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Synergies
that generate
results
A N N UA L R E P O R T 2 0 0 9
I
01 Introduction
02 Financial highlights
02 Relevant events 2009
04 Message to stockholders
06 Synergies that generate diversification
09 Synergies that generate efficiency
10 Synergies that generate growth
13 Synergies that generate better quality of life
14
Synergies for a better world
16 Analysis and discussion of results
18
Share information
20 Board of directors
21 Corporate governance
22 Audited financial statements
We are among the five
most efficient producers
in the world and are the
largest PVC resin and pipe
manufacturer in Latin America. Our
chlorine and caustic soda facilities are among
the largest
in the region.
No 1 in Latin
America
II
CORPORATE
VALUES
RESULTS ORIENTED
We believe in the efficiency and
excellence of operational performance
and in delivering positive results with
sustained growth.
LEADERSHIP
We are focused on innovation and the
generation of processes and products
that have an influence in the market and
industry.
Aluminum f lu o r i d e
INTEGRITY
We are an ethical, honest, and trustworthy
firm that acts appropriately and
responsibly. We value commitment.
Chlorine
COMMITMENT
We believe in dedication, focus, and
teamwork. We follow through on our
commitments, exceeding expectations.
RESPONSIBILITY
We treat others fairly and kindly, acting in
the same manner in our communities. We
care for the environment.
Phosphates
SAFETY
We ensure the safety of our facilities
and the protection of our people,
communities, and surroundings.
PROFILE
Currently, the group’s strategy
is focused on the chemical and
petrochemical sectors through
three product chains: the
chlorine-vinyl chain; the fluorine
chain; and the transformed
products chain (piping and
compounds).
B
Caustic soda
Mexichem is a group of Mexican chemical and
petrochemical companies that are leaders in the Latin
American market. Our corporate culture focuses on creating
value for our stockholders and on social responsibility.
VISION
To be respected and admired globally as a multinational chemical company oriented
towards performance that promotes and contributes to human progress.
MISSION
To transform chemicals and petrochemicals into products, services, and solutions
for the construction, agriculture, and other industrial sectors through our vertical
integration, proactive innovation, and focus on the market’s needs, generating
continuous value for our employees, partners, clients, and stockholders and
helping improve people’s quality of life.
Hydrof luoric acid
PVC
G e os y nthetic s
So dium hyp ochlorite
C
At Mexichem, we know the meaning
of the word “synergy”. To us, it’s not just a
concept; we create synergies that generate
results. Therefore, for Mexichem 2+2 = 6, since by
working together, we create results that are much
better than expected. This concept is
a fundamental factor in each strategic decision
we make, defining the company’s future.
Thanks to recent
acquisitions, we have
positioned ourselves as
the leading producer of PVC piping
in Latin America, with plants in
14 countries and sales throughout nearly
the entire region.
presence in
29 countries
1
RELEVANT
FINANCIAL INFORMATION
2009
Mexichem, S.A.B. de C.V., in millions of Mexican pesos as of December 31, 2009 and 2008
2009
2008 Variation
Net sales
30,699 31,072 -1%
Gross profit
11,196 9,316 20%
Controlling interest
2,932 115 2442%
Operating cash flow (EBITDA) 6,844 5,236 31%
Free cash flow
3,410 3,477 -2%
Total assets
40,293 33,286 21%
Cash and cash equivalents
10,367 4,007 159%
Accounts receivable
5,430 5,258 3%
Inventories
2,987 3,962 -25%
701 950 -26%
20,808 19,109 9%
Total liabilities
26,841 24,807 8%
Current liabilities
10,384 13,764 -25%
Long-term liabilities
16,457 11,043 49%
Total stockholders’ equity
13,453 8,480 59%
42 110 -62%
13,411 8,370 60%
Other liquid assets
Long-term assets
Noncontrolling interest
RELEVANT EVENTS 2009
JANUARY
SEPTEMBER
Acquisition of remaining 30% of DVG Indústria e Comercio
de Plásticos Limitada (Plastubos) for approximately USD18.5
million.
Inauguration of the aluminum fluoride plant in Matamoros,
Tamaulipas, which has an installed capacity of 60
thousand tonnes per year. With this plant Mexichem
placed Mexico at the forefront in the production of metals,
since aluminum fluoride is an essential element in the
production of aluminum metal.
MARCH
Acquisition of Tubos Flexibles, S.A. de C.V., located in Mexico,
with more than 50 years in the market and four plants that
produce and market pipe and connections made of PVC,
CPVC, polyethylene, and polypropylene.
AUGUST
Increase in capital of 153,600,000 new shares, which
represented a capital increase of MXN2.258 billion. Mexichem’s
share structure after the capital increase: control group 65%,
investors 35%.
2
First placement of Certificados Bursátiles (domestic notes)
in the Mexican debt market; we issued MXN2.5 billion of
5-year bullet notes at a floating rate of 244 basis points
over the 28-day Interbank Equilibrium Interest Rate (TIIE).
The resources obtained were used to refinance debt and
extend the debt maturity profile, leaving only 15% of total
debt with short-term maturities.
07
SALES
In millions of Mexican
pesos
09
05
06
3,410
1,805
3,477
3,447
4,995
3,754
3,193
08
1,998
06
1,662
10,417
23,017
9,816
05
-1.9%
3,177
+33%
30,699
31,072
-1.2%
07
08
09
05
06
07
08
09
OPERATING
INCOME
FREE CASH
FLOW
pesos
pesos
SUBSEQUENT EVENTS 2010
OCTOBER
JANUARY
Purchase of the remaining 50% interest in Geon Andina,
located in Cartagena, Colombia, thus concluding the joint
venture with Polyone.
Inauguration of the sulfur extraction mine in Jaltipán,
Veracruz, which forms part of the subsidiary Unión Minera
del Sur, which is integrated into Mexichem’s Fluorine Chain.
NOVEMBER
MARCH
First placement of an international bond; we issued a
USD350 million, 10-year bullet bond with an 8.75% coupon.
The resources obtained will be used for general corporate
purposes, including working capital and possible future
acquisitions.
Acquisition of INEOS Flúor, through which Mexichem Flúor
becomes the largest producer of fluorite in the world,
second largest global producer of hydrofluoric acid and
the only vertically integrated producer of refrigerants in
America.
Sale of Mexichem’s subsidiary Mexichem Estireno, S.A. de
C.V., to Mexalit, S.A. de C.V., in order to focus our business on
the range of products with higher added value.
3
Message
to Stockholders
Dear stockholders:
The deep financial crisis that unfolded in the last quarter of 2008
We achieved a 31% increase in earnings before interest, taxes,
had its greatest impact in the first nine months of 2009, when the
depreciation, and amortization (EBITDA), in spite of signifi-
world faced a global recession that caused markets to crash, de-
cant reductions in demand for products such as metallurgical
valued currencies, and caused the loss of millions of jobs. Mexico
grade fluorspar, caustic soda—whose price plummeted—and
was not the exception. Due to its strong economic dependence
phosphates.
on the United States, Mexico’s GDP dropped almost 7%, and the
Mexican economy was one of the most negatively affected in the
In contrast, sales volume of PVC piping and resin maintained and,
world. This drop was provoked by the decrease in oil prices and
in some cases, even increased, and margins improved, since raw-
the collapse of exports to the United States. This principally affec-
material prices decreased considerably. In the face of the crisis,
ted the companies with greater investments in that country or
our vertical integration and orientation towards Latin America
with a very high volume of exports, as was the case with cement,
proved to be a good choice. In 2009 we acquired Tubos Flexibles,
automobiles and auto-parts, and assembly plants, among others.
S.A. de C.V., to continue the consolidation of the plastic piping
industry in our country, which continues to be very fragmented,
Since Mexichem’s markets are
primarily in Latin America, we
maintained revenues at the same
level as last year.
with small and inefficient producers.
As a result of the economic crisis, and in contrast to
Mexichem’s recent history, this was the only acquisition of
the period, although we are preparing to continue with our
growth plan as of 2010. For this reason, we consolidated our
financial position with a MXN2.258 billion capital increase,
the issuance of 5-year notes in Mexico for MXN2.5 billion and
the launching of our first bond in the international market,
USD350 million of 10-year notes.
With these three transactions, we virtually eliminated our shortterm debt and, at December 31, recorded a net-debt-to-EBITDA
ratio of below 1.0x and cash on hand for new acquisitions of
USD793 million.
In February 2010 we announced the acquisition of Ineos Flúor,
which we concluded at the end of March this year, and we again
presented a request to the National Commission for Competition
for the acquisition of Policyd and Plásticos Rex, which we assume
will be favorably resolved in April as we have complied with all
conditions and requirements that have been imposed.
4
With the acquisition of Ineos Flúor and the inauguration of the plants in
Tamaulipas and Veracruz, we fully integrated our Fluorine Chain, and we
expect excellent results starting in the second quarter of 2010.
In September 2009 we inaugurated the aluminum fluoride
and support. I would also like to thank our board of directors
production plant in Matamoros, Tamaulipas, and in January
and employees who have made Mexichem what it is today. I
2010 we opened the sulfur production plant in Jáltipan,
extend my thanks to all of them for their leadership, dedica-
Veracruz. Thanks to the aforementioned acquisition and the
tion, and efforts.
opening of both plants, we fully integrated our Fluorine
Chain, from which we expect excellent results starting in the
second quarter of 2010.
April 29, 2010
We still await the conclusion of the strategic integration in
the Chlorine Vinyl Chain, in which we will partner with Pemex
or another foreign company to produce VCM, the principal
raw material for the production of PVC.
Caring for the environment and long-term sustainability is,
Antonio del Valle Ruiz
and has always been, a clear priority for Mexichem. Therefore,
Chairman of the Board of Directors
we developed our sustainability report based on GRI indicators, G3 version, for which we obtained a level B according to
the Level Application Chart of that organization. We again obtained CSR certification issued each year by CEMEFI, which is
Mexico’s most important organization in terms of stimulating
and promoting Corporate Social Responsibility (CSR).
We are very optimistic about 2010. We believe Mexico will
increase its GDP more than 5% and that the same will occur
in the major Latin American countries where we operate.
In the fluorine production chain, we have plants in Europe
(Runcorn, England) and East Asia (Mihara, Japan) and a large
plant in the US in San Gabriel, Louisiana. In 2010, there may
be an opportunity to attempt to globalize another of our
production chains, taking advantage of the expertise and
synergies created.
Once again, I would like to thank our stockholders, customers, suppliers, and financial institutions and the communities in which our plants are located for their confidence
5
Synergies
that generate
diversification
Our acquisitions in Latin America have had a very significant synergistic
effect. The purchase of Amanco in 2007 represented a challenge and an
opportunity for Mexichem as it required a logistical strategy that would
allow us to optimize the supply of PVC resin, the primary raw material
for piping production.
Following our acquisition of Amanco, we
sales also increased in that country since
acquired Petroquímica Colombiana, a
our prices are extremely competitive for a
company located in Cartagena, Colombia,
PVC resin deficit market such as Brazil.
Presence(1)
and a primary producer of PVC resin in the
country. This acquisition further streng-
The firm’s geographic diversification gives
thened the synergies, as the geographic
us a leadership position throughout all
location of Colombia and the sea port
of Latin America. Our more than 55,000
allowed resin to be supplied to all Aman-
points of sale in the region create another
co plants located in the Andean region
series of synergies not only with our
and in southern countries of the conti-
traditional products but throughout our
nent: Brazil, Argentina, and Chile.
entire range. Our geographical diversification also allows us to generate significant
The results have been remarkable. During
operating efficiencies by directing the
the 2009 crisis, we supplied PVC resin
production of different products accor-
needed for piping production to all of our
ding to the specific needs of each market
plants in Latin America, sending the resin
and fully exploiting our logistics network.
produced in Mexico to the plants in Mexi-
Today, geographical diversification is a
co and Central America and from Colom-
competitive advantage that is difficult to
bia to the plants located in the Andean
match, allowing us to be leaders in the
and southern region of the continent.
Latin American market and to position
Resin consumption for Amanco’s piping
ourselves as a global company exporting
production accounted for more than 45%
to virtually the entire world.
• Chlorine-vinyl Chain
• Transformed Products
• Fluorine Chain
(1)
Bayshore is not shown on the map
of Mexichem’s total resin production.
Additionally, given the reduction of over
30% in the price of this input, Amanco’s
margin increased. Colombia and Brazil
also signed a free trade agreement under
which resin exports from Colombia to
Brazil are exempt from tariffs, giving
Mexichem a competitive advantage. Resin
6
Sales by region
• South America 37%
• North America 33%
• Central America 14%
8%
• Europe Asia
4%
•
4%
• Others 7
8
120
Synergies
that generate
efficiency
100
80
60
Having the pieces of a puzzle without knowing how to put them
together is to lose the opportunity to create something wonderful.
At Mexichem we have developed the ability to join these pieces and
integrate them fully, in the process building a larger and more efficient
company so that our operations can work together as if they were
a completely synchronized timepiece in which each component is
2002 2003 2004 2005 2006 2007 2008
essential to the functioning of the whole.
40
20
Mexichem integrates each acquisition
is much greater than the sum of the parts,
EBITDA
into our operating philosophy and culture,
and we achieve the synergies that are part
in millions of Mexican pesos
guiding each business to its essence,
of the organization’s genetic code. We also
identifying on a timely basis its main dri-
have an excellent technology platform,
ving forces, and establishing an adequate
which, together with our experience and
strategy to make operations more efficient.
the structural capital we have developed,
We have a flat structure, under which deci-
enhances our results. The SAP system has
sions are made on the line and the outline
been a key tool to achieve these synergies,
3,000
of responsibilities and performance limits
by standardizing operations and, most im-
2,000
are clearly defined. Each member of the
portantly, providing real time information
1,000
organization knows the goals to be achie-
on all operations, regardless of location.
8,000
6,844
7,000
5,000
ved and how to reach them. This allows us
2005
2,538
2,138
4,277
4,000
5,236
6,000
2006
2007
2008
2009
to focus on the results and clearly monitor
One of the most tangible results of
performance so as to make any necessary
the synergies we have achieved is the
adjustments.
improvement we have made in operating
world, which significantly reduces produc-
margins, primarily through the systematic
tion costs.
