Edited Transcript of MEXCHEM*.MX earnings conference call or presentation 25-Jul-19 3:00pm GMT

Despite a difficult quarter, we persist ought construct this company during action can the desire term. We are focusing above markets where we dine higher profitability, and we persist improving operational efficiencies ought control costs and improve direct our working headmaster across each one of our businesses.

Operator, interest affect ought glide 5. I'd alike ought highlight few significant factors regarding our business. First, we dine a resilient company with a sturdy rest sheet, a vigorous debt profile, sturdy money conversion and a broad diversification at condition of geographies and products.

Two, we dine been strengthening our organizational structure and bringing at seasoned executives on-board ought the leadership team. We are convinced that we dine the right team ought both optimize during today and cultivate during tomorrow. This way no just building a company ought attain compatible results, except too building a company that is both relevant today and at the future.

Three, we're robust above our method at our transformation ought become a more customer-centric and future-fit organization. during we kicked off our transformation at March of final year, we dine accomplished career above a quantity of overarching initiatives, including restructuring our go-to-market organization ought enhance guest centricity. Today, we dine 5 global bargain groups; prioritizing headmaster allocation ought persist improving retort above invested capital; and executing company-wide efforts above talent, human-centered innovation, digital readiness, operational excellence and circular economy.

As divide of this transformation, at a launch planned during early September, we intend ought alter our corporate appoint and brand, question ought shareholder approval. This trouble is theorem ought defining our identity and reflects the soul of our entire, deep and deep transformation.

Moving above ought glide 6. I expect ought highlight that Mexichem diversification, both geographically and at condition of our product offerings, helped mitigate the result of a difficult quarter. still we're haughty of our Mexican heritage, we dine indeed become a global company and less of a medicine company. Our largest just is Europe, with 37% of global sales; with our largest European countries being Germany, with 7% of global sales. Our second largest just is North America with 31% of global sales, at which the U.S. represents 18%; and Mexico, sole 9% of our global sales.

It is significant ought correspondence that regional sales diversification is valid across complete our 5 bargain groups and across complete the portfolio of products.

Additionally, the company continues ought concentrate above downstream growth, at particular, at specialty solutions that cause higher margins, which at the first half of 2019, represented nearly 70% of our complete EBITDA versus 64% a year ago. Thus, Mexichem is increasingly global, increasingly diversified and solution-focused. This to create it clean why changing our appoint makes sense.

Looking now at glide 7, and during I mentioned above our previous calls, we are increasingly transitioning ought a returns-driven model. Our latest ROIC is negatively affected by a lower contribution of EBITDA, except we persist ought exist enthusiastic nearly our long-term tactic ought drive higher retort above invested capital.

In this context, we've developed, during early final year, our play-to-win tactic ought compose evaluate at each sole plan we undertake. We dine identified each dollar ought exist invested can the next 5 years ought amplify margins, amplify the stickiness of guest relationships and ultimately better ROIC. Our concentrate is ought dine a rigid exercise and the right policy ought deploy headmaster across complete our 5 bargain groups.

We remain excited nearly the company's long-term prospects and are committed ought accept whatever steps are indispensable ought unlock shareholder value, including exploring strategic alternatives during our Vinyls business.

Rodrigo will argument quarterly results farther at a few minutes. except first, I'd alike ought highlight some modern guest wins and partnerships and how we're accelerating our innovation ought deliver differentiated evaluate ought our customers.

Turning ought glide 8. Our Dura-Line Datacom bargain is participating at a plan ought supply many of the ducts that will cause energy and fiber optic cables during a greenfield city at Southeast India called Amravati. This will exist built from the foundation up. We plot ought salute residents nearly 2024. A fiber infrastructure will help supply cameras, sensors, communication monitoring, lights and 5G ought create the ingenious city career above multiple fronts.

Turning ought glide 9. Earlier this quarter, our Netafim business, the world's headmaster at right irrigation solutions, entered an harmony with a Tanzania-based conglomerate ought supply irrigation towards 2,000 hectares of sugarcane there. This plan is between the largest of Netafim's projects at Africa and an instance of its expansion above the continent.

