2016 Annual Report Worldreginfo - 9Bb3cd03-2480-4Baf-Aad8-78A842c51ba2 ALFA Is a Company That Manages a Portfolio of Diversified Subsidiaries

2016 Annual Report WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 ALFA is a company that manages a portfolio of diversified subsidiaries:

• Sigma, a leading multinational refrigerated food company, focused on the production, marketing and distribution of quality foods through well recognized brands in Mexico, Europe, United States 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 lightweighting solutions for the global automotive industry, specializing in the development and manufacturing of aluminum components for powertrain and body structure applications. • Axtel, a provider of information technologies and communication services for the enterprise, government and mass markets in Mexico. • Newpek, active in the U.S. and Mexican hydrocarbons industry.

In 2016, ALFA reported revenues of Ps. 293,782 million (U.S. $15.8 billion), and EBITDA(1) of Ps. 43,254 million (U.S. $2.3 billion). ALFA’s shares are quoted on the Mexican Stock Exchange and on Latibex, the market for Latin American shares on the Madrid Stock Exchange.

Contents

2 Business Groups 4 Letter to Shareholders 7 Financial Highlights 8 Sigma 10 Alpek 12 Nemak 1) EBITDA = operating income + depreciation and amortization + non-recurring items. 14 Axtel 16 Newpek NOTE: In this annual report, monetary figures are expressed in nominal Mexican pesos (Ps.), and in nominal 18 Board of Directors dollars (U.S. $) unless otherwise specified. Conversions 19 Management Team from pesos to dollars were made using the average rate 20 Corporate Governance of the month in which the revenues or disbursements were made. The percentages of variation between 2016 21 Consolidated Financial Statements and 2015 are expressed in nominal terms. WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Highlights of the year Sigma Opened a new cooked and cured meats plant in Burgos, Spain, replacing the one destroyed by fire in late 2014.

Alpek Began the construction of a cogeneration plant of in Tamaulipas, Mexico. It also acquired a PET plant in Canada and an EPS plant in Chile.

Nemak Started up an auto parts plant and a machining plant in Mexico, acquired a company in Turkey and advanced in the construction of a plant in Slovakia.

Axtel Completed the merger between Alestra and Axtel, thus creating a more competitive company in the information technologies and communication market in Mexico.

Newpek Focused on the optimization of the operation of existing wells, minimizing exploration and drilling, while waiting for more favorable conditions in the hydrocarbons industry.

1 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Business Groups

www.sigma-alimentos.com Main products Markets • Cooked and cured meats: Ham, sausages, bacon. Food • Dairy products: Cheese, yogurt, cream, butter. Highlights 2016 • Other refrigerated and frozen foods. Revenues: U.S. $5.7 billion Plants: 67, in 13 countries Employees: 42,150

www.alpek.com Main products Markets • Polyester chain: PTA, PET and fibers. Containers for beverages, food and consumer products; • Plastics and Chemicals: Polypropylene, Expandable packaging for electronic appliances; textiles; construction Polystyrene, Caprolactam, Ammonium sulfate. and automotive. Highlights 2016 Revenues: U.S. $4.8 billion Plants: 23, in six countries Employees: 5,284

www.nemak.com Main products Markets • Aluminum heads and blocks for gas and diesel engines. Automotive • Transmission cases Highlights 2016 • Structural components and parts for electric vehicles. Revenues: U.S. $4.3 billion Plants: 36, in 16 countries Employees: 21,371

www.axtelcorp.mx Main services Markets • Data centers • Cloud services Enterprise, government, mass market • Data security • Internet Highlights 2016 • Networks management • Pay-TV Revenues: U.S. $736 million • Consultancy services • Voice service Employees: 7,588 • Systems integration

Main products Markets • Hydrocarbons Energy, oil and gas • Oil and gas services Highlights 2016 Revenues: U.S. $107 million Presence U.S.A. and Mexico Employees: 190

2 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Breakdown by business in 2016

Revenues EBITDA Assets

● SIGMA 36% ● SIGMA 28% ● SIGMA 30% ● ALPEK 31% ● ALPEK 28% ● ALPEK 28% ● NEMAK 27% ● NEMAK 34% ● NEMAK 28% ● AXTEL 5% ● AXTEL 9% ● AXTEL 12% ● NEWPEK 1% ● NEWPEK 1% ● NEWPEK 2%

Global Footprint

3 19 14 21 24

5 9 15 23

27 22 13 17 2 7 26 10 18 16

8 11 20 4

1 6

SIGMA ● ALPEK ● NEMAK ● AXTEL ● NEWPEK ●

1 Argentina ● ● 8 Costa Rica ● 15 Hungary ● 22 Portugal ● 2 Austria ● 9 Czech Republic ● 16 India ● 23 Russia ● 3 Belgium ● 10 Dominican Republic ● 17 Italy ● 24 Slovakia ● 4 Brazil ● ● 11 Ecuador ● 18 Mexico ● ● ● ● ● 25 Spain ● ● 5 Canada ● ● 12 El Salvador ● 19 Netherlands ● 26 Turkey ● 6 Chile ● 13 France ● 20 Peru ● 27 United States ● ● ● ● 7 China ● 14 Germany ● 21 Poland ● 3 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Armando Garza Sada Chairman of the Board of Directors

Álvaro Fernández Garza President

Letter to Shareholders Dear shareholders: A key highlight of our investment program was Our 2016 financial results were generally in line with our expectations. the opening of a new state-of-the art produc- Operating in many countries worldwide, the company was once again tion facility in Spain for Sigma, replacing the one subjected to the vagaries of complex economic environments, further destroyed by fire in november 2014. Alpek began exacerbated by the U.S. presidential election, as well as slower growth construction of a second energy cogeneration in some of our main markets. plant in Tamaulipas, Mexico. The company is also expanding its business through acquisitions and 2016 was also characterized by exchange rate has announced the purchase of two polyester volatility and unstable oil prices. Despite all these plants in Brazil. Nemak started operations at two headwinds, there were also many bright spots in new plants in Mexico, acquired a company in our business units and we remain a financially Turkey, while moving ahead on the construction of strong and healthy company, well positioned to a new plant in Slovakia. ALFA also completed the support future growth opportunities and tackle merger between Alestra and Axtel, which created potential challenges. a new, more competitive company in the IT and communication business. Over the years, we have taken steps to better position the company to operate in challenging Business Segments Performance environments. The positive results of these actions SIGMA were evident in 2016. Operating efficiencies across The food markets of Europe, Mexico and Latin all of our business units, our market leadership America remained stable in 2016, but those of the positions and focus on increasing our value-added U.S. experienced a slight decline. In turn, Sigma product offerings and services enabled ALFA to reported sales of 1.68 million metric tons, similar deliver financial results that were comparable to to the 2015 level. On the positive side, prices of those of the previous year. basic commodities such as meat and milk remained low during the year. Overall this benefited During 2016, the company continued to invest to Sigma, but this was partially offset by the peso’s further improve cost competitiveness as well as weakening by 18% against the U.S. dollar which expand capacity and venture into new markets, all raised the cost of imported raw materials for our of which should contribute to profitable long-term Mexican business. growth for ALFA.

4 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 By year end, Sigma had opened a new cooked NEMAK Capital and cured meats plant in Burgos, Spain, replac- The strength of the U.S. market and growth in Expenditures ing the one destroyed by fire in late 2014. With Europe, coupled with plant efficiencies and greater totaled an investment of U.S. $225 million, this plant has value-added products, resulting from processes annual production capacity of 100,000 metric such as machining, allowed Nemak to deliver U.S. $1,491 tons and is equipped with the latest technology, improved EBITDA. making its operations more efficient, safe and environmentally friendly. Nemak invested U.S. $541 million to boost production capacity, increase value-added product offer- ALPEK ings and expand its geographic presence in order The petrochemical industry in general continued to serve new contracts in all its business lines. The to operate in a weak and unstable oil price envi- company signed new contracts equivalent to U.S. ronment. However, Alpek was able to maintain its $875 million in revenues per year, more than 60% sales volume and capitalize on operating efficiencies of them corresponding to incremental programs, reflecting investments made over several years. In including some for structural components and addition, an improvement in polypropylene margins parts for electric vehicles. positively contributed to financial results. In line with the expected lev- The Polyester business benefited from a favorable el of new business, Nemak ruling in an antidumping case that resulted in com- started up operations of an pensatory duties in the U.S. against PET imports, as auto parts plant and a ma- well as from savings from the energy cogeneration chining plant in Mexico and plant in Veracruz, Mexico. On the down side, its advanced in the construction results remained affected by low oil and raw material of a structural components prices, lower reference margins in Asia, and the tem- facility in Slovakia, which will porary shutdown of PET plants on the East Coast of be commissioned around the U.S. due to hurricane damage. mid-2017. The company acquired the Turkish firm The Plastics and Chemicals business reported Cevher Döküm, expanding record-high EBITDA, benefiting from better mar- its capacity in Europe while gins in the polypropylene business, as a result of at the same time enhancing its access to talented Axtel headquarters, lower raw material prices. This business was also human resources to serve that market. San Pedro Garza positively impacted by the incorporation in April of García, N.L., Mexico. an EPS plant in Chile with a nameplate capacity of AXTEL 20,000 metric tons a year. At the beginning of the year, Alestra and Axtel merged, creating a new company that is 51% Around mid-year 2016, a monoethylene glycol owned by ALFA and which retained the Axtel (MEG) tolling agreement began with a Huntsman name. The merger created a more competitive plant in Texas, securing a supply of 150,000 metric company with greater capacity to supply IT and tons of this material at prices linked to ethane. communication services to business and govern- In addition, construction continued on the new ment clients, as well as triple-play offers for the M&G plant in Corpus Christi, Texas, which will give high-end residential segment. Alpek access to 500,000 metric tons of integrated PET at highly competitive prices due to the plant’s On the operating side, services to the business advantages in technology, raw material supply and and mass market segments continued performing logistics. Finally, it began construction of a new well, although government spending cuts reduced cogeneration plant in Tamaulipas that will enable investment in government agency projects. Alpek to be even more cost competitive overall. Also during the year, Axtel acquired the remaining Toward the end of 2016, Alpek announced an 49% of Estratel, a company specializing in IT solu- agreement with Petrobras to purchase two tions for business and government clients. Alestra polyester plants in Brazil. This transaction has had previously acquired 51% of this firm. Axtel also very important strategic advantages as it allows invested in expanding its data centers’ capacity, IT Alpek to increase its presence in South America infrastructure and metropolitan rings and increas- with modern assets. The transaction is estimated ing last-mile access to its clients. at U.S. $385 million and is subject to various and usual closing conditions, including government and board approvals.

5 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 EBITDA for the Finally, Axtel participated in the Altán consortium the Sigma plant in Spain. On a comparable basis, year was which won the public tender for the government’s EBITDA grew by 5% percent in 2016. “Red Compartida” (Shared Network) project. This U.S. $2.3 will enable the company to advance toward its goal Majority Net Income was U.S. $142 million, com- of becoming a major user of that network, since pared to U.S. $223 million in 2015. The reduction in billion mobility is a key factor in the company’s strategy. 2016 Income was primarily the result of foreign-exchange losses caused by the peso’s depreciation NEWPEK against the dollar, which affected foreign-cur- As with other oil and gas exploration and produc- rency-denominated debt for companies whose tion companies, lower global oil prices continued functional currency is the peso. impacting Newpek’s performance. Facing this environment, the company and its partners reduced Investments to support future growth have been investment in exploration and drilling new wells the hallmark of ALFA’s strategy. To that end, the in the U.S. to a minimum until a more favorable company’s total investment for 2016 as described price environment is present. As a result, sales in previous paragraphs reached U.S. $1.49 billion for volume was 7.2 thousand barrels of oil equivalent fixed assets and acquisitions. The company’s finan- per day (MBOEPD), a reduction of 23% from 2015 cial condition remained solid, as evidenced by the primarily due to the normal decline in production following financial indicators: Net Debt to EBITDA, from operating wells. 2.5 times and Interest Coverage, 6.6 times.

In Mexico, Newpek continued operating two mature Dear shareholders, the global macroeconomic con- oil fields in Veracruz, under service contracts with ditions remain uncertain, contributing to daunting PEMEX. Production at challenges for our Company. Exchange rate and oil these fields also declined prices volatility and its impact on ALFA’s business- primarily reflecting oil price es require the company to continue making its weakness. Average pro- best effort to overcome those challenges. ALFA duction was 3.5 MBOEPD, has been successful in the past in facing such 27% less than in 2015. difficulties and will do so again. For that matter, it can count on the support of all of its members, and Also, in Mexico, the pro- relies on its strengths: market leadership, cut- cess of opening the hydro- ting-edge technologies, latest generation facilities carbon industry to private and talented, committed human capital. investment advanced slowly during the year. On behalf of the Board of Directors, we are grate- New public tenders have ful to you, our shareholders, for the trust and sup- Campofrio plant, been announced for 2017, including blocks in shal- port placed in us. We also recognize and value the Burgos, Spain. low waters, mature on-shore gas fields and others. confidence of our customers, suppliers, financial Newpek will carefully evaluate the opportunities community, and particularly the more than 81,000 when determining whether or not to participate. employees that make up the ALFA community.

CONSOLIDATED FINANCIAL RESULTS We reiterate our pledge to work to keep ALFA a ALFA’s consolidated results to a large extent leading and successful company and a source of reflect the volatile economic and commodity con- pride for all. ditions its individual business units faced during the year. As a result, total revenues were U.S. $15.8 San Pedro Garza García, Nuevo León, Mexico, billion, 3% lower than in the previous year. The key February 20, 2017. contributors to the reduction were: lower prices on petrochemical products, which caused lower revenues at Alpek; the devaluation of the peso against the U.S. dollar, which had a particularly marked impact on Sigma, when reporting its peso Armando Garza Sada revenues in dollars; and lower aluminum prices, Chairman of the Board of Directors which hampered revenues at Nemak.

EBITDA totaled U.S. $2.3 billion, 4% lower than in 2015 as the year-ago results benefitted from an extraordinary gain related to payments from in- Álvaro Fernández Garza surance companies to cover the cost of the fire at President

6 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Financial Highlights

ALFA AND SUBSIDIARIES MILLIONS OF PS. U.S. $ MILLIONS(4)

2016 2015 % chg. 2016 2015 % chg.

Income Statement

Net Sales 293,782 258,300 14 15,756 16,315 -3

Operating Income 24,214 24,058 1 1,313 1,518 -13

Majority Net Income 2,325 3,778 -38 142 223 -36

Majority Net Income per Share (1) (Ps. & U.S. $) 0.45 0.74 -39 0.02 0.04 -50

EBITDA (2) 43,254 38,440 13 2,322 2,420 -4

Balance Sheet

Total Assets 348,563 266,705 31 16,868 15,501 9

Total Liabilities 247,950 186,890 33 11,999 10,862 10

Stockholders’ Equity 100,613 79,815 26 4,869 4,639 5

Majority Interest 75,776 62,191 22 3,667 3,614 1

Book Value per Share (3) (Ps. & U.S. $) 14.8 12.12 22 0.72 0.70 3

(1) Based on the weighted average number of outstanding shares (5,120,500 in 2016 and 5,129,888 in 2015). (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 2016 and 5,129,888 at the end of 2015). (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.

REVENUES EBITDA ASSETS U.S. $ Millions U.S. $ Millions U.S. $ Millions 16,868 17,224 16,315 15,879 2,420 15,756 15,773 15,152 2,322 15,501 2,040 1,915 1,854 12,648 11,854

12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 7 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 One of the year’s highlights was the startup of a new cooked and cured meats plant in Burgos, Spain, with Sigma production capacity of 100,000 metric tons per year.

8 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 U.S. $225 million investment in the new plant in Spain

The plant is considered the most advanced of Committed to the environment, Sigma its kind in the world, thanks to cutting-edge signed a project, with the company Frontera 869 technology that makes operations more effi- Renovable, to receive clean energy from the

cient and environmentally friendly. Tres Mesas wind park in Tamaulipas, for its 663 operations in Mexico, starting in 2017. 636

The new plant replaces the facility that was 524 470 destroyed in a fire in late 2014. It took two As a result of these actions and of the busi- years to build and involved an investment of ness environment it faced last year, Sigma re- U.S. $225 million, financed with the insurance ported revenues and EBITDA of U.S. $5.7 bil- payment that covered both the asset damage lion and U.S. $663 million, respectively. These 12 13 14 15 16 and business losses from the fire. are 3% and 24% lower than in 2015, mainly due to the peso’s depreciation during the year EBITDA In 2016, the company continued to pursue its and because the 2015 EBITDA included the U.S. $ Millions brand-strengthening strategy. For example, it insurance payment on the plant fire in Spain. introduced a selection of cured meats under the Campofrio brand to the Mexican market, To strengthen its financial position, Sigma proving Sigma’s capacity to capitalize on the successfully placed a U.S. $1 billion 10-year strength of its brands by entering new mar- bond on international markets with a coupon kets and complementing its product offering. rate of 4.125% a year. The proceeds were used to pay off nearer-term debt in advance. Also, it continued adding value to the yogurt category, through the launch of new options Through the launching of innovative, high-quali- in its Yoplait Greek and Placer lines. In the ty and nutrition products, Sigma will continue to U.S., Sigma continued to promote its main bring consumers more of their favorite foods in Revenue brands like Bar-S, a leading hot dog brand in the markets where it is present. Breakdown 2016 the U.S., and Fud, aimed at the Hispanic mar- ● Mexico 41% ket. It also integrated Campofrio’ s operations ● Europe 38% in that country under the Fiorucci brand. ● United States 14% ● Latin America 7%

In Latin America, Sigma focused on introduc- ing best practices in its marketing, operations and commercial areas to continue its profitable growth.

In 2016, the Sigma Nutrition Institute was founded, whose aim is to promote research and the generation of knowledge about nutrition and wellness. Six forums where held in which a panel of experts engaged in open dialogue to bring this knowledge to other companies and the public, and to encourage informed decision making regarding nutrition.

9 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 In a challenging year for the petrochemical industry, characterized by high volatility in oil prices and oil byproducts, Alpek reported a contrasting Alpek performance between its two business segments.

10 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 728 669 630 572 434

12 13 14 15 16 EBITDA Strategically, the company made substantial increase in expandable polystyrene produc- U.S. $ Millions progress in its investment program towards tion capacity, expected to start up in early supporting vertical integration, improving op- 2018; and the construction or two propylene erating efficiency and increasing profitability. storage spheres that will complement existing polypropylene operations. On the one hand, the Polyester business benefited from a favorable ruling in an antidumping Also, Alpek completed the acquisition of case and the imposition of compensatory du- two plants, a PET facility in Canada, which ties in the U.S. against PET imports, primarily contributes to greater capacity and a stronger from Asia, as well as savings from the energy presence in the Canadian market, and an cogeneration plant in Veracruz, which started EPS plant in Chile. Around mid-year, a tolling operations at the end of 2015. Conversely, its agreement for the supply of monoethylene Revenue results were negatively affected by low oil pric- glycol (MEG) was begun with a plant owned es and raw materials, lower reference margins by Huntsman in Texas. Alpek also completed Breakdown 2016 in Asia, and the temporary shutdown of PET its investment in the M&G integrated PET plant ● Polyester plants, resulting from the impact of a hurri- in Corpus Christi, Texas, which is expected to Products 71% ● Plastics & cane, that struck the East Coast of the U.S. begin operations in 2017. Chemicals 29%

The Plastics and Chemicals business contin- In December of 2016, Alpek announced an ued to benefit from better polypropylene mar- agreement to purchase two polyester plants gins, the result of a favorable supply-demand in Brazil owned by Petrobras. This is a strate- cycle in North America, combined with lower gic transaction for Alpek, as it will allow the price on raw materials, allowed this business to reach an unprecedented level of EBITDA. In the case of expandable polystyrene, the favorable environment for margins in North and South America due to higher reference prices in Asia, also resulted in record EBITDA. The integration of plants acquired in North and South America in 2015, along with the incorporation of another plant in Chile, also contributed to this performance.

In summary, Alpek reported sales volume similar to that of the previous year. Revenues totaled U.S. $4.8 billion, a reduction of 8% from 2015 due to lower average prices, linked to the drop in raw material prices. However, EBITDA rose to U.S. $669 million, 6% more than in 2015, supported by record results in the polypropyl- company to increase its presence in South EPS plant in Altamira, ene and expandable polystyrene businesses. America with modern assets. The transaction Tamaulipas, Mexico. amounts to U.S. $385 million. Investments during the year totaled U.S. $345 million. Among the most important of Alpek has a solid financial position charac- these are three major projects being devel- terized by dollarized cash flows, low leverage oped in Tamaulipas: the construction of a and high interest coverage, which enables it to second cogeneration plant, which will start successfully face volatility in the industry and up in 2018, and will reduce energy costs; an move ahead with its strategic investments. 11 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 In 2016, the company took important steps toward consolidating its position as a leading supplier of innovative lightweighting solutions Nemak for the global automotive industry.

