MEXICHEM PROFILE - XDesign · As Mexichem continues to grow and expand its global footprint, the...

PROFILEMEXICHEM

AND STRATEGY

01.

LEADING SUPPLIER OF PRODUCTS AND SOLUTIONS ACROSS MANY INDUSTRIES

Integrated Report 2015 Mexichem RESILIENCE14 15

Mexichem has experienced significant growth over the past several years, evolving from a regional chemical and mining company into a leading global player serving the petrochemical, construction and infrastructure sectors, among others.

Throughout the Company, from its business model to it organizational structure, from the markets it serves to the products it offers, Mexichem has made a commitment to responsible corporate citizenship.

As Mexichem continues to grow and expand its global footprint, the Company is committed to remaining a responsive, aligned and empowered organization.

Ethylene is the key raw material for producing PVC, and therefore, the bridge to complete the vertical integration between the Vinyl and the Fluent Business.

To simplify communication

about the chemical process is at the root of the Vinyl business group, whose main finished product is PVC resin.

To have a more descriptive name for the business linked to the image of something that “flows”, like water, gas, electricity and data, key markets served by Mexichem products.

WHY ETHYLENE?

WHY VINYL? WHY FLUENT?

OPERATING STRUCTURE

MEXICHEMCEO

FLUENTBUSINESSGROUP

FLUORBUSINESSGROUP

VINYLBUSINESSGROUP

FINANCE

HUMANCAPITAL

STRATEGY & PLANNING

LEGAL

INVESTORRELATIONS

INFORMATIONTECHNOLOGY

CORPORATE COMMUNI- CATIONS

SUSTAIN- ABILITY

In 2015, Mexichem changed the designations and names of certain operating segments to more precisely reflect the way in which the Company is organized, and to broaden the scope of their operations.


Ethylene, Value chain

This chain incorporates two business units: Vinyl and Fluent. The final applications of these business groups are present in plastic products, polymers, fibers and elastomers, among others.

Ethylene is the raw material of this value chain, and a product that is considered the backbone of the global petrochemical industry because of the many products that can be made from it, including vinyl chloride monomer, which in turn is the raw material out of which PVC (poly vinyl chloride) is made, and used in countless products we use every day.

To secure a reliable supply at highly competitive costs, Mexichem established two joint ventures for ethylene production: the first in the city of Coatzacoalcos, in the state of Veracruz, Mexico, with Pemex Ethylene; and the second with OxyChem, one of the world’s leading companies in this industry, to build an ethylene cracker in Ingleside, Texas.

Ethylene is a gaseous, colorless and flammable hydrocarbon that is obtained by cracking the ethane from natural gas or light gasoline--known as naphtha--and applying high temperatures of more than 1,000˚C.

Vinyl, business group

Mexichem extracts salt, the material that lies at the root of the Vinyl business group: by injecting water into a saline dome and turning it into brine which is then separated into chlorine and caustic soda by applying an electrical current. Mexichem uses the chlorine it produced by combining it with ethylene to make vinyl chloride monomer (VCM)—which is polymerized to produce polyvinyl chloride, or PVC. At present, Mexichem obtains the VCM it needs to product PVC primarily by purchasing it from OxyChem and PMV.

Poly vinyl chloride, or PVC, is a heat-moldable resin produced by polymerizing vinyl chloride. PVC can be produced by four different processes: suspension, emulsion, bulk, and solution. The main use of PVC resins is in the construction industry, where it supplies insulation for wires and cables, door and window frames, ducts and pipes for water and sewage, floors, tiles, etc. It is also used to make, among other things, dolls, inflatable toys and balls. In the automotive industry it is used for door panels, dashboards, seat covering, moldings, electrical cable, oil and air filters, automotive sealants and harnesses. In the textile industry it is used to make synthetic leather and awnings. In the packaging industry it goes into making jugs and bottle for purified water and cleaning products, films for food wrappers, laminate for packing medicines. In the medical industry it is the main material used to make bags for saline solution and blood, as well as other health care accessories.

Fluent, business group

This business group units Mexichem processes and products that are in more direct contact with the general public. Its most important products are PVC pipes and connections, polyethylene and polypropylene, as well as geosynthetics. All these products and solutions are produced and sold throughout Latin America, Asia (India, China and Australia), Africa (South Africa), the Middle East (Oman), Europe and the United States, contributing to the health and welfare of millions of people.

