Sigma Foods, S.A.B. de C.V.

Thank you, Laura. Good afternoon, everyone and welcome to ALFA's fourth quarter 2020 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.

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, risks associated to the impact of COVID-19.

Eduardo Escalante, ALFA's CFO; Carlos Jiménez, ALFA's Senior Vice President of Legal and Corporate Affairs; Roberto Olivares, Sigma's CFO, and representatives from each ALFA company will participate in today's call. Before moving into our discussion and results, let me make a brief comment about the accounting treatment of Nemak.

As a reminder, in accordance with IFRS, we started accounting for Nemak as a discontinued operation, beginning with the third quarter 2020 results, reflecting the spinoff of this business. During the fourth quarter, Nemak's financial results were included in discontinued operations through December 14, 2020.

The day control over Nemak shares were distributed and started trading on the Mexican Bolsa. Detailed information related to this change can be found in our earnings report.

Unless otherwise specified, all consolidated figures referenced in this call exclude Nemak. I will now turn the call over to Eduardo.

Thank you, Hernan. Good afternoon everyone.

I hope you and your loved ones are remaining safe and healthy. Even it's been about one full year into the pandemic; our businesses have done well adapting to the changes and overcoming the headwinds to deliver a solid financial performance, while at the same time successfully executing on strategic initiatives to maximize value for our shareholders.

We are pleased with our fourth quarter 2020 financial results and a steady sequential improvement we have seen since 2Q 2020 across our key metrics. On the macro front, we experienced a more stable to a slightly improving commodity and currency environment during the fourth quarter.

In this context, we achieved quarter-over-quarter and comparable EBITDA growth. Fourth quarter 2020 net sales were $3.2 billion, a sequential improvement of 5% versus third quarter.

The topline was driven by Sigma's double-digit sales growth in Mexico, together with a 5% and 6% sales increases in Europe and LatAm respectively. Also contributed to the positive sales strength were higher average prices at Alpek combined with a record fourth order volume.

Adjusting for extraordinary items, compound EBITDA of $373 million was the highest quarterly amount in 2020, driven by resilient quarter-on-quarter performance in all businesses. Further down the P&L, we reported income tax of $554 million in the fourth quarter, including a $382 million non-cash reserve for deferred income tax assets.

This accounting item is associated with an investment in shares of a subsidiary and was expected to be applied in a transaction with third-parties, which has not occurred in several years. In accordance with IFRS, we cannot carry this asset in our books any longer.

Fourth quarter income tax also includes a $105 million deferred tax loss, mainly resulting from the appreciation of the Mexican peso versus 3Q 2020. Moreover, our P&L includes a $496 million profit from discontinued operations in 4Q 2020, mainly comprised of the following three items.

First, a $38 million profit from discontinued operations. This figure corresponds to Nemak's profit over the two-month and 14-day period ended on December 14, 2020.

Second, a $581 million gain in translation effect resulting from the Nemak spin-off. In accordance with IFRS, ALFA recognizes exchange rate differences related to Nemak directly in its balance sheet.

The gain corresponds to the reclassification of this line item from its stockholder's equity to the income statement at the time of loss of control of Nemak for accounting purposes. The third item is a $127 million tax resulting from the Nemak spin-off.

It is important to note that we expect to apply some tax losses against the tax that is being recognized in our P&L as a result of the spin-off. ALFA has been delivering products and services to its customers for over half a century.

We are extremely proud of the amazing execution we saw across the organization during 2020. I want to thank each of our team members for their hard work and dedication.

The health and well-being of our employees is our top priority. At the onset of the pandemic, we increased safety measures at all facilities, supported community relief efforts, and rollout business continuity plans to ensure our customers continue receiving essential products and services.

We took immediate and decisive action as we announced and achieved more than $850 [ph] million in cost savings and cash flow benefits. All businesses enhanced their cost structure, optimized net working capital, defer non-essential investments, and reduce dividend.

Despite the global uncertainty of 2020, we exceeded our pre-COVID EBITDA guidance excluding Nemak. Our net debt to EBITDA was 3.1 times at the end of 4Q 2020 compared with 3.2 times at the peak of the pandemic-related shutdowns in the second quarter.

Moreover, ALFA's consolidated cash balance at the close of 2020 was $1.6 billion, up almost $600 million during the year. A strong balance sheet and ample liquidity provided the necessary support during uncertain times to move forward with our transformational strategic initiatives.

We are pleased with the progress of our transformation during 2020. As we prioritize enhancing business independence, reducing debt, and focusing on core businesses.

I will touch on each of these work strips [ph]. First, enhancing business independence.

The successful spinoff of Nemak was a crucial milestone on this front. We effectively transferred all of our Nemak shares to ALFA shareholders, providing them full autonomy and optionality.

In addition to reducing our conglomerate structure, the spin-off enables investors to buy Nemak on its own merits and growth prospects. Nemak holds a promising long-term outlook for all these stakeholders.

