challengesI 2009 ANNUAL REPORT ALFA 2009 ANNUAL REPORT THE COMPANY ALFA is a company comprising four...

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20 09 ANNUAL REPORT

ALF

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THE COMPANY

ALFA is a company comprising four business groups: ALPEK (petrochemicals), NEMAK (aluminum auto

components), SIGMA (refrigerated food) and ALESTRA (telecommunications).

ALFA is the world’s leading manufacturer

of high-tech aluminum engine heads

and blocks. It is one of the world’s largest

producers of PTA, a petrochemical product,

and has a leading market share in other

petrochemicals in Mexico.

Page

2 FINANCIAL HIGHLIGHTS

3 LETTER TO SHAREHOLDERS

10 THE ALFA EVOLUTION 1993-2009

12 NEW CHAIRMAN OF THE BOARD

14 ALPEK

16 NEMAK

18 SIGMA

CONTENTS

In addition, ALFA is Mexico’s leading

producer of processed meats and

cheese and one of the most important

telecommunications services companies

in Mexico.

In 2009, ALFA reported revenues of Ps.

115,632 million (U.S. $8.5 billion), including

foreign sales of U.S. $4.5 billion, and assets

of Ps. 108,088 million (U.S. $8.3 billion).

Currently, ALFA has manufacturing

operations in 16 countries and employs

more than 52,000 people. ALFA’s shares

are quoted on the Mexican Stock

Exchange and on Latibex, the market for

Latin American shares of the Madrid

Stock Exchange.

20 ALESTRA

22 SOCIAL RESPONSIBILITY

24 BOARD OF DIRECTORS

26 CORPORATE GOVERNANCE

27 MANAGEMENT TEAM

28 FINANCIAL STATEMENTS

challenges Great

results Great

www.al fa.com.mx

NOTE: in this annual report, monetary figures are expressed in nominal Mexican pesos (Ps.), and in nominal dollars (U.S. $) unless otherwise specified. Conversions were made using the average rate of the month in which the revenues or disbursements were made. The percentages of variation between 2009 and 2008 are expressed in nominal terms.

ALFA, S.A.B. de C.V.Ave. Gómez Morín 1111 Sur

Col. CarrizalejoSan Pedro Garza García, N.L.

C.P. 66254, Mexico

Plants: 18 plants at 11 sites in 3 countries

Capacity: 4.45 million tons per year

2009 revenues: U.S. $4 billion

Employees: 4,000

ALESTRA

One of the most important telecommunications services companies in Mexico. ALESTRA provides connectivity solutions, voice, data and Internet ser-vices, and convergence solutions for users of every type and industry. The ALESTRA network enables seamless access to the AT&T Global Network.

ALPEK

ALFA’s petrochemical companies are grouped under the ALPEK name. They include, among oth-ers: Petrotemex, the fourth largest producer of PTA in the world and the second of PET in the Ameri-cas; Polioles, which operates the largest plant of expandable polystyrene in this continent; and Indelpro, the only producer of polypropylene in Mexico.

SIGMA

The largest manufacturer of processed meats and cheese in Mexico. In addition, it has operations in the U.S, Central and South America, and the Caribbean. SIGMA markets its products through brands that, in some cases, have been preferred by consumers for more than 50 years. The com-pany operates one of the industry’s largest refrig-erated distribution networks in Mexico.

Plants: 31 plants and 144 distribution centers in 9 countries

Capacity: 892,000 tons per year

2009 revenues: U.S. $2.2 billion

Employees: 28,000

Presence: 4,000 miles of fiber-optic network, including 800 miles of metropolitan rings, covering 198 cities in Mexico.

2009 revenues: U.S. $345 million

Employees: 1,800

ALFA: PRESENCE AND BUSINESSES

NEMAK

The world’s leading manufacturer of high-technol-ogy gas- and diesel-engine aluminum heads and blocks. NEMAK has the most complete techno-logical platform in its industry. Its success is based on its high product quality, excellent service, cost competitiveness, speed to launch new products, and global coverage.

Plants: 27 plants at 16 sites in 12 countries

Capacity: 43 million equivalent heads per year

2009 revenues: U.S. $2 billion

Employees: 13,800

Contribution of each business group in 2009

REVENUES

46%

26%

24%

4%

ASSETS

38%

17%

36%

6%

3%

EBITDA

40%

26%

24%

10%

THE AMERICAS EUROPE ASIA

OTHERS

Mexican Stock Exchange

ALFA

Date listed

August 1978

Latibex(Madrid Stock Exchange)

ALFA C/I-s/A

Date listed

December 2003

De

sign

: sig

ni.c

om

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

Ave. Gómez Morín 1111 SurCol. CarrizalejoSan Pedro Garza García, N.L.C.P. 66254, Mexico

www.alfa.com.mx

Independent Auditors

PricewaterhouseCoopers

Investor Relations

Enrique Flores RodríguezCorporate CommunicationsPhone: +52 (81) 8748 1207Fax: +52 (81) 8748 [email protected]

Raúl González Casas

Investor RelationsPhone: +52 (81) 8748 1177Fax: +52 (81) 8748 [email protected]

Gilberto García Martínez


1

The difficult 2009 allowed ALFA to showcase its strategic strengths. The company reported its best year ever in terms of EBITDA generation, despite the severe contraction of some of its major markets.

All ALFA companies enjoyed outstanding perfor-

mance, considering the economic environment

in which they operated. Their success is due to

the strong strategic positioning, market leader-

ship, state-of-the-art technology, and excellent

human capital they have.

FINANCIAL HIGHLIGHTS

2

1,055

NET SALESU.S. $ Millions

05 6,2146,858

9,57010,637

8,536

06070809

9,141

8,277

ASSETSU.S. $ Millions

05 5,9116,844

8,197

06070809

EBITDAU.S. $ Millions

05 803765

964964

06070809

ALFA and subsidiaries Millions of Ps. U.S. $ Millions(3)

2009 2008 % change 2009 2008 % change

Income Statement Net Sales 115,632 116,190 -0.5 8,536 10,637 -20Operating Income 8,762 5,841 50 647 542 19Majority Net Income 2,021 -9,513 na 157 -791 naMajority Net Income per Share(1) (Ps. and U.S. $) 3.61 -16.99 na 0.28 -1.43 naEBITDA 14,280 10,478 36 1,055 964 9

Balance Sheet Total Assets 108,088 110,970 -3 8,277 8,197 1Total Liabilities 71,729 76,252 -6 5,493 5,632 -2Stockholders’ Equity 36,359 34,718 5 2,784 2,564 9Majority Interest 31,722 29,551 7 2,429 2,183 11Book Value per Share(2) (Ps. and U.S. $) 56.71 52.83 7 4.34 3.90 11

(1) Based on the weighted average number of outstanding shares: 559.4 million in 2009 and 560.0 million in 2008.(2) Based on the number of outstanding shares: 559.4 million in 2009 and 2008.(3) Due to the dollarization of its revenues, which is estimated to be higher than 75%, and due to the holding of shares by foreign investors,ALFAprovidesequivalentU.S.$amountsforsomeofitsmostimportantfinancialdata.

DEAR SHAREHOLDERS: During 2009 our company successfully faced the challenges posed by the world’s worst economic crisis of the past 80 years. We generated the highest EBITDA in our history: U.S. $1,055 million, 9% more than in the previ-ous year, and we extended the average life of our debt from 1.8 to 4.2 years by completing several refinancing transactions. As a consequence of the global financial turmoil that occurred at the end of 2008, we operated in an environment of depressed markets, lack of liquidity and absence of new credits, in particular at the beginning of 2009. In order to address this situation, we made drastic decisions that in retrospect, and as evidenced by the excellent results we have reported, were correct. The main factors that allowed us to overcome the crisis were the strategic strength and solid positioning of our businesses, the competence of ALFA’s employees, and the confidence of the financial community in our company. The years of effort that ALFA has invested in its transformation proved their worth in 2009. Today, we participate in less-volatile industries, where we have a strong strategic position based on a global presence in value-added products and services, and in state-of-the-art technology, brand equity and distribution ca-pacity. In 2009, we achieved excellent results, gained market share, and improved our posi-tion with respect to numerous competitors. In addition, the talent, experience and profes-sionalism of our employees, which they have developed with our help, were key factors in our success. With vision, leadership, unity of

objectives, decision, and loyalty to the com-pany, our people faced the grave difficul-ties that the year presented and thoroughly overcame them. Finally, I must add that, in spite of the low-liquidity environment that prevailed, we had the confidence of the financial community. Our ability to access credit lines at the most critical times allowed us to timely meet our financial commitments. Thanks to that confi-dence, built up through the years, ALFA was one of the first Mexican companies to obtain long-term financing when the international debt markets selectively opened up. This enabled us to extend the average life of our debt and improve our financial flexibility. Thus, the crisis reinforced our strengths and allowed us to end the year in a much better shape than at its beginning. We have a leaner cost structure, a better working capital man-agement, we have extended our average debt maturity, and our overall financial condi-

LETTER TO SHAREHOLDERS

3

Dionisio Garza MedinaChairman of the Board of Directors

and Chief Executive Officer

The years of effort that ALFA has invested in its transformation proved their worth in 2009: we achieved excellent results, gained market share, and improved our position with respect to numerous competitors.

tion is much stronger. Today, we are strategi-callyandfinanciallypreparedtotakeadvan-tage of the value-creation opportunities that may arise, especially now that the economy is beginning to show signs of recovery.

Excellent Operating Performance As I have mentioned, our subsidiaries had to quickly take dramatic measures to counteract theeffectsoftheglobalfinancialcrisis.Theseactions allowed them to substantially reduce their costs and expenses and increase their operationalefficiency.Thisledtoextraordinaryperformance in our operations, as shown by a 10% increase in sales volume (when not consid-eringNEMAK,oursubsidiaryintheautomotiveindustry). In addition, on a consolidated level, wereducedourfixedcostsandoperatingex-penses by 18% and reduced our investment in working capital by close to U.S. $20 million. Below,Iwillcommentspecificallyoneachofour main companies: Approximately 80% of our petrochemical production is intended for the food, bever-age, and consumer-products markets, which provedresistanttothefinancialcrisisanden-joyed a healthy demand. Total sales volume in-creased by 12% during the year, thanks to such demand as well as to the improved operation of the PTA Plant II in Altamira, higher produc-tion from the new polypropylene plant, and the excellent performance of the expandable polystyrene and caprolactam businesses. In2009,NEMAKdemonstratedanextraordi-nary operational performance, which al-lowed it to effectively face the crisis in the automotive industry, emerge strengthened, and consolidate its world leadership. The

company responded promptly to the chal-lenges presented by the worldwide reduction in industry activity, especially at the beginning of the year. It also strengthened the measures it has been taking since 2008 to streamline and improvetheflexibilityofitsoperations,reducecosts and expenses, eliminate organizational levels, and relocate production to more ef-ficientplants.AllofthesemeasuresallowedNEMAKtoreducefixedcostsbyapproximatelyU.S. $550 million, in annualized terms, or almost 50%. The success of these measures is further demonstratedbyNEMAK’sabilitytopostaslightly higher operating margin, despite a reduction in volume of nearly 23%. Demand for new vehicles improved in the second half of the year, aided in part by various government programs,whichallowedNEMAKtooperateata better pace. SIGMAwasfavoredbyasoliddemandandincreased its sales volume by 6% during the year.SIGMA’smainproductlines,includingre-cently launched products such as Guten® and refrigerated pizzas, showed positive organic growth. The international business continued to grow with the contributions of Braedt (Peru) and Longmont® (U.S.), a company and brand that we acquired in the second half of 2008. Inaddition,SIGMAimplementedproductiv-ityandefficiencymeasuresthathelpedtoimprove its margins. ALESTRA continued to move forward with its strategy of focusing on value-added services forthebusinesssector,whichyieldhigherprofitmargins and more rapid growth. These services represented 70% of total sales in 2009, com-pared with 63% in 2008. Following this strategy, ALESTRA has become one of the foremost suppliers of services in its target market, where it already has a 10% market share.

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In recent years, we have expanded our rel-evantmarketstocountriesotherthanMexico,therefore increasing our international presence. In 2009, we operated production facilities in 16 countries, and sales abroad represented 52% of total revenues, effectively turning ALFA into a global company. In addition to reinforcing the strategic position of the various companies, our diversificationprovidesmorestablerevenuebyreducing our dependency on a single market. This diversity brings even greater value in dif-ficulteconomiccircumstancessuchasthosethat prevailed in 2009.

Finance In 2009, consolidated revenues totaled U.S. $8,536 million, 20% less than in 2008. The de-crease is explained primarily by reduced inter-national prices for raw materials, which fell in mid-2008duetotheglobalfinancialcrisisandwhich our companies passed through to the customers.NEMAKalsoexperiencedalowersales volume, which, as we mentioned, was due to conditions in the automotive industry. Despite reduced revenue, in 2009 EBITDA grew 9% in dollar terms, for a total of U.S. $1,055 mil-lion, the highest in our history. In addition to sales volume growth in petrochemicals and food, the increase in EBITDA was due to the successful measures we undertook to substan-tially reduce costs and expenses throughout the group. ComprehensivefinancingcostwasU.S.$317million.Thisfigureincludessignificantex-change-rate gains as a result of the 4% appre-ciation of the peso vis-à-vis the dollar.

At the end of the year, our key financial indicators, Net Debt to EBITDA and Interest Coverage, totaled 2.1 and 5.8 times, respec-tively. The financial situation is very strong and we find ourselves in a very favorable position to capture growth opportunities.

ALFAEBITDA

(U.S. $ Millions)

9641,055

9%

EBITDA (%)Margin

08 09

9.1 12.4

In2009,MajorityNetIncomewasU.S.$157mil-lion, or U.S. $0.28 per share, which compares favorably with losses of U.S. $791 million, or U.S. $1.43 per share, reported the previous year. In2008,weendedasignificantexpansionplan that implied considerable investments in fixedassetsandacquisitions.Therefore,capitalexpenditures totaled only U.S. $288 million in 2009. Resources were applied primarily to asset replacement,energy-efficiencyprojects,andothers intended to debottleneck processes and increase production capacity. In 2009, we worked extensively to strengthen ourfinancialstructure.AsIhavepreviouslyin-dicated, our subsidiaries ALESTRA, Petrotemex, andSIGMAissuedbondsintheinternationaldebt markets for a combined amount of U.S. $725 million. The success of these issues re-flectstheconfidencethatinvestorshaveinourcompanies. We used those resources for early repayment of shorter-term debt. For its part, NEMAKrefinanceditsliabilities,whichamount-ed to U.S. $1.4 billion. Thus, we increased the average life of our debt from 1.8 to 4.2 years, improvingourfinancialflexibility. Attheendoftheyear,ourkeyfinancialindica-tors, Net Debt to EBITDA and Interest Coverage, totaled 2.1 and 5.8 times, respectively. Both of these ratios are within the range that the Board of Directors considers optimal for ALFA. Having refinancedthemajorityofourfuturematuri-ties,ourfinancialsituationisverysolid.Conse-quently,wefindourselvesinamorefavorableposition to capture growth opportunities as they present themselves.

An integral part of our strategy is to invest in areas that contribute to our future growth, such as research and development, innovation, and the training of our human talent.

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Strategy Through the years, we have built a company with a solid strategic positioning, which al-lowed us to successfully confront an extremely complex business environment, as I have previously mentioned. The strategic strength of the companies groupedunderALPEKisbasedontheirscaleandcostcompetitiveness.ALPEKendedtheyear 2008 with an extensive investment plan that allowed it to increase its production capacity by 40%. This transformed Petrotemex into the world’s fourth-largest PTA producer and the second of PET in the Americas, and al-lowed Indelpro to become one of the lowest-cost polypropylene producers in the world. In 2009, in addition to driving the already men-tioned investments, we began the construction of a PET-recycling plant in the U.S., in a joint venture with Shaw Industries. This expansion into a related business will allow us to reduce energy costs and contribute to the protection of the environment. The natural gas business that we have been developing in South Texas with our partner Pioneer Natural Resources has achieved favorable results. In recent months, two highly successful wells have been drilled in the Eagle FordShale,oneofwhichhasyieldedsignifi-cant amounts of condensates and natural gas liquids. This considerably increases its value and is indicative of the enormous potential for this area, which covers more than 200,000 acres. An accelerated exploration and pro-duction program has been initiated to develop its economic potential. NEMAKmovedforwardbycapitalizingonsynergies resulting from the integration of the plants acquired in 2007 in the Americas, Eu-rope, and Asia. The company’s stronger posi-tion,intermsofscale,diversificationofmarkets

and clients, global scope, and state-of-the-art technology, has proven critical to its ability to face the crisis of 2009. Given the challenging business environment in which it operated, the company’sexcellentresultsconfirmtheappro-priateness of our investment decisions. SIGMA’ssuccessisbasedprimarilyonitsbrand leadership, the excellent formulation of the company’s products, and its broad distribution capacity. In 2009, we leveraged these strengths to increase market share and profitability.Inaddition,withtheinvestmentsin Braedt and Longmont® and a focus on in-novation, we continue to prepare for future growth.TheresultsSIGMAhasachieveddem-onstrate the success of its business model and growth strategy. In 2009, ALESTRA continued its steadfast fo-cus on the value-added services market for the business sector, which has shown a high growthrate,withmuchhigherprofitability.Tothis end, ALESTRA invested to ensure the ex-pansion of its service infrastructure and to gain market share. Finally, an integral part of our strategy is to invest in areas that contribute to our future growth, such as research and development, in-novation, and the training of our human talent. During this reporting year we observed palpa-ble examples and results of our actions in those areas.Forinstance,SIGMAlaunched37newproducts to the market, a result of its innova-tion efforts. Regarding personnel, we carried out 2,400 training programs in our companies, for a total of more than one million man-hours. Likewise, we gave scholarships for different levels of study to one thousand employees. In summary, the transformation of ALFA and the consistent strategy that we followed yielded excellent results in 2009, in spite of the verydifficultenvironment.

Corporate Social Responsibility We honored our commitment to contribute to improving quality of life, both within the company and in the communities in which we operate, even though the economic dif-ficultiesrequiredustobemoreeffectivewithour actions. Through the ALFA Foundation, we continued to support education, as we consider it a primary factor in the development of our community. We took actions to protect the environment, such as investing in a new PET-container recyclingplantatALPEK,recycling360,000tonsofaluminumatNEMAK,andinvestinginvarious plants to reduce energy consumption, treat waste water, and reduce atmospheric emissions. Finally, in terms of nutritional health, andleveragingtheabilitiesofSIGMA,wefocused on improving the health habits of our personnel and raising awareness among the community regarding the importance of well-balanced meals.

Outlook Our prospects are very favorable. In the short term,ALPEKandSIGMAwillcontinuetoexploitthe strong dynamism of the consumer markets thattheyserve,whileNEMAKwillbenefitfromthe recovery of the automotive industry, espe-cially in North America. For its part, ALESTRA will move ahead with its plan to expand its value-added services offering for the business sectorinMexico.Theseeffortswillcreatevaluefor our shareholders in the coming years.

After the achievements of 2009, we are bet-terpreparedtocapitalizesignificantlyontheexpected economic recovery. Today ALFA has a portfolio of solidly positioned businesses in in-dustries that hold a promising future. We have the strategic and operational strength, human talent,andthefinancialcapacitytocapitalizeopportunitiesforprofitablegrowth.

Evolution in Management After 35 years of service to ALFA, last July I an-nounced my decision to retire from my duties as Chairman of the Board and Chief Executive OfficerinMarch,2010.Thisdecisionfollowsthefirmbeliefthattherenewalofleadershipis a healthy practice for any organization. The time between this announcement and my departure permitted the Board of Directors to choose a successor, and to carry out an or-derly transition. I congratulate Armando Garza Sada for his new assignment and I wish him thebesttothebenefitofthisgreatcompany.Iam certain that under his leadership, ALFA will conquer new horizons. For the past 16 years, I have had the privilege of leading this company. During this time, we transformed ALFA from a regional company with a commodity focused business port-folio, to a global company with operations in 16 countries, in three continents, in more profitable sectors, with a greater potential for growth, with products and services of in-creased added value and differentiation, and with strong leadership positions in its relevant markets. We achieved this success while re-cording a compound annual EBITDA growth rate of 9%, in U.S. dollar terms, and paying out cash dividends and making other distribu-tions to shareholders, which totaled U.S. $1,800

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million. Finally, we also managed to provide additionalbenefitstoshareholdersthroughthecancellation in 2009 of 40 million repurchased shares, and through our proposal to cancel an-other 20 million shares, which will be presented atthe2010ShareholdersMeeting. Dear shareholders: the results of 2009 dem-onstratethatALFAhasafirmfoundationtosuccessfully overcome any crisis. The future outlook of the group is outstanding. This is due to the strategic positioning of its businesses; the potential in the industries in which it partici-pates; and, above all, the talent and dedica-tion of its employees, whose day-to-day contri-butions make ALFA a better company. Today more than ever, I want to thank my colleagues who assisted me with my assigned duties during my time as leader of ALFA. I especiallyappreciatetheconfidenceoftheshareholdersandofthefinancialcommunity,the guidance of the Board of Directors, and the commitment and professionalism of ALFA’s more than 52,000 employees. To them I extend my eternal gratitude and respect. SanPedroGarzaGarcía,N.L.,Mexico

February 15, 2010

DionisioGarzaMedina

Chairman of the Board of Directors andChiefExecutiveOfficer

Today ALFA has a portfolio of solidly positioned businesses in industries that hold a promising future. We have the strategic and operational strength, the human talent, and the financial capacity to realize opportunities for profitable growth.