The Fluent business group is divided into three regional operations: Fluent LatAm, Fluent Europe and Fluent US/AMEA. In each of these regions, its brands and the marketing of its products and solutions are different.

Mexichem is a leader in Latin America, and among the leading firms in Europe in the production and distribution of plastic pipes, connections and accessories for fluid conduction, primarily water and gas, and for protection of electrical and fiber optic conduits. Fluent LatAm and Fluent Europe are focused on the residential and commercial construction markets and infrastructure. They also offer technical solutions with geosynthetic products like non-woven textiles, textiles, geo-drains, geo-membranes and geo-mesh. All of these are used in civil, environmental and infrastructure works. It also offers other products in this market, aimed at the construction, mining and other industries.

With the recent acquisition of Dura-Line, a company now known as US/AMEA, Mexichem is also positioned as a global leader in the production of high-density polyethylene (HDPE) ducts and micro-conduits used mainly in conduit and pressure pipe solutions for voice and data services in telecommunications, in and the water, energy and infrastructure industries.

Fluor, Value Chain

The value chain of this business group originates in Calcium Fluoride, better known as fluorspar.

Mexichem owns the concession for the world’s largest fluorspar mine, in San Luis Potosí, among others.In its natural state, fluorspar is used in making steel, cement, glass and ceramics and allows for considerable energy savings among other advantages.Concentrated fluorspar, free of impurities, is known as acid-grade fluorspar and is used in the production of hydrofluoric acid. This product is used primarily in making refrigerant gases for air conditioners, refrigerators and freezers. It is also used as an input in making gasoline, in producing aluminum fluoride and in pickling stainless steal, in nuclear fuels, integrated circuits, specialized plastics, and fluoridated salts like lithium, which is used in batteries. Mexichem is one of the world’s leading producers of hydrofluoric acid.

The company is one of the world’s leading suppliers of refrigerant gases, used mainly in the automotive and refrigeration industry and as a propellant gas for medical devices, where Mexichem has 75% of the world market. This chain has two business groups: Upstream and Downstream.


Markets we serve and product categories we offer G4-4, G4-8

FLUOR

VINYL

FLUENT

AutomotiveConstructionTextileFood and beveragesHealthcareHome, lawn and gardenIndustrialPackagingPaints, dyes and colorantsWires and cables

ResinsSpecialty resinsSpecialty compoundsPA and PlasticizersPhosphatesOther chemicals

PrimexIzavilPetcoVesolitPolivisolVindex BIztablendAlphagaryAlphasealEvopreneGaraflexSmokeguard Lugatom

AgricultureConstruction and infrastructure (installation, construction, engineering solutions)EnergyMining

PVC, polyethylene and polypropylene plastic pipes and fittingsHigh-pressure pipeBig bagsHigh-density polyethylene micro-con-duits and conduitsHeating and cooling systemsHot water systems in various gaugesWastewater treatment systemsRainwater filtration systemsSanitation and ventilation systemsWater tanks, septic tanks, PVC glue

Amanco PavcoPlastigamaPlastubos Bidim Dura-LineAquacell Arot ChemidroClimasolConnect to betterHelp2OHerpworthQ-BicQuickstreamWarmfloorWarmawallWavin

AluminumAir conditioning (automotive, commercial, residential)Construction 8cement, ceramic, steel, welding)ChemicalsEnergy (nuclear, oil)Medical industry (pharmaceuti-cal, propellants)Refrigeration (commercial, industrial, transport)Technical propellants (thermal insulation, industrial aerosols)

Aluminum fluorideMet Grade fluorsparAcid Grade fluorsparHydrofluoric acidAnhydriteAluminum fluorideRefrigerantsTechnical propellants

ZephexRespiaKleaArcton

%Aluminum 6Air conditioning 57Construction 13Chemicals 4Nuclear energy 1 Medical energy 9Refrigeration 6Technical propellants 4

FLUOR %Automotive 4Industrial 3Clothing 1Food and beverages 3Health 4Home, lawn and garden 4Construction 67Wires and cables 13Paints, dyes and colorants 1

VINYL %Infrastructure 37Housing 38Agriculture 5Telecommunications 13Oil and gas 8

