2012 Annual Reportinforme.alfa.com.mx/ia/2012/descargas/alfa2012eng.pdf2012 Annual Report NOTE: In...

2012 Annual Report

NOTE: In this annual report, monetary figures are expressed in nominal Mexican pesos (Ps.), and in nominal dollars (U.S. $) unless otherwise speci-fied. Conversions from pesos to dollars were made using the average rate of the month in which the revenues or disbursements were made. The percent-ages of variation between 2012 and 2011 are expressed in nominal terms.

The Company

ALFA comprises five business groups: Alpek (petrochemicals), Nemak (high-tech aluminum auto components), Sigma (refrigerated food), Alestra (tele-communications and information technologies), and Newpek (natural gas and hydrocarbons).

ALFA is the largest producer of aluminum engine components for the au-tomotive industry in the world, and one of the world’s largest producers of polyester (PTA, PET and fibers). In addition, it leads the Mexican market in petrochemicals such as polypropylene, expandable polystyrene (EPS) and caprolactam. It is the leading maker of processed meats in North America, and of cheese in Mexico, as well as leader in the telecom and information technologies (IT) services for the business segment in this country.

In 2012, ALFA reported revenues of Ps. 200,167 million (U.S. $15.2 billion), and EBITDA of Ps. 24,476 million (U.S. $1.9 billion). Currently, ALFA has manufacturing operations in 18 countries and employs 59,847 people. ALFA’s shares are quoted on the Mexican Stock Exchange and on Latibex, the mar-ket for Latin American shares of the Madrid Stock Exchange.

Contents Page

The year in summary 1

Global footprint and businesses 2

Financial highlights 4

Letter to shareholders 5

Alpek 8

Nemak 10

Sigma 12

Alestra 14

Newpek 16

Board of Directors 18

Management Team 20

Corporate Governance 21

Financial Statements 22

1

the year in summaryALFA:

· Alpek issued shares in the Mexican Stock Exchange.

· Began construction of a cogeneration plant.

· Nemak diversified into new high-tech aluminum auto components.

· Sigma captured synergies from the Bar-S acquisition.

· Alestra’s network grew 240%.

· Newpek’s production grew 93%.

· Consolidated EBITDA increased 14%.

· Net Debt was reduced by U.S. $763 million.

· ALFA stock price grew 80%.

2

global footprint and businesses The largest private petrochemical

company in Mexico. The leading producer of polyester in North America. Operates the largest plant of expandable polystyrene (EPS) in the Americas. Sole producer of polypropylene and caprolactam in Mexico.

The largest producer of high-tech aluminum engine components for the automotive industry in the world.

The leading maker of processed meats in North America, and of cheeses in Mexico. The largest producer of hot dogs in the U.S.

A leading company in the telecommunications and IT services for the business segment in Mexico.

Company engaged in the exploration and exploitation of natural gas and hydrocarbons fields.

Main products: polyester (PTA, PET and fibers), plastics and specialty chemicals (polypropylene, EPS, polyurethanes and caprolactam).Plants: 20, in three countries.Capacity: 6.5 million tons per year.Revenues 2012: U.S. $7.3 billion.Employees: 4,675.

Main products: aluminum heads and blocks for gas and diesel engines; transmission parts.Plants: 34, in 14 countries.Capacity: 54 million equivalent heads per year.Revenues 2012: U.S. $3.9 billion.Employees: 20,099.

Main products: processed meats, cheese, yogurt and prepared meals.Plants: 34 and 133 distribution centers, in nine countries.Clients: 440,000.Capacity: 1.25 million tons per year.Revenues 2012: U.S. $3.4 billion.Employees: 29,022.

Main sevices: data centers, Cloud applications, information security, managed networks and consultancy services, vertical applications for specific industries.Presence: 200 cities in Mexico.Revenues 2012: U.S. $351 million.Employees: 1,748.

Main products: natural gas and hydrocarbons.Revenues 2012: U.S. $93 million.

Alpek

Nemak

Sigma

Alestra

Newpek

ALFA:

48% Alpek 40% Alpek39% Alpek

26% Nemak 32% Nemak27% Nemak

23% Sigma 20% Sigma25% Sigma

2% Alestra 7% Alestra 5% Alestra

1% Newpek 2% Newpek 3% Newpek

3

Revenues AssetsEBITDA

BREAKDOWN BY BUSINESS IN 2012

Canada Hungary

U.S.A.

Mexico

Dominican Republic

Brazil

Argentina

El Salvador

PolandGermany

SlovakiaAustria

Czech Republic

Costa Rica

Peru

China

India

Spain

08

10,7

73

1,26

0 9,08

4

8,53

6

1,05

5

8,27

710,6

37

964

8,19

7

14,7

46

1,62

3

10,8

16

15,1

52

1,85

4

11,8

27

08 0810 10 1009 09 0911 11 1112 12 12

4

ALFA and subsidiaries Millions of Ps. U.S. $ Millions(4)

2012 2011 % chg. 2012 2011 % chg.

Income Statement

Net Sales 200,167 182,967 9 15,152 14,746 3

Operating Income 16,305 12,672 29 1,235 1,032 20

Majority Net Income 8,994 4,748 89 681 394 73

Majority Net Income per Share(1) (Ps. & U.S. $) 1.74 0.98 78 0.13 0.08 63

EBITDA(2) 24,476 20,074 22 1,854 1,623 14

Balance Sheet

Total Assets 153,858 151,194 2 11,827 10,816 9

Total Liabilities 93,081 102,929 (10) 7,155 7,363 (3)

Stockholders´ Equity 60,777 48,265 26 4,672 3,453 35

Majority Interest 52,042 43,694 19 4,000 3,126 28

Book Value per Share(3) (Ps. & U.S. $) 10.11 8.40 20 0.78 0.60 30

(1) Based on the weighted average number of outstanding shares (5,170.6 million in 2012 and 5,333.2 million in 2011.)(2) EBITDA = operating income + depreciation and amortization.(3) Based on the number of outstanding shares (5,146 million at the end of 2012 and 5,199 million at the end of 2011.) (4) Due to the dollarization of its revenues, wich is estimated to be higher than 75%, and due to the holding of shares by foreign investors, ALFA provides equivalent U.S. $ amounts for some of its most important financial data.

RevenuesU.S. $ Millions

EBITDAU.S. $ Millions

AssetsU.S. $ Millions

highlightsFINANCIAL

11 12

15,152

+3%

14,746

11 12

1,854

+14%

1,623

5

Dear shareholders:

Summary ALFA had another year of positive results in 2012. It benefitted from favorable trends in its markets, primarily the automotive and con-sumer products industries of the U.S. and Mexico. It also strength-ened its finances by taking its main subsidiary public and refi-nancing existing debt under bet-ter terms and conditions.

Alpek made a public stock offer-ing and refinanced debt through a bond issue at a very competitive rate. Nemak acquired J.L. French to diversify its product portfolio. Sigma performed better by im-proving efficiency and capturing synergies from Bar-S. Alestra ex-tended its network and services coverage. Newpek advanced in de-veloping new wells. In the energy field, ALFA won a public bid to pro-vide services to Pemex in two ma-ture oil fields in Veracruz, Mexico.

Armando Garza SadaChairman of the Board of Directors

Álvaro Fernández GarzaPresident

to shareholdersLETTERPerformanceThe strength of Alpek’s markets in North America, linked to the consum-er sector of the economy allowed this company to offset the volatility of the global environment in the polyester industry. In line with its strategy, Al-pek began building the first of three power and steam cogeneration plants aimed at lowering its costs. It also li-censed its IntegRex® technology for the first time. Alpek’s financial struc-ture was strengthened with an initial public offering on the Mexican Stock Exchange. The proceeds of that issue will finance its future development.

The U.S. automotive industry con-tinued to recover in 2012. This fa-vored Nemak, which posted record sales volume, revenues and EBITDA. Around mid-year, Nemak acquired J.L. French, an American producer of high-pressure die casting aluminum transmissions parts. This will enable Nemak to expand its product portfolio and pursue new avenues of growth. It also began production in India and broke ground on construction of an-other plant in China.

RevenuesU.S. $ Millions


6

Sigma increased sales volume, rev-enues and EBITDA, benefitting from the growth of the Mexican food mar-ket, greater efficiency and a time-ly pricing response to raw materials price increases. The company con-tinued launching new products to the market. Its distribution network added 40,000 new clients over 2011. Opera-tions in the U.S. continued to capture synergies derived from the acquisition of Bar-S Foods.

Alestra expanded its telecommunica-tions network and offered more and better value-added services that com-bine telecommunications and IT. The company enhanced efficiency, re-duced cost and increased its EBITDA by 8% over 2011.

Development at the Eagle Ford Shale continued according to plan. New-pek drilled and connected to sales 135 new wells in the year, bringing the to-tal to 286. This spurred a sharp rise in revenues and EBITDA of 106% and 122%, respectively, over the preceding year. In 2012, Alfasid, an ALFA subsidiary, in partnership with the Mexican firm Monclova Pirineos Gas, was awarded a public contract by Pemex to provide services in two mature oil fields in Veracruz, Mexico, opening another opportunity for ALFA’s growth in the energy field.

ALFA invested U.S. $874 million in fixed assets and acquisitions in 2012, primarily to expand and modernize production facilities in all business groups.

7

Financial results The strong operating performance of ALFA’s companies in 2012 gen-erated solid financial results. Rev-enues totaled U.S. $15,152 mil-lion, 3% more than in 2011, and EBITDA reached U.S. $1,854 mil-lion, an increase of 14% over the previous year. Finally, Majority Net Income for the year was U.S. $681 million, a year-to-year in-crease of 73%.

ALFA invested U.S. $874 million in fixed assets and acquisitions in 2012, primarily to expand and modernize production facilities in all business groups, to acquire J.L. French, and to build a co-generation plant in Mexico.

The company’s financial condition improved in 2012 due to Alpek’s IPO and a bond placement in the international markets. Financial ra-tios reflected these actions.

On behalf of the Board of Direc-tors, we would like to thank our shareholders, financial institutions, clients, suppliers, employees and the community, for the confidence and support they have given us

during the year covered by this report. ALFA’s businesses enjoy leadership positions in the markets they serve and have the human talent, access to state-of-the-art technology and a solid financial condition to continue growing prof-itably and generating value for all of you. This is a goal to which the entire organization is whole-heart-edly committed.

San Pedro Garza Garcia, N.L., Mexico, February 1st, 2013.

Armando Garza SadaChairman of the Board of Directors

Álvaro Fernández GarzaPresident Á

Pearl River PET plant, Mississippi, U.S.A.

11 12

4,086

+5%

3,874

8

ALPEK

plant optimization. It also seeks to cap-ture growth opportunities by capitalizing on its comparative advantages.

In 2012, the strength of Alpek’s markets in North America allowed to mitigate the volatility of the global environment in the polyester industry. As a consequence of this, revenues declined only 1% compared to 2011, totaling U.S. $7,277 million, and EBITDA reached U.S. $728 million, 6% less than the previous year.

In April, Alpek became public with an IPO on the Mexican Stock Exchange, in which it raised approximately U.S. $800 million. It also placed a U.S. $650 million bond on the internation-al debt markets at highly competitive terms and conditions to refinance

Alpek operates in the Polyester Chain (PTA, PET and fibers) as well as in businesses related to Plastics and Chemicals (EPS, polypropylene, cap-rolactam and polyurethanes, among others).

Alpek is a unique company in the petrochemical industry. It operates with low conversion costs that al-low it to obtain higher returns on as-sets. Ninety percent of its products is destined for consumer markets, which are more resilient to econom-ic downturns. The company also has state-of-the-art technology and a solid balance sheet.

Its strategy is to strengthen its posi-tion as a low-cost producer through vertical integration, modernization and

Initial Public Offering.

Construction of power cogeneration plant begins.

Licensing of IntegRex®

technology.

78%Polyester products

22%Plastics & chemicals

REVENUE BREAKDOWN IN 2012

Sales volumeThousand tons

9

Columbia PET plant, South Carolina, U.S.A.

existing debt. With this, it built a solid financial base to fund its future growth.

Alpek also started construc-tion, in Cosoleacaque, Vera-cruz, Mexico, of the first of three power cogeneration plants, aim-ing to lower energy costs. It be-gan debottlenecking its plant at Columbia, South Carolina, U.S. For the first time, it licensed the IntegRex® technology for a PTA plant in Europe, while sim-ilar licensing for other facili-ties in Asia, Eastern Europe and the Middle East are also under study.

64% Food & Beverage

7% Textile

27% Consumer products

2% Construction

END MARKETS IN 2012

11 12

42

+14%

37

10

NEMAK

Nemak seeks to bolster its position as the supplier of choice while capi-talizing on growth opportunities com-ing from the replacement of iron by aluminum, increased customer out-sourcing and growth opportunities in emerging markets. In addition, it is venturing into other highly complex automotive components different from cylinder heads and engine blocks.

In 2012, Nemak reported record sales volume, revenues and EBITDA. It did so by capitalizing on the recov-ery of the U.S. automotive industry and a strong performance in Europe, where it is the supplier of choice for customers in Germany, Austria and Central Europe. Revenues totaled

Nemak is the largest producer of aluminum engine components for the automotive industry in the world. It operates 34 plants in North and South America, Eu-rope and Asia, where it produc-es high-tech components for over 650 different vehicle platforms to serve a divisified base of around 50 customers. Its strong competi-tive position is based on a strong technological capability, the high-est quality, being the benchmark in production development, cost competitiveness, providing solu-tions to its customers and modern facilities that have long served as the industry benchmark.

U.S. $3,891 million and EBITDA U.S. $506 million, 8% and 36% higher than in 2011, respectively.

During the year, Nemak acquired J.L. French, an American producer of high-pressure die casting aluminum transmission parts. This will enable it to expand its product offering and ac-cess new business opportunities.

In addition to modernizing opera-tions in all its regions, Nemak ex-panded its production capacity in fast-growing markets, includ-ing the startup of a plant in India and starting construction of anoth-er plant in China, where Nemak is growing significantly.

Sales volumeMillion equivalent heads

Record sales volume, revenues and EBITDA.

Acquisition of J.L. French.

New plant under construction in China.


51%Heads

32%Blocks

14%Transmissions

3%Other

11 12

506

+36%

372

11


Plant VI Garcia N.L., Mexico

Transmission component Wisconsin Plant, U.S.A.

11 12

470

+20%

390

12

SIGMA


68% Mexico

7% Central America & the Caribbean

24% U.S.A.

1% Peru

REVENUE BREAKDOWN BY REGION IN 2012

13

In 2012, Sigma sold more than 1.1 mil-lion tons of food products with reve-nues of U.S. $3,443 million. Greater plant productivity and efficiencies in the distribution network, coupled with the synergies with Bar-S were reflected in a 20% increase in EBITDA, which totaled U.S. $470 million.

During the year, Sigma renewed the contract with Sodima, S.A.S. and its partner General Mills to contin-ue with the manufacture, distribution and sale of Yoplait® fresh dairy prod-ucts in Mexico.

Sigma continued to strengthen re-search and innovation through its Technology Center, where new prod-ucts and packages are developed. This year, new products such as the “Placer” and “Yoplait Mini” yogurts

Sigma is the leading producer of pro-cessed meats in North America, and the largest maker of hot dogs in the U.S., as well as of cheeses in Mexico. The company is also a leader in oth-er refrigerated food categories, like yo-gurt and prepared meals. Its strong market position is supported by lead-ing brands, an extensive and efficient distribution network, a well-trained and motivated team, and a solid, in-novative technological platform.

Sigma’s main strategy is to maxi-mize and expand its core business-es to strengthen its leadership po-sition. It also strives to make use of its capabilities to capture opportu-nities in the value chain, venturing into new areas of the food industry and new geographies wherever it finds them attractive.

were launched. Other new prod-ucts include the gourmet options for San Rafael® hot dogs, as well as cubed and sliced FUD® man-chego cheese. Also outstand-ing were the new packages for the FUD® and La Villita® cheeses, now more practical for the con-sumer. Lastly, the FUD® brand was introduced in Peru, in an ef-fort to capitalize on its existing leadership in Mexico.

Sigma’s distribution network add-ed 40,000 new clients during the year. This network consists of 133 distribution centers, 4,000 re-frigerated vehicles and 3,300 dis-tribution routes reaching 440,000 clients in nine countries of North, Central, and South America as well as the Caribbean.

Over 1.1 million tons sold in the year.

40,000 new customers.

Renewal of contract with Yoplait®.

67%Processed meats

29%Dairy products

4%Other


Supermarket in Monterrey, N.L., Mexico.

14

ALESTRA

Alestra provides cutting-edge telecom-munications and information technol-ogy (IT) solutions to Mexican busi-nesses, with the highest standards of reliability and technical support. The company has an extensive fiber-optic and wireless network, world-class data centers and the capacity to offer high-margin, value-added services. Its in-vestment program links capital needs to revenue flow.

Through this strategy, Alestra seeks to capitalize on the rising demand for telecom and IT solutions in the Mexi-can business sector. Its service port-folio is aligned with global trends and the unique needs of the market. This, along with the reliability of its network,

Value-added services accounted for 82% of revenues.

Fourth data center under construction.

Record EBITDA.

52%Business data, Internet and local services

18%Long distance

30%Business IT services


Data centerMonterrey, N.L., Mexico

11 12

17

+240%

5

15

has allowed it to solidify its rela-tionship with existing customers and to expand its portfolio.

In 2012, revenues declined 7% from the previous year, reaching $351 million, primarily due to the Mexican peso’s depreciation dur-ing the year, which affected Alestra whose revenues are received in pesos. However, the actions taken by the company to improve efficiency allowed 8% growth in EBITDA, reaching U.S. $137 mil-lion, the highest figure ever.

The company continued to pro-mote its data center services, Cloud-based applications, infor-

mation security, managed servic-es, and consulting for the design and management of complex IT solutions. Sales of these services grew 1% in the year in peso terms and accounted for 82% of Alestra’s total revenues.

To continue improving the quality and coverage of its services, Alestra add-ed 12,000 kilometers of fiber to its network, increasing it to more than 17,000 kilometers as of year-end. This network will enable it to offer ser-vices in more cities and give it the flexibility to replace leased lines. It al-so began building a fourth data cen-ter in Querétaro, adding to the three already operating in Monterrey and Guadalajara.

Network Operating Center, Monterrey, N.L., Mexico

Network coverageThousands of kilometers

+89%11 12

286

151

16

NEWPEK

In line with this strategy, in 2012 it start-ed production in 135 new wells, bring-ing the total to 246 wells operating at EFS play, besides the 40 operating in ET. It also built the land infrastructure needed to connect them to the gather-ing facilities. Net production to sales to-taled 4,905 equivalent barrels of oil per day, 93% more than in 2011.

In 2012, revenues and EBITDA totaled U.S. $93 million and $66 million, an increase of 106% and 122%, respec-tively, compared to the figures of 2011, reflecting the company’s progress in the development of its growth plans.

Newpek is engaged in the explo-ration and exploitation of natu-ral gas and hydrocarbons. It is currently developing the Eagle Ford Shale (EFS) and Edwards Trend (ET) plays in South Texas. The strong combination of expe-rienced partners, plus a solid fi-nancial condition constitute the basis for the success of the busi-ness. Newpek’s strategy has been to focus its efforts on the EFS play, which has the greatest potential for the production of a liquids-rich mix.

135 new producing wells.

Production grew 93%.

Alfasid will explore mature oil fields in Mexico.

85%Oil and condensates

15%Natural gas


Wells in Production

+93%

11 12

4.9

2.5

17

Liquid hydrocarbons, including oil, which have a much higher value than dry gas, accounted for 50% of the volume, up from 40% in 2011. This contibuted to the improvement of financial results, and confirmed that the company’s current strategy is on target.

Newpek will seek out new areas in the U.S. to continue to grow and ac-cumulate valuable business experi-ence. Furthermore, ALFA, through its Alfasid subsidiary, together with the Mexican company Monclova Pirineos Gas, won a bid called by Pemex to provide services in two mature oil fields in Veracruz, Mexico.

Production volumeThousand equivalent barrels of oil per day

Drilling site in Atascosa, Texas, U.S.A.

Central gathering plant inLive Oak, Texas, U.S.A.

18

JOSÉ CALDERÓN ROJAS (2A)Chairman of the Board and Chief Executive Officer of Franca Industrias, S.A. de C.V. and Franca Servicios, S.A. de C.V.· Board member since April 2005.

Member of the Boards of FEMSA and BBVA Bancomer (Regional Board). President of Asociación Amigos del Museo del Obispado, A.C.

ENRIQUE CASTILLO SÁNCHEZ MEJORADA (1A)Senior Advisor of Grupo Financiero Banorte, S.A.B. de C.V.· Board member since March 2010.

Member of the Boards of Southern Copper Corporation, Grupo Herdez, Grupo Casa Saba, Grupo Embotelladoras Unidas, Grupo Financiero Banorte, Médica Sur and Grupo Aeroportuario del Pacífico.

FRANCISCO JAVIER FERNÁNDEZ CARBAJAL (1C)Chairman of the Board of Primero Fianzas, S.A. de C.V.· Board member since March 2010.

President of the Planning and Finance Committee.

Member of the Boards of Visa Inc., FEMSA, CEMEX and Fresnillo PLC.

ÁLVARO FERNÁNDEZ GARZA (3C)President of ALFA, S.A.B. de C.V.· Board member since April 2005.

Member of the Boards of Vitro,Cydsa and Universidad de Monterrey.

DIONISIO GARZA MEDINA (3C)Chairman of the Board of Tenedora Topaz, S.A.P.I. de C.V.· Board member since April 1990.

Member of the Boards of CEMEX, Grupo Financiero HSBC (Mexico) and Minera Autlán.

ARMANDO GARZA SADA (3C)Chairman of the Board of ALFA, S.A.B. de C.V.· Board member since April 1991.

Member of the Boards of FEMSA, Frisa, Grupo Financiero Banorte, Lamosa, Liverpool, Proeza, ITESM and Stanford University.

CLAUDIO X. GONZÁLEZ LAPORTE (1B)Chairman of the Board of Kimberly Clark de México, S.A.B. de C.V.· Board member since December 1987.

Member of the Boards of Fondo México, Grupo Carso, Grupo Financiero Inbursa, Grupo México and Grupo Televisa. Consultant for Capital Group.

BOARD of Directors

19

RICARDO GUAJARDO TOUCHÉ (1B)· Board member since March 2000.

Member of the Boards of Liverpool, Grupo Aeroportuario del Sureste, Grupo Bimbo, FEMSA, Coca-Cola FEMSA, Grupo Coppel and ITESM.

DAVID MARTÍNEZ GUZMÁN (1C)Chief Executive Officer of Fintech Advisory Limited (London, UK).· Board member since March 2010.

ADRIÁN SADA GONZÁLEZ (1B)Chairman of the Board of Vitro, S.A.B. de C.V. · Board member since April 1994. President of the

Corporate Practices Committee.

Member of the Boards of Gruma, Cydsa and Consejo Mexicano de Hombres de Negocios.

FEDERICO TOUSSAINT ELOSÚA (1A)Chairman of the Board and Chief Executive Officer of Grupo Lamosa, S.A.B. de C.V. · Board member since April 2008. President of the

Audit Committee.

Member of the Boards of Xignux, Grupo Iconn, Universidad de Monterrey and Consejo Mexicano de Hombres de Negocios.

GUILLERMO F. VOGEL HINOJOSA (1C)Chairman of the Board of Grupo Collado, S.A.B. de C.V., Vice Chairman of the Board of Tenaris, S.A. de C.V. and Vice Chairman of the Board of Estilo y Vanidad, S.A. de C.V.· Board member since April 2008.

Member of the Boards of Corporación Mexicana de Inversiones de Capital, Universidad Panamericana-IPADE, Fondo Nacional de Infraestructura, Corporación San Luis, Innovare and Eximpro.

CARLOS JIMÉNEZ BARRERASecretary of the Board

Keys(1) Independent Board Member

(2) Independent Proprietary Board Member

(3) Related Proprietary Board Member

(A) Audit Committee

(B) Corporate Practices Committee

(C) Planning and Finance Committee

9 7 5 3 1 2 4 6 8 10

20

4. Manuel Rivera GarzaPresident of NemakJoined ALFA in 1976. Graduated in Engineering from ITESM. Master degree in Industrial Engineering from Stanford University.

5. Mario H. Páez GonzálezPresident of SigmaJoined ALFA in 1974. Graduated in Ac-counting. Master degree in Management from ITESM. MBA from Tulane University.

6. Rolando Zubirán ShetlerPresident of AlestraJoined ALFA in 1999. Graduated in En-gineering from UNAM. Master degree in Operations Research from the University of Southern California. Ph.D. in Phi-losophy from Universidad Autónoma de Nuevo León.

7. Alejandro M. Elizondo BarragánSenior Vice President, DevelopmentJoined ALFA in 1976. Graduated in Engi-neering from ITESM. MBA from Harvard University.

MANAGEMENT Team

8. Carlos Jiménez BarreraSenior Vice President, Legal and Corporate AffairsJoined ALFA in 1976. Graduated in Law from Universidad de Monterrey. Master degree in Law from New York University.

9. Ramón A. Leal ChapaChief Financial OfficerJoined ALFA in 2009. Graduated in Accounting from Universidad de Mon-terrey. Master degree in Operations Management from ITESM. MBA from Harvard University.

10. Paulino J. Rodríguez MendívilSenior Vice President, Human CapitalJoined ALFA in 2004. Graduated in Engineering and Master degree in Energy Technology from the University of the Basque Country, Spain.

1. Armando Garza SadaChairman of the BoardJoined ALFA in 1978. Graduated from MIT. MBA from Stanford University.

2. Álvaro Fernández GarzaPresidentJoined ALFA in 1991. Graduated in Economics from Notre Dame. Master degree in Management from ITESM and MBA from Georgetown University.

3. José de Jesús Valdez SimancasPresident of Alpek and NewpekJoined ALFA in 1976. Graduated in Engineering. Master degree in Management from ITESM. Master degree in Industrial Engineering from Stanford University.

21

ALFA adheres substantially to Mex-ico’s current Code of Best Corpo-rate Practices. This code, a frame-work for corporate governance established to increase investor confidence in Mexican companies, was created in 2000 following an initiative of the Mexican securities authorities and with the contribu-tion of market and legal special-ists, investors, and Mexican busi-ness leaders.

Companies whose stocks trade on the Mexican Stock Exchange must disclose the way they adhere to the Code of Best Corporate Prac-tices. This is done annually via re-sponding to a questionnaire, which is available through the Mexican Stock Exchange’s web site.

Following is a summary of ALFA’s corporate governance as stated in the June 2012 questionnaire, with any pertinent information updated.

A) The Board of Directors com-prises 12 proprietary members who have no alternates. Of this number, 9 are independent. This annual report provides informa-tion on all of the Board’s mem-bers, identifying those who are in-dependent and the Committees in which they participate.

B) Three Committees assist the Board of Directors in carrying out its duties: Audit, Corporate Practices, and Plan-ning and Finance. Board members participate in at least one committee each. All three committees are head-ed by an independent board member. The Audit and Corporate Practices Committees are formed by indepen-dent members only.

C) The Board of Directors meets every two months. Meetings of the Board can be called by agreement of the Chair-man of the Board, the President of the Audit, the President of the Corporate Practices Committee, the Secretary of the Board or of at least 25% of its members. At least one of these meet-ings is dedicated to defining the com-pany’s medium and long term strategy.

D) Members must inform the Chair-man of any conflicts of interest that may arise, and abstain from partici-pating in the corresponding deliber-ations. Average attendance at Board meetings was 97% during 2012.

E) The Audit Committee studies and is-sues recommendations to the Board on matters such as the selection and de-termination of fees to the external audi-tor, coordinating with the internal audit area of the company, and studying ac-counting policies, among others.

F) The company has internal con-trol systems with general guide-lines. These are submitted to the Audit Committee for its opinion. In addition, the external auditor validates the effectiveness of the internal control system and is-sues the corresponding reports.

