Market Overview

Mexichem Reports Third Quarter 2017 Results

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Mexichem, S.A.B. de C.V. (BMV: MEXCHEM*) ("the Company" or "Mexichem")
today announced its unaudited results for the third quarter of 2017. The
figures have been prepared in accordance with International Financial
Reporting Standards ("NIIF" or "IFRS"), having US dollars as the
functional and reporting currency. All comparisons are made against the
same period of the prior year. Unless specified to the contrary all
figures are in millions. In some cases, percentages and numbers have
been rounded.

This press release features multimedia. View the full release here:
http://www.businesswire.com/news/home/20171025006511/en/

Sales by Region. (Graphic: Business Wire)

Sales by Region. (Graphic: Business Wire)

Please note that the presentation of Mexichem's 2016 third quarter
results reflect the effects of several actions taken by the Company in
2016 and in the first quarter of 2017. A detailed review of these
actions and their impact can be found on Page 17 of this release. It is
highly recommended that you read these Clarifications prior to analyzing
the Company´s 3Q17 results.

Third Quarter 2017 Financial and Operating Highlights (compared to
3Q16):

  • Revenues increased 8% to $1.5 billion.
  • EBITDA was $297 million a 21% increase compared to Adjusted EBITDA*
    of $245 million.
  • EBT was $152 million up 37% from Adjusted EBT* of $111 million.
  • Consolidated Net Income increased 24% to $91 million vs Adjusted
    Consolidated Net Income and Net Majority Income totaled $61 million.
  • Cash Flow before dividends was up 87% to $148 million and Free Cash
    Flow increased 5% to $68 million.
  • TTM Adjusted ROE* was 8.0% and TTM Adjusted ROIC* was 7.3%, up 170
    bps and 80 bps, respectively.

*Adjusted figures for the comparable period in 2016 exclude the impact
of the asset write-off and the subsequent one-time benefit related to
the accident at PMV's VCM plant.

CONSOLIDATED SELECTED FINANCIAL RESULTS

       
mm US$   Third Quarter   January - September
Selected Financial Results   2017   2016   %Var.   2017   2016   % Var.
Net Sales   1,505   1,394   8%   4,363   4,072   7%
Operating Income   196   385   -49%   548   398   38%
EBITDA   297   468   -37%   838   643   30%
EBITDA Margin   19.7%   33.6%   -1,387 bps   19.2%   15.8%   341 bps
EBT   152   335   -55%   386   266   45%
Consolidated Net Income (Loss)   91   230   -61%   236   164   44%
Net Majority Income   61   161   -62%   180   191   -6%
Operating Cash Flow Before Capex   215   166   29%   380   340   12%
Cash Flow Before Dividends   148   79   87%   172   20   751%
Free Cash Flow   68   65   5%   40   -22   N/A
Total CAPEX (Organic & JV)   -67   -87   -23%   -208   -320   -35%
Adjusted Operating Income*   196   162   21%   548   460   19%
Adjusted EBITDA*   297   245   21%   838   705   19%
Adjusted EBITDA Margin*   19.7%   17.5%   218 bps   19.2%   17.3%   190 bps
Adjusted EBT*   152   111   37%   386   328   18%
Adjusted Consolidated Net Income*   91   73   24%   236   220   7%
Adjusted Net Maj. Income*   61   73   -17%   180   223   -19%
         

*Given that Mexichem's reported earnings results (including the impact
of the asset write-off related to the accident at PMV's VCM plant)
differ substantially from its reported operating results (without the
write-off), for clarification purposes, since the incident the Company´s
quarterly reports have contained reported EBIT, EBITDA and net income
including the one-time net effect related to PMV´s VCM plant, as well
as*Adjusted EBIT, EBITDA and net income which exclude that effect. In
the 1Q17 and 2Q17 the only effect recorded was business interruption
insurance coverage, which is not considered to be a one-time effect. In
the 3Q17 there was not recorded any business interruption insurance
coverage, therefore the report for 3Q17 does not include a presentation
of adjusted figures.

Nine Months 2017 Financial and Operating Highlights (compared to
first Nine Months 2016)

  • Revenues Increased 7% to $4.4 billion.
  • EBITDA was $838 million a 19% increase compared to Adjusted EBITDA*
    of $705 million.
  • EBT was $386 million, up 18% from Adjusted EBT* of $328 million.
  • Consolidated Net Income increased 7% vs Adjusted Consolidated Net
    Income and Net Majority Income was $180 million.
  • Cash Flow before dividends increased to $172 million from $20
    million and Free Cash Flow increased to $40 million from a negative of
    $22 million.

Company Narrows EBITDA Guidance to High End of Range; Expects 2017
EBITDA to be 20%-25% Above 2016 Reported EBITDA of $884 million.

MANAGEMENT COMMENTARY

Performance and Outlook

The third quarter was a very active period for Mexichem. We announced a
definitive agreement to acquire 80% of Netafim, faced and overcame
significant issues due to the hurricane in Texas and successfully
completed a $1 billion global bond offering to fund the Netafim
acquisition. Throughout all this activity, Mexichem demonstrated the
resilience and the strength of our business model and strategies.

Mexichem's results continued to benefit from our balanced growth
strategy, prioritizing vertical integration, a broad portfolio
increasingly comprised of specialty products, and diversification across
key global markets. In the third quarter, we posted EBITDA growth of 21%
over the adjusted results of the similar period last year, on revenue
growth of 8%. This strong performance reflected Mexichem's significant
scale as a vertically-integrated PVC producer, our leadership in the
manufacturing and supply of Fluor products, and our positioning in high
growth specialty markets, particularly in Datacom products. Third
quarter EBITDA growth was led by double-digit, year-on year increases in
our Vinyl and Fluor Business Groups and in our Fluent US/Canada Business
Unit as well as solid year-on-year progress in Fluent Europe. These
favorable factors more than offset the impact of lower year-on-year
comparisons in Fluent LatAm and AMEA, where abrupt increases in PVC
prices, shortages of PVC due to "force majeure" conditions, and slower
economic conditions temporarily reduced profitability.

We are pleased by the strong EBITDA growth showed in the third quarter,
which has put us firmly on track to achieve the high end of our guidance
range for full year 2017.

Our Vinyl Business Group's EBITDA results were driven primarily by the
benefits of its vertical integration across the ethane to PVC value
chain following our multi-year investment in Mexichem's ethylene cracker
joint venture, as well as significant price increases compared to 2016
levels. Higher third quarter PVC prices reflected positive global supply
and demand factors, as well as short term increases due to the "force
majeure" conditions that took effect in the wake of hurricane Harvey's
impact on the Texas Gulf Coast.

In the Fluor Business Group, we saw significant revenue growth in both
our upstream and downstream businesses, for the first time in several
quarters. Demand from the major end markets for our fluorspar products,
namely steel and cement, has been improving, and refrigerant gas prices
continue trending above last year's levels.

Results in our Fluent Business Group were mixed. Higher raw material
costs tied to higher PVC prices weighed on the Group's EBITDA
performance mainly in Fluent LatAm where our products are mainly based
on PVC. Despite this headwind, Fluent Europe and Fluent US/Canada were
able to post solid increases in EBITDA compared to last year's third
quarter, primarily driven by strong demand for Datacom products.

