Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2020-Q4

[Operator]

You are connected to Alpek's webcast presentation. I will now turn this call over to Mr. Alejandro Elizondo. You may begin.

[Alejandro Elizondo, executive]

Thank you, Laura. Good morning, and welcome to Alpek's Fourth 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 fourth quarter 2020 performance and outlook for 2021. Afterwards, we will move on to the Q&A session. Please note that information discussed today may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainties. 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 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 main topics for today's call. First, the company continues to successfully navigate challenges of the COVID-19 pandemic, experiencing record demand across its total portfolio. Also, Alpek has surpassed financial performance expectations during 2020. José Carlos will review this in greater detail. We will also discuss key strategic initiatives that have enhanced our Alpek capabilities and further solidified our market position.

As many of you know, Alpek has placed greater emphasis on furthering and properly communicating its ESG initiatives. And we want to share our results for this year. Finally, we will elaborate on the 2021 guidance, which we released this morning.

On Slide 4, we will discuss Alpek's performance amid the continuing COVID-19 pandemic. Before going into specifics, I would like to express our deep sense of gratitude for the effort our employees displayed during an unprecedented year such as this one. Beginning in early 2020, Alpek quickly adopted updated technologies and critical safety measures to enable employees to continue working efficiently, both from their homes and at our facilities. Through these successful measures, but more importantly, because of the collective effort, we have emerged from 2020 as a stronger company, achieving the highest annual volume in our history.

Alpek has continued to experience strong demand across its entire portfolio during the fourth quarter, operating near capacity in both its PET and EPS business line. In addition to the strong PET demand stemming from favorable changes in food and beverage packaging, during this quarter, we also saw a rise in the use of EPS for packaging in e-commerce as well as in the new found application of EPS in the transportation of COVID-19 tests and vaccines. The reason is it's unmatched thermal insulation and shock absorption properties as well as the fact that it is incredibly light. We believe some of the strengths will have a lasting effect on lower demand in the years to come.

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, and thank you all for participating in today's webcast. Turning to Slide 5. I want to highlight Alpek's solid performance throughout last year. In 2020, Alpek experienced record overall volume, driven by favorable dynamics in PET and an increase in plastic and chemical demand for the packaging and e-commerce segments; also, quarterly and annual comparable EBITDA that exceeded our guidance; the strong free cash flow generation, as Alpek optimized net working capital and strengthened its focus on CapEx efficiency, resulting in a significant debt reduction; and a recovery of $40 million in guaranteed debt from M&G Mexico.

As you can see on Slide 6, Alpek's overall annual volume surpassed 2019 results by 10%. This is a record for any full year as well for any fourth quarter in our history. In the Polyester segment, PET volume remained at strong levels, similar to 3Q '20 and not showing the typical signs of demand seasonality, as changes in consumer patterns in terms of hygiene and safety continue to support demand. Volume would have been even higher during the quarter, had we not experienced an interruption to energy supply in the U.S. Gulf Coast as well as an extended power supply interruption at our Pearl River facility, caused by a hurricane in the region.

In Plastics & Chemicals, volume also remained strong, especially in the EPS segment, further increasing, given the incorporation of NOVA's expandable Styrenics business.

Moving on to raw material price dynamics on Slide 7. As COVID-19 vaccines gradually begun to be distributed, we saw a modest increase in demand for refined products such as gasoline, diesel and jet fuel, which, combined with the reductions to crude oil supply, resulted in an average Brent crude oil increasing to $44 per barrel, 4% higher than in the previous quarter.

Paraxylene prices also increased by 4% during the same time frame, reflecting the price increase to crude oil. And propylene prices spiked to an average of $0.41 per pound, as hurricanes in the Gulf Coast lowered production, thus pressuring supply.

Turning to Slide 8. We see that the fourth quarter comparable EBITDA, excluding raw material carryforward, was $151 million, only 2% lower quarter-on-quarter as volume across both segments as well as margins, particularly for polypropylene and EPS continue to be strong.

Reported EBITDA was $201 million, 13% higher quarter-on-quarter as this result includes a noncash inventory gain of $9 million, a positive raw material carryforward effect of $9 million and a onetime noncash gain of $35 million from the business combination of the Wilton PET site.

