Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alpek SA (FRA:27A, Financial) reported a 15% improvement in EBITDA compared to the previous year, reaching $170 million.
- The company achieved $75 million in annualized savings through structural cost reduction initiatives, including organizational restructuring in the polyester business.
- Alpek SA (FRA:27A) published its most comprehensive sustainability report to date, with improved ratings from MSCI to a triple B.
- Net debt decreased by 5% sequentially to $1.73 billion, with a net debt to EBITDA ratio of 3.3 times, down from 3.7 times in the previous quarter.
- The company maintained its investment-grade rating across three rating agencies, with Standard & Poor's reaffirming a stable and triple B minus rating.
Negative Points
- Temporary operating interruptions occurred due to low water availability in Tampico and Altamira, affecting three sites.
- Polypropylene reference margins remained flat, and Chinese integrated PET reference margins decreased, indicating pressure on profitability.
- Volume in the plastic and chemical segment decreased by 4% quarter-over-quarter due to production interruptions.
- The company faces challenges from excess capacity in petrochemical markets, particularly from China, impacting pricing and competition.
- Alpek SA (FRA:27A) announced no dividends for 2024, focusing instead on reducing leverage to a target of 2.5 times net debt to EBITDA.
Q & A Highlights
Q: With the recent closures of PT and PTA capacity in Europe, do you foresee this trend continuing in other regions? Also, any updates on the divestment of non-strategic assets?
A: (Jorge Young Carecedo, CEO) This could be the start of a trend where less competitive assets globally might shut down. We expect more announcements over the next year or two, particularly in Europe due to high energy costs and competition from imports.
(Jose Carlos Pons de la Garza, CFO) We are progressing on divesting non-strategic assets, with some easier to monetize, like land and equipment, potentially yielding around $20 million. We are also evaluating the land from our closed fiber plant in Monterrey, with more clarity expected by year-end.
Q: Can you provide insights on the CapEx expectations for the second half of the year and into 2025?
A: (Jose Carlos Pons de la Garza, CFO) We expect CapEx to be 30-40% higher in the second half compared to the first half, focusing on strategic projects like recycling. For 2025, we anticipate additional strategic CapEx opportunities, potentially exceeding $200 million.
Q: Given the tight polypropylene spreads in North America, when do you expect US producers to increase prices and margins? Also, how is Alpek approaching capital allocation amid positive cash flows?
A: (Jorge Young Carecedo, CEO) Polypropylene spreads are low due to overcapacity. While attempts to increase margins have been made, spreads remain steady. A supply disruption could change this.
(Jose Carlos Pons de la Garza, CFO) We aim to reach a 2.5 times net debt to EBITDA ratio by year-end. No dividends are planned for 2024, but this is under continuous evaluation.
Q: Regarding the real estate investment, if sold before year-end, could an extraordinary dividend be expected? Also, what are the expectations for working capital in the second half?
A: (Jorge Young Carecedo, CEO) We aim to maximize the value of the real estate asset and are currently evaluating the best approach. It's unlikely to be resolved before year-end.
For working capital, we expect steady levels with slight opportunities for improvement, assuming stable prices.
Q: How significant is the oversupply from China, and how has the US structural deficit evolved with the delay of Corpus Christi?
A: (Jorge Young Carecedo, CEO) China's excess capacity for export is significant, impacting global markets indirectly. The US PET deficit peaked in 2022 at over 1 million tons and has slightly decreased since, with current levels around 1 million tons.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
