Orbia Advance Corporation SAB de CV

BMV:ORBIA

Earnings Call Transcript

[Operator]

Good morning, and welcome to Orbia's Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Gerardo Lozoya, Orbia's Investor Relations Director. Please go ahead, sir.

[Gerardo Latapi, executive]

Thank you, operator. Good morning, and welcome to Orbia's Third Quarter 2022 Earnings Conference Call. We appreciate your time and participation today. Joining me today are Sameer Bharadwaj, CEO; and Jim Kelly, CFO.

Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Today's call should be considered in conjunction with cautionary statements contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company disclaims any obligation to update or revise any such forward-looking statements.

Now I would like to turn the call over to Sameer, Sameer?

[Sameer S. Bharadwaj, executive]

Thank you, Gerardo, and good morning, everyone. I would like to take this opportunity to thank our 23,000 dedicated employees. Though our teams are spread across the globe, they are unified by our common values and driven by a purpose to address the world's toughest challenges.

Now turning to Slide 3. I would like to share a high-level overview of our third quarter 2022 performance. Orbia had a challenging third quarter due to ongoing macroeconomic turbulence, including effects from the war in Ukraine, increased input costs, inflation, the energy crisis in Europe, COVID lockdowns in China and unfavorable currency translation. This resulted in lower profitability for the quarter, with decreases in Polymer Solutions, Building & Infrastructure and precision agriculture, partially offset by strength in Fluorinated Solutions and Connectivity Solutions, which was previously referred to as data communications.

Orbia continues to demonstrate resilience in its businesses and maintains a very strong balance sheet with robust long-term fundamentals for its businesses. Revenues for the quarter totaled $2.3 billion, which were roughly flat compared to the prior year, and EBITDA totaled $381 million, decreasing 28% compared to the prior year. Our EBITDA margin of 16.6% declined by roughly 660 basis points. Finally, we generated $101 million of free cash flow, which improved by $11 million from the prior year, reflecting effective working capital management, which more than offset lower EBITDA and increase in capital expenditures and higher taxes paid. Despite the near-term headwinds, Orbia continued to execute on its long-term strategy for value creation, as outlined at our Investor Day in May with 3 key focus areas: investing in profitable growth and innovation, maximizing the value of integration and creating shareholder value by being thoughtful stewards of capital and disciplined operators.

To that end, I would like to highlight a few key steps we took during the quarter as we continue to invest through the cycle for long-term growth. Our Connectivity Solutions business, Dura-Line, acquired Biarri Networks, a leading technology-enabled service provider specializing in fiber optic network design solutions. This strategic acquisition facilitates expansion into customized network solutions that offer improved scalability, reliability and efficiency as the business broadens to a full suite solution service provider.

Our Building and Infrastructure business, Wavin acquired Bow Plumbing Group, a leading North American manufacturer of plastic pipes and fittings for the residential and commercial construction industry. This acquisition strengthens and extends Wavin's presence in North America through both commercial reach and deep understanding of this important market as well as its reputation for excellence in plastic pipes and fittings.

Building & Infrastructure also broke ground on a greenfield site in Indonesia with the President of Indonesia is excellently Joko Widodo, himself leading the ceremony underscoring the importance of our investment to the Indonesian economy. Our Fluorinated Solutions business, Koura received $100 million award from the U.S. Department of Energy as part of the first set of projects funded by the President's bipartisan infrastructure law to expand domestic manufacturing of batteries for electric vehicles and materials and components currently imported from other countries.

The $100 million award will be combined with an additional investment by Koura to construct and start up a dedicated LiPF6 process line. In addition, our Orbia Ventures investment, Ascend elements, also received 2 grants from the Department of Energy, totaling $480 million for the production of sustainable lithium-ion battery cathode materials made from recycled batteries. Orbia is also partnering with Ascend elements on further innovation in the recycling of battery materials. Orbia has also backed the company through several investment routes.

We remain committed to creating value and remaining resilient through economic cycles as we implement our long-term strategy. At this time, I will turn the call over to Jim to go over our financial performance in further detail.

[Jim Kelly, executive]

Thank you, Sameer, and good morning, everyone. Turning to Slide 4. On a consolidated basis, net revenues were $2.3 billion, roughly flat year-over-year, with higher sales in connectivity solutions than fluorinated solutions, offset by lower sales in Polymer Solutions, Building & Infrastructure and precision agriculture.

The foreign exchange impact on revenue during the quarter was $163 million. Excluding this impact, revenue increased by approximately 7% year-over-year. EBITDA of $381 million was down 28% year-over-year, driven by higher input costs, lower volumes in certain segments and currency headwinds, partially offset by higher profitability in Connectivity Solutions and fluorinated solutions. EBITDA margin was 16.6%, reflecting a decrease of approximately 660 basis points. The foreign exchange impact on EBITDA during the quarter was $18 million.