Shifting our attention to results by key segments. We can see that polyester comparable EBITDA, excluding raw material carryforward, was $81 million, declining by 15% quarter-on-quarter. This decrease was the result of a slight reduction of 3% versus the third quarter's record volume as well as a 3% quarter-on-quarter decline in integrated Asian PET margins to $242 per ton.

Meanwhile, Plastics & Chemicals comparable EBITDA was $66 million, an increase of 18% quarter-on-quarter as volume increased by 9% versus last quarter, supported by increased EPS demand from packaging for e-commerce applications and the NOVA Chemicals acquisition. In addition, polypropylene margins increased by 31%, as hurricanes in the Gulf Coast adversely impacted local producers and inventories.

Moving on to annualized results on Slide 9. 2020 comparable EBITDA, excluding raw material carryforward, was $601 million, vastly exceeding the original guidance figure of $517 million by 16%, mainly due to better-than-expected volume and margins across both segments on an annualized basis. This figure was lower versus 2019 due to a stronger PET and polypropylene margins last year.

When comparing 2020 and 2019 reported EBITDA, it is important to note that 2019 consolidated EBITDA included an extraordinary $188 million gain related to the sale of Alpek's cogeneration plants as well as a $68 million noncash inventory loss. And 2020 consolidated EBITDA includes an extraordinary noncash gain of $35 million from the business combination from the Wilton PET site as well as a noncash inventory loss of only $35 million.

Turning to Slide 10. Alpek generated $350 million in operational free cash flow in 2020, finishing the year $392 million higher than our original expectations. As we expressed last quarter, an important element of the company's long-term strategy is maintaining financial stability and strong free cash flow. Actions related to this strategic objectives included: number one, a strong focus on CapEx efficiency, which ended at $162 million for 2020, 40% lower than the previous year and $115 million below our guidance without sacrificing any strategic opportunities. Two, an improvement of $167 million in net working capital this year, resulting from optimization of inventory levels, improvement in supplier and customer credit terms and feedstock price declines. And finally, the recovery of $40 million in guaranteed debt from the conclusion of M&G's Mexico restructuring in 2020 with $120 million plus interest to be received over the next 4 years.

Switching over to Slide 11 and regarding our financial standing, Alpek was able to further reduce net debt by $49 million during 4Q '20, ending the year with $1.19 billion as a result of a strong free cash flow generation, as we just discussed. This resulted in a solid leverage ratio of 2.1x net debt to EBITDA, well below our target of 2.5x and up slightly, as our EBITDA no longer reflects the extraordinary income from the sale of our cogeneration assets in 2019. If we consider comparable EBITDA, excluding raw material carryforward for our leverage calculation, the figure will show that we have remained at 2.0x throughout the last 3 quarters.

Thank you for your interest. I will now turn the call back to Pepe.

[Jose de Jesus Valdez Simancas, executive]

Thank you, José Carlos. Switching over to relevant events on Slide 12. As I have mentioned, I'm very proud of our team's accomplishments for 2020. As you are aware, in the fourth quarter, we finalized the acquisition of NOVA Chemicals' Styrenics business. And today, I would like to spend some time discussing our progress regarding recycled PET.

Looking back to the second quarter, Alpek set a goal of increasing Alpek capacity in order to help these customers achieve their targets of 25% recycled packaging content on average by the year 2025. This year, we were able to get closer to that goal via our 3 main initiatives. First, the acquisition of 2 PET flake-to-pellet conversion lines from PolyQuest with a total capacity of 30,000 tons per year. Product from these lines will be sold as rPET as well as converted into SPT. Second, the addition of Single Pellet Technology, SPT for short, production capabilities at 2 of our North American virgin PET facilities. Through this project, we can now combine virgin PET with 30,000 tons of rPET into a single pellet, which at a rate of 25% recycled content, will produce 120,000 tons of Single Pellet Technology per year.

Finally, Alpek and Poseidon Plastics received a grant from U.K. Research and Innovation to jointly develop an enhanced PET recycling facility in the U.K. based on Poseidon's technology. The site will have the ability to recycle 15,000 tons of PET waste back to pet feedstocks. Construction of the site is expected to conclude by 2022.

