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Alfa SAB de CV
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Good afternoon, and welcome to the ALFA Third Quarter 2018 Earnings Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.
Now I would like to turn the conference over to Mr. Luis Ochoa, Vice President of Corporate Communications. Mr. Ochoa, you may begin.
Thank you. Good afternoon, everyone, and welcome to ALFA's Third Quarter 2018 Earnings Conference Call. Additional details about our quarterly results can be found in our press release, which was distributed yesterday afternoon and is available on our website in the Investor Relations section. As a reminder, during this call, we will share forward-looking information and statements, which are based on variables and assumptions that are uncertain at this time. Therefore, actual results could vary from those mentioned in this conference call.
Before we begin, I would like to remind everyone that we will be hosting an Investor Day in New York on November 15, with presentations by ALFA's Chairman, Armando Garza; President, Álvaro Fernández; as well as executives from each of ALFA subsidiaries. If you have not signed yet -- if you haven't signed up yet and would like to attend, please contact Eugenia Villarreal on the IR team.
Joining us today is Eduardo Escalante, our CFO, who will discuss the financial results for the company. At the end of the call, we will take your questions. Eduardo, you may begin.
Thank you, Luis, and good afternoon, everyone, and thank you for joining our call today. ALFA had another very good quarter, largely driven by a strong performance at Alpek and solid performances across the other companies. On a consolidated basis, total revenue was $4.95 billion, an increase of 16%, reflecting higher revenue from Alpek and Nemak, driven by improved volume and better pricing as well as contributions from acquisitions. Foreign sales represented 2/3 of the total.
With improved margins in many of our businesses, 3Q '18 consolidated EBITDA was up 66% year-on-year to $666 million, the second highest ever, as our 3 largest companies reported better comparable results over 3Q '17. On a comparable basis, excluding extraordinary items for both periods, consolidated EBITDA grew 28%.
Majority net income was $72 million in 3Q '18, up from a loss of $333 million in 3Q '17. This year-on-year improvement is mainly explained by higher operating results and the M&G-related impairment that impacted 3Q '17. Sequentially, majority net income decreased from $184 million as fiscal effects gains from the appreciation of the Mexican peso resulted in higher taxes during 3Q '18.
All of the companies continue to make progress with their investment, plans, and total CapEx on acquisitions for the quarter was $198 million and $1 billion for the 9-month period. The largest expenditure year-to-date, $435 million, was Alpek's acquisition of Suape and Citepe. The overall financial position of ALFA continues to improve with net debt to EBITDA of 2.7x compared to 3.3x in 3Q '17.
Moving now on to a discussion of the individual companies. As a reminder, more detailed financial information about the quarter for the individual companies was provided during the respective conference calls held earlier today. I will now provide some of the key financial and operating highlights for the companies.
Starting with Alpek, 2018 is still not a good year for Alpek, and the company was once again the standout during the quarter. Alpek has benefited from an upswing in oil prices and significantly improved polyester margins when compared to the prior year. And coupled with acquisitions, Alpek delivered record EBITDA in 3Q '18. Reported revenue was up 48%, also benefiting from the inclusion of Suape and Citepe, the 2 Brazilian companies acquired last quarter and now 32% on a comparable basis.
The Polyester business segment was the main driver in the quarter, supported by higher margins as well as contributions from acquisitions. This good performance came about, despite disruptions from Hurricane Florence and a fire at the Altamira facility, which resulted in a temporary closure, but was restarted early in September. Both events were mitigated by Alpek's leveraging its broader integrated polyester platform.
Plastics & Chemicals also turned in a solid performance, supported by better-than-expected polypropylene margins. Of note, Plastics & Chemicals volume was 4% higher than 3Q '17, largely due to the EPS capacity expansion that was completed last year.
The strong top line growth, coupled with expanding global polyester margins, drove EBITDA up to a record $274 million compared to $3 million in 3Q '17 and $239 million in 2Q '18.
