Alpek SAB de CV

BMV:ALPEKA

Earnings Call Transcript 2022-Q4

[Anton Fernandez, executive]

Good morning, and welcome to Alpek's Fourth Quarter 2022 Earnings Webcast. I am Anton Fernandez, Alpek's IRO. And today, I'm happy to be joined by our CEO, Pepe Valdez; our CFO, Jose Carlos Pons -- and for the first time, Jorge Young, our incoming CEO.

This presentation is divided into 2 parts. First, Pepe and Jose Carlos will comment on Alpek's fourth quarter and full-year performance, and then Jorge will remark on the 2023 guidance figures. Afterward, we will move on to Q&A.

Please note that the information discussed here 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, and the company cautions the market not to rely unduly on these forward-looking statements. Alpek is under no obligation to update or revise any forward-looking statements publicly whether as a result of new information, future events, or otherwise.

I'd like to remind everyone that today's web cast is being recorded and will be available on our website at alpek.com. I will now turn the call over to Pepe.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Anton. Good morning, everyone, and thank you for joining us. I am very pleased to state that in 2022, we reached record figures, making it Alpek's best year-to-date. The continued strong reference margins as well as high ocean freight costs and high demand throughout most of the year drove the company to achieve outstanding figures. On an annualized basis, the company reached the highest volume, revenue, reported, an comparable EBITDA fees in its history.

As per recent company announcement on March 1st, I will be leaving my current board as CEO of Alpek and assuming the role of Senior Adviser at ALFA. [ Leading ] this incredible company for several decades has been a privilege, and I was able to oversee its growth across geographies, but most importantly, I was able to see our Alpek community develop and thrive.

And now I would like to introduce you to a dear colleague of mine Jorge Young. Jorge was appointed Alpek's new CEO by the Board of Directors and will assume his new role on March 1. Jorge will also retain his responsibilities as President of the Polyester business, which currently represents approximately 60% of Alpek's EBITDA. I have confidence in him as I have had the pleasure of working by his side for many years, and I'm certain that his experience and trajectory will enable him to lead the company successfully into the future.

Throughout this extensive career at Alpek, Jorge has held key roles within our important Polyester division, including President of PET and Staple Fibers.

[Jorge P. Young Cerecedo, executive]

Good morning, and thank you, Pepe. I will do my best to maintain the momentum you have generated at Alpek throughout all these years. I very much appreciate your continued support for the business, our customers, and the people of Alpek. On behalf of everyone, thank you.

I'm very excited for this opportunity and grateful for the trust from the Board of Directors. I look forward to working with you all.

[Jose de Jesus Valdez Simancas, executive]

Great, Jorge. Let's begin by reviewing the main topics of today's presentation. First, Alpek's financial performance for the fourth quarter was below our guidance, driven by the Polyester segment. However, results for plastics and chemicals were above our expectations. Jose Carlos will review this in greater detail later on.

And second, Jorge will provide insight into 2023 guidance figures and expectations, which we released earlier today.

After 3 quarters of better-than-expected margins and results this quarter, we saw the following: reduced demand across other products as a result of generalized destocking from customers on our value chain. Unanticipated higher relative prices of paraxylene in the Americas versus Asia, which impacted our volume and margins in the polyester business. Operating [ insurance ] from one of our large PTA customers and [indiscernible] unexpected maintenance at our PTA Brazil facility. Reference margins across our portfolio were in the third quarter, but likely [Technical Difficulty] than what was expected in the guidance. Another very important factor was faster than expected decrease in container freight rates from Asia, particularly for polyester and EPS going into South America and Europe.

Regarding Alpek's ESG progress, we have made improvements on the following main material issues this year. On CO2 emissions and energy efficiency, over the Scope 1 and 2 emissions decreased by 19% versus our 2019 SBTI base. One of our facilities transition to 100% renewable energy, which led us to increase our clean energy intake by 7%. To circularity, we continue to make progress in PET circularity with OCTAL acquisition and in addition to one of our facilities, we now have the capability to produce PET [indiscernible] with different degrees of recycled content and additional single pellet technology capacity. 33,000 tons of PET [indiscernible] recycling in Cincinnati, 24,000 tons of single-pellet technology in the Salalah plant in Oman, and additionally, we incorporated 15,000 tons of SPT recycle capacity at over Pearl River facility.

