Alfa SAB de CV (ALFFF) Q3 2022 Earnings Call Transcript

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Alfa SAB de CV (OTCPK:ALFFF) Q3 2022 Earnings Conference Call October 21, 2022 1:00 PM ET

Company Participants

Hernan Lozano – VP, IR

Eduardo Escalante – CFO & Human Capital Director, ALFA

Roberto Olivares – CFO, Sigma

Adrian de los Santos – CFO

José Carlos – CFO and Director of Administration & Finance, ALPEK

Conference Call Participants

Rodolfo Ramos – Bradesco BBI

Alejandro Zamacona – Credit Suisse

Bernardo Malpica – Compass Group

Operator

Good afternoon, and welcome to ALFA’s Third Quarter 2022 Earnings Conference Call.

At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session with instructions given at that time. However, you may submit questions at any time today even in the Q&A section on the webcast. As a reminder, today’s conference call is being recorded.

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

Hernan Lozano

Thank you, operator. Good afternoon, everyone, and welcome to ALFA’s third quarter 2022 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 recently redesigned 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; Carlos Jimenez, ALFA’s General Counsel; Roberto Olivares, Sigma’s CFO; and representatives from each ALFA company.

Before moving into our discussion on results, it is important to note changes to ALFA’s consolidated figures. In accordance with IFRS, Axtel meets the definition of a discontinued operation as a result of the planned spinoff of this business. Therefore, we started accounting for Axtel as a discontinued operation beginning this quarter. Detailed information related to this change can be found in our earnings report. Unless otherwise specified, all consolidated figures referenced in this call exclude Axtel.

I will now turn the call over to Eduardo.

Eduardo Escalante

Thank you, Hernan. Good afternoon, everyone. I hope you and your loved ones have remained safe and healthy. ALFA delivered another strong quarter, advancing on the execution of key strategic initiatives and posting a strong consolidated financial result. Consolidated revenues increase 26% year-over-year, even primarily by Axtel, which benefited from higher average prices and the successful integration of this research acquisition in the Middle East. Sigma also contributed to these quarter’s higher revenues with double-digit sales growth in Mexico, the US and Latin.

Consolidated EBITDA was up 3% to $454 million. This figure includes a negative impact of $118 million from extraordinary items at ALPEK, reflecting a significant drop in oil and petrochemical feedstock prices during the quarter. Adjusting for extraordinary items, comparable EBITDA was a record third quarter figure of $572 million up 44% boosted by ALPEK.

The third quarter was notably strong for ALPEK, supported by better than inspector results from its new OCTAL business. Volume was up 14%. Sales increase 42% and comparable EBITDA surge, 81%. These marks the first full quarter of the new operation on their ALPEK control. Prospects are encouraging as the team focuses on maximizing synergies following a seamless transition.

We are pleased to see that ALPEK is having another outstanding year on track to reach its upwardly revised EBITDA guidance, which implies lower sequential reference margins plus the usual demand seasonality during the fourth quarter.

I will now turn the call over to Roberto Olivares, Sigma’s CFO to discuss the company’s third quarter results and progress on the strategic initiatives. Please, Roberto.

Roberto Olivares

Thank you, Eduardo and good afternoon, everyone. I will begin with an overview of our operational and financial results, followed by a review of the actions we are taking to mitigate inflationary pressures and also comment on our recent liability management efforts.

Consolidated revenues reached $1.88 billion, 9% above 3Q ’21. Revenue growth was driven by a strong demand across all regions despite the double-digit price increases in local currencies. In contrast, consolidate EBITDA was $151 million down 14% year-on-year, mainly due to inflationary pressures in energy and other input costs, particularly in Europe, as well as lower contribution from our fresh meat business. Results were further impacted by the 9% depreciation of the Euro against the dollar.

At suffice, we have taken on present revenue management initiatives to cover the rising cost of meat ingredients and packaging. During the last part of the quarter, there were further increases of meat and energy cost that will be offset by additional price increases. This generated a temporary impact on results.

We are taking other actions to mitigate the impact on the current inflation environment. This includes accelerating the adoption of alternative energy sources in our facilities, such as the installment of solar panels in two plants in Europe, as well as hedging 75% of our electricity and 100% of our gas needs for the rest of the year.

