Alpek
Annual Report 2021

Plain-text annual report

1 2 0 2 TABLE OF CONTENTS TABLE OF CONTENTS 01 MESSAGE FROM OUR MANAGEMENT 02 ABOUT ALPEK Market Presence Long-Term Growth Strategy 03 2021 PERFORMANCE 9 10 Financial Highlights Polyester Plastics & Chemicals 12 13 15 04 ESG ESG Model ESG Targets & Highlights Material Issues & Progress 05 GOVERNANCE 18 20 23 Corporate Governance Board of Directors Management Team Code of Conduct 36 38 40 41 TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS 42 50 53 54 55 56 06 MANAGEMENT’S DISCUSSION AND ANALYSIS 07 APPENDIX Glossary Our Footprint Our Value Chains Our Approach to Reporting 08 CONSOLIDATED FINANCIAL STATEMENTS 09 CONTACT Message from our Management Dear Shareholders, Alpek experienced an outstanding year during 2021. A marked increase in petrochemical demand, combined with tighter global supply for petrochemical-based products, supported strong performance. Alpek faced a potentially adverse production environment, yet the team captured untapped opportunities where these threats laid. It discovered new levels of productivity and EBITDA, reaffirming its leading position across its respective industries, and continuing to move steadily forward on its long-term business and ESG strategies. This 2021 message will focus on four key takeaways that encapsulate the year’s results and learnings. ARMANDO GARZA SADA CHAIRMAN OF THE BOARD MESSAGE MESSAGE MESSAGE MESSAGE MESSAGE 3improved improved improved improved performance Comparable EBITDA of US $962 million; 60% higher vs 2020 1.POSITIVE CHANGES IN THE PETROCHEMICAL INDUSTRY SIGNIFICANTLY IMPROVED COMPANY PERFORMANCE Twice during the year Alpek revised its EBITDA guidance upwards, as industry margins for key products in its portfolio expanded and remained at high levels. The first increase came after an unprecedented polar vortex in the U.S. Gulf Coast in 1Q21 affected a large portion of the industry, while Alpek’s operations continued uninterrupted. A similar impact occurred later in the year, as power supply interruptions in China reduced output into the global polyester industry. The largest benefit to industry margins came from strength in the global economy during 2021, which resulted in increased demand for petrochemical products in applications such as food and beverage packaging, construction, and e-commerce. Moreover, products like PET and polypropylene received an additional boost, growing their share of the market in categories like food packaging, as brand managers sought to increase the use of economic, sustainable, and low-carbon packaging materials. This trend is expected to extend into the coming years. Higher freight costs and lower marine vessel availability also contributed to better-than- expected results, as import parity pricing for North America directly benefited from the increased logistical cost for Asian-based producers. Though marine freight costs are expected to decline somewhat towards the end of 2022, they are not expected to return to historical averages. As a combined result of these effects, Alpek’s 2021 Comparable EBITDA was US $962 million, 60% higher than last year. Strong annual volume of 4.8 million tons also matched last year’s results. 4STABILITY STABILITY STABILITY STABILITY STABILITY JOSÉ DE JESÚS VALDEZ SIMANCAS CHIEF EXECUTIVE OFFICER 2. RECENT RESULTS HAVE STRENGTHENED OUR BALANCE SHEET Alpek began the year focused on further improving its financial standing with the successful issuance of a 10-year US $600 million bond at a low 3.25% annual coupon. The funds were used in a concurrent tender offer for its 2022 bonds, which increased the average debt profile from 4.4 to 6.7 years. Furthermore, the strong operational results Alpek obtained throughout the year generated Free Cash Flow of US $280 million. This allowed Alpek to pay out total dividends of US $183 million to Shareholders while still reducing Net Leverage to 1.1 times. Free Cash Flow of US $280 million As a result of Alpek’s improved financial position, but more importantly after a thorough review of the Company’s Business Risk Profile, S&P reverted Alpek’s credit rating to a BBB- on a standalone basis, which is equivalent to investment grade. Both Moody’s and Fitch maintained their corresponding stable investment grade ratings for the Company. 53. ALPEK HAS SHIFTED TO AN ENHANCED GROWTH TRAJECTORY Alpek’s long-term perspectives have been significantly enhanced by 2021 performance Throughout the year, Alpek implemented activities aligned with its long-term growth strategy. These included: • Acquisition of the largest and newest bottle-to-bottle PET recycling facility in the United States from CarbonLITE, which reaffirms our position as a leading PET recycler in the Americas, and moves us closer to our goal of supplying 300,000 tons of rPET per year by 2025 • Successful turnaround of our recently acquired EPS assets in the United States, which was achieved a full year ahead of schedule • Shutdown of Caprolactam production in Mexico and the Staple Fibers facility in Cooper River after two years of high raw material costs and underperforming operations Looking forward, our stable results, healthy debt profile, low leverage levels, and cash on hand of US $513 million, will allow us to pursue additional EBITDA-accretive projects in 2022, M&A opportunities associated with vertical integration or value-added products or an extraordinary dividend payout. None of these measures would compromise our strong financial standing, and indeed, regardless of the end use of the funds, Alpek’s long-term perspectives have been significantly enhanced by 2021 performance. 4. ALPEK HAS A CLEAR ESG AMBITION AND WILL REMAIN AT THE SUSTAINABILITY FOREFRONT Over the past two years, Alpek has made a concerted effort to improve the way it identifies its material ESG risks, addresses these issues head on, discloses its relative progress, and works tirelessly on being a responsible steward of the planet, thus proactively addressing the concerns of the Company’s broader stakeholder base. Ambitious targets defined for each of our 12 material ESG issues 6ESG performance ratings have reached top quartile of the industry This year the Company reached the next milestone in its ESG journey through Project Evergreen, a comprehensive and analytical review of the global ESG landscape and its progress to date. This project focused on aligning the Company behind concrete ambition levels, targets, and key action items for each of Alpek’s 12 material issues. Some of Alpek’s most relevant ESG targets resulting from this project are: • Circularity (PET): Increase PET bottle recycling capacity to 300,000 tons by 2025 • Carbon Emissions & Eco-Efficiency: OUTLOOK Sincerely, Reduce CO2 emissions by 27.5% (2019 base) before 2030 and reach carbon neutrality by 2050 • Occupational Safety: Attain a Total Recordable Incident Rate (TRIR) in the top decile of the industry, with the goal of achieving zero accidents every day • Sustainable Corporate Governance: Improve the composition and effectiveness of the Board through more frequent ESG reviews and enhanced member diversity This work has already yielded excellent results for Alpek, as its ESG ratings with both S&P Global and Sustainalytics have reached the top quartile of its industry. Furthermore, the Company was added to S&P / BMV Total Mexico ESG Index. It is noteworthy that both achievements occurred before the conclusion of Project Evergreen, and as such, the Company expects additional growth in its 2022 ESG ratings as this progress is reflected throughout the year. This review of Alpek’s key takeaways for 2021 is intended to provide insight into the elements that supported the Company’s performance throughout the year, and the strategic elements that will continue to drive results in the years to come. Looking ahead to 2022, Alpek maintains its positive outlook, as both demand and reference margins are expected to continue at higher-than-historical levels. Available funds will likely be deployed to strategic projects that will drive further EBITDA growth. Alpek would like to close by thanking its employees, customers, suppliers, creditors, and Board members for their dedication and talent, as without them, none of this year’s outstanding results would have been possible. Armando Garza Sada Chairman of the Board José de Jesús Valdez Simancas Chief Executive Officer 7We create the building blocks our customers need to improve everyday lives and make the world a better place. +8.2 million tons of total capacity We are a leading manufacturer of PTA, PET, rPET, PP, EPS and Arcel®, among other products. 