Alpek
Annual Report 2023

Plain-text annual report

2023 ANNUAL REPORT A N NUAL R E P O RT TABLE OF CONTENTS 2 3 ARMANDO GARZA SADA CHAIRMAN OF THE BOARD GRI: 2-22 TCFD: GOVERNANCE MANAGEMENT 4 JORGE P. YOUNG CERECEDO CHIEF EXECUTIVE OFFICER Dear Shareholders, Throughout 2023, Alpek faced a major shift in market dynamics on the heels of a record breaking 2022. While the first quarter was promising, with strong reference margins and stable volume figures, the following months were accompanied by challenging conditions. As freight rates returned to historical norms amid slower-than- anticipated economic growth in China, there was global oversupply in the petrochemical industry that intensified competition, thereby impacting the Company’s results, mainly in the polyester and EPS businesses. Furthermore, domestic Polypropylene margins were affected as the North American market adjusted to the recent start of new capacity in the region. In response to this environment, during the second quarter Alpek adjusted Guidance figures in line with a more conservative outlook. Difficult conditions endured however, leading to an annual Comparable EBITDA of U.S. $734 million, a 47% decline compared to the previous year, and 5% below the revised Guidance. This figure includes a non-cash effect derived from re- expressing full-year Argentina results under IFRS hyperinflation accounting, which was present throughout the year, with a greater impact in December, as there was also a domestic currency devaluation. Volume figures totaled 4,635 thousand tons, decreasing by 8% year-over-year, yet in line with Guidance figures. To navigate these global effects, Alpek implemented a comprehensive set of initiatives aimed at improving the Company’s competitiveness and optimizing its free cash flow. These included: • Cost Competitiveness: After thoroughly analyzing initiatives geared towards enhancing the Company’s competitive position across its operations, in 2023, several projects were set in motion focused on reducing variable costs, primarily through improvements in raw material procurement and energy efficiency. In a move to address fixed costs, a difficult decision was made to reduce personnel mainly in our largest business segment. These endeavors are estimated to conclude in 2024, with anticipated run-rate savings of approximately U.S.$35 million per year. Furthermore, Alpek will continue to evaluate new opportunities for further cost reduction in the year. 5 years, totaling U.S. $408 million. Given the adverse global impacts of destocking, imports rising, and a reduction in demand, this was a significant accomplishment for our Company. This Free Cash Flow enabled us to partially overcome the circumstances. At the annual Shareholders’ Meeting held in March, a payment of U.S. $159 million was approved, therefore maintaining a 7.2% dividend yield. In 2023, Alpek maintained its investment grade ratings with a Stable outlook across all agencies. It is crucial to emphasize that despite concluding the year with a leverage of 3.4 times, we remain firmly committed to reducing leverage levels to a target of below 2.5 times. We are dedicated to executing the necessary measures to achieve this goal and ensuring our long-term financial strength. U.S. $408 MILLION OPERATING FREE CASH FLOW • Footprint Optimization: Making two difficult decisions in 2023 - halting the PET resin operations at the Cooper River site in South Carolina while transferring its production to other facilities, and shutting down its filament facility located in Monterrey, Mexico. These optimization measures in the polyester operations are anticipated to deliver substantial cost reductions, exceeding U.S. $40 million on an annualized basis.• CAPEX Rationalization: Reducing by U.S. $168 million its investments when compared to the initial guidance of U.S. $445 million without affecting the execution of key projects. Additionally, and in collaboration with its joint venture partners, Alpek paused the construction of the integrated PTA-PET plant in Corpus Christi, Texas. This decision was driven by the impact of high inflationary rates, which caused construction and labor costs to exceed original projections.• Working Capital Reduction: Realizing a substantial improvement in its working capital of U.S. $596 million. This achievement was primarily attributed to lower prices and the implementation of key measures focused on inventory optimization, operational discipline, and supply chain management.• Debt Refinance: Successfully securing its first Sustainability-Linked loan, amounting to U.S. $200 million. This financing arrangement enables Alpek to efficiently refinance its outstanding balance from the 2023 bond, which was due last August and scheduled to mature in 2028; it also aligns with the Company’s commitment to environmental and social responsibility. This initiative improved Alpek’s average debt maturity to 5.2 years. Through these actions, Alpek successfully maintained a robust level of operating Free Cash Flow consistent with previous Remarkable ESG Results ESG initiatives continue to gain momentum. This year Alpek made important strides in reaching its targets, including the following achievements: 1 2 3 OCCUPATIONAL SAFETY: Accomplished a TRIR indicator that was 27% lower than the previous year and aligned with our Occupational Safety Target to reach top-decile in the industry. CARBON EMISSIONS & ECO-EFFICIENCY: Progressing towards our SBTi (Science-Based Targets initiative) goals, we achieved a 27% reduction in CO2 emissions from our 2019 base. This was partly attributed to our footprint optimization and the integration of carbon-free energy in operations across three of our businesses. SUSTAINABILITY & CIRCULARITY: The EPS business made progress in this front with the development of six different recycled and biobased products with certifications for all. Additionally, our biofertilizer, Biovento®, received all necessary government approvals to begin commercialization. 4 GENDER EQUALITY: Reinforced our commitment to gender equality by pledging to the Women’s Empowerment Principles (WEPs), from the United Nations Global Compact and UN Women. Alpek maintains its mission to create a safe work environment through which everyone can grow, contribute, and innovate. 6 9% improvement in S&P Global CSA rating since 2022 5 SUSTAINABILITY-LINKED LOAN: The aforementioned loan signifies a milestone, incorporating a pricing mechanism that incentivizes improvements in two targets: a reduction in Scope 1, 2, and 3 carbon emissions and a decrease in the Lost-Time Incident Rate (LTIR) for employees and contractors. These actions, among others, led to progress in all our ESG ratings, including a 9% improvement in the S&P Global CSA rating since 2022. Alpek is determined to continue strengthening its results and ESG practices. 7 Outlook 2024 The rapidly changing industry landscape in 2023 presented its share of challenges. Despite this, Alpek preserved and remains committed to maximizing profitability and ensuring competitiveness. As we venture into 2024, we anticipate the industry will grapple with prevailing headwinds, especially with Chinese reference margins expected to remain at low levels due to overcapacity. According to our outlook, we envision a slow but gradual recovery throughout the year. Alpek remains committed to maintaining its leading position in the industry while improving Free Cash Flow generation and financial performance. We are confident that our Management Team will guide the Company through these evolving market dynamics, propelling it toward a new, sustainable, and prosperous era. We would like to thank all our employees, customers, suppliers, and Board members for their dedication and our Shareholders for their unwavering trust and support. ARMANDO GARZA SADA CHAIRMAN OF THE BOARD JORGE P. YOUNG CERECEDO CHIEF EXECUTIVE OFFICER 8 ABOUT ALPEK WE CREATE THE BUILDING BLOCKS OUR CUSTOMERS NEED TO IMPROVE EVERYDAY LIVES GRI: 2-1, 2-6 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 2023, we continued delivering solutions to transform the present into a better future. 9 Working to meet global societal and environmental everyday needs has been, and will always be, ESSENTIAL TO ALPEK’S PURPOSE AND VALUES. MARKET PRESENCE 10 +5,900 EMPLOYEES WORLDWIDE 35 PLANTS 9 COUNTRIES PET PET rPET rPET rPET PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER MEXICO 3,310 Kta USA 2,753 Kta CANADA 144 Kta ARGENTINA 246 Kta BRAZIL 1,226 Kta CHILE 28 Kta OMAN 1,072 Kta SAUDI ARABIA 11 Kta UNITED KINGDOM 220 Kta 211111214321211111111111131111ALPEK IN THE DAILY LIVES 11 BUILDING EPS THERMAL INSULATION HOMES PET PERSONAL HYGIENE PRODUCTS ON THE GO PP FOOD CONTAINERS HOSPITALS PP MEDICAL EQUIPMENT LONG-TERM STRATEGY BASED ON 3 KEY PILLARS TCFD: GOVERNANCE, RISK MANAGEMENT GLOBAL COST IMPROVEMENT VALUE-ADDED PRODUCTS VALUE CHAIN INTEGRATION M&A OPPORTUNITIES 12 STRENGTHEN CORE BUSINESS 1 FOOTPRINT OPTIMIZATION PRODUCT INNOVATION Growth catalysts 2 CAPTURE ESG-RELATED OPPORTUNITIES FOSTER PRODUCT CIRCULARITY STRATEGIC & FOCUSED GROWTH 3 VALUE-CREATION IN CO2 EMISSIONS REDUCTION Zero-based budgeting & process innovation (Mainly Operations, Logistics & SG&A).Seize opportunistic growth focused on synergies and geographic diversification.Shift to products with higher margins & barriers to entry (PET, Copolymers and others).Grow capacity selectively & integrate into value chain.Ensure global production grows across optimal sites & logistic networks.New products & business lines (Natural Gas Commercialization, Biovento®, Biopek® & others).Pursue opportunities & participate in new markets associated with reaching carbon neutrality before 2050 (Renewable energy, Green hydrogen, CO2 capture, Carbon offsetting).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. 13 2023 PERFORMANCE 14 FINANCIAL HIGHLIGHTS VOLUME (K TONS) 4,635 734 COMPARABLE EBITDA (US$, MILLIONS) 2019 4,384 895 2020 4,802 883 2021 4,798 1,002 2022 5,065 966 3,490 3,918 3,796 4,099 849 3,785 5 232 497 2022 1,396 5 567 823 DEBT & LEVERAGE (DEBT US$, MILLIONS & LEVERAGE, TIMES) 1.6 0 3 3 , 1 2.1 5 8 1 , 1 1.1 5 2 2 , 1 1.3 0 6 8 , 1 3.4 9 2 7 , 1 514 1,455 2023 2021 962 24 480 458 1,145 2020 601 11 218 372 565 2019 789 205 231 353 850 REVENUES (US$, MILLIONS) 9 5 7 , 7 5 5 5 0 1 , 7 9 6 7 , 6 2 3 5 , 6 1 2 6 , 2019 2020 2021 2022 2023 2023 2022 2021 2020 2019 POLYESTER PLASTICS & CHEMICALS OTHERS REPORTED EBITDA LEVERAGE FINANCIALSALPEKLEADING PTA, PET AND RECYCLED PET PRODUCER ACROSS THE AMERICAS ARGENTINA BRAZIL CANADA MEXICO 22Plants 4,154Employees 7,363 Thousand tons in capacity POLYESTER 15 2ND LARGEST PET PRODUCER WORLDWIDE OMAN SAUDI ARABIA UK USA Through footprint optimizations, Alpek improved its capacity utilization by reallocating its resources to sites where we can have better footing. This placed the company in a position in which we have the necessary tools to enter the new year more prepared. 16 The Polyester segment began 2023 with solid results, in line with those seen the previous years and within the company’s expectations, with strong reference margins and stable volume results. However, Asian imports continued to prevail impacting demand and supply dynamics, shifting conditions to a more competitive market and normalization in the industry in both raw material prices and freight rates. This led to a decline in Asian integrated PET reference margins, averaging $308 dollars per ton, a 21% decline year-over-year. Through this change, Chinese reference margins became more relevant, in which alongside a to a slower-than-expected growth in Chinese economy, averaged $187 dollars per ton, declining by 37% year-over-year. Even though Asian margins are above historical levels, Chinese margins were well below historical levels in the industry, reaching its lowest towards the second half of the year. Extraordinary effects as seen in hyperinflation from Argentina also affected the company’s results throughout the year. Closing in on 2024 the effect would become more notable, resulting in a Polyester Comparable EBITDA of $497 million dollars, 40% lower than 2022. Volume results were closer to our expectations, after a revised guidance. This resulted in 3,785 thousand tons, 8% lower compared to 2022. Oversupply in the Americas also meant that exports would decline, adjusting to lower demand.To mitigate the effects seen throughout the year and maintain our competitiveness, we had to make 3 challenging decisions moving our strategy forward: to Alpek’s EBITDA. In recent years, local filament production couldn’t compete with imported capacity, and our site was the last remaining filament production in Mexico. Through these optimizations, we are expecting annualized cost reductions of approximately U.S. $40 million.Furthermore, we determined, along with our joint venture partners of Corpus Christi Polymers, to temporarily pause construction of the integrated PTA-PET plant in Corpus Christi, Texas as high inflationary rates have led construction and labor costs to surpass original expectations. We remain committed to maximizing value for CCP and the site will be properly preserved so that construction may resume in the future. We will focus on assessing options to optimize the project’s costs and timeline to maximize our Company’s success.In 2024, normalization and oversupply are still expected. Current market conditions will count with high inventory levels from Asian imports. Results will be closer to those seen during 2023, with a slight recovery towards year end. We will continue with our initiatives by continuing to strengthen our financial position through strategic advancements. GRI: 2-6We started the year by emphasizing facility streamlining, strategic growth projects, and advancement in recycling capabilities across our product portfolio by reallocating the PET resin operations at the Cooper River site in Charleston, South Carolina. This site had a capacity of 170,000 tons and represented 2% of our total assets. Another change we had to make was shutting down our filament site in Monterrey, Mexico. This site had an installed capacity of 100,000 tons of polymer and filament and represented minimal contribution PLASTICS & CHEMICALS 1,689 Employees 1,648 Thousand tons in capacity 13Plants 17 LEADING EPS PRODUCER IN THE AMERICAS AND 3RD LARGEST WORLDWIDE WE PRODUCE POLYPROPYLENE (PP), EXPANDABLE STYRENICS (EPS & ARCEL®), FERTILIZERS AND SPECIALTY CHEMICALS ONLY PP PRODUCER IN MEXICO 18 The Plastics & Chemicals segment had a similar effect during the year, returning to historical levels. For Polypropylene, due to the supply and demand dynamics in the region, North American reference margins remained flat, averaging 17 cents per pound. EPS North American reference margins averaged 35 cents per pound, 38% lower year-on-year, primarily due to a lag in EPS reference prices, mainly coming from higher imports in the Americas. Towards year end demand and oversupply kept a firm hand on P&C market conditions, which alongside inflationary rates and maintenance meant results would underperform leading to a Comparable EBITDA of U.S. $232 million, 59% lower than in 2022. Demand would also continue to lower throughout the year, eventually becoming more prevalent in the second half, resulting in volume of 849 thousand tons decreasing 12% year over year. Continuing its effort towards recyclability and sustainability. The growing EPS recycling capabilities led to the development and certification of 6 different products including biobased materials and recycled content. Through this effort, Alpek strives to promote the sustainable use of EPS. Committing to our target, 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. Alongside, our new product Biovento®, a biofertilizer made from microorganisms, received all necessary government approvals to begin commercialization. Biovento® has all the necessary qualities of a natural fertilizer and improves upon them by bringing full yield with no waste, complete sustainability and complies with all cropping regulations for safety. Expect more information about this product throughout 2024. Moving forward, our presence in the Plastics & Chemicals segment continue to stay strong, focusing on durable and reusable uses. Our advancements in recycling from previous years continue to prove results and through innovation we can tap into new markets, placing Alpek in other industries. The P&C segment will continue to see similar results as the industry continues to normalize, yet a slight recovery is expected towards year end. 19 ESG 2023 HIGHLIGHTS 20 ~15% EMISSIONS REDUCTION VS. 2022 ~37% INCREASE IN CARBON-FREE ELECTRICITY VS. 2022 27% TRIR REDUCTION VS. 2022 $200 M USD SUSTAINABILITY LINKED LOAN NEW CERTIFICATIONS TO SELL EPS WITH RECYCLED CONTENT WEPS IN COMMITMENT TO GENDER EQUALITY ALLIANCES AND COMMITMENTS 21 GRI: 2-28, 2-29 IN 2023, ALPEK PARTICIPATED IN +80 CHAMBERS, ASSOCIATIONS AND INITIATIVES 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. Alpek seeks to strengthen its alliances with entities and organizations that promote sustainable development. Alpek reaffirmed its commitment to the Sustainability Development Goals (SDGs) by pledging to the Women Empowerment Principles (WEPs). It also collaborated further with Science Based Targets Initiative (SBTi) and UN Global Compact, inviting other companies in Mexico to join. Additionally, Alpek has proactively collaborated with several recycling promoters as it continues to build up its rPET portfolio.OPERATIVE FRAMEWORK 22 GRI: 2-22 TCFD: GOVERNANCE, STRATEGY & RISK MANAGEMENT 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 its 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 its business risk management strategy STRATEGY & EXECUTION TARGETS & METRICS COMMITMENT & OVERSIGHT Identify the level of change needed to establish best-in class standards Build and improve internal capabilities to react quickly Implement the right initiatives to address R&O Identify partnerships that support improvement 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 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 DOUBLE MATERIALITY UPDATE 23 GRI: 3-1, 3-2, 3-3 TCFD: RISK MANAGEMENT In 2023, Alpek demonstrated its commitment to align its sustainability management to leading international standards by updating its materiality matrix and transitioning to a double materiality assessment. The analysis involved evaluating Alpek's ESG stewardship maturity through effective allocation of resources and implemented programs. Simultaneously, the process evaluated risk exposure, considering Alpek's operational impacts on society and environment, as well as financial outcomes. 1 EVALUATION CRITERIA Establish criteria evaluating external impacts of Alpek's operations and potential financial consequences for the Company. DEFINITION OF INDICATORS Key ESG indicators aligned with leading frameworks: GRI, IFRS, SDGS, etc. were categorized into economic, governance, environmental, and social dimensions using Global Industry Classification Standard (GICS). 2 3 MATURITY ASSESSMENT Alpek's business model, initiatives and commercial relationships were evaluated and compared with industry peers' performance. Market conditions, financial results and ESG- linked incentives were considered. 4 EXPOSURE TO ESG AND FINANCIAL RISKS RESULTS Prioritization of material issues within a matrix based on the Company's maturity level and overall risk exposure. Analysis of material issues' relevance for external stakeholders and alignment with internal strategy, ensuring a comprehensive understanding of their impact. 5 MATERIALITY MATRIX 24 GRI: 3-1 TO 3 TCFD: GOVERNANCE, STRATEGY, RISK MANAGEMENT CSA S&P: 1.2 T S E H G H I R E H G H I H G H I Y R T S U D N I . S V T N E M P O L E V E D 8 11 6 7 10 9 14 1 14 MATERIAL ISSUES 2 3 12 GROW RESPONSIBLY 1. Climate Change Strategy 2. Circularity and Product Responsability 3. Environmental Management 4. Water Management 13 LEAD WITH EMPATHY 5 4 5. Occupational Safety 6. Human Rights 7. Diversity, Equity and Inclusion (DEI) 8. Social Impact UPHOLD HIGHEST STANDARDS 9. Sustainable Corporate Governance 10. Cybersecurity 11. Compliance and Transparency EMBRACE CHANGE 12. ESG Risk and Impact Management 13. Innovation and Sustainable Development 14. Value Chain Management HIGH HIGHER HIGHEST RISK (RELEVANCE AND EXTERNAL IMPACT) ESG MODEL 25 GRI: 2-22 TO 24 TCFD: GOVERNANCE, STRATEGY Alpek’s ESG Model is an internal platform to launch programs and initiatives that allows the tracking and development of its 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. GROW RESPONSIBLY LEAD WITH EMPATHY Climate Change Strategy Circularity and Product Responsibility Water Management Environmental Management Occupational Safety Diversity, Equity and Inclusion (DEI) Social Impact Human Rights UPHOLD HIGHEST STANDARDS Sustainable Corporate Governance Compliance and Transparency Cybersecurity EMBRACE CHANGE ESG Risk and Impact Management Innovation and Sustainable Development Value Chain Management 26 ESG RISK AND IMPACT MANAGEMENT EMBRACE CHANGE WE ACTIVELY MONITOR OUR CHANGING ENVIRONMENT AND DEVELOP NEW WAYS TO TACKLE EMERGING CHALLENGES THROUGH OUR ENABLERS GRI: 2-22, 2-23, 2-25 TCFD: ALL ELEMENTS CSA S&P: 1.3 RISK AND CRISIS MANAGEMENT STRATEGY AND EXECUTION Alpek has established and continuously updates various processes to identify, monitor, and develop effective action plans to address potential risks for the Company's short- and long-term strategy. Any relevant findings and its corresponding action plans are deliberated upon in the Audit Committee and if needed the topic is escalated to the Board Meetings. Through the risk management process, ESG-related risks such as shortages in raw material and utilities, legal and regulatory challenges concerning plastics, cybersecurity attacks, among others have been identified. Additionally, the Company has been actively working to incorporate threats derived from the effects of climate change into its risk management protocols, adhering to recommendations from TCFD and SASB. Alpek aims to measure and quantify all potential environmental and social effects, to be able to understand its cause and mitigate any possible impacts. RISK IDENTIFICATION BY BUSINESS UNIT 1 RISK AND ACTION PLAN MONITORING 6 MITIGATION PLAN EXECUTION 5 RISK MANAGEMENT PROCESS RISK EVALUATION (By impact and probability) 2 Board Meeting Audit Committee Relevant risks are escalated 3 RISK PRIORITIZATION AT GLOBAL LEVEL 4 MITIGATION PLAN DEVELOPMENT MAIN PHYSICAL CLIMATE RISKS # OF SITES LOCATED IN HIGH-RISK AREAS 8 5 5 EXTREME HEAT COAST FLOOD RIVER FLOOD OUR TARGET "Alpek will continue strengthening its governance practices and risk management process to identify and mitigate the potential impacts on the environment, society and the Company itself." PROGRESS 2023 During 2023, Alpek developed a preliminary analysis of its site-specific physical climate risks using the ThinkHazard platform. This tool enables the evaluation of any risks associated with climate events such as cyclones, landslides, floods, and droughts at each site. The Company is currently dedicating and enhancing this initial analysis, with a focus on quantifying the economic impact of these risks under various climate change scenarios. This will help prioritize these risks and strengthen any existing mitigation measures. Acknowledging the potential threats posed by climate change to Alpek's operations and its entire value chain, the Company is in the process of expanding its analysis to include strategic supplier regions. INNOVATION AND SUSTAINABLE DEVELOPMENT EMBRACE CHANGE WE ACTIVELY MONITOR OUR CHANGING ENVIRONMENT AND DEVELOP NEW WAYS TO TACKLE EMERGING CHALLENGES THROUGH OUR ENABLERS 27 GRI: 2-23 TO 25 TCFD: RISK MANAGEMENT CSA S&P: 1.9 INNOVATION MANAGEMENT STRATEGY AND EXECUTION Innovation is responsible for creating new value, resulting in top and/or bottom-line growth. Alpek's innovation strategy integrates optimization and research and development efforts to enhance operational efficiency and foster forward-thinking, positioning the Company as resilient in a dynamic business landscape. PRODUCT ADAPTATION FOR NEW APPLICATIONS/ MARKETS R&D NEW TECHNOLOGY IMPLEMENTATION PRODUCT DEVELOPMENT OUR TARGET ”We focus on improving our current products and processes while discovering more environmentally-friendly alternatives for both.” PROGRESS 2023 Throughout 2023, R&D teams contributed to 20% of innovation projects focused on new product development and strategic