2018
ANNUAL REPORT
Alpek Polyester (PTA, PET & Filament Yarn), Suape, Brazil
TABLE OF CONTENT
1
2
3
4
5
6
12
18
23
27
46
47
48
49
51
55
56
Corporate profile
Financial highlights
Footprint
Our products
Petrochemical chains
Letter to shareholders
Polyester
Plastics & Chemicals
Strategic investments
Sustainability
Board of Directors
Management Team
Corporate Governance
Glossary
Management’s Analysis
2018 Highlights
Consolidated financial statements
IN 2018, ALPEK
COMPLETED THE
ACQUISITION OF
PETROQUÍMICASUAPE
AND CITEPE.
CORPORATE PROFILE
(GRI Standards: 102-2, 102-7)
• Operating in two business segments: Polyester, and
Plastics & Chemicals.
• Alpek is a leading petrochemical company in the
Americas.
• Only manufacturer of polypropylene (PP) and
caprolactam (CPL) in Mexico.
• Operates the largest expandable polystyrene (EPS)
plant in the Americas.
• 89% of Alpek’s production is used for food, beverage
and consumer goods packaging.
• Listed on the Mexican Stock Exchange since April
2012.
• 70% of sales out of Mexico.
Styropek (EPS), General Lagos, Argentina
2018 alpek annual report | 1
FINANCIAL HIGHLIGHTS
(GRI Standard: 201-1)
MILLIONS OF DOLLARS
MILLIONS OF PESOS
EBITDA(1)
INCOME STATEMENT
2018
2017
% var.
2018
2017
% var.
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)
6,991
1,086
1,063
697
0.33
6,091
3,898
2,193
1,937
0.91
5,231
(188)
384
(319)
(0.15)
4,752
3,147
1,604
1,364
0.64
34
676
177
318
28
24
37
42
134,523
98,998
21,202
20,607
(2,854)
7,483
13,633
(5,487)
6.44
(2.59)
119,897
76,734
43,163
38,127
18.00
93,778
62,114
31,664
26,916
12.71
36
843
175
348
28
24
36
42
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 2018 to 2014 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 2018 and 2017 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 (2,118 million shares in 2018; and 2,117 in 2017).
4) Based on the number of outstanding shares (2,118 million shares in 2018; and 2,117 in 2017).
5) Dollars or pesos per share, accordingly.
14
15
16
17
18
(319)
14
15
16
17
18
2018 alpek annual report | 2
Millions of dollars
2
0
0
1
0
0
3
0
0
4
0
0
5
0
0
6
0
0
7
0
0
8
0
0
434
384
630
669
MAJORITY NET INCOME(2)
Millions of dollars
-
1
5
0
-
2
5
0
-
2
0
0
-
3
0
0
-
1
0
0
-
5
0
0
5
0
1
0
0
1
5
0
2
0
0
65
175
198
14
15
16
17
18
1,063
697
ASSETS
Millions of dollars
1
0
0
0
2
0
0
0
3
0
0
0
4
0
0
0
5
0
0
0
4,442
4,353
4,428
4,752
6,091
POLYESTER
PLASTICS &
CHEMICALS
(GRI Standards: 102-4, 102-6)
5,797
EMPLOYEES
A qualified team operating a total
capacity of 7.0 million tons per year
26PLANTS IN 6 COUNTRIES:
Mexico, The United States, Canada,
Brazil, Argentina and Chile.
Alpek Polyester (Filament Yarn), Suape, Brazil
2018 alpek annual report | 3
74%
Polyester
THE PRODUCTS IN THE POLYESTER
SEGMENT ARE:
Purified terephthalic acid (PTA) is produced
from paraxylene and is the main feedstock used
in manufacturing PET and polyester fibers.
Polyethylene terephthalate (PET), produced
from PTA and mono-ethylene glycol (MEG),
is the most recycled plastic in the world and is
used mainly in packaging beverage, food, and
consumer products.
Recycled PET (r-PET) is obtained by
processing used PET bottles.
Polyester fibers are used in the production of
clothing, seat belts, and other textile products.
OUR INCOME BY SEGMENT
11% Polypropylene (PP)
8% Expandable
Polystyrene (EPS)
3% Caprolactam (CPL)
3% Specialty and Industrial
Chemcials
25%
Plastics &
Chemicals
THE MAIN PRODUCTS IN THE PLASTICS
AND CHEMICALS SEGMENT ARE:
Polypropylene (PP) is a recyclable plastic
made from propylene and used to produce food
packaging, containers, medical equipment, and
auto components among other applications.
Expandable polystyrene (EPS) is a low-
density, impact-absorbing polymer ideal for
packaging products and absorbing impact.
Caprolactam (CPL) is the main feedstock used
in manufacturing 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.
2018 alpek annual report | 4
# 1 Producer of PTA-PET in the Americas
# 2 PET Producer Worldwide
# 1 EPS Producer in the Americas
Only PP and CPL producer in Mexico
PETROCHEMICAL VALUE CHAINS
(GRI Standard: 102-9)
Alpek products are used by millions of people
daily, in a wide variety of applications.
Oil
Refinery
Naphtha
Reformer
Paraxylene
PTA
Benzene
Cracker
H
H
C
C
H
CH3
Propylene
PP
Propane
Cracker
Methane
H
N
H
H
Ammonia
Ethane
Cracker
H
H
C
C
H
H
Ethylene
Cracker
Cyclohexane
CH2
Styrene
CPL
Ammonium
Sulfate
EPS
Oil
Refinery
Naphtha
O
CH2
CH2
Ethylene
Oxide
Monoethylene
Glycol
PET
Fibers
POLYESTER
PLASTICS &
CHEMICALS
2018 alpek annual report | 5
LETTER TO SHAREHOLDERS
(GRI Standards: 102-14, 102-15, 102-10)
Dear Shareholders:
In 2018, Alpek completed strategic initiatives and achieved better-than-expected op-
erational results, driven mainly by a favorable price environment throughout most of
the year and by the successful integration of PetroquimicaSuape and Citepe (Suape/
Citepe) in Brazil. Volume, sales, and EBITDA reached record highs.
The average Brent price was US $71 per barrel, 31% higher than 2017. However, it fluc-
tuated between a maximum monthly average of US $80 per barrel in October and a
minimum of US $56 per barrel in December. The fourth quarter was the first to post a
drop in the average price, after five consecutive quarters of sequential growth.
Our consolidated sales in 2018 totaled US $6.991 billion, up 34% year-over-year, re-
sulting from increases of 10% and 22% in volume and average prices, respectively, as
well as the integration of Suape/Citepe into the Polyester segment. Adjusting for the
effect of the acquired entities in Brazil, sales increased by 24% and volume was flat.
Consolidated EBITDA totaled US$1.063 billion, up 177% year-over-year. This amount
includes a net profit from non-operating expenses of US $259 million. Adjusting for the
impact of these expenses, the comparable consolidated EBITDA exceeded our guid-
ance and reached a record US $804 million.
The Polyester segment had sales of US $5.174 billion in 2018, up 39% from 2017, driven
by increases of 12% and 24% in volume and average prices, respectively. The integra-
tion of Suape/Citepe contributed US $494 million in sales and 403,000 tons of vol-
ume. Adjusting for the contributions from these companies, Polyester sales increased
by 26% and volume decreased -1%.
2018 alpek annual report | 6
Alpek Polyester (PET), Suape, Brazil
EBITDA for this segment totaled US $788 million, which includes a
One key driver of Polyester results was the successful integration of
net profit from extraordinary items of US $258 million. This amount
Suape/Citepe, starting in May. In addition, operations were stable at
includes, on the one hand, benefits such as the gain in the business
M&G Mexico’s PET plant, supported by Alpek through secured financ-
combination of Suape/Citepe (US $220 million), a US $40 million non-
ing, as the company advanced in its definitive restructuring plan.
cash inventory gain, and a US $19 million gain from an advanced in-
surance payment and the sale of unused land, among other items. The
aforementioned benefits were partially offset by extraordinary charges
of US $21 million that were mainly related to non-recurring legal fees.
In 2018, sales from the Plastics and Chemicals (P&C) segment grew
14% to US $1.713 billion, driven mainly by a 13% increase in the aver-
age price.
Excluding the net impact of these extraordinary items, the comparable
P&C EBITDA totaled US $276 million, including a US $1 million non-
EBITDA for Polyester totaled US $529 million, up 126% from 2017.
cash inventory gain. Excluding the impact of this non-operating item,
This segment posted solid performance amid a favorable oil and feed-
stock price environment throughout most of the year. Better-than-ex-
pected results also reflect the recovery of the global PTA and PET mar-
gins, which was amplified by an extraordinary mid-year spike in the
reference Asian margins.
comparable P&C EBITDA was US $275 million, up 20% versus 2017.
IN 2018, ALPEK
POSTED RECORD
SALES, VOLUME AND
EBITDA.
PET bottle
2018 alpek annual report | 7
Higher polypropylene (PP) margins and the increase in the volume of expandable polystyrene (EPS), support-
ed by the first full year of operations of the incremental EPS capacity installed in Mexico, contributed to this
segment’s EBITDA growth.
STRATEGIC PROJECTS AND
ACQUISITIONS
It was essential to reinforce our financial position following the sudden M&G shutdown in 2017, caused by
Vertical integration, operational efficiency, and expansion initiatives are the main drivers behind Alpek’s cur-
its liquidity problems. Alpek quickly recovered its financial standing in 2018, even after acquisitions in Brazil
rent and future growth. In 2018, Capex totaled US $826 million, boosted by three main projects:
and the United States, thanks to a combination of solid operating performance and the flexibility that you,
our Shareholders, provided for a temporary deferral on the payment of dividends.
ACQUISITION OF SUAPE/CITEPE IN BRAZIL
As of year-end 2018, net debt was US $1.832 billion, US $569 million more than the previous year. The invest-
After more than one year of negotiations, we were able to finalize the purchase of Companhia Petroquími-
ments of US $435 million in Suape/Citepe and US $266 million in the Corpus Christi project were partially
ca de Pernambuco (Suape) and Companhia Integrada Têxtil de Pernambuco (Citepe) from Petrobras for US
offset by a better-than-expected cash flow. Our financial ratios improved significantly: net debt to EBITDA
$435 million. Both companies operate the only integrated PTA/PET site in South America, and add an annual
decreased to 1.7 times, compared to 3.3 times at year-end 2017, while interest coverage increased to 9.9
installed capacity of 640,000 tons of PTA, 450,000 tons of PET, and 90,000 tons of texturized polyester
times, versus 4.8 times in the previous year.
filament.
2018 alpek annual report | 8
Alpek Polyester (PTA, PET & Filament Yarn), Suape, Brazil
The plan to achieve the assets’ full potential includes increasing its productivity plus capturing logistics and
feedstock supply synergies, among others. The first months of effective work alongside the Brazilian team re-
inforced the favorable outlook to obtain an attractive return on this investment. The Suape/Citepe acquisition
increases our exposure to polyester at a favorable turning point in the global industry.
CORPUS CHRISTI PROJECT IN THE UNITED STATES
Alpek, Indorama, and Far Eastern, three of the most relevant players in the global polyester industry, incorpo-
rated Corpus Christi Polymers LLC (CC Polymers) to acquire the integrated PTA/PET site under construction
and related assets in their current state in Corpus Christi, Texas, as well as certain intellectual property, from
M&G USA.
CC Polymers obtained the necessary regulatory approvals and successfully completed the acquisition for US
$1.199 billion in cash and other capital contributions.
For this purchase, Alpek contributed US $266 million in cash and US $133 million in other capital contribu-
tions, associated to a portion of its secured claim with M&G, arising under the original agreement. In addition,
Alpek will obtain US $67 million in cash for the remaining portion of its secured claim, subject to certain
conditions.
Upon completion, each partner will have the right to receive one-third of the PTA and PET produced by the
site, which is expected to have an annual capacity of 1.1 million tons of PET and 1.3 million tons of PTA. This
will make Corpus Christi the largest integrated PTA/PET plant in the Americas.
SECOND POWER COGENERATION PLANT IN MEXICO
Construction of our second power cogeneration plant was completed, and we began the testing and commis-
sioning phase ahead of the start-up of its 350 megawatt capacity. At the same time, Alpek continued the sale
of power from this plant to other industrial users through long-term supply contracts.
After more than a year of negotiations, we signed an agreement to sell our two cogeneration plants in Cosolea-
caque and Altamira to ContourGlobal, for US $801 million. This is the largest asset sale in Alpek’s history.
In addition to the shareholder value and attractive return associated to this transaction, the net proceeds
from the sale will further strengthen Alpek’s financial position. Most importantly, we will maintain a secure
and competitive power and steam supply to our Mexican facilities from a world-class operator.
Strengthening our sustainability strategy and its alignment with our business strategy are ongoing activities.
In this report, we present the seventh annual edition of the sustainability section, where we highlight our
progress in this area in accordance with the standards of the Global Reporting Initiative, as well as our con-
tribution to the United Nations’ Sustainable Development Goals.
2018 alpek annual report | 9
Cogeneration Power Plant, Altamira, Mexico
In 2018, we invested more than US $52 million in actions that support sustainability. Results include providing
In 2018, Alpek capitalized on a favorable oil price environment, the recovery of global polyester margins (am-
38 training hours per employee across all company levels, 9% more than in 2017. More than 7,000 students
plified by the extraordinary mid-year spike), and the successful integration of Suape/Citepe, among others.
benefited from the support our facilities provided to 44 neighboring schools. Furthermore, we reduced total
The 2019 outlook is optimistic, although the price and margin environment is expected to be less favorable.
water consumption in our operations by 4%.
Going forward, we will work on three strategic priorities: i) strengthening the current business; ii) profitable
Our results reaffirm our commitment to strengthen the four pillars that make up our sustainability model: i)
growth; iii) reinforce the sustainability of all our products.
internal well-being, ii) community, iii) environment, and iv) sustainable economic value creation.
Optimizing our cost structure to ensure profitability throughout the industry cycle, strengthening our position
in the Americas, and securing power and feedstock supply are some of the key initiatives that we will engage
in to strengthen our current business.
2018 alpek annual report | 10
Family Day, Altamira, Mexico
To drive Alpek’s profitable growth, we are focused on capturing the expected return on our recent investments of more than
US $1 billion in Suape/Citepe, Corpus Christi, and the power cogeneration plants, among others. We will also continue with our
selective and disciplined approach towards acquisitions.
In terms of reinforcing the sustainability of all our products, we will work with our clients to support their objectives. Our efforts
include increasing our recycled content product offering and developing lighter-weight products, among others.
In addition to being the most recycled plastic in the world, PET, our main product, is light, resistant, and is produced with less
energy and at a lower cost than aluminum or glass. We will continue to promote these characteristics actively as part of our
efforts related to product sustainability.
We 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
2018 alpek annual report | 11
POLYESTER
POLYESTER ACCOUNTS FOR 74%
OF ALPEK’S SALES.
1%
7%
42%
5,824 KTA 50%
CAPACITY
(Thousand Tons)
PTA (2,890)
PET (2,464)
rPET (70)
FIBERS (400)
PET bottle
(GRI Standards: 102-2, 102-6, 201-2, 203-2)
RESULTS
Alpek is the leading integrated PTA-PET producer in North America and is Argentina’s
The Polyester segment had sales of US $5.174 billion in 2018, up 39% from 2017, which
sole manufacturer of both virgin PET resin and recycled PET (rPET). It operates 16
were driven by an average price increase of 24% and volume increase of 12%, which
plants across the United States, Mexico, Brazil, Argentina, and Canada with a total
totaled 3.49 million tons.
installed capacity of 5.8 million tons while employing 4,120 people.
The Polyester segment’s largest event of 2018 was the acquisition of Petroquímica-
Polyester represents Alpek’s main business line, accounting for 74% of total sales in
Suape and Citepe from Petrobras. By integrating these operations, Alpek increased its
2018. The segment enjoys stable demand given that 77% of sales take place in a large,
sales by US $494 million and its volume by 403 thousand tons. Excluding the effect of
mature, and consolidated market like North America, and that over 92% of Alpek’s
this purchase, Polyester sales increased by 26% while volume decreased by -1%.
volume is used to manufacture consumer goods.
Consolidated EBITDA for the segment totaled US $788 million, including a net profit
Its two PET recycling plants, operating in the United States and Argentina, are a key
of US $258 million attributable to extraordinary items. This amount includes benefits
part of Alpek’s sustainability strategy and their total installed capacity is capable of
from the integration of Suape/Citepe (US $220 million), a non-cash gain from invento-
recycling the equivalent of 4 billion PET bottles per year.
ry cost (US $40 million), and US $19 million from insurance payment advances and a
land sale. It also includes a one-time charge related to legal services (US $21 million).
Alpek Polyester (PET), Zárate, Argentina
2018 alpek annual report | 13
ALPEK IS THE LARGEST
INTEGRATED PTA-PET
PRODUCER IN AMERICA.
Alpek Polyester (PTA & PET), Columbia, the United States
2018 alpek annual report | 14
Adjusting for these items, comparable EBITDA for the Polyester segment
totaled US $529 million, up 126% from 2017.
Polyester growth was supported by a favorable pricing environment for
crude oil and associated feedstocks, recovery of global PTA & PET margins,
which were amplified by a mid-year spike, and by the successful integration
of Suape/Citepe, among other factors.
Another relevant event was that M&G, through Alpek’s support, maintained
stable operations at its PET facility in Mexico after its sudden shutdown in
2017 due to liquidity issues, and made strong progress in its restructuring
plans.
Business performance was adversely affected by events such as a fire that
occurred at the Altamira complex, which caused an outage between July
and September, as well as Hurricane Florence, which caused interruptions
to operations at our three plants in North Carolina & South Carolina.
Also during 2018, the United States International Trade Commission issued
an unexpected and unfavorable ruling on claims regarding unfair trade prac-
tices against five countries. That ruling is currently under appeal by Alpek
and other producers in the United States.
For 2019, we expect more moderate Polyester growth since the benefit from
a full year’s worth of operation by Suape/Citepe will not be enough to off-
set the expected drops in both crude oil prices and margins, which will not
have the benefit of the extraordinary mid-year spike in 2018. Despite this
temporary distortion, the recovery of the PTA & PET margins is real and has
proven to be sustainable, and as such the outlook for the Polyester segment
in the years to come is promising.
2018 alpek annual report | 15
Alpek Polyester (PET), Suape, Brazil
Alpek Polyester (PET), Zárate, Argentina
2018 alpek annual report | 16
ALPEK OPERATES PET
RECYCLING PLANTS IN
THE UNITED STATES AND
ARGENTINA.
2018 alpek annual report | 17
Alpek Polyester (rPET), General Pacheco, Argentina
PLASTICS
& CHEMICALS
IN 2018, THIS SEGMENT
ACCOUNTED FOR 25% OF
ALPEK’S CONSOLIDATED SALES.
10%
7%
CAPACITY
(Thousand Tons)
1,167 KTA 55%
POLYPROPYLENE (640)
EPS (325)
CAPROLACTAM (85)
OTHERS (117)
28%
Expandable polystyrene boxes (EPS)
THE P&C SEGMENT
OPERATES TEN PLANTS
ACROSS MEXICO, BRAZIL,
ARGENTINA AND CHILE.
2018 alpek annual report | 19
Reusable polypropylene (PP) container
ALPEK IS THE LARGEST
MANUFACTURER OF EPS
IN THE AMERICAS AND
THE ONLY PRODUCER OF
POLYPROPYLENE AND
CAPROLACTAM IN MEXICO.
Styropek (EPS), Guaratinguetá, Brazil
2018 alpek annual report | 20
Indelpro (PP), Altamira, Mexico
2018 alpek annual report | 21
(GRI Standards: 102-10, 201-2, 203-1,203-2)
Alpek is the largest EPS producer in the Americas and is Mexico’s sole
producer of PP and CPL. The Plastics and Chemicals segment operates
10 plants across Mexico, Brazil, Argentina and Chile, with a total in-
stalled capacity of 1.17 million tons and a slate of 1,640 employees.
In 2018, this segment accounted for 25% of Alpek’s consolidated sales.
RESULTS
The Plastics and Chemicals segment posted sales of US $1.713 billion
in 2018, 14% higher than in 2017, mainly as the result of a 13% in-
crease in the average price.
EBITDA for the P&C segment totaled US $276 million, which includ-
ed a net profit from inventory costs of US $1 million. Excluding the
impact of this non-operating expense, comparable EBITDA for P&C
totaled US $275 million, up 20% from the previous year.
Two factors produced a notably positive impact on the results for
this segment: expanded global PP margins and increased EPS volume
after the first full year of operations of the Altamira plant’s expanded
capacity.
The P&C business faced negative impact from limited supply of local
feedstocks for our Mexican operations, which would have obtained
higher growth had this not been the case.
Margins also experienced temporary distortions throughout 2018 due
to feedstock volatility, which in this case, resulted in a benefit for
Alpek.
2018 alpek annual report | 22
Expanded polystyrene
STRATEGIC
INVESTMENTS
INVESTMENT IN FIXED ASSETS AND
ACQUISITIONS IN 2018 WAS A RECORD
US $826 MILLION.
Alpek Polyester (PTA, PET & Filament Yarn), Suape, Brazil
(GRI Standards: 102-10, 201-2, 203-1, 203-2)
The integration, efficiency, and international expansion projects that comprise our
strategic plan are the driving force behind Alpek’s current and future growth. In 2018
we invested US $826 million in fixed assets and acquisitions, a record for the company,
focused on three main projects:
ACQUISITION OF SUAPE/CITEPE
We finalized the purchase of Companhia Petroquímica de Pernambuco (Petroquímica-
Suape) and Companhia Integrada Têxtil de Pernambuco (Citepe) from Petrobras for US
$435 million. Through Suape/Citepe, Alpek increased its installed capacity by 640,000
tons in PTA, 450,000 tons in PET, and 90,000 tons in texturized polyester filament,
and now operates the only Polyester site integrated into PTA in South America.
Over the next few years we expect to increase the productivity of this asset and cap-
ture synergies in both logistics and purchasing, in order to reach its maximum poten-
tial. The working time spent with the Brazilian team has improved our perspective on
this acquisition, which increases our exposure to Polyester at a favorable point in the
industry’s cycle.
2018 alpek annual report | 24
Alpek Polyester (Filament Yarn), Suape, Brazil
CORPUS CHRISTI PROJECT
With the aim of participating in the negotiations to acquire M&G USA’s integrated PTA/PET site and other
Alpek, Indorama, and Far Eastern will each have the right to receive one-third of the PTA and PET produced at
related assets in Corpus Christi, Alpek, Indorama, and Far Eastern, three of the biggest players in the global
the plant, which once completed will have an installed annual capacity of 1.1 million tons of PET and 1.3 mil-
polyester industry, incorporated Corpus Christi Polymers LLC (CC Polymers) in 2018.
lion tons of PTA. This will make Corpus Christi the largest single-line integrated PTA-PET plant in the world,
After obtaining the necessary regulatory approvals, CC Polymers finalized the acquisition for US $1.199 billion.
Alpek contributed US $266 million in cash and US $133 million in other capital contributions, related to a
portion of its secured claim with M&G. Alpek will also receive US $67 million in cash for the remainder of its
secured claim, subject to the fulfillment of certain conditions.
as well as the largest PTA plant in the Americas.
Alpek Polyester (PET & Short Staple), Cooper River, the United States
2018 alpek annual report | 25
SECOND COGENERATION
PLANT
Construction was completed on our second cogeneration plant, a 350
megawatt asset located in Altamira, Tamaulipas. Testing and commis-
sioning ahead of its start-up has begun, and Alpek has sold power from
this complex to several industrial users based on long-term supply con-
tracts.
