Good morning, and welcome to Alpek's First Quarter 2023 Earnings Webcast. We very much appreciate everyone's participation. I am Antón Fernández, Alpek's IRO, and today, I have the pleasure of being joined by our CEO, Jorge Young, and our CFO, José Carlos Pons. This presentation is divided into two parts. First, Jorge and José Carlos will comment on Alpek's first quarter performance, footprint optimization, corporate governance, and revised CapEx. Afterwards, we'll move on to Q&A. Please note that the information discussed today may include forward-looking statements regarding the company future financial performance and prospects, which are subject to certain risks and uncertainties. Actual results may differ materially, and the company cautions the market not to rely unduly on these forward-looking statements. Alpek undertakes no obligation to publicly update or revise any forward-looking statements, whether it is as a result of new information, future events, or otherwise.
I'd like to remind everyone that today's webcast is being recorded and will be available on our website at alpek.com. I will now turn the call over to Jorge.
Thank you, Antón. Good morning, everyone, and thank you for joining us. I would like to report that despite the challenging market environment during the first quarter, Alpek delivered a comparable EBITDA of $207 million. That was in line with the outlook we envisioned. We also made progress in improving our asset footprint through the rationalization of one of our Polyester assets, strengthening our business accordingly, which we will review in further detail later in the call. Let's start by reviewing the main topics we will cover today. First, I will introduce some of the key highlights for the quarter, and José Carlos will cover Alpek's financial performance in greater detail a bit later in this presentation. Second, we will provide more insight into the asset footprint improvement I just mentioned. Third, we will cover Alpek's recent addition to our board of directors.
Finally, we will provide more comments on our revised CapEx guidance for 2023. The first quarter results were characterized by lower demand, mainly in the Polyester segment, although we did experience some signs of recovery as the quarter progressed. The main reasons were still elevated inventories in the value chain. We maintained reduced exports, particularly in Polyester, due to higher regional prices of key feedstock paraxylene. Macroeconomic environment pressures such as high inflation rates that impacted consumption. Continuous seasonality for PET and relatively weak demand in some industries, such as construction, affecting EPS business. On Polyester, Asian integrated PET reference margins were 2% higher versus the previous quarter, averaging $343 per ton, and with a spread between Chinese and Asian reference margins also increasing to $120 per ton.
Meanwhile, polypropylene reference margins declined to an average of $0.17 per pound, 26% lower quarter-on-quarter, which is in line with Alpek's expectation. The sequential decrease was mainly due to the rising polypropylene supply in the Americas as new capacity has come on stream. EPS reference margins have continued to gradually return to historical levels, averaging $0.49 per pound, a 23% reduction quarter-over-quarter. Reference ocean freight costs have continued to normalize to historical levels, resulting in a reduction in import parity pricing, which is relevant to our businesses, in particular for Polyester and EPS. At this point, José Carlos will take over and delve more into the financial results.
Thank you, Jorge, and thank you all for being here with us today. I would like to share with you some of Alpek's main highlights during the first quarter. To begin, overall volume was 1.16 million tons, a reduction of 6% quarter-over-quarter, primarily as a result of high PET inventory levels in the market, seasonality, and lower export in the Polyester segment. Comparable EBITDA reached $207 million in line with Alpek's expectations for the quarter. Representing a reduction of 22% quarter-over-quarter, mainly due to lower demand, the decrease in reference margins in the Plastics & Chemicals segment, and continued normalization of reference ocean freight costs. In the first quarter, Alpek paid a dividend of $159 million, reaching an implicit dividend yield of 5.4% for the year.
Total volumes was 1.16 million tons for the period, a reduction of 6% quarter-on-quarter. In the Polyester segment, volume was 939,000 tons, 7% lower quarter-on-quarter. The segment experienced a softness in demand due to high PET inventory levels in the market, particularly at the beginning of the year. During the first quarter, we also experienced reduced exports, driven primarily from the increased cost of paraxylene due to price convergence between North America and Asia. In Plastics & Chemicals, volume was 222,000 tons, 2% higher quarter-on-quarter and above expectations, despite demand softness in some industries and additional polypropylene supply in the Americas. Moving on to raw material price dynamics.
The industry experienced a gradual decline in Brent crude oil prices to an average of $81 per barrel, 8% lower than in the previous quarter. Accordingly, U.S. reference paraxylene prices decreased by 3%. In the Plastic & Chemical segment, average reference propylene prices increased to $0.50 per pound, a 56% increase when compared to the previous quarter, primarily due to short-shortages in PGP supply. Switching over to EBITDA breakdown for the quarter. Overall comparable EBITDA for the quarter was $207 million, 23% lower than in the previous quarter. This was mainly due to lower demand, a decrease in Plastic & Chemical segment reference margins, and continued normalization of reference ocean freight costs. It is important to note that these figures were within our quarterly expectations.