We will supply a complete solution ought contain compose services, engineering and agronomic uphold and installations and operating services, including NetBeat, our advanced digital farming solution during far digital analysis, monitoring and control. We estimate that we will exist able ought amplify the crop of candy glue up ought 4x the medium output still significantly reducing water consumption. The plan is specially complicated due ought clay salinity, and we differ ought compose rainwater reservoirs at an extremely dry area.

Now above glide 10, our Wavin bargain is teaming with U.K.-based technique firm, StormHarvester, ought help cities mitigate the waste of rainwater, specially at epoch of record heat, drought and flooding. This solution connects our Q-Bic Plus below ground, water and filtration plants ought StormHarvester's real-time and historic climate data output. mechanism knowledge algorithms [turn] the tanks off while rain is coming and while ought automatically blank a valve or alternatively while ought include above ought its water accordingly it can afterward exist used during irrigation needs or during flushing toilets. This is one of the many solutions that we're working above and deploying ought create livable and loveable cities complete across the world.

Now moving above ought glide 11. We persist building a pipeline of innovative solutions. And ought accept above advantage of future opportunities, we are focusing many of our strategic investments nearly organic growth and cultivating a civilization of innovation. I'd alike ought unity you an update above where we are at condition of our activity ought drive innovation across each one of our 5 bargain groups.

Just this week, we launched a $130 million Corporate dare headmaster fund ought invest can the next 5 years at early stage startups. We wish ought quit making our initial VC investment at the next few months. We are too partnering with startups complete can the clay ought amplify our product offerings, diminish costs and enter new markets. during an example, we are now piloting an innovative system that significantly improves the air wealth inside buildings. We installed the systems at Netafim's headquarters at Tel-Aviv. And if the astronaut proves successful, we'll accept it global. We dine created a program ought advance innovation internally by enabling each one of our employees, no sole engineers and R&D, ought hint innovative ideas.

More than just collecting ideas, the program is designed ought coach, coach and bug inside entrepreneurs and uphold them at commercializing each one of their ideas.

Finally, I expect ought segment with you how excited we are that our Lighthouse Lab at San Francisco is now fully up and running, and we now dine multiple teams across the world working ought ripen new ventures.

I will now grow the shout can ought Rodrigo, our CFO, ought newspaper our econmic results. Rodrigo?

--------------------------------------------------------------------------------

Rodrigo Guzmán Perera, Mexichem, S.A.B. de C.V. - CFO [4]

--------------------------------------------------------------------------------

Thank you, Daniel.

Now turning ought glide 12. during Daniel mentioned, Q2 revenue totaled $1.5 billion (sic) [$1.84 billion], down $129 million or 7% from Q2 2018. EBITDA totaled $372 million, a diminish of 12%. Net majority earnings was $84 million, down 48%.

Operating money race ago CapEx, segment buybacks and dividends declined by 14% or $36 million, principally during a result of a refuse at EBITDA of $51 million.

As we notorious at our final 3 piece calls, we expected challenging just conditions at our Vinyl bargain this year, except are starting ought shout on a slim improvement at some of the bargain volumes. Therefore, we saw a sequential improvement at Vinyl's EBITDA at Q2 compared ought Q1 2019. However, Fluor's results at Q2 were materially negatively impacted by the illegal importation and selling of refrigerant gases into the EU at breach of the EU F-gas regulations.

Mexichem is actively working with industry and government stakeholders at direction ought facilitate the EU's efforts ought trouble this unlawful trade. Our Fluent bargain performed improve above the EBITDA side, including IFRS, except was impacted by 2% without IFRS, reflective of economic conditions at Europe, which influence our building and infrastructure bargain except was offset by a double-digit and high single-digit EBITDA growth at our Datacom and right irrigation businesses, respectively.

Going into farther details above the numbers, during you shout on above glide 12 -- above glide 13, sorry, the 7% revenue refuse ought $1.8 billion was led by lower sales at complete bargain groups, principally driven by a refuse of $55 million at Fluent during a arise of lower sales at Europe, associated with a lower economic environment; and a $53 million refuse at Vinyl, principally due ought just conditions.

