Alpek, S.A.B. de C.V. (BMV:ALPEK/A) Q4 2022 Earnings Call

0:00 Good morning and welcome to OPEC's fourth quarter 2022 earnings webcast. I am Anton Fernandez, OPEC IRO, and today I'm happy to be joined by our CEO, Pepe Valdez, our CFO, Jose Carlos Pons, and for the first time, Jorge Young, our incoming CEO. This presentation is divided into two parts. First, Pepe and Jose Carlos will comment on Alpec's all quarter and full year performance, and then Jorge will remark on the 2023 guidance figures. Afterwards, we will move on to Q&A. Please note that the information discussed here today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to certain risks and uncertainties.

0:47 Actual results may differ materially, and the company cautions the market not to rely unduly on these forward-looking statements. ALPEC is under no obligation to audit or revise any forward-looking statements publicly, whether as a result of new information, future events, or otherwise. I'd like to remind everyone that today's webcast has been recorded and will be available on our website at alpec.com. I will now turn the call over to Pepe.

1:20 Thank you, Anton. Good morning, everyone, and thank you for joining us. I am very pleased to state that in 2022, we reached record figures making it Alpec's best year to date. The continuous strong reference margins, as well as high ocean freight costs and high demand throughout most of the year, drove the company to achieve outstanding figures. On an annualized basis, the company reached the highest volume, revenue, reported and comparable everyday figures in its history. As per recent company announcement, on March 1st, I will be leaving my current role as CEO of Alpec and assuming the role of Senior Advisor at Alpha.

2:06 Leaving this incredible company for several decades has been a privilege, and I was able to oversee its growth across geographies, but most importantly, I was able to see where the Alpec community developed and thrived. And now I would like to introduce you to a dear colleague of mine, Jorge Young. Jorge was appointed Alpex's new CEO by the board of directors and will assume his new role on March 1st. Jorge will also retain his responsibilities as president of the polyester business, which currently represents approximately 60% of Alpex's EVDA. I have confidence in him as I have had the pleasure of working by his side for many years, and I am certain that his experience and trajectory will enable him to lead the company successfully into the future. Throughout his extensive career at Alpec, Jorge has held key roles within our important polyester division, including president of PET and Stapled Fibers.

3:16 Good morning and thank you, Pepe. I will do my best to maintain the momentum you have generated at Alpek throughout all these years. I very much appreciate your continued support for the business, for customers and the people of Alpek. On behalf of everyone, thank you. I'm very excited for this opportunity and grateful for the trust from the board of directors. I look forward to working with you all.

3:45 Great Jorge, let's begin by reviewing the main topics of today's presentation. First, ALPEX financial performance for the fourth quarter was below our guidance driven by the polyester segment. However, results for plastic and chemicals were above our expectations. Jose Carlos will review this in greater detail later on. And second, Jorge will provide insight into 2023 guidance figures and expectations, which we released earlier today. After three quarters of better than expected margins and results, this quarter we saw the following. Reduced demand across our products as a result of generalized stocking from customers on our value chain.

4:35 On anticipated higher relative prices of paraxiling in the Americas versus Asia, which impacted over volume and margins in the polyester business. Operating issues from one of our large PTA customers and longer unexpected maintenance at our PTA Brazil facility. Reference margins across our public portfolio were in the third quarter, but it was likely higher than what was expected in the guidance. Another very important factor was faster than expected decrease in container freight rates from Asia, particularly for polyester and EPS going into South America and Europe.

5:26 Regarding ARPEX ESG progress, we have made improvements on the following main material issues this year. On CE2 emissions and energy and energy eco efficiency, our scope one and two emission decrease by 19% versus our 2019 SBTI base. One of our facilities transitioned to 100% renewable energy, which led us to increase our clean energy intake by 7%. Two, circularity. We continue to make progress in PET circularity with octal acquisition and an addition to one of our facilities, we now have the capability to produce PET sheet with different degrees of recycled content and additional single pellet Technology Capacity, 33,000 tons of PET sheet post-industrial recycling in Cincinnati, 24,000 tons of single pellet technology in the Salala plant in Oman, and additionally we incorporated 15,000 tons of SPT recycled capacity at our Pearl River facility.

