k
e
p
A
l
t
r
o
p
e
R
l
a
u
n
n
A
7
1
0
2
2017 Annual Report
Alpek, S.A.B. de C.V.
Av. Gómez Morín 1111 Sur
Col. Carrizalejo, San Pedro Garza García
Nuevo Leon, CP. 66254, Mexico
www.alpek.com
Cogeneration plant. Altamira, Mexico
TABLE OF
CONTENTS
Corporate profile
Financial highlights
Footprint
Our products in daily life
Petrochemical chains
Letter to shareholders
Polyester
Plastics & Chemicals
Strategic investments
Sustainability
Board of Directors
Management Team
Corporate Governance
Glossary
Consolidated financial statements
1
2
3
4
6
8
12
16
20
22
42
43
44
45
49
Investor Relations
Hernán F. Lozano
Sabino Parra
Av. Gómez Morín 1111 Sur
Col. Carrizalejo, San Pedro Garza García
Nuevo Leon, CP. 66254, Mexico
IR@alpek.com
www.alpek.com
n
o
t
s
u
o
H
Y,
P
C
:
g
n
i
t
n
i
r
P
|
l
a
u
s
i
V
3
3
:
n
g
i
s
e
d
&
y
h
p
a
r
g
o
t
o
h
P
1
1
2017 | ANNUAL REPORT
CORPORATE
PROFILE
(GRI Standards: 102-2, 102-7)
• Alpek is a leading petrochemical company in the Americas.
• Operating in two business segments: Polyester, and Plastics & Chemicals.
• North America’s leading integrated polyester producer.
• Only manufacturer of polypropylene (PP) and caprolactam (CPL) in Mexico.
• Operates the largest expandable polystyrene (EPS) plant in the Americas.
• 90% of Alpek’s production are used for food, beverage and consumer goods packaging.
• Listed on the Mexican Stock Exchange since April 2012.
Univex (CPL). Salamanca, Mexico
2017 | ANNUAL REPORT FINANCIAL HIGHLIGHTS / ALPEK
2
FINANCIAL
HIGHLIGHTS
(GRI Standard: 201-1)
INCOME STATEMENT
Net sales
Operating income
EBITDA(1)
Majority net income(2)
Net income per share(3) (5)
BALANCE SHEET
Assets
Liabilities
Stockholders’ equity
Majority interest(2)
Book value per share(4) (5)
MILLIONS OF DOLLARS
MILLIONS OF PESOS
2017
5,231
(188)
384
(319)
(0.15)
4,752
3,147
1,604
1,364
0.64
% var.
8%
(135%)
(43%)
(261%)
7%
31%
(21%)
(24%)
2016
4,838
532
669
198
0.09
4,428
2,409
2,019
1,794
0.85
2017
98,998
(2,854)
7,483
(5,487)
(2.59)
93,778
62,114
31,664
26,916
12.71
2016
90,192
9,863
12,425
3,625
1.71
91,500
49,778
41,722
37,073
17.51
% var.
10%
(129%)
(40%)
(251%)
2%
25%
(24%)
(27%)
EBITDA(1)
Millions of dollars
Majority Net Income(2)
Millions of dollars
Assets
Millions of dollars
13
14
15
16
17
572
434
630
669
384
(319)
21
65
175
198
13
14
15
16
17
13
14
15
16
17
4,445
4,442
4,353
4,428
4,752
NOTE: In this annual report, monetary figures are expressed in nominal Mexican pesos ($) and in nominal dollars (US $) unless otherwise specified.
The financial information for 2017 to 2013 was prepared in accordance with IFRS, in effect in Mexico since January 2012. Conversions from pesos to dollars were made
using the weighted average exchange rate of the period in which the transactions were carried out. The percentage variations between 2017 and 2016 are expressed in
nominal terms.
1) EBITDA = Operating income plus depreciation, amortization and impairment of non-current assets.
2) Attributable to the controlling interest.
3) Based on the weighted average number of outstanding shares (2,117 million shares in 2017 and in 2016).
4) Based on the number of outstanding shares (2,117 million shares in 2017 and in 2016).
5) Dollars or pesos per share, accordingly.
3
2017 | ANNUAL REPORT
Polyester
Plastics & Chemicals
(GRI Standards: 102-4, 102-6)
23 PLANTS IN 6 COUNTRIES: MEXICO,
THE UNITED STATES, CANADA, BRAZIL,
ARGENTINA AND CHILE
A qualified team of 5,290 employees operating a total capac-
ity of 5.8 million tons per year.
DAILY LIFE / ALPEK
4
OUR PRODUCTS
IN DAILY LIFE
Alpek Polyester (PET and PTA). Columbia, United States
POLYESTER
(GRI Standard: 102-2)
6:00
Morning
workout
PET bottle and
polyester clothing
6:30
Vitamins to
protect them
13:30
A sip of lemonade
for lunch
18:30
Safety
first
PET bottle
PET bottle
Polyester filament
seatbelt
Styropek (EPS). Altamira, Mexico
5
PLASTICS & CHEMICALS
12:30
Lunch
time
Polypropylene (PP)
container
15:30
Doctor’s
appointment
PP syringe
18:00
Soccer
practice
20:30
Teeth
brushing
Expandable polystyrene
(EPS) cooler
Toothbrush with PP handle
and nylon bristles
2017 | ANNUAL REPORT PETROCHEMICAL CHAINS / ALPEK
6
PETROCHEMICAL
CHAINS
(GRI Standard: 102-9)
Oil
Refinery
Naphtha
Reformer
Paraxylene
PTA
Benzene
Cracker
H
H
C
C
H
CH3
Propylene
PP
Propane
Cracker
Methane
N
H
H
H
Ammonia
PET
Fibers
Ethane
Cracker
H
H
C
C
H
H
Ethylene
Cracker
Cyclohexane
CH2
Styrene
CPL
EPS
Ammonium
Sulfate
Oil
Refinery
Naphtha
O
CH2
CH2
Ethylene
Oxide
Monoethylene
Glycol
Oil
Refinery
Naphtha
Reformer
Paraxylene
PTA
Propane
Cracker
PP
Benzene
Methane
H
N
H
H
Ammonia
Cyclohexane
CH2
Styrene
CPL
Ammonium
Sulfate
EPS
Cracker
H
H
C
C
H
CH3
Propylene
H
H
C
C
H
H
Ethylene
Cracker
Ethane
Cracker
7
PET
Fibers
Polyester products
Plastics & Chemicals products
Oil
Refinery
Naphtha
Monoethylene
Glycol
O
CH2
CH2
Ethylene
Oxide
Alpek Polyester (PET and Fibers). Cooper River, United States
2017 | ANNUAL REPORT
LETTER TO SHAREHOLDERS / ALPEK
8
LETTER TO
SHAREHOLDERS
DEAR SHAREHOLDERS:
(GRI Standards: 102-14, 102-15, 102-10)
We anticipated our business performance to be impacted by certain industry events in 2017.
However, the restructuring process of our most important PTA customer, Mossi & Ghisolfi
(M&G), caused a larger than expected drop in EBITDA.
In addition to its sudden shutdown of PET operations in Mexico and in the United States,
M&G halted construction on the integrated PTA-PET plant in Corpus Christi, Texas, of which
Alpek holds US $435 million in supply rights over a portion of its total production.
We addressed this situation with concrete actions that focus on three main objectives:
I. Limit its impact on Alpek.
II. Re-establish the supply of PTA with the appropriate guarantees.
III. Maximize the recovery of accounts receivable and reaffirm our rights in the Corpus
Christi project.
The sudden lack of payments from M&G prompted a PTA supply halt. In addition, we
recognized accounting provisions covering 100% of our exposure, and assembled a
team of legal and financial advisors to navigate the restructuring process.
After two months, PTA supply to M&G Mexico was re-established through a PET tolling
contract with Alpek. Also, an agreement was reached to provide financing for M&G
Mexico during its restructuring process, with asset-backed collateral. In Brazil, PTA sup-
ply resumed with cash payments after a month-long interruption.
Alpek has a relevant role in M&G Mexico’s restructuring process, as its main PTA sup-
plier and guaranteed creditor. Our rights in the Corpus Christi project are secured with
a second lien on the plant under construction, while in Mexico we acquired the credit
rights to a US $100 million loan to M&G, secured with a first lien on its 560,000 ton
PET plant.
We shall maintain an active role in the different M&G restructuring processes to ensure
the implementation of a definitive solution that maximizes value for our shareholders.
This event had significant impact on the polyester industry in North America. Even
though Alpek was affected in 2017, it could translate into long term opportunities.
9
Alpek Polyester (PET and PTA). Columbia, United States
In terms of the macro environment during 2017, the annual average
Brent oil price was US $54 per barrel, 23% higher than 2016 and
similar to our guidance of US $55 per barrel. However, the Brent oil
price fluctuated between a minimum monthly average of US $47
per barrel in June and a maximum of US $64 per barrel in Decem-
ber, causing high volatility in our main feedstock prices, as well as
temporary distortions in demand and margins for certain products.
Alpek’s consolidated 2017 sales totaled US $5.231 billion, up 8%
year-over-year, mainly driven by a 6% increase in average prices.
Volume grew 2% in spite of the temporary supply disruption to
M&G.
Consolidated EBITDA was US $384 million, which includes a US
$113 million non-recurring provision for the impairment of accounts
receivable with M&G and a US $22 million non-cash inventory
gain. Adjusting for the effect of these two items, the consolidated
EBITDA was US $475 million, down by 26% compared to 2016 and
5% lower than our guidance of US $502 million. Better than ex-
pected results in the Plastics & Chemicals (P&C) segment partially
offset the negative impact caused by the M&G disruption in the
Polyester segment.
The Polyester segment had sales of US $3.724 billion in 2017, up
8% from 2016, driven by increases of 5% in average prices and 3%
in volume.
Polyester EBITDA was US $147 million, which includes a US $14
million non-cash inventory gain and the aforementioned US $113
million non-recurring provision. Adjusting for these two items, seg-
ment EBITDA was US $246 million, 27% lower than 2016, mainly
affected by lower PET margins, the temporary PTA supply disrup-
tion to M&G, and higher costs in secondary feedstocks such as
isophthalic acid (IPA).
Positive industry events include progress in the PET antidumping
investigations in the United States and Canada, at the request of
Alpek and the rest of the domestic producers.
In the United States, the Department of Commerce and the Inter-
national Trade Commission began their investigations into unfair
practices against Brazil, Pakistan, South Korea, Indonesia, and
Taiwan. In turn, the Canada Border Services Agency imposed pre-
liminary tariffs between 22% and 77% on PET imports from China,
India, Oman, and Pakistan. Both countries are expected to issue
their final determinations in 2018.
2017 | ANNUAL REPORT LETTER TO SHAREHOLDERS / ALPEK
10
The polyester supply-demand balance continues to improve in Asia;
for the second consecutive year, PTA demand growth exceeded in-
stalled capacity expansion in China. This trend has contributed to a
gradual recovery in global polyester margins, which independent in-
dustry experts consider to be sustainable.
The P&C segment posted sales of US $1.506 billion, 8% higher than
the previous year. Volume decreased by 3% due to lower domestic
feedstock supply, which was more than offset by an 11% increase in
average prices.
EBITDA for this segment was US $237 million, which includes an $8
million non-cash inventory gain. Adjusting for this item, P&C EBITDA
totaled US $229 million. Segment EBITDA was 26% lower than the
previous year, but exceeded our guidance by 15% due to better than
expected polypropylene (PP) and caprolactam (CPL) margins.
Alpek maintains a solid financial position with long-term, fixed-rate
debt profile, dollar-denominated cash flows, and more than US $600
million of cash available on hand or in committed credit lines.
As of year-end 2017, net debt was US $1.262 billion, US $220 million
more than 2016, mainly as a result of US $236 million total CapEx.
Net debt to EBITDA of 3.3 times and interest coverage of 4.8 times
were affected by the US $113 million non-recurring provision associ-
ated to the M&G restructuring process. Excluding this item, financial
ratios were 2.5 and 6.2 times, respectively.
PROGRESS WITH STRATEGIC PROJECTS
Alpek started-up two more projects in 2017 that were part of its invest-
ment program to bolster vertical integration, operational efficiency, and
expansion initiatives.
Two propylene storage spheres with a joint capacity of 5,000 tons be-
gan operations in Altamira, Mexico, following a US $23 million invest-
ment. The spheres benefit our PP business by enhancing our domestic
propylene supply chains within Mexico and by providing greater flexi-
bility for imports.
In addition, we completed a US $33 million investment in a 75,000 ton
per year expandable polystyrene (EPS) capacity expansion at our Al-
tamira plant, making it one of the five largest worldwide.
The construction of our second cogeneration power plant progressed
as planned and was the year’s largest investment. As of year-end 2017,
we had invested nearly 80% of the total amount required for its comple-
tion. This plant is located in Altamira, Mexico, and is expected to begin
operations of its 350 megawatt capacity in 2018.
ACQUISITIONS
We also advanced in the acquisition of Companhia Petroquímica de
Pernambuco (PetroquímicaSuape) and Companhia Integrada Têxtil
de Pernambuco (Citepe). Both companies operate South Ameri-
ca’s only integrated polyester site, which has an annual capacity of
640,000 tons of PTA, 450,000 tons of PET and 90,000 tons of
texturized polyester filament.
In 2017, Petrobras’ shareholders approved the sale for US $385 mil-
lion, of which Alpek provided an initial 10% deposit in escrow. The
transaction was approved by Brazil’s Administrative Council for Eco-
nomic Defense (CADE) on February 7th, 2018. Closing is still depen-
dent on certain precedent conditions expected to be fulfilled shortly.
Our sustainability strategy is based on identifying and addressing the
concerns and needs of our stakeholders. This report contains the sixth
annual edition of the Sustainability section, which presents our prog-
ress in accordance with the Global Reporting Initiative (GRI) meth-
odology.
In 2017 we invested more than US $40 million in actions that promote
sustainability. Notable results include providing 36 training hours per
employee across all company levels, 16% more than 2016. In addition,
more than 13,000 students benefited from the support our facilities
provided to neighboring schools. We also reduced total water con-
sumption in our operations by 7%.
These results reflect our commitment to strengthen the four pillars that
make up our sustainability model: i) sustainable economic value cre-
ation, ii) internal well-being, iii) environment, and iv) community.
In summary, 2017 was a particularly challenging year due to the re-
structuring of M&G, our largest customer. We have taken on a rele-
vant role to protect our shareholders’ interests and position ourselves
to capitalize on potential opportunities related to this event.
This highlights the relevance of our EBITDA’s recovery in the fourth
quarter of 2017 and the initiative to monetize the cogeneration pow-
er facilities. After an exhaustive selection process during the year, we
selected ContourGlobal to conduct confirmatory due diligence and
negotiate final agreements.
The resources from the sale of our cogeneration power plants will pro-
vide us with greater flexibility to invest in strategic opportunities follow-
ing the acquisition of the Petrobras assets in Brazil, and at the same
time strengthen the balance between growth and financial standing.
The 2018 outlook for both business segments is favorable, especially
in Polyester. The gradual margin recovery is expected to continue, sup-
ported by an improving supply-demand balance in Asia, favorable
conditions in North America, and the upward trend in crude oil prices.
We would like to take this opportunity to thank our employees, customers, suppliers, creditors, the
community and you, our shareholders, for placing your trust in this Board of Directors once again.
Sincerely,
Armando Garza Sada
Chairman of the Board
José de Jesús Valdez Simancas
Chief Executive Officer
POLYESTER / ALPEK
12
POLYESTER
POLYESTER IS ALPEK’S
MAIN BUSINESS SEGMENT,
REPRESENTING 71% OF ITS SALES.
(GRI Standards: 102-2, 102-6, 201-2, 203-2)
PTA (purified terephthalic acid) is produced from paraxylene and is the main raw material
for the manufacturing of PET and polyester fiber.
PET (polyethylene terephthalate), produced from PTA and monoethylene glycol
(MEG), is a recyclable plastic used mainly for packaging beverage, food, and con-
sumer goods.
Polyester fiber is used to produce clothing, various textiles and seat belts, among other
applications.
Alpek is the leading integrated PTA-PET producer in North America and is Argentina’s sole
manufacturer of virgin PET and recycled PET (r-PET). The segment employs 3,669 people,
who operate 13 plants with an aggregate annual installed capacity of 4.7 million tons of poly-
ester in the United States, Mexico, Argentina, and Canada.
In 2017, the Polyester segment posted 71% of Alpek’s total revenues. North America, with its
large, stable, and consolidated market, accounts for 83% of Polyester sales.
More than 80% of Polyester volume targets consumer applications, such as food and bever-
age packaging, providing stability to the segment’s demand.
PET recycling plants that Alpek operates in the United States and Argentina contribute to
its sustainability strategy, through an installed capacity to recycle 89,000 tons per year,
equivalent to more than 4 billion PET bottles year.
Alpek Polyester (PET and PTA). Columbia, United States
13
2017 | ANNUAL REPORT
ALPEK IS THE MAIN
INTEGRATED PRODUCER OF
PTA-PET IN NORTH AMERICA
AND THE ONLY PRODUCER OF
VIRGIN AND RECYCLED PET IN
ARGENTINA.
PET bottle
POLYESTER / ALPEK
14
FOR THE SECOND
CONSECUTIVE YEAR, PTA
DEMAND EXPANSION
EXCEEDED INSTALLED
CAPACITY GROWTH IN
CHINA, A TREND THAT
EXPERTS CONSIDER TO BE
SUSTAINABLE.
Mexico, the United States and Canada
account for 83% of Polyester sales
83%
71% of Alpek’s total 2017
revenues came from the
Polyester business
71%
Alpek Polyester (PET). Montreal, Canada
15
Alpek Polyester (PTA). Altamira, Mexico
In contrast, global PTA margins continued their gradual recovery. For
the second consecutive year, PTA demand expansion exceeded in-
stalled capacity growth in China. Independent experts consider this
trend to be sustainable.
In 2017, petitions were brought before the United States International
Trade Commission regarding unfair trade practices by five countries:
Brazil, South Korea, Indonesia, Pakistan, and Taiwan. The Canada
Border Services Agency also initiated an investigation on PET resin
imports from China, India, Oman, and Pakistan. Favorable rulings in
those investigations would prevent unfair market practices.
RESULTS
Polyester segment sales totaled US $3.724 billion in 2017, 8% higher
than in 2016. This figure reflects a 5% rise in average prices and a 3%
rise in volume, which totaled 3.1 million tons.
Polyester’s consolidated EBITDA was US $147 million in 2017, includ-
ing a non-recurring provision of US $113 million for impairment on
accounts receivable related to the M&G disruption, and a non-cash
benefit of US $14 million for inventory costs. Adjusting for these two
items, the segment’s EBITDA was US $246 million, 27% below 2016.
The factors with the greatest impact on the segment’s results were the
interrupted supply of PTA to M&G in Mexico and Brazil due to its li-
quidity problems, and an increase in the price of isophthalic acid (IPA),
a secondary raw material used in PET production.
2017 | ANNUAL REPORT PLASTICS & CHEMICALS / ALPEK
16
PLASTICS &
CHEMICALS
THE PLASTICS & CHEMICALS
SEGMENT CONTRIBUTES 29%
OF OUR TOTAL SALES.
(GRI Standards: 102-10, 201-2, 203-1, 203-2)
Polypropylene (PP) is a recyclable plastic made from propylene and used for containers,
food packaging, medical equipment, auto parts, among other applications.
Expandable polystyrene (EPS) is a low-density, impact-absorbing polymer used for pack-
aging products such as domestic appliances or electronics, insulation, among other ap-
plications.
Caprolactam (CPL) is the main raw material used to manufacture Nylon 6, a product
used in clothing, tire cord and engineering plastics.
Specialty and industrial chemicals are products with a wide variety of applications for
the oil, pharmaceutical, automotive, and consumer goods industries.
Alpek is the largest EPS producer in the Americas and is Mexico’s sole producer of PP and
CPL. Plastics & Chemicals has 1,587 employees operating 10 plants with a total installed ca-
pacity of 1.1 million tons per year in Mexico, Brazil, Argentina, and Chile.
Styropek (EPS). Altamira, Mexico
ALPEK IS THE LARGEST
EPS PRODUCER IN
THE AMERICAS AND IS
MEXICO’S SOLE PRODUCER
OF PP AND CPL.
17
Polypropylene containers
2017 | ANNUAL REPORT PLASTICS & CHEMICALS / ALPEK
18
Plastics & Chemicals
represented 29% of Alpek’s
total 2017 revenues
29%
Mexico, the United States and
Canada account for 80% of
Plastics & Chemicals sales
80%
THE MARGINS FOR OUR
MAIN P&C PRODUCTS HAVE
BEEN RESILIENT AND
SHOW FAVORABLE
PERSPECTIVES, WHICH
SHOULD TRANSLATE INTO
GOOD RESULTS.
Indelpro (PP). Altamira, Mexico
Styropek (EPS). Altamira, Mexico
19
RESULTS AND PERSPECTIVES LTADOS Y PERSPECTIVAS
The Plastics & Chemicals segment posted sales of US 1.5 billion in
2017, 8% higher than in 2016. The 11% increase in average price was
more than enough to offset the 3% reduction in volume, which was
0.9 million tons.
During the year, PP margins, although lower than the previous year,
remained above estimates, while EPS and CPL margins posted se-
quential improvements toward year-end.
The 2017 P&C EBITDA was US $237 million, which includes a non-
cash benefit of US $8 million from inventory costs. Adjusting for this
item, the EBITDA for the segment was US $229 million, 26% lower
than 2016 but 15% higher than estimated, driven by improved PP and
CPL margins.
Although the crude oil and feedstock environment has been volatile,
demand and margins for our main P&C products have been resilient.
Independent experts predict positive outcomes for 2018, which should
translate into good results for the segment.
2017 | ANNUAL REPORT STRATEGIC INVESTMENTS / ALPEK
20
STRATEGIC
INVESTMENTS
IN 2017, FIXED ASSET INVESTMENT
WAS US $236 MILLION, MAINLY IN
OUR STRATEGIC PLAN.
(GRI Standards: 102-10, 201-2, 203-1, 203-2)
Ongoing and initiated investment in integration, efficiency, and expansion projects is funda-
mental to our sustainable growth strategy. In 2017, fixed asset investment totaled US $236
million, mainly in the initiatives that conform our strategic plan.
The cogeneration project in Cosoleacaque and the monoethylene glycol (MEG) supply con-
tract with Huntsman have contributed to Alpek’s profitability since 2015 and 2016, respectively.
In its third full year of operation, our electricity cogeneration facility in Cosoleacaque, Vera-
cruz, generated 667 GW/h of electricity and 1.47 million tons of steam, producing benefits of
US $20 million.
Two additional projects within our strategic plan started operations in 2017: the first involved
the two propylene spherical tanks with a joint capacity of 5,000 tons, and the second was the
expansion of EPS capacity at the Altamira site.
The propylene tanks required an investment of US $23 million and complement the propylene
supply chain in Mexico, providing greater flexibility for the import of such raw material.
The EPS facility at Altamira is now one of the five largest in the world, after an investment of
US $33 million to expand its annual capacity by 75,000 tons.
Propylene spheres. Altamira, Mexico
21
2017 | ANNUAL REPORT
Cogeneration plant. Altamira, Mexico
Our second cogeneration facility, also located in Altamira, will have
a capacity of 350 MW, and progressed on schedule to launch oper-
ations in 2018. As of year-end 2017, we had invested approximately
80% of the US $350 million required.
M&G halted construction on the integrated PET plant in Corpus
Christi, TX due to liquidity problems. After an investment of US $435
million, Alpek holds supply rights to 500,000 tons each year that are
secured by a second lien on the plant. We will maintain a relevant role
in the M&G restructuring process in order to reaffirm our rights over
the project.
ACQUISITIONS
In 2016 Alpek signed an agreement with Petrobras to acquire Com-
panhia Petroquímica de Pernambuco (PetroquímicaSuape) and
Companhia Integrada Têxtil de Pernambuco (Citepe). The agree-
ment has been accepted by Petrobras shareholders and Brazil’s Ad-
ministrative Council for Economic Defense, and is expected to be fi-
nalized in 2018.
The acquisition amount was set at US $385 million, of which Alpek
posted a bond payment of US $38.5 million.
In order to maintain the balance between growth and financial health,
we began the formal process to sell our two cogeneration plants. After
an exhaustive process, during the fourth quarter of 2017, we selected
the proposal submitted by ContourGlobal, and expect to conclude
the transaction in 2018.
SUSTAINABILITY / ALPEK
22
SUSTAINABILITY
IN 2017, WE INVESTED MORE
THAN US $40 MILLION IN
CONCRETE ACTIONS FOCUSED
ON SUSTAINABILITY.
(GRI Standards: 102-49 to 52 and 102-54)
At Alpek, we endeavor to operate in harmony with the environment and society in
order to help build a better future. Our products are the result of our responsible use
of resources, efficient and environmentally safe operations, ethical behavior, and a
commitment to ongoing improvement and innovation.
This sixth edition of our annual Sustainability report covers our progress from Janu-
ary 1st to December 31st, 2017. For the fourth consecutive year, we applied the Global
Reporting Initiative (GRI) methodology, now in its Standard version, under the “core”
compliance option. Our report focuses on the priority issues that the company and
its stakeholders identified in the materiality analysis.
The GRI Standards and their corresponding material aspects are denoted in this
Sustainability chapter and in other sections of this report. Our actions also contribute
to the United Nations (UN) Sustainable Development Goals (SDG), part of the ef-
forts of the international community to achieve a sustainable world. To see the entire
list of standards, material aspects, and SDGs, please refer to the GRI index at the
following link: http://www.alpek.com/sustainability.html
Alpek Polyester (PTA). Altamira, Mexico
23
Indelpro (PP). Altamira, Mexico
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
24
SUSTAINABILITY STRATEGY
(GRI Standards: 102-30, 102-40, 102-42, 102-43, 102-44)
Material aspects: Relations with NGOs
and regulatory agencies.
SDG 17: Partnerships for the goals.
Alpek operates with a focus on responsible growth with respect
for the environment, our customers and suppliers, the communities
where we interact and the team members who make our company
an industry leader.
This is why we developed a sustainability strategy in alignment
with the business strategy and which allows us to create economic
and social value. This is based on identifying and addressing the
concerns and needs of our stakeholders and in identifying the so-
cial, environmental, and market trends that may have the greatest
impact on the industry and on the achievement of our business
objectives.
In order to define and identify these stakeholders, it was necessary
to measure the scope of our operations’ impact on them, as well as
the influence they exert on our company. This ensures that we pro-
vide each group with the specific attention it requires, thus achiev-
ing the goals that were defined to benefit both parties. This process
identified the following groups as the most relevant stakeholders to
our operation: employees, costumers, communities, shareholders
and suppliers.
Indelpro (PP). Altamira, Mexico
25
COMMUNICATING WITH OUR
STAKEHOLDERS
(GRI Standards: 102-44, 102-46, 102-47, 103-1b, 103-1c)
Material aspect: CSR Management.