Operating cash flow and free cash flow were $225 million and $101 million during the quarter, respectively, reflecting effective management of working capital, which more than offset an increase in capital expenditures and higher taxes paid. Capital expenditures of $118 million were up 63% in the quarter compared to the prior year, including ongoing maintenance spending and investments in support of the company's growth initiatives.

We closed the third quarter with net debt of $3.3 billion, and our net debt-to-EBITDA ratio was 1.57x. The increase from the level of 1.39x at the end of the second quarter reflects approximately $150 million in short-term borrowings that we executed in the quarter as well as the impact of lower EBITDA in the quarter as compared to the comparable period in the prior year. Our effective tax rate for the quarter was 18.9%, which is a decrease of approximately 1,010 basis points compared to the prior year period. This was largely driven by a tax benefit related to foreign exchange losses and the release of valuation allowances, partly offset by the tax effect of an adjustment for inflation in Mexico.

We continued to return cash to our shareholders during the third quarter in the form of dividends and share buybacks. Dividend payouts totaled $75 million, while share buybacks totaled $16 million. Turning to Slide #5. I'll go through our quarterly performance in more detail by business. In Polymer Solutions, revenue was $837 million, a decrease of 8% year-over-year, largely driven by lower volumes, reflecting softening demand and lower prices in general resins due to increased availability of low-cost supply in key markets.

COVID lockdowns in China resulted in a slowdown in domestic consumption and large exports to other parts of the world, depressing prices. In addition, high prices for caustic soda have encouraged U.S. operators with integration into both caustic and PVC to operate at high rates. This results in increased supply of PVC, and we are seeing higher U.S. exports at lower prices, while domestic prices remained stable. This was partially offset by higher prices in specialty resins and derivatives. EBITDA of $117 million was down 62% year-over-year due to lower volumes as well as higher feedstock costs, particularly in Europe. EBITDA margin decreased approximately 1,940 basis points to 13.9%.

In Building and Infrastructure, revenues of $700 million were down 7% compared to a strong prior year quarter, driven by lower volumes, particularly in Europe, due to destocking of inventories in the customer value chain as well as the impact of currency devaluation.

EBITDA was $70 million, a decrease of 34% with a margin of 9.9%, down approximately 415 basis points year-over-year. This was primarily driven by the decrease in volumes, continued input cost increases and currency depreciation, partly offset by solid pricing.

Turning to Precision Agriculture. Revenue was $224 million, a decrease of 17% year-over-year primarily due to a slowdown in demand in most markets, except for Latin America, Turkey and China. The slowdown in Europe was directly related to economic weakness related to the war in Ukraine and high energy costs affecting key market segments. In the United States, the slowdown was partly related to destocking in the customer value chain after inventory buildup in the first half of the year. EBITDA of $12 million was down 64% year-over-year, driven by lower demand, higher raw material and transportation costs as well as currency devaluation.

In addition, the adoption of accounting standard IAS 29 related to hyperinflation in Turkey had a cumulative year-to-date negative impact of approximately $9 million or 400 basis points for the quarter.

EBITDA margin, including the impact of IAS 29 was 5.4%, a decrease of approximately 690 basis points compared to the prior year period. Excluding the hyperinflation impact, the margin was 9.4%. Connectivity Solutions achieved strong performance this quarter with revenue of $368 million, a 35% increase year-over-year. Revenues increased primarily in North America, supported by our investments to increase production capacity, along with the growing need for fiber infrastructure combined with favorable pricing.

EBITDA of $104 million increased 214% year-over-year with a margin of 28.3%, an increase of approximately 1,615 basis points year-over-year. This significant EBITDA growth was due to higher revenues combined with a stabilization of material costs. In Fluorinated Solutions, revenue was up 30% year-over-year at $223 million, primarily due to strong pricing across our product portfolio, including upstream minerals, chemical intermediates and downstream products such as refrigerants and propellants.

EBITDA was $78 million, an increase of 49% year-over-year, with a 35% EBITDA margin, an increase of approximately 445 basis points year-over-year. Increased EBITDA was driven by revenue growth, improved pricing and a better product mix, which helped to offset higher input and logistics costs.

In summary, our team continues to navigate the ongoing macroeconomic turbulence by remaining focused on commercial and operational excellence as well as diligent cost management. I'll now turn the call back to Sameer.