10

THE ALFA EVOLUTION 1993-2009

ALFA ANNUAL EBITDA (U.S. $ Millions)

Hylsamex Fibers WithoutHylsamexandfibers

14% CAGR

1993 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 2009

271383

617

731825 797 802 802

9% CAGR

668

817

604642

803765

964 964

1,055

14% CAGR

In 1993, ALFA and its environment were very different: a portfolio concentrated in the steel andsyntheticfibersbusinesses,whichsolditsproductsmainlyinMexico.Duringthe80s,there was an underinvestment in assets, since ALFAfocusedonimprovingitsfinances.There-fore the company required a strong modern-ization.Asfortheenvironment,Mexicowasliv-ing in a closed, volatile and high-risk economy; the beginning of globalization and its effects were anticipated.

Given this scenario, ALFA launched a new strategy: to complete the modernization of itsglobalbusinesses,growinginbrownfields,investing in high potential businesses, giving added value to its products and moving into new, attractive areas.

1993-1994Modernizationtoachieveinterna-tionalcompetitiveness.SIGMAandNEMAKexpansion. ALESTRA creation.

1995-1999 Strengthen competitive position. Increase value-added products and services. Development of new businesses.

2000-2004 Establish international presence. Restructure portfolios toward companies with better growth, greater added value and dif-ferentiation, less cyclicity.

2005-2009 Consolidate global presence. De-velop world class skills.

In addition, ALFA developed other initiatives such as: research and development, talent development,findingalternativesourcesofenergy, innovation and social responsibility.

These events transformed ALFA from a regional company, which had a portfolio of businesses focused on commodity products, into a global company with manufacturing operations in 16 countries in three continents, in more profitablesectors,withgreaterpotential,withvalue-added and differentiated products and services, and with strong leadership positions in its relevant markets.

The following pages show the major events that marked the evolution of ALFA in this period.Theyareclassifiedintothreegroups:investmentinfixedassets;acquisitionanddivestment of companies; and investment in technology, R&D and human resources. Each is identifiedwithadifferentcolor.

10

11

••••

46% ALPEK

26% SIGMA

24% NEMAK

4% ALESTRA

*Breakdown based on revenues

ALFA IN 2009

PORTFOLIO* FOOTPRINT

CANADAUNITED STATESMEXICOEL SALVADORDOMINICANREPUBLICCOSTA RICAPERUBRAZIL ARGENTINA

GERMANYCZECH REPUBLICAUSTRIA POLANDSLOVAKIAHUNGARY

CHINA

SIZE(U.S. $ Millions)

8,536

1,055

Sales EBITDA

FOOTPRINT

MEXICO

SIZE(U.S. $ MilIions)

2,492

271

Sales EBITDA

*Breakdown based on revenues

ALFA IN 1993

PORTFOLIO*

••••••

38% HYLSAMEX

24% ALPEK

13% AKRA

17% SIGMA

3% NEMAK

5% VERSAX

INVESTMENTS

ACQUISITIONS,DIVESTMENTSANDSPIN-OFFS

TECHNOLOGYDEVELOPMENT,R&D,HUMAN

CAPITAL AND OTHER EVENTS

Debtrestructure Refrigerated “Galicia”Cold Acq.CentralAmerica Dairy AT&TGlobal EPSExpansion DAKPETCooper NEMAKCzechRepublic U.S.$300MbondALESTRA coffee cutsMexico andCaribbeanSIGMA desserts Network Riverstart-up plantfirstoperationinEurope

Emissionreductionprogram ANTAD PMIand NEMAK12th time in 13 years to receive best “Longmont” “Braedt” Cold Cold Cuts U.S. Polioles electricity PP Indelpro II registeredbeforeU.N AwardSIGMA SynergiesNEMAK powertrainsupplierawardfromGM ColdcutsU.S. cutsPeru plant cogeneration Expansion

Production Fixed costs Leadership Debt First Carbon Increased PP market Focus on operating Family Responsible Cost and expenses JV with Shaw to Bel cheese relocationNEMAK reduction inNetworks Refinancing Bonds shareinMexico efficiency CompanySIGMA optimization recyclePET Distribution

Cheese Portfolio Franchise manufacture Diversification Yoplait

OscarMayer FocusonTalent Acq.50% distributioninMexico andTechnology PeñaColorada

Sales to U.S. with Investments in Temex increase PlantIINEMAK modernizationofplants PTAcapacity

QS 9000 First Fusion Center Texturized Polyester Enertek Cheese plant New oven Pickling NEMAK monoblock Mty.NEMAK newplant start-up Pueblaplant Expansion

Hylsamex Sale50% Acq.Polyurethanes Acq.Colombin Atitalaquia Yogurt Painting Spongeironcontinuous Invest. IPO TerzatoShaw businessfromBASF Bel PlantSIGMA LineIII reactorPuebla Nylon6,6

Self-directed MergerwithUnicom Focusonproduct PlantIII 5,000Km NylonTextil Cosoleacaque CPUfibers Metallictiling Spongeiron Pickling Line2 Newplant teams (TelecomBancomer) developmentSIGMA NEMAK networkALESTRA Expansion PTAExpansion start-up (Galvateja) capacity Expansion Minimill HYL

ALESTRA ALESTRA Hylsa “Tangamanga” Nylon6,6to27 PPSplitter Galvanized LycraExpansion Cheeseplant Yogurt U.S.$570Mbond EBITDA>0 BekaertSale ColdCutsMexico KtaExpansion atIndelpro LineIII Capacity

SAP Skill development ISO 9002 Strategic Acq. Ford plants Plant V Value added (NEMAK2000) ALESTRA repositioning inCanada NEMAK services

Debt restructure 100 millionth head Joint Venture Akra First CADI Pipe mill No. 6 Panel Line II ALESTRA NEMAK Teijinpolyesterfibers TepoztlanSIGMA (Galvamet)

YoungTalent ANSPACand Steelindustryanalysis, PartialSpin-off “Chen” Petrotemexemission SIGMADistribution Refrigerated Program SIGMAUniversity strategicreview Hylsamex MexicoDairy reductionprogram networkUS preparedfood

Export Stockholderrestructuredue Philadelphiacheese “NewZealand“ Repurchase100% SaleNylon&LycratoKoch Rautenbach SaleofSidor Hylsamex AltamiraEPS BoosttoIPservices Strengtheningof Refrigerated awardNEMAK toSBCtakeoverofAT&T Distribution MexicoDairy polyesterfibers (keepsUnivex,Nyltek) stake spin-off Expansiono165Kt Broadband distributionnetwork pizzas

Innovation 300kRetail HEBandSoriana “Nayar”Cold JVNewpekfornat.gas Repurchase DebottleneckingPTA Food Guten PlantVIMonterrey programALESTRA clients Awards cutsMexico explorationinTexas BBVAstakeALESTRA Altamirato500Kta Service start-upNEMAK

Innovation Newbrand: ISO27001 Integralhealth DMTshut Acq.EastmanPET “IASSA”Cold Acq.Teksid,Hydro “Bernina”Cold “MCP”U.S. PTAExpansion DAKPETCape ExpertoCenter systemSIGMA ALESTRA Informationsecurity programSIGMA down MexicoandArgentina cutsMexico andCastech cutsMexico Dairy to1.0Mt Fearstart-up ALESTRA

20%stake Acq.Distributors “SanAntonio”Cold Acq.Sidor Acq.Pemex Acq.AkzoNobel PlantIV Fine Sendzimir Galvanized Polyesterfilament Altamira inTeksid SIGMA cutsMexico Stake PTAstake Chemicalfibersstake NEMAK wires Coldmill andpaintingline Expansion start-up

ISO9002 1stLDcall PDCin Client1Million/1Bn. ISO9002Nylonde NEMAK ALESTRA MonterreyNEMAK MinutesALESTRA MéxicoandIndelpro

PemexPQ ISO9000 Leadership Acq.Sta.Rosa Acq. Acq.Comalcofor JVwith PoliolesEPS Minimil Study Polioles Prog.NEMAK andLuxor(Terza) Univex monoblocktechnology AT&T startup start-up

During the 1993-2009 period, in addition to key business growth, both organically and through acquisitions, ALFA strongly encoura-ged innovation, technology development and human resources, as shown in the chart. All these events were shaping the evolution of the company.

09

08

07

06

05

04

03

02

01

00

99

98

97

96

95

94

93

Enerteksale Acq.DAK(PTAandPET (Iberdrola) in US from DuPont)

Debtrestructure Refrigerated “Galicia”Cold Acq.CentralAmerica Dairy AT&TGlobal EPSExpansion DAKPETCooper NEMAKCzechRepublic U.S.$300MbondALESTRA coffee cutsMexico andCaribbeanSIGMA desserts Network Riverstart-up plantfirstoperationinEurope

Emissionreductionprogram ANTAD PMIand NEMAK12th time in 13 years to receive best “Longmont” “Braedt” Cold Cold Cuts U.S. Polioles electricity PP Indelpro II registeredbeforeU.N AwardSIGMA SynergiesNEMAK powertrainsupplierawardfromGM ColdcutsU.S. cutsPeru plant cogeneration Expansion

Production Fixed costs Leadership Debt First Carbon Increased PP market Focus on operating Family Responsible Cost and expenses JV with Shaw to Bel cheese relocationNEMAK reduction inNetworks Refinancing Bonds shareinMexico efficiency CompanySIGMA optimization recyclePET Distribution

THE ALFA EVOLUTION 1993-2009

Sales to U.S. with Investments in Temex increase PlantIINEMAK modernizationofplants PTAcapacity

QS 9000 First Fusion Center Texturized Polyester Enertek Cheese plant New oven Pickling NEMAK monoblock Mty.NEMAK newplant start-up Pueblaplant Expansion

Hylsamex Sale50% Acq.Polyurethanes Acq.Colombin Atitalaquia Yogurt Painting Spongeironcontinuous Invest. IPO TerzatoShaw businessfromBASF Bel PlantSIGMA LineIII reactorPuebla Nylon6,6

Self-directed MergerwithUnicom Focusonproduct PlantIII 5,000Km NylonTextil Cosoleacaque CPUfibers Metallictiling Spongeiron Pickling Line2 Newplant teams (TelecomBancomer) developmentSIGMA NEMAK networkALESTRA Expansion PTAExpansion start-up (Galvateja) capacity Expansion Minimill HYL

ALESTRA ALESTRA Hylsa “Tangamanga” Nylon6,6to27 PPSplitter Galvanized LycraExpansion Cheeseplant Yogurt U.S.$570Mbond EBITDA>0 BekaertSale ColdCutsMexico KtaExpansion atIndelpro LineIII Capacity

SAP Skill development ISO 9002 Strategic Acq. Ford plants Plant V Value added (NEMAK2000) ALESTRA repositioning inCanada NEMAK services

Debt restructure 100 millionth head Joint Venture Akra First CADI Pipe mill No. 6 Panel Line II ALESTRA NEMAK Teijinpolyesterfibers TepoztlanSIGMA (Galvamet)

YoungTalent ANSPACand Steelindustryanalysis, PartialSpin-off “Chen” Petrotemexemission SIGMADistribution Refrigerated Program SIGMAUniversity strategicreview Hylsamex MexicoDairy reductionprogram networkUS preparedfood

Export Stockholderrestructuredue Philadelphiacheese “NewZealand“ Repurchase100% SaleNylon&LycratoKoch Rautenbach SaleofSidor Hylsamex AltamiraEPS BoosttoIPservices Strengtheningof Refrigerated awardNEMAK toSBCtakeoverofAT&T Distribution MexicoDairy polyesterfibers (keepsUnivex,Nyltek) stake spin-off Expansiono165Kt Broadband distributionnetwork pizzas

Innovation 300kRetail HEBandSoriana “Nayar”Cold JVNewpekfornat.gas Repurchase DebottleneckingPTA Food Guten PlantVIMonterrey programALESTRA clients Awards cutsMexico explorationinTexas BBVAstakeALESTRA Altamirato500Kta Service start-upNEMAK

Innovation Newbrand: ISO27001 Integralhealth DMTshut Acq.EastmanPET “IASSA”Cold Acq.Teksid,Hydro “Bernina”Cold “MCP”U.S. PTAExpansion DAKPETCape ExpertoCenter systemSIGMA ALESTRA Informationsecurity programSIGMA down MexicoandArgentina cutsMexico andCastech cutsMexico Dairy to1.0Mt Fearstart-up ALESTRA

20%stake Acq.Distributors “SanAntonio”Cold Acq.Sidor Acq.Pemex Acq.AkzoNobel PlantIV Fine Sendzimir Galvanized Polyesterfilament Altamira inTeksid SIGMA cutsMexico Stake PTAstake Chemicalfibersstake NEMAK wires Coldmill andpaintingline Expansion start-up

PemexPQ ISO9000 Leadership Acq.Sta.Rosa Acq. Acq.Comalcofor JVwith PoliolesEPS Minimil Study Polioles Prog.NEMAK andLuxor(Terza) Univex monoblocktechnology AT&T startup start-up

On February 10, 2010, the Board of Directors of ALFA appointed Armando Garza Sada as its new Chairman, effective on the date of retirementofDionisioGarzaMedina.

With more than 30 years in the company, Armando Garza Sada currently serves as Vice Chairman of the Board and Senior Vice President of Development of ALFA. Prior to these positions, he served as President of SIGMA,Versax(whichcontrolledNEMAKand ALESTRA), Polioles and Selther, and as Corporate Planning Senior Vice President. He graduatedfromtheMassachusettsInstituteofTechnology,andholdsanMBAfromthe Stanford Graduate School of Business.

NEWCHAIRMANOFTHEBOARD

“ALFA has undertaken a major investment program to strengthen its competitive position. This has enabled a solid cashflow generation platform for the near future. In addition, the recent refinancing opera-tions have contributed to consolidate the company’s financial health.

In the immediate future, we will work on two fronts:

• Emphasize our human talent development efforts.

• Move forward with our research and development programs.

In the medium and long term, we will focus on our permanent commitment to create value for shareholders. We will analyze the redesign and structure options that we have, as well as new opportunities related to our current activities.”

Armando Garza Sada

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BUSINESS GROUPS REPORT:

ALPEKNEMAKSIGMA

ALESTRA

ALPEKInspiteofaverydifficulteconomicenviron-ment, ALPEK, ALFA’s group of petrochemical companies, recorded outstanding results in 2009. This success resulted from the leading positions that they have in their respective markets, as well as the measures undertaken to reduce costs and expenses, plus relatively stable demand for its core products, and favo-rable energy costs. As a consequence of this convergence of factors, ALPEK achieved a new record in EBITDA generation. The results of the polyester-chain business were significantlybetter.Themainreasonforthisachievement is the fact that the primary cus-tomers of ALPEK’s polyester products are in the beverage and food, and consumer product markets, which demonstrated a greater resi-lience to the effects of the economic down-turn. Thus, sales volume grew by 11%, aided by greaterefficiencyofthePTAplantIIinAltamira,and by a successful marketing strategy to meet product quality and customer service require-ments. The positive effect that the peso deva-luationhadonoperationsinMexico,coupledwith substantial reductions in energy prices for theseoperations,alsoplayedasignificantrolein ALPEK’s excellent results for 2009.

The sales volume of the plastics and chemicals business increased by 15% in 2009. This increase was the result of additional production from the polypropylene plant II that began operations in 2008, as well as a good performance by EPS, polyurethanes, and specialty chemicals, and a recovery in caprolactam exports to Asia. Also showing promising results is the natural gas venture, which has been developed jointly with Pioneer Natural Resources in South Texas. In recent months, two important discoveries were made at the Eagle Ford Shale, resulting highly successful, since, in addition to containing great quantities of natural gas, one of them produces condensates and liquid-rich gas, which considerably increase its commercial va-lue. These discoveries are an indication of the enormous potential of the explored area, which includes more than 200,000 acres. In order to fully capitalize its economic potential, the com-pany has started an accelerated program of explorationandexploitationofthisfield. ALPEK’s revenues diminished by 16% in 2009, to a total of U.S. $3,971 million. Lower revenues didnotaffectprofits,astheyonlyreflectedareduction in the price of petrochemical raw materials. In fact, as a result of healthy sales volumes, the stable product margins, and re-duced costs and expenses, operating income grew 69% vis-à-vis 2008, and EBITDA totaled U.S. $428 million, the best in ALPEK’s history.

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Havingfinishedin2008thestrongexpansionprograminitiatedin2006,capital expenditures in 2009 totaled only U.S. $65 million, allocated primarily to improvement projects and asset replacement. Of particu-lar note is the construction of a PET recycling plant in the United States, in a joint venture with Shaw Industries. Operations will begin in 2010 and will allow for the recycling of up to 127,000 tons per year, reducing energy consumption and CO2 emissions. In 2009, Petrotemex tapped international markets, issuing a U.S. $275 million senior unsecured bond, under rule 144a. This transaction improvedthecompany’smaturityprofile,givingitgreaterliquidityandfinancialflexibility.Inaddition,thehigherEBITDA,lowerwor-king capital needs due to lower prices for raw materials, and lower investmentsinfixedassets,allowedALPEK to reduce its Net Debt by U.S. $177 million in the year. Financial ratios demonstrate the strength of the business, with a Net Debt to EBITDA ratio of 1.3 and Interest Coverage of 6.5 times. Better economic conditions are expected for the next years, which would translate into a healthy demand for petrochemical products. However, the competition in the marketplace will re-main challenging, so ALPEK will have to continue to take actions that, as in 2009, allow it to overcome the situations that arise. Moreover,itsexcellentfinancialstandingwillenableittoconsi-der growth opportunities that could generate increased value for these businesses.

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In 2009, EBITDA totaled U.S. $428 million, the best in ALPEK’s history.

PRODUCT DESTINATION BY MARKETS IN 2009 (by revenues)

64% Food and Beverage

14% Consumer Products

20% Textile

2% Construction

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NEMAKIn 2009 NEMAK effectively faced the crisis in the automotive industry, which allowed it to emerge stronger and more able to consoli-date its global leadership in the production of high-technology aluminum auto parts. Confronted with the challenges of depressed activity in the industry worldwide, the com-pany acted swiftly, accelerating cost-reduc-tion programs, optimizing its working capital, and structuring its operations in a leaner andmoreflexiblemanner.Actionsincluded,among others, rationalizing some operations, and relocating certain production programs to lower-cost facilities. In addition, some or-ganizational levels were eliminated. NEMAK also continued to capitalize on the synergies resulting from the integration of the operations acquired in 2007 in the Americas, Europe, and Asia. In particular, the exchange of better practicescontributedsignificantlytothecostreduction efforts. Together, the actions described above allowed forareductioninfixedcostsbyU.S.$550millionon an annualized basis, compared with costs

before the crisis. This alleviated the impact of the challenging environment in the automotive market and, what is more important, created a moreefficientandsolidcompany. As a result, NEMAKconsolidated its cost lea-dership in the industry. In addition, its global presence,clientdiversification,andstate-of-the-art technology allowed it to obtain 18 new contracts in 2009 that represent future yearly revenues of U.S. $225 million. Thegradualrecoveryofthefinancialmarketsand initiatives by some governments to in-centivize vehicle sales had a favorable effect during the second half of the year. For exam-ple, vehicle manufacturing in North America increased by almost 70% in the second semes-ter,comparedwiththefirst. In face of the conditions that prevailed in the global auto industry, in 2009 the company sold 24.1 million equivalent heads, obtaining reve-nues of U.S. $1,949 million, and EBITDA of U.S. $261million.Whilethesefigureswere23%,36%,and17%lessthanthecomparablefiguresof2008, respectively, it is important to emphasize that NEMAK’s cost-reduction programs already explained enabled it to achieve EBITDA of U.S. $177 million in the second half of the year, the second best six-month EBITDA ever recorded.