market expansion, with the remaining 80% dedicated to enhancing operational efficiency, time management, and cost-effectiveness across all business departments. The open innovation program was strengthened by seeking to generate value through the addition of new verticals such as supply chain and digitalization; besides the ESG approach. Alpek carried out the Innovation Awards In which 21 projects and 3 countries participated with initiatives focused mainly on diversifying its product portfolio and sustainability initiatives. VALUE CHAIN MANAGEMENT EMBRACE CHANGE WE ACTIVELY MONITOR OUR CHANGING ENVIRONMENT AND DEVELOP NEW WAYS TO TACKLE EMERGING CHALLENGES THROUGH OUR ENABLERS 28 GRI: 2-6, 414 CSA S&P: 1.6 SUPPLY CHAIN MANAGEMENT OUR TARGET ”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.” STRATEGY AND EXECUTION Alpek recognizes that to accomplish its sustainability vision and its strategic objectives, it requires the alignment of its core values through the fostering of active collaboration across its entire value chain, particularly with suppliers and customers. In its commitment to fostering a sustainable value chain, Alpek has actively explored ESG opportunities with its customers such as innovation projects for lowering environmental impacts of products and processes. Adapting to the evolving landscape of sustainable supply chain management best practices, Alpek is focusing to improve its relationships through the development of a supplier program to guarantee adherence to the highest ethical, social, and environmental standards. Alpek's polyester business recognized by PepsiCo for innovative recycling solutions. PROGRESS 2023 During 2023, Alpek developed a Supplier Code of Conduct for all its Business Units. This code will be implemented throughout 2024 to encourage its suppliers to align with ESG best practices. The Company believes that this policy is the initial milestone for the effective execution of the supplier program. Additionally, Alpek’s expandable styrenics business has achieved the ISCC Plus certification for its bio-based product. This certification assures that the bio raw materials, and production process of this product, align with the principles of a circular economy and limit social and environmental impact. Conducting transactions with certified suppliers and customers enhances transparency and traceability within the product’s value chain. Furthermore, Alpek's polyester business received an award this year from a major customer, PepsiCo, for its unwavering commitment and innovative recycling solutions. Specifically, the company was recognized for its valuable contributions of solutions that increase recycled content in the customer's final products, thereby supporting the client in achieving its sustainability objectives. CLIMATE CHANGE STRATEGY GROW RESPONSIBLY WE STRIVE TO CONTINUE GROWING SUSTAINABLY, MAKING SURE WE MINIMIZE ANY ADVERSE EFFECTS FROM OUR PRODUCTS AND PROCESSES 29 GRI: 302-1 TO 4, 305-1 TO 4 TCFD: ALL ELEMENTS SASB: RT-CH-110A.1, RT-CH-110A.2 CSA S&P: 2.3 OPERATIONAL ECO-EFFICIENCY STRATEGY AND EXECUTION Alpek’s decarbonization commitments have been approved by the Science- Based Targets Initiative (SBTi) since 2022. To achieve this goal, Alpek has embraced a dual-front strategy: • Transition to Low or Zero-Emission Energy Sources: Alpek is exploring energy alternatives with minimal or zero-carbon emissions, including nuclear and solar energy. • Energy Utilization Efficiency Enhancement: Alpek actively improves energy efficiency with measures like adopting efficient equipment, electrifying processes, and implementing procedures for optimal thermal energy use OVERALL CO2 EMISSIONS (SBTi S1&2) 0.4 0.4 0.4 0.4 2.8 2.6 2.4 2.0 4 . 1 4 . 1 5 . 1 1 . 1 4 . 1 0 . 1 2 . 1 8 0 . OVERALL ENERGY CONSUMPTION X 106 GJ 6 35 8 1 1 5 1 5 32 7 2 1 3 1 5 28 7 9 2 1 2021 2022 2023 2021 2022 2023 2019 SBTi Base Scope 1 Scope 2 CO2 Emissions Intensity: (Ton CO2/Ton Produced) Natural Gas Steam Electricity Other Fuels Energy Consumption Intensity (GJ/Ton Produced) ELECTRICITY (% OF TOTAL ELECTRICITY) 7 2 3 7 Carbon Free EE Note: 1. The emission figures provided adhere to the SBTi criteria, wherein the emissions from all plants acquired are taken into account, regardless of the year of acquisition. 2. The energy consumption figures accurately reflect the actual use of energy, respecting the dates of acquisitions. 3. Carbon-free electric energy is estimated considering the renewable energy mix of some country's electric grids. 4. Due to the entrance of Octal, some adjustments have been made in 2022 data. 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.” PROGRESS 2023 In 2023, Alpek transitioned some of its electricity contracts to green sources in Argentina, adopting solar and hydroelectric power. Additionally, nuclear-sourced electricity was introduced in two Mexican sites. Alpek purchased International Renewable Energy Certificates (IRECs) for selected facilities in Chile, Argentina, Mexico, and Brazil. All these initiatives have effectively reduced Scope 2 emissions. Based on Alpek’s emissions results, the Company is approaching its 27.5% emission reduction target, however, it's important to mention that this figure reflects lower operating yields in 2023, so the Company will continue efforts to reduce its direct and indirect emissions. During the current year, Alpek formulated a comprehensive roadmap to prioritize and implement actions or projects to achieve its carbon neutrality objective by 2050. 30 NET ZERO ROADMAP GROW RESPONSIBLY WE STRIVE TO CONTINUE GROWING SUSTAINABLY, MAKING SURE WE MINIMIZE ANY ADVERSE EFFECTS FROM OUR PRODUCTS AND PROCESSES GRI: 305-5 TCFD: TARGETS AND METRICS SASB: RT-CH-110A.2 CSA S&P: 2.3 OPERATIONAL ECO-EFFICIENCY Alpek has made meaningful progress towards its SBTi 2030 objective; however, its long-term commitment is to achieve carbon neutrality by 2050. During 2023, Alpek developed a detailed roadmap towards a net zero future. This roadmap helps the Company identify and value current and future technological opportunities to decarbonize all its sites. In this exercise, Alpek went through a detailed analysis of the sites that represented over 90% of Alpek’s Scope 1 and 2 emissions, determining the key strategies and stages for Alpek’s Net Zero Journey. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2030 TARGET 27.5% reduction in 2030 (SBTi) 2% 20% 20% 22% 2% 27% 7% 2019 2022 2030 2035 2040 2045 2050 Other disruptive technologies Carbon-free energy Electrification CCU/CCS* Offsetting Optimization Remaining emissions Total emissions Note: Optimization considers process and site portfolio optimization. 31 CIRCULARITY AND PRODUCT RESPONSIBILITY GROW RESPONSIBLY WE STRIVE TO CONTINUE GROWING SUSTAINABLY, MAKING SURE WE MINIMIZE ANY ADVERSE EFFECTS FROM OUR PRODUCTS AND PROCESSES GRI: 2-25, 3-3, 201-2, 306-1, 306-2, 416-1 CSA S&P: 2.3 PRODUCT STEWARDSHIP SASB: RT-CH-410A.1, RT-CH-410B.1, RT-CH-410B.2 R -PET CAPACITY (Thousand tons) 9 6 1 1 4 3 9 0 3 3 0 3 2020 2023 8 6 2 2 3 1 BOTTLE TO FLAKE FLAKE TO PELLET SINGLE PELLET TECHNOLOGY r-PET-SHEET STRATEGY AND EXECUTION As a leading plastics manufacturing Company, Alpek is conscious of the challenges involving pollution and depletion of finite raw materials. However, the Company is committed to playing a key role in promoting a circular economy to mitigate these challenges. Aligned with this vision, Alpek’s long-term strategy prioritizes the development of products, as well as adapting its operations to generate a lower environmental impact and foster circular economy principles. Increasing the integration of recycled and bio-based raw materials, as well as optimizing the efficiency of its recycling sites, is fundamental to continue the path towards a circular future. PROGRESS 2023 Throughout the year, Alpek focused on maximizing the efficiency of its existing recycling facilities through the exploration of innovative processes. Alpek’s polyester business carried out various projects to improve its yield and increase the quality of the final recycled product. An example of these efforts is the investment of around $3 million USD in the addition of 3 bottle sorters and other automated equipment in its Richmond site, improving its recycling yield. Alongside, the Company has been working to ensure that its circular products adhere to the highest standards of circularity practices. In a significant milestone, Alpek’s expandable styrenics business obtained two different circularity-related certifications: the Scientific Certification System (SCS) Recycled Content Certification and the International Sustainability and Carbon Certification (ISCC) Plus for its expandable polystyrene with recycled content and its bio-based product, respectively. OUR TARGETS 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." Meanwhile, the polyester business received a 3rd Party Post-Consumer Recycled Content (PCR) Certification, recognized by the Association of Plastic Recyclers (APR), for their products manufactured with recycled content in Richmond and Reading sites. 32 WATER MANAGEMENT GROW RESPONSIBLY WE STRIVE TO CONTINUE GROWING SUSTAINABLY, MAKING SURE WE MINIMIZE ANY ADVERSE EFFECTS FROM OUR PRODUCTS AND PROCESSES GRI: 303-2 TO 5 CSA S&P: 2.7 WATER-RELATED RISKS SASB: RT-CH-140A.1, RT-CH-140A.3 STRATEGY AND EXECUTION Alpek remains committed to its strategy of optimizing water usage across all its sites while adhering to state and federal regulations. Recognizing the vital importance of water, as a resource essential to all life, Alpek is proactively addressing any detected related environmental challenges. The Company constantly carries out overall water risk analysis using Aqueduct, allowing it to identify potential threats from several water indicators covering water quality, water depletion and water stress. This allows the Company to actively identify methods to enhance efficiency and reduce water usage in locations characterized by drought and freshwater scarcity. OUR TARGET ”Closely monitor our water consumption intensity, particularly in water-stressed areas, and identify opportunities to reduce it.” % OF WATER INTAKE VOLUME BY WATER-STRESS LEVEL 1% 1% 57% 41% Extremely High Risk High Risk Medium Risk Low Risk Note: 1. The data presented reflects the Aqueduct results from 2023 analysis. PROGRESS 2023 Alpek has continued to adapt its sites to current and future hydric challenges by implementing practices to reduce water consumption and maximize the utilization of this resource. In Mexico, Alpek’s polyester business installed a recirculation system that it is estimated to recover 25,000 m3 of discharged water per year. Following the commitment to mitigate the impact of water-stress in the sites located in high-risk zones, Alpek’s expandable styrenics business has implemented a reuse system for discharged water for it to be utilized in other activities in one of its Chile’s facilities. On the other hand, Alpek’s specialty chemicals business has focused on reducing water consumption by standardizing and optimizing its processes. Additionally, Alpek is making efforts to keep improving the water quality of its effluents among its facilities. WATER INTAKE (Million m3) 24 24 24 153 149 133 2021 2022 2023 Water Intake Intensity (m3/Ton Produced) Note: 1. Breakdown of discharge and consumption will be disclosed in Alpek's Sustainability Report 2023. ENVIRONMENTAL MANAGEMENT GROW RESPONSIBLY WE STRIVE TO CONTINUE GROWING SUSTAINABLY, MAKING SURE WE MINIMIZE ANY ADVERSE EFFECTS FROM OUR PRODUCTS AND PROCESSES 33 GRI: 3-3, 306-1, 306-2 TCFD: GOVERNANCE SASB: RT-CH-150A.1 CSA S&P: 2.3 WASTE MANAGEMENT STRATEGY AND EXECUTION Alpek's strategic focus to continue pushing for a more circular economy, particularly through increasing the capacity of its PET bottle recycling facilities, will continue to have an impact against its post-industrial waste initiatives. However, it's crucial to recognize that the overall environmental impact is reduced compared to the alternative, for the purchased PET bottle bales to end up in a landfill. Investing in recycling operations allows the Company to provide a new lease on life to its product and ensure proper disposal of any impurities. As Alpek navigates these strategic priorities, it remains determined in its pursuit of innovative approaches to diminish waste landfill disposal, mitigate wastewater discharge, and abate air pollutants. WASTE GENERATION (Ktons) 85 106 110 2 3 4 7 1 3 9 7 9 4 6 3 2021 2022 2023 Disposed Recycled Nota: The data presented reflects hazardous and non-hazardous waste. OUR TARGET ”Alpek commits to comply with all regulatory environmental requirements and look for new ways to reduce its waste, water, air and biodiversity impacts. ” PROGRESS 2023 Currently, only 2% of Alpek’s waste is hazardous and needs to be confined. 28% of the Company’s waste is currently recycled, reused o commercialized, and 30% of Alpek’s generated waste is directly derived from its recycling operations. Alpek has increased its sorting capability in some of its recycling facilities, improving the quality of its flake and increasing the process utilization rate. This allows the Company to decrease the potential impact of discarding valuable PET bottles. Alpek is working on increasing the reuse of packaging material, with the aim of decreasing waste to landfill. 34 OCCUPATIONAL SAFETY LEAD WITH EMPATHY WE EMPOWER OUR PEOPLE TO CREATE VALUE FOR OUR COMPANY AND COMMUNITIES GRI: 403-1 TO 403-10 SASB: RT-CH 320A.1 CSA S&P: 3.7 OHS 85 implemented initiatives that ranged from safety training to facilities and machine adaptation STRATEGY AND EXECUTION Alpek constantly invests to ensure a safe and healthy workplace for all of its employees and contractors. All of Alpek's facilities have a Health and Safety Management System based on international standards or national regulations. PROGRESS 2023 During 2023, 2 of Alpek's business units and 34% of its total sites achieved zero recordable incidents. By the end of 2023, a total of 42 initiatives were carried out to boost health and safety in its operations. Additionally, during 2023, Alpek had 43 safety related training programs with more than 13 thousand hours of training. These led to a reduction vs. its 2022 results of 27% in TRIR and 25% in LTIR. RECORDABLE INCIDENTS (TRIR & LTIR) 0.61 0.57 0.42 0.40 0.36 0.27 2021 2022 2023 2021 2022 2023 Total Recordable Incidents Rate (TRIR) Loss-time Incidents Rate (LTIR) Note: 1. TRIR and LTIR figures represent the cases per 200,000 worked hours. OUR TARGET ”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.” 35 DIVERSITY, EQUITY AND INCLUSION (DEI) LEAD WITH EMPATHY WE EMPOWER OUR PEOPLE TO CREATE VALUE FOR OUR COMPANY AND COMMUNITIES GRI: 405-1 TO 2 FTSE4GOOD: SLS16-1, 3, 7 CSA S&P: 3.6 TALENT ATTRACTION AND RETENTION STRATEGY AND EXECUTION Alpek believes that a diverse representation of gender, cultures and perspectives across all organizational levels and an inclusive workplace promotes innovation, creativity, and enhanced decision-making. Implementing inclusive recruitment processes, minority- focused development programs and DEI training are key initiatives to achieve a diversified workforce. GENDER DIVERSITY 82% 4,840 Men 18% 1,090 Women 19% of management positions are occupied by women Note: Management positions consider top, middle and junior management positions (from Jr. Management to Executives) PROGRESS 2023 In 2023, Alpek reinforced its commitment to foster a more inclusive workforce by endorsing two important causes: Women Empowerment Principles by the United Nations Global Compact and UN Women, dedicated to gender equality, as well as Movimiento Congruencia, focused on occupational inclusion of people with disabilities. Throughout the year, Alpek has implemented several initiatives aligned to its strategy: 1% 5% 13% 35% 45% RACE DIVERSITY (% of Alpek's workforce) Hispanic or Latino White Asian African American Other races • Provided unconscious bias training for managerial positions • Sustained implementation of women’s networks and Note: 1. Races classified according to S&P CSA report. mentoring programs • Continued facility adaptation for women and individuals with disabilities • Initiated preliminary gender pay gap analysis “We embrace women's contributions to our organization and society, acknowledging that equality is everyone's responsability. Alpek will further diversify its workforce through strategic hiring, retention, and organizational development. Our success relies on innovation that comes from having different strengths perspectives, and experiences.” JORGE YOUNG ALPEK CEO SOCIAL IMPACT LEAD WITH EMPATHY WE EMPOWER OUR PEOPLE TO CREATE VALUE FOR OUR COMPANY AND COMMUNITIES GRI: 201-1. 203-1, 203-2, 304-3, 413-1 CSA S&P: 3.6 CORPORATE CITIZENSHIP STRATEGY AND EXECUTION Alpek is committed to fostering a positive impact within the communities where it operates through proactive involvement in initiatives that prioritize environmental preservation, enhance people's welfare, and boost education. +25,000 People benefitted 2,732 Employees and external volunteers Clearance of ~1.5 tons of organic residue and installation of rain systems for over 500 trees. Altamira, Mexico Reforestation with +700 trees in natural area. Monterrey, Mexico. OUR TARGET ”Alpek cares about all its local communities and is committed to investing its time and profits on activities that contribute to their safety, education, access to services, and quality of life. ” “Vive Verde” program raising recycling awareness for over 800 students . Mexico 36 + US $110,000 in donations (cash, in-kind, etc.) PROGRESS 2023 During 2023, Alpek invested over U.S. $110,000 in community contributions, through initiatives such as health campaigns, infrastructure donations, and assistance activities for nursing homes and children, among others. Alpek, acknowledging its responsibility to promote environmental awareness, volunteered in more than 20 schools across Argentina, Brazil, Chile, Mexico, United Kingdom and the United States, conducting conferences and establishing plastic collection centers to encourage recycling. In Mexico, the “Vive Verde” initiative fostered environmental understanding among +800 students. Furthermore, over 700 Alpek collaborators and external volunteers engaged in reforestation and cleanup initiatives in beaches and rivers to preserve nearby environmental areas. 37 HUMAN RIGHTS LEAD WITH EMPATHY WE EMPOWER OUR PEOPLE TO CREATE VALUE FOR OUR COMPANY AND COMMUNITIES GRI: 2-16, 2-22, 2-23, 2-25, 3-3, 203-2, 401-2 CSA S&P: 3.2 LABOUR PRACTICES; 3.3 HUMAN RIGHTS STRATEGY AND EXECUTION Alpek commits to establish policies and practices dedicated to upholding fundamental human rights and principles across its operations, value chain and communities. This commitment is vital to the Company's success and reflects its dedication to contributing to societal well-being. Progress 2023 During 2023, Alpek improved its Human Rights Policy to ensure its alignment to the International Labour Organization (ILO) principles. Additionally, since 2021, Alpek has pledged to the UN Global Compact to advance the protection of human rights. To ensure adherence, Alpek has implemented a rigorous framework with sanctions for violations, well-defined reporting channels, and effective remediation processes. This approach guarantees compliance and accountability. Instances of human rights violations can be reported through the Integrity and Transparency Helpline, ensuring prompt and thorough resolution. Alpek's comprehensive strategy underscores its unwavering commitment to fostering a workplace and community that respects and upholds fundamental human rights. This is how Alpek’s Complaint-Case can be processed through the integrity and transparency helpline: 1 COMPLAINT FILING 2 COMPLAINT INFORMATION GATHERING 3 INVESTIGATION AND RESOLUTION OUR TARGET ”Alpek is committed to carry out its operations under the highest standards of respect and defense of its employees and communities' human rights, as well as contributing to the society's wellbeing.” EMAIL Transparency@alfa.com.mx MESSAGE CLASSIFICATION ANALYSIS AND ASSIGNMENT RESOLUTION IDENTIFIABLE TELEPHONES 0-800 WEB FORM www.alfa.com.mx/transparency.html REPORT TO AUDIT COMMITTEE CASE EVALUATION MEETING ANONYMOUS WHATSAPP +52 81 2353 9583 SUSTAINABLE CORPORATE GOVERNANCE 38 GRI: 2-12 TO 14, 2-17 TCFD: GOVERNANCE, STRATEGY, RISK MANAGEMENT CSA S&P: 1.1 CORPORATE GOVERNANCE 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.” Board of Directors C-Suite BOARD MEETINGS All ESG topics* Frequency: Quarterly ESG EXECUTIVE COMMITTEE All ESG topics Frequency: Quarterly Management CIRCULARITY COMMITTEE Climate Change Circularity Innovation Value Chain Management OPERATIONS COMMITTEE Climate Change Water Environmental Management Occupational Safety IT COMMITTEE Cybersecurity Frequency: Quarterly Frequency: Quarterly Frequency: Bimonthly * During Board Meetings ESG topics are reviewed UPHOLD HIGHEST STANDARDSWE ARE COMMITTED TO MEETING AND EXCEEDING THE HIGHEST ESG STANDARDS. OUR ONGOING FOCUS IS ON ENHANCING TRANSPARENCY AND ACCOUNTABILITY OF OUR PERFORMANCESTRATEGY AND EXECUTIONAlpek firmly believes that the success of its sustainability strategy relies on active engagement and strong leadership within its top management. Through the implementation of a comprehensive organizational structure and the establishment of periodic committees across management levels, Alpek ensures effective guidance, accountability, and stewardship of its ESG material topics, risks, and objectives. PROGRESS 2023To reinforce the alignment of Alpek’s business strategy with its sustainability focus, Alpek recently incorporated Dr. Ana Laura Magaloni and Montserrat Ramiro onto the Board of Directors. Dr. Magaloni, a renowned lawyer with broad knowledge of Human Rights and Diversity, Equity and Inclusion (DEI), and Ms. Ramiro, an expert in the field of energy and renewable sources with over 25 years of experience in this sector. This reflects Alpek's commitment to embedding sustainability into its core business strategy. Furthermore, in 2023, Alpek achieved recognition as a Leader in Sustainable Innovation by HSBC and EY, specifically in the Governance category. This acknowledgment is attributed to the Company's proactive efforts in creating a comprehensive ESG structure, which is overseen by its Board of Directors and its Executive Management. This alignment ensures the Company continues to tie executive compensation to ESG performance, increase transparency and reporting, as well as develop new policies to support its collaborators and value chain. TRANSPARENCY AND COMPLIANCE 39 GRI: 2-27 TCFD: GOVERNANCE, RISK MANAGEMENT CSA S&P: 1.3 RISK MANAGEMENT OUR TARGET ”Alpek is committed to comply with all applicable laws and regulations and enhance the transparency and accountability in its reporting process .” The following graphs show Alpek’s progress from the most relevant rating agencies from 2021 to 2023. ESG SCORE (SCORE IMPROVEMENT YOY) 51 54 59 ESG RISK RATING (RISK REDUCTION YOY. THE LESS RISK, THE BETTER) 29 26 26 CLIMATE CHANGE (SCORE IMPROVEMENT YOY) WATER SECURITY (SCORE IMPROVEMENT YOY) B B C C C B- 2021 2022 2023 2021 2022 2023 2021 2022 2023 2021 2022 2023 90 91 94 Percentile Chemical Industry 25 19 27 Risk percentile Chemical Industry B B- B Average score Chemical Industry B B C Average score Chemical Industry RECOGNITIONS 2023 Company Leaders in Sustainable Innovation S&P/BMV Total Mexico ESG Index Member 3rd in its segment UPHOLD HIGHEST STANDARDSWE ARE COMMITTED TO MEETING AND EXCEEDING THE HIGHEST ESG STANDARDS. OUR ONGOING FOCUS IS ON ENHANCING TRANSPARENCY AND ACCOUNTABILITY OF OUR PERFORMANCESTRATEGY AND EXECUTIONAlpek acknowledges the importance of aligning its performance and practices with all industry regulations. Additionally, the Company commits to foster trust and credibility among its stakeholders and broader market through the transparency in its ESG performance.PROGRESS 2023During 2023, Alpek strengthened its compliance practices through the development of 5 new ESG-related policies and enhancement of 2 other policies. On the other hand, Alpek achieved and improvement in its ESG rating score thanks to its effort in improving its transparency and ESG performance. CYBERSECURITY 40 TCFD: RISK MANAGEMENT CSA S&P: 1.7 CYBERSECURITY V E R O R E C ID E N TIF Y D N O P S E R ALPEK'S CYBERSECURITY FRAMEWORK P R O TE C T DETECT Recognizing that a well-trained workforce is the primary defense against cybersecurity breaches, Alpek prioritized internal training throughout the year. This involved awareness campaigns, expert- led conferences, online training for all employees, as well as capacity-building and certification programs for technical specialists. OUR TARGET ”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.” PROGRESS 2023During 2023, Alpek strengthened its cybersecurity management by improving its incident response capabilities through the implementation of Digital Forensics and Incident Response (DFIR) systems. Additionally, the Company closely collaborated with each business unit to ensure steadfast progress in adapting and improving the cybersecurity framework. STRATEGY AND EXECUTIONAs cybersecurity challenges continue to evolve, Alpek acknowledges the importance and strategic priority of this material topic. In response, the Company’s cybersecurity strategy relies on its Chief Information Security Officer, who ensures the effective development of diverse initiatives to enhance the safety of all information systems. The cybersecurity strategy model has 3 focus areas:• Cybersecurity Framework NIST (National Institute of Standards and Technology)• Information Security Management• Defense Systems AssessmentUPHOLD HIGHEST STANDARDSWE ARE COMMITTED TO MEETING AND EXCEEDING THE HIGHEST ESG STANDARDS. OUR ONGOING FOCUS IS ON ENHANCING TRANSPARENCY AND ACCOUNTABILITY OF OUR PERFORMANCE41 GOVERNANCE GOVERNANCE 42 CORPORATE GOVERNANCE GRI: 2-9, 2-10, 2-11 64% of our Board members are independent, and 100% of the committee members are independent. BOARD OF DIRECTORS 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. OF OUR BOARD MEMBERS ARE WOMEN 21% DIRECTORS INDEPENDENT BOARD MEMBERS 14 9 PROPRIETARY DIRECTORS WITH NO ALTERNATES 5 GOVERNANCE 43 AUDIT AND CORPORATE PRACTICES COMMITTEE The 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 2023. 