It is important to highlight that efficiency initiatives are not only being conducted in Europe. We’re also implementing a company-wide effort called Fuel. This program seeks to reset cost basis, leverage our global scale, reduce cost structured complexity, and improved budgeting and procuring processes. Since activation of Fuel last year, we have launched over 200 initiatives with the web of more than 250 employees across all regions, who are leveraging their expertise and onerous mindset, questioning the status quo and sharing best practices among business units.

Moving on to our first liability management efforts. During the quarter, we secured four trade line commitments to refinance our €600 million 2024 bond. These facilities have loading interest rates and mature in 2027. We expect to redeem the bond within a three-month period prior to the scheduled maturity, using the resources from the credit lines. The currency mixed from these facilities will better match our exposure by region.

This proactivity strengthens Sigma’s financial position reflecting our discipline and careful approach to liability management by taking actions 17 months prior to our next step maturity. We remain committed to maintaining our investment-grade status. During the third quarter, net leverage was 2.5 times in line with our long-term target.

Although there’s still some volatility in the market, we expect cost pressures to be temporary. Meanwhile, we will continue to take the actions needed to mitigate the impacts. We’re confident in our ability to overcome the challenges and reemerge as a more profitable company.

Thank you for your attention. I will not turn the call back to Eduardo for additional comments and closing remarks.

Eduardo Escalante

Thank you, Roberto. Regarding the strategic front, Alpha continues its focus on transferring value to shareholders. We are following a balanced approach that includes dividend payments and share repurchases, as well as improving price metrics and implementing transformational efforts to address Alpha’s conglomerate discount.

We have strongly believed the share buybacks represent an attractive value enhancing alternative while the market fully recognizes Alfa’s appealing underlying fundamentals and ongoing transformation.

During the third quarter, we repurchased 24.9 million shares valued at approximately $17. Combined with buybacks from previous quarters, the total amount of shares reported so far this year is 86.9 million shares valued at approximately $60 million. We’re also convinced that a strong balance sheet and our commitment towards investment-grade ratings are fundamental for the transformation process. Better than expected consolidated performance, coupled with financial discipline have resulted in ALFA’s consistent credit metrics improvement.

Our consolidated net debt-to-EBITDA ratio was 2.2 times at the close of the third quarter, an improvement from 2.5 times a year ago. Looking ahead, each of our businesses’ ability to continue generating a strong individual EBITDA will be key for ALFA’s unlocking value process beyond the Axtel’s spin.

I am pleased to report that the process for Axtel to become the second independent Alfa subsidiary is moving forward. The 45-day required legal term was completed without objections during the quarter. Also, the new entity control has been constituted and it’s listing process was initiated. We are following the same process implemented when we spun off Nemak in 2020 and expect the timeline to be similar. If so, control our Axtel could begin trading in the Mexican Bolsa before year-end.

Once the spinoff is completed, ALFA will no longer have an equity ownership in Axtel. In instead, ALFA shareholders would gain full autonomy regarding their stake in Axtel just like they did with Nemak.

The spinoff further simplifies ALFA’s corporate structure and enhances its solid financial position leading two major operating subsidiaries with investment grade ratings under the holding company. This process also marks a new era for Axtel to build up on its leading industry position by accelerating strategic growth initiatives as a standalone entity. It is exciting to see Axtel’s result turning around already.

Revenues grew 7% and if EBITDA increased 12% quarter-on-quarter driven by positive results in both the infrastructure and service business units. I would like to highlight that Axtel generated positive free cash flow and reduced debt during the quarter. Moreover, the company maintains its strong liquidity supported by a healthy cash balance of $74 million plus $40 million in available committed credit lines at the close of the third quarter of this year.

Moving next to a strengthening the business, the individual businesses. ALPEK and its two partners in Corpus Christi Polymers, reinitiated construction of an integrated PTA-PET site in Corpus Christi, Texas. With a planned annual capacity of 1.3 million tons, PTA have 1.1 million tons PET is split equally among the three partners. ALPEK farther strengthens is competitive position and is better able to meet increasing customer demand. This state-of-the art facility is expected to be completed in 2025.

Let me close with a brief update on our progress related to ESG initiatives and recognition that we have been achieving. The latest S&P CSA ratings were released during the third quarter. ALFA’s score increased year-over-year remaining significantly above industry average, supported by improvements in all three pillars; environmental, social and governance. Also noteworthy, ALPEK continues to foster product circularity.

