Alfa SAB de CV

BMV:ALFAA

Earnings Call Transcript 2017-Q4

[Operator]

Good day, and welcome to ALFA's Fourth Quarter 2017 Earnings Conference. [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 Investor Relations. Please go ahead, sir.

[Luis Ochoa, executive]

Thank you. Good afternoon, and welcome to ALFA's Fourth Quarter 2017 Earnings Conference Call. Additional details about our quarterly and full year 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.

Joining us today will be Álvaro Fernández and Ramón Leal, ALFA's President and CFO, respectively. Mr. Fernández will discuss the business environment during 2017 and outlook for 2018. As always, Mr. Leal will discuss in detail the results for the fourth quarter 2017 and will provide the guidance per business unit for 2018.

Álvaro, you may now begin.

[Álvaro Fernández Garza, executive]

Thank you, Luis. Good afternoon to everyone, and thank you for joining our call today.

I will begin with an overview of our businesses and summarize the main events that occurred in 2017. I will also discuss some of the opportunities and challenges that our businesses will face during this year. I will then return the call over to Ramón, who will review the key financial highlights for each of our businesses and provide our 2018 guidance. At the end of the call, I will take all your questions.

So let's get started.

2017 was a very challenging year for ALFA. Our businesses continued to experience unfavorable macroeconomic and industry-specific conditions, which included foreign exchange and oil price volatility, softening of the demand in the auto industry in North America and the entrance of electric cars, uncertainty around NAFTA and the presidential elections in Mexico and some one-time events that affected our businesses.

On the positive side, we were able to speed up our production processes in the new plant in La Bureba in Spain, continue our successful integration process of Axtel, completed acquisitions in Romania and Peru, made good progress in the sale of the cogeneration plants at Alpek and continued making progress in the sale of our Energy assets in Texas.

On the financial side, we were able to strengthen our balance sheet by refinancing around USD 3 billion in Nemak, Sigma and Axtel that extended the average life in our debt and reduced our cost of financing.

As you all know, ALFA's strategy is a bottom-up process, meaning that the strategy is formed at the subsidiary level where the differentiated knowledge is based. Our focus is to improve and strengthen the existing businesses in our portfolio to drive higher shareholder value at both the subsidiary and the holding company levels.

Now I will give you a brief overview of the main events of some of our businesses as more specific details have been provided during the respective conference calls held earlier today.

Let's start with Alpek. Alpek certainly had a challenging year as a businesses -- as the business was impacted by severe financial issues with one of our -- one of its largest customers. The management team has taken a leading role in the restructuring process, has restarted the Altamira plant and is working with other stakeholders to ensure the continuity of operations. At the same time, Alpek has been approved by CADE to proceed with the acquisition of Suape in Brazil and is moving forward with the divestiture of the cogeneration facilities, both of which are value-enhancing transactions. These actions are further evidence of our commitment to the polyester chain, where we see an opportunity to continue strengthening our business.

With respect to M&Gs, Altamira and Corpus Christi operations, we're still in the analysis process, while maintaining a healthy balance sheet and looking for an opportunity to participate in the process. During 2018, we expect the polyester chain to slightly improve margins in North America that would potentially benefit Alpek.

Sigma performed very well during 2017. The company is strengthening its innovation platform to closely follow consumer trends across all markets. The new plant in Spain, a state-of-the-art facility, will improve Sigma's margins in Europe. We see the opportunity to continue growing organically and through acquisitions in all regions. We completed 2 acquisitions in Peru and Romania to strengthen our subsidiary positions in those countries.

Moving on to Nemak. As I mentioned at the beginning of the presentation, Nemak was affected by the softening of the demand in North America auto industry. Negative metal lag prices and the uncertainty around NAFTA.

With respect to Axtel, the merger process is complete, significant synergies have been realized, and the final clear strategy focused on the Enterprise and Government segment is being acted upon. As a matter of fact, we are working on the divestiture of our H -- FTTH, or Fiber To The Home business in order to concentrate in our core business and further reduce our financial leverage.