At Alpek, communicating with our stakeholders is an essential and
continuous activity. We remain in constant dialog with them to iden-
tify and address their concerns and suggestions to assure our perma-
nence over time. We interact with them through diverse media:
WE REMAIN IN CONSTANT DIALOG
WITH OUR STAKEHOLDERS TO
IDENTIFY AND ADDRESS THEIR
CONCERNS AND SUGGESTIONS.
EMPLOYEES
- Labor climate survey.
- Transparency mailbox.
- E-mail bulletins.
- Communication screens.
COMMUNITIES
- Community
engagement programs.
- Focus groups at
neighborhood meetings.
- Contingency plans.
- Immediate attention.
CUSTOMERS
- Toll-free telephone
service.
- E-mail contact.
- One-on-one meetings.
- Satisfaction survey.
SUPPLIERS
- Direct communication.
- Supplier development
program.
- Program for identifying
SR in the value chain.
SHAREHOLDERS
- Quarterly meetings
and annual results.
- Investor relations.
- Quarterly reports
and calls.
- Annual Shareholders’
Meeting.
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
26
In alignment with the Global Reporting Initiative methodology, we
carry out periodic, in-depth research into our stakeholders’ expec-
tations, to ensure that our sustainability strategy addresses the is-
sues they consider to be the most relevant to our operations.
In 2015, we performed a materiality analysis through an exhaustive
process of consultation and analysis with our stakeholders, and we
have confirmed that its results still hold true today. Thirteen mate-
rial issues were identified within four key sustainability pillars: sus-
tainable economic value creation, internal well-being, environment,
and community.
Material aspects
Operation and risk strategy
Investor relations
CSR management
Corporate governance
Labor practices
Wealth distribution
Health and safety
Energy eco-efficiency
Water management
Climate change and emissions strategy
Community engagement
Relations with NGOs and regulatory agencies
Customer and supplier relations
Texturizing training. Monterrey, Mexico
27
INTERNAL WELL-BEING:
Provide healthy, safe
working conditions and
opportunities for employee
development.
Focused on:
EMPLOYEES
OUR SUSTAINABILITY MODEL
(GRI Standards: 102-11, 102-12)
The Alpek sustainability model is based on four pillars and aligned with both its
business strategy as well as the Alfa model. It establishes the focus areas and
the action platform for social responsibility and environmental conservation.
Our definition of this model is based on the results of the materiality analysis,
the Alpek Vision, Mission, and Values, and on international initiatives such as
the United Nations Global Compact, to which we comply through Alfa, the
Global Reporting Initiative methodology, RobecoSAM and the Sustainable In-
dex of the Mexican Stock Exchange, among others.
SUSTAINABLE ECONOMIC
VALUE CREATION:
Obtain satisfactory returns on
business activities considering
the investment made and risks
undertaken.
Focused on:
SHAREHOLDERS
n
o
stainable e c
alue cre a ti o
v
u
S
n
io
s
s
i
M
t
n
e
m
n
o
Envir
ENVIRONMENT:
Decrease the impact
of our operations,
reducing emissions and
conserving resources,
soil and water.
Focused on:
ALL OF OUR
STAKEHOLDERS
o m i c
n
Biene
Intern
sta
l
r
i
a
w
n
e
t
l
l
-
e
r
b
i
n
e
o
n
g
V
i
s
i
o
n
C
om
munity
COMMUNITY:
Be a responsible citizen
in the community.
Focused on:
COMMUNITIES,
CUSTOMERS AND
SUPPLIERS
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
28
PILLAR 1: SUSTAINABLE ECONOMIC VALUE
CREATION
Seeking economic growth is a natural part of our business. Our investments
are constant, disciplined and selective, and we manage acquired risks in or-
der to maximize the return on capital, with a focus that is both socially and
environmentally responsible.
The company’s sustainable economic growth depends on strict adher-
ence to these principles.
For more information, please refer to:
http://www.alfa.com.mx/down/CODEOFETHICS.pdf
http://www.alfa.com.mx/down/AnticorruptionPolicy.pdf
Corporate Governance
(GRI Standards: 102-18, 102-25, 102-26)
Material aspects: Corporate governance.
SDGs 8 and 12: Decent work and economic growth;
Responsible consumption and production.
Alpek’s economic wellbeing and the continuity of its operations are
based on responsible and ethical practices. This conviction begins with
the Board of Directors and permeates throughout the entire organiza-
tion.
Our governing policies and procedures are spearheaded by our gen-
eral management and aligned with those of Alfa. They establish pro-
grams and initiatives that are designed to strengthen business integrity
and to define behavioral guidelines for our team members.
There is ongoing training in the Code of Ethics and the Anti-Corrup-
tion Policy, and we have implemented anonymous reporting mech-
anisms for non-compliance with the aforementioned policies, such as
the Transparency Mailbox, which operates 24 hours a day, 365 days a
year. This platform is also used to identify cases involving money-laun-
dering and corruption.
We addressed and investigated 100% of the 51 incidents in 2017, and 8
people left the organization as a result. None of the cases were related
to the activities of team members that involved government authorities,
and none involved cancellations or non-renewed contracts with busi-
ness partners for reasons attributable to non-compliance with Alpek’s
policies and values. There were also zero cases in which Alpek was re-
ported for matters dealing with corruption.
Likewise, we have a Conflict of Interest Policy that is designed to foster
total transparency in all business activities performed by the Board of
Directors and by the team members. This policy establishes that Mem-
bers of the Board who may have a conflict of interest when making
a decision, must report it to the other members of the Board and ab-
stain from participating in the discussion or exercising their vote during
meetings. For employees, the policy indicates that they must avoid any
situation in which their interests differ from those of the company. The
employees who have interests with current or potential suppliers or cus-
tomers must report these cases to their immediate supervisors.
Economic Performance
(GRI Standards: 102-30, 102-40, 102-42, 102-43, 102-44)
Material aspects: CSR Management; Wealth
distribution; Operation and risk strategy.
SDG 8: Decent work and economic growth.
The company’s 2017 net profits were affected more than expected
due to the restructuring process of its main customer (Mossi & Ghi-
solfi). This event provoked the recognition of provisions due to impair-
ment on accounts payable, as well as the impairment of intangible
and financial assets. However, total revenue increased due to higher
average prices and volume growth.
The results are shown below:
Millions of USD
2016
2017
Total revenue
4,838
5,231
Consolidated net income
Majority net income
272
198
(271)
(319)
Income per share (USD per
share)
0.09
(0.15)
Income tax
Dividends paid
Investments and
acquisitions
164
225
345
87
176
236
Net debt
1,042
1,262
Net debt/EBITDA (times)
1.6
3.3
Financial opportunities and Risks attributable
to Climate Change
(GRI Standard: 201-2)
Material aspects: Wealth distribution; Operations and
risk strategy; Climate change and emissions strategy.
SDG 13: Climate Action.
The goal of mitigating climate change is a priority issue on the global
agenda and for our business. At Alpek, we understand the challenge
inherent to working with non-renewable resources and the importance
of using those resources responsibly.
In 2016 the UN invited companies, governments, institutions, and so-
ciety in general to join the efforts against climate change through the
Paris Agreement toward the 2030 Sustainable Development Goals.
This presents great challenges for our industry’s progress in the pursuit
of sustainable growth. The main projects that form part of the strate-
gic plan implemented in recent years are initiatives involving vertical
integration, operational efficiency and expansion, optimizing natural
resource consumption and increasing our competitiveness and prof-
itability.
One initiative started operations in 2017 and another progressed as
expected:
29
Project
2017
Progress
Challenge
Opportunity
Construction
of a second
cogeneration
plant in
Altamira,
Tamaulipas
Construction
had progres-
sed 87% by
year-end
2017.
Investment
of US $350
million.
To fulfill our
electricity
needs more
efficiently
and in a more
environmenta-
lly responsible
manner.
Allows us to
supply our
electricity
needs using
350 MW of
steam each
year.
Construction
of two
propylene
storage
spheres
Start-up of
two propyle-
ne storage
spheres.
Investment
of US $23
million.
Propylene, one
of the basic
raw materials
used in our
operations, is
a non-renewa-
ble resource
that requires
very careful
handling.
The spheres
benefit our
PP segment
by supporting
the propylene
supply chain
within Mexico
and providing
greater
flexibility for
feedstock
imports,
creating better
utilization.
Univex (CPL). Salamanca, Mexico
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
30
PILLAR 2. INTERNAL WELL-BEING
At Alpek, we strive to create opportunities for personal and professional
development for our team members, and to provide a safe and inclusive
workplace that will foster their overall well-being.
Our Employees
(GRI Standards: 202-1, 405-1, 405-2)
Material aspect: Labor practices.
SDGs 5, 8 and 10: Gender equality; Decent work and
economic growth; Reduced inequalities.
Alpek’s employees are our greatest investment. Our commitment
assumes the responsibility of providing world-class workplace condi-
tions that will bring their skills to the next level.
We respect the right of each employee to earn a decent wage, and
so our company offers a base salary that is higher than the legal min-
imum wage. Compensation is based on the skills matching each job
profile, and benefits correspond to the employee category and the
tasks performed.
There are no significant differences between the benefits offered to
our full-time and part-time employees. They include a year-end bo-
nus, vacation pay, food vouchers, savings funds, and others.
Although given the nature of our operations, our workforce consists
mainly of men, we operate with gender-equality policies such as the
Equal Employment Opportunity Policy, flextime, maternity and pa-
ternity leave, and non-discrimination. The ratio of the base salary of
our male employees to that of our female employees is 1:1; without
difference.
In 2017, our workforce was made up of 5,290 employees, within the
following categories:
Personnel
Executives
Employees
Operators
Men
Women
Total
Distribution by
position
156
13
169
3%
1,350
544
1,894
36%
3,064
163
3,227
61%
Distribution by
Gender
86%
14%
Total
4,570
720
5,290
Fire training. Columbia, United States
31
Training and Development
(GRI Standards: 404-1, 404-2, 404-3)
Material aspect: Labor practices.
SDGs 5 and 8: Gender equality; Decent work and
economic growth.
We consider training processes and promoting education to be
foundational for our team members’ personal and professional
growth. Upgrading their skills and abilities encourages them to per-
form better both at and outside of the company.
In 2017, we invested more than US $12.5 million in workplace lead-
ership programs, job-specific training, interpersonal skills, and sus-
tainability issues. The latter involved 2,323 hours of human rights
training provided to 23% of the workforce.
We actively participated in the Alfa’s Sustainability Week, in which
training on issues related to health, safety, operational sustainability,
and biodiversity conservation is provided.
Actions such as the Annual Training Needs Assessment carried out
by Indelpro, or the Interpersonal Communication and Skills program
at Styropek Argentina, allow us to identify areas of opportunity to
improve performance and foster the personal, social, and profes-
sional development of our team members. In 2017, Alpek and its
companies provided more than 300 training programs.
We also granted scholarships for external institutions to the 495 em-
ployees who requested assistance in furthering their academic train-
ing, and we extended this benefit to our employees’ children in the
form of 1,094 scholarships and educational material support.
Emissions scanning. Salamanca, Mexico
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
32
With an investment of US $873,000, we contributed to family de-
velopment by organizing presentations, workshops, and recreational
events to which 15,000 people attended.
The 2017 training average hours per employee are shown below:
Category
2016
2017
All employees
Women
Men
Unionized
Non-Unionized
31
28
29
38
28
36
34
37
33
35
Health and Safety
(GRI Standards: 403-1, 403-4)
Material aspects: Health and safety.
SDG 3: Good Health and Well-being.
Our efforts to ensure safety in our operations and facilities, and to
support the health of our workforce, are ongoing and increasing.
Both the company and our team members are jointly responsible for
maintaining a safe workplace that fosters quality of life.
We encourage participation from all company departments in the
health and safety committees, and allocate required resources to im-
proving and updating equipment, technology, and industrial safety.
In 2017, we invested more than US $17.4 million in programs related
to health and safety to benefit our entire workforce. Initiatives imple-
mented at our facilities, such as the Annual Occupational Health
and Safety Plan, are essential to obtaining results such as zero se-
rious injuries at Alpek Polyester and eleven years and one million
man-hours without incapacitating accidents at Styropek Mexico
and Indelpro, respectively.
There were no fatal accidents at our plants in Mexico caused by the
earthquakes in September, thanks to the safety of our facilities, our
strict adherence to safety protocols, and the efficiency of the brigade
personnel. Only material damages were incurred, as may be expect-
ed after events of such magnitude.
We endeavor to create awareness about the importance of main-
taining a healthy lifestyle both within and outside of our facilities; we
implemented campaigns for vaccinations, the prevention of diabe-
tes, cancer, and other degenerative diseases. At certain plants, team
members engaged in physical exercise prior to beginning their work-
day through programs like the Starting the Day with Energy program
at Aislapol, in Chile.
Our efforts in occupational health and safety resulted in the follow-
ing figures for 2017:
Indicator
2016
2017
Accident Rate
17.38
51.51
Frequency Rate
1.08
3.10
No. of Accidents
Lost days
Physical losses
12
193
1
35
582
0
PILLAR 3. ENVIRONMENT
Our environmental commitment is reflected in the ongoing improvement in
operations to reduce our footprint, and in managing the natural resources
that we use in an efficient manner.
Investing in the Environment
(GRI Standard: 202-2)
Material aspects: Climate change and emissions
strategy; Operations and risk strategy.
SDG 13: Climate action.
We understand the challenges involved in working with petroleum de-
rivatives. That is why we invest in state-of-the-art technology for our
processes, make rational use of natural resources, foster a culture of
respect for the environment both within and outside of the company,
and comply with current legislation and international performance
standards.
Our companies establish comprehensive policies to monitor, oversee,
and improve their environmental actions, either through implement-
ing the ISO 14001 management system, or through specific policies
such as the Safety, Health, and Environment (SHE) in place at Alpek
Polyester.
Our environmental investments in 2017 are presented below:
Area of Investment
(US millions)
Emissions reduction
Environmental manage-
ment costs
Waste Disposal and
Reduction
Prevention Costs
Other Environmental
Actions
Remediation Costs
2016
2017
3.3
3.9
0.01
0.2
4.7
9.6
3.6
1.04
0.85
1.03
2.8
10
Total
21.7
19.3
33
Indelpro Lab (PP). Altamira, Mexico
Reforestation campaign. Altamira, Mexico
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
Energy Efficiency
(GRI Standards: 302-1 to 4)
Material aspects: Energy eco-efficiency.
SDGs 7 and 13: Affordable and clean energy;
Climate action.
Efficiency in energy consumption is a global imperative and is one of
our priorities toward sustainable resource management. Reducing the
use of fossil fuels is essential to ensuring their availability for future gen-
erations.
34
At Alpek, we have implemented various initiatives to foster efficient en-
ergy use. Steam production from the electricity cogeneration plant at
Cosoleacaque increased by 18% from 2016, equivalent to meeting the
energy needs of 2,772 Mexican households.
Other actions, such as reducing Indelpro’s emissions from the high
burner by 50%, the filtration project for better energy efficiency at Alpek
Polyester, and recovery initiatives for steam and process-process heat
transfer to leverage cold and hot currents at the Univex plant, resulted in
savings of approximately 530,000 GJ in ordinary energy consumption
in 2017, equivalent to the annual consumption of 16,200 Mexicans.
Alpek operations generated the following consumption:
(1X106 GJ)
Natural Gas
Diesel
Coal
Fuel Oil
Other
Total
2016
21.25
0.03
0.50
0.02
0.15
21.50
%
96.8
0.1
2.3
0.1
0.7
100
2017
%
21.63
98.15
0.02
0.20
0.01
0.18
22.04
0.1
0.9
0.05
0.8
100
Water Conservation
(GRI Standards: 303-1, 303-3, 304-1)
Material aspects: Water management.
SDG 6: Clean water and sanitation.
Water conservation is one of the most important issues for both the
international sustainability agenda and Alpek’s business strategy.
The company is endeavoring to reduce its water footprint as an es-
sential factor in its operational sustainability and the planet’s future.
The initiatives put into place include recovering steam condensates
in the cooling towers and waste elimination so that the liquid may
be reused in the treatment plants. In 2017 Univex reused 83% of the
water consumed in its processes, while Akra Polyester reused 58%.
Likewise, Alpek Polyester in Mexico reused 2.2 million m3 of water,
while the Styropek plant in Chile recovered 13,200 m3, despite not
having a treatment plant at its facilities.
The company owns twelve water treatment plants, in addition to
reuse and recycling processes. In 2017 the efficient resource man-
agement initiatives produced savings of 7% in consumption and a
3% increase in reuse, compared to 2016.
On the other hand, in the United States, the Columbia plant is lo-
cated 24 km from the Congaree National Park, while the Zárate
plant, in Argentina, is less than 25 km from the Paraná Delta Bio-
sphere Reserve. Given that these are high value areas for water and
biodiversity, these facilities carry out activities that contribute to
water conservation and nearby habitats, such as funding habitat
recovery and giving talks on species conservation.
35
Water consumption by source (millions of m3)
2016
2017
Rivers, lakes, and oceans
96.4
90.2
Undeground waters
Municipal water supply
Wastewater from other organizations
Other
Total
Millions of m3
Treated and reused water
3.0
2.7
0.6
0.2
3.3
1.6
0.6
0
103
95.7
2016
12.2
2017
14.8
Water quality monitoring. Columbia, United States
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
36
Talks about the environment, Live Green project. Altamira, Mexico
Reduction of Emissions
(GRI Standards: 305-1, 305-2, 305-5, 305-7)
Material aspect: Climate change and
emissions strategy.
SDG 13: Climate action.
Caring for the atmosphere and air quality is essential to the goal of
limiting global warming to 2°C or less by 2030. At Alpek we work
to this end through emissions reduction programs at all our plants
and through our participation in the carbon credit system.
All of our companies implement strict policies that establish goals
and progress indicators that prioritize environmental protection
and sustainable development in their surroundings. We exercise
timely compliance with legal requirements and agreements, and
work on pollution prevention while seeking to continuously improve
our environmental performance.
37
Some of the actions we implemented involved improving operating
processes and exhaustive maintenance of the emissions reduction
equipment. Our logistics department also carried out a risk analy-
sis on the transportation of finished product to identify the possible
environmental impacts of this process and to establish operational
controls to mitigate them. Preventive and corrective measures were
established based on the results.
Polioles has weekly collection units for solid urban waste that oper-
ate using natural gas, which reduces emissions from its transports.
Alpek Polyester has reduced its emissions by 28% since 2013.
Together, Alpek emissions were reduced by 40,000 ton/CO2 in or-
dinary processes, equivalent to the emissions generated by 8,400
vehicles in a year. Likewise, the intensity of emissions per ton pro-
duced dropped in comparison with 2016.
Total emissions from our operations are shown below:
Emissions (x106 ton CO2 EQ)
2016
2017
Direct Emissions
Indirect Emissions
Total Emissions
Emissions per ton produced (average)
1.24
1.14
2.38
0.44
1.25
1.06
2.31
0.43
Emission of other pollutants (tons)
2016
2017
NOx
SOx
Volatile Organic Compounds (VOC)
Hazardous Air Pollutants (HAP)
Particulate Matter (MP)
596
277
536
362
596
400
193
712
425
247
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
38
an EPS recycling project with the city of Buenos Aires that will pro-
cess recyclable material from that city. In 2017, city collection cam-
paigns were implemented to test the project’s feasibility.
In addition to caring for resources, we have processes to manage
the waste generated by our operations. In 2017, Alpek Polyester in
the United States reduced the landfill waste it produced by 98%.
Actions at Univex resulted in a 61.2% reduction in waste per ton
produced. Our companies also recycled more than 200 tons of
packing materials, pallets, and packaging. With strict adherence to
processing and disposal requirements, we did not receive a single
penalty in 2017 related to non-compliance or poor management.
Raw Materials and Use of Resources
(GRI Standards: 301-2, 416-1)
Material aspect: Climate change and
emissions strategy.
SDG 12: Responsible consumption and production.
The responsible use of raw materials and natural resources is es-
sential to ensuring that future generations will be able to meet their
needs. At Alpek, we use resources efficiently, which increases our pro-
ductivity, reduces production costs, and contributes to environmental
well-being.
The activity of recycling represents one of the most significant actions
in resource use and our responsibility over the product life cycle. In
2017, our two recycling plants processed 71.2 thousand tons of PET
bottles, representing 80% of their maximum capacity, and 2% more
than in 2016. This is equivalent to the production of 46.4 thousand
tons of recycled flake, thus avoiding the production of new material.
Some of our operations have environmental support agreements
with municipal and state authorities. Styropek Argentina developed
Talks about the environment, Live Green project. Altamira, Mexico
PILLAR 4. COMMUNITIES
Alpek is a responsible corporate citizen and a good neighbor. We are proud
of being able to contribute to the well-being of the communities where that
grant us license to operate, through initiatives that foster their overall devel-
opment.
Community Engagement
(GRI Standards: 413-1, 413-2)
Material aspect: Community engagement.
SDG 11: Sustainable cities and communities.
Alpek’s community engagement strategies are rooted in our active
participation in neighborhood safety, promoting educational pro-
grams, and fostering environmental and social awareness.
In 2017, more than 13,000 students from 65 schools received support
from the Alpek companies, up to 25% from 2016. Likewise, during
the year Alpek Polyester issued grants for children of the surrounding
communities of the Altamira plant with an average above 91 through
its Children of Excellence program. In the United States, 52 schools
received support, 70% more than in 2016.
39
All of our companies provided aid in the form of cash and food pro-
visions to help those affected by the earthquakes in Mexico’s cen-
tral-southern regions in September 2017. In Argentina, team members
collected donations to help those affected by the severe flooding in
the province of Santa Fe. Support for 15 social welfare institutions con-
tinued to benefit more than 500 people.
The Alpek Polyester plants carried out an event to free more than 100
Lora turtles, an endemic species, at the port of Altamira, Tamaulip-
as, after cleaning 8 km of beaches and giving talks on environmental
conservation to nearby schools as part of its Live Green program.
Regarding the safety of our communities, all Alpek facilities maintain
open communication channels with the leaders and authorities of
neighboring communities, as well as contingency plans and training in
case of emergency. With regards to health, the Aislapol plant in Chile
donated cash for cleft lip operations for twenty-five local children.
In total, 292 employees invested 2,671 hours in volunteer activities in
2017.
Community support. Pearl River, United States
2017 | ANNUAL REPORT SUSTAINABILITY / ALPEK
40
Our Customers and Suppliers
(GRI Standards: 102-12, 102-43, 308-1, 308-2, 414-1, 414-2)
Material aspect: Customer and supplier relations.
SDG 12: Responsible consumption and production.
Alpek builds long-term, win-win relationships with its value-chain. We
are in close communication with customers and suppliers to ensure
our product quality and to work together to develop innovative and
sustainable ideas. All Alpek companies have an executive responsible
for the Integral Responsibility area, through which self-assesments,
internal audits and annual verification are carried out, to identify op-
portunities and to improve performance along the value chain.
In 2017, we continued to participate with the Alfa Sustainability Com-
mittee in the initiative for a responsible supply chain to raise environ-
mental and social standards. The goal for 2017 was to complete the
compliance stage, in order to begin the efficiency and innovation
stage in 2018.
We train 100% of external transport personnel to ensure that they
comply with all legal and environmental legislation that is in force,
and we continue to audit 100% of our most critical suppliers of raw
materials for environmental issues, labor practices, human rights, so-
cial performance, safe facilities, etc.
Likewise, in 2017 we strove to strengthen communication with our cus-
tomers, meet their expectations, and address their needs. Out of the
64% of them who responded to our surveys, 93% reported that they
were satisfied with our products and service.
We continue to advance in our commitment to increased transparen-
cy in our operations. This year, we participated again in the research
process of the Sustainable Index from the Mexican Stock Exchange,
Robeco SAM, and the Carbon Disclosure Project (CDP), responding
to the three methodologies’ questionnaires with greater depth and
detail.
Participation in Chambers and Associations
(GRI Standard: 102-13)
Material aspect: Relations with NGOs and
regulatory agencies.
SDG 17: Partnerships for the goals.
We participate in industrial, business, educational, and sustainability
partnerships selectively and strategically. This helps us stay current on
the issues that affect our stakeholders, allows us to work as a team
with other companies to share best practices, and keeps us up to date
on domestic and international standards affecting business, labor,
and the environment.
In 2017, we participated with our industry peers in the following:
Reforestation campaign. Lerma, Mexico
Company
Association
ALPEK
ANIQ (Asociación Nacional de la Industria Química)
41
Participation in Executive
Committees or Special Projects
Yes, one of our Executives serves
as President of the Association
Akra Polyester
ANIQ (Asociación Nacional de la Industria Química)
No
AFMA (American Fiber Manufacturers Association)
Yes, Board presence
Alpek Polyester
United States
National Associate for PET Container Resources
Yes, one of our Executives
serves as Vice President of the
Association
NCTO (National Council of Textile Organizations)
Yes, Board presence
The PET Resin Association
Yes, one of our Executives is
Chairman of the Association
ANIQ (Asociación Nacional de la Industria Química)
Alpek Polyester
Mexico
AISTAC (Asociación de Industriales del Sur de Tamaulipas, A.C.)
CAINTRA (Cámara Nacional de la Industria de la Transformación)
AIEVAC (Asociación de Industriales del Estado de Veracruz)
CCAM (Cámara de Comercio Argentina-Mexicana)
CIPETAR (Cámara de la Industria del PET Argentina)
CIQyP (Cámara Argentina de la Industria Química y Petroquímica)
IPA (Instituto Petroquímico Argentino)
UIZ (Unión Industrial de Zárate)
CERA (Cámara de Exportadores de la República Argentina)
CIRA (Cámara de Importadores de la República Argentina)
CICAZ (Comité Interindustrial de Conservación del Ambiente
Zárate Campana)
CAIRPLAS (Cámara Argentina de la Industria de Reciclado Plásticos)
Amcham (Cámara de Comercio de Estados Unidos)
ANIQ (Asociación Nacional de la Industria Química)
AISTAC (Asociación de Industriales del Sur de Tamaulipas, A.C.)
ANIQ (Asociación Nacional de la Industria Química)
Alpek Polyester
Argentina
Indelpro
Polioles
Styropek Brazil
ABIQUIM (Asociación Brasileña de la Industria Química)
Styropek Argentina
AAPE (Asociación Argentina del Poliestireno Expandido)
CAIP (Cámara Argentina de la Industria Plástica)
CIQyP (Cámara de la Industria Química y Petroquímica)
ANDIMA (Asociación Argentina de Industrias de Materiales Aislantes)
ANIQ (Asociación Nacional de la Industria Química)
Styropek Mexico
AISTAC (Asociación de Industriales del Sur de Tamaulipas, A.C.)
