ALPEK, S.A.B. de C.V. Annual Report 2020

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FY2020 Annual Report · ALPEK, S.A.B. de C.V.

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2020

ANNUAL REPORT

2020 ALPEK ANNUAL REPORT

3 OVERVIEW

3 CORPORATE PROFILE

4 FINANCIAL HIGHLIGHTS

5 FOOTPRINT

6 LETTER TO SHAREHOLDERS

10 BUSINESS SEGMENTS

10 POLYESTER

13 PLASTICS & CHEMICALS

16 LONG-TERM GROWTH STRATEGY

17 ESG

44 GOVERNANCE

44 BOARD OF DIRECTORS

45 MANAGEMENT TEAM

46 CORPORATE GOVERNANCE

47 APPENDIX

47 GLOSSARY

48 PETROCHEMICAL VALUE CHAINS

49 MANAGEMENT’S ANALYSIS

54 CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF
CONTENTS

2020 ALPEK ANNUAL REPORT

CORPORATE PROFILE

Who
we are

Our Leadership
Positions

2020
Highlights

One of the largest
petrochemical companies
in The Americas

Divided into two main
segments: Polyester and
Plastics & Chemicals

Public company listed in
the Mexican Stock Exchange

PTA
#1 The Americas

PET
#1 The Americas
#2 Worldwide

rPET
#1 The Americas

EPS
#1 The Americas
#3 Worldwide

PP Sole producer
in Mexico

CPL Sole producer
in Mexico

Posted record annual
volume (4.8 million tons)

Resilient performance in
spite of COVID-19

Strong free cash flow
generation from solid
business fundamentals

Acquired 2nd largest EPS
producer in The Americas

2020 ALPEK ANNUAL REPORT

FINANCIAL HIGHLIGHTS

Millions of dollars

Millions of pesos

2019

% var.

2020

2019

% var.

Income Statement

Total Revenues

Operating Income

Reported EBITDA(1)

Comparable EBITDA excl. RMCF(2)

Net Income (Controlling Interest)

Net Income per share(3)(5)

Balance Sheet

Assets

Liabilities

Stockholders’ equity

Controlling interest

Book value per share(4)(5)

2020

5,326

355

565

601

150

0.07

6,216

641

850

789

342

0.16

5,331

5,455

3,050

3,064

2,281

2,024

0.96

2,391

2,148

1.01

(14)

(45)

(34)

(24)

(56)

(2)

(5)

(6)

113,989

119,685

7,493

12,361

11,993

16,395

13,009

15,196

3,123

6,605

1.48

3.12

106,353

102,794

60,841

57,736

45,512

45,058

40,386

40,480

19.07

19.11

(5)

(39)

(27)

(14)

(53)

(319)

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 2020 to 2016 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 2020 and 2019 are expressed in nominal terms.

(1) EBITDA = Operating income plus depreciation, amortization and impairment of non-current assets.
(2) Raw material carry-forward
(3) Based on the weighted average number of outstanding shares (2,113 million shares in 2020; and

2,117 in 2019).

(4) Based on the number of outstanding shares (2,118 million shares in 2020; and 2,118 in 2019).
(5) Dollars or pesos per share, accordingly.

EBITDA(1)
Millions of dollars

669

384

1,063

850

565

Net Income
(Controlling interest)
Millions of dollars

198

697

342

150

Assets
Millions of dollars

4,428

4,752

6,091

5,455
5,331

2020 ALPEK ANNUAL REPORT

FOOTPRINT

rPET

Country

Site

PTA

PET

Flake Pellet SPT Fibers

EPS ARCEL CPL Other

Monterrey

Altamira

1,000

Mexico
(3,395 Kta)

Salamanca

Cosoleacaque

610

185

160

640

240

360

100

150

Lerma

Fayetteville

Charleston

Columbia

640

Bay St. Louis

Richmond

Darlington

Monaca

Painesville

Montreal

Zárate

Pacheco

General Lagos

Guaratinguetá

170

725

430

144

190

Ipojuca

640

450

Santiago

Puerto Montt

Punta Arenas

Concon

Wilton

350

USA
(2,644 Kta)

Canada
(144 Kta)

Argentina
(246 Kta)

Brazil
(1,226 Kta)

Chile
(28 Kta)

UK
(350 Kta)

123

TOTAL CAPACITY: 8,033 Kta 2,890 2,814

132

400

640

493

468

Polyester

Plastics &
Chemicals

31 plants
in 7 countries

Mexico, United States, Canada, Brazil,
Argentina, Chile, and United Kingdom

8.0 million tons
of total capacity

We produce PTA, PET, rPET, Fibers, PP, EPS,
Arcel®, CPL and other products

+6,200 employees

A qualified team operating across the world

2020 ALPEK ANNUAL REPORT

LETTER TO SHAREHOLDERS

1. OUR EMPLOYEES ARE OUR STRONGEST ASSET

Alpek’s top priority is the safety and well-being of
our employees. In 2020, we were able to operate
without interruptions, thus supporting our cus-
tomers in making products such as clothes; bottles
for water, juice, and milk; and packaging for fruit,
vegetables, and eggs. More importantly this year,
our products were used for face masks and shields;
antibacterial gel bottles, and COVID-19 test and
vaccine transportation cases.

We did this by relying on preventive actions such as
health checkpoints and the use of protective gear
at all our sites. Quickly adapting to the new con-
ditions, we embraced different working measures

such as home-office for many of our employees,
the elimination of all work-related travel, and an
increased use of technology for communication
and collaboration, which, ironically, has brought us
closer than ever before.

For these reasons, every one of Alpek’s more than
6,200 employees deserves a special mention. They
kept the same level of commitment, discipline and
hard work during these trying times and we want
to sincerely thank them for their unwavering dedi-
cation, without which this year’s results would not
have been possible.

DEAR SHAREHOLDER
In an unprecedented
year such as 2020,
Alpek and its employees
encountered challenges
and opportunities that
they were able to not just
overcome, but capitalize
upon, thus culminating
in a year that vastly
exceeded expectations,
both in results as well
as in strategic growth
opportunities. We would
like to focus this year’s
letter on four key
takeaways we discovered
or reaffirmed throughout
the COVID-19 pandemic.

Every one of Alpek’s
more than

6,200
employees

deserve a special mention

2020 ALPEK ANNUAL REPORT

Record volume of

4.8 million tons

10% higher than in 2019

2. THE COMPANY’S OUTSTANDING PERFORMANCE IS UNDERPINNED

BY ITS SOLID FUNDAMENTALS

Alpek has always stated that demand for its prod-
uct portfolio is highly resilient. Never has this been
more evident than in 2020, as COVID-19 shut down
entire industries globally. It also emphasized the
importance of safety and hygiene, driving a rise in
the use of PET and polypropylene in food and bev-
erage packaging over alternatives involving more
person-to-person contact, such as open-bever-
age containers like soda fountains. Moreover, we
also saw a significant increase in the penetration of
e-commerce, which positively affected demand for
expandable polystyrene (EPS) to protect high-val-
ue or temperature-sensitive goods, such as TVs or
computers, during transport.

The result was a new annual record volume of 4.8
million tons, 10% higher than the previous year. We
believe the factors driving this performance are
based on favorable change in consumer behavior,
with the potential to have a lasting impact on Al-
pek’s demand.

Margins for all our key products were also better than
expected throughout the year. Integrated Asian PET
margins of US $269 per ton exceeded our guidance
figure as demand outpaced supply and significant
PTA/PET production capacity in Asia was offline
during the first half of the year. EPS margins contin-
ued to be strong as demand increased while no new

capacity was brought online. Finally, polypropylene
margins were higher than expected, as the entry of
new capacity in North America occurred much later
than anticipated and was accompanied by produc-
tion outages late in the year, due to natural disas-
ters in the Gulf Coast that reduced market inventory
levels.

As a result of these sound business fundamentals,
Alpek’s 2020 EBITDA was considerably stronger
than guidance projections for the year. Compara-
ble EBITDA excluding RMCF reached US $601 mil-
lion, 16% stronger than expected EBITDA of US $517
million, largely due to better-than-projected vol-
ume and margins.

Alpek also executed forward-looking initiatives in
full alignment with its long-term strategic growth
plan. These include the acquisition of NOVA Chem-
icals’ Styrenics business, which further consolidat-
ed the Americas EPS industry, is expected to result
in significant cost savings, and incorporates higher
value-added products like ARCEL® to our port-
folio; as well as investments to grow Alpek’s recy-
cled PET (rPET) footprint, that move us closer to
our goal of reaching 300,000 tons of rPET by 2025.
These actions have further strengthened the Com-
pany’s competitive position and set the stage for
EBITDA growth in the years to come.

2020 ALPEK ANNUAL REPORT

Alpek generated free cash
flow of US $350 million,
paid out dividend of
US $143 million, reduced
debt to US $1.19 billion
and finished year with net
leverage ratio of 2.1x

3. OUR COMMITMENT TO FINANCIAL
STABILITY IS A CORE STRENGTH

4. ESG IS HERE TO STAY AND WE
ARE ON THE RIGHT TRACK

At the onset of the COVID-19 pandemic and facing
a high level of uncertainty at the time, the Com-
pany decided to focus on its financial stability. As
such, during 2020 Alpek drew upon committed
credit lines to increase its cash position, improved
its Net Working Capital in part by reducing its in-
ventory levels, efficiently executed its strategy
through lower-than-expected CAPEX, and revoked
its planned dividend for the year.

Additionally, as we anticipated, the Mexican bank-
ruptcy court approved the financial restructuring
agreement between M&G Mexico and most of its
creditors in September. Under the agreement, Al-
pek has begun recovering the US $160 million in
guaranteed debt plus interest over the next five
years, with US $40 million already being recovered
in December. The Company will also continue pro-
viding the PTA needed by M&G Mexico’s PET facil-
ity, thus favoring stable operations at M&G while
Alpek recovers its debt, as well as a steady offtake
for our PTA site in Altamira.

The combination of these actions with a strong
EBITDA allowed Alpek to generate a free cash flow
of US$350 million, pay out a dividend of US $143
million for shareholders, and reduce its debt to
US $1.185 billion, finishing the year with a net
leverage ratio of 2.1 times.

During 2020, Alpek saw a marked increase in the
number of investors who expressed that a compa-
ny’s Environmental, Social and Governance-relat-
ed performance mattered in their decision-making
processes. Alpek has always taken its responsibility
towards its stakeholders and key issues very seri-
ously, achieving continuous improvement on CO2
emissions, water usage, and energy consumption,
among other performance indicators over the past
years. However, this year we launched a holistic ef-
fort aimed at improving our ESG grades among the
top rating agencies such as CDP, S&P Global CSA,
MSCI and Sustainalytics across all their measured
categories. As a result, we were able to better show-
case our work to date and improvements through-
out 2020, reaching levels as high as the 72nd per-
centile with Sustainalytics.

We plan to undertake further actions that would
continue improving our results over the following
years. In 2021 these will include joining global pacts,
measuring additional indicators, setting demand-
ing targets for ourselves, and reviewing our internal
processes to identify opportunity areas across our
ESG practices.

This year we launched a
holistic effort aimed at
improving our ESG grades
among the top rating
agencies such as CDP,
S&P Global CSA, MSCI, and
Sustainalytics across all
their measured categories

2020 ALPEK ANNUAL REPORT

OUTLOOK

Through the review of our key learnings for 2020,
we hope to have provided some valuable insight
into the aspects Alpek deems important and
has cultivated over time, in order to deliver solid
results every year. As we look forward to 2021, we
continue to have a positive outlook, as we expect
demand to be persistent, margins to remain at
strong mid-cycle levels, and economic activity
to further pick up globally as the COVID-19 crisis
slows down and vaccination becomes more widely
available worldwide.

In addition to our employees, we would like to take
the opportunity to thank our customers, suppliers,
creditors, and the community in general for anoth-
er year of outstanding performance. Moreover, we
would like to thank you, our shareholders, for plac-
ing your trust in this Board of Directors.

Sincerely,

José de Jesús

Valdez Simancas

Armando

Garza Sada

Chief Executive Officer

Chairman of the Board

2020 ALPEK ANNUAL REPORT

POLYESTER

Favorable changes to consumer behavior worldwide as the COVID-19 pandemic emphasized the
importance of safety and hygiene

2020 ALPEK ANNUAL REPORT

Record
annual
volume

of 3.92 million tons in
2020, 12% higher than
previous year

OVERVIEW

Polyester is Alpek’s largest segment, with 18 plants
across the United States, Mexico, Brazil, Argentina,
Canada, and the United Kingdom, totaling 6,311 thou-
sand tons in capacity and operated by 4,302 employ-
ees. During 2020, the Polyester business accounted
for 75% of the company’s Consolidated revenues.

Through its various subsidiaries, Alpek is the lead-
ing PTA, PET and PSF producer across the Amer-
icas, as well as the second largest PET producer
worldwide. Most recently, in line with its long-term
strategy, it also became the largest recycled PET
(rPET) producer in the Americas.

RESULTS

Alpek has historically served large, stable and ma-
ture geographic markets like North America, as well
as industries with resilient demand, like food, bev-
erages, and consumer goods.

Furthermore, during 2020 we witnessed a favor-
able change in consumer behavior worldwide: as
the COVID-19 pandemic emphasized the impor-
tance of safety and hygiene, and the utilization of
PET packaging for food and beverages increased,
as it involves less person-to-person contact.

These factors allowed the Polyester segment to
reach a record annual volume of 3.92 million tons
in 2020, 12% higher than the previous year. We be-
lieve the mentioned shift in consumer habits rep-
resents a long-term trend that will continue driving
PET demand after the current health crisis is over.

2020 ALPEK ANNUAL REPORT

During 2020, Alpek moved closer to its
stated goal of helping its clients reach

25% recycled
PET content

Integrated Asian PET margins for the year also ex-
ceeded our expectations, as considerable produc-
tion capacity was offline during the first semes-
ter. Likewise, after early drops in feedstock prices,
crude oil, paraxylene and propylene all closed the
year at annual averages similar to those of 2019.

Comparable EBITDA excluding RMCF for the seg-
ment was US $372 million, higher than Guidance
figures, a performance driven by record volumes,
better-than-expected margins, and the successful
integration of the recently acquired Wilton PET site.

During 2020, Alpek moved closer to its stated goal
of helping its clients reach 25% of recycled PET
content by focusing not just on bottle-to-flake
recycling, but pelletization, which increases the
amount of rPET that is used in recyclable bottles
and food containers.

The growing availability of vaccination for Coro-
navirus suggests the worst of the pandemic may
already be behind us. Looking ahead, our expec-
tations for the Polyester segment remain positive,
as we anticipate global economic activity to fur-
ther speed up, demand for our products to contin-
ue being resilient, and margins to remain at strong
mid-cycle levels.

2020 ALPEK ANNUAL REPORT

PLASTICS &
CHEMICALS

Increased PP demand for food & beverage packaging and medical applications like syringes and face
masks. Rise of e-commerce underscored the need for EPS to protect valuable goods during transportation

2020 ALPEK ANNUAL REPORT

P&C volume
remained
strong

at 883 thousand tons,
only 1% lower than 2019

OVERVIEW

The Plastics & Chemicals (P&C) segment produces
polypropylene (PP), expandable styrenics (EPS &
ARCEL®), caprolactam (CPL), and specialty chem-
icals in 13 plants across the United States, Mexico,
Brazil, Argentina and Chile with a total annual ca-
pacity of 1,722 thousand tons and a slate of 1,981
employees. The P&C segment accounted for 22%
of Alpek’s consolidated revenues in 2020.

Alpek is the leading EPS producer in the Americas,
becoming the third largest worldwide in 2020, and
is the sole PP and CPL producer in Mexico, where
it holds strategic market positions. Moreover, its
PP site is among the newest and largest in the
continent, while its CPL plant is among the most
cost-efficient in the world.

RESULTS

The aforementioned critical change in consum-
er behavior brought about by COVID-19 also had
a positive effect on this segment’s performance.
Higher concern for health and safety issues in-
creased PP demand for food and beverage pack-
aging, as well as medical applications like syringes
and face masks. Additionally, the rise of e-com-
merce underscored the need for EPS to protect
valuable goods during transportation. These ef-
fects, in turn, maintained P&C segment’s volume
strong at 883 thousand tons, only 1% lower than
2019, reaching record numbers in some quarters
for several of our products.

2020 ALPEK ANNUAL REPORT

Acquisition of NOVA Chemicals’ Expandable
Styrenics business, makes Alpek the

3rd largest EPS
player worldwide

In terms of profitability, EPS margins continued to be solid as demand grew
stronger and global capacity remained at 2019 levels. Likewise, PP margins
were better than original estimations, mainly due to two reasons: on the one
hand, the entry of new capacity in North America took longer than anticipat-
ed; on the other, natural disasters in the Gulf Coast late in the year resulted in
production outages, which reduced PP inventory levels.

In this context, Comparable EBITDA for the P&C business was US $218 million.
Although the partial shutdown of the Construction and Automotive sectors
caused a drop off in demand during the first half of the year, record annual
volumes and a better-than-anticipated margin environment drove the seg-
ment’s strong results.

During the year, Alpek acquired NOVA Chemicals Corporation’s (“NOVA Chem-
icals”) Styrenics business, which operates two facilities in the United States:
one in Monaca, Pennsylvania, with an annual capacity of 123,000 tons of EPS,
36,000 tons of ARCEL®, and a world-class Research and Development (R&D)
pilot plant; and the other in Painesville, Ohio, with a capacity of 45,000 tons
of EPS per year.

This transaction further solidified the Company’s position as the top EPS pro-
ducer in the Americas and the third largest globally. Furthermore, it incorpo-
rated a new product to our portfolio: ARCEL®, a PE-EPS copolymer that re-
duces packaging volume while maintaining the protective properties of EPS,
adding to our presence in higher value-added application markets.

For 2021 we expect PP margins to decrease, as the newly added capacity is
fully integrated into the market and the low inventory levels from year-end
normalize. However, our long-term projections for the P&C segment remain
optimistic, bolstered by a strong, resilient demand for both PP and EPS, as well
as the full integration of our newly acquired expandable Styrenics operations
in the United States.

2020 ALPEK ANNUAL REPORT

LONG-TERM GROWTH STRATEGY

STRENGTHEN
CORE
BUSINESS

GROWTH CATALYSTS

Global Cost Improvement
Zero-Based Budgeting & process innovation
(Mainly Operations, Logistics & SG&A)

Value-added Products
Shift to products with higher margins & barriers
to entry (Copolymers - PP & EPS)

FCF Generation
Reductions to CAPEX & NWC / Recover M&G
Mexico debt

Footprint Optimization
Ensure global production is performed in
optimal sites & logistic networks

rPET Leadership
Lead rPET supply in Americas through
capital-effective investment
Secure PET Bale & Flake supply / Equip vPET
plants with Single-Pellet Technology TM

Recycling Promotion
Active lobbying for circular economy via
associations & The Recycling Partnership

Sustainable Product Portfolio
Develop sustainable alternatives for all our
products (Biodegradable EPS & PP, etc.)

GROWTH CATALYSTS

FOSTER
CIRCULAR
ECONOMY

STRATEGIC &
FOCUSED
GROWTH

GROWTH CATALYSTS

Value Chain Integration
Grow capacity selectively & integrate
into value chain (Px, EPS)

Product Innovation
New products & business
lines (Biovento, Natural Gas
Commercialization, CO2 & PLA)

Maximize CCP Value
Optimize project timing & minimize
CAPEX

2020 ALPEK ANNUAL REPORT

ESG

ENVIRONMENTAL,
SOCIAL AND
GOVERNANCE

During 2020, Alpek made significant advances regarding its approach to ESG, as well as its performance
among the top ESG rating agencies

2020 ALPEK ANNUAL REPORT

At Alpek we strive to make people’s everyday lives better
by producing the materials and chemicals needed by the
food and beverage, construction, automotive, and health
industries, among others, while making the necessary
investments in infrastructure and research to safeguard the
availability of the resources we use for future generations.

We aim to do this in a way that supports sustainable
business practices and strong governance. We know
we cannot do this by ourselves nor do we have all the
answers, so we listen, learn from experience, and work
with our entire value chain to make a positive difference.

OUR APPROACH TO REPORTING

We are increasingly transparent about our way of
managing environmental, social and governance
issues across our business, and since 2015 we have
provided information about our actions in sustain-
ability through the Annual Report. In 2020 we re-
fined this approach, appropriately renaming it ESG
reporting, as it aims to inform all our stakeholders
about our progress and impact regarding Environ-
mental, Social and Governance issues.

This report presents relevant management ap-
proaches, measurements, indicators, and data
about Alpek’s sustainable business practices,
based on the GRI Standards(6) in its “Core” option,
and for the first time, also the Chemicals SASB
standards(7) for 2020.

Furthermore, it outlines the ways in which we con-
tribute to the United Nations’ Sustainable Devel-
opment Goals (SDGs), and our performance within
the framework laid out by the Task Force for Cli-
mate-related Financial Disclosures (TCFD)(8) as it
applies to every area of our report. For additional
information, we developed an ESG Booklet avail-
able on our website.

The structure in which we will continue to report
our ESG Strategy is an adapted version of the TCFD
framework, including the following elements:

ESG RISK
IDENTIFICATION
& ANALYSIS

• Identify ESG Risks and Opportunities (R&O)
• Implement a dynamic materiality analysis
• Embed ESG R&O into our business risk

management strategy

STRATEGY &
EXECUTION

• Identify the level of change needed to

establish best-in-class standards

• Build/Improve internal capabilities to react
• Implement the right initiatives to address R&O
• Identify partnerships that support

improvement

TARGETS &
METRICS

• Define key performance indicators (KPIs)
and set targets to measure success for
each initiative

• Measure the impact obtained
• Establish proper incentives for targets to

be achieved

COMMITMENT &
OVERSIGHT
• Place the right people in charge
• Set mechanisms to ensure the achievement

of targets

• Communicate and report progress at the

right organizational level

• Review and improve

(6) Global Reporting Initiative Standards: https://www.globalreporting.org/standards
(7) Chemicals Sustainability Accounting Standard: https://www.sasb.org/wp-content/uploads/2018/11/Chemicals_Standard_2018.pdf
(8) TCFD Task Force for Climate-Related Financial Disclosure: https://www.tcfdhub.org/recommendations/

2020 ALPEK ANNUAL REPORT

REVISITING OUR
PURPOSE IN ESG

WHY IT MATTERS
Overall risk identification and
management is a fundamental
enabler of innovation and thus,
adaptation and growth. Regarding
ESG, risks and opportunities
identification and management are
crucial, since this topic will lead the
business conversation needed to
achieve a sustainable future.