G) The Planning and Finance Com-mittee evaluates all matters relat-ing to its particular area and issues recommendations to the Board on matters such as feasibility of invest-ments, strategic positioning of the company, alignment of investment and financing policies, and review of investment projects.

H) The Corporate Practices Com-mittee is responsible for issuing recommendations to the Board in such matters as employment terms and severance payments for senior executives, and com-pensation policies, among others.

I) There is a department dedicat-ed to maintaining an open line of communication between the company and its shareholders and investors. This ensures that investors have the financial and general information they require in order to evaluate the compa-ny’s development and progress.

GovernanceCORPORATE

23

Contents

Management´s Analysis 24

Report of Independent Auditors 33

Consolidated Financial Statements

Consolidated Statements of Financial Position 34

Consolidated Statements of Income 36

Consolidated Statements of Comprehensive Income 37

Consolidated Statements of Changes in Stockholders’ Equity 38

Consolidated Statements of Cash Flows 40

Notes to the Consolidated Financial Statements 41

24

ALFA, S.A.B. DE C.V. AND SUBSIDIARIES

2012The following report should be considered jointly with the Stockholders’ Letter (pages 5-7), ), the Audited Financial State-ments (pages 34-107). Unless otherwise indicated, figures are expressed in millions of Mexican pesos for the information for 2011 and 2012. Percentage variations are shown in nominal terms. Additionally, some figures are expressed in millions of US dollars (US$).

The financial information contained in this Management Analysis corresponds to the last two years (2011 and 2012), adjus-ted to the first year of implementation of International Financial Reporting Standards (IFRS).

San Pedro Garza García, N. L., February 1, 2013.

ECONOMIC ENVIRONMENTAfter the economic environment continued to deteriorate in the second half of 2011 due to the indebtedness problems of some European peripheral countries, the US and Europe continued facing problems during 2012, due to the lack of econo-mic recovery. On the other hand, the Mexican economy reported a healthy growth, far above that of such countries.

The following figures describe the economic environment present in 2012:

At the date of this report, the estimate Gross Domestic Product (GDP) in Mexico in 2012 amounted to 3.9%, figure equal to that of 2011. Consumer inflation amounted to 3.6% (b) in 2012, below of 3.8% (b) recorded in 2011. The Mexican peso experienced an annual nominal appreciation of 6.9% (c), as compared to the 13.1%(c) depreciation underwent in 2011. In real terms, the annual average overvaluation of the Mexican peso with respect to the US dollar amounted to 14.2% (d) in 2012 and 16.1% (d) in 2011.

In accordance with interest rates in Mexico, the Equilibrium Interbank Interest Rate (TIIE by its acronym in Spanish) amoun-ted to 4.8%(b) in 2012 in nominal terms, equal to that of 2011. In real terms, there was an increase in the annual accrued amount from 1.1% in 2011 to 1.3% in 2012.

The annual average 3-month nominal LIBOR rate in US dollars amounted 0.4% (e) in 2012, similar to the 0.3% (e) obser-ved in 2011. If the nominal appreciation of the Mexican peso to the US dollar is incorporated, the LIBOR rate in constant pesos went from 9.3% (a) in 2011 to -9.7% (a) in 2012.

Sources:

(a) Consultores Económicos Especializados, S. A. de C. V. (CEE).

(b) Banco de México (Banxico).

(c) Banxico. Exchange rate to settle obligations denominated in foreign currency payable in the Mexican Republic.

(d) CEE. 1990 Base. Bilateral with the United States, considering consumer prices.

(e) British Bankers Association.

2525


ALFA CONTINUES GROWINGIn spite of the world economic-financial environment experienced during 2012, the strategy followed by ALFA allowed it to continue obtaining favorable results. On the other hand, the implementation of new financing schemes, such as the issuance of equity and bonds in the international market of its subsidiary Alpek, allowed it to strengthen its financial condition.

RESULTS REVENUESThe following table provides information on the revenues of ALFA for 2012, 2011, breaking down its volume and price com-ponents (the indices are calculated using the 2007=100 basis):

Concept 2012 2011 Var. 2012-2011 (%)Consolidated Revenues 200,167 182,967 9Volume index 191.9 173.1 11Price index Pesos 131.4 134.3 (2)Price index US dollars 115.3 124.1 (7)

Likewise, the consolidated revenues are broken down for each one of ALFA’s groups:

Concept 2012 2011 Var. 2012-2011 Var. 2012-2011 (%)Alpek 96,163 90,667 5,496 6Sigma 45,476 41,078 4,398 11Nemak 51,384 44,669 6,716 15Alestra 4,634 4,697 (63) (1)Newpek 1,227 573 654 114Other businesses 1,283 1,283 (1) Total consolidated 200,167 182,967 17,200 9

The revenues performance was as follows:

Revenues Index(2007=100)

Volumes

11100908 12

17

3

14

8

13

0

13

4

19

2

Prices

$

US$

11100908 12

13

41

24

13

31

06

11

69

6

11

2

1

16

13

11

15

26


2012-2011:Consolidated sales in 2012 amounted to $200,167 million pesos (US $15,152 million), 9% more than the amount of 2011 (3% in US dollars). Following is an explanation of the performance in the year for each one of ALFA’s companies:

The sales in pesos of Alpek during 2012 were 6% higher than in 2011. Sales were favorably affected by a higher volume and the monthly average performance of the exchange rate, which was lower than during 2011, resulting in an increase in sales expressed in Mexican pesos. On the other hand, these were unfavorably affected by lower prices for raw materials during the second half of the year, which resulted in lower sales prices.

On the other hand, Sigma’s sales increased by 11% in Mexican pesos in 2012. Markets attended to by Sigma in Mexico and the US showed a healthy demand during most of the year, mostly in Mexico. The efforts to gain new clients, as well as the organic growth, were the cause for the increase in sales observed specially in yoghurt and cheese.

The sales in Mexican pesos of Nemak increased 15% compared to the previous year. This increase was based on a sales volume of 42 million of comparable heads in the year, 14% more than in 2011. Part of the growth is explained from the acquisition of JL French, company in the aluminum parts business for automotive transmissions. Also, in the continuing trend to replace iron parts by other aluminum parts in automotive engines, as well as in the increase of sales of Nemak’s main clients. In Europe, in particular, sales were maintained in the performance of German assemblers, who demanded new programs and were successful in finding export markets for their vehicles.

Alestra’s sales decreased 1% as a result of a lesser income in traditional long-distance services. The growth in value-added domestic services fully compensated the decrease in income from AT&T Global Network services, which Alestra ceased to offer as from the purchase of the shares of AT&T by ALFA in 2011. Value added services represented 82% of total income at 2012 year end.

Finally, Newpek started operations in 135 new wells in 2012. The net production to sales of crude oil barrels equal per day during 2012 grew 93% as compared to 2011. Approximately 50% of this volume corresponded to liquid hydrocarbons, including petroleum, which have a substantially higher value than dry gas. Total income increased 114% in Mexican pesos with respect to 2011.

OPERATING INCOMEThe operating income of ALFA in 2012 and 2011 is explained as follows:

2012-2011:

Operating Variation per Groupincome 2012 2011 Var. Alpek Sigma Nemak Alestra Newpek OtherSales 200,167 182,967 17,200 5,496 4,398 6,716 (63) 654 (1)Operating income 16,305 12,672 3,633 (113) 1,387 1,201 426 468 264Consolidated operating margin (%) 8.1 7.0Alpek (%) 7.8 8.4Sigma (%) 10.5 8.3Nemak (%) 6.2 4.5Alestra (%) 20.8 11.8Newpek (%) 55.3 36.5

The 29% increase in consolidated operating income of 2011 to 2012 is explained by the individual performance of ALFA’s companies, as discussed below:

In the case of Alpek, income was reduced 2% as a result of a lower margin in exports of PTA, PET and Caprolactam, due to greater competition in Asiatic markets.

In Sigma, the prices of raw materials, such as meat and milk, experienced a significant increase and that put pressure on markets. Nevertheless, the company faced this situation efficiently and with higher productivity measures and an adequa-te price policy, which allowed it to obtain a higher income than in 2011. Seizing synergies in BAR-S’s operation was yet another factor that contributed to the result of the year.

2727


Nemak recorded an operating income 7% higher in Mexican pesos than that of 2011. This was the result of an increase in the sales volume, combined with the operating efficiencies due to the advance in the curve for the launching of new pro-grams into the market.

In 2012, Alestra improved its income combination, obtaining a favorable resolution with respect to fixed-mobile interconnec-tion tariffs and it increased its operating efficiency. The aforementioned allowed it to increase its operations income by 44% vs. 2011, year in which such income had reflected an extraordinary adjustment for purposes of assets depreciation, in order to adjust their useful lives to the new technological conditions.

Newpek’s operating income increased 225% in 2012 vs. 2011. This is a result of having a greater amount of wells in opera-tion, as well as of producing a better mixture of liquid hydrocarbons and dry gas.

REVENUES COMPOSITION AND OPERATING INCOME

The percentage structure of sales and operating income of ALFA underwent significant changes between 2012 and 2011, mainly in sales and operating income of Alpek, as explained above.

The following table shows these effects:

Integration % Revenues Operating income 2012 2011 2012 2011Alpek 48 50 46 60Sigma 23 22 29 27Nemak 26 24 20 16Alestra 2 3 6 4 Newpek 1 0 4 2Other 0 1 (5) (9)Total 100 100 100 100

FINANCING COSTS, NETThe exchange gain is explained mainly by the macroeconomic environment of the year. As explained at the beginning, the Mexican peso had an annual nominal appreciation of 6.9% in 2012. This was the determining factor of ALFA’s financing costs, net during 2012, as explained below:

FINANCING COSTS, NET DETERMINANTS 2012 2011General inflation (Dec.-Dec.) 3.6 3.8Variation % in nominal closing exchange rate 6.9 (13.1)Exchange rate at closing, nominal 13.01 13.98 Real appreciation (depreciation) Mexican peso / US dollar with respect to the previous year:

Closing 8.6 (12.2) Annual average (4.2) 2.2

Average interest rate: Nominal LIBOR 0.4 0.3 ALFA’s Implicit nominal debt 6.1 6.4LIBOR in real terms (9.7) 9.3ALFA’s Implicit real debt (5.4) 16.1

Monthly debt average of ALFA in US$ 4,225 4,266

Expressed in US$, net financial expenses for the year 2012 and 2011 amounted to $279 and $283, respectively. In general, the causes for variation between years were due to interest rates $(21) and a lower net cash debt $25.

interest rate swaps and equity swaps in 2011, additionally to bank financial expenses.

28


Measured in pesos, the financing costs, net was integrated as follows:

FINANCING COSTS, NET 2012 2011 Var. 12/11Financial costs (4,412) (4,120) (292)Financial income 719 606 113Financing costs, net (3,693) (3,514) (179) Result from exchange fluctuation, net of derivative financial exchange rate operations 962 (1,244) 2,206Total financing cost, net (2,731) (4,758) 2,027

The appreciation of the peso during 2012 was the main factor determining the variation of the financing costs, net between 2012 and 2011.

The fair value of ALFA’s derivative financial instruments at December 31, 2012 and 2011, was as follows:

Fair value (Millions of US dollars)Type of derivative, value or contract Dec. 12 Dec. 11Exchange rate 0 (3)Cross Currency Swaps (24) (48)Interest rate (20) (44)Energy (27) (70)

INCOME TAXFollowing is an analysis of the main factors that determined the income tax in each one of the years compared, starting from the income tax based income concept defined as operating income reduced by the financing costs, net and Other Expen-ses, net.

Income Tax 2012 2011 Var. 12/11Gain (loss) before income tax 13,574 7,883 5,691Income in loss of associated companies recognized through the equity method - 31 (31) 13,574 7,914 5,660Statutory rate 30% 30% Income tax at statutory rate (4,073) (2,375) (1,698)+ / (-) Effect of income tax on permanent tax-accounting differences: Fiscal financing costs, net vs. Accounting financing costs, net 652 (364) 1,016Other permanent differences, net 132 106 26Total income tax effect over permanent differences 784 (258) 1,042Provision corresponding to operations for the year (3,289) (2,633) (656)Recalculation of taxes from prior years and others (101) 82 (183)Total income tax provision (charged) credited to income (3,390) (2,551) (839)Effective income tax rate 25% 32% Income Tax: Payable (3,315) (2,017) (1,298) Deferred (75) (534) 459Total income tax provision charged to income (3,390) (2,551) (839)

2929


2012 NET INCOMEDuring the year, ALFA generated a net consolidated profit, as broken down in the table below, as a result of that explained regarding operating income, the financing costs, net and taxes:

Statement of Income 2012 2011 Var. 12/11Operating income 16,305 12,672 3,633Financing costs, net (2,731) (4,758) 2,027Equity in loss of associated companies (31) 31Taxes (1) (3,390) (2,551) (839)Net consolidated income 10,184 5,332 4,852Income net of holding’s equity 8,994 4,748 4,246

(1) Income tax (payable and deferred).

COMPREHENSIVE INCOMEComprehensive income is presented in the statement of comprehensive income and its objective is to show the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with stockholders. It excludes transactions between the company and its stockholders, mainly dividends paid. Comprehen-sive income of 2012 and 2011 were as follows:

Comprehensive income 2012 2011

Net income 10,184 5,332Conversion of foreign subsidiaries (2,887) 3,492Effects of derivative instruments’ capital 87 (354)Actuarial losses from labor liabilities (306) (248)Consolidated comprehensive income 7,078 8,222Controlling interest 5,965 7,176Non-controlling interest 1,113 1,046Comprehensive income for the year 7,078 8,222

A prior section of this report explains that related to the net income obtained in 2012 and 2011. The translation effect of foreign subsidiaries, which presents the effect of using different exchange rates between asset and liability accounts against income and capital accounts, had a significant change due to the volatility of exchange rates of currencies from the different countries where ALFA has presence. The effect in equity of derivative instruments represents the effect of energy derivatives that, in accordance with International Financial Reporting Standards, is shown in stockholders’ equity. The effect of actuarial losses from labor liabilities is the change in actuarial estimates.

DIVIDENDS DECLARED AND INCREASE IN CAPITAL STOCKIn 2012, the Ordinary Stockholders’ Meeting of ALFA approved the payment of an ordinary payment for $1,348, equal to $2.60 pesos per share, 19% higher than that paid in 2011. In turn, an ordinary dividend was declared in 2011 amoun-ting to $1,133, equal to $2.12 pesos per share. This under the basis of 5,200 million shares.

In 2012, the equity had a significant increase mainly due to two factors: 1) the initial public offer of Alpek’s equity, 2) the net income and due to the translation effect of the year, explained above corresponding mainly to the appreciation of the peso. On the other hand, the equity was decreased by the repurchase of own shares and the payment of dividends of the same year.

During 2012, ALFA carried out a split of shares representative of its capital stock, through the issuance and delivery of 10 new titles per each existing one.

30


INVESTMENT IN NET WORKING CAPITAL (NWC)In 2012, at a consolidated level, the sales to NWC ratio was increased moderately, which resulted in NWC days of the con-solidated level to have a slight increase, changing from 25 in 2011 to 28 in 2012.

NWC days 2012 2011Alpek 46 36Sigma 17 16Nemak 17 28Alestra (49) (38)Newpek (12) (27)Consolidated 28 25

INVESTMENTSProperty, Plant and EquipmentTotal investments per group were as follows:

Var. % Last 5 years 2012 2011 12/11 Investment % Alpek 1,522 588 159 3,931 14Sigma 1,416 952 49 5,108 18Nemak 4,171 4,126 1 12,864 44Alestra 887 637 39 4,082 14Newpek 640 392 63 2,512 9Other 96 79 22 607 2Total 8,732 6,774 29 29,104 100

Investments in 2012 were destined as follows (per group): In Alpek, the construction of an electrical and vapor energy cogeneration plant began. Furthermore, Alpek and Sigma invested in improvement projects and replacement of assets. In the case of Nemak, investments were used to modernize the plants and increase the capacity of some of them, especially in Mexico and Asia. Newpek invested to continue with the natural gas and hydrocarbons wells development plan in the foun-dation of Eagle Ford Shale. Finally, Alestra destined its investments to increase the extension of its optic fiber network and the construction of a new data center that was in the 2012 closing process.

BUSINESS ACQUISITIONSThe investment during the year amounted to $2,401, with the most important amounts being those corresponding to the acquisition of the company J.L. French by Nemak.

CASH FLOWSAccording to the item of cash provided by operations, the following table shows the main transactions for 2012 and 2011:

2012 2011Cash provided by operations 20,620 14,809Property, plant and equipment & others (8,732) (6,773)Business acquisitions (2,401) (9,266)Increase (decrease) in Bank Loans (4,378) 8,867Dividends paid by ALFA SAB (1,348) (1,131)Dividends paid to the non-controlling equity (790) (522)Repurchase of Shares (1,074) (2,265) Changes in the non-controlling equity 8,646 (407) Net Interest Paid (3,481) (3,596)Other (1,061) 613Increase in cash 6,001 329Adjustments in Cash Flow from exchange rate variations (594) 785Cash and cash equivalents at beginning of year 8,254 7,140Total cash at end of year 13,661 8,254

3131


The main changes in ALFA’s net debt and its companies were as follows:

Changes in debt net of cash (DNC) US$ Consolidated Alpek Sigma Nemak Alestra OtherBalance at December 31, 2011 3,641 1,188 971 1,180 161 141Long-term financing, net of payments:Financing 968 717 2 237 0 12Payments (1,141) (894) (10) (170) (16) (51) (173) (177) (8) 67 (16) (39)Short-term financing, net of payments (168) (123) 2 11 0 (58)Total financing, net of payments 752 635 (66) 54 (27) 156Effect of currency translation (9) (24) 15 2 1 (3)Debt variation in the cash flow statement (350) (324) 9 80 (15) (100)Acquired companies debt and others 62 0 0 62 0 0Total debt variation (288) (324) 9 142 (15) (100)Decrease (increase) in cash and restricted cash (482) (255) (109) 0 (1) (118)Change in interest payable 7 7 0 0 0 0Increase (decrease) in net cash debt (763) (572) (99) 142 (16) (218)Balance at December 31, 2012 2,878 616 872 1,322 145 (77)

Alpek’s debt is decreased mainly by the primary issuance of shares, the rest of the groups, except for Nemak, reduced it supported by the income for the year. The median life of ALFA’s total debt was increased against last year’s. The calendar of maturities of ALFA and its groups of companies had the following changes:

Debt per group Alpek Sigma Nemak Alestra Othershort term and long term 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011Debt balance (US$) 1,116 1,427 1,048 1,039 1,409 1,266 200 216 195 295

Percentage of debt balanceShort term debt 2 3 1 1 4 0 0 0 26 20Long-term 1 year 1 13 1 1 7 6 0 2 32 10

2 15 15 21 0 11 11 100 3 42 213 6 4 0 20 33 17 0 95 0 314 4 41 0 0 35 22 0 0 0 05 years or more 72 24 77 78 10 44 0 0 0 18

Total 100 100 100 100 100 100 100 100 100 100

Average life of long-term debt (years) 5.7 3.4 4.9 5.9 3.8 3.8 1.5 2.5 1.5 2.7Average life of total debt (years) 5.5 3.1 4.9 5.8 3.5 3.5 1.5 2.4 0.9 2.0

Consolidated debt US$ Comprehensive %short term and long term 2012 2011 Var. 2012 2011Short term debt 132 202 (70) 3 5Long-term 1 year 185 170 15 5 4

2 809 413 396 20 10 3 534 1,047 513 13 25 4 538 499 39 14 12 5 years or more 1,771 1,911 (140) 45 44

Total 3,969 4,242 (273) 100 100

Average life of long-term debt (years) 4.3 4.1Average life of total debt (years) 4.0 3.8

32


FINANCIAL RATIOS LIQUIDITYThe Debt Net of Cash or DNC to Cash flow ratio was improved at a consolidated level between 2011 and 2012, mainly due to an improved cash flow in all the groups, combined with a decrease in Alpek’s debt, as shown in the following table:

Debt Net of Cash / Cash flow (in US dollars last 12 months) 2012 2011Alpek 0.83 1.54Sigma 1.83 2.76Nemak 2.58 3.55Alestra 1.05 1.44Consolidated 1.53 2.49

The interest hedge increased both at a consolidated level as at a group level. This is mainly due to an increase in cash flows.

For Variation Cash Financial Interest coverage (in US dollars) * 2012 2011 12/11 Flows Expenses

Alpek 6.2 8.7 (2.5) (0.5) (2.0)Sigma 6.9 5.3 1.6 1.0 0.6Nemak 6.7 3.5 3.2 1.3 1.9Alestra 5.5 4.6 0.9 0.3 0.6Consolidated 6.4 5.4 1.0 0.8 0.2

* Defined as operating income plus depreciation and amortization, divided by net financial expenses.

FINANCIAL STRUCTUREIndicators of ALFA’s financial structure improved during 2012, as observed in the following table:

Financial ratios 2012 2011Total liabilities / Capital 1.51 2.13Long term debt / Total debt (%) 92 91Total foreign currency debt / Total debt (%) 87 88

Monterrey, N. L., February 1, 2013

To the Shareholders’ Meeting of Alfa, S. A. B. de C.V.

We have audited the accompanying consolidated financial statements of Alfa, S. A. B. de C. V and subsidiaries, which comprise the consolidated statement of financial position as at December 31, 2012 and 2011, and January 1, 2011, and the consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the years ended December 31, 2012 and 2011, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS, see Note 3), 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.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Alfa, S. A. B. de C. V. and its subsidiaries as at December 31, 2012 and 2011, and January 1, 2011, and its financial performance and its cash flows for the years ended December 31, 2012 and 2011, in accordance with International Financial Reporting Standards (IFRS).

PricewaterhouseCoopers, S. C.

Alberto Cano CharlesAudit Partner

PricewaterhouseCoopers, S. C.

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES

33

As of December 31, 2012 and 2011, and January 1, 2011

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

(Millions of Mexican pesos) December 31, December 31, January 1, Note 2012 2011 2011

AssetsCURRENT ASSETS:Cash and cash equivalents 6 Ps 13,661 Ps 8,254 Ps 7,140Restricted cash and cash equivalents 7 577 370 977Clients and other accounts receivable, net 8 21,903 24,250 18,048Inventory 9 21,728 20,584 14,282Derivative financial instruments 10 129 119 680Other current assets 11 976 512 444Total current assets 58,974 54,089 41,571

NON-CURRENT ASSETS:Non-current portion of derivativefinancial instruments 10 - 46 109Property, plant and equipment, net 12 74,068 76,381 66,033Goodwill and intangible assets, net 13 19,062 18,856 15,191Deferred income tax 17 442 796 360Other non-current assets 14 1,312 1,026 761Total non-current assets 94,884 97,105 82,454

Total assets Ps 153,858 Ps 151,194 Ps 124,025


34

Álvaro Fernández Garza Ramón A. Leal ChapaPresident Chief Financial Officer

December 31, December 31, January 1, Note 2012 2011 2011

Liabilities and Stockholders’ equityLiabilitiesCURRENT LIABILITIES:Current debt 16 Ps 4,598 Ps 5,828 Ps 4,193Suppliers and other accounts payable 15 27,562 28,376 21,870Income tax payable 3.m 535 - 960Derivative financial instruments 10 378 699 275Other current liabilities 19 559 326 360Total short-term liabilities 33,632 35,229 27,658

NON-CURRENT LIABILITIES:Non-current debt 16 47,175 53,512 39,590Non-current portion of derivativefinancial instruments 10 587 1,628 1,780Provisions 18 716 578 455Deferred income tax 17 3,373 3,894 3,397Deferred income tax from tax consolidation 17 4,473 5,299 4,779Employees’ benefits 20 2,690 2,432 1,828Other non-current liabilities 19 435 357 55Total non-current liabilities 59,449 67,700 51,884Total liabilities 93,081 102,929 79,542

Stockholders’ equityControlling interest:Capital stock 21 211 217 227Retained earnings 21 51,739 40,662 38,716Other reserves 21 92 2,815 137Total controlling interest 52,042 43,694 39,080Non-controlling interest 8,735 4,571 5,403Total stockholders’ equity 60,777 48,265 44,483Total liabilities and stockholders’ equity Ps 153,858 Ps 151,194 Ps 124,025


35

(Millions of Mexican pesos) Note 2012 2011

Revenue 3.u Ps 200,167 Ps 182,967Cost of sales 24 (164,599) (151,491)Gross profit 35,568 31,476

Selling expenses 24 (10,845) (9,885)Administrative expenses 24 (8,369) (7,844)Other expenses, net 25 (49) (1,075)Operating profit 16,305 12,672

Financial income, including foreign exchange gain of Ps962 in 2012 26 1,681 606Financial costs, including foreign exchange loss of Ps1,244 in 2011 26 (4,412) (5,364)Financing costs, net (2,731) (4,758)Share of losses of associatesrecognized by the equity method 14 - (31)Profit before income tax 13,574 7,883

Income tax expense 28 (3,390) (2,551)Net consolidated profit Ps 10,184 Ps 5,332

Profit attributable to:Controlling interest Ps 8,994 Ps 4,748Non-controlling interests 1,190 584 Ps 10,184 Ps 5,332

Earnings per basic and diluted share, in pesos Ps 1.74 Ps 0.98

Weighted average of outstanding shares (thousands of shares) 5,170,650 5,333,166

For the years ended December 31, 2012 and 2011




36

(Millions of Mexican pesos) Note 2012 2011

Net consolidated profit Ps 10,184 Ps 5,332Other comprehensive income (loss) for the year,net of tax:Effect of derivative financial instrumentsdesignated as cash flow hedges 10 87 (354)Actuarial loss on post employment benefit obligations 20 (306) (248)Effect of translation of foreign entities 21 (2,887) 3,492Total others comprehensive income (loss) for the year (3,106) 2,890Total comprehensive income for the year Ps 7,078 Ps 8,222

Attributable to:Controlling interest Ps 5,965 Ps 7,176Non-controlling interest 1,113 1,046Total comprehensive income for the year Ps 7,078 Ps 8,222





37

(Millions of Mexican pesos) Capital Retained Note Stock earnings

Balance as at January 1, 2011 Ps 227 Ps 38,716

Transactions with shareholders:

Dividends declared 21 - (1,133)

Repurchase of own shares 21 (10) (2,255)

Dividends from subsidiaries to non-controlling interest 3.b - -

Changes in the non-controlling interest 3.b - 836

(10) (2,552)

Net profit - 4,748

Total other comprehensive income for the year - (250)

Comprehensive income - 4,498

Balance at December 31, 2011 217 40,662

Transactions with shareholders:

Dividends declared 21 - (1,348)

Repurchase of own shares 21 (6) (1,068)

Dividends from subsidiaries to non-controlling interest 3.b - -

Changes in the non-controlling interest 2.c - 4,805

(6) 2,389

Net profit - 8,994

Total other comprehensive income for the year - (306)

Comprehensive income - 8,688

Balance at December 31, 2012 Ps 211 Ps 51,739




38

Total Non- Total Other controlling controlling stockholders’

reserves interest interest equity

Ps 137 Ps 39,080 Ps 5,403 Ps 44,483

- (1,133) - (1,133)

- (2,265) - (2,265)

- - (462) (462)

- 836 (1,416) (580)

- (2,562) (1,878) (4,440)

- 4,748 584 5,332

2,678 2,428 462 2,890

2,678 7,176 1,046 8,222

2,815 43,694 4,571 48,265

- (1,348) - (1,348)

- (1,074) - (1,074)

- - (790) (790)

- 4,805 3,841 8,646

- 2,383 3,051 5,434

- 8,994 1,190 10,184

(2,723) (3,029) (77) (3,106)

(2,723) 5,965 1,113 7,078

Ps 92 Ps 52,042 Ps 8,735 Ps 60,777



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(Millions of Mexican pesos) Note 2012 2011Cash flows from operating activitiesProfit before income tax Ps 13,574 Ps 7,883Depreciation and amortization 12 7,962 6,915Impairment of long-lived assets 25 270 503Costs associated with seniority premiums and pension plan (206) (220)Loss on sale of property, plant and equipment 25 (37) 5Income tax paid (1,605) (1,898)Effect of changes in the fair value of derivative financial instruments (497) 412Foreign exchange - Net (739) 672Other non-operating expenses and finance products, net 3,799 1,548(Increase) decrease in customers and other accounts receivable (103) (882)(Increase) decrease in inventory (1,419) (3,438)(Increase) decrease in suppliers and other accounts payable (379) 3,309Net cash generated from operating activities 20,620 14,809

Cash flows from investing activitiesInterest received 315 149Acquisition of property, plant and equipment 12 (7,318) (6,179)Purchases of intangible assets 13 (1,414) (594)Business acquisitions 2 (2,401) (9,266)Restricted cash 6 (278) 571Dividends received 58 16Other assets (696) (108)Net cash used in investing activities (11,734) (15,411)

Cash flows from financing activitiesProceeds from borrowings or debt 16 22,076 28,794Payments of borrowings or debt 16 (26,454) (19,927)Paid interests (3,796) (3,745)Dividends paid by Alfa, S. A. B. de C.V. (1,348) (1,131)Dividends paid to the non-controlling interest 3.b (790) (522)Repurchase of shares 21 (1,074) (2,265)Movements in the non-controlling interest 2.c 8,646 (407)Other (145) 134Cash (used in) from financing activities (2,885) 931Net increase in cash and cash equivalents 6,001 329Foreign exchange on cash and cash equivalents (594) 785Cash and cash equivalents at the beginning of the year 8,254 7,140Cash and cash equivalents at end of year Ps 13,661 Ps 8,254





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As at December 31, 2012 and 2011 and January 1, 2011

1 ALFA companies’ activities

Alfa, S.A.B. de C.V. and subsidiaries (“ALFA” or “the Company”), is a Mexican company holding of five business groups with the following activities: Alpek, dedicated to the production of petrochemicals and synthetic fibers; Sigma, refrigerated food company; Nemak, oriented to the manufacture of high-tech aluminum auto parts; Alestra, in the telecommunications sector, and Newpek, the natural gas and hydrocarbons company .