Yes
Yes
Yes
Yes
No
Yes
No
No
No
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Asociación de Empresas para el Ahorro de Energía en la Edificación
Yes, Founding Partner and
current Treasurer
Univex
ANIQ (Asociación Nacional de la Industria Química)
Yes
2017 | ANNUAL REPORT BOARD OF DIRECTORS / ALPEK
42
BOARD
OF DIRECTORS
(GRI Standards: 102-18, 102-22)
Armando Garza Sada (3)
Chairman of the Board of Alpek, S.A.B. de C.V.
Merici Garza Sada (4)
Investor
Board member of Alpek since April 2011. Chairman of the Board
of ALFA and NEMAK. Member of the Boards of AXTEL, CEMEX,
FEMSA, Grupo Lamosa, Liverpool, Proeza and ITESM.
Board member of Alpek since April 2012.
Álvaro Fernández Garza (3)
President of ALFA, S.A.B. de C.V.
Board member of Alpek since April 2011. Chairman of the Board of
Universidad de Monterrey (UDEM). Member of the Boards of Cydsa,
Grupo Aeropuertario del Pacífico, Grupo CitiBanamex, Vitro, and
Museo de Arte Contemporáneo de Monterrey.
Francisco José Calderón Rojas (2)
Chief Financial Officer of Grupo Franca Industrias, S.A. de C.V.
Pierre Francis Haas García (1)
Advisory Services Director of Hartree Partners LP
Board member of Alpek since April 2012.
Jaime Serra Puche (1A)
Founding Partner and Chief Executive Officer of SAI Consultores, S.C.
Board member of Alpek since April 2012. Member of the Boards of
Fondo México, Tenaris, Vitro, Fresnillo plc and Grupo Financiero
BBVA Bancomer.
Board member of Alpek since April 2012. Member of the Boards
of Franca Industrias, Franca Servicios, Franca Desarrollos and
Universidad de Monterrey (UDEM), and an Alternate Member of the
Boards of FEMSA and Coca Cola FEMSA.
Enrique Zambrano Benítez (1A)
Chairman of the Board and Chief Executive Officer of Grupo Proeza,
S.A. de C.V.
Rodrigo Fernández Martínez (4)
Chief Executive Officer of Sigma Americas
Board member of Alpek since April 2012. Member of the Boards of
Grupo Proeza, CFE and ITESM.
Board member of Alpek since April 2012. Previously Mexico and Latin
America Director of Sigma.
Carlos Jiménez Barrera
Secretary of the Board
Andrés E. Garza Herrera (1A)
Chief Executive Officer of Qualtia Alimentos, S.A. de C.V.
Board member of Alpek since April 2012. President of Mexican
Consumer Products Industry Council (ConMéxico), President of
MOVISA (Movimiento por una vida saludable) Member of the
Boards of Xignux, Universidad de Monterrey (UDEM) and Ciudad de
los Niños.
Key
1. Independent Board Member
2. Independent Patrimonial Board Member
3. Related Patrimonial Board Member
4. Patrimonial Board Member
A. Audit and Corporate Practices Committee
43
MANAGEMENT TEAM
(GRI Standards: 102-18, 102-23)
José de Jesús Valdez Simancas | CHIEF EXECUTIVE OFFICER
CEO of Alpek since 1988. Former CEO of Petrocel, Indelpro and Polioles, and former Chairman of the
National Association of the Chemical Industry (ANIQ). Holds an undergraduate degree and MBA
from ITESM and a Master’s in Industrial Engineering from Stanford University.
Eduardo Escalante Castillo | CHIEF FINANCIAL OFFICER
Chief Financial Officer of Alpek since 2013. Former President of the Caprolactam Division of Alpek
and President of AOL Mexico. President of ANIQ. Holds an undergraduate degree from ITESM and a
Master’s in Engineering from Stanford University.
Jorge González Escobedo | PRESIDENT OF THE FILAMENTS FIBERS BUSINESS UNIT
President of Alpek’s Filaments Fibers Business Unit since 2005. Joined Alfa in 1974 and is a former
Vice President of Alpek’s Industrial Filaments Business Unit. Holds an undergraduate degree and an
MBA from ITESM.
Felipe Garza Medina | CO-PRESIDENT OF ALPEK POLYESTER
President of Alpek’s PTA Business Unit from 2008 to 2016. Joined Alfa in 1977 and is former CEO of
Indelpro and Galvacer. Holds an undergraduate degree from Stanford University and an MBA from
Cornell University.
Jorge P. Young Cerecedo | CO-PRESIDENT OF ALPEK POLYESTER
President of Alpek’s PET and Staple Fibers Business Unit from 2012 to 2016. Former Executive Vice
President of PET Resins and Vice President of Planning and Administration of DAK Americas LLC.
Holds an undergraduate degree from ITESM and an MBA from the University of Pennsylvania.
Alejandro Llovera Zambrano | PRESIDENT OF THE POLYPROPYLENE BUSINESS UNIT
President of Alpek’s Polypropylene Business Unit since 2008. Joined Alfa in 1985, is a former Director of
Human Resources at Alfa, held several executive positions in Alpek’s Synthetic Fibers Business Unit and
former Chairman of ANIQ. Holds an undergraduate degree and an MBA from ITESM.
José Luis Zepeda Peña | PRESIDENT OF THE EPS AND CHEMICALS BUSINESS UNIT
President of Alpek’s EPS and Chemicals Business Unit since 1999. Joined Alpek in 1986 and is former
Vice President of Planning, Finance and Administration, and Sales at Grupo Petrotemex. Holds an
undergraduate degree and Master’s in Chemical Sciences from UNAM and an MBA from ITESM.
Gustavo Talancón Gómez | PRESIDENT OF THE CAPROLACTAM AND FERTILIZERS
BUSINESS UNIT
President of the Caprolactam and Fertilizer Business Unit since 2013. Joined Alfa in 1989, is former CEO
of Terza, and held several executive positions in Alpek’s Polypropylene and Nylon and Polyester Filaments
Business Units. Holds an undergraduate degree from ITESM and a graduate degree from IPADE.
43
2017 | ANNUAL REPORT CORPORATE GOVERNANCE / ALPEK
44
CORPORATE
GOVERNANCE
Once a year, all companies that are listed on the Bolsa Mexicana de
Valores, S.A.B. de C.V. (BMV) must disclose the extent to which they
adhere to the CMPC by answering a questionnaire. The responses of
the different companies may be consulted on the BMV’s website. A
summary of Alpek’s principles of corporate governance is presented
below, reflecting the answers the company gave to the questionnaire in
May 2017 and updated where necessary:
• The Board of Directors is made up of nine members, who have
no alternates. Of the nine directors, four are independent board
members, two are proprietary board members, two are related
proprietary board members and one is an independent propri-
etary board member. This annual report provides information on
all the board members, identifying those who are independent
and their participation in the Audit and Corporate Practices
Committee.
• The Board of Directors is advised by the Audit and Corporate
Practices Committee. The Committee Chairman is an indepen-
dent board member.
• The Board of Directors meets every three months. Meetings
of the Board may be called by the Chairman of the Board, the
Chairman of the Audit and Corporate Practices Committee, the
Secretary of the Board or at least 25% of its members. At least
one such meeting every year is dedicated to defining the compa-
ny’s medium and long-term strategies.
• Members must inform the Chairman of the Board of any conflicts
of interest that may arise and abstain from participating in any re-
lated deliberations. The average attendance at Board Meetings
in 2017 was 93%.
• The Audit and Corporate Practices Committee studies and issues
recommendations to the Board of Directors on matters such as se-
lecting and determining the fees to be paid to the external auditor,
coordinating with the company’s internal audit area and studying
accounting policies.
• Additionally, the Audit and Corporate Practices Committee is re-
sponsible for issuing recommendations to the Board of Directors
on matters related to corporate practices, such as employment
terms and severance payments for senior executives, and com-
pensation policies.
• The company has internal control systems with general guide-
lines that are submitted to the Audit and Corporate Practices
Committee for its opinion. In addition, the external auditor vali-
dates the effectiveness of the internal control system and issues
reports thereon.
• The Board of Directors is advised by the planning and finance
department when evaluating matters relating to the feasibility of
investments, strategic positioning of the company, alignment of
investing and financing policies, and review of investment proj-
ects. This is carried out in coordination with the planning and
finance department of the holding company, Alfa, S.A.B. de C.V.
• Alpek has a department specifically dedicated to maintaining
an open line of communication between the company and its
shareholders and investors. This ensures that investors have the
financial and general information they require to evaluate the
company’s development and progress. Alpek uses press releases,
notices of material events, quarterly results conference calls, in-
vestor meetings, its website and other communication channels.
• Alpek promotes good corporate citizenship and adheres to the
recommendations of its holding company, Alfa, S.A.B. de C.V.
It has a mission, vision and values, and code of ethics that are
promoted within the organization.
45
GLOSSARY
ADMINISTRATIVE COUNCIL FOR ECONOMIC DEFENSE
Brazilian agency responsible for investigating and deciding on issues
of competence.
ETHYLENE OXIDE
Compound produced from ethylene and used as an intermediate in
the production of MEG and other chemicals.
CAPROLACTAM (CPL)
CPL is made by reacting cyclohexane, ammonia and sulfur and is the
raw material to produce Nylon 6 polymer. Nylon 6 is a synthetic resin
that, because of its strength, flexibility and softness, has a range of end
uses, including for sportswear, underclothes and engineering plastics.
CLEAN INDUSTRY CERTIFICATION
Certification granted by the Mexican Environmental Protection Agency
(PROFEPA) to companies that comply with environmental legislation.
COGENERATION
Process that produces both electricity and steam.
COMPREHENSIVE RESPONSIBILITY ADMINISTRATIVE SYSTEM
(MEXICAN NATIONAL ASSOCIATION OF THE CHEMICAL
INDUSTRY, ANIQ)
Certification given to companies that comply with the six compre-
hensive responsibility requirements established by the ANIQ, covering
Process safety, Health and safety in the workplace, Product safety,
Transportation and distribution, Prevention and control of environ-
mental pollution and Community protection.
CO2 EMISSIONS
Unit to measure the carbon dioxide produced by the burning of solid,
liquid and gaseous fuels, including natural gas.
CYCLOHEXANE
Compound produced by the hydrogenation of benzene and used in
caprolactam production.
ETHANE
Hydrocarbon part of the natural gas liquids, which at room tempera-
ture is colorless and odorless. It is used as a raw material to produce
ethylene.
ETHYLENE
Compound produced from ethane. It is the raw material for produce
vinyl acetate, ethyl chloride, styrene, ethylene oxide and polyethylenes.
EXPANDABLE POLYSTYRENE (EPS)
Light, rigid, cellular plastic, product of the polymerization of styrene
monomer. EPS is a versatile material because of its properties as an
impact reducer and thermal insulator, with customized molding ca-
pacity. These properties, combined with the ease with which it can be
processed, make EPS a popular packaging for impact-sensitive items
and for protecting perishables. It is also widely used in construction
systems, to lighten floor and roof structures, and as an insulator.
GREENHOUSE GASES (GHG)
Components of the atmosphere that absorb and emit radiation within
the infrared range, causing the earth surface temperature to increase.
INTEGREX®
Alpek-owned technology for producing PTA and PET from paraxylene
(pX) and monoethylene glycol (MEG), offering significant cost savings
and fewer intermediate steps in the production process.
ISO 9001 CERTIFICATION
Certification issued by rating agencies to those companies that oper-
ate with proven procedures for assuring the quality of their products,
in accordance with the standard defined by the International Organi-
zation for Standardization (ISO).
ISO 14001 CERTIFICATION
Internationally accepted standard for establishing an efficient Envi-
ronmental Management System (EMS). The standard is designed to
support companies’ profitability and at the same time minimize envi-
ronmental impact.
MEGAWATT (MW)
Unit of power, equal to 1 million watts.
MONOETHYLENE GLYCOL (MEG)
Raw material with diverse industrial uses, especially for producing
polyester (PET and fiber), antifreeze, refrigerants and solvents.
PARAXYLENE (PX)
Hydrocarbon in the xylene family used to produce PTA. It is also a
component of gasoline.
2017 | ANNUAL REPORT GLOSSARY / ALPEK
46
POLYETHYLENE TEREPHTHALATE (PET)
Material widely used in the manufacture of bottles and other contain-
ers for liquids, food and personal hygiene, household and healthcare
products. PET flakes and films are used to produce caps, trays and
recipients. Because of its transparency, strength, durability and high
protection barriers, PET presents no known health risks, is light and
recyclable, and has a wide range of applications in reusable, tem-
perature-sensitive packaging. PET has replaced glass and aluminum,
as well as other plastics such as PVC and polyethylene, for making
containers.
POLYPROPYLENE (PP)
Thermoplastic polymer, produced from the polymerization of pro-
pylene monomer. Its properties include a low specific gravity, great
rigidity, resistance to relatively high temperatures and good resistance
to chemicals and fatigue. PP has diverse applications, including for
packaging, textiles, recyclable plastic parts and different kinds of con-
tainers, auto-parts and polymer (plastic) banknotes.
PROPYLENE
Unsaturated, 3-carbon hydrocarbon, co-product of the cracking pro-
cess at petrochemical complexes and a by-product at oil refineries. It
is used in the petrochemical industry to produce PP, propylene oxide,
cumene, isopropanol, acrylic acid and acrylonitrile. It is also converted
into a gasoline component by alkylation with
butanes or pentanes.
PROPYLENE OXIDE
Compound produced from propylene and used to manufacture com-
mercial and industrial products, including polyols, glycols and glyco-
ethers.
PURIFIED TEREPHTHALIC ACID (PTA)
Aromatic dicarboxylic acid, the main raw material in polyester pro-
duction. PTA is produced by the oxidation of paraxylene. It is used to
manufacture PET, which is then used to make bottles for water, soft
drinks and other beverages, containers and other packaging, and
polyester fiber for rugs, clothing, furniture and industrial applications,
as well as other consumer products.
STYRENE MONOMER
Unsaturated hydrocarbon used to make a variety of plastics, synthetic
rubber, protective coatings and resins. It is the main raw material in
EPS production and also used as a solvent and chemical intermediate.
WATT
Unit of power in the International System of Units (SI).
Alpek Polyester (PTA and PET). Columbia, United States
47
2017 | ANNUAL REPORT ANNUAL REPORT / ALPEK
48
Alpek Polyester (PET). Montreal, Canada
CONSOLIDATED FINANCIAL
STATEMENTS
ALPEK, S.A.B. de C.V.
and Subsidiaries
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2017 AND 2016
Management's Analysis
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of (Loss) Profit
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
51
59
64
65
66
67
68
69
51
MANAGEMENT'S
ANALYSIS
2017
The following analysis complements the Letter to Shareholders,
The behavior of the GDP and other variables is described below:
Audited Financial Statements, and Complementary Information.
Unless otherwise specified, figures are expressed in millions of
In the United States, the Gross Domestic Product (GDP) increased
nominal pesos, while certain figures are expressed as millions of
2.3% (a) in 2017, higher than the 1.5% reported in 2016. Consumer
dollars (US $) due to the high dollarization of Alpek’s revenues.
inflation was 2.1%(b) in 2017, identical to the 2.1%(b) recorded in
Percentage variations are stated in nominal terms. All informa-
2016.
tion is presented in accordance with International Financial Re-
porting Standards (IFRS).
Economic Environment
Mexico’s Gross Domestic Product (GDP) grew 2.3% (estimated) in
2017, with no change from 2016. Consumer inflation was 6.8%(d)
in 2017, higher than the 3.4%(d) recorded in 2016. At the close of
2017, the Mexican peso posted an annual nominal appreciation of
In 2017, the global economy continued to grow. Financial mar-
4.6%(e), compared to a depreciation of 19.5%(e) in 2016. Howev-
ket volatility persisted due to uncertainty in economic policy in
er, the average nominal annual exchange rate posted a deprecia-
industrialized countries, geopolitical risks, and the standard-
tion of 1.5% in 2017.
ization of monetary policy by the central banks, such as the US
Federal Reserve (Fed). The Mexican economy faced an adverse
With regard to Mexican interest rates, the average Interbank
environment from uncertainty surrounding the North America
Equilibrium Interest Rate (TIIE) in 2017 was 7.1%(d) in nominal
Free Trade Agreement (NAFTA) as well as natural disasters, like
terms, as compared to 4.5% in 2016. In real terms, the average
the earthquakes that affected the central and southern regions
TIIE increased from 0.5% in 2016 to 7.3% in 2017. For its part, the
of the country. Finally, international oil prices continued their re-
annual average nominal 3-month US dollar LIBOR rate, was 1.3%
covery after OPEC continued with its agreement to cut produc-
in 2017, compared to 0.7%(d) in 2016.
tion. At the close of the year, the Brent quote price was $67 per
barrel, 55% higher than its quote price in December 2016.
Sources:
(a) Bureau of Economic Analysis (BEA).
(b) Bureau of Labor Statistics (BLS).
(c)
Instituto Nacional de Estadística y Geografía (INEGI).
(d) Bank of Mexico (Banxico).
(e) Banxico: Exchange rate for settling liabilities
denominated in foreign currency payable in Mexico.
2017 | ANNUAL REPORT
Volume - (thousands of tons)
52
2017
3,105
906
4,012
2016
3,004
934
3,938
2015
3,015
922
3,937
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
3
(3)
2
-
1
-
Revenue
2017
2016
2015
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
70,477
3,724
28,522
1,506
98,998
5,231
64,241
3,444
25,951
1,394
90,192
4,838
60,769
3,840
22,821
1,444
83,590
5,284
10
8
10
8
10
8
6
(10)
14
(3)
8
(8)
Price index
2017
2016
2015
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
113
94
127
106
116
97
106
90
112
95
108
92
100
100
100
100
100
100
6
5
13
11
8
6
6
(10)
12
(5)
8
(8)
POLYESTER
PLASTICS & CHEMICALS
TOTAL VOLUME
POLYESTER
Millions of pesos
Millions of dollars
PLASTICS & CHEMICALS
Millions of pesos
Millions of dollars
TOTAL REVENUE
Millions of pesos
Millions of dollars
POLYESTER
Millions of pesos
Millions of dollars
PLASTICS & CHEMICALS
Millions of pesos
Millions of dollars
TOTAL
Millions of pesos
Millions of dollars
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 53
Revenue
Alpek’s net revenue in 2017 was $98,998 million (US $5.231 billion), 10% more than the $90,192 million (US $4.838 billion) in 2016. This
increase was due to an 8% rise in average sale price, and a 2% growth in volume. The average price in dollar terms rose 6%, driven by
increased crude and feedstock prices.
Revenue by Business Segment
Polyester’s net revenue in 2017 was $70,477 million (US $3.724 billion), 10% more than the $64,241 million (US $3.444 billion) of 2016.
The segment posted a 6% increase in average sales price, while volume increased 3%. The average Polyester price increased 5% in
2017 in dollar terms, reflecting higher prices of main feedstocks such as paraxylene.
In 2017, net revenue from Plastics & Chemicals reached $28,522 million (US $1.506 billion), compared to $25,951 million (US $1.394
billion) in 2016. The 10% increase was due to a 3% decline in volume that was more than offset by a 13% rise in average sales price.
Excluding the foreign exchange effect, the average price of this segment was 11% higher than in 2016, also reflecting higher crude and
feedstock prices.
Operating Profit and EBITDA
2017 posted an operating loss of -$2,854 million (US -$188 million), compared to a profit of $9,863 million (US $532 million) in 2016,
due to a -$7,745 million (US -$435 million) impairment of intangible assets and prepayments, plus a -$2,017 million (US -$113 million)
provision for the impairment of trade accounts receivable, both related to agreements with several subsidiaries of the Mossi & Ghisolfi
Group (M&G). In 2017 M&G suspended payments and began a restructuring process due to liquidity constraints.
As of December 31, 2017, consolidated EBITDA was $7,483 million (US $384 million), a decrease of 40% compared to the $12,425 mil-
lion(US $669 million) of 2016. EBITDA includes the -$2,017 million (US-$113 million) provision for the impairment of trade accounts re-
ceivable associated with M&G, a $467 million (US $22 million) inventory gain and a $227 million (US $12 million) one-time gain from the
acquisition of Selenis Canada Inc. (2016). Excluding the impact of these three items, comparable EBITDA was $8,806 million (US $462
million), 25% lower than 2016, mainly due to the expected contraction in PP and PET margins, plus the PTA supply disruption to M&G.
Polyester EBITDA was $2,970 million (US $147 million) in 2017, including the -$2,017 million (US-$113 million) provision for the impair-
ment of trade accounts receivable associated to M&G, a $301 million (US $14 million) non-cash inventory gain, and the $227 million (US
$12 million) one-time gain from the acquisition of Selenis Canada Inc. (2016). Adjusting for the effect of these three non-operating
items, comparable EBITDA for the Polyester segment was $4,458 million (US $234 million), 27% less than 2016, mainly affected by lower
PET margins, the PTA supply disruption to M&G, and higher secondary feedsctock costs, such as isophthalic acid (IPA).
Plastics & Chemicals EBITDA was $4,519 million (US $237 million) in 2017, down 24% compared to $5,948 million (US $322 million) in
2016. Excluding non-cash inventory gains, comparable Plastics & Chemicals EBITDA was also 24% lower than the $5,695 million (US $
308 million) of 2016, which benefited from record high PP and EPS EBITDA.
2017 | ANNUAL REPORT 54
Operating Income (EBITDA) –
(millions of pesos)
POLYESTER
PLASTICS & CHEMICALS
Other and Eliminations
TOTAL EBITDA
2017
2,970
4,519
(5)
7,483
2016
6,514
5,948
(37)
12,425
2015
5,420
4,508
46
9,974
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
(54)
(24)
86
(40)
20
32
(180)
25
Operating Income (EBITDA) –
(millions of dollars)
2017
2016
2015
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
POLYESTER
PLASTICS & CHEMICALS
Other and Eliminations
TOTAL EBITDA
147
237
-
384
349
322
(2)
669
344
284
3
630
(58)
(26)
84
(43)
2
14
(162)
6
Net Financial Result
In 2017 the net financial result, was -$3,410 million (US -$188 million), 36% higher than the previous year. The net financing expens-
es that make up this item grew from -$1,129 million (US -$61 million) in 2016, to -$1,284 million (US -$68 million), reflecting the
increased debt and the depreciation of the Mexican peso against the US dollar, which had an adverse effect on financial expenses
related to dollar-denominated credits. The change in foreign exchange rate also resulted in the recognition of a non-cash foreign
exchange loss of -$432 million (US -$25 million) in 2017, although it was 69% below than that of 2016.
Financial Result, Net -
(millions of pesos)
Financial expense
Financial income
Financial expenses, Net
Impairment of financial assets
Loss due to exchange fluctuation, net
Financial Result, Net
2017
(1,482)
198
(1,284)
(1,694)
(432)
(3,410)
2016
(1,414)
285
(1,129)
-
(1,380)
(2,509)
2015
(1,176)
428
(748)
-
(1,114)
(1,862)
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
(5)
(31)
(14)
(100)
69
(36)
(20)
(33)
(51)
-
(24)
(35)
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 55
Taxes
2017 posted a positive tax on profit of $1,713 million (US $106 million), as a result of the loss before taxes of -$6,268 million (US -$376
million). The 2017 income tax includes a deferred tax benefit of $2,735 million (US $158 million) due to the non-recurring charges related
to M&G.
Taxes- (millions of pesos)
2017
2016
2015
Income Taxes
(Loss) Income before taxes
Income tax rate
Statutory income tax rate benefit (expense)
Taxes for permanent differences between
accounting-taxable profit
Total income tax
Effective tax rate
Comprised as follows:
Current income tax
True-up to prior years income tax provision
Deferred income tax
Total income tax
(6,268)
30%
1,881
(168)
1,713
27%
(1,511)
188
3,036
1,713
7,351
30%
(2,205)
5,705
30%
(1,711)
(153)
(329)
(2,358)
(2,040)
32%
36%
(2,470)
(2,252)
(33)
145
9
203
(2,358)
(2,040)
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
(185)
29
185
(10)
173
39
670
N/A
173
(29)
54
(16)
(10)
(473)
29
(16)
Net Income Attributable to the Controlling Interest
The net consolidated loss attributable to the controlling interest was -$5,487 million (US -$319 million) in 2017, including a net impact
of -$8,652 million (US -$481 million) from the non-recurring charges related to M&G, which affected the operating profit, net financial
result and income tax. Adjusting for the non-recurring charges associated to M&G, the income attributable to the controlling interest
was $3,165 million (US $162 million) in 2017, compared to $3,625 million (US$ 198 million) in 2016.
Statement of (Loss) Profit - (millions of pesos)
Operating (loss) income
Financial result, net
Share in losses of associates
Income taxes
Net consolidated (loss) income
(Loss) income attributable to controlling interest
2017
(2,854)
(3,410)
(4)
1,713
(4,555)
(5,487)
2016
9,863
2015
7,590
(2,509)
(1,862)
(3)
(2,358)
4,993
3,625
(23)
(2,040)
3,665
2,748
VAR. % 2017
vs 2016
VAR. % 2016
vs 2015
(129)
(36)
(24)
173
(191)
(251)
30
(35)
86
(16)
36
32
2017 | ANNUAL REPORT 56
Investments in Fixed and Intangible Assets
In 2017, investments in fixed and intangible assets totaled $4,431 million (US $234 million), 26% below the $5,981 million (US $320
million) posted for 2016, to complete the Alpek’s investment plan for strategic projects. The resources were mainly used for the three
remaining initiatives: the electricity cogeneration plant, which progressed on schedule, the propylene storage spheres, and the EPS
capacity expansion, all located in Altamira, Mexico. Investments in shares are not included in these figures.
Net Debt1
Net debt rose to $24,915 million (US $1.262 billion) as of December 31, 2017, 16% above the net debt of $21,527 million (US $1.042 bil-
lion) as of December 31, 2016. Operating cash generated partially compensated for the amount of investments in fixed and intangible
assets of $4,431 million (US $234 million) and the investment of $1,870 million (US $101 million) in credit rights on a secured loan to
M&G, acquired through Inbursa. In turn, the cash balance was $9,559 million (US $484 million) at the end of 2017.
(1) Net Debt = Current debt plus non-current debt, excluding debt issuance costs, plus accrued interest payable, less cash and cash equivalents, plus
restricted cash and cash equivalents.
Short and Long-Term debt
Short-term debt
Long-term 1 year
2
3
4
5 years or more
Total
Avg. maturity long-term debt (years)
Avg. maturity total debt (years)
Financial Indicators - (times)
Net debt / EBITDA (US $)
Interest coverage (US $)
Total liabilities / Stockholders’ equity
Millions of dollars
% integrated
2016
11
6
2
-
-
80
100
2017
375
12
241
105
714
300
1,747
5.5
5.4
2017
3.3
4.8
2.0
2016
135
72
27
1
-
950
1,184
5.3
5.2
2016
1.6
10.5
1.2
Var. %
2017
21
1
14
6
41
17
100
178
(84)
793
N/A
N/A
(68)
48
2015
1.1
10.7
1.2
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
57
2017
HIGHLIGHTS
Supply of PTA to M&G is Suspended
Various subsidiaries of the Mossi & Ghisolfi Group (M&G) failed to make payment of certain invoices related to the supply of purified
terephthalic acid (PTA). As a result, Alpek suspended the supply of PTA to the PET plants that M&G operates in Altamira, Mexico, and
Suape, Brazil, over several months. Since then, Alpek has worked closely with M&G to support its operations and to implement a defin-
itive restructuring plan.
