2015 ANNUAL REPORT 2015 ALFA, S.A.B. de C.V. Av. Gómez Morín 1111 Sur, Col. Carrizalejo. San Pedro...

www.alfa.com.mx

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ALFA, S.A.B. de C.V.

Av. Gómez Morín 1111 Sur, Col. Carrizalejo.

San Pedro Garza García, N.L.

C.P. 66254, Mexico

ANNUAL

REPOR T

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ALFA is a company that manages a portfolio

of diversified subsidiares: Sigma, an important

producer, marketer and distributor of foods

through well recognized brands in Mexico,

the United States, Europe and Latin America;

Alpek, one of the world’s largest producers

of polyester (PTA, PET and fibers), which also

leads the Mexican market in polypropylene,

expandable polystyrene (EPS) and caprolactam;

Nemak, a leading provider of innovative

light-weighting solutions for the automotive

industry, specializing in the development and

manufacturing of aluminum components for

powertrain and body structure; Alestra, a

leading provider of information technology

and communications services for the enterprise

segment in Mexico; and, Newpek, a company

in the hydrocarbons industry in Mexico and the

United States. In 2015, ALFA reported revenues

of Ps. 258,300 million (U.S. $16.3 billion), and

EBITDA(1) of Ps. 38,440 million (U.S. $2.4 billion).

ALFA’s shares are quoted on the Mexican Stock

Exchange and on Latibex, the market for Latin

American shares of the Madrid Stock Exchange.

Sigmaacquires 37 percent of the shares of Campofrio and assumes full control of the company

Nemak completes IPO on the Mexican Stock

Exchange

(1) EBITDA = operating income + depreciation and amortization + non-recurring items.

NOTE: In this annual report, monetary figures are expressed in nominal Mexican pesos (Ps.), and in nominal dollars (U.S. $) unless otherwise specified. Conversions from pesos to dollars were made using the average rate of the month in which the revenues or disbursements were made. The percentages of variation between 2015 and 2014 are expressed in nominal terms.

Investor RelationsEnrique FloresVice-President Corporate CommunicationsPhone: +52 (81) 8748 [email protected]

Luis OchoaVice-President Investor RelationsPhone: +52 (81) 8748 [email protected]

Raúl GonzálezInvestor Relations ManagerPhone: +52 (81) 8748 [email protected]

Juan Andrés MartínInvestor RelationsPhone: +52 (81) 8748 [email protected]

Independent AuditorPwC

Mexican Stock ExchangeALFADate listed:August 1978

Latibex (Madrid Stock Exchange)ALFA C/I-s/ADate listed:December 2003

DESIGN: signi.com.mx

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uAlestraannounces its merger with Axtel

Newpek explore opportunities to strengthen its portfolio of assets

Alpek integrates the EPS business in the Americas acquired from BASF

Contents

Page 2 Global Footprint

4 Letter to Shareholders

7 Financial Highlights

8 Sigma

10 Alpek

12 Nemak

14 Alestra

16 Newpek

18 Board of Directors

19 Management Team

20 Corporate Governance

21 Consolidated Financial Statements

106 Glossary

HIGHLIGHTS OF THE YEAR

Sigma

36%Nemak

28%

Alpek

33%

Alestra

2%

Newpek

1%

Nemak

30%

Sigma

35%Alpek

25%

Alestra

7%

Newpek

3%

Nemak

29%

Alpek

31%

Sigma

35%

Alestra

4%

Newpek

1%

2 annual report ALFA 2015

An important producer, marketer and distributor of foods through well recognized brands in Mexico, the United States, Europe and Latin America.

MEXICO

ARGENTINA

COSTA RICA

BRAZIL

EL SALVADOR

ECUADOR

PERU

CHILE

UNITEDSTATES

CANADA

DOMINICAN REPUBLIC

F O O T P R I N TGLOBAL

R E V E N U E S

E B I T D A

A S S E T S

Breakdown by businessin 2015

3

One of the world’s largest producers of polyester (PTA, PET and fibers), which also leads the Mexican market in polypropylene, expandable polystyrene (EPS) and caprolactam.

Leading provider of innovative light-weighting solutions for the automotive industry, specializing in the development and manufacturing of aluminum components for powertrainand body structure.

Leading provider of IT and communications services for the enterprise segment in Mexico.

Company engaged in hydrocarbons exploration and production.

BELGIUMNETHERLANDSGERMANY FRANCEPORTUGALSPAINITALY

CHINA

RUSSIA

INDIA

CZECHREPUBLIC

SLOVAKIA

POLAND AUSTRIA

HUNGARY

ARGENTINA

BRAZIL


Dear shareholders:

For ALFA, the macroeconomic environment in 2015 was marked by low oil prices and a stronger U.S. dollar. These factors affected the results of the petrochemical, food and hydrocarbons operations. Nevertheless, the company was able to offset their effects through higher product margins and productivity improvements, along with one-time gains, all of which drove an increase of 19% in EBITDA compared to 2014.

Axtel. Newpek continued to prepare itself to participate in the opening of Mexico’s hydrocarbons industry.

PERFORMANCE OF THE BUSINESSES

u SigmaThe company’s performance was favored by factors like the consolidation of a full year of Campofrio’s operations and lower prices of key raw materials, like poultry, pork and milk. In Mexico, this last factor was overshadowed by the 17% appreciation of the dollar against the peso, which elevated the cost of import materials. Revaluation of the dollar also affected the revenues of Sigma in Europe when expressed in such currency.

ALFA continued to execute its investment plan and introduce initiatives to make its businesses stronger. Sigma gained full ownership of Campofrio, which constitutes a strategic step as it generates management autonomy, and began building a new plant in Spain. Alpek incorporated the EPS business acquired from BASF, important move to gain control of the business in the U.S. It also approved the construction of a second energy cogeneration plant. Nemak started up a new production facility in Russia and began building another in Mexico. It also launched an initial public offering, opening new sources of financing for its future projects. Alestra expanded its services capacity and announced its merger with

In June, Sigma assumed full ownership of Campofrio Food Group by acquiring the 37% stake WH Group had in that company. This is crucial to facilitate the execution of Campofrio’s strategic plan for improving profit margins and promote growth in coming years.

Capital expenditures during the year totaled U.S. $660 million and were channeled to operating efficiency improvements and expanding coverage of the distribution network, as well as acquisitions like the above-mentioned purchase of Campofrio shares and that of Ecarni, a processed meat company in Ecuador, making Sigma one of the most important producers in this country. In November, to replace the facility that was lost in the fire of 2014, Campofrio began building a new plant in Burgos, Spain, which will have cutting-edge technology and will enable Campofrio to bolster production capacity in its main market. The plant is expected to start operations in late 2016.

L E T T ER TO

SHAREHOLDERS

Armando Garza SadaChairman of the Board of Directors

Álvaro Fernández GarzaPresident

5

u AlpekThe decline in global oil prices affected petrochemical feedstock prices throughout the industry. Alpek was able to stabilize sales volumes while increasing product margins and saving costs. The result was a stronger performance in 2015, reflected in a 45% increase in EBITDA over the previous year.

The Polyester business benefited from an increase of U.S. $66 per ton in the price of PTA in the U.S., as well as savings from its cogeneration plant which came online in late 2014. Favorable preliminary rulings in PET anti-dumping cases in the U.S., and temporary or permanent PTA plant shutdowns in China also helped the year’s results.

On the other hand, EBITDA in the Plastics and Chemicals business grew by 79% thanks to higher polypropylene profits, which resulted from lower feedstock prices. The integration of the EPS plants acquired from BASF in the Americas, at the beginning of the year, also produced benefits.

Alpek continued its investment plan, allocating U.S. $317 million to projects like the Mossi & Ghisolfi PTA/PET plant in Texas, which will supply Alpek with 500,000 tons of PET at a very competitive price. Likewise, Alpek invested in a monoethylene glycol tolling agreement with Huntsman in the U.S., which will lock in a supply of this commodity at ethane-based costs. Other projects were the start of polyester fiber capacity expansion in the Pearl River plant, to better serve the U.S. market, and the acquisition of an EPS plant in Chile.

u NemakCarmakers are facing increasingly strict emissions requirements on the vehicles they produce. This prompts them to the incremental use of lighter materials in the vehicles, such as aluminum. Nemak has taken advantage of this trend to grow, using its knowledge in the production of automotive parts with this raw material.

In 2015, vehicle sales in the U.S. grew 6%, fueled by availability of credit and gasoline prices. In Europe, the automotive market grew 3%. The above

more than offset weaker performance in South America, resulting in an increase in Nemak’s overall sales of 3% in the year.

Nemak’s capital expenditures amounted to U.S. $460 million in 2015. One of its biggest projects was the opening of a new cylinder heads and engine blocks plant in Russia, to serve markets in that country and elsewhere in Europe. It also began building an engine blocks, transmission cases and structural components plant in Mexico, to increase its production capacity in order to handle recently obtained contracts. Lastly, it expanded machining capacity in all the regions it serves, adding value to the components it makes.

EBITDA for the year was U.S. $2.4

billion, up 19% compared to 2014.



During the year, the company won new contracts in all its product lines. In total, these contracts represent U.S. $1.2 billion in annual revenues. Almost half of them correspond to incremental programs.

In July, Nemak launched an initial public offering, placing 19% of its shares through the Mexican Stock Exchange. Access to the equity market diversified Nemak’s funding sources, improved its financial condition and enabled it to push forward with its growth plans.

u AlestraThe company expanded its infrastructure and broadened the offer of information technology and communications (ITC) services, the volume of which grew 45% in the year. With this, Alestra strengthened its leadership in the Mexican ITC business segment.

Alestra invested U.S. $101 million in projects like expanding data center capacity and increasing the coverage of its last-mile access network for clients. Another key project was the opening of an Innovation Hub, a space where innovative solutions are created, expanded and shared, to the benefit of its clients.

In December, ALFA signed the definitive agreement on the merger of Alestra with Axtel, creating a more solid company with increased capacity to supply ITC services to business clients, as well as triple-play services for the high-end residential segment. ALFA will own 51% of the shares of the new company. The merger will be effective in February 15, 2016.

u NewpekIn the U.S., the company operated in an environment of weakening oil prices, which prompted it to scale back the drilling of new wells. At the Eagle Ford Shale, Edwards and Wilcox plays, all in southern Texas, 113 wells were connected to sales, compared to 122 connected in 2014. Production totaled 8.2 thousand barrels of oil equivalent per day (MBOED) in 2015, same as 2014.

In Mexico, Newpek continued operating two mature oil fields in Veracruz under service contracts with Pemex. In this case, production totaled 4.8 MBOED, an increase of 1% over 2014.

With Mexico’s hydrocarbons industry recently opened to private investment, Newpek continued analyzing opportunities for participation in this process. This included the analysis of potential alliances with strategic partners to reduce risks and take advantage of economies of scale. In 2015, the Mexican government organized three public auction processes, and Newpek submitted bids for the third auction in the process. Although it was not among the winning companies, it will continue evaluating its participation in forthcoming auctions. At the same time, it is working in the process of migrating existing service contracts with Pemex into full production-sharing agreements.

FINANCIAL RESULTS

In 2015, ALFA’s revenues totaled U.S. $16.3 billion, down 5% from the previous year. This is attributed to the weakness of petrochemical feedstock prices, which affected Alpek’s revenues. The appreciation of the U.S. dollar against the peso and the Euro in the year also had an impact, dampening results for Sigma, Nemak and Alestra. Lastly, the decline in hydrocarbon prices was reflected in lower revenues at Newpek.

EBITDA for the year was U.S. $2.4 billion, up 19% when compared to 2014. The reasons were better results from Nemak and Alpek, the consolidation of a full year of operations at Campofrio, and one-time gains at Sigma. Alestra and Newpek both reported weaker EBITDA in dollars due to the appreciation of this currency and lower oil prices, respectively.

The company reported a majority net income of U.S. $223 million, compared to a loss of U.S. $104 million in 2014.

Favorable operating results in the year more than offset financial expenses, foreign exchange losses and a M-to-M loss on ALFA´s holdings of Pacific Exploration & Production.

In 2015, ALFA invested U.S. $1.6 billion in fixed assets and acquisitions, the most important of which are detailed in the first part of this letter. ALFA’s key financial ratios were the following in 2015: Net Debt to EBITDA 2.0 times; Interest Coverage, 7.7 times. These ratios compare to 2.5 and 6.1 in 2014, respectively. Despite the strong capital expenditures of the year and the volatile conditions in oil prices and the exchange rate, ALFA continues to have a solid financial condition.

Dear shareholders, the macroeconomic difficulties of 2015 once again put ALFA to the test. The talent of its people and the investments made in previous years to expand capacity, improve efficiency and add value to its products and services enabled it to face the difficulties and deliver results.

The year 2016 presents us a new scenario of challenges. The global macroeconomic environment shows signs of instability, the price of oil continues to fall and the dollar to appreciate. These are obstacles to generate sustained growth. In response, we reaffirm our commitment to continue to maintain the course through hard work, dedication and discipline.

On behalf of the Board of Directors, we are grateful for the trust and support you have given us. We thank our clients and suppliers as well, along with the financial community, for their collaboration. Special recognition is due to our more than 72,800 employees in 26 countries, for their efforts and contribution to the results reported here.

Dear shareholders, ALFA is ready to meet the challenges and seize the opportunities that arise to continue to generate value.

Armando Garza SadaChairman of the Board of Directors


San Pedro Garza García, N.L., Mexico, February 2, 2016.

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage

2.0 times 7.7 times

7

10,8

16

11,8

54

12,6

48

15,7

73

15,5

01

1,62

3

1,854

1,915

2,04

0

2,42

0

‘11 ‘12 ‘13 ‘14 ‘15 ‘11 ‘12 ‘13 ‘14 ‘15 ‘11 ‘12 ‘13 ‘14 ‘15

14,74

6

15,15

2

15,8

79

17,2

24

16,3

15

A S S E T S

U.S. $ Millions

E B I T D A

U.S. $ Millions

F I N A N C I A L

HIGHLIGHTS

R E V E N U E S

U.S. $ Millions

ALFA AND SUBSIDIARIES Millions of Ps. U.S. $ Millions (4)

2015 2014 % chg. 2015 2014 % chg.

INCOME STATEMENT

Net Sales 258,300 229,226 13% 16,315 17,224 -5%

Operating Income 24,058 17,226 40% 1,518 1,298 17%

Majority Net Income 3,778 -2,037 N.A.(5) 223 -104 N.A.

Majority Net Income per Share(1) (Ps. & U.S. $) 0.74 -0.40 N.A. 0.04 -0.02 N.A.

EBITDA(2) 38,440 27,116 29% 2,420 2,040 19%

BALANCE SHEET

Total Assets 266,705 232,880 15% 15,501 15,773 -2%

Total Liabilities 186,890 163,721 14% 10,862 11,074 -2%

Stockholders’ Equity 79,815 69,159 15% 4,639 4,699 -1%

Majority Interest 62,191 55,378 12% 3,614 3,763 -4%

Book Value per Share(3) (Ps. & U.S. $) 12.12 10.78 12% 0.70 .73 -4%

(1) Based on the weighted average number of outstanding shares (5,129,888 in 2015 and 5,135,480 in 2014).(2) EBITDA = operating income + depreciation and amortization + non-recurring items.(3) Based on the number of outstanding shares (5,120,500 at the end of 2015 and 5,134,500 at the end of 2014).(4) Due to the dollarization of its revenues, which is higher than 75%, and because of the holding of shares by foreign investors, ALFA

provides equivalent U.S. $ amounts for some of its most important financial data.(5) N.A. = Not applicable

390

470

524

636

869

390

470

524

636

869

‘11 ‘12 ‘13 ‘14 ‘15


E B I T D A

U. S. $ Millions

The company’s results in 2015 benefited from the consolidation of

a full year of results of Campofrio Food Group (CFG), the decline in the prices of raw materials like poultry, pork and milk, and the good performance of its U.S. operations. However, in Mexico the drop in raw materials was offset by the U.S. dollar appreciation, which affected the local cost of imported inputs.

Sigma continued promoting the innovation of their products. In Mexico introduced sliced panela cheese under the FUD® brand and in the U.S. the “Grill Mates Sausages”, partnered with McCormick. In Europe it continued to reinforce its most recent growth product lines: Traditional, Healthy and Snacking. In addition, it continued strengthening its brand equity in all its operating regions. For the first time in the U.S., it launched a campaign for Bar-S®, the best-selling brand of sausages in that country for nine

years in a row. In Mexico, it launched the campaign “No housewife has it easy” for FUD®, and in Europe it released “Despertar”, its expected Campofrio® Christmas campaign.

With the full consolidation of CFG and actions taken by Sigma, revenues and EBITDA grew 10% and 37% over 2014 to U.S. $5.9 billion and U.S. $869 million, respectively. EBITDA also reflects the collection of insurance coverage on CFG’s damaged assets. Sales volume rose to 1.7 million tons of food products, an increase of 16% over 2014.

During the year, the company executed a capital expenditures and acquisition plan totaling U.S. $660 million. This figure includes resources invested in getting full control of CFG by acquiring 37% of its shares formerly owned by WH Group. This means greater flexibility for executing the CFG strategic plan and

9

capitalizing more rapidly on synergies and best practices. Sigma also acquired Ecarni, a maker and seller of processed meats in Ecuador. This acquisition, together with the purchase of Juris in 2014, makes Sigma one of the most important companies in the processed meat market of that country.

Also, Sigma boosted the growth of the Foodservice business in Mexico, through investments in infrastructure multi-temperature and strengthening its distribution network, as well as through the association with PACSA, a leader in the Foodservice industry in the southeast of the country.

Responding to the challenges posed by a fire at the CFG plant in Burgos, Spain in late 2014, the company successfully introduced a plan to swiftly restore production levels and regain shelf space. In November 2015, it concluded

negotiations with its insurance companies and collected full coverage for the damages and losses associated with the fire. It also began building a new plant on the same site, which will start up operations in late 2016. The plant will have the capacity to produce 76,000 tons per year and will be equipped with state-of-the-art technology and production processes.

In 2016, Sigma will focus its attention on fully restoring operations at the Burgos plant. It will also continue to establish global processes in all of its key activities, enabling it to better take advantage of synergies and best practices in operations across various geographic regions.

Acquires 37% of the sharesof Campofrio and assumes full

control of the company

Mexico

43%

United States

15%

Europe

36%

Latin America

6%

R E V E N U E

B R E A K D O W N

2015

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage

2.2 times 8.5 times

771

728

572

434

630

‘11 ‘12 ‘13 ‘14 ‘15


In 2015, Alpek reported stronger results due to a combination of internal

cost-cutting initiatives, positive market dynamics and other industry events. It also continued developing its investment program and announced new strategic projects.

The Polyester business got a boost from an improvement in PTA margins in North America, which started up in April 2015, together with revenue and savings resulting from the full-capacity operation at the cogeneration plant that went on line in late 2014. Other factors contributing to the results of this business were preliminary favorable rulings in a PET anti-dumping lawsuit in the U.S., and temporary or permanent shutdown of PTA plants in China.

The Plastics and Chemicals business also brought in stronger results, due to higher margins on polypropylene and EPS. In

the case of polypropylene, due to lower raw materials prices in North America. Regarding EPS, its performance was helped by lower feedstock prices, which decoupled momentarily from their Asian benchmarks. Another key factor for this business was the successful integration of the EPS plants acquired from BASF in North and South America at the beginning of 2015.

Over the course of the year, total sales volume for Alpek was 2% lower than 2014, but revenues fell by 20% because of lower crude oil and feedstock prices. Despite this decline, EBITDA rose by 45% compared to 2014 due to better business conditions, as explained above.

In 2015, Alpek invested U.S. $317 million to increase its cost competitiveness. Main projects were: the investment in the PTA/PET plant being built by Mossi & Ghisolfi’s in Corpus Christi, Texas;

E B I T D A

U. S. $ Millions

11

Capital expenditures totaled U.S.$ 317 million in 2015

the monoethylene glycol (MEG) tolling agreement with Huntsman; and the construction of two spheres for propylene storage.

Also during the year, new projects were announced, including a 110,000 tons per year capacity expansion at the polyester fiber plant in Pearl River, which is slated for startup toward the end of 2016; a 75,000 tons per year expansion of EPS capacity at Altamira, which will kick in during early 2017; and the acquisition of a 20,000 tons per year EPS plant in Chile, which should become effective at the start of 2016.

The beginning of 2016 has been marked by a further drop in oil prices. Although this circumstance may have a negative effect on the petrochemical industry, Alpek expects to cope successfully with this situation thanks to the benefit of recently commissioned projects, like the

MEG supply contract with Huntsman, the potential final ruling in the anti-dumping cases and a gradual improvement in reference margins due to recent plant closures in Asia. As for Plastics and Chemicals, Alpek expects polypropylene margins to hold steady at current levels, and the business should benefit from the incorporation of the EPS plant in Chile, as well as a gradual increase in caprolactam margins.

Alpek’s solid financial condition and strong cash generation will allow the company to continue to develop strategic investments as it did in 2015.

Polyester Products

73%

R E V E N U E

B R E A K D O W N

2015

Plastics & Chemicals

17%

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage

1.1 times 10.7 times

388

508

623

702

759

‘11 ‘12 ‘13 ‘14 ‘15

388

508

623

702

759


In 2015, Nemak capitalized on a strong automotive market in the U.S. and the

recovery in Europe to deliver solid results. It also continued benefiting from the growing trend of vehicle lightweighting in the global automotive industry.

In response to increasingly stringent CO2 emissions and fuel economy standards, automakers around the world are raising aluminum content in order to reduce the weight and as a result improve the efficiency of vehicles.

Nemak has seized this opportunity to bolster its leadership position in the development and manufacturing of high-tech aluminum auto components, expanding its production capacity and supplying products with higher added value. In 2015, Nemak increased

profitability mainly on the back of higher volumes, a richer product mix and productivity enhancements.

In the U.S., sales of light vehicles grew 6% over 2014. Vehicle production in North America grew by 3% in the same period. The main factors behind these increases were a pickup in consumer confidence, favorable credit conditions and lower fuel prices. In Europe, the economic recovery drove year-over-year increases of 3% in both production and sales of light vehicles.

Total sales volume at Nemak reached 50.7 million equivalent units, 3% more than in 2014. Revenues totaled U.S. $4.5 billion, and EBITDA was U.S. $759 million. These figures were 4% lower and 8% higher compared to 2014, respectively.

E B I T D A

U. S. $ Millions

13

Nemak continued to expand its manufacturing footprint. In September, it opened a plant in Ulyanovsk, Russia, to produce cylinder heads and engine blocks. Nemak also made progress on the construction of a high-pressure die casting plant in Mexico where it plans to make engine blocks, transmission cases and structural components. This facility will have a capacity of 2.2 million parts per year and will be inaugurated in the second half of 2016. In addition, as part of its vertical integration strategy, Nemak continued to expand its machining capacity across all its operating regions.

During the year, Nemak won new contracts to produce cylinder heads, engine blocks, transmission cases and structural components worth a total of U.S. $1.2 billion in annual revenues.

Nemak becomes a public company by listing its shares on the Mexican Stock Exchange

Close to half of these revenues represent incremental programs.

In July, Nemak successfully completed an initial public offering, placing 19% of its shares on the Mexican Stock Exchange. By becoming a public company, Nemak has diversified its funding sources and improved its ability to finance growth.

Nemak plans to continue leveraging its competitive advantages —including state-of-the-art technology for the production of aluminum auto parts, a highly skilled labor force and global manufacturing capabilities — to further enhance its position as a leading player in the development and manufacturing of aluminum powertrain and structural components for light vehicles.

R E V E N U E

B R E A K D O W N

2015

North America

61%

Europe

31%

Rest of the world

8%

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage


128

137

170

170

166

‘11 ‘12 ‘13 ‘14 ‘15


In 2015, Alestra strengthened its leadership in Information Technology

and Communications (ITC) services for the enterprise segment of the Mexican market.

The company invested U.S. $101 million in fixed assets, including an expansion of more than 1,000 m2 in data centers, which now cover 3,500 m2. Also, Alestra extended coverage of its network by adding last-mile access and IT infrastructure.

Moreover, in the interest of supporting an innovation culture, early in the 2015, Alestra opened its Innovation Hub in Monterrey, the official site of creation of the company’s technology solutions. It was designed together with experts from Stanford University and is based on

the principles of Design Thinking, which are part of Alestra’s Innovation Method.

The foregoing prepared Alestra to offer more and better IT services, like network management, hosting, systems integration, data security and cloud applications. Volume grew 45%. This in turn resulted in a 12% increase in revenues and 16% rise in EBITDA, measured in pesos. In dollar terms, however, revenues and EBITDA were U.S. $389 million and U.S. $166 million, decreases of 6% and 2%, respectively, basically because of the dollar´s appreciation against the peso during the year.

In December, ALFA signed the definitive agreement to merge Alestra and competitor Axtel. The company formed by this merger will enjoy a more solid

E B I T D A

U. S. $ Millions

15

competitive position in the ITC Mexican market, with the capacity to provide ITC services to business clients while offering fiber-to-the-home (FTTH) triple-play services to the high-end consumer segment. ALFA owns 51% of the equity of the new company, which retains the Axtel name.

The new company will have an improved competitive position: one of the most robust networks of Latin America, including a 39,500 km backbone of optical fiber, metropolitan rings and FTTH access network, in addition to 6,500 m2 of data center space and a broader enterprise customers portfolio.

It is expected that the merger will produce substantial synergies in terms of cost savings, economies of scale,

network integration efficiencies, transfer of skills and savings in financial expenses. The closing of the merger will become effective in February 15, 2016.

The new Axtel will remain in constant evolution based on a process of innovation, seeking to stay ahead of technology trends to continue positioning itself as the benchmark in its industry.

The volume of customer-access circuits providing services

increases by 45%

R E V E N U E

B R E A K D O W N

2015

Data & Internet

38%

Managed networks & IT

40%

Voice (LD & local services)

22%

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage


28 66 91 120 67

‘11 ‘12 ‘13 ‘14 ‘15

28 66 91 120 67


Newpek is active in the hydrocarbons industry in the U.S. and Mexico. In

the first of these countries it owns mineral rights in southeast Texas, at the Eagle Ford Shale, Edwards and Wilcox plays, as well as in other areas of Texas (North), Oklahoma, Kansas and Colorado. In Mexico, it works in mature oil fields in the state of Veracruz.

In 2015, most of its activity was concentrated in southeast Texas, where 113 new wells were connected to sales for a total of 610 in operation. Production totaled 8.2 thousand barrels of oil equivalent per day (MBOED), same as 2014. Production of liquids, including oil, which have a much higher value than dry gas, accounted for 59% of volume, compared to 62% in 2014. As part of its growth strategy, Newpek completed the analysis and seismic interpretation of its

prospecting areas in other geographical areas, identifying sites for drilling once market conditions permit.

In Mexico, Newpek continued operating service contracts for Pemex in two mature oil fields. Production totaled 4.8 MBOED, 1% more than in 2014.

In 2015, low oil and gas price levels, which have been weak since mid-2014, continued affecting the company’s results. Revenues totaled U.S. $138 million and EBITDA was U.S. $67 million, down by 39% and 45%, respectively, from the previous year. The above despite various initiatives to cut production and drilling costs by approximately 20%.

Over the past 10 years, Newpek has built up extensive experience in the exploration and production of shale

E B I T D A

U. S. $ Millions

17

gas and oil in the U.S. and in mature conventional oilfields in Mexico.

