Mexichem Reports 2016 Third Quarter and Nine Month Results

ROE: Net income / equity average: ROIC: NOPAT/Equity + Liabilities with cost – cash Net income and NOPAT (EBIT-taxes) consider trailing twelve months.(Graphic: Business Wire)

TLALNEPANTLA DE BAZ, Mexico--()--Mexichem, S.A.B. de C.V. (BMV: MEXCHEM*) (“the Company” or “Mexichem”) today announced its unaudited results for 3Q16. The figures have been prepared in accordance with International Financial Reporting Standards (“NIIF” or “IFRS”), IAS 34, interim financial reporting though the accounting policies and methods are consistent with the annual consolidated financial statements as of December 31st, 2015, having US dollars as the functional and reporting currency. All comparisons are made against the same period of the prior year, unless specified to the contrary.

Given that Mexichem’s reported earnings results (including the impact of the incident at PMV’s VCM plant) differ substantially from its reported operating results (without the impact), for clarification purposes this report contains reported EBIT, EBITDA and net income including the one-time net benefit related to PMV´s VCM plant, as well as *Adjusted EBIT, EBITDA and net income which exclude that effect. Additional details are contained on page 9.

.Third Quarter 2016 Financial and Operating Highlights

  • Reported EBITDA including $224 million in one-time net benefit related to PMV´s VCM plant, was $466 million. Adjusted EBITDA which excludes this effect was $242 million
  • Consolidated Adjusted EBITDA margin expanded over 111 bps to 17.3%, reflecting higher margins across all key business units
  • Reported net majority income was $155 million; adjusted net majority income increased 25% to $68 million,
  • Reported revenue and EBITDA were $1.4 billion and $466 million respectively, and adjusted on a constant currency basis were $1.42 billion and $470 million, respectively. See more p 14

Establishes Canadian Presence through Acquisition of Gravenhurst Plastics

Company on Track to Reach Guidance of Approximately $900 Million in Adj EBITDA for 2016

 

CONSOLIDATED SELECTED FINANCIAL RESULTS

       
  Third Quarter January - September
Consolidated (mm US$) 2016     2015     %Var. 2016     2015     % Var.
Net Sales 1,400 1,446 -3% 4,090 4,408 -7%
Operating Income 374 138 172% 363 401 -10%
EBITDA 466 234 99% 637 698 -9%
EBITDA margin 33.3% 16.2% 1,709 15.6% 15.8% - 26
Net Majority Income 155 54 187% 173 137 26%
Operating cash flow before Capex 170 217 -22% 308 417 -26%
Total CAPEX (organic & JV) -87 -216 -60% -320 -467 -32%
Free Cash Flow* 70 -14 N/A -53 -99 -46%
Adjusted Operating Income* 150 138 9% 424 401 6%
Adjusted EBITDA* 242 234 3% 699 698 0%
Adjusted EBITDA Margin* 17.3% 16.2% 111 17.1% 15.8% 125
Adjusted Net Maj Income* 68 54 25% 204 137 49%
 

Nine Month 2016 Financial and Operating Highlights

  • Reported EBITDA including $224 million in one-time benefit related to PMV´s VCM plant was $637 million; Adjusted EBITDA was $699 million
  • Consolidated Adjusted EBITDA margin expanded over 125 bps to 17.1%, reflecting higher margins across key business units
  • Reported net majority income was $173 million, and adjusted net majority income increased by 49% to $204 million y-o-y.
  • LTM ROE and ROIC were 3.7% and 5.1% while adjusted LTM ROE and ROIC was 5.1% and 5.7% respectively.
  • Reported sales and EBITDA were $4.1 billion, and $637 million respectively, and adjusted on a constant currency basis were $4.3 million and $746 million, respectively. See more p 14.

MANAGEMENT COMMENTARY

Mexichem continued to perform well in the third quarter, demonstrating the ability to expand EBITDA margins and profitability levels within a period of challenging market conditions. The accomplishments of the third quarter and first nine months of this year underscore the strength of our strategic initiatives to expand Mexichem’s portfolio of specialty products, diversify our end-markets and geographic footprint, and develop profitable cross-sell opportunities, all with a view toward increasing companywide returns.

Results by Business Group were in line with our expectations and reflected the resilience and stability that has characterized Mexichem throughout 2016. Each of our key operating segments posted improved EBITDA margin performance. Resins, Compounds and Derivatives, which accounted for 97% of our Vinyl unit’s sales, benefited from higher volumes this quarter particularly in Europe. Successful end market diversification in our Fluor Group and higher pricing for certain upstream products enabled us to expand margins despite volume declines. In Fluent, a more favorable product mix resulted in higher margins, overcoming a sales decline that was primarily due to currency fluctuations.

In sum, Mexichem’s third quarter results put us on track to reach our full year EBITDA guidance of approximately $900 million, an important achievement given the difficult industry conditions we faced, the loss of VCM and ethylene production at PMV and the effect of the U.S. dollar appreciation, which significantly reduced our reported revenues and EBITDA in the first nine months of this year. Additionally, our financial metrics and ratios continue to improve. Capital expenditures have declined substantially. Our equity contribution in our Texas- based ethylene cracker at the end of 3Q16 was 87%. Our free cash flow almost doubled in the third quarter and will continue to increase; and our net debt/adjusted EBITDA improved to 1.8x.

Today, we announced an acquisition of Gravenhurst Plastics Ltd. (GPL), a privately- held Canadian plastic pipe manufacturer company based in Gravenhurst, Ontario (outside Toronto) with a secondary location in Temiskaming. This transaction is emblematic of our strategy to expand our portfolio of value-added specialty products for the datacom industry and to enter new markets through strategic initiatives.