ALFA has an outstanding competitive position globally in the auto parts segment as a producer of aluminum engine heads and blocks, as well as in the manufacture of PTA (raw material for the manufacture of polyester) and is a leader in the Mexican market for refrigerated foods. ALFA operates industrial production and distribution centers mainly in Mexico, The United States (U.S.), Canada, Germany, Slovakia, The Czech Republic, Costa Rica, The Dominican Republic, El Salvador, Argentina, Peru, Austria, Brazil, China, Hungary, Spain, India and Poland. The company markets its products in over 40 countries worldwide and employs over 59,000 people.

ALFA’s shares are traded on the Mexican Stock Exchange, S. A. B. de C.V., and Latibex, the Latin American market of the Madrid Stock Exchange.

ALFA is located in Avenida Gómez Morín Sur No. 1111, Col. Carrizalejo, San Pedro Garza García, Nuevo León, México.

In the following notes to the financial statements when referring to pesos or “Ps”, it means millions of Mexican pesos. When referring to “US$” or dollars, it means millions of dollars from the United States.

2 Acquisitions and other significant events

2012a) Alpek 144A debt issueDuring the month of November 2012, Alpek, S.A.B. de C.V., (Alpek) completed an issuance of debt (“Senior Notes”) for a nominal amount of US$650, maturing in 2022. Interest on the Senior Notes will be payable semi-annually at 4.5% per year as of May 20, 2013.

b) Acquisition of J.L. FrenchDuring the second quarter of 2012, Nemak Exterior, S. L., subsidiary of Tenedora Nemak, S.A. de C.V. (TNemak) acquired all the shares representing the capital stock of J.L. French Automotive Castings, Inc. (“J.L. French”), a producer of high pressure aluminum castings for automotive component manufacturing, with emphasis on transmission parts. This transaction has several important advantages for TNemak, including notably the expansion into other aluminum components with high added value, such as structural and suspension parts. The company operates three manufacturing plants located in the U.S., Spain and China. The acquired business is included in the Nemak segment, see Note 30.

At December 31, 2012 the company is in the process of completing the purchase price allocation to the fair values of assets acquired because it is reviewing the appraisement made by independent experts, estimating that such analysis will be completed within a period maximum of twelve months from the date of acquisition. The total consideration paid for the business was Ps3,023 (US$216) in cash.


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The purchase price allocation is shown in U.S. dollars because that is the functional and reporting currency of the subsidiary acquired, the exchange rate at the date of the transaction was 13.99 Mexican pesos per dollar; the principal exchange rates used in the different translation process are further described in Note 3.c. The allocation is as follows:

Current assets (1) US$ 64Property, plant and equipment 113Intangible assets 1Other assets 24Current liabilities (2) (6)Employees’ benefits (5)Goodwill 25 US$ 216

(1) Current assets consist of cash and net working capital.(2) Current liabilities consist of suppliers for Ps1 and other payables of US$5.

The value of acquired receivables approximates their fair value due to their short maturity. It is estimated that the acquired receivables will be recovered in the short term.

No contingent liability has arisen from this acquisition that should be recorded. There are no other contingent compensation arrangements. ALFA is not responsible for environmental liabilities except for those that may have originated on or after the acquisition date.

Costs related to the acquisition amounted Ps22 (US$1.7) and were recognized in the income statement in other expenses.

Revenues from J. L. French assets included in the consolidated income statement from the acquisition date to December 31, 2012 were Ps273, and a net income of Ps4.

At the date of issuance of these financial statements, ALFA was unable to obtain the historical audited financial information under IFRS prior to the date of the acquisition of the counterparty in order to determine the amount of annual revenue and net income as if the acquisition had taken place on January 1, 2012.

c) Initial Public Offfering (IPO) of Alpek shares

i. During the months of April and May 2012, Alpek, S.A. de C.V. conducted an initial public offering (IPO) of shares in Mexico and a private offering of shares in international markets (together “Global Offer”) as follows:

price of 27.50 Mexican pesos, the offer included an overallotment option of up to 49,038,898 shares. The amount of the global offering was Ps9,082.

overallotment options. The amount of overallotments was Ps1,349, corresponding to 49,038,898 shares at placement price of 27.50 Mexican pesos each.

Due to the above the total resources ALFA obtained as a result of this offering were Ps10,155, net of issuance costs of Ps276. Following this offering the paid capital of Alpek, S.A.B. de C.V. is represented by a total of 2,118,163,635 shares Class I, Series A.

ii. Also, as part of the Global Offering as mentioned above, ALFA acquired shares representing the capital stock of Alpek, as of December 31, 2012 the balance was Ps1,602.

iii. Derived from the above events ALFA participation in the capital stock of Alpek diluted from 100% to 85.48% and currency effects are shown under “movements in the non-controlling interest” in the statement of cash flows and of changes in stockholders’ equity.


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d) Exploration and exploitation of hydrocarbons (PEMEX).During June 2012, ALFA through a consortium between its subsidiary Alfasid del Norte, S.A. de C.V. (Alfasid), and Monclova Pirineos Gas, S.A de C.V. (MPG), another Mexican company, won two tenders held by Petroleos Mexicanos, S.A. (PEMEX) through Pemex-Exploración y Producción (PEP) for the exploration and production of hydrocarbons in two mature oil fields located in San Andrés and Tierra Blanca, Veracruz, Mexico.

Alfasid in partnership with MPG has created a couple of legal entities Petrolíferos Tierra Blanca, S.A. de C.V. (Petrolíferos) and Oleorey, S.A. de C.V. (Oleorey) in order to operate, develop and produce hydrocarbons, this through “Service Contract for the Exploration, Development and Production of Hydrocarbons” held with PEP during the month of August 2012 and lasting up to 30 years. These contracts provide an initial minimum program which have a value of US$24.1 and US$23.9 to be developed during the first two years as of the signing of each contract At December 31, 2012; Petrolíferos y Oleorey granted bail to guarantee the amount of the initial minimum program in each contract. In case of breach PEP has the right to enforce the foregoing warranties.

e) Constitution of a new entity.As of 2012 and for the next two years, ALFA through its subsidiary Grupo Petrotemex, S.A. de C.V. (Grupo Petrotemex) plans to invest about US$130 in a proposed cogeneration of electricity and steam to supply its PTA and PET plants located in Cosoleacaque, Veracruz, Mexico. This cogeneration plant will generate about 95 megawatts of electricity and all the steam necessary to meet the requirements of the PTA and PET plants located in Cosoleacaque. Additionally, competitive energy will be supplied to other ALFA companies outside Cosoleacaque.

To implement this project, on January 31, 2012, Grupo Petrotemex and Dak Resinas Américas México, S. A. de C.V. (both subsidiaries of ALFA), constituted a new company called Cogeneración de Energía Limpia de Cosoleacaque, S. A. de C.V. (“Cogeneradora”). The project will increase the competitiveness of the site, assuring the supplies of cheap energy with low emissions.

At December 31, 2012, Cogeneradora is in the preoperating stage.

2011f) Acquisition of Eastman (Columbia)On January 31, 2011, ALFA, through its subsidiary Dak Americas, acquired the facilities Purified Terephtalic Acid (PTA) y Polyethylene Terephtalate (PET) located in United States owned by Eastman Chemical Company (“Columbia’s assets”). The acquisition of Columbia’s assets met all the criteria of a business acquisition. As a result of this operation, a modern petrochemical complex was acquired comprising three plants located in Columbia, South Carolina, with a combined total annual capacity of 1.26 tons, which produce PTA and PET. This acquisition also included working capital and a series of patents and intellectual property rights on technology called IntegRex used in the production of PTA and PET. A total of 415 employees work in these plants, including administrative staff. As of February 1, 2011 the consolidated financial statements include the financial information of the Columbia’s assets. The acquired business is included in the Alpek segment, see Note 30.

The final allocation of the purchase price was determined during the fourth quarter of 2011 in accordance with according to its fair value at the acquisition date. The total consideration paid for the business was Ps7,546 (US$621) in cash.


Current assets (1) US$ 226Property, plant and equipment 271Intangible assets (3) 156Current liabilities (2) (36)Goodwill 4 US$ 621

(1) The current assets consist primarily of accounts receivable for US$122 and inventories for US$104.(2) The current liabilities consist primarily of suppliers for US$36.(3) Integration, classification and amortization rate are part of the assets described in Note 13.

Goodwill consists primarily of favorable global market positions obtained through the expanded capabilities of the underlying assets of the Company. Recorded goodwill is not deductible for tax purposes.

The acquisition was financed through a syndicated credit facility with HSBC Securities (USA) Inc. and Credit Suisse Securities (USA) LLC as Administrative Agent for a total of US$600. The credit was signed on December 16, 2010 and the funds were received on January 31, 2011.



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Costs related to the acquisition amounted Ps77.6 (US$6.4) and were recognized in the income statement in other expenses.

Revenues from Columbia assets included in the consolidated income statement from the acquisition date to December 31, 2011 were Ps12,995 (US$1,046).

This transaction corresponds to an acquisition of assets so it was not possible for ALFA to obtain the financial information for these goods before the date of the acquisition of the counterparty in order to determine the amount of annual revenue and net income as if the acquisition had taken place on January 1, 2011.

g) Acquisition of WellmanOn August 31, 2011, ALFA, through its subsidiary Dak Americas, LLC, acquired 100% of the shares of Wellman, Inc. (“Wellman”). As a result of this operation a plant located in Bay St. Louis, Mississippi, United States with the capacity to produce 430,000 tons of PET a year was acquired. The plant employs 165 people. As of September 1, 2011 the consolidated financial statements include the financial information of the Wellman. The acquired business is included in the Alpek segment in Note 30.

The final allocation of the purchase price was determined during the fourth quarter of 2011 and according to its fair value at the acquisition date. The total consideration paid for the business was Ps1,535 (US$123) in cash.


Current assets (1) US$ 90Property, plant and equipment 111Intangible assets (3) 7Other assets (4) 12Current liabilities (2) (45)Employees’ benefits (28)Long-term debt (38)Goodwill 14 US$ 123

(1) Current assets consist of cash and cash equivalents US$2, accounts receivable US$56 and inventories for US$32(2) Current liabilities consist of suppliers for US$39 and other payable of US$6.(3) Integration, classification and amortization rate are part of the assets described in Note 13.(4) Other assets consist of deferred taxes of US$4 and other non-current assets of US$8.

Goodwill represents the value of the synergies expected to acquire a going concern with an organized and trained work force and growth prospects. Recorded goodwill is not deductible for tax purposes.



Costs related to the acquisition amounted to Ps30.8 (US$2.5) and were recognized in the income statement in other expenses.

Revenues from Wellman included in the consolidated income statement from the acquisition date to December 31, 2011 were Ps1,858 (US$149).

At the date of issuance of these financial statements, ALFA was unable to obtain the audited financial information before the date of the acquisition under the accounting standards used by ALFA in order to determine the amount of annual revenue and net income as if the acquisition had taken place on January 1, 2011.


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h) 144A debt issuance of Sigma AlimentosOn April 14, 2011, Sigma Alimentos S.A de C.V., (Sigma) completed the issuance of debt obligations (“Senior Notes”) by a nominal amount of US$450, maturing on April 14, 2018. Interest on the Senior Notes will be payable semi-annually at 5.625% per year as of October 14, 2011.

i) Nemak debt refinancing

In August 2011, Nemak concluded the refinancing of the bank debt, which was authorized by the Board of Directors on May 10, 2011. This process included short and long-term debt (syndicated loan and stock certificates). Consequently, the process involved the refinancing of approximately US$1.1 billion, which will extend the duration of such loans by approximately two years after the original contracts.

j) Formation of Alpek as a business groupPrior to June 15, 2011, ALFA was operating in the petrochemical industry through various entities grouped informally in a business division known as “Alpek”, which was not a legal entity or group. However, on April 18, 2011, a new company called Alpek, S.A. de C.V. (“Alpek”) was legally established; then on June 16, 2011, ALFA transferred to Alpek all its shares in the following companies:

Percentage (%) of

equity(1)

Grupo Petrotemex, S.A. de C.V. and subsidiaries (“Petrotemex”) (2) 100Indelpro, S.A. de C.V. and subsidiaries (“Indelpro”) 51Polioles, S.A. de C.V. and subsidiaries (“Polioles”) 50 + 1 shareUnimor, S.A. de C.V. and subsidiaries (“Unimor”) 100Copeq Trading Co. (“Copeq”) 100

(1) Percentage of direct participation that ALFA had in each of the companies groups or sub-holding companies prior to the date of transfer of shares.

(2) As of June 15, 2011, Petrotemex, who already had 49% of the shares of Akra Polyester, S. A. de C.V. (“Akra”), obtained from ALFA 51% of the remaining shares. With this transaction Petrotemex already has 100% of the shares of Akra.

These transactions had no accounting impact on the financial statement of ALFA as they were transactions within the same group.

3 Summary of significant accounting policies

The accompanying consolidated financial statements and notes were authorized for issuance on February 1, 2013, by officials with the legal power to underwrite below the basic financial statements and accompanying notes.

The following are the most significant accounting policies followed by ALFA and its subsidiaries, which have been consistently applied in the preparation of their financial information in the years presented, unless otherwise specified:

a. Basis for preparationThe consolidated financial statements of ALFA, S. A. B. de C.V. and subsidiaries have been prepared in accordance with the 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).

In accordance with the amendments to the Rules for Mexican Public Companies and Other Securities Market Participants, issued by the National Banking and Securities Commission (CNBV in Spanish) on January 27, 2009, the Company is required to prepare its financial statements as of 2012 using IFRS as accounting policy framework.

For comparison purposes, the consolidated financial statements at December 31, 2011 and for the year then ended have been prepared in accordance with IFRS.

ALFA changed its accounting policies from Mexican Financial Reporting Standards (MFRS) to comply with IFRS as of January 1, 2012. The transition from MFRS to IFRS has been accountant for in accordance with IFRS 1, first time adoption of IFRS setting the January 1, 2011 as the transition date. The reconciliation of effects for the transition from MFRS to IFRS is disclosed in Note 32 to the consolidated financial statements.


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The consolidated financial statements have been prepared on a historical cost basis, except for the exemptions applied by the Company disclosed in Note 32 and for the cash flows hedging financial instruments which are measured at fair value, and the financial assets and liabilities at fair value through profit or loss and financial assets available for sale.

The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. Additionally, it requires management to exercise judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where judgments and estimates are significant to the consolidated financial statements are disclosed in Note 5.

b. Consolidationi. SubsidiariesSubsidiaries are all entities over which the Company has the power to govern the financial and operating policies of the entity generally accompanying a shareholding of more than half of the voting rights. Where the Company’s participation in subsidiaries is less than 100%, the share attributed to outside shareholders is reflected as non-controlling interest.

Subsidiaries are consolidated in full from the date on which control is transferred to the Company and up to the date they loses that control.

The method of accounting used by the Company for business combinations is the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable acquired assets and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Company recognizes any non-controlling interest in the acquiree based on the share of non-controlling interest in the net identifiable assets of the acquired entity.

The Company applies the accounting for business combinations using the predecessor method in a jointly controlled entity. The predecessor method involves the incorporation of the carrying amounts of the acquired entity, which includes the goodwill recognized at the consolidated level over the acquiree. Any difference between the carrying value of the net assets acquired at the level of the subsidiary and its carrying amount at the level of the Company are recognized in equity.

The acquisition-related costs are recognized as expenses when incurred.

Goodwill is initially measured as the sum of excess consideration transferred and the fair value of the non-controlling interest over the net identificable 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.

Transactions and intercompany balances and unrealized gains on transactions between companies of ALFA are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated unless the transaction provides evidence of impairment in the asset transferred. In order to ensure consistency with the policies adopted by the Company, the accounting policies of subsidiaries have been changed where it was deemed necessary.

At December 31, 2012 and 2011, the principal subsidiaries of ALFA are:

Functional Country (1) Ownership % (2) currency

Alpek (Petrochemicals and synthetic fibers)Alpek, S.A.B. de C.V. (Holding company) (3) 85 Mexican peso Grupo Petrotemex, S. A. de C.V. 100 US dollar DAK Americas, L.L.C. USA 100 US dollar DAK Resinas Americas México, S. A. de C. V 100 US dollar DAK Americas Exterior, S. L. (Holding company) Spain 100 Euro DAK Americas Argentina, S. A. Argentina 100 Argentinean peso Tereftalatos Mexicanos, S. A. de C.V. 91 US dollar Akra Polyester, S. A. de C.V. (4) 93 Mexican peso Indelpro, S. A. de C.V. 51 US dollar Polioles, S. A. de C.V. (6) 50 US dollar Unimor, S. A. de C.V. (Holding company) 100 Mexican peso Univex, S. A. 100 Mexican peso


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Functional Country (1) Ownership % (2) currency

Sigma (Refrigerated food)Sigma Alimentos, S. A. de C.V. (Holding company) 100 Mexican peso Alimentos Finos de Occidente, S. A. de C.V. 100 Mexican peso Grupo Chen, S. de R. L. de C.V. 100 Mexican peso Sigma Alimentos Lácteos, S. A. de C.V. 100 Mexican peso Sigma Alimentos Centro, S. A. de C.V. 100 Mexican peso Sigma Alimentos Noreste, S. A. de C.V. 100 Mexican peso Sigma Alimentos Exterior, S. L. (Holding company) Spain 100 Euro Bar-S Foods Co. USA 100 US dollar Mexican Cheese Producers, Inc. USA 100 US dollar Braedt, S. A. Peru 100 Nuevo solNemak (Aluminum auto parts)Tenedora Nemak, S. A. de C.V. (Holding company) 93 US dollar Nemak, S. A. 100 US dollar Modellbau Schönheide GmbH Germany 90 Euro Corporativo Nemak, S. A. de C.V. 100 Mexican peso Nemak Canada, S. A. de C.V. (Holding company) 100 Mexican peso Nemak of Canada Corporation Canada 100 Canadian dollar Camen International Trading, Inc. USA 100 US dollar Nemak Europe GmbH (Holding company) Germany 100 Euro Nemak Exterior, S. L. (Holding company) Spain 100 Euro Nemak Dillingen GmbH Germany 100 Euro Nemak Wernigerode (GmbH) Germany 100 Euro Nemak Linz GmbH Austria 100 Euro Nemak Gyor Kft Hungary 100 Euro Nemak Poland Sp. z.o.o. Poland 100 Euro Nemak Nanjing Aluminum Foundry Co., Ltd. China 100 Yuan Nemak USA, Inc. USA 100 US dollar Nemak Alumínio do Brasil Ltda. Brazil 100 Brazilian real Nemak Argentina, S. R. L. Argentina 100 Argentinean peso Nemak Slovakia, S.r.o. Slovakia 100 Euro Nemak Czech Republic, S.r.o. Czech Republic 100 Euro Nemak Aluminum Castings India Private, Ltd. India 100 Rupee Nemak Automotive Castings, Inc., formerly J.L. French (5) USA 100 US dollarAlestra (Telecommunications)Alestra, S. de R. L. de C.V. 100 Mexican pesoNewpek (Natural Gas and Oil)Alfa Energía Exterior, S.L. (Holding company) Spain 100 Euro Newpek, L. L. C. USA 100 US dollarAlfasid del Norte, S.A. de C.V. 100 Mexican pesoOther entitiesColombin Bel, S. A. de C.V. 100 US dollarTerza, S. A. de C.V. 51 Mexican pesoAlfa Corporativo, S. A. de C.V. 100 Mexican peso

(1) Companies established in Mexico, except those indicated.(2) Percentage of ownership that ALFA has in the controllers of each business group and percentage of ownership that such parents have in the

companies that make up the groups. Percentage of shareholdings at 31 December 2012 and 2011 except as described in bullets 3 and 5.(3) Company established in 2011, see Note 2 comments in paragraph j.(4) On September 1, 2012, Productora de Tereftalatos de Altamira, S. A. de C.V. merged in Akra Polyester, S. A. de C.V. (Akra), after the merger

ALFA owns 93.35% of shares of Akra and BP Amoco Chemical Company the remaining 6.65%.(5) Company acquired in 2012, see comments in Note 2 paragraph b.(6) The Company owns 50% plus one share.


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ii. Absorption (dilution) of control in subsidiaryThe effect of absorption (dilution) of control in subsidiaries, i.e., an increase or decrease in the percentage of control, is recorded in stockholders’ equity, directly in retained earnings in the period in which occur transactions that cause such effects. The effect of absorption (dilution) of control is determined by comparing the carrying value of the investment in shares based on the share before dilution event or absorption against the book value participation after the relevant event. In the case of loss of control the dilution effect is recognized in income. During 2012 the company reflects the dilution effect on the participation of its subsidiary Alpek as explained 2.b. note. During 2011, the Company increased the share of its subsidiary Alestra acquiring 49% of the shares held by minority shareholders. The effects of this acquisition is considered a transaction between shareholders so that the net effects are shown in equity as part of ALFA movements in the non-controlling interest.

iii. Sale or disposal of subsidiariesWhen the Company ceases to have control any retained interest in the entity is re-measured at fair value, the change in the carrying amount recognized in the income statement. The fair value is the initial carrying value for accounting purposes of 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 implies that the amounts recognized in the comprehensive income are reclassified to profit year.

iv. AssociatesAssociates are all entities over which the Company has significant influence but not control, generally it takes to hold between 20% and 50% of the voting rights in the 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 ownership interest in an associate is reduced but significant influence is maintained, only a portion of the amounts recognized in the comprehensive income are reclassified to income for the year, where appropriate.

The Company’s share of profits or losses of associates, post-acquisition, is recognized in the income statement and interest in other comprehensive income of associates is recognized as other comprehensive income. The cumulative movements after acquisition are adjusted against the carrying amount of the investment. When the Company’s share of losses in an associate equals or exceeds its interest 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 associated.

The Company assesses at each reporting date whether there is objective evidence that the investment in the associate is impaired. If so, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes it in “share of profit/loss of associates recognized through the equity method” in the income statement.

Unrealized gains on transactions between the Company and its associates are eliminated to the interest in them. Unrealized losses are also eliminated unless the transaction provides evidence of impairment in the asset is intransfered. In order to ensure consistency with the policies adopted by the Company, the accounting policies of associates have been changed modified. When the Company ceases to have significant influence over an associate, any difference between the fair values of any investment retained is recognized in the income statement, including any consideration received from the disposal of part of the share and the book value of the investment .

c. Foreign currency translationi. Functional and presentation currencyThe amounts included in the financial statements of each of the Companies entities 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, which is the Company ‘s reporting currency.

ii. Transactions and balancesTransactions in foreign currencies are translated into the functional currency using the foreign exchange rates prevailing at the transaction date or valuation 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 in the income statement, except for those which are deferred in comprehensive income and qualify as cash flow hedging.

Changes in 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.

Translation differences on non-monetary assets, such as investments classified as available for sale are included in other comprehensive income items.


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iii. Consolidation of subsidiaries with a functional currency different from the presentation currencyIncorporation of subsidiaries whose functional currency is different to its recording currency.

The financial statements of foreign subsidiaries, having a record currency different from the functional currency were translated to the functional currency according to the next procedure:

a. The balances of monetary assets and liabilities denominated in the currency of record, became the closing exchange rates.

b. A historical balance of monetary assets and liabilities and shareholders’ equity translated into functional currency movements were added occurred during the period, which were converted at historical exchange rates. In the case of the movement of non-monetary items recognized at fair value, which occurred during the period stated in the accounting currency, are translated using historical exchange rates referred to the date when the fair value was determined.

c. The income, costs and expenses of the periods expressed in record currency were translated at historical exchange rate of the date they were accrued and recognized in the income statement, except when they arose from non monetary items in which case the historical exchange rate of the non monetary items was used.

d. Differences in changes arising in the translation from record currency to functional currency were recognized as income or expense in the income statements in the period they were originated.

Incorporation of subsidiaries whose functional currency is different to its presentation currency.

The results and financial position of all ALFA entities (none of which is in hyperinflationary environment) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

a) Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the balance sheet date;

b) The capital of each balance sheet presented is translated at historical rates.

c) Income and expenses for each income statement 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, use the time change to the date of the transaction ); and

d) All will change resulting differences are recognized in comprehensive income.

Goodwill and adjustments to assets and liabilities, as at the date of acquisition of a foreign operation to measure them at fair value, are recognized as assets and liabilities of the foreign entity and translated at the exchange rate at the closing date. Exchange differences arising are recognized in equity.

Listed below are the main types of change in the various conversion processes: Local currency to Mexican pesos

Closing exchange Average exchange rate at Exchange rate rate at December 31, at January 1, December 31,

Country Local currency 2012 2011 2011 2012 2011

Canada Canadian dollar 13.08 13.71 12.43 13.10 12.65USA US dollar 13.01 13.98 12.36 13.02 12.49Brazil Brazilian real 6.35 7.49 7.43 6.26 7.48Argentina Argentinean peso 2.65 3.25 3.10 2.67 3.01Peru Nuevo Sol 5.10 5.20 4.40 5.07 4.54Czech Republic Euro 17.21 18.14 16.57 17.08 17.46Germany Euro 17.21 18.14 16.57 17.08 17.46Austria Euro 17.21 18.14 16.57 17.08 17.46Hungary Euro 17.21 18.14 16.57 17.08 17.46Poland Euro 17.21 18.14 16.57 17.08 17.46Slovakia Euro 17.21 18.14 16.57 17.08 17.46Spain Euro 17.21 18.14 16.57 17.08 17.46China RenMinBi Yuan 2.09 2.22 1.87 2.09 1.94India Indian Rupee 0.24 0.26 0.28 0.24 0.27

d. Cash and cash equivalentsCash and cash equivalents include cash on hand, bank deposits available for operations and other short-term investments of high liquidity with original maturities of three months or less, all of these are subject to insignificant risk of changes in value. Bank overdrafts are presented as current liabilities loans within. Banks loans as a part of the current liabilities.


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e. Restricted cash and cash equivalentsCash and cash equivalents whose restrictions originate failure to comply with the definition of cash and cash equivalents described above, are presented in a separate line in the statement of financial position and are excluded from cash and cash equivalents in the statement cash flow.

f. Financial instrumentsFinancial assetsThe Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, investments held to maturity and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets upon initial recognition. Purchases and sales of financial assets are recognized on the settlement date.

