Prospects The following discussion is derived from our audited consolidated financial statements, which are presented elsewhere in this annual report. This discussion does not include all the information included in our financial statements. You should read our financial statements to gain a better understanding of our business and our historical results of operations. All the statements in this Item 5 are subject to and qualified by the information set forth under “Forward Looking Statements.” In evaluating this discussion, you should also consider the factors discussed in “Item 3—Risk Factors” and elsewhere in this annual report and other factors that could cause results to differ materially from those expressed in such forward-looking statements. Basis of Preparation - International Financial Reporting Standards (IFRS) We prepare our financial information in accordance with IFRS, as issued by the IASB. IFRS differs in certain significant respects from U.S. GAAP. Accordingly, Mexican financial statements and reported earnings are likely to differ from those of companies in other countries in this and other respects. We prepare our financial information in pesos. A. Operating Results Overview We are producers of SBQ, rebar and structural steel products. Accordingly, our net sales and profitability are highly dependent on market conditions in the steel industry, which is greatly influenced by general economic conditions in North America and globally. Demand, production levels and prices in certain segments and markets have fluctuated in recent years, and the extent, timing and sustainability of any recovery in pricing and demand levels remains uncertain. In 2025, net revenue from sales of SBQ products decreased by 12.48% compared to 2024. In 2024, the total decrease in net revenue from sales of SBQ products compared to 2023 was 36.10%. The decline in production volumes in 2025 and 2024 reflects continued contraction in the Mexican steel industry, combined with demand fluctuations across the automotive, construction, and manufacturing end-use sectors. According to data published by INEGI, the average monthly production value of Mexico’s iron and steel industry was Ps. 10,537 million in 2025, compared to Ps. 11,725 million in 2024 and Ps.20,290 million in 2023. As a result of the significant competition in the steel industry and the commodity-like nature of some of our products, we have limited pricing power over many of our products. The North American and global steel markets influence finished steel product prices. Nevertheless, many of our products are SBQ products for which competition is limited, and, therefore, these products tend to generate somewhat higher margins compared with our commercial steel products. We attempt to adjust the mix of our product output toward higher margin products to the extent that we are able to do so, and we also adjust our overall product levels based on the product demand. We focus on controlling our cost of sales as well as our selling, general and administrative expenses. Our cost of sales largely consists of the costs of acquiring the raw materials necessary to manufacture steel, primarily scrap metal and ferroalloys. Market supply and demand generally determine scrap prices, and, as a result, we have limited ability to influence their cost or the costs of other raw materials, including energy costs. There is a correlation between the prices of scrap and iron ore and finished product prices, although the degree and timing of this correlation vary from time to time, so we may not always be able to fully pass along scrap and other raw material price increases to our customers. Therefore, our ability to decrease our cost of sales as a percentage of net sales is largely dependent on increasing our productivity. Our ability to control selling, general and administrative expenses, which do not correlate to net sales as closely as cost of sales do, is a key element of our profitability. Although our revenues and costs fluctuate from quarter to quarter, we do not experience large fluctuations due to seasonality. 41 Sales Volume, Price and Cost Data, 2025 – 2023. Year ended December 31, 2025 2024 2023 Shipments (thousands of tons) 1,933 2,056 2,176 Guadalajara and Mexicali 407 399 419 Apizaco and Cholula 191 237 243 San Luis Potosí 470 486 541 Republic Steel facilities 1 3 83 Brazil 864 931 890 Net sales (Ps. millions) 30,291 33,658 41,139 Guadalajara and Mexicali 6,669 6,800 8,991 Apizaco and Cholula 4,552 5,306 5,723 San Luis Potosí 6,963 7,431 10,064 Republic Steel facilities 29 85 2,417 Brazil 12,078 14,036 13,944 Cost of sales (Ps. millions) 22,783 26,033 31,100 Guadalajara and Mexicali 4,758 4,816 6,091 Apizaco and Cholula 3,781 4,382 4,741 San Luis Potosí 5,663 5,970 7,105 Republic Steel facilities 116 213 3,399 Brazil 8,465 10,652 9,764 Average price per ton (Ps.) 15,673 16,370 18,909 Guadalajara and Mexicali 16,364 17,054 21,481 Apizaco and Cholula 23,866 22,430 23,524 San Luis Potosí 14,830 15,280 18,607 Republic Steel facilities 34,936 25,983 29,215 Brazil 13,978 15,073 15,664 Average cost per ton (Ps.) 11,786 12,662 14,292 Guadalajara and Mexicali 11,690 12,068 14,537 Apizaco and Cholula 19,796 18,489 19,510 San Luis Potosí 12,049 12,284 13,133 Republic Steel facilities 116,000 70,924 40,952 Brazil 9,797 11,441 10,971 42 Our results are affected by general global trends in the steel industry and by the economic conditions in the countries in which we operate and in other steel producing countries. Our results are also affected by the specific performance of the automotive, non-residential construction, industrial equipment, tooling equipment and other related industries. Our profitability is also impacted by events that affect the price and availability of raw materials and energy inputs needed for our operations. The factors and trends discussed below also affect our results and profitability. Our results are affected by economic activity, steel consumption and end-market demand for steel products. Our results of operations depend largely on macroeconomic conditions in North and South America. Historically, there has been a strong correlation between the annual rate of steel consumption and the annual change in GDP in the Mexican, Brazilian and United States of America markets. We sell our steel products to the automotive, construction, manufacturing, and other related industries. These industries are generally cyclical, and their demand for steel is impacted by the stage of their industry market cycles and the country’s economic performance. Mexico’s GDP in 2025 increased by 0.6% (according to final figures of the INEGI) and in 2024 increased by 1.2%. The U.S. GDP increased 2.1% in 2025 (according to final figures of the U.S. Department of Commerce) and increased 2.8% in 2024. In 2025, Brazil’s GDP growth was expected to slow to 2.3%, down from 3.4% in 2024 according to figures of the Brazilian Institute of Geography and Statistics. Deterioration in economic conditions in the countries in which we operate is likely to adversely affect our results of operation. Our results are affected by international steel prices and trends in the global steel industry. Steel prices are generally set by reference to world steel prices, which are determined by global supply and demand trends. Our average steel price decreased approximately 4% in 2025 compared to 2024. Our average steel price decreased approximately 13% in 2024 compared to 2023. During the last two decades the steel industry has been consolidating. Consolidation has enabled steel companies to lower their production costs and allowed for more stringent supply-side discipline, including through selective capacity closures or idling. Consolidation may result in increased competition and could adversely affect our results. Our results are affected by competition from imports. Our ability to sell our products is influenced, to a certain degree, by global trade for steel products, particularly trends in imports of steel products into the Mexican, Brazilian and U.S. markets. During 2025, the Mexican government, at the request of CANACERO, implemented several measures to prevent unfair trade practices such as dumping in the steel import market. These measures include initiating anti-dumping and countervailing duty proceedings, temporarily increasing import tariffs for countries with which Mexico does not have free trade agreements. In 2025, imports to Mexico in tons decreased 15.8% compared to 2024 according to information of CANACERO. In 2024, imports to Mexico in tons decreased 0.3% compared to 2023 according to information of CANACERO. Foreign producers typically have lower labor costs, and in some cases are owned, controlled or subsidized by their governments, allowing production and pricing decisions to be influenced by political and economic policy considerations as well as prevailing market conditions. 