Alpek, S.A.B. de C.V. (BMV:ALPEK/A) Q4 2024 Earnings Call

0:00 Good morning everyone and welcome to Alpex four quarter 2024 earnings webcast. I am Barbara Amaya, Alpex IRO and I am pleased to welcome you today to our call along with Jorge Young our CEO and Jose Carlos Pons our CFO who will be taking us through today's webcast presentation. In today's agenda, first, Jorge will provide a high level overview, as well as the progress made on the key initiatives and priorities that we established early last year. Second, Jose Carlos will review our financial performance. And then, Jorge will discuss guidance, outlook, as well as our priorities for 2025.

0:46 Finally, we will open the floor to your questions. Please note that the information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to certain risks and uncertainties. Actual results may differ materially. and the company cautious the market not to rely on duly 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 US dollars unless otherwise specified.

1:32 For your convenience, this webcast is being recorded and will be available on our website.

1:38 Jorge, I'll turn the call over to you. Thank you, Barbara. Good morning, everyone, and thank you for joining us. I'm happy to report that comparable EBITDA reached $699 million, exceeding both or each of our original and revised guidance. Our stronger performance was mainly driven by our ability to capitalize on the effects from higher than expected container freight costs. and Stable Reference Margins. As a reminder, higher container freight costs support our margins as the costs of imported products increases. I would like to highlight that throughout 2024, ALPEC implemented key initiatives to enhance its competitiveness and operational efficiency, maintaining a disciplined approach while navigating the challenging industry conditions.

2:38 A strategic priority was for the leveraging strategy supported by cash flow generation of $104 million and disciplined capital allocation. These efforts have contributed to strengthening our balance sheet and better positioning the company to navigate the current market landscape as the industry gradually improves. I'm excited to share the progress we made in strengthening our competitiveness. In 2023, we launch a comprehensive long-term strategy designed to reinforce our leadership position with a focus on two key areas. One, optimizing our footprint and cost structure.

3:23 And two, driving cash flow generation. In 2024, we surpass the ambitious goals set in our plan, driven by targeted actions focused on continuous improvement, such as The organizational restructuring of our business, improving energy supply contracts, inventory management, and footprint optimization. On this last note, during the last quarter, we began the process to shut down the EPS facility at Beaver Valley, Pennsylvania. This decision is expected to generate an additional $20 million in cost savings on a run rate annualized basis. bringing the expected total of the values measures to approximately $100 million by the second half of this year.

4:16 The aforementioned initiatives are part of an ongoing process for Alpec and we will continue to further enhance our competitiveness across our portfolio. Now, I turn the call over to Jose Carlos who will discuss overall financial performance for the quarter.

4:36 Thank you, Jorge. Hello everyone, and thank you for joining us today. Let me dive deeper into the annual and quarterly results. During the quarter, volume resulted in 1.12 million tons, down 8% from the previous quarter, giving typical seasonality effects. This led to an annual volume of 4.75 million tons, representing a 2% increase from the previous year, reflecting a stable demand levels across all of our business segments. ALPEC generated $168 million in comparable EBITDA as seasonal effects were slightly offset by stronger reference margins. Reported EBITDA for the quarter was $109 million, up 106% year-over-year. This figure included a negative inventory adjustment of $52 million, driven by a sequential decline in raw material prices towards the year-end.

5:30 As Jorge previously mentioned, full-year comparable EBITDA reached $699 million. Surpassing both revised and original guidance by 4% and 17% respectively. The company's reported dividend during 2024 was $646 million. Our dividend yield in 2024 was 9%, higher than our historical average as we paid a dividend of $132 million in September to shareholders. Now, looking into the polyester segment, quarterly volume decreased to 926,000 tons, 2% higher than the previous year as there was a general demand improvement, but 7% lower quarter on quarter due to typical seasonality effects.

6:16 Asian integrated pet reference margins reached an average of $305 per ton, up 3% from the third quarter, and Chinese integrated pet reference margins averaged $170 per ton. US reference paraxylene prices decreased by 13%, narrowing the disconnection between North American and Asian prices to $194 per ton, 22% lower than the previous quarter, yet remaining 8% higher compared to the same period last year. Quarterly comparable levita was 100 million, 18% lower than the previous year. Turning to the plastic and chemical segment, Polling during the quarter totaled 198,000 tons, down 11% quarter on quarter, but up 3% year over year.