8Market Presence 32 plants 07 countries Mexico 3,395 Kta USA 2,829 Kta Canada 114 Kta Argentina 246 Kta Brazil 1,226 Kta Chile 28 Kta Canada United Kingdom 144 Kta PTA PET rPET Flake rPET Pellet rPET SPT Fibers PP EPS Arcel CPL Other United Kingdom United States Mexico Polyester P&C Chile +6,300 employees worldwide Brazil Argentina 9Long-Term Growth Strategy STRENGTHEN CORE BUSINESS STRATEGIC & FOCUSED GROWTH S T S Y L A T A C H T W O R G 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 (PET, Copolymers and others) FCF Generation Reductions to CAPEX & NWC / Recover M&G Mexico debt Footprint Optimization Ensure global production grows across optimal sites & logistic networks 01 02 Foster Product Circularity Increase mechanical (PET) & chemical recycling (PP, EPS) capacity through organic growth, M&A and Open Innovation to reach ESG goals Offer biodegradable alternatives for EPS & PP Value-Creation in CO2 Emissions Reduction Pursue opportunities & participate in new markets associated with reaching carbon neutrality before 2050 (Renewable energy, Green hydrogen, CO2 capture, Carbon offsetting) S T S Y L A T A C H T W O R G CAPTURE ESG-RELATED OPPORTUNITIES S T S Y L A T A C H T W O R G Value Chain Integration Grow capacity selectively & integrate into value chain (Px, EPS) Product Innovation New products & business lines (Natural Gas Commercialization, Biovento, PLA & others) Maximize Value from Corpus Christi Polymers (CCP) Optimize project timing & minimize CAPEX 03 10 Our two business units achieved exceptional operating results 11Financial Highlights A YEAR Volume 4,798 (ktons) Tied highest figure in history Reported EBITDA 1,145 (US$, millions) Highest year in history Comparable EBITDA 962 (US$, millions) Highest year in history OF RECORDS Revenues 7,697 (US$, millions) Highest year in history Leverage 1.1x Lowest since 2013 ktons VOLUME 2 1 0 4 , 6 0 9 5 0 1 . 3 2 0 4 4 , 2 1 9 0 9 4 3 , 4 8 3 4 , 5 9 8 0 9 4 3 , 2 0 8 4 , 3 8 8 8 1 9 3 , 8 9 7 4 , 2 0 0 , 1 6 9 7 3 , 2017 2018 2019 2020 2021 US$, millions COMPARABLE EBITDA 1,063 850 9 8 7 1 3 2 3 5 3 565 1 0 6 8 1 2 2 7 3 0 0 8 5 7 2 6 2 5 384 2 6 4 9 2 2 4 3 2 1,145 2 6 9 0 8 4 8 5 4 2017 2018 2019 2020 2021 Polyester Plastics & Chemicals Others Reported EBITDA REVENUES US$, millions 1 9 9 6 , 1 3 2 5 , 6 1 2 6 , 6 2 3 5 , 7 9 6 7 , 2017 2018 2019 2020 2021 OPERATING INCOME 6 8 0 , 1 1 4 6 5 5 3 4 6 8 2018 2019 2020 2021 6 2 8 0 7 2 2 6 1 7 2 2 2017 8 8 1 - CAPEX 6 3 2 2017 2018 2019 2020 2021 DEBT & LEVERAGE Debt (US$, millions) & Leverage (times) 3.3 2 6 2 , 1 1.7 1.6 2 3 8 , 1 0 3 3 , 1 2.1 5 8 1 , 1 1.1 5 2 2 , 1 2017 2018 2019 2020 2021 126,496 thousand tons in capacity 4,547 employees 18 plants Leading PTA, PET and PSF producer across the Americas 2nd largest PET producer worldwide A leading PET recycler in the Americas USA Mexico Brazil Argentina Canada UK 13Acquired the largest PET recycler in the United States from CarbonLITE & reaffirmed our position as a leading PET recycler in the Americas r e t s e y o P l Alpek’s Polyester segment serves the resilient and growing demand for PET and rPET from the food and beverage industry. During 2021, the category grew sharply as the global economy enjoyed a strong tailwind. Moreover, customers have been shifting their packaging material mix into PET as they seek lower prices and higher sustainability. Despite the strong market demand, volume was 3% lower than 2020 as the company faced adverse weather- related effects such as an unexpected drought in Altamira, Mexico in the third quarter, and hurricanes in the U.S. Gulf Coast during the latter half of the year which resulted in preventive shutdowns. Had it not been for these events, we believe our volume would have set new records. Segment results were also benefitted by a tight global supply from PET, first from the unprecedented U.S. polar vortex experienced in the first quarter of the year, secondly by the low availability and high cost of marine freight from Asia into the Americas, and finally from power supply interruptions in China in the fourth quarter, which affected Chinese PET producers’ volume. As a result of the improved supply and demand balance, integrated Asian polyester margins averaged US $359 dollars per ton, far above Guidance figures of US $245 dollars per ton at the beginning of the year. This led to Alpek posting a Polyester Comparable EBITDA of US $458 million, one of its highest annual figures. In terms of its long-term strategy, the company completed the acquisition of the largest and newest bottle-to- bottle PET recycling facility in the United States from CarbonLITE, which reaffirmed our position as a leading PET recycler in the Americas. Looking ahead, our expectations for the Polyester segment remain positive, as we anticipate demand will continue to be strong and Asian integrated margins will remain at higher-than-historical levels. We achieved a record-breaking Comparable EBITDA of US $458 million 141,722 thousand tons in capacity 1,799 employees 13 plants We produce polypropylene (PP), expandable Styrenics (EPS & ARCEL®) and specialty chemicals Leading EPS producer in the Americas and 3rd largest worldwide Only PP producer in Mexico USA Mexico Brazil Argentina Chile 15Record volume of 1,002 ktons; +13% vs 2020 Alpek’s Plastics & Chemicals (“P&C”) segment serves the diverse needs of several industries including food and beverage, household goods, consumer goods, automotive, construction and e-commerce. Just as the Polyester segment did, these industries enjoyed growth from a strong global economy in 2021. Volume was 13% higher on a year- on-year basis mainly due to the addition of capacity from the recently acquired EPS sites in the United States, which operated at high rates to meet strong demand. Volume would have been higher had it not been for planned maintenance for these sites in the fourth quarter. Segment results were benefitted in the first quarter of the year by the s l a c i m e h C & s c i t s a P l effects of the unprecedented U.S. polar vortex, which dramatically reduced North American output of Polypropylene, as Alpek’s operations remained unaffected. Power supply interruptions in China in the fourth quarter also benefited global EPS margins late in the year, in a similar manner as with PET. The tightness in supply for Polypropylene, which started early in the year, led integrated Polypropylene margins to reach highs of 52cpp, and average a record 45cpp for the year. Combined with the strength in EPS results, Alpek was able to post a Record P&C Comparable EBITDA of US $480 million Successful ramp-up of our recently acquired EPS assets in the U.S., a year ahead of schedule record P&C Comparable EBITDA of US $480 million. In terms of its long-term strategy, the company was able to turn around operations at its aforementioned EPS sites in the United States much faster than expected. These combined sites were expected to be EBITDA-neutral for 2021, but instead contributed to the segment’s record EBITDA. Looking ahead, our expectations for the P&C segment remain positive as we believe demand for Polypropylene and EPS will continue to grow at the strong rates experienced in 2021, and PP margins will decline from record- highs but normalize at higher-than- historical levels. 16 ENVIRONMENTAL, SOCIAL AND GOVERNANCE Stronger performance & clearer path to further improvement For information on our most recent ESG KPIs (‘19-’21) as well as our alignment to TCFD recommendations, please review our ESG Booklet 2021 on our website 17We strive to minimize any adverse effects from our products and processes.” Circularity Carbon Emissions & Energy Eco-efficiency Water Management I C I E N C Y F F E E C R U E RES O XIMIZ A M GR O W R E S P O N S I B L Y We increasingly rely on sustainable business practices across our entire value chain to create value for our shareholders.” Cybersecurity Pollution Relationship with Customers & Suppliers Occupational Safety Diversity, Equity & Inclusion (DEI) Community Engagement L E A D W I T H E M P A T HY We empower our people to create value for our company and communities.” ESG MODEL E G N C E C HA A R B E M Innovation Active ESG Risk Management Sustainable Corporate Governance We actively monitor our changing environment and develop new ways to tackle emerging challenges through our enablers.” 