2019
ANNUAL REPORT
Virgin PET and Recycled PET (rPET)
TABLE OF
CONTENTS
Corporate profile
Financial highlights
Footprint
Petrochemical value chains
Letter to shareholders
3
4
5
6
7
Polyester
12
Plastics & Chemicals
16
Strategic investments
20
Sustainability
24
Board of Directors
47
Management Team
48
Corporate Governance
49
Glossary
50
Management’s Analysis
51
Consolidated Financial
Statements
55
2019 ALPEK ANNUAL REPORT | 2
CORPORATE
PROFILE
(GRI Standards: 102-2, 102-6, 102-7)
• Operating in two business segments: Polyester and Plastics & Chemicals.
• Leading integrated polyester producer in the Americas.
• Sole manufacturer of polypropylene (PP) and caprolactam (CPL) in Mexico.
• Largest expandable polystyrene (EPS) player in the Americas.
• Largest recycled PET (rPET) producer in the Americas.
• 70% of sales outside of Mexico.
• 89% of Alpek’s production is used in food, beverage and consumer goods
packaging.
• Listed on the Mexican Stock Exchange since April 2012.
PET Recycling
2019 ALPEK ANNUAL REPORT | 3
FINANCIAL HIGHLIGHTS
(GRI Standard: 201-1)
INCOME STATEMENT
Net Sales
Operating Income
EBITDA(1)
Majority net income(2)
Net income per share(3)(5)
BALANCE SHEET
Assets
Liabilities
Stockholders’ equity
Majority interest(2)
Book value per share(4)(5)
MILLIONS OF DOLLARS
MILLIONS OF PESOS
2019
6,216
641
850
342
0.16
5,455
3,064
2,391
2,148
1.01
2018
% var.
2019
2018
% var.
6,991
1,086
1,063
697
0.33
6,091
3,898
2,193
1,937
0.91
(11)
(41)
(20)
(51)
(10)
(21)
9
11
119,685
134,523
12,361
16,395
6,605
3.12
21,202
20,607
13,633
6.44
102,794
119,897
57,736
45,058
40,480
19.11
76,734
43,163
38,127
18.00
(11)
(42)
(20)
(52)
(14)
(25)
4
6
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 2019 to 2015 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 2019 and 2018 are expressed in nominal terms.
1) EBITDA = Operating income plus depreciation, amortization and impairment of non-current assets.
2) Attributable to the controlling interest.
3) Based on the weighted average number of outstanding shares (2,117 million shares in 2019; and 2,118 in 2018).
4) Based on the number of outstanding shares (2,118 million shares in 2019; and 2,118 in 2018).
5) Dollars or pesos per share, accordingly.
15
16
17
18
19
(319)
15
16
17
18
19
EBITDA(1)
Millions of dollars
1
0
0
2
0
0
3
0
0
4
0
0
5
0
0
6
0
0
7
0
0
630
669
384
1,063
850
5
0
1
0
0
1
5
0
2
0
0
MA JORITY NET INCOME(2)
Millions of dollars
-
3
0
0
-
2
0
0
-
2
5
0
-
1
5
0
-
1
0
0
-
5
0
0
65
175
198
15
16
17
18
19
697
342
ASSETS
Millions of dollars
1
0
0
0
2
0
0
0
3
0
0
0
4
0
0
0
5
0
0
0
4,353
4,428
4,752
6,091
5,455
2019 ALPEK ANNUAL REPORT | 4
FOOTPRINT
(GRI Standards: 102-3, 102-4)
POLYESTER
PLASTICS &
CHEMICALS
6,004
EMPLOYEES
A qualified team operating a total
capacity of 7.4 million tons per year.
28PLANTS IN 7 COUNTRIES:
Mexico, United States, Canada, Brazil,
Argentina, Chile, and United Kingdom.
2019 ALPEK ANNUAL REPORT | 5
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
Cracker
Benzene
Propane
Cracker
H
H
C
C
H
CH3
Propylene
Polypropylene
Methane
H
N
H
H
Ammonia
Ethane
Cracker
H
H
C
C
H
H
Ethylene
Cracker
Cyclohexane
CH2
Styrene
Caprolactam
Ammonium
Sulfate
EPS
Oil
Refinery
Naphtha
O
CH2
CH2
Ethylene
Oxide
Monoethylene
Glycol
PET
rPET
Fibers
POLYESTER
PLASTICS & CHEMICALS
2019 ALPEK ANNUAL REPORT | 6
LETTER TO SHAREHOLDERS
(GRI Standards: 102-10, 102-11, 102-14, 102-15)
Dear Shareholders:
In 2019, Alpek registered one of its best years ever. In addition to final-
Our consolidated sales in 2019 totaled US $6.216 billion, down 11% year-
The Polyester business posted sales of US $4.718 billion in 2019, 9% lower
izing the sale of its cogeneration plants, a better-than-expected perfor-
over-year, resulting from an 11% decrease in average prices.
than the previous fiscal year, mainly due to a decrease in feedstock prices.
mance in the Plastics and Chemicals segment offset the negative effect
from the drop in paraxylene (Px) prices on Polyester results.
Consolidated EBITDA totaled US $850 million, a drop of 20% from the
EBITDA for this segment totaled US $428 million, which includes a non-
record amount that was posted in 2018, mainly due to the prevailing also
cash inventory loss of US $56 million, as well as a net gain of US $9 million
The average Brent crude oil price was US $64 per barrel, 10% lower than
record margins that year. EBITDA in 2019 included an extraordinary gain
from other items. Excluding these concepts, Polyester’s comparable
in 2018, with a maximum monthly average of US $71 in April and a mini-
of US $188 million from the sale of the cogeneration assets, and a net
EBITDA was US $474 million, 10% lower than in 2018.
mum of US $59 in January. In turn, Px prices fell during the first semester,
charge from non-operating expenses of US $60 million, largely due to an
disconnecting from their usual correlation with crude oil prices.
inventory loss of US $68 million. Excluding the impact of these non-op-
erating items, comparable consolidated EBITDA totaled US $722 million.
Alpek Polyester (PET). Fayetteville, NC, United States
2019 ALPEK ANNUAL REPORT | 7
Additionally, the drop in Px prices resulted in a raw material carry-forward effect of US $67 million. Not account-
ing for this impact, comparable EBITDA for this segment would have totaled US $541 million in 2019.
In 2019, sales from the Plastics and Chemicals (P&C) business dropped 18% to US $1.407 billion, mainly due to
decreases of 2% and 16% in volume and average price, respectively.
EBITDA for this segment was US $218 million, which includes a non-cash inventory loss of US $13 million. Exclud-
ing the effect of this non-operating expense, comparable EBITDA for P&C totaled US $231 million.
The resilience shown by margins in North America for both polypropylene (PP) and, to a lesser degree, ex-
pandable polystyrene (EPS) largely during the first two quarters, offset a lower-than-expected performance by
caprolactam (CPL).
In 2019, Alpek carried out its strategic investment plan while improving its leverage levels, decreeing record div-
idends, and accessing international capital markets under highly competitive conditions.
The company placed a US $500 million 10-year bond with a 4.25% annual coupon, the lowest in Alpek’s history.
This transaction, which was oversubscribed by 6.0 times, helped consolidate our financial position by refinancing
short-term debt and extending the average debt maturity, after the fourth-quarter debt payment, to 5.3 years.
As of December 31, 2019, Alpek’s net debt was at US $1.33 billion, down 27% from the previous year. Our finan-
cial ratios improved significantly: net debt to EBITDA dropped to 1.6 times, compared to 1.7 times at year-end
2018, while interest coverage increased to 7.2 times, versus 9.9 times in the previous year. Investment in fixed
assets and strategic projects, as well as the effect of the new IFRS16 standard, which requires leases to be regis-
tered as debt, were offset by the extraordinary revenue stream derived from the sale of our cogeneration assets.
This level of leverage, the result of the company’s substantial cash flow, places us in a favorable position to contin-
ue exploring strategic growth opportunities while facing a changing, ever-challenging environment.
Strategic projects and acquisitions
Alpek’s investments in fixed assets and acquisitions, which totaled US $270 million in 2019, were all aligned with
its three pillars of growth: i) strengthening core businesses; ii) strategic organic and inorganic growth; and iii)
fostering a circular economy for our products.
1. Alpek concludes the sale of its cogeneration power plants.
During the fourth quarter, and once the construction of our Altamira site had been completed, we finalized the
sale of our two cogeneration plants to ContourGlobal for US $801 million.
This transaction, the largest asset sale in Alpek’s history, allowed the company, on the one hand, to strengthen
its financial position by both significantly reducing its debt and improving its debt profile, and on the other, to
decree a dividend of US $143 million.
Styropek (EPS). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 8
Clear Path Recycling (rPET). Fayetteville, NC, United States
2. Alpek finalizes its first acquisition outside of The Americas.
In 2019, Alpek signed an agreement with Lotte Chemical Corporation to purchase 100% of the shares of Lotte
Chemical UK Limited, which operates a PET plant in Wilton, United Kingdom. With an annual production
capacity of 350,000 tons, this site increases our global PET production capacity to 2.8 million tons per year.
This plant, the sole PET producing site in the United Kingdom, is Alpek’s first asset in Europe and improves the
relative balance between our global PTA and PET capacities.
3. Alpek strengthens its leadership position in PET recycling.
Alpek finalized with Perpetual Recycling Solutions LLC, the acquisition of their high-quality recycled PET
(rPET) plant in Richmond, Indiana, which has an annual capacity of 45,000 tons.
This site, along with the ones in Pacheco, Argentina, and Fayetteville, North Carolina, expands our total rPET
installed capacity to 115,000 annual tons, which currently places Alpek as the leading PET recycler in the
Americas.
In this report, we present the eighth annual edition of our sustainability section, in which we highlight our prog-
ress in this area according to Global Reporting Initiative standards, as well as our contribution to the UN’s Sustain-
able Development Goals.
During the year, we invested over US $48 million in concrete actions to foster sustainability. Highlights include
providing an average of 55 hours of training per employee across all company levels, well above 38 hours in
2018, as well as supporting schools neighboring communities, which benefited more than 6,500 students and
their families.
These initiatives are all in line with the four pillars that comprise our sustainability model: i) internal well-being, ii)
community, iii) environment and iv) sustainable economic value creation.
In 2019 we also increased our efforts to communicate the strengths of PET in terms of sustainability, such as:
• It is lighter, more resistant, and more affordable than glass or aluminum, which has turned it into the
most-employed beverage packaging material in the world.
• It is 100% recyclable, and easy to separate, making it the most-recycled plastic worldwide.
• Its carbon footprint is significantly lower than that of glass or aluminum, given a lower energy consumption
throughout its value chain.
2019 ALPEK ANNUAL REPORT | 9
To extend the reach of our sustainability efforts, in 2019 Alpek also joined
Our 2020 perspective remains positive, although we forecast a less fa-
ii. Continuing our strategic growth plan, focused on selective and dis-
The Recycling Partnership, a non-profit association dedicated to increas-
vorable environment than in 2019. International trade tensions have the
ciplined geographical expansion and vertical integration, leveraging
ing recycling infrastructure in the United States, as well as promoting in-
potential to reduce demand for Asian exports, which may put down-
our financial strength and integrating recent acquisitions such as the
creased environmental awareness.
ward pressure on margins. Nevertheless, we have a solid, long-term
Richmond rPET site, Wilton PET site, and ongoing projects such as
Conclusions and Perspectives
In 2019, Alpek posted its second-best year in terms of EBITDA, finalized
acquisitions that strengthened its competitive position, all the while im-
proving its leverage ratios.
strategy, designed specifically to face such scenarios, and focused on
Corpus Christi Polymers.
three key pillars:
iii. Reiterating our commitment to sustainability by expanding our pres-
i.
Strengthening our core businesses, expanding the use of our pat-
ence in the rPET market, which will allow us to capitalize on oppor-
ented Integrex® technology and best practices to remain in the first
tunities created by the circular economy, and complementing our
quartile of the cost curve, as well as securing reliable, affordable, and
portfolio with more sustainable, value-added and client-customized
long-term feedstock sources.
solutions.
We would like to thank our employees, customers, suppliers, creditors,
the community and you, our shareholders, for placing your trust in this
Board of Directors this year.
Sincerely,
José de Jesús Valdez Simancas
Chief Executive Officer
Armando Garza Sada
Chairman of the Board
2019 ALPEK ANNUAL REPORT | 10
Alpek Polyester (PET). Fayetteville, NC, United States
2019 ALPEK ANNUAL REPORT | 11
POLYESTER
The products in the Polyester segment are:
• Purified terephthalic acid (PTA): produced from paraxylene
and the main feedstock used to manufacture of PET and
polyester fibers.
• Polyethylene terephthalate (PET): produced from PTA and
monoethylene glycol (MEG), it is light, resistant and cheap;
used mainly for packaging beverage, food, and consumer
products; it is 100% recyclable and easily separated, making it
the most recycled plastic in the world.
• Recycled PET (rPET): produced from recycling collected PET
using a mechanical separation and cleaning process. Identical
in properties to PET, its carbon footprint is one of the lowest
among packaging materials – lower even than recycled glass
bottles or aluminum cans.
• Polyester fibers: used to produce clothing, seat belts, and
various textiles, among other applications.
CAPACITY
(Thousand Tons)
PTA (2,890)
PET (2,814)
FIBERS (400)
rPET (115)
2%
7%
42%
49%
Alpek Polyester (PTA), Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 12
Alpek is one of the leading integrated PTA-PET producers worldwide, the
sole PET producer in the United Kingdom, and Argentina’s only manufac-
Results
turer of virgin and recycled PET resin.
Polyester sales totaled US $4.718 billion in 2019, 9% lower than the pre-
Polyester has a slate of 4,294 employees across the United States, Mexico,
vious year as a result of the decrease in feedstock prices.
Brazil, Argentina, Canada, and the United Kingdom, operating 18 plants
Consolidated EBITDA for this segment totaled US $428 million, which in-
with a total installed capacity of 6.2 million tons.
cludes a non-cash inventory loss of US $56 million, and a net gain of US $9
The company has three PET recycling sites, two in the United States and
one in Argentina, with a combined annual capacity to recycle the equiv-
million from other items. Excluding these concepts, the segment’s compa-
rable EBITDA was US $474 million, 10% lower than in 2018.
alent of 4 billion PET bottles. This makes Alpek the leading PET recycler
The environment in 2019 was positive for the segment, although not
in the Americas.
Polyester is Alpek’s largest business, as it contributed 76% of the compa-
ny’s consolidated revenue in 2019. Two key factors drive demand and
provide stability in this segment: up to 70% of its sales are in North Amer-
ica, with its large, stable, and mature demand; second, more than 80% of
Polyester volume is used towards the packaging of consumer goods.
as positive as in 2018, when global PTA and PET margins reached re-
cord levels. On the other hand, the drop in Px prices caused extraordi-
nary adverse effects on Polyester results during the first three quarters
of the year.
Akra (Filament Yarn). Monterrey, NL, Mexico
Alpek Polyester (rPET). Richmond, IN, United States
2019 ALPEK ANNUAL REPORT | 13
Clear Path Recycling (rPET). Fayetteville, NC, United States
The aforementioned drop in the Px price resulted in a raw material car-
ry-forward effect of US $67 million, adjusted for which comparable EBIT-
DA for Polyester would have totaled US $541 million.
Our outlook for 2020 is positive, though from an industry standpoint,
we expect a less favorable environment than in the past two years. This
is partly because international trade tensions are expected to potentially
reduce demand for Asian products, which in turn would negatively im-
pact margins.
Nevertheless, from an operations perspective, we expect that a combi-
nation of increased sales volume and improvements to conversion costs
will help us face the reduction to margins and natural cyclicality of the
Polyester industry.
The Wilton site is Alpek’s first
acquisition in Europe and expands
its consolidated annual PET capacity
up to 2.8 million tons
2019 ALPEK ANNUAL REPORT | 14
Alpek Polyester (rPET), Richmond, IN, United States.
2019 ALPEK ANNUAL REPORT | 15
PLASTICS & CHEMICALS
The main products in the Plastics & Chemicals segment are:
• Polypropylene (PP): a recyclable plastic made from propylene,
ideal to produce food packaging, containers, medical
equipment, auto parts, and other applications.
(EPS): a
• Expandable polystyrene
low-density material
used as insulation and impact-absorption in the packaging
of domestic appliances, electronics, and for its thermal
properties, among others.
• Caprolactam
(CPL): the main
manufacturing, a product used
engineering plastics, etc.
feedstock
for Nylon 6
in clothing, tire cord,
• Specialty and industrial chemicals: products with a wide
variety of applications for the oil, pharmaceutical, automotive,
and consumer goods industries.
CAPACITY
(Thousand Tons)
PP (640)
EPS (325)
CPL (85)
8%
10%
OTHERS (117)
28%
54%
Indelpro (PP). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 16
Results
Alpek is the largest EPS producer in the Americas and Mexico’s sole pro-
P&C posted sales of US $1.407 billion in 2019, 18% lower year-over-
ducer of PP and CPL. The Plastics and Chemicals (P&C) segment has 1,165
year, due to decreases of 2% and 16% in volume and average price,
employees operating 10 plants with a total installed capacity of 1.2 million
respectively.
tons, located in Mexico, Brazil, Argentina, and Chile.
This business produced an EBITDA of US $218 million, which includes a
In 2019, Plastics and Chemicals represented 23% of Alpek’s consolidated
non-cash inventory loss of US $13 million. Excluding this effect, the com-
revenues.
parable EBITDA for the segment totaled US $231 million, 16% below the
figure for 2018.
P&C results were driven by a higher-than-expected margin environment
for polypropylene (PP) and, to a lesser degree, expandable polystyrene
(EPS), especially during the first six months of the year.
Indelpro (PP). Altamira, Tamps, Mexico
Styropek (EPS). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 17
Styropek (EPS). Altamira, Tamps, Mexico
On the other hand, a decline in global margins negatively impacted the
results of CPL, which only accounts for a small portion of sales in this
segment.
In 2020, we expect to maintain our solid operating performance and
to continue with strong volumes. The entry of new PP capacity in North
America toward the end of the year will pressure the segment’s margins,
but Alpek has made considerable efforts to focus on more specialized
products that will help mitigate that effect.
Alpek is the leading
manufacturer of EPS in
the Americas and the
only producer of PP and
CPL in Mexico.
2019 ALPEK ANNUAL REPORT | 18
Polypropylene (PP) Container
2019 ALPEK ANNUAL REPORT | 19
STRATEGIC INVESTMENTS
(GRI Standard: 102-11)
Alpek’s strategy of vertical integration and geographical expansion is well-aligned with its three pillars of growth:
i. Strengthening core businesses
ii. Strategic growth, both organic and inorganic
iii. Fostering a circular economy for our products
In 2019, the company invested US $270 million in fixed assets and acquisitions.
Alpek Polyester (rPET). Richmond, IN, United States
2019 ALPEK ANNUAL REPORT | 20
Indelpro (PP). Altamira, Tamps, Mexico
Acquisitions
(GRI Standard: 102-11)
The company reached an agreement to acquire its first asset outside the
Similarly, Alpek finalized the acquisition of a high-quality recycled PET
Americas from Lotte Chemical Corporation by purchasing the full stake of
plant in Richmond, Indiana, from Perpetual Recycling Solutions, LLC.
Lotte Chemical UK Limited, whose plant at Wilton is the sole PET produc-
ing facility in the United Kingdom.
The plant has a capacity of 45,000 tons per year, which in addition to our
operations in Pacheco, Argentina, and Fayetteville, North Carolina, raise
Besides improving the relative balance between our global PTA and PET
our installed rPET capacity to 115,000 tons, a figure that currently makes
capacities, the 350,000 tons per year from the Wilton site increase our
us the market leader in the Americas.
annual consolidated PET capacity to 2.8 million tons.
Alpek Polyester (PET). Wilton, CVE, United Kingdom
2019 ALPEK ANNUAL REPORT | 21
Fixed Assets
In Corpus Christi, Texas, progress continued on the construction of the
integrated PTA-PET site owned by Corpus Christi Polymers, LLC (CC
Polymers), on which Alpek, Indorama and Far Eastern each hold a one-
third stake.
Once completed, the plant will have an annual production capacity of
1.1 million and 1.3 million tons of PET and PTA, respectively, making it
the largest PTA-PET integrated single-site facility worldwide, as well as the
largest PTA site in the Americas. At start-up, Alpek will have the right to
receive a third of CC Polymers’ total PET and PTA production.
During the third quarter, the company completed construction of its sec-
ond cogeneration plant, with a 350- megawatt capacity, located in Altami-
ra, Tamaulipas.
Sale of cogeneration assets
During the fourth quarter, Alpek finalized the sale of its two cogenera-
tion sites, both the recently completed plant in Altamira and the one
located in Cosoleacaque, Veracruz, to ContourGlobal. With an amount
of US $801 million, this is the largest asset sale in the company’s history.
With the resources from this disinvestment, Alpek was able to significantly
reduce its debt, improve its average debt maturity to 5.3 years, and de-
cree a dividend of US $143 million for its shareholders.
2019 ALPEK ANNUAL REPORT | 22
Corpus Christi Polymers LLC (PTA, PET), Corpus Christi, TX, United States
Indelpro (PP). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 23
SUSTAINABILITY
Reforestation with Styropek families. Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 24
Introduction
Innovation has always played an essential role in our operations. As a mul-
This eighth edition of our Sustainability Report provides details about the
tinational company, Alpek is committed to operating in harmony with the
initiatives, strengths, and opportunity areas for the company in terms of
environment, society, and our employees, in order to contribute today
sustainability. Our path has allowed us to integrate environmental, social,
for a better future for everyone. Driven by a culture of ethics and innova-
and governance criteria into our business strategy, identifying the main
tion, we reinvented our way of doing things to align with global sustain-
impact in these areas, and refining our current and future management
ability trends.
approach.