43 Our results are affected by the cost of raw materials and energy. We purchase substantial quantities of raw materials, including scrap metal, and ferroalloys for use in the production of our steel products. The availability and price of these inputs vary according to general market and economic conditions and thus are influenced by industry cycles. For example, prices of scrap metal decreased 14% in 2025, decreased by 13% in 2024 and decreased by 9% in 2023; and prices of ferroalloys decreased approximately 5% in 2025, decreased approximately 22% in 2024 and decreased approximately 22% in 2023. In addition to raw materials, electricity and natural gas are both relevant components of our cost structure. We purchase electricity and natural gas at prevailing market prices in Mexico and Brazil. These prices are impacted by general demand and supply for energy in Brazil and Mexico as economic activity fueled energy demand and the supply and price of oil was impacted by geopolitical events. Natural gas and electricity prices in Brazil and Mexico have remained highly volatile. Prices for electricity decreased 7.25% in 2025, decreased 0.05% in 2024, and increased 5.3% in 2023; and prices for natural gas increased 63.5% in 2025, decreased 22.8% in 2024 and increased 56.2% in 2023. If inflation rates in Mexico and Brazil rise significantly, our costs may increase and the demand for our services may decrease. Mexico and Brazil has historically experienced high annual rates of inflation. Mexico’s inflation, as measured by changes in the Mexican national consumer price index (Índice Nacional de Precios al Consumidor) published by the INEGI was 3.6% in 2025, 4.2% in 2024 and 4.6% in 2023, inflation in Brazil is officially published by the IBGE (Instituto Brasileño de Geografia y Estadistica). The IBGE is the government agency responsible for calculating and publishing the IPCA (Broad Consumer Price Index) monthly, which is the official inflation indicator used by the Brazilian government, was 3.9% in 2025, 4.8% in 2024 and 3.7% in 2023. High inflation rates could adversely affect our business and results of operations by increasing certain costs, such as the labor costs of our Mexican facilities, beyond levels that we could pass on to our customers and reducing consumer purchasing power, thereby adversely affecting demand for our products. Depreciation of the Mexican peso relative to the U.S. dollar, as well as the reinstatement of exchange controls and restrictions, could adversely affect our financial performance. Depreciation of the Mexican peso relative to the U.S. dollar may negatively affect our results of operations. According to the Mexican Central Bank (Banco de México), the appreciation of the Mexican peso relative to the U.S. dollar in 2025 was 12.47%. The exchange rate at December 31, 2025 was 17.9528 compared to 20.5103 at December 31, 2024. The exchange rate at December 31, 2023 was 16.8935. The exchange rate of the peso against the dollar as of April 30, 2026, was 17.4948 pesos per dollar. A severe depreciation of the Mexican peso may also result in disruption of the international foreign exchange markets and may limit our ability to convert Mexican pesos into U.S. dollars and other currencies. While the Mexican government does not currently restrict, and has not recently restricted the right or ability of Mexican or foreign persons or entities to convert Mexican pesos into U.S. dollars or to transfer other currencies out of Mexico, it has done so in the past and could reinstate exchange controls and restrictions in the future. Currency fluctuations or restrictions on the transfer of foreign currency outside of Mexico may have an adverse effect on our financial performance. We do not utilize derivative financial instruments to manage our market risks with respect to foreign currency. Segment Information We are required to disclose segment information in accordance with IFRS 8 “Operating Segments”: Information which establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. The statement also establishes standards for related disclosures about a company’s products and services, geographical areas and major customers. 44 We conduct business in three principal business segments which are organized on a geographical basis: ● our Mexican segment represents the results of our operations in Mexico, including our plants in Mexicali, Guadalajara, Tlaxcala and San Luis Potosí; ● our U.S. segment historically represented the results of operations of Republic, including its plants located in the United States and Canada. Following the cessation of our U.S. operations in 2023, the segment no longer includes production activity but continues to be reported separately due to ongoing expenses associated with the former U.S. operations. As such, the U.S. segment is not currently active but remains distinct from our other segments. This treatment may be revised in the future; and ● our Brazil segment represents the results of our operations in four plants located in Brazil, one of which started operations in June 2015 and two of which started to consolidate operations in May 2018; the fourth facility started rolling operations in late 2025. The following information shows other results by segment For the year ended December 31, 2025 Mexico United States Brazil Operations between Segments Total (in thousands of pesos) Net sales $ 18,184,778 28,997 12,077,629 30,291,404 Cost of sales (14,201,867 ) (116,098 ) (8,465,386 ) (22,783,351 ) Gross profit (loss) 3,982,911 (87,101 ) 3,612,243 7,508,053 Operating expenses (1,223,934 ) (419,665 ) (1,185,853 ) (2,829,452 ) Other (expense) income, net (6,595 ) 295,135 237,948 526,488 Interest income 1,202,487 0 16,766 1,219,253 Interest expense 981 (6,011 ) (105,813 ) (110,843 ) Exchange gain (loss), net (3,573,739 ) (32,762 ) 139,165 (139,165 ) (3,606,501 ) Income (loss) before income tax 382,111 (250,404 ) 2,714,456 (139,165 ) 2,706,998 Income tax 899,435 (40,188 ) 352,587 1,211,834 Net (loss) income $ (517,324 ) (210,216 ) 2,361,869 (139,165 ) 1,495,164 Other Data Mexico United States Brazil Operations between Segments Total Depreciation and amortization 573,416 188,838 320,013 1,082,267 Total assets 51,752,152 5,773,480 17,907,272 (4,154,012 ) 71,278,892 Total liabilities 7,113,318 2,873,062 6,212,674 (4,154,012 ) 12,045,042 Additions of property, plant and equipment, net 838,066 - 2,053,462 2,891,528 For the year ended December 31, 2024 Mexico United States Brazil Operations between Segments Total (in thousands of pesos) Net sales $ 19,529,921 $ 92,215 $ 14,035,536 $ 33,657,672 Cost of sales (15,168,258 ) (212,771 ) (10,651,722 ) (26,032,751 ) Gross profit (loss) 4,361,663 (120,556 ) 3,383,814 7,624,921 Operating expenses (996,915 ) (477,245 ) (1,128,351 ) (2,602,511 ) Other (expense) income, net 329,915 (750,518 ) 699,286 278,683 Interest income 1,686,870 0 0 1,686,870 Interest expense 1,972 (5,705 ) (422,358 ) 422,358 (3,733 ) Exchange gain (loss), net 5,557,126 (737 ) 227,122 (227,122 ) 5,556,389 Income (loss) before income tax 10,940,631 (1,354,761 ) 2,759,513 195,236 12,540,619 Income tax 1,135,674 (81,401 ) 1,005,850 2,060,123 Net (loss) income $ 9,804,957 (1,273,360 ) $ 1,753,663 $ 195,236 $ 10,480,496 45 Other Data Mexico United States Brazil Operations between Segments Total Depreciation and amortization $ 623,556 $ 179,732 $ 263,094 $ 1,066,382 Total assets 50,325,892 9,708,618 17,699,144 (4,435,253 ) 73,298,401 Total liabilities 4,192,751 6,168,335 8,130,556 (4,435,253 ) 14,056,389 Additions of property, plant and equipment, net 194,940 (695 ) 1,932,717 — 2,126,962 For the year ended