7:06 We saw stable demand primarily in the propylene business. Polypropylene reference margins remained flat at 15 cents per pound, while average propylene reference prices declined to 42 cents per pound, down 21% from the previous quarter. North American EPS reference margins continued the recovery, Averaging $0.43 per pound, 19% higher quarter over quarter. Meanwhile, average starting reference prices fell to $0.45 per pound, a 21% decline on a quarterly basis. And for comparable levita, results increased to 65 million, up 51% annually, and 3% quarterly as reference margins improved sequentially, particularly for EPS.

7:54 Looking at free cash flow for the year, we invested $224 million in networking capital, primarily due to higher volumes. Maintenance capex resulted in an increase of $4 million, with total capex standing at $121 million. This resulted in operating free cash flow for the year of $104 million, driven by higher EBITDA and strategic efforts to maximize cash flow generation. Finally, Regarding the company's financial position, net debt increased to $1.9 billion, while the last 12 months reported EBITDA was $646 million, resulting in a net debt to EBITDA ratio of 2.9 times. I would just like to highlight that this is a considerable reduction from 3.7 times at the beginning of the year.

8:43 We concluded the year in a stronger position, yet we remain determined to reaching our target of 2.5 times, and we'll continue taking the necessary measures to achieve. Finally, throughout the year, the company maintained its investment rate ratings across the three main agencies, and all of them reaffirmed their stable output.

9:02 Thank you for your time. I'll turn the call back to Jorge. Thank you, Jose Carlos. Now, let me discuss ALPEX guidance as we enter the new year. For the petrochemical industry, the company anticipates demand levels and reference margins similar to those seen during 2024. Factors such as high container freight cost observed in 2024 are not currently expected to continue. Industry conditions are likely to remain challenging. Therefore, our guidance is based on the following assumptions. Asian integrated PET reference margins of $270 per ton. Chinese PET reference margins of $160 per ton.

9:51 North American polypropylene reference margin at 14 cents per pound. We're also assuming a volume increase of 2% as demand is expected to remain at stable levels. Based on these assumptions, the overall comparable EBITDA for 2025 is expected at $625 million. Meanwhile, annual capex is projected at $150 million, of which approximately $100 million will be allocated to schedule maintenance, while the other $50 million towards strategic capex, focusing on opportunities to expand our EPS footprint in North America, improving our ability to meet customer demand with sustainable long-term solutions.

10:46 Expanding our PET sheet thermoform capacity in the Middle East to capitalize on market growth. Implementing various initiatives to optimize variable and fixed costs across all our sites. As we enter 2025, we remain confident to navigate the industry cycle by focusing on enhancing our competitiveness, maximizing our cash flow generation, and capitalizing our position as a strong domestic suppliers. Our main priorities will be, number one, the execution of additional cost reductions across our sites. We have already begun with the shutdown of the EPS facility in Pennsylvania, which is expected to yield around $20 million on an annualized basis.

11:37 Two, we remain determined to achieve greater cash flow. As we have done in the past, and we are planning to increase it through the following actions. Improving net working capital efficiency. In 2025, we do not anticipate a material investment in working capital for the year. Thus, in spite of the lower EBITDA in 2025 versus 2024, we expect our operating cash flow to be higher in 2025 versus 2024. Another initiative is the sale of non-strategic assets while maintaining our discipline approach to capital allocation. I would also like to highlight that our guidance considers current market conditions.

12:26 It is important to note that as we enter 2025 with a solid financial position, we will be better able to capitalize on potential opportunities that may arise, such as a gradual rise in demand, higher than expected Ocean Container Freight Coast, or possibly stronger fair trade measures against Asian overcapacities. Before moving to the Q&A session, I would like to take a moment to express my gratitude to our over 5,000 team members worldwide for their dedication and commitment to excellence, to our customers for their trust, and to our suppliers for their partnership.

13:12 I would like to end by extending my appreciation to all of our shareholders and analysts for their continued interest in helping. I will turn the call back to Barbara.

13:25 Thanks Jorge. At this time, we will be answering your questions. To answer a question live, please raise your hand. We will call on participants in the order they appear. You may also type your questions through the Q&A function. We will attempt to cover as many questions as time allows. Our first question comes from Tazo Vasconcelos from UBS. Tazo, please proceed with your question.