FLUENT

BUSINESS UNITS MARKETS SERVED PRODUCT CATEGORIES

BRANDS

*Markets as % of revenues of 2015


16R&D LABS

2INNOVATION AND

TECHNOLOGY CENTERS

8TRAINING

ACADEMIES

4PILOT

PLANTS

18,803EMPLOYEES

G4-9

NET SALES

USD 5.71BILLION

90VINYL

5VINYL

103ISO-9001

CERTIFICATES QUALITY

MANAGEMENT

62ISO-14001

CERTIFICATES ENVIRONMENTAL

MANAGEMENT

21OHSAS 18001

CERTIFICATES SAFETY

19ISRS

CERTIFICATES

3VINYL

1VINYL

84FLUENT

34FLUENT

44FLUOR

5FLUOR

8FLUENT

1FLUENT

1FLUENT

COUNTRIES WITH

COMMERCIAL ACTIVITIES

+30COUNTRIES

WITH OPERATIONS

Global Footprint G4-6, G4-17

Value Chains

BUSINESS GROUPS USA / CANADA LATAM EUROPA AMEAMexichem Fluor United States Mexico United Kingdom Japan

Canada TaiwánMexichem Vinyl United States Colombia Germany

Mexico United KingdomMexichem Fluent United States Argentina Germany China

Brazil Belgium IndiaColombia Denmark OmanCosta Rica Finland South AfricaEcuador FranceEl Salvador HungaryGuatemala IrelandHonduras ItalyPanama NetherlandsPeru PolandMexico LithuaniaNicaragua NorwayVenezuela United Kingdom

Czech RepublicRussiaSwedenTurkey

NOTE: MARKETS ARE SHOWN IN ALPHABETICAL ORDER, NOT BY MARKET SHARE OR REVENUES

121PLANTS

2FLUORSPAR

MINES

9FLUOR

31VINYL

2FLUOR

81FLUENT

109SITES

10FLUOR

21VINYL

78FLUENT

9VINYL

3FLUOR

4FLUENT


SUPPLY CHAIN G4-12


MEXICHEM CULTURE AND STRATEGY G4-56

Our sustainability visionMexichem’s business strategy stresses the importance of being a vertically integrated company, focusing on specialty products in order to temper the impact of volatility in commodity markets and thus focus on making and selling more profitable, higher value-added products. By acquiring other companies involved in businesses related to its production chains, Mexichem has strenghten its leadership in the value chains where it is present and holds a geographic footprint across international markets in countries where its products are needed.

EXTERNAL ORIENTATIONMAXIMIZING VALUE FOR SOCIETY

INTERNAL ORIENTATION CONTRIBUTING TO SUSTAINABILITY

VISION MISSION VALUES

TO BE RESPECTED AND ADMIRED GLOBALLY AS A LEADING CHEMICAL COMPANY FOCUSED ON GENERATING RESULTS, CONTRIBUTING TO PROGRESS AND IMPROVING PEOPLE’S LIVES.

WE TRANSFORM CHEMICALS INTO INNOVATIVE PRODUCTS, SERVICES AND SOLUTIONS FOR DIVERSE SECTORS. BY FOCUSING ON OPERATIONAL EXCELLENCE AND MARKET DRIVEN NEEDS, WE GENERATE TOTAL VALUE FOR CUSTOMERS, EMPLOYEES, PARTNERS, SHAREHOLDERS AND THE COMMUNITIES IN WHICH WE OPERATE.

VALUESLEADERSHIPRESPONSIBILITYCOMMITMENTRESULTSINTEGRITYSAFETY

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

ResponsibilityWe act responsibly and fairly in the communities where we do business. We contribute positively way toward the preservation of the environment through sustainable activities.

CommitmentWe 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.

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

SafetyThe 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.

Corporate commitment

EVERYTHINGWEDOISFOCUSEDONIMPROVINGPEOPLE’SLIVES.WE AIM TO FULFILL THIS COMMITMENT BY DELIVERING

TOTAL VALUE TO ALL OUR STAKEHOLDERS.

