Earnings call transcript: ALFA’s Q4 2024 sees debt reduction and strategic growth

Alfa, a diversified holding company with a market capitalization of $4.7 billion, reported significant financial and operational milestones in its fourth-quarter 2024 earnings call. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics. The company highlighted a substantial reduction in consolidated net debt by 50% year-over-year, achieving a 2.5x net leverage ratio. Alfa also completed a significant capital raise that was oversubscribed by 2.6 times. Despite these achievements, specific earnings per share (EPS) and revenue figures for the quarter were not disclosed.

Key Takeaways

• Consolidated net debt was reduced by 50% year-over-year.
• Alfa achieved a 2.5x net leverage ratio.
• The company received a credit rating upgrade to BBB.
• A record $228 million in dividends was distributed.
• Sigma, a subsidiary, invested $245 million in capital expenditures in 2024.

Company Performance

Alfa demonstrated robust performance in the fourth quarter of 2024, focusing on financial restructuring and strategic growth. The company successfully reduced its consolidated net debt by half compared to the previous year and improved its leverage ratio to 2.5x. This debt reduction aligns with Alfa’s strategic initiative to streamline its operations and focus on unlocking the intrinsic value of its individual businesses. The company’s capital raise was notably oversubscribed, indicating strong investor confidence.

Financial Highlights

• Consolidated net debt reduction: 50% YoY
• Net leverage ratio: 2.5x
• Capital raise oversubscription: 2.6x
• Dividends distributed: $228 million

Outlook & Guidance

Looking ahead, Alfa projects normalized revenue of $9.7 billion and EBITDA of $1.1 billion for 2025, building on its current last twelve months revenue of $15 billion and EBITDA of $1.04 billion. InvestingPro data shows analysts maintain a strong buy consensus with a potential upside of 19% from current levels. The company anticipates a 43% increase in capital expenditures, focusing on capacity expansion in Mexico and the United States. Sigma expects sustained volume growth across regions, driven by its strong brand portfolio and market presence.

Executive Commentary

"Our goal when we started this process almost five years ago was to unlock the intrinsic value of Alfa’s individual businesses," said Eduardo Scalante, CFO. This statement underscores the company’s long-term strategy of enhancing shareholder value through strategic divestitures and operational efficiency. Roberto Olivares, Sigma CFO, added, "2024 was remarkable for Sigma being the fourth consecutive year of revenue growth," highlighting the subsidiary’s consistent performance.

Risks and Challenges

• Raw material price pressures may impact margins.
• Margin compression in Mexico could affect profitability.
• Uncertainty in European market restructuring poses risks.
• Potential challenges in optimizing corporate governance.
• Strategic alternatives for non-core assets may involve execution risks.

Alfa’s strategic initiatives and financial discipline position it well for future growth, despite potential risks in raw material costs and market restructuring. The company’s focus on reducing debt and enhancing operational efficiency is expected to continue driving its competitive edge in the industry. InvestingPro subscribers have access to 10 additional ProTips and comprehensive financial metrics that provide deeper insights into Alfa’s performance and future prospects, including detailed analysis of its debt structure and operational efficiency metrics.

Full transcript - Gpo Alfa A (BMV:ALFAA) Q4 2024:

Conference Operator: Good afternoon, and welcome to Alpha’s Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a question and answer session at the end of the presentation with instructions given at that time. You may also submit questions at any time during the call using the q and a button on the webcast, which will be answered during the q and a session. As a reminder, today’s conference is being recorded.

Now, I would like to turn the call over to mister Hernan Lozano, Vice President of Investor Relations. Mister Lozano, you may begin.

Hernan Lozano, Vice President of Investor Relations, Alfa: Good day, everyone, and welcome to Alfa’s twenty twenty four earnings conference call. Further details about our financial results can be found in our press release, which was distributed yesterday afternoon together with a summarized presentation. Both are available on our website in the Investor Relations section. Let me remind you that during this call, we will share forward looking information and statements, which are based on variables and assumptions that are uncertain at this time. It is my pleasure to participate in today’s call together with Eduardo Scalante, Alfa’s CFO and Roberto Liores, Sigma’s CFO.

Before moving on, just a quick reminder that Alpiq meets the definition of a discontinued operation in accordance with IFRS since the third quarter twenty twenty four. Unless otherwise specified, all consolidated figures referenced in this call exclude Alpek. I will now turn the call over to Eduardo.

Eduardo Scalante, CFO, Alfa: Thank you, Hernan. Good day, everyone, and thank you for joining us. 2024 was a very special year for Alfa as we celebrated our fiftieth anniversary with historic developments on the strategic front, implementing the third and final spin off to reach our vision of a single business structure. Following shareholder approval for the Alpek spin off and accounting for the business as a discontinued operation, Alfa is effectively single. Like in past quarters, I will focus on updates related to the status of the transformation process and Roberto will share Sigma’s results.

Alpek held its own conference call earlier this morning. Our goal when we started this process almost five years ago was to unlock the intrinsic value of Alfa’s individual businesses by enabling each of them to be valued by their own merits. By spinning of the companies, investors have been provided the opportunity to invest in each unit separately. In turn, each of the companies should reflect a fair valuation compared with this industry specific peer group. We are very pleased that alpha transformation process achieved the anticipated milestones along the way.

