Third Quarter 2019 - IDESA

Third Quarter 2019

MD&A and Financial Statements

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

November, 2019

Grupo IDESA 3Q19 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 ..................................................................... 12

LIQUIDITY AND CAPITAL RESOURCES .................................................... 15

RELATED PARTY TRANSACTIONS........................................................... 21

PRINCIPAL PRODUCTS AND MARKET SHARES ...................................... 23

CERTAIN DEFINITIONS ............................................................................ 26

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ........ 28

Grupo IDESA 3Q19 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 unaudited consolidated financial statements for the three-month period ended September 30, 2019 and the three-month period ended September 30, 2018.

Important Events

Regarding our JV´s: Braskem Idesa

For the three-month period ended September 30, 2019, PE production was 192 ktons, the utilization rate for this period was 72% reflecting the low supply of ethane. PE sales volume amounted to 198 ktons. Braskem Idesa recorded revenues of U.S.$185 million and an EBITDA of U.S.$96 million with an Operational EBITDA Margin of 39%.

Braskem Idesa obtained the waivers requested to creditors of the Project Finance, as consequence Braskem Idesa is now in compliance with all its obligations and Physical and Financial Completion dates have been postponed.

The JV’s US$2.4 million investment in the Fast-Track ethane terminal is expected to start operations by the end of 2019. Ethane volume will increase to operate the cracker at a higher utilization rate. Assessment of a complementary solution for a larger-scale ethane import continues.

CyPlus Idesa

For the three-month period ended September 30, 2019, CyPlus Idesa’s production of sodium cyanide amounted to 4,749 tons, reaching an average utilization rate of 47%. This decrease in production was due to a 45 day shutdown for maintenance and repair of the reactor. As a consequence, CyPlus Idesa recorded lower revenues and EBITDA than the previous quarter. Revenues for the three month period ended September, 2019 amounted U.S.$16.1 million and a negative EBITDA of U.S. $1.4 million, nevertheless, revenues and EBITDA as of September, 2019 amounted U.S. $55 million and U.S. $10 million respectively.

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. Construction period lasts around 18 months. As of September, 2019 EPC progress was 17% and currently EPC progress increased to 25%. The project is expected to start operations in late 2020.


As of November, 2019 Grupo IDESA successfully renovated its short-term credit lines with BBVA, Actinver, HSBC, Citibanamex and Scotiabank. The maturity of BBVA was rolled over until January 31, 2020, Actinver will be renovated in November, 2020 and March, 2021 for another year, HSBC until January, 2020, Citibanamex until February, 2020 and Scotiabank until January, 2020.

In October, 2019 Fitch Ratings downgraded from "CCC" to "CCC-" the Foreign Currency LT credit rating of Grupo IDESA. This downgrade reflects the agency´s concern about the refinancing of our 2020 maturities.

Regarding our unaudited financial statements.

We prepared our unaudited consolidated financial statements as of and for the three-month periods ended September 30, 2019 and 2018 in accordance with IFRS.


Selected Consolidated Financial and Other Information

The selected consolidated financial and other information presented in this section is derived from our accounting records and our consolidated financial statements, which include the results and financial position of our subsidiaries 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 included elsewhere in this report.

(1) Solely for the convenience of the reader, Peso amounts for the three-month period ended September 30, 2019 and for the three-

month period ended September 30, 2018 have been translated into U.S. dollars at the rate of Ps. 19.42 and of Ps.18.98, respectively, to U.S.$1.00, based on Banxico’s exchange average rate for each of the abovementioned periods.

(2) Includes revenue from maritime terminal services , administrative services, other services revenue and rental income. (3) Includes exchange (gain) loss, net, interest expense, derivative financial instruments and interest income.

For the Three Month Period Ended September 30

2019 2018 2019 2018

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

Net sales 113,621 137,261 2,206,223 2,605,210

Other revenues (2) 4,361 4,178 84,676 79,302

Total revenue 117,982 141,439 2,290,898 2,684,512

Cost of sales 109,751 130,474 2,131,075 2,476,398

Gross profit 8,231 10,965 159,824 208,114

Administrative expenses 5,924 5,378 115,035 102,073

Other operating expenses (income), net (2,605) (205) (50,581) (3,885)

Operating income 4,912 5,792 95,370 109,925

Financing cost (3) 3,946 14,107 76,623 267,749

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

28,688 (20,040) 557,041 (380,367)

Income (Loss) before taxes on profits (27,722) 11,725 (538,294) 222,543

Taxes on profits 60 (2,284) 1,164 (43,347)

Net consolidated income (loss) (27,782) 14,009 (539,458) 265,890


As of September 30,

2019 2018 2019 2018

Balance Sheet Data: (in thousands of U.S.$) (1) (in thousands of Ps.)

Current assets:

Cash and cash equivalents 18,909 27,947 371,309 525,731

Accounts receivable, net (2) 142,902 165,462 2,806,059 3,112,664

Inventories 52,944 65,666 1,039,629 1,235,318

Prepaid expenses (3) 15,497 13,714 304,300 257,984

Other accounts receivable 2,049 2,511 40,243 47,244

Total current assets 232,301 275,300 4,561,539 5,178,941

Non-current assets:

Restricted Cash 3,165 4,034 62,155 75,888

Property, plant and equipment, net 114,918 110,050 2,256,556 2,070,268

Investments in associates and joint ventures

(1,874) 13,906 (36,804) 261,591

Intangible and other non-current assets (4) 55,963 57,132 1,098,901 1,074,769

Related Parties 572,866 539,736 11,248,960 10,153,509

Other non current assets 5,988 3,596 117,581 67,647

Total non-current assets 751,025 728,454 14,747,350 13,703,672

Total assets 983,326 1,003,754 19,308,889 18,882,614

Liabilities and equity:

Current liabilities:

Short Term Debt (5) 227,528 51,479 4,467,816 968,416

Accounts payable 65,410 82,117 1,284,406 1,544,785

Other accounts payable, provisions and accrued liabilities (6)

51,094 44,690 1,003,294 840,716

Related Parties 4,056 3,501 79,638 65,853

Total current liabilities 348,088 181,787 6,835,154 3,419,771

Long-Term liabilities:

Long term debt (7) 314,736 470,737 6,180,247 8,855,499

Related Parties 97 87 1,899 1,637

Other Accounts Payable 2,432 - 47,753 -

Employee benefits 4,503 4,730 88,428 88,984

Long term taxes on profit 7,509 8,657 147,440 162,854

Deferred income tax 13,749 17,677 269,971 332,546

Total long-term liabilities 343,025 501,888 6,735,739 9,441,519

Total liabilities 691,113 683,675 13,570,893 12,861,290

Equity:

Capital stock 322,281 293,877 6,328,412 5,528,414

Net income accumulated and for the period/year (8)

(113,994) (33,378) (2,238,413) (627,913)

Other comprehensive loss items 83,926 59,580 1,647,996 1,120,824

Total equity 292,214 320,079 5,737,996 6,021,324

Total liabilities and equity 983,326 1,003,754 19,308,889 18,882,614

(1) Solely for the convenience of the reader, Peso amounts as of September 30, 2019 and 2018 have been translated into U.S. dollars at

the rate of Ps.19.64 and of Ps.18.81, respectively, to U.S.$1.00, based on Banxico’s exchange rate in effect as of the end of September

30, 2019 and September 30, 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

liabilities. (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).