Financial assets are written off in full when the right to receive the related cash flows expires or is transferred and the Company has also transferred substantially all risks and rewards of ownership and control of the financial asset.

i. Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges.

Financial assets at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the income statement. Gains or losses from changes in fair value of these assets are presented in the income statement as incurred.

ii. Loans and receivablesThe receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included as current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.

Loans and receivables are measured initially at fair value plus directly attributable transaction costs and subsequently at amortized cost, using the effective rate method of interest. When circumstances occur that indicate that the amounts receivable will not be collected by the amounts originally agreed or will be in a different period, the receivables are impaired.

iii. Maturity investmentsIf the Company intends and demonstrable ability to hold debt securities to maturity, they are classified as held to maturity. Assets in this category are classified as current assets if expected to be settled within the next 12 months, otherwise they classified as non-current. Initially recognized at fair value plus any directly attributable transaction costs, are subsequently measured at amortized cost using the effective interest method. Investments held to maturity are recognized or derecognized on the day they are transferred to, or through the Company. At December 31, 2012, the Company has no such investments.

iv. Financial assets available for saleFinancial assets available for sale are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. They are included as non-current assets unless their maturity is less than 12 months or that management intends to dispose of the investment within the next 12 months after the balance sheet date.

Financial assets available for sale are initially recognized at fair value plus directly attributable transaction costs. Subsequently, these assets are carried at fair value (unless they cannot be measured by their value in an active market and the value is not reliable, in this case they will be recognized at cost less impairment).

Gains or losses arising from changes in fair value of monetary and non-monetary instruments are recognized directly in the consolidated statement of comprehensive income in the period in which they occur.

When instruments classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement.

Financial liabilitiesFinancial liabilities that are not derivatives 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 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 initially recognized at fair value, net of transaction costs incurred. Loans are subsequently recognized at amortized cost, any difference between the funds received (net of transaction costs) and the settlement value is recognized in the income statement over the term of the loan using the effective interest method.


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Offsetting financial liabilities

Assets and liabilities are offset and the net amount is presented in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

Impairment of financial instrumentsa) Financial assets carried at amortized costThe Company assesses at the end of each year if there is objective evidence of impairment of each financial asset or group of financial assets. An impairment loss is recognized if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and provided that the loss event (or events) has an impact on the estimated future cash flows arising from the financial asset or group of financial assets that can be reliably estimated.

Aspects to evaluate the Company to determine whether there is objective evidence of impairment are:

- Significant financial difficulty of the issuer or debtor.

- Breach of contract, such as late payments of interest or principal

- Granting a concession to the issuer or debtor, by the Company, as a result of financial difficulties of the issuer or debtor and that would not otherwise be considered.

- There is likelihood that the issuer or debtor is declared in bankruptcy proceedings or bankruptcy or other financial reorganization.

- Disappearance of an active market for that financial asset due to financial difficulties.

- Verifiable information indicates that there is a measurable decrease in the estimated future cash flows related to a group of financial assets after initial recognition, although the decrease cannot yet be identified with the individual financial assets of the Company, including:

(i) Adverse changes in the payment status of borrowers in the group of assets

(ii) National or local conditions that correlate with breaches of the issuers of asset group

Based on the items listed above, the Company assesses whether there is objective evidence of impairment. Subsequently, for the category of loans and receivables, whether impairment exists, the amount of loss is determined by computing the relative difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the original effective interest rate. The carrying amount of the asset is reduced by that amount, which is recognized in the income statement.

If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. Alternatively, the Company could determine the impairment of the asset given its fair value determined on the basis of current observable market price.

If in the following years, the impairment loss decreases due to the objective verification of an event occurring subsequently to the date on which such impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the loss impairment is recognized in the income statement.

b) Financial assets classified as available for saleIn the case of debt financial instruments, the Company also uses the above listed criteria to identify whether there is objective evidence of impairment. In the case of equity financial instruments, a significant or prolonged reduction in its fair value below its cost is also considered objective evidence of impairment.

Subsequently, in the case of financial assets available for sale, an impairment loss determined by computing the difference between the acquisition cost and the current fair value of the asset, less any impairment loss previously recognized, is reclassified from the other comprehensive income accounts and recorded in the income statement. Impairment losses recognized in the income statement related to equity financial instruments are not reversed through the income statement. Impairment losses recognized in the income statement related to financial debt instruments could be reversed in subsequent years, if the fair value of the asset is increased as a result of any subsequent events.


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g. Derivative financial instruments and hedging activitiesAll derivative financial instruments are identified, classified as fair value hedging or cash flow hedging, for trading or hedging of market risks, are recognized in the balance sheet as assets and/or liabilities at fair value and similarly measured subsequently at fair value. The fair value is determined based on recognized market prices and its fair value is determined using valuation techniques accepted in the financial sector.

The fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.

Changes in the fair value of the derivative financial instruments are recognized in finance income or expense, except for changes in fair value of derivative instruments related to cash flow hedging, in which case such changes are recognized in equity. Such hedging derivative financial instruments are hired with risk hedging purposes and meet all hedging requirements; its designation at the beginning of the hedging operation is documented describing the objective, primary position, risks to be hedged and the hedging relationship effectiveness measurement, characteristics, accounting recognition and how the effectiveness measurement will be carried out, applicable to this operation. Changes in the fair value of fair value hedging are recorded in the income statement in the same line item as the hedged position; in the cash flow hedging, the effective portion is temporarily recorded in the comprehensive income, within stockholders’ equity and is reclassified to the income statement when the hedged position affects the income statement, the ineffective portion is immediately recognized in the income statement.

The Company suspends the hedging accounting when the derivative has expired, has been sold, is cancelled or exercised, when it does not reach high effectiveness to offset the changes in fair value or the cash flow of the hedged item or when the Company decides to cancel the hedging designation.

By suspending hedge accounting, in the case of fair value hedging, the adjustment to the carrying amount of a hedged amount for which the effective interest rate method is used, it is amortized to income for the period of maturity, in the case of cash flow hedging, the amounts accumulated in equity as a part of comprehensive income remain in equity until the time when the effects of the forecasted transaction affects the results. In the event the forecasted transaction is not likely to occur, the income or loss cumulated in the comprehensive income account are immediately recognized in the income statement. When the hedging of a forecasted transaction was satisfactory and subsequently does not meet with the effectiveness tests, the cumulative effects in the stockholders’ equity comprehensive income are proportionally transferred to the income statement in the extent the forecasted asset or liability impact it.

The derivative financial transactions have been privately arranged with various financial institutions, whose financial strength is backed by highly rated that, at the time, were assigned values rating agencies and credit risks. The documentation used to formalize the concerted operations is the common, that overall fits the contract entitled “Master Agreement”, which is generated by the “International Swaps & Derivatives Association” (“ISDA”), which is accompanied by accessory documents, known in generic terms as “Schedule”, “Credit Support Annex” and “Confirmation”.

The fair value of derivative financial instruments that is reflected in the financial statements of the Company, is a mathematical approximation of their fair value. It is computed using models of independent third party with assumptions based on past and present market conditions and future expectations at the closing date for accounting.

h. InventoriesInventories are stated at the lower between their cost and net realization 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 for assets transferred corresponding to raw material purchases that qualify as cash flow hedging.

i. Property, plant and equipmentItems of property, plant and equipment are recorded at cost less the accumulated depreciation and any accrued impairment losses in value. The costs include expenses directly attributable to the asset acquisition.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that ALFA obtained future economic benefits derivative thereof and the cost of the item can be reliably calculated. The carrying amount of the replaced part is disposed. Repairs and maintenance are recognized in the income statement during the year they are incurred. Major improvements are depreciated over the remaining useful life of the related asset.


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Depreciation is calculated using the straight-line method, considering separately each of its components, except for the land, which is not subject to depreciation. The average useful lives of assets families are as follows:

Buildings and constructions 33 to 50 yearsMachinery and equipment 10 to 14 yearsTransportation equipment 4 to 8 yearsTelecommunications network 3 to 33 yearsLaboratory furniture and equipment and information technology 6 to 10 yearsTooling and parts 3 to 20 yearsLeasehold improvements 3 to 20 yearsOther assets 3 to 20 years

The spare parts to be used after one year and attributable to specific machinery are classified as property, plant and equipment in other fixed assets.

Borrowing costs related to financing of property, plant and equipment whose acquisition or construction requires a substantial period (nine months), are capitalized as part of the cost of acquiring those assets classified, up to the moment when they are suitable for their intended use or sale.

Assets classified as property, plant and equipment are subject to impairment tests when events or circumstances occur indicating that the carrying amount of the assets may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount in the income statement in other expenses, net. 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.

In the event that the carrying value is greater than the estimated recoverable amount, a reduction in the carrying value of an asset is recognized immediately to its recoverable amount.

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 income statement.

j. LeasingThe classification of leases as finance or operating depends on the substance of the transaction rather than the form of the contract.

Leases in which a significant portion of the risks and rewards relating to the leased property are retained by the lesser are classified as operating leases. Payments made under operating leases (net of incentives received by the lesser) are recognized in the income statement based on the straight-line method over the lease period.

Leases where the Company assumes substantially all the risks and rewards of the leased property are classified as finance leases. Financial leases are capitalized at the lower between the fair value of the leased property and the present value of the minimum lease payments, at the beginning of the lease. If its determination is practical, in order to discount the minimum lease payments at present value, the interest rate implicit in the lease is used, otherwise, an incremental borrowing rate of the lessee should be used. Any initial direct costs of the leases are added to the original amount recognized as an asset.

Each lease payment is allocated between the liability and finance charges to achieve a constant rate on the outstanding balance. The corresponding rental obligations are included in non-current debt, net of finance charges. The interest of the financial costs is charged to the income for the year during the period of the lease, so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated between the lower of the asset’s useful life and the lease term.

k. Intangible assetThe intangible assets are recognized in the balance sheet when they meet the following conditions: are identifiable, provide future economic benefits and the company has control over such benefits.

The intangible assets are classified as follows:

i) Indefinite useful life. - This intangible assets are not amortized and are subject to annual impairment assessment. To date, no factors have been identified limiting the life of these intangible assets.

ii) Finite useful life.- Are recognized at cost less accumulated amortization and impairment losses recognized. They are amortized on a straight line according to 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.


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The estimated useful lives of intangible assets with finite useful lives are summarized as follows:

Development costs 5 to 20 yearsExploration costs (1)

Trademarks 40 yearsCustomer relationships 15 to 17 yearsSoftware and licenses 3 to 11 yearsCopyrights 20 to 25 yearsOther (patents, concessions, non-compete agreements, etc.) 5 to 20 years

(1) Exploration costs are depreciated based on the unit-of-production method based on proved reserves of hydrocarbons.

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

b) Other intangible assetsResearch costs are recognized in income as incurred. Expenditures on development activities are recognized as intangible assets when such costs can be reliably measured, the product or process is technically and commercially feasible, potential future economic benefits are obtained and the Company intends and also has sufficient resources to complete the development and to use or sell the asset. Their amortization is recognized in income based on 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.

The Company uses the successful efforts method of accounting for its oil and gas properties. Under this method, all costs associated with productive and non-productive wells are capitalized while non-productive and geological exploration costs are recognized in the income statement as incurred. Net capitalized costs of unproved reserves are reclassified to proved reserves where they are found. The costs to operate the wells and field equipment are recognized in the income statement as incurred.

When an intangible asset is acquired in a business combination it is recognized at fair value at the acquisition date. Subsequently, intangible assets acquired in a business combination are recognized at cost less accumulated depreciation and the accumulated amount of impairment losses.

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

m. Income taxThe item of income taxes in the income statement represents the sum of the current and deferred income taxes.

For tax purposes the Company and its subsidiaries in Mexico consolidate their results for the purposes of the Income Tax (ISR).

The deferred income taxes are determined in each subsidiary by the asset and liability method, applying the rate established by legislation enacted or substantially enacted rate at the date of balance where ALFA and its subsidiaries operate and generate taxable income to the total of the temporary differences resulting from comparing the accounting and tax bases of assets and liabilities that are expected to apply when the deferred asset tax is realized or the deferred liability tax is settled, considering, when applicable, the tax loss carry forwards before the analysis of its recovery. The effect of a change in tax rates is recognized in current period results in determining the exchange rate.

Management periodically evaluates positions exercised in tax returns with respect to situations in which the applicable law is subject to interpretation. Provisions are recognized when appropriate based on the amounts expected to be paid to the tax authorities.

The deferred asset tax is recognized only when it is probable that future taxable profit against which the deductions can be used for temporary differences.


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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 ALFA and probably temporary differences are not reversed in the near future.

Deferred tax assets and liabilities are offset when there is a legal right and when taxes are levied by the same taxation authority.

n. Employee Benefitsi. Pension plansDefined 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 the service in the current and past periods. The contributions are recognized as employee benefit expense when they are due.

Defined benefit plans:A defined benefit plan is a benefit amount by pension which an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the balance sheet in respect of defined benefit plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for services unrecognized past. The defined benefit obligation is calculated annually by independent actuaries using the projected unit cost method. The present value of the defined benefit obligation is determined by discounting future cash flows using estimated discount rates in accordance with IAS 19 which are denominated in the currency in which the benefits will be paid, and have maturities that approximate the terms of the pension liability. The discount rate reflects the value of money over time but not the actuarial or investment risk. Additionally, the discount rate does not reflect the credit risk of the entity, nor does it reflect the risk that future experience may differ from actuarial assumptions.

Actuarial gains and losses from retirement benefits are recognized directly in other comprehensive income items.

Past-service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employee remaining in service for a specified period of time. In this case, the past service costs are amortized over the period according to the straight-line method.

ii. Other post-employment obligationsThe Company provides assistance benefits after termination of employment to retired employees. The right to access these benefits usually depends on the employee worked until retirement age and completing a minimum of years of service. The expected costs of these benefits are recognized over the period services using the same criteria as those described for defined benefit plans.

iii. Termination benefitsTermination 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 when there is a verifiable commitment to conclude the employment of certain employees and a detailed formal plan so provides, and that cannot be waived. 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 to be paid to long term are discounted to their present value.

iv. Short-term benefitsCompanies provide benefits to employees in the short term, which may include wages, salaries, annual compensation and bonuses payable within 12 months. ALFA recognizes an undiscounted provision when it is contractually obliged o where past practice has created an obligation.

v. Employee participation in profits and bonusesThe 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.


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o. ProvisionsLiability provisions represent a present legal obligation or constructive obligation as a result of past events where it is likely an outflow of resources to meet the obligation 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 expenditure expected to be required to meet the obligation using a pre-tax rate that reflects current market considerations of the value of money over time and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

When there are similar obligations, the likelihood that an outflow of economic resources for settlement is determined considering them as a whole. In these cases, the provision thus estimated is recognized even if the likelihood of the cash flows output concerning a specific item overall considered is remote.

Provisions for legal claims are recognized when the Company has a present obligation (legal or assumed) as a result of past events, it is likely to present the economic resources outflow to settle the obligation and the amount can be reasonably estimated.

p. Shared-based paymentsThe Company’s compensation plans based on the market value of its shares in favor of certain senior executives of the Company and its subsidiaries. The conditions for granting such compensation to the elegible executives include among other things, compliance with certain metrics such as the level of profit achieved, remaining in the Company for up to 5 years, etc. The Board of Directors has appointed a technical committee to manage the plan, and it reviews the estimated cash settlement of this compensation at the end of the year. The payment plan is always subject to the discretion of the senior management of ALFA. Adjustments to this estimate are charged or credited to the income statement.

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 under 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 income statement.

q. Treasury sharesThe Shareholders’ Meeting periodically authorizes a maximum amount for the acquisition of own shares. Upon the occurrence of a repurchase of own shares, they become treasury shares and the amount is charged to stockholders’ equity at purchase price: some at capital stock at its historical value changed, and the excess to retained earnings. These amounts are stated at their historical value.

r. Capital stockALFA’s common shares are classified as capital stock within stockholders’ equity. Incremental costs directly attributable to the issue of new shares are included in equity as a deduction from the consideration received, net of tax.

s. Comprehensive incomeComprehensive income is composed of net income plus other equity reserves, net of taxes, which are integrated by the effects of foreign subsidiaries translation, the effects of derivative financial instruments for cash flow hedging, the actuarial gains or losses, the effects of the change in fair value of financial instruments available for sale, participation in other items of comprehensive income of associates and other items specifically required to be reflected in stockholders’ equity and do not constitute capital contributions, reductions and equity distribution.

t. Segment reportingSegment information is presented consistently with the internal reporting provided to the chief executive who is the highest authority in the operational decision making, resource allocation and performance assessment of the operating segments.

u. Revenue recognitionRevenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the normal course of operations. Revenue is shown net of estimated customer returns, rebates and discounts and after eliminating similar intercompany sales.

The Company provides customers discounts and incentives which are recognized as a deduction from income or as expenses of sale, according to its nature. These programs include client discounts for sales of products based on: i) sales volume (usually recognized as a reduction of revenue) and ii) promotions in retail products (usually recognized as selling expenses) mainly.


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Revenue from the sale of goods and products are recognized when all and each of the following conditions are met:

- The risks and rewards of ownership have been transferred

- The amount of revenue can be reliably measured

- When it is likely that future economic benefits will flow to the Company

- Company retains neither no involvement associated with ownership nor effective control of the sold goods

- The costs incurred or to be incurred in respect of the transaction can be measured reasonably

In the Alestra segment, revenues from services are recognized as follows:

- Revenue from the provision of data transmission services, internet and local services are recognized when services are rendered.

- Revenues from national and international long distance outgoing and received are recognized based on minutes of traffic processed by the Company and processed by a third, respectively.

- Installation revenues and related costs are recognized as income related during the period of the contract with the customers.

- The estimates are based on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

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

Interest income is recognized when it is likely that the economic benefits will flow to the entity and the amount of revenue can be reliably valued by applying the effective interest rate.

v. Earnings per shareEarnings per share are calculated by dividing the profit attributable to owners of the parent by the weighted average number of common shares outstanding during the year. There are no dilution effects from financial instruments potentially convertible into shares.

w. Changes in accounting policies and disclosuresNew pronouncements and amendments issued but not yet effective for periods starting January 1, 2012 and have not been adopted by the Company.

- IFRS 7, “Financial instruments:In October 2010 the IASB amended IFRS 7, “Financial Instruments: Disclosures”. The rule amends the disclosures required for users of financial statements to evaluate the risk exposure related to transfers of financial assets and the effect of those risks on the financial position of the entity. For the Company, this amendment is effective as of January 1, 2013.

- IAS 1, “Presentation of Financial Statements”In June 2011, the IASB amended IAS 1, “Presentation of Financial Statements”. The main change resulting from this change is the requirement to group items presented in other comprehensive income on the basis of whether they are potentially reclassified to income of the year later. The amendments do not contemplate what items are presented in other comprehensive income. For the Company, this amendment is effective as of January 1, 2013.

- IFRS 9, “Financial instruments”The IFRS 9, “Financial Instruments” was issued in November 2009 and included requirements for classification and measurement of financial assets. Requirements for financial liabilities were included as part of the IFRS 9 in October 2010. Most of the requirements for financial liabilities were taken from IAS 39 without making any changes. However, some amendments were made to the fair value option for financial liabilities in order to include the own credit risk. In December 2011, the IASB made amendments to IFRS 9 to require its application for annual periods beginning on or after January 1, 2015.

- IFRS 10, “Consolidated Financial Statements”In May 2011 the IASB issued IFRS 10, “Consolidated Financial Statements”. This standard outlines the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more entities. IFRS 10 defines the principle of control and establishes control as the basis for determining the entities to be consolidated in the financial statements. The standard also includes the accounting requirements for the preparation of the consolidated financial statements, as well as the requirements for the application of the principle of control. IFRS 10 replaces IAS 27, “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation - Special Purpose Entities” and for the Company this amendment is effective as of January 1, 2013.


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- IFRS 11, “Joint Arrangements”In May 2011 the IASB issued IFRS 11, “Joint Arrangements”. The IFRS 11 classifies joint arrangements into two types: joint operations and joint ventures. The entity determines the type of joint arrangement in which it participates in considering their rights and obligations. Under a joint venture, the assets, liabilities, income and expenses are recognized on a pro rata basis according to the agreement. In a joint venture, an investment is recognized and recorded by the equity method.

The proportionate consolidation of the joint ventures is not allowed. For the Company, IFRS 11 is effective as of January 1, 2013.

- IFRS 12, “Disclosure of Interests in Other Entities”The IASB issued IFRS 12, “Disclosure of Interests in Other Entities” in May 2011. IFRS 12 requires an entity to disclose information to evaluate the nature and risks associated with its interests in other entities, including joint arrangements, associates and special purpose entities. For the Company, this standard is effective as of January 1, 2013.

- IFRS 13, “Fair Value Measurements”In May 2011 the IASB issued IFRS 13, “Fair Value Measurements” The objective of IFRS 13 is to provide a precise definition of fair value and be a single source for the measurement and disclosure requirements for fair value when it is required or permitted by other IFRS. For the Company, IFRS 13 is effective as of January 1, 2013.

- IAS 19, “Employee Benefits”In June 2011 the IASB amended IAS 19, “Employee Benefits”. The amendments eliminate the corridor method and show the calculation of interest expense on a net basis. For the Company, this amendment is effective as of January 1, 2013

- IAS 27, “Separate Financial Statements”In May 2011 the IASB amended IAS 27 under a new title “Separate Financial Statements”.. This standard includes guidelines for separate financial statements that remained effective after the control provisions were included in IFRS 10. For the Company, this standard is effective as of January 1, 2013.

- IAS 28, “Investments in Associates and Joint Ventures”In May 2011 the IASB amended IAS 28 under a new heading “Investments in Associates and Joint Ventures”. The new standard includes requirements for joint ventures and associates for recognition in accordance with the equity method. For the Company, this standard is effective as of January 1, 2013.

At the date of the financial statements, the Company’s management is in the process of quantifying the effects of the adoption of new standards and amendments noted above.

4 Financial Risk Management

4.1 Financial risk factorsThe Company’s activities expose it to various financial risks: market risk (including foreign exchange risk, interest rate risk on cash flows and interest rate risk of fair values), credit risk, liquidity risk and risk of inputs and outputs. The Company’s risk management plan considers the unpredictability of the financial markets and seeks to minimize the potential negative effects in the financial permanent of the Company. The Company uses derivative financial instruments to hedge some risk expositions.

The objective is to protect the financial health of the business taking into account the volatility associated with exchange rates and interest rates. Additionally, due to the nature of the industries in which it participates, the Company has entered into derivative hedging of input price.

ALFA has a Risk Management Committee (CAR by its Spanish acronym), consisting of the Chairman, the Chief Executive Officer, the Chief Financial Officer of the Company and an executive at Finance Company that acts as technical secretary. The CAR oversees derivatives transactions proposed by the subsidiaries of ALFA, in which the maximum possible loss exceeds US$1. This committee supports both the Executive Director and the Chairman of the Company. All new derivative transactions that the Company proposes to make, and the renewal of existing derivatives, require approval by both the subsidiary and ALFA in accordance with the following schedule of authorizations: Possible Maximum Loss US$

Cumulative Individual transactions transactions annual

Business Group General Manager 1 5ALFA Risk Management Committee 30 100Finance Committee 100 300ALFA Board of Directors >100 >300

The proposed transactions must meet certain criteria, including that the hedges are lower than exposures, to be product of a fundamental analysis and properly documented. It should perform sensitivity analyzes and other risk analysis before the operation.


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(a) Market risk(i) Exchange rate riskThe Company operates internationally and is exposed to foreign exchange risk, primarily related to the Mexican peso and the currencies other than the functional currency in which its subsidiaries operate. The Company is exposed to foreign exchange risk arising from future commercial transactions in assets and liabilities in foreign currencies and investments abroad.

The respective exchange rates of the Mexican peso, the U.S. dollar and the euro, are very important factors for ALFA by the effect they have on their performance. Moreover, in its determination, ALFA has no interference. Moreover, ALFA estimated that between 75% and 85% of its revenues are denominated in foreign currency, either because they come from products that are exported from Mexico, or because the products that are manufactured and sold abroad, or because even sold in Mexico, the price of such products are set based on international prices in foreign currencies such as the U.S. dollar.

For this reason, in the past, in times when the Mexican peso has appreciated in real terms against other currencies such as the dollar, ALFA profit margins have been reduced. On the other hand, when the Mexican peso has lost value, ALFA profit margins have been increased. However, although this factor correlation has appeared on several occasions in the close past, there is no assurance that it will happen again if the exchange rate between the Mexican peso and other currencies fluctuate again.

The Company participates in operations of derivative financial instruments on exchange rates with the purpose of controlling the total comprehensive cost of their financing and the volatility associated with exchange rates. Additionally, it is important to note the high “dollarization” of the Company’s revenues, since most of its sales are performed abroad, providing a natural hedging to the obligations in dollars and as counterparty to their income level is affected in the event exchange rate appreciation. Based on the exchange rate exposure, generally at December 31, 2012 and 2011, a hypothetical variation of 5% in the exchange rate MXN/USD and holding all other variables constant, would result in an effect on the income statement by Ps48.1 and Ps62.2 respectively.

The risk management policy of the Company is to cover more than the following percentages with respect to the predicted exposure:

Current year Next year

Commodities 100 90Energy costs 75 65Exchange rate for operative transactions 80 70Exchange rate for financial transactions 100 90Interest rates 100 90

The Company has certain investments in foreign operations, whose net assets are exposed to the risk of foreign currency translation. The currency exposure arising from the net assets of the Company’s foreign operations are frequently managed through borrowings denominated in the relevant foreign currency.

(ii) Price riskIn carrying out its activities, the Company depends on the supply of raw materials provided by its suppliers, both in Mexico and abroad, among which are intermediate petrochemicals, beef products, pork and poultry, dairy products and aluminum scrap, mainly.

In recent years, the price of some inputs have observed volatility, especially those from the oil, natural gas, food, such as meat, cereals and milk, and metals.

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 such input.

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

Regarding natural gas, Pemex is the only supplier in Mexico. The selling price of natural gas at first hand is determined by the price of that product on the “spot” market of South Texas, USA, which has experienced the same volatility. For its part, the CFE is a decentralized public company in charge of producing and distributing electricity in Mexico Electricity rates have been influenced also by the volatility of natural gas, as it is used to generate it.


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The Company entered into various derivative agreements with various counterparties to protect the Company 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 of volatility having positions that provide stable cash flow expectations, and avoid the uncertainty in prices. The reference market price for natural gas is the Henry Hub is the New York Mercantile Exchange (NYMEX). The average price per MMBtu for 2012 and 2011 were 2.79 and 4.04 US dollars, respectively.

At December 31, 2012, the Company had hedging of natural gas prices for a portion of consumption needs expected in Mexico and the United States. Based on the general input exposure at December 31, 2012 and 2011, and an hypothetical increase (decrease) of 10% in market prices applied to fair value and keeping all other variables constant, such as exchange rates, the increase (decrease) would result in an effect to the income statement by Ps1,238 and Ps1,139 respectively.

(iii) Interest rate and cash flow riskThe risk of interest rates of the Company arises from long-term loans. Loans at variable rates expose the Company to interest rate risk on cash flows that are partially offset by cash held at variable rates. Loans at fixed rates expose the Company to interest rate risk at fair value.

When the objective of controlling the total comprehensive cost of its financing and the volatility of interest rates, the Company has hired interest rate swaps to convert certain variable rate loans to fixed rates.

At December 31, 2012 and 2011, if interest rates on variable rate loans were increased/decreased by 10%, in interest expense would change results in Ps2 and Ps3, respectively.

(b) Credit riskCredit risk is managed on a group basis, except for the credit risk related to accounts receivable balances. Each subsidiary is responsible for managing and analyzing credit risk for each of its new customers before setting the terms and conditions of payment. Credit risk is generated from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions as well as credit exposure to customers, including receivables and committed transactions. If clients are independent qualified wholesaling, these scores are used. If there is no independent rating, risk control of the Company evaluates the creditworthiness of the customer, taking into account their financial position, past experience and other factors.