The main objectives of our vision of integrated growth are to increase the
This is the sixth year that we use the Global Reporting Initiative (GRI)
responsible use of resources, constantly reinforce safety at our facilities,
Methodology, and the third year in its Standard version. Our chosen op-
and practice sustainable operational management.
tion, “core” compliance, focuses on the key issues that the company and its
stakeholders identified through the materiality analysis.
Alpek Polyester (PET). Zárate, BS, Argentina
2019 ALPEK ANNUAL REPORT | 25
GRI Standards and their corresponding material aspects are denoted in this chapter and in other sections of the
report. We also list the Sustainable Development Goals (SDGs) to which our actions contribute to, joining the
international effort of reaching said goals established by the United Nations in the Paris Agreement in 2015. To
see the entire list of standards, material aspects, and SDGs, please see the GRI index in the following link:
http://www.alpek.com/sustainability.html
During the year,
we invested
over US $48 million in
concrete actions to
foster sustainability.
Our Sustainability Strategy
(GRI Standards: 102-30, 102-40, 102-42, 102-43, 102-44)
Material Aspects: Relations with NGOs and Regulatory Agencies; CSR Management; Operations and Risks Strategy.
SDG 17: Partnerships for the Goals.
The premise for developing and implementing our sustainable management strategy is simple: operate with a
focus on responsible growth. Respect for the environment, employees, and communities is key to the current and
future success of our operations.
In Alpek, we work to integrate our business and sustainability strategies to drive the creation of economic and
social value. We are aware of the need to evolve in order to ensure our business remains relevant, therefore we
strive constantly to minimize our operational impact on the environment and society.
In 2019, we revised our sustainability strategy in order to expressly integrate the concept of circular economy,
though it had already formed part of our operations for over ten years. To do so, our efforts over the next years
will be partly focused on communicating PET’s environmental advantages versus other packaging materials, such
as glass and aluminum.
2019 ALPEK ANNUAL REPORT | 26
Reforestation with Styropek families. Altamira, Tamps, Mexico
Our Sustainability Model
(GRI Standards: 102-11, 102-40, 102-42, 102-43, 102-44)
Material Aspects: CSR Management; Relations with NGOs and Regulatory
Agencies; Operations and risks strategy.
SDG 17: Partnerships for the Goals.
We identify our stakeholders based on the level of interaction we have
with each one, the scope of impact our operations have on each of them,
as well as the real or potential impact they exert on us. This is the base of
our Sustainability Model (Fig. 1).
In order to ensure the effectiveness of the model, we have to identify the
needs and concerns of our stakeholders, as well as recognize, proactively
respond, and adapt to the social, environmental, and market trends that
may impact the development of the industry that we serve (Fig. 2).
Sustainable
economic value
creation:
Obtain adequate returns, taking
into consideration the investment
made and the assumed risk.
Directed toward:
SHAREHOLDERS
Environment:
Decrease the impact of
our operations, reducing
emissions and conserving
resources, soil and water.
Directed toward:
ALL OF OUR
STAKEHOLDERS
Fig. 1
n
o m i c
n
ustainable e c o
value creati o
S
n
o
i
s
s
i
M
t
n
e
m
n
o
Envir
Bienestar in
Intern
al
w
e
t
ll
e
-
r
Internal well-being:
Provide healthy & safe working
conditions and opportunities for
employee development.
b
n
e
o
i
n
g
Directed toward:
EMPLOYEES
V
i
s
i
o
n
Community
Community:
Be a responsible citizen in the
community.
Directed toward:
COMMUNITIES,
CUSTOMERS AND
SUPPLIERS
2019 ALPEK ANNUAL REPORT | 27
PUBLIC
EMPLOYEES
CUSTOMERS
COMMUNICATION CHANNELS
FREQUENCY
MAIN CONCERNS
HOW THOSE CONCERNS HAVE BEEN ADDRESSED
Safety Talks
• Monthly MASH meetings
•
• Organizational climate survey
• Face-to-face meetings
• Quality and performance scorecard
•
•
• 01 800 Helpline
• Communication and safety teams
• Magazine, newsletter, email
Info boards
Integrity and Transparency helpline
• Permanent
• Monthly
• Weekly
• Risk and contingency management
• Training and development
• Performance evaluations
• Future projects
• Possible safety incidents
• We establish attention and action plans derived from meetings
• Personal attention to every case
• Establishment of working groups
• Project development
• Development initiatives
Integrity and Transparency Helpline
• Press releases
• Face-to-face meetings
•
• Website
• On-site visits
• Surveys
• Telephone
• Email
• Response on CDP and RobecoSAM platforms
• Weekly
• Monthly
• Permanent
• Development, logistics, and quality
• Product price and availability
• Economic and market trends
• Social responsibility practices
• Programs of attention and response to findings
• Compliance with domestic and international standards
• Supplier follow-up and improvement programs
• Corrective measures
• Corporate Social Responsibility programs
• Contingency management priority
• Client-centered focus
SHAREHOLDERS
• Shareholders’ meeting
• Quarterly and annual reports
• Dialogue and in-person meetings
SUPPLIERS
NEIGHBORS
Integrity and Transparency helpline
• Email
• Telephone communication
•
• Face-to-face meetings
• On-site visits
• Surveys
• Development projects/committee communication
• Website
• Talks and training
• Community care talks
• Community development programs
• On-site visits
• Complaints box
• Community committees
•
•
• Open door policy
Involvement of local authorities
Job fairs
• Monthly
• Quarterly
• Annually
• Permanent
• Monthly
• Weekly
• Permanent
• 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
• 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
• Development and implementation of community
• Development and implementation of community care and
care and community involvement programs
Involvement in community committees
•
• Talks and training on environmental issues
• School support programs
community involvement programs
Involvement in community committees
•
• Talks and training on environmental issues
• School support programs
EDUCATIONAL
AND YOUTH
INSTITUTIONS
• On-site visits
• Educational talks
•
• Open door policy
Job fairs
Fig. 2
• Permanent
•
Job opportunities
• Youth development
• Project collaboration
Job fairs
Job offers on social networks
•
•
• On-site internships
• Research agreements
2019 ALPEK ANNUAL REPORT | 28
(GRI Standards: 102-46, 102-47, 103-1b, 103-1c)
Reforestation with Styropek families. Altamira, Tamps, Mexico
We performed a materiality analysis in order to strengthen our relation-
ship with these groups, gain clarity on their expectations, and identify the
topics most relevant to them, as well as our industry policies, reputation
and regulations. This helped us chart a course for our business strategies
and goals.
Thirteen material aspects were identified within four key CSR pillars,
which 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
Operations and Risks Strategy
Water Management
Investor Relations
CSR Management
Climate Change and Emissions
Strategy
Corporate Governance
Community Engagement
Labor Practices
Relations with NGOs and
Distribution of Wealth
Regulatory Agencies
Health and Safety
Customer and Supplier
Energy Eco-efficiency
Relations
2019 ALPEK ANNUAL REPORT | 29
PILLAR 1.
SUSTAINABLE ECONOMIC
VALUE CREATION
Seeking out economic growth is part of the nature of any business. How-
ever, Alpek recognizes that our mission is to not only generate strong fi-
nancial results, but to achieve them in a sustainable fashion. Therefore, we
operate with a focus on long-term impact and we manage acquired risks
in order to maximize our return on investment in a socially and environ-
mentally responsible manner.
Corporate Governance
(GRI Standards: 102-18, 102-25, 102-26)
Material Aspect: Corporate governance.
SDGs 8 and 12: Decent Work and Economic Growth, Responsible
Consumption and Production.
CATEGORY
OBJECTIVE
OFFICIALS RESPONSIBLE
CODE OF ETHICS
Establish guidelines for the conduct we expect of
System of compliance with the Code of Ethics through
our employees and upon which the daily company
signature, training, and anonymous complaint mechanisms.
performance is based.
ANTI-CORRUPTION POLICY
Establish guidelines to strengthen employee conduct
System of compliance with the anti-corruption policy
and integrity in relation to the risk of corruption in
through signature, training, and anonymous grievance
the company.
mechanisms.
HUMAN RIGHTS POLICY
Strengthen the commitment to respect and safeguard
Under consideration for future development.
human rights.
PERSONAL INFORMATION
Management and protection of personal and
Managed through the Compliance Manual.
PROTECTION POLICY
confidential data for our stakeholders.
INTELLECTUAL PROPERTY
Prohibition of the illegal use of software.
Policy compliance through the signature of commodatum
RIGHTS POLICY
agreements.
COMPENSATION AND LABOR
Compliance with labor standards and publication of
Compensation and salary scheme.
PRACTICES POLICY
human resources standards.
Alpek’s business continuity depends on an efficient management of fi-
ENVIRONMENTAL POLICY
Environmental protection and safety for both
Alpek companies have their own environmental protection
nancial resources, in addition to a solid ethics and values platform. This
products and facilities.
policy and comply with all legal requirements. These
is established by our Board of Directors, echoed throughout the entire
organization, and extended to our stakeholders.
The policies and procedures that govern company performance adhere
are managed through the Departments of Integral
Responsibility, and Ecology-Safety.
to international governance, labor, and environmental standards, and
SUPPLIER POLICY
Establish the necessary processes for selecting,
Managed through ISO procedures and instructions for
establish the criteria for the implementation of programs and initiatives.
evaluating and monitoring current and future
Procurement: External Services and Materials.
Each year, we update these policies and develop others that have been
suppliers.
identified as essential to meeting our commitment to increasingly sustain-
able management.
CONFLICT OF INTEREST POLICY Foster total transparency in all business activities
Managed through our Legal Department.
performed by the Board of Directors and by our
employees.
2019 ALPEK ANNUAL REPORT | 30
(GRI Standards: 102-16, 102-17)
Our Code of Ethics and the Anti-Corruption Policy were designed to
Our Conflict of Interests Policy seeks to promote total transparency in
In 2019, we addressed a total of 82 cases of non-compliance or violation
strengthen integrity within the company and to define guidelines for the
every business activity carried out by the members of the Board and all
of these policies, and 14 people left the company as a result. None of
conduct we expect from our employees. We carry out ongoing training in
employees. is designed to foster complete transparency in all business
the cases were related to the involvement of employees with govern-
both areas through in-person meetings, emails, information boards and
activities performed by the Board of Directors and by our employees.
ment authorities, and none involved cancellations or non-renewed con-
messages sent through communication channels (calendars, leaflets, and
This policy establishes that Board Members who may have a conflict of
tracts with business partners for reasons attributable to non-compliance
communication screens).
interest during decision-making must report it to the other members of
with Alpek policies and values. There were also no cases in which Alpek
We ensure that grievance mechanisms are available to our workforce to
facilitate reports of any non-compliance with these policies. This includes
the Integrity and Transparency Helpline, which operates 24 hours a day,
365 days a year, and which is also used to identify cases of money launder-
ing and corruption. In addition to internal mechanisms, we also leverage
external consulting services from specialized firms in legal, labor, environ-
mental and social responsibility practices.
Styropek (EPS). Gral. Lagos, SF, Argentina
the Board and abstain from participating in the discussion or exercis-
was reported for matters dealing with corruption. One of our 2020 ob-
ing their vote during meetings. For employees, the policy indicates that
jectives is to increase compliance efforts throughout the business, aimed
they must avoid any situation in which their interests differ from those
at reducing the number of these incidents to zero and strengthening
of the company. Employees who have interests with current or poten-
Alpek’s ethical culture.
tial suppliers or customers must report these cases to their immediate
supervisors.
2019 ALPEK ANNUAL REPORT | 31
Economic Performance
(GRI Standard: 201-1)
Risks and Financial Opportunities
Attributable to Climate Change
In 2019, Alpek posted one of its best years ever in terms of EBITDA. It finalized the sale of its cogeneration
assets, as well as a had a better-than-expected performance in the Plastics and Chemicals segment that offset
the negative impact of the drop in paraxylene prices on Polyester results.
(GRI Standard: 201-2)
Material Aspects: Wealth Distribution, Operations and Risks Strategy, Climate Change Strategy.
SDG 13: Climate Action.
FINANCIAL FIGURES
MILLIONS OF USD
Total revenue
Consolidated net income
Majority net income
Income per share (dollars)
Income Tax
Dividends paid
Investments and acquisitions
Net debt
Net debt/EBITDA (times)
2019
6,216
390
342
0.16
144
206
270
1,330
1.6
2018
6,911
765
697
0.33
92
53
826
1,832
1.7
The goal of mitigating climate change is a priority on the global agenda as well as for our business. At Alpek, we
understand the responsibilities inherent to working with non-renewable resources. The United Nations (UN) has
invited companies, governments, institutions, and society in general to join the efforts against climate change
through the Paris Agreement to meet the 2030 Sustainable Development Goals (SDGs).
This year, progress toward the 2030 Agenda was slower than expected. Our awareness of this issue means that we
will continue to seek environmental and social value while maintaining financial health.
These efforts include the construction of two power cogeneration plants, whose sale was finalized in 2019. This
represented great economic and environmental advantages for our company by continuing to cover part of
the energy needs of our operations in Mexico. Furthermore, both of our propylene storage spheres remain in
operation, allowing us to reduce costs and optimize inventories.
*Financial results of the company can be reviewed in detail starting on page 51 of this document.
PROJECT
2019 PROGRESS
CHALLENGE
OPPORTUNITY
Cogeneration power
plants.
Finalized the sale of
both plants.
Supply our electricity needs
more efficiently and in a more
environmentally responsible
manner.
Allows us to supply our
electricity needs up to 350 MW.
Propylene storage
spheres.
Project in operation.
Propylene, one of the basic
raw materials used in our
operations, is a non-renewable
resource that requires 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.
PET Recycling.
We have identified
this practice as part
of our efforts to
operate under a
circular economy.
We have 3 PET recycling plants.
The largest challenge is PET
collection, due to low recycling
infrastructure and the absence
of legislation for properly
separating waste.
In the process of identifying
actions to leverage this activity
to create significant positive
impact on our operations.
2019 ALPEK ANNUAL REPORT | 32
Reforestation with Styropek families. Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 33
PILLAR 2.
INTERNAL WELL-BEING
Alpek’s responsible and sustainable development would not be possible
without the commitment of over 6,000 employees who make this com-
pany an industry leader. Fostering their well-being, providing a safe and
inclusive workplace, driving competitiveness, talent development and
boosting their skills for integrated growth and healthy work-life balance,
are all essential management actions.
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.
All of our employees receive a base salary that is higher than the legal
minimum wage in every country where we operate, and they receive all
the benefits corresponding to their job profile. Compensation is based
on each job profile and the skillset needed to perform it. There is no dif-
ference between salaries offered to men and women who perform the
same job. Although, due to the nature of our operations our workforce
consists mainly of men, we operate with gender-equality policies such as
the Equal Employment Opportunity Policy, flextime, maternity and paterni-
ty leave, and non-discrimination or harassment in the workplace.
Indelpro (PP). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 34
In Mexico, Alpek Polyester received the Empresas de Diez award, which recognizes companies that demon-
strate a serious commitment to their employees by timely delivering employer contributions for ten consec-
utive two-month periods, and by not having ongoing debt with Infonavit.
In 2019, our workforce was comprised as follows:
PERSONNEL
Executives (Directors
and Managers)
Executives (and floor
managers)
Operators
Total
UNIONIZED
NON-UNIONIZED
% OF TOTAL
MEN
WOMEN
-
-
3,271
3,271
-
-
226
226
MEN
191
1,420
85
1,696
WOMEN
25
651
5
681
MEN
3.9
28.6
67.6
100
WOMEN
2.8
71.8
25.5
100
*This chart does not show numbers of the staff of the recently acquired facility in Wilton, UK, at the start of 2020
Training and Development
(GRI Standards: 404-1, 404-2, 404-3, 403-5)
Material Aspect: Labor practices.
SDGs 4, 5 and 8: Quality Education, Gender Equality, Decent Work and Economic Growth.
Skill development and employee education are factors that drive professional growth, raise self-esteem and make
employees apply what they have learned in their personal life. This represents one of our greatest competitive
advantages.
In 2019, we invested more than US $3.4 million in training. More than 4,800 employees took an average of 55
training hours, including developing and strengthening their technical and soft skills (the latter is becoming in-
creasingly important). In addition, safety training increased year-over-year, since it is one of our priorities. More-
over, as we have done each year since it began, we are active participants in Sustainability Week at ALFA, where
best practices are shared.
Styropek (EPS). Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 35
Clear Path Recycling (rPET). Fayetteville, NC, United States
The 2019 average training hours per employee are shown below:
2019
2018
All Employees
Women
Men
Unionized
Non-Unionized
55
37
90
40
55
38
35
50
32
40
Industrial Health and Safety
(GRI Standards: 403-3, 403-6, 403-7, 403-9, 403-10)
Material Aspect: Health and Safety.
SDG 3: Good health and well-being.
Both the company and employees are jointly responsible for keeping safe facilities. Establishing a culture of health
and safe operating practices is a priority to which we devote ongoing effort.
In 2019, we carried out over 100 actions related to health and safety at all our facilities through a total investment
of US$ 20.6 million. The implemented initiatives, such as the purchase, improvement and inspection of equip-
ment and the development and execution of annual safety plans, allowed several of our operations to reach 2-,
5-, and 10-year milestones without lost time cases.
We make sure that health and safety services are of high quality through ongoing training, establishing objectives,
scope, definition of responsibilities, protection measures and clear and precise behavior guidelines. We also
implemented different protocols to provide objective identification of situations and activities that pose a risk to
employee health and safety our facilities. Internal and external audits, as well as customer-initiated audits, allow
us to use the results from these processes to improve our related management systems.
In terms of health, more than 5,200 employees benefited from initiatives such as a series of meetings related to
diabetes, nutrition, pregnancy health, regular check-ups, DAK Healthy Rewards, immunization campaigns, and
on-site medical services. Nearly 71 programs were implemented in order to improve the health of our workforce.
2019 ALPEK ANNUAL REPORT | 36
Notably, Aislapol representatives visited the Ergonomics Department at
the Universidad de Chile’s Faculty of Medicine, to study how to design
for ergonomic optimization and applied it to workstations and workplace
conditions. These will be adapted based on employees’ physical and psy-
chological characteristics in order to increase their health and well-being
and boost efficiency and safety.
INDICATOR
*Accident Rate
Frequency Rate
No. of Accidents
Days lost
Physical Losses
2019
156.20
1.73
21
1,891
0
2018
32.07
3.10
35
582
0
*Accident Rate increased due to the rise in Days lost, the result of a change in the calculation
methodology during the year.
We also improved our safety levels through the launch of monthly awar-
ness campaigns to prevent accidents with hazardous materials by check-
ing lines, placing caps, and identifying valves that could cause spillage, in
addition to proper implementation of management systems such as the
Competitive Company Program (PEC) or the OSHAS, among other ac-
tions, also helped us improve our results.
Alpek Polyester (PTA, PET, Polyester Yarn), Suape, PE, Brazil
2019 ALPEK ANNUAL REPORT | 37
PILLAR 3.
ENVIRONMENT
Alpek is committed to protecting and improving the environment. We do this through increasingly efficient pro-
cesses, responsible resource use and disposal, a strong recycling strategy, and by developing more environmen-
tally friendly products.
Investing on Environmental Conservation
(GRI Standard: 202-2)
Material Aspects: Climate Change and Emissions Strategy; Operations and Risks Strategy.
SDG 13: Climate Action.
Energy Efficiency
(GRI Standards: 302-1 to 4)
Material Aspect: Energy eco-efficiency.
SDGs 7, 8, 12, and 13: Affordable and Clean Energy, Decent Work and Economic Growth, Responsible
Consumption and Production, Climate Action.
Alpek joins the global community in the effort to reduce fossil fuel consumption, migrate toward renewable en-
ergy, and to optimize processes toward decreased energy demand.
Natural gas is used by 98% of our operations, the cleanest fossil fuel available. In 2019, our cogeneration power
plants generated 11.86 million GJ of energy to supply our operations in Mexico, equivalent to the annual energy
consumption of 360,000 Mexican families.
The initiatives implemented in our processes are designed to optimize and reduce energy consumption from
non-renewable sources in the short-, medium-, and long-term. Through actions such as eliminating the use of 40
tons of flame retardant, optimization in our washing processes, neo-tech filter technology replacements, among
others; the equivalent of 43,239 GJ was saved in our nominal processes, the equivalent of the consumption of
1,355 Mexican households. Our goal is to increase this amount every year.
The feedstocks we use in our products are mainly petroleum by-products. We assume this great responsibility
and address it from different angles: i) we foster a culture of respect and conservation for the environment both
within and outside of our facilities; ii) we invest in innovation and the development of technologies to make our
GJ
Energy reduction
2019
43,249
2018
85,618
processes even more efficient; iii) we ensure strict compliance with the environmental regulations that govern our
In 2019, our direct energy consumption by source was distributed as follows:
industry.
The Health, Safety and Environment Policy ensures that our product production and marketing take place within
a framework of preventive compliance, with the best-in-class administrative and operating practices, and under a
focus on discipline and ongoing improvement.
Our investments in conservation and environmental well-being initiatives were distributed as follows in 2019:
INVESTMENT AREA (MILLIONS OF USD)
Emission Reduction
Environmental Management Costs
Waste Disposal and Reduction
Prevention Costs
Remediation Costs
Other Environmental Actions
Total
2019
16.00
1.50
2.20
0.64
-
3.20
23.5
2018
11.20
0.50
2.40
0.30
2.90
-
17.3
ENERGY CONSUMPTION
(GJ X 106)
Direct Energy Consumption
(fuels)
*Indirect Consumption
(electricity and steam)
Energy production with Natural
Gas (internally, it does not count
as indirect consumption)
Total
Energy intensity per ton
produced
2019
26.47
7.44
11.86
33.91
5.61
CONSUMPTION BY FUEL
(GJ X 106)
Natural Gas
LP Gas
Gasoline
Diesel
Coal
Fuel Oil
Ethanol
Other
Total
2019
26.110
0.000
0.003
0.003
0.000
0.001
0.105
0.250
26.471
*This data contains only 2019 information due to the change in calculation of energy methodology, and the reporting categories on indirect consump-
tion and the energy generated by the power cogeneration plants. The cogeneration data on consumption of natural gas does not consider the use of
the fuel of the second plant, given that this was in trial periods.
