Sigma Foods SAB

Good afternoon, and welcome to Alpha's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session with instructions given at that time. As a reminder, today's conference call is being recorded. Now I would like to turn the call over to Mr. Hernan Lozano, Vice President of Investor Relations. Mr. Lozano, you may begin.

Good afternoon, everyone, and welcome to Alpha's third quarter 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 Escalante, Alfa's CFO, and Roberto Olivares, Sigma's CFO. As a reminder, we completed the spinoff of EXTEL during the second quarter. Thus, our discussion today will focus on Alpha at the parent company level, Sigma, and Alpec. Please refer to Excel's earnings report for figures and analysis of its operations during the quarter. I will now turn the call over to Eduardo.

Thank you, Hernan, and good afternoon, everyone. We greatly appreciate your participation today. Actions undertaken during the third quarter reflect important steps to, first, ensure the orderly transition of duties and continuity through a clear succession plan of our chairman of the board position. Second, further simplify our corporate structure via the reorganization of functions at the legal department. And third, advanced towards important financial conditions at Alpha, Sigma, and Alpec, all of which are required to complete the final phase of our transformation process. On the financial front, our consolidated revenues were down 14% and EBITDA declined 18% year over year, reflecting a significant difference in the standalone performance of our two remaining subsidiaries. Sigma benefited from record performance in the Americas and a much anticipated turnaround in Europe, whereas Alpec had another tough quarter marked by persistent industry headwinds. Lower average prices and volume in both of these petrochemical segments Segments resulted in a 34% year-over-year decrease in revenues. Moreover, EBITDA was down 59% year-over-year, reflecting weak reference margins for PET and expandable polystyrene, as well as the non-cash effect of hyperinflation in Argentina, and one-time costs associated with the plant closure. As part of the actions undertaken to streamline operations, Alpec announced the shutdown of a textile and industrial fiber production facility located in Monterrey, Mexico. This site has operated for more than 60 years. However, challenging conditions for the global fiber industry have impacted this asset's profitability over an extended period of time. with no near-term improvement in sight. Cash maximizing efforts are also ongoing. Alpec and its joint venture partners decided to pause construction of the integrated PTA-PET plant in Corpus Christi, Texas. The project was being impacted by inflationary pressures on construction and labor costs. driving this investment above budget. The partners are reviewing options to determine the best path forward. The site will be properly preserved so that construction may resume in the future. Networking capital optimization has also played a big role in Alpec's ability to maintain remarkable free cash flow generation despite this year's decrease in EBITDA. NETE, our petrochemical business, has decreased versus year-end 2022, driven by a recovery of $432 million in net working capital during the first nine months of 2023. I will now turn the call over to Roberto Olivares, Sigma CFO, to let him discuss the company's outstanding third quarter results and progress on strategic initiatives. Please, Roberto.

Thank you, Eduardo, and good afternoon, everyone. On the business front, let's begin with a financial and operational overview. Discuss regional highlights and recent developments, including our initiatives aimed at maintaining growth in the U.S., as well as those actions we took this quarter to raise profitability in Europe. Consolidated quarterly revenues reached a record $2.2 billion of 18% versus 3Q22. This represents our 10th consecutive quarter of year-over-year growth, a milestone for the company. Revenues for the quarter were enhanced by an all-time high consolidated volume figure, driven mainly by consumer preference in Mexico. The consolidated quarterly EBITDA also reached a record amount at 255 million and was driven by double-digit EBITDA growth in all regions. Shifting to regional highlights. The extraordinary performance in Mexico was boosted by a record quarterly volume, which reflected growth across all categories and all channels. Also, high revenues and EBITDA were supported by solid regional food service results and a strong Mexican peso. In the U.S., we also experienced remarkable 3Q23 results with all-time high volume and revenues, mainly driven by the strong performance of the Hispanic business and integration of Los Altos. Lastly, Europe continued to face certain headwinds. Therefore, we have implemented structural changes that have already improved results in the region. Based on this progress, we're confident that we will be able to meet the ambitious 2023 revised guidance we have established for the company. Moving on to strategic initiatives. We continue to move ahead in our efforts to grow our U.S. operations. During 3Q23, we reached the 100-day post-merger integration milestone of the Los Altos acquisition, achieving better-than-expected results. Our execution plan is well underway in capturing additional synergies within the growing Hispanic cheese market. Moreover, we initiated the ramp-up of the recently purchased packaged meats production facility in Ajo. We anticipate a gradual increase in capacity for this plant throughout 2024. Pivoting to developments in Europe. We remain committed to obtaining greater and better operational efficiencies in the region. Thus, during the quarter, we took an important step in our comprehensive plan to boost profitability and optimize our footprint by divesting our operations in Italy. This action had an immediate positive impact on our quarterly results. At Sigma, we take pride in our approach to conduct business with the financial discipline that has characterized the company throughout the years. Evidence of this is the current net labor ratio, which has improved to 2.5 times in the third quarter, down from 2.8 times in the second quarter of this year. Our record performance in the Americas is encouraging, and so are the advances in our European turnaround plan. Through prior and present strategic efforts, SIGVA continues strengthening its position to conclude the year with a solid performance and be better prepared to sustainably create shareholder value in the years to come. Thank you for your attention. I will now turn the call back to Eduardo for additional comments and closing remarks.

