Orbia Advance Corporation, S.A.B. de C.V. (OTCPK:MXCHF) Q2 2022 Earnings Conference Call July 28, 2022 11:00 AM ET
Company Participants
Gerardo Lozoya – Investor Relations
Sameer Bharadwaj – Chief Executive Officer
Jim Kelly – Chief Financial Officer
Conference Call Participants
Jacob Kim – Scotiabank
Frank McGann – Bank of America
Andres Cardona – Citigroup
Tasso Vasconcellos – UBS
Alejandro Zamacona – Credit Suisse
Operator
Good morning, and welcome to Orbia’s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.
I will now turn the conference over to Gerardo Lozoya, Orbia’s Investor Relations Director. Please go ahead, sir.
Gerardo Lozoya
Thank you, operator. Good morning, and welcome to Orbia’s Second 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 Bharadwaj
Thank you, Gerardo, and good morning, everyone. First and foremost, I would like to thank our over 23,000 committed employees for the impact they have at work and in the world. They truly live by our purpose to advance life around the world every day for the good of our stakeholders, customers and the company. Forbes recently named Orbia as one of the world’s best employers, reflecting the excellence of our people and organization. Additionally, I want to thank everyone who attended Orbia’s Investor Day in May, either in person or online.
As a reminder, the full Investor Day presentation is accessible on our Investor Relations website at orbia.com.
Now turning to Slide 3. I would like to share a high-level overview of our second quarter 2022 performance. Orbia delivered a 6th consecutive quarter of strong results with significant contributions from each of our business groups despite continued headwinds from inflation, notably impacting energy, raw material, labor and other costs. We benefited this quarter from the integration in our businesses, particularly the strength in Fluorinated Solutions and Data Communications.
Revenues for the quarter totaled $2.7 billion, up 19% versus the prior year, and EBITDA totaled $609 million, an increase of 9% compared to the prior year. Our EBITDA margin of 22.9% declined by roughly 205 basis points driven by higher input costs. Finally, we generated $134 million of operating cash flow despite increased working capital needs due to higher input costs and higher selling prices.
Orbia continued to execute a multipronged growth strategy through investments in organic growth, innovation, geographic expansion and select bolt-on acquisitions. I would like to highlight just a few of the key steps we took during the quarter to execute our growth strategy.
Data Communications executed expansion projects in North America to fulfill current and future demand in this growing industry. Fluorinated Solutions entered into a key joint venture and a licensing agreement in the energy storage industry, strengthening our position in this rapidly growing fluorine application.
We continue evaluating investment opportunities to capture growth through providing sustainable solutions that serve customer needs and address the world’s toughest challenges. To that end, Orbia Ventures invested in companies in the areas of crop protection, smart agricultural technologies and green hydrogen.
As we execute on our growth strategy, we remain focused on operational and commercial excellence and on being good stewards of capital, especially in this uncertain macroeconomic environment.
At this time, I will turn the call over to Jim to go over our financial performance in further detail. Jim?
Jim Kelly
Thank you, Sameer, and good morning, everyone. Turning to Slide 4. We once again delivered strong top and bottom line results. On a consolidated basis, net revenues were $2.7 billion, up 19% year-over-year, with revenue increasing in all business groups other than Building and Infrastructure, which was flat against a very strong prior year quarter.
EBITDA was up 9% year-over-year with strong results in both Fluorinated Solutions and Data Communications. EBITDA margin was 22.9%, reflecting a decrease of approximately 205 basis points driven primarily by higher input costs in Polymer Solutions and Building and Infrastructure.
We delivered strong operating cash flow of $134 million during the quarter despite an increase in working capital, primarily reflecting higher receivables and inventory balances associated with increased selling prices and input costs.
Capital expenditures of $109 million were up 73% in the quarter compared to a lower base last year as COVID-19 restrictions prevented us from executing certain projects in the first half of 2021.
We closed the second quarter with net debt of $3.1 billion, and our net debt-to-EBITDA ratio was 1.39x. The increase from the level of 1.29x at the end of the first quarter reflect short-term borrowings we executed in the quarter.
Our effective tax rate for the quarter was 25.2%. This was driven by the release of valuation allowances, partially offset by the tax effect of the adjustment for inflation in Mexico.
In summary, we continue to benefit from robust quarterly earnings and the strong balance sheet, allowing us to pursue our growth strategy and positioning us to fulfill our commitment to return cash to shareholders through stable dividends that grow with the business.
