Alfa SAB de CV

BMV:ALFAA

Earnings Call Analysis

ALFA's 2024 Guidance and Transformation Progress

ALFA is gearing up for a transformation by planning the separation of Alpek, aiming for a strong financial position. The focus is on reducing consolidated net debt, which is $3.19 billion, to around $2.5 billion. The company has reduced dividends by 50% for 2023 and plans another cut for the next year. They're eyeing noncore asset monetizations for accelerating debt reduction. For the 2024 outlook, slower GDP growth in Mexico and the U.S. is anticipated, while a slight Eurozone improvement is projected. Brent crude oil prices are estimated at $85 per barrel. ALFA's consolidated revenues are expected to grow by 1% to $16.4 billion with an EBITDA increase of 9% to $1.5 billion, bolstered by Sigma's performance. However, adjusted for nonrecurring items, the comparable EBITDA will see a 7% decline due to Alpek. Capital expenditures are set to decrease by 21% to $450 million.

Transforming Years and a Tale of Two Subsidiaries

ALFA, a holding company with a history of strong performance, has embarked on a transformative journey marked by change and contrast within its subsidiaries. The culmination of the previous year's events, emphasizing the spin-off of Axtel, sets the stage for a narrative where ALFA is bleeding from one side while flourishing from the other. As the company reflects on its latest quarter and full-year financials, it weaves a story of Sigma's outstanding prosperity juxtaposed against Alpek's challenging environment.

Alpek's Tough Year, Striving for Recovery

Alpek, ALFA's petrochemical arm, faced turbulent industry conditions, leading to a sharp 71% and 65% yearly drop in EBITDA for the fourth quarter and full year, respectively. With revenues plummeting by 31% in Q4 and 26% for the full year, Alpek has been burdened by $221 million in extraordinary items, including unpredictable accounting effects from hyperinflation in its Argentinian operations. Adjusting for these expenses, 2023's EBITDA is better, but still 47% below the previous year. In response, Alpek committed to over $75 million in annual savings, partially achieved by closing two facilities and seeking operational efficiencies.

Sigma's Surge in Sales and Innovation

Sigma, on a more positive note, delivered a record-breaking year with annual revenues soaring to $8.5 billion, up 15%, and an EBITDA that surged by 37%, outperforming its own guidance. This growth is attributed to Sigma's expansion and strong sales in all its operating regions. Sigma has also been focusing on innovation, launching over 700 new products, which now account for 10% of their total revenue. They've made strides in ESG, improving their S&P Global CSA score, signaling a commitment to sustainability.

Looking Ahead: Guidance for 2024

ALFA's subsidiaries present contrasting futures. Alpek looks ahead with caution, forecasting a more conservative EBITDA of $600 million and cutting dividends to prioritize reducing leverage. Sigma, flush with the success of the past year, envisions EBITDA rising to $920 million and plans to continue their trajectory of growth and innovation.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, and welcome to ALFA's Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

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

[Hernan Lozano, executive]

Good afternoon, everyone, and welcome to ALFA's fourth quarter earnings conference call. Further details about our financial results can be found in our press release, which was distributed yesterday afternoon together with a summarized presentation. In addition, our guidance press release was distributed this morning, all available on our website in the Investor Relation section. Let me remind you that during this call, we will share forward-looking information and statements, which are based on variables and assumptions that are uncertain at this time. It is my pleasure to participate in today's call together with Eduardo Escalante, Alfa's CFO; and Roberto Olivares, Sigma's CFO.

As you know, we completed the spin-off of Axtel during the second quarter 2023. Thus, our discussion will focus on ALFA at the parent company level, Sigma and Alpek. Please refer to Axtel's earnings report for its latest financials information and analysis of its operations during the year.

I will now turn the call over to Eduardo.

[Eduardo Alberto Castillo, executive]

Thank you, Hernan. And good afternoon, everyone. We appreciate your participation today. The past year was highlighted by several key events that bring us closer to completing our transformation process. Main developments include the Axtel spinoff, the refinancing of parent level debt, providing us with flexibility for near-term liability management, stronger self efficiency of our subsidiaries reflected in further implication of ALFA's corporate structure. And importantly, our capital allocation, which prioritizes transformational efforts to lower dividends and share buybacks as we advance towards the final phase.

