1:30 | 27.02.2020
Orbia Announces Fourth Quarter and Full Year Financial Results for 2019
Orbia Advance Corporation, S.A.B. de C.V. (BMV: ORBIA*) (“the Company” or “Orbia”) today released unaudited results for the fourth quarter and full year of 2019. Despite headwinds in some of Orbia’s key businesses, sluggish market activity, and overall macroeconomic uncertainty related to trade tensions, the Company achieved its full year guidance in line with management’s expectations.
Orbia’s Fluent Business Group normalized EBITDA3 (excluding the impact of IFRS 16) increased 35%, driven by strong performance in the Dura-Line and Netafim businesses;
Orbia’s revenues decreased 3% to $1.6 billion, mainly impacted by lower sales in our Wavin, Koura and Dura-Line businesses;
Improvement in working capital drove higher cash generation of $312 million, with strong free cash flow conversion of 75.2% for the quarter.
Orbia’s Fluent Business Group normalized EBITDA3 (excluding the impact of IFRS 16) increased 10%, driven by healthy growth in the Dura-Line and Netafim businesses;
Orbia’s revenues decreased 3% to $7.0 billion, mainly due to lower sales in the Vestolit and Wavin businesses;
The Netafim business performed strongly, achieving sales increase of 12%;
Orbia generated $414 million in free cash flow, reflecting a conversion rate of 30.3% across 2019.
Unless noted otherwise, all figures in this release are derived from the Interim Consolidated Financial Statements of the Company as of December 31, 2019 and are prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” of the International Financial Reporting Standards (IFRS), which has 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.
Daniel Martinez-Valle, CEO of Orbia Advance Corporation, remarked, “2019 was an important year for our company. It marked the culmination of a multi-year acquisition strategy that had dramatically increased our global footprint and market penetration. We unveiled a new name, purpose and strategy that reflected our ability to tackle the world’s most pressing challenges and our drive to advance life around the world. We reorganized into five business groups focused on providing customer-centered solutions across the Data Communications (Dura-Line), Precision Agriculture (Netafim), Building and Infrastructure (Wavin), Fluor (Koura) and Polymer Solutions (Vestolit) verticals. And we started operationalizing our play-to-win strategy to capitalize on organic growth opportunities and deliver superior operational and financial performance.”
Added Martínez-Valle, “As we started doing in 2019, we will double down on operational excellence and focus on markets, products and solutions that will yield higher margins across our key verticals in 2020.” As initiated in 2019, the Company continues to work to control costs, optimize its working capital management and steer a disciplined capital allocation policy.
In 2019 overall, revenues decreased to $7.0 billion, representing a 3% decline as compared to 2018, mainly due to lower sales in the Vestolit and Wavin businesses.
In 2019 overall, costs increased $12 million, or 4% as compared to 2018. The increase was mainly due to the adoption of IFRS 16 which impacted net interest expenses as well as higher bank commissions related to the renewal of Orbia’s $1.5 billion revolving credit facility and Netafim’s refinancing of its bank loan. These increased costs were partially offset by a decrease in foreign exchange losses.
In 2019 overall, income tax charges amounted to $206 million as compared to $195 million in 2018. This resulted in an effective tax rate of 39% driven by the appreciation of the Mexican Peso over the US Dollar as well as by the repatriation of dividends, as cited in the Q3 2019 report.
In 2019 overall, Orbia posted $207 million in net majority income, as compared to $355 million reported in 2018, due primarily to lower operating income.
In Q4 2019, the Fluent Business Group posted revenues of $939 million, down 5% as compared Q4 2018. The drop was mainly due to a decline in Wavin’s overall sales in Latin America, impacted by sluggish activity in Mexico and Ecuador and as well as lower sales in our main European markets. Dura-Line was mainly impacted by lower sales in India and the shift to a more profitable product mix, while Netafim’s slight decline in sales was due to projects in India that concluded in 2018.
In 2019 overall, Fluent revenues decreased 2% to $4.0 billion as compared to 2018, mainly due to lower sales posted by Wavin Europe and Wavin LatAm as well as by Dura-Line. Dura-Line’s lower sales numbers were largely due to a continued shift to a more profitable product mix as well as a reduction in India sales. These declines were partially offset by a 12% increase in Netafim sales.
In Q4 2019, reported EBITDA for the Fluent Business Group increased 42%. Normalized EBITDA (excluding the impact of IFRS 16) grew 35% as compared to Q4 2018, with an implicit margin of 13.6%—an expansion of 400 basis points. This increase reflected a significantly higher profitability in the Dura-Line business due to a better product mix and lower average raw material costs, as well as the high performance of the Netafim business spurred by similar trends.