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. • The Company has internal control systems with general guidelines that are submitted to the Audit and Corporate Practices Committee for its opinion. In addition, the external auditor validates the effectiveness of the internal control system and issues the corresponding reports. • The Board of Directors is advised by the planning and finance department when evaluating matters related to the feasibility of investments, strategic positioning of the Company, alignment of investing and financing policies, and reviewing investment projects. This is carried out in coordination with the finance and planning department of the holding company, Alfa, S.A.B. de C.V. • Alpek has a department that is specifically responsible for maintaining open communication with its shareholders and investors. This ensures that they have the financial and general information required to assess the Company’s progress in developing its activities. This function makes use of press releases, notifications of relevant events, conference calls for quarterly reports, investor meetings, its website, and other communication channels. • Alpek promotes good corporate citizenship and adheres to the recommendations issued by its holding company, Alfa, S.A.B. de C.V. It has a mission, vision, values and a code of ethics that are promoted within the organization. 97.9% meeting attendance during 2023 GOVERNANCE 44 BOARD OF DIRECTORS ARMANDO GARZA SADA FRANCISCO JOSÉ CALDERÓN ROJAS INDEPENDENT | AUDIT AND CORPORATE PRACTICES COMMITTEE ÁLVARO FERNÁNDEZ GARZA RODRIGO FERNÁNDEZ MARTÍNEZ CHAIRMAN OF THE BOARD OF ALPEK CHIEF FINANCIAL OFFICER OF GRUPO FRANCA INDUSTRIAS S.A. DE C.V. CHIEF EXECUTIVE OFFICER OF ALFA, S.A.B. DE C.V. CHIEF EXECUTIVE OFFICER OF SIGMA ALIMENTOS S.A.DE C.V. Age: 66 Tenure: 12 years (2011) Age: 57 Tenure: 11 years (2012) Age: 55 Tenure: 12 years (2011) Age: 47 Tenure: 11 years (2012) Public boards (8): ALFA (Chairman) Axtel BBVA México Grupo Lamosa Nemak (Co-Chairman) CEMEX Liverpool CTAxtel (Co-Chairman) Public boards (3): BBVA México (Regional Advisor) Citibanamex (Regional Advisor) FEMSA (Alternate Member) Public boards (5): Axtel (Co-Chairman) (Co-Chairman) Cydsa CTAxtel (Co-Chairman) Nemak Vitro Public boards (0): Education: BA from UVA MBA from Wharton Education: BA from MIT MBA from Stanford Education: BA from ITESM MBA from UCLA Education: BA from Notre Dame University MBA from ITESM MBA from Georgetown University RELEVANT EXPERTISE PETROCHEMICALS AUTOMOTIVE ENVIRONMENTAL SOCIAL OPERATIONS PUBLIC POLICY, CONSTITUTIONAL RIGHTS AND REGULATORY CONSUMER GOODS CONSTRUCTION AUDIT & RISK MANAGEMENT FINANCE STRATEGIC PLANNING ENERGY REAL ESTATE M & A GOVERNANCE 45 BOARD OF DIRECTORS ANDRÉS E. GARZA HERRERA INDEPENDENT | AUDIT AND CORPORATE PRACTICES COMMITTEE MERICI GARZA SADA PIERRE FRANCIS HAAS GARCÍA INDEPENDENT ANA LAURA MAGALONI INDEPENDENT VICEPRESIDENT OF THE BOARD OF QUALITA Age: 55 Tenure: 11 years (2012) INVESTOR Age: 65 Tenure: 11 years (2012) MANAGING DIRECTOR OF ENERGY AT NAX GROUP PARTNER AT MAGALONI ABOGADOS | EDITORIALIST AT GRUPO REFORMA Age: 71 Tenure: 11 years (2012) Age: 60 Tenure: 2 years (2022) Public boards (0): Public boards (0): Public boards (0): Education: BA from ITESM MBA from San Diego University IMD Switzerland Global Leadership Program Education: BA from ITESM MA from Stanford Education: BA from ITESM PGD in Economics from MBA from IPADE Cambridge University Public boards (1): BBVA México Education: BA from ITAM Ph.D. from Universidad Autónoma de Madrid the Judicial Specialization Center of the Mexican Supreme Court Studies from RELEVANT EXPERTISE PETROCHEMICALS AUTOMOTIVE ENVIRONMENTAL SOCIAL OPERATIONS PUBLIC POLICY, CONSTITUTIONAL RIGHTS AND REGULATORY CONSUMER GOODS CONSTRUCTION AUDIT & RISK MANAGEMENT FINANCE STRATEGIC PLANNING ENERGY REAL ESTATE M & A GOVERNANCE 46 BOARD OF DIRECTORS MONTSERRAT RAMIRO XIMÉNEZ INDEPENDENT JOSÉ ANTONIO RIVERO LARREA INDEPENDENT JOSÉ DE JESÚS VALDEZ SIMANCAS INDEPENDENT CONSULTANT OF MEXICAN ELECTRICITY MARKET Age: 51 Tenure: 1 year (2023) CHAIRMAN OF THE BOARD OF COMPAÑÍA MINERA AUTLÁN | CEO AND CHAIRMAN OF THE BOARD OF SFMH Age: 70 Tenure: 5 years (2018) SENIOR ADVISOR OF ALFA Age: 71 Tenure: 1 year (2023) ALEJANDRO MARIANO WERNER WAINFELD INDEPENDENT FOUNDING DIRECTOR AT GEORGETOWN AMERICAS INSTITUTE Age: 57 Tenure: 1 year (2023) Public boards (1): BlackRock Mexico Education: BA from ITAM | MEc from UCL GradDip from Harvard Extension School – Cambridge Harvard Business School GradDip from Public boards (1): Compañía Minera Autlán (Chairman) Education: Executive OPM Program from Harvard Executive Program at MIT Sloan School & IMD Business School Public boards (1): Betterware de México Public boards (1): Acciona Energía Education: BS and MBA from ITESM Stanford University MS from Education: BA from ITAM PhD from MIT RELEVANT EXPERTISE PETROCHEMICALS AUTOMOTIVE ENVIRONMENTAL SOCIAL OPERATIONS PUBLIC POLICY, CONSTITUTIONAL RIGHTS AND REGULATORY CONSUMER GOODS CONSTRUCTION AUDIT & RISK MANAGEMENT FINANCE STRATEGIC PLANNING ENERGY REAL ESTATE M & A GOVERNANCE 47 BOARD OF DIRECTORS ENRIQUE DE JESÚS ZAMBRANO BENÍTEZ INDEPENDENT | AUDIT AND CORPORATE PRACTICES COMMITTEE CHAIRMAN OF GRUPO PROEZA, S.A. DE C.V. Age: 67 Tenure: 11 years (2012) JAIME ZABLUDOVSKY KUPER INDEPENDENT VP OF IQOM INTELIGENCIA COMERCIAL Age: 67 Tenure: 4 years (2019) Public boards (1): Fibrahotel Public boards (1): BBVA México Education: BA from ITAM Ph.D. from Yale Education: BA from ITESM & MIT MBA from Stanford RELEVANT EXPERTISE PETROCHEMICALS AUTOMOTIVE ENVIRONMENTAL SOCIAL OPERATIONS PUBLIC POLICY, CONSTITUTIONAL RIGHTS AND REGULATORY CONSUMER GOODS CONSTRUCTION AUDIT & RISK MANAGEMENT FINANCE STRATEGIC PLANNING ENERGY REAL ESTATE M & A GOVERNANCE 48 MANAGEMENT TEAM DAVID COINDREAU GARZA ALEJANDRO LLOVERA ZAMBRANO GUSTAVO TALANCÓN GÓMEZ TERESA QUINTERO MÁRMOL JORGE P. YOUNG CERECEDO JOSÉ CARLOS PONS DE LA GARZA ALEJANDRO ALANÍS FERNÁNDEZ ANDREAS PLETTNER RUTISHAUSER ROBERTO BLANCO SÁNCHEZ Senior Vice President Human CapitalChief Financial OfficerPresident of Polypropylene BusinessPresident of Expandable Styrenics BusinessPresident of Natural Gas BusinessPresident of Polyester BusinessPresident of Specialty Chemicals BusinessPresident of Polyester Filament and Fertilizer BusinessChief Executive OfficerGOVERNANCE 49 CODE OF CONDUCT All of Alpek’s operations are carried out under a framework of legality, respect for human rights and ethical conducts. 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. 50 FINANCIAL REVIEW MANAGEMENT'S ANALYSIS In the United States, the economy managed to continue to grow as consumer spending remained robust throughout the year amid challenges, including a run up in interest rates to fight inflation, higher mortgage rates, which caused lower home sales, federal budget policy volatility and growing geopolitical tensions. The Mexican economy benefited from multiple factors that led to Mexico´s economic growth in 2023. The economy experienced a boom in private consumption, which remained resilient even during a period of high inflation from increased real wages, which encouraged consumption, and a strong labor market throughout the year. Nearshoring and public investments also triggered the economy to exceed expectations. Throughout the year, the Mexican peso strengthened, closing the year at 16.89(d) pesos per dollar. The Mexican peso was the second most appreciated currency, after the Colombian peso. This appreciation was due to factors such as dollar flows from exports, remittances, and foreign direct investment, in addition to the wide interest rate differential between Mexico and the United States. Argentina economic conditions were affected which by the end of year presented a record increased inflation in more than 30 years, reaching 211.4%. This situation is mainly caused by a shortage of reserves, elections and change of government. Additionally, the Argentine peso during the last month of the year experienced a devaluation of the exchange SOURCES: (a) Bureau of Economic Analysis (BEA) (b) National Institute of Statistics and Geography (INEGI) (c) Bank of Mexico (Banxico) (d) Banxico: Exchange rate for settling liabilities denominated in foreign currency payable in Mexico (e) Internal calculation based on INEGI, Bureau of Economic Analysis (BEA), and Bureau of Labor Statistics (BLS), Bloomberg 51 rate of more than 50%, ~ 800 Argentine pesos per dollar. This is one of the measures of an austerity plan with the objective of reducing the public deficit and inflation. The behavior of the GDP and other variables in Mexico and the United States, which is essential to understanding the context of Alpek’s results, is described below: • In the United States, Gross Domestic Product (GDP) increased 2.5%(a) in 2023, higher than the 1.9%(a) reported in 2022. Consumer inflation was 3.4%(a) in 2023, lower than the 6.5%(a) recorded in 2022. • Mexico’s Gross Domestic Product (GDP) increased 3.1%(b) in 2023, compared to 3.1(b) in 2022. Consumer inflation was 4.7%(c) in 2023, lower than the 7.8(c) recorded in 2022. The Mexican peso experienced an annual appreciation of 12.7(d) in 2023. • In Mexico, the average Interbank Equilibrium Interest Rate (TIIE) was 11.4%(e) in nominal terms, as compared to 7.9%(e) in 2022. In real terms, there was an increase in the annual aggregate of 6.2%(e) in 2023 and 0.3%(e) in 2022. Regarding interest rates, the annual average nominal 3month US dollar SOFR rate, was 5.2%(c) in 2023, compared to 2.2%(e) in 2022. 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 Alpek experienced a shift in industry and market conditions affecting our product portfolio reaching 4,635 thousands of tons in 2023, 8% lower than the 5,065 thousands of tons in 2022. 52 VOLUME [Thousand of tons] 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] POLYESTER 3,785 4,099 3,796 PLASTICS & CHEMICALS TOTAL VOLUME 849 966 1,002 4,635 5,065 4,798 -8 -12 -8 8 -4 6 PRICE INDEX 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] MILLIONS OF PESOS MILLIONS OF DOLLARS MILLIONS OF PESOS MILLIONS OF DOLLARS MILLIONS OF PESOS MILLIONS OF DOLLARS 105 119 69 78 92 104 POLYESTER 133 134 100 100 PLASTICS & CHEMICALS 102 103 TOTAL 129 130 100 100 100 100 -21 -11 -33 -24 -29 -20 33 34 2 3 29 30 REVENUES 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] MILLIONS OF PESOS MILLIONS OF DOLLARS MILLIONS OF PESOS MILLIONS OF DOLLARS MILLIONS OF PESOS MILLIONS OF DOLLARS MILLIONS OF PESOS MILLIONS OF DOLLARS POLYESTER 102,154 140,717 98,000 5,739 6,991 4,828 PLASTICS & CHEMICALS 27,709 46,804 47,470 1,556 2,321 2,342 OTHERS 8,296 24,914 10,754 464 1,243 528 TOTAL REVENUES 138,159 212,435 156,224 7,759 10,555 7,697 -27 -18 -41 -33 -67 -63 -35 -26 44 45 -1 -1 132 135 36 37 REVENUES Alpek’s total revenue in 2023 was $138,159 million (US $7,759 million), 35% lower than the $212,435 million (US $10,555 million) in 2022. This decrease was primarily driven by a decrease in average prices of 29% and 20% in pesos and dollars, respectively, from decreased feedstock prices along with a subdued consolidated volume. 53 REVENUES BY BUSINESS SEGMENT Polyester’s net revenues in 2023 were $102,154 million (US $5,739 million), 27% less than the $140,717 million (US $6,991 million) in 2022. This segment posted a decrease of 21% and 11% in average sale prices in pesos and dollars, respectively. Volume decreased 8% when compared to 2022 mainly due to lower consumer spending impacting demand. Plastics & Chemicals posted revenues of $27,709 million (US$1,556 million) in 2023, in comparison to the $46,804 million (US$2,321 million) in 2022. The average sale prices in pesos and in dollars decreased by 33% and 24%, respectively, with a volume decreased by 12% year- over-year, from additional PP capacity in the region and tempering demand, resulting in an overall 35% decrease in revenues. 54 EBITDA [Millions of pesos] 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] EBITDA [Millions of dollars] 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] POLYESTER 5,062 17,923 12,560 PLASTICS & CHEMICALS 4,108 11,391 10,173 OTHERS 90 110 501 TOTAL EBITDA 9,260 29,424 23,234 -72 -64 -18 -69 43 12 -78 27 POLYESTER PLASTICS & CHEMICALS 281 228 OTHERS 5 886 564 5 618 503 25 TOTAL EBITDA 514 1,455 1,145 -68 -60 - -65 43 12 -78 27 OPERATING PROFIT AND EBITDA In 2023, the operating (loss) income was -$6,437 million (US -$386 million), 126% lower than the $24,539 million (US $1,212 million) in 2022. As of December 31, 2023, consolidated EBITDA was $9,260 million (US $514 million) a decrease of 69% compared to the $29,424 million (US $1,455 million) of 2022. The consolidated EBITDA includes a net negative effect from extraordinary items of $3,831 million (US $221 million), resulting in a Comparable EBITDA of $13,092 million (US $734 million), 53% lower than in 2022. OPERATING PROFIT AND EBITDA BY BUSINESS SEGMENT In 2023, the EBITDA for the Polyester segment decreased by 72% to $5,062 million (US $281 million), including a net negative effect from extraordinary items of $3,781 million (US $216 million). Adjusting for these items, the Comparable EBITDA for the Polyester segment was $8,842 million (US $497 Million), a decrease of 47% year-over- year from a softness in demand driven from normalization of ocean freight costs, an imbalance between supply and demand. The EBITDA for the Plastics & Chemicals segment decreased 64% to $4,108 million (US $228 million), compared to $11,391 million (US $564 million) in 2022, including a net negative effect from extraordinary items of $51 million (US $5 million). Adjusting for these items, the Comparable EBITDA for the Plastics & Chemicals segment was $4,159 million (US $232 million), a decrease of 64% year-over-year, from greater influence from Asian imports in the Americas, mainly for the EPS businesses and additional PP capacity in the region. NET FINANCIAL RESULT In 2023, the net financial cost was -$2,668 million (US -$151 million), 11% lower than in 2022. The net financing expenses that comprise this item increase from -$2,302 million (US -$114 million) in 2022, to -$2,665 million (US -$149 million) in 2023. In addition, variations in exchange rates resulted in the recognition of a non-cash foreign exchange loss of -$3 million (US -$1 million) in 2023, versus -$695 million (US -$34 million) in 2022. TAXES In 2023, an income tax was posted for -$727 million (US -$39 million) as a result of a decreased pretax income, while 2022 posted an income tax of -$5,509 million (US -$272 million). 55 FINANCIAL RESULT, NET [Millions of pesos] 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] FINANCIAL EXPENSE -3,982 -3,224 -3,082 FINANCIAL INCOME 1,317 922 590 FINANCIAL EXPENSES, NET LOSS DUE TO EXCHANGE FLUCTUATION, NET FINANCIAL RESULT, NET -2,665 -2,302 -2,492 -3 -695 -652 -2,668 -2,997 -3,144 11 -23 43 -16 100 -5 56 8 -6 5 TAXES [Millions of pesos] Income (loss) before taxes 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] -9,306 21,475 14,311 -143 50 Income tax rate 30% 30% 30% Statuory income tax rate (expenses) benefit Taxes for permanent differences between accounting-taxable profit 2,792 -6,443 -4,293 143 -50 -3,519 934 178 -477 423 TOTAL INCOME TAX -727 -5,509 -4,115 87 -34 Effective tax rate 8% 26% 29% COMPRISED AS FOLLOWS Current income tax -2,358 -5,345 -4,304 56 Deferred income tax 1,631 -164 189 1,095 TOTAL INCOME TAX -727 -5,509 -4,115 87 -24 -187 -34 56 STATEMENT OF INCOME [Millions of pesos] OPERATING (LOSS) INCOME FINANCIAL RESULT, NET EQUITY IN INCOME OF ASSOCIATES AND JOINT VENTURES 2023 2022 2021 ‘23 VS ‘22 [%] ‘22 VS ‘21 [%] -6,437 24,539 17,494 -126 -2,668 -2,997 -3,144 11 40 5 -201 -67 -39 -200 -74 INCOME TAX -727 -5,509 -4,115 87 -34 CONSOLIDATED NET (LOSS) INCOME (LOSS) INCOME ATTRIBUTABLE TO CONTROLLING INTEREST -10,033 15,966 10,196 -162 -10,914 13,744 7,756 -178 57 77 NET (LOSS) INCOME ATTRIBUTABLE TO THE CONTROLLING INTEREST In 2023, consolidated net (loss) income attributable to the controlling interest was -$10,914 million (US -$636 million), 178% lower than the $13,744 million (US $679 million) in the previous year, stemming from lower operating income. INVESTMENTS IN FIXED AND INTANGIBLE ASSETS In 2023, investments in fixed and intangible assets totaled $4,965 million (US $277 million), 71% lower than the $17,339 million (US $862 million) posted in 2022. A portion of the resources were allocated to CCP, asset replacements as well as schedule maintenance. 57 FINANCIAL INDICATORS [Times] NET DEBT / EBITDA INTEREST COVERAGE TOTAL LIABILITIES / STOCKHOLDERS’ EQUITY 2023 2022 2021 3.4 3.4 2.1 1.3 11.4 1.6 1.1 8.7 1.5 SHORT AND LONG TERM DEBT2 [Millions of Dollars] 2023 2022 ‘23 VS ‘22 INTEGRATED 2023 INTEGRATED 2022 SHORT-TERM DEBT 41 49 -16% CURRENT PORTION OF LT DEBT 2 YEARS 0 0 3 YEARS 133 4 YEARS 503 300 -100% 25 0 50 -100% 100% 905% 5 YEARS 200 500 -60% 6 YEARS 499 7 YEARS 0 8+ YEARS 605 0 499 605 TOTAL 1,981 2,027 100% -100% 0% -2% AVG. MATURITY LONG- TERM DEBT (years) AVG. MATURITY TOTAL DEBT(years) 5.2 5.2 5.4 5.5 2% 0% 0% 7% 25% 10% 25% 0% 31% 2% 15% 1% 0% 2% 25% 0% 25% 30% 100% 100% (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. NET DEBT1 Net debt was $29,205 million (US $1,729 million) as of December 31, 2023, 19% below the $36,005 million (US $1,860 million) as of December 31, 2022. The cash balance and cash equivalents totaled $7,714 million (US $457 million) Including restricted cash at year end 2023. 58 APPENDIX GLOSSARY 59 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. 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. ESG Environmental, Social and Governance. Ethane Hydrocarbon part of the natural gas liquids, which at room temperature is colorless and odorless. It is used as a raw material to produce ethylene. Ethylene Compound produced from ethane. It is the raw material used to produce vinyl acetate, ethyl chloride, styrene, ethylene oxide and polyethylenes. Ethylene oxide LTIR Compound produced from ethylene and used as an intermediate in the production of MEG and other chemicals. Lost Time Incident Rate is a standard OSHA metric that calculates the number of incidents that result in time away from work. 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. Greenhouse gases (GHG) Components of the atmosphere that absorb and emit radiation within the infrared range, causing the Earth’s surface temperature to increase. Megawatt (MW) Unit of power, equal to 1 million watts. 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 60 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). WEPs Women's Empowerment Principles GLOSSARY 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 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. 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 technology™ The Single-pellet Technology 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. OUR FOOTPRINT 61 NOTE: rPET flake capacity was modified to reflect inputs / totals and may reflect rounding. Kta: Thousand tons per year. SOURCE: Alpek estimates. SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER MEXICO MONTERREY ALTAMIRA 1,000 SALAMANCA COSOLEACAQUE 610 185 15 LERMA 160 640 240 360 100 SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER USA 170 170 725 430 FAYETTEVILLE, NC CHARLESTON, SC COLUMBIA, SC 640 BAY ST. LOUIS, MS RICHMOND, IN DARLINGTON, SC MONACA, PA CINCINNATI, OH READING, PA 64 66 15 15 31 26 33 115 49 123 45 36 (3,310)(2,753)OUR FOOTPRINT 62 Canada SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER MONTREAL 144 SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER Argentina ZÁRATE PACHECO GENERAL LAGOS 190 22 15 SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP GUARATINGUETA IPOJUCA 640 450 90 19 EPS 46 ARCEL OTHER SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER SANTIAGO PUERTO MONTT PUNTA ARENAS CONCÓN 5 2 1 20 Brazil Chile (144)(246)(28)(1,226)OUR FOOTPRINT 63 Oman SITE PTA RESIN SHEET FLAKE PELLET SALALAH 576 400 48 SPT 48 FIBERS PP EPS ARCEL OTHER Saudi Arabia UK SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER RIYADH 11 SITE PTA RESIN SHEET FLAKE PELLET SPT FIBERS PP EPS ARCEL OTHER WILTON 220 TOTAL: 9,011 Kta PTA 2,890 RESIN 3,260 SHEET FLAKE PELLET 433 268 169 SPT 93 FIBERS 250 PP 640 EPS 493 ARCEL OTHER 36 479 (1,072)(11)(220)OUR VALUE CHAINS OIL REFINERY NAPHTHA REFORMER PARAXYLENE PTA ETHANE CRACKER ETHYLENE CRACKER OIL REFINERY NAPHTHA BENZENE PENTANE STYRENE POLYETHYLENE EPS ARCEL CRACKER ETHYLENE OXIDE MONOETHYLENE GLYCOL PROPANE PDH PROPYLENE POLYPROPYLENE 64 THERMOFORM PACKAGING LÁMINA DE PET rPET SHEET rPET FLAKE PET rPET PELLET Alpek’s products are used by millions of people daily, in a wide variety of applications. OUR APPROACH TO REPORTING 65 This report was prepared with reference to the GRI Standards 2021 and 2016 versions, ensuring compliance with the clarity, balance, comparability, completeness, and timeliness principles, as a minimum.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).The publication of our sustainability performance information, aligned with our financial materiality, represents a significant step towards integrating environmental, social, and governance (ESG) criteria into our core business strategy. This initiative not only underscores the company's commitment to sustainability but also highlights its recognition of the growing importance of sustainable practices in today's corporate landscape.Likewise, we maintain our commitment to contribute to the Sustainable Development Goals (SDG) of the United Nations, 2030 Agenda.FOR ADDITIONAL INFORMATION, WE PREPARED AN ESG BOOKLET AVAILABLE ON:HTTPS://WWW.ALPEK.COM/ESG/GOVERNANCE/66 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021, AND INDEPENDENT AUDITORS’ REPORT DATED JANUARY 31, 2024 INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALPEK, S. A. B. DE C. V. AND SUBSIDIARIES 67 (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, 2023, 2022 and 2021, 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 material accounting policies information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of Alpek, as of December 31, 2023, 2022 and 2021, and their consolidated finan- cial 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 The accompanying consolidated financial statements have been translated from Spanish to English for the convenience of readers. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the year 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that the matter described below is the key audit matter that should be reported in our report. Impairment Assessment - Investment in Corpus Christi Polymers LLC Project Shares As mentioned in Note 3 b) v. to the accompanying consolidated financial statements, the Company evaluates at each reporting date whether there is objective evidence that the joint ventures are impaired. If so, the Company calculates the amount of impairment as the difference between the recoverable value of the joint venture and its carrying amount, and recognizes it in the consolidated income statement. As mentioned in Note 2d. to the accompanying consolidated financial statements, on September 27, 2023, the Company and its Corpus Christi Polymers, LLC (“CCP”) joint venture partners announced their decision to temporarily pause construction of their integrated PTA-PET plant in Texas, due to high inflation rates and other factors, construction and labor costs have exceeded initial expectations. The Company and its partners have decided to evaluate options to optimize project costs and schedule, as well as properly preserve the site so that construction can resume at a later date. As a result, the Company’s Management considered this event as an indicator of impairment and estimated the recoverable value of the joint venture in accordance with the requirements of IAS 36, Impairment of Assets, using the "discounted cash flows" ("DCF") valuation methodology, under the revenue approach. As a result, the Company recognized in the consolidated statement of income for the year ended December 31, 2023, an impairment expense of $9,591 (US$557). Due to the significant judgments used by Management in the valuation model for determining the recoverable value of the investment, we believe that it represents a key issue of our audit. How our audit addressed this key audit issue: To carry out audit procedures that mitigate the identified risk in a reasonable manner, we involve a team of valuation experts to evaluate the premises and criteria used by Management, which include, among others, the following procedures: • We tested the design and implementation of controls on the determination of the recoverable value and the assumptions used. • We reviewed the contractual agreements and of the Board of Directors of the Company. • We verified that the methodology and model used by Management so that the determination of the re- coverable values were those used and recognized to value assets with similar characteristics. We challenge Management's financial projections and compare them with similar business performance indicators. • 68 • We review the most relevant valuation assumptions (discount rate and projected operating margin). • Reviewed compliance with the presentation and disclosure requirements set forth in IAS 1, Presentation of Financial Statements, IAS 28, Investments in Associates and Joint Ventures, and IAS 36. The results of our procedures were satisfactory. Emphasis Paragraph As mentioned in Note 2 e. to the accompanying consolidated financial statements, derived from the acqui- sition of Octal, Alpek assumed control on June 1, 2022, consolidating its operations as of that date, therefore, the consolidated financial statements to and for the years ended December 31, 2023, 2022 and 2021 are not comparable each other. Our opinion is not modified by what is mentioned in this paragraph. 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 information that will be incorporated in the Annual Report that the Company is required to pre- pare 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 accompa- ny these provisions (the "Provisions"), which 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 ii) 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 perfor- mance 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. 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 responsibil- ity is to read and recalculate the additional information, which in this case is 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. 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 Company´s governance are responsible for overseeing the Company’s consolidated fi- nancial reporting process. Our opinion of the consolidated financial statements will not cover the additional 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 addition- al 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 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 rea- sonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. 69 As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: We communicate with those charged with governance in the Company 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. – – – – – – 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. We also provide those charged with governance in the Company with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 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 esti- mates and related disclosures made by Management. From the matters communicated with those charged with governance in the Company, 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 deter- mine 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. 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 dis- closures, 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 state- ments. 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. Galaz, Yamazaki, Ruiz Urquiza, S.C. Affiliate of a member firm of Deloitte Touche Tohmatsu Limited C. P. C. JESÚS ISRAEL ALMAGUER GÁMEZ Monterrey, Nuevo León, México January 31, 2024 70 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, 2023, 2022 and 2021 In millions of Mexican pesos Note 2023 2022 2021 Note 2023 2022 2021 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 6 6 7 8 4 9 6 10 11 12 20 4 9 13 16 17 15 20 4 18 $ $ $ 7,391 8 17,473 23,322 86 744 49,024 314 40,952 3,170 3,494 1,334 9 6 4,381 53,660 102,684 689 701 27,129 390 253 749 29,911 $ $ $ 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 $ $ $ 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 Non-current liabilities: Debt Lease liability Derivative financial instruments Provisions Deferred income taxes Income taxes payable Employee benefits Other non-current liabilities Total non-current liabilities Total liabilities Stockholders’ equity Controlling interest: Capital stock Share premium Retained earnings Other reserves Total controlling interest Non-controlling interest Total stockholders’ equity Total liabilities and stockholders’ equity 16 17 4 18 20 20 19 21 22 14 32,648 2,755 12 739 2,024 - 880 493 39,551 69,462 6,019 8,909 17,298 (3,534) 28,692 4,530 33,222 102,684 $ $ 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 52,194 136,819 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 49,586 123,945 $ The accompanying notes are an integral part of these consolidated financial statements. Alpek, S. A. B. de C. V. and Subsidiaries (Subsidiary of Alfa, S. A. B. de C. V.) CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2023, 2022 and 2021 In millions of Mexican pesos, except for earnings (losses) per share amounts 71 Revenues Cost of sales Gross profit Selling expenses Administrative expenses Other (loss) income, net Operating (loss) 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 (Loss) income before taxes Income taxes Note 2023 2022 2021 29 24 24 24 25 26 26 26 20 $ 138,159 $ 212,435 $ 156,224 (127,863) (181,401) (131,537) 10,296 (2,132) (3,718) (10,883) (6,437) 1,317 (3,982) (3) (2,668) (201) (9,306) (727) 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) Net consolidated (loss) income $ (10,033) $ 15,966 $ 10,196 (Loss) income attributable to: Controlling interest Non-controlling interest $ (10,914) $ 13,744 $ 881 2,222 7,756 2,440 $ (10,033) $ 15,966 $ 10,196 (Losses) earnings per basic and diluted share, in Mexican pesos $ (5.18) $ 6.52 $ Weighted average outstanding shares (millions of shares) 2,107 2,108 3.67 2,111 The accompanying notes are an integral part of these consolidated financial statements. 72 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, 2023, 2022 and 2021 In millions of Mexican pesos Net consolidated (loss) income Other comprehensive (loss) income for the year: Note 2023 2022 2021 $ (10,033) $ 15,966 $ 10,196 Items that will not be reclassified to the statement of income: Remeasurement of employee benefit obligations, net of taxes 19, 20 5 (19) 344 Items that will be reclassified to the statement of income: Equity in other comprehensive income of associates and joint ventures recognized through the equity method (1) 1 Effect of derivative financial instruments designated as cash flow hedges, net of taxes Translation effect of foreign entities Total other comprehensive (loss) income for the year 4, 20 4, 20 765 (5,923) (855) (2,652) (5,154) (3,525) 22 (1) (431) 110 Consolidated comprehensive (loss) income $ (15,187) $ 12,441 $ 10,218 Attributable to: Controlling interest Non-controlling interest Comprehensive (loss) income for the year $ (15,381) $ 10,556 $ 194 1,885 7,586 2,632 $ (15,187) $ 12,441 $ 10,218 The accompanying notes are an integral part of these consolidated financial statements. 73 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, 2023, 2022 and 2021 In millions of Mexican pesos Balance as of January 1, 2021 Net income Total other comprehensive loss for the year Comprehensive income Dividends declared Reissuance of shares Repurchase of shares Other Balance as of December 31, 2021 Net income Total other comprehensive loss for the year Comprehensive income Dividends declared Reissuance of shares Repurchase of shares Other Balance as of December 31, 2022 Net loss Total other comprehensive loss for the year Comprehensive loss Dividends declared Reissuance of shares Repurchase of shares Other Capital stock Share premium Retained earnings Other reserves Total controlling interest Non- controlling interest Total stockholders’ equity $ 6,035 $ 9,025 $ - - - - 30 (37) - 6,028 - - - - 19 (26) - 6,021 - - - - 36 (38) - - - - - 206 (255) - 8,976 - - - - 161 (220) - 8,917 - - - - 176 (184) - 21,035 7,756 - 7,756 (3,806) - - (394) 24,591 13,744 - 13,744 (7,515) - - 212 31,032 (10,914) - (10,914) (2,866) - - 46 $ 4,291 $ 40,386 $ - (170) (170) - - - - 4,121 - (3,188) (3,188) - - - - 933 - (4,467) (4,467) - - - - 7,756 (170) 7,586 (3,806) 236 (292) (394) 43,716 13,744 (3,188) 10,556 (7,515) 180 (246) 212 46,903 (10,914) (4,467) (15,381) (2,866) 212 (222) 46 5,126 2,440 192 2,632 (1,889) - - 1 5,870 2,222 (337) 1,885 (2,464) - - - 5,291 881 (687) 194 (955) - - - $ 45,512 10,196 22 10,218 (5,695) 236 (292) (393) 49,586 15,966 (3,525) 12,441 (9,979) 180 (246) 212 52,194 (10,033) (5,154) (15,187) (3,821) 212 (222) 46 Balance as of December 31, 2023 $ 6,019 $ 8,909 $ 17,298 $ (3,534) $ 28,692 $ 4,530 $ 33,222 The accompanying notes are an integral part of these consolidated financial statements. Alpek, S. A. B. de C. V. and Subsidiaries (Subsidiary of Alfa, S. A. B. de C. V.) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2023, 2022 and 2021 In millions of Mexican pesos 2023 2022 2021 2023 2022 2021 74 Cash flows from operating activities (Loss) income before income taxes Depreciation and amortization Impairment of long-lived assets Allowance for doubtful accounts Financial result, net Gain on business combinations 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 Decrease (increase) in inventories Increase (decrease) in trade and other accounts payable Income taxes paid Net cash flows generated from operating activities Cash flows from investing activities Interest collected Cash flows in acquisition of property, plant and equipment Cash flows in sale of property, plant and equipment Cash flows in acquisition of intangible assets Cash flows in business acquisition, net of cash acquired Cash flows paid in investment in associates and joint ventures Loans granted to related parties Notes receivable Collection of notes Restricted cash $ (9,306) $ 21,475 $ 4,619 11,078 (101) 2,007 - 66 2,247 10,610 (2,107) 6,623 4,296 (4,398) 15,024 1,258 (2,501) 13 (40) (512) (1,925) (65) - 273 179 4,639 246 (163) 2,699 (425) 74 764 365 (5,525) (3,218) (5,721) 15,210 511 (3,068) 93 (11) (10,198) (831) - (35) 883 (252) Net cash flows used in investing activities (3,320) (12,908) (3,860) Cash flows from financing activities 14,311 4,280 1,460 25 Proceeds from debt Payments of debt Lease payments Interest paid 2,951 Dividends paid by Alpek, S. A. B. de C. V. (29) Dividends paid by subsidiaries to non-controlling interest 29 302 Repurchase of shares Reissuance of shares 29,309 23,329 Loan payments to related parties and others Net cash flows used in financing activities Increase (decrease) in cash and cash equivalents Effect of changes in exchange rates Cash and cash equivalents at the beginning of the year (8,159) (8,994) 9,448 (2,394) 36,732 (37,104) (1,170) (3,059) (2,966) (955) (222) 212 - (8,532) 3,172 (2,100) 6,319 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) (8,986) 384 13 10,144 13,230 Cash and cash equivalents at the end of the year $ 7,391 $ 6,319 $ 10,541 The accompanying notes are an integral part of these consolidated financial statements. 322 (4,418) 5 (18) 78 (227) - - 398 - 75 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, 2023, 2022 and 2021 Millions of Mexican pesos, except where otherwise indicated 1. GENERAL INFORMATION Alpek, S. A. B. de C. V. and Subsidiaries (“Alpek” or the “Company”) is a petrochemical company with opera- tions through two major business segments: “Polyester” and “Plastics 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 indus- trial filament markets. The Plastics & Chemicals business segment comprises the production of polypro- pylene (“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 continent, 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 re- ferred 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, 2023, 2022 and 2021, the percentage of shares that traded on the MSE was 17.37%, 17.39%, and 17.51%, respectively. Alpek SAB is located at Avenida Gómez Morín Sur No. 1111, Col. Carrizalejo, San Pedro Garza García, Nuevo León, México and operates productive plants located in México, the United States of America, Oman, Saudi Arabia, Canada, Argentina, Chile, Brazil and United Kingdom. The Company started the process of decommissioning and dismantling of assets, as well as environmental cleanup and remediation, which is why, the Company registered provisions for these concepts for $379 (US$20.8). Additionally, the Company had other direct costs attributable to the closure, mainly for severance pay and cancellation of contracts for $169 (US$9.1). Derived from the interruption in production, the Company performed impairment tests on the fixed assets associated with the plant and recorded an impairment charge related to these assets of $950 (US$51.9). Additionally, it recognized and inventory impairment of $63 (US$3.4). b. US$200 million loan linked to sustainability On August 3, 2023, Alpek announced that it refinanced the outstanding balance of the bond due in August 2023, with bank debt that includes a US$200 Sustainability Linked Credit maturing in 2028. The loan incorporates a pricing mechanism that incentivizes progress on two of the Company’s ESG objectives: • Reduction in carbon emissions Scope 1, 2 and 3. • Reduction in its incidence rate for its employees and contractors. c. Closure of the filament production plant On August 18, 2023, the Company announced the closure of its textile and industrial fiber production plant located in Monterrey. Alpek made the decision to close operations at these facilities and not replace their production because the excess production experienced worldwide in recent years has represented a sig- nificant reduction in its profitability for the filament industry and it is not expected that this situation will change in the near future. In the following notes to the financial statements when referring to pesos or "$", 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. The Company recognized an impairment of inventories and fixed assets for $121 (US$7) and $409 (US$23.7), respectively, for the year ended December 31, 2023. Additionally, it had impacts due to employee termina- tions for $193 (US$11.1). 2. SIGNIFICANT EVENTS 2023 a. Interruption for an indefinite term of Cooper River's PET resin production On March 1, 2023, the Company announced the indefinite interruption of PET resin production at its Cooper River plant, located in Charleston, South Carolina. The plant had an installed capacity of 170,000 tons of PET resin. d. Corpus Christi Polymers construction pause On September 27, 2023, Alpek announced that Corpus Christi Polymers (“CCP”) temporarily paused con- struction of the integrated PTA-PET plant in Corpus Christi, Texas. The partners decided to pause it because high inflation rates and other factors caused construction and labor costs to exceed initial expectations. Options will also be evaluated to optimize the project's costs and schedule. This site will be adequately preserved so that construction can resume in the future.  Based on the requirements of IAS 28 and IAS 36, the Company identified that the pause in construction of the plant generated signs of impairment on its investment in the joint venture. Alpek determined through the discounted cash flow model and considering the decisions of its Board of Directors, to recognize an impairment of its investment in the joint venture of $9,591 (US$557) for the year ended December 31, 2023. 2022 e. 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 busi- nesses and dedicated bank loans. The amount pending payment as of December 31, 2022 retained by Alpek pursuant to the agreement for possible litigation is $360.1 (US$18.6), was deposited in a trust, and is presented within restricted cash and its corresponding liability. The acquisition of Octal met the criteria for a business combination in accordance with the requirements of IFRS 3; therefore, the Company applied the acquisition method to measure the acquired assets and assumed liabilities in the transaction. The fair values are as follows: Current assets (1) Non-current assets (2) Intangible assets (3) Current liabilities (4) Non-current liabilities (5) Net assets acquired Gain on business combination Final consideration Cash surplus net of debt Total consideration net of cash surplus 76 US$ 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) (4) (5) Intangible assets consist of patents. 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. 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 oppor- tunity 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, therefore, 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. 77 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 depre- ciation 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. 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. f. 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). During the year ended December 31, 2023, construction of the plant was temporarily paused (see Note 2d). 2021 g. 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 primar- ily used to prepay debt including accrued and unpaid interest. h. 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 polym- erization (“SSP”) systems, which enable the production of food-grade pellets and are required for bot- tle-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 cus- tomers 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 con- centration of the fair value of the acquired assets and determine whether such fair value is substantially i. 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 contin- ue 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. j. 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 polyes- ter staple fiber operations 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. k. 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”. l. 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 Corporation (“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. 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. 78 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 alloca- tion 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: 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 complex- ity, or areas where judgments and estimates are significant to the consolidated financial statements are disclosed in Note 5. Current assets (1) Non-current assets (2) Intangible assets (3) Current liabilities Non-current liabilities Acquired net assets Gain from a bargain purchase $ US$ 56 15 2 (17) (9) 47 (1) Paid consideration $ 46 (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. 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. 3. SUMMARY OF MATERIAL ACCOUNTING POLICIES The following are the material 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 other- wise 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. 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 business combination as a transaction through which it obtains control over a business, whereby it has the power to steer and manage the relevant operations of all assets and liabilities of the business with the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable acquired assets and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Company recognizes any non-con- trolling 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 joint- ly 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 ac- quiree. 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 compa- nies are eliminated in preparing the consolidated financial statements. Alpek’s subsidiaries consistently apply the accounting policies as those disclosed in these consolidated financial statements. As of December 31, 2023, 2022 and 2021, the main companies that comprise the consolidated financial statements of the Company are as follows: 79 Shareholding (%) (2) Country(1) 2023 2022 2021 Styropek do Brasil, LTD Brazil Unimor, S. A. de C. V. (Holding Company) Univex, S. A. Alpek Polyester UK LTD BVPV Styrenics LLC (9) Octal (10) United Kingdom USA Oman 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - Functional Currency Brazilian real Mexican peso Mexican peso Pound sterling US dollar US dollar Shareholding (%) (2) Country(1) 2023 2022 2021 Alpek, S. A. B. de C. V. (Holding Company) Alpek Polyester, S. A. de C. V. (Holding Company) (3) Alpek Polyester USA, LLC (11) USA Alpek Polyester México, S.A. de C.V. (12) DAK Américas Exterior, S. L. (Holding Company) Alpek Polyester Argentina S.A. (4) Compagnie Alpek Polyester Canada (Selenis) (5) (6) 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. Spain Argentina Canada Brazil Brazil Argentina Chile 100 100 100 100 100 100 91 93 100 100 51 50 100 100 100 100 100 100 100 100 100 100 91 93 100 100 51 50 100 100 100 100 100 100 100 100 100 50 91 93 100 100 51 50 100 100 100 100 Functional Currency Mexican peso US dollar US dollar US dollar US dollar (1) Companies incorporated in México, except those indicated. (2) Ownership percentage that Alpek has in the holding companies and ownership percentage that such holding compa- nies 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. 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, 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); Argentine peso 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) Entity acquired in 2021. (Note 2l). (10) Group of entities acquired in 2022 and integrates the following entities: Octal Holding UK LTD, Octal Holding SAOC, Octal SAOC FZC, Crystal Pack FZC LLC, Crystal Packing Solutions LLC, Octal DMCC, Octal Inc, Octal Extrusion Corp, Octal Saudi Arabia Plant LLC and OCTAL FINANCE BV (liquidated in 2023). (Note 2e) (11) During 2023, DAK Americas LLC changed its legal name to Alpek Polyester USA, LLC. (12) During 2023, Dak Resinas Américas México, S.A. de C.V. changed its legal name to Alpek Polyester México, S.A. de C.V. US dollar US dollar US dollar Brazilian real Brazilian real US dollar US dollar Mexican peso US dollar Argentine peso Chilean peso 80 As of December 31, 2023, 2022 and 2021, there are no significant restrictions for investment in shares of subsidiary companies mentioned above. The Company assesses at each reporting date whether there is objective evidence that the investment in the associate is impaired. 