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ALFA, S. A. B. de C. V. (ALFFF) Management on Q1 2020 Results – Earnings Call Transcript

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ALFA, S. A. B. de C. V. (OTCPK:ALFFF) Q1 2020 Earnings Conference Call April 17, 2020 1:00 PM ET

Company Participants

Hernan Lozano – Vice President of Investor Relations

Eduardo Escalante – Chief Financial Officer

Rodolfo Gamboa – Senior Vice President of Oil & Gas

Alberto Sada – Chief Financial Officer, Nemak

Roberto Olivares – Chief Financial Officer-Sigma

Conference Call Participants

Vanessa Quiroga – Credit Suisse

Jean Bruny – BBVA

Sam Epee-Bounya – Wellington Management

Alejandro Azar – GBM

Michael Chung – Oaktree Capital

Alejandra Obregon – Morgan Stanley

Eric Neguelouart – Bank of America Merrill Lynch

Operator

Good afternoon, and welcome to ALFA’s First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions given at that time. As a reminder, today’s conference is being recorded [Operator Instructions]

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

Hernan Lozano

Thank you, Christine. Good afternoon, everyone and welcome to ALFA’s first 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, which we hope will serve as a useful reference to complement today’s call. Both documents are available on our website in the Investor Relations section.

As a reminder, 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 related to the impact of COVID-19. Therefore, actual results could vary materially and the company cautions not to rely unduly on these forward-looking statements.

During today’s call, Eduardo Escalante our CFO will discuss ALFA’s response to the coronavirus, as well as consolidated financial results for the first quarter. Afterwards, we will have a Q&A session, where we will take your questions together with the CFOs from each business.

I will now turn the call over to Eduardo.

Eduardo Escalante

Thank you, Hernan. Good afternoon, everyone and thank you for joining our call today. This was certainly an eventful and historical quarter for all of us. I would like to start the call by expressing my hope that you and your families are all healthy and safe in these uncertain times. The coronavirus is having far-reaching consequences around the world.

Before I discuss our results for the quarter, let me share what we are doing to respond to the challenge of COVID-19. Our primary focus is safety, to protect health and well-being of our employees, customers, suppliers and communities. We are following the guidelines provided by health and government agencies, as well as safety experts in all of our operations. We have enacted a strict hygiene and sanitization protocols, remote working, social distancing and travel restrictions, among others across all of our offices and facilities.

Also, business continuity task forces are in place at the local subsidiary and corporate levels, closely monitoring the situation and coordinating our response to the immediate challenges posed by rapidly changing conditions. We take very seriously our responsibility as essential business operators. We are working with the stakeholders in all of our value chains to adapt our operations and continue supporting of our customers and the communities, where we operate responsibly.

Our entire team is committing — committed to stepping up and doing our part to continue to safely produce and distribute food in the Americas and Europe through Sigma. We are also committed to maintaining the supply of materials that are at the forefront of the fight against COVID-19.

Some of the goods manufactured with Alpek’s products include, shelf-stable packaging for food, beverages and pharmaceutical products, medical gowns, face masks and even thermally-insulated packaging for COVID test kits. Moreover, Axtel is providing essential services, such as connectivity, cyber security and cloud solutions, all of which have become even more important as the global workforce shifted to working remotely.

By contrast Nemak is facing a different set of challenges as the global auto industry is being impacted by production costs and temporary shutdowns, amid emergency declarations issued in Mexico and other countries.

From a financial standpoint, we have a strong balance sheet and sufficient liquidity to weather this crisis, even if this results in a prolonged downturn in demand. The company’s consolidated cash balance of $2.3 billion is comparable to the EBITDA that we generated in 2019 and is larger than the aggregate amount of consolidated debt maturities over the next two years.

In addition, net debt-to-EBITDA was 2.7 times and interest coverage 5.3 times, at the close of 1Q 2020. Moreover, we are implementing cost reduction initiatives and capturing other cash flow benefits in all our businesses. On top of the $300 million presented in our shareholders’ meeting at the end of February, to ensure that costs remain aligned with the new operating environment and to maximize free cash flow.

