Alpek, S.A.B. de C.V. (BMV:ALPEK/A) Q3 2021 Earnings Call

0:00 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.

0:55 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.

1:06 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.

1:56 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.

2:43 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.

3:39 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.

3:50 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.

4:39 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.

5:46 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.

6:31 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.

7:19 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.

8:06 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.

8:55 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.

9:08 Thank you, José Carlos. Regarding recent events, and as we announced in the press release last week, ALPEC reached an important milestone regarding its work on ESG. Over the past two years, we have found ways to improve the manner in which we identify ESG risks and opportunities, how we proactively address these issues, and how best to disclose our progress. In our 2020 annual report, we published an updated ESG model, and we have continuously improved our scores with the major rating agencies. The next step in our journey was to set clear and ambitious goals for each of these topics.

9:56 During the third quarter, we carried out a deeply analytical review of the global ESG landscape, as well as our progress to date, which culminated in a set of 12 targets and corresponding action plans on which the company is fully aligned. Of the 12 targets, there are four topics that we would like to discuss that are likely most relevant to today's audience. Let us begin with carbon emissions and eco efficiency. ALPE believes the science is clear on the need for urgent and decisive action with regards to climate change. In accordance with the Paris Agreement, we plan to reduce greenhouse gas emissions from our global operations by 27.5% before 2030 and ultimately reach net zero emissions by 2050.

10:55 To do so, we must accelerate the transition to fully renewable electricity sources, find energy-saving opportunities across all of our sites and explore new technologies that will allow us to produce carbon-free steam. On the topic of PET circularity, where mechanical technology has already achieved recycling rates of 59% worldwide, we have formalized our intent to further expand our water recycling capacity to 300,000 tons by 2025, allowing us to meet customer targets for recycled content. For polypropylene and EPS, where waste gathering efforts are not yet as advanced, we are also focusing on finding circularity solutions through chemical recycling and biodegradability.

11:53 In terms of occupational safety, APEC has a long history of achieving better than industry average metrics. However, while our goal has always been to have zero accidents every day, today we are setting a quantifiable target to be in the top decile of the industry in recordable incidents. To reach this target, we will focus on increasing the reach of frequency of external safety audits, complementing with increased use of technology and performing company-wide campaigns to reinforce the importance of our individual actions on the company's safety levels.

12:38 Finally, regarding corporate governance, we have seen evidence that empowering a diverse team with the right information leads to better decision making. As such, we will present proposals to improve board diversity at our upcoming Annual Shareholders Meeting. In parallel, we will increase access to our relevant ESG Key Performance Indicators per year end. Rest assured that we maintain the same level of analysis, ambition, and action plans for all our other material issues not presented today. This might all be found on our website. We are confident that via this new approach, we will achieve all our targets, maintaining a level of commitment to ESG equal only by companies at the forefront of this movement. Moreover, we intend to keep an open mind, periodically reviewing and adjusting our approach as needed by these ever-changing topics.

13:45 Finally, regarding our outlook for the remainder of 2021, we have observed a strong margins from previous quarters carry over into third quarter 21. And with elevated marine freight costs likely to continue providing support to an already strong supply demand balance in our main products, the company has decided to update its guidance figures and underlying assumptions. In the polyester segment, Alpek expects the continuation of strong demand with Asian integrated margins, now expected to average $315 per ton for the remainder of the year. In the plastics and chemicals segment, the strength of polypropylene margins is also expected to last through year end.

14:35 although at levels lower than current figures, but greatly surpassing our most recent forecast for the year. As such, we expect average reference margins of 45 cents per pound for the fourth quarter. Our updated guidance figures are still based on an average Brent crude oil reference price of $70 per barrel for 2021. unchanged from our previous guidance, as demand for refined products has remained steady. Based on these assumptions, guidance for overall comparable EBTA in 2021 is now set at $850 million and $1.05 billion for reported EBTA, as we still expect to end the year with a net positive inventory adjustment and carry-forward effect.