Furthermore, we create a considerable
reduction of expenses and costs throug-
synergistic effect through integration and
hout the organization. In recognition of this
During 2008 and 2009, we invested more
orientation, not only in our production
effort, for example, for the past three years
than USD144 million in the modernization,
operations but throughout the entire
we have received the award for energy
automation, and efficiency of our piping
organization. Interdependence and
efficiency granted by the Comisión Federal
plants throughout Latin America, thus in-
self-fulfillment drive productivity, raising
de Electricidad (CFE), due to our significant
creasing the productivity of our plants and
it with each achievement. The synergies
reduction in electricity consumption in our
significantly improving margins.
are not only visible in the results but are
many plants.
also created in daily operations where the
integration of the different areas, from
We have the largest production, in terms
purchasing to after-sales service, takes
of tonnes/gallons/year, of PVC resins in the
place. At Mexichem, everyone knows the
world, which puts us at the forefront of
importance of fulfillment and the effect
production technology for these products.
it produces throughout the entire value
Performance levels in piping production
chain. Thus, by combining efforts, the result
are also among the most efficient in the
9
Synergies
that generate
growth
Mexichem has achieved spectacular growth by following its core
strategy of adding value to basic raw materials. In 2002, when sales
were USD283 million and we generated about USD29 million in
EBITDA, who would have imagined that in only seven years we
would have sales of more than USD2 billion and generate more than
USD500 million in EBITDA.
120
100
The basis of this growth has been vertical
Today we have more than 40 produc-
The best example of the results of the
integration, starting with salt and fluorite,
tion plants in 15 countries in America,
synergies
we have generated through
80
in products of higher added value. This
including the United States. We are
acquisition is the performance of the
vertical integration has created a virtuous
leaders in virtually all markets in which
acquired companies compared with their
cycle of synergies by combining the
we participate, the largest producer of
previous
60 performance. In 2006 Amanco
various elements of the value chain to
PVC resin and piping in Latin America,
registered EBITDA of USD84 million and,
create a larger one, in which the benefits
and the only piping producer fully
after its acquisition in February 2007,
and attributes of the previous product
integrated with its own raw-material
40
generated
EBITDA of USD138 million; in
are combined with the next, and so on.
supply. We have the largest fluorite
2008 it generated USD208 million and,
Our vertical integration favors sustaina-
mine in the world, with over 20% of
in 2009, USD207 million. This proves not
ble growth and significant improvements
the world’s production of fluorspar, and
20 ability to generate synergies but
only our
in the performance of all links that make
we are the second largest producer of
to maintain them over time.
up the chain.
hydrofluoric acid in the world and the
only one in the Americas integrated
10
2002 2003 2004 2005 2006 2007 2008
We established this strategic definition
with its raw-material supply. All this
in 2003 and since then have acquired
positions us for greater growth and
more than a dozen companies in seven
long-term viability in the fluorochemi-
years with an investment of more than
cal industry. Furthermore, our purchase
USD1.9 billion—of which only 50% has
of Ineos Flúor positions us as the only
been financed through debt. The rest
integrated producer of fluorocarbons.
was financed with cash generated by
Such growth has had a common factor:
the company and, at times, governed
the synergies that have been a deciding
by our internal goal of maintaining a
factor in the acquisition process. If,
net-debt-to-EBITDA ratio of less than two
when analyzing a potential acquisition,
20,000
times, with capital increases; this shows
we determine that it does not have the
15,000
the control group’s commitment to the
possibility of generating synergies with
10,000
company and the contribution of the
existing operations, we are unlikely to
stockholders to this goal.
proceed with it.
Sales growth
in millions of Mexican pesos
9,816
10,417
5,000
2008
2009
23,017
25,000
30,699
30,000
31,072
35,000
2005
2006
2007
11
12
Synergies
that generate better
quality of life
At Mexichem we are proud of the results we have achieved in
recent years, and especially in 2009. Despite the crisis, we surpassed
expectations and turned this time of global downturn into an
opportunity for growth. Such results would be meaningless without a
significant contribution to our global society.
At Mexichem we have demonstrated our
Not only do we have the necessary
ability to grow and our commitment to
products, we also innovate to create new
deliver results, in full compliance with
products that promote greater efficiency
the goals and objectives that we have
in water use, reduce energy consump-
set. Today, the size and scope of our
tion, and increase durability and strength.
operations allow us to begin a new pha-
Today, as we broaden our vision, we crea-
se, while maintaining our primary goal
te a commitment to society, and mostly
of profitable and sustainable growth.
to ourselves, to be aware of this reality
Furthermore, to broaden our vision and
and the impact of our products and
focus on a greater goal, we will contribu-
activities. We’ve become a multinational
te to the progress of our global society,
company and are very close to being a
by offering value-added products that
global company, and we know that our
improve quality of life.
task goes beyond generating products:
our main goal is to improve peoples’ qua-
The products we manufacture at Mexi-
lity of life. For this reason we work every
chem perform the practical function of
day and strive to make it happen.
transporting fluids. When our products
perform this function adequately, they
not only transport water, but also quality
of life. We are conscious of the prevailing need for adequate water transport
Sales by product
44%
• Piping PVC
resin
28%
•
Compounds
8%
•
4%
• Fluorite • Hydrofluoric acid 3%
5%
• Soda Chlorine
2%
•
• Phosphates 5%
1%
• Others systems throughout Latin America,
where 92 million people lack access to
safe drinking water and more than 128
million have no sewage systems.
Our products are here to reduce these
numbers and help more people live
better each day.
13
Synergies
for
a better world
Commitment and social responsibility are part of our culture and our
values and apply to each and every one of the activities we perform
every day. At Mexichem, we are committed to sustainable development because we know it is the only way to achieve long-term viability
as a company and as a country.
Our business is related in a very impor-
emissions and the volume of consuma-
The management of environmental and
tant manner to the transport of potable
bles such as energy, steam, and nitrogen,
social sustainability will continue to be a core
water and sanitation. In this way, we help
obtaining annual cost savings estimated at
part of our decision-making process. We will
improve the quality of life for our custo-
USD500,000.
also ensure that these experiences are trans-
mers and users. We seek benefits for our
ferred to our new businesses and that they
various interest groups, beginning with our
Similarly, in conjunction with Fundación
incorporate best practices. We will formalize
employees and stockholders, because our
Kaluz, we support initiatives to increase
a comprehensive biodiversity strategy by
social responsibility starts at home.
natural capital in mega-diverse ecosystems,
reviewing our current range of operations
such as the Chimalapas forest and the
and including new sites in the most diverse
Mexichem is part of the extractive and
hydrological basin that supplies the Coat-
countries where we operate. We will also
chemical industries, in which operating
zacoalcos and Uxpanapa Rivers, in Veracruz,
develop a functional sustainability structure
discipline is vital. It is with great satisfaction
Mexico. As a result, we are ensuring flows
that offers strategic support to our opera-
that we report that, during this year, not
that generate clean electricity without
tions in a systematic and integrated manner.
only did we not have any fatal accidents
affecting estuary systems and supplying
but all of our safety ratings show an
water to industrial areas where we operate.
improvement over the last three years. We
14
Energy is certainly a very important input,
and this comes largely from fossil fuels. We
continue to make efforts to maintain and
The commitment to surrounding commu-
take responsibility for continuing to reduce
increase production of our operations, whi-
nities is based on a joint self-development
our emissions of greenhouse gases with
le reducing our environmental footprint
initiative. We assume our social responsibi-
greater efficiencies in current equipment,
due to greater environmental efficiency
lity as a subsidiary effort related to human
technological replacements, the reeva-
and the substitution of technology in
development and the strengthening of
luation of renewable energy options,
industrial processes. This year, with the coo-
the social fabric of these communities. For
joint implementation projects, and clean
peration of the United Nations Industrial
this reason, we value the inclusion and pro-
development mechanisms.
Development Organization (UNIDO), we
ductivity initiatives we have undertaken in
modified our chlorine-recovery system to
Colombia, the management of water trans-
If you would like to know more about our
eliminate the use of carbon tetrachloride
port in Costa Rica, the strengthening of
social responsibility policy, achievements,
at the Mexichem Derivados plant in Coat-
our installed capacity in Peru and Ecuador,
and future challenges in this area, we invite
zacoalcos. In this manner, we have fulfilled
and our innovative efforts to include in the
you to consult our first sustainability report,
the commitments made to the Montreal
market those at the base of the economic
which applies the Global Reporting Initiati-
Protocol and reduced our greenhouse gas
pyramid in Brazil.
ve (GRI) Sustainability Reporting Guidelines.
15
Analysis
and discussion of results
Mexichem, S.A.B. de C.V., in thousands of Mexican pesos as of December 31, 2009 and 2008
Income Statement 2009
2008
Variation
$ 30,699,064 $ 31,071,523 -1%
Cost of sales 19,503,420 21,755,079 -10%
Gross profit
11,195,644 9,316,444 20%
Net sales Operating expenses
6,200,164 5,562,246 11%
Operating income
4,995,480 3,754,198 33%
Comprehensive financing cost
(692,982) (3,082,484)
-78%
Other expenses, net and associated participation
(627,762)
(322,498) 95%
Income before income taxes
3,674,736 349,216 952%
816,020 198,111 312%
2,858,716 151,105 1792%
89,048 (11,429)
n/a
Income taxes
Income from continuing operations
Discontinued operations, net
Consolidated net income
2,947,764 139,676 2010%
2,932,240 115,367 2442%
15,524 24,309 -36%
6,844,253 5,235,726 31%
EBITDA
Mexichem consolidated
Operating income
Operating income increased 33.1% to MXN4.995 billion.
Sales
In 2009, consolidated sales, which totaled MXN30.699 billion,
Capacity utilization
were maintained at the same level as in 2008 despite the reces-
Throughout 2009 we maintained the operation of our plants with
sionary environment.
optimal utilization factors, which allowed us to meet demands,
reduce costs, and take advantage of the synergies between our
Transformed Products Chain sales totaled MXN17.850 billion, 2.9%
operations.
higher than in 2008. Sales in the Chlorine-Vinyl Chain amounted
to MXN13.544 billion, 7.0% lower than in 2008. In turn, the Fluo-
Growth
rine Chain recorded sales of MXN2.531 billion, 17.5% more than in
Consolidated net income increased dramatically compared
the previous year.
with that of 2008, reaching MXN2.948 billion. The increase of
MXN2.808 billion resulted from imbalances in the financial mar-
Margin
kets, which, in 2008, were affected by a liquidity shortage and led
Gross margin increased 20.2%, reaching MXN11.196 billion and
to a sharp depreciation of the peso.
representing 36.5% of sales. This increase was due mainly to
the synergies achieved, greater self-supply of raw materials, and
Leverage
reduction in energy costs.
Net debt at end of 2009, in dollar terms, totaled USD476.3 million
which, compared to the end of 2008, represents a decrease of
USD114.6 million. This was due to i) a capital increase of USD173
million, and ii) the payment of current and long-term debt
amortizations.
16
We restructured our debt at the end of the year, and as a result
Markets
have only 14.5% short-term debt compared with 25.4% at the
The global supply and demand balance still shows surpluses.
end of 2008. The net-debt-to-EBITDA ratio closed at 0.94x, well
New capacities are being installed mainly in Asia, although in
below the 2.0x limit established as an internal goal.
North America the balance is becoming more even, and as a result, there are fewer surpluses accompanied by decreased supply.
Mexichem and its Affiliated Companies
figures in millions of
Mexican pesos Total
Revenues
Growth
vs. 2008
EBITDA
Growth
vs. 2008
Mexichem
Consolidated 30,699 -1%
6,844 31%
Chlorine-vinyl
chain
13,544
-7%
2,854 27%
Fluorine chain
2,531
18%
1,207 94%
3,160 22%
The authorization to acquire Policyd, the second largest producer
of PVC resin in Mexico, is still pending by the relevant authorities.
With this acquisition, Mexichem will consolidate the Mexican
Transformed products
chain
17,850 3%
Holding company
448
Intercompany
eliminations Growth
(3,675)
market.
Fluorine Chain
(270)
Results of operations
(107)
from a 41.3% increase in sales prices, which offset the 23.8%
Sales totaled MXN2.531 billion, 17.5% higher than in 2008, derived
effect of the drop in volume. In terms of tonnes, we sold 160
Transformed Products Chain
thousand less than in 2008. Operating income plus depreciation
(EBITDA) amounted to MXN1.207 billion, 93.6% higher than in
2008, due to the increased self-consumption of fluorspar and the
At the end of 2009, accumulated sales amounted to MXN17.850
lower cost of raw materials.
billion, 2.9% higher than in 2008 with an EBITDA of MXN3.160
billion, a 21.8% improvement over the previous year. The EBITDA
Markets
margin increased from 15.0% to 17.7%.
The primary global producer of fluorite is China, with nearly
51% of global sales. Mexichem has the largest fluorite mine in
Markets
the world and competes with China, whose 1,500 mines hardly
Amanco has production plants in 15 countries throughout the
match, in terms of capacity, our one mine. The global demand for
Americas, including Mexico, as well as sales presence in 29 coun-
fluorite continues to grow, especially for high-purity fluorite used
tries and more than 55,000 points of sale throughout the region.
in refrigerant production, and this high demand drove prices to a
The main driver for the piping market is housing and infrastruc-
higher level than in 2008. On the other hand, self-supply in China
ture construction, one of the sectors reporting growth despite
has gone from 32% in 2004 to 45% in 2006, and the trend con-
the global economic crisis.
tinues, which explains the significant decrease in fluorite supply.
The demand for hydrofluoric acid has also increased, and thanks
Growth
to our supply contracts, the plant has been able to operate at
During 2009 the Transformed Products Chain completed the ac-
100% capacity.
quisition of Tubos Flexibles in Mexico and continued the authorization process with the relevant authorities for the acquisition of
Growth
Plásticos Rex. We will consolidate the Mexican market with these
Mexichem Flúor has achieved total integration thanks to i)
acquisitions.
greater production of hydrofluoric acid, ii) the start of production of aluminum fluoride, and iii) the acquisition, in March 2010,
Chlorine-Vinyl Chain
of Ineos Fluor, which is vertically integrated to the production of
the only integrated producer of raw material in the Americas.
refrigerants. Our advantage over our competitors is that we are
Revenues at the end of 2009 reached MXN13.544 billion, a 7.0%
decrease compared with 2008. Sales volume was 1.588 million tonnes, 1.7% lower than in the previous year. Operating
income plus depreciation (EBITDA) was MXN2.854 billion, 26.8%
higher than 2008, as a result of increased self-supply of soda and
reduced energy prices. The business’s EBITDA margin increased
from 15.5% in 2008 to 21.1% in 2009.
17
Share information
+250%*
growth in share price
MEXCHEM
ticker symbol on the BMV
Mexichem share price
BMV IPyC
650 %
600
550
500
450
400
350
300
250
200
150
100
50
500
400
300
2007
2008
Differential
18
2009
*Last 12 months
2010
100
Mexichem S.A.B. de C.V.