Based on our current visibility, we believe that Mexichem is positioned for significant revenue growth in 2017. The key contributor will be our ethylene cracker, which is scheduled to come on line in the first quarter and to continue to ramp throughout the year. Other organic growth initiatives include expanding our compounds business, moving forward with pilot programs in Fluor, creating sales synergies amongst our business units and innovating and expanding our product portfolios. Additionally, with the major capital expenditure program behind us, we will consider bolt-on acquisitions, similar to the one announced today that will serve as a platform for Mexichem products in new geographies and with new customers and end markets. The contribution from revenue growth, as well as favorable product mix and ongoing operating efficiencies are expected to result in strong EBITDA performance and higher returns in 2017.

Clarifications

In the fourth quarter of 2015 the Company completed a restructuring process in its Fluor Business Group resulting in a total of $49.9 million being reported as “discontinued operations” in full year 2015 results, in accordance with the IFRS regulations. Year-on-year figures in this report are not comparable given that results reported in the 1st, 2nd, and 3rd quarters of 2015 include the operations that were discontinued in 4Q15; Appendix I attached to this report contains comparable figures for each quarter of 2016 vs 2015.

During the first nine months of 2016 we performed an analysis which has led us to present the elimination of investment in subsidiaries under the heading “Other Asset” by Business Group instead of “Consolidated Eliminations”. The comparative information by segment following this reclassification is included in Appendix II.

REVENUES

Third quarter 2016 reported revenues were $1.4 billion, $46 million or 3% below last year’s levels. Approximately one-half of the decline or $24 million was due to the appreciation of the U.S. dollar against most of our other operating currencies The remainder was due to the net effect of lower sales volumes in Fluor and weaker U.S. demand for Fluent’s oil and gas pressure pipes, partially offset by the slightly higher revenues in our Vinyl Group mainly in Europe, which experienced strong and consistent demand.

On a constant currency basis, total sales would have decreased 2% year-on-year.

Revenues for 9M16 were $4 billion, or 7% below 2015 levels. Foreign currency translations accounted for 60.4% of the decline. On a constant currency basis, total sales would have decreased 3% year-on-year.

The United States represented 17% of total sales for the first nine months of 2016, Brazil accounted for 6%, and the UK and Germany represented 8% and 13%, respectively.

EBITDA AND ADJUSTED EBITDA

Reported EBITDA for 3Q16 was $466 million inclusive of PMV’s one-time benefit of $224 million, compared to $234 million in 3Q15, and Adjusted EBITDA for the quarter was $242 million, an increase of 3% y-o-y, primarily reflecting the strong performance in our Resins, Compounds and Derivatives business within our Vinyl Business Group and the absence of the hedging strategy loss that impacted last year’s third quarter.

These positive factors were offset the strength of the U.S. dollar globally. On a constant currency basis Adjusted EBITDA would have increased 5% to $247 million. Adjusted EBITDA margin expanded by 111 bps to 17.3% from 16.2%, benefitting from a combination of the previously mentioned factors, and lower input costs for certain products in our Vinyl Group and a more favorable product mix in Fluent.

For the first nine months of 2016, Adjusted EBITDA was $699 million, flat with the $698 million reported in 9M15, despite a $48 million negative foreign exchange impact in the 2016 period. On a constant currency basis, nine month 2016 Adjusted EBITDA would have increased 7% to $746 million.

OPERATING INCOME AND ADJUSTED OPERATING INCOME

Including the one-time benefit related to PMV´s VCM plant, the Company reported operating income for the third quarter of $374 million. Adjusted operating income was $150 million, 9% higher than in 3Q15, and adjusted operating margin expanded 123 bps to 10.7%. These results were due to the above-mentioned factors. See additional details on page 9.

FINANCIAL COSTS

In 3Q16, financial costs decreased 9% to $50 million from $55 million in 3Q15 which included $14 million in losses related to a Euro-denominated intercompany loan, which the company did not have in 3Q16 as the position was hedged in 4Q15. The 27% decline in nine month 2016 financial costs reflected this impact as well as lower FX losses.

TAXES

Cash tax in 3Q16 was 21% lower compared to 3Q15 mainly due to a 10% reduction in fluorspar volume lowered the mining tax.

Reported deferred taxes increased $73 million mainly as a consequence of the recognition of the $224 million account receivable (revenue of $252 million net of $28 million in expenses for the 3Q16) related to the insurance claim associated with the PMV incident.

The Company’s reported effective tax rates for the third quarter and first nine months of 2016 were 29% and 35%, respectively; adjusted for the PMV´s one-time benefit the effective tax rates were 30% and 31%, respectively.

MAJORITY INCOME (LOSS)

In 3Q16, the Company reported net majority income of $155 million compared to a profit of $54 million in 3Q15, while adjusted net majority income was $68 million, an increase of 25%. For the first nine months of 2016, the Company reported net majority income of $173 million inclusive of the related PMV one-time benefit; adjusted net majority income was $204 million or an increase of 49% compared to $137 million in 9M15.