We will continue to explore possible projects in both PET sheet and PET resin recycling. 3, occupational safety. Our total recordable incident rate decreased by 5% versus our 2021 figures. We will continue to strive to be in the top decile of our industry and our goal, of course, is to achieve 0 accidents. Demonstrating our commitment and transparency towards our customers and investors, the company improved its ESG ratings with all agencies. Let me mention a couple of recent highlights.

CDP has updated our climate change rating from a C to B.

For [ ASMP ], we have reached the top decile for our industry. And in Sustainalytics, we are in the 25% in chemical industry. We will continue to work towards advancing on all of our materiality targets and prioritize actions for our 2030 decarbonization goals. Jose Carlos will delve more into the financial results. Jose Carlos?

[José Pons, executive]

Thank you, Pepe, and thank you all for being here with us today. Let me provide some context for the quarterly results. Asian integrated polyester reference margins averaged $338 per ton, higher than expected and 60% lower than in the previous quarter, with the spread between Chinese and Asian margins increasing to $114 per ton.

Meanwhile, polypropylene reference margins declined to an average of $0.23 per pound, 32% lower quarter-on-quarter, mainly due to the following: the initiation of operations of added polypropylene capacity in Canada and the Gulf Coast in the U.S. and the weakening demand towards the end of the year. Also in North America, EPS average reference margins remained strong during the fourth quarter, declining to $0.64 per pound, 50% lower versus the previous quarter, yet remaining at high levels.

I would like to highlight some of Alpek's main achievements during the quarter and overall for the year. Alpek surpassed this annual volume record, reaching 5.07 million tons and setting a new historical high for its polyester segment. Quarterly comparable EBITDA of $270 million, mainly due to normalized and reference margins for all products. Once again, obtaining the highest ever annual comparable EBITDA of $1.4 billion, 45% higher year-on-year, driven by better-than-expected margins across all business segments throughout most of the year, as well as incremental volume from the recently incorporated PET business.

Recovered $3.5 million in guaranteed debt from M&G Mexico during the quarter, totaling $26 million for the year, leverage 1.3x, while still delivering an extraordinary dividend payment of $196 million to shareholders in the fourth quarter for a total dividend payment of $372 million for the year and the payment of $94 million towards an outstanding bond. Volume reached 1.23 million tons this period, a reduction of 10% quarter-on-quarter. This was related to seasonality and the softening of demand. In the Polyester segment, volume was 1.01 million tons, 9% lower quarter-on-quarter amid typical seasonality effects and PET demand opting as well as the maintenance at our Brazil facility.

In Plastics & Chemicals volume was 12% lower quarter-on-quarter, due mostly to seasonality and additional polypropylene supply in the region. On a full-year basis, overall volume reached an all-time high of 5.07 million tons, a 6% rise year-on-year related to the incorporation of the pet business in the Middle East and the solid demand experienced throughout most of 2020.

Moving on to rope material price dynamics. The fourth quarter was marked by a tight macroeconomic environment and continued inflationary pressures. The average spot Brent crude oil price decreased to $88 per barrel, 11% lower than in the third quarter. U.S. reference paraxylene prices decreased by 8% in line with crude volume. In Plastics & Chemicals propylene prices declined averaging $0.22 per pound, a 31% decrease when compared to the previous quarter.

Moving on to the EBITDA breakdown for the quarter. We can see that overall comparable EBITDA decreased to $270 million. This was 36% lower than in the previous quarter, primarily due to overall demand and normalization of reference margins across all products. Reported EBITDA was $186 million, 39% lower quarter-on-quarter. This result also included a negative inventory adjustment of $57 million and negative carry forward aspect of $27 million and mainly generated by declining crude oil, paraxylene, and propylene prices.

If we review results by key segments, polyester comparable EBITDA was $151 million, 42% lower quarter-on-quarter and only [ 5% ] lower year-on-year. This was mainly due to the decrease in integrated polyester reference margins, which averaged $338 per ton, 60% lower quarter-on-quarter. Annual comparable EBITDA for the polyester segment totaled $828 million, 80% higher than in 2021. This was driven by the [ import party ] benefit of freight cost and the recently incorporated Middle East business.