In addition, Sigma advanced much faster than anticipated to enhance its financial flexibility and Alpek took decisive actions as it faces low cycle industry conditions. Sigma delivered record annual EBITDA and posted its lowest leverage ratio in 8 years, which is key in anticipation to a potential Alpek spinoff. On the other hand, Alpek experienced a major shift in the competitive environment, following favorable conditions that contributed to record figures in the 2 previous years. To maintain a solid position as a stand-alone entity or petrochemical business focus on achieving structural cost reductions and maximizing free cash flow.

On the financial front, our consolidated results reflected a significant contrast between Alpek and Sigma throughout the year. ALFA's fourth quarter revenues and EBITDA were down 13% and 19%, respectively, versus 4Q '22, while full year revenues declined 9% and 33% year-over-year attributed to Alpek in both periods. The decrease in global reference margins, higher Asian imports and temporary price disparity in key raw material prices weighed heavily on our petrochemical business during 2023.

Lower average prices and volume in both business segments of Alpek resulted in a 31% year-over-year decrease in revenues during the fourth quarter and 26% for the full year. Alpek's EBITDA declined 71% year-over-year in the fourth quarter and 65% for the full year, reflecting the underlying headwinds that I mentioned earlier as well as the negative impact from extraordinary items, totaling $221 million in 2023. This figure includes noncash effects derived from hyperinflation accounting in the Argentinian operations under IFRS. This impact has been presented throughout the year, but the abroad spike in Argentine inflation and devaluation during December significantly amplified.

Adjusting for extraordinary items, Alpek's 2023 comparable EBITDA was $734 million, down 47% versus 2022. In line with our customer classification, this figure considers Argentine inflation and currency devaluation as extraordinary effects given their noncash nature. For reference, the hyperinflation impact totaled $100 million in 2023.

Looking ahead, Alpek expects to mitigate this kind of noncash financial impact by transitioning its function of currency in Argentina to U.S. dollars.

Regarding its operations, Alpek taken proactive measures to achieve over $75 million in annual savings as it navigates the current market challenges. Difficult footprint rationalization decisions were undertaking to close 2 facilities in the U.S. and Mexico during 2023. These actions are expected to deliver more than half of the savings target.

Other initiatives are being implemented to capture efficiencies across administrative functions and production facilities to reach the remainder of the projected benefit in 2024 and 2025. Alpek also focused on cash maximizing efforts as it prioritizes the strengthening its balance sheet by lowering debt, the downward trend in petrochemical feedstock prices, optimizations in inventory management and other improvements contributed to $596 million recovery in its net working capital.

Alpek also rationalized CapEx by 38% versus initial guidance through proactive actions, such as the pause in construction of the Corpus Christi project. In turn, Alpek achieved a net debt reduction of 7% year-over-year, supported by strong free cash flow. Still, its leverage ratio increased to 3.4x at the close of the year due to the decline in EBITDA. Adjusting for the Argentine devaluation and onetime expenses associated with plant closures, leverage would have been 2.9x. Alpek is fully committed to returning towards its 2.5x internal leverage target by the end of this year.

The company's 2024 guidance includes EBITDA of $600 million, and optimized CapEx of $200 million. Alpek also expects to benefit from additional net working capital efficiencies and will suspend dividends to shareholders, prioritizing leverage reduction.

I will now turn the call over to Roberto Olivares, Sigma's CFO, to let him discuss the company's outstanding fourth quarter and full year results and progress on the strategic initiatives. Please, Roberto?

[Roberto Olivares, executive]

Thank you, Eduardo, and good afternoon, everyone. I'm here to share the remarkable performance of Sigma throughout 2023. I will begin with an update on annual financial results, followed by recent advances in innovation, in our growth business unit and in ESG. Lastly, I will comment on 2024 guidance.

We have recorded Sigma's 11th consecutive quarter of year-on-year revenue growth, culminating in an all-time high annual consolidated volume. Record annual revenues reached $8.5 billion, up 15% versus 2022, driven by growth in all regions. Our annual consolidated EBITDA of $893 million represented a new full year record, reaching 37% higher than in 2022 and surpassing the 2023 adjusted EBITDA guidance.

Shifting to regional highlights. Sigma's solid growth in Mexico cover all categories and channels, reaching record annual volume and revenues. The all-time high annual EBITDA was also supported by a strong Mexican peso. In the U.S. as well, we reached record annual volume, revenues and EBITDA peaks, offset by the robust performance of our Hispanic brands and the seamless integration of Los Altos Foods. Although Europe's environment throughout 2023 was complex, during the fourth quarter, we saw significant EBITDA growth, fueled by better results in our fresh meat business and the benefits following the investment in [indiscernible].