12 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Record EBITDA U.S. $798 million

Carmakers have faced increasingly strict emis- in Germany and Poland, focused on the sion reduction standards, which has led them to launch and deployment of structural compo- design and produce lighter, more fuel-efficient nents and parts for electric vehicles. At the vehicles. One of the most widely used alterna- end of 2016, Nemak has obtained contracts tives has been to replace iron with aluminum in to produce this type of components equiva- engine parts, transmissions and chassis. lent to annual revenues of approximately U.S. $270 million. Nemak has benefitted from this trend by making use of its cutting-edge technology, Nemak started up a high-pressure die casting experience in aluminum casting and glob- plant in Monterrey, Mexico that will produce Revenue al presence. It has also steadily increased engine blocks, transmission cases and struc- Breakdown 2016 its sales volume, adding more value to its tural components, and progress was made in ● North America 58% products and expanding its product lines the construction of a plant in Slovakia that will ● Europe 33% and services. Thus, the launch of structural produce structural components starting in 2017. ● Rest of the World 9% components represents a key path of growth for the company. In addition, Nemak acquired Cevher Döküm, an aluminium auto parts manufacturer in In 2016, the economic environment was Turkey, which represents another milestone favorable for the automotive industry in North in Nemak's global expansion strategy, thus

America and Europe. In the U.S., high con- strengthening its competitive position in 798 759 sumer confidence, low gasoline prices and Europe, by raising its production capacity in 702 the availability of credit at low rates, drove the region and expanding its technological 623 automobile sales to a record high of 17.6 platform with qualified human talent to supply 508 million vehicles, slightly higher than in 2015. premium car companies. In Europe, demand in Germany, France and Spain more than offset weakness in Eastern Nemak will continue to strengthen its main Europe. Notwithstanding the performance of business of power train parts, improving oper- Nemak’s primary markets, a downscale in the ating efficiency, while promoting the structural 12 13 14 15 16 production of a compact model from a major components and parts for electric vehicles lines. customer affected sales volume of Nemak, EBITDA which totaled 50.1 million of equivalent units, Based on its human talent, world-class tech- U.S. $ Millions 1% less than in 2015. nology and global presence, Nemak is positioned to continue benefiting from the growth Meanwhile, revenues decreased 5% to U.S. in demand for lightweighting solutions in the $4,257 million, mainly due to a drop in the price automotive industry. of aluminum, its main raw material, which was passed through sales prices. Despite this, a greater proportion of value-added products, and operational efficiencies prompted an increase of 5% in EBITDA, which totaled U.S. $798 million.

Nemak developed various projects to re- spond to growing demand for its products and strengthen its technological platform. This included boosting production capacity of engine blocks in North America, Asia and Europe, and setting up an Engineering Center 13 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 In February, 2016, the merger between Alestra and Axtel created a new company with a stronger competitive position in the information technologies Axtel and communication market in Mexico.

14 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 40,400 km network of optical fiber

The new company, named Axtel, has a Furthermore, to expand its service coverage, more solid infrastructure resulting from its Axtel acquired 49% of Estratel, a company 225 increased scale and the strength of the two specializing in IT solutions for business and 170 170 companies’ operating and commercial capac- government clients. Alestra had already ac- 166

ities, including a network of more than 40,400 quired 51% of this firm in 2015. 137 km of optical fiber and an area of more than 7,000 m2 in six data centers. Axtel also worked on innovation projects like the Single-Service Window solution for the As a result of the merger, Axtel reported federal government, agreements with Open revenues and EBITDA of U.S. $736 million Xchange and Compusoluciones to use Axtel’s 12 13 14 15 16 and U.S. $225 million, respectively, which cloud service capacity in various applications EBITDA are 89% and 36% higher than in 2015. These and the launch of NAVE, a business acceler- U.S. $ Millions percentages already reflect the negative ator that seeks to identify and develop start- impact from translating company revenues ups and scale-ups with success potential in received in pesos into U.S. dollars. When the IT and communication market. measured in pesos, these items rose 123% and 59%, respectively. In November, the Mexican Ministry of Com- munications and Transportation awarded to Axtel focused on promoting IT and communi- the Altán consortium, which includes Axtel, the cation solutions for business and government project for “Red Compartida” (Shared Net- clients, as well as offering triple-play services work), involving the installation and operation to homes and small businesses. The enter- of a new-generation wholesale mobile network prise market accounted for 66% of revenues, in the 700 MHz band to provide reselling while the mass market and government cli- services to operators. This will allow Axtel to ents accounted for 20% and 14%, respective- complement its services portfolio with mobility, ly. Government spending cuts in 2016 affected becoming a key user and supplier of infrastruc- Revenue revenues from the government segment. ture and services for the “Red Compartida”. Breakdown 2016 Despite lower investment by the government, ● Enterprise 66% Axtel won some projects that improved its The new Axtel seeks to create value through ● Mass market 20% ● performance toward the end of the year. productivity, innovation and customer service, Government 14% through a wider array of solutions and robust In 2016, Axtel invested U.S. $210 million technological infrastructure, competitive in projects focused on business clients, strengths that should translate into positive expanding data centers, IT infrastructure results in the near future. and metropolitan rings, as well as last-mile accesses for clients.

One particularly important project is the construction of the second data center in Querétaro, which in its initial phase will have 1,800 m2 of floor area. In 2016, the Querétaro Data Center was designated by the Interna- tional Computer Room Experts Association as “World Class”, recognizing its robust infrastructure and best practices in operating efficiency and environmental commitment.

15 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Faced with a new environment of lower hydrocarbons prices, the company focused on Newpek optimizing operations and expenses in order to maintain its competitive position.

16 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 In 2016, Newpek concentrated on: lowering The company continued to make progress in the operating costs of its assets, and reducing migrating its current service contracts in these investment in exploration, drilling and finish- fields to exploration and production contracts. ing wells to a minimum. It completed only the work that was necessary or due under con- In 2016, Newpek reported total revenues of tract, focusing primarily on maintenance at its U.S. $107 million and EBITDA of U.S. $9 mil- production wells. If prices continue to recover, lion, declines of 23% and 86%, respectively. this situation is expected to change in 2017. During the year, new auctions were an- In the U.S., production was concentrated nounced for 2017, which include blocks in Revenue at the Eagle Ford Shale and Wilcox plays. shallow waters as well as mature on-shore gas Breakdown 2016 During the year, 18 new wells that were in and oil fields. Newpek will carefully analyze ● Oil & preparation at the end of 2015 were connect- any opportunities that arise in these auctions. Condensates 64% ed to sales, raising the number of producing ● Dry Gas 36% wells to 628. Sales volume was 7.2 thousand However, due to the lower oil price scenario barrels of oil equivalent per day (MBOEPD), a in the mid-term, ALFA is revising its strategy reduction of 23%, due to the normal decline in energy and has initiated the sale of some of of operating wells. Production of liquids and its assets in the U.S., Mexico and Peru. oil accounted for 64% of total volume, compared to 59% reported in 2015. Newpek’s technical team has extensive experience in exploration and production of Despite price headwinds in 2016, Newpek shale hydrocarbons as well as in conventional 756 made significant progress in the seismic mature fields. These advantages, together producing wells in analysis and interpretation of its assets in with its world-class capacity for geological the U.S. and Mexico Oklahoma, Kansas and Colorado. The results and geophysical analysis, place Newpek in a were encouraging, as locations and several favorable position in the hydrocarbon explora- prospects with development potential were tion and production industry. identified. Newpek will continue analyzing the price environment to resume its exploration and development programs in these prospective areas as soon as market conditions improve. 120

In Mexico, Newpek continued operating two

mature oil fields (San Andrés and Tierra Blan- 91 ca) in Veracruz, both under service contracts 67

signed with PEMEX in 2013. Production at 66 these fields also declined due to oil price weakness. At the end of the year, these fields had 128 wells in operation. Average produc- 9 tion was 3.5 MBOEPD, a reduction of 27% 12 13 14 15 16 compared to 2015. EBITDA U.S. $ Millions

17 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Board of Directors

José Calderón Rojas 2A Ricardo Guajardo Touché 1B Chairman of the Board and Chief Executive Offi- Board member since March, 2000. Member of the cer of Franca Industrias, S.A. de C.V. and Franca Boards of Liverpool, Grupo Aeroportuario del Sur- Servicios, S.A. de C.V. este, Grupo Bimbo, Femsa, Coca-Cola Femsa, Grupo Board member since April, 2005. Member of the Coppel, Vitro and ITESM. Boards of Femsa, BBVA Bancomer (Regional Board), ITESM and UDEM. President of Asociación Amigos David Martínez Guzmán 1C del Museo del Obispado, member of Fundación Chairman of the Board and Special Advisor of UANL, and founder of Centro Integral Down. Fintech Advisory Inc. Board member since March, 2010. Member of the Enrique Castillo Sánchez Mejorada 1A Boards of Telecom Argentina, Cemex, Vitro and Managing Partner of Ventura Capital Privado, Banco Sabadell. S.A. de C.V. Board member since March, 2010. Chairman of the Adrián Sada González 1B Board of Maxcom Telecomunicaciones and of Banco Chairman of the Board of Vitro, S.A.B. de C.V. Nacional de México. Board member of Southern Board member since April, 1994. President of Alfa’s Copper Corporation, Grupo Herdez and Médica Sur. Corporate Practices Committee. Member of the Board Senior Advisor of General Atlantic. Alternate Board of Cydsa. Member of Consejo Mexicano de Negocios. member of Grupo Gigante. Federico Toussaint Elosúa 1A Francisco Javier Fernández Carbajal 1C Chairman of the Board and Chief Executive Offi- President of Servicios Administrativos Contry, cer of Grupo Lamosa, S.A.B. de C.V. S.A. de C.V. Board member since April, 2008. President of Alfa’s Board member since March, 2010. President of Alfa’s Audit Committee. Member of the Boards of Xignux, Planning and Finance Committee. Member of the Grupo Iconn, Banco de México (Regional Board), Boards of VISA Inc., Femsa and Cemex. UDEM and Centro Roberto Garza Sada of the UDEM. Member of Consejo Mexicano de Negocios. Álvaro Fernández Garza 3C President of Alfa, S.A.B. de C.V. Guillermo F. Vogel Hinojosa 1C Board member since April, 2005. Co-Chairman of Chairman of the Board of Grupo Collado, S.A.B. the Board of Axtel. Member of the Boards of Alpek, de C.V., and of Exportaciones IM Promoción, S.A. Nemak, Cydsa, Grupo Aeroportuario del Pacífico, Vitro, de C.V. UDEM, Georgetown University (Latin American Board) Board member since April, 2008. Member of the and Museo de Arte Contemporáneo de Monterrey. Boards of Tenaris, SanLuis Corporación, Corpo- ración Mexicana de Inversiones de Capital, Innovare, Armando Garza Sada 3C Novopharm and Universidad Panamericana-IPADE. Chairman of the Board of Alfa, S.A.B. de C.V. Member of the Trilateral Commission and of the Inter- Board member since April, 1991. Chairman of national Council of the Manhattan School of Music. the Boards of Alpek, and Nemak. Member of the Boards of Cemex, Femsa, Frisa Industrias, Grupo Carlos Jiménez Barrera Lamosa, Liverpool, Proeza and ITESM. Member of Secretary of the Board Consejo Mexicano de Negocios.

Claudio X. González Laporte 1B Keys: Chairman of the Board of Kimberly-Clark 1 Independent Board Member de México, S.A.B. de C.V. 2 Independent Proprietary Board Member Board member since December, 1987. Member of the 3 Related Proprietary Board Member Boards of Fondo México, Grupo México and Bolsa A Audit Committee Mexicana de Valores. Advisor to Capital Group. B Corporate Practices Committee C Planning and Finance Committee

18 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Management Team

Armando Garza Sada Álvaro Fernández Garza Chairman of the Board President Joined ALFA in 1978. Joined ALFA in 1991. Undergraduate degree from Undergraduate degree from MIT. Master’s degree from Notre Dame University. Stanford University. Master’s degrees from ITESM and Georgetown University.

Mario H. Páez González José de Jesús President of Sigma Valdez Simancas Alimentos President of Alpek Joined ALFA in 1974. Joined ALFA in 1976. Undergraduate degree from Undergraduate degree from ITESM. Master’s degrees ITESM. Master’s degrees from ITESM and Tulane from ITESM and Stanford University. University.

Armando Tamez Martínez Rolando Zubirán Shetler President of Nemak President of Axtel Joined ALFA in 1984. Joined ALFA in 1999. Undergraduate degree from Undergraduate degree from ITESM. Master’s degree UNAM. Master’s degree from from George Washington USC. Ph.D. from UANL. University.

Alejandro M. Elizondo Carlos Jiménez Barrera Barragán Senior Vice President, Senior Vice President, Legal, Audit and Corporate Development Affairs Joined ALFA in 1976. Joined ALFA in 1976. Undergraduate degree from Undergraduate degree from ITESM. Master’s degree from Universidad de Monterrey. Harvard University. Master’s degree from New York University.

Ramón A. Leal Chapa Paulino J. Rodríguez Chief Financial Officer Mendívil Joined ALFA in 2009. Senior Vice President, Hu- Undergraduate degree man Capital and Services from Universidad de Joined ALFA in 2004. Monterrey. Master’s degrees Undergraduate degree and from ITESM and Harvard Master’s degree from the University. University of the Basque Country, Spain.

19 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Corporate Governance

ALFA adheres to Mexico’s current Code of Best Cor- D. Members must inform the Chairman of any con- porate Practices in place in Mexico since 2000. flicts of interest that may arise, and abstain from participating in the corresponding deliberations. This Code was developed at the initiative of the Average attendance at Board meetings was securities authorities of Mexico and its purpose 96.6% during 2016. is to establish corporate governance principles to increase investor confidence in Mexican companies. E. The Audit Committee studies and issues recommendations to the Board on matters such Companies whose stocks trade on the Mexican as the selection and determination of fees to Stock Exchange must disclose the extent to which the independent auditor, coordinating with the they adhere to the Code of Best Corporate Practices. internal audit area of the company, and studying This is done annually by responding to a question- accounting policies, among others. naire, which is available to the public through the Mexican Stock Exchange’s web site. F. The company has internal control systems with general guidelines. These are submitted to the The following is a summary of ALFA’s corporate Audit Committee for its opinion. In addition, the governance as stated in the June, 2016 questionnaire, independent auditor validates the effectiveness with any pertinent information updated. of the internal control system and issues the corresponding reports. A. The Board of Directors comprises eleven proprietary members who have no alternates. Of this G. The Planning and Finance Committee evaluates number, eight are Independent and one is Inde- all matters relating to its particular area and pendent Proprietary Board Member. This annual issues recommendations to the Board on matters report provides information on all of the Board’s such as feasibility of investments, strategic posi- members, identifying those who are independent tioning of the company, alignment of investment and the Committees in which they participate. and financing policies, and review of investment projects. B. Three Committees assist the Board of Directors in carrying out its duties: Audit, Corporate Prac- H. The Corporate Practices Committee is respon- tices, and Planning and Finance. Board members sible for issuing recommendations to the Board participate in at least one committee each. All on such matters as employment conditions and three committees are headed by an independent severance payments for senior executives, and board member. The Audit and Corporate Prac- compensation policies, among others. tices Committees are formed by independent members only. I. There is a department dedicated to maintaining an open line of communication between the C. The Board of Directors meets six times by year. company and its shareholders and investors. Meetings of the Board can be called by the This ensures that investors have the financial and Chairman of the Board, the President of the general information they require in order to eval- Audit Committee, the President of the Corporate uate the company’s development and progress. 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.

20 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Financial Statements

Management’s Analysis 22 Report of Independent Auditors 33

Consolidated Financial Statements: Consolidated Statements of Financial Position 40 Consolidated Statements of Income 42 Consolidated Statements of Comprehensive Income 43 Consolidated Statements of Changes in Stockholders’ Equity 44 Consolidated Statements of Cash Flows 46 Notes to Consolidated Financial Statements 47

21 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Management’s Analysis

2016 The following report should be considered jointly with the Shareholders’ Letter (pages 4–6) and the Audited Financial State- ments (pages 40-109). Unless otherwise indicated, figures are expressed in millions of nominal Mexican pesos for information corresponding to the period between 2014 and 2016. Percentage differences 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 Analysis corresponds to the last three-year period (2014, 2015 and 2016), and has been adapted to comply with International Financial Reporting Standards (IFRS). This information has also been expanded in some chapters to include three years in compliance with the General Provisions applicable to Security Is- suing Companies and other Participants of the Securities Market, as issued by the National Banking and Securities Commis- sion (CNBV for its acronym in Spanish), up to December 31, 2016.

San Pedro Garza García, N. L., February 20, 2017.

ECONOMIC ENVIRONMENT In 2016, there was a slow-down in world economy growth. The volatility of financial markets persisted, mostly as a result of events such as Brexit, the US presidential elections and the standardization of the monetary policy by the US Federal Re- serve (Fed). On the other hand, the US dollar exchange rate increased with respect to most currencies, including the Mexican peso, due to an expected increase in the US economy, together with an expansionist tax policy and an increase in interest rates by the Fed. Lastly, the international price of oil increased significantly towards the end of the year after the OPEP announced its agreement to cut down production.

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 decreased from 2.5% in 2015 to 2.3% (estimated) in 2016. Consumer inflation was 3.4% (b) in 2016, higher than the 2.1% (b) recorded in 2015. The Mexican peso experienced annual nominal depreciation of 19.5% (c) in 2016, as compared to depreciation of 17.0% (c) in 2015. In real terms, the annual average overvaluation of the Mexican peso with respect to the US dollar went from 11.8% (d) in 2015 to 6.3% (d) in 2016.

With respect to the interest rates in Mexico, the average TIIE for the year was at 4.5% (b) in 2016 in nominal terms, as compared to 3.3% in 2015. In real terms, there was a decrease, from an annual accumulated 1.9% in 2015 to 0.5% in 2016.

The nominal 3-month LIBOR rate in US dollars (annual average) was 0.7% (b) in 2016, above the 0.3% (b) observed in 2015. If the nominal depreciation of the Mexican peso is incorporated vis-à-vis the US dollar, the LIBOR rate in constant pesos goes from 14.9% (a) in 2015 to 16.5% (a) in 2016.

Sources: (a) National Statistics, Geography and Information Institute (INEGI). (b) The Bank of Mexico (Banxico). (c) Banxico. Exchange rate to settle liabilities in foreign currency payable in Mexico. 22 (d) Own calculations with information from INEGI, bilateral with the United States, considering consumer prices. WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 ALFA continues expanding worldwide, successfully facing macroeconomic challenges. Given that the company operates in different countries worldwide, it was exposed once more to the effects of a complex economic environment. Those effects were exacerbated by the result of the US presidential elections and by a slow-down in growth of some of its main markets.

2016 also brought about great volatility in the dollar-peso exchange rate and oil price instability. Despiste those issues, our business had significant achievements and ALFA remained a financially solid company in an advantageous position to sieze growth opportunities or face potential challenges, which made it possible to have results comparable to those of the preceding year.

RESULTS SALES The following chart provides information on the sales of ALFA in 2016, 2015, and 2014, as well as a break down of its components by volume and price (the indexes are calculated using the 2011=100 basis):

Concept 2016 2015 2014 Var. 2016-2015 (%) Var. 2015-2014 (%) Consolidated sales 293,782 258,300 229,226 14 13 Volume index 144.3 129.9 122.7 11 6 Price index in Mexican pesos 110.2 107.8 100.9 2 7 Price index in US dollars 74.2 85.3 94.7 (13) (10)

Furthermore, consolidated sales are broken down per ALFA group:

Concept 2016 2015 2014 Var. 2016-2015 Var. 2015-2014 Alpek 90,192 83,590 86,072 6,602 (2,482) Sigma 106,341 93,568 71,465 12,773 22,103 Nemak 79,244 70,891 61,665 8,353 9,226 Axtel 13,744 6,163 5,519 7,581 644 Newpek 1,991 2,180 3,067 (189) (887) Other businesses 2,270 1,908 1,438 362 470 Consolidated total 293,782 258,300 229,226 35,482 29,074

Note: In this document, Axtel 2016 figures include results of Alestra for 12 months and of Axtel for 10.5 months. The figures of 2015 and 2014 only include Alestra.

Revenue indexes (2011=100) 144 130 123 110 114 107 111 101 98 97

93 95 95 85 75

12 13 14 15 16 12 13 14 15 16 Prices Volumes ■ Pesos ■ Pesos ■ Dollars

23 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Sales behavior is explained below:

2016-2015: Consolidated sales in 2016 totaled $293,782 million Mexican pesos (U.S. $15,756 million), 14% above the figure reached in 2015 (decrease of 3% in US dollars). Following is an explanation of the performance in the year of each ALFA company:

Alpek sales were similar in volume to those of the preceding period. Revenues totaled US$4,838 million, 8% lower than in 2015 as a result of lower prices caused by a drop in prices of raw materials. The polyester business experienced a number of contrasts: it incurred savings resulting from the full operation of the cogeneration plant starting in late 2015, but was affected by the low prices of oil and raw materials, as well as by the temporary shut-down of PET plants in the Eastern USA due to damages caused by hurricane Matthew. On the other hand, the plastics and chemicals business benefited from better profit margins of polyprylene and the acquisition of plants in South America in 2015.

Sigma revenue totaled US$5,698 million, which is 3% below the result for the preceding period, mainly due to the peso depreciation occurred during the year. The sales volume was 1,679 million tons of food, 1% above in relation to the previous period. In 2016, the company continued to follow a strategy aimed at strengthening its brands. In Mexico, it introduced a selection of Campofrío products on the market and continued revaluing its yogurt line; in the US it promoted its Bar-S and Fud brands through different advertising campaigns and it integrated its Campofrío operations there. In Latin America, it continued to incorporate marketing and commercial best practices. In Europe, it started operations of its new cold meats plant in Burgos, Spain, with processing capacity of 100,000 tons per year.

In 2016, the economic environment was favorable for the automotive industry in North America and Europe. In USA, consumer trust, low gasoline prices and low credit rates offered in 2016 made it possible for car sales to reach a record 17.6 million units, slightly above 2015. In Europe, demand in Germany, France and Spain made up for market weakness in eastern countries. Nevertheless, performance of the main Nemak markets and discontinuation of a compact model for an important client affected Nemak’s sales, which totaled 50.1 million equivalent units, 1% below 2015. Income for the period was $79,244, a 12% increase in relation to 2015, which reflected the effects of the peso depreciation. Income measured in US dollars showed a 5% reduction resulting from a contraction in the price of aluminium, its main raw matrial, which affected the sales price.