Besides overcoming unprecedented challenges in 2020, it's extremely talented management continue to build upon the company's unique capabilities to serve the global auto industry growing sustainable mobility needs. Second, debt reduction.

Maintaining a strong balance sheet throughout our transformational process is fundamental. We are committed to using the proceeds from the potential sale of Axtel's business units to further reduce debt at the ALFA level.

Axtel successfully attracted a high number of participant to its competitive sales process. Following an exhaustive evaluation of offers received for the whole company, Axtel's Board of Directors determine it would be in the shareholders' best interest to redirect efforts towards the sale of its two business units separately.

The company is currently engage with potential buyers who have shown interest for either business unit and will continue to provide timely updates on this important process. Third, focus on core businesses, specifically ALFA Sigma account for the most significant initiatives that are being undertaken to continue growing our core businesses.

During the fourth quarter, Alpek successfully closed the acquisition of Nova Chemicals expanded styrenics business in the U.S. This transaction enhances Alpek's Plastics and Chemical segment and consolidate the company position as a leading expandable polystyrene producer in the Americas, and a top three player worldwide.

Sigma's developments are also crucial in this front and we acknowledge the need to provide additional visibility. We are working together with the company to amplify individual communication efforts as a non-public entity.

To that end, I'm delighted to share today's call with Roberto Olivares; Sigma CFO who will provide a more detailed overview than what has been typical of this ALFA-oriented forum. I will now turn the call over to Roberto.

Thank you, Eduardo. Good afternoon everyone.

I hope you and your families are safe and healthy. Once again Sigma has demonstrated its ability and determination to adapt and overcome obstacles to bring communities everywhere [Indiscernible].

Our top priority during the pandemic and as are right after the new normal has been the health and safety of our employees, suppliers, clients, and consumers, which is why we implemented a strict safety and quality protocols at our facilities. I am pleased to have the opportunity to showcase our 2024 fourth quarter results and provide an update on the business.

During the fourth quarter, we observed a solid performance in most regions. Particularly in the U.S., we saw a strong demand in our national and Hispanic businesses, building up to a record year for the region.

Consolidated revenues were $1.7 billion, down 3% year-on-year and EBITDA of $178 million was one above -- 1% above the same period of 2019, despite the challenging environment. Our Foodservice channel, which accounts for less than 10% of total revenue, continues to be impacted by lower consumer mobility, but show a gradual and sustained recovery since hitting its lowest point in April.

Excluding Foodservice results, fourth quarter and EBITDA in local currency increase 2% and 7% respectively. Throughout the year, we have implemented a series of comprehensive initiatives that include cost and expense reduction, a strategic rationalization of CapEx and improvements to net working capital, all while maintaining operational continuity.

In line with our strategy, we continue our efforts to grow our core business, benefiting from brand, category, product, and regional diversification, as well as implementing new processes, optimizing the use of resources, and adopting new technologies. Innovation plays a key role in growing our core.

Despite the pandemic, our imperative innovation process based on design thinking has resulted in more than 500 new product launches during 2020. Our consumer-centric approach help us to improve the flavor and nutritional profile of our products, while maintaining quality as well as compliance with regulatory requirements.

For example, in Mexico, during 2020, we adhere to the new labeling regulation, where more than 90% of our sales come from products with none or a single label. In addition, we have product lines in our main categories with no labels at all.

We're also focused on growth beyond our core business. As a revenue-driven company, we look to develop new sources of revenue by leveraging our capabilities, infrastructure, and experience.

To do so, we engage in an agile and continuous exercise of filtering, analyzing, piloting, and scaling high potential opportunities. Some recent examples include protein snacks and plant-based product.

The first offers nutritious product targeting on-the-go consumption, while the later offers an option to consumers who don't eat animal protein or prefer a flexitarian diet. These new sources of revenue also include e-commerce initiatives, like Grill House, a premium service has app focused on consumers who love the grill that is currently in its scaling phase after a successful pilot.

Sigma's growth efforts also include looking outside our organization in search for new products or disrupt technologies. Therefore, we continue to strengthen our relationship with this startup ecosystem.

Last week, [Indiscernible] by Sigma launched its second generation callout with three challenges future food, green technology, and power connections. In the first generation of faces by sigma, 123 startups from 19 countries applied.

Seven were selected to carry out pilot tests and we're currently in the process of formalizing long-term relationship with four of them. Our plans are ambitious and require solid foundations.

This is why we continue channeling resources into transforming our culture, having a greater focus on innovation, developing our talent with entrepreneurial skills, and improving the way we allocate resources. These enablers will help us reach our full potential.

As ALFA unlock value as volume falls and we transition from a subsidiary into a standalone company, we look forward to taking a more active role within the investment community, strengthening our communication efforts and reinforcing our commitment to provide clear, straightforward, and insightful information to our stakeholders. Finally, 2021 will surely bring new challenges that I'm sure I'm confident that we will overcome them.

Being better and stronger is Sigma's new normal. I will now turn the call back to Eduardo for additional comments and closing remarks.