ALFA’s Chairman of the Board and CEO decided to voluntarily reduce their salaries by 30% during 2Q 2020, to complement other cost-saving initiatives. In addition, a voluntary salary reduction program will be formalized shortly, by which ALFA’s corporate employees will have full discretion to contribute a portion of their compensation to fund a special programs in support of our communities and/or enhance cost savings under the current situation.

Other initiatives include extending the core and hiring freeze and eliminating all nonessential expenditures. Additionally, planned investments are being subject to potential deferral or reduction across all businesses. Also the previously approved dividends at Nemak and Alpek will be subject to a comprehensive review by their boards to provide shareholders an updated recommendation considering the current market conditions.

The implementation of updated recommendation would be subject to shareholder approval. That said, we remain prepared to take additional actions as warranted to respond to the evolving business environment. Each of our company is working on company-specific initiatives and products.

Nemak has gone further to reduce costs and expenses by implementing broader reductions on executive compensation and reducing working hours for salaried employees among other actions. It is important to note that Nemak’s team has a strong track record of adjusting its operations to overcome previous downturns and emerging as an even stronger player.

The company holds a leading industry position with presence in approximately 50% of vehicle name plates worldwide and is the sole supplier in 9% of its sales. Although, we don’t have any specific date, OEM shutdowns are expected to be lifted in a matter of weeks on a country-by-country basis. We are confident Nemak is capable of ramping up production as soon as customer activity resumes, just as it was able to do in China.

The biggest challenge that ALFA and all its businesses are facing right now is uncertainty around how long this situation continues and how deep of an economic downturn the pandemic creates. So far, the global macro environment has been characterized by a significant drop in commodity prices, FX volatility, rising unemployment and demand distortions.

The impact to our results from some of these variables is partially offset by the positive effect from others. However, given the unprecedented environment, we are currently operating in and the significant uncertainty it introduces, we have decided to withdraw guidance for the time being. We plan on restating guidance as soon as a reliable estimate can be determined.

Moving now to a brief discussion of first quarter results. As a reminder, more detailed information on the quarter for Alpek, Nemak and Axtel was provided by each of them during their respective conference calls held earlier today. Our business was generally trending ahead of expectations.

We’re affirming the strategies that we are executing and the momentum we had prior to the impact from COVID-19. 1Q 2020 consolidated revenue was $4.2 billion, down 7% versus 1Q 2019, primarily due to the effect of lower feedstock prices in Alpek, lower volume in Nemak and Axtel’s recent divestments.

However, it is important to note that Sigma revenues were up 8% driven by higher volume and average prices in all regions. And Alpek posted record quarterly volume supported by robust organic and inorganic growth following the acquisition of a PET facility in the U.K. 1Q 2020 EBITDA was $563 million, including a $91 million net gain from extraordinary items, mainly comprised of Axtel’s onetime gain from the previously announced datacenter sale.

Adjusting for extraordinary items, comparable 1Q 2020 EBITDA of $473 million was down 10% year-over-year and above our pre-profit estimations. Sigma was the only subsidiary that boasted comparable EBITDA growth versus 1Q 2019 of 1% in U.S. dollar terms or 4% on a currency-neutral basis, supported by solid performance in the U.S. and Mexico.

Looking now at the balance sheet. Consolidated net debt was down 12% year-over-year supported by solid operating cash generation and proceeds from the selective monetization of non-core assets in 2019. Our plan to continue lowering leverage and enhancing ROIC includes additional non-strategic asset sales among other initiatives. However, given the current market conditions, we decided to temporarily defer the plan presented at our annual shareholders’ meeting to carryout several transactions over the next 18 months, which were expected to generate proceeds of 1.2.

In particular, Axtel received significant interest from strategic and financial investors to enter a competitive process for its infrastructure business unit for the company early in 1Q 2020. This process is expected to get back on track as soon as market conditions are appropriate.

Our response to COVID-19 will evolve as the crisis continues to play out. We are confident that we are taking the right actions to protect the well-being of our employees, to serve our customers responsibly and to contribute in the global fight against this virus.