6:40 We will continue to explore possible projects in both PET sheet and PET resin recycling. 3. Occupational Safety Our total recordable incident rate decreased by 5% versus our 2021 figures. We will continue to strive to be in the top decile of our industry and our goal, of course, is to achieve zero accidents. Demonstrating our commitment and transparency toward our customers and investors, the company improved its ESG ratings with all agencies. Let me mention a couple of recent highlights. CDP has updated our climate change rating from AC to AB.

7:26 For S&P, we have reached the top decile for our industry, and in sustainability, we are in the 25 percentile in chemical industry. We will continue to work towards advancing on all of our materiality targets and prioritize action for our 2030 decarbonization goals. Jose Carlos will delve more into the financial results. Jose Carlos?

7:54 Thank you Pepe, and thank you all for being here with us today. Let me provide some context for the quarterly results. Asian integrated polyester reference margins averaged $338 per ton, higher than expected and 60% lower than in the previous quarter, with the spread between Chinese and Asian margins increasing to $114 per ton. Meanwhile, polypropylene reference margins declined to an average of 23 cents per pound, 32% lower quarter on quarter, mainly due to the following. The initiation of operations of added polypropylene capacity in Canada and the Gulf Coast in the US, and the weakening demand towards the end of the year. Also in North America, EPS average reference margins remained strong during the fourth quarter, declining to 64 cents per pound, 50% lower versus the previous quarter, yet remaining at high levels.

8:53 I would like to highlight some of Alpec's main achievements during the quarter and overall for the year. Alpec surpassed its annual volume record, reaching 5.07 million tons and setting a new historical high for its polyester segment. Quarterly comparable levied that of $270 million, mainly due to normalizing reference margins for all products. Once again, obtaining the highest ever annual comparable levita of $1.4 billion, 45% higher year on year, driven by better than expected margins across all business segments throughout most of the year, as well as incremental volume from the recently incorporated pet business. Recovered $3.5 million in guaranteed debt from M&G Mexico during the quarter, totaling $26 million for the year Leverage 1.3 times while still delivering extraordinary dividend payment of $196 million to shareholders in the fourth quarter, or a total dividend payment of $372 million for the year, and the payment of $94 million towards an outstanding bond.

10:04 Volume reached 1.23 million tons this period, a reduction of 10% quarter on quarter. This was related to seasonality and the softening of demand. In the polyester segment, volume was 1.01 million tons, 9% lower quarter on quarter, amid typical seasonality effects and pet demand softening, as well as a maintenance at our Brazil facility. In plastics and chemicals, volume was 12% lower quarter on quarter, due mostly to seasonality and additional polypropylene supply in the region. On a full year basis, overall volume reached an all time high of 5.07 million tons, a 6% rise year on year.

10:49 Related to the incorporation of the pet business in the Middle East and the solid demand experienced throughout most of 2020. Moving on to rope material price dynamics. The fourth quarter was marked by a tight microeconomic environment and continued inflationary pressures. The average spot Brent crude oil price decreased to $88 per barrel, 11% lower than in the third quarter. Use reference paraxylene prices decreased by 8%, enlightened with crude oil. In plastics and chemicals, propylene prices declined averaging 32 cents per pound, a 31% decrease when compared to the previous quarter. Moving on to the EBITDA breakdown for the quarter.

11:34 We can see that overall comparable EBITDA decreased to $270 million. This was 36% lower than in the previous quarter, primarily due to overall demand and normalization of reference margins across all products. Reported EBITDA was $186 million, 39% lower quarter on quarter, This result also included a negative inventory adjustment of $57 million and negative carry forward effect of $27 million and mainly generated by declining crude oil, peroxylin and propylene prices. If we review results by key segments, polyester comparable levita was $151 million, 42% lower quarter on quarter and only 5% lower year on year.

12:23 This was mainly due to the decrease in Asian integrated polyester reference margins, which averaged $338 per ton, 60% lower quarter on quarter. Annual comparable EBITDA for the polyester segment totaled $828 million, 80% higher than in 2021. This was driven by the import parity benefit of freight cost and the recently incorporated Middle East business. In plastic and chemicals, comparable EBITDA was $120 million, a 24% decrease quarter on quarter and 30% year on year. This was mainly due to a decline in both EPS and PP reference margins and lower consumer demand impacted by market inflationary pressures.