We will continue to look for opportunities to expand our presence and capabilities in the recycled PET segment during 2021 and still focusing not just on bottle-to-flake conversion but pelletized solutions, which are necessary to make sure a PET bottle can get back to you repeatedly.

Turning to Slide 13. And as we have discussed, Alpek launched a company-wide project, aimed at improving its ESG performance and its rankings among the top rating agencies. In addition to the advances made in 2020, a large component of our work was focused on properly showcasing the attributes of our products and the actions related to ESG that the company has taken in recent years.

Through this approach, Alpek was able to achieve the following. CDP's ratings regarding climate change and water improved sharply throughout the year, bringing our climate change score above the North American average. Sustainalytics' risk ratings decreased from 39 to 30, thus improving our performance from the 39th to the 72nd percentile in the Chemicals segment. Overall score for S&P Global [ SAP ] also improved from 30 to 44, more than doubling our performance from the 31st to 66th percentile. Moreover, as of January 2021, Alpek has joined the UN Global Compact, reinforcing its commitment to sustainability as a core element of its operations.

While we are pleased with these results during 2020 and -- during 2021, we will be focusing our efforts on setting ambitious targets for each of the material issues identified in our ESG model, so that our performance can be better measured and may continue improving in the years to come.

Looking forward to 2021 on Slide 14, and as announced earlier today in our guidance press release, Alpek's outlook remains positive. We expect that the strong fundamentals behind last year's results would largely carry over into 2021.

Let's touch on our guidance figures, which are based on the following key market and business assumptions: an average Brent crude oil reference price of $48 per barrel; Asian integrated PET reference margin of $245 per ton, which is in line with the closing figures for 2020 as well as last year's estimate; an increase in polyester volume as first quarter figures in 2021 would reflect the higher post-COVID demand patterns seen in the last 2 quarters; significantly higher Plastic & Chemicals volume as additional EPS capacity from the NOVA Chemicals acquisition is incorporated; and a decline in North American polypropylene margins, which remained high in 2020, which should reflect the impact of recently added capacity in the market later last year.

It is important to note our guidance does not consider any significant contribution to EBITDA from our new EPS facilities during 2021, as Alpek must still improve operating conditions and capture synergies as it has done with previous acquisitions like with our EPS assets in North America, in South America, and PET assets in Brazil.

Based on these assumptions, overall comparable EBITDA, excluding raw material carryforward of 2021, is expected at $561 million. Annual CapEx for the year is expected to remain low at $210 million, including an estimated $85 million for maintenance CapEx, while the rest will be used in strategic projects, mostly related to rPET.

In terms of dividends and as in previous years, our dividend proposal for 2021 will be announced at our upcoming Shareholders Meeting. And finally, from a financial standpoint, Alpek has kicked off 2021 with a very solid position of 2.1x net EBITDA -- net debt to EBITDA. We expect leverage to remain at similar levels throughout the year. Thank you for your attention. At this point, I would like to open the call to your questions. Operator, please discuss the participants on how to place their questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotiabank.

[Ben Isaacson, analyst]

Good to be on this call. I have 3 questions. I'll just ask them all at once. Your competitors are starting to invest in molecular recycling through methanolysis. I think the latest company is Eastman. And I know you guys are very big on mechanical recycling. So what are the -- what's the trade-off there that we should be thinking about? What are the pros and cons? Why are you continuing to grow your mechanical recycling when others are looking at molecular?

My second question is on your guidance. A lot of the Street is looking -- is skipping over 2020 and looking at growth versus 2019. And I think you guys had adjusted EBITDA of $789 million in 2019, and that's going down about 25% to $560 million. So when I look at the rest of the coverage universe of chemicals, there's an average growth rate of around 5%, 6%, 7%. You guys are going down 20-plus percent. What's going to get that growth rate back on track on a recurring basis? From a controllable point of view, whether it's M&A? I know you said you want to leave your leverage at 2x or whether it's from commodity price swings?

And then finally, just an update on Corpus Christi in terms of timing and CapEx.

