Alpek SAB de CV

BMV:ALPEKA

Earnings Call Analysis

Alpek's Q2 Performance: Revenue, EBITDA Growth, and Cost Reduction

Alpek's second quarter saw steady demand and strong cash flow, despite temporary production interruptions due to water shortages in Mexico. EBITDA improved 15% year-over-year to $170 million, driven by better inventory management and lower costs from restructuring. The Polyester segment grew 2% year-over-year in volume, with integrated margins rising slightly. Plastics & Chemicals faced a 4% volume drop due to Altamira disruptions, but EPS margins increased 40% quarter-over-quarter. The company maintained its investment grade and aims to hit a net debt-to-EBITDA ratio of 2.5x by year-end, with full-year guidance for EBITDA on track.

Solid Financial Performance Amid Challenges

In the latest earnings call, Alpek reported a robust financial performance despite facing operational challenges due to water scarcity in its operational regions. The company achieved a reported EBITDA of $170 million, marking a 15% increase year-over-year. This was bolstered by effective inventory management, which contributed significantly to operational stability. Furthermore, Alpek's net working capital saw an improvement of $34 million, illustrating its ability to manage resources effectively even during tough phases.

Polyester Segment Shows Optimism

The Polyester business segment showed resilience with a volume of 1 million tons, a slight growth of 2% year-over-year. There was a positive trend primarily driven by strong demand, despite setbacks due to maintenance and temporary interruptions. The company anticipates continued growth in this sector and remains confident in reaching its guidance. The Asian integrated PET reference margins averaged $297 per ton, reflecting a 3% quarter-over-quarter increase, although challenges persisted in the Chinese market, where margins dropped to $147 per ton.

Plastics & Chemicals Segment Recovery

In contrast, the Plastics & Chemicals segment faced volume challenges, declining to 202,000 tons, primarily due to temporary production setbacks. However, it saw a recovery in profitability with a 20% increase in comparable EBITDA, reaching $52 million quarter-over-quarter. North American reference margins increased significantly, particularly for EPS, indicating an upward trend that may enhance overall performance going forward.

Operational Resilience Amid Water Scarcity

Alpek encountered operational disruptions due to water shortages affecting several plants in the Tampico and Altamira areas. To mitigate impacts, the company effectively managed its inventory and leveraged its global supply chain. By the end of the quarter, the situation had stabilized after tropical storms replenished water supplies. The team’s agility in addressing the crisis was commendable and reflects Alpek's commitment to proactive risk management.

Focus on Cost Reductions and Cash Flow Maximization

The company has completed a significant restructuring effort in its Polyester business, projecting annualized savings of $75 million by the third quarter. This initiative contributes to Alpek’s goal of maximizing cash flow and strengthening its balance sheet. Planned capital expenditures remain disciplined, with a projected total below $200 million for the year. The organization aims to maintain effective capital allocation while facilitating strategic investments in underdeveloped areas.

Targeting Improved Debt Ratios

Alpek aims to improve its net debt-to-EBITDA ratio to 2.5x by year-end, currently at 3.3x after a 5% decrease in net debt to $1.73 billion. Achieving a target EBITDA of $600 million remains feasible, reinforcing the company's confidence in approaching its deleveraging goals. The absence of dividends in 2024 allows the company to concentrate resources on reducing leverage.

Sustainability and Innovation Initiatives

Alongside its financial strategies, Alpek is focused on sustainability. The recent sustainability report highlights the company's commitment to reducing carbon emissions and improving practices across its operations. Notably, Alpek has announced new patented technology, CaPETall, which allows for bottle caps made entirely from PET resin, enhancing recycling capabilities.

Market Landscape and Future Outlook

The market presents continued challenges due to oversupply from China, particularly in EPS and polyester. Although this is a competitive threat, Alpek has positioned itself well, reflected in its sustained operational initiatives. The company remains optimistic about normalization in global demand trends and continues to adapt to external market conditions, preparing for a more favorable environment in the future.

