Full year - IDESA

Full year 2019

MD&A and Financial Statements

Grupo IDESA, S.A. de C.V.

April, 2020

Grupo IDESA FY19 MD&A and Financial Statements

Table of contents PRESENTATION OF FINANCIAL AND OTHER INFORMATION ..................... 3

IMPORTANT EVENTS ..................................................................................... 3

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS.............................................. 7

RESULTS OF OPERATIONS ......................................................................... 14

LIQUIDITY AND CAPITAL RESOURCES ...................................................... 16

RELATED PARTY TRANSACTIONS ............................................................. 22

PRINCIPAL PRODUCTS AND MARKET SHARES ........................................ 24

CERTAIN DEFINITIONS ................................................................................ 27

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS ............. 29

Grupo IDESA FY19 MD&A and Financial Statements 3

Presentation of Financial and Other Information Financial Statements

This report includes:

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company.

Our audited consolidated financial statements for the twelve-month period ended December 31, 2019 and the twelve-month period ended December 31, 2018.

Important Events Regarding our JV´s: Braskem Idesa

For the twelve-month period ended December 31, 2019, PE production was 801 ktons, the utilization rate for this period was 76% reflecting the low supply of ethane. PE sales volume amounted to 813 ktons. Braskem Idesa recorded revenues of U.S.$775 million and an EBITDA of U.S.$361 million with an Operational EBITDA Margin of 34%.

In January 2020, Braskem Idesa imported the first shipment of ethane to increase the capacity utilization rate of its petrochemical complex. With investment of approximately US$4 million, this solution to complement its feedstock supply enables imports of up to 12,800 barrels of ethane per day, equivalent to 19% of the Company’s its needs for PE production.

CyPlus Idesa

For the twelve-month period ended December 31, 2019, CyPlus Idesa’s production of sodium cyanide amounted to 34,496 tons, reaching an average utilization rate of 86%. Revenues for the twelve-month period ended December, 2019 amounted U.S.$73 million and EBITDA of U.S. $13 million.

Regarding other important events:

This past June, Excellence Sea & Land Logistics, Grupo Idesa’s maritime terminal business, was granted a U.S.$33.5 million subordinated facility by INBURSA, our largest shareholder, with the purpose of expanding its capacity. This brownfield project will allow for new capacity to store and handle hydrocarbons, mainly gasolines. As of December, 2019 EPC progress was 43% and currently EPC progress increased to 69.5%.

In November and December 2019, the current shareholders of the Company funded a capital increase for a total amount of Ps.129,500 thousand. This equity injection allowed us to strengthen our short-term liquidity towards the year-end.

In December 2019, we completed the Sale & Lease Back transaction of our Corporate Building. This strategy allows us to strengthen our short-term liquidity and build a strategic cash reserve.


As of Today, Grupo IDESA successfully renovated its short -term credit lines with BBVA, Actinver, HSBC, and Citibanamex.

Regarding our audited financial statements.

We prepared our audited consolidated financial statements as of and for the twelve-month period ended December 31, 2019 and 2018 in accordance with IFRS.

Additionally, our audited financial statements as of December 31, 2019 include the impact related to the adoption of IFRS 16 - Leases, described in the accompanying Note 4 to the consolidated financial statements.


Selected Consolidated Financial and Other Information The selected consolidated financial and other information presented in this section is derived from our accounting records or from our financial statements and pertains to us and our consolidated subsidiaries. This information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and our financial statements included elsewhere in this report.

(1) Solely for the convenience of the reader, Peso amounts for the year ended December 31, 2019 and the year ended December 31, 2018

have been translated into U.S. dollars at the rate of Ps.18.8452 and Ps.19.6829 respectively, to U.S.$1.00, based on Banxico’s exchange rate in effect for December 31, 2019 and 2018, respectively.

(2) Includes revenues from maritime terminal services, administrative services, other service revenues and rental income. (3) Includes exchange (income) loss, interest expense and interest income.

For the Twelve-Month Period Ended December 31

2019 2018 2019 2018

Income Statement Data: (in thousands of U.S.$) (1) (in thousands of Ps.)

Net sales 460,044 512,738 8,669,617 10,092,164

Other revenues (2) 20,842 18,583 392,765 365,765

Total revenue 480,885 531,321 9,062,382 10,457,929

Cost of sales 446,297 484,645 8,410,562 9,539,211

Gross profit 34,588 46,676 651,820 918,718

Administrative expenses 23,858 22,056 449,607 434,122

Other operating expenses (income), net (10,082) (746) (189,997) (14,685)

Operating income 20,812 25,366 392,210 499,281

Financing cost (3) 25,313 25,358 477,033 499,120

Equity interest in net (income) loss of associated and joint ventures 54,865 13,766 1,033,940 270,961

Income (Loss) before taxes on profits (59,366) (13,758) (1,118,763) (270,800)

Taxes on profits 48 (835) 903 (16,436)

Net consolidated income (loss) (59,414) (12,923) (1,119,666) (254,364)


As of December 31, 2019 2018 2019 2018 Balance Sheet Data: (in thousands of U.S.$) (1) (in thousands of Ps.) Current assets: Cash and cash equivalents 29,131 26,118 548,971 514,079 Accounts receivable, net (2) 136,473 146,690 2,571,857 2,887,282 Inventories 59,237 63,994 1,116,341 1,259,583 Prepaid expenses (3) 16,966 13,881 319,719 273,214 Other accounts receivable 1,600 855 30,146 16,826 Total current assets 243,407 251,537 4,587,034 4,950,985 Non-current assets: Restricted Cash 2,500 2,500 47,113 49,207 Property, plant and equipment, net 104,190 105,070 1,963,478 2,068,080 Investments in associates and joint ventures 24,369 36,580 459,234 720,009

Intangible and other non-current assets (4) 74,552 - 1,404,951 - Right-of-use assets 8,096 54,093 152,579 1,064,706 Related Parties 581,216 548,086 10,953,133 10,787,928 Other non current assets 7,076 3,570 133,349 70,269 Total non-current assets 801,999 749,900 15,113,837 14,760,199 Total assets 1,045,406 1,001,437 19,700,871 19,711,184 Liabilities and equity: Current liabilities: Short Term Debt (5) 525,176 45,085 9,897,039 887,413 Accounts payable 66,892 65,147 1,260,596 1,282,289 Other accounts payable, provisions and accrued liabilities (6) 52,755 49,569 994,136 975,658

Lease liabilities 3,527 - 66,475 - Capital stock increase and payments 6,872 7,063 129,500 139,016 Related Parties 8,573 - 161,553 - Total current liabilities 663,794 166,864 12,509,299 3,284,376 Long-Term liabilities: Long term debt (7) 18,149 474,589 342,021 9,341,283 Lease liabilities 9,915 - 186,844 - Employee benefits 7,106 3,784 133,920 74,479 Long term taxes on profit 3,568 5,651 67,246 111,222 Deferred income tax 18,501 17,519 348,662 344,832 Total long-term liabilities 57,240 501,543 1,078,693 9,871,816 Total liabilities 721,034 668,407 13,587,992 13,156,192 Equity: Capital stock 335,810 280,874 6,328,412 5,528,412 Net income accumulated and for the period/year (8) (109,376) (29,078) (2,061,217) (572,341)

Other comprehensive loss items 97,939 81,234 1,845,684 1,598,921 Total equity 324,372 333,030 6,112,879 6,554,992 Total liabilities and equity 1,045,406 1,001,437 19,700,871 19,711,184

(1) Solely for the convenience of the reader, Peso amounts as of December 31, 2019 and December 31, 2018 have been translated into

U.S. dollars at the rate of Ps.18.8452 and Ps.19.6829 respectively, to U.S.$1.00, based on Banxico’s exchange rate in effect for December 31, 2019 and 2018, respectively.

