Mexichem Continues Strong Momentum, Reporting Double-Digit Net Income Growth in Third Quarter 2018 and Maintains Its Full-Year EBITDA Guidance

Mexichem, S.A.B. de C.V. (BMV: MEXCHEM*) (the Company or Mexichem) announced its unaudited results for the third quarter of 2018. The figures hav

Income Statement

e been prepared in accordance with International Financial Reporting Standards (NIIF or IFRS), having U.S. dollars as the functional and reporting currency. All comparisons are made against the same period of the prior year except for Netafim´s 1Q17 P&L figures, which are not included in the comparisons, but proforma financials are included in this report in Appendix I. Unless specified to the contrary, all figures are in millions. In the comments in this report, we will refer to the term Organic Basis or Organically which means that it will exclude: i) Netafim´s results for the quarter, ii) CADE and Netafim Ltd. Acquisition related expenses and iii) Brazil Tax legal settlement benefit. The FX translation effect numbers, and numbers in a constant currency basis or without the FX translation effects do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results. In some cases, numbers and percentages have been rounded and may not add up.

During the third quarter of 2018, Mexichem posted a 25% year-over-year increase in EBITDA to $375 million, on a 19% year-over-year increase in revenue to $1.79 billion. Mexichem also reported EBITDA margin of 21%, while EBIT increased 34% to $270 million, compared to the same period a year earlier. Consolidated net income of $120 million was up by 32%, compared to the $91 million reported during last years third quarter. Free cash flow increased 17% YOY to $83 million.

This has been another exciting quarter of significant success that validates the Mexichem strategy, said Daniel Mart­nez-Valle, Mexichem CEO. During this journey, Mexichem is pioneering new ways for the company to be the best in the world, offering innovations that are best for the world. We will continue doing this by working closely with our partners and customers to identify challenges across our business groups and then relying on our ingenuity to solve them. Our back-to-back earnings success proves we are on the right track.

9M18 financial and operating highlights include:

  • Revenues increased 26% to $5.5 billion
  • EBITDA grew 36% to $1.13 billion and EBITDA margin increased 147 bps to 20.5%. EBIT increased 49% to $813 million
  • Consolidated net income totaled $437 million, an increase of 85%

FINANCIAL HIGHLIGHTS:

mm US$ Third Quarter January – September
Financial Highlights 2018 2017

% Var.

2018 2017 % Var.
Net sales 1,785 1,503 19% 5,509 4,360 26%
Operating income 270 201 34% 813 546 49%
EBITDA 375 299 25% 1,128 829 36%
EBITDA margin 21.0% 19.9% 107 bps 20.5% 19.0% 147 bps
EBT 183 157 17% 607 385 58%
Income (loss) from continuing operations 120 95 26% 417 234 78%
Consolidated net income (loss) 120 91 32% 437 236 85%
Net majority income 82 61 34% 323 180 79%
Operating cash flow before capex 220 217 1% 431 372 16%
Total CAPEX (organic & JV) (63) (66) -5% (199) (208) -4%
Cash Flow before dividends 157 151 4% 232 164 41%
Free cash flow 83 71 17% 22 32 -31%

MANAGEMENT COMMENTARY

STRATEGY, PERFORMANCE AND BUSINESS GROUP HIGHLIGHTS, AND OUTLOOK

The first nine months of 2018 confirms that Mexichems balanced strategy of organic and acquisition growth is yielding exceptional results. Mexichems strategic approach to its businesses and the markets that it serves is demonstrating significantly positive financial performance.

As part of the companys strategy to become more purpose-driven, Mexichem is evolving from a production-oriented company to one that is focused on customer needs by creating global synergies and deepening customer relationships. This will better serve the companys growing, global customer base and bring innovations to market more quickly. For example, Mexichems Netafim business is piloting Irrigation-as-a-Service, which provides farmers with the most advanced precision irrigation and digital farming solutions for a monthly service fee, with minimal upfront investment. In this new business model, Netafim installs, maintains and operates its own precision irrigation system at the customers farm, enabling the customer to enjoy higher and better-quality yields, save water and other resources, with lower risk.

Also, in September, Mexichems Fluent Europe business debuted the worlds first PlasticRoad. The new bicycle path in Zwolle, Netherlands is the first to be made of recycled plastic, up to 70 percent. Its filled with sensors that will monitor the pathways temperature, durability, and how many cyclists use the path.

In North America, Mexichems Fluent U.S./Canada business joined the City Innovates Technology Advisory Board to help governments address over 80 civic challenges which include building smart cities with using new and innovative technologies. Mexichem joins business and technology leaders Microsoft, Visa, Oracle, Google Cloud for Startups, Panasonic and others, who are committed to creating positive change. The program launched in San Francisco in 2014 and has expanded to nearly 30 cities.

Mexichem remains strongly committed to its investment grade rating, and through its continued effort to strengthen its balance sheet, has been executing its deleveraging strategy, reaching 1.91x net debt to EBITDA ratio at the end of this third quarter.