In summary, our third quarter results were a solid reflection of the
strategy we put in place almost four years ago, when we took actions to
significantly improve our margin performance by building a diversified,
yet complementary business portfolio through investing in vertical
integration, organic projects and in acquisitions. Our companywide
EBITDA margin was nearly 20%, and for the trailing twelve months our
adjusted returns on equity and invested capital reached 8.0% and 7.3%,
respectively, representing improvements of 170 basis points and 80 basis
points, respectively, over last year's levels.

A major growth initiative that we announced in the third quarter was our
agreement to acquire an 80% stake in Netafim, the world's largest
irrigation company with 2016 sales of $855 million. In addition to
positioning Mexichem as the leader in the high growth micro irrigation
market, this is a transformative acquisition for our entire organization
as it accelerates our drive into specialty products and
solutions—providing a platform from which to create industrial solutions
around our existing product lines. In September, we successfully
completed an international bond offering that raised $1 billion at very
attractive interest rates to fund the Netafim transaction, which is
expected to close in early December.

Thanks to our strong operating cash flow, Mexichem has a track record of
paying down acquisition-related debt quickly. In the first nine months
of 2017, Operating Cash Flow before Capex was $380 million (12% higher
than first nine months of 2016), Free Cash Flow was $40 million a $62
million swing from the negative $22 million in the first nine months of
2016, and we anticipate returning to our target Net Debt to EBITDA
leverage ratio of below 2x within 18 months after the completion of the
Netafim acquisition.

Recent media reports mentioned sanctions imposed by the Mexican Nacional
Banking and Securities Commission (CNBV) on several individuals, one of
whom is a member of Mexichem´s board of directors. The Company states
that was never either part of the investigation nor was it sanctioned.
Mexichem has continually strengthened its corporate governance structure
and its compliance with applicable regulations, including those relating
to transactions related to its securities. None of the processes
indicated have any effect with respect to the Company.

Looking ahead, we expect Mexichem's strong performance to continue in
the fourth quarter. Our Vinyl Business Group stands to benefit from its
vertical integration and better pricing compared to last year; the Fluor
Business Group is positioned to capture improved demand in its upstream
operations and higher refrigerant gas prices; and our Fluent Business
Group, while affected by higher input prices, is seeing strong demand
for its Datacom products, and we expect a pick-up in LatAm results.
Based on our EBITDA performance to date and our visibility, we have
narrowed our EBITDA guidance to the high end of the original range we
provided, and now expect EBITDA growth of 20% to 25% from 2016 levels.

As we look to 2018, we continue to focus on increasing returns and
rolling out cross selling initiatives and operating efficiencies across
our organization. We believe Mexichem is well positioned to continue to
drive organic growth and that the synergies and opportunities provided
by Netafim will make this an excellent acquisition for our Company. We
have strong tailwinds in most of our businesses, and at the same time,
our strategies are yielding positive results. This combination underpins
our expectations for Mexichem's strong performance in 2018.

REVENUES

Third quarter 2017 revenues were $1.5 billion, up $111 million, or 8%,
from 3Q16 led by higher sales in all our Business Groups.

Revenue growth in our Resins, Compounds, and Derivatives business units
continues to be driven by positive market dynamics in the PVC industry
and supply constraints in the US due to the impact of hurricane Harvey
which resulted in additional PVC price increases in September. These
factors generated a 7% increase in revenues on a 1% decrease in volumes,
reflecting higher prices as well as the successful integration our
acquisition of U.K.-based Vinyl Compounds, Ltd.

Fluent Business Group revenues grew 5% or $35 million. Healthy revenue
growth in AMEA, Europe and US/Canada of 10%, 9% and 8%, respectively,
more than compensated for the 2% decline in LatAm, resulting primary
from a slower than expected economic recovery in Brazil.

Fluor Business Group revenues increased 22%, fueled by significant
revenue growth in both our upstream and downstream businesses, for the
first time in several quarters driven by demand from the major end
markets for our upstream products (met and acid grade fluorspar mainly),
namely the steel and cement industries, and higher refrigerant gas
prices mainly in Europe.

In 3Q17 the exchange rate translation effect had a positive impact on
consolidated sales of $14 million, mainly due to the appreciation of the
Euro and the Real against the US dollar.

For the 9M17 consolidated revenues increased $291 million or 7%
year-on-year to $4.4 billion. On a constant currency basis, total sales
would have increased 8% year-on-year. Foreign currency translations
reduced total sales by $29 million mainly coming from Turkish lira and
the GBP devaluations of 23% and 9% respectively, partially offset by an
11% Real revaluation in Brazil. Out of this 33%, 34% and 34% correspond
to Vinyl, Fluor and Fluent Business Groups, respectively.

SALES BY REGION (DESTINATION)

The United States represented 16% of total sales by destination in 9M17,
Germany accounted for 8% and Brazil and the UK represented 7% and 6%,
respectively.

EBITDA

EBITDA in 3Q17 was $297 million, compared to $468 million reported in
the third quarter of last year, when the one-time net benefit of $224
million associated with the PMV incident was recognized. EBITDA
increased 21% compared to 3Q16 adjusted EBITDA of $245 million. EBITDA
margin in 3Q17 was 19.7%, a 218 bps increase vs. adjusted EBITDA margin
in the 3Q16.

Despite the "Force Majeure" declared on September 1, 2017 due to the
landfall of hurricane Harvey, the Vinyl and Fluor Business Group´s
EBITDA increased $55 million (compared to adjusted figures in 3Q16), and
$9 million, respectively, while Fluent USA/Canada and Europe posted
double digit and high single digit EBITDA growth, respectively. These
positive results are explained by: i) Higher PVC prices when compared to
the 3Q16; ii) increased profitability from the vertical integration in
our Vinyl Business Group due to the start-up of commercial operations of
the ethylene cracker; iii) Improved refrigerant gas prices in the U.S.
associated with the ITC resolution announced by the Company on March
23th, 2017, as well as a better refrigerant gases price environment in
the EU; and iv) better than expected Fluent sales of "Last Mile" natural
gas distribution pipes in the U.S.A. EBITDA improvements were partially
offset by Fluent LatAm which was impacted by the challenging economic
environment, primarily in Brazil.

In 3Q17 the translation effect does not impact EBITDA due that currency
devaluations and revaluations in the countries where the functional and
reporting currency is not the US dollar, offset each other.

For the first nine months of 2017, EBITDA was $838 million, increases of
30% and 19%, respectively, vs reported and Adjusted EBITDA in 9M16.
EBITDA margin was 19.2%. On a constant currency basis, there was an
impact of $6 million on EBITDA. Exclusive of this impact, EBITDA would
have grown 31% and 20% compared to the first nine months reported and
adjusted EBITDA for 2016, respectively. This put us on track to achieve
the higher end of our EBITDA guidance range, and now we expect a 20% to
25% EBITDA increase vs reported 2016 EBITDA of $884 million.

OPERATING INCOME

For the 3Q17, Mexichem reported operating income of $196 million,
compared to the $385 million reported in the third quarter of 2016 when
the one-time net benefit of $224 million associated with the PMV
incident was recognized. Operating income increased 21% compared to the
$162 million adjusted operating income for 3Q16. The increase in
operating income was mainly the result of the factors mentioned above.

For the 9M17, operating income was $548 million, compared to the $398
million reported in the same period of 2016, an increase of 38%, while
compared to the adjusted numbers (without PMV's one-time effect),
operating income increased 19%.