14:03 Hi Jorge, Jose Carlos, Barbara. Thanks for taking my question. I think my first question is on the company's capital allocation strategy. Alpec has been doing a good job in reducing the leverage despite this, let's say, challenging macro and industry moment. And of course, you have this clear goal to reach the 2.5 times net debt to EBITDA. So maybe split the question here in two parts. The first part, Do you have a timeline in which you expect to reach this goal? Just trying to better understand here the timeline given the macro condition and the lower comparable EBITDA and also higher capital expected for 2025. And the second part of the question is how is this process linked to the resumption on dividends payment?

14:51 I mean, is the 2.5 times indeed the main driver here to eventually resuming the dividends payments? or is there any other metric? I don't know, maybe a minimal cash imbalance, a minimal level of cash flow, leverage even lower so that post the 2.5 times, I mean, post the dividend payments, the 2.5 times is still maintained. I would appreciate an additional color here on the dividend discussion process within the management and the board. These are my two questions, thank you.

15:26 Thank you, Taso, for the questions. I think the first question, the first part of the question, the timeline to reach the goal of 2.5 times, needless to say, we want that to happen as soon as possible. As an estimate, I mean, I think there is a chance or a possibility we reach that during 2025 towards the latter part of the year. I mean, it could slip into 2026, but that's something we don't want to see. So I would say in the next two to four quarters is when we expect to see, to get closer to that goal. Obviously it will depend significantly on how our company performs, the industry conditions and so forth.

16:16 And second, how that is related to the process of paying a dividend. I think through Alpec's history, Alpec has had a very solid track record of paying dividends to its shareholders. I think we want to have this goal that our leverage is no more than 2.5. So that's something we will have to watch and consider as we go along. I think there is a chance that there might be A dividend pay later in the year, maybe towards the end of the year or the second half of the year. I think that still needs to be carefully analyzed and reviewed by your board and your shareholders.

17:07 But the possibility exists. I think it's like trying to optimize the both variables. and that's our key goal and again because we like to at the same time be very prudent with our balance sheet and maintain our investment grade and at the same time continue to deliver the results our shareholders expects in terms of dividends. So that's the balance that we will manage. I'll ask Carlos to also to you know provide his any additional points of view on this important question.

17:47 I don't think there's a lot to compliment Jorge was very clear but I'll say that we're strongly committed as Jorge already pointed out in the first part of this call in cost reduction and I think that's kind of an upside that we have on our hands not only from the cost side but also from the cash flow side which could allow us to reach the 2.5 times earlier and therefore be in a stronger position to to pay out the dividend we understand that that's something that Our next question comes from Bruno Montanari from Morgan Stanley. Bruno, please proceed with your question.

18:24 Hello, everyone. Thanks for taking my questions.

18:29 I have one follow up from Tasso's question and then two questions here.

18:45 On the dividend, just to be clear, is there a commitment not to pay a dividend until you reach the two and a half times leverage? Or would you consider paying a dividend even if you finish the year lightly above the target leverage? And then my first question is more about the medium to long term. So when does the company believe that margins could normalize to healthier standards and what do you think needs to happen globally for an improvement in reference margins to start to be seen? Because this seems like a very prolonged trough of the cycle, right?

19:30 And then the second question also relates to the deleveraging effort. How reliant is the deleveraging process on the asset sales? And if you could provide us with an update on the on the initiatives you have been working on, it would be great.

19:49 Thank you very much. Thank you, Bruno. Thank you for your call. I'll answer first the dividend. Well, I think the best example that we have to answer your question is what happened in 2024. We paid out the dividend. At that point, we had not reached the target, and we still paid a reasonable dividend. So no, there is not a strong commitment, and we will need to balance the commitment that we have to reaching 2.5 times vis-a-vis the shareholders. And as we did in 2024, we will do the same. And as Jorge pointed out, it will likely be in the second half of the year. So I think that's as clear as we can be, but no, there is not a strong commitment.

20:38 I mean, there's a strong commitment to 2.5 times, but we feel that we can work around our target. And I'll answer the third question and maybe Jorge wants to point out on the long term margins, but the leveraging It's not reliant on asset sales. That would be a plus. We've been working throughout 2024 in looking at all opportunities to sell assets. We've not yet materialized significant sales. We've done a lot of cleaning and selling a lot of scrap, which contributes marginally to results. The biggest asset that we have in our balance sheet is the Monterey land. We now have a We have a clear view of the alternatives.