(2) Includes clients and related parties. (3) Includes short-term prepaid expenses, recoverable income tax and recoverable taxes. (4) Includes long-term prepaid expenses, deferred income tax, net projected asset, goodwill and intangible assets. (5) Includes short-term bank lending and accrued interest. (6) Includes taxes payable, tax on profits, short-term direct employee benefits and other accounts payable, provisions and accrued liabil ities. (7) Includes long-term bank lending, bond debt, accrued interests and other fees. (8) Includes legal reserves, retained earnings (accumulated losses) and net income (loss).

Grupo IDESA FY19 MD&A and Financial Statements 7 As of and for the Year Ended December 31

2019 2018 2019 2018 Other Financial and Operating Data: (in thousandsof U.S.$) (1) (in thousands of Ps.) Acquisition of property, plant and equipment (2)

24,405 7,383 459,921 145,319

Equity investment in associated companies, net - 21 - 405

Depreciation and amortization 9,251 6,129 174,345 120,641

EBITDA (3) 30,064 31,495 566,555 619,922

Gross margin (4) 7.2% 8.8% 7.2% 8.8%

EBITDA margin (5) 6.3% 5.9% 6.3% 5.9%

Operating margin (6) 4.3% 4.8% 4.3% 4.8%

Net margin (7) -12.4% -2.4% -12.4% -2.4%

Accounts receivable turnover (in days) (8) 65 68 65 68 Inventory turnover (in days) (9) 62 53 62 53 Accounts payable turnover (in days) (10) 42 56 42 56

JV´s Cashflow (11) 5,859 10,269 110,418 202,122

Adjusted EBITDA (12) 35,923 41,764 676,973 822,044 (1) Solely for the convenience of the reader, Peso amounts for the year ended December 31, 2019 and the year ended December 31, 2018

have been translated into U.S. dollars at the rate of Ps.18.8452 and Ps.19.6829 respectively, to U.S.$1.00, based on Banxico’s exchange rate in effect for December 31, 2019 and 2018, respectively.

(2) Includes Maritime Terminal investments. (3) We calculate EBITDA as our net income plus taxes on profits plus/less financing cost plus depreciation and amortization plus/less equity

interest in net income (loss) of associates and joint ventures. EBITDA is not a measure of financial performance under U.S. GAAP or IFRS, and should not be considered as an alternative to net income as a measure of operating performance or for operating cash flows, or as a measure of l iquidity. EBITDA has limitations that l imit its usefulness as a measure of profitability, as a result of it not considering certain costs arising from our business, which may affect, significantly, our profits, financial expenses, taxes and depreciation. Our management considers EBITDA notwithstanding the limitations previously mentioned, and in conjunction with other accounting and financial information available to be reasonable indicators for comparisons between us and our principal competitors in the market. The following table sets forth the reconciliation of our net income to our EBITDA.

(4) Gross margin is calculated as gross profit divided by total revenue, expressed as a percentage. (5) EBITDA margin is calculated as EBITDA divided by total revenue, expressed as a percentage. (6) Operating margin is calculated as operating income divided by total revenue, expressed as a percentage. (7) Net margin is calculated as net income divided by total revenue, expressed as a percentage. (8) Accounts receivable turnover in days is calculated by dividing the number of days elapsed during the period by, the amount of net sales

of the period divided by the average accounts receivable of the period. (9) Inventory turnover in days is calculated by dividing the number of days elapsed during the period by, the amount of cost of sales of the

period divided by the average inventory of the period. (10) Accounts payable turnover in days is calculated by dividing the number of days elapsed during the period by, the amount of cost of sales

divided by the average accounts payable of the period. (11) Principal, interest or dividend payments in the form of cash from our joint ventures (12) Adjusted EBITDA includes cash flows from our joint ventures.


For the Year Ended December 31 2019 2019 2018 2017

Reconciliation: (in thousands of U.S.$) (1) (in thousands of Ps.) Net income (loss) (59,414) (12,923) (1,119,666) (254,364)

(+/−) Taxes on profits—(credit) expense 48 (835) 903 (16,436) (+) Financial expenses, net 25,313 25,358 477,033 499,120

(+) Depreciation and amortization 9,251 6,129 174,345 120,641 (+/−) Equity interest in net(income) loss of

associates and joint ventures 54,865 13,766 1,033,940 270,961

EBITDA 30,064 31,495 566,555 619,922

(1) Solely for the convenience of the reader, Peso amounts for the year ended December 31, 2019 and the year ended December 31, 2018 have been translated into U.S. dollars at the rate of Ps.18.8452 and Ps.19.6829 respectively, to U.S.$1.00, based on Banxico’s exchange rate in effect for December 31, 2019 and 2018, respectively.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is based on and should be read in conjunction with our financial statements, the notes thereto and other financial information included elsewhere in this report, all of which have been prepared in accordance with IFRS.

Overview We produce, distribute, market and sell a wide range of petrochemical and chemical products.

According to data available from ANIQ and SENER as well as internal analysis, we estimate that our petrochemical business maintains market leadership positions in Mexico across several products in our portfolio (based on market data as of December 31, 2019). In addition, we are a leader in the Mexican market in the distribution of solvents (measured by 2019 sales volume) and other chemical products, and we are the sole producer of EA in Mexico and foundry AA in Latin America. Although we primarily sell our products domestically within Mexico, for the year ended December 31, 2019, we derived approximately 11% of our total revenue from exports, mainly to Europe, the United States and China. We also operate a maritime terminal located in the Port of Veracruz through our logistics segment. We provide in bond storage, handling and distribution of chemicals, greases, oils and refined products for different industries.

Our largest joint venture, Braskem Idesa, reached an important milestone in 2016 with the production of the first batch of polyethylene in the Etileno XXI Complex. Located in the state of Veracruz, the Etileno XXI Complex includes an ethane cracker integrated with three polyethylene plants, as well as utilities plants (electric power, water and steam). Ethane supply is contracted through a 20-year contract with Pemex TRI at prices based on the highest reference between Mont Belvieu purity ethane or Henry Hub reference U.S . dollar based international reference price of these feedstocks. Braskem Idesa is also focusing on developing short term and long term alternatives to import ethane to address any the shortfall in ethane supply in its complex.

Our other joint venture, CyPlus Idesa, is now the sole producer of sodium cyanide in Mexico. CyPlus Idesa serves the domestic demand for sodium cyanide in the mining industry by partially offsetting imports of this product. This facility is located in Coatzacoalcos, Veracruz, and is able to produce 40 thousand tons per year with in house developed technologies.

Grupo IDESA FY19 MD&A and Financial Statements 9 Following Mexico’s energy reform we created a third joint venture, Tonalli, with International Frontier

Resources’ subsidiary, Petrofrontera, to participate in the nascent ups tream Mexican market. Tonalli is an exploration and production company formed to develop the oil and gas development “Tecolutla block”, a 7.2 square km block in the Tampico Misantla Basin located within the state of Veracruz. Due to its strategic location in Tecolutla, we expect Tonalli to be an efficient market participant.