Newpek is one of the few Mexican companies with experience and asset diversity in this industry, including qualified and experienced technical personnel, and world-class analytical capabilities.

With parts of the Mexican oil industry recently opened to private investment, Newpek continued working on the migration of its current service contracts in San Andres and Tierra Blanca, Veracruz, production-sharing agreements. In addition, it participated in the third phase of Round One, which included public tenders for 25 mature on shore fields. However, its bids were not among the winners.

It also worked in the diversification of its portfolio of assets. This included the analysis of potential alliances with strategic partners to take advantage of economies of scale and reduce risks.

The year 2016 has started with a new drop in the price of oil. This presents new challenges to companies carrying out activities in this industry, such as Newpek. Faced with this reality, the company plans to have a cash flow-neutral year, investing only what the operation itself generates. For this reason, some prospecting and drilling programs in the U.S. have been postponed until oil price conditions are better and the company plans to drill fewer wells than in previous years.

Newpek has built up extensive experience in the oil & gas industry

Dry Gas

41%

Oil & Condensates

59%

R E V E N U E

B R E A K D O W N

2015

FINANCIAL R ATIOS

Net Debt to EBITDA

Interest Coverage



u 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, BBVA Bancomer (Regional Board), ITESM and UDEM. President of Asociación Amigos del Museo del Obispado, A.C. Member of Fundación UANL, A.C. and founder of Centro Integral Down, A.C.

u Enrique Castillo Sánchez Mejorada 1A

Managing Partner of Ventura Capital Privado, S.A. de C.V.

Board member since March, 2010. Chairman of the Board of Maxcom Telecomunicaciones. Board member of Banco Nacional de México, Southern Copper Corporation, Grupo Herdez, Organización Cultiba and Médica Sur. Senior Advisor of General Atlantic. Alternate Board member of Grupo Gigante.

u Francisco Javier Fernández Carbajal 1C

President of Servicios Administrativos Contry, S.A. de C.V.

Board member since March, 2010. President of ALFA’s Planning and Finance Committee. Member of the Boards of Visa Inc., FEMSA and CEMEX.

u Álvaro Fernández Garza 3C

President of ALFA, S.A.B. de C.V.

Board member since April, 2005. Co-Chairman of the Board of Axtel, S.A.B. de C.V. Member of the Boards of Alpek, Nemak, Cydsa, Grupo Aeroportuario del Pacífico, Vitro, UDEM, Georgetown University (Latin American Board) and Museo de Arte Contemporáneo de Monterrey. Chairman of the Advisory Board of the Centro Roberto Garza Sada of the UDEM.

u Armando Garza Sada 3CChairman of the Board of ALFA, S.A.B. de C.V.

Board member since April, 1991. Chairman of the Boards of Alpek, S.A.B. de C.V. and Nemak, S.A.B. de C.V. Member of the Boards of CEMEX, FEMSA, Frisa Industrias, Grupo Financiero Banorte, Grupo Lamosa, Liverpool, Proeza and ITESM.

u 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 México and Bolsa Mexicana de Valores. Advisor to Capital Group.

u 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, Vitro and ITESM.

u David Martínez Guzmán 1C

Chairman and Special Advisor of Fintech Advisory Inc.

Board member since March, 2010. Member of the Boards of CEMEX, Vitro and Sabadell Banc.

u Adrián Sada González 1B

Chairman of the Board of Vitro, S.A.B. de C.V.

Board member since April, 1994. President of ALFA’s Corporate Practices Committee. Member of the Boards of Gruma, Cydsa and Consejo Mexicano de Hombres de Negocios, A.C.

u 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 ALFA’s Audit Committee. Member of the Boards of Xignux, Grupo Iconn, Banco de México (Regional Board), UDEM and Centro Roberto Garza Sada of the UDEM. Board member of Consejo Mexicano de Hombres de Negocios, A.C.

u Guillermo F. Vogel Hinojosa 1C

Chairman of the Board of Grupo Collado, S.A.B. de C.V., and of Exportaciones IM Promoción, S.A. de C.V.

Board member since April, 2008. Member of the Boards of Tenaris, SanLuis Corporación, Corporación Mexicana de Inversiones de Capital, Innovare, Novopharm and Universidad Panamericana-IPADE. Member of the Trilateral Commission and of the International Council of the Manhattan School of Music.

u Carlos Jiménez BarreraSecretary of the Board

B OA R D O F D I R E C TO R S

Keys:

1 Independent Board Member2 Independent Proprietary Board Member3 Related Proprietary Board MemberA Audit CommitteeB Corporate Practices Committee C Planning and Finance Committee

19

M A N AG E M EN T T E A M

u Armando Garza SadaChairman of the Board

Joined ALFA in 1978. Undergraduate degree from MIT. Master’s degree from Stanford University.

u Álvaro Fernández Garza President

Joined ALFA in 1991. Undergraduate degree from Notre Dame University. Master’s degrees from ITESM and Georgetown University.

u Mario H. Páez GonzálezPresident of Sigma

Joined ALFA in 1974. Undergraduate degree from ITESM. Master’s degrees from ITESM and Tulane University.

u Armando Tamez MartínezPresident of Nemak

Joined ALFA in 1984. Undergraduate degree from ITESM. Master’s degree from George Washington University.

u Alejandro M. Elizondo BarragánSenior Vice President, Development

Joined ALFA in 1976. Undergraduate degree from ITESM. Master’s degree from Harvard University.

u Ramón A. Leal ChapaChief Financial Officer

Joined ALFA in 2009. Undergraduate degree from Universidad de Monterrey. Master’s degrees from ITESM and Harvard University.

u José de Jesús Valdez SimancasPresident of Alpek

Joined ALFA in 1976. Undergraduate degree from ITESM. Master’s degrees from ITESM and Stanford University.

u Rolando Zubirán ShetlerPresident of Alestra

Joined ALFA in 1999. Undergraduate degree from UNAM. Master’s degree from USC. Ph.D. from UANL.

u Carlos Jiménez BarreraSenior Vice President, Legal and Corporate Affairs

Joined ALFA in 1976. Undergraduate degree from Universidad de Monterrey. Master’s degree from New York University.

u Paulino J. Rodríguez MendívilSenior Vice President, Human Capital

Joined ALFA in 2004. Undergraduate degree and Master’s degree from the University of the Basque Country, Spain.


ALFA adheres to Mexico’s current Code of Best Corporate Practices in place in Mexico since 2000. This Code was developed at the initiative of the securities authorities of Mexico and its purpose is to establish corporate governance principles to increase investor confidence in Mexican companies.

Companies whose stocks trade on the Mexican Stock Exchange must disclose the extent to which they adhere to the Code of Best Corporate Practices. This is done annually by responding to a questionnaire, which is available to the public through the Mexican Stock Exchange’s web site.

The following is a summary of ALFA’s corporate governance as stated in the June, 2015 questionnaire, with any pertinent information updated.

A. The Board of Directors comprises 11 proprietary members who have no alternates. Of this number, 9 are independent. This annual report provides information on all of the Board’s members, identifying those who are independent and the Committees in which they participate.

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

C. The Board of Directors meets every two months. Meetings of the Board can be called by the Chairman of the Board, the President of the Audit Committee, the President of the Corporate Practices Committee, the Secretary of the Board or by at least 25% of its members. At least one of these meetings is dedicated to defining the company’s medium and long term strategy.

D. Members must inform the Chairman of any conflicts of interest that may arise, and abstain from participating in the corresponding deliberations. Average attendance at Board meetings was 93.5% during 2015.

E. The Audit Committee studies and issues recommendations to the Board on matters such as the selection and determination of fees to the independent auditor, coordinating with the internal audit area of the company, and studying accounting policies, among others.

F. The company has internal control systems with general guidelines. These are submitted to the Audit Committee for its opinion. In addition, the independent auditor validates the effectiveness of the internal control system and issues the corresponding reports.

G. The Planning and Finance Committee evaluates all matters relating to its particular area and issues recommendations to the Board on matters such as feasibility of investments, strategic positioning of the company, alignment of investment and financing policies, and review of investment projects.

H. The Corporate Practices Committee is responsible for issuing recommendations to the Board on such matters as employment conditions and severance payments for senior executives, and compensation policies, among others.

I. There is a department dedicated 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 company’s development and progress.

CO R P O R AT E G OV ER N A N C E

Page

Management’s analysis 22

Independent auditors´ report 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 consolidated financial statements 41

C O N S O L I D AT E D

F I N A N C I A L

S TAT E M E N T S

M A N AG EM EN T ’ S A N A LY S I S

2015The following report should be read in conjunction with the Shareholders’ Letter (page 4 – 6) and the Audited Financial Statements (page 33 – 105). Unless otherwise indicated, the figures from 2013 to 2015 are stated in millions of nominal Mexican pesos (Ps.). Percentage changes are shown in nominal terms. Additionally, some figures are expressed in millions of US dollars (US$) and millions of Euros (€).

The financial information included in this Management’s Analysis for the last three-years period (2013, 2014 and 2015), has been adapted to comply with International Financial Reporting Standards (IFRS). This information has also been expanded in some sections, to include three years in compliance with the General Regulations, applicable to Security Issuing Companies and other Securities Market Participants as issued by the National Banking and Securities Commission (CNBV by its acronym in Spanish) up to December 31, 2015.

San Pedro Garza Garcia, N. L., February 2, 2016.

ECONOMIC ENVIRONMENT

During 2015, the world economy had a weak performance. Agencies, such as the International Monetary Fund and the World Bank lowered their initial growth expectations faced by the uncertainty of an economic recovery. At country level, contrasting circumstances were observed. On one hand, the United States and the United Kingdom showed better growth figures than those of prior years. On the other hand, countries such as China and some in the Eurozone were disappointing. The volatility continued to be present in the financial markets, awaiting the decision of the Fed on the increase of interest rates in the United States, which promoted a significant appreciation of the US dollar vis-à-vis most of the world´s currencies, including the Mexican peso. The Fed started increasing rates, although gradually, as anticipated. The less than expected growth in China and the potential market entry of oil produced in Iran increased the pressure on the prices of this raw material. Other raw material, such as food, also suffered a strong price adjustment during the year. Reduction in oil prices and the appreciation of the US dollar have continued into 2016.

The behavior of the GDP and other variables in Mexico that are key to better understand ALFA’s results, are described in the following paragraphs:

Mexico’s GDP grew by 2.5% (estimated) in 2015, a slightly higher figure than that of 2014. Consumer inflation was 2.1% (b) in 2015, lower to the 4.0% (b) figure recorded in 2014. The Mexican peso had an annual nominal depreciation of 17.0% (c) in 2015, as compared to the depreciation of 12.5% (c) experienced in 2014. In real terms, the annual average overvaluation of the Mexican peso with respect to the US dollar amounted to 11.8% (d) in 2015 and 15.6% (d) in 2014.

With respect to interest rates in Mexico, the TIIE was at 3.3% (b) in 2015 in nominal terms, as compared to 3.5% in 2014. In real terms, there was an increase, going from an annual accumulated -0.5% in 2014 to 1.9% in 2015.

The nominal 3-month LIBOR rate in US dollars, annual average was at 0.3% (b) in 2015, higher than the 0.2% (b) rate observed in 2014. Were the nominal depreciation of the Mexican peso to be incorporated vis-à-vis the US dollar, the LIBOR rate in constant pesos went from 8.4% (a) in 2014 to 14.9% (a) in 2015.

Sources:(a) National Institute of Statistics and Geography (INEGI).(b) The Bank of Mexico (Banxico).(c) Banxico. Exchange rate to liquidate liabilities denominated in foreign currency and payable in Mexico.(d) Own calculations with data from INEGI, bilateral with the United States, adjusted for consumer prices.


23

ALFA continues expanding worldwide, successfully facing macroeconomic challenges

In 2015, ALFA faced a macroeconomic environment characterized by decreasing oil prices and a rising US dollar; however, it was able to counteract such effect through production improvements and higher product margins.

RESULTS

REVENUESThe following table shows ALFA’s revenues for the years 2015, 2014, and 2013 breaking down its components by volume and price (indexes are calculated using the 2010=100 basis):

Concept 2015 2014 2013 Var. 2015-2014 (%) Var. 2014-2013 (%)

Consolidated Revenues 258,300 229,226 203,456 13 13Volume index 151.7 143.3 133.2 6 8Price index in Mexican pesos 109.2 102.3 98.0 7 4Price index in US dollars 99.8 110.8 110.7 (10) 0

Likewise, consolidated revenues broken down by ALFA’s groups, were as follows:

Concept 2015 2014 2013 Var. 2015-2014 Var. 2014-2013

Alpek 83,590 86,072 90,061 (2,482) (3,989)Sigma 93,568 71,465 48,989 22,103 22,476Nemak 70,891 61,665 56,299 9,226 5,366Alestra 6,163 5,519 5,067 644 452Newpek 2,180 3,067 1,706 (887) 1,361Other businesses 1,908 1,438 1,334 470 104Total consolidated 258,300 229,226 203,456 29,074 25,770

Pesos Dollars

Revenue indexes(2010=100)

11 12 13 14 15

117

130

133

143

152

P R I C E S V O L U M E S

11 12 13 14 15

101 99 98 102

109

117109

111 111 100

The revenue behavior is explained below:

2015-2014:Consolidated revenues in 2015 reached a total of Ps.258,300 (US$16,315), 12.7% over 2014 (decrease of 5.3% in US dollars). Following is an explanation of the performance in the year for each of ALFA’s groups:

During 2015, Alpek’s revenues were 18% lower in US dollars than in 2014 as a result of the lower prices in crude oil and raw material. The polyester business was privileged given the improvement in PTA margins in North America, starting in April 2015, as well as by the revenues and savings resulting from the full operation of the cogeneration plant starting in late 2014. Other factors that contributed to the results of this business were the favorable preliminary court rulings in the PET antidumping case in the US.

In 2015, Sigma sold 1.7 million tons of food, 16% more than in 2014. Revenues amounted to U.S. $5,901, 10% more than in 2014. This fact was facilitated by the consolidation for an entire year of the results of Campofrio Food Group (CFG), as well as the good performance of US operations; on the other hand, it was affected in Mexico due to the depreciation of the Mexican peso.

On the other hand, the revenue volume of Nemak grew 3%, totaling 50.7 million equivalent parts. In North America, the production and revenue of light vehicles increased by 6% and 3%, respectively, as compared to 2014. Main factors behind these increases were a stronger consumer trust, availability of credit at lower rates and lower fuel prices. In Europe, the revenues of vehicles increased by 2%, showing a budding recovery of the industry. Altogether, the revenues measured in US dollars, decreased 4% as compared to 2014 due to the decrease in the price of aluminum, situation that did not affect the margins.

In Alestra, revenues amounted to Ps.6,163, an increase of 12% in comparison with 2014. One of the main causes of this increase was the higher capacity of the company to offer IT services, such as network management, hosting, system integration, network security and cloud-based services. However, when measured in US dollars the revenues amounted to U.S. $389, 6% less than in 2014, due basically to the unfavorable impact of the depreciation of the Mexican peso against the US dollar during the year.

Finally, in 2015, Newpek operated in a reduced oil price environment. In the Eagle Ford, Edwards and Wilcox formations in South Texas, 113 wells were connected to revenues, for a total of 610, figure compared to the 122 connected wells in 2014. The production amounted to 8.2 thousands of barrels of oil equivalent (BOE) per day in 2015, a similar figure of 2014. Its revenues reached U.S. $ 138, 39% less than in 2014.

2014-2013:Consolidated revenues in 2014 amounted to Ps229,226 (US$17,224), 12.7% higher than in 2013 (8.5% in US dollars). Following is an explanation of the performance of each of ALFA’s groups:

Alpek’s sales in US dollars during 2014 were 8% lower than in 2013, due to an excess of capacity in Asia and the raw materials price volatility. The plastic and chemicals business showed a favorable performance, except for caprolactam, which continued to be affected by the excess capacity in China. However, the Company’s financial performance allowed it to continue implementing projects seeking to reduce costs, as well as improve the efficiency and integration of its operations.

In 2014, Sigma sold 1.4 million tons of food, 21% more than in 2013. Revenues were increased to US$5,359, 40% more than in 2013 supported by the consolidation of Campofrío beginning on July 2014. On the other hand, the Mexican consumer market showed weakness and the prices of raw materials experienced strong increases. The Company faced this environment by strengthening its marketing and distribution efforts, launching new products, investing in brand capital, as well as making operations more efficient. The Food service business was strengthened by capitalizing synergies derived from the acquisition of ComNor in 2013.

On the other hand, the sales volume of Nemak grew 4%, adding 49.8 million equivalent pieces. As a result, revenues increased to US$4,645, an increase of 6% compared to 2013. The Company took advantage of the North American automotive industry growth, a slightly better performance in Europe and its new production capacity in Asia. As evidence of the trust it has earned, during the year, Nemak got 60 new contracts, representing future revenues of US$1.7 billion. Five of these are related to the production of structural pieces, new market with a great potential.

In Alestra, revenues added up to US$415, 5% more than in 2013. The increase was due to a growth in revenues from added value services (AVS), mainly those related to IT security, integration of systems and cloud services, among others. The AVS represented 85% of the Company’s total revenues.

Finally in 2014, Newpek connected 122 new wells to sales in the Eagle Ford Shale to add up to 497 producing wells in such formation. In the Wilcox formation, nine exploratory wells were drilled and completed in the year. In Oklahoma, Newpek operates 29 additional wells. Overall, the production of all these formations amounted to 8.2 thousand average equivalent oil barrels per day, 21% more than in 2013. Sales amounted to US$ 226, 28% more than in 2013.


25

OPERATING PROFIT

ALFA’s operating profit in 2015, 2014, and 2013 is explained below:

2015-2014:

Operating profit Variation by Group2015 2014 Var. Alpek Sigma Nemak Alestra Newpek Other

Revenues 258,300 229,226 29,074 (2,482) 22,103 9,226 644 (887) 470Operating profit 24,058 17,226 6,832 3,851 4,468 1,677 241 (2,665) (740)Operating consolidated margin (%) 9.3 7.5Alpek (%) 9.1 4.3Sigma (%) 11.7 9.0Nemak (%) 10.4 9.3Alestra (%) 26.2 24.9Newpek (%) -99.4 16.2

The 40% increase in consolidated operating profit from 2014 to 2015 is explained by the individual performance of ALFA’s companies, as detailed below:

In Alpek’s case, the increase is due primarily to the following factors. The Plastics and Chemicals business produced solid results due to better polypropylene and EPS margins. In the case of polypropylene, the improvement is due basically to lower prices of raw material in North America, which translated into better margins. In the case of EPS, higher revenues prices were achieved, which were temporarily disconnected from their references in Asia. Another relevant factor for this business was the successful integration of the EPS businesses acquired from BASF in 2015 in North and South America.

In Sigma, operating profit showed a significant increase, mainly promoted by the following factors: the consolidation of Campofrío during the entire 2015 year. Additionally, decrease in prices of raw material, such as poultry, pork, and milk, and the good performance of the US operations, although the reduction in costs of raw material was neutralized in Mexico due to the depreciation of the Mexican peso affecting import of raw material. Finally, it is also due to the fact that the figure including the collection of insurance coverage for the plant that caught fire in Spain was higher than its book value.

In Nemak, the operating profit grew 29% measured in Mexican pesos in the year. This is due to the increase in revenues explained above, as well as to the implementation of actions to reduce costs and increase efficiency. Measured in US dollars, increase reached 9%.

In 2015, Alestra increased its operating profit by 18%, mainly due to the increase in revenues explained previously. Measured in US dollars, it was able to keep a similar figure to that of the prior year, even with the unfavorable impact of the depreciation of the Mexican peso against the US dollar during the year. Additionally, it had an extraordinary impact from favorable legal resolutions in interconnection rates.

Newpek’s operating profit plummeted mainly due to the drop in oil prices.

2014-2013:

Operating profit Variation by Group2014 2013 Var. Alpek Sigma Nemak Alestra Newpek Other

Revenues 229,226 203,456 25,770 (3,989) 22,476 5,366 452 1,361 104Operating profit 17,226 14,085 3,141 813 1,159 1,203 45 (328) 249Consolidated operating margin (%) 7.5 6.9Alpek (%) 4.3 3.2Sigma (%) 9.0 10.8Nemak (%) 9.3 8.0Alestra (%) 24.9 26.2Newpek (%) 16.2 48.2

The 22% increase in consolidated operating profit from 2013 to 2014 is explained by the individual performance of the Group’s Companies, as described below:

In the case of Alpek, additionally to the lower margin environment in global markets of polyester and caprolactam, the price fall in crude oil put even more pressure on the margins and resulted in a non-cash charge of US$71 for inventory devaluation. It is important to keep in mind that the operating profit for 2013 was affected by an impairment of fixed assets due to the closing of the Cape Fear plant, amounting to Ps.2,421. In this sense, even though the above explanation, the operating profit of 2014 is higher than of 2013.

In Sigma, the operating profit showed a strong increase mainly due to the consolidation of Campofrío beginning on July 2014. Excluding this effect, the operating profit showed a slight decrease despite the increase in prices of raw materials that had to be compensated through higher sales prices.

In Nemak, the operating profit grew 27% during the year. This was due to the increase in sales already explained above, as well as to the implementation of actions to reduce costs and increase efficiency.

In 2014, Alestra increased its operating profit by 3%, mainly derived from an increase of added value service revenues and reduced costs. It is important to point out that the operating profit of 2013 was benefited due to an extraordinary revenue amounting to US$21 as a result of a favorable resolution of disputes over interconnection costs from prior years.

The operating profit of Newpek decreased by 46% in 2014 vs 2013, mainly due to an extraordinary charge of Ps.310 for depreciation not included in 2013. Without this charge, revenues would have increased by 47%, since the Company currently has more operating oil and gas wells. The production of liquids, including condensed and oil, represented 62% of the total volume as compared to 52% in 2013. The best production mix also contributed to a better operating profit.

REVENUES AND OPERATING PROFIT COMPOSITION

The percentage structure of revenues and operating profit of ALFA changed between 2015 and 2014 mainly due to the decrease in revenues of Alpek and the increase in revenues of Sigma, as well as an increase in operating profit of Sigma and Alpek, all of which are explained above.

The following table shows these effects:

Integration %Revenues Operating profit

15 14 13 15 14 13Alpek 32 38 44 32 22 21Sigma 36 31 24 45 37 37Nemak 28 27 28 31 33 32Alestra 2 2 2 7 8 9Newpek 1 1 1 (9) 3 6Other 1 1 1 (6) (3) (5)Total 100 100 100 100 100 100


27

FINANCE COST

During the year, an exchange loss was generated, explained mainly by the macroeconomic environment of the year. As explained earlier on, the Mexican peso had an annual nominal depreciation in 2015 of 17.0%; therefore, it was considered a significant factor of ALFA’s Comprehensive Financing Cost during 2015. Another important element was the impairment in the fair value of the financial investment available for the revenues of shares of Pacific Exploration and Production Corporation (formerly, Pacific Rubiales Energy), item that did not represent cash flow.

Comprehensive financing cost determining factors 2015 2014

Overall inflation (Dec.- Dec.) 2.1 4.1Variation % in the nominal closing exchange rate (17.0) (12.5)Nominal closing exchange rate 17.21 14.72Real depreciation of the Mexican peso / US dollar with respect to the previous year:

Closing (15.3) (9.0) Year average (17.7) (1.3)Average interest rate: Nominal LIBOR 0.3 0.2 ALFA´s debt, nominal implicit 5.5 5.7 LIBOR in real terms 14.9 8.4 ALFA’s debt, real implicit 21.0 14.3Monthly average debt of ALFA in US$ 6,401 5,737

Expressed in US$, the financial expenses, net from 2015 to 2013 were $312, $328 and $295, respectively.

Variation in net financial expenses in US$ 15/14 14/13

From (lower) higher interest rates 69 62From (higher) lower net petty cash debt (53) (95)Net variation 16 (33)

Net financial expenses in the statement of income include premiums paid in refinancing transactions and operating interests in 2015, 2014 and 2013, additionally to bank financial expenses.

Measured in Mexican pesos, the Finance Cost, Net is comprised as follows:

VariationFinance Cost, Net 2015 2014 2013 15/14 14/13

Financial expenses (5,942) (4,957) (3,978) (985) (979)Financial income 575 222 270 353 (48)Financial expense, net (5,367) (4,735) (3,708) (632) (1,027)Profit/loss from exchange fluctuation, net of derivative financial exchange rate operations (4,920) (5,221) (349) 301 (4,872)Impairment in fair value of financial investment available for sale (4,203) (8,665) 4,462 (8,665)Total Finance Cost, Net (14,490) (18,621) (4,057) 4,131 (14,564)

The fair value of ALFA’s derivative financial instruments at December 31, 2015 and 2014 is as follows:

Fair value Type of derivatives, securities or contracts (Millions of US dollars)

Dec. 15 Dec. 14

Exchange Rate 11 (5)Cross Currency Swaps 0 (49)Interest Rate 0 (1)Energy (89) (72)Total (78) (127)

INCOME TAX (IT)

Following is an analysis of the main factors determining the IT in each one of the years compared, starting from the IT basic income concept defined as the operating profit reduced by the comprehensive financing cost and other expenses, net.

Variation amountIT 2015 2014 2013 15/14 14/13

Profit (loss) before IT 9,284 (1,686) 9,987 10,970 (11,673)Equity in results of associates recognized through the equity method 284 291 41 (7) 250 9,568 (1,395) 10,028 10,963 (11,423)Statutory rate 30% 30% 30%IT at statutory rate (2,870) 419 (3,008) (3,289) 3,427+ / (-) Effect of IT on permanent tax differences – accounting:Tax vs. Accounting Comprehensive Financing Cost 273 875 338 (602) 537Other permanent differences, net (836) (556) (139) (280) (417)Total IT effect on permanent differences (563) 319 199 (882) 120Provision corresponding to the operations of the year (3,433) 738 (2,809) (4171) 3,547Recalculation of taxes from prior years and others (181) (383) 181 202Total IT provision (charged) credited to income. (3,433) 557 (3,192) (3,990) 3,749Effective Income Tax Rate 36% 39% 32%IT :Current Payable (5,420) (3,539) (3,531) (1,881) (8)Deferred 1,987 4,096 339 (2,109) 3,757Total IT provision charged to income (3,433) 557 (3,192) (3,990) 3,749

2015 NET INCOME

During the year, ALFA generated a net consolidated profit , as detailed in the chart below, which is the result from the explanation above regarding the operating profit, the Comprehensive Financing Cost and the taxes:

VariationStatement of Income 2015 2014 2013 15/14 14/13

Operating profit 24,058 17,226 14,085 6,832 3,141Comprehensive Financing Cost (1) (14,490) (18,621) (4,057) 4,131 (14,564)Equity in results of associates (284) (291) (41) 7 (250)Taxes (2) (3,433) 557 (3,192) (3,990) 3,749Net consolidated income (loss) 5,851 (1,129) 6,795 6,980 (7,924)Net income (loss) from controlling interest 3,778 (2,037) 5,926 5,815 (7,963)

(1) Comprehensive Financing Cost

(2) Income tax (current payable and deferred)


29

COMPREHENSIVE INCOME

Comprehensive income is shown in the statement of changes in stockholders’ equity and its objective is to show the total effect of the events and transactions affecting earned surplus, regardless of their being recognized in the statement of income, or directly in the capital account. Transactions between the company and its shareholders are excluded, mainly regarding paid dividends. Comprehensive income of 2015, 2014, and 2013 were as follows:

ConsolidatedComprehensive income 2015 2014 2013

Net income 5,851 (1,129) 6,795Efects of translation of foreign entities 3,598 3,679 456Effects of derivative financial instruments (650) (744) 234Actuarial losses from obligations of remeasurement of employees' benefits (29) (238) 734Consolidated comprehensive income 8,770 1,568 8,219Owners of the controlling Company 4,794 (315) 7,740Non-Controlling interest 3,976 1,883 479Comprehensive income for the year 8,770 1,568 8,219

A previous section in this report explains the relationship with the net income obtained in 2015, 2014, and 2013. The translation effect of foreign subsidiaries, which is the result from using different exchange rates between balance sheet accounts and income statement accounts.

