Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Syensqo SA (XBRU:SYENS, Financial) delivered results in line with expectations despite uncertain market conditions.
- The company demonstrated strong gross margin resilience and pricing discipline.
- Underlying EBITDA increased by 4% compared to the first quarter.
- Strong cash conversion rate of 88%, excluding a one-time payment.
- Successful completion of a USD1.2 billion bond offering, which was more than 4 times oversubscribed.
Negative Points
- Net sales for Q2 2024 were down 6% year-on-year, driven by reduced pricing and adverse foreign exchange impacts.
- Lower volumes in specialty polymers due to product phase-outs and continued destocking in medical devices and pharma packaging.
- The company had to rephase its planned PVDF capacity installation in North America due to lower near-term growth in demand for electric vehicles.
- Uncertainty in the global economic recovery and high inflation and interest rates are impacting customer investment projects.
- The EBITDA margin for the materials segment declined sequentially despite an increase in net sales.
Q & A Highlights
Q: It looks like mix is going to be a material drag on the specialty polymers in the second half. Composites, on the other hand, still seem to be improving helped by the volumes. Just wondering if composites can catch specialty polymer on margin this year?
A: Our specialty polymer business is our highest margin business, and we are proud that these margins are holding steady. While composite materials have shown constant margin increases, they are not expected to reach the high levels of specialty polymers. However, we expect the positive margin trend in composites to continue into the second half of the year. (Christopher Davis, CFO)
Q: Can you provide an update on the oil and gas segment within your portfolio?
A: The oil and gas segment represents less than 5% of the group net sales. We are not a forced seller and will consider divestment to a buyer who appreciates the improved profile and offers a fair price. (Ilham Kadri, CEO)
Q: Could you talk about your expectations for Q3 and Q4, specifically regarding order book weakening?
A: We have narrowed the EBITDA range for the year, reflecting different scenarios for volume, pricing, mix, and cost. For Q3, we are not providing specific guidance but have outlined scenarios for the second half. The low end assumes a 20% sequential decline in EBITDA in Q4 versus Q3, the mid-end assumes a 10% decline, and the high end assumes balanced performance between Q3 and Q4. (Ilham Kadri, CEO)
Q: Your volumes in the materials segment have worsened in Q2 compared to Q1, while competitors are seeing recovery. Can you explain this?
A: The year-on-year performance was impacted by lower sales in industrial and oil and gas, softer demand and destocking in healthcare, and lower sales in automotive due to pricing rather than volumes. However, we have seen sequential growth in specialty polymers, particularly in semiconductors. (Ilham Kadri, CEO)
Q: Why was the EBITDA for materials down sequentially despite higher sales?
A: The decline in EBITDA despite higher sales is primarily due to the mix. We saw stronger sequential growth in composite materials, which have lower margins compared to specialty polymers. The materials contribution margin was flat quarter on quarter, indicating no margin pressure. (Christopher Davis, CFO)
Q: Can you explain the decision to delay the North American PVDF plant and its impact on your growth projects?
A: The decision to delay the PVDF plant is due to slower growth in EVs and revised customer investments. This delay will reduce our capital expenditure by EUR100 million to EUR150 million per annum. We remain committed to the project and believe it will be delivered over time, aligning with market demand. (Ilham Kadri, CEO and Christopher Davis, CFO)
Q: What does the delay in the North American PVDF plant mean for your utilization rates at the capacity expansion in France?
A: The capacity expansion in Tavaux, France, will serve multiple PVDF applications, not just batteries. We are in the process of closing significant contracts for this plant, and it will cater to growth needs across various industries. We feel confident about our investments in Europe. (Ilham Kadri, CEO and Christopher Davis, CFO)
Q: How does the growth of LFP as a material of choice impact your cost position or addressable market for suspension grade PVDF?
A: The capacity at Tavaux can be used for multiple PVDF applications, not just batteries. We are confident in our ability to serve various industries and are closing significant contracts for this plant. The growth of LFP does not significantly impact our strategy or market position. (Ilham Kadri, CEO and Christopher Davis, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