Earnings Call Transcript 2024-Q2

[Barbara Amaya, executive]

Good morning, everyone. Welcome to Alpek's Second Quarter 2020 Earnings Webcast. I am Barbara Amaya, Alpek's IRO, and I am pleased to be here today with Jorge Young, our CEO; and Jose Carlos Pons, our CFO, who will be covering today's webcast presentation.

For today's presentation, first, Jorge will provide an overview for quarter, then Jose Carlos will expand upon the financial results. Finally, Jorge will review our expectations for the second half of the year prior 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 certain risks and uncertainties. Actual results may differ materially. However, 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 because of new information, future events or otherwise. Financial results are expressed in U.S. dollars unless otherwise specified.

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

Jorge, I'll turn the call over to you.

[Jorge P. Young Cerecedo, executive]

Thank you, Barbara. Good morning, everyone. Let me begin today's call by stating that second quarter results were in line with our guidance expectations with an improvement in net working capital and strong cash flow generation. We witnessed a gradual demand recovery, building upon the positive trend from the first quarter. Additionally, steady margins also contributed to our overall stability during this period.

Notwithstanding the above, we faced a very specific challenge within the quarter, beginning in May and becoming critical in June, the cities of Tampico and Altamira in the northeast of Mexico faced low water availability because of a delayed rainfall season. This led to temporary operating interruptions for our industrial companies in the area, including 3 of our sites.

Alpek responded quickly, effectively managing its inventory and leveraging its global footprint to partially mitigate the impact to volume supply. By the end of June, the situation was resolved as tropical storms enter the region and water levels fully recovered. I would also like to mention that the company was able to support its employees and the Altamira community during the challenging weeks of water scarcity.

We appreciate the dedication of our team who managed this difficult situation successfully. Going forward, we do not anticipate any additional impact related to this occurrence, and we are actively assessing long-term solutions to prevent and mitigate future risks.

Regarding structural cost reduction initiatives. During this quarter, we finalized the remaining planned organizational restructuring in the Polyester business and have those achieved or planned for the year. Through the combination of these and other initiatives, such as optimizing our polyester footprint and improving some of our energy supply agreements, we will reach our goal of $75 million in annualized savings by the third quarter, with the most significant benefits already factored in since the beginning of the year. Furthermore, we will seek to identify additional opportunities to strengthen our business.

Before moving into financial results, I would like to highlight our sustainability efforts during the quarter. Earlier this month, the company published its most comprehensive sustainability report to date, now with additional disclosures, including the following items: a new materiality matrix, which now considers financial impacts; and a brand new road map to showcase or the carbonization journey, among others. You can find a complete report on our website.

Furthermore, the progress in our sustainability agenda is evidenced, again, by stronger ratings. MSCI recently improved the company's rating for the first time since 2019 to a BBB, recognizing enhancement in our business practices as well as our carbon emissions reduction, which achieved a superior performance versus the industry average. Alpek remains committed to enhancing its goals and strategies to ensure continued progress.

At this point, I will hand the call over to Jose Carlos to cover our financial performance in greater detail.

[José Pons, executive]

Thank you, Jorge. Hello, everyone, and thank you for joining us. Allow me to provide more insight into our quarterly results.

Volume remained flat quarter-over-quarter and year-over-year, reaching 1.2 million tons as the Polyester business segment maintained volume levels. Therefore, we remain confident we will reach our guidance.

Reported EBITDA reached $170 million, an improvement of 15% versus the previous year, including a combined positive inventory management and carryforward effect of $14 million and a $2 million nonrecurrent effect mainly from organizational restructuring costs. OpEx generated $158 million in comparable EBITDA, in line with our guidance expectations.

Now diving into specifics for the Polyester segment. Volume reached 1 million tons, an increase of 2% year-over-year and 1% quarter-over-quarter, resulting mostly from solid demand. The company estimates that volume would have been even higher had it not been for the schedule and maintenance earlier in the quarter and the temporary interruption of PTA production in Altamira.

Asian integrated PET reference margins also improved, averaging $297 per ton, a 3% increase quarter-over-quarter. However, Chinese integrated PET reference margins remained pressured, decreasing to an average of $147 per ton, yet witnessing a slight recovery in recent weeks.

