Alfa SAB de CV

BMV:ALFAA

Earnings Call Transcript 2021-Q4

[Operator]

Good afternoon, and welcome to ALFA's Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded today.

Now I would like to turn this conference over to Mr. Hernan Lozano, Vice President of Investor Relations. Mr. Lozano, you may begin.

[Hernan Lozano, executive]

Thank you, Laura. Good afternoon, everyone, and welcome to ALFA's Fourth Quarter 2021 Earnings Conference Call. Additional details about our quarterly 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. These uncertainties include, but are not limited to, ongoing risks related to the impact of COVID-19.

It is my pleasure to participate in today's call together with Eduardo Escalante, ALFA's CFO; Roberto Olivares, Sigma's CFO, and representatives from each ALFA company.

I will now turn the call over to Eduardo.

[Eduardo Alberto Castillo, executive]

Thank you, Hernan. Good afternoon, everyone. I hope you and your loved ones have remained safe and healthy as the world deals with the latest COVID variant. We are pleased that ALFA delivered outstanding results led by solid momentum from Alpek throughout 2021, and Sigma ending the year on a high note. Fourth quarter and full year revenue and EBITDA both increased more than 20% year-over-year. As a result, we exceeded our upwardly revised annual guidance, posting record revenue and the company's second best EBITDA. Our strong consolidated results highlight our subsidiaries' resilience and remarkable capabilities to drive growth in a complex and challenging operating environment.

Our capital allocation strategy includes a comprehensive and disciplined approach to balance deleveraging, investing for growth and returning value to our shareholders. Capital expenditures amounted to $527 million in 2021, an increase of 32% over the prior year as the subsidiaries resumed investing in businesses following a pause brought about by the onset of COVID-19. During 2021, ALFA paid dividends totaling $144 million. Moreover, the company repurchased 3.5 million shares and canceled 145.9 million shares held at treasury, equivalent to [ 2.9 ] of shares outstanding at the time. In addition to better-than-expected financial performance, ALFA maintained consistent progress in Unlocking Value strategy, focused on 3 key implementation directives: reducing leverage, focusing on core businesses and enhancing business independence.

ALFA is taking full advantage of its unique position to eliminate the conglomerate discount supported by real options and timing flexibility. With each passing quarter, our leverage ratio has decreased. The business units have announced important initiatives to drive long-term growth and are closer to achieving service-related independence from ALFA. Most of our discussions since the beginning of this journey have centered around reducing leverage. Ensuring that our consolidated and individual capital structures are appropriately balanced throughout the transformation process is fundamental to unlocking ALFA's full value potential.

Our consolidated leverage ratio improved consistently every quarter, driven by organic cash flow generation and financial discipline. Consolidated net debt to EBITDA of 2.3x is at the lowest level since 2018, and represents an improvement of 80 basis points from year-end 2020. Contributing to the good performance was Alpek's low level of 1.1x, and further improvement at Sigma, which posted its lowest leverage ratio since 2012.

The potential sale of Axtel remains another source of funds to reduce leverage going forward. Axtel continued discussions with potential buyers, but the process has not yet resulted in a binding agreement. Axtel plans on maintaining an open dialogue with interested parties, while moving ahead with its internal strategic agenda to capitalize on attractive market opportunities. It is important to note that ALFA's Unlocking Value strategy is not entirely dependent on the potential sale of Axtel. Instead, we view it as an attractive option under the right conditions towards our end objective.

We have strongly believed that maintaining a flexible time horizon for an orderly execution is in our shareholders' best interest. Rest assured by maintaining a flexible time horizon on the potential sale of Axtel does not imply a value trade offer of our core businesses. Alpek, Sigma and Axtel continue driving growth and profit-enhancing initiatives that boost their underlying value while ALFA's transformation process is underway.

Alpek was busy on the acquisition front last year, and this has continued into 2022. In early February, the company announced a transformational agreement with tremendous value potential as it acquired Octal for $620 million. Octal is a major global producer of PET sheet, with operations in Oman, U.S. and Saudi Arabia. This transaction forward integrates Alpek into a high-value business segment with best-in-class technology, accelerates the company's progress towards its ESG goals and expands Octal's PET resin capacity in a logistically advantaged location to service customers' growing PET related needs.

Importantly, from a financial standpoint, the deal will have immediate accretive benefit to earnings. Alpek is expected to maintain a strong balance sheet with ample financial flexibility for cash dividends post acquisition. At the same time, Alpek is also [ washeneralizing ] some existing businesses and facilities that are not providing the desired margins or are facing an unfavorable industry outlook. Sigma has also been very active launching new products, rightsizing its manufacturing facilities and driving margin improvement. Roberto will further discuss shortly, the actions the company has undertaken.

Axtel launched the first mobile virtual network operator in Mexico through a partnership with AT&T, expanding the company's broad solutions offering with new mobility services. Moreover, Axtel successfully pilot-tested a specialized commercial model to accelerate enterprise segment sales. Axtel will focus on high-growth digital transformation services to roll out this new go-to-market approach. The third directive of ALFA's Unlocking Value strategy involves enhancing business independence. A key component has been assisting the subsidiary in achieving service-related independence from ALFA, which includes the gradual transfer of corporate team members to our subsidiaries. As a result, ALFA's corporate headcount was down 18% when compared with year-end 2020.