15:28 It's worth noting that it meant this figure would be the highest comparable EVDA ever in Alpex history. Volume guidance remains unchanged as performance across both segments continue in line with our original guidance and at record setting pace. Guidance for CapEx would also remain at $250 million. We are excited about the strong performance our company has continued to exhibit but even more so about the future growth opportunities that these recent results open for us. As always, I would like to thank our team, customers and suppliers for another stellar quarter. I would also like to thank you for your attention today.

16:16 I will now turn the call back to Alejandro to open the webcast for Q&A.

16:23 Thank you Pepe. At this time, we will now take your questions. To ask your question live, we ask that you raise your hand virtually through Zoom. We will call on participants in the order that hands are raised. Alternatively, you may also type your question through the Q&A function. We will attempt to cover as many questions as time allows. Our first question comes from Nikolai Livman with Morgan Stanley. Nick, your audio has been enabled. Please unmute yourself and proceed with your question.

16:55 Thank you very much, Alex. Good morning, everyone. Thanks for the call and for taking my questions. And congratulations on the strong numbers. I have three quick questions. First, and I know you're not giving guidance for 2022, but on the polyester side, what I can see, you have rising cotton prices, high freight. Can you discuss perhaps the balance of risk? um to what degree that you have balance of risk to the upside into 2022 specifically for polyester so that's question number one question number two relates to our pets and and and how you express your targets there which is 300 000 tons which is a very concrete target for 2025 your the brand owners your clients express it as a percentage of recycled content as a percentage of the total product.

17:44 Can you, am I overthinking this? And I would also like to just, you know, if you were to ask, if you were able to buy recycled glycol, is that something that you would be interested in, in relationship to try to reach the targets that will potentially allow you to operate at a higher rate in PTA and just use the recycled glycol? Those are my questions. Thanks a lot and congrats.

18:12 Well, thank you, Nick. Your first question, I mean, how do we see, let's say, margins for PET for 2022? Well, we, at this moment, I have to say we do see a potential upside, an important potential upside in margins for PET. based on many factors, actually. I mentioned several times during my presentation the issue of the ocean freights as a factor that has enabled us to increase our, let's say, sales into domestic market, particularly North America.

19:00 and it has certainly tightened the supply demand situation for PET. But there are other factors at play also. Again, the ocean freight is one issue. But recently, as I believe you must be aware, there's been a significant increase in energy prices in Asia, particularly natural gas. There has been also, in particular in China, some rationing of power supply. And this has already translated over the last few days into even higher margins than we mentioned in our guidance. I mentioned that we were assuming $350 per ton margins for Asia during the pandemic.

19:53 before quarter, and honestly, today's margins, I mean, if we specifically talk about today, the margin in China, not in Asia, is $360. So, versus the 315 that I mentioned as our assumption, so there is, that's another factor that might be playing, you know, in terms of improving margins. And again, The reasons for local margins in Asia to improve have to do, I think, we believe a lot in terms of energy. And so, yeah, we do believe it's a significant upside for margins during the next year. At this point, we are starting negotiations with our main customers for prices for next year. So we will have a more definitive answer uh you know if you know during the next uh at the next meeting but yes the the trend is uh is positive for for margins in in our products I would say particularly particularly pet

21:08 Can I ask just to follow up? Aluminium is obviously made largely of electricity, but are you seeing some substitution there that brand owners are maybe switching a little bit out of aluminum and also on the textile side, on the yarn side, are you seeing maybe as cotton prices have been rising that there's more demand for PTA from the textile industry, or is it still too early?

21:38 Look, Nick, it's difficult to exactly answer your question. What we have seen in PET is a much higher growth than we had forecasted. In 2020, in my memory is right. I think the consumption of PET in the US increased by almost 3.9%. This year, we're estimating 3.2%, 3.3%. And for next year, we are estimating over 2%. And this compares with previous estimation that the growth of pet will be somewhere, I'm talking virgin pet, that the growth of consumption in pet would be somewhere between 0% and 1% per year.