On the other hand, U.S. reference paraxylene increased 4%, resulting in a spread between North America and Asian prices of $258. That is 12% higher than the previous quarter, however, consistently declining in May and June. Comparable EBITDA decreased to $102 million, a 20% reduction year-over-year as reference margins remain at lower levels.

Now delving into the Plastics & Chemicals segment. Volume reached 202,000 tons, down 4% quarter-on-quarter, primarily related to the temporary production interruptions from the Altamira sites, particularly for EPS. Polypropylene reference margins remained flat at $0.15 per pound, mainly from supply and demand dynamics. Average reference propylene prices decreased to $0.47 per pound, down 13% versus the previous quarter. EPS, however, saw a recovery.

North American reference margins increased to an average of $0.26 per pound, 40% higher quarter-over-quarter. Average reference prices for styrene rose to $0.60 per pound, up 3% from the first quarter. Comparable EBITDA was $52 million, up 20% quarter-on-quarter. Polypropylene remains in line and EPS improved as raw material prices declined throughout the quarter, particularly in June, as supply in North America normalizing following the effects of industry shutdowns earlier this year.

In recent months, interruptions to shipping routes have led to ocean freight costs reaching levels not seen since 2022. If the trend continues, margins could improve or it could represent a potential opportunity for Alpek.

Turning to free cash flow. For the second quarter, CapEx was below expected levels of $22 million, comprised mostly of scheduled maintenance. We remain on track to conclude the year below the guidance of $200 million for the year with a strong commitment to disciplined capital allocation. Net working capital improved by $34 million as polyester raw material prices rose slightly while polypropylene raw material prices increased as the EPS on a month-on-month basis.

And finally, regarding the company's financial position. Net debt decreased 5% sequentially to $1.73 billion, as effort to improve cash flow generation continued to yield positive results. Last 12 months reported EBITDA was $517 million, resulting in a net debt-to-EBITDA ratio of 3.3x, down from 3.7x in the previous quarter.

The company also maintained its investment grade across the 3 rating agencies, most notably in May, the Standard & Poor's Global reformed their rating for the company as stable and BBB-. We're confident that Alpek is still on track to lower its leverage ratio, and we remain committed to approaching our target of 2.5x by year-end.

Thank you for your attention. I'll turn the call back to Jorge.

[Jorge P. Young Cerecedo, executive]

Thank you, Jose Carlos. Coming back to the priorities we established for 2024. I would like to highlight the progress we have made during the quarter.

First, regarding our structural cost reduction. As we mentioned earlier, we concluded the organizational restructuring of the Polyester business, indicating 100% completion of the initiatives which we have been sharing with you since the beginning of the year, reaching $75 million in annualized benefits. We remain committed to identifying further efficiency opportunities to maintain this momentum.

Second, capitalizing our position as a domestic supplier by continuing our commitment to offer a reliable supply of high-quality products and sustainable packaging solutions. As an example, I'm proud to share that our Polyester business just unveiled a new patented technology called CaPETall. Under such technology, we provide a resin that is suitable to make bottle caps 100% from PET resin. Thus, the bottle would be made entirely from PET, making it easier to recycle without losing any functionality. We expect to determine the commercialization time line in the near future.

And third, maximizing cash flow and further strengthening our balance sheet through disciplined capital allocation, net working capital optimization. And as mentioned before, we continue to make progress in divestitures of nonstrategic assets that we can monetize.

Looking forward to the second half of the year, we believe the industry will continue to gradually move towards more normalized demand, although we acknowledge petrochemical markets are still subject to excess capacity. Meanwhile, disruptions in trade flows across the world have led to rising ocean freight costs, which could generate potential opportunities for Alpek.

Finally, I would like to reiterate that the figures for the second quarter fully met our expectations despite the situation we faced at Altamira. And we remain confident that we will meet our full year guidance for EBITDA.

Barbara, I'll turn the call back to you.

[Barbara Amaya, executive]

Thanks, Jorge. [Operator Instructions] Our first question comes from [ Tiago Castro ] from Morgan Stanley.

[Unknown Analyst]

I have 2 here. The first one is regarding global capacity. We have seen some closing of PET and PTA capacity in Europe, and I would like to take your view on this trend, especially if we should see this happening in other regions. And the second one is if you could comment if there is any update on the divestment of nonstrategic assets.