Information per share: for 2007 and before, revaluation effects are included, 2008 and 2009 are in nominal pesos.
2009**
2008**
2007
2006
2005
Net Income from continuing operations
$1.68
$0.09
$1.16
$0.81
$0.32
Net profit (loss)
from discontinued operations
$0.05
-$0.01
-$0.01
-$0.00
$0.22
Initial effect of accounting
principle changes $0.00
$0.00
$0.00
$0.00
-$0.03
Net income
$1.73
$0.08
$1.15
$0.81
$0.51
Stockholders’ equity
(majority share)
$7.45 $5.08 $4.92 $5.51 $3.28
$0.17 $0.18 $0.34 $0.15 $0.20
Dividends (**)
Closing price (a)
$24.98 $12.52 $14.54 $6.28 $4.16
Closing price/net income
14.44
156.50
4.23
2.80
2.94
Closing price/stockholders’ equity
3.35
2.46
0.99
0.38
0.42
Number of shares
outstanding (b)
1,800,000,000
1,646,400,000
1,646,400,000
1,470,000,000 1,470,000,000
Average shares
outstanding (c)
1,702,427,876
1,642,729,000
1,575,840,000
1,465,744,650 1,311,714,138
Other indicators
Liquidity ratio
1.88 1.03 1.11 1.13
1.12
Liabilities to total assets
66.24%
74.53%
67.45%
53.68%
60.26%
Liabilities to total stockholders’ equity
2.00 2.96 2.09 1.20
1.51
to average net assets
7.95%
0.40%
10.16%
11.64%
6.41%
Consolidated net income to average
stockholders’ equity
26.93%
1.40%
28.24%
27.43%
21.19%
Debt at cost, net of cash, to cash flow
from continuing operations (d)
0.91
1.56
1.64
0.41
0.45
Interest Coverage,
continuing operations (e)
12.93
10.17
7.01
18.61
7.86
Market price quoted on the Mexican stock exchange.
Equivalent to the number of shares outstanding as of December 31 of each year.
(c)
Average number of shares outstanding throughout the year.
(d)
Cash flow is defined as operating income plus depreciation and amortization.
(e)
Cash flow / financial cost, net.
(a)
(b)
**
Figures in nominal pesos on the date they were reported.
19
Board of Directors
Chairman of the Board
Secretary
Juan Pablo del Río Benítez
Acting Assistant Secretary
Andrés Eduardo Capdepón Acquaroni
Directors (related)
Adolfo del Valle Ruiz
Ignacio del Valle Ruiz
Alain Jean Marie de Metz Simart
Ricardo Gutiérrez Muñoz
Jaime Ruiz Sacristán
Juan Pablo del Valle Perochena
Alternate Directors
Antonio del Valle Perochena
Adolfo del Valle Toca
José Ignacio del Valle Espinosa
Francisco Javier del Valle Perochena
María Blanca del Valle Perochena
Gerardo del Valle Toca
Guadalupe del Valle Perochena
Directors (independent)
Divo Milán Haddad
Fernando Ruiz Sahagún
Jorge Corvera Gibsone
Juan Francisco Beckmann Vidal
Eduardo Tricio Haro
Armando Santacruz Baca
Valentín Diez Morodo
Eugenio Santiago Clariond Reyes
Alternate Independent Directors
Francisco Moguel Gloria
José Luis Fernández Fernández
René Rivial León
Juan Domingo Beckmann Legorreta
Eugenio Clariond Rangel
Auditing Committee
Fernando Ruiz Sahagún (President)
Divo Milán Haddad
Corporate Practices Committee
Fernando Ruiz Sahagún (President)
Divo Milán Haddad
Executive Committee
Antonio del Valle Ruiz (Honorary President)
Juan Pablo del Valle Perochena (Executive President)
Adolfo del Valle Toca
José Ignacio del Valle Ruiz Espinosa
Jaime Ruiz Sacristán
Officers
Chief Executive Officer
Chief Financial Officer
Armando Vallejo Gómez
Director of Strategic Planning
and Investor Relations
Enrique Ortega Prieto
General Counsel
Andrés Eduardo Capdepón Acquaroni
Director of Chlorine-vinyl Chain
Rafael Dávalos Sandoval
Director of Fluorine Chain
Héctor Valle Martín
Director of Transformed Products Chain
Eduardo Musalem Younes
20
Corporate Governance
Our corporate governance principles provide us with a
framework for the company’s operation while working in
the best interests of our stockholders.
Mexican legislation forms the basis of our corporate
governance practices. Because our shares are listed on the
Mexican Stock Exchange (BMV), we are specifically governed by the Securities Market Law. We also adhere to the
Code of Best Corporate Practices backed by the Business
Coordinating Council.
The board of directors heads our corporate governance
system and is responsible for determining corporate
strategy, refining and supervising the implementation of
the values and vision that characterize us, and approving
transactions between related parties and those that are
completed outside the ordinary course of our business.
Our corporate bylaws call for the establishment of auditing
and corporate practices committees, whose function is to
assist the board of directors in performing its duties.
Audit Committee
The audit committee is responsible for evaluating the
internal control and internal audit system of the company;
identifying any significant deficiencies; monitoring any
corrective or preventive measures taken in the event of
noncompliance with operational and accounting guidelines and policies; evaluating the performance of the
external auditors; describing and evaluating non audit
services performed by the external auditors; reviewing
the company’s financial statements; evaluating the effects
of any modification to the accounting policies approved
throughout the fiscal year; monitoring the measures taken
with regard to observations by stockholders, directors,
executive officers, employees, or third parties regarding
accounting, internal control systems, and internal and
external audits, as well as any claim related to irregularities
in management, including anonymous and confidential methods for handling reports from employees; and
overseeing compliance with the decisions of the general
stockholders meeting and the board of directors.
The corporate practices committee is responsible for evaluating the performance of the related directors; reviewing
transactions between related parties; reviewing officers’
compensation; evaluating any dispensation granted to the
directors or related directors so that they may take advantage of business opportunities; and performing activities
as required by the securities laws. According to our bylaws,
all members of the audit and corporate practices committee, including each chairman, shall be independent
directors.
Executive Committee
The executive committee was established by resolution of
the board of directors on July 16, 2009, and the core activity of said committee will be to try and resolve relevant and
urgent issues that cannot be delayed depending on the
frequency of sessions of the board of directors. However,
in no case shall the executive committee have the powers
reserved by law or by the bylaws to the board of directors,
audit committee and/or corporate practices committee, or
stockholders assembly. The powers of the executive committee are to analyze, evaluate, and if necessary propose
to the board of directors for its approval investments in
productive assets and company acquisitions, as well as to
discuss business plans, financing operations, and commercial names and brands, and to establish and validate
strategies in the medium and long term, among others.
Information for Investors
One area of our organization is specifically responsible for
communication with our stockholders and investors. Our
fundamental objective is to ensure that our stockholders
and investors receive necessary and sufficient information to
evaluate the performance and progress of the organization.
21
Contents
22
23
Independent Auditors’ Report
24
Consolidated Balance Sheets
25
Consolidated Statements of Income
26
Consolidated Statements of Changes in Stockholders’ Equity
28
Consolidated Statements of Cash Flows
29
Notes to Consolidated Financial Statements
48
2009 CEO’s Report
51
Corporate Practices Committee and Audit Committee Reports
Independent Auditors’ Report
To the Board of Directors and Stockholders of
Mexichem, S.A.B. de C.V.:
We have audited the accompanying consolidated balance sheets of Mexichem, S.A.B. de C.V. and Subsidiaries
(the “Company” or “Mexichem”) as of December 31, 2009 and 2008, and the related consolidated statements of income,
changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement and that they are prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Mexichem,
S.A.B. de C.V. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations, changes in their stockholders’ equity, and their cash flows for the years then ended, in conformity with Mexican Financial Reporting Standards.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
A Member of Deloitte Touche Tohmatsu
C.P.C. Carlos Moya Vallejo
April 14, 2010
23
Consolidated Balance Sheets
Mexichem, S.A.B. de C.V. and Subsidiaries
(A Subsidiary of Grupo Empresarial Kaluz, S.A. de C.V.)
As of December 31, 2009 and 2008
(Thousands of Mexican pesos)
Assets
Current assets:
$
Accounts receivable, Net
Due from related parties
Inventories, Net
Prepaid expenses
Property, plant and equipment available for sale
Discontinued operations
Total current assets
Property, plant and equipment, Net
Other assets, Net
Investment in shares of associated companies
Intangible assets, Net
Derivative financial instruments
Goodwill
Total
$
Liabilities and stockholders’ equity
Current liabilities:
Bank loans and current portion of long-term debt
$
Accounts payable to suppliers
Due to related parties
Other accounts payable, provisions and accrued liabilities
Employee profit sharing payable
Total current liabilities
Bank loans and long-term debt
Other liabilities
Deferred income taxes
Deferred statutory employee profit sharing
Employee retirement benefits and workers’ compensation
Total liabilities
Stockholders’ equity:
Paid-in capital Capital stock Nominal
Additional paid-in capital
Cumulative effect of restatement
Earned capital Retained earnings
Reserve for reacquisition of shares
Valuation of financial instruments
Total stockholders’ equity
Total
$
24
See accompanying notes to consolidated financial statements.
2009
2008
10,366,525
$
5,790,737
39,687
2,986,730
301,498
–
–
19,485,177
14,526,506
546,182
64,300
2,532,233
–
3,138,958
–
40,293,356
$
4,007,435
5,505,519
108,076
3,962,483
392,383
76,539
125,009
14,177,444
12,911,758
390,721
153,830
2,655,887
12,878
2,925,071
58,861
33,286,450
2,411,858
$
5,302,931
218,302
2,124,122
166,902
160,322
–
10,384,437
14,177,362
688,184
932,847
63,506
425,573
168,639
–
26,840,548
3,095,621
7,857,381
184,543
2,159,942
178,451
223,344
64,888
13,764,170
9,085,105
518,418
829,654
173,989
277,726
153,765
4,046
24,806,873
2,353,106
3,328,761
826,100
6,507,967
2,143,231
1,273,479
826,100
4,242,810
6,010,845
1,023,874
(132,498)
6,902,221
13,410,188
42,620
13,452,808
40,293,356
$
3,915,446
422,498
(211,225)
4,126,719
8,369,529
110,048
8,479,577
33,286,450
Consolidated Statements of Income
For the years ended December 31, 2009 and 2008
(Thousands of Mexican pesos) (Except earnings per share expressed in pesos)
2009
2008
Net sales
$ 30,699,064
Cost of sales
19,503,420
21,755,079
11,195,644
9,316,444
6,200,164
5,562,246
Operating income
4,995,480
3,754,198
(639,992)
(330,747)
(692,982)
(3,082,484)
Equity in income of associated companies
12,230
8,249
3,674,736
349,216
Income taxes
816,020
198,111
2,858,716
151,105
Discontinued operations, net
89,048
(11,429)
Gross profit
Operating expenses
Other expenses, net
Income before income taxes
$
31,071,523
$
2,947,764
$
139,676
Allocation of consolidated net income:
$
2,932,240
$
15,524
115,367
24,309
$
2,947,764
$
139,676
1.68
$
0.05
0.09
(0.01)
Majority earnings (loss) per share:
From continuing operations
$
From discontinued operations
Basic majority earnings per common share
Weighted average common shares outstanding
$
1.73
$
0.08
1,702,427,876 1,642,729,000
25
Consolidated Statements of Changes in Stockholders’ Equity
Paid-in capital
Additional
Cumulative
Common Stock
paid-in
effect of
Retained
Nominal
In trust
capital
restatement
earnings
Balances as of January 1, 2008
$
2,172,023
Cumulative effect of deferred
income taxes
Cumulative effect of restatement
Dividends declared
Repurchase of shares
Purchase of non-controlling interest
Shares in trust
Comprehensive income Net income for the year
Initial effect of deferred statutory
employee profit sharing
Translation effect of foreign
subsidiaries
Comprehensive income
(35,283)
$ 1,279,668
$
826,100
$ 4,392,573
–
–
–
–
–
–
–
–
–
–
–
6,491
–
–
–
–
(6,189)
–
–
–
–
–
–
–
(341,582)
(690,718)
(296,352)
–
–
–
–
–
–
–
115,367
–
–
–
–
–
–
–
–
(349,450)
–
–
–
–
–
–
–
–
–
1,085,608
851,525
Balances as of December 31, 2008
2,172,023
(28,792)
1,273,479
826,100
3,915,446
Capital increase
Dividends declared
Additional reserve for repurchase
of shares
Sale of own shares
Purchase of non-controlling interest
Shares in trust
Comprehensive income Net income for the year
Translation effect of foreign
subsidiaries
Comprehensive income
202,638
–
–
–
2,055,282
–
–
–
–
(396,000)
–
–
–
–
–
–
–
7,237
–
–
–
–
–
–
–
–
(600,000)
–
–
–
–
–
–
–
–
–
–
–
2,932,240
–
–
–
–
–
–
–
–
–
159,159
3,091,399
Balances as of December 31, 2009
26
$
$ 2,374,661
$ (21,555)
$ 3,328,761
$ 826,100
$ 6,010,845
Earned capital
Cumulative
effect of
Reserve for
deferred
reacquisition
income taxes
of shares
$ (341,582)
$
491,445
Cumulative
effect of
restatement
$
(690,718)
Valuation of
financial
Controlling
Non-controlling
instruments
interest
interest
$
1,164
$
8,095,390
$
67,066
Total
Stockholders’
equity
$
8,162,456
341,582
–
–
–
–
–
–
–
–
(68,947)
–
–
–
690,718
–
–
–
–
–
–
–
–
–
–
–
–
(296,352)
(68,947)
(6,189)
6,491
–
–
–
–
–
–
–
–
(296,352)
(68,947)
(6,189)
6,491
–
–
–
–
115,367
24,309
139,676
–
–
–
–
–
–
–
(212,389)
(349,450)
(212,389)
–
–
(349,450)
(212,389)
–
–
–
–
–
–
–
(212,389)
1,085,608
639,136
18,673
42,982
1,104,281
682,118
–
422,498
–
(211,225)
8,369,529
110,048
8,479,577
–
–
–
–
–
–
–
–
2,257,920
(396,000)
–
–
2,257,920
(396,000)
–
–
–
–
600,000
1,376
–
–
–
–
–
–
–
–
–
–
–
1,376
–
7,237
–
–
(83,453)
–
–
1,376
(83,453)
7,237
–
–
–
–
–
–
–
78,727
2,932,240
78,727
15,524
–
2,947,764
78,727
–
–
–
–
–
–
–
78,727
159,159
3,170,126
501
16,025
159,660
3,186,151
$
–
$ 1,023,874
$
–
$ (132,498)
$ 13,410,188
$
42,620
$ 13,452,808
27
Consolidated Statement of Cash Flows
2009
2008
Operating activities:
Income before taxes on income
$ 3,674,736
$
Items related to investing activities:
Depreciation and amortization
1,848,773
Gain on sale of fixed assets
(3,285)
Equity in income of associated companies
(12,230)
Items related to financing activities:
Interest expense
642,827
6,150,821
(Increase) decrease in:
Accounts receivable
23,051
Inventories
1,105,550
Other current assets
(688,474)
Increase (decrease) in:
Accounts payable to suppliers (2,685,563)
243,451
Other payables and accrued expenses
137,602
Income taxes paid
(793,378)
147,847
Interest paid
63,080
(160,627)
Net cash provided by operating activities
3,543,360
28
349,216
1,481,528
(48,678)
(8,249)
625,089
2,398,906
(422,791)
(1,112,678)
(578,303)
2,827,842
202,245
258,524
(340,059)
277,726
155,267
387,448
4,054,127
Investing activities:
Acquisition of machinery and equipment
Proceeds from sale of machinery and equipment
Proceeds from sale of machinery and equipment available for sale
Intangible assets
Acquisition of subsidiaries, net of cash acquired
Net cash used in investing activities
(2,444,442)
144,214
280,524
(367,107)
(149,064)
(2,535,875)
(3,136,147)
187,176
64,886
(279,111)
(2,122,655)
(5,285,851)
Excess cash before cash generated by financing activities (Cash to be
obtained from financing activities)
1,007,485
(1,231,724)
Financing activities:
Borrowings
Loan repayments
Interest paid
Dividends paid
Capital increase
Net cash provided by financing activities
8,687,866
(4,392,443)
(614,659)
(303,264)
2,257,920
5,635,420
7,630,738
(4,274,727)
(444,783)
(284,340)
–
2,626,888
Adjustment to cash flows due to exchange rate fluctuations (283,815)
1,085,608
Net increase in cash and cash equivalents
6,359,090
2,480,772
Cash and cash equivalents at beginning of year 4,007,435
1,526,663
Cash and cash equivalents at end of year See accompanying notes to consolidated financial statements.