Thank you, Roberto. This was also an eventful quarter at the corporate level. Alpha announced it initiated a succession plan for the chairman of the board position. The plan has been approved by the board of directors and will be presented for final shareholder approval at the next general annual shareholders meeting to be held in the first quarter 2024. At that time, Armando Garza will step down from his current role and remain as a member of the board. Per the proposal, Alvaro Fernández will be appointed chairman and will remain in his position as president of ALFA. In addition, ALFA advanced in the succession process at the legal, audit, and institutional relations department, currently headed by Carlos Jiménez. Throughout his distinguished 45-year career at ALFA, Carlos has set himself apart by providing valuable counsel and guidance in corporate processes that have been key to the evolution of the company. Carlos will leave his senior management position, but will maintain his role as secretary of the boards of directors of Alpha and its subsidiaries. The succession process includes reorganization that involves oversight of this department being transferred to me, in addition to the finance and human capital functions that I am currently responsible for. As part of this reorganization, Carlos Arguelles joined ALPHA as legal director on August 1st. He has more than two decades of legal experience. I look forward to continue working with him and the rest of the legal audit and institutional relations team in my expanded role. I would like to take this opportunity to highlight the significant change in the composition of ALPHA senior management team and how it will be reduced further following the recent succession announcements. We have worked on several simultaneous fronts to reach this stage of the transformation process, effectively separating our business portfolio and creating a much leaner corporate structure. The final phase involves the potential separation of Alpec, leaving Sigma as the only business under the Alpha umbrella. Timing is dependent primarily on both ALPEC and the remaining Alpha Sigma's entities' ability to maintain strong financial positions after their intended separation. ALPEC has maintained a strong free cash flow generation and a healthy balance sheet with low leverage ratio despite operating in a challenging environment this year. For the remaining Alpha-Sigma entity, Sigma's outstanding EVDA growth represents an important step in the right direction. Yet, the transformation process requires this extraordinary level of EVDA generation to be sustainable over time. On the other hand, the transformation process requires Alpha to reduce a relevant portion of its debt. Debt reduction at Alpha combined with sustainable EBITDA generation at Sigma, will produce the desired financial position at the remaining entity. Alpha is actively seeking to accelerate debt reduction, while Sigma advances implementing actions that contribute towards EBITDA generation sustainability, including the structural changes taking place in Europe. we remain fully committed to completing our transformation process in a thoughtful and methodical way. This concludes my remarks. We are now available to take your questions. Please, Armando.

Sure. We would like to begin the Q&A section with questions on ALPHA. Eduardo and I will take questions on alpha or corporate matters. As a reminder, Sigma and Alpec will be available to answer individual questions later in the Q&A session. Operator, please instruct participants to queue for questions on alpha.

Dear participant, if you'd like to ask a question about alpha, please use the raise your hand button of your Zoom tool.

