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Growth reimagined Prospects in emerging markets drive CEO confidence

14th Annual Global CEO Survey

Armando Garza Sada Chairman of the Board of Directors, Alfa, S.A.B. de C.V.,

Interview Transcripts Armando Garza Sada Chairman of the Board of Directors, Alfa, S.A.B. de C.V., Mexico

Alfa is a Mexican company incorporated Summary in 1974. Its corporate offices are located in San Pedro Garza García, Nuevo León. • In recent years, our companies have Measured in terms of its income, Alfa is been able to increase their market one of the largest diversified industrial share, while our customers were doing companies in Mexico. It comprises four so too. This has allowed us to grow. business groups: (), • We serve our markets “from the (high-tech aluminum auto bottom up”; that is, we try to discover parts), Sigma (refrigerated food) and or anticipate the needs of our Alestra (telecommunications). Alfa has customers in order to provide them operations in Argentina, with the best possible solutions. Austria, Brazil, , China, Costa • In Alpek we have interesting Rica, the Czech Republic, the Dominican investment opportunities. We recently Republic, El Salvador, Germany, entered into a process of acquiring Hungary, Mexico, Peru, Poland, Slovakia plants from Eastman and the . Alfa markets its Chemical Co., which produce raw products in more than 70 countries materials for polyester in all its around the world. applications. Armando Garza Sada has been the • In Nemak, the expectation of Chairman of the Board of Directors of accelerated growth of the automotive Alfa since March 2010. However, he has in has driven us to worked with the Company since 1978, develop our business in that region. holding important executive positions, We have top executives living in among the most important of which China, whose mission is to open spaces were Vice Chairman of the Board of for our products and explore new Directors, Senior Vice President of alternatives in which we may benefit Corporate Development, and President from our knowledge and experience. of the subsidiaries Versax, Sigma, Polioles and Selther. He is currently a • Our subsidiary Sigma is expanding member of the board of directors of internationally, both in the United FEMSA, , FRISA, Lamosa, MVS States market, with a primary focus and of the Instituto Tecnológico y de on the Hispanic segment, and in Estudios Superiores de South America. We wish to adapt to (ITESM). He is also a member of the these markets the business model board of Stanford University and of the we have implemented with great Advisory Board of its business school. success in Mexico. Armando Garza Sada has a major in Alestra has found in the business niche Engineering from the Massachusetts of the Mexican market a significant Institute of Technology and a Master’s growth opportunity through offering its degree from the Stanford Graduate customers a solid platform of value School of Business. added telecommunications services.