13:09 In terms of 2022 overall results, comparable EBITDA was a record breaking $1.4 billion. 45% higher than 2021 from better than expected margins and solid demand throughout most of the year across all key products. With regards to precast flow generation, networking capital investment was reduced by $129 million. As raw material prices began to drop, especially in North America, where paraxylene contract prices fell 8% versus the previous quarter. Meanwhile, CAPEX totaled $51 million and was mainly allocated towards maintenance, with a portion for the construction of the Corpus Christi Polymer Facility. This all resulted in a positive free cash flow of $180 million for the quarter.

13:57 It is also worth mentioning that APEC distributed a total dividend of $247 million in the quarter, representing $196 million for shareholders. For the full year, Alpek distributed a total of $494 million, with $372 million for shareholders and remaining amounts for minority shareholders, leading to a dividend yield of 13%. Finally, regarding the company's financial position during the fourth quarter, Alpek's net debt increased to $1.86 billion, 3% higher versus the previous quarter. Last 12 months EBITDA was $1.46 billion, resulting in a leverage ratio of 1.3 times net debt to EBITDA. With regards to credit ratings, in 2022, Moody's and Fitch upgraded their outlook on Alpec from stable to positive and maintained their investment rate rating, while S&P confirmed its investment rate rating and stable outlook for the company.

14:57 Alpec maintains its commitment to continue to strengthen its ratings. Thank you everyone. I will now turn the call back to Jorge.

15:08 Thank you, Jose Carlos. To conclude, regarding 2023 guidance, ALPEC expects a solid year while considering the continued normalization of PET, polypropylene, and EPS reference margins, as well as ocean freight costs. Our guidance figures are based on the following key market and business assumptions. Average Brent crude oil reference price of $90 per barrel. Average container ocean freight costs are expected to remain at low levels, mainly impacting polyester margins in South America and the EPS business. Asian integrated PET reference margins of $320 per ton. A gradual decline in North American polypropylene margins, which remained high in 2022, and are expected to normalize closer to previous levels.

16:03 Volume slightly below 2022 levels due to the following. In the polyester segment, mainly driven from lower exports due to continuous pressure from the disconnection between North America and Asian paraxiling prices. In plastics and chemicals, mainly in EPS, driven from softer demand due to construction slowdowns and packaging demand returning to regular levels, as well as in polypropylene due to additional supply in North America. Based on these assumptions, overall comparable EBITDA for 2023 is expected at $920 million. Annual CAPEX is expected at $445 million, which includes $330 million for strategic projects Particularly, the construction of Corpus Christi polymers and another portion for cost-improving projects, which may include footprint optimization opportunities.

17:08 Additionally, we anticipate a recovery between $100 and $150 million in net working capital as raw material prices continue to normalize. Furthermore, Pre-cash flow generation before strategic capex and dividends is expected to be at similar levels versus 2022. Finally, from a financial standpoint, ALPEC has kicked off 2023 with a solid position of 1.3 times net debt to EBITDA ratio. We expect leverage to remain in line with our requirements as an investment grade company and well below our target of no more than 2.5 times.

17:55 I would like to thank our team, our customers, and our suppliers for supporting Alpek. I would like also to thank you, our audience, for your attention here today. Pepe, I'll turn the call back to you.

18:11 Thank you, Jorge. I would like to highlight that my departure from the role of CEO of Alpek culminates a five-year transition process to renew and strengthen our leadership team, which is now composed by individuals with an average age of 49 years and with great experience because most, in average, they have been in Alpek for 25 years. I am proud to have worked with each of these executives throughout their careers, and I am convinced that their expertise and tenure within the company will enable them to make significant contributions for ALPEC, very important on the Jorge's leadership.

18:59 I would also like to take a moment to thank all of our stakeholders and each and every person, past and present, who has been a part of my journey here at ALPEC. You have contributed to my growth and expertise both professionally and personally, and I am grateful for the opportunity you have given me to work with you these past 46 years. And to you, our analysts and investors, thank you for your interest, your participation, and your commitment. You have my utmost respect for your professionalism and the work that you do on a daily basis. It has been a pleasure to speak with you all of these years.

