Alpek
Annual Report 2022

Plain-text annual report

ANNUAL REPORT 2022 TABLE OF TABLE OF CONTENTS CONTENTS Message from our Management ARMANDO GARZA SADA CHAIRMAN OF THE BOARD 3 “ This message highlights the key developments that contributed to Alpek’s success during 2022. Dear Shareholders, 2022 marked quite the year for Alpek, reaching all-time historical highs. Our exceptional performance was favored by a continued strength in demand during the first half of the year, as well as tight global supply amid high marine freight costs. As margins began to gradually normalize during the second half, demand for our products remained strong, enabling us to conclude the year with solid results, thus confirming Alpek’s strong financial performance and the business resiliency. Herein we hope to highlight the key developments that contributed to Alpek’s success during 2022. 4 5,065 T H O U S A N D TO N S VO LU M E U.S. $1,396 million COMPARABLE EBITDA In 2022 Alpek once again demonstrated the strength of its products, the efficiency of its business model, and capacity to maintain financial stability. ALPEK CAPITALIZED ON MARKET CONDITIONS GENERATING EXCEPTIONAL RESULTS Alpek revised its guidance figures twice during the year due to outstanding results across our segments and higher- than-expected margins for PET, PP and EPS. In the Polyester segment, volume primarily rose from the PET Sheet & Resin acquisition in the Middle East that was finalized in May 2022, as well as from demand, which remained steady. Asian integrated PET reference margins exceeded expectations, remaining at historically high levels throughout the first three quarters, with a normalization occurring later than expected. In the Plastics & Chemicals segment, reference margins for Polypropylene remained elevated throughout the majority of 2022. Here the adjustment took place closer to the end of the year, primarily as new capacity was added in the Americas, while margins for EPS had a notable increase, gradually coming back towards year-end. Thus, results for the period were outstanding: 2022 Comparable EBITDA reached U.S. $1,396 million, 45% greater than in 2021, and the highest ever recorded for Alpek. Overall volume levels rose by 6% year over year reaching 5,065 thousand tons. ALPEK TOOK ADVANTAGE OF GROWTH OPPORTUNITIES TO OFFER MORE VALUE-ADDED PRODUCTS 01 5 Alpek has been growing to offer additional downstream value chain integration and ESG-related opportunities according to its long-term strategy by: Acquiring OCTAL, a major PET sheet producer with its main facilities in the Middle East. Financing for the acquisition was secured through cash on the Company’s balance sheet, free cash flow generated from existing businesses, and dedicated bank loans. This acquisition adds over one million tons of installed capacity, spread across four sites: a main production facility with both PET Sheet and Resin in Salalah Free Zone, Oman, a PET Sheet Recycling facility in Cincinnati, USA and a PET Thermoform Packaging facility in Riyadh, Saudi Arabia. This transaction brought Alpek into the PET Sheet business segment, thereby expanding its product portfolio. Alongside its economic potential, OCTAL’s state-of-the art Direct-to-PET (DPET®) technology has the lowest conversion cost and lowest carbon footprint in the Sheet industry. Since Alpek has taken control of the operations, the Company has already benefited from logistics and allocation optimization. We also foresee growth opportunities for PET Sheet in new geographies. JOSÉ DE JESÚS VALDEZ SIMANCAS CHIEF EXECUTIVE OFFICER +46%STOCK PRICE PE R FO RMANCE (including dividends) 6 04 Continuing to make progress in PET recycling, delving into new technologies and efficiencies in our network. With the OCTAL acquisition, we now have the capability for PET Sheet recycling and will continue to explore possible projects in this segment, additionally, we incorporated single pellet production capacity at our Pearl River facility. Confirming its commitment to achieve its circularity target of increasing its recycling content in select products to a minimum of 30% by 2030, the Company’s EPS division is working on expanding its recycling capacity at one of its facilities in the United States. Among its initiatives to achieve its target, Alpek joined Cyclyx International, LLC, a consortium focused on establishing a circular pathway for plastic recycling. Through technology, the Company will gain access to custom feedstock batches from waste with the necessary chemical and physical properties that ensure their recyclability. Having greater access to raw material will significantly support Alpek’s EPS projected recycling capacity. 02 Resuming construction of Corpus Christi Polymers (CCP), the joint venture with an integrated PTA- PET plant in Texas that is expected to begin operations in early 2025. CCP seeks to become the most competitive state-of-the-art site in the Americas, functioning as a tolling company where each of the three partners will procure its own raw materials and receive one third of the PTA and PET produced at the facility to independently sell and distribute. This facility will raise Alpek’s annual capacity and allow the Company to continue supplying increasing customer demand. 03 Receiving approval from the SBTi (Science Based Target Initiative) for our GHG emissions reduction targets, in which we commit to reduce our scope 1 and 2 emissions by 27.5% by 2030 and scope 3 by 13.5% during the same time frame, becoming one of the few companies in Mexico to have this validation. Our CO2 emissions have decreased in total by 19% vs. our 2019 SBTi base, putting us well on track to achieve our target. Additionally, we managed to increase the consumption of renewable energy by 7% compared to the previous year, and we will continue working on alternatives to increase consumption of cleaner energy in our processes. 7 13% Dividend yield 05 Demonstrating our commitment and transparency towards our clients and investors, the Company improved its ESG ratings performance with S&P Global, CDP, and Sustainalytics. We are diligently progressing towards our objectives and still growing as leader in the market, while remaining committed to the environment, our communities, and our employees. ALPEK WAS ABLE TO MAKE A SIGNIFICANT ACQUISITION AND REACH ITS HIGHEST DIVIDEND YIELD, WHILE MAINTAINING FINANCIAL STABILITY The solid operational results and cash flow generation obtained throughout the year more than offset the higher CAPEX utilized primarily for the OCTAL acquisition and the Net Working Capital increase during the year. The financial results also enabled Alpek to pay out an ordinary and an extraordinary dividend to Shareholders, considering the Company’s performance, totaling U.S. $372 million to shareholders, reaching a dividend yield of 13%, while still obtaining a Net Leverage ratio of 1.3x at year-end. It is worth noting that Alpek’s Total Shareholder Return (TSR), including dividends, also reached 46% in 2022, resulting in the best annual performance compared to industrial companies in the Mexican Stock Price Index (IPC). Credit rating agencies, Moody’s and Fitch, both upgraded their outlook on Alpek from ‘Stable’ to ‘Positive’ and maintained their investment grade ratings, while S&P confirmed its investment grade rating and ‘Stable’ outlook for the Company. Our outstanding performance was favored during the year’s first half by a continued strength of the global economy. maintaining its strong financial standing, which has been significantly enhanced by its 2022 performance. The exceptional commitment and loyalty of Alpek’s employees, customers, suppliers, and Board members inspire the Company’s great expectations and offer us strong confidence for the years to come. Our heartfelt acknowledgment to all of them. OUTLOOK In 2022, Alpek once again demonstrated the demand resilience of its products, the efficiency of its business model, and its capacity to maintain financial stability. As margins continue to normalize in 2023, Alpek expects to maintain strong results, capitalizing on investments made during the previous year. Looking forward, the combination of stable results, a healthy debt profile, low leverage levels, and cash on hand of U.S. $355 million, could empower the Company to pursue any of the following: additional EBITDA-accretive projects in 2023, M&A opportunities associated with vertical integration, recycling or value- added products, and an extraordinary dividend payout. Above all, Alpek is committed to 8 Armando Garza Sada Chairman of the Board José de Jesús Valdez Simancas Chief Executive Officer 9 ABOUT ALPEK WE CREATE THE BUILDING BLOCKS WE CREATE THE BUILDING BLOCKS our customers need to improve everyday lives ABOUT ALPEKABOUT ALPEKABOUT ALPEKABOUT ALPEKABOUT ALPEK10 Working to meet global societal and environmental everyday needs has been, and will always be, essential to Alpek’s purpose and values. We develop products and technologies to help enrich people’s lives and deliver real- world innovations in very diverse and essential applications. This is how we confirm our even more meaningful role as a supplier for resolving the current global challenges. Amidst the extraordinary conditions in which we have been operating since 2020, it is through a robust governance structure, focused leadership, and our evolutionary nature that, in 2022, we continued delivering solutions to transform the present into a better future. ALPEK IN OUR DAILY LIVES PARKS FOOD CONTAINERS CONSTRUCTION HOMES PERSONAL HYGIENE PRODUCTS 11 VACCINE BOXES HOSPITALS MEDICAL EQUIPMENT 12 OMAN SAUDI ARABIA MARKET PRESENCE UNITED KINGDOM CANADA UNITED STATES MEXICO 35 p l a n t s 9 c o u n t r i e s +7,000 e m p l o y e e s w o r l d w i d e BRAZIL CHILE ARGENTINA Mexico 3,310 Kta USA 2,745 Kta Canada 144 Kta Argentina 246 Kta Brazil 1,226 Kta Chile 28 Kta Oman 1,024 Kta Saudi Arabia 11 Kta United Kingdom 220 Kta PET PET rPET rPET rPET PTA Resin Sheet Flake Pellet SPT Fibers PP EPS Arcel Other LONG-TERM GROWTH STR ATEGY 1 STRENGTHEN CORE BUSINESS 3 STRATEGIC & FOCUSED GROWTH 13 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 G r o h cataly s t s t w o r G rowth catalysts 2 w t h c a t a l y s t s 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 Footprint Optimization Ensure global production grows across optimal sites & logistic networks CAPTURE ESG-RELATED OPPORTUNITIES 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) 1414 2022 PERFORMANCE OUR TWO BUSINESS UNITS OUR TWO BUSINESS UNITS achieved exceptional operating results 2022 PERFORMANCE2022 PERFORMANCE2022 PERFORMANCE2022 PERFORMANCEFINANCIAL H IGH LIGHTS 15 V O L U M E ( K T O N S ) 2022 4,099 966 5,065 2021 3,796 1,002 4,798 2020 3,918 883 4,802 2019 3,490 895 4,384 2018 3,490 912 4,402 Polyester Plastics & Chemicals D E B T & L E V E R A G E ( D E B T U S $ , M I L L I O N S & L E V E R A G E T I M E S ) C O M P A R A B L E E B I T D A ( U S $ , M I L L I O N S ) Debt Leverage 2.1 1.7 1.6 0 6 8 1 , 1.3 2 3 8 1 , 0 3 3 1 , 5 8 1 , 1 1.1 5 2 2 1 , 2018 2019 2020 2021 2022 R E V E N U E S ( U S $ , M I L L I O N S ) 5 5 5 0 1 , 1 9 9 6 , 6 1 2 6 , 6 2 3 5 , 7 9 6 7 , 2018 2019 2020 2021 2022 +46% ALPEK´S TOTAL SHAREHOLDER RETURN (TSR) 862 CAPEX (US $, MILLIONS) ALPEK EXCEPTIONAL YEA R 2022 1,396 1,455 567 823 962 1,145 601 565 789 850 800 1,063 2021 480 458 2020 218 372 2019 231 353 2018 275 526 Polyester Reported EBITDA Plastics & Chemicals Others ALPEK EXCEPTIONAL YEARALPEK EXCEPTIONAL YEAR2ND LARGEST PET PRODUCER WORLDWIDE LEADING PTA, PET AND PSF PRODUCER ACROSS THE AMERICAS LARGEST PET RECYCLER IN THE AMERICAS 16 POLYESTER POLYESTER 7,319 5,466 22 p l a n t s e m p l o y e e s t h o u s a n d t o n s i n c a p a c i t y USA Brazil Canada UK Mexico Argentina Oman Saudi Arabia 17 the acquisition was secured through cash on our balance sheet, free cash flow generated from existing businesses, and dedicated bank loans. With this acquisition, we added over one million tons of installed capacity to the existing footprint in four facilities: a production site with both PET Sheet and Resin in Salalah Free Zone, Oman, a PET Sheet Recycling facility in Cincinnati, USA and a PET Thermoform Packaging facility in Riyadh, Saudi Arabia. Furthermore, the partners of Corpus Christi Polymers LLC have resumed construction of the integrated PTA- PET plant in Corpus Christi, Texas and expect to begin operating in early 2025. CCP will function as an independent tolling company where each of the three partners will procure their own raw materials and receive one third of the PTA and PET produced at the facility to sell and distribute independently, which means Alpek will have approximately 367,000 tons of PET and 433,000 tons of PTA capacity. CCP expects to have the most competitive state-of-the-art site in the Americas. The strategic location on the U.S. Gulf Coast will facilitate competitive raw material procurement and distribution cost, as well as scalability across Alpek’s sites in the Americas. In the coming years, expectations remain positive for this segment and Alpek as a whole. We will continue creating value and synergies with our newly acquired OCTAL plants and will explore opportunities in recycling and PET Sheet, among other prospects. The PET-Sheet business segment has a projected growth of 6%, almost twice as much as PET Resin; hence this deal puts our Company at the forefront for the coming years. During 2022, demand remained steady for the polyester segment. Meanwhile, high freight costs due to low vessel availability throughout most of the year, and COVID shutdowns in China leading to lower production, drove reference margins to remain higher than expected. Asian integrated PET reference margins exceeded expectations as they maintained average levels over U.S. $392 dollars per ton throughout the year, surpassing original Guidance figures of U.S. $315 dollars per ton, with the normalization occurring later than anticipated during the fourth quarter. Therefore, we obtained a Polyester EBITDA of U.S. $886 million in 2022. Volume increased 8% as demand remained steady and as a result of the PET Sheet & Resin acquisition’s consolidation in June, which led to incremental production during the remaining months of the year. In line with our long-term strategy, we acquired OCTAL –a major PET sheet producer– for U.S. $620 million on a debt-free basis. Financing for PLASTICS & PLASTICS & CHEMICALS CHEMICALS 18 13 p l a n t s 1,724 e m p l o y e e s 1,637 t h o u s a n d t o n s i n c a p a c i t y WE PRODUCE POLYPROPYLENE (PP), EXPANDABLE STYRENICS (EPS & ARCEL®), FERTILIZERS AND SPECIALTY CHEMICALS LEADING EPS PRODUCER IN THE AMERICAS AND 3RD LARGEST WORLDWIDE ONLY PP PRODUCER IN MEXICO In the Plastics & Chemicals segment, reference margins remained steady throughout most of the year, with Polypropylene reference margins averaging above 30 cpp during the majority of 2022, declining towards the end of the year. Meanwhile, EPS reference margins reached record highs of 80 cpp and an average of 56 cpp for 2022. Combined with strong demand for our products during most of the year, we were able to post record P&C Comparable EBITDA of U.S. $567 million, an increase of 18% year over year. Volume decreased 4% during the year due to lower demand towards the end of 2022, which led to higher inventory levels, as well as new capacity of more than 1 million tons installed in North America. In August, Alpek’s EPS subsidiary joined Cyclyx International, a consortium that, along with other initiatives, will allow the Company to reach its EPS circularity target of raising recycling content in select products to at least 30% by 2030. This consortium’s technology identifies custom feedstock batches from waste with the necessary chemical and physical properties, thereby ensuring their recyclability. Alpek continues to establish its role as a leading recycler, now through growth in Expandable Styrenics recycling. 19 Currently, more than 50% of EPS production is consumed for the construction industry, due to its thermal insulation properties which reduce the carbon footprint of homes and buildings. However, we are exploring recycling and biodegradable options for our short-term usage products, which represent approximately 35% of EPS sales volume. Looking ahead, Polypropylene reference margins will remain at normalized levels due to additional capacity installed in the Americas, mainly in USA and Canada, but will continue at higher-than- historical levels. Our expectations for the P&C segment remain positive, as strong demand for our products, along with more sustainable options will maintain our leadership in the industry. 20 ESG ENVIRONMENTAL, SOCIAL AND GOVERNANCE STRONGER PERFORMANCE STRONGER PERFORMANCE & clearer path to further improvement ESGESGESGESG2022 H IGH LIGHTS 268 KTON OF BOTTLE TO PELLET CAPACITY CO 2 EM ISS IONS REDUCTION O F 19% VS. SBTI BASE 2019 SCIENCE BASED TARGET APPROVED BY SBTI “ALPEK COMM ITS TO REDUCE ABSO LUTE SCO PE 1 AND 2 GHG EM ISS IONS BY 27.5% BY 2030 FROM A 2019 BASELINE . ALPEK ALSO COMM ITS TO REDUCE SCO PE 3 EM ISS IONS BY 1 3.5% WITH IN THE SAME TIME FR AME .” 21 12 ESG SPECIFIC COMMITTEE MEETINGS DURING THE YEAR OF REDUCTION IN OUR TOTAL RECORDABLE INCIDENT RATE 5% 137 INNOVATION PROJECTS in progress during the year 18% OF FEMALE REPRESENTATION IN THE BOARD, 9% more than last year, strengthening the diversity of Alpek’s corporate governance Alpek’s ESG Ratings Alpek seeks to increase performance transparency in ESG through various platforms. The following graphs show Alpek’s progress from the most relevant rating agencies from 2020 to 2022. 22 E S G S CO R E | C L I M AT E C H A N G E (Score Improve ment YoY) B C C 2020 2021 2022 Chemical Ind. average C B B E S G S CO R E (Score improvement YoY) E S G R I S K R AT I N G (Risk reduction YoY. The less risk, the better) 54 32 51 44 29 26 2020 2021 2022 2020 2021 2022 Percentile Chemical Ind. 89 90 91 Risk percentile Chemical Ind. 31 25 25 IN 2022, ALPEK PARTICIPATED IN 45 CHAMBERS, ASSOCIATIONS AND INITIATIVES. ALLIANCES AND COMMITMENT Alpek seeks to strengthen its alliances with entities and organizations that promote sustainable development. In 2022, Alpek became one of only seven Mexican companies to get approval and validation by the Science Based Target Initiative for it’s science-based emission reduction goal. This reaffirms Alpek’s commitment to the Sustainable Development Goals and the mitigation of climate change. 23 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 anticorruption. ESG MODEL 24 GRI Standards: 2-22 to 24 | TCFD: Governance FTSE4Good: ECC50_1 Alpek’s ESG Model is an internal platform to launch programs and initiatives that allows the tracking and development of our environmental, social, and governance objectives. Involving different functions at all levels of the organization, Alpek embraces a shared focus on its economic growth, development of stakeholders, promotion of social equity and the protection of the environment. • Circularity • Carbon Emissions & Energy Eco-efficiency • Water Management • Cybersecurity • Pollution • Relationship with Customers & Suppliers • Occupational Safety • Diversity, Equity & Inclusion (DEI) • Community Engagement MAXIMIZE RESOURCE EFFICIENCY GROW RESPONSIBLY LEAD WITH EMPATHY EMBRACE CHANGE EMBRACE CHANGE EMBRACE CHANGE Innovation | Active ESG Risk Management | Sustainable Corporate Governance ESG OPERATIVE FRAMEWORK 25 GRI Standards: 2-22 | TCFD: Governance, Strategy & risk management | FTSE4Good: ECC76 ESG STRATEGY As part of Alpek’s ESG Risk Management, the Company has adopted a dynamic materiality approach through which it conducts a comprehensive analysis of ESG and industry trends, and how it is perceived by our stakeholders. This process includes ongoing dialogue with stakeholders, which allows an adequate response to be given to their demands and expectations, while also managing the impact to their organization. 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 and improve internal capabilities to react • Implement the right initiatives to address R&O • Identify partnerships that support improvement COMMITMENT & OVERSIGHT • Assign the appropriate people for decision making • Set mechanisms to ensure the achievement of targets • Communicate and report progress at organizational level • Review and improve TARGETS & METRICS • Define key performance indicators (KPIs) and set targets to measure success for each initiative • Measure result impact • Establish proper initiatives for targets to be achieved 12 MATERIAL ISSUES ESG MATERIALITY MATRIX GRI Standards: 2-22 | TCFD: Governance, strategy, risk management | CSA S&P: 1.2 26 MAXIMIZE RESOURCE EFFICIENCY 1 Circularity 3 Carbon Emissions & Energy Eco-efficiency 4 Water Management LEAD WITH EMPATHY 7 Occupational Safety 11 Diversity, Equity & Inclusion (DEI) 12 Community Engagement EMBRACE CHANGE 5 Innovation 10 Active ESG Risk Management 9 Sustainable Corporate Governance GROW RESPONSIBLY 6 Cybersecurity 2 Pollution 8 Relationship with Customers & Suppliers T S E H G H I R E H G H I H G H I S R E D L O H E K A T S O T E C N A T R O P M I 2 1 3 7 4 11 10 12 6 5 9 8 H IGH H IGHER H IGHEST I M PAC T O N A L P E K EMBRACE CHANGE We actively monitor our changing environment and develop new ways to tackle emerging challenges through our enablers. 27 GRI Standards: 2-12 to 14, 2 17 TCFD: Governance, strategy, risk management | |CSA S&P: 1.1 Sustainable Corporate Governance STRATEGY AND EXECUTION Alpek’s ESG governance structure was strengthened in 2022. In previous years, a taskforce was appointed to identify improvements in its sustainability management and climate change related risks. As a result, Alpek developed a comprehensive ESG structure and strategy for its governing body and its committees. PROGRESS 2022 In accordance with the commitment to increase the effectiveness of the Board of Directors, in 2022, Ana Laura Magaloni joined as an independent director. The experience and trajectory of the new member is aligned with Alpek’s long term growth strategy, as well as with its ESG objectives. As a result, the participation of independent members increased to 67% and the percentage of women on the Board is now 18%. Committees BU CEOs ESG PMOs ESG DATA Alpek Board Alpek CEO CFO Corporate ESG Team Board Executive Operations Human Capital All ESG Material Issues, plus: • Sustainable Corporate Governance • Active ESG Risk Management All ESG Material Issues • Carbon Emissions & Energy Eco-efficiency • Water Management • Pollution • Occupational Safety • Diversity, Equity & Inclusion (DEI) • Community Engagement Circularity IT • Circularity • Relationships with Customers and Suppliers • Innovation • Cybersecurity OUR TARGET 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.” EMBRACE CHANGE We actively monitor our changing environment and develop new ways to tackle emerging challenges through our enablers. 