ANNUAL INTEGRATED REPORT 2021

ANNUAL INTEGRATED REPORT 2021 | AXTEL = the changes in the fair value of the hedging instrument with the changes in the fair value of the hypothetical derivative that would result in a perfect coverage of the covered item. According to the amount described and the way in which the derivative cash flows are exchanged, for this hedging strategy, the average hedge ratio is 51%, 73% and 93%, in 2021, 2020 and 2019, respectively. In this hedge relationship, the source of ineffectiveness is mainly credit risk. b. Forwards of accounting hedge with the objective of covering the exposure to the USD/MXN exchange rate variability. Because the Company has the Mexican peso (MXN) as the functional currency and maintains obligations in USD, it is exposed to foreign exchange risk. Therefore, in December 2019, it designated forward contracts as accounting hedges, where the hedged item is represented by obligations in USD and by the exchange fluctuation of the bond; the conditions of the derivative financial instruments and the considerations of their valuation as hedging instruments are mentioned below: Characteristics Currency Total notional 2019 USD US$15,900 19.6560 MXN/USD May 12, 2020 $(6,535) Average strike Maturity Forward's book value Change in the fair value of the forwards to measure ineffectiveness $(6,535) Reclassification from OCI to income $4,043 Balance recognized in OCI net of reclassifications $2,492 Ineffectiveness recognized in income Change in the fair value of the hedged item to measure $6,535 ineffectiveness Change in the fair value FDI vs 2018 $32,723 In measuring the effectiveness of these hedges, the Company determined that they are highly effective because the changes in the fair value and cash flows of each hedged item are offset within the range of effectiveness established by management. The prospective effectiveness test for the USD/MXN exchange rate ratio resulted in 100% for 2019, confirming that there is an economic relationship between the hedging instruments and the instruments hedged. In addition, both the credit profile of the Company and the counterparty are good and are not expected to change in the medium term; therefore, the credit risk component is not considered to dominate the hedging relationship. The method that was used to evaluate the effectiveness is through a qualitative evaluation comparing the critical terms between the hedging instrument and the hedged instrument. According to the notional amounts described and the way in which the flows of the derivatives are exchanged, the average hedging ratio for the USD/MXN exchange rate is 100% for 2019. If necessary, a rebalancing will be performed to maintain this relationship for the strategy. The source of ineffectiveness can be mainly caused by the difference in the settlement date of the hedging instruments and the hedged items, and that the budget becomes less than the hedging instruments. For the year ended December 31, 2019, no ineffectiveness was recognized in gain or loss. As of December 31, 2020, a gain of $63,990 was recognized in the consolidated statement of income for the settlement of said hedging instrument. 141 111

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