EBITDA also benefited from favorable inventory gain of $33 million and a $9 million gain from an advanced insurance payment related to the fire at the Altamira plant. By contrast, 3Q '17 EBITDA was negatively impacted by cost associated with M&G financial difficulties. Excluding special items in both years, EBITDA increased 117% year-on-year.
In other company news, the final resolution from the U.S. Department of Commerce with respect to the antidumping case was positive. And now awaits final decision from the International Trade Commission.
Capital expenditures in the quarter, excluding acquisitions, amount to $300 million, primarily for the ongoing construction of the 350 megawatts Altamira cogeneration power plant, which was 98% complete by quarter-end.
Moving next to Sigma. Results were generally in line with expectations, driven by a solid performance in Mexico and Europe. The new plant in Spain is fully operational and delivering expected results. Raw material prices were mixed, both by product and by region. Sigma's average price in dollar terms decreased 1% year-over-year, impacted by the 6% peso devaluation against the dollar. In turn, total quarterly volume increased 1%, while revenue was flat year-over-year. By region, revenue increased 7% in Mexico in pesos. In Europe, revenues in euros increased 1%, benefiting from acquisitions. Sale in the U.S. were down 1%.
Reported EBITDA was similar. Both years' results benefited from a $10 million gain due to acid revaluation associated with the acquisition of Caroli. Additionally, this quarter was also impacted by a $4 million provision charge for a plant closure in Europe. Excluding these items, EBITDA increased 3% in the quarter. This reflects solid performance from Mexico and Europe that was partially offset by lower profitability in the U.S., which was impacted by higher raw material and freight costs associated with the new transportation regulation.
Going to Nemak. Overall, Nemak reported solid results with total volume and revenue both increasing 5%, with performance value by region. Revenue in the quarter benefited mainly from higher volume. North America delivered the strongest performance of 11%, reflecting strong sales to the Detroit 3 automakers, while rest of the world was affected by lower sales in China and the depreciation of the Brazilian real.
Lower diesel sales, together with production delays among OEMs, caused by new emission testing standards are impacting Europe, which saw a decline in volume.
Nemak continues to benefit from operating efficiencies and a large portion of sales coming from higher value-added products. EBITDA was up 5% over the same period last year to $160 million, driven by higher volume and operating efficiencies.
Regarding the structural and electric vehicle components business, Nemak reached peak volume levels for its first structural components program in Slovakia, supplying more than 400,000 parts to date for the Volkswagen Group, and it's currently bidding for new contract for approximately $1.2 billion.
Before moving on, let me make a few comments about the recent U.S.-Mexico-Canada trade agreement, as it pertains to the auto industry. In our view, the new agreement is positive as it removes some of the uncertainty that has been another hang for the past year. This agreement stands to strengthen the regional auto parts industry as automakers will be required to produce a higher share of vehicle content in North America. Nemak already exceeds the regional value content threshold for major auto components, while the clause on salaries will establishes -- which establishes a $16 per hour content applies for automakers but does not apply directly to auto part suppliers.
In summary, Nemak needs the key conditions of the new agreement, and we believe that it will present some opportunities for further integration in the region.
Moving on to Axtel. The company continues to make progress exceeding its Mass Market business as well as growing its core business segments. The third quarter results were driven by Managed Networks and IT services in the core Enterprise and Government segment.
Largely due to the winding down of the legacy Wimax business, total revenue in dollar terms was down 4% in the quarter. However, total revenues were up 4% in the core Enterprise and Government segment.
Axtel's reported EBITDA was down 7% year-on-year in U.S. dollars. When excluding gains from the tower sales recorded in 3Q '17, EBITDA was up 8%.