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 recog- nized in the consolidated 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 pro- vides evidence that the asset transferred is impaired. In order to ensure consistency with the policies ad- opted 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. When the Company issues purchase obligations on certain non-controlling interests in a consolidated subsidiary and non-controlling stockholders retain the risks and awards on these shares in the consol- idated 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 val- ue, and the change in the carrying amount is recognized in the consolidated statement of income. The fair value is the initial carrying value for the purposes of accounting for any subsequent retained interest in the associate, joint venture or financial asset. Any amount previously recognized in comprehensive income in respect of that entity is accounted for as if the Company had directly disposed of the related assets and liabilities. This results in the amounts previously recognized in the consolidated comprehen- sive 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 consolidat- ed 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. v. Joint ventures Joint arrangements are those where there is joint control since the decisions over relevant activities require the unanimous consent of each one of the parties sharing control. Investments in joint arrangements are classified in accordance with the contractual rights and obli- gations 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. The Company evaluates at each reporting date whether there is objective evidence that there are in- dications of impairment on the joint agreement. If there are indications, it determines the recoverable value based on the requirements of IAS 36 and recognizes an impairment if such recoverable value is below the carrying amount of the joint agreement. 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. 81 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 func- tional currency were translated into the functional currency in accordance with the following procedure: a) The balances of monetary assets and liabilities denominated in the recording currency were trans- lated at the closing exchange rate. b) To the historical balances of monetary assets and liabilities and stockholders' equity translated into the functional currency the movements that occurred during the period were added, which were translated at the historical exchange rates. In the case of the movements of non-monetary items recognized at fair value, which occurred during the period, stated in the recording currency, these were translated using the historical exchange rates in effect on the date when the fair value was determined. c) The income, costs and expenses of the periods, expressed in the recording currency, were translated at the historical exchange rate of the date they were accrued and recognized in the consolidated statement of income, except when they arose from non-monetary items, in which case the historical exchange rate of the non-monetary items was used. d) The exchange differences were recognized as income or expense in the consolidated statement of 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 compre- hensive income as translation effect. Hyperinflationary environment a) Assets, liabilities and equity in the statement of financial position, as well as income and expenses in the income statement, are translated at the closing exchange rate of the statement of financial position, after being restated in its functional currency (Note 3d); and b) Assets, liabilities, equity, income and expenses of the comparative period, are maintained according to the amount obtained in the translation of the year in question, that is, the financial statements of the preceding period. These amounts are not adjusted to subsequent exchange rates because the Company presents its financial information in Mexican pesos, which correspond to a currency of a non-hyperinflationary environment. The primary exchange rates in the various translation processes are listed below: Local currency to Mexican pesos Closing exchange rate at December 31, Average annual exchange rate 2023 16.89 0.02 3.48 0.02 21.53 2022 19.36 0.11 3.66 0.02 2021 20.58 0.20 3.69 0.02 2023 17.61 0.07 3.53 0.02 23.29 27.88 21.96 2022 20.06 0.15 3.91 0.02 24.71 2021 20.38 0.21 3.77 0.03 28.02 Currency US dollar Argentine peso Brazilian real Chilean peso Pound sterling income in the period they arose. d) Hyperinflationary effects 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 wheth- er the functional currency comes from a non-hyperinflationary or hyperinflationary environment: Non-hyperinflationary environment a) Assets and liabilities for each statement of financial position presented are translated at the closing exchange rate at the date of the statement of financial position; b) Stockholders’ equity of each statement of financial position presented is translated at historical ex- change rate; 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 re- sult, 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 re- quirements is to consider changes in the general purchasing power of the Argentine peso in order to pres- ent 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. 82 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 contribu- tion, if later. d. Revenues and expenses are restated by applying the change in the general price index, from the date on which the expenses and revenues were recognized, up to the reporting date. f) Financial instruments Financial assets The Company subsequently classifies and measures its financial assets based on the Company’s business model to manage financial assets, and on the characteristics of the contractual cash flows of such assets. This way financial assets can be classified at amortized cost, at fair value through other comprehensive income, and at fair value through profit or loss. Management determines the classification of its financial assets upon initial recognition. Purchases and sales of financial assets are recognized at settlement date. Financial assets are entirely written off when the right to receive the related cash flows expires or is trans- ferred, 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. e. Gains or losses arising from the net monetary position are recognized in the consolidated statement of ii. Financial assets at fair value through profit or loss 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 restate- ment 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 are presented under the heading of "Financial result, net" for the years ended December 31, 2023, 2022 and 2021. 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. Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category 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 business model different to those that seek to collect contractual cash flows or collect contractual cash flows and sell the financial assets, or otherwise ii) the generated cash flows are not solely payments of principal and interest on the amount of outstanding principal. Impairment of financial assets The Company uses an impairment model based on expected credit losses rather than losses incurred, applicable to financial assets subject to such assessment (i.e. financial assets measured at amortized cost and at fair value through other comprehensive income), as well as lease receivables, contract assets, certain written loan commitments, and financial guarantee contracts. The expected credit losses on these financial assets are estimated from the initial recognition of the asset at each reporting date, using as a reference the past experience of the Company's credit losses, adjusted for factors that are specific to the debtors or groups of debtors, general economic conditions, and an assessment of both the current direc- tion and the forecast of future conditions. 83 a. Trade receivables The Company adopted the simplified expected loss calculation model, through which expected credit losses during the account receivable’s lifetime are recognized. The Company performs an analysis of its portfolio of customer receivables, in order to determine if there are significant customers for whom it requires an individual assessment; meanwhile, customers with similar characteristics that share credit risks (participation in the portfolio of accounts receivable, type of market, sector, geographic area, etc.), are grouped to be evaluated collectively. In its impairment assessment, the Company may include indications that the debtors or a group of debtors are experiencing significant financial difficulties, and also observable data indicating that there is a significant decrease in the estimated cash flows to be received, including arrears. 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, which is in line with internal risk management. Financial liabilities Non-derivative financial liabilities are initially recognized at fair value and are subsequently valued at amortized cost using the effective interest method. Liabilities in this category are classified as current liabilities if expected to be settled within the next 12 months, otherwise they are classified as non-current. Trade payables are obligations to pay for goods or services that have been acquired or received from suppliers in the ordinary course of business. Loans are initially recognized at fair value, net of transaction costs incurred. Loans are subsequently carried at amortized cost; any difference between the funds received (net of transaction costs) and the settlement value is recognized in the consolidated statement of income over the term of the loan using the effective interest method. Derecognition of financial liabilities The Company derecognizes financial liabilities if, and only if, the obligations of the Company are fulfilled, cancelled or have expired. The difference between the carrying amount of the derecognized financial liability and the consideration paid and payable is recognized in profit or loss. Additionally, when the Company carries out a refinancing transaction and the previous liability qualifies to be derecognized, the costs incurred in the refinancing are recognized immediately in profit or loss at the date of termination of the previous financial liability. Offsetting financial assets and liabilities Assets and liabilities are offset and the net amount is presented in the consolidated statement of fi- nancial 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. b. Other financial instruments g) Derivative financial instruments and hedging activities 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 indi- vidual 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. 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. In both cases, the Company recognizes in profit or loss of the period the decrease or increase in the expected credit loss allowance at the end of the period. 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. 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. 84 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 relation- ship, characteristics, accounting recognition and how the effectiveness is to be measured. 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. Cash flow hedges h) Inventories 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 stock- holders' 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 trans- actions for variations in exchange rates arising between the functional currency of such transaction and the functional currency of the holding entity, regardless of whether the investment is maintained directly or through a sub-holding entity. Variation in exchange rates is recognized in the other items of comprehensive income as part of the translation effect, when the foreign transaction is consolidated. To this end, the Company designates the debt denominated in a foreign currency as a hedging instrument; therefore, the exchange rate effects caused by the debt are recognized in other components of compre- hensive 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 res- olution if such replacement or renewal is part of the Company's documented risk management objective, and it is consistent with this. On suspending hedge accounting, in the case of fair value hedges, the adjustment to the carrying amount of a hedged amount for which the effective interest rate method is used, is amortized to income over the period to maturity. In the case of cash flow hedges, the amounts accumulated in equity as a part of comprehensive income remain in equity until the time when the effects of the forecasted transaction affect income. In the event the forecasted transaction is not likely to occur, the income or loss accumulated in comprehensive income are immediately recognized in the consolidated statement of income. When the hedge of a forecasted transaction appears satisfactory and subsequently does not meet the effectiveness test, the cumulative effects in comprehensive income in stockholders' equity are transferred proportionally to the consolidated statement of income, to the extent the forecasted transaction impacts it. 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. i) 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 appropri- ate, 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 com- ponents, 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 85 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 circum- stances occur indicating that the carrying amount of the assets may not be recoverable. An impairment loss is recognized in the consolidated statement of income in other expenses, net, for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use. The residual value and useful lives of assets are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate. Gains and losses on disposal of assets are determined by comparing the sale value with the carrying amount and are recognized in other expenses, net, in the consolidated statement of income. j) 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 ob- tain 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 sepa- rate them and measure all payments as a single lease component; however, for the rest of the class of assets, the Company measures the lease liability only considering lease payments, while all of the services implicit in the payments, are recognized directly in the consolidated statement of income as operating expenses. To determine the lease term, the Company considers the non-cancellable period, including the probability to exercise any right to extend and/or terminate the lease term. Subsequently, the lease liability is measured increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and reducing the carrying amount to reflect the lease pay- ments 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 disburse- ment, the Company cancels the lease liability and the corresponding right-of-use asset, recognizing the difference immediately in the consolidated statement of income. k) Intangible assets Intangible assets are recognized in the consolidated statement of financial position when they meet the following conditions: they are identifiable, provide future economic benefits and the Company has control over such benefits. Intangible assets are classified as follows: i. Indefinite useful life These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2023, 2022 and 2021, no factors have been identified limiting the life of these intangible assets. 86 ii. Finite useful life These assets are recognized at cost less the accumulated amortization and impairment losses rec- ognized. 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. 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 recog- nized 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. Development expenditures that do not qualify for capitalization are recognized in income as incurred. Licenses Licenses acquired in a separate transaction are recorded at acquisition cost, while those acquired in a business combination are recognized at fair value at acquisition date. Licenses that have a defined useful life are presented at cost less accumulated amortization. Amortization is recorded by the straight-line method over its estimated useful life. The acquisition of software licenses is capitalized based on the costs incurred to acquire and use the specific software. Software development Costs associated with the maintenance of software are recorded as expenses as incurred. - - 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 disburse- ments 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. l) 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 accu- mulated 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. m) Impairment of non-financial assets Assets that have an indefinite useful life, for example, goodwill, are not amortizable or depreciable and are subject to annual impairment tests. Assets that are subject to amortization and depreciation 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 ex- ceeds 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. 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: The amount of income taxes in the consolidated statement of income represents the sum of the current and deferred income taxes. n) Income tax Technically, it is possible to complete the intangible asset so that it may be available for its use or sale; - - The intangible asset is to be completed for use or sale; - The ability to use or sell the intangible asset; - The way in which the intangible asset is to generate probable future economic benefits; The 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 meth- od, applying the rate established by the legislation enacted or substantially enacted at the consolidated statement of financial position date, wherever the Company operates and generates taxable income. The 87 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 ap- plicable law is subject to interpretation. Provisions are recognized when appropriate, based on the amounts expected to be paid to the tax authorities. The Company determines the net finance expense (income) by applying the discount rate to the liabili- ties (assets) from net defined benefits. Past-service costs are recognized immediately in the consolidated statement of income. ii. Post-employment medical benefits The Company provides medical benefits to retired employees after termination of employment. The right to access these benefits usually depends on the employee’s having worked until retirement age and completing a minimum of years of service. The expected costs of these benefits are accrued over the period of employment using the same criteria as those described for defined benefit pension plans. 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. iii. Termination benefits 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. o) 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: 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 pro- vision 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. 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. p) Provisions 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 con- formity 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. Provisions represent a present legal obligation or a constructive obligation as a result of past events where an outflow of resources to meet the obligation is likely and where the amount has been reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the ob- ligation 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. 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. When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likeli- hood of an outflow with respect to any one item included in the same class of obligations may be small. 88 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. q) 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 tech- nical 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. r) Capital stock When treasury shares are repurchased, they are converted into treasury shares and the amount is charged to stockholders' equity at their purchase price. These amounts are expressed at their historical value. 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 consider- ation received, net of tax. s) 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. price to each performance obligation in the contract; and (5) recognize revenue when the Company satis- fies a performance obligation. i. Revenue from the sale of goods and products Contracts with customers are formalized by commercial agreements complemented by purchase or- ders, whose costs comprise the promises to produce, distribute and deliver goods based on the con- tractual 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 dis- counts given to customers, without financing components or guarantees. These discounts are recog- nized 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 re- ceived before completing the performance obligations of production and distribution are recognized as customer advances. Dividend income from investments is recognized once the rights of stockholders to receive this payment have been established (when it is probable that the economic benefits will flow to the Company and the revenue can be reliably determined). t) 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, 2023, 2022 and 2021, there are no dilutive effects from financial instruments potentially convertible into shares. u) Changes in accounting policies and disclosures i. New standards and changes adopted 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 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, 2023. The conclu- sions related to their adoption are described as follows: 89 IFRS 17 – Insurance contracts IFRS 17 establishes principles for the recognition, measurement, presentation, and disclosure of insur- ance contracts. The objective of this standard, which replaces IFRS 4, Insurance Contracts, is to ensure that an entity provides relevant information that faithfully represents those contracts. This information provides a basis for users of financial statements to evaluate the effect that insurance contracts have on the financial position, financial performance, and cash flows of the entity, being applicable to both insurance companies and companies that have reinsurance contracts. Amendments to IAS 8 – Definition of accounting estimates The amendments replace the definition of a change in accounting estimates. Under the new definition, accounting estimates are “monetary amounts in the financial statements that are subject to measure- ment uncertainty.” The definition of a change in accounting estimates was eliminated. This IFRS describes a general model, which is modified for insurance contracts with direct participation features, which is described as the variable rate approach. The Company evaluated the modifications to IAS 8 and determined that the implementation of the change in the definition of accounting estimates did not have an impact on the consolidated financial statements since there is no present situation that implies a change in accounting estimates. The overall model is simplified if certain criteria are met when measuring liability for remaining coverage using the premium allocation method. The overall model will use current assumptions to estimate the amount, timing and uncertainty of future cash flows and will explicitly measure the cost of that uncertainty, considering market interest rates and the impact of options and guarantees. The Company had no implications in the adoption of this new IFRS, since the Company does not main- tain contracts that meet the definition of an insurance contract established by IFRS 17. Amendments to IAS 1, and Practice Statement 2 – Disclosure of accounting policies The amendments change the requirements to IAS 1 regarding the disclosure of accounting policies. The amendment replaces the terms “significant accounting policies” with “material accounting policies information.” Accounting policy information is material when it is considered that, together with other information included in the financial statements of an entity, it can influence the decision making of the primary users of the financial statements of general use and that they are made in the basis for said financial statements. The supporting paragraphs in IAS 1 are amended to clarify information on accounting policies that relate to immaterial transactions, other events or conditions that are themselves material. Accounting policy information may be material due to the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material. The IASB has developed guidance and examples to explain and demonstrate the application of the “four steps of the materiality process” described in the IFRS Practice 2 Statements. The Company undertook a process to define the accounting policies that are considered material, and not only significant, by making modifications to Note 3 of its consolidated financial statements, main- taining those accounting policies that, due to their nature and relevance, together with other information included in the consolidated financial statements, may influence decision-making. Amendments to IAS 12, Income Taxes – Deferred tax related to assets and liabilities arising from a single transaction The amendments introduced a further exception from the initial recognition. Under the amendments, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences on initial recognition. Following the amendments to IAS 12, an entity is required to recognize the related deferred tax assets and liabilities, with the recognition of any deferred tax assets being subject to the recoverability criteria in IAS 12. Depending on the applicable tax law, equal taxable and deductible temporary differences may arise on initial recognition of an asset and liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit. The Company evaluated the modification of IAS 12 and determined that the implementation of this mod- ification had no effect on its consolidated financial information, due to the fact that the Company has not previously applied the exception to initial recognition described above. Amendments to IAS 12, International tax reform – Pillar Two Model Rules The Company has adopted the amendments to IAS 12 for the first time in the current year. The IASB amends the scope of IAS 12 to clarify that the Standard applies to income taxes arising from tax law en- acted or substantively enacted to implement the Pillar Two model rules published by the OECD, including tax law that implements qualified domestic minimum top up taxes described in those rules. On July 18, 2023, the government of the United Kingdom, where the closest tier holding company is incorporated, enacted Pillar Two income tax legislation, effective from January 1, 2024. According to the legislation, the holding company must pay, in the United Kingdom, a complementary tax on the profits of its subsidiaries that are taxed at an effective tax rate of less than 15%. The main jurisdictions in which ex- posures to this tax may exist include countries in the Middle East. The estimated impact that the Second Pillar income tax legislation would have had on the Company’s results if it had been in effect for the year ended December 31, 2023, and the percentage of the Company’s annual profits that could be subject to this income tax, were considered not relevant to the Company’s consolidated financial statements. 