FINANCIAL COSTS

During 3Q17 financial costs declined by $6 million or 12% compared to
the 3Q16. This can be explained by monetary gains of $5 million related
to the net obligations (liabilities less assets when liabilities are
higher than assets) booked in currencies other than the functional
and/or reporting currency for each country and $1 million related to
hyperinflationary benefits from Venezuela.

For the first 9M17 financial costs rose by $28 million or 21% to $163
million compared to the same period in 2016. This increase is mainly
related to the company's debt denominated in Mexican pesos, as this
currency appreciated against the US dollar during the period, generating
an FX loss of $19 million in the period, while in 2016 the Mexican peso
depreciated against the US dollar and a gain of $18 million was
registered. The prior year impact was partially offset by monetary gains
of $7 million related to the company's net obligations (liabilities less
assets when liabilities are higher than assets) booked in currencies
other than the functional and/or reporting currency for each country and
$2 million related to hyperinflationary benefits from Venezuela.

TAXES

In 3Q17 cash tax declined 5% or $2 million compared to 3Q16 due to
changes in the mix of Mexichem´s subsidiaries that generate net gains
and those with net losses. The effective tax rate increased to 41%
compared to 29% in 3Q16. This was mainly due to the reduction of the
deferred tax asset. During 3Q17 Mexichem used some of its net operating
losses (deferred tax asset) to offset taxable income associated with
foreign exchange gains generated by the 4.9% Mexican peso appreciation
effect against US dollar. This appreciation generated a tax FX gain in
the holding company in Mexico where the highest proportion of the US
dollar denominated debt of Mexichem is allocated.

For the first 9M17, cash taxes decreased from $128 million to $104
million mainly due to the impact of a currency appreciation in dollar
denominated account receivables mainly in our Fluor Business Group
reducing their taxable base, while deferred taxes reduced for the reason
explained above related to the appreciation of the Mexican peso against
the US dollar in relation to the dollar denominated debt in the holding
company.

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

In 3Q17, the Company reported Consolidated Net Income of $91 million and
a Net Majority Income of $61 million, compared to a reported
Consolidated Net Income and Net Majority income of $230 million and $161
million in the 3Q16 when the one-time benefit associated with PMV's
incident was recognized. Without that one-time effect, Consolidated Net
Income and Net Majority Income in 3Q16 were both $73 million

On an adjusted basis, Income from continuing operations before income
tax increased 37% in the 3Q17, while Consolidated Net Income increased
by 24%, due to the tax effects mentioned above. However, Income from
continuing operations after cash tax increased 57%, mainly due to the
use of bonus depreciation in our cracker JV in Texas.

On an adjusted basis Majority Net Income for the quarter declined 17%
mainly as a result of higher deferred taxes (non-cash) due to the
appreciation of the Mexican peso against US dollar which reduces
deferred tax asset and generates a deferred tax expense. Without the
deferred taxes impact, net income in 3Q17 would have increase more than
20%.

       
mm US$       Third Quarter
Income statement       2017   2016  

2016 w/o one time item

  %

17/Adj. 16

Income (loss) from continuing operations before income tax       152   335   111   37%
  Cash tax       34   36   36   -5%
Income (loss) from continuing operations after cash tax       118   299   75   57%
  Deferred taxes       28   61   (6)   N/A
Income (loss) from continuing operations       90   238   81   11%
  Discontinued operations       1   (8)   (8)   N/A
Consolidated net income (loss)       91   230   73   24%
  Minority stockholders       30   69   (0)   N/A
Net income (loss)       61   161   73   -17%
     

For the first nine months of 2017, the Company posted $236 million and
$180 million in Consolidated Net Income and Net Majority Income
respectively, compared to the $164 million and $191 million reported in
the same period of 2016.

On an adjusted basis, Income from continuing operations before income
tax was 18% higher, nonetheless Consolidated Net Income increased 7%, as
a result of the tax effects mentioned above. However, Income from
continuing operations after cash tax increased 41%, due to the use of
bonus depreciation in our cracker JV in Texas.

Net Majority Income decreased 19% from 9M16 to 9M17 on an adjusted basis
because all the effects abovementioned. Without the deferred taxes
impact explained above, Net Majority Income in 3Q17 would have increased
more than 1.5%.

       
mm US$       January - September
          2017   2016   2016 w/o one time item   %

17/Adj. 16

Income (loss) from continuing operations before income tax       386   266   328   18%
  Cash tax       104   128   128   -19%
Income (loss) from continuing operations after cash tax       282   139   200   41%
  Deferred taxes       47   (35)   (30)   N/A
Income (loss) from continuing operations       235   174   230   2%
  Discontinued operations       1   (10)   (10)   N/A
Consolidated net income (loss)       236   164   220   7%
  Minority stockholders       56   (27)   (3)   N/A
Net income (loss)       180   191   223   -19%
     

OPERATING CASH FLOW HIGHLIGHTS

           
mm US$       Third Quarter   January - September
        2017   2016   %Var.   2017   2016   % Var.
EBITDA       297   468   -37%   838   643   30%
One time non-cash Items       0   -220   -100%   0   57   -100%
Adjusted EBITDA minus cash item*       297   248   19%   838   700   20%
Cash Tax       -34   -36   -5%   -104   -128   -19%
Net Interest       -35   -37   -5%   -108   -113   -4%
Bank Commissions       -8   -9   -10%   -21   -20   4%
Exchange rate gains (losses)       -5   -10   -49%   -17   -25   -31%
Change in Trade Working Capital       0   10   -97%   -208   -74   182%
Operating Cash Flow Before Capex       215   166   29%   380   340   12%
CAPEX (Organic)       -54   -50   9%   -148   -150   -1%
CAPEX (Total JV)       -19   -69   -73%   -105   -299   -65%
CAPEX JV (OXY SHARE)       6   32   -80%   45   129   -65%
NET CAPEX JV       -13   -37   -66%   -60   -170   -65%
Total CAPEX (organic & JV)       -67   -87   -23%   -208   -320   -35%
Cash Flow Before Dividends       148   79   87%   172   20   751%
Dividends       -80   -14   468%   -132   -42   214%
Free Cash Flow       68   65   5%   40   -22   N/A
         
  • Operating Cash Flow before Capex grew 29% in the quarter as a result
    of higher EBITDA (without the PMV one-time non-cash impact), lower
    cash taxes and lower net interest costs and exchange rate losses.
    Working capital needs in the quarter increased vs 3Q16 due to the
    start-up of the cracker JV in Texas, and higher PVC and refrigerant
    gas prices, which increased accounts receivable and inventories.
  • Capital expenditures in 3Q17 decreased by 23% to $67 million, $6
    million of which was invested in the ethylene cracker, $7 million as
    carryover in PMV, and $54 million allocated to organic projects.

NET WORKING CAPITAL

           
        2017 Variation   2016 Variation
        sep-17   dec-16   D ($)   sep-16   dec-15   D ($)
Working Capital       392   184   -208   319   246   -74
         

As of September 30, 2017, working capital needs increased by $208
million compared to December 2016. This is $134 million higher than the
change in working capital of $74 million from September 2016 to December
2015 for the reasons described above.

FINANCIAL DEBT

       
        Last Twelve Months
        Sep 2017   Dec 2016
Net Debt USD million       1,563   1,587
Net Debt/EBITDA 12 M       1.4x   1.8x
Net Debt/Adj EBITDA 12 M       1.5x   1.7x
Interest coverage       5.6x   4.6x
Adj interest coverage       5.5x   4.8x
Outstanding shares (millions)       2,100   2,100
 
Net debt USD includes $1.2 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 as of September 30, 2017 was $2.3 billion, plus
$1.2 million in letters of credit with maturities of more than 180 days
for a total financial debt of $2.3 billion, while cash and cash
equivalents totaled $740 million, resulting in net financial debt of
$1.6 billion.