In addition to the business-oriented initiatives discussed earlier, we have donated medical supplies and food in various countries where we operate. Also, Nemak is using a state-of-the-art 3D printing and other manufacturing technologies to help increase sales system capacity in Mexico. We will continue to work closely with the stakeholders in all regions to identify and support additional actions against COVID-19.

Our long-term growth plan and strategic initiatives remain unchanged, but the immediate focus is to over — on overcoming these challenging times to emerge strongly when the coronavirus is behind us. I am optimistic about our prospects for the future, building upon a solid first quarter, a healthy balance sheet and especially the talented teams behind our portfolio of leading businesses. Let me take this opportunity to thank each and every one of them for their hard work, dedication and flexibility as we go through this difficult time.

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This concludes my remarks. Now we will take your questions. Please Hernan.

Hernan Lozano

Thank you. We would like to begin the Q&A session with questions on ALFA. Eduardo and I will take questions on ALFA or corporate matters. Operator, please instruct participants to queue for questions on ALFA.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Vanessa Quiroga with Credit Suisse. Please proceed with your question.

Vanessa Quiroga

Hi. Thank you for taking my question. It is regarding dividends. Would you expect at this point that Sigma’s good results so far and if they continue they could offset a potential reduction in dividends expected at the beginning of the year from Nemak and Alpek? Thank you.

Eduardo Escalante

Thank you Vanessa for your question. First of all, let me again mention that the approved dividends on Alpek and Nemak are still subject to Board review and an updated recommendation, which has to be approved by their shareholders. So at this point in time, we have no decision on the dividends of Alpek and Nemak for the remaining of the year.

In the case of Sigma, we will continue monitoring the situation in the next weeks and months. And then make a decision regarding Sigma’s dividends. At this time, we have nothing else to announce.

Vanessa Quiroga

Okay. Okay. Thank you Eduardo.

Eduardo Escalante

You’re welcome.

Operator

Our next question comes from the line of Jean Bruny with BBVA. Please proceed with your question.

Jean Bruny

Hi, Hernan. Thank you very much for taking my question. I just got a couple. Basically in your shareholder meeting you announced a plan to sell up to $1.2 billion of non-strategic assets. You also mentioned that this sale is postponed until you’re getting more visibility. Just to get a sense of what are these assets exactly? Are they within division’s subsidiaries or are they somewhere else? I don’t know. A couple of years ago you mentioned real estate as a financial opportunity just to get more visibility on this?

And the other question is on the buyback program. You said you decided $30 million in the first quarter. I believe the old program is $300 million and that we will be continuing to opportunity — with the financial opportunities. Have you been buying this latest a couple of weeks? What are the time there? Thank you very much.

Eduardo Escalante

Sure. Thank you, Jean. Thank you for your questions. First of all, let me mention regarding the assets, we announced at the last shareholders meeting that we had divestment plans for $1.2 billion as you mentioned. The most important portion of that amount is the infrastructure business in Axtel or the company’s sales.

And as I mentioned before, we are deferring that process. We are also deferring some other processes that we have in the other subsidiaries regarding other non-core assets, which at this time we have not disclosed and we don’t plan on doing so in the next few weeks. Until — we will wait until market conditions improve to again restart those processes — those divestment processes.

And regarding the buybacks at the ALFA level, let me start mentioning that, of course, ALFA is trading at a very large discount. We think as we have expressed in the past that the discount levels that we have in our stock prices are unreasonable, especially if you consider the strong and resilient business fundamentals that we have. And I think that it has been proven during this health crisis, how strong they are and how solid our operation — or operating cash flow generation is.

So, you can be sure that we will continue with initiatives aligned with the best interest of our shareholders. As you mentioned and we have also disclosed, during the first quarter of 2020, we repurchased about 35 million shares and we will — I would say, we will cautiously continue exercising opportunistic buybacks as long as we see these price levels for the stock.

Jean Bruny

Excellent. Thanks.

Eduardo Escalante

You’re welcome.

Operator

Our next question comes from the line of Sam Epee-Bounya with Wellington Management. Please proceed with your question.

Sam Epee-Bounya

Good afternoon, gentlemen. Thank you for doing the call and again I hope you, your family and the entire staff at ALFA fit and sound in these difficult times. My question is on liquidity. Is there a need based on what you’re seeing today to sort of enhance your liquidity further or you are happy where you stand now? Thank you.