In Newpek, we continue to work towards the exit of some of our positions in Texas, where, along with our partners, we plan to divest all of our Eagle Ford acreage in 2018. This is in line with our strategy to divest our Energy assets also in Mexico, while we continue to analyze small opportunities in Mexico. Our participation in Mexico, if at all, will be opportunities that will not require large amount of CapEx. To be more precise, our potential investments efforts in the Energy sector will be concentrated in Mexico.

To summarize, we look forward -- as we look forward, we are cautiously optimistic about current market conditions for our businesses. At the same time, we need to maintain flexibility to take advantage of opportunities that market conditions present to us. 2018 will be a volatile year especially in Mexico. Not only because of the NAFTA negotiations, but also because of our presidential elections. ALFA will be closely monitoring each of these events, and we expect to be very conservative in our investment profile and leverage.

As part of this effort, we have begun a cost and CapEx reduction program across all of our businesses.

I will now turn the call over to Ramón to take you through the fourth quarter financial results.

[Ramón Alberto Leal Chapa, executive]

Thank you, Alvaro, and thank all of you for joining our call. My presentation will focus on the key operating and financial highlights for each of our businesses, and I will then talk about our guidance for the year.

Overall, it was a solid quarter for most of our businesses. As a result, ALFA reported higher fourth quarter 2017 revenue and EBITDA versus the same quarter in 2016.

Consolidated sales were up 11% to $4.3 billion. This growth reflects higher revenue in most of our businesses and reflect improved volume and price increases in certain markets as well as contributions from acquisitions.

All the subsidiaries delivered low to mid-double-digit revenue growth over the same period in the prior year. Fourth quarter 2017 EBITDA was up 5% year-on-year, but full year EBITDA was down 13% from 2016, largely reflecting the customer issues Alpek experienced in the third quarter 2017. All of the subsidiaries continued to make progress on their investment plans, and total CapEx for the quarter was $250 million and $1.1 billion for the full year.

In summary, it was another solid quarter and year for ALFA.

Moving into our business units, starting with Sigma. Sigma reported higher revenue in each of its key geographic regions supported by slightly higher volumes and better prices. The quarter's results also benefited from the consolidation of 2 acquisitions closed over the past 12 months, as the company continues to expand its global footprint. In turn, total volume was up 3% in the quarter with Mexico being in a significant contributor. Key raw material prices were stable, and in Mexico, the appreciation of the peso vis-à-vis the U.S. dollar is the pressure on the cost of raw materials, as the industry participants import most of its meats from the U.S.

As we look to the current year, we expect another year solid performance. Sales volume remains strong across all regions, and we project a stable commodity environment. In addition, the new plant in Spain is expected to show margin improvement.

With respect to Alpek, 2017, overall, was a challenging year for the company, as the business was disrupted by financial problems at one of its major customers, which Álvaro already discussed and significantly impacted EBITDA. Improvement, however, was noted in the fourth quarter 2017. Both the Polyester and Plastics & Chemicals benefited from the better oil prices and related raw materials, which in turn, helped to drive improved margins. Total volume was up 1% year-on-year and 2% on a cumulative basis. For the current year, we expect a significant improvement in EBITDA, reflecting robust demand and improved margins at a resolution of the M&G issue.

Moving on to Nemak. The quarter was characterized by mixed volume trends in key markets and overall lower profitability reflecting expenses associated with new programs and a negative metal price impact.

With overall increased volume, the first time in -- over year, revenue was higher year-over-year, also reflecting an increase in aluminum prices and was up 10% in the fourth quarter of 2017. Although revenue benefited, EBITDA was hurt by negative metal lag. EBITDA was also hurt by launching costs. Nemak is focused on growing its structural and electric vehicle component business and continues to win new contracts. The most recent being a program to supply the Chinese market, bringing its total earned business to date in this segment to approximately $320 million in terms of annual revenues.

With respect to Axtel, the company's results were slightly better than expected, driven by a strong performance in the Enterprise and Government business segment, which helped offset the decline in legacy wireless mass market business, which will be decommissioned in late summer. In turn, revenue was up 19% in the quarter and 12% for the full year.

Importantly, the merger integration process was completed, creating almost $18 million in EBITDA synergies and was reflected in the 66% and 29% growth noted in the fourth quarter and full year 2017 EBITDA, respectively.