December 31, 2023 Mexico United States Brazil Operations between Segments Total in thousands of pesos) Net sales 24,777,369 2,417,219 13,944,660 — 41,139,248 Cost of sales (17,937.267 ) (3,398,928 ) (9,763,911 ) — (31,100,106 ) Gross profit (loss) 6,840,102 (981,709 ) 4,180,749 — 10,039,142 Operating expenses (970,482 ) (291,552 ) (1,055,024 ) (2,317,058 ) Other (expense) income, net 16,319 (309,117 ) 173,252 (119,546 Interest income 931,866 82,224 — (82,224 ) 931,866 Interest expense (89,293 ) (146,592 ) (122,921 ) 269,513 (89,293 ) Exchange gain (loss), net (2,430,781 ) (219 ) (181,424 ) 181,424 (2,431,000 ) Income (loss) before income tax 4,297,731 (1,646,965 ) 2,994,632 368,713 6,014,111 Income tax 1,234,278 (144,630 ) 650,350 — 1,739,998 Net (loss) income 3,063,453 (1,502,335 ) 2,344,282 368,713 4,274,113 Other Data Mexico United States Brazil Operations between Segments Total Depreciation and amortization 618,445 155,794 261,005 — 1,035,244 Total assets 43,890,081 9,069,596 18,203,408 (4,375,473 ) 66,787,612 Total liabilities 6,912,766 4,602,653 9,842,201 (4,375,473 ) 16,982,147 Additions of property, plant and equipment, net 210,422 (350,360 ) 2,632,611 — 2,492,673 GOODWILL AND INTANGIBLE ASSETS BY REPORTABLE SEGMENT (in thousands of pesos) The balances as of December 31, 2025, 2024 and 2023 are as follows: 2025 Amortization Assets Original Value Accumulated amortization Net period (years) Republic trade mark $ 96,700 $ $ 96,700 * Customers list 77,852 77,852 0 20 Total from Republic (1) 174,552 77,852 96,700 Customers list 2,205,700 2,205,700 0 9 San 42 trademark (2) 329,600 329,600 * Goodwill (2) 1,814,160 1,814,160 * Total from Grupo San (3) 4,349,460 2,205,700 2,143,760 4,524,012 2,283,552 2,240,460 Other assets 20,486 20,486 $ 4,544,498 $ 2,283,552 $ 2,260,946 46 2024 Amortization Assets Original Value Accumulated Amortization Net period (years) Republic trade mark $ 110,476 $ $ 110,476 * Customers list 67,442 67,442 0 20 Total from Republic (1) 177,918 67,442 110,476 Customers list 2,205,700 2,205,700 0 9 San 42 trademark (2) 329,600 329,600 * Goodwill (2) 1,814,160 1,814,160 * Total from Grupo San (3) 4,349,460 2,205,700 2,143,760 4,527,378 2,273,142 2,254,236 Other assets 8,369 8,369 $ 4,535,747 $ 2,273,142 $ 2,262,605 2023 Amortization Assets Original Value Accumulated Amortization Net period (years) Republic trade mark $ 90,995 $ $ 90,995 * Customers list 55,549 55,549 0 20 Total from Republic (1) 146,544 55,549 90,995 Customers list 2,205,700 2,205,700 0 9 San 42 trademark (2) 329,600 329,600 * Goodwill (2) 1,814,160 1,814,160 * Total from Grupo San (3) 4,349,460 2,205,700 2,143,760 4,496,004 2,261,249 2,234,755 Other assets 63,326 0 63,326 $ 4,559,330 $ 2,261,249 $ 2,298,081 * Intangible assets with undefined useful life. (1) Intangible assets from the Republic acquisition. (2) The San 42 trademark and the goodwill are presented net of impairment losses recorded in 2009 for $16,000 and $2,352,000, respectively. (3) Intangible assets from the Grupo San acquisition. The amortization of these assets recorded in net income for the years ended December 31, 2025, 2024 and 2023, amounted to $10,410 $ 11,893 and 7,344 respectively. The other assets are not subject to amortization and they are primarily comprised of guarantee deposits. The reconciliation between the opening and closing balances of each year is presented below: Assets Original Value Accumulated amortization Net Balance as of December 31, 2023 $ 4,559,330 $ (2,261,249 ) $ 2,298,081 Additions 11,893 (11,893 ) 0 Cancellations (35,476 ) (35,476 ) Balance as of December 31, 2024 $ 4,535,747 $ (2,273,142 ) $ 2,262,605 Additions 10,410 (10,410 ) 0 Cancellations (1,659 ) (1,659 ) Balance as of December 31, 2025 $ 4,544,498 $ (2,283,552 ) $ 2,260,946 47 Our net sales by product during the years ended December 31 2025, 2024 and 2023 were as follows: SALES BY PRODUCT (in thousands of pesos) 2025 2024 2023 Light structural 1,687,324 2,021,991 2,182,665 Structural 4,191,561 4,076,639 4,983,426 Bars 2,599,381 2,940,989 3,265,897 Rebar 14,094,801 15,192,976 18,192,586 Flat bar 2,002,385 3,039,653 3,023,550 Hot rolled bars 2,406,171 2,509,482 4,743,970 Cold drawn bars 1,702,133 1,640,589 2,105,625 Other 1,607,648 2,235,353 2,641,529 Total 30,291,404 33,657,672 41,139,248 Our net sales by country or region during 2025, 2024 and 2023 are as follows: SALES BY COUNTRY OR REGION (in thousands of pesos) 2025 2024 2023 Mexico 17,056,774 18,269,580 24,324,934 United States 1,150,048 1,393,853 2,824,476 Brazil 12,058,482 13,959,317 13,884,152 Canada 671 0 0 Argentina 14,737 0 13,432 Bolivia 4,993 20,731 35,210 Guatemala 4,541 899 6,187 Paraguay 1,158 1,923 34,843 Jamaica 0 470 0 Belgium 0 10,776 16,014 Germany 0 123 0 Total 30,291,404 33,657,672 41,139,248 Consolidated Statements of Comprehensive Income Comparison for the Years Ended December 31, 2025 and 2024 Net sales Net sales decreased by 10%, to Ps. 30,291 million in 2025, compared to Ps. 33,658 million in 2024. This decrease was mainly attributable to a 4% decline in the average price per ton of steel products, as well as lower volume sales in 2025 compared to 2024. Total sales outside Mexico decreased by 14%, to Ps. 13,234 million in 2025, compared with Ps. 15,388 million in 2024. Total sales in Mexico decreased 7%, from Ps. 18,270 million in 2024 to Ps. 17,057 million in 2025. Shipments of finished steel products decreased 6% to 1.933 million tons in 2025, compared with 2.056 million tons in 2024. Total sales volume of finished steel products outside Mexico decreased 8% to 0.914 million tons in 2025, compared with 0.993 million tons in 2024, while total sales volume in Mexico decreased 4% to 1.019 million tons in 2025, compared with 1.063 million tons in 2024. Cost of sales Cost of sales decreased 12%, from Ps. 26,033 million in 2024 to Ps. 22,783 million in 2025, primarily due to lower volume of steel tons sold. Cost of sales as a percentage of net sales was 75% in 2025 and 77% in 2024. Hourly wages at our Mexican operations were approximately U.S.$ 3.0 per hour (Ps. 54) in 2025 and U.S.$2.78 per hour (Ps. 57) in 2024. 48 Gross profit Gross profit was Ps. 7,508 million in 2025, compared to Ps. 7,625 million in 2024. The decrease in gross profit was primarily attributable to a reduction of 6% tons in finished steel product shipments and a 4% decline in the average selling price of steel products. Gross Profit as a percentage of net sales represented 25% in 2025 and 23% in 2024. Operating expenses Selling administrative and general expenses (including depreciation and amortization) increased by 9%, to Ps. 2,829 million in 2025, compared with Ps. 2,603 million in 2024. This increase was primarily attributable to higher depreciation charges in Brazil due to the ongoing capital investment program, partially offset by lower wind-down expenses at Republic Steel. Operating expenses as a percentage of net sales were 9% and 8% in 2025 and 2024, respectively. Other expenses (income), net We recorded other income, net, of Ps. 526 million in 2025, compared to other income, net, of Ps. 279 million in 2024. Other income, net in 2025 primarily reflected gains on sales of fixed assets at Republic Steel (Ps. 213 million), revenues from sales of electric energy in Brazil (Ps. 229 million) and recoveries of tax benefits (Ps. 100 million). Other income, net in 2024 primarily reflected the reversal of tax provisions. Interest income We recognized interest income of Ps. 1,219 million in 2025, compared with Ps. 1,687 million in 2024. The decrease in interest income was primarily attributable to lower interest rates. Interest expense We recognized interest expense of Ps. 111 million in 2025, compared with Ps. 4 million in 2024. The increase was primarily attributable to fees in letters of credit and other financing arrangements. Foreign exchange loss (gain) Foreign exchange gains and losses arise from monetary items denominated in currencies other than the functional currency of our subsidiaries. At each reporting date, monetary assets and liabilities denominated in foreign currency are converted to the closing exchange rate, with resulting differences recognized in profit or loss. The Company maintains a net monetary asset position in U.S. dollars; accordingly, a depreciation of the Mexican peso against the U.S. dollar generates a foreign exchange gain, while an appreciation of the peso generates a foreign exchange loss. As published by Banco de México, the peso/dollar exchange rate was Ps. 17.95 at December 31, 2025, compared to Ps. 20.51 at December 31, 2024 and Ps. 16.89 at December 31, 2023. We recognized a foreign exchange loss of Ps. 3,607 million in 2025, compared to a foreign exchange gain of Ps. 5,556 million in 2024. The change was primarily attributable to a 14% appreciation of the Mexican peso against the U.S. dollar in 2025. 