14th Annual Global CEO Survey

Interview Transcripts • Although we have always been In the case of the economic regions, Armando Garza Sada significantly aware of our corporate we have seen that the recovery of the Chairman of the Board of Directors, social responsibility in Mexico, we North American and European markets Alfa, S.A.B. de C.V., Mexico have now expanded this concept to has been slower than everyone would encompass our activities in other wish. Also, risks persist in the Euro countries and regions. We have Zone which could affect financial gotten involved with the needs and stability. On the other hand, the ambitions of our employees and of economic horizon looks clearer and the communities surrounding our more promising for the emerging facilities, actively participating in the nations of Asia and . promotion of their well-being and quality of life. In any case, the good news is that our companies have been able to increase • In Mexico, it is important to have a their market share, in tandem with our “country vision”, which is accepted customers. This has allowed us to grow. by all or at least a vast majority of our In summary, the crisis has strengthened population. This would allow us to us, leaving us better prepared to recognise the areas that are really continue steadily expanding. relevant so that we can advance in the correct direction. Change of strategies Global environment Living markets from the bottom up Indicators and trends Our business models are solid, as The virtuous circles of demonstrated during the global crisis competitiveness we have undergone. We did not have The economic crisis of 2008 brought to restructure these models or submit very different challenges and them to significant organisational opportunities for each of our businesses. reengineering, although we did take The crisis was not so severe in food steps to protect our cash flow against or in petrochemical products, since the risk that the financial crisis could demand continued growing or at result in a generalised lack of liquidity. least did not fall. Neither was the crisis Thus we can state that the strategic severe in the telecommunications changes made in the last few years, services sector, which is in the and those contemplated in the short forefront of the technological wave. or medium term, were not made in Hence, our only business sector affected response to the crisis or its aftermath. by the crisis was the one supplying the The only exception, as expected, was . Nemak, in the automotive industry, In 2010, the first three businesses where, in view of the problems faced mentioned continued growing. The by our customers from mid 2008 to fourth sector experienced a strong the first quarter of 2009, we had to recovery, as a result of the rebound of implement emergency measures and the automotive markets, which grew reduce our labor force. strongly although not achieving pre- At Alfa, we serve our markets “from the crisis levels. The steps adopted by our bottom up”; that is, we try to discover or subsidiary to cope with the difficult anticipate, as precisely as possible, what situation proved their worth and, with 14th Annual Global the needs of our customers are, so as to the increase in the demand, allowed it CEO Survey provide the best solution. It is this to generate record cash flow figures. Interview Transcripts “upwards” approach that has allowed Growth and geographic Armando Garza Sada us to increase our market share, diversification Chairman of the Board of Directors, whether through organic growth, Alfa, S.A.B. de C.V., Mexico acquisitions, joint ventures, or Markets on wheels innovation and development of new The automotive industry, of which and improved products. we are suppliers, has faced a difficult situation recently. In addition to the Long-term planning pays off financial crisis, the industry faced As mentioned above, except for the its own crisis, characterised by the automotive business, the crisis did not oversupply of vehicles, a trend of rising force us to make any significant fuel prices, technological advances, changes. Thus, for example, in the and changes in the preferences of petrochemical business, the market consumers, who are increasingly factors continued to be raw material sensitive to ecological and prices and energy costs; as well as the environmental sustainability problems. manufacturing of products increasingly We have a fairly clear picture of the friendly to the environment. In the new trends and of how the automotive case of refrigerated foods, the industry markets will be in the short and inclination of the consumer towards medium term. We know that the most healthier products or the search for dynamic markets will be those of the specific nutritional content, trends that emerging countries, mainly Asia, while had already been present prior to the the markets of and the United crisis. The same may be said for the States will grow at a considerably slower telecommunications markets, where rate. We see that there is a clear trend the key factor is found in the design of toward manufacturing vehicles with convergent connectivity solutions more efficient engines, but without (voice, data and internet services), sacrificing power, as well as toward tailored to the specific needs of our replacing large vehicles with lighter current and potential customers. ones and with compact SUV’s. We are Our strategic approach has been ready to quickly take advantage of the maintained within the framework business opportunities in the markets of of the mid- and long-term planning the future, and those resulting from the exercise, which is valid even for the transformation of the automobile to big acquisitions we made this year, which I have referred. such as those of BAR-S in Sigma, and the petrochemical plants of Learning Mandarin… Eastman Chemical Co., in Alpek. In the near future, it is anticipated These acquisitions were not the result that the global automotive industry of a chance opportunity, but rather will come principally from the Asian of the process of planning, resource continent. For that reason, we are management and negotiations over closely observing those business is a long period of time. done in that region.