After a year of discussions, we finalized an agreement for the sale of our
two cogeneration plants in Cosoleacaque and Altamira to ContourGlob-
al, for US $801 million. This transaction, which represents the largest
asset sale in Alpek’s history, further consolidates our financial position
and creates value for our shareholders, while keeping power and steam
supply needed at our facilities with a world-class supplier.
2018 alpek annual report | 26
Cogeneration Power Plant, Altamira, Mexico
SUSTAINABILITY
IN 2018, WE INVESTED MORE THAN
US $52 MILLION IN INITIATIVES THAT
SUPPORT SUSTAINABILITY IN OUR
OPERATIONS, UP 30% FROM 2017.
Alpek Polyester (PET), Zárate, Argentina
At Alpek, we know that what we do in the present will help to build
We work on integrating our business and sustainability strategies,
In order to define and identify these stakeholders, it was necessary to
a more sustainable future, and that is why we endeavor to operate
ensuring that we create economic value that is fully aligned with the
measure our level of interaction and the scope of our operational im-
in harmony with the environment, society, and our employees. Driv-
social value creation. A key element to our success is based on identify-
pact on each one, as well as the real or potential impact they exert on
en by a culture of ethics and innovation, we use resources responsibly
ing the needs and concerns of our stakeholders, as well as identifying,
our company. This process identified the following stakeholders:
and maintain operations that are safe, efficient, and environmentally
proactively addressing and adapting to the social, environmental, and
friendly.
market trends that may impact the development of the industry that
we serve.
This seventh edition of our Sustainability Report provides details about
the initiatives, strengths, and areas of opportunity for the company
from January 1 to December 31, 2018, as well as our next steps and
commitments. For the fifth consecutive year, we applied the standards
from the Global Reporting Initiative (GRI) methodology under the “core”
compliance option. Our report focuses on the prioritary issues that the
company and its stakeholders identified in the materiality analysis.
The GRI Standards and their corresponding material aspects are listed
in this chapter and in other sections of the report. Our actions contrib-
ute to the UN Sustainable Development Goals (SDG), part of the efforts
by the international community to reach the seventeen goals estab-
lished by the UN Organization. To see the entire list of standards, ma-
terial aspects, and SDGs, please visit the GRI index at the following link:
http://www.alpek.com/gri-report.html
SUSTAINABILITY
STRATEGY
(GRI Standards: 102-30, 102-40, 102-42, 102-43, 102-44)
Material aspect: Relationship with NGOs and regulatory
agencies.
SDG 17: Partnerships for the goals.
Our sustainable management strategy operates with a focus on re-
sponsible growth. Respect for the environment, employees, and com-
munities is key to the successful development of our operations.
EMPLOYEES
COMMUNITIES
CUSTOMERS
SUPPLIERS
SHAREHOLDERS
ENVIRONMENT
2018 alpek annual report | 28
Family Day, Altamira, Mexico
OUR SUSTAINABILITY
STRATEGY IS BASED ON A
RESPONSIBLE GROWTH
APPROACH.
2018 alpek annual report | 29
COMMUNICATING WITH
OUR STAKEHOLDERS
(GRI Standards: 102-44, 102-46, 102-47, 103-1b, 103-1c)
Material aspect: CSR Management.
GROUP
EMPLOYEES
Maintaining constant dialogue with our stakeholders is essential to
establishing and strengthening long-term, trust-based relationships.
We address their concerns and suggestions and integrate them into
the evaluation of our business and sustainability strategies, through
diverse media:
CUSTOMERS
STAKEHOLDER
MEANS OF COMMUNICATION
FREQUENCY
MAIN CONCERNS
HOW THESE CONCERNS HAVE
BEEN ADDRESSED
Permanent
Monthly
Weekly
Permanent
Monthly
Weekly
• Transparency mailbox
• Labor climate survey
• Personal meetings
• Quality and performance
scorecard
• Infoboards
• 1 800 Helpline
• Communication and safety teams
• Newsletters, emails
• Press releases
• Face to face meetings
• Transparency mailbox
• Web page
• On-site visits
• Surveys
• Phone
• Email
• Contingency and risk
• Attention plans and actions
management
• Training and development
• Performance assessments
• Projects
• Macroeconomic situation
• Fringe benefits and employee
are established, derived from
meetings
• Cases receive personal attention
• Establish working groups
• Project development
• Development initiatives
benefits
• Forward-looking approach
• Development, logistics, and
• Programs aimed at addressing
quality
findings
• Product price and availability
• Economic and market trends
• Social responsibility practices
• Compliance with domestic and
international standards
• Supplier follow-up and
improvement programs
• Corrective measures
• Corporate Social Responsibility
programs
• Contingency management priority
• Customer centricity
SHAREHOLDERS
• Shareholders meeting
• Quarterly and annual reports
• Dialogue and face to face
meetings
Monthly
Annually
• Work environment
• Customer satisfaction
• Forward-looking approach
• Quarterly and annual results
• Market trends
• Quarterly and annual reports
• Results from actions and plans
• Strategy development based on
risks and economic and social
trends
SUPPLIERS
• Email
• Telephone communication
• Transparency mailbox
• Face to face meetings
• On-site visits
• Surveys
• Development projects/
communication through
committees
• Website
• Talks and training
Permanent
Monthly
Annually
• Development and
implementation of meeting-
based programs
• Internal requirements
• Training
• Purchasing strategy
• Timely payments
• Meeting-based action plans
• Constant dialogue
• Execution of training projects
• Teamwork
• Fair operating practices
2018 alpek annual report | 30
STAKEHOLDER
MEANS OF COMMUNICATION
FREQUENCY
MAIN CONCERNS
HOW THESE CONCERNS HAVE
BEEN ADDRESSED
WE KEEP IN CONSTANT
DIALOGUE WITH OUR
STAKEHOLDERS TO
IDENTIFY AND ADDRESS
THEIR CONCERNS AND
RECOMMENDATIONS.
GROUP
NEARBY
COMMUNITIES
EDUCATIONAL
AND YOUTH
INSTITUTIONS
• Attention to the community
meetings
• Community development
programs
• On-site visits
• Grievance mechanisms
• Community committees
• Engagement with local
authorities
• Job fairs
• Open doors policy
• On-site visits
• Educational talks
• Job fairs
• Open doors policy
Permanent
Monthly
Annually
• Addressing feedback
• Responding requests for
support
• Noise, air, soil, and water
• Development and implementation
of community care and
engagement programs
• Engagement in community
pollution
committees
• Cooperation with the company
• Use of infrastructure
• Information about the
• Talks and training on
environmental issues
• School support programs
company
Permanent
• Job opportunities
• Youth development
• Project collaboration
• Job fairs
• Job offers on social networks
• On-site Internships
• Research agreements
Styropek (EPS), General Lagos, Argentina
2018 alpek annual report | 31
In addition to ongoing dialogue and communication, we carry out a
periodic materiality study in alignment with the Global Reporting Ini-
tiative guidelines. This process produces an in-depth analysis of our
stakeholders’ expectations by identifying the aspects they consider to
be most relevant, as well as the policies, reputation, and industry reg-
ulations that help us to chart a course for our business strategies and
objectives.
Thirteen material aspects were identified within the four key CSR pillars
that shape our sustainability model: society and employees, environ-
ment, sustainable economic value creation, and corporate governance.
Materiality matrix
100%
90
80
70
60
50
40
30
20
10
K
E
P
L
A
N
O
T
C
A
P
M
I
0
10
20
30
40
50
60
70
80
90
100%
RELEVANCE TO STAKEHOLDERS
Operation and risk strategy
Energy eco-efficiency
Investor relations
CSR management
Corporate governance
Labor practices
Distribution of wealth
Health and safety
Water management
Climate change and emissions
strategy
Community engagement
Relations with NGOs and
regulatory agencies
Customer and supplier relations
Family Day, Altamira, Mexico
2018 alpek annual report | 32
Sustainable economic
value creation:
Some and in Bold while others are
not, standardize all four segments
with desired format.
Focused on:
SHAREHOLDERS
OUR SUSTAINABILITY
MODEL
(GRI Standards: 102-11, 102-12)
Material aspect: CSR Management.
The Alpek sustainability model is aligned with both the Alfa model and
our business strategy. It establishes the company’s areas of focus and
action platform for social responsibility and environmental care.
This model is established and updated based on the results of the ma-
teriality analysis, the Alpek Vision, Mission, and Values, and on interna-
tional initiatives and methodologies such as the Sustainable Develop-
ment Goals, ISO Standard 26000, RobecoSAM, the Carbon Disclosure
Project, the Sustainable Index of the Mexican Stock Exchange, and the
United Nations Global Compact, which we adhere to through Alfa.
o
tainable e c
value cre a
s
u
S
n
io
s
s
Internal well-being:
Provide healthy, safe working
conditions and opportunities for
employee development.
Focused on:
EMPLOYEES
o m i c
n
t i o n
Intern
Biene
sta
al
w
r
i
e
l
l
t
-
n
i
M
t
n
e
m
n
o
Envir
Environment:
Decrease the impact of our opera-
tions, reducing emissions and con-
serving resources, soil and water.
Focused on:
ALL OF OUR STAKEHOLDERS
e
b
r
e
n
i
o
n
g
V
i
s
i
o
n
C
ommunity
Community:
Be a responsible citizen in the
community.
Focused on:
COMMUNITIES, CUSTOMERS AND
SUPPLIERS
2018 alpek annual report | 33
PILLAR 1: SUSTAINABLE ECONOMIC VALUE CREATION
PILLAR 1: SUSTAINABLE
ECONOMIC VALUE
CREATION
We understand that not only are good financial results important, but
also how they are achieved. Therefore, we operate with a focus on long-
term impact and manage acquired risks in order to maximize our return
on capital in a socially and environmentally responsible manner.
Corporate governance
(GRI Standards: 102-18, 102-25, 102-26)
Material aspect: Corporate governance.
SDG 16: Peace, justice and strong institutions.
POLICY
Code of Ethics
OBJECTIVE
Establish guidelines for the conduct we expect of our employees and
upon which the daily company performance is based.
Anti-Corruption Policy
Establish guidelines to strengthen employee conduct and integrity in
relation to the risk of corruption in the company.
MANAGEMENT SYSTEM OR DEPARTMENT
System of compliance with the Code of Ethics
through signature, training, and anonymous
complaint mechanisms.
System of compliance with the anti-
corruption policy through signature, training,
and anonymous complaint mechanisms.
Human Rights Policy
Strengthen the commitment to respect and safeguard human rights.
Under consideration for future development.
Personal Information Protection
Policy
Management and protection of personal and confidential data for our
stakeholders.
Managed through the Compliance Manual.
Intellectual Property Rights
Policy
Prohibition on the illegal use of software.
Compensation and Labor
Practices Policy
Compliance with labor standards and publication of human resources
standards.
Environmental Policy
Environmental protection and safety for both products and facilities.
Compliance through the signature of
commodatum agreements.
Compensation and salary scheme.
Alpek companies have their own
environmental policy and comply with all
environmental legal requirements. This is
managed through both Departments of
Integral Responsibility, and Ecology and
Safety.
Managed through ISO procedures and
instructions for procurement: External
Services and Materials.
Managed through our Legal Department.
In addition to efficient financial resource management, our business
continuity depends on ethical, responsible, and value-based perfor-
mance. This approach is established by our Board of Directors and per-
Supplier Policy
Establish the necessary processes for selecting, evaluating and
monitoring current and future suppliers.
meates throughout the entire organization with extent to our stake-
Conflict of Interest Policy
holders.
Foster total transparency in all business activities performed by the
Board of Directors and by our employees.
The policies and procedures that govern the company’s performance
adhere to international governance, labor, and environmental stan-
dards, and establish the criteria for the implementation of programs
and initiatives. Each year, we update and develop policies that have
been identified as essential to meeting our commitment of increasingly
sustainable and responsible management.
2018 alpek annual report | 34
Styropek (EPS), Concon, Chile
PILLAR 1: SUSTAINABLE ECONOMIC VALUE CREATION
The Code of Ethics and the Anti-Corruption Policy are documents that
were designed to strengthen integrity within the company and to de-
Economic Performance
(GRI Standard: 201-1)
fine the conduct we expect of our employees. We carry out ongoing
Material aspects: CSR Management, Wealth Distribution, Operation and
training in both areas through in-person meetings, email, signboards
Risks Strategy.
and messages sent through various channels (calendars, leaflets, com-
SDG 8: Decent work and Economic Growth.
In 2018 Alpek achieved better than expected results in both business
segments, especially Polyester, mainly due to a favorable price environ-
ment and margins and the successful integration of PetroquímicaSuape
and Citepe (Suape/Citepe). Record highs were reached in terms of vol-
munication screens). We ensure that complaint mechanisms are avail-
able to our personnel to report any non-compliance with these policies.
This includes the Transparency mailbox, which operates 24 hours a day,
365 days a year. This platform is also used to identify cases involving
money-laundering and corruption. In addition to internal mechanisms,
we also leverage external consulting services from specialized firms in
legal, labor, environmental and social responsibility practices.
Likewise, our Conflict of Interest Policy establishes that Board Mem-
bers who may have a conflict of interest when making a decision must
ume, sales, and net profit.
MILLIONS OF USD
Total revenue
Consolidated net income
report it to other members of the Board and abstain from participating
Majority net income
in the discussion or exercising their vote during meetings. For employ-
Income per share
ees, the policy indicates that they must avoid any situation in which
their interests differ from those of the company. The employees who
Income tax
Dividends paid
Investments and acquisitions
Net debt
Net debt/EBITDA (times)
have interests with current or potential suppliers or customers must
report these cases to their immediate supervisors.
In 2018, we addressed a total of 79 incidents, and 11 people left the
company as a result. None of the cases were related to the activities
of employees involved with government authorities, and none involved
cancellations or non-renewed contracts with business partners for rea-
sons attributable to non-compliance with Alpek policies and values.
There were no complaints filed against Alpek for any matters related
to corruption.
2018
6,911
765
697
0.33
92
53
826
1,832
1.7
2017
5,231
(271)
(319)
(0.15)
87
176
236
1,262
3.3
2018 alpek annual report | 35
Cogeneration Power Plant, Cosoleacaque, Mexico
PROJECT
2018 PROGRESS
CHALLENGE
OPPORTUNITY
Construction
of a second
cogeneration
plant in
Altamira,
Tamaulipas
Construction was
completed
To supply our energy needs
more efficiently and in a more
environmentally responsible
manner.
Allows us to meet our energy needs
using 350 MW of steam each year.
Construction of two
propylene storage
spheres
Project in
operation
Propylene, one of the basic
feedstocks used in our
operations, is a non-renewable
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.
PILLAR 1: SUSTAINABLE ECONOMIC VALUE CREATION
Risks and Financial Opportunities
Attributable to Climate Change
(GRI Standard: 201-2)
Material aspects: Wealth Distribution, Operation and Risk Strategy,
Climate Change 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 in working with non-renewable resources.
The United Nations Organization (UN) has invited companies, govern-
ments, institutions, and society in general to join the efforts against
climate change through the Paris Agreement towards the 2030 Agenda
for achieving the Sustainable Development Goals.
This presents great challenges for our industry’s progress as we pursue
sustainable growth. The main projects that form part of the strategic
plan implemented in recent years are initiatives involving vertical in-
tegration, operational efficiency and expansion, optimizing natural re-
source consumption and increasing our competitiveness and profitabil-
ity. Here is our project progress from 2018:
Alpek Polyester (PET), Pearl River, the United States
2018 alpek annual report | 36
PILLAR 2: INTERNAL WELL-BEING
PILLAR 2: INTERNAL
WELL-BEING
At Alpek, we promote the overall well-being of our employees by fos-
In 2018, our workforce was comprised as follows:
The 2018 average training hours per employee are shown
tering their talent and professional development, providing the tools
needed for their personal growth, supporting work-life balance and en-
suring a safe and inclusive workplace that will boost competitiveness.
UNIONIZED
NON-UNIONIZED
% VS TOTAL
2018
2017
below:
Workforce, benefits and inclusion
(GRI Standards: 202-1, 405-1, 405-2)
Material aspect: Labor practices.
SDGs 1, 5, 8 and 10: No Poverty, Gender Equality, Decent Work and
Economic Growth, Reduced Inequalities.
Executives
(directors and
managers)
Employees
Workers
Total
193
22
3.3 %
0.4 %
3,324
3,324
236
236
1,329
89
1,611
597
7
626
22.9 %
58.9 %
85.1 %
10.3 %
4.2 %
14.9 %
MEN
WOMEN
MEN
WOMEN
MEN
WOMEN
All employees
Women
Men
Unionized
Non-Unionized
38
35
50
32
40
36
34
37
33
35
More than 5,790 employees in Mexico and across the Americas drive
Alpek’s sustainable development and make it an industry leader. In
2018, we strengthened our commitment to offering world-class work-
ing conditions and facilities, training and entertainment, safety equip-
Training and Development
(GRI Standards: 404-1, 404-2, 404-3)
Industrial health and safety
(GRI Standards: 403-1, 403-4)
ment, and comprehensive personal development programs.
Material aspect: Labor practices.
Material aspect: Health and Safety.
All of our employees receive a base salary that is higher than the legal
minimum wage in each country where we operate and receive all of
SDGs 4, 5 and 8: Quality Education, Gender Equality, Decent Work
SDG 3: Good Health and Well-being.
and Economic Growth.
The company and its employees are jointly responsible for keeping our
the benefits corresponding to their job profile. Compensation is based
We consider training processes and promoting education to be funda-
operations safe. We prioritize and devote ongoing efforts toward estab-
on each job profile and the skills that each candidate is requires to
mental for our employees’ personal and professional growth. Upgrad-
lishing a culture of health and safe operating practices.
perform their duties. There are no differences between the salaries of-
ing their skills and abilities encourages them to perform better both at
fered to men and women who perform the same job. Although due to
and outside of work.
In 2018, we financed nearly 130 initiatives and programs related to
health and safety in all of our facilities through a total investment of
the nature of our operations, our workforce consists mainly of men,
we operate with gender-equality policies such as the Equal Employ-
ment Opportunity Policy, flex time, maternity and paternity leave, and
non-discrimination or harassment in the workplace.
In 2018, we invested more than US $4 million in training. More than
US$ 27.3 million. Notable initiatives included the purchase of Personal
4,200 employees participated in an average of 38 hours in trainings
Protection Equipment (PPE), preventive equipment maintenance, es-
such as leadership programs, events such as the Alpek Polyester In-
tablishing a “zero accidents” policy and strengthening training in our
tegrated Management Week, values training, workplace risk preven-
on-site activities schedule through strict monitoring of each task to
tion, and implementation of schemes such as the Operations Alignment
prevent risks.
Model from Styropek Chile. In addition, as we have done each year
since its implementation, we were active participants in Sustainability
Week at Alfa, where best practices in the subject are shared.
2018 alpek annual report | 37
PILLAR 2: INTERNAL WELL-BEING
Some of the results from these initiatives are shown below:
• 12, 6.5, and 3 years without lost-time accidents at Styropek
Mexico, Argentina, and Indelpro, respectively.
• Alpek Polyester US reached 6 years without days lost due to
accidents and 5 consecutive years lowering its accident rate.
• Safety practices were integrated into contractor processes at
Alpek Polyester Mexico.
Specifically in terms of health, more than 3,800 employees benefit-
ed from the programs we implemented, including talks on diabetes
prevention, nutrition, pregnancy health, periodic examinations, DAK
Healthy Rewards, and others. Nearly 60 programs were implemented
in order to improve the health of our workforce.
INDICATOR
Accident Rate
Frequency Rate
No. of Accidents
Number of non
incapacitating
accidents
Days lost
Physical Losses
2018
32.07
8.83
74
50
1,544
0
2017
51.51
3.10
35
-
582
0
Training, the United States
2018 alpek annual report | 38
PILLAR 3: ENVIRONMENT
PILLAR 3: ENVIRONMENT
At Alpek we are committed to protecting and improving environmental
the environment both within and outside of our facilities; ii) invest in
quality, which is reflected in the ongoing improvement in operations
innovation and the development of technologies to make our process-
to reduce our footprint, manage the natural resources that we use in
es more efficient; iii) ensure strict compliance with the environmental
an efficient manner, and in a strategy to expand our recycling capacity.
regulations that govern our industry.
Investing in Environmental
Conservation
Material aspects: Climate Change and Emissions Strategy, Operations
and Risk Strategy.
SDG 13: Climate action.
The feedstocks we use in our products are mainly produced from petro-
leum derivatives. We assume and address this important responsibility
from different angles: i) foster a culture of respect and conservation for
The Health and Safety and Environment Policy ensures that our product
production and marketing takes place within a framework of preven-
tive compliance, with the best administrative and operating practices,
and under a focus on discipline and ongoing improvement. By year-end
2018, 90% of our facilities had ISO Standard 14001 certification in En-
vironmental Management Systems.(1).
Our investments in measures for environmental conservation and
well-being were distributed as follows in 2018:
INVESTMENT AREA
(US MILLION)
Emission reduction
Environmental
management costs
Waste Disposal and
Reduction
Prevention Costs
Other Environmental
Actions
Remediation Costs
Total
2018
11.2
0.50
2.4
0.3
2.9
0
17.3
2017
3.6
1.04
0.85
1.03
2.8
10
19.3
(1) 2019 acquisitions are not yet certified on ISO 14001.
Alpek Polyester (PTA & PET), Columbia, the United States
2018 alpek annual report | 39
PILLAR 3: ENVIRONMENT
Energy Efficiency
(GRI Standards: 302-1 a 4)
Material aspect: Energy eco-efficiency.
In order to achieve significant reductions in emissions, the initiatives that we imple-
SDGs 7, 8, 12 and 13: Affordable and Clean Energy, Decent Work and Economic Growth; Responsible Consumption and
ment in our companies require commitment and discipline from employees, suppliers,
Production, Climate Action.
and external contractors, and strict compliance with related legislation.
We join the global community in the effort to reduce fossil fuel consumption, migrate toward renewable energy and to optimize
In 2018, we were able to reduce the emissions of our processes through ongoing
processes toward decreased energy demand. This will contribute to the needs of future generations.
equipment maintenance, the installation of state-of-the-art technology, replacing
Natural gas, the cleanest fuel available today, is used by 98.5% of our operations. Likewise, in 2018 our cogeneration plant at
Cosoleacaque generated a total of 2.52 million GJ to supply our operations in Mexico. This equivalent to meeting the annual energy
needs of 300,000 Mexicans. In addition, an additional 2.5 million GJ of surplus energy was marketed through the Federal Electricity
cooling units, and through general reductions in energy consumption, among other
measures. This resulted in 103,000 fewer tons of CO2 eq, equivalent to the emissions
of over 22,000 cars in a single year.
Commission (CFE).
In 2018, the emissions derived from our processes were distributed as follows:
The initiatives that were implemented in our processes are designed to optimize and reduce energy consumption from non-renew-
able sources in the short-, medium-, and long-term. Through actions including boiler optimization, the use of preheating systems
for process water, and reducing on-site steam leakage, our companies reduced ordinary process consumption by 85,618 GJ in 2018,
equivalent to the yearly energy needs of 11,368 Mexicans.
In 2018, our direct energy consumption by source was distributed as follows:
1 X 106 GJ
Natural Gas
Coal
Fuel Oil
Other
Total
2018
22.4
0.11
0.04
0.19
22.8
%
98.5
0.5
0.2
0.8
100
2017
21.63
0.20
0.01
0.18
22.04
%
98.15
0.9
0.05
0.8
100
Emissions Reduction
(GRI Standards: 305-1, 305-2, 305-5, 305-7)
Material aspect: Climate change and emissions strategy.