Acquisition of PetroquimicaSuape and Citepe
In 2017, corporate approval was obtained to acquire 100% of Companhia Petroquímica de Pernambuco (PetroquímicaSuape) and
Companhia Integrada Têxtil de Pernambuco (Citepe), owned by Petróleo Brasileiro, S.A. (Petrobras), for US $385 million and debt-free.
PetroquímicaSuape and Citepe operate an integrated PTA-PET site in Ipojuca, Pernambuco, Brazil, with an annual installed capacity of
640,000 and 450,000 tons of PTA and PET, respectively. Citepe also operates a texturized polyester filament plant with an annual
capacity of 90,000 tons per year. The transaction was approved by the Administrative Council for Economic Defense (CADE) on
February 7, 2018. The closing of the purchase is contingent upon other terms and conditions expected to be met during 2018.
Start-up of Propylene Spheres
Two propylene spherical tanks located in Altamira, Mexico started operations, with an aggregate capacity of 5,000 tons. This project
will improve the efficiency of Alpek’s propylene logistics chain within Mexico and will provide greater flexibility in feedstock imports,
with a total investment of US $23 million.
EPS Expansion Launched in Altamira
We have concluded the expansion of the Expandable Polystyrene (EPS) plant in Altamira, Mexico, after a total investment of US $33
million. With an annual increase of 75,000 tons, the EPS plant reached a total installed capacity of 240,000 tons per year, making it one
of the five largest sites worldwide. The new capacity began its gradual production process in September 2017, a few months prior to
its projected launch.
Monetization of Power Cogeneration Plants
Alpek began the formal process to sell its two power cogeneration plants in Cosoleacaque, Veracruz and Altamira, Tamaulipas. After an
exhaustive selection process, Alpek chose the proposal submitted by ContourGlobal and began the requisite due diligence and negoti-
ation of the final agreements for the potential sale of both units. ContourGlobal is a public power company listed on the London Stock
Exchange, and operates a portfolio of 69 plants in 19 countries in Europe, Latin America, and Africa.
2017 | ANNUAL REPORT INDEPENDENT AUDITORS’
REPORT
to the Board of Directors and Stockholders of
Alpek, S. A. B. de C. V.
Opinion
We have audited the consolidated financial statements of Alpek, S. A. B. de C. V. and Subsidiaries (the “Company”), which comprise the
consolidated statement of financial position as of December 31, 2017, the consolidated statement of loss, the consolidated statement
of comprehensive loss, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then
ended, and the notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2017 and its consolidated financial performance and its consolidated cash flows for the
year then ended, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are
independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Profes-
sional Accountants (“IESBA Code”) together with the Code of Ethics issued by the Mexican Institute of Public Accountants (“IMCP Code”),
and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and with the IMCP Code. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other matter
The Company’s consolidated financial statements for the year ended December 31, 2016, have been audited by other auditors, who
expressed an unqualified opinion on February 17, 2017.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated fi-
nancial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial state-
ments as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined
that the matters described below are the key audit matters which should be communicated in our report.
60
Impairment of assets derived from agreements with various subsidiaries of Grupo Mossi & Ghisolfi (“M&G”)
As disclosed in Note 2a to the consolidated financial statements, in 2015, the Company entered into agreements with M&G Resins USA,
LLC (“M&G Resins”), one of capacity reserve for a term of 5 years and another of maquila for 20 years, for which the latter agreed to
supply with 500 thousand tons of PET (manufactured with 420 thousand tons of PTA) from the start-up of the plant located in Corpus
Christi. As a result of this agreement, the company paid $7,745 million (US$435 million) to M&G Resins, of which $6,410 million (US$360
million) were recognized as an intangible asset, amortizable based on production volumes, and $1,335 million (US$75 million) were rec-
ognized as prepayments for the purchase of inventories. In 2017, due to M&G’s declared insolvency, its difficulty to obtain additional fi-
nancing, and its lack of liquidity, which resulted in the inability to complete the construction of the plant by M&G, the Company decided
to recognize an impairment for these assets of $7,745 million (net of taxes, $6,087). In addition, due to the aforementioned conditions,
the Company also decided to impair notes and accounts receivable of $3,711 million (net of taxes, $2,634 million).
Subsequently, on October 9, 2017, the Company (transferee) entered into a transfer-of-rights agreement with Banco Inbursa, S. A.
(transferor), on an unsecured loan agreement bearing interest and mortgage guarantee with M&G Polímeros México, S. A. de C. V. (“M&G
Polímeros México”). The consideration for the transfer of rights that the Company paid amounts to $1,870 million, which is recognized
in the consolidated financial statements as other non-current assets. This contract grants the Company the right in the first instance
over the other creditors of M&G Polímeros México and is guaranteed by a plant in Altamira, Mexico, of which fair value exceeds the
amount of the right of collection maintained by Alpek.
Due to the significant judgments used by management to determine the impairment loss of the assets of the Company associated with
M&G, and the recognition of other non-current assets for the transfer of rights, our audit procedures focused on reviewing elements
and significant judgments considered by the Company to recognize the impairment loss of the long-lived assets and other non-current
assets in the consolidated financial statements.
Regarding the impairment loss recognized, we obtained and read the contractual agreements of the transaction and performed the
following procedures:
• We obtained the analysis prepared by management, including level of indebtedness of M&G, lack of liquidity and level of insol-
vency of M&G; we also assessed the current situation of the construction of the plant and the possibility of reactivation. With
respect to the accounts receivable of PTA sales and notes receivable, we obtained the aging analysis, management’s estimates
of recovery and, if applicable, the guarantees granted.
• We assessed and discussed with management the information and evidence provided to corroborate the considerations for
recognizing impairment losses.
As part of our audit, regarding the recognition of the long-term notes receivable arising from the transfer of rights, among others, we
performed the following procedures:
• We obtained confirmation from lawyers in relation to the level of the mortgage guarantee.
• With respect to the mortgaged property, with the support of our expert appraisers, we verified that the models used by manage-
ment to determine the fair values were used and recognized to value assets with similar characteristics in the industry.
• We assessed and discussed with management the probability of recovery of the long-term notes receivable, considering the fair
value of the mortgage guarantee.
The results of our procedures were satisfactory and we agree with the amount of impairment of the assets recorded in the year. In ad-
dition, the results of our procedures were satisfactory with respect to the recoverability of the other non-current assets arising from
the transfer of rights, considering the guarantee established.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 61
Information other than the Consolidated Financial Statements and Auditor’s Report thereon
Management is responsible for the other information presented. The other information includes two documents, the Annual Stock
Exchange Filing and the information that will be incorporated in the Annual Report that the Company must prepare pursuant to the
General Provisions Applicable to Issuers and other Participants in the Mexican Stock Exchange and file it with the National Banking and
Securities Commission (“CNBV” for its acronym in Spanish). The Annual Stock Exchange Filing and the Annual Report are expected to be
made available to us after the date of this auditors’ report.
Our opinion of the consolidated financial statements does not cover the other information and we do not express any form of assur-
ance over it.
In connection with our audit of the consolidated financial statements, our responsibility will be to read the other information, when
available, and in doing so, consider whether the other information contained therein is materially inconsistent with the consolidated
financial statements or with our knowledge obtained in the audit, or otherwise appears to contain a material error. If based on the work
we have performed, we conclude that there is a material misstatement therein, we are required to communicate the matter in a state-
ment in the Annual Report required by the CNBV and those charged with governance in the Company.
Responsibilities of management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IF-
RSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial state-
ments that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless man-
agement either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s consolidated financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from ma-
terial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material mis-
statement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the
audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one re-
sulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
2017 | ANNUAL REPORT 62
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclo-
sures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evi-
dence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are in-
adequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company and subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision, and performance of the Company and subsidiaries audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our inde-
pendence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circum-
stances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. César Adrián Garza Tamez
Monterrey, Nuevo León, México
January 31, 2018
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 63
2017 | ANNUAL REPORT Alpek, S. A. B. de C. V. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2017 and 2016
In millions of Mexican pesos
64
Note
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Trade and other accounts receivable, net
Inventories
Derivative financial instruments
Prepayments
Total current assets
Non-current assets:
Property, plant and equipment, net
Goodwill and intangible assets, net
Deferred income taxes
Prepayments
Other non-current assets
Total non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Debt
Trade and other accounts payable
Income taxes payable
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities:
Debt
Derivative financial instruments
Provisions
Deferred income taxes
Income taxes payable
Employee benefits
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity
Controlling interest:
Capital stock
Share premium
Retained earnings
Other reserves
Total controlling interest
Non-controlling interest
6
6
7
8
4
9
10
11
18
9
12
15
14
18
4
16
15
4
16
18
18
17
19
13
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
The accompanying notes are an integral part of these consolidated financial statements.
$
$
8,795
763
15,817
16,364
148
305
42,192
41,535
4,065
2,424
31
3,531
51,586
$
93,778
$
$
7,408
19,783
573
230
25
28,019
26,958
473
155
4,403
623
1,061
422
34,095
62,114
6,048
9,071
3,271
8,526
26,916
4,748
31,664
93,778
$
$
2,935
2
15,918
14,853
56
457
34,221
40,699
11,875
433
1,570
2,702
57,279
91,500
2,787
15,492
694
71
363
19,407
21,551
646
7
5,883
553
1,227
504
30,371
49,778
6,048
9,071
11,292
10,662
37,073
4,649
41,722
91,500
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
Alpek, S. A. B. de C. V. and Subsidiaries
CONSOLIDATED STATEMENTS OF (LOSS) PROFIT
For the years ended December 31, 2017 and 2016
In millions of Mexican pesos, except for earnings per share amounts
Revenues
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other income, net
Income before impairment of intangible assets and trade receivables
Impairment of intangible assets and trade receivables
Operating (loss) income
Financial income
Financial expenses
Loss due to exchange fluctuation, net
Impairment of financial assets
Financial result, net
Equity in income of associates and joint ventures recognized using the equity method
(Loss) income before taxes
Income taxes
Net consolidated (loss) income
(Loss) income attributable to:
Controlling interest
Non-controlling interest
65
Note
2017
2016
$
98,998
( 88,598 )
$
10,400
( 1,747 )
( 2,080 )
335
6,908
( 9,762 )
(2,854 )
198
(1,482 )
(432 )
(1,694 )
( 3,410 )
( 4 )
( 6,268 )
1,713
23
2a
24
24
24
2a
18
90,192
( 76,943 )
13,249
( 1,578 )
( 2,043 )
235
9,863
-
9,863
285
(1,414 )
(1,380 )
-
( 2,509 )
( 3 )
7,351
( 2,358 )
$
( 4,555 )
$
4,993
$
( 5,487 )
932
$
3,625
1,368
$
( 4,555 )
$
4,993
(Losses) earnings per basic and diluted share, in Mexican pesos
$
( 2.59 )
$
1.71
Weighted average outstanding shares (millions of shares)
2,117
2,117
The accompanying notes are an integral part of these consolidated financial statements.
2017 | ANNUAL REPORT
Alpek, S. A. B. de C. V. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For the years ended December 31, 2017 and 2016
In millions of Mexican pesos
66
Net consolidated (loss) income
$
( 4,555 )
$
4,993
Note
2017
2016
Other comprehensive (loss) income for the year:
Items that will not be reclassified to the statement of income:
Remeasurement of employee benefit obligations, net of taxes
17, 18
50
64
Items that will be reclassified to the statement of income:
Effect of derivative financial instruments designated as cash flow hedges,
net of taxes
Translation effect of foreign entities
Equity in other comprehensive income of associates and joint ventures
4, 18
20, 18
Total other comprehensive (loss) income for the year
123
( 2,461 )
-
( 2,288 )
384
6,233
( 2 )
6,679
Consolidated comprehensive (loss) income
$
( 6,843 )
$
11,672
Attributable to:
Controlling interest
Non-controlling interest
$
( 7,570 )
727
$
9,527
2,145
Comprehensive (loss) income for the year
$
( 6,843 )
$
11,672
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
Alpek, S. A. B. de C. V. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2017 and 2016
In millions of Mexican pesos
67
Capital stock
Share
premium
Retained
earnings
Other
reserves
Total
controlling
interest
Non-controlling
interest
Total
stockholders’
equity
Balances as of January 1, 2016
$
6,052
$
9,071
$
10,009
$
4,822
$
29,954
$
4,545
$
34,499
Net income
Total other comprehensive income
for the year
Comprehensive income
Repurchase of own shares
Dividends declared
Changes in the non-controlling
interest
Effect of transfer of business under
common control
-
-
-
( 4 )
-
-
-
-
-
-
-
-
-
-
Balances as of December 31, 2016
6,048
9,071
Net (loss) income
Total other comprehensive (loss)
for the year
Comprehensive loss
Dividends declared
Changes in the non-controlling
interest
Effect of assumption of non-
controlling interest
Other
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,625
62
3,687
( 42 )
( 1,959 )
-
( 403 )
11,292
( 5,487 )
53
( 5,434 )
( 2,667 )
-
( 30 )
110
-
5,840
5,840
-
-
-
-
10,662
-
( 2,136 )
( 2,136 )
-
-
-
-
3,625
5,902
9,527
( 46 )
( 1,959 )
-
( 403 )
37,073
( 5,487 )
( 2,083 )
( 7,570 )
( 2,667 )
-
( 30 )
110
1,368
777
2,145
-
( 2,049 )
40
( 32 )
4,649
932
( 205 )
727
( 618 )
( 40 )
30
-
4,993
6,679
11,672
( 46 )
( 4,008 )
40
( 435 )
41,722
( 4,555 )
( 2,288 )
( 6,843 )
( 3,285 )
( 40 )
-
110
Balance as of December 31, 2017
$
6,048
$
9,071
$
3,271
$
8,526
$
26,916
$
4,748
$
31,664
The accompanying notes are an integral part of these consolidated financial statements.
2017 | ANNUAL REPORT
$
Alpek, S. A. B. de C. V. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 and 2016
In millions of Mexican pesos
Cash flows from operating activities
(Loss) income before income taxes
Depreciation and amortization
Impairment of long-lived assets
Allowance for doubtful accounts
Financial result, net
Statutory employee profit sharing, provisions and other items
Subtotal
Movements in working capital
Increase in trade receivables and other assets
Increase in inventories
Increase in trade and other accounts payable
Income taxes paid
Net cash flows generated from operating activities
Cash flows from investing activities
Interest collected
Cash flows in acquisition of property, plant and equipment
Cash flows in acquisition of intangible assets
Cash flows in business acquisition, net of cash acquired
Investment in associates and joint ventures
Derivative financial instruments
Loans collected from related parties
Notes receivable
Collection of notes
Restricted cash
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from debt
Payments of debt
Interest paid
Dividends paid by Alpek, S. A. B. de C. V.
Dividends paid to non-controlling interest
Sale of shares
Repurchase of shares
Loans received from related parties
Loan payments to related parties
Net cash flows generated from (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Effect of changes in exchange rates
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes are an integral part of these consolidated financial statements.
$
68
2017
2016
( 6,268 )
2,635
7,702
2,011
3,069
( 395 )
8,754
( 2,861 )
( 1,874 )
4,860
( 1,654 )
7,225
99
( 4,416 )
( 15 )
-
( 39 )
( 17 )
16
( 2,522 )
15
( 739 )
( 7,618 )
15,041
( 4,647 )
( 1,292 )
( 2,667 )
( 618 )
1
-
-
( 2 )
5,816
5,423
437
2,935
8,795
$
7,351
2,560
2
6
2,261
( 361 )
11,819
( 1,440 )
( 1,439 )
71
( 2,992 )
6,019
230
( 4,543 )
( 1,438 )
( 390 )
( 82 )
108
1,123
( 1,220 )
-
-
( 6,212 )
3,534
( 2,549 )
( 1,213 )
( 1,959 )
( 2,049 )
338
( 384 )
73
-
( 4,209 )
( 4,402 )
687
6,650
$
2,935
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
Alpek, S. A. B. de C. V. and Subsidiaries
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the years ended December 31, 2017 and 2016
Millions of Mexican pesos, except where otherwise indicated
69
1. General Information
Alpek, S. A. B. de C. V. and subsidiaries (“Alpek” or the “Company”) operates through two major business segments: polyester chain prod-
ucts and plastic products. The polyester chain business segment, comprises the production of purified terephthalic acid (PTA), polyeth-
ylene terephthalate (PET) and polyester fibers, which serves the food and beverage packaging, textile and industrial filament markets.
The Plastics & Chemicals business segment, comprises the production of polypropylene (PP), expandable polystyrene (EPS), capro-
lactam (CPL), fertilizers and other chemicals, which serves a wide range of markets, including the consumer goods, food and beverage
packaging, automotive, construction, agriculture, oil industry, pharmaceutical markets and others.
Alpek is the largest petrochemical company in Mexico and the second largest in Latin America, is the main integrated producer of poly-
ester in North America. It operates the largest EPS plant in the continent, and one of the largest PP plants in North America and is the
only producer of Caprolactam in Mexico.
The shares of Alpek, S. A. B. de C. V. are traded on the Mexican Stock Exchange (“MSE”) and has Alfa, S. A. B. de C. V. (“Alfa”) as its main
holding company. As of December 31, 2017, the percentage of shares that traded on the MSE was 17.84%.
Alpek, S. A. B. de C. V. is located at Avenida Gómez Morín Sur No. 1111, Col. Carrizalejo, San Pedro Garza García, Nuevo León, Mexico and
operates productive plants located in Mexico, the United States of America, Canada, Argentina, Chile and Brazil.
In the following notes to the financial statements when referring to pesos or "$", it means millions of Mexican pesos. When referring to
dollars or "US$", it means millions of dollars from the United States of America. When referring to Euros or "€" it means millions of Euros.
2. Significant events
2017
a.
Impairment of assets related to agreements with various subsidiaries from Mossi & Ghisolfi Group (“M&G”)
During 2015, the Company through its subsidiary Grupo Petrotemex, S. A. de C. V. (“Grupo Petrotemex”), held a PTA-PET supply
agreement with M&G Resins USA, LLC (“M&G Resins”), by which Grupo Petrotemex would obtain supply rights for 500 thousand
tons of PET (produced with 420 thousand tons of PTA) per year, in exchange for the payment of a consideration and supply of raw
materials for its production.
2017 | ANNUAL REPORT 70
Resulting from this agreement, the Company paid US$435 to M&G Resins, of which US$360 were recognized as intangible assets,
to be amortized based on their production volumes, and US$75 were recognized as an inventory prepayments. Nevertheless,
during 2017, M&G suspended payments and started formal procedures for the restructuring of its operations including bankruptcy
declarations in United States and Italy as a consequence of its liquidity problems. As a consequence of the aforementioned events,
the Company recognized an impairment for the following concepts:
Impairment amount
Effect on deferred
tax
Recognized in net
income
Intangible assets and prepayments
Trade and other accounts receivable (1)
Long-term notes receivable (1)
US$
$
435
113
95
$
7,745
2,017
1,694
1,658
560
517
$
6,087
1,457
1,177
(1) Held with certain M&G subsidiaries.
Subsequently, on October 9, 2017, Alpek celebrated a transfer of rights agreement with Banco Inbursa S.A., over a mortgage-
secured, simple credit facility contract with interest, held with M&G Polímeros México, S.A. de C.V. (“M&G Mexico”). The consideration
paid by Alpek for the transfer of rights amounts to $1,870, which were recognized in the consolidated financial statements as other
non-current assets. This agreement grants Alpek a right in the first instance over other M&G Mexico’s creditors, and is guaranteed
by a PET plant in Altamira, Mexico, whose fair value exceeds the amount of the right of payment held by Alpek.
b. Secured financing to M&G Mexico
On December 29, 2017, the Company signed an agreement to provide secured financing to M&G Mexico. The new credit facility
is secured by a second lien on M&G Mexico’s PET production facility in Altamira, Mexico, and has a two-year term for a maximum
principal amount of US$60 that will be disbursed in several intervals subject to certain conditions, including a restructuring plan
that has yet to be presented by M&G Mexico and approved by its creditors.
c. Cogeneration plant construction project
During the last quarter of 2016, Alpek started the construction of a steam and electric cogeneration project through its subsidiary
Grupo Petrotemex, in which it is estimated that an investment of approximately US$350 will be made. This cogeneration plant will
generate approximately 350 megawatts of electricity, as well as all the steam necessary to meet the requirements of its PTA plant
located in Altamira, Tamaulipas, Mexico. The cogeneration plant will also supply energy to other Alfa entities outside of Altamira.
On November 9, 2017, Alpek and ContourGlobal began a 60-day exclusive period to carry out the confirmatory due diligence process
and negotiate final agreements related to the potential purchase of the Company’s clean power cogeneration plants in Altamira
and Cosoleacaque. As of the date of these consolidated financial statements, both parties continue in the negotiation phase.
As of December 31, 2017, the cogeneration plant is in construction stage, and US$272 have been invested. Payments for its
conclusion will be made in accordance with the percentage of completion. It is estimated that the construction will be completed
in 2018.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
71
d. Stock purchase contract of PetroquimicaSUAPE and CITEPE
On December 28, 2016, Alpek, through its subsidiary Grupo Petrotemex, signed a stock purchase contract with Petróleo Brasileiro,
S. A. ("Petrobras") to acquire its equity in Companhia Petroquimica de Pernambuco ("PetroquimicaSuape") and Companhia Integrada
Textil de Pernambuco ("Citepe").
PetroquimicaSuape and Citepe operate an integrated PTA-PET site in Ipojuca, Pernambuco, Brazil, with a capacity of 700,000 and
450,000 tons of PTA and PET per year, respectively. Citepe also operates a textured polyester filament plant with a capacity of
90,000 tons per year.
The agreed-upon price for the 100% of equity of Petrobras in PetroquimicaSuape and Citepe amounts to US$385. This amount will
be paid in Brazilian reals at the date on which the transaction is closed, and it is subject to working capital and debt adjustments,
among others.
On April 3, 2017, Alpek announced that it obtained all corporate approvals necessary to conduct the transaction; however, for the
closing thereof, the approval from the competent government authorities is required. The contract sets forth a maximum twenty-
month period to complete the transaction as of the date of the contract. In April 2017, the Company made an initial deposit of US$39
($738) as a guarantee for the acquisition. As of the issuance date of these financial statements, the approvals and conditions are
in process of being complied with.
e. Acquisition of Selenis Canada, Inc.
On July 29, 2016, through its subsidiary DAK Americas Exterior, S. L., Alpek acquired a controlling interest in Selenis Canada, Inc.
(“Selenis”, see note 3b) for a total of US$17.2 ($327). The acquired entity is the only producer of PET in Canada, which operates
a manufacturing plant in Montreal, Canada with capacity to produce 144 thousand tons per year. This business acquisition is
included in the Polyester segment. The consolidated financial statements include the financial information of Selenis beginning
on August 1, 2016.
The acquisition of Selenis met the criteria of a business combination according to the requirements of IFRS 3, Business
Combinations; therefore, the Company applied the acquisition method to measure the assets acquired and liabilities assumed in
the transaction. The fair values of assets acquired and liabilities assumed as a result of this acquisition which were completed in
2017 are as follows:
Trade accounts receivable, net
Inventories
Property, plant and equipment, net
Other assets
Trade accounts payable
Debt
Other accounts and expenses payable
Contingent liability
Net acquired assets
Bargain purchase gain
Consideration paid
US$
2.1
10.0
69.0
1.2
( 35.8 )
( 4.1 )
( 5.5 )
( 7.5 )
29.4
( 12.2 )
US$
17.2
As a result of this transaction, a gain on a bargain purchase of US$12.2 was recognized in 2017. The 2016 consolidated financial
statements have not been modified retrospectively due to the immaterial impacts of the acquisition method in the accounting
adjustments.
2017 | ANNUAL REPORT
72
2016
f. Monoethylene Glycol (MEG) manufacturing agreement
On December 15, 2014, the Company through its subsidiary DAK Americas LLC (“DAK”) entered into a Toll Manufacturing Agreement
with Huntsman Petrochemical LLC (“Huntsman”) in which will obtain the supply rights of Monoethylene Glycol (MEG), which is used in
the production of PET polyester, at a preferred toll rate. Huntsman will develop, own and operate the equipment for the production
of MEG in its Port Neches, Texas plant and DAK will supply the raw materials for the production. The installation of equipment and
beginning of production took place during June 2016.
Additionally, DAK paid US$65 to Huntsman during the installation of the equipment according to an established calendar and in
compliance with certain milestones; therefore, DAK obtained the supply rights up to 28.8 million of pounds of product per year for
a 15 years period commencing on the first day of the month in which the equipment was installed and the production began. The
payments made are recorded under the intangible assets caption and are amortized within the cost of sales on a straight line basis
during the life of the contract since the month of June 2016, once the supply of MEG began.
3. Summary of significant accounting policies
The following are the most significant accounting policies followed by the Company and its subsidiaries, which have been consistently
applied in the preparation of their financial information in the years presented, unless otherwise specified:
a. Basis of preparation
The consolidated financial statements of Alpek have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) issued by the International Accounting Standards Board (“IASB”). IFRS include all International Accounting Standards
("IAS") in force and all related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”),
including those previously issued by the Standing Interpretations Committee (“SIC”).
The consolidated financial statements have been prepared on a historical cost basis, except for the cash flow hedges which are
measured at fair value, and for the financial assets and liabilities at fair value through profit or loss with changes reflected in the
consolidated statement of (loss) profit and for financial assets available for sale.
The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. Additionally, it requires management to exercise judgment in the process of applying the Company's accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where judgments and estimates are significant to
the consolidated financial statements, are disclosed in Note 5.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK b. Consolidation
i.
Subsidiaries
73
The subsidiaries are all the entities over which the Company has control. The Company controls an entity when it is exposed, or
has the right to variable returns from its interest in the entity and it is capable of affecting the returns through its power over
the entity. When the Company's participation in subsidiaries is less than 100%, the share attributed to outside stockholders
is reflected as non-controlling interest. Subsidiaries are consolidated in full from the date on which control is transferred to
the Company and up to the date it loses such control.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities
incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset
or liability resulting from a contingent consideration arrangement. Identifiable acquired assets and liabilities and contingent
liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Company
recognizes any non-controlling interest in the acquiree based on the share of the non-controlling interest in the net identifiable
assets of the acquired entity.
The Company accounts for business combinations of entities using the predecessor method in a jointly controlled entity. The
predecessor method involves the incorporation of the carrying amounts of the acquired entity, which includes the goodwill
recognized at the consolidated level with respect to the acquiree. Any difference between the carrying value of the net assets
acquired at the level of the subsidiary and its carrying amount at the level of the Company is recognized in stockholders’ equity.
The acquisition-related costs are recognized as expenses when incurred.