28 GRI Standards: 2-23 to 25 TCFD: Risk Management FTSE4Good: SHS03_1 CSA S&P: 1.3 Active ESG Risk Management STRATEGY AND EXECUTION Alpek has an ESG risk identification strategy that includes evaluating the potential impact of the company’s activities on climate change, human rights, labor practices and its value chain. Through various processes such as materiality with a dynamic approach, Alpek prioritizes the initiatives and programs that must be implemented in the short, medium and long term. PROGRESS 2022 In 2022 Alpek made significant progress in the identification of ESG-related risks, specially those derived from climate change due to the establishment of its science-based emission reduction targets. Based on the TCFD risk matrix and incorporating those identified by the WEF in 2022, Alpek has identified the following risks related to its operation. Category Global Risk according to the TCFD and the WEF Economic • Debt crisis in large economies • Severe commodity shocks Environmental Geopolitical Societal Technological Transition: • Current and emerging regulations • Market and change in customers preferences • Reputational Physical: • Extreme weather events (Acute) • Climate action failure (Chronicle) • Fracture of interstate relations • Pollution driven harms to human health • Failure of cybersecurity measures 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.” EMBRACE CHANGE We actively monitor our changing environment and develop new ways to tackle emerging challenges through our enablers. 29 SASB: RT-CH-410a.1 CSA S&P: 1.8 Innovation STRATEGY AND EXECUTION Innovation is key to value creation and to continuously find opportunities to grow, optimize and reinvent. At Alpek, we work in three areas: culture, internal innovation and external innovation. The latter through the creation of an open innovation program that allows us to connect with global talent to achieve our objectives. INNOVATION AT ALPEK I N T E R N A L I N N O V A T I O N SUSTAINABILITY PROCESS PRODUCT BUSINESS MODEL STRATEGY O P E N I N N O V A T I O N WATER MANAGEMENT PRODUCT IMPROVEMENT CIRCULARITY ECOEFFICIENCY PROGRESS 2022 In 2022, our open innovation program allowed us to connect with +120 companies with potential solutions to the selected issues and 12 new solution routes are in the process of being deployed in Alpek. In internal innovation, 137 projects were addressed in the areas of process (64%), sustainability (16%), strategy (9%), new products or services (9%) and business model (2%). Our culture has been strengthened by providing innovation methodology training to key employees at all levels of the company who are in charge of running our operations and sites. OUR TARGET We focus on improving our current products and processes while discovering more environmentally- friendly alternatives for both.” MAXIMIZE RESOURCE EFFICIENCY We strive to minimize any adverse effects from our products and processes. 30 GRI Standards: 302-1 to 4, 305-1 to 4 TCFD: All elements | SASB: RT-CH-110a-1 FTSE4Good: ECC01, ECC31 | CSA S&P: 2.3 Carbon Emissions & Energy Eco-efficiency CO2 Emissions & Energy Consumption OV E R A L L C O 2 E M I S S I O N S ( S 1/S 2 ) Million Tons OV E R A L L E N E R GY CO N S U M P T I O N X 10 6 G J 0.3 0.4 0.4 5.2 5.5 5.3 2.6 2.2 2.4 2.1 33 35 31 3 1 . 3 1 . 3 1 . . 1 1 3 1 . 9 0 . 3 1 . 8 0 . 1 7 2 1 3 1 0.4 8 1 1 5 1 0.2 7 2 1 2 1 SBTi Base 2020 2021 2022 2020 2021 2022 Scope 1 Scope 2 Other Fuels Steam Electricity Natural Gas CO2 Emissions Intensity: (Ton CO2/Ton Produced) Energy Consumption Intensity (GJ/Ton Produced) Note: 1.- The figures above may vary due to the integration of the emissions of all plants acquired (regardless of the year), to meet the SBTi criteria. 2.- This base does not reflect the history nor the 2022 figures from the newly acquired OCTAL sites. 3.-OCTAL integration and Scope 3 to be published in our official 2022 ESG booklet STRATEGY AND EXECUTION Alpek is confident that through the transition to renewable energy sources, process and energy optimizations, among other initiatives, it will be able to meet its objectives and continue its efforts to achieve carbon neutrality by 2050. PROGRESS 2022 The Science Based Targets (SBTi) initiative’s approval of Alpek’s emission reduction goals was one of the company’s most significant Sustainability achievements, contributing to combat climate change. In addition, the acquisition of OCTAL, will allow us save several energy intensive conversion steps thanks to its direct to sheet (DPET®) technology. By the end of 2022, Alpek has reduced 19% of its absolute Scope 1 and 2 emissions from 2019 (SBTi base). OUR TARGET Alpek commits to reduce absolute scope 1 and 2 GHG emissions by 27.5% by 2030 from a 2019 base year. Alpek also commits to reduce scope 3 emissions by 13.5% within the same time frame. Alpek also commits to reach carbon neutrality by 2050.” MAXIMIZE RESOURCE EFFICIENCY We strive to minimize any adverse effects from our products and processes. 31 GRI Standards: 303-1 to 5 SASB: RT-CH-140a.13 FTSE4Good: EPR10 CSA S&P: 2.4.1, 2.4.2, 2.4.4 Circularity STRATEGY AND EXECUTION Circularity is an enabler of Alpek’s long term growth strategy. It represents one of its most important activities since Alpek has a strong commitment to reduce its environmental footprint. r - P E T C A P A C I T Y T H O U S A N D T O N S Bottle to Flake Flake to Pellet Pellet to Single Pellet r-PET-Sheet 268 268 95 137 30 70 00 33 2021 2022 2021 2022 2021 2022 2021 2022 PROGRESS 2022 In 2022, Alpek convened regular Circularity committee meetings on a quarterly basis, aimed at strengthening discussions around recycling technologies and developing circularity-focused strategies for EPS, PP, and PET. Regarding its EPS recycling goals, Alpek joined Cyclyx, a company that focuses on establishing a circular pathway for plastic recycling through innovative methods. Through these and other initiatives, Alpek is on its path to operate in a circular modality and contribute to minimize its raw materials usage. OUR 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. PP: Alpek will leverage its partnerships to develop recycling solutions for Polypropylene and increase its share of Copolymers, employed in long-term usage applications. EPS: Alpek commits to grow its long- term usage and sustainable applications for EPS, work on biodegradable alternatives, and increase recycling content in select products to at least 30% by 2030.” MAXIMIZE RESOURCE EFFICIENCY We strive to minimize any adverse effects from our products and processes. 32 GRI Standards: 303-1 to 5 SASB: RT-CH-140a.13 FTSE4Good: EPR10 CSA S&P: 2.4.1, 2.4.2, 2.4.4 Water Management OUR TARGET W A T E R I N T A K E B Y E N D - U S E M i l l i o n m 3 18.0 24.0 25 STRATEGY AND EXECUTION In line with the commitment to continuously improve water withdrawal and consumption processes, Alpek implemented several initiatives aimed at reducing water usage in its operations. PROGRESS 2022 The company owns 12 water treatment facilities to treat its own water, while the remaining plants utilize third- party services to meet water quality standards. 4.3 116 8.4 9.1 153 147 3 5 0 0 1 3 5 4 9 7 2 9 8 2020 2021 2022 Consumed Discharged Water Intake Intensity (m3/Ton Produced) Water Consumption Intensity (m3/Ton Produced) The strategy is based on identifying improvement areas, installation of new equipment, and water recovery and reuse management. Alpek has also identified the facilities located in water stressed areas through the WRI Aqueduct tool and has started developing optimization plans to address the identified risks. Note: 1.-This base does not reflect the history nor the 2022 figures from the newly acquired OCTAL sites. 2.-OCTAL figures to be published in our official 2022 ESG booklet. Among the implemented initiatives, the installation of new water recirculation centrifugal pumps, steam traps, an effluent recovery biofilter, and a closed reactor cooling circuit were executed. The Company implemented several actions such as managing stormwater for flood control, and fixing water pipelines leakages, among others. This led to a 4 percent reduction in water withdrawals compared to 2021. Closely monitor our water consumption intensity, particularly in water- stressed areas, and identify opportunities to reduce it.” LEAD WITH EMPATHY We empower our people to create value for our company and communities. 33 GRI Standards: 405-1 to 2 FTSE4Good: SLS16-1, 3, 7 CSA S&P: 3.2.2, 3.2.3 Diversity, Equity & Inclusion (DEI) 14% 1% STRATEGY AND EXECUTION A diverse workforce strengthens Alpek’s overall growth strategy. Being inclusive and providing all employees with the same opportunities will help the Company enhance decision-making processes as well as its growth as a more responsible organization. G E N D E R D I V E R S I T Y 5,359 1,037 2021 2022 6,396 6,068 1,191 7,259 PROGRESS 2022 In 2021, we identified these issues as material to our operations. Consequently, we implemented the first stage of analysis. In 2022, Alpek published its DEI policy in 4 different languages. In addition, Alpek’s Business Units continued to expand the level of detail in their analysis with the implementation of various initiatives, such as: 0.1% 0.1% 4% 22% R A C E D I V E R S I T Y 57% • Creating DEI Committees and Hispanic or Latino Caucasian Black or African American Indigenous or Native American Asian Others Not defined Women Networks. • Enabling lactation rooms, women bathrooms and dressing rooms. • Making some of its parking lots and bathrooms accessible for people with disabilities. Note: 1.- Races classified according to S&P CSA report. 2.- Including OCTAL figures after acquisition. 3.- There is an increase in “Others” Category due to the integration of the new sites of Octal located mostly in Oman and Riyadh. OUR TARGET Alpek is committed to further diversifying its workforce through more equitable hiring, retention and development strategies.” GRI Standards: 403-1 to 403-10 SASB: RT-CH 320a.1 FTSE4Good: SHS01,04,12,38,40 CSA S&P: 3.7 OV E R A L L R E CO R DA B L E I N C I D E N T S | T R I R & LT I R 0.73 0.61 0.57 0.43 0.40 66 64 7 2 9 3 2 2 2 4 0.36 66 4 2 2 4 2020 2021 2022 Non-Lost Time Incidents Lost Time Incidents TRIR LTIR LEAD WITH EMPATHY We empower our people to create value for our company and communities. 34 Occupational Safety OUR TARGET STRATEGY AND EXECUTION All of Alpek’s facilities have a Health and Safety Management System based on international standards or national regulations. PROGRESS 2022 By the end of 2022, a total of 246 different programs and training initiatives were carried out to boost health and safety in operations, with more than 25,000 attendees. This led to a 5% TRIR reduction vs. our 2021 results. Among the most relevant ones, were the implementation of the NOM-035 in Mexico, a standard aimed to ensure employee’s mental and emotional health. Other programs ranged from safety equipment correct use training, correct use of safety equipment, enhancement of safety rules in facilities, to talks and workshops on harassment and bullying in the workplace. Even though safety is a top priority, regrettably, in 2022, Alpek experienced its first fatality in the last 6 years. All serious injuries are thoroughly reviewed up to the executive level and special high focus will be given to future new sites added to Alpek’s network. Alpek strives to learn from all incidents and improve our standard ways of working across our organization. Note: 1.- Including Alpek’s employees and contractors working in all our sites 2.- Including OCTAL figures after acquisition 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.” LEAD WITH EMPATHY We empower our people to create value for our company and communities. 35 GRI Standards: 413-1, 413-2 SASB: RT-CH 320a.1 FTSE4Good: SHR16_1 CSA S&P: 3.6 Community Engagement OUR TARGET STRATEGY AND EXECUTION The current strategy has a mainly philanthropic perspective, aimed at boosting education and health of neighbors. 2022 was a year when almost all in person activities got back to normal in Alpek’s facilities. This allowed the Company to reach out to its communities and contribute to their integral development more fruitfully. PROGRESS 2022 During 2022, Alpek promoted education by constructing and rehabilitating five and two classrooms, respectively, and a multipurpose dome. Additionally, it donated furniture to schools in Mexican communities, which benefited over 6,800 students. Alpek also performed several social assistance activities to support blood donation institutions, promote breast cancer prevention, donate bicycles for the “Toys for Tots” campaign, beach cleaning, reforestation activities, and promote environmental stewardship. Alpek also attended 10 career fairs in several states to talk with students about the benefits of a STEM-related career path, and held 32 research agreements with universities. A total of 93 students performed their internships in the Company’s facilities. Donations and Volunteering Social assistance institutions benefited Volunteer employees People benefited Number of schools benefited 2022 17 1,785 +13,000 20 Cash donations +33,000 USD 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.” GROW RESPONSIBLY We increasingly rely on sustainable business practices across our entire value chain to create value for our shareholders. 36 GRI Standards: 2-6, 204-1, 308-1, 2, 412-2 TCFD Risk management Relations with Customers and Suppliers OUR TARGET STRATEGY AND EXECUTION Across the whole organization, Alpek is committed to aligning its supply chain and corporate values. The Company expects its suppliers to be transparent about their environmental and social practices, offer suggestions for improvement, and collaborate with them to transform its shared value chain. PROGRESS 2022 In 2022, Alpek finished its first Scope 3 emissions screening, representing a deeper engagement with suppliers. Other initiatives to strengthen its value chain relationships were the improvement of the B2B portal to boost customer engagement, working with three main customers to test biodegradable origin materials, and increase transparency on the Company’s reporting regarding ESG performance in several platforms and questionnaires. 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.” GROW RESPONSIBLY We increasingly rely on sustainable business practices across our entire value chain to create value for our shareholders. 37 GRI Standards: 306-1 to 6 FTSE4Good: EPR01, 02, 24, 25, 26, EPR13 CSA S&P: 2.4.2-3 Pollution STRATEGY AND EXECUTION Alpek is fully cognizant of its responsibilities as a company that handles chemicals and other substances that could pose a risk if its waste process and disposal are not properly managed. Therefore, all post industrial waste is handled under the strictest conditions and complying with all applicable regulations. W A S T E G E N E R A T I O N K t o n s 80 85 90 5 3 5 4 7 3 8 4 5 5 5 3 2020 2021 2022 Disposed Recycled/Reused Intensity (kg/Ton Produced) PROGRESS 2022 During 2022, Alpek invested more than U.S. $28 million in waste handling and disposition, including PET bottles recycling, since it recognizes PET is an infinitely recyclable material. More than 3,900 tons of waste, plus 35,000 super bags were sent to recycling or were reused in Alpek’s operations. The company also implemented an EPS Management Plan, which entailed a pilot project to collect used EPS directly from the market. Note: 1.-This base does not reflect the history nor the 2022 figures from the newly acquired OCTAL sites. 2.-OCTAL figures to be published in our official 2022 ESG booklet. OUR TARGET 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.” GROW RESPONSIBLY We increasingly rely on sustainable business practices across our entire value chain to create value for our shareholders. 38 TCFD: Risk Management CSA S&P: 1.7 Cybersecurity OUR TARGET PROGRESS 2022 In 2022, Alpek continued to carry out several campaigns and training to improve cybersecurity awareness. STRATEGY AND EXECUTION Alpek’s cybersecurity strategy is spearheaded by the Chief Information Security Officer, who ensures robust governance of the subject matter. There is a thorough structure of measures and processes that shield the Company’s systems in case of cyberattacks, but it is a priority to always be learning and upgrading our systems. Through the correct implementation of Alpek’s Information Security policy and programmed campaigns, the Company ensures its employees have the proper and timely training regarding data security. 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.” 39 GOVERNANCE GOVERNANCE GOVERNANCEGOVERNANCEGOVERNANCEGOVERNANCE40 GRI Standards: 2-9, 2-,10, 2-11 BOARD OF DIRECTORS: 11 proprietary directors with no alternates 7 independent board members Corporate Governance 64% of our Board members are independent, and 100% of the committee members are independent The Board of Directors together with the 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. 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 2022. 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 long- term strategies. Any conflict of interest must be disclosed by INVOLVED PARTIES and they must abstain from participating. 41 98% meeting attendance during 2022 • The company has internal control systems with general guidelines that are submitted to the Audit and Cor- porate Practices Committee for its opin ion. In addition, the external au- ditor validates the effectiveness of the internal control system and is- sues the corresponding reports. • The Board of Directors is advised by the planning and finance department when evaluating matters related to the feasibility of investments, stra- tegic positioning of the company, alignment of invest ing and financing policies, and reviewing invest ment projects. This is carried out in coordi- nation with the finance and planning department of the holding company, Alfa, S.A.B. de C.V. • Alpek has a department that is spe- cifically re sponsible for maintaining open communication with its sha- reholders and investors. This ensu- res that they have the financial and general informa tion required to as- sess the Company’s progress in de- veloping its activities. This function makes use of press releases, notifica- tions 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 re- commendations 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. 42 BOARD OF DIRECTORS ARMANDO GARZA SADA Age: 65 | Board Tenure: 11 years (2011) ANA LAURA MAGALONI Age: 59 | Board Tenure: 1 year (2022) ÁLVARO FERNÁNDEZ GARZA Age: 54 | Board Tenure: 11 years (2011) RODRIGO FERNÁNDEZ MARTÍNEZ Age: 46 | Board Tenure: 10 years (2012) Chairman of the Board of Alpek Partner at Magaloni Abogados | Academic | Editorialist at Grupo Reforma | Independent President of ALFA, S.A.B. de C.V. PUBLIC BOARDS: 7 Total | ALFA (Chairman) | Nemak (Co- Chairman) | Axtel | Grupo Lamosa | Liverpool | CEMEX | BBVA México PUBLIC BOARDS: 1 Total | BBVA México EDUCATION: BA from MIT | MBA from Stanford EDUCATION: BA from ITAM | Ph.D. from Universidad Autónoma de Madrid | Studies from the Judicial Specialization Center of the Mexican Supreme Court PUBLIC BOARDS: 5 Total | Axtel (Co-Chairman) | Nemak (Co- Chairman) | Cydsa | Vitro | Grupo Aeroportuario del Pacifico EDUCATION: BA from Notre Dame University | MBA from ITESM & Georgetown University Chief Executive Officer of Sigma Alimentos S.A. de C.V. | President of Comisión de PYMEs del Consejo Coordinador Empresarial PUBLIC BOARDS: 1 Total | Grupo Lamosa EDUCATION: BA from UVA | MBA from Wharton RELEVANT EXPERTISE Petrochemicals Automotive ESG Operations Public Policy Constitutional rights Consumer Goods Construction Audit & Risk Management Finance Strategic Planning Regulatory & Legal Matters 43 FRANCISCO JOSÉ CALDERON ROJAS Age: 56 | Board Tenure: 10 years (2012) ANDRÉS E. GARZA HERRERA Age: 54 | Board Tenure: 10 years (2012) MERICI GARZA SADA Age: 64 | Board Tenure: 10 years (2012) PIERRE FRANCIS HAAS GARCÍA Age: 70 | Board Tenure: 10 years (2012) Chief Financial Officer of Grupo Franca Industrias S.A. de C.V. | Independent | Audit and Corporate Practices Committee Chief Executive Officer of Qualtia Alimentos | Independent | Audit and Corporate Practices Committee PUBLIC BOARDS: 3 Total | BBVA México (Regional Advisor) | Citibanamex (Regional Advisor) | FEMSA (Alternate Member) EDUCATION: BA from ITESM | MBA from UCLA PUBLIC BOARDS: 0 Total EDUCATION: BA from ITESM | MBA from San Diego University | Global Leadership Program IMD Switzerland Investor PUBLIC BOARDS: 0 Total Managing Director of Energy at NAX Group | Independent EDUCATION: BA from ITESM | MA from Stanford PUBLIC BOARDS: 0 Total EDUCATION: BA from ITESM | MBA from IPADE | Ph.D. in Economics from Cambridge University JOSÉ ANTONIO RIVERO LARREA Age: 69 | Board Tenure: 4 years (2018) ENRIQUE DE JESÚS ZAMBRANO BENÍTEZ Age: 66 | Board Tenure: 10 years (2012) JAIME ZABLUDOVSKY KUPER Age: 66 | Board Tenure: 3 years (2019) FRANCISCO GARZA EGLOFF Chairman of the Board of Compañía Minera Autlán | CEO and Chairman of the Board of SFMH | Independent Chairman of Grupo Proeza, S.A. de C.V. | Independent | Audit and Corporate Practices Committee PUBLIC BOARDS: 1 Total | Compañía Minera Autlán (Chairman) PUBLIC BOARDS: 1 Total | BBVA México EDUCATION: BA from ITESM | MBA from ITESM EDUCATION: BA from ITESM & MIT | MBA from Stanford Investor PUBLIC BOARDS: 1 Total | Fibrahotel EDUCATION: BA from ITAM | Ph.D. from Yale RELEVANT EXPERTISE Petrochemicals Automotive ESG Operations Public Policy Consumer Goods Audit & Risk Management Finance Strategic Planning Energy Agribusiness Real Estate M&A 44 MANAGEMENT MANAGEMENT Chief Financial Officer JOSÉ CARLOS PONS DE LA GARZA President of Polypropylene Business ALEJANDRO LLOVERA ZAMBRANO Chief Executive Officer JOSÉ DE JESÚS VALDEZ SIMANCAS President of Polyester Business JORGE P. YOUNG CERECEDO President of Expandable Styrenics Business ANDREAS PLETTNER RUTISHAUSER Senior Vice President, Human Capital ARMANDO RAMOS CANTÚ Our Management Team establishes the guidelines and general strategy for CONDUCTING THE BUSINESS WITH THE HIGHEST ETHICAL STANDARDS. TEAM TEAM President of Polyester Filament and Fertilizer Business GUSTAVO TALANCÓN GÓMEZ President of Specialty Chemicals Business DAVID COINDREAU GARZA President of Natural Gas Business ROBERTO BLANCO SÁNCHEZ 45 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. All of Alpek’s operations are carried out under a framework of legality, respect for human rights and ethical conducts. 