The combined revenue declines at the Fluent and Vinyl businesses represented 82% of the complete revenue decline. Our Fluor bargain saw a diminish of 11% or $27 million compared ought the too era final year, principally during a result of the illegal imports of refrigerant gases into the EU, during mentioned.

On a continual money basis, consolidated revenue used to dine been nearly $1.9 billion, a diminish of 3% versus Q2 2018. during the first half of the year, revenues decreased ought $3.6 billion, a refuse of 3% year-on-year by $118 million. Out of that, 87% of that diminish was due ought Vinyl and 22% ought Fluor during a arise of the issues mentioned above. above a continual money basis, revenue at the first half used to dine increased 1% ought $3.8 billion.

In Q2 2019, reported revenues during our Fluent bargain throng decreased by 5% and remained even above a continual money basis. This decline, above a reported basis, principally -- was principally due ought a high single-digit refuse at our building and infrastructure bargain at Europe, related at divide ought lower revenues at the U.K. associated with the supicion generated by Brexit and during an economic slowdown at sure European countries.

Revenue at our Datacom bargain decreased 8% above a reported foundation and 6% above a continual money basis, principally due ought a alter at the mix of products. These declines were partially offset by a 3% amplify at reported revenues during Netafim or 6% above a continual money basis.

In our Vinyl business, revenue declined this piece by 8%, or 6% above a continual money basis, principally due to, during Daniel mentioned earlier, lower caustic soda and PVC prices too during lower volumes, driven by a momentary compel majeure at a key supplier at Germany, and longer-than-expected maintenance career at our headmaster VCM supplier's mill at the U.S. still our reported revenue at Fluor decreased by 11%, or 10% above a continual money basis, and flat with our Fluor Upstream bargain continuing its double-digit sales growth, it was no enough ought offset the diminish at our downstream business, principally related ought the illegal imports of refrigerant gases into the EU.

For Q2 2019, our reported EBITDA was $372 million, a 12% diminish compared ought the $423 million from the too era final year, with an EBITDA edge of 20.2%. during the quarter, we had a certain result of $19.1 million above our reported consolidated figures due ought the effects coming from the adoption of IFRS 16 and the FX result above consolidated EBITDA of negative $9 million.

On a continual money and organic basis, EBITDA declined 14%, reflecting an increased EBITDA edge of 19%. during the first 6 months of 2019, reported EBITDA was $690 million, a diminish of 8% compared with the too era final year.

EBITDA edge was 19.1%. EBITDA, above an organic and continual money basis, declined 12% ought $677 million, reflecting an impressive EBITDA edge of 18%.

Operating money race ago CapEx, segment buybacks and dividends, during we can shout on above glide 14, decreased $27 million, principally affected by $51 million lower EBITDA, higher need during working headmaster of $20 million and higher beach commissions associated with a $1.5 billion revolving confidence facility renewal we announced above June 26, 2019. These effects were partly offset by lower taxes and lower FX losses. headmaster expenditures decreased 13% ought $61 million.

Our complete econmic debt during of June 30 was $3.6 billion, still money and money equivalents totaled $591 million, resulting at net econmic debt of $3 billion, during shown above glide 15. Our net debt-to-EBITDA and advantage coverage ratios closed the second piece at 2.31x and 4.62x, respectively.

Going above ought glide 16. We persist with a too vigorous rest piece and too vigorous econmic structure of our debt. at the second quarter, we successfully closed the renewal of our $1.5 billion revolving confidence facility below favorable terms. We kept our weighted medium charge of debt firm at 4.98% and a tenor of 13.9 years, which will intend lower interest, and accordingly could amplify money flow.

Finally, I expect ought warmly thank each of you during the final 6 years, at which I had the occur ought serve this fantastic company during the headmaster econmic Officer. From the bottom of my heart, I expect ought thank our analysts, investors, shareholders and complete of you, my expensive friends, during your support. I wish I dine been able ought encounter your expectations and generate evaluate during you.

