ALFA reports 2Q22 EBITDA of US $706 million, highest second quarter result in its history

Rhea-AI Summary

ALFA, S.A.B. de C.V. reported strong 2Q22 financial results, with EBITDA rising 42% year-over-year to US $706 million, driven mainly by Alpek's performance. Total revenues reached US $4.835 billion, a 30% increase YoY. ALFA's EBITDA guidance for 2022 is slightly adjusted to US $2.280 billion due to varying performances among its subsidiaries. Notably, the spin-off of Axtel is progressing as approved by shareholders on July 12. Alpek closed the OCTAL acquisition ahead of schedule, projecting a US $120 million EBITDA contribution for the year, while Sigma's guidance was lowered due to European market challenges.

Positive

• 2Q22 EBITDA rose 42% YoY to US $706 million.
• Total revenues increased 30% YoY to US $4.835 billion.
• Alpek raised its 2022 EBITDA guidance by 17% to US $1.600 billion.
• Successful completion of the OCTAL acquisition ahead of schedule.
• Consolidated net leverage ratio improved to 2.3 times, down 9% YoY.

Negative

• Sigma's 2022 EBITDA guidance lowered by 8% to US $700 million due to poor performance in Europe.
• Axtel's EBITDA guidance reduced by 11% to US $158 million due to semiconductor shortages and lower government segment results.

MONTERREY, Mexico, July 20, 2022 /PRNewswire/ -- ALFA, S.A.B. de C.V. (BMV: ALFAA) ("ALFA"), a company that has developed a diversified portfolio of leading businesses with global operations, announced today its unaudited results for the second quarter of 2022 ("2Q22"). All figures have been prepared in accordance with International Financial Reporting Standards ("IFRS").

2Q22 HIGHLIGHTS

ALFA	-  2022 EBITDA Guidance adjusted slightly to US $2.280 billion as higher Alpek guidance is offset by Sigma reduction and Axtel exclusion -  Process to spin-off Axtel moving forward as approved by ALFA shareholders on July 12; ALFA simplifying further its corporate structure to continue unlocking value -  Second quarter EBITDA surged 42% versus 2Q21 driven mainly by Alpek -  Consolidated net leverage ratio of 2.3 times, down 9% year over year; six consecutive quarters posting improvement -  Repurchased 62 million ALFA shares in 2Q22 (~US $43 million)
Alpek	-  2022 EBITDA Guidance revised up 17% to US $1.600 billion supported by strong performance, a solid margin outlook and the OCTAL acquisition -  Closed OCTAL acquisition ahead of plan and assumed control on June 1st -  First ALFA subsidiary to obtain approval from SBTi for its emissions reduction target
Sigma	-  2022 EBITDA Guidance revised down 8% to US $700 million reflecting subpar performance in Europe and sequential recovery in 2H22 -  Record quarterly revenue of US $1.870 billion, driven by double-digit growth in Mexico, the U.S. and Latam -  Europe EBITDA up 20% versus 1Q22 driven by initiatives to mitigate the recent rise in energy prices and other input costs
Axtel	-  Axtel's Board of Directors appointed Armando de la Peña as CEO, effective May 1, 2022. -  ALFA's process to spin-off Axtel does not involve changes in Axtel's Board of Directors or Top Management -  Actively engaged to refinance 2024 bond more than 2 years ahead of maturity; process focused on bank loan alternatives -  2022 EBITDA Guidance lowered 11% to US $158 million primarily due to Government segment results, semiconductor shortage causing delays and reduced contribution from large wholesale customer

Message from ALFA's President

"We hope you and your families are remaining safe and healthy. The second quarter was marked by exciting developments on the strategic front, including the announcement of the Axtel spin-off and Alpek´s closing on the previously announced OCTAL acquisition. We are also pleased to report strong consolidated performance with quarterly EBITDA of US $706 million and six consecutive quarters of year-over-year improvement in the net leverage ratio.

ALFA's 2Q22 revenue increased 30% year-over-year and EBITDA surged 42% driven once again by a better-than-expected performance at Alpek. The petrochemical business continued to capitalize on strong reference margins in its core products plus solid demand. In addition, Alpek's results benefitted from the integration of the OCTAL acquisition in June.