Goodwill is initially measured as excess of the sum of the consideration transferred and the fair value of the non-controlling
interest over the net identifiable assets and liabilities assured. If the consideration transferred is less than the fair value
of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the
consolidated statement of (loss) profit.
If the business combination is achieved in stages, the value in books at the acquisition date of the equity previously held by
the Company in the acquired entity is remeasured at its fair value at the acquisition date. Any loss or gain resulting from such
remeasurement is recorded in income of the year.
Transactions and intercompany balances and unrealized gains on transactions between Alpek’s companies are eliminated in
preparing the consolidated financial statements. Alpek’s subsidiaries apply the same accounting policies as those disclosed
in these consolidated financial statements.
2017 | ANNUAL REPORT 74
At December 31, 2017 and 2016, the main companies that comprise the consolidated financial statements of the Company are
as follows:
Alpek, S. A. B. de C. V. (Holding Company)
Grupo Petrotemex, S. A. de C. V. (Holding Company)
DAK Americas, L.L.C.
Dak Resinas Americas México, S. A. de C. V.
DAK Americas Exterior, S. L. (Holding Company)
DAK Americas Argentina, S. A.
Compagnie Selenis Canada (3)
Tereftalatos Mexicanos, S. A. de C. V.
Akra Polyester, S. A. de C. V.
Cogeneración de Energía Limpia de Cosoleacaque, S. A. de C. V.
Indelpro, S. A. de C. V. (Indelpro)
Polioles, S. A. de C. V. (Polioles)
Grupo Styropek, S. A. de C. V. (Holding Company)
Styropek México, S. A. de C. V.
Styropek, S. A.
Aislapol, S. A.
Styropek do Brasil, LTD
Unimor, S. A. de C. V. (Holding Company)
Univex, S. A.
Country (1)
USA
Spain
Argentina
Canada
Argentina
Chile
Brazil
Shareholding
(%) (2)
2017
2016
100
100
100
100
100
100
91
93
100
51
50
100
100
100
100
100
100
100
100
100
100
100
100
50
91
93
100
51
50
100
100
100
100
100
100
100
Functional
currency
Mexican peso
US dollar
US dollar
US dollar
Euro
Argentine peso
US dollar
US dollar
US dollar
Mexican peso
US dollar
US dollar
Mexican peso
US dollar
Argentine peso
Chilean peso
Brazilian real
Mexican peso
Mexican peso
(1) Companies incorporated in Mexico, except those indicated.
(2) Ownership percentage that Alpek has in the holding companies and ownership percentage that such holding companies have in the companies integrating the
groups. Ownership percentages and the voting rights are the same.
(3) The purchase agreement of this entity whose legal name was “Selenis Canada Inc.” (See note 2e) included an earn-out clause related to the production of PETG,
which was initiated by Selenis (legal entity). Under this clause, the seller held in escrow the shares not acquired by the Company, which could be released as long as
the Company completed the first PETG production run. During 2017, these conditions were fulfilled, releasing the shares held in escrow to the Company, so as of
December 31, 2017, the Company maintains 100% of the shares.
As of December 31, 2017 and 2016, there are no significant restrictions for investment in shares of subsidiary companies
mentioned above.
ii. Absorption (dilution) of control in subsidiaries
The effect of absorption (dilution) of control in subsidiaries, in example, an increase or decrease in the percentage of control, is
recorded in stockholders' equity, directly in retained earnings, in the period in which the transactions that cause such effects
occur. The effect of absorption (dilution) of control is determined by comparing the book value of the investment before the
event of dilution or absorption against the book value after the relevant event. In the case of loss of control, the dilution effect
is recognized in income.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 75
When the Company issues purchase obligations on certain non-controlling interests in a consolidated subsidiary and non-
controlling stockholders retain the risks and awards on these shares in the consolidated subsidiary, these are recognized
as financial liabilities for the present value of the refundable amount of the options, initially recorded with a corresponding
reduction in the stockholders' equity, and subsequently accruing through financial charges to income during the contractual
period.
iii. Sale or disposal of subsidiaries
When the Company ceases to have control any retained interest in the entity is re-measured at fair value, and the change in
the carrying amount is recognized in the consolidated statement of (loss) profit. The fair value is the initial carrying value for
the purposes of accounting for any subsequent retained interest in the associate, joint venture or financial asset. Any amount
previously recognized in comprehensive income in respect of that entity is accounted for as if the Company had directly
disposed of the related assets and liabilities. This results in the amounts previously recognized in comprehensive income
being reclassified to income for the year.
iv. Associates
Associates are all entities over which the Company has significant influence but not control. Generally an investor must hold
between 20% and 50% of the voting rights in an investee for it to be an associate. Investments in associates are accounted
for using the equity method and are initially recognized at cost. The Company's investment in associates includes goodwill
identified at acquisition, net of any accumulated impairment loss.
If the equity in an associate is reduced but significant influence is maintained, only a portion of the amounts recognized in the
comprehensive income are reclassified to income for the year, where appropriate.
The Company's share of profits or losses of associates, post-acquisition, is recognized in the consolidated statement of (loss)
profit and its share in the other comprehensive income of associates is recognized as other comprehensive income. When the
Company's share of losses in an associate equals or exceeds its equity in the associate, including unsecured receivables, the
Company does not recognize further losses unless it has incurred obligations or made payments on behalf of the associate.
The Company assesses at each reporting date whether there is objective evidence that the investment in the associate is
impaired. If so, the Company calculates the amount of impairment as the difference between the recoverable amount of the
associate and its carrying value and recognizes it in "equity in results of associates recognized using the equity method” in the
consolidated statement of (loss) profit.
Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s
equity in such gains. Unrealized losses are also eliminated unless the transaction provides evidence that the asset transferred
is impaired. In order to ensure consistency with the policies adopted by the Company, the accounting policies of associates
have been modified. When the Company ceases to have significant influence over an associate, any difference between the
fair value of the remaining investment, including any consideration received from the partial disposal of the investment and
the book value of the investment is recognized in the consolidated statement of (loss) profit.
2017 | ANNUAL REPORT 76
v.
Joint ventures
Joint arrangements are those where there is joint control since the decisions over relevant activities require the unanimous
consent of each one of the parties sharing control.
Investments in joint arrangements are classified in accordance with the contractual rights and obligations of each investor
such as: joint operations or joint ventures. When the Company holds the right over assets and obligations for related assets
under a joint arrangement, this is classified as a joint operation. When the company holds rights over net assets of the joint
arrangement, this is classified as a joint venture. The Company has assessed the nature of its joint arrangements and classified
them as joint ventures. Joint ventures are accounted for by using the equity method applied to an investment in associates.
c. Foreign currency translation
i.
Functional and presentation currency
The amounts included in the financial statements of each of the Company's subsidiaries, associates and joint ventures should
be measured using the currency of the primary economic environment in which the entity operates (the “functional currency").
The consolidated financial statements are presented in Mexican pesos.
When there is a change in the functional currency of one of the subsidiaries, according to International Accounting Standard
21, Effects of Changes in Foreign Exchange Rates (“IAS 21”), this change is accounted for prospectively, translating at the date
of the functional currency change, all assets, liabilities, equity, and income items at the exchange rate of that date.
ii. Transactions and balances
Transactions in foreign currencies are translated into the functional currency using the foreign exchange rates prevailing at
the transaction date or valuation date when the amounts are re-measured. Gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing
exchange rates are recognized as foreign exchange gain or loss in the consolidated statement of (loss) profit, except for those
which are deferred in comprehensive income and qualify as cash flow hedges.
Changes in the fair value of securities or monetary financial assets denominated in foreign currency classified as available
for sale are divided between fluctuations resulting from changes in the amortized cost of such securities and other changes
in value. Subsequently, currency fluctuations are recognized in income and changes in the carrying amount arising from any
other circumstances are recognized as part of comprehensive income.
iii. Translation of subsidiaries with recording currency other than the functional currency
The financial statements of foreign subsidiaries, having a recording currency different from their functional currency were
translated into the functional currency in accordance with the following procedure:
a. The balances of monetary assets and liabilities denominated in the recording currency were translated at the closing
exchange rate.
b. To the historical balances of monetary assets and liabilities and stockholders' equity translated into the functional
currency the movements that occurred during the period were added, which were translated at the historical exchange
rates. In the case of the movements of non-monetary items recognized at fair value, which occurred during the period,
stated in the recording currency, these were translated using the historical exchange rates in effect on the date when the
fair value was determined.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 77
c. The income, costs and expenses of the periods, expressed in the recording currency, were translated at the historical
exchange rate of the date they were accrued and recognized in the consolidated statement of (loss) profit, except when
they arose from non-monetary items, in which case the historical exchange rate of the non-monetary items was used.
d. The exchange differences arising in the translation from the recording currency to the functional currency were recognized
as income or expense in the consolidated statement of (loss) profit in the period they arose.
iv. Translation of subsidiaries with functional currency other than the presentation currency
The results and financial position of all Company entities (none of which is in a hyperinflationary environment) that have a
functional currency different from the presentation currency are translated into the presentation currency as follows:
a. Assets and liabilities for each statement of financial position presented are translated at the closing exchange rate at the
closing date;
b. Stockholders’ equity of each statement of financial position presented is translated at historical rates.
c.
Income and expenses for each statement of (loss) profit are translated at average exchange rates (when the average
exchange rate is not a reasonable approximation of the cumulative effect of the rates of the transaction, to the exchange
rate at the date of the transaction is used); and
d. The resulting exchange differences are recognized in the consolidated statement of other comprehensive income.
The goodwill and adjustments to fair value arising at the date of acquisition of a foreign operation so as to measure them at fair
value are recognized as assets and liabilities of the foreign entity and translated at the exchange rate at the closing date. Exchange
differences arising are recognized in other comprehensive income.
The primary exchange rates in the various translation processes are listed below:
Local currency to Mexican pesos
Closing exchange rate at
December 31,
Average annual
exchange rate
2017
19.74
1.06
5.96
0.03
2016
20.66
1.30
6.35
0.03
2017
18.94
1.14
5.91
0.03
2016
18.66
1.26
5.41
0.03
Country
United States
Argentina
Brazil
Chile
Local Currency
US dollar
Argentine peso
Brazilian real
Chilean peso
d. Cash and cash equivalents
Cash and cash equivalents include cash on hand, bank deposits available for operations and other short-term investments of high
liquidity and high credit quality with original maturities of three months or less, all of which are subject to insignificant risk of
changes in value. Bank overdrafts are presented as loans as part of the current liabilities.
2017 | ANNUAL REPORT 78
e. Restricted cash
Cash and cash equivalents whose restrictions cause them not to comply with the definition of cash and cash equivalents given
above, are presented in a separate line in the consolidated statement of financial position and are excluded from cash and cash
equivalents in the consolidated statement cash flows.
f.
Financial instruments
Financial assets
The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables,
investments held to maturity and available for sale. The classification depends on the purpose for which the financial assets
were acquired. Management determines the classification of its financial assets upon initial recognition. Purchases and sales of
financial assets are recognized on the settlement date.
Financial assets are written off in full when the right to receive the related cash flows expires or is transferred and the Company
has also transferred substantially all risks and rewards of ownership, as well as control of the financial asset.
i.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading
unless they are designated as hedges.
Financial assets at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed
in the consolidated statement of (loss) profit. Gains or losses from changes in fair value of these assets are presented in the
consolidated income statement as incurred.
ii. Loans and receivables
The receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except for maturities greater than 12 months after the consolidated statement
of financial position date. These are classified as non-current assets.
Loans and receivables are measured initially at fair value plus directly attributable transaction costs and subsequently at
amortized cost, using the effective interest method. When circumstances occur that indicate that the amounts receivable
will not be collected at the amounts originally agreed or will be collected in a different period, the receivables are impaired.
iii. Held to maturity investments
If the Company intends and has the demonstrable ability to hold debt securities to maturity, they are classified as held to
maturity. Assets in this category are classified as current assets if expected to be settled within the next 12 months, otherwise
they are classified as non-current. Initially they are recognized at fair value plus any directly attributable transaction costs,
and subsequently they are valued at amortized cost using the effective interest method. Investments held to maturity are
recognized or derecognized on the day they are transferred to or by the Company. As of December 31, 2017 and 2016, the
Company had no such investments.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 79
iv. Available for sale investments
Available for sale investments are non-derivative financial assets that are either designated in this category or not classified
in any of the other categories. They are included in non-current assets unless their maturity is less than 12 months or
management intends to dispose of the investment within the next 12 months after the consolidated statement of financial
position date.
Available for sale investments are initially recognized at fair value plus directly attributable transaction costs. Subsequently,
these assets are carried at fair value (unless they cannot be measured by their value in an active market and the value is not
reliable, in which case they will be recognized at cost less impairment).
Gains or losses arising from changes in fair value of monetary and non-monetary instruments are recognized directly in the
consolidated statement of comprehensive income in the period in which they occur.
When investments classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in
equity are reclassified to the consolidated statement of (loss) profit.
Financial liabilities
Financial liabilities that are not derivatives are initially recognized at fair value and are subsequently valued at amortized cost
using the effective interest method. Liabilities in this category are classified as current liabilities if expected to be settled within
the next 12 months, otherwise they are classified as non-current.
Trade payables are obligations to pay for goods or services that have been acquired or received from suppliers in the ordinary
course of business. Loans are initially recognized at fair value, net of transaction costs incurred. Loans are subsequently carried
at amortized cost; any difference between the funds received (net of transaction costs) and the settlement value is recognized in
the consolidated statement of (loss) profit over the term of the loan using the effective interest method.
Offsetting financial assets and liabilities
Assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when the right
to offset the recognized amounts is legally enforceable and there is an intention to settle on a net basis or to realize the asset and
settle the liability simultaneously.
Impairment of financial instruments
a. Financial assets carried at amortized cost
The Company assesses at the end of each year whether there is objective evidence of impairment of each financial asset or
group of financial assets. An impairment loss is recognized if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a "loss event") and provided that the loss event (or events)
has an impact on the estimated future cash flows arising from the financial asset or group of financial assets that can be
reliably estimated.
2017 | ANNUAL REPORT 80
Aspects evaluated by the Company to determine whether there is objective evidence of impairment are:
•
•
•
•
•
•
Significant financial difficulty of the issuer or debtor.
Breach of contract, such as late payments of interest or principal.
Granting a concession to the issuer or debtor, by the Company, as a result of financial difficulties of the issuer or debtor
and that would not otherwise be considered.
There is a likelihood that the issuer or debtor will enter bankruptcy or other financial reorganization.
Disappearance of an active market for that financial asset due to financial difficulties.
Verifiable information indicates that there is a measurable decrease in the estimated future cash flows related to a
group of financial assets after initial recognition, although the decrease cannot yet be identified with the individual
financial assets of the Company, including:
i. Adverse changes in the payment of borrowers in the group of assets.
ii. National or local conditions that correlate with breaches of noncompliance by the issuers of the asset group.
Based on the items listed above, the Company assesses whether there is objective evidence of impairment. Subsequently, for
the category of loans and receivables, when impairment exists, the amount of loss is measured as the difference between the
asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not
been incurred) discounted at the original effective interest rate. The carrying amount of the asset is reduced by that amount,
which is recognized in the consolidated statement of (loss) profit.
If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the
current effective interest rate determined under the contract. Alternatively, the Company could determine the impairment of
the asset given its fair value determined on the basis of a current observable market price.
If in the subsequent years, the impairment loss decreases and the decrease can be related objectively to an event occurring
after the date on which such impairment was recognized (such as an improvement in the debtor's credit rating), the reversal of
the loss impairment is recognized in the consolidated statement of (loss) profit.
b. Financial assets available for sale
In the case of debt financial instruments, the Company also uses the above-listed criteria to identify whether there is objective
evidence of impairment. In the case of equity financial instruments, a significant reduction of approximately to 30%of the
cost of the investment against its fair value or a reduction of the fair value against the cost for a period longer than 12 months
is considered objective evidence of impairment.
Subsequently, in the case of financial assets available for sale, an impairment loss determined by computing the difference
between the acquisition cost and the current fair value of the asset, less any impairment loss previously recognized,
is reclassified from the other comprehensive income to the consolidated statement of (loss) profit. Impairment losses
recognized in the consolidated statement of (loss) profit related to equity financial instruments are not reversed through the
consolidated statement of (loss) profit. Impairment losses recognized in the consolidated statement of (loss) profit related
to financial debt instruments could be reversed in subsequent years, if the fair value of the asset is increased as a result of a
subsequent event.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 81
g. Derivative financial instruments and hedging activities
All derivative financial instruments are identified and classified as fair value hedges or cash flow hedges, for trading or the hedging
of market risks and are recognized in the consolidated statement of financial position as assets and/or liabilities at fair value and
similarly measured subsequently at fair value. The fair value is determined based on recognized market prices and its fair value is
determined using valuation techniques accepted in the financial sector.
The fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is
more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.
Derivative financial instruments classified as hedges are contracted for risk hedging purposes and meet all hedging requirements;
their designation at the beginning of the hedging operation is documented, describing the objective, primary position, risks to be
hedged and the effectiveness of the hedging relationship, characteristics, accounting recognition and how the effectiveness is to
be measured.
Fair value hedges
Changes in the fair value of derivative financial instruments are recorded in the consolidated statement of (loss) profit. The
change in fair value hedges and the change in the primary position attributable to the hedged risk are recorded in the consolidated
statement of (loss) profit in the same line item as the hedged position. As of December 31, 2017 and 2016, the Company has no
derivative financial instruments classified as fair value hedges.
Cash flow hedges
The changes in the fair value of derivative instruments associated to cash flow hedges are recorded in stockholders' equity. The
effective portion is temporarily recorded in comprehensive income, within stockholders' equity and is reclassified to profit or loss
when the hedged position affects these. The ineffective portion is immediately recorded in income.
Suspension of hedge accounting
The Company suspends hedge accounting when the derivative financial instrument or the non-derivative financial instrument has
expired, is canceled or exercised, when the derivative or non-derivative financial instrument is not highly effective to offset the
changes in the fair value or cash flows of the hedged item, or when the Company decides to cancel the hedge designation.
On suspending hedge accounting, in the case of fair value hedges, the adjustment to the carrying amount of a hedged amount
for which the effective interest rate method is used, is amortized to income over the period to maturity. In the case of cash flow
hedges, the amounts accumulated in equity as a part of comprehensive income remain in equity until the time when the effects
of the forecasted transaction affect income. In the event the forecasted transaction is not likely to occur, the income or loss
accumulated in comprehensive income are immediately recognized in the consolidated statement of (loss) profit. When the hedge
of a forecasted transaction appears satisfactory and subsequently does not meet the effectiveness test, the cumulative effects
in comprehensive income in stockholders' equity are transferred proportionally to the consolidated statement of (loss) profit, to
the extent the forecasted transaction impacts it.
The fair value of derivative financial instruments reflected in the consolidated financial statements of the Company, is a
mathematical approximation of their fair value. It is computed using proprietary models of independent third parties using
assumptions based on past and present market conditions and future expectations at the closing date.
2017 | ANNUAL REPORT 82
h.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method. The cost of
finished goods and work-in-progress includes cost of product design, raw materials, direct labor, other direct costs and production
overheads (based on normal operating capacity). It excludes borrowing costs. The net realizable value is the estimated selling
price in the normal course of business, less the applicable variable selling expenses. Costs of inventories include any gain or loss
transferred from other comprehensive income corresponding to raw material purchases that qualify as cash flow hedges.
i.
Property, plant and equipment
Items of property, plant and equipment are recorded at cost less the accumulated depreciation and any accrued impairment
losses. The costs include expenses directly attributable to the asset acquisition.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably
measured. The carrying amount of the replaced part is derecognized. Repairs and maintenance are recognized in the consolidated
statement of (loss) profit during the year they are incurred. Major improvements are depreciated over the remaining useful life of
the related asset.
When the Company carries out major repairs or maintenance of its property, plant and equipment assets, and the cost is recognized
in the book value of the corresponding asset as a replacement, provided that the recognition criteria are met. The remaining portion
of any major repair or maintenance is derecognized. The Company subsequently depreciates the recognized cost in the useful life
assigned to it, based on its best estimate of useful life.
Depreciation is calculated using the straight-line method, considering separately each of the asset's components, except for land,
which is not subject to depreciation. The estimated useful lives of the classes of assets are as follows:
Buildings and constructions
Machinery and equipment
Vehicles
Furniture and lab and IT equipment
Other
40 to 50 years
10 to 40 years
15 years
2 to 13 years
3 to 20 years
The spare parts to be used after one year and attributable to specific machinery are classified as property, plant and equipment
in other fixed assets.
Borrowing costs related to financing of property, plant and equipment whose acquisition or construction requires a substantial
period (nine months or more), are capitalized as part of the cost of acquiring such qualifying assets, up to the moment when they
are suitable for their intended use or sale.
Assets classified as property, plant and equipment are subject to impairment tests when events or circumstances occur indicating
that the carrying amount of the assets may not be recoverable. An impairment loss is recognized in the consolidated statement of
(loss) profit in other expenses, net, for the amount by which the carrying amount of the asset exceeds its recoverable amount. The
recoverable amount is the higher of fair value less costs to sell and value in use.
The residual value and useful lives of assets are reviewed at least at the end of each reporting period and, if expectations differ
from previous estimates, the changes are accounted for as a change in accounting estimate.
Gains and losses on disposal of assets are determined by comparing the sale value with the carrying amount and are recognized in
other expenses, net, in the consolidated statement of (loss) profit.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 83
j.
Leases
The classification of leases as finance or operating depends on the substance of the transaction rather than the form of the
contract.
Leases in which a significant portion of the risks and rewards relating to the leased property are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of incentives received by the lessor) are recognized in
the consolidated statement of (loss) profit based on the straight-line method over the lease period.
Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance
leases are capitalized at the beginning of the lease, at the lower of the fair value of the leased property and the present value of
the minimum lease payments. If its determination is practical, in order to discount the minimum lease payments to present value,
the interest rate implicit in the lease is used; otherwise, the incremental borrowing rate of the lessee should be used. Any initial
direct costs of the leases are added to the original amount recognized as an asset.
Each lease payment is allocated between the liability and finance charges to achieve a constant rate on the outstanding balance.
The corresponding rental obligations are included in non-current debt, net of finance charges. The interest element of the finance
cost is charged to the income for the year during the period of the lease, so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated
over the shorter of the asset's useful life and the lease term.
k.
Intangible assets
Intangible assets are recognized in the consolidated statement of financial position when they meet the following conditions: they
are identifiable, provide future economic benefits and the Company has control over such benefits.
Intangible assets are classified as follows:
i.
Indefinite useful life.
These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2017 and
2016, no factors have been identified limiting the life of these intangible assets.
ii. Finite useful life.
These assets are recognized at cost less the accumulated amortization and impairment losses recognized. They are amortized
on a straight, line basis over their estimated useful life, determined based on the expectation of generating future economic
benefits, and are subject to impairment tests when triggering events of impairment are identified.
The estimated useful lives of intangible assets with finite useful lives are summarized as follows:
Development costs
Supply rights
Non-competition agreements
Customer relationships
Software and licenses
15.5 years
15 years
5 to 10 years
6 to 7 years
3 to 7 years
Intellectual property rights
20 to 25 years
Maquila rights
Other
15 years
20 years
2017 | ANNUAL REPORT 84
Development costs
Research costs are recognized in income as incurred. Expenditures on development activities are recognized as intangible
assets when such costs can be reliably measured, the product or process is technically and commercially feasible, potential
future economic benefits are obtained and the Company intends also has sufficient resources to complete the development
and to use or sell the asset. Their amortization is recognized in income by the straight-line method over the estimated useful
life of the asset. Development expenditures that do not qualify for capitalization are recognized in income as incurred.
Licenses
Licenses acquired in a separate transaction are recorded at acquisition cost. Licenses acquired in a business combination are
recognized at fair value at acquisition date.
Licenses that have a defined useful life are presented at cost less accumulated amortization. Amortization is recorded by the
straight-line method over its estimated useful life.
The acquisition of software licenses is capitalized based on the costs incurred to acquire and use the specific software.
Software development
Costs associated with the maintenance of software are recorded as expenses as incurred.
Development costs directly related with the design and tests of unique and identifiable software products controlled by the
Company are recorded as intangible assets when they fulfill the following criteria:
•
•
•
•
•
•
Technically, it is possible to complete the intangible asset so that it may be available for its use or sale;
The intangible asset is to be completed for use or sale;
The ability to use or sell the intangible asset;
The way in which the intangible asset is to generate probable future economic benefits;
The availability of adequate technical, financial or other type of resources, to complete the development and use or sell
the intangible asset; and
The ability to reliably calculate the disbursement attributable to the intangible asset during its development.
The amount initially recognized for an intangible asset generated internally will be the sum of disbursements incurred from the
moment the element fulfills the conditions for recording, as established above. When no intangible asset internally generated
may be recognized, the disbursements for development are charged to income in the period they are incurred.
l. Goodwill
Goodwill represents the excess of the acquisition cost of a subsidiary over the Company's equity in the fair value of the identifiable
net assets acquired, determined at the date of acquisition, and is not subject to amortization. Goodwill is shown under goodwill
and intangible assets and is recognized at cost less accumulated impairment losses, which are not reversed. Gains or losses on the
disposal of an entity include the carrying amount of goodwill relating to the entity sold.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 85
m.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not depreciable and are subject to annual impairment tests.
Assets that are subject to amortization are reviewed for impairment when events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and its value in
use. For the purpose of assessing impairment, assets are grouped at the lowest levels at which separately identifiable cash flows
exist (cash generating units). Non-financial long-term assets other than goodwill that have suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.
n.
Income tax
The amount of income taxes in the consolidated statement of (loss) profit represents the sum of the current and deferred income
taxes.
The amount of income taxes included in the consolidated statement of (loss) profit represents the current tax and the effects
of deferred income tax assets determined in each subsidiary by the asset and liability method, applying the rate established by
the legislation enacted or substantially enacted at the consolidated statement of financial position date, wherever the Company
operates and generates taxable income. The applicable rates are applied to the total temporary differences resulting from
comparing the accounting and tax bases of assets and liabilities, and that are expected to be applied when the deferred tax asset
is realized or the deferred tax liability is expected to be settled, considering, when applicable, any tax-loss carryforwards, prior to
the recovery analysis. The effect of the change in current tax rates is recognized in current income of the period in which the rate
change is determined.
Management periodically evaluates positions taken in tax returns with respect to situations in which the applicable law is subject
to interpretation. Provisions are recognized when appropriate, based on the amounts expected to be paid to the tax authorities.
Deferred tax assets are recognized only when it is probable that future taxable profits will exist against which the deductions for
temporary differences can be taken.
The deferred income tax on temporary differences arising from investments in subsidiaries and associates is recognized, unless
the period of reversal of temporary differences is controlled by the Company and it is probable that the temporary differences
will not reverse in the near future.
Deferred tax assets and liabilities are offset when a legal right exists, and when the taxes are levied by the same tax authority.
o. Employee benefits
i.