Turning to Slide 5, I’ll go through our quarterly performance in more detail by business. Starting with Polymer Solutions, performance was driven by strong top line growth due to higher prices and volumes in specialty resins and derivatives. Additionally, as a reminder, last year’s results were impacted by adverse weather conditions in the United States Gulf Coast region, which negatively affected volumes. Revenues were up 29% year-over-year, and EBITDA was down by 3%. EBITDA margin decreased approximately 850 basis points due to higher feedstock and energy costs during the quarter and some softening of prices.
In Building and Infrastructure, revenues were flat as compared to a very strong prior year quarter driven by softening demand, most notably in Europe, amidst an uncertain macroeconomic environment. EBITDA decreased by 29% with a margin of 12.6%, down approximately 525 basis points versus the prior year period. This was primarily driven by a slowdown in construction activity due in part to inflation, the war in Ukraine and the depreciation of the euro. Last year’s profitability was particularly strong as the industry experienced raw material shortages and COVID-19 demand recovery, both of which have now subsided.
Turning to Precision Agriculture. Revenues during the quarter increased 2% year-over-year, primarily due to significant growth in the Americas and Turkey, with ongoing recovery in India. This was partially offset by slowing business in Europe and in our Gakon business. EBITDA increased by 16% with a margin of 18.3%, up approximately 225 basis points, driven by higher sales and favorable gross margins as the business continued its efforts to pass through higher input costs.
For Data Communications, revenues increased 50% year-over-year and EBITDA increased by 216% to a record level of $98 million. EBITDA margin was 27.2%, up 1,425 basis points. The significant increases in revenue and EBITDA were largely due to robust volumes and pricing in North America.
Turning to Fluorinated Solutions. Revenues increased by 11%. EBITDA increased 24% and EBITDA margin was 38.5%, up 415 basis points year-over-year. The increase in EBITDA was driven by recovery in pricing across product lines, while EBITDA margin increased due to favorable product mix and improved pricing more than offsetting higher input costs.
In summary, our team’s focus on operational and commercial excellence as well as diligent cost management resulted in another quarter of robust financial performance.
I will now turn the call back to Sameer.
Sameer Bharadwaj
Thank you, Jim. I’m on Slide 6. In Orbia’s 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.
Starting with Polymer Solutions. Our diversified geographic footprint and global presence has allowed us to mitigate the volume impact from the Russia and Ukraine conflict. We have continued to make progress on near-term debottlenecking and plant optimization projects in both general and specialty resins.
In Building and Infrastructure, we proceeded with the Wavin-Vectus India joint venture, which was a milestone moment for us on the geographic expansion front. We have continued to see growth from our fully integrated indoor climate systems and our building information modeling package and products which are new categories for innovation and portfolio expansion.
Aligned with our key sector strategy, in Precision Agriculture, we continue to expand our share in extensive crops, such as corn, rice and cotton, through successful market penetration in the United States, Brazil and Turkey in the second quarter.
In Data Communications, we focused on fortifying our core business by launching major conduit capacity expansion projects in the United States and Canada, supported by continued investment in government-led infrastructure programs and network expansion projects.
Finally, in Fluorinated Solutions, we continue to invest in the renewable space by executing a joint venture with Foosung to produce LiPF6, a key inorganic fluorine compound used in the production of lithium-ion batteries in a modern production plant in Poland. We also continue developing our portfolio of next-generation refrigerants with significantly lower environmental impacts.
Now on Slide 7. We remain fully committed to supporting a sustainable future, maintaining our science-based commitments to carbon neutrality and pushing beyond net zero. We remain one of only a few global companies to set a Scope 3 target following SBTi criteria, exemplifying our contributions to climate action.
Building from a sustainability strategy detailed on Investor Day, we have stayed focused on developing detailed road maps to meet our long-term commitments, while making progress across our three key sustainability pillars: lowering our impact, sustainable solutions and impactful ventures. Our efforts to achieve low-impact operations in the quarter largely focused on steering the transition to renewable power site operations and production across our businesses, inclusive of solar energy expansion projects in Europe and Latin America.
As part of our sustainable solutions efforts, Data Communications launched FuturePath ECO in the second quarter, its first high-density polyethylene conduit product to utilize 100% scrap and began prototyping with post-industrial and post-consumer material.
Additionally, our Polymer Solutions business Vestolit continued to see customer interest in its bio-based circular PVC range and blue caustic soda. And taking circularity a step further, we are using calcium carbonate byproduct from one of our high-production Vestolit sites to produce fertilizer instead of landfill waste.