$ 10,366,525
$
4,007,435
Notes to Consolidated Financial Statements
1. Nature of business activities
Mexichem, S.A.B. de C.V. and subsidiaries (“Mexichem” or the “Company”) is a Mexican entity that holds the shares of a group of companies
engaged in the manufacture and sale of chemical and petrochemical products including; chlorine, caustic soda, polyvinyl chloride (“PVC”)
resins, hydrofluoric acid, as well as PVC components and fluid conduction systems based on PVC. These products have their markets in the
construction, housing, infrastructure, drinking water and urban drainage sectors in Mexico, the United States and Latin America.
The Company’s strategic position currently focuses on the chemical sector based on three productive chains: the chlorine-vinyl chain, the
fluorine chain and transformed products.
2. Significant events
a. Acquisition of subsidiaries and closing and sale of businesses - During 2008 and 2009, Mexichem purchased certain companies,
whose acquisition was recorded based on the purchase method. The results of the businesses acquired have been included in the
consolidated financial statements since the date of their acquisition. The most important acquisitions are as follows:
i. In January 2008, 70% of DVG Indústria e Comercio de Plásticos Limitada (Plastubos) was acquired. Plastubos is a Brazilian company
specializing in the manufacturing of rigid PVC tubes for sewage and drinking water that serves the housing, infrastructure, watering
and electricity markets. The price paid was approximately US$24 million and intangible assets related to brands of $188,766 and
goodwill of $104,889 were recognized.
The remaining 30% was acquired in January 2009 at approximately US$18.5 million, resulting in goodwill of $201,796.
ii. In Mexico, in June 2008 the Company acquired 100% of the shares of Quimir, S.A. de C.V. (Quimir), a chemical sector company specializing in the phosphate business. The approximate value of this transaction was US$48 million and it generated intangible assets
of $69,163.
iii. Through certain subsidiaries, Mexichem acquired other companies, such as: Dripsa, S.A. in Argentina; Geotextiles del Perú, S.A. in
Peru; Bidim Industria e Comercio de Näo-Tecidos LTDA in Brazil; Colpozos, S.A. in Colombia and Fluorita de Río Verde, S.A. de C.V. in
Mexico. These transactions represented approximately US$52 million and generated goodwill of $65,839.
iv. In March 2009, the Company acquired 100% of the shares of Tubos Flexibles, S.A. de C.V., a Mexican company with over 50 years in
the market and four plants that manufacture and market PVC, CPVC, polyethylene, and polypropylene tubes and connectors. The
approximate value of this transaction was US$28 million and it generated intangible assets of $140,960.
v. In October 2009, the remaining 50% of the common stock of C.I. Mexichem Compuestos Colombia, S.A. (formerly, C.I. Geón Polímeros Andinos, S.A.) was acquired at US$13.5 million. The markup of this transaction was recorded in results for the year.
vi. In November 2009, the Board of Directors assessed the opinion of the Corporate Practices Committee and approved the sale of
the styrene plant to a related party for $235 million, the market value determined by an independent third party. The balance sheet
and income statement figures were presented in the financial statements under discontinued operations. This transaction resulted
in profits of $89,048.
vii. In January 2009, management of Quimir decided to close its plant located in Coatzacoalcos, Veracruz, to streamline its operation
in light of the market conditions resulting from the cancellation of the contract with its customer Procter & Gamble Company in
Mexico and the United States. The costs reserved in 2008 in relation to the closing of this operation were $63,345, and machinery
of $112,305 was adjusted to its salvage value.
29
With the above acquisitions and divestments, Mexichem continued its strategy of providing more value to its basic raw material products,
thereby strengthening its position in Latin America and becoming a global company with operations practically throughout the American
continent.
b. Economic crisis - Due to the volatility of financial markets worldwide, in the last quarter of 2008, the Company recognized exchange
losses resulting from a drop in value of the Mexican peso of approximately 30%; similarly, the values of certain raw materials, mainly in
the resin sector, were affected and adjusted to realizable value.
In 2009, Pavco de Venezuela, an indirect subsidiary, faced problems obtaining foreign currencies at the official exchange rate for certain
commercial transactions. However, at the 2009 year-end, Mexichem used the official exchange rate (2.15 Venezuelan bolivars per U.S.
dollar) since this was the rate that was used for most of the transactions in the Venezuelan business. In January 2010, the government
of Venezuela announced a devaluation of the Venezuelan bolivar, establishing two exchange rates, one of 2.60 and the other of 4.30
bolivars per U.S. dollar. The 2.60 exchange rate will apply to priority imports, including those of food, health, machinery and equipment,
science and technology, and public sectors. All other transactions will use an exchange rate of 4.30 Venezuelan bolivars per U.S. dollar.
c. Financing - The Company strengthened its business and growth strategy through the following financing sources:
i. On March 31, 2009, the loan with Banco Inbursa, S.A. of US$226 million at a 36-month term was restructured and will now mature
on March 31, 2012. The original maturity date was March 31, 2010.
ii. In August 2009, the stockholders of Mexichem approved an increase in variable common stock of $202,638 and a share issuance
premium of $2,055,282, with the subsequent issuance of up to 153,600,000 common, nominative, single series, class II, no-par-value
shares.
iii. In September 2009, Mexichem issued and placed debt securitization certificates in the Mexican market, with Inversora Bursátil, S.A.
de C.V. and Casa de Bolsa Arka, S.A. de C.V. as underwriters. The issuance was for $2,500 million at a five-year term and a 28-day TIIE
(interbank interest rate) rate plus 244 basis points.
iv. In November 2009, the placement of an international debt bond of US$350 million under Rule 144 at a ten-year term and an 8.75%
annual rate was concluded. The Company will use the resources obtained for working capital and future acquisitions.
Mexichem has used the resources obtained to refinance its current debt and extend its original maturity terms, leaving only 15% of its
total financial debt as short-term, thereby mitigating any effect the financial crisis might have on the issuing company and providing
liquidity to further strengthen its financial structure.
d. New plants - In mid-2008, the subsidiary Unión Minera del Sur, S.A. de C.V., a member of the Fluoride Chain, began the construction of a
plant located in southern Veracruz. This plant will produce sulfur using state-of-the-art technology and will have a production capacity
of 210,000 tons per year. The purpose is to reduce the production costs of the Flouride Chain since this raw material plays a significant
role in the production of hydrofluoric acid. The project concluded in March 2010, with an approximate investment of US$42 million.
Similarly, on September 18, 2009, the aluminum fluoride plant was inaugurated in Matamoros, Tamaulipas. This plant has installed capacity of 60,000 tons per year and represented an investment of approximately US$60 million.
3. Basis of presentation
Explanation for translation into English - The accompanying consolidated financial statements have been translated from Spanish into
English for use outside of Mexico. These consolidated financial statements are presented on the basis of Mexican Financial Reporting Standards (“MFRS”, individually referred to as Normas de Información Financiera or “NIFs”). Certain accounting practices applied by the Company
that conform with MFRS may not conform with accounting principles generally accepted in the country of use.
a. Monetary unit of the financial statements - The financial statements and notes as of December 31, 2009 and 2008 and for the years
then ended include balances and transactions denominated in Mexican pesos of different purchasing power.
b. Consolidation of the financial statements - The consolidated financial statements include those of Mexichem, S.A.B. de C.V. and its
subsidiaries. The Company’s shareholding in these entities at December 31, 2009 and 2008, is detailed below. Significant intercompany
balances and transactions have been eliminated from these consolidated financial statements.
30
Subsidiary
% Ownership
Mexichem Resinas Vinílicas, S.A. de C.V. and Subsidiaries
100
Mexichem America, Inc. 100
Mexichem Derivados, S.A. de C.V. and Subsidiary
100
Mexichem Colombia, S.A. 100
Mexichem Salinera del Sur, S.A. de C.V.
100
Unión Minera del Sur, S.A. de C.V.
100
Mexichem Flúor, S.A. de C.V. and Subsidiaries
100
Mexichem Cid, S.A. de C.V.
100
Mexichem Marcas, S.A. de C.V.
100
Mexichem Servicios Administrativos, S.A. de C.V.
100
Mexichem Compuestos, S.A. de C.V. and Subsidiaries
100
Mexichem Amanco Holding, S.A. de C.V. and Subsidiaries
100
Amanco Tubosistemas Panamá, S.A.
100
Construsistemas Amanco Panamá, S.A.
100
Mexichem Soluciones Agrícolas, S.A de C.V. and Subsidiaries
100
Mexichem Geosistemas, S.A. de C.V.
100
Production Chain
Vinyl/ Chlorine
Vinyl/ Chlorine
Vinyl/ Chlorine
Vinyl/ Chlorine
Vinyl/ Chlorine
Fluorspar
Fluorspar
Investigation and development
Trademarks
Services
Manufactured products
Equity in the results and changes in net worth of the subsidiaries purchased or sold during the year are included in the financial statements, as of or up to the date on which the transactions were performed.
c. Translation of financial statements of foreign subsidiaries - To consolidate financial statements of foreign subsidiaries, the accounting
policies of the foreign entity are converted to MFRS using the currency in which transactions are recorded, except for the application
of NIF B-10, Effects of Inflation, when the foreign entity operates in an inflationary environment, since this NIF applies to financial statements that have been measured using the functional currency. The financial statements are subsequently translated to Mexican pesos
based on the following methodologies:
Foreign operations whose functional currency is the same as the currency in which transactions are recorded translate their financial
statements using the following exchange rates: i) the closing exchange rate in effect at the balance sheet date for assets and liabilities;
ii) historical exchange rates for stockholders’ equity, and iii) the rate on the date of accrual of revenues, costs and expenses. Translation
effects are recorded in stockholders’ equity.
In the case of the companies located in Costa Rica, Nicaragua and Venezuela, as of 2008, their financial statements are first re-expressed
to purchasing power of the local currency at the close of the year, using the Price Index of the country of origin. They are then subsequently converted using the official closing exchange rate for all the items. The effects of conversion are recorded in stockholders’
equity.
d. Comprehensive income - Represents changes in stockholders’ equity during the year, for concepts other than distributions and
activity in contributed common stock, and is comprised of the net income of the year, plus other comprehensive income (loss) items of
the same period, which are presented directly in stockholders’ equity without affecting the statements of income. The other comprehensive income includes the effects of translation of foreign operations, valuation of financial instruments in 2008 and 2009.
e. Income from operations - Income from operations is the result of subtracting cost of sales and general expenses from net sales. While
NIF B-3, does not require inclusion of this line item in the consolidated statements of income, it has been included for a better understanding of the Company’s economic and financial performance.
f. Reclassifications - Certain amounts in the consolidated financial statements as of December 31, 2008 have been reclassified in order to
conform to the same presentation of the consolidated financial statements as of December 31, 2009.
4. Summary of significant accounting policies
The accompanying consolidated financial statements comply with MFRS. Their preparation requires the Company’s management to make
certain estimates and use certain assumptions to value some of the items contained in the financial statements and make the disclosures
required therein. The significant headings subject to estimates and assumptions include the useful lives and impairment of property, plant
and equipment, fair value of intangible assets and goodwill upon acquisition and subsequent impairment, estimates of the valuation of
accounts receivable, inventories, deferred tax assets and liabilities for labor obligations. The Company’s management, using its professional
judgment, believes that the estimates and assumptions used were adequate under the circumstances. However, actual results may differ
from such estimates. The significant accounting policies followed by the Company are as follows:
31
a. Accounting changes - Beginning January 1, 2009, the Company adopted the following new NIFs, which did not have a material effect
on the financial information:
NIF B-7, Business Acquisitions
NIF B-8, Consolidated or Combined Financial Statements
NIF C-7, Investments in Associated Companies and Other Permanent Investments
NIF C-8, Intangible Assets
NIF D-8, Share-based Payments
b. Recognition of the effects of inflation - Since the cumulative inflation for the three fiscal years prior to those ended December 31, 2009
and 2008, was 15.01% and 11.56%, respectively, the economic environment may be considered non-inflationary in both years. Inflation
rates for the years ended 2009 and 2008 were 3.57% and 6.53%, respectively.