A key condition to complete the transformation was debt reduction. Consolidated net debt declined 50% year over year as a result of discontinued operations, the successful capital increase and strong operating cash flow generation. Lower debt and better than expected EBITDA resulted in a 2.5 times net leverage ratio, which is on target with our regional plan. Throughout the process, we have received overwhelming support from key stakeholders. The capital raise was oversubscribed by 2.6 times and 91% of our bondholders provided their consent for the Alpeka spin off.

Once again, we want to thank all for their support. The transformation is also being recognized by the investment community. Over the past quarters, we have seen a narrowing of the historic valuation gap versus global food peers as Alpha is Sigma, a leading global food company. From a credit standpoint, investment grade ratings were affirmed by all three agencies shortly after the last spin off was approved. Most recently, Alpha received an upgrade from fixed ratings to BBB, seating debt reduction at the parent level and Sigma’s solid business position.

I will now turn the call over to Roberto to discuss Sigma’s results.

Roberto Olivares, CFO, Sigma: Thank you, Eduardo, and good afternoon, everyone. I am pleased to chair Sigma’s outstanding result for the full year and fourth quarter twenty twenty four. I will begin with an overview of our financial and operational performance, followed by regional highlights, strategic updates on marketing and innovation and our outlook for 2025. ’20 ’20 ’4 was remarkable for Sigma being the fourth consecutive year of revenue growth supported by record volume. We also reached a significant profitability milestone, surpassing $1,000,000,000 in annual EBITDA for the first time.

Importantly, consolidated EBITDA margin of 11.9% represents the highest level in nine years. In Mexico, Twenty Twenty Four marked the fourth consecutive year of volume growth, highlighting a strong consumer preference. Positive trends across all categories and channels led to record annual revenues and EBITDA. In the fourth quarter, lower EBITDA reflects upward peso denominated cost pressures from imported raw materials as well as higher end of the year expenses, which were partially offset by volume growth. The U.

S. Also achieved record breaking results with full year and four quarter highs in volume, revenues and EBITDA. Similarly, LatAm reached its highest annual revenue and EBITDA figures following four consecutive years of volume increases complemented by cost efficiencies. In Europe, annual EBITDA more than doubled year over year as the region achieved a consistent recovery over the past six quarters. During the fourth quarter, severe flash floods caused by heavy rainfall in the Valencia region of Spain significantly damaged one of our plants.

We’re currently evaluating several long term alternatives to recover capacity. In the meantime, we have been effectively redirecting production to other sites and trusted partners. It is important to note that our insurance coverage includes both business interruption as well as property damages. We reaffirm our commitment to enhancing profitability driven by margin expansion in the region. A unique brand portfolio plays a key role in Sigma’s permanent pursuit to strengthen its connection with consumers.

We’re excited that our select group of $100,000,000 brands grew by five in 2024, reaching a total of 16 brands that attracted annual sales above $100,000,000 On the capital allocation front, during 2024, Sigma invested $245,000,000 in CapEx and distributed record dividends totaling $228,000,000 supported by a strong cash flow generation. Moreover, net debt decreased year over year, reflecting solid operating performance and timely liability management efforts. Shifting gears to strategic optics. Let me highlight two key developments. First, we advanced in strengthening our consumer centricity focus by recently creating the Global Chief Marketing Officer role, a new C level position that will be pivotal in aligning and improving Sigma’s marketing capabilities.

Ana Maria Genao was appointed as our Global CMO. She brings a great background with deep focus on consumer insights and engagement, having worked in leading consumer packaged goods companies for more than twenty years. Additionally, we recently partnered with IDEO, a leading global design and innovation firm founded in Palo Alto, California. As part of this collaboration, we established a joint design studio comprised of selected Sigma and IDEO members. Brian Walker, partner at IDEO, will lead the studio as Sigma’s creative managing director.

The studio will provide high impact innovative solutions to key opportunities across the geographies. We’re excited by the prospects of these two developments to continue elevating our consumer centric marketing and innovation capabilities. Looking ahead onto 2025, we anticipate sustained volume growth across all regions. On a currency neutral basis, our normalized guidance forecasts revenues of $9,700,000,000 and EBITDA of $1,100,000,000 It is important to note that the average 2024 exchange rate for the Mexican peso against the U. S.

Dollar was 18.3 pesos. As reference, an average exchange rate of 21 pesos per U. S. Dollar for 2025 will result in a currency specific guidance of $9,000,000,000 in revenues and $1,000,000,000 in EBITDA. Additionally, we expect 2025 CapEx to increase 43% year over year as we prioritize investments in capacity expansion projects in Mexico and The U.

S. To fulfill robust demand. As we step into a new year, we welcome the opportunity to demonstrate Sigma’s true values to the investment community. We remain vigilant amid increased market volatility ready to adapt and thrive in changing conditions. Thank you for your continued interest in Sigma.

We look forward to maintaining close contact. I will now turn the call back to Eduardo for additional comments and closing remarks.