In 2019 overall, reported EBITDA for the Fluent Business Group was $590 million, up 17% from $503 million in 2018. The reported EBITDA margin was 14.8% as compared to 12.3% in 2018. Normalized EBITDA (excluding the impact of IFRS 16) grew 10% as compared to 2018, with an implicit margin of 13.8%—an expansion of 150 basis points, mainly due to higher profitability in the Dura-Line and Netafim businesses (see above paragraph.) The normalized EBITDA for the group included $3.7 million in restructuring costs related to an operational optimization plan for Wavin LatAm’s Mexican operations.
*Intercompany sales were $38 million and $44 million in 4Q19 and 4Q18, respectively. And as of December 2019 and 2018 were $144 million and $180 million, respectively.
In Q4 2019, Vestolit posted revenues of $549 million, down 1% as compared to Q4 2018. This slight decline was mainly due to lower caustic soda and PVC prices despite the higher sales volume.
In 2019 overall, Vestolit revenues decreased 5% to $2.3 billion, as compared to $2.5 billion in 2018, mainly due to challenging market conditions that resulted in lower caustic soda and PVC prices.
In Q4 2019, reported EBITDA for Vestolit was $78 million, remaining flat as compared to Q4 2018. During the quarter, Vestolit absorbed longer than expected maintenance work in one of its European plants as well as a one-time effect of $25 million in connection with potential liabilities relating to a previously disclosed investigation of Orbia’s European subsidiary by the EU competition authorities. Normalized EBITDA (excluding the impact of IFRS 16 and one-time effects) grew 23% as compared to Q4 2018—a 17.4% margin expansion totaling 330 basis points.
In 2019 overall, reported EBITDA for Vestolit was $415 million, down 17% from the $502 million posted in 2018. EBITDA (excluding the impact of IFRS 16 and one-time effects) declined 19% primarily due to lower caustic soda and PVC prices, down 47% and 5% respectively. Full year EBITDA was also impacted by a temporary force majeure of a key supplier in Germany, as well as longer than expected maintenance work in a main VCM supplier plant in the US. The normalized EBITDA margin (excluding the impact of IFRS 16 and one-time effects) was 17.5%, down from 20.4% in 2018.
In Q4 2019, Koura revenues decreased 3% compared to Q4 2018. While the continuing impact of illegal imports of refrigerant gases in Europe constrained Koura’s “downstream” (i.e. higher value-added fluorinated products) business, strong performance in Koura’s “upstream” (i.e. fluorspar and HF) business partially offset this impact.
In 2019 overall, Koura revenues decreased 4% to $805 million, as compared to $837 million in 2018.
In Q4 2019, reported EBITDA was $73 million, down 1% from $74 million in Q4 2018, reflecting an EBITDA margin of 39.2% as compared to 38.5% in Q4 2018. This decline in EBITDA was mainly driven by the illegal import of refrigerant gases in Europe (see above).
In 2019 overall, reported EBITDA was $316 million, down 8% from $344 million in 2018, reflecting an EBITDA margin of 39.3% as compared to 41.1% in 2018. Again, this decline in EBITDA was mainly driven by the illegal import of refrigerant gases in Europe.
Trade working capital variation (Dec 18 vs Dec 17) includes Netafim’s proforma results for comparative purposes.
In Q4 2019, Orbia’s cash generation and free cash flow was $312 million and $221 million respectively, resulting in a strong free cash flow conversion rate of 75.2%. Cash generation was positively influenced by improvements in working capital management. Additionally, Orbia continued to maintain a disciplined approach to capital deployment during the quarter.
As of December 31, 2019, Orbia’s net financial debt totaled $2.9 billion, from a total financial debt of $3.5 billion less cash and cash equivalents of $586 million.
As of December 31, 2019, Orbia’s net debt/EBITDA ratio was 2.10x, while the Company’s interest coverage ratio (EBITDA/interest expense) was 6.09x.
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Others current assets
Property, plant and equipment, Net
Intangible assets and Goodwill
Right of use Fixed Assets, Net
Long term assets
Other current liabilities
Long-term employee benefits
Long-Term deferred tax liabilities
Other long-term liabilities
Commencing Q1 2019, Business Groups EBITDAs are reported inclusive of corporate charges and intercompany royalties; comparable prior year figures have been adjusted accordingly.
In our continuous effort to better inform the market and as part of our transformation journey to become a more customer-centric organization, beginning in Q1 2019, we have presented Fluent revenues geographically and by global business division: Wavin (Building & Infrastructure in Europe and Amanco in LatAm), Dura-Line (Fluent US and Canada and Fluent AMEA – Datacom) and Netafim (Precision Agriculture).
The Fluent Business Group’s prior year results include those of Netafim as of the February 7, 2018 acquisition closing date.
Figures and percentages have been rounded and may not add up.
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 consulting in 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, the website at http://www.ethic-line.com/Orbia, or e-mail at Orbia@ethic-line.com. Orbia’s Audit Committee has oversight responsibility for ensuring that all such complaints are appropriately investigated and resolved.
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