WHAT WE WANT TO DO
Identify ESG R&O in a constant
manner so that our business model is
a resilient one.

STRATEGIC PRIORITIES TO WORK ON
• Risks and Opportunities Governance
• Identification and mitigation of

externalities

ESG RISK
IDENTIFICATION
& ANALYSIS

While we have always embraced change and inno-
vation and have made significant advances in our
ESG Strategy, the unprecedented circumstances
created by COVID-19 have been vital for us to review
and appreciate what we do, and why it matters.

We provide simple, innocuous, and lasting solu-
tions that people need in their everyday lives.
While this has always been our core purpose, it
takes on a whole new meaning now that our ma-
terials are used in products that safeguard our
health and safety, such as face masks, face shields,
antibacterial gel bottles, and COVID-19 vaccine
and test transportation cases, among others. A key
challenge remains doing it without compromising
our planet’s resources.

Priority Issue Addressed:
11. Active ESG Risk Management

2020 ALPEK ANNUAL REPORT

OUR MATERIALITY PROCESS AND
PRIORITY ISSUES
GRI Standards: 102-11, 102-27, 102-29, 102-46,
102-47.

With this in mind, we took 2020 as an opportuni-
ty to revisit the topics that matter most to our key
stakeholders. As such, we carried out a Dynam-
ic Materiality Approach that allowed us to identify
the most pressing issues that our industry, and as
a consequence, our Company must address if we
want to contribute towards positive change now
and in the coming years. We structured our process
this way since we understand that we live in a con-
stantly evolving world, and as such ESG topics are
fluid, moving across a materiality spectrum over
time, and that our stakeholders have a say on it now
more than ever.

ALPEK’S DYNAMIC MATERIALITY APPROACH

MEASUREMENT CRITERIA
We determined the company’s

DETERMINING RELEVANCE
Through a prioritization matrix, we

OBTAINING RESULTS
Through a qualitative and quantitative

priority issues under two parameters:

analyzed the responses provided

analysis of the aforementioned, we

Importance for stakeholders and

from key stakeholders, including

cross-checked the defined indicators

Impact on Alpek. Each parameter

our own Executive team, customers

and research results, to extract the key

included clearly defined criteria to

and suppliers. We also did a focused

subjects before consolidating them

enhance the rigor and robustness of

research of the media and social

into our priority issues.

the process.

prescriptors previously defined.

DEFINITION OF INDICATORS
We considered and identified a list of

DETERMINING DEVELOPMENT
Additionally, we executed an extensive

REVIEW AND REPEAT
We will continue to engage with

issues and indicators for stakeholders

benchmark of our industry practices

all our stakeholders to gather

to rank. We considered relevant ESG

and defined materiality regarding

frameworks such as the GRI Standards,

sustainable practices. Then we

feedback that will be integrated

into our next materiality analysis.

ISO 26000, S&P Global CSA, CDP,

executed a gap analysis against our

SASB, current relevant legislation,

global, market and industry specific

trends and topics addressed by

the media.

own performance.

2020 ALPEK ANNUAL REPORT

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Focus on Circular
Economy

Energy
Eco-Efficiency

5 Water

Management

Pollution

Cybersecurity

Employees’
Human
Rights

Climate
Change
& Carbon
Emissions

Innovation

Sustainable
Corporate
Governance

Relations
with Customers
& Suppliers

HIGHER
IMPACT ON ALPEK

HIGHEST

Environment

Social

Governance

Active ESG
Risk
Management

Diversity

Community
Engagement

HIGH

(9) To know more about our current and previous Priority Issues, please refer to page 4 of our ESG booklet.

MATERIALITY MATRIX

Our ESG risks and opportunities (R&O) identifica-
tion process is coordinated by our ESG Champion
who reports directly to the CFO and indirectly to
the CEO. R&O management activities include iden-
tifying risks, undertaking risk assessments, deter-
mining mitigating actions and complying with ap-
plicable laws. In exploring risks and opportunities,
we prioritize the interests and safety of our cus-
tomers and employees, and we seek to protect the
long-term value and reputation of the Company,
maximizing commercial benefits to support re-
sponsible and sustainable global growth.

As a result of the analysis, we defined Alpek’s 2020
Materiality Matrix(9).

2020 ALPEK ANNUAL REPORT

OUR ESG MODEL

GRI Standards: 102-26, 102-31, 102-32.

STRATEGY &
EXECUTION

As part of our efforts to improve our in-
ternal and external communication efforts
regarding our key ESG priorities we also
developed Alpek’s ESG Model, which sim-
plifies and encompasses the 13 priority is-
sues identified in our Dynamic Materiality
Analysis into four strategic pillars that we
will address and are committed to contin-
ue improving on. We will ensure full sup-
port for all of these initiatives through our
strong Corporate Governance bodies.

Lead with
Empathy

Embrace
Change

Grow
Responsibly

4
Maximize
Resource
Efficiency

We empower our
people to create
value for our
company and
communities

We actively monitor
our changing
environment and
find new ways to
tackle emerging
problems

We rely increasingly
on sustainable
business practices
across our entire
value chain to
create value for our
shareholders

We strive to minimize
any adverse effects
from our products
and processes

SUSTAINABLE
CORPORATE
GOVERNANCE

• Employees’ Human

Rights

• Community
Engagement

• Diversity

• Active ESG Risk
Management

• Innovation

• Circular Economy
• Pollution
• Rel. with Customers

& Suppliers
• Cybersecurity

• Climate Change &
Carbon Emissions
• Water Management
• Energy Eco-
Efficiency

Environmental
Social
Governance

2020 ALPEK ANNUAL REPORT

TARGET

METRIC

PERFORMANCE

YEAR
BASIS

GOAL
YEAR

SDG TARGET ADDRESSED

PRIORITY ISSUE ADDRESSED

TARGETS &
METRICS

For each of the pillars in Alpek’s ESG Model, we must
carry out an identification of additional targets and
metrics that are aggressive but achievable. As such,
we are currently working with all our Business Units
in order to get a better understanding of their indi-
vidual ESG priorities and sustainable performance
needs to set overall corporate targets.

Develop the
necessary policies

• Identify the areas and

departments that need
policies (either improved or
developed)

• At least 70% of policies

developed

Identify the main risks
in every ESG area

Identify at least one risk and one
opportunity for every ESG area

Develop Targets
and Metrics

To have at least one target per
ESG Strategy dimension

We have identified the policies
needed and developed a
corporate template

2020

2021

SDG 17 Partnerships for the
Goals, Target 17.14:
Enhance policy coherence for
sustainable development

Active ESG Risk Management

Sustainable Corporate
Governance

We identified two emerging
risks in the environmental area,
and will continue with the social
and governance areas

We are in the process of
completing our gap analysis,
in order to establish adequate
targets

2020

2021

Active ESG Risk Management

2020

2021

SDG 17 Partnerships for the
Goals, Target 17.14:
Enhance policy coherence for
sustainable development

Active ESG Risk Management

COMMITMENT &
OVERSIGHT

In 2020 we also strengthened our sustainable man-
agement by appointing an ESG Champion at Alpek,
who has the responsibility of overseeing the com-
pany’s entire ESG strategy, as well as the achieve-
ment of the Targets and Metrics described in this
section, in order for said strategy to be successful.
We are in the development of additional policies
and structures to further strengthen the role.

We are keen to develop multi-stakeholder and
cross-border partnerships and to collaborate with
downstream partners, communities, government
and regulators towards sustainable development.

2020 ALPEK ANNUAL REPORT

2020 PERFORMANCE
ACROSS OUR FOUR PILLARS

2020 ALPEK ANNUAL REPORT

1. LEAD WITH EMPATHY
We empower our people to create value for
our company and communities

WHY IT MATTERS
Our people are our primary asset. Their
well-being is our driving force, because
having people who bring a diverse range
of talents and perspectives, and who feel
engaged in their roles is of paramount
importance to our success.

WHAT WE WANT TO DO
To increase our efforts for respecting and
advocating not only for their labor rights
and offering fair labor practices, but for
their fundamental human rights. Our
employees have been instrumental in
making Alpek a leader in its market. They
will also be key to driving the Company
forward and ensuring it remains relevant
in the future.

STRATEGIC PRIORITIES TO WORK ON
• Sustainability in our Governance
• Human rights advocacy
• Attracting and retaining the right

employees

• Safety, Health and Well-being
• Diversity and inclusion

8. EMPLOYEES’ HUMAN RIGHTS

ESG RISK IDENTIFICATION
& ANALYSIS

GRI Standards: 103-1, 102-2, 103-3.
SASB RT-CH-320a.2.

A global pandemic was not included in our risk
scenario. However, our employees’ well-being
was. By the end of 2020, our most implement-
ed risk assessment regarding our employees
was that of health and safety which determines
the criteria for the identification of hazards and
risks, and the determination of the respective
control measures to minimize or eliminate
them. This procedure meets the requirements
of OHSAS 18001 and NBR-ISO 45001 in the ma-
jority of our plants.

Priority Issues addressed in this pillar:
8. Employees’ Human Rights
12. Diversity
13. Community Engagement

2020 ALPEK ANNUAL REPORT

STRATEGY & EXECUTION

OUR PATH TO SAFETY

GRI Standards: 403-1, 403-2, 403-3, 403-5, 403-6 to 10.
SASB RT-CH-320a.1.

As part of our human rights commitment, our priority is to keep our em-
ployees safe and alert to potential hazards. Moreover, we were commit-
ted to maintain the same head count even in the midst of the COVID-19
crisis. In 2020, our personnel operated both in our facilities and through
home office schemes, thus minimizing the risk of contagion.

Everyone working at Alpek has the responsibility and authority to
stop unsafe activities or ask for more detail about things they find
unclear. Our leaders are accountable for helping to build a safety-first
culture in their teams, and all employees are responsible for keeping
themselves and each other safe at work.

The accidentality rates in 2020 were the following:

Total recordable incident rate (TRIR)

No. of Accidents

Frequency Rate

Days Lost

Number of transport incidents

2020

15.99

0.56

1,058

2019

156.20

1.73

1,891

2018

32.07

8.83

1,544

We make sure that health and safety services are of high quality
through ongoing training, establishing objectives, scope, defini-
tion of responsibilities, protection measures and clear and pre-
cise behavior guidelines. We also implement different protocols
to provide objective identification of situations and activities that
pose a risk to employee health and safety in our facilities. Inter-
nal 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 addition to COVID-related actions, we continued providing
health services such as annual check-ups, medical attention in-
side the plant, nutritional consulting, chronic disease care and
prevention campaigns. In Mexico, we started the NOM-035 im-
plementation process, a standard that assures the proper man-
agement systems are in place to aid our employees with mental
health concerns or needs.

More than US $15.3 million were invested in our employees’ health
and safety.

We became signatories of the
United Nations Global Compact

“Since 2021 Alpek has been committed to the UN

Global Compact corporate responsibility initiative and

its principles in the areas of human rights, labor, the

environment and anti-corruption.”

2020 ALPEK ANNUAL REPORT

HIRING THE RIGHT PEOPLE, AND
RETAINING THE RIGHT PEOPLE

GRI Standards: 404-1, 404-2, 404-3.

We want to build a global workforce that represents
the communities we serve and be recognized as a
great company to work for: one where people feel
valued and can succeed by contributing their skills
towards their personal and professional develop-
ment. We’re doing this by:
• Recruiting and retaining talented people from

diverse backgrounds

• Investing in excellent training, development and

competitive rewards for all our people

In 2020, our main training and development pro-
grams were aimed at safety, flexible hours and
working schemes, and innovation. Providing the
right balance between work and family is one of our
core benefits, and never was it more evident than
in 2020. We invested over US $1.1 million in profes-
sional development and talent retention initiatives.
Also, we granted 19 scholarships for our employees
to continue improving their skills in external insti-
tutions, and we invested more than US $1.2 million
in recreation and family well-being programs and
activities whenever possible throughout the year.

The average training hours in 2020 were:

2020

2019

2018

All employees

Women

Men

Unionized

Non-unionized

We also carry out regular performance evaluations,
as what you cannot measure, cannot be improved.
In 2020, 79% of our employees were assessed in
these evaluations.

Regarding their personal development, in 2020
we had to minimize recreational activities, but we
continued to implement some activities respecting
all the safety restrictions. We granted 1,187 schol-
arships and economic support for our employees’
children, as well as our Program of Employee As-
sistance, through which we provide legal, health,
psychological and other kind of support for free,
was used by 1,961 employees and their families.

2020 ALPEK ANNUAL REPORT

12. DIVERSITY
GRI Standards: 405-2, 406-1.

TARGETS & METRICS

TARGET

METRIC

PERFORMANCE

YEAR BASIS GOAL YEAR SDG TARGET ADDRESSED

PRIORITY ISSUE
ADDRESSED

Diversity is our strength, and we consider it a basic human right. We see it
as an opportunity to consolidate our global positioning.

Employees’ Human Rights and Diversity

In 2020 we completed the acquisition of a new plant in the United Kingdom,
that added to our staff in Argentina, Mexico, Brazil, Chile, Canada and the
United States, which has improved the expertise and wide range of cultural
backgrounds, ethnicities and profiles that compile our workforce.

Create the ESG
Committee

Formal establishment
of an ESG committee
with our Business
Units’ leaders

We reached out to
our BU leaders to
inform the advances
of the ESG Strategy

2020

2021

SDG 17 Partnerships for the Goals,
Target 17.14:
Enhance policy coherence for
sustainable development

Sustainable Corporate
Governance

Active ESG risk
management

In 2020, 9 employees with some form of disability worked in our opera-
tions. We also confirmed that the salary gap between men and women is
zero, because we hire people based on their competencies and abilities,
not the gender they associate with.

Ensure diversity
in our workplace

To perform a
diversity R&O
assessment in our
operations

Not applicable in
2020

2021

2022

SDG 8 Decent work and economic
growth, Target 8.5:
By 2030, achieve full and
productive employment and
decent work for all women and
men, including for young people
and persons with disabilities, and
equal pay for work of equal value

Employees’ Human Rights

Diversity

COMMITMENT & OVERSIGHT

GRI Standards: 102-20, 102-26, 102-29, 102-31, 102-32.

As part of our commitment to
safeguard our employees’ human
rights, Diversity is one of our Priority
Issues included in this effort

We cannot talk about our ESG performance, human rights, and
employees’ well-being commitment without including our Gov-
ernance Bodies. 2020 was a pivotal year to show our leadership,
discipline and commitment to lead with empathy. Our Top Man-
agement team was the basis which held it all together. This sends
the right signal to all our employees. We want our people to know
we are working towards the enhancement of the benefits we pro-
vide them, that we are ahead of international trends with regards
to being a more responsible corporate citizen, and that all of this
is spearheaded by our top governing bodies.

Also, in 2020 we started the process of adhering to the UN Global
Compact and the respect and fight for its Ten Principles. This is a
huge step towards the advocacy for our employees and commu-
nities’ Human Rights respect and protection. In early 2021 we were
accepted as part of the UN Global Compact, which strengthens our
commitment towards sustainable development. We also developed
our Human Rights Policy, through which we firmly commit to con-
tinue providing training efforts in the areas of Health and Safety,
Ethics and Compliance to our employees globally, and to continue
developing programs to keep them prepared.

2020 ALPEK ANNUAL REPORT

13. COMMUNITY ENGAGEMENT

ESG RISK IDENTIFICATION
& ANALYSIS

STRATEGY & EXECUTION

GRI Standards: 413-1, 413-2.

GRI Standards: 203-1, 203-2.

At Alpek we see ourselves as part of a society. Our
goal is to be a good corporate citizen and promote
sustainable development. We can make the most
valuable contributions to issues that relate to our
core business areas by connecting, understanding
and boosting our communities’ wellbeing.

We have always worked hand in hand with our com-
munities and authorities, which has driven the im-
plementation of our safety risk analysis. Our facili-
ties are equipped with all necessary measures and
comply with every safety regulation, so that our
operations do not represent a risk in our neighbors’
daily lives. However, we know we can still do more.
To start with, in 2021 we will work on performing a
comprehensive risk assessment regarding our com-
munities, and the opportunities that we can seize
in order to boost their development, strengthening
our position as a responsible Company.

In 2020, our Business Units worked on aiding com-
munities during the COVID-19 response effort.
More than 370,000(10) people were benefitted with
donations of N95 and PET masks, antibacterial
gels, overalls, EPS coolers for the transportation of
medicines, donation of medical equipment such
as hospital beds, supplies, oxygen tanks and ven-
tilators, as well as cash and food donations to as-
sociations that provided supplies to unemployed
people during the pandemic.

Our typical activities within communities were
suspended due to the safe distance and quaran-
tine measures. Still, we held 8 agreements with
universities that benefitted 78 total students. Oth-

er 39 students carried out internships in our fa-
cilities, and through the support to 3 schools, we
were able to benefit a total of 404 students. The
activities included giving lunch boxes and other
support. But as schools were also closed, we fo-
cused our efforts on helping the entire community
and hospitals in such unprecedented situation. In
the US, representatives of our sites actively par-
ticipated in community advisory panels (CPAs) to
discuss plant activities. The goal is to open lines
of communication with leaders in the community
and local neighbors, so should there be any con-
cerns with plant operations, we can answer/ad-
dress them effectively. These meetings were either
suspended or held remotely.

(10) The benefitted people were a lot more than the reported, since many of the equipment and donations were given to hospitals,

families and communities and it is impossible to have the exact number.

WHY IT MATTERS
Our local communities grant us license
to operate. It is our responsibility to give
them something back. Should we fail to
deliver economic and social benefits to
the communities in which we operate
and reach, could lead to operational
costs and reputational crises.

WHAT WE WANT TO DO
We aim to maximize our social impact
through an effective engagement with
them, by combining Alpek employees’
expertise, access to education and
philanthropic activities.

STRATEGIC PRIORITIES TO WORK ON
• Social engagement programs
• Community investments
• Educational support through ALFA

Foundation

• Communities’ safety

2020 ALPEK ANNUAL REPORT

TARGETS & METRICS

TARGET

METRIC

PERFORMANCE IN
2020

YEAR
BASIS

GOAL
YEAR

SDG TARGET
ADDRESSED

Develop our
Community
Engagement
Policy and
Framework

Developing and
deployment of
the policy to all
employees

We defined the
areas we will work
on regarding
our community
engagement policy

2020

2021

SDG 17 Partnerships for
the Goals, Target 17.14:
Enhance policy
coherence for
sustainable
development

PRIORITY
ISSUES
ADDRESSED

Community
engagement

COMMITMENT & OVERSIGHT

As one of our Priority Issues, this will be part of the
focus activities of our ESG Strategy. In 2020, we
started the development of our Community En-
gagement Policy, that contains the guidelines for
proper and successful work with and within our
communities.

The key tenets of this policy are:
• Mutual respect and cooperation
• Non-discrimination and the pursuit of equity
• Building educational platforms for the youth
• Spreading environmental care awareness
• Working on our communities’ safety

2020 ALPEK ANNUAL REPORT

2. EMBRACE CHANGE
We actively monitor our changing
environment and find new ways to tackle
emerging problems

WHY IT MATTERS
As part of the chemical industry, we
know that everything is changing
constantly, it is the basis for life.
Inevitably, this must lead to innovation.
And so, innovation is part of our core
beliefs and business values.

WHAT WE WANT TO DO
Integrate ESG risks and opportunities
into our business strategy so that
innovation occurs with a focus on
sustainability.

STRATEGIC PRIORITIES TO WORK ON
• Integration of ESG criteria into

innovation schemes

• Identification and mitigation of

externalities

• Conducting Life Cycle Assessments for

our products

6. INNOVATION

ESG RISK IDENTIFICATION
& ANALYSIS

SASB RT-CH-410b.2.

Innovation risks and opportunities are one of the
most important elements to consider in our busi-
ness strategy. Investing in cutting-edge technol-
ogy, as well as developing it, is a priority. For us,
one of the greatest challenges is to reduce the im-
pact that products made with our materials might
generate when they are not disposed properly.
This is why we conduct Life Cycle Assessments
for all our products.

Priority Issues addressed in this pillar:
6. Innovation

2020 ALPEK ANNUAL REPORT

STRATEGY & EXECUTION

By exploring, developing, and scaling up ideas, we aim to keep ourselves
and our customers competitive long into the future by developing sus-
tainable solutions for their needs.

We started our “Open Innovation Program”, which aims to find ex-
ternal technologies and possible collaboration opportunities which
could help Alpek reach its objectives by accelerating the develop-
ment of new ideas and bring value creation within the organization.

TARGETS & METRICS

We will continue to boost these programs in order to strengthen and
better measure our efforts in ESG innovation.

TYPE OF
APPROACH

DEFINITION OF APPROACH

EFFICIENCY GAINS

COST REDUCTION/
REVENUE GENERATION

ACCESS TO HUMAN CAPITAL,
TECHNOLOGIES, ETC

OTHER IMPACTS

R&D
Collaboration
with Externals

Working in collaboration with
a research center in Europe to
develop a new biodegradable
barrier polymer

Time to market, better
allocation of human
resources

Potential Sales Market of
US $38 million per year

Access to R&D capital and
analytical equipment

Faster development of
new product

Spin-off /
Start-ups

Suppliers

Working in collaboration with
a start-up in order to recycle
PET for rBHET production
(used in Virgin PET)

Time to market, better
allocation of economic
resources

Possible Pilot Plant
construction
Up to 15 thousand tons a
year capacity

Access to proven
technology for PET
recycling. Strengthening
rPET portfolio

Access to lower costs in
PET waste streams

Working with external rPET
suppliers for a new more
sustainable product
(rPET yarns)

Time to market, better
allocation of economic
resources

Potential Sales Market of
US $29 million per year

Access to proven
technology for PET recycling

Access to lower certified
rPET costs and access to
the necessary volume

COMMITMENT & OVERSIGHT

Our growth as a Company partly depends on us taking an innovative
approach to our business. Since 2018 we have been investing in our
Innovation Department and worked on the creation of an Innovation
Committee integrated by representatives from all the Business Units,
with Alpek’s CEO and Business Unit Presidents as part of the Steer-
ing Committee. Our approach to innovation is to permeate a culture
which promotes and boosts initiatives throughout all of Alpek.