In Plastics & Chemicals comparable EBITDA was $120 million, a 24% decrease quarter-on-quarter and 30% year-on-year. This was mainly due to a decline in both EPS and PP reference margins and lower consumer demand impacted by market inflationary pressures. In terms of 2022 overall results, comparable EBITDA was a record-breaking $1.4 billion, 45% higher than 2021 from better-than-expected margins and solid demand throughout most of the year across all key products.

With regards to free cash flow generation, net working capital investment was reduced by $129 million. As raw material prices began to drop, especially in North America, where paraxylene contract prices fell 8% versus the previous quarter. Meanwhile, CapEx totaled $51 million and was mainly allocated towards maintenance with a portion for the construction of the Corpus Christi Polymers facility. This all resulted in a positive free cash flow of $180 million for the quarter.

It is also worth mentioning that Alpek distributed a total dividend of $247 million in the quarter, representing $196 million for shareholders. For the full year, Alpek distributed a total of $494 million with $372 million for shareholders and remaining amounts for minority shareholders, leading to a dividend yield of 13%.

Finally, regarding the company's financial position during the fourth quarter, Alpek's net debt increased to $1.86 billion, 3% higher versus the previous quarter. Last 12 months EBITDA was $1.46 billion, resulting in a leverage ratio of 1.3x net debt to EBITDA. With regards to [Indiscernible] upgraded their outlook on Alpek from stable to positive and maintain their investment-grade rating, while S&P confirms its investment-grade rating and stable outlook for the company.

Alpek [ maintains ] its commitment to continue to strengthen its rate base. Thank you, everyone. I will now turn the call back to Jorge.

[Jorge P. Young Cerecedo, executive]

Thank you, Jose Carlos. To conclude, regarding 2023 guidance, Alpek expects a solid year while considering the continued normalization of PET, polypropylene, and EPS reference margins as well as ocean freight costs. Our guidance figures are based on the following key markets and business assumptions.

Average Brent crude oil reference price of $90 per barrel. Average container ocean freight costs are expected to remain at low levels, mainly impacting polyester margins in South America and the EPS business. Asian integrated PET reference margins of $320 per ton. The gradual decline in North American polypropylene margins, which remained high in 2022 and are expected to normalize closer to previous levels.

Volume slightly below 2022 levels due to the following: in the Polyester segment, mainly driven from lower exports due to continuous pressure from the disconnection between North America and Asian paraxylene prices.

In Plastics & Chemicals, mainly in EPS, driven from softer demand due to construction slowdowns and packaging demand returning to regular levels, as well as in polypropylene due to additional supply in North America. Based on these assumptions, overall comparable EBITDA for 2023 is expected at $920 million. Annual CapEx is expected at $445 million, which includes $330 million for strategic projects, particularly the construction of Corpus Christi Polymers and another portion for cost improvement projects, which may include footprint optimization opportunities.

Additionally, we anticipate a recovery between 100 and $150 million in net working capital as raw material prices continue to normalize. Furthermore, free cash flow generation before strategic CapEx and dividends is expected to be at similar levels versus 2022.

Finally, from a financial standpoint, Alpek has kicked off 2023 with a solid position of 1.3x net debt-to-EBITDA ratio. We expect leverage to remain in line with our requirements as an investment-grade company and well below our target of no more than 2.5x. I would like to thank our team, our customers and our suppliers for supporting Alpek. I would like also to thank you, our audience, for your attention here today. Pepe, I'll turn the call back to you.

[Jose de Jesus Valdez Simancas, executive]

Thank you, Jorge. I would like to highlight that my departure from the role of CEO of Alpek nominates a 5-year transition process to the new one who is strengthening our leadership team, which is now composed by individuals with an average age of 49 years and with great experience because most -- in average, they have been in Alpek for 25 years. I am proud to have worked with each of these executives throughout their careers, and I am convinced that their expertise and tenure within the company will enable them to make significant contributions for Alpek going forward under Jorge leadership.

I would also like to take a moment to thank all of our stakeholders and each and every person past and present who has been a part of my journey here at Alpek. You have contributed to my growth and expertise both professionally and personally, and I am grateful for the opportunity you have given me to work with you in these past 46 years.

And to our analysts and investors, thank you for your interest, your participation, and your commitment. You have my utmost respect for your professionalism and the work that you do on a daily basis. It has been a pleasure to speak with you all of these years. Anton, we can now [indiscernible] and open the Q&A.

