Enka Posts COP$1.4 Billion Net loss for 2Q 2020 on Covid-19 Impact

Medellin-based textiles and plastics recycling giant Enka Colombia on August 14 posted a COP$1.4 billion (US$369,000) net loss for second quarter (2Q) 2020, down from a COP$3.2 billion (US$843,000) net profit in 2Q 2019.

Gross revenues fell 40%, to COP$58 billion (US$15 million), versus COP$97 billion (US$25 million) in 2Q 2019, according to the company.

“After a very good start to the year [1Q 2020] — where the company achieved volume growth of sales of 8% and EBITDA growth of 79% — in 2Q Enka was faced with large challenges derived from the [Covid-19] pandemic,” according to the company.

The pandemic resulted in “partial cessation of operations, a sharp reduction in demand and the implementation of biosanitary controls for the safe reactivation of [production] activity.”

In response, “the company managed to act quickly by strengthening its liquidity and adjusting its cost and expense structure to the ‘new normal,’” according to the company

In the meantime, “we continue to advance in the projects of the new ‘EKO-PET’ [plastics recycling] plant and the divestment of non-operational real estate assets. Due to the effects of the pandemic, although progress has been made, the respective [sales] contracts have not yet been formalized.

“Although uncertainty about the recovery of the world economy still persists, we trust that the better dynamics of a large part of the businesses will allow an increase gradual demand, which will translate into an improvement in the company’s results.”

As for first half (1H) 2020, earnings before interest, taxes, depreciation and amortization (EBITDA) declined 20% year-on-year, to COP$11.5 billion (US$3 million), down from COP$14.3 billion (US$3.77 million) in 2Q 2019.

Operating income for 1H 2020 totaled COP$161 billion (US$42 million), down 20% year-on-year. Exports accounted for 44% of total sales (down from 46% in 1H 2019) “due to a greater contraction in the foreign market than in the national market,” according to Enka.

“While the devaluation of the Colombian peso is a positive factor for Enka’s income structure, its effects during this semester have been limited by lower sales in 2Q 2020 and by exchange hedges previously contracted. We hope that by the second semester, with the recovery of sales and better levels of exchange coverage, the devaluation will have a more favorable effect on operating results.”

Assets at end-June 2020 rose by COP$26 billion (US$6.8 million), to a total COP$606.6 billion (US$160 million), “ mainly due to a higher cash position to face eventual effects of the situation generated by Covid-19,” according to Enka.

“To date, these resources have not been used because it has been possible to free working capital through portfolio collection and normalization of inventories.

“Liabilities increased by COP$33 billion [US$8.7 million], mainly due to net disbursements of about COP$33 billion [US$8.7 million] and a difference in exchange rate, which compensated for less financing of suppliers for lower purchases. The net indebtedness ends at COP$36.5 billion [US$9.6 million] and a [debt-to-EBITDA] index of 1.1-x, improving over the result at the end of 2019, at 1.3-x EBITDA,” according to the company.

In Enka’s plastics recycling businesses, 1H 2020 revenues hit COP$56.8 billion (US$14.9 million), taking a 35% share of total corporate sales. Recycled plastic exports totaled US$1.6 million, equivalent to 10% of the business income.

“So far this year the uptake of post-consumer [plastic] bottles showed a 7% decrease compared to the first half of 2019, a lower reduction than in the beverage sector, which between January and May contracted by 16.4% compared to the same period of the year prior,” according to Enka.

“To strengthen recycling coverage on Colombia’s Atlantic Coast and mitigate the effects of Covid-19 on collection in this region of the country, in the second quarter [2020] our subsidiary ‘Eko-Red’ opened its own collection center in Barranquilla. With this opening, the company adds four collection centers — located in the main cities of Colombia — consolidating the largest post-consumer bottle collection network in the country.”

As for the company’s “EKO-PET” (8,717 tonnes sales) and “EKO-Polyolefins” (1,044 tonnes sales), “these lines have been the best performing during the crisis, managing to even increase sales volume by 5% and 318% respectively,” according to Enka.

“The increase in sales in ‘EKO- Polyolefins’ is the result of the consolidation of approvals in different markets, enabling transformation of all caps and labels of the bottles currently recycled by the company,” according to the company.

Meanwhile, the company’s “EKO-Fibras” (4,138 tonnes sales) 1H 2020volume decreased 16% compared to 1h 2019 due to the impact of Covid-19 “with a greater impact on the export market, mainly Brazil. However, we have begun to see a gradual recovery in demand,” according to Enka

As for textile and industrial sales, “revenues from these businesses ended at COP$103.6 billion (US$27 million), representing 65% of the company’s total sales. Exports reached US$17.6 million, representing 62% of the [textile-industrial] unit’s revenues, especially to Brazil and the United States,” according to Enka.

Textile filament sales “have been most affected during the pandemic — both in Colombia and abroad — because [sector] recovery is intimately related to the reopening of trade, which is still limited due to strict sanitary restrictions and lower consumption. As a result, at the close of first half 2020, sales volume decreased 37%” year-on year, according to Enka.

As for industrial threads (4,980 tonnes sales), volume decreased 17% so far this year mainly due to decline in demand for tire materials, according to Enka.