[Jorge P. Young Cerecedo, executive]

Thanks, Tiago. Thanks for the question. Yes, I think this is potential the beginning of a trend of where the least competitive assets across the world might have to shut down. I mean, we really don't have further insights of what other assets would follow or specifically when, but it would be expected again over the next year or 2, we should see some more of those announcements.

I think Europe, in particular, is a challenged region as it faces stiff competition from imports, and it has higher energy costs. And I'll ask Jose Carlos to respond to the question on the update on the nonstrategic assets.

[José Pons, executive]

Thank you, Jorge. Thank you, Tiago, for your question. Yes, we're making progress on 2 fronts. I mean, there are some assets that are easier to monetize certain pieces of land, certain equipment that we're in plants that are not longer used, and we've been making progress throughout the year. We're probably 50% or 70% in concluding that activity. By the end of the year, we might see a total amount within that category of around $20 million.

But there's, as we have communicated, there's a more valuable asset that we are starting with, more details. That's the land that we have from the closure of the plant of the fiber production in Monterrey. We already retained advisers to help us see what's the purpose of that plant. And we hope that by the end of the year, we have more clarity on what's the value and what's the role that we want to have in that -- in the monetization of that asset. So we're making progress, not something that we can announce at this moment. Hopefully, by the end of the year, we'll have a clear idea.

[Jorge P. Young Cerecedo, executive]

And Tiago, Jorge again. Just returning to the first question. And as you know, well, last year in 2023, ourselves as Alpek, we began the process of looking into our footprint and 2 of our facilities did shut down, one of our PET plants where we consolidated the production and sales from that facility into the rest of our system so that we have a more robust footprint. And second, our polyester textile filament facility in the Monterrey that we also did shut down as it was not strategic for us to continue to participate in the fiber business.

[Barbara Amaya, executive]

Our next question comes from Tasso Vasconcellos from UBS.

[Tasso Vasconcellos, analyst]

I have 2 questions here on the CapEx front, probably for Jose Carlos. The first one, as Carlos, you already said that you are on track to deliver a CapEx in the full year below the guidance, right? But on the other side, the company didn't update the $200 million for the full year, which is the current guidance. So I think it would be great to hear your thoughts here on what should we expect for the second half of this year. Should we see an annual run rate based on the first half? Should we see an improvement in the second half? So just to get your updated view here on expectations for the second half of this year.

And maybe looking into 2025, how structural is this CapEx for this year? Can we expect a similar level for next year or because you guys are reducing the overall expenses for this year, should we see a rebound on the CapEx for next year? Those are my 2 questions.

[José Pons, executive]

Thank you, Tasso. Well, yes, we've been very careful on capital allocation throughout the first half. We've mainly focused on keeping all of our facilities the best shape they can be. So a lot of maintenance CapEx has been spent throughout the first half.

I mean, in the second half, we're expecting to ramp up certain strategic projects. There is an investment, for example, in recycling and EPS that will materialize in the second half of the year. There are some other strategic investments that we'll plan to materialize throughout the second half. So I'd say that probably, we'll be probably 30% or 40% higher than the rhythm that you saw in the first half of the year. So just below the $200 million, but not at the same rate that we saw in the first half of this year.

Now looking forward, we still have very good opportunities to invest. We're looking at opportunities to reduce costs, and there is a project ongoing that we're starting with a lot of detail. We have opportunities to improve our recycling operations. We do have opportunities to enter into adjacencies. And for example, what Jorge indicated on this PET -- oil PET bottle that we're exploring. So there might be additional strategic CapEx throughout 2025. Not ready at the moment to give you a specific number, but probably in the order of 200 plus.

[Barbara Amaya, executive]

Our next question comes from Leonardo Marcondes from Bank of America.

[Leonardo Marcondes, analyst]

I have 2 from my end. The first one is on spreads, but maybe a bit more focused on the Plastics & Chemicals segment. It has been a while that polypropylene spreads are -- have been very tight in North America as operating rates remain very, very low, right? So my question for you is, when do you guys expect PP producers in the U.S. to be able to set higher prices and increase margins?