Eduardo Escalante

Thank you, Sam and thank you for the good wishes. Likewise, we hope everything is fine with you and your family. First of all, ALFA went into this health crisis with a very solid financial position as you know and with no significant maturities until 2022. So, the starting point, we think was very good.

In addition, as I mentioned before, our cash position increased $922 million during the first quarter of 2020 compared with the end of last year as we strengthen our liquidity by drawing down a portion of our available credit facilities just to enhance our financial flexibility.

At the closing of the first quarter, we had a consolidated cash balance of $2.3 billion. And again, as I mentioned before, that amount is comparable to the EBITDA that we generated in 2019 and is larger than the aggregate amount of consolidated debt maturities over the next three years. So, we think we are in a very strong position liquidity-wise at this time. But having said that, we still have in ALFA and all the subsidiaries, we have about $2.3 billion in available committed credit lines and short-term loans that we may access if the need arises. Again, we think we are in a very, very solid position.

Sam Epee-Bounya

Thank you. Just to clarify, you say, you have the $2.3 billion available credit. Is it — does that include the $933 million or is that after you drew down on the $900-or-so million already?

Eduardo Escalante

No it’s in addition to. The $930 million — I mean $23 million were down. After that, we have still availability for $2.3 billion.

Sam Epee-Bounya

Okay. Thank you.

Eduardo Escalante

You’re welcome.

Operator

Our next question comes from the line of Vanessa Quiroga with Credit Suisse. Please proceed with your question.

Vanessa Quiroga

Yes. Thank you. A quick follow-up. Can you provide the cash balance that you had at the holding level as of March and as of today? Thank you.

Eduardo Escalante

Yes, Vanessa, thank you again for your question. Today, we have more than $300 million at the holding level. We decided to draw as we did in all the businesses a portion of our revolvers and short-term loans. At the pricing of the first quarter, we have $100 million.

Vanessa Quiroga

Okay. Great. Thank you.

Eduardo Escalante

You’re welcome.

Operator

There are no further questions on ALFA at this time. I’d like to turn the floor back over to Mr. Lozano.

Hernan Lozano

Thank you, Christine. We will then take questions on Sigma. Roberto Olivares, Sigma’s CFO will answer your questions. Operator, please prompt for questions on Sigma.

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Alejandro Azar with GBM. Please proceed with your question.

Alejandro Azar

Hi, everyone. Good afternoon, Roberto, Eduardo and Hernan. Thank you for taking my questions. The first one is related, if you could give us more color on the margin in the U.S., why is it better than last year? The second one is, if you could give us more information regarding how raw materials are behaving after the first quarter and how do you expect going forward in the short term? And the last one is related to your tax to the cash taxes, if you could give us a sense of how much of the total amount of the year versus was represented in the first quarter. Thank you.

Roberto Olivares

Hi, Alejandro. Thank you for your question. Regarding results on U.S.A. all the business segments in the U.S.A. continue to grow during the quarter and especially our mainstream business. I don’t know if you remember, but we have the private brand which is a value brand and it has been growing in sales volume steadily in spite of last year price increases. The result was further supported by the consumer processes to prepare for the preventive lockdown. And we speak to see a similar behavior happening during the contingency.

Also in terms of margin we have sustained healthy margins because of raw material prices. And this links to our second question. So raw material prices in the Americas have remained low during the first Q 2020. And actually by the end of March they have gone to very low prices.

Going forward, I mean, we definitely continue to see volatility given the ASF. Although, given this contingency we kind of saw a pause on that or reduced volatility because of China’s preventive lockdown measures, but we expect those to end soon and to start again seeing some volatility going forward.

Regarding taxes and what was paid during first Q 2020 we pay around 60% of the budget for the year. In March, actually we paid a deferred tax payment of 2020 taxes that we accrue in 2016. And this is, I think, the last year that we’re going to do that, at that so much high level of deferred taxes.

Eduardo Escalante

And let me make an additional comment. This is Eduardo, Alejandro. Let me make an additional comment regarding taxes during the first quarter and this applies not only to Sigma, but to all businesses. Taxes — cash taxes during the first quarter of 2020 look much larger than cash taxes during the first quarter of 2019.