2019 2018 2019 2018

Other Financial and Operating Data: (in thousandsof U.S.$) (1) (in thousands of Ps.)

Acquisition of property, plant and equipment 7,162 2,286 139,067 43,384

Depreciation and amortization 1,952 1,593 37,903 30,240

EBITDA (2) 6,864 7,386 133,274 140,165

Gross margin (3) 7.0% 7.8%

EBITDA margin (4) 5.8% 5.2%

Operating margin (5) 4.2% 4.1%

Net margin (6) -23.5% 9.9%

Accounts receivable turnover (in days) (7) 75 72

Inventory turnover (in days) (8) 58 49

Accounts payable turnover (in days) (9) 39 56

JV´s Cashflow (10) 579 849 11,242 16,111

Adjusted EBITDA (11) 7,438 8,234 144,470 156,276

(1) Solely for the convenience of the reader, Peso amounts for the three-month period ended September 30, 2019 and for the three-

month period ended September 30, 2018 have been translated into U.S. dollars at the rate of Ps. 19.42 and of Ps.18.98 to U.S.$1.00, respectively, based on Banxico’s exchange average rate for each of the above mentioned period.

(2) We calculate EBITDA as our net income (loss) plus/less taxes on profits—expense plus/less financial expenses (income), net 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, Mexican Financial Reporting Standards 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 liquidity. EBITDA has conditions that limit 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, in conjunction with other accounting and financial information available reasonable indicators for comparisons between us and our principal competitors in the market.

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

amount of net sales of the period divided by the average accounts receivable of the period. This calculation does not include provisions for accounts receivables and related parties.

(8) Inventory turnover in days is calculated by dividing the number of days elapsed during the period by the quotient of the amount of cost of sales of the period divided by the average inventory of the period.

(9) Accounts payable turnover in days is calculated by dividing the number of days elapsed during the period by the quotient of the amount of cost of sales divided by the average accounts payable of the period.

(10) Principal, interest and dividend payments from our joint ventures. (11) Adjusted EBITDA includes the cashflows received from our joint ventures.


The following table sets forth the reconciliation of our net income to our EBITDA:


2019 2018 2019 2018

Reconciliation: (in thousands of U.S.$) (1) (in thousands of Ps.)

Net income (loss) (27,782) 14,009 (539,458) 265,890

(+/−) Taxes on profits—(credit) expense 60 (2,284) 1,164 (43,347)

(+) Financial expenses, net 3,946 14,107 76,623 267,749

(+) Depreciation and amortization 1,952 1,593 37,903 30,240

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

28,688 (20,040) 557,041 (380,367)

EBITDA 6,864 7,385 133,274 140,165

JV´s Cashflow (2) 579 849 11,242 16,111

Adjusted EBITDA (3) 7,438 8,234 144,470 156,276

(1) Solely for the convenience of the reader, Peso amounts for the three-month period ended September 30, 2019 and for the three-month

period ended September 30, 2018 have been translated into U.S. dollars at the rate of Ps. 19.42 and of Ps.18.98 to U.S.$1.00, respectively based on Banxico’s average exchange rate for each of the mentioned period.

(2) Includes principal, interest and dividend payments from our joint ventures. (3) Adjusted EBITDA includes the cashflows received from our joint ventures.

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 are one of the largest petrochemical groups in Mexico measured by revenue and EBITDA for the three-month period ended September 30, 2019; based on publicly available information from other Mexican petrochemical companies. We produce, distribute, market and sell a wide range of petrochemical and chemical products. According to data derived from ANIQ and SENER, our petrochemical business maintains a market leadership position, falling within the top three in Mexico across our entire product portfolio (based on market data as of September 30, 2019, including EG, EA, PA, EPS, AA, PG and DOP). In addition, we are one of the leading distributors of solvents in the Mexican market (measured by sales volume as of September 30, 2019) and other chemical products, and we are the sole producer of EA in Mexico and foundry for AA in Latin America.

Although we primarily sell our products domestically within Mexico, for the three-month period ended September 30, 2019, we generated 11.9% of our total revenue from exports, mainly to countries in Europe and to the United States.

Our joint venture, Braskem Idesa, benefits from state-of-the-art technologies. Our PE production improves our market position in the domestic petrochemical sector by capturing market share as the PE produced serves to partially substitute PE imports.


The Mexican market for sodium cyanide has been dominated by imports. Our joint venture, Cyplus Idesa, is now the sole producer of sodium cyanide in Mexico and is able to manufacture 40,000 tons of this important product, serving the demands of the domestic mining industry. This facility strengthens our diversification strategy and increases our market share, partially as a result of our ability to offset imports. State-of-the-art, in-house developed technology guarantees CyPlus Idesa’s successful participation in the Mexican market.

Following the same diversification strategy and taking advantage of Mexico’s historic energy reform, Tonallí Energía, our joint venture with International Frontier Resources‘ subsidiary, Petrofrontera, was established to participate in the nascent upstream Mexican market. Due to its strategic location in Tecolutla, we expect Tonallí Energía 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 Energia, which have required capital expenditures. Our investments are recorded using the equity method. For the three-month period ended September 30, 2019, we recorded an equity interest in net loss of associates and joint ventures of Ps. 557,041 thousand compared to a net income of Ps. 380,367 thousand during the same period in 2018. This loss is mainly attributed to the exchange rate variation of the Mexican Peso against the U.S. dollar in Braskem Idesa´s results during this quarter.

Mexican and Global Economic Environment

Our business is closely tied to general economic conditions in Mexico. As a result, our economic performance and our ability to implement our business strategies may be affected by changes in national economic conditions as well as global economic and financial market changes that impact Mexico.

For the three-month period ended September 30, 2019, Mexico’s inflation rate was 3.0% on an annualized basis and Mexico’s GDP for the three-month period ended September 30, 2019 was 0.0% on an annualized basis.

Limited Seasonality

The results of our 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 are somewhat impacted by seasonality, the historical impact on the demand for our products has not been material. Furthermore, our diversified business segments 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 unaudited consolidated financial statements as of and for each of the three-month periods ended in September 30, 2019 and September 30, 2018 in accordance with IFRS.

We prepare our financial statements in Mexican Pesos, which is our functional currency.


Description of the Principal Statement of Income Line Items

Total Revenues

As of September 30, 2019, we generated revenue from the production and commercialization of petrochemical and chemical products through our subsidiaries, the distribution of these products, the storage and transportation of chemicals for the automotive, personal care and food industries, and the sale of certain value-added products such as EPS construction systems.