The company’s EPA subsidiary joined Cycling [ph] International, a consortium-based company that focuses on establishing a circle pathway for plastic recycling through initiative innovative collection methods. Among other targets ALPEK has committed to increase recycling content on select EPS products to at least 30% by 2030.

In closing, I want to thank every ALFA member for the crucial role in achieving these good results. This concludes my remarks. We are now available to take your questions. Please, Hernan.

Hernan Lozano

Sure. We would like to begin the Q&A session with questions on ALFA. Eduardo, Carlos and I will take questions on ALFA or corporate matters. As a reminder, Sigma, ALPEK and Axtel will be available for individual questions later in the Q&A session.

Operator, could you please instruct participants to queue for questions on ALFA?

Question-and-Answer Session

Operator

[Operator instructions] Our first question is from Rodolfo Ramos with Bradesco BBI. Please proceed with your question.

Rodolfo Ramos

Thank you, gentlemen. Good afternoon. Thank you for taking my question. I have two here on ALFA. So, just wanted to get your sense of how are you thinking of the next steps? If we look past the Axtel spinoff, how are you thinking of the next steps on the unlocking value initiative that you’ve continued to push forward?

And in particular, I’d like to know those if the fact that Sigma is not necessarily in top shape in terms of margin with all these headwinds, does this impact your the timeline of the spinoff of ALPEK? Does that have any bear in, in your thinking process or is it this just ALPEK’s specific considerations? And then I just have a second follow up.

Eduardo Escalante

Sure Rodolfo. Thanks for the question. Let me begin by saying that, we are fully committed to maintain a balanced approach between dividend payouts as well as buybacks and improve credit metrics and our transformation efforts. At this time, we are fully focused on successfully completing the Axtel spinoff. We do not have an specific time set for the next steps.

We will continue working together with ALPEK and Sigma in order to define such next steps and in particular what we propose to the board and what they decide — what they decide to do to our shareholders. We feel, regarding Sigma, we feel that the extraordinary results from ALPEK really provide a significant flexibility for the next steps.

We do expect Sigma to improve the results following the initiatives that Roberto described previously and that along the very good results in ALPEK take should allow us to move forward with the unlocking value process. I think we have made, honestly, I think we have made a significant accomplishment in this process.

If you look at where we were two years ago ALFA shareholders since then have gained full autonomy regarding their stake in Nemak, and they have gained again full autonomy in their stake in Axtel. In addition, we are preparing for the next steps working diligently in things like reducing the corporate expenses. They are expected this year to be roughly one third of what they were in 2019 and we have seen the subsidiaries become more and more independent of the corporate services.

We think that is — those are significant steps towards the next steps regarding Sigma and Axtel. So we are in a good position now to be able to define when and how to move forward.

Rodolfo Ramos

Thank you. And just a second question, if I may. This is more of a maintenance ones here. What else is missing for us to no longer see reporting on Nemak? Is there anything more administrative missing to divest or what is the story there?

Eduardo Escalante

Sure Rodolfo. As you know, the scope of Nemak has reduced significantly in the last couple of years. So we really don’t think it is material, the results regarding ALFA, and that’s why we decided not to present the results here. But I have to tell you, Roberto [ph] is here in the call and we are certainly open for questions regarding Nemak at the appropriate times or even if you want to have a private meeting with them in order to discuss their operations and the results, we continue and we will always be certainly open to those discussions.

Rodolfo Ramos

Okay, Thank you. Yeah, I can follow up offline if you’d like.

Eduardo Escalante

Thanks.

Operator

Thank you. Our next question is from Nick Lipman [ph] with Morgan Stanley. Please proceed with your question. Nick, your line may be on mute. You may proceed with your question.

UnidentifiedAnalyst

Sorry about that. Yes, thank you very much for taking my question. Two very simple questions, if I may. First, how do you in management and the board weigh the decision to pay out dividend, which is rather significant size dividend from ALFA vis-a-vis the potential speeding up of the unlocking of the holding structure in and undoing it into Sigma? So that’s question number one.

How do — you have a potential value creation, which could be of multiple pesos vis-a-vis paying a dividend and potentially paying that dividend delays the unlocking of the per share valuation. So that’s number one.

Number two, how should we think about the debt maturities in 2024? And is that a deadline or is something — is there something we that, or is it something that maybe a milestone but not necessarily a deadline for the undoing of the holding into Sigma? Thank you very much.