OPERATING CASH FLOW HIGHLIGHTS –

       
  Third Quarter January - September
  2016     2015     %Var. 2016     2015     % Var.
EBITDA 466 234 99% 637 698 -9%
One time non-cash Items -220 0   25 0  
Cash Tax -36 -46 -21% -128 -128 0%
Net Interest -43 -45 -6% -125 -134 -6%
Bank Commissions -3 -4 -12% -9 -13 -34%
Monetary position and Exchange loss -4 -28 -87% -18 -47 -61%
Change in Trade Working Capital 10 106 -91% -74 41 N/A
Operating cash flow before Capex 170 217 -22% 308 417 -26%
CAPEX (organic) -50 -72 -31% -150 -180 -17%
 
CAPEX (Total JV) -70 -272 -74% -299 -526 -43%
CAPEX JV (OXY SHARE) 32 128 -75% 129 240 -46%
NET CAPEX JV -37 -144 -74% -170 -286 -41%
 
Total CAPEX (organic & JV) -87 -216 -60% -320 -467 -32%
Cash Flow 84 1 7354% -11 -50 -78%
Dividends -14 -15 -6% -42 -49 -14%
Free Cash Flow 70 -14 N/A -53 -99 -46%
 
  • The decline in operating cash flow before capital expenditures was mainly due to working capital management. In 3Q15, Mexichem reduced its working capital needs by $106 million compared to 3Q14, and in the 3Q16 working capital needs were reduced by an additional $10 million from 3Q15 levels, demonstrating Mexichem’s continued ability to operate with significantly reduced working capital requirements. The increase in working capital requirements in the first nine months of this year compared to the similar period last year reflects the seasonality of our business, particularly relating to Fluent’s USA/Canada and European operations, where working capital requirements are higher in the first half of the year and decline in the second half.

Capital expenditures in 3Q16 decreased 60% to $87 million, $32 million of which was invested in the ethylene cracker, $6 million as carry over in PMV, and $50 million allocated to organic projects.

As of September 30, 2016, Mexichem’s equity investment in the ethylene cracker reached $657 million. This amount represents 87% of the total equity investment that Mexichem contracted for with OxyChem to gain a 50% stake in the joint venture.

NET WORKING CAPITAL

       
 
  2016 Variation 2015 Variation
  Sep-16     dec-15     D ($) Sep-15     dec-14     D ($)
Net Working Capital 319 246 -74 526 566 41
 

The Net Working Capital balance as of September 30, 2016 when compared to the same period last year reflected a $207 million decline in working capital requirements.

 

FINANCIAL DEBT

   
  Last Twelve Months
  Sep 2016     Dec 2015
Net Debt USD 1,664   1,703
Net Debt/EBITDA 12 M 2.0x   1.9x
Net Debt/Adj EBITDA 12 M 1.8x   1.9x
Interest Coverage 4.2x   4.3x
Adj Interest Coverage 4.5x   4.3x
Outstanding Shares 2,100,000,000   2,100,000,000
 

Total financial debt as of September 30, 2016 was $2.3 billion plus $1.8 million in letters of credit with maturities of more than 180 days, while cash and cash equivalents totaled $651 million, resulting in net financial debt of $1.66 billion.

The Net Debt / EBITDA ratio was 2.0x at September 30, 2016, while the Interest Coverage was 4.2x. The Net Debt /Adjusted EBITDA ratio was 1.8x and Adjusted Interest Coverage was 4.5x. Adjusted EBITDA in this case excludes the on-time charge accrued in 2Q16 and the one-time benefit net of expenses accrued in 3Q16.

 

CONSOLIDATED BALANCE SHEET

   
  USD in thousands
Balance Sheet Sep 2016     Dec 2015
Total assets 9,081,770 8,669,676
Cash and temporary investments 651,027 653,274
Receivables 963,233 798,779
Inventories 648,302 647,984
Others current assets 384,732 151,816
Long term assets 6,434,476 6,417,823
Total liabilities 5,070,110 4,990,895
Current portion of long-term debt 64,328 43,653
Suppliers 1,292,090 1,201,021
Other current liabilities 576,014 573,887
Long-term debt 2,249,154 2,291,422
Other long-term liabilities 888,524 880,912

Consolidated shareholders' equity

4,011,660 3,678,781

Minority shareholders' equity

888,819 776,419

Majority shareholders' equity

3,122,841 2,902,362
Total liabilities & shareholders' equity 9,081,770 8,669,676
 

Contingent Asset

On April 20th, 2016, an explosion occurred in Pajaritos, where two out of three of PMV’s facilities are located; these two facilities are the VCM and Ethylene plants. There was no damage to the chlorine-caustic soda plant, which is located at another site. The ethylene plant is under a mechanical integrity evaluation, but it appears that no damage has occurred. The VCM plant (Clorados III) is the one that sustained most of the damage, the major economic impact of which was the write-off of the asset and the shutdown of that plant.

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

During the third quarter PMV gathered sufficient information to decide to recognize the account receivable related to insurance coverage of $252 million, therefore PMV recognized $252 million as other income net of $28 million of other expenses totaling $224 million, related to property damage, third party expenses, and expenses incurred under directors’ and officers’ coverage. PMV and Resins, Compounds and Derivatives recognized income of $14 million for business interruption that offset fixed costs that were not absorbed.

PMV has presented its claims to its insurance companies.

PMV together with its shareholders, Mexichem & Pemex, are evaluating several strategic options for the business in the future and depending on the decisions then taken, PMV will evaluate the impacts on the rest of its assets in Pajaritos Complex, reason why the Company adopted a conservative policy with respect to the dollar amount recognized, reflecting the stated cash value (net book value) of the plant as of December 31st 2015 and the business interruption that was accrued as a recovery of fixed costs, even though the insurance policies covers the current replacement value of the plant and in the case of business interruption insurance, the fixed cost plus margin. When the business plan is finalized the exact dollar amount of the account receivable could change.