21:23 We've done a lot of work. We expect to still continue working throughout the first half of the year. That doesn't mean that we've not created value in that asset throughout this last few months. So, non-reliant. We will have a clear picture this year and that would be a plus if we decide to monetize those assets all of a sudden or we just continue to see if it's better for shareholders to develop in a specific form those assets. We'll keep you updated on that.

21:59 Yes, and the other question about the expectation of the industry cycle. I mean, that's obviously that's a very difficult question to answer. I think we're planning for this year for the industry conditions to remain very challenging. I mean, potentially some indicators that maybe by 2026, 2027, Some markets like construction that impact some of our products to start to improve consumer demand for packaging. We don't expect significant changes, but there's still some growth in that industry, so it might take a couple of years for some of the overcapacity to be absorbed.

22:45 While we say that, at the same time, there has been capacity rationalizations throughout the industry. I mean, we began with ourselves in 2023 and 2024. We did rationalize or list efficient facilities in the polyester segment, and now we're doing the same with our APS. But if you look in our industry, there are numerous examples of All of our industry consolidation and placing out less efficient capacity. So the specific timing is uncertain. It might take another couple of years, but it can happen sooner if you get some combination of bare demand and some further In terms of rationalizing capacity, then the situation could balance sooner than expected.

23:45 I mean, this is an industry that is cyclical and we have lived through cycles in the past. This has been a difficult one, as you mentioned. But again, it's more or key to success is navigating the cycle, being as lean, as efficient as possible, watching the cash flow and being a very good supplier to our customers with good products, good service and so forth. So that's what I would say on that question, Bruno.

24:20 Thank you very much, Jorge. Jose Carlos, very helpful. Thank you.

24:27 Our next question comes from Leonardo Marcondes from Bank of America. Leo, please proceed with your question.

24:35 Hi, Tim. Good morning. Thanks for picking my questions here. I have actually two questions. The first one is more a follow up on Bruno's questions regarding and it is regarding the PPE spreads. I mean, it's been two years that we're seeing flattish and very low PP propellant spreads in the US, right? So I was wondering if you could provide a background on this and I mean, what could help PP spreads to improve? It could be a drop in propellant spreads or only demand should help the spread going forward. My second question is more related to your operations.

25:22 I mean, you have shut down some operations in the recent years amid this very challenging scenario for the petrochemicals, right? So my question is, if the situation continues this stuff, should we see more capacity shut down from you guys? And thinking about your global footprint, which regions offer the highest profitability and which ones offer the lowest one? Thank you.

25:51 Yes, on the questions on the first one on to ask on polypropylene spreads. I mean, there was a round of, you know, capacity that came on streaming in our region in North America. over the last couple of years. I think different to other of our products like EPS or polyester, polypropylene tends to be a more regional case and situation. And the fact that there is a wave of extra capacity in North America and that demand in the region has remained relatively flat, that's why we're facing this extended period of low margins. As we have, you know, similar lines as I answered before, I mean, we expect the situation will continue in the short term. Again, there is, you know, a small combination of improvement in demand and maybe some capacity rationalization, then things could get in better shape again sooner than what we anticipate. But for now, we plan and operate and and Performer Business, Conductor Business, assuming the conditions will not improve. And when the conditions improve, like last year we had an upcycle in ocean container threats, we are

27:22 in a good position to capitalize. As in all our businesses, in our polypropylene business, we remain very focused on efficiencies and providing the best offering to our customer base. And we have been polypropylene successfully navigating the current cycle. As far as the other question, the way I understood this is about our footprint and our regions. You know, in our footprint, we still have, I mean, we have most of our plants right now are the more competitive plants in our system. I mean, we did take action on the least competitive ones.

28:08 We still have some plants that in relative terms are smaller in our footprint, and we are always analyzing the contribution of each facility. Right now we do not have any specific plans to shut down facilities beyond those that we have shared, but it's a process that we constantly look. Some of our remaining assets have good scale, good integration. Some of them not only have scale, but have good access to raw materials. So, you know, that we continue to assess our footprint, but right now we continue to keep going with the plans that we have.