19:44 Anton, we can now go ahead and open the Q&A.

19:52 Thank you, Pepe. At this time, we'll take your questions. To ask your question live, we ask that you raise your hand virtually. We will call on participants in the order that has been raised. Alternatively, you may also type your question through the Q&A function. We will attempt to cover as many questions as time permits. Our first question comes from Luis Carvalho from UBS. Hi, Luis. Please proceed with your question.

20:19 Hi, everyone. Thanks for the opportunity. First of all, Pepe, congratulations. And thanks for all your partnership during this year. I'm really glad to see your departure in a very good moment of the company. So thank you very much for everything. and good luck on your new phase. And Jorge, good luck to you. I'm hopeful to have many, many interactions with you. If I may have two basically questions here. The first one would be to Jorge. I mean, you're taking, of course you have been with Alpec for years and taking a different position. Maybe we'd like to hear from you. What would be your main goals and main challenges that you foresee for the next, let's say two, three years?

21:10 The second question is more on the capital location strategy also. Um, I mean, we see a very strong, you know, 2022 in terms of performance and dividends. So, um, you now have, I don't know what topics with, um, I don't know, somehow expansion. So what can we expect in terms of, I don't know, capital location for 2023? Thank you.

21:37 Good morning, Luis. Thank you for your question. This is Jorge. I think, you know, for our long term plans for the companies is to continue the very solid strategy that, you know, I have been part of. I think among our main goals is continue to find growth opportunities and to conduct the business with financial province. Our key task and challenge is to find and deliver those opportunities that provide value to the key stakeholders, allows us to keep a very strong commitment with our customers and show that through our actions of growth to reward investors with growth opportunities and the people.

22:21 you know to the extent we can grow so that's uh that's the again or or our key goal and and and at the same time continue with financial province hope that answers your question yeah thank you and on the capital location for the year had i mean what are the plans in terms of um deploying capital um anything related to i don't know to potential dividends or I don't know any further projects in terms of growth. If you can share some updates on the Corpus Christi. So, I mean, how can we think about the capital allocation plans for the year?

23:04 Yes, the capital allocation plan for 2023 has investments in projects and a dividend payout. The uh in the capital in the capital projects the main one is the the corpus christi uh pta pt plant that is uh under construction now so that's the largest projects but we also have uh other relevant projects in our portfolio to improve substantially or or cost competitiveness so that's the you know as an example we have uh In our PTA plans in general, opportunities to improve our competitive position in variable cost. And we have advanced one of our projects for the Altamira PTA site, which is our largest plant. And it's our expectation to wrap up the decision to start that project and start executing that later in the year.

24:02 So that's also part of the key projects for 2023. And of course, in due time, In the next few weeks, there will be a communication to share the dividend plans for 2023. Okay.

24:21 Thank you very much. Good luck. Thank you, Luis. Our next questions come from Leonardo Marcondes from Bank of America. Hi, Leonardo. Please proceed with your question.

24:34 Hi, guys. Good morning, everyone. Thank you for picking my questions. Just first, I wanted to say good luck to Pepe in your future endeavors and also congratulations to Jorge in his new role. Well, my first question is regarding the guidance. Could you provide a bit more color on what are the drivers that will lead to a reduction in PET spreads for 2023? If you could also provide if there is any upside to your projections here and where that could come from? My second question is regarding the plastic and chemical segment. PPE spreads are known to be weaker this year, given all the capacity being added in the US, right?

25:23 But on the EPS side, how do you guys expect spreads to behave in this year after a very strong 2022? Thank you.

25:35 Yes, Leonardo. On your questions, first on polyester, We have captured in our guidance more, you know, competitive situation of in general in prices. In the case of polyester, the main effects are coming from the lower cost to ship products in containers and that affects some of our markets like South America and that's being captured in the guidance. And the other point of pressure that Pepe mentioned is raw material paraxiling. We expect that it will continue to stay elevated relative to Asian paraxiling prices. And the issue or the implication is that it impacts our export margins and our export volumes, what has been captured in the guidance. In the case of EPS, have a similar situation. The business needs to be competitive with import parity prices from other regions, mainly formation.

