Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alpek SA (FRA:27A, Financial) surpassed expectations for the quarter, achieving the highest comparable EBITDA since 2022 at $218 million.
- The company paid $132 million in dividends to shareholders, demonstrating strong cash flow and commitment to returning value.
- Alpek SA (FRA:27A) is preparing for a spinoff from Alpha, which is expected to enhance liquidity and attract a broader investor base.
- Volume increased on both a quarterly and annual basis, reaching 1.22 million tons due to stable demand and normalization of operations.
- The company maintained its investment-grade rating across all three rating agencies, with Fitch reaffirming its stable rating.
Negative Points
- High ocean freight costs, while beneficial in the short term, are expected to normalize by 2025, potentially impacting margins.
- Net debt increased to $1.81 billion, with a net debt to EBITDA ratio of 3.1 times, indicating a need for continued focus on deleveraging.
- Guidance for the fourth quarter implies a 15% sequential contraction and a 35% year-on-year contraction in EBITDA.
- The company faces challenges from declining oil prices and a cautious market environment, which may impact purchasing volumes.
- There is uncertainty regarding the impact of the spinoff on shareholder behavior, with potential for market adjustments post-split.
Q & A Highlights
Q: Can you quantify the impact of higher shipping rates in the polyester business and explain the dynamics for the fourth quarter?
A: Jorge Young Carecedo, CEO: The third quarter saw a $50 million improvement in EBITDA, with 70-75% attributed to higher freight costs. The fourth quarter is expected to see a 15% sequential contraction due to seasonality, lower oil prices, and declining raw material costs, which may impact purchasing volumes.
Q: What is the status of the asset sales process?
A: Jose Carlos Pons de la Garza, CFO: Progress is being made on selling smaller assets, expected to contribute around $10 million by year-end. For the larger asset in Monterrey, alternatives are being developed, with a clearer plan expected by the first quarter of next year.
Q: How do you anticipate shareholder rotation following the Alpha split?
A: Jorge Young Carecedo, CEO: It's difficult to predict shareholder actions, but the spinoff is expected to increase liquidity and potentially attract new investors. Jose Carlos Pons de la Garza, CFO, added that the spinoff could allow Alpek to access stock indexes in Mexico, enhancing its appeal.
Q: Can you discuss the cadence of debt repayment and dividend policy post-spinoff?
A: Jose Carlos Pons de la Garza, CFO: The company aims to reduce leverage to 2.5 times by mid-next year, primarily through cash flow and working capital improvements. While dividends are not planned for early 2025, they remain a possibility later in the year, depending on financial performance.
Q: What are the expectations for PT spreads and freight rates?
A: Jorge Young Carecedo, CEO: PT spreads have rebounded slightly but are expected to remain low due to excess capacity in Asia. Freight rates may continue to decline but could stabilize at a higher level than in 2023 due to ongoing shipping disruptions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