Eduardo Escalante

Sure, Nicole and thanks for both questions. Our shareholders have decided to follow a balanced approach between dividends and the debt reduction. They made the decision for the last few years for ALFA to pay a significant amount of dividends. This few years, last few years, we have paid roughly $200 million. In fact, the exact figure for this year is $196 million. So they decided to follow a balance approach between both.

In the case of this year, we do expect to receive more dividends from ALPEK and Sigma before the end of the year. We do not expect to pay additional dividends from ALFA. So we will probably do some debt reduction as well as we are closely following the prices of our shares of ALFA shares and as I mentioned before, we have done significant buybacks and we may do some additional buybacks the rest of the year.

So we will continue following as where asked by our board and shareholders for that a balanced approach between all these fronts.

Regarding the debt maturity for 2024, we do have a bond that matures in March of 2024 and we are working on refinancing this bond via bank loans. We think with bank loans, not only we get attractive conditions since the bond market today is not really in good conditions, but also we obtain flexibility to reduce debt in the future the app repayments, add as we move forward and continue receiving dividends from Sigma and ALPEK.

We have made significant progress in those negotiations with the bank. In fact we appreciate the support that we have received from them and we expect to be able to plus soon most of those loans and from there we will look at the price of the bond and decide how to move forward with it, but again, the plan is to continue reducing the debt of the holding company through that flexibility regarding these new financings.

UnidentifiedAnalyst

Got it. Thank you.

Eduardo Escalante

You’re welcome.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back to Hernan Lozano for any questions from the webcast.

Hernan Lozano

Great, thank you, Paul. We do have a couple questions from the webcast. Let me go over them real quickly. The first one is related to the use of proceeds from a potential extraordinary dividend from ALPEK. Would it be used to reduce ALFA debt?

Eduardo Escalante

I already made some comments regarding that, but let me compliment that with a couple of topics. First of all, we certainly think that ALPEK’s strong financial position will allow them to pay additional dividends this year as it was mentioned in ALPEK’s conference call this morning. An additional dividend from ALPEK will be discussed in the next ALPEK’s board meeting which will be held next week.

In our case, the use of proceeds will probably be a balance between share buybacks as well as reduction on ALFA holding debt means we do not expect to pay more dividends for the remaining of the year. How much will be devoted to each one of these two share buybacks or debt reduction will really depend on what happens with our stock price.

As I mentioned before, we continue believing that there is significant value that is not being recognized in the price of our stock.

Hernan Lozano

Thank you, Eduardo. The next question is related to debt levels at the holding and a little bit of additional color related to any maturities coming up over the next 12 to 18 months.

Eduardo Escalante

Sure. regarding the debt levels, we have been instructed by our board to maintain a net leverage level below 2.5 times. So that is the target that they set up for us and with the idea of reducing it in order to be able to move forward with the unlocking value process.

But I would say that is the limit regarding the target at this time. We have been able to reduce it and we are at 2.2 times. So we feel we are in good shape.

And regarding maturity, the only significant maturity we have in the next 12 months to 18 months is the bond. The bond $500 million matures in March of 2024. We do have other financing facilities in the holding company. Basically the holding company there today is about 1,250 million out of which two bonds are $1 billion, $500 million each.

And then we have another $200 million, $250 million. But those are mostly committed credit lines that we use as revolvers facilities, and we do not have any other pressure from any other maturity going forward in this 18 months.

Hernan Lozano

Thank you, Eduardo. And we have another question that is related to a possible real estate sale. Any update on a possible real estate sale, please?

Eduardo Escalante

Well, now that the market, the real estate market is normalizing here in San Pedro after the pandemic and some of the real estate upscale developments that were done the last few years have pretty much been absorbed by the market, we are restarting to look with increased interest to this — to do a possible transaction with real estate.

We are still looking at options. We do not have at this time any solid plan to share with you, but we are certainly looking at different options to be able to monetize this very valuable real estate that we have here.

Hernan Lozano

And one last question from our webcast. Is it likely to see Alpek become independent in the next 12 months to 18 months?

Eduardo Escalante

I would say the time window of 12 months to 18 months is quite tight, is really, will depend on what happens with the results of Sigma first. How we finish up, if we are able to complete on time the Axtel spinoff, and then what happens with the results of Alpek and Sigma. But that would be a very tight window for to be able to do something with Alpek and or Sigma.