SDGs 3, 12, 13, 14 and 15: Good Health and Well-being, Responsible Consumption and Production, Climate Action, Life
Below Water, Life on Land.
Meeting the world’s commitment to limiting global warming to 1.5ºC presents a challenge for the design and execution of measures
to reduce emissions. We have joined in this effort through preventive and remediation actions, process optimization, and through
investing in equipment maintenance and upgrades at our facilities.
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.
EMISSIONS 1 X 106 TON CO2 EQ
Direct emissions
Indirect emissions
Emissions per ton produced
Total emissions
Emissions from other pollutants
POLLUTANT (TONS OF CO2 EQ)
NOx
SOx
Volatile Organic Compounds (VOC)
Hazardous Air Pollutants (HAP)
Particulate Matter (PM)
Total
2018
1.29
1.13
0.43
2.42
2018
408.6
263
839.6
368.6
174.5
2,054.3
2017
1.25
1.06
0.43
2.31
2017
400
193
712
425
247
1,977
2018 alpek annual report | 40
PILLAR 3: ENVIRONMENT
Water Management and Conservation
(GRI Standards: 303-1, 303-3, 304-1)
Material aspect: Water management.
MILLIONS OF M3
SDGs 6, 8, 12 and 14: Clean Water and Sanitation, Decent Work and
Treated water
Economic Growth, Responsible Consumption and Production, Life
Recycled water
Below Water.
Total
2018
9.3
2.9
12.2
2017*
14.8
Alpek continuously endeavors to improve its management and use of
one of the planet’s most critical natural resources: water. Reducing the
*In 2017, these amounts comprised a single figure.
impact of our water footprint is one of the priorities within our environ-
In 2018, our water consumption by source was distributed as follows:
mental strategy and is key to our operational continuity.
In 2018, we reduced our consumption by 3.2 million m3, reused 2.9 mil-
lion m3 in processes, and treated 9.3 million m3 at both our own 12 wa-
MILLIONS OF M3
Municipal water supply
Rivers, lakes, and oceans
ter treatment plants and external. The amount of recycled water rep-
Subterranean waters
resents 2% of total consumption, while treated water represents 10%.
Rainwater
In order to achieve these results, our companies implemented initia-
Wastewater from other
organizations
tives that included process improvements and equipment calibration,
water recovery using biofilters, purging the cooling towers and reduc-
Other
Total
2018
8.1
80.2
3.7
0
0
0.95
93
2017
1.6
90.2
3.3
0
0.64
0
95.8
ing the consumption of treated water. The Styropek Argentina plant
reduced its consumption by 22%, Alpek Polyester Mexico recorded 2.62
million m3 of recovered process water, and similar amounts are project-
ed for each year with the implementation of long-term projects. As a
highlight, the Aislapol facility in Chile built a rainwater recovery system
for storage in case of a fire.
In terms of conservation, some Alpek facilities are located close to ar-
eas of high biodiversity. In the United States, the Columbia plant is
located 15 miles from the Congaree National Park, while the Zárate
plant, in Argentina, is less than 15.5 miles from the Paraná Delta Bio-
sphere Reserve. Given that these are high value areas for water and
The reductions that were achieved in 2018 are equivalent to the water
biodiversity, these facilities carry out activities that contribute to water
consumption by 5,600 Mexican families in one year.
conservation and nearby habitats, such as funding habitat recovery and
giving talks on species conservation.
2018 alpek annual report | 41
Water sampling, United States
PILLAR 3: ENVIRONMENT
Raw Materials and Resource Use
(GRI Standards: 301-2, 416-1)
Material aspect: Climate change and emissions strategy.
SDGs 8 and 12: Decent Work and Economic Growth, Responsible Consumption
and Production
Responsible production begins with the acquisition of raw materials, efficient transfor-
mation, waste management, and recycling recovered material. Increasing the efficien-
cy of the resources used allows us to reduce production costs, increase the company’s
productivity, and contribute to environmental well-being.
In 2018, we applied various recycling initiatives to the materials we were able to re-
cover. Our PET treatment plants processed 72,300 tons of PET bottles and produced
47,000 tons of rPET. Another important action involved the recovery of methane gas
in the water treatment process. The water is reused to operate boilers in the PQS plant
in Brazil.
Likewise, Styropek Argentina developed an EPS recycling project with the city of Bue-
nos Aires that will process recyclable material from that city. In that year, the company
implemented city collection campaigns to test the project’s feasibility. In 2018 prog-
ress was made in the production of high-quality industrial paint based on recycled
EPS.
In addition to caring for resources, we have processes to manage the waste produced
by our operations. Alpek reduced the landfill waste it produced by 4% compared to
2017, and we reused or sold 1,100 tons of non-hazardous material and waste from pal-
lets, packaging plastics, and drums to third parties. We did not receive a single penalty
related to non-compliance or poor management of non-hazardous waste.
2018 alpek annual report | 42
PET bottle flakes (rPET)
PILLAR 4: OUR COMMUNITIES
PILLAR 4: OUR COMMUNITIES
The communities that surround us are a fundamental pillar of our business sustainability strategy, since they provide our autho-
rization to operate. As a responsible corporate citizen and good neighbor, we are committed to developing those communities by
contributing to their social well-being.
Community Engagement
(GRI Standards: 413-1, 413-2)
Material aspect: Community engagement.
SDGs 1 and 2: No Poverty, Zero Hunger.
Alpek companies develop community engagement strategies by fostering neighborhood safety, promoting educational programs,
and encouraging environmental and social awareness.
In addition to engaging with civil authorities through local advisory panels in the United States and Brazil, and by forming part-
nerships with civic associations such as CEAISTAC (Emergency Committees of the Association of Industrial Companies in Southern
Tamaulipas) in Altamira, Mexico, each Alpek facility maintains open communication channels with the leaders and authorities of
neighboring communities, as well as contingency plans and training in case of emergency. There are also formal complaint or report-
ing processes in place that are made available to members of the community.
In terms of health, the DAK Americas plants in the United States give talks on drug abuse prevention to children at a social welfare
institution.
To promote education, in 2018 we signed on 103 research and collaboration agreements with universities, that benefited more than
246 students. Likewise, 242 students carried out internships at our facilities and more than 7,700 students from 44 schools received
support. In Mexico, Alpek Polyester and Univex continued to offer talks on environmental awareness to students within their com-
munities through the Vive Verde and Univerde programs.
In terms of environmental conservation, the Alpek Polyester facilities held an annual event to free more than 100 Lora turtles, an
endemic species, at the port of Altamira, Tamaulipas, and helped to clean 5 miles of shoreline. Polioles continued its reforestation
program at the Sierra Morelos park by planting 300 trees and cleaning, watering, weeding, and fertilizing the trees that were plant-
ed. By the end of 2018, 90% of the trees were registered as healthy.
In total, 294 employees invested an average of 43 man/hours in volunteer activities in 2018, and more than US $1.9 million were
distributed among social responsibility actions.
2018 alpek annual report | 43
Family Day, Altamira, Mexico
PILLAR 4: OUR COMMUNITIES
Our Customers and Suppliers
(GRI Standards: 102-12, 102-43, 308-1, 308-2, 414-1, 414-2)
Material aspect: Customer and supplier relations.
SDGs 5, 8 and 16: Gender Equality, Responsible Consumption and
Production, Peace, Justice and Strong Institutions.
Alpek builds long-term, win-win relationships with its value-chain part-
ners. 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 who is
responsible for a general oversight team that carries out self-assess-
companies around the country to promote common standards on re-
In 2018, we will continue to evaluate our general performance to
sponsible supply chains and to work to foster the development of more
strengthen communication with our customers, meet their expecta-
transparent, responsible, and ethical supply chains. In 2019, the goal is
tions, and address their needs. The 2018 satisfaction surveys reflect a
to produce a common document with good supply chain practices that
level of 87% satisfaction with the company and 89% with our products
our suppliers may implement within their respective companies.
and services.
Likewise, in 2018, 50% of Alpek companies carried out social, environ-
This year, we began three projects within our company value chain.
mental, and labor impact assessments in their supply chains, and were
First, Styropek Mexico began a collaboration with one of its EPS sup-
able to identify only positive impacts out of the 80 essential suppliers
pliers to collect pentane emissions from the EPS bead pre-expansion
who were evaluated.
ments, internal audits, and annual verifications in order to identify op-
Our customer and investor relations continued to be strengthened
portunities and to improve performance along the value chain.
through participation and response to outreach platforms such as the
In 2018, we continued to participate with the ALFA Sustainability Com-
mittee in the initiative for a responsible supply chain to raise their envi-
ronmental and social standards. By the end of the third quarter of 2018
the Committee began a collaboration with the Commission on Private
Sector Studies for Sustainable Development (CESPEDES) and leading
Carbon Disclosure Project with information on energy efficiency and
emissions; RobecoSAM, used to increase transparency in our man-
agement models, and the Sustainable CPI from the Mexican Stock Ex-
change in terms of Environment, Social, and Governance (ESG) practic-
es that we have integrated into our operations.
and stabilization process. This partnership resulted in a 50% reduction
in pentane emissions. Second, Indelpro and its customers who produce
straws began to explore recycling options. And in Chile, Aislapol began
to collaborate with a supplier of EPS waste to support a project by the
Ideatec company, which uses the material to produce industrial paint.
Participating in this project allowed us to reduce our environmental
footprint, support local companies, and minimize the processing costs
of these types of waste.
Molded EPS, Santiago, Chile
2018 alpek annual report | 44
PILLAR 4: OUR COMMUNITIES
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 to stay current
COMPANY
ASSOCIATION
on the issues that affect our stakeholders, work as a team with other
companies to share best practices and stay up to date on domestic and
international standards affecting business, labor, and the environment.
Aislapol
CENEM (Centro de envases y embalajes de Chile)
CICMEX (Cámara Chileno-Mexicana)
Cámara Chilena de la Construcción
In 2018, we participated with industry peers in the following:
Akra Polyester
ANIQ (Asociación Nacional de la Industria Química)
PARTICIPATION IN EXECUTIVE
COMMITTEES OR SPECIAL
PROJECTS
No
No
No
No
No, a partnership was created for
free employee training
Yes, one of our Executives
serves as Vice President of the
Association
FTCC (Fayetteville Technical Community College)
NAPCOR (National Associate for PET Container Resources)
NCTO (National Council of Textile Organizations)
Yes, Board presence
The PET Resin Association
Yes, one of our Executives is Chair
of the Association
CAPCA (California Association of Pest Control Advisers)
Yes, Board presence
Alpek Polyester United
States
Alpek Polyester Mexico
Indelpro
Polioles
ANIQ (Asociación Nacional de la Industria Química)
AISTAC (Asociación de Industriales del Sur de Tamaulipas, A.C.)
CAINTRA (Cámara Nacional de la Industria de la Transformación)
AIEVAC (Asociación de Industriales Estado de Veracruz)
ANIQ (Asociación Nacional de la Industria Química)
AISTAC (Asociación de Industriales del Sur de Tamaulipas, A.C.)
ANIQ (Asociación Nacional de la Industria Química)
Styropek Brazil
ABIQUIM (Asociación Brazileña 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
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Univex
ANIQ (Asociación Nacional de la Industria Química)
Yes
Asociación de Empresas para el Ahorro de Energía en la Edificación
Yes, founding member
2018 alpek annual report | 45
BOARD
OF DIRECTORS
(GRI Standards: 102-18, 102-22)
ARMANDO GARZA SADA (3)
PIERRE FRANCIS HAAS GARCÍA (1)
Chairman of the Board of Alpek, S.A.B. de C.V.
Advisory Services Director of Hartree Partners LP
Board member of Alpek since April 2011. Chairman of the Board of
Board member of Alpek since April 2012.
ALFA and NEMAK. Member of the Boards of AXTEL, BBVA Bancomer,
CEMEX, FEMSA, Grupo Lamosa, Liverpool, Proeza and ITESM.
JOSÉ ANTONIO RIVERO LARREA (1)
ÁLVARO FERNÁNDEZ GARZA (3)
President of ALFA, S.A.B. de C.V.
Chairman of the Board of Compañia Minera Autlán S.A.B. de C.V.
Board member of Alpek since April 2018. Chairman of the Board of
Autlan Holding, Board member of Camara Minera de Mexico. Board
Board member of Alpek since April 2011. Chairman of the Board of
Member of the Executive Commission of Camara Nacional de la
Universidad de Monterrey (UDEM). Member of the Boards of Cydsa,
Industria del Hierro y del Acero. Board member of Museo del Acero in
Grupo Aeropuertario del Pacífico, Grupo CitiBanamex, Vitro, and
Monterrey, N.L. Honorary Chairman of the board of the Magical Towns
Museo de Arte Contemporáneo de Monterrey.
Committee of Parras. Board member of Fundacion de Empresarios por
la Educacion basica, and Regional Board member of Nafinsa.
FRANCISCO JOSÉ CALDERÓN ROJAS (2)
Chief Financial Officer of Grupo Franca Industrias, S.A. de C.V.
JAIME SERRA PUCHE (1A)
Board member of Alpek since April 2012. Member of the Boards
Founding Partner and Chief Executive Officer of SAI Consultores, S.C.
of Franca Industrias, Franca Servicios, Franca Desarrollos and
Board member of Alpek since April 2012. Member of the Boards of
Universidad de Monterrey (UDEM), and an Alternate Member of the
Fondo Mexico, Tenaris, Vitro, Fresnillo plc and Grupo Financiero
Boards of FEMSA and Coca Cola FEMSA.
BBVA Bancomer.
RODRIGO FERNÁNDEZ MARTÍNEZ (4)
ENRIQUE ZAMBRANO BENÍTEZ (1A)
Chief Operations Officer
Chairman of the Board and Chief Executive Officer of Grupo Proeza, S.A.
Board member of Alpek since April 2012. Previously Chief Officer of
de C.V.
Sigma Americas.
Board member of Alpek since April 2012. Member of the Boards of
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
CARLOS JIMÉNEZ BARRERA
Consumer Products Industry Council (ConMexico), Member of the
Secretary of the Board
Boards of Xignux, Universidad de Monterrey (UDEM) and Ciudad de
Grupo Proeza, CFE and ITESM.
los Niños.
MERICI GARZA SADA (4)
Investor
Board member of Alpek since April 2012.
Key
1. Independent Board Member
2. Independent Proprietary Board Member
3. Related Proprietary Board Member
4. Proprietary Board Member
A. Audit and Corporate Practices Committee
2018 alpek annual report | 46
MANAGEMENT TEAM
(GRI Standards: 102-18, 102-23)
JOSÉ CARLOS
GUSTAVO TALANCÓN
JORGE P. YOUNG
JOSÉ DE JESÚS VALDEZ
FELIPE GARZA
ALEJANDRO LLOVERA
JOSÉ LUIS ZEPEDA
PONS DE LA GARZA
GÓMEZ
CERECEDO
SIMANCAS
MEDINA
ZAMBRANO
PEÑA
Chief Financial Officer
President of the Caprolactam,
Co-President of Alpek
Chief Executive Officer
Co-President of Alpek Polyester
President of the
President of the EPS and
Fertilizers and Polyester
Polyester
Filament Yarn Business Unit
Polypropylene Business Unit
Chemicals Business Unit
CFO of Alpek since
President of the Caprolactam
President of Alpek’s PET
CEO of Alpek since 1988.
President of Alpek’s PTA
President of Alpek’s
President of Alpek’s EPS
2018. Former Business
and Fertilizer Business Unit
and Staple Fibers Business
Former CEO of Petrocel,
Business Unit from 2008 to
Polypropylene Business
and Chemicals Business
Development Vice President
since 2013, and starting
Unit from 2012 to 2016.
Indelpro and Polioles, and
2016. Joined Alfa in 1977 and
Unit since 2008. Joined
Unit since 1999. Joined
of Nemak, where he also held
in 2018, also of Polyester
Former Executive Vice
former Chairman of the
is former CEO of Indelpro
Alfa in 1985, is a former
Alpek in 1986 and is
several executive positions.
Filaments. Joined Alfa in
President of PET Resins and
National Association of the
and Galvacer. Holds an
Director of Human
former Vice President of
Holds an undergraduate
1989, is former CEO of
Vice President of Planning
Chemical Industry (ANIQ).
undergraduate degree from
Resources at Alfa, held
Planning, Finance and
and a Master’s degree from
Terza, and held several
and Administration of DAK
Holds an undergraduate
Stanford University and an
several executive positions
Administration, and Sales
ITESM, and a graduate
executive positions in Alpek’s
Americas LLC. Holds an
degree and MBA from ITESM
MBA from Cornell University.
in Alpek’s Synthetic Fibers
at Grupo Petrotemex. Holds
degree from IPADE.
Polypropylene and Nylon
undergraduate degree from
and a Master’s in Industrial
and Polyester Filaments
ITESM and an MBA from the
Engineering from Stanford
Business Units. Holds an
University of Pennsylvania.
University.
undergraduate degree from
ITESM and a graduate degree
from IPADE.
Business Unit and former
an undergraduate degree
Chairman of ANIQ. Holds an
and Master’s in Chemical
undergraduate degree and
Sciences from UNAM and an
an MBA from ITESM.
MBA from ITESM.
2018 alpek annual report | 47
CORPORATE
GOVERNANCE
(GRI Standards: 102-18, 102-23)
Once a year, all companies that are listed on the Bolsa Mexicana de
• Members must inform the Chairman of the Board of
• Alpek has a department specifically dedicated to maintaining
Valores, S.A.B. de C.V. (BMV) must disclose the extent to which they ad-
any conflicts of interest that may arise and abstain from
an open line of communication between the company and its
here to the CMPC by answering a questionnaire. The responses of the
participating in any related deliberations. The average
shareholders and investors. This ensures that investors have
different companies may be consulted on the BMV’s website. A sum-
attendance at Board Meetings in 2018 was 91%.
the financial and general information they require to evaluate
mary of Alpek’s principles of corporate governance is presented below,
reflecting the answers the company gave to the questionnaire in May
2018 and updated where necessary:
• The Board of Directors is made up of ten members, who
• The Audit and Corporate Practices Committee studies and
issues recommendations to the Board of Directors on matters
such as selecting and determining the fees to be paid to the
external auditor, coordinating with the company’s internal audit
the company’s development and progress. Alpek uses press
releases, notices of material events, quarterly results conference
calls, investor meetings, its website and other communication
channels.
area and studying accounting policies.
• Alpek promotes good corporate citizenship and adheres to the
have no alternates. Of the ten directors, five are independent
• Additionally, the Audit and Corporate Practices Committee
board members, two are proprietary board members, two are
is responsible for issuing recommendations to the Board of
related proprietary board members and one is an independent
Directors on matters related to corporate practices, such
proprietary board member. This annual report provides
as employment terms and severance payments for senior
information on all the board members, identifying those
executives, and compensation policies.
who are independent and their participation in the Audit and
Corporate Practices Committee.
• The company has internal control systems with general
guidelines that are submitted to the Audit and Corporate
• The Board of Directors is advised by the Audit and Corporate
Practices Committee for its opinion. In addition, the external
Practices Committee. The Committee Chairman is an
auditor validates the effectiveness of the internal control system
independent board member.
and issues reports thereon.
• The Board of Directors meets every three months. Meetings
• The Board of Directors is advised by the planning and finance
of the Board may be called by the Chairman of the Board, the
department when evaluating matters relating to the feasibility
Chairman of the Audit and Corporate Practices Committee,
of investments, strategic positioning of the company,
the Secretary of the Board or at least 25% of its members. At
alignment of investing and financing policies, and review of
least one such meeting every year is dedicated to defining the
investment projects. This is carried out in coordination with
company’s medium and long-term strategies.
the planning and finance department of the holding company,
Alfa, S.A.B. de C.V.
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.
2018 alpek annual report | 48
GLOSSARY
ADMINISTRATIVE COUNCIL FOR ECONOMIC DEFENSE
ETHYLENE
Brazilian agency responsible for investigating and deciding on issues of compe-
Compound produced from ethane. It is the raw material for produce vinyl acetate,
tence.
ethyl chloride, styrene, ethylene oxide and polyethylenes.
CAPROLACTAM (CPL)
ETHYLENE OXIDE
CPL is made by reacting cyclohexane, ammonia and sulfur and is the raw mate-
Compound produced from ethylene and used as an intermediate in the production
rial to produce Nylon 6 polymer. Nylon 6 is a synthetic resin that, because of its
of MEG and other chemicals.
strength, flexibility and softness, has a range of end uses, including for sportswear,
underclothes and engineering plastics.
EXPANDABLE POLYSTYRENE (EPS)
CLEAN INDUSTRY CERTIFICATION
EPS is a versatile material because of its properties as an impact reducer and
Certification granted by the Mexican Environmental Protection Agency (PROFEPA)
thermal insulator, with customized molding capacity. These properties, combined
to companies that comply with environmental legislation.
with the ease with which it can be processed, make EPS a popular packaging for
Light, rigid, cellular plastic, product of the polymerization of styrene monomer.
impact-sensitive items and for protecting perishables. It is also widely used in con-
COGENERATION
struction systems, to lighten floor and roof structures, and as an insulator.
Process that produces both electricity and steam.
GREENHOUSE GASES (GHG)
COMPREHENSIVE RESPONSIBILITY ADMINISTRATIVE SYSTEM (MEXICAN
Components of the atmosphere that absorb and emit radiation within the infrared
NATIONAL ASSOCIATION OF THE CHEMICAL INDUSTRY, ANIQ)
range, causing the earth surface temperature to increase.
Certification given to companies that comply with the six comprehensive respon-
sibility requirements established by the ANIQ, covering Process safety, Health and
INTEGREX®
safety in the workplace, Product safety, Transportation and distribution, Preven-
Alpek-owned technology for producing PTA and PET from paraxylene (pX) and
tion and control of environmental pollution and Community protection.
monoethylene glycol (MEG), offering significant cost savings and fewer intermedi-
ate steps in the production process.
CO2 EMISSIONS
Unit to measure the carbon dioxide produced by the burning of solid, liquid and
ISO 9001 CERTIFICATION
gaseous fuels, including natural gas.
Certification issued by rating agencies to those companies that operate with prov-
CYCLOHEXANE
Compound produced by the hydrogenation of benzene and used in caprolactam
production.
ETHANE
en procedures for assuring the quality of their products, in accordance with the
standard defined by the International Organization for Standardization (ISO).
ISO 14001 CERTIFICATION
Internationally accepted standard for establishing an efficient Environmental
Management System (EMS). The standard is designed to support companies’ prof-
Hydrocarbon part of the natural gas liquids, which at room temperature is color-
itability and at the same time minimize environmental impact.
less and odorless. It is used as a raw material to produce ethylene.
2018 alpek annual report | 49
Reusable polypropylene (PP) container
MEGAWATT (MW)
Unit of power, equal to 1 million watts.
MONOETHYLENE GLYCOL (MEG)
RECYCLED POLYETHYLENE TEREPHTHALATE (RPET)
PROPYLENE OXIDE
PET bottles are cleaned and crushed to produce new PET products. Other rPET
Compound produced from propylene and used to manufacture commercial and
uses include carpets, fabrics for the clothing industry, and fibers.
industrial products, including polyols, glycols and glycoethers.
Raw material with diverse industrial uses, especially for producing polyester (PET
POLYPROPYLENE (PP)
PURIFIED TEREPHTHALIC ACID (PTA)
and fiber), antifreeze, refrigerants and solvents.
Thermoplastic polymer, produced from the polymerization of propylene monomer.