26:43 But we have also significant opportunities to differentiate our offering. And that's been, so both factors have been captured in the guidance.

26:57 It's upside.

26:59 I think regarding the upside for our business, I think what could happen is that we see demand recovering. I think we have been somewhat conservative in our volume assumptions for demand of the business. So to the extent we see more normalization of the demand in our domestic markets and eventually in our export markets when You know, this condition that we have been mentioning on the paraxiling, we expect that to be of temporary nature. So when that situation normalizes, we would expect to recapture a regional export market. So I would say those are among the key offsets.

27:41 And in fact, we just compliment Jorge. Maybe I should also ask our investors to look at the pre-cash flow generation in the year. We do have a potential upside in the pre-cash flow generation. as working capital is recovered throughout the year. So I understand you'll judge the performance based on EBITDA, but also free cash flow is very important and will be continuing to generate throughout the year.

28:09 Okay, thank you. And regarding the plastic and chemical segments and EPS,

28:16 Yeah, I had mentioned in EPS a similar effect. We expect more competitive margins as the cost of shipping products through the ocean has come down. But as I mentioned before, I think we have an opportunity or we can differentiate our offer with service and we expect to maintain a premium over the import parity.

28:42 Perfect. Thank you.

28:44 Thank you, Leo. Our next question comes from Nicola Liebman from Morgan Stanley. Hi, Nic. Please proceed with your question.

28:53 Hi, good morning. Thanks for taking my questions. Thanks for the call. Pep, I also wanted to both congratulate you. Thank you very much for this decade-long partnership. And of course, Jorge, congratulations on your new role. I look at the fourth quarter numbers and see this 9% quarter-on-quarter decline in volumes at the same time as pricing is coming down. So it looks like there's a lot of stocking going on into the lower prices. I wanted to see if you can give a little bit of color on how that, if that's the right interpretation, that there's a bit of a buyer strike as prices are coming down. And related to that question, when we think about the third quarter, when clearly the pricing trajectory is different Sorry, the fourth quarter, we're clear that the pricing trajectory is different from the fourth quarter. How many months of weakness did we have?

29:49 One, two, a three in this quarter. So that's a bit of a long first quarter. The second The second question I have, could you provide a bit of color on the reason behind this PX decoupling, the price decoupling in Paris Island? I would appreciate that very much. And then especially if it's linked to Russian oil being shipped to other markets and thus providing a competitive advantage to certain Asian clients. Thank you very much, guys.

30:24 Yes, Nicolai, this is Jorge. I think on fourth quarter volume, we saw a combination of the stocking as the customers experience adjustments in their inventory chains. And it basically was throughout most of the months in the fourth quarter. I think it was a clear change between Q3 and Q4 in terms of that. And as we mentioned, we also adjusted some of our exports volume. and to remain competitive in our offering. On the question of paraxiling and decoupling, it's a complex story, but I'll try to put it in very simple terms. It has to do a lot with the Russian Ukraine situation.

31:15 There was a big volume of refined products that were being exported by pipeline from Russia, mostly into Europe. Those flows have been stopping or reducing significantly but the refined products keep flowing now through vessels so that is requiring much more vessels deployed to move refined products and that is impacting the shipping cost of liquids especially clean liquids like fuels and petrochemicals and that reduces or impacts our ability to import The other factor that is impacting the cost of paraxiling is just the general situation in refineries. Refinery utilization rates globally are very tight and in particular the precursors or the feedstocks to make paraxiling bring blending properties to the gasoline like octane and vapor pressure and that's in particular in particularly for the feedstock of paraxiling that's another factor. Torso of Pressure.

32:25 I hope that answers your question, Nicolás.

32:31 Let me add something that might help you also have a feeling of how soon this can change. As Jorge mentioned, there are really three factors, I think, that are causing this decoupling. Number one, he mentioned, is the war in... Well, let me put it in a different way. Number one, the most important difference is the gasoline spreads. The gasoline spreads normally are around $10 per barrel. Last year, they increased in the summer up to $40, $50 per barrel, which is unheard of. And gradually, it came back down. Today, they might be around $25 per barrel.