We developed the “Vision” and “Innovation” roles within every BU, and
created the “Innovation Platform”, in order to register and keep track
of all initiatives and projects developed by said roles.

We collaborate with local
authorities, start-ups, the academy,
research institutes, suppliers and
other external actors to boost our
innovation and ESG strategy

2020 ALPEK ANNUAL REPORT

3. GROW RESPONSIBLY
We rely increasingly on sustainable business
practices across our entire value chain to
create value for our shareholders

WHY IT MATTERS
Our planet’s resources are finite.
The linear economy system must
evolve. As a plastics and chemicals
Company, it is our responsibility to
fully understand the lifecycle of our
products and develop ways to make it
even more sustainable.

WHAT WE WANT TO DO
We are encouraged to aid in the
transition from a linear economy to
a circular one, as part of our business
growth strategy.

STRATEGIC PRIORITIES TO WORK ON
• Design out waste and pollution
• Keep products and materials in use
• Recycle and reuse

1 , 2. FOCUS ON CIRCULAR
ECONOMY AND FIGHTING
POLLUTION

ESG RISK IDENTIFICATION
& ANALYSIS

GRI Standards: 416-1.
SASB RT-CH-150a.1.

We are committed to deliver solutions that make
people’s lives easier. This does not spare us from
the responsibility of caring for the planet’s re-
sources and future generations well-being while
doing so. We are aware of the risks that manufac-
turing non-biodegradable materials carry for the
environment should the handling of their waste be
poorly executed.

Priority Issues addressed in this pillar:
1. Focus on Circular Economy
2. Pollution
9. Relationship with Customers

and Suppliers
7. Cybersecurity

2020 ALPEK ANNUAL REPORT

Spearheaded by our Innovation Department, we have enhanced our
efforts in exploring process technologies to make better use of PET
after consumers have finished using it, mainly from plastic bottles.
Products like PET have been proved to have a lower carbon footprint
than its packaging alternatives, like aluminum and glass. Our PET re-
cycling infrastructure is growing at a rapid pace since we want to
continue our leadership as the largest rPET producer of the Ameri-
cas. These facilities highlight the business’ commitment to sustain-
ability and recycling and the opportunity for our PET and rPET prod-
ucts to participate and lead in true circular economies. Furthermore,
these initiatives continue to remove millions of bottles a year from
landfills and redirect them back into valued consumer products, re-
ducing the carbon footprint of these consumer-based needs and re-
ducing climate change impact.

STRATEGY & EXECUTION

By the end of 2020, important capital projects and investment in var-
ious sites were approved and initiated. These investments expanded
the capabilities of the sites with the installation of solid-state polym-
erization and pelletization processes. This allows for these rPET pel-
lets to enable the materials to be used in bottle-to-bottle recycling
fostering a true circular economy. These projects are a key step in
growing Alpek’s sustainability.

Regarding our hazardous waste management, in 2020 we reduced
our disposal by 53% vs 2019. This is a great highlight regarding our
efforts to end pollution, not only from our products in their end-use
phase, but in our operations.

The percentage of non-hazardous waste recycled, reused or sold
also increased by 39% vs 2019.

Now, the challenge still relies on the correct disposal and recollection of
PET and other products. One of our main goals in this matter is to work
hand in hand with authorities, organizations and other stakeholders to
make PET recycling a regulatory issue. So far, in the USA, DAK Americas
participates as silver founder of The Recycling Partnership, a non-prof-
it organization that seeks to promote changes in the recycling culture
throughout the United States. It also belongs to the GAPC, a movement
to spur the development of public policies to integrate the synergy of
the circular economy. Indelpro joined the ANIPAC initiative to reduce
pellet waste and made a voluntary commitment in favor of the circular
economy in the plastic resins sector with the ANIQ.

5.5 billion PET bottles
Recycled in 2020

2020 ALPEK ANNUAL REPORT

TARGETS & METRICS

TARGET

METRIC

PERFORMANCE IN
2020

YEAR
BASIS

GOAL
YEAR

SDG TARGET
ADDRESSED

To establish
the guidelines
for a circular
business
model

To be identified

We set Circular
Economy as one of our
Core Business Values

2021

2025

SDG 12 Responsible
Production and
Consumption, Target 12.5:
By 2030, reduce waste
generation substantially
through prevention,
reduction, recycling
and reuse

PRIORITY
ISSUES
ADDRESSED

Circular
Economy

Pollution

COMMITMENT & OVERSIGHT

In 2020 we established the Fostering a Circular
Economy pillar as one of our 3 long-term growth
pillars. Our success as a Company depends on us
following this initiative fully. Every facility has a
person responsible for the correct handling and
management of waste. We are committed to strictly
comply with every regulation in the countries we

operate, which has resulted in zero fines nor sanc-
tions in the matter.

Through our Environmental Policy, we are com-
mitted to manage all of our waste in a responsible
way, and to reduce it consistently.

2020 ALPEK ANNUAL REPORT

7. CYBERSECURITY

ESG RISK IDENTIFICATION
& ANALYSIS

IT risk management is a priority of ours. At Alpek we
categorize the level of severity should any of those
might come to happen. The categories go from neg-
ligible, marginal, critical or catastrophic. According
to the resulting matrix, we assess the risks that our
Company may or may not be exposed to, and act
accordingly.

In 2020,
we performed a
significant part of
the Company’s
activities remotely
without incidents

STRATEGY & EXECUTION

COMMITMENT & OVERSIGHT

Through our parent company’s Global IT Security
Policy we make sure to comply with every regula-
tion, and describe the guidelines that our employ-
ees must follow and comply with in order to avoid
any IT incident. We plan to continue improving our
security measures in 2021.

This issue has become a priority in our Materiality
Analysis, since we know every system is suscepti-
ble to failures. Our robust IT infrastructure allowed
the majority of our employees to work from home
in 2020 when applicable, without any contingen-
cies. We provided continuous training to our em-
ployees, designed and executed by our IT Security
Committee with representatives from the Business
Units. We also gave training on phishing or social
engineering tests, the results of which we provide
as feedback to users and managers to reinforce
the program. Additionally, hacking tests are carried
out at least annually, and there are business con-
tinuity / contingency plans and incident response
procedures in place.

WHY IT MATTERS
Increasing cybersecurity efforts is
critical to protecting against theft,
data loss, economic & political
incidents, and public health risks. For
us at Alpek it is all about protecting
our customers and suppliers’ data, as
well as sensitive information related
to our operations.

WHAT WE WANT TO DO
Now more than ever, we must test our
systems vulnerability and strengthen
them so we can keep abreast of the
technological advances, and the
threats these might represent.

STRATEGIC PRIORITIES TO WORK ON
• Have a robust governance on IT
• Continuously test and ensure the
security of our IT infrastructure

2020 ALPEK ANNUAL REPORT

9. RELATIONS WITH CUSTOMERS
AND SUPPLIERS

ESG RISK IDENTIFICATION
& ANALYSIS

GRI Standards: 407-1, 408-1, 409-1

STRATEGY & EXECUTION

We are working towards implementing an R&O
framework that allows us to properly identify the
ESG risks we have within our supply chain. For now,
we understand and act on consequence, knowing
that one of the main risks we have is that our raw
materials are derived from fossil fuels. However, we
aim to have a broader perspective on their sustain-
ability practices in order to establish a relationship
that boosts their and our responsible development.

In line with the increased expectations of our
stakeholders, we are providing more transparency
in our corporate reporting, as well as disclosing a
number of Environmental, Social and Governance
(ESG) investor indices. This is a major commitment
we made since 2015.

This, in addition to helping us strengthen our work
on our ESG Strategy, allowed us to enhance our
transparency towards our customers as well as
reaching out to our suppliers, by responding in a
more thorough way to diverse platforms and thus,
improving our ESG ratings.

In 2020 we established the goal to improve our re-
porting process by engaging in a deeper way with
our Business Units in order to gather more of the
information possible regarding their Companies’
sustainability performance.

CDP Climate Change
(Carbon Disclosure Project)

CDP Water Security

S&P Global CSA

MCSI

2020

2019

2018

B-

In 2020, 58% of our
suppliers were from
the same countries
we operate in

WHY IT MATTERS
To transition to a more circular
economy, we’ll need new
business models and effective
collaboration across the value
chain. Collaborating in strategic
partnerships with our suppliers
and customers can help us all find
solutions to these challenges faster.

WHAT WE WANT TO DO
We want to engage with our value
chain in ways that boost, develop, and
strengthen sustainable development
strategies.

STRATEGIC PRIORITIES TO WORK ON
• Enhance transparency of our

processes

• Boost joint efforts with our value

chain

2020 ALPEK ANNUAL REPORT

TARGETS & METRICS

TARGET

METRIC

PERFORMANCE IN
2020

YEAR
BASIS

GOAL
YEAR

SDG TARGET
ADDRESSED

To develop the
Sustainable
Procurement
Policy

To be identified

We defined the target
for 2021

2021

SDG 9 Industry,
Innovation and
Infrastructure, Target 9.4:
By 2030, upgrade our
infrastructure to make
it sustainable, with
increased resource-
efficiency and greater
adoption of clean
and environmentally
sound technologies and
infrastructure processes

PRIORITY
ISSUES
ADDRESSED

Relations with
Customers and
Suppliers

COMMITMENT & OVERSIGHT

We commit to continue increasing our transparency processes, as well as the
quality of information provided. Also, we will work on an integral engagement
strategy with our Value Chain, including sustainability assessments to our
suppliers and working with customers to enhance our strategy in responsible
growth. Our customer satisfaction rate during 2020 was 95%.

2020 ALPEK ANNUAL REPORT

4. MAXIMIZE
RESOURCE EFFICIENCY
We strive to minimize any adverse effects
from our products and processes

This entire pillar is based on our environmental
care performance. The three priority issues ad-
dressed here, matter because the success of our
business over the long term depends on the en-
vironmental sustainability of our operations, the
resources we acquire from nature, and the overall
wellbeing of the planet.

We aim to establish ambitious science-based tar-
gets to reduce our usage and consumption of en-
ergy and water and reduce our carbon footprint in
order to contribute to the Sustainable Develop-
ment Goals.

Priority Issues addressed in this pillar:
3. Climate Change and
Carbon Emissions
4. Energy Eco-Efficiency
5. Water Management

In 2020, our environmental investments were dis-
tributed like this:

Millions of dollars

2020

2019

2018

Waste reduction

Waste disposal

3.07

3.19

Emissions reduction

12.33

Prevention costs

Remediation costs

Environmental
management costs

Other

Total

2.20

2.40

16.00

0.60

11.20

0.30

2.90

13.70

0.21

9.27

1.50

0.50

3.20

41.76

23.50

17.30

2020 ALPEK ANNUAL REPORT

ESG RISK IDENTIFICATION
& ANALYSIS

We are fully aware of the risks climate change pos-
es to our operations and also the opportunities of
growth this represents.

In 2020 we identified climate-related risks based
on the TCFD recommendations:

TYPE

CLIMATE-RELATED RISKS RISK DESCRIPTION

Current regulation

Environmental institutions require disclosure of our annual water and
energy consumption, and emissions generation, failure to disclose could
result in the imposition of sanctions, third party actions and investigation
by authorities. The Health, Safety and Environmental department in each
facility monitors and reports its water and energy consumption, emissions
and waste generation.

Transition

Emerging regulation

Implementation of economic instruments such as CO2 taxation in countries
where the company operates, ban of single-use plastics, among others.

Market

Some consumers perceive PET as another plastic, though increasingly the
mindset is changing. This could have adverse effect on demand.

Reputation

Acute

Chronic

In recent years, society has placed greater concern over the impact that
products have on the environment from their production process until
they are discarded. One of the key solutions to reducing their impact is to
ensure a circular economy by recycling them and making them infinitely
recyclable.

Alpek’s operations are highly dependent on the availability and costs of
its main raw materials, as well as its energy sources. The availability and
prices of raw materials and energy can be negatively affected by various
factors, including interruptions in production by suppliers; natural disasters
(such as hurricanes in the Gulf of Mexico) or other climate events.

The chronic physical risks identified are very similar to the acute physical
risks, as well as the regulatory changes in our industry. Further analysis is
being made in order to prepare our facilities to better withstand climate
related events.

Physical

2020 ALPEK ANNUAL REPORT

3. CLIMATE CHANGE AND CARBON
EMISSIONS

STRATEGY & EXECUTION

GRI Standards: 305-1 to 7.
SASB RT-CH-110a.1., RT-CH-110a.2.

In 2020 we worked on complying with our ISO
14001 certification programs, as well as with oth-
er initiatives, such as the Clean Industry in Mexico.
Our facilities carried out several activities such as
equipment maintenance for optimal performance,
to installing new CO2 sequestering system. We also
minimized the emissions for processes vents to
flare to produce polypropylene, and the installa-
tion of new furnaces to reduce NOx emissions.

With an investment of more than US $12.3 million,
we avoided the launching of 228,007 ton CO2eq
into the atmosphere, which represents the emis-
sions of approximately 50,000 passenger vehicles
driven for one year.

Our emissions in 2020 were:

TON CO2 EQ x 106

Direct emissions

Indirect emissions

Total

2020

0.81

1.40

2.21

2019

0.80

1.62

2.42

2018

1.29

1.13

2.42

We also work increasingly in the development of
more sustainable solutions, such as our low-car-
bon products that bring the following benefits to
third-parties:

TYPE

DESCRIPTION
OF PRODUCTS

LEVEL OF
AGGREGATION

ESTIMATED TOTAL
AVOIDED EMISSIONS
PER YEAR (THOUSAND
TONS CO2) 2020

COMMENT

Avoided
emissions for
third parties

rPET

Product

173.3

Each ton of Recycled PET avoids
~2.72 thousand tons of CO2 emissions

WHY IT MATTERS
This is one of our Priority Issues as
we align with the international effort
to maintain the planet’s temperature
rising no more than 1.5 °C by 2030.
We are fully aware that running our
operations inevitably generates
emissions, but we also know that we
can always be more process efficient.

WHAT WE WANT TO DO
We commit to use cutting-edge
technologies in order to make our
operations more environmentally
friendly, as well as acquiring
equipment that reduces the emissions
sent to the atmosphere.

Avoided
emissions for
third parties

Construction
EPS

Product

1,417.6

Each ton of EPS used in construction
to isolate avoided ~11.11 tons of CO2
emissions

STRATEGIC PRIORITIES TO WORK ON
• Development of low carbon

products

• Investing in state-of-the-art

technologies

2020 ALPEK ANNUAL REPORT

4. ENERGY ECO-EFFICIENCY

STRATEGY & EXECUTION

GRI Standards: 302-1 to 4.
SASB RT-CH-130a.1.

In 2020 our facilities implemented initiatives and programs such
as the replacing of power cooling tower, refrigeration system con-
trols optimization, cooling towers pump upgrade, reducing of steam
temperature, reducing acid wash, tuning vaporizer burners and fans,
among others. This led to the reduction of 131,572 GJ in the year,
equivalent to the energy used by 2,982 homes for one year.

Our energy consumption in 2020 was:

ENERGY CONSUMPTION (GJ X 106)

Indirect consumption

Direct consumption

Total

Energy produced with natural gas

Steam and electricity

2020

27.44

7.80

35.24

13.65

21.45

2019

26.47

7.44

33.91

11.86

18.92

2018

22.80

8.04

30.84

9.89

17.93

CONSUMPTION BY FUEL TYPE (GJ X 106)

2020

2019

2018

Natural gas

LP gas

Gasoline

Diesel

Wind

Coal

Fuel oil

Ethanol

Others

Total

27.310

26.110

20.620

0.000

0.020

0.000

0.010

0.000

0.100

0.000

0.003

0.000

0.001

0.105

0.248

0.020

0.000

0.070

2.020

27.440

26.470

22.800

COMMITMENT & OVERSIGHT

Every facility works constantly in reducing their energy usage, and
strives to make processes more efficient so that our operations run on
less energy.

WHY IT MATTERS
The world is not on a sustainable
path and needs a rapid transition to
lower carbon energy, use of renewable
energies and maximize the usage of
resources if we want to ensure our
permanence over time.

WHAT WE WANT TO DO
We want to implement corporate
targets of energy consumption
reduction and increase the use of
renewable energy in the long term.

STRATEGIC PRIORITIES TO WORK ON
• Reducing energy intensity
• Energy efficiency strategy

2020 ALPEK ANNUAL REPORT

5. WATER MANAGEMENT

ESG RISK IDENTIFICATION
& ANALYSIS

GRI Standards: 303-1 to 5.
SASB RT-CH-140a.1., RT-CH-140a.3.

Water scarcity and availability is one of the great-
est risks for our industry and the society in general.
Since 2018 we begun the identification of our water
withdrawal, discharges and consumption, as well
as if it came from water-stressed areas, in order to
understand our impacts better.

To identify our water risks, since 2018 we have
used the WRI Aqueduct Tool, a non-profit organi-
zation that provides tools to map water risks such
as floods, droughts, and stress, using open-source,
peer-reviewed data.

We found that 2 of our facilities are located in wa-
ter-stressed areas, that represent 1.4% of our total
withdrawals.

STRATEGY & EXECUTION

COMMITMENT & OVERSIGHT

In 2020 we developed our Environmental Policy,
which will be available to all our employees and
suppliers, as well as the consequential Water Poli-
cy. In this last one, which will be developed in early
2021, we will outline the guidelines to establish a
successful water strategy that allows us to move
forward on our path to sustainable and responsi-
ble development.

In 2020 there were several initiatives that we im-
plemented in order to be more efficient in the con-
sumption of water. Some of them included the water
recovery by biofilter, reuse of pre-treated wastewater
to feed the cooling tower and decrease the amount
of well water fed, recovery of water from the demin-
eralization plant for use in the cooling tower, as well
as established targets of reduction. This led to a re-
duction in our withdrawals of 1,139 megaliters, equiv-
alent to what approximately 2,000 homes consume
in a year.

In 2020 our water withdrawal by source was dis-
tributed as follows:

WATER WITHDRAWALS
(ML) (11)

Fresh surface water,
including rainwater, rivers,
and lakes

Wells

Others

Total

2020

2019

2018

100,686

107,812

88,300

1,371

3,525

3,700

2,402

3,248

950

104,459

114,585

92,950

WHY IT MATTERS
Water is crucial for the successful
execution of our operations. Also, it is
a universal right to have access to it,
and our commitment is to safeguard
as much as possible the planet
resources for the present and future
generations.

WHAT WE WANT TO DO
We want to develop a strategy that
allows us to reuse as much water as
we can in our processes, as well as
making them more efficient.

STRATEGIC PRIORITIES TO WORK ON
• Reduce the water intensity
• Invest in water treatment processes
• Water risks analysis

(11)The reported numbers for 2019 vary from the reported in previous reports, given that, in our constant effort to be more transparent and more accurate regarding our information, in 2020 we dug

deeper in our processes and recalculated our discharges, which affects our consumption results.

2020 ALPEK ANNUAL REPORT

BOARD OF DIRECTORS

ARMANDO GARZA SADA 3
Chairman of the Board of Alpek, S.A.B. de C.V.

Alpek Board Member since April 2011.

Chairman of the Board of ALFA, S.A.B. de C.V. and Nemak.

Member of the Boards of Axtel, BBVA México, CEMEX,

Grupo Lamosa and Liverpool.

ANDRÉS E. GARZA HERRERA 1A
Chief Executive Officer of Qualtia Alimentos
Operaciones, S. de R.L. de C.V.

JOSÉ ANTONIO RIVERO LARREA 1
Chairman of the Board of
Compañía Minera Autlán, S.A.B. de C.V.

Alpek Board Member since April 2012.

Alpek Board Member since April 2018.

Board Member of Xignux, ConMéxico, Universidad de

Member of the Executive Board of Cámara Minera de

Monterrey (UDEM) and Ciudad de los Niños.

México (Camimex) and Cámara Nacional de la Industria del

RODRIGO FERNÁNDEZ MARTÍNEZ 4
President of Sigma Alimentos, S.A. de C.V.

Alpek Board Member since April 2012.

Hierro y del Acero (Canacero). Member of the Boards of

Museo del Acero en Monterrey, Fundación de Empresarios

por la Educación Básica, Universidad de Monterrey (UDEM)

and Instituto Tecnológico y de Estudios Superiores de

Previously served as Chief Operations Officer and Chief

Monterrey (ITESM).

Executive Officer of Sigma Americas. Member of the Board

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 Board of Grupo Citibanamex,

Cydsa, Grupo Aeroportuario del Pacífico, and Vitro.

FRANCISCO JOSÉ CALDERÓN ROJAS 2A
Chief Financial Officer
of Grupo Franca Industrias, S.A. de C.V.

of Cámara de la Industria de Transformación de Nuevo

León (CAINTRA).

MERICI GARZA SADA 4
Investor

Alpek Board Member since April 2012.

Board Member of Franca Industrias, Universidad de

Monterrey (UDEM) and Regional Advisor of BBVA México

and Citibanamex. Alternate member of the Board of FEMSA.

FRANCISCO GARZA EGLOFF 1
President of Proval Consultores

Alpek Board Member since February 2019.

ENRIQUE ZAMBRANO BENÍTEZ 1A
Chairman of the Board of Grupo Proeza, S.A. de C.V.

Alpek Board Member since April 2012.

Member of the Boards of Areya, Grupo Coppel, BBVA

México 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)

PIERRE FRANCIS HAAS GARCÍA 1
Advisory Services Director of Hartree Partners LP

Former CEO of Arca Continental. Member of the Boards of

Alpek Board Member since February 2019.

Arca Continental, Alen, Axtel, Banregio, Ovniver, Ragasa,

Vice President of IQOM Inteligencia Comercial, S.A. de

Alpek Board Member since April 2012.

Grupo Industrial Saltillo and Proeza.

C.V. Member of the Technical Committee of FibraHotel

and member of the Boards of Baja Ferries, Xignux, and

Ex-president of the Consejo Mexicano de Asuntos

Internacionales (COMEXI).