14th Annual Global CEO Survey

Interview Transcripts For a few years now, we have been transaction is closed, Alpek will Armando Garza Sada manufacturing and selling our products redimension its capacities, becoming the Chairman of the Board of Directors, in China. Now, we are building a plant company with the best technology in Alfa, S.A.B. de C.V., Mexico in India. Even though both efforts are North America, which will place us in a still incipient, our commitment is good position to expand beyond this strong: we have sent top-level executives region, which has until now been our to the region, with the mission of natural market. developing spaces for our products and exploring new alternatives through And communicating. which we could leverage our knowledge In the case of Alestra, we offer value- and experience. added telecommunications services to the Mexican market, especially to We see a great opportunity: a wide the business sector. Our strategy is very market, customers who have not yet focused: to provide the best connectivity consolidated their preferences, and added value solutions, in order competitors with small-scale processes, to benefit from the rapid growth of with poor technological differentiation the sophisticated markets combining and high costs, etc., conditions that telecommunications with information could be propitious for our acquiring an systems. interesting part of the market and increasing our operations in Asia. Innovation and Development With a lot of protein… Without I+D there is no paradise Innovation has played an important In the food markets, we have interesting role in the growth of our company. We growth options, through strengthening may be the Mexican business group that our position in the Mexican market or destines the most resources to research expanding internationally. and development. In fact, four years ago For the Mexican market, Sigma’s we institutionalised the innovative strategy consists of strengthening its processes in our technological and leadership position and capturing a research areas. By better orienting our large share of the market through efforts in this area, we have been able to branding and creating new food develop new products and implement alternatives for its customers and improvements in the productive consumers. Internationally Sigma is processes which have resulted in aiming at the United States market, greater efficiency. specially the Hispanic segment, as well It should be mentioned that in order to as at the Central American, Caribbean strengthen our R&D efforts, we have and South American markets, where we entered into collaboration agreements will look to adapt our business model, with universities in Mexico, the United which has been highly successful, to the States and Europe. We also have circumstances in each case. technological partners in some of our Good chemistry… companies, who provide us with valuable support in this field. In the petrochemical markets interesting opportunities are also In Sigma, our I+D activities have available. Such is the case of the allowed us to launch new products into acquisition, currently in process, of the the market, with which we have gained 14th Annual Global Eastman plants that produce raw market share and strengthened our CEO Survey materials for polyester. Once this brands. One of these products is Guten®, Interview Transcripts a soy-based food which replaces meat The banks have also eased the Armando Garza Sada products with considerable advantages conditions and costs of access to credit; Chairman of the Board of Directors, from the nutrition point of view, since it therefore, they have become safe options Alfa, S.A.B. de C.V., Mexico has the same relative amount of for obtaining the financial resources that proteins, with a lower fat content. we have needed. Our good financial Acceptance by the consumer has been results have strengthened the confidence favorable, since, in addition to the that institutions with which we have aforementioned advantages, this worked for many years have in us, as product is competitive in price. well as that of others with which, without having a very long relationship, Nemak’s geographic scale and coverage we have encountered mutually allows it to invest in I+D projects beneficial business opportunities. of a multinational scope. We have two technological centers, located in García, Labor markets and talent Nuevo León, Mexico and Linz, Austria. management For several years now, we have been developing projects for new products, A well-proven model new materials and technological Alfa has always achieved a harmonious improvements. To complement this, we relationship with its employees. This has also actively promote the development resulted in low personnel turnover and of new technologies jointly with in great employee loyalty to the our customers. company. The labor model is based on respect for the individual, as well as on Production costs are the key competitive investing in the employees so as to element in the petrochemical business. achieve their optimum development. For that reason, our R&D efforts in Alpek This investment goes beyond training have focused on searching for ways for their work position, extending to the to increase efficiency. This includes assistance granted to the individual in reducing the specific investment per ton, order for him or her to grow as a person, increasing the yield from raw materials, which is made extensive to his or her reducing the consumption of energy immediate family. and improving the environmental performance of the plants. Thus, we can Long-lasting relationships say that Alpek operates with efficiency standards superior to the average in its In terms of executive remuneration, industry and to many of its competitors. ALFA’s formula is not different from that of other Mexican companies of a similar Money and capital markets size. There is a fixed and a variable compensation, both in the short and the Liquid markets long term, which depend on reaching Alfa is a company that uses external and exceeding pre-established goals. financing to improve its return on capital. The debt markets have been Our capacity to attract, retain and willing to finance the investments of manage executive talent does not companies like ours that have solid depend on the compensation package, balance sheets and good credit records. but rather on our ability to create a sense For example, in 2009, Alestra, Sigma of belonging to an