[Jose de Jesus Valdez Simancas, executive]

Ben, thank you for your questions. First, your question about trade-off between mechanical recycle and, I guess, methanolysis, you mentioned. I think we should more properly call it chemical recycling perhaps? Because it can be methanolysis, it can be glycolysis or it can be hydrolysis. So there are different ways of chemical recycling. And I guess, I think there's a lot of effort being put by a lot of different companies to develop a commercial operations of this chemical recycling. And -- well, let me just explain to you that what I mentioned about our agreement with Poseidon and what I called enhanced recycling is actually some sort of chemical -- it's really chemical recycling, okay? So this is -- this project grows exactly in that direction. And in terms of -- so we are active, we've been talking to a lot of different technologies on this one. And again, we believe this particular technology, Poseidon, offers some advantages, and that's why we are planning to invest with them in developing really a commercial operation in the next 1, 2 years.

And what are the advantages of chemical recycling versus mechanical recycling? I think the biggest advantage, Ben, is that you can use less clean material or bottles, not as clean bottles and still go back to feedstocks of PET and be able to separate and still use it. So I think that's the biggest advantage. When you have very clean bottles, I think mechanical -- I would say, mechanical recycling works very well. If the availability of clean bottles is not there and you have, as I said, products that may contain a lot of different products, dust or whatever, then that's where the chemical recycle should provide an advantage. So I hope this answers your questions?

And in terms of guidance, look, I -- well, as I went through the basic assumptions behind our guidance, I have to have said that some of these assumptions have perhaps been already conservative. I mentioned as one very important component of our guidance, the crude oil price at Brent at $48, okay? As you see today, we are in the last weeks or so, Brent has been mostly over $60 per barrel. And you know very well that from previous experience, that this is a very sensitive assumption for us.

The higher the growth -- I mean, the higher the price of crude oil, normally, the better our results are. And again, on our guidance, just to make sure, is based on, what I call, comparable EBITDA. And our guidance is not incorporating inventory gains and carryforward of raw materials. Should this price of crude oil be maintained around the $50, $58, whatever, there is going to be a significant positive impact of both concepts, the inventory revaluation plus a raw material carryforward in effect. So this might explain some of the difference what you perceive.

But it's not only that. The advantage of high crude oil goes beyond that. It also helps us improve our margins, at least from the EBITDA per ton because when you have higher prices of petrochemical products, imports of those products into our markets normally also will reflect a higher price. And as the import duty protection is on a percentage basis, that means that the effective duty protection with higher prices of petrochemicals is also higher. And that also helps our results.

So again, I think in our guidance, we have been overly conservative with this crude oil price. Remember, that in fourth quarter -- in fourth quarter, the average price of crude oil was $44. So again, the crude oil price increase has been higher than we all anticipated. So I...

[Ben Isaacson, analyst]

Can I ask you one -- sorry, just one question on that before you go on to Corpus Christi. I'm still very new to the story. Is there a very simple way of thinking about a sensitivity for a $10 change in oil? What is the impact on EBITDA or -- I know there's a lot of moving parts, and it's very complicated. But is there a way we can just get a sense of the magnitude of what the impact is to EBITDA for a $5 or $10 change to oil?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, I think we can work on that. As you mentioned, there's a lot of moving parts. But I think we can certainly work on that and give you an idea. I don't know, sometimes, it's not crude oil by itself but it's the impact crude oil has on the different products of our raw materials and the products we sell. We can certainly work on that and separating what is inventory revaluation from the other aspects, okay? So -- but I -- let me speak -- remain with the guidance. So on the crude oil price, we have this assumption. All the important assumption is the margins of PET PTA in Asia. Particularly, as you know, in our markets, our sales in Brazil and Argentina and some of the export markets are normally referenced to that margin. The assumption that we took for 2021 is $245 per ton. During the first 2 months of this year, I would say the margins in Asia have averaged perhaps $25 higher than what we were assuming, okay? So that will also have a potential of improving our results if it remains where it has been over the last, as I mentioned, a couple of months.