As an overview, we continue seeing better fundamentals and conditions in the markets we serve than those observed during 2017. In Fluent, Europe and U.S./Canada have been exceeding expectations and, although we continue facing market challenges in LatAm “ mainly in Colombia, Brazil and Mexico “ we have been seeing signs of recovery in Brazil and Mexico, while we continue our path to successfully integrate Netafim. Our Vinyl business is and will continue working in a supply constrained environment, which has been creating better market prices in PVC and caustic soda during 2018. However, we will face challenging ethane and caustic soda market price conditions in the following 12 to 18 months given the tightness of the ethane distribution capacity in the U.S. and the stabilization in the caustic soda market. These are a result of existing international trade dynamics and the shutdown of some Chlor-Alkali plants in Europe and Asia due to environmental restrictions. Finally, for Fluor, as we anticipated in Q2, we expect continuity in the stabilization in our growth path after an extraordinary first 9M18, given tougher YOY comparables and the stabilization on the refrigerant markets in Europe associated with the supply-demand dynamics of the F-gas quota system.

THIRD QUARTER FINANCIAL RESULTS

REVENUES

For Q3 2018, revenues totaled $1.79 billion, up $282 million, or 19% from Q3 2017, led by higher sales in all our business groups. Organically, revenue increased 5% YOY or $76 million. Sales for our Fluent, Fluor and Vinyl Business Groups increased by 28% (7% organic), 18% and 7%, respectively.

The Fluent Business Group net sales growth was driven mainly by Netafim consolidation and improved sales performance in Fluent U.S./Canada. At Fluor, growth came from better price conditions in Europe associated with supply market constraints linked to the F-gas quota system that stabilized during Q3, and that the company anticipates will continue stabilizing through the rest of 2018 and 2019, as well as better price conditions in the U.S., related to the ITC resolution announced by Mexichem in March 23, 2017. At Vinyl, third quarter 2018 revenue benefited mainly from the consolidation of Sylvin Technologies, improved PVC pricing due to supply constraints, the increase in oil prices and improved caustic soda market conditions.

The FX translation effect for Q3 2018 negatively impacted sales by $54 million on a consolidated basis compared to Q3 2017, mainly because of the depreciation of the Brazilian Real (25%), Argentina Peso (85%), Turkish Lira (61%), Indian Rupees (9%) and the Mexican Peso (6%). In constant currency, (not affecting cash flow but to understand the overall business and segment performance) and on an Organic Basis, revenues would have been $1.62 billion, up $120 million or 8% versus 2017.

During 9M18, revenues increased by 26% to $5.5 billion, an increase of $1.1 billion, compared to 9M17. In constant currency and on an Organic Basis, revenue would have increased by 9% to $4.8 billion. See SALES BY REGION (DESTINATION) multimedia accompanying this press release.

EBITDA

In Q3 2018, EBITDA was $375 million, a 25% increase from the $299 million reported in the same quarter last year. EBITDA margin for the quarter was 21%.

Double-digit EBITDA growth was achieved by each business group. In the Fluor, Fluent, and Vinyl Business Groups, EBITDA increased by 38%, 31% (12% on an Organic Basis) and 14% YOY, respectively.

Overall positive results for the quarter YOY are attributed mainly to: i) the Fluor Business Group, due to the factors mentioned in the revenues section; ii) Fluent, the consolidation of Netafims results, improved sales performance and market dynamics in the U.S., and signs of recovery in LatAm and AMEA; and iii) Vinyl, improved PVC pricing due to the increase in oil prices and supply constraints, and improved caustic soda market conditions.

In Q3 2018, the FX translation effect on EBITDA was negative in $7 million on a consolidated basis, due to the same currencies affecting revenues. In constant (not affecting cash flow but to understand the overall business and segment performance) and in Organic Basis, EBITDA would have been $357 million, up $55 million or 18% increase, with an implied EBITDA margin of 22%.

For 9M18, EBITDA was $1,128 million, increasing 36%. EBITDA margin was 20.5%. In a constant and Organic Basis, EBITDA would have been $1,028 million, an increase of 24%, with an implied EBITDA margin of 22%.

OPERATING INCOME

Mexichem reported operating income for Q3 2018 of $270 million, compared to $201 million reported in Q3 2017, an 34% increase. On an Organic Basis, operating income increased $50 million or 25%, to $254 million.

ALSO READ:   KEMET to Webcast Presentation at Stifel 2019 Cross Sector Insight Conference

For 9M18, in reported and on an Organic Basis, operating income was $813 million and $746 million, respectively, compared to the $546 million reported and the $548 on an Organic Basis in the same period of 2017, representing an increase of 49% and 36%, respectively.