It is important to note how much progress we have made in reducing expenses outside our main subsidiaries, including the corporate level. For reference, the difference between ALFA's consolidated EBITDA versus EBITDA from Alpek, Sigma, Axtel, and Newpek shows a 40% reduction from a loss of $71 million in 2019 to a loss of $42 million in 2021. Further improvement is expected this year.

Also related to business independence, Sigma has been stepping up its exposure to the investing community, beginning with a dedicated section on ALFA's quarterly earnings conference calls over the past year as well as participation in investor conferences and meetings. We reaffirm our full commitment to successfully execute ALFA's orderly transformation by maintaining consistent progress focused on the 3 key implementation directives to eliminate the conglomerate discount.

I will now turn the call over to Roberto Olivares, Sigma's CFO, to discuss the company's fourth quarter results and progress on strategic initiatives in more detail. Please, Roberto.

[Roberto Olivares, executive]

Thank you, Eduardo, and good afternoon, everyone. I am pleased to provide an update on the business and comment on our operational and financial results. This includes recent developments related to our European profitability improvement plan, and other initiatives aimed at enhancing growth across all of our regions.

During the fourth quarter, Sigma achieved consolidated revenues of $1.7 billion, 6% above year-on-year, driven by higher average prices, [ pricil in ] volume and the recovery of the Foodservice channel. EBITDA during the fourth quarter was $201 million, up 13% year-on-year. That was also the result of the solid growth rates of 14% in Mexico, 24% in Europe and 9% in Latin America, year-over-year.

I am proud to announce that despite the challenging environment, 2021 consolidated revenues reached $6.8 billion, 7% higher year-on-year and in line with the guidance. EBITDA reached $741 million, up 8% year-on-year and 2% above guidance. These are our highest revenues and EBITDA yet.

We continue to make progress on the 2025 double-digit EBITDA margin target for Europe. In 2021, we achieved a 93 basis point margin expansion in the region, and continued to grow our leadership positions in the core European markets. Furthermore, during 2021, we set the foundation for increased European profitability in the coming years. This included the agreement to sell our operations in Belgium and the Netherlands with an estimated 40 basis point margin improvement, once the transaction is cleared by the respective competition authorities.

Also, in December, we concluded the sale of 2 plants in France to consolidate production across fewer, more cost-efficient plants that will yield an estimated 20 basis point margin improvement by the end of a 3-year transitional period. We firmly believe that financial results and responsible operations go hand-in-hand as we strive to become a more sustainable company.

In October, we joined the United Nations Global Compact, the world's largest corporate sustainability initiative. Additionally, we improved our CDP score for climate change on water from C to B, and our supplier engagement score from D to B minus. Also, we advance in mapping of our value chain emissions by completing a Scope 3 analysis for the European operations. We expect to measure the rest of our regions in 2022.

Next, I would like to comment on our 2022 guidance. We forecast revenues of $7.1 billion and an EBITDA of $760 million. This includes revenues and EBITDA from the operations in Belgium and the Netherlands. Once approval from the competition authorities is received and the transaction is completed, the guidance will be updated. Also, our 2022 guidance consider a 3% euro depreciation and a 5% Mexican peso depreciation when compared to the U.S. dollar year-on-year, which translates into an impact of $237 million on revenues and $26 million in EBITDA. In addition, during 2022 we plan on increasing our growth business unit OpEx investment by $16 million as initiatives advance from exploratory to a piloting phase.

Adjusting for growth business unit OpEx investment and foreign exchange rate fluctuations, pro forma EBITDA is $802 million, 8% higher year-on-year.

Looking back on 2021, I am amazed at the determination and effort from the Sigma team. As a company, we were able to navigate through various industry-wide challenges by leveraging our global sourcing infrastructure and employ our revenue management capabilities to overcome inflationary pressures, all while we continue to innovate, maintain consumer preference and strengthen our long-term relationship with clients and suppliers. We look forward to another strong year in 2022.

I will now turn the call back to Eduardo for additional comments and closing remarks. Thank you.

[Eduardo Alberto Castillo, executive]

Thank you, Roberto. Before opening the call to questions, I will briefly touch on 2 final items: ESG and our 2022 guidance. ALFA and its businesses strive to continuously improve on environmental, social and government -- governance parameters by integrating best practices into the way we do business, and contribute towards creating a more sustainable future.

From a more exhaustive and comparable perspective, ALFA's rating increased in the S&P Global Corporate Sustainability Assessment for the second consecutive year and remains above industry average for conglomerates. 2021 highlights include Alpek setting specific targets to reduce its emissions and increasing its recycling capabilities. Also, Sigma securing more than 60% of its power needs from cleaner or renewable energy sources as it navigates toward net-zero emissions.

Importantly, Alfa Fundacion is supporting social mobility through education, benefiting over 1,900 junior high, high school and university students in Mexico. Among other initiatives related to governments, a periodic review of ESG topics was incorporated into ALFA's Audit Committee agenda, with results reported to the Board of Directors. We hope you have the opportunity to learn more about our comprehensive ESG efforts in ALFA's annual report, to be released in the upcoming shareholder assembly.