Eduardo Scalante, CFO, Alfa: Thank you, Roberto. Regarding our outlook, the guidance you just heard from Roberto is effectively the alpha guidance. As a result of the final spin off, we are no longer issuing consolidated guidance. However, there is still a few items on the consolidated level, which create a difference versus Sigma’s results. This difference was amplified in the fourth quarter by extraordinary items such as write offs, shutdown costs and liabilities of non Sigma operations, as well as a temporary effect from discontinued operations.

Alfa’s comparable EBITDA is a useful reference to view the magnitude of such non recurring items. It is important to note that we are working to make sure that Alpha results converge with Sigma over time. Moving on to next steps. Distributing Contolador Alpek shares to Alpha shareholders as soon as possible is the priority. The process is moving along as expected.

We are actively engaged with the Mexican Banking and Securities Commission to complete the required registration to lease Control Agora Alpek on the Volsa Mexicana de Valores, the Mexican Stock Exchange. Once registration and listing is completed, AMFA will issue a share distribution notice and distribute Contradora Alpek shares shortly after. We maintain our previous view of finalizing this process before year end. At the same time, we are pursuing all the relevant work streams, including corporate governance actions such as board composition, optimizing shared services and strategic alternatives for non core assets and legacy operations. In closing, we remain focused towards finalizing this exciting journey to realize Alpha’s fair value potential.

I want to thank each of the Alfa team members for their work getting us to this point and our shareholders and bondholders for supporting our initiatives. This concludes my remarks. We are now available to take your questions. Please, Armand.

Hernan Lozano, Vice President of Investor Relations, Alfa: Sure. We would like to begin the Q and A session with questions on ALFA. Eduardo and I will take questions on alpha or corporate matters. As a reminder, Sigma and Alpiq will be available to answer individual questions later in the Q and A session. Operator, please instruct participants to queue for questions on

Conference Operator: Our first question comes from Lucas Musi of Morgan Stanley (NYSE:MS). Please, sir, go ahead.

Lucas Musi, Analyst, Morgan Stanley: Hi, Eduardo. Hi, Erno. Thanks for the the remarks, and thanks for the caller on the gap between alpha’s EBITDA generation and Sigma. Again, it was really helpful, but I just wanted to make sure we understood this correctly. Is that a good basis to still think about 2025 as it pertains to still holding eventual holding cost that you guys have at Alpha?

Or should we think about perhaps a lower number now that we are with only Sigma at your holding structure? I just wanna make sure that we we got this right. How should we be thinking about, the remaining costs as it pertains to the holding, as it pertains to an alpha?

Eduardo Scalante, CFO, Alfa: Thank you, Lucas. Thanks for the question and thanks for attending the call. As I mentioned before, we are trying to make sure that the results of Sigma fully reflect on the consolidated results of Alpha since Sigma will be going forward the only operation within Alpha. Today, we still have some cleaning up to do at the holding level, most of which we did during the fourth quarter. Hence, the difference between the EBITDA of Alpha and Sigma at the end of the year.

But going forward, we expect those differences to be small and getting close together before the end of the year.

Lucas Musi, Analyst, Morgan Stanley: Okay. Got it. And should we anticipate any cash effect that you guys still have to adjust perhaps in the first half of this year still or most of it is now behind us perhaps related to the fourth

Eduardo Scalante, CFO, Alfa: quarter? No. We still have some cash needs at the holding company, in particular financial costs coming from the debt that we have guaranteed by Sigma, but we still have the holding company as well as taxes and in a much minor account regarding the expenses of the holding company, which again should be should come down very quickly. Other than that, we do not expect any significant cash outflows at the holding company, of course, other than dividends paid to the Alfa shareholders.

Lucas Musi, Analyst, Morgan Stanley: Got it. Very clear. Thank you very much.

Felipe Ucross, Analyst, Scotiabank (TSX:BNS): You’re welcome.

Conference Operator: There are no further questions at this time.

Hernan Lozano, Vice President of Investor Relations, Alfa: Excuse me, operator. I do believe we have a question from Paulina Alcantara. Can we go ahead and pass her through, please?

Conference Operator: Our next question comes from Paulina Alcantara. It looks like Paulina just laid down his hand, so we will continue with the next question. So our next question comes from Felipe Ucross of Scotiabank. Please, sir, go ahead.

Felipe Ucross, Analyst, Scotiabank: Thanks for the space for questions. Luca has made one that I had on the holding cost, but perhaps if I can do a follow-up on the guidance. Directionally, how do you think the regions will perform relative to that guidance? And I know you probably can’t give us exact numbers per region, but any idea of how that’s going to break up across the regions? And then following up on that on taxes, obviously there was a pretty steep hit from deferred tax charges.

Can you talk about the drivers for this and perhaps more importantly, how we should think about the tax line going forward post business spin off? And I know it’s been an uncertainty, but any further clarity would be great. Thank you.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you, Felipe. We will have a section on Sigma with Roberto further in the call, but let me ask Roberto to jump in and answer that specific Sigma question for now. Thank you.

Roberto Olivares, CFO, Sigma: Hi, Felipe. How are you? Thank you for your question. Let me talk briefly about the guidance. First, it’s supported by solid volume growth with respect to growth close to 4% in total company and we do expect that the growth comes from all the regions ranging between those single digit and mid single digits.

