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

Good day, everyone and welcome to Alfa's first quarter 2025 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.

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.

It is my pleasure to participate in today's call together with Eduardo Escalante, Alfa's CFO; and Roberto Olivares, Sigma's CFO. Before moving on, just a quick reminder that all consolidated figures referenced in this call exclude Alpek which meets the definition of a discontinued operation in accordance with IFRS.

I will now turn the call over to Eduardo.

Thank you, Hernan and thank you all for joining us today. I will focus on updates related to Alfa's transformation process and Roberto will provide an update on Sigma's results.

We received the final requirements to list Controladora Alpek in late March, ahead of our expectations. As a result, ALFA shareholders received Controladora Alpek shares in anticipation to its first day of trading on April 7.

Since then, our corporate transformation is complete. ALFA has evolved from a diverse portfolio of business units to a focused food company with leading brands across 17 countries.

It has been encouraging to see the transformation being recognized by the investment community as demonstrated by the narrowing of the historic valuation gap versus global food peers. We expect this positive trend to continue as we keep driving ALFA Sigma's recognition within the consumer sector.

Our simplified food-focused business model and lower leverage were recently recognized by S&P. We are pleased to see our credit ratings improve 1 notch within the investment-grade spectrum.

Both ALFA and Sigma are now BBB rated credits, up from BBB-. Our goal when we started this multiyear process was to unlock the intrinsic value of ALFA's individual businesses by enabling each of them to be valued on their own merits.

Investors having provided the opportunity to participate in each unit separately. Now that the transformation is complete, we look forward to each of the companies reflecting a fair valuation compared with the sector-specific peer group.

I will now turn the call over to Roberto to discuss Sigma's results.

Thank you, Eduardo. We are certain that our current strengths set us apart to stay ahead of consumer preference in all economic conditions.

Our portfolio of top brands, grow distribution reach, supply diversification, multinational production and consumer-centered innovation become increasingly valuable as the external environment evolves. Our first quarter results are on track with full year guidance, highlighting resilient volume and solid currency-neutral performance as select revenue management initiatives drove 5% higher year-over-year revenue growth in local currencies.

Considering the anticipated effect of a weaker foreign exchange rate, first quarter revenues and EBITDA were down 5% and 17%, respectively, when compared to our record high results in 2024. Additionally, EBITDA was temporarily impacted by effects related to the Torrente plant flooding in Spain.

It is important to note that this should not affect our EBITDA target as we are fully covered for property damages and business interruption. In terms of real underlying costs, we are seeing certain pressures in raw materials, primarily poultry and specifically related to the avian flu.

These increases are being mitigated through targeted revenue management and efficiency efforts that vary by geography. Looking at our results by region.

Mexico continues to be a standout performer with revenue up 12% in local currency, driven by revenue management and volume growth, especially in packaged meats and cheese categories. Currency-neutral EBITDA was flat year-on-year as price actions have not yet fully offset cost pressure stemming from imported raw materials, particularly turkey and beef.

In the United States, we achieved the second highest first quarter volume, revenues and EBITDA. Yet volume was 3% lower year-over-year, mainly due to the temporary softness in mainstream brands volume linked to a seasonal effect in promotional cycles that were deferred several months further into the year.

Similar to the Mexican operation, EBITDA was impacted by raw material cost pressures, not yet fully offset by select price actions. European results reflect the temporary impact from the Torrente plant flooding mentioned earlier, resulting in total volume down 3% in the quarter.

We responded swiftly, redistributing production across other plants and trusted co-packers. These actions have reduced the disruptions but higher cost and related expenses weighed on margins.

On a positive note, we have seen an encouraging pickup in volume growth of our branded products relatively to non-branded volume in the beginning of the year. In Latin America, we posted record first quarter volume and revenue.

Growth in Ecuador, Peru and the Dominican Republic offset softer trends in Central America. Yet EBITDA was down 16% in local currency, primarily due to the higher raw material costs.

As we look ahead, a clear sense of purpose is crucial for our long-term success. Earlier this year, we redefined ours, delicious food for a better life.

This reflects our commitment to always offer flavor pool high-quality food that creates joyful experiences while also contributing to making life even better for both people and planet. Our strategy was complemented accordingly and the entire organization is aligned to achieve it.

We are focused on our 4 strategic pillars: defending and growing the core business, developing new sources of revenue, becoming a future-fit organization by nurturing our culture and individual team member capabilities to better serve our consumers and exploring the future focused on health through food and responsible protein. I will now turn the call back to Eduardo for additional comments and closing remarks.

Thank you.

Thank you, Roberto. I will wrap up my presentation with a brief update on recent corporate developments and outline relevant next steps.

