7/24/2024

speaker
Barbara Amaya
Investor Relations Officer

Good morning, everyone. Welcome to Alpex second quarter 2024 earnings webcast. I am Barbara Amaya, Alpex IRO, and I am pleased to be here today with Jorge Young, our CEO, and Jose Carlos Pons, our CFO, who will be covering today's webcast presentation. For today's presentation, first, Jorge will provide an overview for quarter, then Jose Carlos will expand upon the financial results. Finally, Jorge will review our expectations for the second half of the year prior to the Q&A session. 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, however, The company cautions 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 because of new information, future events, or otherwise. Financial results are expressed 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.

speaker
Jorge Young
Chief Executive Officer

Thank you, Bárbara. Good morning, everyone. Let me begin today's call by stating that second quarter results were in line with our guidance expectations with an improvement in networking capital and strong cash flow generation. We witnessed a gradual demand recovery Building upon the positive trend from the first quarter. Additionally, steady margins also contributed to our overall stability during this period. Notwithstanding the above, we faced a very specific challenge within the quarter beginning in May and becoming critical in June. The cities of Tampico and Altamira in the northeast of Mexico faced low water availability because of a delayed rainfall season. This led to temporary operating interruptions for industrial companies in the area, including three of our sites. ALPEC responded quickly effectively managing its inventory and leveraging its global footprint to partially mitigate the impact to volume supply. By the end of June, the situation was resolved as tropical storms entered the region and water levels fully recovered. I would also like to mention that the company was able to support its employees and the Altamira community During the challenging weeks of water scarcity, we appreciate the dedication of our team who managed this difficult situation successfully. Going forward, we do not anticipate any additional impact related to this occurrence, and we are actively assessing long term solutions to prevent and mitigate future risks. Regarding structural cost reduction initiatives, during this quarter, we finalize the remaining planned organizational restructuring in the polyester business and have those achieved or planned for the year. Through the combination of these and other initiatives, such as optimizing our polyester footprint and improving some of our energy supply agreements, we will reach our goal of $75 million in annualized savings by the third quarter. With the most significant benefits already factored in since the beginning of the year. Furthermore, we will seek to identify additional opportunities to strengthen our business. Before moving into financial results, I would like to highlight our sustainability efforts during the quarter. Earlier this month, the company published its most comprehensive sustainability report to date. Now, with additional disclosures, including the following items. A new materiality matrix, which now considers financial impacts. And a brand new roadmap to showcase our decarbonization journey, among others. You can find the complete report on our website. Furthermore, the progress in our sustainability agenda is evidenced again by stronger ratings. MSCI recently improved the company's rating for the first time since 2019 to a triple B, recognizing enhancement in our business practices as well as our carbon emissions reduction, which achieve a superior performance versus the industry average. Alpec remains committed to enhancing its goals and strategies to ensure continued progress. At this point, I will handle the call over to Jose Carlos to cover our financial performance in greater detail.

speaker
Jose Carlos Pons
Chief Financial Officer

Thank you, Jorge. Hello, everyone, and thank you for joining us. Allow me to provide more insight into our quarterly results. Volume remained flat quarter over quarter and year over year, reaching 1.2 million tons as the polyester business segment maintained volume levels. Therefore, we remain confident we will reach our guidance. Reported EBITDA reached $170 million, an improvement of 15% versus the previous year, including a combined positive inventory management and carry-forward effect of $14 million, and a $2 million non-recurrent effect mainly from organizational restructuring costs. APEC generated $158 million in comparable EBITDA in line with their guidance expectations. Now diving into specifics for the polyester segment, volume reached 1 million tons, an increase of 2% year over year and 1% quarter over quarter, resulting mostly from solid demand. The company estimates that volume would have been even higher had it not been for the scheduled maintenance early in the quarter and the temporary interruptions of PTA production in Altamira. Asian integrated pet reference margins also improved, averaging $297 per ton, a 3% increase quarter over quarter. However, Chinese integrated pet reference margins remain pressured, decreasing to an average of $147 per ton, yet witnessing a slight recovery in recent weeks. On the other hand, U.S. reference paraxylene increased 4%, resulting in a spread between North American and Asian prices of $258. That is 12% higher than the previous quarter. However, consistently declining in May and June. Compatible EBITDA decreased to $102 million, a 20% reduction year-over-year as reference margins remain at lower levels. Now delving into the plastic and chemical segment, volume reached 202,000 tons, down 4% quarter on quarter, primarily related to the temporary production interruptions from the Altamira sites, particularly for EPS. Polypropylene reference margins remain flat at 15 cents per pound, mainly from supply and demand dynamics. Average reference propylene prices decreased to 47 cents per pound, down 13% versus the previous quarter. EPS, however, saw a recovery. North American reference margins increased to an average of 26 cents per pound, 40% higher quarter over quarter. Average reference prices for styling rose to 60 cents per pound, up 3% from the first quarter. Compatible EBITDA was 52 million, up 20% quarter on quarter. Polypropylene remained in line and EPS improved as raw material prices declined throughout the quarter. Particularly in June, a supply in North America normalizing following the effects of industry shutdowns earlier this year. In recent months, interruptions to shipping routes have led to ocean freight costs reaching levels not seen since 2022. If the trend continues, margins could improve, or it could represent a potential opportunity for upticks. Turning to free cash flow, for the second quarter, CAPEC was below expected levels of $22 million, comprised mostly of scheduled maintenance. We remain on track to conclude the year below the guidance of $200 million for the year, with a strong commitment to disciplined capital allocation. Networking capital improved by $34 million, as polyester raw material prices rose slightly, while polypropylene raw material prices decreased, as did EPS on a month-to-month basis. And finally, regarding the company's financial position, net debt decreased 5% sequentially to $1.73 billion, as efforts to improve cash flow generation continue to yield positive results. Last 12 months reported debita was $517 million, resulting in a net debt-to-debita ratio of 3.3 times, down from 3.7 times in the previous quarter. The company also maintained its investment grade across the three rating agencies. Most notably, in May, Standard & Poor's Global reaffirmed the rating for the company as a stable and triple B-. We're confident that APEC is still on track to lower its leverage ratio, and we remain committed to approaching our targets of 2.5 times per year. Thank you for your attention. I'll turn the call back to Jorge.

Disclaimer

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