[Sameer S. Bharadwaj, executive]

Thank you, Jim. I'm on Slide 6. Given the challenging macroeconomic environment, we are continuing to exercise strong financial discipline. We always take an owner's mindset in managing costs, but we have been even more diligent during this period to conserve cash and to maintain a strong balance sheet to support our future growth. At our Investor Day in May, we elaborated on our strategy for value creation, and I want to take some time to provide an update on how each business has been executing from a position of strength to attain our long-term goals.

We continue to believe in the resilience of our businesses over time and are balancing the short-term needs to closely manage costs with our long-term commitment to grow the businesses and create value for both customers and shareholders. Starting with Polymer Solutions. The team has been actively working to optimize our production volumes to reflect the temporary market softening in the case of general resins while maximizing derivatives production to take advantage of the positive market environment for those products. We continue to believe that the supply-demand environment will be tight over the long term, and we are pacing the activities associated with our intended capacity expansion to balance near-term and long-term priorities.

The business case for capacity expansion remains attractive given our conservative assumptions. Currently, the teams are working on engineering and capital cost optimization and the key decision point for beginning significant capital commitments for the 2024 to 2026 time line will be towards the end of 2023. We retain the ability to time our investments with a close eye on evolving market conditions. In building and infrastructure, the integrations of Vectus in India and the newly acquired Blow Plumbing in North America are ongoing. We have continued to see momentum for our fully integrated indoor climate systems as well as our urban climate resilience program and are seeing increased interest in our value-added services, such as our innovative building information modeling package.

Wavin also accomplished the acquisition of MetroPolder, a Dutch startup that will add specific expertise and solutions for urban flood control, taking the business closer to its goal of closing the water cycle in cities and making cities future-proof. Lastly, Wavin announced the construction of a new production plant in Indonesia to provide the Asia Pacific region with sustainable sanitation and water management solutions.

In Precision Agriculture, the team is focused on implementing growth projects in target geographies to support market demand in the coming years as long-term market fundamentals remain strong globally. We continue to expand our growth and penetration in extensive crops such as corn, rice and cotton. In Connectivity Solutions, we focused on deepening our customer relationships by providing specialized product and service offerings, supported by the recent Biarri acquisition, which will bolster the long-term growth of the business. Additionally, during the quarter, Dura-Line announced the construction of 3 new production facilities across the U.S. and Canada in order to meet growing demand for fiber optic network infrastructure.

Finally, in Fluorinated Solutions, our team's innovation was recognized at the 2022 Cooling Industry Awards, where our refrigerant Koura Klea 473A won the Refrigeration Innovation of the Year award. Klea 473A is a high-performance refrigerant with a significantly lower global warming potential than existing refrigerants in ultra-low-temperature cooling applications such as vaccine storage. We continue to advance our efforts in the energy storage market as we have continued discussions with potential partners to address this high-growth market.

Now on Slide 7. We remain fully committed to supporting a sustainable future by progressing our science-based commitments to net zero and beyond by helping our customers achieve their own sustainability goals through our products and solutions. As part of the sustainability strategy detailed at Investor Day, we have stayed focused on developing detailed road maps to meet our long-term commitments while making progress across our 3 key sustainability pillars: low-impact operations, sustainable solutions and impactful ventures. As part of our efforts to achieve low impact operations, our Polymer Solutions business, Vestolit, started a partnership to divert calcium carbonate from landfill, reducing Orbia's total waste into landfill by approximately 25%.

Our Wavin site in Sweden started the installation of 4,000 meter square of solar panels that will contribute to reducing Scope 2 greenhouse gas emissions. As part of our sustainable solutions efforts, Vestolit began to see its PVC recycling projects gain traction with customers and has just unveiled its future fit PVC range. While Wavin continued to expand its use of recycled materials and water solutions for buildings and cities and began to offer verified life cycle assessments for customers in EMEA. Also, Netafim just opened Mexico's largest agricultural plastics recycling facility in Culiacan, Mexico. In addition to offering customers in one of its top 5 markets, the option to give drip lines a second life, the plant will incorporate our water recirculation system in all processes a photovoltaic set up for 100% clean energy source and a state-of-the-art laboratory to ensure the stricter standards in the manufacturing of drip-irrigation lines.

Supporting a sustainable future also guides the way we invest. Orbia participated in the most recent funding round of Ascend elements in line with our strategy of investing in impactful ventures. At the Investor Day meeting in May, Orbia committed to supporting an initiative related to our corporate social responsibility strategy by making a gift donation of $50,000 on behalf of the investors. We are pleased to share that 160 young Mexican girls will attend UNCF STEM boot camp in the following months.

I will now turn the call back to Jim to discuss our full year 2022 outlook and business assumptions.