CARLOS JIMÉNEZ BARRERA
Secretary of the Board

1. Independent board member | 2. Independent proprietary board member | 3. Related proprietary board member | 4. Patrimonial | A. Audit and Corporate Practices Committee

2020 ALPEK ANNUAL REPORT

MANAGEMENT TEAM

JOSÉ LUIS ZEPEDA PEÑA 1
President of the EPS and
Chemicals Business Unit

President of Alpek’s EPS and Chemicals
Business Unit since 1999. He joined Alpek in
1986 and served as Vice President of Planning,
Finance, Administration and Sales at Grupo
Petrotemex. Holds an undergraduate and a
master’s degree from UNAM and a master’s
degree from ITESM.

ALEJANDRO LLOVERA ZAMBRANO 2
President of the
Polypropylene Business Unit

President of Polypropylene Business Unit of
Alpek since 2008. He joined ALFA in 1985 and
served as Director of Human Resources at
ALFA. He held various management positions
in the Synthetic Fibers Business Unit at Alpek
and is a former Chairman of ANIQ. Holds an
undergraduate and master’s degree from ITESM.
He also completed the Executive Management
Program (D-1) at IPADE.

JORGE P. YOUNG CERECEDO 3
Co-President, Alpek Polyester

President of the PET and Staple Fibers Business
Unit of Alpek from 2012 to 2016. Former
Executive Vice President of PET Resins and
Vice President of Planning and Administration
of DAK Americas LLC. Holds an undergraduate
degree from ITESM and a master’s degree from
the University of Pennsylvania.

JOSÉ DE JESÚS VALDEZ SIMANCAS 4
Chief Executive Officer

CEO of Alpek since 1988. Former CEO of
Petrocel, Indelpro and Polioles, and former
Chairman of the Asociación Nacional
de la Industria Química (ANIQ). Holds an
undergraduate and MBA from ITESM and a
master’s degree from Stanford University.

FELIPE GARZA MEDINA 5
Co-President, Alpek Polyester

President of Alpek’s PTA Business Unit from
2008 to 2016. He joined ALFA in 1977 and
served as CEO of Indelpro and of Galvacer.
Holds an undergraduate degree from
Stanford University and a master’s degree
from Cornell University.

JOSÉ CARLOS PONS DE LA GARZA 6
Chief Financial Officer

CFO of Alpek since 2018. Former Vice
President of Business Development
of Nemak, where he also held
several executive positions. Holds an
undergraduate and an MBA from ITESM,
and completed the Executive Management
Program (D-1) at IPADE.

GUSTAVO TALANCÓN GÓMEZ 7
President of the Caprolactam, Fertilizer
and Polyester Filament Business Unit

President of the Caprolactam and Fertilizer
Business Unit since 2013 and as of in 2018,
also of Polyester Filaments. Joined ALFA
in 1989, served as CEO of Terza, and held
management positions in various Business
Units of Alpek. Holds an undergraduate
degree from ITESM and completed the
Executive Management Program (D-1)
at IPADE.

ARMANDO RAMOS CANTÚ 8
Senior Vice President, Human Capital

Human Capital Senior VP of Alpek since
2017. Previously, was the Compensations
Vice President at ALFA. During his 20 years
tenure with ALFA, he held other Human
Resources positions. Holds a bachelor’s
degree from UDEM and an MBA from ITESM,
and completed the Executive Management
Program (D-1) at IPADE.

2020 ALPEK ANNUAL REPORT

CORPORATE GOVERNANCE

Once a year, all companies that are listed on the Bol-
sa Mexicana de Valores, S.A.B. de C.V. (BMV) must
disclose the extent to which they adhere to the
Corporate Governance Code of Principles and Best
Practices (CMPC) by answering a questionnaire. The
Code has been in effect in Mexico since 2000, and
companies respond to a questionnaire that is avail-
able 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 2020
and updated where necessary:

• The Board of Directors is comprised of elev-
en proprietary members, with no alternates. Of
these, six are independent board members, two
are proprietary board members, two are related
proprietary board members and one is an inde-
pendent proprietary board member. This annual
report provides information about each member
of the Board, identifying those who are indepen-
dent and their participation in the Audit and Cor-
porate 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 Board of Directors meets four times per year.
Meetings of the Board may be called by the Chair-
man of the Board, by the President of the Audit
and Corporate Practices Committee, by the Sec-
retary, 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.

• Members must inform the Chairman of the Board
regarding any conflict of interest that may arise
and abstain from participating in any related de-
liberations. There was an 100% attendance rate
at the Board and Committee meetings in 2020.

• During the majority of 2020, the meetings of the
Board of Directors and the Audit and Corporate
Practices Committee were held through videocon-
ferences, as consequence of the pandemic caused
by the COVID-19 pandemic. Video conferencing al-
lowed the Board of Directors to interact effectively
given the availability of audio and video features.

• The Audit and Corporate Practices Commit-
tee studies and issues recommendations to the
Board on audit-related matters such as: select-
ing and determining the fees to be paid to the ex-
ternal auditor, coordinating with the Company’s
internal audit committee and studying account-
ing policies, among others.

•

In addition, the Audit and Corporate Practices
Committee issues recommendations to the Board
on matters related to corporate practices, such as
employment terms and severance payments for
senior executives, and compensation policies.

• The company has internal control systems with
general guidelines that are submitted to the Audit
and Corporate Practices Committee for its opin-
ion. 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 of invest-
ing and financing policies, and reviewing invest-
ment projects. This is carried out in coordination
with the finance and planning department of the
holding company, Alfa, S.A.B. de C.V.

• Alpek has a department that is specifically re-
sponsible for maintaining open communication
with its shareholders and investors. This ensures
that they have the financial and general informa-
tion required to assess the Company’s progress in
developing its activities. This function makes use
of press releases, notifications of relevant events,
conference calls for quarterly reports, investor
meetings, its website, and other communication
channels.

• Alpek promotes good corporate citizenship and
adheres to the recommendations issued by its
holding company, Alfa, S.A.B. de C.V. It has a mis-
sion, vision, values and a code of ethics that are
promoted within the organization.

2020 ALPEK ANNUAL REPORT

GLOSSARY

ADMINISTRATIVE COUNCIL FOR ECONOMIC DEFENSE
Brazilian agency responsible for investigating and deciding on
issues of competence.

ARCEL®
A Polystyrene (EPS) & Polyethylene (PE) copolymer used in pro-
tective packaging for high-end products like electronics. Due to
its resistance to tearing, puncturing, cracking and flaking, it ab-
sorbs shocks without decreasing its protection.

CAPROLACTAM (CPL)
CPL is made by reacting cyclohexane, ammonia and sulfur and is
the raw material used to produce Nylon 6 polymer. Nylon 6 is a
synthetic resin that, because of its strength, flexibility and soft-
ness, has a range of end uses, including sportswear, underclothes
and engineering plastics.

CLEAN INDUSTRY CERTIFICATION
Certification granted by the Mexican Environmental Protection
Agency (PROFEPA) to companies that comply with environmen-
tal legislation.

COGENERATION
Process that produces both electricity and steam.

COMPREHENSIVE RESPONSIBILITY ADMINISTRATIVE SYSTEM
(NATIONAL ASSOCIATION OF THE CHEMICAL INDUSTRY, ANIQ)
Certification given to companies that comply with the six com-
prehensive 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 Community protection.

CO2 EMISSIONS
Unit to measure the carbon dioxide produced by the burning of
solid, liquid and gaseous fuels, including natural gas.

CYCLOHEXANE
Compound produced by the hydrogenation of benzene and used
in caprolactam production.

ETHANE
Hydrocarbon part of the natural gas liquids, which at room tem-
perature is colorless and odorless. It is used as a raw material to
produce ethylene.

ISO 14001 CERTIFICATION
Internationally accepted standard for establishing an efficient
Environmental Management System (EMS). The standard is de-
signed to support companies’ profitability and at the same time
minimize environmental impact.

ETHYLENE
Compound produced from ethane. It is the raw material used to
produce vinyl acetate, ethyl chloride, styrene, ethylene oxide
and polyethylenes.

MEGAWATT (MW)
Unit of power, equal to 1 million watts.

ETHYLENE OXIDE
Compound produced from ethylene and used as an intermedi-
ate in the production of MEG and other chemicals.

MONOETHYLENE GLYCOL (MEG)
Raw material with diverse industrial uses, especially for produc-
ing polyester (PET and fiber), antifreeze, refrigerants and sol-
vents.

EXPANDABLE POLYSTYRENE (EPS)
Light, rigid, cellular plastic, product of the polymerization of sty-
rene monomer. EPS is a versatile material because of its prop-
erties as an impact reducer and thermal insulator, with custom-
ized molding capacity. These properties, combined with the ease
with which it can be processed, make EPS a popular packaging
for impact-sensitive items and for protecting perishables. It is
also widely used in construction systems, to lighten floor and
roof structures, and as an insulator.

GREENHOUSE GASES (GHG)
Components of the atmosphere that absorb and emit radiation
within the infrared range, causing the Earth’s surface tempera-
ture to increase.

PARAXYLENE (PX)
Hydrocarbon in the xylene family used to produce PTA. It is also
a component of gasoline.

POLYETHYLENE TEREPHTHALATE (PET/vPET)
Material widely used to manufacture bottles and other con-
tainers for liquids, food and personal hygiene, household and
healthcare products. PET flakes and films are used to produce
caps, trays and recipients. Because of its transparency, strength,
durability and high protection barriers, PET presents no known
health risks, is light and recyclable, and has a wide range of ap-
plications in reusable, temperature-sensitive packaging. PET has
replaced glass and aluminum, as well as other plastics such as
PVC and polyethylene, for making containers.

INTEGREX®
Alpek-owned technology for producing PTA and PET from par-
axylene (pX) and monoethylene glycol (MEG), offering significant
cost savings and fewer intermediate steps in the production process.

RECYCLED POLYETHYLENE TEREPHTHALATE (rPET)
PET bottles are cleaned and crushed to produce new PET prod-
ucts. Other rPET uses include carpets, fabrics for the clothing in-
dustry, and fibers.

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 Inter-
national Organization for Standardization (ISO).

POLYPROPYLENE (PP)
Thermoplastic polymer, produced from the polymerization of pro-
pylene monomer. Its properties include a low specific gravity, great
rigidity, resistance to relatively high temperatures and good re-
sistance to chemicals and fatigue. PP has diverse applications, in-
cluding for packaging, textiles, recyclable plastic parts and different
kinds of containers, autoparts and polymer (plastic) banknotes.

PROPYLENE
Unsaturated, 3-carbon hydrocarbon, coproduct of the cracking
process at petrochemical complexes and a by-product at oil re-
fineries. It is used in the petrochemical industry to produce PP,
propylene oxide, cumene, isopropanol, acrylic acid and acryloni-
trile. It is also converted into a gasoline component by alkylation
with butanes or pentanes.

PROPYLENE OXIDE
Compound produced from propylene and used to manufacture
commercial and industrial products, including polyols, glycols
and glycol-ethers.

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 bottles
for water, soft drinks and other beverages, containers and other
packaging, and polyester fiber for rugs, clothing, furniture and in-
dustrial 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 used as a solvent and chem-
ical intermediate.

SINGLE-PELLET TECHNOLOGY TM
Single Pellet Technology™(SPT) creates a pellet where mechani-
cally Recycled PET (rPET) flake is used as a raw material feedstock
in the virgin PET production process. Once injected into the PET
manufacturing process, the rPET flake melts and the polymer is
chemically integrated allowing the rebuilding of polymer chains
to create a new PET resin pellet with an integrated recycle content
of up to 25% with performance equal to that of virgin PET.

WATT
Unit of power in the International System of Units (SI).

2020 ALPEK ANNUAL REPORT

PETROCHEMICAL VALUE CHAINS

Alpek’s products are used by millions of people daily, in a wide variety of applications.

OIL

REFINERY

NAPHTHA

REFORMER

PARAXYLENE

PTA

ETHANE

CRACKER

ETHYLENE

BENZENE

METHANE

AMMONIA

CRACKER

CYCLOHEXANE

CAPROLACTAM

PENTANE

AMMONIUM SULFATE

OIL

REFINERY

NAPHTHA

CRACKER

STYRENE

POLYETHYLENE

EPS

ARCEL

PROPANE

PDH

PROPYLENE

POLYPROPYLENE

ETHYLENE OXIDE

MONOETHYLENE GLYCOL

PET

rPET FLAKE

rPET PELLET

FIBERS

Polyester

Plastics & Chemicals

2020 ALPEK ANNUAL REPORT

MANAGEMENT’S ANALYSIS

The following analysis complements the Letter to Shareholders, Audited Finan-
cial Statements, and Complementary Information. Unless otherwise specified,
figures are expressed in millions of nominal pesos, while certain figures are ex-
pressed as millions of dollars (US $) due to the high dollarization of Alpek’s rev-
enues. Percentage variations are stated in nominal terms. All information is pre-
sented in accordance with International Financial Reporting Standards (IFRS).

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:

In the United States, Gross Domestic Product (GDP) decreased 3.5%(b) in 2020, com-
pared with an increase of 2.2%(b) reported in 2019. Consumer inflation was 1.4%(b) in
2020, lower than the 1.5%(b) recorded in 2019.

The global economic environment was pressured by the COVID-19 health crisis,
during the year risks persisted for financial markets coupled with pandemic con-
trol, advanced countries’ economic policy decisions, geopolitical environment
and trade tensions. During the first half of the year, the world faced an overall
standstill of economic activity and in the second half showed a gradual recovery.
Countries such as the U.S. implemented fiscal stimulus to support economic ac-
tivity during the crisis. According to the IMF, the countries most affected by this
crisis were Argentina, Peru, Spain, Mexico and South Africa. In Mexico, GDP suf-
fered historic contractions in April and May, and as of June started to present a
gradual recovery. The Mexican currency showed strong volatility throughout the
year, to end with depreciation from the previous year, however, it is one of the
currencies that presented the greatest recovery against COVID-19.

Mexico’s Gross Domestic Product (GDP) decreased 8.5%(a) in 2020, compared to
the decrease of 0.1%(a) in 2019. Consumer inflation was 3.2%(c) in 2020, higher than
the 2.8%(c) recorded in 2019. The Mexican peso experienced an annual nominal
depreciation of 5.5%(d) in 2020, compared with an appreciation of 4.0%(d) in 2019.
Additionally, in real terms the annual average valuation of the Mexican peso
against the dollar decreased from -0.5%(e) in 2019 to -2.7%(e) at the close of 2020.

In Mexico, the average Interbank Equilibrium Interest Rate (TIIE) was 5.7%(c) in nom-
inal terms, as compared to 8.3%(c) in 2019. In real terms, there was a decrease in the
annual aggregate from 4.8%(c) in 2019 to 2.4%(c) in 2020. Regarding interest rates, the
annual average nominal 3-month US dollar LIBOR rate, was 0.7%(c) in 2020, com-
pared to 2.3%(c) in 2019. If the peso’s nominal appreciation against the dollar is in-
cluded, the LIBOR rate in constant pesos went from -1.2%(c) in 2019 to 8.7% (c) in 2020.

Sources:

(a) National Institute of Statistics and Geography (INEGI).

(b) Bureau of Economic Analysis (BEA)

(d) Banxico: Exchange rate for settling liabilities denominated in foreign currency payable in Mexico

(e) Internal calculation based on INEGI, Bureau of Economic Analysis (BEA), and Bureau of Labor

Statistics (BLS)

2020 ALPEK ANNUAL REPORT

Volume
(thousands of tons)

Polyester

Plastics and Chemicals

Total Volume

Revenues

Polyester

2020

2019

2018

3,918

883

4,802

3,490

895

4,384

3,490

912

4,402

2020

2019

2018

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

(1)

(2)

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

Millions of Pesos

85,280

90,857

99,559

Millions of Dollars

3,976

4,718

5,174

Plastics and Chemicals

Millions of Pesos

25,349

27,097

32,925

Millions of Dollars

1,192

1,407

1,713

Total Revenues

Millions of Pesos

113,989

119,685

134,523

Millions of Dollars

5,326

6,216

6,991

(6)

(16)

(6)

(15)

(5)

(14)

(9)

(18)

(11)

Price Index

Polyester

Millions of Pesos

Millions of Dollars

Plastics and Chemicals

Millions of Pesos

Millions of Dollars

Total Revenues

Millions of Pesos

Millions of Dollars

2020

2019

2018

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

100

(16)

(25)

(5)

(14)

(13)

(22)

(9)

(15)

(11)

Revenues
Alpek’s revenue in 2020 was $113,989 million (US $5.326 billion), 5% lower than
the $119,685 million (US $6.216 billion) in 2019. This decrease was caused by a
drop in average prices of 13% and 22% in pesos and dollars, respectively, driven
by lower feedstock prices.

Revenues by Business Segment
Polyester’s net revenues in 2020 were $85,280 million (US $3.976 billion), 6%
less than the $90,857 million (US $4.718 billion) in 2019. This segment posted
a decrease of 16% and 25% in average sale prices in pesos and dollars, respec-
tively. Volume increased 12% when compared to 2019, setting a new record. This
increase was largely due to favorable changes to consumer behavior, which
placed a heightened importance on safety and hygiene, thus strengthening de-
mand for PET.

Plastics and Chemicals posted revenues of $25,349 million (US $1.192 billion) in
2020, in comparison to the $27,097 million (US $1.407 billion) in 2019. The 6%
decrease in revenues was mainly due to the 5% and 14% drop in the average sale
price in pesos and in dollars, respectively, reflecting lower feedstock prices. The
segment’s volume posted a drop of 1% compared to 2019, mainly due to lower
sales of caprolactam and industrial chemical products.

Operating Income and EBITDA
In 2020, the operating income was $7,493 million (US $355 million), 39% lower than
the $12,361 million (US $641 million) in 2019. In 2020, operating profit includes an
extraordinary gain of $657 million (US $35 million) from the business combination
on the acquisition of the Wilton PET site.The operating income in 2019 includes an
extraordinary gain of $3,634 million (US $188 million) from the finalization of the
cogeneration plants’ sale.

2020 ALPEK ANNUAL REPORT

As of December 31, 2020, consolidated EBITDA was $11,993 million (US $565 mil-
lion), a decrease of 27% compared to the $16,395 million (US $850 million) of 2019.
The consolidated EBITDA includes a net charge from extraordinary items of $1,016
million (US $36 million), resulting in a Comparable EBITDA excluding raw material
carry-forward of $13,009 million (US $601 million), 14% lower than in 2019.

In 2020, the EBITDA for the Polyester segment decreased by 17% to $6,842 mil-
lion (US $324 million), including a net charge from extraordinary items of $1,258
million (US $48 million). Adjusting for these items, the Comparable EBITDA ex-
cluding raw material carry-forward for the Polyester segment was $8,100 million
(US $372 million), a decrease of 22% year-over-year, resulting from lower margins
compared to the previous year.

The EBITDA for the Plastics and Chemicals segment increased 17% to $4,920 mil-
lion (US $229 million), compared to $4,198 million (US $218 million) in 2019. Ex-
cluding non-cash inventory losses and other extraordinary items, the Compara-
ble EBITDA for Plastics and Chemicals increased 5% in comparison to the $4,447
million (US $231 million) in 2019, due to better than expected PP margins.

EBITDA
(Millions of pesos)

Polyester

Plastics and Chemicals

Others

Total EBITDA

2020

2019

2018

6,842

4,920

231

11,993

8,236

4,198

3,961

15,318

5,292

(3)

16,395

20,607

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

(17)

(94)

(27)

(46)

(21)

N/A

(20)

EBITDA
(Millions of dollars)

Polyester

Plastics and Chemicals

Others

Total EBITDA

2020

2019

2018

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

324

229

565

428

218

205

850

788

276

(1)

1,063

(24)

(95)

(34)

(46)

(21)

N/A

(20)

Net Financial Result
In 2020, the net financial cost was -$2,085 million (US -$98 million), 21% lower
than in 2019. The net financing expenses that comprise this item decreased from
-$2,048 million (US -$106 million) in 2019, to -$1,972 million (US -$92 million) in
2020, mainly reflecting the reduction in average debt during the year. In addition,
variations in exchange rates resulted in the recognition of a non-cash foreign
exchange loss of -$113 million (US -$7 million) in 2020, versus -$587 million (US
-$30 million) in 2019.

Financial result, net
(Millions of pesos)

2020

2019

2018

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

Financial expense

(2,497)

(2,822)

Financial income

525

774

Financial expenses, net

(1,972)

(2,048)

(2,183)

442

(1,741)

Loss due to
exchange fluctuation, net

(113)

(587)

(1,042)

Financial expenses, net

(2,085)

(2,635)

(2,783)

(32)

(29)

(18)

2020 ALPEK ANNUAL REPORT

Taxes
In 2020, an income tax was posted for -$1,202 million (US -$57 million) as a result
of the decreased pre-tax income, while 2019 posted an income tax of -$1,889
million (US -$98 million).

Taxes
(Millions of pesos)

Income before taxes

Income tax rate

Statutory income tax
rate expenses

Taxes for permanent
differences between
accounting-taxable
income

Total income tax

Effective tax rate

Comprised as follows:

2020

2019

2018

5,323

30%

9,413

30%

18,389

30%

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

(43)

(49)

(1,597)

(2,824)

(5,517)

395

935

2,062

(58)

(55)

(1,202)

(1,889)

(3,455)

23%

20%

19%

Current income tax

(1,933)

(2,463)

Deferred income tax

731

574

Total income tax

(1,202)

(1,889)

(2,075)

(1,380)

(3,455)

(19)

142

Net Income Attributable to the Controlling Interest
In 2020, consolidated net income attributable to the controlling interest was
$3,123 million (US $150 million) including a net benefit of $657 million (US $35
million) from the gain in the business combination (Wilton PET site). In 2019, the
consolidated net income attributable to the controlling interest was $6,605 mil-
lion (US $342 million), including an extraordinary gain related to the sale of the
cogeneration plants.