We do expect to have some efficiencies, expenses in Europe and Latin America. We also expect to have a little bit more of pressure because of raw materials in Mexico and The U. S. But with the idea is to have a margin of around 11.1% in the next year. With that, what I can tell you is that particularly again, we’re most of the growth comes in volume and that has to do with Mexico particularly growing volume low single digit given that we are operating at capacity this since a couple since last year.

And some other regions like The U. S. And Latin America increasing a little bit more in volume.

Felipe Ucross, Analyst, Scotiabank: Very clear. Thank you.

Conference Operator: Our next question comes from Lucas Musi of Morgan Stanley. Please, sir, go ahead.

Lucas Musi, Analyst, Morgan Stanley: Yeah. Hi, again, guys. I’ll keep my my Sigma questions for for the next section. But as it pertains to alpha, just wanted to hear more, perhaps about dividends. Of course, we had, an extraordinary situation this year given the the the the developments on the OPEC level.

But just wanted to hear your thoughts on dividends going forward, dividend policy. How should we think about this? Will we see a more fixed policy perhaps tied to leverage? So just wanted to hear more your thoughts on what should we expect ahead on dividends? Thank you.

Eduardo Scalante, CFO, Alfa: Sure, Lucas. Thanks again for the question. Dividends will be proposed to shareholders in the annual meeting that we expect to have next month. So we still don’t have a figure for the year in the case of Alpha. Certainly, as in the past, we do expect to receive dividends from Sigma, amounts still to be determined.

And again, with those dividends, we do expect to cover the costs of the financial costs as well as taxes and pay dividends at the alpha level. We still don’t know how much that would be, but we have a we will continue doing as we have done in the past, looking for a balanced capital allocation between debt reduction efforts and dividend payout. We will continue aiming at being not above 2.5 times net leverage, which we achieve at the end of the year. And considering that, we’ll decide with the Board for a proposal to be presented in the shareholders’ meeting. Going forward, after that, I think we still have to define the dividends policy for Sigma being the new entity of certainly, dividends are expected to be paid, but how we would manage the following or how Sigma manages the future, I think it’s something that has to be defined by the new Sigma board going forward.

Lucas Musi, Analyst, Morgan Stanley: Got it. That’s clear. Thanks.

Eduardo Scalante, CFO, Alfa: Thank you.

Conference Operator: Our next question comes from Paulina Alcantara of AllianceBernstein (NYSE:AB). Please go ahead.

Paulina Alcantara, Analyst, AllianceBernstein: Thanks. Last year, you had mentioned that you were looking to sell some corporate real estate assets in Monterrey. I would be interested to hear if you have any updates. And if so, will you please talk about what the timeline should look like? And also, if you could please remind us, like what is the estimated valuation range that you would expect to get for those assets?

Eduardo Scalante, CFO, Alfa: Sure, Paulina. Thanks for the question. We have several assets at the alpha level regarding real estate. We consider them to be non strategic assets. So at the right price, we are looking for the best way to monetize those assets.

We do have the real estate where the corporate offices are located. In that case, that is a prime land that we are still analyzing to decide if we sell the land as a whole or we send the land in several parts. Or even if we or in this case, in the future, Sigma gets involved into developing the land into in several years in order to capture the best possible value. I think that’s the most valuable asset in terms of real estate that we have. The value, I don’t have a fixed numbers, but certainly that’s a very much a prime real estate, which should be value at several hundred million dollars.

Paulina Alcantara, Analyst, AllianceBernstein: Thanks. Appreciate the answer.

Hernan Lozano, Vice President of Investor Relations, Alfa: You’re welcome.

Conference Operator: Our next question comes from Alej Azar of GBM. Please, sir, go ahead.

Alej Azar, Analyst, GBM: Hi. Good morning, Hernan, Eduardo. Thanks for taking my question. It’s on the ceiling. It’s it’s similar to the ones that that we already heard about other assets.

My question is on New Pig. How should we think about New Pig? I understand it’s a small asset, but thinking of having Sigma alone, let’s say for 2026, how should we think about new peak within, your your balance structure? In the past in the past couple of, quarters, we have seen, positive headlines in the in the, let’s say, energy sector, some transactions, where where some of the blocks in the reforms were sold. I know that you cannot give us a number, but on the amount of divestment in Newpek, but if you’re thinking, how should we think about this?

Thank you.

Eduardo Scalante, CFO, Alfa: Sure, Alex, and thanks for the question. We have been engaged for several years now into an actively divestment of Neopec. If you recall, we started with the assets we had in The U. S. And in South America and even some assets in Mexico.

We continue doing so and expect to finish the divestment this year. We do not expect to get any significant amounts of cash from those operations. What we still have are very small and limited operations. However, we do not expect going forward either to have any significant negative impacts on our balance sheet. We did some adjustments at the end of last year, not only for Neopaque, but also for some other operating assets, non Sigma operations that we have at the holding company to cover shutdown costs and liabilities of those assets.

So we do not expect to have going forward a significant negative impacts from any additional shutdowns.

Alej Azar, Analyst, GBM: Okay. Thank you, Arlo. That was very clear.

Eduardo Scalante, CFO, Alfa: Thank you, Alex.

Conference Operator: There are no further questions at this time.

