Alpek, S.A.B. de C.V. (BMV:ALPEK/A) Q3 2020 Earnings Call

0:00 Greetings and welcome to today's conference for the ALPAC third quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I would now like to turn the conference over to your host today, Mr. Alejandro Elizondo. Please proceed, sir.

0:27 Thank you, LaTanya. Good morning. And welcome to ALPEX Third Quarter 2020 Earnings Webcast. I'm Alejandro Elizondo, ALPEX Investor Relations Officer, and I have the pleasure of being joined by our CEO, Pepe Valdez, and our CFO, Jose Carlos Pons. Please turn the slide to. This presentation is divided into two parts. First, Mr. Valdez and Mr. Pons will provide commentary on ALPEX Third Quarter 2020 performance and an update on relevant events. Afterwards, we will move on to the Q&A session. Please note that the information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainty. Actual results may differ materially, and the company cautions the market not to unduly rely on these forward-looking statements. ALPIC undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Today's webcast presentation is being recorded and will be available on the company website at www.alpec.com.

1:36 I will now turn the call over to Mr. Pepe Valdez.

1:41 Thank you, Alejandro. Good morning, everyone, and thank you for joining us today. I hope you are all staying healthy and well. Turning to slide three, I would like to start by highlighting the four main topics of this call. First, Company continues to surpass expectations amidst a challenging COVID-19 pandemic environment. Secondly, ALPEC has enhanced its financial standing, which Jose Carlos will discuss in detail later today. Third, as many of you know, ALPHA has announced its Unlocking Value Initiative. This means there will be changes for ALPEC, which we will explain later in the presentation. And fourth, we have reached an agreement with Nova Chemicals to acquire the Styrenic business and want to share some details regarding the deal as well as why it was so well aligned with our long-term growth strategy.

2:49 On slide four, let us discuss Alpek's performance amid the continuing COVID-19 pandemic. Before I go into specifics, I would like to express the deep sense of pride I feel by the way our employees have continued delivering results during these complicated times. They have not only ensured that operations go uninterrupted, we have together as a company achieved the best quarterly volume performance in our history. Working together during times of crisis, is a true testament to teamwork, and we are proud to have that as a core value at ALPEC. We have sought to protect our employees' health and safety with various measures implemented since the start of the year. These have proven successful, and I'm happy to report that the number of active cases at ALPEC continues to be low and is declining week after week.

3:52 During the third quarter, we saw a gradual decline of COVID-19's effect on the overall business environment. ALPEX demand has proven resilient, reaching record overall volumes with a performance that was largely driven by the polyester segment. It is also worth noting that the plastics and chemical segment experienced a sharp volume recovery. As demand for the construction industry, which uses EPS as insulation, and the automotive industry, which uses PP for light weighting, both rebounded quickly from their second quarter lows. Let me take a moment to elaborate on the changes we have seen to consumer purchasing patterns, which are useful in explaining our strong polyester volume.

4:41 As social distancing measures continue to relax, and consumers return to public spaces, such as restaurants, movie theaters, or sporting events, there has been a marked preference for products that promote hygiene and safety. As such, PET bottles have been the favored choice over open beverage containers, as the latter requires higher person-to-person contact. This is an important trend which we will continue monitoring going forward. but we believe that based on current post-pandemic demand patterns, it's a trend that could be long-lasting. Switching over to relevant events, the financial restructuring agreement between M&G Mexico and its creditors was successfully concluded during the third quarter.

5:34 Under the agreement, ALPEC will recover $160 million in guaranteed debt plus interest over the next five years with approximately $50 million as early as the end of this year. Moreover, ALPEC will also continue supplying the PTA required by MNG Mexico's PET facility, ensuring stable operations at MNG Mexico as ALPEC recovers its debt, as well as the steady offtake for our PTA site in Altamira. Thank you for your attention. At this point, I will turn the call over to Jose Carlos. who will go into more detail regarding our financial results.

6:16 Thank you, Pepe. Turning to slide five, Alpex performance continues to improve for a third straight quarter. During 3Q20, we saw record overall volume driven by strong PET demand and recovery of plastic and chemicals. Also, an increasing comparable levity excluding raw material pricing effects. Particularly strong free cash flow generation as ALPEC reduced working capital and maintained low capex. And finally, a reduction of net debt, further improving leverage and liquidity. On slide six, you can see that comparable EBITDA, excluding raw material carry forward effects for the third quarter, improved by 3% to $154 million.