The following tables set forth the percentage of our total gross revenues (before intercompany eliminations) from our most significant products for the periods indicated therein:

Petrochemical Business Products

For the Three-Month Period Ended

September 30,

2019 2018

(%)

EPS……………………………………….. 9.1 9.7

EAs……………………………………….. 8.6 8.3

PA/Plasticizers………………………….. 8.3 7.9

AA.………………………………………. 3.5 2.4

EGs………………………………………… 3.0 8.9

Total………………………………………. 32.6 37.3

Distribution Business Lines

For the Three-Month Period Ended

September 30,

2019 2018

(%)

Industrial…...…………………………….. 40.8 39.1

Automotive……………………………….. 15.9 13.3

Oil & Gas……..………………………….. 0.9 0.7

Specialties…….…………………………. 0.9 1.0

Total………………………………………. 58.5 54.1

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 Three-Month Period Ended

September 30,

2019 2018

(%)

Distribution………………………..… 58.5 54.1

Petrochemical………………………. 39.1 43.9

Logistics and applications……….... 2.4 2.0


Cost of Sales

The principal components of our cost of sales are raw materials, manufacturing expenses and the depreciation of our plants and industrial equipment as well as intangible assets. As of September 30, 2019, the cost of goods sold (mainly consisting of raw materials and utilities), represented approximately 82.2% of our cost of sales. Depreciation of our plants and industrial equipment is calculated using the straight-line method because we believe that it best reflects the use of these assets. In the three-month period ended September 30, 2019, our cost of sales decreased to Ps.2,131,075 thousand from Ps.2,476,398 thousand from the corresponding period in 2018.

Administrative Expenses

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

Other Operating Income, Net

The main components of other operating income, net are income or expenses related to recovery of insurance and restatement of favorable taxes due to inflation, profit from business and, when relevant, assets sales.

Financial (Income) Expenses, Net

The major components of financial (income) expenses, net are interests received or paid to financial institutions and related parties, foreign exchange gains or losses and gains or losses related to changes in the fair value of derivative instruments.

Taxes on Profits

Income tax is calculated based upon taxable income, which differs from income for accounting purposes in the treatment applied to the comprehensive cost of financing, 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 to for the fiscal years ending 2019 and 2018 was 30%. Income tax losses may be used to offset taxable profits in future years.

Equity Interest in Net (Income) Loss 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 held a 35% equity interest. In November 2012, we reduced our equity interest from 35% to 25%. In April 2013, we entered into a joint venture with Evonik to form CyPlus Idesa. We hold a 50% equity interest in CyPlus Idesa. In 2015 we entered into a joint venture with International Frontier Resources’ subsidiary, Petrofrontera to create Tonalli Energía, in which we hold a 50% equity interest.


Results of Operations Three-Month Period Ended September 30, 2019 Compared to

Three-Month Period Ended September 30, 2018

For the Three Month Period Ended

September 30 % of Total Revenue

2019 2018 % Change 2019 2018

(in thousands of Ps.)

Total revenue 2,290,898 2,684,512 -14.7%

Cost of sales 2,131,075 2,476,398 -13.9% 93.0% 92.2%

Gross profit 159,824 208,114 -23.2% 7.0% 7.8%

Administrative expenses 115,035 102,073 12.7% 5.0% 3.8%

Other operating (income) expenses, net

(50,581) (3,885) 1,202.1% 2.2% 0.1%

Operating income 95,370 109,925 -13.2% 4.2% 4.1%

Financial (income) expenses, net 76,623 267,749 -71.4% 3.3% 10.0%

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

557,041 (380,367) n.m. n.m. n.m.

Taxes on profits 1,164 (43,347) n.m. n.m. n.m.

Net consolidated income (539,458) 265,890 n.m. n.m. n.m.

n.m. = not meaningful

Total Revenue

Our revenue decreased 14.7% to Ps.2,290,898 thousand for the three-month period ended September 30, 2019 from Ps.2,684,512 thousand for the corresponding period in 2018. Our revenue per segment is set forth below.

Our Petrochemical segment’s revenue decreased 24.0% to Ps.924,458 thousand for the three-month period ended September 30, 2019 from Ps.1,215,934 thousand for the corresponding period in 2018. This decrease was primarily due to a 20.0% decrease in sales volume of our products, mainly EG and EPS and a 3.1% decrease in average sales price in most of our products. These effects are mainly caused by a challenging macroeconomic environment including the trade war between U.S. and China leading to aggressive domestic and international competition.

Our Distribution segment’s total revenue decreased 7.9% to Ps.1,381,302 thousand for the three-month period ended September 30, 2019 from Ps.1,500,481 thousand for the corresponding period in 2018. This decrease was due to a 10.4% decrease in average sales price partially offstet by a 2.7% increase in sales volume.

Our Logistics segment’s revenue increased 1.0% to Ps.55,682 thousand for the three-month period ended September 30, 2019 from Ps.55,152 thousand for the corresponding period in 2018. This was due to an increase on average sales prices of the products handled and stored, mainly diesel and chemical products.


Cost of Sales

Our cost of sales decreased 13.9% to Ps.2,131,075 thousand for the three-month period ended September 30, 2019 from Ps.2,476,398 thousand for the corresponding period in 2018. This was mostly related to a decrease in the sales volume and a decrease in reference prices.

Our Petrochemical segment’s cost of sales decreased 21.3% to Ps.874,969 thousand for the three-month period ended September 30, 2019 from Ps.1,111,674 thousand for the corresponding period in 2018. This decrease is associated with the sales volume decreased along with a decrease in average unitary cost of 10.1%

Our Distribution segment’s cost of sales decreased 8.6% to Ps.1,284,698 thousand for the three-month period ended September 30, 2019 from Ps.1,405,196 thousand for the corresponding period in 2018. This decrease is driven by a 13.5% decrease in the average unitary cost.

Our Logistics segment’s cost of sales decreased 17.0% to Ps.29,246 thousand for the three-month period ended September 30, 2019 from Ps.35,238 thousand for the corresponding period in 2018. This decrease was primarily associated with lower oil product handled and stored due to an intervention and adequation of some tanks for terminal expansion.

Gross Profit

As a result of the foregoing, our gross profit decreased 23.2% to Ps.159,824 thousand for the three-month period ended September 30, 2019 from Ps.208,114 thousand for the corresponding period in 2018. Our gross margin, which is gross profit divided by total revenue, decreased 78 basis points to 7.0% for the three-month period ended September 30, 2019 from 7.8% for the corresponding period in 2018.

Our Petrochemical segment’s gross profit decreased 52.5% to Ps.49,489 thousand for the three-month period ended September 30, 2019 from Ps.104,260 thousand for the corresponding period in 2018. In addition, segment’s gross margin decreased 322 basis points to 5.4% for the three-month period ended September 30, 2019 from 8.6% for the corresponding period in 2018.