18 Our Contribution to the UN’s SDGs Alpek contributes to these SDGs through decarbonization initiatives, energy efficiency, reducing the footprint of its products and the development of innovative solutions to avoid downstream emissions. Circularity Carbon Emissions and Energy Eco-efficiency Water Management MAXIMIZE RESOURCE EFFICIENCY LEAD WITH EMPATHY Alpek contributes to these SDGs by making sure that health and safety services are of high quality through ongoing training, establishing objectives, scope, definition of responsibilities, protection measures and clear and precise behavior guidelines. Occupational Safety Diversity, Equity and Inclusion (DEI) Community Engagement Cybersecurity Pollution Relationship with Customers and Suppliers Alpek contributes to these SDGs by earning revenue from residues such as rPET and by- products, supporting circular economy business models, and developing new business opportunities. GROW RESPONSIBLY EMBRACE CHANGE Alpek contributes to these SDGs by focusing on improving our current products and processes while discovering more environmentally- friendly alternatives for both. Innovation Active ESG Risk Management Sustainable Corporate Governance 19ESG Targets & Highlights In 2021 we defined targets & made progress on our commitments for our 12 material issues. CIRCULARITY Acquired CarbonLITE, increasing 115 KTA our recycling capacity & reached 2 0 2 189% of our rPET capacity target PET: Alpek plans to increase its PET bottle recycling capacity to 300 THOUSAND ANNUAL METRIC TONS BY 2025 TO MEET ITS CUSTOMERS’ RECYCLED CONTENT NEEDS. CIRCULARITY EPS: Alpek will focus on long-term usage applications for EPS, DEVELOP BIODEGRADABLE ALTERNATIVES FOR THE F&B MARKET, AND WORK ON MAKING CHEMICAL RECYCLING VIABLE. Closure of CPL & Cooper River Fibers will reduce CO2 emissions by ~17% in 2022 (2019 base) CIRCULARITY PP: Alpek will leverage its partnerships to develop CHEMICAL RECYCLING SOLUTIONS FOR POLYPROPYLENE AND INCREASE ITS SHARE OF COPOLYMERS, EMPLOYED IN LONG-TERM USAGE APPLICATIONS. CARBON EMISSIONS & ENERGY ECO-EFFICIENCY Alpek is committed to the Paris Agreement. We are targeting an SBTi-certified Scope 1 and 2 emissions reduction of (2019 BASE), REACHING CARBON NEUTRALITY BY 2050, AND WILL BEGIN MEASURING OUR SCOPE 3 EMISSIONS. 27.5%b 0 3 0 2 y 20 WATER MANAGEMENT Alpek is closely monitoring its WATER CONSUMPTION INTENSITIES, PARTICULARLY IN WATER-STRESSED AREAS, AND IDENTIFYING OPPORTUNITIES TO REDUCE THEM. OCCUPATIONAL SAFETY DIVERSITY, EQUITY AND INCLUSION (DEI) Alpek plans to reach a Total Recordable Incident Rate (TRIR) FOR ITS EMPLOYEES AND CONTRACTORS IN THE TOP DECILE OF ITS INDUSTRY, THOUGH ITS GOAL REMAINS TO ACHIEVE ZERO ACCIDENTS EVERY SINGLE DAY. Improved TRIR to 0.61; 16% better than 2020 Alpek is committed to further diversifying its WORKFORCE THROUGH MORE EQUITABLE HIRING, RETENTION AND DEVELOPMENT STRATEGIES. COMMUNITY ENGAGEMENT CYBERSECURITY Alpek cares about all its local communities and is committed to INVESTING ITS TIME AND PROFITS ON ACTIVITIES THAT CONTRIBUTE TO OUR NEIGHBORS’ SAFETY, EDUCATION, ACCESS TO SERVICES, AND QUALITY OF LIFE. Alpek is committed to securing its information and GUARANTEEING THE CONTINUITY OF ITS BUSINESS BY MAINTAINING STATE-OF-THE-ART CYBERSECURITY SYSTEMS, EMPLOYEE TRAINING, AND INCIDENT RESPONSE CAPABILITIES. 21POLLUTION RELATIONSHIP WITH CUSTOMERS & SUPPLIERS Alpek is committed to enforcing and exceeding all regulatory requirements ON POLLUTION. WE ARE CONSTANTLY LOOKING FOR NEW WAYS TO REDUCE POST-INDUSTRIAL WASTE, WASTEWATER DISCHARGE, AND AIR POLLUTANTS FROM OUR PRODUCTS AND PROCESSES. Alpek will work with its customers and suppliers IN AN EFFORT TO ACTIVELY IDENTIFY ESG- RELATED RISKS AND THE CORRECTIVE ACTIONS NEEDED TO MAKE OUR ENTIRE VALUE CHAIN MORE SUSTAINABLE. INNOVATION Alpek’s innovation efforts will be focused on improving its current PRODUCTS AND PROCESSES, WHILE DISCOVERING MORE ENVIRONMENTALLY FRIENDLY ALTERNATIVES FOR BOTH. As a result of our continued efforts to prioritize ESG issues, we became part of the S&P/BMV Total Mexico ESG Index ACTIVE ESG RISK MANAGEMENT Alpek will continue to reinforce its Governance practices AND ORGANIZATION SO IT MAY REACH THE VARIOUS TARGETS SET FOR EACH OF ITS ESG MATERIAL ISSUES. SUSTAINABLE CORPORATE GOVERNANCE Alpek is committed to further improving the composition and effectiveness OF ITS BOARD BY INCREASING THE FREQUENCY ESG TOPICS & METRICS ARE REVIEWED, AS WELL AS ENHANCING THE DIVERSITY AND EXPERIENCE OF ITS MEMBERS. 22SASB: RT-CH-130 a.1 CSA S&P: 2.4.1 to 6 WHY IT MATTERS Our planet’s resources are finite. It is our responsibility to make sure our products are fully integrated into the circular economy. OUR TARGET CIRCULARITY rPET Bottle-to-Flake Capacity* 115 268 153 . s e s s e c o r p d n a s t c u d o r p r u o m o r f s t c e f f e e s r e v d a y n a i e z i m n m o t i e v i r t s e W | Y C N E I C I F F E E C R U O S E R I E Z M X A M I 2020 CarbonLITE 2021 KTA This is also an opportunity to capture a growing market and ensure business continuity. WHAT IS ALPEK DOING We have defined Circular Economy as one of our most important ESG priorities. In 2021, we started to identify the processes in which a circular approach can be established for all our BUs and products, setting the basis for implementing Life-Cycle Assessments, understanding and identifying the viability of greener raw materials and setting targets for each of the business units (BUs). Additionally, during 2021, we carried out several initiatives regarding circular economy, such as block waste recycling into the process to reduce PTA consumption, the use of sugar cane to produce Bio-PET, and the acquisition of CarbonLITE, the largest PET recycling plant in the U.S. This plant will have the capacity to recycle more than 100 K Tons per year, equivalent to an additional 5 billion bottles of PET.* *Input capacity = 30 KTA *Based on the polyester content of a carbonated drink PET bottle. PET: Alpek plans to increase its PET bottle recycling capacity to 300 thousand annual metric tons by 2025 to meet its customers’ recycled content needs. PP: Alpek will leverage its partnerships to develop chemical recycling solutions for Polypropylene and increase its share of Copolymers, employed in long-term usage applications. EPS: Alpek will focus on long- term usage applications for EPS, develop biodegradable alternatives for the F&B market, and work on making chemical recycling viable.” 23 WHY IT MATTERS WHAT IS ALPEK DOING GRI Standards: 302-1 to 4, 305-1 to 4 TCFD: All elements SASB: RT-CH-110a-1 Material issues: Carbon Emissions and Energy Eco-Efficiency; Water Management CARBON EMISSIONS & ENERGY ECO-EFFICIENCY CO2 Emissions & Energy Consumption Contributing to de-accelerate climate change is a crucial part of our overall ESG Strategy. In order to have a more sustainable future, Alpek commits to reduce its CO2 emissions through a transition to more renewable energy sources and the execution of initiatives that optimize its processes and energy consumption. Overall CO2 Emissions (S1/S2) Million Tons Overall Energy Consumption x 106 GJ 0.4 5 2 . . 4 0 . 7 0 . 6 0 . 8 0 0.3 2 2 . . 2 0 . 6 0 . 7 0 . 7 0 0.4 5.9 4 2 . . 3 0 . 6 0 . 6 0 . 8 0 5.2 3 3 1 5 7 6 , 7 1 2 1 3 1 4 3 1 5 7 6 7 , 1 1 1 5 1 5.5 5 3 4 1 8 1 1 5 1 2019 2020 2021 2019 2020 2021 Other Fuels Electricity Steam Natural Gas CO2 Emissions Intensity: (Ton CO2/Ton Produced) | Energy Consumption Intensity (GJ/Ton Produced) s t c e f f e e s r e v d a y n a i e z i m n m o t i e v i r t s e W . s e s s e c o r p d n a s t c u d o r p r u o m o r f | Y C N E I C I F F E E C R U O S E R I E Z M X A M I In 2021 we carried out an extensive analysis to identify the projects in which our BUs can improve their energy consumptions, move to cleaner energies and optimize their processes to reduce their emissions. As an example, we have put a plan in motion for 2022 to transition some of our BUs to an energy source that is more clean, efficient and sustainable. Also, at the end of 2021 our caprolactam site and one of our fibers facilities were closed. This action will help in the reduction of more than 400,000 tons relative to our 2019 base, equivalent to a 17% reduction in 2022. These actions, and other upcoming initiatives will get us closer to our target. Throughout 2022, we will be working closely with the ESG departments of every BU, to execute activities which will help us meet our 2030 and 2050 targets. Moreover, we expect to complete the SBTi certification of our targets. Note: The addition of 2 new plants at the end of 2020 (M&A NOVA EPS business) and the higher production of CPL resulted in an increase in our total CO2 emissions and energy consumption for 2021 vs. 2020. With the closure of CPL & Cooper River we expect a reduction in our CO2 emissions by 17% comparing to 2019. OUR TARGET We are committed to the Paris agreement. We are targeting an SBTi- certified scope 1 & 2 emissions reduction of 27.5% by 2030 (2019 base), reaching carbon neutrality by 2050, and will begin measuring our Scope 3 emissions.” 