46 FINANCIAL REVIEW FINANCIAL REVIEW FINANCIALFINANCIALFINANCIALREVIEWREVIEW47 Financial Review 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). Volume [thousand of tons] 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Polyester 4,099 3,796 3,918 Plastics & Chemicals 966 1,002 883 Total Volume 5,065 4,798 4,802 8 (4) 6 (3) 13 (0) VOLUMES Alpek surpassed its annual volume record reaching 5,065 thousands of tons in 2022, 6% higher than the 4,798 thousands of tons in 2021, and setting a new historical high for its Polyester segment. Price Index POLYESTER Millions of Pesos Millions of Dollars PLASTICS & CHEMICALS Millions of Pesos Millions of Dollars TOTAL Millions of Pesos Millions of Dollars 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] 158 168 169 178 177 188 119 125 165 173 137 145 100 100 100 100 100 100 33 34 2 3 29 30 19 25 65 73 37 45 48 Revenues POLYESTER 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Millions of Pesos 140,717 98,000 85,280 Millions of Dollars 6,991 4,828 3,976 PLASTICS & CHEMICALS Millions of Pesos 46,804 47,470 25,349 Millions of Dollars 2,321 2,342 1,192 OTHERS Millions of Pesos 24,914 10,754 3,360 Millions of Dollars 1,243 528 158 TOTAL REVENUES Millions of Pesos 212,435 156,224 113,989 Millions of Dollars 10,555 7,697 5,326 44 45 (1) (1) 132 135 36 37 15 21 87 97 220 234 37 45 REVENUES Alpek’s total revenue in 2022 was $212,435 million (US $10,555 million), 36% higher than the $156,224 million (US $7,697 million) in 2021. This increase was primarily driven by a rise in average prices of 29% and 30% in pesos and dollars, respectively, and increased feedstock prices along with a stronger consolidated volume. REVENUES BY BUSINESS SEGMENT Polyester’s net revenues in 2022 were $140,717 million (US $6,991 million), 44% more than the $98,000 million (US $4,828 million) in 2021. This segment posted an increase of 33% and 34% in average sale prices in pesos and dollars, respectively. Volume increased 8% when compared to 2021 mainly due to the incorporation of the PET Sheet and PET Resin facilities in the Middle East, accompanied by a solid demand. Plastics & Chemicals posted revenues of $46,804 million (US $2,321 million) in 2022, in comparison to the $47,470 million (US $2,342 million) in 2021. The average sale prices in pesos and in dollars increased by 2% and 3%, respectively, whereas volume decreased by 4% year-over-year, resulting in an overall 1% decrease in revenues. EBITDA [Millions of Pesos] 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Polyester 17,923 12,560 6,842 Plastics & Chemicals 11,391 10,173 4,920 Others 110 501 231 Total EBITDA 29,424 23,234 11,993 43 12 (78) 27 84 107 117 94 EBITDA [Millions of Dollars] Polyester Plastics & Chemicals Others 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] 886 564 5 618 503 25 324 229 12 43 12 (78) 27 90 119 121 103 Total EBITDA 1,455 1,145 565 49 OPERATING PROFIT AND EBITDA In 2022, the operating income was $24,539 million (US $1,212 million), 40% higher than the $17,494 million (US $864 million) in 2021. As of December 31, 2022, consolidated EBITDA was $29,424 million (US $1,455 million) an increase of 27% compared to the $23,234 million (US $1,145 million) of 2021. The consolidated EBITDA includes a net positive effect from extraordinary items of $1,308 million (US $60 million), resulting in a Comparable EBITDA of $28,116 million (US $1,396 million), 44% higher than in 2021, making this a record year with the highest figure in Alpek’s history. OPERATING PROFIT AND EBITDA BY BUSINESS SEGMENT In 2022, the EBITDA for the Polyester segment increased by 43% to $17,923 million (US $886 million), including a net positive effect from extraordinary items of $1,346 million (US $63 million). Adjusting for these items, the Comparable EBITDA for the Polyester segment was $16,577 million (US $823 million), an increase of 78% year-over- year as there was an import parity benefit from freight costs, as well as incremental volume from the acquired PET business. The EBITDA for the Plastics & Chemicals segment increased 12% to $11,391 million (US $564 million), compared to $10,173 million (US $503 million) in 2021, including a net negative effect from extraordinary items of $38 million (US $3 million). Adjusting for these items, the Comparable EBITDA for the Plastics & Chemicals segment was $11,429 million (US $567 million), an increase of 17% year-over-year, due to high PP demand and reference margins, as well as higher EPS reference margins and freight costs throughout most of the year. 50 Financial result, net [Millions of Pesos] 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Taxes [Millions of Pesos] 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Financial expense (3,224) (3,082) (2,497) Financial income 922 590 525 Financial expenses, net (2,302) (2,492) (1,972) Loss due to exchange fluctuation, net (695) (652) (113) Financial result, net (2,997) (3,144) (2,085) (5) 56 8 (6) 5 (23) 12 (26) (480) (51) NET FINANCIAL RESULT In 2022, the net financial cost was -$2,997 million (US -$148 million), 5% lower than in 2021. The net financing expenses that comprise this item decreased from -$2,492 million (-$122 million) in 2021, to -$2,302 million (US -$114 million) in 2022. In addition, variations in exchange rates resulted in the recognition of a non-cash foreign exchange loss of -$695 million (US -$34 million) in 2022, versus -$652 million (US -$32 million) in 2021. Income (loss) before taxes 21,475 14,311 5,323 50 169 Income tax rate 30% 30% 30% Statuory income tax rate (expenses) benefit Taxes for permanent differences between accounting-taxable profit (6,443) (4,293) (1,597) (50) (169) 934 178 395 423 (55) Total income tax (5,509) (4,115) (1,202) (34) (242) Effective tax rate 26% 29% 23% Comprised as follows: Current income tax (5,345) (4,304) (1,933) (24) Deferred income tax (164) 189 731 (187) (123) (74) Total income tax (5,509) (4,115) (1,202) (34) (242) TAXES In 2022, an income tax was posted for -$5,509 million (US -$272 million) as a result of the increased pretax income, while 2021 posted an income tax of -$4,115 million (US -$202 million). 51 Statement of income [Millions of Pesos] 2022 2021 2020 ‘22 vs ‘21 [%] ‘21 vs ‘20 [%] Operating income 24,539 17,494 7,493 Financial result, net (2,997) (3,144) (2,085) 40 5 Equity in income of associates and joint ventures (67) (39) (85) (74) 133 (51) 54 Income tax (5,509) (4,115) (1,202) (34) (242) Consolidated net income 15,966 10,196 4,121 Income attributable to Controlling interest 13,744 7,756 3,123 57 77 147 148 NET INCOME ATTRIBUTABLE TO THE CONTROLLING INTEREST In 2022, consolidated net income attributable to the controlling interest was $13,744 million (US $679 million), 77% higher than the $7,756 million (US $385 million) in the previous year, stemming from higher operating income. INVESTMENTS IN FIXED AND INTANGIBLE ASSETS In 2022, investments in fixed and intangible assets totaled $17,339 million (US $862 million), 279% higher than the $4,580 million (US $227 million) posted in 2021. The resources were mainly allocated to the OCTAL acquisition and a portion for CCP’s construction, as well as scheduled maintenance and minor asset replacements. THE EBITDA FOR THE PLASTICS & CHEMICALS SEGMENT INCREASED 12% TO $11,391 MILLION (US $564 MILLION), COMPARED TO $10,173 MILLION (US $503 MILLION) IN 2021, INCLUDING A NET NEGATIVE EFFECT FROM EXTRAORDINARY ITEMS OF $38 MILLION (US $3 MILLION). NET DEBT1 Net debt was $36,005 million (US $1,860 million) as of December 31, 2022, 43% above the $25,219 million (US $1,225 million) as of December 31, 2021. The cash balance and cash equivalents totaled $6,872 million (US $355 million) including restricted cash at year- end 2022. 52 Financial Indicators [Times] Net Debt / EBITDA Interest Coverage Total liabilities / Stockholders’ equity 2022 2021 2020 1.3 11.4 1.6 1.1 8.7 1.5 2.1 6.0 1.3 Short and long term debt2 [Millions of Dollars] 2022 2021 ‘22 vs ‘21 [%] Integrated ‘22 [%] Integrated ‘21 [%] Short-term debt Current portion of LT debt 2 years 3 years 4 years 5 years 6 years 7 years 8+ years Total 38 219 -92 -100 100 100 - 100 -45 30 2 15 1 - 2 25 - 25 30 100 2 6 19 2 - - - - 71 100 49 300 25 - 50 500 - 499 605 2,027 5.4 5.5 35 94 300 30 - - - - 1,103 1,563 6.8 6.7 (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. Avg. Maturity long-term debt (years) Avg. Maturity total debt (years) 53 APPENDIX APPENDIX APPENDIXAPPENDIXAPPENDIXAPPENDIXAPPENDIXAPPENDIXARCEL® A Polystyrene (PS) & Polyethylene (PE) copolymer used in protective packaging for high-end products like electronics. Due to its resistance to tearing, puncturing, cracking, and flaking, it absorbs shocks without decreasing its protection. A C CIRCULARITY All products that have a circularity focus are manufactured in a way so they can be disassembled or come to their end-of-life and their materials will either be broken down by nature or returned to production. It means that these products are designed, and developed with their end-of-life taken into consideration. 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. E 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. 54 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. GLOSSARY AEC55 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. 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, temperature-sensitive packaging. PET has replaced glass and aluminum, as well as other plastics such as PVC and polyethylene, for making containers. 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 Unsaturated, 3-carbon 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 GLPM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 industrial applications, as well as other consumer products. 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. S 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. 56 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. WATT Unit of power in the International System of Units (SI). W STWCountry Site PTA Resin Sheet Flake Pellet SPT Fibers PP EPS Arcel Other 57 160 640 240 Our Footprint Note: rPET flake capacity was modified to reflect inputs / totals and may reflect rounding. Kta: Thousand tons per year Source: Alpek estimates Monterrey Altamira 1,000 Mexico (3,310) Salamanca Cosoleacaque 610 185 Lerma Fayetteville, NC Charleston, SC Columbia, SC 640 Bay St. Louis, MS USA (2,745) Richmond, IN Darlington, SC Monaca, PA Cincinnati, OH Reading, PA Canada (144) Montreal Zárate 170 170 725 430 144 190 15 15 15 64 66 31 26 33 115 41 Argentina (246) Pacheco 22 15 Brazil (1,226) Chile (28) Oman (1,024) General Lagos Guaratingueta Ipojuca Santiago Puerto Montt Punta Arenas Concon Salalah 640 450 90 576 400 24 24 Saudi Arabia (11) Riyadh UK (220) Wilton 220 TOTAL CAPACITY: 8,954 Kta 2,890 3,260 433 268 137 70 250 640 493 36 479 360 100 5 2 1 11 36 123 45 19 46 20 OUR VALUE CHAINS 58 PET SHEET THERMOFORM PACKAGING rPET SHEET OIL NAPHTHA REFINERY R E M R O F E R PARAXYLENE PTA PET ETHANE ETHYLENE CRACKER R E K C A R C OIL NAPHTHA REFINERY R E K C A R C PROPANE PHD PROPYLENE BENZENE PENTANE STYRENE POLYETHYLENE EPS ARCEL ETHYLENE OXIDE MONOETHYLENE GLYCOL POLYPROPYLENE rPET FLAKE rPET PELLET FIBERS Alpek’s products are used by millions of people daily, IN A WIDE VARIETY OF APPLICATIONS. OUR APPROACH TO REPORTING 59 Through our 2022 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, 2022. 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 reference to the GRI Standards 2021 and 2016 versions. The contents used were defined based on our ESG assessment, Project Evergreen, which ensued 12 priority issues for our company. The information that has been restated is indicated throughout the text in every case. 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 Climate-related Financial Disclosures (TCFD). For additional information, we prepared an ESG Booklet available on: https://www.alpek.com/esg/governance/ CONSOLIDATED F I N A N C I A L STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020, AND INDEPENDENT AUDITORS’ REPORT DATED JANUARY 31, 2023 Alpek, S. A. B. de C. V. and Subsidiaries (Subsidiary of Alfa, S. A. B. de C. V.) 61 Independent Auditors’ Report 65 Consolidated Statements of Financial Position 66 Consolidated Statements of Income 67 Consolidated Statements of Comprehensive Income 68 69 Consolidated Statements of Changes in Stockholders’ Equity Consolidated Statements of Cash Flows 70 Notes to the Consolidated Financial Statements 60Independent Auditors’ Report to the Board of Directors and Stockholders of Alpek, S. A. B. de C. V. and Subsidiaries (Figures in millions of Mexican pesos “$” and millions of U.S. dollars “US$”) Opinion We have audited the consolidated financial statements of Alpek, S. A. B. de C. V. and Subsidiaries (“Alpek” or the “Company”), which comprise the consolidated statements of financial position as of December 31, 2022, 2021 and 2020, and the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements of changes in stockholders’ 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 posi- tion of Alpek, as of December 31, 2022, 2021 and 2020, and their consolidated financial performance and their consolidated cash flows for the years then ended, in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. Basis for Opinion We conducted our audits in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”) together with the Code of Ethics issued by the Mexican Institute of Public Accountants (“IMCP Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and with the IMCP Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Matters As mentioned in Note 2 a. in the consolidated financial statements, derived from the acquisition of Octal, Alpek assumed control on June 1, 2022, consolidating its operations as of that date, therefore, the consolidated financial statements as of and for the year ended December 31, 2022 are not comparable with previous years. The accompanying consolidated financial statements have been translated from Spanish to English for the convenience of readers. These matters have not changed our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year 2022. 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 – Acquisition and allocation of the purchase price of OCTAL As mentioned in Note 2 a. to the accompanying consolidated financial statements, on January 31, 2022, a subsidiary of the Company entered into an agreement to acquire Octal business. The initial consideration amounted to $12,147 (US$620). On June 1, 2022, Alpek assumed control of Octal’s operations. As of the acquisition date, working capital and recovery of cost adjustments related to the transac- tion were made, and together reduced the initial consideration by $186.1 (US$9.5); additionally, an adjustment was made for cash surplus against debt which increased the initial consideration by $1,782.9 (US$91). The contract includes a contingent consideration based on future business results and other considerations, which in compliance with the requirements of IFRS 3, Business Combinations, (“IFRS 3”) was valued at $914.9 (US$46.7) and together with the aforementioned adjustments resulted in a total consideration that was equivalent to $14,658.7 (US$748.2). 61The acquisition of Octal met the criteria for a business combination in accordance with the requirements of IFRS 3; therefore, the Company applied the acquisition method to measure the acquired assets and the assumed liabilities in the transaction, as a result, the fair value of the net acquired assets amounted to $15,087.3 (US$769.9) and the Company recognized a gain on business combination for $425.0 (US$21.7). Due to the significant judgments used by management in the valuation models for determining the consideration transferred, the fair values of the acquired assets and assumed liabilities, which resulted in a gain on business combination, we consider this transaction to be a key audit matter. Therefore, in order to perform the audit procedures that reasonably mitigates the identified risk, we engaged a team of valuation experts to evaluate the premises and criteria used by Management and its independent expert, within which the following procedures are included, among others: • We reviewed the contractual agreements of the transaction to identify the date of acquisition of control, the consideration transferred, the acquired entities and the acquiring entity, contingent considerations, among other agreements. • • • • We assessed the capacity and independence of the independent expert. We verified that the methodologies and models used by Management to determine the fair values were those used and recog- nized to value assets with similar characteristics in the industry. We challenged Management’s financial projections and compared them with business performance indicators. We reviewed the most relevant valuation assumptions (discount rate and long-term growth rate), as well as the assumptions used in the valuation of long-lived assets and compared them with independent market and industry sources. • We reviewed compliance with the presentation and disclosure requirements established by IFRS 3. The results of our procedures were satisfactory. Information Other Than the Consolidated Financial Statements and Auditor’s Report Thereon The Company’s management is responsible for the additional information presented. Additional information includes: (i) the Annual Stock Exchange Filling, (ii) the information that will be incorporated in the Annual Report that the Company is required to prepare in accordance with Article 33, section I, subsection b) of Title Four, Chapter One of the General Provisions Applicable to Issuers and other Participants of the Stock Market in México and the Instructions that accompany these provisions (the “Provisions”). It is expected that the Annual Stock Exchange Filling and the Annual Report to be available for reading after the date of this audit report; and (iii) other additional information, which is a measure that is not required by IFRS, and has been incorporated for the purpose of providing additional explanation to its investors and main readers of its consolidated financial statements to evaluate the performance of each of the operating segments and other indicators on the capacity to meet obligations regarding the earnings before interest, taxes, depreciation, amortization and non-current asset impairment (“adjusted EBITDA”) of the Company; this information is presented in Note 29. Our opinion of the consolidated financial statements does not cover the other information and we will not express any form of assurance about it. In connection with our audit of the consolidated financial statements, our responsibility will be to read the additional information, when it becomes available, and when we do so, to consider whether the additional information contained therein is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or appears to contain a material misstatement. When we read the Annual Report, we will issue the declaration on its reading, required in Article 33, Section I, subsection b) number 1.2 of the Provisions. Also, and in connection with our audit of the consolidated financial statements, our responsibility is to read and recalculate the additional information, which in this case is the annual report and the measure not required by IFRS, and in doing so, consider whether the other information contained therein is materially inconsistent with the consolidated financial statements or our knowledge obtained during the audit, or appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement in the additional information; we would be required to report that fact. As of the date of this report, we have nothing to report in this regard. 62Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s consolidated financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. – Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. – Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision, and performance of the audit of the consolidated financial statements of the Company. We remain solely responsible for our audit opinion. 63 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 inde- pendence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a 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. Jesús Israel Almaguer Gámez Monterrey, Nuevo León, México January 31, 2023 64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, 2022, 2021 and 2020 In millions of Mexican pesos Assets Current assets: Cash and cash equivalents Restricted cash Trade and other accounts receivable, net Inventories Derivative financial instruments Prepayments Total current assets Non-current assets: Restricted cash Property, plant and equipment, net Right-of-use asset, net Goodwill and intangible assets, net Deferred income taxes Derivative financial instruments Prepayments Investments accounted for using the equity method and 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 Note 2022 2021 2020 6 6 7 8 4 9 6 10 11 12 20 4 9 13 16 17 15 20 4 18 16 17 4 18 20 20 19 21 22 14 $ $ $ $ $ $ 6,319 193 23,248 33,893 7 765 64,425 360 48,451 3,452 4,425 1,709 3 7 13,987 72,394 136,819 7,712 821 31,985 1,410 1,220 794 43,942 31,369 2,803 21 1,060 3,845 - 1,025 560 40,683 84,625 6,021 8,917 31,032 933 46,903 5,291 52,194 10,541 13 24,502 25,705 333 686 61,780 - 39,405 3,554 3,348 1,630 18 31 14,179 62,165 123,945 2,660 733 29,853 1,630 248 546 35,670 29,333 2,875 6 835 4,124 241 1,029 246 38,689 74,359 6,028 8,976 24,591 4,121 43,716 5,870 49,586 $ $ $ 10,144 12 17,050 17,447 454 442 45,549 - 38,579 2,991 3,637 1,506 70 15 14,006 60,804 106,353 456 704 19,545 531 66 50 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 Total liabilities and stockholders’ equity $ 136,819 $ 123,945 $ 106,353 The accompanying notes are an integral part of these consolidated financial statements. 