Our Distribution segment’s gross profit increased 1.4% to Ps.96,603 thousand for the three-month

period ended September 30, 2019 from Ps.95,285 thousand for the corresponding period in 2018. This segment’s gross margin increased 64 basis points to 7.0% for the three-month period ended September 30, 2019 from 6.4% for the corresponding period in 2018.

Our Logistics segment’s gross profit increased 32.7% to Ps.26,435 thousand for the three-month period ended September 30, 2019 from Ps.19,914 thousand for the corresponding period in 2018. This segment’s gross margin increased 1,137 basis points to 47.5% for the three-month period ended September 30, 2019 from 36.1% for the same period of 2018.

Administrative Expenses

Our administrative expenses increased 12.7%, to Ps.115,035 thousand for the three-month period ended September 30, 2019 from Ps.102,073 thousand for the corresponding period in 2018. Our administrative expenses as a percentage of revenue increased 122 basis points to 5.0% for three-month period ended September 30, 2019 from 3.8% for the corresponding period in 2018. This increase was caused by non-recurring expenses related to an organizational restructuring made this quarter with the purpose of optimizing the Petrochemical Business headcount.

Other operating income, Net

Our other operating income, net, increased to Ps.50,581 thousand for the three-month period ended September 30, 2019 from Ps.3,885 thousand for the corresponding period in 2018. This increase is due to a write-off in provisions of logistic fees recorded in previous years.


Operating Income

Our operating income decreased 13.2% to Ps.95,370 thousand for the three-month period ended September 30, 2019 from Ps.109,925 thousand for the corresponding period of 2018. Our operating margin, which is operating income divided by total revenue, increased 7 basis points to 4.2% for the three-month period ended September 30, 2019 from 4.1% for the corresponding period in 2018. Financial (Income) Expenses, Net

We recorded financial expenses, net, of Ps.76,623 thousand in the three-month period ended September 30, 2019 compared to financial expense, net, of Ps.267,749 thousand for the corresponding period in 2018.

The following table sets forth our financial expenses and income, as well as our foreign exchange (income) loss:

For the Three Month Period Ended September, 30

2019 2018


Financing Expenses 266,412 298,563

Financing Income (160,355) (153,809)

Foreign Exchange (income) loss (29,434) 122,995

Financing cost (1) 76,623 267,749

(1) Foreign Exchange variation is related to the effect of our asset position in U.S. currency combined with a 2.9% apreciation of the U.S. Dollar versus the Mexican Peso during the three-month period ended September 30, 2019 compared to a 1.4% appreciation during the corresponding period of 2018.

During the three-month period ended September 30, 2019, financial expenses of Ps.29,416 thousand

were recorded by the subsidiary Etileno XXI, as reflected and consolidated in our financial results. Nevertheless, Etileno XXI is an un-restricted subsidiary under the indenture pursuant to the long-term debt issuance and these interests are not taken into consideration for the fixed-charge coverage ratio measure. Equity Interest in Net (Income) Loss of Associates and Joint Ventures

We recorded equity interest in net loss of associates and joint ventures of Ps.557,041 thousand for the three-month period ended September 30, 2019 compared to net income of Ps.380,367 thousand for the corresponding period in 2018, primarily as a result of our recognition of loss recorded by Braskem Idesa.

Taxes on Profits

For the three-month period ended September 30, 2019 we recorded an tax expense of Ps.1,164 thousand compared to tax income of Ps.43,347 thousand in the corresponding period in 2018. This change was mainly caused by a decrese income tax as consquence of a decrease in the operating results, offset by decrease in the differed tax carry forward.

Net Consolidated Income (Loss)

As a result of the above, we recorded a net consolidated loss of Ps.539,458 thousand in the three-month period ended September 30, 2019 compared to a net consolidated income of Ps.265,890 thousand in the corresponding period of 2018.


Liquidity and Capital Resources

Our financial condition and liquidity are 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 Braskem Idesa and CyPlus Idesa; 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

As of September 30, 2019, our cash and cash equivalents, amounted to Ps.371,309 thousand.


Cash Flows

The following table sets forth our consolidated cash flows for the three-month period ended September 30, 2019 and 2018:

For the three-month Period Ended September 30,

2019 2018


Cash flows provided by (used in): Operating activities ................................................ 53,175 116,202 Investing activities ................................................. (134,174) (72,713)

Financing activities ................................................ (18,343) 34,898

Increase (decrease) in cash and cash equivalents

(99,342)

78,386

Cash Flows Provided by Operating Activities

We recorded cash flows provided by operating activities of Ps.53,175 thousand for the three-month period ended September 30, 2019 compared to cash flows provided by operating activities of Ps.116,202 thousand for the corresponding period in 2018.

Cash Used in Investing Activities

We recorded cash flows used in investing activities of Ps.134,174 thousand for the three-month period ended September 30, 2019 compared to cash flows used in investing activities of Ps.72,713 thousand for the corresponding period in 2018. The main uses of cash flow related to investing activities were loans provided to related parties of Ps.9,794 thousand and 2) Ps.139,067 thousand invested on capital expenditures; this was partially offset by cash received from CyPlus Idesa of Ps.11,242 and interest received from banks and others of Ps.3,445.

Cash Flows Used in Financing Activities

We recorded cash flows used in financing activities in the amount of Ps.18,343 thousand for the three-month period ended September 30, 2019 compared to Ps.34,898 thousand received for the corresponding period in 2018. The main uses of cash flows in financing activities were related to: 1) Ps.73,678 thousand used in loans payments; 2) Ps.13,002 thousand used in interest expense from short-term lines of credit; and 3) Ps.11,458 thousand related to other financial expenses. This effect was partially offset by Ps.79,195 thousand related to loans received from banks.


Indebtedness and Financing Strategy

As of September 30, 2019 our total outstanding indebtedness on a consolidated basis was Ps.9,055,910 thousand plus its accrued interests. As of September 30, 2019, our outstanding long-term indebtedness was denominated in U.S. dollars and our short term indebtedness was denominated in both U.S. dollars and Mexican Pesos.