28:55 And we might add some, you know, on a smaller scale, but some capacity I think we have. recently approved an investment to grow by about 20 to 25,000 tons for EPS capacity in the United States with extrusion technology that will give us an improved product offering for customers. We will be able to offer recycled EPS. So while we have been shutting down We continue to seek ways to invest in the business, not only to maintain it, but to find opportunities to create value.

29:45 So no further rationalization plans at this moment. And indeed, we have, again, a new footprint to be added on EPS, a small one for about 20,000 to 25,000 tons per year.

30:01 Got it. And if you'll allow me, just one more question very quickly. Your understanding here, the run rate capex for you guys is something around $250 million per year, right? And this, in 2025, will be the second consecutive year that you should deliver capex. Sanchez, Rodrigo Prieto Treviño, Barbara Amaya Sanchez, Rodrigo Prieto Treviño, Barbara Amaya Sanchez, Rodrigo Prieto spending this $150 million of capex every year over the next several years while the scenario remains challenging.

30:59 We mentioned our guidance is 150 so 150 and we offer the breakdown that roughly 100 million dollars is to maintain our facilities and 50 is for you know cost reductions and some expansions as I mentioned the EPS extrusion expansion and we have a thermal forming small expansion in the Middle East. But that gives you an idea of the base requirement to maintain the business. There might be years where our maintenance requirement is less than 100, and there might be years when it's maybe somewhere above 100, maybe between 80 and 120. That's how our maintenance cap is will normally range.

31:48 And the rest is the projects that we find that add value. So right now, The board guidance for the years is saying a capital allocation that provides the schedule and the expected and important maintenance requirements for facilities and about $50 million for other initiatives. And that includes potentially finishing up some of the projects that we already had from previous periods. That gives you an idea. Going forward for 26 and 27, I think the maintenance is probably going to stay the same, $100 million, maybe $120 if it will require a little bit more maintenance in our facilities, maybe $80 if it will require less.

32:41 And then the rest is up to us to bring a pipeline of projects López-Montes, and Jose Luis Cervantes. And we do have some projects in the pipeline. And I would say that we could potentially exceed that 150 and go back to the 200. But it's too early for us to present those in this forum. I think we, again, we're eager to find opportunities to grow our business. And sometimes that will require capex, but we're also navigating a low cycle in our industry. And I would say that's a very common situation right now for all the chemicals and petrochemicals industry. So in industry conditions remain challenging, so we have to be conservative and Obviously, we don't sacrifice at all for maintenance of our facilities, but we measure our growth opportunities. And in the meantime, we are nurturing opportunities, and eventually we'd like to go back to a higher campus level to make sure that we grow in orbit.

33:58 Got it. Thank you very much.

34:00 You're welcome.

34:03 Our next question comes from Andres Cardona from City. Andres, please proceed with your question.

34:11 Hi, good morning, Jorge, Jose Carlos. I have three questions. The very first one is about the guidance, $270 per ton. You wanted to understand if this is more or less the level you see for contracts and how it compares versus the last year, just to see the directional view of the spot market and this case that I find not growing at 60% of the total volumes. The second one it's going to a capital allocation and maybe adding a third leg to the debate is this is the type of opportunities in which ALPEC has typically do some consolidation and so I just wanted to understand if you are willing to pursue and how it ranks versus dividends and perhaps the five times a target that you may have.

35:10 And the third one is if you could help us to understand how a potential resolution of the Russia and Ukraine conflict could benefit or affect Alpec into 2025 and onwards. Thank you.

35:28 Thanks, Andrés. Just to answer the question, the first one you mentioned the reference margin of $270 per ton. That is the reference margin that happens in Asia. I think that tends to influence the rest of the world to some extent. But it's not necessarily a one-to-one correlation with our margins. In some of our regions, We have pricing structures that link closer to those type of reference margins, but it's not necessarily representative of the majority of our volume. But yes, it tends to, I would say it's somewhat correlated and influenced by the changes in that reference margin. Perhaps more importantly though is what happens with the We have been working with container freights.

36:25 Right now, container freights have been coming down, and we have factored that in our guidance. You know, the capital allocation and M&A, I think we have constantly, you know, in all industry conditions and throughout the cycles, we are alert. And on top of analyzing opportunities for M&A that might allow our business to grow. So that continues. So if the opportunity is very, very, very attractive, then it comes to the equation and to the table and the priorities and a review, right?