Axtel's productivity initiatives, coupled with expense management, resulted in a 100-basis points improvement in the EBITDA margin in the quarter. Axtel continues to undertake financial transactions to mitigate risk and improve its financial position. A key transaction during the quarter was the refinancing of Bancomext [ Credit ], swapping $172 million into pesos, resulting in a 50-50 mix between pesos and U.S. dollars. Better terms and maturity of 10 years was also part of the refinancing. Axtel continues to evaluate the base financing options for the company.
Then, Newpek. With respect to production, Newpek had 555 production producing wells at the Eagle Ford Shale, down from 639 wells at the end of 3Q '17, due to successful sale of partial acreage to Sundance Energy earlier in the year. Overall, quarterly production was down in the U.S. and flat in Mexico. In turn, Newpek reported revenue of $27 million in the quarter, 30% higher than the same period of the prior year, reflecting higher prices, which offset the decline in U.S. production.
By contrast, the company reported an EBITDA loss of $2 million compared to EBITDA of $1 million in the same period of the prior year due to higher expenses in Mexico. The company continues with its plan to divest its acreage position in Eagle Ford. There is nothing further to report right now.
This ends my discussion about the individual companies. To summarize, we are pleased with the results for the quarter and 9-month period. We continue to see ALFA and our subsidiaries execute on strong growth strategies. ALFA continues to grow its sales and EBITDA while making meaningful investments to ensure future growth and actions taken by our individual subsidiaries are further strengthening our balance sheet.
This concludes our discussions of third quarter results. We will now take your questions. Please, Luis?
We'd like to begin with the Q&A session with questions on ALFA. Mr. Eduardo Escalante, ALFA's CFO, will take questions on ALFA and our corporate matter. Operator, please instruct participants to queue for questions on ALFA.
[Operator Instructions] We'll now take a question from Vanessa Quiroga from Crédit Suisse.
The first question that I have, Eduardo, is about the process for the sale of Eagle Ford Shale acreage. If you can provide an update on the process and an estimated proceeds amount? And the second question would be, what do you see for the future for ALFA in terms of the E&P business?
Yes, thank you, Vanessa, for your question. Let me pass the question to Raúl Millares, the President of ALFA Energy, who is here in the call today. He is the most appropriate to answer your question.
Let me understand your question. You want to know what we already sold or what we are planning to sell?
What you are planning to sell?
Okay. Well, at this point in time, I mean, I can tell you we are very advanced in the process of negotiating and we have a -- we are very close to close with one potential buyer. It's hard to tell you right now what's going to be the amount because as you know, our partners Pioneer Natural Resources is a public company. And we have an agreement that we will not disclose any information regarding this transaction. On this, we both agree until we finish the -- complete at least the signing of the SBA, with the share purchase agreement. So at this point in time, I can only tell you that we are very, very advanced, and I believe in the next weeks, we should be ready commenting about this transaction.
Okay, okay, that's great. And the second question was about the outlook for the oil business for ALFA in the future?
Okay. We are actually making a very deep review of what is our situation, what is going to be our strategy in the future. As you know, things have changed. We already mentioned in the past that we were in the process of divesting our investments in the oil and gas business outside Mexico and basically concentrating in Mexico. As you know, we have 2 blocks that we gained in the previous round in Mexico in the north part of Mexico, which we continue to advance in the process of starting up that -- both 2 fields that we acquired. But it has been a challenge to deal with the structure so in Mexico, all the requirements that you have to fulfill. But that's not new for everybody, that's in Mexico, is aware of that. So we are basically concentrating in Mexico. And with the change in government, where we are, we are waiting to see what happens in the next government with future rounds to see when they come and how they will come. So we are basically following the same situation, that it means, in oil and gas business, we are concentrating in Mexico, but at the time being, we are waiting to see what will happen with the new administration in Mexico.
We'll now take our next question from Eduardo Altamirano from HSBC.
Just I have a question, I guess, this is a follow-up to Vanessa's. With the new administration coming in, how are you seeing sort of the valuations for the next, let's say, several years across all business lines? Do you see any sort of challenges looking ahead? What are the opportunities as well that you see coming up as you work with will take another -- a new order in Mexico?