Axtel enters 2018 as a leaner, more efficient company but will continue to look for ways to further enhance the cost structure. The company is well positioned to continue to grow its Enterprise business given the pipeline.

With respect to Nemak, overall, the year was characterized by lower production and flat revenue.

As we move through the year, oil prices began improving, and the Newpek restarted drilling and brought 20 new wells into production in 2017. An important accomplishment, whilst the improvement in new-drilling techniques that will lower the cost structure going forward. Nevertheless, on a year-over-year basis, EBITDA has not yet recovered as production continues to decline. Looking ahead, the most significant news for Newpek was our decision to divest some assets in the Eagle Ford, which Álvaro already discussed, and focus more on the home market.

Before opening the call to your questions, let me briefly discuss our guidance for the current year.

Supported by growth across all regions, Sigma expects revenues of $6.5 billion and EBITDA of $715 million, up 7% and up 6% from 2017, respectively. CapEx is estimated at $204 million.

For Alpek, revenues are expected to be up 3% to $5.2 billion. EBITDA is estimated at $569 million, up 48% from 2017 EBITDA that was affected by extraordinary charges related to M&G.

Excluding this effect, EBITDA for 2018 grows 14%, driven by improved margin in its Polyester business.

CapEx is estimated at $167 million.

Following industry trends for 2018, Nemak expects revenues at $4.4 billion, similar to 2017, and EBITDA of $700 million, 2% lower than 2017. Capital expenditures are planned at $384 million.

Axtel estimates 2018 revenues at $816 million and EBITDA of $282 million. EBITDA is at 4% lower than reported 2017 EBITDA, but up 17%, excluding the $50 million from the tower sales that benefited 2017 numbers.

The absence of merger-related costs and better performance of the Enterprise business derived this improvement. CapEx is estimated at $174 million.

Finally, Newpek. Given the current commodity pricing environment, we will continue to execute a limited drilling program in the U.S. and Mexico. As a result, 2018 revenues and EBITDA are estimated at $76 million and $3 million, respectively, representing, generally, an in-line performance with 2017. CapEx is estimated at $25 million.

To summarize our guidance on a consolidated level, we expect revenues of $17.4 billion, 4% higher than 2017. EBITDA is estimated at $2.17 billion, up 8% versus 2017 EBITDA of $2 billion. The capital expenditure budget is $958 million. Our guidance is based on the following macroeconomic assumptions: For Mexico, GDP growth 2.3%; for the U.S., GDP growth 2.4%; for the eurozone GDP growth 2.2%; average exchange rate Mexico peso versus U.S. dollars 19.25; average exchange rate euro to U.S. dollars 1.20; average oil rent $57 per barrel.

This concludes our discussion of the fourth quarter results. We will now take your questions. Luis?

[Luis Ochoa, executive]

Yes. On this occasion, we'd like to begin the Q&A session with questions on ALFA. Mr. Alvaro Fernandez, ALFA's President; and Mr. Ramón Leal, CFO; will take questions on ALFA and on corporate matters.

[Operator]

[Operator Instructions] And we'll go first to Gilberto Garcia at Barclays.

[Gilberto Garcia, analyst]

In Light of Alpek's decision to not pay a regular dividend this year, can you comment on your plans for ALFA's own dividend?

[Technical Difficulty]

[Ramón Alberto Leal Chapa, executive]

We're having technical difficulties. We will have to reconnect. Please hold on a little bit.

[Operator]

Sir, can you hear us now?

[Ramón Alberto Leal Chapa, executive]

Yes, we can.

[Operator]

We're going to go to Gilberto Garcia, Barclays.

[Gilberto Garcia, analyst]

I was wondering if you can comment on your plans for dividends this year in light of Alpek's decision not to pay a dividend.

[Ramón Alberto Leal Chapa, executive]

Gilberto, thank you for your question. As you know, the holding companies have several sources of dividends from the subsidiaries. Having Alpek not being -- not paying dividends this year would not affect the dividends that ALFA will pay to the market this year.

[Operator]

We'll take our next question from Luis Miranda at Santander.

