Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2020-Q3

[Operator]

Greetings, and welcome to today's conference for the Alpek Third Quarter 2020 Conference Call. [Operator Instructions] I would now like to turn the conference over to your host today, Mr. Alejandro Elizondo. Please proceed, sir.

[Alejandro Elizondo, executive]

Thank you, Latonia. Good morning, and welcome to Alpek's Third Quarter 2020 Earnings Webcast. I'm Alejandro Elizondo, Alpek's Investor Relations Officer. And I have the pleasure of being joined by our CEO, Pepe Valdez; and our CFO, José Carlos Pons.

Please turn to Slide 2. This presentation is divided into 2 parts. First, Mr. Valdez and Mr. Pons will provide commentary on Alpek's 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. Alpek 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.alpek.com.

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

[Jose de Jesus Valdez Simancas, executive]

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 3. I would like to start by highlighting the 4 main topics of this call. First, company continues to surpass expectations amidst a challenging COVID-19 pandemic environment. Secondly, Alpek has enhanced its financial standing, which José Carlos will discuss in detail later today. Third, as many of you know, Alfa has announced its unlocking value initiative. This means there will be changes for Alpek, which we will explain later on in the presentation. And fourth, we have reached an agreement with NOVA Chemicals to acquire their styrenics 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.

On Slide 4, 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 very -- 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 Alpek. 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 Alpek continues to be low and is declining week after week.

During the third quarter, we saw a gradual decline of COVID-19 effect on the overall business environment. Alpek 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 & Chemicals segment experienced a sharp volume recovery as demand for the construction industry, which uses EPS as insulation, and the automotive industry, who 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. As social distancing measures continue to relax and consumers return to public spaces such as restaurant, 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. Under the agreement, Alpek will recover $160 million in guaranteed debt plus interest over the next 5 years, with approximately $50 million as early as the end of this year. Moreover, Alpek will also continue supplying the PTA required by M&G Mexico's PET facility, ensuring stable operations at M&G Mexico as Alpek recovers its debt as well as the steady offtake for our PTA side in Altamira.

Thank you for your attention. At this point, I will turn the call over to José Carlos, who will go into more detail regarding our financial results.

[José Pons, executive]

Thank you, Pepe. Turning to Slide 5. OpEx performance continues to improve for the third straight quarter. During 3Q '20, we saw record overall volume driven by strong PET demand and recovery of Plastics & Chemicals; also an increase in comparable EBITDA, excluding raw material pricing effects; particularly strong free cash flow generation as Alpek reduced working capital and maintained low CapEx; and finally, a reduction of net debt, further improving leverage and liquidity.

On Slide 6, you can see that comparable EBITDA, excluding raw material carryforward effects for the third quarter, improved by 3% to $154 million as record volume more than offset a decrease in polyester margins.

Moving on to raw material price dynamics on Slide 7. 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 time frame 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 PBH.

Turning to Slide 8. We can see the price increases for both Px and propylene resulted in a noncash inventory gain of $16 million and a positive raw material carryforward 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% higher quarter-on-quarter, are explained by a strong performance from our operation and a positive inventory adjustment and raw material carryforward effects in the third quarter, which were negative in last quarter. For this season -- for this reason, as I have mentioned during the previous quarter, it is important to rely on comparable EBITDA, excluding raw material carryforward, as the best measure of Alpek's performance.

Shifting our attention now to results by key segments, we can see that polyester comparable EBITDA, excluding raw material carryforward, 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 M&G supply interruption in the U.S. Gulf Coast. The decrease to margins was largely expected as Asian PTA and BP supply continue to normalize over the third quarter.

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, Plastics & Chemicals comparable EBITDA was $56 million, an increase of 20% quarter-on-quarter as volume increased by 33% 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 9. Alpek has generated $309 million in operational free cash flow this year and is currently $386 million above original expectations. 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 includes: 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; also, 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 5 years as a result of M&G's Mexico restructuring agreement.

Switching to Slide 10 and regarding our financial standing, Alpek has reduced its net debt by $193 million during the 3Q '20 to just $1.2 billion as a result of the strong free cash flow just discussed. This has resulted in a leverage reduction to 1.7x net debt to EBITDA.

Finally, Alpek reduced its cash balance to $519 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.

[Jose de Jesus Valdez Simancas, executive]

Thank you, José Carlos. If we turn to Slide 11. At the end of July, Alfa announced its plans to execute a strategic plan to unlock value for its shareholders. This strategy includes the spin-off of its stake in Nemak, the sale of Axtel's assets and the eventual spin-off of its stake in Alpek.