[Jim Kelly, executive]

Thank you, Sameer. Turning to Slide 8 and our 2022 outlook. Based on our year-to-date performance and ongoing macroeconomic uncertainty, we are reaffirming our previously established guidance. Our assumptions remain largely unchanged from the information communicated in our last earnings call. We anticipate full year EBITDA in the range of $1.8 billion to $1.9 billion, trending toward the high end of the range with a tax rate between 29% and 32% and capital expenditures in the range of $400 million to $450 million.

For the remainder of the year, we expect to see additional impacts to our results from the challenging macroeconomic environment. We are being proactive in managing costs and cash under the current circumstances. However, our business has proven to be resilient through economic cycles, and we're staying diligent and focused on balancing short-term needs with executing our strategy and delivering long-term value to our shareholders and customers. Beginning with Polymer Solutions, lower PVC prices, driven by short-term excess supply may continue until recovery in China [ including ] of the caustic markets. This may cause continued pressure on general resins margins in the near term while specialty resins markets are expected to be stable and the derivatives business is expected to remain strong.

In Building and Infrastructure, softening demand is expected to continue as a result of geopolitical uncertainty, particularly in our European markets and unfavorable currency translation is expected to continue to impact results. These impacts may be partly offset by a benefit from sales of lower-cost inventories and continued success in higher value-added applications.

In Precision Agriculture, the macroeconomic environment and high energy costs are expected to continue to impact demand. In Connectivity Solutions, we expect growth in North America will continue to be driven by demand for additional bandwidth, fiber connectivity and the adoption of [ or conversion 2 ] advanced products, continuing the tight supply-demand environment for our products.

And finally, in Fluorinated Solutions, demand is expected to remain strong in our downstream sectors with continued strong pricing from refrigerants and medical products, offsetting increased input costs. Operator, we are now ready to begin the question-and-answer session.

[Operator]

[Operator Instructions] And the first question will come from Nik Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

I have 2 questions, if I may. First, a bit on Netafim and what's going on in that market. Clearly, breaking, I think, the trends that we've seen of some growth. And it appears maybe early stage, but it appears that they are losing share in irrigation versus peers. Can you provide a bit of color on what's happening? Or to what degree this is maybe higher cost of capital for farmers? Are this affecting decisions if it is, in fact, potentially market share loss. So that's question number one, just more color on what's going on with Netafim.

The second question, and congratulations on that DOE award. As far as we understand from the DOE announcement, you guys are committing about $300 million to that. And thanks for providing more color. Could you provide a little bit more information about how should we think about this business model? What is it that you have in terms of IP or patterns? And what is the timing of the rollout of this business model? And then finally, thanks for providing more color on that [ FID ] on the PVC expansion. If I could ask, is it related to the choice of partner? Is it permitting or something else that is causing there's a small delay in that decision?

[Sameer S. Bharadwaj, executive]

Nik, thanks for your questions. Let me start with Netafim. What I can clearly say is that we are not losing market share. This is an economic weakness, particularly in Europe, right? So -- and it's driven by the war in Ukraine and the resulting softening in demand. And specifically, with the high energy costs, it's impacting our significant traditional business sales to greenhouses, drip irrigation lines to greenhouses. And when many of these have slowed down or shut down because of the high energy costs, and that has impacted our business in Europe.

We've had some other specific country-specific issues in some countries, some delays in start-up business in India. In the U.S., we had a very strong quarters in the first half of the year. And what we are now seeing is dealers are pausing and waiting to see in which direction the world goes. And so it's essentially a pause in buying behavior, waiting to see what happens. Having said that, we are seeing good adoption in commodity crops in the U.S. And so we hope to see that trend continue. We've had strength in our Latin American markets in Netafim, and we have very good strength in Turkey and China in Netafim.

We've had some challenges in Australia due to floods. So it's a number of factors that have come together to affect Netafim's performance in this quarter. What I would like to emphasize is our long-term fundamentals are intact. And so we remain committed to our growth platforms, which are basically enabling the penetration of drip irrigation in extensive crops, expanding our services business model, expanding our digital offering. And then when the markets are better, the pent-up demand for greenhouse solutions. So hopefully, that addresses your concern on concerns on Netafim.

Let me -- yes, let me talk a little bit about our efforts in battery materials. So the announcement you saw is a very landmark announcement. The United States has created the American Battery Materials Initiative, and they are investing $2.8 billion in 20 companies that will help localize the North American battery supply chain. 200 companies applied for these grants and only 20 companies were selected with Orbia's Koura business being one of them.