Aromatic dicarboxylic acid, the main raw material in polyester production. PTA is
PARAXYLENE (PX)
high temperatures and good resistance to chemicals and fatigue. PP has diverse
then used to make bottles for water, soft drinks and other beverages, containers
Hydrocarbon in the xylene family used to produce PTA. It is also a component of
applications, including for packaging, textiles, recyclable plastic parts and different
and other packaging, and polyester fiber for rugs, clothing, furniture and industrial
gasoline.
kinds of containers, auto-parts and polymer (plastic) banknotes.
applications, as well as other consumer products.
Its properties include a low specific gravity, great rigidity, resistance to relatively
produced by the oxidation of paraxylene. It is used to manufacture PET, which is
POLYETHYLENE TEREPHTHALATE (PET)
PROPYLENE
STYRENE MONOMER
Material widely used in the manufacture of bottles and other containers for liq-
Unsaturated, 3-carbon hydrocarbon, co-product of the cracking process at petro-
Unsaturated hydrocarbon used to make a variety of plastics, synthetic rubber, pro-
uids, food and personal hygiene, household and healthcare products. PET flakes
chemical complexes and a by-product at oil refineries. It is used in the petrochem-
tective coatings and resins. It is the main raw material in EPS production and also
and films are used to produce caps, trays and recipients. Because of its transparen-
ical industry to produce PP, propylene oxide, cumene, isopropanol, acrylic acid and
used as a solvent and chemical intermediate.
cy, strength, durability and high protection barriers, PET presents no known health
acrylonitrile. It is also converted into a gasoline component by alkylation with
risks, is light and recyclable, and has a wide range of applications in reusable, tem-
butanes or pentanes.
WATT
perature-sensitive packaging. PET has replaced glass and aluminum, as well as
other plastics such as PVC and polyethylene, for making containers.
Unit of power in the International System of Units (SI).
Family Day, Altamira, Mexico
2018 alpek annual report | 50
MANAGEMENT’S ANALYSIS
2018
The following analysis complements the Letter to Shareholders, Audited Financial Statements, and Comple-
Sources:
(a) Bureau of Economic Analysis (BEA) Figure at the close of September 2018
mentary Information. Unless otherwise specified, figures are expressed in millions of nominal pesos, while
certain figures are expressed as millions of dollars (US $) due to the high dollarization of Alpek’s revenues.
(b) Bureau of Labor Statistics (BLS)
Percentage variations are stated in nominal terms. All information is presented in accordance with Interna-
(c) Instituto Nacional de Estadística y Geografía (INEGI)
tional Financial Reporting Standards (IFRS).
(d) Banco de México (Banxico)
The financial information in this Management’s Analysis corresponds to the past three years (2016, 2017, and
2018). This information has also been expanded in certain chapters to cover three years in order to comply
with the General Provisions Applicable to Issuers of Securities and other Stock Market Participants issued
by the National Banking and Securities Commission (CNBV for its Spanish initials), as of December 31, 2018.
Economic Environment
Global financial growth performed favorably in 2018; nevertheless, risk persisted as a result of the economic
policy decisions made by certain countries, the geopolitical environment and trade tensions, among others.
(e) Banxico: Exchange rate for settling liabilities denominated in foreign currency payable in Mexico.
VOLUME
(THOUSANDS OF TONS)
Polyester
Plastics & Chemicals
Total Volume
2018
3,490
912
4,402
2017
3,105
906
4,012
2016
3,004
934
3,938
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
12
1
10
3
(3)
2
The United States began the year with a positive economic environment amidst new fiscal stimuli offered by
REVENUE
2018
2017
2016
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
the current administration; however, a slowdown was evident toward the end of the year. Finally, interna-
Polyester
tional oil prices posted hikes for most of the year, although they fell sharply in the fourth quarter. The Brent
Millions of Pesos
quote price fluctuated between US $56 and US $80 per barrel in 2018, while the average price was $71 US
Millions of Dollars
per barrel, 31% higher than in 2017.
The behavior of GDP and other variables in Mexico and the United States, which is essential to understanding
the context of Alpek’s results, is described below:
In the United States, the Gross Domestic Product (GDP) increased 3.4% (estimated)(a) in 2018, higher than
the 2.3% reported in 2017. Consumer inflation was 1.9%(b) in 2018, lower than the 2.1%(b) recorded in 2017.
In Mexico, the Gross Domestic Product (GDP) was 2.0%(c) in 2018, in comparison to the 2.1% reported in 2017.
Consumer inflation was 4.8%(d) in 2018, lower than the 6.7%(d) recorded in 2017. The annual nominal ex-
change rate posted a depreciation of 1.7%, increasing from $18.92 pesos per dollar in 2017 to $19.24 in 2018.
Plastics & Chemicals
Millions of Pesos
Millions of Dollars
Total Revenue
Millions of Pesos
Millions of Dollars
Polyester
Millions of Pesos
Regarding interest rates, the average annual nominal 3-month LIBOR rate in US dollars was 2.3% in 2018,
Millions of Dollars
compared to 1.3%(d) in 2017. In Mexico, the average Interbank Equilibrium Interest Rate (TIIE) was 8.0%(d) in
nominal terms, as compared to 7.1% in 2017.
Plastics & Chemicals
Millions of Pesos
Millions of Dollars
Total
Millions of Pesos
Millions of Dollars
99,559
5,174
32,925
1,713
134,523
6,991
70,477
3,724
28,522
1,506
98,998
5,231
64,241
3,444
25,951
1,394
90,192
4,838
41
39
15
14
36
34
10
8
10
8
10
8
PRICE INDEX
2018
2017
2016
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
133
129
130
126
133
129
106
105
113
111
108
106
100
100
100
100
100
100
26
24
15
13
24
22
6
5
13
11
8
6
2018 alpek annual report | 51
Revenue
Alpek’s revenue in 2018 was $134,523 million (US $6.991 billion), 36% higher than the $98,998 million (US
$5.231 billion) of 2017. This increase was caused by a spike in average prices of 24% in pesos and 22% in dol-
lars, driven by the increase in feedstock prices.
Revenue by Business Segment
Polyester’s net revenue in 2018 was $99,559 million (US $5.174 billion), 41% more than the $70,477 million
(US $3.724 billion) in 2017. This increase was mainly due to a spike rise in feedstock prices and the integration
of Suape/Citepe. This segment posted increases of 26% in average sale prices in pesos and 12% in volume.
The average Polyester price increased by 24% in 2018 in dollar terms.
Plastics and Chemicals posted revenue of $32,925 million (US $1.713 billion) in 2018, in comparison to $28,522
million (US $1.506 billion) in 2017. The 15% increase in revenue was mainly due to a 15% spike in the average
sale price in pesos. The average dollar price for this segment was 13% higher than in 2017, also due to higher
oil prices and its main feedstocks.
OPERATING INCOME
(EBITDA)
(MILLIONS OF PESOS)
Polyester
Plastics & Chemicals
Others and Eliminations
Total EBITDA
OPERATING INCOME
(EBITDA)
(MILLIONS OF DOLLARS)
Polyester
Plastics & Chemicals
Others and Eliminations
Total EBITDA
2018
2017
2016
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
15,318
5,292
(3)
20,607
2,970
4,519
(5)
7,483
6,514
5,948
(37)
12,425
416
17
42
175
(54)
(24)
86
(40)
2018
2017
2016
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
788
276
(1)
1,063
147
237
-
384
349
322
(2)
669
435
16
(80)
177
(58)
(26)
84
(43)
Operating Income and EBITDA
In 2018 operating profit was $21,202 million (US $1.086 billion), 843% higher than the loss of -$2,854 million
Net Financial Result
In 2018 the net financial cost, was -$2,783 million (-US $141 million), 18% lower than the previous year. The
net financing expenses that comprise this item grew from -$1,284 million (-US $68 million) in 2017, to -$1,741
(US -$188 million) in 2017. The operating profit in 2018 includes a non-cash benefit of $3,936 million (US $195
million (-US $90 million), reflecting the increased debt resulting from the year’s investments. In addition,
million) corresponding to the implicit recovery after the purchase of the Corpus Christi project from M&G. In
variations in exchange rates resulted in the recognition of a non-cash foreign exchange loss of -$1,042 million
contrast, the 2017 operating loss includes the deterioration in intangible assets and prepayment of -$7,745
(US -$50 million) in 2018, versus -$432 million (US -$25 million) in 2017. Nevertheless, in 2017 an impairment
million (US -$435 million) and clients of -$2,017 million (US -$113 million), both related to agreements with
of financial assets was posted for $1,694 million (US $95 million), related to the M&G bankruptcy.
various M&G subsidiaries.
As of December 31, 2018, consolidated EBITDA was $20,607 million (US $1.063 billion), an increase of 175%
compared to the $7,483 million (US $384 million) of 2017. The consolidated EBITDA for this segment includes
FINANCIAL RESULT, NET
(MILLIONS OF PESOS)
a net benefit from extraordinary items of $5,310 million (US $259 million), resulting in an EBITDA in com-
Financial Expense
parable terms of $15,297 million (US $804 million), 74% higher than in 2017, driven mainly by the Polyester
Financial Income
segment.
In 2018, the EBITDA for the Polyester segment increased 416% to $15,318 million (US $788 million), including
a net benefit from extraordinary items of $5,289 million (US $258 million). Without adjusting for the effect of
these items, the comparable EBITDA for the Polyester segment was $10,029 million (US $529 million), an in-
crease of 125% year-over-year, driven by a favorable price environment for crude and feedstocks, the recovery
of global polyester margins, and the Suape/Citepe consolidation.
The EBITDA for the Plastics and Chemicals segment rose 17% to $5,292 million (US $276 million), compared
to $4,519 million (US $237 million) in 2017. Without adjusting for the effect of the non-cash profit from in-
ventory cost, the comparable EBITDA for Plastics and Chemicals rose 21% in comparison with the $4,352
million (US $229 million) in 2017, resulting from positive performance of the polypropylene and expandable
polystyrene segments.
Financial expenses, Net
Impairment of financial
assets
Loss due to exchange
fluctuation, net
2018
(2,183)
442
(1,741)
2017
(1,482)
198
(1,284)
2016
(1,414)
285
(1,129)
-
(1,694)
-
(1,042)
(432)
(1,380)
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
(47)
123
(36)
100
(141)
18
(5)
(31)
(14)
(100)
69
(36)
Financial Result, Net
(2,783)
(3,410)
(2,509)
2018 alpek annual report | 52
TAXES
(MILLIONS OF PESOS)
Income Taxes
Income (loss) before taxes
Income tax rate
Statutory income tax rate
(expense) benefit
Taxes for permanent
differences between
accounting-taxable profit
Total Income tax
Effective tax rate
Comprised as follows:
Taxes
In 2018, a tax on profit was posted for $-3,455 million (US -$178 million) as a result of the increased pre-tax
profit, while 2017 posted a positive tax on profit of $1,713 million (US $106 million) as a result of the pre-tax
loss for non-recurring charges related to M&G.
2018
2017
2016
VAR. % 2018
VS. 2017
VAR. % 2017
VS. 2016
18,389
30%
(6,268)
30%
7,351
30%
393
(185)
(5,517)
1,881
(2,205)
(393)
185
2,062
(168)
(153)
(3,455)
19%
1,713
27%
(2,358)
32%
Current income tax
(2,549)
(1,511)
(2,470)
True-up to prior years
income tax provision
Deferred income tax
Total income tax
474
(1,380)
(3,455)
188
3,036
1,713
(33)
145
(2,358)
1,327
(302)
(69)
152
(145)
(302)
(10)
173
39
670
1,994
173
Net Income Attributable to the Controlling Interest
In 2018, the consolidated net income attributable to the controlling interest was $13,633 million (US $697
million), including a net benefit of $7,532 million (US $356 million) from the gain in the business combination
and the Corpus Christi recovery. In contrast, the loss of net income attributable to the controlling interest
was in 2017 was -$5,487 million (US -$319 million), including a net impact of -$8,652 million (US -$481 Mil-
lion) related to the provisions and deterioration of M&G.
STATEMENT OF PROFIT
(LOSS)
(MILLIONS OF PESOS)
Operating Income
Financial Result, net
Share in losses of associates
Income taxes
Net consolidated income
(loss)
Income (loss) attributable to
controlling interest
2018
2017
2016
VAR. % 2018
VS 2017
VAR. % 2017
VS 2016
21,202
(2,783)
(30)
(3,455)
(2,854)
(3,410)
(4)
1,713
9,863
(2,509)
(3)
(2,358)
14,934
(4,555)
4,993
13,633
(5,487)
3,625
843
18
(692)
(302)
428
348
(129)
(36)
(24)
173
(191)
(251)
Investments in Fixed and Intangible Assets
In 2018, investments in fixed and intangible assets totaled $15,684 million (US $826 million), 251% higher
than the $4,470 million (US $236 million) posted in 2017. The resources were used for strategic projects, such
as the acquisition of Suape/Citepe in Brazil and the Corpus Christi Project in the United States, as well as the
construction of the second cogeneration plant in Altamira, Mexico.
Net Debt1
Net debt rose to $36,051 million (US $1.832 billion) as of December 31, 2018, 45% above the net debt of
$24,915 million (US $1.262 billion) as of December 31, 2017. The cash balance and cash equivalents totaled
$4,171 million (US $212 million) as of December 31, 2018.
(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.
2018 alpek annual report | 53
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)
MILLIONS OF DOLLARS
% INTEGRATED
2018
2017
VAR. %
2018
2017
514
170
345
714
300
-
2,043
3.5
2.7
375
12
241
105
714
300
1,747
4.6
3.7
37
1,358
43
580
(58)
(100)
17
25
8
17
35
15
-
21
1
14
6
41
17
100
100
FINANCIAL INDICATORS (TIMES)
2018
2017
Net Debt / EBITDA (US $)
Interest Coverage (US $)
Total Liabilities / Stockholders’ Equity
1.7
9.9
1.8
3.3
4.8
2.0
2016
1.6
10.5
1.2
Alpek Polyester (rPET), General Pacheco, Argentina
2018 alpek annual report | 54
2018 HIGHLIGHTS
SUAPE/CITEPE ACQUISITION IN BRAZIL
FIRE AT PTA PLANT IN ALTAMIRA, MEXICO
In April, Alpek finalized the acquisition of 100% of Companhia Petroquímica de Pernambuco (“Petroquími-
In July, a fire started in a segment of the PTA plant in Altamira, Mexico. The situation was quickly brought
caSuape”) and Companhia Integrada Têxtil de Pernambuco (“Citepe”), owned by Petróleo Brazileiro, S.A.
under control by internal and external emergency crews, without any employee injuries. After a two month
(“Petrobras”), for US $435 million, on a debt free basis. Both of the acquired companies operate an integrated
shutdown, the necessary repairs were completed and both production lines were restarted. Alpek mitigated
polyester site in Ipojuca, Pernambuco, Brazil, with an installed capacity of 640,000 tons of PTA, 450,000
the impact of the unscheduled shutdown by leveraging its extensive Polyester platform.
tons of PET, and 90,000 tons of texturized polyester filament. The Suape/Citepe acquisition increases our
exposure to Polyester at a favorable time within the global industry.
COGENERATION POWER PLANTS MONETIZATION
Alpek signed a final agreement relating to the sale of its two cogeneration power plants located in Cosolea-
caque and Altamira, Mexico. The agreement includes the sale of all its shares in the holding companies of both
plants, Cogeneration de Altamira, S.A. de C.V. and Cogeneration de Energía Limpia de Cosoleacaque, S.A. de
C.V., for US $801 million to ContourGlobal Terra 3 S.à.r.l, a subsidiary of ContourGlobal PLC. In accordance
with the contract conditions, the agreed price will be subject to final adjustments and must be paid upon
closing the transaction, which is expected to take place during the first quarter of 2019. The transaction is
subject to normal closing terms and conditions, including corporate approvals and from the Federal Commis-
sion on Economic Competition.
ACQUISITION OF THE CORPUS CHRISTI PROJECT FROM MOSSI & GHISOLFI GROUP (“M&G”)
During 2018 Alpek, Indorama, and Far Eastern created the entity Corpus Christi Polymers LLC (CC Polymers)
to acquire the integrated PTA/PET site from M&G USA, associated assets in their current state at Corpus
Christi, Texas; as well as selected intellectual property. CC Polymers successfully completed the acquisition
for US $1.199 billion in cash and other capital contributions. Alpek contributed US $266 million in cash and
US $133 million in other capital contributions. Alpek’s other contributions include a part of the secured claim
on M&G as part of the Corpus Christi Capacity Reservation Agreement (“Secured Claim 2L”). Additionally,
Alpek will obtain US $67 million in cash for the rest of its Secured Claim 2L, subject to certain conditions.
Once completed, the site will have a nominal production capacity of 1.1 million & 1.3 million tons of PET and
PTA, respectively. Alpek, Indorama, and Far Eastern will each have the right to receive one-third of the PTA
and PET produced once the project has been completed. This will make Corpus Christi the largest single-line
PTA-PET integrated plant in the world, as well as the largest PTA plant in America.
Cogeneration Power Plant, Altamira, Mexico
2018 alpek annual report | 55
CONSOLIDATED FINANCIAL
STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2018 AND 2017
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Profit (Loss)
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
57
61
62
63
64
65
66
alpek annual report 2018 | 56
CONSOLIDATED FINANCIAL STATEMENTS 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 statements of financial position as of December 31, 2018 and 2017, and the consolidated statements of profit (loss),
the consolidated statements of comprehensive income (loss), the consolidated statements of changes in equity and the consolidated
statements of cash flows for the years 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, 2018 and 2017, its consolidated financial performance and its consolidated cash flows for
the years then ended, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Account-
ing Standards Board.
Basis for Opinion
We conducted our audits in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are
further described in the Auditors’ responsibilities for the audit of the consolidated financial statements section of our report. We are inde-
pendent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated finan-
cial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements
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.
Business combination - Companhia Petroquímica de Pernambuco (Petroquímica SUAPE) y Companhia Integrada Textil de Pernambuco (CITEPE)
As disclosed in Note 2c. to the consolidated financial statements, Alpek, S. A. B. de C. V. (“Alpek”), acquired all of the shares representing
the respective share capital of Petroquímica SUAPE and CITEPE. Both companies operate an integrated PTA-PET site in Ipojuca, Per-
nambuco, Brazil, with an installed capacity of 640,000 and 450,000 tons per year of PTA and PET, respectively. The total consideration
amounted to US$435 million, paid in Brazilian reals at the closing date of the transaction. The fair value of the assets acquired and
assumed liabilities determined and recognized at the acquisition date amounted to US$792 million and US$137 million, respectively.
Additionally, a gain in business combination of US$220 million was recognized.
alpek annual report 2018 | 57
CONSOLIDATED FINANCIAL STATEMENTS Due to the significant judgments used by management in the valuation models to determine the consideration, the fair value of the
assets acquired and liabilities assumed, particularly property, plant and equipment, as well as the intangible assets, we involved our
experts in valuation to evaluate the premises and criteria used by the administration and its independent expert and we carry out the
following procedures:
• We evaluated the capacity and independence of the independent expert.
• We verified that the models used by the administration to determine the fair values were those used and recognized to value
assets with similar characteristics in the industry.
• We challenged management’s financial projections and compared them with the performance and historical trends of the
Company's businesses.
• We evaluated that management’s projections were consistent with those approved by the Board of Directors of the Company.
• We reviewed the most relevant valuation assumptions (discount rate, multiple of EBITDA, sales multiples, as well as the
determination of the useful life of the assets), and compared them with independent market sources.
The results of our procedures were satisfactory and we agree with the fair value of the acquired assets and liabilities assumed recog-
nized by the Company.
Joint venture - Grupo Mossi & Ghisolfi (“M&G”)
Impairment of assets derived from agreements with various subsidiaries of Grupo Mossi & Ghisolfi (“M&G”)
As disclosed in Note 2b. and 2e. to the consolidated financial statements, in 2015, Alpek S. A. B. de C. V. (“Alpek”) entered into agree-
ments with M&G Resins USA, LLC (“M&G”), one for capacity reservation and another of tooling services, for which the latter agreed to
supply PET from its plant to be constructed in Corpus Christi, Texas. As a result of this agreement, Alpek paid $7,745 million (US$435
million) to M&G. In 2017, due to M&G’s inability to complete the construction of the plant, the Company recognized an impairment for
a total amount of $11,456 million pesos (net of taxes, $8,721) for its assets associated with M&G.
In October 2017, M&G, as owner of the assets under construction, requested a voluntary reorganization petition under Chapter 11 of
the Bankruptcy Code of the United States of America ("USA"). As a result of the foregoing, during 2018 Alpek, Indorama Ventures, LLC
("Indorama") and Far Eastern Investment ("Far Eastern") made a joint proposal to the bankruptcy administrator for the acquisition of the
aforementioned assets under construction and created a joint venture for this purpose, from which the constitution of Corpus Christi
Polymers LLC ("CCP") was incorporated as the legal vehicle for the acquisition. The acquisition agreement for the assets amounted to
US$1,199 million in cash and other capital contributions (capacity reservation) made by CCP in 2018. Alpek was recognized for US$200
million, which partially represented the capacity reservation rights paid in 2015, US$133 million as part of its contributions to CCP and
US$67 million (US$62 at present value) for the sale to Indorama and Far Eastern of a portion of said capacity reservation agreement;
therefore, the Company reversed US$195 million of the impairment recognized in 2017.
Due to the significant judgments used by management to determine the partial reversal of the impairment of Alpek’s assets associated
with M&G, our audit procedures focused on reviewing elements and significant judgments considered by the Company. Regarding the
recognized effects of reversal of impairment, we obtained and read the contractual agreements of the transaction and performed the
following procedures:
• We reviewed the contractual agreements between the joint venture participants.
• We reviewed the cash contributions made to CCP and the legal documentation that supports the contribution of capacity
reservation rights.
• We verified the authorization granted by the competition authorities of the United States of America for the acquisition of the
assets of M&G.
• We discussed with management and confirmed that at the date of the consolidated financial statements all the obligations of the
parties to comply with the acquisition have been fulfilled.
alpek annual report 2018 | 58
CONSOLIDATED FINANCIAL STATEMENTS The results of our procedures were satisfactory and we agree with the judgments used by management to reverse the impairment.
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 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 assurance
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 IFRSs,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
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.
Auditors’ 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 resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
alpek annual report 2018 | 59
CONSOLIDATED FINANCIAL STATEMENTS - 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.
-
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
- Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
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 inadequate, 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, 2019
alpek annual report 2018 | 60
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Consolidated Statements of Financial Position
As of December 31, 2018 and 2017
In millions of Mexican pesos
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
Total stockholders’ equity
Total liabilities and stockholders’ equity
Note
2018
2017
6
6
7
8
4
9
10
11
18
9
12
15
14
18
4
16
15
4
16
18
18
17
19
20
13
$
$
$
$
4,168
3
21,934
24,511
30
469
51,115
47,033
4,368
1,384
38
15,959
68,782
119,897
10,118
26,051
1,279
1,047
81
38,576
30,012
283
1,107
4,752
469
1,099
436
38,158
76,734
6,052
9,106
17,235
5,734
38,127
5,036
43,163
119,897
$
$
$
$
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
3,671
8,126
26,916
4,748
31,664
93,778
The accompanying notes are an integral part of these consolidated financial statements.
alpek annual report 2018 | 61
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Consolidated Statements of Profit (Loss)
For the years ended December 31, 2018 and 2017
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
Reversal of impairment of intangible assets (impairment) of intangible assets
and trade receivables
Operating income (loss)
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
Income (loss) before taxes
Income taxes
Note
2018
2017
$
134,523
$
98,998
( 116,519 )
( 88,598 )
18,004
( 2,136 )
( 3,166 )
4,564
17,266
3,936
21,202
442
( 2,183 )
( 1,042 )
-
( 2,783 )
( 30 )
18,389
( 3,455 )
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
2b
24
24
24
2a
18
Net consolidated income (loss)
$
14,934
$
( 4,555 )
Income (loss) attributable to:
Controlling interest
Non-controlling interest
Earnings (losses) per basic and diluted share, in Mexican pesos
Weighted average outstanding shares (millions of shares)
The accompanying notes are an integral part of these consolidated financial statements.