The following table sets forth our principal indebtedness as of September 30, 2019 and September 30, 2018:

2019 2018

Loan / Bank Total Short-term

portion

Long-term Total

Short-term

Long-term

portion portion portion

Long-term bond maturing in 2020 (1)

5,872,982 - 5,872,982 5,611,366 - 5,611,366

Short-term loans (2) 609,090 609,090 - 830,568 830,568 -

Inbursa credit line (3) 2,573,838 2,573,838 - 2,465,792 - 2,465,792

Inbursa subordinated loan (4) - - 300,435 - - -

Total amortized cost 9,055,910 3,182,928 6,173,418 8,907,727 830,568 8,077,159

Accrued interest 1,161,426 1,154,596 6,830 791,366 137,849 653,518

Bank commissions incurred 130,292 130,292 - 124,823 - 124,823

1,291,718 1,284,888 6,830 916,189 137,849 778,340

Total 10,347,628 4,467,816 6,180,247 9,823,916 968,416 8,855,499

(1) Long-term bond maturing in 2020: On December 18, 2013, we issued a long-term bond of U.S.$300 million on the international bond

market that matures on December 18, 2020. Costs related to the issuance of this bond totaled Ps.19,190 thousand which was considered in the calculation of the bond's effective interest rate. The terms of the bond indicate that the following subsidiaries will be guarantors for the bond: • Alveg Distribución Química, S.A. de C.V. • Industrias Derivadas del Etileno, S.A. de C.V. • Inmobiliaria Idesa, S.A. de C.V. • Reter Comercializadora de Productos Petroquímicos, S.A. de C.V. (i.e. Reter Comercializadora de Productos Petroquímicos,

S.A. de C.V. was merged with Grupo Idesa, S.A. de C.V. in 2018) • 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. • Excellence Sea & Land Logistics, S.A. de C.V. Interest: The bond’s coupon annual rate is 7.875%. Interest payment dates: September 18 and December 18 of each year, commencing on September 18, 2014. Guarantees: Our obligations under the terms of the bond are backed unconditionally by the subsidiaries listed above on a senior and unsecured basis. Classification: The bond and associated guarantees represent senior unsecured obligations for us and are considered as bearing the same debtor preference as all existing and future unsecured debt (subject to certain labor and tax obligations that enjoy senior debt status under Mexican law), and will be senior debt above all existing and future debt of Grupo Idesa and the subsidiaries listed above. Optional redemption: As of December 18, 2017, we will have the right to redeem all or a portion of the bond at any time at the bond prices set forth under the terms of the issuance. Prior to December 18, 2017, we will also have the right to redeem all or a portion of the bond at any time at the bond prices set forth under the terms of its issuance. In addition, before or on December 18, 2016, Grupo Idesa may redeem up to 35% of the amount of principal of the bond for a price equal to 107.875 % of the outstanding principal at the redemption date, plus all outstanding accrued interest through such date. Change in control: If a change in control that gives rise to a downgrade in our credit rating (currently Standard & Poor’s CCC and Fitch’s CCC- global scale) were to occur within our group, bondholders will have the right to demand that we buy back the bonds for a price equal to 101% of the outstanding principal, plus all outstanding accrued interest through such date. Restrictions: The terms of the bond contain clauses that restrict our and our restricted subsidiaries’ (except for Etileno XXI, S.A. de C.V., all subsidiaries are restricted subsidiaries) activities and transactions. The terms of the bond limit our ability and the ability of our restricted subsidiaries to do the following: • Incur on additional indebtedness; • Pay dividends, or redeem, repurchase or cancel shares or subordinated debt; • Make investments; • Place liens on their assets;


• Limit the ability of restricted subsidiaries to pay dividends, make loans or transfer assets; • Execute transactions with affiliates; • Sell off assets, including the capital stock of subsidiaries; and • Consolidate, execute mergers or transfer assets. These restrictions are subject to certain exceptions.

(2) Short term lines of credit. (3) As of September 30, 2019 we disbursed all funds from the credit line provided by Banco Inbursa S.A. (4) As of September 30, 2019 Grupo Idesa’s maritime terminal business, was granted a U.S.$33.5 million subordinated facility by Banco

Inbursa S.A.

As of September 30, 2019, we were current with respect to the payment of principal and interest on our indebtedness and, in compliance with the covenants related to such indebtedness.

Available lines of credit

We maintain lines of credit in the form of letters of credit, promissory notes, derivative financial instruments and unsecured loans with a number of financial institutions. The following table sets forth the amounts available from our lines of credit as of September 30, 2019.

Lines of Credit as of September 30, 2019

Financial Institution Proceeds Obtained

Amounts Available

(in thousands of U.S.$)

BBVA, S.A., I.B.M., Grupo Financiero BBVA 10,000 -

HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC (1) 9,676 -

Grupo Financiero Citi Banamex, S.A. de C.V. 3,750 -

Scotiabank Inverlat, S.A., Institución de Banca Multiple, Grupo Financiero Scotiabank 2,500 -

Banco Actinver, S.A., Institución de Banca Múltiple, Grupo Financiero Actinver (2) 5,093 -

Banco Inbursa, S.A., I.B.M., Grupo Financiero Inbursa 130,000 -

Banco Inbursa, S.A., I.B.M., Grupo Financiero Inbursa (3) 15,300 18,200

Total 176,319 18,200

(1) Equivalent to Ps.190,000 thousand. Peso amounts for the three-month period ended September 30, 2019 has been translated into U.S. dollars at the rate of Ps. 19.64 to U.S.$1.00.

(2) Equivalent to Ps.100,000 thousand. Peso amounts for the three-month period ended September 30, 2019 has been translated into U.S. dollars at the rate of Ps. 19.64 to U.S.$1.00

(3) Subordinated Loan for the martime terminal expansion.

Long-Term Indebtedness

Our total long-term indebtedness as of September 30, 2019 was Ps. 6,173,418 thousand and is related to our long-term bond maturing in 2020 and the disbursement of the Inbursa subordinated credit line. The terms of this bond are described above in notes (1) and (2) of “Indebtedness and Financing Strategy”.

Off-Balance Sheet Arrangements

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


Contractual Commitments and Capital Expenditures

Contractual Commitments

The following table summarizes significant contractual obligations and commitments as of September 30, 2019 which will have an impact on our liquidity:

Payments Due by Period

Less than One Year

One to Three Years

Three to Five Years

More than Five Years

Total


Short-term debt (1) 2,573,838 - - - 2,573,838

Long-term debt (2) - 6,043,254 568,596 - 6,611,850

Interest and fees on the long-term debt (3) 1,472,991 370,188 50,175 - 1,893,354

Leasing 84,084 68,181 4,047 - 156,312

Total

4,130,913

6,481,622

622,818 - 11,235,353

(1) Related to the Grupo Inbursa credit line obtained in 2016 as described in “Indebtedness and Financing Strategy”. (2) Related to the long term debt issued on December 18, 2013 and Grupo Inbursa subordinated loan for maritime terminal expansion

obtained in 2019 (3) Related to the Grupo Inbursa credit line obtained in 2016 the long term debt issued on December 18, 2013 and the Grupo Inbursa

subordinated loan for maritime terminal expansion obtained in 2019.

In the ordinary course of business, we also entered into long-term supply arrangements for raw materials, not reflected in the above table.

Capital Expenditures

For the three-month period ended September 30, 2019 and 2018, we made capital expenditures of Ps.139,067 thousand and Ps. 43,384 thousand respectively. In the three-month period ended September 30, 2019, our capital expenditures were mainly related to:

Maritime Terminal Expansion project of Ps.97,355 thousand.