Contingent Liability

As a consequence of the VCM Plant (Clorados III) incident described in the contingent asset disclosure, PMV is performing an environmental assessment to determine if any pollutants were deposited in areas in or surrounding the facility. Also PMV could be responsible for third party injuries, if any. Based on the information the Company has to date, there is no evidence that there are additional relevant liabilities.

As mention previously, depending on the decision taken by PMV and its shareholders, once the business future is decided, PMV will evaluate the impacts in the rest of its assets in Pajaritos Complex.

CONSOLIDATED INCOME STATEMENT

     
   
USD mm Third Quarter January- September
INCOME STATEMENT 2016     PMV one time event     2016 w/o one time event     2015     % 2016     PMV one time event     2016 w/o one time event     2015 %
  Net sales 1,400,267 - 1,400,267 1,446,397 -3% 4,089,655 - 4,089,655 4,407,866 -7%
Cost of sales 1,011,919 - 1,011,919 1,049,061 -4% 2,913,342 - 2,913,342 3,210,974 -9%
Gross Profit 388,348 - 388,348 397,336 -2% 1,176,313 - 1,176,313 1,196,892 -2%
Operating expenses 14,228 (223,694) 237,922 259,771 -8% 813,651 61,831 751,820 796,001 -6%
Operating Income 374,120 223,694 150,426 137,565 9% 362,662 (61,831) 424,493 400,891 6%
Financial cost 50,491 - 50,491 55,306 -9% 135,418 - 135,418 184,815 -27%
Equity income of associated entities 131 - 131 (1,378) N/A (3,484) - (3,484) - 873 299%
Income from continued operations before income tax 323,498 223,694 99,804 83,637 19% 230,728 (61,831) 292,559 216,949 35%
Cash tax 35,906 - 35,906 45,508 -21% 127,717 - 127,717 128,263 0%
Deferred tax 57,179 67,108 (9,929) (16,261) -39% (47,337) (5,647) (41,690) (47,861) -13%
Income Tax 93,085 67,108 25,977 29,247 -11% 80,380 (5,647) 86,027 80,402 7%
Income from continued operations 230,413 156,586 73,827 54,390 36% 150,348 (56,184) 206,532 136,547 51%
Discontinued Operations (6,573) - (6,573) 43 N/A (5,391) - (5,391) (18) 29850%
Net Consolidated Income 223,840 156,586 67,254 54,433 24% 144,957 (56,184) 201,141 136,529 47%
Minority Interest 68,551 69,039 (488) 413 N/A (28,126) (24,772) (3,354) (853) 293%
Net Majority Income 155,289 87,547 67,742 54,020 25% 173,083 (31,413) 204,496 137,382 49%
                       
EBITDA 465,881 223,694 242,187 234,041 3% 636,898 (61,831) 698,729 697,778 0%
 

OPERATING RESULTS BY BUSINESS GROUP

VINYL Business Group (37% and 31% of Mexichem’s sales (before eliminations) and Adjusted EBITDA, respectively, in 3Q16)

      Third Quarter     January - September
Vinyl 2016     2015     %Var. 2016     2015     % Var.
Volume (K Tons) 633 647 -2% 1,894 1,886 0%
Total Sales* 537 535 0% 1,535 1,634 -6%
Operating Income** 263 42 532% 61 127 -52%
Adjusted Operating Income 40 42 -5% 123 127 -4%
EBITDA** 299 79 277% 171 239 -29%
Adjusted EBITDA 75 79 -5% 233 239 -3%
 

*Intercompany sales were $38 million and $33 million in 3Q16 and 3Q15, respectively. 9M16 and 9M15 intercompany sales were $111 million and $130 million, respectively.

**Includes Ingleside expenses of $6.9 million (YTD 2016) and $2.6 million (YTD 2015). Adjusted operating income and adjusted EBITDA excludes one-time net benefit from PMV of $224 million in 3Q16.

      Third Quarter     January - September
Resins, Compounds & Derivatives 2016     2015     %Var. 2016     2015     % Var.
Volume (K Tons) 562 535 5% 1,653 1,578 5%
Total Sales* 523 513 2% 1,495 1,579 -5%
Operating Income** 40 32 23% 123 116 6%
EBITDA** 69 63 10% 211 206 3%
 

*Intercompany sales were $45 million and $46 million in 3Q16 and 3Q15, respectively. Of these amounts $7 million and $13 million were invoiced to PMV in 3Q16 and 3Q15. 9M16 and 9M15 intercompany sales were $136 million and $171 million, respectively; of these amounts $25 million and $41 million were invoiced to PMV.

**Includes Ingleside expenses of $6.9 million (YTD 2016) and $2.6 million (YTD 2015).

      Third Quarter     January - September
PMV 2016     2015     %Var. 2016     2015     % Var.
Total Sales* 22 62 -65% 98 170 -43%
Operating Income 224 9 2314% -62 12 N/A
Adjusted Operating Income** 0 9 N/A 0 12 N/A
EBITDA 230 16 1298% -40 34 N/A
Adjusted EBITDA** 6 16 -63% 22 34 -35%
 

* Intercompany sales invoiced to Resins, Compounds and Derivatives were $1 million and $27 million in 3Q16 and 3Q15, respectively. And, as of September 2016 and 2015 were $32 million and $74 million, respectively.

** Adjusted operating income and adjusted EBITDA excludes a net benefit of $224 million in 3Q16.

In 3Q16, the Vinyl Business Group reported a 2% decline in volumes, and slightly above in sales.