[Luis Miranda, analyst]

Alvaro, if I may, as you -- from your perspective on CEO, what are the key strategic initiatives for 2018, preparing for the medium-term in terms of ALFA positioning in the different groups? As you mentioned, this is more bottom-up -- the strategy comes from bottom-up, but from your view as manager of the portfolio businesses, what are the key initiatives? And the second question is regarding the Energy business and maybe, more in terms of the initiatives to invest in small projects in Mexico and the best in Eagle Ford, how should we read these in terms of the strategic approach that ALFA is looking at the Energy or drilling operations? And you mentioned that they -- it is a small investment. It will not compromise cash flow. What would you need to see in these operations to be more, let's say, more aggressive or to invest more to make it more material?

[Álvaro Fernández Garza, executive]

All Right. Let's start with the key initiatives. I think there's a few things that we are focusing on. I think, as I mentioned initially, it's going to be a very volatile year in many ways. So we are focusing on all businesses, on improving cash flow. Cash flow generation is going to be key. So net working capital, reduction of CapEx and evidently margins, it's going to be, let's say, all our focus is going to be there. And in that regards, we want to deleverage all businesses as needed. We are a little bit over 3x at the holding level, and it's not where we want to be. In that regards, also, we are divesting the cogeneration assets, which will have a significant impact in delevering both Alpek and, of course, the holding company. And we are also divesting some assets in Axtel, which will have a similar impact. So yes, regarding those things -- I mean, independently of each of the businesses that we can go into detail in any of the -- if you want, cash flow generation and reduction of debt is going to be key.

[Luis Miranda, analyst]

No, that was clear. That was clear. Thank you.

[Ramón Alberto Leal Chapa, executive]

Regarding the Energy, there's -- as I mentioned, our partners Reliance and Pioneer want to divest Eagle Ford, and we will do the same. So I think they've announced a process recently, so we will participate in this -- that process to divest those assets. And regarding Mexico, as you know, we have very differentiated knowledge, let's say, from any other company in Mexico. We think that the Mexican geology is quite good as has been proved by the recent discoveries in oilfields. So it is not something that we would like to abandon, but we acknowledge that we do not have the resources to participate direct -- aggressively in that. If we are able to get enough resources from our Energy assets that we have in the U.S., then maybe we could define a strategy to accelerate or be a bit more aggressive in Mexico. But if that's not -- if that is not the case, we acknowledge we do not have the resources to do it. So we are participating. I think a lot of people made a big deal about the last participation. It was only a required CapEx of $6 million. So the area to keep participating is to be in standby for the different projects to be ready if resources are available. And we've been approached with many partners, let's say, both strategic and financial partners, to see if we can participate. So we will not like to abandon the Mexican geology. But if the resources are not there, we will not participate.

[Operator]

And we'll move next to Vanessa Quiroga at Crédit Suisse.

[Vanessa Quiroga, analyst]

I hope you can hear me well.

[Álvaro Fernández Garza, executive]

Yes. We can.

[Vanessa Quiroga, analyst]

And it's interesting how you are describing all that -- all the strategies to reduce leverage. Can -- would you be able to provide timing for those divestitures, when you expect to close the sale of the cogeneration plants, the mass-market assets of Axtel and the noncore Energy assets?

[Ramón Alberto Leal Chapa, executive]

Vanessa, this is Ramón. As you know, these processes have different timetables, and we're working diligently in all of them. You should expect to have some news during 2018. It's really uncertain, the timing for us to give you any specific date or quarter, but this should be happening during 2018. Potentially, cogeneration, in the first half, or even earlier. The mass-market situation, I could say, that could happen, also, in the first half of the year if things go -- move along. And Newpek, we depend on our partners on how fast or how diligent they move. So it all depends. But I would say, as Alvaro mentioned, you should expect results during the year.

[Álvaro Fernández Garza, executive]

Yes, hopefully...

[Ramón Alberto Leal Chapa, executive]

In the first half, yes.

[Vanessa Quiroga, analyst]

Excellent. And about the free cash flow generation strategy, is that coming from higher margins, so higher EBITDA generation leading to higher free cash flow? Or is there any other specific strategy to enhance free cash flow conversion rate?