The merger of Alestra and Axtel in February 2016 resulted in the creation of a new company with a more competitive position in the TI and telecommuncations service market in Mexico, with income of US$736, which is 89% in US dollars and 123% in pesos above the figures for 2015. The increase is mainly due to the merger, but it was also caused by a more solid infrastructure, including a 40,400 km fiber optic network and the expansion of the Data Center in Querétaro, which covers a surface of 1,800 m2. However, federal expense cuts in 2016 affected the company’s income from the government sector.

Lastly, in 2016, Newpek operated in a reduced oil and gas price environment, which started in the middle of 2014. In the US, production centered on the EFS and Wilcox shales, as a result of which 18 wells were connected to sales, for a total of 628, productive wells. The sales volume was 7.2 of equivalent oil barrles per day (MBPED), which represents a decrease of 29% due to the normal decline of operating wells. In 2016, Newpek revenues reached U.S. $ 107 million, 23% less than in 2015.

2015-2014: Consolidated revenues in 2015 amounted to Ps 258,300 million (US$16,315 million), 12.7% higher than in 2014 (a reduction of 5.3% in US dollars). Following is an explanation of the performance of each company of the ALFA group:

Alpek sales in US dollars during 2015 were 18% lower than in 2014 due to a reduction in oil and raw material prices. The polyester business was favored by an improvement in PTA margins in North America that started in April 2015, as well as by revenues ans savings derived from the full operation of the cogeneration plant starting in late 2014. Another factor that contributed to the results of the business were the favorable preliminary rulings regarding the PET antidumping case in the USA..

In 2015, Sigma sold 1.7 million tons of food, 16% more than in 2014. Revenues totaled US$5,901 million, 10% more than in 2014, as a result of the consolidation of Campofrío Food Group (“CFG”) results and the good performance of US operations. How- ever, revenues in Mexico were affected by the peso depreciation.

24 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 On the other hand, Nemak sales volume grew 3% with the addition of 50.7 million equivalent pieces. In North America, production and sales of light vehicles increased 6% and 3%, respectively, in relation to 2014. The factors behind those increases were greater consumer trust, credit availability at lower rates and lower fuel prices. In Europe, car sales increased 2%, which was evidence of a recovery of the industry. Total sales measured in US dollars decreased 4% with respect to 2014 due to the decrease in the price of aluminium, with no significant effects on the profit margin.

In Axtel, revenues in pesos totaled US$6,163 million, 12% more than in 2014. The increase was due to a greater capacity for providing IT, network management, lodging, system integration, network security and cloud services. However, when measured in US dolalrs, revenues totaled US$398 million, 6% below 2014, mainly due to the negative effects of the peso depreciation with respect to the US dollar occurred in the year.

Lastly, in 2015, Newpek operated in an environment of reduced oil prices. It connected 113 new wells to the Eagle Ford, Ed- wards and Wilcox shales in Southern Texas, which increased the number of wells to 610 versus 122 connected in 2014. Pro- duction amounted to 8.2 million of equivalent oil barrels per day (BPED) in 2015, which is similar to production for 2014. Sales increased to US $138 million, 39% below 2014.

OPERATING PROFIT ALFA’s operating profit in 2016, 2015, and 2014 is explained below:

2016-2015: Operating profit Difference by Group 2016 2015 Var. Alpek Sigma Nemak Axtel Newpek Other Revenues 293,782 258,300 35,482 6,602 12,773 8,353 7,581 (189) 362 Operating profit 24,214 24,057 157 2,273 (2,385) 1,286 (1,130) 223 (110) Consolidated operating 8.2 9.3 margin (%) Alpek (%) 10.9 9.1 Sigma (%) 8.0 11.7 Nemak (%) 11.0 10.4 Axtel (%) 3.5 26.2 Newpek (%) -97.7 -99.4

The 1% increase in consolidated operating profit from 2015 to 2016 is explained by the individual performance of ALFA’s companies, as detailed below:

In the case of Alpek, the increase is due primarily to the following factors. The Plastics and Chemicals business produced solid results due to better polypropylene and EPS margins, which resulted from a positive offer-demand cycle in North America and from savings incurred at the energy cogeneration plant located in Veracruz, Mexico. In the case of polypropylene, the improvement is due basically to an increase in Asia reference prices. In the case of EPS, there was a positive profit margin environment in North and South America, as well as the integration of the plants acquired in North and South America in 2015.

In Sigma, the operating profit decreased in relation to the previous year, mainly because the 2015 operating profit included collection of insurance due to the fire in the Spain plant. Additionally, it was affected by the severe drepciation of the Mexican peso during the year, which affected the Mexico operating result. Without the favorable effect of the insurance collection in 2015, the difference would be an 20% increase.

In Nemak, the operating profit grew 17% measured in Mexican pesos in the year. This is due to the increase in sales explained above, as well as to a higher proportion of value added producuts and efficiencies achieved. Measured in US dollars, performance was similar to that of the preceding year.

In 2016, although new Axtel covered a wider range of services and infrastructure, its operating profit decreased by 70% in pesos and 73% in US dollars, mainly due to merger-related expenses, a lower performance of the government business, which was affected by cuts in the federal budgets, and to depreciation of the Mexican peso during the year.

Newpek’s operating profit continued to be negatively affected by a complex environment of low oil prices and reduced production levels.

25 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 2015-2014: Operating profit Variation by Group 2015 2014 Var. Alpek Sigma Nemak Axtel Newpek Other Revenues 258,300 229,226 29,074 (2,482) 22,103 9,225 644 (887) 471 Operating profit 24,057 17,226 6,831 3,851 4,468 1,677 241 (2,665) (741) Consolidated operating 9.3 7.5 margin (%) Alpek (%) 9.1 4.3 Sigma (%) 11.7 9 Nemak (%) 10.4 9.3 Axtel (%) 26.2 24.9 Newpek (%) -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 Cam- pofrío 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, Axtel 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.

SALES AND OPERATING PROFIT COMPOSITION The percentage structure of sales basically remained unchanged between 2016 and 2015, while the ALFA operating profit changed between 2016 and 2015, mainly due to an increase in the operating profit of Alpek and Nemak, and a decrease in Sigma and Alpek, all of which are explained above.

The following chart shows those effects:

Integration % Sales Operating profit 2016 2015 2014 2016 2015 2014 Alpek 31 32 38 41 32 22 Sigma 36 36 31 35 45 37 Nemak 27 28 27 36 31 33 Axtel 5 2 2 2 7 8 Newpek 1 1 1 (8) (9) 3 Other 0 1 1 (6) (6) (3) Total 100 100 100 100 100 100

26 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 FINANCE COST An exchange loss was incurred in the year, mainly due to the macroeconomic environment for the year. As explained above, the Mexican peso suffered an annual nominal depreciation in 2016 of 19.5%, which significantly affected the ALFA finance cost of 2016.

Finance Cost, determining factors 2016 2015 Overall inflation (Dec.- Dec.) 3.4 2.1 Variation % in the nominal closing exchange rate (19.5) (17.0) Nominal closing exchange rate 20.66 17.21 Real appreciation (depreciation) of the Mexican peso / US dollar with respect to the previous year: Closing (18.1) (15.3) Year average (14.6) (17.7) Average interest rate: Nominal LIBOR 0.7 0.3 ALFA debt, nominal implicit 5.4 5.5 LIBOR in real terms 16.5 14.9 ALFA debt, real implicit 22.6 21.0 Monthly average debt of ALFA in US$ 5,737 6,401

Expressed in US$, the net financial expenses from 2016 to 2014 were $352, $312 and $328, respectively.

Variation in net financial expenses in US$ 16/15 15/14 Due to (lower) higher interest rates 6 69 Due to (higher) lower net petty cash debt (46) (53) Net variation (40) 16

Net financial expenses in income include premiums paid on refinancing transactions and operating interests in 2016, 2015 and 2014, in addition to bank financial expenses.

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

Difference Finance Cost 2016 2015 2014 16/15 15/14 Financial expenses (7,195) (5,942) (4,957) (1,253) (985) Financial income 596 575 222 21 353 Financial expenses, net (6,599) (5,367) (4,735) (1,232) (632) Profit/loss from exchange fluctuation, net (7,189) (4,920) (5,221) (2,269) 301 of financial transactions derived from the exchange rate. Impairment of fair value of financial investment (1,270) (4,203) (8,665) 2,933 4,462 available for sale Total CFI (15,058) (14,490) (18,621) (568) 4,131

The fair value of ALFA derivative financial instruments at December 31, 2016 and 2015 is as follows:

Fair value (Millions of US dollars) Type of derivatives, securities or contracts Dec. 16 Dec. 15 Exchange Rate (1) 11 Cross Currency Swaps 0 Interest Rate 0 Energy (33) (89) Total (34) (78)

27 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 INCOME TAX (IT). Following is an analysis of the main factors used to determine IT in each one of the years compared, based on the concept of IT base income, which is the operating profit less the CFI and Other Expenses, net.

IT Variation amount 2016 2015 2014 16/15 15/14 Profit (loss) before income tax 9,271 9,284 (1,686) (13) 10,970 Share of losses of associates recognized by the (115) 284 291 (399) (7) equity method 9,156 9,568 (1,395) (412) 10,963 Statutory rate 30% 30% 30% Income tax at statutory rate (2,747) (2,870) 419 123 (3,289) + / (-) Tax effect of permanent tax-accounting differences: Tax vs. Accounting basis finance cost, net 283 273 875 10 (602) Other permanent differences, net (2,072) (836) (556) (1,236) (280) Total tax effect of permanent differences (1,789) (563) 319 (1,226) (882) Income tax provision based on operations of the (4,536) (3,433) 738 (1,103) (4,171) year Recalculation of back taxes and other (181) 181 Total income tax provision (charged) credited to (4,536) (3,433) 557 (1,103) (3,990) income Effective tax rate 50% 36% 39% Income tax: Currently payable (5,983) (5,420) (3,539) (563) (1,881) Deferred 1,447 1,987 4,096 (540) (2,109) Total income tax provision charged to income (4,536) (3,433) 557 (1,103) (3,990)

2016 NET INCOME In the year, ALFA generated a net consolidated profit, as detailed in the chart below, which is the result of the matter explained above regarding the operating profit, the CFI and the taxes:

Difference Statement of Income 2016 2015 2014 16/15 15/14 Operating profit 24,214 24,058 17,226 156 6,832 FC (1) (15,058) (14,490) (18,621) (568) 4,131 Equity in results of associates 115 (284) (291) 399 7 Taxes (2) (4,536) (3,433) 557 (1,103) (3,990) Net consolidated income (loss) 4,735 5,851 (1,129) (1,116) 6,980 Net income (loss) from controlling interest 2,325 3,778 (2,037) (1,453) 5,815

(1) Finance Cost. (2) Income tax (payable and deferred).

COMPREHENSIVE INCOME The 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 capital earned, regardless of whether they are 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 2016, 2015, and 2014 was as follows:

28 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Comprehensive income Consolidated 2016 2015 2014 Net income 4,735 5,851 (1,129) Translation of foreign entities 16,058 3,598 3,679 Effects of derivative instruments 419 (650) (744) Actuarial losses from obligations of remeasurement (81) (29) (238) of employees’ benefits Consolidated comprehensive income 21,131 8,770 1,568 Owners of the controlling Company 15,473 4,794 (315) Non-Controlling interest 5,658 3,976 1,883 Comprehensive income (loss) for the year 21,131 8,770 1,568

A previous section of this report explains the matters related to net income obtained in 2016, 2015 and 2014. The translation effect of foreign subsidiaries is the result of using different exchange rates between balance sheet accounts and income statement accounts.

During the present year, this item suffered a significant difference due to the volatility of exchange rates of the currencies in the different countries in which Alfa operates.

The effect on capital of derivative instruments represents the effect of energy derivatives that, in accordance with Internation- al Financial Reporting Standards, must be shown in stockholders’ equity.

The effect of actuarial losses arising from employee benefits is the difference in actuarial estimates.

DIVIDENDS DECLARED AND INCREASE IN STOCKHOLDERS’ EQUITY During 2016, a $3,043 dividend was declared equal to $0.59 pesos per share.

In 2015, a $2,380 dividend was declared equivalent to $0.46 pesos per share. In 2014, no dividends were declared due to an extraordinary dividend paid in December 2013.

In 2016, the stockholders’ equity increased by 27%. On the one hand, it increased due to the net income and the minority interest consolidated as a result of the merger of Alestra and Axtel, and to the effect of conversion of foreign entities. On the other, it decreased due to payment of dividends.

INVESTMENT IN DAYS OF NWC (1) In 2016, sales to NWC increased at the consolidated level, which resulted in a increase in the number of NWC days at the consolidated level, going from 19 in 2015 to 21 in 2016.

NWC in days 2016 2015 2014 Alpek 52 45 47 Sigma 1 0 5 Nemak 23 22 12 Axtel (12) (22) (32) Newpek (58) (59) (28) Consolidated 21 19 20 (1) Net Working Capital.

29 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 INVESTMENTS Property, Machinery, and Equipment

Total investments per group were as follows:

% Variation Last 5 years 2016 2015 16/15 Investment % Alpek 5,981 4,482 33% 18,451 23 Sigma 6,298 3,638 73% 14,745 18 Nemak 10,164 7,314 39% 31,239 39 Axtel 3,916 1,612 143% 9,263 11 Newpek 467 948 (51)% 6,301 8 Other 538 95 466% 814 1 Total 27,364 18,089 51% 80,813 100

Business Acquisitions

The merger of Alestra and Axel took place in 2016, with ALFA holding 51% of the new co’s equity. On the other hand, the company operated through its subsidiary Nemak to acquire Covher Doküm, a supplier of complex aluminion smelting parts located in Turkey. Additionally, its subsidiary Alpek signed a share purchase agreement with Petróleo Braileiro, S.A. (Petro- bras) to acquire 100% of its equity in Companhia Petroquímica de Pernambuco ("Petroquímica Suape") and Companhia Inte- grada Têxtil de Pernambuco (“Citepe”). The closing of that transaction requires additional corporate approval and it is subject to a number of precedent conditions, including the approval of the relevant government authorities.

CASH FLOWS Based on cash flows generated from operation, the following table shows the main transactions conducted in 2016.

2016 2015 Cash flows provided by operating activities 37,298 30,506 Property, machinery and equipment, and other (27,364) (16,987) Business acquisitions 372 (1,947) Increase in Bank Financing (496) 612 Dividends paid by ALFA SAB (3,043) (2,380) Dividends paid to the minority interest (2,834) (1,378) Repurchase of shares 0 (458) Interest paid (7,784) (5,127) Changes in the minority interest 0 6,102 Other 538 (2,062) Increase (decrease) in cash (3,313) 6,881 Adjustments in the Cash Flow due to changes in the exchange rate 3,094 1,302 Cash and cash equivalents, and restricted cash at the beginning of the year 24,852 16,669 Total cash at year end 24,633 24,852

30 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Main changes in the net debt of ALFA and its groups were as follows:

Changes in debt net of cash (DNC) US$ Consolidated Alpek Sigma Nemak Axtel Newpek Otros Balance at December 31, 2015 4,785 722 1,925 1,210 211 77 640 Long-term financing, net of payments: Financing 852 100 (57) 0 799 10 0 Payments (968) (132) 0 (29) (752) (55) 0 Short term financing, net of payments 109 87 (35) 32 19 0 6 Total financing, net of payments (7) 55 (92) 3 66 (45) 6 Currency translation effect (137) 10 (12) 19 (149) (1) (4) Debt variation in the statement of cash (144) 65 (104) 22 (83) (46) 2 flows Debt from acquired companies and 941 12 54 875 other Total debt difference 797 77 (104) 76 792 (46) 2 Decrease (increase) in cash and 253 244 (102) (29) (31) (6) 177 restricted cash Change in interest payable 9 (1) 5 5 Increase (decrease) in net cash debt 1,059 320 (201) 52 761 (52) 179

Balance at December 31, 2016 5,844 1,042 1,724 1,262 972 25 819

Debt by Group, Alpek Sigma Nemak Axtel Other short and long term 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Debt balance (US$) 1,174 1,098 2,330 2,435 1,401 1,320 1,043 257 1,058 1,103

Percentage of debt balance Short term debt 11 3 0 5 12 3 4 27 1 0 Long-term 1 year 2 6 2 23 20 19 6 2 3 1 1 3 2 6 11 41 11 20 48 4 4 9 4 0 2 0 10 9 9 26 6 0 0 5 years or more 81 87 66 24 49 62 20 60 94 90 Total 100 100 100 100 100 100 100 100 100 100 Average life of long-term 5.4 6.3 6.0 3.4 4.7 5.5 3.4 6.0 16.7 16.9 debt (years) Average life of total debt 4.9 6.2 6.0 3.2 4.2 5.4 3.2 4.5 16.6 16.9 (years)

US$ Integral % Consolidated debt, short and long term: 2016 2015 Var. 2016 2015 Short term debt Long term 1 year 352 265 87 5 4 2 899 611 288 13 10 3 981 1,456 (475) 14 23 4 405 410 (5) 6 7 5 years or more 4,369 3,471 898 62 56 Total 7,006 6,213 793 100 100 Average life long-term debt (years) 7.0 7.0 Average life of total debt (years) 6.6 6.7

31 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 FINANCIAL RATIOS Liquidity

Debt net of cash / Cash flow (in US dollars for the last 12 months) Groups 2016 2015 Alpek 1.56 1.14 Sigma 2.60 2.22 Nemak 1.58 1.59 Alestra 4.33 1.27 Newpek 2.33 1.16 Consolidated 2.52 1.98

Change for Interest hedging Cash Financial (in US dollars)* 2016 2015 16/15 Flow Expenses Alpek 10.5 10.7 (0.2) 0.7 (0.9) Sigma 5.5 8.5 (3.0) (2.0) (1.0) Nemak 11.9 10.2 1.7 0.5 1.2 Axtel 6.3 24.3 (18.0) 8.0 (26.0) Newpek 1.5 3.8 (2.3) (3.3) 1.0 Consolidated 6.6 7.7 (1.10) (0.3) (0.8) * Defined as the operating profit plus depreciation and amortization, divided by the net financial expenses.

FINANCIAL STRUCTURE ALFA’s financial structure indicators improved during 2016, as observed in the following chart:

Financial indicators 2016 2015 Total liabilities / capital 2.46 2.34 Long-term debt / total debt (%) 95 96 Total debt in foreign currency / total debt (%) 94 100

32 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Report of Independent Auditors

Monterrey, N.L., February 20, 2017

To the Shareholders and Directors of Alfa, S. A. B. de C. V. and subsidiaries

Opinion

We have audited the consolidated financial statements of Alfa, S. A. B. de C. V. and subsidiaries (the “Company”), which comprise the consolidated statement of financial position as of December 31, 2016 and 2015, and the related consolidated statements of income, of comprehensive income, of changes in stockholders’ equity and of cash flows for the years then ended and the notes to the consolidated financial statements, which include a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2016 and 2015, and its financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are independent of the Company in accordance with the Ethics Standards of Mexican Institute of Public Accountants, A.C. together with other requirements applicable to our audits of consolidated financial statements in Mexico, and we have fulfilled our other ethical responsibilities in accordance with those requirements and standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

33 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Key audit matter How our audit addressed the key audit matter Business combinations As described in Note 2 to the consolidated financial Because of the significant judgments employed by statements, during the year ended December 31, 2016, the Management in the valuation models for the determination of Company carried out the following business combinations: the consideration, the fair values of the acquired assets and • On February 15, 2016, Axtel, S.A.B. de C. V. (“Axtel”) assumed liabilities, particularly in the case of property, plant was merged, as a merging company, and Onexa, S.A. and equipment, as well as the intangible assets, we involve de C. V. (“Onexa”), a direct wholly-owned subsidiary of our valuation experts to selectively evaluate the premises and Alfa, S.A.B. de C.V. (“Alfa”), as a merged company. For criteria used by Management and its independent expert in this, Alfa acquired 50.19% of the voting shares of Axtel. these models. Namely: Total consideration amounted to $6,851 million and the fair value of acquired assets, assumed liabilities and • We assessed the capability and independence of the goodwill determined and recognized at the acquisition date independent expert. amounted to $26,986 million, $20,411 million and $3,550 • With our valuation experts’ help, we reconciled that the million, respectively. models used by Management in determining reasonable • On July 31, 2015, the strategic alliance framework values, were the ones used and recognized to assess agreement was signed between Sigma Alimentos, S. A. assets of a similar nature in the industry. Likewise, we de C. V. (“Sigma”) and Kinesis Food Service, S. A. de C. V. corroborated that equally recognized methods were (“Kinesis”). Thus, Sigma acquires control of the operations of a group of subsidiaries collectively identified as “PACSA”, used to calculate the terminal value, which is based on a with the subscription of all voting shares of PACSA. Total normalized cash flow. consideration amounted to $494 million and the fair value of • We challenged Management’s financial projections, acquired assets, assumed liabilities and goodwill determined including the terminal value, comparing it to the and recognized at the acquisition date amounted to $488 performance and historical trends of the Company’s million, $207 million and $213 million, respectively. businesses, obtaining Management’s explanations, if any, of • On August 31, 2015, Sigma acquired the total of the the variations, as well as the supporting evidence. representative capital stock shares of Elaborados Carnicos, S. A. (“ECARNI”), a company in Ecuador engaged in the • We assessed that Management’s projections were consistent raising, buying and selling of cattle, pigs, industrialization with the budgets approved by the Board of the Company. and commercialization of derivatives of the mentioned products. Total consideration amounted to $883 million • We compared the budgeted figures with actual results to and the fair value of acquired assets, assumed liabilities identify if any of the assumptions in the projections could and goodwill determined and recognized at the acquisition be very optimistic. date amounted to $877 million, $233 million and $239 • We compared the most relevant valuation assumptions million, respectively. (applied discount rate, betas, demerit factors, EBITDA Calculations required by IFRS for the determination of fair values multiples, multiple of sales, as well as the assessment of and assumptions used in business combinations are complex. the useful life of the assets) against independent market We focus on the recognition of these acquisitions in our sources for the industry in which each entity of the audit, mainly because of the importance of the fair value of Company develops. the acquired assets and assumed liabilities and because the determination of these, requires the application of significant judgments based on a wide range of complex variables, which are described below. In particular, we focus on the most relevant identified assets, specifically: (i) property, network equipment and other equipment of $14,281 million, and intangible assets composed of brands of $2,162 million and customer relationships of $3,047 million for Axtel; (ii) property, plant and equipment of $105 million, and intangible assets composed of brands of $3 million, non-compete agreements of $49 million and customer relationships of $326 million for PACSA; and (iii) property, plant and equipment of $160 million, and intangible assets composed of brands of $62 million, non-compete agreements of $72 million and customer relationships of $336 million for ECARNI. The most relevant assumptions, premises or variables in these areas were: methodologies used, attrition rate (only for the business combination with Axtel), applied discount rate, betas, demerit factors, EBITDA multiple, multiple of sales, as well as determining the useful life of the assets.