The Net Debt/EBITDA ratio was 1.4x at September 30, 2017, while Interest
Coverage was 5.6x. The Net Debt /Adjusted EBITDA ratio was 1.5x and
Adjusted Interest Coverage was 5.5x. Adjusted EBITDA in this case
excludes the one-time benefit net of expenses accrued in 3Q16, and the
benefit from our assembly insurance coverage included in the property
policy at the PMV plant that was recognized in 4Q16.

On September 27, 2017 Mexichem, reported that it successfully completed
a 144A / Reg S US$1 billion bond offering. The offering was comprised of
two tranches: a US$500 million bond that has a coupon of 4.00% and
matures in October 2027 and a US$500 million bond that has a coupon of
5.50% and mature in January 2048. The proceeds of the offering will be
used to finance Mexichem's recently announced acquisition of Netafim,
the world's largest micro-irrigation company, and for other corporate
purposes.

The competitive rates at which the bonds were placed and the fact that
the offering was more than 8 times oversubscribed, demonstrate the
market's confidence in Mexichem's growth strategy, future prospects and
disciplined financial management.

CONSOLIDATED BALANCE SHEET

         
          mm US$
Balance sheet       Sep 2017   Dec 2016
Total assets       8,788   8,354
Cash and temporary investments 740   714
Receivables 1,137 848
Inventories 681 606
Others current assets 471 392
  Long term assets       5,759   5,794
Total liabilities       4,942   4,772
Current portion of long-term debt 53 58
Suppliers 1,426 1,270
Other current liabilities 600 657
Long-term debt 2,248 2,241
  Other long-term liabilities       615   546

Consolidated shareholders' equity

      3,846   3,582
  Minority shareholders' equity       950   904
Majority shareholders' equity       2,896   2,678
Total liabilities & shareholders' equity       8,788   8,354
 

Financial Assets

On April 20th, 2016, an explosion occurred in the VCM plant inside the
Petrochemical Pajaritos Complex, where two of the three facilities of
PMV are located (VCM and Ethylene). The chlorine and caustic soda plant
is located on a separate site. There was no damage to the
chlorine-caustic soda plant, but there was business interruption in the
supply of raw material. The VCM plant (Clorados III) is the one that
sustained most of the damage, the major economic impact of which was the
write-off of the asset and the shutdown of that plant.

Mexichem's assets including those in PMV are adequately insured at
insurance issuance date replacement value, while the related non-cash
charge was calculated at book value. The Company's insurance coverage
includes: i) environmental responsibility, ii) damage to property, iii)
damage to assets during assembly process, iv) business interruption, v)
liability for damage to third parties, and vi) liability of directors
and officers.

During FY16 PMV recognized charges of: i) $285 million related to asset
write-off, of which $276 million were recognized in other expenses and
$9 million recognized in other comprehensive income (equity),
respectively; and ii) $42 million related to amounts of
indemnifications, legal expenses, and other costs. Together this
represented a charge in our P&L of $318 million and $9 million to our
Balance Sheet. Additionally, during the 9M17 we recognized $1.9 million
of other expenses related to PMV incident.

During the third quarter of 2016, PMV gathered sufficient information to
decide to recognize the account receivable related to insurance
coverage, which for the full year 2016 amounted to $276 million related
to property damage ($220 million), assembly insurance coverage ($20
million), and third-party expenses and expenses incurred under
directors' and officers' coverage ($36 million). The one-time expenses
were offset by the full year account receivable which generated a net
expense effect of $42 million. During 9M17 we add to the account
receivable we recognized during 3Q16 and 4Q16, the $1.9 million expenses
mentioned in previous paragraph.

Finally, during FY16, 1Q17 and 2Q17 PMV and Resins, Compounds and
Derivatives recognized income of $51 million, $17 million and $14
million, respectively, for business interruption that offset fixed costs
that were not absorbed and its margin.

PMV has presented its claims to its insurance companies. As of the end
of 3Q17 PMV recovered i) $7.5 million related to third party expenses
and ii) $32 million from business interruption. Resins, Compounds and
Derivatives received $6 million from business interruption on its
insurance claims. The rest have yet to be recovered.

Contingent Asset

PMV together with its shareholders, Mexichem & Pemex, are evaluating
several strategic options for the business in the future, which is why
the Company adopted a conservative policy with respect to the monetary
amount recognized in the account receivable, reflecting the stated cash
value of the plant as of December 31st, 2015. When the
business plan is finalized, the exact dollar amount of the account
receivable could change.

Contingent Liability

As a result of the VCM Plant (Clorados III) incident described in the
contingent asset disclosure, PMV performed an environmental assessment
to determine if any pollutants were deposited in areas surrounding the
facility, delivered the report to the environmental authorities and is
working with them in order to determine, if any, the environmental
damages. Also, PMV could be responsible for third party injuries, if
any. Based on the information the Company has as of this report, there
is no evidence that there are additional relevant liabilities.

As mentioned previously, depending on the decision taken by PMV and its
shareholders, once the future of the business is determined, PMV will
evaluate the impacts on the rest of its assets in the Pajaritos Complex.
The remaining fixed asset value of the PMV's plants inside Pajaritos
Complex was $198 million as of September 30, 2017.

CONSOLIDATED INCOME STATEMENT

       
mm US$       Third Quarter
INCOME STATEMENT       2017   2016   2016 w/o one time item   %

17/Adj. 16

  Net sales 1,505   1,394   1,394   8%
  Cost of sales       1,137   1,073   1,073   6%
Gross profit       368   321   321   15%
  Operating expenses       172   (64)   159   8%
Operating income (loss)       196   385   162   21%
Financial cost 44 50 50 -12%
  Equity in income of associated entity       (0)   0   0   N/A
Income (loss) from continuing operations before income tax       152   335   111   37%
Cash tax 34 36 36 -5%
  Deferred taxes       28   61   (6)   N/A
  Income tax       62   97   30   108%
Income (loss) from continuing operations       90   238   81   11%
  Discontinued operations       1   (8)   (8)   N/A
Consolidated net income (loss)       91   230   73   24%
  Minority stockholders       30   69   (0)   N/A
Net income (loss)       61   161   73   -17%
                       
EBITDA       297   468   245   21%
 
       
mm US$       January - September
INCOME STATEMENT       2017   2016   2016 w/o one time item  

%

17/Adj. 16

  Net sales 4,363   4,072   4,072   7%
  Cost of sales       3,316   3,094   3,094   7%
Gross profit       1,047   978   978   7%
  Operating expenses       499   580   518   -4%
Operating income (loss)       548   398   460   19%
Financial cost 163 135 135 21%
  Equity in income of associated entity       (1)   (3)   (3)   -63%
Income (loss) from continuing operations before income tax       386   266   328   18%
Cash tax 104 128 128 -19%
  Deferred taxes       47   (35)   (30)   N/A
  Income tax       151   93   98   54%
Income (loss) from continuing operations       235   174   230   2%
  Discontinued operations       1   (10)   (10)   N/A
Consolidated net income (loss)       236   164   220   7%
  Minority stockholders       56   (27)   (3)   N/A
Net income (loss)       180   191   223   -19%
                       