Hernan Lozano, Vice President of Investor Relations, Alfa: So we will now take questions on Sigma. Roberto Olivares, Sigma CFO, will answer your questions. Operator, could you please prompt for questions on Sigma?

Conference Operator: Dear participant, if you’d like to ask a question about Sigma, please use the raise your hand button of your Zoom (NASDAQ:ZM) tool.

Conference Operator: Our first question comes from Andres Ortiz of the BTG. Please, sir, go ahead.

Andres Ortiz, Analyst, BTG: Thank you very much. Hi, Hernan, Roberto Eduardo. I would like to to dig a bit into the four quarter dynamics in Mexico, margin dynamics in Mexico, and your outlook for embedded in your guidance. Basically, we saw a large margin compression in Mexico, Five Ninety pips, 12% EBITDA margin coming from 17%. So could you give us a sense of how much was the pressure coming from the US dollar and higher input cost?

And how much is the expenses that you mentioned during the quarter and if they are non recurrent, any view on that will be super helpful.

Roberto Olivares, CFO, Sigma: Sure. Thank you, Andres, for your question. Let me first start by saying that there’s a seasonal component when we compare 4Q versus 3Q, do particularly with volume. So let me I will first set the basis on comparison versus one year ago, so year over year, which we have a gap of around two fifty basis points. Out of that, around 100 basis points was related to margin due to the increases in raw material, particularly both Turkey and the southern depreciation of the Mexican peso during the 4Q twenty twenty four.

Raw material continued to increase throughout the quarter, generating this temporarily impact on margin due to the lag. We have continued increasing prices in 2025 and we do expect to offset the full impact of this effect by the end of the first Q twenty twenty five. There’s another 100 basis points and those are related to some non recurring lines that include particularly the impact from actuarial adjustments related to the labor liability in Mexico among others. We do not expect to continue having some impact from these topics in 2025. And finally, the balance close to 40 basis points is related to the accrual to the employees’ profit sharing program.

We needed to increase the reserve amount to complete what we will distribute of the profit sharing program as of full year 2024. Despite the effect on margin, Andres, I would like to highlight that the year over year volume growth was remarkable in Mexico. And as I explained, part of this margin compression is temporarily because we’re increasing prices and the other one is mostly related to one off effects. So the guidance of 2025, the margin in Mexico, we do expect to have a little compression on margin, particularly because of less friendly raw material environment, but more around the 15% overall in Mexico.

Andres Ortiz, Analyst, BTG: Understood. Thank you very much. So just to have it clear here, so you expect, like, roughly 15% margin for the whole year in 2025. And you saw, like, 130 bps ratio from no recurring items this quarter. That’s the way I should read this?

Roberto Olivares, CFO, Sigma: That is correct, Andres.

Andres Ortiz, Analyst, BTG: Thank you very much. Appreciate it.

Conference Operator: Our next question comes from Lucas Musi of Morgan Stanley. Please, sir, go ahead.

Lucas Musi, Analyst, Morgan Stanley: ’25 guidance is related to additional investments in Mexico. So I just wanted to to see if you guys could give us more details on perhaps the specific categories that those investments will be directed towards. And what have you guys seen that is so particular strong for this specific categories that made you guys wanna ramp up investments in the region? So any any additional color or detail on how we’ll be deploying that CapEx in 2025 would be helpful. Also still on CapEx, but thinking more about, 2026 onwards, how should we think about the structural level of CapEx, that we we could assume for Sigma going forward?

Is the the this new level, perhaps related to sales, the new structural, level of CapEx that we should expect from Sigma going forward? Or is 2025 more of a one off intensified, stronger investment phase? And then I’ll queue up for my other question. Thank you very much.

Roberto Olivares, CFO, Sigma: Thank you, Lucas. Yes, sure. So we’re increasing the guidance on CapEx, approximately $100,000,000 when you compare it to what we invest in 2024. Out of that, around $20,000,000 is related to the implementation of a new instance of our ERP system, particularly SAP. We’re in a process to implement that.

And the rest, as you mentioned, has to do with some strategic projects to increase capacity particularly in Mexico. Just as reference, Mexico volume has increased in the last four years close to 5% on a CAGR basis. So we have been increasing volume significantly in Mexico. And since last year, since 2024, we’re at almost at full capacity in most of the lines in processed meat, in cheeses and in yogurt. The idea of these investments has to do with some to free some capacity, some debottlenecks to remove some bottlenecks in most of the lines to be able to serve the volume that we expect to serve during 2025 and going forward.

There’s also some projects in The U. S. Particularly related to Hispanic cheese that we also saw a significant increase in volume during 2024 and we do expect to continue having that volume demand for the next years. Having said that, we do expect to invest a similar amount, maybe a couple of years, twenty twenty five, and then maybe something similar during 2026, and then come back to a more normalized level going forward of around 3% of sales going forward.

Lucas Musi, Analyst, Morgan Stanley: That’s really helpful. Thank you very much, Roberto.

Roberto Olivares, CFO, Sigma: Thank you, Lucas.

Conference Operator: Our next question comes from Federico Galassi of Rocketting Group. Please, sir, go ahead.