90 The Company applied the temporary exception to the accounting requirements for deferred taxes in IAS 12, so the Company neither recognise nor discloses information about deferred tax assets and liabilities related to Pillar Two income taxes. transactions which the Company proposes to enter into, as well as the renewal or cancellation of deriva- tive arrangements, must be approved by both Alpek’s and Alfa’s CEO, according to the following schedule of authorizations: The Company will continue to evaluate the impact of the Pillar Two income tax legislation on its future financial performance. 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 amendments to IFRS that have been issued, but are not yet in force, and that the adoption of IFRS does not expect to have a material impact on the consolidated financial statements in future periods, consid- ering that they are not of significant applicability. The Company expects the impacts to be primarily re- lated to the disclosures included in its consolidated financial statements, primarily due to amendments to IAS 7 and IFRS 7. The amendments to IFRS are as follows: • Amendments to IFRS 16 – Lease liability on a sale and leaseback (1) • Amendments to IAS 7 and IFRS 7 – Supplier financing agreements (1) • Amendments to IAS 1 – Classification of Liabilities as Current or Non-current (1) • Amendments to IAS 1 – Classification of debt with covenants (1) • Amendments to IAS 21 – Lack of exchangeability (2) (1) Effective for annual reporting periods beginning on January 1, 2024. (2) Effective for annual reporting periods beginning on January 1, 2025. 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 in- dustries 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, Chief Financial Officer and a Risk Management Officer acting as technical secretary. The RMC reviews derivative transactions proposed by the subsidiaries of Alfa, including Alpek, in which a potential loss analysis surpasses US$1. This Committee supports both the CEO and the President of Board of Alfa. All new derivative 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, that they are the result of a detailed analysis and are properly documented. In addition, sen- sitivity analysis and other risk analyses should be performed and documented prior to the operation. Alfa's risk management policy indicates that hedging positions should always be less than the projected expo- sure 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 Capital management Current year 100 75 80 100 100 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 main- taining 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 stock- holders, return equity to stockholders, issue new shares or sell assets to reduce debt. 91 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 2.09, 1.62, and 1.50 as of December 31, 2023, 2022 and 2021, respectively, resulting in a leverage ratio that meets the Company’s management and risk policies. As of December 31, 2023 2022 2021 Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Financial instruments by category The following are the Company’s financial instruments by category. As of December 31, 2023, 2022 and 2021, financial assets and liabilities consist of the following: Financial assets: Non-current accounts receivable Financial liabilities: Non-current debt $ 2,456 $ 2,453 $ 3,344 $ 3,339 $ 3,471 $ 3,469 32,702 30,484 37,344 34,519 31,436 32,724 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) As of December 31, 2023 2022 2021 $ 7,391 $ 6,319 $ 10,541 322 553 13 13,236 3,140 19,669 3,960 20,725 4,085 95 10 351 $ 24,184 $ 30,511 $ 35,715 $ 33,337 $ 39,081 $ 31,993 25,995 3,456 30,505 3,624 27,657 3,608 265 1,241 254 $ 63,053 $ 74,451 $ 63,512 (1) The Company designated the derivative financial instruments that comprise this balance as accounting hedges, in accor- dance 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, 2023, 2022 and 2021. The carrying amount and estimated fair value of assets and liabilities valued at amortized cost is presented below: 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, 2023, 2022 and 2021 were determined based on discounted cash flows, using rates reflecting a similar credit risk, depending on the currency, maturity period and country where the debt was acquired. The primary rates used for financial liabilities are the Interbank Equilibrium Interest Rate (“TIIE” for its acronym in Spanish) for instruments in Mexican pesos, Secured Overnight Financing Rate (“SOFR”), for instruments in U.S. dollars, and EURIBOR, for instruments in Euros. 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 mea- surement at fair value is deemed within Levels 1 and 2 of the hierarchy, as described herein below. Market risks (i) Exchange rate risk The Company is exposed to foreign exchange risk, primarily derived from the transactions and balances that the subsidiaries conduct and have in foreign currency, respectively. A foreign currency is that which is different from the functional currency of an entity. In addition, the Company is exposed to changes in the value of foreign investments (subsidiary entities that have a functional currency different from that of the ultimate holding company), which arise from changes in the exchange rates between the functional currency of the foreign operation and the functional currency of the holding company (pesos); therefore, the Company applies hedge accounting to mitigate this risk, designating financial liabilities as hedging instruments, regardless of whether the foreign investment is directly or indirectly maintained through a subholding. The behavior of the exchange rates fluctuations between the Mexican peso, U.S. dollar and the euro rep- resents 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. MXN USD EUR Senior Notes 144A fixed rate 22 Alpek Polyester Ms 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 cur- rency of the subsidiary entities, translated to millions of Mexican pesos at the closing exchange rate as of December 31, 2023: Financial assets Financial liabilities $ 27,375 $ 32,273 $ 1,237 (25,232) (44,932) (304) Foreign exchange financial position $ 2,143 $ (12,659) $ 933 The exchange rates used to translate the foreign currency financial positions to Mexican pesos are those described in Note 3c. 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 $958 on the consolidated statement of income and consolidated stockholders' equity. Financial instruments to hedge net investments in foreign transactions The Company designated certain non-current debt instruments as hedging instruments to net investments in foreign transactions, in order to mitigate the variations in exchange rates arising between the functional currency for such transactions and the functional currency of the holding or sub-holding company that maintains these investments. The Company formally designated and documented each hedging relationship establishing objectives, strategy to hedge the risk, the identification of the hedging instrument, the hedged item, the nature of the risk to be hedged, and the methodology to assess the effectiveness. Given that the exchange rate hedging relationship is clear, the method that the Company used to assess the effectiveness consisted of a qualitative effectiveness test by comparing the critical terms between the hedging instruments and the hedged items. The hedge will be effective as long as the notional debt designated as a hedging instrument is equal to or less than the value of the net assets of the covered foreign operation. On the other hand, when the value of the net assets of the foreign operation is less than the notional value of the designated debt, the Company rebalances the hedging relationship and recognizes the ineffectiveness in the income statement. 22 251 95 120 92 As of December 31, 2023, 2022 and 2021, Alpek maintains the following hedging relationships: As of December 31, 2023 Holding Functional Currency Alpek SAB MXN Hedging Instrument Bank loan Bank loan Notional Value Hedged Item Net assets of the hedged item US$ 200 Indelpro US$ 254 100 Temex Senior Notes 144A fixed rate 100 Alpek Polyester México Akra Polyester US$ 422 US$ 742 As of December 31, 2022 Holding Functional Currency Hedging Instrument Notional Value Hedged Item Net assets of the hedged item Alpek SAB MXN Senior Notes 144A fixed rate US$ - Indelpro US$ Senior Notes 144A fixed rate 300 Temex Senior Notes 144A fixed rate 22 Alpek Polyester Ms Senior Notes 144A fixed rate 100 Alpek Polyester México Akra Polyester US$ 422 US$ As of December 31, 2021 240 68 232 82 195 817 Holding Functional Currency Hedging Instrument Notional Value Hedged Item Net assets of the hedged item Alpek SAB MXN Senior Notes 144A fixed rate US$ 49 Indelpro US$ Senior Notes 144A fixed rate 267 Temex Senior Notes 144A fixed rate 22 Alpek Polyester Ms Senior Notes 144A fixed rate 100 Alpek Polyester México Akra Polyester 261 42 240 101 179 US$ 438 US$ 823  For the years ended December 31, 2023, 2022 and 2021, the Company’s average hedging ratio amount- ed to 56.3%, 48.9%, and 54.9%, respectively. Therefore, the exchange rate fluctuation generated by the hedging instruments for the years ended December 31, 2023, 2022 and 2021 amounted to a net gain (loss) of $873, $545, and $(238), 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, 2023, 2022 and 2021, the Company holds forwards (EUR/USD) and during 2023 contracted forwards (GBP/USD), to hedge different needs. For 2023, 2022 and 2021, 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 rela- tionships to hedge the aforementioned items, and has formally documented these relationships, setting the objectives, management's strategy to hedge the risk, identification of hedging instru- ments, hedged items, the nature of the risk to be hedged and the methodology of the effectiveness assessment. The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are mentioned below: 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 Forwards EUR/USD 2023 2023 2022 2021 GBP 10 EUR 29 EUR 24 EUR 8.1 1.2639 1.0877 1.0738 1.2421 Monthly through December 30, 2024 Monthly through December 30, 2024 Monthly through December 30, 2023 Monthly through December 30, 2022 $(0) (2) - (0) 2 $(8) (10) - (8) 10 $(2) 1.6 - (2.3) (1.6) $17 15.9 - 16.5 (15.9) Change in the fair value of the forward (0) (5.7) (18.8) 28.4 93 As of December 31, 2023, 2022 and 2021, the Company held EUR/USD forwards that were contracted with the objective of reducing transaction costs; therefore, for accounting purposes and for hedge evalua- tion, derivatives are divided into synthetic derivatives to hedge each hedged item individually (revenue in euros and purchases in dollars). During 2023, the Company also contracted EUR/GBP forwards directly for this same hedging relationship. The Company determined that they are highly effective according to the characteristics and modeling of both hedged items, resulting in 99% effectiveness for 2023, 2022, and 2021. 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 and GBP/USD exchange rate for 2023 is 68%, for 2022 is 25%, and 55% for 2021. 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, 2023, 2022 and 2021, 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 pur- chases of certain raw materials, since these inputs have a direct or indirect relationship with the prices of its products. The derivative financial operations have been privately contracted with various financial institutions, whose financial strength was highly rated at the time by rating agencies. The documentation used to formalize the contract operations is that based generally on the "Master Agreement", generated by the "International Swaps & Derivatives Association" ("ISDA"), which is accompanied by various accessory documents known in generic terms as "Schedule", "Credit Support Appendix" and "Confirmation".  Regarding natural gas, Pemex is the only supplier in 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 2023, 2022 and 2021 was $2.5, $6.4, and $3.8, respectively. As of December 31, 2023, 2022 and 2021, the Company had hedges of natural gas prices for a portion ex- pected 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 pur- chases 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 Alpek Polyester USA, Alpek Polyester 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, management has documented, as a hedged item, a highly probable transaction in relation to the budget for purchases of these commodities. The conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are mentioned below: 94 As of December 31, 2023 Characteristics Natural Gas Swaps Paraxylene Swaps MEG Swaps Ethylene Swaps Propylene Swaps Total notional Units Price received 24,042,090 277,280 157,474 3,304,623 3,261,920 MMBtu MT MT LB LB Fair value Fair value Fair value Fair value Fair value Price paid (average) $3.9/MMBtu $1,019/MT $520/MT $.19/LB $.43/LB Maturity (monthly) Net position of the swap (1) Ineffectiveness recognized in the statement of income Change in the fair value to measure ineffectiveness Balance recognized in OCI, net of reclassifications Change in the fair value to measure ineffectiveness of hedge item January 2025 January 2025 January 2025 January 2024 August 2024 $(200) $28 - (189) (200) - 36 4 24 $8 - 26 (16) 24 190 (36) (26) $1 - - 1 - - $2 - - - 2 - Reclassification from OCI to profit or loss - Effectiveness test results 99.92% 99.89% 99.89% 99.92% 99.93% 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 As of December 31, 2022 Natural Gas Swaps Paraxylene Swaps MEG Swaps 70,973,855 272,650 136,350 MMBtu MT MT Fair value Fair value Fair value $4.43/MMBtu $970/MT $586/MT December 2024 January 2024 January 2024 $(950.3) $(140.8) $(137.6) - (1,086.2) - (950.3) - (219.1) 31.2 (172.0) 1,086.5 219.3 - (213.8) (49.6) (88.1) 213.9 Effectiveness test results 99.97% 99.92% 99.92% As of December 31, 2021 As of December 31, 2022 Asset Liability Total 95 Characteristics Total notional Units Price received Price paid (average) Maturity (monthly) Net position of the swap (1) Natural Gas Swaps Paraxylene Swaps Ethylene Swaps MEG Swaps 57,025,808 274,000 2,000,000 174,400 MMBtu MT Lb MT Fair value Fair value Fair value Fair value $1.69/MMBtu $821/MT $0.1544/lb $658/MT June 2024 January 2023 January 2022 January 2023 $ (154.8) $ 317.5 $ 6.4 $ (88.8) 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 - (147.2) - (154.8) - 363.7 87.9 229.4 147.2 (363.8) Effectiveness test results 99.96% 99.9% - 7.7 6.4 - (7.7) 100% - (96.9) 32.2 (121) 96.9 99.99% (1) Due to the high volume of operations, the net position of derivative financial instruments is presented; however, since these instruments do not meet the criteria for the offsetting of financial instruments, they are presented in their gross amounts in the consolidated statement of financial position. The change in the fair value of the derivative financial instruments recognized in OCI for the year ended December 31, 2023, 2022 and 2021 is $1,056, $(1,182), and $(592), respectively. The fair value of the derivate financial instruments according to their classification in the consolidated statement of financial position is as follows: As of December 31, 2023 Asset Liability Total Natural Gas $ Paraxylene Propylene MEG/Ethylene Forward Total $ - 54 2 36 3 95 $ (200) $ (200) (26) - (27) (12) 28 2 9 (9) $ (265) $ (170) Natural Gas $ Paraxylene MEG Forward Total $ - 10 - - 10 (950) (950) (151) (138) (2) (1,241) (141) (138) (2) (1,231) As of December 31, 2021 Asset Liability Total Natural Gas $ Paraxylene Ethylene MEG Forward - 323 6 5 17 $ (155) $ (155) (5) - (94) - 318 6 (89) 17 97 Total $ 351 $ (254) $ With the reference amounts of these derivative financial instruments, the Company offsets the fluctuation of the prices of these commodities that are used as raw material in the production processes of the entities. For commodity hedging relationships, management is designating as a hedged item a specific risk, which is defined by the underlying assets that are clearly determined that the risk component is separable, it can be reliably measured and is also highly correlated. On the other hand, in the measurement of the effectiveness of these hedges, the Company determined that they are highly effective because the changes in the fair value and cash flows of each hedged item are compensated within the range of effectiveness established by management. Due to the results shown on the effectiveness tests, it is confirmed that there is an economic relationship between the hedging instru- ments and the hedged item. The method used by the Company is to offset cash flows using a hypothetical derivative, which consists of comparing the changes in the fair value of the hedging instrument with the changes in the fair value of the hypothetical derivative that would result in a perfect hedge. As of December 31, 2023, 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 2023, 2022 and 2021 are shown below and, if necessary, a rebalancing will be done to maintain this relationship for the strategy. 96 Average coverage ratio Natural gas Paraxylene Ethylene/MEG Propylene 2023 17% 46% 32% 25% 2022 29% 45% 37% - 2021 21% 44% 47% - 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, 2023, 2022 and 2021, 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, 2023, 57% of the financing is denominated at a fixed rate, and 43% at a variable rate. As of December 31, 2023, 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 $332. Credit risk Credit risk represents the potential loss due to non-compliance of counterparts in their payment obliga- tions. Credit risk is generated from cash and cash equivalents, derivative financial instruments and depos- its 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 assess- ment. For the rest of the customers, the company carries out its classification according to the type of mar- ket 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 creditwor- thiness 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, 2023, 2022 and 2021, 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, 2023, 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 fi- nance department consolidates this information. The finance department of the Company continuously monitors the cash flow projections and liquidity requirements of the Company ensuring that sufficient cash and highly liquid investments are maintained to meet operating needs, and it’s that some flexibility is main- tained through open and committed credit lines. The Company regularly monitors and makes decisions ensuring that the limits or covenants set forth in debt contracts are not violated. The projections consider the financing plans of the Company, compliance with covenants, compliance with minimum liquidity ratios and internal legal or regulatory requirements. The Company’s treasury department invests those funds in time deposits and marketable securities whose maturities or liquidity allow flexibility to meet the cash needs of the Company. The following table analyzes the derivative and non-derivative financial liabilities of the Company, grouped according to their maturity, from the date of the consolidated statement of financial position to the con- tractual maturity date. Derivative financial liabilities are included in the analysis if their contractual matur- ities 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, 2023 Less than a year From 1 to 5 years More than 5 years 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. Suppliers and other accounts payable $ 25,996 $ - $ - — The fair value of forward exchange agreements is determined using exchange rates at the closing 97 18,770 19,837 — Other techniques such as the analysis of discounted cash flows, which are used to determine fair value balance date, with the resulting value discounted at present value. Current and non-current debt (excluding debt issuance costs) Derivative financial instruments 1,981 253 12 As of December 31, 2022 Suppliers and other accounts payable $ 30,505 $ - $ Current and non-current debt (excluding debt issuance costs) Derivative financial instruments As of December 31, 2021 8,445 1,220 19,183 21 Suppliers and other accounts payable $ 27,657 $ - $ Current and non-current debt (excluding debt issuance costs) Derivative financial instruments 3,519 248 10,540 6 - - 23,515 - - 25,828 - 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: of the remaining financial instruments. 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 5.1 Critical accounting estimates and assumptions. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will be, by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below: a) Estimated impairment of goodwill and intangible assets with indefinite useful lives The Company performs annual tests to determine whether goodwill and intangible assets with indefinite useful lives have suffered any impairment (see Note 12). For impairment testing, goodwill and intangible assets with indefinite lives are allocated to those groups of cash-generating units (“CGUs”) from which the Company has considered that economic and operational synergies of business combinations are gener- ated. 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: — 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 di- - rectly 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, 2023, 2022 and 2021, 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. 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. 98 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 com- pared to the book value of the asset or CGU being tested to determine if impairment or a reversal of im- pairment exist. d) Estimation of default probabilities and recovery rate to apply the model of expected losses in the calcula- tion 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 identifi- able 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. 