Achieving our net zero aspirations also guides the way we invest. Over the course of the second quarter, we pursued internal and external impactful ventures focused on decarbonization. Through Orbia Ventures, our corporate venture capital fund, we have invested in the last two years in some groundbreaking start-ups.
To highlight just a few: Verdagy has developed a high-efficiency, large-scale green hydrogen electrolyzer technology; Greeneye reduces agriculture herbicide applications by 90% using edge computing and vision analytics; Ascend Elements is revolutionizing lithium-ion battery recycling; and StormSensor helps municipalities to track and prevent urban flooding. We not only invest in these start-ups but work very closely with them to help them scale commercially, leveraging Orbia’s global footprint, technical experts and experience scaling businesses.
Let me now turn the call back to Jim to discuss our full year 2022 outlook and business assumptions. Jim?
Jim Kelly
Thank you, Sameer. Turning to Slide 8, our 2022 outlook. Based on our performance over the first half of the year, we are reaffirming our previously established guidance. Our assumptions remain generally unchanged from the information communicated in our April earnings call and most recently, during Investor Day in May. We anticipate full year EBITDA in the range of $1.75 billion to $1.9 billion, currently trending toward the higher end of that range, with a tax rate between 29% and 32% and capital expenditures in the range of $350 million to $450 million.
In the second half of the year, we expect to see additional impacts across our businesses from the present challenging macroeconomic environment. However, our business has proven to be resilient through economic cycles and we’re staying diligent and focused on executing our strategy and delivering value to our shareholders and customers.
Starting with Polymer Solutions, after a strong start to the year, PVC prices may be weighed down in the coming months due to a slowdown in construction activity in Europe and some other parts of the world. This may change direction when China lifts COVID-related shutdowns and resumes PVC consumption. Once the situation returns to normal, PVC markets are expected to remain favorable over the long term, with global demand outpacing supply. Specialty resin and derivative markets are presently strong.
In Building and Infrastructure, demand is expected to decrease in the coming months due to a slowdown in the construction industry in certain regions. The conflict between Russia and Ukraine is expected to generate continued volatility, especially in our European markets, potentially leading to softening demand and rising input costs.
In Precision Agriculture, the market continues to remain strong in the Americas with a slowdown expected in Europe. India continues to recover. We expect to continue our efforts to manage prices to offset higher costs.
In Data Communications, we expect volume and revenue growth to continue to be driven by fiber infrastructure investments across the U.S. and Canada.
And finally, in Fluorinated Solutions, demand and market conditions remain favorable across all our product lines. Additionally, the business expects to continue passing through higher input costs.
Although we expect to see a lower run rate of earnings in the second half of the year, we nonetheless expect to continue to realize value from integration across Orbia and the value chains we participate in.
Sameer, I’ll turn the call back over to you for closing comments, please?
Sameer Bharadwaj
Thank you, Jim. I am encouraged by our strong first half of the year and our ability to execute our plan in the second half. Our team is optimistic that we can continue to deliver sustainable, profitable growth over the long term and value for our many stakeholders worldwide with ingenuity and by maintaining our operational and commercial discipline. Thank you for your continued interest in Orbia on our journey advancing life around the world.
Operator, we are ready to take questions at this time.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Ben Isaacson with Scotiabank.
Jacob Kim
Can you hear me?
Sameer Bharadwaj
Yes, Ben.
Jacob Kim
This is Jacob Kim calling in for Ben. And we just had three questions. So the first is in regards to Data Communications. We would just like to try and understand with a bit more granularity what’s really driving numbers here. EBITDA essentially tripled from last year and is up from last quarter. Can you just talk a bit more in depth about the top line growth or pricing or the margins there?
Sameer Bharadwaj
Very good, Jacob. So Data Communications is experiencing strong growth, particularly in North America, driven by a variety of factors that we talked about at Investor Day. This is rural deployment of fiber, fiber-to-the-home, the 5G telecom and as the cloud computing companies build out their networks, the demand is incredibly strong. And this is also supported by many of the government spending bills, some of these have already been approved and will continue to sustain this demand. The second factor in Data Comm’s earnings is it takes time to pass raw material cost increases through in this business, and we experienced that last year. And finally, the teams have caught up with passing input cost increases through. And we are seeing the benefit of that in our results as well.