[Anton Fernandez, executive]

Thank you, Pete. At this time, we will take your questions. To ask your question like, [ we ask that ways ] you have virtually, we will call on participants in the orders and [ transfer it ]. Alternatively, you may also type your questions through the Q&A function. We will attempt to cover as many questions as timer permits.

Our first question comes from Luiz Carvalho from UBS.

[Luiz Carvalho, analyst]

First of all, Pepe congratulations, and thanks for all your partnership during this years. Really glad to see your departure in a very good moment of the company. So thank you very much for everything, and good luck on your new phase and Jorge good luck to you, and hopeful, to have many, many interactions with you.

If I may, I have 2 basical questions here. The first one would be to Jorge. I mean you're taking -- of course, you have been with Alpek for years and you're taking a different position. So maybe would like to hear from you what would be your main goals and main challenges that you foresee for the next, let's say, 2, 3 years.

The second question is more on the capital allocation strategy also. I mean, we see a very strong 2022 in terms of performance and dividends. So you now have more CapEx with, I don't know, somehow expansion. So what can we expect in terms of, I don't know, capital allocation for 2023?

[Jorge P. Young Cerecedo, executive]

This is Jorge. I think for our long-term plans for the company is to continue the very solid strategy that I have been part of. I think among our main goal is continue to find growth opportunities and to conduct the business with financial province. And our key task and challenge is to find and deliver those opportunities that provide value to the key stakeholders, allows us to keep a very strong commitment with our customers and show that through actions of growth to reward investors with growth opportunities and the people to the extent we can grow. So that's the -- again, our key goal and at the same time, continue with financial [ province ]. I hope that answers your question.

[Luiz Carvalho, analyst]

Yes. And on the capital allocation for the year ahead, I mean, what are the plans in terms of deploying capital? Anything related to potential dividends or I don't know any -- any further projects in terms of growth, if you can share some updates on the Corpus Christi. So I mean, how can we think about the capital allocation plans for the year?

[Jorge P. Young Cerecedo, executive]

Yes. The capital allocation plan for 2023 has investments in projects a dividend payout in the capital projects. The main one is the Corpus Christi PTA-PET plant that is under construction now. So that's the largest projects. But we also have other relevant projects in our portfolio to improve substantially for cost competitiveness. So that's the -- as an example, we have in our PTA plants in general, opportunities to improve our competitive position in variable cost -- and we have advanced one of our projects for the Altamira PTA site, which is our largest plant. And it's our expectation to wrap up the decision to start the project and start executing that later in the year. So that's also part of the key projects for 2023.

And of course, in due time, in the next few weeks, there will be a communication for -- to share the dividend plans for 2023.

[Anton Fernandez, executive]

Our next questions come from Leonardo Marcondes from Bank of America.

[Leonardo Marcondes, analyst]

Just first, I want to say a good look to Pepe on your future endeavors and also congratulations to Jorge his new role.

Well, my first question is regarding the guidance. Could you provide a bit more color on what are the drivers that [ will reach ] reduction in PET spreads for 2023? If you could also provide if there is any upside to your projections here and where that could come from?

My second question is regarding the plastic chemical segment. [ PP ] spreads are now to be weaker this year given all the capacity being added in the U.S., right? But on the EPS side, how do you guys expect spreads to behave in this year after a very strong 2022.

[Jorge P. Young Cerecedo, executive]

Yes, Leonardo. On your questions first on polyester. We have captured in our guidance more competitive situation of, in general in prices. In the case of polyester, the main effects are coming from the lower cost to ship products in containers. And that affects some of our markets like South America, and that's been captured in the guidance. And the other point of pressure that [Technical Difficulty] mentioned is raw material paraxylene. We will -- we expect that it will continue to stay elevated relative to Asian paraxylene prices. And the issue or the implication is that it impacts our export margins and our export volumes, what has been captured in the guidance.

In the case of EPS, we have a similar situation [Technical Difficulty] in the business is [Technical Difficulty] competitive with import parity prices from other regions, mainly from Asia. But we have also significant opportunities to differentiate our offering. And that's been -- so both factors have been captured in the guidance.

[Leonardo Marcondes, analyst]

Upside?