65 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, 2022, 2021 and 2020 In millions of Mexican pesos, except for earnings per share amounts Note 2022 2021 2020 Revenues Cost of sales Gross profit Selling expenses Administrative expenses Other income (expenses), net 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 29 24 24 24 25 26 26 26 20 Earnings per basic and diluted share, in Mexican pesos Weighted average outstanding shares (millions of shares) The accompanying notes are an integral part of these consolidated financial statements. $ 212,435 $ 156,224 $ 113,989 (181,401) (131,537) (102,283) 31,034 (3,144) (3,799) 448 24,539 922 (3,224) (695) (2,997) (67) 21,475 (5,509) 24,687 (2,570) (3,466) (1,157) 17,494 590 (3,082) (652) (3,144) (39) 14,311 (4,115) 11,706 (2,136) (3,260) 1,183 7,493 525 (2,497) (113) (2,085) (85) 5,323 (1,202) $ $ $ $ 15,966 $ 10,196 $ 4,121 $ $ $ 13,744 2,222 15,966 6.52 2,108 $ $ $ 7,756 2,440 10,196 3.67 2,111 3,123 998 4,121 1.48 2,113 66 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, 2022, 2021 and 2020 In millions of Mexican pesos Note 2022 2021 2020 Net consolidated income Other comprehensive (loss) income for the year: Equity in other comprehensive income of associates and joint ventures recognized through the equity method $ 15,966 $ 10,196 $ 4,121 1 (1) 3 Items that will not be reclassified to the statement of income: Remeasurement of employee benefit obligations, net of taxes 19, 20 (19) 344 (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 4, 20 4, 20 Total other comprehensive (loss) income for the year Consolidated comprehensive income Attributable to: Controlling interest Non-controlling interest Comprehensive income for the year (855) (2,652) (3,525) (431) 110 22 614 (767) (180) 12,441 $ 10,218 $ 3,941 10,556 1,885 $ 7,586 2,632 $ 2,663 1,278 12,441 $ 10,218 $ 3,941 $ $ $ The accompanying notes are an integral part of these consolidated financial statements. 67 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, 2022, 2021 and 2020 In millions of Mexican pesos Capital stock Share premium Retained earnings Other reserves Total controlling interest Non- Total controlling stockholders’ interest equity Balance as of January 1, 2020 $ 6,045 $ 9,059 $ 20,625 $ 4,751 $ 40,480 $ 4,578 $ 45,058 3,123 - 3,123 998 4,121 Net income Total other comprehensive loss for the year Comprehensive income Dividends declared Reissuance of shares Repurchase of shares - - - - 1 - - - - 1 (11) (35) Balance as of December 31, 2020 6,035 9,025 Net income Total other comprehensive income for the year Comprehensive income Dividends declared Reissuance of shares Repurchase of shares Other - - - - 30 (37) - - - - - 206 (255) - 3,123 (2,713) - - 21,035 7,756 - 7,756 (3,806) - - - (394) (460) (460) - - - (460) 2,663 (2,713) 2 (46) 4,291 40,386 - 7,756 (170) (170) (170) 7,586 280 1,278 (180) 3,941 (730) (3,443) - - 5,126 2,440 192 2,632 2 (46) 45,512 10,196 22 10,218 - - - - (3,806) (1,889) (5,695) 236 (292) (394) - - 1 236 (292) (393) Balance as of December 31, 2021 6,028 8,976 Net income Total other comprehensive income for the year Comprehensive income Dividends declared Reissuance of shares Repurchase of shares Other - - - - 19 (26) - - - - - 161 (220) - 24,591 13,744 4,121 - 43,716 13,744 5,870 49,586 2,222 15,966 - (3,188) (3,188) (337) (3,525) 13,744 (7,515) - - 212 (3,188) 10,556 1,885 12,441 - - - - (7,515) (2,464) (9,979) 180 (246) 212 - - - 180 (246) 212 Balance as of December 31, 2022 $ 6,021 $ 8,917 $ 31,032 $ 933 $ 46,903 $ 5,291 $ 52,194 The accompanying notes are an integral part of these consolidated financial statements. 68 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, 2022, 2021 and 2020 In millions of Mexican pesos Cash flows from operating activities Income before income taxes Depreciation and amortization Impairment of long-lived assets Allowance for doubtful accounts Financial result, net Gain on business combinations Gain on business sale Loss on sale of property, plant and equipment Statutory employee profit sharing, provisions and other items Subtotal Movements in working capital (Increase) decrease in trade receivables and other assets (Increase) decrease 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 Cash flows in business sale, net of cash transferred Cash flows (paid) collected in investment in associates and joint ventures Loans collected from related parties Notes receivable Collection of notes Restricted cash 2022 2021 2020 $ $ 21,475 4,639 246 (163) 2,699 (425) - 74 764 14,311 4,280 1,460 25 2,951 (29) - 29 302 $ 5,323 4,486 14 77 1,772 (657) (89) 74 (500) 29,309 23,329 10,500 365 (5,525) (3,218) (5,721) 15,210 511 (3,068) 93 (11) (10,198) - (831) - (35) 883 (252) (8,159) (8,994) 9,448 (2,394) 13,230 322 (4,418) 5 (18) 78 - (227) - - 398 - 894 2,522 659 (2,641) 11,934 197 (2,543) 18 (45) (921) 108 15 10 - 845 228 Net cash flows used in investing activities (12,908) (3,860) (2,088) Cash flows from financing activities Proceeds from debt Payments of debt Lease payments Interest paid Dividends paid by Alpek, S. A. B. de C. V. Dividends paid by subsidiaries to non-controlling interest Repurchase of shares Reissuance of shares Loan payments to related parties and others Net cash flows used in financing activities (Decrease) increase in cash and cash equivalents Effect of changes in exchange rates Cash and cash equivalents at the beginning of the year 15,600 (7,474) (1,109) (2,541) (7,443) (2,464) (246) 180 (118) (5,615) (3,313) (909) 10,541 13,038 (12,708) (1,049) (2,566) (3,710) (1,889) (292) 236 (46) 13,044 (12,550) (1,083) (1,954) (2,713) (730) (46) 2 - (8,986) (6,030) 384 13 10,144 3,816 (731) 7,059 Cash and cash equivalents at the end of the year $ 6,319 $ 10,541 $ 10,144 The accompanying notes are an integral part of these consolidated financial statements. 69 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, 2022, 2021 and 2020 Millions of Mexican pesos, except where otherwise indicated 1 . GENER AL INFORMATION Alpek, S. A. B. de C. V. and subsidiaries (“Alpek” or the “Company”) is a petrochemical company with operations through two major business segments: “Polyester” and “Plastic and Chemicals”. The Polyester segment comprises the production of purified terephthalic acid (“PTA”), polyethylene terephthalate (“PET”), recycled PET (“rPET”), and polyester fibers, which are mainly used for food and beverage packaging, textile and industrial filament markets. The Plastics & Chemicals business segment comprises the production of polypropylene (“PP”), expandable styrene (“EPS” and “Arcel®”), fertilizers and other chemicals, which serves a wide range of markets, including the consumer goods, automotive, construction, agriculture, pharmaceutical and other markets. Alpek is one of the largest petrochemical companies in México and the second largest in Latin America. Additionally, it is the main integrated producer of polyester and one of the main producers of rPET in America. It operates the largest EPS plant in the conti- nent, and one of the largest PP plants in North America. When reference is made to the controlling entity Alpek, S.A.B. of 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, 2022, 2021 and 2020, the percentage of shares that traded on the MSE was 17.39%, 17.51% and 17.63%, respectively. Alpek SAB is located at Avenida Gómez Morín Sur No. 1111, Col. Carrizalejo, San Pedro Garza García, Nuevo León, México and oper- ates productive plants located in México, the United States of America, Oman, Saudi Arabia, 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 2022 a. OCTAL Acquisition On January 31, 2022, a subsidiary of Alpek signed an agreement to acquire the Octal business (see Note 3b). This acquisition represents a growth through vertical integration for Alpek into the high value PET sheet business. Octal is a major global producer of PET sheet through a strategically centered logistics position in Oman. Alpek acquired Octal for a consideration of $12,147 (US$620). On June 1, 2022, Alpek assumed control of Octal’s operations. From the acquisition date, working capital and recovery of cost adjustments related to the transaction were made, and together reduced the initial consideration by $186.1 (US$9.5); additionally, an adjustment was made for cash surplus against debt which increased the initial consideration by $1,782.9 (US$91). The contract includes a contingent consideration based on future business results and other considerations, which, in compliance with the requirements of IFRS 3, Business Combinations (“NIIF 3”), was valued at $914.9 (US$46.7) and that together with the aforementioned adjustments derived in a total consideration that was equivalent to $14,658.7 (US$748.2). Total cash flows paid for the acquisition amounted to $13,397.1 (US$682.9), which were made by wire transfer. Financing for the acquisition was through a combination of free cash flow generated from existing businesses and dedicated bank loans. 70The amount pending payment as of December 31, 2022 retained by Alpek pursuant to the agreement for possible litigation is $360.1 (US$18.6), was deposited in a trust, and is presented within restricted cash and its corresponding liability. The acquisition of Octal met the criteria for a business combination in accordance with the requirements of IFRS 3; therefore, the Company applied the acquisition method to measure the acquired assets and assumed liabilities in the transaction. The fair values are as follows: Current assets (1) Non-current assets (2) Intangible assets (3) Current liabilities (4) Non-current liabilities (5) Net assets acquired Gain on business combination Final consideration Cash surplus net of debt Total consideration net of cash surplus US$ 551.4 604.8 83.4 (432.2) (37.5) 769.9 (21.7) 748.2 (91) US$ 657.2 (1) Current assets consist of cash, restricted cash, accounts receivable, inventories and other assets for US$160.6, US$14.9 US$118.8, US$252.7 and US$4.4, respectively. (2) Non-current assets consist of property, plant and equipment and right of use assets of US$591.6 and US$13.2, respectively. (3) Intangible assets consist of patents. (4) Current liabilities consist of suppliers and other accounts payable, current portion of debt, and other liabilities for US$388.2, US$41.0 and US$3.0, respectively. (5) Non-current liabilities consist of debt, lease liability and other liabilities for US$20.6, US$13.7 and US$3.2, respectively. As a result of this transaction, a gain associated with the business combination was recognized for an amount of $425.0 (US$21.7), recognized in 2022 in the other income (expenses), net item (see Note 25). Under the terms of IFRS 3, the gain associated with the business combination was primarily generated because the sale of the business followed the strategy maintained by the selling shareholders of taking the opportunity to exit, even sacrificing the value of the assets at that time. Revenues and net income for the seven-month period ended December 31, 2022, contributed by Octal amounted to $17,174 (US$858) and $3,013 (US$150), respectively. The results of the acquired operations have been included in the consolidated financial statements since the acquisition date, there- fore, the consolidated financial statements as of and for the year ended December 31, 2022 are not comparable with previous years. The consolidated statement of cash flows for the year ended December 31, 2022, presents the disbursement for the acquisition of Octal in a single line within investment activities, net of the cash acquired. If the acquisition had occurred on January 1, 2022, proforma consolidated revenues and net income for the year ended December 31, 2022, would have been $29,317 (US$1,455) and $4,805 (US$238), respectively. These amounts were calculated using the results of the subsidiary and adjusting them for the additional depreciation and amortization that would have been recognized assuming the fair value of the adjustments of property, plant and equipment and intangible assets as of January 1, 2022. b. Corpus Christi Polymers resumes construction On July 18, 2022, Alpek announced that the three partners of Corpus Christi Polymers LLC (“CCP”) would resume the construction of the plant in August 2022 with completion expected in early 2025. The project will have a total capacity of 1.1 million tons and 1.3 million tons per year of PET and PTA, respectively, with which Alpek would have approximately 367,000 tons of PET and 433,000 tons of PTA. CCP expects to have the most competitive state-of-the-art plant in the Americas, which will use Alpek’s IntegRex technology for PTA processes, among others. During the year ended December 31, 2022, the investments made were for $733 (US$36.5). 71 2021 c. Debt issuance On February 18, 2021, Alpek SAB issued Senior Notes, on the Irish Stock Exchange, to qualified institutional investors under the Rule 144A and other investors outside the United States of America under Regulation S, for an amount of US$600, gross of issuance costs of US$5 and discounts of US$2. The Senior Notes have a ten-year maturity and a 3.25% coupon payable semi-annually. Proceeds from the transaction were primarily used to prepay debt including accrued and unpaid interest. d. Acquisition of a rPET plant from CarbonLITE On June 10, 2021, the Company acquired a PET recycling and pelletizing facility from CarbonLite Recycling LLC (“CarbonLITE”) in Reading, Pennsylvania in the United States. The plant was acquired, free of debt, for US$96, plus working capital. CarbonLITE Reading facility is equipped with incoming bottle handling, washing and solid-state polymerization (“SSP”) systems, which enable the production of food-grade pellets and are required for bottle-to-bottle recycling. The site has a bottle-to-flake and flake-to-pellet capacity of 60,000 tons and 40,000 tons of production per year, respectively. This acquisition is in line with the objective of promoting a circular economy in accordance with the Company´s long-term strategic growth plan. Additionally, it increases Alpek´s installed rPET capacity to 160,000 tons of production per year and advance towards the Company´s goal of supplying certain customers with 25% rPET content by 2025. The Company´s consolidated financial statements include the financial information of the acquired assets. The Company applied the optional test established in IFRS 3, Business Combinations, to assess the concentration of the fair value of the acquired assets and determine whether such fair value is substantially concentrated in a group of similar identifiable assets. In line with the above, the Company determined that the transaction did not meet the criteria of a business combination, therefore it was classified as an asset acquisition. In the initial recognition of the operation, the Company identified and recognized all the assets, allocating the purchase price to the individual assets identified, on a proportional basis in relation to their fair values at the acquisition date. Consequently, the transaction did not give rise to goodwill or gain from a bargain purchase. e. Impairment in Univex In November 2021, the Company decided to close its caprolactam production area (raw material for the production of Nylon 6) of its Univex, S.A. de C.V. plant., subsidiary of Unimor, S.A. de C.V., as well as its affiliate Sales del Bajío, S.A. de C.V. that produces carbonates; the aforementioned, derived from the fall in the market prices and profit margins worldwide. The Company is in process of evaluating the future use of the Univex, S.A. de C.V. facilities since they continue to be used for fertilizer production line, which continues in operation. As a result, the Company recognized an impairment of long-lived assets for $936, deferred income tax asset for $257, other liabilities for $308 and early insurance cancellation for $8, approximately. f. Announcement of closure of the staple fibers operations in Cooper River On May 4, 2021, the Company through its subsidiary Dak Americas LLC, announced the closure of its polyester staple fiber opera- tions at its Copper River site, in Charleston, SC. As a result, the impact was $679 (US$33), approximately, recognized in the statement of income. The plant ceased operations of staple fiber during the month of December 2021. g. Adjustments from previous years in Univex During 2021 in Univex S. A. de C. V. adjustments from previous years were identified and corrected in such subsidiary, the net effect of these adjustments is reflected in the consolidated statement of changes in stockholders’ equity of Alpek in “others”. h. Acquisition of a styrenics business from NOVA Chemicals On October 19, 2020, the Company announced that one of its subsidiaries signed an agreement with NOVA Chemicals Corpora- tion (“NOVA Chemicals”) for the purchase of its expanded styrenics business, through the acquisition of a 100% interest in BVPV Styrenics LLC, owner and operator of 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®, in addition to a world-class research and development (R&D) pilot plan; and a second facility located in Painesville, Ohio, with an annual capacity of 45,000 tons of EPS. 72The initial value of the consideration amounted to US$50, which was paid in cash by means of a transfer on the closing date of the transaction, which occurred on October 30, 2020, which corresponds to the date on which the Company acquired control of the business. During 2021, net working capital adjustments were made that resulted in a recovery of US$4 on the purchase price, resulting in a final consideration of US$46. The acquisition of BVPV Styrenics LLC 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 acquired assets and the assumed liabilities in the transaction. The purchase price allocation was determined in 2021, and the adjustments derived from the acquisition method were not material, therefore were recognized in 2021. The fair values of the acquired assets, and assumed liabilities as a result of this acquisition are as follows: Current assets (1) Non-current assets (2) Intangible assets (3) Current liabilities Non-current liabilities Acquired net assets Gain from a bargain purchase Paid consideration (1) Current assets consist of accounts receivable of US$18, inventories of US$38 (2) Non-current assets consist of fixed assets of US$14 and right-of-use assets of US$1 (3) Intangible assets consist of trademarks for US$1 and patents for US$1 US$ 56 15 2 (17) (9) 47 (1) 46 $ $ As a result of this transaction, a gain from a bargain purchase of $29 (US$1.3), was recognized in 2021 under other income, net (Note 25). In terms of IFRS 3, the gain from a bargain purchase was mainly generated because the disposal was due to strategic plans of the seller. 2020 i. 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 date in which Alpek obtained 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$68. Such recovery is presented as a cash inflow in the consolidated statement of cash flows in the business acquisition line, together with the incorporation of Alpek Polyester UK’s cash held at the time of acquisition. The Company’s consolidated financial statements include financial information of the entity from the acquisition date. The business acquired is included in the Polyester segment. The acquisition of Alpek Polyester UK met the criteria of a business combination in accordance with the requirements of IFRS 3, Business Combinations; therefore, the Company applied the acquisition method to measure the assets acquired and the liabilities assumed in the transaction. The purchase price allocation was determined in 2020, and the adjustments derived from acquisition method accounting were recognized from the date of acquisition. The fair values of the acquired assets and assumed liabilities as a result of this acquisition are as follows: 73 Inventories Other current assets (1) Property, plant and equipment Current liabilities (2) Net identifiable assets Bargain purchase gain Consideration paid US$ 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 disposals took place due to strategic plans of the seller. j. 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 México 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 impli- cations 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-con- struction period of its plant through the end of 2020 to help optimize project costs and maximize returns to the three joint venture shareholders. Alpek did not have to make capital contributions in the extended pre-construction period. During 2021, preparation tasks prior to construction resumed and the Company made additional capital contributions of US$11. The Company has taken actions to counteract the effects that COVID-19 has had on the economic markets in which it participates, focusing on strengthening operating and financial performance, by constant monitoring its cost structure, key business processes and a commitment to its employees. At the date of issuance of the consolidated financial statements, the Company continues to monitor the development of its business by complying with the governmental regulations of the different countries in which it operates and responding in a timely manner to any changes that may arise. k. 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 2020. Additionally, during 2022 and 2021, the Company continued to receive interest payments related to this debt and a principal payment of US$26 and US$8, respectively. 74  3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following are the most significant accounting policies followed by the Company and its subsidiaries, which have been consistently applied in the preparation of their financial information in the years presented, unless otherwise specified: a) Basis of preparation The consolidated financial statements of Alpek have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). IFRS include all International Accounting Standards (“IAS”) in force and all related interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”), including those previously issued by the Standing Interpretations Committee (“SIC”). The consolidated financial statements have been prepared on a historical cost basis, except for the cash flow hedges, which are measured at fair value, and for the financial assets and liabilities at fair value through profit or loss with changes reflected in the consolidated statement of 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 fully consolidated 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 busi- ness 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 in the consolidated statement of income 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. 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 the consolidated income of the year. Transactions, intercompany balances and unrealized gains on transactions between Alpek’s companies are eliminated in preparing the consolidated financial statements. Alpek’s subsidiaries consistently apply the accounting policies as those disclosed in these consolidated financial statements. 75  As of December 31, 2022, 2021 and 2020, the main companies that comprise the consolidated financial statements of the Company are as follows: Shareholding (%)(2) Country(1) 2022 2021 2020 Alpek, S. A. B. de C. V. (Holding Company) Alpek Polyester, S. A. de C. V. (Holding Company) (3) DAK Americas LLC USA Dak Resinas Américas México, S. A. de C. V. DAK Américas Exterior, S. L. (Holding Company) Spain Alpek Polyester Argentina S. A. (4) Argentina Compagnie Alpek Polyester Canada (Selenis) (5) (6) Canada Tereftalatos Mexicanos, S. A. de C. V. (Temex) Akra Polyester, S. A. de C. V. Alpek Polyester Pernambuco S. A. (7) Alpek Polyester Brasil S. A. (8) 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 (9)(11) BVPV Styrenics LLC (10) OCTAL (12) Brazil Brazil Argentina Chile Brazil United Kingdom USA Oman 100 100 100 100 100 100 91 93 100 100 51 50 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 91 93 100 100 51 50 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 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 US dollar (1) (2) Companies incorporated in México, except those indicated. 