Beginning on January 1, 2008, the Company discontinued recognition of the effects of inflation in its financial statements. However,
non-monetary assets and liabilities, and stockholders’ equity include the restatement effects recognized through December 31, 2007.
The inflation (deflation) percentages for the years ended December 31, 2009 and 2008, in the different countries in which the Company’s subsidiaries are located, were as follows:
Argentina
Brazil
Colombia
Costa Rica
Chile
Ecuador
El Salvador
USA
Guatemala
Honduras
Mexico
Nicaragua
Panama
Peru
Venezuela
2009
%
7.69
4.31
2.00
4.05
(2.30)
4.31
(0.20)
2.70
(0.28)
3.00
3.57
0.93
2.70
0.25
25.10
2008
%
7.20
5.90
7.67
13.90
7.10
8.83
5.50
0.10
9.40
1.40
6.53
13.77
8.70
6.65
30.90
c. Cash and cash equivalents - Consist mainly of bank deposits in checking accounts and short-term investments, highly liquid and
easily convertible into cash. Cash is stated at nominal value and cash equivalents are measured at fair value; any fluctuations in value are
recognized in comprehensive financing income of the period.
d. Inventories and cost of sales - Inventories are stated at the lower of cost or market considering the direct cost method, without exceeding the net realizable value. The cost of sales are stated using the average cost method.
e. Property, plant and equipment available for sale - Represent real property, machinery and equipment of subsidiaries, for which
management has evaluated the option of selling and/or exchanging for other assets. They are presented in the balance sheet in the
long or short-term depending on the respective realization plans, recorded at probable recovery value.
f. Property, plant and equipment - Property, plant and equipment are recorded at acquisition cost. Depreciation is calculated using the
straight-line method based on the remaining useful lives.
The net comprehensive financing result (RIF) incurred over the construction and installation period of qualified property, plant and
equipment is capitalized at the consolidated level and is distributed to subsidiary companies that obtained the financing.
g. Investment in shares of associated companies - Are recorded according to the equity method based on the audited financial statements of the associated companies.
h. Intangible assets - This item refers to non-compete contracts, material supply contract, usufruct of real estate, use of trademarks and
customer portfolio, which are amortized over the useful life of each asset.
i. Goodwill - Goodwill represents the excess of cost over the fair value of the subsidiary shares, as of the date of acquisition and it is subject to impairment tests.
32
j. Impairment of long-lived assets in use - The Company reviews the carrying amounts of long-lived assets in use when an impairment
indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows
or the net sales price upon disposal.
k. Financial derivatives - Given its activities at the national and international level, the Company is exposed to risks of fluctuation in prices
of inputs for the chemicals industry, and financial risks related to the financing of its projects. The Company’s policy is to use certain
hedges which enable it to mitigate the volatility of the prices of certain raw materials, and interest rate and exchange rate risks in financial operations, all related to its business and previously approved by the Audit and Company Practices Committees and the Board of
Directors. The Company recognizes all the assets or liabilities that arise from financial derivative transactions on the balance sheet at fair
value, regardless of the purpose for which they are held. Fair value is determined based on the prices of recognized markets and, when
they are not listed in a market, based on valuation techniques accepted in the financial community. The decision to take an economic
or accounting hedge reflects market conditions and expected outcomes in the national and international economic environment.
l. Embedded derivatives -The Company reviews all the contracts executed to identify embedded derivatives which have to be separated from the host contract for purposes of their accounting valuation and recording. When an embedded derivative is identified, it is
valued at fair value and classified as for trading purposes or designated as a financial hedge instrument. For the embedded derivatives
designated as hedge instruments, if they are fair value, the fluctuation in valuation of both the derivative and the open risk position
is recognized in results of the period in which it occurs; when the hedge is cash flow, the effective portion is recognized temporarily
in comprehensive income or loss as part of stockholders’ equity, and is subsequently reclassified to results at the same time that the
hedged item affects them. The ineffective portion is recognized immediately in results of the period.
m. Provisions - Provisions are recognized for obligations that result from a past event, that are probable to result in the use of economic
resources and that can be reasonably estimated. Such provisions are recorded at net present values when the effect of the discount is
significant.
n. Reserve for acquisition of proprietary shares - Purchases and sales of shares are recorded directly in the reserve for acquisition of
proprietary shares at their acquisition and placement cost, respectively.
o. Employee statutory profit-sharing (PTU) - PTU is recorded in results of the year in which it is incurred and is presented under the
heading of other expenses in the accompanying consolidated statements of income. The effect for 2009 and 2008 of the deferred PTU
was a benefit of $207,756 and $141,382, respectively. Deferred PTU is determined on the temporary differences resulting from comparing
the accounting and tax values of the assets and liabilities.
p. Taxes on income - Taxes on income are recorded in results as they are incurred, including their deferred tax effect. With the aim of
recognizing the effects of deferred taxes in the financial statements, the Company makes prospective and retrospective projections in
the medium and long term in order to determine the taxable base with which it will be taxed in the future, when there is more than one
taxable base in the same jurisdiction. Deferred tax results from temporary differences between the accounting and taxable bases of the
assets and liabilities, including the benefit of tax losses. Recoverable deferred tax is net of the reserve due to uncertainty regarding the
realization of certain benefits.
Mexichem has authorization from the Mexican Treasury Department to prepare its income tax (ISR) returns on a consolidated basis,
which includes the proportional tax applicable to the taxable profits or tax losses of its Mexican subsidiaries. The provisions for taxes of
foreign subsidiaries are determined based on the taxable profit of each individual company.
q. Direct employee benefits - Direct employee benefits are calculated based on the services rendered by employees, considering their
most recent salaries. The liability is recognized as it accrues. These benefits include mainly PTU payable, compensated absences, such
as vacation and vacation premiums, and incentives.
r. Employee benefits from termination, retirement and other - The liability for seniority premiums, pensions, and severance payments
for termination of the labor relationship is recognized as it is accrued, which is calculated by independent actuaries based on the projected unit credit method at nominal interest rates.
s. Foreign currency transactions - Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction
date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the applicable exchange rate
in effect at the balance sheet date. Exchange fluctuations are recorded in the consolidated statements of income.
33
t. Revenue recognition - Revenues are recognized in the period in which the risk and rewards of ownership of the inventories are transferred to the customers, which is generally when the inventories are delivered or shipped to customers and the customer assumes
responsibility for them.
u. Earnings (loss) per share - (i) The basic earnings from each ordinary share is calculated by dividing the majority shareholder net income
by the weighted average of ordinary outstanding shares during the year; (ii) basic earnings (loss) per ordinary share from discontinued
operations is calculated by dividing the net income from discontinued operations by the weighted average number of ordinary shares
outstanding during the year.
5. Cash and cash equivalents
2009
2008
Cash
$ 1,093,424
$ 2,129,842
Cash equivalents:
Bank paper
6,619,651
38,889
Securities USD
1,291,591
758,818
Government paper
503,186
470,721
Bank deposit certificates
444,487
115,114
Time deposit USD
210,361
262,818
Other investments
203,825
231,233
$ 10,366,525
$ 4,007,435
6. Accounts receivable
2009
Customers
Allowance for doubtful accounts
Other
$
$
2008
5,654,959
$ 5,380,910
(224,881)
(122,891)
5,430,078 5,258,019
360,659
247,500
5,790,737
$ 5,505,519
7. Inventories
2009
2008
Finished products
$
Raw materials
Goods in-transit
Spare parts
Advanced payments
Less- Allowance for obsolete and slow-moving inventory
$
1,499,762
$
1,146,279
349,254
213,060
135,530
3,343,885
(357,155)
2,986,730
$
2,242,885
1,337,102
428,996
236,074
180,576
4,425,633
(463,150)
3,962,483
8. Derivative financial instruments
a) Derivatives linked to the price of gas natural (swaps and options).
In June and July 2008, certain Company subsidiaries contracted swaps to set the natural gas price at a weighted average price of
US$10.89, on a notional amount that represents close to 50% of the projected consumption. The transaction was designated as a cash
flow hedge on the projected consumption of natural gas.
At year-end 2009, the fair value of the natural gas hedges represented a liability of $217,900, and $130,740, net of deferred employee
profit sharing and income tax, recorded against comprehensive income in stockholders’ equity. The Company believes that approximately $92,000 of the comprehensive income recorded as of December 31, 2009, will be reclassified to results during 2010.
At the year-end 2008, the fair value of the natural gas hedges represented a liability of $337,851, and $209,467, net of deferred employee
profit sharing and income tax, was recorded under stockholders’ equity.
34
Below are some of the main characteristics of the hedges contracted as of December 31, 2009 and 2008:
Swaps that fix a price
Description (type of contracted
financial instrument)
Beginning date
Ending date
Natural gas hedge at a fixed price
July 01, 2008
June 30, 2011
Beginning date
Ending date
Natural gas hedge at a fixed price
July 01, 2008
June 30, 2011
Contracted notional
amount
Fixed
price
Fair value
6,884,800 MMBTU
10.89
$ (217,900)
Contracted notional
amount
Fixed
price
Fair value
6,884,800 MMBTU
10.89
$ (337,851)
2009
2008
Options associated to the price of natural gas
In April 2008, European call options with a cap of US$10 per MMBTU were sold, and it was agreed to receive a premium of US$0.76 per
MMBTU. In July, European call options with a cap of US$10 per MMBTU were purchased, for the same notional amount as those sold,
and it was agreed to pay a premium of US$2.99 per MMBTU.
At year-end 2008, the options resulted in an asset of $12,878 and the options purchased in a liability of $50,664, both classified for
trading purposes in accounting and recognized against comprehensive financing cost.
European options
Contracted notional
Beginning date
Ending date
amount
Natural gas options cap sale
Options cap purchase
April 01, 2008
July 01, 2008
Strike
and/or
Option
fixed price premium
March 03, 2009 4,200,000 MMBTU
March 03, 2009 3,150,000 MMBTU
10
10
.76
2.99
Fair value
2008
$ 12,878
$ (50,664)
b) Interest rate derivative
In May 2008, an interest rate swap with a notional amount of US$25 million was contracted to change the interest payment profile of a
portion of the debt of US$635 million with Citibank, N.A. With this swap, the Company receives quarterly interest at the Libor rate plus
0.875 and pays a fixed rate of 4.03%. Although the transaction represents an hedge from an economic standpoint, for accounting purposes, it was classified as a trading derivative and the fair value as of December 31, 2009 of $5,928 was recognized under comprehensive
financing cost.
Beginning date
Ending date
Interest rate swap
May 2, 2008
August 28, 2012
Contracted
notional amount
Interest rate
received
$ 25,000,000 USD
Libor +.875
Contracted
Beginning date
Ending date
notional amount
Interest rate swap
May 2, 2008
August 28, 2012
$ 25,000,000 USD
Interest
rate
received
Libor +.875
Interest rate
paid
Fair value
2009
4.03%
$ (5,928)
Interest
rate paid
Fair value
4.03%
$ (8,818)
2008
9. Property, plant and equipment
Useful lives in years
Buildings 40
$
Machinery and equipment
10 and 20
Vehicles
5
Furniture and fixtures
10
Less- Accumulated depreciation
Land
Construction in-progress
Property, plant and equipment available- for- sale
$
2009
2008
4,173,855
$ 3,706,232
20,545,604 17,849,003
185,886
191,591
549,197
645,555
25,454,542 22,392,381
(15,418,028) (13,860,396)
10,036,514 8,531,985
2,234,051 1,928,626
1,439,353 1,543,159
13,709,918 12,003,770
816,588
907,988
14,526,506
$ 12,911,758
During 2009 and 2008, the amount invested in the acquisition of classifiable machinery and equipment was $8,591,360 and $528,303 and
the RIF capitalized in construction in process was $140,865 and $26,742, respectively.
35
10. Intangible assets
2009
Years of amortization
Non–compete contract
5
$
Customer portfolio
12
Use of trademark
20
$
2008
441,221
$
657,972
432,306
475,536
1,658,706 1,522,379
2,532,233
$ 2,655,887
11. Bank loans and current portion long-term debt
As of December 31, bank loans consisted of the following:
2009
Loans in foreign currency:
Citibank, N.A.
Syndicated loan of US$635 million, via promissory notes that incurs interest at the
LIBOR rate plus 0.875 points, payable quarterly. Principal will be settled through
semiannual payments of US$70,555,555 beginning on August 22, 2008, with
maturity on August 22, 2012. During November 2007, the Company made a
prepayment on the principal of US$34 million.
$
Banco de Bogotá, S.A., Bancolombia, S.A.
Loans of US$12.7 million, via promissory notes that accrue quarterly interest at
different rates. Principal is amortized in different amounts, and matures
in April 2015.
98,927
175,738
BB, Bradesco, Banco Itaú BBA, Daimler, Unibanco, among others.
Revolving loans of 32,891 million Brazilian reales, via different promissory notes
that accrue interest at different rates, maturing on different dates as of February
2009 through December 2015.
113,602
194,671
4,762,521
$ 7,337,373
Banco Inbursa, S.A.
Unsecured loans documented with promissory notes that bear monthly interest
at the Libor rate plus 5 points. Principal of US$226.6 million is repaid on
March 31, 2012.
2,960,882
–
Colpatria, Citibank, Bancolombia, Banco of Bogotá
Unsecured loans documented with promissory notes of 90,750 million Colombian
pesos that bear interest at the DTF rate plus 5.5 points, maturing on May 8, 2012.
580,038
–
Banco de Crédito, S.A.
Promissory note of 35,000 million Colombian pesos that bears quarterly interest at
the DTF rate plus 5.1%, maturing on May 7, 2014.
223,706
–
PRODEC
Unsecured loans of 29.1 million Brazilian reals documented with several promissory
notes that bear interest at different interest rates, maturing on different dates from
December 2013 to January 2014.
218,726
–
Banco Mercantil, Banco de Venezuela
Unsecured loans documented with promissory notes for 40 and 20 million
Venezuelan bolivars that bear monthly interest at 15% and 14.25% rates,
respectively, maturing in January 2010 and March 2010.
364,630
–
Issuance of US$350 million bond that bears semi-annual interest at a fixed 8.75%
rate. Principal is repaid in one installment at maturity on November 6, 2019.
4,573,065
–
Banco Inbursa, S.A.
Unsecured loans via promissory notes that accrue monthly interest at the LIBOR
rate plus 4.75 points. Principal of US$156 million is payable on January 17, 2010.
–
2,166,327
Banco do Brasil, S.A., Bradesco, Bancolombia, S.A., Banco Bice, Banco Itaú BBA,
Santander Río, among others. Revolving loans of 77 million Brazilian reales, via
several promissory notes that accrue interest at different rates, with maturity
in December 2013.