Pension plans
Defined contribution plans:
A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The
Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to
pay all employees the benefits relating to their service in the current and past periods. The contributions are recognized as
employee benefit expense on the date that is required the contribution.
2017 | ANNUAL REPORT 86
Defined benefit plans:
A defined benefit plan is a plan which specifies the amount of the pension an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The liability recognized in the consolidated statement of financial position in respect of defined benefit plans is the present
value of the defined benefit obligation at the consolidated statement of financial position date less the fair value of plan
assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using
discount rates in conformity with IAS 19, Employee Benefits that are denominated in the currency in which the benefits will be
paid, and have maturities that approximate the terms of the pension liability.
Actuarial gains and losses from adjustments and changes in actuarial assumptions are recognized directly in other items of
the comprehensive income in the year they occur and will not be reclassified to the results of the period.
The Company determines the net finance expense (income) by applying the discount rate to the liabilities (assets) from net
defined benefits.
Past-service costs are recognized immediately in the consolidated statement of (loss) profit.
ii. Post-employment medical benefits
The Company provides medical benefits to retired employees after termination of employment. The right to access these
benefits usually depends on the employee’s having worked until retirement age and completing a minimum of years of service.
The expected costs of these benefits are accrued over the period of employment using the same criteria as those described
for defined benefit pension plans.
iii. Termination benefits
Termination benefits are payable when employment is terminated by the Company before the normal retirement date or
when an employee accepts voluntary termination of employment in exchange for these benefits. The Company recognizes
termination benefits in the first of the following dates: (a) when the Company can no longer withdraw the offer of these
benefits, and (b) when the Company recognizes the costs from restructuring within the scope of the IAS 37 and it involves the
payment of termination benefits. If there is an offer that promotes the termination of the employment relationship voluntarily
by employees, termination benefits are valued based on the number of employees expected to accept the offer. The benefits
that will be paid in the long term are discounted at their present value.
iv. Short term benefits
The Company grants benefits to employees in the short term, which may include wages, salaries, annual compensation and
bonuses payable within 12 months. The Company recognizes an undiscounted provision when it is contractually obligated or
when past practice has created an obligation.
v.
Employee participation in profit and bonuses
The Company recognizes a liability and an expense for bonuses and employee participation in profits when it has a legal or
assumed obligation to pay these benefits and determines the amount to be recognized based on the profit for the year after
certain adjustments.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 87
p. Provisions
Liability provisions represent a present legal obligation or a constructive obligation as a result of past events where an outflow
of resources to meet the obligation is likely and where the amount has been reliably estimated. Provisions are not recognized for
future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the value of money over time and the risks specific to the obligation. The increase
in the provision due to the passage of time is recognized as interest expense.
When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
A restructuring provision is recorded when the Company has developed a formal detailed plan for the restructure, and a valid
expectation for the restructure has been created between the people affected, possibly for having started the plan implementation
or for having announced its main characteristics to them.
q. Share based payment
The Company's compensation plans are based 50% on the market value of the shares of its holding entity and the other 50% on
the market value of the shares of Alpek, S. A. B. de C. V., granted to certain senior executives of the Company and its subsidiaries.
The conditions for granting such compensation to the eligible executives include compliance with certain financial metrics such as
the level of profit achieved, and remaining in the Company for up to 5 years, among other requirements. The Board of Directors of
Alfa has appointed a technical committee to manage the plan, and it reviews the estimated cash settlement of this compensation
at the end of the year. The payment plan is subject to the discretion of Alfa’s senior Management. Adjustments to this estimate are
charged or credited to the consolidated statement of (loss) profit.
The fair value of the amount payable to employees in respect of share-based payments which are settled in cash is recognized as
an expense, with a corresponding increase in liabilities, over the period of service required. The liability is included within other
liabilities and is adjusted at each reporting date and the settlement date. Any change in the fair value of the liability is recognized
as compensation expense in the consolidated statement of (loss) profit.
r.
Treasury shares
The Company’s stockholders periodically authorize a maximum amount for the acquisition of the Company's own shares. Upon
the occurrence of a repurchase of its own shares, they become treasury shares and the amount is presented as a reduction to
stockholders' equity at the purchase price. These amounts are stated at their historical value.
s. Capital stock
The Company's common shares are classified as capital stock within stockholders’ equity. Incremental costs directly attributable
to the issuance of new shares are included in equity as a reduction from the consideration received, net of tax.
2017 | ANNUAL REPORT 88
t. Comprehensive income
Comprehensive income is composed of net income plus the annual effects of their capital reserves, net of taxes, which are
comprised of the translation of foreign subsidiaries, the effects of derivative cash flow hedges, actuarial gains or losses, the
effects of the change in the fair value of financial instruments available for sale, the equity in other items of comprehensive
income of associates and joint ventures as well as other items specifically required to be reflected in stockholders’ equity, and
which do not constitute capital contributions, reductions and distributions.
u. Segment reporting
Segment information is presented consistently with the internal reporting provided to the chief operating decision maker who
is the highest authority in operational decision-making, resource allocation and assessment of operating segment performance.
v. Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the normal
course of operations. Revenue is shown net of estimated customer returns, rebates and similar discounts.
Revenue from the sale of goods and products are recognized when all and each of the following conditions are met:
•
•
•
•
•
The risks and rewards of ownership have been transferred.
The amount of revenue can be reliably measured.
It is likely that future economic benefits will flow to the Company.
The Company retains no involvement associated with ownership nor effective control of the sold goods.
The costs incurred or to be incurred in respect of the transaction can be measured reasonably.
Revenues from services are recognized when all and each of the following conditions are met:
•
•
•
•
The amount of revenue can be reliably measured.
It is likely that future economic benefits will flow to the Company.
The stage of completion of the service, on the date of the consolidated statement of financial position can be measured
reliably.
The costs incurred or to be incurred in respect of the transaction can be measured reasonably.
Dividend income from investments is recognized once the rights of stockholders to receive this payment have been established
(when it is probable that the economic benefits will flow to the Company and the revenue can be reliably valued).
Interest income is recognized when it is likely that the economic benefits will flow to the entity and the amount of revenue can be
reliably valued by applying the effective interest rate.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 89
w. Earnings per share
Earnings per share are calculated by dividing the profit attributable to the stockholders of the controlling interest by the weighted
average number of common shares outstanding during the year. As of December 31, 2017 and 2016, there are no dilutive effects
from financial instruments potentially convertible into shares.
x. Changes in accounting policies and disclosures
i. New standards and changes adopted by the Company.
The Company adopted all new standards and interpretations in effect as of January 1, 2017, including the annual improvements
to IFRS; however, they had no significant effects on the Company’s consolidated financial statements.
ii. New standards and interpretations yet to be adopted by the Company.
A number of new standards, amendments and interpretations of standards have been issued, are not yet effective for
reporting periods ended December 31, 2017, and have not been early adopted by the Company.
Below is a summary of these new standards and interpretations as well as the Company’s assessment as to the potential
impacts on the consolidated financial statements:
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments, replaces IAS 39, Financial Instruments: Recognition and Measurement. This standard is
mandatorily effective for periods beginning on or after January 1, 2018 and introduces a new expected loss impairment
model and limited changes to the classification and measurement requirements for financial assets. More specifically, the
new impairment model is based on expected credit losses rather than incurred losses, and will apply to debt instruments
measured at amortized cost or fair value through other comprehensive income (FVTOCI), lease receivables, contract assets
and certain written loan commitments and financial guarantee contracts.
In regards of the expected loss impairment model, the initial adoption requirement of IFRS 9 is retrospective and establishes
as an option to adopt it without modifying the financial statements of previous years by recognizing the initial effect on
retained earnings at the date of adoption. In case of hedge accounting, IFRS 9 allows application with a prospective approach.
The Company did not have a material impact associated with the new measurement category of FVTOCI as it does not
currently hold any instruments that qualify for this treatment; however, potential impacts could arise should it change its
investment strategy in the future. Additionally, in terms of hedge accounting, the requirements of IFRS 9 are consistent with
the Company's current accounting policy under IAS 39 and no impact is anticipated on its initial adoption nor future hedging
operations.
Lastly, regarding the new expected loss impairment model, the Company's management decided to adopt the standard
retrospectively recognizing the effects on retained earnings as of January 1, 2018 and has determined that the impacts on its
consolidated financial position are not material as of that date. The Company has estimated that the effects it will have on its
results from operations are not significant.
2017 | ANNUAL REPORT 90
IFRS 15, Revenues from contracts with customers
IFRS 15, Revenues from Contracts with Customers, was issued in May 2014 and is effective for periods beginning January 1,
2018, although early adoption is permitted. Under this standard, revenue recognition is based on the transfer of control, i.e.
notion of control is used to determine when a good or service is transferred to the customer.
The standard also presents a single comprehensive model for the accounting for revenues from contracts with customers and
replaces the most recent revenue recognition guidance, including the specific orientation of the industry. This comprehensive
model introduces a five-step approach for revenue recognition: (1) identifying the contract; (2) identifying the performance
obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance
obligations in the contract; and (5) recognizing revenue when the Company satisfies a performance obligation. Furthermore,
the amount of disclosures required in the financial statements, both annual and interim, is increased.
Based on management’s evaluation of this new standard, the Company concluded there were no material impact as of January
1, 2018 resulting from the adoption of IFRS 15 to its consolidated financial statements.
IFRS 16, Leases
IFRS 16, Leases, supersedes IAS 17, Leases, and the related interpretations. This new standard brings most leases on balance
sheet for lessees under a single model, eliminating the distinction between operating and finance leases. IFRS 16 is effective
for periods beginning on or after January 1, 2019.
Under IFRS 16, lessees will recognize the right of use of an asset and the corresponding lease liability. The right-of-use asset is
treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. On the other hand,
the financial liability will be measured at the initial recognition, in a similar way as required by IAS 17, Leases and subsequently,
it should be evaluated if a remeasurement is required, based on contractual modifications of the minimum lease payments.
Additionally, IFRS 16 establishes as exception to these requirements to leases with a term of 12 months or less and containing
no purchase options, as well as for leases where the leased asset is low-valued, such as personal computers or small office
furniture items.
However, a lessee may elect to account for lease payments as an expense on a straight-line basis over the lease term for leases
with a lease term of 12 months or less and containing no purchase options (this election is made by class of underlying asset);
and leases where the underlying asset has a low value when new, such as personal computers or small items of office furniture
(this election can be made on a lease-by-lease basis).
Management has determined that IFRS 16 could have an impact on the accounting of its existing operating leases. As of
December 31, 2017, the Company has non-cancellable operating lease commitments as follows:
Less than a year
Between 1 and 4 years
More than 4 years
Total
$
$
736
1,920
1,130
3,786
However, it has not determined yet to what extent these commitments will result in the recognition of an asset or liability for
future payments, and how this will affect the Company’s capital structure, its results and cash flows. The Company will be
applying a modified retrospective transition as of January 1, 2019, which implies that any transition impact will be recognized
directly in stockholders’ equity as of such date.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
91
IFRIC 22, Interpretation on foreign currency transactions and advance consideration
This new interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration
in a foreign currency. The interpretation is being issued to reduce diversity in practice related to the exchange rate used when
an entity reports transactions that are denominated in a foreign currency in accordance with IAS 21 in circumstances in which
consideration is received or paid before the related asset, expense, or income is recognized. Effective for annual reporting
periods beginning after January 1, 2018 with earlier application permitted.
The Company translates advance consideration at the exchange rate on the date of the transaction, either received or paid;
as a result, management concluded there were no significant impacts on the Company’s consolidated financial statements
resulting from the adoption of this interpretation.
IFRIC 23, Interpretation on uncertainty over income tax treatments
This new interpretation clarifies how to apply the recognition and measurement requirements in IAS 12, Income Tax, when
there is uncertainty over income tax treatments. Uncertain tax treatments is a tax treatment for which there is uncertainty
over whether the relevant taxation authority will accept the tax treatment under tax law. In such circumstances, the Company
shall recognize and measure its current or deferred tax assets or liabilities by applying the requirements in IAS 12 based
on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits, and the tax rates determined by applying this
interpretation.
The Company shall apply IFRIC 23 for annual reporting periods beginning on or after January 1, 2019. Earlier application is
permitted. On initial application, IFRIC 23 must be applied retrospectively under the requirements of IAS 8 or retrospectively
with the cumulative effect of initially applying the interpretation as an adjustment to the opening balance of retained earnings.
The Company is assessing and determining the potential impacts for the adoption of this interpretation on its consolidated
financial statements.
4. Financial instruments and risk management
The Company’s activities expose it to various financial risks: market risk (including exchange rate risk, price risk and interest rate vari-
ation risk), credit risk and liquidity risk.
The Company has a general risk management program focused on the unpredictability of financial markets, and seeks to minimize the
potential adverse effects on its financial performance.
The objective of the risk management program is to protect the financial health of its business, taking into account the volatility as-
sociated with foreign exchange and interest rates. Sometimes, the Company uses derivative financial instruments to hedge certain
exposures to risks. In addition, due to the nature of the industries in which it participates, the Company has performed hedges of input
prices with derivative financial instruments.
2017 | ANNUAL REPORT Alfa has a Risk Management Committee (RMC), comprised of the Board’s Chairman, the Chief Executive Officer (“CEO”), Chief Financial
Officer (“CFO") and a Risk Management Officer (“RMO”) acting as technical secretary. The RMC reviews derivative transactions pro-
posed by the subsidiaries of Alfa, including Alpek, in which a potential loss analysis surpasses US$1. This Committee supports both
the CEO and the President of Board of Alfa. All new derivative transactions which the Company proposes to enter into, as well as the
renewal or cancellation of derivative arrangements, must be approved by both Alpek’s and Alfa’s CEO, according to the following sched-
ule of authorizations:
92
Chief Executive Officer of the Company
Risk Management Committee of Alfa
Finance Committee
Board of Directors of Alfa
Maximum possible loss US$
Individual
transaction
Annual cumulative
transactions
1
30
100
>100
5
100
300
>300
The proposed transactions must meet certain criteria, including that the hedges are lower than established risk parameters, and that
they are the result of a detailed analysis and properly documented. Sensitivity analysis and other risk analyses should be performed
before the operation is entered into.
Alfa’s risk management policy indicates that the following maximum percentages must be hedged with respect to the projected expo-
sure:
Maximum coverage
(as a percentage of the projected exposure)
Commodities
Energy costs
Exchange rate for operating transactions
Exchange rate for financial transactions
Interest rates
Current year
100
75
80
100
100
Capital management
The Company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to
provide returns to stockholders and benefits to other stakeholders, as well as maintaining an optimal capital structure to reduce the
cost of capital.
To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to stockholders, return equity to
stockholders, issue new shares or sell assets to reduce debt.
The Company monitors capital based on a leverage ratio. This percentage is calculated by dividing total liabilities by total stockholders’
equity.
The financial ratio of total liabilities/total equity was 1.96 and 1.19 as of December 31, 2017 and 2016, respectively, resulting in a lever-
age ratio that meets the Company’s management and risk policies.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK 93
Financial instruments by category
Below are the Company’s financial instruments by category.
As of December 31, 2017 and 2016, financial assets and liabilities consist of the following:
Cash and cash equivalents
Restricted cash
Financial assets measured at amortized cost:
Trade and other accounts receivable
Other non-current assets
Equity investments
Financial assets measured at fair value:
Derivative financial instruments
Financial liabilities measured at amortized cost:
Debt
Trade and other accounts payable
Financial liabilities measured at fair value:
Derivative financial instruments
$
As of December 31,
2017
2016
8,795
763
15,817
2,880
167
148
$
2,935
2
15,918
2,127
172
56
$
28,570
$
21,210
$
34,366
19,783
703
$
24,338
15,492
717
$
54,852
$
40,547
Fair value of financial assets and liabilities valued at amortized cost
The amount of cash and cash equivalents, restricted cash, trade and other accounts receivable, other current assets, trade and other
accounts payable, current debt and other current liabilities approximate their fair value, due to their short maturity. The net carrying
amount of these accounts represents the expected cash flows to be received as of December 31, 2017 and 2016.
The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below:
As of December 31, 2017(1)
As of December 31, 2016
Carrying Amount
Fair value
Carrying Amount
Fair value
Financial assets:
Non-current accounts receivable
$
2,880
$
2,880
$
2,127
$
2,131
Financial liabilities:
Non-current debt
27,096
27,997
21,551
21,946
(1) The carrying amount of the debt, for purposes of computing its fair value, is presented gross of interest payable and issuance costs.
2017 | ANNUAL REPORT
94
The estimated fair values as of December 31, 2017 and 2016 were determined based on discounted cash flows and with reference to
the yields at the closing of the debt securities, using rates reflecting a similar credit risk, depending on the currency, maturity period
and country where the debt was acquired. The primary rates used are the Interbank Equilibrium Interest Rate (“TIIE” for its acronym in
Spanish) for instruments in Mexican pesos and London Interbank Offer Rate (“LIBOR”) for instruments in U.S. dollars. Measurement at
fair value for non-current accounts receivable is deemed within Level 3 of the fair value hierarchy, while for the financial debt, the mea-
surement at fair value is deemed within Levels 1 and 2 of the hierarchy, as described herein below.
Market risks
i.
Exchange rate risk
The Company operates internationally, and is exposed to foreign exchange risk, primarily derived from the transactions and
balances that the subsidiaries conduct and have in foreign currency, respectively. A foreign currency is that which is different from
the functional currency of an entity. In addition, the Company is exposed to changes in the value of financial instruments arising
from foreign exchange variations.
The behavior of the exchange rates fluctuations between the Mexican peso, U.S. dollar and the euro represents a very important
factor for the Company due to the effect that such currencies have on its consolidated results.
Historically, in times when the Mexican peso has appreciated against other currencies such as the U.S. dollar, the Company’s profit
margins have been reduced. On the other hand, when the Mexican peso has lost value, Alpek’s profit margins have been increased.
However, although this factor correlation has arisen several times in the recent past, there is no assurance that it will be repeated
in the event the exchange rate between the Mexican peso and any other currency fluctuates again, because it also depends on the
foreign currency monetary position of its subsidiaries.
Accordingly, the Company sometimes enters into transactions with derivative financial instruments on exchange rates in order to
hedge the risk associated with exchange rates. Additionally, as most of the Company’ revenues are in U.S. dollars, there is a natural
hedge against its obligations in U.S. dollars.
The Company has the following assets and liabilities in foreign currency in relation to the functional currency of the subsidiary
entities, translated to millions of Mexican pesos at the closing exchange rate as of December 31, 2017:
Financial assets
Financial liabilities
$
MXN
19,167
18,821
$
USD
23,212
29,206
EUR
$
Foreign exchange monetary position
$
346
$
( 5,994 )
$
645
187
458
The exchange rates used to translate the foreign currency financial positions to Mexican pesos are those described in Note 3.
Based on the financial positions in foreign currency maintained by the Company, a hypothetical variation of 10% in the MXN/
USD and MXN/EUR exchange rate and keeping all other variables constant, would result in an effect of $519 on the consolidated
statement of (loss) profit and stockholders' equity.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
95
Derivative financial instruments to hedge exchange rate risks
The effectiveness of derivative financial instruments designated as hedges is measured periodically.
As of December 31, 2016, the Company had forwards (USD / MXN) to cover short-term needs, which correspond to the sale of US
dollars for the purchase of raw materials in Mexican pesos.
The Company’s cross currency exchange rate derivative contracts are recognized at fair value through profit or loss in the
consolidated statement of (loss) profit.
The positions in derivative financial instruments in foreign currency as of December 31, 2016 are summarized below:
As of December 31, 2016
Type of derivative, value or
contract
Notional amount
Units
Reference
Fair value
2017
2018
2019+
Value of underlying asset
Maturity by year
USD/MXN
$
( 186 )
Pesos / Dólar
20.66
$
( 12 )
$
( 12 )
$
-
$
-
As of December 31, 2017, the Company has no derivative financial instruments in cross currency exchange.
ii. Price risk
In carrying out its activities, the Company depends on the supply of raw materials provided by its suppliers, both in Mexico and
abroad, among which are intermediate petrochemicals, principally.
In recent years, the price of certain inputs has shown volatility, especially those related to oil and natural gas.
In order to fix the selling prices of certain of its products, the Company has entered into agreements with certain customers. At the
same time, it has entered into transactions involving derivatives on natural gas that seek to reduce price volatility of the prices of
this input.
Additionally, it has entered into derivative financial instruments transactions to hedge purchases of certain raw materials, since
these inputs have a direct or indirect relationship with the prices of its products.
The derivative financial operations have been privately contracted with various financial institutions, whose financial strength was
highly rated at the time by rating agencies. The documentation used to formalize the contract operations is that based generally
on the "Master Agreement", generated by the "International Swaps & Derivatives Association" ("ISDA"), which is accompanied by
various accessory documents known in generic terms as "Schedule", "Credit Support Appendix" and "Confirmation".
Regarding natural gas, Pemex is the only supplier in Mexico. The selling price of natural gas is determined based by the price of that
product on the “spot” market in South Texas, USA, which has experienced volatility. For its part, the Mexican Electric Commission
is a decentralized public company in charge of producing and distributing electricity in Mexico. Electricity rates have also been
influenced by the volatility of natural gas, since most power plants are gas-based.
2017 | ANNUAL REPORT
96
The Company entered into various derivative agreements with various counterparties to protect it against increases in prices
of natural gas and other raw materials. In the case of natural gas derivatives, hedging strategies for products were designed to
mitigate the impact of potential increases in prices. The purpose is to protect the price from volatility by taking positions that
provide stable cash flow expectations, and thus avoid price uncertainty. The reference market price for natural gas is the Henry Hub
New York Mercantile Exchange (NYMEX). The average price per MMBTU for 2017 and 2016 was 3.0 and 2.31 US dollars, respectively.
As of December 31, 2017 and 2016, the Company had hedges of natural gas prices for a portion expected of consumption needs in
Mexico and the United States.
Derivative forward contracts to hedge adverse changes in commodity prices
The Company uses natural gas to carry out its operating processes, and some of its main raw materials are paraxylene and ethylene.
The objective of the hedge is to hedge against the exposure in the price increase of the aforementioned commodities, for future
purchases by contracting swaps where variable prices are received and a fixed price is paid. A strategy called roll-over has been
implemented, through which it is analyzed each month if more derivatives are contracted to expand the time or the amount of
coverage. Currently, the Company is hedged until December 2020. At the end of 2016, it also had an ethane hedge, however, due to
market movements, these hedges are not currently available.
These derivative instruments have been classified as cash flow hedges for accounting purposes.
Positions in financial instruments derived from natural gas, ethylene, ethane, and paraxylene are summarized below:
Type of derivative, value or
agreement
Cash flow hedges
Ethylene
Natural gas
Paraxylene
Type of derivative, value or
agreement
Cash flow hedges
Ethylene
Natural gas
Ethane
Paraxylene
As of December 31, 2017
Value of underlying asset
Maturity by year
Notional amount
Units
Reference
Fair value
2018
2019
2020+
$
359
2,159
1,828
Cent Dollar/lb(1)
Dollar/MBTU(2)
Dollar/MT(3)
27.65
$
23
$
23
$
-
$
2.74
910
( 703 )
125
( 230 )
125
( 231 )
-
-
( 242 )
-
$
( 555 )
$
( 82 )
$
( 231 )
$
( 242 )
As of December 31, 2016
Value of underlying asset
Maturity by year
Notional amount
Units
Reference
Fair value
2017
2018
2019+
$
350
2,106
3
2,650
Cent Dollar/lb(1)
Dollar/MBTU(2)
Cent Dollar/
Gallon(3)
Dollar/MT(4)
25.33
$
20
$
20
$
-
$
3.72
26.37
795
( 646 )
1
( 24 )
-
1
( 24 )
( 187 )
-
-
-
( 459 )
-
-
$
( 649 )
$
( 3 )
$
( 187 )
$
( 459 )
(1) Cent of dollar per pound
(2) Dollar per Mega British Thermal Unit
(3) Cent of dollar per Gallon
(4) Dollar per Metric Ton
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
As of December 31, 2017 and 2016, the net fair value of the aforementioned derivative financial instruments amounts to $555 and
$661, respectively, which is shown in the consolidated statement of financial position as follows:
97
Current asset
Short-term liability
Long-term liability
Net position
iii.
Interest rate risk
As of December 31,
2017
2016
$
$
148
230
473
56
71
646
$
( 555 )
$
( 661 )
The Company is exposed to interest rate risk mainly for long-term loans bearing interest at variable rates. Fixed-interest loans
expose the Company to interest rate risk at fair value, which implies that Alpek might be paying interest at rates significantly
different from those of an observable market.
As of December 31, 2017, 69% of the financing is denominated at a fixed rate, and 31% at a variable rate.
As of December 31, 2017, if interest rates on variable rate loans are increased or decreased by 100 basis points in relation to the
rate in effect, the income and stockholders’ equity of the Company would change by $271.
Credit risk
Credit risk is managed on a group basis, except for the credit risk related to accounts receivable balances. Each subsidiary is responsi-
ble for managing and analyzing credit risk for each of its new customers before setting the terms and conditions of payment. Credit risk
is generated from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions as well
as credit exposure to customers, including receivables and committed transactions. If wholesale customers are rated independent,
these are the ratings used. If there is no independent rating, the Company’s risk control group evaluates the creditworthiness of the
customer, taking into account their financial position, past experience and other factors.
Individual risk limits are determined based on internal and external ratings in accordance with limits set by the Board of Directors. The
use of credit risk is monitored regularly. Sales to retail customers are in cash or by credit card. During 2017 and 2016, credit limits were
not exceeded and management does not expect losses in excess of the impairment recognized in the corresponding periods.
The impairment provision for doubtful accounts represents estimated losses resulting from the inability of customers to make re-
quired payments. In determining the allowance for doubtful accounts, significant estimates have to be made. The Company performs
ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current credit-
worthiness, as determined by a review of their current credit information. In addition, the Company considers a number of factors to
determine the size and appropriate timing for the recognition of allowances, including historical collection experience, customer base,
current economic trends and the ageing of the accounts receivable portfolio.
2017 | ANNUAL REPORT
98
Liquidity risk
Projected cash flows are determined at each operating entity of the Company and subsequently the finance department consolidates
this information. The finance department of the Company continuously monitors the cash flow projections and liquidity requirements
of the Company ensuring that sufficient cash and highly liquid investments are maintained to meet operating needs, and it’s that some
flexibility is maintained through open and committed credit lines. The Company regularly monitors and makes decisions ensuring that
the limits or covenants set forth in debt contracts are not violated. The projections consider the financing plans of the Company, com-
pliance with covenants, compliance with minimum liquidity ratios and internal legal or regulatory requirements.
The Company’s treasury department invests those funds in time deposits and marketable securities whose maturities or liquidity allow
flexibility to meet the cash needs of the Company.
The following table analyzes the derivative and non-derivative, grouped according to their maturity, from the date of the consolidat-
ed statement of financial position to the contractual maturity date. Derivative financial liabilities are included in the analysis if their
contractual maturities are required to understand the timing of the Company's cash flows. The amounts disclosed in the table are
contractual undiscounted cash flows.