During the present year, it had a significant change due to the volatility of exchange rates of the currencies in the different countries where ALFA is present.

The effect in capital of derivative instruments represents the effect from energy derivatives that, in accordance with International Financial Reporting Standards, is shown in stockholders’ equity.

The effect of actuarial losses from employees´ benefits is the variation in actuarial estimates.

DIVIDENDS DECLARED AND INCREASE IN STOCKHOLDERS’ EQUITY

During 2015, a dividend was declared for Ps2,380 equal to 0.46 pesos per share.

In 2014, no dividend was declared due to an extraordinary dividend paid in December 2013. In 2013, a payment of an ordinary dividend was approved for Ps1,513, equal to 0.29 pesos per share. Also, in December 2013, an additional dividend declared of Ps2,006 equal to 0.39 pesos per share.

In 2015, the stockholders’ equity had an increase of 15%. In the one hand, it increased due to the net income and the public offer of Nemak and on the other hand, it decreased due to the minority acquisition of Campofrío, which was part of the consolidated capital.

INVESTMENT IN DAYS OF NWC (1)

In 2015, the revenues to NWC ratio decreased at a consolidated level, which resulted in a decrease in the NWC days of the consolidated capital, changing from 20 in 2014 to 19 in 2015.

Days in NWC 2015 2014 2013

Alpek 45 47 49Sigma 0 5 18Nemak 22 12 13Alestra (22) (32) (32)Newpek (59) (28) (44)Consolidated 19 20 26

(1) Net Working Capital

INVESTMENTS

Property, Machinery, and EquipmentTotal investments by group were as follows:

Variation % Last 5 year 2015 2014 15/14 Investment %

Alpek 4,482 4,191 7% 11,722 19Sigma 3,638 1,871 94% 9,502 16Nemak 7,314 5,254 39% 25,252 42Alestra 1,612 1,310 23% 5,992 10Newpek 948 1,773 -46% 7,565 12Other 95 31 631 1Total 18,089 14,430 25% 60,664 100

Business AcquisitionsThe acquisition process of Sigma for the minority of 37% of shares of Campofrío concluded in 2015, completing 94.5% of this company thereof. In Ecuador, Sigma acquired Elaborados Carnicos, S.A., a company engaged in the processing of cold meats in such country, expanding its presence in South America. Additionally, it acquired PACSA, company in the foodservice business in Mexico. On the other hand, during 2015, through its subsidiary Styropek, Alpek finalized the acquisition of the EPS business of BASF in Argentina, Brazil, USA, Canada, and Chile.

Nemak’s Public OfferDuring July 2015, Nemak, S.A. de C.V. made an initial public offer of shares (IPO) in Mexico and a private offer of shares in international markets (jointly denominated as “Global Offer”). In this sense, total resources obtained by Nemak as a result of the Global Offer amounted to Ps.11,469

CASH FLOWS

Based on cash flows generated from operations, the following table shows the main transactions in 2015.

2015 2014

Cash flows provided by operating activities 30,506 23,953Property, machinery and equipment, and other (16,987) (14,430)Acquisition of financial shares available for sale 0 (14,135)Business acquisitions (1,947) (1,353)Increase in Bank Financing 612 15,677Dividends paid by ALFA SAB (2,380) 0Dividends paid to the non-controlling interest (1,378) (183)Repurchase of shares (458) (258)Interest paid (5,127) (4,490)Changes in the minority interest 6,102 0Other (2,062) (707)Increase (decrease) in cash 6,881 4,074Adjustments in the Cash Flow from changes in the exchange rate 1,302 693Cash and cash equivalents, and restricted cash at beginning year 16,669 11,902Total cash at end of year 24,852 16,669


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Main changes in net debt of ALFA and its groups were as follows:

Changes in debt net of cash (DNC) US$ Consolidated Alpek Sigma Nemak Alestra Newpek Other

Balance at December 31, 2014 5,123 715 1,862 1,270 210 91 975Long-term financing, net of payments:Financing 925 85 301 512 0 27 0Payments (439) (43) 0 (308) 0 (49) (39)Short term financing, net of payments (405) (6) 20 (192) (3) 0 (224)Total financing, net of payments 81 36 321 12 (3) (22) (263)Currency translation effect (121) (33) (81) (44) 0 1 36Debt variation in the statement of cash flows (40) 3 240 (32) (3) (21) (227)Debt from acquired companies and other 9 0 8 0 1 0 0Total debt variation (31) 3 248 (32) (2) (21) (227)

Decrease (increase) in cash and restricted cash (305) 4 (182) (30) 3 7 (107)Change in interest payable (2) 0 (3) 2 0 0 (1)Increase (decrease) in debt net of cash (338) 7 63 (60) 1 (14) (335)Balance at December 31, 2015 4,785 722 1,925 1,210 211 77 640

Debt by Group Alpek Sigma Nemak Alestra Othershort and long term 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014

Balance of debt (US$) 1,098 1,094 2,435 2,189 1,320 1,352 257 260 1,103 1,361

Percentage of debt balance

Short term debt 3 2 5 3 3 23 27 14 0 26 2 2 2 20 31 6 11 3 14 1 13 3 6 2 41 14 20 11 4 3 9 1 4 2 4 10 40 9 18 6 4 0 1 5 years or more 87 90 24 12 62 37 60 65 90 59Total 100 100 100 100 100 100 100 100 100 100

Average life of long-term debt (years) 6.3 7.3 3.4 2.8 5.5 5.5 6.0 6.1 16.9 10.4Average life of total debt (years) 6.2 7.2 3.2 2.8 5.4 4.3 4.5 5.3 16.9 8.7

Consolidated debt US$ Integral %short and long term: 2015 2014 Var. 2015 2014

Short term debt 265 657 (392) 4 10Long term 1 year 2 611 991 (380) 10 16 3 1,456 504 952 23 8 4 410 1,180 (770) 7 19 5 years or more 3,471 2,915 556 56 47Total 6,213 6,247 (34) 100 100Average life long-term debt (years) 7.0 7.3Average life of total debt (years) 6.7 6.6

FINANCIAL RATIOS

LIQUIDITY

Debt net of cash / cash flow (in US dollars for the last 12 months)Groups 2015 2014

Alpek 1.14 1.65Sigma 2.22 2.93Nemak 1.59 1.78Alestra 1.27 1.24Newpek 1.16 0.76Consolidated 1.98 2.51

Change forInterest hedging (in US dollars) * Cash Financial 2015 2014 15/14 Flow Expense

Alpek 10.7 6.5 4.2 3.1 1.1Sigma 8.5 5.6 2.9 2.1 0.8Nemak 10.2 9.8 0.4 0.6 (0.2)Alestra 24.3 7.3 17 (0.2) 17.2Newpek 3.8 7.0 (3.2) (3.0) (0.2)Consolidated 7.7 6.1 1.6 1.1 0.5

* Defined as the operating profit plus depreciation and amortization divided by the net financial expense.

FINANCIAL STRUCTURE

ALFA’s financial structure indicators improved during 2015, as observed in the following chart:

Financial indicators 2015 2014

Total liabilities / capital 2.34 2.36Long-term debt / total debt (%) 96 89Total debt in foreign currency / total debt (%) 100 94


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I N D E P E N D E N T A U D I T O R S ’ R E P O R T

Monterrey, N. L., February 2, 2016

To the Stockholders’ 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 statements of financial position as at December 31, 2015 and 2014, and the consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the years ended December 31, 2015 and 2014, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, 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, 2015 and 2014, and its financial performance and its cash flows for the years ended December 31, 2015 and 2014, in accordance with International Financial Reporting Standards (IFRS).

PricewaterhouseCoopers, S. C.

Miguel Angel Puente BuentelloAudit Partner Miguel Angel Puente Buentello

ALFA, S. A. B. DE C. V. AND SUBSIDIARIESDecember 31, 2015 and 2014(Millions of Mexican pesos)

Note 2015 2014

AssetsCURRENT ASSETS:Cash and cash equivalents 6 Ps 24,852 Ps 16,669Restricted cash and cash equivalents 7 463 504Customers and other accounts receivable, net 8 33,478 30,357Inventories 9 34,128 30,758Financial assets available for sale 2.h 1,270 5,613Derivative financial instruments 10 203 23Other assets 11 2,937 1,419Total current assets 97,331 85,343

NON-CURRENT ASSETS:Property, plant and equipment, net 12 106,376 93,908Goodwill and intangible assets, net 13 44,615 40,452Deferred income tax 18 12,754 9,880Derivative financial instruments 10 - 27Investments accounted for using the equity method and others 14 5,629 3,270Total non-current assets 169,374 147,537

Total assets Ps 266,705 Ps 232,880

C O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O N


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C O N S O L I D AT E D S TAT E M E N T S O F F I N A N C I A L P O S I T I O N

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

Álvaro Fernández Garza Ramón A. Leal ChapaPresident ChiefFinancialOfficer

Note 2015 2014

Liabilities and Stockholders ‘equityCURRENT LIABILITIES:Short-term debt 17 Ps 5,578 Ps 10,714Accounts payable to suppliers and other 16 52,229 47,655Income tax payable 18 1,739 951Derivative financial instruments 10 848 760Provisions 19 825 1,146Other liabilities 20 1,747 889Total current liabilities 62,966 62,115

NON-CURRENT LIABILITIES:Long-term debt 17 101,631 81,489Derivative financial instruments 10 711 1,092Provisions 19 1,090 1,014Deferred income tax 18 11,957 10,463Non-current income tax payable 18 4,190 4,122Employees’ benefits 21 3,535 3,006Other liabilities 20, 24 810 420Total non-current liabilities 123,924 101,606Total liabilities 186,890 163,721

STOCKHOLDERS´EQUITY:Controlling interest:Capital stock 22 205 207Retained earnings 22 58,345 52,546Other reserves 22 3,641 2,625Total controlling interest 62,191 55,378Non-controlling interest 17,624 13,781Total stockholders ‘equity 79,815 69,159

Total liabilities and stockholders ‘equity Ps 266,705 Ps 232,880

ALFA, S. A. B. DE C. V. AND SUBSIDIARIESFor the years ended December 31, 2015 and 2014(Millions of Mexican pesos)

Note 2015 2014

Net sales 31 Ps 258,300 Ps 229,226Cost of sales 25 (204,312) (187,705)Gross profit 53,988 41,521

Selling expenses 25 (17,526) (13,489)Administrative expenses 25 (14,135) (10,933)Other income, net 26 1,731 127

Operating income 24,058 17,226

Financial income, including foreign exchange gain of Ps.9,223 and Ps.7,455 in 2015 and 2014, respectively 27 9,798 7,677Financial costs, including foreign exchange loss of Ps.14,143 and Ps.12,676 in 2015 and 2014, respectively 27 (20,085) (17,633)Impairment of financial assets available for sale 27 (4,203) (8,665)Financial costs, net (14,490) (18,621)

Share of losses of investmentsaccounted for using the equity method (284) (291)Income (loss) before income tax 9,284 (1,686)

Income tax 29 (3,433) 557

Net consolidated income (loss) Ps 5,851 Ps (1,129)

Income (loss) attributable to:Controlling interest Ps 3,778 Ps (2,037)Non-controlling interest 2,073 908

Ps 5,851 Ps (1,129)

Income (loss) per basic and diluted share, in pesos Ps 0.74 Ps ( 0.40)

Weighted average of outstanding shares (thousands of shares) 5,129,188 5,143,480

C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E




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C O N S O L I D AT E D S TAT E M E N T S O F I N C O M E




Note 2015 2014

Net consolidated profit (loss) Ps 5,851 Ps (1,129)

Other comprehensive income (loss) for the year:Items not to be reclassified to income statement Remeasurement of obligations for employees’ benefits, net of taxes 21 (29) (238)Items to be reclassified to income statement Effect of derivative financial instruments designated as cash flow hedges, net of taxes 10 (650) (744) Effect of translation of foreign entities 22 3,598 3,679Total other comprehensive income for the year 2,919 2,697

Total comprehensive income for the year Ps 8,770 Ps 1,568

Attributable to:Controlling interest Ps 4,794 Ps (315)Non-controlling interest 3,976 1,883

Total comprehensive income for the year Ps 8,770 Ps 1,568

C O N S O L I D AT E D S TAT E M E N T S O F

C O M P R E H E N S I V E I N C O M E


Total Non- Total Capital Retained Other controlling controlling stockholders´

Note Stock earnings reserves interest interest equity

Balances at January 1, 2014 Ps 210 Ps 55,643 Ps 588 Ps 56,441 Ps 8,728 Ps 65,169

Transactions with Stockholders:Repurchase of own shares 22 (3) (255) - (258) - (258)Dividends from subsidiaries to non-controlling interest 3.b - - - - (183) (183)Changes in non-controlling interest 2 - (490) - (490) 3,353 2,863

(3) (745) - (748) 3,170 2,422

Net (loss) income - (2,037) - (2,037) 908 (1,129)

Total other comprehensive (loss) income - (315) 2,037 1,722 975 2,697

Comprehensive (loss) income - (2,352) 2,037 (315) 1,883 1,568

Balances at December 31, 2014 207 52,546 2,625 55,378 13,781 69,159

Transactions with Stockholders:Repurchase of own shares 22 (2) (456) - (458) - (458)Dividends declared 22 - (2,380) - (2,380) (1,378) (3,758)Acquisition of minority interest 2.g - (2,657) - (2,657) (2,710) (5,367)Changes in non-controlling interest 2.b - 7,514 - 7,514 3,955 11,469

(2) 2,021 - 2,019 (133) 1,886

Net income - 3,778 - 3,778 2,073 5,851

Total other comprehensive income - - 1,016 1,016 1,903 2,919

Comprehensive income - 3,778 1,016 4,794 3,976 8,770

Balances at December 31, 2015 Ps 205 Ps 58,345 Ps 3,641 Ps 62,191 Ps 17,624 Ps 79,815

C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y


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ALFA, S. A. B. DE C. V. AND SUBSIDIARIESFor the years ended December 31, 2015 and 2014(Millions of Mexican pesos) Total Non- Total Capital Retained Other controlling controlling stockholders´ Note Stock earnings reserves interest interest equity

Balances at January 1, 2014 Ps 210 Ps 55,643 Ps 588 Ps 56,441 Ps 8,728 Ps 65,169

Transactions with Stockholders: Repurchase of own shares 22 (3) (255) - (258) - (258) Dividends from subsidiaries to non-controlling interest 3.b - - - - (183) (183) Changes in non-controlling interest 2 - (490) - (490) 3,353 2,863

(3) (745) - (748) 3,170 2,422

Net (loss) income - (2,037) - (2,037) 908 (1,129)

Total other comprehensive (loss) income - (315) 2,037 1,722 975 2,697

Comprehensive (loss) income - (2,352) 2,037 (315) 1,883 1,568

Balances at December 31, 2014 207 52,546 2,625 55,378 13,781 69,159

Transactions with Stockholders: Repurchase of own shares 22 (2) (456) - (458) - (458) Dividends declared 22 - (2,380) - (2,380) (1,378) (3,758) Acquisition of minority interest 2.g - (2,657) - (2,657) (2,710) (5,367) Changes in non-controlling interest 2.b - 7,514 - 7,514 3,955 11,469

(2) 2,021 - 2,019 (133) 1,886

Net income - 3,778 - 3,778 2,073 5,851

Total other comprehensive income - - 1,016 1,016 1,903 2,919

Comprehensive income - 3,778 1,016 4,794 3,976 8,770

Balances at December 31, 2015 Ps 205 Ps 58,345 Ps 3,641 Ps 62,191 Ps 17,624 Ps 79,815



C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y


Note 2015 2014

Cash flows from operating activitiesIncome (loss) before income tax Ps 9,284 Ps (1,686)Depreciation and amortization 12, 13 11,911 9,607Impairment of long-lived assets 12, 13 2,472 283Costs associated with seniority premiums and pension plan 21 222 287Gain on sale of property, plant and equipment (337) (153)Effect of changes in fair value of derivative financial instruments 439 397Foreign exchange, net 4,920 5,544Other expenses and income, net 26 3,873 4,157Impairment of financial assets available for sale 4,203 8,665(Increase) decrease in customers and other accounts receivable (585) 357Increase in inventory (1,783) (899)Inventory advance payments (1,102) -Increase in accounts payable to suppliers and other 950 1,925Income tax paid (3,961) (4,531)Net cash generated from operating activities 30,506 23,953

Cash flows from investing activitiesInterest collected 435 215Investments in financial assets available for sale 2.h - (14,135)Acquisition of property, plant and equipment 12 (13,004) (8,824)Sale of property, plant and equipment 2.a 407 -Purchases of intangible assets 13 (4,390) (5,606)Business acquisitions, net of cash received 2 (1,947) 344Restricted cash 7 (52) (199)Dividends received 62 362Related parties 30 - (266)Other assets (1,155) (361)Net cash used in investing activities (19,644) (28,470)

Cash flows from financing activitiesProceeds from borrowings or debt 17 30,838 41,965Payments of borrowings or debt 17 (30,226) (26,288)Interest paid (5,127) (4,490)Dividends paid by Alfa, S. A. B. de C. V. 22 (2,380) -Dividends paid to the non-controlling interest (1,378) (183)Repurchase of shares 22 (458) (258)Changes in non-controlling interest 2.b 11,469 -Acquisition of minority interest 2.g (5,367) (1,387)Other (1,352) (768)Cash (used in) generated from financing activities (3,981) 8,591Net increase in cash and cash equivalents 6,881 4,074Exchange losses on cash and cash equivalents 1,302 693Cash and cash equivalents at beginning of year 16,669 11,902Cash and cash equivalents at end of year Ps 24,852 Ps 16,669

C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S




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C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S

ALFA, S. A. B. DE C. V. AND SUBSIDIARIESAt December 31, 2015 and 2014

Note 1 - ALFA companies’ activities

Alfa, S.A.B. de C.V. and subsidiaries (therein after “ALFA” or “the Company”), is a Mexican company controlling five business groups with the following activities: Alpek, engaged in the production of petrochemicals and synthetic fibers; Sigma, a refrigerated food producer; Nemak, engaged in the manufacture of high-tech aluminum auto parts; Alestra, in the telecommunications sector; and Newpek, a 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 of America (U.S.), Canada, Germany, Slovakia, Belgium, Czech Republic, Italy, Holland, Portugal, France, Costa Rica, Dominican Republic, El Salvador, Argentina, Peru, Ecuador, Austria, Brazil, China, Hungary, Spain, India and Poland. The company markets its products in over 45 countries worldwide and employs over 72,000 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 Avenue Sur No. 1111, Col. Carrizalejo, San Pedro Garza García, Nuevo León, México.

In the following notes to the financial statements references to “Ps”, mean millions of Mexican pesos. References to “US$”, mean millions of dollars from the United States. In addition, references to “€”, means millions of euros.

Note 2 - Acquisitions and other relevant events

2015a) Agreements between Alpek and BASF for the expanded polystyrene (EPS) and polyurethane (PU) businessesDuring July 2014, Alpek (“Alpek”) and BASF (“BASF”) signed the agreements related to the expanded polystyrene (EPS) and polyurethane (PU) businesses previously held through their joint venture Polioles, S.A de C.V. (“Polioles”) in México, as well as the EPS business of BASF in North and South America, except for the Neopor ® (gray EPS) of BASF business.

Alpek acquired all EPS business activities from Polioles, including an EPS plant in Altamira, Mexico. Likewise, BASF acquired all PU business activities from Polioles, including certain assets located in Lerma, Mexico´s facility, as well as all marketing and sales rights for the PU, isocyanate and polyol systems. Once the transaction was completed, Polioles continued operating as a joint venture between Alpek and BASF, with a product portfolio comprising of industrial chemicals and specialties.

Alpek also acquired the EPS business of BASF in North and South America, including:

• EPS sales and distribution channels of BASF in North and South America

• The EPS plants of BASF in Guaratinguetá, Brazil and General Lagos, Argentina, and

• The EPS transformation business of BASF in Chile (Aislapol, S. A.)

The combined capacity of all EPS production units acquired by Alpek is approximately 230,000 tons a year. This figure includes 165,000 tons a year of Polioles plant in Altamira, Mexico. Approximately 440 employees work in the businesses subject to the agreements, 380 of them in the EPS businesses and 60 in the PU businesses. Most of them continue performing their roles under the new ownership framework.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Transactions included in this agreement were as follows:

PU business sale to BASF

In March 2015, through its subsidiary Polioles, Alpek completed the sale to BASF MEXICANA of all the polyurethane (PU) business activities, including assets selected in the Lerma, Mexico plant, as well as all marketing and sales rights of PU, isocyanate and polyol systems. From Alpek’s standpoint, the PU business sold was not considered as a business line or segment; therefore, IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” dispositions respect to the presentation as a discontinued operation, is not applicable. Rather, the transaction was carried out through the sale of a group of assets at market terms, and the total consideration received was Ps407; net book value transferred was Ps26. This transaction resulted in a gain of Ps381, which was recorded in the income statement as other income (expense), net.

Mexico EPS business sale to Styropek

On March 31, 2015, Alpek transferred all its EPS business activities of Polioles, including the EPS plant in Altamira, Mexico to its subsidiary Grupo Styropek, S.A. de C.V. (Styropek). Since BASF has 50% equity in Polioles, the transaction between stockholders for the EPS business resulted in a Ps150 reduction in the controlling interest and an increase in the non-controlling interest for the same amount.

This transaction had no accounting effects over the financial statements of Alpek, since they were transactions among entities under common control, except for the increase in non-controlling interest of Ps150.

EPS business acquisition from BASF

On March 31, 2015, through Styropek, Alpek finalized the acquisition of BASF´s EPS business in Argentina, Brazil, USA, Canada, and Chile. This acquisition included the working capital. A total of 450 employees work in the EPS line of business. The consolidated financial statements include the financial information of BASF’s EPS business starting in March 31, 2015.

At December 31, 2015, provisional purchase price allocation to fair values of acquired assets and assumed liabilities is as follows:

Current assets (1) Ps 623Property, plant and equipment 425Current liabilities (2) (183)Debt (140)Deferred income tax (89)Other liabilities (31)Purchase consideration Ps 605

(1) Current assets consist mainly of accounts receivable and inventories amounting to Ps333 and Ps290, respectively.

(2) Current liabilities consist mainly of suppliers in the amount of Ps101.

Total purchase consideration was paid in cash.

Value of accounts receivable acquired approximates fair value due to its short-term maturity. Accounts receivable acquired are estimated to be recovered in the short term.

No contingent liability has resulted from this acquisition that requires recognition. Neither are there contingent consideration agreements.

Costs related to the acquisition amounted to Ps22 and were recorded in income as “other expense, net”.

Revenues contributed by BASF assets included in the consolidated statement of income since the acquisition date through December 31 amounted to Ps5,482 and net income to Ps732. If the acquisition had taken place on January 1, 2015, revenues would have increased by Ps1,600 and net income by Ps185, approximately.

At December 31, 2015, the Company is in the process of concluding the final purchase price allocation to fair values of acquired assets and assumed liabilities. This analysis will be concluded within a period not to exceed twelve months as of the acquisition date.


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b) Public Offer - NemakDuring July 2015, Nemak, S.A. de C.V. made an initial public offer of shares (“IPO”) in Mexico and a private offer of shares in the international markets (jointly denominated as “Global Offer”), as follows:

• On June 15, 2015 Nemak, S.A. de C.V. held a General Ordinary and Extraordinary Stockholders´ Meeting wherein it approved, among other corporate acts, the following: the issuance of capital stock, the change of legal regime to a Sociedad Anónima Bursatil de Capital Variable (Stock Corporation with Variable Stock), this was conditioned to the placement of new shares, the amendment of corporate by-laws, appointment of new Board of Directors, incorporation of an Audit and Corporate Practices Committee, appointment of committee members, among others.

• On July 1, 2015 Nemak S. A. B. de C. V. carried out the Global Offer corresponding to the issuance of 537,600,000 shares at a placement price of 20.00 Mexican pesos. This offer included an over-allocation option of up to 80,640,000 shares. The total amount of this offer was Ps10,752.

• On July 29, 2015, following up on the Global Offer, the underwriters, in Mexico as well as abroad, executed the over-allocation options agreed. The total amount of over-allocations was Ps1,145 corresponding to 57,232,845 shares at a placement price of Ps20.00 each.

Derived from the aforementioned, total resources obtained by Nemak as a result of the Global Offer amounted to Ps11,469, net of issuance costs amounting to Ps428. Subsequent to the Global Offer, the subscribed and paid-in capital of Nemak is represented by a total of 3’080,747,324 Series “A” shares.

As a result of the aforementioned events, the equity in the capital stock of Nemak was diluted from 93% to 75% and the monetary effects are shown in “non-controlling interest changes” item in the statements of cash flows and of changes in stockholders’ equity. This stock dilution effect resulted in an increase in retained earnings of Ps7,514 and an increase in the non-controlling interest of Ps3,955.

c) Alestra and Axtel mergeOn December 3, 2015, ALFA together with its subsidiaries Alestra, S. de R. L. de C. V. (“Alestra”) and Onexa, S.A. de C.V. (“Onexa”, Alestra’s holding company), signed a definitive agreement with Axtel, S. A. B. de C. V. (“Axtel”), a fixed-line and integrated telecommunications Mexican company, together with a group of its main stockholders, to merge Onexa with Axtel, with the latter as the surviving company and transforming Alestra, as established in the terms of the definitive agreement, in a subsidiary of Axtel and Axtel in a subsidiary of ALFA.

The merge will allow combining the competitive advantages of both companies, including qualified human resources, new technologies and a wide service infrastructure to meet the increasing market demand. Furthermore, scale economy synergies will arise, as well as efficiency in network integration and skill transfer.

On January 15, 2016, Axtel and Onexa held Extraordinary Meetings where the Stockholders approved the merge and the members of the Board of Directors, the General Director and the Audit and Corporate Practices Committees were appointed. After finishing the legal, operating and financial review process and obtaining the approvals from authorities, the transaction is estimated to be ready and effective on February 15, 2016, once all approvals and conditions established in the agreements signed by all parties have been fulfilled, among which are obtaining a credit by Axtel to prepay its valid bonds. At the date of the financial statements, the approvals and conditions are in the process of being fulfilled.

Axtel will remain as a company listed in the Mexican Stock Exchange and will issue new shares to be subscribed by ALFA, which would represent approximately 51% of the combined entity’s ownership, and Axtel’s stockholders will own 49%.

d) Strategic alliance between Sigma Alimentos, S.A. de C.V. and Kinesis Food Service, S.A. de C.V.On July 31, 2015, the strategic alliance framework agreement was signed between Sigma Alimentos, S.A. de C.V. and Kinesis Food Service, S.A. de C.V. (“Kinesis”), a company that through its subsidiaries (collectively identified as “PACSA”), is leader in the distribution of meat and dairy products by means of a food service cannel in certain regions of the Mexican Republic, mainly in the Southeast of Mexico. This transaction complements Sigma’s expansion strategy in Mexico through the food service channel. According to the agreement, Sigma acquires total control over PACSA’s operations, subscribing substantially all of PACSA’s shares with the right to vote. In accordance with the International Financial Reporting Standard 3, “Business Combinations” (“IFRS 3”), this alliance represents a business combination; therefore, it has been recorded using the acquisition method established in IFRS 3. This alliance is included in Sigma’s segment.