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) On July 31, 2021, Grupo Petrotemex, S.A. de C.V. (Grupo Petrotemex), changed its company name to Alpek Polyester S.A. de C.V. (4) During 2022, DAK Américas Argentina, S. A. changed its legal name to Alpek Polyester Argentina S. A. (5) The sale and purchase agreement of this entity included a clause for the payment of future benefits (earn-out) for the production of PETG, which was still in force as of December 31, 2021 and 2020. Under said clause, the shares not acquired for legal purposes by Alpek are deposited in favor of the selling party or to Alpek, based on results obtained from the potential production of PETG. At the end of 2021 and 2020, Alpek held 50% + 1 share of the legal shareholding. On August 25, 2022, Alpek acquired the remaining 50% - 1 share of the shareholding in this entity in exchange for a consideration of $119.6 (US$6); derived from the negotiation for the acquisition of the remaining shares, the contingent liability that Alpek had for the earn-out for 149.5 (US$7.5) was canceled, together with a compensation asset for $25.9 (US$1.3), both came from the sale and purchase agreement. The net effects of these transactions were recognized within “Other income (expenses), net” in the consolidated statement of comprehensive income for the year ended December 31, 2022. (6) During 2022, DAK Compagnie Selenis Canada changed its legal name to Compagnie Alpek Polyester Canada. (7) During 2022, Companhia Petroquímica de Pernambuco-PetroquímicaSuape changed its legal name to Alpek Polyester Pernambuco S. A. (8) During 2022, Companhia Integrada Têxtil de Pernambuco- CITEPE changed its legal name to Alpek Polyester Brasil S. A. (9) During 2020 Lotte Chemical UK Limited (“Lotte UK”) changed its legal name to Alpek Polyester UK LTD. (10) Entity acquired in 2021. (Note 2 h ). (11) Entity acquired in 2020. (Note 2 i ). (12) Group of entities acquired in 2022 and integrates the following entities: Octal Holding UK LTD, Octal Holding SAOC, Octal (FZC) SAOC, Crystal Pack FZC LLC, Crystal Packing Solutions LLC, Octal DMCC, Octal Inc, Octal Extrusion Corp, Octal Saudi Arabia Plant LLC and OCTAL FINANCE BV. (Note 2 a ) 76 As of December 31, 2022, 2021 and 2020, 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 the consolidated income. When the Company issues purchase obligations on certain non-controlling interests in a consolidated subsidiary and non-con- trolling 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 previ- ously 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 the consolidated comprehensive income being reclassified to the consolidated 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 consolidated comprehensive income are reclassified to the consolidated 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 consolidated other comprehensive income of associates is recognized as other consolidated 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 and joint ventures 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. 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. 77  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 trans- lated 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. 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. c) d) The exchange differences arising in the translation from the recording currency to the functional currency were recognized as income or expense in the consolidated statement of income in the period they arose. iv. Translation of subsidiaries with functional currency other than the presentation currency The results and financial position of all Company entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows, depending on whether the functional currency comes from a non-hyper- inflationary 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, 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 transla- tion effect. 78 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: Currency US dollar Argentine peso Brazilian real Chilean peso Pound sterling d) Hyperinflationary effects Local currency to Mexican pesos Closing exchange rate at December 31, Average annual exchange rate 2022 2021 2020 2022 2021 2020 19.36 0.11 3.66 0.02 23.29 20.58 0.20 3.69 0.02 27.88 19.95 0.24 3.84 0.03 27.26 20.06 0.15 3.91 0.02 24.71 20.38 0.21 3.77 0.03 28.02 21.59 0.30 4.12 0.03 27.87 As of July 1, 2018, the cumulative inflation from the prior 3 years in Argentina exceeded 100%; consequently, the Argentine peso was classified as a currency of a hyperinflationary economic environment. As a result, the financial statements of the subsidiaries located in that country, whose functional currency is the Argentine peso, have been restated and adjusted for inflation in accordance with the requirements of the International Accounting Standard 29, Financial Information in Hyperinflationary Economies (“IAS 29”), and have been consolidated in compliance with the requirements of IAS 21. The purpose of applying these requirements is to consider changes in the general purchasing power of the Argentine peso in order to present the financial statements in the measuring unit current at the date of the statement of financial position. The financial statements before including any inflation adjustments were prepared using the historical cost method. The Company determined the inflation adjustments in its consolidated financial statements in the following manner: a. The amounts corresponding to non-monetary items of each statement of financial position, which are not measured at the date of the statement of financial position at their fair value or net realizable value, as the case may be, are restated by applying to their historical cost the change of a general price index from the date of acquisition or the date of its last measurement at fair value, to the date of the statement of financial position; b. The amounts corresponding to monetary items of the statement of financial position are not restated; c. The components of stockholders’ equity of each statement of financial position are restated: 1) At the beginning of the first period of application of IAS 29, except for retained earnings, by applying the change of a general price index from the dates the components were originated to the date of restatement. Restated retained earnings are derived from all the other balances in the statement of financial position; 2) At the end of the first period and in subsequent periods, all components of stockholders’ equity are restated by applying a general price index from the beginning of the period or the date of contribution, if later. d. e. 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. 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 JG 539/18 (the “Resolution”) of the Argentine Federation of Professional Councils of Economic Sciences. This resolution establishes that a combination of price indexes 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. The effects of the restatement of the financial statements of the subsidiaries located in Argentina were not material and were included in the “Financial result, net” line item for the years ended December 31, 2022, 2021 and 2020. 79  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. The classification in the consolidated statement of financial position will depend on the restriction that originates it, being that restriction greater than 12 months will lead to the classification of restricted cash as non-current. 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 amor- tized cost, at fair value through other comprehensive income, and at fair value through profit or loss. Management determines the classification of its financial assets upon initial recognition. Purchases and sales of financial assets are recognized at settlement date. Financial assets are entirely written off when the right to receive the related cash flows expires or is transferred, and the Company also has substantially transferred all the risks and rewards of its ownership, as well as the control of the financial asset. Classes of financial assets i. Financial assets at amortized cost Financial assets at amortized cost are those that i) are held within a business model whose objective is to hold said assets in order to collect contractual cash flows; and ii) the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the amount of outstanding principal. 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, 2022, 2021 and 2020, 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 are financial assets held for trading. A financial asset is classified in this cate- gory if it is mainly acquired for the purpose of being sold in the short term. Derivatives are also classified as held for trading unless they are designated as hedges. In addition 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 busi- ness 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. b. 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. 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. 80  As of December 31, 2022, 2021 and 2020, 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 refer- ence 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 (partic- ipation in the portfolio of accounts receivable, type of market, sector, geographic area, etc.), are grouped to be evaluated collectively. In its impairment assessment, the Company may include indications that the debtors or a group of debtors are experiencing significant financial difficulties, and also observable data indicating that there is a significant decrease in the estimated cash flows to be received, including arrears. For purposes of the historical estimate, the Company considers that the following constitutes an event of default, since historical experience indicates that financial assets are not recoverable when they meet any of the following criteria: • The debtor does not fulfill its financial agreements; or • Information obtained internally or from external sources indicates that it is unlikely that the debtor will pay its creditors, including the Company, in its entirety (without considering any guarantee held by the Company). The Company defined the breach threshold as the period from which the recovery of the account receivable subjected to analysis is marginal, considering the internal risk management customers with similar characteristics sharing credit risks (participation in trade receivables portfolio, type of market, sector, geographic area, etc.), are grouped to be evaluated collectively. b. Other financial instruments The Company recognizes credit losses expected during the asset’s lifetime of all financial instruments for which credit risk has significantly increased since its initial recognition (assessed on a collective or individual basis), considering all the reasonable and sustainable information, including the one referring to the future. If at the presentation date, the credit risk a financial instrument has not significantly increased since its initial recognition, the Company calculates the loss allowance for that financial instrument as the amount of expected credit losses in the following 12 months. In both cases, the Company recognizes in profit or loss of the period the decrease or increase in the expected credit loss allow- ance 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. 81 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 recog- nized 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. 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, 2022, 2021 and 2020, 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 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, regard- less 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. 82On suspending hedge accounting, in the case of fair value hedges, the adjustment to the carrying amount of a hedged amount for which the effective interest rate method is used, is amortized to income over the period to maturity. In the case of cash flow hedges, the amounts accumulated in equity as a part of comprehensive income remain in equity until the time when the effects of the forecasted transaction affect income. In the event the forecasted transaction is not likely to occur, the income or loss accumulated in comprehensive income are immediately recognized in the consolidated statement of income. When the hedge of a forecasted transaction appears satisfactory and subsequently does not meet the effectiveness test, the cumulative effects in comprehensive income in stockholders’ equity are transferred proportionally to the consolidated statement of income, to the extent the forecasted transaction impacts it. The fair value of derivative financial instruments reflected in the consolidated financial statements of the Company is a mathematical approximation of their fair value. It is computed using proprietary models of independent third parties using assumptions based on past and present market conditions and future expectations at the closing date. i) Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the average cost method. The cost of finished goods and work-in-progress includes cost of product design, raw materials, direct labor, other direct costs and production overheads (based on normal operating capacity). It excludes borrowing costs. The net realizable value is the estimated selling price in the normal course of business, less the applicable variable selling expenses. Costs of inventories include any gain or loss trans- ferred 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, 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 20 years The spare parts to be used after one year and attributable to specific machinery are classified as property, plant and equipment in other fixed assets. Borrowing costs related to financing of property, plant and equipment whose acquisition or construction requires a substantial period (nine months), are capitalized as part of the cost of acquiring such qualifying assets, up to the moment when they are suitable for their intended use or sale. Assets classified as property, plant and equipment are subject to impairment tests when events or circumstances occur indicating that the carrying amount of the assets may not be recoverable. An impairment loss is recognized in the consolidated statement of income in other expenses, net, for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. 83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 effec- tive interest method) and reducing the carrying amount to reflect the lease payments made. When there is a modification in future lease payments resulting from changes in an index or a rate used to determine those payments, the Company remeasures the lease liability when the adjustment to the lease payments takes effect, without reassessing the discount rate. However, if the modifications are related to the lease term or exercising a purchase option, the Company reassesses the discount rate during the liability’s remeasurement. Any increase or decrease in the value of the lease liability subsequent to this remeasurement is recognized as an adjustment to the right-of-use asset to the same extent. Finally, the lease liability is derecognized when the Company fulfills all lease payments. When the Company determines that it is probable that it will exercise an early termination of the contract that leads to a cash disbursement, such disbursement is accounted as part of the liability’s remeasurement mentioned in the previous paragraph; however, in cases in which the early termination does not involve a cash disbursement, the Company cancels the lease liability and the corresponding right-of-use asset, recognizing the difference immediately in the consolidated statement of income. The Company as lessor 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. 84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. l) Intangible assets Intangible assets are recognized in the consolidated statement of financial position when they meet the following conditions: they are identifiable, provide future economic benefits and the Company has control over such benefits. Intangible assets are classified as follows: i. ii. Indefinite useful life These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2022, 2021 and 2020, no factors have been identified limiting the life of these intangible assets. Finite useful life These assets are recognized at cost less the accumulated amortization and impairment losses recognized. They are amortized on a straight line basis over their estimated useful life, determined based on the expectation of generating future economic benefits, and are subject to impairment tests when triggering events of impairment are identified. The estimated useful lives of intangible assets with finite useful lives are summarized as follows: Development costs Non-compete agreements Customer relationships Patents Software and licenses Intellectual property Defined life brands 15.5 years 5 to 10 years 6 to 7 years 10 years 3 to 7 years 20 to 25 years 5 to 22 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 and 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. Devel- opment expenditures that do not qualify for capitalization are recognized in income as incurred. Licenses Licenses acquired in a separate transaction are recorded at acquisition cost, while those acquired in a business combination are recognized at fair value at acquisition date. Licenses that have a defined useful life are presented at cost less accumulated amortization. Amortization is recorded by the straight- line method over its estimated useful life. The acquisition of software licenses is capitalized based on the costs incurred to acquire and use the specific software. Software development Costs associated with the maintenance of software are recorded as expenses as incurred. Development costs directly related with the design and tests of unique and identifiable software products controlled by the Company are recorded as intangible assets when they fulfill the following criteria: - Technically, it is possible to complete the intangible asset so that it may be available for its use or sale; - The intangible asset is to be completed for use or sale; - The ability to use or sell the intangible asset; - The way in which the intangible asset is to generate probable future economic benefits; 85 - 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. 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 gener- ates 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. 86 p) Employee benefits i. Pension plans Defined contribution plans: A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to their service in the current and past periods. The contributions are recognized as employee benefit expense on the date that is required the contribution. Defined benefit plans: A defined benefit plan is a plan, which specifies the amount of the pension an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the consolidated statement of financial position in respect of defined benefit plans is the present value of the defined benefit obligation at the consolidated statement of financial position date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using discount rates in conformity with IAS 19, Employee Benefits, that are denominated in the currency in which the benefits will be paid, and have maturities that approximate the terms of the pension liability. Actuarial gains and losses from adjustments and changes in actuarial assumptions are recognized directly in other items of the comprehensive income in the year they occur and will not be reclassified to the results of the period. The Company determines the net finance expense (income) by applying the discount rate to the liabilities (assets) from net defined benefits. Past-service costs are recognized immediately in the consolidated statement of income. ii. Post-employment medical benefits The Company provides medical benefits to retired employees after termination of employment. The right to access these bene- fits 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. 87 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 consid- ering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. A restructuring provision is recorded when the Company has developed a formal detailed plan for the restructure, and a valid expectation for the restructure has been created between the people affected, possibly for having started the plan implementation or for having announced its main characteristics to them. r) Share based payment The Company’s compensation plans are based 50% on the market value of the shares of its holding entity and the other 50% on the market value of the shares of Alpek SAB, granted to certain senior executives of the Company and its subsidiaries. The conditions for granting such compensation to the eligible executives include compliance with certain financial metrics such as the level of profit achieved and remaining in the Company for up to 5 years, among other requirements. The Board of Directors of Alfa has appointed a technical committee to manage the plan, and it reviews the estimated cash settlement of this compensation at the end of the year. The payment plan is subject to the discretion of Alfa’s senior Management. Adjustments to this estimate are charged or credited to the consolidated statement of income. The fair value of the amount payable to employees in respect of share-based payments which are settled in cash is recognized as an expense, with a corresponding increase in liabilities, over the period of service required. The liability is included within other liabilities and is adjusted at each reporting date and the settlement date. Any change in the fair value of the liability is recognized as compensation expense in the consolidated statement of income. s) Treasury shares Alpek SAB’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 stock- holders’ equity at the purchase price. These amounts are stated at their historical value. t) Capital stock Alpek SAB’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. 