2019 ALPEK ANNUAL REPORT | 38
Alpek Polyester (PET). Fayettevile, NC, United States
Reduction of Emissions
(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 limit global warming to an additional 1.5ºC presents a challenge in designing
and implementing measures to reduce emissions. We have joined this effort through preventive and remediation
actions, process optimization, and investments in equipment maintenance and upgrades at our facilities. All 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. In order to achieve significant reductions in
emissions, the initiatives that we implemented in our companies require commitment and discipline from em-
ployees, suppliers, and external contractors, and strict compliance with applicable legislation.
We achieved a reduction of 43,000 tons of CO2 in 2019. One of our most important initiatives to reduce our
carbon footprint is to produce rPET by recycling PET bottles, one of the most environmentally friendly bottling
materials in existence. Through this and other initiatives, including replacing heaters, substituting cartridges that
produce emissions, halting furnace use, and installing condensers on two emission sources located in the industri-
al filament production process, we achieved reductions equivalent to those of 9,000 vehicles a year.
In 2019, the emissions from our processes were distributed as follows:
EMISSIONS 1 X 106 TON CO2 e
Direct Emissions
Indirect Emissions
Emissions per ton produced
Total Emissions
2019
0.80
1.62
0.48
2.42
2018
1.29
1.13
0.43
2.42
The decrease in direct emissions as well as increased indirect emissions, is due to the fact that in 2019 there was a
change in the supply of our energy sources.
2019 ALPEK ANNUAL REPORT | 39
Emissions from other pollutants (tons of CO2 e)
POLLUTANT (TON CO2 e)
NOx
SOx
Hazardous Air Pollutants (HAP)
Particulate Matter (MP)
Volatile Organic Compound (VOC)
2019
779.0
94.7
396.0
146.0
816.0
2018
408.6
263.0
368.6
174.5
839.6
Total
2,231.7
2,045.3
Water Management
(GRI Standards: 303-1, 303-3, 304-1)
Material Aspect: Water management.
SDGs 6, 8, 12, and 14: Clean Water and Sanitation, Decent Work and Economic Growth, Responsible Consumption
and Production, Life Below Water.
Alpek continuously endeavors to improve its management and use of one of the planet’s most critical natural
resources: water. Reducing the impact of our water footprint is one of the priorities within our environmental
strategy and is key to our operational continuity.
We have decided to record our real water consumption using the updated Water and Effluents GRI Standard,
which is aligned with the international platforms Carbon Disclosure Project (CDP) and RobecoSAM. Therefore,
in 2019 our real water consumption was calculated by subtracting the volume of discharge from our withdrawal
in megaliters (ML).
In 2019, we reduced our consumption by 2,019 ML and reused 2,535 ML in our processes. We treated 10,666
ML at the water treatment plants owned by the company. The amount of recycled water represents 2% of our
total withdrawal.
In order to achieve these results, the companies implemented initiatives such as reducing water use per ton of
product, identifying process improvements to lower resource consumption, and recovering effluents to reincor-
porate them into the processes. The reductions that were achieved in 2019 are equivalent to the water consump-
tion of 3,573 Mexican families in a year.
Alpek Polyester (PTA & PET). Columbia, SC, United States
2019 ALPEK ANNUAL REPORT | 40
Alpek complies with all regulations for water discharge quality in the countries where we operate. Discharges
to rivers, lagoons, municipal sewage, and other destinations was 127,140 ML in 2019. Therefore, the real water
consumption of the company was 678 ML.
Certain Alpek operations are located close to areas of high biodiversity. In the United States, our Columbia plant
is located 24 km from the Congaree National Park, while the Zárate plant in Argentina, is less than 25 km from the
Paraná Delta Biosphere Reserve. Given that these are high-value areas for water and biodiversity, these facilities
implement activities that contribute to water conservation and nearby habitats, such as funding habitat recovery
and giving talks on species conservation.
MEGALITERS (ML)
Treated water
Recycled water
Total
2019
10,666
2,534
13,200
In 2019, our water withdrawal by source was distributed as follows:
MEGALITERS (ML)
Municipal water supply
Rivers, lakes, and oceans
Groundwater
Waste water from other organizations
Other
Total
*2019
6,266
92,450
3,105
497
25,500
127,818
2018
9,300
2,900
12,200
2018
8,100
80,200
3,700
-
950
93,000
*The increase in water withdrawal is mostly due to the fact that the full year of operations of PQS (Brazil) and Richmond, IN
(USA) was recorded
Akra (Polyester Yarn). Monterrey, NL, Mexico
2019 ALPEK ANNUAL REPORT | 41
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.
According to the Ellen McArthur Foundation, known for coining the term “circular economy”, this system has four
In the United States, Alpek Polyester has joined The Recycling Partnership, a non-profit organization that seeks to
sources of value creation. One is “to keep products and materials in use”, which refers to maximizing the number
promote changes in the recycling culture throughout the United States. It also belongs to the GAPC, a movement
of consecutive cycles (whether reuse, remanufacturing, or recycling) and/or the period for each cycle. This is the
to spur the development of public policies to integrate the synergy of the circular economy.
approach Alpek has chosen to create value.
Other actions related to caring for and reusing materials and resources included the sale of discard material such
Although we are at an early stage, we have taken important steps toward making PET recycling one of our most
as polymers in Styropek Argentina, which prevented 125 tons of material from being sent to the landfill. Polioles
important activities. Increasing the efficiency of the resources used allows us to reduce production costs, increase
was able to place 100% of its pallets, cardboard, junk and other materials for reuse with suppliers, as well as 100%
the company’s productivity, and contribute to environmental well-being.
of electronic waste.
With the acquisition of three recycling plants, the most recent being at the start of 2019, this year we were able to
Indelpro joined the ANIPAC initiative to reduce pellet waste and made a voluntary commitment in favor of the
recover 99,100 tons of PET (not only bottles; we also recovered other waste that was separated for processing),
circular economy in the plastic resins sector with the ANIQ.
and produced 62,700 tons of rPET, an increase of 33% compared to 2018. This consolidated our position as one
of the largest recyclers of PET in the Americas.
The reuse cycle for PET allows it to be continuously recycled. Apart from being one of the best materials for
developing products for the industry, the carbon footprint in PET production has the lowest impact on the envi-
ronment compared to other packaging materials, such as glass or aluminum.
We also monitored the survival rate, of reforested trees at Parque Sierra Morelos, which was 95%. Alpek Polyester
Mexico has also reduced oil waste production by 18% since 2017.
Most of our companies make their commitment to environmental conservation public by distributing their
environmental policies or serving as founding members of associations such as The Climate Registry in the
United States.
2019 ALPEK ANNUAL REPORT | 42
PILLAR 4.
OUR COMMUNITIES
Working alongside our communities has become increasingly important. Not only are they responsible for issu-
ing our operational permits, they are an essential pillar so that our sustainability and business strategies may be
implemented successfully. Participating in their development and fostering social well-being is our responsibility
as a corporate citizen and neighbor.
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 ed-
ucational programs, and encouraging environmental awareness.
In 2019, more than 6,500 students from 46 schools received support through grants issued by Alpek companies.
The Alpek Polyester plants continued to offer the ANSPAC program to spouses of employees to drive progress in
social, ethical and cultural spheres. It also joined community efforts tied to jaguar conservation led by the CDEN, a
company that provides services and environmental advisory services related to the conservation and sustainable
development of Mexico’s natural resources. They were also involved in releasing Lora turtles at the Altamira port
as they do each year. Other activities include job fairs, Earth Day celebrations, the USC Engineering Forums in the
United States, providing advisory services to engineering students, and infrastructure repairs within schools and
communities.
In addition to engaging with civil authorities through local advisory panels in the United States and Brazil, and
by forming partnerships with civil associations such as CEAISTAC (Emergency Committees of the Association of
Industrial Companies in Southern Tamaulipas) in Altamira, Mexico, most of Alpek facilities has formal complaint
or claim processes established for their communities.
We signed 53 research agreements with academic institutions, which benefited 143 students; more than 210 in-
terns broadened their work experience at Alpek companies, and finally, 530 employees participated in volunteer
activities, with an average of 2 hours per person.
Reforestation with Styropek families. Altamira, Tamps, Mexico
2019 ALPEK ANNUAL REPORT | 43
Our Customers and Suppliers
Material Aspect: Customer and supplier relations.
SDGs 8 and 12: Decent Work and Economic Growth, Responsible
Consumption and Production.
In 2019, we launched initiatives and programs with our value chain to
build mutually beneficial relationships. This allows us to ensure the quality
of our products to offer customers the best integral solutions.
The initiatives included the following:
COMPANY
INITIATIVE
2019 PROGRESS
CUSTOMER OR SUPPLIER
AKRA POLYESTER
Customer sales of dyed filament (gray,
When selling dyed filament, customers no
Three main customers
silver, black, blue, bright optical).
longer need to use dye in their processes,
helping them reduce their energy
requirements and thus, their indirect
greenhouse gas emissions.
ALPEK POLYESTER MÉXICO
Training suppliers in hazardous
Nearly 100% of incidents related to waste
Four suppliers
waste management. This program is
management have been eliminated at the
implemented once a year and consists of
facilities.
teaching the drivers of our carriers how to
correctly handle hazardous waste.
Development of new feedstock and
Training has been given in packaging
Three suppliers
packaging suppliers who offer better
development, resolving design problems
price, quality and service.
with the support of personnel from Alpek
Polyester, as well as from other packaging
material suppliers.
Technical support is provided to produce
Increase in Level 1 quality product, waste
One supplier
short fiber with better levels of quality
reduction, and reduction of complaints
and consistency in their characteristics.
about low quality.
Support in the “NAFINSA Production
This program grants financing to suppliers
300 suppliers affiliated with
Chains” program
to boost their growth.
NAFINSA
Reduction of energy consumption
This project has represented savings in
Customers
in the blowing process through resin
the process for Alpek Polyester, as well
reformulation.
as a reduction of customer claims and
product returns.
On the client side, we have identified
an increase in their sales and market
acceptance. In addition, to a reduction
of 12% in the use of active lamps in the
blowing process.
2019 ALPEK ANNUAL REPORT | 44
(GRI Standards: 308-1, 308-2, 414-1, 414-2)
COMPANY
INITIATIVE
2019 PROGRESS
CUSTOMER OR SUPPLIER
In 2019, 50% of Alpek companies carried out social, environmental, and
labor impact assessments in their supply chains, and were able to iden-
tify only positive impacts out of the 212 essential suppliers who were
evaluated.
Our customer and investor relations continued to be strengthened with
the participation and response to outreach platforms such as the Carbon
Disclosure Project with information on energy efficiency and emissions;
RobecoSAM, used to increase transparency in our management models,
and the Sustainable CPI from the Mexican Stock Exchange in terms of Envi-
ronment, Social, and Governance (ESG) practices that we have integrated
into our operations.
Likewise, in 2019, we will continue to evaluate our general performance
to strengthen communication with our customers, meet their expecta-
tions, and address their needs. The 2019 satisfaction surveys reflect a
level of 85% satisfaction with the company and 92% with our products
and services.
In addition, in 2019 we achieved the elimination of substances of very
high concern (SVHC) in our products. These substances are used only
in small quantities for laboratory samples. This is a breakthrough in our
ALPEK POLYESTER ARGENTINA
Supporting suppliers for more
The main results include:
Suppliers
responsible management.
• Support for the needs requested
to comply with work and legal
documentation policies for purchases of
goods and services.
• Support and advisory services for
suppliers regarding ISO certifications or
other standards
• Support and advisory services
for suppliers regarding product
specifications or requested services.
ALPEK POLYESTER BRAZIL
Circular logistics for cardboard boxes.
Reduction of solid waste elimination by
Suppliers
reusing 5,478 pallets from the PTA plant
and reusing 37,290 cardboard boxes
from the textured plant.
Inverse logistics to eliminate batteries.
Reduction of hazardous waste send
Suppliers
the industrial landfill, avoiding soil
contamination.
commitment to take care of the health and safety of the client and other
Reusing multi-directional coating.
The use of multi-directional coating
PTA Customer
stakeholders when using of our products.
(reused up to 6 times) in deliveries of PTA
products reduces the disposal of solid
waste into industrial landfills.
Hiring the services of companies with
Mitigation of environmental impacts
Suppliers of transport
SASSMAQ certification.
associated with transportation services by
service
implementing a quality, environmental,
and health and safety management
system.
2019 ALPEK ANNUAL REPORT | 45
Participation in Chambers and Associations
(GRI Standard: 102-13)
Material Aspect: Relations with NGOs and Regulatory Agencies.
SDG 17: Partnerships for the Goals.
We participate in industrial, business, educational, and sustainability partnerships selectively and strategically.
This helps us stay current on the issues that affect our stakeholders, allows us to work as a team with other compa-
nies to share best practices, and keeps us up to date on domestic and international standards affecting business,
labor, and the environment.
In 2019, we participated with industry peers in the following:
COMPANY
ASSOCIATION
PARTICIPATION IN EXECUTIVE
COMMITTEES OR SPECIAL PROJECTS
AKRA POLYESTER
ANIQ (Asociación Nacional de la Industria
No
Química)
ALPEK POLYESTER
UNITED STATES
COMPANY
ASSOCIATION
PARTICIPATION IN EXECUTIVE
COMMITTEES OR SPECIAL PROJECTS
ALPEK POLYESTER
BRAZIL
ABRAFAS (Associação Brasileira de
Yes
Produtores de Fibras Artificiais e Sintéticas)
ABIQUIM (Associação Brasileira da
Yes
Indústria Química)
INDELPRO
ANIQ (Asociación Nacional de la Industria
Yes
Química)
AISTAC (Asociación de Industriales del Sur
Yes
de Tamaulipas, A.C.)
POLIOLES
ANIQ (Asociación Nacional de la Industria
Yes
FTCC (Fayetteville Technical Community
No, a partnership was created for free
Química)
College)
employee training
STYROPEK BRAZIL
ABIQUIM (Associação Brasileira da
Yes
NAPCOR (National Association for PET
Yes, one of our Executives performs as
Indústria Química)
Container Resources)
Vice President of the Association
STYROPEK
ARGENTINA
AAPE (Asociación Argentina del
Yes
NCTO (National Council of Textile
Yes, Board presence
Poliestireno Expandido)
Organizations)
CAIP (Cámara Argentina de la Industria
Yes
PETRA (The PET Resin Association)
Yes, one of our Executives is the President
Plástica)
CAPCA (Carolinas Air Pollution Control
Yes, Board presence
Petroquímica)
of the Association
CIQyP (Cámara de la Industria Química y
Yes
Association)
ALPEK POLYESTER
MÉXICO
ANIQ (Asociación Nacional de la Industria
Yes
Química)
AISTAC (Asociación de Industriales del Sur
Yes
de Tamaulipas, A.C.)
CAINTRA (Cámara Nacional de la
Yes
Industria de la Transformación)
AIEVAC (Asociación de Industriales del
Yes
Estado de Veracruz, A.C.)
ALPEK POLYESTER
ARGENTINA
CAIRPLAS (Cámara Argentina de la Indu-
Yes
stria de Reciclados Plásticos)
ANDIMA (Asociación Nacional de
Yes
Industrias de Materiales Aislantes)
STYROPEK MÉXICO
ANIQ (Asociación Nacional de la Industria
Yes
Química)
AISTAC (Asociación de Industriales del Sur
Yes
de Tamaulipas, A.C.)
ALENER (Asociación de Empresas para el
Yes, founding member
Ahorro de Energía en la Edificación, A.C.)
UNIVEX
ANIQ (Asociación Nacional de la Industria
Yes
Química)
2019 ALPEK ANNUAL REPORT | 46
BOARD OF
DIRECTORS
(GRI Standards: 102-18, 102-22)
ARMANDO GARZA SADA (3)
Chairman of the Board of Alpek, S.A.B. de C.V.
Alpek Board Member since April 2011.
MERICI GARZA SADA (4)
Investor
Alpek Board Member since April 2012.
Chairman of the Board of ALFA and Nemak. Member of the Boards of Axtel, BBVA
México, CEMEX, Grupo Lamosa and Liverpool.
ÁLVARO FERNÁNDEZ GARZA (3)
President of ALFA, S.A.B. de C.V.
Alpek Board Member since April 2011.
Chairman of the Board of Universidad de Monterrey (UDEM). Member of the
PIERRE FRANCIS HAAS GARCÍA (1)
Advisory Services Director of Hartree Partners, LP
Alpek Board Member since April 2012.
JOSÉ ANTONIO RIVERO LARREA (1)
Chairman of the Board of Compañia Minera Autlán, S.A.B. de C.V.
Boards of Cydsa, Grupo Aeroportuario del Pacífico, Grupo Citibanamex and Vitro.
Alpek Board Member since April 2018.
FRANCISCO JOSÉ CALDERÓN ROJAS (2A)
Chief Financial Officer of Grupo Franca Industrias, S.A. de C.V.
Executive Board Member of Cámara Minera de México (Camimex) and Board
member of the Executive Commission of Cámara Nacional de la Industria del
Hierro y del Acero (Canacero). Member of the Boards of Museo del Acero in
Alpek Board Member since April 2012.
Monterrey, N.L., Fundación de Empresarios por la Educación Básica, and Regional
Board Member of Franca Industrias, Universidad de Monterrey (UDEM) and
Board member of Nacional Financiera (Nafinsa).
Regional Advisor for BBVA México and Citibanamex. Alternate Member of the
Board of FEMSA.
RODRIGO FERNÁNDEZ MARTÍNEZ (4)
President of Sigma Alimentos, S.A. de C.V.
Alpek Board Member since April 2012.
Previously, served as Chief Operations Officer and Chief Executive Officer of
Sigma Américas. Member of the Boards of CAINTRA and Consejo Mexicano de la
Industria de Productos de Consumo, A.C. (ConMéxico).
FRANCISCO GARZA EGLOFF (1)
President of Proval Consultores
Alpek Board Member since February 2019.
Former CEO of Arca Continental. Member of the Boards of Arca Continental,
Alen, Axtel, Grupo Financiero Banregio, Ovniver, Ragasa, Grupo Industrial Saltillo
and Proeza.
ENRIQUE ZAMBRANO BENÍTEZ (1A)
Chairman of the Board and Chief Executive Officer of Grupo Proeza, S.A. de C.V.
Alpek Board Member since April 2012.
Member of the Boards of Grupo Proeza and Instituto Tecnológico y de Estudios
Superiores de Monterrey (ITESM).
JAIME ZABLUDOVSKY KUPER (1)
Executive President of Consejo Mexicano de la Industria de Productos de Consumo,
A.C. (ConMéxico)
Alpek Board Member since February 2019.
Vice President of IQOM Inteligencia Comercial, S.A. de C.V. Member of the
Technical Committee of FibraHotel and member of the Boards of Baja Ferries,
Consejo Mexicano de Asuntos
Internacionales
(COMEXI), and Servicio
Panamericano de Seguridad.
ANDRÉS E. GARZA HERRERA (1A)
Chief Executive Officer of Qualtia Alimentos Operaciones, S. de R.L. de C.V.
CARLOS JIMÉNEZ BARRERA
Secretary of the Board
Alpek Board Member since April 2012.
Key
Member of the Boards of Xignux, Regional Board of Banorte, Universidad de
1. Independent Board Member
Monterrey (UDEM) and Ciudad de los Niños.
2. Independent Patrimonial Board Member
3. Related Patrimonial Board Member
4. Patrimonial Board Member
A. Audit and Corporate Practices Committee
2019 ALPEK ANNUAL REPORT | 47
MANAGEMENT TEAM
(GRI Standards: 102-18, 102-23)
JOSÉ CARLOS
GUSTAVO
JORGE P.
JOSÉ DE JESÚS
FELIPE
ALEJANDRO
JOSÉ LUIS
PONS DE LA GARZA
TALANCÓN GÓMEZ
YOUNG CERECEDO
VALDEZ SIMANCAS
GARZA MEDINA
LLOVERA ZAMBRANO
ZEPEDA PEÑA
Chief Financial Officer
President of the Caprolactam,
Co-President, Alpek Polyester
Chief Executive Officer
Co-President, Alpek Polyester
President of the Polypropylene
President of the EPS and
Fertilizer and Polyester Filament
Business Unit
Business Unit
Chemicals Business Unit
CFO of Alpek since 2018.
President of the Caprolactam
President of the PET and
President of Alpek since 1988.
President of Alpek’s PTA
President of Polypropylene
President of Alpek’s EPS
Former Vice President of
and Fertilizer Business Unit
Staple Fibers Business Unit
Former CEO of Petrocel,
Business Unit from 2008 to
Business Unit of Alpek since
and Chemicals Business Unit
Business Development of
since 2013 and starting
of Alpek from 2012 to
Indelpro and Polioles, and
2016. He joined ALFA in
2008. He joined ALFA in
since 1999. He joined Alpek
Nemak, where he also held
in 2018, also of Polyester
2016. Former Executive Vice
former Chairman of the
1977 and served as CEO of
1985 and served as Director
in 1986 and served as Vice
several executive positions.
Filaments. Joined ALFA in
President of PET Resins and
Asociación Nacional de la
Indelpro and of Galvacer.
of Human Resources at
President of Planning, Finance,
Holds an undergraduate and
1989, served as CEO of
Vice President of Planning
Industria Química (ANIQ).
Holds an undergraduate
ALFA. He held various
Administration and Sales at
an MBA from ITESM, and a
Terza, and held management
and Administration of
Holds an undergraduate
degree from Stanford
management positions in
Grupo Petrotemex. Holds an
master’s degree from IPADE.
positions in various Business
DAK Americas LLC. Holds
and MBA from ITESM and a
University and a master’s
the Synthetic Fibers Business
undergraduate and a master’s
Units of Alpek. Holds an
an undergraduate degree
master’s degree from Stanford
degree from Cornell
Unit at Alpek and is a former
degree from UNAM and a
undergraduate degree from
from ITESM and a master’s
University.