Reported EBITDA was $187 million, 1% higher quarter-on-quarter. This result was primarily incorporates the Cooper River site, one-time shutdown costs. If we take a closer view at results by segment, Polyester comparable EBITDA was $133 million, 12% lower quarter-on-quarter. As commented before, this result reflects an increase in nation integrated Polyester reference margins, softer PET demand due to higher than expected inventory levels, and paraxylene price convergence between North America and Asia that continue affecting the import parity pricing and exports. In Plastic & Chemicals, comparable EBITDA resulted in $77 million, a 36% decrease quarter-on-quarter.
This was mainly due to an increase in supply of polypropylene affecting reference margins and gradual return to historical levels of EPS reference margins due to lower demand within certain industries such as construction. With regards to free cash flow generation, net working capital investment increased by $66 million, primarily due to rising raw material prices in the Plastic & Chemical segments. CapEx totaled $52 million and was mainly allocated for the Corpus Christi Polymers project and to a lesser degree, towards the schedule and maintenance. Alpek distributed a total dividend of $185 million during the first quarter. Of this amount, $159 million was paid to shareholders as approved by the Annual General Shareholders' Meeting, and the remaining amount to minority shareholders. Free cash flow for the quarter was $-29 million.
Finally, regarding the company's financial position during the first quarter, Alpek's net debt increased to $2.1 billion. Last 12 months reported EBITDA was $1.2 billion, therefore resulting in a leverage ratio of 1.8 x net debt to EBITDA. Thank you, everyone. I will now turn the call back to Jorge.
Thank you, José Carlos. In line with Alpek's footprint optimization efforts, Alpek announced that it would indefinitely shut down the PET resin operations at the Cooper River site near Charleston, South Carolina. The site was developed in the early seventies and had an installed capacity of 170,000 tons of PET resin. The corresponding PET resin production was transferred to other Alpek sites, enabling cost reductions of approximately $20 million at an annualized rate. This initiative is aligned with Alpek's effort to continuously enhance for cost competitiveness. Effects associated with the shutdown during first quarter 2023 include $14 million in non-recurring reported EBITDA costs, which will be compensated during the year from the cost optimization. Additionally, there is an effect of $47 million in asset impairment, which represented approximately 2% of Alpek's total fixed assets.
At Alpek's Annual General Shareholders' Meeting, we accomplished the election of three new members to the board of directors. These are José de Jesús Valdez, our former CEO, and two independent board members, Montserrat Ramiro Ximénez and Alejandro Mariano Werner. As a result, Alpek's board of directors is now comprised of nine independent board members. We're excited to welcome the new members of the board, I'm confident that their addition will support Alpek's long-term growth strategy and ESG goals. To conclude, Alpek originally provided a 2023 CapEx guidance figures based on the long-term growth strategy to strengthen core business and provide strategic and focused growth. We have decided to revise the CapEx guidance to $335 million from the previous amount of $445 million, as we're taking more time to further optimize the investment estimates and prepare the projects for final investment decision.
Thank you for your attention. I will now turn the call back to Antón to open the webcast for Q&A.
Thanks, Jorge. At this time, we'll now 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 hands are raised. Alternatively, 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 Tasso Vasconcellos from UBS. Hi, Tasso. Please proceed with your question.
Hi, Antón. Hi, Jorge. Hi, José Carlos. Thanks for taking my questions. I have two questions here, more focused on the CapEx, the new guidance you gave. First, I think it would be great to hear more details on the breakdown for these CapEx from this $335 million for the year. What is the maintenance CapEx? What is CPP? What is strategic investments, cost optimization and growth, if there is any, and so on. A breakdown on the CapEx. Second, we've seen the reduction on this CapEx guidance, right, for the year. You maintained the volumes expectation, revenues, EBITDA, and so on. It would be great to hear from you exactly where this CapEx would be invested.
Since it did not impact this year's expectations, what could be the impact on next year's performance? Those are my two questions. Thank you.
Yes, Tasso. Thanks for the question. I think on the CapEx guidance, basically it's one of our projects that has the intent to reduce our variable cost that we're going to take more time to further optimize investment and make it more attractive. As far as the remaining guidance of $335, the main component is our investment in Corpus Christi Polymers. That continues unchanged from the last time. There are other projects for improvements across the plants, but the second largest category would be our maintenance CapEx. Those are the Corpus Christi, our maintenance CapEx, and other miscellaneous projects across our system. The project we're taking more time to study and more than anything, further optimize investment has no implications on 2023 volumes or cost. That's more a long-term...