Individual risk limits are determined based on internal and external ratings in accordance with limits set by the Board. The use of credit risk is monitored regularly. Sales to retail customers are using cash or credit cards.

During 2012 and 2011, the credit limits were not exceeded and management does not expect impairment losses recognized in excess of the corresponding periods.

The impairment provision for doubtful accounts represents estimated losses resulting from the inability of customers to make required payments. In determining the allowance for doubtful accounts, requires significant estimates. The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness, as determined by a review of their current credit information. In addition, the Company considers a number of factors to determine the size and adequate time for recognition and the amount of reserves, including historical collection experience, customer base, current economic trends and the age of the accounts receivable portfolio.

(c) Liquidity riskThe projected cash flows are performed at each operating entity of the Company and subsequently, the finance department consolidates this information. The finance department of the Company continuously monitors the cash flow projections and liquidity requirements of the Company ensuring maintaining sufficient cash and investment with immediate implementation to meet operational needs, as well as to maintain some flexibility through open credit lines committed and uncommitted unused. The Company regularly monitors and makes decisions considering not violate the limits or covenants set forth in debt contracts. The projections consider financing plans of the Company, compliance with covenants, compliance with minimum liquidity ratios and internal legal or regulatory requirements.

The treasury of the Company invests those funds in time deposits and marketable securities whose maturities or liquidity allow flexibility to meet the cash needs of the Company. At December 31, 2012 and 2011 and January 1, 2011, the Company has time deposits by Ps10,070, Ps1,595 and Ps3,376, respectively, estimated to allow manage liquidity risk.

The following table analyzes the financial liabilities and the derivative financial instruments of the Company, grouped according their maturity, as of the reporting date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are required to understand the timing of cash flows of the Company. The amounts disclosed in the table are contractual undiscounted cash flows.


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Less than From From More than 5 one year 1 to 2 years 2 to 5 years years

At December 31, 2012Suppliers and other accounts payable Ps 27,562 Ps - Ps - Ps -Current and non-current debt (excludingdebt issuance costs) 4,442 10,527 13,942 23,047Derivative financial instruments 378 468 119 -Other liabilities 559 435 - -

At December 31, 2011Suppliers and other accounts payable Ps 28,376 Ps - Ps - Ps -Current and non-current debt (excludingdebt issuance costs) 5,197 8,144 14,630 31,325Derivative financial instruments 699 492 1,136 -Other liabilities 326 357 - -

At January 1, 2011Suppliers and other accounts payable Ps 21,870 Ps - Ps - Ps -Current and non-current debt (excludingdebt issuance costs) 3,784 4,617 21,660 13,725Derivative financial instruments 275 906 874 -Other liabilities 360 55 - -

ALFA expects to meet its obligations with cash flows generated by operations. Additionally ALFA has access to credit lines with various banks to meet the possible requirements.

4.2 Equity risk managementThe Company’s objectives when managing equity are to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of equity.

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

ALFA monitors equity based on the degree of leverage. This percentage is calculated by dividing total liabilities by total equity.

The financial ratio of total liabilities/total equity amounts to 1.53, 2.13 and 1.79 to December 31, 2012, December 31, 2011 and January 1, 2011, respectively.

4.3 Fair Value EstimationThe following is an analysis of financial instruments measured at fair value by valuation method. The 3 different levels presented below are used:

- Level 1: Quoted prices for identical instruments in active markets.

- Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and valuations through models where all significant inputs are observable in active markets.

- Level 3: Valuations made through techniques wherein one or more of its significant data are not observable.

The following table presents the ALFA assets and liabilities that are measured at fair value at December 31, 2012:


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Level 1 Level 2 Level 3 Total

AssetsFinancial assets at fair value through profit or loss:- Trading derivatives Ps 38 Ps 6 Ps - Ps 44Derivatives used for hedging 43 42 - 85Financial assets available for sale - - 333 333Total assets Ps 81 Ps 48 Ps 333 Ps 462

LiabilitiesFinancial liabilities at fair value through profit or loss- Trading derivatives Ps 417 Ps 128 Ps - Ps 545Derivatives used for hedging - 420 - 420Employees’ benefits based on shares 435 - - 435Total liabilities Ps 852 Ps 548 Ps - Ps 1,400

The following table presents the ALFA assets and liabilities that are measured at fair value at December 31, 2011:



LiabilitiesFinancial liabilities at fair value through profit or loss- Trading derivatives Ps 949 Ps 592 Ps - Ps 1,541Derivatives used for hedging 44 742 - 786Employees’ benefits based on shares 357 - - 357Total liabilities Ps 1,350 Ps 1,334 Ps - Ps 2,684

The following table presents the ALFA assets and liabilities that are measured at fair value at January 1, 2011:



LiabilitiesFinancial liabilities at fair value through profit or loss- Trading derivatives Ps 1,048 Ps 1,000 Ps - Ps 2,048Derivatives used for hedging - 7 - 7Employees’ benefits based on shares 55 - - 55Total liabilities Ps 1,103 Ps 1,007 Ps - Ps 2,110


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Level 1The financial instruments fair value traded in active markets is based in the market listing prices at the balance sheet date. A market is considered active if quoted prices are clearly and regularly available from a stock exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly transactions market at arm-length conditions. The trading price used for financial assets held by ALFA is the current bid price.

The following variables were used for the determination of the fair value:

- Rates of ethylene market prices, natural gas, ethanol and gasoline on the NYMEX Exchange and other markets.

Level 2The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data when available and relies as little as possible on estimates specific to the Company. If all significant inputs required to measure an instrument at fair value are observable, the instrument is classified at Level 2.

Level 3If one or more of the significant inputs not based on observable market data, the instrument is categorized in Level 3.

Specific valuation techniques used to value financial instruments include:

- Market quotations or offers from retailers for similar instruments.

- The fair value of interest rate swaps is calculated as the present value of estimated future cash flows based on observable yield curves.

- The fair value of forward exchange contracts is determined using the exchange rates on the balance sheet date, with the resulting value discounted to present value.

- Other techniques, such as the analysis of discounted cash flows, which is used to determine fair value for the remaining financial instruments.

The following table presents the movement in level 3 instruments for the year ended December 31, 2012 and 2011:

Financial assets available for sale Total

Initial balance at January 1, 2011 Ps 205 Ps 205PurchasesDisposals (3) (3)Final balance at December 31, 2011 202 202Purchases 131 131Disposals - -Final balance at December 31, 2012 Ps 333 Ps 333

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 judgmentsThe Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal 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 goodwillThe Company tests annually whether goodwill has suffered any impairment, in accordance to the accounting policy stated (see Note 13). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.


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(b) Income taxesThe Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

(c) Fair value of derivatives and other financial instrumentsThe fair value of financial instruments that are not traded in an active market is determined by using fair value hierarchies. The Company uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period. The Company has used discounted cash flows analysis for various available-for-sale financial assets that are traded in active markets.

(d) Benefits pensionThe present value of the pension obligations depends on the number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Company considers the interest according IAS 19, that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension obligation.

Other key assumptions for pension obligations are based in part on current market conditions.

If the actual discount rate differs by 1.18% from management’s estimates, the carrying amount of labor obligations would be an estimated Ps268 higher.

(e) Contingent lossesManagement also makes judgments and estimates in recording provisions for matters relating to claims and litigation, primarily in relation to rates of interconnection services. Actual costs may vary from estimates for several reasons, such as changes in cost estimates for resolution of complaints and disputes based on different interpretations of the law, opinions and evaluations concerning the amount of loss.

Contingencies are recorded as provisions when it is likely that a liability has been incurred and the amount of the loss is reasonably estimable. It is not practical to estimate in relation to the sensitivity of potential losses if other assumptions were used to record these provisions due to the number of underlying assumptions and the range of possible reasonable outcomes regarding potential actions by third parties, such as regulators, both in terms of loss probability and estimates of such loss.

At December 31, 2012, there are provisions for interconnection fee disputes with Iusacell, S.A. C.V., Teléfonos de Mexico, S. A. de C.V. and Pegaso PCS, S. A. de C.V. (See Note 18). The charge for provisions is recognized in income statement in cost of sales. According to analysis of the company and after legal advice, the resolutions of these lawsuits will not result in significant losses in excess of the provision at December 31, 2012. More information is provided in Note 31 - Commitments and Contingencies.

5.2 Critical judgments in applying the entity’s accounting policies(a) Revenue recognitionThe Company has recognized revenue amounting Ps192,870 for sales of goods to third parties in the Nemak, Sigma and Alpek segments during 2012. The buyer has the right to return the goods i their customer are dissatisfied. The Company believes that, based on past experience with similar sales, the dissatisfaction rate will not exceed 2.5% The Company has, therefore, recognized revenue on this transaction with a corresponding provision against revenue for estimated returns. If the estimate changes by 10%, the revenue will be reduced/increased by Ps501.

(b) Basis of ConsolidationThe financial statements include the assets, liabilities and results of all entities in which the Company has a controlling interest. The outstanding balances and significant intercompany transactions have been eliminated in consolidation. To determine the control, the Company considers whether it has the power to govern the financial and operational strategy of the respective entity and not just the power of the capital held by the Company. As a result of this analysis, the Company has exercised critical judgment to decide whether to consolidate the financial statements of Polioles, where the determination of control is not clear. Management has concluded that there are circumstances and factors described in the bylaws of Polioles and applicable standards that allow the Company to conduct the daily operations of Polioles and therefore demonstrate control. The Company will continue to evaluate these circumstances at the date of each statement of financial position to determine if this critical judgment is still valid. If the Company determines that it has no control over Polioles, Polioles will need to be deconsolidated and be recorded using the equity method. The outstanding balances and significant intercompany transactions have been eliminated in consolidation.


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6 Cash and cash equivalents

Cash and cash equivalents presented in the statements of financial position consist of the following:

December 31, December 31, January 1, 2012 2011 2011

Cash at bank and in hand Ps 3,591 Ps 6,659 Ps 3,764Short-term bank deposits 10,070 1,595 3,376Total cash and cash equivalents (excluding bank overdrafts) Ps 13,661 Ps 8,254 Ps 7,140

For purposes of the cash flow statements the cash and cash equivalents include the following items:


Cash and cash equivalents Ps 13,661 Ps 8,254 Ps 7,140Bank overdrafts (classified as debt in current liabilities) (4) (7) (14)Cash and cash equivalents at year end Ps 13,657 Ps 8,247 Ps 7,126

7 Restricted cash and cash equivalents

The value of restricted cash and cash equivalents are composed as follows:


Current (a) Ps 577 Ps 370 Ps 977Non-current (b) 435 410 378Restricted cash and cash equivalents Ps 1,012 Ps 780 Ps 1,355

a) Applies to deposits that are on trial with authorities arising from differences in the interpretation of some laws in countries where they operate two subsidiaries segment Nemak for Ps 577, Ps 370 and Ps 290, respectively and collateral required in derivative financial instruments representing a guaranteed payment on January 1, 2011 in the amount of Ps 687.

b) This restricted cash is for proceedings before Mexican Federal Telecommunications Commission (“COFETEL” by its Spanish acronym) dispute arising from a resale of interconnection rates that Alestra has with Teléfonos de Mexico, S. A. de C.V. (“Telmex”) and Teléfonos del Norte (“Telnor”, a subsidiary of Telmex). The parties request a resolution regarding traffic rates for interconnection of telecommunication networks applicable during 2010 and the interconnection of long distance traffic (interurban transport) during 2009 and 2008.

On September 8, 2009, the Company and Telmex created a trust with BBVA Bancomer (as trustee) to ensure the payment of fixed interconnection services on the dispute applicable to 2008. The trust agreement was amended to include the amounts in dispute for 2009 and 2010. Once the parties reach an agreement or the related disagreements are resolved permanently, trust funds and related income will be distributed or applied to future services, as agreed.

The restricted cash represents the balance of the trust is presented in the statement of financial position within non-current assets. At December 31, 2012 and 2011, and January 1, 2011, the balance of the trust was Ps 435, Ps 410 and Ps 378, respectively, composed of contributions by Alestra and corresponding yields Telmex and Alestra did not extend the trust agreement in 2011 and therefore, on January 1, 2011 the Company ceased to make deposits to the trust agreement. From the date of the formation of the trust until December 31, 2012, any charges in relation to this dispute have been paid.


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8 Customers and other accounts receivable, net December 31, December 31, January 1, 2012 2011 2011

Customers Ps 18,251 Ps 20,175 Ps 15,235Recoverable tax - 1,299 -Interest receivable 1 2 2Other debtors: Short-term notes receivable 5 30 33 Sundry debtors 4,113 3,216 3,256 Long-term notes receivable 225 257 57 Other non-current assets 64 44 -Provision for impairment of customers and and other accounts receivable (467) (472) (478) 22,192 24,551 18,105Less: non-current portion (1) 289 301 57Current portion Ps 21,903 Ps 24,250 Ps 18,048

(1) The portion of non-current accounts receivable documents will constitute long-term receivables and other non-current assets, and are presented within other noncurrent assets.

Customers and receivables include due balances unimpaired by Ps2,841, Ps3,447 and Ps3,342 at December 31, 2012 and 2011 and January 1, 2011, respectively.

The analysis by age of the balances due from customers and other receivables not impaired is as follows:


1 to 30 days Ps 2,025 Ps 2,446 Ps 2,58230 to 90 days 399 523 41990 to 180 days 267 204 73More than 180 days 150 274 268 Ps 2,841 Ps 3,447 Ps 3,342

Movements in the provision for impairment of customers and other receivables are analyzed as follows:

2012 2011

Initial balance (January 1) Ps 472 Ps 478Provision for impairment of customers and other receivables 154 105Receivables written off during the year (159) (111)Final balance (December 31) Ps 467 Ps 472

Increases in the provision for impairment of customers and other receivables are recognized in the statement of income under sales expenses.


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9 Inventories December 31, December 31, January 1, 2012 2011 2011

Finished goods Ps 8,196 Ps 8,142 Ps 5,066Raw material and other consumables 11,167 10,116 7,224Work in progress 2,365 2,326 1,992 Ps 21,728 Ps 20,584 Ps 14,282

The cost of inventories recognized as an expense and included in “cost of sales” amounted to Ps164,599 and Ps151,491 for 2012 and 2011, respectively.

For the years ended on December 31, 2012 and 2011, the damaged, slow-movement and obsolete inventory was recognized in cost of sales for Ps2,986 and Ps5,659, respectively.

At December 31, 2012, 2011, inventories in the amount of Ps709 and Ps31 are guaranteeing bank loans as described in Note 16. At January 1, 2011 there were no inventories pledged.

10 Financial instruments

a. Financial instruments by category At December 31, 2012

Accounts Financial assets receivable and and liabilities at Derivative liabilities at Available fair value contracted amortized for through as cost sale profit and loss hedges Total

Financial assets:Cash and cash equivalents Ps 13,661 Ps - Ps - Ps - Ps 13,661Restricted cash and cash equivalents 1,012 - - - 1,012Customers and other accounts receivableexcluding pre-payments 21,903 - - - 21,903Derivative financial instruments - - 44 85 129Financial assets available for sale - 333 - - 333Other non-current asset 289 - - - 289 Ps 36,865 Ps 333 Ps 44 Ps 85 Ps 37,327

Financial liabilities:Debt Ps 51,773 Ps - Ps - Ps - Ps 51,773Suppliers and other accounts payable 27,562 - - - 27,562Derivative financial instruments - - 545 420 965Other non-current liabilities 559 - 435 - 994 Ps 79,894 Ps - Ps 980 Ps 420 Ps 81,294


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At December 31, 2011


Financial assets:Cash and cash equivalents Ps 8,254 Ps - Ps - Ps - Ps 8,254Restricted cash and cash equivalents 780 - - - 780Customers and other accounts receivable excluding pre-payments 24,250 - - - 24,250Derivative financial instruments - - 165 - 165Financial assets available for sale - 202 - - 202Other financial assets 301 - - - 301 Ps 33,585 Ps 202 Ps 165 Ps - Ps 33,952

Financial liabilities:Debt Ps 59,340 Ps - Ps - Ps - Ps 59,340Suppliers and other accounts payable 28,376 - - - 28,376Derivative financial instruments - - 1,479 848 2,327Other financial liabilities 326 - 357 - 683 Ps 88,042 Ps - Ps 1,836 Ps 848 Ps 90,726

At January 1, 2011


Financial assets:Cash and cash equivalents Ps 7,140 Ps - Ps - Ps - Ps 7,140Restricted cash and cash equivalents 1,355 - - - 1,355Customers and other accounts receivable excluding pre-payments 18,048 - - - 18,048Derivative financial instruments - - 193 596 789Financial assets available for sale - 205 - - 205Other financial assets 57 - - - 57 Ps 26,600 Ps 205 Ps 193 Ps 596 Ps 27,594

Financial liabilities:Debt Ps 43,783 Ps - Ps - Ps - Ps 43,783Suppliers and other accounts payable 21,870 - - - 21,870Derivative financial instruments - - 2,037 18 2,055Other financial liabilities 360 - 55 - 415 Ps 66,013 Ps - Ps 2,092 Ps 18 Ps 68,123


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b. Credit quality of financial assetsThe credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:


Counterparties with external credit rating“A” Ps 182 Ps - Ps -“A+“ 3 753 501“A-” - 19 -“BB+” 500 - -“BBB+” - - 5“BBB” 7 - -“BBB-” 9 - -“BB+” - 469 “BB-“ - - 434Other categories 818 893 980 1,519 2,134 1,920Counterparties without external credit rating Customers and other accounts receivable (less than 6 months) - Group X 11,415 8,618 12,064Customers and other accounts receivable (more than 6 months) without impairment provision - Group Y 3,015 5,289 6,087Customers and other accounts receivable (more than 6 months) with impairment provision - Group Z 13 66 43 14,443 13,973 18,194Total unimpaired trade receivables Ps 15,962 Ps 16,107 Ps 20,114

Cash and cash equivalents with and withoutrestriction, with exception of cash in hand“A” Ps 1,269 Ps 119 Ps 49“A+” 218 1,544 907“A-” 15 13 6“BB” 3,584 - -“BB+” 49 - -“BBB” 853 39 15“BBB+” 926 30 106“BBB-” 16 -Other categories 424 4,041 3,976Not rated 398 603 576 Ps 7,752 Ps 6,389 Ps 5,635

Group X – new customers/related parties (less than 6 months).

Group Y – customers/current related parties (more than 6 months) without default in the past.

Group Z – customers/related parties present (more than 6 months) with some defaults in the past. All defaults were fully recovered.


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c. Fair value of financial assets and liabilitiesThe amounts of cash and cash equivalents, restricted cash and cash equivalents, customers and other receivables, other current assets, suppliers and other payables, outstanding debt, provisions and other current liabilities approximate their fair value due to their short maturity. The carrying value of these accounts represents the expected cash flow.

The carrying value and estimated fair value of financial assets and financial liabilities carried at amortized cost are as follows: At December 31, 2012 At December 31, 2011 At January 1, 2011

Carrying Fair Carrying Fair Carrying Fair amount value amount value amount value

Financial assets:Non-current accounts receivable Ps 289 Ps 264 Ps 301 Ps 275 Ps 57 Ps 52Financial liabilities:Non-current debt 47,175 50,660 53,512 55,498 39,590 41,003

The estimated fair values were determined based on discounted cash flows. These fair values do not consider the current portion of financial assets and liabilities as current portion approximates their fair value.

d. Derivative financial instrumentsThe effectiveness of derivative financial instruments designated as hedges is measured periodically. At December 31, 2012 the Company’s management has assessed the effectiveness of its hedging for accounting effects and has considered that are highly effective.

Notional amounts related to derivative financial instruments reflect the hired reference volume; however, do not reflect the amounts in risk concerning the future flows. The amounts in risk are generally limited to the profit or loss non-realized by market valuation of such instruments, which may vary according to changes in the market value of the underlying, its volatility and the credit quality of the counterparties.

The main obligation which the Company is subject to depends on the hiring procedure and the conditions set up in each one of the derivative financial instruments effective at December 31, 2012 and 2011 and January 1, 2011, among the most important there are:

Trading derivatives are classified as current assets or liabilities. The fair value of hedges 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.

For the year ended on December 31, 2012, the Company had no effects for ineffective portions from the fair value and cash flows hedges.

(a) Forward exchange contractsPositions in foreign currency derivative financial instruments are summarized as follows: At December 31, 2012

Value of Collateral / Type of derivative, Notional underlying asset Fair Maturity per year Guaranteevalue or contract amount Units Reference value 2013 2014 2015+

For hedging purposes:USD/MXN (CCS 1) 2 (Ps 3,500) Peso / Dollar 13.01 (Ps 243) Ps - Ps - (Ps 243) Ps -

For trading purposes:USD/MXN (CCS 1) (27) Peso / Dollar 13.01 (6) (6) - - -EUR/USD (CCS 1) 1,218 Dollar / Euro 1.32 (68) (11) (11) (46) -USD/MXN (325) Peso / Dollar 13.01 6 6 - - - (Ps 311) (Ps 11) (Ps 11) (Ps 289) Ps -


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For hedging purposes:USD/MXN (CCS) (Ps 3,500) Peso / Dollar 13.98 (Ps 620) Ps - Ps - (Ps 620) Ps -For trading purposes:USD/MXN (CCS 1) (219) Peso / Dollar 13.98 (53) (45) (8) - -USD/MXN (937) Peso / Dollar 13.98 (69) (69) - - -EUR/USD (288) Dollar /Euro 1.30 14 14 - - -EUR/MXN (82) Peso /Euro 18.14 (4) (4) - - - (Ps 732) (Ps 104) (Ps 8) (Ps 620) Ps -

At January 1, 2011


For hedging purposes:USD/MXN (CCS 1) 2 (Ps 700) Peso / Dollar 12.36 (Ps 17) Ps - Ps - (Ps 17) Ps -USD/MXN 290 Peso / Dollar 12.36 (1) (1) - - -For trading purposes:USD/MXN (CCS 1) (362) Peso / Dollar 12.36 (50) (16) (28) (6) -USD/MXN (315) Peso / Dollar 12.36 2 2 - - - (Ps 66) (Ps 15) (Ps 28) (Ps 23) Ps -1 Cross currency swaps2 Fair value hedges

b) Interest rate swapsPositions in tax rates derivative financial instruments are summarized as follows: At December 31, 2012


For hedging purposes:On Libor 1 Ps 2,862 % per year 0.39 (Ps 200) (Ps 42) (Ps 56) (Ps 102) Ps -For trading purposes:On Libor 2,309 % per year 0.39 (54) (54) - - - (Ps 254) (Ps 96) (Ps 56) (Ps 102) Ps -



For hedging purposes:On Libor 1 Ps 3,075 % per year 0.73 (Ps 176) (Ps 41) (Ps 50) (Ps 85) Ps -For trading purposes:On Libor 8,911 % per year 0.73 (417) (381) (41) 5 - (Ps 593) (Ps 422) (Ps 91) (Ps 80) Ps -

At January 1, 2011


For hedging purposes:On Libor 1 Ps 1,977 % per year 0.80 Ps 49 (Ps 2) (Ps 30) Ps 81 Ps -For trading purposes:On Libor 12,238 % per year 0.80 (905) (533) (313) (59) 26 (Ps 856) (Ps 535) (Ps 343) Ps 22 Ps 26

1 Cash flow hedges


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(c) CommoditiesPositions in derivative financial instruments covering natural gas, gasoline and ethylene are summarized as follows: At December 31, 2012


For hedging purposes:Ethylene 1 Ps 476 Cent Dollar/lb 55.1 Ps 40 Ps 42 (Ps 2) Ps - Ps -Natural gas 1 857 Dollar / MBTU 3.60 43 43 - - -Ethane 1 55 Cent. 23.9 (16) (16) - - - Dollar/GallonFor trading purposes:Natural gas 78 Dollar / MBTU 3.60 (393) (339) (54) - -Gasoline 1,138 Dollar / Gallon 2.70 14 20 (6) - - (Ps 312) (Ps 250) (Ps 62) Ps - Ps -



For hedging purposes:Ethylene 1 Ps 601 Cent Dollar/lb 51.7 (Ps 8) (Ps 8) Ps - Ps - Ps -Natural gas 1 706 Dollar / MBTU 3.25 (44) (44) - - -For trading purposes:Ethylene 51 Cent Dólar /lb 51.7 (4) (4) - - -Natural gas 131 Dólar / MBTU 3.25 (795) (363) (377) (Ps 55) -Gasoline 1,348 Dólar / Galón 2.60 (129) (113) (16) - - (Ps 980) (Ps 532) (Ps 393) (Ps 55) Ps -

At January 1, 2011


For hedging purposes:Ethylene 1 Ps 473 Cent Dollar/lb 45.5 Ps 69 Ps 65 Ps 4 Ps - Ps -Natural gas 1 4 Dollar / MBTU 4.09 7 - 2 5 -For trading purposes:Natural gas 414 Dollar / MBTU 4.09 (1,051) - (535) (516) 381Gasoline 928 Dollar / Gallon 2.36 120 113 7 - - (Ps 855) Ps 178 (Ps 522) (Ps 511) Ps 381

1 Cash flow hedges

(d) Equity SwapsThe position in derivative financial instruments on own shares held for trading purposes, are summarized below: At January 1, 2011


Equity swaps Ps 1,212 Dollar / share 10.07 Ps 471 Ps 471 Ps - Ps - Ps 277


72

At December 31, 2012 and 2011, and at January 1, 2011, the net fair value of derivative financial instruments above amounts to (Ps 836), (Ps 2,162) and (Ps 1,266), respectively, which is shown in the consolidated statements of financial position as follows: At December 31, 2012

Fair Initial Net value value position recorded

Current assets Ps 129 Ps - Ps 129Non-current assets - - -Current liabilities (378) - (378)Non-current liabilities (628) 41 (587)Net position (Ps 877) Ps 41 (Ps 836)



Current assets Ps 119 Ps - Ps 119Non-current assets 46 - 46Current liabilities (669) - (699)Non-current liabilities (1,771) 143 (1,628)Net position (Ps 2,305) Ps 143 (Ps 2,162)

At January 1, 2011


Current assets Ps 680 Ps - Ps 680Non-current assets 109 - 109Current liabilities (292) 17 (275)Non-current liabilities (1,803) 23 (1,780)Net position (Ps 1,306) Ps 40 (Ps 1,266)

11 Other current assets

Other current assets consist of the following:


Advanced payments (1) Ps 891 Ps 512 Ps 444Other current assets 85 - -Total other current assets Ps 976 Ps 512 Ps 444

(1) This item comprises mainly advertising and insurance paid by advance.


73

12 Property, plant and equipment Buildings and Machinery Transportation Land constructions and equipment equipment

At January 1, 2011Cost of valuation Ps 6,808 Ps 16,215 Ps 74,207 Ps 2,548 Accumulated depreciation - (5,747) (36,160) (1,488) Net book amount at January 1, 2011 Ps 6,808 Ps 10,468 Ps 38,047 Ps 1,060

For the year ended on December 31, 2011Opening net book amount Ps 6,808 Ps 10,468 Ps 38,047 Ps 1,060 Exchange differences 258 1,010 3,418 31 Additions 53 461 1,708 - Additions from business combinations 100 779 3,511 55 Disposals (44) 192 554 (18) Impairment charge for the year - - - Depreciation charge for the year - (488) (4,294) (267) Transfers 11 (477) 709 345 Closing net book amount at December 31, 2011 Ps 7,186 Ps 11,945 Ps 43,653 Ps 1,206

At December 31, 2011Cost Ps 7,186 Ps 20,775 Ps 87,249 Ps 2,880 Accumulated depreciation - (8,830) (43,596) (1,674) Net book amount at December 31, 2011 Ps 7,186 Ps 11,945 Ps 43,653 Ps 1,206

For the year ended on December 31, 2012Opening net book amount Ps 7,186 Ps 11,945 Ps 43,653 Ps 1,206 Exchange differences (176) (691) (2,817) (23) Additions 21 169 1,650 49 Additions from business combinations 37 401 940 2 Disposals (42) (48) (346) (19) Impairment charge for the year - - (78) Depreciation charge for the year - (529) (5,110) (298) Transfers (63) 488 3,463 339 Closing net book amount at December 31, 2012 Ps 6,963 Ps 11,735 Ps 41,355 Ps 1,256

At December 31, 2012Cost Ps 6,963 Ps 20,945 Ps 86,000 Ps 3,069 Accumulated depreciation (9,210) (44,645) (1,813) Net book amount at December 31, 2012 Ps 6,963 Ps 11,735 Ps 41,355 Ps 1,256

From depreciation expense, Ps6,366 and Ps5,598 have been charged in cost of sales, Ps474 and Ps416 in selling expenses and Ps292 and Ps248 in administrative expenses in 2012 and 2011, respectively.