Factors Affecting Operating Results Effect of Joint Ventures

We have invested in joint ventures, including Braskem Idesa, CyPlus Idesa and Tonalli, which have required capital expenditures. Our investments are recorded using the equity method. For 2019 and 2018, we recorded equity interest in net loss of associates and joint ventures of Ps.1,033,940 thousand and Ps.270,961 thousand, respectively.

Mexican and Global Economic Environment

Our business is closely tied to general economic conditions in Mexico. Most of our products are consumer-based, therefore, demand for our products is affected by variation in the GDP in countries in which we sell our products. As a result, our economic performance and our ability to implement our business strategies may be affected by changes in national economic and political conditions, including changes in the global economy, trade markets and financial markets that impact Mexico.

We are subject to exchange rate risk arising from exposure of the Mexican peso, mainly with respect to the U.S. dollar. Some of our indebtedness is denominated in U.S. dollars, which means that it is exposed to the risk of fluctuations in the exchange rate of the Mexican peso to the U.S. dollar. The risk of fluctuations in the exchange rate involves changes in the value of the Mexican peso to the U.S. Dollar. In addition, exchange rate fluctuations may result from weaker macroeconomic conditions. Prices for our raw materials may fluctuate as a result of changes in the price of oil and natural gas, which may be affected by overall trends in GDP and demand.

The behavior of GDP and other variables in Mexico and the United States are key to understanding the context of our results. The GDP growth of the United States was 2.3% in 2019, lower than the 2.9% reported in 2018. On the other hand, consumer inflation was 2.3% in 2019, higher than 1.9% observed in 2018. Mexico’s GDP decreased by 0.1% in 2019 compared with a 2.0% growth in 2018. Consumer inflation was 2.8% in 2019, lower than 4.8% in 2018. Additionally, the nominal annual average exchange rate had a depreciation of 0.1%, increasing from Ps.19.24 per U.S. Dollar in 2018 to Ps.19.26 per U.S. Dollar in 2019. With respect to interest rates, the average 3-month nominal LIBOR rate in U.S. Dollars was 2.3% in 2019 compared to 2.3% in 2018. In Mexico, the average TIIE in 2019 was 8.3% in nominal terms, compared to 8.0% in 2018.

Global Macroeconomic Conditions

The global economy performance in 2019 was affected by new economic policies, the geopolitical environment and commercial tensions, among others. The international price of oil decreased during most of 2019. The price of Brent crude fluctuated within a range between US$74.94 and US$53.23 per barrel in 2019, while the average price was US$64.32 per barrel, 10.0% below the average price in 2018.

Our business is affected by several industries, including the construction, agricultural, chemical, manufacturing, automotive, consumer goods, and construction and infrastructure industries, among others. We export to a number of countries throughout North America, Europe, Central and South America and Asia. As a result, our activities, financial condition and results of operations are largely dependent upon the general economic conditions and the purchasing power of our customers in each of these countries, as well as regional relations and tariff agreements and treaties. In the past, the economies of these countries have been affected by a number of adverse factors, including:


global economic cycles generally and, particularly, in each country and in the construction, agricultural, refrigeration, manufacturing, automotive, consumer goods, and urban and rural infrastructure industries, among others;

uncertainty with respect to future political, social and economic conditions, particularly during the years immediately preceding presidential and legislative elections ;

the volatility of, and uncertainty with respect to, the global credit and capital markets; and

the potential devaluation of local currencies and the potential imposition of foreign exchange restrictions.

An economic recession or significant increase in inflation and interest rates in Mexico, the United States, Europe or Asia could have a material adverse effect on our business activities, results of operations, financial condition and prospects since, among other things, the demand for the products we manufacture and our operating margins could be reduced.

During the first quarter of 2020, the spread of the coronavirus (COVID-19) has impacted an increasing number of countries with increasing severity. In March 2020, the World Health Organization declared COVID-19 a global pandemic. During this period, countries, organizations and the Company have taken considerable measures to mitigate risk for communities, employees and business operations. The full extent, consequences and duration of the COVID-19 pandemic and the resulting operational and economic impact for the Company, cannot be predicted.

In addition, along with the effects of COVID-19 in the industry, an international dispute in March 2020 has triggered an oil price war that caused oil prices to fall sharply. These events occurred after December 31, 2019 and therefore are not reflected in the financial information presented in this report.

As a collateral effect of COVID-19 pandemic, the Mexican peso has depreciated against the US Dollar in the first quarter of 2020. The full extent, consequences and duration of the COVID-19 pandemic over the exchange rate cannot be predicted.

Expansion of Production/Oversupply

Our industry is exposed to cyclical supply and demand fluctuations. While demand usually grows at a relatively constant pace, close to GDP growth, supply tends to increase unevenly as large new investments in capacity come on line, as opposed to increasing gradually over time. When prices are high (near the cycle peak), companies in our industry usually are more likely to announce major or new project expansions or new projects, which raises the risk that a large amount of new capacity could become available around the same time, which, in turn, raises the risk of an overcapacity scenario, driving prices down, and resulting in a bottom to the petrochemical cycle. Certain of our subsidiaries that export PE are subject to these conditions. In 2019, global PE prices experienced such a decline. When PE prices decline materially, new projects are typically postponed or cancelled. With a reduction in the addition of new capacity, eventually increasing demand outpaces slower-growing supply, leading prices to increase once again. When GDP declines, demand typically also declines, further decreasing PE prices.

Costs of Export Sales

Our focus is to maintain our strong leading position in the Mexican market while continuing to export our products outside of Mexico based on market conditions and our strategy for diversification and to maximize profitability. We believe that our continued presence in certain export markets is essential to manage potential overcapacity in the Mexican market and to pursue the higher profit margins that exist, from time to time, in certain sectors of our export markets. However, when we increase our exports, our

Grupo IDESA FY19 MD&A and Financial Statements 11 cost of sales increases due to increased freight costs. An increase in cost of sales, without a corresponding increase in our sales prices, can negatively impact our results of operations. We primarily export to the United States, Europe, Central America and Asia, through traders and distributors.

Limited Seasonality

Our results of operations are not materially affected by seasonality. Although end markets such as water, carbonated soft drinks, automotive, oil and gas, food packaging, construction, appliance packaging, textiles and fertilizers experience some seasonality, the historical impact on the demand for our products has not been material. Furthermore, our diversified portfolio of products and geographical presence serve to reduce the effects of any steep cyclical or seasonal behavior in the demand for any of our products.

Financial Presentation and Accounting Policies Our Financial Statements

We prepared our audited consolidated financial statements as of and for each of the years ended December 31, 2019 and 2018 in accordance with IFRS issued by IASB.

We prepare our financial statements in Mexican Pesos, which is our functional currency given that we operate mainly in Mexico.

Crititcal accounting policies

The preparation of our financial statements included elsewhere in this report and in the application of our accounting policies, requires us to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. For a description of our critical accounting policies, see Note 4 of the Audited Financial Statements.

The Company implemented IFRS 16 (issued by IASB in January 2016), which establishes new or modified requirements for the accounting of leases. This standard introduces significant changes to the accounting of the lessee, eliminating the distinction between an operating and finance lease, and causing the recognition of a right-of-use asset and a lease liability at the beginning of the lease. Exemptions from recognition are allowed for low-value and short-term contracts. In contrast to the accounting of the lessee, the lessor’s requirements remain without significant changes. The details for the new requirements are described in Note 3, Adoption of new and revised International Financial Reporting Standards, to our Audited Consolidated Financial Statements.