Let me close with a brief overview of our guidance. 2021 was an exceptional year for us. We are excited to build upon the strong results momentum and consistent progress on the strategic front as we head into this year. We will take a balanced and disciplined approach as we continue with our Unlocking Value strategy. A healthy balance sheet, supported by solid cash flow generation, provide us with unique flexibility to drive long-term shareholder value. Our underlying macroeconomic assumptions were included in the guidance press release issued earlier today. We anticipate year-over-year GDP growth in all regions, although at a lower pace versus the strong recovery in 2021.

Also, some peso and euro depreciation versus the U.S. dollar and higher average oil prices. Consolidated revenues are expected to increase 7% year-on-year to 16.26 billion, driven primarily by price and volume growth from Alpek and Sigma. EBITDA is projected at $1.95 billion in 2022, excluding extraordinary items, unlike 2021 which benefited from $185 million in net extraordinary gains. Adjusting for the extraordinary items in 2021, comparable EBITDA is expected to increase

[Audio Gap]

[ a ] year, driven by Alpek and Sigma.

Consolidated CapEx of $1.21 billion for 2022 is more than double the amount we invested last year, boosted by Alpek's acquisition of Octal. Lastly, ALFA will propose a cash dividend of $0.04 per share in the upcoming annual shareholders meeting, totaling approximately $196 million to be paid as of March 16.

Summing up, everything we have discussed in this call is the result of a dedicated effort across our entire organization. I want to thank every ALFA team member for their extraordinary work.

This concludes my remarks. We are now available to take your questions. Please, Hernan.

[Hernan Lozano, executive]

We would like to begin the Q&A session with questions on ALFA. Eduardo and I will take questions on ALFA or corporate matters. Laura, please instruct the participants to queue for questions on ALFA.

[Operator]

[Operator Instructions] Our first question comes from the line of Luis Yance with Compass.

[Luis Yance, analyst]

Congratulations on the results. Two questions for ALFA. And I appreciate all the remarks around that you don't need the Axtel sale necessarily to further advance into your Unlocking Value strategy. So if you could give us a little bit of color on what we should expect in that front for this year? I know you want to [ keep ] this flexible timeline. [ I mean it seemed ] like you started pretty strong, once you announced it, now it has been a bit slower in terms of how we get to where you want to be.

So just to get a sense of how should we think about that in the sense that if that sale doesn't go through, what other avenues are you considering to deleverage further and eventually, I guess, a spin of Alpek and Sigma becomes ALFA. Because it also looks like even though on the Alpek side, the acquisition looks very, very good, just wondering that removes a little bit of degrees of freedom for you guys to extract more from Alpek in terms of extra dividends and, therefore, be leveraged further. So just trying to understand what other avenues you do have there that will be good.

And then the second question in terms of enhancing business independence. I mean it's impressive the reduction you've done over the past couple of years in terms of OpEx or negative EBITDA at the corporate level, and you mentioned you're at $42 million last year. Just wondering how much lower you think you can take it this year? Or do we have to wait for a bigger reduction once you spin off Alpek and then Sigma becomes ALFA or you could still go further. How much further just for us to get a sense how much lower you can get it in the near term?

[Eduardo Alberto Castillo, executive]

Thank you, Luis. Thanks for the questions. And let me go into your first one. We do expect for this year to have a consistent progress within a balanced approach. Let me assure that we remain fully committed to eliminate the conglomerate discount. Since we made our strategy public, we mentioned that after the Nemak spin-off, we work to move forward when we are ready to take solid steps. We certainly have to make sure that our companies remain in a strong position in any steps that we take.

No specific time was or has been set for any forward progress. However, I think it's important, as you mentioned, that the current positive results and strong balance sheets of Alpek and Sigma provide a lot of optionality and timing flexibility for any next steps that our shareholders may decide in the future. So again, we do expect to make progress but still are looking at different options.

And regarding the second question, the business independence. Yes, we expect a further decrease in this year. I mentioned in my previous remarks that the corporate headcount was reduced 18% this year, and we expect further reductions in 2022. If you consider the $42 million of expenses, and negative impact on EBITDA outside the subsidiaries, we do expect that amount to become about half of it this year. So then we do expect a positive year regarding the reduction in our expenses.

[Operator]

Our next question comes from the line of Rodolfo Ramos with Bradesco BBI.

[Rodolfo Ramos, analyst]

And congrats on the strong close for the year. I have a follow-up on the Axtel sale. And I was wondering if you can clarify if you have homed in with a single potential buyer at this point. Or you still have -- or are you still entertaining multiple interested parties?

And also, if there is anything -- a second one on this point. If there's anything on the tax side that we should be vigilant on, given the government's more hawkishness on past transactions and even commenting on future transactions.

[Eduardo Alberto Castillo, executive]

Sure, Rodolfo, and thank you for both questions. Regarding the potential sale of Axtel, it remains an option to accelerate deleveraging in ALFA. And as I mentioned in my previous remarks, we will do it under the right conditions. We can -- we have maintained a dialogue with multiple interest parties so far. Certainly, the process has been affected by global uncertainty, volatility and changes in the industry. However, I think it is important to mention, as I said before, that the next steps regarding the reduction of the conglomerate discount, we are looking at options regardless if we are able to [ close ] the potential sale of Axtel or not.