22:28 So we have already seen a significant increase in pet. Aluminum, at least until middle of this year, has been in a way also limited by their capacity to produce. So I think they're also doing well in terms of volume. At least the visibility we have, they should be able to increase a little bit the capacity in the last or next months. But I could say that PET has surprises in terms of the volume. And I think, of course, it has to do with higher growth in the market, development, a lot of new products developed in PET.

23:23 And again, we see this when we talk to our customers, we see all of our customers asking for additional volumes to next year. So it looks like the demand will continue strong. I think a lot of the changes, we mentioned last year, you might recall, we were mentioning last year that one of the factors that we thought increased the demand for pet was the increase in takeout. all of the on-premise locations in many cases were closed and people were asking for takeout. In takeout, sometimes in the on-premise, they have these refillable machines.

24:08 In takeout, obviously, you have to use bottles. You cannot use those machines. We continue to see a little bit of that trend. take out people are continue to increase that. And so again, we think the demand will continue to be very strong and regardless of aluminum prices, honestly.

24:46 Thank you. And on the issue of .

24:50 In terms of our RPT targets, look, we committed, let me say it this way, to our customers. We have customer by customer commitment for 2025. The target that we set is for us to meet that commitment. Having said that, I think you're right. All of our customers are now coming back to us and they're asking us to try to increase those volumes. And we are looking into those. And of course, we are looking into all sort of opportunities, not only mechanical recycling, also chemical recycling. And for sure, your question of whether MEG, recycled MEG will be of interest to us, of course.

25:42 All of our recyclable products are of great importance to us. Again, we set the target based on commitments we have, but we are open and willing to increase those even further. Now, you have to keep in mind that in one of our largest markets, particularly in Mexico, There is a lot of other companies recycling PET. Some of them over customers themselves. So for that reason, they don't request. particularly in Mexico, they don't request as much recycled products because they do have the capacity and there are other suppliers, important suppliers that are also in this business of recycling PET.

26:37 That's another explanation. We are not the only supplier to our customers. I guess that in my opinion should answer your questions. Thank you very much.

26:55 Thank you, Nick.

26:56 Our next question comes from the line of Vanessa Quiroga with Credit Suisse. Vanessa, your line has been open. Please go ahead and ask your question.

27:05 Thank you. Thank you, Alejandro. Hi, Pepe. Hi, Jose Carlos. I hope you can hear me well. I have a follow up about the recycle pet question and this topic. Is it correct to estimate your expected capacity of our pet as about 12% of your total pet capacity? And if we compare these to the targets that we are seeing for your own customers, obviously, I mean, 12% is lower than these targets, which go anywhere from 25% to 30% and even higher. So given your previous answer, is it correct to assume that basically some market share, you're going to lose some market share, your fair market share of ARPET to your own customers? Just to understand that very clearly. Thank you.

28:14 I think what I tried to explain to Nick in the last part of his question And let me go back to using Mexico as an example, if you don't mind. Today, we don't produce ARPED in Mexico. And the reason why we don't produce ARPED in Mexico is because our largest customers are almost self-sufficient in ARPED. So they are supplying their own ARPED. for themselves. So again, that means that of the 25 or whatever number they want to recycle, 50, whatever, they are supplying a significant portion of it. And what they have requested from us is equivalent or is included in the 300,000 tons per year.

29:01 And no, we have not lost market share. We are increasing our market share, but but we don't have, let's say, our customers do not request from all the 25 or whatever percentage that they are using because they do have all their sources. But we are increasing their market, our market share. As I say, in some cases, they're not even asking for nothing today because they have their own plans and their own means to get recycled.

29:37 Okay, Pepe, thank you very much for that. And so my follow-up question would be about your growth plans. Do you expect for now that any inorganic growth, any acquisition that you make will be focused on your ESG or evergreen-related plan? Or do you expect to do further in terms of vertical integration or any other product or strategy? Thanks.