24 OUR TARGET Closely monitor our water consumption intensity, particularly in water- stressed areas, and identify opportunities to reduce it.” GRI Standards: 303-1 to 5 SASB: RT-CH-140a.1, 3 WATER MANAGEMENT WHY IT MATTERS We understand that water is a precious resource that we must use in the most optimal way. This is why we carry out water-stress assessments, continuously monitor our withdrawals and discharges, and work on being more efficient in all the processes that involve water usage. WHAT IS ALPEK DOING In 2021 we significantly improved the process of data compilation on water in our facilities, which has led us to a better understanding of what must be done to improve water usage in operations. Some of our BUs have already set targets. As an example, our polyester segment reused 750 thousand m3 and aims to reach 1 million m3 by 2022. In addition, our polystyrene business reduced its demineralized water consumption by 10%. One of the main actions we want to implement are water risks assessments throughout the entire operation and fine-tune our current course of action. Water Intake by End-Use Million m3 19.5 18.0 24.0 8.4 3 5 1 3 5 3.6 4.3 6 1 1 7 2 3 1 1 1 2 2 9 9 8 0 0 1 2019 2020 2021 Consumed Water Intake Intensity (m3/Ton Produced) Discharged Water Consumption Intensity (m3/Ton Produced) Note: The addition of 2 new plants at the end of 2020 (M&A NOVA EPS business) resulted in an increase in our total water withdrawals, consumption and discharges for 2021 vs. 2020. Alpek is actively working on improving the performance in its current and acquired assets. s t c e f f e e s r e v d a y n a i e z i m n m o t i e v i r t s e W . s e s s e c o r p d n a s t c u d o r p r u o m o r f | Y C N E I C I F F E E C R U O S E R I E Z M X A M I 25 GRI Standards: 403-1 to 403-10 SASB: RT-CH-320 a.1 FTSE4Good: SHS01, 04, 12, 38, 40 WHY IT MATTERS OCCUPATIONAL SAFETY Overall Recordable Incidents | TRIR & LTIR e u l a v e t a e r c o t e l p o e p r u o r e w o p m e . s e i t i n u m m o c d n a y n a p m o c r u o e W r o f | Y H T A P M E I H T W D A E L 1.40 0.35 5 8 4 6 0.73 0.43 6 6 7 2 1 2 2019 9 3 2020 0.61 0.40 4 6 2 2 2 4 2021 Non-Lost Time Incidents Lost Time Incidents TRIR LTIR Note: Due to M&A at the end of 2020 and some changes in the current methodology, this information has been revised and adjusted. Ensuring the safety and well-being of our people will always be Alpek’s first priority. It is thanks to them that we are a leading company in the industry. OUR TARGET WHAT IS ALPEK DOING Even when the COVID-19 contingency continued to be the main priority in our operations, in 2021 we also carried out several other initiatives to continue strengthening our safety practices: • Training on emergencies • Vaccination campaigns • Working with external consultants to develop a stronger safety culture • Standardizing practices on reporting of incidents and near-misses for employees and contractors • Monitoring and reporting incidents to senior management periodically The application of these measures resulted in a sharp improvement in our TRIR down to 0.61, 16% better versus 2020. In 2022, we will continue our efforts to reinforce existing initiatives and create new ones to improve our safety performance. Alpek plans to reach a Total Recordable Incident Rate (TRIR) for its employees and contractors in the top decile of its industry, though its goal remains to achieve zero accidents every single day.” 26 GRI Standards: 405-1, 405-2 DIVERSITY, EQUITY & INCLUSION (DEI) Workforce 2019 2020 2021 4,967 907 5,315 968 Men Women 5,874 6,283 6,396 5,359 1,037 WHY IT MATTERS A diverse workforce strengthens our overall growth strategy. Being inclusive and providing all our employees with the same opportunities will help us enhance decision-making processes and be a more responsible company. e u l a v e t a e r c o t e l p o e p r u o r e w o p m e . s e i t i n u m m o c d n a y n a p m o c r u o e W r o f | Y H T A P M E I H T W D A E L WHAT IS ALPEK DOING In 2021 we identified these issues as material to our operations. Consequently, we implemented the first stage of analysis of attraction and retention processes, main causes of low diversity, and possible gaps in the benefits offered. Specifically, in 2021 our Polyester business started implementing several initiatives such as a women’s network to support their development, boost connections, and empower them in the workplace. Also, an internal assessment for identifying any gender- based salary gaps was conducted. In 2022, all our Business Units will continue these efforts, expanding the level of detail of analysis to include: • Identification of causes for lack/loss of employee diversity • Development of retention strategies • Fostering of a diverse culture through more employee resource groups OUR TARGET Alpek is committed to further diversifying its workforce through more equitable hiring, retention and development strategies.” 27 e u l a v e t a e r c o t e l p o e p r u o r e w o p m e . s e i t i n u m m o c d n a y n a p m o c r u o e W r o f | Y H T A P M E I H T W D A E L OUR TARGET Alpek cares about all its local communities and is committed to investing its time and profits on activities that contribute to its neighbors’ safety, education, access to services, and quality of life.” GRI Standards: : 413-1, 413-2 FTSE4Good: SHR03, 15, 16, 17 COMMUNITY ENGAGEMENT As part of the UN Global Compact Community, Alpek has the goal of strengthening the efforts to work towards the betterment and well being of our society and planet. Since 2021 Alpek has been committed to the UN Global Compact’s corporate responsibility initiative and its principles in the areas of human rights, labor, the environment and anti-corruption. Investment in Community Programs (US$K) 2019 2020 2021 2,741 1,947 1,984 WHY IT MATTERS Our surrounding communities are one of our most important stakeholders. Ensuring their safety, boosting their development and offering assistance on education and social matters, generates a positive impact in our society. WHAT IS ALPEK DOING As the pandemic continued, our work with communities was more focused on providing them with various services and ensuring full coordination with community leaders. As such, we carried out several activities like: • Investment in community development and social assistance up to US $2.0 million • More than 413 of our employees volunteered to work with communities • Sponsored several events to gather funds for community development In 2022 we will further strengthen our participation and communication with our communities. Also, as the pandemic passes we look forward to returning to more face-to- face engagement. 28 CYBERSECURITY s s o r c a s e c i t c a r p s s e n i s u b e l b a n i a t s u s n o y l e r y l g n i s a e r c n i . s r e d l o h e r a h s r u o r o f e u l a v e t a e r c o t n i a h c e u l a v e r i t n e e W r u o | Y L B I S N O P S E R W O R G WHY IT MATTERS In recent years we’ve seen an increase in cybercrime generating financial losses, data theft, economic & political incidents, or public health risks. We need to reduce the potential risk of financial and data losses. WHAT IS ALPEK DOING All our Business Units have assigned a party responsible for overseeing cybersecurity strategy. An incident management system records all events that are reported or identified as security breaches or threats for follow-up. Policies and procedures consider elements such as mobile device management, logical access control, business continuity, infrastructure control, among others. In 2021, Alpek implemented several programs to be completed by 2022, such as: • 100% of personnel with training in email risk management • Virtual patching for all servers • Algorithm security information and event management • Updating of our threat and response plan OUR COMMITMENT We commit to securing our information and guaranteeing the continuity of our business by maintaining state-of-the-art cybersecurity systems, employee training, and incident response capabilities.” 