As we turn to our innovation initiatives, our commitment to positioning the consumer at the center of everything we do, continues to drive our success. By understanding and anticipated consumer pain points, needs and motivations, we can craft compelling value propositions. This approach has led to the launch of more than 700 new products in 2023, marking a nearly 10% increase compared to the previous year and totaling nearly 2,000 product launches in the past 3 years.

As such, in 2023, sales from innovation products represented 10% of our total revenues. We are determined to expand our presence in our categories through initiatives of our growth business unit. In a strategic move to speed the development of the premium plant-based whole cut meat segment in Mexico, we have initiated a collaboration with Chunk Foods, a pioneer in plant-based meat alternatives with patented solid state fermentation technology. The aim of this partnership is to contribute to the continued expansion of our portfolio into high value-added products.

On the ESG front, we have steadily advanced any integrated ESG criteria into every facet of our decision meeting. In 2023, we improved our S&P Global CSA score by 7 points and announced this benchmark to the market for the first time in our history. Our sustained B score in the CDP for climate change or water remains above the industry average. And we have solidified our commitment to the environment with our 2019 CO2 emissions baseline, which was independently verified by Carbon Trust.

Looking forward to our 2021 guidance. We forecast sales of $8,650 million, EBITDA of $920 million and a CapEx of $250 million for the full year. These figures consider a 2% euro appreciation and a 5% depreciation of the Mexican peso when compared to the U.S. dollar year-on-year. Our outlook reflects growth and resilience, bolstered by our strong performance in the Americas and the [ void ] improvements in Europe. As we step into a new year, we do so with balance perspective, ready to tackle the challenges head on and seize the opportunities that will allow Sigma to continue delivering sustained value to our stakeholders.

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

[Eduardo Alberto Castillo, executive]

Thank you, Roberto. Throughout ALFA's transformational process, we have emphasized the importance of ensuring a strong financial position in each step. The final phase involves the separation of Alpek, leaving Sigma as the only business under the ALFA umbrella. Sigma's strong rebound in EBITDA and its encouraging outlook for 2024 gives us the confidence to a step up our transformational efforts.

Considering that the potential separation would have virtually no financial or operational impact on our petrochemical business, Alpek is ready to continue building upon its unique competitive position as an independent entitiy. Under the current conditions, the final building block to move forward is debt reduction outside of Alpek. Excluding Alpek our consolidated net debt was $3.19 billion at year-end. We estimate this needs to come down closer to $2.5 billion, to have a set of leverage supported by Sigma's EBITDA.

ALFA reduced dividends to its shareholders in half and suspended share buybacks during 2023. Moreover, the dividend proposal will be presented in our upcoming annual shareholders meeting, represents another 50% decrease year-over-year, as completing the transformation is being prioritized. Most importantly, we are actively seeking inorganic alternatives to accelerate debt reduction to selected noncore asset monetizations in the near term. We strongly believe it is in our shareholders' best interest not to disclose specific information about potential transactions until we reach binding agreements.

In terms of next steps upon potential closing a deal, we [indiscernible] a straightforward process. The final phase shall include an element of debt reduction and liability management that wasn't required in previous steps. The actual spinoff will follow the same process we executed for Nemak and Axtel. We are very excited by the prospects of completing ALFA's profound transformation. All efforts are aligned to fulfill the necessary conditions as soon as possible. We look forward to continue delivering regular updates our progress on this front.

Before opening the call for questions, let me provide a quick overview of our 2024 consolidated guidance based on the outlook for each of our businesses. On the macro front, we assume slower GDP growth in Mexico and the U.S., but the Eurozone is expected to improve slightly versus last year. We are considering average Brent crude oil prices of $85 per barrel versus $83 in 2023. For the Mexican peso, we conservatively estimate an average exchange rate of MXN 18.7 per dollar, which represents a 5% depreciation year-on-year.

For ALFA, consolidated revenues are expected to be $16.4 billion, 1% higher than 2023, reflecting similar growth in Alpek and Sigma. EBITDA is projected at $1.5 billion, up 9% year-on-year, driven by another record high contribution from Sigma. Adjusting for extraordinary items in 2023, comparable EBITDA would decrease 7% attributed to Alpek. CapEx of $450 million represents a 21% decrease versus last year, as Alpek continues implementing cash maximizing efforts and Sigma compares against a higher base, which includes acquisitions.