49 Income tax In 2025, we recognized an income tax provision of Ps. 1,212 million, which included a current income tax provision of Ps. 1,265 million, and income of deferred tax of Ps. 53 million. In 2024, we recognized an income tax provision of Ps. 2,060 million, which included a current income tax provision of Ps. 2,353 million, and income of deferred tax of Ps. 293 million. Effective income tax rates for 2025 and 2024 were 44% and 16%, respectively, compared to 28% in 2023. The increase in the effective tax rate in 2025 relative to 2024 was primarily due to the effect of the appreciation of the Mexican peso against the U.S. dollar on the Company’s Mexican dollar-denominated investments and intercompany positions. Under Mexican tax law, certain foreign currency conversion effects do not have tax consequences, which increased the effective rate. The 2025 rate is not necessarily indicative of future effective tax rates, as it was significantly influenced by the magnitude of the Mexican peso appreciation during the period. Net income (loss) We reported net income of Ps. 1,495 million in 2025, compared to net income of Ps. 10,480 million in 2024. Net income for 2025, as compared to 2024, was primarily attributable to (i) a 4% decrease in the average selling price of steel products sold, (ii) a foreign exchange loss of Ps. 3,607 million in 2025, compared to a foreign exchange gain of Ps. 5,556 million in 2024, and (iii) a 6% decrease in tons of steel products shipped. Mexico Segment Comparison of the years ended December 31, 2025 and 2024 Net sales Net sales decreased by 7% to Ps. 18,185 million in 2025, compared with Ps. 19,530 million in 2024. This decrease was primarily attributable to a 4% decline in the average selling price per ton of steel products in 2025 compared to 2024. Shipments of finished steel products decreased by 5% to 1.068 million tons in 2025, compared to 1,122 million tons in 2024, resulting from lower demand from the automotive sector. Cost of sales Cost of sales decreased by 6%, from Ps. 15,168 million in 2024 to Ps. 14,202 million in 2025. This decrease was primarily attributable to a 5% reduction in tons of steel products shipped. As a percentage of net sales, our cost of sales was 78% in 2025, compared to 78% in 2024. Gross profit Gross profit decreased by 9% to Ps. 3,983 million in 2025, compared to Ps. 4,362 million in 2024. This decrease was primarily attributable to (i) a 4% decline in the average selling price of steel products sold and (ii) a 5% decrease in tons of steel products shipped. As a percentage of net sales, our gross margin was 22% in 2025, the same as in 2024. Operating expenses Operating expenses (including depreciation and amortization) increased by 23% to Ps. 1,224 million in 2025, compared to Ps. 997 million in 2024. The increase was primarily attributable to administrative expenses and plant maintenance expenses. Operating expenses as a percentage of net sales were 7% in 2025, compared to 5% in 2024. Depreciation and amortization expenses amounted Ps. 573 million in 2025, compared to Ps. 624 million in 2024. 50 Other expenses (income), net We recorded other expenses, net, of Ps. 7 million in 2025, compared to other income, net, of Ps. 330 million in 2024. The variance was primarily due to the recovery of the allowance for doubtful accounts in 2024. Interest income We recognized interest income of Ps. 1,202 million in 2025, compared to Ps. 1,687 million in 2024. The decrease in interest income was primarily attributable to lower interest rates. Foreign exchange gain (loss) We recorded a foreign exchange loss of Ps. 3,574 million in 2025, compared to a foreign exchange income of Ps. 5,557 million in 2024. The change was primarily attributable to an appreciation of the Mexican peso against the U.S. dollar in 2025 of 14%. Income tax In 2025, we recognized an income tax provision of Ps. 899 million, which included current income tax expense of Ps. 982 million and income of deferred tax of Ps. 83 million. In 2024, we recognized an income tax provision of Ps. 1,136 million, which included current income tax expense of Ps. 1,240 million and income of deferred tax of Ps. 104 million. Under the Mexican Income Tax Law (Ley del Impuesto sobre la Renta), the statutory tax rate applicable for 2025 and subsequent years is 30%. Net income We reported net loss of Ps. 517 million in 2025, compared to net income of Ps. 9,805 million in 2024. This variation was primarily attributable to (i) a 4% decrease in the average selling price of steel products sold, (ii) a foreign exchange loss of Ps. 3,574 million in 2025, compared to a foreign exchange gain of Ps. 5,557 million in 2024, and (iii) a 5% decrease in tons of steel products shipped. U.S. Segment Comparison of the years ended December 31, 2025 and 2024 Net sales Net sales for the U.S. segment were Ps. 29 million in 2025, compared to Ps. 92 million in 2024. Republic Steel ceased all production activities in August 2023, and the U.S. segment has not been operational since then. The reduction is attributable to a cessation of operational activity. 51 Cost of sales Our cost of sales was Ps. 116 million in 2025, compared to Ps. 213 million in 2024. Gross loss The U.S. segment recorded a gross loss of Ps. 87 million in 2025, compared to a gross loss of Ps. 121 million in 2024. Operating expenses Our operating expenses were Ps. 420 million in 2025, compared to Ps. 477 million in 2024. The decrease was primarily attributable to lower legal and professional fees related to the wind-down / ongoing environmental compliance costs at idle facilities. Other expenses (income), net We recorded other income, net, of Ps. 295 million in 2025, compared to other expenses, net, of Ps. 751 million in 2024. Other income, net in 2025 primarily reflected gains on sales of fixed assets at Republic Steel (Ps. 213 million). The 2024 amount primarily reflected asset write-downs and clean-up costs related to the Republic Steel cessation of operational. Interest expense We recognized interest expense of Ps. 6 million in 2025, compared to Ps. 6 million in 2024. Foreign exchange gain (loss) We recorded a foreign exchange loss of Ps. 33 million in 2025, compared to a foreign exchange loss of Ps. 1 million in 2024. Income tax In 2025, we recognized an income of deferred tax of Ps. 40 million, compared to an income of deferred tax of Ps. 81 million in 2024. 52 Net loss The U.S. segment reported a net loss of Ps. 210 million in 2025, compared to a net loss of Ps. 1,273 million in 2024. The losses in both periods are attributable to the ongoing costs of maintaining idled facilities and completing the wind-down of Republic Steel operations, which ceased production in August 2023. Brazil Segment Comparison of the years ended December 31, 2025 and 2024 Net sales Net sales decreased 14% to Ps. 12,078 million in 2025, compared to Ps. 14,036 million in 2024. Shipments of finished steel products decreased to 864,000 tons in 2025, compared to 931,000 tons in 2024. Cost of sales Cost of sales decreased to Ps. 8,465 million in 2025, compared with Ps. 10,652 million in 2024. The average cost per ton of steel products sold decreased by 14% compared to 2024. Cost of sales as a percentage of net sales was 70% in 2025, compared to 76% in 2024. Gross profit Gross profit was Ps. 3,612 million in 2025, compared to Ps. 3,384 million in 2024. The increase was due to a better average cost, mainly due to lower scrap costs. As a percentage of net sales, our gross margin was 30% in 2025, compared to 24% in 2024. Operating expenses Selling, administrative and general expenses (including depreciation and amortization) were Ps. 1,186 million in 2025, compared to Ps. 1,128 million in 2024. Administrative expenses as a percentage of net sales were 10% in 2025 and 8% in 2024. Depreciation and amortization expenses amounted to Ps. 320 million in 2025, compared to Ps. 263 million in 2024. Other expenses, net We recorded other income, net, of Ps. 238 million in 2025, compared to other income, net, of Ps. 699 million in 2024. Other income, net in 2025 primarily reflected revenues from sales of electric energy in Brazil (Ps. 229 million). Interest expense We recognized interest expense of Ps. 106 million in 2025, compared to Ps. 422 million in 2024. The decrease was primarily attributable to the repayment of intercompany debt, which is eliminated in the consolidated financial statements. Foreign exchange gain (loss) We recorded a foreign exchange income of Ps. 139 million in 2025, compared to a foreign exchange income of Ps. 227 million in 2024. The change was primarily attributable to intercompany receivables, mainly with Republic Steel, as the Brazilian real appreciated by 11% against the U.S. dollar. 