And even regarding Axtel own operations, it is important to point out that we plan to move forward Axtel's internal agenda and continue developing some broad strategic projects such as going -- decreasing going to the mobile market via an alliance with AT&T, as well as growth that we expect in the infrastructure demand market for coming from 5G and the deployment of new data centers in the area of Queretaro. So again, it looks good for Axtel in terms of demand going forward, and we plan to take advantage of those opportunities.

Regarding your second question about taxes. I would like to make a couple of remarks. First of all, ALFA has historically adopted a sound and conservative fiscal practice in every one of the transactions that we do, and we plan on continue doing so. Now regarding the tax costs of any future step, it really depends on the step itself, It will be affected by when and how the [ companies ] become independent. So I really don't have any more color to provide, other than saying that each one of the alternatives is being analyzed, including the tax front.

[Rodolfo Ramos, analyst]

And if I may, just a follow-up on what you made -- on comment about other transactions. I don't know if you can give a little sense of how much it could bring in, either in proceeds or timing. I know that you had mentioned before real estate as a noncore part of the business. I don't know if you can give a little bit of color there.

[Eduardo Alberto Castillo, executive]

Sure. Sure, Rodolfo. We are looking at many alternatives. You mentioned several of them in your questions. And again, we think we are in a very strong position since the good results, and balance sheets of our company give us a lot of flexibility. You mentioned the real estate. That is an option. But also Sigma and Alpek's strong balance sheets and results provide ample opportunity. And let me mention as a point in case the current position of Alpek. Alpek, even after the acquisition of Octal, Alpek as you know, the net leverage of Alpek at the end of last year was 1.1x. But even if you look at it pro forma, including the Octal investment, it would be below 1.6. So we do expect to continue having financial flexibility from -- also from Alpek regarding options in order to move ahead with the reduction in the conglomerate discount.

[Operator]

Our next question comes from the line of Federico Galassi with Rohatyn.

[Federico Galassi, analyst]

Congratulations for the results. Two questions, Eduardo, if I may. The first one is you're expecting in your guidance, or you were with your guidance with a GDP growth of 3.1% for this year in Mexico, if I'm not wrong [ or 3.2 ]. When we see the consensus that the number is going down, there is [ any sense that ] if the GDP will be, I don't know. Below 2%, it could affect I don't believe in Alpek, but in the case of Sigma, do you see any effect for a lower GDP growth? This is the first question.

[Eduardo Alberto Castillo, executive]

Sure. Sure, Federico, and thanks for the question. I would have heard that firstly the question is specifically for Sigma to Roberto. But before going to that, I think something that was proven in the results of the -- both Sigma and Alpek last year was the resilience in the results of both companies regardless of the changes in the environment. So we are confident that the companies will be able to achieve the guidance that we are providing this year.

And Roberto, I don't know if you want to go specifically into the GDP growth in Mexico and its impact on -- do you expect on Sigma results?

[Roberto Olivares, executive]

Yes. Sure. Thank you, Eduardo, and hi, Federico. Yes, I mean if you see Mexico and let me give you an example. If you see 2020, in the middle of the pandemic, the GDP of Mexico decreased significantly. And in terms of our volume, it was fairly flat, I will say. And that -- and the main impact was the Foodservice channel. So although GDP has some influence given that we are in the food industry, GDP has not had a big effect on us.

[Federico Galassi, analyst]

Okay. And second question, and I come back to Axtel again, and the possible sale. But when you announced the Unlock Value strategy almost 2 years ago, the revenues and EBITDA of the company have fallen. You are expecting almost flat in Mexican pesos, the EBITDA growth for this year in Axtel. And when we see the participation or the breakdown of Axtel in the value of the company, it's lower than 5%. Maybe the question is, if the sale not happen, how is the strategy of -- how is, not the strategy, but how is the strategic view of Axtel from the ALFA point of view? That is my question. Because, again -- and I think that we [ chat ] some time, but it's hard to me to understand why it's so difficult to sell the company. And these companies every year is low -- is smaller than the year before.

[Eduardo Alberto Castillo, executive]

Sure. Sure, Federico. First of all, let me reiterate that we will do a transaction under the right conditions, and certainly those conditions, we have not been able to get from a buyer. We will continue pursuing that, but we have been unable. I think the way we look at it is, it is true that the importance of Axtel within the portfolio of ALFA has decreased, but it has decreased because Alpek and Sigma, given their very good results, have increased their value. So we feel that still remains a very solid asset for ALFA.

Again, we have a very positive and optimistic expectations for extending the future as we expect demand for telecommunication services and infrastructure growth in our country. In particular because of the development of 5G, and also because of the coming to Mexico of several hyperscalers that are building data centers now in Mexico. So we are confident that this positive impact on demand that we haven't seen in the last few years regarding telecommunications infrastructure will start picking up in Mexico this year and going into the future.

[Federico Galassi, analyst]

Okay, thanks. And again congratulations on the results.

[Operator]

Our next question comes from the line of Jean Bruny with BBVA.