NEMAKobtained18newcontractsin 2009 that represent future yearly revenues of

U.S. $225 million

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To address the economic situation, NEMAK concentrated its inves-tments in 2009 in key improvement projects and in new production programs that began during the year despite the crisis. The amount investedinfixedassetsduringtheyearamountedtoU.S.$78million.Atthesametime,thecompanyrefinanceditsbankdebtandbonds,extending its average maturity from 2.3 to 4.6 years. For 2010, a light recovery in vehicle sales is expected, particularly in North America. In the coming years, this region will have growth opportunities in engine blocks, since the penetration of aluminum in these products is currently only 69%, and it is expected it will reach 88% in 2015. In that event, NEMAK could capitalize even more on its efficientcoststructure. In the medium term, it is estimated that industry growth will come largely from emerging economies such as Brazil, Russia, India, and China. NEMAK’s strategic positioning in these markets and its financialflexibilitywillallowittotakepartinthisgrowth.

REVENUE BREAKDOWN IN 2009

57% Heads

32% Blocks

11% Others

During the second half of 2009, NEMAK posted the second best six-month EBITDA ever recorded: U.S. $177 million.

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SIGMASIGMA’s2009resultsreflectedthevalueofits strategic strengths, which include: high brand recognition, broad refrigerated distribu-tioncoverage,productioncostefficiencies,continuousinnovation,andflexiblepricingpolicies. Thus, despite a more challenging environment, SIGMA continued to report out-standingfinancialresults.

SIGMA established a new record in 2009 by selling 802,000 tons of food products, 6% more than in 2008. Of particular note among the product lines that reported increased sales volume, are the traditional brands of cold cuts, cheese, and yogurt. For their part, the company’s new products, which stem from its innovation efforts, such as refrigerated pizzas and Guten® (prepared meals), continued to gain consumer acceptance.

In the cold cuts business, SIGMA reported a 5% increase in volume vis-à-vis 2008. This raise was attributable to market growth as well as the acquisition of Braedt in Peru, completed in mid-2008, and the incorporation, at the end of that year, of Longmont®, a brand with a strong presenceinthenorthwestofMexico.

SIGMA’s dairy division increased sales volume by 8%, due to organic growth in the cheese market, and a rebound in yogurt demand. In addition, demonstrating the broad coverage of the Company’s refrigerated distribution net-

work, SIGMA began to market and distribute inMexicotheproductsofBelGroup,alead-ing French company in the individual-portion cheese category.

In 2009, SIGMA’s sales abroad continued to grow, increasing their contribution to overall sales to 20% of the total, up from 16% in 2008. Organic growth on the back of increased pen-etration into the Hispanic market in the United States, coupled with better market coverage and the acquisition of Braedt in Peru, explain this achievement.

SIGMA’s revenues totaled U.S. $2,187 million in 2009, 8% less than in 2008. The devaluation of the peso was the main factor in this reduc-tion, as both sale volumes and prices in pesos grew during the year. For companies that earn themajorityoftheirincomeinMexico,suchas SIGMA, a devaluation translates into lower sales when expressed in dollar terms.

On the other hand, SIGMA implemented significantinitiativestoidentifycostefficien-cies, which enabled the company to increase operatingprofitby9%relativeto2008.Like-wise, SIGMA’s EBITDA in 2009 totaled U.S. $273 million, 5% higher than in 2008, setting a new company record.

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SIGMA’s capital expenditures in 2009 amounted U.S. $74 million and were allocated primarily to the modernization and expansion of its distribution network, including new distribution centers and delivery vehicles.

SIGMA’sfinancialconditionremainedverystrong.ThehigherEBITDAgenerated in the year allowed the company to maintain healthy financialratios.Thus,NetDebttoEBITDAtotaled2.0andInterestCov-erage equaled to 5.4 times.

Tofurtherimproveitsfinancialflexibility,SIGMA issued a U.S. $250 million, 10-year senior unsecured bond under rule 144a in the inter-national markets. The funds were used to prepay debt with shorter maturities. With this transaction the company increased the aver-age term of its debt from 3.5 to 6.6 years.

In2010,themarketforfoodproducts,bothinMexicoandinter-nationally, is expected to continue to demonstrate its resilience in the face of economic crises. In order to capitalize on this growth, SIGMA will keep on leveraging its strategic strengths and overall solidfinancialconditionwhilesearchingforwaystofurthercon-solidate its market leadership.

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60% ProcessedMeats

36% Dairy Products

4% Others


In 2009, EBITDA totaled U.S. $273 million, 5% higher than in 2008, setting a new company record.

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ALESTRAIn 2009, ALESTRA maintained the business strategy it has been following for several years, focusing on the development of value-added telecommunications services for the enterprise segment. This allowed the company to report solidoperationalandfinancialresultsdespitethedifficultiescausedbytheeconomiccrisisduring the year. ALESTRA increased its services offering in the following areas: corporate network back-up applications, which guarantee network con-nectivity; network-enhancement tools; and advanced corporate e-mail, as well as net-work security services which protect against attacks and malicious applications. These new services were developed using strict informa-tion-safety standards, supported by the recent-ly-obtainedISO27001-2005recertification. ALESTRA also expanded its network coverage, increasing accessibility to its business custom-ers by adding seven points to its metropolitan area coverage. ALESTRA also increased the reliability of its connection to the worldwide network by adding two new cross-border connections in Nuevo Laredo and Reynosa, in Tamaulipas,Mexico.

Moreover,itmadeprogressonitsconver-gence business project, put in operation local service infrastructure in six new cities, and up-graded its management systems technology and Internet service infrastructure. In addition, ALESTRA continued leveraging on being the onlytelecommunicationscompanyinMexicothat offers access to the AT&T Global Network, a clear competitive advantage, mostly in the management of services for multinational companies operating in this country. During the year, ALESTRA’s volume of value-added services posted an increase that con-tinued to offset the reduction in traditional internationallongdistancetraffic,inlinewithtrends that have been observed for several years. Thus, value-added services contrib-uted with 70% of total revenues, up from 63% the previous year. Total revenues amounted to U.S. $345 million, 19% less than in 2008, due to the effect of the currency devaluation at the end of that year. This affects companies such as ALESTRA, whose income is denomi-nated primarily in pesos. In 2009, the company invested U.S. $73 million infixedassets.Asinpreviousyears,ALESTRA continuedinvestingtoensureitsprofitabilitythrough standing contracts in place with exist-ing clients. The majority of available resources were applied to network growth and expan-sion of infrastructure in order to offer value-added services.

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ALESTRAToachievegreaterfinancialflexibility,ALESTRA tapped international markets, issuing a senior unsecured 144a bond for U.S. $200 million, which matures in 2014. The resources were used to pre-pay shorter-termdebt.Atthecloseoftheyear,thecompany’sfinancialpositionwas very solid, with a ratio of Net Debt to EBITDA of 2.0 and Interest Coverage of 5.2 times. The world-class infrastructure and technology, excellent service, andthemeasuresadoptedtoincreaseefficiency,arereflectedinthe favorable results achieved by ALESTRA during 2009, which was a year of global economic crisis. These strengths are the base for continued growth in the coming years, which should be aided by a stronger economic outlook. To this end, ALESTRA continues to analyze cutting-edge technology alternatives that will enable it to remain in the vanguard. This will allow ALESTRA to continue to consolidate its position in theMexicantelecommunicationsmarket,inparticularinthebusiness sector, the faster growing, most profitable niche of the market.

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70% Value-added Services

30% LD Services

The contribution of value-added services grew from 63% to 70% of ALESTRA’s revenues.

SOCIALRESPONSIBILITY

In 2009, ALFA continued to honor its commit-menttosocialresponsibilitydespiteadifficultbusiness environment, which called for even greaterefficienciesintheactionsthatwereimplemented. Thus, ALFA supported the sustainability pro-grams set in motion in prior years, while simul-taneously launching new initiatives to raise the quality of life of its employees, their families, and the communities in which it operates. Ac-cordingly, ALFA invested in education, health, safety and recreation programs for its person-nel. At the same time, the company supported programs for community development, preser-vation of the environment, and the promotion of a better environmental sustainability culture, in particular among youngsters and children. The health and safety of its employees remains ALFA’stoppriority.InMay2009,forexample,ALFAactedswiftlyupontheinfluenzaAH1N1outbreak to reduce the risk of contagion, and protect its personnel. Once the alert was issued, the corresponding security mea-sures were activated, and all safety measures sought by health authorities were implement-ed. These included the temporary suspension of work-related activities, granting leaves of absence to workers who presented symptoms of the disease, and providing free medical care to the employees who required it. As a result, the impact of the epidemic on ALFA’s workforce was minimal.

For its part, the ALFA Foundation continued to support vulnerable communities by promoting initiatives that have a major impact, such as those addressing education, health, and nutri-tion. These efforts are focused above all on the most marginalized areas of rural and urban population centers. In 2009, the ALFA Planetarium continued to foster an appreciation of science, technol-ogy, and culture, particularly among children. During the year, the Planetarium hosted more than 140 events, including those in association withtheInternationalYearofAstronomy.Thetotal number of visitors exceeded 300,000. ALFA maintained its efforts to improve the eco-efficiencyofitsproductionprocesses,which included investments in emission-con-trol equipment in some of its plants. Of partic-ular note is the construction, in a joint-venture with Shaw Industries, of a PET recycling plant in the United States that can process up to 127,000 tons per year. Once completed, it will be the largest of its kind in North America. In addition to contributing to the elimination of waste from products containing PET, the new plant will reduce energy consumption and atmospheric emissions.

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ALFA began the construction of a PET recycling plant in the U.S., that can process up to 127,000 tons per year.

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Petrotemexreceiveditsfirstcarbon credits, granted by the UN for its reduction of CO2 emissions.

Toimproveenergyefficiency,ALFAadvancedon the implementation of natural gas and elec-tricity conservation programs in all of its subsid-iaries. These programs have led to a reduction in energy consumption of 25% over the last years, with a consequent reduction in direct and indirect emissions into the environment.

SubsidiaryPetrotemexreceiveditsfirstcarboncredits, granted by the UN for its Energy Inte-gration program, which permits an annual reduction of 260,000 tons of CO2 emissions. ALFA is convinced that corporate social respon-sibility is an integral part of its business strategy, inaccordancetoitsMissionandVision.There-fore, the company seeks to improve its perfor-mance in this area year after year, through new initiativesthatbenefititsemployees,neighbor-ing communities, and the environment.

DionisioGarzaMedina(3AB)

Chairman of the Board and Chief Executive Officer of ALFA, S.A.B. de C.V. Board member since April 1990.MemberoftheBoardofCEMEX.ChairmanoftheBoardofUniversidaddeMonterrey.HeisamemberoftheMexi-can Council of Businessmen. Chairman of the Harvard Business School Latin American Advisory Board, and member of the Advisory Committee of the David Rockefeller Center for Latin American Studies at Harvard. He is also member of the Advisory Council of the Stanford School of Engineering.

Armando Garza Sada (3A)

Vice Chairman of the Board and Senior Vice President of Development of ALFA, S.A.B. de C.V. Board member since April 1991. Vice Chairman of the BoardsinceMay2009.Mem-beroftheBoardsofFEMSA,Gigante, Liverpool, Grupo LAMOSA,CYDSA,BolsaMexi-canadeValores(MexicanStockExchange),Frisa,MVSMultivisiónandTecnológicodeMonterrey.HehasbeenChairman of CAINTRA (Nuevo LeónStateManufacturingIndustry Chamber) and of the MexicanCenterforEconomicStudies of the Private Sector(CEESP).

JoséCalderónRojas(2C)

Chairman of the Board and Chief Executive Officer of Fran-ca Industrias, S.A. de C.V. Board member since April 2005. MemberoftheBoardsofFEMSAandBBVABancomer(Regional Council).

ValentínDíezMorodo(1B)

President of Grupo Nevadi Internacional, S.A. de C.V. and Vice Chairman of the Board of Grupo Modelo, S.A.B. de C.V. Board member since April 2002.MemberoftheBoardsofGrupo Financiero Banamex, International Advisory Board Citigroup,KimberlyClarkdeMéxico,GrupoMéxico,GrupoKUO,Mexichem,Aeroméxico,MVSMultivisión,BANCOMEXTandTelefónicaMóvilesMéxi-co, among others. Chairman of the Board of Universidad Iberoamericana. President of theMexicanCompetitivenessInstitute.MemberoftheMexi-can Council of Businessmen. Álvaro Fernández Garza (3A)

President of Sigma Alimentos, S.A. de C.V. Board member since April 2005.MemberoftheBoardsofGrupoMexi-cana,PYOSA,BBVABancomer(Regional Council) and the MonterreyMuseumofCon-temporary Art.

ClaudioX.GonzálezLaporte (1B)

Chairman of the Board of Kim-berly Clark de México, S.A.B. de C.V. Board member since December 1987. MemberoftheBoardsofFondoMéxico(MexicoFund),GrupoCarso,Grupo Financiero Inbursa, GrupoMéxico,GrupoTelevisaand Investment Company of America. Currently he is Presi-dentoftheMexicanCouncilof Businessmen. Former Presi-dentoftheMexicanBusinessCoordinating Council (CCE).

Ricardo Guajardo Touché(1AC)

President of the Audit and Corporate Practices Com-mittee. Board member since March 2000. MemberoftheBoards of Liverpool, Grupo Aeroportuario del Sureste, GrupoBimbo,FEMSA,Coca-ColaFEMSA,GrupoCoppelandTecnológicodeMonter-rey. He was a Board member of the International Capital MarketsAdvisoryCommit-teeoftheNewYorkFederalReserve Bank and President of theMexicanCenterforEco-nomic Studies of the Private Sector (CEESP).

BOARD OF DIRECTORS

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AntonioMaderoBracho(1A)

Executive Chairman of the Board of SANLUIS Corporación, S.A.B. de C.V. President of the Finance Committee. Board member since December 1987. MemberoftheBoardsof Grupo Posadas, Nadro andGrupoMéxico.Founderand Honorary President of the MexicanFundfromHarvardUniversity. Founding member of the Advisory Committee of the David Rockefeller Center for Latin American Studies at Harvard. Former member of the International Council of J.P. MorganChase.MemberandFormerPresidentoftheMexi-can Council of Businessmen.

RogelioM.RebolledoRojas (1B)

Board member since March 2004. Former Chairman of the Board and Chief Executive OfficerofFritoLayInterna-tional and The Pepsi Bottling GroupMexico.FormerChair-man of the Boards of Sabritas, GamesaandFritoLayAméricaLatina, and Former Chief ExecutiveOfficerofFritoLayBrazil and Spain.

Adrián Sada González (1B)

Chairman of the Board of Vitro, S.A.B. de C.V. President of the Human Resources Com-mittee. Board member since April 1994.MemberoftheBoardsofGruma,CYDSA,Re-gio Empresas, Latin American Executive Board for the Whar-tonSchool,andtheMexicanCouncil of Businessmen.

Fernando Senderos Mestre (1C)

Chairman of the Board and Chief Executive Officer of Grupo KUO, S.A.B. de C.V., and Chairman of the Board of DINE, S.A.B. de C.V. Board member since April 1995. MemberoftheBoardsofGrupoCarso,KimberlyClarkdeMéxico,GrupoTelevisa,IndustriasPeñoles,andtheMexicanCouncilofBusinessmen.

Federico Toussaint Elosúa (1C)

Chairman of the Board and Chief Executive Officer of Grupo LAMOSA, S.A.B. de C.V. Board member since April 2008.MemberoftheBoardsofXignux,GrupoChapa,HospitalSanJoséandUniver-sidaddeMonterrey.FormerPresidentofCOPARMEXNuevoLeónandCAINTRA(NuevoLeónStateManufacturingIndustry Chamber).

Guillermo F. Vogel Hinojosa (1C)

Chairman of the Board of Grupo Collado, S.A.B. de C.V., Vice Chairman of the Board of Tenaris, S.A. de C.V. and Vice Chairman of the Board of Estilo y Vanidad, S.A. de C.V. Board member since April 2008. MemberoftheBoardsoftheAmerican Iron & Steel Institute, North America Steel Cham-ber,MexicanIronandSteelChamber, Grupo Financiero HSBC(Mexico),CorporaciónMexicanadeInversionesdeCapital, Universidad Panameri-cana and IPADE.

CarlosJiménezBarrera

Secretary of the Board AlejandroM.ElizondoBarragán

Alternate Secretary

Keys:

(1) Independent Board Member

(2) Independent Proprietary BoardMember

(3) Related Proprietary BoardMember

(A) Finance Committee

(B) Human Resources Committee

(C) Audit and Corporate Practices Committee

ALFA adheres substantially to Mexico’scurrentCodeofBestCorporate Practices. This code, a framework for corporate governance established to increaseinvestorconfidenceinMexicancompanies,wascreated in 2000 following an initiativeoftheMexicansecuri-ties authorities and with the contribution of market and legal specialists, investors, and Mexicanbusinessleaders.

Companies whose stocks trade ontheMexicanStockEx-change must disclose the way they adhere to the Code of Best Corporate Practices. This is made annually via responding to a standard questionnaire, which is available through the Stock Exchange’s web site.

Following is a summary of ALFA’s corporate governance as stated in the June 2009 questionnaire, with any perti-nent information updated.

a) The Board of Directors com-prises 13 proprietary members who have no alternates. Of this number, 10 are independent. This annual report provides in-formation on all of the Board’s members, identifying those who are independent. It also provides a brief description of the professional background of each one and the committees in which they participate.

b) Three committees assist the Board of Directors in car-rying out its duties: Finance, Audit and Corporate Practices, and Human Resources. Board members participate in at least one committee each. All three committees are headed by an independent Board member. The Audit and Corporate Prac-tices Committee is formed by independent members only.

c) The Board of Directors meets everytwomonths.Meetingsof the Board can be called by agreement of the Chairman of the Board, the President of the Audit and Corporate Practices Committee, the Secretary of the Board or at least 25% of its members. At least one of these meetingsisdedicatedtodefin-ing the company’s medium and long term strategy.

d) MembersmustinformtheChairmanofanyconflictsofinterest that may arise, and ab-stain from participating in the corresponding deliberations. Average attendance at Board meetings was 97% during 2009.

e) The Audit and Corporate Practices Committee is respon-sible for studying and issuing recommendations to the Board on matters such as the selec-tion and determination of fees to the external auditor, coordi-nating with the internal audit area of the company, and studying accounting policies, among others.

f) The company has internal control systems with general guidelines. These are submit-ted to the Audit and Corpo-rate Practices Committee for its opinion; in addition, the external auditor validates the effectiveness of the internal control system and issues the corresponding reports.

g) The Finance Committee is responsible for evaluating all matters relating to its particu-lar area and issuing recom-mendations to the Board on matters such as feasibility of investments, strategic position-ing of the company, alignment ofinvestmentandfinancingpolicies, and review of invest-ment projects.

h) The Human Resources Com-mittee is responsible for issuing recommendations to the Board in such matters as em-ployment terms and severance payments for senior executives, and compensation policies, among others.

i) There is a department dedicated to maintaining an open line of communication between the company and its shareholders and investors. This ensures that investors have the financialandgeneralinforma-tion they require in order to evaluate the company’s devel-opment and progress.

CORPORATE GOVERNANCE

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MANAGEMENTTEAM

DionisioGarzaMedina

Chairman of the Board and Chief Executive Officer of ALFA. Joined ALFA in 1975. He earned both a bachelor’s degree and a master’s degree in industrial engineering from Stanford University, as well as an MBAfromHarvardBusinessSchool.

Armando Garza Sada

Vice Chairman of the Board and Senior Vice President of Develop-ment of ALFA. Joined ALFA in 1978. HehasadegreefromtheMassa-chusetts Institute of Technology and anMBAfromtheStanfordGraduateSchool of Business.

AlejandroM.ElizondoBarragán

President of ALPEK. Joined ALFA in 1976. He studied mechanical and electrical engineering at the Tec-nológicodeMonterreyandhasanMBAfromHarvardBusinessSchool.

ManuelRiveraGarza

President of NEMAK. Joined ALFA in 1976.HestudiedattheTecnológicodeMonterrey,obtainingdegreesin mechanical and electrical engi-neering and industrial engineering. In addition, he earned a master’s degree in industrial engineering from Stanford University.

Álvaro Fernández Garza

President of SIGMA. Joined ALFA in 1991. He earned a degree in eco-nomics from Notre Dame University andaMBAfromtheTecnológicodeMonterrey.HeholdsasecondMBAfrom Georgetown University.

MarioH.PáezGonzález

Chief Financial Officer of ALFA. Joined ALFA in 1974. He earned a degree in public accounting and an MBAfromtheTecnológicodeMon-terrey.HealsoholdsanMBAfromTulane University and received a Top ManagementDiplomafromIPADE.

ÁngelCasánMarcos

Senior Vice President of Human Resources and Corporate Affairs of ALFA. Joined ALFA in 1979. He stud-ied actuarial science at Universidad Anáhuac.