7:05 As record volume, more than offset a decrease in polyester margins. Moving on to raw material price dynamics on slide seven, average Brent crude oil increased to $43 per barrel, 35% higher than in the previous quarter. Meanwhile, paraxylene prices only increased by 12% during the same timeframe, as NAFTA PX margins remain under pressure. This was due to the excess PX and PTA, as well as a still weak retail segment that has not fully recovered. resulting in low demand for Asian PTA and fibers, and propylene prices spiked to $0.35 per pound on average, as supply came under pressure due to lower output from refineries and PVHs.

7:56 Turning to slide 8, we can see the price increases for both PX and propylene resulted in a non-cash inventory gain of $16 million. and a positive raw material carry forward effect of $6 million during the quarter, which partially offset their negative impact in the first half of the year. We can also see that comparable EBITDA was $160 million and reported EBITDA was $179 million. These figures, 45 and 140 percent higher quarter on quarter, are explained by a strong performance from our operation and a positive inventory adjustment and raw material carry forward effects in the third quarter, which were negative in last quarter.

8:43 For this reason, and as mentioned during the previous quarter, it is important to rely on comparable EBITDA excluding raw material carry forward as the best measure of ALPEX performance. Shifting our attention now to results by key segment, we can see that polyester comparable EBITDA excluding raw material carry forward was $95 million. declining by 7% quarter-on-quarter. A positive effect from record polyester volume, which increased 10% quarter-on-quarter, was partially offset by an integrated Asian polyester margin decrease of 19% and an MEG supply interruption in the U.S. Gulf Coast. The decrease to margins was largely expected as Asian PTA and PET supply continued to normalize over the third quarter.

9:33 And I'd like to highlight that our polyester conversion costs reached historical lows, as recent work on our plants and with our customers has yielded high plant utilization rates and lower energy costs. Meanwhile, plastic and chemicals comparable EBITDA was $56 million, an increase of 20 percent quarter on quarter, as volume increased by 33 percent versus last quarter, with EPS setting a record figure during the month of September. As demand from the construction industry rebounded quickly, while packaging demand continued to be strong. And polypropylene margins remained high, even as new capacity in North America started operations. Turning to slide nine, ALPEC has generated $309 million in operational free cash flow this year, and is currently $386 million above original expectations.

10:30 As we expressed last quarter, an important element of the company's long-term strategy is maintaining financial stability and improving free cash flow. Actions related to this strategic objective include, number one, a strong effort towards CapEx efficiency, which currently stands at $65 million year-to-date, 58% lower than last year, and $127 million below annual estimates. a recovery of $183 million in net working capital this year as inventory levels have been reduced while supplier and customer credit terms have improved. And finally, further improvement is expected from the recovery of $50 million in guaranteed debt in 2020 and $160 million over the next five years as a result of MNG's Mexico Restructuring Agreement.

11:24 Switching to slide 10 and regarding our financial standing, APEC has reduced its net debt by $193 million during the 3Q training to just $1.2 billion as a result of the strong free cash flow just discussed. This has resulted in a leverage reduction to 1.7 times net debt to EBITDA. Finally, APEC reduced its cash balance to $590 million, paying down short-term debt as the company feels comfortable moving to a level more in line with historical average. and avoiding negative carry expenses over the next months. Thank you for your interest. I will now turn the call back to Pepe for final comments.

12:08 Thank you, Jose Carlos. If we turn to slide 11, at the end of July, ALPHA announced its plans to execute a strategic plan to unlock value for its shareholders. This strategy includes the spin-off of its stake in NIMAC, the sale of ASTEL's assets, and the eventual spin-off of its stake in Alpex. I would like to highlight that although we do not expect Alpex spin-offs to happen in the next 12 months, we have started a transition plan to become fully independent from the remaining and limited corporate services provided by Alpha, which include legal, fiscal, accounting, and IT. Additionally, I would like to mention that this spinoff is not expecting to have a significant positive or negative impact on ALPEC's already small SG&A. Overall, these changes would further strengthen ALPEC's governance practices.