Thank you.

Thank you, Roberto. Let me let me touch on two other items.

First, CEO succession at Axtel. As previously announced, Rolando Zubiran, who has been instrumental in transforming the business over 22 years, decided to retire.

On behalf of the ALFA executive team and the Board, we want to thank Rolando for his many years of service in the company and wish him the best in retirement. In the meantime, Axtel's Board has appointed me as acting CEO during the succession process.

The timing of this is also related to how long the said process takes. I will remain in my role as ALFA CFO.

In other news, effective February 3rd, ALFA shares were excluded from the MSCI index, giving concerns related to the participation of foreign investors in ALFA's neutral investment trust, which is also known as NAFINSA Trust. As you're aware, since 1991, the only way for foreign investors to own ALFA shares has been via the NAFINSA Trust.

The shares held in this Trust are limited to 50% of the outstanding shares. We have experienced a significant increase in the participation of foreign shareholders over the last year; hence the Trust reached its limited for the first time in its 30 years of existence.

The participation of foreign shareholders in the Trust varies daily as ALFA shares are bought and sold. ALFA cannot guarantee the participation of foreign shareholders is below the Trust's limit.

However, any shares held by foreign investors in excess of the above referral limits are entitled to receive any distribution authorized by ALFA's corporate governance bodies as evidenced by the dividend payment made this past January. It is our top priority to resolve this issue as soon as possible.

We are actively engaged with government authorities to complete the required proceedings for approval to increase the Trust's limit. It is important to note that this does not change the number of ALFA shares outstanding.

Let me close with a brief overview of our 2021 guidance. We are optimistic that the worst part of the COVID-related impact on the global economy may be behind us.

However, we remain cautious as 2021 still represents a higher degree of uncertainty than any normal year. Our underlying macroeconomic assumptions were included in the guidance press release issued earlier today.

In summary, we anticipate year-over-year GDP growth in all regions, some peso and euro appreciation versus the U.S. dollar and higher average oil prices.

On a consolidated basis, we are estimating total revenue of $13.1 billion, EBITDA is projected at $1.4 billion, and CapEx of $588 million. Consolidated revenues are expected to grow 7% year-over-year, driven by growth in Sigma, Alpek, and Axtel.

Estimated EBITDA of $1.4 billion in 2021 excludes any effect from extraordinary items unlike 2020, which benefited from $171 million in net extraordinary gains. Adjusting for the extraordinary items in 2020, comparable EBITDA is expected to grow 6% in 2021, driven primarily by Sigma.

Consolidated CapEx is expected to grow 47% year-over-year as Sigma analytics resume strategic investments. We are confident in our ability to deliver against the guidance we have provided.

As our businesses are emerging from this crisis in a stronger position to capitalize on recent shifts in consumer trends around safe packaging, cooking at home, and digitalization. Before opening the call to questions, let me finish by saying that we are pleased with our performance in Q4 and full year 2020 within the context of an unprecedented environment.

Going forward, we will continue to execute on our value enhancing transition to fully independent businesses. I will like to once again thank all our team members for their extraordinary contributions during these difficult times.

Fortunately, we do see brighter days ahead. This concludes my remarks.

Keep well, stay safe.

Thank you, Eduardo. We would like to begin the Q&A session with questions on ALFA.

Eduardo, Carlos Jiménez, and I will take questions on ALFA for corporate matters. Operator, please instruct participants to queue for questions on ALFA.

Thank you. Thank you very much.

Thanks for taking my question. On the tax liability side -- and thanks for addressing that, is there anything that we can -- you can say in order to give us a sense of how much of your current -- asset tax assets that you will be able to use?

Is it the so you have roughly $150 million coming from Nemak? What would be required for Axtel or Alpek under different scenarios?

Vis-à-vis the assets that you have sitting on the balance -- on the balance sheet. So that's question number one.

Is there anything you can -- any kind of guidance you can give us in terms of asset versus liability? Number one.

Number two -- and thanks again for addressing this in the prepared remarks. Timing on that NAFINSA Trust?

Why is it taking so long Eduardo to get this resolved do you think? And when do you think that it could get resolved your best guess?

Thank you very much.

Thank you, Nikolaj for your questions. Regarding the tax liability, there is no impact on subsidiaries.

Only impact was at the corporate or the holding level since the -- it is the result of the spinoff of Nemak. So, we do not foresee any impact on Sigma or Alpek or Axtel.

Regarding the Trust, Carlos Jiménez, who is here in the call, he will address the -- your question on the timing issue.

Regarding the timing, Nikolaj, there is no doubt that resolving this issue has taking much longer than what we expected initially. As you probably recall, we started this process back in August of last year.

The issue has been difficult, because it's been addressed by the government as a technical issue as well as a political issue, meaning or dealing with foreign investment. So, we have spent a lot of time.

We continue spending a lot of time going back and forth with them. We have not solved the issue.

We continue to be optimistic. And nowadays, our estimate is that the issue will be solved for sure within the first half of this year.

