About
Mexichem

Mexichem S.A.B. de C.V. is a global provider of products and solutions inspired to enhance the way we live and work. Through our market-leading brands sold in more than 100 countries, we support multiple industries including construction, infrastructure, agriculture, health, transportation, data communications, energy and petrochemicals. Over more than 50 years of innovation and acquisition, we have grown to become one of the largest global companies headquartered in Latin America, with a strong record of sustainable value creation. We are traded on the Mexican Stock Exchange (BMV) and included in the BMV Sustainability Index as well as the FTSE4Good Emerging Index.

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Business Profile

Operations in

41

countries

Sales in more than

100

countries

137

Production plants

19

R&D labs

2

Fluorite mines

US $7.2 billion

Consolidated annual revenues

+22,000

Employees

Note: all figures as of December 31, 2018.

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Business Profile

Our market-leading brands and products

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Business Profile

One of the most cost-efficient PVC producers in the world and the fifth largest producer of PVC resin worldwide.

Owner of Las Cuevas mine in San Luis Potosí, México, the biggest single producer of fluorspar in the world.

One of the world’s largest specialty PVC resins producers.

A global leader in precision irrigation and digital farming.

One of the world’s largest producers of plastic pipes and fittings.

A leading producer of conduits for data and pressure pipes in the USA.

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Business Profile

Our mission and vision

Vision
To be respected and admired globally as a leading industrial company that delivers maximum positive impact by contributing to progress and improving people’s lives.

Mission
We transform chemicals and materials into innovative products, services and solutions for diverse sectors. By focusing on operational excellence and market needs, we generate ongoing Total Value for customers, employees, partners, shareholders and the communities in which we operate.

Our values

Safety
The health and safety of our people are our priority. We strive to ensure safety at our facilities, in the communities in which we operate, and for the environment.

Commitment
We are dedicated to teamwork and a focus on achieving

shared goals in order to exceed the expectations of our clients and maintain our commitments to our partners, employees, and the communities of which we are part and in which we operate.

Innovation
We seek to continually drive innovation with our products, processes and solutions and generate a positive impact on the market and industry.

Integrity
We are committed to being an ethical, honest, and trustworthy company that treats employees in an appropriate and respected manner.

Responsibility
We act responsibly and fairly in the communities where we do business.

Results
We believe that operational and financial efficiency and excellence are the foundation of our ability to deliver positive results, sustainable growth and products that make a difference.

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Message from the Chairman

Dear Stakeholders,

I am pleased to report that last year our company not only continued to grow profitably, but to evolve in ways that I am confident will make our strong, profitable growth sustainable well into the future.

The year 2018 was dynamic and historic for Mexichem, starting with an unexpected, but ultimately smooth, and very successful, transition to a new CEO. The selection of Daniel Martínez-Valle, formerly the CEO of Kaluz, demonstrates both the depth of our talent pool and the efficacy of our governance process. That we executed the management transition while closing the largest acquisition in Mexichem’s history, of the Israel-based Netafim, reveals the underlying strength of the company.

As Chairman, one of my most important responsibilities is assuring we sustain world-class governance, starting with the best people we can attract to our boards. We continued to strengthen Mexichem’s board by adding Alma Rosa Moreno, Mexico’s former ambassador to the

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Message from the Chairman

United Kingdom and Head of the Federal Tax Authority; and María Teresa Arnal, former CEO of Twitter Latin America and current CEO of Google Mexico. We also added to our Netafim board, welcoming our new partners from Kibbutz Hatzerim in Israel: Eli Bensimon, Tzvika Barkai, and Gilad Winkler, and adding independent directors Jean Carlos Angulo, formerly with Lafarge; and Anil Menon, formerly with Cisco. These appointments were designed to enhance the diversity of thought, experience, capabilities and professional networks that are needed to guide our company.

When Daniel became our CEO, he launched a collaborative exercise among our company’s leadership to decode and express our purpose and values; not just who we are, but who – and what – we want to be in the coming decades. Because we have evolved so rapidly over the last years, we needed to step back and carefully assess the risks and opportunities in our portfolio and in our organization.

By year’s end, the exercise positioned us to better align our possibilities with our aspirations and to understand more clearly our strategic options. We want to help make the world more sustainable and more livable, while consistently creating value for our shareholders. I am now even more confident that we can do both.