FINANCIAL STATEMENTS

28

Management’s Analysis 30

Report of independent auditors 43

CONSOLIDATED FINANCIAL STATEMENTS

Balance sheet 44

Statement of income 46

Statement of cash flows 47

Statement of changes in stockholders’ equity 48

SUPPLEMENTARY INFORMATION

Financial summary 2009 to 2005 72

Significant quarterly information 2009 and 2008 74

CONTENTS

29

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

2009

The following report should be read in conjunction with the Letter to the Shareholders (pages 3 - 9), the Audited Financial Statements (pages 44 - 71), and the Supplementary Information (pages 72 - 75). Unless otherwise indicated, figures for the year 2007 and earlier are stated in millions of Mexican pesos (Ps) of December 2007 purchasing power and figures for the year 2008 and 2009 in millions of nominal Mexican pesos. Percentage changes are stated in nominal terms. In addition, some figures are stated in millions of U.S. dollars (US$).

The financial information contained in this Analysis has been expanded in some sections to include three years, thus complying with the regulations applicable to issuers and other participants in the securities market issued by the National Banking and Securities Commission on September 19, 2008.

San Pedro Garza García, N. L., February 15, 2010

ECONOMIC ENVIRONMENT

In 2009 economic conditions, both in Mexico and in the principal economies of the world, were difficult, due to the worst economic and financial crisis in the last 80 years, which arose as a consequence of the grave financial problems occurring worldwide at the end of 2008.

However, ALFA’s companies, supported by the solid positioning of their businesses, and by concrete actions leading to the reduction of costs, obtained excellent results.

Mexico’s real Gross Domestic Product (GDP) decreased 6.5%(a) in 2009, compared with a growth of 1.3%(b) in 2008 and 3.3%(b) in 2007. The GDP figure for 2009 gives some idea of the magnitude of the economic crisis experienced in Mexico, explained mostly by the recession suffered in the United States (U.S.)(c), Mexico’s most important business partner.

Consumer price inflation in Mexico was 3.6%(d) in 2009, less than the 6.5%(d) figure recorded in 2008. The Mexican peso experienced an annual appreciation of 3.5%(e) in nominal terms in 2009, as against a depreciation of 24.6%(e) in 2008. In real terms the annual average overvaluation of the Mexican peso vis-à-vis the U.S. dollar amounted to 4.0%(f) in 2009 and 20.6%(f) in 2008.

The average nominal dollar 3-month LIBOR for the year was 0.7%(g) in 2009, down from 2.9%(g) in 2008. Adjusting for the nominal depreciation of the peso vis-à-vis the dollar, LIBOR in constant pesos went down from 20.4%(a) in 2008 to (6.2%)(a) in 2009.

With respect to interest rates in Mexico, the TIIE was 5.9%(d) in 2009 in nominal terms, decreasing from 8.3%(d) in 2008. In real terms there was a slight increase from an annual average of 2.0% in 2008 to 2.4% in 2009.

Sources:(a) Consultores Económicos Especializados, S. A. de C. V. (CEE).(b) Instituto Nacional de Estadística, Geografía e Informática (INEGI).(c) Bureau of Economic Analysis (BEA).(d) Banco de México (Banxico).(e) Banxico. Exchange rate for liquidating liabilities denominated in foreign currency and payable in Mexico.(f) CEE. Base 1990. Bilateral with the U. S., adjusting for consumer prices.(g) British Bankers Association.

MANAGEMENT’S ANALYSIS

30


31

ALFA SHOWS ITS STRENGTH

The efforts invested in the transformation of ALFA, owing to which it now participates in less volatile industries in which it has a strong strategic position based on a global presence in differentiated products and services of added value, as well as in state-of-the-art technology, proved their value in 2009: excellent results were obtained, market share was gained, and its position with respect to competitors improved.

RESULTS

SALESThe following table shows ALFA’s sales for the years 2009, 2008 and 2007, including the effects of volume and price changes (the indexes are calculated on a base of 2004=100):

Change Change Concept 2009 2008 2007 2009-2008 2008-2007Consolidated sales 115,632 116,190 106,833 (558) 9,357Volume index 146.8 144.2 139.1 2% 4%Price index pesos 119.8 123.5 118.0 (3%) 5%Price index US dollars 115.4 146.0 136.8 (21%) 7%

Likewise, the consolidated sales broken down by ALFA’s principal business groups were as follows:

Change Change Concept 2009 2008 2007 2009-2008 2008-2007Alpek 53,803 51,314 44,746 2,489 6,568Sigma 29,664 26,101 23,082 3,563 3,019Nemak 26,345 32,913 32,323 (6,568) 590Alestra 4,684 4,673 5,056 11 (383)Other 1,136 1,189 1,626 (53) (437)Consolidated 115,632 116,190 106,833 (558) 9,357

The behavior of sales was the following:

Sales indexes(2004=100)

120

111 113 118 124127

137 146

115

120

05 06 07 08 09Prices

103 108

139 144 147

05 06 07 08 09Volumes

Ps

US$


32

2009-2008:In 2009 consolidated sales amounted to Ps115,632 million (US$8,536 million), 1% below 2008 (-20% in U.S. dollars). Following is a discussion of the performance in the year of each of the principal business groups:

Alpek had a 5% increase in sales. In addition to a greater demand due to market growth, the increase was due to a better operation of PTA Plant II in Altamira, to a higher capacity in polypropylene thanks to a new plant inaugurated in 2008, and to the excellent performance of the expandable polystyrene and caprolactam businesses.

Sigma had another year of excellent performance, selling 14% more than in 2008. All the product lines showed good organic growth. The processed meat business recorded an increase of 5% thanks to better commercialization and distribution efforts. The sales in the dairy business increased 8%, due to organic growth in the cheese market and a recovery in the yogurt market. Sales abroad continued growing rapidly, increasing their proportion of total sales to 20%.

In 2009, Nemak sold 24.1 million equivalent heads, 23% less than in 2008. This fall is explained by the difficult environment in which the company operated, as a result of the economic crisis and its impact on the automotive industry, most of all the US industry. Consequently, revenues were 20% less than in 2008.

Finally, Alestra reported revenues showing no important change against the 2008 results. While the volume of value-added services continued growing, validating a trend that has been present for some years now, the revenues from traditional long-distance services continued to decline.

2008-2007:In 2008 consolidated sales amounted to Ps116,190 million (US$10,637 million), 9% over 2007 (11% in U.S.dollars), as a result of higher sales volumes and average prices recorded in the majority of the businesses. Following is a discussion of the performance of each of the principal business groups:

Alpek had a 15% increase in sales mainly due to the higher production level reached by the PTA and PET plants opened in 2007, and the contribution of the PET plants acquired at the end of 2007. The growth could have been higher had there been no problems with the supply of paraxylene in September and October, as a result of the impact of hurricane Ike on the Texas coast.

Sigma had another year of excellent performance, selling 13% more than in 2007. All the product lines shower increases´ particularly the processed meat line, as a result both of organic growth and acquisitions, as well as increased marketing efforts, the launching of new products and a broader distribution network. Sales in the United States continue increasing, thanks to greater market coverage, the contribution of Mexican Cheese Producers (a company acquired in 2007), and a new processed meat plant opened in Oklahoma.

Nemak reported a 2% increase in sales compared to the prior year, thanks to the consolidation for a full year of the production of the plants acquired in 2007. The company capitalized on its competitive advantages to obtain new contracts in the year. However, on a comparative basis, Nemak’s sales decreased since the U.S. financial and economic crisis resulted in a significant decline in automobile sales in that country. The impact could have been worse had it not been for Nemak´s market and customer diversification together with the flexibility of Nemak’s production system.

Finally, Alestra also had a good performance in the year 2008, showing 12% increase in value-added services. This increase resulted from promising the services aimed at the business sector, which how represents 75% of the company’s total income, which more than offset declining traditional long-distance services.

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OVERSEAS SALESOverseas sales comprise ALFA’s exports from Mexico and also sales made by its overseas subsidiaries. These have evolved over the last three years as follows:

5,1825,785

4,462

07 08 09

Alestra and others

Nemak

Sigma

Alpek

Far East

Europe

Central and South America

North America

3%

52%

5%

40%

1%

49%

7%

43%

1%

40%

10%

49%

Volumes

US$

Volumes

US$5,182

5,785

4,462

07 08 09

5%

21%

18%

56%

2%

21%

23%

54%

4%

20%

23%

53%

In 2009 total overseas sales (in US$) were down compared to those of 2008. Their distribution by group and geographic area was similar.

OPERATING PROFITALFA’s operating profit in 2009, 2008 and 2007 is explained as follows:

2009-2008:Operating profit Change per Group 2009 2008 Change Alpek Sigma Nemak Alestra OthersSales 115,632 116,190 (558) 2,489 3,563 (6,568) 11 (53)Operating profit 8,762 5,841 2,921 2,217 684 (192) (7) 219Consolidated operating margin (%) 7.6 5.0Alpek (%) 7.8 3.9Sigma (%) 9.2 7.8Nemak (%) 5.8 5.3Alestra (%) 12.1 12.3

The change in operating profit from 2008 to 2009 is explained below:

In the case of Alpek, the decrease in revenues did not affect profits, since it only reflected the fall in prices of petrochemical raw materials that the company transfers to its customers without affecting the margins. In fact, due to the better sales volumes, better margins in some products and savings in costs and expenses, an excellent operating profit was generated.

For its part, Sigma implemented important campaigns to find efficiencies in costs and expenses, which enabled it to improve its operating profit substantially.

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In Nemak, the decrease was mainly due to the conditions existing in the global automotive industry during the year. However, synergies were capitalized and cost-reduction programs were implemented, which allowed Nemak to achieve a significant improvement in its operating profit in the second half of the year.

In 2009, Alestra offset the fall in traffic and long-distance tariffs resulting from technological developments which favored other forms of communication, through increasing the volume of its value-added services, with which it was able to maintain its margins and report basically the same amount of operating profit as in 2008.

The various effects described above translated into an significant improvement in the consolidated operating profit.

2008-2007:Operating profit Change per Group 2008 2007 Change Alpek Sigma Nemak Alestra OthersSales 116,190 106,833 9,357 6,568 3,019 590 (383) (437)Operating profit 5,841 6,456 (615) 3 87 (129) 121 (697)Consolidated operating margin (%) 5.0 6.0Alpek (%) 3.9 4.4Sigma (%) 7.8 8.5Nemak (%) 5.3 5.8Alestra (%) 12.3 9.0

The change in operating profit from 2007 to 2008 is explained below:

In Alpek, volatility associated with raw material prices was significant; prices were high during much of the year, to fall dramatically from August onwards. However, it was able to maintain an operating profit similar to that of the prior year.

Sigma was also able to maintain its operating profit, basically because it was able to pass on to its customers the increase in raw material costs, at least partially.

In Nemak, the decrease in operating profit was mostly due to a lower volume (on a comparative basis), resulting from a significant decrease in demand of units from its customers.

Alestra had an increase in operating profit, mainly reflecting improved margins.

Finally, ALFA recorded a decrease in operating profit arising from lower income from corporate services billing.

The net effect of the foregoing represented a decrease in the consolidated operating profit.

35


COMPOSITION OF SALES AND OPERATING PROFITThe percentage structure of ALFA’s sales and operating profit showed changes between 2009 and 2008, mainly in the operating profit of Alpek and Nemak explained above. The following table shows these effects:

% of Total Sales Operating Profit 2009 2008 2007 2009 2008 2007Alpek 47 44 42 48 34 31Sigma 26 22 22 31 35 30Nemak 23 28 30 18 30 29Alestra and others 4 6 6 3 1 10Total 100 100 100 100 100 100

COMPREHENSIVE FINANCING INCOME (EXPENSE) (CFI/E)The increase in net financial expense and income is explained by a higher debt net of cash, together with the macroeconomic environment (mainly exchange rates and inflation), which was discussed briefly in the Economic Environment section at the beginning of this Analysis. Overall, all of the above factors constituted the determining factor in the CFI/E of ALFA during 2009, as explained below:

CFI/E Determinants 2009 2008 2007General inflation (Dec.- Dec.) 3.6 6.5 3.8% Change in nominal closing exchange rate 3.5 (24.6) 0.1Nominal closing exchange rate 13.06 13.54 10.87Real peso/dollar appreciation (depreciation) over previous year: Year end 4.3 (17.1) (0.2) Average for year (16.3) 0.1 1.2Average interest rate: Nominal LIBOR 0.69 2.92 5.30 Implicit nominal rate on ALFA’s debt 8.2 8.1 7.8 LIBOR in real terms (6.2) 20.4 1.5 Implicit real rate on ALFA’s debt 1.1 26.8 4.5ALFA’s average monthly debt in US$ 3,352 3,009 2,460

Expressed in U.S. dollars, the net financial expense in 2009, 2008 and 2007 was US$271, US$216, and US$171, respectively. The causes of the changes between years were, in general, the following:

Changes in net financial expense in US$ 09/08 08/07From (higher) lower interest rate (14) 3From higher debt, net of cash (41) (48)Net change (55) (45)

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Measured in pesos, the CFI/E was composed as follows:

CFI/E Change 2009 2008 2007 09/08 08/07Financial expense (4,464) (3,062) (2,450) (1,402) (612)Financial income 773 662 549 111 113Net financial expense (3,691) (2,400) (1,901) (1,291) (499)Exchange (loss) gain and exchange ratederivatives (922) (10,394) (70) 9,472 (10,324)Valuation of other derivative financial instruments 99 (5,972) (72) 6,071 (5,900)Gain on monetary position 16 34 640 (18) (606)Total CFI/E (4,498) (18,732) (1,403) 14,234 (17,329)CFI/E capitalized 61 369 65 (308) 304Net CFI/E (4,437) (18,363) (1,338) 13,926 (17,025)

The main impact in 2009 in the CFI/E is due to the financial expenses derived from bank liabilities. On the other hand, the appreciation of the Mexican peso had a favorable effect on the CFI/E, as well as the fact that losses on derivative financial transactions were much lower than in 2008.

At December 31, 2009 and 2008, the fair value of derivative financial instruments was as follows:

Type of derivative, value or contract Fair value (Millions of U.S. dollars) Dec. 09 Dec. 08Exchange rate (12) (154)Interest rate (84) (191)Energy (96) (260)Equity swaps 13 (57)

INCOME TAXFollowing is an analysis of the principal determinants of income tax, starting from the concept of income before income tax, defined as operating profit less CFI/E and less other expenses, net.

Income Tax Change 2009 2008 2007 09/08 08/07Income (loss) before tax 3,180 (13,381) 4,454 16,561 (17,835)Statutory tax rate 28% 28% 28%Income tax at statutory rate (890) 3,747 (1,247) (4,637) 4,994+ / (-) Tax effect of permanent tax/ accounting differences:Tax vs. accounting basis of CFI/E (409) (333) 62 (76) (395)Effects of allowances for non-recoverable tax loss carryforwards and asset tax credits (43) (95) 43 52Other permanent differences, net 334 67 963 267 (896)Total Income tax effect on permanent differences (75) (309) 930 234 (1,239)Provision corresponding to operations of the year (965) 3,438 (317) (4,403) 3,755Effect of change in income tax rate 61 61Total income tax provision (charged) credited to income (904) 3,438 (317) (4,342) 3,755Effective income tax rate 28.4% 25.7% 7.1%Income taxCurrently payable (354) (139) (372) (215) 233Deferred (550) 3,577 55 (4,127) 3,522Total income tax provision (charged) credited to income (904) 3,438 (317) (4,342) 3,755

37


The change in income tax charged to income of Ps(4,342) in 2009 vs. 2008 is mainly due to the loss before taxes recorded in 2008 and the good results generated in 2009.

In December 2009, the Mexican Congress authorized changes to the tax consolidation regime; therefore, ALFA chose to consolidate its tax result with those of its subsidiaries. The main effect of such changes is an advance in the dates established for the payment of deferred tax liabilities resulting from such tax consolidation. It is important to clarify that such liabilities are already shown in the financial statements of ALFA; therefore, the changes referred to above have no additional significant effects on its financial statements.

NET INCOME (LOSS) 2009During the year ALFA generated a consolidated net profit. This and the majority net income of ALFA for the years 2009, 2008 and 2007 are shown in the following table and are the result of the factors already explained with respect to the operating profit, the CFI/E and taxes:

Statement of income Change 2009 2008 2007 09/08 08/07Operating profit 8,762 5,841 6,456 2,921 (615)CFI/E (1) (4,437) (18,363) (1,338) 13,926 (17,025)Other expense, net (1,145) (859) (664) (286) (195)Taxes (2) (904) 3,438 (317) (4,342) 3,755Consolidated net income (loss) 2,276 (9,943) 4,137 12,219 (14,080)Majority net income (loss) 2,021 (9,513) 3,551 11,534 (13,064)

(1) Comprehensive financing income (expense)(2) Income tax (currently payable and deferred)

NET INCOME (LOSS) 2008The consolidated net income and the majority net income of ALFA for the years 2008, 2007 and 2006 are shown below:

Statement of income Change 2008 2007 2006 08/07 07/06Operating profit 5,841 6,456 6,117 (615) 339CFI/E (1) (18,363) (1,338) 187 (17,025) (1,525)Other expense, net (859) (664) (273) (195) (392)Taxes (2) 3,438 (317) (131) 3,755 (185)Net consolidated income (loss) (9,943) 4,137 5,900 (14,080) (1,763)Net majority income (loss) (9,513) 3,551 5,379 (13,064) (1,828)

(1) Comprehensive financing income (expense)(2) Income tax (currently payable and deferred)

In U.S. dollar terms (for the convenience of the reader), in 2008 ALFA reported a net consolidated loss of US$ 823 million. This figure reflects certain extraordinary events, as well as exchange and financial losses that took place during the year, certain of which do not represent a cash outflow and are of a non-recurring nature, as shown below:

38


COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is shown in the statement of changes in stockholders’ equity and its purpose is to show the total effect of all transactions and events which affected earned surplus, irrespective of whether they were recognized in the statement of income or directly in stockholders’ equity. It excludes operations between the company and its shareholders, principally dividends. Comprehensive income (loss) for 2009, 2008 and 2007 was as follows:

Comprehensive income (loss) Consolidated Majority interest 2009 2008 2007 2009 2008 2007Net income (loss) 2,276 (9,943) 4,137 2,021 (9,513) 3,551Gain (loss) from holding non-monetary assets (33) (772)Cumulative translation adjustment 1,033 4,639 1,705 1,516 3,730 1,596Effect of valuation changes in hedging instruments 978 (2,290) 156 942 (2,164) 145Write-off of preoperating expenses (42) (40)Effect of tax consolidation (1,676) (1,676)Comprehensive income (loss) 2,569 (7,594) 5,965 2,763 (7,947) 4,520

The net income (loss) obtained in 2009 and 2008 is explained in a previous section of this Analysis. The cumulative translation adjustment, which is the effect of using different exchange rates for asset and liability accounts and for income and stockholders’ equity accounts, increased substantially due to Nemak’s acquisitions and the volatility of the exchange rate with the countries in which ALFA operates. The effect of valuation changes in hedging instruments represents the effect of derivatives covering energy, which in accordance with Mexican Financial Reporting Standard C-10 is presented in stockholders’ equity.

(823)

98

131

131

(463)194

(186)358

54226

83

Effect of extraordinary events, exchange losses and derivative losses on 2008Consolidated Net Profit

(US$ Millions)

Peso-Dollar

Other currencies

*Figures net of deferred taxes

Net profit before extr. events and derivatives

Inventory valuation & hurricane

Exchange loss

Net loss before

derivatives

Exchange rate

derivatives

Net loss before

ordinary derivatives

Consolidated Net Loss

Ordinary derivatives

Interest rates

Gas & Gasoline

Equity swaps

39


DIVIDENDS DECLARED AND INCREASE IN STOCKHOLDERS’ EQUITY

• In 2009, ALFA’s Stockholders’ Meeting declared an ordinary dividend of Ps592, equivalent to 1.06 pesos per share, 9% less than the ordinary dividend in 2008. In turn, in 2008 it declared an ordinary dividend of Ps650, equivalent to 1.16 pesos per share, 3% more than in 2007.

• In 2009, the consolidated capital increased 5% mainly due to the net income for the period.

INVESTMENT IN NWC (1)

Days in NWC 2009 2008 2007Alpek 37 36 34Sigma 25 25 28Nemak 43 45 35Alestra (22) (10) (8)Consolidated 33 36 32

(1) Net Working Capital

In 2009, the decrease in the average NWC balance was greater than the decrease in sales, resulting in a decrease in the consolidated number of days in NWC from 36 in 2008 to 33 in 2009.

INVESTMENTS

Property, Plant and EquipmentTotal investments by Group were as follows: % Change Last 5 years 2009 2008 09/08 Investment %Alpek 879 1,357 (35) 8,895 35Sigma 742 1,082 (31) 5,942 23Nemak 1,023 1,956 (48) 7,109 28Alestra 981 809 21 2,638 10Other 22 69 (68) 939 4Total 3,647 5,273 (31) 25,523 100

The investments in 2009 were destined by group as follows: Alpek invested mainly in improvement and asset replacement projects and in the natural gas project. Sigma focused mainly on the modernization and expansion of its distribution network and some production facilities.