37:14 But right now, we don't have anything that I would say is brewing or that is of significant size. Obviously, as soon as we have some of those opportunities identified, we will provide more clarity. But it's an ongoing process. And as you mentioned, in this Part of the cycle, some, you know, some opportunities might arise and we just stay alert to those opportunities. The resolution of the Russia-Ukraine, you know, I really can't tell when that could clearly happen.

38:02 I think that is, you know, Something on the news going on. I think the main effect that we saw from that war when it happened is that the network of vessels that move liquid petrochemicals throughout the world and clean fuels increase their utilization. So some of our important raw materials, we source our raw materials both locally, regionally, and from overseas. Those that are from overseas that were bringing liquids, those suffered a cost increase. To the extent that this war is resolved, but not only that, that the flows of hydrocarbons that were happening by pipeline in the past get restored, especially from Russia into Europe, that will reduce the utilization of the fleet that move again clean Fuels and Petrochemicals, Liquid Petrochemicals.

39:05 If that happens, then you could argue that the import freight for raw materials could improve for us. But I think that still, I don't see that scenario shaping up yet. And it requires multiple steps of restoring, you know, Thank you Jorge.

39:37 Maybe just coming back to the first question. So for the contracted volume, did you see any improvement for the 2025 pricing versus last year?

39:48 It's a mix. It's a combination. I think there are some improvements in In a region like North America where last year we did not benefit from the increasing freights because normally the agreements are for yearly periods. So some, I would say some improvements in North America, but we would expect in South America and Europe, you know, we have small presence in Europe, some compression of the margins. But that is because of, mostly because, yes, the reference price, the reference margin is changing a little bit, but mostly because of the ocean freight in containers are coming down.

40:35 I previously explained to you the issue about the liquid, the freight for liquid and clean fuel. That's a very different market dynamics than The freight of containers, the ocean freight of containers, that market is now, those shipping costs for dry containers are coming down and that tends to impact our margins because the import parity of polymers and plastics tends to come down. Thank you. The net effect of both is captured in our guidance, so it's a net reduction. Now, if the ocean flakes improve or cycle up again during the year, that will be an upside for us.

41:35 Our next question comes from Hector Ugarte from Compass. Hector, please proceed with your question.

41:44 Hi, Jorge. Hi, Jose Carlos. Thank you for taking my call. Just wanted to ask about the guidance. I mean, I understand being conservative about the petrochemical margins, given that you're not in control of them. But what I'm confused about is, given that you were guiding for 600 million last year, you had 100 million, well, again, 75 and 20 million this year in cost saving measures, and you're saying you're going to have 625 million of a billion? I mean, it seems like overly conservative, right? I don't know if I'm missing something. I understand you're saying you want to say margins are going to be lower because of freight costs going down and all of that, but... I mean, I just want to understand what I'm missing here and how even with this cost saving measures, we're going to be so low compared to this year.

42:37 Thank you.

42:38 Yes, Hector. I think what addresses your question is we did achieve a significant amount of the savings last year already. I think that's the main difference. I mean, we began our cost reduction actions Uh, mostly in the second half of 2023 when we didn't shut down assets. I think, you know, you could, you know, you could say that without those or performance would have been much lower. Yes. Um, but that's where, uh, probably the gap in your analysis is that a significant. Percentage of our cost reduction, um, began materializing since early 2024.

43:28 Right, but I mean, you did implement it and you achieved 700 million, right? So to say we're going to have 70 million less in the beta means things are going to go just bad, very bad in Petchem's industry as a whole, right? I mean, if we're expecting something similar to this year, perhaps something kind of lower, which you are saying, should it really go 70 million down? I mean, that's what I'm confused about.

43:58 Yes, I think the main change from from 2024 to 2025 is that we again we are expecting to see lower ocean container freight costs that make the import parity of competing products coming from Asian countries lower and that obviously that impacts our margins. That's what we're factoring in the guidance. If those costs, the ocean container freight costs do not fall as much or if they cycle up, then that's an opportunity for us to improve over our guidance. But the situation to begin the year is that those costs have been falling sharply and are very consistent with our guidance. So it's not like we are I'm ahead of those, right? I mean, that's exactly what we're seeing right now.

44:57 And I think, you know, industries that are competing mostly with Asian products that travel in dry containers are facing the same the same situation.

45:17 Okay, very clear. Thank you.

45:19 Thank you, Hector.

45:23 Our next question comes from Rodrigo Almeida from Santander. Rodrigo, please proceed with your question.