My sincere recognition and heartfelt appreciation to each of our talented team members at ALFA and the operating units. Their extraordinary work allow Alpek to navigate a complex environment, accelerated Sigma's growth and position ALFA for the final space of its transformation.

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

[Hernan Lozano, executive]

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

[Operator]

[Operator Instructions] Our first question comes from Federico Galassi of Royal Group.

[Federico Galassi, analyst]

Two questions. The first one is in all this process that you are having in the last year. In this year, the EBITDA, what are your spinoff corporate expenses?

[Eduardo Alberto Castillo, executive]

Thank you, Federico, for the question. Let me talk a little bit about corporate expenses. As part of the simplification that we are doing in ALFA, as we have reported before, we have focused on lowering significantly the corporate expenses, both in terms of the actual expenses as well as the headcount. Let me give you some figures. If you compare the 2023 corporate expenses for ALFA corporate versus 2019 the reduction we have had is 80%. Furthermore, we do expect an additional reduction for this year. Of course, we expect that to be not that large since the main reductions have already taken place.

We are also very, very, what I would say, very happy to have been able to lower the headcount of ALFA Corporate significantly versus 2019. We have made a reduction of over 35%. Basically, moving most of those people to the business units in order to be able to make them self-sufficient and not dependent on the corporate services. So we'll continue moving towards that fact. And you mentioned you had 2 questions. If you want to go ahead with the second one?

[Federico Galassi, analyst]

Yes, Eduardo. The second one is after the -- we saw the numbers of Alpek and you issued the guidance, et cetera, et cetera. But are you worried -- and again, thinking in this process of unlocking value, are you worried if Alpek could lose some rating qualification from the rating agencies? Or do you believe that this if it could happen, and I don't know, nothing to see with a lock-in value process?

[Eduardo Alberto Castillo, executive]

I think Alpek is implementing all the right measures, started implementing the right measures last year considering the reduction in EBITDA, they made, as I mentioned,earlier and Alpek also did during their conference call this morning, they need a significant effort to reduce CapEx, to focus on cash flow for the year. They did a significant reduction in net working capital, almost $600 million. So I think they are taking all the right measures. They announced that they are not going to pay dividends this year in order to focus on reducing the leverage.

So we are confident that the rating agencies will consider those actions together with the improvements that we expect for Alpek going forward and don't do any -- with that Alpek won't have any impact on this rating. We do expect Alpek to be close to 2.5x net leverage at the end of this year, considering again the cash flow maximization efforts that they expect they are planning to do as well as the improvement in their EBITDA for the year. So we are confident. We are confident, but Alpek isn't the path to improve the metrics and therefore, we don't expect any impact on the ratings.

[Operator]

Our next question comes from Till Moewes of Schroders.

[Till Moewes, analyst]

It is about free cash flow generation. At ALFA level, you provided some guidance figures, but not so much on the capital allocation side, except for CapEx. So I was wondering, by how much do you think can you organically, first off or reduce your debt level and get towards the $2.5 billion combined between Sigma and ALFA?

[Eduardo Alberto Castillo, executive]

Sure, Till, and thanks for the question. We do expect -- first of all, we do expect to improve our net leverage at the end of this year on a consolidated level coming down from 3.5x at the end of last year, to close to 3x at year-end. So we think that is a step forward. Regarding the cash flow, specifically at the holding company, we will be receiving at least that is what we consider in the guidance about $150 million from Sigma, which is the level that Sigma usually pays out in terms of dividends regularly every year. And we expect to have, as I mentioned, lower corporate expenses this year as well as lower taxes this year when compared to the previous year.

All in all, we think we are going to be -- with those dividends we will be able to a slightly lower the debt at the holding company, certainly not in the magnitude that we discussed that we need to do. Two actions we're looking at. The first one is, hopefully, Sigma will be able to achieve a better-than-expected year in 2024 and something that may be on the table in the future is additional dividends from Sigma. For the time being, again, we are considering only the $150 million, but hopefully, they can do better.

And secondly, we are working on the monetization of selected noncore assets to accelerate debt reduction at the holding company. We think we can complete some of those during this year in order to be able to reduce the debt. We will continue in terms of ALFA, focusing on that debt reduction, 2 additional steps that we are taking during the year is the dividends payout of ALFA is being reduced this year 2024 by half. In addition that the 2023, it was reduced by half. So there has been a significant lowering of the dividends. And we also decided to suspend for the time being, the buybacks or buybacks program, share buybacks in order to begin to focus on debt reduction. I would say those are the main actions that we plan to undertake.