–
534,311
Others
193,123
931,056
36
2008
2009
Loans in Mexican pesos:
Securitization certificates of $2,500 million that bear monthly interest
at the TIIE rate plus 244 basis points. Principal matures on September 29, 2014.
2,500,000
2008
–
Banco Inbursa, S.A.:
-Unsecured loan via a revolving line of credit accruing interest at the TIIE
rate plus a variable spread.
–
320,000
-Unsecured loan via a monthly promissory note accruing interest at a
renewable rate each month. –
40,000
-Unsecured loans via promissory notes accruing quarterly interest at the
TIIE rate plus 1.75 points. Principal is payable in 23 quarterly payments
of $43,750, maturing on September 5, 2011, however the prepayment
of this debt was in 2009.
–
481,250
16,589,220 12,180,726
Less: Current portion of bank loans
(2,411,858) (3,095,621)
$ 14,177,362
$ 9,085,105
Long-term debt matures as follows as of December 31, 2009:
Payable during -
2010
$ 2,411,858
2011
1,950,917
2012
4,750,568
2013
69,016
2014 and thereafter
7,406,861
$ 16,589,220
At December 31, 2009, the financing contracted with Citibank, N.A., Comerica Bank, Banco Inbursa, S.A., Bancolombia S.A, Bogota S.A. y
Colpatria, S.A., establishes certain restrictions calculated according to the Company’s consolidated figures, the most significant of which
are as follows:
a. Certain restrictions regarding the application of new liens
b. Allows payment of dividends of up to 10% of operating profit plus the depreciation and amortization of the prior year
c. Maintain a consolidated interest hedge ratio of at least between 3.0 and 1.0
d. Maintain stockholders’ equity of at least $7,291,977
e. Maintain a leverage ratio with regard to EBITDA not exceeding 3.5 to 1.0 until June 2008, after which this ratio must be 3.0 to 1.0
f. Insure and maintain property and equipment in good working condition
g. Comply with all applicable laws, rules, regulations and provisions
At December 31, 2009, the Company has complied with all established restrictions and conditions.
37
12. Employee benefits
The Company maintains trust funds for employee retirement obligations, which cover pension, seniority premiums and severance payments. The amount due resulting from independent actuarial calculations is calculated using the projected unit credit method:
Vested benefit obligation
$
Nonvested benefit obligation
Fund assets
Insufficiency of founds assets
Unamortized transition asset
Variation in unamortized actuarial loss
Projected net liability
$
2009
2008
105,661
$
469,867
(394,000)
181,528
(3,388)
(9,501)
168,639
$
102,126
377,460
(310,301)
169,285
(3,776)
(11,744)
153,765
The net periodic cost consists of:
Labor cost
$
Financial cost
Return on fund assets
Amortization of transition asset
Effect of personnel reduction and early termination
Net cost for the year
$
The rates used in the actuarial calculations were as follows:
Yield on plan assets
Interest rate
Salary increase
2009
2008
49,610
$
31,306
(33,398)
148,570
(582)
195,506
$
50,067
31,138
(28,985)
(19,837)
(330)
32,053
2009
%
2008
%
10.25
9
4.5
10.75
9
4.5
The average amortization period of unamortized items is as follows:
Years remaining
Transition asset
Unrecognized actuarial loss
2009
2008
1 to 5
12 to 23
1 to 5
7 to 18
2009
2008
Changes to the present value of the defined benefit obligation:
Present value of the defined benefit obligation as of January 1 $
Service cost
Financial cost
Actuarial loss from the obligation
Benefits paid
Business acquisitions
Present value of the defined benefit obligation as of December 31
$
479,586
$
49,610
31,306
66,384
(45,000)
(6,358)
575,528
$
465,560
50,067
31,138
(10,930)
(35,146)
(21,103)
479,586
13. Shares in trust
At December 31, 2009 and 2008, the Company has 844,597 and 2,229,652 Class II shares, respectively, of Mexichem, S.A.B. de C.V. in
trust for assignment and sale to executives and employees. A committee is responsible for granting purchase rights and assigning the
number of shares to each executive and employee. An exercise price is determined based on the market value of the shares at the date
of their assignment. At December 31, 2009 and 2008, the cost of shares in trust was $21,555 and $28,792, respectively, and is presented
in the financial statements as shares in trust.
38
14. Stockholders’ equity
Paid-in capital During a Stockholders’ Ordinary General Meeting held on August 29, 2009, the stockholders approved an increase in variable common
stock of $202,638 and a share issuance premium of $2,055,282, with the issuance of up to 153,600,000 common, nominative, single
series, class II, no-par-value shares representative of the variable portion of common stock.
A Stockholders’ Extraordinary General Meeting held on June 26, 2008 approved the split of all shares issued (representing both
common stock subscribed and paid-in and authorized common stock), by means of (i) issuance and delivery to the shareholders of
three new Unique Series shares, paid and released, for each share which they currently hold; (ii) issuance and delivery of three Unique
Series shares, for each of the shares that the Company holds itself, as a result of their acquisition with a charge to its stockholders’ equity;
and/or (iii) issuance of three new Unique Series shares, for each of the shares held in Treasury, previously issued and for which the subscription
and initial payment is still pending.
At December 31, 2009 and 2008, common stock consists, respectively, of 1,800,000,000 and 1,646,400,000 nominative, ordinary, no-par
value, voting shares. Fixed capital is represented by nonwithdrawable Class I shares. Variable capital is represented by Class II shares,
which may not exceed 10 times the minimum fixed capital. Considering the retroactive effect of the stock split previously mentioned,
the number of shares as of December 31 is as follows:
Number of shares
Subscribed Capital Class I
Class II
Less Shares in trust
2009
Amount
2008
2009
2008
1,280,256,768
519,743,232
1,800,000,000
1,280,256,768
$
366,143,232
1,646,400,000
406,567
$
406,567
1,968,094 1,765,456
2,374,661 2,172,023
(844,597)
1,799,155,403
(2,299,652)
1,644,100,348
$
(21,555)
(28,792)
2,353,106
$ 2,143,231
Earned capital A Stockholders’ Ordinary General Meeting held on December 3, 2009 approved the declaration of dividends for $396,000, applied
against the Net Tax Income Account (CUFIN), equivalent to 0.22 cents per share; this dividend will be settled in four payments during
2010.
A Stockholders’ Ordinary General Meeting held on December 5, 2008 approved the declaration of dividends for $296,352, applied
against the Net Tax Income Account (CUFIN), equivalent to 0.18 cents per share; this dividend was settled in four payments during
2009.
Stockholders’ equity, except for restated paid-in capital and tax retained earnings will be subject to ISR payable by the Company at the
rate in effect upon distribution. Any tax paid on such distribution may be credited against annual and estimated ISR of the year in which
the tax on dividends is paid and the following two fiscal years.
Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of net income of the year
be transferred to the legal reserve until the reserve equals 20% of capital stock at par value (historical pesos). The legal reserve may be
capitalized but may not be distributed unless the entity is dissolved. The legal reserve must be replenished if it is reduced for any reason.
At December 31, 2009 and 2008, the legal reserve, at historical pesos, was $190,292 and $184,524, respectively.
39
15. Foreign currency balances and transactions
At December 31, 2009 and 2008, assets, liabilities and transactions denominated in foreign currency other than the functional currencies of each reported unit converted to U.S. dollars, are as follows:
Thousands of U.S. dollars
2009
Current assets
Liabilities Current
Long-term
Total
Net monetary liability position
2008
854,448
334,199
(437,058)
(825,039)
(1,262,097)
(407,649)
(640,171)
(587,289)
(1,227,460)
(893,261)
The principal transactions carried out by the Mexican companies in foreign currency, excluding purchases of machinery and equipment, are:
Thousands of U.S. dollars
2009
Sales
Interest income
Interest expense
Purchases
Net
2008
988,667
945
(33,450)
(602,277)
353,885
1,036,319
1,149
(32,354)
(858,757)
146,357
The prices of the main products of the companies are based on conditions in the international market.
Mexican peso exchange rates in effect at the dates of the consolidated balance sheets and at the date of issuance of these financial
statements were as follows:
December 31,
2009
Mexico Colombia
Brazil
$
$
$
13.0659
2,044.23
1.7412
April 14,
2008
$
$
$
13.8325
2,243.59
2.3370
2010
$
$
$
12.2122
1,936.22
1.7584
The exchange rates as of December 31, of the functional currency (the local currency) of the countries where the Company’s subsidiaries
are located in relation to the reporting currency (Mexican peso) are listed below:
Argentina
Brazil
Colombia
Costa Rica
Chile
Ecuador, El Salvador, USA and Panama
Guatemala
Honduras
Nicaragua
Peru
Venezuela
40
2009
2008
0.29
0.13
156.45
43.76
38.81
13.06
0.64
1.47
1.59
0.22
0.15
0.25
0.17
162.20
40.73
45.48
13.85
0.56
1.38
1.43
0.23
0.15
16. Other (expenses) income
PTU current
$
PTU deferred
Unamortized actuarial losses and gains as of January 1, 2008
Loss on sale of fixed assets
Loss from lawsuits due to tax contingencies not provisioned Gain on sale of waste materials
Impairment of goodwill
Donations
Insufficiency in tax provision
Other
$
17. Comprehensive financing cost
Interest income
$
Commissions paid
Interest expense
Exchange gain (loss)
Monetary position loss
$
2009
(207,756)
$
(138,734)
–
(96,122)
(23,543)
45,291
(69,000)
(18,360)
(18,666)
(113,102)
(639,992)
$
2009
2008
(141,386)
73,945
(21,921)
(3,285)
–
10,039
–
(9,741)
–
(238,398)
(330,747)
2008
113,428
$
110,420
(220,878)
(168,639)
(642,827)
(625,089)
106,378 (2,339,514)
(49,083)
(59,662)
(692,982)
$ (3,082,484)
18. Balances and transactions with related parties
Balances due from and to related parties are as follows:
2008
35,556
$
–
–
2,914
1,217
39,687
$
49,029
27,617
27,407
3,864
159
108,076
Due to related parties:
Grupo Empresarial Kaluz, S.A. de C.V.
$
Plaza Azcapotzalco, S.A. de C.V.
Other
$
212,533
$
4,607
1,162
218,302
$
175,417
3,136
5,990
184,543
The Company carried out the following transactions with related parties:
2009
Due from related parties:
Pochteca Materias Primas, S.A de C.V.
$
Elementia, S.A.
Mexichem Compuestos Colombia, S.A. (before C.I. Geon Polimeros Andinos, S.A.)
Eternit Colombiana, S.A.
Other
$
2009
2008
Revenues from Cancellation of contract
$
Sales
Administrative services
Interest
$
–
$
224,470
12,401
13,919
250,790
$
221,154
27,611
9,818
3,515
262,098
Expenses from Administrative services
$
Donations
Purchase
Other
$
198,000
$
13,800
55,000
15,421
282,221
$
201,985
9,600
–
16,031
227,616
Furthermore, the Company has performed transactions with Banco Ve por Más, S.A. and Casa de Bolsa Arka, S.A. mainly involving loans, interest, investments and corporate banking services. These transactions have been performed according to market conditions and values.
41
Employee benefits granted to Company key management (and/or prominent executives) were as follows:
2009
Direct benefits
$
Severance benefits
Postretirement benefits
69,353
$
5,720
31,116
2008
73,157
5,931
30,616
19. Income taxes
The Company is subject to ISR and IETU.
The ISR rate for 2009 and 2008 was 28%, and will be 30% for 2010 to 2012, 29% for 2013, and 28% for 2014 and thereafter. The Company
pays ISR, together with subsidiaries on a consolidated basis from 1982.
On December 7, 2009 certain amendments to the LISR were published, effective as of 2010, which establish that: i) the payment of ISR
on the benefits from tax consolidation obtained in the years 1999 to 2004 must be made in installments beginning in 2010 until 2015
and ii) the tax related to the benefits obtained from the 2005 tax consolidation and subsequent years will be paid during the sixth and
tenth years after the date in which the benefit was obtained. The payment of tax related to the benefits from the tax consolidation
obtained in the years 1982 (initial year of the consolidation regime) to 1998 could be required in certain cases as established in tax provisions. As a result of these amendments, the Company is currently waiting for the publication of the rules applicable to fiscal years 2005
to 2009, similar to the rules that were published on March 31, 2010 for fiscal year 2004. Otherwise, it has decided to deconsolidate for tax
purposes, some Mexican subsidiaries whose effect on taxes is approximately $300,000, which is recorded in these financial statements
under deferred taxes.
IETU - Revenues, as well as deductions and certain tax credits, are determined based on cash flows of each fiscal year. The IETU rate is
17% and 16.5%, in 2009 and 2008, respectively; and 17.5% as of 2010. The Asset Tax Law was repealed upon enactment of the IETU Law;
however, under certain circumstances, IMPAC paid in the ten years prior to the year in which ISR is paid, may be recovered, according to
the terms of the law. In addition, as opposed to ISR, the parent and its subsidiaries will incur IETU on an individual basis.
Income tax incurred will be the higher of ISR and IETU.
a) ISR
The ISR rates applicable in 2009 in the countries where the Company operates are as follows:
ISR
rates
%
Argentina
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
USA
35
34
17
33
30
25
25
34
ISR
rates
%
Guatemala
Honduras
Mexico
Nicaragua
Panama
Peru
Venezuela
31
30
28
30
30
30
34
b) IETU
Based on its financial projections, the Company determined that it will basically pay only ISR, while certain subsidiaries identified that
they will essentially pay IETU; consequently, the deferred ISR and IETU were recognized in the applicable cases. During 2009, neither the
Company nor any of its Mexican subsidiaries incurred IETU.
42
c) IMPAC
In certain countries where Mexichem operates, such as Guatemala, Nicaragua, Argentina, Colombia and Peru, asset tax is payable,
although it is generally only paid on the amount by which it exceeds ISR of the year. However, tax can be credited against ISR and is
calculated according to the local laws of each country by applying the following rates to the majority of net assets:
Asset tax rates
%
Guatemala
1.00
Nicaragua
1.00
Asset tax rates
%
Argentina
Colombia
Peru
d) Taxes on income are as follows:
2009
Current income tax
$
Deferred ISR
Current business flat tax
$
1.00
1.20
1.00
980,164
$
(164,144)
–
816,020
$
2008
408,534
(237,675)
27,252
198,111
The effective tax rate for 2009 and 2008 differs from the statutory rate, mainly as a result of certain permanent differences such as
nondeductible expenses, non-accruable revenues, the annual adjustment for inflation in the Mexican subsidiaries, the effects of
inflation in the countries that operate in an inflationary environment, the different tax rates in the countries in which the Company’s
subsidiaries operate, and the reserve for the deferred tax asset derived from the tax losses whose future recovery is uncertain.