Hernan Lozano, Vice President of Investor Relations, Alfa0: Hi, guys. Thank you for taking my question. One question following the previous question of Andres and talking about Mexico. If I’m not wrong, in Mexican peso you increased in the last quarter’s price is around about 10%. The first question, if I’m it’s okay, that numbers.

And the second one is how much of this could be pricemix? How much price increase? And the third, when we see numbers of Antad, how the traditional supermarket first present results, etcetera, etcetera. How do you see the environment in Mexico to continue to increase prices and reduce the margins as you mentioned?

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you,

Roberto Olivares, CFO, Sigma: Federico, for your questions. Yes, sir, it’s correct. We increased prices close to 10% in Mexican pesos when you compare it to one year ago. That is mainly price actually makes it pretty stable versus last year. We had some price increases during the quarter, particularly in November in both channels, traditional and supermarket or modern channels.

In regards to the environment, in 2024, we saw particularly higher demand at the beginning of the year of the modern channel. And traditional was a little bit during the first half lagging. Then things change by the end of the year. We start seeing more than a missum in the traditional channel. We we do, serve both channels pretty, pretty well and and and we have the the the capability of looking into both channels that, and and there has been some or more dynamic in the traditional channel as the year ended.

In regards to the numbers of Antad and the market, again, I will say in the first half there was some or consumer companies were doing better than in the second half. We did perform well in the second half in regards to volume and we do expect to do the same in 2025. When I did my remarks of our guidance, we expect to grow close to low second digits on volume on 2025. And so we regarding of or in spite of the rest of the market, we still do see some growth in Mexico.

Hernan Lozano, Vice President of Investor Relations, Alfa0: Okay. And thank you, Roberto. And the second question and following your explanation of the lower margins in this quarter, the employee profit sharing programs will be next year. This is how do you compare and you said 40 basis points? This was you pay more this year than the last year.

And the second one is the actual liabilities. Do you adjust every year or it’s time to time? Thinking in the next year, in the fourth quarter of the next year, that is maybe the question.

Roberto Olivares, CFO, Sigma: Sure. So let me start by answering the second one first, the actuarial liabilities, that is all the year or every year

Eduardo Scalante, CFO, Alfa: that the

Roberto Olivares, CFO, Sigma: factorials look at the calculation, particularly this year, there was a change in some of the assumptions of the liability moving from what was previously accrued with the UDS which are the inflation units of Mexico. Now this year, we start using the minimum wage. So that imply a change that was relevant that we don’t have that every year, you know. So going forward, we do not expect a change so significant as we have on 2024. And in regards to the profit sharing program, this is again, this is part of in Mexico, it’s called PTEU.

The is a profit sharing program that we have here in Mexico. We were accruing or we accrued during all the quarters an amount that would that will be paid on the next year. So you accrued what regards or in related to the profit that you do in 2024 and it’s paid on the second quarter of twenty twenty five. That amount we were we needed to accrue a little bit more in order to have the reserve the full amount that we were going to pay in 2025. So we needed to accrue more in the last quarter.

Hernan Lozano, Vice President of Investor Relations, Alfa0: Thank you, Roberto. Very clear.

Roberto Olivares, CFO, Sigma: Thank you, Patrick.

Conference Operator: Our next question comes from Paulina Alcantara of AllianceBernstein. Please go ahead.

Paulina Alcantara, Analyst, AllianceBernstein: Thanks. My question is related to portfolio optimization. Last year, you said that you were, considering the sale of some non core assets of Sigma. And my question is if you have any updates on that front, like, do you have any ongoing negotiations or transactions, or is this something that you have now kind of on hold given that you have, successfully started the spin off of Alpek?

Roberto Olivares, CFO, Sigma: Thank you, Paulina. I will talk about those related to Sigma. Yes, we were evaluating some opportunities to monetize some non core assets. As of right now, we don’t have anything that we can comment about. Certainly, we look for the the the several opportunities to create value to our shareholders.

And if if there’s a possibility to do something like that by optimizing or monetizing some of our assets, we will do it. But we don’t have anything that we can comment right now.

Paulina Alcantara, Analyst, AllianceBernstein: Got it. Understood. And then maybe on the flip side, are you analyzing any potential inorganic growth opportunities or is that not something that you are currently considering?

Roberto Olivares, CFO, Sigma: Thank you, Paulina. Sure. We always analyze opportunities that if there’s again opportunities to create value for shareholders, we’ll also analyze some opportunities. Again, as of right now, we don’t have anything that we can comment of any potential transactions.

Paulina Alcantara, Analyst, AllianceBernstein: Understood. Thanks, Roberto.

Roberto Olivares, CFO, Sigma: Thank you, Pauline.

Conference Operator: Our next question comes from Nicolas Reba of Bancoast America. Please sir, go ahead.

Hernan Lozano, Vice President of Investor Relations, Alfa1: Thank you very much for the chance to ask questions. I missed kind of the first half an hour or so of the call, so apologies if you have already addressed this. But I wanted to ask about the pending steps on the spin off of, Alpek. I understand you’re gonna be distributing the shares of of Alpaca to Alfa shareholders, sometime sometime this year. You already classify Alpaca as discontinued operations in the balance sheet and and in the and in the income statement.