Statement of income
(Millions of pesos)

Operating income

2020

7,493

Financial result, net

(2,085)

2019

2018

12,361

(2,635)

21,202

(2,783)

Equity in loss of
associates and joint
ventures

(85)

(313)

(30)

Income taxes

(1,202)

Consolidated net income

4,121

(1,889)

7,524

(3,455)

14,934

Income attributable
to Controlling interest

3,123

6,605

13,633

‘20 vs ‘19
(%)

‘19 vs ‘18
(%)

(39)

(45)

(53)

(42)

(945)

(50)

(52)

Investments in Fixed and Intangible Assets
In 2020, investments in fixed and intangible assets totaled $3,477 million (US
$162 million), 33% lower than the $5,182 million (US $270 million) posted in 2019.
The resources were used for the acquisition of NOVA Chemicals’ Styrenics busi-
ness, strategic projects and maintenance and minor asset replacements.

2020 ALPEK ANNUAL REPORT

Net debt1
Net debt was $23,645 million (US $1.185 billion) as of December 31, 2020, 6% below
the $25,057 million (US $1.330 billion) as of December 31, 2019. The cash balance
and cash equivalents totaled $10,156 million (US $509 million) at year-end 2020.

Short and long-term debt2
(Millions of dollars)

2020

2019

‘20 vs ‘19
(%)

Integrated
‘20
(%)

Integrated
‘19
(%)

649

300

506

1,543

4.5

674

300

506

1,537

5.5

5.4

Short-term debt

Long-term 1 year

2 years

3 years

4 years

5 years

9+ years

Total

Avg. Maturity
long-term debt (years)

Avg. Maturity
total debt (years)

Financial Indicators
(Times)

Net Debt / EBITDA

Interest Coverage

Total liabilities / Stockholders’ equity

(40)

N/A

(55)

(78)

100

2020

2019

2018

2.1

6.0

1.3

1.6

7.2

1.3

1.7

9.9

1.8

(1) Net Debt = Current debt plus non-current debt (excluding debt issuance costs), plus accrued interest pay-

able, less cash and cash equivalents, less restricted cash and cash equivalents.

(2) Excludes leases and lease interests

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES
(SUBSIDIARY OF ALFA, S. A. B. DE C. V.)

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR
THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018, AND
INDEPENDENT AUDITORS’ REPORT DATED JANUARY 31, 2021

INDEPENDENT AUDITORS’ REPORT

59 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

60 CONSOLIDATED STATEMENTS OF INCOME

61 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

62 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

63 CONSOLIDATED STATEMENTS OF CASH FLOWS

64 NOTES TO THE 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 com-
prise the consolidated statements of financial position as of December 31, 2020, 2019 and 2018, and the consolidated state-
ments 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 Alpek, S. A. B. de C. V. and Subsidiaries as of December 31, 2020, 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 stan-
dards 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 responsibilities in accordance with the IESBA Code
and with the IMCP Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consoli-
dated financial statements of the 2020 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.

Business combination- Lotte Chemical UK Limited (Lotte UK)
As mentioned in Note 2a. to the consolidated financial statements, on January 1, 2020, a subsidiary of Alpek, S. A. B. de C. V. (“Al-
pek”) acquired all of the shares representing the capital stock of Lotte Chemical UK Limited, which operates a PET production
plant located in Wilton, United Kingdom with a capacity of 350,000 tons per year. The total consideration amounted to US$68
million. The fair value of the net assets acquired amounted to US$103 and the Company recognized a gain on the acquisition of
US$35 million.

Due to the significant judgments used by management in the valuation models for the determination of the consideration
transferred, the fair values of the assets acquired and liabilities assumed, we believe that this transaction represents a key audit
matter for our audit. Therefore, in order to perform the audit procedures to reasonably mitigate the identified risk, we involved a
team of valuation experts to evaluate the premises and criteria used by management and its independent expert, which include
the following procedures:

• We evaluated the capacity and independence of the independent expert.
• We verified that the models and assumptions used by management to determine fair values were those used and recog-

nized for valuing assets of similar characteristics in the industry.

• We challenged management’s financial projections and compared them to historical business and industry performance

and trends.

• We reviewed the most relevant valuation assumptions and compared them with independent market sources.

The results of our procedures were satisfactory, and we agree with the amount of the fair value of the assets acquired and li-
abilities assumed recognized by the Company.

Emphasis of matter paragraph – Significant event
As mentioned in Note 2b. to the accompanying consolidated financial statements, on March 11, 2020, the World Health Organization
declared the SARS-COV2 virus (COVID-19) a global pandemic. The spread of the disease had a differentiated impact on companies
and industries, in addition to generating significant volatility in money and capital markets. The Company’s financial position and
results of operations as of December 31, 2020 were not materially affected by the pandemic; however, our audit planning and pro-
cedures were adapted to the circumstances for the verification of the above and the assertions included by the Company in Note
2b. to the consolidated financial statements.

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”).Is expected the
Annual Report 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 inves-
tors 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,
amortization and assets impairment (“adjusted 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 as-
surance 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 consoli-
dated 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 and recalculate 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 state-
ments 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.

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 fi-
nancial 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 misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable as-
surance 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, misrepresenta-
tions, 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 wheth-
er 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 of the consolidated financial
statements. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most signifi-
cance 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 matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited

C. P. C. César Adrián Garza Tamez
Monterrey, Nuevo León, México
January 31, 2021

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, 2020, 2019 and 2018
In millions of Mexican pesos

Note

2020

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 asset, 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

Total stockholders’ equity

Total liabilities and stockholders’ equity

10,144

17,050

17,447

454

442

45,549

38,579

2,991

3,637

1,506

14,006

60,804

7,059

216

16,508

17,966

1,785

43,575

37,082

3,437

3,783

1,104

13,761

59,219

106,353

102,794

456

704

19,545

531

21,352

30,196

2,306

1,120

4,092

170

1,316

289

39,489

60,841

6,035

9,025

21,035
4,291

40,386

5,126

45,512

106,353

707

912

16,455

1,143

528

576

20,321

28,103

2,456

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

21,934

24,511

469

51,115

47,033

4,368

1,384

15,959

68,782

119,897

10,118

26,051

1,279

1,047

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

The accompanying notes are an integral part of these 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, 2020, 2019 and 2018
In millions of Mexican pesos, except for earnings per share amounts

Note

2020

2019

2018

113,989

119,685

134,523

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

Earnings per basic and diluted share, in Mexican pesos

(102,283)

(106,669)

11,706

(2,136)

(3,260)

1,183

7,493

525

(2,497)

(113)

(2,085)

(85)

5,323

(1,202)

13,016

(2,088)

(2,831)

4,264

12,361

774

(2,822)

(587)

(2,635)

(313)

9,413

(1,889)

4,121

7,524

3,123

6,605

998

4,121

1.48

919

7,524

3.12

2,117

(116,519)

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)

14,934

13,633

1,301

14,934

6.44

2,118

Weighted average outstanding shares (millions of shares)

2,113

The accompanying notes are an integral part of these 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, 2020, 2019 and 2018
In millions of Mexican pesos

Net consolidated income

Other comprehensive loss for the year:

Note

2020

2019

2018

4,121

7,524

14,934

Equity in other comprehensive income of associates and joint

ventures recognized through the equity method

Items that will not be reclassified to the statement of income:

Remeasurement of employee benefit obligations, net of taxes

19, 20

(30)

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

Total other comprehensive loss for the year

4, 20

614

(767)

(180)

765

(1,954)

(1,167)

(55)

(560)

(1,814)

(2,429)

Consolidated comprehensive income

3,941

6,357

12,505

Attributable to:

Controlling interest

Non-controlling interest

2,663

5,622

1,278

735

11,241

1,264

Comprehensive income for the year

3,941

6,357

12,505

The accompanying notes are an integral part of these 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, 2020, 2019 and 2018
In millions of Mexican pesos

Capital
stock

Share
premium

Retained
earnings

Other
reserves

controlling controlling

interest

Total

Non-

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

13,633

(14)

(55)

(2,392)

13,633

(2,392)

11,241

(14)

(55)

1,301

(37)

1,264

(981)

14,934

(2,429)

12,505

(981)

(14)

(50)

Balance as of January 1, 2019

6,052

9,106

17,235

5,734

38,127

5,036

43,163

Net income

Total other comprehensive loss for the year

Comprehensive income

Dividends declared

Reissuance of shares

Repurchase of shares

Acquisition of non-controlling interest

in subsidiary

Other

(58)

338

(385)

6,605

(2,778)

(190)

(247)

6,605

(983)

5,622

919

(184)

735

7,524

(1,167)

6,357

(2,778)

(1,182)

(3,960)

389

(443)

(190)

(247)

(4)

(7)

389

(443)

(194)

(254)

Balance as of December 31, 2019

6,045

9,059

20,625

4,751

40,480

4,578

45,058

Net income

Total other comprehensive loss for the year

Comprehensive income

Dividends declared

Reissuance of shares

Repurchase of shares

(11)

(35)

3,123

(2,713)

(460)

3,123

(460)

2,663

(2,713)

(46)

998

280

1,278

(730)

4,121

(180)

3,941

(3,443)

(46)

Balance as of December 31, 2020

$ 6,035

$ 9,025

$ 21,035

$ 4,291

$ 40,386

$ 5,126

$ 45,512

The accompanying notes are an integral part of these 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, 2020, 2019 and 2018
In millions of Mexican pesos

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

Increase (decrease) 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 sale 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

Cash flows collected (paid) in investment in associates and joint ventures

Loans collected from related parties

Notes receivable

Collection of notes

Restricted cash

2020

5,323

4,486

1,772

(657)

(89)

(426)

10,500

894

2,522

659

(2,641)

11,934

197

(2,543)

(45)

(921)

108

845

228

2019

2018

9,413

4,005

2,220

(3,634)

228

12,301

4,465

5,523

(9,523)

(2,765)

10,001

231

(3,123)

(35)

(661)

(1,312)

15,400

(147)

188

(1)

531

(219)

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

(2,249)

270

(26)

(7,120)

(5,805)

195

(1,124)

Net cash flows (used in) generated from investing activities

(2,088)

10,948

(15,489)

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 from subsidiaries to non-controlling interest

Acquisition of non-controlling interest in subsidiary

Repurchase of shares

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

The accompanying notes are an integral part of these consolidated financial statements.

13,044

(12,550)

(1,083)

(1,954)

(2,713)

(730)

(46)

(6,030)

3,816
(731)

7,059

10,144

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

9,137

(3,153)

(2,038)

(12)

(981)

(2)

2,990

(4,238)
(389)

8,795

4,168

64
64

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, 2020, 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, 2020, 2019 and 2018, the percentage of shares that traded on the MSE was 17.63%, 17.79%
and 17.91%, respectively (Note 22).

Alpek SAB is located at Avenida Gomez Morin Sur No. 1111, Col. Carrizalejo, San Pedro Garza Garcia, Nuevo Leon, Mexico and
operates productive plants located in Mexico, the United States of America, Canada, Argentina, Chile, Brazil and United Kingdom.

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

2020

a. Acquisition of Lotte Chemical PET business in UK

On October 29, 2019, the Company announced an agreement with Lotte Chemical Corporation (“Lotte”) for the purchase
of all the shares of Lotte Chemical UK Limited (“Lotte UK”), which is the owner of a PET production plant located in Wilton,
United Kingdom. The acquisition is aligned with Alpek’s growth strategy, expanding its reach outside the Americas and better
integrating its PTA and PET capabilities.

During the month of December 2019, the Company made advance payments for the acquisition of Lotte UK for a total
amount of US$69 (Note 9); however, the final acquisition of the business occurred on January 1, 2020, considered as the
moment from which Alpek gained control of Lotte UK, now called Alpek Polyester UK LTD (“Alpek Polyester UK”). During May
2020, the final adjustments to the purchase price were made resulting in a recovery of US$1 from the advance payments for
a final purchase price of US$68. Such recovery is presented as a cash inflow in the consolidated statement of cash flows in
the business acquisition line, together with the incorporation of Alpek Polyester UK’s cash held at the time of the acquisition.

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s consolidated financial statements include the financial information of the entity from the acquisition date.
The business acquired is included in the Polyester segment.

The acquisition of Alpek Polyester UK 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 purchase price allocation was determined in 2020, 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)
Property, plant and equipment
Current liabilities(2)
Net identifiable assets
Bargain purchase gain
Consideration paid

US$
48
63
43
(51)
103
(35)
68

(1) Current assets consist of cash and cash equivalents for US$6, accounts receivable for US$55 and others for US$2.

(2) Current liabilities consist of suppliers and other accounts payable of US$47 and provisions of US$4.

As a result of this transaction, a gain associated with the business combination was recognized for an amount of $657
(US$35), recorded in 2020 (Note 25). Under the terms of IFRS 3, the gain associated with the business combination was
mainly generated because the disposition took place due to strategic plans of the seller.

Impacts of COVID-19
As a result of the outbreak of coronavirus (COVID-19) and its global outreach, on March 11, 2020, the World Health Organization
declared the infectious disease a pandemic. Health actions have been taken in Mexico and other countries, including
those where Alpek operates, to limit the spread of this virus, including, but not limited to, social distancing and closure of
educational facilities (schools and universities), commercial establishments and non-essential businesses. The following is
a breakdown of the main implications for the Company:

• At the ordinary stockholders’ meeting of the Company on February 27, 2020, the stockholders agreed to declare
dividends in cash of approximately US$81.6. On May 21, 2020, the stockholders of the Company approved the revocation
of the dividend payment as one of the decisions taken in order to prioritize its financial stability due to the emergence of
COVID-19. It also approved delegating authority to the Board of Directors to monitor how the situation evolves, and at its
sole discretion, set a date and an amount for a dividend payment, for an amount equal to or less than the one previously
authorized.

• On March 18, 2020, the Company announced that its joint venture investment Corpus Christi Polymers extended the
pre-construction period of its plant through the end of 2020 to help optimize project costs and maximize returns to the
three joint venture shareholders. Alpek will not need to make any additional capital contributions during the extended
pre-construction period and the expected timeline to finalize construction will likely be extended by a similar time frame.

As of the date of issuance of the consolidated financial statements, management of the Company continues to take actions
to face the economic conditions of the market, as part of its risk-management strategy.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

c. Approval of the restructuring plan for the recovery of financing to M&G México

On September 4, 2020, the Company announced the final approval of the financial restructuring agreement between M&G
Polímeros México S.A. de C.V. (“M&G México”) and the majority of its creditors, including certain subsidiaries of Alpek. In
accordance with the agreement, as of the end of 2020, the Company started the recovery of US$160 of debt guaranteed by
a first and second degree lien on M&G México’s PET plant in Altamira by receiving a payment of US$40 in December. The
Company expects to recover all of its guaranteed debt with its respective interests in the next 5 years.

d. Agreement to acquire NOVA Chemicals’ styrenics business

On October 19, 2020, the Company announced that one of its subsidiaries has signed an agreement with NOVA Chemicals
Corporation (“NOVA Chemicals”) to acquire their expandable styrenics business by purchasing a 100% stake in BVPV Styrenics
LLC, which owns and operates two facilities in the United States. The first facility, located in Monaca, Pennsylvania, has an
annual capacity of 123,000 tons of EPS and 36,000 tons of ARCEL®, and a world-class research and development (R&D)
pilot plant; and a second facility located in Painesville, Ohio, with an annual capacity of 45,000 tons of EPS.

The value of the consideration amounted to US$50, which was paid in cash by transfer on the closing date of the transaction,
which occurred on October 30, 2020, and corresponds to the date the Company acquired control of the business.

The Company is in the process of determining the fair value of the net identifiable assets, which is expected to be completed
within 12 months from the acquisition date.

The consolidated statement of cash flows in 2020 presents the incorporation of BVPV Styrenics LLC’s operations into a
single line within the investment activity, net of cash acquired.

2019

e. 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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

f. 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 México”), 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; CGA, in turn, holds 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 México, 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 México, 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 22).

g. 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.

h. 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 6 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. As of December 31, 2020, the total amount of the credit facility was available.

2018

i. Secured financing to M&G México

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 México”) 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 México’s PET production plant in Altamira, Mexico, and has a two-year term. During the year ended
December 31, 2018, M&G México 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 México and approved by its
creditors. Additionally, Alpek holds the credit rights over a US$100 loan made to M&G México, which is secured by a first lien on
this same PET production facility in Altamira.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

j. 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.

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).

k. 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.

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:

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Inventories
Other current assets(1)
Recoverable taxes
Property, plant and equipment, net
Intangible assets(2)
Other non-current assets(3)
Current liabilities(4)
Provisions (5)
Net acquired assets
Bargain purchase gain
Consideration paid

US$
101
162
115
353
21
40
(87)
(50)
655
(220)
435

(1) Current assets consist of cash and cash equivalents for US$18, accounts receivable for US$98, recoverable taxes for US$45

and others for US$1.

(2) Intangible assets consist of customer relationships, which guarantee the existence and continuity of the business from the

moment of acquisition.

(3) Other non-current assets consist of an indemnification asset for US$23 and others for US$17. The indemnification asset

corresponds to the right of 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.

l. 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.

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:

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 income 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.

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 income.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

As of December 31, 2020, 2019 and 2018, the main companies that comprise the consolidated financial statements of the
Company are as follows:

Country (1)

USA

Spain
Argentina
Canada

Brazil
Brazil

Argentina
Chile
Brazil

Alpek, S. A. B. de C. V. (Holding Company)
Grupo Petrotemex, S. A. de C. V. (Holding Company)
DAK Americas, LLC
Dak Resinas Américas México, S. A. de C. V.
DAK Américas 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.
Companhia Petroquímica de Pernambuco (7)
Companhia Integrada Textil de Pernambuco (7)
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.
Alpek Polyester UK LTD (4)
BVPV Styrenics LLC (5)
Cogeneración de Energía Limpia de
Cosoleacaque, S. A. de C. V. (6)
Cogeneración de Altamira, S. A. de C. V. (6)

United Kingdom
USA

Shareholding (%) (2)
2019

2018

2020

100
100
100
100
100
50
91
93
100
100
51
50
100
100
100
100
100
100
100
100
100

-
-

100
100
100
100
100
50
91
93
100
100
51
50
100
100
100
100
100
100
100
-
-

-
-

100
100
100
100
100
50
91
93
100
100
51
50
100
100
100
100
100
100
100
-
-

100
100

Functional currency
Mexican peso
US dollar
US dollar
US dollar
US dollar
Argentine peso
US dollar
US dollar
US dollar
Brazilian real
Brazilian real
US dollar
US dollar
Mexican peso
US dollar
Argentine peso
Chilean peso
Brazilian real
Mexican peso
Mexican peso
Pound sterling
US dollar

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) Previously known as Lotte Chemical UK Limited (“Lotte UK”).

(5) Entity acquired in 2020. See Note 2d.

(6) Entities sold in 2019. See Note 2f.

(7) Entities acquired in 2018. See Note 2k.

2020 ALPEK ANNUAL REPORT

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 December 31, 2020, 2019 and 2018, there are no significant restrictions for investment in shares of subsidiary
companies mentioned above.

ii. Absorption (dilution) of control in subsidiaries

The effect of absorption (dilution) of control in subsidiaries, in example, an increase or decrease in the percentage of
control, is recorded in stockholders’ equity, directly in retained earnings, in the period in which the transactions that
cause such effects occur. The effect of absorption (dilution) of control is determined by comparing the book value of the
investment before the event of dilution or absorption against the book value after the relevant event. In the case of loss
of control, the dilution effect is recognized in income.

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 income. 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
income 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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

v. Joint ventures

Joint arrangements are those where there is joint control since the decisions over relevant activities require the
unanimous consent of each one of the parties sharing control.

Investments in joint arrangements are classified in accordance with the contractual rights and obligations of each
investor such as: joint operations or joint ventures. When the Company holds the right over assets and obligations for
related assets under a joint arrangement, this is classified as a joint operation. When the company holds rights over net
assets of the joint arrangement, this is classified as a joint venture. The Company has assessed the nature of its joint
arrangements and classified them as joint ventures. Joint ventures are accounted for by using the equity method applied
to an investment in associates.

c) Foreign currency translation

i. Functional and presentation currency

The amounts included in the financial statements of each of the Company’s subsidiaries, associates and joint ventures
should be measured using the currency of the primary economic environment in which the entity operates (the
“functional currency”). The consolidated financial statements are presented in Mexican pesos.

When there is a change in the functional currency of one of the subsidiaries, according to International Accounting Standard
21, Effects of Changes in Foreign Exchange Rates (“IAS 21”), this change is accounted for prospectively, translating at the date
of the functional currency change, all assets, liabilities, equity, and income items at the exchange rate of that date.

ii. Transactions and balances

Transactions in foreign currencies are translated into the functional currency using the foreign exchange rates prevailing
at the transaction date or valuation date when the amounts are re-measured. Gains and losses resulting from the
settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies at the closing exchange rates are recognized as foreign exchange gain or loss in the consolidated statement
of income, except for those which are deferred in comprehensive income and qualify as cash flow hedges.

Changes in the fair value of securities or monetary financial assets denominated in foreign currency classified as available
for sale are divided between fluctuations resulting from changes in the amortized cost of such securities and other
changes in value. Subsequently, currency fluctuations are recognized in income and changes in the carrying amount
arising from any other circumstances are recognized as part of comprehensive income.

iii. Translation of subsidiaries with recording currency other than the functional currency

The financial statements of foreign subsidiaries, having a recording currency different from their functional currency
were translated into the functional currency in accordance with the following procedure:

a) The balances of monetary assets and liabilities denominated in the recording currency were translated at the closing

exchange rate.

b) To the historical balances of monetary assets and liabilities and stockholders’ equity translated into the functional
currency the movements that occurred during the period were added, which were translated at the historical
exchange rates. In the case of the movements of non-monetary items recognized at fair value, which occurred during
the period, stated in the recording currency, these were translated using the historical exchange rates in effect on the
date when the fair value was determined.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 income 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.

The primary exchange rates in the various translation processes are listed below:

Local currency to Mexican pesos

Country
United States
Argentina
Brazil
Chile
United Kingdom

Local Currency
U.S. dollar
Argentine peso
Brazilian real
Chilean peso
Pound sterling

Closing exchange rate
at December 31,
2019
18.85
0.31
4.69
0.03
24.95

2018
19.68
0.52
5.07
0.03
25.09

2020
19.95
0.24
3.84
0.03
27.26

Average annual
exchange rate
2019
19.30
0.40
4.90
0.03
24.68

2018
20.15
0.53
5.18
0.03
25.53

2020
21.59
0.30
4.12
0.03
27.87

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2020.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2020, 2019 and 2018, 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, 2020, 2019 and 2018, the Company has not made any of the irrevocable designations described above.