33:18 Again, the normal would be somewhere between $10 and $15. Right now, we are $25. We believe this year is going to be strong margins until new refining capacity comes into the picture. So on that side, I mean, there is uncertainty, but we are assuming in the guidance that this will remain for the year. The other reason that Jorge mentioned, and this is more volatile, is this increase in ocean freeways for liquids. In fact, It was not an issue, and we did not talk about this, but summer 22 It was the biggest disconnection between paraxylene in the US and in Asia in history. We were at a point, I mentioned already that there were times where margins were close to $50 or $50 plus. At that time, the disconnection in paraxylene was very high, but we could contain the impact of this disconnection because we have availability of of love rates from asia so we imported or alpec polyester imported a lot of paraxiling we were expecting that We had a lot of imported PX, so that

34:52 decoupling at that time, summer, May, June, July last year, which was much higher than what it is today, we could mitigate to a great extent with imports from Asia. At the time, freightways from Asia were around $50 per ton of paraxylene, which is manageable for us. Now, at the end of the year, normally gasoline spreads come down at the end of the year due to the seasonality effect, lower demand than in summertime and driving season. Unexpectedly, because I have to say we did not put this into or capture this into the guidelines for the fourth quarter, the margins of gasoline came up again and the disconnection started to hurt.

35:48 And at that time, first of all, we had not prepared to import more PX. And second, the freight rates were much higher than during summertime. That's a result of what Jorge was explaining, the Russian-Ukraine war. What I'm saying is, it's difficult to predict how long this is going to last, but we need that, you know, it could change. I mean, when the spreads of gasoline go down, the situation will improve. If liquid freights start to come down, then that would also go a long way towards solving this problem, because, as I said, with a normal freight rate, The coupling is not a problem.

36:37 And third, and the other factor which is more difficult for us to The other way that this decoupling can be reduced is by the Asian PX prices to improve. The Asian producers of paraxylase are hurting a lot and the fact that they have relatively low margins or low prices for paraxylene I think to a certain extent has to do with the With the slow market in China for some of the products, I think the Chinese production producers are concerned about the demand being low and they've been very conservative with PX pricing. So any of these three factors, a change in any of these three factors could help mitigate this problem.

37:28 And so we have to be monitoring all of these. In the meantime, what I can say is that we are now planning to significantly increase our imports of paraxylene for the remaining of the year so that we can contain the differential in prices between US and Asia. So that we have done. and hopefully that will help, as I say, reduce the problem.

38:04 One follow-up, would it be fair to assume that it kind of hit you about one month, six weeks into the quarter? It didn't hit you right in the beginning of the quarter. We were kind of into October before many of these movements really started hitting you.

38:20 No, I think October was already a weak month for us. And again, as Jorge explained, this is part of the reason. I think together with the freight rates which hurt our margins in South America, I think this, well, the stocking, which was, but the stocking to a certain extent was included in the guidance. We did include some of that in the guidance. So the changes versus guidance, most important, freight rates and this paraxylene situation.

38:51 It's good news that it gets divided into the three months. So very clear. Thank you, Mario. Thanks for a good answer.

38:59 Thank you, Nick. Our next questions come from Vicente Falanga from Bradesco. Hi, Vicente. Please go ahead.

39:08 Hi Pepe, Jorge, Jose Carlos and Anton. I had a couple here. Related to the $320 per ton margin for PET in Asia, what sort, that was in your guidance, what sort of progression of this margin do you expect throughout the year? I mean, it is our impression here that we're going to have a gradual Thank you very much. Thank you. And if you happen to have any incremental capex overruns in Corpus Christi in this 445 number, thank you very much.

40:10 And the question, good morning Vicente, on the question on the spreads and the margin. You know, I think the fourth quarter already ended fairly close to that level in the 330s. I think we expect, uh, you know, mostly, mostly steady throughout the years. Um, we did not model, um, you know, sharp changes in, in that, uh, reference margin for, for PT. I think in the, and then the question on the projects, it's mostly, it's more than anything a cost optimization project for Altamira, but that would be a longer term investment. It would be probably two years of execution.

40:57 And from that one, we would not see specific benefits to that one in 2023. And we have others that we will have some benefit in 2023. We can provide some color and guidance maybe in a separate session.