Sure. Eduardo, thank you, thank you for your question. Well, actually the -- we all want to see our economy growing and more prosperity for CD sensing in Mexico. So we'll be working together with the new administration and the new government leadership at all levels in order to make sure that, that happens. We are confident of the growth of the economy in Mexico in the coming years. That is as much as I can tell you. Again so far, the times have been extremely positive in Mexico, so that gives us confidence.
Great. And then as well in terms of, let's say, potential deleveraging that you'd see within the next sort of 6 months, it seems that your subsidiary's cash flow is pretty strong across the board. What sort of targets you have, let's say, for the first half of 2019?
Sure. As we have discussed before, we will continue to focus on reducing debt and the leverage levels that we have. We see for the coming months, in addition to the very good results that we are having in all our companies, in particular Alpek, we also see an opportunity for the rest of the year to reduce the investment that we have in work -- in net working capital. And also some of the different companies have several potential monetization transactions, which we have already discussed with you. In particular, the cogeneration sale in Alpek and the Mass Market business divestiture in Axtel, the plan, in particular, in the later, is to use the proceeds to reduce the debt levels at those companies. Overall, in a consolidated basis, the net leverage target that we have is to be below 2.5x. Today, we are at 2.7x. So we are not that far away of the target.
Sorry, Eduardo, and just to clarify, is that target just kind of a steady state target? Or is that kind of just for end of the year?
No, that is our steady state goal.
Okay, excellent.
The level for the end of the year really depends again on the monetization projects that we have been pursuing today.
We'll now take our next question from [ Abraham Fuentes ] from BlackRock.
I was wondering if you can give us a little more details regarding Sigma operations about what can we expect in terms of margins for the next quarters and also in terms of sales?
Abraham, could we wait until we are at the Sigma Q&A, please? And could you ask this question again at that moment, so we can finish the lecture on ALFA?
Okay.
[Operator Instructions] We'll now take our next question from [ Eric Nick Wards ] from Bank of America Merrill Lynch.
Just a quick question regarding guidance, and sorry if you've already addressed this. We saw in Alpek's press release that they're seeing full year EBITDA could be $100 million higher than what you had guided in the previous quarter. Will we be seeing this pass through directly to ALFA? Or will there be some change in the guidance?
Thank you. Thank you, [ Eric ], for the question. Yes, the benefit of everybody, Alpek mentioned in his results release as well as in their call this morning that it is likely that they will surpass their guidance for the year in an estimated amount of $100 million. The original guidance -- the new guidance for Alpek is $750 million. We also believe that the rest of our companies will be meeting the respective guidance. They are going to be pretty much in line. However, given that we are near the end of the year, we will not provide a new guidance on this occasion, but the benefit that -- ALFA will benefit from the results of Alpek also in our bottom line. Thus, we will not provide a new guidance, but certainly, we will surpass the guidance we have for the consolidated company.
We'll now take our next question from Vanessa Quiroga from Crédit Suisse.
Yes, sorry. This is still about ALFA, if it's possible. I was wondering if you think there is room to execute that share buyback program given your current position in the balance sheet? Or would you wait until you reach that 2x leverage target?
Sure, Vanessa. Thank you for your question. The -- for the time being, the focus is on reducing the debt and achieving the net leverage target, which, again, is 2.5x. After we are able to reach that level, we will certainly consider any number of programs, among them is shares buybacks. For the time being, the plan is to reduce debt.
Okay, Eduardo, and just to be clear, although the leveraging efforts are being done by the subsidiaries and -- the only transaction that could be at ALFA's level is the Newpek sale of the Eagle Ford Shale plant, right?
That is correct.
Or is there anything else? Okay, that's great.
And there are no further questions at this time on ALFA. Mr. Ochoa, please proceed.