organisation that and Petrotemex (a subsidiary of Alpek) offers a long-term relationship and a issued bonds under Rule 144-A in the professional development opportunity, 14th Annual Global United States market. and that has a clear conception of itself, CEO Survey of what it wants to be, and of how to achieve it. Interview Transcripts In this sense, our commitment goes outside of Mexico, so that our social Armando Garza Sada beyond the trends in most global responsibility has increased. We accept Chairman of the Board of Directors, corporations, where the people easily this circumstance and have gotten Alfa, S.A.B. de C.V., Mexico go from one company to another. involved with the needs and aspirations On the contrary, at Alfa what we offer of the communities where we operate. our executives is permanence and We are concerned with what happens participation in a long-term business beyond the limits of our plants. project, allowing them to grow professionally and economically Modern times demand that companies without neglecting their family, social actively participate in society and that is and human sides. what we are doing. We have a strong feeling of solidarity. Recently, in our The development of internal home state of Nuevo León, Mexico, we talent is our base have had significant security problems and a deterioration of the rule of law. We Generally, in Alfa we hire our future have also suffered natural disasters. The executives when they graduate from city, the state, the country and the world university. The key is to evaluate the we live in demand that we dedicate part education they have received and select of our time to search for a way to solve people with talent. Once they become these problems that affect us all. part of the group, we train them and put them to work. After a reasonable Also, due to their greater capacity of period of time, they get the opportunity organisation, management, handling to occupy a position of greater and administration of resources, responsibility and thus they climb the companies have a very significant organisational ladder. role in supporting the society in its search for solutions to problems as This strategy has yielded satisfactory complex and severe as those I have results for many years, so that only on mentioned. An example of the benefits very rare occasions do we need to go of collaboration between companies, out and look for talent outside our government and society has been the companies. Our management model rapid reconstruction of infrastructure in may not be the most modern and the state of Nuevo Leon, Mexico, which sophisticated, but it has been one of was seriously affected by hurricane the most solid pillars of our company. “Alex”. Private companies played a It also helps us understand why Alfa is significant role in getting the federal an organisation where the principal funds for reconstruction to flow rapidly, stockholders and their families have a by offering their help and participating very long-term business vision. It also as managers and guarantors of the explains why our top-level staff and transparent and correct administration most of our senior executives have of these funds. worked in the group for an average of more than 30 years. Value metrics Social responsibility At Alfa, we consider that the market value of the share and the return to the Historically, we have had a very clear shareholders are the principal and least vision of our commitment to Mexican questionable indicators of the creation society. In fact, we may state that we or destruction of value. On the other 14th Annual Global have been among the pioneers in our hand, we have recently been reflecting CEO Survey country in the field of corporate social on who we are and who we want to be. responsibility. Now, we have expanded It is clear that Alfa is a company with a Interview Transcripts shareholder base that has maintained us from focusing on formulating Armando Garza Sada its shareholding positions since the strategies to reach our objectives. Chairman of the Board of Directors, beginning and that they come Alfa, S.A.B. de C.V., Mexico from families that have shown an I believe this is one of the most urgent entrepreneurial spirit for more than 100 tasks we have to focus on. We cannot years. Our responsibility towards them continue to lose time on issues that is to ensure the continued profitable have already been overcome in and sustainable growth of Alfa. developed, as well as some emerging, nations. Our government should decide With that vision of our future to start searching for that “common development, we are developing denominator”, acting as a catalyst of new indicators that will help us to that process, and above all bringing it better measure our performance in to a happy conclusion. If this is done, organisation areas that are key to there is no doubt that we would become improving the productivity and a more productive, more prosperous competitiveness of our business units. and fairer society. Public policies to improve From reforms… to reforms the business environment In Mexico there is a great debate over Constructing a country vision what are the structural reforms required by the country in order to trigger a new On the subject of public policies to stage of sustained growth. There is no improve the Mexican environment, I doubt that there are opportunities in believe our government should take the the tax area, and in the energy and initiative to promote the of telecommunications sectors. But I am a “country vision” as widely shared and one of those who believe the first reform agreed as possible. A vision which shows should be that of the government, since us what we want to be, to be the starting it is this that would allow us to have a point for all those involved: politicians, live interaction process among all businessmen, intellectuals, and the civil Mexicans, generating more productive society itself, to dialog and define what political-legislative processes and the country model is that we aspire to, a creating the conditions to process and model that includes all of us, and in take everything else to a satisfactory which we are all able to recognise conclusion. ourselves. This would lay the bases for recognising the truly relevant aspects and eliminating those that are not; those that only distract us, preventing www.pwc.com/ceosurvey PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. 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