Sigma’s contribution to this alliance amounted to Ps494, which was paid in cash. At the agreement signature date, the Company had determined goodwill of Ps213 (difference between the amount of Sigma’s contribution and PACSA’s net assets). To date, Sigma is in the process of determining the distribution of the acquisition price at fair values of the assets acquired in terms of IFRS 3. This analysis will be concluded within a period not to exceed twelve months as of the acquisition date.


Current assets (1) Ps 204Property, plant, and equipment 111Intangible assets (2) 173Current liabilities (3) (120)Employee benefits (7)Debt (10)Deferred income tax (70)Goodwill 213Consideration paid Ps 494

(1) Current assets consist of cash Ps13, accounts receivable Ps77, inventories of Ps107 and sundry debtors and other current items Ps7.

(2) Intangible assets consist of brands Ps8, non-competition agreements Ps65 and customer relations Ps100.

(3) Current liabilities consist of suppliers and accounts payable Ps82, taxes payable Ps3, short-term debt Ps33 and personnel benefits Ps2.

Goodwill is comprised mainly of the market share obtained through expanded capacities of Sigma’s asset basis. The goodwill recorded is not deductible for tax purposes.

No contingent liability has arisen from this alliance that requires recognition. Neither are there contingent payment agreements.

Costs related to the alliance amounted to Ps3 and were recorded in the income statement in other expenses, net, caption.

Revenues contributed by PACSA’s assets included in the consolidated statement of income since the agreement signing date through December 31, 2015 amounted to Ps356 and net income to Ps27. If the acquisition had taken place on January 1, 2015, the revenues would have increased by Ps534 and net income by Ps11, approximately.

e) Acquisition of Elaborados Cárnicos, S. A. (ECARNI)On August 31, 2015, the Company through its subsidiary Sigma acquired the total of the representative shares of the capital stock of Elaborados Cárnicos, S. A., a company dedicated to the breeding of cattle, swine, sheep, as well as the industrialization and marketing of derivatives of the aforementioned livestock, in Ecuador. This transaction complements to Sigma’s expansion strategy in Latin America.

The total consideration paid amounted to Ps853 (US$51) in cash. Sigma at the acquisition date, determined goodwill for Ps349 and at December 31, 2015 it is in the process of concluding the final purchase price allocation to fair values of acquired assets. This analysis will be concluded within a period not to exceed twelve months as of the acquisition date.


Current assets (1) Ps 246Property, plant, and equipment 259Intangible assets (2) 195Current liabilities (3) (67)Employee benefits (51)Debt (23)Deferred income taxes (55)Goodwill 349Purchase consideration Ps 853

(1) Current assets consist of cash Ps19, accounts receivable Ps95, inventories Ps98 and sundry debtors and other current items Ps34.


(3) Current liabilities consist of suppliers and accounts payable Ps53, taxes payable Ps11 and short-term debt Ps3.

Goodwill is mainly comprised of market participation obtained through expanded capacities of the Company’s asset basis. The recorded goodwill is not deductible for tax purposes.

No contingent liabilities have arisen from this acquisition from this acquisition that require recognition. Neither are there contingent consideration agreements.


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Costs related to the acquisition amounted to Ps6 and were recorded in the income statement under other expenses, net, caption.

Revenues contributed by ECARNI’s assets included in the consolidated statement of income from the acquisition date through December 31, 2015 amounted to Ps220, and net income to Ps12. If the acquisition had taken place on January 1, 2015, the revenues would have increased by Ps380 and net income by Ps29, approximately.

f) Acquisition of Fábrica Jurís, CíaOn November 21, 2014, the Company through its subsidiary Sigma acquired Fabrica Jurís, CIA, LTDA company engaged in the production and marketing of meat products: sausages, chorizo, salami, bologna, pâté, pork rind, hams, cold meats, pork snacks, among others in Ecuador. This transaction complements Sigma’s expansion strategy in Latin America.

The total consideration paid amounted to Ps712 in cash and at December 31, 2014 it includes restricted cash as collateral in favor of Sigma of Ps155. At the acquisition date, Sigma had determined a goodwill for Ps348.

At December 31, 2015, Sigma had concluded the purchase price allocation to fair values of acquired assets and assumed liabilities.

Final purchase price allocation at fair value is as follows:

Current assets (1) Ps 139Property, plant, and equipment 238Intangible assets (2) 172Current liabilities (3) (89)Employee benefits (26)Debt (31)Deferred income tax (39)Goodwill 348Purchase consideration Ps 712

(1) Current assets consist of accounts receivable Ps69, inventories Ps64 and advance payments and other Ps6.


(3) Current liabilities consist of suppliers and accounts payable Ps55, taxes payable Ps8 and short-term debt Ps26.

(*) Certain prior-year balances, related to the distribution of acquisition prices, were modified in 2015 to recognize final fair values of assumed assets and liabilities. At December 31, 2015, Sigma reclassified certain items of the balance sheet that had been previously shown as part of goodwill. The reclassified amounts were adjusted by increasing the current asset value by Ps4; increasing the value of non-current assets by Ps208; decreasing the balance of current liabilities by Ps16, increasing the balance of non-current liabilities by Ps51 and decreasing the goodwill value by Ps181. The Company decided for comparative purposes not to make these reclassifications retrospectively, considering that the aforementioned adjustments do not significantly modify the value of total assets, short and long-term liabilities and stockholders’ equity at December 31, 2014. The reclassification above had no significant impact on the figures of the consolidated financial statements, of stockholders’ equity and of cash flows.

Goodwill is comprised mainly by market participation obtained through the expanded capacities of Sigma’s assets basis. Goodwill recorded is not deductible for tax purposes.

No contingent liabilities have arisen from this acquisition that requires recognition. Nor are there any contingent consideration agreements.

Costs related to the acquisition amounted to Ps3 and were recorded in the income statement under other expenses, net, caption.

Revenues contributed by the assets of Fabrica Jurís, CIA, LTDA included in the consolidated statement of income since the acquisition date through December 31, 2014 were Ps64, and net income of Ps3. If the acquisition had taken place in January 1, 2014, revenues would have increased by Ps461 and net income by Ps40, approximately.

g) Acquisition of additional shares of Campofrío from WH GroupOn June 18, 2015, the Company through its subsidiary Sigma Alimentos Exterior, S. L. acquired 37% additional shares of Campofrío Food Group, S.A. The shares that up to June 3, 2015 were owned by WH Group were acquired firstly by ALFA, through the payment of a consideration of Ps5,367 (US$354), which were subsequently transferred to Sigma. Prior to the acquisition date, the accounting value of 37% was Ps2,710, consequently, a decrease in retained earnings of Ps2,657 was recorded.

After this acquisition, equity in this subsidiary is shown below:

Indirect equity of ALFA as of December 31, 2014 57.52%Acquisition of shares from WH Group on June 18, 2015 37.00%Indirect equity of SIGMA as of December 31, 2015 94.52%

On June 9, 2014, ALFA obtained control over Campofrío Food Group, S. A. (“Campofrío”) as a result of: i) the end of the Public Offer of shares of Campofrío in the Spanish stock market and ii) the coming into force of the agreement signed on January 1, 2014 between ALFA and WH Group Ltd. (WH). The aforementioned agreement was concluded on June 3, 2015. As a result of the acquisition of Sigma in the equity of WH Group Ltd. in Campofrío.

This agreement established several rights and obligations of the parties involved in relation with the corporate governance and the transfer of shares of Campofrío, giving ALFA the capacity to guide relevant activities. The agreement intended to fairly anticipate probable events in the future of the subsidiary and its stockholders during the effective term of the agreement and to anticipate the way in which these will be treated. Examples include: the approval of the business plan, the approval of ordinary and extraordinary corporate events; changes in the ownership of Campofrío; the need for additional capital contributions of the existing stockholders or new investors and the resolution of claims between stockholders. It also provided the flexibility to face unforeseen events, as may be maintaining the capacity to make decisions quickly and effectively; establishing termination conditions when a shareholder wishes to terminate the relationship for any reason; and basis for the solution of controversies among stockholders or to solve an agreement interpretation issue. The agreement created incentives for the parties to be able to solve the controversies through consensus, seeking to be determined as efficiently as possible so that Campofrío continues with minimum interruption.

The indirect equity of ALFA in Campofrío at the date the agreement became effective, accounted for using the equity method, was 45% as shown below:

Equity of ALFA in Campofrío at December 31, 2013 46.31%Acquisitions at June 9, 2014 3.29%Sales at June 9, 2014 (4.60%)Equity of ALFA in Campofrío at June 9, 2014 45.00%

Since the acquisition and up to June 9, 2014, net income of Campofrío was not material.

For business combinations made in stages, International Financial Reporting Standards (IFRS) require any previous equity of the acquiring party in an acquired party is adjusted at fair value at the acquisition date and that any resulting gain (or loss) is reported in the consolidated statement of income. IFRS also require all previously recorded amounts in the consolidated comprehensive statement of income in relation with such investments be reclassified in the consolidated income account, as if such investment had been sold. ALFA has estimated the fair value of 45% of equity in Campofrío at Ps5,498 on June 9, 2014, date when control was obtained. The effect of measuring the 45% equity ownership of Campofrío at fair value before the date when control is obtained was immaterial in the consolidated statements of income for the year ended December 31, 2014.

Since no additional consideration was made by ALFA to obtain control (June 9, 2014), the fair value of 45% is considered as the acquisition price of Campofrío.

The amount of the consideration paid for Campofrío at the date control was obtained amounted to Ps5,498.


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Assets and liabilities recorded as a result of the business combination at June 9, 2014 are as follows:

Fair valueCash and cash equivalents Ps 1,576Trade and other accounts receivable, net 2,830Inventories 6,948Property, plant, and equipment 14,268Intangible 8,483Investments recorded using the equity method 693Other assets 3,199Suppliers and other accounts payable (11,829)Debt (10,820)Income tax deferred and others (6,671)Employee benefits (1,144)Total identified assets, net 7,533Non-controlling interest (4,143)Goodwill 2,108Total consideration paid Ps 5,498

As a result of the transactions, goodwill was recorded in the amount of Ps2,108 at December 31, 2014, which was allocated to Sigma’s operating segment. The factors contributing to the recognition of goodwill include scale economies through combined opportunities, obtaining better operating margins in the packaging material and the exchange of best practices. Goodwill associated to this business combination is not deductible for income tax purposes.

The acquisitions item at December 31, 2014 corresponds mainly to the acquisition of shares of Campofrío made after the Public Offer of the non-controlling interest. Since control over Campofrío was obtaned. Consolidated statements of income include revenues of Campofrío of Ps17,572 from June 9 to December 31, 2014. Campofrío contributed a net income amounting to Ps223 in the same period. If the acquisition had taken place on January 1, 2014, Campofrío’s contribution to the consolidated revenues for the year ended December 31, 2014 would have amounted to Ps33,972 and net income to Ps226. The information on combined revenues and net income for the period does not include any savings in costs or other integration effects of Campofrío in ALFA. Consequently, these amounts are not necessarily indicative income had the acquisition occurred on January 1, 2014, or those that may result in the future.

After taking control of Campofrío, ALFA acquired additional indirect equity, as shown below:

Indirect equity of ALFA at June 9, 2014: 45.00%Acquisitions at December 31, 2014: 12.52%Indirect equity of ALFA at December 31, 2014: 57.52%

The acquisitions item at December 31, 2014 corresponds mainly to the acquisition of shares of Campofrío made after the Public Offer of the non-controlling interest. Since control over Campofrío was obtained as a result of the agreement with WH, these transactions have been accounted for as acquisitions of non-controlling interest. The difference between the accounting value of the non-controlling interest acquired and the price paid was recorded in retained earnings. Additionally, expenses derived from transaction costs related to the acquisition were made in the amount of Ps84.

Campofrío’s shares were listed in the Spanish Stock Exchange up to September 19, 2014, when they were unlisted.

h) InvestmentinPacificExploration&Production,Corporation(formerlyPacificRubialesEnergy)During 2014, ALFA acquired 59,897,800 ordinary shares from Pacific Exploration & Production, Corporation (PRE), which represents approximately 19% of the total outstanding shares, in the amount of Ps14,135. The shares were acquired in the Toronto, Canada stock market. PRE is a public company engaged in the exploration and production of oil and gas in Colombia, listed in Toronto and Canada’s stock markets.

This investment was recorded as “Financial assets available for sale”, and is shown as current assets and recorded at fair value. The changes in such value are recorded directly in stockholders’ equity. The accumulated effects of changes in the fair value are reclassified to income, when is sold or when there is an impairment in the value. At December 31, 2015 and 2014, changes in fair value of such investment resulted in a cumulative loss of Ps4,203 (Ps2,945 net of taxes) and Ps8,665 (Ps6,065 net of taxes) in 2015 and 2014, respectively. At this dates, through the analysis of objective evidence available, based on a significant decrease in the listing price of PRE’s share in the market, impairment in investment was concluded.

Due to this situation, at December 31, 2015 and 2014 an impairment loss was recorded for the total accumulated amount in stockholders’ capital mentioned in the paragraph above corresponding to PRE’s investment. This loss is shown in the income statement, as part of the financial cost, net.

2014i) Debt issuance of ALFA 144ADuring March 2014, ALFA issued a Senior Notes in international markets, in two segments with a nominal value of US$500 each one, the first maturing in 2024 (“Senior Notes-2024); and the second maturing in 2044 (“Senior Notes-2044”). Interest of both Senior Notes will be paid half-yearly as of September 2014 at a rate of 5.250% (effective interest rate of 5.34%) for Senior Notes-2014 and 6.875% (effective interest rate of 6.94%) for Senior Notes-2044. In relation to the Senior Notes, ALFA capitalized issuance costs in the amount of Ps193. The result of the issuance was used to fund projects related to energy, anticipate the payment of debt and general corporate purposes.

j) Extraordinary Stockholders´MeetingOn November 4, 2014, ALFA held a General Extraordinary Meeting where stockholders unanimously approved an increase in capital through the issuance of 400 million new shares with the same characteristics as those currently outstanding, which would be placed among the investment public, both local and foreign. The stockholders also approved cancelling 65.5 million of current shares kept in treasury.

The date to carry out the new issuance and conditions thereof would be determined in the short term. Once the new shares are issued and those in treasury are cancelled, the capital stock of ALFA would be represented by 5’534’500,000 series “A” shares.

Resolutions adopted in the aforementioned Meeting, such as the increase in capital, cancellation of shares in treasury and the offering of new shares depend upon obtaining the corresponding authorizations from authorities and organs regulating the securities market.

k) Starting operations in the cogeneration plantOn December 1, 2014, Cogeneración de Energía Limpia de Cosoleacaque, S.A. de C.V. (“Cogeneradora”) started operations derived from the agreement signed in 2012 to invest approximately US$130 million in a vapor and electric energy cogeneration plant. This cogeneration plant will generate approximately 95 megawatts, as well as enough vapor to cover the requirements of the facilities of PTA and PET of ALFA located in Cosoleacaque, Veracruz, México, providing electricity to other entities of ALFA in other regions.

For the implementation of this project, Grupo Petrotemex and its subsidiary Dak Resinas Américas México, S.A. de C.V. (both subsidiaries of the Alpek segment) created the aforementioned company at January 31, 2012. The project will increase the efficiency of the facilities, ensuring the supply of energy at low cost and less emissions.

l) Co-investment agreementOn September 26, 2013, the subsidiary Grupo Petrotemex signed a co-investment agreement with United Petrochemical Company (“UPC”), a subsidiary of Sistema JSFC (“Sistema”), for the construction of a plant integrated by PTA and PET in Ufa, Bashdortostán, Russia. The agreement established the creation of two new entities: “RusPET Holding B.V.” (“JVC”) and “RusPET Limited Liability Company” (“RusCo”), as well as those transactions of both entities reserved for the approval of both stockholders.

On December 6, 2013, the incorporation by-laws of JVC were signed. JVC issued initial capital for €8, of which UPC owns 51% (represented by ordinary Class A shares) acquired using a contribution of €4 and Grupo Petrotemex 49% (represented by Class B ordinary shares), acquired with a contribution of €4. During 2014, additional contributions were made amounting to Ps121.

Management carried out an analysis to evaluate whether ALFA has control over JVC in accordance to IFRS 10 “Consolidated Financial Statements” in order to evaluate if ALFA had control over JVC. Conclusions of such analysis indicate that at the date of acquisition and at December 31, 2013, ALFA has joint control and investment shall be treated as a joint venture investment and it shall be accounted for using the equity method.

Due to specific situations of UPC, during the month of December 2014, Grupo Petrotemex decided to terminate the agreement and sold the shares of JVC. The settlement agreement establishes a sales price of approximately Ps63 (€4). Based on the above, management recorded an impairment in its investment value of Ps127 (See Note 26) and it reclassified this investment, net of impairment, as an investment available for sale, shown in the statement of financial position within the item financial assets available for sale.

m) Construction of the plant in Russia by NemakDuring May 2014, Nemak started the construction of an aluminum auto parts plant for engines in Russia announced in 2013. The plant supply engine heads and aluminum blocks for a new high-technology engine for group Volkswagen in Russia. The initial capacity of the plant will be 600,000 equivalent units a year and it started production in 2015. At December 31, 2015 the Company has disbursed Ps946 related to the construction of this plant.


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Note 3 - Summary of significant accounting policies

The accompanying consolidated financial statements and notes were authorized for issuance on February 2, 2016, by officials with the legal power to sign the basic financial statements and accompanying notes.

The following are the most significant accounting policies followed by ALFA and its sub-sidiaries, 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 International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). IFRS include all International Accounting Standards (“IAS”) in force and all related interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), including those previously issued by the Standing Interpretations Committee (SIC).

The consolidated financial statements have been prepared on a historical cost basis, except for the cash flow hedges which are measured at fair value, and for the financial assets and liabilities at fair value through profit or loss with changes reflected in the statement of income and for financial assets available for sale.

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

b. Consolidationi. SubsidiariesThe subsidiaries are all the entities over which the Company has control. The Company controls an entity when it is exposed, or has the right to variable returns from its interest in the entity and it is capable of affecting the returns through its power over the entity. When the Company’s participation in subsidiaries is less than 100%, the share attributed to outside stockholders is reflected recorded as non-controlling interest. Subsidiaries are consolidated in full from the date on which control is transferred to the Company and up to the date it loses such control.

The method of accounting used by the Company for business combinations is the acquisition method.

The Company defines a business combination as a transaction in which obtains control over the business, by which has the power to conduct and manage the relevant activities of all assets and liabilities of the business with the purpose of provide a return in the form of dividends, lower costs or other economic benefits directly to investors.

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

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

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

Goodwill is initially measured as excess of the sum of the consideration transferred and the fair value of the non-controlling interest over the net identifiable assets and liabilities assured. If the consideration transferred is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated statement of income.

If the business combination is achieved in stages, the value in books at the acquisition date of the equity previously held by the Company in the acquired entity is remeasured at its fair value at the acquisition date. Any loss or gain resulting from such remeasurement is recorded in income of the year.

Transactions and intercompany balances and unrealized gains on transactions between ALFA companies are eliminated in preparing the consolidated financial statements. 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, 2015 and 2014, ALFA´s main subsidiaries are the following:

Percentage (%) of ownership (2) Functional

Country (1) 2015 2014 currency

Alpek(Petrochemicalsandsyntheticfibers)Alpek, S. A. B. de C. V. (Holding company) 85 85 Mexican peso

Grupo Petrotemex, S.A. de C.V. 100 100 US dollarDAK Americas, L.L.C. USA 100 100 US dollarDAK Resinas Americas México, S.A. de C.V. 100 100 US dollarDAK Americas Exterior, S. L. (Holding company) Spain 100 100 Euro

DAK Americas Argentina, S. A. Argentina 100 100 Argentine pesoTereftalatos Mexicanos, S.A. de C.V. 91 91 US dollarAkra Polyester, S.A. de C.V. 93 93 Mexican peso

Indelpro, S.A. de C.V. 51 51 US dollarPolioles, S.A. de C.V. (3) 50 50 US dollar

Unimor, S.A. de C.V. (Holding company) 100 100 Mexican peso Univex, S. A. 100 100 Mexican peso Grupo Styropek, S.A. de C.V. (4) 100 100 Mexican peso Styropek Mexico, S.A. de C.V. (7) 100 - Mexican peso Styropek SA (7) Argentina 100 - Argentine peso Aislapol SA (7) Chile 100 - Chilean peso Styropek Do Brasil (7) Brazil 100 - Real

Sigma (Refrigerated food)Sigma Alimentos, S.A. de C.V. (Holding company) 100 100 US dollar Alimentos Finos de Occidente, S.A. de C.V. 100 100 Mexican peso Grupo Chen, S. de R. L. de C. V. 100 100 Mexican peso Sigma Alimentos Lácteos, S.A. de C.V. 100 100 Mexican peso Sigma Alimentos Centro, S.A. de C.V. 100 100 Mexican peso Sigma Alimentos Noreste, S.A. de C.V. 100 100 Mexican peso Sigma Alimentos Exterior, S. L. (Holding company) Spain 100 100 Euro Bar-S Foods Co. USA 100 100 US dollar Mexican Cheese Producers, Inc. USA 100 100 US dollar Braedt, S. A. Peru 100 100 Nuevo sol Elaborados Cárnicos SA (7) Ecuador 100 - US dollar Corporación de Empresas Monteverde, S. A. Costa Rica 100 100 Colon Campofrío Food Group, S. A. (5) Spain 95 58 Euro Fábrica Juris Compañía Limitada (5) Ecuador 100 100 US dollar Comercial Norteamericana, S de R.L. de C.V. 100 100 Mexican peso


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Percentage (%) of ownership (2) Functional

Country (1) 2015 2014 currency

Nemak (Aluminum auto parts)Nemak, S. A. B. de C. V. (Holding company) 75 93 US dollar

Nemak, S. A. 100 100 US dollarModellbau Schönheide GmbH (6) Germany 100 90 Euro

Corporativo Nemak, S.A. de C.V. 100 100 Mexican peso Nemak Canadá, S.A. de C.V. (Holding company) 100 100 Mexican peso Nemak of Canada Corporation Canada 100 100 Canadian dollar Camen International Trading, Inc. USA 100 100 US dollar Nemak Europe GmbH (Holding company) Germany 100 100 Euro Nemak Exterior, S. L. (Holding company) Spain 100 100 Euro Nemak Dillingen GmbH Germany 100 100 Euro Nemak Wernigerode (GmbH) Germany 100 100 Euro Nemak Linz GmbH Austria 100 100 Euro Nemak Gyor Kft Hungary 100 100 Euro Nemak Poland Sp. z.o.o. Poland 100 100 Euro Nemak Nanjing Aluminum Foundry Co., Ltd. China 100 100 Yuan Nemak USA, Inc. USA 100 100 US dollar Nemak Aluminum do Brasil Ltda. Brazil 100 100 Real Nemak Argentina, S. R. L. Argentina 100 100 Argentine peso Nemak Slovakia, S.r.o. Slovakia 100 100 Euro Nemak Czech Republic, S.r.o. Czech Republic 100 100 Euro Nemak Rus, LLC. Russia 100 100 Russian ruble Nemak Aluminum Castings India Private, Ltd. India 100 100 Rupee Nemak Automotive Castings, Inc. USA. 100 100 US dollar

Alestra (Telecommunications)Alestra, S. de R. L. de C. V. 100 100 Mexican peso G Tel Comunicación, S.A.P.I. de C.V. 100 100 Mexican pesoNewpek (Natural gas and hydrocarbons)Newpek, S. A de C. V. Mexico 100 100 Mexican peso Oil and Gas Holding España, S.L.U. (Holding company) (formerly Alfa Energía Exterior, S.L.U.) Spain 100 100 Euro Newpek, L. L. C. USA 100 100 US dollarAlfasid del Norte, S.A. de C.V. 100 100 Mexican peso

Other companiesColombin Bel, S.A. de C.V. 100 100 US dollarTerza, S.A. de C.V. 51 51 Mexican pesoAlfa Corporativo, S.A. de C.V. 100 100 Mexican peso

(1) Companies incorporated in Mexico, except those indicated.

(2) Ownership percentage that ALFA has in the holding companies of each business group and ownership percentage that such holding companies have in the companies integrating the groups. Ownership percentages and the right to vote are one and the same.

(3) The Company owns 50% plus one share.

(4) Company incorporated in 2014.

(5) Companies acquired in 2014, see comments in Note 2.

(6) On May 2015, the 10% was acquired of the non-controlling interest.

(7) Companies acquired in 2015.

At December 2015 and 2014, there are no significant restrictions for investment in shares of subsidiary companies mentioned above.

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

iii. Sale or disposal of subsidiariesWhen the Company ceases to have control any retained interest in the entity is re-measured at fair value, and the change in the carrying amount is recognized in the income statement. The fair value is the initial carrying value for the purposes of accounting for any subsequent retained interest in the associate, joint venture or financial asset. Any amount previously recognized in comprehensive income in respect of that entity is accounted for as if the Company had directly disposed of the related assets and liabilities. This implies that the amounts recognized in the comprehensive income are reclassified to income for the year.

iv. AssociatesAssociates are all entities over which the Company has significant influence but not control. Generally an investor must hold between 20% and 50% of the voting rights in an investee for it to be an associate. Investments in associates are accounted for using the equity method and are initially recognized at cost. The Company’s investment in associates includes goodwill identified at acquisition, net of any accumulated impairment loss.

If the equity in an associate is reduced but significant influence is maintained, only a portion of the amounts recognized in the comprehensive income are reclassified to income for the year, where appropriate.

The Company’s share of profits or losses of associates, post-acquisition, is recognized in the income statement and its share in the 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 equity in the associate, including unsecured receivables, the Company does not recognize further losses unless it has incurred obligations or made payments on behalf of the associate.

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

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company´s equity in such gains. Unrealized losses are also eliminated unless the transaction provides evidence that the asset transferred is impaired. In order to ensure consistency with the policies adopted by the Company, the accounting policies of associates have been modified. When the Company ceases to have significant influence over an associate, any difference between the fair value of the remaining investment, including any consideration received from the partial disposal of the investment and the book value of the investment is recognized in the income statement.

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

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

c. Foreign currency translationi. Functional and presentation currencyThe amounts included in the financial statements of each of the Company’s subsidiaries and associates should be measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). In the case of Alfa, S.A.B. de C.V., the functional currency is determined to be the Mexican peso. The consolidated financial statements are presented in Mexican pesos, which is the Company’s presentation currency.


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As of March 15, 2015, the Company concluded that the most adequate functional currency of Sigma Alimentos S.A. de C.V. is the US dollar (“US$”) based on the economic environment wherein the entity generates and uses cash. This is due primarily to the fact that revenues from dividends and revenues from brand use, starting the aforementioned date are collected in US$. The previous functional currency was the Mexican peso and in accordance with the International Accounting Standard 21- “Effects of changes in foreign exchange rates” (“IAS 21”), the changes are made prospectively. At the date of the change in the functional currency, all assets, liabilities, capital and income statement items were translated into US$ at the exchange rate at that date.