On March 25, ALFA held its Annual Shareholders' Meeting where a cash dividend of $83 million was declared. Additionally, shareholders approved a reconfiguration of the Alfa-Sigma Board of Directors.

The new Board is comprised of 14 members who serve on ALFA's Board and Sigma's Advisory Board. This new structure aligns with our post-transformation business needs, strengthening governance with deeper consumer sector expertise.

Looking ahead, we are moving forward with a complete rebranding of Alfa-Sigma. Soon, we will be calling an extraordinary shareholders' meeting to propose adopting a Sigma-related name to replace ALFA and reaffirm to the market that we are now solely a food business.

This initiative also involves changing the trading tickers of ALFA shares and bonds before the end of the year. We are excited by the prospects of this new era as a dedicated food player.

ALFA-Sigma offers a compelling investment thesis, combining the stability of the global food sector with the upside of an ongoing revaluation process. I want to thank each of the ALFA team members for their hard work, getting us to this point and our shareholders and bondholders for supporting our initiatives.

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

Please, Hernan.

Operator, please instruct participants to queue for questions on ALFA or Sigma. Eduardo, Roberto and I will take your questions on Alfa-Sigma.

Different from previous quarters, the Q&A portion of the call has been consolidated into a single section.

I have 2 questions. The first one is on the volume performance we saw in Mexico.

I don't know if you can elaborate further if you have seen maybe a downtrend in terms in category or that consumer was actually very strong in the quarter because despite that this year, you managed to grow 1%. And my second question is on your European operations.

Can you comment on how that Europe impacted your results in the quarter?

Thank you, Pablo. This is Roberto.

Yes, related to volume in Mexico, as you mentioned, we grew volume 1%. If you see by channel, we start seeing since the end of last year that the traditional channel, the mom-and-pops has been growing a little bit or is a little bit better than the modern trade.

In terms of categories, I will say, particularly -- I mean, for us, packaged meat and cheese were the categories where we see most of the volume. And that has also to do with some of the limited capacity that we have in yogurt and that we're working on unlocking some more capacity there.

And yes, in terms of the consumer, at least what we have seen is consumer that is moving a little bit more to the traditional channel but yet we have seen volume resilient or growing for us. In terms of the European operations, as we expressed in the report and in my remarks, most of the impact or all of the impact versus last year has to do with the Torrente plant flooding.

If you normalize for that effect that we expect to recover that we're going to recover through the business interruption part of the insurance, EBITDA in Europe actually will have been increasing 3% in local currency.

I have 2 questions on Europe here. So first, if you could just provide more color on when you should expect to see the Torrente plant operations going back to normal and when the negative effects on the results should fade out, it would be helpful.

And second, on Europe margins, even when we adjust for the Torrente plant, we see margins declining from the 6.8% last quarter. It seems to exist normal weaker seasonality in the first quarter.

But if you could explore a bit if there were other factors behind that sequential decline such as raw material pressures, labor or something like that, that would be helpful as well. I'm just trying to get a better sense on your underlying profitability recovery for the year.

If we can still expect another year of significant margin expansion in the division, perhaps even returning to pre-2022 levels or something like that?

Thank you, Enrique. Sure.

Let me talk about the Torrente plant. Since the flooding happened, we have been working diligently to recover the production capacity.

We redirected or we have redirected as of right now, close to 75% of the volume that we produce -- that we used to produce in that facility to other facilities in Europe and trusted co-packers in the region. We are working, analyzing different alternatives to recover the capacity that we have in that plant.

As we will continue working in these months to be able to produce everything that -- or almost everything that we used to produce in that plant. In regards to margins, let me separate the answer in 2.

First, yes, there's a big seasonal effect in Europe. Usually, fourth quarter is significantly higher than the rest of the quarters.

But during this quarter, we started -- in first Q '25, we started seeing some pressures. Also in turkey, so we have avian flu, both in the Americas and Europe that has impacted turkey capacity production and thus impacting prices.

So we have seen some raw material pressures in Europe, particularly in Spain due to turkey. We have been starting to increase prices.

We already negotiated some price increases that are going to be fully implemented by the second quarter in Spain. With that, we do expect to have some margin expansions in the next quarters.

I have a question regarding the U.S. business of Sigma.

If you can discuss, please, the impact from the tariffs implemented by the new U.S. administration.

If you can discuss your impact on cost on raw materials and also your ability to pass on these cost increases to customers.

Thank you, Nicolas. So almost all, I would say, between 98% of what we sell in the U.S.

is produced in the U.S. There's limited SKUs that we imported from other regions.

Since that happened in terms of finished products, there's limited impact or very small impact on tariff. There could be for some raw materials.