34 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Key audit matter How our audit addressed the key audit matter Control of a subsidiary As mentioned above, on February 15, 2016, Axtel was merged, As in the previous matter, due to the significant judgments as a merging company, and Onexa, a wholly-owned subsidiary required to determine if the Company has control over the of Alfa, S.A.B. de C.V. (“Alfa”), as a merged company, and as acquired entity, we perform the following: of that date, the Company consolidates such opetration in its • We obtained the analysis prepared by Management, financial statements. which includes the criteria used to determine the power to Under IFRS provisions, for financial statements consolidation direct its relevant activities, exposure or rights to variable purposes, it is required to determine if there is control of a returns from its involvement and the linkage between subsidiary, requiring significant judgments by Management power and yields. over the power to direct its relevant activities, exposure or • We compare the criteria used to determine the power to rights to returns variables arising from their involvement and direct its relevant activities, exposure or rights to variable the linkage between power and yields. returns from its involvement and the link between power and yields with what is established in the contracts “Framework Operation Agreement”, “Agreement between shareholders” and “Collaboration Agreement”, as well as with the minutes of the meetings of the Board of Directors and other relevant information. Likewise, we witnessed meetings with Management where we corroborate these decisions. • We obtained confirmation from lawyers regarding the above criteria.

• With support in the above matters, we evaluate the power of the Company to appoint key officers.

35 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Key audit matter How our audit addressed the key audit matter Agreements for the production of PTA-PET materials and Technology IntegRex® license with M&G Resins USA, LLC.

As mentioned in Note 2 to the consolidated financial As part of our audit, we obtained and read the contractual statements, during 2015, the Company entered into agreements pertaining to the transaction. agreements with M&G Resins USA, LLC (M&G), through Due to the significant judgments used in the valuation which the latter agrees to supply 500 thousand tons of PET models for the determination of fair values, and with (manufactured with 420 thousand tons of PTA) during the the support of our valuation experts, we questioned the five years following the two plants’ (PTA/PET) startup of premises, assumptions and criteria used by Management operations, which is expected to occur in 2018. PTA is one of and the independent expert, following the procedures set the main materials for the production of PET manufactured down below, among others: by the Company. As a result of this agreement, the Company paid M&G $8,989 million (US$435 million), of which $7,439 • We evaluated and considered the design and operating million (US$360 million) was recognized as intangible assets, effectiveness of the internal controls over identification, amortizable on the basis of the production volumes and $1,570 classification and valuation of these transactions. In million (US$75 million) was recognized as prepayment for the particular, we considered the key controls related to purchase of inventories. The calculations required to determine interest rates, production volumes and costs. the classification of these payments, of the fair values and • We verified the capability and objectivity of the the assumptions used are complex, as a result of which, the independent expert. Company hired the services of an independent expert. • We compared that the methodologies applied to the We focused on this area due to the importance of the determination of the fair values of these payments amount of the payments made and due to the fact that correspond to methodologies and recognized to value classification of the payments, either in intangible assets assets of similar characteristics in the industry. or prepayments, based on their fair value, required the application of significant judgments by Management. • We challenged the significant judgments related to the most relevant assumptions, premises or variables, and In particular, we concentrated our efforts on the significant we compared the ranges of interest rates, estimated judgments related to the following aspects: methodologies production volumes and costs with independent market used, interest rate range, estimated volumes of production sources commonly used and accepted for assets with and costs. these characteristics for the industry to which the company pertains. • We reprocessed a sample of items to determine their fair value and classification, whether in intangible assets or short or long-term prepayments. • We defied Management’s financial projections, including the residual value, comparing it to the performance and historical trends of the businesses, obtaining Management’s explanations, if any, of the variations, as well as the supporting evidence. • We discussed with Management, the sensitivity calculations, assessing the degree to which the assumptions would need to be modified for an adjustment to be considered for its evaluation.

36 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Key audit matter How our audit addressed the key audit matter Intangible assets impairment assessment

As described in Note 13 to the consolidated financial As part of our audit, we assessed future cash flows projections statements, the Company performs annual impairment prepared by Management and the processes used to prepare assessment on the balance of intangible assets with them. In particular, we assessed whether all relevant CGUs indefinite useful lives. were identified and the internal processes were carried out by Management to make projections, including timely oversight We have focused on this matter due to the importance of the and analysis by the Board of Directors, and if the projections balance of intangible assets for the Company’s consolidated are consistent with budgets approved by the Board. financial statements, which is comprised of goodwill of $21,491 billion, brands of $11,593 million, development costs Due to the significant judgments used in the valuation of $4,773 million, exploration costs of $2,129 million, customer models for the determination of recovery values, and with the relationships of $6,676 million, intellectual property rights of support of our valuation experts, we questioned the premises $5,276 million and others of $11,233 million, is material to the and criteria used by Management in such models, following Company’s consolidated financial statements, and because procedures set down below, among others: impairment assessment involves the application of significant • We verified that the methods applied to the determination judgments by the Company’s Management in determining of the recovery values of the assets correspond to used the assumptions and premises related to the estimation of the and recognized methodologies to value assets of similar recoverable value of the cash generating units (“CGUs”). characteristics. In particular, we focused on the following significant • We challenged the financial projections, including assumptions that the Company considered when estimating terminal value, matching them to the performance and future projections to assess the recoverability of intangible historical trends of the Company, obtaining Management’s assets: industry growth rate, significant new projects and explanations variations. customers, estimated revenue, expected gross profit margin and projected EBITDA. Certain intangible assets require an • We compared actual results for the current year with the impairment assessment only if there are indicators. figures budgeted for prior year, to determine whether any of the assumptions included in the projections could be considered very optimistic. • We compared the most relevant valuation assumptions (applied discount rate, betas, EBITDA multiples, sale multiples, among others) against those commonly used and accepted for assets of these characteristics for the industry in which the Company operates. We discussed with Management the sensitivity calculations for all CGUs and evaluated the extent to which the assumptions would need to be modified for impairment to be required. Moreover, we discussed with Management the probability of those changes being made. With respect to the significant judgment to group CGUs, we analyzed and considered the following aspects: • Understanding of the workings of the commercial and sales strategy area • Understanding the production allocation • Analysis of the operating cash flows and indebtedness policies • Analysis of the legal structure

37 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Key audit matter How our audit addressed the key audit matter Assessment of the recoverability of the deferred income tax

As described in Note 18 to the consolidated financial As part of our audit, we evaluate the projections used to statements, the Company books deferred income tax asset as determine the recovery of deferred income tax asset of tax a result of tax losses, therefore, Management performed an losses. We compared these projections with those used assessment of the recoverability before the recognition in its to determine the recoverable value of the aforementioned financial statements. intangible assets, over which we apply procedures similar to those indicated above. We have focused on this item in our audit due to the importance of the deferred income tax asset balance as As part of our audit, with the support of experts, we also a result of tax losses as of December 31, 2016 ($14,274 evaluate and consider the projected tax results prepared by million) and because the estimate of its recoverable value Management, as well as the processes used to elaborate them involves the application of significant judgments by the by applying the above procedures to them. Company’s Management; specifically, in determining future We also challenge, with the support of our tax experts, the expected income, future projections, as well as future tax assumptions used by Management in the tax projections. results of the Company. We compare the actual results of the current year with the In particular, we focused our audit efforts on the significant budgeted figures of the previous year for the current year, to assumptions that the Company considered in estimating the consider whether any assumptions included in the projections recoverability of deferred tax asset, based on assumptions could be considered very optimistic. similar to those discussed in the previous case. Likewise, as discussed above, we discussed sensitivity calculations with Management and assessed the extent to which assumptions would need to be modified to require an adjustment.

Other Information

Management is responsible for the other information presented. The other information comprises the Annual Report presented to Comisión Nacional Bancaria y de Valores (“CNBV”) and the Annual Information presented to shareholders (but does not include the financial statements and our auditor’s report thereon), which are expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. However, in connection with our audit of the financial statements of the Company, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. When we read the other information not yet received, we will issue the report required by the CNBV and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and, if required, describe the issue in our report. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, Management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process.

38 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Company and subsidiaries audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Miguel Angel Puente Buentello.

PricewaterhouseCoopers, S. C.

Miguel Angel Puente Buentello Audit Partner

39 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Statements of Financial Position

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES December 31, 2016 and 2015 Millions of Mexican pesos

Note 2016 2015 ASSETS Current assets: Cash and cash equivalents 6 Ps 24,633 Ps 24,852 Restricted cash and cash equivalents 7 538 463 Customers and other accounts receivable, net 8 40,300 33,478 Inventories 9 40,923 34,128 Financial assets available for sale 2.f - 1,270 Derivative financial instruments 10 56 203 Other assets 11 5,318 2,937 Total current assets 111,768 97,331

Non-current assets: Property, plant and equipment, net 12 149,503 106,376 Goodwill and intangible assets, net 13 63,171 44,615 Deferred income tax 18 17,976 12,754 Investments accounted for using the equity method and others 14 6,145 5,629

Total non-current assets 236,795 169,374

Total assets Ps 348,563 Ps 266,705

40 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 2016 2015 LIABILITIES AND STOCKHOLDERS ‘EQUITY Current liabilities: Short-term debt 17 Ps 8,807 Ps 5,578 Accounts payable to suppliers and other 16 69,713 52,229 Income tax payable 18 1,515 1,739 Derivative financial instruments 10 99 848 Provisions 19 769 825 Other liabilities 20 2,103 1,747 Total current liabilities 83,006 62,966

Non-current liabilities: Long-term debt 17 136,323 101,631 Derivative financial instruments 10 651 711 Provisions 19 1,163 1,090 Deferred income tax 18 16,228 11,957 Non-current income tax payable 18 5,379 4,190 Employees’ benefits 21 4,502 3,535 Other liabilities 20, 24 698 810 Total non-current liabilities 164,944 123,924 Total liabilities 247,950 186,890

Stockholders´equity: Controlling interest: Capital stock 22 213 205 Retained earnings 22 58,774 58,345 Other reserves 22 16,789 3,641 Total controlling interest 75,776 62,191 Non-controlling interest 24,837 17,624 Total stockholders ‘equity 100,613 79,815 Total liabilities and stockholders ‘equity Ps 348,563 Ps 266,705

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

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

41 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Statements of Income

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES For the years ended December 31, 2016 and 2015 Millions of Mexican pesos

Note 2016 2015 Net sales 31 Ps 293,782 Ps 258,300 Cost of sales 25 (226,422) (204,312)

Gross profit 67,360 53,988

Selling expenses 25 (19,975) (17,526) Administrative expenses 25 (20,971) (14,135) Other income, net 26 (2,200) 1,731

Operating income 24,214 24,058

Financial income, including foreign exchange gain of Ps11,050 and Ps9,223 in 2016 and 2015, respectively 27 11,647 9,798 Financial costs, including foreign exchange loss of Ps18,239 and Ps14,143 in 2016 and 2015, respectively 27 (25,435) (20,085) Impairment of financial assets available for sale 27 (1,270) (4,203)

Financial costs, net (15,058) (14,490)

Share of gain (losses) of investments accounted for using the equity method 115 (284)

Income before income tax 9,271 9,284

Income tax 29 (4,536) (3,433)

Net consolidated income Ps 4,735 Ps 5,851

Income attributable to: Controlling interest Ps 2,325 Ps 3,778 Non-controlling interest 2,410 2,073

Ps 4,735 Ps 5,851

Income per basic and diluted share, in pesos Ps 0.45 Ps 0.74

Weighted average of outstanding shares (thousands of shares) 5,120,500 5,129,188

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

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

42 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Statements of Comprehensive Income

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES For the years ended December 31, 2016 and 2015 Millions of Mexican pesos

Note 2016 2015 Net consolidated profit Ps 4,735 Ps 5,851

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 (81) (29) Items to be reclassified to income statement Effect of derivative financial instruments designated as cash flow hedges, net of taxes 10 419 (650) Effect of translation of foreign entities 22 16,058 3,598

Total other comprehensive income for the year 16,396 2,919

Total comprehensive income for the year Ps 21,131 Ps 8,770

Attributable to: Controlling interest Ps 15,473 Ps 4,794 Non-controlling interest 5,658 3,976

Total comprehensive income for the year Ps 21,131 Ps 8,770

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

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

43 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Statements of Changes in Stockholders’ Equity

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES For the years ended December 31, 2016 and 2015 Millions of Mexican pesos

Total Non- Total Capital Retained Other controlling controlling stockholders´ Note Stock earnings reserves interest interest equity

Balances at January 1, 2015 Ps 207 Ps 52,546 Ps 2,625 Ps 55,378 Ps 13,781 Ps 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.e - (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 22 - - 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 205 58,345 3,641 62,191 17,624 79,815 Transactions with Stockholders: Repurchase of own shares 22 8 - - 8 - 8 Dividends declared 22 (3,043) - (3,043) (2,834) (5,877) Changes in non-controlling interest 2.a 1,147 - 1,147 4,389 5,536 8 (1,896) - (1,888) 1,555 (333)

Net income - 2,325 - 2,325 2,410 4,735 Total other comprehensive income - - 13,148 13,148 3,248 16,396 Comprehensive income - 2,325 13,148 15,473 5,658 21,131

Balances at December 31, 2016 Ps 213 Ps 58,774 Ps 16,789 Ps 75,776 Ps 24,837 Ps 100,613

44 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 ALFA, S. A. B. DE C. V. AND SUBSIDIARIES For the years ended December 31, 2016 and 2015 Millions of Mexican pesos

Total Non- Total Capital Retained Other controlling controlling stockholders´ Note Stock earnings reserves interest interest equity

Net income - 3,778 - 3,778 2,073 5,851 Total other comprehensive income 22 - - 1,016 1,016 1,903 2,919 Comprehensive income - 3,778 1,016 4,794 3,976 8,770

Net income - 2,325 - 2,325 2,410 4,735 Total other comprehensive income - - 13,148 13,148 3,248 16,396 Comprehensive income - 2,325 13,148 15,473 5,658 21,131

Balances at December 31, 2016 Ps 213 Ps 58,774 Ps 16,789 Ps 75,776 Ps 24,837 Ps 100,613

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

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

45 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Consolidated Statements of Cash Flows

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES For the years ended December 31, 2016 and 2015 Millions of Mexican pesos

Note 2016 2015 Cash flows from operating activities Income before income tax Ps 9,271 Ps 9,284 Depreciation and amortization 12 and 13 16,947 11,911 Impairment of long-lived assets 12 and 13 2,094 2,472 Costs associated with seniority premiums and pension plan 21 318 222 Gain on sale of property, plant and equipment (4) (337) Effect of changes in fair value of derivative financial instruments 727 439 Foreign exchange, net 6,647 4,920 Other (interests, net, mainly) 26 6,814 3,873 Impairment of financial assets available for sale 27 1,270 4,203 Increase in customers and other accounts receivable (1,999) (585) Increase in inventory (2,444) (1,783) Inventory advance payments - (1,102) Increase in accounts payable to suppliers and other 2,970 950 Income tax paid (5,313) (3,961) Net cash generated from operating activities 37,298 30,506

Cash flows from investing activities Interest collected 464 435 Acquisition of property, plant and equipment 12 (20,936) (13,004) Sale of property, plant and equipment - 407 Purchases of intangible assets 13 (5,134) (4,390) Business acquisitions, net of cash received 2 372 (1,947) Restricted cash 7 122 (52) Dividends received 42 62 Other assets (1,141) (1,155) Net cash used in investing activities (26,211) (19,644)

Cash flows from financing activities Proceeds from borrowings or debt 17 36,804 30,838 Payments of borrowings or debt 17 (37,300) (30,226) Interest paid (7,784) (5,127) Dividends paid by Alfa, S. A. B. de C. V. 22 (3,043) (2,380) Dividends paid to the non-controlling interest (2,834) (1,378) Repurchase of shares 22 - (458) Changes in non-controlling interest - 11,469 Acquisition of minority interest 2 - (5,367) Other (243) (1,352) Cash used in financing activities (14,400) (3,981) Net increase (decrease) in cash and cash equivalents (3,313) 6,881 Exchange losses on cash and cash equivalents 3,094 1,302 Cash and cash equivalents at beginning of year 24,852 16,669

Cash and cash equivalents at end of year Ps 24,633 Ps 24,852

In 2016 as explained in Note 2.a. main transaction that did not require cash flows corresponds to the acquisition of Axtel.

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

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

46 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Notes to Consolidated Financial Statements

ALFA, S. A. B. DE C. V. AND SUBSIDIARIES December 31, 2016 and 2015 Millions of Mexican pesos

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 automotive parts; Axtel (before Alestra), in the telecommunications sector. See Note 2.a 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 Poland and Turkey. The company markets its products in over 45 countries worldwide and employs over 80,000 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 pesos or “Ps”, mean millions of Mexican pesos. References to “US$” or dollars, mean millions of dollars from the United States. In addition, references to “€”, means millions of euros.

Note 2 - Acquisitions and other relevant events: 2016 a) Acquisition Axtel On December 3, 2015, ALFA, Axtel, S. A. B. de C. V. (“Axtel”) and Onexa, S. A. de C. V. (“Onexa”) subsidiary of ALFA, and a group of its main stockholders of Axtel signed a cooperation agreement, as well as an agreement between shareholders (“the Agreements”) to merge Onexa with Axtel, subsisting the latter. Onexa is the holding company of Alestra, S. de R.L. (“Alestra”). 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 was effective on February 15, 2016. The merge allows 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. The merged entity, Axtel, is a Mexican company engaged in providing fixed and comprehensive telecommunications services (data transmission services, Internet, local and long-distance telephone services) and is expected to continue to be traded in the Mexican Stock Exchange (“BMV”). Under the merger agreement, ALFA acquired 50.19% of the combined entity’s voting shares, in exchange for 100% of Onexa voting shares. The Agreements established a series of rights and obligations for the parties involved in terms of corporate governance and decision making, that granted ALFA the ability to direct activities related to the merged entity, mainly due to the fact that ALFA appoints most of the members of the Board of Directors and the main Directors who hold the power to direct the merged entity’s relevant operations. The Agreements were intended to reasonably anticipate likely future events of the subsidiary and their stockholders during the term of the contract and to set forth the manner accorded to them. Examples include: approval of the generality rules for the business plan; approval of the budget and of ordinary and extraordinary corporate events; changes in Axtel ownership; and resolution of disputes between the stockholders. In accordance with IFRS requirements, ALFA acquired control of Axtel, as the former has the ability to direct its most relevant activities (See Note 5). In accordance with International Financial Reporting Standard (IFRS) 3 “Business Combinations” (IFRS 3), the merger represents a business acquisition and has therefore been recorded by the purchase method established in IFRS 3. Axtel and Alestra operations are considered a single business for accounting purposes, in accordance with IFRS 3. This acquisition is included in Axtel’s segment (See Note 31). The acquisition was recorded, distributing the total assets acquired, including intangible assets and assumed liabilities, based on the fair values determined at the date of acquisition. The acquisition cost in excess of the net fair values of the assets acquired and assumed liabilities has been recorded as goodwill.