[Álvaro Fernández Garza, executive]

Yes, thank you. As I mentioned a few minutes ago, net working capital is something that we are going to concentrate a lot more this year. We had -- for example, just to give you an idea, we had significant inventories in Sigma, last year -- at this point, last year. But it was all to get ready in case we had a problem with NAFTA. This is not the case this year, so Sigma will not -- will have the ability to have just the necessary inventories, not extra inventory. So I mean, it's just an example. There's plenty of examples in the other businesses. So net working capital, margins and of course, we are going to be a lot more careful in CapEx deployment. We will put whatever CapEx is necessary to go ahead with our projects and growth. We will not hamper any growth because of reduction in CapEx. But we will be more -- a lot more careful into the different projects and -- I mean, there's always room for that. So I think that we need to be just more careful, and I will personally get involved into the different businesses to ensure that only the right amount of CapEx gets deployed. So yes, that's operate -- net working capital, margins and of course CapEx. We have also a significant, how do you say, program along all businesses, including the holding level to reduce expenses. So I cannot necessarily give you numbers right now. But let's say, we're in a -- on a cost reduction and expense reduction modes in all the different businesses.

[Operator]

We'll move next to Peter Boardman at NWQ.

[Peter Boardman, analyst]

Just had two questions. One, you've highlighted the political risk regarding the Mexican elections in July, and I just sort of wondered, other than the currency, what other risks do you see regarding the group companies? Are there tax issues or regulatory issues that you might be able to highlight? And then second of all, I know you've -- because you've -- because of that risk and the volatility, potentially, you've delayed the IPO of Sigma, and I was kind of wondering, why -- given the devaluation of Mexico anyways relative to the Western world, why even think about doing an IPO in Mexico? Why not do a listing in the U.S., where you don't have that type of volatility? Obviously, people would be thinking about it. But given the stable business model now, the improvement in Europe, it seems like you would be better off getting -- you'd be able to get a better valuation in the U.S. anyway. So it seems like that would be a better option at this point.

[Álvaro Fernández Garza, executive]

Correct. Very good questions. Thank you. Regarding the political risks, it's not that I see -- it's not that we see the risk, it's just a fact. I mean, when we had presidential election in the past, it creates a lot of noise in the market, and the exchange rate goes up and down, investment gets -- get reduced until the elections get cleared. So even though we have not seen yet, the campaigns have not started, so maybe, I don't know, starting from March, maybe we'll see some volatility in the exchange rate. We're not saying that it's going to happen. We just want to be ready for it. And regarding all that risk, we see NAFTA, as I mentioned before, as a problem. Now that just means volatility, doesn't mean that we see risk for ALFA. I think that we've all mentioned the plans that Sigma has in case we have a problem with NAFTA. We've told you that in -- at the Nemak level, it shouldn't be a problem because of the different strategies that we have and the relatively, a few options that our clients have to outsource our parts. And in the case of the other businesses, it's just regarding the exchange rate. Regarding the IPO of Sigma, I think that it's something that we have to think about it, and to be honest, we have discussed among ourselves if we should do a U.S. listing. Evidently, this has always been Mexico-centered Company. It has grown, I think, from the Mexican-only operations, has grown organically and inorganically significantly in Mexico. What really the -- what made that transformation was the Bar-S acquisition in the U.S. But that -- even that was not enough to, let's say, consider it an international company. Now with Campofrio and the growth that we've had in Campofrio and in the rest of Latin America, I think that we would -- when we consider doing the IPO again, we need to consider what you mentioned that it's U.S. listing. So I cannot confirm it right now. But for sure, it's something that we will look very seriously and take into consideration.

[Peter Boardman, analyst]

Have you had secondary or third parties come in and say, we could partner with you to grow the business together as opposed to maybe doing an IPO in [indiscernible] Unilever, a large global player to expand together with?

[Álvaro Fernández Garza, executive]

We have not had those conversations. I mean, as you know, Sigma is a very interesting company, and everybody wants to do business in Mexico with it. But as I -- I think we're a global player right now. And if any -- we could -- I mean, we will be opened to those talks, but we are not having any talks at this point, and we have not had in the recent past those talks.

[Operator]

And we'll go back to Gilberto Garcia at Barclays.