Revenues increased by 0.3% to $537 million in 3Q16, slightly above the $535 million reported in 3Q15, driven mainly by higher volumes and slight recovery selling prices.

EBITDA for the Vinyl Business Group was positive $299 million due to the one-time benefit of $224 million in PMV (revenue of $252 million net of $28 million in expenses for the 3Q16). Adjusted EBITDA (excluding PMV’s one-time benefits) decreased 5% to $75 million from $79 million. Adjusted EBITDA margin was 14.0%.

In 3Q16, Resins, Compounds and Derivatives revenues increased 2%, driven by volume which raised 5% YoY mainly due to higher resin demand which included double digit growth in European volumes.

3Q16 EBITDA for Resins, Compounds and Derivatives was $69 million, 10% higher 3Q15, reflecting a resilient operating performance, generating an expansion in EBITDA margin of 98 bps to 12.3% from 13.3%.

In Resins, Compounds and Derivatives, 3Q16 operating income was $40 million (this included one-time benefit of $4.6 million from the recognition of business interruption as a consequence of PMV incident) higher than $32 million reported in 3Q15.

In 3Q16, PMV sales were $22 million, including $21 million from chlorine-caustic soda operations.

In 3Q16, our Vinyl Group reported a one-time benefit of $224 million related to the account receivable accrued of $252 million net of cash expenses of $28 million, that resulted in reported operating income of $224 million compared to operating income of $9 million in the similar year-ago period. The one- time benefit is related to the incident which resulted in a 2Q16 one-time charge of $286 million ($244 million was non-cash charges related to the asset write off of Clorados III (VCM plant), and the rest $42 million were related to other cash expenses). The company adopted a conservative policy with respect to the amount of the benefit, as PMV together with its shareholders, Mexichem & Pemex, are in the process of evaluating several strategic options for the future of this business, and depending on the decisions then taken, PMV will evaluate the impacts on the rest of its assets in Pajaritos Complex. When the business plan is finalized the exact dollar amount of the account receivable could change.

Reported EBITDA in PMV was $230 million in 3Q16 while adjusted EBITDA totaled $6 million, of which $3.4 million came from the chlorine-caustic soda plant.

In the first nine months of 2016, the Vinyl Business Group’s sales were flat YoY even PMV incident. Reported EBITDA was $171 million, while adjusted EBITDA was $233 million implying an expansion of 51 bps to 15.2% margin.

FLUENT Business Group (53% and 48% of Mexichem’s sales (before eliminations) and Adjusted EBITDA, respectively, in 3Q16)

      Third Quarter     January - September
Fluent 2016     2015     %Var. 2016     2015     % Var.
Sales 756 793 -5% 2,221 2,412 -8%
Fluent LatAm 276 279 -1% 789 906 -13%
Fluent Europe 324 342 -5% 988 1,013 -2%
Fluent US/AMEA 158 175 -10% 449 500 -10%
Intercompany Eliminations (2) (3) -17% (5) (7) -24%
Operating Income 78 81 -3% 210 202 4%
EBITDA 117 119 -2% 322 321 0%
 

In 3Q16, the Fluent Business Group’s reported sales declined by $37 million, of which $20 million or 54% represented the appreciation of the U.S. dollar against almost all other global currencies. The remainder was primarily due to lower demand in the U.S. for pressure pipes used in the energy sector. Fluent US has taken actions to diversify its end markets, and its more favorable product mix in the third quarter resulted in higher EBITDA margins, despite lower sales.

3Q15     In million dollars     3Q16           Sub16     Sub16/2Q15
Revenues   Revenues FX Total % Var Comp
279 Fluent LatAm 276 5 282 1%
342 Fluent Europe 324 13 337 -1%
175 Fluent US/AMEA 158 2 160 -9%
-3 Intercompany Eliminations -2   - 2 -17%
793 Total 756 20 776 -2%
 

On a constant currency base total sales in the Fluent Business Group would have been 2% lower or $776 million from $793 million.

Third quarter reported EBITDA was 2% lower y-o-y mainly due to an EBITDA decline in Europe offset by positive operating performance in our LatAm and US AMEA regions despite lower sales, benefitting from a more favorable mix of higher margin datacom products, and lower raw material costs. Fluent Business Group EBITDA margin expanded 43 bps to 15.4%.

On a constant currency basis, EBITDA increased 2% in 3Q16, implying an EBITDA margin expansion of 60 bps to 15.6% from 15.0% in 3Q15.

In the first nine months of 2016 total reported revenues decreased 8% while on a constant currency basis, revenues were almost flat. This is mainly explained as follows:

9M15     In million dollars     9M16     9M16/ 9M15           Sub16     Sub16/9M15
Revenues   Revenues % Var Comp FX Total % Var Comp
906 Fluent LatAm 789 -13% 143 932 3%
1,013 Fluent Europe 988 -2% 30 1,019 1%
500 Fluent US/AMEA 449 -10% 9 458 -8%
-7 Intercompany Eliminations -5 -24% 0 - 5 -24%
2,412 Total 2,221 -8% 183 2,404 0%
 

Reported EBITDA was flat compared to 9M15 despite a $191 million decline in sales, mainly due to the increased profitability of all the three regional operations, and EBITDA margin was 14.5%, an increase of 119 bps year-on-year.

Exclusive of the US dollar exchange rate effect in Fluent Europe, US/AMEA and LatAm, which totaled $47 million in 9M16, EBITDA would have increased 15% in 2016, implying an EBITDA margin expansion of 204 bps to 15.3% compared to 13.3% in 9M15.