Hernan Lozano

Thank you. That was the last of our questions coming from the phone or the webcast. So now we will move on to take questions on Sigma. Roberto Olivares, Sigma’s CFO will answer your questions.

Operator, could you please prompt for questions on Sigma?

Operator

[Operator instructions] Our first question is from Rodolfo Ramos with Bradesco BBI. Please proceed with your question. Rudolfo, your line may be on mute. You are open to ask your question.

Rodolfo Ramos

Oh, I’m sorry. Apologies for that. Thanks for taking my question again. So looking at Mexico’s profitability, it has held up significantly better than other of your markets, but how are you thinking about price increases? When you look at your main input cost in the country and where you stand in terms of gross margins, we’ve seen in general that consumer companies have still some catch up to do. So I just wanted to get your thoughts on what is your outlook for pricing to doing the reminder of this year and perhaps next year?

And, an attachment to this question, if I may, if you see any impact from these price inflation packages or packs that the administration has been announcing. Thank you.

Roberto Olivares

Hi, Rodolfo and thank you for your question. Regarding pricing in Mexico what we have been doing this year and we have done that also in the past, we have do the pass through of almost of our cost increases into price, but not only focusing on price, we have also work as I mentioned in my initial remarks, a lot of expense saving initiatives, looking for ways and thinking outside of the box ways to reduce expenses in order to maintain margins and not necessarily be an extra burden to consumers passing of the prices.

If we see continued volatility and additional cost increases, we will continue to look into initiatives using both levers, price and expense reduction to the pass through and maintain margins.

In regards to your second questions about the anti-inflation government program; yes, as you mentioned, we were invited to join this government effort to reduce the impact of inflation on the Mexican households. Although our categories are not including among the 24 product listed, we are working and with them and gladly helping in any way we can.

For example, we’re currently evaluating importing some raw materials from regions with lower pricing to reduce the pressure on inflation. We are committed to do this by maintaining the highest quality and food safety standards. And we’re also highlighting that we need to conduct these initiatives hand in hand with the government authorities in this case, [indiscernible] because we consider that their expertise is very relevant to this process.

Rodolfo Ramos

Thank you. And just a follow up there, you were able to increase 11% average prices during the quarter. Is this something, should — just based on where we stand right now, if we weren’t to see any major movements on commodities and some of your input prices, how much would be let’s say the remaining price initiatives that would be left to perhaps get where you want to get in terms of gross margins?

Roberto Olivares

I think as of right now we have, I will say close to the gross margin that we need in order to maintain what we previously had last year. We are working also, as I mentioned in our initiatives, is if we see higher headwinds or cost increases, we will try to increase prices. We will increase prices to offset that impact.

Rodolfo Ramos

Okay, Very clear. Thank you very much.

Roberto Olivares

Thank you, Rodolfo.

Operator

Thank you. Our next question is from Alejandro Zamacona with Credit Suisse. Please, please proceed. Third question.

Alejandro Zamacona

Hi Eduardo and Roberto. Thank you for taking my questions. Just a quick follow up on the anti-inflationary plan by the government. So, part of this plan includes the license to extend the several sanitary permits and the tax imports and food and input cost. So I’m curious to hear what’s the potential impact or benefit to Sigma on this potential extending? Thank you.

Roberto Olivares

Sure. Thank you, Alejandro. So, yes, as I mentioned, we are currently evaluating importing some raw material, particularly I will say well pork, turkey, chicken from other regions that right now are — we cannot, or before this change, we cannot import it from those regions and that this region have a lower either cost productions or lower demand. And those have lower prices of raw materials.

So we expect two benefit from lower raw material costs for some of these materials and translate these into not having to increase prices or not having to increase additional prices if we receive those benefits.

Alejandro Zamacona

Okay. thank you. And then my second question if I may, do you have any early expectations for 2023 in terms of volumes prices, margins any thoughts around that? Thank you.

Roberto Olivares

Sure. Thank you. So sure. Let me just talk a little bit about volumes. So if you see what we have increased prices this year overall around 10% in local currencies and volume growing 4%, you see volume, very resilient. We do expect to continue looking into resilient volumes in the next year.