30:09 Well, we don't have any specific M&A opportunity right now, but we're looking into a lot of new and different fields to comply with our ESG targets. As I sort of mentioned, one of the key aspects to meet these reductions by 2030 and eventually 2050 carbon neutrality is going to be renewable energy. We're looking for ways in which we are going to source that. In some cases, Vanessa, that might imply some acquisition or it might imply organic growth. If we don't find suppliers that can deliver that to us, we could build our own renewable facilities close to some of our sites.

31:06 So yeah, it could take us there. And yes, and so that's one example of a potential acquisition. Let me continue first with the ESG ideas that we have. We're exploring new technologies, obviously. The first step and something has to be done before 2030 is a significant change of our power supply from whatever source we have today to renewable. That's number one. But now another source, important source of emissions for us, is our manufacture of steam.

31:57 And in that case, we are using also different ways to, in one case, reduce steam in favor of power. And then power, we could use renewables. That's one way we can improve or reduce CO2 from steam. And also, we're looking at possibilities of... Let me just give you an example. I mean, at this point, it sounds a little bit far-fetched, but it's moving. The green hydrogen. Green hydrogen is another opportunity that we're looking at. to also replace using fossil fuels the production of steam. And in fact, there are some new and interesting technologies on that wheel that combine the production of green hydrogen with renewable energy in the same site. So we're looking at those type of projects from the ESG. And last but not least, we are also starting to look at carbon capture projects.

33:06 Particularly, we don't need those for 2030, but we do need those for the 2050 goal of neutrality. So in terms of ESG, those are all of the project opportunities that come. And also, related to ESG, we do have projects to improve our usage, our consumption of energy in our plants, which those are very much related to adapting new technologies. And so that covers, I think, the ESG portion of your question. And on the growth side, other than ESG, well, I mean, as usual, we're also looking at opportunities to improve our portfolio to continue to grow.

33:58 we are at this point in a relatively healthy, we have a very healthy management and we have room to continue to grow not only with organic projects, but also with some acquisitions.

34:15 Thank you very much, Pepe.

34:18 Thank you, Anne. Our next question comes from the line of Ricardo Resende with J.P. Morgan. Ricardo, please unmute yourself and ask your question.

34:35 Ricardo? Sorry, can you hear me? Yeah, we got you, Ricardo. Okay, sorry. So good morning. Hope you guys are doing well. Thanks for taking my question. The first one, it's on your capital allocation. When you look at leverage has been declining, you just raised your guidance. Looks like 2022 will be a very good year as well. So how should we think about capital allocation and especially on the dividend side? The second question would be more about the working capital. We saw a large consumption during the quarter. So how should we think about working capital going forward, especially on the fourth quarter? And then just lastly, one very specific question. Pepe, you mentioned about the Chinese margins that we're seeing today.

35:23 Just to confirm, is that $360 per ton that you mentioned? Thank you.

35:31 In terms of capital allocation, what I can say is that we, of course, are looking first at M&A opportunities, but very much related to that. If we, after taking a look at M&A opportunities, find that we still have a strong balance sheet, we also, of course, will have to look at dividends. We don't want to be on a permanent basis in an inefficient capital structure with balance sheet. Having too much debt is not good.

36:16 having too little debt is not good either. So I do believe that we would have to balance that. And depending on the M&A and opportunities that we can execute, then we will also determine the dividends. So that probably, I hope, responds to your question. In terms of working capital, working capital has increased a lot this year as a result of higher prices. of crude oil and raw materials in general. So it has increased a lot. I am proud to say that in terms of investment money, in terms of US dollars in working capital, I have to say that we have been able to improve significantly were turnover of working capital. I mean, the days of working capital have been reduced like four or five days, probably, compared to previous periods.