FLUOR BUSINESS GROUP (10% and 25% of Mexichem’s sales (before eliminations) and Adjusted EBITDA, respectively, in 3Q16)

      Third Quarter     January - September
Fluor 2016     2015     %Var. 2016     2015     % Var.
Sales 145 151 -4% 449 493 -9%
Operating Income 44 44 1% 129 131 -2%
EBITDA 59 60 -1% 174 182 -5%
 

In 3Q16 the Fluor Group posted a 4% sales decline, reflecting a 10% decrease in volumes, partially offset by slightly improved prices in our upstream business. We continued to successfully diversify end markets, with cement industry customers accounting for an average of 30% of our metspar volumes in the 3Q16.

The Fluor Business Group’s reported EBITDA margin reached 40.8%, 120 bps higher when compared to 39.6% in 3Q15, and despite lower sales, and operating income was $44 million, an increase of 1%.

Nine month 2016 revenues were $449 million, down 9%, mainly due to weaker pricing of fluorspar together with lower volumes in the first nine months of the year. YTD 2016 EBITDA declined by 5%, or $8 million, to $174 million; however, EBITDA margin expanded 171 bps to 38.7% from 36.9% in 9M15.

RECENT EVENTS

  • Today, Mexichem announced that it acquired Gravenhurst Plastics Ltd. (GPL), a Canadian, privately held pipe and plastics manufacturer which in 2015 generated revenues of $15 million. Established in 1968, GPL supplies High Density Polyethylene (HDPE) conduit and inner duct for fiber optics, and building supply products to the Canadian market. Mexichem will consolidate GPL under its Dura-Line brand in the Fluent Business Group.

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

Conference Call Details:

Mexichem will host a conference call to discuss its 3Q16 results on October 27, 2016 at 10:00 am Mexico City / 11:00 NY. To access the call, please dial 001-855-817-7630 (Mexico), or 1-888-349-0106 (United States) or 1-412-902-0131 (International). All callers should dial in a minimum of 15 minutes prior to the start time and ask for the Mexichem conference call.

The call will also be available through an audio only live webcasthttp://services.choruscall.com/links/mexichem161027.html until January 27th, 2017http://services.choruscall.com/links/mexichem150722.html. A replay of the call will be available approximately two hours after the end of the call. The replay can be accessed via Mexichem’s website at www.mexichem.comwww.mexichem.com

RECONCILIATION SUMMARY BY BUSINESS GROUP

Third Quarter 2016 Financial and Operating Highlights

      Revenues                 EBITDA                 EBITDA Margin                 Adjusted EBITDA           Adj. EBITDA Margin      
In million dollars 3Q15 3Q16 %Var. 3Q15 3Q16 %Var. 3Q15 3Q16 Var. 3Q15     3Q16 %Var. 3Q15     3Q16 Var.
Vinyl 535 537 0% 79 299 277% 14.8% 55.7% 4,086 79 75 -5% 14.8% 14.0% - 79
Fluent 793 756 -5% 119 117 -2% 15.0% 15.4% 43 119 117 -2% 15.0% 15.4% 43
Fluor 151 145 -4% 60 59 -1% 39.6% 40.8% 120 60 59 -1% 39.6% 40.8% 120
Energy 0 0   0 0         0 0        
Eliminations / Holding -33 -39 17% -24 -10 -61%       -24 -10 -61%      
Mexichem Consolidated 1,446 1,400 -3% 234 466 99% 16.2% 33.3% 106% 234 242 3% 16.2% 17.3% 111
 
                   
3Q15 In million dollars 3Q16   Sub16 Sub16/3Q15
Revenues   Revenues FX Total % Var Comp
535 Vinyl 537 2 539 1%
793 Fluent 756 20 776 -2%
1,329 Ethylene (Vinyl + Fluent) 1,294 22 1,316 -1%
151 Fluor 145 2 147 -3%
0 Energy 0 0 0  
-33 Eliminations/ Holding -39 0 - 39 17%
1,446 Total 1,400 24 1,424 -2%
 
3Q15     In million dollars     3Q16     3Q16           Sub16     Sub Adj 16     Sub16/2Q15    

Sub Adj 16/2Q15

EBITDA   EBITDA Adj. EBITDA FX Total Total % Var Comp % Var Comp
79 Vinyl 299 75 0 299 76 277% -5%
119 Fluent 117 117 4 121 121 2% 2%
198 Ethylene (Vinyl + Fluent) 416 192 4.5 420 197 112% -1%
60 Fluor 59 59 0 59 59 -1% -1%
0 Energy 0 0 0 0 0   0%
-24 Eliminations/ Holding -10 -10 0 - 10 - 10 -61% -61%
234 Total 466 242 4 470 247 101% 5%

First Nine Months 2016 Financial and Operating Highlights

                           
      Revenues     EBITDA EBITDA Margin Adjusted EBITDA Adj. EBITDA Margin
In million dollars 9M15     9M16     %Var. 9M15     9M16     %Var. 9M15 9M16 Var. 9M15     9M16 %Var. 9M15     9M16 Var.
Vinyl 1,634 1,535 -6% 239 171 -29% 14.6% 11.1% - 352 239 233 -3% 14.6% 15.2% 51
Fluent 2,412 2,221 -8% 321 322 0% 13.3% 14.5% 119 321 322 0% 13.3% 14.5% 119
Fluor 493 449 -9% 182 174 -5% 36.9% 38.7% 171 182 174 -5% 36.9% 38.7% 171
Energy 0 1   0 1         0 1        
Eliminations / Holding -130 -117 -10% -44 -30 -32%       -44 -30 -32%      
Mexichem Consolidated 4,408 4,090 -7% 698 637 -9% 15.8% 15.6% -26 698 699 0% 15.8% 17.1% 125
 