A longer-term project scope. I hope that answered the questions, Tasso.
Sorry, guys, I was on mute. Yeah, that answers. Thank you.
You're welcome.
Thank you, Tasso. Our next questions comes from Leonardo Marcondes from Bank of America. Hi, Leonardo, please proceed with your question.
Hi, guys. Can you hear me well?
Perfectly well.
Very well.
Thank you.
Okay. Thank you. Thank you for picking my questions. I have two from my side. My first question is regarding the shutdown of the Cooper River site. I would like to know if you guys could share what should be the level of integrated margins for you guys to decide to reopen the site. My second questions is regarding the spreads. When we look to the PP margins, this is the petrochemical which has been facing the most challenging scenario, right? I would like to know when do you guys expect a rebound in PP margins to healthier levels? What should be the drivers for this eventual pickup in margins? Thank you.
Okay. On the Cooper River question, I think it's very unlikely that we would go back to and reconsider the asset to run again. As we mentioned earlier, this is our asset that had the highest cost structure, and it was also in our, you know, in our long-term plans to eventually replace this asset with more competitive capacity. We have now more competitive capacity in the system with the recent addition of the Oman facilities, and we have Corpus Christi, our share of Corpus Christi on their way. The relative size of the Cooper River site would not really materially impact the total margin of the company in case we were going to restart it.
I hope that answers the first question. On the spreads of, in particular, polypropylene, I think when you look into, you know, consultant forecasts, generally speaking, it is believed that the current level seems to be the bottom or very close to the bottom. I think we're pleased to report that in spite of that situation or performance in Plastics & Chemicals or relative performance in Plastics & Chemicals, in particular in polypropylene, is very strong compared to peers. I think the... You know, there is now more capacity, and I think that capacity is going to, you know, over the next few years, next couple of years, is going to be absorbed with the, in the market. As the market, you know, grows a little bit and that capacity is absorbed.
That's our view on the polypropylene spread. Bottoming out, gradual recovery, but over time, because, you know, it was a relatively large amount of capacity that came on stream. Again, our asset and our business is very well positioned to, you know, to weather these next few years.
That's perfect. Thank you.
Thank you, Leonardo. Our next questions come from Nikolaj Lippmann from Morgan Stanley. Hi, Nik. Please proceed with your question.
Hi. Thank you very much for taking my questions. Thanks for the call. My first question pertains to the debate between volumes and margins. Volumes, as far as I can see, were just really weak. We look at Nielsen, what category in North America or U.S. looks to be almost low double-digit. Crown was up. Can you talk a little bit about that dilemma? To what degree are you hugging margin contracts and letting go of a lot of volumes? What are really the dynamics that are in play here? Then the second question is pertaining to rPET. How is the recycled product performing in this volume downturn, both in terms of the ability to defend the margin and also the stickiness of these contracts?
To what degree are you finding a higher customer loyalty in the rPET project? Then finally, if you... You had comments in the prior quarter pertaining to the Russian sourced PX. Of course, would be lower priced and how that was creating a degree of disruption in some of your markets. How is that playing out? Where do we stand now? Thank you very much.
Yes, Nikolaj, thanks for the questions. You know, the first questions on the volume and the last question about the Russian situation and the paraxylene supply are somewhat or to a large extent related. I think in the volume question, there is a component that we have reduced our participation in some regional markets, especially export markets from our facilities. Not necessarily the markets where our facilities are located, but export markets. That is because, as, you know, as we mentioned the last time, we continue to experience higher relative prices for paraxylene in our region. On one hand, those are driven by higher alternative values for the feedstocks that are needed to make paraxylene.
That situation is not totally new because it happens from time to time. Normally we have the ability to import paraxylene and to manage, you know, when that situation happens. The issue that we continue to face is over the last 6-12 months, especially since the war between Russia and Ukraine began, the cost of transportation for liquid petrochemicals, which is very different industry than the transportation of dry goods in containers. Transportation of liquids has increased in cost because there is a, you know, very high demand for vessels to move liquids. That is causing the import prices of paraxylene to be also more expensive than normal. I think we think that situation, you know, is going to be, is going to be here perhaps a couple or a few more quarters.
We don't think it's a structural long-term issue, but that is one of the reasons why we have withdrawn from some markets. Yes, in, you know, in domestic markets to a much lesser extent, you know, there are situations where we choose to protect margin versus volume. The bulk of our volume adjustment is on reduced exports and highly correlated to the more expensive paraxylene. That again, we have tools to deal with it. Our key tool, which is to import, right now, we are also facing higher transportation cost in liquids, mainly for due to the Ukraine-Russia war. All the effects that created on the rebalancing of the world of moving liquid fuels and especially liquid fuels that drag liquid petrochemicals. On rPET, the question on rPET.