EBITDA       838   643   705   19%
 

OPERATING RESULTS BY BUSINESS GROUP

VINYL Business Group (39% and 44% of Mexichem's sales (before
eliminations) and EBITDA respectively, in 2017)

           
mm US$       Third Quarter   January - September
Vinyl       2017   2016   %Var.   2017   2016   % Var.
Volume (K Tons)       636   633   1%   1,920   1,894   1%
Total Sales*       581   537   8%   1,752   1,535   14%
Operating Income       79   267   -70%   229   74   211%
Adjusted Operating Income       79   44   82%   229   135   69%
EBITDA       130   299   -56%   367   171   115%
Adjusted EBITDA       130   75   73%   367   233   58%

 

*Intercompany sales were $37 million and $38 million in 3Q17 and
3Q16, respectively. And as of September 2017, and 2016 were $134
million and $111 million, respectively.
 
           
mm US$       Third Quarter   January - September
Resins, Compounds & Derivatives       2017   2016   %Var.   2017   2016   % Var.
Volume (K Tons)       558   562   -1%   1,709   1,653   3%
Total Sales*       562   523   7%   1,703   1,495   14%
Operating Income       83   43   93%   218   133   65%
EBITDA       128   69   85%   339   211   61%

 

*Intercompany sales were $46 million and $45 million in the 3Q17 and
3Q16, respectively, and as of September 2017 and 2016 were $156
million and $136 million, respectively. Of these amounts $9 million
and $7 million were invoiced to PMV in 3Q17 and 3Q16, respectively
and $22 million and $25 million accrued to September 2017 and 2016.
 
           
mm US$       Third Quarter   January - September
PMV       2017   2016   %Var.   2017   2016   % Var.
Volume (K Tons)       87   79   11%   235   333   -29%
Total Sales*       29   22   31%   76   98   -23%
Operating Income       -3   225   N/A   11   -59   N/A
Adjusted Operating Income       -3   1   N/A   11   3   284%
EBITDA       2   230   -99%   27   -40   N/A
Adjusted EBITDA       2   6   -66%   27   22  

23%

 

*Intercompany sales invoiced to Resins, Compounds and Derivatives
were $2 million and $1 million in 3Q17 and 3Q16, respectively. And,
as of September 2017 and 2016 were $4 million and $32 million,
respectively.
 

In 3Q17, the Vinyl Business Group reported a 1% increase in volumes, and
8% growth in sales to $581 million, reflecting better PVC dynamics
globally. Due to the impact of hurricane Harvey, PVC prices increased
even further in September especially in the U.S.

Also, results continue to benefit from the integration of Vinyl
Compounds, Ltd into our Compounds business.

EBITDA for the Vinyl Business Group was $130 million, compared to $299
million in 3Q16, when the one-time benefit of $224 million associated to
PMV (revenue of $252 million net of $28 million in expenses for the
3Q16) was recognized. EBITDA increased 73%, compared to the adjusted
EBITDA of 3Q16, this growth being a result of the improved trends
mentioned above, better PVC market conditions (prices and volumes),
product mix, efficiencies in our operations, and the benefits of our
increased vertical integration across the ethane to PVC value chain due
to the start of commercial operations of our JV ethylene cracker in
Texas. EBITDA margin was 22.4% in 3Q17 compared to 14% in the 3Q16 on an
adjusted basis. Ebitda for the Vinyl Business Group was slightly
negatively affected by our cracker´s shut down due to the impact of
Hurricane Harvey and the "force majeure" condition that our VCM supplier
declared, which also forced us to declare a "force majeure" on our PVC
business and caused a significant reduction in our compounds business
due to the abrupt increases in PVC prices. These last two effects should
not impact our fourth quarter results.

For the quarter, Resins, Compounds and Derivatives revenues and EBITDA
increased 7% and 85%, respectively, to $562 million and $128 million
from 3Q16 levels. Volumes declined 1% to 558 thousand tons. Revenues
benefited from better PVC market conditions, further price increases due
to the impact of hurricane Harvey, and our strategic acquisition of
Vinyl Compounds, Ltd. EBITDA improved mainly due to a decline in our PVC
cost of production because of our increased vertical integration and its
associated benefits in the Vinyl Business Group. Operating income for
Resins, Compounds and Derivatives was $83 million, an increase of 93%
from the adjusted $43 million registered in the third quarter of 2016.

In 3Q17, PMV sales were $29 million, the majority of which came from our
chlorine-caustic soda operations. It is important to note that EBITDA in
PMV was positive $2 million in 3Q17, which is fully related to its
operations, as the business interruption insurance coverage expired in
2Q17.

In the 9M17, the Vinyl Business Group's sales increased 14% due to
better market conditions in PVC. EBITDA was $367 million, 58% higher
than in 9M16 on an adjusted basis, mainly because of better PVC trends
and increased vertical integration across the ethane to PVC value chain
and its associated benefits, implying a 20.9% EBITDA margin, while in
9M16 Adjusted EBITDA Margin was 15.2%.

FLUENT Business Group (50% and 37% of Mexichem's sales (before
eliminations) and EBITDA, respectively, in 2017)

           
mm US$       Third Quarter   January - September
Fluent       2017   2016   %Var.   2017   2016   % Var.
Sales       785   750   5%   2,257   2,203   2%
Fluent LatAm       279   283   -2%   818   808   1%
Fluent Europe       357   327   9%   1,006   991   2%
Fluent US & Canada       120   111   8%   341   299   14%
Fluent AMEA       34   31   10%   108   111   -2%
Intercompany Eliminations       (5)   (2)   104%   (16)   (6)   182%
Operating Income       71   84   -15%   203   227   -10%
EBITDA       107   119   -10%   309   328   -6%
         

In 3Q17, the Fluent Business Group's sales were $785 million, a 5%
increase compared to the $750 million reported one year ago. Sales in
AMEA showed a 10% increase, while revenues in Europe and US/Canada rose
9% and 8%, respectively. Operations in LatAm, continued to reflect the
impact of a challenging economic environment in Brazil, while Colombia
has seen modest improvement.

                               
3Q16     mm US$     3Q17     3Q17     3Q17/3Q16
Sales         Sales     FX     Total     % Var
283     Fluent LatAm     279     2     281     -1%
327     Fluent Europe     357     -9     348     6%
111     Fluent US/Canada     120     0     120     8%
31     Fluent AMEA     34     0     34     10%
-2     Intercompany Eliminations     -5     0     - 5     150%
750     Total     785     -7     778     4%
           

On a constant currency basis, total sales in the Fluent Business Group
would have been $778 million, a $7 million benefit year-over-year,
mainly as a result of a 5% appreciation of the Euro which was offset by
depreciation of the Turkish Lira.

Third quarter EBITDA was $107 million, a 10% decrease compared to the
3Q16, mainly impacted by shortages of PVC due to the "force majeure",
abrupt increases in PVC prices which could not be passed though
immediately and the economic environment prevailing in Brazil. It is
noteworthy that EBITDA margin in the US/Canada continued to improve,
this time by 114 bps to 19% vs 3Q16; while margins in Europe remained
relatively stable at 14%. Fluent´s Consolidated EBITDA margin was 13.6%.
Operating income decreased 15% to $71 million.

EBITDA for the 3Q17 was benefited from currency translation effects of
$1 million.

For the first 9 months of 2017 revenues increased 2%, impacted by $9
million by a translation effect. On a neutral currency neutral basis,
sales would have been $2,266 million growing by 3% vs. same period 2016.