Okay. So now let's move on with questions on Alpek. Alpek held its earnings conference call earlier this morning. And Mr. José Carlos Pons, Alpek's CFO, is here with us, if there are any additional questions. Operator, please instruct participants to queue for questions on Alpek.
[Operator Instructions] There are no questions.
Okay. Let's continue with questions on Nemak. As in Alpek's case, Nemak held its own earnings conference call earlier this morning. Mr. Alberto Sada, Nemak's CFO, is here with us, if there are any additional questions. Please, operator, instruct participants to queue for questions on Nemak.
[Operator Instructions] And there are no questions for Nemak at this time.
Okay. We will now take questions on Sigma. Mr. Eugenio Caballero, Sigma's CFO, will answer your questions. Operator, please ask people to place questions on Sigma.
[Operator Instructions] We'll take a -- our first question from [ Abraham Fuentes ] with BlackRock.
I was wondering if you can give me a little more detail about the operations of U.S.? And what can we expect in terms of sales and operating margins for the next quarter?
Sure, [ Abraham ]. Thank you for your question. So as you saw under results, our U.S. margin was lower than the normal for the quarter. And the biggest impact had to do with increases in raw materials that we have throughout the summer for the U.S. We -- just for -- to give you a little bit more explanation on how that happens, we're normally pricing summer discounts for the summer months beforehand, and we were not expecting such high increases in a couple of raw materials, particularly, in pork trims and pork bellies. And so we had an impact on margin for the quarter. That started to get better through the end of the third quarter. And we expect margins to continue to improve after that to the more normal levels as the ones we've had on previous periods.
We'll now take a question from Marcelo Inoue from Citi.
I still have a question regarding the U.S. I understand that the impact to earnings this quarter was mostly due to cost, but I wanted to hear from you what are your views for next year in terms of pricing in the U.S.? It seems that overall meat prices remained at roughly flattish quarter-on-quarter in the third quarter. But I wanted to understand what could be the risks in terms of potential sort of a supply-demand imbalances next year with the recent export taxations and trade issues?
Sure, Marcelo. So raw materials were mixed, but -- as I said, for pork trims and for pork bellies, particularly, that was very, very high for the summer. It's normal that -- the prices for these raw materials. Pork prices, in general, are higher in the summer, just not as high as they were this year. They're already down at more normal levels. And our price has also changed in the U.S. since the end of the summer starting since September. And so we don't expect any major impacts like the ones we have in the third quarter on remainder of the year or for that extent, potentially next year. In this year, we've seen pork ham prices, which are more relevant to Europe and Mexico than the U.S., would also play a role in the U.S. They have been fairly from stable to positive. And they moved around a little bit when the trade issues between Mexico and the U.S. started. As you probably know, Mexico is a relevant market for U.S. pork hams. So when the Mexican government imposed tariffs on U.S. pork, prices in the states tended to go down. Now on the turkey side, it's been a little bit the other way around. Last year, turkey producers did not make a lot of money producing turkey. Margins on their side were very low. So supply -- turkey supply came down this year. We're already starting to see some information that tells us that next year, there's going to be a lot more turkey supply available. So we expect turkey prices to come down. And that is, particularly, positive for our Mexican operation. And now what to expect going forward on pork, which is relevant for us? It's -- our largest raw material in the meat side is pork. There are some margin pressures for pork producers today. So there is a possibility that we have less supply, particularly, in the second half of next year. Now it's -- what's good for us in terms of that increase is that it's a planned increase and something we are preparing for beforehand. And we do not expect to have any major impacts on those increases as long as they have been gradually as we are foreseeing today. And that, assuming we don't have any type of crisis in terms of any sickness related to pork, there have been some instances of African swine fever in some parts of the world, nothing major yet. But if that were to expand in the coming weeks or months, that is something we would need to take into account as well.
We'll now take our next question from Mauricio Serna from UBS.