[Jorge P. Young Cerecedo, executive]

I think regarding the upside for our business. I think what could happen is that we see demand recovering, I think we have been somewhat conservative in our volume assumptions for demand of the business. So to the extent we see more normalization of the demand in our domestic markets and as mentioned in our export markets when this condition, that we have been mentioning on the paraxylene, we expect that to be temporary in nature. So when that situation normalizes, we would expect to recapture regional export markets. So I would say those are among the key objects.

[Jose de Jesus Valdez Simancas, executive]

And in fact, we just complemented -- maybe I should also ask our investors to look at the free cash flow generation in the year. We do have potential upside in the free cash flow generation as working capital is recovered throughout the year. So I understand [ you'll ] adjust the performance based on EBITDA but also free cash flow is very important and that will be continuing to generate throughout the year.

[Leonardo Marcondes, analyst]

Okay. And regarding the Plastics & Chemical segment and EPS?

[Jorge P. Young Cerecedo, executive]

Yes, I have mentioned in EPS, a similar effect. We expect more competitive margins as the cost of shipping products through the ocean has come down. But as I mentioned before, I think we have an opportunity or we have -- we can differentiate our offer with service, and we expect to maintain a premium over the import parity.

[Anton Fernandez, executive]

Our next questions come from Nikolaj Lippmann from Morgan Stanley.

[Nikolaj Lippmann, analyst]

I also wanted to both congratulate Pepe. Thank you very much for this decade-long partnership and of course, Jorge congratulations on your new role.

I look at the fourth quarter numbers and see this 9% quarter-on-quarter decline in volumes at the same time as pricing is coming down. So it looks like there's a lot of destocking going on into the lower prices. I wanted to see if you can give a little bit of color on how that -- if that's the right interpretation that there's a bit of a buyer strike as prices are coming down?

And related to that question, when we think about the third quarter, when -- we are clear that the pricing trajectory is different -- sorry, the fourth quarter, we're clear that the pricing trajectory is different from the fourth quarter. How many months of weakness did we have 1, 2 or 3 in this quarter? So that's a bit of a long first quarter.

The second quarter -- sorry, the second question I have, could you provide a bit of color on the reason behind this PX decoupling and the price decoupling in paraxylene, I would appreciate that very much. And then especially if it's linked to Russian oil being shipped to other markets and thus providing a competitive advantage to certain Asian clients.

[Jorge P. Young Cerecedo, executive]

Yes, Nicolas, this is Jorge. I think on the fourth quarter volume, we saw a combination of the destocking as the customers experience adjustments in their inventory chains. And it basically was throughout most of the months in the fourth quarter. I think it was a clear change between Q3 and Q4 in terms of that. And as we mentioned, we also adjusted some of our exports volume to remain competitive in our offering.

On the question of paraxylene and decoupling, it's a complex story, but I'll try to put it in very simple terms. The -- it has to do a lot with the Russian, Ukraine situation. There was a big volume of refined products that were being exported by pipeline from Russia, mostly into Europe. Those flows have been stopping or reducing significantly, but the refined products keep flowing now through vessels. So that is requiring much more vessels deployed to move refined products, and that is impacting the shipping cost of liquids, especially clean liquids like fuels and petrochemicals. And that reduces or impacts our ability to import paraxylene to offset the pressures.

The other factor that is impacting the cost of paraxylene is just the general situation in refineries. Refinery utilization rates globally are very tight and in particular, the precursors of the feed stocks to make paraxylene, blending properties to the gasoline, like octane and vapor pressure, and that's in particularly for the feedstock of paraxylene, that's another source of pressure. I hope that answers your question, Nikolaj.

[Jose de Jesus Valdez Simancas, executive]

Nick, let me add something that might help you, also have a feeling of what would -- or how soon this can change. As Jorge mentioned, there are really 3 factors, I think, that are causing this decoupling. Number one, he mentioned is the war -- well, let me put it differently. Number one, the most important difference is the gasoline spreads from refineries. The gasoline spreads normally are around $10 per barrel. The last year, they increased in the summer up to $40, $50 per barrel, which is [ unheard of ]. And gradually, it came back down to today, they might be around $25 per barrel. Again, the normal will be somewhere between $10 and $15. Right now, we are at 25%. We believe this year is going to be strong margins until no refining capacity comes into the picture. So on that side, I mean, there is uncertainty, but we are assuming in the guidance that this will remain for the year.