[Jean Baptiste Bruny, analyst]

Just have a couple actually. The first one is maybe on your view at the ALFA level of the environment in terms of inflation. Do you see some inflation at cost level and your capacity to pass through depending on the business, obviously?

The second question is on the strategy to Unlock Value. We are now 2 years into the announcement. You made it in the summer of 2020. You made a lot of progress in the first year, and since then it's looking like it's pretty complicated. I understand your position, you want to be flexible. You don't want to commit to any timeline or agenda. But do you understand as well the view of maybe the investors who can get tired and [ what would a fit? ] And I wouldn't be ready at some time soon to commit to kind of agenda to give us an idea on the timing we can expect for you to go through to put a deadline on some operations such as Axtel, saying that you're not going to sell it and you're looking to other alternatives.

And the last question is maybe for the debt -- the holding debt. I believe you reported out of December holding debt of $1.2 billion. You made a lot of progress in terms of reducing the people who are working at ALFA, and to reduce the cost and so on. But it looks like there's not a big impact in terms of holding debt. What can we expect for the reduction in 2022? What will be your target to get by the end of the year in terms of holding debt?

[Eduardo Alberto Castillo, executive]

Sure. Jean, thank you for the questions. Regarding our view of inflation, for the guidance, what we consider is inflation to be in Mexico around 4.8% and in the U.S. 3.8%. Again, this may be changing constantly. But that's how we build the numbers. And again, we don't think our results really depend on the inflation level that happens in those regions or in the other important region where we operate that is Europe.

Regarding the timing of the next steps of the Unlocking Value. Again, we have no deadline, no specific time was or has been set. We will continue moving forward with solid steps in order to maximize value.

And finally, regarding the guidance of the leverage -- consolidated leverage. What I can tell you is we -- considering the base case, the way we build the guidance, which includes the Octal investment but not EBITDA from Octal this year, we expect the ALFA consolidated leverage to be at around 2.5x. That is a little bit of an increase coming from the end of 2021 of 2.3x. But again, we are including, just to be conservative, the full impact of the $620 million investment and no benefits for it, since we don't know when Alpek is going to be able to close the transaction.

[Operator]

Our next question comes from the line of Nikolaj Lippmann with Morgan Stanley.

[Nikolaj Lippmann, analyst]

Congratulations on your strong numbers in key divisions. Very, very -- sorry to being slow here. But would you -- I see the key priorities of management. I hear you Eduardo, talk about the top 3 priorities. The question is very simple. Is the North Star still the collapse of the holding into operating? Or are you increasingly exploring other options to generate shareholder value?

[Eduardo Alberto Castillo, executive]

No, I think the main issue here, Nikolaj, is to reduce, and hopefully be able to eliminate, the conglomerate discount in order to provide value to our shareholders. One way to do so is certainly to reduce the size of the conglomerate the same way we did with Nemak, and transfer those -- the companies to our shareholders. But certainly, there may be some other steps, intermediate steps that we may take regarding how to transfer the value that we feel the fundamentals of our companies have. So everything is being analyzed, and we are trying to keep full flexibility in order to present options for analysis to our Board and to our -- later on to our shareholders. No specific path of time has been defined.

[Operator]

Our next question comes from the line of Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

I guess my question, you just answered. I was going to ask, if the sale of Axtel fails to materialize, are you currently considering any specific alternatives that you can tell us about to move forward with the Unlocking Value strategy?

[Eduardo Alberto Castillo, executive]

Thanks, Gilberto, for the comments. We are looking at several alternatives. As you can imagine, again, the strong results and balance sheets of Alpek and Sigma give us a lot of flexibility to move forward with different options. I will prefer not to mention any specific alternatives, since we do not have a definition of any one of them. We are working several of them. But certainly, the very good results of Alpek and Sigma last year, and expected for this year, give us optionality.

[Gilberto Garcia, analyst]

Okay. Understood. And on the potential for an eventual spin-off of Alpek, is it still early to have a sense of what the potential tax bill on that would be?

[Eduardo Alberto Castillo, executive]

Yes. Yes. Again, there are different ways of doing with -- if our shareholders decide to do anything with Alpek. There are different ways of doing it, and depending on how we do it and when we do it, it would be the tax impact. Of course, any tax implications are part of the analysis of the different alternatives, but it is too early to mention anything regarding the tax impact for new [ of course ] alternatives.

[Operator]

Our next question comes from the line of Alejandro Chavelas with Credit Suisse.

[Alejandro Chavelas, analyst]

It's a very simple one. I noticed that results for Sigma in Europe were super strong. Surprisingly so, with almost 9% margin, if I'm not correct -- if I'm correct. If you can tell us a little bit more about that share improvement. Because it doesn't appear to have come from pricing, but rather of cost cutting. So could you tell us a little bit more about why this happened, and how sustainable this level of margins towards in [ imi to the ], will be super helpful.

[Hernan Lozano, executive]

Hello, Alejandro, this is Hernan. Thank you very much for your question. Would you mind if we hold that question up for the Sigma section of the call? It's -- we will hold a dedicated Sigma Q&A section, and that's the next step in our call. We'll take that question first.

[Operator]

There are no further questions on this time on ALFA. I would like to turn this call back over to Hernan.