As of December 31, 2017
Suppliers and other accounts payable
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
As of December 31, 2016
Suppliers and other accounts payable
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
Less than a year
From 1 to 5 years
More than 5 years
$
19,783
$
-
$
-
8,639
230
25,478
473
6,239
-
$
15,492
$
-
$
-
3,820
71
5,918
646
20,882
-
Fair value hierarchy
The following is an analysis of financial instruments measured in accordance with the fair value hierarchy. The 3 different levels used
are presented below:
• Level 1: Quoted prices for identical instruments in active markets.
• Level 2: Other valuations including quoted prices for similar instruments in active markets that are directly or indirectly
observable.
• Level 3: Valuations made through techniques where one or more of their significant data inputs are unobservable.
The derivative financial instruments of the Company that are measured at fair value as of December 31, 2017 and 2016, are located
within level 2 of the fair value hierarchy.
There were no transfers between Level 1 and 2 or between Level 2 and 3.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
99
The specific valuation techniques used to value financial instruments include:
• Market quotations or trader quotations for similar instruments.
• The fair value of interest rate swaps is calculated as the present value of estimated future cash flows based on observable yield
curves.
• The fair value of forward exchange agreements is determined using exchange rates at the closing balance date, with the resulting
value discounted at present value.
• Other techniques such as the analysis of discounted cash flows, which are used to determine fair value of the remaining financial
instruments.
5. Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
5.1 Critical accounting estimates and assumptions.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will be, by definition, sel-
dom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year are addressed below:
a. Estimated impairment of goodwill and intangible assets with indefinite useful lives
The Company performs annual tests to determine whether goodwill and intangible assets with indefinite useful lives have suffered
any impairment (see Note 11). For impairment testing, goodwill and intangible assets with indefinite lives are allocated to those
groups of cash-generating units (“CGUs”) from which the Company has considered that economic and operational synergies of
business combinations are generated. The recoverable amounts of the CGUs have been determined based on the calculations of
their value in use, which require the use of estimates. The most significant of these estimates are as follows:
•
•
•
Estimates of future gross and operating margins, according to the historical performance and industry expectations for
each CGU group.
Discount rate based on the weighted average cost of capital (WACC) of each CGU or group of CGUs.
Long-term growth rates.
b. Recoverability of deferred tax assets
Alpek has applicable tax-loss carryforwards, which can be used in the following years until maturity expires. Based on the
projections of income and taxable income that Alpek will generate in the following years through a structured and robust business
plan, management has considered that current tax losses will be used before they expire and, therefore, it was considered
appropriate to recognize a deferred tax asset for such losses.
2017 | ANNUAL REPORT 100
c. Long-lived assets
The Company estimates the useful lives of long-lived assets in order to determine the depreciation and amortization expenses to
be recorded during the reporting period. The useful life of an asset is calculated when the asset is acquired and is based on past
experience with similar assets, considering anticipated technological changes or any other type of changes. Were technological
changes to occur faster than estimated, or differently than anticipated, the useful lives assigned to these assets could have to be
reduced. This would lead to the recognition of a greater depreciation and amortization expense in future periods. Alternatively,
these types of technological changes could result in the recognition of a charge for impairment to reflect the reduction in the
expected future economic benefits associated with the assets.
The Company reviews depreciable and amortizable assets on an annual basis for signs of impairment, or when certain events or
circumstances indicate that the book value may not be recovered during the remaining useful life of the assets. For intangible
assets with an indefinite useful life, the Company performs impairment tests annually and at any time that there is an indication
that the asset may be impaired.
To test for impairment, the Company uses projected cash flows, which consider the estimates of future transactions, including
estimates of revenues, costs, operating expenses, capital expenses and debt service. In accordance with IFRS, discounted future
cash flows associated with an asset or CGU are compared to the book value of the asset or CGU being tested to determine if
impairment exists whenever the aforementioned discounted future cash flows are less than its book value. In such case, the
carrying amount of the asset or group of assets is reduced to its value in use, unless its fair value is higher.
5.2 Critical judgments in applying the entity's accounting policies
a. Determination of exercise of control over certain investments in shares
The Company has evaluated critical control factors and has concluded that it should consolidate the financial statements of its
subsidiaries Polioles and Indelpro. The analysis performed by the Company included the assessment of the substantive decision
making rights of the respective shareholders set forth in their bylaws, resulting in management’s conclusion that it has the power
to govern their relevant activities.
6. Cash and cash equivalents and restricted cash
The cash and cash equivalents are comprised as follows:
As of December 31,
2017
2016
Cash on hand and in banks
Short-term bank deposits
Total cash and cash equivalents
$
$
3,429
5,366
8,795
$
$
1,886
1,049
2,935
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
101
Restricted cash
At December 31, 2017 and 2016, the Company has restricted cash of approximately $763 and $2, respectively. The balances include
amounts that are required to be held in escrow as deposits related to workers compensation reserves. As of December 31, 2017, the
increase in the balance as compared to the prior year, is due to the deposit made in relation to the event described in Note 2d. The re-
stricted cash balance is classified as a current asset in the consolidated statement of financial position based on the maturity date of
the restriction.
7. Trade and other receivables, net
Trade and other accounts receivable are comprised as follows:
Trade accounts receivable
Trade and other accounts receivable from related parties
(Note 26)
Recoverable taxes
Interest receivable
Sundry debtors
Allowance for impairment of trade and other
accounts receivable
As of December 31,
2017
2016
$
13,175
$
11,377
926
3,714
-
469
1,101
3,384
2
240
( 2,467 )
( 186 )
Current portion
$
15,817
$
15,918
The aging analysis of the balances due from customers and other receivables not impaired is as follows:
1 to 30 days
30 to 90 days
90 to 180 days
Over 180 days
As of December 31,
2017
2016
$
1,045
$
1,101
495
277
488
239
161
581
$
2,305
$
2,082
2017 | ANNUAL REPORT
Trade and other accounts receivable impaired correspond mainly to companies going through difficult economic situations. Move-
ments in the provision for impairment of trade receivables are analyzed as follows:
102
Opening balance as of January 1
Allowance for impairment of trade and other
accounts receivable (1)
Receivables written off during the year
Write-off of unused impairment allowance
Foreign exchange variation
2017
2016
$
( 186 )
$
( 155 )
( 2,073 )
5
26
( 239 )
( 60 )
15
24
( 10 )
Ending balance as of December 31
$
( 2,467 )
$
( 186 )
(1) Includes the impairment disclosed in Note 2a.
8.
Inventories
Finished good
Raw material and other consumables
Materials and tools
Production in progress
As of December 31,
2017
2016
$
$
8,844
5,891
1,049
580
8,419
4,924
1,002
508
$
16,364
$
14,853
For the years ended December 31, 2017 and 2016, a provision amounting to $17 and $22, respectively, related to damaged, slow-moving
and obsolete inventory was recognized in the consolidated statement of (loss) profit.
At December 31, 2017 and 2016, there were no inventories pledged as collateral.
9. Prepayments
The current portion and non-current portion of prepaid expenses is summarized as follows:
Current portion (1)
Non-current portion (2)
Total prepayments
As of December 31,
2017
2016
$
$
305
31
336
$
$
457
1,570
2,027
(1) This item mainly consists of advertising and prepaid insurance.
(2) As of December 31, 2016, this line item was represented primarily by inventory prepayments of $1,550 related to supply rights, as described in Note 2a. As of December 31,
2017, the decrease in the balance in comparison to the prior year is due to the event described in the same note.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
103
10. Property, plant and equipment, net
Land
Building and
constructions
Machinery and
equipment
Vehicles
Furniture, lab
and information
technology
equipment
Construction in
progress
Other fixed
assets
Total
$
3,264
$
4,136
$
21,144
$
75
$
288
$
1,648
$
767
$
31,322
1
-
( 8 )
-
367
-
100
3,724
3,724
-
11
54
-
-
752
( 241 )
137
4,849
31
875
( 3 )
( 1 )
4,061
( 1,904 )
1,068
25,271
8
-
-
-
13
( 13 )
( 13 )
70
5
1
( 1 )
( 1 )
58
( 87 )
64
327
14,198
( 9,349 )
68,412
( 43,141 )
329
( 259 )
1,774
( 1,447 )
4,574
5
( 1 )
-
525
-
( 1,197 )
5,554
5,554
-
35
-
( 14 )
-
150
-
( 34 )
904
904
-
4,665
935
( 27 )
( 2 )
5,926
( 2,245 )
125
40,699
94,895
( 54,196 )
$
3,724
$
4,849
$
25,271
$
70
$
327
$
5,554
$
904
$
40,699
$
3,724
$
4,849
$
25,271
$
70
$
327
$
5,554
$
904
$
40,699
-
-
-
( 123 )
-
( 107 )
-
-
3,494
3,494
-
13
59
-
( 3 )
-
( 209 )
( 251 )
158
4,616
100
655
( 2 )
( 14 )
201
( 1,335 )
( 1,948 )
1,070
23,998
1
2
-
( 1 )
-
( 5 )
( 14 )
9
62
5
1
-
-
-
( 9 )
( 82 )
31
273
13,867
( 9,251 )
67,714
( 43,716 )
320
( 258 )
1,739
( 1,466)
4,452
( 31 )
( 409 )
( 17 )
-
( 144 )
-
( 1,291 )
8,114
8,114
-
102
-
( 14 )
-
-
( 37 )
-
23
978
978
-
4,673
686
( 425 )
( 158 )
201
( 1,846 )
( 2,295 )
-
41,535
96,226
( 54,691)
$
3,494
$
4,616
$
23,998
$
62
$
273
$
8,114
$
978
$
41,535
For the year ended December 31, 2016
Opening balance
Additions
Additions for business acquisitions
Disposals
Impairment
Translation effect
Depreciation charges recognized in the year
Transfers
Ending balance as of December 31, 2016
As of December 31, 2016
Cost
Accumulated depreciation
Net carrying amount as of
December 31, 2016
For the year ended December 31, 2017
Opening balance
Additions
Additions for business acquisitions
Disposals
Impairment
Impairment reversal
Translation effect
Depreciation charges recognized in the year
Transfers
Ending balance as of December 31, 2017
As of December 31, 2017
Cost
Accumulated depreciation
Net carrying amount as of
December 31, 2017
Depreciation expenses of $2,253 and $2,217 were recorded in cost of sales, $3 and $4, in selling expenses and $39 and $24, in adminis-
trative expenses in 2017 and 2016, respectively.
The Company has capitalized costs of loans on qualified assets for $233 and $51 for the years ended December 31, 2017 and 2016,
respectively. Costs from loans were capitalized at the weighted average borrowing rate of approximately 5.2% and 4.9%, respectively.
2017 | ANNUAL REPORT
11. Goodwill and intangible assets, net
Cost
Development
costs
Supply
rights
Non-competence
agreements
Customer
relationships
Software and
licenses
Intellectual
property, maquila
rights and others
Goodwill
Other
Total
Definite life
Indefinite life
104
$
5,288
$
$
627
$
111
$
2,832
$
297
$
8
$
10,139
As of January 1, 2016
$
Additions
Transfers
Translation effect
As of December 31, 2016
Additions
Disposals
Impairment
Translation effect
As of December 31, 2017 $
Amortization
As of January 1, 2016
Amortization
Transfers
Translation effect
As of December 31, 2016
Amortization
Disposals
Translation effect
As of December 31, 2017 $
Net carrying
amount
Cost
Amortization
As of December 31, 2016 $
Cost
Amortization
780
7
-
158
945
7
-
-
( 42 )
910
( 362 )
( 46 )
-
( 78 )
( 486 )
( 42 )
-
20
( 508 )
945
( 486 )
459
910
( 508 )
$
$
$
947
-
1,204
7,439
-
-
( 6,410 )
( 1,029 )
-
-
-
-
-
-
-
-
-
-
7,439
-
7,439
-
-
-
$
$
$
196
-
-
15
211
-
( 90 )
-
( 15 )
106
( 143 )
( 19 )
-
( 15 )
( 177 )
( 14 )
90
15
( 86 )
211
( 177 )
34
106
( 86 )
-
1
125
753
30
-
-
( 32 )
751
( 237 )
( 54 )
-
( 53 )
( 344 )
( 53 )
-
13
( 384 )
753
( 344 )
409
751
( 384 )
$
$
$
-
1
16
128
140
-
-
( 5 )
263
( 53 )
( 24 )
-
( 11 )
( 88 )
( 27 )
-
4
( 111 )
128
( 88 )
40
263
( 111 )
$
$
$
484
( 7 )
628
3,937
-
-
-
( 172 )
3,765
( 532 )
( 172 )
7
( 118 )
( 815 )
( 204 )
-
25
( 994 )
3,937
( 815 )
3,122
3,765
( 994 )
$
$
$
$
$
$
7
( 1 )
59
362
-
( 7 )
-
( 16 )
339
-
-
-
-
-
-
-
-
-
362
-
362
339
-
$
$
$
As of December 31, 2017 $
402
$
$
20
$
367
$
152
$
2,771
$
339
$
-
-
2
10
4
-
-
-
14
-
-
-
-
-
-
-
-
-
10
-
10
14
-
14
1,445
( 6 )
2,207
13,785
181
( 97 )
( 6,410 )
( 1,311 )
6,148
( 1,327 )
( 315 )
7
( 275 )
( 1,910 )
( 340 )
90
77
( 2,083 )
13,785
( 1,910 )
11,875
6,148
( 2,083 )
$
$
$
$
4,065
Of the total amortization expense, $326 and $295 have been recorded in cost of sales and $14 and $20 in administrative expenses in
2017 and 2016, respectively.
Incurred research and development expenses that have been recorded in the 2017 and 2016 consolidated statements of income were
$65 and $62, respectively.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
105
Impairment testing of goodwill and indefinite lived intangible assets
Goodwill is allocated to operating segments that are expected to benefit from the synergies of the business combination, irrespective
of whether other assets or liabilities of the acquirer are assigned to those units or groups of units. As of December 31, 2017 and 2016,
goodwill of $339 and $362, respectively, arises primarily from the Polyester segment.
The recoverable amount from the operating segments has been determined based on calculations of values in use. These calculations
use cash flow projections based on pre-tax financial budgets approved by Management covering a period of 5 years.
The gross and operating margins included in the estimates of value in use have been estimated based on the historical performance
and the growth expectations of the market in which each group of CGUs operates. The long-term growth rate used in estimating the
value in use is consistent with the projections included in industry reports. The present value of the cash flows was discounted using a
specific discount rate after taxes for each group of CGUs and reflects the specific risks associated with each of them.
The key assumptions used in calculating the value in use in 2017 and 2016 were as follows:
Estimated gross margin
Growth rate
Discount rate
2017
6.3%
0.0%
9.0%
2016
6.3%
0.0%
9.0%
12. Other non-current assets
Notes receivable (1)
Due from related parties (Note 26)
Equity investments (2)
Total other non-current financial assets
Investment in associates and joint ventures (3)
Total other assets
As of December 31,
2017
2016
$
$
2,143
738
167
3,048
483
3,531
$
$
1,382
745
172
2,299
403
2,702
(1) As of December 31, 2017, this item mainly consists of a transfer of rights that bears monthly interest at a rate of LIBOR + 4.0% and expected maturity in April 2020. As of De-
cember 31, 2016, this item mainly consisted of a loan receivable that accrued semi-annual interest at a 6.99% rate (LIBOR + 5.3%), and maturity in December 2019.
(2) Equity investments
This item is related to investments in companies not listed in the stock exchange market and investments in social clubs that represent less than 1% of their outstanding
capital stock. The Company has not recognized any impairment loss at December 31, 2017.
2017 | ANNUAL REPORT
106
The movement of equity investments available for sale is as follows:
Opening balance as of January 1
Translation effect
Additions
Balance as of December 31
2017
2016
$
$
172
( 5 )
-
167
$
$
144
20
8
172
(3) Investment in associates and joint ventures
The Company’s account of investments in associates and joint ventures consists of the following:
Clear Path Recycling, LLC
Terminal Petroquímica Altamira,
S.A. de C.V.
Agua Industrial del Poniente,
S.A. de C.V.
Galpek, LDA
Investment in associates and
joint ventures as of December 31
Shareholding
%
2017
2016
49.90%
$
317
$
361
42.04%
47.59%
50.00%
34
61
71
31
-
11
$
483
$
403
Below is summarized financial information of investments in associates and joint ventures, which are accounted for by the equity
method:
Net income (loss)
Other comprehensive loss
Comprehensive income (loss)
2017
2016
$
$
22
-
22
( 4 )
( 2 )
( 6 )
Investment in associates and joint ventures as of
December 31
$
483
$
403
There are neither commitments nor contingencies liabilities regarding the Company's investment in associates and joint ventures
as of December 31, 2017 or 2016.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
107
13. Subsidiaries with significant non-controlling interest
The significant non-controlling interest, is integrated as follows:
Indelpro, S. A. de C. V. and subsidiary
Polioles, S. A. de C. V. and subsidiary
Other
Non-controlling
ownership
percentage
49%
50%
Non-controlling interest income
for the period
Non-controlling interest as of
December 31st,
2017
2016
2017
2016
$
$
823
75
34
932
$
1,101
251
16
$
$
1,368
$
3,941
341
466
4,748
$
3,631
474
544
$
4,649
The summarized financial information at December 31, 2017 and 2016 and for the year then ended, corresponding to each subsidiary
with a significant non-controlling interest is shown below.
Statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Stockholders’ equity
Statements of income
Revenues
Consolidated net income
Total comprehensive income of the year
Comprehensive income attributable to non-controlling
interest
Dividends paid to non-controlling interest
Statements of cash flows
Net cash flows generated by (used in) operating activities
Net cash flows (used in) generated by investing activities
Net cash flows used in financing activities
Increase (decrease) in cash and cash equivalents
Indelpro, S. A. de C. V.
and subsidiary
Polioles, S. A. de C. V.
and subsidiary
2017
2016
2017
2016
$
4,456
7,451
1,555
2,310
8,042
12,322
1,679
1,392
682
379
1,895
( 343 )
( 936 )
597
$
3,739
7,737
1,489
2,577
7,410
11,991
2,246
3,542
1,735
1,022
2,328
( 444 )
( 2,356 )
( 394 )
$
1,940
1,046
880
1,424
682
3,525
150
77
39
165
260
174
( 394 )
48
$
2,248
1,150
909
1,540
949
3,517
502
596
298
945
( 460 )
1,967
( 1,702 )
( 227 )
2017 | ANNUAL REPORT
108
14. Trade and other accounts payable
Trade accounts payable
Short-term employee benefits
Advances from customers
Taxes other than income taxes
Due to related parties (Note 26)
Other accrued accounts and expenses payable
$
As of December 31,
2017
2016
$
17,255
416
69
746
326
971
13,151
610
45
600
337
750
$
19,783
$
15,492
15. Debt
Current:
Bank loans (1)
Current portion of non-current debt
Notes payable (1)
Interest payable
Current debt
Non-current:
Senior Notes
Unsecured bank loans
Total
Less: current portion of non-current debt
As of December 31,
2017
2016
$
$
7,119
276
1
12
$
7,408
$
$
$
18,810
8,424
27,234
( 276 )
2,375
230
178
4
2,787
19,677
2,104
21,781
( 230 )
Non-current debt (2)
$
26,958
$
21,551
(1) As of December 31, 2017 and 2016, short-term bank loans and notes payable incurred interest at an average rate of 2.42%, and 2.21%, respectively.
(2) The fair value of bank loans and notes payable approximates their current carrying amount because of their short maturity.
(3) The carrying amounts, terms and conditions of non-current debt are as follows:
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
109
Description
Currency
Value in
MXN
Debt
issuance
costs
Interest
payable
Balance as of
December
31, 2017
Balance as of
December
31, 2016 (1)
Maturity date
MM/DD/YY
Interest
rate
Senior Notes 144A/Reg. S /
fixed rates
Senior Notes 144A/Reg. S /
fixed rates
Total Senior Notes
Bank loan, Libor +1.60%
Bank loan Bancario, Libor +1.10%
Bank loan, Libor + 1.00%
Bank loan, Libor + 1.60%
Bank loan, BADLAR + 1.00%
Bank loan, Fixed 19.00%
Bank loan, Libor +1.10%
Bank loan, Libor +3.75%
Bank loan, Libor +1.45%
Bank loan, Libor +1.10%
Bank loan, Libor +2.40%
Bank loan, Libor +1.00%
Total unsecured bank loans
Total
USD
$
12,806
$
( 70 )
$
64
$
12,800
$
13,389
Nov-20-22
4.50%
USD
USD
USD
USD
USD
ARS
ARS
USD
USD
USD
USD
USD
USD
5,921
18,727
-
-
-
-
63
16
2,960
1,974
987
987
987
395
8,369
( 37 )
( 107 )
-
-
-
-
-
-
-
-
-
-
-
( 1 )
( 1 )
126
190
-
-
-
-
1
0
32
17
1
1
2
2
56
6,010
6,288
Aug-08- 23
5.38%
18,810
19,677
-
-
-
-
64
16
2,992
1,991
988
988
989
396
1,034
415
358
169
102
26
-
-
-
-
-
-
Dec-19-19
Apr-02-18
Aug-14-18
Jan-31-18
Apr-01-20
Dec-08-20
Nov-30-20
Oct-25-22
Dec-15-22
Jul-06-21
Jul-17-20
Apr-03-20
2.59%
1.95%
1.77%
2.22%
22.50%
19.00%
2.55%
5.13%
3.04%
2.67%
3.86%
2.34%
8,424
2,104
$
27,096
$
( 108 )
$
246
$
27,234
$
21,781
(1) As of December 31, 2016, debt issuance costs were $127.
As of December 31, 2017, the annual maturities of non-current debt are as follows:
Bank loans
Senior Notes
2019
2020
2021
$
$
232
-
232
$
$
4,751
-
4,751
$
$
2,072
-
2,072
2022 and
thereafter
$
1,283
18,620
$
Total
8,338
18,620
$
19,903
$
26,958
As of December 31, 2017 and 2016, the Company has committed unused lines of credit totaling US$166 and US$383, respectively.
Covenants:
Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, which include the fol-
lowing:
a.
Interest hedge ratio: it is calculated by dividing the profit before financial result, net, share of result of associates and joint
ventures, income taxes, depreciation and amortization (EBITDA) by the net interest charges for the last four quarters of
the analyzed period. This factor cannot be less than 3.0 times.
2017 | ANNUAL REPORT
110
b. Leverage ratio: defined as the result of dividing the consolidated net debt (current and non-current debt, excluding debt
issuance costs less restricted and unrestricted cash and cash equivalents) by the EBITDA of the last four quarters of the
period analyzed. This factor cannot be greater than 3.5 times.
Additionally, there are other restrictions in regards of incurring additional debt or making loans that require mortgaging
assets, dividend payments and submission of financial information, which if not met or remedied within a specified period
to the satisfaction of creditors may cause the debt to become payable immediately. During 2017 and 2016, the financial
ratios were calculated according to the formulas set forth in the loan agreements. As of December 31, 2017 and the date of
issuance of these consolidated financial statements, the Company and its subsidiaries complied satisfactorily with such
covenants and restrictions.
16. Provisions
Dismantling,
demolition and
environmental
remediation
Severance
payments and
other benefits
Other
Total
As of January 1, 2016
$
471
$
35
$
Increases
Payments
Translation effect
As of December 31, 2016
Increases
Payments
Write-offs
Translation effect
-
( 210 )
69
330
-
( 105 )
( 192 )
( 20 )
-
( 10 )
5
30
-
( 12 )
( 16 )
( 2 )
As of December 31, 2017
$
13
$
-
$
Short-term provisions
Long-term provisions
As of December 31
2017
$
$
17
-
( 6 )
( 1 )
10
178
( 26 )
-
5
167
25
155
180
$
$
$
$
523
-
( 226 )
73
370
178
( 143 )
( 208 )
( 17 )
180
2016
363
7
370
As of December 31, 2017, the provisions shown in the table above mainly include $147 (US$7.5) for the contingent liability for the earn-
out payment mentioned in note 2e in the acquisition of Selenis. As of December 31, 2016, $360 (US$17) were related to the closure of
the Cape Fear plant located in Wilmington, North Carolina carried out in June 2013.
During 2017, the Company continued the works of dismantling and demolition of the plant in Cape Fear. As of December 31, 2017, the
balance of this provision amounts to $13 (US$1), which according to the initial estimate made by management, will be extinguished in
future years according to the plan of dismantling and demolition of the plant.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
111
17. Employee benefits
The valuation of retirement plan employee benefits includes formal plans and constructive obligations that covers all employees and
is based primarily on their years of service, current age and estimated salary at retirement date.
The principal subsidiaries of the Company have established irrevocable trust funds for payment of pensions and seniority premiums
and health-care expenses.
Below is a summary of the main financial data of such employee benefits:
Employee benefit obligations:
Pension benefits
Post-employment medical benefits
Defined contribution plans
Employee benefits in the consolidated statement of financial position
Charge to the consolidated statement of (loss) profit for:
Pension benefits
Post-employment medical benefits
Remeasurements of employee benefit obligations recognized in
other comprehensive income of the year
Remeasurements of accrued employee benefit obligations
As of December 31,
2017
2016
$
$
$
$
$
753
148
901
160
1,061
( 67 )
( 7 )
( 74 )
100
( 31 )
$
$
$
$
$
940
177
1,117
110
1,227
( 56 )
( 8 )
( 64 )
100
( 131 )
Pension and post-employment medical benefits
The Company operates defined benefit pension plans based on employees´ pensionable remuneration and length of service. Most
plans are externally funded. Plan assets are held in trusts, foundations or similar entities, governed by local regulations and prac-
tice in each country, as is the nature of the relationship between the Company and the respective trustees (or equivalent) and their
composition.
The Company operates post-employment medical benefit schemes mainly in its subsidiary DAK Americas.
The method of accounting, assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes.
Most of these plans are not being funded.