The other reason that Jorge mentioned and this is more volatile is this increase in [indiscernible] for liquids. In fact, it was not an issue and we did not talk about this, but summer '22, it was the biggest disconnection between paraxylene in the U.S. and in Asia in history. We were at a point, I mentioned already that there were times where margins were close to $50 or $50 plus. At that time, the disconnection with paraxylene very high, but we've contained the impact of this disconnection because we have the availability of low freights from Asia. So we imported -- or Alpek Polyester imported a lot of paraxylene. We were expecting that increase in spreads for the summer. So we're prepared for that, and we have a lot of imported PX. So that decoupling at that time summer, May, June, July last year, which was much higher than where it is today, we could -- we could mitigate to a great extent with imports from Asia.

At the time, [ trade winds ] from Asia were around $50 per ton of paraxylene, which is manageable for us. Now at the end of this year, we -- normally, gasoline spreads come down end of the year due to seasonality effect, lower demand than in summer time and driving season. But unexpectedly because I have to say we do not put this into or capture this into the guidance for the fourth quarter, the margins of gasoline came up again and the disconnection started to [ inherit ]. And at that time, first of all, we have not prepared to import more PX. And second, the freight rates were much higher than during summertime. That's a result of what Jorge was explaining, the approach in Ukraine war.

So -- what I'm saying is difficult to [ think ] how long this is going to last, but we need -- it could change, I mean, when the spreads of gasoline go down, situation will improve to [when] freights start to come down, this then that would also go a long way towards solving this problem because, as I said, with the normal freight rate, this decoupling is not a problem. And fair -- and the other factor, which is more difficult for us to forecast, the other way that this decoupling can be reduced is by Asian PX prices to improve. The Asian producers of paraxylene are hurting a lot. And the fact that they have relatively low margins or low prices for paraxylene, I think to a certain extent, has to do with the low market in China for some of the products. I think the Chinese paraxylene producers are concerned about the demand in long and they've been very conservative with PX pricing. So any of these 3 factors -- a change in any of these 3 factors could help mitigate this problem. And so we have to be monitoring all of these.

In the meantime, what I can say is that we are now planning to significantly increase our imports for the remainder -- of paraxylene for the remaining of the year. So that we can contain the differential in prices between U.S. and Asia. So that we have done. And hopefully, that will help, as I say, reduce the problem.

[Nikolaj Lippmann, analyst]

One follow-up. Would it be fair to assume that it kind of hit you about 1 month, 6 weeks into the quarter? It didn't hit you in the -- right in the beginning of the quarter. We were kind of into October before many of these movements really started hitting it.

[Jose de Jesus Valdez Simancas, executive]

No. I think October was already a weak month for us. And again, as Jorge explained, this is part of the reason. I think together with the freight rates, which hurt our margins in South America, I think this -- well, the destocking, which was -- but the destocking to a certain extent, was included in the guidance. We did include some of that in the guidance. So the changes versus guidance, most important, trade rates in this paraxylene situation.

[Nikolaj Lippmann, analyst]

I guess it's good news that it gets divided into the 3 months. So very clear.

[Anton Fernandez, executive]

Our next questions come from Vicente Falanga from Bradesco.

[Vicente Falanga Neto, analyst]

I had a couple here. Related to the [indiscernible] per ton margin for PET in Asia, what sort -- that was in your guidance, what sort of progression of this margin do you expect throughout the year? I mean it is our impression here that we're going to have a gradual increase as oil prices recover, but I wanted to see if that's the case.

And then the second question on your CapEx. What sort of gains do you expect to have in your EBITDA from this optimization opportunities? And if Altamira expansion is included in this optimization opportunities, and if you happen to have any incremental CapEx overruns in Corpus Christi in this [ $445 million ] number.

[Jorge P. Young Cerecedo, executive]

The question on the question on the spreads and the margin. I think the fourth quarter already ended fairly close to that level in the 330s. I think we expect mostly steady throughout the years. We did not model sharp changes in that reference margin for PET. I think in the -- and then the question on the projects, the -- is most than anything a cost optimization project for Altamira, but that would be a longer-term investment. It would be probably 2 years of execution. And from that one, we would not see specific benefits to that one in 2023 -- but we have [ orders ] that we will have some benefit in 2023. We can provide some color and guidance maybe in a separate session.

[Anton Fernandez, executive]

Our next questions come from Guillermo Delgado from Santander.