UNIQUEBUSINESSMODEL

FOCUSEDMARKETSECTORS

SUSTAINA-BILITY

POSITIVE IMPACT

GLOBALORGANIZATION

HIGH-ADDED VALUEOFFERINGS

TOTALVALUE

The Company is developing a global growth model focused on leveraging twelve product categories in five countries where it operates, in order to maximize the capabilities it already has and thus improve margins and boost organic growth through cross- selling . Mexichem pursues the creation of an integral platform of comprehensive solutions and products that provide its customers with direct solutions, which in turn creates long-term ties. To efficiently integrate its recent acquisitions, Mexichem seeks to encourage cooperation and maximize synergies to optimize its resources under the current financial structure.

The triple bottom line focus, which unites economic, social and environmental concerns under one business strategy, is grounded in the concept of sustainability. This strategy is in turn set within the framework of the company’s mission, vision and corporate values, which are applied in all of our operating units

http://www.mexichem.com/company/principles G4-56

PRODUCT

LIFE CYCLE IMPACT • PRODUCT TRANSPARENCY AND LEGAL COMPLIANCE • SAFE MANAGEMENT OF HAZARDOUS SUBSTANCESDESIGN AND INNOVATION (R&D)PRODUCTS / SOLUTIONS THAT CONTRIBUTE TO SUSTAINABILITY

OPERACIONES

OCCUPATIONAL HEALTH & SAFETYENERGY CONSUMPTIONWATER MANAGEMENTEMISSIONS REDUCTIONCHEMICAL TRANSPORTATIONWASTE MANAGEMENTPROTECTING BIODIVERSITY AND ECOSYSTEMS

TALENT

CULTUREDIVERSITYVOLUNTEERING

COMUNIDAD

COMMUNITY ENGAGEMENT SOCIAL INVESTMENT LOCAL ECONOMIC

DEVELOPMENT ACCIDENT

PREVENTION, PREPAREDNESS AND RESPONSE


A global growth model

In the first half of 2016, Mexichem will conclude a strategic analysis of its new model for organic growth. Ths will provide the Company with a list of geographic and product priorities that will be the base for the strategic action plan for the coming years. The company also started up a pilot program in five countries--Brazil, Colombia, the United States, India and Turkey--to take advantage of its capacities in those geographies. There have been identified twelve product categories in the 3 business groups where cross sales opportunities can be exploited with the exisiting platforms in these countries, ensuring an optimal utilization of the Company’s assets and experience in business development.

An ongoing focus on highly efficient operations

The Company’s vertical integration strategy reduces its exposure to volatility in the prices of the leading commodities. The Fluor business group is 100% vertically integrated, from mining the fluorspar to producing refrigerant gases. In the Vinyl business group the Company is in the process of integrating to ethylene, which will make the chain 65% integrated and extend its scope from salt extraction to PVC production. When this process is complete, Mexichem will be able to improve its profitability through better cost management. The Company also focuses on improving Return on Invested Capital throughout the organization, based on the assets and operations it already has.

An ongoing focus on high added-value specialty productsMexichem focuses on products with added value. For example, it developed a last-line process for purifying fluorspar from its mine at a significantly lower cost, and to manufacture HF, a product that usually sells for ten times the price of fluorspar. Furthermore, the acquisition of Fluent Europe (Wavin) and the assets of PolyOne, a specialty PVC resin company in the United States, and more recently Dura-Line and Vesolit, are all part of the Company’s strategy of continuing its integration toward higher added-value products through strategic acquisitions.

Mexichem will continue to exploit its competitive advantages in developing new and advanced production processes in its 16 research and development centers. These centers develop new products that meet its customers’ needs and makes them available through an extensive distribution network in the markets where it operates. The company will also continue developing and installing proprietary technologies and process that have considerable benefits for Mexichem and for the industry at large. It has its own in-house technology, for example, for making PVC resins, PVC pipe, compounds, and plasticizers and fluorine purification to produce HF.

With these technologies the Company can make unique pipes that meet the requirements of most infrastructure projects, and offer the competitive advantages of a high-purity HF product. Mexichem has also developed solutions based on fluoro compounds for the cement industry that help optimize clinker production, not only cheaper, but also with less CO2 production, which is beneficial for the environment.

An ongoing focus on excellent customer relationsMexichem wants to be the leader in its market niche by manufacturing top-quality products at competitive prices. The Company is working on increasing both both its scale and its production efficiency, and on developing that produces low-cost solutions for its customers.