                               
9M16     mm US$     9M17     9M17     9M17/9M16
Sales         Sales     FX     Total     % Var
808     Fluent LatAm     818     -21     797     -1%
991     Fluent Europe     1,006     31     1,037     5%
299     Fluent US/Canada     341     -1     340     14%
111     Fluent AMEA     108     0     108     -3%
-6     Intercompany Eliminations     -16     0     - 16     167%
2,203     Total     2,257     9     2,266     3%
           

For the first nine months of 2016 EBITDA declined 6% compared to the
same period in 2016 due to the abovementioned effects. EBITDA margin was
13.7%.

On a constant currency basis EBITDA for the nine months ended on
September 2017 would have decreased 5% to $312 million, implying an
EBITDA margin of 13.8%.

FLUOR BUSINESS GROUP (11% and 23% of Mexichem's sales (before
eliminations) and EBITDA, in 2017)

           
mm US$       Third Quarter   January - September
Fluor       2017   2016   %Var.   2017   2016   % Var.
Sales       177   145   22%   495   449   10%
Operating Income       56   46   20%   153   136   13%
EBITDA       68   59   15%   192   174   10%
         

In 3Q17, the Fluor Business Group reported a 22% increase in sales,
reflecting significant growth in both the upstream and the downstream
parts of the business due to improved demand for the fluorspar from the
cement and steel industries for fluorspar, as well as, in higher
refrigerant gas prices because of the ITC resolution announced by
Mexichem on March 23th, 2017 and better than expected refrigerant gas
prices in Europe.

EBITDA grew 15% year-over-year to $68 million, implying an EBITDA margin
of 38.4%. Operating income was $56 million, a 20% year-over-year
increase. Revenues were up 10% in the first nine months of 2017 to $495
million, YTD EBITDA increased by 10% to $192 million while EBITDA margin
was 38.7%. In the first nine months of 2017, operating income increased
13% to $153 million.

Clarifications

  • As reported in 4Q16, as part of our core strategy of shifting to
    higher margin products in our Fluent Business Group, at the end of
    1Q16 we decided to exit from our pressure pipe business in the US,
    which impacted our Fluent US/ AMEA Business. This decision was made in
    order to shift our capacity from pressure pipes, where products have
    low margins to Datacom, where margins are higher. As a result, our
    1Q16 consolidated figures and Fluent segment figures differ from those
    presented in this report. This is due to the reclassification of
    Fluent's pressure pipe business as discontinued operations, which had
    a net effect of $4 million, $7 million and $7 million on revenues and
    $1.4 million, $2.4 million and $2.3 million on EBITDA during 1Q16,
    2Q16 and 3Q16, respectively.
  • In 2016, Mexichem performed an analysis to determine whether the
    company is the "agent" or "principal" in terms of IAS 18 Revenue, in
    order to determine how freight costs should be recorded and reported
    on our P&L. The conclusion was that the company is "principal" and
    that freight costs should be included in Cost of Goods Sold (COGS)
    instead of Sales, General and Administrative Expenses (SG&A), as it
    was during the first three quarters of 2016 and in previous years.
    Consequently, in the fourth quarter of 2016, we reclassified the FY16
    freight costs from SG&A to COGS.

The freight costs related to the 1st, 2nd, 3rd and 4th quarters of 2016
were $73 million, $79 million, $78 million and $70 million,
respectively. For the 2016 1st, 2nd, and 3rd quarters freight costs
impacted 4Q16 COGS. This reclassification does not have any effect on
EBITDA, but it does have an effect on reported gross profit.

The restructured figures with the abovementioned effects are shown in
Appendix I.

  • Effective 1Q17, management has decided to separate reporting of the
    Fluent Group's US and AMEA operations. From this quarter forward we
    will report four business regions for Fluent, namely: LatAm. Europe,
    US and AMEA.
  • As announced in our 4Q16 earnings report, Mexichem's Audit Committee
    and Board of Directors have authorized a change in the Company's
    accounting policy related to fixed asset valuation from the
    revaluation method to the historical cost recognition method.
    Effective in 1Q17, Mexichem reduced its fixed assets by $452 million,
    deferred taxes by $136 million and equity value by $316 million on its
    balance sheet by eliminating the revaluation value that has been
    accrued since Mexichem adopted IFRS in 2010. For comparative purposes,
    starting with this quarterly report, and during 2017, Mexichem will
    include Appendix I and Appendix II in its quarterly information
    showing the 2016 changes in depreciation on the Income Statement, as
    well as the changes in fixed assets, deferred taxes and equity value
    on its Balance Sheet as if the accounting policy change would have
    been authorized in 1Q16. Additional details are contained on page 25.
  • On February 27th, Mexichem announced that its ethylene cracker 50/50
    joint venture with Occidental Chemical Corporation (OxyChem), a
    subsidiary of Occidental Petroleum Corporation (NYSE:OXY), which is
    located at OxyChem's Ingleside, Texas complex, began operations on
    schedule and on budget. The ethylene cracker is currently in a
    production stabilization phase. The cracker, which will be operated by
    OxyChem, has the capacity to produce 1.2 billion pounds (550,000
    metric tons) of ethylene per year and provide OxyChem with an ongoing
    source of ethylene for manufacturing vinyl chloride monomer (VCM),
    which Mexichem will use to produce polyvinyl chloride (PVC resin) and
    PVC piping systems. The companies have a 20-year supply agreement. Due
    to this, all the figures in this report include the results of
    Ingleside Ethylene, LLC.

RECENT EVENTS

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

Conference Call Details:

Mexichem will host a conference call to discuss its 3Q17 results on
October 26, 2017 at 10:00 am Mexico City /11:00 NY. To access the call,
please dial 001-855-817-7630 (Mexico), or 1-888-349-0106 (United States)
or 1-412-902-0131 (International). All callers should dial in a minimum
of 15 minutes prior to the start time and ask for the Mexichem
conference call.

The call will also be available through an audio only live webcast
http://services.choruscall.com/links/mexichem161027.htmluntil
January 26, 2018http://services.choruscall.com/links/mexichem150722.html.
A replay of the call will be available approximately two hours after the
end of the call. The replay can be accessed via Mexichem's website at www.mexichem.comwww.mexichem.com

RECONCILIATION SUMMARY BY BUSINESS GROUP

Third Quarter 2017 Financial and Operating Highlights

                                                     
Quarter       Sales   EBITDA   EBITDA Margin   EBITDA Adjusted   EBITDA Margin Adjusted
mm US$       3Q16   3Q17   %Var.   3Q16   3Q17   %Var.   3Q16   3Q17   bps   3Q16   3Q17   %Var.   3Q16   3Q17   bps
Vinyl       537   581   8%   299   130   -57%   55.7%   22.4%   - 3,327   75   130   73%   14.0%   22.4%   838
Fluent       750   785   5%   119   107   -10%   15.9%   13.6%   - 226   119   107   -10%   15.9%   13.6%   - 226
Fluor       145   177   22%   59   68   15%   40.8%   38.6%   - 225   59   68   15%   40.8%   38.6%   - 225
Energy       0   0       0   0               -   0   0               -
Eliminations/ Holding       -38   -38   0%   -9   -8   -11%   24.7%   22.2%   - 256   -9   -8   -11%   24.7%   22.2%   - 256
Mexichem Consolidated       1,394   1,505   8%   468   297   -37%   33.6%   19.7%   - 1,387   245   297   21%   17.5%   19.8%   220
                                 