[Guillermo Delgado, analyst]

Yes, sure. Maybe on the first question, considering the guidance, what you said about the EBITDA -- what you said about the working capital, the comeback of the $150 million [ 445 ], you're still generating a lot of cash flow $275 million, which if it's not the big number that everyone was expecting, at least most of the market was expecting some spreads in normalization. Today, we got that. So that's close to a 10% free cash flow yield at these levels of the stock price. The question is, how do you decide how much you're going to put in into the buybacks at these levels you're trading around [ 5 something ] times EBITDA, which is in the lower range of your historical range now, one is standard deviation below. At the same time, I'm guessing with the numbers that you released, you still have like double-digit return on invested capital also.

And on the other side, now you have enough room, as you said, to distribute at least the ordinary part of the dividend, which at this price is like 7%. So when you decide how to use the cash flow, what are going to be the main guidelines, not deciding between the buybacks, considering the valuation, return on invested capital, ROE, etcetera, and the dividend distribution, which is at least on my consideration 10% of these prices versus the long-term rates, either in dollar terms, Mexico or U.S. attractive enough.

And on the second question is the CapEx, we were expecting a little bit less. There's like $100 million more. So on that side, what is the IRR of that project? You mentioned some about Altamira 2 years payback. But when you decided to do this investment, what was the IRR that throw you into the project?

[José Pons, executive]

Thank you, Guillermo, Jose Carlos speaking. Well, thank you, very good questions regarding our performance. First of all, I would like to state return on investment or return on assets or however you measure, well, Alpek has performed very well throughout the last 2 or 3 years, well above our weighted cost of capital. So we're very pleased with that. And we've also been able to optimize some of our assets. So the combination of good performance and optimization of certain assets, well, turned out to close to 20% and depending on what you measure, but for sure, double-digit performance. So good performance on the company.

Regarding your question regarding free cash flow, certainly, we will have availability to decide how we use best of capital. Jorge has outlined certain CapEx projects that we have. We're still working on them, and Jorge will comment more on that. But what we will plan in terms of dividends, we'll have an assembly in the next few weeks. We will propose in that assembly -- to the shareholder assembly an idea on dividends. It's at least a proposal will be similar to historical performance, not 2022, that was extraordinary, but this to what we have been able to achieve in line to what you're saying 7% to 8% dividend yield.

And to your question on buybacks, it's a tricky one. Regarding -- I mean it's -- we certainly believe that the Alpek share is not reflecting the performance of the company. We think that there's upside on the value of the share. We are evaluating the opportunity for buybacks, but the issue is that we will take out some liquidity to our stock. So that's also important to our investors. So we're kind of working throughout those limitations and seeing what we can do. But clearly, we're seeing how we can return capital to our shareholders, either through buybacks or dividends.

[Guillermo Delgado, analyst]

Great. And just finally on the guidance, the number -- of oil when we see the PMIs around the world, U.S., China, Europe, it seems that we are getting some [ floor in oil ], we are having this focus on the China reopening, etcetera. If -- and at the same time, we have had all the SBR releases from the U.S. government. So if this was -- if this recovery continues and if the U.S. manages to continue surprising on the economics or price index, when would you be updating the guidance? If oil remains stronger now than expected, when would you do an update to the guidance that will be after the first quarter? Or what usually is the time when you assess stronger conditions for the crude oil guidelines?

[Jorge P. Young Cerecedo, executive]

Yes. Guillermo, this is Jorge. Yes, I would probably look at the -- depending on how significant are the changes. But potentially midyear, I mean we will need to decide that it depends a lot on how drastically these general variables will change throughout the year.

[Anton Fernandez, executive]

Our next questions come from Pedro Gama from Citi.

[Andres Cardona Gómez, analyst]

This is actually Andres Cardona from Citi. Most of my questions have been asked. I have some very quick one. But before I go over them, I want to thank Jose Valdez for his partnership and congratulate to Jorge adding to the comments from my colleagues. So guys, if you can help me to understand in a little bit more detail, the 3% decline in volumes, can you comment a little bit on a per segment basis? How do you see this?

The second is how do you see the polypropylene margins and your 2023 guidance?

And the last one, if you can provide some color about the CapEx breakdown between maintenance Corpus Christi and the new projects that you mentioned?

