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.

Alpek Sab De Cv Ord
2/20/2024
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 uncertainties. Actual results may differ materially, and the company causes the market not to rely unduly on these forward-looking statements. Alpec undertakes no obligation to publicly update or revise any forward-looking statements, whether it is as a result of new information, future events, or otherwise. We express our financial results in U.S. dollars unless otherwise specified. For your convenience, this webcast is being recorded and will be available on our website. Jorge, I'll turn the call over to you.
Thank you, Barbara, and we're very glad to have you as our Investor Relations Officer. Good morning, everyone, and thank you for joining us. As we reflect on the past year and look ahead to 2024, ALPEC is focused on optimizing performance through near-term market conditions while continuing to advance our long-term strategic goals. Similar to the first three quarters of 2023, the fourth quarter remains challenging for the petrochemical industry. However, throughout the year, we took decisive actions not only to mitigate these effects, but also to strengthen and position our company to maximize resiliency across the cycle. These actions, which I will cover in more detail shortly, fall within two key categories. One, achieving structural cost reductions, and two, strengthening or balance sheet. Before going into the details of these initiatives, Let me walk you through our full year 2023 financial results. Volumes were 4.64 million tons, down 8% year over year, which was in line with our most recent expectation. Comparable EBITDA of 734 million, which is 47% below year over year, and is due to a compression of PET, polypropylene, and EPS reference margins. Operating free cash flow was $408 million, with net working capital recovery of $596 million, a year-over-year improvement of 244%, mainly from lower raw material prices and inventory management initiatives. CAPEX was $277 million, 38% lower The original guidance provided at the start of 2023 as we proactively post CapEx intensive projects. Total debt at year end was $1.73 billion, down 7% year over year as we continue to prioritize reducing debt. During the third quarter, Alpec and its joint venture partners announced that Corpus Christi Polymers decided to post construction of its integrated PTA-PET plant in Corpus Christi, Texas due to an increase in capital requirements. In the fourth quarter, Alpec recorded a non-cash impairment charge of $557 million related to this decision. Just to be clear, And independently of the accounting impairment, the project is on a pause and the site is being preserved for a potential future start. As decisions on the project are made, the owners will communicate accordingly. On slide seven, I would like to update you on the progress we made throughout the year to maintain our competitiveness as we navigate a complex and challenging environment. We sharply focused on achieving structural cost reductions that not only benefit our business now, but that also position us to be resilient over the long term. Over the course of 2023, we undertook actions to reduce both fixed and variable costs. Some of these actions require difficult decisions. We focused on optimizing our footprint. We halted production at the Cooper River site and shifted all the production to more competitive plants. We also shut down the filament site in Monterrey. And with this decision, we are no longer in the filament business. These closures are expected to have a benefit of approximately $40 million on an annualized basis. Additionally, We developed a plan for organizational restructuring that includes, among other actions, a headcount reduction mainly in our polyester business to be carried over the first half of 2024. Furthermore, this restructuring also focuses on operational efficiency through investments in integration and standardization of new systems. This will help us reduce redundancies across geographies by creating centers of excellence. Finally, during fourth quarter 23, we signed power supply agreements with more competitive rates for some of our facilities. We anticipate these actions combined will generate savings of approximately 35 million. All told, the footprint, the restructuring, and improved power contracts We expect we'll deliver at least $75 million in annualized basis. We estimate that more than half of these savings have already been realized, with the remaining portion scheduled to accrue by year-end. We're continuing to identify cost-saving opportunities while still investing strategically in Alpex's future, and we're confident in the incremental profitability these efficiencies will provide when markets normalize. In addition to our working capital and CapEx optimization initiatives, we made significant progress on strengthening our balance sheet. We successfully secured our first sustainability link loan of $200 million. Through this arrangement, we efficiently refinanced our outstanding balance and extended our 2023 bond, which was due last August, to 2028, improving for average death maturity to 5.2 years. Further, this financing aligns and supports our ESG strategy. And delving into ESG, we continue to advance our goals. First and most importantly, we maintain our dedication to keeping our people safe and achieve a total recordable incident rate that was 27% lower than the prior year. It is worth highlighting that are polypropylene business recently achieved four years and five million man hours without recordable injuries. Moreover, 15 of our sites were injury-free during 2023. We also made very strong progress towards meeting our SBTI carbon emission goals with a 27% reduction in CO2 emissions compared to our 2019 baseline. This is partially due to carbon free energy now supplying 27% of our electricity consumption. Our recycled PET production volume grew 17% year over year. And in the plastics and chemical segment, we developed six new products made from recycled and bio-based materials. Finally, We reinforced our commitment to gender equality by pledging to the women's empowerment principles from the UN Global Compact and UN Women. I am proud that we were able to continue to make progress on our ESG, sustainability and circularity initiatives while taking action to strengthen our business. With that, I will turn the call over to Jose Carlos to cover our financial performance in more detail.