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

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

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

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

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

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

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

c. The income, costs and expenses of the periods, expressed in the recording currency, were translated at the historical exchange rate of the date they were accrued and recognized in the 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. The differences in exchange arising in the translation from the recording currency to the functional currency were recognized as income or expense in the income statement in the period they arose.

Incorporation of subsidiaries whose functional currency is different from their presentation currency.

The results and financial position of all ALFA entities (none of which is in a 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 stockholders’ equity 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, to the exchange rate at the date of the transaction is used); and

d. All the resulting exchange differences are recognized in comprehensive income.

The goodwill and adjustments to fair value arising at the date of acquisition of a foreign operation so as 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 principal exchange rates in the various translation processes:

Local currency to Mexican pesosClosing exchange Average exchange

rate at rate at December 31, December 31,

Country Functional currency 2015 2014 2015 2014

Canada Canadian dollar 12.39 12.70 12.41 12.04USA US dollar 17.21 14.71 15.85 13.30Brazil Brazilian real 4.34 5.55 4.29 5.66Argentina Argentine peso 1.33 1.74 1.52 1.64Peru Nuevo sol 4.90 4.93 4.97 4.68Ecuador US dollar 17.21 14.71 15.85 12.04Czech Republic Euro 18.70 17.81 18.09 17.63Germany Euro 18.70 17.81 18.09 17.63Austria Euro 18.70 17.81 18.09 17.63Italy Euro 18.70 17.81 18.09 17.63France Euro 18.70 17.81 18.09 17.63Hungary Euro 18.70 17.81 18.09 17.63Poland Euro 18.70 17.81 18.09 17.63Slovakia Euro 18.70 17.81 18.09 17.63Spain Euro 18.70 17.81 18.09 17.63Russia Russian ruble 0.24 0.25 0.24 0.26China RenMinBi yuan 2.65 2.37 2.62 2.16India Indian rupee 0.26 0.23 1.25 0.22

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 which are subject to insignificant risk of changes in value. Bank overdrafts are presented as loans as a part of the current liabilities.

e. Restricted cash and cash equivalentsCash and cash equivalents whose restrictions cause them not to comply with the definition of cash and cash equivalents given above, are presented in a separate line in the statement of financial position and are excluded from cash and cash equivalents in the statement cash flows.

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, as well as 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. Loan and receivablesThe receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in 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 interest method. When circumstances occur that indicate that the amounts receivable will not be collected at the amounts originally agreed or will be collected in a different period, the receivables are impaired.


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iii. Maturity investmentsIf the Company intends and has the 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 are classified as non-current. Initially they are recognized at fair value plus any directly attributable transaction costs, and subsequently they are valued at amortized cost using the effective interest method. Investments held to maturity are recognized or derecognized on the day they are transferred to or by the Company. At December 31, 2015 and 2014, the Company had 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 in non-current assets unless their maturity is less than 12 months or 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 which 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 liabilities

Financial 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 are classified as non-current.

Trade payables are obligations to pay for goods or services that have been acquired or received from suppliers in the ordinary course of business. Loans are initially recognized at fair value, net of transaction costs incurred. Loans are initially recognized at fair value, net of transaction costs incurred. Loans are subsequently carried at amortized cost; any difference between the funds received (net of transaction costs) and the settlement value is recognized in the income statement over the term of the loan using the effective interest method.

Offsetting financial assets and 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 instruments

a. Financial assets carried at amortized costThe Company assesses at the end of each year whether 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 evaluated by 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 a likelihood that the issuer or debtor will enter 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 noncompliance by the issuers of the 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, when impairment exists, the amount of loss is measured as the 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 a current observable market price.

If in the subsequent years, the impairment loss decreases and the decrease can be related objectively to an event occurring after 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 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 reduction of approximately to 30% of the cost of the investment against its fair value or a reduction of the fair value against the cost for a period longer than 12 months is 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 to the income statement. Impairment losses recognized in the income statement related to equity financial instruments are not reversed through the consolidated 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 a subsequent event.

g. DerivativefinancialinstrumentsAll derivative financial instruments are identified and classified as fair value hedging hedges or cash flow hedges, for trading or the hedging of market risks and 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.

Derivative financial instruments classified as hedges are contracted for risk hedging purposes and meet all hedging requirements; their designation at the beginning of the hedging operation is documented, describing the objective, primary position, risks to be hedged and the effectiveness of the hedging relationship, characteristics, accounting recognition and how the effectiveness is to be measured.

Fair value hedgesChanges in the fair value of derivative financial instruments are recorded in the income statement. The change in fair value hedges and the change in the primary position attributable to the hedged risk are recorded in the income statement in the same line item as the hedged position. At December 31, 2015 and 2014, the Company has no derivative financial instruments classified as fair value hedges.

Cash flow hedgesThe changes in the fair value of derivative instruments associated to cash flow hedges are recorded in stockholders’ equity. The effective portion is temporarily recorded in comprehensive income, within stockholders’ equity and is reclassified to profit or loss when the hedged position affects these. The ineffective portion is immediately recorded in income.

Net investment hedgeNet investment hedge in a foreign business is recorded similarly to cash flow hedges. Any gain or loss of the related hedged instrument with the effective portion of the hedge is recorded in comprehensive income. The gain or loss of the ineffective portion is recorded in the statement of income. Accumulated gains and losses in equity are recorded in the statement of income when partially the foreign operation is partially disposed of or sold. At December 31, 2015 and 2014, the Company has no derivative financial instruments classified as net investment hedges.

Suspension of hedge accountingThe Company suspends the hedges 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 the fair value or the cash flow of the hedged item, or when the Company decides to cancel the hedges designation.


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On suspending hedge accounting, in the case of fair value hedges, the adjustment to the carrying amount of a hedged amount for which the effective interest rate method is used, is amortized to income over the period to maturity. In the case of cash flow hedges, the amounts accumulated in equity as a part of comprehensive income remain in equity until the time when the effects of the forecasted transaction affect income. In the event the forecasted transaction is not likely to occur, the income or loss accumulated in comprehensive income are immediately recognized in the income statement. When the hedge of a forecasted transaction appears satisfactory and subsequently does not meet the effectiveness test, the cumulative effects in comprehensive income in stockholders’ equity are transferred proportionally to the income statement, to the extent the forecasted transaction impacts it.

The fair value of derivative financial instruments reflected in the financial statements of the Company, is a mathematical approximation of their fair value. It is computed using proprietary models of independent third parties using assumptions based on past and present market conditions and future expectations at the respective balance sheet date.

h. InventoriesInventories are stated at the lower of cost and net realizable value. Cost is determined using the average cost method. The cost of finished goods and work-in-progress includes cost of product design, raw materials, direct labor, other direct costs and production overheads (based on normal operating capacity). It excludes borrowing costs. The net realizable value is the estimated selling price in the normal course of business, less the applicable variable selling expenses. Costs of inventories include any gain or loss transferred from equity corresponding to raw material purchases that qualify as cash flow hedges.

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

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flows to the Company and the cost of the item can be reliably measured. The carrying amount of the replaced part is derecognized. Repairs and maintenance are recognized in the income statement during the year they are incurred. Major improvements are depreciated over the remaining useful life of the related asset.

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

Buildings and construction 33 to 50 yearsMachinery and equipment 10 to 14 yearsTransportation equipment 4 to 8 yearsTelecommunications network 3 to 33 yearsFurniture and laboratory equipment and information technology 6 to 10 yearsTooling and spare 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 or more), are capitalized as part of the cost of acquiring such qualifying assets, up to the moment when they are suitable for their intended use or sale.

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

The residual value and useful lives of assets are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate.

Gains and losses on disposal of assets are determined by comparing the sale value with the carrying amount and are recognized in other expenses, net, in the income statement.

j. LeasesThe 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 lessor are classified as operating leases. Payments made under operating leases (net of incentives received by the lessor) 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 ownership are classified as finance leases. Finance leases are capitalized at the beginning of the lease, at the lower of the fair value of the leased property and the present value of the minimum lease payments. If its determination is practical, in order to discount the minimum lease payments to present value, the interest rate implicit in the lease is used; otherwise, the 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 element of the finance cost 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 over the shorter of the asset’s useful life and the lease term.

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

Intangible assets are classified as follows:

i) Indefinite useful life - These intangible assets are not amortized and are subject to annual impairment assessment. As of December 31, 2015 and 2014, no factors have been identified limiting the life of these intangible assets.

ii) Finite useful life - These assets are recognized at cost less accumulated amortization and impairment losses recognized. They are amortized on a straight line basis over their estimated useful life, determined based on the expectation of generating future economic benefits, and are subject to impairment tests when triggering events of impairment are identified.

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

Development costs 5 to 20 yearsExploration costs (1) -Trademarks 40 yearsCustomer relationships 15 to 17 yearsSoftware and licenses 3 to 11 yearsIntellectual property rights 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 proven reserves of hydrocarbons.

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

m. Development costsResearch 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 also has sufficient resources to complete the development and to use or sell the asset. Their amortization is recognized in income by the straight-line method over the estimated useful life of the asset. Development expenditures that do not qualify for capitalization are recognized in income as incurred.

n. Exploration costsThe 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 proven reserves when they are found. The costs of operating the wells and field equipment are recognized in the income statement as incurred.


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o. Intangible assets acquired in a business combinationWhen an intangible asset is acquired in a business combination it is recognized at fair value at the acquisition date. Subsequently, such assets are as follows: trademarks, customer relations, intellectual property rights, no-competition agreements, among others, are carried at cost less accumulated depreciation and accumulated impairment losses.

p. Impairmentofnon-financialassetsAssets 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 recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels at which separately identifiable cash flows exist (cash generating units). Non-financial long-term assets other than goodwill that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

q. Income taxThe amount of income taxes in the income statement represents the sum of the current and deferred income taxes.

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 at the balance sheet date wherever ALFA and its subsidiaries operate and generate taxable income. The applicable rates are applied to the total of the temporary differences resulting from comparing the accounting and tax bases of assets and liabilities in accordance with the years in which the deferred asset tax is realized or the deferred liability tax is expected to be settled, considering, when applicable, any tax loss carry forwards expected to be that are considered to be recoverable. The effect of a change in tax rates is recognized in the income of the period in which the rate change is enacted.

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

Deferred tax assets are recognized only when it is probable that future taxable profits will exist against which the deductions for temporary differences can be taken.

The deferred income tax on temporary differences arising from investments in subsidiaries and associates is recognized, unless the period of reversal of temporary differences is controlled by ALFA and it is probable that the temporary differences will not reverse in the near future.

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

r. Employeebenefitsi. 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 their service in the current and past periods. The contributions are recognized as employee benefit expense on the date that is required the contribution.

Defined benefit plans:

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

The liability recognized in the 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. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using discount rates in conformity with the IAS 19 that are denominated in the currency in which the benefits will be paid, and have maturities that approximate the terms of the pension liability.

Actuarial gains and losses from adjustments and changes in actuarial assumptions are recognized directly in stockholders’ equity in other items of the comprehensive income in the year they occur.

The Company determines the net finance expense (income) by applying the discount rate to the liabilities (assets) from net defined benefits.

Past-service costs are recognized immediately in the income statement

ii. Post-employment medical benefitsThe Company provides medical benefits to retired employees after termination of employment. The right to access these benefits usually depends on the employee´s having worked until retirement age and completing a minimum of years of service. The expected costs of these benefits are accrued over the period of employment using the same criteria as those described for defined benefit pension plans.

iii. Termination 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 in the first of the following dates: (a) when the Company can no longer withdraw the offer of these benefits, and (b) when the Company recognizes the costs from restructuring within the scope of the IAS 37 and it involves the payment of termination benefits. If there is an offer that promotes the termination of the employment relationship voluntarily by employees, termination benefits are valued based on the number of employees expected to accept the offer. Any benefits to be paid more than 12 months after the balance sheet date are discounted to their present value.

iv. Short-term benefitsThe Company provides 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 obligated or when past practice has created an obligation.

v. Employee participation in profit 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.

s. ProvisionsLiability provisions represent a present legal obligation or a constructive obligation as a result of past events where an outflow of resources to meet the obligation is likely and where the amount has been reliably estimated. Provisions are not recognized for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the value of money over time and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense.

When there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

A restructuring provision is recorded when the Company has developed a formal detailed plan for the restructure, and a valid expectation for the restructure has been created between the people affected, possibly for having started the plan implementation or for having announced its main characteristics to them.

t. Stock based compensationThe Company’s compensation plans are based on the market value of shares of Alfa, Alpek and Nemak in favor of certain senior executives of the Company and its subsidiaries. The conditions for granting such compensation to the eligible 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.


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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.

u. Treasury sharesThe Stockholders’ Meeting periodically authorizes a maximum amount for the acquisition of the Company’s own shares. Upon the occurrence of a repurchase of its own shares, they become treasury shares and the amount is charged to stockholders’ equity at purchase price: a portion to capital stock at its modified historical value, and the balance to retained earnings. These amounts are stated at their historical value.

v. Capital stockALFA’s common shares are classified as capital stock within stockholders’ equity. Incremental costs directly attributable to the issuance of new shares are included in equity as a deduction from the consideration received, net of tax. The capital stock includes the effect of inflation recognized up to December 31, 1997.

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

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

y. 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 similar discounts and after eliminating intercompany sales.

The Company grants discounts and incentives to customers, which are recognized as a deduction from income or as selling expenses depending on their nature. These programs include customer 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.

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.

- It is likely that future economic benefits will flow to the Company.

- The company retains 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 incoming services are recognized based on minutes of traffic processed by Alestra and processed by a third party, respectively.

- Installation revenues and related costs are recognized as income 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 stockholders 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.

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

aa. Changes in accounting policies and disclosuresThe following accounting policies were adopted by the Company beginning January 1, 2015 and did not have a material impact on the Company:

• Annual improvements to the IFRS - cycle 2010-2012 and cycle 2011-2013

• Defined benefit plans: Contributions - Changes to IAS 19

The adoption of these changes had no impact in the current period or any previous periods and it is not likely to affect future periods.

bb. New accounting pronouncementsA new number of standards, amendments and interpretations to the accounting policies have been published, which are not effective for reporting periods at December 31, 2015, and have not been adopted in advance by the Company. The Company’s assessment of the effects of these new standards and interpretations are detailed below:

IFRS 9 - “Financial instruments “, addresses the classification, measurement and recognition of financial assets and liabilities and introduces new rules for hedge accounting. In July 2014, the IASB made additional changes to the classification and measurement rules and also introduced a new impairment model. These last changes now comprise the entire new financial instruments standard. Following the approved changes, the Company no longer expects any impact from the new rules of classification, measurement and decrease of its financial assets or liabilities. There will be no impact on the Company’s accounting from financial liabilities, since the new requirements only affect financial liabilities at fair value through income and the Company has no such liabilities. The new hedge rules pair up the Company’s hedge accounting and risk management. As a general rule, the hedge accounting will be much easier to apply since the standard introduces an approach based on principles. The new standard introduces extensive disclosure requirements and changes in presentation, which will continue to be assessed by the Company. The new impairment model is a model of expected credit losses; therefore, it would result in advance recognition of credit losses. The Company continues assessing how its hedge agreements and impairment provisions are affected by the new rules. The standard is effective for the periods beginning on or after January 1, 2018. Early adoption is allowed.

IFRS 15 - “Revenue from contracts with customers”, is a new standard issued by the IASB for revenue recognition. This standard replaces IAS 18 “Revenues”, IAS 11 “Construction contracts”, as well as the interpretations to the aforementioned standards. The new standard is based on the fact that revenue should be recorded when the control over the good or different service is transferred to the customer, so that this control notion replaces the existing notion of risks and benefits.

The standard allows for a complete retrospective approach and a modified retrospective approach for its adoption. The Company is assessing which of the two approaches it can use and to date, it considers that the modified retrospective approach might be used for adoption. Under this approach the entities will recognize adjustments from the effect of initial application (January 1, 2018) in retained earnings in the financial statements at December 2018 without restating comparative periods, by applying the new rules to contracts effective as of January 1, 2018 or those that even when held in prior years continue to be effective at the date of initial application.

For disclosure purposes in the financial statements at 2018, the amounts of affected items must be disclosed, considering the application of the current revenue standard, as well as an explanation of the reason for the significant changes made.

Management is assessing the new standard and has identified probable impacts, mainly in the automotive and telecommunication sectors. The most relevant issues being assessed by Management are mentioned below:

• Depending on the contractual agreement, contracts that are currently considered as separate might have to be combined.

• The Company will have to identify, in customer contracts, the promises of goods and services qualifying as different compliance obligations and compliance obligations might arise additional to those currently considered, or vice versa, which may result in changes at the time of the revenue recognition. Upon the distribution of revenues among each compliance obligation not previously identified, based on their related fair value, the amount of revenues to be recorded for each compliance obligation might also change, which could change the time of recognition of the compliance obligation, even though there is no change in the total amount of revenues per contract.


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• In the case of goods and services that under the new standard do not qualify as compliance obligations that may be separated, the costs to comply with the contract, such as production costs associated with these goods and services, may have to be capitalized instead of recognized as expenses when incurred. Also, the incremental costs to acquire contracts, such as commissions, might have to be deferred and recognized during the term of the contract instead of being recognized immediately in income.

• The company is assessing if in any of the cases the time of revenue recognition might change from “at a point in time”, to “through time”, in case all standard conditions are met, when dealing with the manufacturing of goods without any alternative use for other customer, when there is a collection right for the work done.

At this stage, it is not possible for the Company to estimate the impact of this new standard in its financial statements. The Company will perform a more detailed assessment of the impact in the next 12 months.

The standard is effective for periods starting in or after January 1, 2018; however, its advance application is allowed.

IFRS 16 - “Leases”. The IASB issued in January 2016 a new standard for lease accounting. This standard will replace current standard IAS 17, which classifies leases into financial and operating. IAS 17 identifies leases as financial in nature when the risks and benefits of an asset are transferred, and identifies the rest as operating leases. IFRS 16 eliminates the classification between financial and operating leases and requires the recognition of a liability showing future payments and assets for “right of use” in most leases. The IASB has included some exceptions in short-term leases and in low-value assets. The aforementioned amendments are applicable to the lease accounting of the lessee, while the lessor maintains similar conditions to those currently available. The most significant effect of the new requirements is shown in an increase in leasing assets and liabilities, also affecting the statement of income in depreciation expenses and financing of recorded assets and liabilities, respectively, and decreasing expenses relative to leases previously recognized as operating leases. At the date of issuance of these financial statements, the Company has not quantified the impact of the new requirements. The standard is effective for periods starting on or after January 1, 2019, allowing for the advance adoption if the IFRS 15 is also adopted.

There are no other additional standards, amendments, or interpretations issued but not effective that might have a significant impact on the Company.

Note 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 on fair value), credit risk and liquidity risk. The Company’s risk management plan considers the unpredictability of the financial markets and seeks to minimize the potential negative effects on the financial performance of the Company. The Company uses derivative financial instruments to hedge some risk exposures.

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 hedges of input prices.

ALFA has a Risk Management Committee (the “Committee”), consisting of the Chairman, the Chief Executive Officer, the Chief Financial Officer of the Company, and a financial executive of the Company who acts as technical secretary. The Committee 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$

CumulativeIndividual 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, and that they are the result of a fundamental analysis and properly documented. Sensitivity analysis and other risk analysis should be performed before the operation is carried out.

a. Market risk(i) Exchange rate risk

The 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 US dollar and the Euro are very important factors for ALFA due to the effect they have on their results. Moreover, ALFA has no influence over their movements. ALFA estimates 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 they come from products that are manufactured and sold abroad, or because even if sold in Mexico the price of such products are set based on international prices in foreign currencies such as the US 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’s profit margins have been reduced. On the other hand, when the Mexican peso had lost value, ALFA’s profit margins have been increased. However, although this factor correlation has appeared on several occasions in the recent past, there is no assurance that it will be repeated if the exchange rates between the Mexican peso and other currencies fluctuate again.

The Company participates in operations with derivative financial instruments on exchange rates for the purpose of controlling the total comprehensive cost of its financing and the volatility associated with exchange rates. Additionally, it is important to note the high “dollarization” of the Company’s revenues, since a large proportion of its sales are made abroad, providing a natural hedge against its obligations in dollars, while at the same time its income level is affected in the event exchange rate appreciation. Based on the overall exchange rate exposure at December 31, 2015 and 2014, a hypothetical variation of 5% in the exchange rate MXN/USD, holding all other variables constant, would result in an effect on the income statement by Ps234 and Ps76, respectively:

The risk management policy of the Company is to cover as a maximum the following percentages with respect to the predicted exposure:

Current year Prior year

Commodities 90 90Energy costs 65 65Exchange rate for operating transactions 70 70Exchange rate for financial transactions 90 90Interest rates 90 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, principally.

In recent years, the price of some inputs have shown volatility, especially those related to 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 this 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 its products.


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

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 in South Texas, USA, which has experienced volatility. For its part, the CFE is a decentralized public company in charge of producing and distributing electricity in Mexico. Electricity rates have also been influenced by the volatility of natural gas, since most power plants are gas-based.

The Company entered into various derivative agreements with various counterparties to protect it against increases in prices of natural gas and other raw materials. In the case of natural gas derivatives, hedging strategies for products were designed to mitigate the impact of potential increases in prices. The purpose is to protect the price from volatility by taking positions that provide stable cash flow expectations, and thus avoid price uncertainty. The reference market price for natural gas is the Henry Hub New York Mercantile Exchange (NYMEX). The average price per MMBTU for 2015 and 2014 was 2.60 US dollars and 4.32 US dollars, respectively.

At December 31, 2015 and 2014, the Company had hedges of natural gas prices for a portion expected of consumption needs in Mexico and the United States. Based on the general input exposure at December 31, 2015 and 2014, a 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 immaterial effect on the income statement for 2015 and 2014.

(iii) Interest rate and cash flow risk

The interest rate risk for 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.

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

At December 31, 2015, 40% of the debt is denominated under a fix rate and 60% under variable rate. See Note 17.

At December 31, 2015 and 2014, if interest rates on variable rate loans were increased/decreased by 10%, interest expense would increase/decrease by Ps22.0 and Ps7.4, 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 wholesale customers are rated independent, these are the ratings used. If there is no independent rating, the Company´s risk control group evaluates the creditworthiness of the customer, taking into account their financial position, past experience and other factors.

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 in cash or by credit card.During 2015 and 2014, credit limits were not exceeded and management does not expect losses in excess of the impairment recognized in 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, significant estimates have to be made. 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 appropriate timing for the recognition of allowances, including historical collection experience, customer base, current economic trends and the ageing of the accounts receivable portfolio.

c. Liquidity riskProjected cash flows are determined at each operating entity of the Company and subsequently the finance department consolidates this information. The finance department of the Company continuously monitors the cash flow projections and liquidity requirements of the Company ensuring that sufficient cash and highly liquid investments are maintained to meet operating needs, and it’s that some flexibility is maintained through open and committed credit lines. The Company regularly monitors and makes decisions ensuring that the limits or covenants set forth in debt contracts are not violated. The projections consider the financing plans of the Company, compliance with covenants, compliance with minimum liquidity ratios and internal legal or regulatory requirements.

The Company’s treasury 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, 2015 and 2014, the Company had time deposits of Ps14,881 and Ps11,934, respectively, which are considered sufficient to adequately manage liquidity risk.

The following table analyzes the derivative and non-derivative, grouped according to their maturity, from the balance sheet 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 the Company’s cash flows. The amounts disclosed in the table are contractual undiscounted cash flows.

From From Less than 1 to 2 2 to 5 More than 5

a year years years years

At December 31, 2015Suppliers and other accounts payable Ps 52,552 Ps - Ps - Ps -Current and non-current debt (excluding debt issuance costs) 3,121 9,836 30,476 62,018Derivative financial instruments 848 711 - -Other liabilities 207 358 - -

At December 31, 2014Suppliers and other accounts payable Ps 47,655 Ps - Ps - Ps -Current and non-current debt (excluding debt issuance costs) 13,842 29,448 43,450 41,357Derivative financial instruments 760 1,092 - -Other liabilities 899 420 - -

ALFA expects to meet its obligations with cash flows generated by operations. Additionally ALFA has access to credit lines with various banks to meet 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 stockholders and benefits for other stakeholders and to maintain an optimal capital structure so as to reduce the cost of equity.

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

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 was 2.34 and 2.36 at December 31, 2015 and 2014, respectively. Resulting in a leverage to meet the risk management policies of the Company.

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

- Level 1: Quoted prices for identical instruments in active markets.- Level 2: Other valuations including quoted prices for similar instruments in active markets that are directly or indirectly

observable.- Level 3: Valuations made through techniques wherein one or more of their significant data inputs are unobservable.


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The following table presents the ALFA’s assets and liabilities that are measured at fair value at December 31, 2015:

Assets Level 1 Level 2 Level 3 Total

Financial assets available for sale current Ps 1,270 Ps - Ps - Ps 1,270Financial assets at fair value through profit or loss:- Trading derivatives - 203 - 203Financial assets available for sale non-current - - 336 336Total assets Ps 1,270 Ps 203 Ps 336 Ps 1,809

Liabilities Level 1 Level 2 Level 3 Total

Financial liabilities at fair value through profit or loss:- Trading derivatives Ps - Ps 3 Ps - Ps 3Derivatives used for hedging 1,556 - 1,556Employees’ benefits based on shares 565 - - 565Total liabilities Ps 565 Ps 1,559 Ps - Ps 2,124

The following table presents the ALFA’s assets and liabilities that are measured at fair value at December 31, 2014:

Assets Level 1 Level 2 Level 3 Total

Financial assets available for sale current Ps 5,472 Ps 141 Ps - Ps 5,613Financial assets at fair value through profit or loss:- Trading derivatives - 35 - 35Derivatives used for hedging - 15 - 15Financial assets available for sale non-current - - 268 268Total assets Ps 5,472 Ps 191 Ps 268 Ps 5,931

Liabilities Level 1 Level 2 Level 3 Total

Financial liabilities at fair value through profit or loss:- Trading derivatives Ps - Ps 85 Ps - Ps 85Derivatives used for hedging - 1,834 - 1,834Employees’ benefits based on shares 622 - - 622Total liabilities Ps 622 Ps 1,919 Ps - Ps 2,541

There were no transfers between levels 1 and 2, or between levels 2 and 3 in the reported periods.

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 calculated as the present value of estimated future cash flows based on observable

yield curves.- The fair value of forward exchange contracts 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 are used to determine fair value for the

remaining financial instruments.

Level 1The fair value of financial instruments traded in active markets is based on quoted market 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 regular market transactions at arm-length conditions. The trading price used for financial assets held by ALFA is the current bid price.

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 rely 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 is not based on observable market data, the instrument is classified at Level 3.

The following table presents the movement in Level 3 instruments for the years ended December 31, 2015 and 2014:

Financial assetsavailable

for sale

Beginning balance at January 1, 2014 Ps 227Purchases 41Final balance at December 31, 2014 268Purchases 68Final balance at December 31, 2015 Ps 336

Note 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 with the established accounting policy (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.

b. Income taxThe 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. If income before taxes increases/decreases by 5%, income tax will be increased/decreased by Ps33.

c. Fair value derivativesThe 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 based mainly on market conditions existing at the end of each reporting period. If the fair value estimation varies by 5%, the effect on income would be modified by Ps9.

d. 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 sensitivity to 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.