One specific result of the work Daniel guided last year was to reorganize the company into five businesses, each with a clear mission, and each with the resources to become more focused, more nimble and closer to our customers. The results are already evident: we are developing new products and solutions, expanding into frontier regions, enhancing our resiliency, and improving our health and safety performance.

At the same time, we remain committed to our investment grade rating, having strengthened our already solid balance sheet and enhanced our capacity to generate free cash flow.

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Message from the Chairman

* Business groups included as “Fluent” for financial reporting purposes.

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Message from the Chairman

As a global company, Mexichem lives and operates in an ever more complex, intertwined marketplace. The very nature of our business requires us to understand risk and manage uncertainty - and to do so with our eyes wide open, with a constant assessment of strategies, scenarios and opportunities, while striding forward to become purpose-driven and future fit.

From a worldly perspective, these are unusual times. On the one hand, global growth has been substantial (led by U.S. GDP growth in 2018 of more than 3%), interest rates remain near historic lows and inflation is quiescent. On the other hand, political uncertainties make it difficult to project economic and social policies, while trade policy swings tend to unsettle financial as well as goods markets. What is more, central banks seem increasingly nervous about the coming years.

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Message from the Chairman

In too many countries, the politics of extremes have squeezed the center. This has contributed to societal discomfort in France, a drag on the UK economy from Brexit reactions, the empowerment of new parties in many European countries, and the election of presidents in the U.S., Mexico and Brazil who came from outside the traditional policy consensus. Only time will tell whether new approaches, particularly in the Americas, will do a better job of creating the sustainable, equitable growth that our societies need.

Meanwhile, Asia as a whole continues to power ahead, even as China adjusts to a lower-than-historical growth path. While that country needs to cope creatively with the pressures of too much debt, top heavy public enterprises, and trade and investment pressures from the U.S. and Europe, the odds are high that the region in its entirety will continue to drive global economic growth in the coming years. That has practical implications for our company. We need to expand our presence in Asia.

Almost every Chairman believes that their stock price is undervalued, and I am no exception. In my judgement, there is misperception about our exposure to non-specialty plastics, and to Mexico. In fact, we are quite diversified. In 2018, 90% of our sales and 80% of our EBITDA were produced and sold outside of Mexico while non-specialty plastics accounted for 13% of total revenues.

We can and will do a better job of simplifying and explaining our business, but communication is only part of the solution. It is our responsibility to evaluate alternatives to unlock underappreciated value, and we are continually doing so.

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Message from the Chairman

Finally, I want to thank the entire Mexichem team for their dedication, drive, commitment and openness to new ideas. Our people are the foundation of our culture and the embodiment of our values. Together, we are building a company that has the capacity and the will to address some of the world’s greatest challenges in ways that will benefit all our stakeholders.

I would also like to thank our investors and all our stakeholders. Your trust, support and constancy over the years have helped us become the company we are today, and the company we can surely be tomorrow.

JUAN PABLO DEL VALLE PEROCHENA
CHAIRMAN OF THE BOARD

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Message from the CEO

Dear Stakeholders,

Reflecting on my first year as CEO, I want to thank you for your commitment and investment in Mexichem. We are extremely proud of what we have accomplished in this time and we have never been more optimistic about the future of our Company.

Atop our list of goals is to align our businesses to address many of the world’s biggest challenges, such as ensuring sufficient water and food resources. As an example, our Netafim business won four major community irrigation projects in India, which will bring precision irrigation for the first time to 60,000 farmers in more than 100 villages and will cover more than 55,000 hectares. Without these projects in place, two and a half times more water would be needed to produce the same crop yield. This kind of water savings from just four community irrigation projects is equivalent to the yearly water consumption of half a million people.

Photo courtesy of Expansión magazine

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Message from the CEO

We are also proud of how we help manage and supply water both above and below ground in cities, reducing leakages, and in turn, making buildings more sustainable. We also make buildings safer by being the world leader in flame retardant solutions for building wire and cables. In data communications, our conduits carry fiber optic cables as part of the expansive rollout in the U.S. of 5G data to the home. In addition, we are developing a new generation of flexible PVC resins that are safer, longer lasting and use less energy to produce end products. And some 100 million asthmatics breathe easier now thanks to the use of our fluorine-based propellants in medical inhalers. The trust of our customers is fueling results of our own.