$
13,633
$
( 5,487 )
$
$
1,301
932
14,934
$
( 4,555 )
6.44
$
( 2.59 )
2,118
2,117
alpek annual report 2018 | 62
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2018 and 2017
In millions of Mexican pesos
Net consolidated income (loss)
$
14,934
$
( 4,555 )
Note
2018
2017
Other comprehensive income (loss) for the year:
Items that will not be reclassified to the statement of income:
Remeasurement of employee benefit obligations, net of taxes
17, 18
( 55 )
50
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
4, 18
18
( 560 )
( 1,814 )
123
( 2,461 )
Total other comprehensive income (loss) for the year
( 2,429 )
( 2,288 )
Consolidated comprehensive income (loss)
$
12,505
$
( 6,843 )
Attributable to:
Controlling interest
Non-controlling interest
$
11,241
$
( 7,570 )
1,264
727
Comprehensive income (loss) for the year
$
12,505
$
( 6,843 )
The accompanying notes are an integral part of these consolidated financial statements.
alpek annual report 2018 | 63
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2018 and 2017
In millions of Mexican pesos
Capital stock
Share
premium
Retained
earnings
Other
reserves
Total
controlling
interest
Non-
controlling
interest
Total
stockholders’
equity
Balance as of January 1, 2017
$
6,048
$
9,071
$
11,745
$
10,209
$
37,073
$
4,649
$
41,722
Net (loss) income
Total other comprehensive loss for the year
Comprehensive (loss) income
Dividends declared
Changes in the non-controlling interest
Effect of assumption of non-controlling interest
Other
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance as of December 31, 2017
6,048
9,071
Net income
Total other comprehensive (loss) for the year
Comprehensive income
Dividends declared
Reissuance of shares
Effect of initial adoption of IFRS
Other
-
-
-
-
4
-
-
-
-
-
-
35
-
-
( 5,487 )
-
( 5,487 )
( 2,667 )
-
( 30 )
110
3,671
13,633
-
13,633
-
-
( 14 )
( 55 )
-
( 2,083 )
( 2,083 )
-
-
-
-
8,126
-
( 2,392 )
( 2,392 )
-
-
-
-
( 5,487 )
( 2,083 )
( 7,570 )
( 2,667 )
-
( 30 )
110
26,916
13,633
( 2,392 )
11,241
-
39
( 14 )
( 55 )
932
( 205 )
727
( 618 )
( 40 )
30
-
4,748
1,301
( 37 )
1,264
( 981 )
-
-
5
( 4,555 )
( 2,288 )
( 6,843 )
( 3,285 )
( 40 )
-
110
31,664
14,934
( 2,429 )
12,505
( 981 )
39
( 14 )
( 50 )
Balance as of December 31, 2018
$
6,052
$
9,106
$
17,235
$
5,734
$
38,127
$
5,036
$
43,163
The accompanying notes are an integral part of these consolidated financial statements.
alpek annual report 2018 | 64
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Consolidated Statements of Cash Flows
For the years ended December 31, 2018 and 2017
In millions of Mexican pesos
Cash flows from operating activities
Income (loss) before income taxes
Depreciation and amortization
(Reversal of impairment) and impairment of long-lived assets
Allowance for doubtful accounts
Financial result, net
Gain on business combination
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 joint ventures and associates
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
Derivative financial instruments
Dividends paid by Alpek, S. A. B. de C. V.
Dividends paid to non-controlling interest
Reissuance of shares
Loan payments to related parties
Net cash flows generated from financing activities
Net (decrease) increase in cash and cash equivalents
Effect of changes in exchange rates
Cash and cash equivalents at the beginning of the year
$
2018
2017
$
18,389
2,885
( 3,480 )
102
2,359
( 4,597 )
( 60 )
15,598
( 4,373 )
( 6,977 )
5,772
( 1,759 )
8,261
353
( 1,979 )
( 26 )
( 7,120 )
( 5,805 )
195
( 1,124 )
17
-
( 15,489 )
9,137
( 3,153 )
( 2,038 )
( 12 )
-
( 981 )
39
( 2 )
2,990
( 4,238 )
( 389 )
8,795
( 6,268 )
2,635
7,702
2,011
3,069
( 238 )
( 157 )
8,754
( 2,861 )
( 1,874 )
4,860
( 1,654 )
7,225
99
( 4,416 )
( 15 )
-
( 39 )
16
( 2,522 )
15
( 739 )
( 7,601 )
15,041
( 4,647 )
( 1,292 )
( 17 )
( 2,667 )
( 618 )
1
( 2 )
5,799
5,423
437
2,935
Cash and cash equivalents at the end of the year
$
4,168
$
8,795
The accompanying notes are an integral part of these consolidated financial statements.
alpek annual report 2018 | 65
CONSOLIDATED FINANCIAL STATEMENTS
Alpek, S. A. B. de C. V. and Subsidiaries
(Subsidiary of Alfa, S. A. B. de C. V.)
Notes to the Consolidated Financial Statements
As of and for the years ended December 31, 2018 and 2017
Millions of Mexican pesos, except where otherwise indicated
1. General Information
Alpek, S. A. B. de C. V. and subsidiaries (“Alpek” or the “Company”) operates through two major business segments: polyester chain
products and plastic products. The polyester chain business segment, comprises the production of purified terephthalic acid (PTA),
polyethylene 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),
caprolactam (CPL), fertilizers and other chemicals, which serves a wide range of markets, including the consumer goods, food and bev-
erage 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, 2018, the percentage of shares that traded on the MSE was 17.91%.
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
2018
a. Secured financing to M&G Mexico
On December 29, 2017, the Company signed an agreement to provide secured financing to M&G Polímeros México, S. A. de C. V.
(“M&G Mexico”). The credit facility is secured by a second lien on M&G Mexico’s PET production plant in Altamira, for a maximum
principal amount of US$60. During the year ended December 31, 2018, M&G Mexico disposed of the total amount of the credit
facility. This amount was disbursed in several intervals subject to certain conditions, including a restructuring plan that was
presented by M&G Mexico and approved by its creditors. Additionally, Alpek holds the credit rights over a US$100 loan made to
M&G Mexico, which is secured by a first lien as described in Note 2e.
alpek annual report 2018 | 66
CONSOLIDATED FINANCIAL STATEMENTS b. Acquisition of Corpus Christi Project from Mossi & Ghisolfi Group (“M&G”)
On March 21, 2018, Alpek announced its participation in the creation of Corpus Christi Polymers LLC ("CCP"), a joint venture formed
together with Indorama Ventures Holdings LP ("Indorama") and Far Eastern Investment (Holding) Limited ("Far Eastern"), through
which it signed an asset purchase agreement with M&G USA Corp. and its affiliated debtors ("M&G Corp.") to acquire the integrated
PTA-PET plant currently under construction in Corpus Christi, Texas, as well as certain intellectual property of M&G Corp. and a
desalination/boiler plant that supplies water and steam to the place (the "Corpus Christi Project").
On December 28, 2018, the Company announced that CCP completed the acquisition of the Corpus Christi Project, for an aggregate
amount of US$1,199 in cash and other capital contributions. Of this amount, Alpek contributed US$266 in cash and US$133 in other
capital contributions, which correspond to a portion of its secured claim with M&G, arising under the Corpus Christi Capacity
Reservation Agreement (“Capacity Reservation Agreement”); furthermore, as of December 31, 2018, Alpek has contributed US$16
in cash that remain in CCP’s cash account. In addition, the Company agreed to sell the rest of the Capacity Reservation Agreement
to Indorama and Far Eastern (the "buyers"), for which it will obtain US$67 in cash, which will be payable in 3 years in equal parts
from each of the buyers, subject to certain conditions. Alpek will recognize its investment in CCP as a joint venture through the
equity method.
Once finished, the plant will have a nominal production capacity of 1.1 million and 1.3 million metric tons per year of PET and PTA,
respectively. In accordance with the terms of CCP, the partners will provide resources to complete the Corpus Christi Project in the
most efficient way. As of December 31, 2018, Alpek has invested US$416 and it is estimated that the project will be completed by
the end of 2021.
Additionally, Alpek, Indorama and Far Eastern will each have the right to receive one third of the PTA and PET produced by the
Corpus Christi Project upon completion. Moreover, each one is responsible for acquiring their raw materials independently, as well
as carrying out the sale and distribution of their corresponding PTA and PET.
In line with the foregoing, Alpek recognized the reversal of a portion of the impairment recorded in 2017 on intangible assets
(see Note 2e), for US$195, which correspond to the amount that the Company expects to recover from the Capacity Reservation
Agreement, which is recognized as part of its investment in CCP for US$133, and as an account receivable from its joint venture
partners for US$62 (recognized at present value).
c. Acquisition of Petroquímica SUAPE y CITEPE
On April 30, 2018, Alpek completed the acquisition of 100% of Companhia Petroquímica de Pernambuco ("Petroquímica Suape")
and Companhia Integrada Têxtil de Pernambuco ("Citepe"), owned by Petróleo Brasileiro, S.A. ("Petrobras"), through DAK Americas
Exterior, S.L. and Grupo Petrotemex, S. A. de C. V., with stakes of 99.99% and 0.01%, respectively. The total consideration paid by
the Company was US$435, free of debt, which was paid in Brazilian reals at the closing date of the transaction.
As a result of this transaction, Alpek acquired an integrated PTA-PET site in Ipojuca, Pernambuco, Brazil, with a capacity of 640,000
and 450,000 tons per year of PTA and PET, respectively. Citepe also operates a textured polyester filament plant with a capacity
of 90,000 tons per year. The operation was carried out due to Alpek’s strategy of making continuous and selected investments in
integration, efficiency and expansion projects, in order to achieve a sustainable growth.
The consolidated financial statements of the Company include the financial information of Petroquímica Suape and Citepe as of the
date of acquisition. The acquisition of the business is included in the Polyester segment.
alpek annual report 2018 | 67
CONSOLIDATED FINANCIAL STATEMENTS The acquisition of Petroquímica Suape y Citepe met the criteria of a business combination in accordance with the requirements of
IFRS 3 Business Combinations, for which the Company applied the acquisition method to measure the assets acquired and liabilities
assumed in the transaction. The purchase price allocation was determined in 2018, and the adjustments derived from acquisition
method accounting were recognized from the date of acquisition. The fair values of the assets acquired and liabilities assumed as
a result of this acquisition are as follows:
Inventories
Other current assets(1)
Recoverable taxes
Property, plant and equipment, net
Intangible assets(2)
Other non-current assets(3)
Current liabilities(4)
Provisions(5)
Net acquired assets
Bargain purchase gain
Consideration paid
US$
101
162
115
353
21
40
( 87 )
( 50 )
655
( 220 )
435
$
$
(1) Current assets consist of cash and cash equivalents for US$18, accounts receivable for US$98, recoverable taxes for US$45 and others for US$1.
(2) Intangible assets consist of customer relationships, which guarantee the existence and continuity of the business from the moment of acquisition.
(3) Other non-current assets consist of an indemnification asset for US$23 and others for US$17. The indemnification asset corresponds to the right of reimburse-
ment in case of any disbursement that is made corresponding to labor and civil contingencies.
(4) Current liabilities consist of suppliers and accounts payable for US$77 and others for US$10.
(5) Provisions consist of provisions for labor contingencies for US$6, provisions for civil contingencies for US$18, provisions for tax contingencies for US$11 and
provisions for reimbursement of taxes recovered for Petrobras for US$15.
As a result of this transaction, a gain associated with the business combination was recognized for an amount of US$220, recorded
in 2018 (Note 23). Under the terms of IFRS 3, the gain associated with the business combination is the result of Petrobras divesting
of these operations as part of its Strategic Plan, in order to optimize its business portfolio and cease its participation in the
petrochemical industry; the aforementioned portfolio included the plan to sell Petroquímica Suape and Citepe.
The consolidated statement of cash flows in 2018 presents the incorporation of the operations of Petroquímica Suape and Citepe
into a single line within the investment activity, net of cash acquired.
d. Credit Agreement with JP Morgan
On March 28, 2018, Alpek signed a contract to obtain an unsecured loan, for an amount of up to US$710, with MUFG Bank, Ltd.
(formerly, The Bank of Tokyo-Mitsubishi UFJ, Ltd.), Citigroup Global Markets Inc., HSBC México S.A., Grupo Financiero HSBC and
JPMorgan Chase Bank, N.A. The maturity of the loan is 3 years and has a period of availability of 18 months. The loan accrues
interest at a variable rate of Libor + a spread that depends on leverage levels, and is subject to be prepaid at any time, totally or
partially, without penalty.
alpek annual report 2018 | 68
CONSOLIDATED FINANCIAL STATEMENTS
2017
e.
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.
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$75 were recognized as an inventory prepayment. Nevertheless,
during 2017, M&G suspended payments and started formal procedures for the restructuring of its operations including bankruptcy
declarations in United States and Italy as a consequence of its liquidity problems. As a consequence of the aforementioned events,
the Company recognized an impairment for the following concepts:
Intangible assets and prepayments
US$
Trade and other accounts receivable(1)
Long-term notes receivable (1)
(1) Held with certain M&G subsidiaries.
Impairment
amount
Effect on
deferred tax
Recognized in
net income
435
113
95
$
7,745
$
1,658
$
6,087
2,017
1,694
560
517
1,457
1,177
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.
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 profit (loss) and for financial assets available for sale.
alpek annual report 2018 | 69
CONSOLIDATED FINANCIAL STATEMENTS
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.
b. Consolidation
i.
Subsidiaries
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 accounting method used by the Company for business combinations is the acquisition method. The Company defines a
business combination as a transaction through which it obtains control over a business, whereby it has the power to steer
and manage the relevant operations of all assets and liabilities of the business with the purpose of providing a return in the
form of dividends, lower costs or other economic benefits directly to investors.
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 profit (loss).
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.
alpek annual report 2018 | 70
CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018 and 2017, 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, LLC
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.
Cogeneración de Altamira, S. A. de C. V.
Companhia Petroquímica de Pernambuco(4)
Companhia Integrada Textil de Pernambuco(4)
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)
Shareholding (%) (2)
2018
2017
USA
Spain
Argentina
Canada
Brazil
Brazil
Argentina
Chile
Brazil
100
100
100
100
100
50
91
93
100
100
100
100
51
50
100
100
100
100
100
100
100
100
100
100
100
100
50
91
93
100
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
Mexican peso
Brazilian real
Brazilian real
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.”, included an earn-out clause related to the production of PETG, which was initiated by
Selenis (legal entity). Under this clause, the seller holds in escrow the shares not acquired by the Company, which may be released as long as the Company completes the
first PETG production run.
(4) Entities acquired in 2018. See note 2.c.
As of December 31, 2018 and 2017, there are no significant restrictions for investment in shares of subsidiary companies
mentioned above.
alpek annual report 2018 | 71
CONSOLIDATED FINANCIAL STATEMENTS 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.
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 profit (loss). 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 profit
(loss) 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 profit (loss).
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 profit (loss).
alpek annual report 2018 | 72
CONSOLIDATED FINANCIAL STATEMENTS 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 profit (loss), 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.
alpek annual report 2018 | 73
CONSOLIDATED FINANCIAL STATEMENTS 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 profit (loss), 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 profit (loss) 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 that have a functional currency different from the presentation
currency are translated into the presentation currency as follows, depending on whether the functional currency comes from
a non-hyperinflationary or hyperinflationary environment:
Non-hyperinflationary environment
a. Assets and liabilities for each statement of financial position presented are translated at the closing exchange rate at the
date of the statement of financial position;
b. Stockholders’ equity of each statement of financial position presented is translated at historical exchange rate;
c. Income and expenses for each statement of profit (loss) are translated at average exchange rate (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 as
translation effect.
Hyperinflationary environment
a. Assets, liabilities and equity in the statement of financial position, as well as income and expenses in the income statement,
are translated at the closing exchange rate of the statement of financial position, after being restated in its functional
currency (Note 3d); and
b. Assets, liabilities, equity, income and expenses of the comparative period, are maintained according to the amount
obtained in the translation of the year in question, that is, the financial statements of the preceding period. These amounts
are not adjusted to subsequent exchange rates because the Company presents its financial information in Mexican pesos,
which correspond to a currency of a non-hyperinflationary environment.
alpek annual report 2018 | 74
CONSOLIDATED FINANCIAL STATEMENTS 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
Country
Local currency
United States
Argentina
Brazil
Chile
U.S. dollar
Argentine peso
Brazilian real
Chilean peso
2018
19.68
0.52
5.07
0.03
2017
19.74
1.06
5.96
0.03
2018
20.15
0.53
5.18
0.03
2017
18.94
1.14
5.91
0.03
d. Hyperinflationary effects
As of July 1, 2018, the cumulative inflation from the prior 3 years in Argentina exceeded 100%; consequently, the Argentine peso
was classified as a currency of a hyperinflationary economic environment. As a result, the financial statements of the subsidiaries
located in that country, whose functional currency is the Argentine peso, have been restated and adjusted for inflation in
accordance with the requirements of the International Accounting Standard 29 Financial information in hyperinflationary economies
("IAS 29") and have been consolidated in compliance with the requirements of IAS 21. The purpose of applying these requirements
is to consider changes in the general purchasing power of the Argentine peso in order to present the financial statements in the
measuring unit current at the date of the statement of financial position. The financial statements before including any inflation
adjustments were prepared using the historical cost method.
The Company determined the inflation adjustments in its consolidated financial statements in the following manner:
a) The amounts corresponding to non-monetary items of each statement of financial position, which are not measured at the
date of the statement of financial position at their fair value or net realizable value, as the case may be, are restated by applying
to their historical cost the change of a general price index from the date of acquisition or the date of its last measurement at
fair value, to the date of the statement of financial position;
b) The amounts corresponding to monetary items of the statement of financial position are not restated;
c) The components of stockholders’ equity of each statement of financial position are restated: :
1) at the beginning of the first period of application of IAS 29, except for retained earnings, by applying the change of
a general price index from the dates the components were originated to the date of restatement. Restated retained
earnings are derived from all the other balances in the statement of financial position;
2) at the end of the first period and in subsequent periods, all components of stockholders’ equity are restated by
applying a general price index from the beginning of the period or the date of contribution, if later.
d) Revenues and expenses are restated by applying the change in the general price index, from the date on which the expenses
and revenues were recognized, up to the reporting date.
e) Gains or losses arising from the net monetary position are recognized in the consolidated statement of profit (loss).
alpek annual report 2018 | 75
CONSOLIDATED FINANCIAL STATEMENTS As of July 1, 2018, the Company reflects the effects of hyperinflation on the financial information of its subsidiaries in Argentina using price
indexes that are considered appropriate in accordance with Resolution 539/19 JG (the “Resolution") of the Argentine Federation of Profes-
sional Councils of Economic Sciences. This resolution establishes that a combination of price indices should be used in the calculation of
the effects of restatement of financial statements. Therefore, the Company has decided to use the Consumer Price Index (“CPI”) to restate
balances and transactions that have been generated from January 2017; and the IPIM (domestic wholesale price index) for balances and
transactions generated for all months prior to 2017, except for the months of November and December 2015, due to the fact that such
index was not available. For these months, the Company used the IPCBA (consumer price index of the city of Buenos Aires).
The effects of the restatement of the financial statements of the subsidiaries located in Argentina, were not material; therefore, they
were included in the “Financial result, net” line item of the year ended December 31, 2018.
e. 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.
f.
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.
g. Financial instruments
Financial assets
Through December 31, 2017, the Company classified financial assets into the following categories: at fair value through profit or
loss, loans and receivables, investments held to maturity and available for sale. The classification depended on the purpose for
which the financial assets were acquired.
Beginning January 1, 2018, in accordance to the adoption of IFRS 9 Financial Instruments, the Company subsequently classifies and
measures its financial assets based on the Company’s business model to manage financial assets, and on the characteristics of
the contractual cash flows of such assets. This way financial assets can be classified at amortized cost, at fair value through other
comprehensive income, and at fair value through profit or loss. Management determines the classification of its financial assets
upon initial recognition. Purchases and sales of financial assets are recognized at settlement date.
Financial assets are entirely written off when the right to receive the related cash flows expires or is transferred, and the Company
has also substantially transferred all the risks and rewards of its ownership, as well as the control of the financial asset.
alpek annual report 2018 | 76
CONSOLIDATED FINANCIAL STATEMENTS Classes of financial assets under IAS 39, in effect through December 31, 2017.
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 profit (loss). Gains or losses from changes in fair value of these assets are presented in the
consolidated income statement as incurred.
Beginning January 1, 2018, financial assets at fair value through profit or loss still maintain their classification according to the
assessment of their business model; however, financial assets that were previously classified in this category as of December
31, 2017, did not have any measurement impacts and were classified as described in number vii of this section.
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.
Beginning January 1, 2018, loans and receivables are considered within the class of financial assets at amortized cost (see
number v in this section).
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. Beginning January 1, 2018, investments held
to maturity are considered within the class of financial assets at amortized cost (see number v in this section); however, as of
December 31, 2017, the Company did not hold this type of investment.
alpek annual report 2018 | 77
CONSOLIDATED FINANCIAL STATEMENTS 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 profit (loss).
As of December 31, 2017, the Company did not hold this type of investments.
Classes of financial assets under IFRS 9, in effect beginning January 1, 2018.
v. Financial assets at amortized cost
Financial assets at amortized cost are those that i) are held within a business model whose objective is to hold said assets in
order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise, on specified dates, to cash
flows that are solely payments of principal and interest on the amount of outstanding principal.
vi. Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income are those whose business model is based on both collecting
contractual cash flows and selling the financial assets; and their contractual terms give rise, on specified dates, to cash flows
that are solely payments of principal and interest on the amount of outstanding principal. As of December 31, 2018, the
Company does not hold financial assets to be measured at fair value through other comprehensive income.
vii. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss, in addition to those described in point i in this section, are those that do
not meet the characteristics to be measured at amortized cost or fair value through other comprehensive income, since: i)
they have a business model different to those that seek to collect contractual cash flows, or collect contractual cash flows
and sell the financial assets, or otherwise ii) the generated cash flows are not solely payments of principal and interest on
the amount of outstanding principal.
alpek annual report 2018 | 78
CONSOLIDATED FINANCIAL STATEMENTS Despite the previously mentioned classifications, the Company may make the following irrevocable elections in the initial
recognition of a financial asset:
a. Disclose the subsequent changes in the fair value of an equity instrument in other comprehensive income, only if such
investment (in which no significant influence, joint control or control is maintained) is not held for trading purposes, or is a
contingent consideration recognized as a result of a business combination.
b. Assign a debt instrument to be measured at fair value in profit or loss, if such election eliminates or significantly reduces
an accounting mismatch that would arise from the measurement of assets or liabilities or the recognition of profits and
losses on them in different basis.
As of December 31, 2018, the Company has not made any of the irrevocable designations described above.
Impairment of financial assets
Through December 31, 2017, the Company assessed, at the end of each reporting period, whether there was objective evidence of
impairment of each financial asset or group of financial assets. An impairment loss was recognized if there was 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) had an impact on the estimated future cash flows derived from the financial asset or group of
financial assets that could be reliably estimated.