In the case of Nemak, it concentrated its investment in key improvement projects and new programs.Finally Alestra applied most of its resources to the growth of the value-added services infrastructure and network.

40


CASH FLOWS

Starting from the cash flows provided by operations, the following table shows the principal transactions in 2009 and 2008: 2009 2008Cash flows provided by operations 14,042 8,481Property, plant and equipment (3,647) (5,273)Derivative financial instruments (5,847) (6,811)(Decrease) increase in bank financing (1,926) 10,658Dividends paid by ALFA (735) (938)Net interest paid (3,272) (2,231)Other 765 (36)Adjustments to cash flow from changes in exchange rate (68) 1,659(Decrease) increase in cash (688) 5,509Cash and temporary investments and restricted cash at beginning of year 12,175 6,666Total cash at end of year 11,487 12,175

CHANGES IN DEBT NET OF CASH

The 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 Alestra Other

Balance at December 31, 2008 2,361 728 524 942 220 (53)

Long-term loans, net of payments: Financing 1,155 198 402 244 188 123 Repayments (758) (228) (247) (83) (198) (2) 397 (30) 155 161 (10) 121Short-term financing, net of repayments (544) (61) (270) (58) 1 (156)Total financing, net of payments (147) (91) (115) 103 (9) (35)Effect of currency conversion 94 2 35 52 3 2Change in debt, per statement of cash flow (53) (89) (80) 155 (6) (33)Debt of acquired companies (6) (23) 17Total change in debt (59) (89) (80) 132 11 (33)Decrease (increase) in cash and restricted cash 101 (92) 85 175 (34) (33)Change in interest payable 5 4 (4) (4) 10 (1)Increase (decrease) in debt net of cash 47 (177) 1 303 (13) (67)Balance at December 31, 2009 2,408 551 525 1,245 207 (120)

41


Alpek’s debt was reduced due to its operating results and Nemak’s debt increased mainly as a result of applying resources to the payment of liabilities from financial operations. The average life of the total debt was increased due to the refinancing in all groups. The maturity calendar of ALFA and its groups of companies experienced the following changes:

Short and long-term Alpek Sigma Nemak Alestra Otherdebt by Group 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Total debt (US$) 829 918 608 689 1,415 1,282 246 186 188 270

Percentage of total debtShort-term debt 2 16 0 40 7 14 0 8 5 60Long-term 1 year 14 23 4 2 5 1 6 18 42 11

2 26 23 6 6 7 16 9 74 33 263 19 22 6 7 9 26 3 0 17 04 3 12 3 8 15 23 0 0 1 05 years or more 36 4 81 37 57 20 82 0 2 3

Total 100 100 100 100 100 100 100 100 100 100

Average term of long-term debt (years) 2.7 2.4 7.1 3.8 4.6 3.1 3.9 1.5 1.3 2.5Average term of total debt (years) 3.1 1.7 6.8 2.4 4.1 2.7 4.1 1.2 2.0 0.7

Consolidated short and US$ % of Totallong-term debt 2009 2008 Change 2009 2008

Short-term debt 130 791 (661) 4 23Long-term 1 year 303 298 5 9 9

2 430 661 (231) 13 203 363 583 (220) 11 174 257 460 (203) 8 145 years or more 1,803 552 1,251 55 17

Total 3,286 3,345 (59) 100 100

Average term of long-term debt (years) 4.7 2.9Average term of total debt (years) 4.2 2.1

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FINANCIAL RATIOS

LIQUIDITYThe ratio of DNC to cash flow decreased at a consolidated level between 2008 and 2009, mainly due to a better cash flow, as shown in the following table:

Debt net of cash / Cash flow (in U.S. dollars last 12 months)

Groups 2009 2008 2007

Alpek 1.29 2.48 2.12Sigma 1.92 2.01 1.73Nemak 4.79 2.99 3.29Alestra 1.98 1.83 1.96Consolidated 2.28 2.45 1.94

The interest coverage decreased both at the consolidated level and in the groups, except in Alpek. This was mainly due to the increase in debt net of cash.

Interest coverage (US$) * Due to Due to Change Financial Change Financial 2009 2008 2007 09/08 Cash Flow Expense 08/07 Cash Flow Expense

Alpek 6.5 4.4 6.2 2.1 2.0 0.1 (1.9) 0.4 (2.3)Sigma 4.7 5.2 5.9 (0.5) 0.2 (0.7) (0.7) 0.5 (1.2)Nemak 2.2 3.2 3.9 (1.0) (0.6) (0.4) (0.7) 0.2 (0.9)Alestra 4.5 5.0 4.7 (0.5) (0.7) 0.2 0.3 0.1 0.2Consolidated 3.9 4.5 5.6 (0.6) 0.4 (1.0) (1.1) 0.0 (1.1)

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

FINANCIAL STRUCTUREALFA’s financial structure indicators had changes during 2009, as can be seen from the following table:

Financial indicators 2009 2008 2007Total liabilities / Stockholders’ equity 1.97 2.20 1.29Long-term debt / Total debt (%) 87 67 85Total foreign currency debt / Total debt (%) 75 66 73


43

To the Stockholders of Alfa, S. A. B. de C. V.

Monterrey, N. L., January 27, 2010

We have audited the consolidated balance sheets of Alfa, S. A. B. de C. V. and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and that they were prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of Alfa, S. A. B. de C. V. and subsidiaries at December 31, 2009 and 2008, and the consolidated results of their operations, the changes in their stockholders’ equity and their cash flows for the years then ended, in conformity with Mexican Financial Reporting Standards.

Our audits were performed for the purpose of issuing an opinion on the basic consolidated financial statements mentioned in the preceding paragraph. The supplementary information shown on pages 72 and 73, which comprises the financial summary for 2005 to 2009, was subjected to the auditing procedures applied in the audit of the corresponding basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. This information is presented for purposes of additional analysis and is not a part of such financial statements.


Carlos Arreola Enríquez

REPORT OF INDEPENDENT AUDITORS


CONSOLIDATED BALANCE SHEET

At December 31, 2009 and 2008Millions of Mexican pesos (see Note 3)

2009 2008

AssetsCURRENT ASSETS:Cash and temporary investments Ps 9,185 Ps 7,210Restricted cash 2,302 4,965Trade accounts receivable, less allowance for doubtful accounts of Ps644 in 2009 and Ps517 in 2008 14,337 13,204Other accounts and notes receivable 3,401 4,181Inventories (Note 5) 11,254 13,281Derivative financial instruments (Note 10) 455 85Other assets 340 477Total current assets 41,274 43,403

DERIVATIVE FINANCIAL INSTRUMENTS (Note 10) 21 262

LONG-TERM FINANCIAL INVESTMENTS 383 1,496

PROPERTY, PLANT AND EQUIPMENT (Note 6) 54,733 54,532

GOODWILL AND INTANGIBLE ASSETS (Note 7) 10,584 10,118

DEFERRED INCOME TAX (Note 15) 363 495

OTHER ASSETS 730 664

Total assets Ps 108,088 Ps 110,970

Dionisio Garza Medina Mario H. Páez GonzálezChief Executive Officer Chief Financial Officer

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


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2009 2008

Liabilities and Stockholders’ EquityCURRENT LIABILITIES:Current portion of long-term debt (Note 9) Ps 3,962 Ps 4,039Bank loans and notes payable (Note 9) 1,704 10,706Suppliers 14,532 13,686Derivative financial instruments (Note 10) 266 4,604Other accounts payable and accrued expenses 5,914 5,711Total current liabilities 26,378 38,746

LONG-TERM LIABILITIES:Long-term debt (Note 9) 37,244 30,547Derivative financial instruments (Note 10) 2,159 3,985Income tax payable (Note 15) 665Other liabilities 243 240Deferred income tax (Note 15) 4,228 2,150Estimated liability for labor benefits (Note 11) 812 584Total long-term liabilities 45,351 37,506Total liabilities 71,729 76,252

STOCKHOLDERS’ EQUITY (Note 12):Majority interest:Nominal capital stock 233 233Restatement of capital stock 142 142Contributed capital 375 375Earned surplus 31,347 29,176Total majority interest 31,722 29,551Minority interest 4,637 5,167Total stockholders’ equity 36,359 34,718

Contingencies and commitments (Note 17)Subsequent event (Note 18)Total liabilities and stockholders’ equity Ps 108,088 Ps 110,970

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CONSOLIDATED STATEMENT OF INCOME

2009 2008

Net sales Ps 115,632 Ps 116,190

Cost of sales (92,227) (96,819)

Gross margin 23,405 19,371

Operating expenses (14,643) (13,530)

Operating income 8,762 5,841

Other expenses, net (Note 13) (1,145) (859)

Comprehensive financing expense, net (Note 14) (4,437) (18,363)

Income (loss) before the following provision 3,180 (13,381)

Provision for income tax (Note 15) (904) 3,438

Consolidated net income (loss) Ps 2,276 Ps (9,943)

Net income (loss) corresponding to minority interest Ps 255 Ps (430)

Net income (loss) corresponding to majority interest Ps 2,021 Ps (9,513)

Net earnings (loss) per share applicable to majority interest, in pesos (Note 3.t) Ps 3.61 Ps (16.99)



For the years 2009 and 2008Millions of Mexican pesos (see Note 3)

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CONSOLIDATED STATEMENT OF CASH FLOWS

2009 2008

OperationsNet income (loss) before income tax Ps 3,180 Ps (13,381)Items relating to investing activities:Depreciation and amortization 5,518 4,637Gain on sale of property, plant and equipment (44) (76)Interest income (788) (600)Derivative financial instruments 633 12,922Items relating to financing activities:Interest expense 4,105 2,968Exchange (loss) gain (341) 3,444Other, net 1,686 64Total 13,949 9,978

(Increase) decrease in accounts receivable (1,628) 1,524Decrease in inventories 1,607 699Increase (decrease) in suppliers 1,129 (3,975)Other (1,015) 255Net cash provided by operating activities 14,042 8,481

InvestmentInterest income 833 574Acquisition of property, plant and equipment and other assets (3,647) (5,273)Long-term financial investments 1,113 521Derivative financial instruments (5,847) (6,811)Other assets (64) (1,505)Net cash used in investing activities (7,612) (12,494)Cash to be used in (provided by) financing activities 6,430 (4,013)

FinancingShort-term debt and bank loans 4,870 17,800Long-term debt 15,290 4,917 20,160 22,717Repayment of debt and bank loans (22,086) (12,059)(Decrease) increase in bank financing (1,926) 10,658Dividends paid by ALFA (735) (939)Interest paid (4,105) (2,805)Other (284) 949Net cash (used in) provided by financing activities (7,050) 7,863(Decrease) increase in net cash and temporary investments (620) 3,850Adjustments to cash flow as a result of changes in exchange rates (68) 1,659Cash and temporary investments and restricted cash at beginning of year 12,175 6,666Composed of:Cash and temporary investments Ps 9,185 Ps 7,210Restricted cash 2,302 4,965Total cash at end of year Ps 11,487 Ps 12,175




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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Contributed capital Earned surplus

Surplus on Cumulative Total Total Capital Retained restatement translation majority Minority stockholders’ stock earnings of capital adjustment Total interest interest equity

Balances at December 31, 2007 Ps 376 Ps 25,708 Ps 10,949 Ps 1,150 Ps 37,807 Ps 38,183 Ps 5,111 Ps 43,294

Changes in 2008:

Net loss (9,513) (9,513) (9,513) (430) (9,943)

Cumulative translation adjustment 3,730 3,730 3,730 909 4,639

Effect of valuation changes in hedging instruments (2,164) (2,164) (2,164) (126) (2,290)

Comprehensive (loss) income (11,677) 3,730 (7,947) (7,947) 353 (7,594)

Dividends declared by ALFA (1.16 peso cents per share) (650) (650) (650) (650)

Dividends of subsidiaries to minority interest (289) (289)

Repurchase of own shares (1) (34) (34) (35) (35)

Reclassification of accumulated gain (loss) from

holding nonmonetary assets (Note 12) 10,949 (10,949)

Changes in minority interest (8) (8)

(1) 10,265 (10,949) (684) (685) (297) (982)

Balances at December 31, 2008 375 24,296 - 4,880 29,176 29,551 5,167 34,718

Changes in 2009:

Net income 2,021 2,021 2,021 255 2,276

Cumulative translation adjustment 1,516 1,516 1,516 (483) 1,033

Effect of valuation changes in hedging instruments 942 942 942 36 978

Write-off of preoperating expenses (Note 3.a) (40) (40) (40) (2) (42)

Effect of retroactive change in tax consolidation rules (1,676) (1,676) (1,676) (1,676)

Comprehensive income 1,247 1,516 2,763 2,763 (194) 2,569




(592) (592) (592) (336) (928)

Balances at December 31, 2009 (Note 12) Ps 375 Ps 24,951 Ps - Ps 6,396 Ps 31,347 Ps 31,722 Ps 4,637 Ps 36,359




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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Contributed capital Earned surplus

Surplus on Cumulative Total Total Capital Retained restatement translation majority Minority stockholders’ stock earnings of capital adjustment Total interest interest equity

Balances at December 31, 2007 Ps 376 Ps 25,708 Ps 10,949 Ps 1,150 Ps 37,807 Ps 38,183 Ps 5,111 Ps 43,294

Changes in 2008:

Net loss (9,513) (9,513) (9,513) (430) (9,943)

Cumulative translation adjustment 3,730 3,730 3,730 909 4,639

Effect of valuation changes in hedging instruments (2,164) (2,164) (2,164) (126) (2,290)

Comprehensive (loss) income (11,677) 3,730 (7,947) (7,947) 353 (7,594)



Repurchase of own shares (1) (34) (34) (35) (35)

Reclassification of accumulated gain (loss) from

holding nonmonetary assets (Note 12) 10,949 (10,949)


(1) 10,265 (10,949) (684) (685) (297) (982)

Balances at December 31, 2008 375 24,296 - 4,880 29,176 29,551 5,167 34,718

Changes in 2009:

Net income 2,021 2,021 2,021 255 2,276

Cumulative translation adjustment 1,516 1,516 1,516 (483) 1,033

Effect of valuation changes in hedging instruments 942 942 942 36 978

Write-off of preoperating expenses (Note 3.a) (40) (40) (40) (2) (42)

Effect of retroactive change in tax consolidation rules (1,676) (1,676) (1,676) (1,676)

Comprehensive income 1,247 1,516 2,763 2,763 (194) 2,569




(592) (592) (592) (336) (928)

Balances at December 31, 2009 (Note 12) Ps 375 Ps 24,951 Ps - Ps 6,396 Ps 31,347 Ps 31,722 Ps 4,637 Ps 36,359

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ACTIVITIES OF ALFA COMPANIESALFA, S.A.B. de C.V. (ALFA or the Company), is a Mexican company consisting of four business groups: Alpek, a company engaged in the production of petrochemicals and synthetic fibers; Sigma, a company engaged in the production of refrigerated food; Nemak, a company engaged in the manufacture of high technology aluminum auto components and Alestra, a company engaged in the telecommunications sector.

ALFA has an outstanding competitive position at world level in the manufacture of aluminum engine heads and blocks for the auto parts sector, as well as in the manufacture of PTA (raw material required for manufacturing polyester), and is the leader in refrigerated food in the Mexican market. ALFA operates industrial manufacturing and distribution centers mainly in Mexico, the U.S.A., Canada, Germany, Slovakia, the Czech Republic, Costa Rica, Nicaragua, Honduras, Guatemala, Panama, the Dominican Republic, El Salvador, Argentina, Peru, Austria, Brazil, China, Hungary and Poland. The Company markets its products in more than 40 countries around the world and employs more than 52,000 people.

ALFA’s shares are listed in the Mexican Stock Exchange and in Latibex, the market for Latin American stocks in the Madrid Stock Exchange.

In the preparation of the following notes to the financial statements: (i) pesos or Ps refers to Mexican pesos; and (ii) dollars or US$ refers to U.S. dollars.

2. SIGNIFICANT EVENTSa) Refinancing and placement of debt

In 2009 the principal subsidiaries of ALFA carried out a debt refinancing and the issuance and placement of new debt, which involved the following: (a) Nemak refinanced a portion of its debt with its bank creditors and holders of debt securities, extending the repayment term until 2017, thus lowering payment obligations. The related agreements stipulate certain obligations for Nemak mainly referring to debt limitation; and (b) the issuance and placement of new debt carried out by Petrotemex (a subsidiary of Alpek), Alestra and Sigma in the U.S. market pursuant to Rule 144A during the second half of 2009; most of the proceeds were used to repay in advance existing short-term existing debt.

Nemak’s debt refinancing and the placement of debt carried out by Petrotemex, Alestra and Sigma extended the average life of consolidated debt. Following is a summary of the maturity dates stated in U.S. dollars:

Subsequent to Prior to refinancing and refinancing and placement of debt placement of debt

2009 US$ - US$ 8092010 351 6962011 453 8912012 370 4692013 267 602014 onwards 1,840 526

b) Devaluation of the Mexican peso vis à-vis the US dollar and derivative financial instruments in 2009 and 2008From September 2008 onwards, as a result of the global financial crisis, Mexico experienced depreciation of the peso against the US dollar. This depreciation gave rise to exchange losses in view of the net dollar debt position maintained by the Company.

Since ALFA operates in many countries and obtains financing in various foreign currencies, it has entered into exchange rate and interest rate derivatives for purposes of reducing the overall cost of such financing and the volatility associated with exchange rates and interest rates. Additionally, due to the nature of the industries in which it operates and its high consumption of fuel, ALFA has entered into hedge contracts covering natural gas, gasoline and ethylene prices. Finally, in order to carry out its share repurchase program, ALFA has also entered into derivatives on its own shares.

At December 31, 2009 and 2008Millions of Mexican pesos (see Note 3) (except where otherwise indicated)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the fourth quarter of 2008, ALFA implemented various strategies that substantially modified its derivative position related to exchange rates, natural gas prices and its own shares at the end of September. In general terms, it cancelled or neutralized derivative positions, substantially reducing its exposure to these risks.

In 2009 the exchange rate was relatively stable at around Ps13.4 to the U.S. dollar.

The combined effect of exchange losses and loss on valuation of derivative financial instruments represented a charge of Ps823 in 2009 and Ps16,366 to 2008 income, included in the caption “Comprehensive financing expense, net”.

ALFA has had a Risk Management Committee from the fourth quarter of 2008 onwards. This Committee is responsible for authorizing all derivative operations based on the guidelines set by the Board of Directors. In 2009 the Risk Management Committee submitted reports to the Finance Committee and to the Audit and Corporate Practices Committee, as well as to the Board of Directors.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOn January 27, 2010, the Company’s officers signed the basic financial statements and notes thereto and authorized the issuance of the accompanying consolidated financial statements.

Following is a summary of the most significant accounting policies followed by ALFA and its subsidiaries, which have been applied on a consistent basis in the preparation of their financial information for the years presented, unless otherwise indicated:

a. Bases for presentation and disclosureThe accompanying consolidated financial statements at December 31, 2009 and 2008, fully comply with Mexican Financial Reporting Standards (FRS) so as to present fairly the Company’s financial position.

In accordance with FRS B-3 management adopted the criterion of presenting the statement of income based on function, since grouping costs and expenses on this basis allows the various levels of income to be presented. In this connection, for the convenience of the reader, the operating income is presented separately since this caption represents a factor for the analysis of the financial information that ALFA and its subsidiaries have regularly presented.

On January 1, 2008, FRS B-10 “Effects of inflation” became effective. It sets forth the rules for the recognition of the effects of inflation on the financial information based on the country’s inflationary environment. In accordance with this FRS, the effects of inflation on the financial information will not be recognized if inflation does not exceed 26% in the three most recent years. Since the accumulated inflation for the years ended December 31, 2009, 2008 and 2007, did not exceed the 26% stipulated, the financial statements at December 31, 2009 and 2008 have been prepared on the modified historical cost basis (that is, the effects of the transactions carried out until December 31, 2007 are stated in constant pesos of purchasing power as of that date, and the effects of transactions carried out after that date are stated in nominal pesos). The accumulated inflation of the most recent three years in certain countries in which some subsidiaries operate has exceeded this 26%; however, the effects of this on the consolidated financial statements is immaterial.

The Mexican inflation rates are shown below:

2009 2008

For the year 3.57% 6.53%For the three most recent years 14.48% 15.01%

For purposes of recognizing the effects of inflation through December 31, 2007, as described in the preceding paragraph, factors derived from the National Consumer Price Index (NCPI) published by the Banco de México for domestic companies, and from the Consumer Price Index (CPI) of the country of origin of the subsidiaries operating outside Mexico, were used.

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On January 1, 2009, FRS C-8 “Intangible assets” became effective, and as a result management wrote off unamortized preoperating expenses dating from 2002 and earlier against retained earnings; the amount so written off was Ps42.