FINANCIAL COSTS

In Q3 2018, financial costs increased by $45 million, or 102%, to $89 million compared to Q3 2017. The increase was triggered by: i) a $14 million interest increase mainly related to a $1 billion bond issued in September 2017 for the Netafim acquisition; ii) FX losses of $9 million related to the companys net obligations booked in currencies other than the functional and/or reporting currency for each country (liabilities less assets when liabilities are higher than assets); and iii) a negative $22 million in inflationary impact which offsets the benefit we had during the first half of the year. During the first six months of 2018, Venezuelan inflation was 1,442% but non-adjustment was done to the official exchange rate, generating a $24 million gain in monetary position, while in Q3, the Venezuelan Bolivar devaluated more than 5,000%, and a charge of $22 million to our monetary position was accrued, offsetting the benefit accrued during H1 2018.

In 9M18, financial costs increased by $47 million, or 29%, to $210 million, compared to the same period in 2017. This occurred because of: i) the $44 million increase in interest and bank commission, mainly related to a $1 billion bond issued in September 2017; and ii) $5 million from FX losses to the companys net obligations booked in currencies other than the functional and/or reporting currency for each country (liabilities less assets when liabilities are higher than assets), but which were offset by a $2 million increase in monetary position, as explained above, due to our operations in Venezuela.

TAXES

In Q3 2018, cash tax increased 59% compared to Q3 2017 due to changes in the mix of Mexichem´s subsidiaries that generate net gains and those with net losses. Deferred taxes decreased from 28 million in Q3 2017 to 8 million in Q3 2018. This was mainly due to the usage of net operating losses (deferred tax asset) to offset taxable income associated with foreign exchange gains generated by the year to date Mexican peso appreciation effect against the U.S. dollar. This appreciation generated a tax FX gain in the holding company in Mexico where the highest proportion of the U.S. dollar denominated debt of Mexichem is allocated. The effective tax rate in Q3 declined from 39% to 34% YOY.

During 9M18, cash tax increased from $104 to $168 million, a 62% increase, mainly because income from continuing operations before income taxes (EBT) increased 58%. In contrast, the effective tax rate decreased from 39% to 31% mainly for the reduction of the income tax rate from 35% to 21% in the U.S. associated with the U.S. tax reforms.

CONSOLIDATED NET INCOME (LOSS) AND MAJORITY INCOME (LOSS)

In Q3 2018, the Company reported Consolidated Net Income of $120 million and Net Majority Income of $82 million, compared to reported Consolidated Net Income and Net Majority Income of $91 and $61 million, respectively, in Q3 2017. These results reflect the higher Operating Income and EBITDA reported in this years third quarter and the lower effective tax rate mentioned above.

For 9M18, the Company posted a $437 million Consolidated Net Income and $323 million in Net Majority Income, compared to $236 million and $180 million reported in the same period of 2017, respectively. These results also were due to the same factors mentioned for the third quarter, and an adjustment in the Discontinued Operations related to the appraisal of the Pajaritos Petrochemical Complex to give book value to the site in PMV´s balance sheet.

USD in millions Third Quarter January – September
Income statement 2018 2017 % 2018 2017 %
Income (loss) from continuing operations before income tax 183 157 17% 607 385 58%
Cash tax 54 34 59% 168 104 62%
Income (loss) from continuing operations after cash tax 129 123 5% 439 281 56%
Deferred taxes 8 28 -71% 22 47 -53%
Income (loss) from continuing operations 120 95 26% 417 234 78%
Discontinued operations (1) (4) -75% 19 1 1800%
Consolidated net income (loss) 120 91 32% 437 236 85%
Minority stockholders 37 30 23% 113 56 102%
Net income (loss) 82 61 34% 323 180 79%

BALANCE SHEET AND OPERATING CASH FLOW HIGHLIGHTS

OPERATING CASH FLOW HIGHLIGHTS

(1) PMV’s insurance A/R is not included in trade working capital calculation. (2) Trade working capital variation (Sep 18 vs Dec 17) includes Netafim’s proforma results for comparative purposes.

BALANCE SHEET AND OPERATING CASH FLOW HIGHLIGHTS
OPERATING CASH FLOW HIGHLIGHTS
Third Quarter January – September
mm US$ 2018 2017

% Var.

2018 2017 % Var.
EBITDA 375 299 25% 1,128 829 36%
Taxes paid (58) (34) 71% (190) (104) 83%
Net interest paid (49) (35) 40% (143) (107) 34%
Bank commissions (7) (8) -13% (30) (21) 43%
Exchange rate gains (losses) (8) (5) 60% (40) (17) 135%

Change in trade working capital (1) (2)

(33) N/A (294) (208) 41%
Operating cash flow before capex 220 217 1% 431 372 16%
CAPEX (Organic) (61) (54) 13% (186) (149) 25%
CAPEX (Total JV) (2) (19) -89% (13) (105) -88%
CAPEX JV (OXY share) 6 -100% 45 -100%
NET CAPEX JV (2) (13) -85% (13) (59) -78%
Total CAPEX (organic & JV) (63) (66) -5% (199) (208) -4%
Cash flow before dividends 157 151 4% 232 164 41%
Shareholders’ dividend (74) (80) -8% (210) (132) 59%
Free cash flow 83 71 17% 22 32 -31%
PMV’s insurance A/R 268
Free cash flow after Insurance 83 71 17% 290 32 806%
(1) PMV’s insurance A/R is not included in trade working capital calculation.
(2) Trade working capital variation (Sep 18 vs Dec 17) includes Netafim’s proforma results for comparative purposes.