47 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Total consideration transferred by ALFA amounted to $6,851, corresponding to the fair value of its investment in Onexa (Alestra), which was merged with Axtel, and in exchange received 9,594,008,144 new common shares of the combined entity (equivalent to 50.19 % of its capital) with an equivalent fair value of $0.7140 per share. This exchange resulted in a gain of $1,785, which was recognized in accumulated results, as it represents the sale of 49.81% of Onexa to the non-controlling interest. The fair value of the shares of the new combined entity issued in favor of ALFA was determined based on the market value of the Axtel share on the Mexican Stock Exchange in effect on the day before the date of the transaction. The total consideration in the amount of $6,851 includes the amount of cash and cash equivalents acquired in the amount of $1,030. At December 31, 2016, fair values of acquired assets and liabilities has been determined and the estimated allocation of the consideration is as follows:

Current assets (1) Ps 4,368 Non-current assets 440 Property, plant, and equipment 14,281 Intangible assets (2) 2,283 Deferred income tax asset 2,567 Customer relations 3,047 Current liabilities (3) (4,326) Non-current liabilities (4) (644) Employees benefits (162) Deferred income tax (1,530) Debt (13,749) Total identified assets, net 6,575 Non-controlling interest (3,274) Goodwill 3,550 Total consideration transferred Ps 6,851

(1) Current assets consist of cash Ps1,030, accounts receivable Ps2,547, fair value financial assets Ps346, advance payments Ps261 and other Ps184 (2) Intangible assets consist of brands Ps2,162 and other intangibles Ps121. (3) Current liabilities consist of suppliers and accounts payable Ps2,417, taxes payable Ps16, other accruals Ps1,131 and provisions Ps580. (4) Non-current assets consist of derivative financial instruments Ps70 and other accounts payable Ps574

The net assets given in exchange through the investment in Onexa (Alestra) amounted to Ps3,320; however, under the terms of IFRS 3, these net assets are not part of the table above and are recorded at their carrying amount. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company’s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. The goodwill recorded is not deductible for tax purposes. The non-controlling interest was recognized based on the proportional interest of Axtel’s net assets acquired. No contingent liability has arisen from this acquisition that would require posting, and there are no contingent compensation agreements in place. Costs related to the association totaled $835 and were recognized in the statement of income for the year ended December 31, 2016, in the other expenses line item. As part of the merger, on the same date of the transaction was effective, in a separate transaction but related to the acquisition, and based on the agreements, ALFA and Alestra paid a group of relevant shareholders of Axtel the amount of $1,233 (US $ 67.5 million) as consideration for them to assume certain obligations to do and not to do (confidentiality and to refrain from certain activities, among others) against those, which have been recorded as intangible assets in the consolidated statement of financial position of ALFA, as of December 31, 2016. The aforementioned agreements included certain payments for compensation in the event of non-compliance by any of the parties, for example: consequence of lack of integrity, inaccuracy or falsity, only with respect to their own declarations and / or breach of their respective obligations. Based on the foregoing and in accordance with the obligations assumed by Axtel and the group of relevant shareholders mentioned above of the agreements mentioned above, it was agreed that ALFA would receive the compensation of the negative economic effects that caused the uncollectability of certain accounts receivable for an amount of Ps984, which qualifies as an adjustment to the consideration transferred, since Axtel has the obligation to pay. Revenues contributed by Axtel assets included in the consolidated statement of income from the acquisition date through December 31, 2016 amounted to Ps13,744, and a net loss of Ps1,752. If the acquisition had taken place on January 1, 2016, the revenues would have increased by Ps974 and net income by Ps1,938, approximately.

48 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 b) Debt refinancing process During May 2016, Sigma carried out a debt financing through the issuance of senior notes in the amount of US$1,000 million in foreign exchange markets. The notes were sold in the U.S., on behalf and for the benefit of U.S. citizens, except for qualified institutional buyers in relation with the exceptions of the registration provided by Rule 144A under the U.S. Securities Act of 1933 and to certain investors outside the U.S. under Regulation S of such Act. The proceeds from that note offering were used to repay in advance short-and long-term existing debt. The following is a summary of the maturity dates stated in dollars, immediately prior and subsequent to that offering and the use of proceeds there from: Subsequent to Prior to refinancing refinancing Debt level US$ 997 US$ 1,041 Maturity 2026 2018 Interest rate 4.125% 1.77% General conditions Guarantee and Guarantee and endorsements of endorsements of some subsidiaries some subsidiaries c) Share purchase agreement of Petroquimic SUAPE and CITEPE On December 28, 2016, the Company through its subsidiary Alpek signed a share purchase agreement with Petróleo Brasileiro S.A. (“Petrobras”) for the acquisition of its 100% stake in Companhia Petroquímica de Pernambuco (“Petroquímica Suape”) and Companhia Integrada Têxtil de Pernambuco (“Citepe”). Petroquimica Suape and Citepe operate an integrated PTA-PET facility in Ipojuca, Pernambuco, Brazil with an installed capacity of 700 and 450 thousand tons per year PTA and PET, respectively. Citepe also operates a 90 thousand tons per year texturized polyester filament plant on site. The agreed upon price for Petrobras’ 100% stake in Petroquimica Suape and Citepe is U.S. $385 million. This amount is payable in Reais at the closing date and is subject to adjustments in working capital and current debt, among others. The closing of this transaction will require further corporate approvals and is subject to several condition precedents, including approval by the appropriate governmental authorities. This contract establishes a maximum period to specify the transaction of fifteen months from the date of the contract. At the date of issuance of the financial statements the approvals and conditions are in the process of being fulfilled. d) Acquisition of Cevher Döküm On November 1, 2016, Nemak acquired all the shares representing of the capital stock of CEVHER DÖKÜM SANAYİİ A.Ş (“Cevher”), a producer company of aluminum castings for the manufacture of automotive components. The acquired entity operates a production plant in Turkey and a trading company. The acquisition of the business is included in the Nemak segment, see Note 31. As of December 31, 2016, the Company is in the process of concluding the purchase price allocation of fair values of acquired assets because valuation is reviewed by independent experts and will be concluded within a period not to exceed twelve months as of the acquisition date. The preliminar balance is shown as follows: Current assets Ps 366 Property, plant, and equipment 1,287 Intangible assets 26 Current liabilities (747) Debt (603) Deferred income tax (80) Other non-current liability (193) Book value of the acquired business Ps 56 Consideration paid (56) Goodwill Ps -

49 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The amount paid for this business was Ps56 (EUR 2.5) in cash. No contingent liability has arisen from this acquisition that should be recorded. Neither exist contingent consideration agreements. Nemak is not responsible for environmental liabilities except for those that may originate on or after the date of acquisition. Costs related to the association totaled Ps14.58 and were recognized in the statement of income for the year ended December 31, 2016, in the other expenses line item. In addition, the entity changed its name to Nemak Izmir Dökum Sanayii, A. S. Revenues contributed by Cevher assets included in the consolidated statement of income from the acquisition date through December 31, 2016 amounted to Ps182, and a net loss of Ps36.

2015 a) Agreements between Alpek and BASF for the expanded polystyrene (EPS) and polyurethane (PU) businesses During 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. A series of transactions can be carried out in order to form a business combination in the most economically effective manner. Under IFRS, an agreement to acquire a business through a series of related transactions is a business combination, and the form of its recognition should be as if it were a single transaction. Therefore, the aforementioned events were considered as transactions that are related and were accounted for in combination as a single agreement with reference to the fair values corresponding to each one of the businesses. 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, are 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.

50 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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. This business is included in Alpek segment. See Note 31. At December 31, 2015, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 622 Property, plant and equipment 424 Current liabilities (2) (183) Debt (140) Deferred income tax (88) Other liabilities (30) Purchase consideration Ps 605

(1) Current assets consist mainly of accounts receivable and inventories amounting to Ps333 and Ps289, 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. b) Public Offer - Nemak During 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.

51 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 c) 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 Ps74 (difference between the amount of Sigma’s contribution and PACSA’s net assets). At December 31, 2016, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 204 Property, plant, and equipment 105 Intangible assets (2) 379 Current liabilities (3) (121) Employee benefits (7) Debt (9) Deferred income tax (131) Goodwill 74 Consideration 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 Ps3, non-competition agreements Ps49, customer relations Ps326 and other Ps1. (3) Current liabilities consist of suppliers and accounts payable Ps82, taxes payable Ps3, short-term debt Ps34 and employee benefits Ps2.

*Certain balances of the previous year related to the distribution of the purchase price were modified in 2016 to recognize the final fair values of the acquired assets and assumed liabilities. As of December 31, 2016, the Company reclassified certain items of the statement of financial position that had previously been presented as part of the goodwill. The reclassified amounts were adjusted by increasing the value of non-current assets by Ps201; Increasing the balance of non-current liabilities by Ps61 and decreasing the value of goodwill by Ps140. For comparative purposes, the Company did not perform these reclassifications retrospectively considering that the aforementioned adjustments do not modify the value of total assets significantly of short- and long-term liabilities and stockholders’ equity as of December 31, 2015. The previous reclassification had no significant impact on the consolidated financial statements of results, stockholders’ equity and cash flows. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company’s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. 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. d) 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 Ps883 (US$53) in cash, includes a restricted cash in favor of Sigma of Ps 77 which constitutes a guarantee deposit with the previous shareholders of ECARNI. Restricted cash will be fully released two years after the acquisition, being able to have partial releases during the mentioned period of two years according to the conditions established in each contract.

52 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2016, final purchase price allocation to fair values of acquired assets and assumed liabilities is as follows: Current assets (1) Ps 247 Property, plant, and equipment 160 Intangible assets (2) 470 Current liabilities (3) (67) Employee benefits (51) Debt (23) Deferred income taxes (92) Goodwill 239 Purchase consideration Ps 883

(1) Current assets consist of cash Ps20, accounts receivable Ps95, inventories Ps98, sundry debtors Ps27 and other current items Ps7. (2) Intangible assets consist of brands Ps62, non-competition agreements Ps72 and customer relations Ps336. (3) Current liabilities consist of suppliers and accounts payable Ps53, taxes payable Ps11 and short-term debt Ps3.

* Certain balances of the previous year related to the distribution of the purchase price were modified in 2016 to recognize the final fair values of the acquired assets and assumed liabilities. As of December 31, 2016, the Company reclassified certain items of the financial position that had previously been presented as part of the goodwill. The reclassified amounts were adjusted by increasing the value of non-current assets by Ps176; Increasing the balance of non-current liabilities by Ps36 and decreasing the value of goodwill by Ps110. For comparative purposes, the Company did not perform these reclassifications retrospectively considering that the aforementioned adjustments do not modify the value of total assets significantly of short- and long-term liabilities and stockholders’ equity as of December 31, 2015. The previous reclassification had no significant impact on the consolidated financial statements of results, stockholders’ equity and cash flows. Goodwill is mainly comprised of the market share obtained through expanded capacity of the Company’s asset base. It arises from the acquisition and represents the compensation transferred in excess of the fair value of the identifiable assets acquired and liabilities assumed at the date of the acquisition. The goodwill recorded 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. 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. e) Acquisition of additional shares of Campofrío from WH Group On 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.

53 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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. Assets and liabilities recorded as a result of the business combination at June 9, 2014 are as follows: Fair value Cash and cash equivalents Ps 1,576 Trade and other accounts receivable, net 2,830 Inventories 6,948 Property, plant, and equipment 14,268 Intangible 8,483 Investments recorded using the equity method 693 Other assets 3,199 Suppliers and other accounts payable (11,829) Debt (10,820) Income tax deferred and others (6,671) Employee benefits (1,144) Total identified assets, net 7,533 Non-controlling interest (4,143) Goodwill 2,108 Total 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. 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.

54 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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. f) Investment in Pacific Exploration & Production, Corporation (formerly Pacific Rubiales Energy) 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. An analysis of the available objective evidence, based on the significant drop in the market price of the PRE share in the market, concluded that there is an impairment in the investment, therefore, the value of this investment was impaired as of December 31, 2016.

For the years ended December 31, 2016 and 2015, the Company recorded an impairment loss of Ps1,270 and Ps4,203, respectively, corresponding to the investment in PRE. This impairmen is presented in the statement of income, as part of the net financial result. g) IntegRex® technology license and signature of a supply agreement with M&G During 2015, Alpek through its subsidiary Alpek held a licensing agreement for IntegRex® PTA technology and another PTA-PET supply agreement with Grupo M&G (“M&G”). These agreements will allow M&G to use the IntegRex® PTA technology in the PTA-PET integrated plant to be constructed in Corpus Christi, Texas in the United States (the Plant). On the other hand, Alpek will pay US$435 million to M&G during the construction of the Plant according to an established calendar and in compliance with certain milestones, by which Alpek will obtain supply rights of the Plant for 500 thousand tons of PET (manufactured with 420,000 tons of PTA) per year for a period of five years starting from the first day of the month in which the plant is completed and ready to manufacture and sale their products. In accordance to the supply agreement, Alpek will supply raw materials for the manufacturing of its PTA-PET volume. It is estimated that the M&G plant in Corpus Christi will start stepped operations at the beginning of 2017 and 2018. At December 31, 2016, Alpek has made payments amounting to US$435, of which Ps7,439 (US$ 360) are recorded in the intangible assets caption and correspond to the before mentioned supply rights and will be amortized once the PET supply begins, and Ps1,570 (US$75) as a prepayment of inventory within the non-current asset caption.

Note 3 - Summary of significant accounting policies: The accompanying consolidated financial statements and notes were authorized for issuance on February 20, 2017, 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 preparation The 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.

55 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. Additionally, it requires management to exercise judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where judgments and estimates are significant to the consolidated financial statements, are disclosed in Note 5. b. Consolidation i. Subsidiaries The subsidiaries are all the entities over which the Company has control. The Company controls an entity when it is exposed, or has the right to variable returns from its interest in the entity and it is capable of affecting the returns through its power over the entity. When the Company’s participation in subsidiaries is less than 100%, the share attributed to outside stockholders is reflected 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.

56 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2016 and 2015, ALFA´s main subsidiaries are the following: Percentage (%) of ownership (2) Functional Country (1) 2016 2015 currency Alpek (Petrochemicals and synthetic fibers) Alpek, S. A. B. de C. V. (Holding company) 82 82 Mexican peso Grupo Petrotemex, S. A. de C. V. 100 100 US dollar DAK Americas, L.L.C. USA 100 100 US dollar DAK Resinas Americas México, S. A. de C. V. 100 100 US dollar DAK Americas Exterior, S. L. (Holding company) Spain 100 100 Euro DAK Americas Argentina, S. A. Argentina 100 100 Argentine peso Tereftalatos Mexicanos, S. A. de C. V. 92 91 US dollar Akra Polyester, S. A. de C. V. 93 93 Mexican peso Indelpro, S. A. de C. V. 51 51 US dollar Polioles, 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) 100 100 Mexican peso Styropek SA (7) Argentina 100 100 Argentine peso Aislapol SA (7) Chile 100 100 Chilean peso Styropek Do Brasil (7) Brazil 100 100 Real Selenis Canada INC. Canada 51 - Dólar americano 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 100 100 US dollar Campofrío Food Group, S. A. (5) Spain 95 95 Euro Fábrica Juris Compañía Limitada (5) Ecuador 100 100 US dollar Comercial Norteamericana, S de R.L. de C.V. 100 100 Mexican peso Nemak (Aluminum auto parts) Nemak, S. A. B. de C. V. (Holding company) 75 75 US dollar Nemak México, S. A. 100 100 US dollar Modellbau Schönheide GmbH (6) Germany 100 100 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 Nemak Izmir Döküm Sanayii A. S Turkey 100 - Euro Nemak Izmir Dis Ticaret A. S Turkey 100 - Euro

57 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Porcentaje (%) de tenencia (2) Moneda País (1) 2016 2015 funcional Axtel (Telecommunications) Axtel, S.A.B. de C.V. 50 - Mexican peso Alestra, S. de R.L. de C.V.(4) 100 100 Mexican peso Avantel, S. de R.L. de C.V. 93 - Mexican peso Servicios Axtel, S.A. de C.V.(4) 100 - Mexican peso

Newpek (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 dollar Alfasid del Norte, S. A. de C. V. 100 100 Mexican peso

Other companies Colombin Bel, S. A. de C. V. 100 100 US dollar Terza, S. A. de C. V. 50 50 Mexican peso Alfa 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) Companies acquired in 2016, see comments in Note 2

At December 2016 and 2015, there are no significant restrictions for investment in shares of subsidiary companies mentioned above. ii. Absorption (dilution) of control in subsidiaries The effect of absorption (dilution) of control in subsidiaries, in example, an increase or decrease in the percentage of control, is recorded in stockholders’ equity, directly in retained earnings, in the period in which the transactions that cause such effects occur. The effect of absorption (dilution) of control is determined by comparing the book value of the investment before the event of dilution or absorption against the book value after the relevant event. In the case of loss of control the dilution effect is recognized in income. When the Company issues call options on certain non-controlling interests in a consolidated subsidiary, and the non-controlling shareholders retain the risks and rewards of those interests in the consolidated subsidiary, these are recognized as financial liabilities at the present value of the amount to be reimbursed the options initially recorded with a corresponding reduction in stockholders’ equity and subsequently accrued through financial charges to results during the contractual period. iii. Sale or disposal of subsidiaries When the Company ceases to have control any retained interest in the entity is re-measured at fair value, and the change in the carrying amount is recognized in the 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. Associates Associates are all entities over which the Company has significant influence but not control. Generally an investor must hold between 20% and 50% of the voting rights in an investee for it to be an associate. Investments in associates are accounted for using the equity method and are initially recognized at cost. The Company’s investment in associates includes goodwill identified at acquisition, net of any accumulated impairment loss. If the equity in an associate is reduced but significant influence is maintained, only a portion of the amounts recognized in the comprehensive income are reclassified to income for the year, where appropriate.

58 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 ventures Joint arrangements are those where there is joint control since the decisions over relevant activities require the unanimous consent of each one of the parties sharing control. Investments in joint arrangements are classified in accordance with the contractual rights and obligations of each investor such as: joint operations or joint ventures. When the Company holds the right over assets and obligations for related assets under a joint arrangement, this is classified as a joint operation. When the company holds rights over net assets of the joint arrangement, this is classified as a joint venture. The Company has assessed the nature of its joint arrangements and classified them as joint ventures. Joint ventures are accounted for by using the equity method applied to an investment in associates. c. Foreign currency translation i. Functional and presentation currency The amounts included in the financial statements of each of the Company’s subsidiaries 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. As of July 1, 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 balances Transactions in foreign currencies are translated into the functional currency using the foreign exchange rates prevailing at the transaction date or valuation date when the amounts are re-measured. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing exchange rates are recognized as foreign exchange gain or loss in the 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.

59 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 iii. Consolidation of subsidiaries with a functional currency different from the presentation currency Incorporation 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 pesos Closing exchange Average exchange rate at rate at December 31, December 31, Country Functional currency 2016 2015 2016 2015 Canada Canadian dollar 15.40 12.39 15.35 12.41 USA US dollar 20.66 17.21 20.54 15.85 Brazil Brazilian real 6.35 4.34 6.21 4.29 Argentina Argentine peso 1.30 1.33 1.30 1.52 Peru Nuevo sol 6.16 4.90 6.09 4.97 Costa Rica Colon 0.04 0.03 0.04 0.04 Ecuador US dollar 20.66 17.21 0.04 15.85 Czech Republic Euro 21.80 18.70 20.54 18.09 Germany Euro 21.80 18.70 21.80 18.09 Austria Euro 21.80 18.70 21.80 18.09 Italy Euro 21.80 18.70 21.80 18.09 France Euro 21.80 18.70 21.80 18.09 Hungary Euro 21.80 18.70 21.80 18.09 Poland Euro 21.80 18.70 21.80 18.09 Slovakia Euro 21.80 18.70 21.80 18.09 Spain Euro 21.80 18.70 21.80 18.09 Russia Russian ruble 0.34 0.24 0.33 0.24 China RenMinBi yuan 2.98 2.65 2.98 2.62 India Indian rupee 0.30 0.26 0.30 1.25 d. Cash and cash equivalents Cash and cash equivalents include cash on hand, bank deposits available for operations and other short-term investments of high liquidity 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.

60 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 e. Restricted cash and cash equivalents Cash and cash equivalents whose restrictions cause them not to comply with the definition of cash and cash equivalents given above, are presented in a separate line in the statement of financial position and are excluded from cash and cash equivalents in the statement cash flows. f. Financial instruments Financial assets The 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 loss Financial 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 receivables The 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. iii. Maturity investments If 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, 2016 and 2015, the Company had no such investments. iv. Financial assets available for sale Financial 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.

61 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 cost The 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 sale In 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. Derivative financial instruments All 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.

62 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. Derivative financial instruments classified as hedges are contracted for risk hedging purposes and meet all hedging requirements; their designation at the beginning of the hedging operation is documented, describing the objective, primary position, risks to be hedged and the effectiveness of the hedging relationship, characteristics, accounting recognition and how the effectiveness is to be measured. Fair value hedges Changes in the fair value of derivative financial instruments are recorded in the 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, 2016 and 2015, the Company has no derivative financial instruments classified as fair value hedges. Cash flow hedges The changes in the fair value of derivative instruments associated to cash flow hedges are recorded in stockholders’ equity. The effective portion is temporarily recorded in comprehensive income, within stockholders’ equity and is reclassified to profit or loss when the hedged position affects these. The ineffective portion is immediately recorded in income. Net investment hedge Net 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, 2016 and 2015, the Company has no derivative financial instruments classified as net investment hedges. Suspension of hedge accounting The 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. 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. Inventories Inventories 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 equipment Items of property, plant and equipment are recorded at cost less the accumulated depreciation and any accrued impairment losses. The costs include expenses directly attributable to the asset acquisition. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will 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 60 years Machinery and equipment 10 to 14 years Transportation equipment 4 to 8 years Telecommunications network 6 to 28 years Furniture and laboratory equipment and information technology 6 to 10 years Tooling and spare parts 3 to 20 years Leasehold improvements 3 to 20 years Other assets 3 to 20 years

63 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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. Leases The 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. Intangible assets Intangible 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, 2016 and 2015, 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 years Exploration costs (1) - Trademarks 15 to 22 years Customer relationships 15 to 17 years Software and licenses 3 to 11 years Intellectual property rights 20 to 25 years Other (patents, concessions, non-compete agreements, etc.) 3 to 20 years

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

64 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 l. Goodwill Goodwill represents the excess of the acquisition cost of a subsidiary over the Company’s equity in the fair value of the identifiable net assets acquired, determined at the date of acquisition, and is not subject to amortization. Goodwill is shown under goodwill and intangible assets and is recognized at cost less 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 costs Research 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 costs The Company uses the successful efforts method of accounting for its oil and gas properties. Under this method, all costs associated with productive and non-productive wells are capitalized while non-productive and geological exploration costs are recognized in the income statement as incurred. Net capitalized costs of unproved reserves are reclassified to proven reserves when they are found. The costs of operating the wells and field equipment are recognized in the income statement as incurred. o. Intangible assets acquired in a business combination When 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. Impairment of non-financial assets Assets 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 tax The 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. Employee benefits i. Pension plans Defined contribution plans: A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to their service in the current and past periods. The contributions are recognized as employee benefit expense on the date that is required the contribution.