Just very quickly on Mexico had a very strong quarter. Just want to understand what was the reason why the Mexican margin expanded? And do you think these levels are sustainable? And on the other hand, could you talk a little bit more about LatAm and in U.S., on the long term, what levels of margins do you expect to achieve in both of these markets?
Yes, Mauricio. Thank you for your question. So on Mexico, if you remember our operation in Mexico, we import a lot of raw materials that is dollarized coming from the U.S. And so if you look at FX at the end of June, right before the elections, it was coming up pretty dramatically. And so we took the decision to increase prices at that time. And after June, after the elections came a period of stability in the country. And with that, FX levels came down. But we had already raised prices. So as we normally do, we try to stay or sustain our pricing levels as much as possible when things like that happen. We are monitoring that very closely so that we can give discounts or reduce pricing depending on where our competitors are moving. But most of the time when this happens, we're able to capitalize a little bit on margins as it is the case for the third quarter. The performance was good as you mentioned for the quarter and big part for that reason, in peso terms, the Mexican operation was up versus same quarter last year, 16% in peso terms again. For LatAm and the U.S., I already talked a little bit about the reason why the margins for the U.S. were lower than we normally have. And we would expect the U.S. margins to come back to the levels where we've had in the past. Last year's margins for the U.S. were almost up 15%, and that is the number where we're still shooting for. Latin American margins are normal. They are a little bit below the U.S. and Mexico margins. As you can imagine, the scale in those countries is less and so the margins are usually a little bit low. There are opportunities for them to grow. This quarter's margin was close to 9%. And it's a relevant increase to what we had last year. We've seen some positives in countries like Peru where the acquisition that we made last year is being paying off, and we think it's going to pay off even more. And that margin is still with some issues in countries like Nicaragua, and as you're probably aware, with a lot of socioeconomic instability that is costing us in margins still less than last quarter, but there are still some impacts there related to distribution issues and even sales in that country that we're carrying with.
Got it. So that means, I mean, I understand the U.S. number, but then what should -- how should we think about the LatAm region in the long run?
Yes, so as I said, margin for this quarter is close to 9%, which is a significant decrease to last year, and we think that's a margin we can sustain. And to the medium to long term, there might be opportunities for that margin to become double digits, but we're not committing to that on guidance yet.
We'll now take our next question from Luis Miranda from Santander.
Just a follow-ups to Mauricio's on Mexico. I just want to understand, from what you said, the 7% growth that we saw in Mexico top line is most of it is price or it was also barrels with volume? And if you could just give us some color on the performance of the consumer in your categories post elections? If you see any material change or have you seen this stability that you mentioned across the categories? Basically, that's the talking points.
Sure, Luis. Thank you for your questions. On the first part of your question, so most of the Mexico growth on top line, the 7% on peso terms has to do with pricing. As you know, When we increase prices, it's always harder to grow. We do not have any relevant volume decreases for the period. But yes, it's pricing for the most part. In terms of consumer, consumer confidence increased a lot after the elections with a lot of stability. In terms of consumption, we saw 5% increase in food sales in nominal terms, so nothing too dramatic either way. It's very similar to the numbers that we've been seeing before the elections. Hard to predict how this number is going to behave going forward. And so it's -- I would say -- I would call it stability in consumption more than anything else.
Perfect. And just in terms of the competition, how is the competition follow on the price increases in some of the categories?
Yes, for the most part, in a particularly in packaged meats industry, we're all exposed in FX in a very similar way. So as it is the case, we're the first ones to move, but everybody follows suit. And even though everybody increased right now as FX came back, we're monitoring prices very closely so that we don't have too much pricing per SKU per store even just to make sure that we keep and stay competitive.
We'll now take our next question from Eduardo Altamirano from HSBC.