The Company will continue building excellent relationship with its customers through long-term contracts that reward loyalty. It seeks to expand its connection with new and existing clients, helping them to develop new products. For example, it designs tailor-made products for its customers, like cable and wire insulation for special applications, three-gallon bottles and other materials used in construction, including window frames, laminated subflooring and window blinds, designed according to the needs of their strategic markets.

An agile, solid financial structure

Mexichem maintains a solid and flexible financial base so that it can successfully pursue its growth goals. It has self imposed a limit on its net debt/EBITDA ratio to no more than 2.0 times, and and it has ensured its liquidity position through a revolving credit line of up to USD1.5 billion. The Company will continue implementing other financial strategies, including a conservative debt maturity profile, a conservative hedging strategy, and other strategies to balance its exchange-rate exposure so it can remain financially flexible and continue executing its growth strategies.

Business culture

Mexichem’s current operations are the result of 24 acquisitions involving a total of 80 companies since 2003, which has placed it at the forefront of various countries and regions, and integrated many different companies and work cultures. Mexichem believes that having a single, consolidated business culture is crucial to meeting the goals it has set for itself and which the market requires of it.

Mexichem is proud to have established and inculcated among all its companies its unique mission, vision and values, and to encourage strict compliance with its Code of Ethics. It wants its employees not only to be aware of its organizational culture but to apply it in their daily lives. Furthermore, in 2015, the company launched a new corporate identity and global brand alignment policies.


Multicultural CompanyMexichem is fortunate enough to be a highly culturally diverse company thanks to the integration of its various subsidiaries around the world. However, while this diversity enriches us, it also poses the challenge of building a single global organization, with a common vision and corporate culture.

In November 2015, Mexichem’s first global leadership meetingincluded a workshop on this specific topic so that our top management could jointly tackle the opportunities and challenges facing the company. This meeting focused on how national cultures can take on different dimensions in the workplace, and how this diversity can bring advantages to the Company.

Mexichem considers agile decision-making and broad involvement in projects as primordial, requiring the integration of work cultures where attitudes about individual or collective efforts may vary, for example. Althoug we are not to underestimate or minimize these differences, we must take advantage of the diversity they naturally bring to the Company.

This is why Mexichem has made collaboration among operations across different brands, subsidiaries and countries an absolute priority, so as to develop a growth strategy which takes all our cultural variety into account at a global level.

By fashioning a multicultural corporate environment at its core, Mexichem will provide its operations around the world with clear guidance as to this strategy, and at the same time allowing them to empower their people in its implementation. This independence, backed by true cultural unity, will see us move Forward as One!


Committed to safety

Mexichem considers the safety of its employees and its operations a top priority, and its ultimate goal is to avoid accidents and achieve zero fatalities. It has made substantial progress in its chemical, manufacturing and mining operations.

In 2015 we saw an improvement in safety indicators: a 30% reduction in the general incident rate and a 28% reduction in the severity rate. This allowed the Company to reach the goal of reducing accidents by 50% set in 2012 a year in advance.

Mexichem continues creating a new culture of safety by applying international standards throughout the Company, the result of which have been described in previous social responsibility reports.

Social progress and enviornment

For Mexichem, it is highly important that all its employees can grow. not only professionally but personally, taking on new challenges that are balanced with their work life. Its work strategy takes the form of a new and significant initiative: M’People, the purpose of which is to connect employees from around the world, strengthen their sense of belonging and team spirit, and giving them more possibilities for growing within the Company.

Because it is both a communication tool and a Human Resources area process, M’people helps employees in many different ways--publishing information about opportunities for advancement within the company, reviewing performance, and even offering a simpler way to plan vacations.

Social progress also extends to our commitment to the environment, and to the communities surrounding or close to Mexichem operations. The Company’s commitment to stakeholders in our neighboring communities is shown in many ways: from improving access to education to facilitating housing solutions. Mexichem’s most emblematic effort has been working to improve access to water and sanitation, action that has been done in various countries where it operates.

In Guatemala, for example, we installed rainwater capture and filtration system; in Mexico we helped revamp the urban image of Villa de Zaragoza, promoting the economic and social development of local residents. In Honduras, we introduced a product called “Rainwater Harvest,” and we sponsored a social impact project in the community of Pasacaballos, Colombia. All of these are examples of our interventions in neighboring communities where we operate.


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