And the reason for that is, March 31 of 2019 was a Sunday. And by rules in Mexico, because it was a Sunday we paid last year taxes on April 1. So they were accounted during the second quarter of last year. So you have to take that into account when you do the comparison.

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Alejandro Azar

Thank you, Eduardo. On the U.S. margin, if I listen correctly, you said the raw materials are dropping on a quarterly basis or on a yearly basis we still have at least cost high, right?

Roberto Olivares

Yes. Yes, Alejandro. When compared to last year, raw material prices are still up versus last year.

Alejandro Azar

So why are you having a greater margin? Is it just an effect of the volumes, of the higher volume or the mix?

Roberto Olivares

So, it has to do with both volume and also price. If you remember during last year, we implemented price increases across all the business segments. And with that, we saw an improved margins.

Alejandro Azar

Great. Thank you, again.

Roberto Olivares

Thank you, Alejandro.

Operator

Our next question comes from the line of Sam Epee-Bounya with Wellington Management. Please proceed with your questions.

Sam Epee-Bounya

Hello, gentlemen. Just a quick question on Sigma. If you can sort of comment on trends forward in terms of the consumer behavior. I understand that there were sort of pre-purchasing, if you want, ahead of COVID-19. But with the lockdown, I imagine, the retail segment is behaving different than the food services. So net-net, how do you see things going forward? Thank you.

Roberto Olivares

Sure. Thank you, Sam. So yes we saw amid this contingency, we saw demand at retail start to pick up by March. We saw significant increase in the U.S. and also in Mexico and Latin America. In the case of foodservice, given the preventive lockdowns and the measures taken to prevent the spread of the virus, we saw a significant decrease on our sales volume.

Food service, for us, represent around 10%, 12% of our sales. So it’s a small part. We’re taking as much as possible measures in order to contain the effects on foodservice. We want to do two things. First, to mitigate the impact on the short term and for that we are working on searching other business opportunities in the market.

For example, we started to sell our foodservice-focused products directly to consumers online and to offer the service of our distribution network to supermarkets, given the growing need on delivery capacity. And just as in our business units, we’re working on cost and expense optimization and postponing all nonessential CapEx, as Eduardo mentioned.

Additionally, in terms of expense, we have relocated some of our employees that are — to our retail channel, where operations have seen a recent spike on demand due to the continued demand.

On the second part, we are working on how to better position ourselves for when the foodservice industry will pick up. We still think there’s going to be a couple of months of this situation at least for the foodservice industry. So we were planning to better position ourselves so when this thing changes.

Regarding retail definitely we — as I mentioned, we have seen recent spike on demand. And we’re trying to understand how the consumer is going to behave after the crisis and we actually put a small team of people to evaluate and analyze this potential opportunities that can arise from this continued season.

Operator

Our next question comes from the line of Alberto Alena [ph] with Morgan Stanley. Please proceed with your question.

Unidentified Analyst

Hi, can you hear me?

Eduardo Escalante

Yes, we can hear you, Alberto. Good afternoon.

Unidentified Analyst

Hi. Thanks for the question. I have one question. Regarding how you say that the volumes are going down in the next few months? Why are you expecting also with the prices that the prices also going down, how are you going to make that adjustment in order to revenue maintaining and the margin now growing much more lower than expected in the first quarter?

Roberto Olivares

Sure. So just to clarify Alberto, if I didn’t come clear, we do not expect to overall volume in Sigma to go down. We only expect volume at the foodservice business, which is again 10% of our business to — for at least a couple of months decrease. Overall, the retail business we have seen volume going up in March. We saw a spike on volume again because of the purchases that the consumers are doing to prevent — I mean to be prepared for the preventive lockdown.

In terms of volume, in terms of prices, we have seen that some of the main raw materials since — or during this past quarter, they have decreased a little bit. Given that, again, we don’t see a lot of commercial activity in China, so pork prices have been going down. And also we have seen some extra production in the case of the U.S. and also the cost of our facilities in the U.S. are — have a lot of meat. So we have seen low prices of key raw materials, so we do not expect an impact from that side.