University.
Chairman of ANIQ. Holds an
master’s degree from ITESM.
ITESM and a master’s degree
degree from the University of
from IPADE.
Pennsylvania.
undergraduate and master’s
degree from ITESM.
2019 ALPEK ANNUAL REPORT | 48
CORPORATE
GOVERNANCE
(GRI Standards: 102-18, 102-23)
Once a year, all companies that are listed on the Bolsa Mexicana de Va-
• Members must inform the Chairman of the Board regarding any
information required to assess the Company’s progress in
lores, S.A.B. de C.V. (BMV) must disclose the extent to which they ad-
conflict of interest that may arise and abstain from participating in
developing its activities. This function makes use of press releases,
here to the Corporate Governance Code of Principles and Best Practices
any related deliberations. There was an 98% attendance rate at the
notifications of relevant events, conference calls for quarterly
(CMPC) by answering a questionnaire. The Code has been in effect in
Board meetings in 2019.
reports, investor meetings, its website, and other communication
Mexico since 2000, and companies respond to a questionnaire that is
available to the investing public on the BMV website. We have presented
a summary of Alpek’s corporate governance principles below, reflecting
the answers the company gave to the questionnaire in May 2019 and up-
dated where necessary:
• The Audit and Corporate Practices Committee studies and issues
channels.
recommendations to the Board on audit-related matters such
• Alpek promotes good corporate citizenship and adheres to the
as: selecting and determining the fees to be paid to the external
recommendations issued by its holding company, Alfa, S.A.B. de
auditor, coordinating with the Company’s internal audit committee
C.V. It has a mission, vision, values and a code of ethics that are
and studying accounting policies, among others.
promoted within the organization.
• The Board of Directors is comprised of eleven proprietary
recommendations to the Board on matters related to corporate
members, with no alternates. Of these, six are independent
practices, such as employment terms and severance payments for
board members, two are proprietary board members, two are
senior executives, and compensation policies.
• In addition, the Audit and Corporate Practices Committee issues
related proprietary board members and one is an independent
proprietary board member. This annual report provides
information about each Member of the Board, identifying those
who are independent and their participation on the Audit and
Corporate Practices Committee.
• In carrying out their duties, the Board of Directors receives
support from the Audit and Corporate Practices Committee. The
Committee Chairman is an independent board member.
• The company has internal control systems with general guidelines
that are submitted to the Audit and Corporate Practices
Committee for its opinion. In addition, the external auditor
validates the effectiveness of the internal control system and issues
the corresponding reports.
• The Board of Directors is advised by the planning and finance
department when evaluating matters related to the feasibility
of investments, strategic positioning of the company, alignment
• The Board of Directors meets four times per year. Meetings of
of investing and financing policies, and reviewing investment
the Board may be called by the Chairman of the Board, by the
projects. This is carried out in coordination with the finance and
President of the Audit and Corporate Practices Committee, by the
planning department of the holding company, Alfa, S.A.B. de C.V.
Secretary, or by at least 25% of its members. At least one meeting
per year is dedicated to defining the Company’s medium- and
long-term strategies.
• Alpek has a department that is specifically responsible for
maintaining open communication with its shareholders and
investors. This ensures that they have the financial and general
2019 ALPEK ANNUAL REPORT | 49
GLOSSARY
ADMINISTRATIVE COUNCIL FOR ECONOMIC DEFENSE
Brazilian agency responsible for investigating and deciding on
issues of competence.
CAPROLACTAM (CPL)
CPL is made by reacting cyclohexane, ammonia and sulfur and
is the raw material to produce Nylon 6 polymer. Nylon 6 is
a synthetic resin that, because of its strength, flexibility and
softness, has a range of end uses, including for sportswear, un-
derclothes and engineering plastics.
CLEAN INDUSTRY CERTIFICATION
Certification granted by the Mexican Environmental Protec-
tion Agency (PROFEPA) to companies that comply with envi-
ronmental legislation.
COGENERATION
Process that produces both electricity and steam.
Comprehensive Responsibility Administrative System (Na-
tional Association of the Chemical Industry, ANIQ)
Certification given to companies that comply with the six
comprehensive responsibility requirements established by
the ANIQ, covering Process safety, Health and safety in the
workplace, Product safety, Transportation and distribution,
Prevention and control of environmental pollution and Com-
munity protection.
CO2 EMISSIONS
Unit to measure the carbon dioxide produced by the burning
of solid, liquid and gaseous fuels, including natural gas.
CYCLOHEXANE
Compound produced by the hydrogenation of benzene and
used in caprolactam production.
ETHANE
Hydrocarbon part of the natural gas liquids, which at room
temperature is colorless and odorless. It is used as a raw mate-
rial to produce ethylene.
ETHYLENE
Compound produced from ethane. It is the raw material for
produce vinyl acetate, ethyl chloride, styrene, ethylene oxide
and polyethylenes.
ETHYLENE OXIDE
Compound produced from ethylene and used as an interme-
diate in the production of MEG and other chemicals.
EXPANDABLE POLYSTYRENE (EPS)
Light, rigid, cellular plastic, product of the polymerization of
styrene monomer. EPS is a versatile material because of its
properties as an impact reducer and thermal insulator, with
customized molding capacity. These properties, combined
with the ease with which it can be processed, make EPS a pop-
ular packaging for impact-sensitive items and for protecting
perishables. It is also widely used in construction systems, to
lighten floor and roof structures, and as an insulator.
GREENHOUSE GASES (GHG)
Components of the atmosphere that absorb and emit radia-
tion within the infrared range, causing the earth surface tem-
perature to increase.
INTEGREX®
Alpek-owned technology for producing PTA and PET from
paraxylene (pX) and monoethylene glycol (MEG), offering
significant cost savings and fewer intermediate steps in the
production process.
ISO 9001 CERTIFICATION
Certification issued by rating agencies to those companies
that operate with proven 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’ profitability and at the same
time minimize environmental impact.
MEGAWATT (MW)
Unit of power, equal to 1 million watts.
MONOETHYLENE GLYCOL (MEG)
Raw material with diverse industrial uses, especially for pro-
ducing polyester (PET and fiber), antifreeze, refrigerants and
solvents.
PARAXYLENE (PX)
Hydrocarbon in the xylene family used to produce PTA. It is
also a component of gasoline.
POLYETHYLENE TEREPHTHALATE (PET)
Material widely used in the manufacture of bottles and other
containers for liquids, food and personal hygiene, household
and healthcare products. PET flakes and films are used to pro-
duce caps, trays and recipients. Because of its transparency,
strength, durability and high protection barriers, PET pres-
ents no known health risks, is light and recyclable, and has a
wide range of applications in reusable, temperature-sensitive
packaging. PET has replaced glass and aluminum, as well as
other plastics such as PVC and polyethylene, for making con-
tainers.
RECYCLED POLYETHYLENE TEREPHTHALATE (RPET)
PET bottles are cleaned and crushed to produce new PET
products. Other rPET uses include carpets, fabrics for the
clothing industry, and fibers.
POLYPROPYLENE (PP)
Thermoplastic polymer, produced from the polymerization
of propylene monomer. Its properties include a low specific
gravity, great rigidity, resistance to relatively high tempera-
tures and good resistance to chemicals and fatigue. PP has
diverse applications, including for packaging, textiles, recycla-
ble plastic parts and different kinds of containers, auto-parts
and polymer (plastic) banknotes.
PROPYLENE
Unsaturated, 3-carbon hydrocarbon, co-product of the
cracking process at petrochemical complexes and a by-prod-
uct at oil refineries. It is used in the petrochemical industry
to produce PP, propylene oxide, cumene, isopropanol, acrylic
acid and acrylonitrile. It is also converted into a gasoline com-
ponent by alkylation with butanes or pentanes.
PROPYLENE OXIDE
Compound produced from propylene and used to manufac-
ture commercial and industrial products, including polyols,
glycols and glycoethers.
PURIFIED TEREPHTHALIC ACID (PTA)
Aromatic dicarboxylic acid, the main raw material in polyester
production. PTA is produced by the oxidation of paraxylene.
It is used to manufacture PET, which is then used to make bot-
tles for water, soft drinks and other beverages, containers and
other packaging, and polyester fiber for rugs, clothing, fur-
niture and industrial applications, as well as other consumer
products.
STYRENE MONOMER
Unsaturated hydrocarbon used to make a variety of plastics,
synthetic rubber, protective coatings and resins. It is the main
raw material in EPS production and also used as a solvent and
chemical intermediate.
WATT
Unit of power in the International System of Units (SI).
2019 ALPEK ANNUAL REPORT | 50
MANAGEMENT’S ANALYSIS
2019
The following analysis complements the Letter to Shareholders, Audited Financial Statements, and Complemen-
Sources:
(a) Bureau of Economic Analysis (BEA). Actual figure in 2019.
tary Information. Unless otherwise specified, figures are expressed in millions of nominal pesos, while certain
(b) Bureau of Labor Statistics (BLS)
figures are expressed as millions of dollars (US $) due to the high dollarization of Alpek’s revenues. Percentage
variations are stated in nominal terms. All information is presented in accordance with International Financial
(c) National Institute of Statistics and Geography (INEGI). GDP 4Q 25 FEB (5 feb)
Reporting Standards (IFRS).
(d) Bank of Mexico (Banxico)
The global financial environment showed a slower growth in 2019, compared with the previous year. Likewise,
(e) Banxico: Exchange rate for settling liabilities denominated in foreign currency payable in Mexico.
financial market risks persisted due to economic policy decisions in advanced countries, geopolitical topics and
trade tensions between the United States, China and the European Union. In the United States, the economy con-
tinued to show signs of a slowdown caused by the fading of fiscal stimuli measures that had been implemented
VOLUME
(THOUSANDS OF TONS)
in the past, among other factors. Like advanced countries, emerging economies showed an economic slowdown
Polyester
caused by both internal and external factors. The Mexican currency had an appreciation against the dollar com-
Plastics and Chemicals
pared to the previous year, despite the adverse environment facing the Mexican economy.
Total volume
2019
3,490
895
4,384
2018
3,490
912
4,402
2017
3,105
906
4,012
VAR. % 2019
VS 2018
VAR. % 2018
VS 2017
-
(2)
-
12
1
10
The behavior of the GDP and other variables in Mexico and the United States, which is essential to understanding
the context of Alpek’s results, is described below:
REVENUE
2019
2018
2017
VAR. % 2019
VS. 2018
VAR. % 2018
VS. 2017
In the United States, Gross Domestic Product (GDP) increased 2.3%(a) in 2019, lower than the 2.9% reported in
2018. Consumer inflation was 1.5%(b) in 2019, lower than the 1.9%(b) recorded in 2018.
Mexico’s Gross Domestic Product (GDP) decreased -0.1% (estimated) in 2019. Consumer inflation was 2.8%(b) in
2019, lower than the 4.8%(b) recorded in 2018. The Mexican peso experienced a nominal annual appreciation
of 4.4%(e) in 2019, compared with 0.1%(e) in 2018. Additionally, in real terms the annual average for the Mexican
peso experienced an overvaluation against the dollar of 1.0% in 2018 and a value of -0.5% at the close of 2019.
Polyester
Millions of Pesos
Millions of Dollars
Plastics and Chemicals
Millions of Pesos
Millions of Dollars
Total revenues
Millions of Pesos
In Mexico, the average Interbank Equilibrium Interest Rate (TIIE) was 8.3%(d) in nominal terms, as compared to
Millions of Dollars
90,857
4,718
27,097
1,407
99,559
5,174
32,925
1,713
119,685
6,216
134,523
6,991
70,477
3,724
28,522
1,506
98,998
5,231
(9)
(9)
(18)
(18)
(11)
(11)
41
39
15
14
36
34
8.0% in 2018. In real terms, there was an increase in the annual aggregate from 4.8% in 2019 to 3.2% in 2018. Re-
garding interest rates, the annual average nominal 3-month US dollar LIBOR rate, was 2.3% in 2019, compared to
2.3%(d) in 2018. If the peso’s nominal appreciation against the dollar is included, the LIBOR rate in constant pesos
went from -0.8%(c) in 2018 to -1.2% in 2019.
PRICE INDEX
2019
2018
2017
VAR. % 2019
VS. 2018
VAR. % 2018
VS. 2017
Polyester
Millions of Pesos
Millions of Dollars
Plastics and Chemicals
Millions of Pesos
Millions of Dollars
Total
Millions of Pesos
Millions of Dollars
115
113
96
95
111
109
126
124
115
113
124
122
100
100
100
100
100
100
(9)
(9)
(16)
(16)
(11)
(11)
26
24
15
13
24
22
2019 ALPEK ANNUAL REPORT | 51
Revenues
Alpek’s revenue in 2019 was $119,685 million (US $6.216 billion), 11% lower than the $134,523 million
(US $6.991 billion) in 2018. This decrease was caused by a drop in average prices of 11% in pesos and in dollars,
driven by lower feedstock prices.
Revenues by Business Segment
Polyester’s net revenues in 2019 were $90,857 million (US $4.718 billion), 9% less than the $99,559 million
EBITDA
(MILLIONS OF PESOS)
Polyester
Plastics and Chemicals
Others
Total EBITDA
EBITDA
(MILLIONS OF DOLLARS)
(US $5.174 billion) in 2018. This segment posted a decrease of 9% in average sale prices in pesos and in dollars.
Polyester
Volume remained stable against the record levels observed in 2018.
Plastics and Chemicals posted revenues of $27,097 million (US $1.407 billion) in 2019, in comparison to the
$32,925 million (US $1.713 billion) in 2018. The 18% decrease in revenues was mainly due to the 16% drop in
the average sale price in pesos and in dollars reflecting lower feedstock prices. The segment’s volume posted a
drop of 2% compared to 2018, since the annual increase in the displaced volume of PP partially offset lower sales
of caprolactam and industrial chemical products that were sold.
Operating Profit and EBITDA
Plastics and Chemicals
Others
Total EBITDA
2019
8,236
4,198
3,961
16,395
2019
428
218
205
850
2018
15,318
5,292
(3)
20,607
2018
788
276
(1)
1,063
2017
2,970
4,519
(5)
7,483
2017
147
237
(0)
384
VAR. % 2019
VS 2018
VAR. % 2018
VS 2017
(46)
(21)
N/A
(20)
416
17
42
175
VAR. % 2019
VS 2018
VAR. % 2018
VS 2017
(46)
(21)
N/A
(20)
435
16
(80)
177
Net Financial Result
In 2019, the net financial cost was -$2,635 million (US -$136 million), 5% lower than in 2018. The net financing
expenses that comprise this item grew from -$1,741 million (-US $90 million) in 2018, to -$2,048 million
(-US $106 million), mainly reflecting the increase in average debt during the year. In addition, variations in ex-
change rates resulted in the recognition of a non-cash foreign exchange loss of -$587 million (US -$30 million) in
2019, versus -$1,042 million (US -$50 million) in 2018.
In 2019, the operating profit was $12,361 million (US $641 million), 42% lower than the $21,202 million
(US $1.086 billion) in 2018. In 2019, operating profit includes an extraordinary gain of $3,634 million (US $188
million) from the finalization of the cogeneration plants’ sale. The operating profit in 2018 includes a non-cash
FINANCIAL RESULT, NET
(MILLIONS OF PESOS)
benefit of $3,936 million (US $195 million) corresponding to the implicit recovery after the purchase of the
Financial Expense
Corpus Christi project from M&G.
As of December 31, 2019, aggregate consolidated EBITDA was $16,395 million (US $850 million), a decrease of
20% compared to the $20,607 million (US $1.063 billion) of 2018. The consolidated EBITDA for this segment
includes a net benefit from extraordinary items of $2,484 million (US $128 million), resulting in an EBITDA in
comparable terms of $13,911 million (US $722 million), 9% lower than in 2018.
In 2019, the EBITDA for the Polyester segment decreased by 46% to $8,236 million (US $428 million), including
a net charge from extraordinary items of $901 million (US $47 million). Adjusting for these items, the comparable
EBITDA for the Polyester segment was $9,137 million (US $474 million), a decrease of 9% year-over-year, result-
ing from lower margins compared to the extraordinary levels recorded the previous year.
The EBITDA for the Plastics and Chemicals segment dropped 21% to $4,198 million (US $218 million), compared
to $5,292 million (US $276 million) in 2018. Excluding non-cash inventory losses and other extraordinary items,
the comparable EBITDA for Plastics and Chemicals dropped 16% in comparison to the $5,271 million (US $275
million) in 2018, resulting from the high polypropylene margins at that time.
Financial Income
Financial expenses, Net
Impairment of financial assets
Loss due to exchange
fluctuation, net
Financial Result, Net
2019
(2,822)
774
(2,048)
-
(587)
(2,635)
2018
(2,183)
442
(1,741)
-
(1,042)
(2,783)
2017
(1,482)
198
(1,284)
(1,694)
(432)
(3,410)
VAR. % 2019
VS 2018
VAR. % 2018
VS 2017
(29)
75
(18)
-
44
5
(47)
123
(36)
100
(141)
18
2019 ALPEK ANNUAL REPORT | 52
STATEMENT OF INCOME
(MILLIONS OF PESOS)
Operational Income (loss)
Financial Result, net
Share in losses of associates
Income taxes
Net consolidated income (loss)
Income (loss) attributable to
the controlling interest
2019
12,361
(2,635)
(313)
(1,889)
7,524
6,605
2018
21,202
(2,783)
(30)
(3,455)
14,934
13,633
2017
(2,854)
(3,410)
(4)
1,713
(4,555)
(5,487)
VAR. % 2019
VS. 2018
VAR. % 2018
VS. 2017
(42)
5
(945)
45
(50)
(52)
843
18
(692)
(302)
428
348
Investments in Fixed and Intangible Assets
In 2019, investments in fixed and intangible assets totaled $5,182 million (US $270 million), 67% lower than the
$15,684 million (US $826 million) posted in 2018. The resources were used for strategic projects, such as finishing
construction of the second cogeneration plant in Altamira, Mexico, and the acquisition of the PET recycling plant
that was formerly owned by Perpetual.
Taxes
In 2019, a tax on profit was posted for -$1,889 million (US -$98 million) as a result of the increased pre-tax profit,
while 2018 posted a tax on profit of -$3,455 million (US -$178 million).
TAXES
(MILLIONS OF PESOS)
2019
2018
2017
VAR. % 2019
VS. 2018
VAR. % 2018
VS. 2017
Income (loss) before taxes
Income tax rate
Statutory income tax rate
(expenses) benefit
Taxes for permanent
differences between
accounting-taxable profit
Total Income Tax
Effective tax rate
Comprised as follows:
Current Income Tax
Deferred income tax
Total income tax
9,413
30%
18,389
30%
(2,824)
(5,517)
(6,268)
30%
1,881
935
2,062
(168)
(1,889)
20%
(2,463)
574
(1,889)
(3,455)
19%
(2,075)
(1,380)
(3,455)
1,713
27%
(1,323)
3,036
1,713
(49)
49
(55)
45
(19 )
142
45
393
(393)
1,327
(302)
(57)
(145)
(302)
Net Income Attributable to the Controlling Interest
In 2019, consolidated net income attributable to the controlling interest was $6,605 million (US $342 million
including an extraordinary gain related to the sale of the cogeneration plants. 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.
2019 ALPEK ANNUAL REPORT | 53
Net debt1
Net debt rose to $25,057 million (US $1.330 billion) as of December 31, 2019, 30% below the $36,051 million
(US $1.832 billion) as of December 31, 2018. The cash balance and cash equivalents totaled $7,275 million
(US $386 million) at year-end 2019.
SHORT AND LONG-TERM DEBT 2
(MILLIONS OF DOLLARS)
2019
2018
‘19 VS
‘18 %
INTEGRATED
2019 %
INTEGRATED
2018 %
Short-term debt
Long-term 1 year
38
19
674
300
-
-
2 years
3 years
4 years
5 years
10+ years
506
514
170
345
714
300
-
-
(93)
(89)
95
(58)
(100)
100
2
1
44
20
-
-
33
25
8
17
35
15
-
-
Total
1,537
2,043
(25)
100
100
Avg. maturity long-term debt (years)
Avg. maturity total debt (years)
5.5
5.4
3.5
2.7
FINANCIAL INDICATORS
(TIMES)
Net Debt / EBITDA
Interest Coverage
Total liabilities / Stockholders’ equity
2019
2018
2017
1.6
7.2
1.3
1.7
9.9
1.8
3.3
4.8
2.0
(1) Net Debt = Current debt plus non-current debt (excluding debt issuance costs), plus accrued interest payable, less cash and cash equivalents, less
restricted cash and cash equivalents.
(2) Excludes leases and lease interests
2019 ALPEK ANNUAL REPORT | 54
INDEPENDENT AUDITORS’ REPORT
AND CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE
YEARS ENDED DECEMBER 31, 2019
AND 2018
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
56
60
61
62
63
64
65
2019 ALPEK ANNUAL REPORT | 55
CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors’ Report to the Board of
Directors and Stockholders of Alpek, S. A. B. de C. V. and Subsidiaries
Opinion
We have audited the consolidated financial statements of Alpek, S. A. B. de C. V. and Subsidiaries (the “Company”), which comprise the consolidat-
ed statements of financial position as of December 31, 2019 and 2018, and the consolidated statements of income, the consolidated statements of
comprehensive income, 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, 2019 and 2018, and their consolidated financial performance and their consolidated cash flows for the years
then ended, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting 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 independent 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 re-
sponsibilities 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 financial state-
ments 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.
Divestitures of electric power cogeneration companies, Cogeneradora de Energía Limpia de Cosoleacaque, S.A. de C.V. (“CELCSA”) and
Cogeneración de Altamira, S.A. de C.V. (“CGA”)
As mentioned in Note 2b to the consolidated financial statements, on January 6, 2019, Alpek, S. A. B. de C. V. ("Alpek"), signed an agreement for
the direct sale to Contour Global Terra 3 S.a.r.l. ("CG Terra 3") of the entire shares of CGA, and the consequent indirect sale of CELCSA, under
the basis that CGA holds 99.99% of CELCSA's share capital.