Mexichem is in the process to conclude the transaction for the acquisition of Pemex´s 44.09% share in Petroqu­mica Mexicana de Vinilo, S.A. de C.V. (PMV) through its subsidiary PPQ Cadena Productiva, SL, announced on July 6, 2018.

In the third quarter, operating Cash Flow before CapEx was roughly flat, at a time when it increased 71% and 40% in taxes and interest paid, which were related to higher income from continuing operations before taxes and higher debt, respectively. Also, we experienced a 60% increase in FX rate losses, and an increase in the needs of working capital of $33 million, mainly associated with the deleverage strategy of the Company in which the Company decided to reduce the usage of short-term financing. Capital expenditures in Q3 2018 decreased by 5% to $63 million.

NET WORKING CAPITAL
2018 Variation 2017 Variation
Sep-18 dec-17

Î ($)

Sep-17 dec-16

Î ($)

Trade Working Capital 804 510 (294) 392 184 (208)

From December 31, 2017 to September 30, 2018, working capital needs increased by $294 million, compared with the same period a year earlier that increased $208 million. The increase of $87 million between 9M17 and 9M18 was due to the deleverage strategy of the Company in which the Company decided to reduce the usage of short-term financing in its Vinyl Business Group.

FINANCIAL DEBT
Last Twelve Months
Sep 2018 Dec 2017
Net Debt USD million 2,757 1,356
Net Debt/EBITDA 12 M 1.91x 1.23x
Interest coverage 6.19x 5.67x
Net debt USD includes $0.6 million of letters of credit with maturities of more than 180 days that for covenant purposes are considered gross debt, although they are not booked in the accounting debt

Total financial debt for covenant purposes as of September 30, 2018 was $3.6 billion, while cash and cash equivalents totaled $879 million, resulting in net financial debt of $2.8 billion.

The Net Debt/EBITDA ratio was 1.91x as of September 30, 2018, while Interest Coverage was 6.19x.

CONSOLIDATED BALANCE SHEET

CONSOLIDATED INCOME STATEMENT
USD in millions Third Quarter January – September
Income Statement 2018 2017 % 2018 2017 %
Net sales 1,785 1,503 19% 5,509 4,360 26%
Cost of sales 1,289 1,129 14% 3,964 3,289 21%
Gross profit 497 374 33% 1,545 1,071 44%
Operating expenses 227 173 31% 732 525 39%
Operating income (loss) 270 201 34% 813 546 49%

Net interest expenses and bank commissions

57 43 33% 173 129 34%
Exchange rate, net 12 3 300% 43 38 13%
Monetary position 20 (2) N/A (6) (4) 50%
Financial Costs 89 44 102% 210 163 29%
Equity in income of associated entity (2) (1) 100% (4) (1) 300%
Income (loss) from continuing operations before income tax 183 157 17% 607 385 58%
Cash tax 54 34 59% 168 104 62%
Deferred taxes 8 28 -71% 22 47 -53%
Income tax 62 62 0% 190 150 27%
Income (loss) from continuing operations 120 95 26% 417 234 78%
Discontinued operations (1) (4) -75% 19 1 1800%
Consolidated net income (loss) 120 91 32% 437 236 85%
Minority stockholders 37 30 23% 113 56 102%
Net income (loss) 82 61 34% 323 180 79%
EBITDA 375 299 25% 1,128 829 36%

OPERATING RESULTS BY BUSINESS GROUP

VINYL Business Group (35% and 40% of Mexichems sales (after eliminations) and EBITDA, respectively, in 2018)

mm US$ Third Quarter January – September
Vinyl 2018 2017

% Var.

2018 2017 % Var.
Volume (K tons) 646 635 2% 1,944 1,916 1%
Total sales* 621 579 7% 1,908 1,749 9%
Operating income 99 84 18% 315 227 39%
EBITDA 151 133 14% 464 357 30%
* Intercompany sales were $48 million and $37 million in 3Q18 and 3Q17, respectively. And as of September 2018, and 2017 were $135 million and $134 million, respectively.
mm US$ Third Quarter January – September
Resins, Compounds & Derivatives 2018 2017

% Var.