Maintenance expenditures, facility improvements and other minor projetcs of Ps.41,713 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 exchange rates, interest rates and the price of our primary raw materials and products, which may have an adverse effect on the value of our financial assets and liabilities, future cash flows and net income. As a result, we could suffer a loss due to adverse changes in 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.


Interest Rate Risk

As of September 30, 2019, our outstanding U.S. dollar denominated long-term indebtedness was related to i) the long-term bond issued on December 18, 2013, which bears interest at a fixed rate of 7.875%, ii) the disbursed amount from the line of credit provided by Inbursa, and iii) the subordinated Inbursa Loan.

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 three-month period ended September 30, 2019, a variation of 10+% in the LIBOR rate of would have resulted in a variation in interest accrued from our outstanding indebtedness related to the Inbursa credit line of an amount of Ps.1,210 thousand for that period.

The exposure related to interest rate risk from the subordinated Inbursa Loan also bears a variable interest rate referenced to LIBOR. For the three-month period ended September 30, 2019, a variation of 10+% in the LIBOR rate of would have resulted in a variation in interest accrued from our outstanding indebtedness related to the subordinated Inbursa loan of an amount of Ps.175 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 September 30, 2019, most 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 three-month period ended September 30, 2019, a variation of 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.11,838 thousand for that period.

Interests from the disbursed amount from the credit line provided by Inbursa are only accrued but not payable until the maturity of such loan, therefore exchange rate fluctuations during 2019 will not represent a cash flow risk. Nevertheless, a variation of 10+% in the exchange rate of Pesos to U.S. dollars would have resulted in a variation in interest expense accrued from the U.S. dollars denominated Inbursa credit line of Ps.7,983 thousand.

Interests from the subordinated Inbursa loan, are accrued and payable until March 2021, therefore

exchange rate fluctuations during 2019 will not represent a cash flow risk. Nevertheless, a variation of 10+% in the exchange rate of Pesos to U.S. dollars would have resulted in a variation in interest expense accrued from the U.S. dollars subordinated Inbursa loan of Ps.667 thousand.

The exposure related to our indebtedness in U.S. currency is offset by the U.S. dollar denominated loans of around U.S.$400 million provided by the company to Braskem Idesa and of U.S.$41 million to CyPlus Idesa plus its interests 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 foreing 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 is 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 three-month period ended September 30, 2019 and 2018:

For the Three Month Period Ended

September 30,

2019 2018


Accrued interest receivable from related parties (1) 157,229 151,006

Fees received for administrative and other services (2) 35,837 33,458

Transportation and freight services received from Excellence Freights(3) 84,468 91,123

Income from plant services provided to Cyplus Idesa(4) 20,807 19,022

(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 under a "Shareholder Loan" was settled. The contributions made by Etileno XXI S.A. de C.V. and Grupo Idesa S.A. de C.V. under the concept of "Shareholder Loan" from May, 2013 to September, 2017 total an amount around U.S.$400 million dollars. Such interests are accrued over the term of the financing. 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 for an amount of around U.S. $44.4 million dollars. The Company also provided loans to Tonalli Energia S.A.P.I. de C.V. for an amount of around U.S. $4.74 million dollars.

(2) During the three-month period ended September 30, 2019 the Company provided administrative and lease services to CyPlus Idesa, Tonalli Energia S.A.P.I. de C.V. and Excellence Freights, S.A. de C.V.

(3) During the three-month period ended September 30, 2019 and 2018, the Company received transportation and freight services from its affiliate Excellence Freights de México, S.A. de C.V.

(4) During the three-month period ended September 30, 2019 we received income from the plant services we provide to CyPlus Idesa.


The following table sets forth our related party balances as of September 30, 2019 and 2018:

As of September 30,

2019 2018


Receivables (short term):

Excellence Freights de México, S.A. de C.V. 74,570 42,715

Cyplus Idesa, S.A.P.I. de C.V. 909,277 910,271

Idevo Servicios, S.A. de C.V. 3,433 3,526

Tonalli, S.A.P.I. de C.V. 112,532 56,240

Energia MEX CAN, S.A. de C.V. 212

Total short term 1,100,024 1,012,799

Receivables (long term):

Braskem Idesa, S.A.P.I. 11,248,960 10,153,509

Total long term 11,248,960 10,153,509

Total Receivables 12,348,984 11,166,308

Payables (short-term):

Cyplus Idesa, S.A.P.I. de C.V. 3,795 3,846

Evonik Ind. 131 189

Excellence Freights de México, S.A. de C.V. 75,712 61,819

Total short term 79,639 65,853

Payables (long-term)

Idevo Servicios, S.A. de C.V. 1,637 1,637

Energia MEX CAN, S.A. de C.V. 161 -

Tonalli, S.A.P.I. de C.V. -

1,899 1,637

Total Payables 81,537 67,489


Principal Products and Market Shares The following tables describe our main products and related market shares, competitive position and

end markets as of September 30, 2019:

Key products directly produced and sold by Grupo IDESA

EGs EA PA EPS Alkyl amines

Position in Mexico (1).......... 5 1 1 2 1

Market Share (1) .................. 4% 55% 49% 16% 80%

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

PET resins (bottles, films)

Personal care and cosmetics,

all-purpose cleaners,

detergents, wax, fabric softeners,

etc.

UPR (transportation

and construction, molded articles,

synthetic marble)

Insulation for building and construction

Foundry (cold box)

Automotive liquids

Polyester fibers (Clothing)

Gas purification

Alkyd resins (architectural

coatings, general coverings)

Construction panel blocks

Pharmaceutical

UPR and polyurethanes

Oil extraction

Plasticizers Flexible PVC

(building, auto, medical,

packaging)

Flame retardant material in

construction Agrochemicals

Cement grinding Pharmaceutical Thermal cup,

disposable and tray packaging

Paints and resins

Natural gas dehydration

Pigments and dyes

Electro-domestic

Alkyd resin Surfactants Packaging

Cement grinding

Metal casting

_______________________________

(1) 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 three-month period ended September 30, 2019.

Di Octyl Phthalate Propylene Glycols

Market Position (1) ............... 4 1

Market Share (1) ................... 12% 36%

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

PVC compound Fragrances and flavorings

Plasticizers

Paints

Automotive fluids

Plastic laminates

UPR resins

Pharmaceutics _______________________________

(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 three-month period ended September 30, 2019.


Key Products

We produce EGs, EA, PA, EPS and alkyl amines in our industrial units. As a result of our experience

and reputation, we have a significant market share in Mexico for almost all our petrochemical products, which allows us to position ourselves as leaders in the Mexican petrochemical industry.