I would like to highlight that although we do not expect OpEx spin-offs to happen in the next 12 months, we have started a transition plan to become fully independent from the remaining unlimited corporate services provided by Alfa, which include legal, fiscal, accounting and IT. Additionally, I would like to mention that the spin-off is not expected to have a significant positive or negative impact on Alpek's already small SG&A. Overall, these changes would further strengthen Alpek's governance practices.

As José Carlos discussed, Alpek 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. Alpek will continue to actively evaluate opportunities that meet this criteria while capitalizing on our strong balance sheet, as our eventual spin-off does not affect our decision-making process.

Turning to Slide 12. We are very pleased to announce that this week, Alpek reached an agreement with NOVA Chemicals to acquire their expandable styrenic -- styrenics business. This purchase includes Nova's 2 facilities in the United States, with a total capacity of 168,000 tons of EPS and 36,000 tons of ARCEL as well as a world-class R&D facility.

If you recall, last quarter, we discussed Alpek'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 3 pillars of our strategy.

With regards to strategic and focused growth, it allows us to further solidify our position as the leading EPS producer in the Americas, a core tenet of how Alpek chooses which business -- which industries it participates in. Within the fostering circular economic pillar, this acquisition 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 are required.

Finally, in terms of strengthening the core business, we see 3 key points of alignment. One, this acquisition moves us into higher-value markets like those served by ARCEL, an EPS polyester and 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 light weighting, 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 2 sites in the United States to our EPS footprint, Alpek 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.

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, Alpek's outlook remains positive, with an expected continuation of the solid business fundamentals, which helped 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.

In terms of guidance, Alpek will not be issuing updated 2020 figures. However, comparable EBITDA, excluding raw material carryforward 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.

[Operator]

[Operator Instructions] Our first question comes from Gabriel Barra with UBS.

[Gabriel Barra, analyst]

I have 3 questions here if I may. The first one is regarding capital allocation. I was trying to get a bit more details here in the recent acquisition that you have made in Brazil, U.K. 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 dividend. At the moment, that leverage has fallen to 1.7x. And what would drive the company's 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 tons -- 1.1 million tons from Citepe/Suape, 350,000 tons in U.K. plant. And as far as we understood here, utilization rates seem stable but increasing quarter over quarter 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, Braskem has already started its operation in the U.S. and expect to ramp up, in the short term, the plant. How do you see this impact of 400,000 -- 450,000 tons per year in PP price and OPEC PP business. So that's the questions.

[Jose de Jesus Valdez Simancas, executive]

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 3 pillars.

And among those, I think other than the NOVA acquisition, M&A, as 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. But including aside, again, the M&A CapEx, that's difficult to forecast or to plan for, I would say going forward, I think we have our maintenance CapEx, which you would know, $60 million, $55 million a year. And the other, let's say, concept that continues, that we'll 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.

And again, also very likely, we will have some other CapEx that we're planning, which will be CapEx to optimize our cost. And this CapEx include debottleneckings 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, years.

In terms of dividend policy, well, I have to say dividend policy is actually set by our Board 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 have been -- 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. And based on the initial meetings with our customers for next year, contracts, I will say that we expect this will continue into 2021. We will -- we believe we're going to -- in terms of volume of PET, we will continue to operate most of our facilities at near capacity or at effective capacity, to say it better.

Now in terms of the impact of Braskem start-up in polypropylene, well, I would say that we, in our guidance, we were assuming that we will have some -- $0.02, $0.03 per pound reduction in our margins starting in September as the plant came on stream commercially. We haven't seen that.

In fact, in August, September, we saw an increase of $0.03 per pound in the margins of PP. 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 hit particularly hard the Louisiana area.

So there are several facilities, several PP facilities that are shut down or that are on their force majeure. And I think that meant that as opposed to seeing a decline in margins, we saw an uptick, an increase in margins since almost -- particularly since September. I think in September, we already experienced an improvement in the margins.

[Operator]

Our next question comes from Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

Congrats on your numbers. When we look at the -- your portfolio, and it's just a matter allocation question. When we look at your portfolio, is there some -- I didn't see that acquisition in the foam business coming. But 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 rPET, you might need less PTA. Is that something that you would be considering in selling the Corpus assets?

