10/20/2021

speaker
Alejandro Elizondo
Investor Relations Officer

Hello, and welcome to Alpec's Third Quarter 2021 Earnings Webcast. I am Alejandro Elizondo, Alpec's Investor Relations Officer, and I have the pleasure of being joined by our CEO, Pepe Valdez, and our CFO, Jose Carlos Pons. This presentation is divided into two parts. First, Mr. Valdez and Mr. Pons will comment on Alpec's Third Quarter 2021 performance and update on relevant events. Afterwards, we will move on to Q&A. Please note that the information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to certain risks and uncertainty. Actual results may differ materially, and the company cautions the market not to rely unduly on these forward-looking statements. Alpac undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I'd like to remind everyone that today's webcast is being recorded and will be available on our website at alpac.com. I will now turn the call over to Mr. Pepe Valdez.

speaker
Pepe Valdez
CEO

Thank you, Alejandro. Good morning, everyone, and thank you for joining us today. I hope you are all doing well. This morning, I'm pleased to begin by reporting that amid a favorable margin environment, Alpac has delivered another strong quarter. During this period, we set three new company records, including our highest ever quarterly volume and comparable EBITDA for the plastics and chemical segment, as well as highest overall comparable EBITDA for the first three quarters of any year. Let's start by reviewing the main topics of today's webcast. First, ALPEC has greatly surpassed financial performance expectations for the third quarter. Jose Carlos will review this in greater detail. Second, we recently reached an important ESG milestone. As such, we will discuss new targets and action plans for our material ESG issues. And third, we will provide additional insight into our revised 2020 White Guidance as per the earnings report released yesterday. Providing some context for our results, the third quarter of 21 was marked by continuous strength in the global economy and higher marine freight costs. Demand for petrochemical products remained strong this quarter. Asian integrated polyester reference margins averaged $318 per ton. This was higher than Alpex revised guidance figure of $300 per ton, which was based on the supply demand balance expectations prevalent at the end of the previous quarter. As I mentioned, an important factor supporting this higher than expected margins were marine freight costs, which have increased the gap between the Chinese and Asian polyester reference margins to $90 per ton in this quarter versus only $46 the year ago. North American polypropylene reference margins reached a new record with an average of 52 cents per pound and 11% increase quarter on quarter, partly due to continued demand strength, the impact of Hurricane Ida on the US Gulf Coast and inventory levels, as well as the aforementioned high cost of Asian import alternatives. At this point, I would like to turn the call over to Jose Carlos who will go into more detail regarding the impact of these events on our financial results.

speaker
Jose Carlos Pons
CFO

Thanks, Pepe. And thank you all for being here with us today. I will first like to highlight Alpec's outstanding overall performance throughout the quarter by focusing on some of our main achievements. A strong overall volume of 1.2 million tons, a record quarterly high for the plastics and chemicals segment. Record comparable plastics and chemical levidad of $124 million. Overall comparable levidad of $234 million, a record accumulated figure for the first three quarters in a year as a result of a strong volume and higher than expected PET and polypropylene margins as discussed by Pep. And a further leverage reduction to 1.2 times as last 12 months, levidad significantly increased. If we take a look at volume, APEC reached 1.2 million tons this period, basically flat quarter on quarter. In the polyester segment, volume was 2% lower quarter on quarter, largely due to the extended effect of the drought that took place in the second quarter in Altamira, Mexico, affecting PTA production, which partially carried over into the beginning of 3Q21. and lower pet production from one of our facilities in the US Gulf Coast, resulting from a short precautionary shutdown in anticipation of the arrival of Hurricane Ida. Volume would have been similar to last year's record levels had it not been for these two nature-related events. In plastic and chemicals, Alpek set a new volume record with a 16% increase year-on-year. mainly due to the increased EPS output from our recently acquired facilities in the United States. However, excluding these new EPS sites, volume would have still been 4% higher versus last quarter's. Moving on to raw material price dynamics. As the global economy has continued to show its strength, demand for refined products has kept rising despite its light supply reduction. leading to an increase in average spot Brent crude oil price to $73 per barrel, 6% higher than in the second quarter. Correspondingly, US reference paraxylene prices also increased by 7% versus last quarter. In plastics and chemicals, propylene prices averaged 82 cents per pound, a 23% increase when compared to the previous quarter, given the impact of Hurricane Ida on inventory levels and the high cost of import alternatives formation. This rise in prices generated a positive inventory adjustment and a carry forward effect across both of our business segments. Switching over to our EBITDA breakdown for the third quarter, we can see that comparable EBITDA was $234 million, 4% higher quarter on quarter, primarily due to PET, olipropylene, and EPS reference margins significantly higher than expected, as well as record plastics and chemicals volume. Reported EBITDA was $279 million, 56% higher year-on-year, as this result also includes a non-cash inventory gain of $22 million and a positive carry-forward effect of $21 million. In terms of results by key segment, we can see that polyester comparable EBITDA was $107 million, increasing by 5% quarter-on-quarter. Our results largely benefited from a strong Asian polyester reference margins, averaging $318 per ton, which remained high due to the strong demand on the widened spread between Chinese and Asian margins. In plastics and chemicals, comparable EBITDA reached a new quarterly record of $124 million, an increase of 123% year on year, mainly due to the record polypropylene reference margins of 52 cents per pound, also resulting from a strong supply-demand balance and the effect of high marine fry costs. With regards to free cash flow generation, networking capital investment increased by $245 million, partly due to the continued rise in feedstock prices from product siling and propylene during the quarter. CapEx totaled $32 million and was mainly used for maintenance and minor asset replacements. Free cash flow total negative $27 million as the increasing net working capital offset EBITDA for this quarter. Finally, regarding our financial position during the third quarter, Altex net debt increased to $1.32 billion. However, last 12 months EBITDA increased sharply, resulting in an improved leverage ratio of 1.2 times net debt to EBITDA, far exceeding investment rate requirements. If considering net debt to comparable EBITDA, we can also see that ALPEC has further improved this ratio to 1.6 times. Thank you, everyone. I will now turn the call back to Pepe.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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