13:11 As Jose Carlos discussed, ALPEC has been able to post strong results, improve its free cash flow, and increase its liquidity amid the COVID-19 environment. Meanwhile, the company has not taken its size of the execution of its growth strategy. ALPEC will continue to actively evaluate opportunities that meet these criteria, while capitalizing on our strong balance sheet so our eventual spin-off does not affect our decision-making process. Turning to slide 12, we are very pleased to announce that this week, ALPEC reached an agreement with Nova Chemicals to acquire the expandable styrenic Casterinix Business. This purchase includes NOVA's two facilities in the United States with a total capacity of 168,000 tons of EPS and 36,000 tons of ourselves, as well as the world-class R&D facility.

14:10 If you recall, last quarter, we discussed Alpe's long-term growth strategy as well as the catalyst behind it. In addition to being strategically important and financially attractive, we want to highlight how this acquisition lines up perfectly with all three pillars of our strategy. With regards to strategic and focus growth, it allows us to further solidify our position as the leading EPS producer in the Americas, a core tenet of how Alpec chooses which industries it participates in. Within the fostering a circular economy pillar, This acquisition will allow us to build a more sustainable product portfolio in the construction and reusable packaging segments, both of which are growing industries. We also believe that through our combined R&D strength, we will be able to develop sustainable products at scale like biodegradable EPS for specific applications that require it.

15:14 Finally, in terms of strengthening the core business, we see three key points of alignment. One, this acquisition moves us into higher-value markets like those served by ourselves, an EPS polyethylene copolymer that achieves the same impact protection as EPS with 40% less density and is used for packaging of high-end consumer goods and for automotive lightweighting, among others. Two, Alpek will bring its experience as the lowest cost EPS producer in the Americas to these sites, improving processes and optimizing costs. And three, by adding our first two sites in the United States to our EPS footprint, Alpec will be able to serve its existing and new customer base with increased efficiency, lower logistic costs, and products better suited to meet their evolving needs.

16:15 I would like to welcome all our new colleagues and encourage everyone to channel this strong momentum we have to capitalize on all the synergies and business opportunities we have identified. I look forward to meeting you all soon. Lastly, please turn to slide 13. Looking forward to the remaining months of the year, Alpec's outlook remains positive with an expected continuation of the solid business fundamentals which have shaped 2020 performance. Volume for both segments is expected to remain on a record-setting annual pace, only affected by the normal demand seasonality, which is characteristic of lower beverage demand in the fourth quarter. And to a lesser degree, temporary interruption to MEG supply during September.

17:09 In terms of guidance, ARPEG will not be issuing updated 2020 figures, However, comparable ABDA is excluding raw material carry forward of $450 million year to date is well on pace to exceed the original guidance figures. Let me close by thanking you for your ongoing support and hoping you stay safe. I would now like to open the call for questions. Operator, please instruct the participants on how to place their questions. Thank you. At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue.

17:57 You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment as we pull for our first question. Our first question comes from Gabrielle Barra with UBS. Please proceed with your question.

18:17 Hi, Pepe, Pons, Alejandro. Thanks for the presentation. I have three questions here, if I may. The first one is regarding capital allocation. I'm trying to get a bit more details here in the recent acquisition that you have made in Brazil, UK, and now with Nova. I would like to understand a bit more the capital allocation strategy and how Corpus Christi investment decision will play out along potential M&As and dividends. At this moment, that leverage has fallen to 1.7 times. And what would drive the company decision in order to pay dividends? And what's the company leverage target at this point? The second question is regarding the polyester business. The company added 1.1 million tons from Cetepi Suapi, 350,000 tons in UK plants, And as far as we understood here, utilization rates seem stable, but increasing quarter over quarters.

19:15 And despite this challenging year, so just trying to understand a bit more on the expectation in terms of volumes and utilization ratios for the following year. And the third one, if you may comment on the PP side, as you know, Braskeen has already started its operation in the US and expect to ramp up in the short term the plant How do you see this impact of 450,000 tons per year in PP price and OPEC PP business? So that's the question. Thank you.

20:08 Okay, well, again, your first question regarding CAPEX, you have probably seen our performance this year. We are rationalizing CAPEX as much as we can, only for projects with very high strategic value. And I would say, basically, the strategic value is, I mean, are the ones that are mentioned in our three pillars. And among those, I think, other than the NOVA acquisition, M&A, as you know, you know, it just happens. It's very difficult to forecast. But when you find an opportunity, you better grab it. And that's the case with NOVA chemicals.