[Gilberto Garcia, analyst]

Álvaro, you mentioned that if you had more resources, you could be more aggressive in Energy. Do you mean only the resources from divesting the Energy assets in the U.S.? Or for instance, if there were to be an IPO later on, and I understand that it's not on the table for this year, but if there were an IPO of Sigma next year, could their resources that holding gets from that transaction be used for further Energy investments in Mexico?

[Álvaro Fernández Garza, executive]

Gilberto, I'm so glad you asked that question. No, the answer is no. We -- and there was a lot of noise regarding the IPO of Sigma, and if we would use a lot of resources for the Energy sector, both at anywhere in Mexico or the U.S., and the answer is no. We will not deviate resources from other divisions to invest in this. What I did mention is that if we are able to divest the Eagle Ford and other U.S. assets, as we know, we have the, the Edwards, the Wilcox in Texas, we have a little one in Kansas and a little one in Colorado. If we are able to divest that, it will be putting those -- maybe putting those resources into Energy in Mexico. So it will be a change of country but not a change of segment. And I'm saying this very clearly. It's not that we will do it for sure. We will consider to do it if we have those resources available. We will not deviate resources from an IPO of Sigma or any other similar use of -- or source of funds. I don't know if -- and frankly, if I'm being enough clear on that.

[Gilberto Garcia, analyst]

No, no, no. That's very clear. But then, if I may, and I don't know if we're getting too hypothetical here, but I mean, what would be the point of a Sigma IPO? I mean, I don't know if you could comment on that.

[Álvaro Fernández Garza, executive]

Yes, sure. The Sigma IPO, more than the use of funds, it's the strategy that we have used -- that we have been displaying in the past years, which is to make public all the subsidiaries. And the only one missing right now, or the one -- the only one of the largest is Sigma. We have Alpek. We have Nemak. And we have Axtel. So for sure, we need to do Sigma as well. It's not a matter of needing or not needing the resources of the IPO, it's just a matter of making them public and have more flexibility at the investor level on what they want to invest in, have specialized boards initially in different companies, which we do have at the other 3 divisions that are public and have, let's say, more analysts involved in the specific sectors that we participate as opposed to the holding company. So yes, it's not a matter of getting resources, it's a matter of following up on the strategy that we mentioned -- we've been executing in the past years.

[Gilberto Garcia, analyst]

Okay. But I mean, I don't mean to be -- to insist, but then what would you do with $1 billion at the holding level?

[Álvaro Fernández Garza, executive]

Well, when we have, then we will let you know. But it's not -- I mean, we've -- it could be many things. It could be shares repurchase, it could be dividends, it could be paying debts. I mean, we do have a lot of debt. We -- as I mentioned, we have over 3x the ratio. It's not where we want to be, we want to delever. So I mean, we have $1 billion, we will delever, let's say, less than 1x. So it's -- to be honest, it's not a lot of money that we can play around with. We need to focus on, as I mentioned initially, on delevering. So we'd be -- I think Vanessa asked this. So if we're able to divest the other things and do the IPO probably at the end of the year if the market conditions are there. Yes, the money would be used for that.

[Operator]

[Operator Instructions] And there are no further questions at this time.

[Álvaro Fernández Garza, executive]

Okay. So let's move with questions on Alpek. Alpek held its earnings conference call earlier this morning, and Mr. Eduardo Escalante, Alpek's CFO is here with us. If there is any other additional questions.

[Operator]

[Operator Instructions] And we'll go to Vanessa Quiroga at Crédit Suisse.

[Vanessa Quiroga, analyst]

I couldn't participate in the conference call of Alpek. So I was wondering about the guidance that the company provided. And it seems that EBITDA per ton margin that is implied in your guidance for the company is lower than what Alpek achieved in the fourth quarter, and also lower than the prices that the industry is showing in the most recent weeks. And so could you give more color on what is behind the guidance that you provided? And if you think there's upside risk on that -- on those numbers?

[Eduardo Escalante Castillo, executive]

Vanessa, this is Eduardo. Thank you for the question. We do have in our guidance a higher EBITDA per ton versus the average of 2017, we do have a mix in terms of the comparisons versus the last quarter, when you compare last quarter 2017 versus the average of 2018. What I can tell you is, we do have higher margins for polyester coming mainly from the recovery of PET margins in the last quarter, which we will see throughout 2018. In the case of Plastics & Chemicals, we do have some reductions versus last quarter coming from market dynamics that we expect mainly in polypropylene and a little bit on EPS. So we have a little bit of a mix -- product mix in terms of margins.