And also, what will be the -- when we think about dividends and your capacity to pay dividends, what is the CapEx that you guys are thinking about when you were thinking about bringing your recycled PET capacity up towards the sort of 20%, 25% level that you mentioned on the second quarter conference call?

[Jose de Jesus Valdez Simancas, executive]

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 are 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, debottleneck and optimize costs and upgrade technology. So all of our plans 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 of any of our polyester plants.

And 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 million, $200 million a year. That would be my best estimate, including recycling, of course.

[Operator]

Our next question comes from Leonardo Marcondes with Itau.

[Leonardo Marcondes, analyst]

My first question is regarding the restructuring plans you guys released in the second quarter, where you mentioned in that a potential review of the existing footprint of Alpek, right? Could you guys share with us if you had any advancement on that front?

And also, my second question is regarding the spreads in the longer term. Could you guys share a little bit what are you expecting for PET and PTA spreads for 2021?

[Jose de Jesus Valdez Simancas, executive]

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, and we -- to take the measures we have to take if all this on 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 debottlenecking 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.

With regards to NOVA, I mean your question, of course, I mean, the challenge with NOVA, and I've shared this information with you, which I hope you find useful, of our existing large businesses in Alpek, which includes PET, PTA, polypropylene and EPS, I mean, so far over the last years, EPS has been the most profitable business. So -- with returns of over 30% per year in terms of returns of asset. So it has been a very attractive business, and we do believe that demand will continue. And if we continue, again, to improve our cost and do the right things, that should be somewhat sustainable, the type of return.

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. Not all of it is utilized. And again, the challenge for us with the NOVA 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, 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 or more aligned with our existing cost structure. 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 4 or 5 years, that has been the same concept. If you look at all the -- I mean, when we acquired DuPont's, I mean, assets from the 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.

Those -- normally, those businesses were underperforming because the cost structure was not adequate to the market. And again, this is what's happening really with NOVA, I think. 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 and raw materials. There's a lot of synergies also that -- I mean, it's 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 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 third quarter '20.

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 2020, 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 our guidance. So I mean the margins we posted was 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.

And now what happened in third quarter '20? We have, I would say, basically 3 impact to the margins that -- I mean, that -- the good news that I don't believe these 3 problems are, let's say, secular. I mean I think they're going to be sort of a short-term impact.

Number one. Number one is a -- and let me start by that. These 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 I referenced, $215. And the margins were significantly higher than that as a result of all this COVID logistic restrictions, whatever. So we have stronger margins in the first 6 months of the year.

What happened was, as COVID started to lose, let's say, impact in Asia, as it started to normalize, what you found was a lot of -- or in the value chain with 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 have been -- 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 are -- last weeks 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. I would say that would be a more normal level for -- I'm talking PTA margins right now.

So -- and 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 yes, we believe that perhaps PET goes to $100 and PTA -- I mean, 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 going to happen next month. But during next year, I would say, the margin should be more in that sort of level than where it is today.

Now another impact for us in terms of margins, which is very important also. It's related to the crude oil prices. Crude oil prices impact our margins in 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 closed 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.

So part of the reduction in margin that we saw in 3 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 [ DuPont ] is going to stay where 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 quarter '20, and we see this improving or normalizing certainly for next year.

Some of the experts, as you know, are still expecting that crude oil prices before the end of the year will -- if you talk about Brent price, for example, could be close to $50. I'm not subscribing their theory. I'm just saying what some of the experts well, I mean, very respected people are saying that we could see from now to the end of the year a significant impact in crude oil prices. 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 contracts that went on the force majeure as a result of the -- I think, Sally was the main culprit for the plants. Some of them have not come back to operations.

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 restrictions. 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 MEG should normalize, and our prices should be also the same. We had to go in the market and buy a lot of volume of spot MEG at higher prices and lower contracts. 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 MEG. 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 was up, we also have the impact in 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, the critical aspects for the business are volume and margins. 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.

[Operator]

Our next question comes from Jean Bruny with BBVA.

[Jean Baptiste Bruny, analyst]

I just had a couple. Basically, can you give us an update on Corpus Christi? The second one is the trend in terms of Asian margins. Where do you 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 prepare for it, and why you don't expect it in the next 12 months?

[Jose de Jesus Valdez Simancas, executive]

Okay. 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 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 6 months until we have all the estimates. So that will be for Corpus Christi.

Asian PET 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. I think it's going to take longer than that, perhaps 2, 3 years will be the best estimate, and I guess that's where we are today.

[Operator]

Our next question comes from Matias Vammalle with BlueBlay Assets.