Alpek also signed with ContourGlobal Holding de Generación de Energía de México, S.A. de C.V. ("CG Mexico"), a subsidiary of ContourGlobal
PLC, a contract option in which Alpek and its subsidiaries are required to sell the shares of Tereftalatos Mexicanos Gas, S.A. de C. V. ("Temex
Gas") ("the option contract"), whose assets include pipelines that transport natural gas from the point of interconnection of the integrated national
transport system to the consumption point, in case CG Mexico exercises the call option within a maximum period of five years from the date of
signature of the call option contract, an option that will be subject to compliance with certain conditions precedent under that option contract.
2019 ALPEK ANNUAL REPORT | 56
CONSOLIDATED FINANCIAL STATEMENTS On November 25, 2019, the Company announced that it completed the process of selling the cogeneration plants for USD$801 million; however,
the transaction price is subject to non-significant adjustments in working capital that are expected to turn out to be in favor of the Company.
Due to the relative importance of this transaction and the application of estimates made by management of the Company to determine the value
of the liabilities arising from the share purchase agreement, as part of our audit, we conducted, among others, the following procedures:
• We reviewed the share purchase agreement as well as the option contract.
• We verified the documentation supporting the transaction and the corresponding accounting records.
• We challenged the assumptions and premises used by Management in determining the provision to cover the obligations set forth in the
purchase agreement through the involvement of specialists; we also reviewed the tax effects of the transaction.
• We physically inspected the alienated assets to confirm their integrity and existence thereof in the transaction.
The results of our procedures were satisfactory; therefore, we concluded that the transaction was reasonably accounted for.
Changes in accounting principles
As mentioned in Notes 3k, 3y, 11 and 17 to the consolidated financial statements, the Company changed the methodology of lease recognition in
the consolidated financial statements beginning January 1, 2019, derived from the adoption of IFRS 16, "Leases." Therefore, since the method used
by the Company, based on temporary provisions of the standard, did not involve adjusting the comparative periods, the financial information as
of and for the year ended December 31, 2018, is not comparative in some areas or indicators of the financial situation and results for 2019.
Information Other Than the Consolidated Financial Statements and Auditor’s Report Thereon
Management is responsible for the other information presented. Additional information includes: (i) the Annual Report, (ii) the information to be
incorporated into the Annual Report that the Company is required to prepare in accordance with Article 33, fraction I, paragraph b) of Title Four,
Chapter One of the Provisions of a General Nature Applicable to the Issuers of Securities and to Participants in the Securities Market and with the
Instructions accompanying those provisions (the "Provisions"); the Annual Report is expected to be available for our reading after the date of this
audit report; and (iii) other additional information, which is a measure that is not required by IFRS, and has been incorporated for the purpose of
providing additional explanation to its investors and principal readers of its consolidated financial statements to assess the performance of each
of the operating segments and other indicators on the ability to meet obligations with respect to the Company's earnings before income, taxes,
depreciation and amortization ("EBITDA") of the Company; this information is presented in Notes 16 and 29.
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. When we read the Annual Report, we will issue the legend
on the reading of the annual report required in Article 33, Fraction I, paragraph b) numeral 1.2 of the Provisions. Also, and in connection with our
audit of the consolidated financial statements, it is our responsibility to read the additional information, which in this case is the annual report and
the measure not required by IFRS, and in reading it, consider whether the other information therein is materially inconsistent with the consolidated
financial statements or our knowledge obtained during the audit, or appearing to contain a material misstatement. If based on the work we have
performed, we conclude that there is a material misstatement therein, we are required to communicate this matter. As of the date of this report,
we have nothing to report in this regard.
2019 ALPEK ANNUAL REPORT | 57
CONSOLIDATED FINANCIAL STATEMENTS 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 IFRS, 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 management 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 material misstate-
ment, whether due to fraud or error, and to issue an auditors’ 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 misstatement 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.
- 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 auditors’ 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 auditors’ 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.
2019 ALPEK ANNUAL REPORT | 58
CONSOLIDATED FINANCIAL STATEMENTS 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 indepen-
dence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, 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 auditors’
report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a mat-
ter 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, 2020
2019 ALPEK ANNUAL REPORT | 59
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, 2019 and 2018 / In millions of Mexican pesos
Note
2019
2018
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
Right of use, net
Goodwill and intangible assets, net
Deferred income taxes
Derivative financial instruments
Prepayments
Other non-current assets
Total non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Debt
Lease liability
Trade and other accounts payable
Income taxes payable
Derivative financial instruments
Provisions
Total current liabilities
Non-current liabilities:
Debt
Lease liability
Derivative financial instruments
Provisions
Deferred income taxes
Income taxes payable
Employee benefits
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ equity
Controlling interest:
Capital stock
Share premium
Retained earnings
Other reserves
Total controlling interest
Non-controlling interest
$
$
$
6
6
7
8
4
9
10
11
12
20
4
9
13
16
17
15
20
4
18
16
17
4
18
20
20
19
21
22
14
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
The accompanying notes are an integral part of these consolidated financial statements.
7,059
216
16,508
17,966
41
1,785
43,575
37,082
3,437
3,783
1,104
36
16
13,761
59,219
102,794
707
912
16,455
1,143
528
576
20,321
28,103
2,456
4
1,078
3,926
400
1,092
356
37,415
57,736
6,045
9,059
20,625
4,751
40,480
4,578
45,058
102,794
$
$
$
$
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
2019 ALPEK ANNUAL REPORT | 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 INCOME
For the years ended December 31, 2019 and 2018 / In millions of Mexican pesos, except for earnings per share amounts
Note
2019
2018
Revenues
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Other income, net
Income before reversal of impairment of intangible assets
Reversal of impairment of intangible assets
Operating income
Financial income
Financial expenses
Loss due to exchange fluctuation, net
Financial result, net
Equity in loss of associates and joint ventures
recognized using the equity method
Income before taxes
Income taxes
Net consolidated income
Income attributable to:
Controlling interest
Non-controlling interest
24
24
24
25
2g
26
26
26
20
$
119,685
$
134,523
( 106,669 )
( 116,519 )
13,016
( 2,088 )
( 2,831 )
4,264
12,361
-
12,361
774
( 2,822 )
( 587 )
( 2,635 )
( 313 )
9,413
( 1,889 )
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 )
$
7,524
$
14,934
$
6,605
$
919
13,633
1,301
$
7,524
$
14,934
Earnings per basic and diluted share, in Mexican pesos
$
3.12
$
Weighted average outstanding shares (millions of shares)
2,117
6.44
2,118
The accompanying notes are an integral part of these consolidated financial statements.
2019 ALPEK ANNUAL REPORT | 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 COMPREHENSIVE INCOME
For the years ended December 31, 2019 and 2018 / In millions of Mexican pesos
Note
2019
2018
Net consolidated income
$
7,524
$
14,934
Other comprehensive loss for the year:
Items that will not be reclassified to the statement of income:
Remeasurement of employee benefit obligations, net of taxes
19, 20
22
( 55 )
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, 20
4, 20
765
( 1,954 )
( 560 )
( 1,814 )
Total other comprehensive loss for the year
(1,167 )
( 2,429 )
Consolidated comprehensive income
$
6,357
$
12,505
Attributable to:
Controlling interest
Non-controlling interest
$
5,622
735
$
11,241
1,264
Comprehensive income for the year
$
6,357
$
12,505
The accompanying notes are an integral part of these consolidated financial statements.
2019 ALPEK ANNUAL REPORT | 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 CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2019 and 2018 / 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, 2018
$
6,048
$
9,071
$
3,671
$
8,126
$
26,916
$
4,748
$
31,664
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
-
-
13,633
-
13,633
-
-
( 14 )
( 55 )
Balance as of December 31, 2018
6,052
9,106
17,235
Net income
Total other comprehensive loss for the year
Comprehensive income
Dividends declared
Reissuance of shares
Repurchase of sales
Acquisition of non-controlling interest in subsidiary
Other
-
-
-
-
51
( 58 )
-
-
-
-
-
-
338
( 385 )
-
-
6,605
-
6,605
( 2,778 )
-
-
( 190 )
( 247 )
-
( 2,392 )
( 2,392 )
-
-
-
-
5,734
-
( 983 )
( 983 )
-
-
-
-
-
13,633
( 2,392 )
11,241
-
39
( 14 )
( 55 )
38,127
6,605
( 983 )
5,622
1,301
( 37 )
1,264
( 981 )
-
-
5
5,036
919
( 184 )
735
( 2,778 )
( 1,182 )
389
( 443 )
( 190 )
( 247 )
-
-
( 4 )
( 7 )
14,934
( 2,429 )
12,505
( 981 )
39
( 14 )
( 50 )
43,163
7,524
( 1,167 )
6,357
( 3,960 )
389
( 443 )
( 194 )
( 254 )
Balance as of December 31, 2019
$
6,045
$
9,059
$
20,625
$
4,751
$
40,480
$
4,578
$
45,058
The accompanying notes are an integral part of these consolidated financial statements.
2019 ALPEK ANNUAL REPORT | 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 CASH FLOWS
For the years ended December 31, 2019 and 2018 / In millions of Mexican pesos
2019
2018
Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Impairment (reversal of impairment) of long-lived assets
Allowance for doubtful accounts
Financial result, net
Gain on business combination
Gain on business sale
Statutory employee profit sharing, provisions and other items
Subtotal
Movements in working capital
Decrease (increase) in trade receivables and other assets
Decrease (increase) in inventories
(Decrease) 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
Prepayment for business acquisition
Cash flows in business sale, net of cash transferred
Investment in joint ventures and associates
Loans collected from related parties
Notes receivable
Collection of notes
Restricted cash
Net cash flows generated from (used in) investing activities
Cash flows from financing activities
Proceeds from debt
Payments of debt
Lease payments
Interest paid
Derivative financial instruments
Dividends paid by Alpek, S. A. B. de C. V.
Dividends paid to non-controlling interest
Acquisition of non-controlling interest in subsidiary
Repurchase of sales
Reissuance of shares
Loan payments to related parties
Net cash flows (used in) generated from financing activities
Net increase (decrease) in cash and cash equivalents
Effect of changes in exchange rates
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
$
$
9,413
4,005
29
40
2,220
-
( 3,634 )
228
12,301
4,465
5,523
( 9,523 )
( 2,765 )
10,001
231
( 3,027 )
( 35 )
( 661 )
( 1,312 )
15,400
( 147 )
188
( 1 )
531
( 219 )
10,948
22,000
( 32,005 )
( 1,108 )
( 2,379 )
-
( 2,778 )
( 1,182 )
( 194 )
( 443 )
389
( 1 )
( 17,701 )
3,248
( 357 )
4,168
$
7,059
$
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
4,168
The accompanying notes are an integral part of these consolidated financial statements.
2019 ALPEK ANNUAL REPORT | 64
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, 2019 and 2018
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), recycled PET (rPET) 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 beverage packaging, automotive, construction,
agriculture, oil industry, pharmaceutical markets and others.
Alpek is one of the largest petrochemical companies in Mexico and the second largest in Latin America. Additionally, it is the main integrated
producer of polyester and one of the main produces of rPET in 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.
When reference is made to the controlling entity Alpek, S.A.B. de C.V. as an individual legal entity, it will be referred to as “Alpek SAB”.
The shares of Alpek SAB 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, 2019 and 2018, the percentage of shares that traded on the MSE was 17.79% and 17.91%, respectively.
Alpek SAB is located at Avenida Gomez Morin Sur No. 1111, Col. Carrizalejo, San Pedro Garza Garcia, Nuevo Leon, Mexico and operates produc-
tive 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
2019
a. Acquisition of a PET recycling plant with Perpetual Recycling Solutions
On January 9, 2019, the Company announced that one of its subsidiaries signed an agreement with Perpetual Recycling Solutions, LLC
("Perpetual"), to acquire a PET recycling plant in Richmond, Indiana, USA. The Perpetual PET recycling plant has an installed capacity to
produce approximately 45,000 tons per year of high quality recycled PET flakes. The acquisition was completed on January 31, 2019. This
acquisition complements the Company's existing food-grade PET recycling operations in Argentina and its fiber-grade PET recycling facility
in North Carolina. The operation was closed for the amount of US$34 on January 31, 2019.
2019 ALPEK ANNUAL REPORT | 65
CONSOLIDATED FINANCIAL STATEMENTS The Company's consolidated financial statements include Perpetual's financial information from the acquisition date. The business purchased
is included in the Polyester segment.
The acquisition of Perpetual met the criteria of a business combination in accordance with the requirements of IFRS 3, Business Combinations;
therefore, the Company applied the acquisition method to measure the assets acquired and the liabilities assumed in the transaction. The
Company recognized goodwill in the amount of US$3. The purchase price allocation was determined in 2019, and the adjustments derived
from the acquisition method accounting were recognized from the acquisition date.
The 2019 consolidated statement of cash flows presents the incorporation of Perpetual's transactions into a single line within the investing
activity.
b. Sale of two electric power cogeneration plants
On January 6, 2019, the Company signed an agreement with Contour Global Terra 3, S.a.r.l. (“CG Terra 3”) for the sale of its cogeneration
power plants, located in Cosoleacaque and Altamira, Mexico. Subsequently, CG Terra 3 transferred its rights to ContourGlobal Holding de
Generación de Energía de México, S.A. de C.V. (“CG Mexico”), a subsidiary of Contour Global, PLC. The agreement includes the sale of all the
shares representing the capital stock of Cogeneración Altamira, S.A. de C.V. (“CGA”), held by Alpek SAB; at the same time, CGA is the holder
of 99.99% of the shares of the capital stock of Cogeneración de Energía Limpia de Cosoleacaque, S.A. de C.V. ("CELCSA").
Additionally, as part of the transaction, Alpek SAB signed with CG Mexico, among others, a call option agreement whereby Alpek SAB and
its subsidiaries undertake the obligation to sell all of its shares of the capital stock of Tereftalatos Mexicanos Gas, S. A. de C. V. (whose assets,
among others, include gas pipelines that transport natural gas from the point of interconnection of the integrated national transport system
to the point of consumption), to CG Mexico, in the case that the later exercises the call option within a period of 5 years from the date of the
signing of the call option agreement. The option will be subject to compliance with certain precedent conditions established in the contract,
and its price will be subject to working capital adjustments.
On November 25, 2019, the Company announced that it had concluded the sale process of its cogeneration power plants for US$801;
however, the transaction price is subject to non-significant working capital adjustments, which are expected to be in favor of the Company.
The resources of the transaction were mainly used to reduce the Company's debt obligations and pay an extraordinary dividend (Note 31).
c. Debt issuance
On September 11, 2019, Alpek SAB issued Senior Notes, listed on the Irish Stock Exchange, to qualified institutional investors under Rule
144A and other investors outside the United States of America under Regulation S in the amount of US$500, including issuance costs of US$4
and discounts of US$1. The Senior Notes mature in ten years at a coupon of 4.25% payable semiannually. The transaction proceeds were
mainly used to prepay short-term debt and for general corporate purposes.
2019 ALPEK ANNUAL REPORT | 66
CONSOLIDATED FINANCIAL STATEMENTS d. Signing of an agreement for the acquisition of a PET plant in Lotte Chemical
On October 29, 2019, the Company announced that one of its subsidiaries signed an agreement with Lotte Chemical Corporation ("Lotte")
for the purchase of all the shares of Lotte Chemical UK Limited ("Lotte UK"), which is owner of a PET production plant located in Wilton,
United Kingdom. The plant has a capacity to produce approximately 350,000 tons per year. The acquisition is aligned with Alpek's growth
strategy, expanding its reach outside the Americas.
During the month of December 2019, the Company gave advance payments for the acquisition of Lotte UK for a total amount of US$69;
however, the final acquisition of the business occurred on January 1, 2020, considered as the moment from which Alpek gained control of
Lotte UK.
e. Credit Agreement with Export Development Canada (“EDC”)
On May 10, 2019, Alpek and certain of its subsidiaries entered into a credit agreement to obtain an unsecured credit for up to US$250 with
Export Development Canada. This facility has a maturity of 5 years and an availability period that expires in May 2021. The loan accrues
interest at a variable rate of LIBOR plus a spread that depends on leverage levels and can be prepaid at any time, in whole or in part, without
penalty.
2018
f.
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”) to help support its PET operation during its debt restructuring process. The US$60 credit facility is secured by a second lien on
M&G Mexico’s PET production plant in Altamira, Mexico, and has a two-year term. 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 on this same PET production facility in Altamira.
g. Acquisition of Corpus Christi Project from Mossi & Ghisolfi Group (“M&G”)
On March 21, 2018, Alpek announced that it had entered into a joint venture with Indorama Ventures Holdings LP (“Indorama”) and Far
Eastern Investment (Holding) Limited (“Far Eastern”), to create Corpus Christi Polymers LLC (“CCP”), which signed an asset purchase agreement
with M&G USA Corp. and its affiliated debtors (“M&G Corp.”) for the acquisition of the integrated PTA-PET site under construction located
in Corpus Christi, Texas, and certain intellectual property 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. For this purchase, Alpek contributed US$266 in cash and US$133 in other non-
cash capital contributions, associated with a portion of its secured claim with M&G with respect to the Capacity Reservation Agreement with
Corpus Christi (the “Capacity Reservation Agreement"); furthermore, as of December 31, 2018, Alpek had 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 recognized its investment in CCP as a joint venture through the equity method.
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, 2019 and 2018, Alpek has invested US$423 and US$416, respectively.
2019 ALPEK ANNUAL REPORT | 67
CONSOLIDATED FINANCIAL STATEMENTS Once the facility is finished, 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, which will have a nominal production capacity of 1.1 million and 1.3 million metric tons per year of PET and
PTA, respectively. 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 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).
h. Acquisition of Petroquímica SUAPE and 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$435, free of debt, which was paid in Brazilian reals at the closing date of the transaction.
As a result of this transaction, Alpek acquired an integrated PTA-PET site in Ipojuca, Pernambuco, Brazil, with a capacity of 640,000 and
450,000 tons per year of PTA and PET, respectively. Citepe also operates a textured polyester filament plant with a capacity of 90,000 tons
per year. The operation was carried out due to Alpek’s strategy of making continuous and selected investments in integration, efficiency and
expansion projects, in order to achieve a sustainable growth.
The consolidated financial statements of the Company include the financial information of Petroquímica Suape and Citepe as of the date of
acquisition. The acquisition of the business is included in the Polyester segment.
2019 ALPEK ANNUAL REPORT | 68
CONSOLIDATED FINANCIAL STATEMENTS The acquisition of Petroquímica Suape and Citepe met the criteria of a business combination in accordance with the requirements of IFRS
3, Business Combinations, for which the Company applied the acquisition method to measure the assets acquired and liabilities assumed in
the transaction. The purchase price allocation was determined in 2018, and the adjustments derived from acquisition method accounting
were recognized from the date of acquisition. The fair values of the assets acquired and liabilities assumed as a result of this acquisition are
as follows:
Inventories
Other current assets(1)
Recoverable taxes
Property, plant and equipment, net
Intangible assets(2)
Other non-current assets(3)
Current liabilities(4)
Provisions(5)
Net acquired assets
Bargain purchase gain
Consideration paid
US$
$
$
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.
Intangible assets consist of customer relationships, which guarantee the existence and continuity of the business from the moment of acquisition.
(2)
(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 reimbursement 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 25). Under the terms of IFRS 3, the gain associated with the business combination is mainly 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.
i. 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.,
which was later syndicated. 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 plus a spread that depends on leverage levels, and is subject to be prepaid at any time, totally or partially, without penalty. This
credit agreement was prepaid in full during 2019.
2019 ALPEK ANNUAL REPORT | 69
CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
2019 ALPEK ANNUAL REPORT | 70
CONSOLIDATED FINANCIAL STATEMENTS 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.
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.
2019 ALPEK ANNUAL REPORT | 71
CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2019 and 2018, 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 (Selenis) (3)
Tereftalatos Mexicanos, S. A. de C. V. (Temex)
Akra Polyester, S. A. de C. V.
Cogeneración de Energía Limpia de Cosoleacaque, S. A. de C. V. (5)
Cogeneración de Altamira, S. A. de C. V. (5)
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)
Functional
currency
2019
2018
USA
Spain
Argentina
Canada
Brazil
Brazil
Argentina
Chile
Brazil
100
100
100
100
100
50
91
93
-
-
100
100
51
50
100
100
100
100
100
100
100
100
100
100
100
100
50
91
93
100
100
100
100
51
50
100
100
100
100
100
100
100
Mexican peso
US Dollar
US Dollar
US Dollar
US Dollar
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, included an earn-out clause related to the production of PETG, which was initiated by Selenis. 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 2g.
(5) Entities sold in 2019. See note 2b.
As of December 31, 2019 and 2018, there are no significant restrictions for investment in shares of subsidiary companies mentioned
above.
2019 ALPEK ANNUAL REPORT | 72
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 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 income.
2019 ALPEK ANNUAL REPORT | 73
CONSOLIDATED FINANCIAL STATEMENTS 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 income.
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.
2019 ALPEK ANNUAL REPORT | 74
CONSOLIDATED FINANCIAL STATEMENTS 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.
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 income, 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 income 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.
2019 ALPEK ANNUAL REPORT | 75
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
US Dollar
Argentine peso
Brazilian real
Chilean peso
2019
18.85
0.31
4.69
0.03
2018
19.68
0.52
5.07
0.03
2019
19.30
0.40
4.9
0.03
2018
20.15
0.53
5.18
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 income.
2019 ALPEK ANNUAL REPORT | 76
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 Professional 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, 2019.
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
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 also has
substantially transferred all the risks and rewards of its ownership, as well as the control of the financial asset.
Classes of financial assets
i.
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.
2019 ALPEK ANNUAL REPORT | 77
CONSOLIDATED FINANCIAL STATEMENTS ii.