No, rPET continues to be an essential component of our offering for the customers. We deliver rPET in rPET content to our customers in various forms. We can make pellets that are 100% made of recycled polyester, or we can introduce recycled content into our polymer lines, and depolymerize the molecule in line and repolymerize it and offer a resin with 15%-25% at least rPET content. Both presentations are very relevant for us to align with our customers. Those are again go hand-in-hand with our priorities to, you know, to supply our key customers in the region. That continues as an essential component.
Thank you. May I ask just a follow-up question there. Are you finding? May I ask actually two. Are you finding that in the North America? The majority of this problem is outside of North America, I understand. But there's still a bit of a downturn in the North American market. Are you finding rPET to be defensive? Are you finding higher level of customer or volume and margin loyalty in the product vis-à-vis virgin, or is it about the same? The follow-up question number two is, are you seeing the issue of the PX even in the U.K. market, or is it in other regional markets?
Yeah. I think again, the rPET that we sell for the most part goes to customers that are also very important customers for virgin PET. Again, the offering goes hand-in-hand. The discussion that we had with them is it's always on both products. You know, we have programs that have rPET content in the two presentations that we provide to them with them, and programs with virgin. Again, there is a trend and a desire to continue to increase rPET content, and we're working on that. I wouldn't say that there is more loyalty or one or the other. Again, our customers are very committed to PET packaging. I think they are very interested in...
The PET packaging brings them many advantages for their business, and the intent is to make PET packaging more sustainable and again, I see those going hand-on-hand. In markets, going to the raw material questions like for U.K. In U.K., we would have the ability to source directly Asian feedstock. That's a way for us to build in that particular market with our raw material competitiveness. We can compete effectively in that way. That strategy would be much more cumbersome in other regions because there are more logistics barriers and where that's... In the other regions, like in the Americas, we have our PTA plants, and that would be more difficult to even consider.
In the U.K. in particular, we can source Asian origin PTA. I hope that answers the questions, Nick.
Thank you very much.
Thank you, Nik. Our next questions come from Andres Cardona from Citi. Hi, Andres, please go ahead.
Hi. Good morning, Jorge, José Carlos, and Antón. Let me ask you about the integrated PET margins and how do you see them performing into the early second quarter. Also you may provide also some short-term color about what's happening on volumes or what to expect in second quarter. Thanks.
Yeah. I think you know, there are still probably very similar levels as the first quarter. I'm talking about the reference margin. There is some compression in the gap between the China margin and the Asian margin, but relatively small. I would say generally speaking, still in line with you know, with the guidance that we have. As far as volumes, you know, we did see a gradual improvement within the quarter, on first quarter. We continue to see that in the second quarter, is gradual. We see also signals for that to continue to improve in the second half. I think you know, obviously there is the seasonality of PET resin. Again, these are signs that.
We expect the volume to, you know, to pick up some. The extent of how much it picks up is still, you know, still to be determined. Yes, we're seeing some signs of gradual improvement as the year progresses, beginning even within the first quarter.
Thank you.
You're welcome.
Thank you, Andres. Our next questions come from Regina Carrillo from GBM. Hi, Regina, please go ahead with your question.
Hi. Good morning. Thanks for taking my question. I have a more strategic question. Do you see any potential benefits coming from nearshoring in the short or medium term for your operations in Mexico or the U.S., or maybe for one of your two divisions? Thanks.
I think the nearshoring, generally speaking, would be a positive event, mostly for our Plastics & Chemicals, you know, that they serve some industries that are related to the industry that would benefit from nearshoring. Yes, that will definitely be a positive factor for us. Obviously it will happen gradually over time.
Yeah. Perfect. Thank you, Jorge.
Thank you, Regina. We have one last question through the Q&A function. The question is from Andrés Lomelí from LCA Capital, and the question reads: Given the reduction in CapEx expectations for 2023 to $335 million, will there be a potential for an extraordinary dividend payment?
Well, thank you. Yeah, I think that's a very good question. Certainly, our expectation is to take a decision on the second half of the year, if there's a potential for an additional dividend. We currently maintain a very prudent leverage. As you saw, we ended up with 1.8 net debt to EBITDA. Therefore, with the improved working capital investment that we're gonna see for this year, the potential upside on working capital, we could see the possibility for an incremental dividend in the second half of the year. That's a decision that certainly we will take towards the latter part of the year.
Thank you, José Carlos. Well, I believe that was the last question in the queue. As always, I'd like to remind you that you can find both a video recording of today's webcast as well as a transcript on our website at alpek.com. Thank you all for participating in Alpek's webcast. Have a great day.