[José Pons, executive]

Let me start with your last question, Andres. Nice to talk to you, this Jose Carlos. Regarding CapEx maintenance, we're typically investing around $100 million on maintenance, and that's what's included in our guidance. So that will be in that order. The rest will be strategic CapEx with the larger part of that CapEx being Corpus Christi and the project in terms of efficiency that we're evaluating in Altamira.

In terms of polypropylene margins, similar to the ones that we saw at the end of 2022, so I guess we're looking at stability. We think that, that's the level that they will maintain throughout the year.

And in terms of the decline in volume, well, it's basically stabilization from maintenance that we will have throughout the year. And we're not expecting a big change, and there could be a little bit of upside, depends on how big their destocking trend continues.

Of course, and PX has been an impact on volumes indirectly because of the cost that it has implied. So we're rationalizing certain exports so to not, of course, lose money in those experts. Hope on your question, Andres.

[Anton Fernandez, executive]

Our next question comes from Sofia Martin from GBM.

[Sofia Martin, analyst]

Thank you for your time Jose, and welcome Jorge for to your new position. I have 2 questions for you. The first one I wanted to understand better your free cash flow generation during the quarter. Could you further explain the positive working capital that you had?

And my second question was related to your P&C comparable EBITDA. It grew 1% during the year, year-on-year. This is despite a negative volume effect year-on-year as well and negative revenues. So I just wanted to understand a little bit better how this breakdown was.

[Jorge P. Young Cerecedo, executive]

Sofia, Jorge here. In the free cash flow generation during the fourth quarter, I think the main factor was decline in prices, not much yet on volume, perhaps a little bit in volume, but mostly declining reference prices that explains the working capital recovery in Q4. And that's what we expect that will continue to some extent in 2023. And we will also normalize on some volumes. That's another source for our working capital.

[Jose de Jesus Valdez Simancas, executive]

So let me add something which is interesting also for you to understand. As Jorge said, normally, our investment in working capital is very much related to sales prices. The sales prices are very much a function of crude oil prices. So higher crude oil prices, higher sales prices, higher investment in working capital. But in particular, it is something that is going to help us in 2023.

The other factor that can impact investment in working capital apart from crude prices is margins. When your margins increase, your EBITDA, of course, increases, but there is an effect because your investment in working capital also increases. The higher your margin, the higher your investment in working capital in receivables. Okay, so -- but you will see in 2023 -- it is a very strong cash flow.

Actually, I think we mentioned the free cash flow in 2023 is higher than in 2022. And as part of that is the investment in working capital was very important in '22, and there is a negative investment in working capital, it is a recovery of working capital in 2023, and part of that recovery, of course, it has to do with prices, but the only important part is as I say, a side effect of reducing margins is that you also reduce your investment in working capital.

So that's something to take into consideration as I say, cash flow -- free cash flow when you do the numbers in '23, it's going to be over $500 million, [indiscernible] I remember correctly and this is higher than in 2022. And again, I think this factor of margins also plays a role because at the end, it helps you reduce your working capital.

[Jorge P. Young Cerecedo, executive]

And you should look at the consistency of free cash flow generation. For the last 5 years, it is very [ receding ].

[Jose de Jesus Valdez Simancas, executive]

Yes, yes. What Jorge [ is speaking ] when EBITDA comes down, investment -- you recover in working capital. When EBITDA goes up, you invest in working capital. So that's why as opposed to the EBITDA that has set down fluctuation of certain volatility, the cash flow has been extremely [Technical Difficulty] extremely stable over the last 4 or 5 years, at around this level that I'm talking about the $500 million.

[Jorge P. Young Cerecedo, executive]

And Sofia, just maybe to answer your question regarding the Plastics & Chemicals comparable EBITDA growth. Yes, you're right, that the Plastics & Chemicals the reported EBITDA grew at a 1% rate between fourth quarter '21 and '22. But we tend to point you to the comparable EBITDA, which we really see as a better measure of performance of the company. There was a decline in that metric vis-a-vis '21 vis-a-vis to 2022. And the reason being is the adjustment of margins. So all in all, we did see a normalization of margins and performance in the fourth quarter of '22.

[Anton Fernandez, executive]

I believe that was our last question in the queue. As always, I'd like to remind you that you can find both a video recording of today's works as well as a transcript on our website. Thank you all for participating in Alpek webcast. Have a wonderful day.