Now the reasons for this are manyfold. We have an existing footprint in North America with our mine in Mexico, our HF plant in Matamoros and a supply line of HF to Saint Gabriel where we produce refrigerants. And that is where we plan to do the LiPF6 investment. In terms of technology, and we've been working on acquiring access to technology for the last couple of years now. And I will not be able to share more details about that at this time for competitive reasons, but look to hear more about that in the coming months.

In terms of the investment required, the numbers that you see in the DOE announcement reflect both our contribution in cash and kind. Now note that this is a brownfield investment in Saint Gabriel. So there's a lot we already bring to the table that counts towards our investment. And so we'll share more details about that as we go forward. I would like to remind everyone the critical importance of fluorinated materials in lithium-ion batteries. And we've talked about this on Investor Day and we intend to participate in LiPF6, the electrolyte salt. There are fluoropolymers that go into the cathode that we are interested in. And there are a host of other additives that we are working on as well. And you'll hear more about these as we go along.

I would also like to share that our investment through Orbia Ventures in Ascend Elements. And our Ascend Elements has won $480 million of the Biden administration grant, and they are focused on recycling of battery materials. And we are also collaborating with them on innovation with respect to recycling of battery materials.

Now your third question is about the PVC expansion. So let me first -- and I'm sure many of the other investors on the call have a similar question about PVC. And it's important to understand what is happening in the market before I talk about the investment. PVC prices more than doubled in the last 24 months. And so before we understand why PVC prices go down, it's very important to understand why they went up. Now this industry has been historically underinvested in and capacity additions lag demand growth for the past decade. Right after COVID, we had robust demand recovery and actual operating rates are significantly higher than industry capacity utilization figures indicate. And so if nameplate utilizations, Nik, as in your reports, you have quoted as to 82%, if that's the case, then there's no reason prices should double.

The reality is much of that capacity on the far end of the spectrum doesn't exist and the industry was operating at very high utilizations. And then we had a series of force majeures and shutdowns that took out about 4% of world capacity, about 2 million tonnes, and that was enough to make prices double. Now what happened in the third quarter of 2022. So we have some slight demand softness on recession fears and the effects of the Ukraine conflict. But that's not the big factor here that's playing out in the reduction of PVC prices. It's the supply shock, particularly from COVID lockdowns in China and the high pricing in caustic soda in the chlorovinyl chain in the U.S., which is leading operators to run at very high rates.

And so the chlorine needs to find a home, it find its home in PVC. And that PVC is exported at very low prices. And so you can see that if you look at the external data, China, which typically exports about 200,000 tonnes a quarter, was exporting 800,000 tonnes a quarter in the last quarter. Now thankfully, that is now trending downwards. In the U.S., U.S. with historically exports about 1 million tonnes a year, and you're seeing significant increases in exports as they operate the caustic capacity at high rates.

So in terms of the PVC prices, it's a short-term supply shock that has made the prices go down. And we expect stabilization once China [Audio Gap] the caustic market. Now coming back to the investment. I would not categorize that as a delay mix. This is our original time line. It's a 5-year project, and you don't turn these projects on and off on a dime. Our long-term fundamentals are absolutely intact. We have been very conservative on our business case right from the beginning. Our price assumptions for PVC in our business case are in the less than $1,100 a tonne. And so that was completely independent of prices doubling over the last couple of years. And if anything, with caustic prices going up, our model looks actually better.

And the time frame that we are looking at, if you look at the fundamental supply and demand and even your numbers show that, Nik, that it gets even tighter as we go into the '27, '28 time frame. So we -- in any case, our decision point, right now, we are focused on engineering, value engineering, optimizing the capital cost, working on local state incentives. And once the engineering is done by September of next year, October of next year, that was the original time line for a final decision. And at that point, we'll evaluate what the market conditions are like and we have the ability, if we choose to delay the investment, we could think about 6 to 9 months delay at that point of time. So hopefully, that addresses your questions and maybe a lot of other analysts and investors on the call.

[Operator]

The next question will be from Diego Serrano from Credit Suisse.

[Unknown Analyst]

My name is [ Jim Herardo ]. First, I wanted to ask about potential strategies to limit cost pressures for PVC production. I mean we have seen that in Europe, some production capacity has been trimmed or reduced between 10% and 20% in the past month in order to cope with these margin contraction. So I know this is something during the pandemic. And so in that sense, is this strategy something you might consider with the current market trends.

[Sameer S. Bharadwaj, executive]

Thank you for the question. So let me explain what's going on in Europe. So we have a fully integrated asset in Marl, Germany, where we focus our production on specialty resins. And there was a period of time a couple of months ago when the energy cost went up to as high as $700 a megawatt hour.