37:15 So we have mitigated that increase of investment in working capital by higher efficiency. But also, and again, I would say most of the increasing work capital, in my opinion, is behind us. We believe prices... will start, raw materials will start to come down, and then that will free up some investment in working capital in the next months. So that should be helpful for our balance sheets as well. And your question of Chinese margins, well, what I can tell you, yeah, the 360, actually, it was 370 today.

38:05 Not 360,370. Yes, that's correct. And yes, if you go back to the last, to the spread between Asia and China over the last months, five, six months, yes, you would expect that the Asian prices will be approximately $90 higher, which will give you the 450,460 that you mentioned. However, we don't have information, I mean, We have information from China on a daily basis. We don't have information from Asia on a daily basis. And actually, there have been sort of a holiday over there over the last days, and so we don't have recent information. But yeah, I could expect that the margins will probably remain around the spread between Asia and China remaining in the $90. I suppose, only $45, $50 in previous years.

39:07 And how long does it last? I have to tell you, we put a lot of effort into understanding this ocean freight dynamic. And depending who you ask, everybody gives you a different answer. But nobody really gives you a well-documented answer. So I don't know. At first, they told us it was going to improve significantly by the middle of 21. Now, we start to hear that this is going to continue for some time and perhaps go for most of next year. Not necessarily at the same level, but we don't have really a good answer to your question. We just will be speculating.

40:06 Our next question comes from Ben Isaacson with Scotiabank. Ben, please unmute yourself and ask your question.

40:14 Great, thank you. Can you hear me okay?

40:17 Yeah, we got you, Ben.

40:18 Great. So I have three questions. The first question is on your ESG targets to reduce your emissions by 27% by 2030. Can you talk about how specifically that will be achieved? And the reason why I'm asking is I'm actually more interested in what your goalposts are for capex spending to achieve that because, of course, that will reduce free cash flow available to shareholders over the coming years.

40:49 Look, I would say there are some actions that we are taking that would actually do not require a lot of investment. Again, let me go back to replacing fossil, let me call it fossil power with renewable power. That with today's technologies, I would say they probably require a lot of investment there. Not only you do not require investment, you will most likely would not incur an additional cost. In fact, we do believe we might actually reduce costs. So those sort of actions are relatively no-brainers. Let me put it that way. And that is a significant part of the reduction.

41:46 Most of our CO2 emissions are related to the energy energy that we consume, both power and steam. So on the power side, we have those very specific opportunities. Then in terms of replacing, again, fossil power with renewables, then we do have other projects where we do need more investment and where the idea would be to reduce to reduce the consumption of both power and steam to improve efficiency in our plants. In some cases, these projects also imply a certain increase in capacity, reduction in other costs. So we do have a group of other projects in that direction. And here, we do need some investment.

42:50 We do have a very preliminary idea today. We might believe that from here to, again, to 2030, we would need probably investment in the range of $350 million. But we would, as a result of those investment, we would probably reduce or improve over every day like by 90. So this project come, I mean, important investment, but they also have a reasonable payback. So that's another group of projects. And I would say those are, for 2030, those are the main ideas.

43:39 Yes, and then again, in the balance, you have also to consider we might have some footprint optimization. we might consider the bottlenecking some plants, and that would allow us to reduce some other plants that are not as efficient. But that's, again, part of the idea of the 350. And I would say that should take us to 2030. And as I mentioned, beyond that, Well, we have to continue to look for other opportunities. I think particularly the next step will be some additional power switch from fossil to renewables. We do have some contracts which expired beyond 2030, which we cannot cancel.

44:37 And then, of course, as I mentioned, the steam opportunity. right at that time will be very critical. And as I say, then in footprint, we have some assumptions of reducing or optimizing some of our sites. But at the same time, we have some assumptions that we will have some growth. So we are including in our 27.5 potential new acquisitions.