The preparation of the financial information in accordance with FRS requires management to make estimates and assumptions that affect the reported amounts at the date of the financial statements. Actual results could differ from those estimates. The main captions subject to these estimates include the following: net fixed assets, allowances for doubtful accounts, inventory reserve, deferred income tax asset, valuation of financial instruments and labor obligations (assets and liabilities).

The financial statements of the subsidiary companies (foreign currency operations) that maintain a reporting currency other than the functional currency were converted to the functional currency in accordance with the procedures described in FRS B-15 “Conversion of foreign currency”.

b. Inclusion of subsidiaries outside MexicoThe accounting records of the subsidiaries outside Mexico are stated in the currency of each country and in accordance with the applicable accounting principles. For purposes of including the individual financial statements of these subsidiaries in the consolidated financial statements of ALFA they are converted to Mexican FRS based on the economic environment of the subsidiary, as described below:

– Entities with an inflationary economy - The inflationary effects are recognized and the financial statements are subsequently translated to Mexican pesos using the exchange rate prevailing at closing date for both the balance sheet and statement of income; and

– Entities with a non-inflationary environment - (a) Assets and liabilities are converted to Mexican pesos using the exchange rate prevailing at closing date; (b) stockholders’ equity is converted by using the historical exchange rate; and (c) the statement of income is converted by using the monthly average exchange rate.

The principal exchange rates used in the various above-mentioned conversion processes were:

Local currency to Mexican pesos Exchange rate 2009 average at end of Country Local currency exchange rate December 31, 2009

Canada Canadian dollar 11.96 12.47United States Dollar 13.57 13.06Brazil Brazilian real 6.89 7.48Argentina Argentine peso 3.63 3.45Peru Nuevo sol 4.52 4.52Czech Republic Koruna 0.71 0.71Germany Euro 18.90 18.74Austria Euro 18.90 18.74Hungary Euro 18.90 18.74Poland Zloty 4.36 4.58Slovakia Koruna 0.63 0.62Spain Euro 18.90 18.74China Yuan 1.99 1.91

The change in the net investment in subsidiaries outside Mexico resulting from the fluctuation in the exchange rate is included in stockholders’ equity under the cumulative translation adjustment.

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c. Bases for consolidationThe consolidated financial statements comprise those of ALFA and all its subsidiaries. Intercompany transactions and balances between ALFA and its subsidiaries have been eliminated in consolidation.

At December 31, 2009 and 2008, the principal subsidiary companies of ALFA were:

Functional Country (1) Ownership %(2) currency

Alpek (Petrochemicals and synthetic fibers)Grupo Petrotemex, S. A. de C. V. 100 US dollar DAK Americas, L. L. C. USA 100 US dollar DAK Resinas Americas México, S. A. de C. V. 100 US dollar DAK Americas Exterior, S. L. (Holding company) Spain 100 Euro DAK Americas Argentina, S. A. Argentina 100 US dollar Alpek Exterior, S. L. (Holding company) Spain 100 Euro Newpek, L.L.C. USA 100 US dollar Productora de Tereftalatos de Altamira, S. A. de C. V. 91 US dollar Tereftalatos Mexicanos, S. A. de C. V. 91 US dollarAkra Polyester, S. A. de C. V. 100 Mexican pesoIndelpro, S. A. de C. V. 51 US dollarPolioles, S. A. de C. V. 51 US dollarUnivex, S. A. 100 Mexican pesoSigma (Refrigerated food)Sigma Alimentos, S. A. de C. V. (Holding company) 100 Mexican peso Alimentos Finos de Occidente, S. A. de C. V. 100 Mexican peso Grupo Chen, S. de R. L. de C. V. 100 Mexican peso Sigma Alimentos Lácteos, S. A. de C. V. 100 Mexican peso Sigma Alimentos Centro, S. A. de C. V. 100 Mexican peso Sigma Alimentos Noreste, S. A. de C. V. 100 Mexican peso Sigma Exterior, S. L. (Holding company) Spain 100 Euro Mexican Cheese Producers, Inc. USA 100 US dollar Braedt, S. A. Peru 100 Nuevo solNemak (Aluminum auto components)Tenedora Nemak, S. A. de C. V. (Holding company) 93 US dollar Nemak, S. A. 100 US dollar Nemak of Canada, Co. Canada 100 US dollar Nemak Czech Republic, S.r.o. Czech Republic 100 Euro Nemak Nanjing Aluminum Foundry Co., Ltd. China 70 Yuan Nemak Exterior, S. L. (Holding company) Spain 100 Euro Nemak Dillingen GmbH Germany 100 Euro Nemak Wernigerode GmbH Germany 100 Euro Nemak Linz Gmbh Austria 100 Euro Nemak Gyor Kft Hungary 100 Euro Nemak Poland Sp. z.o.o. Poland 100 Euro Nemak Slovakia, S.r.o. Slovakia 100 Euro Nemak USA, Inc. USA 100 US dollar Nemak Aluminio do Brasil Ltda. Brazil 100 Brazilian real Nemak Argentina, S. R. L. Argentina 100 US dollarAlestra (Telecommunications)Alestra, S. de R. L. de C. V. 51 Mexican pesoOther companiesColombin Bel, S. A. de C. V. 100 US dollarTerza, S. A. de C. V. 51 Mexican pesoAlfa Corporativo, S. A. de C. V. 100 Mexican peso

(1) Companies incorporated in Mexico, except where otherwise stated.

(2) % ownership ALFA has in the holding companies of each business group and % ownership these holding companies have in their subsidiaries.

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d. Temporary investments and other long-term investmentsThese investments include investments in debt and capital securities, and are classified in the following categories in accordance with management’s intention at the date of acquisition: investments to be held to maturity, financial instruments for trading purposes and financial instruments available for sale. They are initially stated at acquisition cost and are subsequently stated as described below:

i. Debt securities to be held to maturity are stated at acquisition cost reduced by amortization of premiums or increased by amortization of discounts, as applicable, based on the unrecovered balance while the investments are in effect. Any impairment loss is recognized in income of the year.

ii. Financial instruments for trading purposes and those available for sale are stated at fair value, which is similar to market value. The fair value is the amount at which financial assets can be exchanged or financial liabilities can be liquidated between interested and willing parties on an arm’s-length basis. The changes in the fair value of financial instruments for trading purposes are charged or credited directly to income. The changes in the fair value of financial instruments available for sale are included as part of comprehensive income under stockholders’ equity until the instruments are sold or are reclassified, at which time the amounts included in comprehensive income are transferred to income for the year.

e. Inventories and cost of salesAt December 31, 2009 and 2008, inventories were stated at modified historical cost based on the average cost method. 2007 inventories forming part of the balance at December 31, 2009 and 2008 were stated at replacement cost based on the latest purchase or production costs of that year.

The cost of sales is determined based on the historical purchase prices and production costs of the inventories produced and sold during 2009 and 2008, plus the replacement cost of final 2007 inventories sold during these years. Consequently, at December 31, 2009 and 2008, the cost of sales was stated at modified historical cost, as described. The amounts shown for inventories do not exceed market value.

The allowance for obsolete and/or slow-moving inventories is determined in accordance with studies carried out by the Company’s management.

f. Permanent investment in associated companiesPermanent investments in associated companies are accounted for by the equity method. In accordance with this method, changes in the carrying amount of the shares derive from the changes occurring after the acquisition date in the stockholders’ equity account of the investees. Loss in associated companies is recognized as follows: (a) against the investment, until it is reduced to zero; (b) any excess, as a liability for only legal obligations of the parent or obligations absorbed on behalf of the associated company; and (c) any additional loss is not recognized by the parent company.

Other permanent investments in which the Company has no significant influence on the decision-making process are stated at acquisition cost. Dividends arising from these investments are included in the statement of income of the period in which they are received; unless they arise from earnings of periods prior to the investment’s purchase, in which case they are deducted from the cost of the investments.

g. Absorption (dilution) of control in subsidiaries and associated companiesThe effect of absorption (dilution) of control in subsidiary and associated companies, reflecting an increase (decrease) in the percentage of control, is recorded in stockholders’ equity, directly in the retained earnings account, 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 based on the equity before the absorption (dilution) of control against the book value after the relevant event. In the event of a decrease in the percentage of control the related dilution effect is included in income.

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h. Property, plant, equipment and depreciationProperty, plant and equipment and the related accumulated depreciation are stated as follows: (a) acquisitions from January 1, 2008 onwards at historical cost; and (b) acquisitions of domestic origin carried out up to December 31, 2007 at restated value determined by applying factors derived from the National Consumer Price Index (NCPI) through December 31, 2007 to the acquisition cost; and acquisitions of assets of foreign origin at historical cost stated in the currency of the country of origin by applying factors derived from the general inflation index of the country of origin through December 31, 2007 translated to Mexican pesos using the exchange rate prevailing at December 31, 2007. Consequently, property, plant and equipment are stated at modified historical cost.

The acquisition cost of property, plant and equipment requiring a substantial period of time to be available for use includes capitalization of the corresponding comprehensive financing income or expense incurred in such period. Amounts so determined do not exceed related recovery value.

Depreciation is calculated by the straight-line method based on the estimated useful lives of property, plant and equipment.

Property, plant and equipment are subject to recognition of impairment, as well as the reversal of such impairment, when appropriate.

i. Business acquisitions, goodwill and intangible assetsIn accordance with the standards in effect at the date of acquisition, ALFA has adopted the following accounting guidelines for business acquisitions: (a) all acquisitions are accounted for as purchases; the purchase price of assets acquired and related liabilities is allocated based on their fair value at the date of acquisition; (b) intangible assets acquired are subject to identification, valuation and recognition; and (c) goodwill represents the purchase price portion not so allocated.

Goodwill is not amortized and is subject to periodic testing for impairment.

In order to be recognized, intangible assets must be identifiable and must provide future economic benefits; in addition, control over such benefits is also required. They are classified as having:

i) Indefinite useful life - These are not amortized and are subject to annual impairment testing; through December 31, 2009 no circumstances that might affect their useful lives have been identified.

ii) Finite useful life - These are amortized by applying the straight-line method, based on the estimated useful lives determined in accordance with the expected future economic benefits, and are subject to impairment tests, when appropriate.

At December 31, 2009 and 2008, intangible assets were stated as follows: (a) acquisitions or developments from January 1, 2008 onwards at historical cost, and (b) acquisitions or developments carried out through December 31, 2007 at restated cost determined by applying factors derived from the NCPI through December 31, 2007 to the acquisition or development cost. Consequently, at December 31, 2009 and 2008, intangible assets were stated at modified historical cost, less accumulated amortization in the case of assets with a finite useful life.

j. Other assetsAt December 31, 2009 and 2008, this caption mainly comprised other permanent investments.

k. Transactions in foreign currency and exchange differencesTransactions in foreign currencies are initially stated using the reporting currency by applying the exchange rates prevailing on the dates they are entered into and/or settled. Assets and liabilities denominated in such currencies are translated at the exchange rate prevailing on the balance-sheet date. Exchange gain or loss arising from fluctuations in exchange rates between the transaction and settlement dates or valuation at the closing period are recognized in income as a component of comprehensive financing income (expense) except for those exchange differences that, along with other components of comprehensive financing income (expense), are capitalized as part of the certain qualifying assets.

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l. ProvisionsLiability provisions represent accumulated obligations arising from past events that might require the outflow of economic resources. These provisions have been recorded based on management’s best estimate.

m. Estimated liability for labor benefitsThe employee retirement plans (pensions, health-care expenses and seniority premiums), both formal and informal, as well as the benefits payable at termination of employment for causes other than from restructuring, are recognized as a cost of the years in which the services are rendered in accordance with actuarial studies made by independent actuaries.

Actuarial gains and losses arising from retirement benefits in excess of the greater of 10% of the value of defined benefit obligation or 10% of the value of plan assets are amortized over the expected average remaining service lives of the employees expected to receive the benefits.

On January 1, 2008 the standards contained in FRS D-3 “Employee benefits” became effective. These standards require, among other things, a reduction in the amortization period of the items relating to prior service cost, the incorporation of the effects of salary growth in the calculation of the defined benefit obligation, as well as the elimination of the additional liability and corresponding intangible asset, and if applicable, of the amount recorded in stockholders’ equity.

From January 1, 2008 onwards the transition liability is amortized over the lesser of the period pending to be amortized or five years. Until December 31, 2007, the actuarial gains and losses and transition liability captions subject to amortization were amortized on the basis of the average estimated service lives of the employees.

n. Derivative financial instrumentsAll derivative financial instruments entered into and identified and classified as held for trading or as hedge instruments are included in the balance sheet as assets and/or liabilities at fair value. The fair value is determined based on the prices in recognized markets; when no quoted market prices are available, it is determined based on valuation techniques accepted in the financial sector.

The changes in the fair value of derivative financial instruments are recognized in comprehensive financing income (expense), except when they are entered into to hedge against risk and comply with all related requirements. Their designation as a hedge is documented at the inception of the transaction, specifying the related objective, initial position, risks to be hedged, type of hedge relationship, characteristics, accounting recognition and how their effectiveness will be assessed. Fair value hedges are stated at fair value and changes in valuation are recorded in income under the same caption as the hedged item. In the case of cash flow hedges, the effective portion is temporarily included in comprehensive income in stockholders’ equity and is reclassified to income when the hedged item affects income. Any ineffective portion is recognized immediately in income.

The Company suspends accounting for hedge transactions when the derivative instrument has expired, has been sold, cancelled or exercised, when it has not reached a high degree of effectiveness to offset the changes in the fair value or cash flow of the hedged item, or when its designation as a hedge is cancelled.

Upon suspending accounting for hedge transactions, in the case of cash flow hedges, the amounts accumulated in stockholders’ equity forming part of comprehensive income remain in stockholders’ equity until the effect of the forecasted transaction or firm commitment affect income. In the event the forecasted transaction or firm commitment seem unlikely to occur, the gains or losses accumulated in comprehensive income are recognized immediately in income. When the hedge of a forecasted transaction is originally effective but later does not comply with the effectiveness test, the effects accumulated in comprehensive income in stockholders’ equity are carried to income in proportion as the forecasted asset or liability affects income.

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The derivative financial instruments were privately negotiated with various counterparties whose sound financial condition was supported by high ratings assigned by securities and credit risk rating agencies. The documentation used to formalize the operations entered into was that commonly used; in general terms, it follows the “Master Agreement” generated by the “International Swaps & Derivatives Association” (“ISDA”), and is accompanied by the annexes commonly known as “Schedule” and “Confirmation”.

The fair value of the financial derivative instruments reflected in the Company’s financial statements represents a mathematical estimate of its fair value. It is determined using models belonging to independent experts involving assumptions based on past and current market conditions and future expectations at the corresponding closing date. Some valuations are based on estimates determined by independent experts and others on estimates from the counterparties involved.

o. Shares held in treasuryThe maximum limit for the acquisition of ALFA’s own shares is determined based on stockholders’ resolutions. Shares acquired are held in treasury and their acquisition cost is charged to stockholders’ equity, as follows: a portion is charged to capital stock at restated theoretical value and the difference to retained earnings. These amounts are stated at historical cost.

p. Revenue recognitionALFA and its subsidiaries recognize revenues when merchandise is delivered and billed to customers. The revenues and the accounts receivable are recorded net of allowances for returns and doubtful accounts, respectively.

q. Comprehensive financing income (expense)This item is determined by grouping in the statement of income all interest and other financial income and expense, exchange gains and losses, and the gain or loss on monetary position.

r. Deferred employees’ profit sharingDeferred employees’ profit sharing is recorded by the comprehensive asset-and-liability method, which requires recognition of deferred employees’ profit sharing for all differences between the book value and tax value of assets and liabilities when related payment or recovery is likely to occur. Deferred employees’ profit sharing derived from other comprehensive income items not identified as realized, is included in stockholders’ equity and reclassified to income for the year as realized. At December 31, 2009 and 2008, there were no significant differences requiring recognition of assets or liabilities for this concept.

s. Income taxALFA and its Mexican subsidiaries file consolidated income tax returns in accordance with the applicable regulations. The income tax included in the consolidated statement of income, represents the income tax currently payable for the year as well as the effect of the deferred income tax, determined in each subsidiary by the comprehensive asset-and-liability method, applying the income tax rate in effect to total temporary differences resulting from comparing the book and tax amounts of all assets and liabilities, and if applicable, considering tax loss carryforwards expected to be recoverable. The effect of a change in current income tax rates is recognized in income of the year in which the rate change is enacted.

t. Earnings per shareEarnings (loss) per share are computed by dividing the net majority income (loss) by the weighted average of common shares outstanding during the year. There are no effects arising from potentially dilutive shares.

u. Comprehensive income (loss)The comprehensive income (loss) comprises net income (loss), translation adjustments, valuation effects of financial instruments available for sale and those captions specifically required to be presented in stockholders’ equity not representing capital contributions, reductions and distributions.

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4. BALANCES AND TRANSACTIONS WITH RELATED PARTIESThe main transactions carried out with related parties in the years ended December 31, 2009 and 2008, were as follows:

2009 2008

Income:Net sales Ps 6,618 Ps 10,555

Expenses:Purchase of products (1,365) (2,629)Services and technical assistance (910) (1,620)

The consolidated balance sheet includes balances receivable of Ps991 in 2009 (Ps487 in 2008) and payable of Ps584 in 2009 (Ps705 in 2008), derived from the above-mentioned transactions, carried out at market value.

In the year ended December 31, 2009 compensation and benefits of the Company’s officers amounted to Ps302 (Ps373 in 2008), consisting of the basic salary and benefits granted by law, complemented by a variable compensation program which is based mainly on ALFA’s results and the market value of its shares.

ALFA and its subsidiaries confirm that there were no other significant transactions with related parties or conflicts of interest which should be disclosed.

5. INVENTORIESConsolidated inventories were analyzed as follows:

2009 2008

Finished goods Ps 3,896 Ps 5,150Raw materials and work in process 4,967 5,405Other 2,391 2,726Total Ps 11,254 Ps 13,281

6. PROPERTY, PLANT AND EQUIPMENTThis caption comprised the following:

2009 2008

Land Ps 3,317 Ps 3,309Depreciable assets 90,262 83,265Construction in progress and other assets 3,115 3,712 96,694 90,286Accumulated depreciation (41,961) (35,754)Total book value Ps 54,733 Ps 54,532

Depreciation charged to income represented annual average rates of 5.9% in 2009 and 5.5% in 2008.

7. GOODWILL AND INTANGIBLE ASSETSThis caption comprised the following:

2009 2008

Preoperating expenses Ps 2,609Development costs Ps 3,090 1,774Assets based on contracts 2,894 2,915Capitalized debt costs 66 205Other 225 463 6,275 7,966Accumulated amortization (2,536) (4,505) 3,739 3,461Goodwill and other assets not subject to amortization 6,845 6,657Total Ps 10,584 Ps 10,118

Amortization charged to income represented average annual rates of 7% in both 2009 and 2008.

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8. FOREIGN CURRENCY POSITIONAt December 31, 2009 and 2008, the exchange rates were 13.06 and 13.54 pesos to the U.S. dollar, respectively. At January 27, 2010, date of issuance of these audited financial statements, the exchange rate was 12.85 nominal pesos to the dollar.

Amounts shown below are expressed in millions of U.S. dollars (US$), since this is the currency in which most of the companies’ foreign currency transactions are carried out.

At December 31, 2009 the companies had the following foreign currency assets and liabilities:

Mexican Foreign subsidiaries subsidiaries Total

Monetary assets US$ 1,211 US$ 1,095 US$ 2,306Current liabilities (631) (892) (1,523)Long-term liabilities (2,353) (168) (2,521)Foreign currency monetary position US$ (1,773) US$ 35 US$ (1,738)

Nonmonetary assets US$ 2,137 US$ 1,705 US$ 3,842

The nonmonetary assets of the Mexican subsidiaries (inventories, machinery and equipment and other) mentioned above are those manufactured outside Mexico and are stated in accordance with the basis described in Note 3.

9. SHORT-TERM BANK LOANS AND LONG-TERM DEBTAt December 31, 2009 and 2008, the consolidated bank loans and current notes payable caption comprised the following:

2009 2008

Bank loans Ps 1,694 Ps 10,428Notes payable 10 278 Ps 1,704 Ps 10,706

At December 31, 2009 and 2008, the long-term debt of ALFA and its subsidiaries comprised the following:

Interest rate (c)

2009 2008 2009

Loans in U.S. dollars:Senior Notes (a) Ps 10,895 8.88%Secured bank loans (b) 10,011 Ps 1,951 8.28%Unsecured - Debt certificates - 2,138Unsecured bank loans 5,326 19,866 2.37%Other 717 486 4.09%Loans in Mexican currency:Secured bank loans (b) 5,636 - 9.94%Unsecured bank loans 1,947 3,490 4.72%Unsecured - Debt certificates (b) 6,674 6,655 7.48% 41,206 34,586Current maturities (3,962) (4,039)Long-term debt Ps 37,244 Ps 30,547

(a) During the second half of 2009, Petrotemex (a subsidiary of Alpek), Alestra and Sigma separately issued Senior Notes with a face value totaling US$725 million. These new obligations bear interest payable semi-annually and the principal is due between the years 2014 and 2019.