88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 recog- nized 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, 2022, 2021 and 2020, 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 In the current year, the Company has applied a number of amendments to IFRS issued by the IASB that are mandatorily effective for an accounting period that begins on or after January 1, 2022. The conclusions related to their adoption are described as follows: Amendments to IFRS 3, Business Combination – Reference to the Conceptual Framework The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21, Levies, the acquirer applies IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. The Company applied these amendments to business combinations completed during the year ended December 31, 2022, which are described in Note 2, without having an impact on its consolidated financial statements. Amendments to IAS 16, Property, plant and equipment - Proceeds before intended use The amendments prohibit deducting from the cost of an item of property, plant, and equipment any proceeds from selling items produced before that asset is available for use, for example, proceeds while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Consequently, an entity recognizes such sales proceeds and related costs in profit or loss for the period. The Company measures the cost of those items in accordance with IAS 2 Inventories. The amendments also clarify the meaning of ‘testing whether an asset is functioning properly’. IAS 16 now specifies this as assessing whether the technical and physical performance of the asset is such that it is capable of being used in the production or supply of goods or services, for rental to others, or for administrative purposes. 89  The Company evaluated the amendments to IAS 16 and determined that the implementation of these amendments had no effect on its financial information, since it currently does not have product sales before the property, plant and equipment are ready for use. Amendments to IAS 37, Provisions, Contingent Liabilities and Contingents Assets - Onerous Contracts - Cost of fulfilling a contract The amendments specify that the “cost of fulfilling” a contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract consist of both the incremental costs of fulfilling that contract (examples would be direct labor or materials) and an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract). The Company evaluated the amendments to IAS 37 and determined that the implementation of these amendments had no effect on its financial information, since it does not have onerous contracts. Annual Improvements to IFRS Accounting Standards 2018–2021 Cycle The Company has adopted the amendments included in the Annual Improvements to IFRS Accounting Standards 2018-2021 Cycle for the first time in the current year. The Annual Improvements include amendments to four standards, which did not have an impact on the financial information, as they were not of significant applicability: • Amendments to IFRS 1, First time adoption of International Financial Reporting Standards • Amendments to IFRS 9, Financial instruments • Amendments to IFRS 16, Leases • Amendments to IAS 41, Agriculture ii. New, revised and issued IFRS, but not yet effective As of the date of these consolidated financial statements, the Company has not applied the following new and revised IFRS, that have been issued but not yet effective, of which the adoption of these is not expected to a material impact on the consolidated financial statements in future periods, considering that they are not of significant applicability: • Amendments to IFRS 17, Insurance contracts (1) • Amendments to IAS 1 and Practice Statement 2 - Disclosure of accounting policies (1) • Amendments to IAS 8 - Definition of accounting estimates (1) • Amendments to IAS 12 – Income taxes - Deferred taxes related to assets and liabilities arising from a single transaction (1) • Amendments to IAS 1 – Classification of liabilities as current and non-current (1) • Amendments to IAS 1 – Classification of debt with covenants (2) • Amendments to IFRS 10 and IAS 28 - Sale or contribution of assets between an investor and its associate or joint venture (2) • Amendments to IFRS 16 - Lease liability in a sale and leaseback (3) (1) Effective for annual reporting periods beginning on January 1, 2023 (2) (3) Effective date of the amendments has yet to be set by the IASB Effective for annual reporting periods beginning on January 1, 2024 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 trans- actions proposed by the subsidiaries of Alfa, including Alpek, in which a potential loss analysis surpasses US$1. This Committee 90 supports both the CEO and the President of Board of Alfa. All new derivative transactions which the Company proposes to enter into, as well as the renewal or cancellation of derivative arrangements, must be approved by both Alpek’s and Alfa’s CEO, according to the following schedule of authorizations: Chief Executive Officer of the Company Risk Management Committee of Alfa Finance Committee Board of Directors of Alfa Maximum possible loss US$1 Individual transaction Annual cumulative transactions 1 30 100 >100 5 100 300 >300 The proposed transactions must meet certain criteria, including that the hedges are lower than established risk parameters, and that they are the result of a detailed analysis and properly documented. Sensitivity analysis and other risk analyses should be performed before the operation is entered into. Alfa’s risk management policy indicates that hedging positions should always be less than the projected exposure to allow an acceptable margin of uncertainty. Exposed transactions are expressly prohibited. The Company’s policy indicates that the further the exposure is, the lower the coverage, based on the following table: Maximum coverage (as a percentage of the projected exposure) Commodities Energy costs Exchange rate for operating transactions Exchange rate for financial transactions Interest rates Current year 100 75 80 100 100 Capital management The Company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to provide returns to stockholders and benefits to other stakeholders, as well as maintaining an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to stockholders, return equity to stockholders, issue new shares or sell assets to reduce debt. Alpek reviews capital based on a leverage ratio. This percentage is calculated by dividing total liabilities by total stockholders’ equity. The financial ratio of total liabilities/total equity was 1.62, 1.50 and 1.34 as of December 31, 2022, 2021 and 2020, 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. 91 As of December 31, 2022, 2021 and 2020, 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) $ $ $ 2022 6,319 553 19,669 3,960 10 30,511 39,081 30,505 3,624 As of December 31, 2021 2020 $ 10,541 13 $ 20,725 4,085 351 10,144 12 12,726 4,518 524 $ $ 35,715 $ 27,924 31,993 27,657 3,608 $ 30,652 17,991 3,010 1,241 254 66 $ 74,451 $ 63,512 $ 51,719 (1) The Company designated the derivative financial instruments that comprise this balance as accounting hedges, in accordance with what is described later in this Note. 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, 2022, 2021 and 2020. The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below: As of December 31, 2022 2021 2020 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Financial assets: Non-current accounts receivable Financial liabilities: Non-current debt $ 3,344 $ 3,339 $ 3,471 $ 3,469 $ 3,942 $ 3,941 37,344 34,519 31,436 32,724 30,335 32,701 The carrying amount of the debt, for the purpose of computing its fair value, is presented gross of interest payable and issuance costs. The estimated fair values as of December 31, 2022, 2021 and 2020 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, London Interbank Offer Rate (“LIBOR”) and Secured Overnight Financing Rate (“SOFR”), 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, 92 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, 2022: Financial assets Financial liabilities Foreign exchange financial position MXN USD $ $ 21,404 (21,167) $ 32,629 (46,207) 237 $ (13,578) $ $ EUR 1,299 (325) 974 The exchange rates used to translate the foreign currency financial positions to Mexican pesos are those described in Note 3 c. Based on the financial positions in foreign currency maintained by the Company, a hypothetical variation of 10% in the MXN/USD and MXN/EUR exchange rate and keeping all other variables constant, would result in an effect of $(1,237) on the consolidated statement of income and consolidated stockholders’ equity. Financial instruments to hedge net investments in foreign transactions The Company designated certain non-current debt instruments as hedging instruments to net investments in foreign transac- tions, in order to mitigate the variations in exchange rates arising between the functional currency for such transactions and the functional currency of the holding or sub-holding company that maintains these investments. The Company formally designated and documented each hedging relationship establishing objectives, strategy to hedge the risk, the identification of the hedging instrument, the hedged item, the nature of the risk to be hedged, and the methodology to assess the effectiveness. Given that the exchange rate hedging relationship is clear, the method that the Company used to assess the effectiveness consisted of a qualitative effectiveness test by comparing the critical terms between the hedging instruments and the hedged items. The hedge will be effective as long as the notional debt designated as a hedging instrument is equal to or less than the value of the net assets of the covered foreign operation. On the other hand, when the value of the net assets of the foreign operation is less than the notional value of the designated debt, the Company rebalances the hedging relationship and recognizes the ineffectiveness in the income statement. 93  As of December 31, 2022, 2021 and 2020, Alpek maintains the following hedging relationships: As of December 31, 2022 Holding Functional Currency Hedging Instrument Notional Value Hedged Item Alpek SAB MXN Senior Notes 144A fixed rate Senior Notes 144A fixed rate Senior Notes 144A fixed rate Senior Notes 144A fixed rate US$ - 300 22 100 Indelpro Temex Dak Americas Ms Dak Resinas Americas Akra Polyester US$ 422 As of December 31, 2021 Holding Functional Currency Hedging Instrument Notional Value Hedged Item Alpek SAB MXN Senior Notes 144A fixed rate Senior Notes 144A fixed rate Senior Notes 144A fixed rate Senior Notes 144A fixed rate US$ 49 267 22 100 Indelpro Temex Dak Americas Ms Dak Resinas Americas Akra Polyester US$ 438 As of December 31, 2020 Holding Functional Currency Hedging Instrument Notional Value Hedged Item Alpek SAB MXN Senior Notes 144A fixed rate Senior Notes 144A fixed rate Senior Notes 144A fixed rate US$ 72 267 22 Indelpro Temex Dak Americas Ms Dak Resinas Americas Akra Polyester US$ 361 Net assets of the hedged item US$ US$ 240 68 232 82 195 817 Net assets of the hedged item US$ US$ 261 42 240 101 179 823 Net assets of the hedged item US$ US$ 232 69 223 98 159 781 For the years ended December 31, 2022, 2021 and 2020, the Company’s average hedging ratio amounted to 48.9%, 54.9% and 49.5%, respectively. Therefore, the exchange rate fluctuation generated by the hedging instruments for the years ended December 31, 2022, 2021 and 2020 amounted to a net gain (loss) of $545, $(238) and $(403), 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, 2022, 2021 and 2020, the Company holds forwards (EUR/USD) to hedge different needs. For 2022, 2021 and 2020, 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 aforemen- tioned 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. 94  The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are mentioned below: Characteristics Currency Notional amount Strike (average) Maturity Carrying amount Change in the fair value to measure ineffectiveness Reclassification from OCI to profit or loss Recognized in OCI, net of reclassifications Change in the fair value of the hedged item to measure ineffectiveness Change in the fair value of the forward Forwards EUR/USD 2022 EUR 24 1.0738 2021 EUR 8.1 1.2421 2020 EUR 39.9 1.2169 Monthly through Monthly through Monthly through December 30, 2023 December 30, 2022 December 30, 2022 $(2.3) $1.6 - $(2.3) $(1.6) $(18.8) $16.5 15.9 - 16.5 (15.9) 28.4 $ (11.9) (11.9) - (11.9) 11.9 (13.3) As of December 31, 2022, 2021 and 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 99% effectiveness for 2022, 2021 and 100% effectiveness for 2020. 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. 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 2022 is 25%, 55% for 2021 and 100% for 2020. If necessary, a rebalancing will be done to maintain this relationship for the strategy. 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, 2022, 2021 and 2020, 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 México 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”. 95 Regarding natural gas, Pemex is the only supplier in México. 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 México. 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 in US dollars per MMBTU for 2022, 2021 and 2020 was $6.4, $3.8 and $2.0, respectively. As of December 31, 2022, 2021 and 2020, the Company had hedges of natural gas prices for a portion expected of consumption needs in México and the United States. Derivative contracts to hedge adverse changes in commodity prices The Company uses natural gas to operate, and some of its main raw materials are paraxylene, ethylene and monoethylene glycol (MEG), ethane and terephthalic acid (PTA). Therefore, an increase in the price of natural gas, paraxylene, ethylene, monoethylene glycol (MEG), ethane or terephthalic acid (PTA), would have a negative impact on the operating cash flows. The objective of the hedge designated by the Company is to mitigate against the exposure in the price increase of the aforementioned commodities, for future purchases by contracting swaps where a variable price is received and a fixed price is paid. 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 December 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 Alpek Polyester; 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, manage- ment has documented, as a hedged item, a highly probable transaction in relation to the budget for purchases of these commod- ities. 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 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 Reclassification from OCI to profit or loss Balance recognized in OCI, net of reclassifications Change in the fair value to measure ineffectiveness of hedge item Effectiveness test results As of December 31, 2022 Natural Gas Swaps Paraxylene Swaps MEG Swaps 70,973,855 MMBtu Fair value $4.43/MMBtu 272,650 MT Fair value $970/MT 136,350 MT Fair value $586/MT December 2024 January 2024 January 2024 $(950.3) $(140.8) - (1,086.2) - (950.3) 1,086.5 99.97% - (219.1) 31.2 (172.0) 219.3 99.92% $(137.6) - (213.8) (49.6) (88.1) 213.9 99.92% (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. 96 Characteristics Total notional Units Price received Price paid (average) Maturity (monthly) Net position of the swap (2) 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 Change in the fair value to measure ineffectiveness of hedge item Effectiveness test results MMBtu Fair value $1.69/MMBtu June 2024 $ (154.8) - (147.2) - (154.8) 147.2 99.96% As of December 31, 2021 Natural Gas Swaps Paraxylene Swaps Ethylene Swaps 57,025,808 274,000 2,000,000 MT Fair value $821/MT Lb Fair value $0.1544/lb MEG Swaps 174,400 MT Fair value $658/MT January 2023 January 2022 January 2023 $ 317.5 $ 6.4 $ (88.8) - 363.7 87.9 229.4 (363.8) 99.99% - 7.7 6.4 - (7.7) 100% - (96.9) 32.2 (121) 96.9 99.99% (2) 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. Natural Gas Swaps Paraxylene Swaps PTA Swaps Ethylene Swaps PET Swaps MEG Swaps Ethane Swaps As of December 31, 2020 Characteristics Total notional Units Price received 3,474,000 338,750 MMBtu MT 2,000 MT 37,500,000 Lb 220 MT MT 184,500 600,000 Fair value Fair value Fair value Fair value Fair value Fair value gal Fair value $0.21/gal Price paid (average) $2.73/MMBtu $635/MT $627/MT $0.1567/lb $910/Lbs $501/MT Maturity (monthly) February 2022 January 2023 January 2021 January 2022 January 2021 January 2023 January 2021 Net position of the swap (3) $ (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 (6.1) 103.9 Reclassification from OCI to profit or loss - (109.5) (6.1) Balance recognized in OCI, net of reclassifications (5.4) 231 - 39.9 58.4 - 0.8 0.8 - - 273.3 2.1 - (0.2) (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% (3) 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 trans- action that was being hedged, future purchases, is still expected to occur, such balance will be recognized in the income statement as the transaction occurs. The change in the fair value of the derivative financial instruments recognized in OCI for the year ended December 31, 2022, 2021 and 2020 is $(1,182), $(592) and $885, respectively. 97 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, 2022 Asset Liability Natural Gas Paraxylene MEG Forward Total As of December 31, 2021 Natural Gas Paraxylene Ethylene MEG Forward Total As of December 31, 2020 Natural Gas Paraxylene Ethanol Ethylene MEG PTA PET Forward Total $ $ $ $ $ $ (950) (151) (138) (2) - 10 - - 10 $ (1,241) $ (1,231) $ Total (950) (141) (138) (2) Asset Liability Total - 323 6 5 17 351 $ (155) (5) - (94) - $ (155) 318 6 (89) 17 $ (254) $ 97 Asset Liability Total - 164 - 98 261 - 1 - $ (5) (42) (1) - - (6) - (12) $ (5) 122 (1) 98 261 (6) 1 (12) $ 524 $ (66) $ 458 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 under- lying 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 estab- lished 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 hypothet- ical 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. 98  As of December 31, 2022, 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 2022, 2021 and 2020 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/MEG Ethane Terephthalic acid (PTA) PET 2022 29% 45% 37% - - - 2021 21% 44% 47% - - - 2020 6% 54% 58% 2% 5% 0.2% 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, 2022, 2021 and 2020, 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, 2022, 70% of the financing is denominated at a fixed rate, and 30% at a variable rate. As of December 31, 2022, 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 $116. 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, 2022, 2021 and 2020, 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, 2022, 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 require- ments 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. 99 The Company’s treasury department invests those funds in time deposits and marketable securities whose maturities or liquidity allow flexibility to meet the cash needs of the Company. The following table analyzes the derivative and non-derivative financial liabilities of the Company, grouped according to their matu- rity, 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. As of December 31, 2022 Suppliers and other accounts payable Current and non-current debt (excluding debt issuance costs) Derivative financial instruments As of December 31, 2021 Suppliers and other accounts payable Current and non-current debt (excluding debt issuance costs) Derivative financial instruments As of December 31, 2020 Suppliers and other accounts payable Current and non-current debt (excluding debt issuance costs) Derivative financial instruments Less than a year From 1 to 5 years More than 5 years $ $ $ 30,505 8,445 1,220 27,657 3,519 248 17,991 1,508 66 $ $ $ - 19,183 21 - 10,540 6 - 23,252 - $ $ $ - 23,515 - - 25,828 - - 11,796 - 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, 2022, 2021 and 2020, 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. - - 100  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 adjust- ment 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. 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, which may include over 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. 101  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. To measure the lease liability, the Company 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. 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 2022 4,787 1,532 6,319 $ $ As of December 31, 2021 2020 $ $ 7,784 2,757 10,541 $ $ 7,016 3,128 10,144 102 Restricted cash As of December 31, 2022, 2021 and 2020, the Company has restricted cash of approximately $553, $13 and $12, respectively. As of December 31, 2022, the increase is primarily related to funds that were restricted as part of the Octal acquisition. The restricted cash balance is classified as current and non-current assets in the consolidated statement of financial position, based on the expiration date of the restriction. 7. TR ADE AND OTHER RECEIVABLES , NET Trade and other accounts receivable, net 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 Total As of December 31, 2022 2021 2020 $ 21,377 497 3,579 12 14 300 (2,531) $ 22,003 622 3,777 776 1 251 (2,928) $ 13,985 588 4,324 532 1 334 (2,714) $ 23,248 $ 24,502 $ 17,050 The changes in the impairment allowance for trade and other receivables in 2022, 2021 and 2020, with the expected losses model used by the Company, are as follows: For the year ended December 31, 2022: Default Opening balance – Cancellations Ending balance – Customers or customer groups probability Loss given Impairment Increases in in the Translation Impairment range default range allowance the allowance allowance effect allowance Alpek Polyester (1) Grupo Styropek (1) Polioles Indelpro and other (1) 0%-81% 0% 0% .81% 0%-99% 0%-10% 0%-5% 8.22% $ (2,596) $ (232) (23) (77) (87) $ (25) (7) - $ 159 115 - 46 162 33 1 - $ (2,362) (109) (29) (31) Total $ (2,928) $ (119) $ 320 $ 196 $ (2,531) (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, 2021: Default Opening balance – Cancellations Ending balance – Customers or customer groups probability Loss given Impairment Increases in in the Translation Impairment range default range allowance the allowance allowance effect allowance Alpek Polyester (1) Grupo Styropek (1) Polioles Indelpro and other (1) 0% - 81% 0% 0% 1.23% 0% - 98% 0%- 10% 0% - 10% 0.25% $ $ (2,521) (99) (28) (66) $ (42) (129) - (17) $ 41 - 6 6 $ (74) (4) (1) - (2,596) (232) (23) (77) Total $ (2,714) $ (188) $ 53 $ (79) $ (2,928) (1) The default probability range does not consider customers and groups of customers for which the probability is 100%. 