5.2 Critical judgments in applying the entity´s accounting policiesa. Revenue recognitionThe Company has recognized revenue amounting to Ps248,049 for sales of goods to third parties in the Nemak, Sigma and Alpek segments during 2015. The buyer has the right to return the goods if their customers 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 Ps600.


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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 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 and Indelpro, where the determination of control is not clear. Based on the principal substantive right of Alpek in accordance with the by-laws of Polioles to appoint the General Director, who has control over the relevant decision making and based on the by-laws of Indelpro and supported in the General Law of Mercantile Organizations, which allow Alpek to control the decisions over relevant activities by a simple majority through an Ordinary Stockholders’ Meeting, where it holds 51% of Indelpro. Management has concluded that there are circumstances and factors described in the by-laws of Polioles and applicable standards that allow the Company to conduct the daily operations of Polioles and Indelpro, which 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 and Indelpro, Polioles and Indelpro will need to be deconsolidated and be recorded using the equity method.

c. Impairment in financial assets available for saleThe IFRS standards require that when there are objective signs of impairment in an investment available for sale, the corresponding loss be recorded in the income statement; however, it does not establish the item within the income statement where this loss has to be presented.

The Company considers the nature and objective for which it made the investment in PRE, which was initially acquired as a strategic financial investment for ALFA and as of the date of acquisition and up to December 31, 2014, the different options held by the Company have been assessed. Based on the market conditions and the energy sector and corporate plans of ALFA, the investment in PRE, could be increased, sold or it could establish joint ventures with PRE to perform joint operations in the energy sector in Mexico, which is estimated to happen in a period not to exceed twelve months. ALFA has 19% of the capital of PRE and has publicly declared its intention to participate jointly with PRE in projects in the energy sector in Mexico; however, these intentions are subject to future not yet established. Due to the aforementioned situations, ALFA considers that this investment is not part of its operations with the Energy sector and that the most adequate presentation in the statement of income of the loss incurred in this investment (see Note 28), is as part of the financial income (loss), net.

d. Recognition of deferred tax assetsALFA, individually, has tax losses to be applied arising mainly from significant losses in transactions with derivative financial instruments in 2008 and 2009, which may be used in the following years and whose maturity starts in 2018.

Based on the projections of tax income and gains to be generated by ALFA individually in the following years through a structured and solid business plan, including the sale of non-strategic assets, new services to be provided to entities of the group, among others, management has considered that the current tax losses will be used before they expire; therefore, it has considered appropriate to recognize a deferred tax asset for such losses.

Note 6 - Cash and cash equivalents

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

At December 31,2015 2014

Cash and bank accounts Ps 9,970 Ps 4,735Short-term bank deposits 14,882 11,934Total cash and cash equivalents Ps 24,852 Ps 16,669

Note 7 - Restricted cash and cash equivalents

The value of restricted cash is composed as follows:


Current (a) Ps 463 Ps 504Non-current, (See Note 14) (a) and (b) 237 198Restricted cash Ps 700 Ps 702

a) Applies to deposits relating to lawsuits with authorities arising from differences in the interpretation of some laws in countries where two subsidiaries operate relating to Nemak segment.

b) This restricted cash is for proceedings before The Mexican Federal Telecommunications Commission in connection with a 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 tariff rates for interconnection of traffic telecommunication networks applicable during 2010 and the interconnection traffic of long distance (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.

The restricted cash representing the balance of the trust is presented in the statement of financial position within non-current assets. At December 31, 2015 and 2014, the balance of the trust was Ps148 and Ps145 respectively

composed of contributions by Alestra and corresponding yields.

Note 8 - Customers and other accounts receivable, net


Customers Ps 24,711 Ps 22,805Recoverable taxes 1,478 2,186Interest receivable 18 5Other debtors:

Sundry debtors 7,306 6,430Notes receivable 1,571 904

Provision for impairment of customers and other accounts receivable (762) (1,069) 34,322 31,261

Less: non-current portion (1) 844 904Current portion Ps 33,478 Ps 30,357

(1) The non-current accounts receivable represent long-term receivables and other non-current assets, and are presented in the statement of financial position in other non-current assets.

Customers and other accounts receivable include past-due balances of Ps3,961 and Ps4,418 at December 31, 2015 and 2014, respectively.


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

At December 31, 2015 2014

1 to 30 days Ps 2,054 Ps 1,89630 to 90 days 558 84090 to 180 days 337 302More than 180 days 1,012 1,380 Ps 3,961 Ps 4,418

At December 31, 2015 and 2014, trade and other accounts receivable of Ps35,082 and Ps29,235, respectively have an impairment provision (represented by customers and sundry debtors). The amount of the impairment provision at December 31, 2015 and 2014 amounts to Ps762 and Ps1,069, respectively. Trade and other accounts receivable impaired correspond mainly to companies going through difficult economic situations. Part of the impaired accounts is expected to be recovered.

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

2015 2014

Beginning balance (January 1) Ps 1,069 Ps 592Provision for impairment of customers and other receivables 157 604Receivables written off during the year (464) (127)Final balance (December 31) Ps 762 Ps 1,069

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

Note 9 - Inventories


Finished goods Ps 10,631 Ps 10,110Raw material and other consumables 16,013 13,343Work in progress 7,484 7,305 Ps 34,128 Ps 30,758

The cost of inventories recognized as an expense and included in “cost of sales” amounted to Ps204,312 and Ps187,705 for 2015 and 2014, respectively.

For the years ended on December 31, 2015 and 2014 damaged, slow-moving and obsolete inventory was charged to cost of sales in the amount of Ps32 and Ps167, respectively.

At December 31, 2015 and 2014 there were no inventories pledged.

Note 10 - Financial instruments

a. Financial instruments by categoryAt December 31, 2015

Accounts Financial assetsReceivable and and liabilities at Derivative

Liabilities at fair value contractedamortized Available through profit as

cost for sale and loss hedges Total

Financial assets:Cash and cash equivalents Ps 24,852 Ps - Ps - Ps - Ps 24,852Restricted cash 700 - - - 700Customers and other accounts receivable 33,478 - - - 33,478Derivative financial instruments - - 203 - 203Financial assets available for sale - 1,269 - - 1,269Other non-current assets 844 - - - 844 Ps 59,874 Ps 1,269 Ps 203 Ps - Ps 61,346

Financial liabilities:Debt Ps 107,209 Ps - Ps - Ps - Ps 107,209Accounts payable to suppliers and other 52,229 - - - 52,229Derivative financial instruments - - 3 1,556 1,559Other non-current liabilities 825 - 358 - 1,183 Ps 160,263 Ps - Ps 361 Ps 1,556 Ps 162,180

At December 31, 2014Accounts Financial assets

Receivable and and liabilities at DerivativeLiabilities at fair value contracted

amortized Available through profit ascost for sale and loss hedges Total

Financial assets:Cash and cash equivalents Ps 16,669 Ps - Ps - Ps - Ps 16,669Restricted cash 702 - - - 702Customers and other accounts receivable 30,357 - - - 30,357Derivative financial instruments - - 35 15 50Financial assets available for sale - 5,881 - - 5,881Other non-current assets 921 - - - 921 Ps 48,649 Ps 5,881 Ps 35 Ps 15 Ps 54,580

Financial liabilities:Debt Ps 92,203 Ps - Ps - Ps - Ps 92,203Accounts payable to suppliers and other 47,655 - - - 47,655Derivative financial instruments - - 85 1,767 1,852Other non-current liabilities 479 - 420 - 899 Ps 140,337 Ps - Ps 505 Ps 1,767 Ps 142,609


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b.CreditqualityoffinancialassetsThe 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 16 Ps 62“A+” 1,301 676“A-” 255 116“BB+” 9 375“BBB+” 49 350“BBB” 584 97“BBB-” 121 1,193“BB” 23 159 “BB-” 1,148 185Other categories 709 4,681

Ps 4,215 Ps 7,894

Counterparties without external credit rating:Group X Ps 2,087 Ps 1,452Group Y 11,133 8,072Group Z 5 461

13,225 9,985Total unimpaired trade receivables Ps 17,440 Ps 17,879

Cash and cash equivalents with and without restrictions, except for cash in hand:

“A” Ps 14 Ps 8,749“A+” 7,449 455“A-” 96 787“BBB+” 7,559 -“BBB-” 672 520

Ps 15,790 Ps 10,511

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 – current customers/related parties (more than 6 months) with some defaults in the past. All past-due amounts were fully recovered.

c.FairvalueoffinancialassetsandliabilitiesvaluedatamortizedcostThe amounts of cash and cash equivalents, restricted cash, 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 at December 31, 2015 and 2014.

The carrying value and estimated fair value of financial assets and financial liabilities carried at amortized cost are as follows:

At December 31, 2015 At December 31, 2014

Carrying Fair Carrying Fairamount value amount value

Financial assets:Non-current accounts receivable Ps 844 Ps 836 Ps 921 Ps 921

Financial liabilities:Non-current debt 101,631 102,345 81,489 87,075

The estimated fair values as of December 31, 2015 and 2014 were determined based on discounted cash flows using rates that reflect a similar credit risk depending on the currency, maturity period and country where the debt was incurred. As part of the main rates used are the interbank equilibrium interest rate (“TIIE”) for the instruments in pesos and Libor for instruments held in dollars. These fair values do not consider the current portion of financial assets and liabilities, as the current portion approximates their fair value. This is a measure of fair value of Level 3.

d.DerivativefinancialinstrumentsThe effectiveness of derivative financial instruments designated as hedges is measured periodically. At December 31, 2015 and 2014, the Company’s management has assessed the effectiveness of its hedges for accounting purposes and has concluded that they are highly effective.

Notional amounts related to derivative financial instruments reflect the contracted reference volume; however they do not reflect the amounts at risk with respect to future cash flows. The amounts at risk are generally limited to the unrealized profit or loss from the 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 principal obligations which the Company is subject to depends on the type of contract and the conditions established in each one of the derivative financial instruments in force at December 31, 2015 and 2014.

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 years ended December 31, 2015 and 2014, the Company had no effects from ineffective portions of fair value and cash flows hedges.

During the last quarter of 2015, the following transactions in financial derivatives in Nemak were made, as detailed below:

Cancellation of Cross Currency Swap MXN / USD:

In December 2015, the Company paid in advance the total of its stock certificates amounting to Ps3,500. Consistent with this prepaid, also canceled the “Cross Currency Swap” which converted via derivatives, the loan from MXN to USD. The “Cross Currency Swap” was acquired as a hedging transaction at an average exchange rate of Ps12.30, therefore Ps3,500 were converted to US$285 (Ps4,904).

The cancellation of the derivative resulted in an expense of US$83 (Ps1,412); however, it should be noted that the exchange rate MXN / USD at the time of completion was 17.01 Mexican pesos, so Ps3,500 equivalent at that time to US$206 (Ps3,504). These derivatives were designated as fair value hedges.


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Cancellation of Cross Currency Swap EURO-USD

In November 2015, the Company terminated in advance a trading derivative that had contracted since 2012 in order to increase exposure to the EURO, given the growing activities in that region. The transaction was agreed at a level of exchange of 1.25 USD per EURO. The instrument had a remaining balance of €31 and final maturity in 2016. At the time of cancellation, the exchange rate USD / EURO was approximately 1.06 resulting in a redemption value for Nemak of US$5.3 (Ps89).

Cancellation of natural gas derivative

In December 2015, Nemak terminated in advance a hedge operation on 40% of its volume of consumption of energy for its operations in North America. The early cancellation was decided in anticipation of further declines in the price of this input. The termination of these hedges resulted in an expense for Nemak of US$27.7 (Ps476). At 31 December 2015, the balance in accumulated other comprehensive income related to this coverage is Ps329. This amount will be reclassified to income statement as the forecasted transaction.

a. Forward exchange contractsPositions in foreign currency derivative financial instruments are summarized as follows:

At December 31, 2015Value of

underlying asset Maturity by yearType of derivative, Notional Collateral /value or contract amount Units Reference Fair value 2016 2017 2018+ guarantee

For hedging purposes:USD/MXN Ps (688) Peso/Dollar 17.21 Ps (13) (Ps 13) Ps - Ps - Ps -ARS/USD 800 PsArg/Dollar 12.94 203 203 - - - Ps 190 Ps 190 Ps - Ps - Ps -



For hedging purposes:USD/MXN (CCS(1)) (2) Ps (3,500) Peso / Dollar 14.72 Ps (755) (PS 38) Ps (340) Ps (377) Ps -For trading purposes:EURO/USD (CCS (1)) Ps 925 Dollar / Euro 1.21 35 14 21 - -USD/MXN (986) Peso/Dollar 14.72 (73) (73) - - - Ps (793) Ps (97) Ps (319) Ps (377) Ps -

(1) Cross currency swaps(2) Fair value hedges

b. Interest rate swapsPositions in interest rate derivative financial instruments are summarized as follows:



For hedging purposes:on Libor (1) Ps 589 % per year 0.90 Ps (10) Ps (8) Ps (2) Ps - Ps - Ps (10) Ps (8) Ps (2) Ps - Ps -

(1) Cash flows hedges

c. CommoditiesPositions in derivative financial instruments covering natural gas, gasoline and ethylene are summarized as follows:



For hedging purposes:Ethylene (1) Ps 809 Cent Dollar / lb 19.22 Ps (230) Ps (230) Ps - Ps - Ps -Natural gas (1) 2,923 Dollar / MBTU 2.32 (961) (250) (204) (507) -Ethane (1) 46 Cent Dollar/ Gallon 15.05 (5) (5) - - -Px (1) 3,252 Dollar / MT 772 (309) (309) - - -Gasoline (1) 72 Dollar / Gallon 1.25 (38) (38) - - -

For trading purposes:Crude Brent 5 Dollar / BBL 38.91 (3) (3) - - - Ps (1,546) Ps (835) Ps (204) Ps (507) Ps -



For hedging purposes:Ethylene (1) Ps 7 Cent Dollar / lb 45.38 Ps (1) Ps (1) Ps - Ps - Ps -Natural gas (1) 3,802 Dollar / MBTU 3.08 (379) (18) (144) (217) -Ethane (1) 2 Cent. Dollar / Gallon 17.59 (1) (1) - - -Px (1) 1,585 Dollar / MT 884 (308) (308) - - -Gasoline 1,023 Dollar / Gallon 1.62 (380) (380) - - -Crude WTI (1) 39 Dollar / BBL 59.29 15 15 - - -For trading purposes:Crude Brent 46 Dollar / BBL 63.27 (12) (12) - - - Ps (1,066) Ps (705) Ps (144) Ps (217) Ps -

(1) Cash flows hedges


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At December 31, 2015 and 2014, the net fair value of derivative financial instruments above amounts to Ps1,356 and Ps1,802, respectively, which is shown in the consolidated statements of financial position as follows:

At December 31, 2015Fair Initial Net

value position value

Current assets Ps 203 Ps - Ps 203Current liabilities (848) - (848)Non-current liabilities (711) - (711)Net position Ps (1,356) Ps - Ps (1,356)

At December 31, 2014Fair Initial Net

value position value

Current assets Ps 23 Ps - Ps 23Non-current assets 27 - 27Current liabilities (760) - (760)Non-current liabilities (1,159) 67 (1,092)Net position Ps (1,869) Ps 67 Ps (1,802)

Note 11 - Other current assets

Other current assets consist of the following:


Prepaid expenses (1) Ps 1,224 Ps 1,242Accounts receivable – affiliates (Note 8) 1,713 177Total other current assets Ps 2,937 Ps 1,419

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

Of the total depreciation expense, Ps8,455 and Ps6,764 were charged to cost of sales, Ps509 and Ps440 to selling expenses and Ps473 and Ps412 to administrative expenses in 2015 and 2014, respectively.

At December 31, 2015 and 2014, there were no property, plant and equipment pledged as collateral.

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


Cost - capitalized financial lease Ps 383 Ps 1,648Accumulated depreciation (238) (343)Carrying value, net Ps 145 Ps 1,305

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.

Note 12 - Property, plant and equipmentFurniture,

Telecommuni fittings and Tooling Improvements Buildings and Machinery Transportation cation information and Construction to leased Other Land constructions and equipment equipment network technology spare parts in process property fixed assets Total

Year ended December 31, 2014Opening net book amount Ps 7,122 Ps 11,737 Ps 41,034 Ps 1,314 Ps 4,104 Ps 891 Ps 192 Ps 7,141 Ps 329 Ps 110 Ps 73,974Exchange difference 273 886 3,602 20 2 50 14 314 - 6 5,167Additions 364 390 1,217 115 46 137 1 7,853 18 32 10,173Additions from business combinations 1,681 5,320 6,092 31 - 192 - 820 - (42) 14,094Disposals (101) (284) (800) (33) (6) (10) (1) (476) (61) (8) (1,780)Impairment charge recognized in the year (1) - (15) - - - - (2) - (5) (23)Depreciation charge recognized in the year - (791) (5,254) (313) (697) (363) (171) - (31) 3 (7,617)Transfers (312) 1,249 6,052 83 704 389 267 (8,528) 30 (14) (80)Carrying amount at December 31, 2014 Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908

At December 31, 2014Deemed cost Ps 9,026 Ps 31,694 Ps 115,741 Ps 3,291 Ps 13,039 Ps 5,007 Ps 996 Ps 7,122 Ps 545 Ps 249 Ps 186,710Accumulated depreciation - (13,187) (63,813) (2,074) (8,886) (3,721) (694) - (260) (167) (92,802)Carrying amount at December 31, 2014 Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908

Year ended December 31, 2015Opening net book amount Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908Exchange difference 495 1,572 5,920 34 6 218 32 525 1 14 8,817Additions 235 135 1,470 498 20 123 - 10,661 34 119 13,295Additions from business combinations 90 170 326 20 - 24 - 19 - 5 654Disposals (9) (298) (30) (15) (1) (19) - (151) (3) (2) (528)Impairment charge recognized in the year (16) - (263) (1) - - - (27) - (2) (309)Depreciation charge recognized in the year - (967) (6,659) (331) (751) (492) (221) - (26) (14) (9,461)Transfers (31) 926 5,742 95 1,127 380 219 (8,398) 10 (70) -Carrying amount at December 31, 2015 Ps 9,790 Ps 20,045 Ps 58,434 Ps 1,517 Ps 4,554 Ps 1,520 Ps 332 Ps 9,751 Ps 301 Ps 132 Ps 106,376

At December 31, 2015Cost Ps 9,790 Ps 35,748 Ps 135,812 Ps 3,899 Ps 14,059 Ps 5,746 Ps 1,042 Ps 9,751 Ps 588 Ps 300 Ps 216,735Accumulated depreciation - (15,703) (77,378) (2,382) (9,505) (4,226) (710) - (287) (168) (110,359)Carrying amount at December 31, 2015 Ps 9,790 Ps 20,045 Ps 58,434 Ps 1,517 Ps 4,554 Ps 1,520 Ps 332 Ps 9,751 Ps 301 Ps 132 Ps 106,376


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Note 12 - Property, plant and equipment Furniture, Telecommuni fittings and Tooling Improvements Buildings and Machinery Transportation cation information and Construction to leased Other Land constructions and equipment equipment network technology spare parts in process property fixed assets Total

Year ended December 31, 2014Opening net book amount Ps 7,122 Ps 11,737 Ps 41,034 Ps 1,314 Ps 4,104 Ps 891 Ps 192 Ps 7,141 Ps 329 Ps 110 Ps 73,974Exchange difference 273 886 3,602 20 2 50 14 314 - 6 5,167Additions 364 390 1,217 115 46 137 1 7,853 18 32 10,173Additions from business combinations 1,681 5,320 6,092 31 - 192 - 820 - (42) 14,094Disposals (101) (284) (800) (33) (6) (10) (1) (476) (61) (8) (1,780)Impairment charge recognized in the year (1) - (15) - - - - (2) - (5) (23)Depreciation charge recognized in the year - (791) (5,254) (313) (697) (363) (171) - (31) 3 (7,617)Transfers (312) 1,249 6,052 83 704 389 267 (8,528) 30 (14) (80)Carrying amount at December 31, 2014 Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908

At December 31, 2014Deemed cost Ps 9,026 Ps 31,694 Ps 115,741 Ps 3,291 Ps 13,039 Ps 5,007 Ps 996 Ps 7,122 Ps 545 Ps 249 Ps 186,710Accumulated depreciation - (13,187) (63,813) (2,074) (8,886) (3,721) (694) - (260) (167) (92,802)Carrying amount at December 31, 2014 Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908

Year ended December 31, 2015Opening net book amount Ps 9,026 Ps 18,507 Ps 51,928 Ps 1,217 Ps 4,153 Ps 1,286 Ps 302 Ps 7,122 Ps 285 Ps 82 Ps 93,908Exchange difference 495 1,572 5,920 34 6 218 32 525 1 14 8,817Additions 235 135 1,470 498 20 123 - 10,661 34 119 13,295Additions from business combinations 90 170 326 20 - 24 - 19 - 5 654Disposals (9) (298) (30) (15) (1) (19) - (151) (3) (2) (528)Impairment charge recognized in the year (16) - (263) (1) - - - (27) - (2) (309)Depreciation charge recognized in the year - (967) (6,659) (331) (751) (492) (221) - (26) (14) (9,461)Transfers (31) 926 5,742 95 1,127 380 219 (8,398) 10 (70) -Carrying amount at December 31, 2015 Ps 9,790 Ps 20,045 Ps 58,434 Ps 1,517 Ps 4,554 Ps 1,520 Ps 332 Ps 9,751 Ps 301 Ps 132 Ps 106,376

At December 31, 2015Cost Ps 9,790 Ps 35,748 Ps 135,812 Ps 3,899 Ps 14,059 Ps 5,746 Ps 1,042 Ps 9,751 Ps 588 Ps 300 Ps 216,735Accumulated depreciation - (15,703) (77,378) (2,382) (9,505) (4,226) (710) - (287) (168) (110,359)Carrying amount at December 31, 2015 Ps 9,790 Ps 20,045 Ps 58,434 Ps 1,517 Ps 4,554 Ps 1,520 Ps 332 Ps 9,751 Ps 301 Ps 132 Ps 106,376

Note 13 - Goodwill and intangible assets

Finite life Indefinite life

Intellectual Development Exploration Customers Software and property rights

costs costs Trademarks relationships licenses and others Other Goodwill Brands Other Total

CostAt January 1, 2014 Ps 3,407 Ps 3,263 Ps 117 Ps 2,688 Ps 1,565 Ps 1,440 Ps 2,249 Ps 11,425 Ps 2,724 Ps 5 Ps 28,883Exchange differences (266) 1,742 13 220 17 - 157 80 86 1 2,050Additions 625 1,752 - 102 302 2,789 - - 12 1 5,583Additions from business combinations 18 - 8 - 2,020 - 299 2,937 4,091 3,110 12,483Impairment charge for the year - - - - - - - - - - -Transfers 9 - 40 226 1 - (27) - - - 249Disposals - - (8) - (28) - (60) (108) - - (204)At December 31, 2014 Ps 3,793 Ps 6,757 Ps 170 Ps 3,236 Ps 3,877 Ps 4,229 Ps 2,618 Ps 14,334 Ps 6,913 Ps 3,117 Ps 49,044

Exchange differences 560 1,132 26 395 149 392 658 704 641 4,657Additions 867 1,187 - 185 333 99 1,442 - 59 31 4,203Additions from business combinations - 2 209 - 562 - 148 921Impairment charge for the year - (2,152) - - - - (11) - - - (2,163)Transfers (42) - (34) 41 (1) - - - 36 -Disposals - - (9) - (191) - (232) - - - (432)At December 31, 2015 Ps 5,178 Ps 6,924 Ps 153 Ps 3,859 Ps 4,376 Ps 4,720 Ps 4,475 Ps 15,600 Ps 7,613 Ps 3,332 Ps 56,230

Accumulated amortizationAt January 1, 2014 Ps (1,417) Ps (698) Ps (72) (838) Ps (1,198) (136) Ps (618) - - - Ps (4,977)Amortizations (260) (1,084) (19) (190) (205) (68) (163) - - - (1,989)Additions (18) - (3) - (1,079) - (35) - - - (1,135)Disposals - - 3 - 10 - 57 - - - 70Transfers (2) - (1) (5) - - (4) - - - (12)Exchange differences 141 (537) (10) (63) (13) - (67) - - - (549)At December 31, 2014 Ps (1,556) Ps (2,319) Ps (102) Ps (1,096) Ps (2,485) Ps (204) Ps (830) Ps - Ps - Ps - Ps (8,592)

Amortizations (439) (1,081) (5) (259) (386) (105) (175) - - - (2,450)Additions - - - - (7) - - - - - (7)Disposals - - - - 156 - (23) - - - 133Transfers - - - - - - - - - - -Exchange differences (306) (202) (21) - (89) (67) (14) - - - (699)At December 31, 2015 Ps (2,301) Ps (3,602) Ps (128) Ps (1,355) Ps (2,811) Ps (376) (Ps 1,042) Ps - Ps - Ps - Ps (11,615)

Net carrying valueCost Ps 3,793 Ps 6,757 Ps 170 Ps 3,236 Ps 3,877 Ps 1,440 Ps 5,407 Ps 14,334 6,913 Ps 3,117 Ps 49,044Accumulated amortization (1,556) (2,319) (102) (1,096) (2,485) (204) (830) - - - (8,592)At December 31, 2014 Ps 2,237 Ps 4,438 Ps 68 Ps 2,140 Ps 1,392 Ps 1,236 Ps 4,577 Ps 14,334 Ps 6,913 Ps 3,117 Ps 40,452

Cost Ps 5,178 Ps 6,924 Ps 153 Ps 3,859 Ps 4,376 Ps 4,720 Ps 4,475 Ps 15,600 7,613 Ps 3,332 Ps 56,230Accumulated amortization (2,301) (3,602) (128) (1,355) (2,811) (376) (1,042) - - (11,615)At December 31, 2015 Ps 2,877 Ps 3,322 Ps 25 Ps 2,504 Ps 1,565 Ps 4,344 Ps 3,433 Ps 15,600 Ps 7,613 Ps 3,332 Ps 44,615


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Note 13 - Goodwill and intangible assets

Finite life Indefinite life

Intellectual Development Exploration Customers Software and property rights costs costs Trademarks relationships licenses and others Other Goodwill Brands Other Total

CostAt January 1, 2014 Ps 3,407 Ps 3,263 Ps 117 Ps 2,688 Ps 1,565 Ps 1,440 Ps 2,249 Ps 11,425 Ps 2,724 Ps 5 Ps 28,883Exchange differences (266) 1,742 13 220 17 - 157 80 86 1 2,050Additions 625 1,752 - 102 302 2,789 - - 12 1 5,583Additions from business combinations 18 - 8 - 2,020 - 299 2,937 4,091 3,110 12,483Impairment charge for the year - - - - - - - - - - -Transfers 9 - 40 226 1 - (27) - - - 249Disposals - - (8) - (28) - (60) (108) - - (204)At December 31, 2014 Ps 3,793 Ps 6,757 Ps 170 Ps 3,236 Ps 3,877 Ps 4,229 Ps 2,618 Ps 14,334 Ps 6,913 Ps 3,117 Ps 49,044

Exchange differences 560 1,132 26 395 149 392 658 704 641 4,657Additions 867 1,187 - 185 333 99 1,442 - 59 31 4,203Additions from business combinations - 2 209 - 562 - 148 921Impairment charge for the year - (2,152) - - - - (11) - - - (2,163)Transfers (42) - (34) 41 (1) - - - 36 -Disposals - - (9) - (191) - (232) - - - (432)At December 31, 2015 Ps 5,178 Ps 6,924 Ps 153 Ps 3,859 Ps 4,376 Ps 4,720 Ps 4,475 Ps 15,600 Ps 7,613 Ps 3,332 Ps 56,230

Accumulated amortizationAt January 1, 2014 Ps (1,417) Ps (698) Ps (72) (838) Ps (1,198) (136) Ps (618) - - - Ps (4,977)Amortizations (260) (1,084) (19) (190) (205) (68) (163) - - - (1,989)Additions (18) - (3) - (1,079) - (35) - - - (1,135)Disposals - - 3 - 10 - 57 - - - 70Transfers (2) - (1) (5) - - (4) - - - (12)Exchange differences 141 (537) (10) (63) (13) - (67) - - - (549)At December 31, 2014 Ps (1,556) Ps (2,319) Ps (102) Ps (1,096) Ps (2,485) Ps (204) Ps (830) Ps - Ps - Ps - Ps (8,592)

Amortizations (439) (1,081) (5) (259) (386) (105) (175) - - - (2,450)Additions - - - - (7) - - - - - (7)Disposals - - - - 156 - (23) - - - 133Transfers - - - - - - - - - - -Exchange differences (306) (202) (21) - (89) (67) (14) - - - (699)At December 31, 2015 Ps (2,301) Ps (3,602) Ps (128) Ps (1,355) Ps (2,811) Ps (376) (Ps 1,042) Ps - Ps - Ps - Ps (11,615)

Net carrying valueCost Ps 3,793 Ps 6,757 Ps 170 Ps 3,236 Ps 3,877 Ps 1,440 Ps 5,407 Ps 14,334 6,913 Ps 3,117 Ps 49,044Accumulated amortization (1,556) (2,319) (102) (1,096) (2,485) (204) (830) - - - (8,592)At December 31, 2014 Ps 2,237 Ps 4,438 Ps 68 Ps 2,140 Ps 1,392 Ps 1,236 Ps 4,577 Ps 14,334 Ps 6,913 Ps 3,117 Ps 40,452

Cost Ps 5,178 Ps 6,924 Ps 153 Ps 3,859 Ps 4,376 Ps 4,720 Ps 4,475 Ps 15,600 7,613 Ps 3,332 Ps 56,230Accumulated amortization (2,301) (3,602) (128) (1,355) (2,811) (376) (1,042) - - (11,615)At December 31, 2015 Ps 2,877 Ps 3,322 Ps 25 Ps 2,504 Ps 1,565 Ps 4,344 Ps 3,433 Ps 15,600 Ps 7,613 Ps 3,332 Ps 44,615

Other intangible assets consist mainly of patents, concessions and agreements not to compete.