At December 31, 2012 there were no assets pledged and at December 31, 2011 and January 1, 2011 property, plant and equipment amounting to Ps111 and Ps20,594, respectively, have the liens and is guaranteeing bank loans as described in Note 16.

Assets under finance leases include the following amounts in which the Company is the lessee:


Cost - capitalized financial lease Ps 287 Ps 276 Ps 239Accumulated depreciation (95) (21) (18)Carrying value, net Ps 192 Ps 255 Ps 221

The Company has entered into various non-cancellable lease agreements as lessee. The lease terms are between 2 and 3 years, and the ownership of the assets lies with the Company.


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Furniture, fittings Tooling Construc- Improvements Other

Telecommunication and information and tion in to leased fixed network technology spare parts process property assets Total

Ps 10,811 Ps 3,776 Ps 673 Ps 2,846 Ps 439 Ps 605 Ps 118,928 (6,438) (2,431) (73) - (222) (336) (52,895)Ps 4,373 Ps 1,345 Ps 600 Ps 2,846 Ps 217 Ps 269 Ps 66,033

Ps 4,373 Ps 1,345 Ps 600 Ps 2,846 Ps 217 Ps 269 Ps 66,033 10 23 77 611 (1) (90) 5,347 658 307 168 4,495 6 110 7,966 - - 21 168 4,634 (262) 43 (66) (301) (1) (8) 89 - - 4 (53) (6) (1) (56) (851) (283) (35) - (23) (21) (6,262) (13) 37 75 (2,105) 6 42 (1,370)Ps 3,915 Ps 1,472 Ps 844 Ps 5,661 Ps 198 Ps 301 Ps 76,381

Ps 10,899 Ps 4,405 Ps 946 Ps 5,661 Ps 445 Ps 793 Ps 141,239 (6,984) (2,933) (102) - (247) (492) (64,858)Ps 3,915 Ps 1,472 Ps 844 Ps 5,661 Ps 198 Ps 301 Ps 76,381

Ps 3,915 Ps 1,472 Ps 844 Ps 5,661 Ps 198 Ps 301 Ps 76,381 (1) (29) (125) (403) - (4) (4,269) 16 125 124 6,212 3 59 8,428 18 152 210 - - 1,760 (9) (37) (44) (101) 9 2 (635) 6 (3) (31) - (4) (110) (703) (337) (112) - (24) (19) (7,132) 738 213 57 (5,658) 31 37 (355)Ps 3,956 Ps 1,431 Ps 893 Ps 5,890 Ps 217 Ps 372 Ps 74,068

Ps 11,552 Ps 4,113 Ps 1,087 Ps 5,890 Ps 478 Ps 819 Ps 140,916 (7,596) (2,682) (194) (261) (447) (66,848)Ps 3,956 Ps 1,431 Ps 893 Ps 5,890 Ps 217 Ps 372 Ps 74,068


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13 Goodwill and intangible assets

Development Exploration costs costs Trademarks

CostAt January 1, 2011 Ps 1,423 Ps 890 Ps 2,810 Exchange differences 6 162 - Additions 140 387 - Additions from business combinations - - - Impairment charge for the year - (23) - Transfers - - - Disposals - - - At December 31, 2011 1,569 1,416 2,810 Exchange differences 51 (98) (5) Additions 576 593 70 Additions from business combinations - - 1 Impairment charge for the year - (1) - Transfers (114) - - Disposals - - - At December 31, 2012 Ps 2,082 Ps 1,910 Ps 2,876

Accumulated amortizationAt January 1, 2011 (Ps 953) (Ps 286) (Ps 174) Amortizations (114) (145) - Disposals - - - Foreign exchange 9 (56) - At December 31, 2011 (1,058) (487) (174) Amortizations (211) (192) (22) Disposals - - - Transfers 119 - - Foreign exchange (77) 34 - At December 31, 2012 (Ps 1,227) (Ps 645) (Ps 196)

Net carrying valueCost Ps 1,569 Ps 1,416 Ps 2,810 Accumulated amortization (1,058) (487) (174) At December 31, 2011 Ps 511 Ps 929 Ps 2,636

Cost Ps 2,082 Ps 1,910 Ps 2,876 Accumulated amortization (1,227) (645) (196) At December 31, 2012 Ps 855 Ps 1,265 Ps 2,680

Other intangible assets consist of patents, concessions and agreements of non-competence, mainly.

From amortization expense, Ps509 and Ps349 have been charged in cost of sales, Ps103 and Ps95 in selling expenses and Ps219 and Ps209 in administrative expenses in 2012 and 2011, respectively.

Research expenses incurred and recorded in the results of 2012 and 2011 were Ps61 and Ps70, respectively.

Goodwill was increased in 2012 due to the acquisition of JL French and other smaller acquisitions in the segment Sigma.


76

Finite life Indefinite life

Customers’ Software and relationships licenses Copyrights Other Goodwill Other Total

Ps 2,012 Ps 915 Ps - Ps 328 Ps 9,638 Ps 5 Ps 18,021 180 16 - 271 852 (1) 1,486 - 76 - 157 241 - 1,001 508 - 1,440 66 - - 2,014 - - - - - - (23) - - - (6) - - (6) (71) (2) - (3) - - (76) 2,629 1,005 1,440 813 10,731 4 22,417 (129) (9) - (137) (502) - (829) 9 149 - 131 - - 1,528 - 2 - 14 406 - 423 - - - - - - (1) - (3) - (12) - - (129) (113) (31) - - - - (144)Ps 2,396 Ps 1,113 Ps 1,440 Ps 809 Ps 10,635 Ps 4 Ps 23,265

(Ps 374) (Ps 703) Ps - (Ps 340) Ps - Ps - (Ps 2,830) (172) (97) (68) (57) - - (653) 71 - - - - - 71 (40) (25) - (37) - - (149) (515) (825) (68) (434) - - (3,561) (187) (82) - (137) - - (831) 113 19 - - - - 132 - 4 - (8) - - 115 (7) 6 - (14) - - (58)(Ps 596) (Ps 878) (Ps 68) (Ps 593) Ps - Ps - (Ps 4,203)

Ps 2,629 Ps 1,005 Ps 1,440 Ps 813 Ps 10,731 Ps 4 Ps 22,417 (515) (825) (68) (434) - - (3,561)Ps 2,114 Ps 180 Ps 1,372 Ps 379 Ps 10,731 Ps 4 Ps 18,856

Ps 2,396 Ps 1,113 Ps 1,440 Ps 809 Ps 10,635 Ps 4 Ps 23,265 (596) (878) (68) (593) - - (4,203)Ps 1,800 Ps 235 Ps 1,372 Ps 216 Ps 10,635 Ps 4 Ps 19,062


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Impairment testing of goodwillGoodwill 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 acquiree are assigned to those units or groups of units, as follows:


Alpek Ps 221 Ps 237 Ps -Sigma 5,112 5,195 4,778Nemak 4,946 4,943 4,504Other segments 356 356 356 Ps 10,635 Ps 10,731 Ps 9,638

The amount of recovery of the operating segments has been determined based on the calculations of the values in use. These calculations use cash flow projections based on pretax financial budgets approved by management covering a period of five years.

The key assumptions used in calculating the value in use in 2012 and 2011 were as follows: 2012 Other Alpek Sigma Nemak segments

Estimated gross margin 3.0% 9.4% 11.8% 6.3%Growth rate 2.2% 7.5% 1.5% 7.6%Discount rate 10.0% 8.4% 8.3% 10.5%

2011 Other Alpek (1) Sigma Nemak segments

Estimated gross margin - 24.9% 11.8% 7.0%Growth rate - 6.3% 1.5% 7.5%Discount rate - 8.5% 7.3% 9.0%

(1) This goodwill was generated during the month of August 2011, so no key assumptions were determined for evaluation at the end of 2011.

With regard to the calculation of the value in use of the operating segments, ALFA Management considers that a possible change in the key assumptions used, would not cause the carrying value of the operating segments to materially exceed its value in use.

14 Other non-current assets December 31, December 31, January 1, 2012 2011 2011

Non-current portion of customers and other accounts receivable (Note 8) Ps 289 Ps 301 Ps 57Financial assets available for sale 333 202 205Restricted cash (Note 7) 435 410 378Other non-current asset 1,057 913 640

Investment in associates 255 113 121Total other current assets Ps 1,312 Ps 1,026 Ps 761


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Financial assets available for sale

These assets are investments in shares of companies not listed on the market, representing less than 1% of their capital stock and equity investments in social clubs. No impairment loss was recognized when these assets were reclassified as available for sale, or at December 31, 2012.

The movement of financial assets available for sale was as follows:

2012 2011

Balance at January 1 Ps 202 Ps 205Acquisitions (disposals) 131 (3)Balance at December 31 Ps 333 Ps 202

Financial assets available for sale are denominated in Mexican pesos.

Investments in associates

The movement in investments in associates was as follows:

2012 2011

Balance at January 1 Ps 113 Ps 121Equity method - (31)Acquisitions 102 -Dividends 42 16Other equity movements (2) 7Balance at December 31 Ps 255 Ps 113

ALFA’s participation in its main results of associates and assets (including goodwill) and liabilities are presented below:

Country of Profit % of incorporation Assets Liabilities Income (loss) ownership

At December 31, 2012Terminal Petroquímica de Altamira, S.A. de C.V. Mexico Ps 53 Ps 25 Ps 28 Ps 6 21.07%Starcam Czech Republic 173 24 172 38 49.00%Chongqing JL French-YumeiDie Casting Co. Ltd. China 111 61 46 24 50.00%Conectividad Inalámbrica 7,S. de R. L. de C.V. Mexico 21 - - - 50.00%Clear Path Recycling, L.L.C. USA 574 492 480 (161) 25.00% Ps 932 Ps 602 Ps 726 (Ps 93)

At December 31, 2011Terminal Petroquímica deAltamira, S.A. de C.V. Mexico Ps 50 Ps 27 Ps 28 Ps 10 21.07%Starcam Czech Republic 12 2 18 4 49.00%Conectividad Inalámbrica 7, S. de R. L. de C.V. Mexico 50.00%Clear Path Recycling, L.L.C. USA 598 337 516 (100) 25.00% Ps 660 Ps 366 Ps 562 (Ps 86)


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15 Suppliers and other accounts payable December 31, December 31, January 1, 2012 2011 2011

Suppliers Ps 19,868 Ps 19,857 Ps 15,396Short-term employees’ benefits 424 198 164Advances from customers 940 655 500Taxes other than income tax 1,439 1,602 1,247Other accounts and accrued expensespayable 4,891 6,064 4,563 Ps 27,562 Ps 28,376 Ps 21,870

16 Debt December 31, December 31, January 1, 2012 2011 2011

Current:Bank loans (1) Ps 1,659 Ps 2,864 Ps 458Current portion of non-current debt 2,792 2,959 3,733Notes payable (1) 147 5 2Current debt Ps 4,598 Ps 5,828 Ps 4,193

Non-current:In dollars:Senior Notes Ps 21,738 Ps 17,344 Ps 10,179Secured bank loans - 496 9,542Unsecured bank loans 16,856 28,002 12,706Finance leases 59 189 23Other 60 - 404In local currency:Unsecured bank loans 67 200 3,230Exchange-traded debt certificates, unsecured 6,740 6,783 6,762In Euros:Senior Notes - - 289Secured bank loans - 79 -Unsecured bank loans 4,168 3,207 -Finance leases 39 - -Other - - 116Other currencies:Secured bank loans 90 - -Finance leases 150 171 72 49,967 56,471 43,323Less: Current portion of non-current debt (2,792) (2,959) (3,733)Non-current debt (2) Ps 47,175 Ps 53,512 Ps 39,590

(1) At December 31, 2012 and 2011 and January 1, 2011, short-term bank loans and notes payable bore interest at an average rate of 3.97%, 2.27% and 3.58%, respectively.

The fair value of bank loans and notes payable approximates their current book value, as the impact of discounting is not significant.(2) The carrying amounts, terms and conditions of non-current debt were as follows:


80

Costs of Balance at Balance at Balance at Maturity Initial debt Interest December 31, December 31, January 1, date Interest Description Currency balance issuance payable 2012 2011 2011 DD/MM/AAAA rate

Línea Comprometida /Libor+350 bps USD Ps - Ps - Ps - Ps - Ps 496 Ps - 15/11/2013 4.03%Refaccionario/ Tasa fija EUR - 79 - 30/06/2013 5.89%Linea Comprometida 20M/Libor+200 bps USD - - 86 20/04/2011 2.41%Prendario/ F USD - - 71 25/03/2014 5.24%Documento por pagar/ F USD - - 36 01/05/2023 6.00%Refinanciamiento PorciónDlls/ Libor+300 bps USD - - 9,349 31/12/2015 3.72%Secured bank loans - 575 9,542Bilateral / TF ARS 26 26 - - 25/03/2014 18.00%Bilateral / TF ARS 64 64 - - 16/12/2014 22.50%Directo/ TF EUR 45 45 - - 16/12/2014 2.00%Club Deal/ Euribor+187.5 bp EUR 1,485 (16) 5 1,474 - - 15/06/2015 2.11%Sindicado/ Euribor+275 bp EUR 2,672 (33) 10 2,649 - - 12/08/2016 3.03%Sindicado/ TIIE+25 bps MXN 67 67 - - 26/04/2013 5.10%Directo/ TF USD 16 16 - - 08/07/2016 2.00%Línea Comprometida/Libor+200 bps USD 65 65 - - 24/09/2015 2.31%Línea Comprometida/Libor+200 bps USD 111 111 - - 06/03/2014 2.43%Bilateral/ Libor+250 bps USD 195 1 196 - - 28/02/2017 2.96%Directo/ Libor+325 bp USD 234 234 - - 25/10/2013 3.75%Bilateral/ Libor+130 bps USD 260 260 - - 15/09/2014 1.78%Directo/ Libor+275 bp USD 325 325 - - 15/08/2014 3.22%Bilateral/ Libor+215 bps USD 390 1 391 - - 20/09/2015 2.59%Bilateral/ Libor+130 bps USD 455 1 456 - - 15/09/2014 1.78%Bilateral/ Libor+130 bps USD 455 1 456 - - 08/09/2014 1.80%Bilateral/ Libor+160 bps USD 651 2 653 - - 16/08/2016 2.08%Bilateral/ Libor+180 bps USD 781 8 789 - - 01/04/2016 2.05%Directo/ Libor+337.5 bp USD 1,156 1,156 - - 17/10/2014 3.63%Club Deal/ Libor+187.5 bp USD 1,399 (14) 5 1,390 - - 5/06/2015 2.185% - 2.30%Bilateral/ Libor+307 bps USD 2,082 41 2,123 - - 23/08/2017 3.98%Sindicado/ Libor+275 bp USD 8,304 (105) 36 8,235 - - 12/08/2016 3.06% - 3.22%Bancario/ Tasa fija USD - 24 - 28/02/2014 5.48%Bancario/ Tasa fija USD - 44 - 06/07/2013 5.42%Bancario/ Tasa fija USD - 16 - 17/12/2012 5.78%Bancario/ Libor+300 bp USD - 140 - 30/06/2014 3.76%Bancario/ Libor+215 bp USD - 420 - 20/09/2015 2.52%Bancario/ Libor+50 bp USD - 112 - 17/08/2012 1.05%Bancario/ Libor+180 bp USD - 847 - 01/04/2016 2.28%Bancario/ Libor+200 bp USD - 119 - 06/03/2014 2.66%Bancario/ Tasa fija USD - 140 - 31/12/2014 3.25%Bilateral/ Libor+130 bp USD - 769 - 15/09/2014 1.73%Bilateral/ Libor+130 bps USD - 490 - 08/09/2014 1.73%Bilateral/ Libor+442 bps USD - 2,304 - 23/08/2017 5.14%Directo/ Libor+325 bps USD - 506 - 25/10/2013 3.90%Directo/ Libor+337.5 bps USD - 1,401 - 05/10/2014 3.69%Directo/ Libor+275 bps USD - 351 - 15/08/2014 3.27%Directo/ Libor+300 bps USD - 699 - 23/12/2016 4.13%Directo/ Libor+160 bps USD - 701 - 16/08/2016 2.21%Documento por pagar/ Tasa fija USD - 59 - 16/08/2016 2.21%Línea Comprometida/Libor+160 bps USD - 422 - 22/07/2016 2.05%


81


Refinanciamiento/Euribor+300 bp EUR - 3,207 - 12/08/2016 4.65%Refinanciamiento/ Libor+300 bp USD - 10,263 - 12/08/2016 3.63%Sindicado/ TIIE+25 bps MXN - 200 - 26/04/2013 5.06%Sindicado/ Libor+225 bps USD - 8,175 - 08/12/2016 2.93%Bilateral/ Libor+288 bps USD - - 495 20/09/2015 3.35%Bilateral/ Libor+50 bps USD - - 496 21/08/2012 1.11%Bilateral/ Libor+270 bps USD - - 310 21/04/2016 2.99%Bilateral/ Libor+300 bps USD - - 310 30/01/2012 3.47%Bilateral/ Libor+50 bps USD - 199 17/08/2012 1.18%Bilateral/ F USD - - 1,993 17/08/2017 3.68%Credito Bilateral/ F MXN - - 188 28/02/2013 10.52%Crédito Simple/ Libor+375 bps USD - - 114 12/10/2011 4.32%Credito Sindicado /Libor+237.5 bps USD - - 6,685 30/08/2013 2.78%Crédito Sindicado 2007/TIIE+20 bps MXN - - 118 11/12/2012 5.10%Crédito Sindicado 2007/Libor+40 bps USD - - 389 11/12/2012 0.90%Directo/ Libor+325 bps USD - - 560 30/04/2011 3.70%Directo/ Libor+550 bps USD - - 772 05/10/2012 5.76%Eximbank (HermesQuirografarios )/ Libor+50 bps USD - - 55 30/09/2012 1.14%Linea Comprometida 10M/Libor+200 bps USD - - 105 06/03/2014 2.42%Refinanciamiento PorciónPesos/ TIIE+300 bps MXN - - 1,923 31/12/2015 8.13%Sindicado - Ps100 M Dls/Libor+60 bps USD - - 223 25/04/2011 1.11%Sindicado - Directo/ TIIE+20 bps MXN - - 1,001 26/04/2013 5.07%Unsecured bank loans 21,181 31,409 15,936

Certificado Bursátil/ TIIE+20 bps MXN 1,000 1,000 - - 08/12/2014 5.04%Certificado Bursátil/ TF MXN 1,000 1,000 - - 12/07/2018 10.25%Certificado Bursátil/ TF MXN 635 635 - - 08/12/2014 8.75%Certificado Bursátil/ UDIS MXN 605 605 - - 12/07/2018 5.32%Certificado Bursátil/TIIE+280 bp MXN 3,500 3,500 - - 10/11/2017 7.61%Certificado Bursátil/TIIE+250 bps MXN - 3,500 - 11/11/2017 7.61%Certificado Bursátil/ Tasa fija MXN - 637 - 08/12/2014 8.75%Certificado Bursátil/TIIE+20 bps MXN - 1,003 - 08/12/2014 5.07%Certificado Bursátil/ Tasa fija MXN - 1,046 - 12/07/2018 10.25%Certificado Bursátil/ Tasa fija MXN - 597 - 12/07/2018 5.32%Certificado Bursátil –Sin Garantía/ F MXN - - 637 08/12/2014 8.75%Certificado Bursátil –Sin Garantía/ TIIE+20 bps MXN - - 1,046 08/12/2014 5.10%Certificado Bursátil –Sin Garantía/ F MXN - - 1,003 12/07/2018 10.25%Certificado Bursátil –Sin Garantía/ F MXN - - 576 12/07/2018 5.32%Certificado Bursátil - 29%Garantía Bancomext/TIIE+250 bps MXN - - 3,500 11/09/2017 7.41%Exchange-traded debt certificates, unsecured 6,740 6,783 6,762


82


Bono 144A/ TF USD 8,433 (74) 42 8,401 - - 20/11/2022 4.50%Bono 144A/ TF USD 1,564 (6) 51 1,609 - - 19/08/2014 9.50%Bono 144A/ TF USD 5,817 (40) 70 5,847 - - 14/04/2018 5.63%Bono 144A/ TF USD 3,204 (32) 9 3,181 - - 16/12/2019 6.88%Bono 144A/ TF USD 2,602 (22) 120 2,700 - - 11/08/2014 11.75%Bono 144A/ Tasa fija USD - 3,948 - 19/08/2014 9.99%Bono144A/ Tasa fija USD - 3,411 - 16/12/2019 7.23%Bono144A/ Tasa fija USD - 6,273 - 14/04/2018 5.91%Mercado/ Tasa fija USD - 2,871 - 11/08/2014 12.36%Private Placement/ Tasa fija USD - 152 - 30/10/2012 8.74%Private Placement/ Tasa fija USD - 689 - 23/06/2014 6.85%Quasi Equity/ F EUR - - 289 31/12/2011 7.50%Private Placement/ F USD - - 269 30/10/2012 8.74%Bono 144A/ F USD - - 3,473 19/08/2014 9.99%Private Placement/ F USD - - 812 23/06/2014 6.85%Bono 144A/ F USD - - 3,060 16/12/2019 7.23%Bono/ F USD - - 2,565 11/08/2014 12.36%Senior Notes 21,738 17,344 10,468

Documento por pagar / TF USD 46 46 - -Otros/ TF USD 14 14 - -Crédito Simple/ F USD - - 28 31/10/2012 7.45%Crédito Simple/ F USD - - 19 31/10/2012 7.26%Crédito Simple/ F USD - - 35 28/02/2013 7.02%Crédito Simple/ F USD - - 23 30/04/2013 7.05%Crédito Simple/ F USD - - 31 28/02/2014 5.48%Crédito Simple/ F USD - - 26 28/10/2011 5.96%Crédito Simple/ F USD - - 19 07/08/2011 5.96%Crédito Simple/ F USD - - 40 15/06/2012 5.96%Crédito Simple/ F USD - - 34 06/08/2012 5.96%Crédito Simple/ F USD - - 4 10/09/2012 5.96%Crédito Simple/ F USD - - 18 11/09/2012 5.96%Crédito Simple/ F USD - - 15 15/10/2012 5.96%Crédito Simple/ F USD - - 4 15/12/2012 5.96%Crédito Simple/ F USD - - 18 15/02/2013 5.78%Crédito Simple/ F USD - - 61 06/07/2013 5.42%Crédito Simple/ F USD - - 29 17/12/2012 5.78%Refaccionario/ F EUR - - 116 30/06/2013 5.89%Other 60 - 520

Arrendamiento/ TF SOLES 9 9 - - 01/08/2015 6.95%Arrendamiento/ TF SOLES 4 4 - - 01/03/2016 8.32%Arrendamiento/ TF USD 59 59 - - 25/03/2014 5.24%Arrendamiento Financiero/ TF RMB 137 137 - - 28/02/2026 5.80%Arrendamientos y préstamossubvencionados/Euribor+104 bp EUR 39 39 - - 28/02/2026 1.80%Leasing PEN - 13 - 01/08/2015 6.95%Leasing PEN - 5 - 01/03/2016 8.32%Arrendamiento Financiero RMB - 153 - 28/02/2026 7.78%Arrendamiento USD - 72 - 25/03/2014 5.24%Arrendamiento Financiero USD - 1 - 31/01/2012 6.72%Arrendamiento Financiero USD - 116 - 31/01/2016 6.72%LEASING 13748 AF/ F PEN - - 3 01/08/2015 6.95%LEASING 17499AFB/ F PEN - - 1 01/03/2016 8.32%Arrendamiento Financiero/ F CNY - - 68 28/02/2026 8.32%Arrendamiento Financiero/ F USD - - 23 31/07/2011 6.72%Finance leases 248 360 95Total Ps 49,967 Ps 56,471 Ps 43,323


83

At December 31, 2012, the annual maturities of non-current debt are as follows:

2017 and 2014 2015 2016 subsequent Total

Bank loans and others Ps 4,663 Ps 6,755 Ps 5,413 Ps 1,618 Ps 18,449Senior Notes 4,166 - - 17,572 21,738Exchange-traded debt certificates 1,635 175 1,575 3,355 6,740Finance leases 63 12 12 161 248 Ps 10,527 Ps 6,942 Ps 7,000 Ps 22,706 Ps 47,175

At December 31, 2012, The Company has contractual credit lines unused for a total of US$898.

Covenants:Most existing debt agreements contain restrictions for the Company, primarily with respect to compliance with certain financial ratios, including:

a) Interest coverage ratio: which is defined as EBITDA for the period of the last four complete quarters divided by financial expenses, net or gross as appropriate, for the last four quarters, which shall not be less than 3.0 times.

b) Leverage ratio: which is defined as consolidated debt at that date, being the gross debt or net debt appropriate, divided by EBITDA for the period of the last four complete quarters, which shall not be more than 3.5 times.

During 2012 and 2011, the financial ratios were calculated according to the formulas set out in the loan agreements.

Currently, the Company is in compliance with all obligations and covenants contained in the credit agreements of its subsidiaries; such obligations, among other conditions and subject to certain exceptions, require or limit the ability of the subsidiaries to:

- Provide certain financial information;

- Maintain books and records;

- Keep assets in appropriate conditions;

- Comply with applicable laws, rules and regulations;

- Incur additional indebtedness;

- Pay dividends;

- Grant on assets;

- Enter into transactions with affiliates;

- Perform a consolidation, merger or sale of assets, and

- Carry out sale and lease-back operations.

At December 31, 2012 and the date of issuance of these financial statements, the Company and its subsidiaries complied satisfactorily with such covenants and restrictions.

Pledged assets:At December 31, 2012 there were no assets pledged as collateral for any of the subsidiaries.

In light of the significant events of 2011 and as a result of the refinancing of the bank debt of Nemak, freed some restrictions and safeguards that had Nemak on acquisition of working capital, as well as assets and shares of certain subsidiaries of TNemak. Also, until December 31, 2010 Nemak loans were guaranteed: i) Property, plant and equipment, ii) total assets of certain subsidiaries and iii) shares representing 100% of the capital of subsidiary companies TNemak those that individually exceed 5% of consolidated EBITDA or total assets. Furthermore, the shares representing the capital covering the above warranty corresponded to the following entities: Nemak, S.A., Nemak of Canada Corporation, Nemak Dillingen Gmbh, Nemak Wernigerode GmbH, Nemak Linz GmbH, Nemak Györ Kft, Nemak USA, Inc. Nemak Alumínio do Brasil Ltda. y Nemak Poland Sp z.o.o.

Nemak’s new debt agreement contains restrictions, primarily for compliance with financial ratios, dividend payments and submission of financial information, which if not fulfilled or remedied within a specified period to the satisfaction of creditors, may cause the debt to be immediately payable.

Loans of Ps496 obtained by Wellman are secured by Wellman’s property, plant and equipment and inventories.


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Loan contracts and debt agreements contain restrictions, primarily for compliance with financial ratios, incurring additional debt or making loans that require mortgage 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. At December 31, 2011 and the date of issuance of these financial statements, ALFA and its subsidiaries satisfactorily complied with such covenants and restrictions.

At December 31, 2011, there were liabilities totaling Ps 575 secured by: property, plant and equipment carried at Ps 111.