2018 2017 % Var.
Volume (K tons) 560 558 0% 1,695 1,709 -1%
Total sales* 600 562 7% 1,845 1,703 8%
Operating income 93 83 12% 293 218 34%
EBITDA 142 128 11% 434 339 28%
* Intercompany sales were $59 million and $46 million in the 3Q18 and 3Q17, respectively, and as of September 2018 and 2017 were $164 million and $156 million, respectively. Of these amounts $11 million and $9 million were invoiced to PMV in 3Q18 and 3Q17, respectively and $28 million and $22 million accrued to September 2018 and 2017.
mm US$ Third Quarter January – September
PMV 2018 2017

% Var.

2018 2017 % Var.
Total sales* 33 27 22% 94 73 29%
Operating income 6 2 200% 21 9 133%
EBITDA 9 5 80% 30 18 67%
* Intercompany sales invoiced to Resins, Compounds and Derivatives were $0.8 million and $1.7 million in 3Q18 and 3Q17, respectively. And, as of September 2018 and 2017 were $2.3 million and $4.5 million, respectively.

In Q3 2018, despite a 2% increment in volume, Vinyl total sales increased 7% to $621 million from the third quarter of 2017, mainly due to the consolidation of Sylvin Technologies that started in January 2018, stronger PVC market prices YOY due to supply constraints, the increase in oil prices and improved caustic soda market conditions.

EBITDA for the Vinyl Business Group was $151 million, compared to $133 million in Q3 2017, an increase of 14%. This growth resulted from an increase in PVC and caustic soda prices, and the benefits of our increased vertical integration across the ethane-to-PVC value chain at our JV ethylene cracker in Texas. EBITDA margin rose to 24% in Q3 2018 from 23% reported in Q3 2017.

During Q3 2018, the U.S. ethane market experienced an important increase in prices given the start of operations of roughly 2.4 million new tons of ethylene or 6% of the global ethylene capacity we had at the end of December 2017. The new ethylene crackers that went online drove additional demand for ethane while the U.S. ethane infrastructure distribution capacity remained stable. The result is an increase in prices, which has the potential to increase our PVC cost of production in the following months until new ethane distribution capacity starts operations, which is expected to happen during 2019. On the other hand, caustic soda market price conditions are in a stabilization phase after the shutdown of some Chlor-Alkali plants in Europe and Asia due to environmental restrictions. These market conditions regarding the ethane supply and the caustic soda prices are expected to create challenges to our Vinyl operations during the following 12 to 18 months until new conditions emerge.

Resins, Compounds and Derivatives volumes were roughly flat on 7% revenue growth, reflecting stronger YOY market price conditions both in PVC and caustic soda. EBITDA grew $14 million, or 11%, to $142 million, with an EBITDA margin of 23.6% coming from 22.8% during the Q3 2017.

PMV revenues grew 22% to $33 million, while EBITDA grew 80% because of better caustic soda market-price conditions and higher volumes than during Q3 2017. EBITDA margin grew 1,033 bps to 27.5% from 17.2% during the same period last year.

For 9M18, despite slight increments in volume, Vinyl revenues increased 9%, reflecting favorable market price conditions in PVC and caustic soda due largely to the increase in oil prices and supply market constraints associated with environmental restrictions in Europe and Asia, when compared 9M18 to 9M17. EBITDA increased 30% to $464 million from the $357 million reported at the end of Q3 2017, with EBITDA margin growth of 390 bps to 24.3% from Q3 2017s 20.4%.

Resins, Compounds and Derivatives volumes decreased 1% while revenues increased 8% due to better market conditions as explained above. EBITDA increased $95 million or 28% from $339 million to $434 million resulting in an EBITDA margin of 23.5% or 360 bps higher than the 19.9% in 9M17.

Revenues and EBITDA in PMV grew 29% and 67%, respectively, because of supply market constraints associated to environmental restrictions in Europe and Asia which created better than expected market-price conditions in caustic soda. PMV´s EBITDA margins increased 692 pbs to 31.7% from 24.8%.

FLUENT Business Group (56% and 38% of Mexichems sales (after eliminations) and EBITDA, respectively, in 2018)

mm US$ Third Quarter January – September
Fluent 2018 2017

% Var.

2018 2017 % Var.
Sales 1,003 785 28% 3,093 2,257 37%
Fluent LatAm 270 279 -3% 816 818 0%
Fluent Europe 349 357 -2% 1,086 1,006 8%
Fluent USA & Canada 152 120 27% 415 341 22%
Fluent AMEA 35 34 3% 118 108 9%
Netafim 206 669
Intercompany eliminations (8) (5) 60% (11) (15) -27%
Operating income 95 71 34% 297 203 46%
EBITDA 140 107 31% 423 309 37%

In Q3 2018, the Fluent Business Groups sales were $1.0 billion, a 28% increase, compared to the $785 million reported one year ago, mainly driven by the integration of Netafim and higher sales in the U.S./Canada. In a constant and Organic Basis, the Fluent Business Groups sales would have grown 7% to $839 million.