45:30 Hi, thank you, Barbara. Hi, Jorge, Jose Carlos. Just two questions from my side. And just I think the first one is just to make sure that I've got things right here. So when we look at the guidance, I mean, you're talking about the reference margins over there. We should take that as market reference. And then when we factor in the freight impact for you, that's when we see the bigger impact on EBITDA, right? Because you're putting up 2% on volumes and in the reference margins that will give us our, you know, high single digits, but maybe dies declining, uh, low teens. Right. So that's the effect from freight that I should be looking at. Is that correct? Uh, the second question that I have here is related to, to other things, I guess, trying to understand a little bit more to think about free cash flow, uh, over the next few quarters, uh, to try to model a little bit better.

46:18 uh in terms of working capital if you could give us some color on how you're budgeting that for for the year especially you're expecting some flattish a little bit up volumes i think would be great thank you yes um yes i think the yes you mentioned the main the main effect is uh this ocean ocean container freight cost i mean there are there is One more, perhaps it's not, that's the main one for sure. But you know, there is another contributing factor. Our business in Argentina is facing more competition than in previous years. That economy has now been open for the last couple of months. So that also has an impact in our, you know, smaller impact, but a contributing factor in our annual guidance.

47:14 The cash flow for this year, as I mentioned during my remarks, I think the cash flow this year will, in spite of the lowering the debt, we expect it to be better than and potentially materially better compared to the one in 2024. Because we don't expect to see a significant investment in working capital throughout the year. It might be around zero and And if we are very successful in some of our actions, it could be actually some recovery on cash flow. If you look over the last two years, over the last two years, 23 and 24, we did recover $370 million from working capital.

48:02 It was a significant recovery in 23 and then some reinvestment in 24. So in 24, we did end the year still with the inventories not fully optimized, and we expect to see that optimization mostly beginning in the second quarter and through the second half of this year. And the other factor is in some of the terms, either terms with customers or with suppliers, There have been some improvements that we spend also to see that in our, in our cash flow in 2025. That's why the, the, you know, the, we don't expect a material investment in, in, in the working capital line and that will support or, or cash flow. And again, if we execute successfully, it might be some, some recovery, especially in for the second half of the year.

49:06 Perfect. Thank you so much.

49:10 Our next question comes from Teal Mose from Schroeders. Teal, please proceed with your question.

49:21 Hello, can you hear me?

49:22 Yes.

49:23 Great. Thanks for taking my question, Bárbara, Jorge, and José Carlos. It is about the Mexican president, who last week, when she spoke about the secondary legislation of the energy reform, said that she wants to strengthen the pet chem sector as well as fertilizers. I know this was all a bit fuzzy but what is your first take on what this could actually mean zooming in here on petrochemicals and leaving fertilizers aside how could the government get more involved in the sector to increase output and what specific segments could be in focus here and lastly how could this affect you a few years down the road well i think uh you know i think we are obviously in

50:14 And I don't think we have really much to comment other than, you know, we are a petrochemical industry. We are very global, but we have still significant facilities in Mexico. We have a major pole of petrochemicals in Altamira, Mexico, in the Gulf Coast, and another one in Southern Veracruz. And obviously those are, you know, something of our interest, but we're yet to engage and to go through the ideas that are on the table and and obviously those would be long-term plans. Nothing really specific at this moment that we identify a specific or immediate action for us, but obviously we have interest on seeing some success and recovery on the petrochemical industry in Mexico, but we are alert to those discussions.

51:22 Any kind of ideas that have been specifically discussed or that you think are hot topics for the government?

51:31 Yeah, this is Jose Carlos. We've been involved in the development of the Plan Mexico. This is a plan that the government is putting together to foster certain investments. And they're looking at different parts of the petrochemical industry. To improve the availability, for example, of some feedstocks that are critical to ourselves. They're thinking on investing in some of their facilities so that that will allow us to have better feedstocks and increase our competitiveness. We also talked in that plan Mexico on certain needs that we have on infrastructure, safety, for example.

52:16 And there was also improvement in certain approvals and how to get this thing going faster. So we've been, as Jorge said, we're being in touch in that process and we're optimistic. We think that if this is done the right way, that could improve our competitiveness in Mexico. Great, thank you.

52:42 Our next question comes from Federico Galassi from Rojating Group. Federico, please proceed with your question.