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Petrotemex and Sigma’s Senior Notes were placed in private offerings pursuant to Rule 144A and Regulation S under the U.S. Securities Act of 1933; they are unconditionally secured and are unsubordinated obligations, and certain of their subsidiaries are jointly liable; Alestra’s Senior Notes were placed in a private offering stipulating registration with the Securities and Exchange Commission pursuant to Rule 144A and Regulation S under the U.S. Securities Act of 1933. In accordance with the terms of Alestra’s private offering, at the date of issuance of these financial statements, it is in the process of concluding its registration with the SEC to make it a public debt offering.

The proceeds from placement of these Senior Notes were mostly used to make advance repayment of current and non-current bank loans. At December 31, 2009, the placement cost and expense, including premiums and discounts, of these new obligations amounted to Ps148, which will be amortized over the life of the Senior Notes. The unamortized cost and expense of the prior debt issue, amounting to Ps36, was charged to 2009 income and was included in the statement of income under the caption Other expenses, net.

(b) In October 2009, Nemak concluded the refinancing of Ps13,117 of bank debt and Ps3,500 of debt certificates, extending maturities to 2017 and reducing annual payments. The new agreements involve certain obligations for Nemak, mainly referring to debt limitation.

This refinancing process involved expenses of approximately Ps568 (US$42 million), which are included in the statement of income under comprehensive financing expense and in other expenses, net, in the amount of Ps238 and Ps330, respectively.

(c) Nominal weighted average rates effective at December 31, 2009.

At December 31, 2009 long-term debt maturities were as follows:

2011 Ps 5,2842012 4,6662013 3,2782014 onward 24,016 Ps 37,244

The current bank loan and debt placement agreements contain certain covenants, mainly covering the maintenance of certain financial ratios, incurring in additional debt or obtaining loans secured by assets, payment of dividends and submission of financial information. In the event noncompliance with such covenants is not cured in a time period satisfactory to the creditors, the latter may require immediate payment of the entire indebtedness. At December 31, 2009, and at the date of issuance of these financial statements, ALFA and its subsidiaries had satisfactorily complied with such covenants and restrictions.

At December 31, 2009, property, plant and equipment of Ps2,594, total assets of certain automotive subsidiaries of Ps27,298, and common stock of those subsidiary companies of Tenedora Nemak, S. A. de C. V. (TNemak) that on an individual basis exceed 5% of the consolidated EBITDA of TNemak and subsidiaries were pledged to secure liabilities totaling Ps15,647. At December 31, 2009, the common stock securing the aforementioned liabilities correspond to the following companies: Nemak, S. A., Nemak of Canada, Co., Nemak Dillingen GmbH, Nemak Wernigerode GmbH, Nemak Linz Gmbh, Nemak Gyor Kft, Nemak USA, Inc. and Nemak Aluminio do Brasil Ltda.

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10. DERIVATIVE FINANCIAL INSTRUMENTSFinancial risk factors to which the company is subject to are described in Note 2.b

a) Exchange rate derivativesThe position of exchange rate derivatives held for trading purposes was summarized as follows:

At December 31, 2009 Underlying Type of derivative, Notional asset Fair Maturity Collateral /

value or contract amount Unit Reference value 2010 2011 2012+ guarantee

USD/Ps (CCS1) Ps (856) Peso / Dollar 13.06 Ps (160) Ps (25) Ps (57) Ps (78) Ps -



USD/Ps (CCS1) Ps (1,608) Peso / Dollar 13.54 Ps (451) Ps (130) Ps (77) Ps (244) Ps 54USD/Ps (2,079) Peso / Dollar 13.54 (1,427) (913) (514) 1,705USD/EUR2 (142) Dollar / Euro 1.40 (130) (130)USD/BRL3 (214) BRL / Dollar 2.31 (107) (107)USD/GBP4 368 Dollar / GBP 1.46 29 29 Ps (2,086) Ps (1,251) Ps (591) Ps (244) Ps 1,759

1 Cross currency swaps2 Euros3 Brazilian real4 Pound sterling

b) Interest rate swapsThe position of interest rate swaps was summarized as follows:



Hedging purposes:Libor1 Ps 2,612 annual % 2.06 Ps (77) Ps (77)Trading purposes:Libor 14,047 annual % 2.06 (1,014) (403) Ps (444) Ps (167) Ps 31 Ps (1,091) Ps (480) Ps (444) Ps (167) Ps 31



Hedging purposes:Libor1 Ps 9,477 annual % 1.75 Ps (733) Ps (381) Ps (334) Ps (18)TIIE2 850 annual % 8.70 (8) (8)Trading purposes:Libor 23,516 annual % 1.75 (1,826) (514) (595) (717) Ps 444TIIE 660 annual % 8.70 (12) (12) Ps (2,579) Ps (915) Ps (929) Ps (735) Ps 444

1 Fair value hedge2 Cash flow hedge

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c) EnergyThe position of derivative financial instruments for natural gas, gasoline and ethylene was summarized as follows:



Hedging purposes:Ethylene1 Ps 280 Dollar cents/lb 35.38 Ps 45 Ps 39 Ps 6 -

Trading purposes:Natural gas 1,369 Dollar / MBTU 4.40 (1,296) (27) Ps (1,269) Ps 600Gasoline 516 Dollar / Gallon 1.93 43 35 8 - Ps (1,208) Ps 47 Ps 14 Ps (1,269) Ps 600



Hedging purposes:Ethylene1 Ps 518 Dollar cents/lb 27.40 Ps (284) Ps (284) Ps 68

Trading purposes:Natural gas 2,109 Dollar /M BTU 6.94 (2,318) (1,096) Ps (25) Ps (1,197) 1,175Gasoline 1,607 Dollar / Gallon 1.25 (923) (894) (29) 242 Ps (3,525) Ps (2,274) Ps (54) Ps (1,197) Ps 1,485

1 Cash flow hedge

d) Equity swapsThe position of equity swaps on ALFA’s own shares held for trading purposes was summarized as follows:



Equity swaps Ps 2,006 Dollar / Share 6.38 Ps 174 Ps 174 Ps 1,140



Equity swaps Ps 1,547 Dollar /Share 2.18 Ps (778) Ps (637) Ps (141) Ps 1,152

The effectiveness of financial derivative instruments classified as hedge instruments is assessed on a periodical basis. At December 31, 2009, the Company’s management had assessed the effectiveness of hedges and estimated that they are highly effective.

The notional amounts related to financial derivative instruments reflect the reference volume contracted; however, they do not reflect the amounts at risk related to future flow. The amounts at risk are usually subject to the gain or loss not realized because of the market valuation of these instruments, which can vary due to changes in the market value of the underlying asset, its volatility and credit capacity of the counterparties.

The principal obligations to which the Company is subject depend on the methodology used and terms stipulated in each financial instrument agreement open at December 31, 2009 and 2008.

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At December 31, 2009 and 2008, the net fair value position of the aforementioned financial derivative instruments amounted to Ps2,285 and Ps8,968, respectively; it is included in the consolidated balance sheet as follows:

2009 Fair Initial Net value value position recorded

Current assets Ps 455 Ps Ps 455Non-current assets 21 21Current liabilities (298) 32 (266)Non-current liabilities (2,463) 304 (2,159)Net position Ps (2,285) Ps 336 Ps (1,949)

2008 Fair Initial Net value value position recorded

Current assets Ps 85 Ps Ps 85Non-current assets 262 262Current liabilities (4,604) (4,604)Non-current liabilities (4,711) 726 (3,985)Net position Ps (8,968) Ps 726 Ps (8,242)

At December 31, 2009, collaterals required for the above-mentioned financial derivative instruments amounted to Ps1,771 represented by cash; they are recorded in the caption “Restricted cash” under current assets, and represent the settlement guarantee for each instrument.

11. ESTIMATED LIABILITY FOR LABOR BENEFITSThe valuation of the liabilities for employee retirement plans, both formal (covering approximately 79% of the companies’ employees in 2009 and 77% in 2008) and informal, covers all employees and is based primarily on their years of service, their present age and their remuneration at date of retirement. Likewise, from January 2005 onwards compensation payable on termination of employment for causes other than for restructuring is recognized as part of the Company’s labor liabilities.

Certain ALFA companies have defined contribution schemes. In accordance with the structure of these plans, the reduction in labor liabilities is reflected progressively.

The principal subsidiaries of ALFA have established irrevocable trust funds for payment of pensions and seniority premiums and health-care expenses. Contributions amounted to Ps180 in 2009 (Ps80 in 2008).

Following is a summary of the principal consolidated financial data relative to these obligations:

2009 2008

Defined benefit obligation Ps 4,244 Ps 4,179Plan assets at market value (2,434) (2,146)Unamortized prior service costs (transition liability and plan amendments) (320) (315)Unrecognized actuarial gains and (losses) (678) (1,134)Estimated liability for labor benefits Ps 812 Ps 584

Net cost for the period excluding effect of curtailments and settlements Ps (531) Ps (427)Effect of curtailments and settlements (81) (2)Defined contribution component (151) (137)Net cost for the year Ps (763) Ps (566)

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Prior service cost, plan amendment costs and unrecognized actuarial gains (losses) are recorded through charges to income by the straight-line method over the average remaining service life of the employees expected to receive the benefits. From December 2007 onwards prior service cost (transition liability) is amortized over a maximum five-year period.

2009 2008

Amortization period:Transition liability and plan amendment costs 5 6Unrecognized actuarial gains and (losses) 18 14Weighted discount rate (in nominal terms) 9.15% 8.50%Estimated return at long term on plan assets (in nominal terms) 10.75% 11.00%

12. STOCKHOLDERS’ EQUITYFrom January 1, 2008 onwards the capital stock, legal reserve, contributions for future increase in capital and retained earnings are stated in modified historical Mexican pesos (see Note 3).

At December 31, 2009, the capital stock was variable, with a fixed minimum of Ps233 without right of withdrawal. The fully subscribed and paid-in capital stock was represented by 560,000,000 “Class I” Series “A”, nominative shares, without par value. The variable portion with right of withdrawal will be represented, if applicable, by Class “II” Series “A”, nominative shares, without par value.

At December 31, 2009, ALFA had 598,095 shares held in treasury; each such share had a market value of 83.42 pesos.

Income for the period is subject to the legal provision requiring that at least 5% of income for each period be applied to increase the legal reserve until it reaches an amount equivalent to 20% of the paid-in capital stock.

Dividends paid are not subject to income tax if they are paid from the after-tax earnings account (CUFIN). Dividends paid in excess of this account are subject to a tax equivalent to 42.86% if paid in 2010. The tax is payable by the Company and may be credited against the normal income tax payable by the Company in the year in which the dividends are paid or in the following two years or, if appropriate, against the flat tax of the year. Dividends paid from retained earnings previously taxed are not subject to any tax withholding or payment. At December 31, 2009 the consolidated CUFIN and the Capital Contribution Account (CUCA) amounted to Ps6,044 and Ps32,330, respectively.

In the event of capital stock reductions, any excess of stockholders’ equity over capital contributions, the latter inflation-indexed in accordance with the provisions of the Mexican Income Tax Law, is accorded the same tax treatment as dividends.

Until December 31, 2007 the surplus on restatement of capital comprised the accumulated gain on initial monetary position and the gain from holding nonmonetary assets stated in pesos as of the end of the period. In 2008 in accordance with the new guidelines of FRS B-10, this caption was fully reclassified to retained earnings since the items from which it arose have been charged or credited to income.

13. OTHER EXPENSES, NETThis caption comprised the following:

2009 2008

Expenses for refinancing and placement of debt Ps (366)Impairment and write-off of assets (244) Ps (607)Reorganization expenses (233) (152)Employees’ profit sharing (130) (104)(Loss) gain on sale of fixed assets (44) 53(Loss) gain on sale of waste (31) 1Other expenses, net (97) (50) Ps (1,145) Ps (859)

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14. COMPREHENSIVE FINANCING EXPENSE, NETThis caption comprised the following:

2009 2008

Financial expense Ps (4,464) Ps (3,062)Financial income 773 662Net exchange loss and exchange rate derivatives (922) (10,394)Valuation and settlement of other derivative financial instruments 99 (5,972)Gain on monetary position 16 34 (4,498) (18,732)Portion capitalized in property, plant and equipment, net 61 369 Ps (4,437) Ps (18,363)

15. INCOME TAXThe net (charge) credit to consolidated income for income tax was as follows:

2009 2008

Currently payable Ps (354) Ps (139)Deferred (550) 3,577Total income tax Ps (904) Ps 3,438

The reconciliation between the statutory and effective income tax rates is shown below:

2009 2008

Income (loss) before income tax Ps 3,180 Ps (13,381)

Income tax at statutory rate (28%) Ps (890) Ps 3,747Add (deduct) effect of income tax on:Permanent differences in comprehensive financing expense (409) (333)Effect of allowance for unrecoverable tax loss carryforwards and asset tax credits (43)Other permanent differences, net 334 67Provision for transactions of the year (965) 3,438Effect of change to income tax rate (a) 61 -Total income tax provision (charged) credited to income Ps (904) Ps 3,438

Effective income tax rate 28.4% 25.7%

(a) In accordance with the changes to the Mexican Income Tax Law published on December 7, 2009, the income tax rate for the years 2010 through 2012 is 30%, for 2013 29% and from 2014 onwards 28%. At December 31, 2009 the aforementioned changes in tax rates gave rise to a net decrease in deferred income tax of Ps61 with the corresponding effect in income for the year, which was determined based on the estimated reversal of temporary items at the rates which will be in effect.

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At December 31 the principal temporary differences requiring recognition of deferred income tax were:

2009 2008

Deferred income tax asset:Inventories Ps 44Property, plant and equipment, net 343 Ps 56Asset valuation allowances (430) (3)Valuation of derivative instruments (4) (169)Other temporary differences, net (762) (610)Tax loss carryforwards (548) (1,041) (1,357) (1,767)Income tax at statutory rate applicable to temporary differences(b) 27% 28%Deferred income tax asset Ps (363) Ps (495)

Deferred income tax liability:Inventories Ps (1) Ps 106Property, plant and equipment, net 18,699 18,534Asset valuation allowances (923) (1,324)Valuation of derivative instruments (2,446) (7,112)Liability provisions 4,724 8,647Tax loss carryforwards (4,424) (11,173) 15,629 7,678Income tax at statutory rate applicable to temporary differences(b) 27% 28%Deferred income tax liability Ps 4,228 Ps 2,150

(b) Weighted average rate at the date temporary differences are expected to be realized and income tax rates in effect in the countries in which ALFA operates.

Income tax for tax consolidation purposes:

In 2009 and 2008, the Company determined consolidated taxable income of Ps(2,997) and Ps(6,304), respectively. Consolidated taxable income differs from accounting income, mainly due to those items accrued and deducted on different bases for taxable and accounting purposes, recognition of the effects of inflation for tax purposes, and to those items that affect either consolidated accounting or taxable income but not both.

Below are the most significant changes to the Mexican Income Tax Law for the year 2010 in connection with tax consolidation published on December 7, 2009:

a) Income tax payment related to tax consolidation effects originated from 2000 onwards must be made in installments from the sixth through the tenth year subsequent to that in which the related effects originated.

The above-mentioned consolidation tax effects derive from:

i. Tax losses used in consolidation and not utilized on an individual basis by the subsidiary generating them.

ii. Special consolidation items derived from transactions between the consolidating companies that gave rise to tax differences.

iii. Losses on sale of shares not yet deducted on an individual basis by the subsidiary involved.

iv. Dividends distributed by the subsidiaries participating in the consolidation, which were not paid from the CUFIN or reinvested CUFIN.

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b) Differences between the consolidated CUFIN and reinvested CUFIN balances, and the related balances of the subsidiaries can give rise to taxable income.

As a result of the foregoing, the Company has been recording a liability for this concept, which amounted to Ps4,426 at December 31, 2009 and will be payable in installments, as shown below:

Year of payment 2014 2010 2011 2012 2013 onwards Total

Tax losses Ps 67 Ps 77 Ps 212 Ps 296 Ps 2,918 Ps 3,570Special consolidation items 3 3 2 2 10Losses on sale of shares not yetdeducted 298 298Dividends distributed by thesubsidiaries not paid fromCUFIN or reinvested CUFIN 84 84 67 50 263 548Total Ps 154 Ps 164 Ps 281 Ps 348 Ps 3,479 Ps 4,426

At December 31, 2009 in accordance with the above-mentioned changes to the Mexican Income Tax Law, the estimated income tax payable is included in the balance sheet as income tax currently payable at short and long term (Ps151 and Ps665, respectively); in accordance with the new tax rules, the amount payable at a future date not yet determined is included as a component of deferred income tax.

16. INFORMATION BY BUSINESS SEGMENTThe Company controls and evaluates its continuing operations through four units: Alpek (petrochemicals and synthetic fibers), Sigma (refrigerated food), Nemak (auto components) and Alestra (telecommunications). These operating units are managed independently because their products and the markets they serve are different. Their activities are carried out through various subsidiary companies.

The accounting policies followed by the operating units mentioned above are similar to those described in Note 3.

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The information by business segment is as follows:

Other companies Alpek Sigma Nemak Alestra Segment subtotal and eliminations Consolidated

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

IncomeNet sales Ps 53,803 Ps 51,314 Ps 29,664 Ps 26,101 Ps 26,345 Ps 32,913 Ps 4,684 Ps 4,673 Ps 114,496 Ps 115,001 Ps 1,136 Ps 1,189 Ps 115,632 Ps 116,190Domestic sales 24,197 24,338 23,870 21,841 2,165 2,078 4,159 4,013 54,391 52,270 817 877 55,208 53,147Exports and foreign subsidiaries’ sales 29,606 26,976 5,794 4,260 24,180 30,835 525 660 60,105 62,731 319 312 60,424 63,043- United States 17,624 15,672 2,716 1,894 9,503 12,228 521 642 30,364 30,436 (80) 30,364 30,356- Canada 173 167 1,581 3,421 1 13 1,755 3,601 201 207 1,956 3,808- Central and South America 8,519 9,355 3,078 2,366 2,577 2,809 2 2 14,176 14,532 5 10 14,181 14,542- Europe 1,495 708 10,288 12,377 1 2 11,784 13,087 76 113 11,860 13,200- Other countries 1,795 1,074 231 1 2,026 1,075 37 62 2,063 1,137Operating income 4,202 1,985 2,729 2,045 1,541 1,733 568 575 9,040 6,338 (278) (497) 8,762 5,841Comprehensive financing expense, net (1,836) (3,817) (813) (2,825) (2,722) (6,459) (222) (942) (5,593) (14,043) 1,156 (4,320) (4,437) (18,363)Income tax (908) 705 (610) 194 (59) 694 10 33 (1,567) 1,626 663 1,812 (904) 3,438Net income (loss) 1,858 (1,284) 1,132 (858) (2,527) (4,134) 321 (378) 784 (6,654) 1,492 (3,289) 2,276 (9,943)

Financial positionCurrent assets Ps 19,495 Ps 16,502 Ps 6,579 Ps 7,937 Ps 11,086 Ps 15,304 Ps 1,287 Ps 908 Ps 38,447 Ps 40,651 Ps 2,827 Ps 2,752 Ps 41,274 Ps 43,403Non-current assets 21,189 20,796 12,146 12,299 28,264 28,389 5,645 5,537 67,244 67,021 (430) 546 66,814 67,567Total assets Ps 40,684 Ps 37,298 Ps 18,725 Ps 20,236 Ps 39,350 Ps 43,693 Ps 6,932 Ps 6,445 Ps 105,691 Ps 107,672 Ps 2,397 Ps 3,298 Ps 108,088 Ps 110,970

Current liabilities Ps 11,793 Ps 14,666 Ps 3,669 Ps 7,302 Ps 9,366 Ps 11,563 Ps 1,501 Ps 1,539 Ps 26,329 Ps 35,070 Ps 49 Ps 3,676 Ps 26,378 Ps 38,746Non-current liabilities 14,452 11,931 8,696 6,870 18,641 18,390 3,127 2,710 44,916 39,901 435 (2,395) 45,351 37,506Total liabilities Ps 26,245 Ps 26,597 Ps 12,365 Ps 14,172 Ps 28,007 Ps 29,953 Ps 4,628 Ps 4,249 Ps 71,245 Ps 74,971 Ps 484 Ps 1,281 Ps 71,729 Ps 76,252