There are no further questions at this time.

I think we do have a question operator from Tomas Limons.

Our first question comes from Tomas Limons. Please go ahead.

Hi, guys. Can you hear me well?

Yes, perfect, Tomas. Okay.

Hi, guys. Thanks for the call. My question is regarding the final stage of this transformation process, meaning when you reach the kind of consolidated net debt to a bit at the sigma plus alpha level, What is going to happen with the Alpha 44 bonds? Meaning, are you, in your base case, seeking an exchange or a consent to collapse these two structures? Or would you envision the possibility to leave the Alpha bonds as they are and Sigma as their only subsidiary?

Thank you, Tomás. Let me take a step back and mention the way we've potentially foresee the process at this time and I will get to the issue with the 44 bond. We see a potential spin-off of ALPEC at some point in time in the future and And that will leave Sigma as the only remaining company within the alpha structure, as you mentioned and we have mentioned previously. After that, the logical step would be, and it would depend on the specific conditions at the time, but the logical step would be to merge both entities, Alpha and Sigma, in order to keep just one legal and public entity available. At that time, really what will happen with the debt at the holding company, as well as Sigma's debt, will depend on how the reduction takes place today, both at Sigma and Alpha. Just to give you an idea, in the case of Alpha, we have $1.2 billion outstanding principal amount at the close of last quarter, of which, in addition to the bond, the $500 million bond due in 2044, we have bank loans, for the rest of the debt, which we are focusing and planning on reducing those loans and take advantage that those loans are prepayable at any time. So probably... It's too early to tell, but probably at the end of the day, the 44 bond will remain as the new entity coming out of the merger of Alpha and Sigma. I would say that would be the logical way to go, at least the way we see it at this time. when and how the consent will take place and what will happen with the bond, we will look at that in due time.

Okay, that's very clear. Thank you very much.

Let me make an additional comment, Tomás, if you allow me. What is very important is that the remaining entity now with only Sigma as the operational company within that structure, that the remaining entity maintains a very solid financial position. We feel it is very important that every step that we take Both with the spin-off of Altec as well as maintaining Sigma in the structure is done in a very sound way in order to make sure that we keep a very healthy financial position for each one of the companies and all the entities.

Understood. Thank you. And if I have a follow-up, Adam, here. In terms of the consent in this kind of base case scenario that you are describing, do you know roughly in the inventory of the 2044s which sort of consent threshold you would need in order to be able to collapse or to change, let's say, the guarantor of the bonds?

Again, we feel it's too early to to start looking at options of what to do with that bond. We feel, however, we feel, Tomas, that it would be if we follow that path, and again, that's a big if, It would be positive for the bondholders to get closer to the entity that is generating the actual cash flow for the company. Instead of being in a holding company at a higher level, it would be part directly of the debt of the new Sigma plus Alpha company. So we see that as a positive step for the bond at the right time.

I agree. And one more on my side. Once you decide to divest or to spin off the ALPEC shares, just to confirm, you won't need any consent from the alpha bondholders at that point in time, correct?

Yes, we will. You wouldn't? Yes, we would. We did not in the previous spin-offs of NIMAC and Axtell, given the percentage that those companies represented of Alpha. In the case of Altec, we will need to discuss it with both holders.

Okay, understood. Thank you very much. You're welcome.

Our next question comes from Alejandro Lavin of Santander. Please go ahead.

Hi, everyone. Can you hear me?

Yes, Alejandro, go ahead.

Thank you. Good morning, everyone. Thank you for the call. Thank you for taking my question. And apologies in advance. I had to connect a little later than the start of the call. So you have mentioned this. I apologize in advance. So I have a couple of questions. The first is just a follow-up on the corporate simplification. So as you mentioned, there are three key elements to conclude the final stage, Sigma Evita, Alpec SurePrice, and Alphas corporate debt, right? So on a scale of one to 10, how much progress do you feel you have in each of these three key elements to reach the final stage? And the second question would be on asset sales of non-core assets. If you have any updates on that, thank you.