53 Income tax In 2025, we recognized an income tax provision of Ps. 353 million, compared to Ps. 1,006 million in 2024. The decrease was primarily attributable to lower income from decreased production volumes. Net income (loss) We reported net income of Ps. 2,362 million in 2025, compared to net income of Ps. 1,754 million in 2024. The increase was primarily attributable to lower cost of sales, lower interest expense, lower income taxes and operational efficiencies. Consolidated Statements of Comprehensive Income Comparison of the years ended December 31, 2024 and 2023 Net sales Net sales decreased 18% to Ps. 33,658 million in 2024, compared to Ps. 41,139 million in 2023. This decrease was primarily attributable to a 13% decline in the average sales price per ton of steel products and lower sales volumes in 2024 compared to 2023. Total sales outside Mexico decreased 8% to Ps. 15,388 million in 2024, compared to Ps. 16,814 million in 2023. Total sales in Mexico decreased 25% to Ps. 18,270 million in 2024, compared to Ps. 24,325 million in 2023. Shipments of finished steel products decreased 6% to 2.056 million tons in 2024, compared to 2.176 million tons in 2023. Total sales volume of finished steel products outside Mexico decreased less than 1% to 0.993 million tons in 2024, compared to 0.995 million tons in 2023, while total sales volume in Mexico decreased 10% to 1.063 million tons in 2024, compared to 1.181 million tons in 2023. Cost of sales Cost of sales decreased by 16%, from Ps. 31,100 million in 2023 to Ps. 26,033 million in 2024, primarily due to lower sales volumes (approximately 120 thousand fewer tons of steel sold). Cost of sales as a percentage of net sales was 77% in 2024, compared to 76% in 2023. Hourly wages in our Mexican operations were approximately U.S.$2.78 (Ps. 57) per hour in 2024 and U.S.$2.54 (Ps. 52) per hour in 2023. Gross profit Our gross profit was Ps. 7,625 million in 2024, compared to Ps. 10,039 million in 2023. The decrease in gross profit was primarily attributable to a reduction of approximately 120,000 tons of finished steel products shipped and a 13% decline in the average selling price of steel products sold. As a percentage of net sales, our gross margin was 23% in 2024 and 24% in 2023. Operating expenses Selling, administrative and general expenses (including depreciation and amortization) increased by 12% to Ps. 2,603 million in 2024, compared to Ps. 2,317 million in 2023. The increase was primarily attributable to higher expenses in the United States related to the closure of Republic Steel, increased expenses in Brazil due to higher production levels, and higher depreciation charges. Operating expenses as a percentage of net sales were 8% and 6% in 2024 and 2023, respectively. 54 Other expenses (income), net We recorded other income, net, of Ps. 279 million in 2024, compared to other expenses, net, of Ps. 119 million in 2023. The change was primarily attributable to gains recognized in connection with the resolution of certain operational and accounting matters. Interest income We recognized interest income of Ps. 1,686 million in 2024, compared to Ps. 982 million in 2023. Interest expense We recognized interest expense of Ps. 4 million in 2024, compared to interest income of Ps. 89 million in 2023. The variation was primarily attributable to a significant reduction in fees from letters of credit issued for Republic Steel. Foreign exchange gain (loss) We recorded a foreign exchange gain of Ps. 5,556 million in 2024, compared to a foreign exchange loss of Ps. 2,431 million in 2023. The difference was primarily attributable to a 21% depreciation of the Mexican peso against the U.S. dollar in 2024. Income tax In 2024, we recognized an income tax provision of Ps. 2,060 million, which included current income tax expense of Ps. 2,353 million, and income of deferred tax of Ps. 293 million. In 2023, we recognized an income tax provision of Ps. 1,740 million, which included current income tax expense of Ps. 1,695 million and expense of deferred tax of Ps. 45 million. Our effective income tax rates were 16% and 28% for 2024 and 2023, respectively. The decrease in the effective tax rate in 2024 was primarily due to the effect of the depreciation of the Mexican peso against the U.S. dollar on the Company’s U.S. dollar-denominated investments and intercompany positions. Under Mexican tax law, certain foreign currency conversion effects do not have tax consequences, which reduced the effective rate. The 2024 rate is not necessarily indicative of future effective tax rates, as it was significantly influenced by the magnitude of the peso’s depreciation during the period. Under the Mexican Income Tax Law (Ley del Impuesto sobre la Renta), the statutory income tax rate applicable for 2023, 2024 and subsequent years is 30.0%. Net income (loss) We reported net income of Ps. 10,480 million in 2024, compared to net income of Ps. 4,274 million in 2023. The increase in net income in 2024 compared to 2023 was primarily attributable to (i) a foreign exchange gain of Ps. 5,556 million in 2024, compared to a foreign exchange loss of Ps. 2,431 million in 2023, partially offset by (ii) an 13% decrease in the average sales price of steel products and (iii) a 6% decrease in tons of steel products shipped. 55 Mexico Segment Comparison of the years ended December 31, 2024 and 2023 Net sales Net sales decreased by 21% to Ps. 19,530 million in 2024, compared to Ps. 24,777 million in 2023. The decrease was primarily attributable to a 15% decline in the average selling price per ton of steel products in 2024 compared to 2023. Shipments of finished steel products decreased by 8% to 1.122 million tons in 2024, compared to 1.213 million tons in 2023, resulting from the contraction of the domestic market. Cost of sales Our cost of sales decreased by 15%, to Ps. 15,168 million in 2024 from Ps. 17,937 million in 2023. The decrease was primarily attributable to a 8% reduction in tons of steel products shipped. As a percentage of net sales, cost of sales was 78% in 2024, compared to 72% in 2023. Gross profit Gross profit decreased 36% to Ps. 4,362 million in 2024, compared to Ps. 6,840 million in 2023. The decrease was primarily attributable to a 15% decline in the average selling price of steel products and a 8% decrease in tons of steel products shipped. As a percentage of net sales, our gross margin was 22% in 2024, compared to 28% in 2023. Operating expenses Operating expenses (including depreciation and amortization) increased 3% to Ps. 997 million in 2024, compared to Ps. 970 million in 2023. The increase was primarily attributable to higher administrative and maintenance expenses. Operating expenses as a percentage of net sales were 5% in 2024 and 4% in 2023. Depreciation and amortization expenses were Ps. 624 million in 2024, compared to Ps. 618 million in 2023. Other expenses (income), net We recorded other income, net, of Ps. 330 million in 2024, compared to other income, net, of Ps. 16 million in 2023, which reflected expenses related to changes in the allowance for doubtful accounts. Interest income We recognized interest income of Ps. 1,687 million in 2024, compared to Ps. 932 million in 2023. The increase in interest income was primarily attributable to higher investments. Interest expense We recognized interest gain of Ps. 2 million in 2024, compared to Ps. 89 million interest expense in 2023. Foreign exchange gain (loss) We recorded a foreign exchange gain of Ps. 5,557 million in 2024, compared to a foreign exchange loss of Ps. 2,431 million in 2023. The gain was primarily attributable to a 21% depreciation of the Mexican peso against the U.S. dollar in 2024. 