We are hoping to salvage by the end of the first quarter. But to be honest, I think it may take a little bit longer than that.

Okay. Thank you.

Eduardo, maybe a follow-up on the fiscal. So, if I go through your -- the asset side of your fiscal -- your fiscal credits at holding company level, can I then just deduct you whatever you have a subsidiary level -- as I have to consolidate it, I can deduct the subsidiary levels, it's going to leave me with say $700 million of credits, most of those would probably come from the Pacific Rubiales.

Is that fair to assume that most of that credit can just be used against any kind of liabilities that arise from the sale of Axtel from Nemak and the spin-off -- the potential spin-off of Alpek?

It really depend Nikolaj on where those tax credits are located in one legal entity. We do not consolidate those credits.

So, it really depends on who does the future transactions that we may do and what credits we have in those entities. In the case of the spin-off of Nemak, we are using a tax losses -- we will apply tax losses that we have at the holding level since the shares --Nemak shares were owned by the holding company.

Thank you.

You're welcome.

Hello to the ALFA team. Thanks for taking my question.

I guess my questions are all related to details regarding topic that you already touched on. Starting with the guidance, could you give us an idea of what you're expecting in terms of corporate expenses or closing company expenses for 2021?

And the second one would be related to the Axtel sale? If -- I mean, what are the different options really that you are considering at this point in terms of selling both divisions?

Or would you be okay just selling one or would you be okay just selling the stake of ALFA in all of Axtel? Thank you.

Thank you, Vanessa for your questions. And let me talk a little bit about corporate expenses -- and thanks for the opportunity of doing so.

We had a significant reduction in 2020 coming from -- regarding our corporate expenses. We had a reduction of 19% in 2020.

And by the way, this was the second year on the row that we had a significant reduction. In 2019 versus the previous year, the reduction was 13%.

Of course, there were significant drivers in the reduction in 2020 in addition to corporate cost savings initiatives and rationalization. We also had COVID-related savings, mainly from travel expenses and other items.

And we also have the exchange rate seems we do have peso-denominated expenses -- significant peso-denominated expenses. We continue -- I can tell you for 2021, we continue doing an ongoing analysis with the subsidiaries the of all corporate services as the company seek to gain dependence in the medium term as part of our unlocking value initiative.

So, we do expect to see a little bit of a reduction still in 2021. And regarding your other question of Axtel, the way we see it is seems we were unable to attract adequate offers for the whole company in the case of Axtel, we decided to pursue the effort or the Axtel's Board ask us to pursue the effort to look for investors for each one of the individual business units.

We are doing so. We see more appetite for the infrastructure side of the business than for the service -- for the service side of the business.

But it still we are looking for investors for both. Timing is very difficult to estimate when we are going to be able to close a transaction, but we are pursuing it a strongly.

I can tell you that that was the first priority that was given to me by Axtel's Board when I took over as acting CEO.

Thanks, Eduardo. Would you -- I mean, is Alpha considering the scenario for that company just sells its stake in Axtel and then a follow-up on the corporate expenses, do you have $1 amount that is included in your guidance for 2021?

Let me begin by the second part. We do have a reduction of single -- low single-digit percentage reduction in our corporate expenses for the year in addition to the reduction we had in 2012.

And regarding Axtel…

Yes, hello?

Yes, sorry I got interrupted in the line. Yeah, regarding Axtel, we do not include in the guidance for this year the closing of a transaction for Axtel.

Again, it's difficult to estimate a time. We will do a transaction when the value that is -- that we are obtaining is in accordance to what we expect for our shareholders.

Certainly, we are not looking to sell only the position of ALFA. We are we are looking for a transaction for the whole each one of the business units.

Thank you, Eduardo.

You're welcome, Vanessa.

Thank you. Hi, Hernan, hi, Eduardo.

So just to finish up Vanessa's question which was interesting. The dollar amount of the expenses in 2020, if I go from the roughly $60 million from previous years and take out the 19% you said, would that be around $48 million or $50 million for 2020?

And my second question is regarding CapEx. You are guiding for a 47% decrease in CapEx this year, it comes mostly from Sigma.

But I would like to understand a little bit of the rationale of the CapEx for 2021, it's 40% greater than the 2019 number as well. I'm guessing you deferred some of the 2020 CapEx but it's considerably higher.

So I'm trying to understand where it comes from? Thank you.

Sure. Thank you, Eric.

You're right, the order of magnitude of the corporate expenses that you mentioned is right, it is a little below 48, but in the ballpark for 2020 the figure you refer too. Regarding the CapEx, yeah, mainly during 2020, we deferred some of the non-origin and essential CapEx where we were a very mindful of the cash flow of the company.

We were in the middle of the pandemia. And we didn't know in reality, how bad the impact was going to be on our results.

So we decided to be very, very cautious regarding our investments. We did the essential ones, but we try to defer as much as possible.

We are doing a little bit of a catch up these year round. In the case of Sigma, we guided or Sigma guided for $270 million.