Thanks, Jorge. Good morning, everyone, and thank you for joining us. Let me provide you a deep dive in fourth quarter performance. Volumes for the quarter were 1.1 million tons, in line with expectations, and down 7% quarter over quarter. Volumes were impacted by continued influence from Asian imports, softer demand, as well as abnormal seasonality and scheduled maintenance in some of our production facilities. Reporte de EBITDA was 53 million and was impacted by a non-cash effect derived from respecting full-year Argentina results on their IFRS hyperinflation accounting, which was present throughout the year, with a greater impact in December as there was also a significant domestic currency devaluation. APEC generated 167 million in comparable EBITDA. In line with our standard practices, these figures consider hyperinflation and currency devaluation as extraordinary effects, given their non-cash nature. Looking ahead, we anticipate no further material impacts from hyperinflation as we plan to transition to US dollar as our functional currency in Argentina in 2024. I will start by discussing the results from our polyester business. Volume was 907,000 tons, 5% lower quarter over quarter as we continue to see impact from Asian inputs. Asian integrated PET reference margins increased by 5% quarter over quarter, averaged $285 per ton, recovering slightly as raw material prices decreased. Meanwhile, Chinese integrated pet reference margins averaged $155 per ton, increasing by 6% as there seems to be some temporary capacity rationing. In terms of feedstock dynamics, U.S. reference paraxylene prices decreased by 16%, with the spread between North America and Asian prices becoming more favorable, decreasing by 46% to $180 per ton, yet still above historical levels. Comparable levidad was 122 million, up 7% quarter over quarter. Turning to our plastic and chemical segment, volume was 193,000 tons, down 13% sequentially as the polypropylene segment saw slightly lower demand levels amid seasonality and high supply in North America. EPS demand continues to be impacted by a downturn in the construction industry and as our polyester segment sustained imports. Polypropylene margins remain flat from a continuation of market conditions in North America. They remain at 17 cents per pound, as expected, and for EPS, North America reference margins improve at year-end, returning to historical levels at an average of 27 cents per pound, 45% higher quarter over quarter. In terms of feedstock dynamics, average reference propylene prices increased to 46 cents per pound, up 28% quarter over quarter. Meanwhile, average reference prices for starting declined to 47 cents per pound, a 12% decrease compared to the third quarter, with only a slight disconnection to Asian reference prices. Comparable EBITDA was 43 million, up 3% quarter over quarter, as high reference margins for EPS offset seasonality. Turning to free cash flow, which had an extraordinary result in 2023, capex for the fourth quarter totaled $112 million, comprising schedule and maintenance, a payment for costs already incurred from the CCP construction, and a $28 million earn-out payment from the hotel acquisition. Networking capital improved by $163 million in the fourth quarter, totaling $596 million for the year, resulting in operating free cash flow for the year of $108, a year-over-year improvement of more than 250%. As Jorge mentioned earlier, one of our ongoing priorities is strengthening our balance sheet and we made significant progress in 2023. We reduced our net debt to $1.7 billion, equivalent to 7% year-over-year, as our efforts to improve working capital and optimize our CAPEX yielded results. The last 12 months reported EBITDA was $514 million, resulting in a net debt-to-EBITDA ratio of 3.4 times. If we exclude the effect of the Argentinian devaluation and the extraordinary costs from the two plant closures we performed in 2023, the pro forma leverage would have been 2.9 times. I want to reaffirm that Alpec is completely committed to reducing leverage. We will continue to execute the necessary measures to achieve our target of 2.5 times or below. We expect to return to a leverage close to that level by year end. We will continue to improve our free cash flow through working capital optimizations and capital rationalization. Additionally, we will not be issuing a dividend payment this year to prioritize our cash flow and achieve a prudent level of leverage. Furthermore, as Jorge mentioned, we took actions to refinance our debt facilitated by securing our first sustainability link loan. This extended our debt maturity to 5.2 years. Finally, I'd like to highlight that our liquidity remains strong at over $1 billion, comprising $457 million in cash on hand and $584 million in uncommitted credit facilities. With that, I'll turn the call back to Jorge.
You're reading a preview of the ALPKF Q4 2023 earnings call.
Free account.