Sigma was negatively impacted by the ongoing headwinds in its European operations, primarily higher energy prices and input costs as well as lower pork exports. Noteworthy, Sigma Europe EBITDA was up 20% quarter-on-quarter as operating efficiencies and pricing actions have been implemented to mitigate inflationary pressures. Meanwhile, lower sales from the Government segment, project delays caused by the global semiconductor shortage, and lower revenues from a large wholesale customer continued to weigh on Axtel's results. It is important to note that the large wholesale customer´s "concurso mercantil" process reached a financing agreement which provides certainty going forward to its creditors and suppliers like Axtel.

ALFA is fully committed to continue transferring value to its shareholders through a balanced approach which includes dividends, share repurchases, improvement in credit metrics and the transformational efforts underway to address the conglomerate discount.

We took a decisive step forward during the quarter when we announced the plan to spin-off Axtel to the ALFA shareholders. As approved by ALFA's shareholders on July 12^th, we are following virtually the same structure and process implemented when we spun off Nemak in 2020. ALFA will transfer its entire stake in Axtel to ALFA's shareholders via a new, Bolsa-listed entity named Controladora Axtel.

By spinning-off Axtel, ALFA further simplifies its corporate structure and enhances its financial position as the two remaining subsidiaries, Alpek and Sigma, have investment grade credit ratings. In addition, ALFA's shareholders gain autonomy as we advance, holding separate stakes in ALFA, Nemak and soon in Axtel. Also, as an independent business, Axtel will drive strategic initiatives to boost growth without the influence of ALFA's transformational process.

Another key value-enhancing event during the quarter was Alpek closing the OCTAL acquisition ahead of plan. For 2022, Alpek is projecting an EBITDA contribution of US $120 million from OCTAL supported by better-than-expected reference margins and overall favorable industry conditions. In turn, Alpek increased its 2022 EBITDA guidance to US $1.600 billion, up from US $1.365 billion announced in 1Q22.

ALFA has also adjusted its 2022 guidance to reflect three significant items. First, the accounting effect resulting from Axtel being presented as a discontinued operation beginning in 3Q22. Second, Alpek raising guidance driven by the integration of OCTAL plus a solid reference margin outlook. Third, lower guidance from Sigma due to subpar performance from its European operations partially offset by solid results in Mexico, U.S. and Latam. The net result is ALFA's 2022 Consolidated EBITDA Guidance adjusted slightly to US $2.280 billion, compared with US $2.283 billion announced in 1Q22.

On the ESG front, Alpek became the first ALFA subsidiary to receive approval from the Science Based Targets initiative (SBTi) for its greenhouse gas emissions reduction target. Alpek is committed to reducing scope 1 and 2 emissions by 27.5% versus a 2019 baseline by 2030, which is in line with the Paris Agreement to combat climate change. Transitioning to renewable sources of electricity, improving energy usage, and producing emission-free steam are some of the initiatives Alpek will implement to meet its targets and reach carbon neutrality by 2050.

Looking to the remainder of the year, ALFA will prioritize the successful execution of the Axtel spin-off. Sigma will continue driving growth initiatives and mitigating inflationary pressures through operating efficiencies and revenue management. Alpek will focus on effectively integrating OCTAL to capture the full potential of this transformational acquisition and continue capitalizing on favorable industry dynamics.

In closing, we would also like to extend our condolences to the family of José Calderón Rojas who recently passed away. Mr. Calderón was a member of ALFA's Board of Directors since 2005 and dear friend with a long family legacy as an ALFA shareholder. We are grateful for his many years of dedicated service and valuable insight. Our thoughts and prayers go out to his family and loved ones. ALFA will be undertaking a search for a new Board member in due course."

Keep well/Stay safe,  
Álvaro Fernández

 