45:11 Perfect, thank you. My second question is on capital allocation, just to follow up on the dividend question. There's been a lot of talk about Dividends and potential special dividends by Alpac. And I just wanted to ask about share buybacks. Have you considered and what are your thoughts about repurchasing shares directly from Alpha? It sends a very good signal to the market that you see your stock as being undervalued. You also don't destroy the 18% free float. and of course it also sends money to Alpha as well, which accomplishes the same thing as a special dividend. Can you talk about whether or not you've evaluated that and what your thoughts are there?

45:58 We are looking at several alternatives and this could potentially be one of them. What I can tell you is that's something that could be done. It depends a lot also on fiscal issues that we have to consider.

46:20 OK, thank you. And my final question is just for an update on the timing, CapEx, decision making on Corpus Christi.

46:35 Well, as I mentioned before, The outlook of demand in North America has improved significantly over the last couple of years. And yes, we are at the, as we mentioned again before, we are at the latest stage of having the investment estimate for Corpus. And I would say we expect to make a decision on whether to to restart, let's say, construction within the next two to three months.

47:18 And then just finally on that point, is there any possibility of increasing or decreasing the ownership or is it set, your partnership, and there's not going to be any change? So all of the other partners feel the same or is it possible that someone to exit and sell?

47:38 Well, I... I think it will be easier to sell than to buy. I think the partners are all quite eager to move ahead with the project. So it's my opinion that it seems to me everybody will be more in a buying mode than in a selling mode. So based on that, I assume we're all going to stay the same.

48:06 Great. Thank you very much. Appreciate it.

48:09 Thanks Ben. Our next question comes from Andres Cardona with Citi. Andres, please unmute yourself and ask your question.

48:18 Thanks, Alejandro. Good morning, everyone. I have two questions. Let me try to put together some ideas about two previous questions from my colleagues. The first one is, you mentioned that you can invest on converting your facilities from virgin PET to recycle PET. I would like to understand how long does it take to complete that investment process, right? And the second one, if you are considering M&A in different geographies than the Americas. So that would be the first point. And the second one is if you have analyzed potential impacts from the potential amendment to the energy reform in Mexico.

49:04 Thanks.

49:08 Okay. That's a good one. Convert... Yeah, well, what do you mean by conversion version PET to recycle PET is what we call the single pellet solution. We do have one project to do that in one of our plants in the US, which would be approximately 33,000 tons. But that would still be a minor part of our total program. Most of the growth that we are expecting for recycled PET is going to be on purpose sort of facilities. Again, this decision of switching virgin PET to recycled PET is not as attractive as the outlook for pet demand is improving.

50:02 If we were to be in a situation in the future where you have excess pet capacity, that that conversion would make more sense. But right now, with the outlook I was sharing with you, we're actually short of conversion pack capacity for the next, at least for the next two, three years until the Corpus starts. So that's perhaps something that we will address later when we're closer to the startup of Corpus. For the time being, our most important projects are have their own solid stating capacity together with the flake production. Okay, now measurement to the energy reform in Mexico.

50:50 Well, as you say, it's a TILA proposal. We don't know if it's gonna be approved and if it's gonna be approved, what changes are gonna be made into the proposal. Overall, all we're concerned, if the proposal went to go exactly as it is, Well, I mean, I think it has a lot of problems, honestly. I mean, first of all, it's not sort of... But let's put it this way. The main issue, I think, for us, it will be potentially an increase in power costs, a significant increase in power costs versus the alternatives that we have today. That, I think, will be the major problem that we envision with this reform. particularly if it's applied retroactively.

51:39 If it is not, I mean, if it's applied like for new projects and existing projects were to be allowed to continue, which is something that we will expect to happen, then the impact would not be as important for us. Still, overall, I think the impact for the Mexican economy that depends so much on manufacturing is that an increase in power costs would reduce the competitiveness of most of the manufacturing plants in Mexico. That's the biggest concern that we would have with a decision like this. And again, let's hope that this is taken into consideration.

52:33 Thanks, Ben.