Impairment of financial assets
The Company uses an 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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE 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.

Other financial instruments

b.
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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE 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, 2020, 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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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
Leases, determined based on the definition of IFRS 16, for which the Company acts as lessor, are classified as financial or
operating. As long as the terms of the lease transfer substantially all the risks and rewards of the property to the lessee, the
contract is classified as a finance lease. The other leases are classified as operating leases.

Income from operating leases is recognized in straight line during the corresponding lease term. Initial direct costs incurred
in negotiating and arranging and operating lease are added to the carrying amount of the leased asset and are recognized
straight- line over the term of the lease. The amounts for finance leases are recognized as accounts receivable for the
amount of the Company’s net investment in the leases.

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:

Indefinite useful life
These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2020,
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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Licenses
Licenses acquired in a separate transaction, are recorded at acquisition cost, while those acquired in a business combination
are recognized at fair value at acquisition date.

Licenses that have a defined useful life are presented at cost less accumulated amortization. Amortization is recorded by the
straight-line method over its estimated useful life.

The acquisition of software licenses is capitalized based on the costs incurred to acquire and use the specific software.

Software development
Costs associated with the maintenance of software are recorded as expenses as incurred.

Development costs directly related with the design and tests of unique and identifiable software products controlled by the
Company are recorded as intangible assets when they fulfill the following criteria:

- Technically, it is possible to complete the intangible asset so that it may be available for its use or sale;
- The intangible asset is to be completed for use or sale;
- The ability to use or sell the intangible asset;
- The way in which the intangible asset is to generate probable future economic benefits;
- The availability of adequate technical, financial or other type of resources, to complete the development and use or sell

the intangible asset; and

- The ability to reliably calculate the disbursement attributable to the intangible asset during its development.

The amount initially recognized for an intangible asset generated internally will be the sum of disbursements incurred from
the moment the element fulfills the conditions for recording, as established above. When no intangible asset internally
generated may be recognized, the disbursements for development are charged to income in the period they are incurred.

m) Goodwill

Goodwill represents the excess of the acquisition cost of a subsidiary over the Company’s equity in the fair value of the
identifiable net assets acquired, determined at the date of acquisition, and is not subject to amortization. Goodwill is shown
under goodwill and intangible assets and is recognized at cost less accumulated impairment losses, which are not reversed.
Gains or losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

n) Impairment of non-financial assets

Assets that have an indefinite useful life, for example, goodwill, are not depreciable and are subject to annual impairment
tests. Assets that are subject to amortization are reviewed for impairment when events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to
sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels at which separately
identifiable cash flows exist (cash generating units). Non-financial long-term assets other than goodwill that have suffered
impairment are reviewed for possible reversal of the impairment at each reporting date.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

i. Revenue from the sale of goods and products
Contracts with customers are formalized by commercial agreements complemented by purchase orders, whose costs
comprise the promises to produce, distribute and deliver goods based on the contractual terms and conditions set forth,
which do not imply a significant judgment to be determined. When there are payments related to obtaining contracts, they
are capitalized and amortized over the term of the contract.

Performance obligations held by the Company are not separable, and are not partially satisfied, since they are satisfied
at a point in time, when the customer accepts the products. Moreover, the payment terms identified in most sources of
revenue are short-term, with variable considerations including discounts given to customers, without financing components
or guarantees. These discounts are recognized as a reduction in revenue; therefore, the allocation of the price is directly on
the performance obligations of production, distribution and delivery, including the effects of variable consideration.

The Company recognizes revenue at a point in time, when control of sold goods has been transferred to the customer, which
is given upon delivery of the goods promised to the customer according to the negotiated contractual terms. The Company
recognizes an account receivable when the performance obligations have been met, recognizing the corresponding revenue;
moreover, the considerations received before completing the performance obligations of production and distribution are
recognized as customer advances.

Dividend income from investments is recognized once the rights of stockholders to receive this payment have been established
(when it is probable that the economic benefits will flow to the Company and the revenue can be reliably determined).

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, 2020, 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.
In the current year, the Company has applied a number of new and amended IFRS and interpretations issued by the
International Accounting Standards Board (“IASB”) that are mandatorily effective for an accounting period that begins on or
after January 1, 2020. The conclusions related to their adoption are described as follows:

Amendments to IFRS 16, Rent Concessions Related to COVID-19
The amendments introduce a practical expedient that provides lessees the option not to assess whether a rent concession
that meets certain conditions is a lease modification. The practical expedient is applicable to rent concessions occurring as
a direct consequence of the COVID-19 pandemic and only if all of the following conditions are met:

a) The change in the lease payments results in revised consideration for the lease that is substantially the same as, or less

than, the consideration for the lease immediately preceding the change;

b) Any reduction in lease payments affects only payments originally due on or before June 30, 2021; and
c) There is no substantive change to other terms and conditions of the lease.

The Company determined that the impacts due to the implementation of these amendments in its consolidated financial
statements were not significant, as only one of its subsidiaries received rental concessions related to COVID-19. Its accounting
treatment was aligned with the practical expedient previously described.

Additionally, the Company adopted the following amendments, which did not have any effects on the consolidated financial
statements in the current year:

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

• Amendments to IAS 1 and IAS 8, Definition of Materiality
• Amendments to IFRS 3, Definition of a Business
• Amendments to IFRS 4, Insurance Contracts in the application of IFRS 9, Financial Instruments
• Amendments to IFRS 9, IAS 39 and IFRS 7, Interest Rate Benchmark Reform
• Amendments to the IFRS’s conceptual framework

ii. New and revised IFRS in use but not yet effective
At the date of authorization of these financial statements, the Company has not applied the following new and revised IFRS
that have been issued but are not yet effective. The Company does not expect that the adoption of the following standards
will have a material impact on the consolidated financial statements in future periods, considering that have no significant
applicability:

•
•
•
•
•

Amendments to IAS 1, Classification of Liabilities as Current or Non-current (2)
Amendments to IAS 16, Property, Plant and Equipment Proceeds before Intended Use (1)
Amendments to IAS 37, Cost of Fulfilling an Onerous Contract (1)
Amendments to IFRS 9, Financial Instruments (1)
IFRS 17, Insurance Contracts (2)

(1) Effective for annual reporting periods beginning on January 1, 2022

(2) Effective for annual reporting periods beginning on January 1, 2023

Additionally, the Company is continuously monitoring the progress of the reference interest rate reform project that modifies
the regulations as mentioned below:

• Phase 2 of the benchmark interest rate reform (IBOR- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

Interbank benchmark rates such as LIBOR, EURIBOR and TIBOR, which represent the cost of obtaining unsecured funds,
have been questioned about their viability as long-term financing benchmarks. The changes in the reform to the reference
interest rates in its phase 2 refer to the modifications of financial assets, financial liabilities and lease liabilities, requirements
for accounting coverage and disclosure of financial instruments. These improvements are effective as of January 1, 2021 with
retrospective application, without the need to redo the comparative periods.

Regarding the modification of financial assets, financial liabilities and lease liabilities, the IASB introduced a practical
expedient that involves updating the effective interest rate.

On the other hand, regarding hedge accounting, the hedge relationships and documentation must reflect the modifications
to the hedged item, the hedging instrument and the risk to be hedged. Hedging relationships must meet all criteria for
applying hedge accounting, including effectiveness requirements.

Finally, regarding disclosures, entities should disclose how they are managing the transition to alternative reference rates
and the risks that may arise from the transition; in addition, they must include quantitative information on financial assets
and non-derivative financial liabilities, as well as non-derivative financial instruments, that continue under the reference
rates subject to the reform and the changes that have arisen to the risk management strategy.

The Company is in the process of evaluating the impacts arising from the application of these amendments.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company’s activities expose it to various financial risks: market risk (including exchange rate risk, price risk and interest rate
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 addition, due to the nature of the industries in which it participates, the Company has performed
hedges of input prices with derivative financial instruments.

Alfa has a Risk Management Committee (RMC), comprised of the Board’s Chairman, the Chief Executive Officer (“CEO”), Chief
Financial Officer (“CFO”) and a Risk Management Officer (“RMO”) acting as technical secretary. The RMC reviews derivative
transactions proposed by the subsidiaries of Alfa, including Alpek, in which a potential loss analysis surpasses US$1. This
Committee supports both the CEO and the President of Board of Alfa. All new derivative transactions which the Company
proposes to enter into, as well as the renewal or cancellation of derivative arrangements, must be approved by both Alpek’s and
Alfa’s CEO, according to the following schedule of authorizations:

Maximum possible loss
US$1

Individual
transaction

Annual cumulative
transactions

Chief Executive Officer of the Company
Risk Management Committee of Alfa
Finance Committee
Board of Directors of Alfa

1
30
100
>100

5
100
300
>300

The proposed transactions must meet certain criteria, including that the hedges are lower than established risk parameters, and
that they are the result of a detailed analysis and properly documented. Sensitivity analysis and other risk analyses should be
performed before the operation is entered into.

Alfa’s risk management policy indicates that hedging positions should always be less than the projected exposure to allow
an 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

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Capital management
The Company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can
continue to provide returns to stockholders and benefits to other stakeholders, as well as maintaining an optimal capital
structure to reduce the cost of capital.

To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to stockholders, return
equity to stockholders, issue new shares or sell assets to reduce debt.

Alpek reviews capital based on a leverage ratio. This percentage is calculated by dividing total liabilities by total stockholders’ equity.

The financial ratio of total liabilities/total equity was 1.34, 1.28 and 1.77 as of December 31, 2020, 2019 and 2018, respectively,
resulting in a leverage ratio that meets the Company’s management and risk policies.

Financial instruments by category
The following are the Company’s financial instruments by category.

As of December 31, 2020, 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 assets

Financial assets measured at fair value through profit or loss

Derivate financial instruments(1)

Financial liabilities measured at amortized cost:

Debt
Trade and other accounts payable
Lease liability

Financial liabilities measured at fair value:
Derivative financial instruments(1)

2020
10,144
12

12,726
4,518

524
27,924

30,652
17,991
3,010

As of December 31,
2019
7,059
216

12,046
4,806

77
24,204

28,810
14,955
3,368

2018
4,168
3

17,287
5,372

30
26,860

40,130
24,217
-

66
51,719

532
47,665

1,330
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 payable, current debt and other current liabilities approximate their fair value, due to their short maturity. The net
carrying amount of these accounts represents the expected cash flows to be received as of December 31, 2020, 2019 and 2018.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below:

As of December 31, 2020

As of December 31, 2019

As of December 31, 2018

Carrying
amount

Fair
value

Carrying
amount

Fair
value

Carrying
amount

Fair
value

Financial assets:

Non-current accounts receivable

$ 3,942

$ 3,941

$ 4,127

4,121

4,756

4,745

Financial liabilities:

Non-current debt

30,335

32,701

28,261

29,529

30,317

30,211

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, 2020, 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, 2020:

Financial assets
Financial liabilities
Foreign exchange financial position

MXN

13,045
13,197

(152)

USD

EUR

$ 26,960
34,840
$ (7,880)

906
260
646

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 $739 on the
consolidated statement of income and stockholders’ equity.

Financial instruments to hedge net investments in foreign transactions
Beginning March 1, 2018, the Company designated certain non-current debt instruments as hedging instruments to net
investments in foreign transactions, in order to mitigate the variations in exchange rates arising between the functional currency
for such transactions and the functional currency of the holding or sub-holding company that maintains these investments.

The Company formally designated and documented each hedging relationship establishing objectives, strategy to hedge the
risk, the identification of the hedging instrument, the hedged item, the nature of the risk to be hedged, and the methodology
to assess the effectiveness. Given that the exchange rate hedging relationship is clear, the method that the Company used
to assess the effectiveness consisted of a qualitative effectiveness test by comparing the critical terms between the hedging
instruments and the hedged items. The hedging effectiveness results confirm that the hedging relationships are highly
effective due to the economic relationship between the hedging instrument and the hedged items.

The hedge will be effective as long as the notional debt designated as a hedging instrument is equal to or less than the
value of the net assets of the covered foreign operation. On the other hand, when the value of the net assets of the foreign
operation is less than the notional value of the designated debt, the Company rebalances the hedging relationship and
recognizes the ineffectiveness in the income statement.

As of December 31, 2020, 2019 and 2018, Alpek maintains the following hedging relationships:

Holding
Alpek SAB

Functional
Currency
MXN

As of December 31, 2020

Hedging
Instrument
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate

Notional
Value

US$

267
22

Holding
Alpek SAB

Functional
Currency
MXN

US$ 361

As of December 31, 2019

Hedging
Instrument
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate

Notional
Value
US$ 72

210
22

US$ 304

Hedged
Item
Indelpro
Temex
Dak Americas Ms
Dak Resinas Americas
Akra Polyester

Net assets of the
hedged item

US$

232
69
223
98
159
781

Hedged
Item
Indelpro
Temex
Dak Americas Ms
Dak Resinas Americas
Akra Polyester

Net assets of the
hedged item

US$

215
78
196
129
203
821

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Holding
Alpek SAB

Functional
Currency
MXN

As of December 31, 2018

Hedging
Instrument
Senior Notes 144A fixed rate
Senior Notes 144A fixed rate
Bank loan, LIBOR +1.10(1)
Bank loan, LIBOR +1.25
Bank loan, LIBOR +1.25

Notional
Value
US$ 2

60
150
180
110

US$ 502

Hedged
Item
Indelpro
Temex
Dak Americas Ms
Dak Resinas Americas
Akra Polyester

Net assets of the
hedged item

US$

219
124
179
91
261
874

For the years ended December 31, 2020 and 2019, and from the date of designation until December 31, 2018, the Company’s
average hedging ratio amounted to 49.5%, 59.3% and 55.2%, respectively. Therefore, the exchange rate fluctuation generated
by the hedging instruments for the years ended December 31, 2020 and 2019 and from the date of designation until
December 31, 2018 amounted to a net (loss) income of $(403), $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, 2020, 2019 and 2018, the Company holds forwards (EUR/USD) to hedge different needs. For 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. In 2019, the EUR/USD
forwards were used to hedge revenues received in Euros in an entity with a functional currency of USD, for which a highly
probable transaction related to income received in foreign currency (euros) was documented. For 2020, a similar strategy
was carried out with these instruments, but now these forwards are mirrored to an entity with the functional currency of
pound sterling (GBP), because part of its revenue is received in euros and part of its purchases are made in US dollars.
Therefore, a highly probable forecasted transaction related to budgeted sales and purchases in each corresponding 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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are
mentioned below:

As of December 31, 2020

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

As of December 31, 2019

Characteristics
Currency
Notional amount
Strike (average)
Maturity

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
6
EUR
1.1756 EUR/USD
Monthly through
March 31, 2020

$ 1
1
-
100%

Forwards EUR/USD
EUR
39.9
1.2169 EUR/USD
Monthly through
December 30, 2022

$ (11.9)
(11.9)
-
(11.9)
11.9
(13.3)

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

Forwards USD/MXN
16
USD
20.79 MXN/USD
Weekly through
February 27, 2019
17
17
(8)
100%

As of December 31, 2020, the Company held EUR/USD forwards that were contracted with the objective of reducing transaction
costs; therefore, for accounting purposes and for hedge evaluation, derivatives are divided into synthetic derivatives to hedge
each hedged item individually (revenue in euros and purchases in dollars). The Company determined that they are highly
effective according to the characteristics and modeling of both hedged items, resulting in 100% effectiveness. Furthermore,
both the credit profile of the Company and the counterparty are adequate and are not expected to change in the medium
term, so the credit risk component is not considered to dominate the hedging relationship.

2020 ALPEK ANNUAL REPORT

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 December 31, 2019, 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%. The method used by the Company to evaluate effectiveness is a qualitative
evaluation comparing the key terms of the hedging instrument and the hedged item.

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 for 2020, 2019 and 2018 is 100%, 86% and 86%, respectively. 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.

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, 2020, 2019 and 2018, no ineffectiveness was recognized in profit or loss.

(ii) Price risk

In carrying out its activities, the Company depends on the supply of raw materials provided by its suppliers, both in Mexico
and abroad, among which are intermediate petrochemicals, principally.

In recent years, the price of certain inputs has shown volatility, especially those related to oil and natural gas.

In order to fix the selling prices of certain of its products, the Company has entered into agreements with certain customers.
At the same time, it has entered into transactions involving derivatives on natural gas that seek to reduce price volatility of
the prices of this input.

Additionally, the Company has entered into derivative financial instruments transactions to hedge purchases of certain raw
materials, since these inputs have a direct or indirect relationship with the prices of its products.

The derivative financial operations have been privately contracted with various financial institutions, whose financial
strength was highly rated at the time by rating agencies. The documentation used to formalize the contract operations is
that based generally on the “Master Agreement”, generated by the “International Swaps & Derivatives Association” (“ISDA”),
which is accompanied by various accessory documents known in generic terms as “Schedule”, “Credit Support Appendix”
and “Confirmation”.

Regarding natural gas, Pemex is the only supplier in Mexico. The selling price of natural gas is determined based by the price
of that product on the “spot” market in South Texas, USA, which has experienced volatility. For its part, the Mexican Electric
Commission is a decentralized public company in charge of producing and distributing electricity in Mexico. Electricity rates
have also been influenced by the volatility of natural gas, since most power plants are gas-based.

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 2020, 2019 and 2018 was
$2.0, $2.6 and $3.2 US dollars, respectively.

As of December 31, 2020, 2019 and 2018, the Company had hedges of natural gas prices for a portion expected of consumption
needs in Mexico and the United States.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. In the case of PET, the Company uses these derivatives to hedge against sales related to this commodity. 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 January 2023.
Raw material derivatives are mirrored to DAK Americas and DAK Resinas Américas México and Alpek Polyester UK, as the
risk lies in such entities, and derivative financial instruments are contracted by Grupo Petrotemex; this process is carried out
through the formalization of internal derivatives to be able to apply hedging accounting.

These derivative financial instruments have been classified as cash flow hedges for accounting purposes. In this sense,
management has documented, as a hedged item, a highly probable transaction in relation to the budget for purchases
of these commodities. The conditions of the derivative financial instruments and the considerations of their valuation as
hedging instruments are mentioned below:

Characteristics

Total notional

Units

Price received

As of December 31, 2020

Natural Gas

Paraxylene

Swaps

3,474,000

MMBtu

Swaps

338,750

PTA

Swaps

2,000

Ethylene

Swaps

37,500,000

PET

Swaps

220

MEG

Swaps

Ethane

Swaps

184,500

600,000

gal

Fair value

Price paid (average)

$2.73/MMBtu

$635/MT

$627/MT

$0.1567/lb

$910/Lbs

$501/MT

$0.21/gal

Maturity (monthly)

February 2022 January 2023 January 2021 January 2022

January 2021 January 2023 January 2021

Net position of the swap (1)

$(5.4)

$121.5

$(6.1)

$98.3

$0.8

$260.5

$(0.2)

Ineffectiveness recognized

in the statement of income

Change in the fair value to

measure ineffectiveness

(4.2)

132.7

Reclassification from

OCI to profit or loss

Balance recognized in OCI,

(109.5)

net of reclassifications

(5.4)

231

(6.1)

103.9

39.9

58.4

0.8

273.3

2.1

(0.2)

258.4

Change in the fair value to

measure ineffectiveness

of hedge item

Effectiveness test results

4.2

99.91%

(132.8)

99.95%

6.1

99.96%

(103.9)

99.95%

(0.8)

99.96%

(273.4)

99.94%

0.4

99.96%

(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.

Additionally, as of December 31, 2020, the Company maintains an additional balance in other comprehensive income for
an amount of $31.2, due to the fact that derivatives contracted for hedging gasoline were settled in advance. Given that the
forecasted transaction that was being hedged, future purchases, is still expected to occur, such balance will be recognized in
the income statement as the transaction occurs.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Characteristics

Total notional

Units

Price received

As of December 31, 2019

Natural Gas Paraxylene

Swaps

7,800,000

MMBtu

Swaps

327,250

PTA

Swaps

22,500

Ethylene

Swaps

MEG

Swaps

Ethane

Swaps

110,000,000

58,000

9,400,000

gal

Fair Value

Price paid (average)

$4.35/MMBtu

$856/MT

$627/MT

$0.17/lb

$564/MT

$0.22/gal

Maturity (monthly)

Net position of the swap (1)

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

December

2020

$(302.2)

$(154.6)

2020

$8.3

2020

$(4.1)

2020

$4.5

2020

$(9.0)

(302)

(181)

(120)

(302)

99.98%

(34)

99.97%

(14)

(6)

(2)

(3)

(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.

Characteristics

Total notional

Units

Price received

Price paid (average)

Maturity (monthly)

Net position of the swap (1)

Ineffectiveness recognized in

the statement of income

Change in the fair value to

measure ineffectiveness

Balance recognized in OCI,

net of reclassifications

Effectiveness test results

As of December 31, 2018

Natural Gas Paraxylene

Naphtha

Ethylene

Swaps

17,288,760

297,200

MMBtu

Swaps

10,500

Swaps

MEG

Swaps

Ethane

Swaps

118,000,000

33,500

10,200,000

gal

Fair Value

$4.35 USD/MMBtu $1,057/MT

$459/MT

$0.21/lb

$741/MT

$0.32/gal

December

September

December

2024

$ (478)

2019

$ (710)

2019

$ (3)

200

(803)

(478)

99.00%

(710)

99.82%

(3)

2019

$ (12)

(28)

(12)

2019

$ (70)

(70)

2019

$ (2)

(2)

99.82%

99.60%

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.

The change in the fair value of the derivative financial instruments recognized in OCI for the year ended December 31, 2020,
2019 and 2018 is $885, $998 and $(721), respectively.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2020
Natural Gas
Paraxylene
Ethanol
Ethylene
MEG
PTA
PET
Forward
Total

As of December 31, 2019
Natural Gas
Paraxylene
Ethanol
Ethylene
MEG
PTA
Forward
Total

Asset

Liability
$

Total

-
164
-
98
261
-
1
-
524

Asset

29
29
-
4
5
9
1
77

(5)
(42)
(1)
-
-
(6)
-
(12)
(66)

(331)
(184)
(9)
(8)
-
-
-
(532)

Liability
$

(5)
122
(1)
98
261
(6)
1
(12)
458

Total

(302)
(155)
(9)
(4)
5
9
1
(455)

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 determined that the risk component is separable, it can be reliably measured and is also
highly correlated.