The following table sets forth our production capacity by product and industrial unit for the periods indicated:

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 (36%), DEA (27%), TEA (37%)

Coatzacoalcos Industrial Unit

45.0

Sosa PAs PA Tlaxcala Industrial Unit

35.0

Novidesa EPS EPS Tlaxcala Industrial Unit

19.9

Petramin Alkyl amines DMPA, DMEA, DMIPA Irapuato Industrial Unit

4.5

The following table describes our principal petrochemical products:

Manufactured Products

Family Product Applications

MEG ...................................

Used as a raw material for the manufacture of PET (plastic bottles and containers), polyester fiber (clothing) and automotive liquids (antifreeze, brake fluid, etc.).

DEG ...................................

Used as a raw material for the manufacture of resins with various applications (fiberglass, paint, etc.). Also used as raw material in the manufacture of PET (plastic bottles/containers) polyester fiber (clothing) and automotive liquids (antifreeze, brake fluid, etc.).

TEG ...................................

Used primarily in the natural gas “dehydration” process (removal of humidity). Also used in the production of certain resins and the manufacture of brake fluid.

MEA ...................................

Used primarily in the manufacture of detergents and cosmetics, for wood treatment, as a PH leveler in water treatment and for the manufacture of pharmaceutical products.

DEA ...................................

Used primarily for natural gas sweetening (removal of hydrogen sulfide, or H2S, and CO2), in the manufacture of cosmetics and in the manufacture of “glyphosate” (broad-spectrum systemic herbicide).

TEA ...................................

Used primarily in the manufacture of personal care products (detergents, fabric softeners, soaps, shampoos, hair gel). Also used as an anti-static additive in mixing cement and in construction as a concrete additive, as it reduces drying time and increases resistance to low temperatures.

PA ...................................

Used as a raw material in the manufacture of resins for various uses (fiberglass, paint, etc.). Also used in the manufacture of plasticizers to add malleability to piping, hoses and toys, among other things.

EPS ...................................

Used primarily in the construction industry (joists, filler blocks, insulation panels) and in the electronic article packing sector.

EGs

EAs

EPS

PA


Manufactured Products


DMEA ...................................

Used as a catalyzer in the foundry industry (mainly in the automotive, railway and construction industries).

DMPA ...................................


DMIPA ...................................


Marketed Products


MPG ...................................

Used primarily in the preparation of fragrances and flavorings. Also used as a primary material in the manufacture of resins.

DPG ...................................

Used primarily in the preparation of fragrances and flavorings.

DOP ...................................

Is the most commonly used plasticizer worldwide for PVC, providing flexibility, resilience and ease of handling to plastics. It has various applications, such as: the manufacture of toys, piping, shoe soles, hoses, plastic tablecloths, etc.

Alkyl amines

PG

Plasticizers


Certain Definitions

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

“ANIQ” means Asociación Nacional de la Industria Quimica A.C.;

“Banxico” means Banco de México, the central bank of Mexico;

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

“Braskem Idesa” means Braskem Idesa, S.A.P.I.;

“CDTI” means the Center for the Development of Industrial Technology (Centro de Desarrollo de Tecnología

Industrial);

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

“Company” means Grupo Idesa, S.A. de C.V. and subsidiaries;

“CNH” means Hydrocarbons National Commission (Comisión Nacional de Hidrocarburos);

“CONSA” means Cosmo-Nail, S.A. de C.V., a former subsidiary of the Company;

“CRE” means the Energy Regulatory Commission (Comisión Reguladora de Energía);

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

“DBP” means dibutyl phthalate;

“DEA” means diethanolamine;

“DEG” means diethylene glycol;

“DMEA” means dimethylethylamine;

“DMIPA” means dimethylisopropylamine;

“DMPA” means dimethylpropylamine;

“DOP” means dioctyl phthalate;

“DPG” means dipropylene glycol;

“EA” means ethanolamine;

“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 PE;

“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” means Excellence Sea & Land Logistics, S.A. de C.V. (formerly, Idesa Logistica Veracruz, S.A. de

C.V.), a subsidiary of the Company;

“GDP” means gross domestic product;

“HDPE” means high-density polyethylene;

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

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


“IFRS” means Internation Financial Reporting Standards;

“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;

“MA” means maleic anhydride;

“MEA” means monoethanolamine;

“MEG” means monoethylene glycol;

“MPG” means monopropylene glycol;

“M&G” means Mossi & Ghisolfi Group;

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

“OSBL” means Outside Battery Limits and in this document mostly refers to the services required by the CyPlus

Idesa operation which are provided by a facility of Grupo Idesa under a fee;

“PA” means phthalic anhydride;

“PAMSA” means Pinturas Altas Marlux, S.A. de C.V., a subsidiary of the Company;

“PE” means polyethylene or polythene;

“Pemex” means Petróleos Mexicanos, the Mexican state-owned petroleum company;

“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;

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

“PGPB” means Pemex Gas y Petroquímica Básica, a subsidiary of Pemex;

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

Novidesa;

“PPQ” means Pemex Petroquímica, a subsidiary of Pemex;

“PS” means polystyrene;

“PG” means propylene glycol;

“PVC” means polyvinyl chloride;

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

“RETER” means RETER Comercializadora de Productos Petroquímicos, S.A. de C.V., a subsidiary of the

Company;

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

“SOSA” means 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.;

“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 Unaudited Consolidated Financial Statements Unaudited Consolidated Financial Statements of Grupo IDESA, S.A. de C.V. and its subsidiaries as of and for the Three-Month Period Ended September 30, 2019 and 2018.

Unaudited Consolidated Statements of Comprehensive Income.

Unaudited Consolidated Statements of Financial Position as of September 30, 2019 and 2018.

Unaudited Consolidated Statements of Cash Flows for the Three-Month Period Ended September 30, 2019 and 2018.


GRUPO IDESA AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS OF MEXICAN PESOS)

FOR THE PERIOD FROM JULY 1 TO SEPTEMBER 30,

2019 2018

REVENUES 2,290,898 2,684,512

COST OF SALES 2,131,075 2,476,398

GROSS PROFIT 159,824 208,114

ADMINISTRATIVE EXPENSES 115,035 102,073

OTHER OPERATING INCOME, NET (50,581) (3,885)

OPERATING INCOME 95,370 109,925

COMPREHENSIVE FINANCING COST:

INTEREST EXPENSE 266,412 298,563

INTEREST INCOME (160,355) (153,809)

EXCHANGE LOSS (GAIN), NET (29,434) 122,995

NET COMPREHENSIVE FINANCING COST 76,623 267,749

EQUITY INTEREST IN NET LOSS OF ASSOCIATES AND JOINT VENTURE 557,041 (380,367)

INCOME BEFORE TAXES ON PROFITS (538,293) 222,543

TAXES ON PROFITS 1,164 (43,347)

NET CONSOLIDATED INCOME (LOSS) (539,458) 265,890


GRUPO IDESA AND SUBSIDIARIES CONSOLIDADATED STATEMENTS OF FINANCIAL POSITION

(AMOUNTS IN THOUSANDS OF MEXICAN PESOS)