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, 2019, the Company does not hold
financial assets to be measured at fair value through other comprehensive income.
iii.
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.
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, 2019, the Company has not made any of the irrevocable designations described above.
Impairment of financial assets
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.
2019 ALPEK ANNUAL REPORT | 78
CONSOLIDATED FINANCIAL STATEMENTS 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.
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 income 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.
2019 ALPEK ANNUAL REPORT | 79
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 income. 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 income in the
same line item as the hedged position. As of December 31, 2019 and 2018, 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.
2019 ALPEK ANNUAL REPORT | 80
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. 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 income. 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 income, 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 income 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.
2019 ALPEK ANNUAL REPORT | 81
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 income 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 income.
k.
Leases
Classification and valuation of leases under IAS 17, in effect through December 31, 2018
The Company as lessee
As of December 31, 2018, the classification of leases as finance or operating depended 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 were classified as
operating leases. Payments made under operating leases (net of incentives received by the lessor) were recognized in the consolidated
statement of income based on the straight-line method over the lease period.
2019 ALPEK ANNUAL REPORT | 82
CONSOLIDATED FINANCIAL STATEMENTS
Leases where the Company assumes substantially all the risks and rewards of ownership were classified as finance leases. Finance leases were
capitalized at the beginning of the lease, at the lower of the fair value of the leased property and the present value of the future minimum
lease payments. If its determination was practical, in order to discount the future minimum lease payments to present value, the interest rate
implicit in the lease was used; otherwise, the incremental borrowing rate of the lessee was used. Any initial direct costs of the leases were
added to the original amount recognized as an asset. Each lease payment was allocated between the liability and finance charges to achieve
a constant rate on the outstanding balance. The corresponding rental obligations were included in non-current debt, net of finance charges.
The interest element of the finance cost was 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 were depreciated over the shorter of the asset's useful life or the lease term.
The Company as lessor
Leases for which the Company is considered a lessor were classified as financial or operating. As long as the lease terms transfer substantially
all the risks and rewards of ownership to the lessee, the contract was classified as a finance lease. The other leases were classified as operating
leases.
Revenues arising from operating leases were recognized in straight-line over the term of the corresponding lease. The initial direct costs
incurred in the negotiation and the organization of an operating lease were added to the book value of the leased asset and were recognized
in a straight line over the term of the lease. Revenues arising from financial leases were recognized as accounts receivable for the amount of
the net investment of the Company in the leases.
Classification and valuation of leases under IAS 17, in effect beginning January 1, 2019
The Company as lessee
The Company evaluates whether a contract is or contains a lease agreement at inception of a contract. A lease is defined as an agreement
or part of an agreement that conveys the right to control the use of an identified asset for a period of time in exchange for a consideration.
The Company recognizes an asset for right-of-use and the corresponding lease liability, for all lease agreements in which it acts as lessee,
except in the following cases: short-term leases (defined as leases with a lease term of less than 12 months); leases of low-value assets (defined
as leases of assets with an individual market value of less than US$5,000 (five thousand dollars)); and, lease agreements whose payments are
variable (without any contractually defined fixed payment). For these agreements, which exempt the recognition of an asset for right-of-use
and a lease liability, the Company recognizes the rent payments as an operating expense in a straight-line method over the lease period.
The right-of-use asset comprises all lease payments discounted at present value; the direct costs to obtain a lease; the advance lease
payments; and the obligations of dismantling or removal of assets. The Company depreciates the right-of-use asset over the shorter of the
lease term or the useful life of the underlying asset; therefore, when the lessee will exercise a purchase option, the lessee shall depreciate
the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Depreciation begins on the lease
commencement date.
The lease liability is initially measured at the present value of the future minimum lease payments that have not been paid at that date,
using a discount rate that reflects the cost of obtaining funds for an amount similar to the value of the lease payments, for the acquisition
of the underlying asset, in the same currency and for a similar period to the corresponding contract (incremental borrowing rate). When
lease payments contain non-lease components (services), the Company has chosen, for some class of assets, not to separate them and
measure all payments as a single lease component; however, for the rest of the class of assets, the Company measures the lease liability only
considering lease payments, while all of the services implicit in the payments, are recognized directly in the consolidated statement of income
as operating expenses.
2019 ALPEK ANNUAL REPORT | 83
CONSOLIDATED FINANCIAL STATEMENTS To determine the lease term, the Company considers the non-cancellable period, including the probability to exercise any right to extend
and/or terminate the lease term.
Subsequently, the lease liability is measured increasing the carrying amount to reflect interest on the lease liability (using the effective interest
method) and reducing the carrying amount to reflect the lease payments made.
When there is a modification in future lease payments resulting from changes in an index or a rate used to determine those payments,
the Company remeasures the lease liability when the adjustment to the lease payments takes effect, without reassessing the discount rate.
However, if the modifications are related to the lease term or exercising a purchase option, the Company reassesses the discount rate during
the liability’s remeasurement. Any increase or decrease in the value of the lease liability subsequent to this remeasurement is recognized as
an adjustment to the right-of-use asset to the same extent.
Finally, the lease liability is derecognized when the Company fulfills all lease payments. When the Company determines that it is probable
that it will exercise an early termination of the contract that leads to a cash disbursement, such disbursement is accounted as part of the
liability’s remeasurement mentioned in the previous paragraph; however, in cases in which the early termination does not involve a cash
disbursement, the Company cancels the lease liability and the corresponding right-of-use asset, recognizing the difference immediately in
the consolidated statement of income.
The Company as lessor
As of January 1, 2019, the Company, in those cases where it acts as a lessor, maintains its accounting policy consistent with that in effect during
the year ended December 31, 2018, considering the new definition of leases established by IFRS 16.
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.
Indefinite useful life
These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2019 and 2018, no
factors have been identified limiting the life of these intangible assets.
ii.
Finite useful life
These assets are recognized at cost less the accumulated amortization and impairment losses recognized. They are amortized on a
straight, line basis over their estimated useful life, determined based on the expectation of generating future economic benefits, and
are subject to impairment tests when triggering events of impairment are identified.
2019 ALPEK ANNUAL REPORT | 84
CONSOLIDATED FINANCIAL STATEMENTS 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 for development activities are recognized as intangible assets when
such costs can be reliably measured, the product or process is technically and commercially feasible, potential future economic benefits
are obtained and the Company intends also has sufficient resources to complete the development and to use or sell the asset. Their
amortization is recognized in income by the straight-line method over the estimated useful life of the asset. Development expenditures
that do not qualify for capitalization are recognized in income as incurred.
Licenses
Licenses acquired in a separate transaction, are recorded at acquisition cost, 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.
2019 ALPEK ANNUAL REPORT | 85
CONSOLIDATED FINANCIAL STATEMENTS
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.
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 income.
o.
Income tax
The amount of income taxes in the consolidated statement of income represents the sum of the current and deferred income taxes.
The amount of income taxes included in the consolidated statement of income 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.
2019 ALPEK ANNUAL REPORT | 86
CONSOLIDATED FINANCIAL STATEMENTS
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.
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 income.
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.
2019 ALPEK ANNUAL REPORT | 87
CONSOLIDATED FINANCIAL STATEMENTS 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.
q. Provisions
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 SAB, 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 income.
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 income.
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.
2019 ALPEK ANNUAL REPORT | 88
CONSOLIDATED FINANCIAL STATEMENTS 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.
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.
2019 ALPEK ANNUAL REPORT | 89
CONSOLIDATED FINANCIAL STATEMENTS 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).
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, 2019 and 2018, 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 IFRS 16, Leases, and IFRIC 23, Interpretation on Uncertainty over Income Tax Treatments, all new standards and
interpretations in effect as of January 1, 2019, including the annual improvements to IFRS, as described below:
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. Therefore, since the method used by the Company based on the transitional
provisions of the standard did not involve adjusting the comparative periods, the financial information as of and for the year ended
December 31, 2018, is not comparative in some line items or indicators of the financial situation and results for 2019.
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.
The Company applied 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 $3,242.
The weighted average incremental borrowing rate which was used to calculate the present value of the minimum lease payments in the
scope of IFRS 16 was 5.60%.
2019 ALPEK ANNUAL REPORT | 90
CONSOLIDATED FINANCIAL STATEMENTS 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 following is a reconciliation of the total commitments of operating leases as of December 31, 2018 and the lease liability at the date
of initial adoption:
Operating lease commitments as of December 31, 2018
Amount discounted using the incremental borrowing rate as of January 1, 2019
$
$
(-): Short-term leases not recognized as lease liabilities
(-): Low-value assets not recognized as lease liabilities
(+/-): Adjustments by extension of terms and others
(+/-) Adjustments related to changes in the index of variable payment
4,231
3,540
( 188 )
( 110 )
-
-
Lease liability as of January 1, 2019
$
3,242
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.
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 are those tax treatments 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.
2019 ALPEK ANNUAL REPORT | 91
CONSOLIDATED FINANCIAL STATEMENTS
ii. New standards and interpretations yet to be adopted by the Company
The Company has reviewed the following new IFRS and improvements issued by the IASB not in force in the reporting period, and in its
assessment process it did not find potential impacts from its adoption, considering that they are not of significant applicability:
•
•
•
•
IFRS 17 – Insurance Contracts (1)
Amendments to IFRS 3 – Definition of a business (2)
Amendments to IAS 1 and IAS 8 – Definition of material (2)
Amendment to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform (2)
(1)
(2)
In force for annual periods beginning January 1, 2021
In force for annual periods beginning January 1, 2020
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 variation 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 associated with
foreign exchange and interest rates. Sometimes, the Company uses derivative financial instruments to hedge certain exposures to risks. In ad-
dition, 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 Financial Officer
(“CFO") and a Risk Management Officer (“RMO”) acting as technical secretary. The RMC reviews derivative transactions proposed by the sub-
sidiaries 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 schedule of authorizations:
Chief Executive Officer of the Company
Risk Management Committee of Alfa
Finance Committee
Board of Directors of Alfa
Maximum possible
loss US$1
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.
2019 ALPEK ANNUAL REPORT | 92
CONSOLIDATED FINANCIAL STATEMENTS Alfa's risk management policy indicates that hedging positions should always be less than the projected exposure to allow an acceptable 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
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 1.28 and 1.77 as of December 31, 2019 and 2018, respectively, resulting in a leverage ratio
that meets the Company’s management and risk policies.
2019 ALPEK ANNUAL REPORT | 93
CONSOLIDATED FINANCIAL STATEMENTS Financial instruments by category
The following are the Company’s financial instruments by category.
As of December 31, 2019 and 2018, financial assets and liabilities consist of the following:
Cash and cash equivalents
Restricted cash
Financial assets measured at amortized cost:
Trade and other accounts receivable
Other non-current as
As of December 31,
2019
2018
$
7,059
$
216
12,046
4,806
4,168
3
17,287
5,372
Financial assets measured at fair value through profit or loss
Derivate financial instruments(1)
77
30
Financial liabilities measured at amortized cost:
Debt
Trade and other accounts payable
Lease liability
Financial liabilities measured at fair value:
Derivative financial instruments(1)
$
24,204
$
26,860
$
28,810
$
14,955
3,368
532
40,130
24,217
-
1,330
$
47,665
$
65,677
(1) The Company designated the derivative financial instruments that comprise this balance, as accounting hedges, according to what is described in Note 4.
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 pay-
able, 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, 2019 and 2018.
The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below:
As of December 31,
2019
As of December 31,
2018
Carrying amount
Fair value
Carrying amount
Fair value
Financial assets:
Non-current accounts receivable
$
4,127
$
4,121
$
4,756
$
4,745
Financial liabilities:
Non-current debt
28,261
29,529
30,317
30,211
2019 ALPEK ANNUAL REPORT | 94
CONSOLIDATED FINANCIAL STATEMENTS
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, 2019 and 2018 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. 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, 2019:
MXN
USD
EUR
Financial assets
Financial liabilities
Foreign exchange financial position
$
$
17,615
17,500
$
27,364
$
34,462
115
$
( 7,098 )
$
686
102
584
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 $640 on the consolidated statement of
income and stockholders' equity.
2019 ALPEK ANNUAL REPORT | 95
CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments to hedge net investments in foreign transactions
Beginning March 1, 2018, the Company designated certain non-current debt instruments as hedging instruments to net investments in
foreign transactions, in order to mitigate the variations in exchange rates arising between the functional currency for such transactions
and the functional currency of the holding or sub-holding company that maintains these investments.
The Company formally designated and documented each hedging relationship establishing objectives, strategy to hedge the risk, the
identification of the hedging instrument, the hedged item, the nature of the risk to be hedged, and the methodology to assess the
effectiveness. Given that the exchange rate hedging relationship is clear, the method that the Company used to assess the effectiveness
consisted of a qualitative effectiveness test by comparing the critical terms between the hedging instruments and the hedged items.
The hedging effectiveness results confirm that the hedging relationships are highly effective due to the economic relationship between
the hedging instrument and the hedged items.
The hedge will be effective as long as the notional debt designated as a hedging instrument is equal to or less than the value of the
net assets of the covered foreign operation. On the other hand, when the value of the net assets of the foreign operation is less than
the notional value of the designated debt, the Company rebalances the hedging relationship and recognizes the ineffectiveness in the
income statement.
As of December 31, 2019 and 2018, Alpek maintains the following hedging relationships:
Holding
Functional
Currency
Hedging Instrument
Notional Value
Hedged Item
Net assets of the
hedged item
Alpek SAB
MXN
Senior Notes 144A fixed rate
US$
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate
72
210
22
Indelpro
Temex
US$
Dak Americas Ms
Dak Resinas Americas
Akra Polyester
US$
304
US$
215
78
196
129
203
821
Holding
Functional
Currency
Hedging Instrument
Notional Value
Hedged Item
Net assets of the
hedged item
Alpek SAB
MXN
Senior Notes 144A fixed rate
US$
Senior Notes 144A fixed rate
Bank loan, LIBOR +1.10(1)
Bank loan, LIBOR +1.25
Bank loan, LIBOR +1.25
2
60
150
180
110
Indelpro
Temex
US$
Dak Americas Ms
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 16.
2019 ALPEK ANNUAL REPORT | 96
CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2019 and from the date of designation until December 31, 2018, the Company’s average hedging
ratio amounted to 59.3% and 55.2%, respectively. Therefore, the exchange rate fluctuation generated by the hedging instruments for
the year ended December 31, 2019 and from the date of designation until December 31, 2018 amounted to a net income (loss) of $264
and $(324), respectively, 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, 2019 and 2018, the Company holds forwards (EUR/USD) to cover different needs. Additionally, as of December
31, 2018, the Company also held forwards (USD/MXN). In the case of the USD/MXN ratio, the Company sought 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.
For accounting purposes, the Company has designated such forwards as cash flow hedging relationships to hedge the aforementioned
items, and has formally documented these relationships, setting the objectives, management's strategy to hedge the risk, identification
of hedging instruments, hedged items, the nature of the risk to be hedged and the methodology of the effectiveness assessment.
The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are mentioned
below:
As of December 31, 2019
Characteristics
Currency
Notional amount
Strike (average)
Maturity
Carrying amount
Change in the fair value to measure ineffectiveness
Reclassification from OCI to profit or loss
Recognized in OCI, net of reclassifications
Change in the fair value of the hedged item to measure ineffectiveness
Change in the fair value of the forward
Forwards
EUR/USD
EUR
1.5
1.1756 EUR/USD
Monthly through
March 31, 2020
1.4
1.4
(0.2)
1.6
(1.4)
0.4
2019 ALPEK ANNUAL REPORT | 97
CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018
Characteristics
Notional amount
Currency
Strike (average)
Maturity
Carrying amount
Change in the fair value 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%
As of December 31, 2019, 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 exchange rate resulted in 100%, confirming that there is an economic
relationship between the hedging instruments and the hedged items. The effectiveness result for the USD/MXN exchange rate in 2018
was 100%. 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 reference amounts described and the way in which the flows of the derivatives are exchanged, the average
coverage ratio for the EUR/USD exchange rate is 86%. If necessary, a rebalancing will be done to maintain this relationship for the
strategy. As of December 31, 2018, the average coverage ratio was 77% for the USD/MXN exchange ratio and 86% for the EUR/USD
ratio.
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, as well as the credit risk. For
the years ended December 31, 2019 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.
2019 ALPEK ANNUAL REPORT | 98
CONSOLIDATED FINANCIAL STATEMENTS 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.
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 2019 and 2018 was 2.6 and 3.2 US dollars, respectively.
As of December 31, 2019 and 2018, the Company had hedges of natural gas prices for a portion expected of consumption needs in
Mexico and the United States.
Derivative 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),
ethane and terephthalic acid (PTA). Therefore, an increase in the price of natural gas, paraxylene, ethylene, monoethylene glycol (MEG),
ethane or terephthalic acid (PTA), 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 strategies called roll-
over, through which it analyzes on a monthly basis if more derivatives are contracted to expand the time or the amount of coverage;
currently, the Company has contracted hedges until December 2020. Raw material derivatives are mirrored to DAK Americas and DAK
Resinas Americas México, as the risk lies in such entities, and derivative financial instruments are contracted by Petrotemex; this process
is carried out through the formalization of internal derivatives to be able to apply hedging accounting.
2019 ALPEK ANNUAL REPORT | 99
CONSOLIDATED FINANCIAL STATEMENTS
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:
As of December 31, 2019
Characteristics
Natural Gas
Swaps
Paraxylene
Swaps
PTA
Swaps
Ethylene
Swaps
MEG
Swaps
Ethane
Swaps
Total notional
Units
Price received
7,800,000
327,250
22,500
110,000,000
58,000
9,400,000
MMBtu
MT
MT
lb
MT
gal
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Fair Value
Price paid (average)
4.35/MMBtu
$856/MT
$627/MT
$0.17/lb
$564/MT
$0.22/gal
Maturity (monthly)
December
2020
December
2020
December
2020
December
2020
December
2020
December
2020
Net position of the swap (1)
(302)
(154)
Ineffectiveness recognized in the
statement of income
Change in the fair value to
measure ineffectiveness
Reclassification from OCI
to profit or loss
Balance recognized in OCI,
net of reclassifications
Effectiveness test results
-
(302)
-
-
(181)
(120)
(302)
99.98%
(34)
99.97%
8
-
38
-
8
(4)
-
(14)
(6)
(2)
5
-
2
(3)
8
(9)
-
(8)
(2)
(7)
99.97%
99.93%
99.96%
99.95%
(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.
2019 ALPEK ANNUAL REPORT | 100
CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2018
Characteristics
Natural Gas
Swaps
Paraxylene
Swaps
PTA
Swaps
Ethylene
Swaps
MEG
Swaps
Ethane
Swaps
Total notional
Units
Price received
Price paid (average)
Maturity (monthly)
Net position of the swap (1) (2)
Change in the fair value to
measure ineffectiveness
Balance recognized in OCI,
net of reclassifications
Effectiveness test results
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
4.35 USD/
MMBtu
December
2014
(478)
200
(478)
99%
$1,057/MT
$459/MT
$0.21/lb
$741/MT
$0.32/gal
December
2019
December
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%
(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, 2019 and 2018 is $998 and $(721), respectively.
The fair value of the derivate financial instruments according to their classification in the consolidated statement of financial position is
as follows:
As of December 31, 2019
Asset
Liability
Total
$ 29
$ (331)
$ (302)
29
(184)
(155)
-
4
5
9
1
(9)
(8)
-
-
-
(9)
(4)
5
9
1
$ 77
$ (532)
$ (455)
Natural Gas
Paraxylene
Ethanol
Ethylene
MEG
PTA
Forward
Total
With the reference amounts of these derivative financial instruments, the Company offsets the fluctuation of the prices of these
commodities that are used as raw material in the production processes of the entities.
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. In the case of Naphtha, the underlying item of derivative
financial instruments is different from that of the hedged item; however, the Company determined that the risk component is separable,
it can be reliably measured and is also highly correlated, and has a strong market structure.
2019 ALPEK ANNUAL REPORT | 101
CONSOLIDATED FINANCIAL STATEMENTS 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. Due to the results shown on the effectiveness tests, it is confirmed that there is an economic relationship between the
hedging instruments and the hedged item. 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.
As of December 31, 2019, according to the reference amounts described and the way in which the flows of the derivatives are exchanged,
the average coverage ratio for the natural gas, paraxylene, ethylene and ethane for 2019 and 2018 are shown below and, if necessary,
a rebalancing will be done to maintain this relationship for the strategy.
Average coverage ratio
Natural gas
Paraxylene
Ethylene
Ethane
Terephthalic acid (PTA)
2019
40%
79%
54%
2%
5%
2018
30%
72%
44%
33%
-
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, 2019 and 2018, 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, 2019, 96% of the financing is denominated at a fixed rate, and 4% at a variable rate.
As of December 31, 2019, 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 $12.
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. However, on December 26, 2019, the Company settled the swap, as it paid in advance the debt it was covering.
2019 ALPEK ANNUAL REPORT | 102
CONSOLIDATED FINANCIAL STATEMENTS The conditions of the derivative financial instrument and the considerations of its valuation as a hedging instrument are mentioned
below:
As of December 31, 2018
Characteristics of the swap
Currency
Notional
Interest rate received
Interest rate paid
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
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 reference amounts described and the way in which the flows of derivative financial instruments are exchanged,
the average hedging ratio for the interest rate relationship was 100% during 2018. In this hedge relationship, the source of ineffectiveness
was 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.
2019 ALPEK ANNUAL REPORT | 103
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,
2019 and 2018, 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, 2019, 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, 2019
Suppliers and other accounts payable
$
16,455
$
-
$
-
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
As of December 31, 2018
1,700
528
Suppliers and other accounts payable
$
26,051
$
Current and non-current debt
(excluding debt issuance costs)
Derivative financial instruments
11,333
1,047
22,370
11,541
4
-
34,082
283
$
-
-
-
-
2019 ALPEK ANNUAL REPORT | 104
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, 2019 and 2018, 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, seldom equal to
the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are addressed below:
a.