9M15     In million dollars     9M16           Sub16     Sub16/9M15
Revenues   Revenues FX Total % Var Comp
1,634 Vinyl 1,535 6 1,541 -6%
2,412 Fluent 2,221 183 2,404 0%
4,046 Ethylene (Vinyl + Fluent) 3,756 188 3,945 -2%
493 Fluor 449 3 453 -8%
0 Energy 1 0 1  
-130 Eliminations/ Holding -117 0 - 117 -10%
4,408 Total 4,090 192 4,282 -3%
 
                               
9M15 In million dollars 9M16 9M16   Sub16 Sub Adj 16 Sub16/9M15

Sub Adj 16/9M15

EBITDA   EBITDA Adj. EBITDA FX Total Total % Var Comp % Var Comp
239 Vinyl 171 233 1 172 233 -28% -2%
321 Fluent 322 322 47 369 369 15% 15%
560 Ethylene (Vinyl + Fluent) 492 554 48 540 602 -3% 8%
182 Fluor 174 174 0 173 173 -5% -5%
0 Energy 1 1   1 1    
-44 Eliminations/ Holding -30 -30   - 30 - 30 -32% -32%
698 Total 637 699 48 685 746 -2% 7%
 

ABOUT MEXICHEM

Mexichem is one of the world’s largest chemical and petrochemical companies. A leader in the manufacture and supply of plastic piping, it contributes to global development by delivering an extended portfolio of products to high growth sectors such as infrastructure, housing, datacom and water cycle management. With operations in over 30 countries worldwide and more than 18,000 employees, Mexichem has annual revenues of US$5.7 billion and has been traded on the Mexican Stock Exchange for more than 30 years.

Forward-looking Statements

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

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

INDEPENDENT ANALYSTS

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

1. Actinver

2. -Bank of America Merrill Lynch

3. -Banorte-Ixe

4. -Barclays

5. -BBVA Bancomer

6. -BTG Pactual

7. -Citigroup

8. -Credit Suisse

9. -GBM-Grupo Bursátil Mexicano

10. -Grupo Santander

11. -HSBC

12. -Intercam

13. -Invex Casa de Bolsa

14. -Interacciones

15. -ITAU BBA

16. -JP Morgan

17. -Morgan Stanley

18. -Monex

19. -UBS

20. -Vector

INTERNAL CONTROL

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

APPENDIX 1: RECONCILIATION SUMMARY OF QUARTERLY RESULTS 3Q16/3Q15 RELATED TO THE RESTRUCTURING PROCESS IN THE FLUOR BUSINESS GROUP

                     
USD in thousands First Quarter Second Quarter Third Quarter  
  2016       2015   2016       2015   2016       2015   Var
Net Sales 1,262,383 1,437,475 1,427,005 1,516,719 1,400,267 1,442,937 -3 %
Cost of Sales 903,023   1,068,626   998,400   1,081,297   1,011,919   1,042,481   -3 %
Gross Profit 359,360   368,849   428,605   435,422   388,348   400,456   -3 %
Operating Expenses 250,088   276,452   549,336   260,445   14,228   259,605   -95 %
Operating Income 109,272   92,397   (120,731 ) 174,977   374,120   140,851   166 %
Financial Cost 43,411 67,932 41,516 61,575 50,491 55,307 -9 %
Equity in income of associated companies (927 ) 727   (2,688 ) (222 ) 131   (1,378 ) -110 %
Income from continuing operations before income tax 66,788   23,738   (159,559 ) 113,624   323,498   86,922   272 %
Income tax 17,388   7,943   (30,093 ) 43,211   93,085   29,248   218 %
Income from continuing operations after income tax 49,400   15,795   (129,466 ) 70,413   230,413   57,674   300 %
Discontinued operations 583   (1,662 ) 599   (2,446 ) (6,573 ) (3,241 ) 103 %
Consolidated net income 49,983   14,133   (128,867 ) 67,967   223,840   54,433   311 %
Minority Stock holders (610 ) (4,837 ) (96,067 ) 3,571   68,551   413   16498 %
Majority stock holders 50,593   18,970   (32,800 ) 64,396   155,289   54,020   187 %
 
EBITDA 200,418   199,007   (29,401 ) 266,320   465,881   235,883   98 %
 
                               

FLUOR BUSINESS GROUP

INCOME STATEMENT

USD in thousands

 

                 
First Quarter   Second Quarter   Third Quarter  
2016 2015 Var 2016     2015 Var 2016 2015 Var
Net Sales 139,376 160,548 -13 % 164,829 173,684 -5 % 145,251 147,537 -2 %
Operating Income 33,375 41,550 -20 % 51,399 49,853 3 % 44,368 47,332 -6 %
EBITDA 48,562 57,924 -16 % 65,903 65,796 0 % 59,283 61,662 -4 %
 
                       