And then -- and then another very important assumption and perhaps this is different versus other chemical companies, if you wish, is the fact that we are assuming also, and in fact, our EBITDA guidance, without the impact in polypropylene margins that we are assuming in the guidance, our EBITDA will be higher -- guidance will be higher than $600 million. So we are assuming that this year, we're going to experience an important decline in polypropylene margins as a result of the new plants starting up at the end of last year. I have to say that this reduction in margins has not yet materialized, okay? So here, again, we might have been somewhat conservative on that.

And so in general, I would feel that our results, at least for the first quarter, second quarter this year, will probably be significantly higher than guidance. And at this point, the biggest concern I would share with you is one of our raw materials have surged or spiked in a significant way, and I'm referring to propylene. Propylene prices were $0.38 in November, move up to $0.48 in December, move up to $0.60 in January. And I don't know, we estimate that in February, prices might go all the way up to close to $0.80 per pound. We have seen spot prices higher than $0.90 per pound in the last few days. So again, while -- and that's part of the difficulty of your question on crude oil why higher prices normally help our results. When you experience such a high increase, it might have some impact in -- if these prices are -- sort of remain for a certain period of time, this might hurt volume of the derivative products, in this case, polypropylene as some of our customers will look for alternatives products with these high prices of the polypropylene, propylene. So that's, perhaps, as I say, one of the concerns that we have.

But on the other -- again, I don't think these prices would remain for a long time, but if they were to remain at those levels for longer, that could be sort of a problem. But in the most other points I mentioned, I think we are being very conservative indeed in the assumptions, okay? So that will probably answer your question regarding the guidance.

And in terms of Corpus Christi. Corpus Christi, last year, we sort of did not make a lot of progress in the project -- in the segments due to pandemic. We are now undertaking, we are now going back to -- remember, I've mentioned to you that we're looking for ways of improving or reducing the investment cost of the project. So we have undertaken all of those efforts. And we do believe that we will have a renewed investment budget by the end of this year. And at that time, we should be ready to start construction. And that's -- those are the, let's say, the -- that's the status of the project today. And this means that during 2021, we don't expect a lot of CapEx related to the Corpus Christi project. The CapEx should come back in 2022, 2023.

[Operator]

Our next question comes from the line of Ricardo Rezende with JPMorgan.

[Ricardo Nasser de Rezende Filho, analyst]

Couple of questions on my side. So following up with what you just discussed on polypropylene and the margins we continue to see late last year, in the beginning of this year, even with the new plant coming online late last year. How should we think about the results on the Plastic & Chemicals segment throughout the year as we are seeing volumes probably recovering through the year, but then margin is potentially declining according to your guidance?

And then my second question is on the recycled PET data that you started to give a little bit more disclosure, and that's very helpful. When we think about the CapEx for 2021, how much of that CapEx is coming from some of the initiatives that you're disclosing now and how relevant those rPET measures should become within your CapEx?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, you -- as you mentioned, Ricardo, I think what were -- we are assuming, again, in our guidance, that PET margin will gradually be reduced throughout the year. And certainly, we expect that -- the way we see it today at least -- because probably first half, it will remain high similar to last year. And perhaps in the second half is where we expect we could see some decrease. That's more or less the assumption we have today. And for the time being, availability of polypropylene in spite of a new plant remains very limited. Inventories are very low as a result of all the shutdowns at the end of last year due to hurricanes. And now also, PP is relatively tight in supply, as a result also of the high prices of propylene and also on the availability of propylene. So for that reason, we do believe the first half, we should have better margins than we anticipated in our guidance and still consider -- and we hope we are wrong that there will be a decline in the second half of the year. Again, we hope we are being too conservative.

Now with respect to our rPET CapEx. In our guidance, I think I would say, when you consider -- when you subtract from the total CapEx that we estimated, $210 million something, you reduce the $80 million something, $85 million we estimate for maintenance this year, I think I could say that half of that figure would be for rPET investment.

[Operator]

Our next question comes from the line of Luiz Carvalho with UBS.

[Luiz Carvalho, analyst]

Basically, 2 questions. The first one is kind of a common question from my end, in terms of capital allocation. So I would like to hear from you guys a bit more color after the recent NOVA Chemical acquisition. How should we look at capital allocation in terms of, I don't know, the leverage that you're -- now that your net debt to EBITDA is close to 2x or, I don't know, dividends and potential, I don't know, further acquisitions looking forward, right?