Jacob Kim
Awesome. Just a second question really quickly in Building and Infrastructure. Can you just talk a bit more about the outlook there in terms of the EU demand as well as the impact of feedstock costs in EU and globally? Can you just give us an update on the acquisition in India? And how do you see it affect the segment in the future?
Sameer Bharadwaj
Very good. In terms of Building and Infrastructure, look, we are clearly seeing a slowdown in Europe, and a lot of started after the invasion of Ukraine by Russia. And that has resulted in a slowdown both in Eastern Europe and now in Western Europe and the resulting decrease in building and construction activity. Having said that, we are very excited about some of the high-value segments within Building and Infrastructure and the growth plans associated with them, many of which we shared at Investor Day, which includes our urban climate resilience solutions, such as storm water management, our indoor climate solutions and many of our other high-value products.
We are seeing raw material prices come down and that should benefit our businesses as we try to maintain our pricing, as raw material costs go down, and that will offset some of the slowdown. But having said that, we do anticipate some weakness in Building and Infrastructure in the near term. Some of the other factors that have affected the B&I business include labor shortages and labor costs as well as logistics challenges.
Your next question was about the acquisition in India. So we are well on the path to integration. We are really excited about this opportunity. This immediately puts Wavin-Vectus as one of the key players in India. This is a long-term play and a long-term investment on the economic growth expected in India over the decade.
And right now, the integration process is going smoothly, and the teams are coming up with their product plans for the subsequent years.
Jacob Kim
Perfect. And just a last quick question. In terms of guidance, I know that EBITDA, if we look at it, right, how it’s going so far, it’s on the way to beat or reach the top end of guidance. I guess is there a reason that you have not revised it a bit higher? Maybe is it due to your outlook on the main state chemicals? And then can I ask just maybe more specific, what is your outlook on the main state chemicals? Do you expect dramatic normalization in 2022 or just a lot of higher cost pressures and inflation?
Sameer Bharadwaj
Okay. Good question. And we did indicate that we would be at the higher end of the range. And look, at this point, given the macroeconomic uncertainties out there, it’s hard to predict or call what’s likely to happen in the coming months. And it’s just to be cautious. We are focused on fiscal discipline, operational excellence, commercial excellence, and given the reduced visibility in terms of how interest rates, inflation and the other macro factors will play out, the geopolitical factors will play out, it’s not wise to change our guidance at this point.
And in terms of the outlook for the chemical side of the business, for the second half of the year, we expect continued strength in Koura in Fluorinated Solutions. And we will see margin compression in the PVC side of the business. And I’m happy to talk at length about it. I’m sure there will be a few more questions along those lines. But happy to address that in more detail as we go along this call.
Operator
Our next question comes from Frank McGann with Bank of America.
Frank McGann
Okay. Great. Just kind of following up on the last question. I was wondering if you could comment a bit on the trends you saw, as the quarter was ending and you moved into the beginning of the third quarter, if those trends continued, how you would potentially see that relative to the slowdown you’ve already kind of built into your numbers. Would that potentially lead to some upside? I think that would be interesting to know.
And then in terms of Europe, I mean Europe obviously has slowed for a number of reasons in terms of earnings in Building and Infrastructure and the other factors you mentioned, the euro. Are there any other trends that are building that are a concern there? Or is it just the trends that we’ve already seen in the current quarter? And specifically, the Rhine River is quite low. I was just wondering if that is having any impact on your business at this point.
Sameer Bharadwaj
Sorry, the last part, Frank, I could not catch the last sentence.
Frank McGann
Yes, the Rhine River levels are low, and I’m just wondering if it’s having any impact on movement of your product.
Sameer Bharadwaj
Understood. Yes, yes. No, look, in fact, why don’t I just address the outlook for the rest of the year right away, right? I mean a significant part of it will be impacted by the margin compression that we are seeing or we will see in this quarter, starting with PVC and the slowdown in Europe, in Wavin. And PVC margins are down for a few reasons. First and foremost, it’s higher input costs, and this comes from fluorine and energy; the slowdown in the building and construction environment and the overall macroeconomic environment. But one of the most important factors in the near term, Frank, is the China shutdown due to COVID, as a result of which domestic consumption in China has reduced significantly, and a lot of that volume is finding its way across the world, which is normally not the case. Now this situation is expected to be temporary. And whether there is upside later in the year is a strong function of how soon China resumes consumption, okay?
Now note that there’s a lot of attention today on export prices of PVC and numbers of $1,000 a ton in the press and so on. But it’s important to note that of the 6 million tons of domestic capacity in the U.S., 5 million tons of the contracted volume is still selling in the $1,400 to $1,600 range.