And of course, when energy prices go to those levels, you do think hard about shutting down for a few days and managing the cost. Thankfully, I'm pleased to say that the energy costs have come back down to more reasonable levels. The $700 did not last for long. It's now back to $200 per megawatt hour range. And compared to what historical prices were in the range of $80 to $100 a megawatt hour, the incremental energy costs, we can pass that on to our customers because we are in specialty applications, and we've been successfully been able to do so. So hopefully, that helps.

Now of course, we manage our utilization levels and optimize those for a variety of reasons, maintenance turnarounds, et cetera. But since we are in the specialty business, we do have the ability to pass on certain energy cost increases to customers.

[Unknown Analyst]

Okay. Perfect. And just another quick one. You mentioned these investments in production capacity for Dura-Line. So could you give some more color on those? are these related to 3 new facilities you mentioned when you talked about the strategy execution or at least [indiscernible]?

[Sameer S. Bharadwaj, executive]

Absolutely. So we talked about this at Investor Day. We see incredibly robust demand fundamentals in Dura-Line in North America, and this is driven by the telecommunications infrastructure rollout plans related to rural deployment of fiber, 5G telecom, cloud computing, the hyperscalers, data storage. And that continues unabated at this point of time. And in that context, we need to increase our capacity as soon as possible. And we are looking at 3 sites, 1 in Canada and 2 in the Western part of the United States. And then we've initiated the projects, and they're well underway. So our risk right now is can we get those projects done quickly enough? -- to keep up with demand, so -- which is a good problem to have right now.

[Operator]

The next question will be from Frank McGann from Bank of America.

[Frank McGann, analyst]

I was just wondering if you could just go into a little bit more detail in Europe in terms of demand. Are there particular countries that are more affected? Are there some that have been a little bit more resilient just to see how that business has overall been performing. Also, kind of maybe you could do the same in the U.S. in terms of what specific parts of the business might be stronger and weaker?

And then lastly, if you could, just in terms of the Turkey hyperinflation charge, a part of that would be recurring. Is it -- I assume it's fairly small, but I just wondering if you could give us kind of an estimate of at least a range of what we could expect if we were going to adjust that down and say what's recurring, what's not or what was related to prior periods, how much that would be?

[Sameer S. Bharadwaj, executive]

Very good, Frank. Let me start with Europe. I mean it's a bit of a different picture in the different businesses. And so we are doing fine in Europe when it comes to Dura-Line and Koura business. And -- but the slowdown that we have seen, we've seen a slowdown in Netafim, absolutely. This is a lot in the Netherlands because of the greenhouse business.

We've seen a slowdown in Spain. We have seen a slowdown in Eastern Europe. And so with Netafim, it's more broad slowdown across the board. Wavin has seen a slowdown, but the thing is fundamentally, there's a shortage of housing in Europe. So the fundamentals are still intact. And if you look at Wavin performance in this quarter, much of the impact was related to the inventory revaluations and foreign exchange. So if you look at the $70 million [ done ] this quarter, when you correct for inventory adjustments and foreign exchange, we get back to 95, you had the impact of the Ukraine war, you're at 97, 98. And if we didn't have any volume impact, we would have been at 105.

So hopefully, that gives you a sense for the extent of the volume impact in Europe. The volume impact is less in Latin America. So like I said, the Netafim business is doing fine. Wavin is also doing okay. In the United States, much of the impact we have seen is a pause in buying in the Netafim business. The company that we acquired, Bow Plastics, which is with Wavin, that's doing incredibly well in the U.S. right now. And Dura-Line, as you can see from the numbers, is doing very well. Koura is doing incredibly well in the U.S. as well. So -- and specialty resins, those markets are stable. So -- but that's the picture in the United States. Jim, did you want to answer Frank's question on the hyperinflation in Turkey.

[Jim Kelly, executive]

Sure. I'd be happy to do that. Thanks, Sameer. Thanks for the question. So stepping back, Turkey has been a very good market for us and particularly in 2 businesses, both Netafim and Wavin are active in that market, in particular. They're the ones with the highest volumes at least. And it's been a very good year for us in that business. So despite the fact that there's been high inflation and some exchange difficulties, et cetera, our underlying business has remained very strong. In terms of the impact, so what you see in the quarter is there's a total of about $10 million.

So $9 million of that is coming from Netafim another $1 million or so in Wavin. That is a year-to-date catch-up, so a 9-month catch up. It's very hard to predict, honestly, what the future impacts would be. It will depend on what inflation and FX changes are in Turkey. So you'll have to, I guess, go with either your own intuitions or what indices are saying one would expect for those adjustments in the future. You could start, I guess, by taking the 9-month impact divided by 3 and start with that and take it from there. But it will really depend on where markets go in the future, Frank. So I apologize, it's hard to be very specific about that.