56 Income tax In 2024, we recognized an income tax provision of Ps. 1,136 million, which included current income tax expense of Ps. 1,240 million and income of deferred tax of Ps. 104 million. In 2023, we recognized an income tax provision of Ps. 1,234 million, which included current income tax expense of Ps. 1,045 million and expense of deferred tax of Ps. 189 million. Under the Mexican Income Tax Law (Ley del Impuesto sobre la Renta), the statutory tax rate applicable for 2024 and subsequent years is 30%. Net income We reported net income of Ps. 9,805 million in 2024, compared to net income of Ps. 3,063 million in 2023. The increase was primarily attributable to (i) a foreign exchange gain of Ps. 5,557 million in 2024, compared to a foreign exchange loss of Ps. 2,431 million in 2023, partially offset by (ii) a 15% decrease in the average selling price of steel products sold and (iii) a 8% decrease in tons of steel products shipped. U.S. Segment Comparison of the years ended December 31, 2024 and 2023 Net sales Net sales for the U.S. segment were Ps. 92 million in 2024, compared to Ps. 2,417 million in 2023. Republic Steel ceased all production activities in August 2023, and the U.S. segment has had no operational activity since then. The reduction is attributable to a cessation of operational activity. Cost of sales Cost of sales was Ps. 213 million in 2024, compared to Ps. 3,399 million in 2023. The decrease was primarily attributable to the continued reduction in wind-down related costs following cessation of operations activity in Republic Steel in August 2023. Gross loss The U.S. segment recorded a gross loss of Ps. 121 million in 2024, compared to a gross loss of Ps. 982 million in 2023. The ongoing losses reflect residual costs associated with the maintenance and wind-down of idled facilities. Operating expenses Operating expenses were Ps. 477 million in 2024, compared to Ps. 292 million in 2023. The increase was primarily attributable to higher legal and professional fees related to the wind-down / ongoing environmental compliance costs at idled facilities. Other expenses (income), net We recorded other expenses, net, of Ps. 751 million in 2024, compared to other expenses of Ps. 309 million in 2023. The 2024 amount primarily reflected asset write-downs and clean-up costs related to the Republic Steel cessation of operational activity. Interest income We recognized interest income of Ps. 0 million in 2024, compared to Ps. 82 million in 2023. 57 Interest expense We recognized interest expense of Ps. 6 million in 2024, compared to Ps.147 million in 2023. Foreign exchange gain (loss) We recorded a foreign exchange loss of Ps. 1 million in 2024, compared to a minimal foreign exchange loss Ps. 0 million in 2023. Income tax In 2024, we recognized an income of deferred tax of Ps. 81 million, compared to an income of deferred tax of Ps. 145 million in 2023. Net loss The U.S. segment reported a net loss of Ps. 1,273 million in 2024, compared to a net loss of Ps. 1,502 million in 2023. The losses in both periods are attributable to the ongoing costs of maintaining idled facilities and completing the wind-down of Republic Steel operations, which ceased production in August 2023. Brazil Segment Comparison of the years ended December 31, 2024 and 2023 Net sales Net sales increased 1% to Ps. 14,036 million in 2024, compared to Ps. 13,945 million in 2023. The increase was primarily attributable to higher shipments of finished steel products, which more than offset a 4% decrease in the average selling price. Shipments of finished steel products increased to 931,000 tons in 2024, compared to 890,000 tons in 2023. Cost of sales Cost of sales increased to Ps. 10,652 million in 2024, compared to Ps. 9,764 million in 2023. The average cost per ton of steel products sold increased by 4% compared to 2023. Cost of sales as a percentage of net sales was 76% in 2024, compared to 70% in 2023. Gross profit Gross profit was Ps. 3,384 million in 2024, compared to Ps. 4,181 million in 2023. The decrease was primarily attributable to a reduction in the average selling price of products shipped. As a percentage of net sales, our gross margin was 24% in 2024, compared to 30% in 2023. Operating expenses Operating expenses (including depreciation and amortization) were Ps. 1,128 million in 2024, compared to Ps. 1,055 million in 2023. Administrative expenses as a percentage of net sales were 8% in both 2024 and 2023. Higher administrative expenses, royalties and statutory charges increased overall administrative expenses. Depreciation and amortization expenses were Ps. 263 million in 2024, compared to Ps. 261 million in 2023. Other income, net We recorded other income net, of Ps. 699 million in 2024, compared to other income net, of Ps. 173 million in 2023. 58 Interest expense We recognized interest expense of Ps. 422 million in 2024, compared with Ps. 123 million in 2023. The increase was primarily attributable to interest of intercompany debt, which is eliminated in the consolidated financial statements. Foreign exchange gain (loss) We recorded a foreign exchange gain of Ps. 227 million in 2024, compared to a foreign exchange loss of Ps. 181 million in 2023, primarily attributable to intercompany receivables, which are eliminated in the Consolidated Financial Statements. Income tax In 2024, we recognized an income tax provision of Ps. 1,006 million, compared to Ps. 650 million in 2023. The increase was primarily attributable to changes in tax benefits. Net income (loss) We reported net income of Ps. 1,754 million in 2024, compared to net income of Ps. 2,344 million in 2023. The decrease was primarily attributable to the lower average selling price of steel products sold in 2024 compared to 2023. B. Liquidity and Capital Resources On December 31, 2025, our total consolidated debt was Ps. 5.4 million (U.S.$302 thousand) of 8 7/8% medium-term notes (“MTNs”) due 1998, which remained outstanding after we conducted exchange offers for the MTNs in October 1997 and August of 1998. We could not identify the holders of such MTNs at the time of the exchange offers and as a result such MTNs, which matured in 1998, have not been paid and remain outstanding. We depend heavily on cash generated from operations as our principal source of liquidity. Other sources of liquidity have included financing made available to us by our parent company Industrias CH (primarily in the form of equity or debt, substantially all of which was subsequently converted to equity), primarily for the purpose of repaying third party indebtedness, as well as limited amounts of vendor financing. As of December 31, 2025, we had cash and cash equivalents of Ps. 28,551 million and as of December 31, 2024 we had cash and cash equivalents of Ps. 29,158 million. We believe that this amount of cash generated from operations will be sufficient to satisfy our currently anticipated cash requirements, including our currently anticipated capital expenditures. Our principal use of cash has generally been to fund our operating activities, to acquire businesses and to fund our capital expenditure programs. The following is a summary of cash flows for the three years ended December 31, 2025, 2024 and 2023: Principal Cash Flows Years ended December 31, 2025 2024 2023 (millions of pesos) Funds provided by operating activities 523 5,548 4,263 Funds used in investing activities (887 ) (278 ) (1,283 ) Funds used in financing activities (227 ) (130 ) (243 ) 59 Our net funds provided by operations were Ps. 523 million in 2025 compared to Ps. 5,548 million in 2024. The decrease of Ps. 5,025 million in the net funds provided by operations between 2025 and 2024 was originated mainly from changes in operating income and working capital movements. We use our net funds in investing activities primarily for the acquisition