So I wanted to confirm that there’s not gonna be any more impact in terms of balance sheet that figures EBITDA, from the spin off of ALBEC. That’s my first question. And then my second question, I wanna confirm that the capital increase that you did in the fourth quarter, roughly the $400,000,000 raised at the alpha level, if those were already fully used in terms of debt repayment at the holding company? Thanks.

Eduardo Scalante, CFO, Alfa: Sure, Nicolas. Thanks for the questions. First of all, we do not expect any EBITDA impact on Alpha regarding the spin off of Alpek. As I mentioned before, we expect to finish the distribution of the Contolabora Alpek shares before the year end as soon as we get all the relative approvals from the Commission National Bankari de Valores and the registration in La Volta Mexicana de Valores. So the process is moving along with them and hopefully, we will have good news soon.

Regarding the capital increase, it was in our opinion a very successful process, very much supported by most shareholders of Alpha. And the three ninety two million dollars that we’ve raised were fully used to reduce the debt at the holding company as we had committed. After we did that, basically, we prepaid some bank debt that we had. We still have $700,000,000 at the holding company. Basically, we have a 2,044 bond, which is guaranteed by Sigma as well as $200,000,000 of bank financing, which are all fully repayable and we plan to do so as soon as we can.

So those are the comments. Basically, the net debt at the end of the year we had at the holding company was $665,000,000 coming from what I just mentioned.

Hernan Lozano, Vice President of Investor Relations, Alfa1: Thanks very much.

Andres Ortiz, Analyst, BTG: You’re welcome.

Conference Operator: Our next question comes from Felipe Ocuros of Scotiabank. Please, sir, go ahead.

Alej Azar, Analyst, GBM: Thanks,

Felipe Ucross, Analyst, Scotiabank: operator. Yes, thanks, gentlemen. If I can do my follow-up on the tax question that I had asked before. Just wondering if you have a better idea of what we can expect from a tax rate perspective after this pin office is completed. And second question I had was on the Hispanic brands in The U.

S. They seem to have been a driver for The U. S. Region lately. Wondering if you can comment a little bit more on this, the strategy behind it and how much it moves the needle at this point on the overall business?

Thank you.

Eduardo Scalante, CFO, Alfa: Sure, Felipe. This is Largo. I will take the spin off question and then I will ask Roberto to talk about the Sigma question. Regarding the spin off, we do not expect any tax impact on that spin off. We had some losses which provide a tax yield coming from the previous spin offs which we plan to use for the Alpek spinoff.

So no expected impact negative impact regarding taxes.

Felipe Ucross, Analyst, Scotiabank: And any idea of what the effective tax rate will be like on a go forward basis, talking long term more than a few quarters down the line?

Eduardo Scalante, CFO, Alfa: Well, it would be down the line it’s going to

Hernan Lozano, Vice President of Investor Relations, Alfa0: be

Eduardo Scalante, CFO, Alfa: Sigma’s. And what we can tell you is we expect to continue having a very conservative tax approach. In Mexico, taxes represent roughly 30% of the profit.

Roberto Olivares, CFO, Sigma: So I will take the other one, Felipe. This is Roberto. Your question about Hispanic brands in The U. S. Yes, we have seen a lot of growth coming from the Hispanic brand business in The U.

S. Just as reference, we serve mainly Hispanic population, mainly Mexicans. To be honest, there’s a lot of opportunity to continue growing in other sectors of the Hispanic population, Central Americans, and other or people coming from other countries are growing in The U. S. At a higher pace than the people that come from a Mexican origin.

So there’s a still opportunity to, to grow out in, in those sectors roughly, close to probably close to 50% of, of, of EBITDA in The U S come from that business from, from the, from the Hispanic brand business. That to be honest, maybe a few years ago was significantly less. Some of that growth has been, inorganically because of our acquisition of Los Altos that we did on 2023. But, but most of the growth come from, from a better coverage and better execution of that channel.

Felipe Ucross, Analyst, Scotiabank: Thank you.

Conference Operator: Our next question comes from Renata Cabral of Citi. Please go ahead.

Paulina Alcantara, Analyst, AllianceBernstein: Hi. Thank you so much for for taking my question. So we have here, some color about what you expect in terms of, pressures, in on raw material prices. I wonder if you could have, give us some color in terms of perspective, especially, for pork and poultry and dairy, for 2,025. How you expect those markets to to to perform along the year in terms of pricing for you, especially for the the Mexican operations?

And, if you can comment about potential hedges you you have towards that would be really helpful. Thank you so

Roberto Olivares, CFO, Sigma: much. Thank you. Thank you, Renata. Sure. Let me first split this question between The Americas and Europe.

I will talk about Europe very briefly because actually in Europe, we do expect raw material prices to decrease during 2025. There has been more for production in Europe, thus reflecting lower pressures in raw materials and that is embedded in our 2025 guidance. In regards to The Americas, particularly The U. S. Market, we have seen since the last year of 2024, pressure particularly on poultry, given the avian influenza disease that has been affecting The U.

S. Particularly Turkey for us, which is a relevant raw material that we use for hams. And, and there, there has been a pressure on, on, on that. We, we do expect to, to the, the pressure to continue particularly during the first half of twenty twenty five, and then normalize a little bit more as of the end of the year. In regards to pork, there has been also some cost increases or in pork given also lower production by the end of the year.