So let me turn this to Roberto so he can give you some details of what is included in the Sigma’s CapEx for the year.

Thank you, Eduardo. Hi, Eric.

As Eduardo mentioned, we're doing some of the catch up on CapEx. As you know, we did some it's a big rationalization last year and the idea is to start to catch up on the strategic and maintenance project.

So we do expect to have a higher expense on CapEx. If you look at I mean, what we usually have -- our depreciation is around $200 million, so, this year, we definitely under spend.

We ended up with around $120 million of CapEx. So we tried -- we're trying to do some catch up in order to continue our productivity projects now.

And just by the way, we will have a Sigma section Q&A later on for any questions you might have, or any additional questions you might have on Sigma’s guidance, Eric.

Yeah. Thank you.

Thank you, and good afternoon, everyone. The question I have is regarding the trust, the mutual trust.

If I understand correctly, if you increase the mutual trust program limit, then the number of voting shares is going to decline and that's I would believe farther away from undecidable, one share one vote structure. So if you increase the number of limit now, it seems to me like a temporary solution to the problem.

But how do you see and when do you expect a final solution to these legacy problems? Let me call it that way.

And the second question I have is regarding the unlocking value of strategy. From the time when you announce the strategy until now, what has been your experience probably if you can comment on the new challenges that you have faced and you didn't foresee?

And also on the expected timeline as we speak at this time, at this point in time, if you can give us any color on that? Thank you very much.

Sure, let me turn the trust question to Carlos, and then I will take the unlocking value question Alfonso.

Yeah. Alfonso.

Let me try to explain because I believe I did not quite understood your argument. But let me try to address your question by saying that the limit that presently is in effect, it's some sort of a two tiered limit.

On the one hand, it's a 50% limit and on the second one, it's the number of shares, and the number of shares is defined as the number of shares that were outstanding at the time we amended the NAFINSA trust for the last time, which took place in 2013. So the limit officially is 50% of the equity, and 2.6 billion shares, which now are exceeded both of those limits.

So we are trying to accomplish, it's to move up the two of them to have a higher percentage. And in fact, what we have requested is to increase the number from 50% to 75%.

And to use the number of shares that nowadays represent that 75% as the limit. So once we accomplished that, we believe that we have created very or enough room to continue having space for the foreign investment to continue flowing into our equity.

I see. Thank you.

But when you increase that number, that percentage, wouldn't that mean that those foreign investors wouldn't have voting rights in limits and therefore that’s the number?

That's correct, Alfonso. The restriction on the voting rights, it's part of the nature of the NAFINSA trust, and it's part of the nature of being the investment what is called by the Mexican law as neutral investment.

So it has full rights, economic rights, but it doesn't have voting rights.

With this unlocking of value strategy at some point in time, I would imagine that you -- this neutral trust will no longer be necessary or am I wrong with that?

That might be the case, but nowadays we are focused on expanding the limits that presently are in effect within the trust.

Fair enough. And I don't know if you can comment on the unlocking of value of timeline?

Sure, sure, Alfonso. This is Eduardo.

First of all, regarding your question about the experience so far, I think it has been very positive. The way we look at it is the Nemak spinoff was very successful for ALFA shareholders.

So we think so far, so far, so good, regarding Nemak. I think the flexibility and autonomy that these ALFA shareholders now have regarding owning both shares of ALFA and shares of Controladora Nemak has been highly valued by our shareholders.

Certainly, we do have new challenges ahead or challenges ahead of us, particular regarding the sale of Axtel which as we have announced since the beginning. The objective was to use those proceeds in order to the leverage ALFA the holding company level.

So, I would say that still remains a challenge. Regarding the timeline, it is difficult to define the date at this time, since it really depends on several factors.

One is the one I mentioned the conclusion of Axtel and some other divestments, which certainly the time to being able to close those transactions is very much uncertain. And also how much it will allow us to deliver ALFA, since we don't know if we are going to be able to sell -- to close a transaction for just one of the business units or both.

And another important element of the timing is how Sigma analytics results look going forward. We would expect both companies to improving the results in the coming years and that will also help in order to move along the unlocking value strategies.

Okay, very good. Thank you, Eduardo.

Thank you, Alfonso.

Thank you. Good afternoon, everyone.

I have two questions. The first one is understanding there is a lot of uncertainty about the Axtel divestment process.

Should we understand that the process starts from zero, after the decision the board of directors took in December or is the process starting from the progress you were able to until December? And the second one is, have you considered to update your dividend policy after the spinoff of Nemak.

Have you think about the potential dividend payment in this year? Thanks.

Thank you. Thank you, Andres for both questions.

Regarding the Axtel divestment, certainly we are not starting from zero. Let me remind everyone how we did the process last year.

We on Phase 1 early in the year and by mid-2020, we asked investors to present mumbling offers for a both infraco as well as the whole company. And after we received a significant number of offers for both, the Board decided to pursue the offers for the whole company.