                                   
3Q16     mm US$     3Q17           3Q17     3Q17/3Q16
Sales         Sales     FX     Total     % Var
537     Vinyl     581     -8     573     7%
750     Fluent     785     -7     778     4%
1,287     Ethylene (Vinyl + Fluent)     1,366     -15     1,351     5%
145     Fluor     177     1     178     23%
0     Energy     0     0     0      
-38     Eliminations / Holding     -38     0     - 38     0%
1,394     Total     1,505     -14     1,491     7%
           
     

 

         

 

                 
3Q16     3Q16 Adj. mm US$ 3Q17           3Q17     3Q17/3Q16
EBITDA     EBITDA         EBITDA     FX     Total     % Var
299     75     Vinyl     130     -1     129     72%
119     119     Fluent     107     1     108     -9%
418     194     Ethylene (Vinyl + Fluent)     237     0     237     22%
59     59     Fluor     68     0     68     15%
0     0     Energy     0     0     0      
-9     -9     Eliminations / Holding     -8     0     - 8     -11%
468     245     Total     297     0     297     21%
 

Sub=Subtotal

First Nine Months 2017 Financial and Operating Highlights

                                                     
        Sales   EBITDA   EBITDA Margin   EBITDA Adjusted   EBITDA Margin Adjusted
mm US$       9M16   9M17   %Var.   9M16   9M17   %Var.   9M16   9M17   bps   9M16   9M17   %Var.   9M16   9M17   bps
Vinyl       1,535   1,752   14%   171   367   115%   11.1%   20.9%   980   233   367   58%   15.2%   20.9%   578
Fluent       2,203   2,257   2%   328   309   -6%   14.9%   13.7%   - 118   328   309   -6%   14.9%   13.7%   - 118
Fluor       449   495   10%   174   192   10%   38.7%   38.7%   8   174   192   10%   38.7%   38.7%   8
Energy       1   1   0%   1   1               -   1   1               -
Eliminations / Holding       -116   -142   22%   -31   -31   0%   26.2%   21.5%   - 468   -31   -31   0%   26.2%   21.5%   - 468
Mexichem Consolidated       4,072   4,363   7%   643   838   30%   15.8%   19.2%   341   705   838   19%   17.3%   19.2%   190
                                 
                                   
9M16     mm US$     9M17     9M17     9M17/9M16
Sales         Sales     FX     Total     % Var
1,535     Vinyl     1,752     10     1,761     15%
2,203     Fluent     2,257     9     2,266     3%
3,738     Ethylene (Vinyl + Fluent)     4,009     19     4,028     8%
449     Fluor     495     10     505     12%
1     Energy     1     0     1      
-116     Eliminations / Holding     -142     0     -142     22%
4,072     Total     4,363     29     4,392     8%
           
     

 

         

 

                 
9M16     9M16 mm US$ 9M17     9M17     9M17/9M16
EBITDA     EBITDA Adj         EBITDA     FX     Total     % Var
171     233     Vinyl     367     1     368     58%
328     328     Fluent     309     3     312     -5%
499     560     Ethylene (Vinyl + Fluent)     676     4     680     21%
174     174     Fluor     192     2     194     11%
1     1     Energy     1     0     1      
-31     -31     Eliminations / Holding     -31     0     -31     0%
643     705     Total     838     6     844     20%
 

About Mexichem

Mexichem is a global leader in plastic piping, one of the most
cost-efficient PVC producer and one of the world's largest chemical and
petrochemical companies. Mexichem contributes to global development by
delivering an extended portfolio of products to high growth sectors such
as infrastructure, housing, Datacom, water management, among others.
With operations in over 30 countries, Mexichem's global footprint
includes more than 18,000 employees, 120 plants, 2 fluorite mines, 15
R&D laboratories and 8 training academies. Mexichem has annual revenues
of US$5.4 billion, it has over 50 years of history and more than 30
years trading on the Mexican Stock Exchange. The company is member of
the Mexican Stock Exchange Sustainability Index and the sustainability
emerging markets index FTSE4Good.

Forward-looking Statements

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 Mexichem's 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.
Mexichem's 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
mexichem@ethic-line.com.
Mexichem's Audit Committee will be notified of all complaints for
immediate investigation.

INDEPENDENT ANALYSTS

Currently, the following investment firms have analysts who cover
Mexichem:

1. -Actinver

2. -Bank of America Merrill Lynch

3. -Banorte-Ixe

4. -Barclays

5. -BBVA Bancomer

6. -Bradesco BBI

7. -BTG Pactual

8. -Citigroup

9. -Credit Suisse

10. -GBM-Grupo Bursátil Mexicano

11. -Grupo Santander

12. -HSBC

13. -Intercam

14. -Invex Casa de Bolsa

15. -Interacciones

16. -ITAU BBA

17. -JP Morgan

18. -Morgan Stanley

19. -Monex

20. -UBS

21. -Vector

INTERNAL CONTROL

Mexichem's 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 company's
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: CONSOLIDATED RESTRUCTURED FIGURES OF QUARTERLY RESULTS AS
A CONSEQUENCE OF FLUENT BUSINESS GROUP'S DISCONTINUED OPERATIONS,
FREIGHT RECLASSIFICATIONS AND FIXED ASSET ACCOUNTING POLICY CHANGES

CHANGES 1Q16

       
mm US$       Changes reported in 1Q16
INCOME STATEMENT       1Q16 reported   Disc.operations and freight reclassification   Fixed assets   Disc.operations, freight reclassification and fixed assets   1Q16 adjusted
  Net sales 1,262   (4)   -   (4)   1,258
  Cost of sales       903   67   (8)   59   962
Gross Profit       359   (71)   8   (63)   296
  Operating expenses       250   (72)   (3)   (75)   175
Operating Income       109   1   11   12   121
Financial cost 43 - - - 43
  Equity income of associated entities       (1)   -   -   -   (1)
Income from continued operations before income tax       67   1   11   12   79
Cash tax 40 - - - 40
  Deferred tax       (22)   1   4   5   (17)
Income Tax       18   1   4   5   23
Income from continued operations       49   -   7   7   56
  Discontinued Operations       1   -   -   -   1
Net Consolidated Income       50   -   7   7   57
  Minority Interest       (1)   -   -   -   (1)
Net Majority Income       51   -   7   7   58
                           
EBITDA       200   1   -   1   201
 

CHANGES 2Q16

                   
mm US$       Changes reported in 2Q16
INCOME STATEMENT       2Q16 reported   Disc.operations and freight reclassification   Fixed assets   Disc.operations, freight reclassification and fixed assets   2Q16 adjusted
  Net sales 1,427   (7)   -   (7)   1,420
  Cost of sales       998   70   (8)   62   1,060
Gross Profit       429   (77)   8   (69)   360
  Operating expenses       549   (79)   -   (79)   470
Operating Income       (120)   2   8   10   (110)
Financial cost 43 - - - 43
  Equity income of associated entities       (3)   -   -   -   (3)
Income from continued operations before income tax       (160)   2   8   10   (150)
Cash tax 52 - - - 52
  Deferred tax       (82)   1   2   3   (79)
Income Tax       (30)   1   2   3   (27)
Income from continued operations       (130)   1   6   7   (123)
  Discontinued Operations       1   (1)   -   (1)   -
Net Consolidated Income       (129)   -   6   6   (123)
  Minority Interest       (96)   -   -   -   (96)
Net Majority Income       (33)   -   6   6   (27)
                           