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, 2020, 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, pta and pet for 2020, 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)
PET

2020
6%
54%
58%
2%
5%
0.2%

2019
40%
79%
54%
2%
5%
-

2018
30%
72%
44%
33%
-
-

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2020,
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, 2020, 95% of the financing is denominated at a fixed rate, and 5% at a variable rate.

As of December 31, 2020, 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 $14.

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 hedging.

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

Interest rate swap

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

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.

2020 ALPEK ANNUAL REPORT

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2020, 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, 2020, 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.

2020 ALPEK ANNUAL REPORT

100

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2020

Suppliers and other accounts payable
Current and non-current debt (excluding debt issuance costs)
Derivative financial instruments

As of December 31, 2019

Suppliers and other accounts payable
Current and non-current debt (excluding debt issuance costs)
Derivative financial instruments

As of December 31, 2018

Suppliers and other accounts payable
Current and non-current debt (excluding debt issuance costs)
Derivative financial instruments

17,991
1,508
66

14,955
1,700
528

24,217
11,333
1,047

23,252
-

-
22,370
4

-
34,082
283

11,796
-

-
11,541
-

-
-
-

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, 2020, 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.

2020 ALPEK ANNUAL REPORT

101

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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 of impairment exist.

2020 ALPEK ANNUAL REPORT

102

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 such reporting 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 it 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.

f) Estimation of the discount rate to calculate the present value of future minimum lease payments

The Company estimates the discount rate to be used in determining the lease liability, based on the incremental borrowing
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 parent), or at the level of each subsidiary. Finally, for real estate leases, or, in which there is significant and observable
evidence of the residual value, the Company estimates and evaluates an adjustment for characteristics of the underlying asset,
taking into account the possibility that said asset is granted as collateral or guarantee against the risk of default.

g) Estimation of the lease term

The Company defines the lease term 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 defined non-cancellable 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 management’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.

2020 ALPEK ANNUAL REPORT

103

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

The cash and cash equivalents are comprised as follows:

Cash on hand and in banks
Short-term bank deposits
Total cash and cash equivalents

2020
7,016
3,128
10,144

As of December 31,
2019
5,413
1,646
7,059

2018
1,559
2,609
$ 4,168

Restricted cash
At December 31, 2020, 2019 and 2018, the Company has restricted cash of approximately $12, $216 and $3, respectively. As of
December 31, 2020, the decrease in the balance as compared to the prior year is due to the fact that during 2019, the Company
entered into an agreement in which it committed to hold restricted cash for the acquisition of machinery and equipment; during
2020 such machinery and equipment were acquired and the majority of the funds subject of this agreement were released. 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:

Trade accounts receivable
Trade and other accounts receivable from related
parties (Note 28)
Recoverable taxes
Notes receivable
Interest receivable
Sundry debtors
Allowance for impairment of trade and
other accounts receivable
Current portion

2020
13,985

588
4,324
532
1
334

As of December 31,
2019
12,751

585
4,462
485
200
511

2018
18,139

712
4,647
506
16
473

(2,714)
17,050

(2,486)
16,508

(2,559)
$ 21,934

2020 ALPEK ANNUAL REPORT

104

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The changes in the impairment allowance for trade and other receivables in 2020, 2019 and 2018, with the new expected losses
model used by the Company, are as follows:

For the year ended December 31, 2020

Customers or

Default

Loss given

balance –

Cancellations

Opening

Ending

balance –

customer

groups

probability

default

Impairment

Increases in

in the

Translation

Impairment

range

allowance

the allowance

allowance

effect

allowance

Grupo Petrotemex (1)

0% - 80%

0% - 34%

$ (2,320)

(122) $

39 $

(118)

(2,521)

Grupo Unimor

Grupo Styropek (1)

Polioles

Indelpro and other

Total

5.43%

1.92%

50%

0%- 10%

0% - 10%

0.47%

(71)

(28)

(67)

(26)

(1)

(2)

(99)

(28)

(66)

$ (2,486)

(149) $

41 $

(120)

(2,714)

(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, 2019

Customers or

Default

Loss given

balance –

Cancellations

Opening

Ending

balance –

customer

groups

probability

default

Impairment

Increases in

in the

Translation

Impairment

range

allowance

the allowance

allowance

effect

allowance

Grupo Petrotemex (1)

0.03% - 2.36%

10% - 45%

$ (2,423)

(114)

109

108

$ (2,320)

Grupo Unimor

Grupo Styropek (1)
Polioles

Indelpro and other

Total

5.43%

50%

0.01% - 0.82%

10% - 35%

1.75%

0% - 10%

1.20%

(37)

(25)

(74)

(37)

(1)

(7)

(71)

(28)

(67)

$ (2,559)

(152)

123

102

$ (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

Default

Loss given

balance –

Cancellations

Opening

Ending

balance –

customer

groups

probability

default

Impairment

Increases in

in the

Translation

Impairment

range

allowance(1)

the allowance

allowance

effect

allowance

Grupo Petrotemex (1)

0% - 0.24%

10.30% - 35.00% $ (2,352)

(107)

Grupo Unimor

Grupo Styropek (1)
Polioles

3.15%

50.00%

0% - 100%

0% - 92.05%

0.01% - 0.14%

0% - 10.00%

Indelpro and other

1.68%

1.92%

(24)

(61)

(36)

(1)

(14)

(3)

(1)

(2,423)

(37)

(25)

(74)

Total

$ (2,437)

(158)

(4)

$ (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 impairment of trade and other accounts receivable as of January 1, 2018.

2020 ALPEK ANNUAL REPORT

105

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 December 31, 2020, 2019 and 2018, the Company has guaranteed accounts receivable of $2,184, $1,635 and $2,158,
respectively.

The net change in the allowance for impairment of trade and other receivables for $228 for the year ended December 31, 2020,
was mainly due to the increase in the default probability in some customer groups, as well as the translation effect. For its part,
the variation in the allowance for impairment of trade and other receivables of $(73) for the year ended December 31, 2019, was
mainly due to the decrease in the probability of default allocated to certain customers with respect to the beginning of the year.
The variation in the allowance for impairment of trade and other receivables of $102 for 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 of M&G México’s PET production plant in
Altamira, Mexico, 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.

8. INVENTORIES

Finished good
Raw material and other consumables
Materials and tools
Production in progress

2020
8,189
6,896
1,912
450
17,447

As of December 31,
2019
10,203
5,606
1,637
520
17,966

2018
13,632
8,916
1,423
540
24,511

For the years ended December 31, 2020, 2019 and 2018, a provision amounting to $72, $17 and $15, respectively, related to
damaged, slow-moving and obsolete inventory was recognized in the consolidated statement of income.

At December 31, 2020, 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

2020
$ 442
15
$ 457

As of December 31,
2019
1,785
16
1,801

2018
$ 469
38
$ 507

(1) This item mainly consists of advance payments for raw materials and prepaid insurance. Additionally, as of December 31,

2019, it includes $1,300 related to the advance payment for the acquisition of Alpek Polyester UK, as described in Note 2a.

2020 ALPEK ANNUAL REPORT

106

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10. PROPERTY, PLANT AND EQUIPMENT, NET

Land

Buildings and
constructions

Machinery
and

equipment Vehicles

$ 3,494
-
369
(11)
-
(14)

-
-

4,616
2
2,592
-
(1)
(203)

(390)
268

$ 23,998
71
3,249
(35)
(16)
(160)

(2,052)
1,177

3,838

6,884

26,232

62
2
-
(3)
-
(3)

(15)
16

Furniture,
lab and
information
technology
equipment

273
4
64
-
-
1

(85)
93

Construction Other
fixed
assets

in
progress

Total

8,114
2,584
386
(339)
(318)
(50)

$ 978 $ 41,535
2,689
6,660
(392)
(335)
(428)

-
(4)
-
1

-
(1,708)

-
-

(2,542)
(154)

350

8,669

1,001

47,033

3,838
-

18,003
(11,119)

73,914
(47,682)

328
(269)

1,914
(1,564)

8,669
-

1,001

107,667
- (60,634)

$ 3,838

6,884

26,232

$ 350

$ 8,669

$ 1,001 $ 47,033

$ 3,838
-
3
-
(18)
-
(91)

-
-

6,884
-
122
(1)
(1,083)
(23)
(318)

(279)
508

26,232
9
444
(59)
(7,736)
(6)
(1,105)

(2,440)
7,752

59
-
1
-
-
-
(4)

(13)
15

$ 350
1
4
(1)
(3)
-
(23)

$ 8,669
3,234
6
(4)
(250)
-
(148)

$ 1,001 $ 47,033
3,365
580
(71)
(9,090)
(29)
(1,740)

121
-
(6)
-
-
(51)

(84)
87

-
(8,670)

-
158

(2,816)
(150)

$ 3,732

5,810

23,091

331

$ 2,837

$ 1,223 $ 37,082

3,732
-

16,724
(10,914)

70,632
(47,541)

323
(265)

1,881
(1,550)

2,837
-

1,223
-

97,352
(60,270)

$ 3,732

5,810

23,091

331

$ 2,837

$ 1,223 $ 37,082

$ 3,732
4
159
-
-
61

-
-

5,810
1
5
(1)
(11)
(138)

(315)
93

23,091
8
1,039
(52)
(2)
897

(2,710)
1,617

58
1
-
(1)
-
7

(17)
64

331
2
3
(1)
-
32

(92)
118

$ 2,837
2,506
158
(29)
(2)
(123)

$ 1,223 $ 37,082
2,665
1,364
(107)
(15)
760

143
-
(23)
-
24

-
(1,933)

-
5

(3,134)
(36)

$ 3,956

5,444

$ 23,888

112

393

$ 3,414

$ 1,372 $ 38,579

3,956
-

16,854
(11,410)

78,944
(55,056)

379
(267)

2,103
(1,710)

3,414
-

1,372
-

107,022
(68,443)

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
Ending balance as of
December 31, 2018
As of December 31, 2018
Cost
Accumulated depreciation
Net carrying amount as of
December 31, 2018
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
Net carrying amount as of
December 31, 2019
For the year ended
December 31, 2020
Opening balance
Additions
Additions for business acquisitions
Disposals
Impairment
Restatement and translation effect
Depreciation charges recognized
in the year
Transfers
Ending balance as of
December 31, 2020
As of December 31, 2020
Cost
Accumulated depreciation
Net carrying amount as of

December 31, 2020

$ 3,956

5,444

$ 23,888

112

393

$ 3,414

$ 1,372 $ 38,579

2020 ALPEK ANNUAL REPORT

107

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Depreciation expenses of $3,075, $2,742 and $2,483 were recorded in cost of sales, $16, $31 and $13, in selling expenses and
$43, $43 and $46, in administrative expenses in 2020, 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.

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.

a) The right of use recognized in the consolidated statement of financial position as of December 31, 2020 and 2019, is integrated
as follows:

Land

Buildings

Machinery
and equipment

Net book value:
Balance as of December 31, 2019 $
Balance as of December 31, 2020 $
Depreciation for the year 2019
Depreciation for the year 2020

$
$

104
110
(6)
(8)

$
$
$
$

176
124
(46)
(46)

1,011
$
$ 790
$ (260)
$ (303)

Ships and
other leased
assets

171
$
$ 43
$
(113)
$ (151)

Rail cars

$
$
$
$

1,975
1,924
(409)
(470)

Total

3,437
$
$ 2,991
$ (834)
$ (978)

During the years ended December 31, 2020 and 2019, the Company recognized a lease expense of $810 and $644, respectively,
related to low value and short-term lease agreements.

Additions derived from new contracts and modifications to the lease liability, reflected in the net book value of the right of
use asset as of December 31, 2020 and 2019 amounted to $486 (of which $39 are related to business acquisitions) and $1,226,
respectively.

As of December 31, 2020 and 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.

2020 ALPEK ANNUAL REPORT

108

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. GOODWILL AND INTANGIBLE ASSETS, NET

Definite life

Indefinite life

Non-

Software Trademarks

Intellectual

Development competence Customer

and

with

property,

Cost

costs

agreements relationships

licenses

definite life

and others

Goodwill

Other

Total

As of January 1, 2018

$ 910

$ 106

751

263

Additions

Additions for business acquisitions

Translation effect

(3)

(18)

384

(15)

289

(16)

As of December 31, 2018

$ 918

$ 88

1,120

555

Additions

Additions for business acquisitions

Disposals for sale of subsidiary

Transfers

Translation effect

(39)

(7)

(61)

(27)

(1)

$ 3,765

$ 339

$ 6,148

239

(8)

(1)

283

673

(59)

$ 3,996

$ 338

$ 30

$ 7,045

(296)

(158)

(14)

(22)

(2)

122

(296)

(309)

As of December 31, 2019

$ 887

$ 81

$ 1,059

$ 604

$ 68

$ 3,568

$ 377

$ 6,653

Additions

Additions for business acquisitions

Disposals

Transfers

Translation effect

(2)

(27)

(157)

(22)

160

(13)

(1)

188

(1)

197

As of December 31, 2020

$ 950

$ 79

1,032

501

$ 215

$ 3,759

$ 399

$ 6,945

Amortization

As of January 1, 2019

(531)

$ (82)

(444)

(418)

$ (1,202)

Amortization

Disposals for sale of subsidiary

Translation effect

(23)

(6)

(62)

(42)

As of December 31, 2019

$ (531)

(81)

(484)

(435)

Amortization

Additions for business acquisitions

Transfers

Translation effect

(26)

(29)

(63)

(14)

(49)

(6)

160

(4)

(5)

(160)

(218)

$ (1,335)

(231)

(59)

As of December 31, 2020

$ (586)

(79)

(561)

(305)

$ (152)

$ (1,625)

$ (2,677)

(355)

131

$ (2,870)

(374)

(6)

(58)

$ (3,308)

Net carrying amount

Cost

Amortization

As of December 31, 2018

Cost

Amortization

As of December 31, 2019

Cost

Amortization

$ 918

$ 88

1,120

555

(82)

(444)

(418)

6 $

676

137

$ 3,996

$ 338

$ 30

$ 7,045

(1,202)

(2,677)

$ 2,794 $ 338

$ 30

$ 4,368

$ 81

$ 1,059

$ 604

$ 68

$ 3,568

$ 377

(81)

(484)

(435)

(4)

(1,335)

575

169

$ 64

$ 2,233

$ 377

(79)

1,032

(561)

501

(305)

215

(152)

3,759

(1,625)

399

$ 6,653

(2,870)

$ 3,783

6,945

(3,308)

(531)

$ 387

$ 887

(531)

$ 356

950

(586)

As of December 31, 2020

$ 364

471

196

$ 63

$ 2,134

$ 399

$ 3,637

2020 ALPEK ANNUAL REPORT

109

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Of the total amortization expense, $363, $345 and $326 have been recorded in cost of sales and $11, $9 and $17 in administrative
expenses in 2020, 2019 and 2018, respectively.

Incurred research and development expenses that have been recorded in the 2020, 2019 and 2018 consolidated statements of
income were $74, $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, 2020, 2019 and 2018, goodwill of $399, $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 consistent with the projections included in industry reports. The present value of the cash flows was discounted using
a specific discount rate after taxes for each group of CGU and reflects the specific risks associated with each of them.

The Company performed a sensitivity analysis considering a possible increase of 100 basis points in the discount rate and a possible
decrease in the long-term growth rate at a similar level. As a result of this analysis, the Company concluded that there are no
significant variations compared to the impairment calculation prepared as of December 31, 2020.

The key assumptions used in calculating the value in use in 2020, 2019 and 2018, were as follows:

Estimated gross margin
Growth rate
Discount rate

2020
5.0%
2.0%
8.4%

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

2020
3,119
823
576
4,518
8,586
724
178
14,006

As of December 31,
2019
3,365
762
679
4,806
8,197
582
176
13,761

2018
3,995
761
616
5,372
8,746
1,736
105
15,959

(1) As of December 31, 2020, 2019 and 2018, this item mainly consisted of the financing provided to M&G Polímeros México, S.A. de C.V.

2020 ALPEK ANNUAL REPORT

110

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(2) Investment in associates and joint ventures

The Company’s account of investments in associates and joint ventures consists of the following:

Clear Path Recycling, LLC
Terminal Petroquímica Altamira, S.A. de C.V.
Agua Industrial del Poniente, S.A. de C.V.
Corpus Christi Polymers LLC
Investment in associates and joint ventures as of December 31

Shareholding %
49.90%
42.04%
47.59%
33.33%

2020
246
42
76
8,222
8,586

2019
257
40
71
7,774
$ 8,142

2018
305
35
66
8,104
$ 8,510

Additionally, as of December 31, 2019 and 2018, the Company held a 50% interest in Galpek, LDA with a book value of $55 and
$236, respectively.

Below is summarized the net income of investments in associates and joint ventures, which are accounted for by the equity method:

Net comprehensive loss

(12)

2020

2019
(740)

2018

(61)

There are neither commitments nor contingencies liabilities regarding the Company’s investment in associates and joint
ventures as of December 31, 2020, 2019 or 2018.

14. SUBSIDIARIES WITH SIGNIFICANT NON-CONTROLLING INTEREST

The significant non-controlling interest is integrated as follows:

Indelpro, S. A. de C. V. and subsidiary
Polioles, S. A. de C. V. and subsidiary
Other

49%
50%

Non-controlling
ownership
percentage

2020

Non-controlling
interest income
for the period
2019
981 $ 890
49
30
(20)
(13)
$ 998 $ 919

2018

2020
$ 1,138 $ 4,453
319
354
5,126

38
125
$ 1,301 $

Non-controlling
interest as of
December 31,
2019
$ 3,902
279
397
$ 4,578

2018
$ 4,135
294
607
$ 5,036

2020 ALPEK ANNUAL REPORT

111

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The summarized consolidated financial information as of December 31, 2020, 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

Indelpro, S. A. de C. V.
and subsidiary

2020

2019

2018

$ 5,238 $ 4,114
7,536
8,055
1,723
2,223
1,965
1,982
7,962
9,088

$ 5,076
7,458
2,230
1,865
8,439

Polioles, S. A. de C. V.
and subsidiary
2019

2018

2020

$ 1,325 $ 1,317 $ 1,775
1,005
824
1,369
587

974
538
1,195
558

959
521
1,124
639

Revenues
Consolidated net income
Total comprehensive income of the year
Comprehensive income attributable to
non-controlling interest
Dividends paid to non-controlling interest

Statements of cash flows

Net cash flows generated by operating activities
Net cash flows (used in) generated
by investing activities
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents

11,841
2,003
2,493

12,019
1,817
1,472

14,494
2,323
2,239

2,409
59
81

3,087
97
46

3,736
76
63

1,222
670

721
955

1,097
902

40
-

23
38

32
79

2,423

2,100

3,232

196

129

(572)
(1,645)
365

(259)
(2,187)
(351)

(286)
(2,273)
611

(26)
(123)
28

200
(268)
1

363
(418)
89

15. TRADE AND OTHER ACCOUNTS PAYABLE

Trade accounts payable
Short-term employee benefits
Advances from customers
Taxes other than income taxes
Due to related parties (Note 28)
Other accrued accounts and expenses payable

2020
16,173
984
117
453
286
1,532
19,545

As of December 31,
2019
$ 13,064
554
17
929
247
1,644
$ 16,455

2018
$ 22,330
889
18
927
392
1,495
$ 26,051

2020 ALPEK ANNUAL REPORT

112

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. DEBT

Current:

Bank loans (1)
Current portion of non-current debt
Notes payable (1)
Interest payable

Current debt (2)
Non-current:

Senior Notes
Unsecured bank loans
Other loans

Total
Less: current portion of non-current debt
Less: interest generated by non-current debt
Non-current debt (2)

2020

As of December 31,
2019

2018

$ 98

-
42
316

$ 456

$ 29,061
1,300
150
30,511
-
(315)
$ 30,196

$ 375
5
27
300
$ 707

$ 27,426
836
142
28,404
(5)
(296)
$ 28,103

$ 9,588

213
43
274
10,118

$ 18,777
11,707
-
30,484
(213)
(259)
$ 30,012

(1) As of December 31, 2020, 2019 and 2018, short-term bank loans and notes payable incurred interest at an average rate of

1.87%, 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.

The carrying amounts, terms and conditions of non-current debt are as follows:

Description
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 +1.45%
Bank loan, LIBOR +2.60%
Bank loan, LIBOR +2.05%
Bank loan, LIBOR +1.10% (2)
Bank loan, LIBOR +1.10% (2)
Bank loan, LIBOR +3.25% (2)
Bank loan, LIBOR +1.25% (2)
Bank loan, LIBOR +1.25% (2)
Total unsecured bank loans

Other loans
Total
Less: current portion and interest
of non-current debt
Non-current debt

Currency

Value in
MXN

Debt
issuance
costs

Balance as Balance as Balance as

Interest of December of December of December Maturity Interest
payable

31, de 2019(1) 31, de 2018(1)

31, 2020

date

rate

USD

$ 12,953

$ (41)

12,977

$ 12,247

$ 12,778

20-nov-22 4.50%

USD

5,985

(22)

127

6,090

5,748

5,999

08-aug-23 5.38%

USD

ARS
ARS
USD
USD
USD
USD
USD
USD
USD
USD

USD

9,950
28,888

(76)
(139)

120
312

9,994
29,061

9,431
27,426

-
-
-
798
499
-
-
-
-
-
1,297

-
-
-
-
-
-
-
-
-
-
-

-
-
-
2
1
-
-
-
-
-
3

-
-
-
800
500
-
-
-
-
-
1,300

2
3
831
-
-
-
-
-
-
-
836

18-sep-29

4.25%

01-apr-20 45.69%
08-dec-20 25.00%
3.34%
15-dec-22
2.83%
3-dec-24
11-dec-24
2.27%
30-nov-20 3.62%
30-nov-20 3.55%
5.75%
25-oct-22
28-mar-21 4.03%
3.76%
28-mar-21

-
18,777

20
5
986
-
-
1,982
989
1,989
2,169
3,567
11,707

150
$ 30,335

-
$ (139)

-
$ 315

150
$ 30,511

142
$ 28,404

-
$ 30,484

Various Various

-
$ 30,335

-
$ (139)

(315)
$ -

(315)
$ 30,196

(301)
$ 28,103

(472)
$ 30,012

(1) As of December 31, 2019 and 2018, issuance costs of the debt pending amortization were $153 and $92, respectively.