My second question here is regarding the capital allocation. Despite the challenging environment, Alpek has been able to deliver positive cash flows, right? So my question here is how should we think in terms of capital allocation in the short to midterm? Is the focus to bring leverage maybe a bit more down? Or could we expect any sort of, I don't know, dividends or any kind of remuneration this year?

[Jorge P. Young Cerecedo, executive]

Thanks for the question, Leonardo. I'll start with the question on spreads, and you were more interested in particularly on polypropylene spreads.

We think right now, the spreads have been relative to the cycle at a very low point, and they have been steady. I think there is still some level of overcapacity in the North American industry that is keeping the spread at those levels.

There have been attempts from the more established, the larger polypropylene producers in the United States to increase margins slightly. But so far, the spreads remain steady on a low level. I think we might be one event, one tropical storm or one supply disruption from potentially the spreads moving higher. They're steady. And again, we might still have, at least for the balance of the year, some level of overcapacity. But again, one event in the industry could change that. But that's the view.

So generally speaking, we continue to prepare and operate as the low spreads will last for longer. I mean, that has to be the nature for strategy. But also remain agile and ready to capitalize should spreads improve by natural improvement in the supply-demand ratio or by the result of -- in those 3 specific events that may again bring disruptions on opportunities.

[José Pons, executive]

Yes. Maybe Leo, I can jump in to -- regarding your question on capital allocation. I'll state, as we have stated before that we're committed to coming closer to the 2.5x net debt to EBITDA. That's our target. With the numbers that we're reporting as of today, it seems doable by the end of the year or something very close to that. So at this moment, we announced that there will be no dividends in 2024.

However, that's a situation that we're always evaluating. And if there's room, we'll propose something to our shareholders. But at the moment, I'll say, we're targeting the 2.5x net debt to-EBITDA. And with that, we'll evaluate if there are any further opportunities going forward.

[Barbara Amaya, executive]

Our next question comes from Pablo Ricalde from Santander.

[Pablo Ricalde, analyst]

I have 2 questions. One is related to Tiago's questions on the real estate divestment. I was wondering in case you managed to sell the asset before your rent, if it's fair to assume maybe you can pay an extraordinary dividend this year? Or you will wait until 2025 to maybe restart the dividend program? That's my first question. Another one is on the working capital. How should we see working capital for the second half of the year?

[Jorge P. Young Cerecedo, executive]

Pablo, Jorge here. Well, the real estate for us, the priority is to maximize the value that we can get from that asset. It's a very nice piece of real estate in the center of the city. And obviously, we want to capitalize and monetize it. But right now, we are in the middle of a study, and we will have probably not until the end of -- towards the end of the year, that analysis that will provide us with the with a potential road map to -- on the best way to capitalize that asset.

I don't think we want to rush to any decision. Probably we don't want to hold into the asset for too long either, but there has to be the right time. And for that, we just need more information. We are not experts on real estate matters. And I think we can take that time to evaluate the opportunity for -- to maximize the value for the shareholders. So it's less likely that something will happen before the end of the year. Most likely something we will carry into next year.

Regarding working capital levels for the second half. I would say at this moment, probably not a very significant change going forward. I mean, there is always volatility in the working capital. We are close to the number of days of working capital. So depending on if prices go up or down, we will see a fluctuation on the cash flow. But assuming steady prices, we would expect steady working capital, maybe a slight -- still some slight opportunities to continue to recover and improve on working capital, but more moderate from what we have seen in the last 18 months, for example.

[Barbara Amaya, executive]

Our next question comes from Andres Cardona from Citi.

[Andres Cardona, analyst]

I have 2 questions. The first one is if you can help us to understand how big the oversupply coming from China is, perhaps as a reference of total supply or demand? And the second one and on the other hand, given the delay of Corpus Christi, could you help us understand how the U.S. structural deficit has evolved over time? I remember last time, it was around 1 million tons, but just wanted to make sure it is the accurate and most updated number for the Americas or U.S.A.