EBITDA       (29)   2   -   2   (27)
 

CHANGES 3Q16

       
mm US$       Changes reported in 3Q16
INCOME STATEMENT       3Q16 reported   Disc.operations and freight reclassification   Fixed assets   Disc.operations, freight reclassification and fixed assets   3Q16 adjusted
  Net sales 1,400   (7)   -   (7)   1,393
  Cost of sales       1,012   69   (8)   61   1,073
Gross Profit       388   (76)   8   (68)   320
  Operating expenses       14   (79)   -   (79)   (65)
Operating Income       374   3   8   11   385
Financial cost 50 - - - 50
  Equity income of associated entities       -   -   -   -   -
Income from continued operations before income tax       324   3   8   11   335
Cash tax 36 - - - 36
  Deferred tax       57   1   2   3   60
Income Tax       93   1   2   3   96
Income from continued operations       231   2   6   8   239
  Discontinued Operations       (7)   (2)   -   (2)   (9)
Net Consolidated Income       224   -   6   6   230
  Minority Interest       69   -   -   -   69
Net Majority Income       155   -   6   6   161
                           
EBITDA       466   2   -   2   468
 

CHANGES 4Q16

       
mm US$       Changes reported in 4Q16
INCOME STATEMENT       4Q16 reported   Disc.operations and freight reclassification   Fixed assets   Disc.operations, freight reclassification and fixed assets   4Q16 adjusted
  Net sales 1,260   18   -   18   1,278
  Cost of sales       1,230   (205)   (10)   (215)   1,015
Gross Profit       30   223   10   233   263
  Operating expenses       (122)   232   (1)   231   109
Operating Income       152   (9)   11   2   154
Financial cost 28 - - - 28
  Equity income of associated entities       1   -   -   -   1
Income from continued operations before income tax       123   (9)   11   2   125
Cash tax 62 - - - 62
  Deferred tax       (20)   (3)   5   2   (18)
Income Tax       42   (3)   5   2   44
Income from continued operations       81   (6)   6   -   81
  Discontinued Operations       (5)   6   -   6   1
Net Consolidated Income       76   -   6   6   82
  Minority Interest       11   -   -   -   11
Net Majority Income       65   -   6   6   71
                           
EBITDA       247   (6)   -   (6)   241
 

CHANGES FY16

       
mm US$      

Changes reported in 2016

INCOME STATEMENT      

2016 reported

 

Disc.operations and freight reclassification

 

Fixed assets

 

Disc.operations, freight reclassification and fixed assets

 

2016 adjusted

  Net sales 5,349   -   -   -   5,349
  Cost of sales       4,143   1   (34)   (33)   4,110
Gross Profit      

1,206

 

(1)

 

34

 

33

 

1,239

  Operating expenses       691   2   (4)   (2)   689
Operating Income      

515

 

(3)

 

38

 

35

 

550

Financial cost 164 - - - 164
  Equity income of associated entities       (3)   -   -   -   (3)
Income from continued operations before income tax      

354

 

(3)

 

38

 

35

 

389

Cash tax 190 - - - 190
  Deferred tax       (67)   -   13   13   (54)
Income Tax      

123

 

-

 

13

 

13

 

136

Income from continued operations      

231

 

(3)

 

25

 

22

 

253

  Discontinued Operations       (10)   3   -   3   (7)
Net Consolidated Income      

221

 

-

 

25

 

25

 

246

  Minority Interest       (17)   -   -   -   (17)
Net Majority Income      

238

 

-

 

25

 

25

 

263

                           
EBITDA      

884

 

-

 

-

 

-

 

884

 

APPENDIX II: CONSOLIDATED RESTRUCTURED FIGURES OF BALANCE SHEET BY
QUARTER AS A CONSEQUENCE OF FIXED ASSET ACCOUNTING POLICY CHANGES

                                                                         
mm US$                                                                        
        Consolidated 2015   Adjustments   Consolidated 2015 Adjusted     Consolidated March 2016   Adjustments   Consolidated March 2016 Adjusted     Consolidated June 2016   Adjustments   Consolidated June 2016 Adjusted     Consolidated September 2016   Adjustments   Consolidated September 2016 Adjusted     Consolidated December 2016   Adjustments   Consolidated December 2016 Adjusted
Current Assets                                          
Cash and Cash equivalents 653 - 653 586 - 586 662 - 662 651 - 651 714 - 714
Net Account Receivable 884 - 884 975 - 975 988 - 988 1,277 - 1,277 1,181 - 1,181
Other current assets 698 - 698 716 - 716 702 - 702 704 - 704 644 - 644
Assets held for sale       17   -   17     16   -   16     15   -   15     15   -   15     21   -   21
Total Current Assets       2,252   -   2,252     2,293   -   2,293     2,367   -   2,367     2,647   -   2,647     2,560   -   2,560
Property, plant and equipment 4,203 (471) 3,732 4,305 (462) 3,843 4,167 (456) 3,711 4,213 (450) 3,763 4,202 (452) 3,750
Net other assets       2,215   -   2,215     2,242   -   2,242     2,228   -   2,228     2,222   -   2,222     2,044   -   2,044
Total Assets       8,670   (471)   8,199     8,840   (462)   8,378     8,762   (456)   8,306     9,082   (450)   8,632     8,806   (452)   8,354
                                                                         
Current Liabilities                                                                        
Bank loans and current portion of long-term debt 44 - 44 61 - 61 62 - 62 64 - 64 58 - 58
Suppliers and letters of credit of suppliers 1,201 - 1,201 1,240 - 1,240 1,244 - 1,244 1,292 - 1,292 1,270 - 1,270
Other current liabilities 554 - 554 513 - 513 604 - 604 558 - 558 645 - 645
Liabilities associated with asset held for sale       20   -   20     16   -   16     15   -   15     18   -   18     13   -   13
Total Current Liabilities       1,819   -   1,819     1,830   -   1,830     1,925   -   1,925     1,932   -   1,932     1,986   -   1,986
Bank loans and long-term debt 2,291 - 2,291 2,280 - 2,280 2,264 - 2,264 2,249 - 2,249 2,241 - 2,241
Long-term other liabilities       882   (142)   740     931   (137)   794     815   (135)   680     889   (132)   757     682   (136)   546
Total Liabilities       4,992   (142)   4,850     5,041   (137)   4,904     5,004   (135)   4,869     5,070   (132)   4,938     4,909   (136)   4,773
Capital stock 1,755 - 1,755 1,755 - 1,755 1,755 - 1,755 1,755 - 1,755 1,755 - 1,755
Retained earnings 1,007 256 1,263 1,074 263 1,337 1,036 269 1,305 1,192 274 1,466 1,126 281 1,407
Other comprehensive income       140   (569)   (429)     154   (572)   (418)     192   (575)   (383)     176   (577)   (401)     98   (582)   (484)
Controlling interest       2,902   (313)   2,589     2,983   (309)   2,674     2,983   (306)   2,677     3,123   (303)   2,820     2,979   (301)   2,678
Non-controlling interest       776   (16)   760     816   (16)   800     775   (15)   760     889   (15)   874     918   (15)   903
Total stockholders' equity       3,678   (329)   3,349     3,799   (325)   3,474     3,758   (321)   3,437     4,012   (318)   3,694     3,897   (316)   3,581
 

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