Relevant debt transactions:2012a) Relevant debt transactions: On June 28, 2012 Nemak completed the acquisition of JL French Automotive Castings, Inc. in the

amount of Ps215, this amount was financed through a loan from four banks for a term of three years.

b) On August 13, 2012, Petrotemex Group purchased US$154.2 (“Tender Offer”) the principal amount of the Senior Notes 144A/Reg. S issued in 2009, leaving a balance at December 31, 2012 of US$120.8 due 2014. Additionally, after the Tender Offer, the Grupo Petrotemex achieved majority consent of the holders of the Senior Notes to amend certain terms of the contract that governs them, and as a result, the Senior Notes that did not adhere to the tender offer remain in force but without the effect of the financial covenants.

c) On November 20, 2012, Alpek, S. A. B. de C.V., completed an issuance of debt (“Senior Notes”) for an amount of US$650 with a single maturity on November 20, 2022. Interest on the Senior Notes will be payable semi-annually at 4.500% per year commencing May 20, 2013. The Senior Notes were issued through a private placement under Rule 144A / Reg. S of the Securities Act of 1933 of the United States of America and are unconditionally guaranteed as unsubordinated, jointly and severally by certain subsidiaries of the Company.

In addition, the issuance of the Senior Notes originated emission costs and expenses in the amount of US$5.7. The costs and expenses of the issue, including the discounted placement of Senior Notes, net present debt and amortized along with the loan based on the effective rate method.

The net proceeds of the issuance of the Senior Notes were used primarily to make prepayments of certain subsidiaries of the Company.

2011a) On April 14, 2011, Sigma completed the issuance of debt obligations (“Senior Notes”) by a nominal amount of US$450,

maturing on April 14, 2018. Interest on the Senior Notes will be payable semi-annually at 5.625% per year commencing October 14, 2011. The Senior Notes were issued through a private placement under Rule 144A of the Securities Act of 1933 of the United States of America.

In addition, the issuance of the Senior Notes originated emission costs and expenses in the amount of US$4.5. The costs and expenses of the issue, including the discounted placement of Senior Notes, net present debt and amortized along with the loan based on the effective rate method.

b) In August 2011, Nemak concluded the refinancing of bank debt, which was authorized by the Board of Directors. This process included the debt of short and long term of approximately US$ 1.1 billion, which will last the duration of such loans until August 2016. This refinancing process involved for the Company costs approximately Ps 239 (US$ 19), of which approximately Ps 209 (US$ 15) were recorded in the Statement of Financial Position under the heading of issuance costs of debt and will be amortized over the life credit under the effective rate method, the remaining approximately Ps 30 (US$ 4) were recorded in the statement of income under financial costs.

The financial lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.


Obligation for finance leases - minimal payment, gross - Less than 1 year Ps 6 Ps 94 Ps 24 - More than 1 year and less than 5 years 13 - 98Present value of finance leases liabilities Ps 19 Ps 94 Ps 122


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The present value of finance lease liabilities is analyzed as follows:


Less than 1 year Ps 7 Ps 26 Ps 28More than 1 year and less than 5 years 6 71 98More than 5 years - - - Ps 13 Ps 97 Ps 126

17 Deferred taxes

The analysis of the deferred tax asset and deferred tax liability is as follows:


Deferred tax asset: - To be recovered more than 12 months (Ps 9,279) (Ps 9,814) (Ps 10,433) - To be recovered within 12 months (796) (1,739) (863) (10,075) (11,553) (11,296)Deferred tax liability: - To be covered more than 12 months 11,321 12,253 11,683 - To be covered within 12 months 1,685 2,398 2,650 13,006 14,651 14,333Deferred tax liabilities, net Ps 2,931 Ps 3,098 Ps 3,037

The gross movement in the deferred income tax account is as follows:

2012 2011

At January 1 Ps 3,098 Ps 3,037Exchange differences (148) (215)Charge to income statement 75 534Tax related to components of other comprehensive income (94) (258)At December 31 Ps 2,931 Ps 3,098

The movement in deferred income tax assets and liabilities during the year is as follows: Liability (asset)


Inventory (Ps 83) Ps - Ps -Advance payments (96) (37) (44)Intangible assets (110) (139) -Property, plant and equipment (7,201) (8,198) (8,474)Tax loss carry forwards (1,968) (1,477) (1,959)Other temporary differences, net (617) (1,702) (819)Deferred tax asset (10,075) (11,553) (11,296)Inventory - 81 137Intangible assets - - 180Customers 282 265 756Net liability employee retirement 753 606 418Valuation of derivative instruments 248 583 427Provisions 230 504 361Tax loss carry forwards 10,568 11,647 11,265Other temporary differences, net 925 965 789Deferred tax liability 13,006 14,651 14,333Deferred tax liability, net Ps 2,931 Ps 3,098 Ps 3,037


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Movements in temporary differences during the year are as follows:

Credited Credited (charged) Balance at (charged) to other Balance at December 31, to income comprehensive December 31, 2011 statement income 2012

Inventory Ps - (Ps 83) Ps - (Ps 83)Advance payments (37) (59) - (96)Intangible assets (139) 29 - (110)Property, plant and equipment (8,198) 997 - (7,201)Tax loss carry forwards (1,477) (491) - (1,968)Other temporary differences, net (1,702) 1,085 - (617)Deferred tax assets (11,553) 1,478 - (10,075)

Inventory 81 (81) -Customers 265 17 - 282Net liability employee retirement 606 16 131 753Valuation of derivative instruments 583 (298) (37) 248Provisions 504 (274) - 230Tax loss carry forwards 11,647 (1,079) - 10,568Other temporary differences, net 965 (40) - 925Deferred tax liabilities 14,651 (1,739) 94 13,006Deferred tax liabilities, net Ps 3,098 (Ps 261) Ps 94 Ps 2,931

Credited Credited (charged) Balance at (credited) to other Balance at January 1, to income comprehensive December 31, 2011 statement income 2011Advance payments (Ps 44) Ps 7 Ps - (Ps 37)Intangible assets - (139) (139)Property, plant and equipment (8,474) 276 - (8,198)Tax loss carry forwards (1,959) 482 - (1,477)Other temporary differences, net (819) (883) - (1,702)Deferred tax assets (11,296) (257) - (11,553)

Inventory 137 (56) 81Customers 756 (491) - 265Intangible assets 180 (180) - -Valuation of derivative instruments 427 4 152 583Net liability employee retirement 418 82 106 606Provisions 361 143 - 504Tax loss carry forwards 11,265 382 - 11,647Other temporary differences, net 789 176 - 965Deferred liabilities tax 14,333 60 258 14,651Deferred tax liabilities, net Ps 3,037 (Ps 197) Ps 258 Ps 3,098

The deferred income tax asset is recognized as tax loss carry forwards to the extent that realization of the related tax benefit through future taxable profits is probable. Tax losses amounted to Ps6,560 at December 31, 2012, Ps4,924 at December 31, 2011 and Ps6,530 at January 1, 2011.


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Tax losses at December 31, 2012 and 2011, and January 1, 2011 expire in the following years:

Year of December 31, December 31, January 1, Year of loss 2012 2011 2010 expiration

2007 and previous Ps 1,052 Ps 1,378 Ps 2,192 2017 2008 4,128 3,040 3,954 2018 2009 276 267 245 2019 2010 149 145 139 2020 2011 97 94 - 2021 2012 858 - - 2022 Ps 6,560 Ps 4,924 Ps 6,530

Income tax under tax consolidation regimeIn 2012 and 2011, the Company determined the consolidated taxable income of Ps5,337 and Ps5,483, respectively. The consolidated tax result differs from the accounting result, mainly in such items cumulative by the time and deducted differently for accounting and tax purposes, by the recognition of the inflation effects for tax purposes, as well as such items only affecting either the accounting or tax result.

According to the amendments to the Law on Income Tax for 2010, published on December 7, 2009, in the tax consolidation regime highlights the following:

a) The tax consolidation regime is modified in order to establish that the income tax payment related to the tax consolidation benefits obtained as of 2000 should be partially done during the years sixth to tenth subsequent to such when those benefits were embraced.

The tax consolidation benefits previously mentioned come from:

i. Tax losses embraced in the tax consolidation and were not amortized individually by the controller which produced them.

ii. Special consolidation items derived from transactions held between the consolidating partnerships and producing benefits.

iii. Loss on disposal of shares individually outstanding of deduction by the controller which produced them.

iv. Dividend distributed by the consolidating controllers and which do not come from the net tax profit account (CUFIN by its Spanish acronym) balance and reinvested net tax profit account (CUFINRE by its Spanish acronym).

b) It is stated that the existing differences between the consolidated CUFIN and CUFINRE balances and the balances of this same accounts of the group controlled can produce profits causing income tax.

Due to the above, the Company over time, has been recording a liability for this concept, which at December 31, 2012, 2011 and January 1, 2011 is in the amount of Ps4,473, Ps5,299 and Ps4,779, respectively, which will be paid in installments in accordance with the table below:

Year of payment

2017 and 2013 2014 2015 2016 subsequent Total

Tax losses Ps 255 Ps 594 Ps 724 Ps 667 Ps 1,876 Ps 4,116Consolidation special items 2 2 - - - 4Dividends distributed by thesubsidiaries from profits on whichthe subsidiaries had not paid tax 47 110 65 52 79 353Total Ps 304 Ps 706 Ps 789 Ps 719 Ps 1,955 Ps 4,473


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18 Provisions

Litigation (1) Total

At January 1, 2011 Ps 455 Ps 455Additional charges 123 123At December 31, 2011 578 578Additional charges 138 138At December 31, 2012 Ps 716 Ps 716

(1) This provision relates to the contingency referred to in Note 31 and is considered long-term.

19 Other liabilities December 31, December 31, January 1, 2012 2011 2011

Share-based employees’ benefits (Note 23) Ps 594 Ps 443 Ps 77Dividends payable 43 32 95Accounts payable – affiliates (Note 29) 357 208 243Total other liabilities Ps 994 Ps 683 Ps 415

Current portion Ps 559 Ps 326 Ps 360Non-current portion 435 357 55Total other liabilities Ps 994 Ps 683 Ps 415

20 Employee Benefits

The valuation of employee benefits for retirement plans, formal (covering approximately 80% of workers in 2012 and 79% in 2011) and informal, covers all employees and is based primarily on years of service by them, their current age and estimated salary at retirement date.

Certain companies of the Company are defined contribution schemes. For the structure design of these plans, the reduction in labor liabilities is reflected progressively.

The principal subsidiaries of the Company have established funds for the payment of retirement benefits through irrevocable trusts.

The employee benefit obligations recognized in the statement of financial position, by country, are shown below:


Mexico Ps 1,032 Ps 718 Ps 860United States of America 1,211 1,045 594Other 447 669 374Total Ps 2,690 Ps 2,432 Ps 1,828


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The following summarizes key financial data such benefits to employees:


Liabilities in the balance sheet by: Pension Benefits Ps 1,920 Ps 1,762 Ps 1,146 Post-employment medical benefits 770 670 682Liabilities in the balance sheet Ps 2,690 Ps 2,432 Ps 1,828

Charge in the income statement for: Pension Benefits (Ps 67) Ps 155 Post-employment medical benefits (31) (11) (98) 144Actuarial losses recognized in the statement of other comprehensive income for the period (Ps 306) (Ps 248)Cumulative actuarial losses recognizedin other comprehensive income (Ps 554) (Ps 248)

Pension benefits

The Company operates defined benefits 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 trustees (or equivalent) in its composition.

Amounts recognized in the balance sheet are determined as follows:


Present value of unfunded obligations Ps 5,920 Ps 5,130 Ps 3,637Fair value of plan assets (3,878) (3,315) (2,445)Present value of unfunded obligations 2,042 1,815 1,192Past service cost not recognized (122) (53) (46)Liabilities in the balance sheet Ps 1,920 Ps 1,762 Ps 1,146

The movement in the defined benefit obligation during the year is as follows:

2012 2011

At January 1 Ps 5,130 Ps 3,809Current service cost 99 111Interest cost 258 223Employee Contributions 1 15Actuarial losses/(gains) 721 169Exchange differences 68 302Prior service cost - (59)Benefits paid (358) (205)Liabilities acquired in business combination 10 854Reductions (5) (27)Agreements (4) (62)At December 31 Ps 5,920 Ps 5,130


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The movement in the fair value of plan assets of the year is as follows:

2012 2011

At January 1 (Ps 3,315) (Ps 2,445)Expected return on plan assets (280) (125)Actuarial Gains/(losses) (324) 163Exchange differences (8) (239)Employer contributions (160) 12Employee Contributions (1) (114)Benefits paid 210 (58)Liabilities acquired in business combination - (509)At December 31 (Ps 3,878) (Ps 3,315)

The amounts recognized in the income statement are as follows:

2012 2011

Current cost of service (Ps 83) Ps 58Cost of interest (224) (47)Expected return on plan assets 249 125Prior service cost (10) (3)Reducing losses 1 22Total included in employee costs (Ps 67) Ps 155

Total recognized in other comprehensive income items described below:

2012 2011

Cumulative balance at beginning of year (Ps 354) Ps -Actuarial losses occurring during the year (437) (354)Accumulated Balance at end of year (Ps 791) (Ps 354)

The main actuarial assumptions were as follows:


Discount rate 6.75% 8.25% 7.50%Inflation rate 4.25% 4.25% 4.25%Growth rate of wages 5.25% 5.25% 5.25%Expected return on plan assets 6.75% 10.25% 10.25%Future salary increase 4.25% 4.25% 4.25%Future pension increase 4.68% 5.90% 5.18%

Post-employment medical benefits

The Company operates schemes post-employment medical benefits mainly in Mexico and the United States. 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 balance sheet are determined as follows:


Present value of unfunded obligations Ps 775 Ps 678 Ps 686Fair value of plan assets (4) (3) (2)Present value of unfunded obligations 771 675 684Past service cost not recognized (1) (5) (2)Liabilities in the balance sheet Ps 770 Ps 670 Ps 682


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Movements in defined benefit obligations are as follows:

2012 2011

At January 1 Ps 678 Ps 636Current service cost 11 4Cost of interest 31 16Employee Contributions 7 (2)Actuarial losses/(gains) 60 13Exchange differences 9 21Benefits paid (26) (10)At December 31 Ps 770 Ps 678

The movement in the fair value of plan assets of the year is as follows:

2012 2011

At January 1 Ps 3 Ps 2Actuarial gains/(losses) 1 1At December 31 Ps 4 Ps 3

The amounts recognized in the income statement are as follows:

2012 2011

Current cost of service (Ps 7) (Ps 2)Cost of interest (26) (9)Prior service cost - -Total included in employee costs (Ps 33) (Ps 11)

The expected return on plan assets is determined by considering the expected returns available on the assets under the current investment policy. Expected yields on fixed interest investments are based on gross redemption rates at the end of the reporting period. The expected returns on capital investments and properties reflect long-term real rates of return experienced in the respective markets.

21 Stockholders’ equity

In an extraordinary Shareholders’ Meeting of Alfa, S. A. B. de C.V., held on August 30, 2012, it was agreed to carry out a stock split as of September 28, 2012. As of that date the Company proceeded to exchange “November 2006” share certificates of ALFA, for “25 September 2012” share certificates, at the rate of ten (10) new shares for each share of the previous issue. The effects of the stock split were treated retrospectively for purposes of determining earnings per share in previous years as if the split had taken effect on January 1, 2011.

At December 31, 2012, the capital stock is variable, with a fixed minimum to withdraw Ps211, represented by 5,200,000,000 “Class I” Series “A” shares, without par value, fully subscribed and paid. The variable capital entitled to withdrawal will be represented, if issued, by registered “Class II” Series “A” shares without par value.

Thousand shares

At January 1 and December 31, 2011 5,400,000Cancelled on February 29, 2012 (200,000)At December 31, 2012 5,200,000

During 2012 and 2011 the Company repurchased 53,317,000 and 145,618,000 shares, respectively, for a total of Ps1,074 and Ps2,265, in connection with a share repurchase program that was approved by the shareholders of the Company and carried out at the discretion of the Administration. At December 31, 2012 and 2011, the Company held 54,000,000 and 200,683,000 treasury shares and the market value of the share was Ps27.38 and Ps15.20 pesos, respectively.


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The profit for the period is subject to the legal provision requiring at least 5% of the profit for each period to be set aside to increase the legal reserve until it reaches an amount equivalent to 20% of the capital stock. At December 31, 2012, the amount of the legal reserve amounted to Ps60, which is included in retained earnings.

Dividends paid are not subject to income tax if paid from the Net Tax Profit Account (CUFIN, by its Spanish acronym). Any dividends paid in excess of this account will cause a tax equivalent to 30%if they are paid on 2013. The current tax is payable by the Company and may be credited against its income tax in the same year or the following two years or in its case against the Flat tax of the period. Dividends paid coming from profits previously taxed by income tax are not subject to tax withholding or additional tax payment. At December 31, 2012, the tax value of the consolidated CUFIN and value of the Single Account of Capital Contribution (CUCA by its Spanish acronym) amounted to Ps12,202 and Ps33,968 respectively.

In the event of a capital reduction, the provisions of the Income Tax Law arrange any excess of Stockholders’ equity over capital contributions, is accounted with the same tax treatment as dividends.

Movements in other comprehensive income for 2012 and 2011 are presented below:

Effect of Effects of translation of cash flow foreign hedging entities instruments Total

At 1 January, 2011 Ps - Ps 137 Ps 137Gains (losses) on fair value - (496) (496)Tax on gain (loss) on fair value - 143 143Gains (losses) on translation of foreign entities 3,031 - 3,031At December 31, 2011 3,031 (216) 2,815Gains (losses) on fair value - 121 121Tax on gain (loss) on fair value - (34) (34)Gains (losses) on translation of foreign entities (2,810) - (2,810)At December 31, 2012 Ps 221 (Ps 129) Ps 92

Foreign currency translation

The foreign exchange differences arising from the translation of financial statements of foreign subsidiaries are recorded.

Effect of derivative financial instruments

The effect of derivative financial instruments as cash flow hedges contains the actual proportion of hedge relationships incurred cash flows at the reporting date.

The directors and executive officers of the Company do not own more than 1% of its capital. Furthermore, no shareholder owns more than 10% of its capital, or has significant influence or control, or has power to govern the company.


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22 Foreign currency position

At February 1, 2013, the issuance date of these financial statements, the exchange rate of 12.71 Mexican pesos per dollar.

The figures below are expressed in millions of dollars, being the prevailing foreign currency for business use.

At December 31, 2012 and 2011, and January 1, 2011 will have the following assets and liabilities in currencies: At December 31, 2012

Dollar (USD) Other currencies Mexican Mexican Mexican pesos USD pesos USD pesos total

Monetary assets Ps 1,262 Ps 20,320 Ps 615 Ps 8,001 Ps 28,320LiabilitiesCurrent (971) (12,628) (956) (12,439) (25,068)Non-current (2,329) (30,299) (1,601) (20,827) (51,125)Monetary position in foreign currencies (Ps 2,038) (Ps 22,607) (Ps 1,942) (Ps 25,265) (Ps 47,873)



Monetary assets Ps 1,753 Ps 24,506 Ps 370 Ps 5,176 Ps 29,682LiabilitiesCurrent (1,565) (21,883) (478) (6,688) (28,571)Non-current (2,715) (37,952) (50) (695) (38,647)Monetary position in foreign currencies (Ps 2,527) (Ps 35,329) (Ps 158) (Ps 2,207) (Ps 37,536)

At January 1, 2011


Monetary assets Ps 1,458 Ps 18,016 Ps 1,105 Ps 13,654 Ps 31,670LiabilitiesCurrent (814) (10,059) (1,887) (23,318) (33,377)Non-current (2,656) (32,820) (128) (1,582) (34,402)Monetary position in foreign currencies (Ps 2,012) (Ps 24,863) (Ps 910) (Ps 11,246) (Ps 36,109)

23 Share-based payments

ALFA has a compensation scheme referenced to the value of its own shares for senior executives of ALFA and its subsidiaries. According to the terms of the plan, eligible executives will receive a cash payment conditional on the achievement of certain quantitative and qualitative metrics based on the following financial measures:

The program consists of determining a number of shares on which the executives shall be based. The bonus will be paid in cash over the next five years, i.e. 20% each year at the average price of the share at the end of each year. The average price of the share in 2012 and 2011 and January 1, 2011 was 27.8, 15.7 and 11.6 Mexican pesos, respectively.

At December 31, 2012 and 2011 and January 1, 2011 the liability for share-based payments amounted to Ps594, Ps443 and Ps77 respectively.


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The short-term and long-term liability was analized as follows:


Short term Ps 160 Ps 120 Ps 22Long term 434 323 55Total carrying value Ps 594 Ps 443 Ps 77

24 Expenses classified by their nature

Cost of sales and selling and administrative expenses classified by nature are as follows:

2012 2011

Raw materials (Ps 123,771) (Ps 117,838)Outsourced production (5,139) (4,007)Employee benefit expenses (Note 27) (22,284) (17,491)Maintenance (4,983) (5,401)Depreciation and amortization (7,962) (6,915)Freight (4,409) (1,187)Advertising expenses (1,210) (58)Lease expense (772) -Consumption of energy and fuel (5,799) (2,688)Travel expenses (564) (337)Technical assistance, professional fees and administrative services (1,779) (1,519)Other (5,141) (11,779)Total (Ps 183,813) (Ps 169,220)

25 Other expenses, net 2012 2011

Expenses for acquisition projects (Ps 17) (Ps 267)Valuation of derivative financial transactions 152 -Reorganization costs (21) (186)Refinancing expense (8) (1)Impairment loss (270) (503)Loss on sale of waste (53) (217)Gain (loss) on sale of assets 37 (5)Gain on sale of shares 112 86Other 19 18Total other expenses, net (Ps 49) (Ps 1,075)


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26 Financial cost, net 2012 2011

Financial income: - Interest income on short-term bank deposits Ps 267 Ps 129 - Expected return on plan assets 261 248 - Interest rate swaps 138 93 - Other finance income 53 22 - Own share swaps - 114Financial income, excluding foreign exchange loss 719 606Gain on foreign exchange 962 -Total financial income Ps 1,681 Ps 606

Financial expenses: - Interest expense on bank loans (Ps 2,152) (Ps 2,168) - Interest expense on exchange-traded debt certificates (1,516) (1,132) - Interest expense on sale of receivables (164) (98) - Interest cost on benefit to employees (268) (242) - Interest expense of suppliers (34) (32) - Interest rate swaps: fair value hedging (16) (47) - Other financial expenses (265) (404)Financial cost (4,415) (4,123)Less: amounts capitalized on qualifying fixed assets 3 3Interest expense, excluding foreign exchange loss (4,412) (4,120)Foreign exchange loss - (1,244)Total financial cost (Ps 4,412) (Ps 5,364)

Financing cost, net (Ps 2,731) (Ps 4,758)

27 Employee benefit expenses 2012 2011

Salaries, wages and benefits Ps 19,180 Ps 15,130Contributions to social security 2,435 1,809Employees’ benefits (Note 20) 485 412Other contributions 184 140Total Ps 22,284 Ps 17,491

28 Income tax for the year 2012 2011

Current tax:Income tax on profits of the period (Ps 3,431) (Ps 3,278)Adjustment for previous years 217 82Total current tax (3,214) (3,196)

Deferred tax:Origination and reversal of temporary differences (75) (534)Total deferred tax (75) (534)Effect of tax consolidation on income tax (101) 1,179Income taxes charged to income (Ps 3,390) (Ps 2,551)


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The reconciliation between the statutory and effective rates of income tax is as follows:

2012 2011

Profit before taxes Ps 13,574 Ps 7,883Share in losses of associates recognized through equity method - 31Income before equity in affiliates 13,574 7,914Legal rate 30% 30%Tax at statutory rate (30% in 2012 and 2011) (4,073) (2,375)(More) less tax effect of:Differences in comprehensive financing 652 (364)Other permanent differences, net 132 106Provision relating to the operations of the year (3,289) (2,633)Recalculation of back taxes and other (101) 82Total provision for income taxes charged to income (Ps 3,390) (Ps 2,551)Effective rate 25% 32%

Through the Law of Income for 2013, issued on December 9, 2012 and published in the Official Journal of the Federation on December 17, 2012, states that the rate of income tax in Mexico (ISR) effective in 2013 will be 30%. The same Act states that the income tax rate will be 29% in 2014 from 2015 and will be 28%.

In late 2012, the Senate of the United States of America approved and passed to the House of Representatives changes to the law of that country’s income, which were signed by the President in early January 2013 and are considered substantially approved. At December 31, 2012, this has no impact, or caused or tax deferred taxes calculated by the Company.

The charge/(credit) charge related to components of other comprehensive income is as follows: 2012 2011

Tax Tax Before charged After Before charged After tax (credited) tax tax (credited) tax

Effect of derivative financial instruments hired as cash flows hedging Ps 124 (Ps 37) Ps 87 (Ps 506) Ps 152 (Ps 354)Actuarial losses on labor liabilities (437) 131 (306) (354) 106 (248)Translation effect of foreign entities (2,887) - (2,887) 3,492 - 3,492Other items of comprehensive income (Ps 3,200) Ps 94 (Ps 3,106) Ps 2,632 Ps 258 Ps 2,890Deferred taxes Ps 94 Ps 258

29 Related parties transactions

Transactions with related parties during the years ended December 31, 2012 and 2011, which were held as if conditions were equivalent to similar operations with independent third parties, were as follows:

2012 2011

Sale of goods and services:Affiliates Ps 17,556 Ps 16,180Purchase of goods and services:Affiliates Ps 1,526 Ps 1,744

For the year ended on December 31, 2012, wages and benefits received by top officials of the company were Ps603 (Ps413 in 2011), an amount comprising base salary and benefits law and supplemented mainly by a variable compensation program governed primarily based on the results of the Company and the market value of the stock it.


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At December 31, 2012 and 2011, and January 1, 2011, the balances with related parties are as follows:

Nature of December 31, December 31, January 1, the transaction 2012 2011 2011

Receivables:Affiliates Sales of products Ps 1,645 Ps 2,258 Ps 1,272Payables:Affiliates Purchase of raw material Ps 357 Ps 208 Ps 243

Balances payable to related parties at December 31, 2012, expire in 2013 and do not accrue interest.

The Company and its subsidiaries had disclosed no significant transactions with related parties or conflicts of interest to disclose.

30 Segment Reporting

Segment information is presented consistently with the internal reporting provided to the chief executive who is the highest authority in the operational decision making, resource allocation and performance assessment of the operating segments.

An operating segment is defined as a component of an entity on which separate financial information is regularly being evaluated.

The company manages and evaluates its operation through 5 basic operating segments which are:

-- Alpek: This segment operates in the petrochemical industry and synthetic fibers, and its revenues are derived from sales of its main products: polyester, plastics and chemicals.

- Sigma: This segment operates in the refrigerated food sector and its revenues are derived from sales of its main products: deli meats, dairy and other processed foods.

- Nemak: this segment operates in the automotive industry and its revenues are derived from sales of its main product: aluminum engine heads and blocks.

- Alestra: this segment operates in the telecommunications sector and its revenues are derived from the provision of data transmission services, Internet and long distance phone service.

- Newpek: segment dedicated to the exploration and exploitation of natural gas fields and oil.

- Other Segments: includes all other companies operating in business services and other non-reportable segments and do not meet the quantitative limits in the years presented and, therefore, are presented in aggregate as well as being substantially eliminated in consolidation.

These operating segments are managed and controlled independently because the products and the markets they serve are different. Their activities are performed through different subsidiaries.

The Company evaluates the performance of each of the operating segments based on income before financial results, income taxes, depreciation and amortization (“EBITDA”), whereas this indicator is a good measure to evaluate operating performance and ability to meet principal and interest obligations with respect to indebtedness, and the ability to fund capital expenditures and working capital requirements. Nevertheless, 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.

The operations between operating segments are performed at market value and the accounting policies with which the financial information by segments is prepared, are consistent with those described in Note 3.

The Company has defined the ADJUSTED EBITDA as the calculation of adding the operating profit, depreciation and amortization, asset impairment and subtracting dividend income.