I will say that even if there’s some economic downturn in the US, we even expect volume to increase a little bit, given that our main brand in the US is more a smart choice brand. We have taken a very careful approach in regards to revenue management, always looking into how to protect volume and optimize as much as possible our margin. So we do expect 2023 to continue with that performance in regards to volume.

In regards of profitability, I will say, let me split, but the worry to regions Americas and Europe, we do expect that in Americas it will be a little bit more stable probably completing facing out the pandemic some labor normalization in the case of the US and as I mentioned, maybe a complex economic environment. But what we do expect to continue seeing growth in America in the case of Europe?

The main risk and driver here is the uncertainties surrounding the conflict. But we do expect that with all the pricing pieces that we have done this year in the case of Europe, 11% year-on-year, which is unprecedented for that region.

It will leave us, let’s say more prepared and with all the efficiencies that we have — that we have done, it will leave us more prepared to meet at 2023 in a better way. We will continue looking into ways to increase prices if we continue to see some volatility or cost increases in Europe. And it will be just a matter of pricing in the case.

Alejandro Zamacona

Okay. Thank you very much.

Roberto Olivares

Thank you, Alejandra.

Operator

Thank you. Our next question is from Peter [ph] with Banc of America. Please proceed with your question.

UnidentifiedAnalyst

Hi, Eduardo. Roberto, Hernan thank you for taking my questions. Just thinking of your ’22 guidance, which I understand is unchanged, could you discuss what regions, I think you highlighted a little bit, but thinking of the implied fourth quarter, what regions you see driving the higher EBITDA margin implied for fourth quarter 2022? And if any color on what you may be expecting for Europe, and if this contemplates reactivation of the fresh meat sub segment permits in Spain. Thank you.

Roberto Olivares

Okay, thank you, Peter. So yes, if you see there’s some seasonality on the 4Q. In any year, we see a little bit of stronger 4Q given the Christmas sales from our products. So we do expect all of the regions to have a better 4Q than the 3Q. We still see some downside risk in regards to EBITDA, but close enough not to require a formal guidance revision with just one quarter left.

If you are and the other question was regarding our fresh meat business assumptions, so that we are working again with the Chinese, with the Spaniards and with the Mexican authorities to try to regain the license to export to China from that particular business. Hopefully, we have better news on that matter in the coming months, but we’re doing a lot of actions in order to mitigate the impact there.

For example, during this year, we decrease our slaughter numbers from 1.3 million animals per year to 1 million animals. We took other actions to reduce the numbers of days of the plan’s operations and to save on labor and to save on energy as well. And we continue to grow our retail sales and looking into ways to allocate the byproducts that previously were sent to China.

UnidentifiedAnalyst

Great, Thank you. And just one quick follow up if I may. Can you disclose the margin on the new credit facilities that will be used to refinance the Europe 24 bonds?

Roberto Olivares

Sure. So we have some of those license in dollars and some in euros. They will be equivalent in both of them equivalent to around so from plus 100 basis points around that.

Operator

Our next question comes from Bernardo Malpica with Compass Group. Please proceed with your question.

Bernardo Malpica

Thank you for taking my question. My question is regarding pricing, when we look at our other consumer staples companies, we see pricing increases reaching the 17%, 18%, 19%. I was just wondering why Sigma has this gap? Is it a thing of industry? Is it a thing of maybe the products are more elastic or you just don’t want to lose volumes at all? Or where does this gap to other consumer companies in terms of pricing come from? Thank you.

Roberto Olivares

Good. Thank you, Bernardo. I think what we have done a lot of the pricing initiatives that we took or that we take on a regular basis are based on revenue management. So we look into elasticities, we look into how obviously competition is moving. We look into how to optimize our margin and for some of the regions, we have increased prices enough to mitigate all of the impact at, I would say, at a contribution margin level and also at a gross profit level.

From some others, for example, the case of Europe, it has been a lagging. We have some facing. We have increased prices higher than this, but given that some of the price increases were fully reflected during the middle of the quarter or by the end of the quarter. If you see new growth is a little bit less than that.

In our categories, in the regions where we participate, I will say that we are usually the first ones to move to increase prices, because we really are committed to maintain our margins. We will continue increasing prices in case it’s necessary, and we see this also as a temporary impact. We do expect this inflationary environment to normalize. And if you see how we’re keeping volume, I think we will do very off when everything normalizes back.

Bernardo Malpica

Perfect. Makes sense. Thank you, Roberto.