CONSOLIDATED BALANCE SHEET

     
  March June September
USD in thousands 2016 2015 2016 2015 2016 2015
Total Assets 8,840,462 8,334,563 8,762,034 8,638,262 9,081,771 8,545,695
Cash and temporary investments 586,462 403,207 661,521 603,331 651,027 537,252
Receivables 896,554 1,018,378 928,719 1,041,746 963,233 972,386
Inventories 660,804 716,009 644,683 713,823 648,302 673,696
Others current assets 150,362 254,480 131,690 202,305 547,257 195,956
Long term assets 6,546,280 5,942,489 6,395,421 6,077,057 6,434,477 6,166,405
Total liabilities 5,040,949 4,928,943 5,004,523 5,102,899 5,070,110 4,952,846
Current liabilities 1,829,931 1,646,637 1,925,826 1,761,521 1,932,432 1,703,869
Long term liabilities 3,211,018 3,282,306 3,078,697 3,341,378 3,137,678 3,248,977
Consolidated shareholders'equity 3,799,513 3,405,620 3,757,511 3,535,363 4,011,660 3,592,849
Minority shareholders'equity 816,343 499,457 775,063 601,672 888,819 688,791
Majority shareholders'equity 2,983,170 2,906,163 2,982,448 2,933,691 3,122,841 2,904,058
 

ANNEX 2: SUMMARY RECONCILIATION OF INFORMATION BY SEGMENT

Reclassifications - Comparative information by segment reported in Q3 2016 interim financial notes (Note 12) for the year ended December 31, 2015, has been reclassified retrospectively to conform with the presentation used as of September 30 2016, to present the elimination of investment in subsidiaries by business group under the heading of other assets, which were previously presented under the heading of consolidated eliminations column. This reclassification does not impact the consolidated assets amount.

      As of September 30, 2016
Vinyl     Energy     Fluor     Fluent     Holding     Eliminations     Consolidated
Current Assets
Cash and Cash equivalents 98,624 93 86,344 335,830 130,136 - 651,027
Net Account Receivable 550,812 23 100,427 623,009 2,575 - 1,276,846
Other current assets 257,490 1,684 332,164 526,615 450,091 (863,897 ) 704,147
Assets held for sale - - 10,887 4,387 - -   15,274
Total Current Assets 906,926 1,800 529,822 1,489,841 582,802 (863,897 ) 2,647,294
Property, plant and equipment 2,644,612 4,304 395,568 1,166,623 1,594 - 4,212,701
Net other assets 606,068 - 168,451 1,436,539 773,796 (763,079 ) 2,221,775
Total Assets 4,157,606 6,104 1,093,841 4,093,003 1,358,192 (1,626,976 ) 9,081,770
               
Current Liabilities
Bank loans and current portion of long-term debt 20,415 - 26,429 17,484 - - 64,328
Suppliers and letters of credit of suppliers 752,369 - 33,672 502,785 3,264 - 1,292,090
Other current liabilities 521,999 858 22,178 469,742 410,817 (867,183 ) 558,411
Liabilities associated with asset held for sale - - 17,603 - - -   17,603
Total Current Liabilities 1,294,783 858 99,882 990,011 414,081 (867,183 ) 1,932,432
Bank loans and long-term debt 91,784 - 54,735 3,510 2,099,125 - 2,249,154
Long-term other liabilities 503,080 129 204,974 662,645 160,510 (642,814 ) 888,524
Total Liabilities 1,889,647 987 359,591 1,656,166 2,673,716 (1,509,997 ) 5,070,110
 
   
  December 31st, 2015
Vinyl     Energy     Fluor     Fluent     Holding     Eliminations     Consolidated
Current Assets
Cash and Cash equivalents 128,778 77 98,071 254,181 172,167 - 653,274
Net Account Receivable 283,084 (5 ) 125,863 484,233 (8,831 ) - 884,344
Other current assets 269,751 307 349,241 423,497 444,090 (789,156 ) 697,730
Assets held for sale -   -   11,533   4,972   -   -   16,505
Total Current Assets 681,613   379   584,708   1,166,883   607,426   (789,156 ) 2,251,853
Property, plant and equipment 2,620,435 5,078 420,104 1,157,053 257 - 4,202,927
Net other assets 620,781   -   179,868   1,440,082   637,391   (663,226 ) 2,214,896
Total Assets 3,922,829   5,457   1,184,680   3,764,018   1,245,074   (1,452,382 ) 8,669,676
Elimination reclasification (1,779,917 ) (4,802 ) (129,858 ) (268,442 ) (3,329,714 ) 5,512,733   -
Total Assets 2,142,912   655   1,054,822   3,495,576   (2,084,640 ) 4,060,351   8,669,676
               
Current Liabilities
Bank loans and current portion of long-term debt 16,103 - 17,879 9,671 - - 43,653
Suppliers and letters of credit of suppliers 709,595 1 38,957 451,244 1,224 - 1,201,021
Other current liabilities 490,786 156 67,111 374,147 449,357 (827,287 ) 554,270
Liabilities associated with asset held for sale -   -   19,617   -   -   -   19,617
Total Current Liabilities 1,216,484   157   143,564   835,062   450,581   (827,287 ) 1,818,561
Bank loans and long-term debt 83,445 - 84,320 5,771 2,117,886 - 2,291,422
Long-term other liabilities 496,332   91   209,364   750,607   71,596   (647,078 ) 880,912
Total Liabilities 1,796,261   248   437,248   1,591,440   2,640,063   (1,474,365 ) 4,990,895
 

Contacts

Mexichem
Investor Relations:
Berenice Muñoz Jalpa, + (52) 55-5366-4084
bmunozj@mexichem.com
www.mexichem.com

Contacts

Mexichem
Investor Relations:
Berenice Muñoz Jalpa, + (52) 55-5366-4084
bmunozj@mexichem.com
www.mexichem.com