Description of the Principal Statement of Income Line Items Total Revenues

We derive revenues from the production and sale of petrochemical and chemical products through our subsidiaries and the distribution of these products, and, to a lesser extent, the storage and transportation of chemicals for the automotive and food industries and the sale of certain value-added products, such as EPS construction systems.

The following table sets forth the percentage of our total gross revenues (before intercompany eliminations) by our most significant products for the periods indicated:


Petrochemical Business Products

For the Year Ended December 31, 2019 2018 (%) EPS……………………………………….. 8.9 8.9 EAs……………………………………….. 8.8 8.7 PA/Plasticizers………………………….. 8.1 8.6 EGs.………………………………………. 3.5 7.6 AA………………………………………… 3.4 2.9 Total………………………………………. 32.6 36.7

Distribution Business Lines

For the Year Ended December 31, 2019 2018 (%) Industrial…...…………………………….. 40.7 38.8 Automotive……………………………….. 15.5 13.1 Oil & Gas……..………………………….. 0.7 0.7 Specialties…….…………………………. 1.0 1.0 Total………………………………………. 57.7 53.6

The following table sets forth the percentage of our revenues by each of our business segments for the periods indicated, before eliminations resulting from consolidation:

Segment For the Year Ended December 31,

2019 2018

(%)

Distribution………………………..… 57.7 53.6

Petrochemical………………………. 39.8 44.5

Logistics ………………….……….... 2.4 1.9

Total……...………………………..… 100 100

Cost of Sales

The principal components of our cost of sales are our raw material costs, manufacturing expenses and the depreciation of our plants and industrial equipment as well as intangible assets. For the year ended December 31, 2019, cost of goods sold, which mainly consists of raw materials and utilities, represented approximately 81.9% of our cost of sales. Depreciation of our plants and industrial equipment is computed using the straight-line method because we believe this method best reflects the use of these assets. In 2019, our cost of sales, as a percentage of our total revenues, increased to 92.8% as compared with 91.2% in 2018.

Administrative Expenses

The principal components of our administrative expenses are salaries, office and travel expenses, technology expenses, employee profit sharing and legal and auditing fees.

Grupo IDESA FY19 MD&A and Financial Statements 13 Other (Income) Expenses, Net

The principal components of other (income) expenses, net are income or expenses related to recovery of insurance and restatement of favorable taxes due to inflation and in certain instances, profit from business and assets sales.

Financial (Income) Expenses, Net

The principal components of other expenses (income), net are income or expenses related to recovery of insurance and restatement of favorable taxes due to inflation and in certain instances, profit from business and assets sales.

Income (Loss) from Equity of Associates and Joint Ventures

This line item consists of our investments in associates and joint ventures. In February 2010, we entered into a joint venture with Braskem to form Braskem Idesa in which we initially had a 35% equity interest. In November 2012, we reduced our equity interest in Braskem Idesa from 35% to 25%. In April 2013, we entered into a joint venture with Evonik to form CyPlus Idesa. Evonik sold its interest in CyPlus Idesa to Rohm in July 2019. We own a 50% equity interest in CyPlus Idesa. In 2015, we entered a joint venture with IFR to create Tonalli. We own a 50% equity interest in Tonalli.

Taxes on Profits

Income tax is calculated based upon taxable income, which differs from income for accounting purposes in the treatment afforded to the comprehensive cost of financing, the provision for employment obligations, depreciation and other accounting provisions. Our tax liability is calculated using tax rates in effect at the end of each fiscal period. The income tax rate to which our Mexican subsidiaries were and are subject for fiscal years 2018 and 2019 was 30%. Income tax losses may be used to offset taxable profits in future years.


Results of Operations Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For the Year Ended December % of Total Revenue

2019 2018 % Change 2019 2018

(in thousands of Ps.)

Total revenue 9,062,382 10,457,929 -13.3%

Cost of sales 8,410,562 9,539,211 -11.8% 92.8% 91.2%

Gross profit 651,820 918,718 -29.1% 7.2% 8.8%

Administrative expenses 449,607 434,122 3.6% 5.0% 4.2% Other operating (income) expenses, net

(189,997) (14,685) 1,193.8% n.m. (2) n.m.(2)

Operating income 392,210 499,281 -21.4% 4.3% 4.8%

Financial (income) expenses, net (1) 477,033 499,120 -4.4% 5.3% 4.8%

Equity interest in net (income) loss of associates and joint ventures

1,033,940 270,961 281.6% 11.4% 2.6%

Income (loss) before taxes on profits (1,118,763) (270,800) 313.0% n.m. n.m.

Taxes on profits 903 (16,436) n.m. n.m. n.m.

Net consolidated income (1,119,666) (254,364) 340.2% n.m. n.m.

(1) Includes exchange gain (loss), interest expense and derivative financial instruments and interest income. (2) “n.m.” means not meaningful, usually when a negative result is divided by a positive result or vice versa.

Total Revenue

Our total revenue decreased 13.3% to Ps.9,062,382 thousand for the year ended December 31, 2019 from Ps.10,457,929 thousand for the year ended December 31, 2018, primarily as a result of unfavorable domestic and international market conditions and intense competition resulting from the trade war betwee n the United States and China.

Our petrochemical segment’s revenue decreased 22.4% to Ps.3,756,945 thousand for the year ended December 31, 2019 from Ps.4,841,271 thousand for the year ended December 31, 2018. This decrease was primarily due to (i) an 18.6% decrease in the sales volume of our Petrochemical segment’s products, mainly caused by a 45.1% decrease in the sales volume of EG and to a minor extent a decrease in AF and EPS and (ii) a 5.1% decrease in the average sales price of our petrochemical products primarily as a result of unfavorable domestic and international market conditions and intense competition resulting from the trade war between the United States and China.

Our distribution segment’s total revenue decreased by 6.6% to Ps.5,447,512 thousand for the year ended December 31, 2019 from Ps.5,832,232 thousand for the year ended December 31, 2018. This decrease was primarily due to a 9.3% decrease in the average unit sales price during the year caused mainly by a 14.2% decrease in the average sales price of the industrial sub-segment.

Grupo IDESA FY19 MD&A and Financial Statements 15 Our logistics segment’s revenue increased by 11.4% to Ps.230,732 thousand for the year ended

December 31, 2019 from Ps.207,036 thousand for the year ended December 31, 2018. This was primarily due to a 7.9% increase in average sales price, resulting from our refined products sub-segment increasing its capacity and storage volume.

Cost of Sales

Our cost of sales decreased by 11.8% to Ps.8,410,562 thousand for the year ended December 31, 2019 from Ps.9,539,211 thousand for the year ended December 31, 2018, primarily due to a decrease in sales volume and reference prices.

Our petrochemical segment’s cost of sales decreased by 19.8% to Ps.3,478,315 thousand for the year ended December 31, 2019 from Ps.4,334,616 thousand for the year ended December 31, 2018, primarily due to an 18.6% decrease in sales volume and a 6.9% decrease in average unit cost.

Our distribution segment’s cost of sales decreased by 6.3% to Ps.5,104,421 thousand for the year ended December 31, 2019 from Ps.5,446,734 thousand for the year ended December 31, 2018. This Ps.342,313 thousand decrease was primarily due to a 10.9% decrease in average unit cost .

Our logistics segment’s cost of sales increased by 9.6% to Ps.122,399 thousand for the year ended December 31, 2019 from Ps.111,695 thousand for the year ended December 31, 2018. This increase was primarily due to an increase in operating costs and expenses.