[Operator]

Our next question comes from Agustín Bonasora of PineBridge.

[Agustín Bonasora, analyst]

Just got a follow-up on your recent comment regarding the noncore assets. Just want to clarify. If you are talking about noncore assets at the holding level, like headquarters offices or are we talking about noncore assets at the opco levels? Just trying to understand that a little bit more. And if you give guidance, where you are expecting to get from this noncore assets investment? I mean you have a number in your mind that we can like trying to understand a little bit more about this strategy.

[Eduardo Alberto Castillo, executive]

Sure. Thanks, Agustín. In all honesty, we have looked at everything. We have looked at alternatives at the holding company. We do have some noncore assets at the holding company, like the real estate we have here in Monterrey, we have a couple of lands here in Monterrey. One, the most important one is the one where the corporate offices are located and that is certainly an option. But we are also looking at the noncore parts of the businesses. We think there may be some opportunities regarding parts of the businesses that we will be able to monetize. We are not ready to discuss specifically nor what assets we are looking at or the amount. But we are engaged in a strong effort to do so. And hopefully, you understand that we are not able at this time to disclose anything since we are underway with those processes.

Regarding leverage, as I mentioned before, we plan to be in ALFA at around 3x by the end of the year. That is before any asset monetization. And the plan is to use the proceeds from those projects to further reduce the debt at the holding company. That's what I can comment at this time.

[Operator]

There are no further questions at this time.

[Hernan Lozano, executive]

Thank you. We do have a question from the chat function. And this relates to ALFA's plans for 2024, any 2024 bond sales or debt issuance?

And the answer here would be focus is on debt reduction. So anything we do would be related to liability management towards the transformational process and we're not thinking about new debt for ALFA.

[Eduardo Alberto Castillo, executive]

Sure. Thank you, Hernan. And let me talk a little bit about the debt. Today, we have $1.2 billion as outstanding principal amount at the holding company. Basically, we have 2 different debts in ALFA. One is a bond due 2044. It's a $500 million bond. And we also have bilateral bank loans for the rest, basically due 2025 to 2028. Most are towards 2028, which was the way -- we obtain those loans in order to refinance another bond that we had before. And the idea of doing it through bank loans was to be able to be in a position to prepay at any time that they saw as we move along the monetization of the assets that we discussed before, we'll be focusing on reducing those bank loans.

So that's pretty much the plan. Certainly, we will need to look at the appropriate time at the 2044 bond in order to make a decision of what is going to be done with that. But for the time being, we'll focus on the prepaying the bank loans.

[Hernan Lozano, executive]

Thank you, Eduardo. And there's another question about the rationale for the noncore asset monetizations.

And let me just confirm that this is exclusively related with ALFA transformational process and the importance to ensure a strong financial position once Alpek leaves a portfolio to make sure that we're servicing an adequate level of debt with Sigma's stand-alone EBITDA.

And that was the final question coming in from the chat. So with that, we would like to begin questions on Sigma. Roberto Olivares, Sigma's CFO, is here to answer your questions. Operator, could you please prompt for questions on Sigma.

[Operator]

[Operator Instructions] Our first question comes from Juan Ponce of Bradesco.

[Juan Ponce, analyst]

Just wanted to get your thoughts on the performance in the U.S. in the fourth quarter. We saw EBITDA fall slightly. Just want to get additional color there. And also, what are you expecting in -- what are you baking into your numbers regarding Mexico, especially this year, [ electro ] year also in the U.S.? So I just want to get your thoughts on this guidance that you provided in the Americas.

[Roberto Olivares, executive]

Thank you, Juan. Thank you for the question. Let me first tackle the one about the performance in the 4Q in the U.S. First, in terms of revenues, we did deliver record revenues, mainly driven by solid demand and some revenue management initiatives at our national and Hispanic brands businesses. In 2023, at the end resulted in an all-time high, as I explained in my initial remarks, annual revenues and EBITDA in the region, bolstered by volume, some performance and the integration of Los Altos Foods.