29 OUR COMMITMENT GRI Standards: 306-1 to 6 SASB: RT-CH-150 a.1 FTSE4Good: EPR01, 02, 24, 25, 26, EPR13 We are committed POLLUTION to enforcing and exceeding all regulatory requirements on pollution. We are constantly looking for new ways to reduce post-industrial waste, wastewater discharge, and air pollutants from our products and processes.” s s o r c a s e c i t c a r p s s e n i s u b e l b a n i a t s u s n o y l e r y l g n i s a e r c n i . s r e d l o h e r a h s r u o r o f e u l a v e t a e r c o t n i a h c e u l a v e r i t n e e W r u o | Y L B I S N O P S E R W O R G WHY IT MATTERS Ensuring pollutants do not reach the air or water is important to preserve human health and the environment. We are responsible for ensuring our business processes and products always comply with this basic tenet. WHAT IS ALPEK DOING In 2021, we carried out several initiatives to reduce our waste disposal. Some of these initiatives are: • Increase the life cycle of our packaging materials by recovering, reconditioning and reusing them • Finding a use to some off-spec products, avoiding their disposal • Using part of our waste as energy recovery In 2022, we will continue to map initiatives that help us further reduce pollution. Waste Generation Ktons 12.4 1 7 9 3 0 8 5 3 12.3 5 8 7 3 13.5 3 3 2019 5 4 8 4 2020 2021 Disposed Recycled/Reused Intensity (kg/Ton Produced) 3 Note: The addition of 2 new plants at the end of 2020 (M&A NOVA EPS business) resulted in an increase in our total waste generation for 2021 vs. 2020. Alpek is actively working on improving the performance in its current and acquired assets. 30 GRI Standards: 102-9, 204-1, 308-1, 2, 412-2 RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS OUR COMMITMENT We will work with our customers and suppliers to actively identify ESG-related risks and the corrective actions needed to make our entire value chain more sustainable.” s s o r c a s e c i t c a r p s s e n i s u b e l b a n i a t s u s n o y l e r y l g n i s a e r c n i . s r e d l o h e r a h s r u o r o f e u l a v e t a e r c o t n i a h c e u l a v e r i t n e e W r u o | Y L B I S N O P S E R W O R G WHY IT MATTERS Collaborating in strategic partnerships with our suppliers and customers will help us find better solutions to reach a circular economy and face the oncoming challenges. WHAT IS ALPEK DOING In 2021, we identified different topics related to our supply chain that could pose a risk to our operations. For example, a shortage of raw material supply could have an adverse effect on the company. As such, we are working hand-in-hand with our suppliers to develop and refine comprehensive engagement plans. Moreover, during 2021, customers’ demand for ESG information disclosure increased sharply. Alpek plans to continue improving on this topic in 2022. 31 SAM S&P: 2.5.8, 1.9.2, 3, 4 SASB: RT-CH-410a.1 CSA S&P: 2.4.1 to 6 INNOVATION WHY IT MATTERS . s r e l b a n e r u o h g u o r h t s e g n e l l a h c g n i g r e m e e l k c a t o t s y a w w e n p o l e v e d d n a t n e m n o r i v n e g n i g n a h c r u o r o t i n o m y l e v i t c a e W | E G N A H C E C A R B M E Constant innovation is crucial to remaining competitive. This allows us to lower operational costs, find new business opportunities, adapt to market changes, enhance our long-term business viability and enable the achievement of our targets. WHAT IS ALPEK DOING During 2021 we carried out our first official Open Innovation Program through which diverse issues were addressed across the different business units, most of them with a high impact in our ESG Agenda. 70% of the subjects were exclusively focused on: • Chemical Recycling • Biodegradability • Energy eco-efficiency In 2022, incorporating ESG criteria into our innovation process will be the key driver of the overall innovation strategy. We will also continue fostering partnerships for traditional R&D, as well as to boost the improvement of products and processes. OUR TARGET We focus on improving our current products and processes while discovering more environmentally- friendly alternatives for both.” 32 We actively monitor our chang- ing environment and develop new ways to tackle emerging challenges through our enablers GRI Standards: 102-15, 102-30 CSA S&P: 1.3.1, 2, 3, 4 TCFD: Risk management ACTIVE ESG RISK MANAGEMENT WHY IT MATTERS Having an active ESG risk management enables the company to successfully develop strategies that mitigate the identified risks and turn them into opportunities. WHAT IS ALPEK DOING As part of our ESG risks identification, in 2020 we carried out a first ESG analysis; during 2021, we dove deeper into our processes to identify which material issues are more pressing. To complement this effort, we implemented a gap analysis regarding our ESG performance in order to further establish feasible ambitions in accordance to our resources and the targets we want to reach. These efforts led us to an improvement of our ESG activities roadmap, and a more active participation from our Top Management in the detection of risks and opportunities. One of the main initiatives to address ESG risks at a high level, was to further emphasize this topic in our Board meetings agenda. OUR TARGET Alpek will continue to reinforce its Governance practices and organization so it may reach the various targets set for each of its ESG material issues.” . s r e l b a n e r u o h g u o r h t s e g n e l l a h c g n i g r e m e e l k c a t o t s y a w w e n p o l e v e d d n a t n e m n o r i v n e g n i g n a h c r u o r o t i n o m y l e v i t c a e W | E G N A H C E C A R B M E BOARD OVERSIGHT The Board and its Chairman oversee ESG-related progress, followed by our CEO, who leads the ESG strategy. Our CFO, who is also the ESG Officer, is responsible for the effective management and execution of the strategy across all the BUs. To support the aforementioned positions, in 2021 we consolidated our ESG Taskforce, formed by the ESG Director and top executives from the BUs. The objective of this group is to determine and oversee ESG initiatives and metrics, identify and mitigate ESG risks, and turn them into opportunities for the company’s growth. 33 GRI Standards: 102-19, 102-20, 102-21, 102-27, 102-31, 102-32 TCFD: Governance SUSTAINABLE CORPORATE GOVERNANCE WHAT IS ALPEK DOING In 2021, and as part of our ESG Strategy, we made efforts on several governance fronts. One of the main actions was that we appointed an ESG Director and strengthened our ESG-related committees. We also developed the ESG Policy. We will be working hand in hand with the Top Executive Body to enhance the initiatives needed regarding our Board diversity and experience on ESG. OUR COMMITMENT We are committed to further improving the composition and effectiveness of our Board by increasing the frequency of ESG topics & metrics being reviewed, as well as enhancing the diversity and experience of its members.” WHY IT MATTERS A firm commitment on ESG, and an engaging leadership from the top executive body of the company is needed in order to ensure the success of our ESG Strategy. We are convinced that a shared vision on sustainability that is enhanced by our Board and CEO, will inevitably result on better and more responsible business decisions. . s r e l b a n e r u o h g u o r h t s e g n e l l a h c g n i g r e m e e l k c a t o t s y a w w e n p o l e v e d d n a t n e m n o r i v n e g n i g n a h c r u o r o t i n o m y l e v i t c a e W | E G N A H C E C A R B M E BOARD • All ESG Material Issues, plus: • Sustainable Corporate Governance • Active ESG Risk Management EXECUTIVE • All ESG Material Issues ESG COMMITTEES OPERATIONS COMMERCIAL • Carbon Emissions & Energy Eco-efficiency • Water Management • Pollution • Occupational Safety • Circularity • Relationships with Customers and Suppliers • Innovation HUMAN CAPITAL • Diversity, Equity & Inclusion (DEI) • Community Engagement IT • Cybersecurity 34 3536 CORPORATE GOVERNANCE The Board of Directors and Audit and Corporate Practices Committee implement and maintain the best practices and highest standards of Corporate Governance in the Company. As a public company, we have the obligation to keep our investors informed of all our financial activities under required standards, thus ensuring full transparency. Our Board of Directors is our highest governing body. Its members are chosen based on the alignment of their skills and previous experience with Alpek’s strategic and ESG needs, as well as their integrity and standing in the global community. BOARD OF DIRECTORS: 11 07 proprietary directors with no alternates independent board members 64% of our Board and all members of our committees are independent best corporate corporate corporate practices AUDIT AND CORPORATE PRACTICES COMMITTEE supports the Board, and is composed of independent members. They oversee, among others, the following topics: • Selection and determination of fees for the external auditor • Coordination with the Company’s internal audit committee • Assessment of accounting policies, employment terms and severance payments, as well as compensation for senior executives • Recommendations for succession plans and replacement options • ESG issues review 4 BOARD MEETINGS called by the Secretary in 2021. Annual meetings may be called by the Board’s chairman, the Audit and Corporate Practices Committee’s chairman, the secretary or at least 25% of its members. At least one meeting is dedicated to defining the Company’s medium­ and long­term strategies. Any conflict of interest must be disclosed by INVOLVED PARTIES and they must abstain from participating. • 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 97.7% meeting attendance during 2021 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. 