Gross Profit

As a result of the foregoing, our gross profit decreased 29.1% to Ps. 651,820 thousand for the year ended December 31, 2019 from Ps.918,718 thousand for the year ended December 31, 2018. Our gross margin (our gross profit divided by total revenue) decreased 159 basis points to 7.2% for the year ended December 31, 2019 from 8.8% for the year ended December 31, 2018.

Our petrochemical segment’s gross profit decreased 45.0% to Ps. 278,630 thousand for the year ended December 31, 2019 from Ps.506,655 thousand for the year ended December 31, 2018. This segment’s gross margin decreased 305 basis points to 7.4% for the year ended December 31, 2019 from 10.5% for the year ended December 31, 2018.

Our distribution segment’s gross profit decreased 11.0% to Ps.343,091 thousand for the year ended December 31, 2019 from Ps.385,498 thousand for the year ended December 31, 2018. This segment’s gross margin decreased 31 basis points to 6.3% for the year ended December 31, 2019 from 6.6% for the year ended December 31, 2018. The main reason for the decrease is that the distribution segment’s 2017 results were particularly high due to an extraordinary event in which key competitors were affected by Hurricane Harvey.

Our logistics segment’s gross profit increased 13.6% to Ps. 108,333 thousand for the year ended December 31, 2019 from Ps.95,341 thousand for the year ended December 31, 2018. This segment’s gross margin increased 90 basis points to 47.0% for the year ended December 31, 2019 compared to a gross margin of 46.1% for the year ended December 31, 2018.

Administrative Expenses

Our administrative expenses increased 3.6% to Ps. 449,607 thousand for the year ended December 31, 2019 from Ps.434,122 thousand for the year ended December 31, 2018. Our administrative expenses as a percentage of revenue increased 81 basis points to 5.0% for the year ended December 31, 2019 from 4.2% for the year ended December 31, 2018. This increase is primarily due to non-recurring additional expenses related to an organizational restructuring.


Other operating Expense (income), Net

Our other operating income, net increased to Ps. 189,997 thousand for the year ended December 31, 2019 from Ps.14,685 thousand for the year ended December 31, 2018, primarily due to income recorded by the sale of a non-strategic asset and write-offs regarding previously recorded logistics and administrative expenses.

Operating Income

Our operating income decreased 21.4% to Ps. 392,210 thousand in the year ended December 31, 2019 from Ps.499,281 thousand during the year ended December 31, 2018. Our operating margin, which is operating income divided by total revenue, decreased 45 basis points to 4.3% for the year ended December 31, 2019 from 4.8% for the year ended in December 31, 2018.

Financial Cost

Our financing cost decreased 4.4% to Ps. 477,033 thousand for the year ended December 31, 2019 from Ps.499,120 thousand for the year ended December 31, 2018. The following table sets forth our financial expenses and income as well as our foreign exchange income:

For the Year Ended December 31 2019 2018 (in thousands of Ps.)

Financing Expenses (1) 1,027,115 1,041,869

Financing Income (2) (635,962) (624,718)

Foreign Exchange (income) loss (3) 85,880 81,969

Financing cost 477,033 499,120 (1) The decrease in financing expense was mainly due to a decrease in accrued commissions related to a standby letter of credit. (2) The increase in financial income is mostly related to the interest accrued from the shareholder loan provided to Braskem Idesa and

CyPlus Idesa. (3) The foreign exchange income in both periods is related to the effect of our asset position in U.S. currency combined with the appreciation

of the U.S. Dollar versus the Mexican Peso during the year ended December 31, 2019 and 2018 of 4.3% and 0.3%, respectively.

During 2019, financial expenses of Ps.117,517 thousand were recorded under our subsidiary Etileno XXI, which is consolidated in our results.

Equity interest in net loss of associates and joint ventures

Our equity interest in net loss of associated and joint ventures increased 281.6% to Ps. 1,033,940 thousand in the year ended December 31, 2019 from Ps.270,961 thousand for the year ended December 31, 2018. This was primarily due to the recognition of the net loss of Braskem Idesa.

Income (loss) before taxes on profits

As a result of the above, we recorded the amount of Ps.1,118,763 thousand of loss before taxes on profits for the year ended December 31, 2019, compared to Ps.270,800 thousand of loss before taxes on profits for the year ended December 31, 2018.

Grupo IDESA FY19 MD&A and Financial Statements 17 Taxes on Profits

We recorded taxes on profits of Ps.903 thousand for the year ended December 31, 2019 compared to tax income of Ps.16,436 thousand for the year ended December 31, 2018. This variation was primarily due to taxes on our sale and lease back transaction of the corporate building.

Net consolidated income (loss)

As a result of the above, we recorded a net loss of Ps.1,119,666 thousand in the year ended December 31, 2019 compared to a net loss of Ps.254,364 thousand in the year ended 2018.

Liquidity and Capital Resources

Our financial condition and liquidity is influenced by a variety of factors, including:

our ongoing ability to generate cash from operations;

the terms of our financing arrangements and our access to capital markets; and

our working capital and capital expenditure requirements related to maintenance, expansion, acquisitions and joint ventures.

Our cash requirements consist mainly of the following:

working capital requirements;

investments in the maintenance and improvement of our current operations;

capital for future acquisitions of companies and projects;

equity contributions related to our joint ventures: Braskem Idesa, CyPlus Idesa and Tonalli; and

the payment of dividends to our shareholders.

Our sources of liquidity consist mainly of the following:

cash generated provided by our operational activities;

proceeds obtained from short- and long-term loans and financing; and

capital increases from our shareholders or equity markets

During the years ended December 31, 2019 and 2018, we used cash flow generated by operations primarily for interest payments on loans and financings and for working capital requirements. As of December 31, 2019, our cash and cash equivalents amounted to Ps.548,971 thousand.


Cash Flows The following table sets forth our consolidated cash flows for the years ended December 31, 2019 and

2018:

For the Year Ended December 31, 2019 2018 (in thousands of Ps.) Cash f low s provided by (used in):

Operating activities......................................................... 524,730 325,066

Investing activities .......................................................... (108,335) (100,390)

Financing activities ......................................................... (383,597) (518,635)

Increase (decrease) in cash and cash equivalents 32,798 (293,959)

Cash Flows Provided by Operating Activities

We recorded cash flows provided by operating activities of Ps.524,730 thousand for the year ended December 31, 2019 compared to Ps.325,066 thousand for the same period of 2018, primarily due to fewer working capital requirements than in 2018 and lower tax payments than in 2018.

Cash Flows Used in Investing Activities

We recorded cash flows used in investing activities of Ps.108,335 thousand for the year ended December 31, 2019 compared to Ps.100,390 thousand for the same period of 2018. The main sources of cash flow used in investing activities were related to (i) loans provided to related parties of Ps.22,266 thousand offset by cash flow received from CyPlus Idesa of Ps.110,418 thousand, (ii) asset sales, mainly our corporate building, of Ps.266,558 thousand, (iii) capital expenditures of Ps.176,216 thousand, (iv) investments related to the maritime terminal of Ps.283,705 thousand, (v) interest received from banks and others of Ps.18,572 thousand and (vi) Ps.21,696 thousand related to other investments.

Cash Flows provided by Financing Activities

We recorded cash flows used in financing activities of Ps.383,597 thousand for the year ended December 31, 2019 compared to Ps.518,635 thousand for the same period of 2018. The main source of cash flows in financing activities were related to (i) Ps.343,362 thousand related to a loan received from Inbursa to finance Excellence Sea & Land expansion in port of Veracruz, (ii) amortization costs of Ps.284,646 offset by loans received from banks of Ps.48,502, (iii) Ps. 485,458 related to the bond coupon payment, (iv) Ps.56,375 related to interest expenses, (v) Ps.129,500 thousand related to an equity capital increase from our shareholders and (vi) Ps.78,482 of fees and other financial expenses.