Sure. Alejandro, thanks for the questions. Let me begin by the three very important elements that you mentioned. Rather than put a grade on each one of them, let me tell you the way we sit and where we stand in each. We think Sigma, Civita... clearly has been very, very positive so far this year, the increase in EBITDA. And we are optimistic that the level that Sigma has achieved so far will be sustainable going forward, which is a key variable in order to be able to achieve the sound financial position for the remaining company that we discussed before. Regarding the Alpec stock, clearly we have experienced a reduction in price in the last few months, and that helps. That is also important. positive for going forward. And finally, regarding the debt at the holding company in Alpha, I would say that is the pending assignment that we have. We still have to reduce significantly the debt in order to have the remaining entity live with a healthy financial position and we will continue looking for ways to reduce that debt. The opportunities we see At this time, we are actively seeking monetization of some non-strategic assets. I would say non-core assets. at both companies, Alpec and Sigma, as well as at the holding company. In the case of the holding, we are looking at the real estate we have at the headquarters location. We are actively looking at alternatives to trying to monetize that. And Regarding the non-strategic assets for the company, Sigma and Alpec, we do have active processes underway. it is really too early to disclose any specifics of those processes, but we are trying to move forward as soon as possible with the closing of some transactions in order to be able to reduce the debt at the holding company.

So is it fair to assume that selling non-core assets is part of the key element to deliver alpha corporate debt?

The answer is yes.

Okay, okay. All right, thank you so much.

You're welcome, Alejandro.

Our next question comes from Andres Cardona of Citi. Please, go ahead.

Hello, Andres. Can you hear us?

Hi, Hernan. Eduardo, good afternoon.

Good afternoon.

So, on Alejandro's loving sense, how to think about dividend policy on alpha level. I remember there was a possibility to pay another dividend the second half of this year, but at the same time, you have a high priority to be leveraged. But according to the previous, perhaps the main opportunity is on the divestment.

I believe we're getting a little bit of noise from your microphone, Andres. Is it better now? Yes, that seems to be better.

Sorry for that. So what you're saying that following the idea of Alejandro Lavi in the previous question, you wanted to understand how is the dividend policy for Alfa? How should we think about the dividend policy of Alfa in particular in the second half of the year? I remember there was an optionality to pay some $100 million. So Is it still on the table or now that we are getting closer to this last step of the unlocking value, maybe we should think the leverage is the top priority?

Yeah, thank you. Thank you, Andres, for the question. Certainly, we are following a more cautious approach. considering the circumstances that we have had during the year, in particular in the case of ALPEC. At this time, no decision has been made regarding a second payment of a dividend for ALFA. It is... something that is being analyzed by the board and the decision has not been reached. I would say considering the way we see the rest of the year, it won't be easy to justify a second payment of the magnitude that we discussed before and you just mentioned of $100 million for the second half of the year. It's something to be defined. If and the amount of a second dividend. A decision has been made since... three months ago, that ALPEC will not pay additional dividends this year, considering its particular situation. So we are still looking at the stigma case in order to define what can be done. But even if Sigma pays an additional dividend in the remaining of the year, the priority would be to use that cash inflow into the holding to reduce debt. So I think that is the... I would say the first option that we would like to push and see what the board decides.

Thank you, Eduardo. You're welcome.

Our next question comes from Agustin Bonasora from TimeBridge. Please go ahead.

Hello, can you hear me?

Yes, Agustin. Good afternoon.

Hi, Hernan Eduardo. Thank you for the presentation. I have a follow-up question regarding the dividends upstream from the operating companies. My question is regarding the rating agencies. Where are they asking, especially the ones that have an investment grade rating on you? I think it's Modis and Fitch. So I wonder if You can just comment on where have been the talks with the ratings and where they are thinking about this dividend upstream from the operating company, especially from Alpec that is in the bottom of the cycle right now.