Following is the condensed financial information of these operative segments:


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For the year ended on December 31, 2012 Other Segments and Alpek Sigma Nemak Alestra Newpek eliminations Total

Statement of incomeIncome by segment Ps 96,163 Ps 45,476 Ps 51,384 Ps 4,634 Ps 1,227 Ps 3,715 Ps 202,599Intersegment income (360) - (3) (111) - (1,958) (2,432)Income from external customers Ps 95,803 Ps 45,476 Ps 51,381 Ps 4,523 Ps 1,227 Ps 1,757 Ps 200,167

ADJUSTED EBITDA Ps 9,609 Ps 6,214 Ps 6,671 Ps 1,804 Ps 875 (Ps 697) Ps 24,476Depreciation and amortization (2,129) (1,409) (3,287) (833) (197) (107) (7,962)Asset impairment (4) (23) (214) (12) (1) (16) (270)Income from dividends - - 18 - - 43 61Operating profit 7,476 4,782 3,188 959 677 (777) 16,305Financial result (1,331) 54 (1,393) (133) (8) 80 (2,731)Share of losses of associates (39) - 38 - - 1 -Gain or loss before tax Ps 6,106 Ps 4,836 Ps 1,833 Ps 826 Ps 669 (Ps 696) Ps 13,574

Statement of financial positionInvestment in associates Ps 2 Ps - Ps 243 Ps 10 Ps - Ps - Ps 255Other assets 61,694 30,616 49,449 7,365 1,701 2,778 153,608

Total assets Ps 61,696 Ps 30,616 Ps 49,692 Ps 7,375 Ps 1,701 Ps 2,778 Ps 153,858Total liabilities 32,045 20,416 34,777 4,244 456 1,143 93,081Net assets Ps 29,651 Ps 10,200 Ps 14,915 Ps 3,131 Ps 1,245 Ps 1,635 Ps 60,777

Capital expenditures (Capex) (Ps 1,522) (Ps 1,416) (Ps 4,171) (Ps 887) (Ps 640) (Ps 96) (Ps 8,732)

For the year ended on December 31, 2011 Other Segments and Alpek Sigma Nemak Alestra Newpek eliminations Total

Statement of incomeIncome by segment Ps 90,667 Ps 41,078 Ps 44,669 Ps 4,697 Ps 573 Ps 3,033 Ps 184,717Intersegment income (286) - - (953) - (511) (1,750)Income from external customers Ps 90,381 Ps 41,078 Ps 44,669 Ps 3,744 Ps 573 Ps 2,522 Ps 182,967

ADJUSTED EBITDA Ps 9,545 Ps 4,846 Ps 4,614 Ps 1,572 Ps 380 (Ps 883) Ps 20,074Depreciation and amortization (1,819) (1,397) (2,435) (1,008) (146) (110) (6,915Asset impairment (137) (53) (209) (31) (25) (48) (503)Income from dividends - - 16 - - - 16Operating profit 7,589 3,396 1,986 533 209 (1,041) 12,672Financial result (1,190) (1,938) (1,119) (681) (7) 177 (4,758)Share of lossesof associates (24) - - - - (7) (31)Gain or loss before tax Ps 6,375 Ps 1,458 Ps 867 (Ps 148) Ps 202 (Ps 871) Ps 7,883

Statement of financial positionInvestment in associates Ps 42 Ps - Ps - Ps - Ps - Ps 71 Ps 113Other assets 62,111 28,855 49,090 7,224 1,170 2,631 151,081

Total assets Ps 62,153 Ps 28,855 Ps 49,090 Ps 7,224 Ps 1,170 Ps 2,702 Ps 151,194Total liabilities 43,354 20,583 34,197 4,628 271 (104) 102,929Net assets Ps 18,799 Ps 8,272 Ps 14,893 Ps 2,596 Ps 899 Ps 2,806 Ps 48,265

Capital expenditures (Capex) (Ps 588) (Ps 952) (Ps 4,126) (Ps 637) (Ps 392) (Ps 79) (Ps 6,774)


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The sales of external clients as well as property, plant and equipment, goodwill and intangible asset by geographic area are shown follows. The sales with external clients were classified based on its origin:

For the year ended December 31, 2012 Sales to Property external plant and Intangible customers equipment Goodwill assets

Mexico Ps 109,026 Ps 47,475 Ps 3,639 Ps 5,022United States of America 60,333 12,839 218 2,852Canada 1,578 1,201 - 25Central and South America 11,670 2,902 - 45Other countries 17,560 9,651 6,778 843Total Ps 200,167 Ps 74,068 Ps 10,635 Ps 8,787

For the year ended December 31, 2011 Sales to Property external plant and Intangible customers equipment Goodwill assets

Mexico Ps 104,539 Ps 49,414 Ps 3,218 Ps 4,915United States of America 48,281 13,315 171 2,786Canada 1,312 1,264 - 14Central and South America 11,567 3,122 - 37Other countries 17,268 9,266 7,342 795Total Ps 182,967 Ps 76,381 Ps 10,731 Ps 8,547

The sales to external customers by product or service are as follows: 2012 2011

AlpekPolyester-Pet/PTA Ps 75,105 Ps 69,943Plastics and chemicals 20,698 20,438Total 95,803 90,381

SigmaProcessed meat 30,307 27,676Dairy 13,213 11,683Other refrigerated products 1,956 1,719Total 45,476 41,078

NemakAluminum automotive products 51,381 44,669Total 51,381 44,669

AlestraBusiness segment 4,303 3,468Other segments 220 276Total 4,523 3,744

NewpekHydrocarbons 1,227 573Total 1,227 573

Other segments 1,757 2,522Total Ps 200,167 Ps 182,967

31 Contingencies and commitments

At December 31, 2012, the Company had the following contingencies:

a. In the normal course of its business, the Company is involved in disputes and litigation. While the results of the disputes cannot be predicted, the Company does not believe that there are actions pending application or threat, claims or legal proceedings against or affecting the Company which, if determined adversely to it, would damage significantly individually or overall results of operations or financial position.


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b. A subsidiary (Alestra) is involved in a dispute with Telefonos de México, S. A. de C.V. (Telmex) in relation to rates applicable interconnection services applicable to 2008, 2009, 2010 and 2011 and had requested the intervention of COFETEL. The resolution requests a resolution regarding traffic rates for interconnection of telecommunication networks applicable during 2010 and the interconnection of long distance traffic (interurban transport) during 2008 and 2009. On September 8, 2009, the Company and Telmex created a trust with BBVA Bancomer (as trustee) to ensure the payment of fixed interconnection services on the dispute applicable to 2008. The trust agreement was amended to include the amounts in dispute for 2009 and 2010. Once the parties reach an agreement or the related disagreements are resolved permanently, trust funds and related income will be distributed or applied to future services, as agreed. At 31 December 2012, 2011 and January 1, 2011, the balance of the trust was Ps424, Ps409 and Ps378, respectively. Telmex and Alestra did not extend the trust agreement in 2011 and therefore, on January 1, 2011 the Company ceased to make deposits to the trust agreement. As of the date of the formation of the trust until December 31, 2012, any charges in relation to this dispute have been paid. Since April 2012, Telmex and Alestra recommenced negotiations and the basis of the provision regarding resale interconnection rates have prospectively changed based on the analysis and judgment of the Alestra’s Management, given the most recent and reliable information and conditions market. At the date of issuance of these consolidated financial statements, the Company continues its negotiations with Telmex and is expected to reach an agreement in the close future. In the opinion of the Company, although the results of the above procedures are uncertain, should not have an adverse effect on the financial performance, financial condition or cash flows; however, at the date of issuance of these financial statements, the Company believes that sufficient provision has been recognized for attacking such contingencies, see Note 18.

c. Derivative from Contracts for Services for Exploration, Development and Production held with Pemex-Exploración y Producción (PEP) as mentioned in Note 2, Petrolíferos and Oleorey gave bonds for a total value of US$48 as security for the amount of the Initial Minimum Program, because in case of breach, PEP has the right to enforce such guarantees, the amount of bonds corresponds to 50% responsibility for ALFA and the remaining 50% for MPG.

At December 31, 2012, the Company and its subsidiaries had the following commitments:

a. Various subsidiaries contracts with suppliers and customers, for the acquisition of raw materials used in the manufacture of products and purchase of equipment and other capital expenditures related to the expansion of the telephone network and sale of finished goods, respectively. The contracts, lasting between one and five years, stipulate certain restrictions and guarantees for the parties.

b. In September 2007, a subsidiary renewed a contract with PEMEX Refinación, for the supply of raw materials maturing in December 2018.

c. Regarding operational expansion projects, a subsidiary held various agreements related to the acquisition of engineering licenses and own design of production lines. These contracts provide various confidentiality restrictions on the engineering used and monthly royalty payments determined under certain monthly production.

d. In February 2005, a subsidiary held a contract to pay royalties for the granting of the concession of the finished product long term. This agreement ends upon payment of a total amount of US$15.5.

32 First-time adoption of international financial reporting standards

Until 2011, the Company issued its consolidated financial statements in accordance with Mexican Financial Reporting Standards (MFRS). Commencing in 2012, ALFA issues its consolidated financial statements in accordance with IFRS issued by the International Accounting Standards Board (IASB).

In accordance with IFRS 1 “First-time Adoption of IFRS” the Company considered January 1, 2011 as its transition date and January 1, 2012 as its date of adoption. The amounts included in the consolidated financial statements for 2011 have been reconciled to be presented under the same standards and criteria in 2012.

For the transition, the Company identified and quantified the differences between MFRS and IFRS for purposes of its opening balance sheet at January 1, 2011 and its conversion to IFRS on its financial information systems.

In preparing its opening balance sheet, based on IFRS 1, the Company has adjusted amounts reported previously in financial statements prepared under MFRS. An explanation of how the transition from MFRS to IFRS has affected the Company’s financial position, its financial performance and cash flows shown in the following tables and notes:

1. Decisions on Adoption1.1. IFRS optional exemptions

1.1.1. Exemption of fair value as assigned cost

IFRS 1 provides the option to measure the property, plant and equipment at fair value as well as certain intangible assets at the date of transition to IFRS and to use that fair value as its assigned cost at that date or to use an updated carrying amount determined under the previous GAAP (Generally Accepted Accounting Principles), if such updated carrying amount is


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comparable to: a) fair value or b) cost or depreciated cost in accordance with IFRS, adjusted to recognize changes in an inflation rate.

The Company chose, at its transition date, to revalue its land and property, plant and equipment at fair value. For smaller equipment, the Company chose to use their values recognized under MFRS as assigned cost under IFRS. The net effect on valuation is recognized against the opening balance of retained earnings under IFRS at the transition date. Thereafter, the Company uses the cost method for property, plant and equipment in accordance with IFRS.

1.1.2. Exemption for business combinations

IFRS 1 allows applying IFRS 3, “Business Combinations” (“IFRS 3”), prospectively as of the transition date or a specific date before the transition date. An entity that chooses to restate its purchases from a specific date before the transition date must include all acquisitions occurring in that period. This option allows avoiding retrospective application that would reset all business combinations that occurred before the transition date. The Company chose to prospectively apply IFRS 3 to business combinations occurring on or after the transition date. The business combinations before the transition date were not modified.

1.1.3. Exemption to remove a cumulative foreign currency translation effect

IFRS 1 allows canceling cumulative gains and losses in foreign currency translation at the transition date. This exemption allows not calculating the cumulative translation effect in accordance with IAS 21, “The effects of changes in foreign exchange rates” (“IAS 21”), as of the date on which the subsidiary or investment accounted through the equity method was established or acquired. The Company chose to zero all cumulative gains and losses from translation against retained earnings under IFRS at the transition date.

1.1.4. Exemption for labor obligations

IFRS 1 allows not applying IAS 19, “Employee Benefits” retrospectively for the recognition of actuarial gains and losses. In line with this exemption, the Company chose to recognise all cumulative actuarial gains and losses that existed at the transition date against retained earnings under IFRS.

1.1.5. Exemption to capitalize borrowing costs

IFRS, allows entities to apply the transitional guidelines included in the revised IAS 23, “Capitalization of Borrowing Costs” (“IAS 23”), which interpret that the effetive date of the rule is January 1, 2009 or the transition date to IFRS, whichever comes lates.

For any uncapitalized loan costs at the transition date, the Company chose to apply this exemption and begin to capitalize borrowing costs from the transition date prospectively.

1.2. Mandatory exceptions of IFRS1.2.1. Exception for hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that meet the criteria of IAS 39 “Financial Instruments: Recognition and Measurement”, at that date. Hedge accounting can only be applied prospectively from the transition date and is not allowed to create retrospectively documentation supporting a hedge relationship. All hedging transactions contracted by the Company met the criteria for hedge accounting as of January 1, 2011 and, accordingly, are reflected as hedge in the statements of financial position of the Company under IFRS.

1.2.2. Exception for accounting estimates

Estimates under IFRS at the transition date are consistent with those made under MFRS around the same time.

Additionally, the Company prospectively applied the following mandatory exceptions from January 1, 2011: derecognition (elimination) of financial assets and financial liabilities and non-controlling interest, without significant impact.

2. Reconciliations from MFRS to IFRSIFRS 1 require a reconciliation of equity, comprehensive income statement and cash flows for the prior periods. The first time adoption of the Company had no impact in the total operating, investing and financing operation. The following tables represent the reconciliations of MFRS to IFRS for the respective periods in equity, statement of comprehensive income and consolidated.

A) Reconciliation of consolidated statement of financial position at January 1, 2011B) Reconciliation of consolidated statement of financial position at December 31,2011C) Reconciliation of consolidated income statement for the year ended on December 31, 2011D) Reconciliation of consolidated statement of comprehensive income for the year ended on December 31, 2011E) Explanation of the effects of the transition to IFRSF) Explanation of significant effects of transition to IFRS in the consolidated statement of cash flows for the year ended on December

31, 2011.


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A) RECONCILIATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT JANUARY 1, 2011

Effects of transition to Note MFRS IFRS IFRS

AssetsCURRENT ASSETS:Cash and cash equivalents l. Ps 8,495 (Ps 1,355) Ps 7,140Restricted cash and cash equivalents l. - 977 977Customers and other accounts receivable, net l. 18,080 (32) 18,048Inventory b., e. 14,653 (371) 14,282Derivative financial instruments 680 - 680Other current assets l. 378 66 444Total current assets 42,286 (715) 41,571

NON-CURRENT ASSETS:Non-current portion of derivativefinancial instruments 109 - 109Property, plant and equipment, net b., e. 52,096 13,937 66,033Goodwill and intangible assets, net a., c., g. 16,406 (1,215) 15,191Deferred income tax d. 664 (304) 360Other non-current assets l. 694 67 761Total non-current assets 69,969 12,485 82,454Total assets Ps 112,255 Ps 11,770 Ps 124,025

Liabilities and Stockholders’ equityLiabilitiesCURRENT LIABILITIES:Current debt c., g. Ps 3,784 Ps 409 Ps 4,193Suppliers and other accounts payable g. 22,878 (1,008) 21,870Income tax payable 960 - 960Derivative financial instruments 275 - 275Other current liabilities 360 - 360Total short-term liabilities 28,257 (599) 27,658

NON-CURRENT LIABILITIES:Non-current debt c., g. 39,742 (152) 39,590Non-current portion of derivativefinancial instruments l. 1,754 26 1,780Provisions l. - 455 455Deferred income tax d. 597 2,800 3,397Deferred income tax from tax consolidation 4,779 - 4,779Employees’ benefits h. 885 943 1,828Other non-current liabilities l. - 55 55Total non-current liabilities 47,757 4,127 51,884Total liabilities 76,014 3,528 79,542

Stockholders’ equityControlling interest:Capital stock a. 358 (131) 227Retained earnings a., b., c., d., f. 31,017 7,699 38,716Other reserves k. - 137 137Total controlling interest 31,375 7,705 39,080Non-controlling interest 4,866 537 5,403Total stockholders’ equity 36,241 8,242 44,483Total liabilities and stockholders’ equity Ps 112,255 Ps 11,770 Ps 124,025


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B) RECONCILIATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 2011


AssetsCURRENT ASSETS:Cash and cash equivalents l. Ps 9,031 (Ps 777) Ps 8,254Restricted cash and cash equivalents l. - 370 370Customers and other accounts receivable, net l. 24,342 (92) 24,250Inventory b., e. 20,577 7 20,584Derivative financial instruments l. 50 69 119Other current assets l. 526 (14) 512Total current assets 54,526 (437) 54,089

NON-CURRENT ASSETS:Non-current portion of derivativefinancial instruments 46 - 46Property, plant and equipment, net b., e. 63,262 13,119 76,381Goodwill and intangible assets, net a., c., g. 18,992 (136) 18,856Deferred income tax d. 820 (24) 796Other non-current assets l. 915 111 1,026Total non-current assets 84,035 13,070 97,105Total assets Ps 138,561 Ps 12,633 Ps 151,194

Liabilities and Stockholders’ equityLiabilitiesCURRENT LIABILITIES:Non-current debt c., g. Ps 5,197 Ps 631 Ps 5,828Suppliers and other accounts payable g. 29,624 (1,248) 28,376Derivative financial instruments l. 630 69 699Other current liabilities 326 - 326Total short-term liabilities 35,777 (548) 35,229

NON-CURRENT LIABILITIES:Non-current debt c. g. 54,100 (588) 53,512Non-current portion of derivativefinancial instruments 1,628 - 1,628Provisions l. - 578 578Deferred income tax d. 738 3,156 3,894Deferred income tax from tax consolidation 5,299 - 5,299Employees’ benefits h. 1,227 1,205 2,432Other non-current liabilities l. 33 324 357Total non-current liabilities 63,025 4,675 67,700Total liabilities 98,802 4,127 102,929

Stockholders’ equityControlling interest:Capital stock a. 348 (131) 217Retained earnings a., b., c., d., f. 35,408 5,254 40,662Other reserves k. - 2,815 2,815Total controlling interest 35,756 7,938 43,694Non-controlling interest 4,003 568 4,571Total stockholders’ equity 39,759 8,506 48,265Total liabilities and stockholders’ equity Ps 138,561 Ps 12,633 Ps 151,194


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C) RECONCILIATION OF CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2011


Revenue i. Ps 182,763 Ps 204 Ps 182,967Cost of sales b., c. (150,561) (930) (151,491)Gross profit 32,202 (726) 31,476Selling expenses b., c. (9,863) (22) (9,885)Administrative expenses b., c. (7,564) (280) (7,844)Other expenses, net c., j., l. (1,452) 377 (1,075)Operating profit 13,323 (651) 12,672

Financial income c., g. - 606 606Financial costs, including foreign exchangeloss of Ps685 under MFRS and Ps1,244 under IFRS c., g. (4,758) (606) (5,364)Financing costs, net (4,758) - (4,758)

Share of losses of associatesrecognized by the equity method l. - (31) (31)Profit before income tax 8,565 (682) 7,883

Income tax expense d. (2,690) 139 (2,551)Net consolidated profit Ps 5,875 (Ps 543) Ps 5,332

Profit attributable to:Controlling interest Ps 5,206 (Ps 457) Ps 4,749Non-controlling interest 669 (86) 583 Ps 5,875 (Ps 543) Ps 5,332

Earnings per basic and diluted share, in pesos 0.98 0.98

Weighted average of outstanding shares (thousands of shares) 5,333,166 5,333,166

D) RECONCILIATION OF CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2011


Net consolidated profit Ps 5,875 (Ps 543) Ps 5,332Other comprehensive income for the year,net of tax:Effect of derivative financial instrumentsdesignated as cash flows hedges (360) 6 (354)Actuarial loss on labor obligations h. (248) (248)Effect of translation of foreign entities k. 2,443 1,049 3,492Total other comprehensive income for the year 2,083 807 2,890Total comprehensive income for the year Ps 7,958 Ps 264 Ps 8,222

Attributable to:Controlling interest Ps 6,943 Ps 233 Ps 7,176Non-controlling interest 1,015 31 1,046Total comprehensive income for the year Ps 7,958 Ps 264 Ps 8,222


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E) EXPLANATION OF THE EFFECTS OF THE TRANSITION TO IFRSa. Recognition of inflation effects

IAS 29 “Financial reporting in hyper-inflationary economies” requires the recognition of the effects of inflation on financial information when an entity operates in a hyper-inflationary economic environment, which one of its characteristics is that the cumulative inflation rate over a period of three years approaches or exceeds 100%. The last three years in which Mexico ceased to be a hyper-inflationary economy was the period from 1995 to 1997, so the company eliminated the effects of inflation in the rest of its non-monetary assets and liabilities, as well as in capital stock and legal reserve, which was recognized under MFRS from January 1, 1998 to December 31, 2007, except for certain “Property, Plant and Equipment” for which we used the exception of IFRS 1 and for “Goodwill” in which we applied the business combination exemption.

b. Property, plant and equipment, net

The transition to IFRS adjustment made to property, plant and equipment has been the most important to the Company. At the transition date, the Company chose to revalue the most important items of property, plant and equipment (land, building and machinery) at fair value by an independent appraiser, and use the revalued amount as deemed cost at the transition date according to the options identified under IFRS 1, “First-time Adoption of IFRS”; for the rest of the assets that are part of the property, plant and equipment, the Company considered the values recorded in books as deemed cost at the transition date.

The previous carrying amounts and fair values of the assets revalued at the transition date are as follows:

Effects of transition to MFRS IFRS IFRS

Land Ps 3,271 Ps 3,537 Ps 6,808Buildings 12,413 3,802 16,215Machinery 60,604 13,603 74,207Total Ps 76,288 Ps 20,942 Ps 97,230

At January 1, 2011, some components of machinery and equipment were classified as inventories under MFRS. These components met the definition of property, plant and equipment in accordance with IAS 16 under IFRS, so that in its opening balance sheet, the Company reclassified them inventory under MFRS to property, plant and equipment under IFRS of Ps 119 to his historical cost.

c. Intangible asset, net

At the transition date, the cumulative update of intangible assets (including goodwill) that was generated after December 31, 1997 for companies in Mexico was eliminated. The debt issuance costs that meet the capitalization criteria must be submitted as part of net debt balance. The amortization and recognition of debt issuance costs will be based on the effective interest method. At the transition date, the Company reclassified the debt issuance costs recorded as intangible assets to non-current debt in the calculation of amortized cost.

d. Defered income tax

Derived from the exemptions applied as well as the differences described here, the accounting value of certain assets and liabilities were modified, so deferred taxes were recalculated using the guidelines of IAS 12 “Income Taxes”.

e. Inventories

At the transition date, a reclassification of inventories of spare parts held for more than a year to other assets was performed as described in the adjustments made to the property, plant and equipment; this is because these parts do not meet with features under IFRS to remain classified as in the inventory item.

f. Retained earnings

At the transition date the adjustments made to assets and liabilities were carried against retained earnings, so this item is impacted by most of the detailed notes of the transition adjustments described in this section. These are not included because they correspond to reclassification that have no impact on the Company’s equity.

g. Non-current debt

According to IAS 39 “Financial Instruments: Recognition and Measurement “, financial liabilities are initially recognized at fair value and subsequently at amortized cost, using the effective interest method which refers to the rate that exactly discounts the payable cash flows estimated over the expected life of the debt. At the transition date, the Company adjusted the value of its bank debt at amortized cost. Additionally, debt issuance costs directly related recognized as intangible assets under MFRS and is amortized on a straight line, is recognized as a net in the same debt in accordance with IAS 39.


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h. Employees’ benefits

MFRS D-3 “Employees’ Benefits” all termination benefits, including those that are paid in the event of involuntary termination, are considered in the actuarial calculation to estimate the liability for labor obligations. For IAS 19 “Employees’ Benefits”, an entity recognizes termination benefits as a liability as long as the entity is required to:

(a) terminate the contract of an employee before the retirement date; or

(b) establish termination benefits as a result of offers made to encourage voluntary waiver. Therefore, the Company canceled the provision recorded at the transition date.

Under MFRS, the Company had a liability of transition, which is amortized over a maximum period of 5 years. Under IFRS, these liabilities had been recognized since the creation of plans and consequently there would be no transition liability and their respective amortization.

In accordance with IFRS 1, the Company recognized actuarial gains and losses accumulated in retained earnings at the transition date.

Additionally, in accordance with IAS 19 “Employee Benefits”, the employees’ statutory profit sharing (ESPS) is considered as a benefit given to employees who paid based on the service provided by the employee. No deferred ESPS is recognized based on the asset and liability method given that this method only applies to taxes on profits, so ALFA, as of the transition date, eliminated the deferred ESPS balance from the financial statements.

i. Sale and leaseback

Under MFRS, the gain from the sale of this type of lease is amortized over the life of the operating lease. Arising from the adoption of IFRS, the gain from the sale is immediately recognized in income.

j. Other expenses/income

Under IFRS, “other expenses/income” should be presented as part of operating income previously presented under MFRS after operating income, because they are considered unusual or infrequent items. ALFA reclassified the other expenses/income to be part of operating income.

k. Translation effect of foreign entities

According to IFRS 1 “First-time Adoption of International Financial Reporting Standards”, ALFA adopted the exemption applying the cumulative translation effect to retained earnings on the transition date and restart the calculation.

l. IFRS reclassification

Arising from the adoption of IFRS, the Company made certain reclassification to adjust the figures to the new presentation rules.

F) EXPLANATION OF SIGNIFICANT EFFECTS OF TRANSITION TO IFRS IN THE CONSOLIDATED STATEMENT CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011The Company uses the indirect method to present the cash flow statement, both under Mexican FRS and IFRS, which do not differ significantly in their presentation.

33 Subsequent events

In preparing the financial statements the Company has evaluated events and transactions for recognition or disclosure subsequent to December 31, 2012 and through February 1, 2013 (date of issuance of the financial statements), and concluded that there are no subsequent events that affected them.



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Caprolactam: Product derived from oil (cyclohexane), used as raw material to produce nylon.

Cloud applications: Business model where applications are accessed through the Internet, and are not physically present in the customer’s facilities.

CO2: Carbon dioxide.

Expandable polystyrene (EPS): Thermoplastic used for insulation and packaging.

Gigajoul (abreviated GJ): An energy measure. One GJ equals 278 kWh.

Independent Board Member: A Board member who does not own company shares and is not involved in the day-to-day management of the company.

Independent Proprietary Board Member: A Board member who owns company shares but is not involved in the day-to-day management of the company.

IntegRex®: Alpek-owned technology for producing PTA and PET from paraxylene (PX) and monoethylene glycol (MEG), offering significant cost savings and fewer intermediate steps in the production process.

Managed Services: Services provided by an external supplier to operate, monitor, configure and provide support in case of failure of telecommunications equipment and their value-added services.

PET (Polyethylene Terephtalate): Plastic resin mostly used to manufacture containers.

Polyester: Plastic resin used to manufacture textile fibers, films, and containers.

Polypropylene: Propylene byproduct used to make plastics and fibers, among other products.

Polyurethanes: Chemical compounds derived from oil, used to manufacture plastic foam.

PTA (Purified Terephtalic Acid): Raw material used to manufacture polyester.

Related Proprietary Board Member: A Board member who owns company shares and is involved in the day-to-day management of the company.


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Independent AuditorPwC

Investor RelationsEnrique FloresVice-President Corporate CommunicationsPhone: +52 (81) 8748 [email protected]

Luis OchoaInvestor Relations DirectorPhone: +52 (81) 8748 [email protected]

Raúl GonzálezInvestor Relations ManagerPhone: +52 (81) 8748 [email protected]

Juan Andrés MartínInvestor RelationsPhone: +52 (81) 8748 [email protected]

Mexican Stock ExchangeALFADate listedAugust 1978

Latibex (Madrid Stock Exchange)ALFA C/I-s/ADate listedDecember 2003

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ALFA, S.A.B. DE C.V.Av. Gómez Morín 1111 SurCol. CarrizalejoSan Pedro Garza García, N.L.C.P. 66254, Mexico

www.alfa.com.mx

2012 Annual Reportinforme.alfa.com.mx/ia/2012/descargas/alfa2012eng.pdf2012 Annual Report NOTE: In...

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