20:55 But in putting aside, again, the M&A in CapEx that difficult to forecast or to plan for, I would say in going forward, I think we have our maintenance capex, which you know, $60, $65 million a year. And the other, let's say, concept that continues or that we continue to be seeing every year, it's, I would say, capex mostly for recycling of our products. That will continue. We have several projects in place. And so you will continue to see capex for the recycling part of the business.

21:41 And again, also very likely we will have some other capex that we're planning, which will be capex to optimize our cost. And these capex include the bottleneckings of some of our plants, but they also in some cases include upgrade, technological upgrade to our operations. We have several projects in that category and you will also see some of that going forward. And that's, again, other than M&A, that's what you can expect to see in the next months and years. In terms of dividend policy, well, I have to say dividend policy is actually set by your board.

22:34 more than by the management. But I expect that there will be a continuation of our historical behavior. I think you will continue to see dividends pretty much in line with what has been happening over the previous years. We don't have any indication to the contrary. So, I mean, you're talking $160 million a year, perhaps, in that range. Utilization ratios of PET for 2020, well, in 2020, our PET has been pretty much at 100% of effective capacity.

23:20 And based on the initial meetings with our customers for next year contracts, I would say that we expect This will continue into 2021. We believe we're going to, in terms of volume of PET, we will continue to operate most of world facilities at near capacity or at effective capacity, to say it better. Now, in terms of the impact of RASCHEM Startup in polypropylene, well, I would say that we, in our guidance, we were assuming that we would have some two or three cents per pound reduction in our margins starting in September as the plant came on the stream commercially.

24:21 We haven't seen that. In fact, in all of September, we saw an increase of three cents per pound in the margins of PPE And I think this has to do mostly with the impact of the hurricane, or the different hurricanes, because it hasn't been one, it has been a couple of those, which have hit particularly hard the Louisiana area. So there are several facilities, several PPE facilities that are shut down or that are under force majeure, and I think that meant that as opposed to seeing a decline in margins we saw an optic and increasing margins since almost, particularly since September.

25:06 I think in September we already experienced an improvement in the margins. Our next question comes from Nicola Lipman with Morgan Stanley. Please receive your question.

25:24 Thank you very much. Congrats on your numbers and thanks for taking my questions. When we look at your portfolio, and it's an asset allocation question, when we look at your portfolio, I didn't see that acquisition in the phone business coming. Peppe, is there something you think is missing? Is there anything that you think that you could be thinking of selling? Maybe PTA assets? If you're moving towards RPT, you might need less PTA. Is that something that you would be considering in selling the corpus assets? And also, when we think about dividends and your capacity to pay dividends, what is the capex that you guys are thinking about when you are thinking about bringing your recycled PET capacity up towards the sort of 20%, 25% level that you mentioned on the second quarter conference call?

26:25 Thank you very much.

26:35 Well, I mean, again, we really are not planning to sell any of our PTA or PET assets at this time. For the reasons I mentioned, PET, we're operating at full capacity. PTA, the same. And, in fact, in pretty much all of our PET and PTA sites, we are planning to optimize, I mean, to make investments to, as I mentioned, the bottleneck and optimize costs and upgrade technology. So all of our plants are doing relatively well. We have had significant improvements in cost and in most of them. And so for the time being, we're not planning any divestment or any of our polyester plants. And...

27:32 In terms of, let's say, our CAPEX target, I would say, I mentioned, I think, going forward, I would say $60 million of maintenance CAPEX. And then strategic CAPEX, I mean, again, outside of M&A, which, as I explained before, could happen at any time. We believe we're going to be total capex somewhere between 150,200 a year. Got it. That would be my best estimate, including recycling, of course. Okay. Thank you very much.

28:20 Our next question comes from Leonardo Mercandes with Itor. Please proceed with your question.

28:28 Hi, guys. Thanks for taking my questions. My first question is regarding the strategic plans you guys released in the second quarter. Where you mentioned a potential review of the existing footprint of Altec, right? Could you guys share with us if you had any advancement on that front? And also my second question is regarding the spread in the longer term. Could you guys share a little bit What are you expecting for PEG and PTA spread for 2021? Thank you.