SELECTED FINANCIAL INFORMATION (US $ MILLION)
	2Q22	1Q22	2Q21	Ch.% vs. 1Q22	Ch.% vs. 2Q21	YTD '22	YTD '21	Ch. %
ALFA Revenues	4,835	4,191	3,731	15	30	9,026	7,119	27
Alpek	2,815	2,332	1,849	21	52	5,147	3,463	49
Sigma	1,870	1,711	1,707	9	10	3,582	3,320	8
Axtel	127	124	149	2	(15)	251	288	(13)
ALFA EBITDA1	706	644	496	10	42	1,350	1,031	31
Alpek	507	456	273	11	86	964	597	61
Sigma	172	161	182	7	(5)	333	363	(8)
Axtel	35	35	57	-	(39)	70	102	(31)
ALFA Comparable EBITDA2	568	520	449	9	27	1,088	863	26
Alpek	369	333	225	11	64	702	429	64
Sigma	172	161	182	7	(5)	333	363	(8)
Axtel	35	35	57	-	(39)	70	102	(31)
Majority Net Income	243	210	99	15	144	453	253	79
CAPEX & Acquisitions	763	92	183	729	317	855	262	226
ALFA Net Debt	5,406	4,906	4,811	10	12	5,406	4,811	12
Alpek	1,776	1,310	1,247	36	42	1,776	1,247	42
Sigma	1,772	1,795	1,728	(1)	3	1,772	1,728	3
Axtel	570	585	625	(3)	(9)	570	625	(9)
ALFA Net Debt/LTM* EBITDA	2.3	2.3	2.6
ALFA LTM* Interest Coverage	6.9	6.4	5.0

* Times LTM = Last 12 months.

1 EBITDA = Operating Income + depreciation and amortization + impairment of assets.

2 Excludes extraordinary items.

 

2Q22 EARNINGS CALL INFORMATION
Date:	Thursday, July 21, 2022
Time:	1:00 p.m. EDT (NY) / 12:00 p.m. CDT (CDMX)
By Phone:	United States:	+1-877-451-6152
	International:	+1-201-389-0879
	Mexico:	800-522-0034
Conference ID:	13731248
Webcast:	https://viavid.webcasts.com/starthere.jsp?ei=1558494&tp_key=52759fc818
Replay:	https://www.alfa.com.mx/RI/conference.htm

About ALFA

ALFA manages a diversified portfolio of leading businesses with global operations: Sigma, a leading multinational food company, focused on the production, marketing and distribution of quality foods through recognized brands in Mexico, Europe, United States and Latin America. Alpek, one of the world's leading producers of polyester (PTA, PET, rPET and fibers), and the leader in the Mexican market for polypropylene and expandable polystyrene (EPS). Axtel, a provider of Information Technology and Communication (ITC) services for the enterprise and government segments in Mexico. In 2021, ALFA reported revenues of Ps. 308,060 million (US $15.2 billion), and EBITDA of Ps. 41,050 million (US $2.0 billion). ALFA's shares are quoted on the Mexican Stock Exchange and on Latibex, the market for Latin American shares of the Madrid Stock Exchange. For more information, please visit www.alfa.com.mx

Disclaimer

This release may contain forward-looking information based on numerous variables and assumptions that are inherently uncertain. They involve judgments with respect to, among other things, future economic, competitive and financial market conditions and future business decisions, all of which are difficult or impossible to predict accurately. These uncertainties include, but are not limited to, risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response, availability of workers and contractors due to illness and stay at home orders, supply chain disruptions and other impacts to the business, or on the Company's ability to execute business continuity plans, as a result thereof. Accordingly, results could vary from those set forth in this release. The report presents unaudited financial information. Figures are presented in Mexican Pesos or US dollars, as indicated. Where applicable, Peso amounts were translated into US dollars using the average exchange rate of the months during which the operations were recorded. Financial ratios are calculated in US dollars. Due to the rounding up of figures, small differences may occur when calculating percent changes from one period to the other.

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SOURCE ALFA, S.A.B. de C.V.

FAQ

What were ALFA's financial results for the second quarter of 2022?

ALFA reported a 42% increase in EBITDA to US $706 million and total revenues rose 30% to US $4.835 billion in 2Q22.

What is the adjusted EBITDA guidance for ALFA in 2022?

ALFA has slightly adjusted its 2022 EBITDA guidance to US $2.280 billion, reflecting mixed performances among its subsidiaries.

What impact did the Axtel spin-off have on ALFA's financials?

The Axtel spin-off was approved by shareholders on July 12, aimed at simplifying ALFA's corporate structure and enhancing its financial position.

How did the OCTAL acquisition affect Alpek's performance?

Alpek projected an EBITDA contribution of US $120 million from the OCTAL acquisition, which was completed ahead of schedule.

What challenges did Sigma face in Europe during 2Q22?

Sigma faced challenges in Europe, leading to an 8% reduction in its 2022 EBITDA guidance, primarily due to high energy prices and input costs.