[Hernan Lozano, executive]

Thank you, Laura. Actually, we do have a couple of questions on the webcast. One refers to, what is management's message to investors that may be worried by the long time the process is taking. This comes from Alfonso Salazar.

[Eduardo Alberto Castillo, executive]

Thanks, Alfonso, for the question. The message I've been trying to communicate during this call, and let me reaffirm that, is that we remain fully committed to eliminate the conglomerate discount. And certainly, we will take a balanced approach and plan to have consistent progress on this strategy. And we plan to do that under very strict financial discipline in order to balance the transfer of value to our shareholders. We'll be maintaining strong positions in the companies, in particular regarding their balance sheets.

[Hernan Lozano, executive]

There is another question on Axtel, but I will hold that question coming from [ Lillian Ochoa ]. I will hold that question for the Axtel section of the call. Thank you very much for your question, Lillian. We will take that on the Axtel section. So Laura, could you please instruct the participants to queue for questions on Sigma.

[Operator]

[Operator Instructions] Our first question comes from the line of Alejandro Chavelas with Credit Suisse.

[Alejandro Chavelas, analyst]

Alfa team, I think you already listened to my question, but just as a reminder, I was asking about the margins of Sigma in Europe that were super strong. If you could give a bit more color on that front?

[Eduardo Alberto Castillo, executive]

Thank you very much, Alejandro. Roberto, would you be able to take that, please?

[Roberto Olivares, executive]

Thank you, Alejandro. Thank you for your question. Yes, we have very positive results in the fourth quarter in Europe, our highest EBITDA in the fourth quarter since 2017, and this was due to 3 things. The first one, better margins coming from lower pork prices in the region. Also a strong seasonal effect due to the holiday season. Just keep in mind that European EBITDA is very seasonal. And the third one, solid volumes on the packaged meat business. We also benefited from a $2.3 million extraordinary gain from the real estate sale of our [ Deventer ] plant that -- if you remember, we closed that plant back in 2019. And the positive results from the packaged meat business in Europe more than offset the impact from the lower fresh pork meat export to China. We here are -- continue to wait for the response from the Chinese authorities to export our products to that country. In the meantime, we are strengthening our presence in our Asian markets, and diversifying the sales to mitigate some of those effects. We do expect to eventually reach double-digit margins annually, but keep in mind that this is a gradual process. During 2022, we will see some benefit from the [ passes ] we have made that will yield in higher annual margin in Europe.

[Operator]

Our next question comes from the line of Luis Yance with Compass.

[Luis Yance, analyst]

Roberto. Two questions on Sigma. First one is if you could give us a little bit more detail on your revenue and EBITDA guidance by region, just to get a sense where you will be expecting to grow a bit more. And obviously, the guidance implies a bit of a margin contraction at the consolidated level. So just to get a sense by region where that contraction comes from? And also the extra OpEx related to the growth unit, where does it get accounted for? Does it get accounted mainly in the Mexican unit, or it gets spread out into some of the other ones? So that will be my first question. A little bit more detail on the guidance by region will be helpful.

And the second question is on CapEx. We see on your guidance, a sharp increase in CapEx. Just wondering how much of that is also related to this OpEx increase in the growth units and perhaps just get factored into CapEx? And can you give us some color there? And how much of that $290 million, I guess, is maintenance CapEx versus some of that? And whether that's kind of the level we should be thinking of CapEx for Sigma going forward?

[Roberto Olivares, executive]

Sure. Thank you, Luis, for your question. Let me start with the first one on guidance. In terms of revenue and volume, we expect low single-digit volume growth in Mexico, Europe and Latin America. In -- while in the U.S., volume could be a little bit impacted by a government program that stopped last year, and that we have that volume during 2021 -- at the beginning of 2021. We expect some further pricing actions in the Americas, particularly because of a higher poultry and dairy cost, while prices in Europe are expected to remain stable.

We also anticipate higher utilities costs, specifically in Europe, due to the higher natural gas prices. And also in terms of volume, we expect Foodservice channels to continue recovery in all of our regions. In regards to the OpEx related to our growth business unit. This is happening because we're moving from an exploratory to a piloting phase. This year, 2022, the idea is to invest close to $26 million, and around 85% is because of our plant-based and snacking businesses. And out of that 85%, around 1/3 will be dedicated towards the teams that run these particular ventures. Another 1/3 will be consumer research, marketing and brand positioning, and then the balance will be the cost of producing this: overhead, product development and trade spend. We're growing these businesses, particularly plant-based and snacking, in all of our 3 main regions, so Mexico, the U.S. and Europe, and we are advancing in all 3 fronts.

And in regards to CapEx. So the last year guidance actually was $270 million. We came a little bit below that guidance due to longer lead times and in general, supply chain issues due to COVID. But this year guidance is around the same area. Just to keep in mind, we have a depreciation of around $200 million. So just to keep -- I will say, to keep the lights on, we need to invest a similar amount to that. And then the rest is on increasing capacity or new projects. How much of this is allocated to growth? I will say, close to 5% as of right now of CapEx -- of the CapEx guidance is assigned to growth, to the growth business unit. But again, this is -- we're just piloting some of these projects. This percentage could change in the coming years.