CONCEPT AS OF SEPTEMBER 30,

2019 2018

ASSETS CASH AND CASH EQUIVALENTS 371,309 525,731 CUSTOMERS 1,706,035 2,099,865 RELATED PARTIES 1,100,024 1,012,799 RECOVERABLE INCOME TAX 35,433 92,185 RECOVERABLE TAXES 232,041 121,466 INVENTORIES 1,039,629 1,235,318 PREPAID EXPENSES 36,825 44,334 OTHER ACCOUNTS RECEIVABLE 40,243 47,244

TOTAL CURRENT ASSETS 4,561,539 5,178,941

NON-CURRENT ASSETS

PROPERTY, PLANT AND EQUIPMENT, NET 2,256,556 2,070,268

RELATED PARTIES LONG-TERM 11,248,960 10,153,509 RESTRICTED CASH 62,155 75,888 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (36,804) 261,591 NET PROJECTED ASSET 469 469 GOODWILL 166,314 166,314 INTANGIBLE ASSETS 306,822 313,546 DEFERRED INCOME TAX 625,296 594,440 OTHER NON-CURRENT ASSETS 117,581 67,647

TOTAL NON-CURRENT ASSETS 12,490,794 11,633,404

TOTAL ASSETS 19,308,889 18,882,614

LIABILITIES AND EQUITY CURRENT LIABILITIES: BANK LENDING 3,182,928 830,568 ACCRUED INTEREST 1,284,888 137,849 ACCOUNTS PAYABLE 1,284,406 1,544,785 RELATED PARTIES 79,638 65,853 TAX ON PROFITS 13,108 20,033 TAXES PAYABLE 680,310 546,333 SHORT-TERM DIRECT BENEFITS TO EMPLOYEES 79,285 81,730 OTHER ACCOUNTS PAYABLE, PROVISIONS AND ACCRUED LIABILITIES 230,591 192,620

TOTAL CURRENT LIABILITIES 6,835,154 3,419,771

LONG-TERM LIABILITIES BANK LENDING LONG-TERM 300,435 2,590,614 LONG TERM DEBT (BOND DEBT) 5,872,982 5,611,366 ACCRUED INTEREST 6,830 653,518 RELATED PARTIES 1,899 1,637 OTHER ACCOUNTS PAYABLE 47,753 - LONG-TERM DIRECT BENEFITS TO EMPLOYEES 88,428 88,984 INCOME TAXES LONG TERM 147,440 162,854 DEFERRED INCOME TAX 169,621 235,661 INCOME TAXES LONG TERM 2016 100,350 96,885

TOTAL LONG-TERM LIABILITIES 6,735,739 9,441,519

TOTAL LIABILITIES 13,570,893 12,861,290

EQUITY CAPITAL STOCK 6,328,412 5,528,414 LEGAL RESERVE 164,094 172,637 RETAINED EARNINGS (1,340,909) (1,094,943) NET INCOME FOR THE PERIOD (1,061,597) 294,393 OTHER COMPREHENSIVE LOSS ITEMS 1,647,996 1,120,824

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 5,737,996 6,021,324

NON-CONTROLLING INTERESTS TOTAL EQUITY 5,737,996 6,021,324

TOTAL LIABILITIES AND EQUITY 19,308,889 18,882,614


GRUPO IDESA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS OF MEXICAN PESOS)

ACCUMULATED IN THE PERIOD

JULY 1 TO SEPTEMBER 30,

2019 2018

OPERATING ACTIVITIES

NET INCOME (539,458) 265,890

ITEMS NOT AFFECTING CASH FLOWS ITEMS RELATED TO OPERATING ACTIVITIES: EMPLOYEE BENEFITS NET COST OF THE PERIOD 37,516 20,414 INCOME TAX 1,164 (43,347) ITEMS RELATED TO INVESTING ACTIVITIES: DEPRECIATION AND AMORITZATION 37,903 30,241 DEBIT ISSUANCE COST 3,582 3,582 PROFITS FROM PROPERTY SALES, FURNITURE AND EQUIPMENT 83 (183) DISPOSALS OF PROPERTY, PLANT AND EQUIPMENT 16,979 24,193 EQUITY INTEREST IN NET LOSS OF ASSOCIATES AND JOINT VENTURE 557,041 (380,367) INTEREST INCOME BANK (3,126) (2,780) INTEREST INCOME FROM RELATED PARTIES (157,229) (151,005) INTEREST INCOME FROM THIRD PARTIES - (23) UNREALIZED EXCHANGE (GAIN) LOSS (48,311) 122,995 ITEMS RELATED TO FINANCING ACTIVITIES: INTEREST EXPENSE BANK LOANS 102,198 89,110 INTEREST ON DEBT ISSUE 121,779 116,820 INTEREST EXPENSE FROM THIRD PARTIES 1,196 - INTEREST EXPENSE FROM RELATED PARTIES 130 OTHER FINANCIAL EXPENSE 37,639 88,922 CHANGES IN OPERATING ASSETS AND LIABILITIES; TRADE RECEIVABLES 34,904 117,664 RELATED PARTIES (4,411) 20,989 INVENTORIES 117,757 (139,278) PREPAID EXPENSES 17,175 7,912 OTHER ASSETS (66,926) (11,397) ACCOUNTS PAYABLE TO SUPPLIERS (151,034) 20,742 ACCOUNTS PAYABLE TO RELATED PARTIES (73,694) 64 SHORT-TERM DIRECT EMPLOYEE BENEFITS (28,132) (7,168) OTHER ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (30,009) (83,778) TAXES ON PROFITS COLLECTED (PAID) NET (3,645) (89,789) RECOVERABLE INCOME TAXES 72,234 95,648

NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 53,175 116,202

INVESTING ACTIVITIES RELATED PARTIES LOANS (9,794) (48,444) FIXED ASSETS SALES 319 224 INTEREST EARNED FROM BANKS 3,126 2,780 INTEREST COLLECTED FROM RELATED PARTIES 11,242 16,111 ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT (139,067) (43,384)

NET CASH FLOWS PROVIDED (USED) IN INVESTING ACTIVITIES (134,174) (72,713)

FINANCING ACTIVITIES DEBT PAYMENTS (73,678) LOANS RECEIVED FROM BANKS 79,795 109,402 INTEREST PAID BANKS (13,002) (62,734) OTHER FINANCIAL EXPENSE (11,458) (11,771)

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES (18,343) 34,897

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (99,342) 78,386 CASH AND CASH EQUIVALENTS AT BEGINNING 472,425 473,573 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD AND LONG TERM RESTRICTED CASH

373,083 551,959

SHORT TERM RESTRICTED CASH (1,774) (26,229)

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 371,308 525,730

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

Col. Bosques de las Lomas Delegación Cuajimalpa

C.P. 05120, México, D.F. 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

Third Quarter 2019 - IDESA