New impairment policy from the adoption of IFRS 9
Beginning January 1, 2018, the Company used a new impairment model based on expected credit losses rather than losses
incurred, applicable to financial assets subject to such assessment (i.e. financial assets measured at amortized cost and at fair
value through other comprehensive income), as well as lease receivables, contract assets, certain written loan commitments, and
financial guarantee contracts. The expected credit losses on these financial assets are estimated from the initial recognition of the
asset at each reporting date, using as a reference the past experience of the Company's credit losses, adjusted for factors that are
specific to the debtors or groups of debtors, general economic conditions, and an assessment of both the current direction and the
forecast of future conditions.
a) Trade receivables
The Company adopted the simplified expected loss calculation model, through which expected credit losses during the
account receivable’s lifetime are recognized.
The Company performs an analysis of its portfolio of customer receivables, in order to determine if there are significant
customers for whom it requires an individual assessment; meanwhile, customers with similar characteristics that share credit
risks (participation in the portfolio of accounts receivable, type of market, sector, geographic area, etc.), are grouped to be
evaluated collectively.
In its impairment assessment, the Company may include indications that the debtors or a group of debtors are experiencing
significant financial difficulties, and also observable data indicating that there is a significant decrease in the estimated cash
flows to be received, including arrears.
alpek annual report 2018 | 79
CONSOLIDATED FINANCIAL STATEMENTS
For purposes of the historical estimate, the Company considers that the following constitutes an event of default, since
historical experience indicates that financial assets are not recoverable when they meet any of the following criteria:
•
•
the debtor does not fulfill its financial agreements; or
Information obtained internally or from external sources indicates that it is unlikely that the debtor will pay its
creditors, including the Company, in its entirety (without considering any guarantee held by the Company).
The Company defined the breach threshold as the period from which the recovery of the account receivable subjected to
analysis is marginal, considering the internal risk management customers with similar characteristics sharing credit risks
(participation in trade receivables portfolio, type of market, sector, geographic area, etc.), are grouped to be evaluated
collectively.
b) Other financial instruments
The Company recognizes credit losses expected during the asset’s lifetime of all financial instruments for which credit
risk has significantly increased since its initial recognition (assessed on a collective or individual basis), considering all the
reasonable and sustainable information, including the one referring to the future. If at the presentation date, the credit risk
a financial instrument has not significantly increased since its initial recognition, the Company calculates the loss allowance
for that financial instrument as the amount of expected credit losses in the following 12 months.
In both cases, the Company recognizes in profit or loss of the period the decrease or increase in the expected credit loss
allowance at the end of the period.
Management assesses the impairment model and the inputs used therein at least once every 3 months, in order to ensure that
they remain in effect based on the current situation of the portfolio.
Financial liabilities
Non-derivative financial liabilities 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 profit (loss) over the term of the loan using the effective interest method.
Derecognition of financial liabilities
The Company derecognizes financial liabilities if, and only if, the obligations of the Company are fulfilled, cancelled or have
expired. The difference between the carrying amount of the derecognized financial liability and the consideration paid and
payable is recognized in profit or loss.
Additionally, when the Company carries out a refinancing transaction and the previous liability qualifies to be derecognized,
the costs incurred in the refinancing are recognized immediately in profit or loss at the date of termination of the previous
financial liability.
alpek annual report 2018 | 80
CONSOLIDATED FINANCIAL STATEMENTS 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.
h. 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 profit (loss). 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 profit (loss) in the same line item as the hedged position. As of December 31, 2018 and 2017, the Company does not
hold 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.
Net investment hedge in a foreign transaction
Beginning March 1, 2018, the Company applies the hedge accounting to currency risk arising from its investments in foreign
transactions for variations in exchange rates arising between the functional currency of such transaction and the functional
currency of the holding entity, regardless of whether the investment is maintained directly or through a sub-holding entity.
Variation in exchange rates is recognized in the other items of comprehensive income as part of the translation effect, when the
foreign transaction is consolidated.
To this end, the Company designates the debt denominated in a foreign currency as a hedging instrument; therefore, the exchange
rate effects caused by the debt are recognized in other components of comprehensive income, on the translation effects line item,
to the extent that the hedge is effective. When the hedge is not effective, exchange differences are recognized in profit or loss.
alpek annual report 2018 | 81
CONSOLIDATED FINANCIAL STATEMENTS
Suspension of hedge accounting
The Company suspends hedge accounting when the derivative financial instrument or the non-derivative financial instrument has
expired, is cancelled 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. The
replacement or successive renewal of a hedging instrument for another one is not an expiration or resolution if such replacement
or renewal is part of the Company's documented risk management objective and it is consistent with this.
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 profit (loss). 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 profit (loss), 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.
i.
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.
j.
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 profit (loss) 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.
alpek annual report 2018 | 82
CONSOLIDATED FINANCIAL STATEMENTS 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), 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
profit (loss) 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 profit (loss).
k.
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 profit (loss) 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.
alpek annual report 2018 | 83
CONSOLIDATED FINANCIAL STATEMENTS
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.
As of January 1, 2019, as a result of the adoption of IFRS 16, Leases, the Company´s accounting policy for the treatment of leases as
a lessee, has been modified according with what it is detailed in Note 3y.
l.
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.
ii.
Indefinite useful life .
These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2018 and
2017, no factors have been identified limiting the life of these intangible assets.
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
Intellectual property rights
Maquila rights
Other
15.5 years
15 years
5 to 10 years
6 to 7 years
3 to 7 years
20 to 25 years
15 years
20 years
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.
alpek annual report 2018 | 84
CONSOLIDATED FINANCIAL STATEMENTS
Licenses
Licenses acquired in a separate transaction, are recorded at acquisition cost, while those 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.
m. 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.
n.
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.
alpek annual report 2018 | 85
CONSOLIDATED FINANCIAL STATEMENTS When an impairment loss is reversed, the carrying amount of the asset or cash generating unit, is increased to the revised estimated
value of its recoverable amount, in such a way that the adjusted carrying amount does not exceed the carrying amount that would
have been determined if an impairment loss had not been recognized for that asset or cash generating unit in previous years. The
reversal of an impairment loss is recognized immediately in the consolidated statement of profit (loss).
o.
Income tax
The amount of income taxes in the consolidated statement of profit (loss) represents the sum of the current and deferred income
taxes.
The amount of income taxes included in the consolidated statement of profit (loss) 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.
p. 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.
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.
alpek annual report 2018 | 86
CONSOLIDATED FINANCIAL STATEMENTS
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 profit (loss).
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.
alpek annual report 2018 | 87
CONSOLIDATED FINANCIAL STATEMENTS q. 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.
r.
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 profit (loss).
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 profit (loss).
s. 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.
t.
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.
alpek annual report 2018 | 88
CONSOLIDATED FINANCIAL STATEMENTS u. 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.
v.
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.
w. Revenue recognition
Revenues comprise the fair value of the consideration received or to receive for the sale of goods and services in the ordinary course
of the transactions, and are presented in the consolidated statement of income, net of the amount of variable considerations,
which comprise the estimated amount of returns from customers, rebates and similar discounts and payments made to customers
with the objective that goods are accommodated in attractive and favorable spaces at their facilities.
To recognize revenues from contracts with customers, the comprehensive model for revenue recognition is used, which is based
on a five-step approach consisting of the following: (1) identify the contract; (2) identify performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize
revenue when the Company satisfies a performance obligation.
i.
Revenue from the sale of goods and products
Contracts with customers are formalized by commercial agreements complemented by purchase orders, whose costs
comprise the promises to produce, distribute and deliver goods based on the contractual terms and conditions set forth,
which do not imply a significant judgment to be determined. When there are payments related to obtaining contracts, they
are capitalized and amortized over the term of the contract.
Performance obligations held by the Company are not separable, and are not partially satisfied, since they are satisfied at a
point in time, when the customer accepts the products. Moreover, the payment terms identified in most sources of revenue
are short-term, with variable considerations including discounts given to customers, without financing components or
guarantees. These discounts are recognized as a reduction in revenue; therefore, the allocation of the price is directly on the
performance obligations of production, distribution and delivery, including the effects of variable consideration.
The Company recognizes revenue at a point in time, when control of sold goods has been transferred to the customer, which
is given upon delivery of the goods promised to the customer according to the negotiated contractual terms. The Company
recognizes an account receivable when the performance obligations have been met, recognizing the corresponding revenue;
moreover, the considerations received before completing the performance obligations of production and distribution are
recognized as customer advances.
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 determined).
alpek annual report 2018 | 89
CONSOLIDATED FINANCIAL STATEMENTS The Company's management adopted IFRS 15, Revenue from contracts with customers on January 1, 2018 using the modified
retrospective method applied to the contracts in force on the date of adoption; thus, the accounting policy applied as of said
date, is not comparable to that used for the year ended December 31, 2017.
x. 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, 2018 and 2017, there are no dilutive effects
from financial instruments potentially convertible into shares.
y. 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, 2018, including the annual improvements
to IFRS, as described below:
IFRS 9, Financial Instruments
IFRS 9, Financial Instruments, replaces IAS 39, Financial Instruments: Recognition and Measurement and is mandatorily effective
for periods beginning on or after January 1, 2018. IFRS 9 includes the introduction of 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 had no impacts associated with the new measurement category of fair value through other comprehensive
income, because 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, there were no impacts related to hedge accounting.
Lastly, regarding the new impairment model based on expected losses, management of the Company decided to adopt the
standard retrospectively, recognizing the effects on retained earnings as of January 1, 2018. On this date, derived from the
new requirements, the Company recognized an adjustment of $14, net of deferred taxes, for increasing the allowance for
impairment of accounts receivable. In addition, the number of disclosures increased in the Company’s consolidated financial
statements.
alpek annual report 2018 | 90
CONSOLIDATED FINANCIAL STATEMENTS IFRS 15, Revenues from contracts with customers
IFRS 15, Revenues from Contracts with Customers effective for periods beginning January 1, 2018. 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.
Management of the Company adopted this standard using the modified retrospective approach applied to contracts in effect
at the date of initial adoption on January 1, 2018, and determined that there were no impacts as of that date. Furthermore,
the amount of disclosures required in the financial statements, both annual and interim, is increased.
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.
The Company translates advance considerations at the exchange rate on the date of the transaction, either received or paid,
and recognizes them as non-monetary items; therefore, it did not have significant impacts in the adoption of this interpretation
in its 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, 2018, 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 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, while the model for
lessors remains without significant changes. IFRS 16 is effective from January 1, 2019 and the Company decided to adopt it
with the recognition of all the effects as of that date, without changing prior years.
Under this standard, lessees will recognize the right of use of an asset and the corresponding lease liability. The right-of-use
asset will be depreciated based on the contractual term or, in some cases, on its economic useful life. On the other hand,
the financial liability will be measured at initial recognition, discounting future minimum lease payments at present value
according to a term, using the discount rate that represents the lease funding cost; subsequently, the liability will accrue
interest through maturity.
alpek annual report 2018 | 91
CONSOLIDATED FINANCIAL STATEMENTS
The Company will apply the exemptions to not to recognize an asset and a liability as described above, for leases with a term
of less than 12 months (provided that they do not contain purchase or term renewal options), and for those agreements
where the acquisition of an individual asset of the contract was less than US$5,000 (five thousand dollars). Therefore,
payment for such leases will continue to be recognized as expenses within operating income.
The Company adopted IFRS 16 on January 1, 2019; therefore, it recognized a right-of-use asset and a lease liability of $2,256.
In addition, the Company adopted and applied the following practical expedients provided by IFRS 16:
•
•
Account for as leases the payments made in conjunction with the rent, and that represent services (for example,
maintenance and insurance).
Create portfolios of contracts that are similar in terms, economic environment and characteristics of assets, and use of
a funding rate by portfolio to measure leases.
• Not to revisit the previously reached conclusions for service agreements which were analyzed as of December 31, 2018
under IFRIC 4, Determining Whether a Contract Contains a Lease, and where it had been concluded that there was no
implicit lease.
The Company has taken the required steps to implement the changes that the standard represents in terms of internal control,
tax and systems affairs, from the adoption date.
Lastly, as a result of these changes in accounting, some performance indicators of the Company, such as operating income and
adjusted EBITDA, will be affected because what was previously recognized as an operating rental expense equivalent to rental
payments, now a portion will be recognized by reducing the financial liability (which will not affect the statement of income),
and the other portion will be recognized as a financial expense under the operating income indicator. On the other hand, the
expense for depreciation of right-of-use assets will affect operating income linearly, but without representing a cash outflow,
which will benefit the adjusted EBITDA.
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.
An entity shall apply IFRIC 23 for annual reporting periods beginning on or after January 1, 2019. Earlier application is
permitted and the fact must be disclosed. On initial application, the Interpretation must be applied retrospectively under
the requirements of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, modifying comparative periods or
retrospectively with the cumulative effect of initially applying the Interpretation as an adjustment to the opening balance of
retained earnings, without modifying comparative periods.
The Company determined that the impacts of the implementation of this Interpretation as of January 1, 2019 are not material,
considering the prevailing conditions of the tax positions that it has taken at the date of adoption and the faculties of the
competent authorities to assess tax positions held by the Company at the same date.
alpek annual report 2018 | 92
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 varia-
tion 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.
Alfa has a Risk Management Committee (RMC), comprised of the Board’s Chairman, the Chief Executive Officer (“CEO”), Chief Finan-
cial Officer (“CFO") and a Risk Management Officer (“RMO”) acting as technical secretary. The RMC reviews derivative transactions
proposed by the subsidiaries of Alfa, including Alpek, in which a potential loss analysis surpasses US$1. This Committee supports both
the CEO and the President of Board of Alfa. All new derivative transactions which the Company proposes to enter into, as well as the
renewal or cancellation of derivative arrangements, must be approved by both Alpek’s and Alfa’s CEO, according to the following sched-
ule of authorizations:
Chief Executive Officer of the Company
Risk Management Committee of Alfa
Finance Committee
Board of Directors of Alfa
Maximum possible loss US$
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 hedging positions should always be less than the projected exposure to allow an ac-
ceptable margin of uncertainty. Exposed transactions are expressly prohibited. The Company’s policy indicates that the further the
exposure is, the lower the coverage, based on the following table:
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
alpek annual report 2018 | 93
CONSOLIDATED FINANCIAL STATEMENTS 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.
Alpek reviews 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 1.77 and 1.96 as of December 31, 2018 and 2017, respectively, resulting in a leverage
ratio that meets the Company’s management and risk policies.
Financial instruments by category
The following are the Company’s financial instruments by category.
As of December 31, 2018 and 2017, financial assets and liabilities consist of the following:
As of December 31,
2018
2017
Cash and cash equivalents
$
4,168
$
Restricted cash
Financial assets measured at amortized cost(1):
Trade and other accounts receivable
Other non-current assets
Financial assets measured at fair value through profit
or loss(1):
3
17,287
5,372
8,795
763
15,817
2,880
Derivate financial instruments(2)
30
148
$
26,860
$
28,403
Financial liabilities measured at amortized cost:
Debt
$
40,130
$
Trade and other accounts payable
Financial liabilities measured at fair value:
Derivative financial instruments(2)
24,217
1,330
34,366
19,783
703
$
65,677
$
54,852
(1) As described in Note 3y, the Company did not have impacts associated with the introduction of the new category of financial assets measured at fair value through other comprehensive
income, derived from the adoption of IFRS 9. Therefore, all financial assets that were measured at fair value as of December 31, 2017, from January 1, 2018, were classified as financial
assets measured at fair value through profit or loss. Therefore, the presentation of comparative information is adequate, since it reflects the consistency in the recognition and mea-
surement principles at both reporting dates.
(2) The Company designated the derivative financial instruments that comprise this balance, as accounting hedges, according to what is described in Note 4.
alpek annual report 2018 | 94
CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 and 2017.
The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below:
As of December 31,
2018
As of December 31,
2017
Carrying amount
Fair value
Carrying amount
Fair value
Financial assets:
Non-current accounts receivable
$
4,756
$
4,745
$
2,880
$
2,880
Financial liabilities:
Non-current debt
30,317
30,211
27,096
27,997
The carrying amount of the debt, for purposes of computing its fair value, is presented gross of interest payable and issuance costs.
The estimated fair values as of December 31, 2018 and 2017 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
measurement 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 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 foreign investments (subsidiary entities that
have a functional currency different from that of the ultimate holding company), which arise from changes in the exchange
rates between the functional currency of the foreign operation and the functional currency of the holding company (pesos);
therefore, the Company applies hedge accounting to mitigate this risk, designating financial liabilities as hedging instruments,
regardless of whether the foreign investment is directly or indirectly maintained through a subholding.
The behavior of the exchange rates fluctuations between the Mexican peso, U.S. dollar and the euro represents an important
factor for the Company due to the effect that such currencies have on its consolidated results, and because, in addition, Alpek
has no interference in its determination.
alpek annual report 2018 | 95
CONSOLIDATED FINANCIAL STATEMENTS
Historically, in certain 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, there is no assurance that this correlation will be repeated in case the exchange rate between
the Mexican peso and any other currency fluctuates again, because these effects also depend on the balances in foreign
currency that the entities of the Company hold.
Accordingly, the Company sometimes enters into derivative financial instruments in order to keep under control the integrated
total cost of its financing and the volatility 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, 2018:
MXN
USD
EUR
Financial assets
Financial liabilities
$
19,897
$
22,788
$
22,545
36,185
1,034
25
Foreign exchange financial position
$
( 2,648 )
$
( 13,397 )
$
1,009
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 $(1,227) on the
consolidated statement of profit (loss) and stockholders' equity.
Financial instruments to hedge net investments in foreign transactions
Beginning March 1, 2018, the Company designated certain non-current debt instruments as hedging instruments to net
investments in foreign transactions, in order to mitigate the variations in exchange rates arising between the functional
currency for such transactions and the functional currency of the holding or sub-holding company that maintains these
investments.
The Company formally designated and documented each hedging relationship establishing objectives, strategy to hedge the
risk, the identification of the hedging instrument, the hedged item, the nature of the risk to be hedged, and the methodology
to assess the effectiveness. Given that the exchange rate hedging relationship is clear, the method that the Company used
to assess the effectiveness consisted of a qualitative effectiveness test by comparing the critical terms between the hedging
instruments and the hedged items. The hedging effectiveness results confirm that the hedging relationships are highly
effective due to the economic relationship between the hedging instrument and the hedged items.
The hedge will be effective as long as the notional debt designated as a hedging instrument is equal to or less than the value of
the net assets of the covered foreign operation. On the other hand, when the value of the net assets of the foreign operation
is less than the notional value of the designated debt, the Company rebalances the hedging relationship and recognizes the
ineffectiveness in the income statement.
alpek annual report 2018 | 96
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2018, Alpek maintains the following hedging relationships:
Holding
Functional
Currency
Hedging Instrument
Notional Value
Hedged Item
Net assets
of the hedged
item
Alpek, S.A.B. de C.V.
MXN
Senior Notes 144A fixed rate
US$
Senior Notes 144A fixed rate
2
60
Indelpro
Temex
US$
Bank loan, Libor +1.10(1)
150
Dak Americas Ms
Bank loan, Libor +1.25
Bank loan, Libor +1.25
180
110
Dak Resinas
Americas
Akra Polyester
219
124
179
91
261
US$
502
US$
874
(1) This hedging instrument includes two provisions of a loan maintained by the Company. The conditions of each of the provisions are detailed in Note 15.
From the date of designation until December 31, 2018, the Company’s average hedging ratio amounted to 55.2 %, therefore,
the exchange rate fluctuation generated by the hedging instruments from the date of designation until December 31, 2018
amounted to a net loss of $324, which was recognized in other comprehensive income, offsetting the translation effect
generated by each foreign investment. The hedging effectiveness results confirm that the hedging relationships are highly
effective due to the economic relationship between the hedging instrument and the hedged items.
Derivative financial instruments to hedge exchange rate risks
As of December 31, 2017, the Company had no contracted financial instruments derived from exchange rate. However, as of
December 31, 2018, the Company holds forwards (USD/MXN and EUR/USD) to cover different needs. In the case of the USD/
MXN ratio, the Company seeks to cover short-term needs, which correspond to the sale of U.S. dollars for the purchase of
raw materials in Mexican pesos. For its part, the EUR/USD ratio is used because part of Alpek's revenues are received in
Euros, therefore, a highly probable forecasted transaction related to revenues budgeted in said foreign currency has been
documented as a hedged item.
The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are
mentioned below:
Characteristics
Notional amount
Currency
Average strike
Maturity
Carrying amount of the forward
Change in the fair value of the forward to measure ineffectiveness
Recognized in OCI, net of reclassifications
Effectiveness test results
Forwards
EUR/USD
Forwards
USD/MXN
6
EUR
16
USD
1.1756 EUR/USD
20.79 MXN/USD
Monthly through
March 31, 2020
Weekly through
February 27, 2019
1
1
-
17
17
(8)
100%
100%
alpek annual report 2018 | 97
CONSOLIDATED FINANCIAL STATEMENTS
In measuring the effectiveness of these hedges, the Company determined that they are highly effective because changes in the
fair value and cash flows of each hedged item are compensated within the range of effectiveness established by management.
The prospective effectiveness test for the EUR/USD and USD/MXN exchange rates resulted in 100%, confirming that there is
an economic relationship between the hedging instruments and the hedged items. Furthermore, both the credit profile of the
Company and its counterparties are positive and no changes are expected in the mid-term; thus, the credit risk component is
not expected to dominate the hedging relationship. The method used by the Company is the offsetting of cash flows using a
hypothetical derivative, which consists in comparing the changes in the fair value of the hedging instrument with the changes
in the fair value of the hypothetical derivative that would result in an identical hedge.
In accordance with the notional amounts described and the way in which the flows of the derivatives are exchanged, the
average coverage ratio for the USD/MXN exchange rate is 77% and 86% for the EUR/USD ratio. If necessary, a rebalancing will
be done to maintain this relationship for the strategy.
In this hedging relationship, the source of ineffectiveness may be caused by the difference in the settlement date of the
derivative and the hedged item, and that the expected amount becomes a lower amount than the hedging instruments. For
the year ended December 31, 2018, no ineffectiveness was recognized in profit or loss.
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, the Company 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.
alpek annual report 2018 | 98
CONSOLIDATED FINANCIAL STATEMENTS 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 2018 and 2017 was 3.2 and 3.0 US
dollars, respectively.
As of December 31, 2018 and 2017, 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 operate, and some of its main raw materials are paraxylene, ethylene and monoethylene
glycol (MEG). Therefore, an increase in the price of natural gas, paraxylene, ethylene and monoethylene glycol (MEG), would
have a negative impact on the operating cash flows. The objective of the hedge designated by the Company is to mitigate
against the exposure in the price increase of the aforementioned commodities, for future purchases by contracting swaps
where a variable price is received and a fixed price is paid. The Company has implemented a strategy called roll-over, through
which it analyzes on a montly basis if more derivatives are contracted to expand the time or the amount of coverage; currently,
the Company has contracted hedges until December 2024.