[Vanessa Quiroga, analyst]

Okay. Could you provide the EBITDA guidance by chain?

[Eduardo Escalante Castillo, executive]

Yes. We will not -- we are not providing the exact figures. But I can tell you that the most significant improvement is, of course, coming from the Polyester segment. In the case of Plastics & Chemicals, we see a flattish year.

[Operator]

And at this time, there are no further questions.

[Luis Ochoa, executive]

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.

[Operator]

[Operator Instructions] And it appears we have no questions at this time.

[Luis Ochoa, executive]

Great. We will then take questions on Sigma. Mr. Eugenio Caballero, Sigma's CFO, will answer your questions.

[Operator]

[Operator Instructions] And there are no questions at this time.

[Luis Ochoa, executive]

Okay. 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]

[Operator Instructions] And we do have a question from Gilberto Garcia, Barclays.

[Gilberto Garcia, analyst]

So my question is regarding the account payable that is due to ALFA. You mentioned in the call earlier that the settlement would depend on the needs of the holding. So I was wondering if you could comment on that. How would you -- what options would you consider for this?

[Adrian de los Santos Escobedo, executive]

Gilberto, as I mentioned in our conference call today, it's coming due in December, and we don't know what would be the settlement, whether it will be renewal for another year or so, or whether it will be paid in cash. So that's something that we will decide at the end of the year.

[Ramón Alberto Leal Chapa, executive]

Just to complement, this is Ramón. Gilberto, we're not in a rush to get paid by Axtel. It will depend on the business performance of the company. So we will be happy to provide an extension on it. So you should not be concerned about that nor of the funding of the holding company at ALFA.

[Gilberto Garcia, analyst]

Okay. So like payment in the form of equity would be an option, I guess, right?

[Ramón Alberto Leal Chapa, executive]

As I said, we will value the -- we will evaluate the situation when we get there.

[Operator]

We'll go next to Luis Miranda at Santander.

[Luis Miranda, analyst]

I apologize. I was trying to make a question for Eugenio, Sigma. I don't know if I still can do it.

[Ramón Alberto Leal Chapa, executive]

Yes, of course.

[Luis Miranda, analyst]

Eugenio, I don't know if you could just give us some color on the margin expansion as we saw on EBITDA during the quarter, year-over-year, how much is it explained by improved profitability in Europe? And if you could tell us how's the performance in Mexico?

[Eugenio Sada, executive]

Sure, Louis. Thank you for your question. There's a little bit of both. As you might imagine, the ramp-up cost of the new facility for the last quarter were not as big as they were at the beginning of the year, throughout the year. And the other important factor is that you have to remember, the environment, the last quarter of last year was also a little bit volatile, more volatile than what we had at the end of this year. Performance in Mexico, in general, was fairly good. You can see improvements in EBITDA in dollar terms quarter-over-quarter of 11% in Mexico. Now the other factor that we have in Europe is the nonrecurring gain related to the consolidation of Caroli that also helped the result in Europe for the fourth quarter. And I would do also -- I would also say that the majority of the improvements related to the [ whatever ] are going to happen mostly on 2018. So this current year, more than anything that we saw on the previous year.

[Luis Miranda, analyst]

Perfect. And a follow-up with regards to competition in Mexico. I think we have seen least going into some point of sale, we have seen stronger promotional in -- especially, I would say in dairy. But I don't know, if you could give us some idea of how we should, in dairy earning call [indiscernible] if you're seeing an increase in promotions and pressure in margins, the total pricing initiatives?

[Eugenio Sada, executive]

Not too much of that, that we're seeing in the market. We're seeing more pressures in dairy in relation to raw materials, where a lot of the butter fat and -- which is a global market, are pretty expensive right now compared to where it was last year. But -- and pricing-wise, we do see some movements probably related to the easing of FX. As you know, some raw materials in our industries come from the U.S. So that enables some companies to move a little bit on price. But we haven't seen so much of that in our categories. And if you look at the Mexico margins, in particular, you would see that they're fairly stable the second half of the year. And that's something that we would expect to continue next year and the remainder of this year. And if you look at where the raw material commodities are at and how we expect them to move because of how supply and demand are lined up, we wouldn't expect any major shifting on those as well.