Sure, Agustin, and thanks for bringing this topic up and thank you for the opportunity to talk about it. Something that we are doing pretty much, I would say, across the board, certainly for Alpec, given the current results, but also for Sigma and for the holding company, is maintaining a very strict financial discipline as you saw in the results, we are trying to maximize the cash flow in each one of the businesses. Not only in terms of CAPEX postponing non-essential investments, but also regarding networking capital which in the case of Alpec has been really outstanding the way they have been able to capitalize the lower raw material and feedstock costs. So we will continue pushing for that in addition to having a very cautious approach for the dividends as we have discussed. Regarding the rating agencies and the leverage levels, we do not expect the alpha consolidated leverage to surpass three and a half times. We think the very good results at Sigma going forward will allow us to achieve that and Sigma will be able to decrease below the two and a half times target. In the case of Alpek, we think the cash flow, the free cash flow that Alpek generates will help mitigate the upward pressure and they will remain very close to two and a half times. So all in all, we think we'll be able to maintain a sound financial position in the three entities, Alpha, Alpec, and Sigma. Certainly we'll continue the dialogue with the rating agencies in order to address any concerns they may have, but at this point in time, we still see healthy levels in the net leverage of the companies.

Thank you for your question, Agustín.

Our next question comes from Alfonso Salazar of Scotiabank. Please go ahead.

Hello, Alfonso, can you hear us?

Sorry, can you hear me?

Yes, perfect.

Excellent. So thank you for the question. And let me just ask, I'm a little bit confused with the strategy, the unlocking of value strategy, because perhaps it was my mistake to think that it was going to move much faster than it has moved up to this point. And then it changed in a way that we saw the decision to continue paying dividends and reduce debt at the same time. So the question is, where are we standing now? What is the priority? How is Alpha going to move over the coming quarters in terms of having this decision, capital allocation decision? to complete as fast as possible this value unlocking strategy.

Sure, Alfonso. Thanks for the question. The way we have done it and it was decided by the board to approach the capital allocation was to follow a balanced approach towards it. Certainly, we paid significant dividends in the past, in the last few years and the first half of this year. We also did important buybacks last year in the case of Alpha, very opportunistic given where the stock price was at the time. So, they have... instructed us to follow a balanced approach regarding capital allocation. We will continue doing that. The issue of the reduction in the results of ALPEC certainly limits the capacity we have in order to be able to pay dividends or for Alpha, or reduce the debt of the holding company using dividends from Alpec. So that's why we opened up the option of accelerating the potential monetization of some non-core assets, which we are following that, and use those proceeds in order to reduce debt at the holding company. So the idea has always been to follow a balanced approach and move forward as soon as possible with the spin-offs. Again, We did not foresee the reduction of ALPEC's results. We were expecting ALPEC last year to be able to pay significantly more dividends going forward than what they have been able to do.

Okay. But is it fair to say that the balanced approach will continue, right? Dividends and debt reduction. That is the...

It is, Alfonso, it is fair to say that, but I think it is also fair to say that we will maintain a firm commitment to continue with the transformation process of Alpha as soon as possible.

Okay, fair enough. Thank you very much.

You're welcome.

There are no further questions at this time.

We will then take questions on Sigma. Roberto Olivares, Sigma's CFO, will answer your questions. Operator, please prompt for questions on Sigma.

Dear participant, if you'd like to ask a question about Sigma, please use the raise your hand button of your Zoom tool.

Once again, if you'd like to ask a question, please use the raise your hand button of your Zoom tool.

Our first question comes from Alfonso Salazar of Scotland.

Please go ahead.

Thank you. Yeah, just a question on Corpus Christi. If you can remind us the strategy behind the decision to postpone or delay the construction and what are the alternatives?

Alfonso, thank you very much for your question. Can we hold that for Alpek's section? We're going to have Jose Carlos answer Alpek questions in the following section of the call.

Would you mind? My bad. Sorry, my bad. I got confused.

Absolutely, no problem. Thank you very much for your question. Operator, can we move on with the queue, please?

Our next question comes from Yehide Onabule of Barings. Please go ahead. Please deactivate the mute button of your Zoom tool.

Hi there, it's Yejide from Bearings and thank you very much for taking the questions. My question is on the prices and the volume outlook for Sigma for the rest of the year and even looking into 2024, if you could comment. We saw that prices increased in most of the regions apart from Mexico and then volume growth was positive everywhere apart from Europe. So if you could just talk about what you're anticipating for prices and volumes going forward. Thanks.