3Q17 mm US$ 3Q18 3Q18 3Q18/3Q17
Sales Sales FX Total % Var
279 Fluent LatAm 270 30 300 8%
357 Fluent Europe 349 10 359 1%
120 Fluent US/Canada 152 152 27%
34 Fluent AMEA 35 2 37 9%
Netafim 206 10 216
(5) Intercompany Eliminations (8) (8) 60%
785 Total 1,003 52 1,055 34%
The FX translation effect do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results.

During Q3 2018, the Fluent Business Groups EBITDA increased 31% to $140 million, compared to $107 million in Q3 2017. This positive performance includes the consolidation of Netafim Ltd, better performance of Fluent U.S./Canada, and signs of recovery in LatAm and AMEA.

EBITDA margin remained stable at 14%. In a constant (not affecting cash flow but helps to understand the company and its segments performance) and Organic Basis, EBITDA totaled $123 million, a 13% increase, compared to the same quarter of the previous year, with an implied EBITDA margin of 15%. Operating income increased 34% to $95 million. On an Organic Basis, Operating income increased 12% to $80 million compared to Q3 2017.

In 9M18, sales reached $3.1 billion, an increase of 37% compared to the same period last year. Key factors contributing to this growth include the consolidation of Netafim, double-digit growth in U.S./Canada, and high single digits growth in Europe and AMEA. EBITDA increased 37% during 9M18, with an implied EBITDA margin of 13.7%. In a constant and Organic Basis, EBITDA increased 8% to $337 million, compared to same period of the previous year, with an implied EBITDA margin of 14%.

FLUOR Business Group (12% and 25% of Mexichems sales (after eliminations) and EBITDA, respectively, in 2018)

In Q3 2018, the Fluor Business Group reported a 19% increase in sales, mainly due to better price market conditions as a consequence of the U.S. ITC resolution that Mexichem announced on March 23, 2017 and F-gas quota system supply-demand dynamics in Europe that are and will continue to be stable during Q4 2018 and 2019.

EBITDA in Q3 2018 grew 38% YOY to $94 million, and EBITDA margin was 45%, up from 39% in Q3 2017. Operating income was $82 million, a 46% YOY increase.

In 9M18, revenues and EBITDA were up 30% and 48% at $644 million and $284 million, respectively, mainly from the above-mentioned factors. EBITDA margin increased 533 bps to 44.1%. In 9M18, operating income has grown 61% to $247 million.

RECENT EVENTS

For all the news please visit the following webpage https://www.mexichem.com/newsroom/

Conference Call Details

Mexichem will host a conference call to discuss its Q3 2018 results on October 25th, 2018 at 10:00 am Mexico City/11:00 am (US Eastern Time). To access the call, please dial 001-855-817-7630 (Mexico), 1-888-339-0721 (United States) or 1-412-317-5247 (International). Participants may pre-register for the conference call here.

A recording of the webcast will be posted on the website within several hours after the call is completed. The webcast can be accessed via the following link: https://services.choruscall.com/links/mexichem181025.html.

The replay can be accessed via Mexichems website at https://www.mexichem.com/.

RECONCILIATION SUMMARY BY BUSINESS GROUP

Third quarter 2018 Financial and Operating Highlights

3Q17 mm US$ 3Q18 3Q18 3Q18/3Q17
Sales Sales FX Total % Var
579 Vinyl 621 2 623 8%
785 Fluent 1,003 52 1,055 34%
1,364 Ethylene (Vinyl + Fluent) 1,624 54 1,678 23%
177 Fluor 210 210 19%
Energy
(38) Eliminations / Holding (49) (49) 29%
1,503 Total 1,785 54 1,839 22%

The FX translation effect do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results

3Q17 mm US$ 3Q18 3Q18 3Q18/3Q17
EBITDA EBITDA FX Total % Var
133 Vinyl 151 151 14%
107 Fluent 140 7 147 37%
240 Ethylene (Vinyl + Fluent) 291 7 298 24%
68 Fluor 94 94 38%
Energy
(9) Eliminations / Holding (10) (10) 11%
299 Total 375 7 382 28%

The FX translation effect do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results

9M17 mm US$ 9M18 9M18 9M18/9M17
Sales Sales FX Total % Var
1,749 Vinyl 1,908 (47) 1,861 6%
2,257 Fluent 3,093 (7) 3,086 37%
4,006 Ethylene (Vinyl + Fluent) 5,001 (54) 4,947 23%
495 Fluor 644 (14) 630 27%
1 Energy 1 1 0%
(142) Eliminations / Holding (137) (137) -4%
4,360 Total 5,509 (68) 5,441 25%

The FX translation effect do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results

9M17 mm US$ 9M18 9M18 9M18/9M17
EBITDA EBITDA FX Total % Var
357 Vinyl 464 (6) 458 28%
309 Fluent 423 (1) 422 37%
666 Ethylene (Vinyl + Fluent) 887 (7) 880 32%
192 Fluor 284 (7) 277 44%
1 Energy 1 1 0%
(30) Eliminations / Holding (44) (44) 47%
829 Total 1,128 (14) 1,114 34%