Indebtedness and Financing Strategy As of December 31, 2019, our total outstanding indebtedness with financial institutions on a

consolidated basis was Ps.10,239,060 thousand. As of December 31, 2019, 98% of our outstanding indebtedness was denominated in U.S. dollars and the remaining 2% was denominated in Pesos.

The following table sets forth our principal indebtedness as of December 31, 2019:

Principal Indebtedness as of December 31, 2019

Indebtedness Annual Interest

Rate(4) Short-Term

Portion Long-Term

Portion Total


Existing Unsecured Notes (1) 7.875% 5,639,234 - 5,639,234

Existing Term Loan Facility (2) 11.908% 2,449,872 - 2,449,872

Short-term lines of Credit (4) 8.097% 606,373 - 606,373

Subordinated Loan Facility(3) 9.912% - 342,021 342,021

Accrued interest (5) - 1,076,516 - 1,076,516

Commitment fee (6) - 125,043 - 125,043

Total - 9,897,039 342,021 10,239,060

(1) On December 18, 2013, we issued US$300 million in senior unsecured notes on the international market, which bear interest at an annual rate of 7.875% payable on June 18 and December 18 of each year until maturity on December 18, 2020. Costs related to t he issuance of this bond totaled Ps.98,681 thousand which was considered in the calculation of the bond’s effective interest rat e. Our obligations under the terms of the Existing Unsecured Notes are backed unconditionally on a senior and unsecured basis by the following subsidiaries: Alveg Distribución Química, S.A. de C.V.; Industrias Derivadas del Etileno, S.A. de C.V.; Inmobiliaria Idesa, S.A. de C.V.; Poliestireno y Derivados, S.A. de C.V. now, Novidesa, S.A. de C.V. (i.e. Poliestireno y Derivados S.A. de C.V. was merged with Novidesa, S.A. de C.V. in 2015); Síntesis Orgánicas, S.A. de C.V.; and Excellence Sea & Land Logistics, S.A. de C.V. This figure includes Ps. 14,326 thousand related to issuance costs amortized over the remaining lifetime of the bond

(2) Existing Term Loan Facility: as of December 2016, we disbursed funds from the credit l ine provided by Inbursa. This figure represents only the principal amount. Interests accrued and commitment fee presented separately. For the total ou tstanding debt of Term Loan Facility, refer to notes (5) and (6).

(3) Existing Subordinated loan from Inbursa for the maritime terminal expansion. (4) Some of our credit l ine facil ities bear floating interest rates. Indicative figures as of December 31, 2019. (5) Figure includes accrued interests of Existing Term Loan Facility of Ps.1,044,952 thousand as of December 31, 2019. (6) Figure includes commitment fee of Existing Term Loan Facility.

As of December 31, 2019, we were current with respect to the payment of principal and interest on our indebtedness in compliance with the covenants related to such indebtedness.

Short-Term Lines of Credit

We maintain lines of credit in the form of letters of credit, promissory notes and unsecured loans with a number of financial institutions. The following table sets forth the amounts available from our lines of credit as of December 31, 2019.


Short-Term Lines of Credit as of

December 31, 2019

Financial Institution Proceeds Obtained

Amounts Available

(in thousands of U.S.$) BBVA Bancomer, S.A., I.B.M., Grupo Financiero BBVA Bancomer. 10,000 - Banco Nacional de México, S.A., integrante del Grupo Financiero Banamex 3,750 - HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC (1) 10,082 - Banco Actinver, S.A., Institución de Banca Múltiple, Grupo Financiero Actinver (2) 2,733 - Banco Actinver, S.A., Institución de Banca Múltiple, Grupo Financiero Actinver(3) 2,574 - Scotiabank Inverlat, Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat 2,500 -

Banco Inbursa, S.A., I.B.M., Grupo Financiero Inbursa(4) 538

Total 32,177 (1) Equivalent to Ps.190,000 thousand (2) Equivalent to Ps.51,498 thousand (3) Equivalent to Ps.48,503 thousand (4) Related to Standby Letters of Credit

Off-Balance Sheet Arrangements

We do not currently have any transactions involving off-balance sheet arrangements.

Capital Expenditures

For the years ended December 31, 2019 and 2018, including expenditures made in relation to Braskem Idesa and other acquisitions, we made capital expenditures of Ps.459,921 thousand and Ps.145,319 thousand, respectively, primarily related to:

Maintenance Ps.84,983 thousand;

Other projects and facility improvements Ps.91,233 thousand; and

Investments in Maritime Terminal Ps.283,705 thousand.

Quantitative and Qualitative Disclosures about Market Risk In the ordinary course of our business activities, we are exposed to various markets risks that are

beyond our control, including fluctuations in interest rates, exchange rates, and the price of our primary raw materials, and which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and net income. As a result of these market risks, we could suffer a loss due to adverse changes in interest rates, exchange rates and the price of commodities in the international markets.

Our policy with respect to these market risks is to assess the potential of experiencing losses and the consolidated impact thereof, and to mitigate our market risks through a risk management policy.

Grupo IDESA FY19 MD&A and Financial Statements 21 Interest Rate Risk

As of December 31, 2019, our outstanding U.S. dollar denominated indebtedness was related to (i) the bond issued on December 18, 2013, which bears interest at a fixed rate of 7.875%, (ii) the disbursed amount from the Existing Term Loan Facility provided by Inbursa and iii) the Subordinated Existing Loan Facility.

We are exposed to interest rate risk from the debt related to the Inbursa credit line, this credit bears a variable interest rate referenced to LIBOR. For the twelve-month period ended December 31, 2019, a variation of 100 basis points + in the LIBOR rate would have resulted in a variation in interest accrued from our outstanding indebtedness related to the Inbursa credit line of an amount of Ps.24,061 thousand for that period.

The exposure related to interest rate risk from the subordinated Term Loan Facility also bears a variable interest rate referenced to LIBOR. For the twelve-month period ended December 31, 2019, a variation of 100 basis points in the LIBOR rate of would have resulted in a variation in interest accrued from our outstanding indebtedness related to the subordinated Term Loan Facility of an amount of Ps.1,480 thousand for that period.

Foreign Currency Exchange Risk

We are exposed to foreign exchange risk primarily in connection with the fluctuation in the value of the Mexican Peso against the U.S. dollar. As of December 31, 2019, 98% of our outstanding indebtedness was denominated in U.S. dollars. Some of our contracts with clients provide for product prices that are determined by reference to the exchange rate between the relevant local currency and the U.S. dollar. In addition, our contracts with certain suppliers are paid directly in U.S. dollars. For the twelve-month period ended December 31, 2019, a variation of more than 10% in the exchange rate of Pesos to U.S. dollars would have resulted in a variation in interest expense on outstanding indebtedness denominated in U.S. dollars related to the bond issuance of an amount of Ps.46,253 thousand for that period.

Interest on the Existing Term Loan Facility is accrued but not payable until the maturity date and as a result, exchange rate fluctuations during 2019 did not represent a cash flow risk. However, a variation of more than 10% in the exchange rate of Pesos to U.S. dollars would have resulted in a variation in interest expense of Ps.1,395 thousand accrued from the U.S. dollar-denominated Existing Term Loan Facility.