The only impact I will say, it will have to do with the Mexican depreciation, the Mexican peso depreciation and in the case of Mexico where we are working and we have already implement some price increases to offset that depreciation.

Unidentified Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Michael Chung with Oaktree Capital. Please proceed with your question.

Michael Chung

Hi, guys. Can you hear me?

Eduardo Escalante

Yes. Hi, Michael.

Michael Chung

Hi. Thanks for the call. So, it sounds like you drew down on credit lines coming from March to April in roughly $200 million. Could you maybe disclose when that credit line is due? And also kind of a follow-up to that is, what is your new recurring corporate G&A at the holding company level?

Eduardo Escalante

Sure. Michael this is Eduardo. The specific credit line, revolving credit line that I referred to and we drew on early April is due in 2023. And the other question was?

Michael Chung

On the G&A, the corporate G&A at the holding company level? Well, so what’s kind of your new estimate on annualized recurring SG&A at the holdco?

Eduardo Escalante

Sure. We have been working in the last few months to reduce that and we think we are on the right track. Before we started those efforts, it was about $60 million per year. So you can expect to see a significant reduction going forward.

Michael Chung

Okay. So I guess just the last follow-up on that topic. So basically your annual cost to run the holdco is roughly, before cutting the SG&A is roughly $120 million because it’s the debt service on the bond interest and the G&A. So you had to basically draw credit line this quarter in order to not go into bankruptcy is that right?

Eduardo Escalante

No, absolutely not. Absolutely not. Remember, we still have the dividends coming during the rest of the year from the subsidiaries.

Michael Chung

Thanks.

Eduardo Escalante

Sure. And we also received remember Alpek’s dividend earlier in the year. So, don’t make that direct subtraction of the available cash versus our expenditures, we still have dividends coming in. All right. Thanks.

Michael Chung

Okay. Thank you.

Eduardo Escalante

You’re welcome.

Operator

Our next question comes from the line of Vanessa Quiroga with Credit Suisse. Please proceed with your question.

Vanessa Quiroga

Yes. Thank you. Regarding Sigma, I believe we are still in that segment, correct? I was wondering about the strong revenues in Europe. Do you feel like you are being able to pass-through the higher pork prices? And what’s your updated expectation with regards to pork prices? Thanks.

Roberto Olivares

Hi Vanessa. Just regarding Europe, I think there’s something with respect to prices, we continue executing our second wave of price increases in Europe and we do in 1Q 2020. And in almost all countries we finished implementing this new price list. And in one or two cases we have some delays, but we are still negotiating with the retailers and expect to see the new prices implemented soon.

Also — I would say also volume has been doing good specifically volume from our fresh meat business. Given the demand of fresh meat coming from overseas we have seen volume going up as well.

Regarding raw material prices going forward, again, I think there’s still a lot of volatility right now. We have seen prices going down, specifically pork, in the quarter. I think once the situation in China goes back to normal, we can probably see prices going up again. We still don’t know when that is going to happen.

Vanessa Quiroga

Great. Thank you.

Eduardo Escalante

Thank you, Vanessa.

Operator

Our next question comes from the line of Sam Epee-Bounya with Wellington Management. Please proceed with your question.

Sam Epee-Bounya

Sorry again just your question to go back to the liquidity because I was a bit confused. So, you mentioned the $2.3 billion that you had in cash and another $2.3 billion that we have available, but it wasn’t clear to me how much you drew down. Is it $200 million post the closing of the quarter or more? I’m just trying to understand your availability at the Holdco at the sub and then exactly how much did you draw down on? Thank you.

Eduardo Escalante

Sure. Sure Sam. This is Eduardo again. Let me try to walk you through. At the closing of the quarter, the cash balance was $2.3 billion, okay? And we do have the same amount or we had the same amount available at that time from committed credit lines and short-term.

Now, the cash position during the quarter increased $923 million. You have to take into account that this is a result not only from what we draw — from what we drew from the lines, but also all-in-all Axtel received the payment of the data centers, $175 million; we received a portion of Alpek’s dividends which were paid during the first quarter. And also ALFA paid $100 million in dividends during the quarter. So, all-in-all we were able to increase the cash balance in $923 million on a consolidated level.