[Luis Yance, analyst]

Roberto. And as a follow-up, with the comments you made, do we assume margin contraction in all the regions that you have, or perhaps Europe is the one that keeps heading towards that double-digit in the long term and the others kind of contract? Or how do we think about that?

[Roberto Olivares, executive]

Yes. So Europe, a bit -- specifically Europe, we expect to continue improving the market there. We did several important -- or we took several important steps during 2021 that will yield a margin improvement in the next year. In regards to the other regions, we do expect, for example, the U.S. to -- [ propose a ] average margin, maybe from the other regions due to -- that this year was an extraordinary -- with extraordinary results, we could be -- we could see a little bit of a setback.

[Luis Yance, analyst]

Great. And just a quick last question. Can you remind us how much of your, I guess your revenues currently come from plant-based and some of those initiatives, and if there's a target in mind in the medium to long term on that front?

[Roberto Olivares, executive]

Sure. So let me just make a clarification about the last question, because you also have to keep in mind that FX is affecting us in terms of margin. We forecasted FX, specifically the Mexican peso, to have a 5% depreciation in 2022, and that reflects -- that impacts a little bit results, particularly in Mexico, and also the additional OpEx investment that we're doing on growth business unit. That is also impacting a little bit the consolidated margin. So talking about the -- can you repeat the other question, sorry?

[Luis Yance, analyst]

Yes. Just to get a sense how much of your revenues currently are coming from plant-based initiatives, and if there is a target in mind that you have for the medium term to reach?

[Roberto Olivares, executive]

Sure. I think most of the -- where we are here in plant-based, we're more -- by looking some of the initiatives. We are currently operating in more than 200 restaurants across U.S. Particularly Spain and Mexico, we're escalating some of that business. For next year, we're probably around less than 1% of revenues will come from plant-based, but we do expect that to continue growing in the next coming years.

[Operator]

Our next question comes from the line of Rodolfo Ramos with Bradesco BBI.

[Rodolfo Ramos, analyst]

Just a follow-up on your guidance. Can you talk about what level of price increases are implied in your guidance for Mexico vis-a-vis the 4.8% inflation that you're expecting? And how a continued recovery on mobility -- generally speaking, but also seeing the recovery on the Foodservice segment that you've seen, how could these propose upside [ risk ] the numbers on your guidance, especially what we've seen up until now this month, and as we emerge out of the Omicron wave?

[Roberto Olivares, executive]

Sure. Thank you. Rodolfo. Let me first talk about price. As I mentioned, we expect to further increase prices if necessarily, due to higher poultry and dairy costs. In the case of Mexico, we actually already do a price increase in these first 2 months to offset some of the impact on poultry and dairy. The idea for the rest of the year is to maintain margins similar to -- contribution margins similar to what we saw last year, and with that have been able to mitigate the impact.

In regards to how Foodservice -- how we see food servicing in guidance. We expect the Foodservice channels to continue recovery. We saw very strong Foodservice numbers last year. Just to give you an idea, EBITDA in the 4Q '21 in Mexico was 129% higher than 4Q '20. The European Foodservice EBITDA reversed from a loss in 4Q '20 to a positive single-digit in 4Q '21. And the recovery last year was faster than we expected due to the increased mobility. But again, we remain cautiously optimistic about the evolution of the pandemic. In regards to the last wave that we experienced in the beginning of this year, yes, we started to see less mobility, particularly in Mexico. But this change in the past 2 weeks, now I think things are getting back to normal now.

[Operator]

There are no further questions at this time on Sigma. I would like to turn this call back over to Hernan.

[Hernan Lozano, executive]

Thank you, Laura. We do have a couple of questions from our webcast for Sigma. So the first question comes from Mario [ Beseta ] with GBM. Congrats on the results.

Do you see growth in Sigma through organic growth and start-ups? Or do you continue to analyze M&A options? This is a question for you, Roberto.

[Roberto Olivares, executive]

Thank you, Hernan. Thank you, Mario, for your question. Yes, our objective is to achieve mid- to high single-digit organic growth rate, both through our core businesses and also through our new sources of revenue. The latter includes the initiative from our growth business unit. And yes, some of this could come from link to the start-up ecosystem. This could be further boosted by M&A. So on top of that will be M&A.

[Hernan Lozano, executive]

Thank you. The next question comes from Alfonso Salazar with Scotiabank. Revenue from new products at Sigma has been increasing. To what extent do these reflect an increase in market share? Or it's only a change in your product sales mix? In Mexico, have you seen or do you anticipate some trade down due to high inflation? Thanks. So there's 2 parts to that question.

[Roberto Olivares, executive]

Sure. Thank you. So the first one related to revenues, we have increased revenues, particularly and mainly because of price action, but also our volume has been stable or resilient, even though we have a significant pricing action. Just to give you an idea, prices in Mexico 4Q '21 versus 4Q '20 were 10% higher. And with that volume was very resilient. I will not say that we're right now increasing market share. It's more related to that effect. All the whole industry is increasing prices. What happened last year, all the inflationary pressures are things that happen to the whole industry, so the whole industry also reflect those inflationary pressures on price. In regards to trade down, yes, we have seen a few signs of trade down in our Mexican operation.