[Frank McGann, analyst]

Okay. No, that's very helpful. Just if I could do one follow-up. In terms of the JV with caustic soda, prices being stronger and the way that contract works, I'm just wondering how the profitability in Texas, how the profitability of that JV has perhaps benefited from [ them ].

[Sameer S. Bharadwaj, executive]

So Frank, the way our arrangement works is -- so we have the joint venture, the JV with Oxy is a cracker JV, right? And so the cracker is doing fine. The cracker is doing very well. And in terms of the VCM that we get from Oxy the caustic chlorine, chlorovinyl assets belong to Oxy, we do get some credit for the chlorovinyl participation. And that helps us lower VCM cost. And in addition, we have our assets, our caustic chlorine assets and [indiscernible] and which we are now operating at higher utilizations and because of the attractive pricing of both caustic and chlorine, which is providing us a hedge in that business. But that's how it works with the integration.

[Operator]

And the next question will be from [ Adama Bonitas ] from Compass Group.

[Unknown Analyst]

I have 2 questions. The first one is, do you expect the same volume trends in Wavin, Vestolit and Dura-Line? Does this affect your mix and consolidated EBITDA margin? And the second question is, when do you expect to be normalized EBITDA levels?

[Sameer S. Bharadwaj, executive]

Thank you for your question, and let me take it business by business, right? Now in terms of volume in Wavin, so the slowdown that we are seeing, hopefully, that normalizes itself over the next couple of quarters. I mean it's very hard to predict. It depends a lot on the macroeconomic situation, the geopolitical situation, the war. And I would just stay focused on the long-term fundamentals there. In terms of Vestolit, we try to operate our assets at highest utilizations. And so we will expect to see normalization of volumes in the fourth quarter and in the first quarter of next year. And so the way our assets work, it is in our interest to maximize our volumes because we are on the lower left of the supply curve.

And then finally, with Dura-Line, the Dura-Line, we are completely maxed out -- and we have a very significant backlog in terms of demand over 6 months. And so we'll be trying to optimize our operations and trying to get the most out of our assets over the next year.

[Operator]

And the next question will come from Tasso Vasconcellos with UBS.

[Tasso Vasconcellos, analyst]

Two questions here on my side, one probably from the order. Do the challenging scenario ahead we broadly discussed here, are there any risks of change in the 2027 plan you guys gave before? I know it's a long-term plan, but maybe there could be a delay in the investments. And then you could share with you here is that very helpful.

The second question, as I mentioned, probably opt direction for the first one. We know they have grown total environment, some acquisition opportunities come up mainly for those companies with a more robust balance sheet, such as [indiscernible]. Are you guys seeing any opportunities on this front? Or is it still too early to say there will be any opportunistic M&A possibilities? Those are my questions.

[Sameer S. Bharadwaj, executive]

Very good. Let me answer your question on the PVC investment. So it's a long-term project with very sound fundamentals, very strong business case. -- supply/demand will be tight long term. Having said that, you cannot ignore near term the near-term economic situation. And so if we are in the exact same situation a year from now, a sensible thing to do would be to consider delaying the time line by 6 months or 9 months. And we are not in that situation yet. And we don't have any significant capital commitments because much of the capital commitment for this project are in the 2024 to 2026 time line.

So as we have indicated, we -- our 27 goals, we don't see those being impacted in a significant way because we have a diversified set of projects across the whole company. And so if the Vestolit project is maybe delayed by 6 months or 9 months, there are many other projects in the company that offset what's happening in that part of the business and which is why I come back to Orbia's resilience in its various business groups. And so we remain confident in our long-term growth plans.

And on M&A, as you can see that we have continued focusing on opportunistic M&A where we can enter a new geography or acquire a specific technology. And you've seen that with the acquisition of Vectus in India this year, Shakun Polymers last year in India, then Bow in the United States and Canada and then with Biarri Network for Dura-Line. Now these are all relatively small acquisitions, but -- and in a very significant way to the growth of the company. And we will continuously look at potentially create a potentially small acquisitions that can be additive in a very significant way and a disproportionate value.

[Operator]

And then the next question will be from Ben Isaacson with Scotia.

[Viktor Sayek, analyst]

This is Viktor stepping in for Ben. I have 2 questions around cost management. One, do you expect more headwinds in terms of input costs? Like are you hedging any exposure going forward? Could you kindly talk specifics on polymer solutions? And then secondly, on Building & Infrastructure, can you walk us through a little bit more on the outlook in terms of European Union demand? And similarly, on the impact of feedstock cost in the European Union and globally? And any kind of things that you're doing to hedge the exposure going forward?