Hi, thank you for your question. Let me start talking about region by region, particularly where we have the volume decline that was in Europe. Volume in that region declined mainly for two things. The first one was the divestment of the provisions that we have in Italy. And the second one is also related to the fresh meat business we have been talking about. about this through this year. We, on purpose, reduced the slaughtering numbers of our fresh meat business due to the market conditions. And those are the main two drivers of the volume decline in Europe. The rest of the countries, particularly Mexico and the food service business that we have in Mexico, has been doing extraordinary in terms of volume. As I mentioned in my initial remarks, we are growing volume in all channels and in all categories. So processed meat, cheese, and yogurt. And that has to do particularly with our cautious approach to our volume in terms of pricing. As you mentioned, prices in Mexico are decreased around 3% in local currency, and that was, again, due to the less pressure that we have been feeling in raw materials in Mexico and trying to capitalize on the opportunities that we have in order to continue gaining preference of our consumers.

Thank you. Do you see this happening for the other regions where as you benefit from lower raw material prices, you pass this on to the consumer?

Sure. So it will depend particularly in some of the regions. In the case of the U.S., prices of raw materials have not necessarily increased decrease that much. And also, we don't have a lot more of extra capacity in the U.S. As you have mentioned in the past, we're doing some action to increase capacity in the U.S. We recently acquired a new plant in Iowa to increase our slicing capacity, and that will also increase our hot dog capacity in the rest of the plants. We also did an acquisition early this year of cheese, and that is going to bring us more capacity. But as of right now, we are working as much as possible to serve the orders that we have, no? So we're more focused right now on delivering volume than other thing, no?

Thanks. And in terms of the U.S., do you expect the volume growth to remain strong?

Yeah, so I would say as the new capacity will come, we do expect volume to continue growing a little bit more.

Thank you.

Thank you.

Our next question comes from Alejandro Azar of GBM. Please go ahead.

Hi, good morning, Roberto. Thank you for taking my questions. Two quick ones. The first one is on Europe. If you could help us understand a little bit, you know, you've been doing a lot on the reorganization, restructuring side. How does margins in Europe look even if we consider today's environment on raw materials, in the short term, how does your margins look in Europe when you exclude destroying our impacts? That would be my first one. And the second one is on your capital allocation. If my numbers are correct, you know, you have 800, 900 million EBITDA excluding capex taxes interest you have close to 300 to 350 free cash flow um to do mna dividends and and well this year you have uh derivative losses but what are you going to do with that money because my worry is that in in a year in a record year uh on your side we're not seeing that free cash flow going into pay down your debts.

Thank you, Alejandro, for your question. So, let me first cover the last one that you mentioned around capital allocation and the free cash flow generation. Last two months, we have close to $831 million of EBITDA. But particularly this year, we have been... One, we have the acquisition of Los Altos that used some cash for that. We used some cash for that. Then we also, as you mentioned, we have the derivative losses.

Alejandro, I'm sorry, we're getting a little bit of noise from your microphone. Thank you very much.

Thank you, Alejandro. So we have the derivative losses related to our hedging program to cover the Mexican operation US dollar needs for the next eight to 10 months. And since the Mexican peso has remained strong, we have been having some impact on that. We also this year, as we mentioned a couple of earnings call ago, we opt out of the optional tax regime in Mexico, so we also have to pay some deferred taxes from previous years that we were supposed to pay in the next five years. So we also use some cash about that, and we have been using the regular number of network capital and capex that we need to maintain our operations. So particularly, I would say, although we do have a strong or record numbers in terms of of EBITDA this year, we have some one-off that has impacted the cash flow generation. We do not expect, or unless again, there's one-off, we do not expect to have similar things going forward. In regards to margin in Europe, particularly these, This month, this quarter, I'm sorry, we saw an increase in the margin, around 400 basis points of increase on a sequential basis, and that had to do first that last quarter, as we mentioned, we have the organizational restructure, and then also this quarter we have the benefit of the divestment of the Italian operation. We do expect that to continue to happen, and as we have a better margin once the raw materials in Europe start to decrease, we're starting to see recently that particularly pork In some of the regions where we operate in Europe, it's starting to decrease a little bit. We do expect to have a – or to margin to improve in the last quarter.