29:17 Look, regarding footprint optimization, we are always looking at that possibility, but for reasons that I explained before, at this point in time, I mean, there's nothing really urgent on that front, particularly since the demand is very strong. And so we're prepared to take the measures we have to take if all of a sudden demand goes south significantly. And yes, and there could be some footprint optimization But as I mentioned before, we are right now more concerned about the bottlenecking of our facilities than any shutdown of plants. Again, at the moment, that might change in the future, but for the time being, we're not in that mode.

30:19 With regards to NOVA, I mean, the question Of course, I mean, the challenge with NOVA, and I shared this information with you, which I hope you find useful, of our existing large businesses in ALPEC, which includes PET, PTA, polypropylene, and EPS. I mean, so far over the last years, EPS has been the most profitable business. So, you know, with returns of over 30% Per Year In Terms Of Returns Of Asset So It Has To Have Been A Very Attractive Business And We Do Believe That Demand Will Continue And You Know If We Continue Again To Improve Our Cost And Do The Right Things That Should Be Some Of You Know Sustainable I Mean Now With The Nova Acquisition Of Course It Is A Challenge For Us It Is An Opportunity No Question I Mean When You Look At It We Have what, 324,000 today of capacity in Alpek of EPS, and we added almost 204,000 of additional capacity.

31:35 Not all of it is utilized. And again, the challenge for us with Innova Acquisition is how can we make these assets perform similar to our existing assets in terms of cost? And I can tell you, if we can do that, if we get close to that, the upside to this acquisition will be extremely high. But we are realistic. We cannot do that from one day to the other. That's going to require time and investment and a lot of effort, of course. But, yes, the key, the challenge, again, for us with NOVA is how to improve their cost so that it becomes similar to or more aligned with our existing cost structure.

32:26 And if we can do that, I do believe that this will be a very attractive, will prove to be a very attractive acquisition for us. And again, I mean, no surprise, all the acquisitions we have made over the last four or five years, that has been the same concept. You look at all the, I mean, when we acquired the funds, I mean, assets from DuPont, when we acquired the assets from Eastman, when we acquired the assets from Wellman, when we acquired the Petrobras assets. I mean, in every single case, it has been the same. Normally, those business were underperforming because their cost structure was not adequate to the market. And again, this is what's happening really with NOVA, I think.

33:14 If we can improve the volume and we can, again, upgrade technology, perhaps, hopefully, we will be able to also make some improvements in the results. And of course, there's a lot of synergies as well. Logistics, raw materials, there's a lot of synergies also that, I mean, just the economy of scale that help drive the cost down. So that would be, I think, the comment regarding, I mean, footprint optimization. Again, we do have plans. but that will depend on the demand going significantly softer than what we see today. Now, your other question, I think, was regarding the spreads, PTA, PET, for next year. That's a tough question, a very tough question. As you know, and some of you have expressed concerns regarding the margins for tech water, 20.

34:16 Let me perhaps start by explaining to you what happened in third quarter 20 in terms of margins. I would say margins were lower than in second quarter 20. Margins in third quarter 20, margins were lower than last quarter, and they were lower than last year's similar quarter. There's no question about that. Margins were lower than that. But margins were not lower than there were guidance. So, I mean, the margins we posted were still stronger than the guidance. And again, compared to last quarter, the numbers don't look too good because margins went down. But, I mean, again, compared to the guidance, we were over the guidance.

35:01 And now, what happened in third quarter 20? We got, I would say, basically three impact to the margins. I mean, the good news that I don't believe these three problems are, let's say, secular. I mean, I think they're going to be sort of short-term impact. Number one, number one is, and let me start by that, is the margins in Asia for PET and PTA over PX and MEG. Margins in Asia... Actually, as you saw, they were very strong during the first half, much stronger than our guidance. Our guidance was assuming for China, as a reference, 215, and the margins were significantly higher than that as a result of all of this COVID, logistic restrictions, whatever. So we have stronger margins in the first six months of the year. What happened was, as COVID started to lose...