[Jorge P. Young Cerecedo, executive]

Yes, Andreas. On the first question on the oversupply from China. I think the answer varies by product. I think, for example, EPS and polyester, the excess capacity in China that is earmark for export is probably more than 50% of the installed capacity in China. So you're talking several million tons per year of capacity that is available for exports.

In our key markets, specifically -- specific imports from China are relatively low because in our key markets, most of our key markets, there are antidumping duties in place versus China that have been in place for a long time. Notwithstanding, China exports to many other regions and displaces other countries, other Asian countries, mainly. And those other countries are the ones that bring most of the import volumes to our key regions. So it's indirect, the pressure.

The prices from the non-China origins are more or less low as China, but we still need to, again, be very sharp in our cost to compete effectively with -- versus those imports, not only through cost, but also through innovation and good service with the customers.

But all in all, Asia still has a relatively high percentage of their capacity that is again available for exports. So it's not new. I mean, it's been happening for a while. But right now, I would say, this year, perhaps next year, the situation is probably somewhat more acute than what we have seen in the past.

On the North American deficit. Yes, the deficit probably peaked in 2022 with more than 1 million tons of PET deficit in the Americas. It's been trending down slightly. I think what happened in 2022, we enjoyed a peak of demand with the COVID issues and the implications for packaging demand and with people building up inventories significantly in '21 and '22. So that was the peak of demand and the imports were, again, north of 1 million tons. Right now, they are at 1 million or slightly below 1 million tons. So not significant change and if are also slight reduction from -- in the last couple of years.

[Barbara Amaya, executive]

Our next question comes from Karim Sawabini from Moon Capital.

[Karim Sawabini, analyst]

My questions are 2 things. One is on shipping costs. Obviously, shipping costs have been elevated for a few months. I was wondering, when do you think that starts to kick in into some of the pricing you see in your markets, one. And two, if you can just give us an update on any tariff news or conversations you've heard.

[Jorge P. Young Cerecedo, executive]

Yes, Karim, thanks for your questions. Yes, as you mentioned, the shipping costs have been increasing recently. It's been -- they increased in the beginning of the year, then they came down. And over the last 2 or 3 months, they have gone higher. The last couple of weeks, they have either stabilized or began to come down slightly, but they remain at an elevated level.

It takes some time for us to see the effects in our business. In these regions, especially in North America, some of the agreements tend to be of annual nature. So if the higher freights persist and persist, let's say, towards the end of the year, then we might see some of those improvements more into 2025.

In some other regions, like South America, the import price model applies, and we tend to update the freights more often. But notwithstanding that, there is always a lag. So maybe in our South American business, we will see the effects in the second half and in North America, probably more towards next year.

It will depend a lot on how long they last. And the numbers we tend to show in the charts are the numbers that are more representative of spot rates. And because those are already available from various sources of information. In real life, in practice, some customers tend to do contracts and those could be 6-month contracts, 12-month contracts.

So it varies. So it takes time, but more definitely some container freights staying high is a step in the right direction for our results. So we expect to see again some partial benefits in the second half and to the extent they last more into next year.

[Karim Sawabini, analyst]

Great. Just on tariffs as well, if you could just -- if there's any new color.

[Jorge P. Young Cerecedo, executive]

Yes, during the quarter, I think in May, I think in April, Mexico didn't move on rates, on import tariff rates for some -- or from a long list of products, several hundred tariff rates. In the products that are relevant for Alpek with higher rates, we have PET resin and EPS. So those have -- for countries where there is no free trade agreement, 35% import duty rate.

Now at the same time, as we have mentioned in previous calls, obviously, we support fair trade and those are welcome relief measures, especially from countries that we believe achievable levels that do not represent fair trade like China. But at the same time, there is stiff regional, local competition. There are still significant imports from countries that do not have -- or the ability to -- the customers who have the ability to bring imports from countries that do not -- that have free trade agreements with Mexico, for example.

This example of 35%, again, is Mexico. And again, it's a step in the right direction and -- but there are still plenty of supply options, competitive prices for our customers, and we compete in -- on those.

And from another country, there's no significant changes. Last, and back to Mexico, the industry did present, before knowing these import duties or besides this effort on these import duties because these are temporary. These are -- initially, this is -- these duties established in 2024 are for a 2-year period. But in parallel, the PET industry did apply for a review of the imports from China for potential antidumping duties that might last longer than 2 years.