65 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 benefits The Company provides medical benefits to retired employees after termination of employment. The right to access these benefits usually depends on the employee´s having worked until retirement age and completing a minimum of years of service. The expected costs of these benefits are accrued over the period of employment using the same criteria as those described for defined benefit pension plans. iii. Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date or when an employee accepts voluntary termination of employment in exchange for these benefits. The Company recognizes termination benefits in the first of the following dates: (a) when the Company can no longer withdraw the offer of these benefits, and (b) when the Company recognizes the costs from restructuring within the scope of the IAS 37 and it involves the payment of termination benefits. If there is an offer that promotes the termination of the employment relationship voluntarily by employees, termination benefits are valued based on the number of employees expected to accept the offer. Any benefits to be paid more than 12 months after the balance sheet date are discounted to their present value. iv. Short-term benefits The 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 bonuses The Company recognizes a liability and an expense for bonuses and employee participation in profits when it has a legal or assumed obligation to pay these benefits and determines the amount to be recognized based on the profit for the year after certain adjustments. s. Provisions Liability provisions represent a present legal obligation or a constructive obligation as a result of past events where an outflow of resources to meet the obligation is likely and where the amount has been reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the 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 compensation The 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.

66 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 shares The 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 stock ALFA’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 income Comprehensive 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 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. y. Revenue recognition Revenue 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 Axtel 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 the Company 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.

67 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 z. Earnings per share Earnings 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 disclosures The following accounting policies were adopted by the Company beginning January 1, 2016 and did not have a material impact on the Company: • Annual improvements to the IFRS - cycle 2012-2014 • Disclosure initiative — IAS 1 amendments 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 pronouncements A new number of standards, amendments and interpretations to the accounting policies have been published, which are not effective for reporting periods at December 31, 2016, 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. During 2016, the Administration made an assessment to identify areas of possible impact of the new revenue standard. The most relevant issues that Management is evaluating, in the sectors it participates in are the following: • Depending on the contractual agreement, contracts that are currently considered as separate might have to be combined. • The Company identified, 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. • 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.

68 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 • 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. • There are variable considerations such as returns and discounts. Management should evaluate and apply the most appropriate method to estimate the variable consideration. • As there is more guidance on the recognition of payments to customers, either as a decrease in income or as an expense if they are considered “different” under IFRS 15, the recognition of payments to customers could change with respect to the current treatment. • With the new agent and principal guide, the presentation of some income (such as the tooling) may have to be presented gross rather than net. In some cases, on the other hand, changing the presentation of income could change from net to gross. As of December 31, 2016, the Company is in the process of evaluating the impacts of this new standard on its financial statements. Management believes that the major impacts (in relation to implementation efforts or financial impacts) are located in the telecommunications and automotive sectors. 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. As of the date of issuance of these financial statements, the Company has non-cancelable operating lease commitments of Ps7,212; however, it has not yet been determined to what extent these commitments will result in the recognition of an asset and a liability for future payments and how this affects the gain and classification of the Company’s cash flows. This standard is effective for periods beginning on or after January 1, 2019. At this stage, the Company does not intend to adopt the standard in advance. 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 factors The 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$1. This Committee supports both the Executive Director and the Chairman of the Company. All new derivative transactions that the Company proposes to make, and the renewal of existing derivatives, require approval by both the subsidiary and ALFA in accordance with the following schedule of authorizations: Possible Maximum Loss US$ Cumulative Individual transactions transactions annual Business Group General Manager 1 5 ALFA Risk Management Committee 30 100 Finance Committee 100 300 ALFA 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 analyses should be performed before the operation is carried out.

69 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 U.S. 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, 2016 and 2015, 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 Ps342 and Ps234, 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 90 Energy costs 65 65 Exchange rate for operating transactions 70 70 Exchange rate for financial transactions 90 90 Interest 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 risk In 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. 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.

70 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 2016 and 2015 was US$2.60 and US$4.32, respectively. At December 31, 2016 and 2015, 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, 2016 and 2015, 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 2016 and 2015. (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, 2016, 40% of the debt is denominated under a fix rate and 60% under variable rate. At December 31, 2016 and 2015, if interest rates on variable rate loans were increased/decreased by 10%, interest expense would increase/ decrease by Ps67 and Ps22, respectively b. Credit risk Credit 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 2016 and 2015, 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.

71 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 c. Liquidity risk Projected cash flows are determined at each operating entity of the Company and subsequently the finance department consolidates this information. The finance department of the Company continuously monitors the cash flow projections and liquidity 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, 2016 and 2015, the Company had time deposits of Ps11,711 and Ps14,881, 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, 2016 Suppliers and other accounts payable Ps 69,713 Ps - Ps - Ps - Current and non-current debt (excluding debt issuance costs) 8,807 49,078 19,885 111,494 Derivative financial instruments 99 651 - - Other liabilities 2,103 698 - -

At December 31, 2015 Suppliers 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 62,018 Derivative financial instruments 848 711 - - Other liabilities 207 358 - -

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 management The 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, 2016 and 2015, respectively. Resulting in a leverage to meet the risk management policies of the Company.

4.3 Fair value estimation The 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.

72 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The following table presents the ALFA’s assets and liabilities that are measured at fair value at December 31, 2016: Assets Level 1 Level 2 Level 3 Total Financial assets available for sale current Ps - Ps - Ps - Ps - Financial assets at fair value through profit or loss: - Trading derivatives - 153 - 153 Financial assets available for sale non-current - - 371 371 Total assets Ps - Ps 153 Ps 371 Ps 524

Liabilities Financial liabilities at fair value through profit or loss: - Trading derivatives Ps - Ps 17 Ps - Ps 17 Derivatives used for hedging - 677 - 677 Other liabilities - - 471 471 Total liabilities Ps - Ps 694 Ps 471 Ps 1,165

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

Liabilities Financial liabilities at fair value through profit or loss: - Trading derivatives Ps - Ps 3 Ps - Ps 3 Derivatives used for hedging - 1,556 - 1,556 Total liabilities Ps - Ps 1,559 Ps - Ps 1,559

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 1 The 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 2 The 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 3 If one or more of the significant inputs is not based on observable market data, the instrument is classified at Level 3.

73 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The following table presents the movement in Level 3 instruments for the years ended December 31, 2016 and 2015: Financial assets available for sale Beginning balance at January 1, 2015 Ps 268 Purchases 68 Final balance at December 31, 2015 336 Purchases 35 Final balance at December 31, 2016 Ps 371

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 judgments The 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 goodwill The 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 tax The 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 Ps208. c. Fair value derivatives The 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 losses Management 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 policies a. Revenue recognition The Company has recognized revenue amounting to Ps275,777 for sales of goods to third parties in the Nemak, Sigma and Alpek segments during 2016. 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 Ps689.

74 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 b. Basis of consolidation The 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 Axtel’s financial statements, where the determination of control is unclear. Based on ALFA’s main substantive rights that even though they exist in accordance with what is established in the supplementary agreements, decisions with a qualified majority such as approving the business plans and operating budgets, these have been considered as protective rights for the other shareholders, and supported under the terms of such agreements, the statutes of Axtel and the General Law of Commercial Companies, ALFA can control decisions on relevant activities to name the executives and key managers, and have a simple majority through the ordinary shareholders’ meeting, in which it holds 50.19% of Axtel. Management has concluded that these facts and circumstances described in Axtel’s by-laws and applicable laws allow the Company to control the relevant activities of Axtel’s day-to-day operations. The Company will continue to evaluate these circumstances at the date of each statement of financial position to determine whether these critical judgments will continue to be valid. If the Company determines that it no longer has control over Axtel, it will need to be deconsolidated and registered using the equity method. c. Impairment in financial assets available for sale The 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, considering the nature and purpose for which the investment in PRE was made, which was initially acquired as a strategic financial investment for ALFA, and from the date of its acquisition until December 31, 2016, Investment options that the Company had. As discussed in Note 28, during the year ended December 31, 2016, the Company totally penalized the investment in PRE, since there are no plans or intentions to reach future agreements based on this investment. As of December 31, 2015, ALFA had already considered that this investment was no longer part of its Energy sector operations and that the most adequate presentation of the loss incurred in this investment was part of the net financial result in the income statement. d. Recognition of deferred tax assets ALFA, 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 2016 2015 Cash and bank accounts Ps 12,922 Ps 9,970 Short-term bank deposits 11,711 14,882 Total cash and cash equivalents Ps 24,633 Ps 24,852

75 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 7 - Restricted cash and cash equivalents: The value of restricted cash is composed as follows At December 31 2016 2015 Current (a) Ps 538 Ps 463 Non-current, (See Note 14) (a) y (b) 237 237 Restricted cash Ps 775 Ps 700 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, 2016 and 2015, the balance of the trust was Ps153 and Ps148, respectively composed of contributions by Alestra and corresponding yields.

Note 8 - Customers and other accounts receivable, net: At December 31 2016 2015 Customers Ps 31,537 Ps 24,711 Recoverable taxes 2,235 1,478 Interest receivable 4 18 Other debtors: Sundry debtors 9,094 7,306 Notes receivable 1,590 1,571 Provision for impairment of customers and other accounts receivable (2,687) (762) 41,773 34,322

Less: non-current portion (1) 1,473 844

Current portion Ps 40,300 Ps 33,478

(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 Ps6,942 and Ps3, 961 at December 31, 2016 and 2015, respectively. The analysis by age of the balances due from customers and other receivables not covered by impairment provisions is as follows: At December 31 2016 2015 1 to 30 days Ps 3,455 Ps 2,054 30 to 90 days 1,328 558 90 to 180 days 822 337 More than 180 days 1,337 1,012 Ps 6,942 Ps 3,961

76 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2016 and 2015, trade and other accounts receivable of Ps 40,300 and Ps 33,478, respectively have an impairment provision (represented by customers and sundry debtors). The amount of the impairment provision at December 31, 2016 and 2015 amounts to Ps 2,6877and Ps762, 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: 2016 2015 Beginning balance (January 1) Ps 762 Ps 1,069 Provision for impairment of customers and other receivables (1) 2,032 157 Receivables written off during the year (107) (464) Final balance (December 31) Ps 2,687 Ps 762

(1) It includes additions from business conbinations of Ps1,607.

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

Note 9 - Inventories: At December 31 2016 2015 Finished goods Ps 14,554 Ps 10,631 Raw material and other consumables 17,044 16,013 Work in progress 9,325 7,484 Ps 40,923 Ps 34,128

The cost of inventories recognized as an expense and included in “cost of sales” amounted to Ps226,422 and Ps204,312 for 2016 and 2015, respectively. For the years ended on December 31, 2016 and 2015 damaged, slow-moving and obsolete inventory was charged to cost of sales in the amount of Ps108 and Ps32, respectively. At December 31, 2016 and 2015 there were no inventories pledged.

Note 10 - Financial instruments: a. Financial instruments by category At December 31, 2016 Accounts Financial assets Receivable and and liabilities at Liabilities at fair value Derivative amortized Available through contracted cost for sale profit and loss ashedges Total Financial assets: Cash and cash equivalents Ps 24,633 Ps - Ps - Ps - Ps 24,633 Restricted cash 775 - - - 775 Customers and other accounts receivable 39,538 - - - 39,538 Derivative financial instruments - - 56 - 56 Other non-current assets 1,473 - - - 1,473 Ps 66,419 Ps - Ps 56 Ps - Ps 66,475

Financial liabilities: Debt Ps 145,130 Ps - Ps - Ps - Ps 145,130 Accounts payable to suppliers and other 69,713 - - - 69,713 Derivative financial instruments - - 750 - 750 Other non-current liabilities 380 - 318 - 698 Ps 215,223 Ps - Ps 1,068 Ps - Ps 216,291

77 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2015 Accounts Financial assets Receivable and and liabilities at Liabilities at fair value Derivative amortized Available through contracted cost for sale profit and loss as hedges Total Financial assets: Cash and cash equivalents Ps 24,852 Ps - Ps - Ps - Ps 24,852 Restricted cash 700 - - - 700 Customers and other accounts receivable 33,478 - - - 33,478 Derivative financial instruments - - 203 - 203 Financial assets available for sale - 1,269 - - 1,269 Other 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 107,209 Accounts payable to suppliers and other 52,229 - - - 52,229 Derivative financial instruments - - 3 1,556 1,559 Other non-current liabilities 825 - 358 - 1,183 Ps 160,263 Ps - Ps 361 Ps 1,556 Ps 162,180 b. Credit quality of financial assets The 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: At December 31 2016 2015 Counterparties with external credit rating: “A” Ps 363 Ps 16 “A+” 1,974 1,301 “A-” 582 255 “BB+” 420 9 “BBB+” 4,830 49 “BBB” 2,240 584 “BBB-” 439 121 “BB” 175 23 “BB-” 159 1,148 Other categories 2,339 709 13,521 4,215

Counterparties without external credit rating: Group X 4,667 2,087 Group Y 16,013 11,133 Group Z 144 5 20,824 13,225 Total unimpaired trade receivables Ps 34,345 Ps 17,440

78 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Cash and cash equivalents with and without restrictions, except for cash in hand: At December 31 2016 2015 “A” Ps 1,444 Ps 14 “A+” 63 7,449 “A-” 4,939 96 “BBB+” 2,225 7,559 “BBB-” 1,163 672 Ps 9,834 Ps 15,790

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. Fair value of financial assets and liabilities valued at amortized cost The 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, 2016 and 2015. The carrying value and estimated fair value of financial assets and financial liabilities carried at amortized cost are as follows: At December 31, 2016 At December 31, 2015 Carrying Fair Carrying Fair amount value amount value Financial assets: Non-current accounts receivable Ps 1,473 Ps 1,459 Ps 844 Ps 836 Financial liabilities: Non-current debt 136,323 137,281 101,631 102,345

The estimated fair values as of December 31, 2016 and 2015 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 Offering Rate in Mexico (“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. Derivative financial instruments The effectiveness of derivative financial instruments designated as hedges is measured periodically. At December 31, 2016 and 2015, 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, 2016 and 2015. 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, 2016 and 2015, the Company had no effects from ineffective portions of fair value and cash flows hedges.

79 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 Ps17.01, so Ps3,500 equivalent at that time to US$206 (Ps3,504). These derivatives were designated as fair value hedges. 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 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 contracts Positions in foreign currency derivative financial instruments are summarized as follows: At December 31, 2016 Value of underlying asset Maturity by year Type of derivative, Notional Fair Collateral / value or contract amount Units Reference value 2017 2018 2019+ guarantee With negotiation accounting treatment: USD/MXNor Ps (186) MXN/USD 20.66 Ps (12) Ps (12) - - -

At December 31, 2015 Value of underlying asset Maturity by year Type of derivative, Notional Fair Collateral / value or contract amount Units Reference 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 -

(1) Cross currency swaps (2) Fair value hedges b. Commodities Positions in derivative financial instruments covering natural gas, gasoline and ethylene are summarized as follows: At December 31, 2016 Value of underlying asset Maturity by year Type of derivative, Notional Fair Collateral / value or contract amount Units Reference value 2017 2018 2019+ guarantee For hedging purposes: Ethylene 1 Ps 350 Cent Dollar/lb 25.33 Ps 20 Ps 20 Ps - Ps - Ps - Natural gas 1 2,345 Dollar / MBTU 3.72 (659) (13) (187) (459) - Ethane 1 3 Cent Dollar/Gallon 26.37 1 1 - - - Px 1 2,650 Dollar/MT 795 (24) (24) - - - Crude WTI 628 Dollar / BBL 53.72 (15) (15) - - - Ps (677) Ps (31) Ps (187) Ps (459) Ps -

80 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2015 Value of underlying asset Maturity by year Type of derivative, Notional Fair Collateral / value or contract amount Units Reference value 2016 2017 2018+ guarantee 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 -

1 Cash flows hedges c. Interest rate swaps At December 31, 2016 Value of underlying asset Maturity by year Type of derivative, National Fair Colateral / Value or contract amount Units Reference value 2017 2018 2019+ guarantee With negotiation accounting treatment: Sobre Euribor Ps 190 % per year -0.16 Ps (5) Ps (2) Ps (2) Ps (1) Ps -

At December 31, 2016 and 2015, the net fair value of derivative financial ins¬truments above amounts to Ps694 and Ps1,356, respectively, which is shown in the consolidated statements of financial position as follows: At December 31, 2016 Fair Initial Net value position value Current assets Ps 56 Ps - Ps 56 Current liabilities (99) - (99) Non-current liabilities (651) - (651) Net position Ps (694) Ps - Ps (694)

At December 31, 2015 Fair Initial Net value position value Current assets Ps 203 Ps - Ps 203 Current liabilities (848) - (848) Non-current liabilities (711) - (711) Net position Ps (1,356) Ps - Ps (1,356)

Note 11 - Other current assets: Other current assets consist of the following: At December 31, 2015 2016 2015 Prepaid expenses (1) Ps 1,786 Ps 1,224 Accounts receivable – affiliates 3,379 1,713 Other 153 - Total other current assets Ps 5,318 Ps 2,937

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

81 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 12 - Property, plant and equipment: Furniture, fittings Telecommuni- and Tooling Construc- Improvements Other Buildings and Machinery Transportation cation information and tion in to leased fixed Land constructions and equipment equipment network technology spare parts process property assets Total Year ended December 31, 2015 Opening 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 93,908 Exchange difference 495 1,572 5,920 34 6 218 32 525 1 14 8,817 Additions 235 135 1,470 498 20 123 - 10,661 34 119 13,295 Additions from business combinations 90 170 326 20 - 24 - 19 - 5 654 Disposals (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, 2015 Cost 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 216,735 Accumulated 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

Year ended December 31, 2016 Opening net book amount 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 Exchange difference 992 3,166 10,044 61 5 217 56 1,922 4 21 16,488 Additions 47 703 3,212 496 1,108 106 2 18,851 30 94 24,649 Additions from business combinations 508 92 2,228 160 10,048 2,335 132 1,609 103 32 17,247 Disposals (10) (42) (529) (45) (575) 61 (3) (100) (1) (60) (1,304) Impairment charge recognized in the year - - (459) (1) - - (1) (59) - (30) (550) Depreciation charge recognized in the year - (1,245) (7,807) (435) (2,946) (615) (284) - (43) (28) (13,403) Transfers 134 1,227 6,602 80 2,184 500 301 (11,062) 38 (4) - Carrying amount at December 31, 2016 Ps 11,461 Ps 23,946 Ps 71,725 Ps 1,833 Ps 14,378 Ps 4,124 Ps 535 Ps 20,912 Ps 432 Ps 157 Ps 149,503

At December 31, 2016 Cost Ps 11,461 Ps 46,679 Ps 171,929 Ps 5,175 Ps 55,695 Ps 10,899 Ps 1,682 Ps 20,912 Ps 1,053 Ps 434 Ps 325,919 Accumulated depreciation - (22,733) (100,204) (3,342) (41,317) (6,775) (1,147) - (621) (277) (176,416) Carrying amount at December 31, 2016 Ps 11,461 Ps 23,946 Ps 71,725 Ps 1,833 Ps 14,378 Ps 4,124 Ps 535 Ps 20,912 Ps 432 Ps 157 Ps 149,503

Of the total depreciation expense, Ps12,020 and Ps8,455 were charged to cost of sales, Ps622 and Ps509 to selling expenses and Ps761 and Ps473 to administrative expenses in 2016 and 2015, respectively. At December 31, 2016 and 2015, 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: At December 31, 2015 2016 2015 Cost - capitalized financial lease Ps 1,679 Ps 383 Accumulated depreciation (868) (238) Carrying value, net Ps 811 Ps 145

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.