of new facilities, property, plant and equipment and other non-current assets. Our net funds used in investing activities were Ps. 887 million in 2025 compared to Ps. 278 million in 2024. In 2025, the acquisition of property, plant and equipment equaled Ps. 2,892 million. Our net funds used for financing activities in 2025 were Ps. 227 million, compared to Ps. 130 million used for financing activities in 2024. In 2025, share buy-backs of Ps. 116 million, interest payments of Ps. 111 million. Our net funds provided by operations were Ps. 5,548 million in 2024 compared to Ps. 4,263 million of net funds provided by operations in 2023, an increment of Ps. 1,285 million in the net funds provided by operations. We use our net funds in investing activities primarily to the acquisition of new facilities, property, plant and equipment and other non-current assets. Our net funds used in investing activities were Ps. 278 million in 2024 compared to Ps. 1,283 million in 2023. In 2024 the acquisition of property, plant and equipment equaled Ps.2,127 million. Our net funds used for financing activities in 2024 were Ps. 130 million, compared to Ps. 243 million used for financing activities in 2023. In 2024, there was an increase of Ps. 126 million in the buy-back of our own shares, and we paid interest for Ps. 4 million. As of December 31, 2025, we have the following material commitments: Prior to ceasing operations in August 2023, Republic leased certain equipment, office space and computer equipment under non-cancellable operating contracts. All such leases have since expired, and as of December 31, 2025, Republic has no remaining lease obligations. Our Brazil plants’ electric energy purchase agreements have been made with different termination dates. As of June 30, 2023 with the supplier NEWCOM for R$9.48 million, another agreement was celebrated with ENEL for R$17.05 million, with termination date on December 31, 2023. With energy supplier NEWCOM, we have a purchase agreement for R$ 33.9 million with a termination date on December 31, 2023. With energy supplier AMERICA, we have a purchase agreement for R$16.5 million, with a termination date on December 31, 2024. With energy suppliers SQUADRA we have a purchase agreement for R$ 7.650 million with a termination date on December 31, 2024 and an agreement for R$ 7.680 million with a termination date on December 31, 2025. We have three purchase agreements with CESP/AUREN for R$ 4.336 million, R$ 4.021 million, and R$ 3.981 million, with termination dates on December 31, 2024, 2025, and 2026, respectively. Additionally, we have six contracts with ENEL TRADING BRASIL S.A., two per year, valued at R$ 101.4 million, R$ 90.0 million, and R$ 90.9 million, also terminating on December 31, 2024, 2025, and 2026, respectively. Finally, with AES, we have three contracts, one per year, valued at R$ 60.1 million, R$ 56.3 million, and R$ 59.9 million, with the same termination dates of December 31, 2024, 2025, and 2026, respectively. C. Research and Development, Patents and Licenses The San Luis Potosí facilities brands are registered with the Mexican Institute of Industrial Property (“IMPI”) for the trademarks “SAN” and “Aceros San Luis.” The trademark “Grupo Simec” is registered with the IMPI. On October 11, 2017, Simec International 6, S.A. de C.V., concluded the registration of the patent “Fabricación de Aceros de Mecanizado Fácil con Plomo en la Máquina de Colada Continua” (Manufacture of Easy Machining Steels with Lead in Continuous Casting Machine) in the IMPI. 60 D. Trend Information In the first quarter of 2026, net sales increased 3% as compared to the first quarter of 2025. Sales in tons of finished steel increase less than 1% in the first quarter of 2026 as compared to the first quarter of 2025. Prices of finished products sold in the first quarter of 2026 increased by 1% as compared to the first quarter of 2025. With the closure of our U.S. operations, we expect a positive impact on our overall financial performance. Historically, these operations have relied on subsidies from the Company, and their closure is anticipated to improve efficiency and reduce the financial burden on the Company and subsidiaries. E. Critical Accounting Estimates The discussion in this section is based upon our consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end, and the reported amount of revenues and expenses during the year. Management regularly evaluates these estimates, including those related to the carrying value of property, plant and equipment and other non-current assets, inventories and cost of sales, income taxes, foreign currency transactions and exchange differences, liabilities for deferred income taxes, valuation of financial instruments, obligations relating to employee benefits, potential tax deficiencies, environmental obligations, and potential litigation claims and settlements. Management estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Accordingly, actual results may differ materially from current expectations under different assumptions or conditions. Management believes that the critical accounting policies which require the most significant judgments and estimates used in the preparation of the consolidated financial statements relate to deferred income taxes, the impairment of property, plant and equipment, impairment of intangible assets, valuation allowance on accounts receivable and inventories obsolescence. We evaluate the recoverability of operating tax losses (NOL) carry forwards, and only for those who have probability of being recovered is determined a deferred tax asset. The final realization of deferred tax assets depends on the generation of taxable profits in the periods when the temporary differences are deductible. Upon carrying out this evaluation, we considered the expected reversal of deferred tax liabilities, projected taxable profit and planning strategies. Based on the company’s evaluation, it determined the amount of deferred tax assets that is more likely than not to be realized in the future against those taxable profits. We evaluate periodically the adjusted values of our property, plant and equipment and intangible assets to determine whether there is an indication of potential impairment. Impairment exists when the carrying amount of an asset exceeds net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. Assets to be disposed of are reported at the lower of the carrying amount or realizable value. Significant judgment is involved in estimating future revenues and cash flows or realizable value, as applicable, of our property, plant and equipment due to the characteristics of those assets. The class of our assets which most require complex determinations based upon assumptions and estimates relates to indefinite lived intangibles including goodwill, due to the current market environment. 61 During 2022 and 2021, the Company invested in certain improvements in Republic Steel’s Lorain facility to be better prepared to reactivate the plant, with U.S.$5.5 million and U.S.$15.6 million recorded to construction-in-progress for the years ended December 31, 2022, and 2021, respectively. The construction-in-progress in the last three years amounted to U.S.$27.1 million. However, construction activities were paused as a result of the cessation of operations at the other U.S. facilities. The Company had property, plant, and equipment with a net book value of approximately U.S.$ 3.1 million (Ps.55.0 million), U.S. $2.8 million (Ps. 56.8 million) and U.S $3.5 million (Ps. 58.7 million), as of December 31, 2025, 2024, and 2023, respectively, pertaining to the Lorain, Ohio, facility, after recording an impairment charge of U.S.