Now for Orbia, we have some margin protections from our derivatives exposure, which is doing very well and from a lower impact on margins for specialty resins and the fact that our downstream AlphaGary compounds business is doing very well. The earnings part of the business will be above pre-pandemic levels despite these anticipated margin declines.
And then what I would like to take everybody back to is the long-term fundamentals. We believe that demand growth will outpace supply growth over the course of this decade. And our belief is based on various sources that map nameplate capacity, supply versus demand and report the utilization levels. The market was tight in 2021 at nameplate utilization levels of 80%. Note that not all of the nameplate capacity is truly available and actual utilization levels are higher. Otherwise, we would have not seen the prices go to the levels we did in 2021.
Now if you look at the data, nameplate utilization levels are expected to go up to 88% to 90% by the middle of the decade, making the supply and demand imbalance even worse. This is a global market. And if one is on the bottom left of the supply curve, which we will be with U.S. Gulf Coast economics, one will always sell out the capacity. And I would like to emphasize that we are a truly global player and place our volumes all over the world today to optimize our spreads.
Now we do have expansion plans that we talked about at Investor Day, and these involve multiple projects that include debottlenecking, new capacity and a significant ability to phase our efforts. And this is based on long-term normalized pricing. And in that context, our business case for that hasn’t changed.
So hopefully, Frank, this helps with understanding some of the near-term dynamics and whether there might be any upside at the end of the year and also puts the longer term in context and our belief in the longer term in context.
Frank McGann
Okay. Great. And in terms of the Rhine River, is that an issue or no?
Sameer Bharadwaj
So far, we haven’t come across that as a significant issue. But if that turns out to be the case, we will report it next time.
Frank McGann
Okay. I just remember a number of years ago that in a couple of quarters that had been an issue.
Operator
Our next question comes from Andres Cardona with Citi.
Andres Cardona
Can you hear me?
Jim Kelly
Yes, we can hear you fine, Andres.
Andres Cardona
Gerardo, I have a couple of questions. The first one is, we have seen relevant investments in terms of working capital over the last 18 months at least. I wonder, assuming a normalized PVC and other raw material costs, if we can get a sense of how much capital you can release from working capital. And the second one is you will have the Investor Day in May where you present your business plan for the coming years, and you have seen investors across the world. If you maybe can share some feedback about what are the main concerns from investors about this business plan and also what they recognize as the main positives.
Sameer Bharadwaj
Jim, why don’t you take Andres’ question on working capital and the cash flow, and then I’ll address the second question.
Jim Kelly
Sure. I’m happy to do that. So thanks for the question, Andres. I appreciate it. So as you rightly noted, we have invested significantly in working capital over the course of the last year to 18 months, largely being reflective, I’d say, of a combination of factors: the first being underlying logistical challenges that have taken place around the world and the extension of lead times in order to acquire some of the materials that we need to look to produce our products as well as to ship our products. And first and foremost, we need to ensure that we can to satisfy the demands of our customers. So we had to invest in working capital as part of that.
Then also, we have also been trying to, as much as possible, pass through raw material and logistics cost increases that we’ve seen over the course of that period, which has driven up the receivables balances as well. So ultimately, what we look at is, as opposed to the dollars, we focus a lot on days, Andres, and really trying to work to bring those down as much as possible. And obviously, with the logistical challenges that I’ve mentioned, there’s been pressure on that, honestly. Those do seem to be easing a bit, I would say. And then also, as you rightly noted, some of the raw material costs have begun to soften, which should provide some benefit for us in the second half of the year here.
So we have been continuing to consume working capital over the course of the first half of the year. Although days have remained essentially flat, we do have a specific plan in place that we’d be working to bring the days down as logistic issues become more reasonable over the course of the next few months. And then as well, the dollars should improve as the costs go down. So we do expect the working capital to turn to a source of cash as opposed to a use of cash by the end of the year and in the order of, I would say, hundreds of millions, a couple of hundred millions of dollars over the course of the last half of the year.
Sameer Bharadwaj
Thank you, Jim. And Andres, as far as your question on Investor Day feedback, so first of all, I want to thank all of you who attended Investor Day, both in person and online. And I know we did this after 10 years, and it was long overdue. But one of the key things that was appreciated was the level of detail and transparency that we shared and our willingness to be more transparent going forward. There was an acknowledgment that we are a truly global company.