Just for the long term, sort of sustainability standpoint, you expect the U.S. MCA having been pretty much undertaken by, let's say, the North American countries. Are you still looking at sort of sourcing raw materials from outside the U.S., given the fact that, within this most recent iteration of risk that you saw potential duties between, let's say, bilaterally between the U.S. and Mexico that this could be a material risk going forward? Just to understand what your prospects are for the longer term of the business.
Yes, Eduardo. Thank you for your question. Ever since we started to hearing the news that there were some risks related to agreements between Mexico and the U.S., we developed a very detailed plan just in case something happened as it happened. And we've mapped out for every relevant raw material what's the best source of that raw material and the next -- and the second and third best net alternatives wherever they are. And what we've been doing since then is to making sure that we take advantage even when opportunities rise related to those changes. What happened recently when the Mexican government imposed this tariff on pork, we were very quick to react in buying pork in Canada, in Europe as well because we were already ready for something like that. These continues the plans we still have in place. And even though it seems NAFTA is coming along fine and tariffs might disappear, we are planning on operating this plan. And what we've found is that every now and then we found opportunities when the second or third best alternative is more attractive than the first for a couple of weeks and we take advantage of that. It's happened in Brazil, and it's happened in Europe. And that is something that we plan on keep on operating, as I was saying. For the most part, for some of these raw materials, it's going to be hard for the Mexican operation to find a long-term best alternative compared to the states for logistic reasons and for geographical benefits that they have for the production of feed for pork and turkey, et cetera. But in case something were to happen as it happened this year, I would say that we're ready for those changes.
[Operator Instructions] We'll now take a question from Vanessa Quiroga from Crédit Suisse.
My question is regarding Europe and plans that was closed during that quarter. I was wondering if there's more of these closures that we should expect. And if you see -- what could be the greatest risk for the operation in Europe for you to reach that target, the target EBITDA margin that you have double digit?
Yes, certainly, Vanessa. So the plant that we announced has not been closed yet. We provisioned for the closure because we got authorization from the work council for that closure. We expect to close it by the end of the year, beginning of the next year. And we're going to shift production from that facility that we're closing to other facilities in the region. We still expect to have more activities like this going forward in the next 2 to 3 years as we've discussed in the past. This is the first of a few. And the biggest risk, I would say, is always in Europe's case with things like these negotiations or labor negotiations in general with the government and with the local unions. It's something that we've dealt with in the past, and we have some experience on how to do these. And we do not foresee any major issues with that. That is not something that we expect short term because the best way of doing this -- these activities is slowly take advantage of normal attrition, trying to relocate products and sometimes even just specialize in price -- plants more than closing them. So it's something that we're going to do in very detailed and concise manner. And again, we announced the first stuff and we think a few more coming online. The fact that the new facility in Spain is working so well also helps us into potentially bringing more products into that facility and saving even more money into doing that.
Okay, that's great. And in terms of your target margin, do you still feel very confident about reaching a top percent margin?
So what we've had as guidance for -- or long-term guidance for Europe operation is 10%. And we still think that is achievable in the medium term. And that's a combination of what I was just explaining in terms of optimizing the footprint. And also improving our sales mix into more innovation-related sales and potentially reducing our exposure to private label in Europe. And we still think that, that is achievable definitely.
Sorry, reducing exposure to what?
Private label sales in Europe. Shifting more sales from private label to branded products.
And there are no further questions for Sigma at this time. Mr. Ochoa, please proceed.
We will now take questions on Axtel. For that purpose, Mr. Adrian de los Santos, Axtel's CFO, will answer on behalf of Axtel.
[Operator Instructions]
We will now move forward and take questions on Newpek. Mr. Raúl Millares, Newpek's CFO, will take questions.
[Operator Instructions] And there are no questions at this time.
Well, I want to thank you all for your interest in ALFA. Again, we look forward to seeing many of you at the ALFA Day in New York City on November 15. If you have additional questions or want to register for the ALFA Day, please feel free to reach out to us by phone or e-mail. We will be pleased to assist you. Thank you very much.
And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.