52:37 I'm sorry, Andres. Thank you, Andres. Our next question comes from the line of Gustavo Cunha with UBS. Gustavo, please unmute yourself and ask your question.

52:48 Sorry, can you hear me? Can you hear me? Yeah, we can hear you. Go ahead. Okay. Yeah. It's Luis Carvalho here. Sorry. Yeah. Hi, Pepe and Jose Carlos. Thanks for taking the questions. I would like to come back on this capital location discussion. I think that we had a couple of questions before, but just trying to understand what would be the strategy looking forward. I think that you already mentioned that Potentially would consider some, I don't know, some potential, I would say, inorganic, I would say, growth or you mentioned something about dividends, but I'm just trying to understand what kind of returns are you looking and and if you don't have the OCD potential M&A on your pipeline, how would you see the OCD dividends looking forward? The second question is mostly about some of the products that you produce.

53:49 We, I mean, prior to the pandemic, we saw lots of pressure from, I don't know, some bodies in terms of reducing, for example, the use of single-use plastics. And after the pandemic, we saw kind of a rise in terms of the consumption for these goods. And now that the pandemic is, I would say, somehow easing in some parts of the world, how you're following the utility consumption habits for these kind of products. Thank you.

54:25 In capital allocation, and again, I think the idea with capital allocation, as I mentioned, I mean, we're going to continue to pay dividends. There's no question about that. I think the question is the amount of dividends that we're going to pay going forward. And that depends, again, as it has been in the past. on the opportunities on the M&A side. But in all cases, of course, we will try to keep our net debt to M&A in levels that are similar to previous years. Try to not to go over 2.5, at least not enough. on a permanent or in a long period of time. So it might be a little bit more for a short period of time, but that in a way I think is what's going to decide on the dividends. We do have to pay dividends to make sure those can be higher or lower depending on the opportunities that we find for M&A.

55:39 And in both cases, I mean, we'll try to, be close to the leverages that we have mentioned, you know, two, 2.5 to 2.5 times every day that they have to every day. That is the criteria that you can expect. And you can, you know, you can see that that will happen. Pressure on plastics, I mean, that continues to be a major issue for us. And I think, you know, it's very interesting because In terms of plastic, I think the biggest concern of the consumers or of the communities or the people has to do with the waste, the way we manage the waste in plastics.

56:29 And in that sense, I mean, the best way to change that, as we explained before, is through a secular economy, through increased recycling. That's where we are working so hard. It's a lot of people working on that. And I think as we do improve the recyclability of particularly of PET, we will mitigate the pressures from society on that side. On the other hand, and now that we are all so much focused on ESG, I think we believe that over time, the key metric that everybody is going to be looking at is going to be CO2 emissions. And again, when you look at plastics in terms of CO2 emissions, then you will realize, and hopefully we can convey this to the people in general, that from the perspective of CO2 emissions, PET is the best option for the consumer. And I will tell you something else, recycled PET is even better in terms of the emissions of CO2. So again, I think as people have become more familiar with all of this, the perception about the plastics should improve.

57:52 So again, from a theoretical point of view, the plastics, we have an issue with waste, which we are addressing, but we have a great opportunity in terms of the advantage that plastic has on the CO2 emissions. And I think, again, right now, waste is a big issue. Hopefully, it will be resolved and mitigated the problem. But I want to think two, three, four years from now, most of the concern of the people is going to be in CO2 emissions. And on that front, I do believe that we have a big advantage, particularly if we make all the changes that we're talking about.

58:38 converting to renewable power and reducing, I mean, clean source to produce steam, then I think our product, you know, is really, you know, very, very friendly with the environment.

58:57 Okay. Not very clear. Thank you very much.

59:00 Thank you, Luis. That was the last question we have time for today. Rest assured, we will follow up via email if we were not able to get to your question on this call. As always, I'd like to remind you that you can find both a video recording of today's webcast as well as a transcript on our website at alpec.com. Thank you all for participating today with us and have a great day.