pricing to increase as inventories are worked through, similar to what has happened in Europe.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