[Operator]

We'll go next to Vanessa Quiroga at Crédit Suisse.

[Vanessa Quiroga, analyst]

We appreciate the additional disclosure for Sigma in this quarter. And can you provide color on the margins for Europe in the fourth quarter? Were they still affected by use of third-party product? Or is 4Q already a normal -- a normalized quarter in that sense?

[Eugenio Sada, executive]

Yes, thank you, Vanessa. We still had some co-packing and ramp-up costs from the fourth quarter of 2017. We've been ramping up the facility, as you know, throughout the whole 2017, and we're almost done with co-packing, and we actually still have some co-packing being done in the first quarter of '18. So we do see some area of opportunity, still, on the European margin related to the new facility. But we also need to remember that we have some one-off gains on the fourth quarter that also make that margin a little bit higher than what the normalized level would look like.

[Vanessa Quiroga, analyst]

Yes. One quick question on that. Out of curiosity, your guidance for 2017 for Sigma, did it include, originally, this income from Caroli? The extraordinary income?

[Eugenio Sada, executive]

No, we normally don't release guidance including any M&A activity.

[Operator]

We'll go next to [ Manuela Escobaria ] at [ Credit Corp. ]

[Unknown Analyst]

I was wondering if maybe I can make an answer -- a question to Alpek?

[Ramón Alberto Leal Chapa, executive]

Yes, sure, go ahead.

[Unknown Analyst]

Yes. It's about your guidance for the year. I just wanted to know if you are including any benefit from the antidumping process.

[Eduardo Escalante Castillo, executive]

Manuela, thank you for the question. We are considering that the antidumping case will be resolved in the U.S. late in the year probably with preliminary antidumping and countervailing duties by midyear and then the final rulings by the end of the year. We do expect, and we are incorporating that, a little bit of margin improvement in the North American market as we discussed before. And that is one of the factors that we are considering. Even though, again, it is going to be late in the year.

[Operator]

And at this time, there are no further questions.

[Luis Ochoa, executive]

Yes. Then we will move forward and take questions on Newpek. Mr. Raúl Millares, Alfa's Senior VP of Energy, will take care of them.

[Operator]

[Operator Instructions] And we'll go first to Gilberto Garcia at Barclays.

[Gilberto Garcia, analyst]

Can you comment on the sequential increase in the book value of the shareholders equity?

[Raúl Millares Neyra, executive]

I'm not sure, the equity level in Newpek, Gilberto?

[Gilberto Garcia, analyst]

Yes.

[Raúl Millares Neyra, executive]

Well, maybe we can answer you a little bit later on that.

[Ramón Alberto Leal Chapa, executive]

Later.

[Raúl Millares Neyra, executive]

I think it could be related to some movements that we needed to do to keep guarantees to the Mexican authorities, regarding -- yes?

[Gilberto Garcia, analyst]

Was there any capitalization by the holding?

[Raúl Millares Neyra, executive]

No. I know what you're referring to. In order for us to participate in the Mexican rounds, we -- we're required by the commission in Mexico to support a guarantee of $500 million. So what we did, we created a vehicle on the Newpek with that amount, so we can comply with the authorities in order for us to participate on the rounds and guarantee the potential development of the fields that we have won.

[Gilberto Garcia, analyst]

Okay. But this imply a cash outflow for either the...

[Raúl Millares Neyra, executive]

No, Gilberto. Gilberto, It's a guarantee. It does not imply a capital cash. It's just a guarantee.

[Operator]

And there are no other questions in the queue at this time.

[Luis Ochoa, executive]

Is there no further questions, I want to thank you all for your interest in ALFA. And we expect to continue our open dialogue with you. If you have additional questions, please feel free to reach out to us by phone or e-mail, and we will be pleased to assist you. Thank you very much.

[Operator]

And that does conclude today's conference. Again, thank you for your participation.