82 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 12 - Property, plant and equipment: Furniture, fittings Telecommuni- and Tooling Construc- Improvements Other Buildings and Machinery Transportation cation information and tion in to leased fixed Land constructions and equipment equipment network technology spare parts process property assets Total Year ended December 31, 2015 Opening 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 93,908 Exchange difference 495 1,572 5,920 34 6 218 32 525 1 14 8,817 Additions 235 135 1,470 498 20 123 - 10,661 34 119 13,295 Additions from business combinations 90 170 326 20 - 24 - 19 - 5 654 Disposals (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

83 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 Cost At January 1, 2015 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 4,657 Additions 867 1,187 - 185 333 99 1,442 59 31 4,203 Additions from business combinations - 2 209 562 148 921 Impairment charge for the yea - (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

Exchange difference Ps 1,410 Ps 1,408 Ps 42 Ps 711 Ps 472 Ps 628 Ps 1,386 Ps 2,357 Ps 1,887 Ps 2 Ps 10,303 Additions 1,573 180 36 867 233 483 2,652 6,024 Additions from business combinations 2,345 3,564 17 847 3,534 8 10,315 Impairment charge for the year (1,334) (210) (1,544) Transfers 71 36 13 (7) (84) (36) (7) Disposals (27) (210) (237) At December 31, 2016 Ps 8,232 Ps 7,178 Ps 2,612 Ps 9,001 Ps 5,084 Ps 5,824 Ps 9,276 Ps 21,491 Ps 9,298 Ps 3,088 Ps 81,084

Accumulated amortization At January 1, 2015 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 Ps (439) Ps (1,081) Ps (5) Ps (259) Ps (386) Ps (105) Ps (175) Ps - Ps - Ps - Ps (2,450) Additions - - - - (7) - - - - (7) Disposals - - - - 156 (23) - - - 133 Transfers ------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)

Amortizations (551) (592) (154) (916) (470) (105) (756) (3,544) Additions - - - - (8) (770) (778) Disposals - - - - 28 1 29 Transfers - - - - Exchange differences (607) (855) (35) (54) (311) (67) (76) (2,005) At December 31, 2016 Ps (3,459) Ps (5,049) Ps (317) Ps (2,325) Ps (3,572) Ps (548) Ps (2,643) Ps Ps Ps Ps (17,913)

Net carrying value Cost 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 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

Cost Ps 8,232 Ps 7,178 Ps 2,612 Ps 9,001 Ps 5,084 Ps 5,824 Ps 9,276 Ps 21,491 Ps 9,298 Ps 3,088 Ps 81,084 Accumulated amortization (3,459) (5,049) (317) (2,325) (3,572) (548) (2,643) (17,913) At December 31, 2016 Ps 4,773 Ps 2,129 Ps 2,295 Ps 6,676 Ps 1,512 Ps 5,276 Ps 6,633 Ps 21,491 Ps 9,298 Ps 3,088 Ps 63,171

84 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 Cost At January 1, 2015 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 4,657 Additions 867 1,187 - 185 333 99 1,442 59 31 4,203 Additions from business combinations - 2 209 562 148 921 Impairment charge for the yea - (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

85 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Other intangible assets consist mainly of patents, concessions and agreements not to compete. The Company has concessions of public telecommunications networks granted by the federal government in 1995 and 1996, to offer local and long distance telephone services for periods of 30 years that meet certain conditions, are renewable for equal periods. In addition, it has concessions of several frequencies of radio spectrum with duration of 20 years, which are renewable for additional periods of 20 years in the terms of the applicable laws and regulations. Of the total amortization expense, Ps1,465 and Ps1,702, were charged to cost of sales, Ps402 and Ps200 to selling expenses and Ps1,677 and Ps544 to administrative expenses in 2016 and 2015, respectively. Research expenses incurred and recorded in the results of 2016 and 2015 were Ps72 and Ps59, respectively. As mentioned in Note 2.a., goodwill was increased during 2016 as a result the acquisition of Axtel in the amount of $ 3,550. 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 31 2016 2015 Alpek Ps 362 Ps 296 Sigma 10,912 9,539 Nemak 5,836 4,952 Axtel 4,024 456 Other segments 357 357 Ps 21,491 Ps 15,600

As a result of the fall in oil prices, for the years ended December 31, 2016 and 2015, the Company recognized impairment of Ps1,413 and Ps2,152, respectively, in the energy sector. Likewise, in the food segment, the Italian market declined by 4.1% in 2016 as a result of the country’s economic situation and the significant impact of the World Health Organization (WHO) statement on the market, which resulted in an impairment of Ps184 for the year ended December 31, 2016. 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 2016 and 2015 were as follows: 2016 Other Alpek Sigma Nemak Axtel segments Estimated gross margin 6.3% 30.1% 20.06% 37.7% 8.5% Growth rate 0.0% 6.9% 1.8% 6.7% 4.0% Discount rate 9.0% 7.9% 9.1% 10.9% 12.7%

2015 Other Alpek Sigma Nemak Axtel 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%

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.

86 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 14 - Investments accounted for using the equity method and others: At December 31 2016 2015 Non-current portion of customers and other accounts receivable (Note 8) Ps 1,473 Ps 844 Financial assets available for sale 371 336 Other assets (1) 1,953 2,575 Restricted cash (Note 7) 237 237

Other non-current financial assets 4,034 3,992

Investment in associates 1,348 1,073 Joint ventures 763 564 Total other non-current assets Ps 6,145 Ps 5,629

(1) This item mainly comprises a loan receivable that generates a semi-annual interest rate at a rate of 6.99% (Libor + 5.3%) and maturing in December 2019.

Financial assets available for sale These assets are investments in shares of companies not listed on the market, representing less than 1% of their capital stock and equity investments in social clubs. No impairment loss was recognized at December 31, 2016 and 2015. Financial assets available for sale activity was as follows: 2016 2015 Balance at January 1 Ps 336 Ps 268 Acquisitions (disposals) 35 68 Balance at December 31 Ps 371 Ps 336

Financial assets available for sale are denominated in Mexican pesos.

Investments in associates The accumulated summarized financial information for associates of the group accounted for by the equity method, not considered material, is as follows: 2016 2015 Operating profit Ps 27 Ps (71) Comprehensive loss 27 (71) Investment in associates at December 31 1,348 998

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, 2016 and 2015.

Joint ventures The accumulated summarized financial information for associates of the group accounted for by the equity method, not considered material, is as follows: 2016 2015 Operating profit Ps 455 Ps (20) Comprehensive loss 455 (20) Joint ventures at December 31 763 639

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, 2016 and 2015.

87 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 15 - Subsidiaries with significant non-controlling interest: The non-controlling interest for the year ended December 31, 2016 and 2015 is integrated as follows: Non-controlling Non-controlling interest interest Non-controlling income for the period at December 31, ownership percentage 2016 2015 2016 2015 Axtel, S. A. B. de C.V. (1) 49% Ps (931) Ps - Ps 3,378 - Alpek, S. A. B. de C.V. 18% 2,016 1,409 11,280 9,909 Nemak, S. A. B. de C. V. 25% 1,339 721 9,179 6,918 Non-controlling interest of non-significant subsidiaries (14) (57) 1,000 797 Ps 2,410 Ps 2,073 Ps 24,837 Ps 17,624

(1) See Note 2.a.

The summarized financial information at December 31, 2016 and 2015 and for the year then ended, corresponding to each subsidiary with a significant non-controlling interest is shown below: Axtel S.A.B. de C.V. Nemak, S.A.B. de C. V. Alpek, S.A.B. de C. V. 2016 2016 2015 2016 2015 Statement of financial position Current assets Ps 6,293 Ps 26,907 Ps 22,780 Ps 34,221 Ps 32,664 Non-current assets 25,873 64,986 49,238 57,279 42,230 Current liabilities 7,579 23,684 18,771 19,407 14,928 Non-current liabilities 21,940 31,138 25,308 30,371 25,467 Stockholders´equity 2,647 37,071 27,939 41,722 34,499

Statement of income Revenues 13,937 79,244 70,891 90,192 83,590 Net profit (3,599) 5,410 4,601 4,993 3,665 Comprehensive income for the year (3,607) 10,887 5,733 11,672 7,105 Comprehensive income attributable to non-controlling interest 2 1 1 2,145 1,477 Dividends paid to non-controlling interest - (434) (141) (2,049) -

Cash flows Cash flows from operating activities 3,898 12,825 10,225 6,019 9,280 Net cash used from investments activities (3,527) (8,864) (7,238) (6,212) (5,100) Net cash used from financing activities (1,675) (3,842) (2,356) (4,209) (3,504) Net increase in cash and cash equivalents (1,128) 119 631 (4,402) 676

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

Note 16 - Accounts payable to suppliers and other: At December 31, 2016 2015 Suppliers Ps 53,729 Ps 38,914 Short-term employee benefits 1,417 1,390 Advance payments from customers 616 1,438 Taxes other than income tax 4,760 3,427 Other accounts payable and accrued expenses 9,191 7,060 Ps 69,713 Ps 52,229

88 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 17 - Debt: At December 31, 2016 2015 Current: Bank loans (1) Ps 4,563 Ps 1,450 Short-term debt 4,009 4,101 Notes payable (1) 235 27 Total short-term debt Ps 8,807 Ps 5,578

Long-term: In US dollars: Senior Notes Ps 85,923 Ps 54,345 Secured bank loans 932 1,553 Unsecured bank loans 30,252 35,782 Finance leases 706 14 Other 193 591

In Mexican pesos: Unsecured stock certificates 1,757 1,733 Unsecured bank loans 6,247 -

In euros: Senior Notes 10,878 9,315 Unsecured bank loans 2,630 1,655 Finance leases 121 133 Other 256 183

Other currencies: Unsecured bank loans 235 234 Finance leases 202 194

140,332 105,732 Less: short-term debt (4,009) (4,101) Long-term debt (2) Ps 136,323 Ps 101,631

(1) At December 31, 2016 and 2015, short-term bank loans and notes payable bore interest at an average rate of 4.34%, and 3.46%, respectively. (2) The fair value of bank loans and notes payable approximates their current book value, as the impact of discounting is not significant.

89 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The carrying amounts, terms and conditions of long-term debt were as follows: Costs of Balance at Balance at Maturity Contractual debt Interest December 31, December 31, date Interest Description Currency value issuance payable 2016 2015 DD/MM/YYYY rate Direct Fix rate USD 929 - 3 Ps 932 Ps 1,553 31/12/2018 3.75% Secured bank loans 932 1,553

Banking BRL 91 - 15 106 64 15/01/2025 8.50% Banking EUR - - - - 3 31/12/2016 1.80% Bilateral ARS - - - - 34 03/10/2016 29.72% Bilateral ARS 100 - 2 102 122 01/04/2020 19.00% Bilateral ARS 26 - 1 27 13 02/12/2022 19.00% Bilateral USD 355 - 3 358 410 14/08/2018 1.40% Bilateral USD 413 - 2 415 344 02/04/2018 1.95% Bilateral USD - - - - 344 01/04/2017 1.51% Bilateral USD 1,033 - 5 1,038 861 19/12/2019 2.59% Bilateral USD - - - - 1,228 13/11/2018 1.57% Bilateral USD - - - - 8,061 13/11/2018 1.05% Bilateral USD 2,480 (9) 3 2,474 2,061 23/12/2025 3.44% Bilateral USD 1,653 (7) 1 1,647 1,373 29/12/2025 3.45% Bilateral EUR 27 - - 27 2 30/09/2017 4.55% Bilateral USD 3,867 (9) 28 3,886 3,281 17/01/2024 3.88% Bilateral USD - - - 520 07/10/2016 2.71% Bilateral USD 176 - - 176 146 17/12/2017 5.53% Bilateral USD 156 - 1 157 129 22/10/2018 2.33% Club Deal EUR 980 (5) 2 977 835 13/11/2020 1.25% Club Deal USD 5,218 (20) 14 5,212 4,316 13/11/2020 2.07% Club Deal EUR 869 (5) 1 865 815 05/12/2018 1.50% Club Deal USD 4,458 (22) 9 4,445 4,072 05/12/2018 1.83% Bilateral USD 168 - 0 168 - 01/02/2018 2.22% Syndicated MXN 4,760 (25) 17 4,752 - 15/01/2021 7.60% Syndicated MXN 1,500 (17) 12 1,495 - 15/01/2021 7.85% Syndicated USD 10,332 (130) 74 10,276 - 15/01/2021 3.38% Syndicated USD - - - - 8,636 13/11/2018 1.55% Others EUR 741 - 20 761 - 29/12/2019 1.25% Unsecured bank loans 39,364 37,671

Stock Certificate / Fix rate MXN 1,000 - 48 1,048 1,048 12/07/2018 10.25% Stock Certificate / UDIS MXN 691 - 18 709 685 12/07/2018 5.32% Unsecured stock certificates 1,757 1,733

Bond 144A/ Fix rate USD 13,406 (84) 67 13,389 11,137 20/11/2022 4.50% Bond144A/ Fix rate USD 6,199 (43) 131 6,287 5,232 08/08/2023 5.38% Bond 144A/ Fix rate USD 10,296 (84) 143 10,355 8,628 25/03/2024 5.25% Bond 144A/ Fix rate USD 10,305 (84) 187 10,408 8,640 25/03/2044 6.88% Bond 144A/ Fix rate USD 10,332 (143) 209 10,398 8,644 28/02/2023 5.50% Bond 144A/ Fix rate USD 5,129 (15) 15 5,129 4,263 16/12/2019 6.88% Bond 144A/ Fix rate USD 9,280 (12) 113 9,381 7,802 14/04/2018 5.63% Bond 144A/ Fix rate EUR 10,900 (129) 107 10,878 9,314 15/03/2022 3.38% Bond 144A/ Fix rate USD 20,624 (188) 140 20,576 - 02/05/2026 4.13% Senior Notes 96,801 63,660

Other loans USD 193 - - 193 591 Several Several Other loans EUR 256 - - 256 183 Several Several Other 449 774

China Leasing RMB 200 - - 200 190 28/02/2026 6.45% Others finance leases USD 1 - - 1 14 Several Several Others finance leases EUR 120 - 1 121 133 Several Several Others finance leases RUR 2 - - 2 4 30/04/2018 4.05% Finance leases USD/MXN 704 - 1 705 Several Several Financial leases 1,027 - 2 Ps 1,029 Ps 342 Total Ps140,332 Ps105,732

90 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 At December 31, 2016, the annual maturities of long-term debt (excluding issuance debt costs) are as follows: 2020 2017 2018 2019 onwards Total Bank loans and other Ps 9,883 Ps 14,065 Ps 9,477 Ps 8,401 Ps 41,826 Senior Notes 13,765 9,453 3,979 109,276 136,473 Stock certificates 1,765 - - - 1,765 Finance leases 296 192 56 160 704 Ps 25,709 Ps 23,710 Ps 13,512 Ps 117,837 Ps 180,768

At December 31, 2015, the annual maturities of long-term debt (excluding issuance debt costs) are as follows: 2020 2017 2018 2019 onwards Total Bank loans and other Ps 10,577 Ps 16,495 Ps 1,231 Ps 11,162 Ps 39,465 Senior Notes 3,340 10,748 7,158 71,486 92,732 Stock certificates 140 3,410 3,550 Finance leases 40 40 41 215 336 Ps 14,097 Ps 30,693 Ps 8,430 Ps 82,863 Ps 136,083

At December 31, 2016 and 2015, the Company has contractual unused credit lines for a total of US$1,122 and US$1,223, 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 2016 and 2015, the financial ratios were calculated according to the formulas set out in the loan agreements. Covenants contained in the credit agreements of the subsidiaries establish certain obligations, conditions and certain exceptions that require or limit the capacity 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, 2016, 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, 2016 and 2015, Newpek has pledged assets under a line of credit for an amount up to Ps930 (US$45) and Ps1,721 (US$100), respectively, maturing on December 31, 2018 which Ps930 (US$45) were used as of December 31, 2016 and Ps1,549 (US$90) were used as of December 31, 2015.

91 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 2016 a. On January 15, 2016, Axtel signed a syndicated loan agreement in the amount of US$835 in three parts: Part “A” in pesos (equivalent to US $ 250) at 3 years and a variable interest rate with a margin over TIIE rate between 2.00% and 2.50%; part “B” in dollars (U.S. $ 500) at 5 years and a variable interest rate with a margin on the Libor rate between 2.50% and 3.00%; and part “B” in pesos (equivalent to US$85) at 5 years and a variable interest rate with a margin on the TIIE rate between 2.25% and 2.75%. The use of the funds of this loan was to redeem on February 19, 2016 all senior secured and unsecured notes and to pay other short-term credits. b. As mentioned in Note 2, on May 2, 2016, Sigma issued a bond in the amount of US$1,000 in the international market, regulated by the 144A / Reg-S standard. The amount issued must be settled in 10 years and its interest rate is 4.125%. The use of it was to refinance existing debt. Interest is paid in November and May of each year. The issuance of this debt led to issuance expenses amounting to approximately US$10.3 million. This debt is prepaid at Sigma’s option, totally or partially at any time, at an amortization price equal to the greater of any of the following: 100% of the principal amount; or (ii) the sum of the net present value of each payment of principal and interest payable (excluding accrued interest at the amortization date) discounted at the amortization date on a semiannual basis at a rate of the sum of the treasury rate plus 0.45% plus accrued and unpaid interest at the amortization date.

2015 a. 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. The finance lease liabilities are effectively secured as the rights to the leased asset which revert to the lessor in the event of default. At December 31, 2016 2015 Obligation for finance leases - minimal payments, gross - Less than 1 year Ps 388 Ps 47 - More than 1 year and less than of 5 years 553 109 - More than 5 years 85 185

Total 1,026 341 Future financial charges from finance leases - - Present value of finance less liabilities Ps 1,026 Ps 341

The present value of finance lease liabilities is analyzed as follows: At December 31, 2016 2015 Less than 1 year Ps 388 Ps 47 More than 1 year and less than 5 years 553 109 More than 5 years 85 185 Ps 1,026 Ps 341

92 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 18 - Income taxes: Deferred income tax The analysis of the deferred tax asset and deferred tax liability is as follows: At December 31, 2016 2015 Deferred tax liability: - To be recovered in more than 12 months Ps 19,392 Ps 16,101 - To be recovered within 12 months 2,616 556 22,008 16,657

Deferred tax asset: - To be covered in more than 12 months (20,999) (11,173) - To be recovered within 12 months (2,757) (6,281) (23,756) (17,454) Deferred tax (assets) liabilities, net Ps (1,748) Ps (797)

The gross movement in the deferred income tax account is as follows: 2016 2015 At January 1 Ps (797) Ps 583 Exchange differences 986 685 Credit to income statement (1,477) (1,987) Business acquisitions (345) 214 Tax related to components of other comprehensive income (145) (292) At December 31 Ps (1,748) Ps (797)

The composition of the deferred income tax assets and liabilities was as follows: (Assets) liabilities At December 31, 2016 2015 Inventories Ps 5 Ps - Advance payments 110 63 Intangible assets 6,661 3,115 Property, plant and equipment 13,644 12,986 Other temporary differences, net 1,588 493 Deferred tax liabilities 22,008 16,657

Customers (539) (96) Financial assets available for sale - (3,891) Employees ‘benefits (330) (209) Valuation of derivative instruments (167) (39) Provisions (2,178) (998) Tax value of shares (6,395) - Tax losses carryforward (14,274) (10,964) Other temporary differences, net 127 (1,257) Deferred tax assets (23,756) (17,454) Deferred tax (assets) liabilities, net Ps (1,748) Ps (797)

93 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Changes in deferred tax assets and liabilities during the year were as follows: Charged Charged (credited) Balance at (credited) to other Balance at December 31, Business to income comprehensive December 31, 2015 acquisitions statement income 2016 Inventories Ps - Ps - Ps 5 Ps - Ps 5 Advance payments 63 - 47 - 110 Intangible assets 3,115 658 2,888 - 6,661 Property, plant and equipment 12,986 316 342 - 13,644 Other temporary differences, net (93) 1,383 (288) - 1,588 Deferred tax liabilities 16,657 2,357 2,994 - 22,008

Customers (96) - (443) - (539) Financial assets available for sale (3,891) - 3,891 - - Employees ‘benefits (209) - (155) 34 (330) Valuation of derivative instruments (39) (384) 51 (179) (167) Provisions (998) - (796) - (2,178) Fiscal cost of shares - - (6,395) - (6,395) Tax losses carryforward (10,964) (1,682) (1,628) - (14,274) Other temporary differences, net (1,257) (636) 2,020 - 127 Deferred tax assets (17,454) (2,702) (3,455) (145) (23,756) Deferred tax (assets) liabilities, net Ps (797) Ps (345) Ps (461) Ps (145) Ps (1,748)

Charged Charged (credited) Balance at (credited) to other Balance at December 31, Business to income comprehensive December 31, 2014 acquisitions statement income 2015 Inventories Ps 50 Ps - Ps (50) Ps - Ps - Advance payments - - 63 - 63 Intangible assets 470 - 2,645 - 3,115 Property, plant and equipment 9,101 214 3,671 - 12,986 Other temporary differences, net 1,052 - (559) - 493 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)

Tax loss carry forwards are 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 Ps5,849 and 10,357 in 2016 and 2015, respectively.

94 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Tax losses carryforward at December 31, 2016 and 2015, expire in the following years: Year of the Year of loss 2016 2015 expiration 2008 and prior Ps 736 Ps 5,082 2018 2009 296 304 2019 2010 161 165 2020 2011 105 107 2021 2012 1,017 1,039 2022 2013 1,253 1,331 2023 2014 2,281 2,329 2024 Ps 5,849 Ps 10,357

Income tax payable The income tax payable is as follows: December 31, 2016 2015 Income tax incurred Ps 828 Ps 1,021 Income tax from tax consolidation (regime until December 31, 2013) 2,835 3,458 Income tax from optional regime for groups of companies in Mexico 3,231 1,450 Income tax payable Ps 6,894 Ps 5,929

Current portion Ps 1,515 Ps 1,739 Non-current portion 5,379 4,190 Income tax payable Ps 6,894 Ps 5,929

Income tax under tax consolidation regime in Mexico Since 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, 2016 and 2015 amounts to Ps2,835 and Ps3,458, respectively and will be paid off in installments in accordance with the table shown below: Year of payment 2017 2018 2019 Onwards Total Tax losses Ps 641 Ps 576 Ps 657 Ps 868 2,742 Dividends distributed by the controlled companies that do not come from CUFIN and the reinvested CUFIN 46 46 1 - 93 Total Ps 684 Ps 622 Ps 658 Ps 868 2,835

Optional regime for groups of companies in Mexico (incorporation regime) As a result of 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 of grouping companies with specific characteristics who have the possibility to defer a part of the income tax payable to three years in March 2018, 2019 and 2020, the deferral percentage is calculated by a factor that is determined according to the amount of taxable profits and losses in 2016 and 2015, respectively.