Operator

Thank you. There are no further questions at this time. I’d like to hand the floor back over to Hernan Lozano for any closing comments.

Hernan Lozano

Thank you, Paul. Actually we do have several questions from our webcast to Sigma. So Roberto, there’s one participant asking for additional comments on Mexico margins, whether we should expect to see Mexico margins recover or whether previous margins in Mexico were abnormally high?

Roberto Olivares

Okay. Thank you, Hernan. If you see Mexico result this quarter, first of all, we do have a tougher comparable base. Last year, 3Q ’21 was their record EBITDA quarter for Mexico because, at that moment we have a friendlier, I would say cost and expense environment.

We do expect margins to recover in Mexico once Mexico inflation normalizes. I think we are working a lot on two fronts again, expense saving initiatives and that are helping us to continue gaining some or creating more value in that front and the other one is pushing a lot of innovation and ways to improve volume as well now.

Hernan Lozano

Thank you, Roberto. The other question is related to what, whether there are new countries that Sigma is importing raw materials from in the middle of this whole situation?

Roberto Olivares

So just to give you a couple of examples; in the case of pork, we might bring product from Brazil. We have been bringing product from Brazil, especially Turkey, doing almost all this year. So we have the context and we know the process. This is a different species, this is pork, but we might been doing that also bringing product from Europe, particularly poultry, turkey, and chicken from countries such as Poland or other even Spain. Prices of Turkey in that region are significantly lower than in the US.

We might even consider other regions such as Southeast Asia for chicken Thailand and Indonesia. But we’re working on those and analyzing those markets and see if we can obviously have supply that complies with our food and safety standards.

Hernan Lozano

Great, Thank you and final question from our webcast is related to dividends. Could you comment some more on dividends from Sigma and your view — your current view on dividends given the current environment?

Roberto Olivares

Sure. So, we have pay as of now, $75 million of dividends. We’re currently reviewing with Alpha on the rest of the dividends for this year. We have not reached a final decision on this topic. It will depend a lot on the price of this fourth quarter results and we will — we’re still reviewing that now.

Hernan Lozano

Okay, great. Thank you. So that was the last question on Sigma. Thank you very much Roberto. So let’s now move forward and take questions on ALPEK or Axtel. We have José Carlos, ALPEK’s CFO and Adrian de los Santos, Axtel’s CFO. So operator, could you please prompt for questions on ALPEK or Axtel?

Operator

[Operator instructions]

Hernan Lozano

There are no questions on the line. We can go over a couple of questions that we have for each company from the webcast. So we could begin with ALPEK. And the question for José Carlos is whether you could comment on an update on the plans of ALPEK’s special dividends or plans for ALPEK to pay a special dividend?

José Carlos

Okay, thank you, Hernan. Well as we commended today in our conference call, yes, we will are planning to propose to our board a special dividend to be paid potentially still this quarter. We have not yet come to a final amount, but certainly what I can comment is our balance sheet is stronger than we originally expected, and we certainly can support this paying a special dividend.

Hernan Lozano

Thank you. And if there are still no questions from the line, we can ask a couple of questions for Axtel from the webcast. So moving on to you Adrian, would be related to Axtel maintaining its guidance, if you could comment a little bit further on that?

Adrian de los Santos

Yes. We maintain our guidance for the rest of the year based on third quarter result. We see an improving third quarter. This is based on contracts that we have on the pipeline for government and segments. So, these two segments should contribute to a better fourth quarter.

In addition that the impact from bad debt provisioning of a major wholesale mobile customer will come down in the fourth quarter. So all these make or believe that we can — that we can meet our guidance or be close to it. So, that’s concerning the guidance for the year.

Hernan Lozano

Great, thank you. And the next question is related to bond buybacks. Any comments that you could share with us on bond buybacks that you have executed during the third quarter?

Adrian de los Santos

Yes. We confirm in our call this morning that we repurchased $70 million in the quarter. We have to keep a balance management of liquidity, including our committed facilities and facility maintained for any unforeseen event. So that’s how we approach the repurchase of our senior notes in the quarter.

We were having conversations with banks and making progress but not no timeline yet. So, we were diligently working on extending the maturity profile for our day.

Hernan Lozano

Great. Thank you. So that covers all of the questions for ALPEK and Axtel. I would just like to thank very much everyone for their interest in ALFA and 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 weekend.

Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.



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