Amounts recognized in the consolidated statement of financial position are determined as follows:
Present value of defined benefit obligations
Fair value of plan assets
Liability in the statement of financial position
As of December 31,
2017
2016
$
$
3,998
( 3,097 )
901
$
$
4,141
( 3,024 )
1,117
2017 | ANNUAL REPORT
112
The movements of defined benefit obligations are as follows:
As of January 1,
Service cost
Interest cost
Contributions from plan participants
Remeasurements:
Gains from changes in financial assumptions
(Losses) from changes in demographic
assumptions and experience adjustments
Translation effect
Benefits paid
Plan curtailments
Settlements
As of December 31,
2017
2016
$
4,141
44
155
16
174
( 20 )
( 172 )
( 337 )
-
( 3 )
$
3,714
46
167
18
49
( 120 )
650
( 359 )
( 18 )
( 6 )
$
3,998
$
4,141
The movement in the fair value of plan assets for the year is as follows:
As of January 1
Interest income
Remeasurements – return on plan assets,
excluding interest income
Translation effect
Contributions
Benefits paid
2017
2016
$
( 3,024 )
( 122 )
$
( 2,688 )
( 126 )
( 254 )
112
( 57 )
248
( 29 )
( 434 )
( 33 )
286
As of December 31
$
( 3,097 )
$
( 3,024 )
The amounts recorded in the statement of (loss) profit for the years ended December 31 are the following:
2017
2016
Service cost
Interest cost, net
Effect of plan curtailments and/or settlements
$
$
( 44 )
( 33 )
3
Total included in personnel cost
$
( 74 )
$
( 46 )
( 41 )
23
( 64 )
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
113
The principal actuarial assumptions are as follows:
Discount rate Mexico
Discount rate United States
Inflation rate
Wage increase rate
Medical inflation rate Mexico
Medical inflation rate United States
As of December 31,
2017
2016
7.25%
3.30%-3.49%
3.50%
4.50%
6.50%
8.25%
7.75%
3.72%-3.96%
3.50%
4.50%
6.50%
8.00%
The sensitivity analysis of the discount rate for defined benefit obligations is as follows:
Effect in defined benefit obligations
Change in
assumption
Mx 1%
US 1%
Increase in
assumption
Decrease in
assumption
Decrease by $21
Decrease by $364
Increase by $24
Increase by $439
Discount rate
Discount rate
Sensibility analyses are based on a change in assumptions, while the all other assumptions remain constant. In practice, this is slightly
probable, and the changes in some assumptions may be correlated. In the calculation of the sensibility from the defined benefit obliga-
tion, significant actuarial assumptions the same method (present value of calculated defined benefit obligation with the projected unit
credit method at reporting period) has been applied as in the calculation of liabilities for pensions recognized within the consolidated
statement of financial position.
Defined benefit plan assets
Plan assets are comprised as follows:
Equity instruments
Fixed income
Fair value of plan assets
As of December 31,
2017
2016
$
2,043
1,054
$
1,949
1,075
$
3,097
$
$ 3,024
2017 | ANNUAL REPORT
18. Income taxes
The Company is subject to income tax, whose rate is 30% in Mexico. The statutory income tax rates applicable to the main foreign sub-
sidiaries were as follows:
114
United States (1)
Brazil
Argentina (1)
Chile (1)
Canada
Spain
2017
35.0%
34.0%
35.0%
25.5%
25.0%
25.0%
2016
35.0%
34.0%
35.0%
24.0%
25.0%
25.0%
(1) On December 22, 2017, the U.S. government enacted substantial changes to its existing tax law (“H.R. 1”, originally known as the “Tax Cuts and Jobs Act”, or the “Act”). Although
most provisions of the Act, including the reduction of the corporate tax rate to 21%, are effective beginning on January 1, 2018, IFRS requires entities to recognize the effect
of tax law changes in the period of enactment. Additionally, changes in applicable tax rates were enacted in other jurisdictions where the Company operates, such as Argentina
and Chile. In Argentina the corporate tax rate will be 30% for 2018 and 2019, and 25% in 2020, while in Chile it will increase to 27% from 2018. The Company determined that
the effect derived from the change in tax rates recognized in the consolidated statement of (loss) profit for 2017 was $669.
a.
Income taxes recognized in the consolidated statement of (loss) profit are as follows:
Current income tax
True-up to prior years’ income tax provision
Deferred income taxes
Income taxes
2017
2016
$
( 1,511 )
188
3,036
$
( 2,470 )
( 33 )
145
$
1,713
$
( 2,358 )
b. The reconciliation between the statutory and effective income tax rates is as follows:
(Loss) income before income taxes
Income tax rate
Statutory income tax rate benefit (expense)
Add (less) income tax effect on:
Annual adjustment for inflation
Non-deductible expenses
Non-taxable income
Effect of different tax rates of other countries other than Mexico
True up with respect to prior years’ current income tax
True up with respect to prior years’ deferred income tax
Translation effect from the functional currency
Effect of changes in tax rates
Investments in associates and joint ventures
Total income taxes
Effective tax rate
2017
2016
$
( 6,268 )
30%
1,881
$
7,351
30%
( 2,205 )
( 323 )
( 11 )
71
385
188
-
192
( 669 )
( 1 )
1,713
27%
( 107 )
( 24 )
27
( 51 )
( 33 )
178
( 142 )
-
( 1 )
$
( 2,358 )
32%
$
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
c. The breakdown of the deferred tax asset and deferred tax liability is as follows:
115
Property, plant and equipment
Intangible assets
Debt issuance costs
Provisions
Derivative financial instruments
Tax loss carryforwards
Other items
Effect of tax rates of other countries and
changes in tax rates
Deferred tax asset
Inventories
Property, plant and equipment, net
Intangible assets
Tax loss carryforwards
Other items
Effect of tax rates of other countries and
changes in tax rates
Deferred tax liability
$
(Asset) liability
December 31,
2017
2016
$
44
1,907
( 18 )
41
-
354
601
( 505 )
2,424
( 95 )
( 5,884 )
(41 )
637
855
125
( 4,403 )
-
-
-
139
124
1,798
-
-
2,061
(66 )
(6,328 )
(442 )
-
(675 )
-
(7,511 )
Deferred tax liability, net (1)
$
( 1,979 )
$
( 5,450 )
(1) To compute deferred taxes, the Company uses an average of the tax rates valid in the different jurisdictions in which it maintains accounts that generate deferred taxes.
Deferred income tax assets are recognized on tax loss carryforwards to the extent the realization of the related tax benefit through
future tax income is probable. Tax losses amount to $3,303 and $5,993 in 2017 and 2016, respectively.
Loss for the year
incurred
Tax-loss
carryforwards
Expiration
year
2013
2014
2015
2016
2017
$
$
69
268
1,188
1,396
382
3,303
2023
2024
2025
2026
2027
2017 | ANNUAL REPORT
116
d.
Income tax related to other comprehensive income is as follows:
Foreign currency translation effect
Remeasurement of employee benefit obligations
Effect of derivative financial instruments designated
as cash flow hedges
Equity in other comprehensive income of associates
and joint ventures
Before
taxes
$
$
( 2,461 )
100
209
-
2017
Tax
charged
-
( 50 )
( 86 )
-
After
taxes
Before
taxes
2016
Tax
charged
$
$
( 2,461 )
50
123
-
$
$
6,233
100
646
( 2 )
-
( 36 )
( 262 )
-
After
taxes
6,233
64
384
( 2 )
Other comprehensive (loss) income
$
( 2,152 )
$
( 136 )
$
( 2,288 )
$
6,977
$
( 298 )
$
6,679
e.
Income tax payable consists of the following:
Current portion
Non-current portion
Total income tax payable
As of December 31,
2017
2016
$
$
573
623
$
694
553
1,196
$
1,247
19. Other non-current liabilities
Advances from customers (1)
Other
Total other liabilities
As of December 31,
2017
2016
$
$
419
3
422
$
$
500
4
504
(1) This item corresponds to revenues charged in advance and relates to the future delivery of goods.
20. Stockholders' equity
As of December 31, 2017, capital stock is variable, with a fixed minimum of $6,052 represented by 2,118,163,635 ordinary, nominative
shares, "Class I" Series "A", with no par value, fully subscribed and paid in. The variable capital entitled to withdrawal will be represented,
if issued, by registered "Class II" Series "A" shares without par value.
2017
As of December 31, 2017, the Company has 1,485,884 treasury shares and the market value per share was $23.45 Mexican pesos.
In August 2017, the Company sold 40,500 shares in the amount of $1, in connection to a repurchase program that was approved by the
Company's stockholders and exercised discretionally by Management.
During 2016, the Company repurchased 1,526,384 shares in the amount of $46, in connection with the abovementioned repurchase
program.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
117
The net income of the year is subject to decisions made by the General Stockholders' Meeting, the Company's by-laws and the General
Law of Mercantile Corporations. In accordance with the General Law of Mercantile Corporations, the legal reserve should be increased
annually by 5% of the net annual income until it reaches 20% of the fully paid in capital stock. As of December 31, 2017 and 2016, the
legal reserve amounts to $696 and $514, respectively.
At the ordinary stockholders’ meeting of Alpek on February 27, 2017, the stockholders agreed to declare dividends in cash in the aggre-
gate amount of $2,667 (US$143), which were paid in two disbursements from March 8 and September 7 in the same year.
At the General Ordinary Meeting of Alpek held on February 24, 2016, the stockholders resolved to declare cash dividends on March 4,
2016 in a total amount of $ 1,959.
The Income Tax Law establishes a tax rate of 10% to the dividends paid to foreign residents and Mexican individuals derived from the
profits generated since 2014, also provides that for the years 2001-2013, the net taxable profit will be determined in terms of the In-
come Tax Law in force in the fiscal year concerned.
Dividends paid are not subject to income tax if they derived from the Net Tax Profit Account (CUFIN Spanish acronym). Any dividends
paid in excess of this account will cause an income tax charge based on the tax rate valid in the period in which they are paid. This tax is
payable by the Company and may be credited against its income tax in the same year or the following two years. Dividends paid from
profits which have previously paid income tax are not subject to tax withholding or to any additional tax payment. At December 31, 2017,
the tax value of the consolidated CUFIN and value of the Capital Contribution Account (CUCA Spanish acronym) amounted to $1,777 and
$19,244, respectively.
The movements in other reserves for 2017 and 2016 are shown as follows:
Effect of foreign
currency translation
Effect of cash flow
hedge derivative
instruments
As of January 1, 2016
Gains on fair value
Deferred tax on gains at fair value
Gains form translation of foreign entities
As of December 31, 2016
Gains on fair value
Deferred tax on gains on fair value
Loss from translation of foreign entities
$
$
6,598
-
-
6,233
12,831
-
-
( 2,461 )
As of December 31, 2017
$
10,370
$
( 1,004 )
646
( 262 )
-
( 620 )
209
( 86 )
-
( 497 )
$
Total
5,594
646
( 262 )
6,233
12,211
209
( 86 )
( 2,461 )
$
9,873
2017 | ANNUAL REPORT
118
21. Shared-based payments
Alpek has a stock based compensation scheme referred to at 50% of the value of stock of Alfa and the other 50% of the value of the
shares of Alpek, S.A.B. de C.V. for directors of the Company and its subsidiaries. In accordance with the terms of the plan, the eligible
directors will obtain a cash payment contingent upon achieving both quantitative and qualitative metrics derived from the following
financial measures:
•
•
•
Improved share price
Improvement in net income
Permanence of the executives in the Company
The program consists in determining a number of shares which the executives will have a right to, that will be paid in cash over the next
five years; i.e., 20% every year and will be paid at the average price of the shares during the year. These payments are measured at the
fair value of the consideration, therefore, because they are based on the price of Alfa and Alpek shares, the measurement is considered
to be within level 1 of the fair value hierarchy.
The average price of the shares in pesos used as reference is:
Alfa, S. A. B. de C. V.
Alpek, S. A. B. de C. V.
2017
2016
$
21.12
22.95
$
26.73
26.10
The short-term and long-term liabilities are comprised as follows:
Short term
Long term
Total carrying amount
As of December 31,
2017
2016
$
$
7
15
22
$
$
10
21
31
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
22. Expenses classified by their nature
The total cost of sales and selling and administrative expenses, classified by the nature of the expense, are comprised as follows:
119
Raw material and other
Employee benefit expenses (Note 25)
Human resource expenses
Maintenance
Depreciation and amortization
Advertising expenses
Freight expenses
Consumption of energy and fuel
(gas, electricity, etc.)
Travel expenses
Operating lease expenses
Technical assistance, professional fees and
administrative services
Other (insurance and bonds, water, containers
and packing, etc.)
$
2017
2016
( 70,121 )
( 4,363 )
( 32 )
( 1,517 )
( 2,635 )
( 3 )
( 5,319 )
( 4,228 )
( 146 )
( 888 )
( 1,015 )
( 2,158 )
$
( 60,305 )
( 4,227 )
( 54 )
( 1,411 )
( 2,560 )
( 3 )
( 4,325 )
( 3,514 )
( 170 )
( 775 )
( 937 )
( 2,283 )
Total
$
( 92,425 )
$
( 80,564 )
23. Other income, net
Other income for the years ended December 31, are comprised as follows:
2017
2016
$
Gain on sale of waste
Gain on sale of property, plant and equipment
Impairment of property, plant and equipment
and other
Expenses related to acquisition projects
Gain on business acquisition
Income from loss recovery (1)
Other income
Other expenses
Total
$
-
-
-
-
238
-
147
( 50 )
335
$
$
3
1
( 2 )
( 5 )
36
112
90
-
235
(1) This item represents the recovery insurance related to DAK Argentina.
2017 | ANNUAL REPORT
120
24. Finance income and costs
Financial result, net for the years ended December 31, are comprised as follows:
Financial income:
Interest income on short-term bank deposits
Interest income on loans from related parties
Other financial income
Gain on changes in the fair value of financial assets at fair value
through profit or loss
Total financial income
Financial expenses:
Interest expense on loans to related parties
Interest expense on bank loans
Non-bank interest expense
Net interest cost on employee benefits
Other financial expenses
Valuation effect of derivative financial instruments
Total financial expense
Gain (loss) in exchange fluctuation, net
Foreign exchange gain
Foreign exchange loss
2017
2016
$
$
$
$
$
$
65
27
106
-
198
( 2 )
( 295 )
( 941 )
( 40 )
( 198 )
( 6 )
150
44
87
4
285
( 1 )
( 143 )
( 926 )
( 44 )
( 300 )
-
$
( 1,482 )
$
( 1,414 )
3,125
( 3,557 )
3,280
( 4,660 )
Loss in exchange fluctuation, net
$
( 432 )
$
( 1,380 )
Impairment of financial assets
Financial result, net
( 1,694 )
-
$
( 3,410 )
$
( 2,509 )
25. Employee benefit expenses
Employee benefits expenses for the years ended December 31, are as follows:
Salaries, wages and benefits
Social security fees
Employee benefits
Other fees
Total
2017
2016
$
( 3,188 )
( 318 )
( 41 )
( 816 )
$
( 3,102 )
( 304 )
( 22 )
( 799 )
$
( 4,363 )
$
( 4,227 )
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
121
26. Related party transactions
Transactions with related parties during the years ended December 31, 2017 and 2016, were as follows:
Income
Income from sale of goods:
Stockholders with significant influence over subsidiaries
$
1,438
$
1,343
2017
2016
Income from services:
Affiliates
Stockholders with significant influence over subsidiaries
Income from financial interest:
Alfa
Affiliates
Stockholders with significant influence over subsidiaries
Other income:
Affiliates
Associates and joint ventures
Costs / expenses
Purchase of finished goods and raw materials:
Affiliates
Stockholders with significant influence over subsidiaries
Expenses from services:
Affiliates
Associates and joint ventures
Stockholders with significant influence over subsidiaries
Financial interest expenses:
Associates and joint ventures
Other expenses:
Affiliates
Associates and joint ventures
Stockholders with significant influence over subsidiaries
Dividends declared:
Alfa
Other stockholders
Dividends of subsidiaries to non-controlling interest:
Stockholders with significant influence over subsidiaries
Other stockholders
Effect of transfer of common control (1)
198
206
24
-
3
-
10
-
( 853 )
( 348 )
( 21 )
( 18 )
( 2 )
( 31 )
( 8 )
( 2 )
( 2,191 )
( 476 )
( 544 )
( 74 )
-
350
180
28
10
6
1
-
( 3 )
( 915 )
( 328 )
( 18 )
( 15 )
( 1 )
( 69 )
-
( 6 )
( 1,608 )
( 351 )
( 1,967 )
( 82 )
( 435 )
(1) During the month of November 2016, Alpek received from Alfa the transfer of shares representative of 100% of the capital stock of Petrocel, S. A.
(company that has the operating rights of a maritime terminal in Altamira, Tamaulipas), thus since that date became a subsidiary of Alpek. The cost of
this transactions amounted to $1, and represented the acquisition of negative net assets amounting to $434.
For the year ended December 31, 2017, the remunerations and benefits received by the top officers of the Company amounted to $309
($336 in 2016), comprising of base salary and social security benefits, and supplemented by a variable consideration program based on
the Company’s results and the market value of the shares thereof and of its holding company.
2017 | ANNUAL REPORT
As of December 31, balances with related parties are as follows:
122
Short-term accounts receivable:
Holding company
Alfa, S. A. B. de C. V.
Affiliates
Innovación y Desarrollo de Energía
Alfa Sustentable, S. A. de C. V.
Newpek, LLC
Nemak, S. A. B. de C. V.
Terza, S. A. de C. V.
Shares with significant influence
on subsidiaries
BASF
BASF
BASF
Basell
Basell
Long-term accounts receivable:
Holding company
Alfa, S. A. B. de C. V. (1)
Short-term accounts payable:
Affiliates
Nature of the
transaction
As of December 31,
2017
2016
Administrative services
$
190
$
190
Administrative services
Administrative services
Administrative services
Sale of goods
Sale of goods
Sale of business
Lease and administrative services
Sale of goods
Administrative services
$
115
14
4
-
155
405
-
43
-
926
115
5
7
1
112
635
2
25
9
$
1,101
Financing and interest
$
738
$
745
Alliax, S. A. de C. V.
Nemak Exterior, LTD
Alfa Corporativo, S. A. de C. V.
Newpek, S. A.
Servicios Empresariales del Norte, S. A. de C. V.
Alestra, S. de R. L. de C. V.
Other
Associates
Administrative services
Administrative services
Administrative services
Administrative services
Administrative services
Administrative services
Administrative services
Clear Path Recycling, LLC
Terminal Petroquímica Altamira, S. A. de C. V.
Financing and interest
Administrative services
Stockholders with significant influence
over subsidiaries
BASF
BASF
BASF
Basell
Long-term accounts payable:
Affiliates
Sale of goods
Sale of raw material
Commissions and other
Other
$
$
16
1
10
-
-
-
4
79
-
-
195
4
17
326
$
$
18
1
16
3
2
2
-
83
1
16
164
2
29
337
Alfa Corporativo, S. A. de C. V.
Administrative services
$
3
$
4
(1) As of December 31, 2017 and 2016, the loans granted bore interest at average fixed interest rate of 5.34%.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
123
27. Segment reporting
Segment reporting is presented consistently with the financial information provided to the Chief Executive Officer, who is the highest
authority in operational decision making, allocation of resources and performance assessment of operating segments.
An operating segment is defined as a component of an entity on which separate financial information is regularly evaluated.
Management controls and assesses its operations through two business segments: the Polyester business and the Plastics & Chemi-
cals business. These segments are managed separately since its products vary and targeted markets are different. Their activities are
performed through various subsidiaries.
The operations between operating segments are performed at market value and the accounting policies with which the financial infor-
mation by segments is prepared, are consistent with those described in Note 3.
The Company has defined Adjusted EBITDA as the calculation of adding operating income, depreciation, amortization, and impairment
of long lived assets.
The Company evaluates the performance of each of the operating segments based on Adjusted EBITDA, considering that this indicator
is a good metric to evaluate operating performance and the ability to meet principal and interest obligations with respect to indebted-
ness, and the ability to fund capital expenditures and working capital requirements. Nevertheless, Adjusted EBITDA is not a measure of
financial performance under IFRS and should not be considered as an alternative to net income as a measure of operating performance
or cash flows as a measure of liquidity.
Following is the condensed financial information of the Company’s operating segments:
For the year ended December 31, 2017:
Polyester
Plastics &
Chemicals
Other
Total
Statement of (loss) profit:
Income by segment
Inter-segment income
Income from external customers
Operating (loss) income
Depreciation and amortization
Impairment of long-lived assets
Adjusted EBITDA
Investments in fixed and intangible assets
$
70,589
$
28,724
$
( 315 )
$
98,998
( 113 )
70,476
( 6,814 )
2,085
7,699
2,970
3,420
$
$
$
$
( 202 )
28,522
3,966
550
3
4,519
1,011
$
$
$
$
$
$
$
$
315
-
( 6 )
-
-
( 6 )
-
$
$
$
$
-
98,998
( 2,854 )
2,635
7,702
7,483
4,431
2017 | ANNUAL REPORT
124
For the year ended December 31, 2016:
Statement of (loss) profit:
Income by segment
Inter-segment income
Income from external customers
Operating income
Depreciation, amortization and impairment of
non-current assets
Adjusted EBITDA
Investments in fixed and intangible assets
Polyester
Plastics &
Chemicals
Other
Total
$
64,336
$
26,151
$
( 295 )
$
90,192
( 95 )
64,241
4,487
2,027
6,514
5,234
$
$
$
$
( 200 )
25,951
5,413
535
5,948
747
$
$
$
$
$
$
$
$
295
-
( 37 )
-
( 37 )
-
$
$
$
$
-
90,192
9,863
2,562
12,425
5,981
The reconciliation between adjusted EBITDA and income before taxes for the years ended December 31, is as follows:
Adjusted EBITDA
Depreciation and amortization
Impairment of long-lived assets
$
Operating income
Financial result, net
Equity in loss of associates and joint ventures
2017
2016
$
7,483
( 2,635 )
( 7,702 )
( 2,854 )
( 3,410 )
( 4 )
12,425
( 2,562 )
-
9,863
( 2,509 )
( 3 )
(Loss) income before income taxes
$
( 6,268 )
$
7,351
Following is a summary of revenues per country of origin for the years ended December 31:
Mexico
United States
Argentina
Brazil
Chile
Canada
Total revenues
$
2017
2016
$
47,516
41,438
5,341
1,462
921
2,320
43,657
39,271
4,405
1,301
766
792
$
98,998
$
90,192
The Company's main costumer generated revenue amounting to $7,596 and $8,654 for the years ended December 31, 2017 and 2016,
respectively. This revenue is obtained from the Polyester reporting segment and represents 8% and 10% of the consolidated revenue
with external costumers for the years ended December 31, 2017 and 2016, respectively.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK
The following table shows the intangible assets and property, plant and equipment by country:
125
Mexico
United States
Chile
Canada
Brazil
Total intangible assets
Mexico
United States
Canada
Argentina
Chile
Brazil
As of December 31,
2017
2016
$
$
$
2,188
1,848
-
1
28
4,065
32,029
7,546
1,229
271
323
137
$
$
$
2,344
9,524
6
1
-
11,875
30,511
8,425
968
349
318
128
Total property, plant and equipment
$
41,535
$
40,699
28. Commitments and contingencies
At December 31, 2017, the Company has the following commitments:
a) At December 31, 2017 and 2016, the Company’s subsidiaries had entered into various agreements with suppliers and customers
for purchases of raw materials used for production and the sale of finished goods, respectively. The term of these agreements
varies between one and five years and generally contain price adjustment clauses.
b)
In September 2007, Indelpro renewed an agreement it had held with PEMEX Refinación to cover the supply of propylene for
the chemical and refining area maturing in 2018, such agreement establishes the obligation to purchase the maximum level
of production available at a referenced market prices. Purchases of propylene during the years ended December 31, 2017 and
2016 amounted to $2,732 and $ 2,317, respectively. The purchase commitment for the year 2018 amounts to approximately
$2,553 and is based on the estimates and assumptions considered for the same year.
c) The Company leases equipment under non-cancellable operating lease agreements, related mainly to transportation
equipment for the PTA and PET businesses, which normally include renewal options. These options are generally under the
same conditions of the existing leases.
As of December 31, 2017, the Company has the following contingencies:
a) During the normal course of the business, the Company may be involved in disputes and litigations. While the results of these
can’t be predicted, the Company does not believe that there are actions pending to apply, claims or legal proceedings against
or affecting the Company which, if it will result in an adverse resolution to the Company, would negatively impact the results
of its operations or its financial position.
2017 | ANNUAL REPORT
126
b) Some of the Company’s subsidiaries use hazardous materials to manufacture polyester filaments and staple fibers,
polyethylene terephthalate (PET) and terephthalatic acid (PTA) resin, polypropylene (PP) resin, expandable polystyrene (EPS),
caprolactam (CPL), chemical specialties and they generate and dispose of waste, such as catalysts and glycols. These and other
activities of the subsidiaries are subject to various federal, state and local laws and regulations governing the generation,
handling, storage, treatment and disposal of hazardous substances and wastes. According to such laws, the owner or lessor of
real estate property may be liable for, among other things, (i) the costs of removal or remediation of certain hazardous or toxic
substances located on, in, or emanating from, such property, as well as the related cost of investigation and property damage
and substantial penalties for violations of such law, and (ii) environmental contamination of facilities where its waste is or has
been disposed of. Such laws impose such liability without regard to whether the owner or lessee knew of, or was responsible for,
the presence of such hazardous or toxic substances.
Although the subsidiaries estimate that there are no existing material liabilities relating to noncompliance with environmental
laws and regulations, there can be no assurance that there are no undiscovered potential liabilities related to historic or current
operations that will require investigation and/or remediation under environmental laws, or that future uses or conditions will
not result in the imposition of an environmental liability or expose them to third-party or related parties actions, such as tort
suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require the
subsidiaries to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise
alter aspects of their operations.
29. Subsequent events
In preparing the financial statements the Company has evaluated the events and transactions for their recognition or disclosure sub-
sequent to December 31, 2017 and through January 31, 2018 (date of issuance of the consolidated financial statements), and has iden-
tified the following subsequent events:
a.
In January 2018, M&G Mexico disposed of US$29 from the secured credit facility granted by the Company, as described in Note 2b.
30. Authorization to issue the consolidated financial statements
On January 31, 2018, the issuance of the accompanying consolidated financial statements was authorized by José de Jesús Valdez Si-
mancas, General Director and Eduardo Alberto Escalante Castillo, Administration and Finance Director.
These consolidated financial statements are subject to the approval of the Company’s ordinary shareholders’ meeting.
CONSOLIDATED FINANCIAL STATEMENTS / ALPEK Cogeneration plant. Altamira, Mexico
TABLE OF
CONTENTS
Corporate profile
Financial highlights
Footprint
Our products in daily life
Petrochemical chains
Letter to shareholders
Polyester
Plastics & Chemicals
Strategic investments
Sustainability
Board of Directors
Management Team
Corporate Governance
Glossary
Consolidated financial statements
1
2
3
4
6
8
12
16
20
22
42
43
44
45
49
Investor Relations
Hernán F. Lozano
Sabino Parra
Av. Gómez Morín 1111 Sur
Col. Carrizalejo, San Pedro Garza García
Nuevo Leon, CP. 66254, Mexico
IR@alpek.com
www.alpek.com
n
o
t
s
u
o
H
Y,
P
C
:
g
n
i
t
n
i
r
P
|
l
a
u
s
i
V
3
3
:
n
g
i
s
e
d
&
y
h
p
a
r
g
o
t
o
h
P
k
e
p
A
l
t
r
o
p
e
R
l
a
u
n
n
A
7
1
0
2
2017 Annual Report
Alpek, S.A.B. de C.V.
Av. Gómez Morín 1111 Sur
Col. Carrizalejo, San Pedro Garza García
Nuevo Leon, CP. 66254, Mexico
www.alpek.com