The FX translation effect do not consider any positive or negative effect from Venezuela due to the uncertainties of the economic fundamentals of its FX market and due that any effect is not material for the whole Company´s results

ABOUT MEXICHEM

Mexichem is a global leader supplier of innovative solutions across multiple industries including building and infrastructure, data communications, irrigation and chemicals, and more. With operations in 41 countries, 137 facilities worldwide and more than 22,000 employees, Mexichem has the rights to produce fluorspar in two mines in Mexico, as well as 8 training academies and 18 R&D labs. Operations are divided into three Business Groups: Fluent, Vinyl and Fluor. Mexichem has annual revenues of US$5.8 billion and has been traded on the Mexican Stock Exchange for more than 30 years. The company is member of the Mexican Stock Exchange Sustainability Index and the sustainability emerging markets index FTSE4Good.

Prospective Information

In addition to historical information, this press release contains “forward-looking” statements that reflect management’s expectations for the future. The words anticipate, believe, expect, hope, have the intention of, might, plan, should and similar expressions generally indicate comments on expectations. The final results may be materially different from current expectations due to several factors, which include, but are not limited to, global and local changes in politics, the economy, business, competition, market and regulatory factors, cyclical trends in relevant sectors; as well as other factors that are highlighted under the title Risk Factors on the annual report submitted by Mexichem to the Mexican National Banking and Securities Commission (CNBV). The forward-looking statements included herein represent Mexichems views as of the date of this press release. Mexichem undertakes no obligation to revise or update publicly any forward-looking statement for any reason unless required by law.

Mexichem has implemented a Code of Ethics that rules its relationships with its employees, clients, suppliers and general groups. Mexichems Code of Ethics is available for consulting in the following link: http://www.mexichem.com/Codigo_de_etica.html Additionally, according to the terms contained in the Securities Exchange Act No 42, Mexichem Audit Committee established a mechanism of contact, which allows that any person that knows the unfulfillment of operational and accounting records guidelines and lack of internal controls of the Code of Ethics, from the Company itself or from the subsidiaries that this controls, file a complaint which is anonymously guaranteed. The whistleblower program is facilitated by a third party. The telephone number in Mexico is 01-800-062-12-03. The website is http://www.ethic-line.com/mexichem and contact e-mail is [email protected]. Mexichems Audit Committee will be notified of all complaints for immediate investigation.

INDEPENDENT ANALYSTS

EQUITY COVERAGE FROM THE LAST TWELVE MONTHS:

1.

Actinver

10.

Grupo Santander

2. Bank of America Merrill Lynch

11.

HSBC

3. Banorte-Ixe

12.

Intercam

4. Barclays

13.

Invex Casa de Bolsa

5. BBVA Bancomer

14.

Interacciones

6. BTG Pactual

15.

Morgan Stanley

7. Citigroup

16.

UBS

8. Credit Suisse

17.

Vector

9. GBM-Grupo Burs¡til Mexicano

18.

Scotiabank

INTERNAL CONTROL

Mexichems bylaws provide the existence of the Audit and Corporate Practices Committees, intermediate corporate organs constituted in agreement with the applicable law to assist the Board of Directors to carry on their functions. Through these committees and the external auditor, it is given reasonable safety that transactions and companys acts are executed and registered in accordance with the terms and parameters set by the Board and directives of Mexichem, the applicable law and different general guidelines, criterion and IFRS (International Financial Reporting Standards).

APPENDIX I: Mexichem SAB de CV and Subsidiaries Consolidated 2017 Pro-Forma Balance Sheet and Income Statement including Netafim Ltd. Acquisition

Mexichem SAB de CV and Subsidiaries
Consolidated Balance Sheet Pro Forma 2017
Netafim Acquisition
USD in million Pro-Forma March 2017 Pro-Forma June 2017 Pro-Forma September 2017 Pro-Forma December 2017
Balance sheet March 2017 Netafim March Acquisition March 2017 Pro- June 2017 Netafim June Acquisition June 2017 September 2017 Netafim September Acquisition September 2017