41:21 Great. Thank you very much.

41:27 Thank you, Vicente. Our next questions come from Guillermo Delgadillo from Santander. Hi Guillermo, please go ahead with your question.

41:39 Yes, sure. Thanks for the call. Maybe on the first question, considering the guidance, what you said about the EBITDA 920, what you said about the working capital, the comeback of the 150, CapEx 445, you're still generating a lot of cash flow 275, which if it's not the big number that everyone was expecting, At least most of the market was expecting some spreads normalization. Today, we got that. So that's close to a 10% free cash flow yield at these levels of the stock price. The question is, how do you decide how much you're going to put into the buybacks at these levels? You're trading around five something times EBITDA, which is in the low range of your historical range, one standard deviation below.

42:28 At the same time, I'm guessing with the numbers that you released, you still have like double digits ROI return on invested capital also. And on the other side, no, you have enough room, as you said, to distribute at least the ordinary part of the dividend, which at this price is like 7%. So when you decide how to use the cash flow, what are going to be the main guidelines, not deciding between The buybacks, considering the valuation, return on invested capital, ROE, etc. And the dividend distribution, which is at least on my consideration, 10% of these prices versus the long-term rates, either dollar turns Mexico or US, attractive enough. And on the second question is the capex, we were expecting a little bit less.

43:18 There's like 100 million more. So on that side, what is the IRR of that project? You mentioned something about Altamira, two years payback, but when you decided to do this investment, what was the IRR that brought you into the project?

43:39 Thank you, Guillermo. Jose Carlos is speaking. Well, thank you. Very good questions regarding our performance. First of all, I would like to state return on investment or return on assets or however you measure. Well, APEC has performed very well throughout the last two or three years, well above our weather cost of capital. So we're very pleased with that. And we've also been able to optimize some of our assets. So the combination of good performance and optimization of certain assets, well, it turned out to close to 20%, depending on what you measure, but we're sure on a double-digit performance. So good performance on the company. Regarding your question regarding free cash flow, certainly we will have availability to decide how we use best of capital.

44:29 Jorge has outlined certain CAPEX projects that we have. We're still working on them and Jorge will comment more on that. But what we will plan in terms of dividends, we'll have an assembly in the next few weeks. We will propose in that assembly, the shareholder assembly, an idea on dividends. At least our proposal will be similar to historical performance, not 2022 that was extraordinary, but this to what we have been able to achieve in line to what you're saying, 7% to 8% dividend yield. And your question on buybacks, it's a tricky one. Regarding, I mean, it's certainly believed that the Alpex share, it's not reflecting the performance of the company.

45:17 We think that there's upside on the value of the share. We are evaluating the opportunity for buybacks, but the issue is that we will take out liquidity to our stock. So that's also important to our investors. So we're kind of working throughout those limitations and see what we can do. But clearly we're seeing how we can return capital to our shareholders either to buybacks or dividends.

45:45 Great. And just finally on the guidance, the number of oil When we see the PMIs around the world, U.S., China, Europe, it seems that we are getting some floor. We are having this focus on China reopening, etc. And at the same time, we have had all the SPR releases from the U.S. government. So if this pauses and if this recovery continues and if the U.S. manages to continue surpricing on the economic surpricing index, When would you be updating the guidance? If oil remains stronger than expected, when would you do an update to the guidance? That would be after the first quarter or what usually is the time when you assess stronger conditions for the crude oil guidance?

46:32 Yeah, Guillermo, this is Jorge. Yeah, we'd probably look at the, depending on how significant are the changes, but Potentially mid-year. I mean, we will need to decide that. It depends a lot on how drastically these general variables would change throughout the year.

46:52 Great. Thanks for the answers.

46:58 Thank you, Guillermo. Our next questions come from Pedro Gamma from Citi. Hi, Pedro. Please proceed with your question.

47:07 Hi, good morning all. This is actually Andres Cardona from City. Most of my questions have been asked. some very quick one but before I go over there I want to thank Jose Valdez for his partnership and congratulate Jorge adding to the comments from my colleagues so guys if you can help me to understand in a in a little bit more detail the three percent declining volumes can you comment a little bit on a per segment basis how do you see This the second is how do you see the polypropylene margins at your 2023 guidance and the last one if you can provide some color about the capex breakdown between maintaining Scorpus Christi and the new projects that you mentioned.