But that one is still under review, the case, and we expect to hear from the authorities that are reviewing the case in the second half, whether there is any preliminary determination or antidumping duty. So we'll -- it remains an active -- a focus for us to follow all the trade activity in the products that are relevant for us. And so we are on top of it. But those are the key updates, Karim. Hopefully, this answers your 2 questions.

[Barbara Amaya, executive]

Our next question comes from Alejandra Andrade from JPMorgan.

[Alejandra Andrade Carrillo, analyst]

I just wanted to follow up on the working capital release that you saw in the second quarter. You mentioned a decline in raw material costs for one of your businesses, but I'm seeing a buildup in accounts payable, slightly lower inventories. Could you just give a little bit more detail of what happened in the quarter?

[Jorge P. Young Cerecedo, executive]

Yes. I mean, in the quarter, I think the -- we probably -- if you remember in the first quarter, we had more significant investment in working capital. So in the second quarter, we saw again some adjustments from that first quarter increase. And then in the second quarter, we had a moderate recovery.

I think sitting here today, I think our finished product inventories are maybe a little bit on the low side because of the Altamira water scarcity situation. More of raw material inventories are on the high side because of the same reason. It takes time to -- we have long supply pipelines for raw materials. And I think our payables, I mean, I would need to see the detail. I mean, nothing -- I mean, no changes in -- no significant changes in terms of payment, and that's probably the normal volatility of that line from the balance sheet.

But as I mentioned in an earlier question, when you put everything on the table, we are close to the number of days of operating working capital that we target. Maybe we're still a couple of days above, so we expect to be steady. And -- but we remain focused trying to improve on working capital, at least a little bit during the second half.

[Barbara Amaya, executive]

Our next question comes from [ Emilio Antor ] from JDM.

[Unknown Analyst]

My question is, can you provide a breakdown of the $200 million in CapEx, specifically talking for how much came from maintenance CapEx?

[José Pons, executive]

Yes. Thank you, Emilio, for your question. Yes, out of the $200 million, I'll say that 70% to 80% is related to maintenance and the remainder would be -- no, I'm sorry, in absolute -- probably it's $120 million would be -- I was giving you the wrong percentage. $120 million, it's related to maintenance, and $80 million are related to strategic investments.

[Unknown Analyst]

From the guidance?

[José Pons, executive]

From the guidance, yes.

[Unknown Analyst]

And from the actual, I would say, the percentage has been higher on -- for me than this CapEx so far.

[José Pons, executive]

Correct. Exactly. The number that I was giving you, the 80%, is related to the first half CapEx has been 80% related to maintenance.

[Unknown Analyst]

Perfect. And do you guys expect to reach it?

[José Pons, executive]

No. We are not expecting to reach guidance for the $200 million. We're probably little below, but we do expect an increase in CapEx in the second half as some strategic projects will materialize. Some -- we will be, for example, installing some portion of the capacity for recycling and EPS, and that was expected in the second half. So there's an increase in the rate -- or the run rate that we have for CapEx.

[Barbara Amaya, executive]

We have a couple of questions from the Q&A chat. I will proceed to read them. The first question is from Melissa Marcus from Jefferies. Could you please comment on the expected timing for the spin-off from Alfa?

[Jorge P. Young Cerecedo, executive]

No. I think as Alpek, we cannot comment on the timing from that spin off, that -- and Alfa project and the timing and the process is defined by them. Notwithstanding, Alpek has been preparing over the last several years to be ready for when that moment comes. And I think, again, Alpek has been working on its functional independence from systems and many perspectives. But the specific timing of when that happens is not Alpek's decision.

[Barbara Amaya, executive]

The next question is from [indiscernible] from Santander. Can you update us on the amount available under your credit facilities now?

[José Pons, executive]

Yes. In some previous calls, we've shared the maturity profile of our debt. I don't know if we have it here, but you have -- you'll be able to go consulted in our presentations. As you will see there, we have a small facility that matures in '26, that's bilateral with one bank. Then we have a larger facility in the '27 that consists of several bilaterals, and then we have some bonds that are outstanding for '29 and then '31.