3738 BOARD OF DIRECTORS ARMANDO GARZA SADA FRANCISCO JOSÉ CALDERÓN ROJAS Chairman of the Board of Alpek AGE: 64 | BOARD TENURE: 10 YEARS (2011) PUBLIC BOARDS: 7 Total | ALFA (Chairman) | Nemak (Co-Chairman) | Axtel | Grupo Lamosa | Liverpool | CEMEX | BBVA México EDUCATION: BA from MIT | MBA from Stanford Chief Financial Officer of Grupo Franca Industrias, S.A. de C.V. | Independent | Audit and Corporate Practices Committee AGE: 55 | BOARD TENURE: 9 YEARS (2012) PUBLIC BOARDS: 3 Total | BBVA México (Regional Advisor) | Citibanamex (Regional Advisor) | FEMSA (Alternate Member) EDUCATION: BA from ITESM | MBA from UCLA ÁLVARO FERNÁNDEZ GARZA RODRIGO FERNÁNDEZ MARTÍNEZ FRANCISCO GARZA EGLOFF President of ALFA, S.A.B. de C.V. AGE: 53 | BOARD TENURE: 10 YEARS (2011) President of Sigma Alimentos, S.A. de C.V. AGE: 45 | BOARD TENURE: 9 YEARS (2012) President of Proval Consultores | Independent AGE: 67 | BOARD TENURE: 2 YEARS (2019) PUBLIC BOARDS: 6 Total | Axtel (Co-Chairman) | Nemak (Co- Chairman) | Cydsa | Grupo Citibanamex | Vitro | Grupo Aeroportuario del Pacifico EDUCATION: BA from Notre Dame University | MBA from ITESM & Georgetown University PUBLIC BOARDS: 0 Total EDUCATION: BA from UVA | MBA from Wharton PUBLIC BOARDS: 4 Total | Arca Continental | Axtel | Grupo Financiero Banregio | Grupo Industrial Saltillo EDUCATION: BA from ITESM | MBA from IPADE RELEVANT EXPERTISE Petrochemicals Comsumer Goods Automotive Construction ESG Audit & Risk Management Operations Finance Public Policy Strategic Planning 39 ANDRÉS E. GARZA HERRERA MERICI GARZA SADA PIERRE FRANCIS HAAS GARCÍA Chief Executive Officer of Qualtia Alimentos | Independent | Audit and Corporate Practices Committee AGE: 53 | BOARD TENURE: 9 YEARS (2012) PUBLIC BOARDS: 0 Total EDUCATION: BA from ITESM | MBA from San Diego University | Global Leadership Program IMD Switzerland Investor Managing Director of Energy at NAX Group | Independent AGE: 63 | BOARD TENURE: 9 YEARS (2012) AGE: 69 | BOARD TENURE: 9 YEARS (2012) PUBLIC BOARDS: 0 Total EDUCATION: BA from ITESM | MA from Stanford PUBLIC BOARDS: 0 Total EDUCATION: BA from Vanderbilt University | MBA from Cambridge JOSÉ ANTONIO RIVERO LARREA JAIME ZABLUDOVSKY KUPER ENRIQUE ZAMBRANO BENÍTEZ Chairman of the Board of Compañía Minera Autlán | Independent AGE: 68 | BOARD TENURE: 3 YEARS (2018) PUBLIC BOARDS: 1 Total | Compañía Minera Autlán (Chairman) EDUCATION: BA from ITESM | MBA from ITESM Executive President of Consejo Mexicano de la Industria de Productos de Consumo, A.C. (CONMÉXICO) | Independent AGE: 65 | BOARD TENURE: 2 YEARS (2019) PUBLIC BOARDS: 1 Total | Fibrahotel EDUCATION: BA from ITAM | Ph.D. from Yale Chairman of Grupo Proeza, S.A. de C.V. | Independent | Audit and Corporate Practices Committee AGE: 65 | BOARD TENURE: 9 YEARS (2012) PUBLIC BOARDS: 1 Total | BBVA México EDUCATION: BA from ITESM & MIT | MBA from Stanford CARLOS JIMÉNEZ BARRERA Secretary of the Board RELEVANT EXPERTISE Petrochemicals Comsumer Goods Automotive Construction ESG Audit & Risk Management Operations Finance Public Policy Strategic Planning President of the EPS and Specialty Chemicals Business Unit JOSÉ LUIS ZEPEDA PEÑA* President of the Polypropylene Business Unit ALEJANDRO LLOVERA ZAMBRANO Co­President, Alpek Polyester JORGE P. YOUNG CERECEDO Chief Executive Officer JOSÉ DE JESÚS VALDEZ SIMANCAS MANAGEMENT TEAM Our Management Team establishes the guidelines and general strategy for CONDUCTING THE BUSINESS WITH THE HIGHEST ETHICAL STANDARDS. Co­President, Alpek Polyester FELIPE GARZA MEDINA* Chief Financial Officer JOSÉ CARLOS PONS DE LA GARZA President of the Fertilizer and Polyester Filament Business Unit GUSTAVO TALANCÓN GÓMEZ Senior Vice President, Human Capital ARMANDO RAMOS CANTÚ *As of December 31, 2021; these directors retired at year’s end. 40All relations with Alpek are carried out under a framework of legality, respect for human rights and ethical conducts.” CODE OF CONDUCT We have a code of conduct for all employees, suppliers and any third party involved in our business. This document establishes the core values, standards and culture that regulate our daily behaviors. The most relevant topics the Code addresses are anticorruption practices (including bribes and gift policies), conflict of interests, proprietary information, intellectual property, Human Rights, environmental protection, community relations, and occupational health and safety. For more information on our Code of Conduct, please visit our website. 4142Management’s Analysis Unless otherwise specified, figures are expressed in millions of nominal pesos, while certain figures are expressed as millions of dollars (US$) due to the high dollarization of Alpek’s revenues. Percentage variations are stated in nominal terms. All information is presented in accordance with International Financial Reporting Standards (IFRS). The Mexican economy continues to recover from its deepest slump in decades, spurred by growth in the U.S. and progress in COVID­19 vaccination. The country’s authorities managed to maintain external, financial, and fiscal stability during 2021, so it is necessary that this slack be used next year to support the expenses of social assistance, education, and public investment. Manufacturing and export index are at pre­pandemic levels, services have gradually reactivated, and employment has recovered, however, the differential in real income per capita vs. the US continues to widen, generating a significant gap in purchasing power quality. Mexico’s key problems remain low productivity growth and poverty; in the future, the country will face challenges related to technology and consequences of climate change. The MXN/USD exchange rate resented a strong volatility throughout the year, to end with a depreciation of 3% compared to the previous year, however, it is one of the currencies that presented the greatest recovery during the year along with that of countries such as Norway and China. 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) increased 6.9%(a) in 2021, higher than the ­3.5%(a) reported in 2020. Consumer inflation was 7.0%(a) in 2021, higher than the 1.4%(a) recorded in 2020. Sources: (a) Bureau of Economic Analysis (BEA) analysis analysis analysis analysis 2021 43 Mexico’s Gross Domestic Product (GDP) increased 5.0%(b) in 2021, compared to ­8.5(b) in 2020. Consumer inflation was 7.4%(c) in 2021, higher than the 3.2%(c) recorded in 2020. The Mexican peso experienced an annual depreciation of 2.8%(d) in 2021, compared with 5.5%(d) in 2020. Additionally, in real terms the annual average for the Mexican peso experienced an overvaluation against the dollar of ­3.7%(e) in 2020 and a value of ­2.5%(e) at the close of 2021. In Mexico, the average Interbank Equilibrium Interest Rate (TIIE) was 4.6%(e) in nominal terms, as compared to 5.7%(e) in 2020. In real terms, there was an increase in the annual aggregate of ­0.9%(e) in 2021 to 2.4%(e) in 2020. Regarding interest rates, the annual average nominal 3­month US dollar LIBOR rate, was 0.2%(c) in 2021, compared to 0.7%(e) in 2020. If the peso’s nominal appreciation against the dollar is included, the LIBOR rate in constant pesos went from 8.7%(e) in 2020 to ­10.6%(e) in 2021. Volume [thousand of tons] 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Polyester 3,796 3,918 3,490 Plastics & Chemicals 1,002 883 895 Total Volume 4,798 4,802 4,384 (3) 13 (0) 12 (1) 10 Sources: (a) Bureau of Economic Analysis (BEA) (b) National Institute of Statistics and Geography (INEGI) (c) Bank of Mexico (Banxico) (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) Revenues 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Polyester Millions of Pesos 98,000 85,280 90,857 Millions of Dollars 4,828 3,976 4,718 Plastics & Chemicals Millions of Pesos 47,470 25,349 27,097 Millions of Dollars 2,342 1,192 1,407 Total Revenues Millions of Pesos 156,224 113,989 119,685 Millions of Dollars 7,697 5,326 6,216 15 21 87 97 37 45 (6) (16) (6) (15) (5) (14) Price Index 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Polyester Millions of Pesos Millions of Dollars Plastics & Chemicals Millions of Pesos Millions of Dollars Total Millions of Pesos Millions of Dollars 99 94 157 149 119 113 84 75 95 86 87 78 100 100 100 100 100 100 19 25 65 73 37 45 (16) (25) (5) (14) (13) (22) 44REVENUES Alpek’s revenue in 2021 was $156,224 million (US $7,697 million), 37% higher than the $113,989 million (US $5,326 million) in 2020. This increase was caused by a rise in average prices of 37% and 45% in pesos and dollars, respectively, driven by higher feedstock prices and a strong volume. REVENUES BY BUSINESS SEGMENT Polyester’s net revenues in 2021 were $98,000 million (US $4,828 million), 15% more than the $85,280 million (US $3,976 million) in 2020. This segment posted an increase of 19% and 25% in average sale prices in pesos and dollars, respectively. Volume decreased 3% when compared to 2020. This decrease was due to nature-related impacts throughout the year. Plastics and Chemicals posted revenues of $47,470 million (US $2,342 million) in 2021, in comparison to the $25,349 million (US $1,192 million) in 2020. The 87% increase in revenues was mainly due to the 65% and 73% rise in the average sale price in pesos and in dollars, respectively, reflecting higher feedstock prices. The segment’s volume posted a rise of 13% compared to 2020, mainly due to the successful ramp-up of the recently acquired EPS facilities. OPERATING PROFIT AND EBITDA In 2021, the operating income was $17,494 million (US $864 million), 133% higher than the $7,493 million (US $355 million) in 2020. 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. As of December 31, 2021, consolidated EBITDA was $23,234 million (US $1,145 million), an increase of 94% compared to the $11,993 million (US $565 million) of 2020. The consolidated EBITDA includes a net positive effect from extraordinary items of $3,674 million (US $183 million), resulting in a Comparable EBITDA of $19,560 million (US $962 million), 50% higher than in 2020, setting a new record. In 2021, the EBITDA for the Polyester segment increased by 84% to $12,560 million (US $618 million), including a net positive effect from extraordinary items of $3,239 million (US $160 million). Adjusting for these items, the Comparable EBITDA for the Polyester segment was $9,322 million (US $458 million), an increase of 15% year-over- year, resulting from higher margins compared to the previous year. The EBITDA for the Plastics and Chemicals segment increased 107% to $10,173 million (US $503 million), compared to $4,920 million (US $229 million) in 2020, including a net positive effect from extraordinary items of $436 million (US $23 million). Adjusting for these items, the Comparable EBITDA for the Plastics & Chemicals segment was $9,737 million, an increase of 108% year-over- year, due to better than expected PP margins and EPS volume. EBITDA [Millions of Pesos] 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Polyester 12,560 6,842 8,236 Plastics & Chemicals 10,173 4,920 Others 501 231 4,198 3,961 Total EBITDA 23,234 11,993 16,395 84 107 117 94 (17) 17 (94) (27) EBITDA [Millions of Dollars] Polyester Plastics & Chemicals Others Total EBITDA 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] 618 503 25 1,145 324 229 12 565 428 218 205 850 90 119 121 103 (24) 5 (95) (34) 45NET FINANCIAL RESULT In 2021, the net financial cost was -$3,144 million (US -$154 million), 51% higher than in 2020. The net financing expenses that comprise this item increased from -$1,972 million (US -$92 million) in 2020, to -$2,492 million (US -$122 million) in 2021, mainly reflecting the additional expenses related to the bond issuance and the subsequent tender for Alpek’s 2022 bond. In addition, variations in exchange rates resulted in the recognition of a non-cash foreign exchange loss of -$652 million (US -$32 million) in 2021, versus -$113 million (US -$7 million) in 2020. Financial result, net [Millions of Pesos] 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Financial expense (3,082) (2,497) (2,822) Financial income 590 525 774 Financial expenses, net (2,492) (1,972) (2,048) (23) 12 (26) Loss due to exchenage fluctuation, net (652) (113) (587) (480) Financial result, net (3,144) (2,085) (2,635) (51) 11 (32) 4 81 21 46TAXES In 2021, an income tax was posted for -$4,115 million (US -$202 million) as a result of the decreased pre- tax income, while 2020 posted an income tax of -$1,202 million (US -$57 million). Taxes [Millions of Pesos] 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Income (loss) before taxes 14,311 5,323 9,413 169 (43) Income tax rate 30% 30% 30% Statuory income tax rate (expenses) benefit Taxes for permanent differences between accounting­taxable profit (4,293) (1,597) (2,824) (169) 43 178 395 935 (55) Total income tax (4,115) (1,202) (1,889) (242) Effective tax rate 29% 23% 20% Comprised as follows: Current income tax (4,304) (1,933) (2,463) Deferred income tax 189 731 574 (123) (74) Total income tax (4,115) (1,202) (1,889) (242) (58) 36 22 27 36 NET INCOME ATTRIBUTABLE TO THE CONTROLLING INTEREST In 2021, consolidated net income attributable to the controlling interest was $7,756 million (US $385 million) resulting from strong volume and better-than-expected margins in Polyester and Plastic & Chemicals business segments. In 2020, the 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). Statement of income [Millions of Pesos] 2021 2020 2019 ‘21 vs ‘20 [%] ‘20 vs ‘19 [%] Operating income 17,494 7,493 12,361 Financial result, net (3,144) (2,085) (2,635) Equity in income of associates and joint ventures (39) (85) (313) 133 (51) 54 Income tax (4,115) (1,202) (1,889) (242) Consolidated net income 10,196 4,121 7,524 Income attributable to Controlling interest 7,756 3,123 6,605 147 148 (39) 21 73 36 (45) (53) INVESTMENTS IN FIXED AND INTANGIBLE ASSETS In 2021, investments in fixed and intangible assets totaled $4,580 million (US $227 million), 32% higher than the $3,477 million (US $162 million) posted in 2020. The resources were used for the acquisition of CarbonLITE, strategic projects and maintenance and minor asset replacements. 47 NET DEBT1 Net debt was $25,219 million (US $1,225 million) as of December 31, 2021, 7% above the $23,645 million (US $1,185 million) as of December 31, 2020. The cash balance and cash equivalents totaled $10,554 million (US $513 million) at year-end 2021. Short and long term debt2 [Millions of Dollars] 2021 2020 ‘21 vs ‘20 [%] Integrated ‘21 [%] Integrated ‘20 [%] Short­term debt Current portion of LT debt 2 years 3 years 4 years 5 years 8+ years Total Avg. Maturity long­term debt (years) Avg. Maturity total debt (years) Financial Indicators [Times] Net Debt / EBITDA Interest Coverage Total liabilities / Stockholders’ equity 52 100 (54) (90) (100) ­ 118 1 2 6 19 2 ­ ­ 71 100 2 ­ 42 19 4 ­ 33 100 35 94 300 30 ­ ­ 1,103 1,562 6.8 6.7 23 ­ 649 300 65 ­ 506 1,543 4.5 4.5 2021 2020 2019 1.1 8.7 1.5 2.1 6.0 1.3 1.6 7.2 1.3 (1) Net Debt = Current debt plus non-current debt (excluding debt issuance costs), plus accrued interest payable, less cash and cash equivalents, less restricted cash and cash equivalents. (2) Excludes leases and lease interests 4849a GLOSSARY production. It means that these products are designed, and developed with their end­of­life taken into consideration. e ARCEL® A Polystyrene (PS) & Polyethylene (PE) copolymer used in protective packaging for high­end products like electronics. Due to its resistance to tearing, puncturing, cracking, and flaking, it absorbs shocks without decreasing its protection. c 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 softness, has a range of end uses, including sportswear, underclothes and engineering plastics. CIRCULARITY All products that have a circularity focus are manufactured in a way so they can be disassembled or come to their end­ of­life and their materials will either be broken down by nature or returned to CLEAN INDUSTRY CERTIFICATION Certification