[Matias Vammalle, analyst]

Very good results in 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 Alfa. But from a ratings perspective, unfortunately, we saw that S&P didn't take the news very positively. 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 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?

[Jose de Jesus Valdez Simancas, executive]

I want to ask José Carlos to answer your question.

[José Pons, executive]

Okay. Thank you, Pepe. Yes, let me start the 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 2 rating agencies, Fitch and Moody's, have confirmed the investment-grade rating. So -- 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 stand-alone basis. This was more a collateral effect due to the adjustment and the announcement that Alfa made on the spin-off. 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 our competitive position, for example, and see how we can better reflect the current standing of Alpek. 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 rating that we have.

With respect to M&G restructuring, as you saw the announcement, it's already done. 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.

[Operator]

Our next question comes from Chelsea Colón with Aegon Asset.

[Chelsea Colón, analyst]

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 margin you're 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.

[Jose de Jesus Valdez Simancas, executive]

Well, I guess, it's a matter of -- a small reduction in margin can be a very high reduction in EBITDA on percental terms. When your EBITDA, so to speak, is 12% or 15% of sales, and your margin is perhaps 40% or 50%, whatever, if margin goes down 20%, it's like 8 percentage points of sales. If you apply the 8 percentage points of sales to 15%, that's 50% of EBITDA. I think -- I do believe that's a very much numerical issue. But the point is you are right, our margins are down significantly versus last year. And to a great extent, that's a result of the margins in Asia.

But I and 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 prove it to you this way.

Margins of -- Asian margins for PET in fourth quarter '18 were $330, $333. Asians margins for PET end of 2019 were $227. So that big difference in the Asian margins certainly had an impact in our margins, negotiating for the domestic market in 2020. And that's what explains, I think, the reduction in margins and in EBITDA for this last year.

And again, I think we all learn from these. And the good news for us 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 strong. 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.

[Chelsea Colón, analyst]

Understood. So are these 1-year contracts?

[Jose de Jesus Valdez Simancas, executive]

Most of them. There are some that are -- go beyond 1 year. But I would say most of them are 1 year.

[Chelsea Colón, analyst]

Okay. And then just one other unrelated question. Can you tell us what percentage of your consolidated revenues is EPS currently?

[Jose de Jesus Valdez Simancas, executive]

You were interested. Unfortunately, it's not too high, not -- I mean, it's a relatively small percentage. I would say like around -- I would say probably 12%, let's say, 10% to 15% of our EBITDA.

[Operator]

Our next question comes from Alejandro Chavelas with Crédit Suisse.

[Alejandro Chavelas, analyst]

I'd like to say congratulations on the results. Just thinking about the recovery you mentioned, the possible recovery in PTA and PET margins in Asia, how tight 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 or using it at home.

What are you seeing on the ground on this trend? 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 -- than the next year, sorry.

[Jose de Jesus Valdez Simancas, executive]

Alejandro, I do believe that's certainly a positive trend. Look, one of these 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 the apparel industry. Apparel industry, I mean, they went down as much as 50% during the pandemic, worst time. It was really bad, with all the retail sales, I mean, all the retail stores closed and everything.

For some reason, in apparel, retail is still very important as opposed to online. Probably, you're talking retail would be -- information we have close to 80% of sales in -- I'm talking U.S. -- of sales in -- of apparel products. And online, obviously, less than 20%.

And also online accelerated in this crisis. What's interesting, 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 the share dramatically from low 10s to almost 20 today.

So -- but the point is that apparel sales this year were very bad. And yes. But -- 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. We 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 prints, right?

And so yes, I agree with that statement. I think we're going to see some of that, but hopefully, it's 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 who 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, and we've always said that. Synthetic fibers offered a lot of value, and in terms not only of cost, but in terms of value in use. So it's not a surprise that they will continue to trend up.

[Alejandro Chavelas, analyst]

That's great. A second follow-up question, if I may. 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 container versus...

[Jose de Jesus Valdez Simancas, executive]

We do believe -- there might be some share gain to the other products, to 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 these hygiene and safety considerations. I think -- so the share gain is mostly against fountain than against aluminum and glass.

[Operator]

At this time, I would like to turn the conference back over to Mr. Elizondo for additional or closing remarks.

[Alejandro Elizondo, executive]

Thank you, Latonia. 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.

[Operator]

Ladies and gentlemen, this does conclude today's webcast. Thank you for joining, and have a great day.