At December 31, the main items comprising the liability balance of deferred income tax are as follows:
2009
Property, plant and equipment
$
Inventories, net
Accrued liabilities which will be deductible when paid
Tax loss carryforwards
Employee profit sharing
Others
Net deferred tax liability
$
1,872,825
$ 1,273,864
(50,991)
(63,910)
(453,585)
(255,096)
(399,004)
(205,494)
(64,681)
(105,996)
(51,407)
(19,172)
79,690
205,458
932,847
$
829,654
A reconciliation of beginning and ending amount of the deferred tax liability is as follows:
2009
Beginning balance
$
Deferred income tax provision applied to results
Deferred effect of assets and liabilities of acquired companies
Deferred effect from derivative financial instruments
$
2008
829,654
$
(164,144)
202,656
64,681
932,847
$
2008
828,763
(237,675)
132,569
105,997
829,654
The benefits of the restated tax loss carryforwards and recoverable asset tax on which the deferred ISR asset and an advance payment
of ISR, respectively, have already been partially recognized, may be recovered subject to certain requirements. The years of expiration
of the tax losses and recoverable asset tax of the individual entities and their restated amounts as of December 31, 2009 are as follows:
Year of
Expiration
Tax Loss
Carryforwards
2010
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
Without maturity
$
23,024
$
8,850
58,190
6,131
46,531
–
–
53,287
–
–
3,303,530
3,499,543
$
Recoverable
IMPAC
1,881
–
1,709
10,694
10,186
9,857
2,809
3,162
3,724
3,907
–
47,929
43
In Brazil and Peru, tax losses are not restated and do not expire and they may be applied without exceeding 30% and 50%, respectively,
of the taxed profits for the year.
The deferred ISR determined in accordance with the previous sections includes the tax loss effect of $707,663. This amount was reserved since recovery is considered unlikely.
20. Discontinued operations
As discussed in Note 2 (vi), during March 2009, the Corporate Practices Committee approved the offer that will be presented by
Mexichem to Elementia, S.A. (formerly, Mexalit, S.A.) for the sale of 100% of the shares representative of the common stock of the subsidiary called Mexichem Estireno, S.A. de C.V.
The financial information at the selling date is as follows:
Income from discontinued operations
$
Income on sale of subsidiaries
Costs and expenses
Other expenses Tax on profits
Net profit from discontinued operations
$
64,700
121,380
(55,753)
(1,077)
(4,214)
(35,988)
89,048
21. Commitments
a. As of December 31, 2009, the Company has contractual commitments for capital leases related to machinery and equipment and
operating leases for real properties in the amount of $295,492.
Maturities of contractual commitments expressed in Mexican pesos at December 31, 2009, are as follows:
Years
2010
$
2011
2012
2013
2014 later
$
109,294
74,778
65,892
13,953
31,575
295,492
Rental expenses were $144,771 and $319,470 for the years ended December 31, 2009 and 2008, respectively.
b. In July 2007, the Company executed an agreement with Dow Chemical, Inc. for the amount of US$10 million to guarantee the supply of
raw materials during three years, which will be applied to cost of sales according to the straight-line method during that period.
c. In 2009, the subsidiary Amanco México, S.A. de C.V. sold the land and building that houses one of its plants. The book value as of December 31, 2008 was $52,914, and they were classified as available-for-sale assets under current assets.
d. On April 22, 2008, the Company informed small investors that it had reached an agreement with Cydsa, S.A.B. de C.V. for the purchase
of the companies, Policyd, S.A. de C.V. (a manufacturer of PVC resins) and Plásticos Rex, S.A. de C.V. (a manufacturer of plastic pipe). The
agreement stipulates that as part of the payment, Mexichem must deliver its soda chloride plant located in Santa Clara, Ecatepec, in the
State of Mexico. These additions are subject to approval by the Federal Antitrust Board, as well as the legalization of the agreement.
e. The ground housing the Santa Clara Ecatepec, Mexico State plant is contaminated with mercury. The Company has taken samples of
the contaminated soil and, based on its tests, determined the remediation cost at $105,407, which amount is recorded in accumulated
liabilities. Currently, the Company is waiting for a resolution of the agreement described in the preceding paragraph, and has not yet
obtained the necessary resources for the soil remediation.
44
22. Contingencies
The Company is involved in commercial, tax and labor lawsuits. These processes have arisen during the normal course of business and
are common in the industry in which the companies operate. The estimated amount of these lawsuits is $344,622, for which a liability
has been recorded for the amount of $264,622, which includes other long-term liabilities presented on the consolidated balance sheet.
With regard to the difference of $80,000 and in the opinion of the Company’s internal and external attorneys, the possibility that these
contingencies will result in unfavorable verdicts has a risk level of less than probable, but higher than remote. In any case, the Company
considers that these lawsuits will not have an adverse material effect on its consolidated financial position. Most of these contingencies
have been recorded as a result of recent business acquisitions.
23. Pro forma financial statements
Below is the consolidated pro forma financial information (unaudited) of Mexichem, considering the results and financial position of
Tubos Flexibles, S.A. de C.V. and C.I. Mexichem Compuestos Colombia, S.A. (formerly, C.I. Geón Polímeros Andinos) as if the purchase
had taken place on January 1, 2008. This pro forma information does not necessarily present the actual figures that would have been
obtained if that had been the acquisition date.
2009
Bank loans
$
Accounts payable to suppliers
Other accounts payable, provisions and accrued liabilities
Bank loans and long-term debt
Other liabilities long-term debt
Total liabilities
Total
$
2,411,858
$
5,302,931
218,302
2,451,346
14,177,362
1,358,420
920,329
26,840,548
13,452,808
40,293,356
$
2009
2008
(Unaudited figures)
Condensed balance sheet
$ 10,366,525
$ 4,014,975
Accounts receivable
5,790,737 5,623,915
Due from related parties
39,687
413,568
Inventories
2,986,730 4,137,992
Other current assets
301,498 1,171,591
Property, plant and equipment, net
14,526,506 13,236,765
Intangible assets, net
2,532,233 2,732,840
Goodwill 3,138,958 3,147,204
Other assets, net
610,482
688,412
Total
$ 40,293,356
$ 35,167,262
3,422,136
7,983,161
348,469
3,888,098
9,092,022
1,109,249
844,550
26,687,685
8,479,577
35,167,262
2008
Condensed statement of income
(Unaudited figures)
(Unaudited figures)
Net sales
$ 31,190,007
$ 33,312,422
Cost of sales
(19,899,838) (23,648,655)
Operating expenses
(6,249,999) (5,899,351)
Other expenses, net
(644,306)
(329,709)
Comprehensive financing income
(704,017) (3,102,880)
Equity in income of associated companies unconsolidated
12,230
8,249
Income taxes (817,007)
(197,857)
2,887,070
142,219
Income (loss) from discontinued operations
$
89,048
(15,524)
2,960,594
$
(17,740)
(24,309)
100,170
45
24. Information by industry segment
The Company has three business divisions in different geographic regions in Mexico and Latin America. The following represents a
summary of the operations of such divisions:
2009
Vinyl - Chlorine
Fluorine
Manufactured
products
Total assets
$ 13,347,978
$ 4,644,231
$ 18,489,237
$ 12,704,216
$ (8,892,306)
$ 40,293,356
Net sales
$ 13,544,420
$ 2,531,337
$ 17,850,322
$
448,264
$ (3,675,279)
$ 30,699,064
Operating income (loss)
$ 2,176,018
$ 1,051,602
$
2,369,712
$
(494,952)
$
(106,900)
$ 4,995,480
Net income for the year
$
$
639,914
$
1,846,419
$
114,269
$
(555,153)
$ 2,932,240
EBITDA
$ 2,854,212
$ 1,207,372
$
3,159,628
$
(270,059)
$
(106,900)
$ 6,844,253
EBITDA per share
$
$
$
1.86
$
(0.16)
$
(0.06)
886,791
1.68
0.71
2008
Holding
company
Eliminations
Holding
company
Total
$
4.03
Vinyl - Chlorine
Fluorine
Manufactured
products
Total assets
$ 14,675,066
$ 3,122,485
$ 15,916,482
$ 15,446,598
$ (15,874,181)
$ 33,286,450
Net sales
$ 14,564,185
$ 2,153,902
$ 17,342,022
$
476,706
$ (3,465,292)
$ 31,071,523
Eliminations
Operating income (loss)
$ 1,692,576
$
489,302
$
2,041,067
$
(482,472)
$
13,725
Net income (loss) for the year
$
$
(42,117) $
558,152
$
231,280
$
(715,364)
83,416
EBITDA
$ 2,250,169
$
623,723
$
2,594,924
$
(246,815)
$
13,725
EBITDA per share
$
$
0.38
$
1.58
$
(0.15)
$
0.01
1.37
Total
$ 3,754,198
$
115,367
$ 5,235,726
$
3.19
25. Subsequent event
a. On March 31, 2010, Mexichem concluded the purchase of shares and assets of the fluoride chemical division of INEOS Group, located
in the United States, Europe and Asia. With this acquisition, it became the worldwide leader in the chemical fluorides sector, especially
in the manufacture of cooling gases, generating annual sales of over US$500 million. The approximate value of this transaction was
US$350 million. To date, the acquisition is in the review and price adjustment period and, consequently, the respective goodwill has not
been determined.
b. Mexichem notified small investors that given the significance of having financial statements prepared in conformity with international
standards that allow the comparison of information prepared on the same basis and in order to increase the trust of the investors, the
Board of Directors and the Audit Committee decided to early adopt the application of International Financial Reporting Standards (IFRS)
as of January 1, 2010, instead of as of 2012 as established in the Circular Letter for Issuing Companies.
46
Below is a condensed balance sheet showing the effects of such adoption:
Financial Reporting
Standard (NIF) figures as of
Impact
January 1, 2009
IFRS
figures as of
January 1, 2009
Current assets excluding inventories
$ 10,214,961
$
Inventories 3,962,483
Property, plant and equipment, Net 12,911,758
Other assets and investment in shares of associated companies
544,551
Intangible assets and goodwill 5,580,958
12,878
58,861
Total assets
$ 33,286,450
$
455,342
$ 10,670,303
300,198 4,262,681
(232,392)
12,679,366
(34,475)
510,076
(134,784) 5,446,174
–
12,878
–
58,861
353,889
$ 33,640,339
Current liabilities
$ 13,764,170
$
829,654
277,726
Employee retirement benefits and workers’ compensation
153,765
Other long-term liabilities 9,781,558
Total liabilities
24,806,873
8,479,577
Total liabilities and stockholders’ equity
$ 33,286,450
$
–
$ 13,764,170
254,843 1,084,497
(277,726)
–
(131,623)
22,142
– 9,781,558
(154,506) 24,652,367
508,395 8,987,972
353,889
$ 33,640,339
26. Financial statements issuance authorization
The consolidated financial statements for the year ended December 31, 2008, were approved by the Stockholders’ General Meeting of
April 1, 2009. The issuance of the consolidated financial statements for the year ended December 31, 2009, was approved on April 14,
2010, by C.P. Armando Vallejo Gómez, Finance Director and the Company’s Audit Committee and is subject to the approval of the Board
of Directors and Stockholders’ General Meeting, which could require their modification according to the General Corporate Law.
47
2009 CEO’s Report
Mexichem, S.A.B. de C.V
Synergies that generate results
The EBITDA margin increased to 22.3%, versus 16.9% the previous year.
For Mexichem, 2009 proved to be a better year than expected, as
Our plants in Latin America maintained their utilization factors, with
we were able to mitigate the negative circumstances of the eco-
the exception of the chlorine-soda plant, whose utilization factor
nomic environment through our strategy of vertical integration
was affected by irregularities in the PEMEX Petrochemicals opera-
and geographical diversification. As an example of this, the Chlo-
tions. The strict control of operating costs in Brazil, Colombia, Ecua-
rine-Vinyl Chain supplies over 40% of the PVC resin production to
dor, and Mexico stands out.
the Transformed Products Chain. During 2009, although the price
of resin dropped more than 30%, vertical integration allowed us
to maintain the value within Mexichem so that the decrease in the
price of resin represented an increase in the margin of the Transformed Products Chain.
The recent acquisition of Ineos Flúor, with which the Fluorine Chain
is vertically integrated to the production of refrigerants, makes
Mexichem the only integrated global producer of its primary raw
material (fluorite). The acquisition of Policyd and Plásticos Rex
(pending approval by the relevant authorities) allows us to maintain
the vertical integration that has proven to be an effective strategy.
These operations were supported by a diversified funding strategy,
thus strengthening our balance sheet. This strategy included an increase in capital by the stockholders, debt placement in the Mexican market, and the issue of an international bond, all of which had
significant demand from investors. These activities have allowed
Mexichem to continue its growth strategy.
For 2010, Mexichem will continue to grow and consolidate its businesses, showing increases in sales and EBITDA greater than what
Profit sharing
Profit sharing over the year amounted to MXN208 million, 48.6%
higher than in 2008.
Integral financing cost
At the end of 2009, the total financing cost was MXN693 million,
77.5% lower than in the same period last year, primarily the result
of a foreign-exchange gain of MXN106 million, compared with a
MXN2.340 billion loss in the previous year. The behavior of financial
expenses (bank charges) and interest paid and earned in relation to
2008 reflects growth of only 9.8%.
Income tax
Income taxes for the year amounted to MXN980 million, a 140%
increase over those for the same period last year, as a result of improved operating income and the positive effect of the foreignexchange gain.
Net income
The consolidated majority net income earned at the end of 2009
was MXN2.932 billion, MXN2.817 billion higher than in 2008.
was established in our 20/20/20 vision (percent increase in sales,
The gross free cash flow generation was MXN4.613 billion in 2009,
EBITDA, and return on investment) with better performance than
23% higher than in 2008, driven by better operating income.
expected by our stockholders.
Balance-Sheet Highlights
Results
Sales
Our debt at the end of 2009 reflected a MXN4.408 billion increase
Total sales at the end of the year amounted to MXN30.699 billion,
due mainly to the issue and placement of MXN2.5 billion of certifi-
1.2% lower than in the same period last year. This was the result of a
cates in the Mexican debt market and a USD350 million interna-
better sales price, approximately 7.9%, which offset the 8.5% drop in
tional bond.
volumes of mainly chlorine, soda, and phosphates.