These derivative financial instruments have been classified as cash flow hedges for accounting purposes. In this sense,
management has documented, as a hedged item, a highly probable transaction in relation to the budget for purchases of
these commodities. The conditions of the derivative financial instruments and the considerations of their valuation as hedging
instruments are mentioned below:
Characteristics
Swaps
Natural Gas
Swaps
Paraxylene
Swaps
Naphtha
Swaps
Ethylene
Swaps
MEG
Swaps
Ethane
Notional amount
17,288,760
297,200
10,500
118,000,000
33,500
10,200,000
MMBtu
MT
MT
lb
MT
gal
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Units
Price received
Price paid (average)
Maturity (monthly)
4.35 USD/
MMBtu
December
2024
Net position of the swap (1)(2)
(478)
Change in the fair value to
measure ineffectiveness
Balance recognized in OCI,
net of reclassifications
Effectiveness test results
Fair value as of December 31,
2017
200
(478)
99%
(703)
$1,057/MT
$459/MT
$0.21/lb
$741/MT
$0.32/gal
December
2019
September
2019
December
2019
December
2019
December
2019
(710)
(803)
(710)
99.82%
(3)
(3)
(3)
(12)
(28)
(12)
(70)
(70)
(70)
(2)
(2)
(2)
99.82%
99.60%
99.59%
99.59%
125
-
23
-
-
(1) Due to the high volume of operations, the net position of derivative financial instruments is presented; however, since these instruments do not meet the criteria for the
offsetting of financial instruments, they are presented in their gross amounts in the consolidated statement of financial position.
(2) The change in the fair value of the derivative financial instruments recognized in OCI for the year ended December 31, 2018 is $(721).
alpek annual report 2018 | 99
CONSOLIDATED FINANCIAL STATEMENTS For commodity hedging relationships, management is designating as a hedged item a specific risk, which is defined by the
underlying assets that are clearly identified in the corresponding purchase invoices. The designated risk components cover
most of the changes in the fair value of the hedged item as a whole.
On the other hand, in the measurement of the effectiveness of these hedges, the Company determined that they are highly
effective because the changes in the fair value and cash flows of each hedged item are compensated within the range of
effectiveness established by management. The method used by the Company is to offset cash flows using a hypothetical
derivative, which consists of comparing the changes in the fair value of the hedging instrument with the changes in the fair
value of the hypothetical derivative that would result in a perfect hedge.
According to the notional amounts described and the way in which the flows of the derivatives are exchanged, the average
coverage ratio for the natural gas is 30%, 72% for the paraxylene, 44% for the ethylene and 33% for ethane. If necessary, a
rebalancing will be done to maintain this relationship for the strategy.
The source of ineffectiveness can be caused mainly by the difference in the settlement date of the hedging instruments and
the hedged items, and that the budget becomes less than the hedging instruments. For the years ended December 31, 2018
and 2017, there was no ineffectiveness recognized in profit or loss
iii.
Interest rate risk
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 reflects that Alpek might be paying interest at rates significantly
different from those of an observable market.
As of December 31, 2018, 62% of the financing is denominated at a fixed rate, and 38% at a variable rate.
As of December 31, 2018, 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 $303.
Derivative financial instruments to hedge interest rate risks
In order to mitigate the risk of the volatility associated with the reference interest rates (Libor) of the long-term liabilities
described above, the Company contracted interest rate swaps ("IRS") and designated the interest payments derived from the
debts it maintains as a covered item.
alpek annual report 2018 | 100
CONSOLIDATED FINANCIAL STATEMENTS The conditions of the derivative financial instrument and the considerations of its valuation as a hedging instrument are
mentioned below.
Characteristics of the swap
Currency
Notional
Financial asset interest rate
Financial liability interest rate (average)
Maturity
Carrying amount of the swap
Change in the fair value of the swap to measure ineffectiveness
Recognized in OCI, net of reclassifications
Reclassification from OCI to profit or loss
Change in the fair value of the hedged item to measure ineffectiveness
Interest rate
swap
USD
US$290
Libor 3m
2.897%
26/03/2021
(42)
(42)
39
(3)
42
As of December 31, 2018, this hedge is highly effective, given that the critical terms of the derivative and the loan are perfectly
matched, so it is confirmed that there is an economic relationship. In addition, both the credit profile of the Company and
the counterparty are good and are not expected to change in the medium term; therefore, the credit risk component is not
considered to be significant to the hedging relationship. The method used to evaluate effectiveness is through a qualitative
evaluation comparing the critical terms between the hedging instrument and the hedged instrument.
In accordance with the notionals described and the way in which the flows of derivative financial instruments are exchanged,
the average hedging ratio is 100%. If necessary, a rebalancing will be done to maintain this relationship for the strategy. In
this hedge relationship, the source of ineffectiveness is mainly credit risk; for the year ended December 31, 2018, there was no
ineffectiveness recognized in profit or loss.
Credit risk
Credit risk represents the potential loss due to non-compliance of counterparts in their payment obligations. 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.
The Company determines, from a business standpoint and credit risk profile, the significant customers with whom it maintains
an account receivable, distinguishing those that require an individual credit risk assessment. For the rest of the customers, the
company carries out its classification according to the type of market in which they operate (domestic or foreign), according
with the business and internal risk administration. Each subsidiary is responsible for managing and analyzing credit risk for
each of its new customers before setting the terms and conditions of payment. 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. The maximum exposure to
credit risk is given by the balances of these items as presented in the consolidated state of financial position.
alpek annual report 2018 | 101
CONSOLIDATED FINANCIAL STATEMENTS 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 the years
ended December 31, 2018 and 2017, credit limits were not exceeded.
In addition, the Company performs a qualitative evaluation of economic projections, with the purpose of determining the
possible impact on probabilities of default and the rate of recovery that it assigns to its clients.
During the year ended December 31, 2018, there have been no changes in the techniques of estimation or assumption.
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, compliance 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
consolidated 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.
Less than a year
From
1 to 5 years
More than
5 years
As of December 31, 2018
Suppliers and other accounts payable
$
26,051
$
-
$
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
As of December 31, 2017
11,333
1,047
34,082
283
Suppliers and other accounts payable
$
19,783
$
-
$
-
-
-
-
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
8,639
230
25,478
473
6,239
-
alpek annual report 2018 | 102
CONSOLIDATED FINANCIAL STATEMENTS
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, 2018 and 2017, 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.
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:
alpek annual report 2018 | 103
CONSOLIDATED FINANCIAL STATEMENTS 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
gr oups 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 tax loss carryforwards, which can be used in the following years until maturity expires. Based on the projections of
taxable income that Alpek will generate in the subsequent years through a structured and robust business plan, management has
determined that current tax losses will be used before they expire and, therefore, it was considered probable that the deferred tax
assets for such losses will be recovered.
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 or a reversal or impairment exist.
alpek annual report 2018 | 104
CONSOLIDATED FINANCIAL STATEMENTS d. Estimation of default probabilities and recovery rate to apply the model of expected losses in the calculation of impairment of finan-
cial assets
The Company assigns to customers with whom it maintains an account receivable at each reporting date, either individually or as
a group, an estimate of the probability of default on the payment of accounts receivable and the estimated recovery rate, with the
purpose of reflecting the cash flows expected to be received from the outstanding balances on said date.
e. Business combinations
When business combinations are concluded, the acquisition method is required to recognize the identifiable net assets acquired
at fair value, at the date of acquisition; any excess of the consideration paid on the identified net assets is recognized as goodwill,
which is subject to impairment tests at least once a year. On the other hand, any excess of the net assets acquired over the
consideration paid is recognized as a gain in profit or loss.
To estimate the fair value of the assets acquired and liabilities assumed, the Company uses observable market data to the extent
in which this is available. When the input data of Level 1 is not available, the Company hires an independent qualified appraiser to
perform the valuation. Management works closely with the independent qualified appraiser to establish the valuation techniques,
the premises, the appropriate input data and the criteria to be used in the valuation models.
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,
2018
2017
Cash on hand and in banks
Short-term bank deposits
$
$
1,559
2,609
Total cash and cash equivalents
$
4,168
$
3,429
5,366
8,795
alpek annual report 2018 | 105
CONSOLIDATED FINANCIAL STATEMENTS
Restricted cash
At December 31, 2018 and 2017, the Company has restricted cash of approximately $3 and $763, respectively. These balances include
amounts that are required to be held in escrow as deposits related to workers’ compensation reserves. As of December 31, 2018, the
decrease in the balance as compared to the prior year, is due to the fact that the restricted cash held as of December 31, 2017, as part
of the deposit to finalize the acquisition of Petroquimica Suape and Citepe (Note 2c), was used in the closing of the transaction. The
restricted 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:
As of December 31,
2018
2017
Trade accounts receivable
$
18,139
$
13,175
Trade and other accounts receivable from related parties (Note 26)
Recoverable taxes
Notes receivable
Interest receivable
Sundry debtors
712
4,647
506
16
473
926
3,714
-
-
469
Allowance for impairment of trade and other accounts receivable
( 2,559 )
( 2,467 )
Current portion
$
21,934
$
15,817
The movements of the impairment estimate of customers and other accounts receivable in 2017, with the impairment model used by
the Company, are analyzed as follows:
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
Ending balance as of December 31
(1) Includes the impairment disclosed in Note 2e.
2017
( 186 )
( 2,073 )
5
26
( 239 )
$
( 2,467 )
alpek annual report 2018 | 106
CONSOLIDATED FINANCIAL STATEMENTS
The changes in the impairment allowance for trade and other receivables in 2018, with the new expected losses model used by the
Company, are as follows:
Customers or customer
groups
Gross carrying
amount
Collaterals or
guarantees
Outstanding
balance (risk
exposure)
Default
probability
range
Loss given default
range
Opening balance
– Impairment
allowance
Increases in the
allowance
Cancellations in
the allowance
Ending balance
– Impairment
allowance
Grupo Petrotemex
National trade
receivables
Foreign trade
receivables
DAK Americas
M&G
Grupo Unimor
Grupo Styropek
National trade
receivables
Foreign trade
receivables
Foreign entities
Polioles
National trade
receivables
Foreign trade
receivables
Indelpro
Other
Total
Secured notes
receivable
Notes receivable(1)
$
4,568
$
3,383
3,523
2,254
246
226
393
353
413
117
2,200
463
-
-
-
-
-
-
-
-
-
-
2,158
-
$
4,568
0% - 0.24%
10.30% - 35.00%
$
( 39 )
$
( 33 )
$
31
$
( 41 )
3,383
3,523
2,254
246
226
393
353
0% - 0.14%
0.12%
100.00%
3.15%
34.00%
34.00%
100.00%
50.00%
0% - 100%
0% - 10.0%
0% - 100%
0% - 10.0%
0.13%-100%
0% - 92.05%
413
0.01% - 0.14%
0% - 10.00%
117
42
463
0.00%
1.68%
0% - 100%
0% - 10.00%
1.92%
100.00%
( 1 )
( 53 )
( 2,260 )
-
( 18 )
-
( 1 )
( 1 )
( 21 )
( 49 )
( 14 )
( 37 )
( 46 )
-
-
( 16 )
-
( 2 )
( 1 )
( 2 )
( 14 )
-
1
8
6
-
-
-
-
-
-
1
2
( 37 )
( 91 )
( 2,254 )
-
( 34 )
-
( 3 )
-
(2 )
( 23 )
( 62 )
(12 )
$
18,139
$
2,158
$
15,981
$
( 2,457 )
$
( 151 )
$
49
$
( 2,559 )
3,149
1,352
3,149
-
-
0%
1,352
0% - 100%
0%
100%
-
-
-
$
-
-
-
$
-
-
-
$
-
-
-
Total
$
4,501
$
3,149
$
1,352
$
(1) The initial balance of the estimate of impairment of receivables includes $ 30 of the current portion of long-term receivables, which were considered in the balance of the estimate of
impairment of customers and other accounts receivable as of January 1, 2018.
The net change in the allowance for impairment of trade and other receivables for $102 in the year ended December 31, 2018, was main-
ly due to the increase in the probability of default assigned to certain customers with respect to the beginning of the year, in which the
new methodology of impairment of financial assets was applied.
The Company has long-term receivables that are guaranteed with the properties described in Note 2a, which have been used by man-
agement to mitigate the exposure to credit risk of such financial assets, and therefore has not recognized an impairment in their carry-
ing amount.
alpek annual report 2018 | 107
CONSOLIDATED FINANCIAL STATEMENTS
8.
Inventories
As of December 31,
2018
2017
Finished goods
$
13,632
$
Raw materials and other consumables
Materials and tools
Work in process
8,916
1,423
540
8,844
5,891
1,049
580
$
24,511
$
16,364
For the years ended December 31, 2018 and 2017, a provision amounting to $15 and $17, respectively, related to damaged, slow-moving
and obsolete inventory was recognized in the consolidated statement of profit (loss).
At December 31, 2018 and 2017, 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
Total prepayments
As of December 31,
2018
2017
$
$
469
38
$
507
$
305
31
336
(1) This item mainly consists of advertising and prepaid insurance.
alpek annual report 2018 | 108
CONSOLIDATED FINANCIAL STATEMENTS
10. Property, plant and equipment, net
Land
Buildings and
constructions
Machinery and
equipment
Vehicles
Furniture,
lab and
information
technology
equipment
Construction in
progress
Other fixed
assets
Total
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
$
3,724
$
4,849
$
25,271
$
70
$
327
$
5,554
$
-
-
-
( 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
4,452
( 31 )
( 409 )
( 17 )
-
( 144 )
-
( 1,291 )
8,114
13,867
( 9,251 )
67,714
( 43,716 )
320
( 258 )
1,739
( 1,466 )
8,114
-
904
102
-
( 14 )
-
-
( 37 )
-
23
978
978
-
$
40,699
4,673
686
( 425 )
( 158 )
201
( 1,846 )
( 2,295 )
-
41,535
96,226
( 54,691 )
Net carrying amount as of December 31, 2017
$
3,494
$
4,616
$
23,998
$
62
$
273
$
8,114
$
978
$
41,535
For the year ended December 31, 2018
Opening balance
Additions
Additions for business acquisitions
Disposals
Impairment
Translation effect
Depreciation charges recognized in the year
Transfers
$
3,494
$
4,616
$
23,998
$
62
$
-
369
( 11 )
-
( 14 )
-
-
2
2,592
-
( 1 )
( 203 )
( 390 )
268
71
3,249
( 35 )
( 16 )
( 160 )
( 2,052 )
1,177
26,232
2
-
( 3 )
-
( 3 )
( 15 )
16
59
Ending balance as of December 31, 2018
3,838
6,884
As of December 31, 2018
Cost
Accumulated depreciation
3,838
-
18,003
( 11,119 )
73,914
( 47,682 )
328
( 269 )
1,914
( 1,564 )
273
4
64
-
-
1
( 85 )
93
350
$
8,114
$
978
$
41,535
2,584
386
( 339 )
( 318 )
( 50 )
-
( 1,708 )
8,669
8,669
-
26
-
( 4 )
-
1
-
-
1,001
1,001
-
2,689
6,660
( 392 )
( 335 )
( 428 )
( 2,542 )
( 154 )
47,033
107,667
( 60,634 )
Net carrying amount as of December 31, 2018
$
3,838
$
6,884
$
26,232
$
59
$
350
$
8,669
$
1,001
$
47,033
Depreciation expenses of $2,483 and $2,253 were recorded in cost of sales, $13 and $3, in selling expenses and $46 and $39, in admin-
istrative expenses in 2018 and 2017, respectively.
The Company has capitalized costs of loans on qualified assets for $314 and $233 for the years ended December 31, 2018 and 2017,
respectively. Costs from loans were capitalized at the weighted average borrowing rate of approximately 5.4% and 5.2%, respectively.
alpek annual report 2018 | 109
CONSOLIDATED FINANCIAL STATEMENTS
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
As of January 1, 2017
$
945
$
7,439
$
211
$
753
$
128
$
3,937
$
362
$
10
$
13,785
Additions
Disposals
Impairment
Translation effect
As of December 31, 2017
Additions
Additions for business
acquisitions
Translation effect
7
-
-
( 42 )
910
11
-
( 3 )
As of December 31, 2018
$
918
$
Amortization
As of January 1, 2017
Amortization
Disposals
Translation effect
As of December 31, 2017
Amortization
Additions for business
acquisitions
Disposals
Translation effect
( 486 )
( 42 )
-
20
( 508 )
( 24 )
-
-
1
As of December 31, 2018
$
( 531 )
$
Net carrying amount
Cost
Amortization
910
( 508 )
As of December 31, 2017
$
402
$
Cost
Amortization
918
( 531 )
As of December 31, 2018
$
387
$
-
-
( 6,410 )
( 1,029 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
( 90 )
-
( 15 )
106
-
( 18 )
30
-
-
( 32 )
751
-
384
( 15 )
140
-
-
( 5 )
263
19
289
( 16 )
-
-
-
( 172 )
3,765
239
-
( 8 )
-
( 7 )
-
( 16 )
339
-
-
( 1 )
4
-
-
-
14
14
-
2
181
( 97 )
( 6,410 )
( 1,311 )
6,148
283
673
( 59 )
$
88
$
1,120
$
555
$
3,996
$
338
$
30
$
7,045
( 177 )
( 14 )
90
15
( 86 )
( 12 )
-
-
16
( 344 )
( 53 )
-
13
( 384 )
( 62 )
-
-
2
( 88 )
( 27 )
-
( 4 )
( 111 )
( 38 )
( 285 )
-
16
( 815 )
( 204 )
-
25
( 994 )
( 207 )
-
( 1 )
-
-
-
-
-
-
-
-
-
-
$
( 82 )
$
( 444 )
$
( 418 )
$
( 1,202 )
$
-
$
$
106
( 86 )
20
88
( 82 )
751
( 384 )
263
( 111 )
3,765
( 994 )
339
-
$
367
$
152
$
2,771
$
339
$
1,120
( 444 )
555
( 418 )
3,996
( 1,202 )
338
-
-
-
-
-
-
-
-
-
-
-
14
-
14
30
-
( 1,910 )
( 340 )
90
77
( 2,083 )
( 343 )
( 285 )
( 1 )
35
$
( 2,677 )
6,148
( 2,083 )
$
4,065
7,045
( 2,677 )
$
6
$
676
$
137
$
2,794
$
338
$
30
$
4,368
alpek annual report 2018 | 110
CONSOLIDATED FINANCIAL STATEMENTS
Of the total amortization expense, $326 and $326 have been recorded in cost of sales and $17 and $14 in administrative expenses in
2018 and 2017, respectively.
Incurred research and development expenses that have been recorded in the 2018 and 2017 consolidated statements of income were
$53 and $65, respectively.
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, 2018 and 2017,
goodwill of $338 and $339, 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 2018 and 2017, were as follows:
Estimated gross margin
Growth rate
Discount rate
2018
5.7%
1.0%
8.9%
2017
6.3%
0.0%
9.0%
12. Other non-current assets
Notes receivable (1)
Due from related parties (Note 26)
Trade receivables related with business acquisitions
Total other non-current financial assets
Investment in associates and joint ventures (2)
Recoverable taxes
Other
Total other assets
As of December 31,
2018
2017
$
3,995
$
761
616
5,372
8,746
1,736
105
2,143
738
-
2,881
483
-
167
$
15,959
$
3,531
(1) As of December 31, 2018, this item mainly consists of the financing described in Note 2a. As of December 31, 2017, this item mainly consisted of a transfer of rights
that bears monthly interest at a rate of LIBOR + 4.0% and expected maturity in April 2020.
(2) Investment in associates and joint ventures
alpek annual report 2018 | 111
CONSOLIDATED FINANCIAL STATEMENTS
The Company’s account of investments in associates and joint ventures consists of the following:
Shareholding
%
2018
2017
Clear Path Recycling, LLC
49.90%
$
305
$
Terminal Petroquímica Altamira, S.A. de C.V.
Agua Industrial del Poniente, S.A. de C.V.
Galpek, LDA
Corpus Christi Polymers LLC
42.00%
47.60%
50.00%
33.30%
35
66
236
8,104
317
34
61
71
-
Investment in associates and joint ventures as of
December 31
$
8,746
$
483
Below is summarized the net income of investments in associates and joint ventures, which are accounted for by the equity method:
Net (loss) income
$
( 61 )
$
22
Investment in associates and joint ventures as of
December 31
$
8,746
$
483
2018
2017
There are neither commitments nor contingencies liabilities regarding the Company's investment in associates and joint ventures as of
December 31, 2018 or 2017.
alpek annual report 2018 | 112
CONSOLIDATED FINANCIAL STATEMENTS
13. Subsidiaries with significant non-controlling interest
The significant non-controlling interest, is integrated as follows:
Non-controlling
ownership
percentage
Indelpro, S. A. de C. V. and subsidiary
Polioles, S. A. de C. V. and subsidiary
49%
50%
Other
Non-controlling interest income for
the period
Non-controlling interest as of
December 31st,
2018
2017
2018
2017
$
1,138
$
38
125
$
1,301
$
823
75
34
932
$
4,135
$
3,941
294
607
341
466
$
5,036
$
4,748
The summarized consolidated financial information as of December 31, 2018 and 2017, and for the years then ended, corresponding to
each subsidiary with a significant non-controlling interest is shown below:
Indelpro, S. A. de C. V.
and subsidiary
Polioles, S. A. de C. V.
and subsidiary
2018
2017
2018
2017
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 operating activities
Net cash flows (used in) generated by investing activities
Net cash flows used in financing activities
Increase in cash and cash equivalents
$
5,076
7,458
2,230
1,865
8,439
14,494
2,323
2,239
1,097
902
3,232
( 286 )
( 2,273 )
611
$
4,456
$
7,451
1,555
2,310
8,042
12,322
1,679
1,392
682
379
1,895
( 343 )
( 936 )
597
$
1,775
1,005
824
1,369
587
1,940
1,046
880
1,424
682
3,736
3,525
76
63
32
79
129
363
150
77
39
165
260
174
( 418 )
( 394 )
89
48
alpek annual report 2018 | 113
CONSOLIDATED FINANCIAL STATEMENTS
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
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,
2018
2017
$
22,330
$
17,255
889
18
927
392
1,495
416
69
746
326
971
$
26,051
$
19,783
As of December 31,
2018
2017
$
9,588
$
472
43
15
7,119
276
1
12
$
10,118
$
7,408
$
18,777
$
11,707
30,484
( 472 )
18,810
8,424
27,234
( 276 )
Non-current debt (2)
$
30,012
$
26,958
(1) As of December 31, 2018 and 2017, short-term bank loans and notes payable incurred interest at an average rate of 3.55%, and 2.42 %, respectively.
(2) The fair value of bank loans and notes payable approximates their current carrying amount because of their short maturity.
alpek annual report 2018 | 114
CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts, terms and conditions of non-current debt are as follows:
Description
Currency
Value in
MXN
Debt issuance
costs
Interest
payable
Balance as of
December 31,
2018
Balance as of
December 31,
2017 (1)
Maturity date
MM/DD/YY
Interest rate
Senior Notes 144A/Reg. S / fixed rate
Senior Notes 144A/Reg. S / fixed rate
Total Senior Notes
Bank loan, BADLAR + 1.00%
Bank loan, fixed 19.00%
Bank loan, Libor +1.10%
Bank loan, Libor +1.10%
Bank loan, Libor +3.25%
Bank loan, Libor +1.45%
Bank loan, Libor +1.25%
Bank loan, Libor +1.25%
Bank loan, Libor +1.10%
Bank loan, Libor +2.40%
Bank loan, Libor +1.00%
Total unsecured bank loans
USD
USD
ARS
ARS
USD
USD
USD
USD
USD
USD
USD
USD
USD
$
12,775
$
( 61 )
$
5,905
18,680
19
5
1,969
984
1,968
984
2,165
3,543
-
-
-
11,637
( 31 )
( 92 )
-
-
-
-
-
-
-
-
-
-
-
-
64
125
189
1
0
13
5
21
2
4
24
-
-
-
70
$
12,778
$
12,800
Nov-20-22
5,999
6,010
Aug-08- 23
4.50%
5.38%
18,777
18,810
20
5
1,982
989
1,989
986
2,169
3,567
-
-
-
64
16
Apr-01-20
Dec-08-20
51.75%
25.00%
1,996
Nov-30-20
996
Nov-30-20
1,991
Oct-25-22
988
Dec-15-22
-
-
988
989
396
Mar-28-21
Mar-28-21
Jul-06-21
Jul-17-20
Apr-03-20
3.62%
3.55%
5.75%
4.23%
4.03%
3.76%
2.67%
3.86%
2.34%
11,707
8,424
Total
$
30,317
$
( 92 )
$
259
$
30,484
$
27,234
(1) As of December 31, 2017, debt issuance costs were $108.