Cash flowIncome (loss) before tax Ps 2,767 Ps (1,989) Ps 1,742 Ps (1,052) Ps (2,468) Ps (4,828) Ps 311 Ps (411) Ps 2,352 Ps (8,280) Ps 828 Ps (5,101) Ps 3,180 Ps (13,381)Depreciation and amortization 1,612 1,224 976 828 1,967 1,710 849 757 5,404 4,519 114 118 5,518 4,637Deferred income tax 284 (797) (42) (703) (208) (1,277) (98) (80) (64) (2,857) 698 (763) 634 (3,620)Other items not affecting cash 1,020 4,473 931 3,633 3,736 7,742 313 1,054 6,000 16,902 (1,383) 5,040 4,617 21,942Changes in working capital 483 (1,350) (757) (634) (691) (337) 338 4 (627) (2,317) 720 1,220 93 (1,097)Cash provided by operations 6,166 1,561 2,850 2,072 2,336 3,010 1,713 1,324 13,065 7,967 977 514 14,042 8,481Investment in property, plant and equipment (879) (1,357) (742) (1,081) (1,023) (1,956) (981) (809) (3,625) (5,203) (22) (70) (3,647) (5,273)Other investments (1,849) (1,268) (334) (2,608) (3,289) 156 15 168 (5,457) (3,552) 1,492 (3,669) (3,965) (7,221)Financing, net (2,229) 688 (3,082) 3,197 (177) 59 (360) (768) (5,848) 3,176 (1,202) 4,687 (7,050) 7,863Changes in cash and temporary investments Ps 1,209 Ps (376) Ps (1,308) Ps 1,580 Ps (2,153) Ps 1,269 Ps 387 Ps (85) Ps (1,865) Ps 2,388 Ps 1,245 Ps 1,462 Ps (620) Ps 3,850

Other dataExports and sales of foreign subsidiaries (Millions of US dollars) US$ 2,184 US$ 2,475 US$ 426 US$ 383 US$ 1,789 US$ 2,838 US$ 39 US$ 60 US$ 4,438 US$ 5,756 US$ 24 US$ 29 US$ 4,462 US$ 5,785Personnel 4,050 4,087 28,227 27,577 13,808 14,265 1,698 1,766 47,783 47,695 4,601 3,227 52,384 50,922

69


Other companies Alpek Sigma Nemak Alestra Segment subtotal and eliminations Consolidated

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

IncomeNet sales Ps 53,803 Ps 51,314 Ps 29,664 Ps 26,101 Ps 26,345 Ps 32,913 Ps 4,684 Ps 4,673 Ps 114,496 Ps 115,001 Ps 1,136 Ps 1,189 Ps 115,632 Ps 116,190Domestic sales 24,197 24,338 23,870 21,841 2,165 2,078 4,159 4,013 54,391 52,270 817 877 55,208 53,147Exports and foreign subsidiaries’ sales 29,606 26,976 5,794 4,260 24,180 30,835 525 660 60,105 62,731 319 312 60,424 63,043- United States 17,624 15,672 2,716 1,894 9,503 12,228 521 642 30,364 30,436 (80) 30,364 30,356- Canada 173 167 1,581 3,421 1 13 1,755 3,601 201 207 1,956 3,808- Central and South America 8,519 9,355 3,078 2,366 2,577 2,809 2 2 14,176 14,532 5 10 14,181 14,542- Europe 1,495 708 10,288 12,377 1 2 11,784 13,087 76 113 11,860 13,200- Other countries 1,795 1,074 231 1 2,026 1,075 37 62 2,063 1,137Operating income 4,202 1,985 2,729 2,045 1,541 1,733 568 575 9,040 6,338 (278) (497) 8,762 5,841Comprehensive financing expense, net (1,836) (3,817) (813) (2,825) (2,722) (6,459) (222) (942) (5,593) (14,043) 1,156 (4,320) (4,437) (18,363)Income tax (908) 705 (610) 194 (59) 694 10 33 (1,567) 1,626 663 1,812 (904) 3,438Net income (loss) 1,858 (1,284) 1,132 (858) (2,527) (4,134) 321 (378) 784 (6,654) 1,492 (3,289) 2,276 (9,943)

Financial positionCurrent assets Ps 19,495 Ps 16,502 Ps 6,579 Ps 7,937 Ps 11,086 Ps 15,304 Ps 1,287 Ps 908 Ps 38,447 Ps 40,651 Ps 2,827 Ps 2,752 Ps 41,274 Ps 43,403Non-current assets 21,189 20,796 12,146 12,299 28,264 28,389 5,645 5,537 67,244 67,021 (430) 546 66,814 67,567Total assets Ps 40,684 Ps 37,298 Ps 18,725 Ps 20,236 Ps 39,350 Ps 43,693 Ps 6,932 Ps 6,445 Ps 105,691 Ps 107,672 Ps 2,397 Ps 3,298 Ps 108,088 Ps 110,970

Current liabilities Ps 11,793 Ps 14,666 Ps 3,669 Ps 7,302 Ps 9,366 Ps 11,563 Ps 1,501 Ps 1,539 Ps 26,329 Ps 35,070 Ps 49 Ps 3,676 Ps 26,378 Ps 38,746Non-current liabilities 14,452 11,931 8,696 6,870 18,641 18,390 3,127 2,710 44,916 39,901 435 (2,395) 45,351 37,506Total liabilities Ps 26,245 Ps 26,597 Ps 12,365 Ps 14,172 Ps 28,007 Ps 29,953 Ps 4,628 Ps 4,249 Ps 71,245 Ps 74,971 Ps 484 Ps 1,281 Ps 71,729 Ps 76,252

Cash flowIncome (loss) before tax Ps 2,767 Ps (1,989) Ps 1,742 Ps (1,052) Ps (2,468) Ps (4,828) Ps 311 Ps (411) Ps 2,352 Ps (8,280) Ps 828 Ps (5,101) Ps 3,180 Ps (13,381)Depreciation and amortization 1,612 1,224 976 828 1,967 1,710 849 757 5,404 4,519 114 118 5,518 4,637Deferred income tax 284 (797) (42) (703) (208) (1,277) (98) (80) (64) (2,857) 698 (763) 634 (3,620)Other items not affecting cash 1,020 4,473 931 3,633 3,736 7,742 313 1,054 6,000 16,902 (1,383) 5,040 4,617 21,942Changes in working capital 483 (1,350) (757) (634) (691) (337) 338 4 (627) (2,317) 720 1,220 93 (1,097)Cash provided by operations 6,166 1,561 2,850 2,072 2,336 3,010 1,713 1,324 13,065 7,967 977 514 14,042 8,481Investment in property, plant and equipment (879) (1,357) (742) (1,081) (1,023) (1,956) (981) (809) (3,625) (5,203) (22) (70) (3,647) (5,273)Other investments (1,849) (1,268) (334) (2,608) (3,289) 156 15 168 (5,457) (3,552) 1,492 (3,669) (3,965) (7,221)Financing, net (2,229) 688 (3,082) 3,197 (177) 59 (360) (768) (5,848) 3,176 (1,202) 4,687 (7,050) 7,863Changes in cash and temporary investments Ps 1,209 Ps (376) Ps (1,308) Ps 1,580 Ps (2,153) Ps 1,269 Ps 387 Ps (85) Ps (1,865) Ps 2,388 Ps 1,245 Ps 1,462 Ps (620) Ps 3,850

Other dataExports and sales of foreign subsidiaries (Millions of US dollars) US$ 2,184 US$ 2,475 US$ 426 US$ 383 US$ 1,789 US$ 2,838 US$ 39 US$ 60 US$ 4,438 US$ 5,756 US$ 24 US$ 29 US$ 4,462 US$ 5,785Personnel 4,050 4,087 28,227 27,577 13,808 14,265 1,698 1,766 47,783 47,695 4,601 3,227 52,384 50,922

70


17. CONTINGENCIES AND COMMITMENTSAt December 31, 2009, the Company had the following contingencies:

a. In the normal course of operations the Company is involved in disputes and lawsuits. Although dispute outcome is uncertain, the Company believes there are no legal proceedings or threatened claims against or affecting the Company which, in the event of an adverse resolution, could significantly affect, individually or taken together the Company’s results of operations or financial position.

b. One of the subsidiaries has a dispute with Teléfonos de México, S.A.B. de C.V. (Telmex) in connection with interconnection service fees for the years 2009 and 2008, and the intervention of the Federal Telecommunications Commission (Cofetel) has been requested. On September 8, 2009, a trust was set up by the Company, Telmex and BBVA Bancomer (as trustee), to guarantee payment of these interconnection service fees. At December 31, 2009, the trust balance amounted to Ps318 and was included in the Company’s balance sheet as restricted cash. At the date of issuance of these financial statements, the Company’s management was still negotiating with Telmex; it is estimated that the Company will be able to reach an agreement in the future. Although the related outcome is uncertain, in the opinion of the Company’s management, no effect exceeding the estimates recognized is expected. Therefore, at the date of issuance of these financial statements, the Company believes that the provisions recognized are sufficient to cover contingencies.

At December 31, 2009, ALFA and its subsidiaries had the following significant commitments:

a. Various agreements entered into by the subsidiaries with suppliers and customers covering the acquisition of raw material used in the manufacturing process, as well as equipment and other capital expenses relating to the enlargement of the telephone network and the sale of finished goods, respectively. These agreements, with a term of between one and five years, stipulate certain restrictions and guarantees for the parties involved.

b. In September 2007 a subsidiary renewed a raw material supply agreement with PEMEX Refinación, ending in December 2018.

c. In connection with its expansion projects, a subsidiary entered into various agreements covering the acquisition of engineering licenses and design of production lines. These agreements stipulate certain confidentiality restrictions relative to the engineering used, as well as payment of royalties on a monthly basis determined in accordance with monthly production.

d. In February 2005 a subsidiary entered into a long-term royalty agreement covering the concession of a finished product. This agreement ends upon payment of a total accumulated amount of US$15.5 million.

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18. SUBSEQUENT EVENTIn January 2010, the Board of Directors agreed to submit for approval by the Ordinary General Stockholders’ Meeting to be held in March 2010, the following:

a) Authorization to pay an ordinary cash dividend of 11 U.S. dollar cents per share, plus an extraordinary dividend of 2 U.S. dollar cents per share, totaling 13 U.S. dollar cents for each outstanding share.

b) Cancellation of up to 20 million of the Company’s own shares derived from the cancellation of certain of its equity swap agreements. If so approved by the Stockholders’ Meeting, the number of outstanding shares will be reduced to 540 million. At January 27, 2010, date of issuance of these financial statements, ALFA had liquidated equity swap agreements covering 4.7 million of shares, through payment and release of restricted cash equivalent to US$26.7 million.

19. NEW FINANCIAL REPORTING STANDARDSIn 2009 the Mexican Financial Reporting Standards Board (CINIF) issued the following FRS and Interpretations (FRSI) effective January 1, 2010, excluding FRSI-18 which became effective on December 7, 2009, and FRS B-5 and B-9 which are effective from January 1, 2011 onwards. The Company’s management considers that these FRS and FRSI will have no significant effect on the financial information presented. Following are brief details of the new standards:

FRS B-5 “Financial information by segment”- It sets forth the general standards for disclosure of financial information by segments allowing the presentation of information by segment in a manner more consistent with the related financial statements; additionally, it also allows the user of such information to analyze the entity from a management approach. This standard will replace Statement B-5 “Financial information by segment”, in force until December 31, 2010.

FRS B-9 “Interim financial information”- It sets forth the standards for the determination and presentation of interim financial information for external purposes, which among other changes, require presentation of the statements of changes in stockholders’ equity and of cash flows; these statements were not required by Statement B-9 “Interim financial information”, in effect until December 31, 2010.

FRS C-1 “Cash and cash equivalents”- It stipulates the standards for the accounting treatment and disclosure of cash, restricted cash and investments available for sale; it also provides new terminology to make it consistent with other FRS previously issued. This FRS supersedes Statement C-1 “Cash”, in force until December 31, 2009.

FRSI 17 “Service concession arrangements”- It eliminates the inconsistency between FRS D-6 “Capitalization of comprehensive financing income (expense)” and Statement D-7 “Construction and manufacture of certain capital goods”, concerning the accounting treatment of comprehensive financing income (expense) applicable to service concession arrangements in the event of recognition of an intangible asset during the construction phase.

FRSI 18 “Recognition of the effects of the 2010 tax amendments on income tax”- It was issued in response to various doubts raised over the 2010 tax amendments, mainly in connection with the changes to tax consolidation requirements and income tax rates.


72


FINANCIAL SUMMARY FOR THE YEARS 2009 TO 2005

2009 and 2008 amounts expressed in millions of nominal Mexican pesos2005 to 2007 amounts expressed in millions of Mexican pesos of December 31, 2007 purchasing power(except per share data which are in pesos)

2009 2008 2007 2006 2005

RESULTSNet sales Ps 115,632 Ps 116,190 Ps 106,833 Ps 79,496 Ps 74,857

Operating income 8,762 5,841 6,456 6,117 7,074

Other expenses, net (1,145) (859) (664) (273) (238)Comprehensive financing (expense) income, net (4,437) (18,363) (1,338) 187 (600)Income tax (904) 3,438 (317) (131) (1,710)Income (loss) from continuing operations 2,276 (9,943) 4,137 5,900 4,526

Income from discontinued operations net of income tax 5,944Initial effect of a change in accounting principles 25Consolidated net income (loss) Ps 2,276 Ps (9,943) Ps 4,137 Ps 5,900 Ps 10,495

Net income (loss) corresponding to minority interest Ps 255 Ps (430) Ps 586 Ps 521 Ps 2,084

Net income (loss) corresponding to majority interest Ps 2,021 Ps (9,513) Ps 3,551 Ps 5,379 Ps 8,411

FINANCIAL POSITIONCurrent assets Ps 41,274 Ps 43,403 Ps 36,045 Ps 33,762 Ps 34,809Non-current assets 66,814 67,567 63,286 43,469 33,545Total assets Ps 108,088 Ps 110,970 Ps 99,331 Ps 77,231 Ps 68,354

Current liabilities Ps 26,116 Ps 38,746 Ps 24,017 Ps 14,477 Ps 12,531Long-term liabilities 45,613 37,506 32,020 23,805 20,728Total liabilities 71,729 76,252 56,037 38,282 33,259

Consolidated stockholders’ equity 36,359 34,718 43,294 38,949 35,095Total liabilities and stockholders’ equity Ps 108,088 Ps 110,970 Ps 99,331 Ps 77,231 Ps 68,354

Majority interest Ps 31,722 Ps 29,551 Ps 38,183 Ps 34,296 Ps 31,380

Investment in property, plant and equipment for the year Ps 3,647 Ps 4,116 Ps 6,372 Ps 6,919 Ps 3,360Depreciation and amortization for the year 5,565 4,637 4,300 2,751 2,611

73


2009 2008 2007 2006 2005

PER SHARE DATA

Net income (loss) from continuing operations Ps 3.61 Ps (16.99) Ps 6.34 Ps 9.43 Ps 6.70Net income from discontinued operations 7.74Initial effect of a change in accounting principles 0.04Net income (loss) Ps 3.61 Ps (16.99) Ps 6.34 Ps 9.43 Ps 14.48

Stockholders’ equity Ps 56.71 Ps 52.83 Ps 68.17 Ps 61.23 Ps 54.05

Dividends 1.16 1.13 2.34 0.99Price at year end (a) 83.42 29.55 70.80 74.17 63.80Price at year end / net income 23.09 (1.74) 11.04 8.16 4.57Price at year end / stockholders’ equity 1.47 0.56 1.03 1.26 1.22

Number of outstanding shares (b) 559,401,905 559,401,905 560,133,305 560,133,305 580,549,200

Weighted average number of outstanding shares (c) 559,401,905 559,955,990 560,133,305 570,555,789 580,549,200

OTHER INDICATORS

Total current ratio 1.56 1.16 1.58 2.33 2.78Total liabilities to total assets 0.66 0.69 0.56 0.50 0.49Total liabilities to total stockholders’ equity 1.97 2.20 1.29 0.98 0.95Consolidated net income to total average assets (%) 2.08 (9.46) 4.69 8.10 12.40Consolidated net income to average stockholders’ equity (%) 6.40 (25.49) 10.06 15.94 26.29Interest-bearing debt, net of cash to cash flow from continuing operations (d) 2.20 3.05 1.89 0.78 N/AInterest coverage from continuing operations (e) 3.87 4.37 5.66 38.86 9.98

(a) Market value on the basis of quotations in the Bolsa Mexicana de Valores, S.A.B. de C.V.(b) Equals number of outstanding shares at December 31 of each year.(c) Weighted average number of outstanding shares during the year.(d) Cash flow comprises: operating income plus depreciation and amortization.(e) Cash flow / financial expense, net.

74


SIGNIFICANT QUARTERLY INFORMATION

Amounts expressed in millions of nominal Mexican pesos(except per share data which are in pesos)

Quarters 2009 1st. 2nd. 3rd. 4th.

Net sales Ps 26,581 Ps 28,083 Ps 29,917 Ps 31,050

Operating income 1,706 2,299 2,379 2,378

Consolidated net income (loss) (1,553) 1,102 820 1,907

Net income (loss) corresponding to majority interest (1,391) 885 756 1,771

Income (loss) per share (1) (2.49) 1.58 1.35 3.17

Price per share:

Highest 33.45 39.88 67.91 83.48

Lowest 16.50 21.62 36.81 64.43

At closing 21.95 36.93 65.24 83.42

Book value per share (2) 50.31 50.72 58.54 56.71

NOTEThe quarterly information contained in this page was not audited in conformity with generally accepted standards.

(1) Based on the weighted average number of outstanding shares during each quarter of the year.

(2) Based on the number of outstanding shares at the end of each quarter.

75


Quarters 2008 1st. 2nd. 3rd. 4th.

Net sales Ps 29,710 Ps 30,234 Ps 29,125 Ps 27,121

Operating income 1,703 1,761 1,431 945

Consolidated net income (loss) 820 1,303 (1,828) (10,238)

Net income (loss) corresponding to majority interest 719 1,156 (1,768) (9,620)

Income (loss) per share (1) 1.28 2.07 (3.16) (17.20)

Price per share:

Highest 71.01 77.21 72.59 53.71

Lowest 59.11 72.17 48.37 24.30

At closing 71.01 73.73 49.18 29.55

Book value per share (2) 70.02 70.72 65.27 52.83

NOTEThe quarterly information contained in this page was not audited in conformity with generally accepted standards.

(1) Based on the weighted average number of outstanding shares during each quarter of the year.

(2) Based on the number of outstanding shares at the end of each quarter.


GLOSSARY

Caprolactam: Product derived from oil (cyclo-

hexane), used as raw material to produce nylon.

Carbon credits: International mechanism to re-

duce polluting emissions to the environment; it

is one of the three mechanisms proposed in the

Kyoto Protocol for the reduction of emissions that

cause global warming or greenhouse effect.

CO2: Carbon dioxide.

Connectivity: Capacity of telephone carriers

to give customers access to telecommunication

services.

Convergence: The conjunction of information

technologies that allow the reception of mes-

sages of voice, data and video in a simultaneous

form, through a unified infrastructure of services of

telecommunications.

Data transmission: The sending of data to other

locations using digital or analog media that oper-

ates on a common platform.

Expandable polystyrene: Thermoplastic used

for insulation and packaging. Abbreviated EPS.

Foreign sales: Comprises ALFA’s exports plus sales

of its foreign subsidiaries.

Independent Board Member: A Board mem-

ber who does not own company shares and is not

involved in the day-to-day management of the

company.

Independent Proprietary Board Member: A

Board member who owns company shares but is

not involved in the day-to-day management of

the company.

ISO 27001: Certification from the International

Standar Organization that evaluates information

security.

PET (Polyethylene Terephtalate): Plastic resin

mostly used to manufacture containers.

Polyester: Plastic resin used to manufacture tex-

tile fibers, films, and containers.

Polypropylene: Propylene byproduct used to

make plastics and fibers, among other products.

Abbreviated PP.

Polyurethane: Chemical compound derived

from oil, used to manufacture plastic foam.

PTA (Purified Terephtalic Acid): Raw material

used to manufacture polyester.

Related Proprietary Board Member: A Board

member who owns company shares and is in-

volved in the day-to-day management of the

company.

76

29

MexicanStockExchange

ALFA

Date listed

August 1978

Latibex(MadridStockExchange)

ALFAC/I-s/A

Date listed

December 2003

De

sign

: sig

ni.c

om

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

Ave.GómezMorín1111SurCol. CarrizalejoSan Pedro Garza García, N.L.C.P.66254,Mexico

www.alfa.com.mx

Independent Auditors


Investor Relations

Enrique Flores RodríguezCorporate CommunicationsPhone: +52 (81) 8748 1207Fax: +52 (81) 8748 [email protected]

Raúl González Casas


GilbertoGarcíaMartínez


30

www.al fa.com.mx

ALFA, S.A.B. de C.V.Ave. Gómez Morín 1111 Sur

Col. CarrizalejoSan Pedro Garza García, N.L.

C.P. 66254, Mexico

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