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Sam Epee-Bounya

I’m sorry. But just to clarify how much of that $933 million came from drawing down on the revolver in 1Q. Just to clarify.

Eduardo Escalante

Sure. Sure. We drew from the credit facilities just north of $1 billion.

Sam Epee-Bounya

How much sorry?

Eduardo Escalante

$1 billion.

Sam Epee-Bounya

Okay. And you still have — so, as of today, again, what’s your cash position and your availability for credit lines?

Eduardo Escalante

As of today, we still have about $1.7 billion available.

Sam Epee-Bounya

Okay so not the $2.3 billion.

Eduardo Escalante

The $2.3 billion were available at the closing of the first quarter.

Sam Epee-Bounya

Okay. I got you now. Thank you.

Eduardo Escalante

Right. You’re welcome.

Operator

There are no further questions at this time on Sigma. Mr. Lozano, I’d like to turn the floor back over to you.

Hernan Lozano

Thank you, Christine. We will move forward and take questions on Newpek. Rodolfo Gamboa, Senior Vice President of Oil and Gas will answer your questions. Operator, please prompt for questions on Newpek.

Operator

[Operator Instructions] It appears we have no questions on Newpek. I’m sorry, we did get a question. Our question is from Alejandro Azar with GBM. Please proceed with your question.

Alejandro Azar

Hi. Just a quick one. With current prices of oil would you give us a guidance on CapEx? And maybe how much free cash flow should we expect in Newpek to burn during a year like when we see oil at $30, $20? Thank you.

Rodolfo Gamboa

Yes, thank you, Alejandro. I think from the actions and plans that we have implemented last year, as Eduardo described, last year we’re trying to exit and we’re in the process of exiting all of our operations outside of Mexico. And so really your question will mostly be related to what decisions we’re making in the Mexico assets.

The Mexico assets we consider two assets basically the two Burgos basic blocks that we are operating and the CF contract, the service contracts that we have with BEC. With PEMEX, we are expecting a cash-neutral operation. And of course that will all depend on quickness of payments from PEMEX.

We do not expect to draw down any cash in those contracts. And with regards to the Burgos Basin operations, although we do continue with the minimum work obligations investments, we are looking very seriously at minimizing or postponing anything that we have in the plan. We have an approval for $10 million in CapEx this year in the Burgos Basin and we’re looking to postpone some of that if really can allow for that.

Alejandro Azar

If you separate the $250 million equity you have on your balance, how much of that would be the U.S. operations?

Rodolfo Gamboa

I would need to check on that but let me get back to you on that question.

Alejandro Azar

Okay.

Hernan Lozano

Are you referring to the percentage of equity from U.S. operations, right?

Alejandro Azar

Yes. From the $246 million equity you have on your balance, how much of that would be from the U.S. operations?

Hernan Lozano

We can help you with that when we can get back with Alejandro on that.

Alejandro Azar

Yes, thank you, Hernan.

Operator

There are no further questions at this time on Newpek. I would like to turn the floor back over to Mr. Lozano.

Hernan Lozano

Thank you, Christine. Let’s move on with questions on Alpek, Nemak or Axtel. These companies held their earnings conference call earlier this morning. José Carlos Pons, Alpek’s CFO; Alberto Sada, Nemak’s CFO; and Adrian de Los Santos, Axtel’s CFO are all here with us to answer any additional questions. Operator, please instruct participants to queue for questions on Alpek, Nemak or Axtel.

Operator

[Operator Instructions] Thank you. Our first question comes from the line of Alejandra Obregon with Morgan Stanley. Please proceed with your question.

Alejandra Obregon

Hi, Alpek team. Thank you for taking my question. Actually I have one on Nemak, there was a slowdown. So I was just hoping if you could help me understand what could happen if we see a gap in the comeback of the OEMs and suppliers. So meaning if U.S. automakers start operations before Mexico, with all these national emergency restrictions, so could Nemak store the other sort of inventory? Or do you see maybe the Mexican government reconsidering some activities as potential? How do you see it playing out?