But again, most of the raw materials that we use, particularly all meat and dairy raw materials are procured within the states. There might be some packaging or CapEx that could come from other places.

We're working on seeing the potential impact but there will be minimal to the results.

I have two. The first one is in Mexico.

Since 4Q, we saw price increases, you mentioned Roberto, that we will also see it in the first Q to offset the margin pressure. How is that advancing?

Could we expect margins to recover from where we are now? Or what's your view on that?

And the second one is on the expenses at the Alfa level. We saw that basically EBITDA at Sigma and Alfa became the same.

Is that what we should expect now that there are no longer corporate expenses at the holding level?

Okay. So, thank you.

I will take the question on Mexico price increases and margin. This is Roberto.

Yes, we have been increasing prices, as you mentioned, since the last quarter of last year. During first quarter this year, we continue to increase prices and we're working right now to further extend those price increases during even second Q '25.

We are still seeing some pressures in raw material costs between particularly turkey and some beef cuts for our Foodservice business. We are working on those price implementations.

But as you see in particularly in results in local currency, EBITDA versus the record number that we have in last year remained flat due to those timely price increases that we started doing last year.

This is Eduardo. I'll take your second question regarding the expenses.

We are, of course, still finishing up let me call it the fine-tuning phase of this process. We consider that we finished the transformation phase which included all the major changes to the conglomerate structure that we have been discussing during our calls.

However, we still have some cleaning up still to do in our balance sheet since you have to realize that we are a 50-year conglomerate and now we are focused on basically only on food. So we do have some housekeeping items still going on.

Regarding those items, what we think is going to happen is the results of Sigma and of ALFA will converge, will continue converging towards having the same number. Still, you will see some minor differences going forward between both results.

I would say you can consider the expenses of ALFA to be the difference between the results of ALFA and the results of Sigma going forward. But certainly, that should become small and small as we move forward.

That's what I can tell you regarding our expenses. They have been coming down for the last few years and we expect them to continue doing so.

Perfect. Another question, if I may add.

This one is also Mexico. It's about the consumer.

We have been hearing that -- we have seen some sequential improvement in consumption in Mexico, particularly looking at same-store sales from ANTAD. Are you seeing the same today?

By month, I mean?

You're talking about that through the quarter, you have seen better dynamics in consumer.

Yes, exactly. Exactly.

Is that what you experienced?

I think it has been very similar through the quarter. What we have been seeing is what I mentioned with the question that Pablo did that particularly we have been seeing the traditional channel trending a little bit faster than -- or higher than the modern channel but that has been similar during the months of the quarter.

I have a follow-up regarding the sourcing of raw material. We know that currently, the situation in terms of tariffs Mexico is a relative winner.

But anyway, I think there is still a lot of volatility in the market because nobody knows where the global situation will stay. So my question is more towards if you see any opportunities to have some more diversification in terms of raw material sources, especially related to poultry eventually meat that I imagine it's mostly sourced from U.S.

So opportunities to source this in other countries.

Thank you, Renata. This is Roberto.

I would say definitely, we have been working since a couple of years now to diversify more our raw material sourcing. There's -- let me give you an example, probably 2 years ago, we used to buy very little from Brazil.

Last '23 and '24 and through this year, we have been increasingly procuring more raw materials, particularly poultry but also other raw materials from Brazil. We have been diversifying also from other regions.

We're looking right now into other regions of Europe and even Asia. We started bringing some beef from Argentina last year.

So yes, definitely, I would say we have been increasingly looking for opportunities to diversify our sourcing. In the past, it used to be a lot of U.S.

focused. But now it is less.

And that is -- and that and the capability that we have to build up inventory and use frozen meat or dry raw materials for some of our products help us with that.

Thank you, operator. We do have one additional question from -- coming in through the Q&A.

And this relates -- this is for Roberto, whether you provide -- you could provide some additional color on the Foodservice segment and how that is performing relative to the other segments, given that it could be a little bit more sensitive to an economic slowdown.

Sure. So in the Foodservice business, particularly in Mexico, where we have that channel more developed, similar to the other retail business, we have been seeing some pressures in raw materials, particularly beef.

And this is also related to FX or mainly related to FX since we import most of our beef raw materials that are payable in U.S. dollars.

So we have been working to increase prices to mitigate that effect. And with that, we have been seeing that volume that was growing last year is starting to consolidate at a certain level and stopped growing.

Yet there's still some more revenue management initiatives that we need to do there. But once we have recovered the margin in that particular sector, we will continue exploring the strategies that we have in terms of volume.

Thank you. And it seems that this was our last question.

And in that case, 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.

Have a great day and we will now disconnect.