48:08 Hey, let me start with your last question, Andres. Nice to talk to you. This is Jose Carlos. Regarding CAPEX maintenance, we're typically investing around $100 million on maintenance. That's what's included in our guidance. So that will be in that order. The rest will be strategic CAPEX with the larger part of that CAPEX being Corpus Christi and the project in terms of efficiency that we're evaluating in Altamira. In terms of polypropylene margins, Similar to the ones that we saw at the end of 2022. So I guess we're looking at stability. We think that that's the level that they will maintain throughout the year. And in terms of the decline in volume, well, it's basically stabilization, some maintenance that we'll have throughout the year.

49:01 And we're not expecting a big change, and there could be a little bit of upside. It depends on how big the restocking trend continues. Of course, PX has been an effect on volumes indirectly because of the cost that it has implied. So we're rationalizing certain exports to not, of course, lose money in those exports. I hope that answered your question, Andres.

49:39 Thank you, Andres. Our next questions come from Sofia Martin from GBM. Hi, Sofia. Please proceed with your question.

49:50 Hi, thank you very much for your answers, and thank you for your time, Jose, and welcome, Jorge, to your new position. I have two questions for you. The first one, I wanted to understand better your free cash flow generation during the quarter. Could you further explain the positive working capital that you had? And my second question was related to your PNC comparable EBITDA. It grew 1% during the year, year on year. This despite a negative volume effect year on year as well and negative revenues. So I just wanted to understand a little bit better how this breakdown was. Thank you.

50:37 Sofia, Jorge here. In the free cash flow generation during the fourth quarter, I think the main factor was declining prices. Not much yet on volume, perhaps a little bit in volume, but mostly declining reference prices. That explains the working capital recovery in Q4. And that's what we expect that will continue to some extent in 2023. And we will also normalize some volumes. That's another source for our working capital.

51:19 So let me add something which is interesting also for you to understand. As Jorge said, normally our investment in working capital is very much related to sales prices. The sales prices are very much Thank you very much. Thank you. Investment in working capital also increases.

52:07 The higher your margin, the higher your investment in working capital, in receivables. Okay, so what you will see in 2023 is a very strong cash flow. Actually, I think we mentioned the free cash flow in 2023 is higher than in 2022. And part of that is investment in working capital was very important in 22 and there is a And negative investment in working capital is a recovery of working capital in 2023. And part of that recovery, of course, it has to do with crisis. But the only important part is, as I say, a side effect of reducing margins is that you also reduce your investment in working capital.

52:57 So that's something to take into consideration. As I say, cash flow, free cash flow, when you do the numbers, in 2023 it's going to be over $500 million, $540 if I remember correctly, and it's higher than in 2022. And again, I think this factor of margins also plays a role, because at the end, it helps you reduce your working capital.

53:26 You should look at the consistency of free cash flow generation for the last five years.

53:29 Yeah, yeah.

53:30 It's very resilient.

53:32 Yeah, but our experience is when EBITDA comes down, you know, investment, you recover working capital. When EBITDA goes off, you invest working capital. So that's why, as opposed to the EBITDA that has certain fluctuation or certain volatility, the cash flow has been extremely stable over the last four or five years. and around this level that I'm talking about the 500 million dollars.

54:00 And Sofia, just maybe to answer your question regarding the plastic and chemicals comparable EBITDA growth. Yes, you're right. The plastic and chemicals reported EBITDA grew at a 1% rate between four quarter 21 and 22. But we tend to point you to the comparable EBITDA, which we really see as a better measure of performance of a company. There was a decline in that metric vis-a-vis 2021, vis-a-vis 2022. And the reason being is the adjustment of margins. So all in all, we did see a normalization of margins and performance in the fourth quarter of 2022.

54:45 Perfect. Thank you very much.

54:49 I believe that was our last question in the queue. As always, I'd like to remind you that you can find both a video recording or today's webcast as well as a transcript on our website. Thank you all for participating in OPEC's webcast. Have a wonderful day.