granted by the Mexican Environmental Protection Agency (PROFEPA) to companies that comply with environmental legislation. CO2 EMISSIONS Unit to measure the carbon dioxide produced by the burning of solid, liquid and gaseous fuels, including natural gas. COMPREHENSIVE RESPONSIBILITY ADMINISTRATIVE SYSTEM (NATIONAL ASSOCIATION OF THE CHEMICAL INDUSTRY, ANIQ) Certification given to companies that comply with the six comprehensive responsibility requirements established by the ANIQ, covering Process safety, Health and safety in the workplace, Product safety, Transportation and distribution, Prevention and control of environmental pollution and Community protection. CYCLOHEXANE Compound produced by the hydrogenation of benzene and used in caprolactam production. ESG Environmental, Social and Governance. ETHANE Hydrocarbon part of the natural gas liquids, which at room temperature is colorless and odorless. It is used as a raw material to produce ethylene. ETHYLENE Compound produced from ethane. It is the raw material used to produce vinyl acetate, ethyl chloride, styrene, ethylene oxide and polyethylenes. ETHYLENE OXIDE Compound produced from ethylene and used as an intermediate in the production of MEG and other chemicals. EXPANDABLE POLYSTYRENE (EPS) Light, rigid, cellular plastic, product of the polymerization of styrene monomer. EPS is a versatile material because of its properties as an impact reducer and thermal insulator, with customized molding capacity. These properties, combined with the ease with which it can be processed, make EPS a 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. g GREENHOUSE GASES (GHG) Components of the atmosphere that absorb and emit radiation within the infrared range, causing the Earth’s surface temperature to increase. 50l LTIR Lost Time Incident Rate is a standard OSHA metric that calculates the number of incidents that result in time away from work. m MEGAWATT (MW) Unit of power, equal to 1 million watts. MONOETHYLENE GLYCOL (MEG) Raw material with diverse industrial uses, especially for producing polyester (PET and fiber), antifreeze, refrigerants and solvents. p 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 containers for liquids, food and personal hygiene, household and healthcare products. PET flakes and films are used to produce caps, trays and recipients. Because of its transparency, strength, durability and high protection barriers, PET presents no known health risks, is light and recyclable, and has a wide range of applications in reusable, temperature­sensitive packaging. PET has replaced glass and aluminum, as well as other plastics such as PVC and polyethylene, for making containers. PROPYLENE Unsaturated, 3­carbon hydrocarbon, coproduct of the cracking process at petrochemical complexes and a by­ product at oil refineries. It is used in the petrochemical industry to produce PP, propylene oxide, cumene, isopropanol, acrylic acid and acrylonitrile. It is also converted into a gasoline component by alkylation with butanes or pentanes RECYCLED POLYETHYLENE TEREPHTHALATE (rPET) PET bottles are cleaned and crushed to produce new PET products. Other rPET uses include carpets, fabrics for the clothing industry, and fibers. POLYPROPYLENE (PP) Thermoplastic polymer, produced from the polymerization of propylene monomer. Its properties include a low specific gravity, great rigidity, resistance to relatively high temperatures and good resistance to chemicals and fatigue. PP has diverse applications, including for packaging, textiles, recyclable plastic parts and different kinds of containers, autoparts and polymer (plastic) banknotes. PROPYLENE OXIDE Compound produced from propylene and used to manufacture commercial and industrial products, including polyols, glycols and glycol­ethers. 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 industrial applications, as well as other consumer products. 51s SBTi Science Based Targets initiative (SBTi) is a collaboration between the Climate Disclosure Project (CDP), the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) to help companies define a target of emissions reduction. SCOPE 1, 2 AND 3 Scope 1 are emissions directly related to the operations, Scope 2 are emissions related to utilities (indirectly) and scope 3 are emissions that are generated up and down the chain of a product creation and use (suppliers and customers). SDGs Sustainable Development Goals SINGLE-PELLET TECHNOLOGYTM Single Pellet Technology™(SPT) creates a pellet where mechanically 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. 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 chemical intermediate. t TRIR “Total Recordable Incident Rate.” It is a calculation that takes into account how many OSHA recordable incidents your company has per number of hours worked. w WATT Unit of power in the International System of Units (SI). 52Our Footprint Note: rPET flake capacity modified in 2Q21 to reflect inputs / totals may reflect rounding. Kta: Thousand tons per year Source: Alpek estimates Country Site PTA PET Flake Pellet SPT Fibers PP EPS Arcel CPL Other Monterrey Altamira Salamanca Mexico (3,395 Kta) 1,000 640 240 160 Cosoleacaque 610 185 15 Lerma Fayetteville, NC Charleston, SC Columbia, SC Bay St. Louis, MS Richmond, IN Darlington, SC Monaca, PA Painesville, OH Reading, PA Montreal Zárate General Pacheco General Lagos Guaratingueta Ipojuca Santiago Puerto Montt Punta Arenas Concon Wilton USA (2,829 Kta) Canada (144 Kta) Argentina (246 Kta) Brazil (1,226 Kta) Chile (28 Kta) United Kingdom (350 Kta) 15 150 640 170 170 725 430 144 190 64 66 31 115 49 22 15 640 450 90 350 36 123 45 19 46 20 85 360 100 5 2 1 TOTAL CAPACITY: 8,218 Kta 2,890 2,814 267 95 30 400 640 493 36 85 468 53OIL NAPHTHA REFINERY REFORMER PARAXYLENE PTA ETHANE CRACKER ETHYLENE BENZENE METHANE AMMONIA CAPROLACTAM PET FIBERS rPET FLAKE rPET PELLET CRACKER PENTANE Polyester Plastics & Chemicals CYCLOHEXANE AMMONIUM SULFATE OIL NAPHTHA REFINERY STYRENE POLYETHYLENE EPS ARCEL CRACKER ETHYLENE OXIDE MONOETHYLENE GLYCOL PROPANE PROPYLENE PDH POLYPROPYLENE OUR VALUE CHAINS Alpek’s products are used by millions of people daily, in a wide variety of applications. 54GRI Standards Our Approach to Reporting SASB TCFD SDG compliant Through our 2021 Annual Report we share with our stakeholders the economic, corporate governance, labor, social, environmental and financial results, for the period from January 1st to December 31, 2021. We compiled the information reported based on the data analyzed from all our operations in the countries and regions where we have operations. This report was prepared in accordance with the Global Reporting Initiative (GRI) Standards: Core option. The contents used were defined based on our ESG assessment, Project Evergreen, which ensued 12 priority issues for our company. The information provided has not been restated in any manner. Likewise, we maintain our commitment to contribute to the Sustainable Development Goals (SDG) of the United Nations, 2030 Agenda. Striving to improve how we manage ESG issues, in addition to the GRI contents and our contributions to the Sustainable Development Goals, we include information to meet the Sustainability Accounting Standards Board (SASB) applicable to Chemicals and our performance within the framework developed by the Task Force for Climate­related Financial Disclosures (TCFD). For additional information, we prepared an ESG Booklet available on: https://www.alpek.com/esg/governance/ 55Alpek, S. A. B. de C. V. and Subsidiaries (Subsidiary of Alfa, S. A. B. de C. V.) Consolidated Financial Statements FINANCIAL STATEMENTS As of and for the Years Ended December 31, 2021, 2020 and 2019, and Independent Auditors’ Report Dated January 31, 2022 Table of Contents Independent Auditors’ Report Consolidated Statements of Financial Position Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Stockholders’ Equity Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Page 5 7 60 6 1 62 63 64 65 56575859Consolidated Statements of Financial Position 60Consolidated Statements of Income 61Consolidated Statements of Comprehensive Income 6263Consolidated Statements of Cash Flows 64Notes to the Consolidated Financial Statements 656667686970717273747576777879808182838485868788899091929394959697989910010110210310417. Lease liability 105 106107108109110111112113114115116117118119120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 Investor Relations Alejandro Elizondo Alejandra Bustamante IR@alpek.com 

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