For 2018, we’re very proud to highlight our four consecutive quarters of double-digit growth in revenue and consolidated net and majority income. For the full year, revenue increased 24% year over year from $5.8 billion to $7.2 billion and EBITDA increased 26% year over year from $1.1 billion to $1.4 billion. As a result of our strategy over the past few years, our return on invested capital (ROIC) now exceeds our weighted average cost of capital (WACC) and continues its positive trend, reaching 9.2% at year’s end from 6.5% in 2015 (adjusted for continuing operation in order to make it comparable with

the 2018 ROIC). We also continue to show a solid balance sheet and strong cash generation, which increases our confidence in the resilience of our business model. Also in 2018, the Ingleside Cracker operated for its first full year. Envisioned more than five years ago, the strategic project pushes us to the left of the PVC global supply curve. The 50/50 JV with OxyChem was ready on time and on budget.

This year, we added sales revenue of Israeli company Netafim into our consolidated numbers, which significantly contributed to both our top and bottom line. It has truly proven to be a transformational acquisition for us and has significantly increased our portfolio of specialty products. It has also expanded our global footprint by strengthening Mexichem’s presence in key growth markets such as the U.S. and India, while opening up new markets including the Middle East and Africa.

In all our businesses, we are transitioning to a returns-driven model from a history of mergers and acquisitions, and from a manufacturing-focused company to one that is much more customer-centric. These moves should continue to drive better ROE and ROIC going forward.

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Message from the CEO

One of the greatest privileges I have as CEO is witnessing firsthand the incredible impact our solutions are having on people and organizations around the world, from the individual farmer who is able to apply precision agriculture to increase crop yields, to entire cities like Cape Town in South Africa that have embraced our water management solutions to help adapt to a changing climate.

Increasingly, our solutions incorporate real-time data. Launched in May, NetBeat™ by Netafim is an “all in one” platform that enables farmers to optimize their irrigation and fertigation, based on a sophisticated analysis of real-time data from sensors in the field, external sources and dynamic crop models. All this is done using an intuitive interface from the farmer’s smartphone or tablet.

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Message from the CEO

PlasticRoad by Wavin is the world’s first bicycle path made of recycled plastic. Piloted in September in the Netherlands, the pathway features sensors that monitor temperature, usage and durability. While tested for cyclists, we are considering far broader commercial applications such as parking lots. The innovative material is expected to be three times as durable as asphalt and 70 percent faster to install.

Along our own path to become a purpose-driven, future fit organization, Mexichem is giving back to the world in other ways as well. Sustainability is a critical goal, and we’re working with governments, the private sector and local nonprofits around the world to help bring about a more livable future. As an example, we are now reusing more than 75% of our water at our plants and aim to boost that to 87% by 2020. In 2018, we joined the UN Global Compact, which encourages businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.

The safety of our people is paramount to us. We are working globally and across all our businesses to ensure that every day, each one of our 22,000 Mexichem employees returns home safely. Mexichem is also fully

committed to fostering a culture of integrity, transparency and compliance. We are launching a new, improved Whistleblower Line for managing effectively all concerns in our Company throughout the world. We are also dedicating resources to train our employees on global compliance issues such as data privacy, anti-bribery and anti-trust. This training not only aims to reduce risks, but to actually provide our employees with tools on how to deal with ethical dilemmas.

For more than five decades, our people have helped keep Mexichem stay focused on serving customers and enriching people’s lives. Recently, we surveyed our employees and results showed an impressive 86% of our employees feel “engaged, enabled and energized”.

Having spent much of this past year traveling to meet with both customers and employees, I return at once energized and humbled. And I look forward to what we can do to keep having the positive impact we’re having on the world – one project at a time.

Daniel Martínez-Valle
CEO

Our
Value Chain

Our value chain starts with product development and progresses through manufacturing and supply to our customers. We are seeking ways to increase the circularity of our products and services. Most of our raw materials are sourced through vertical integration, and our many factories around the world are in constant collaboration to optimize the flow of materials between plants.

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Our Value Chain

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Our Value Chain