The second question, I think you pretty much already explored that you have been a bit more conservative on your guidance. And the thing that you already mentioned, I mean, when you look to volumes and net sales, they're basically growing, I don't know, 6% to 7% on a year-over-year basis, while EBITDA without the inventory impact is dropping something close to 7%, right? So just would like to understand what your outlook in terms of, let's say, the overall margins despite of the guidance that you gave in terms of the $245 million that how you're seeing, I don't know, supply demand and how Alpek can be, I don't know, competitive within this environment?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, with regard to capital allocation going forward, I would say that recycled project or recycled -- PET recycling is going to be an important part of our future investment. And I would say also that the other important project will be Corpus Christi. And we do estimate that over the next years, a figure around $200 million would be in the ballpark, $200 million per year going forward. That's what we would estimate for CapEx for the market over the next few years.

[Luiz Carvalho, analyst]

Sorry, how much? Sorry?

[Jose de Jesus Valdez Simancas, executive]

$200 million.

[Luiz Carvalho, analyst]

Did you say $200 million?

[Jose de Jesus Valdez Simancas, executive]

Yes. Okay. Now the -- with respect to volume and EBITDA growth, I mentioned, we've been conservative in the guidance. And we do expect that margin's impact in 2021 are going to be slightly better than in 2020 overall. And we also assume that volume is going to remain strong, particularly again during the first -- at least during the first half of the year. And with relationship to NOVA, through the NOVA acquisition, I mentioned during the -- my presentation that we do not estimate a significant EBITDA this first year. And this is in line with our evaluation. The only thing I can tell you is that in our -- in all our evaluation models for NOVA, we do estimate that at some point in time, not necessarily in 2022, but we should be able to capture around $20 million of EBITDA from the NOVA -- from the assets that we acquired from NOVA.

[Operator]

Our next question comes from the line of Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

So first, a question related to ESG and rPET. So you're moving towards 20%, 25% rPET over the next 5 years, along with your clients. Coke is offering some products with 100% rPET, some with 0, some with a mix. How are you thinking about that from a capacity perspective? Are you thinking of setting up plants that can do 100% rPET in some places? Or will you continue to have consolidated places where you're sort of mixing the products? So that's question number one.

Question #2 is, how should we think about your PTA capacity over this period as you're moving towards rPET? Is it fair to assume that you would continue to buy additional PET capacity in order to maximize your PTA capacity? Or am I thinking about this the wrong way?

And finally, a very small question. Are you factoring in anything in terms of caprolactam in terms -- for your guidance?

[Jose de Jesus Valdez Simancas, executive]

Okay. Well, look, in terms of your first question, which was how do we see rPET versus SPT. It's really -- we think both products are going to be necessary. And it really does depend. We are -- in terms of our capacity, it really does depend on the needs of our customers. And if you want to produce a 100% rPET bottle, the only way you can do that is with rPETs, okay? You cannot do that with SPT. You need rPET for that. But if you need only 25% in some of your products, then that can be done with SPT. Or even if 40%, 50%, whatever, that can be done with SPT and add in some rPET.

But again, it's a -- we very much -- we're approaching our growth brands, which have a discussion with all of our customers, one by one and try to understand exactly what the plans are and what they need. And based on that, we are proceeding to make our investment. So -- and remember, and this is something that is important, we are certainly not the only producer of rPET in the regions where we are present. In some cases, some of our customers, they have their own rPET capacity, and there are other third parties that also have rPET capacity.

So that's why coordination with our customers is key, so that we can really supply to them exactly what they need. But if you were to ask me, as I said, I think we're going to be perhaps 50-50 rPET versus SPT. And also, I want to mention, SPT offerings can only be made by companies or a company that have a virgin PET facility. So a third party is going to have a hard time going through the SPT route. And the SPT, again, it gives our customers some advantage, flexibility. I mean, they can use this product without having to mix with, I don't know, another rPET products, which simplifies the production and the efficiencies in some cases, okay?