[Sameer S. Bharadwaj, executive]

So good questions, Viktor. And so we don't engage in hedging particularly on feedstocks and raw materials. That's a very risky endeavor. And what I can tell you is, in terms of the input costs for Polymer Solutions, we are seeing ethane ethylene spreads stabilizing, in fact, improving a little bit. We are seeing energy costs retreat. And so that should help over the next couple of quarters. And then -- and hopefully, we'll see some softening of caustic and chlorine costs as well, which also helps us.

And so while it's very hard to predict, those are the trends, and you can also take a look at external publications such as IHS that talk about those trends. And yes, but we do not engage in hedging on raw materials. In Wavin, in terms of demand, we've already talked about this before. Much of the impact in Wavin this quarter was a function of the inventory correction and foreign exchange. And yes, there was some volume softening. And look, it's hard to have a crystal ball given the macroeconomic environment, what's going to happen. So I don't want to venture to guess when it will definitively bounce back. But we are doing everything we can from a cost control standpoint to restore profitability to all of our businesses. And so it's in uncertain times like these when one needs to exercise financial discipline, commercial discipline and operational discipline, and we are totally focused on that.

Now the softening of raw material prices across the board polymer prices, PVC, polyethylene, that will benefit, Wavin, over the next couple of quarters, and we should see some of that flow through as well.

[Operator]

The next question will be from Jean-Baptiste Bruny from BBVA.

[Jean Baptiste Bruny, analyst]

Just a couple for me. The first one, probably you mentioned this in many times in terms of normalization of your performance. If we try to go to 2023, I know it's very -- it's much too early for you to give a concrete guidance. But on our side, how shall we read it, you have EBITDA in the first half of $1.2 million. Second half probably would be between $600 million and $700 million. If we're looking into 2023, what should we be using in terms of, let's say, normalized EBITDA, something in between, sometimes more on the upside, more on the downside? I'm just trying to have an indication.

And the same question is probably more on [indiscernible] in Mexico, which is quite huge in terms of insuring. We mentioned in various occasions what is happening in Europe with the spike in energy prices. There were some comments in some events in Europe, saying that it puts at risk a lot of industries such as petrochemical industry. Is this something on the table for you? You're showing some activities you have in Europe back to Mexico to the U.S.? Or it's something that is going to be done, I don't know for this distal issue or some need to be future to the clients.

[Sameer S. Bharadwaj, executive]

So it's a good question in terms of -- and I'm sure it's on everyone's mind, what would 23 look like. Now we normally issue guidance for the next year, typically at the -- after the year-end after the year-end conference call, which is in February because you still need a couple, 3 more months to get a better sense for where things will level out next year.

Now in terms of long-term performance, if I look at the next 2 or 3 years, we are not worried because Orbia's businesses are resilient. We may go through a few tough quarters. But the end of the day, the world will normalize. And the fundamentals of each of our businesses are still very intact. So in Polymer Solutions, demand growth exceeds supply growth. And so those fundamentals will play out. In Wavin, there is a fundamental shortage of housing in the world and aging infrastructure and strong demand for our sustainability solutions for storm water management indoor climate resilience that will play out.

In Netafim, if we are to feed a massively growing population, it is going to require more energy efficient food production, and we expect to see those trends play out. Dura-Line is exceptionally strong. And the feedback we have from all of our customers is this is expected to continue for a significant amount of time. And then we have fantastic growth opportunities in Koura as we get into energy materials, securing the North American value chain, right? So in that context, where we will land in 2023, when will we repeat what we did in '21 and '22. It's unlikely, might moderate a bit, but we'll be able to give you a much better in the guidance after the year end after we've seen how things evolve in the fourth quarter and during the next quarter earnings call.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Sameer Bharadwaj for any closing remarks.

[Sameer S. Bharadwaj, executive]

Thank you. So I want to say a couple of things about Orbia and its resilience. And both me and Jim and the Investor Relations team have been meeting with a number of investors around the world, and we've had positive feedback. People appreciate the story we told on Investor Day, reintroducing Orbia to the world, a truly global company at the forefront of addressing key world challenges and all the supply side of sustainability solutions, and they appreciate the strategy a lot better and they understand the projects that we are going to undertake and feel good about them, and above all, the discipline with which we run the company, the robust and strong dividends and the fact that today, we are underappreciated.

And so I feel quite encouraged after my travels around the world and conversations with a number of investors. And once again, I would point everybody towards focusing on the long-term resilience of Orbia. So I want to thank everybody for your continued interest in Orbia and look forward to talking to you at the year-end conference call in February.

[Operator]

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.