95 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 19 - Provisions: Restructuring Indemnities and Environmental for dismissal Disputes demolition (1) (2) remediation (2) and other (2) Total At December 31, 2014 Ps 449 Ps 1,035 Ps 360 Ps 316 Ps 2,160 Business acquisitions (1) 21 - - - 21 Additions 21 14 59 816 910 Exchange effects 5 54 - 76 135 Cancellation of provisions (2) (355) - - - (355) Payments (48) (546) (102) (260) (956) At December 31, 2015 Ps 93 Ps 557 Ps 317 Ps 948 Ps 1,915

Business acquisitions - - - 326 326 Additions 29 132 - 36 197 Exchange effects 7 79 8 115 209 Cancelation of provisions (6) (190) (29) (124) (349) Payments (8) (115) - (243) (366) At December 31, 2016 Ps 115 Ps 463 Ps 296 Ps 1,058 Ps 1,932

2016 2015 Short-term provisions Ps 769 Ps 825 Long-term provisions 1,163 1,090 At December 31, Ps 1,932 Ps 1,915

(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 write-off of provisions in the telecommunications segment as a result of favorable legal disputes related with interconnection rates.

Note 20 - Other liabilities: December 31, 2016 2015 Share-based employee benefits (Note 24) Ps 318 Ps 565 Dividends payable 72 63 Deferred credits 500 453 Accounts payable – affiliates (Note 31) 1,911 1,476 Total other liabilities Ps 2,801 Ps 2,557

Current portion Ps 2,103 Ps 1,747 Non-current portion 698 810 Total other liabilities Ps 2,801 Ps 2,557

96 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 21 - Employee benefits: The valuation of employee benefits for retirement plans 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 2016 2015 Mexico Ps 1,948 Ps 1,454 United States of America 1,235 1,102 Other 1,319 979 Total Ps 4,502 Ps 3,535

Following is a summary of the main financial information of such employee benefits: December 31, 2016 2015 Liabilities in the balance sheet for: Pension benefits Ps 3,754 Ps 2,877 Post-employment medical benefits 748 658 Liabilities in the balance sheet Ps 4,502 Ps 3,535 Charge in the income statements for: Pension benefits Ps (432) Ps (265) Post-employment medical benefits (52) (49) Ps (484) Ps (314) Actuarial losses recognized in the statement of other comprehensive income for the period Ps (81) Ps (29)

Cumulative actuarial losses recognized other comprehensive income Ps 79 Ps 39

Pension benefits The Company operates defined benefit pension plans based on employees’ pensionable remuneration and length of service. Most plans are externally funded. Plan assets are held in trusts, foundations or similar entities, governed by local regulations and practice in each country, as is the nature of the relationship between the Company and the respective trustees (or equivalent). Amounts recognized in the balance sheet are determined as follows: December 31, 2016 2015 Present value of defined benefit obligations Ps 10,108 Ps 8,078 Fair value of plan assets (6,354) (5,746) Present value of unfunded obligations 3,754 2,332 Past service cost not recognized - - Liabilities in the statement of financial position Ps 3,754 Ps 2,332

97 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The movement in the defined benefit obligation during the year was as follows: 2016 2015 At January 1 Ps 8,078 Ps 7,926 Current service cost 345 178 Interest cost 338 319 Employee contributions 185 2 Remeasurements: Losses/(gains) related with experience of the employees 34 (237) Exchange differences 1,257 289 Benefits paid (541) (440) Liabilities acquired in business combinations 57 54 Reductions (53) (9) Settlements (6) (4) At December 31 Ps 9,694 Ps 8,078

The movement in the fair value of plan assets for the year was as follows: 2016 2015 At January 1 Ps (5,746) Ps (5,561) Expected return on plan assets - 270 Remeasurements - expected return on plan assets, excluding interest income (238) (240) Exchange differences (613) (412) Employer contributions (76) (96) Employee contributions (2) (1) Benefits paid 321 294 At December 31 Ps (6,354) Ps (5,746)

Amounts recorded in the statement of income are as follows: 2016 2015 Current service cost Ps (344) Ps (178) Financial revenues (costs), net (100) (79) Loss from reduction 12 (8) Total included in personal costs Ps (432) Ps (265)

Main actuarial assumptions were as follows: December 31, 2016 2015 Discount rate MX7.75% MX6.75% Discount rate US3.89% US1.00% Inflation rate 3.50% 1.50% Salary increase rate 4.50% 5.25% Future salary increase 4.50% 4.25% Medical inflation rate 6.50% 7.50%

The average life of defined benefit obligations is 13 and 14 years at December 31, 2016 and 2015, respectively.

98 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The sensitivity analysis of the main assumptions for defined benefit obligations were as follows: Effect in defined benefit obligations Change in Increase in Decrease in assumptions assumptions assumptions Discount rate +1% Decrease by Ps 495 Increase by Ps 890

Pension benefit assets Plan assets are comprised as follows: December 31, 2016 2015 Equity instruments Ps 3,207 Ps 3,048 Short and long-term securities 3,147 2,698 Ps 6,354 Ps 5,746

Post-employment medical benefits The 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, 2016 2015 Present value of defined benefit obligations Ps 752 Ps 663 Fair value of plan assets (4) (4) Deficit in funded plans 748 659 Present value of unfunded obligations - - Liabilities in the statement of financial position Ps 748 Ps 659

The movements of defined benefit obligations are as follows: 2016 2015 At January 1 Ps 688 Ps 644 Current service cost 17 16 Interest cost 37 33 Employee contributions 18 15 Demographic actuarial losses/(gains) 33 2 Exchange differences 31 21 Benefits paid (76) (72) At December 31 Ps 748 Ps 659

The movement in the fair value of plan assets for the year was as follows: 2016 2015 At January 1 Ps (4) Ps (4) Expected return on plan assets without interest income - - Benefits paid - - At December 31 Ps (4) Ps (4)

99 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Amounts recorded in the statement of income are as follows: 2016 2015 Current service cost Ps (16) Ps (16) Interest cost (35) (33) Curtailment gain - - Total included in personal costs Ps (53) Ps (49)

The sensitivity analysis of the main assumptions for defined benefit obligations were as follows: Effect in defined benefit obligations Change in Increase in Decrease in assumptions assumptions assumptions Medical inflation rate +1% Increases by Ps59 Decreases by Ps 43

Note 22 - Stockholders’ equity: At December 31, 2016 and 2015, the capital stock is variable, with a fixed minimum without withdrawal rights of Ps213 ,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. For the year ended December 31, 2016, the Company did not repurchase shares, however in 2015, the Company repurchased 14,000,000 for a total of Ps458, 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, 2016 and 2015, the Company held 79,500,000 treasury shares, and the market value of the share was Ps25.70 in 2016 and Ps34.10 in 2015. 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, 2016 and 2015, the legal reserve amounted to Ps60, which is included in retained earnings. On March 4, 2015, the Ordinary General Stockholders´Meeting approved the payment of an ordinary cash dividend of US$0.03 for each of the outstanding shares, equivalent to approximately Ps3,043. Also, on April 15, 2015, the Ordinary General Shareholders’ Meeting approved the payment of an ordinary cash dividend of $0.03 for each of the outstanding shares, which is 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 2015. 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, 2016 and 2015, the tax value of the CUFIN and tax value of the Capital Contribution Account (CUCA) amounted to Ps 31,684 (Ps26,714 in 2015) and Ps38,182 (Ps34,953 in 2015), 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.

100 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The movements in cumulative other comprehensive income for 2016 and 2015 are presented below: Effect of Effect from cash flows foreign hedge currency derivative translation instruments Total At January 1, 2015 Ps 4,356 Ps (639) Ps 3,717

Gains (losses) on fair value - (929) (929) Tax on gain (loss) on fair value - 279 279 Gains on translation of foreign entities 3,598 - 3,598

At December 31, 2015 Ps 7,954 Ps (1,289) Ps 6,665

Gains (losses) on fair value - 483 483 Tax on gain (loss) on fair value - (145) (145) Gains (losses) on translation of foreign entities 16,058 - 16,058

At December 31, 2016 Ps 24,012 Ps (951) Ps 23,061

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 20, 2017, last date of financial activity before of the issuance of these financial statements, the exchange rate was 20.33 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, 2016 and 2015, had the following assets and liabilities in foreign currencies: At December 31, 2016 Dollars (USD) Other currencies Total Mexican Mexican Mexican USD pesos USD pesos pesos Monetary assets 5,620 Ps 116,150 1,169 Ps 24,163 Ps 140,313 Liabilities: Current (2,163) (44,703) (62) (1,283) (45,986) Non-current (6,523) (134,804) (1,143) (23,618) (158,422) Monetary position in foreign currencies (3,066) Ps (63,357) (36) Ps (738) Ps (64,095)

At December 31, 2015 Dollars (USD) Other currencies Total Mexican Mexican Mexican USD pesos USD pesos pesos Monetary assets 2,822 Ps 48,572 617 Ps 10,612 Ps 59,184 Liabilities: 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 (3,492) Ps (60,071) (1,003) Ps (17,275) Ps (77,346)

101 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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 2016 and 2015 was Ps26.73 and Ps34.30, respectively. At December 31, 2016 and 2015, the liability for share-based payments amounted to Ps318 and Ps565, respectively. The short-term and long-term liability was analyzed as follows: December 31, 2016 2015 Short-term Ps 120 Ps 207 Long-term 198 358 Total carrying value Ps 318 Ps 565

Note 25 - Expenses classified by nature: The total cost of sales, selling and administrative expenses, classified by nature of the expense, were as follows: 2016 2015 Raw materials and costs of services Ps (155,104) Ps (141,929) Outsourced production (7,853) (7,972) Employee benefit expenses (39,831) (32,414) Maintenance (9,721) (7,449) Depreciation and amortization (16,947) (11,911) Freight charges (7,268) (6,501) Advertising expenses (2,788) (2,441) Lease expenses (3,337) (1,771) Consumption of energy and fuel (8,367) (7,856) Travel expenses (1,166) (926) Technical assistance, professional fees and administrative services (6,095) (5,897) Other (8,892) (8,906) Total Ps(267,369) Ps(235,973)

102 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 26 - Other income, net: 2016 2015 Compensation and reimbursement from insurance (1) Ps - Ps 3,873 Gain from sale of assets 4 337 Gain (loss) from sale of shares 337 - Other income 341 4,210 Valuation of derivative financial transactions (251) - Impairment loss of assets (See Note 12 and 13) (2,094) (2,472) Other (216) (7)

Other expenses (2,561) (2,479) Total other income, net Ps (2,220) Ps 1,731

(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. 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. Note 27 - Financial cost, net: 2016 2015 Financial income: - Interest income on short-term bank deposits Ps 328 Ps 357 - Other finance income 268 218 Financial income, excluding foreign exchange loss 596 575

Gain on foreign exchange 11,050 9,223 Total financial income Ps 11,646 Ps 9,798

Financial expenses: - Interest expense on bank loans Ps (2,690) Ps (2,095) - Interest expense on exchange - traded debt certificates (3,475) (2,767) - Interest expense on sale of receivables (267) (160) - Interest cost on benefit to employees (227) (196) - Interest expense of suppliers (49) (52) - Interest rate swaps: fair value hedging - (432) - Other financial expenses (610) (292)

Finance costs: (7,318) (5,994) Less: amounts capitalized on qualifying fixed assets 123 52 Interest expense, excluding foreign exchange loss (7,195) (5,942) Foreign exchange loss (18,239) (14,143) Total finance cost Ps (25,434) Ps (20,085)

Impairment of financial asset available for sale Ps (1,270) Ps (4,203)

Financing cost, net Ps (15,058) Ps (14,490)

103 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 28 - Employee benefit expenses: 2016 2015 Salaries, wages and benefits Ps 34,658 Ps 28,175 Contributions to social security 4,035 3,173 Employees’ benefits 758 767 Other contributions 380 300 Total Ps 39,831 Ps 32,415

Note 29 - Income tax for the year: 2016 2015 Tax currently payable: Income tax on profits of the period Ps (5,983) Ps (5,420) Adjustment for previous years 1,447 1,987 Total tax currently payable Ps (4,536) Ps (3,433)

The reconciliation between the statutory and effective rates of income tax was as follows: 2016 2015 Profit (loss) before taxes Ps 9,271 Ps 9,284 Share in losses of associates recognized through equity method (115) 284 Income (loss) before equity in associates 9,156 9,568

Statutory rate 30% 30% Tax at statutory rate (2,747) (2,870)

(Add) deduct tax effect of: Differences in calculating interest deductions 283 273 Other permanent differences, net (2,072) (836) Total provision for income taxes (charged) credited to income Ps (4,536) Ps (3,433)

Effective rate 50% 36%

The tax charge/(credit) relating to components of other comprehensive income was as follows: 2016 2015 Tax Tax Prior charged After Prior charged After taxes (credited) taxes taxes (credited) taxes Effect of derivative financial instruments contracted as cash flow hedges Ps 598 Ps (179) Ps 419 Ps (929) Ps 279 Ps (650) Actuarial losses on labor liabilities (115) 34 (81) (42) 13 (29) Translation effect of foreign entities 16,058 - 16,058 3,598 - 3,598

Other items of comprehensive income Ps 16,541 Ps (145) Ps 16,396 Ps 2,627 Ps 292 Ps 2,919

Deferred taxes Ps (145) Ps 292

104 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Note 30 - Related party transactions: Transactions with related parties during the years ended December 31, 2016 and 2015, which were carried out in terms similar to those of arm’s-length transactions with independent third parties, were as follows: 2016 2015 Sale of goods and services: Affiliates Ps 24,380 Ps 23,940 Shareholders with significant influence over subsidiaries (1) 1,344 1,919

Purchase of good and services: Affiliates Ps 10,791 Ps 18,782 Shareholders with significant influence over subsidiaries (1) 418 1,668

(1) Includes the effects of the agreements between Alpek and BASF on the PU businesses, see Note 2a.

For the year ended December 31, 2016, wages and benefits received by top officials of the Company were Ps889 (Ps748 in 2015), 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, 2016 and 2015, the balances with related parties were as follows: December 31, Nature of the transaction 2016 2015 Receivables: Affiliates Sale of goods Ps 2,618 Ps 25 Shareholders with significant influence over subsidiaries Services rendered Ps - Ps 257 Payable: Affiliates Purchase of raw materials Ps 1,723 Ps 1,402

Balances payable to related parties at December 31, 2016 are payable in 2017 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. - Axtel: This segment operates in the telecommunications sector and its revenues are derived from the provision of data transmission services, Internet, local 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, besides the eliminations of consolidation.

105 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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, 2016 Other segments and Alpek Sigma Nemak Axtel Newpek eliminations Total Statement of income Revenue by segment Ps 90,192 Ps 106,341 Ps 79,244 Ps 13,244 Ps 1,991 Ps 5,052 Ps 296,564 Intersegment revenue (295) - - (137) - (2,350) (2,782) Revenue from external customers Ps 89,897 Ps106,341 Ps 79,244 Ps 13,607 Ps 1,991 Ps 2,702 Ps 293,782

Adjusted EBITDA Ps 12,425 Ps 12,374 Ps 14,850 Ps 4,177 Ps 199 Ps (770) Ps 43,255 Depreciation and amortization 2,560 3,494 5,872 3,638 730 653 16,947 Impairment of assets 2 361 294 54 1,413 (28) 2,094

Operating profit 9,863 8,519 8,684 485 (1,944) (1,393) 24,214 Finance cost, net (2,509) (2,757) (1,439) (2,995) (792) (4,566) (15,058) Share of losses of associates (3) 50 55 (5) 41 (23) 115 Profit or loss before tax Ps 7,351 Ps 5,812 Ps 7,300 Ps (2,515) Ps (2,695) Ps (5,982) Ps 9,271

Statement of financial position Investment in associates Ps 403 Ps 899 Ps 417 Ps - Ps 412 Ps (20) Ps 2,111 Other assets 91,097 99,771 91,476 32,167 6,679 25,262 346,452 Total assets 91,500 100,670 91,893 32,167 7,091 25,242 348,563 Total liabilities 49,778 83,713 54,822 29,521 6,044 24,072 247,950 Net assets Ps 41,722 Ps 16,957 Ps 37,071 Ps (2,646) Ps 1,047 Ps (1,170) Ps 100,613

Capital expenditures (Capex) Ps (5,981) Ps (6,298) Ps (10,164) Ps (3,916) Ps (467) Ps (539) Ps (27,365)

106 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Year ended December 31, 2015 Other segments and Alpek Sigma Nemak Axtel Newpek eliminations Total Statement of income Revenue by segment Ps 83,590 Ps 93,568 Ps 70,891 Ps 6,163 Ps 2,180 Ps 4,365 Ps 260,757 Intersegment 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 38,440 Depreciation 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) 24,057 Finance 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

Statement of financial position Investment in associates Ps 253 Ps 759 Ps 303 Ps 8 Ps 272 Ps 42 Ps 1,637 Other 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 17,867 266,705 Total liabilities 39,944 68,835 44,080 6,967 4,186 22,878 186,890 Net 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)

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, 2016 Revenue to Property, external plant and Intangible customers equiment Goodwill assets Mexico Ps 129,182 Ps 85,258 Ps 9,027 Ps 15,695 United States 71,250 16,637 360 12,723 Canada 2,801 2,132 - 28 Central and South America 16,761 4,374 - 690 Other countries 73,788 41,102 12,104 12,543 Total Ps 293,782 Ps 149,503 Ps 21,491 Ps 41,679

For the year ended December 31, 2015 Revenue to Property, external plant and Intangible customers equiment Goodwill assets Mexico Ps 88,175 Ps 59,993 Ps 4,753 Ps 8,003 United States 84,646 13,920 3 11,886 Canada 2,041 962 - 33 Central and South America 13,510 3,248 - 128 Other countries 69,928 28,253 10,844 10,572 Total Ps 258,300 Ps 106,376 Ps 15,600 Ps 30,622

107 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 The revenue to external customers by product or service was as follows: 2016 2015 Alpek Polyester-Pet/PTA Ps 63,946 Ps 60,504 Plastics and chemicals 25,951 22,844 Total 89,897 83,348

Sigma Processed meats 75,085 66,066 Dairy 25,453 22,395 Other refrigerated products 5,803 5,106 Total 106,341 93,567

Nemak Aluminum automotive products 79,244 70,891 Total 79,244 70,891

Axtel Massive 2,748 - Business segment 8,942 5,628 Government 1,917 - Other segments - 399 Total 13,607 6,027

Newpek Hydrocarbons 1,991 2,180 Total 1,991 2,180 Other segments 2,702 2,287 Total Ps293,782 Ps 258,300

(1) As mentioned in Note 2.a, as a result of the acquisition of Axtel, the presentation of this segment has been aligned to show the integrated operations of Axtel and Alestra.

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, 2016, the Company and its subsidiaries had the following commitments: a. The Company through its subsidiary Alpek, signed an agreementt with M&G (see Note 2) for plant supply rights for 500 thousand tons of PET (manufactured with 360 thousand tons of PTA) per year. Alpek has completed payments in the amount of US$435, of which US$360 is recognized in the intangible assets corresponding to the abovementioned rights of supply and will be amortized once PET supplies start and US$75 as advance of inventories within the heading of advance payments. b. At December 31, 2016 and 2015, 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, Indelpro (a subsidiary of Alpek) renewed its agreement with PEMEX Refinación to cover the supply of propylene for the chemical and refining area due in 2018; this contract establishes the obligation to buy the maximum level of production available at a price referenced to market values.

108 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 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, 2016 and through February 20, 2017 (date of issuance of the financial statements), and except for the matter mentioned in the following paragraph, no additional subsequent events has been identified: On February 2, 2017, ALFA, through its subsidiary Sigma, placed bonds in the European market under Rule 144A, Regulation S, amounting to 600 million Euros. This instrument has a coupon of 2.625% and a seven year term.

Álvaro Fernández Garza Ramón A. Leal Chapa President Chief Financial Officer

109 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Glossary

Caprolactam: Raw material derived Monoethylene glycol: raw material from oil (cyclohexane), used for the primarily used for the manufacture of production of nylon. polyester fibers. Cloud applications: Business model PET (Polyethylene Terephtalate): where applications are accessed through Plastic resin mostly used to manufacture the Internet, and are not physically containers. present in the customer’s facilities. Polyester: Plastic resin used to Compusoluciones: wholesale company manufacture textile fibers, films and that integrates IT solutions. containers. Data security: A practice that includes Polypropylene: Propylene derivative techniques, applications, and devices used in the production of plastics and responsible for ensuring availability, fibers, among other products. integrity and confidentiality of the PTA (Purified Terephtalic Acid): Raw data of information systems, data and material used to manufacture polyester telecommunications networks. Related Proprietary Board Member: EPS: Thermoplastic used for insulation A Board member who owns company and packaging. shares and is involved in the day-to-day Ethane: Hydrocarbon product of the management of the company. bond between the carbon and hydrogen. Scale Ups: business established with Independent Board Member: A Board potential of growth. member who does not own company Systems integration: Practice of shares and is not involved in the day- service which consists in designing and today management of the company. building customized computer solutions, Independent Proprietary Board combining and connecting hardware Member: A Board member who owns and/or software of one or several company shares but is not involved in the manufactures products. day-to-day management of the company. Starts Ups: new or emerging businesses. Last-mile access: The physical link Triple play: a marketing term for the between the location of the customer provisioning, over a single broadband and the nearest node of Axtel’s connection for voice, Internet and TV. 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.

110 WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 Investor Relations Mexican Stock Exchange ALFA Luis Ochoa Date listed: Vice President Investor Relations August 1978 Phone: +52 (81) 8748 2521 lochoa@alfa.com.mx

Juan Andrés Martín Investor Relations Manager Phone: +52 (81) 8748 1676 [email protected]

Independient Auditor Latibex (Madrid Stock Exchange) PwC ALFA C/I-s/A Date listed: December 2003

design:www.signi.com.mx WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2 ALFA, S.A.B. de C.V. Av. Gómez Morín 1111 sur, Col. Carrizalejo San Pedro Garza García, N.L. C.P. 66254, México www.alfa.com.mx WorldReginfo - 9bb3cd03-2480-4baf-aad8-78a842c51ba2