Roberto, if I may, just to understand, on capital allocation going forward, would you prioritize paying down debt or depending on – what do you see on M&A you will, you know, fire on that front?

Okay.

So, so we're, what I can say is that we're always looking into opportunities, but we're looking at, we're always very cautious and very disciplined about the, the, the, the analysis that we do. So, uh, We want always to see if there's anything else that we can incorporate to our portfolio, but we're being cautious on jump on really good opportunities that really make sense and will bring substantial and quick payback to that investment.

Okay. Thank you, Roberto.

Thank you, Alejandro.

Our next question comes from Andres Cardona of Citi. Please go ahead.

Hi, Roberto. Good afternoon. I have two questions. The first one about Mexico. How much of the bearer margin is explained because the stronger peso? You may have a sensitivity for each peso, how much it hits on an annual basis. The second one, And this is just out of curiosity, is there any risk that you foresee if the conflict between Israel and the Middle East just increase?

Sure. Thank you, Andres, for the question. So related to your first question, yes, so in terms of Mexico, we do have have two impacts or positive impacts related to effects. The first one has to do, as you mentioned, with the conversion effect, just as converting pesos to a stronger or a weaker U.S. dollar. For that, just as reference, we have around $2.5 million for every peso change per month related to the Mexican operation. So every peso that it moves the effects, we will get around $2.5 million of conversion effect. And your second question related to the conflict that is happening in the Middle East and potential impacts for operations. As of right now, the only kind of concern that we have is related to energy or commodities in particularly in, well, around the world, but particularly in Europe. As of right now, we have not seen any big difference or any jump in the prices of gas. As you remember, last year we suffer for high gas prices in Europe. Just as reference, the Dutch gas reference, the TTF last year was close to 200 euros, the million of BTUs. Right now it's close to 40, 50. So it's significantly lower and we have not seen even in these recent days, any deviation from that. But we are, we continue looking to what other implications might happen, and we will try to act fast and promptly accordingly.

Our next question comes from Antonio Luis from 91. Please go ahead.

Hello, Antonio. Can you hear us? Your microphone is open.

Hi, can you hear me?

Yes.

Perfect. Thank you for your time. I was just wondering if you could explain the European impairment and also consequence sale. I just wanted to understand why you'd have to impair an asset that was already loss-making. Thank you.

Thank you, Tony. So the impairment was done to recognize the market value of the asset at the moment of the sale. That is the only answer that we have. Particularly Italy, as a little bit more the rationale of the divestment, we operated with challenging conditions in the particular country. We have a weak competitive position related to the rest of the countries where we operate. and also a very large production plant that was operating at low capacity and with limited opportunities to optimize. So that is the reason that we decided to invest. And let me just mention, and again, this is, I would say one of the most important parts of our turnaround plans of Europe. So I think it was that we did it as fast as possible.

Okay, that makes sense. And so just to confirm, was it a goodwill impairment or was it an impairment of fixed assets?

An impairment.

it was an impairment of fixed assets. Okay.

Okay, that makes sense. Thank you for your time. There are no further questions at this time.

Thank you. Let's now move forward and take questions on Alpec. We have Jose Carlos Pons, Alpec's CFO, with us in the call. Operator, please prompt for questions on Alpec.

Dear participant, if you'd like to ask a question about Alpec, please use the raise your hand button of your Zoom tool.

Once again, if you'd like to ask a question, please use the raise your hand button of your Zoom tool.

I believe we had one question from Alfonso, but in the interest of time, we could reach back to him and answer his questions. directly unless he raises his hand again. Doesn't seem so. So in that case, I would like to thank everyone for their interest in Alpha. And if you have any additional questions, please feel free to reach out to us. We would be pleased to assist you. Thank you very much for joining us today and have a great day. We will now disconnect.

This concludes today's conference call you may disconnect.