36:04 let's say, impact in Asia as it started to normalize, what you found was a lot of, or the value chain was a lot of inventories. So the inventories of PTA and even in PET in some cases, but particularly PTA, were very high. And then what we are seeing today, I think, third quarter, is that, I mean, people are getting rid of those inventories And in particular, I think the demand for polyester fibers has been impacted much more than PET. So there has been, for some months now, some sort of overcapacity, of course, of fibers and of PTA. And I think that has depressed the margins to a very low level. When you look at the margins today, PTA margins last week have been somewhere between $70 and $80 per ton, which we believe is unsustainable long-term. But yes, that's where the margins were, $70. And again, we will be expecting this to normalize to a level close. I mean, we're not expecting this to drastically change, but we would expect this to normalize to somewhere between 80 and 100.

37:32 I would say that would be a more normal level for, I'm talking PTA margins right now. So that's something that has had an impact. Today they're very low. We believe they're going to improve somewhat. Not drastically, but yeah, we believe that perhaps PET goes to $100 and PTA, I mean, no, PTA to 100, 80,100, and PET to let's say 140,150. PET today is 120. So something like that, I think, could happen, particularly during next year. It's difficult to say it's gonna happen next month, but during next year, I would say the margin should be more in that sort of level than what it is today.

38:18 Now, another impact for us in terms of margins, which is very important also, is related to the crude oil prices. Crude oil prices impact our margins several ways, but one of the most important ways is the PTA, mostly PTA, mostly impact PTA margins, not so much PET. But in terms of PTA, the impact, because some of... I mean, most of our PTA is sold in North America on the formula, cost plus formula. And a component of this cost formula is the crude oil price. So a lot of the cost plus factors are related to crude oil price. So when crude oil price comes very low, then these cost factors are reduced in the formula.

39:14 So part of the reduction in margin that we saw in three quarter 20, again, is very much related to the prices of crude oil, which as you know, starting in April, came down very drastically. So again, do we believe the formula is gonna stay what it is? Well, I mean, if you listen to the experts or the consensus, I mean, Everybody seems to indicate that crude oil prices, where they are, are on the low side, and that we should expect a recovery in crude oil prices. To what level, I don't want to even speculate, but as crude oil prices recover, our margins will go back to a more normal level. So that has been an impact for 3.20, and we see this improving or normalizing certainly for next year.

40:06 Some of the experts, as you know, are still expecting that good oil prices before the end of the year will, if you talk about brand price, for example, could be close to $50. I'm not subscribing their theory of just saying what some of the experts, well, I mean, very respected people are saying that, you know, we could see from now to the end of the year, a significant impact in, Include a crisis. So again, this will impact our formula and will improve our margins. And the last aspect that has impacted our margins in third quarter 20 has to do with this hurricane impact, particularly on our MEG suppliers. We have several suppliers with contract that went under force majeure as a result of the I think Sally was the main culprit for the plant. Some of them have not come back to operations.

41:11 So we have had a major disruption in the supply of MEG to our plants. We have, I think, lost, certainly we lost significant volume of PET in September because of that. So our results in third quarter could have been higher, both in volume and margin. but if not for the energy constraints or restriction. But the important thing is that eventually there will be probably some impact in the fourth quarter, but eventually this should recover. And again, as your question is 2021, I think for 2021, this situation with MEGs should normalize and our prices should be also the same. we had to go in the market and buy a lot of volume of export energy at higher prices than our contracts.

42:08 So that impacted our margin as well. So we have the impact of Asia, we have the impact of crude oil, and we have the impact of energy. And as I mentioned, we believe for 2021, all of those will improve. And so the margins will improve. And on top of that, remember as crude oil price goes up, We also have the impact in the results of the inventory revaluation. Okay, so that would also improve our results going forward. So again, we are relatively optimistic in terms of margins for next year. And volumes as well, I already mentioned. When you look at things, you know, the critical aspects for a business are volume and margins.

42:57 So if we are right in our Assumptions that volumes are going to be strong and margins are going to recover somewhat. I think 2021 should be a strong year. Perfect. Thank you. Our next question comes from Gene Bruni with BBVA. Please proceed with your question.

43:21 Hi there. Thanks for taking my question. I just have a couple. Basically, can you give us an update on copies 50? The second one is the trend in terms of Asian margins. Where do they stand now? What do you expect them in 2021? And the last point is on the spin-off. You mentioned that you're working on the spin-off. You do not expect it to happen in the next 12 months. Maybe what is the preparation? How do you go for it? And why do you not expect it in the next 12 months? Thank you very much. Okay.