A lot of the feedback that we got as we talk to investors were they found our growth plans to be quite ambitious. But what gives me, Jim and our team, confidence is much of our growth plans are based on — 70% to 80% of our growth plans are based on organic growth projects that we have line of sight into and that we can execute at a cost of less than 3 to 4x EBITDA.
The other feedback we got was people began to appreciate how Orbia is a truly sustainability solutions-focused company, not focused on just managing our own impact but also delivering solutions that enable our customers to lower their impact and also willing to invest in breakthrough technologies that can help decarbonize the planet. Now of course, this is a journey and one Investor Day doesn’t change perception, and we will be out there on the road meeting with many of our investors in all parts of the world communicating our story and helping people better understand who Orbia is.
Operator
Our next question comes from Tasso Vasconcellos with UBS.
Tasso Vasconcellos
Maybe if you could comment on the capital allocation strategy looking forward because we saw the dividend payment this quarter, buyback leading to a cash burn even with incremental debt, and there is a relevant CapEx in the coming years until the 2027 guidance you guys gave before. So just trying to understand here the big picture. Also, I know that you already gave the guidance for the current year, for 2022. But if you could give a color on the increase you are expecting for the next year that would also be very helpful.
Sameer Bharadwaj
Thank you, Tasso. So in terms of capital allocation strategy, I mean this is not something we change day-to-day. And I would say it is fully consistent with what we shared on Investor Day. And at Investor Day, we shared our long-term sources and uses of capital. And the idea is to fund much of our growth with our operating cash flow and increase leverage as necessary to drive the growth plan, maintaining our ability to do the baseline dividend and grow that dividend over time.
And of course, share buybacks, we will only do opportunistically if we would be prioritizing growth investments first. So at a high level, that’s the capital allocation strategy.
Jim, do you want to add anything to that?
Jim Kelly
No, I think you covered it pretty well.
Sameer Bharadwaj
Yes. And look, we are pretty confident about meeting our the expectations that we have set with our shareholders with respect to dividends and returning capital to shareholders while, at the same time, driving our growth and balancing our leverage in the process. And your second question was about guidance for 2023 CapEx, Tasso?
Tasso Vasconcellos
Yes. I mean not precisely a guidance, but what are your expectations? Because we have the full amount up to 2027, though I’m not sure on the means to get there. So if you could give, I don’t know, maybe some color or not a number per se, but something to help us to view next year, that will be very helpful.
Sameer Bharadwaj
Sure. And so look, we are not ready to share that at this time because many of our project plans are still under development. And many of these projects take a few years to execute. And so in that context, we will build those numbers. And when we are ready to share them, we’ll be happy to give more color on the timing of our capital investments over the next several years because it’s all a function of you have to do the engineering for the projects, and then there’s a finite amount of time before you start spending significant amounts of money. But we fully understand the need to help the market and investors understand the timing of our investments. And we’ll shed color on that as we go along in the future.
Operator
Our next question comes from Alejandro Zamacona with Credit Suisse.
Alejandro Zamacona
A quick question on Vestolit, so I mean a strong growth in revenues. I’m wondering how much of the increase is coming from higher prices and how much is coming from volumes.
Sameer Bharadwaj
So a good question, Alejandro. It’s a combination of higher prices, higher volumes and higher input costs. And so yes, we have higher volumes because last year, if you remember, volumes were impacted, to some extent, due to challenges that we had in that part of the year. But we also have high input costs that are offsetting the high prices, which is why we have seen that margin compression. So look, I mean, if you look at the inputs for the Vestolit business, you look at ethane, you look at natural gas, you look at electricity, you look at fluorine, all of those have gone up in a significant way. And so even though prices are higher, they are offset by the input costs, and that’s what results in the resulting margin.
Alejandro Zamacona
Okay. And then my second question, if I may, can you give a little bit more color on the lower effective tax rate for the quarter? I know that you shared in the guidance the effective tax rate for the full year, but if you can give additional color for the quarter, it will be appreciated.
Jim Kelly
The largest impact for the quarter was the release of valuation allowance against NOLs that had been previously reserved for and now we believe we’ll be able to take advantage of. So the release of the reserve against those ended up being a favorable impact to taxes and brought the rate down.
Operator
[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Sameer for any closing remarks. Please go ahead.
Sameer Bharadwaj
Thank you, everybody, for joining the call. And we appreciate the continued faith and belief in Orbia as we execute our growth strategy over the next several years, and looking forward to talking to you again at the end of next quarter.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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