The exposure related to our indebtedness in U.S. currency is offset by the Company’s U.S. dollar denominated shareholder loans to certain subsidiaries, including (i) a US$557 million shareholder loan to Braskem Idesa and (ii) a US$45 million shareholder loan provided to CyPlus Idesa, which remain as an account collectible in our balance. In addition, we hold an active position in U.S. currency in our accounts receivable which surpass the required level of mitigation to foreign currency exchange risk.

Commodity Price Risk

We consume commodities, such as natural gas, in our petrochemical and distribution segments. We do not currently enter into hedging agreements to mitigate the impact of potential price increases, but we may do so in the future.


Related Party Transactions In the past we have engaged in, and expect that in the future we will continue to engage in, transactions

with our directors, officers, principal shareholders and their respective affiliates or subsidiaries, including, without limitation, the transactions described below. The terms of these transactions are typically negotiated by one or more of our employees who are not related parties, taking into account the same business considerations that would apply to transactions with unrelated third parties, which are verified by our independent auditors at the end of each year. We believe that these arrangements are generally on terms at least as favorable as those that we could obtain from an unaffiliated third party, to the extent there are third parties which could provide comparable services.

The following table sets forth our related party transactions for the years ended December 31, 2019 and 2018 :

For the Twelve Month Period Ended December 31

2019 2018 (in thousands of Ps.)

Interest accrued on loans to Braskem Idesa, CyPlus Idesa and Tonalli (1) 617,392 606,038 Fees for administrative services and other services (2) 141,173 129,404 Transportation and freight services received from Excellence Freights 342,427 323,206 Other services provided by CyPlus Idesa (3) 83,701 96,165 Other sales and services (4) 40,216 20,016 Other interests (5) 4,949 1,280

(1) On December 19, 2012, Idesa and Braskem closed a series of financing agreements with multilateral banks, development banks, export

agencies and commercial banks in which the obligation to provide to the joint venture 80% of their contribution commitments u nder a “Shareholder Loan” was settled. The contributions made by Etileno XXI and Grupo Idesa under the concept of “Shareholder Loan” from May 2013 to December 2017 total an amount around US$400 million dollars. Such interests are accrued over the term of the fina ncing. The principal and interest will be paid once certain conditions of the financing documents are met. Both the principal and interest have been recognized as a receivable from Braskem Idesa. The Company also provided loans to CyPlus Idesa and Tonalli for an amount of around US$46 million dollars and U.S. $4.5 mill ion dollars, respectively.

(2) During the year ended December 31, 2017 the Company provided administrative services to CyPlus Idesa, Tonalli and Excellence Freights.

(3) Includes util ity services provided by and to CyPlus Idesa. (4) Includes other sales and services between Excellence Freights and Alveg.


The following table sets forth our related party balances as of December 31, 2019 and 2018:

As of December 31, 2019 2018


Receivables (short term):

CyPlus Idesa, S.A.P.I. de C.V. 875,231 957,520

Braskem Idesa, S.A.P.I 149,764 - Excellence Freights de México, S.A. de C.V. - 48,517

Tonalli, S.A.P.I. de C.V. 63,376 83,777

Idevo Servicios, S.A . de C.V. 2,918 2,710

Energía Mexcan, S.A . de C.V. 120 -

Total short term 1,093,409 1,092,523

Receivables (long term):

Braskem Idesa, S.A.P.I. 10,953,133 10,787,928

Total long term 10,953,133 10,787,928

Total Receivables 12,046,542 11,880,450

Payables (short-term):

Excellence Freights de México, S.A. de C.V. 155,283 137,288

CyPlus Idesa, S.A.P.I. de C.V. 4,633 - Idevo Servicios, S.A. de C.V. 1,637 1,637

Energía Mex Can S.A. de C.V. - 91

Total Payables 161,553 139,016

See note 26 to our 2019 and 2018 audited consolidated financial statements, respectively, for more

information on our related party transactions.


Principal Products and Market Shares Petrochemical Segment

The petrochemical industry is a strategic growth sector that drives the development and plays an important role in the competitiveness of numerous industrial sectors within the Mexican economy. This sector primarily produces from organic natural resources various compounds that are used as raw materials in the manufacture of a vast range of products found in almost every area of daily life, such as food and beverage packaging, clothing and footwear, construction materials, liquids for the automotive industry and toys.

We have more than 65 years of experience in the manufacture and marketing of petrochemical products. Our petrochemical segment offers a diverse portfolio of products. The major sectors and industries in which our petrochemical segment is active are the PET and polyester fiber industry, the automotive industry, the construction industry and the personal care industry, among others.

The following tables describe our main products and related market shares, competitive position and end markets as of December 31, 2019:

Producer Family Products Place of

Production Installed Capacity

(in thousands of tons)

Idesa EGs MEG (90%), DEG (9%), TEG (1%)

Coatzacoalcos Industrial Unit

220.0

Idesa EAs MEA (30%), DEA (34%), TEA (36%)

Coatzacoalcos Industrial Unit

45.0

Sosa PAs PA Tlaxcala Industrial Unit

33.3

Novidesa EPS EPS Tlaxcala Industrial Unit

23.8

Petramin Alkyl amines DMPA, DMEA, DMIPA Irapuato Industrial Unit

5

Key products directly produced and sold by Grupo IDESA EGs EA PA EPS Alkyl amines Position in Mexico (1)........... 4 1 1 2 1

Market Share (1).................... 6% 54% 48% 15% 80%

Primary Applications............

PET resins (bottles)

Personal care and cosmetics,

cleaners, detergents,

fabric softeners, etc.

UPR

Insulation for building and construction

Foundry (cold box)

Automotive liquids

Polyester f ibers (Clothing)

Gas sw eetening Alkyd resins

Construction panel blocks, facades, f loor decking, etc.

UPR Pharmaceutical Plasticizers for PVC resins

Electronics packaging

Concrete additive

Grupo IDESA FY19 MD&A and Financial Statements 25 Di Octyl Phthalate Propylene Glycols Market Position (1)................ 4 2 Market Share (1).................... 14% 32%

Primary Applications............

Plasticizer for PVC resins Fragrances and f lavorings

UPR resins

Pharmaceutical ________________________________

(1) Our position in Mexico and market share data is derived from our estimates and data available from the ANIQ and SENER and is based on sales volume data for the tw elve-month period ended December 31, 2019.

Distribution Segment

In order to maintain our position as a leader in the distribution of chemical products, our distribution segment offers an extensive line of products and solutions, focusing on continuing improvements, quality, efficiency, productivity, competitiveness and care for the environment, not just in our own products, but also in the processes of our clients and their final products.

The distribution segment consists of three business subdivisions:

Industrial: the industrial subdivision focuses on the distribution of solvents, industrial chemicals, resins and plasticizers to Mexico’s major industrial sectors, except the automotive and aerospace sectors;

Automotive: the automotive subdivision has a technical-commercial department devoted to satisfying the requirements and demands of the automotive sector; and

Specialties and Oil & Gas: the specialties subdivision focuses on the distribution of special products to Mexico’s major industrial sectors and the oil & gas subdivision distributes products servicing Mexico’s oil & gas sector

The distribution segment currently has its main distribution center in Mexico City and nine other distribution branches strategically located in cities that efficiently supply the Mexican market as needed. The following map displays the distribution of our branches throughout Mexico.


For the year ended December 31, 2019, our distribution segment marketed 247,002 tons of chemical and petrochemical products. The chart below sets forth the marketed products by product families for the year ended December 31, 2019.