Estimated impairment of goodwill and intangible assets with indefinite useful lives
The Company performs annual tests to determine whether goodwill and intangible assets with indefinite useful lives have suffered any
impairment (see Note 12). For impairment testing, goodwill and intangible assets with indefinite lives are allocated to those groups of cash-
generating units (“CGUs”) from which the Company has considered that economic and operational synergies of business combinations are
generated. The recoverable amounts of the CGUs have been determined based on the calculations of their value in use, which require the
use of estimates. The most significant of these estimates are as follows:
•
•
•
Estimates of future gross and operating margins, according to the historical performance and industry expectations for each
CGU group.
Discount rate based on the weighted average cost of capital (WACC) of each CGU or group of CGUs.
Long-term growth rates.
2019 ALPEK ANNUAL REPORT | 105
CONSOLIDATED FINANCIAL STATEMENTS 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; or in the case of the right-of-use assets,
based on the term of the lease agreement. 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.
d. Estimation of default probabilities and recovery rate to apply the model of expected losses in the calculation of impairment of
financial 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.
2019 ALPEK ANNUAL REPORT | 106
CONSOLIDATED FINANCIAL STATEMENTS
f.
Estimation of the discount rate to calculate the present value of future minimum income payments
The Company estimates the discount rate to be used in determining the lease liability, based on the incremental loan rate (“IBR”).
The Company uses a three-tier model, with which it determines the three elements that make up the discount rate: (i) reference rate, (ii)
credit risk component and (iii) adjustment for characteristics of the underlying asset. In this model, management also considers its policies
and practices to obtain financing, distinguishing between that obtained at the corporate level (that is, by the holder), or at the level of each
subsidiary. Finally, for the leases of real estate, or, in which there is significant and observable evidence of its residual value, the Company
estimates and evaluates an adjustment for the characteristics of the underlying asset, taking into account the possibility that said asset be
granted as collateral or guarantee against the risk of default.
g. Estimate of the lease term
The Company defines the term of the leases as the period for which there is a contractual payment commitment, considering the non-
cancelable period of the contract, as well as the renewal and early termination options that are likely to be exercised. The Company
participates in lease agreements that do not have a definite forced term, a defined renewal period (if it contains a renewal clause), or
automatic annual renewals, so, to measure the lease liability, it estimates the term of the contracts considering their contractual rights and
limitations, their business plan, as well as the administration's intentions for the use of the underlying asset.
Additionally, the Company considers the early termination clauses of its contracts and the probability of exercising them, as part of its
estimate of the lease term.
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.
b. Acquisitions of assets and business combinations
Management uses its professional judgment to determine whether the acquisition of a group of assets represents a business combination or
an acquisition of assets. Such determination could have a significant impact on how acquired assets and assumed liabilities are accounted for,
both in their initial recognition and in subsequent years.
2019 ALPEK ANNUAL REPORT | 107
CONSOLIDATED FINANCIAL STATEMENTS 6. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The cash and cash equivalents are comprised as follows:
As of December 31,
2019
2018
Cash on hand and in banks
Short-term bank deposits
$
$
5,413
1,646
Total cash and cash equivalents
$
7,059
$
1,559
2,609
4,168
Restricted cash
At December 31, 2019 and 2018, the Company has restricted cash of approximately $216 and $3, respectively. As of December 31, 2019, the
increase in the balance as compared to the prior year is due to the fact that the Company entered into an agreement in which it is committed to
hold restricted cash for the acquisition of machinery and equipment. 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,
2019
2018
Trade accounts receivable
$
12,751
$
Trade and other accounts receivable from related parties (Note 28)
Recoverable taxes
Notes receivable
Interest receivable
Sundry debtors
585
4,462
485
200
511
18,139
712
4,647
506
16
473
Allowance for impairment of trade and other accounts receivable
( 2,486 )
( 2,559 )
Current portion
$
16,508
$
21,934
2019 ALPEK ANNUAL REPORT | 108
CONSOLIDATED FINANCIAL STATEMENTS
The changes in the impairment allowance for trade and other receivables in 2019 and 2018, with the new expected losses model used by the
Company, are as follows:
For the year ended December 31, 2019
Customers or
customer groups
Default
probability
range
Grupo Petrotemex (1)
0.03% - 2.36%
Grupo Unimor
Grupo Styropek (1)
Polioles
Indelpro and other
Total
5.43%
0.01% - 0.82%
0%
1.75%
Loss given
default range
10% - 45%
50%
10% - 35%
0% - 10%
1.20%
Opening
balance –
Impairment
allowance
Increases in
the allowance
Cancellations
in the
allowance
Ending
balance –
Impairment
allowance
$
( 2,423 )
$
-
( 37 )
( 25 )
( 74 )
$
( 2,559 )
$
( 114 )
-
( 40 )
( 4 )
( 1 )
( 159 )
$
217
$
( 2,320 )
-
6
1
8
-
( 71 )
( 28 )
( 67 )
$
232
$
( 2,486 )
(1) The default probability range does not consider customers and groups of customers for which the probability is 100%.
For the year ended December 31, 2018
Customers or
customer groups
Grupo Petrotemex
Grupo Unimor
Grupo Styropek
Polioles
Indelpro and other
Total
Default
probability
range
0% - 0.24%
3.15%
0% - 100%
0.01% - 0.14%
1.68%
Loss given
default range
Opening
balance –
Impairment
allowance
Increases in
the allowance
Cancellations
in the
allowance
Ending
balance –
Impairment
allowance
10.30% - 35.00%
$
( 2,353 )
$
( 116 )
$
46
$
( 2,423 )
50.00%
0% - 92.05%
0% - 10.00%
1.92%
-
( 19 )
( 22 )
( 63 )
-
( 18 )
( 3 )
( 14 )
-
-
-
-
-
( 37 )
( 25 )
( 74 )
$
( 2,457 )
$
( 151 )
$
49
$
( 2,559 )
(1) The opening balance of the estimate of impairment of receivables includes $30 of the current portion of long-term notes receivables, which was considered in the balance of the estimate of impair-
ment of trade and other accounts receivable as of January 1, 2018.
As of December 31, 2019 and 2018, the Company has guaranteed accounts receivable of $1,635 and $2,158, respectively.
The net change in the allowance for impairment of trade and other receivables for $(73) in the year ended December 31, 2019, was mainly due
to the decrease in the probability of default assigned to certain customers with respect to the beginning of the year. For its part, the variation in
the allowance for impairment of trade and other receivables of $102 in the year ended December 31, 2018, was mainly due to the increase in the
probability of default allocated to certain customers with respect to the beginning of the year in which the new methodology for impairment of
financial assets was applied.
The Company has long-term receivables that are guaranteed with the properties described in Note 2f, which have been used by management to
mitigate the exposure to credit risk of such financial assets, and therefore has not recognized an impairment in their carrying amount.
2019 ALPEK ANNUAL REPORT | 109
CONSOLIDATED FINANCIAL STATEMENTS
8.
INVENTORIES
As of December 31,
2019
2018
Finished good
$
10,203
$
13,632
Raw material and other consumables
Materials and tools
Production in progress
5,606
1,637
520
8,916
1,423
540
$
17,966
$
24,511
For the years ended December 31, 2019 and 2018, a provision amounting to $17 and $15, respectively, related to damaged, slow-moving and
obsolete inventory was recognized in the consolidated statement of income.
At December 31, 2019 and 2018, 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,
2019
2018
$
1,785
$
16
$
1,801
$
469
38
507
(1) This item mainly consists of advertising and prepaid insurance. Additionally, as of December 31, 2019, it includes $1,300 related to the advance payment for the
acquisition of Lotte UK, as described in Note 2d.
2019 ALPEK ANNUAL REPORT | 110
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, 2018
Opening balance
Additions
Additions for business acquisitions
Disposals
Impairment
Restatement and translation effect
Depreciation charges recognized in the year
Transfers
$
3,494
$
4,616
$
23,998
$
-
369
( 11 )
-
( 14 )
-
-
2
2,592
-
( 1 )
( 203 )
( 390 )
268
71
3,249
( 35 )
( 16 )
( 160 )
( 2,052 )
1,177
26,232
$
62
2
-
( 3 )
-
( 3 )
( 15 )
16
59
273
4
64
-
-
1
( 85 )
93
350
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 )
$
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
For the year ended December 31, 2019
Opening balance
Additions
Additions for business acquisitions
Disposals
Disposals for sale of subsidiary
Impairment
Restatement and translation effect
Depreciation charges recognized in the year
Transfers
Ending balance as of December 31, 2019
As of December 31, 2019
Cost
Accumulated depreciation
$
3,838
$
6,884
$
26,232
-
3
-
( 18 )
-
( 91 )
-
-
3,732
3,732
-
-
122
( 1 )
( 1,083 )
( 23 )
( 318 )
( 279 )
508
5,810
9
444
( 59 )
( 7,736 )
( 6 )
( 1,105 )
( 2,440 )
7,752
23,091
16,724
( 10,914 )
70,632
( 47,541 )
$
$
59
$
350
$
8,669
$
1,001
$
47,033
59
$
350
$
8,669
$
1,001
$
47,033
-
1
-
-
-
( 4 )
( 13 )
15
58
323
( 265 )
1
4
( 1 )
( 3 )
-
( 23 )
( 84 )
87
331
1,881
( 1,550 )
3,234
6
( 4 )
( 250 )
-
( 148 )
-
( 8,670 )
2,837
2,837
-
121
-
( 6 )
-
-
( 51 )
-
158
1,223
1,223
-
3,365
580
( 71 )
( 9,090 )
( 29 )
( 1,740 )
( 2,816 )
( 150 )
37,082
97,352
( 60,270 )
Net carrying amount as of December 31, 2019
$
3,732
$
5,810
$
23,091
$
58
$
331
$
2,837
$
1,223
$
37,082
Depreciation expenses of $2,742 and $2,483 were recorded in cost of sales, $31 and $13, in selling expenses and $43 and $46, in administrative
expenses in 2019 and 2018, respectively. The Company has capitalized costs of loans on qualified assets for $182 and $314 for the years ended
December 31, 2019 and 2018, respectively. Costs from loans were capitalized at the weighted average borrowing rate of approximately 4.8% and
5.4%, respectively.
2019 ALPEK ANNUAL REPORT | 111
CONSOLIDATED FINANCIAL STATEMENTS
11. RIGHT-OF-USE ASSET, NET
The Company has leases of fixed assets including buildings, machinery and equipment, transportation equipment, and computer equipment. The
average term of the lease contracts is 8 years.
The right of use recognized in the consolidated statement of financial position as of December 31, 2019, is integrated as follows:
Net book value:
Land
Buildings
Machinery and
equipment
Rail cars
Ships and other
leased assets
Total
Adoption effect
Balance as of January 1, 2019
Balance as of December 31, 2019
Depreciation for the year 2019
$
$
115
104
( 6 )
$
$
195
176
( 46 )
$
$
904
1,011
( 260 )
$
$
2,005
1,975
( 409 )
$
$
23
171
( 113 )
$
$
3,242
3,437
( 834 )
During the year ended December 31, 2019, the Company recognized a lease expense of $664 related to low value and short-term lease agree-
ments.
Additions to the net book value of the right of use asset as of December 31, 2019 amounted to $1,226.
As of December 31, 2019, the Company does not have any commitments related to short-term lease agreements.
The Company has not signed lease contracts, which at the date of the consolidated financial statements have not started.
During the year, the Company did not execute significant extensions to the term of its lease contracts.
2019 ALPEK ANNUAL REPORT | 112
CONSOLIDATED FINANCIAL STATEMENTS
12. GOODWILL AND INTANGIBLE ASSETS, NET
Cost
Development
costs
Non-
competence
agreements
Customer
relationships
Software and
licenses
Trademarks with
definite life
Intellectual
property,
maquila rights
and others
Goodwill
Other
Total
Definite life
Indefinite life
As of January 1, 2018
$
910
$
106
$
751
$
263
$
Additions
Additions for business
acquisitions
Translation effect
As of December 31, 2018
Additions
Additions for business
acquisitions
Disposals for sale of
subsidiary
Transfers
Translation effect
$
$
11
-
( 3 )
918
8
-
-
-
$
$
-
-
( 18 )
88
-
-
-
-
$
$
-
384
( 15 )
1,120
-
-
-
-
$
$
19
289
( 16 )
555
69
-
-
7
( 39 )
( 7 )
( 61 )
( 27 )
$
$
-
-
-
-
-
-
69
-
-
( 1 )
$
3,765
$
339
$
$
$
239
-
( 8 )
3,996
4
-
( 296 )
22
( 158 )
$
$
-
-
( 1 )
338
-
53
-
-
( 14 )
As of December 31, 2019
$
887
$
81
$
1,059
$
604
$
68
$
3,568
$
377
Amortization
As of January 1, 2018
$
( 508 )
$
Amortization
Additions for business
acquisitions
Disposals
Translation effect
( 24 )
-
-
1
As of December 31, 2018
Amortization
Disposals for sale of
subsidiary
Translation effect
$
$
( 531 )
( 23 )
$
$
-
23
( 86 )
( 12 )
-
-
16
( 82 )
( 6 )
-
7
$
( 384 )
$
( 111 )
$
( 62 )
-
-
2
$
$
( 444 )
( 62 )
$
$
-
22
( 38 )
( 285 )
-
16
( 418 )
( 42 )
-
25
$
$
-
-
-
-
-
-
( 4 )
-
-
$
( 994 )
$
( 207 )
-
( 1 )
-
$
$
( 1,202 )
( 218 )
$
$
31
54
-
-
-
-
-
-
-
-
-
As of December 31, 2019
$
( 531 )
$
( 81 )
$
( 484 )
$
( 435 )
$
( 4 )
$
( 1,335 )
$
-
$
Net carrying amount
Cost
Amortization
As of December 31, 2018
Cost
Amortization
As of December 31, 2019
$
$
$
$
918
( 531 )
387
887
( 531 )
356
$
$
$
$
88
( 82 )
6
81
( 81 )
-
$
1,120
$
555
( 444 )
676
1,059
( 484 )
( 418 )
137
604
( 435 )
$
$
575
$
169
$
$
$
$
$
$
$
-
-
-
68
( 4 )
64
$
3,996
( 1,202 )
2,794
3,568
( 1,335 )
$
$
$
2,233
$
$
$
$
338
-
338
377
-
377
$
$
$
$
$
$
$
$
$
$
14
14
-
2
30
3
-
-
( 22 )
( 2 )
$
6,148
$
$
283
673
( 59 )
7,045
84
122
( 296 )
7
( 309 )
9
$
6,653
-
-
-
-
-
-
-
-
-
-
30
-
30
9
-
9
$
( 2,083 )
( 343 )
( 285 )
( 1 )
35
$
$
( 2,677 )
( 355 )
31
131
$
( 2,870 )
$
7,045
( 2,677 )
4,368
6,653
( 2,870 )
$
$
$
3,783
2019 ALPEK ANNUAL REPORT | 113
CONSOLIDATED FINANCIAL STATEMENTS
Of the total amortization expense, $345 and $326 have been recorded in cost of sales and $9 and $17 in administrative expenses in 2019 and
2018, respectively.
Incurred research and development expenses that have been recorded in the 2019 and 2018 consolidated statements of income were $40 and
$53, respectively.
Impairment testing of goodwill and indefinite lived intangible assets
As mentioned in note 5, 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, 2019 and 2018,
goodwill of $377 and $338, respectively, arises primarily from the Polyester segment.
The recoverable amount from each group of CGU has been determined based on calculations of values in use, which are formed by after-tax cash
flow projections based on 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 con-
sistent 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 CGU and reflects the specific risks associated with each of them.
The key assumptions used in calculating the value in use in 2019 and 2018, were as follows:
Estimated gross margin
Growth rate
Discount rate
2019
5.2%
1.8%
8.9%
2018
5.7%
1.0%
8.9%
13. OTHER NON-CURRENT ASSETS
Notes receivable (1)
Due from related parties (Note 28)
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,
2019
2018
$
3,365
$
3,995
762
679
4,806
8,197
582
176
761
616
5,372
8,746
1,736
105
$
13,761
$
15,959
(1) As of December 31, 2019 and 2018, this item mainly consisted of the financing described in Note 2f.
(2)
Investment in associates and joint ventures
2019 ALPEK ANNUAL REPORT | 114
CONSOLIDATED FINANCIAL STATEMENTS
The Company’s account of investments in associates and joint ventures consists of the following:
Shareholding
%
2019
2018
Clear Path Recycling, LLC
Terminal Petroquímica Altamira, S.A. de C.V.
Agua Industrial del Poniente, S.A. de C.V.
Galpek, LDA
Corpus Christi Polymers LLC
Investment in associates and joint ventures as of
December 31
49.90%
42.00%
47.60%
50.00%
33.30%
$
257
$
40
71
55
7,774
305
35
66
236
8,104
$
8,197
$
8,746
Below is summarized the net income of investments in associates and joint ventures, which are accounted for by the equity method:
Net comprehensive loss
$
( 740 )
$
( 61 )
2019
2018
There are neither commitments nor contingencies liabilities regarding the Company's investment in associates and joint ventures as of December
31, 2019 or 2018.
14. SUBSIDIARIES WITH SIGNIFICANT NON-CONTROLLING INTEREST
The significant non-controlling interest is integrated as follows:
Non-controlling
ownership
percentage
Non-controlling interest
income for the period
Non-controlling interest
as of December 31,
2019
2018
2019
2018
Indelpro, S. A. de C. V. and subsidiary
Polioles, S. A. de C. V. and subsidiary
$
49%
50%
Other
890
49
( 20 )
$
1,138
$
3,902
$
4,135
38
125
279
397
294
607
$
919
$
1,301
$
4,578
$
5,036
2019 ALPEK ANNUAL REPORT | 115
CONSOLIDATED FINANCIAL STATEMENTS
The summarized consolidated financial information as of December 31, 2019 and 2018, and for the years then ended, corresponding to each
subsidiary with a significant non-controlling interest is shown below:
Statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Stockholders’ equity
Statements of income
Revenues
Consolidated net income
Total comprehensive income of the year
Comprehensive income attributable to non-controlling interest
Dividends paid to non-controlling interest
Statements of cash flows
Net cash flows generated by operating activities
Net cash flows (used in) generated by investing activities
Indelpro, S. A. de C. V.
and subsidiary
Polioles, S. A. de C. V.
and subsidiary
2019
2018
2019
2018
$
$
4,114
7,536
1,723
1,965
7,962
12,019
1,817
1,472
721
955
2,100
( 259 )
5,076
7,458
2,230
1,865
8,439
14,494
2,323
2,239
1,097
902
3,232
( 286 )
$
1,317
$
974
538
1,195
558
1,775
1,005
824
1,369
587
3,087
3,736
97
46
23
38
74
200
76
63
32
79
129
363
Net cash flows used in financing activities
( 2,187 )
( 2,273 )
( 268 )
( 418 )
Net increase (decrease) in cash and cash equivalents
( 351 )
611
1
89
2019 ALPEK ANNUAL REPORT | 116
CONSOLIDATED FINANCIAL STATEMENTS
15. TRADE AND OTHER ACCOUNTS PAYABLE
16. DEBT
Trade accounts payable
Short-term employee benefits
Advances from customers
Taxes other than income taxes
Due to related parties (Note 28)
Other accrued accounts and expenses payable
Current:
Bank loans (1)
Current portion of non-current debt
Notes payable (1)
Interest payable
Current debt
Non-current:
Senior Notes
Unsecured bank loans
Other loans
Total
Less: current portion of non-current debt
As of December 31,
2019
2018
$
13,064
$
22,330
545
17
938
247
1,644
889
18
927
392
1,495
$
16,455
$
26,051
As of December 31,
2019
2018
$
$
375
301
27
4
707
$
9,588
472
43
15
$
10,118
$
27,426
$
836
142
28,404
( 301 )
18,777
11,707
-
30,484
( 472 )
Non-current debt (2)
$
28,103
$
30,012
(1) As of December 31, 2019 and 2018, short-term bank loans and notes payable incurred interest at an average rate of 4.19%, and 3.55%, respectively.
(2) The fair value of bank loans and notes payable approximates their current carrying amount because of their short maturity.
2019 ALPEK ANNUAL REPORT | 117
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, 2019
Balance as of
December 31,
2018 (1)
Maturity
date
MM/DD/YY
$
12,234
$
( 48 )
$
61
$
12,247
$
12,778
20-nov-22
Senior Notes 144A/Reg. S / fixed 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 25.00%
Bank loan, Libor +1.10% (2)
Bank loan, Libor +1.10% (2)
Bank loan, Libor +3.25% (2)
Bank loan, Libor +1.45%
Bank loan, Libor +1.25% (2)
Bank loan, Libor +1.25% (2)
Total unsecured bank loans
Other loans
Total
USD
USD
USD
ARS
ARS
USD
USD
USD
USD
USD
USD
USD
5,654
9,397
27,285
2
3
-
-
-
829
-
-
834
142
( 25 )
( 80 )
( 153 )
-
-
-
-
-
-
-
-
-
-
119
114
294
-
-
-
-
-
2
-
-
2
-
5,748
9,431
5,999
08-aug-23
-
18-sep-29
27,426
18,777
20
5
01-apr-20
08-dec-20
1,982
30-nov-20
989
30-nov-20
1,989
25-oct-22
986
15-dec-22
2,169
28-mar-21
3,567
28-mar-21
11,707
2
3
-
-
-
831
-
-
836
142
$
28,261
$
( 153 )
$
296
$
28,404
$
30,484
-
Various
Various
Interest
rate
4.50%
5.38%
4.25%
45.69%
25.00%
3.62%
3.55%
5.75%
3.34%
4.03%
3.76%
(1) As of December 31, 2018, debt issuance costs pending to be amortized were $92.
(2) These loans were paid in advance during the year ended December 31, 2019, using the resources obtained from the debt issuance (Note 2c), and the sale transaction described in Note 2b.