$130.7 million (Ps. 2,701 million) in 2015. Management and experts conducted a further evaluation to determine if any impairment exists at the Company’s other asset groups in accordance with IFRS and determined that as of December 31, 2023 and 2025, no other asset groups were impaired based on current projections. No further impairment was considered necessary or appropriate. As of the date of this report, management has determined that the Republic Steel facilities will remain inactive unless changes in prevailing economic conditions justify resuming operations. Management does not currently intend to sell the facilities. Because management does not currently intend to sell the Republic Steel facilities, IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations) does not apply. The assets continue to be accounted for under IAS 16 (Property, Plant and Equipment), measured at cost less accumulated depreciation and any impairment recognized in accordance with IAS 36. As discussed in Note 9 to our audited financial statements included elsewhere in this Annual Report, the Company has Ps. $1,157,556 and Ps. $1,414,703 of physical coke stock inventory as of December 31, 2025 and 2024, respectively, which the Company used as raw material to supply the blast furnace at the Lorain facility. Management periodically evaluates the potential degradation of coke inventory and determines whether it remains suitable as blast furnace feedstock or alternatively for sale to other blast furnace steel mills. At the end of each of 2025 and 2024, the Company engaged independent valuation experts to appraise the coke inventory. The 2025 appraisal was conducted by Juan Pablo Gómez Morín Rivera and Idelfonso Acevedo Reyes of Worth Avalúos y Consultoría, and the 2024 appraisal was conducted by Jeffry Miller and Salvatore Fomma of Maynards. Each of the foregoing is an Accredited Senior Appraiser certified by the American Society of Appraisers (ASA). The appraisals determined a value of US$344 per metric ton at December 31, 2025 and US$368 per metric ton at December 31, 2024, applied to physical inventory of 187,227 metric tons. The Company has retained this inventory because management has determined that the Company’s current liquidity position does not require its disposition and that prevailing market conditions do not support a sale at prices the Company considers acceptable. In assessing the recoverability of goodwill and other intangibles, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. We perform an annual review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if the carrying value of recorded goodwill is impaired. The impairment review process compares the fair value of the reporting unit in which goodwill resides to it carrying value. We estimate the reporting unit’s fair value based on a discounted future cash flow approach that requires estimating income from operations. In order to estimate our cash flows used in impairment computations, we considered the following: ● our history of earnings; ● our history of capital expenditures; ● the remaining useful lives of our primary assets; ● current and expected market and operating conditions; and ● our weighted average cost of capital. 62 Other intangible assets are mainly comprised of trademarks. When impairment indicators exist, or at least annually for indefinite live intangibles, we determine our projected revenue streams over the estimated useful life of the asset. As of December 31, 2025 and 2024, there was no impairment charge to other intangible assets. As of December 31, 2025, the main key assumptions used in the valuation models of the San Luis Potosí reporting unit are as follows: ● discount rate: 12.50%; and ● sales: we estimate an increase in sales volume of approximately 18.26% in 2026, mainly attributable to changes in domestic market conditions. After 2026, no sales increases in volume terms are considered in the valuation model. For the years after 2026 we estimate only an increase in sales prices in line with estimated inflation. If these estimates or their related assumptions for prices and demand change in the future, we may be required to record additional impairment charges for these assets. With respect to valuation allowance on accounts receivable, on a periodic basis management analyzes the recoverability of accounts receivable in order to determine if, due to credit risk or other factors, some receivables may not be collected. If management determines that such a situation exists, the book value of the non-recoverable assets is adjusted and charged to the income statement through an increase in the doubtful accounts allowance. This determination requires substantial judgment by management. As a result, final losses from doubtful accounts could differ significantly from estimated allowances. We apply judgment at each balance sheet date to determine whether the slow-moving inventory is impaired. Inventory is impaired when the carrying value is greater than the net realizable value. The reserve for environmental liabilities represents the estimated environmental remediation costs that we believe are going to incur. These estimates are based on currently available data, existing technology, the current laws and regulations and take into account the likely effects of inflation and other economic and social factors. The time in which we could incur these costs cannot be determined reliably at this time due to the absence of deadlines for remediation under the laws and regulations which apply to remediation costs will be made. New Accounting Pronouncements The following standards and amendments are not yet effective. The Company is currently evaluating the potential impact they may have on its financial statements. Amendments to IFRS 9 – Financial Instruments and IFRS 7 – Financial Instruments: Disclosures These amendments address the classification and measurement of financial instruments. Specifically, they clarify: (i) when a financial liability can be derecognized upon settlement through an electronic transfer, and (ii) when cash flows qualify as solely payments of principal and interest, which determines whether financial assets can be classified at amortized cost. 63 Although the Company is still assessing the impact of these amendments, the current expectation is that the changes related to the timing of derecognition of financial liabilities may have an effect on the Company’s financial liabilities. However, the amendments related to the classification of financial assets are not expected to have a material impact. These amendments are applicable to the Company’s 2026 financial statements. IFRS 18 – Presentation and Disclosure in Financial Statements This new standard will replace IAS 1 – Presentation of Financial Statements. While many existing requirements will remain, IFRS 18 introduces significant changes to: ● The presentation of the income statement and, consequently, the statement of cash flows; ● The disclosure of management performance measures; ● The level of aggregation and disaggregation in the primary financial statements and accompanying notes. IFRS 18 applies to periods beginning on or after January 1, 2027 and must be applied retrospectively. The Company is still evaluating the impact IFRS 18 may have on its financial statements. Other Standards There are no other new standards or amendments expected to have a material impact on the Company’s financial statements. Sustainability Reporting Standards Creation of the International Sustainability Standards Board (ISSB) The IFRS Foundation has established the ISSB to develop global sustainability disclosure standards aimed at providing investors and other capital market participants with high-quality, decision-useful information on sustainability-related risks and opportunities. IFRS S1 – General Requirements for Disclosure of Sustainability-Related Financial Information This standard requires entities to disclose material sustainability-related risks and opportunities that could reasonably be expected to affect cash flows, access to finance, or cost of capital over the short, medium or long term. IFRS S2 – Climate-Related Disclosures IFRS S2 focuses specifically on climate-related risks and opportunities, including both physical and transition risks that may impact an entity’s financial outlook. Adoption in Mexico Beginning in 2025, all listed issuers in Mexico will be required to adopt IFRS S1 and IFRS S2. The Comisión Nacional Bancaria y de Valores (CNBV) has made these standards mandatory in order to enhance transparency and align ESG disclosures with global best practices. This shift marks a significant evolution in how Mexican companies report on sustainability performance, aiming to improve the quality of information available to investors and facilitate access to sustainable financing. 64