Alberto Medina

Yes. Hi Alejandra. This is Alberto from Nemak. Certainly that’s a topic that is currently on the table and there has been active discussions with the government in Mexico to make sure that we align ourselves with the restart of the operations in the U.S.. So there are ongoing dialogues as we speak. So far there was initially a conversation by the Mexican President where you guys considering that the Mexico supply chain for the auto industry would start a few days, four or five days before the restart of the operation in the U.S..

With the recent announcement of an extension of one month of the Sana Distancia initiative, certainly that’s still on the table. So that there is an ongoing dialogue with the government representatives to try to push that alignment as much as we can.

Alejandra Obregon

Right, got you. Thank you. And then another question this time on the USMCAs, the auto rules, do you think that this new environment will make these articles be implemented maybe at a different time or a different way? So do you have any color of how this is going out?

Alberto Medina

Well there hasn’t been any different positioning. I mean as you know everything has been fully approved by the three parties by Mexico, the U.S. and Canada. So — but definitely we will have to see if there is any issue that could arise by any of their constituents. So far we have not formally seen any change to the implementation of the USMCA agreement.

Alejandra Obregon

Okay, understood. Very clear. And then one last question if I may. From your initial observations in Asia are there any let’s say lessons that you might be able to apply in the American market given that you — I mean given that Asia was clearly pursing to these that will also be coming out earlier. So anything that you have learned or that you think could prepare in advance in the Americas region?

Alberto Medina

No thoroughly. Actually from what we have implemented at early operations in Europe and in the Americas and South America we have taken a lot of lessons learned from our experience in China. So there as you correctly pointed out China is already back on production since a few weeks is already now almost between 80% and 90% of production capacity at our plants

So all the preventive measurement — measures that we’re taking in China we’re taking those into considerations and we’re applying those in the different operations that we have worldwide. So for sure it has been a very interesting experience for us. It worked very well. We didn’t have any single infected case in China of anybody. So we’re applying all the health measurements, as well as the conservation mechanisms that we put in place in Asia at the different locations we’re currently in standby.

Alejandra Obregon

Right. And on average how long does it take for you to ramp up on your Asian market? Is that — I mean you’re saying it maybe around 80% or 90% at this point. So how long does it take you to get there?

Alberto Medina

Well it’s fairly it was — I mean it started gradual, but it took us a few weeks to get to that level. I think — I mean all the people were readily available. We did all the — let’s say the measures that were required to test the people to have them available to confirm that nobody was infected. And once that was cleared with the support of — with the combination of the Chinese government we were allowed to come back to operations.

So it really didn’t take us a lot of time to have everything in place. We have to obviously to realign the entire supply chain that we had there. It took us some days, but it was a matter of a few exceptions that we could fix. But it didn’t put us in any difficult situation to come back and restart the operations and supply to a level that our customers were expecting.

Alejandra Obregon

Okay. That sounded just great. Thank you very much and congratulations.

Operator

Our next question comes from the line of Eric Neguelouart with Bank of America Merrill Lynch. Please proceed with your question.

Eric Neguelouart

Yes. Thanks for taking the call. Just a quick question. My line was disconnected. I don’t know if you already answered this, but can you remind us of your debt covenants please?

Hernan Lozano

Just one clarification, Eric. Good afternoon, this is Hernan. Are you referring to debt covenants on Nemak specifically or ALFA on a consolidated level?

Eric Neguelouart

Yes, Nemak specifically.

Alberto Medina

Sure Eric. We have — our debt portfolio comprises of a U.S. bond, a Eurobond and banking facilities. The marketing facilities have covenants; two main covenants, one of them is leveraged and the leverage ratio is 3.5 measure as net debt to EBITDA; an interest coverage ratio of 3.0 times.

Eric Neguelouart

Okay. Thank you very much.

Alberto Medina

Yes those are the main points.

Operator

We have no further questions at this time. Mr. Lozano I’d now like to turn the floor back over to you for closing comments.

Hernan Lozano

Thanks and thank you for your interest in ALFA. If you have 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 to your families to stay safe and healthy. Thank you for joining us today and have a nice weekend.

Operator

Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.




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