44:02 Regarding Corpus Christi, well, just an update. Well, due to COVID-19, I guess, to a certain extent, our work in terms of coming up with a new estimate for the investment or reducing the estimate for the investment has been somewhat delayed. And we were expecting that by the end of the year, we should be able to decide on the restart of the construction. I would say that we might be delayed at least for six months until we have all the estimates. So that would be for cost prescripity. HMPT margins, I think I already talked about that. Spin-off timing, I don't really know about the spin-off timing, but as I mentioned during my presentation, we don't expect it to be during the next 12 months.

44:58 take longer than that perhaps two or three years will be you know the best estimate and and I guess that's that that's where we are today okay thanks our next question comes from Matias from Mali with Blue Bay asset please receive the question hi thank you very much for the call and very good results on the quarter perhaps coming from a bit more from a credit angle. If you can comment a bit on your expectations on the potential separation from Grupo Alpha, but from a ratings perspective. Unfortunately, we saw that S&P didn't take the news very positively.

45:45 How are you managing that dialogue with S&P and some of the other agencies? Of course, your financial results are very strong this quarter, but what do you think you need to do and show and prove to be able to maintain that investment grade rating. And a second question is, if you can just clarify on the M&G restructuring, if those 50 million that you're expecting to get this year by year end, is that going to be actually cash or just a release of guaranteed debt? Thank you.

46:15 I am going to ask Jose Carlos to answer your question.

46:20 Okay, go ahead. Thank you, Pepe. Yeah, let me start first one with the ratings. As you saw, we had an adjustment of one notch from Standard & Poor's. I think I should also highlight that the other two rating agencies, Fitch and Moody's, have confirmed the investment rate rating, and we have had meetings with them to present them where we are, how results have been performing throughout 2020, and they feel comfortable. We're having a very constructive dialogue with S&P also to review how they rate Alpek on a standalone basis. This was more a collateral effect due to the adjustment and the announcement that Alpha made on the spin-off.

47:06 So we now are working very closely with S&P to review their entire methodology to see how they, to give them more information on a competitive position, for example. and see how we can better reflect the current standing of ALPEC. As you mentioned already, performance is quite good and quite strong. And in the end, we're even expecting better leverage than what we originally forecasted for the end of the year. So all in all, I can give you confidence that we're working closely with the rating agencies, not only to stay where we are, but to improve the ratings that we have. With respect to MNG restructuring, as you saw, the announcement, it's already done.

47:52 The restructuring has been finalized. We have already a plan to recover the $160 million. They will come in different installments. What we're expecting this year is something around $50 million. Could be a little bit more, could be a little bit less, but not significantly different. And it will come as cash. So that's something that's relevant to answer your question. And we will have at least, I should say, installments of $30 million every single year after 2020. Perfect. Thank you very much. Our next question comes from Chelsea Colon with IGN Asset. Please receive the question.

48:40 Hi, and thank you for taking the questions. I have kind of a follow-up on the margin question, trying to tie it all together with the volumes that we saw in the quarter and how the EBITDA looks on a year-over-year basis. Basically, I'm just trying to understand. What I'm seeing is that comparable EBITDA is down 42% in the polyester business year-over-year. despite the volumes being up 15% year-over-year. And then the Asian PET margins you are showing on one of the last slides are only down about 18% year-over-year. So I'm just trying to reconcile how is EBITDA down 40% on a comparable basis when the volumes are so high and the margins don't appear to be down as much.

49:37 You know, I guess I guess it's a matter of, you know, a small reduction in margin can be a very high reduction in every day on percentual terms. You know, when you're every day, so to speak, is 12 or 15 percent of sales and your margin is perhaps 40 or 50, whatever. If the margin goes down 20%, it's like a percentage point of sales. If you apply the eight percentage points of sales to 15%, that's 50% of EVDA. I do believe that's a very much numerical issue, but the point is you're right. Our margins are down significantly versus last year. And to a great extent, that's... That's the result of the margins in Asia.

50:41 But I remember something which is important. When we pretty much signed the contracts for 2020, we negotiated, let's say, end of last year, and the margins at the end of last year were relatively low. So the negotiation for 2020 was based on that. And so that's why 2020 margins were different. Let me put to you this way. Margins of Asian margins for PET in the fourth quarter, 18, were 330.