Particularly in EBITDA, we saw a decrease of around 2% year-on-year in the fourth quarter, and this was mainly due to 3 factors: one, temporarily decrease in our France volume within our mainstream business as some clients adjusted their inventory levels at the end of the year. Second, a reduction in margins in our European business, this was a temporary effect of the increased raw materials that we have, particularly at the end of the year, we have some raw material that was a little bit at a higher cost that we use and completely used by the fourth quarter, we do not have that raw material anymore, so starting this year, we will not have that additional cost. And third one, as we have mentioned in the last couple of quarters, we have the production ramp-up of our Iowa plant, the new plant that we specialize in the sliced ham and that we took a position in June, and we have that in particular.

Let me move to the guidance in Mexico and the U.S. and what we're seeing. First, we do maintain a strong performance in Mexico and gradually improve our European operations particularly in Mexico, we see incremental volume across all channels and categories, but mainly in yogurt and the operational channels. We expect to continue seeing growth in the Foodservice channel in Mexico particularly, because we're planning to capture new customers and also entering into new categories. And for the U.S., we see some volume growth, particularly in the Hispanic cheese market, both from the acquisition of Los Altos that we acquired mid last year and also of organic growth. We saw also a slight volume increments in the mainstream business in the hotel business, particularly in the hotel and common [indiscernible] business particularly due to the Iowa plant capacity. And we also see some improvements in the performance of our European brands business, particularly since we're not going to have that additional cost.

In general, let me comment briefly on Europe because also a lot of the improvement on guidance next year come from Europe, we saw some improvements in margin. We expect some improvements in margins, capitalizing also on some structural initiatives, better sector conditions and higher volumes in some of the countries. And the idea is to particularly, due to the Italy divestment that we have last year, we do expect to this year have a benefit.

[Operator]

There are no further questions at this time.

[Hernan Lozano, executive]

Okay. So in the meantime, we can go over a few questions that we got from the chat function. So the first one would be, Roberto, whether you could elaborate a little bit on raw materials -- on your raw material price outlook for 2024?

[Roberto Olivares, executive]

Sure. So regarding raw materials, let me split into 2 different areas. First of all Americas, in the Americas, we do expect to continue having a positive outlook last year, prices of pork decreased around 15% and was explained mainly by the higher pork production. And we do expect that production continued to increase a little bit in the U.S. In the case of turkey, Turkey Breast last year decreased significantly around 60% year-on-year. And this was also due to higher production. Just in terms recently, we have had some cases of avian influenza affecting the turkey sector in the U.S., thus putting some pressures on thigh meat, in particularly turkey thigh meat. And we have been able to serve some raw materials from some other countries to be some of the pressure, and we're expected to look at what will happen to that particular market, taking some measures in order to mitigate all the FX.

In the case of Europe, particularly Europe, let me talk mainly about pork at the end of last year, at the beginning of this year, we started to see prices of live pigs decline actually during 16 weeks, we saw prices of -- in Spain of live pigs declining. Right now, they're normalizing a little bit, but we do expect to have a more friendly, as of right now, positive raw material environment in Europe, thus helping to capturing some of the margin that we lost last year.

[Hernan Lozano, executive]

Great. Thank you. And the next question is related to M&A, whether there's any further M&A plan for 2024?

[Roberto Olivares, executive]

So first, we're always looking into internal opportunities to our [ field serving ] responsibility to create value for our stakeholders. As of right now, we don't have any process ongoing that I could comment about.

[Hernan Lozano, executive]

Okay. And lastly, about a potential bond issuance in Mexico for Sigma. You could elaborate a little bit on that.

[Roberto Olivares, executive]

Sure. So we're establishing a long-term revolving peso bond program. We're actually working on that since a couple of months ago. We will have a potential issue under this program, say, by the first week of March. And these hallmarks Sigma's return to the local bond market after 15 years. And these sources will be used to refinance some of the debt that we have outstanding.

[Hernan Lozano, executive]

Okay. And lastly, I think I'll take this one. This has to do -- it just -- to avoid any kind of confusion. The question says, reducing the debt at the ALFA level using dividends provided by Sigma doesn't benefit the consolidated level. So could you explain the rationale behind this?

And thank you very much for your question. What we were referring to is the possibility of ALFA being able to use organically generated cash flows from Sigma to lower the Sigma, ALFA entering debt. So you're right, in terms of not affecting the consolidated debt, but we're focused on the ALFA, Sigma entry, those incremental cash flows could benefit to some degree, the level of debt that we're trying to reduce for the transformation process.