So, in terms of PTA-PET balance, I think we are right now actually short of PTA. We are short of PTA. We are buying PTA from third parties. As we go ahead with Corpus Christi, the situation will be more balanced. With the acquisition in Wilton, we have this, let's say, this balance already. And we are not, at this time, necessarily looking for additional PET acquisitions. We do have, as you mentioned, some PET debottlenecking. But that debottlenecking also will compensate for the production of SPT. As we produce SPT in some of our lines, the capacity to produce virgin goes down accordingly. So with this debottlenecking, we will be able to produce this additional SPT without reducing our PET -- virgin PET capability and our PTA consumption. So at this point, we think we're going to be quite balanced over next years.

In terms of caprolactam, we are not assuming EBITDA in the guidance. A main reason for that -- margins in Asia, although they have been improving in the last months, is still very low. So our caprolactam is not generating any EBITDA or at least we're assuming it will not have a positive EBITDA in the guidance.

[Operator]

Our next question comes from the line of Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

The first one is about your expectation for polypropylene spreads. Pepe, you mentioned that you expect the first half to be better than the second half in terms of the spreads for polypropylene. But do you have a specific spread or margin implied in your guidance for 2021? And the other question would be about the NOVA Chemical operations. Do you -- when would you expect them to become EBITDA positive for Alpek?

[Jose de Jesus Valdez Simancas, executive]

Let me answer the second question first. As I mentioned, we are assuming no EBITDA from NOVA this year. And as I also mentioned, we estimate once all the changes are made and some investments made there, we estimate this -- our target at least is to get it to $20 million per year. And that will probably be 3 years from now. And in the meantime, I think we will be making progress proportionally in this time frame. So we should have some positive impact, '22, '23. And probably '24, '25, we should be -- our aim is to be at this $20 million EBITDA per year. So that is the NOVA-related question. Okay.

Now in terms of -- you were asking PP margins, Vanessa. I think if you take the average of the year, I think our margin is around $0.165 overall, I mean, for the 12 months. And right now, we are running significantly higher than that. We are running more like $0.19 -- $0.19 to $0.20. So again, which is higher than what we have anticipated in our guidance for these months in the year. So again, we think we're doing a little bit better. But again, I want to repeat the fact that we have same concern with this surge in prices of propylene. If this price surge continues, then that could put pressure in the margins as well.

[Operator]

Our next question comes from the line of Leonardo Marcondes with Itaú BBA.

[Leonardo Marcondes, analyst]

I have only one question regarding your exchange rate. So a few calls ago, you guys mentioned that you will implement some cost-cutting initiatives that could save up, if I'm not wrong, around $100 million, right? So I would like to know if you guys could share with us more information on that? I mean, which division it would impact? If there is -- this is more SG&A or production-related costs? And when you guys expect this initiative charge take place?

[Jose de Jesus Valdez Simancas, executive]

Okay. Look, I do believe that these cost savings should be materialized during the next, I would say, 3 years. And some savings come just from -- well, we -- I would say, digitalization on the one hand, operation excellence on the other and particularly in reducing maintenance costs. We also have significant opportunities in logistics, a reduction of energy as well, some asset footprint opportunities. And again, it's going to be at -- and in some places also, importantly, with technology enhancement in some of our plants. It means adopting new technologies. So altogether, I think we would be, hopefully, close to this $100 million. And time frame, I would say, 3 years. I mean it will be our job. But in 3 years, we should have most of these cost savings in overheads.

[Leonardo Marcondes, analyst]

Just a follow-up from my end here. So just to know if I get it clear, so initiatives on this front should start over the next 3 years or after 3 years? And then on the third year, you would have this $100 million?

[Jose de Jesus Valdez Simancas, executive]

Well, that's right. The idea, this will be gradual. And hopefully, in 3 years, we will be able to capture all these savings, okay? We have already -- like identified -- clearly identified like an opportunity to reduce $50 million, but we are working on some other opportunities. Yes. But it's going to be gradual. And perhaps, with most of the savings coming around the second and third year.

[Operator]

[Operator Instructions]

With no questions in the queue, I'd like to turn this conference back over to Mr. Elizondo for any additional or closing remarks.

[Alejandro Elizondo, executive]

Thank you, Laura. 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, that does conclude today's webcast. Thank you all for joining us today. You may disconnect at this time.