So that's the route we took in the later part of 2020. Since we were not able to close an attractive transaction for the whole company, we were now instructed to look for investors for the business units by themselves.

So we are picking up from where we ended up on phase one at mid-2020, we have identified a large number of investors, who are interested in the infrastructure side of the business and we're also talking to some who show interest in the service business unit. So I think the progress we made last year is certainly positive regarding how we are moving along these times.

Regarding your question about a dividend in ALFA, let me make a couple of comments. We do expect to continue paying dividend to shareholders at the ALFA level.

The ALFA Board of Directors is very mindful of the trade-off between dividend payments and reducing debt. But we think we have to find the right balance of moving towards a net leverage level of 2.5 times, which as we have discussed is a target to be below 2.5 times.

But still we think current cash flow will allow us to continue paying dividends. Of course, we have to consider also the additional benefit that shareholders are getting from the unlocking value initiatives.

So I think we will have to see the results, but I think we can expect the dividend from ALFA it is likely to decrease versus historical levels, mainly because shareholders will now receive a portion of dividends directly from Nemak, which in the past the dividends were paid to ALFA shareholders going through ALFA. I would say that is the main change, no other change in terms of our dividend policy going forward.

Hi. Good afternoon.

A couple of questions on taxes. Can you -- do you have an estimate on the cash taxes that you will effectively pay related to the Nemak spin-off once you apply you the tax carry forward that you have.

And on the charge that you recognize in the quarter, just to understand this was related or due to IFRS regulations you haven't used those tax assets, but you could still use them later on if you were to read them. It's not that the tax assets expired, correct?

The second question Gilberto on tax report is correct. We can use them later on.

It is just a matter of following IFRS guidance. Regarding the taxes, as I mentioned before, we expect to apply previous tax losses, at this time we will not disclose the amount that we are going to apply, and therefore, the amount of cash taxes that we are going to pay this year.

But it is significant amount of tax losses that we plan to apply.

Okay. Understood.

And on the NAFINSA Trust and following up on the previous quarter. If the option to change your bylaws to solve this issue something that you could evaluate if -- by the time of your next shareholders meeting, you still do not have approval from the Ministry of Economy to increase the 50% threshold?

As we said earlier in the call, we are focusing on expanding the limits of the trust. So, that means that when we called for the next shareholders meeting, which is very likely to take place early in March, it means that we are not going to be amending the bylaws by then.

We will continue pursuing our efforts to amend the NAFINSA trust. Once we have realized that the NAFINSA trust might not be amended or may not be amended, probably will be moving back and reconsider whether a change in bylaws is the proper alternative.

But nowadays, that is not an alternative that we have in the horizon.

Okay. Understood.

Thank you, Carlos, Thank you, Eduardo.

You're welcome.

Thank you, Laura. We will then take questions on Sigma.

Roberto Olivares, Sigma's CFO, will answer your questions. Please prompt for questions on Sigma, Laura.

Hello guys, Thanks for your insights, they have been very useful. Regarding Sigma, so I am looking at volumes in the fourth quarter and the volumes were down 5.5%.

I think you mentioned mostly because of Europe. So perhaps if you could provide some color on this volume decline?

And this flows into the next question into guidance. So it appears to me that your guidance at least on margin is quite conservative.

So you're expecting roughly similar margins 2020 even though you have the lower pressure for pork prices and a better tax rate for Sigma Mexico and LatAm. So, perhaps if you could provide more color and obviously recovery in Foodservice, so, if you could provide some color about the heavy impact Sigma is facing that leads us to these conservative guidance, that would be great.

Sure. Thank you Alejandro for your question.

Let me start with the second one about guidance. Our sales guidance consider among other factors that consumption at ham continuously strong during the first half of year, and also with the gradual recovery on our Foodservice channel look towards the second half of 2021 as the vaccine rollout continues.

Regarding specifically margin, as you mentioned, it is quite similar to one in 2020, and as a result of higher Foodservice sales in the mix. If you remember a Foodservice sales usually have a slightly lower margins than the rest of our business.

That is why -- as increase the mix of Foodservice sales, the margin does not grow that much. Also we are -- although we are continue working on keeping a strong margins and working initiatives to reduce our expenses.

We're also increasing our investment in dedicate to our new areas that our growth area to look for new sources of revenues and that investment we're confident will give interesting results in the future. And regarding volume by region, as you mentioned volume in the quarter is around 5% below last year.

If you exclude Foodservice, that volume is around 2% above last year. So the main impact in the quarter is Foodservice.

Specifically about Europe, what happened is that during the quarter you may know that Europe was going through a second wave of COVID and there are choices we're evaluating to apply strict containment measures for the holiday season. So this incentive fee impacted on mix, because consumer was lagging the purchase of the seasonal products.

And as a result of what they thought could happen. At the end, the measures implemented were not as strict and sales speak up again, but we're not able to fully compensate the impact.

I don't know if that helps.

Thank you Roberto for help. Yes, perhaps just a follow-up on the margin question.