Of the total amortization expense, Ps1,702 and Ps1,525, were charged to cost of sales, P200 and Ps97 to selling expenses and Ps544 and Ps367 to administrative expenses in 2015 and 2014, respectively.

Research expenses incurred and recorded in the results of 2015 and 2014 were Ps59 and Ps45, respectively.

Certain customer relationships capitalized in the past as a result of the business combinations, have been eliminated due to the termination of these relationships and are shown as disposals.

Goodwill was increased as a result of the agreements related with the business of polystyrene expandable (EPS) and polyurethane (PU) in the segment of Alpek, the strategic alliance between Sigma Alimentos, S.A. de C.V. and Kinesis Food Service, S.A. de C.V. and the acquisition of ECARNI and in 2014 for the acquisition of Campofrío in the Sigma segment.

Impairment testing of goodwill

Goodwill is allocated to operating segments that are expected to benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units, as follows:

At December 312015 2014

Alpek Ps 296 Ps 250Sigma 9,539 8,904Nemak 4,952 4,538Alestra 456 286Other segments 357 356

Ps 15,600 Ps 14,334

During the fourth quarter of 2015, the Company recognized an impairment which is related to the decrease in the value of its oil and gas properties in the amount of Ps2,152 (US$ 132). This impairment was the result of the decrease in the carrying value of its gas shale assets located in Eagle Ford and the low oil, gas and natural gas liquid prices.

The amount of recovery from the operating segments has been determined based on calculations of values in use. These calculations use cash flow projections based on pre-tax financial budgets approved by management covering a period of 5 years.

The key assumptions used in calculating the value in use in 2015 and 2014 were as follows:

2015Other

Alpek Sigma Nemak Alestra segments

Estimated gross margin 6.8% 28.7% 18.99% 68.0% 8.0%Growth rate 6.5% 30.9% 1.5% 5.0% 3.0%Discount rate 10.05% 11.1% 9.6% 7.3% 10.0%

2014Other

Alpek Sigma Nemak Alestra segments

Estimated gross margin 3.0% 7.0% 21.3% 67.0% 7.0%Growth rate 3.8% 5.0% 3.7% 1.2% 3.5%Discount rate 9.8% 9.3% 11.1% 10.6% 11.3%

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 their value in use.


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Note 14 - Investments accounted for using the equity method and others


Non-current portion of customers and other accounts receivable (Note 8) Ps 844 Ps 904Financial assets available for sale 336 268Accounts receivable from related parties - 17Other assets 2,575 686Restricted cash (Note 7) 237 198Other non-current financial assets 3,992 2,073

Investment in associates 1,073 943Joint ventures 564 254Total other non-current assets Ps 5,629 Ps 3,270

Financial assets available for saleThese 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 at December 31, 2015 and 2014.

Financial assets available for sale activity was as follows:

2015 2014

Balance at January 1 Ps 268 Ps 227Acquisitions (disposals) 68 41Balance at December 31 Ps 336 Ps 268

Financial assets available for sale are denominated in Mexican pesos.

Investments in associatesThe accumulated summarized financial information for associates of the group accounted for by the equity method, not considered material, is as follows:

2015 2014

Operating profit Ps (71) Ps (233)Comprehensive loss (71) (233)Investment in associates at December 31 998 943

There are no contingent liabilities related to the investment of the group in associates.

The Company has no commitments in relation with associates at December 31, 2015 and 2014.

Joint venturesThe accumulated summarized financial information for associates of the group accounted for by the equity method, not considered material, is as follows:

2015 2014

Operating profit Ps (20) Ps (290)Comprehensive loss (20) (290)Joint ventures at December 31 639 254

There are no contingent liabilities related to the investment of the group in joint agreements.

The Company has no material commitments with respect to joint agreement at December 31, 2015 and 2014.

Note 15 - Subsidiaries with significant non-controlling interest

The non-controlling interest for the year ended December 31, 2015 and 2014 is integrated as follows:

Non-controlling Non-controlling interest interest Non-controlling income for the period at December 31, ownership percentage 2015 2014 2015 2014

Alpek, S.A.B. de C.V. 18% Ps 1,409 Ps 657 Ps 9,909 Ps 8,542Campofrío (1) 5% (25) 95 499 3,470Nemak, S.A.B. de C.V. 25% 721 240 6,918 1,451Non-controlling interest of non-significant subsidiaries (32) (84) 298 318 Ps 2,073 Ps 908 Ps 17,624 Ps 13,781

(1) See Note 2.g.

The summarized financial information at December 31, 2015 and 2014 and for the year then ended, corresponding to each subsidiary with a significant non-controlling interest is shown below:

Campofrío Food Group Nemak, S.A.B. de C.V. Alpek, S.A.B. de C. V. 2014 2015 2014 2015 2014

Statement of financial positionCurrent assets Ps 11,750 Ps 22,780 Ps 16,999 Ps 32,664 Ps 30,941Non-current assets 22,074 49,238 42,052 42,230 34,430Current liabilities 13,421 18,771 19,000 14,927 14,325Non-current liabilities 12,233 25,208 18,541 25,467 21,201Stockholders´equity 8,170 27,939 21,457 34,499 29,845

Statement of incomeRevenues 17,572 70,891 61,665 83,590 86,072Net profit 223 4,601 3,517 3,664 1,314Comprehensive income for the year 276 5,736 - 7,105 2,841Comprehensive income attributable tonon-controlling interest 118 1 - 916 513

Dividends paid to non-controlling interest - - - - -

Cash flowsCash flows from operating activities 1,964 10,208 7,090 9,280 6,593Net cash used from investments activities 2,277 (8,866) (5,246) (5,100) (4,417)Net cash used from financing activities (904) (611) (2,651) (3,504) (1,170)Net increase in cash and cash equivalents 3,318 631 (807) 674 1,007

The information above does not include the elimination of intercompany balances and transactions.


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Note 16 - Accounts payable to suppliers and other


Suppliers Ps 38,914 Ps 35,167Short-term employee benefits 1,390 1,980Advance payments from customers 1,438 1,378Taxes other than income tax 3,427 2,745Other accounts payable and accrued expenses 7,060 6,385

Ps 52,229 Ps 47,655

Note 17 - Debt


Current:Bank loans (1) Ps 1,450 Ps 7,251Short-term debt 4,101 3,403Notes payable (1) 27 60Total short-term debt Ps 5,578 Ps 10,714

Long-term:In US dollars:Senior Notes Ps 54,345 Ps 46,627Secured bank loans 1,553 1,678Unsecured bank loans 35,782 19,821Finance leases 14 73Other 774 222

In Mexican pesos:Unsecured stock certificates 1,733 5,228

In euros:Senior Notes 9,315 9,085Unsecured bank loans 1,655 1,617Finance leases 133 147

Other currencies:Unsecured bank loans 234 214Finance leases 194 180 105,732 84,892Less: short-term debt (4,101) (3,403)Long-term debt (2) Ps 101,631 Ps 81,489

(1) At December 31, 2015 and 2014, short-term bank loans and notes payable bore interest at an average rate of 3.46%, and 2.68%, respectively.

(2) The fair value of bank loans and notes payable approximates their current book value, as the impact of discounting is not significant.

The carrying amounts, terms and conditions of long-term debt were as follows:

Costs of Balance at Balance at MaturityContractual debt Interest December 31, December 31, date Interest

Description Currency value issuance payable 2015 2014 DD/MM/YYYY rate

Direct Fix rate USD 1,547 - 6 Ps 1,553 Ps 1,678 31/12/2018 3.50%Secured bank loans 1,553 1,678

Bancario BRL 64 - - 64 - 15/01/2025 6.17%Bancario EUR 3 - - 3 - 31/12/2016 1.80%Bilateral ARS 33 - 1 34 44 03/10/2016 29.72%Bilateral ARS 120 - 2 122 170 01/04/2020 22.45%Bilateral ARS 13 - - 13 - 02/12/2022 19.00%Bilateral USD 408 - 2 410 - 14/08/2018 1.40%Bilateral USD 344 (1) 1 344 297 02/04/2018 1.43%Bilateral USD 344 (1) 1 344 296 01/04/2017 1.51%Bilateral USD 294 - 3 - 297 01/04/2016 1.76%Bilateral USD 860 - 1 861 736 19/12/2019 2.40%Bilateral USD 1,228 - - 1,228 1,050 13/11/2018 1.57%Bilateral USD 8,058 - 3 8,061 1,671 13/11/2018 1.05%Bilateral USD 2,065 (12) 8 2,061 - 23/12/2025 3.39%Bilateral USD 1,377 (8) 4 1,373 - 29/12/2025 3.40%Bilateral EUR 2 - - 2 2 03/09/2017 4.55%Bilateral USD 3,269 (9) 21 3,281 2,804 17/01/2024 3.73%Bilateral USD 516 (1) 5 520 443 07/10/2016 2.71%Bilateral USD 146 - - 146 147 17/12/2017 5.18%Bilateral USD 129 - - 129 111 22/10/2018 2.33%Club Deal EUR 841 (7) 1 835 - 13/11/2020 1.25%Club Deal USD 4,345 (34) 5 4,316 - 13/11/2020 1.85%Club Deal EUR 822 (8) 1 815 1,019 05/12/2018 1.50%Club Deal USD 4,097 (31) 7 4,073 4,566 05/12/2018 1.83%ECA EUR 73 (16) - - 57 15/04/2024 2.28%ECA USD 19 (4) - - 15 15/04/2024 2.62%Syndicate EUR 539 (2) 4 - 541 01/10/2015 2.96%Syndicate USD 8,364 - 2 8,636 7,386 13/11/2018 1.55%Unsecured bank loans 37,671 21,652

Stock Certificate / Fix rate MXN 1,000 - 48 1,048 1,048 12/07/2018 10.25%Stock Certificate / UDIS MXN 668 - 17 685 670 12/07/2018 5.32%Stock Certificate MXN 3,500 - 10 3,510 10/11/2017 6.10%Unsecured stock certificates 1,733 5,228

Bond 144A/ Fix rate USD 11,160 (79) 56 11,137 9,667 20/11/2022 4.50%Bond144A/ Fix rate USD 5,162 (39) 109 5,232 4,547 08/08/2023 5.38%Bond 144A/ Fix rate USD 8,588 (79) 119 8,628 7,371 08/08/2024 5.25%Bond 144A/ Fix rate USD 8,563 (79) 156 8,640 7,381 08/08/2044 6.88%Bond 144A/ Fix rate USD 8,603 (133) 174 8,644 7,382 28/02/2023 5.50%Bond 144A/ Fix rate USD 4,262 (20) 21 4,263 3,628 16/12/2019 6.88%Bond 144A/ Fix rate USD 7,718 (20) 104 7,802 6,651 14/04/2018 5.63%Bond 144A/ Fix rate EUR 9,352 (130) 92 9,314 - 16/12/2019 3.38%Bond 144A/ Fix rate EUR 9,043 (78) 120 - 9,085 31/10/2016 8.25%Senior Notes 63,660 55,712

Other loans USD 588 - 3 591 80 Several SeveralOther loans EUR 183 - - 183 142 Several SeveralOther 774 222

China Leasing RMB 190 - - 190 180 28/02/2026 6.45%Others finance leases USD 14 - - 14 73 Several SeveralOthers finance leases EUR 133 - - 133 147 Several SeveralOthers finance leases RUR 2 - 2 4 - 30/04/2018 4.05%Finance leases 341 400

Total Ps 105,732 Ps 84,892


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At December 31, 2015, the annual maturities of long-term debt (excluding issuance debt costs) are as follows:

20202017 2018 2019 onwards Total

Bank loans and other Ps 10,577 Ps 16,495 Ps 1,231 Ps 11,162 Ps 39,465Senior Notes 3,340 10,748 7,158 71,486 92,732Stock certificates 140 3,410 3,550Finance leases 40 40 41 215 336 Ps 14,097 Ps 30,693 Ps 8,430 Ps 82,863 Ps 136,083

At December 31, 2014, the annual maturities of long-term debt (excluding issuance debt costs) are as follows:

20192016 2017 2018 onwards Total

Bank loans and other Ps 3,817 Ps 5,619 Ps 9,098 Ps 3,133 Ps 21,667Senior Notes 9,043 - 6,594 39,623 55,260Stock certificates 1,575 1,750 1,654 - 4,979Finance leases 144 50 18 130 342 Ps 14,579 Ps 7,419 Ps 17,364 Ps 42,886 Ps 82,248

At December 31, 2015 and 2014, the Company has contractual unused credit lines for a total of US$1,223 and US$835, respectively.

Covenants:

Loan contracts and debt agreements contain restrictions, primarily relating to compliance with financial ratios, incurring additional debt or making loans that require mortgaging assets, dividend payments and submission of financial information, which if not met or remedied within a specified period to the satisfaction of creditors may cause the debt to become demandable immediately.

Financial ratios to be fulfilled include the following:

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 2015 and 2014, 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;

- Maintain assets in appropriate conditions;

- Comply with applicable laws, rules and regulations;

- Incur additional indebtedness;

- Pay dividends;

- Grant liens 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, 2015, and the date of issuance of these financial statements, the Company and its subsidiaries complied satisfactorily with such covenants and restrictions.

Pledge assets:

At December 31, 2015 and 2014, Newpek has pledged assets under a line of credit for an amount up to Ps1,721 (US$100) and Ps2,060 (US$140), respectively, maturing on December 31, 2018 which Ps1,549 (US$90) were used as of December 31, 2015 and Ps1,648 (US$112) were used as of December 31, 2014.

2015a. During 2015, Nemak completed the following financings that improved substantially its debt profile:

• On November 13, 2015, a credit amounting to US $ 300 (Ps5,162) with seven banks (BBVA Bancomer as agent bank) and a maturity of 5 years. Average life of 3.6 years and a variable interest rate with a margin over Libor fluctuating in a range between 1.25% and 2.00% based on the level of leverage of the Company. The margin applicable at the end of 2015 is 1.25%. Proceeds of this loan were used to prepay all of the unsecured “Nemak -07” by Ps3,500 that would expire at the end of 2017.

• Financing amounting to US $ 200 (Ps3,441), on December 21, 2015 with Bancomext amounting to US$120 (Ps2,065) and December 23, 2015 with NAFIN $80 (Ps1,376), with a total term of 10 years and average life of 7.9 years. The interest rate is variable and the margin is 2.8% per year over the Libor rate during the life of the loan. Resources were used to prepay substantially all short-term debt of the Company.

b. On June 15, 2015, Sigma contracted a credit with The Bank of Tokyo-Mitsubishi UFJ, LTD amounting to US$355 in order to acquire approximately 37% of the remaining shares of Campofrio. The loan bears interest on a quarterly basis; for the first year the interest rate is LIBOR plus 0.50%, for the second year LIBOR plus 0.90% and for the third year onwards LIBOR plus 1.25% with three installments in June 2016 (US$55), June 2017 (US$150) and June 2018 (US$ 150). The outstanding balance at December 31, 2015 is US$355.

c. On March 3, 2015, Campofrio issued a bond amounting to €500 in the regulated 144A, Reg-S standard international market. The issued bond will be paid in seven years and the interest rate is 3.375%. The use of this loan was to refinance the bond issued in 2009 by Campofrio. Interests are payable semi-annually in March and September.

2014a. On February 24, 2014, Alestra S. de R. L. de C.V. (subsidiary of ALFA) paid in advance the principal amount of the

“Senior Notes 144A/Reg. S” issued in 2009. The outstanding payment of the principal at that date amounted to US$ 200.

b. In March 2014, ALFA issued a Senior Note in the international market under Rule 144A, Reg-S, the Senior Note amounted to US$1,000 in two equal “segments”. The first shall be paid in 10 years and the second in 30 years and their interest rates are 5.25% and 6.875%, respectively. The Company capitalized costs of debt issuance of Ps145. It was used for a partial debt payment, energy projects and general corporate uses.

c. On May 12, 2014, Sigma requested an additional amount from Bank of Tokyo-Mitsubishi UFJ, LTD (Broker Bank), in the amount of US$325. The loan bears monthly interest based on the LIBOR rate plus annual 1.25%, with four equal repayments in May 2017, May 2018 and November 2018, maturing on November 13, 2018. At December 31, 2014, the balance amounted to Ps4,783.

d. With the acquisition of Campofrío, ALFA assumed certain obligations related to the debt it held with the company. These obligations amounted to Ps9,043, which consist primarily of an issuance of convertible bonds in 2009 with a nominal amount of €500 at an interest rate of 8.250% maturing on October 31, 2016.

e. On December 17, 2007, Sigma subscribed Ps1,000 and Ps635, SIGMA 07 and SIGMA 07-2, respectively, in stock certificates maturing in 2014 at interest rates of monthly TIIE + 20 base points and fixed half-yearly of 8.75%, respectively, mainly to pay the debt in the short term. The UDIs are instruments denominated in Mexican pesos that automatically adjust the principal value of an obligation using the inflation rate officially published by Banco de México.

f. On December 8, 2014 the stock certificates of SIGMA 07 y SIGMA 07-2 were paid at maturity in the amount of Ps1,000 and Ps635, respectively.


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


Obligation for finance leases - minimal payments, gross- Less than 1 year Ps 47 Ps 59- More than 1 year and less than of 5 years 109 212- More than 5 years 185 129Total 341 400Future financial charges from finance leases - -Present value of finance less liabilities Ps 341 Ps 400

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


Less than 1 year Ps 47 Ps 59More than 1 year and less than 5 years 109 212More than 5 years 185 129

Ps 341 Ps 400

Note 18 - Income taxes

Deferred income taxThe analysis of the deferred tax asset and deferred tax liability is as follows:


Deferred tax liability: - To be recovered in more than 12 months Ps 16,101 Ps 9,571 - To be recovered within 12 months 556 1,102

16,657 10,673Deferred tax asset: - To be covered in more than 12 months (11,173) (8,079) - To be recovered within 12 months (6,281) (2,011)

(17,454) (10,090)Deferred tax (assets) liabilities, net Ps (797) Ps 583

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

2015 2014

At January 1 Ps 583 Ps 2,323Exchange differences 685 (122)Credit to income statement (1,987) (4,096)Business acquisitions 214 2,899Tax related to components of other comprehensive income (292) (421)At December 31 Ps (797) Ps 583

The composition of the deferred income tax assets and liabilities was as follows:

(Assets) liabilities At December 31,

2015 2014

Inventories Ps - Ps 50Advance payments 63 -Intangible assets 3,115 470Property, plant and equipment 12,986 9,101Other temporary differences, net 493 1,052Deferred tax liabilities 16,657 10,673

Customers (96) -Financial assets available for sale (3,891) (2,635)Employees ‘benefits (209) (902)Valuation of derivative instruments (39) (312)Provisions (998) (2,605)Tax losses carryforward (10,964) (7,177)Other temporary differences, net (1,257) 3,541Deferred tax assets (17,454) (10,090)Deferred tax (assets) liabilities, net Ps (797) Ps 583

Changes in deferred tax assets and liabilities during the year were as follows:

Charged Charged (credited)

Balance at (credited) to other Balance atDecember 31, Business to income comprehensive December 31,

2014 acquisitions statement income 2015

Inventories Ps 50 Ps - Ps 50 Ps - Ps -Advance payments - - 63 - 63Intangible assets 470 - 2,645 - 3,115Property, plant and equipment 9,101 214 (3,671) - 12,986Other temporary differences, net 1,052 - (559) - (93)Deferred tax liabilities 10,673 214 5,770 - 16,657

Customers - - (96) - (96)Financial assets available for sale (2,635) - (1,256) - (3,891)Employees ‘benefits (902) - 972 (279) (209)Valuation of derivative instruments (312) - 286 (13) (39)Provisions (2,605) - 1,607 - (998)Tax losses carryforward (7,177) - (3,787) - (10,964)Other temporary differences, net 3,541 - (4,798) - (1,257)Deferred tax assets (10,090) - (7,072) (292) (17,454)Deferred tax (assets) liabilities, net Ps 583 Ps 214 Ps (1,302) Ps (292) Ps (797)


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ChargedCharged (credited)

Balance at (credited) to other Balance atDecember 31, Business to income comprehensive December 31,

2013 acquisitions statement income 2014

Inventories Ps 22 Ps - Ps 28 Ps - Ps 50Advance payments 72 - (72) - -Intangible assets 395 297 (222) - 470Property, plant and equipment 8,443 2,590 (1,932) - 9,101Tax losses carryforward 2,249 - (2,249) - -Other temporary differences, net 719 765 (432) - 1,052Deferred tax liabilities 11,900 3,652 (4,879) - 10,673

Customers (333) - 333 - -Financial assets available for sale - - (2,635) - (2,635)Employees ‘benefits (567) (59) (174) (102) (902)Valuation of derivative instruments (114) (463) 584 (319) (312)Provisions (218) (231) (2,156) - (2,605)Tax losses carryforward (11,803) - 4,626 - (7,177)Other temporary differences, net 3,458 - 83 - 3,541Deferred tax assets (9,577) (753) 661 (421) (10,090)Deferred tax (assets) liabilities, net Ps 2,323 Ps 2,899 Ps (4,218) Ps (421) Ps 583

Tax loss carry forwards is recognized as a deferred tax asset to the extent that realization of the related tax benefit through future taxable profits is probable. Tax losses amounted to Ps10,357 in 2015 and Ps10,211 in 2014.

Tax losses carryforward at December 31, 2015 and 2014, expire in the following years:

Year of the Year ofloss 2015 2014 expiration

2008 and prior Ps 5,082 Ps 4,974 2018 2009 304 297 2019 2010 165 162 2020 2011 107 105 2021 2012 1,039 1,018 2022 2013 1,331 1,268 2023 2014 2,329 2,387 2024 Ps 10,357 Ps 10,211

Income tax payableThe income tax payable is as follows:

December 31,2015 2014

Income tax incurred Ps 1,021 Ps 358Income tax from tax consolidation (regime until December 31, 2013) 3,458 3,979Income tax from optional regime for groups of companies in Mexico 1,450 736Income tax payable Ps 5,929 Ps 5,073

Current portion Ps 1,739 Ps 951Non-current portion 4,190 4,122Income tax payable Ps 5,929 Ps 5,073

Income tax under tax consolidation regime in MexicoSince the effective Income Tax Law effective up to December 31, 2013 was revoked, the tax consolidation regime was eliminated; therefore, ALFA is obliged to make a deferred tax payment determined at that date during the following ten years as from 2014, as shown below.

In accordance with paragraph d) of section XVIII of the ninth transitory article of the 2014 Law, and provided that the Company at December 31, 2013 was acting as the controlling company and was subject, at that date, to the payment system contained in section VI of the fourth article of the transitory provisions of the Income Tax Law published in the federal official gazette on December 7, 2009, or article 70-A of the 2013 Income Tax Law that was revoked, shall continue paying the tax consolidation deferred tax in fiscal years 2007 and prior years in conformity with the abovementioned provisions, until payment is concluded.

Income tax from deferred tax consolidation at December 31, 2015 and 2014 amounts to Ps3,458 and Ps3,979, respectively and will be paid off in installments in accordance with the table shown below:

Year of payment2019

2016 2017 2018 onwards Total

Tax losses Ps 659 Ps 619 Ps 557 Ps 1,474 Ps 3,309Dividends distributed by the controlled companies that do not come from CUFIN and the reinvested CUFIN 59 45 44 1 149Total Ps 718 Ps 664 Ps 601 Ps 1,475 Ps 3,458

Optional regime for groups of companies in Mexico (incorporation regime)Derived from the elimination of the tax consolidation regime in Mexico, the Company chose to incorporate to the new optional regime for groups of companies beginning in 2014, this regime consists in grouping companies with specific characteristics, which are able to defer part of the income tax payable in three years; the deferral percentage is calculated using a factor determined in accordance to the amount of tax profit and losses of the year.

Note 19 - Provisions

Restructuring Indemnitiesforand Environmental dismissal

Disputes demolition (1) (2) remediation (2) and other (2) Total

At December 31, 2013 Ps 492 Ps 416 Ps 377 Ps 91 Ps 1,376Business acquisitions (1) 29 696 - 55 780Additions - - - 370 370Exchange effects - - - 96 96Payments (72) (77) (17) (296) (462)At December 31, 2014 Ps 449 Ps 1,035 Ps 360 Ps 316 Ps 2,160

Business acquisitions (1) 21 - - - 21Additions 21 14 59 816 910Exchange effects 5 54 - 76 135Cancelation of provisions (3) (355) - - - (355)Payments (48) (546) (102) (260) (956)At December 31, 2015 Ps 93 Ps 557 Ps 317 Ps 948 Ps 1,915

2015 2014

Short-term provisions Ps 825 Ps 1,146Long-term provisions 1,090 1,014At December 31, Ps 1,915 Ps 2,160

(1) This provision comes from Campofrío and its strategic redefinition process to obtain, among others, efficiencies and a higher level of specialization in the production and logistics centers, as well as strengthening synergies.