December 2017 Netafim December Acquisition September 2017
reported 2017 IFRS Adjustment forma reported 2017 IFRS Adjustment Pro-forma reported 2017 IFRS Adjustment Pro-forma reported 2017 IFRS Adjustment Pro-forma
Current Assets
Cash and Cash equivalents 597 26 (225) 398 735 33 (225) 543 740 35 (225) 550 1,900 44 (1,225) 719
Net Account Receivable 1,055 230 1,285 1,183 259 1,442 1,137 236 1,373 975 224 1,199
Other current assets 1,103 197 1,300 1,127 203 1,330 1,152 234 1,386 1,078 224 1,302
Total Current Assets 2,755 453 (225) 2,983 3,045 495 (225) 3,315 3,029 505 (225) 3,309 3,953 492 (1,225) 3,220
Long term assets 5,765 160 1,243 7,168 5,791 165 1,248 7,204 5,759 166 1,248 7,173 5,807 163 1,249 7,219
Total Assets 8,520 613 1,018 10,151 8,836 660 1,023 10,519 8,788 671 1,023 10,482 9,760 655 24 10,439
Current Liabilities
Bank loans and current portion of long-term debt 62 28 200 290 52 31 200 283 53 47 200 300 45 21 200 266
Suppliers and letters of credit of suppliers 1,392 135 1,527 1,479 153 1,632 1,426 144 1,570 1,362 142 1,504
Other current liabilities 590 107 697 647 103 750 600 105 705 723 105 828
Total Current Liabilities 2,044 270 200 2,514 2,178 287 200 2,665 2,079 296 200 2,575 2,130 268 200 2,598
Bank loans and long-term debt 2,253 85 1,000 3,338 2,270 89 1,000 3,359 2,248 85 1,000 3,333 3,210 85 3,295
Long-term other liabilities 515 58 (38) 535 574 61 (38) 597 615 65 (38) 642 739 65 (38) 766
Total Liabilities 4,812 413 1,162 6,387 5,022 437 1,162 6,621 4,942 446 1,162 6,550 6,079 418 162 6,659
Capital stock 1,755 184 (184) 1,755 1,755 184 (184) 1,755 1,755 184 (184) 1,755 1,755 184 (184) 1,755
Retained earnings and Other comprehensive income 1,014 15 1,029 1,085 38 1,123 1,141 41 1,182 1,048 53 1,101
Controlling interest 2,769 199 (184) 2,784 2,840 222 (184) 2,878 2,896 225 (184) 2,937 2,803 237 (184) 2,856
Non-controlling interest 939 1 40 980 974 1 45 1,020 950 45 995 878 46 924
Total stockholders equity 3,708 200 (144) 3,764 3,814 223 (139) 3,898 3,846 225 (139) 3,932 3,681 237 (138) 3,780
Mexichem SAB de CV and Subsidiaries
Consolidated Income Statement Pro Forma 2017
Netafim Aquisition
USD in million Pro-Forma Q1 2017 Pro-Forma Q2 2017 Pro-Forma Q3 2017 Pro-Forma Q4 2017 Pro-Forma 2017
Income Statement 1Q17 Netafim 1Q17 1Q17 Pro-forma 2Q17 reported Netafim 2Q17 2Q17 Pro-forma January- June 3Q17 reported Netafim 3Q17 3Q17 Pro-forma January- September 4Q17 reported Netafim 4Q17 4Q17 2017 Netafim 2017 2017
reported IFRS IFRS 2017 IFRS 2017 IFRS Pro-forma reported IFRS Pro-forma
Net sales 1,394 227 1,621 1,463 276 1,739 3,360 1,504 199 1,703 5,063 1,468 248 1,716 5,829 950 6,779
Cost of sales 1,086 154 1,240 1,074 188 1,262 2,502 1,130 139 1,269 3,771 1,086 169 1,255 4,376 650 5,026
Gross Profit 308 73 381 389 88 477 858 374 60 434 1,292 382 79 461 1,453 300 1,753
Operating expenses 187 47 234 165 51 216 450 173 46 219 669 219 59 278 744 203 947
Operating Income 121 26 147 224 37 261 408 201 14 215 623 163 20 183 709 97 806
Financial cost 44 6 50 75 5 80 130 44 6 50 180 13 5 18 176 22 198
Equity income of associated entities (0) (0) (0) (0) (1) (1) (1) (2) (1) (1) (3) (3)
Income from continued operations before income tax 77 20 97 149 32 181 279 158 8 166 445 150 15 166 536 75 611
Cash tax 29 5 34 40 7 47 81 34 3 37 119 7 4 11 110 19 129
Deferred tax (5) (5) 23 23 18 28 28 47 20 20 66 66
Income Tax 24 5 29 63 7 70 99 62 3 65 166 27 4 31 176 19 195
Income from continued operations 53 15 68 86 25 111 180 96 5 101 279 123 11 135 360 56 416
Discontinued Operations 1 1 4 4 5 (4) (4) 1 (145) (145) (144) (144)
Net Consolidated Income 54 15 69 90 25 115 185 92 5 97 280 (22) 11 (10) 216 56 272
Minority Interest 1 3 4 25 5 30 34 30 1 31 65 (36) 2 (34) 20 11 32
Net Majority Income 53 12 65 65 20 85 150 62 4 66 215 14 9 24 195 45 240
EBITDA 202 34 236 327 47 374 610 300 21 321 931 277 31 308 1,106 133 1,239

Contact Investor Relations:
Mexichem, S.A.B. de C.V.
Rodrigo
Guzmán, CFO
Marlen Sánchez, Corporate Controller & Tax Director
+
(52) 55.5366.4084
[email protected]
www.mexichem.com