Point to perhaps higher expenses for the new initiatives, a steak and plant-based meat? Could you provide some, perhaps on an amount or something that could give us a sense of how much this explains of the margin?

Sure. So mostly this is a, I mean, all of these initiatives are growing.

So we're investing in marketing, in doing some tests of piloting a testing another stock and staffing as well, they're roughly a little bit above $10 million for this year.

Thank you. Thank you very much.

Thank you very much. So it is a very similar question.

But when I look at the guidance for next -- for 2021, as far as I remember, food travel is about 20% of the Mexico business, it's mainly in Mexico. So that's about $500 million assigned -- if we would do a 10% margin on that, that's $50 million.

That's basically already there in excess of the delta that you're getting at the EBITDA level. Take the FX add to that.

It looks like your guidance is somewhat conservative, can you try to maybe reflect on that? And also maybe address the issue what you're assuming with regard to input prices, pork prices, et cetera?

Thank you.

Sure. Thanks Nikolaj.

Yes, so again, Foodservice margin, let me go back to 2019, because last year was something that it was not common. Foodservice margin in a normal year will be around probably below 10% in Mexico, for example, around 8%, 9%.

And the rest of our business in Mexico is close to 15%, even a little bit about 15%. So that's why as we change the mix to more Foodservice sales, that is kind of why the margin is not necessarily growing.

As I also mentioned, we include in guidance, in EBITDA guidance for next year, the investment in the new source of revenue initiatives, and that amounts to a little bit about $10 million. In terms of raw materials, and let me, I think it will be better if I talk by region.

Let me start by the US. In the US in 2020, we saw historical low pork prices, with average ham prices reaching as low as $0.35 per pound.

But they recovered towards the end of the year partially to seasonality. During 2021, we expect a modest growth in domestic demand in the US.

And with these pork prices to return to more normal levels at historical average level, say about $0.60 to $0.70 per pound of pork ham, as people continue adapting to the new normal and start going out more now. Having said that, we need to keep in mind that demand from China will continue to be a strong driver of pork prices in the US.

We know that China is rebuilding their faster than expected currently is about 80% of pre-ASF levels in China. A lot thanks to a strong government support and incentives.

Meanwhile, in Europe, prices have remained low, because three things. The first one, as you may remember Germany had some ASF cases and because of that China pulled some ban or import restrictions to German pork.

And the second one is Foodservice demand is still recovering, but, I mean, conditions may not normalize until the second half of the year. And as the U.S.

market, Chinese demand will also play a significant role in the European market during the year. So having said that, as of right now we expect to continue having a neutral raw material environment for the -- for the rest of the year, and I think that is about, what I mentioned, I don’t know if you have any, any other question.

Appreciate it. Thank you very much.

Thank you, Nikolaj.

Hi, everyone. Good afternoon.

Eduardo, Hernan, Roberto, Carlos, thank you for taking my question. A quick one, sigma, don't pay dividends in 2022 to ALFA, does these mean or represent a change in a strategy where you will seek to the leverage the company faster?

Or we could think that this was just a decision as a result of the pandemic? Thank you.

Let me -- let me in a answer that, Alejandro. Thanks for the question.

Last year, a digital strategy across the board in ALFA, as I mentioned, was to be very mindful of a cash flow items until we saw that the results going to the year into second half of 2020 were good and we were as you know, overcoming the challenges regarding COVID pandemic. So, that is why you saw a reduction in most cash flow items.

We already talked about CapEx and something similar happened with dividends. Going forward the plan is to a continue reducing the leverage of Sigma towards the target of two and a half times being below two and a half times for Sigma itself.

But we do plan to do to continue receiving dividends from Sigma ALFA in the future.

Excellent. And one more if I may.

I don't know if Roberto already answered this. In -- we have seen that raw material prices, especially pork prices in Europe have declined pretty hard.

We have not seen a Sigma Europe margins recover or shown that resilience that your Mexico operations or the US operations have shown in the past, both in the past year. Could you comment a bit more on this?

Could you give us more color on why Europe margins have not a take the benefit from the lower raw material prices?

Alejandro, thank you for the question. I mean, although you -- as you mentioned we continue benefiting from the friendly raw material environment.

This only helped compensate the lower sales volume is related to the evolution of the pandemic, as you may remember, were exposed to food service in Europe. And as I had mentioned, especially for the fourth quarter, we have some products that are seasonal, seasonal for Christmas, a dry ham and in all of these products that the because of the pandemic and the uncertainty given the potential containment measures.

Volume did not a flow as expected. I will say that was the main reason.

In the future, we do expect to this to change it. We see it differently a sustained recovery on food service.

And although, we're not, I mean, we're not out of the pandemic. We definitely see a more optimistic out of this.

So we do expect to have a positive a raw material environment to at least the first couple of these years. And as volume continues to pick up, we will definitely start to see margins rolling.

And let me talk about Europe margin, because I think that -- that is very relevant. We continue working on Europe now.