103 For the year ended December 31, 2020: Default Opening balance – Cancellations Ending balance – Customers or customer groups probability Loss given Impairment Increases in in the Translation Impairment range default range allowance the allowance allowance effect allowance Grupo Petrotemex (1) Grupo Styropek (1) Polioles Indelpro and other (1) 0% - 80% 0% 0% 1.92% 0% - 34% 0%- 10% 0% - 10% 0.47% $ $ (2,320) (71) (28) (67) (122) $ (26) (1) - $ 39 - 1 1 $ (118) (2) - - (2,521) (99) (28) (66) Total $ (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%. As of December 31, 2022, 2021 and 2020, the Company has guaranteed accounts receivable of $2,322, $3,506 and $2,184, respectively. The net change in the allowance for impairment of trade and other receivables of $(397) in the year ended December 31, 2022, was primarily due to the decrease in the probability of default in certain customers compared to the beginning of the year. The change in the estimate of impairment of trade and other receivables of $214 and $228, as of December 31, 2021 and 2020, respectively, was mainly due to the increase in the probability of default in certain customer groups, as well as the translation effect. The Company has long-term receivables that are guaranteed with the properties of M&G México’s PET production plant in Altamira, México, 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 As of December 31, 2022 2021 2020 $ 16,229 14,320 2,585 759 $ 12,269 10,746 2,255 435 $ 8,189 6,896 1,912 450 $ 33,893 $ 25,705 $ 17,447 For the years ended December 31, 2022, 2021 and 2020, a provision amounting to $255, $94 and $72, respectively, related to damaged, slow-moving and obsolete inventory was recognized in the consolidated statement of income. As of December 31, 2022, 2021 and 2020, 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 (1) This item mainly consists of advance payments for raw materials and prepaid insurance. As of December 31, 2022 765 7 772 $ $ 2021 686 31 717 2020 442 15 457 $ $ $ $ 104  10. PROPERTY, PLANT AND EQUIPMENT, NET 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 Land Buildings and constructions Machinery and equipment Vehicles Furniture, lab and information technology equipment Construction in progress Other fixed assets Total $ 3,732 $ 5,810 $ 23,091 $ 58 $ 331 $ 2,837 $ 1,223 $ 37,082 4 159 - - 61 - - 1 5 (1) (11) (138) (315) 93 8 1,039 (52) (2) 897 (2,710) 1,617 1 - (1) - 7 (17) 64 112 2 3 (1) - 32 (92) 118 2,506 158 (29) (2) (123) - (1,933) 143 - (23) - 24 - 5 2,665 1,364 (107) (15) 760 (3,134) (36) $ 393 $ 3,414 $ 1,372 $ 38,579 Ending balance as of December 31, 2020 $ 3,956 $ 5,444 $ 23,888 $ As of December 31, 2020 Cost Accumulated depreciation and accumulated impairment 3,956 16,854 78,944 379 2,103 3,414 1,372 107,022 - (11,410) (55,056) (267) (1,710) - - (68,443) Net carrying amount as of December 31, 2020 $ 3,956 $ 5,444 $ 23,888 $ 112 $ 393 $ 3,414 $ 1,372 $ 38,579 For the year ended December 31, 2021 Opening balance Additions Additions for business acquisitions Disposals Impairment (1) Restatement and translation effect Depreciation charges recognized in the year Transfers $ 3,956 $ 5,444 $ 23,888 $ 112 $ 393 $ 3,414 $ 1,372 $ 38,579 - (36) - - 70 - 5 1 - (1) (256) 18 (290) 357 1,691 (162) (23) (965) 542 (2,554) 2,164 1 - (1) (2) 4 (16) 41 272 2,561 - - (7) 4 (97) 170 (28) (7) (111) 193 - (2,746) 112 - (88) 4,638 (226) (120) (23) (1,364) 31 - 2 862 (2,957) (7) Ending balance as of December 31, 2021 $ 3,995 $ 5,273 $ 24,581 $ 139 $ 735 $ 3,276 $ 1,406 $ 39,405 As of December 31, 2021 Cost Accumulated depreciation and accumulated impairment 3,995 16,716 79,876 404 2,519 3,276 1,406 108,192 - (11,443) (55,295) (265) (1,784) - - (68,787) Net carrying amount as of December 31, 2021 $ 3,995 $ 5,273 $ 24,581 $ 139 $ 735 $ 3,276 $ 1,406 $ 39,405 For the year ended December 31, 2022 Opening balance Additions Additions for business acquisitions Disposals Impairment Restatement and translation effect Depreciation charges recognized in the year Transfers $ 3,995 $ 5,273 $ 24,581 $ 139 $ 735 $ 3,276 $ 1,406 $ 39,405 - - - - (142) - - - 11 4,569 6,904 - (6) (327) (352) 199 (150) (135) (1,574) (2,756) 2,599 1 2 - - (9) (16) 14 4 10 (1) - (64) (110) 2,986 335 (10) (5) 413 - (80) - 3,415 11,820 (241) (146) (322) (101) (2,539) - 161 (3,002) - - (3,234) (29) Ending balance as of December 31, 2022 $ 3,853 $ 9,356 $ 29,480 $ 131 $ 735 $ 3,258 $ 1,638 $ 48,451 As of December 31, 2022 Cost Accumulated depreciation and accumulated impairment 3,853 23,569 88,533 440 2,617 3,258 1,638 123,908 - (14,213) (59,053) (309) (1,882) - - (75,457) Net carrying amount as of December 31, 2022 $ 3,853 $ 9,356 $ 29,480 $ 131 $ 735 $ 3,258 $ 1,638 $ 48,451 (1) Mainly corresponds to $433 from the closure of the polyester staple fiber operations at the Cooper River site, $829 from the shutdown of Univex, $10 from the shutdown of Sales del Bajío and the remainder to the normal operations of the Company. Depreciation expenses of $3,176, $2,905 and $3,075 were recorded in cost of sales, $11, $10 and $16, in selling expenses and $47, $42 and $43, in administrative expenses in 2022, 2021 and 2020, respectively. 105  11 . RIGHT- OF- USE ASSET, NET Alpek has leases of fixed assets including buildings, machinery and equipment, transportation equipment, and computer equipment. The average term of the lease contracts is 8 years. The right-of-use recognized in the consolidated statement of financial position as of December 31, 2022, 2021 and 2020, is integrated as follows: Net carrying amount: Balance as of December 31, 2020 Balance as of December 31, 2021 Balance as of December 31, 2022 Depreciation for the year 2020 Depreciation for the year 2021 Depreciation for the year 2022 Land Buildings Machinery and equipment Ships and other leased assets Total Rail cars $ $ $ $ $ $ 110 109 368 $ $ $ 124 $ 799 $ 661 $ 790 934 781 $ $ $ 1,924 $ 1,666 $ 1,584 $ 43 46 58 $ 2,991 $ 3,554 $ 3,452 (8) $ (46) $ (303) $ (470) $ (151) $ (978) (7) $ (54) $ (296) $ (437) $ (163) $ (957) (29) $ (60) $ (309) $ (426) $ (166) $ (990) During the years ended December 31, 2022, 2021 and 2020, the Company recognized a lease expense of $780, $693 and $810, respectively, related to low value and short-term lease agreements. Additions derived from business acquisitions, new contracts and modifications to the lease liability, reflected in the net book value of the right-of-use asset as of December 31, 2022, 2021 and 2020 amounted to $1,075, $1,452 and $486, respectively. As of December 31, 2022, 2021 and 2020, 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. 106  12 . GOODWILL AND INTANGIBLE ASSETS , NET Development costs Non- compete Customer agreements relationships Patent Software and licenses Trademarks with definite life Intellectual property, and others Goodwill Other Total Definite life Indefinite life $ 887 $ 81 $ 1,059 $ 12 - - 1 50 - - - - - - - - (2) (27) $ 950 $ 79 $ 1,032 $ 10 - - - 5 30 - - - - - - - - - - (2) 12 $ 995 $ 77 $ 1,044 $ 10 5 - - 5 - - - - - - - - - - - - - - - - - - - - - - - - - 1,638 - - - (63) (3) (47) (30) $ 604 $ 68 $ 3,568 $ 377 $ 9 $ 6,653 70 6 - (157) (22) - - - 160 (13) 4 - (1) - - - - - 188 22 - - - - 1 86 6 (1) 4 197 $ 501 $ 215 $ 3,759 $ 399 $ 10 $ 6,945 7 18 - (221) - 2 - 23 - - - 2 - (1) - - - - - - - (3) 138 13 - - - - - - 19 41 (1) (221) 5 190 $ 307 $ 235 $ 3,898 $ 412 $ 10 $ 6,978 1 3 (31) (53) 60 (10) - - - - (30) (7) 1 - - (16) - - - - - - - - - - - 12 1,646 (31) (69) 35 (215) (25) (1) (401) $ 952 $ 74 $ 997 $ 1,608 $ 277 $ 198 $ 3,668 $ 387 $ 9 $ 8,170 $ (531) $ (81) $ (484) $ (26) - - (29) - - - 2 (63) - - (14) $ (28) $ - - (18) - - - 2 $ (59) $ - - (15) $ (632) $ (77) $ (635) $ - - - - - - - - - - - $ (435) $ (4) $ (1,335) $ (49) (6) 160 25 (5) - (160) 17 (231) - - (59) $ (305) $ (152) $ (1,625) $ $ (55) $ (5) $ (219) $ - 125 (1) - - 4 - - (53) $ (236) $ (153) $ (1,897) $ (26) - - - (4) 43 - - - - - 3 (59) (98) - - - - 37 - - - (7) 12 (11) (30) 31 53 (2) 9 (5) 30 - - - 3 (216) - - 4 - 118 $ (619) $ (74) $ (657) $ (93) $ (186) $ (125) $ (1,991) $ - - - - - - - - - - - - - - - - - - $ - $ (2,870) - - - - (374) (6) - (58) $ $ - $ (3,308) - $ (366) - - - - 125 (81) $ - $ (3,630) - - - - - - (415) - 31 57 (13) 225 $ - $ (3,745) Cost As of January 1, 2020 Additions Additions for business acquisitions Disposals Transfers Translation effect As of December 31, 2020 Additions Additions for business acquisitions Disposals Impairment Transfers Translation effect As of December 31, 2021 Additions Additions for business acquisitions Disposals Impairment Transfers Translation effect As of December 31, 2022 Amortization and Impairment As of January 1, 2020 Amortization Additions for business acquisitions Transfers Translation effect Amortization Transfers Impairment Translation effect As of December 31, 2021 Amortization Transfers Disposals Impairment Additions for business acquisitions Translation effect As of December 31, 2022 Net carrying amount Cost Amortization $ 950 $ 79 $ 1,032 $ (586) (79) (561) As of December 31, 2020 $ 364 $ - $ 471 $ Cost Amortization and impairment 995 (632) 77 (77) 1,044 (635) As of December 31, 2021 $ 363 $ - $ 409 $ - - - - - - $ 501 $ 215 $ 3,759 $ 399 $ 10 $ 6,945 (305) (152) (1,625) - - (3,308) $ 196 $ 63 $ 2,134 $ 399 $ 10 $ 3,637 307 (236) 235 3,898 (153) (1,897) 412 - 10 6,978 - (3,630) $ 71 $ 82 $ 2,001 $ 412 $ 10 $ 3,348 Cost Amortization and impairment 952 (619) 74 (74) 997 1,608 (657) (93) 277 (186) 198 3,668 (125) (1,991) 387 - 9 - 8,170 (3,745) As of December 31, 2022 $ 333 $ - $ 340 $ 1,515 $ 91 $ 73 $ 1,677 $ 387 $ 9 $ 4,425 As of December 31, 2020 $ (586) $ (79) $ (561) $ 107 Of the total amortization expense, $401, $352 and $363 have been recorded in cost of sales and $14, $14 and $11 in administrative and selling expenses in 2022, 2021 and 2020, respectively. Incurred research and development expenses that have been recorded in the 2022, 2021 and 2020 consolidated statements of income were $68, $67 and $74, 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, 2022, 2021 and 2020, goodwill of $387, $412 and $399, 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 signif- icant variations compared to the impairment calculation prepared as of December 31, 2022. The key assumptions used in calculating the value in use in 2022, 2021 and 2020, were as follows: Estimated gross margin Growth rate Discount rate 2022 8.3% 2.1% 8.9% 2021 8.6% 1.9% 8.5% 2020 5.0% 2.0% 8.4% 13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD AND 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 investments accounted for using the equity method and other non-current assets As of December 31, 2022 2021 2020 $ $ $ $ 2,495 849 616 3,960 9,162 765 100 2,595 876 614 4,085 9,045 906 143 $ $ 3,119 823 576 4,518 8,586 724 178 $ 13,987 $ 14,179 $ 14,006 (1) As of December 31, 2022, 2021 and 2020, this item mainly consisted of the financing provided to M&G Polímeros México, S.A. de C.V. (2) Investment in associates and joint ventures 108 The Company’s account of investments in associates and joint ventures consists of the following: Shareholding % 2022 2021 2020 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 $ 49.90% 42.04% 47.59% 33.33% 201 55 88 8,818 $ 251 43 81 8,670 $ 246 42 76 8,222 Investment in associates and joint ventures as of December 31 $ 9,162 $ 9,045 $ 8,586 Below is summarized the net loss of investments in associates and joint ventures, which are accounted for by the equity method: 2022 2021 2020 Net comprehensive loss $ (175) $ (121) $ (12) There are neither commitments nor contingent liabilities regarding the Company’s investment in associates and joint ventures as of December 31, 2022, 2021 or 2020. 14. SUBSIDIARIES WITH SIGNIFICANT NON - CONTROLLING INTEREST The significant non-controlling interest is integrated as follows: Non-controlling ownership percentage Non-controlling net interest income for the period Non-controlling interest as of December 31, 2022 2021(1) 2020 2022 2021(1) 2020 Indelpro, S. A. de C. V. and subsidiary Polioles, S. A. de C. V. and subsidiary Other 49% 50% $ $ 1,967 120 135 2,341 $ 53 46 981 30 (13) $ 4,461 $ 438 392 5,160 366 344 $ 4,453 319 354 $ 2,222 $ 2,440 $ 998 $ 5,291 $ 5,870 $ 5,126 (1) During 2021, these entities merged their subsidiaries due to the effects of the labor reform in México. 109 The summarized consolidated financial information as of December 31, 2022, 2021 and 2020, and for the years then ended, corre- sponding to each subsidiary with a significant non-controlling interest is shown below: Statement of financial position Current assets Non-current assets Current liabilities Non-current liabilities Stockholders’ equity Statements of income Revenues Consolidated net income Total comprehensive income of the year Comprehensive income attributable to non-controlling interest Dividends paid to non-controlling interest Statements of cash flows Net cash flows generated by operating activities Net cash flows (used in) generated by investing activities Net cash flows used in financing activities Net increase (decrease) in cash Indelpro, S. A. de C. V. and subsidiary Polioles, S. A. de C. V. and subsidiary 2022 2021(1) 2020 2022 2021(1) 2020 $ 4,210 7,769 1,038 1,836 9,105 $ 6,790 $ 8,372 2,638 1,993 10,531 18,553 4,015 3,459 22,589 4,778 5,150 1,695 2,394 2,524 1,816 5,238 8,055 2,223 1,982 9,088 11,841 2,003 2,493 1,222 670 $ 1,250 $ 932 648 659 875 3,546 240 164 82 10 1,451 998 867 850 732 $ 1,325 959 521 1,124 639 2,954 107 113 2,409 59 81 57 10 40 - 5,215 4,156 2,423 346 133 196 (193) (5,162) (446) (3,988) (572) (1,645) (64) (164) 57 (261) (26) (123) and cash equivalents (132) (226) 365 90 (66) 28 (1) During 2021, these entities merged their subsidiaries due to the effects of the labor reform in México. 15. TR ADE 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 As of December 31, 2022 2021 $ $ 28,493 827 76 577 224 1,788 $ 25,595 1,263 242 691 261 1,801 2020 16,173 984 117 453 286 1,532 $ 31,985 $ 29,853 $ 19,545 110  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 $ $ $ As of December 31, 2022 2021 2020 $ 1,466 5,803 - 443 279 1,931 42 408 $ 98 - 42 316 7,712 $ 2,660 $ 456 27,271 10,177 147 37,595 (5,803) (423) $ 30,895 619 156 31,670 (1,931) (406) $ 29,061 1,299 151 30,511 - (315) Non-current debt $ 31,369 $ 29,333 $ 30,196 (1) As of December 31, 2022, 2021 and 2020, short-term bank loans and notes payable incurred interest at an annual average rate of 6.15%, 1.40% and 1.87%, 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: Debt Balance as Balance as Balance as Description Value in issuance Currency MX pesos costs Interest payable of December of December of December 31, 2021(1) 31, 2020(1) 31, 2022 Maturity Interest date rate Senior Notes 144A/Reg. S / fixed rate USD $ - $ - $ - $ - $ 1,941 $ 12,977 20-nov-22 4.50% Senior Notes 144A/Reg. S / fixed rate USD 5,808 Senior Notes 144A/Reg. S / fixed rate USD 9,662 Senior Notes 144A/Reg. S / fixed rate USD 11,562 (5) (57) (70) 123 117 131 5,926 9,722 11,623 6,290 10,324 12,340 6,090 08-aug-23 5.38% 9,994 18-sep-29 4.25% - 25-feb-31 3.25% Total Senior Notes $ 27,032 $ (132) $ 371 $ 27,271 $ 30,895 $ 29,061 Bank loan, LIBOR + 2.60% Bank loan, LIBOR + 2.05% Bank loan, SOFR +1.00% Bank loan, SOFR +1.05% Bank loan, SOFR +1.00% Bank loan, SOFR +1.00% Total unsecured bank loans Other loans Total Less: current portion and interest of non-current debt Non-current debt USD USD USD USD USD USD 484 - 1,936 3,872 1,936 1,936 10,164 - - (10) (10) (10) (9) (39) USD 147 - 2 - 10 20 10 10 52 - 486 - 1,936 3,882 1,936 1,937 10,177 619 800 03-dec-24 2.77% - - - - - 500 11-dec-24 2.27% - - 06-apr-24 5.39% 07-apr-24 5.44% - 06-may-24 5.39% - 06-apr-24 5.39% 619 1,300 147 156 150 Various Various $ 37,343 $ (171) $ 423 $ 37,595 $ 31,670 $ 30,511 (5,808) 5 (423) (6,226) (2,337) (315) $ 31,535 $ (166) $ - $ 31,369 $ 29,333 $ 30,196 (1) As of December 31, 2022, 2021 and 2020, issuance costs of the debt pending amortization were $171, $172 and $139, respectively. 111 As of December 31, 2022, the annual maturities of non-current debt, including current portion and interest payable, and gross from issuance costs are as follows: Senior Notes Bank loans Other loans $ 2023 6,179 52 - $ $ 6,231 $ 2024 2025 thereafter Total 2026 and - 484 - 484 $ $ - - - - $ 21,224 9,680 147 $ 27,403 10,216 147 $ 31,051 $ 37,766 As of December 31, 2022, 2021 and 2020, the Company has committed unused lines of credit totaling US$610, US$560 and US$680, respectively. Covenants: Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, which include the following: a) Interest hedge ratio: it is calculated by dividing the profit before financial result, net, share of result of associates and joint ventures, income taxes, depreciation and amortization (EBITDA) by the net interest charges for the last four quarters of the analyzed period. This ratio 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 ratio 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 satis- faction of creditors may cause the debt to become payable immediately. During 2022, 2021 and 2020, the financial ratios were calculated according to the formulas set forth in the loan agreements. As of December 31, 2022 and the date of issuance of these consolidated financial statements, the Company complied satisfactorily with such covenants and restrictions. 17. LEASE LIABILITY Current portion: USD MXN Other currencies Current lease liability Non-current portion: USD MXN Other currencies Less: Current portion of lease liability Non-current lease liability As of December 31, 2022 2021 2020 $ $ $ $ $ $ $ $ $ 537 121 163 821 2,686 308 630 3,624 (821) 462 123 148 733 2,641 304 663 3,608 (733) 454 123 127 704 2,280 288 442 3,010 (704) $ 2,803 $ 2,875 $ 2,306 112 As of December 31, 2022, 2021 and 2020, 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 (1) Write-offs Adjustment to liability balance Interest expense from lease liability Lease payments Exchange (loss) gain Ending balance (1) Includes lease liabilities assumed in business acquisitions. 2022 2021 2020 $ $ 3,608 1,147 (8) (23) 206 (1,109) (197) 3,010 1,435 (32) 9 178 (1,049) 57 $ 3,368 420 (45) 40 193 (1,083) 117 $ 3,624 $ 3,608 $ 3,010 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 18. PROVISIONS As of December 31, $ 2022 821 1,669 1,134 $ 2021 733 1,681 1,194 $ 2020 704 1,701 605 $ 3,624 $ 3,608 $ 3,010 Dismantling, demolition and environmental remediation Legal contingencies Warranties Other (1) Total As of January 1, 2020 Increases Payments Write-offs Translation effect As of December 31, 2020 Increases Payments Write-offs Translation effect As of December 31, 2021 Increases Payments Write-offs Translation effect $ $ $ 6 183 (3) - 1 187 131 (2) (193) 11 134 - (74) - (4) $ $ 662 12 - - (100) $ 544 - (563) (67) 124 442 15 (2) (39) (45) $ 1,654 210 (568) (106) (20) $ 574 $ 38 $ 371 $ 1,170 342 (3) (10) (25) $ 878 $ 78 (145) (214) 8 - (38) - - - - - - - - 152 - (154) - 625 (43) (357) (14) $ 369 $ 1,381 1,166 (235) (76) (31) 1,244 (454) (290) (27) $ 1,193 $ 1,854 As of December 31, 2022 $ 56 $ 605 $ (1) As of December 31, 2022, the increases in “others” are mainly made up of the contingent consideration for the acquisition of Octal businesses for $904 (see Note 2), as well as reimbursement for taxes to be recovered from Petrobras $215. 113 Short-term provisions Long-term provisions As of December 31 2022 794 1,060 1,854 $ $ 2021 546 835 1,381 2020 50 1,120 1,170 $ $ $ $ As of December 31, 2022, 2021 and 2020, the provisions shown in the table above mainly include $215 (US$11), $48 (US$2) and $206 (US$10), 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 $595 (US$31), $605 (US$29) and $574 (US$29) for labor, civil and tax contingencies also derived from the acquisition of Petroquímica Suape and Citepe, for which the Company holds an account receivable, included in other non-current assets, for $616 (US$32), $614 (US$30) and $576 (US$29) as of December 31, 2022, 2021 and 2020, respectively. As of December 31, 2021 and 2020, $153 (US$7.5) and $149 (US$7.5), respectively, were related to the contingent liability for the earn-out payment related to the acquisition of Selenis. As of December 31, 2022 there is no balance for this concept. Additionally, as of December 31, 2022, $904 (US$46.7) were mainly related to the contingent consideration for the payment of future benefits (earn-out) related to the acquisition of Octal. 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: As of December 31, 2022 2021 2020 Employee benefit obligations: Pension benefits Post-employment medical benefits Defined contribution plans $ $ 612 64 676 349 598 99 697 332 $ Employee benefits in the consolidated statement of financial position $ 1,025 $ 1,029 $ Charge to the consolidated statement of income for: Pension benefits Post-employment medical benefits Remeasurements of employee benefit obligations recognized in other comprehensive income of the year Remeasurements of accrued employee benefit obligations recognized in other comprehensive income $ $ $ $ (76) (3) (79) $ $ (79) (4) (83) (39) $ 453 290 $ 329 $ $ $ $ 956 105 1,061 255 1,316 (62) (5) (67) (39) (124) 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. 114 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 The movements of defined benefit obligations are as follows: As of January l, Service cost Interest cost Contributions from plan participants Remeasurements: (Gains) losses from changes in financial assumptions Losses (gains) from changes in demographic assumptions and experience adjustments Translation effect Benefits paid Liability acquired in business combination Transfer of personnel Plan curtailments $ $ $ As of December 31, 2022 2021 2020 3,107 (2,431) 676 $ $ 4,329 (3,632) 697 $ $ 4,455 (3,394) 1,061 2022 2021 2020 $ $ 4,329 69 98 4 (715) 1 (219) (461) - 2 (1) 4,455 69 100 6 (154) - 148 (299) - 18 (14) 3,813 50 107 6 329 42 198 (284) 195 - (1) As of December 31, $ 3,107 $ 4,329 $ 4,455 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 2022 2021 2020 $ (3,632) (87) $ (3,394) (73) $ (2,940) (89) 754 183 - 351 (299) (96) (14) 244 (332) (153) (96) 216 As of December 31 $ (2,431) $ (3,632) $ (3,394) 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 2022 2021 2020 $ $ $ (69) (10) - $ (69) (28) 14 (79) $ (83) $ (50) (18) 1 (67) 115 The principal actuarial assumptions are as follows: Discount rate Mexico Discount rate United States Inflation rate Wage increase rate Medical inflation rate Mexico As of December 31, 2022 2021 2020 9.25% 4.96%-5.06% 3.50% 5.00% 7.00% 7.75% 2.42%-2.64% 3.50% 4.50% 7.00% 6.75% 1.99%-2.30% 3.50% 4.50% 6.50% The sensitivity analysis of the discount rate for defined benefit obligations is as follows: Discount rate Effect in defined benefit obligations Change in assumption Increase in assumption Decrease in assumption MX 1% Decrease by $82 Increase by $89 Sensibility analyses are based on a change in assumptions, while all the other assumptions remain constant. In practice, this is slightly probable, and the changes in some assumptions may be correlated. In calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of calculated defined benefit obligation with the projected unit credit method at reporting period) has been applied as in the calculation of liabilities for pensions recognized within the consolidated statement of financial position. Defined benefit plan assets Plan assets are comprised as follows: Equity instruments Fixed income Fair value of plan assets 20. INCOME TA XES As of December 31, 2022 1,899 532 2,431 2021 1,341 2,291 3,632 2020 2,290 1,104 3,394 $ $ $ $ $ $ The Company is subject to income tax, whose rate is 30% in México. The statutory income tax rates applicable to the main foreign subsidiaries were as follows: United States Brazil Argentina Chile Canada Spain United Kingdom Oman(1) 2022 21% 34% 35% 27% 26.5% 25% 19% 15% 2021 21% 34% 30% 27% 26% 25% 19% - 2020 21% 34% 30% 27% 25% 25% 17% - (1) Octal’s production facility (Octal SAOC FZC) is registered in the Salalah Free Zone; therefore, it is exempt from corporate tax for a period of 30 years from November 25, 2006, the date it began activities. 