Mexichem has used the resources obtained to refinance its existing
Efficiency and productivity
debt and extend its maturities, leaving only 14.5% in short-term debt,
Operating income at the end of 2009 stood at MXN4.995 billion,
versus 25.4% in the previous year, thus mitigating any effect that the
33.1% higher than in 2008. Operating income plus depreciation
financial crisis might represent for the issuer in the short term and
and amortization (EBITDA) from January to December totaled
providing liquidity to further strengthen its financial structure.
MXN6.844 billion, 30.7% higher than in the same period last year,
The net-debt-to-EBITDA ratio rests at 0.94x in dollar terms, signifi-
due to: i) our ability to maintain sales in all businesses; ii) the vertical
cantly less than the 2.0x limit established as an internal goal, and the
integration strategy, synergies, and increased consumption of raw
interest coverage ratio was almost 8x.
materials (soda, fluorite, and PVC); and iii) reductions in raw-material
and energy costs.
48
Debt
The debt maturities are as follows:
Chlorine-Vinyl Chain
Thousands of Mexican pesos
Full-year sales for 2009 amounted to MXN13.544 billion, 7.0% lower
To be paid during2010
MXN
2011
2012
2013
2,411,858
1,950,917
4,750,568
69,016
2014 onwards
7,406,861
than in the same period the previous year. Sales volume was 1.588
MXN 16,589,220
million tonnes, 1.7% lower than the previous year, due to the decrease in volume of soda, chlorine, and phosphates; there was also a
2.8% drop in sales prices. EDITDA was MXN2.854 billion, 26.8% greater
than in 2008, resulting from operational efficiencies achieved through
increased soda self-supply and lower energy costs. The EBITDA mar-
Deferred taxes
gin improved significantly, from 15.5% in 2008 to 21.1%.
Our deferred tax liability is MXN1.358 billion and was due mainly to
Although the performance of our client and supplier PEMEX con-
the effect of fixed-asset acquisitions. The figure includes MXN426
tinues to be irregular, chlorine consumption in 2009 was only 2%
million in deferred profit sharing.
lower than in 2008.
Shareholders’ equity
Fluorine Chain
The increase in shareholders’ equity of MXN4.973 billion is due to
Sales in 2009 amounted to MXN2.531 billion, 17.5% higher than
the capital increase of MXN2.258 billion, adopted at the Regular
in the same period the previous year. The volume reported was
General Stockholders Meeting held August 3, 2009, in addition to
789,000 tonnes, 16.9% lower than the previous year. This is a result
the results of the fiscal year.
of the combination of improved sales prices by 41.3%, which offset
At a Regular General Stockholders Meeting held December 3,
the 16.9% drop in sales volume, mainly in the metallurgical grade,
2009, it was agreed that the company would pay a cash dividend
amounting to MXN396 million from the Net Tax Income Account
(CUFIN), equivalent to MXN0.22 (twenty two peso cents) for each
outstanding share, payable in four equal and successive payments
of MXN0.055 (fifty-five peso cents).
Foreign-currency position
The passive foreign-currency position on our balance sheet at yearend was USD408 million. However, approximately 80% of sales are
in US dollars, and over the last twelve months the company generated revenues in dollars of USD1.6 billion, with which we have a
natural hedge.
Sales breakdown by chain
Transformed Products Chain
Sales for the year amounted to MXN17.85 billion, 2.9% higher than
for the same period a year earlier, thanks to our ability to maintain
a critical mass and sales prices. Sales volume was 516,000 tonnes,
2.9% higher than in 2008. EBITDA was MXN3.160 billion, 21.8%
higher than the amount at the end of 2008, and the EBITDA margin
improved substantially: from 15% in 2008 to 17.7%, driven mainly by
due to the reduction in demand by the steel industry. EBIDTA was
MXN1.207 billion, 93.6% higher than in 2008, equivalent to an EBITDA
margin of 47.7% in 2009 compared with 29% in the previous year. This
was a result of i) improved sales prices, and ii) an increase in the selfsupply of fluorspar, together with the reduction in costs of certain
raw materials such as sulfur.
Internal controls
Our corporate bylaws provide for auditing and corporate practices
committees to assist the board of directors in the performance of its
functions. Through these committees the existence of mechanisms
to determine the company’s compliance with both legal and institutional provisions is guaranteed.
Relevant events
On November 6, 2010, an international bond in the amount of
USD350 million was placed under regulation 144A/Reg S. This 10year bullet bond with a coupon of 8.75% is listed in Luxembourg
through the Euro MTF Market of the Luxembourg Stock Exchange.
The transaction had demand of twice the amount of USD350
million, which reflects investors’ confidence in Mexichem and its
solid financial structure. It is important to highlight that this is our
reductions in costs of raw materials (PVC). This confirms the advan-
first international debt issue.
tages of our vertical-integration strategy, as approximately 50% of
The issuance is part of the financial strategy established by Mexichem
our PVC resin production is for self-supply in the same Transformed
to mitigate any effect that the financial crisis may represent in the
Products Chain. Thus, the decrease in PVC sales resulted in better
short and medium terms, providing liquidity to further strengthen
margins in the next link of this chain, which in this case is piping
the company’s financial structure.
and compounds.
49
In November, the board of directors decided to sell Mexichem’s sty-
Subsequent events
rene plant to a related party for MXN235 million, the market value of
On March 31, 2010, Mexichem acquired the shares and assets of the
which was determined by an independent third party. The figures
fluoride chemical division of the Ineos Group located in the US, Eu-
of the balance sheet and income statement were presented in the
rope, and Asia. With this acquisition, Mexichem became the global
financial statements as a discontinued operation. This transaction
leader in fluorochemicals, especially in the production of refrigerant
generated a profit of MXN89 million.
gases, generating sales of more than USD500 million. This transaction
In October 2009, the remaining 50% capital stock of C.I. Mexichem
had an approximate value of USD350 million and, at present, the
Compuestos Colombia, S.A. (formerly C.I. Geón Polímeros Andinos),
acquisition is currently under review and price adjustment.
was purchased at USD13.5 million.
This acquisition provides Mexichem with the unique opportunity
On September 29, 2010, Mexichem placed MXN2.5 billion of five-
to expand its business and position in the fluorochemicals mar-
year certificates in the Mexican debt market at a floating rate of 28day Interbank Equilibrium Interest Rate (TIEE) plus 244 basis points.
The operation’s demand exceeded the maximum amount of
MXN2.5 billion, reflecting investor confidence in Mexichem. It is important to note that this was our first public debt issue.
The inauguration of the aluminum fluoride plant in Matamoros,
Tamaulipas, took place on September 18, 2009, placing Mexichem
and Mexico at the forefront in metals production, as aluminum fluoride is an essential element in the production of aluminum metal.
This plant, with an installed capacity of 60,000 tonnes/year, will primarily serve Mexichem Fluor’s export markets, continuing with the
vertical integration strategy in products with a higher added value in
the Fluorine Chain. It is important to highlight that the project had an
investment of more than USD60 million and was financed with our
own resources thanks to the company’s cash-flow generation.
ket, maintaining its vertical integration strategy in products with a
higher added value, expanding the array of products and extending
Mexichem’s presence throughout the world.
Our subsidiary Unión Minera del Sur, part of Mexichem’s Fluorine
Chain, developed a sulfur extraction plant with state-of-the-art
technology located in the state of Veracruz. Its 210,000 tonnes/year
production capacity will allow the chain’s production costs to be
reduced, particularly in the manufacture of hydrofluoric acid.
Mexichem informed investors that, given the importance of relying
upon financial statements with international standards, which allow
information to be compared using the same basis of preparation,
and in order to increase investor confidence, the board of directors
and the auditing committee decided to take early implementation
of the International Financial Reporting Standards (IFRS), starting
from the fiscal period beginning January 1, 2010, although this obligation would apply as of 2012.
During the month of August, Mexichem successfully executed
a capital increase of 153.6 million new shares, representing an increase of MXN2.258 billion.
Sincerely,
In March 2009, Mexichem acquired 100% of the shares of Tubos
Flexibles, S.A. de C.V., a Mexican company with more than 50 years
in the market and four plants that produce and market pipe and
connections made of PVC, CPVC, polyethylene, and polypropylene.
The value of this transaction totaled approximately USD28 million.
In January 2009, we acquired the remaining 30% of DVG Industria
de Comercio de Plásticos Limitada (Plastubos) for an approximate
amount of USD18.5 million.
50
Chief Executive Officer
and Audit Committee Reports
To the board of directors of
Mexichem, S.A.B. de C.V., and Affiliated Companies:
As President of the Corporate Practices and Audit Committee (the
IV. Internal Audit Function Evaluation
“Committee”) of Mexichem, S.A.B. de C.V., and subsidiaries (Mexichem),
The auditing committee has remained alert to internal auditing
I hereby report as follows:
needs to ensure that it has the necessary human resources and
Six committee meetings were held in the course of the fiscal year
materials to carry out its function appropriately. In this regard, the
on the following dates: April 15, July 15, October 14, and November
work programs and activities established during fiscal year 2009
27, 2009, as well as on January 20 and April 14, 2010. These meetings
were found to have been satisfactorily carried out, and the work
were attended by committee members, external and internal audi-
plan for fiscal year 2010 was also approved. Similarly, the committee
tors, and those Mexichem executives who, at the request of those
members have met with the internal audit director without other
committees, were asked to attend. The activities and resolutions
company executives being present in order to receive and discuss
that were issued were approved in their respective minutes.
whatever information had been deemed pertinent.
In accordance with the stipulations of article 43, sections I and II,
V. External Audit Performance Evaluation
subsections (a) to (d) and (a) to (h), respectively, of the Stock Market
We continued to use the services of Galaz, Yamazaki, Ruiz Urquiza,
and Internal Regulations Law, I take the liberty of submitting the
S.C. (Deloitte), as external company auditor, and its fees for fiscal
activity report pertaining to the fiscal year that ended on December
year 2009 were duly reviewed and approved.
31, 2009.
The committee members received from the external auditor the
I. Officer Compensation
audited financial statements for December 31, 2009, and found a
The total compensation packages of the CEO and related Company
clean audit, without observations, which highlighted the coopera-
officers were reviewed.
tion by all areas of the Company in completing this task. Similar-
II. Transactions with related parties
Transactions conducted between related parties were reviewed to
ensure that they were conducted in accordance with the policies
ly, the work of external auditors Deloitte, and of Mr. Carlos Moya
Vallejo, Partner in charge, was evaluated and found satisfactory. The
external auditors confirmed their independence.
that had been previously approved by the Committee and that no
The committee members have met with the external auditor with-
irregularities were found. These transactions are recorded in item 18
out company executives present. Full cooperation was obtained
of the 2009 Audited Financial Statements. The transfer price assess-
to receive additional information about the matters covered in the
ment required by current legislation is ongoing.
cases in which it was requested.
III. Internal Control System Evaluation
We have reviewed the performance assessment issued by the internal auditor, external auditor, and CEO and, consequently, the
Committee considers that Mexichem’s internal accounting control
system complies with the control objectives set by the board and
offers reasonable assurance that it will prevent or detect errors and
material irregularities in its normal course of operations.
51
VI. Financial Information
XI. Legal Report
The Company’s financial statements were discussed each quarter
The status report by the attorneys in charge of current matters and
with the executives who were responsible for preparing and re-
litigation was received.
viewing them and there were no observations as to the information
XII. Proposal
presented. The financial statements were approved by the committee before being forwarded to the Mexican Stock Exchange.
Based on the work that has been performed, it is recommended
that the board of directors submit the Mexichem audited financial
Similarly, the audited financial statements for the fiscal year ended
statements for the fiscal year ended December 31, 2009, for approval
December 31, 2009, were reviewed and discussed. There were no ob-
at the Stockholders Meeting.
servations, and they were, therefore, approved by the Committee.
In order to prepare this report, we have listened to the pertinent
Company officers, finding no differences of opinion among them.
VII. Evaluation of investments in new acquisitions
Sincerely,
Various proposals for investment in new acquisitions were evaluated
and approved throughout the period, including the fluoride chemical
division of the INEOS Group, located in the United States, Europe,
and Asia.
VIII. Financial Strategy
In order to strengthen financial stability and growth of the organization, the following financial strategies were reviewed and approved.
Increase in social capital in the variable portion of MXN2.258 billion, through the issue of 153,600,000 new ordinary shares. MXN2.5
billion of five-year notes were issued and placed in the Mexican
debt market, and USD350 million of ten-year notes were issued in
international markets.
IX. Accounting Policies
The principle accounting policies followed by Mexichem were reviewed and approved in terms of the information received by reason
of new regulations.
The accounting and information policies and criteria observed by
Mexichem are adequate, sufficient, and consistently applied.
X. CEO Report
The CEO report on the activities of fiscal year 2009 was received
and approved.
52
Fernando Ruiz Sahagún
and Audit Committee President
April 14, 2010
Exchanges where listed
Mexican Stock Exchange (BMV), Mexico
Ticker symbol on the BMV
Subscription date
September 1978
Number of shares outstanding
1,800 million
Corporate Offices
Río San Javier 10
Fraccionamiento Viveros del Río
Tlalnepantla, Estado de México
C.P. 54060
design:
signi.com.mx
Independent Auditor
Galaz, Yamazaqui, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu
Investor Relations
Enrique Ortega Prieto
Director of Strategic Planning
and Investor Relations
Phone 52 (55) 5366 4065
Fax. 52 (55) 5397 8836
[email protected]
www.mexichem.com
This document contains certain statements related to general information about MEXICHEM,
S.A.B de C.V. (Mexichem), regarding its activities as of the date thereof. This document includes a summary of Mexichem information that is not intended to cover all of the information
related to the company. The information herein has not been included with the purpose of
providing specific advice to investors. The statements herein reflect Mexichem’s current vision
regarding future events, and they are subject to certain risks, uncertainties, and assumptions.
Several factors could cause future results, performance, or achievements of Mexichem to differ
from those expressed or assumed in the foregoing statements. If one or more of these risks were
to occur, or the assumptions or estimates are proved incorrect, future results could vary significantly from those described, anticipated, alleged, estimated, expected, or budgeted. Mexichem
does not intend to update the foregoing statements nor does it assume any obligation to do so.
III
Mexichem S.A.B. de C.V.
Río San Javier #10
Fraccionamiento Viveros del Río
Tlanepantla, Estado de México
54060 México
Phone +52(55) 5366 4000
Fax +52(55) 5397 8836
www.mexichem.com
IV

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