As of December 31, 2019, the annual maturities of non-current debt are as follows:
2021
2022
2023
2024
and thereafter
Bank loans
Senior Notes
Notes payable
$
358
$
471
$
-
$
-
$
-
-
12,186
-
5,629
-
9,317
142
Total
829
27,132
142
$
358
$
12,657
$
5,629
$
9,459
$
28,103
As of December 31, 2019 and 2018, the Company has committed unused lines of credit totaling US$740 and US$728, respectively.
2019 ALPEK ANNUAL REPORT | 118
CONSOLIDATED FINANCIAL STATEMENTS
Covenants:
Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, which include the following:
a)
b)
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.
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 2019 and 2018, the financial ratios were calculated according to the
formulas set forth in the loan agreements. As of December 31, 2019 and the date of issuance of these consolidated financial statements,
the Company complied satisfactorily with such covenants and restrictions.
17. LEASE LIABILITY
Current portion:
USD
MXN
Other currencies
Current lease liability
Non-current portion:
USD
MXN
Other currencies
Less: Current portion of lease liability
Non-current lease liability
As of December 31,
2019
$
$
531
214
167
912
2,387
405
576
3,368
( 912 )
2,456
2019 ALPEK ANNUAL REPORT | 119
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019, changes in the lease lability related to finance activities in accordance with the statement of cash flow are
integrated as follows:
Beginning balance
New contracts
Write-offs
Adjustment to liability balance
Interest expense from lease liability
Lease payments
Exchange (loss) gain
Ending balance
2019
3,242
1,226
( 165 )
74
205
( 1,108 )
( 106 )
3,368
$
$
The total of future minimum payments of leases that include non-accrued interest is analyzed as follows:
Less than a year
Over 1 year and less than 5 years
Over 5 years
Total
December 31,
2019
$
$
912
1,885
571
3,368
2019 ALPEK ANNUAL REPORT | 120
CONSOLIDATED FINANCIAL STATEMENTS
18. PROVISIONS
Dismantling,
demolition and
environmental
remediation
13
-
( 4 )
-
-
9
-
( 3 )
-
-
6
As of January 1, 2018
$
Increases
Payments
Write-offs
Translation effect
As of December 31, 2018
$
Increases
Payments
Write-offs
Translation effect
As of December 31, 2019
$
Short-term provisions
Long-term provisions
As of December 31
Legal
contingencies
$
-
$
$
639
-
( 18 )
( 1 )
620
105
-
( 13 )
( 50 )
$
Warranties
Other
Total
-
-
-
-
-
-
544
-
-
-
$
167
$
485
( 56 )
-
( 37 )
180
1,124
( 60 )
( 18 )
( 38 )
$
559
$
1,188
12
( 28 )
( 27 )
( 74 )
661
( 31 )
( 40 )
( 124 )
$
662
$
544
$
442
$
1,654
2019
2018
$
576
$
1,078
81
1,107
$
1,654
$
1,188
As of December 31, 2019, the provisions shown in the table above mainly include $251 (US$13) 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 $662 (US$35) 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-cur-
rent assets, for $679 (US$36) as of December 31, 2019. In addition, as of December 31, 2019, they also include a provision of warranties related to
the sales transaction described in Note 2b.
Additionally, as of December 31, 2019, $140 (US$7.5) were related to for the contingent liability for the earn-out payment related to the acquisi-
tion of Selenis.
2019 ALPEK ANNUAL REPORT | 121
CONSOLIDATED FINANCIAL STATEMENTS
19. 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 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,
2019
2018
$
$
766
106
872
220
797
120
917
182
Employee benefits in the consolidated statement of financial position
$
1,092
$
1,099
Charge to the consolidated statement of income for:
Pension benefits
Post-employment medical benefits
$
$
( 59 )
( 6 )
( 65 )
( 64 )
( 6 )
( 70 )
Remeasurements of employee benefit obligations recognized
in other comprehensive income of the year
$
19
$
( 73 )
Remeasurements of accrued employee benefit obligations recognized
in other comprehensive income
$
( 85 )
$
( 104 )
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,
2019
2018
Present value of defined benefit obligations
$
3,813
$
Fair value of plan assets
( 2,941 )
3,672
( 2,755 )
Liability in the statement of financial position
$
872
$
917
2019 ALPEK ANNUAL REPORT | 122
CONSOLIDATED FINANCIAL STATEMENTS
The movements of defined benefit obligations are as follows:
As of January 1
Service cost
Interest cost
Contributions from plan participants
Remeasurements:
Losses (gains) from changes in financial assumptions
Losses (gains) from changes in demographic assumptions
and experience adjustments
Translation effect
Benefits paid
Plan curtailments
As of December 31
2019
2018
$
3,672
$
3,998
45
127
10
310
( 89 )
12
( 265 )
( 9 )
45
145
11
( 191 )
( 7 )
-
( 328 )
( 1 )
$
3,813
$
3,672
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
2019
2018
$
( 2,755 )
$
( 3,097 )
( 146 )
( 239 )
( 1 )
( 46 )
247
( 119 )
261
7
( 47 )
240
$
( 2,940 )
$
( 2,755 )
The amounts recorded in the consolidated statement of income for the years ended December 31 are the following:
Service cost
Interest cost, net
Effect of plan curtailments and/or settlements
2019
2018
$
$
( 45 )
( 29 )
9
Total included in personnel cost
$
( 65 )
$
( 45 )
( 26 )
1
( 70 )
2019 ALPEK ANNUAL REPORT | 123
CONSOLIDATED FINANCIAL STATEMENTS
The principal 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,
2019
7.00%
2018
9.50%
2.92%-3.12%
3.89%-4.03%
4.50%
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 $114
Increase by $121
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 obligation, significant actuarial
assumptions the same method (present value of calculated defined benefit obligation with the projected unit credit method at reporting period)
has been applied as in the calculation of liabilities for pensions recognized within the consolidated statement of financial position.
Defined benefit plan assets
Plan assets are comprised as follows:
As of December 31,
2019
2018
Equity instruments
Fixed income
$
$
1,932
1,008
Fair value of plan assets
$
2,940
$
1,797
958
2,755
2019 ALPEK ANNUAL REPORT | 124
CONSOLIDATED FINANCIAL STATEMENTS
20. 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 subsidiaries
were as follows:
United States
Brazil
Argentina
Chile
Canada
Spain
2019
21%
34%
30%
27%
25%
25%
2018
21%
34%
30%
27%
25%
25%
a.
Income taxes recognized in the consolidated statement of income are as follows:
Current income tax
Deferred income tax
Income taxes
2019
2018
$
( 2,463 )
$
574
( 2,075 )
( 1,380 )
$
( 1,889 )
$
( 3,455 )
b. The reconciliation between the statutory and effective income tax rates is as follows:
Income before income taxes
Income tax rate
Statutory income tax rate expense
(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
Translation effect from the functional currency
Investments in associates and joint ventures
Total income taxes
Effective tax rate
2019
2018
$
9,413
30%
( 2,824 )
( 268 )
( 24 )
1,095
94
94
38
( 94 )
$
18,389
30%
( 5,517 )
( 388 )
( 12 )
1,362
504
474
131
( 9 )
$
( 1,889 )
$
( 3,455 )
20%
19%
2019 ALPEK ANNUAL REPORT | 125
CONSOLIDATED FINANCIAL STATEMENTS
c. The breakdown of the deferred tax asset and deferred tax liability is as follows:
Asset (liability)
December 31,
2019
2018
Property, plant and equipment
$
( 118 )
$
( 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
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
( 163 )
( 15 )
212
-
558
633
( 3 )
$
1,104
$
( 126 )
( 5,766 )
( 304 )
582
1,634
54
( 246 )
( 17 )
123
334
1,019
1,489
( 97 )
1,384
( 106 )
( 5,757 )
( 48 )
177
981
1
Deferred tax liability
$
( 3,926 )
$
( 4,752 )
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 $32,320 and $9,328 in 2019 and 2018, respectively.
Tax losses as of December 31, 2019 expire in the following years:
Loss for the year
incurred
Tax-loss
carryforwards
Expiration
year
2010
2011
2013
2014
2015
2016
2017
2018
2019
Other
$
5
124
55
409
187
272
33
2,244
2020
2021
2023
2024
2025
2026
2027
2028
472
2029 and thereafter
28,519
32,320
$
No maturity
2019 ALPEK ANNUAL REPORT | 126
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019, the Company holds tax losses to be amortized in Brazil, through Petroquímica Suape and Citepe, for an amount of
$28,519, which have no expiration date. The Company has decided to reserve a portion of these tax losses, according to management's estimate
of future reversals of temporary differences; thus, as of December 31, 2019, they do not generate deferred tax assets.
d.
Income tax related to other comprehensive income is as follows:
Before
taxes
Foreign currency translation effect
$
( 1,954 )
$
Remeasurement of employee benefit obligations
Effect of derivative financial instruments designated as
cash flow hedges
18
998
2019
Tax
charged
-
4
( 233 )
After
taxes
Before
taxes
$
( 1,954 )
$
( 1,814 )
$
22
765
( 73 )
( 721 )
Other comprehensive loss
$
( 938)
$
( 229 )
$
( 1,167 )
$
( 2,608)
$
2018
Tax
charged
-
18
161
179
After
taxes
$
( 1,814 )
( 55 )
( 560 )
$
( 2,429 )
e.
Income tax payable consists of the following:
As of December 31,
2019
2018
Current portion
Non-current portion
$
1,143
$
400
1,279
469
Total income tax payable
$
1,543
$
1,748
21. OTHER NON-CURRENT LIABILITIES
Advances from customers (1)
Other
Total other liabilities
As of December 31,
2019
2018
$
$
290
66
356
$
$
361
75
436
(1) This item corresponds to revenues charged in advance and relates to the future delivery of goods.
2019 ALPEK ANNUAL REPORT | 127
CONSOLIDATED FINANCIAL STATEMENTS
22. STOCKHOLDERS' EQUITY
As of December 31, 2019, 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, 2019, Alpek SAB had 2,496,541 treasury shares. As of such date, the market value per share was $20.89 Mexican pesos.
From May to December 2019, the Company purchased 20,190,080 shares in the amount of $443, and sold 17,693,539 shares in the amount of
$389, in connection to a repurchase program that was approved by the Company's stockholders and exercised discretionally by Management.
During 2018, the Company sold 1,485,884 shares in the amount of $39, 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, 2019 and 2018, the legal reserve amounts to $854
and $804, respectively.
At the ordinary stockholders’ meeting of Alpek on February 27, 2019, the stockholders agreed to declare dividends in cash in the aggregate
amount of $2,778 (US$143), which were paid on March 8 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 payable by the
Company and may be credited against its income tax in the same year or the following two years. Dividends paid from profits which have previously
paid income tax are not subject to tax withholding or to any additional tax payment. As of December 31, 2019, the tax value of the consolidated
CUFIN and value of the Capital Contribution Account (CUCA Spanish acronym) amounted to $3,811 and $20,823, respectively.
2019 ALPEK ANNUAL REPORT | 128
CONSOLIDATED FINANCIAL STATEMENTS 23. 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 SAB 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.
2019
2018
15.72
20.94
22.11
24.13
The short-term and long-term liabilities are comprised as follows:
Short term
Long term
Total carrying amount
As of December 31,
2019
2018
$
$
8
18
26
$
$
8
20
28
2019 ALPEK ANNUAL REPORT | 129
CONSOLIDATED FINANCIAL STATEMENTS
24. 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 material and other
$
( 85,823 )
$
( 95,750 )
2019
2018
Employee benefit expenses (Note 27)
Human resource expenses
Maintenance
Depreciation and amortization
Advertising expenses
Freight expenses
Consumption of energy and fuel
(gas, electricity, etc.)
Travel expenses
Lease expenses (1)
Technical assistance, professional fees
and administrative services
Other (insurance and bonds, water, containers
and packing, etc.)
( 5,365 )
( 86 )
( 2,003 )
( 4,005 )
( 2 )
( 4,987 )
( 4,637 )
( 203 )
( 664 )
( 1,599 )
( 2,214 )
( 5,128 )
( 48 )
( 1,746 )
( 2,887 )
( 3 )
( 5,305 )
( 5,380 )
( 171 )
( 966 )
( 1,481 )
( 2,956 )
Total
$
( 111,588 )
$
( 121,821 )
(1) Beginning January 1, 2019, this concept includes the expense for those short-term leases and low-value assets which, according to the Company's accounting policy,
do not result in the recognition of a right-of-use asset and a lease liability.
25. OTHER INCOME, NET
Other income for the years ended December 31, are comprised as follows:
2019
2018
Gain on business acquisition
$
-
$
4,597
Gain on business sale
Other income
Impairment of property, plant and equipment and other
3,634
659
( 29 )
-
423
( 456 )
Total
$
4,264
$
4,564
2019 ALPEK ANNUAL REPORT | 130
CONSOLIDATED FINANCIAL STATEMENTS
26. FINANCE INCOME AND COSTS
Financial result, net for the years ended December 31, are comprised as follows:
2019
2018
Financial income:
Interest income on short-term bank deposits
Interest income on loans from related parties
Other financial income
Total financial income
Financial expenses:
$
$
152
26
596
774
$
$
Interest expense on loans to related parties
$
( 3 )
$
Interest expense on bank loans
Non-bank interest expense
Lease interest expense
Interest cost on employee benefits, net
Other financial expenses
( 1,035 )
( 1,075 )
( 205 )
( 42 )
( 462 )
98
27
317
442
( 2 )
( 893 )
( 966 )
-
( 21 )
( 301 )
Total financial expense
$
( 2,822 )
$
( 2,183 )
Loss in exchange fluctuation, net
Foreign exchange gain
Foreign exchange loss
Loss in exchange fluctuation, net
Financial result, net
4,637
( 5,224 )
3,302
( 4,344 )
$
$
( 587 )
$
( 1,042 )
( 2,635 )
$
( 2,783 )
27. EMPLOYEE BENEFIT EXPENSES
Employee benefits expenses for the years ended December 31, are as follows:
Salaries, wages and benefits
$
( 3,896 )
$
( 3,869 )
2019
2018
Social security fees
Employee benefits
Other fees
Total
( 419 )
( 36 )
( 1,014 )
( 351 )
( 44 )
( 864 )
$
( 5,365 )
$
( 5,128 )
2019 ALPEK ANNUAL REPORT | 131
CONSOLIDATED FINANCIAL STATEMENTS
28. RELATED PARTY TRANSACTIONS
Transactions with related parties during the years ended December 31, 2019 and 2018 were as follows:
2019
2018
Income
Income from sale of goods:
Associates and joint ventures
$
3
$
Stockholders with significant influence over subsidiaries
1,445
Income from services:
Affiliates
Stockholders with significant influence over subsidiaries
Income from financial interest:
Alfa
Affiliates
Stockholders with significant influence over subsidiaries
Income from leases:
Stockholders with significant influence over subsidiaries
Income from sale of energy:
Affiliates
Stockholders with significant influence over subsidiaries
Income from technical assistance:
Stockholders with significant influence over subsidiaries
Other income:
Affiliates
Associates and joint ventures
78
181
25
1
-
25
354
29
3
1
-
-
1,486
263
220
25
-
2
-
-
-
-
-
3
(To be continue)
2019 ALPEK ANNUAL REPORT | 132
CONSOLIDATED FINANCIAL STATEMENTS
Costs / expenses
Purchase of finished goods and raw materials:
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
Commission expenses:
Stockholders with significant influence over subsidiaries
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
( 824 )
( 344 )
( 18 )
( 22 )
( 2 )
( 1 )
( 16 )
( 63 )
( 3 )
( 2,280 )
( 498 )
( 993 )
( 189 )
( 992 )
( 394 )
-
( 24 )
( 2 )
-
( 18 )
( 38 )
-
-
-
( 981 )
-
For the year ended December 31, 2019, the remunerations and benefits received by the top officers of the Company amounted to $413 ($281 in
2018), 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.
2019 ALPEK ANNUAL REPORT | 133
CONSOLIDATED FINANCIAL STATEMENTS
Nature of the transaction
2019
2018
As of December 31,
Administrative services
$
190
$
190
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, S.A. de C.V.
Administrative services
Administrative services
Sale of goods
Sale of goods
Sigma Alimentos Centro, S.A. de C.V.
Administrative services
Stockholders with significant influence
on subsidiaries
BASF
BASF
Basell
Basell
Sale of goods
Sale of business
Sale of goods
Administrative services
Long-term accounts receivable:
Holding company
Alfa, S. A. B. de C. V. (1)
Affiliates
$
585
$
Financing and interest
$
753
$
Colombin Bel, S.A. de C.V. (1)
Financing and interest
9
$
762
$
115
14
31
1
-
2
196
-
30
6
115
4
9
1
4
-
132
203
54
-
712
761
-
761
(To be continue)
2019 ALPEK ANNUAL REPORT | 134
CONSOLIDATED FINANCIAL STATEMENTS
Nature of the transaction
2019
2018
As of December 31,
Short-term accounts payable:
Affiliates
Alliax, S. A. de C. V.
Nemak Exterior, LTD
Alfa Corporativo, S. A. de C. V.
Administrative services
$
Administrative services
Administrative services
Servicios Empresariales del Norte, S.A. de C.V.
Administrative services
Axtel S.A.B. de C.V.
Associates
Administrative services
Clear Path Recycling, LLC
Financing and interest
Stockholders with significant influence
over subsidiaries
BASF
BASF
Basell
Basell
Terminal Petroquímica Altamira, S.A. de C.V.
Long-term accounts payable:
Affiliates
Purchase of raw material
Purchase of goods
Purchase of goods
Other
Other
Alfa Corporativo, S. A. de C. V.
Administrative services
$
13
3
25
-
4
48
140
-
14
-
-
$
247
$
$
$
-
-
$
$
21
2
23
2
3
69
-
259
-
12
1
392
4
4
(1) As of December 31, 2019 and 2018, the loans granted bore interest at average fixed interest rate of 5.32% and 5.34%, respectively.
29. 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 Chemicals 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 information by
segments is prepared, are consistent with those described in Note 3.
2019 ALPEK ANNUAL REPORT | 135
CONSOLIDATED FINANCIAL STATEMENTS
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 indebtedness, 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, 2019:
Statement of income:
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
$
$
$
$
$
91,247
$
27,217
$
1,221
$
119,685
( 390 )
( 120 )
510
-
90,857
$
27,097
$
1,731
$
119,685
5,029
$
3,368
$
3,964
$
3,179
28
8,236
2,578
$
$
829
1
4,198
475
( 3 )
-
$
$
3,961
9
$
$
12,361
4,005
29
16,395
3,062
For the year ended December 31, 2018:
Statement of income:
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
2019 ALPEK ANNUAL REPORT | 136
CONSOLIDATED FINANCIAL STATEMENTS
The reconciliation between adjusted EBITDA and income before taxes for the years ended December 31, is as follows:
Adjusted EBITDA
Depreciation and amortization
(Impairment) reversal of impairment of
long-lived assets
Operating income
Financial result, net
Equity in loss of associates and joint ventures
2019
2018
$
16,395
$
20,607
( 4,005 )
( 2,885 )
( 29 )
12,361
( 2,635 )
( 313 )
3,480
21,202
( 2,783 )
( 30 )
Income before income taxes
$
9,413
$
18,389
The Company's main customer generated revenue amounting to $11,455 for year ended December 31, 2019. This revenue is obtained from the
polyester reporting segment and represents 9.6% of the consolidated revenue with external costumers for the year ended December 31, 2019.
Following is a summary of revenues per country of origin for the years ended December 31:
Mexico
United States
Argentina
Brazil
Chile
Canada
Total revenues
2019
2018
$
47,702
$
47,563
5,545
15,413
947
2,515
54,282
57,894
6,784
11,291
1,094
3,178
$
119,685
$
134,523
2019 ALPEK ANNUAL REPORT | 137
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,
2019
2018
$
1,789
$
1,638
24
332
2,243
1,712
29
384
$
$
3,783
$
4,368
23,040
$
32,520
7,077
932
110
240
5,683
6,773
1,068
140
273
6,259
Total property, plant and equipment
$
37,082
$
47,033
30. COMMITMENTS AND CONTINGENCIES
At December 31, 2019, the Company has the following commitments:
a) At December 31, 2019 and 2018, 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)
Indelpro entered into agreements to cover the supply of propylene, which establish the obligation to purchase the product at a priced
referenced to market values for a determinate period.
As of December 31, 2019, 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.
2019 ALPEK ANNUAL REPORT | 138
CONSOLIDATED FINANCIAL STATEMENTS
b)
Some of the Company’s subsidiaries use hazardous materials to manufacture polyester filaments and staple fibers, polyethylene
terephthalate (PET) and terephthalic 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, 2019, 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 $416 in taxes, fines and interest that the SFSP demands;
therefore, as of December 31, 2019, 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 $83, 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, 2019.
2019 ALPEK ANNUAL REPORT | 139
CONSOLIDATED FINANCIAL STATEMENTS 31. SUBSEQUENT EVENTS
In preparing the financial statements the Company has evaluated the events and transactions for their recognition or disclosure subsequent to
December 31, 2019 and through January 31, 2020 (date of issuance of the consolidated financial statements), and has identified the following
subsequent events:
a) The Company closed the transaction described in Note 2d on January 1, 2020; therefore, beginning that date, the financial information
of the entity, now called Alpek Polyester UK LTD, is consolidated in Alpek's financial statements.
b) At the ordinary stockholders’ meeting of the Company on January 20, 2020, the stockholders agreed to declare dividends in cash in the
aggregate amount of $2,713 (US$143), which were paid in a single disbursement on January 29, 2020.
32. AUTHORIZATION TO ISSUE THE CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2020, the issuance of the accompanying consolidated financial statements was authorized by José de Jesús Valdez Simancas,
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.
* * *
2019 ALPEK ANNUAL REPORT | 140
CONSOLIDATED FINANCIAL STATEMENTS INVESTOR RELATIONS
Alejandro Elizondo
Alejandra Bustamante
IR@alpek.com
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
l
a
u
s
i
V
3
3
g
n
i
s
e
d
&
y
h
p
a
r
g
o
t
o
h
P