At this moment, we don't have any relevant maturity that is due in the next 24 months. So we feel very comfortable with where we are with our debt profile. That's one of the key selling topics that we've discussed with the rating agencies. And I'll also indicate that we have cash on hand close to $600 million of available committed credit lines that are unused.

So fortunately enough, we do have a good maturity profile for our debt and a lot of cash available to us. And that's something that we're continuously monitoring and see if there's any opportunity to refinance. But at this moment, we're comfortable with where we are.

[Barbara Amaya, executive]

The next question relates to the Altamira situation. What actions were implemented or are expected to be implemented to mitigate the risk of water use restrictions in Altamira, or in general, in the facilities that Alpek operates?

[Jorge P. Young Cerecedo, executive]

Yes, I think in the -- to mitigate the specific event that already happened, I think, again, as I mentioned earlier, we were very proud for the agility and the commitment from our people. In spite of the crisis, we were able to -- we had 3 facilities -- 3 of our businesses are in the area, but one of our businesses, fortunately, consumes little water, so we managed to -- through some actions to find enough to run one of our businesses. And again, to mitigate the -- through other actions, the effect of the water scarcity during this second quarter of 2024.

Well, I think what is important to mention is the amount of rain and water that was collected in the lagoon system in the area did reach a level that we probably have not seen in 15 years. So right now, the system is full. And so we would expect that next year, I mean, the probability of facing issues next year is significantly less given the current level. But notwithstanding, we have already taken actions in the past from previous events, and we have been investing in our facility.

This was unprecedented. And right now, we are reviewing some other projects that will deal with the risk of not having water in the future. So again, we have several long-term alternatives. I mean, we have been talking about accessing the treated water from the municipalities in the area that's potentially one source for us. Desalination plants is another possibility, although we would consider that as the last resource given the capital requirements. So we don't think we will have to go that far.

And from some of our facilities, wells, especially those that use relatively smaller amounts of water, wells in our sites could be also a possibility to mitigate risk. So we will -- again, we are already reviewing all those alternatives. I think the infrastructure in the area can also be improved. That would be a government project with support from the industry -- by infrastructure, I mean, ways to retain the water better in the lagoon system.

So I think there is a long list of activities. I think it's -- we are fully committed to reduce and eliminate that risk. And right now, I believe or we believe that given the recovery of the levels that we have seen now that we should have enough time to implement the best long-term solution. So we are diligently working on that. So that is not an issue going forward.

[Barbara Amaya, executive]

Our next question relates to our deleverage plan. It says what actions do you plan to take to reach the goal of 2.5x in relation to debt?

[José Pons, executive]

Very good question. As a reminder, we are targeting 2.5x by the end of the year. The actions, many of them have already been implemented. First of all, improving our EBITDA and achieving the $600 million target or guidance that we've paid. We've done -- I think that's doable. There's even a little bit of upside, but that's one of the basis that we have for deleveraging.

Second, capital allocation, a lot of discipline. We already commented on our CapEx and what we've done in the last few months to improve and reduce the CapEx that we're investing. However, not stopping any relevant maintenance and during the operation from our facilities.

Second, Jorge already recommended on working capital. There's been a lot of measures. We expect second half to improve even further on working capital.

And third, we're not paying a dividend this year. That will allow us to preserve cash and improve our chances of getting closer to 2.5x. And finally, I'll say, the cost reduction initiatives, Jorge already commented, we are -- achieved -- we have achieved the majority of them. We're looking for additional opportunities, but that's one of the key elements of improving our performance. So we feel comfortable that we'll be closer to the 2.5x by the end of the year.

[Barbara Amaya, executive]

Our next question, it's about Corpus Christi. Is there any update on Corpus Christi project?

[Jorge P. Young Cerecedo, executive]

No of this yet. I think it is the intention of the owners of Corpus Christi to meet some time later in the year to assess the situation of Corpus Christi. So right now, no significant changes from what we have shared recently.

[Barbara Amaya, executive]

That was the last question on the queue. Thanks, everyone, for joining our webcast. Have a great day.