As of December 31, 2018, the annual maturities of non-current debt are as follows:
2020
2021
2022
2023
and thereafter
Total
Bank loans
Senior Notes
$
3,354
$
6,791
$
1,279
$
-
$
11,424
-
-
12,714
5,874
18,588
$
3,354
$
6,791
$
13,993
$
5,874
$
30,012
As of December 31, 2018 and 2017, the Company has committed unused lines of credit totaling US$728 and US$166, respectively.
alpek annual report 2018 | 115
CONSOLIDATED FINANCIAL STATEMENTS
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.
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 2018 and 2017, the financial ratios
were calculated according to the formulas set forth in the loan agreements. As of December 31, 2018 and the date of issuance
of these consolidated financial statements, the Company and its subsidiaries complied satisfactorily with such covenants and
restrictions.
alpek annual report 2018 | 116
CONSOLIDATED FINANCIAL STATEMENTS 16. Provisions
Dismantling,
demolition and
environmental
remediation
Severance
payments and
other benefits
Legal
contingencies
Other
Total
As of January 1, 2017
$
330
$
30
$
-
( 105 )
( 192 )
( 20 )
13
-
( 4 )
-
-
9
$
-
( 12 )
( 16 )
( 2 )
-
-
-
-
-
-
Increases
Payments
Write-offs
Translation effect
As of December 31, 2017
Increases
Payments
Write-offs
Translation effect
As of December 31, 2018
$
Short-term provisions
Long-term provisions
As of December 31
-
-
-
-
-
-
639
-
( 18 )
( 1 )
$
10
$
178
( 26 )
-
5
167
485
( 56 )
-
( 37 )
370
178
( 143 )
( 208 )
( 17 )
180
1,124
( 60 )
( 18 )
( 38 )
$
620
$
559
$
1,188
2018
2017
$
81
$
1,107
$
1,188
$
25
155
180
As of December 31, 2018, the provisions shown in the table above mainly include $272 (US$14) related to the obligation to give back
to Petrobras certain tax credits, in case they are recovered by Petroquímica Suape and Citepe, as well as $620 (US$31) for labor, civil
and tax contingencies also derived from the acquisition of Petroquímica Suape and Citepe, for which the Company holds an account
receivable, included in other non-current assets, for $616 (US$31).
Additionally, as of December 31, 2018 and 2017, $147 (US$7.5) were related to for the contingent liability for the earn-out payment relat-
ed to the acquisition of Selenis. During 2017, the Company continued the works of dismantling and demolition of the plant in Cape Fear.
As of December 31, 2018, the balance of this provision amounts to $9, 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.
alpek annual report 2018 | 117
CONSOLIDATED FINANCIAL STATEMENTS
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 main 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
As of December 31,
2018
2017
$
$
797
120
917
182
753
148
901
160
Employee benefits in the consolidated statement of financial position
$
1,099
$
1,061
Charge to the consolidated statement of profit (loss) for:
Pension benefits
Post-employment medical benefits
$
$
( 64 )
( 6 )
( 70 )
( 67 )
( 7 )
( 74 )
Remeasurements of employee benefit obligations recognized in other
comprehensive income of the year
$
( 73 )
$
100
Remeasurements of accrued employee benefit obligations
$
( 88 )
$
( 31 )
alpek annual report 2018 | 118
CONSOLIDATED FINANCIAL STATEMENTS
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 practice 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:
As of December 31,
2018
2017
Present value of defined benefit obligations
$
3,672
$
3,998
Fair value of plan assets
( 2,755 )
( 3,097 )
Liability in the statement of financial position
$
917
$
901
The movements of defined benefit obligations are as follows:
As of January l,
Service cost
Interest cost
Contributions from plan participants
Remeasurements:
(Losses) 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,
2018
2017
$
3,998
$
4,141
45
145
11
( 191 )
( 7 )
-
( 328 )
( 1 )
-
44
155
16
174
( 20 )
( 172 )
( 337 )
-
( 3 )
$
3,672
$
3,998
alpek annual report 2018 | 119
CONSOLIDATED FINANCIAL STATEMENTS
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
As of December 31
2018
2017
$
( 3,097 )
$
( 3,024 )
( 119 )
261
7
( 47 )
240
( 122 )
( 254 )
112
( 57 )
248
$
( 2,755 )
$
( 3,097 )
The amounts recorded in the consolidated statement of profit (loss) for the years ended December 31 are the following:
Service cost
Interest cost, net
Effect of plan curtailments and/or settlements
2018
2017
$
$
( 45 )
( 26 )
1
Total included in personnel cost
$
( 70 )
$
( 44 )
( 33 )
3
( 74 )
The main actuarial assumptions are as follows:
Discount rate Mexico
Discount rate United States
Inflation rate
Wage increase rate
Medical inflation rate Mexico
As of December 31,
2018
9.50%
2017
7.25%
3.89%-4.03%
3.30%-3.49%
3.50%
4.50%
6.50%
3.50%
4.50%
6.50%
The sensitivity analysis of the discount rate for defined benefit obligations is as follows:
Effect in defined benefit obligations
Change in
assumption
Increase in
assumption
Decrease in
assumption
Discount rate
Mx 1%
Decrease by $18
Increase by $20
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.
alpek annual report 2018 | 120
CONSOLIDATED FINANCIAL STATEMENTS
Defined benefit plan assets
Plan assets are comprised as follows:
Equity instruments
Fixed income
As of December 31,
2018
2017
$
1,797
$
958
2,043
1,054
Fair value of plan assets
$
2,755
$
3,097
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:
United States (1)
Brazil
Argentina (1)
Chile (1)
Canada
Spain
2018
21.0%
34.0%
30.0%
27.0%
25.0%
25.0%
2017
35.0%
34.0%
35.0%
25.5%
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%, became 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 Ar-
gentina the corporate tax rate became 30% for 2018 and will remain unchanged in 2019, and will be 25% in 2020, while in Chile it increased to 27% from 2018. The Company determined
that the effect derived from the change in tax rates recognized in the consolidated statement of profit (loss) for 2017 was $699.
a.
Income taxes recognized in the consolidated statement of profit (loss) are as follows:
2018
2017
Current income tax
$
( 2,549 )
$
( 1,511 )
True-up to prior years’ income tax provision
Deferred income taxes
Income taxes
474
( 1,380 )
$
( 3,455 )
$
188
3,036
1,713
alpek annual report 2018 | 121
CONSOLIDATED FINANCIAL STATEMENTS
b. The reconciliation between the statutory and effective income tax rates is as follows:
Income (loss) before income taxes
Income tax rate
Statutory income tax rate (expense) benefit
(Less) add 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
c. The breakdown of the deferred tax asset and deferred tax liability is as follows:
2018
2017
$
18,389
$
( 6,268 )
30%
1,881
( 323 )
( 11 )
71
385
188
-
192
( 669 )
( 1 )
1,713
27%
30%
( 5,517 )
( 388 )
( 12 )
1,362
504
474
-
131
-
( 9 )
$
( 3,455 )
$
19%
Asset (liability)
December 31,
2018
2017
Property, plant and equipment
$
( 1,221 )
$
Intangible assets
Debt issuance costs
Provisions
Derivative financial instruments
Tax loss carryforwards
Tax credits, impairment allowance and other
Effect of tax rates of other countries and changes in tax rates
( 246 )
( 17 )
123
334
1,019
1,489
( 97 )
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
$
1,384
$
( 106 )
( 5,757 )
( 48 )
177
981
1
44
1,907
( 18 )
41
-
354
601
( 505 )
2,424
( 95 )
( 5,884 )
(41 )
637
855
125
Deferred tax liability
$
( 4,752 )
$
( 4,403 )
alpek annual report 2018 | 122
CONSOLIDATED FINANCIAL STATEMENTS
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 $9,328 and $3,303 in 2018 and 2017, respectively.
Tax losses as of December 31, 2018 expire in the following years:
Loss for the year
incurred
Tax-loss
carryforwards
Expiration
year
2011
2012
2013
2014
2015
2016
2017
2018
2018
$
$
151
13
54
401
241
380
394
2,354
5,340
9,328
2021
2022
2023
2024
2025
2026
2027
2028 and later
No expiration
As of December 31, 2018, the Company holds tax losses to be amortized in Brazil, through Petroquímica Suape and Citepe, for an
amount of $5,340, which have no expiration date. The Company has decided to reserve the total amount of these tax losses, according
to management's estimate of future reversals of temporary differences; thus, as of December 31, 2018, they do not generate deferred
tax assets.
d.
Income tax related to other comprehensive income is as follows:
2018
2017
Before taxes
Tax charged
After taxes
Before taxes
Tax charged
After taxes
Foreign currency translation effect
$
( 1,814 )
$
Remeasurement of employee benefit obligations
Effect of derivative financial instruments designated as
cash flow hedges
( 73 )
( 721 )
Other comprehensive loss
$
( 2,608)
$
-
18
161
179
$
( 1,814 )
$
( 2,461 )
$
-
$
( 2,461 )
( 55 )
( 560 )
100
209
( 50 )
( 86 )
50
123
$
( 2,429 )
$
( 2,152 )
$
( 136 )
$
( 2,288 )
e.
Income tax payable consists of the following:
As of December 31,
2018
2017
Current portion
Non-current portion
$
1,279
$
469
573
623
Total income tax payable
$
1,748
$
1,196
alpek annual report 2018 | 123
CONSOLIDATED FINANCIAL STATEMENTS
19. Other non-current liabilities
As of December 31,
2018
2017
Advances from customers (1)
Other
Total other liabilities
$
$
$
361
75
436
$
419
3
422
(1) This item corresponds to revenues charged in advance and relates to the future delivery of goods.
20. Stockholders' equity
As of December 31, 2018, 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.
As of December 31, 2018, the Company does not have treasury shares. As of such date, the market value per share was $24.05 Mexican
pesos.
From February to May 2018, the Company sold 1,485,884 shares in the amount of $39, in connection to a repurchase program that was
approved by the Company's stockholders and exercised discretionally by Management. During 2017, the Company sold 40,500 shares in
the amount of $1, in connection with the abovementioned repurchase program.
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, 2018 and 2017, the
legal reserve amounts to $804 and $696, respectively.
At the ordinary stockholders’ meeting of Alpek on February 27, 2017, the stockholders agreed to declare dividends in cash in the aggregate
amount of $2,667 (US$143), which were paid in two disbursements from March 8 and September 7 in the same year.
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 Income
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 pay-
able 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. As of December 31, 2018, the
tax value of the consolidated CUFIN and value of the Capital Contribution Account (CUCA Spanish acronym) amounted to $3,096 and
$20,287, respectively.
alpek annual report 2018 | 124
CONSOLIDATED FINANCIAL STATEMENTS
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.
$
$
22.11
24.13
21.12
22.95
2018
2017
The short-term and long-term liabilities are comprised as follows:
Short term
Long term
Total carrying amount
As of December 31,
2018
2017
$
$
8
20
28
$
$
7
15
22
alpek annual report 2018 | 125
CONSOLIDATED FINANCIAL STATEMENTS
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:
Raw materials and other
$
( 95,750 )
$
( 70,121 )
2018
2017
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
( 5,128 )
( 48 )
( 1,746 )
( 2,887 )
( 3 )
( 5,305 )
( 5,380 )
( 171 )
( 966 )
( 4,363 )
( 32 )
( 1,517 )
( 2,635 )
( 3 )
( 5,319 )
( 4,228 )
( 146 )
( 888 )
Technical assistance, professional fees and
administrative services
Other (insurance and bonds, water, containers and
packing, etc.)
( 1,481 )
( 1,015 )
( 2,956 )
( 2,158 )
Total
$
( 121,821 )
$
( 92,425 )
23. Other income, net
Other income for the years ended December 31, are comprised as follows:
2018
2017
Gain on business combination
$
4,597
$
Other income
Impairment of property, plant and equipment
and other
Other expenses
Total
423
( 456 )
-
$
4,564
$
238
147
( 43 )
( 7 )
335
alpek annual report 2018 | 126
CONSOLIDATED FINANCIAL STATEMENTS
24. Finance income and costs
Financial result, net for the years ended December 31, are comprised as follows:
2018
2017
Financial income:
Interest income on short-term bank deposits
Interest income on loans from related parties
Other financial income
Total financial income
Financial expenses:
$
$
98
27
317
442
$
$
Interest expense on loans to related parties
$
( 2 )
$
Interest expense on bank loans
Non-bank interest expense
Net interest cost on employee benefits
Other financial expenses
Valuation effect of derivative financial instruments
( 893 )
( 966 )
( 21 )
( 301 )
-
65
27
106
198
( 2 )
( 295 )
( 941 )
( 40 )
( 198 )
( 6 )
Total financial expense
$
( 2,183 )
$
( 1,482 )
Loss in exchange fluctuation, net
Foreign exchange gain
Foreign exchange loss
3,302
( 4,344 )
3,125
( 3,557 )
Loss in exchange fluctuation, net
$
( 1,042 )
$
( 432 )
Impairment of financial assets
Financial result, net
-
( 1,694 )
$
( 2,783 )
$
( 3,410 )
25. Employee benefit expenses
Employee benefits expenses for the years ended December 31, are as follows:
Salaries, wages and benefits
$
( 3,869 )
$
( 3,188 )
2018
2017
Social security fees
Employee benefits
Other fees
Total
( 351 )
( 44 )
( 864 )
( 318 )
( 41 )
( 816 )
$
( 5,128 )
$
( 4,363 )
alpek annual report 2018 | 127
CONSOLIDATED FINANCIAL STATEMENTS
26. Related party transactions
Transactions with related parties during the years ended December 31, 2018 and 2017, were as follows:
Income
Income from sale of goods:
Stockholders with significant influence over subsidiaries
$
1,486
$
1,438
2018
2017
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
263
220
25
-
2
-
3
-
( 992 )
( 394 )
-
( 24 )
( 2 )
( 18 )
( 38 )
-
-
-
( 981 )
-
198
206
24
-
3
-
10
-
( 853 )
( 348 )
( 21 )
( 18 )
( 2 )
( 31 )
( 8 )
( 2 )
( 2,191 )
( 476 )
( 544 )
( 74 )
alpek annual report 2018 | 128
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2018, the remunerations and benefits received by the top officers of the Company amounted to $281
($309 in 2017), 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.
As of December 31, balances with related parties are as follows:
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 México, S. A. de C. V.
Terza, S. A. De C. V.
Sigma Alimentos Lácteos
Shares with significant influence on subsidiaries
BASF
BASF
BASF
Basell
Basell
Nature of the transaction
2018
2017
As of December 31,
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
4
9
1
4
132
203
-
54
-
115
14
4
-
-
155
405
-
43
-
$
712
$
926
alpek annual report 2018 | 129
CONSOLIDATED FINANCIAL STATEMENTS
Nature of the transaction
2018
2017
As of December 31,
Financing and interest
$
761
$
738
Administrative services
$
Administrative services
Administrative services
Administrative services
$
21
2
23
2
3
-
69
259
-
-
12
1
16
1
10
-
-
4
79
-
195
4
17
-
326
$
392
$
Long-term accounts receivable:
Holding company
Alfa, S. A. B. de C. V. (1)
Short-term accounts payable:
Affiliates
Alliax, S. A. de C. V.
Nemak Exterior, LTD
Alfa Corporativo, S. A. de C. V.
Sensa
Axtel
Other
Associates
Clear Path Recycling, LLC
Financing and interest
Stockholders with significant influence over
subsidiaries
Sale of goods
Sale of raw material
Commissions and other
Other
BASF
BASF
BASF
Basell
Tepeal
Long-term accounts payable:
Affiliates
Alfa Corporativo, S. A. de C. V.
Administrative services
$
4
$
3
(1) As of December 31, 2018 and 2017, the loans granted bore interest at average fixed interest rate of 5.34%.
alpek annual report 2018 | 130
CONSOLIDATED FINANCIAL STATEMENTS
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 and Chem-
icals 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, 2018:
Statement of profit (loss):
Income by segment
Inter-segment income
Income from external customers
Operating income
Depreciation and amortization
Impairment of long-lived assets
Adjusted EBITDA
Investments in fixed and intangible assets
Polyester
Plastics and
Chemicals
Other
Total
$
99,664
$
33,204
$
1,655
$
134,523
( 279 )
384
-
32,925
$
2,039
$
134,523
4,735
$
( 3 )
$
-
-
21,202
2,885
( 3,480 )
$
$
( 105 )
99,559
16,470
2,329
( 3,481 )
15,318
1,509
$
$
$
$
$
$
556
1
5,292
491
$
$
( 3 )
$
20,607
5
$
2,005
alpek annual report 2018 | 131
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2017:
Statement of profit (loss):
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
Polyester
Plastics and
Chemicals
Other
Total
$
70,589
$
28,724
$
( 315 )
$
98,998
( 113 )
( 202 )
315
-
$
$
$
$
70,476
$
28,522
( 6,814 )
$
2,085
7,699
2,970
3,420
$
$
3,966
550
3
4,519
1,011
$
$
$
$
-
$
98,998
( 6 )
$
( 2,854 )
-
-
( 6 )
$
-
$
2,635
7,702
7,483
4,431
The reconciliation between adjusted EBITDA and income before taxes for the years ended December 31, is as follows:
2018
2017
Adjusted EBITDA
$
20,607
$
7,483
Depreciation and amortization
Impairment of long-lived assets
Operating income
Financial result, net
Equity in loss of associates and joint ventures
( 2,885 )
3,480
21,202
( 2,783 )
( 30 )
( 2,635 )
( 7,702 )
( 2,854 )
( 3,410 )
( 4 )
Income (loss) before income taxes
$
18,389
$
( 6,268 )
Following is a summary of revenues per country of origin for the years ended December 31:
Mexico
United States
Argentina
Brazil
Chile
Canada
2018
2017
$
54,282
$
57,894
6,784
11,291
1,094
3,178
47,516
41,438
5,341
1,462
921
2,320
Total revenues
$
134,523
$
98,998
alpek annual report 2018 | 132
CONSOLIDATED FINANCIAL STATEMENTS
The following table shows the intangible assets and property, plant and equipment by country:
Mexico
United States
Canada
Brazil
Total intangible assets
Mexico
United States
Canada
Argentina
Chile
Brazil
As of December 31,
2018
2017
$
2,243
$
1,712
29
384
2,188
1,848
1
28
$
$
4,368
$
4,065
32,520
$
32,029
6,773
1,068
140
273
6,259
7,546
1,229
271
323
137
Total property, plant and equipment
$
47,033
$
41,535
28. Commitments and contingencies
At December 31, 2018, the Company has the following commitments:
a) At December 31, 2018 and 2017, 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 December 2018, Indelpro entered into an extension agreement with PEMEX Transformación Industrial (PTRI) to cover its
chemical and refinery grade propylene needs, whose previous maturity was in 2018, and which 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, 2018 and 2017 amounted to $2,229 and $2,732, respectively. The purchase commitment for the year
2019 amounts to approximately $2,229 and is based on the estimates and assumptions considered for the same year.
As of December 31, 2018, 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.
alpek annual report 2018 | 133
CONSOLIDATED FINANCIAL STATEMENTS
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.
c) As of December 31, 2018, the Company is in a process of fiscal litigation in one of its subsidiaries in Brazil, in relation to the
demand for payment of the Tax on the Circulation of Goods and Services ("ICMS") that the Ministry of Finance of the State
of Sao Paulo ("SFSP", for its initials in Portuguese) has raised against the Company, due to differences in the criteria for the
calculation and crediting of said tax. Considering all the circumstances and precedents of jurisprudence available at that
date, management and its advisors have determined that it is probable that the Superior Court of Justice of Brazil will issue a
judgment in favor of the Company for the amount related to differences in the calculation, which would exempt it from paying
$401 in taxes, fines and interest that the SFSP demands; therefore, as of December 31, 2018, the Company has not recognized
any provision related to this concept.
On the other hand, for the concept of ICMS crediting, the amount demanded amounts to $80, and management and its
advisors consider that it is not probable that the authorities will issue an unfavorable resolution for the Company; thus, it has
not recognized any provision related to this concept as of December 31, 2018.
alpek annual report 2018 | 134
CONSOLIDATED FINANCIAL STATEMENTS 29. Subsequent events
In preparing the financial statements the Company has evaluated the events and transactions for their recognition or disclosure subse-
quent to December 31, 2018 and through January 31, 2019 (date of issuance of the consolidated financial statements), and has identified
the following subsequent events:
a) On January 6, 2019, the Company signed a final agreement for the sale of its two electric power cogeneration plants, located
in Cosoleacaque and Altamira, Mexico. The agreement contemplates the sale of all the representative shares held by Alpek,
S.A.B. de C.V. on the equity of the entities that own both plants: Cogeneraciónn de Altamira, S. A. de C. V. and Cogeneración
de Energía Limpia de Cosoleacaque, S. A. de C. V., for an amount of US$801, to ContourGlobal Terra 3 S.à.r.l. ("CG Terra 3"), a
subsidiary of ContourGlobal PLC.
Also, as part of the transaction, Alpek, S. A. B. de C. V. will sign with CG Terra 3, among others, an option contract, by virtue of
which Alpek, S. A. B. de C. V. undertakes to sell its shares representing the capital stock of Tereftalatos Mexicanos Gas, S. A. de
C. V. (whose assets include gas pipelines that transport natural gas from the point of interconnection of the integrated national
transport system to the point of consumption), in favor of CG Terra 3, in the event that the latter exercises the purchase option
within a maximum term of 5 years from the date of signature of the option contract. The option will be subject to compliance
with certain precedent conditions under the contract, and its price will be subject to working capital adjustments.
The agreed price will be subject to certain adjustments established in the purchase agreement and must be paid at the close of
the transaction, which is expected during the first months of 2019, and is subject to customary closing terms and conditions,
including corporate approvals and from the Federal Commission of Economic Competition.
b) On January 9, 2019, the Company announced that one of its subsidiaries signed an agreement with Perpetual Recycling
Solutions, LLC ("Perpetual"), for the purchase of a PET recycling facility located in Richmond, Indiana, United States of America.
The PET recycling plant has a capacity to produce approximately 45,000 tons per year of high quality recycled PET flakes, and
its acquisition will complement the Company's PET recycling operations in Argentina and North Carolina.
The closing of the transaction is subject to compliance with preceding conditions and is expected during the first quarter of
2019.
30. Authorization to issue the consolidated financial statements
On January 31, 2019, the issuance of the accompanying consolidated financial statements was authorized by José de Jesús Valdez Siman-
cas, General Director and José Carlos Pons de la Garza, Administration and Finance Director.
These consolidated financial statements are subject to the approval of the Company’s ordinary shareholders’ meeting.
* * *
alpek annual report 2018 | 135
CONSOLIDATED FINANCIAL STATEMENTS INVESTOR RELATIONS
Hernán Lozano
Sabino Parra
IR@alpek.com
www.alpek.com
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
Alpek, S.A.B. de C.V.
Av. Gómez Morín 1111 Sur
Col. Carrizalejo, San Pedro Garza García
Nuevo León, CP. 66254, Mexico
www.alpek.com