In terms of pork is more, some part of the dynamics and the demand that the industry has had. We have been taking some actions in order to mitigate those impacts. Let me talk particularly, not necessarily hedges, but we do some inventory. We have been bringing more product from other regions, particularly Brazil. We have done some inventory hedging that will mitigate some of the impact, particularly because we do expect that during the summer pork is going to increase a little bit more.

In regards to dairy, we do expect dairy to be a little bit or that the cost of dairy will be less than last year, particularly at the end of last year. There has been more production, a little bit more production in The U. S. And we do expect prices of dairy to decrease a little bit versus what we have in the last quarter of twenty twenty four.

Paulina Alcantara, Analyst, AllianceBernstein: That was a great color. Thank you so much.

Roberto Olivares, CFO, Sigma: Thank you very much.

Conference Operator: Our next question comes from Lucas Musi of Morgan Stanley. Please, sir, go ahead.

Lucas Musi, Analyst, Morgan Stanley: Thank you, Roberto. My last question, just wanted to get more color on Europe. Just wanted to see if you could share more details regarding the restructuring initiatives, the efficiency measures that you guys are taking at this moment and have taken in the fourth quarter that explains a better margin performance. So any color that would be more helpful. And, still on Europe, just wanted to get your sense on the Valencia plant.

When should we expect that to normalize? And if there was a negative impact on margins coming from the fact that you have a damaged facility in Spain right now, you know, if you could help us quantify perhaps what could have been your structural margin if you hadn’t had problems in your Valencia plant, they will be grateful as well. That’s it. Thank you.

Roberto Olivares, CFO, Sigma: Thank you, Lucas. Let me first start with that with your last question, the Valencia plant. Yes, unfortunately, we suffered the flash floods in our Torrente plant, which is in the Valencia region. The facility is severely impacted. We probably will not, restart production in that facility as it is right now.

We’re looking into different scenarios to recover the capacity that we have in that. Just as reference that that plant represented close to 9% of the European capacity that we have. We do have the insurance coverage. The insurance should, will pay for all the property damages to reinstall that same capacity and also for all the business interruption for all the volume that we as of right now have not been selling and the different in cost versus what we have, what we had and of producing that volume in other plants or with third parties. In regards to Europe, we saw I mean, if we normalize that extraordinary effect that we have in 4Q due to the Torrente impact, we increased significantly the resulting in the last quarter.

And at the end of the year, we ended up with almost $100,000,000 of EBITDA, $95,000,000 to be exact. That implied margin EBITDA margin at the end of the year of around 4.2%. We do expect to continue increasing that margin in 2025 to be more around the mid single digits. And with that also have and that will also have a seasonal effect that by the end of the year we do expect to be maybe in the last quarter to be significantly above that. We’re working on different fronts as we have explained, but in Europe, but most of the growth that we expect come from volume.

We have identified different categories and type of products where we have our right to win to recover some of the volumes that we lost during the last year. And we do expect to recover those during 2025. We have also been very careful with SG and A. We expect to keep expenses at bay during that year and with that increase in margin.

Lucas Musi, Analyst, Morgan Stanley: Very helpful, Roberto. Thank you very much.

Roberto Olivares, CFO, Sigma: Thank you.

Conference Operator: Our next question comes from Andres Ortiz of BTG. Please go ahead.

Andres Ortiz, Analyst, BTG: Hi, Roberto. Again, Andres Ortiz. A follow-up on price increases in Mexico. You mentioned that you increased prices in November, I believe. So could you tell us how much those increases and what’s the carryover effect that you see for for 2025?

Because you mentioned that the increase in raw materials that you saw in the last couple of years in the last couple of months should be offset by the end of first QE show. I just want to understand that.

Roberto Olivares, CFO, Sigma: Sure. Thank you, Andres. So, yes, doing particularly during the last quarter of twenty twenty four, we saw both raw material cost increases, particularly poultry and also the depreciation of the Mexican peso that implied that our cost in pesos was significantly higher. We started increasing prices. We increased prices both in motor and traditional channel.

Since November. We started by removing some discounts and then presenting some new lease prices. During the rest of the quarter throughout the rest of the quarter, particularly raw materials continue to increase. So we need we in our first month of twenty twenty five, we started to plan some other price increases. And the idea or at least with the forecast that we have on raw materials effects and our revenue management initiatives, we do expect to close the gap by the end of first Q twenty twenty five and recover the margin that we have prior to these cost increases.

Andres Ortiz, Analyst, BTG: Understood. Thank you very much.

Conference Operator: There are no further questions at this time.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you. So in that case, let me move forward and take questions on Alpek. We have Jose Carlos Ponce, Alpek’s CFO. As a reminder, Alpiq hosted their conference call earlier this morning. So operator, could you please prompt for questions on Alpiq?

Conference Operator: Dear participant, if you’d like to ask a question about Alpiq, please use the raise your hand button of your Zoom tool.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you. It appears that there are no questions.

Conference Operator: There being no further questions, I would like to return the call to management.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you. So thank you very much for your interest in Alpha. If you have any additional questions, please feel free to reach out to us. Have a great day, and we will now disconnect.

Conference Operator: This concludes today’s conference call. You may disconnect.

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