However, we have a broad range of well-known brands in all the consumer segments, and this allow us to capture the demand that has shifted between the segments. We have the brands that have different price points, but I will say, with similar margins. So in that sense, even if consumers trade down, we're able to capture them and also to maintain margins.

[Hernan Lozano, executive]

Perfect. Thank you. So with that -- that was our last question on Sigma from the webcast.

We will move forward and take questions on Alpek, Axtel and Newpek. From Alpek, we have Jose Carlos Pons, CFO. From Axtel, Eduardo Escalante, Interim CEO; and Adrian de los Santos, CFO, are available to answer any additional questions. And from Newpek, Rodolfo Gamboa, Senior Vice President of Oil and Gas.

Laura, could you please prompt for questions on Alpek, Axtel and Newpek.

[Operator]

[Operator Instructions]

Our first question comes from the line of Gilberto Garcia with Barclays.

[Gilberto Garcia, analyst]

I was wondering on Axtel, if you could comment on what the right valuation would be for the asset?

[Eduardo Alberto Castillo, executive]

Sure. Gilberto, and thanks for the question. We feel, as we have discussed in the past, that in the case of the infrastructure business, the right valuation of such a business is in the low double-digit multiple. And in the case of the services portion of the company, we think it is in the mid-single-digit range multiple. Again, we think there was a delay in demand for infrastructure, as we have discussed, for telecommunications infrastructure, but we do expect demand to pick up going forward.

[Operator]

Our next question comes from the line of Luis Yance with Compass.

[Luis Yance, analyst]

Eduardo, two questions on Axtel. I mean the first one a follow-up on -- to what Gilberto asked about the right valuation. Just wondering, given that you've had multiple discussions with potential buyers, some getting close to deals or not, I guess, just wondering how far away in general were those bids relative to where you think the right valuation is, just to get a sense how apart you guys are still in terms of the view of value there? And then the second question is, you were named as an interim CEO a while ago, we just thought that potentially this business will be sold, right? And therefore, there was no need to have a permanent CEO at that point. So just wondering if that remains true, you will remain as an interim CEO. And if you decide to name a more permanent one, would that be a sign for us to see that perhaps the Axtel sale might not go through?

[Eduardo Alberto Castillo, executive]

Sure. Sure, Luis, and thanks for both questions. I don't think I can give you a lot of details on how far the valuations have been. Again, we have not been able to have an appropriate offer for the assets, and we'll continue trying to attract it.

And regarding my position, the plan is a [ let ] for the time being for me to continue being Interim CEO of Axtel, and helping the company on both fronts, both on the transaction as well as on moving the company forward, and the developing of the new strategies that we plan to put into motion. And I do -- and does the plan, plan to later on go back as a full-time CFO of Alpek -- of ALFA. When and how that is going to happen really depends on how we are able to move forward, if we are able to move forward, and win with the transaction. But that has been the plan all along and continues to be the plan.

[Operator]

There are no further questions over the phone on Alpek, Axtel and Newpek. I would like to turn this call back over to Hernan.

[Hernan Lozano, executive]

Thank you, Laura. We do have one more question on Axtel. I think this question is suited for you, Adrian. [ Since ] Lilian Ochoa from Actinver is asking about the company's leverage.

And she says, Axtel leverage is high and the debt payment is not enough to cover maturities. Which actions is the company taking to pay its debt -- to pay down its debt?

[Adrian de los Santos Escobedo, executive]

Yes, Hernan. Axtel has been reducing debt consistently for the last 5 years. And in a higher proportion than the EBITDA that's been related to the transactions to the assets we have divested. So the delevering has been occurring. Last year, we generated significant cash flow, over $50 million pre-taxes. And this year, we expect to continue generating positive free cash flow.

So by doing so, we will gradually continue with the objective of delevering, and potentially reaching eventually the 2.5x objective. At this moment, as has been mentioned in multiple questions, there is the strategic process, but at the same time we're working diligently on the different projects and initiatives that we expect will be translated into long-term growth, higher EBITDA, and at the end of the day, delevering through the generation of more EBITDA and positive free cash flow. How we use that cash flow? Well, it will depend and it's part of an analysis that we continuously do regarding our liabilities and the maturity profile that we have that -- by the way, it's over 3 years in average life. So we don't have any significant maturities coming due in the next couple of years.

[Hernan Lozano, executive]

Thank you very much, Adrian. We do have one last question for Alpek. So Jose Carlos, if you could do us the favor of answering this question.

Does Alpek guidance include the acquisition? And this question comes from Juan [ Ponce] with Bradesco.

[José Pons, executive]

Yes. Thank you. Thank you, Juan, for the question. No, in the short answer, it does not include the guidance for Octal. I mean the guidance does not include the expected Octal EBITDA. It would be around $80 million if we are able to close the transaction by summer, that -- which is our forecast. However, the CapEx is included.

[Hernan Lozano, executive]

Yes. Thank you. So that was the end of our questions. I would just like to thank everyone very much for your interest in ALFA. If you have additional questions, please feel free to reach out to us. We would be pleased to assist you. We also extend our best wishes to you and your families to stay safe and healthy. Thank you for joining us today, and have a great day.

[Operator]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.