116  a. Income taxes recognized in the consolidated statement of income are as follows: Current income tax Deferred income taxes Income taxes expenses 2022 2021 2020 $ (5,345) (164) $ (4,304) 189 $ (5,509) $ (4,115) $ $ (1,933) 731 (1,202) 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 Cancellation of tax losses 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 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 2022 2021 2020 $ 21,475 30% (6,443) $ 14,311 30% (4,293) $ 5,323 30% (1,597) (896) - 22 1,493 200 (52) 147 20 (189) (805) (18) 934 179 101 (36) 12 (186) - (13) 642 (33) (35) 45 (25) $ (5,509) $ (4,115) $ (1,202) 26% 29% 23% Asset (liability) December 31, $ 2022 2021 2020 $ (80) (131) (11) 174 286 652 828 (9) $ 9 (94) (20) 306 46 601 805 (23) (155) (137) (16) 275 2 889 669 (21) Deferred tax asset $ 1,709 $ 1,630 $ 1,506 Inventories Property, plant and equipment, net Intangible assets Tax loss carryforwards Non-deductible interest, provision allowance and others Effect of tax rates of other countries and changes in tax rates Deferred tax liability Asset (liability) December 31, 2022 2021 2020 $ $ (22) (5,753) (143) 250 1,498 325 (72) (6,601) (282) 780 1,815 236 $ (121) (5,999) (280) 752 1,414 142 $ (3,845) $ (4,124) $ (4,092) 117 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 $25,062, $26,843 and $29,312 in 2022, 2021 and 2020, respectively. Tax losses as of December 31, 2022 expire in the following years: Loss for the year incurred Tax-loss carryforwards Expiration year 2014 2015 2016 2017 2018 2019 2020 2021 2022 Other $ 1 15 13 54 27 17 345 851 1,682 22,057 $ 25,062 2024 2025 2026 2027 2028 2029 2030 2031 2032 and thereafter No maturity As of December 31, 2022, the Company holds tax losses to be amortized in Brazil, through Suape and Citepe, for an amount of $22,057, 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, 2022, they do not generate deferred tax assets. d. Income tax related to other comprehensive income is as follows: 2022 2021 2020 Before taxes Tax charged After taxes Before taxes Tax charged After taxes Before taxes Tax charged After taxes Equity in other comprehensive income of associates and joint ventures recognized through the equity method $ 1 $ - $ 1 $ (1) $ - $ (1) $ 3 $ - $ 3 Foreign currency translation effect (2,652) - (2,652) 110 - 110 (767) (39) 20 (19) 453 (109) 344 (39) - 9 (767) (30) Remeasurement of employee benefit obligations Effect of derivative financial instruments designated as cash flow hedges Other comprehensive income $ (3,872) $ 347 $ (3,525) $ (30) $ 52 $ 22 $ 82 $ (262) $ (180) (1,182) 327 (855) (592) 161 (431) 885 (271) 614 118  e. Income tax payable consists of the following: Current portion Non-current portion (1) Total income tax payable 2022 1,410 - 1,410 $ $ As of December 31, 2021 2020 $ $ 1,630 241 1,871 $ $ 531 170 701 (1) During the year ended December 31, 2022, Alfa made the decision to voluntarily and spontaneously abandon this regime for a group of companies in México (Incorporation Regime), which will remain the obligation to pay full taxes. The profit that has been deferred for the years 2019 and 2021 for $375, which will have to be paid during 2023. 21 . OTHER NON - CURRENT LIABILITIES Advances from customers (1) Other (2) Total other liabilities As of December 31, 2022 2021 2020 $ $ 128 432 560 $ $ 196 50 246 $ $ 249 40 289 (1) This item corresponds to revenues charged in advance and relates to the future delivery of goods. (2) As of December 31, 2022, is mainly related to the amount pending of payment for the acquisition of Octal (see Note a). 22 . STOCKHOLDERS’ EQUITY As of December 31, 2022, capital stock is variable, with a fixed minimum of $6,052 represented by 2,107,246,568 outstanding, ordi- nary, 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, 2022, Alpek SAB had 10,917,067 treasury shares. As of such date, the market value per share was $27.59 Mexican pesos. From February to December 2022, the Company purchased 9,095,421 shares in the amount of $246 and sold 6,560,342 shares in the amount of $180 in connection to a repurchase program approved by the Company´s stockholders and exercised discretionally by Management. From March to December 2021, the Company purchased 12,879,634 shares in the amount of $292 and sold 10,363,950 shares in the amount of $236 in connection to the same repurchase program. 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 with the same program. The net income of the year is subject to decisions made by the General Stockholders’ Meeting, the Company’s by-laws and the General Law of Mercantile Corporations. In accordance with the General Law of Mercantile Corporations, the legal reserve should be increased annually by 5% of the net annual income until it reaches 20% of the fully paid in capital stock. As of December 31, 2022, 2021 and 2020, the legal reserve amounts to $1,210, $1,210 and $1,200, respectively. On October 31, 2022, the Company’s Board of Director, through the powers delegated at the ordinary stockholders’ meeting held on March 3, 2022, approved the payment of a cash dividend per share of $0.093 US dollars, equivalent to the aggregate amount of $3,887(US$196), approximately, which were paid on November 9, 2022. At the ordinary stockholders’ meeting of Alpek on March 3, 2022, the stockholders agreed to declare dividends in cash per share of $0.0820 US dollars, equivalent to the aggregate amount of $3,628 (US$173), approximately, which were paid on March 14, 2022. On October 26, 2021, the Company’s Board of Director, through the powers delegated at the ordinary stockholders’ meeting held on March 9, 2021, approved the payment of a cash dividend per share of $0.0265 US dollars, equivalent to the aggregate amount of $1,129(US$56), approximately, which were paid on November 10, 2021. 119 At the ordinary stockholders’ meeting of Alpek on March 9, 2021, the stockholders agreed to declare dividends in cash per share of $0.0596 US dollars, equivalent to the aggregate amount of $2,677 (US$126), approximately, which were paid on April 6 in the same year. At the ordinary stockholders’ meeting of Alpek on January 20, 2020, the stockholders agreed to declare dividends in cash per share of $0.0677 US dollars, equivalent to the aggregate amount of $2,713 (US$143), approximately, which were paid on January 29 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 divi- dends 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, 2022, the value of the Capital Contribution Account (CUCA Spanish acronym) amounted to $24,893. The tax value of the CUFIN amounted to $2,302. 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. The short-term and long-term liabilities are comprised as follows: Short term Long term Total carrying amount 2022 15.80 27.64 2021 15.26 22.25 2020 15.39 17.60 As of December 31, 2022 2021 2020 $ $ 11 28 39 $ $ 12 25 37 $ $ 8 20 28 120  24. EXPENSES CLASSIFIED BY THEIR NATURE The total cost of sales and selling and administrative expenses, classified by the nature of the expense, for the years ended December 31, are comprised as follows: Raw material and other Employee benefit expenses (Note 27) Human resources Maintenance Depreciation and amortization Advertising expenses Freight expenses Consumption of energy and fuel (gas, electricity, etc.) Travel expenses Lease expenses Technical assistance, professional fees and administrative services Other (insurance and bonds, water, containers and packing, etc.) 2022 2021 2020 $ (150,143) (7,538) (69) (2,833) (4,639) (2) (9,993) (6,628) (188) (780) (2,216) (3,315) $ (105,257) (7,348) (51) (2,301) (4,280) (1) (6,931) (5,264) (66) (722) (1,839) (3,513) $ (79,743) (6,319) (40) (1,991) (4,486) (2) (5,949) (4,544) (71) (810) (1,694) (2,030) Total $ (188,344) $ (137,573) $ (107,679) 25. OTHER INCOME (EXPENSES), NET Other income (expense) for the years ended December 31, are comprised as follows: Gain on business combination (1) Gain on business sale Other income, net (2) Impairment of property, plant and equipment and other Total 2022 2021 2020 $ $ 425 - 269 (246) 29 - 274 (1,460) $ 657 89 451 (14) $ 448 $ (1,157) $ 1,183 (1) For the year ended December 31, 2022, corresponds to the gain on the acquisition of Octal. See Note 2a. (2) For the year ended December 31, 2021, includes $8.7 from the cancellation of ContourGlobal joint venture. 26. FINANCE INCOME AND COSTS Financial result, net for the years ended December 31, are comprised as follows: Financial income: Interest income on short-term bank deposits Interest income on loans from related parties Other financial income Total financial income 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 Total financial expense Loss in exchange fluctuation, net Foreign exchange gain Foreign exchange loss Loss in exchange fluctuation, net Financial result, net 2022 2021 2020 $ $ $ $ $ 271 26 625 922 - (392) (1,422) (206) (16) (1,188) (3,224) 8,585 (9,280) (695) (2,997) $ $ $ $ $ 140 26 424 590 - (86) (2,284) (178) (59) (475) (3,082) 1,614 (2,266) (652) (3,144) $ $ $ $ $ 105 28 392 525 (1) (183) (1,588) (193) (44) (488) (2,497) 4,653 (4,766) (113) (2,085) 121  27. EMPLOYEE BENEFIT EXPENSES Employee benefits expenses for the years ended December 31, are as follows: Salaries, wages and benefits Social security fees Employee benefits Other fees Total 2022 2021 2020 $ (5,660) (608) (95) (1,175) $ (5,766) (426) (53) (1,103) $ (4,780) (380) (49) (1,110) $ (7,538) $ (7,348) $ (6,319) Labor Reform Related to Vacations On December 27, 2022, a decree was published by means of which articles 76 and 78 of the Federal Labor Law (“LFT” for its acronym in Spanish) for México were reformed, which will be effective on January 1, 2023. The main change resulting from this labor reform considers the increase in the minimum annual vacation period for workers with more than one year of service. The Company evaluated the accounting impacts generated by this labor reform and determined that the increases in the vacation and vacation premium provision, as a result of the increase in vacation days, were not significant as of December 31, 2022. 28. RELATED PARTY TR ANSACTIONS Transactions with related parties during the years ended December 31, 2022, 2021 and 2020 were as follows: Income Income from sale of goods: Stockholders with significant influence over subsidiaries Income from services: Affiliates Stockholders with significant influence over subsidiaries Income from financial interest: Alfa 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) Other income: Affiliates Stockholders with significant influence over subsidiaries 2022 2021 2020 $ 1,903 $ 1,576 $ 1,155 12 207 26 38 156 31 - 2 2 13 198 26 38 121 29 288 - - 60 197 28 28 408 28 36 3 - 122 Costs / expenses Purchase of finished goods and raw materials: Stockholders with significant influence over subsidiaries Expenses from services: Alfa Affiliates 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 2022 2021 2020 (764) (2,120) (1,454) (338) (86) (14) (4) - - (28) (59) - (43) (6,138) (2,404) (16) (252) (14) (6) - - (30) (77) - - (3,055) (1,826) - (315) (13) (1) (1) (1) (22) (38) (6) (36) (2,230) (670) For the year ended December 31, 2022, the remunerations and benefits received by the top officers of the Company amounted to $424 ($409 in 2021 and $347 in 2020), 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. Sigma Alimentos Noreste, 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 Basell Basell Nature of the transaction 2022 2021 2020 As of December 31, Administrative services $ 140 $ 174 $ 190 Administrative services Administrative services Administrative services Sale of goods Energetics Energetics Energetics Energetics Energetics Sale of goods Sale of goods Energetics 115 1 - 1 3 5 1 1 - 184 40 6 115 1 - 1 4 6 1 1 1 286 26 6 115 - 1 1 2 3 - 1 35 193 44 3 $ 497 $ 622 $ 588 123 Long-term accounts receivable: Holding company Alfa, S. A. B. de C. V. (1) Short-term accounts payable: Holding Company Alfa, S. A. B. de C. V. (1) 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. Transportación Aérea del Norte, S.A. de C.V. Newpek, 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 Tepeal Stockholders with significant influence over subsidiaries BASF BASF Nature of the transaction 2022 2021 2020 As of December 31, Financing and interest $ 849 $ 876 $ 823 $ 849 $ 876 $ 823 Administrative services $ 65 $ 19 $ - Administrative services Administrative services Administrative services Administrative services Administrative services Administrative services Administrative services Administrative services Administrative services Financing and interest Administrative services 4 - 6 - - - 8 2 - - 1 2 - 8 - 2 1 - - 1 - - Purchase of raw materials Purchase of goods 138 - 202 26 3 10 3 12 2 - - - 4 50 - 202 - $ 224 $ 261 $ 286 (1) As of December 31, 2022, 2021 and 2020, the loans granted bore interest at average fixed interest rate of 5.34%, 5.34% and 5.34%, respectively. 29. SEGMENT REPORTING Segment reporting is presented consistently with the financial information provided to the Chief Executive Officer, who is the highest authority in operational decision making, allocation of resources and performance assessment of operating segments. An operating segment is defined as a component of an entity on which separate financial information is regularly evaluated. Management controls and assesses its operations through two business segments: the Polyester business and the Plastics and Chemicals business. These segments are managed separately since its products vary and targeted markets are different. Their activities are performed through various subsidiaries. The operations between operating segments are performed at market value and the accounting policies with which the financial information by segments is prepared, are consistent with those described in Note 3. The Company has defined Adjusted EBITDA as the calculation of adding operating income, depreciation, amortization, and impair- ment 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. 124 Following is the condensed financial information of the Company’s operating segments: For the year ended December 31, 2022: 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, 2021: 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, 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 Polyester Plastics and Chemicals Other Total $ $ $ $ $ $ $ $ $ $ 140,837 (120) 140,717 13,966 3,713 244 17,923 2,487 $ $ $ $ $ 46,878 (74) 46,804 10,464 925 2 11,391 497 Polyester Plastics and Chemicals 98,103 (103) 98,000 8,801 3,235 524 12,560 3,774 $ $ $ $ $ 47,533 (63) 47,470 8,192 1,045 936 10,173 653 Polyester Plastics and Chemicals $ $ $ $ $ 85,350 (70) 85,280 3,401 3,426 14 6,841 1,855 $ $ $ $ $ 25,403 (54) 25,349 3,860 1,060 - 4,920 715 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 24,720 194 24,914 109 1 - 110 3 $ $ $ $ $ 212,435 - 212,435 24,539 4,639 246 29,424 2,987 Other Total 10,588 166 10,754 501 - - 501 4 $ $ $ $ $ 156,224 - 156,224 17,494 4,280 1,460 23,234 4,431 Other Total 3,236 124 3,360 232 - - 232 - $ $ $ $ $ 113,989 - 113,989 7,493 4,486 14 11,993 2,570 125 The reconciliation between adjusted EBITDA and income before taxes for the years ended December 31, is as follows: Adjusted EBITDA Depreciation and amortization Impairment of long-lived assets Operating income Financial result, net Equity in loss of associates and joint ventures 2022 2021 2020 $ 29,424 (4,639) (246) 24,539 (2,997) (67) $ 23,234 (4,280) (1,460) 17,494 (3,144) (39) $ 11,993 (4,486) (14) 7,493 (2,085) (85) Income before income taxes $ 21,475 $ 14,311 $ 5,323 The Company’s main customer generated revenues amounting to $9,230, $11,403 and $10,426 for the years ended December 31, 2022, 2021 and 2020. These revenues are resulted from the polyester reporting segment and represent 4.0%, 7.3% and 9.1% of the consolidated revenues with external costumers for the years ended December 31, 2022, 2021 and 2020. 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 Oman Saudi Arabia Total revenues 2022 2021 2020 $ 88,922 64,383 8,867 23,303 1,325 3,627 5,648 16,086 274 $ 71,646 49,710 7,255 18,090 1,413 3,143 4,967 - - $ 44,189 45,113 4,303 12,649 936 1,966 4,833 - - $ 212,435 $ 156,224 $ 113,989 The following table shows the intangible assets and property, plant and equipment by country: Mexico United States Canada Brazil Oman Total intangible assets Mexico United States Canada Argentina Chile Brazil United Kingdom Oman Saudi Arabia $ $ $ 2022 1,312 1,375 4 214 1,520 4,425 21,285 9,769 471 128 276 4,926 667 10,598 331 As of December 31, $ $ $ 2021 1,575 1,521 20 232 - 3,348 23,157 9,821 775 163 267 4,356 866 - - $ $ $ 2020 1,741 1,616 22 258 - 3,637 23,737 8,090 865 111 316 4,538 922 - - Total property, plant and equipment $ 48,451 $ 39,405 $ 38,579 126  30. COMMITMENTS AND CONTINGENCIES As of December 31, 2022, the Company has the following commitments: a. As of December 31, 2022, 2021 and 2020, 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. These agreements are effective 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 specific period. As of December 31, 2022, the Company has the following contingencies: a. b. During the normal course of the business, the Company is involved in disputes and litigations. While the results of these may not 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 were to result in an adverse resolution to the Company, would negatively impact the results of its operations or its financial position. Some of the Company’s subsidiaries use hazardous materials to manufacture polyester filaments and staple fibers, polyeth- ylene terephthalate (PET) and terephthalic acid (PTA) resin, polypropylene (PP) resin, expandable polystyrene (EPS), chemical specialties and they generate and dispose of waste, such as catalysts and glycols. These and other activities of the subsidiaries are subject to various federal, state and local laws and regulations governing the generation, handling, storage, treatment and disposal of hazardous substances and wastes. According to such laws, the owner or lessor of real estate property may be liable for, among other things, (i) the costs of removal or remediation of certain hazardous or toxic substances located on, in, or emanating from, such property, as well as the related cost of investigation and property damage and substantial penalties for violations of such law, and (ii) environmental contamination of facilities where its waste is or has been disposed of. Such laws impose such liability without regard to whether the owner or lessee knew of, or was responsible for, the presence of such hazardous or toxic substances. Although the subsidiaries estimate that there are no existing material liabilities relating to noncompliance with environmental laws and regulations, there can be no assurance that there are no undiscovered potential liabilities related to historic or current operations that will require investigation and/or remediation under environmental laws, or that future uses or conditions will not result in the imposition of an environmental liability or expose them to third-party or related parties actions, such as tort suits. Furthermore, there can be no assurance that changes in environmental regulations in the future will not require the subsidiaries to make significant capital expenditures to change methods of disposal of hazardous materials or otherwise alter aspects of their operations. c. As of December 31, 2022, 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 such 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 $455 in taxes, fines and interest that the SFSP demands; therefore, as of December 31, 2022, the Company has not recognized any provision related to this concept. On the other hand, for the concept of ICMS crediting, the demanded amount is $91, 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, 2022. d. Anti-Dumping of PET Resin In March 2015, in response to requests from PET resin manufacturers in the United States of America (“USA”), the International Trade Commission (“ITC”) and the United States Department of Commerce The USA (“USDOC”) initiated an Anti-Dumping investigation on imports of PET resin from China, India, Oman and Canada, resulting in the imposition of a tariff (percentage on export sales of resin of PET to the US) which is reviewed annually during the month of May at the request of either Octal or US manufacturers, the rate has fluctuated based on annual reviews and is currently 3.96%. 127 e. Anti-Dumping of PET Sheet In July 2019, in response to requests made by PET sheet manufacturers in the US, the ITC and the USDOC initiated an Anti- Dumping investigation on PET sheet imports from Oman, Korea and México, resulting in the imposition of a tariff (percentage on PET sheet export sales to the US) of 4.74%, which is currently in a review process. 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, 2022, and through January 31, 2023 (date of issuance of the consolidated financial statements), and no significant subsequent events have been identified. 32 . AUTHORIZATION TO ISSUE THE CONSOLIDATED FINANCIAL STATEMENTS On January 31, 2023, 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. 128 CONTACT US CONTACT US Alpek, S.A.B. de C.V. Av. Gómez Morín 1111 Sur Col. Carrizalejo, San Pedro Garza García Nuevo León, CP. 66254, México www.alpek.com Investor Relations Antón Fernández Alejandra Bustamante IR@alpek.com CONTACT USCONTACT USCONTACT USCONTACT US

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