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 incre- mental 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 op- tions 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 finan- cial 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: 7. TRADE AND OTHER RECEIVABLES, NET Trade and other accounts receivable, net are comprised as follows: Cash on hand and in banks Short-term bank deposits As of December 31, 2023 2022 2021 $ 5,898 $ 4,787 $ 1,493 1,532 7,784 2,757 Total cash and cash equivalents $ 7,391 $ 6,319 $ 10,541 Restricted cash The restricted cash balance is made up of cash whose restrictions cause the definition of cash and cash equivalents not to be met. 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. As of December 31, 2023, 2022 and 2021, the Company has restricted cash of approximately $322, $553, and $13, respectively. As of December 31, 2023, the decrease is primarily related to the release of cash restrictions in Octal, derived from the revocation of anti-dumping measures applicable to PET. As of December 31, 2022, the increase relates primarily to funds that were restricted as part of the Octal acquisition. Total 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 Trade accounts receivable $ 14,594 $ 21,377 $ 22,003 99 As of December 31, 2023 2022 2021 454 4,237 7 4 264 497 3,579 12 14 300 622 3,777 776 1 251 (2,087) (2,531) (2,928) $ 17,473 $ 23,248 $ 24,502 100 The changes in the impairment allowance for trade and other receivables in 2023, 2022 and 2021, with the expected losses model used by the Company, are as follows: For the year ended December 31, 2023: Customers or customer groups Alpek Polyester (1) Grupo Styropek (1) Polioles Indelpro and other (1) Total Default probability range 0%-100% 0% 0% 0.65% Loss given default range Opening balance – Impairment allowance Increases in the allowance Cancellations in the allowance Translation effect Ending balance – Impairment allowance 0%-100% 0%-10% 0%-5% 3.42% $ (2,362) $ (165) $ (109) (29) (31) (6) (8) (1) $ (2,531) $ (180) $ 63 102 28 16 209 $ 403 $ (2,061) 9 3 - (4) (6) (16) $ 415 $ (2,087) (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, 2022: Customers or customer groups Alpek Polyester (1) Grupo Styropek (1) Polioles Indelpro and other (1) Total Default probability range Loss given default range Opening balance – Impairment allowance Increases in the allowance Cancellations in the allowance Translation effect 0%-81% 0% 0% 0.81% 0%-99% 0%-10% 0%-5% 8.22% $ (2,596) $ (232) (23) (77) $ (87) (25) (7) - $ (2,928) $ (119) $ 159 115 - 46 320 $ $ 162 33 1 - 196 (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: Customers or customer groups Alpek Polyester (1) Grupo Styropek (1) Polioles Indelpro and other (1) Total Default probability range 0% - 81% 0% 0% 1.23% Loss given default range Opening balance – Impairment allowance Increases in the allowance Cancellations in the allowance Translation effect 0% - 98% 0%- 10% 0% - 10% 0.25% $ (2,521) $ (99) (28) (66) $ (2,714) $ (42) (129) - (17) (188) $ $ 41 - 6 6 53 $ $ (74) (4) (1) - (79) (1) The default probability range does not consider customers and groups of customers for which the probability is 100%. As of December 31, 2023, 2022 and 2021, the Company has guaranteed accounts receivable of $1,540, $2,322, and $3,506, respectively. Ending balance – Impairment allowance $ (2,362) (109) (29) (31) $ (2,531) Ending balance – Impairment allowance $ (2,596) (232) (23) (77) $ (2,928)  The net change in the allowance for impairment of trade and other receivables of $(444) y $(397) in the years ended December 31, 2023 and 2022, was primarily due to the decrease in the probability of default in certain customers compared to the beginning of the year, as well as the translation effect. On the other hand, the variation in the accounts receivable impairment estimate of $214, as of December 31, 2021, was mainly due to the increase in the probability of default in some 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 produc- tion 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 9. PREPAYMENTS The current portion and non-current portion of prepaid expenses is summarized as follows: Current portion (1) Non-current portion Total prepayments As of December 31, 2023 2022 2021 $ $ 744 $ 765 $ 686 6 7 750 $ 772 $ 31 717 As of December 31, 2023 2022 2021 (1) This item mainly consists of advance payments for raw materials and prepaid insurance. 101 Finished good $ 11,358 $ 16,229 $ 12,269 Raw material and other consumables Materials and tools Production in progress 9,020 2,383 561 14,320 2,585 759 10,746 2,255 435 $ 23,322 $ 33,893 $ 25,705 For the years ended December 31, 2023, 2022 and 2021, a provision amounting to $125, $255, and $94, respec- tively, related to damaged, slow-moving and obsolete inventory was recognized in the consolidated statement of income. As of December 31, 2023, 2022 and 2021, there were no inventories pledged as collateral. 102 10. PROPERTY, PLANT AND EQUIPMENT, NET 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 Ending balance as of December 31, 2021 As of December 31, 2021 Cost Accumulated depreciation and accumulated impairment Net carrying amount as of December 31, 2021 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 Ending balance as of December 31, 2022 As of December 31, 2022 Cost Accumulated depreciation and accumulated impairment Net carrying amount as of December 31, 2022 Land Buildings and constructions Machinery and equipment Vehicles Furniture, lab and information technology equipment Construction in progress Other fixed assets Total $ 3,956 $ 5,444 $ 23,888 $ - (36) - - 70 - 5 1 - (1) (256) 18 (290) 357 1,691 (162) (23) (965) 542 (2,554) 2,164 $ $ $ 3,995 3,995 - 3,995 $ $ $ 5,273 $ 24,581 16,716 (11,443) 5,273 $ 79,876 (55,295) $ 24,581 $ 3,995 $ 5,273 $ 24,581 - - - - (142) - - - 4,569 - (6) (327) (352) 199 11 6,904 (150) (135) (1,574) (2,756) 2,599 $ $ $ 3,853 $ 9,356 $ 29,480 3,853 $ 23,569 $ 88,533 - (14,213) (59,053) 3,853 $ 9,356 $ 29,480 $ $ $ $ $ $ $ 112 1 - (1) (2) 4 (16) 41 139 404 (265) 139 139 1 2 - - (9) (16) 14 131 440 (309) 131 $ $ $ $ $ $ $ $ 393 272 - - (7) 4 (97) 170 735 2,519 (1,784) 735 735 4 10 (1) - (64) (110) 161 735 2,617 (1,882) 735 $ 3,414 2,561 (28) (7) (111) 193 - (2,746) 3,276 3,276 - 3,276 3,276 2,986 335 (10) (5) (322) - (3,002) 3,258 3,258 - 3,258 $ $ $ $ $ $ $ $ 1,372 $ 38,579 112 - (88) (23) 31 - 2 4,638 (226) (120) (1,364) 862 (2,957) (7) $ $ $ 1,406 $ 39,405 1,406 $ 108,192 - (68,787) 1,406 $ 39,405 $ 1,406 $ 39,405 413 - (80) - (101) - - 3,415 11,820 (241) (146) (2,539) (3,234) (29) $ $ $ 1,638 $ 48,451 1,638 $ 123,908 - (75,457) 1,638 $ 48,451 For the year ended December 31, 2023 Opening balance Additions Disposals Impairment (2) Restatement and translation effect Depreciation charges recognized in the year Transfers Ending balance as of December 31, 2023 As of December 31, 2023 Cost Land Buildings and constructions Machinery and equipment Vehicles Furniture, lab and information technology equipment Construction in progress Other fixed assets Total 103 $ 3,853 $ 9,356 $ 29,480 $ - (8) (56) (338) - - - (10) (93) (844) (370) (1,261) 15 (72) (831) (3,791) (2,689) 3,548 $ $ 3,451 $ 6,778 $ 25,660 3,451 $ 17,460 $ 76,364 131 1 - (3) (18) (18) 31 124 369 (245) 124 $ 735 $ 3,258 $ 1,638 $ 48,451 7 (1) (26) (88) (112) 101 616 2,233 (1,617) 2,881 (16) (404) (384) - (2,408) 2,927 2,927 - $ $ 162 (179) (35) (190) - - 3,066 (286) (1,448) (5,653) (3,189) 11 $ $ 1,396 $ 40,952 1,396 $ 104,200 - (63,248) 616 $ 2,927 $ 1,396 $ 40,952 $ $ $ $ $ $ Accumulated depreciation and accumulated impairment - (10,682) (50,704) Net carrying amount as of December 31, 2023 $ 3,451 $ 6,778 $ 25,660 (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. (2) Mainly corresponds to $950 from the closure of the PET resin production operations at the Cooper River site, $409 from the closure of the filament production plant and the remainder to the Company's normal operations. Depreciation expenses of $3,134, $3,176, and $2,905 were recorded in cost of sales, $12, $11, and $10, in selling expenses and $43, $47, and $42, in administrative expenses in 2023, 2022 and 2021, respectively. 104 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, 2023, 2022 and 2021, is integrated as follows: Net carrying amount: Balance as of December 31, 2021 Balance as of December 31, 2022 Balance as of December 31, 2023 Depreciation for the year 2021 Depreciation for the year 2022 Depreciation for the year 2023 Land Buildings $ $ $ $ $ $ 109 368 294 (7) (29) (31) $ $ $ $ $ $ 799 661 576 (54) (60) (85) Machinery and equipment $ $ $ $ $ $ 934 781 472 (296) (309) (294) Rail cars $ $ $ $ $ $ 1,666 1,584 1,775 (437) (426) (436) Ships and other leased assets $ $ $ $ $ $ 46 58 53 (163) (166) (150) Total $ $ $ $ $ $ 3,554 3,452 3,170 (957) (990) (996) During the years ended December 31, 2023, 2022 and 2021, the Company recognized a lease expense of $559, $780, and $693, 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, 2023, 2022 and 2021 amounted to $1,409, $1,075, and $1,452, respectively. As of December 31, 2023, 2022 and 2021, 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. 12. GOODWILL AND INTANGIBLE ASSETS, NET Cost As of January 1, 2021 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 Additions Disposals Transfers Translation effect As of December 31, 2023 105 Development costs Non- compete agreements Customer relationships Patent Software and licenses Trademarks with definite life Intellectual property, and others Goodwill Other Total Definite life Indefinite life $ 950 $ 79 $ 1,032 $ $ 501 $ 215 $ 3,759 $ 399 $ 10 $ 6,945 - - - - - 12 1,044 - - - - - (47) 997 - - - - - - - - - - - - 1,638 - - - (30) 1,608 - - - 10 - - - 5 30 995 10 5 - - 5 (63) 952 7 - 2 (120) $ 841 $ - - - - - (2) 77 - - - - - (3) 74 - - - (3) 71 7 18 - (221) - 2 307 1 3 (31) (53) 60 (10) 277 24 (1) 9 (17) - 23 - - - (3) 235 - - - - (30) (7) 198 - - - 2 - (1) - - 138 3,898 1 - - (16) - (215) 3,668 - - - - - - - - 13 412 - - - - - (25) 387 - - - (17) (482) (49) - - - - - - 10 - - - - - (1) 9 - - - (1) 8 19 41 (1) (221) 5 190 6,978 12 1,646 (31) (69) 35 (401) 8,170 31 (1) 11 (1,009) $ 7,202 (104) (216) $ 893 $ 1,392 $ 292 $ 181 $ 3,186 $ 338 $ Amortization and Impairment Development costs Non- compete agreements Customer relationships Patent Software and licenses Trademarks with definite life Intellectual property, and others Goodwill Other Total Definite life Indefinite life 106 As of January 1, 2021 $ (586) $ (79) $ (561) $ 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 Amortization Disposals Translation effect (28) - - (18) - - - 2 (632) (77) (26) - - - (4) 43 (619) (24) - 82 - - - - - 3 (74) - - 3 (59) - - (15) (635) (59) - - - - 37 (657) (53) - 80 - - - - - - (98) - - - (7) 12 (93) (151) - 27 $ (305) $ (152) $ (1,625) $ (55) - 125 (1) (236) (11) (30) 31 53 (2) 9 (186) (8) 1 12 (5) - - 4 (153) (5) 30 - - - 3 (125) (4) - 8 (219) - - (53) (1,897) (216) - - 4 - 118 (1,991) (194) - 258 As of December 31, 2023 $ (561) $ (71) $ (630) $ (217) $ (181) $ (121) $ (1,927) $ - - - - - - - - - - - - - - - - - Net carrying amount Cost Amortization and impairment As of December 31, 2021 Cost Amortization and impairment As of December 31, 2022 Cost Amortization and impairment $ $ $ $ 995 $ $ (632) 363 952 (619) 333 841 (561) As of December 31, 2023 $ 280 $ 77 (77) - 74 (74) - 71 (71) - $ 307 $ 235 $ 3,898 - - - 1,608 (93) $ 1,044 (635) $ 409 $ $ $ 997 (657) 340 893 (630) $ 1,515 $ 1,392 (217) $ (236) 71 277 (186) 91 292 (181) $ $ (153) 82 198 (125) 73 181 (121) (1,897) $ 2,001 3,668 (1,991) $ $ 412 - 412 387 - $ 1,677 $ 387 $ 3,186 (1,927) 338 - $ 263 $ 1,175 $ 111 $ 60 $ 1,259 $ 338 $ $ $ $ $ - - - - - - - - - - - - - - - - 10 - 10 9 - 9 8 - 8 $ (3,308) (366) - 125 (81) (3,630) (415) - 31 57 (13) 225 (3,745) (434) 1 470 $ (3,708) $ 6,978 (3,630) $ 3,348 8,170 (3,745) $ 4,425 7,202 (3,708) $ 3,494  Of the total amortization expense, $425, $401, and $352 have been recorded in cost of sales and $9, $14, and $14 in administrative and selling expenses in 2023, 2022 and 2021, respectively. 13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD AND OTHER NON-CURRENT ASSETS 107 Incurred research and development expenses that have been recorded in the 2023, 2022 and 2021 consolidat- ed statements of income were $68, $68, and $67, 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, 2023, 2022 and 2021, goodwill of $338, $387, and $412, 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 dis- count rate and a possible decrease in the long-term growth rate at a similar level. As a result of this analysis, the Company concluded that there are no significant variations compared to the impairment calculation prepared as of December 31, 2023. The key assumptions used in calculating the value in use in 2023, 2022 and 2021, were as follows: Estimated gross margin Growth rate Discount rate 2023 2022 2021 8.3% 2% 9.1% 8.3% 2.1% 8.9% 8.6% 1.9% 8.5% As of December 31, 2023 2022 2021 $ 1,693 $ 2,495 $ 2,595 763 684 849 616 876 614 4,085 9,045 906 143 Notes receivable (1) Due from related parties (Note 28) Trade receivables related with business acquisitions Total other non-current financial assets $ 3,140 $ 3,960 $ Investment in associates and joint ventures Recoverable taxes Other 261 886 94 9,162 765 100 Total investments accounted for using the equity method and other non-current assets $ 4,381 $ 13,987 $ 14,179 (1) As of December 31, 2023, 2022 and 2021, this item mainly consisted of the financing provided to M&G Polímeros México, S.A. de C.V. The Company’s account of investments in associates and joint ventures consists of the following: Shareholding % 2023 2022 2021 Clear Path Recycling, LLC 49.90% $ 105 $ Terminal Petroquímica Altamira, S.A. de C.V. Agua Industrial del Poniente, S.A. de C.V. Corpus Christi Polymers LLC (1) Investment in associates and joint ventures as of December 31 42.04% 47.59% 33.33% 61 95 - $ 201 55 88 251 43 81 8,818 8,670 $ 261 $ 9,162 $ 9,045 (1) As a result of the temporary pause in the construction of the plant described in Note 2d, the Company determined that there were indications of impairment in its investment, therefore, based on the requirements of IAS 36, Impairment of Assets, the Company recognized an impairment of its investment in the joint venture of $9,591 during the year ended December 31, 2023.  Below is summarized the net loss of investments in associates and joint ventures, which are accounted for by the equity method of the Company: The summarized consolidated financial information as of December 31, 2023, 2022 and 2021, and for the years then ended, corresponding to each subsidiary with a significant non-controlling interest is shown below: 108 Net comprehensive loss $ (557) $ (175) $ (121) 2023 2022 2021 There are neither commitments nor contingent liabilities regarding the Company's investment in associates and joint ventures as of December 31, 2023, 2022 or 2021. 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 (loss) for the period Non-controlling interest as of December 31, 2023 2022 2021(1) 2023 2022 2021(1) Indelpro, S. A. de C. V. and subsidiary Polioles, S. A. de C. V. and subsidiary Other 49% $ 885 $ 1,967 $ 2,341 $ 3,887 $ 4,461 $ 5,160 50% 145 (149) 120 135 53 46 487 156 438 392 366 344 $ 881 $ 2,222 $ 2,440 $ 4,530 $ 5,291 $ 5,870 (1) During 2021, these entities merged their subsidiaries due to the effects of the labor reform in México. Statement of financial position Current assets Non-current assets Current liabilities Non-current liabilities Stockholders’ equity Statements of income Revenues Indelpro, S. A. de C. V. and subsidiary Polioles, S. A. de C. V. and subsidiary 2023 2022 2021(1) 2023 2022 2021(1) $ 3,972 $ 4,210 $ 6,790 $ 962 $ 1,250 $ 1,451 6,605 7,769 8,372 1,038 2,638 1,211 1,433 1,836 7,933 9,105 1,993 10,531 815 508 295 974 932 648 659 875 998 867 850 732 10,442 18,553 22,589 3,023 3,546 2,954 Consolidated net income 1,807 4,015 4,778 Total comprehensive income of the year Comprehensive income attributable to non-controlling interest Dividends paid to non-controlling interest Statements of cash flows Net cash flows generated by operating activities Net cash flows (used in) generated by investing activities Net cash flows used in financing activities Net increase (decrease) in cash and cash equivalents 636 3,459 5,150 312 1,695 2,524 886 2,394 1,816 289 152 76 27 240 164 82 10 1,838 5,215 4,156 206 346 (134) (193) (446) (47) (64) (2,057) (5,162) (3,988) (351) (164) (261) (422) (132) (226) (220) 90 (66) 107 113 57 10 133 57 (1) During 2021, these entities merged their subsidiaries due to the effects of the labor reform in México. 109 15. TRADE AND OTHER ACCOUNTS PAYABLE Trade accounts payable Short-term employee benefits Advances from customers Taxes other than income taxes Due to related parties (Note 28) Other accrued accounts and expenses payable 16. DEBT As of December 31, 2023 2022 2021 $ 24,650 $ 28,493 $ 25,595 Non-current: 709 54 371 153 1,192 827 76 577 224 1,788 1,263 242 691 261 1,801 Senior Notes Unsecured bank loans Other loans Total Less: current portion of non-current debt $ 27,129 $ 31,985 $ 29,853 Less: interest generated by non-current debt As of December 31, 2023 2022 2021 $ 18,648 $ 27,271 $ 30,895 14,177 127 32,952 - (304) 10,177 147 37,595 (5,803) (423) 619 156 31,670 (1,931) (406) Non-current debt $ 32,648 $ 31,369 $ 29,333 As of December 31, (1) As of December 31, 2023, 2022 and 2021, short-term bank loans and notes payable incurred interest at an annual average rate of 9.56%, 6.15%, and 1.40%, respectively. 2023 2022 2021 (2) The fair value of bank loans and notes payable approximates their current carrying amount because of their short maturity. Current: Bank loans (1) Current portion of non-current debt Notes payable (1) Interest payable Current debt (2) $ 343 $ 1,466 $ - - 346 5,803 - 443 279 1,931 42 408 $ 689 $ 7,712 $ 2,660  The carrying amounts, terms and conditions of non-current debt are as follows: 110 Description Senior Notes 144A/Reg. S / fixed rate Senior Notes 144A/Reg. S / fixed rate Senior Notes 144A/Reg. S / fixed rate Senior Notes 144A/Reg. S / fixed rate Total Senior Notes Bank loan, LIBOR + 2.60% Bank loan, SOFR + 1.00% Bank loan, SOFR + 1.71% Bank loan, SOFR + 1.6% Bank loan, SOFR + 1.05% 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 Currency Outstanding Balance Debt issuance costs Interest payable Balance as of December 31, 2023 (1) Balance as of December 31, 2022 (1) Balance as of December 31, 2021 (1) Maturity date Interest rate USD USD USD USD USD USD USD USD USD USD USD USD USD USD $ $ - - 8,433 10,094 18,527 - 2,112 85 97 3,379 1,689 3,379 1,689 1,689 14,119 127 32,773 - $ - - (42) (53) (95) - - - - - (7) (8) (8) (7) (30) - (125) - - - 102 114 216 - - - 1 37 10 20 10 10 88 - 304 (304) $ - - 8,493 10,155 18,648 - 2,112 85 98 3,416 1,692 3,391 1,691 1,692 14,177 127 32,952 $ - $ 1,941 20-nov-22 5,926 9,722 11,623 27,271 486 - - - - 1,936 3,882 1,936 1,937 10,177 147 37,595 6,290 10,324 12,340 30,895 08-aug-23 18-sep-29 25-feb-31 619 3-dec-24 01-may-26 29-jun-27 20-jun-26 21-jul-28 6-apr-27 7-apr-27 6-may-27 6-apr-27 - - - - - - - - 619 156 31,670 4.50% 5.38% 4.25% 3.25% 2.77% 6.36% 7.06% 6.94% 6.44% 6.39% 6.43% 6.39% 6.39% Various Various Non-current debt $ 32,773 $ (125) $ - $ 32,648 $ 31,369 $ 29,333 (1) As of December 31, 2023, 2022 and 2021, issuance costs of the debt pending amortization were $125, $171, and $172, respectively. (304) (6,226) (2,337)  As of December 31, 2023, the annual maturities of non-current debt, including current portion and interest payable, and gross from issuance costs are as follows: 17. LEASE LIABILITY 2024 2025 2026 2027 and thereafter Total Current portion: Senior Notes Bank loans Other loans $ $ - - - - $ $ - - - - $ - $ 18,743 $ 18,743 2,209 - 11,998 127 14,207 127 $ 2,209 $ 30,868 $ 33,077 As of December 31, 2023, 2022 and 2021, the Company has committed unused lines of credit totaling US$584, US$610, and US$560, respectively. USD MXN Other currencies Current lease liability Non-current portion: USD MXN Other currencies Covenants: Less: Current portion of lease liability 111 As of December 31, 2023 2022 2021 $ 454 $ 128 119 701 $ 537 121 163 821 $ $ 2,671 $ 2,686 261 524 3,456 (701) 308 630 3,624 (821) $ $ $ 462 123 148 733 2,641 304 663 3,608 (733) Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, which include the following: Non-current lease liability $ 2,755 $ 2,803 $ 2,875 a) Interest hedge ratio: it is calculated by dividing the profit before financial result, net, share of result of asso- ciates 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. As of December 31, 2023, 2022 and 2021, respectively, changes in the lease lability related to finance activities in accordance with the consolidated statement of cash flow are integrated as follows: 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. Beginning balance New contracts (1) Write-offs Additionally, there are other restrictions in regards of incurring additional debt or making loans that require mortgaging assets, dividend payments and submission of financial information, which if not met or remedied within a specified period to the satisfaction of creditors may cause the debt to become payable immediately. During 2023, 2022 and 2021, the financial ratios were calculated according to the formulas set forth in the loan agreements. As of December 31, 2023 and the date of issuance of these consolidated financial statements, the Company complied satisfactorily with such covenants and restrictions. Adjustment to liability balance Interest expense from lease liability Lease payments Exchange (loss) gain Ending balance (1) Includes lease liabilities assumed in business acquisitions. 