52:52 Hi, Jorge, Jose Carlos. Thank you for taking my question. The question is related to Last year, Mexico increased tariff for 500 products from Asia, mostly China, if I'm not wrong. You have tariff and duties in US, et cetera, et cetera. Even with this tariff that you have in the region, the pricing from a lower container costs, as you mentioned, the prices of the margins, The prices of the competitiveness of Asian products is too high to affect the margins here in Americas.

53:38 I want to try to understand that.

53:42 Yes, the answer varies by country, Federico. I think in Mexico, we did see increases in the duties of some products, some of our products For some of our products, those duties apply. But some countries where Mexico, for example, has currently trade agreements, those didn't see the duties increase. And in our product, there is also significant regional competition. So that's the reality of things. So I do think we don't necessarily translate into a normal price increase in the system. I think there is still significant competition regionally, and some countries still access. However, some of the competition Imports that we were seeing on Fair Trade, some imports from China, those are now subject to higher duties. So I think it was a positive effect for us at the end of the day.

55:04 In the United States, so far, the duties have not changed from what they have been over the last few years. I mean, obviously, We're following everything that is happening right now. Not right now, there have been no changes.

55:27 Okay, and the second question, if I may. When you see the year, you're expecting a better second part of the year or a continual deterioration of the first half? If you can give us a clue of how are you seeing the trends? That's the question.

55:46 You're talking about 2025?

55:48 Yes, 2025, yes.

55:51 Normally, first quarter and fourth quarter tend to be seasonally lower because of volume. Second and third quarter tend to be stronger. Again, that's normally how it behaves, but it's not very precise either, right? So we expect to see that in the first quarter. Again, normally it's low in volume that picks up in second and third quarter and then normally at the end of the year, customers tend to do inventory adjustments. So that's the typical systemality in our business.

56:32 And in terms of spreads?

56:37 The spreads for about a significant portion of our volume, the spreads tend to be set for the year and some others vary throughout the year. I think the reference margins might begin a little bit below our guidance, but that happened. We had a similar thing happen in the last couple of years. Then they also tend So yes, the volumes tend to follow that seasonality and the margins to some extent as well.

57:24 Okay, thank you.

57:28 Our next question comes from Sofia Martin from GBM. Sofia, please proceed with your question.

57:36 Hi, thank you for taking my question. I was wondering if I could ask two questions. The first one is a follow-up on the container costs coming from Asia. Is there any market reference that we could follow to track the evolution of these costs? I don't know, maybe a ticker in Bloomberg or anything that we can follow?

57:59 Yeah, I think we can follow with you separately on that one.

58:04 Okay, thank you. And just a second question, could you share how much you export from your Mexican production to the US?

58:18 I think it's in the order of 10% of our output that goes from Mexico to like 5%.

58:30 Yeah, kind of a footprint. Maybe that's a good point to highlight that we're more or less aligned in our footprint for the markets that we participate in. So we have US operations for mainly supply the US. And that's also the case in Mexico and Latin America. So I guess that's something that helps us mitigate potential tariffs. That's probably your question.

58:56 Yes, thank you.

59:04 And we have a question coming through the Q&A function. I will proceed to read the question. Can you please discuss the assumptions about tariffs that are embedded in your guidance? We'd appreciate if you address tariffs both in Mexico and US and both relative to China and other Asian countries.

59:25 I think in our guidance, we are assuming no significant change in the tariffs. from 2024 to 2025. If there was, for example, increased tariffs to Asian, overcapacity to Asian countries, that would tend to benefit all numbers for 2025.

59:58 And one last question coming through the Q&A function. What sort of potential opportunities could we see during the next year? How are you planning to capitalize on them?

1:00:13 I think the, again, we have through the action we've taken to make our plans more competitive and more competitive and enhance or You know, our overall position in the market, I think the things that could factor positively for us is if there is some more recovery in the demand or if some of the trade measures against some of the Asian overcapacity materialize. Another possibility for us is that we see potentially a rebound in the ocean containers freight that right now they have come down sharply.

1:00:58 Again, just maintaining a very strong presence for customers with our facilities. We can provide a quick delivery being a local supplier. And again, our pursuit of cost reduction opportunities continues, so we expect to find more as we go along.

1:01:23 That was our last question. Thank you. Thank you everyone for joining our webcast and have a great day.