I will now grow the shout uphold can ought Daniel during closing remarks ago we blank up the shout during questions. Daniel?

--------------------------------------------------------------------------------

Daniel Martínez-Valle, Mexichem, S.A.B. de C.V. - CEO [5]

--------------------------------------------------------------------------------

Thank you, Rodrigo.

Now above glide 17. during the complete year, due ought supicion at the global macroeconomic surroundings and just dynamics across our industries, Mexichem is adjusting its 2019 EBITDA guidance ought muse a 1% ought 6% refuse compared ought 2018 reported EBITDA. We dine a global organization with a sturdy management team and a clean vision of where we expect ought accept our company. during we've discussed, we are managing our middle businesses with a clean concentrate above operational excellence. We're too building new bargain models, entering new markets and creating new solutions and services ought salute the most pressing global challenges: food security, water management, urbanization, globalization. And during I mentioned before, we are committed ought accept whatever steps are indispensable ought unlock shareholder value.

On a private note, Rodrigo has played an significant role at bringing this company from where it was ought where it is today. His difficult work, commitment and discrimination during the career has usually shined across at each sole plan he's taken on. We're no saying goodbye ought Rodrigo during he'll persist ought career with us above strategic projects. I expect ought accept this occur ought thank him during complete he has contributed ought Mexichem, and I am certain he will cause gigantic evaluate ought his new role.

I expect ought thank you complete during being above the shout today. Operator, we're now ready during questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from honest McGann with beach of America.

--------------------------------------------------------------------------------

Frank J. McGann, BofA Merrill Lynch, inquiry piece - MD [2]

--------------------------------------------------------------------------------

Okay. just maybe ought pursue up above a comment you had made earlier, talking nearly the Vinyl bargain at condition of feasible strategic alliances or looking at options during that business. I was just wondering how you are seeing that bargain from a competitive standpoint. What strengths and weaknesses, potentially, it has that you force exist interested at potentially modifying?

--------------------------------------------------------------------------------

Daniel Martínez-Valle, Mexichem, S.A.B. de C.V. - CEO [3]

--------------------------------------------------------------------------------

Thank you during the question, Frank. accordingly we dine a fantastic bargain at the Vinyl bargain division. during you know, we are the first specialty resins producer worldwide, because of the acquisition of VESTOLIT and the businesses that we've been growing can the final few decades. We are the fifth largest commonplace resins producer at the world.

We dine a sole attitude at condition of our development of a cracker at Texas at collaboration and at partnership with Oxy. We consider this is a strategic asset at the Vinyls bargain worldwide. And again, during we said, both at the publication free and at my earlier statement, we are actively evaluating each feasible strategic option during this bargain moving forward. at this point at time, I cannot segment any details. each possibility is at this point is above the table, and we are committed ought unlocking shareholder evaluate moving forward during each sole one of our shareholders.

--------------------------------------------------------------------------------

Frank J. McGann, BofA Merrill Lynch, inquiry piece - MD [4]

--------------------------------------------------------------------------------

Okay. maybe if I could follow-up then, just ought argument the trends that you're seeing. Well, you did shout on some improvement at the bargain at the second quarter, and you've indicated that things to persist ought better at the coming quarters. Are you seeing a continued advantage from lower ethane costs and caustic soda pricing that to direct ought some improved profitability there?

--------------------------------------------------------------------------------

Daniel Martínez-Valle, Mexichem, S.A.B. de C.V. - CEO [5]

--------------------------------------------------------------------------------

Yes. accordingly during you robust point out, there are few variables that influence this business: ethane costs, ethylene costs, PVC margins and caustic soda. We are seeing certain trends at the final few weeks, and we are more optimistic at condition of Q3 and specifically Q4. That's what gives us optimism during the bargain at the Vinyl bargain division, at particular, during the final divide of the 2019 fiscal year.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

The next question comes from Nikolaj Lippmann with Morgan Stanley.

--------------------------------------------------------------------------------

Nikolaj Lippmann, Morgan Stanley, inquiry piece - Equity Analyst [7]

Previous : powerbank wireless charger acmic w10pro gen2 quick charge 3.0 PD