2023 2022 2021 $ 3,624 $ 3,608 $ 1,409 (251) 51 231 (1,170) (438) 1,147 (8) (23) 206 (1,109) (197) 3,010 1,435 (32) 9 178 (1,049) 57 $ 3,456 $ 3,624 $ 3,608 112 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 Dismantling, demolition and environmental Legal As of December 31, 2023 2022 2021 $ 701 $ 821 $ 1,579 1,176 1,669 1,134 733 1,681 1,194 $ 3,456 $ 3,624 $ 3,608 As of December 31, 2023, 2022 and 2021, the provisions shown in the table above mainly include $103, (US$6), $215 (US$11), and $48 (US$2), respectively, related to the obligation to give back to Petrobras certain tax credits, in case they are recovered by Alpek Polyester Pernambuco and Alpek Polyester Brasil, as well as $673, (US$40), $595 (US$31), and $605 (US$29) for labor, civil and tax contingencies also derived from the acquisition of Alpek Polyester Pernambuco and Alpek Polyester Brasil, for which the Company holds an account receivable, includ- ed in other non-current assets, for $684, (US$40), $616 (US$32), and $614 (US$30) as of December 31, 2023, 2022 and 2021, respectively. As of December 31, 2021, $153 (US$7.5) were related to the contingent liability for the earn-out payment related to the acquisition of Selenis. As of December 31, 2022 and 2023 there is no balance for this concept. Additionally, as of December 31, 2023 and 2022, $308 (US$18.3) and $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. remediation contingencies Warranties Other(1) Total 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 senior- ity premiums and health-care expenses. Below is a summary of the main financial data of such employee benefits: As of January 1, 2021 $ Increases Payments Write-offs Translation effect As of December 31, 2021 Increases Payments Write-offs Translation effect As of December 31, 2022 Increases Payments Write-offs Translation effect As of December 31, 2023 $ 187 131 (2) (193) 11 134 - (74) - (4) 56 379 (112) (1) (28) 294 $ 574 342 (3) (10) (25) 878 78 (145) (214) 8 605 138 - (40) (29) $ $ 38 - (38) 371 152 - (154) - 369 1,166 (235) (76) (31) 1,193 241 (745) (35) (134) $ 1,170 625 (43) (357) (14) 1,381 1,244 (454) (290) (27) 1,854 758 (857) (76) (191) - - - - - - - - - - - - - Employee benefit obligations: Pension benefits Post-employment medical benefits Defined contribution plans $ 674 $ $ 520 $ 1,488 Employee benefits in the consolidated statement of financial position (1) As of December 31, 2023 and 2022, the increases in "others" are mainly made up of the contingent consideration for the ac- Charge to the consolidated statement of income for: quisition of Octal businesses for $904 (see Note 2), as well as reimbursement for taxes to be recovered from Petrobras $215. Short-term provisions Long-term provisions As of December 31 2023 2022 2021 $ 749 739 $ 794 $ 1,060 546 835 $ 1,488 $ 1,854 $ 1,381 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 As of December 31, 2023 2022 2021 $ $ $ $ $ $ $ 439 61 500 380 $ 612 64 676 349 598 99 697 332 880 $ 1,025 $ 1,029 (271) (4) (275) (5) 285 $ $ $ $ (76) (3) (79) (39) 290 $ $ $ $ (79) (4) (83) 453 329 113 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-em- ployment medical benefit schemes mainly in its subsidiary Alpek Polyester USA. The method of accounting, assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes. Most of these plans are not being funded. Amounts recognized in the consolidated statement of financial position are determined as follows: As of December 31, 2023 2022 2021 The movement in the fair value of plan assets for the year is as follows: As of January 1 Interest income Remeasurements – return on plan assets, excluding interest income Translation effect Contributions Benefits paid As of December 31 2023 2022 2021 $ (2,431) $ (3,632) $ (3,394) (104) (83) 257 (6) 332 (87) 754 183 - 351 (73) (299) (96) (14) 244 $ (2,035) $ (2,431) $ (3,632) Present value of defined benefit obligations $ 2,535 $ 3,107 $ 4,329 Fair value of plan assets (2,035) (2,431) (3,632) The amounts recorded in the consolidated statement of income for the years ended December 31 are the following: Liability in the statement of financial position $ 500 $ 676 $ 697 The movements of defined benefit obligations are as follows: Service cost Interest cost, net 2023 2022 2021 Effect of plan curtailments and/or settlements 2023 2022 2021 $ (43) $ (69) $ (251) 19 (10) - 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, $ 3,107 $ 4,329 $ 4,455 Total included in personnel cost $ (275) $ (79) $ 44 147 3 78 (323) (501) - - (20) 69 98 4 (715) 1 (219) (461) - 2 (1) 69 100 6 (154) - 148 (299) - 18 (14) $ 2,535 $ 3,107 $ 4,329 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, 2023 2022 2021 9.75% 4.83% 3.50% 5.50% 7.00% 9.25% 7.75% 4.96%-5.06% 2.42%-2.64% 3.50% 5.00% 7.00% 3.50% 4.50% 7.00% (69) (28) 14 (83) 114 The sensitivity analysis of the discount rate for defined benefit obligations is as follows: a. Income taxes recognized in the consolidated statement of income are as follows: Effect in defined benefit obligations Change in assumption Increase in assumption Decrease in assumption Discount rate MX 1% Decrease by $61 Increase by $65 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. Current income tax Deferred income taxes Income taxes expenses 2023 2022 2021 $ (2,358) $ (5,345) $ (4,304) 1,631 (164) 189 $ (727) $ (5,509) $ (4,115) b. The reconciliation between the statutory and effective income tax rates is as follows: 2023 2022 2021 (Loss) income before income taxes $ (9,306) $ 21,475 $ Defined benefit plan assets Plan assets are comprised as follows: As of December 31, Income tax rate Statutory income tax rate expense (Less) add income tax effect on: Annual adjustment for inflation 2023 2022 2021 Cancellation of tax losses Equity instruments Fixed income $ 1,590 $ 1,899 $ 445 532 1,341 2,291 Fair value of plan assets $ 2,035 $ 2,431 $ 3,632 20. INCOME TAXES 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: 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 30% 2,792 (253) - (2,941) 164 (128) 88 (388) (61) 30% (6,443) (896) - 22 1,493 200 (52) 147 20 14,311 30% (4,293) (189) (805) (18) 934 179 101 (36) 12 2023 2022 2021 Total income taxes Effective tax rate $ (727) $ (5,509) $ (4,115) 8% 26% 29% United States Brazil Argentina Chile Canada Spain United Kingdom Omán (1) 21% 34% 35% 27% 21% 34% 35% 27% 26.5% 26.5% 25% 25% 15% 25% 19% 15% 21% 34% 30% 27% 26% 25% 19% - (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. c. The breakdown of the deferred tax asset and deferred tax liability is as follows: Asset (liability) December 31, Deferred income tax assets are recognized on tax loss carryforwards to the extent the realization of the re- lated tax benefit through future tax income is probable. Tax losses amount to $24,034, $25,062, and $26,843 in 2023, 2022 and 2021, respectively. 2023 2022 2021 Tax losses as of December 31, 2023 expire in the following years: 115 Property, plant and equipment $ (708) $ (80) $ Intangible assets Debt issuance costs Provisions Derivative financial instruments Tax loss carryforwards Tax credits, impairment allowance and other Effect of tax rates of other countries and changes in tax rates Deferred tax asset Inventories Property, plant and equipment, net Intangible assets Tax loss carryforwards Non-deductible interest, provision allowance and others Effect of tax rates of other countries and changes in tax rates $ $ (128) (1) 237 2 413 1,604 (85) (131) (11) 174 286 652 828 (9) 1,334 $ 1,709 $ 1,630 40 $ (22) $ (5,753) (143) 250 1,498 (3,557) (148) 693 808 140 325 236 9 (94) (20) 306 46 601 805 (23) (72) (6,601) (282) 780 1,815 Deferred tax liability $ (2,024) $ (3,845) $ (4,124) Loss for the year incurred Tax-loss carryforwards Expiration year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Other $ $ 1 15 14 62 28 18 20 25 481 3,023 20,347 24,034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 and thereafter No maturity As of December 31, 2023, the Company holds tax losses to be amortized in Brazil, through Suape and Citepe, for an amount of $20,347, 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 differenc- es; thus, as of December 31, 2023, they do not generate deferred tax assets. d. Income tax related to other comprehensive income is as follows: 2023 2022 2021 Before taxes Tax charged After taxes Before taxes Tax charged After taxes Before taxes Tax charged After taxes 116 - - (109) 161 52 $ (1) 110 344 (431) $ 22 Equity in other comprehensive income of associates and joint ventures recognized through the equity method $ (1) $ Foreign currency translation effect Remeasurement of employee benefit obligations Effect of derivative financial instruments designated as cash flow hedges (5,923) 5 - - - $ (1) $ 1 $ (5,923) (2,652) (39) - - 20 $ 1 $ (1) $ (2,652) (19) 110 453 1,056 (291) (1,182) 327 (855) (592) 5 765 Other comprehensive income $ (4,863) $ (291) $ (5,154) $ (3,872) $ 347 $ (3,525) $ (30) $ e. Income tax payable consists of the following: Current portion Non-current portion (1) Total income tax payable As of December 31, 2023 2022 2021 $ $ 390 $ 1,410 $ 1,630 - - 390 $ 1,410 $ 241 1,871 (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 $372, which will have to be paid during 2023. 21. OTHER NON-CURRENT LIABILITIES Advances from customers (1) Other (2) Total other non-current liabilities As of December 31, 2023 2022 2021 $ $ 62 431 $ 128 $ 432 493 $ 560 $ 196 50 246 (1) This item corresponds to revenues charged in advance and relates to the future delivery of goods. (2) As of December 31, 2023 and 2022, is mainly related to the amount pending of payment for the acquisition of Octal (see Note 2e). 117 22. STOCKHOLDERS' EQUITY As of December 31, 2023, capital stock is variable, with a fixed minimum of $6,052 represented by 2,118,163,635 outstanding, ordinary, nominative shares, "Class I" Series "A", with no par value, fully subscribed and paid in. The variable capital entitled to withdrawal will be represented, if issued, by registered "Class II" Series "A" shares without par value. As of December 31, 2023, Alpek SAB had 11,455,648 treasury shares, coming from the own share repurchase program. As of such date, the market value per share was $12.64 Mexican pesos. From February to December 2023, the Company purchased 13,259,517 shares in the amount of $222 and sold 12,720,936 shares in the amount of $212 with a repurchase program that was approved by the Company's stock- holders and exercised discretionally by Management. From February to December 2022, the Company pur- chased 9,095,421 shares in the amount of $246 and sold 6,560,342 shares in the amount of $180 in connection to the same program. 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. 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, 2023, 2022 and 2021, the legal reserve amounts to $1,210. On March 7, 2023, the Company held an Ordinary General Meeting of stockholders, at which the payment of a cash dividend per share of US$0.0755, equivalent to approximately US$2,866 (US$159), was approved in a single instalment, which was paid in a single instalment on March 16, 2023. On October 31, 2022, the Company’s Board of Director, through the powers delegated at the Ordinary General Meeting of stockholders 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. The Income Tax Law establishes a tax rate of 10% to the dividends paid to foreign residents and Mexican indi- viduals 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”, for its acro- nym in Spanish). Any dividends paid in excess of this account will cause an income tax charge based on the tax rate valid in the period in which they are paid. This tax is payable by the Company and may be credited against its income tax in the same year or the following two years. Dividends paid from profits which have previously paid income tax are not subject to tax withholding or to any additional tax payment. As of December 31, 2023, the value of the Capital Contribution Account (“CUCA”, for its acronym in Spanish) amounted to $25,847. The tax value of the CUFIN amounted to $5,274. 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: On March 3, 2022, the Company held an Ordinary General Meeting of stockholders, at which the payment of a cash dividend per share of US$0.0820, equivalent to approximately US$3,628 (US$173), was approved in a single instalment, which was paid in a single instalment on March 14, 2022. Alfa, S. A. B. de C. V. Alpek, S. A. B. de C. V. 2023 15.68 12.89 2022 2021 15.80 27.64 15.26 22.25 On October 26, 2021, the Company’s Board of Director, through the powers delegated at the Ordinary General Meeting of stockholders 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. The short-term and long-term liabilities are comprised as follows: On March 9, 2021, the Company held an Ordinary General Meeting of stockholders, at which the payment of a cash dividend per share of US$0.0596, equivalent to approximately US$2,677 (US$126), was approved in a single instalment, which was paid in a single instalment on April 6, 2021. Short term Long term Total carrying amount As of December 31, 2023 2022 2021 $ $ $ 9 27 36 $ 11 28 39 $ $ 12 25 37 24. EXPENSES CLASSIFIED BY THEIR NATURE 26. FINANCE INCOME AND COSTS 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: Financial result, net for the years ended December 31, are comprised as follows: 2023 2022 2021 2023 2022 2021 118 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 service Other (insurance and bonds, water, containers and packing, etc.) Total $ (101,752) $ (150,143) $ (105,257) Financial income: (6,976) (193) (2,514) (4,619) (12) (8,487) (4,400) (180) (583) (7,538) (69) (2,833) (4,639) (2) (9,993) (6,628) (188) (780) (7,348) (51) (2,301) (4,280) Interest income on short-term bank deposits Interest income on loans from related parties Other financial income Total financial income (1) Financial expenses: (6,931) (5,264) (66) (722) Interest expense on bank loans Non-bank interest expense Lease interest expense Interest cost on employee benefits, net (1,727) (2,216) (1,839) (2,270) (3,315) (3,513) $ (133,713) $ (188,344) $ (137,573) 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 $ $ $ $ 724 25 568 1,317 $ $ 271 26 625 922 $ 140 26 424 $ 590 (1,009) (1,116) (231) (46) (1,580) (3,982) 23,168 (23,171) (3) (2,668) (392) (1,422) (206) (16) (1,188) (3,224) 8,585 (9,280) (86) (2,284) (178) (59) (475) (3,082) 1,614 (2,266) $ $ (695) $ (652) (2,997) $ (3,144) 25. OTHER INCOME (EXPENSES), NET Other income (expense) for the years ended December 31, are comprised as follows: Gain on business combination (1) Other income, net (2) Impairment long-lived assets (3) Total 2023 2022 2021 $ - $ 195 (11,078) $ 425 269 (246) 29 274 (1,460) $ (10,883) $ 448 $ (1,157) (1) For the year ended December 31, 2022, corresponds to the gain on the acquisition of Octal (see Note 2e). (2) For the year ended December 31, 2021, includes $8.7 from the cancellation of ContourGlobal joint venture. (3) For the year ended December 31, 2023, it primarily includes impairment expense on investment in CPP's joint venture, and long- lived assets from the closure of the filament plant and the closure of the PET resin production operation at the Cooper River site. 27. EMPLOYEE BENEFIT EXPENSES Employee benefits expenses for the years ended December 31, are as follows: Salaries, wages and benefits $ (5,566) $ (5,660) $ (5,766) 2023 2022 2021 Social security fees Employee benefits Other fees Total (604) (73) (733) (608) (95) (1,175) (426) (53) (1,103) $ (6,976) $ (7,538) $ (7,348) 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. 119 2023 2022 2021 Costs / expenses Purchase of finished goods and raw materials: Stockholders with significant influence over subsidiaries (647) (764) (2,120) Expenses from services: 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. Alfa Affiliates 28. RELATED PARTY TRANSACTIONS Stockholders with significant influence over subsidiaries Affiliates outside Alfa (Nemak) Transactions with related parties during the years ended December 31, 2023, 2022 and 2021 were as follows: Other expenses: 2023 2022 2021 Associates and joint ventures Affiliates (348) (146) (13) - (49) (71) 1 - (338) (86) (14) (4) (28) (59) - (43) (16) (252) (14) (6) (30) (77) - - (2,447) (6,138) (3,055) (1,474) (2,404) (1,826) Stockholders with significant influence over subsidiaries Affiliates outside Alfa Dividends paid to Alfa Dividends of subsidiaries to shareholders with significant influence For the year ended December 31, 2023, the remunerations and benefits received by the top officers of the Company amounted to $410 ($424 in 2022 and $409 in 2021), 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. Income Income from sale of goods: Stockholders with significant influence over subsidiaries $ 1,522 $ 1,903 $ 1,576 Income from services: Affiliates Stockholders with significant influence over subsidiaries Income from financial interest: Alfa Affiliates 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 12 171 23 3 34 95 34 - 1 2 12 207 26 - 38 156 31 - 2 2 13 198 26 - 38 121 29 288 - - As of December 31, balances with related parties are as follows: Nature of the transaction As of December 31, 2023 2022 2021 Nature of the transaction As of December 31, 2023 2022 2021 120 Short-term accounts receivable: Holding company Alfa, S. A. B. de C. V. Affiliates Innovación y Desarrollo de Energía Administrative services $ 87 $ 140 $ 174 Alfa Sustentable, S. A. de C. V. Administrative services 115 115 115 Newpek, LLC Terza, S. A. de C. V. Administrative services Sale of goods 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 Carnes el Tangamanga S.A. de C.V. Affiliates outside Alfa Nemak México, S. A. de C. V. Associates Energetics Energetics Energetics Energetics Energetics Energetics - - 3 4 - 1 1 - Clear Path Recycling, LLC Financing and interest 63 Stockholders with significant influence on subsidiaries 1 1 3 5 1 1 - - - 1 1 4 6 1 1 - 1 - BASF Basell Basell Sale of goods Sale of goods Energetics 120 60 - 184 40 6 286 26 6 $ 454 $ 497 $ 622 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. Affiliates Alliax, S. A. de C. V. Axtel, S. A. B. de C. V. Financing and interest $ $ 763 763 $ $ 849 849 $ $ 876 876 Administrative services $ 37 $ 65 $ 19 Administrative services Administrative services Servicios Eficientes de R.H., S. A. de C. V. Administrative services Transportación Aérea del Norte, S. A. de C. V. Administrative services Newpek, S. A. de C. V. Administrative services Servicios Empresariales del Norte, S. A. de C. V. Administrative services Affiliates outside Alfa Nemak Exterior, LTD Associates Tepeal Stockholders with significant influence over subsidiaries BASF BASF Basell Administrative services Administrative services Purchase of raw materials Purchase of products Energetics 5 4 - - - 2 - 6 87 - 12 4 6 - - 8 2 - 1 138 - - 2 8 2 1 - - 1 - 202 26 - $ 153 $ 224 $ 261 (1) As of December 31, 2023, 2022 and 2021, the loans granted bore interest at average fixed interest rate of 5.34%, 5.34%, and 5.34%, respectively. 121 29. SEGMENT REPORTING For the year ended December 31, 2022: 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. Statement of income: Income by segment Inter-segment income Polyester Plastics and Chemicals Other Total $ 140,837 $ 46,878 $ 24,720 $ 212,435 (120) (74) 194 - 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. Income from external customers $ 140,717 $ 46,804 $ 24,914 $ 212,435 Operating income $ 13,966 $ 10,464 $ 109 $ 24,539 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. Depreciation and amortization Impairment of long-lived assets Adjusted EBITDA 3,713 244 $ 17,923 The Company has defined Adjusted EBITDA as the calculation of adding operating income, depreciation, amortization, and impairment of long-lived assets. Investments in fixed and intangible assets $ 2,487 925 2 11,391 497 $ $ 1 - 4,639 246 $ $ 110 $ 29,424 3 $ 2,987 The Company evaluates the performance of each of the operating segments based on Adjusted EBITDA, con- sidering that this indicator is a good metric to evaluate operating performance and the ability to meet prin- cipal and interest obligations with respect to indebtedness, and the ability to fund capital expenditures and working capital requirements. Nevertheless, Adjusted EBITDA is not a measure of financial performance under IFRS and should not be considered as an alternative to net income as a measure of operating performance or cash flows as a measure of liquidity. Following is the condensed financial information of the Company’s operating segments: For the year ended December 31, 2023: Polyester Plastics and Chemicals Other Total For the year ended December 31, 2021: Statement of income: Income by segment Inter-segment income Polyester Plastics and Chemicals Other Total $ 98,103 $ 47,533 $ 10,588 $ 156,224 (103) (63) 166 - Income from external customers $ 98,000 $ 47,470 Operating income $ 8,801 $ 8,192 Depreciation and amortization Impairment of long-lived assets 3,235 524 $ 12,560 $ 3,774 $ $ 1,045 936 10,173 653 $ $ $ $ 10,754 $ 156,224 501 $ 17,494 - - 4,280 1,460 501 $ 23,234 4 $ 4,431 Statement of income: Income by segment Inter-segment income Income from external customers Operating (loss) income Depreciation and amortization Impairment of long-lived assets Adjusted EBITDA Investments in fixed and intangible assets $ 102,230 $ 27,729 $ 8,200 $ 138,159 Adjusted EBITDA (77) (20) 97 - Investments in fixed and intangible assets $ 102,153 $ 27,709 $ (9,740) $ 3,220 3,725 11,077 $ 5,062 $ 2,149 $ $ 886 1 4,107 376 $ $ $ $ 8,297 $ 138,159 83 $ (6,437) 8 - 91 3 4,619 11,078 $ 9,260 $ 2,528 The reconciliation between adjusted EBITDA and income before taxes for the years ended December 31, is as follows: The following table shows the intangible assets and property, plant and equipment by country: 122 Adjusted EBITDA Depreciation and amortization Impairment of long-lived assets Operating (loss) income Financial result, net Equity in loss of associates and joint ventures 2023 2022 2021 $ 9,260 $ 29,424 $ 23,234 México (4,619) (11,078) (6,437) (2,668) (201) (4,639) (246) 24,539 (2,997) (67) (4,280) (1,460) 17,494 (3,144) (39) United States Canada Brazil Oman Income before income taxes $ (9,306) $ 21,475 $ 14,311 The Company's main customer generated revenues amounting to $10,009, $9,230, and $11,403 for the years ended December 31, 2023, 2022 and 2021. These revenues are resulted from the polyester reporting segment and represent 7.2%, 4.0%, and 7.3% of the consolidated revenues with external costumers for the years ended December 31, 2023, 2022 and 2021. Following is a summary of revenues per country of origin for the years ended December 31: México United States Argentina Brazil Chile Canada United Kingdom Oman Saudi Arabia Total revenues 2023 2022 2021 $ 52,443 $ 88,922 $ 44,991 4,894 13,681 941 2,317 3,393 15,098 401 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 - - $ 138,159 $ 212,435 $ 156,224 As of December 31, 2023 2022 2021 $ $ 1,083 1,028 3 194 1,186 $ 1,312 1,375 4 214 1,520 1,575 1,521 20 232 - Total intangible assets $ 3,494 $ 4,425 $ 3,348 México United States Canada Argentina Chile Brazil United Kingdom Oman Saudi Arabia As of December 31, 2023 2022 2021 $ 17,831 $ 21,285 $ 23,157 7,684 497 281 237 4,699 624 8,830 269 9,769 471 128 276 4,926 667 10,598 331 9,821 775 163 267 4,356 866 - - Total property, plant and equipment $ 40,952 $ 48,451 $ 39,405 123 30. COMMITMENTS AND CONTINGENCIES As of December 31, 2023, the Company has the following commitments: a. As of December 31, 2023, 2022 and 2021, 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. 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 $471 in taxes, fines and interest that the SFSP demands; therefore, as of December 31, 2023, 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 $93, 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, 2023. As of December 31, 2023, the Company has the following contingencies: d. Anti-Dumping of PET Resin 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, polyethylene terephthalate (PET) and terephthalic acid (PTA) resin, polypropylene (PP) resin, expandable polystyrene (EPS), chemical specialties and they generate and dispose of waste, such as cata- lysts and glycols. These and other activities of the subsidiaries are subject to various federal, state and lo- cal 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 facil- ities 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. In March 2015, in response to petitions made by PET resin manufacturers in the United States of America (“USA”), the International Trade Commission (“ITC”) and the Department of Commerce of The United States (“USDOC”) initiated an Anti-Dumping investigation on imports of PET resin from China, India, Oman and Canada, resulting in the imposition of an antidumping duty (percentage of export sales of PET Resin to the USA). The duty has been reviewed annually during the month of May at the request of either Octal or the USA manufacturers, the rate has fluctuated based on the annual reviews and is currently 3.96%. e. Anti-Dumping of PET Sheet In July 2019, in response to petitions made by PET Sheet manufacturers in the USA, the ITC and the USDOC initiated an Anti-Dumping investigation on imports of PET Sheet from Oman, Korea and Mexico, resulting in the imposition of an antidumping countervailing duty (percentage of PET sheet export sales from Oman to the USA) of 4.74%. In October 2022, the DOC, in the first administrative review, preliminarily determined a new margin equivalent to 4.16%, which was in the process of being confirmed in a final determination; however, effective February 1, 2023, the USDOC concluded a change of circumstances review and thereby revoked the Anti-Dumping order applicable to PET sheet originating in Oman. Because the antidumping order was revoked, the Department of Commerce also rescinded the antidumping administrative reviews for the 2020-2021 and 2021-2022 periods. 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 poten- tial liabilities related to historic or current operations that will require investigation and/or remediation un- der 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. 31. SUBSEQUENT SIGNIFICANT EVENTS In preparing the financial statements the Company has evaluated the events and transactions for their rec- ognition or disclosure subsequent to December 31, 2023, and through January 31, 2024 (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, 2024, the issuance of the accompanying consolidated financial statements was authorized by Jorge Pedro Young Cerecedo, General Director and José Carlos Pons de la Garza, Administration and Finance Director. c. As of December 31, 2023, 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 These consolidated financial statements are subject to the approval of the Company’s ordinary shareholders’ meeting. CONTACT Alpek, S.A.B. de C.V. Av. Gómez Morín 1111 Sur Col. Carrizalejo, San Pedro Garza García Nuevo León, CP. 66254, Mexico www.alpek.com Investor Relations Bárbara Amaya Alejandra Bustamante IR@alpek.com 

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