51:33 $633 Asian margins for PT end of 2019 with $227. So that big difference in the Asian margins certainly had an impact, you know, where margins negotiated for the domestic market in 2020. And, and, and that's, that's what, that's what explains I think the, the reduction in margins and in every day for this last year. And again, I think we all learn from this. And the good news for all is that today, even though margins in Asia are on the low side or on the very low side, the truth is that this volume is so strong.

52:27 I do believe contracts for 2021 should be better than for 2020. So again, we do not expect that we will repeat what happened in 2019.

52:45 Understood. So are these one-year contracts?

52:50 Most of them. There are some that go beyond one year, but I would say most of them are one year.

52:57 Okay, thank you. And then just one other unrelated question. Can you tell us what percentage of your consolidated revenues is EPS currently? You got interested, huh?

53:16 Unfortunately, it's not too high. I mean, it's a relatively small percentage. I would say like, you know, around, I would say probably 12%, you know, let's say 10% to 15% of our EVDA. Okay, great. Thank you. You're welcome. Our next question comes from Alejandro Chabalas with Credit Suisse. Please receive the question.

53:51 Hello, I'll take team congratulations on the results and thanks for taking my question. Just thinking about the recovery you mentioned, the possible recovery in PTA and PET margins in Asia, how tied do you think this is to the recovery in the fashion industry? We have read some reports that polyester demand is accelerating because people are buying more sportswear or casual wear for using it at home. What are you seeing on the ground on this trend, and do you think that's a possible positive driver for margins in the polyester chain during the fourth quarter and the rest of the year?

54:36 In the next year, sorry.

54:39 Well, Alejandro, I do believe that's certainly a positive trend. Look, one of the segments, I don't know if you look at the different segments in COVID, one of the segments that was mostly impacted by COVID was was the apparel industry. Apparel industry, I mean, they went down as much as 50% during the pandemic. Worst time, you know. It was really bad with all the retail sales. I mean, all the retail stores closed and everything. For some reason, you know, in apparel, retail sales is still very important as opposed to online. probably you're talking retail would be, you know, information we have close to 80% of sales in, I'm talking U.S., of sales of apparel products. And online, you know, obviously less than 20. And also online accelerated in this crisis was interesting.

55:44 Retail sales came down a lot. I mean, the overall segment came down, as I mentioned, up to 50% off. But the online sales increased like 20, 30%. So they increased their share dramatically from low tens to almost 20 today. But the point is that apparel sales this year were very bad. And so the point, to begin with, apparel sales this year were bad. So irrespective of the more casual trend in terms of, I think apparel sales have to recover, have to normalize, number one. And number two, what you are saying or suggesting is that on top of that, polyester fibers are going to increase their share within the apparel sector, given the fashion trends, right?

56:47 And so, yes, I agree with that statement. I think we're going to see some of that, that hopefully is going to improve the supply-demand balance. And that's part of the reason why we say that margins next year should improve a little bit. The only difference, perhaps, and I hope I'm wrong or we are wrong, some of these people that are talking about that are expecting higher margin increases. That's what we believe will happen. But They might be right. I'm not saying we're just taking a more conservative. We're not disputing the numbers. We're just taking a more conservative approach. But there's no question, you know, and we've always said that, you know, synthetic fibers offered a lot of value and in terms not only cost but in terms of, you know, of value in use.

57:43 It's not a surprise that they will continue to trend up.

57:49 That's great. Thanks a lot. A follow-up question for me. How much of the gains in volume that you have seen do you think are explained by perhaps a switch from aluminum and glass into plastics because of the challenging situation in supply of aluminum in recent months? Do you think that's a factor, or do you think it's more the open containers versus closed containers?

58:20 We do believe there might be some share gain to the other products, the products you mentioned, but I think most of it has to do with the on-premise sales. On-premise sales that normally are done with a fountain, now a lot of those sales are using bottles. Again, due to this hygiene and safety considerations. I think, so the chair gain is mostly against fountain than against aluminum and glass. That's very clear. Thank you very much. Thank you. At this time, I would like to turn the conference back over to Mr. Elizondo for additional or closing remarks.

59:07 Thank you, Otan. I would just like to thank everyone for participating in today's webcast and reiterate Pepe's message to stay safe. Please feel free to contact us if you have any follow-up questions or comments. Ladies and gentlemen, this does conclude today's webcast. Thank you for joining and have a great day.