Last year, we sat down and revisit all of our European plan and we identified a lot of initiatives that we have begun implemented in these initiatives, include product portfolio optimization, to increase the capacity of our plants to concentrate some of the production and to look for more efficiencies. And our goal is to do -- reach high single digit margins and eventually reaching double digit margins by, like, 2025.

We expect this to happen gradually, as we're able to implement initiatives.

Excellent, Roberto. And one more if I may.

Your impairment during the fourth quarter, could you comment on in which region was unrelated to which type of assets?

Yeah. So there were certain impairments -- the most important one a was a specifically in Europe related to real estate of two plants.

Thank you. Thank you, Roberto.

And thank you again, Eduardo for the answer.

You're welcome, Alejandro

Thank you, Alejandro.

Thank you. We will now take questions on Newpek, Rodolfo Gamboa, Senior Vice President of oil and gas will answer your questions.

Laura, please prompt for questions on Newpek.

Thank you. Now let's move on and questions for Alpek, Nemak or Axtel, these companies held their earnings conference call earlier this morning or yesterday in the case of Nemak.

Jose Carlos, Alpek CFO, Eduardo Escalante, Axtel CFO and Alberto Sada, Nemak CFO are all here with us to answer any additional questions. Please, Laura, instruct participants to queue for questions on Alpek, Nemak or Axtel.

Hi, sorry. It's actually about the Newpek, because I don't know, if I missed it.

But do you have guidance in terms of EBITDA for Newpek?

Hi, Vanessa. We did not disclose the guidance for Newpek separately.

Since a business has become much smaller, you will see that change in the breakdown in our earnings reports in 2021. But what I can share with you is that it is still a mid-single-digit type negative EBITDA figure that's already included in analysis consolidated EBITDA numbers.

Okay. So it's going to be disclosed going forward as part of the elimination line together with that whole coding company expenses?

That is the plan. Yes.

Okay. Thanks for the clarification.

You're welcome.

Thank you for taking the question. It's actually addressed to a Eduardo.

Eduardo, I would like to know vision for Axtel in terms of the general strategy and challenges and opportunities as you're seeing? And the second part is, how should we think about Axtel, Axtel shareholders distribution policy after the sale of Axtel networks?

Thank you.

Sure, Carlos. And I'm sorry, I missed your question in the earlier call this morning.

Thanks. Thanks for bringing that up again.

The objectives that I receive us as acting CEO of Axtel were basically three. First of all, continuing with the priority of achieving the monetization of the business unit of Axtel, which we are pursuing strongly at this time, as we have discussed during the call.

The second objective was to continue with the separation of the two business unit, regardless of the of the monetization project, we think it would be in Axtel best interest to move ahead with the separation and continue operating into two separate units. So we'll move ahead with that is certainly that should help for transaction on each one of them.

But regardless, we will even if we don't do a transaction, we'll move ahead with that. And third, we are moving ahead with the selection of a definite CEO, of course, based on the timing of the monetization -- of the monetization project.

So when you consider those three objectives, which we think we're going to be successful with the monetization of the business units, in particular of Infraco, which I mentioned before, we have seen significant appetite for it. Then later on, we plan to move towards a net leverage target a for the company to be between two times and two and a half times.

I would say that is -- that is the objective. If we continue holding the whole company, or if we continue holding only one of the of the business units that will be -- that will be a or leverage -- leverage target.

Considering that we plan to return value to shareholders via dividends or share buybacks in the future. Certainly, we are able to do a monetization of the whole company or each one of the business units will be in a -- in a very good position in order to be able to pay dividends in the future.

So I think we have to adjust accordingly, depending on what happens with the monetization project. But in general, the plan is to -- a continue moving towards a transferring value to shareholders of Axtel.\

Thank you for your comments.

You're welcome, Carlos.

Thanks. Good afternoon.

The question is for Nemak, apologies. I wasn’t unable to connect.

Very simple one it's how much -- what were the revenues for the structural and electric components in 2020? And how much of the CapEx is associated to this business line in 2021?

Hi, Andres. Thank you for your question.

This is Alberto. Related to the revenue on structural components and EVs as we highlight that on our conference call yesterday that is an important growth source for 2021, 2020 was affected by the pandemic shutdown.

So there was around $175 million in 2020. And it's expected to be twice as much in 2021.

And related to the CapEx, I think that's also a good question since as we're moving forward with more into this new segment, that line of products will have a higher share of our investments for 2021 half of our strategic investments a little bit more than half of that is now destined to the -- to this new line of business.

Alberto, that level of CapEx is a sustainable for the long term? Should we be thinking about the that amount for the long run?

Well, depends on how we are launching new products. But certainly, it is an amount which is going to be similar to what we are seeing in total for 2021.

But -- but again the mix of that is going to be subject on the amount of business that we launch, and how much new additions we add into the segment.

Thank you, Alberto.

Thanks. And thank you for your interest in ALFA.

If you have any 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 very much for joining us today and have a nice weekend.