(2) These loans were paid in advance during the year ended December 31, 2019, using the resources obtained from the debt issuance (Note 2g), and

the sale transaction described in Note 2f.

2020 ALPEK ANNUAL REPORT

113

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 December 31, 2020, the annual maturities of non-current debt, gross from issuance costs are as follows:

Senior Notes
Bank loans
Other loans

2021(1)
$ 312
3
-

315

2022
12,953
-
-
12,953

(1) This amount corresponds to interest payable generated by non-current debt.

2024

-
1,297

2025 and
thereafter
$ 9,950
-

2023

5,985
-
-

5,985

-
$

1,297

150

10,100

Total
$ 29,200
1,300
150
$ 30,650

As of December 31, 2020, 2019 and 2018, the Company has committed unused lines of credit totaling US$680, US$740 and
US$728, respectively.

Covenants:
Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, which include
the following:

Interest hedge ratio: it is calculated by dividing the profit before financial result, net, share of result of associates and joint
ventures, income taxes, depreciation and amortization (EBITDA) by the net interest charges for the last four quarters of the
analyzed period. This factor cannot be less than 3.0 times.

b) Leverage ratio: defined as the result of dividing the consolidated net debt (current and non-current debt, excluding debt
issuance costs less restricted and unrestricted cash and cash equivalents) by the EBITDA of the last four quarters of the
period analyzed. This factor cannot be greater than 3.5 times.

Additionally, there are other restrictions in regards of incurring additional debt or making loans that require mortgaging
assets, dividend payments and submission of financial information, which if not met or remedied within a specified period to
the satisfaction of creditors may cause the debt to become payable immediately. During 2020 and 2019, the financial ratios
were calculated according to the formulas set forth in the loan agreements. As of December 31, 2020 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

2020 ALPEK ANNUAL REPORT

As of December 31,

2020

2019

454
123
127
704

2,280
288
442
3,010
(704)
2,306

531
214
167
912

$ 2,387
405
576
3,368
(912)
2,456

114

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 December 31, 2020 and 2019, respectively, changes in the lease lability related to finance activities in accordance with the
consolidated 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

2020
3,368
420
(45)
40
193
(1,083)
117
3,010

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,

2020
704
1,701
605
3,010

2019
912
1,885
571
$ 3,368

18. PROVISIONS

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

Increases
Payments
Write-offs
Translation effect
As of December 31, 2020

Dismantling,
demolition and
environmental
remediation

Legal
contingencies

Warranties

Other

Total

167
485
(56)
-
(37)
559
12
(28)
(27)
(74)
442
15
(2)
(39)
(45)
$ 371

180
1,124
(60)
(18)
(38)
1,188
661
(31)
(40)
(124)
1,654
210
(568)
(106)
(20)
1,170

-
-
-
-
-
-
544
-
-
-
544
-
(563)
(67)
124
$ 38

13
-
(4)
-
-
9
-
(3)
-
-
6
183
(3)
-
1
187

-
639
-
(18)
(1)
620
105
-
(13)
(50)
662
12
-
-
(100)
574

2020 ALPEK ANNUAL REPORT

115

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Short-term provisions
Long-term provisions
As of December 31

2020
$ 50
1,120
1,170

2019
576
1,078
1,654

2018

1,107
1,188

As of December 31, 2020 and 2019, the provisions shown in the table above mainly include $206 (US $10) and $251 (US$13),
respectively, 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 $574 (US$29) and $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-current assets, for
$576 (US$29) and $679 ($US$36) as of December 31, 2020 and 2019, respectively. In addition, as of December 31, 2019, they also
include a provision of warranties related to the sales transaction described in Note 2f.

Additionally, as of December 31, 2020 and 2019, $149 (US$7.5) and $140 (US$7.5), respectively, were related to for the contingent
liability for the earn-out payment related to the acquisition of Selenis.

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
Employee benefits in the consolidated statement of
financial position
Charge to the consolidated statement of income for:
Pension benefits
Post-employment medical benefits

As of December 31,
2019

2020

2018

$ 956 $ 766
106
872
220

105
1,061
255

797
120
917
182

1,316 $ 1,092

$ 1,099

$ (62)
(5)
$ (67)

$ (59)
(6)
(65)

(64)
(6)
(70)

Remeasurements of employee benefit obligations
recognized in other comprehensive income of the year
Remeasurements of accrued employee benefit obligations
recognized in other comprehensive income

$ (39) $

$ (73)

$ (124) $ (85)

(104)

2020 ALPEK ANNUAL REPORT

116

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Pension and post-employment medical benefits
The Company operates defined benefit pension plans based on employees’ pensionable remuneration and length of service.
Most plans are externally funded. Plan assets are held in trusts, foundations or similar entities, governed by local regulations and
practice in each country, as is the nature of the relationship between the Company and the respective trustees (or equivalent) and
their composition. The Company operates post-employment medical benefit schemes mainly in its subsidiary DAK Americas.
The method of accounting, assumptions and the frequency of valuations are similar to those used for defined benefit pension
schemes. Most of these plans are not being funded.

Amounts recognized in the consolidated statement of financial position are determined as follows:

Present value of defined benefit obligations
Fair value of plan assets
Liability in the statement of financial position

2020
4,455
(3,394)

1,061

The movements of defined benefit obligations are as follows:

As of December 31,
2019
$ 3,813
(2,941)
$ 872

2018
$ 3,672
(2,755)

$ 917

2020
3,813
50
107
6

2019
3,672
45
127
10

2018
$ 3,998
45
145
11

329

310

(191)

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
Liability acquired in business combination
Plan curtailments
As of December 31,

42
198
(284)
195
(1)
4,455

(89)
12
(265)
-
(9)
3,813

(7)
-
(328)
-
(1)
$ 3,672

2019
(2,755)
(146)

2018
(3,097)
(119)

(239)
(1)
(46)
247
(2,940)

261
7
(47)
240
(2,755)

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

2020
(2,940)
(89)

(332)
(153)
(96)
216
(3,394)

2020 ALPEK ANNUAL REPORT

117

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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
Total included in personnel cost

2020
(50)
(18)
1
(67)

2019

2018

(45)
(29)
9
(65)

(45)
(26)
1

$ (70)

The principal actuarial assumptions are as follows:

Discount rate Mexico
Discount rate United States
Inflation rate
Wage increase rate
Medical inflation rate Mexico

2020
6.75%
1.99%-2.30%
3.50%
4.50%
6.50%

As of December 31,
2019
7.00%
2.92%-3.12%
4.50%
4.50%
6.50%

2018
9.50%
3.89%-4.03%
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

Discount rate

Change in
assumption
MX 1%

Increase in
assumption
Decrease by $132

Decrease in
assumption
Increase by $141

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
1,932
1,008
2,940

2018
1,797
958
2,755

Equity instruments
Fixed income
Fair value of plan assets

2020
2,290
1,104
3,394

2020 ALPEK ANNUAL REPORT

118

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE 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
United Kingdom

2020
21%
34%
30%
27%
25%
25%
17%

2019
21%
34%
30%
27%
25%
25%
19%

2018
21%
34%
30%
27%
25%
25%
19%

Income taxes recognized in the consolidated statement of income are as follows:

Current income tax
Deferred income taxes
Income taxes

2020
(1,933)
731
(1,202)

2019
(2,463)
574
(1,889)

2018
(2,075)
(1,380)
(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

2020
5,323
30%
(1,597)

(186)
(13)
642

(33)

(35)
45
(25)
(1,202)
23%

2019
9,413
30%
(2,824)

(268)
(24)
1,095

94
38
(94)
(1,889)
20%

2018
18,389
30%
(5,517)

(388)
(12)
1,362

504

474
131
(9)
(3,455)
19%

2020 ALPEK ANNUAL REPORT

119

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

c. The breakdown of the deferred tax asset and deferred tax liability is as follows:

Property, plant and equipment
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
Deferred tax liability

Asset (liability)
December 31,
2019
(118)
(163)
(15)
212
-
558
633

2018
$ (1,221)
(246)
(17)
123
334
1,019
1,489

2020
(155)
(137)
(16)
275
2
889
669

(21)
1,506

(3)
1,104

(97)
1,384

(121)
(5,999)
(280)
752
1,414

(126)
(5,766)
(304)
582
1,634

$ (106)
(5,757)
(48)
177
981

142
(4,092)

54
(3,926)

1
(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 $29,312, $32,320 and $9,328 in 2020, 2019 and 2018, respectively.

Tax losses as of December 31, 2020 expire in the following years:

Loss for the
year incurred
2011
2013
2014
2015
2016
2017
2018
2019
2020
Other

Tax-loss
carryforwards
$ 15
57
292
193
234
30
321
2,665
1,663
23,842
$ 29,312

Expiration
year
2021
2023
2024
2025
2026
2027
2028
2029
2030 and thereafter
No maturity

As of December 31, 2020, the Company holds tax losses to be amortized in Brazil, through Petroquímica Suape and Citepe, for
an amount of $23,842, which have no expiration date. The Company has decided to reserve the total amount of the tax losses,
according to management’s estimate of future reversals of temporary differences; thus, as of December 31, 2020, they do not
generate deferred tax assets.

2020 ALPEK ANNUAL REPORT

120

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Income tax related to other comprehensive income is as follows:

Before
taxes

2020
Tax
charged

After
taxes

Before
taxes

2019
Tax
charged

After
taxes

Before
taxes

2018
Tax
charged

After
taxes

Equity in other comprehensive
income of associates and joint
ventures recognized through
the equity method
Foreign currency translation effect
Remeasurement of employee
benefit obligations
Effect of derivative financial
instruments designated as
cash flow hedges
Other comprehensive loss

3
(767)

(39)

-
-

3 $

-
(1,954)

(767)

- $
-

- $

(1,954)

(1,814)

-
(1,814)

(30)

(73)

(55)

885
82

(271)
$ (262)

(560)
614
$ (180) $ (938) $ (229) $ (1,167) $ (2,608) $ 179 $ (2,429)

(233)

(721)

998

765

161

Income tax payable consists of the following:

Current portion
Non-current portion
Total income tax payable

21. OTHER NON-CURRENT LIABILITIES

Advances from customers (1)
Other
Total other liabilities

2020
531
170
701

2020
$ 249
40
$ 289

As of December 31,
2019
1,143
400
1,543

2018
1,279
469
1,748

2018

361
75

As of December 31,
2019
290
66
$ 356

$ 436

(1) This item corresponds to revenues charged in advance and relates to the future delivery of goods.

22. STOCKHOLDERS’ EQUITY

As of December 31, 2020, 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, 2020, Alpek SAB had 5,866,763 treasury shares. As of such date, the market value per share was $17.42
Mexican pesos.

From January to March 2020, the Company purchased 3,544,763 shares in the amount of $46 and sold 175,000 shares in the
amount of $2 in connection to a repurchase program that approved by the Company’s stockholders and exercised discretionally
by Management. 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 relation to the same program. During 2018, the Company sold 1,485,884 shares in the
amount of $39, in connection with the abovementioned repurchase program.

2020 ALPEK ANNUAL REPORT

121

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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,
2020, 2019 and 2018, the legal reserve amounts to $1,200, $854 and $804, respectively.

At the ordinary stockholders’ meeting of Alpek on January 20, 2020, the stockholders agreed to declare dividends in cash in the
aggregate amount of $2,713 (US$143), which were paid on January 29 in the same year.

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, 2020, the tax value of the consolidated CUFIN and value of the Capital Contribution Account
(CUCA Spanish acronym) amounted to $3,415 and $21,479, respectively.

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 with reference 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 considered for the measurement of the executive incentive is:

Alfa, S. A. B. de C. V.
Alpek, S. A. B. de C. V.

2020
15.39
17.60

2019
15.72
20.94

2018
22.11
24.13

The short-term and long-term liabilities are comprised as follows:

Short term
Long term
Total carrying amount

2020
$ 8
20
28

As of December 31,
2019
$ 8
18

2018

$ 26 $ 28

2020 ALPEK ANNUAL REPORT

122

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE 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
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.)
Total

2020
(79,743)
(6,319)
(40)
(1,991)
(4,486)
(2)
(5,949)

(4,544)
(71)
(810)

2019

$ (85,823)
(5,365)
(86)
(2,003)
(4,005)
(2)
(4,987)

2018
$ (95,750)
(5,128)
(48)
(1,746)
(2,887)
(3)
(5,305)

(4,637)
(203)
(664)

(5,380)
(171)
(966)

(1,694)

(1,599)

(1,481)

(2,030)
(107,679)

(2,214)
(111,588)

(2,956)
(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:

Gain on business acquisition
Gain on business sale
Other income
Impairment of property, plant and equipment
and others
Total

2020
$ 657
89
451

2019
$ -
3,634
659

2018
4,597
-
423

(14)
1,183

(29)
$ 4,264

(456)
4,564

2020 ALPEK ANNUAL REPORT

123

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26. FINANCE INCOME AND COSTS

Financial result, net for the years ended December 31, are comprised as follows:

2020

2019

2018

Financial income:

Interest income on short-term bank deposits $
Interest income on loans from related parties
Other financial income

Total financial income

105
28
392
525

152
26
596
774

98
27
317
442

Financial expenses:

Interest expense on loans to related parties $
Interest expense on bank loans
Non-bank interest expense
Lease interest expense
Interest cost on employee benefits, net
Other financial expenses

(1)
(183)
(1,588)
(193)
(44)
(488)
(2,497)

(3)
(1,035)
(1,075)
(205)
(42)
(462)
(2,822)

Total financial expense

Loss in exchange fluctuation, net

Foreign exchange gain
Foreign exchange loss

Loss in exchange fluctuation, net

Financial result, net

4,653
(4,766)
(113)
(2,085)

$
$

4,637
(5,224)
(587)
(2,635)

$
$

27. EMPLOYEE BENEFIT EXPENSES

Employee benefits expenses for the years ended December 31, are as follows:

(2)

(893)
(966)
-
(21)
(301)
(2,183)

3,302
(4,344)
(1,042)
(2,783)

$
$

Salaries, wages and benefits
Social security fees
Employee benefits
Other fees
Total

2020
(4,780)
(380)
(49)
(1,110)
(6,319)

2019
(3,896)
(419)
(36)
(1,014)
(5,365)

2018
(3,869)
(351)
(44)
(864)
(5,128)

2020 ALPEK ANNUAL REPORT

124

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

28. RELATED PARTY TRANSACTIONS

Transactions with related parties during the years ended December 31, 2020, 2019 and 2018 were as follows:

2020

2019

2018

3
1,445

-
1,486

Income
Income from sale of goods:

Associates and joint ventures
Stockholders with significant influence over subsidiaries

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 energetic:

Affiliates
Stockholders with significant influence over subsidiaries
Affiliates outside Alfa (Nemak)
Income from technical assistance:

Stockholders with significant influence over subsidiaries

Other income:
Affiliates
Associates and joint ventures

Costs / expenses
Purchase of finished goods and raw materials:

Stockholders with significant influence over subsidiaries

(1,454)

Expenses from services:

Affiliates
Associates and joint ventures
Stockholders with significant influence over subsidiaries
Affiliates outside Alfa (Nemak)

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
Affiliates outside Alfa

Dividends paid to Alfa
Dividends of subsidiaries to shareholders with significant influence

(315)
-
(13)
(1)

(1)

(22)
(38)
(6)
(36)
(2,230)
(670)

2020 ALPEK ANNUAL REPORT

1,155

60
197

28
-
-

408
28
36

3
-

78
181

25
1
-

354
29
-

1
-

(824)

(344)
(18)
(22)
-

(2)

(1)

(16)
(63)
(3)
-
(2,280)
(993)

263
220

25
-
2

-
-
-

-
3

(992)

(394)
-
(24)
-

(2)

(18)
(38)
-
-
-
(981)

125

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended December 31, 2020, the remunerations and benefits received by the top officers of the Company amounted
to $347 ($413 in 2019 and $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.

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
Newpek, S.A. de C.V.
Terza, S. A. de C. V.
Sigma Alimentos Lácteos, S.A. de C.V.
Sigma Alimentos Centro, S.A. de C.V.
Alimentos Finos Occidente, S.A. de C.V

Affiliates outside Alfa

Nemak México, S. A. de C. V.

Stockholders with significant influence on subsidiaries

BASF
BASF
Basell
Basell

Long-term accounts receivable:
Holding company

Alfa, S. A. B. de C. V. (1)

Affiliates

Nature of the
transaction

As of December 31,
2019

2018

2020

Administrative services

190

$ 190

Administrative services
Administrative services
Administrative services
Sale of goods
Energetic
Energetic
Energetic

Energetic

Sale of goods
Sale of business
Sale of goods
Energetic

115
-
1
1
2
3
1

115
14
-
1
-
2
-

193
-
44
3
$ 588

196
-
30
6
$ 585

115
4
-
1
4
-
-

132
203
54
-
712

Financing and interest

$ 823

$ 753

$ 761

Colombin Bel, S.A. de C.V.

Financing and interest

-
$ 823

9
$ 762

-
$ 761

Short-term accounts payable:
Affiliates

Alliax, S. A. de C. V.
Alfa Corporativo, S. A. de C. V.
Axtel S.A.B. de C.V.
Proyectos Ejecutivos Profesionales, S.A. de C.V.
Servicios Eficientes de R.H., S.A. de C.V.
Servicios Empresariales del Norte, S.A. de C.V.

Affiliates outside Alfa

Nemak Exterior, LTD

Associates

Clear Path Recycling, LLC

Stockholders with significant influence over subsidiaries

BASF
BASF
Basell
Terminal Petroquímica Altamira, S.A. de C.V.

Long-term accounts payable:
Affiliates

Alfa Corporativo, S. A. de C. V.

Administrative services
Administrative services
Administrative services
Administrative services
Administrative services

$ 3
10
3
12
2

Administrative services

Financing and interest

Purchase of raw material
Purchase of goods
Other

202
-
-
-
$ 286

$ 13
25
4
-
-

140
14
-
-
$ 247

21
23
3
-
-
2

-
259
12
1
$ 392

Administrative services

$
$

- $
- $

- $ 4
- $ 4

(1) As of December 31, 2020, 2019 and 2018, the loans granted bore interest at average fixed interest rate of 5.34%, 5.32% and 5.34%, respectively.

2020 ALPEK ANNUAL REPORT

126

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 2020:
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

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

$ 85,350
(70)
$ 85,280
3,401
$
3,426
14
6,841
1,855

$
$

Polyester

91,247
(390)
$ 90,857
$ 5,029
3,179
28
$ 8,236
$ 2,578

Plastics and
Chemicals

$ 25,403
(54)
$ 25,349
$ 3,860
1,060
-
$ 4,920
$ 715

Plastics and
Chemicals

$ 27,217
(120)
$ 27,097
$ 3,368
829
1
$ 4,198
$ 475

2020 ALPEK ANNUAL REPORT

Other

Total

$
$

3,236
124
3,360
232
-
-
232
-

113,989
-
$
113,989
$ 7,493
4,486
14
$
11,993
$ 2,570

Other

Total

1,221
510
$
1,731
$ 3,964
(3)
-
$ 3,961
$ 9

$ 119,685
-
$ 119,685
$ 12,361
4,005
29
$ 16,395
$ 3,062

127

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

$ 99,664
(105)
$ 99,559
16,470
$
2,329
(3,481)
15,318
1,509

$
$

Plastics and
Chemicals

Other

Total

$ 33,204
(279)
$ 32,925
$ 4,735

$
$

556
1

$ 5,292
$ 491

$
$

1,655
384
2,039
(3)
-
-
(3)
5

$ 134,523
-
$ 134,523
$ 21,202
2,885
(3,480)
$ 20,607
$ 2,005

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
Income before income taxes

2020
11,993
(4,486)

(14)
7,493
(2,085)
(85)
5,323

2019
16,395
(4,005)

2018
20,607
(2,885)

(29)
12,361
(2,635)
(313)
9,413

3,480
21,202
(2,783)
(30)
18,389

The Company’s main customer generated revenue amounting to $10,426 and $11,455 for the years ended December 31, 2020 and
2019. This revenue is obtained from the polyester reporting segment and represents 9.1% and 9.6% of the consolidated revenue
with external costumers for the years ended December 31, 2020 and 2019.

Following is a summary of revenues per country of origin for the years ended December 31:

Mexico
United States
Argentina
Brazil
Chile
Canada
United Kingdom
Total revenues

2020
$ 44,189
45,113
4,303
12,649
936
1,966
4,833
113,989

2019
$ 47,702
47,563
5,545
15,413
947
2,515
-
119,685

2018
$ 54,282
57,894
6,784
11,291
1,094
3,178
-
134,523

2020 ALPEK ANNUAL REPORT

128

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE 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
United Kingdom
Total property, plant and equipment

2020
1,741
1,616
22
258
$ 3,637

$ 23,737
8,090
865
111
316
4,538
922
$ 38,579

As of December 31,
2019
1,789
1,638
24
332
$ 3,783

2018
2,243
1,712
29
384

$ 4,368

$ 23,040
7,077
932
110
240
5,683
-
$ 37,082

$ 32,520
6,773
1,068
140
273
6,259
-
$ 47,033

30. COMMITMENTS AND CONTINGENCIES

At December 31, 2020, the Company has the following commitments:

a. At December 31, 2020, 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. A subsidiary of the Company 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, 2020, 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.

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.

2020 ALPEK ANNUAL REPORT

129

ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES (SUBSIDIARY OF ALFA, S. A. B. DE C. V.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 2020, 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 $364 in taxes, fines and interest that the SFSP demands; therefore, as of December 31, 2020, 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 $73, 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, 2020.

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, 2020 and through January 31, 2021 (date of issuance of the consolidated financial statements), and
has not identified subsequent events.

32. AUTHORIZATION TO ISSUE THE CONSOLIDATED FINANCIAL STATEMENTS

On January 31, 2021, 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.

2020 ALPEK ANNUAL REPORT

ALPEK

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

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