Logistics Segment

In connection with our logistics segment, we provide handling, warehousing, safekeeping, loading and unloading from cargo ships and conditioning of bulk liquids ranging from vegetable oils and base lubricants, to chemicals, petrochemical derivatives and refined products.

The terminal currently has 18 storage tanks with a combined installed capacity of approximately 50,200 m3 which are currently being used by customers that handle vegetable oils and feed, dived as follows:

4 chemical tanks, each with an approximate capacity of 1,700 m3;

2 vegetable oil tanks, each with an approximate capacity of 3,100 m3;

6 refined products tanks, each with an approximate capacity of 3,100 m3;

6 chemical tanks, each with an approximate capacity of 3,100 m3; and

Currently Excellence Sea & Land is working on expanding its capacity to store and handle additional refined products. This project is under construction and we expect to start operations in late 2020.

We seek to provide logistics services to companies in our petrochemical and distribution segments as well as to third parties, thus making the logistics segment a business available for leasing on a long-term basis.

16%

16%

15%

8%

7%

7%

5%

5%

3%

3%

2%

2% 2%

1%

8%

Fuels

Aromatics

Alcohols

Aliphatics

Solvents

Esters

Ketones

Thinner

Amides

Acids

Glycols

Glycol Ethers

Monomers


Certain Definitions “AA” means Alkylamines;

“Alveg” means Alveg Distribución Química, S.A. de C.V., a subsidiary of the Company;

“ANIQ” means Asociación Nacional de la Industria Química, A.C.; “Aoisa” means Administradora de Operación Industrial, S.A. de C.V., a subsidiary of the Company;

“APIVER” means the Integral Port Authority of Veracruz (Administración Portuaria Integral de Veracruz);

“Braskem” means Braskem, S.A., a leading Brazilian petrochemicals company; “Braskem Idesa” means Braskem Idesa, S.A.P.I.;

“Braskem Netherlands” means Braskem Netherlands B.V.;

“CDTI” means Centro de Desarrollo Tecnológico Idesa, S.A. de C.V.; “CNH” means the National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos);

“CyPlus Idesa” means CyPlus Idesa, S.A.P.I. de C.V.;

“DEA” means diethanolamine;

“Decorpi” means Desarrollo Corporativo Idesa, S.A. de C.V., a subsidiary of the Company; “DEG” means diethylene glycol;

“DMEA” means dimethylethylamine;

“DMIPA” means dimethylisopropylamine; “DMPA” means dimethylpropylamine;

“DOP” means dioctyl phthalate;

“DPG” means dipropylene glycol; “EG” means ethylene glycols;

“EO” means ethylene oxide;

“EPS” means expandable polystyrene; “Etileno XXI” means Etileno XXI, S.A. de C.V.;

“Etileno XXI Project” means the project executed by Braskem Idesa to develop a private petrochemical unit of

ethane cracker for the production of ethylene and three facilities to produce polyethylene;

“Etileno XXI Complex” means the Etileno XXI Project complex located in Veracruz, which includes an ethylene cracker, two HDPE plants, an LDPE plant, a power generation plant, an effluents treatment plant and a water

treatment plant;

“Euro” or “€” means the lawful currency of the European Union; “Evonik” means Evonik International Holding B.V., a subsidiary of Evonik Industries AG, a publicly traded

German conglomerate with businesses in the chemicals, energy and real estate sectors;

“Excellence Freights” means Excellence Freights de Mexico, S.A. de C.V., a subsidiary of the Company; “Excellence Sea & Land” means Excellence Sea & Land Logistics, S.A. de C.V. (formerly, Idesa Logistica

Veracruz, S.A. de C.V.), a subsidiary of the Company;

“Existing Term Loan Facility” means the US$130 million credit facility from Inbursa due June 2020, as amended

to extend its maturity to June 2026; “GDP” means gross domestic product;

“Hayare” means Hayare, S.A. de C.V.,a subsidiary of the Company;

“HDPE” means high-density polyethylene; “Idesa” means Industrias Derivadas del Etileno, S.A. de C.V., a subsidiary of the Company;


“Idesa Europe” means Idesa Europe, S.L., a subsidiary of Petramin;

“Idesa Petroquímica” means Idesa Petroquímica, S.A. de C.V., a subsidiary of the Company

“IFR” means International Frontier Resources Corporation; “Inbursa” means Banco Inbursa S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa ;

“Inisa” means Inmobiliaria Idesa, S.A. de C.V., a subsidiary of the Company;

“LDPE” means low density polyethylene; “LIBOR” means London Interbank Offered Rate;

“MEA” means monoethanolamine;

“MEG” means monoethylene glycol; “MPG” means monopropylene glycol;

“NAFTA” means the North American Free Trade Agreement established on January 1, 1994;

“Novidesa” means Novidesa, S.A. de C.V., a subsidiary of the Company;

“PA” means phthalic anhydride; “Pemex” means Petróleos Mexicanos, the Mexican State-owned petroleum company;

“Pemex TRI” means Pemex Transformación Industrial (formerly known as Pemex Gas y Petroquímica Básica),

a state productive subsidiary company of Pemex; “Pesos”, “Mexican Pesos”, or “Ps.” means the lawful currency of Mexico;

“PET” means polyethylene terephthalate, in the form of resin;

“Petramin” means Petramin, S.A. de C.V., a subsidiary of the Company; “PG” means propylene glycol;

“Polidesa” means Poliestireno y Derivados, S.A. de C.V., a former subsidiary of the Company merged with

Novidesa;

“PVC” means polyvinyl chloride; “Raya” means Raya Líquidos Especiales, S.A. de C.V., a subsidiary of the Company;

“Rohm” means Röhm Holding GmbH;

“SEMARNAT” means Mexico’s Ministry of Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales);

“SENER” means Mexico’s Ministry of Energy (Secretaría de Energía);

“Sosa” means to Síntesis Orgánicas, S.A. de C.V., a subsidiary of the Company; “TEA” means triethanolamine;

“TEG” means triethylene glycol;

“Tonalli” means Tonalli Energía, S.A.P.I. de C.V.;

“Tonalli Project” means the project executed by Tonalli to develop the onshore oil and gas development block designated the “Tecolutla block”, a 7.2 square km block in the Tampico-Misantla Basin located within the

state of Veracruz;

“tons” means metric tons (one metric ton is equal to 1,000 kilograms or 2,204.6 pounds); and “UPR” means unsaturated polyester resin.


Index to Audited Consolidated Financial Statements Audited Consolidated Financial Statements of Grupo IDESA, S.A. de C.V. and its subsidiaries as of and for the twelve-month period Ended December 31, 2019 and 2018.

Audited Consolidated Statements of Comprehensive Income.

Audited Consolidated Statements of Financial Position as of December 31, 2019 and 2018.

Audited Consolidated Statements of Cash Flows for the twelve-month period Ended December 31, 2019 and 2018.

Grupo IDESA, S.A. de C.V. Bosque de Radiatas, 34

Col. Bosques de las Lomas Delegación Cuajimalpa

C.P. 05120, Ciudad de México. México

TRUSTEE, REGISTRAR, PAYING AGENT AND TRANSFER AGENT

Deutsche Bank Trust Company Americas 60 Wall Street, 16th Floor

MS NYC 60-1630 New York, NY 10005

USA

LUXEMBOURG LISTING, PAYING AND TRANSFER AGENT

Deutsche Bank Luxembourg S.A. 2, boulevard Konrad Adenauer

1115 Luxembourg Luxembourg


Documents

Full year - IDESA