(2) Corresponds to the closing of the Cape Fear plant.

(3) Corresponds to the write-off of provisions in the telecommunications segment as a result of favorable legal disputes related with interconnection rates.


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Note 20 - Other liabilities

December 31,2015 2014

Share-based employee benefits (Note 24) Ps 565 Ps 622Dividends payable 63 58Deferred credits 453 -Accounts payable – affiliates (Note 31) 1,476 629Total other liabilities Ps 2,557 Ps 1,309

Current portion Ps 1,747 Ps 889Non-current portion 810 420Total other liabilities Ps 2,557 Ps 1,309

Note 21 - Employee benefits

The valuation of employee benefits for retirement plans (covering approximately 80% of workers in 2015 and in 2014) and is based primarily on their years of service, current age and estimated salary at retirement date.

Main 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:

December 31,

Country 2015 2014

Mexico Ps 1,454 Ps 1,079United States of America 1,102 1,009Other 979 918Total Ps 3,535 Ps 3,006

Following is a summary of the main financial information of such employee benefits:

December 31,2015 2014

Liabilities in the balance sheet for:Pension benefits Ps 2,877 Ps 2,365Post-employment medical benefits 658 641

Liabilities in the balance sheet Ps 3,535 Ps 3,006

Charge in the income statements for:Pension benefits Ps (265) Ps (261)Post-employment medical benefits (49) (37) Ps (314) Ps (298)

Actuarial losses recognized in the statement of other comprehensive income for the period Ps (929) Ps (340)

Cumulative actuarial losses recognized other comprehensive income Ps 39 Ps 155

PensionbenefitsThe Company operates defined benefit pension plans based on employees’ pensionable remuneration and length of service. Most plans are externally funded. Plan assets are held in trusts, foundations or similar entities, governed by local regulations and practice in each country, as is the nature of the relationship between the Company and the respective trustees (or equivalent).

Amounts recognized in the balance sheet are determined as follows:

December 31,2015 2014

Present value of defined benefit obligations Ps 8,078 Ps 7,926Fair value of plan assets (5,746) (5,561)Present value of unfunded obligations 2,332 2,365Past service cost not recognized - -Liabilities in the statement of financial position Ps 2,332 Ps 2,365

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

2015 2014

At January 1 Ps 7,926 Ps 5,371Current service cost 178 198Interest cost 319 306Employee contributions 2 1Remeasurements:

Demographic actuarial losses/(gains) - 629Losses/(gains) related with experience of the employees (237) -

Exchange differences 289 623Benefits paid (440) (444)Liabilities acquired in business combinations 54 1,260Reductions (9) (12)Settlements (4) (6)At December 31 Ps 8,078 Ps 7,926

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

2015 2014

At January 1 Ps (5,561) Ps (4,142)Expected return on plan assets 270 (195)Remeasurements - expected return on plan assets,excluding interest income (240) (246)Exchange differences (412) (265)Employer contributions (96) (118)Employee contributions (1) (1)Benefits paid 294 295Liabilities acquired in business combinations - (889)At December 31 Ps (5,746) Ps (5,561)

Amounts recorded in the statement of income are as follows:

2015 2014

Current service cost Ps (178) Ps (198)Financial revenues (costs), net (79) (60)Loss from reduction (8) (3)Total included in personal costs Ps (265) Ps (261)


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Main actuarial assumptions were as follows:

December 31,2015 2014

Discount rate MX6.75% MX6.75%Discount rate US1.00% US3.75%Inflation rate 1.50% 4.25%Salary increase rate 5.25% 5.25%Future salary increase 4.25% 4.25%Medical inflation rate 7.50% 7.50%

The average life of defined benefit obligations is 13 and 14 years at December 31, 2015 and 2014, respectively.

The sensitivity analysis of the main assumptions for defined benefit obligations were as follows:

Effect in defined benefit obligationsChange in Increase in Decrease in

assumptions assumptions assumptions

Discount rate +1% Increase by Ps192 Decreases by Ps226

PensionbenefitassetsPlan assets are comprised as follows:

December 31,2015 2014

Equity instruments Ps 3,048 Ps 3,233Short and long-term securities 2,695 2,328

Post-employmentmedicalbenefitsThe Company operates post-employment medical benefits schemes 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:

December 31,2015 2014

Present value of defined benefit obligations Ps 663 Ps 644Fair value of plan assets (4) (4)Deficit in funded plans 659 640Present value of unfunded obligations - -Liabilities in the statement of financial position Ps 659 Ps 640

The movements of defined benefit obligations are as follows:2015 2014

At January 1 Ps 644 Ps 666Current service cost 16 14Interest cost 33 36Employee contributions 15 9

Demographic actuarial losses/(gains) 2 (52)Financial actuarial losses/(gains) - -

Exchange differences 21 28Reductions - (13)Benefits paid (72) (44)At December 31 Ps 659 Ps 644

The movement in the fair value of plan assets for the year was as follows:2015 2014

At January 1 Ps (4) Ps (4)Expected return on plan assets without interest income - -Benefits paid - -At December 31 Ps (4) Ps (4)

Amounts recorded in the statement of income are as follows:2015 2014

Current service cost Ps (16) Ps (14)Interest cost (33) (36)Curtailment gain - 13Total included in personal costs Ps (49) Ps (37)

The sensitivity analysis of the main assumptions for defined benefit obligations were as follows:

Effect in defined benefit obligationsChange in Increase in Decrease in

assumptions assumptions assumptions

Medical inflation rate +1% Increases by Ps56 Decreases by Ps 72

Note 22 - Stockholders’ equity

At December 31, 2015, the capital stock is variable, with a fixed minimum without withdrawal rights of Ps205, 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.

During 2015 and 2014, the Company repurchased 14,000,000 and 8,000,000 shares respectively, for a total of Ps458 and Ps258, in connection with a share repurchase program that was approved by the stockholders of the Company and carried out at the discretion of the Administration. At December 31, 2015 and 2014, the Company held 79,500,000 and 65,500,000 treasury shares and the market value of the share was 34.10 and 32.94 pesos, respectively.

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, 2015 and 2014, the legal reserve amounted to Ps60, which is included in retained earnings.

On April 15, 2015, the Ordinary General Stockholders´Meeting approved the payment of an ordinary cash dividend of 0.03 US dollars for each of the outstanding shares, equivalent to approximately Ps2,380.

In accordance with the new Income Tax Law becoming effective on January 1, 2014, this law establishes a 10% tax on income generated starting 2014 on dividends paid to foreign residents and Mexican individuals when these correspond to tax profits generated starting 2014. It also establishes that for fiscal years 2001 to 2013, the net tax profit will be determined as established in the Income Tax Law effective in the corresponding fiscal year.

Dividends paid are not subject to income tax if paid from the Net Tax Profit Account (CUFIN). Any dividends paid in excess of this account will cause a tax equivalent to 42.86%if they are paid in 2014. This tax is payable by the Company and may be credited against its income tax in the same year or the following two years or, if applicable, against the flat tax of the period. Dividends paid from profits which have previously paid income tax are not subject to tax withholding or to any additional tax payment. At December 31, 2015 and 2014, the tax value of the CUFIN and tax value of the Capital Contribution Account (CUCA) amounted to Ps26,714 and Ps34,953 respectively.

In the event of a capital reduction, the Income Tax Law provides that any excess of stockholders’ equity over adjusted capital contribution will receive the same tax treatment as dividends.

The movements in cumulative other comprehensive income for 2015 and 2014 are presented below:

Effect of Effect from cash flows

foreign hedge currency derivative

translation instruments Total

At January 1, 2014 Ps 677 Ps 105 Ps 782Gains (losses) on fair value - (1,063) (1,063)Tax on gain (loss) on fair value - 319 319Gains on translation of foreign entities 3,679 - 3,679At December 31, 2014 Ps 4,356 Ps (639) Ps 3,717

Gains (losses) on fair value - (929) (929)Tax on gain (loss) on fair value - 279 279Gains (losses) on translation of foreign entities 3,598 - 3,598At December 31, 2015 Ps 7,954 Ps (1,289) Ps 6,665


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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 contracted as cash flow hedges contains the effective portion of cash flow hedges in force 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.

Note 23 - Foreign currency position

At February 2, 2016, last date of financial activity before of the issuance of these financial statements, the exchange rate was 18.29 Mexican pesos per dollar.

The figures below are expressed in millions of dollars, since this is the prevailing foreign currency for the Company.

At December 31, 2015 and 2014, had the following assets and liabilities in foreign currencies:

At December 31, 2015Dollars (USD) Other currencies

Total Mexican Mexican Mexican

USD pesos USD pesos pesos

Monetary assets Ps 2,822 Ps 48,572 Ps 617 Ps 10,612 Ps 59,184Liabilities:Current (1,146) (19,717) (935) (16,090) (35,807)Non-current (5,168) (88,926) (685) (11,797) (100,723)Monetary position in foreign currencies Ps (3,492) Ps (60,071) Ps (1,003) Ps (17,275) Ps (77,346)

At December 31, 2014Dollars (USD) Other currencies

Total Mexican Mexican Mexican

USD pesos USD pesos pesos

Monetary assets Ps 3,746 Ps 55,137 Ps 548 Ps 8,069 Ps 63,206Liabilities:Current (2,254) (33,180) (222) (3,273) (36,453)Non-current (5,159) (75,936) (96) (1,411) (77,347)Monetary position in foreign currencies Ps (3,667) Ps (53,979) Ps 230 Ps 3,385 Ps (50,594)

Note 24 - Share-based payments

ALFA has a compensation scheme referenced to the value of its own shares and the value of the shares of Nemak and Alpek 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:

• Improved share price

• Improvement in net income

• Permanence of the executives in the Company

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 2015 and 2014 was Ps34.30 and Ps37.32, respectively.

At December 31, 2015 and 2014, the liability for share-based payments amounted to Ps565 and Ps622, respectively.

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

December 31,2015 2014

Short-term Ps 207 Ps 202Long-term 358 420Total carrying value Ps 565 Ps 622

Note 25 - Expenses classified by nature

The total cost of sales, selling and administrative expenses, classified by nature of the expense, were as follows:

2015 2014

Raw materials Ps (141,929) Ps (137,552)Outsourced production (7,972) (6,194)Employee benefit expenses (32,414) (28,328)Maintenance (7,449) (6,791)Depreciation and amortization (11,911) (9,607)Freight charges (6,501) (5,131)Advertising expenses (2,441) (1,591)Lease expenses (1,771) (1,252)Consumption of energy and fuel (7,856) (8,106)Travel expenses (926) (656)Technical assistance, professional fees and administrative services (5,897) (3,411)Other (8,906) (3,508)Total Ps (235,973) Ps (212,127)

Note 26 - Other income, net

2015 2014

Compensation and reimbursement from insurance (1) Ps 3,873 Ps 1,766Refinancing expenses - 3Gain from sale of assets - 153Gain (loss) from sale of shares 337 (1)Other - 325

Other income 4,210 2,246Damage to property, plant, equipment, inventory and others (1) - (1,858)Expenses from acquisition projects - (55)Valuation of derivative financial transactions - (15)Impairment loss of assets (See Note 13) (2,472) (191)Other (7 -)Other expenses (2,479) (2,119)Total other income, net Ps 1,731 Ps 127

(1) On November 2014 there was a fire in one of the production plants of the Sigma segment, specifically in the Campofrío plant, located in the city of Burgos, Spain (“Accident”). At December 31, 2014 the losses recorded as a consequence of the accident amounted to Ps1,858, affecting property, plant and equipment, inventory and other costs.

These assets are covered by an insurance policy. Based on the analysis and confirmations made by the Company’s management, it has concluded that such policy covers material damages, loss of benefits resulting from the reduction of revenues and additional costs that the Company may incur in to recover sales for a period of twelve months as of the date of the accident. At December 31, 2014, the Company has recorded an income from reimbursement of accident amounting Ps1,766, of which Ps1,275 were collected in cash. During 2015 the insurance payments were received in the amount of Ps2,598 and during the month of November 2015, the closing of the insurance indemnity was done in a total amount of Ps3,873.


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Note 27 - Financial cost, net

2015 2014

Financial income:- Interest income on short-term bank deposits Ps 357 Ps 176- Other finance income 218 46Financial income, excluding foreign exchange loss 575 222

Gain on foreign exchange 9,223 7,455Total financial income Ps 9,798 Ps 7,677

Financial expenses:- Interest expense on bank loans Ps (2,095) Ps (1,691)- Interest expense on exchange - traded debt certificates (2,767) (2,208)- Interest expense on sale of receivables (160) (159)- Interest cost on benefit to employees (196) (89)- Interest expense of suppliers (52) (44)- Interest rate swaps: fair value hedging (432) (382)- Other financial expenses (292) (474)

Finance costs: (5,994) (5,047)Less: amounts capitalized on qualifying fixed assets 52 90

Interest expense, excluding foreign exchange loss (5,942) (4,957)Foreign exchange loss (14,143) (12,676)

Total finance cost Ps (20,085) Ps (17,633)

Impairment of financial asset available for sale Ps (4,203) Ps (8,665)

Financing cost, net Ps (14,490) Ps (18,621)

Note 28 - Employee benefits expenses

2015 2014

Salaries, wages and benefits Ps 28,175 Ps 24,620Contributions to social security 3,173 2,852Employees’ benefits 767 643Other contributions 300 213Total Ps 32,415 Ps 28,328

Note 29 - Income tax for the year

2015 2014

Tax currently payable:Income tax on profits of the period Ps (5,420) Ps (3,358)Adjustment for previous years - (181)Total tax currently payable (5,420) (3,539)Deferred tax:Origination and reversal of temporary differences 1,987 4,096Total deferred tax 1,987 4,096Income taxes credited (charged) to income Ps (3,433) Ps 557

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

2015 2014

Profit (loss) before taxes Ps 9,284 Ps (1,686)Share in losses of associates recognized through equity method 284 291Income (loss) before equity in associates 9,568 (1,395)Statutory rate 30% 30%

Tax at statutory rate (2,870) 419(Add) deduct tax effect of:Differences in calculating interest deductions 273 875Other permanent differences, net (836) (556)

Provision based on operations of the year (3,433) 738Recalculation of previous years taxes - (181)Total provision for income taxes (charged) credited to income Ps (3,433) Ps 557

Effective rate 36% 39%

The tax charge/(credit) relating to components of other comprehensive income was as follows:

2015 2014

Tax Tax Prior charged After Prior charged Aftertaxes (credited) taxes taxes (credited) taxes

Effect of derivative financial instruments contracted as cash flow hedges Ps (929) Ps 279 Ps (650) Ps (1,063) Ps 319 Ps (744)

Actuarial losses on labor liabilities (42) 13 (29) (340) 102 (238)Translation effect of foreign entities 3,598 - 3,598 3,679 - 3,679Other items of comprehensive income Ps 2,627 Ps 292 Ps 2,919 Ps 2,276 Ps 421 Ps 2,697

Deferred taxes Ps 292 Ps 421


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Note 30 - Related party transactions

Transactions with related parties during the years ended December 31, 2015 and 2014, which were carried out in terms similar to those of arm’s-length transactions with independent third parties, were as follows:

2015 2014

Sale of goods and services:

Affiliates Ps 23,940 Ps 20,321Shareholders with significant influence over subsidiaries (1) 1,919 1,991

Purchase of good and services:

Affiliates Ps 18,782 Ps 14,689Shareholders with significant influence over subsidiaries (1) 1,668 2,539

(1) Includes the effects of the agreements between Alpek and BASF on the PU businesses, see Note 2a.

For the year ended December 31, 2015, wages and benefits received by top officials of the Company were Ps748 (Ps754 in 2014), an amount comprising base salary and legal benefits, supplemented by a variable compensation program primarily based on the results of the Company and the market value of its shares.

At December 31, 2015 and 2014, the balances with related parties were as follows:

December 31,Nature

of the transaction 2015 2014

Receivables:Affiliates Sale of goods Ps 25 Ps 1,302Shareholders with significantinfluence over subsidiaries Services rendered Ps 257 Ps 23Payable:Affiliates Purchase of raw materials Ps 1,402 Ps 629

Balances payable to related parties at December 31, 2015 are payable in 2016 and do not bear interest.

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

Note 31 - Segment reporting

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

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 and synthetic fibers industry, 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: This segment is dedicated to the exploration and exploitation of natural gas and oil fields.

- Other segments: includes all other companies operating in business services and others which are 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 various subsidiaries.

The transactions 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 evaluates the performance of each of the operating segments based on income before financial results, income taxes, depreciation and amortization (“EBITDA”), considering that this indicator is a good metric to evaluate operating performance and the ability to meet principal and interest obligations with respect to indebtedness, and the ability to fund capital expenditures and working capital requirements. Nevertheless, 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 Company has defined the ADJUSTED EBITDA as the result of adding to the operating profit depreciation and amortization and asset impairment.

Following is the condensed financial information of these operating segments:

Year ended December 31, 2015Other

segments andAlpek Sigma Nemak Alestra Newpek eliminations Total

Statement of incomeRevenue by segment Ps 83,590 Ps 93,568 Ps 70,891 Ps 6,163 Ps 2,180 Ps 4,365 Ps 260,757Intersegment revenue (242) - - (136) - (2,079) (2,457)Revenue from external customers Ps 83,348 Ps 93,568 Ps 70,891 Ps 6,027 Ps 2,180 Ps 2,286 Ps 258,300

Adjusted EBITDA Ps 9,974 Ps 13,892 Ps 12,006 Ps 2,629 Ps 1,074 Ps (1,135) Ps 38,440Depreciation and amortization (2,254) (2,830) (4,609) (1,009) (1,090) (119) (11,911)Impairment of assets (130) (158) 1 (5) (2,152) (28) (2,472)Operating profit 7,590 10,904 7,398 1,615 (2,168) (1,282) 24,057Finance cost, net (1,863) (2,607) (1,293) (756) (2,049) (5,922) (14,490)Share of losses of associates (23) (401) 48 - 93 - (283)Profit or loss before tax Ps 5,704 Ps 7,896 Ps 6,153 Ps 859 Ps (4,124) Ps (7,204) Ps 9,284

StatementoffinancialpositionInvestment in associates Ps 253 Ps 759 Ps 303 Ps 8 Ps 272 Ps 42 Ps 1,637Other assets 74,642 82,429 71,715 10,438 8,019 17,825 265,068

Total assets 74,895 83,188 72,018 10,446 8,291 17,867 266,705Total liabilities 39,944 68,835 44,080 6,967 4,186 22,878 186,890Net assets Ps 34,951 Ps 14,353 Ps 27,938 Ps 3,479 Ps 4,105 Ps (5,011) Ps 79,815

Capital expenditures (Capex) Ps (4,482) Ps (3,638) Ps (7,253) Ps (1,612) Ps (948) Ps (156) Ps (18,089)


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Year ended December 31, 2014

Othersegments and

Alpek Sigma Nemak Alestra Newpek eliminations Total

Statement of incomeRevenue by segment Ps 86,072 Ps 71,465 Ps 61,665 Ps 5,519 Ps 3,067 Ps 3,668 Ps 231,456Intersegment revenue (267) - - (129) - (1,834) (2,230)Revenue from external customers Ps 85,805 Ps 71,465 Ps 61,665 Ps 5,390 Ps 3,067 Ps 1,834 Ps 229,226

Adjusted EBITDA Ps 5,710 Ps 8,495 Ps 9,479 Ps 2,260 Ps 1,592 Ps (420) Ps 27,116Depreciation and amortization (1,839) (1,931) (3,747) (877) (1,092) (121) (9,607)Impairment of assets (132) (128) (12) (9) (2) - (283)Operating profit 3,739 6,436 5,720 1,374 498 (541) 17,226Finance cost, net (1,497) (4,623) (700) (717) (3,193) (7,891) (18,621)Share of losses of associates (45) (249) 39 (1) 8 (43) (291)Profit or loss before tax Ps 2,197 Ps 1,564 Ps 5,059 Ps 656 Ps (2,687) Ps (8,475) Ps (1,686)

StatementoffinancialpositionInvestment in associates Ps 150 Ps 694 Ps 218 Ps 8 Ps - Ps 127 Ps 1,197Other assets 65,222 70,794 58,873 9,241 9,674 17,879 231,683Total assets 65,372 71,488 59,091 9,249 9,674 18,006 232,880Total liabilities 35,527 55,547 37,593 5,721 9,222 20,111 163,721Net assets Ps 29,845 Ps 15,941 Ps 21,498 Ps 3,528 Ps 452 Ps (2,105) Ps 69,159

Capital expenditures (Capex) Ps (4,191) Ps (1,871) Ps (5,254) Ps (1,310) Ps (1,771) Ps (33) Ps (14,430)

Below are revenues with external customers, as well as property, plant and equipment, goodwill and intangible assets by geographic area. Revenues with external customers were classified based on their origin:

For the year ended December 31, 2015Revenue to Property,

external plant and Intangiblecustomers equiment Goodwill assets

Mexico Ps 88,175 Ps 59,993 Ps 4,753 Ps 8,003United States 84,646 13,920 3 11,886Canada 2,041 962 - 33Central and South America 13,510 3,248 - 128Other countries 69,928 28,253 10,844 10,572Total Ps 258,300 Ps 106,376 Ps 15,600 Ps 30,622

For the year ended December 31, 2014

Revenue to Property, external plant and Intangible

customers equiment Goodwill assets

Mexico Ps 92,301 Ps 52,830 Ps 4,717 Ps 6,656United States 85,153 12,464 247 9,365Canada 1,629 989 - 46Central and South America 10,708 3,066 - 160Other countries 39,435 24,559 9,370 9,891Total Ps 229,226 Ps 93,908 Ps 14,334 Ps 26,118

The revenue to external customers by product or service was as follows:

2015 2014

AlpekPolyester-Pet/PTA Ps 60,504 Ps 62,961Plastics and chemicals 22,844 22,844Total 83,348 85,805

SigmaProcessed meats 66,066 50,460Dairy 22,395 17,105Other refrigerated products 5,107 3,900Total 93,568 71,465

NemakAluminum automotive products 70,891 61,665Total 70,891 61,665

AlestraBusiness segment 5,628 4,991Other segments 399 399Total 6,027 5,390

NewpekHydrocarbons 2,180 3,067Total 2,180 3,067Other segments 2,286 1,834Total Ps 258,300 Ps 229,226


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Note 32 - Contingencies and commitments

In the normal course of its business, the Company is involved in disputes and litigations. While the results of the disputes cannot be predicted, the Company does not believe that there are current or threatened actions, claims or legal proceedings against or affecting the Company which, if determined adversely to it, would damage significantly its individual or overall results of operations or financial position.

At December 31, 2015, the Company and its subsidiaries had the following commitments:

a. During 2013, the Company through its subsidiary Grupo Petrotemex, signed an agreement with M&G for the rights to supply the plant for 400 thousand tons of PET (manufactured with 336 thousand tons of PTA) a year, by which it is obliged to pay an amount of Ps4,576 (US$350) during the construction of the plant, subject to compliance with pre-established progress. At December 31, 2014 Grupo Petrotemex had made a payment of Ps2,925 (US$198.8), presented within goodwill and intangible assets, net.

b. At December 31, 2015 and 2014, the subsidiaries had entered into several agreements with suppliers and customers for the purchase of raw materials used in the production and sale of finished products, respectively. These agreements have a maturity of between one and five years, and generally comprise price adjustment clauses.

c. In September 2007, a subsidiary renewed a contract with PEMEX Refinacion, for the supply of raw materials maturing in December 2018.

Note 33 - Subsequent events

In preparing the financial statements the Company has evaluated the events and transactions for recognition or disclosure subsequent to December 31, 2015 and through February 2, 2016 (date of issuance of the financial statements), and except for the matter mentioned in the Note 2.c., the Company has no identified additional subsequent events.

Caprolactam: Raw material derived from oil (cyclohexane), used for the production of nylon.

Cloud applications: Business model where applications are accessed through the Internet, and are not physically present in the customer’s facilities.

Data security: A practice that includes techniques, applications, and devices responsible for ensuring availability, integrity and confidentiality of the data of information systems, data and telecommunications networks.

EPS: Thermoplastic used for insulation and packaging.

Ethane: Hydrocarbon product of the bond between the carbon and hydrogen.

Hosting: Service where applications and websites are placed on a server.

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.

Last-mile access: The physical link between the location of the customer and the nearest node of Alestra’s telecommunications network.

Network Management: 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.

Monoethylene glycol: raw material primarily used for the manufacture of polyester fibers.

PET (Polyethylene Terephtalate): Plastic resin mostly used to manufacture containers.

Polyester: Plastic resin used to manufacture textile fibers, films and containers.

Polypropylene: Propylene derivative used in the production of plastics and fibers, among other products.

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.

Systems integration: Practice of service which consists in designing and building customized computer solutions, combining and connecting hardware and/or software of one or several manufactures products.

Triple play: a marketing term for the provisioning, over a single broadband connection for voice, Internet and TV.

G LOS S A R Y


u

u

ALFA is a company that manages a portfolio

of diversified subsidiares: Sigma, an important

producer, marketer and distributor of foods

through well recognized brands in Mexico,

the United States, Europe and Latin America;

Alpek, one of the world’s largest producers

of polyester (PTA, PET and fibers), which also

leads the Mexican market in polypropylene,

expandable polystyrene (EPS) and caprolactam;

Nemak, a leading provider of innovative

light-weighting solutions for the automotive

industry, specializing in the development and

manufacturing of aluminum components for

powertrain and body structure; Alestra, a

leading provider of information technology

and communications services for the enterprise

segment in Mexico; and, Newpek, a company

in the hydrocarbons industry in Mexico and the

United States. In 2015, ALFA reported revenues

of Ps. 258,300 million (U.S. $16.3 billion), and

EBITDA(1) of Ps. 38,440 million (U.S. $2.4 billion).

ALFA’s shares are quoted on the Mexican Stock

Exchange and on Latibex, the market for Latin

American shares of the Madrid Stock Exchange.

Sigmaacquires 37 percent of the shares of Campofrio and assumes full control of the company

Nemak completes IPO on the Mexican Stock

Exchange

(1) EBITDA = operating income + depreciation and amortization + non-recurring items.

NOTE: In this annual report, monetary figures are expressed in nominal Mexican pesos (Ps.), and in nominal dollars (U.S. $) unless otherwise specified. Conversions from pesos to dollars were made using the average rate of the month in which the revenues or disbursements were made. The percentages of variation between 2015 and 2014 are expressed in nominal terms.

Investor RelationsEnrique FloresVice-President Corporate CommunicationsPhone: +52 (81) 8748 [email protected]

Luis OchoaVice-President Investor RelationsPhone: +52 (81) 8748 [email protected]

Raúl GonzálezInvestor Relations ManagerPhone: +52 (81) 8748 [email protected]

Juan Andrés MartínInvestor RelationsPhone: +52 (81) 8748 [email protected]

Independent AuditorPwC

Mexican Stock ExchangeALFADate listed:August 1978

Latibex (Madrid Stock Exchange)ALFA C/I-s/ADate listed:December 2003

DESIGN: signi.com.mx

www.alfa.com.mx

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ALFA, S.A.B. de C.V.

Av. Gómez Morín 1111 Sur, Col. Carrizalejo.

San Pedro Garza García, N.L.

C.P. 66254, Mexico

ANNUAL

REPOR T

2015 ANNUAL REPORT 2015 ALFA, S.A.B. de C.V. Av. Gómez Morín 1111 Sur, Col. Carrizalejo. San Pedro...

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