CABB - Q2 20 results call and comments
All,
CABB’s results were noisy as is often the case. The business remains resilient, and more so than what the reported figures would suggest, as the volumes in Custom Manufacturing were shifted into 2H 20, and especially Q4 20, as opposed to lost altogether. In our experience covering CABB, this is the typical pattern of the company – production interruption that go away, volumes shifted to alter quarter but not lost, fires, insurance claims, and short-term volatility in Acetyls that eventually mean-revert.
The new contract win is an encouraging sign for the business momentum. At the same time, it will make it more difficult to evaluate CABB in the way most HY companies are evaluated – Operating cash flows minus capex – as opposed to how it should be, as a portfolio of value added committed capex with a clear return on investment trajectory via a take or pay contract, but without a full EBITDA contribution in the ramp up phase. The Pratteln plant fire highlights CABB’s exposure to business interruptions given its relatively concentrated manufacturing footprint, although this time around it was more properly insured and managed vs other past cases.
Key takeaways:
- Sales -19.4% yoy in Q2 20. Approximately half of the impact ie EUR10.8m was due to the fire at the Pratteln plant.
-EBITDA -14.4% yoy in Q2 20, which includes the insurance payout from the Pratteln fire. Management decided to add back the insurance payout on EBITDA but not on revenues.
-CABB closed Q2 20 with EUR109.1m of liquidity, including EUR54.5m of undrawn credit facilities.
- Management continues to see resilient demand and production in all sites.
- EBITDA in Custom Manufacturing down -23.3% yoy thanks to product phasing ie volumes shifting from Q2 20 into 2H 20, as the fire impact was fully covered by insurance. No material impact of reformulations.
- EBITDA in Acetyls up +4.75, thanks to favorable movements in derivatives and raw material prices (except caustic soda).
- Caustic soda prices declined and stabilized at low levels at the end of the quarter.
- The Pratteln plant fire has an impact on revenues and volumes but not on EBITDA due to insurance coverage.
- Management implemented a EUR30m receivables securitization facility, of which EUR10m is available now and the remainder EUR20m will be raised once the Finnish plant is added to the program.
- The new contract in Custom manufacturing AgChem will cost EUR20-25m of capex in total, spread across 2021 and 2022, and bring mid single digits millions of EBITDA once the ramp up is completed after 2023.
Feel free to reach out if you would like to exchange ideas on the name.
Juliano