So having said that, there's another question coming in about CapEx for Sigma in 2024. And the question asked to explain a little bit further on higher CapEx for Sigma in 2024.

[Roberto Olivares, executive]

Sure. So first, we were -- we see CapEx, and we're trying to be very disciplined and try to optimize as much as possible the cash flow, not only CapEx but in all roles of the cash flow, particularly out of the $250 million around 2/3 of that CapEx is maintenance CapEx given that we have around 64 plants around the world and the [indiscernible] centers, the fleet, et cetera, that makes out of a solid proportion of that to get maintenance to that. And then once that will come from strategic projects related to achieve higher efficiencies or increase capacity, and that is the main explanation.

[Hernan Lozano, executive]

Okay. Thank you. So with that, we will move forward and take questions on Alpek. We have José Carlos Pons, Alpek's CFO. So operator, could you please prompt for questions on Alpek.

[Operator]

[Operator Instructions] Our first question comes from Alejandro Lavin of Santander.

[Alejandro Lavín, analyst]

So I have a couple of quick questions. So first of all, if you expect to pay dividends for Alpek this year and maybe next year? And second one would be, what would you expect for net working capital for Alpek this year?

[José Pons, executive]

Thank you, Alejandro, this is José Carlos covering. Well, we indicated in our call previously that we will not be paying a dividend in 2024. That's something that we're committing to as we are entirely focused on maintaining the 2.5 net debt-to-EBITDA target. So our idea is to end the year close to that number. And as we are implementing many different actions, that's one of the areas that we're also focusing on protecting our balance sheet. So no, the short answer for '24 is no, we will not pay a dividend. 2025, hopefully, we'll be in a better position, and we'll continue to payout dividends as we have paid for the last many years.

In terms of net working capital contribution, we did have a very strong improvement in 2023. So the majority of the benefit has already been achieved. We focused in improving the entire, let's say, areas where the capital -- the working capital covers. However, we're thinking on a small improvement in 2024, less than $100 million. That's more or less what we're thinking.

[Operator]

Our next question comes from Andres Cardona of Citi.

[Andres Cardona, analyst]

Just wanted to check on the Polyester side of the business is for 2024, your contract policy remains at around 60% of the volumes? And if you can give a sense of what was integrated PET margin that was included in that negotiation?

[José Pons, executive]

Thank you, Andres, nice to talk to you. Yes, we basically maintain a similar ratio of contracts in our Polyester business, with the majority of our larger customers, they want to have some predictability or be able to predict, let's say, on the margins, certainly, one of the reasons that we see an overall margin decrease on an owner guidance vis-à-vis 2023, it's because when we renegotiated the contracts, some of them had took a lower margin aligned to what we were seeing in the market. So yes, that's one of the reasons that you'll see it and. However, we remain optimistic as one of these [indiscernible] sales that we have in support of our portfolio could improve by the second half of the year.

[Andres Cardona, analyst]

José Carlos, just to clarify, if you can share some color, what is the magnitude of the decrease in the contract margins?

[José Pons, executive]

More or less what you see, it's an adjustment around $30 or -- between $30 and $40.

[Operator]

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

[Hernan Lozano, executive]

Thank you. Let me just take one question that we got from the chat function. And this is for Alpek. Can you provide some color on how close the $600 million comparable EBITDA guidance is to your expected reported EBITDA. So the question goes on with the guidance and represents an 18% reduction from -- versus year-end comparable EBITDA. And I would like to know whether you expect that kind of reduction in reported EBITDA as well?

[José Pons, executive]

The short answer is no, and the difference is minimum. We do not expect to have such a big difference between 20 comparable and reported EBITDA as we had in 2023. I think Eduardo indicated is his part, there was a big adjustment that we needed to make to our accounting results in Argentina per IFRS in the last part of 2023, and that's what created a big difference between the 2 numbers. Maybe -- just -- and why we don't expect 2024, it's because we're more [indiscernible] to a function of currency in U.S. dollars in Argentina, which will make the numbers closer.

Sorry and one more. Sorry, and it was a noncash adjustment, which is also relevant.

[Hernan Lozano, executive]

Thanks for the clarification. So there are no further questions at this time. So I would just like to thank everyone for their interest in ALFA. If you have any additional questions, please feel free to reach out to us. We would be pleased to assist you. Thank you for joining us today, and have a great day. We will now disconnect.

[Operator]

This concludes today's conference call. You may disconnect.