and of the Audit Committee

Transcription

1 report of the Corporate Practices Committee and of the Audit Committee To the Board of Directors of Mexichem, S.A.B. de C.V. and Subsidiaries: As Chairman of the Audit and Corporate Practices Committee of Mexichem, S.A.B. de C.V., and Subsidiaries (Mexichem), I hereby report the following: The Committee met eight times during the course of the year on the following dates: April 23, May 26, June 4, July 16, September 25, October 14, and October 18, 2014, and on February 28 and February 23, 2015; these meetings were attended by the members of the Committee, the independent and internal auditors, and the Mexichem officers who were asked to attend. The activities and resolutions issued were recorded in the corresponding minutes. In accordance with the stipulations of article 43, paragraphs I and II of the Mexican Securities Market Law, I submit the activity report pertaining to the fiscal year ended on December 31, I. Compensation for Executive Officers The comprehensive compensation package for the CEO and the relevant executive officers of the company was reviewed. II. Transactions with related parties Transactions between related parties were reviewed to ensure that they were conducted in accordance with the policies previously approved by the Committee. No irregularities were found. These transactions were recorded in Note 20 to the 2014 Audited Financial Statements, and the transfer price assessment required by current legislation is still ongoing. III. Evaluation of the Internal Control System We have reviewed the assessments by the internal auditor, the independent auditor, and the CEO, and on this basis the Committee has determined that Mexichem s internal accounting control system complies with the objectives set by management and offers reasonable assurance that it can prevent or detect errors and material irregularities in the normal course of business. IV. Evaluation of the Internal Auditors activities The Audit Committee has been responsive to the needs of the Internal Audit department to ensure it has the necessary human and material resources and materials to adequately carry out its duties. In this regard, it satisfactorily completed work schedules and activities established during the 2014 fiscal year and also approved the work plan for Members of the committee also met with the internal audit director, with no other officers of the company present, to receive and discuss information deemed appropriate. V. Evaluation of the Independent Auditors performance We continued to employ the services of Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte) as independent auditors for the company. The fees for fiscal year 2014 were duly reviewed and approved. We received the audited financial statements as of December 31, 2014 from the Independent Auditor, with a clean ruling and with no observations, stressing the cooperative attitude of all company divisions in executing this task. 39

2 Similarly, the work of the independent auditors Galaz, Yamazaki, Ruiz Urquiza, S.C. (Deloitte), and of Luis Javier Fernández, the managing partner, was evaluated and found to be satisfactory. The Independent Auditors confirmed their independence. The members of this committee met with the independent auditors, with no other officers present, and obtained full cooperation in receiving any additional information required about matters dealt with, when requested. VI. Financial Information The company s financial statements were discussed on a quarterly basis with the executives responsible for drafting and reviewing them, with no observations on the information presented. Before forwarding the Financial Statements to the Mexican Stock Exchange, they were approved by the Committee. The audited financial statements corresponding to the fiscal year ended December 31, 2014, were reviewed and discussed and, in the absence of any observations, were approved by this Committee. VII. Material events in the year Acquisition and investment in new businesses On December 1, 2014, Mexichem acquired 100% of the shares of VESTO PVC Holding GmbH (Vestolit), Europe s sixth largest producer of PVC. Vestolit is based in Marl, Germany, and is the only European producer of high-impact suspension PVC resin (HIS-PVC). The acquisition was valued at 219 million, paid in cash, and included an additional $273.2 million in liabilities. Financial Strategy On September 19, 2014, the company completed its issue of a $750 million global bond under rule 144A/Reg S at 30 years, and a rate of 270 basis points over U.S. Treasury bonds. VIII. Accounting Policies The committee reviewed and approved the accounting policies followed by Mexichem in terms of the information received as a result of new regulations. The accounting and information policies and criteria followed by Mexichem are deemed to be appropriate and sufficient. IX. Report of the Chief Executive Officer The Committee received and approved the report of the Chief Executive Officer on the activities for fiscal year X. Legal Report The Committee received the report of our legal counsel regarding the status of current legal matters and litigation. XI. Proposal Pursuant to the work done, the Committee recommends that the Board of Directors submit Mexichem s Audited Financial Statements for the year ended December 31, 2014, for approval by the Shareholders Meeting. Sincerely, On September 19, 2014, Mexichem acquired 100% of the shares of Dura-Line Holding Inc. (Dura-Line). With this transaction, Mexichem entered the high-density polyethylene (HDPE) pipe business, specializing in the telecommunications industry, with production plants in North America, India, Oman, Europe and South Africa. The acquisition was priced at $630 million. Fernando Ruiz Sahagún Chairman of the Corporate Practices Committee and the Audit Committee April 15,

3 independent auditors report >To the Board of Directors and Stockholders of Mexichem, S. A. B. de C. V. We have audited the accompanying consolidated financial statements of Mexichem, S.A.B. de C.V. and Subsidiaries (the Entity ), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the consolidated statements of profit or loss and other comprehensive income, changes in stockholders equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Mexichem, S.A.B. de C.V. and Subsidiaries as of December 31, 2014 and 2013 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Other Matter The accompanying consolidated financial statements have been translated into English for the convenience of readers. Galaz, Yamazaki, Ruiz Urquiza, S. C. Member of Deloitte Touche Tohmatsu Limited C.P.C. Luis Javier Fernández Barragán February 23,

4 consolidated statements of financial position As of December 31, 2014 and 2013 (Thousands of U.S. dollars) Notes Assets Current assets: Cash and cash equivalents 8 $ 619,525 $ 1,232,561 Accounts receivable, Net 9 1,124,167 1,032,726 Due from related parties 20a 4,058 11,168 Inventories, Net , ,805 Prepaid expenses 48,322 27,537 Assets classified as held for sale 12,183 20,181 Total current assets 2,583,474 3,052,978 Non-current assets: Property, plant and equipment, Net 14 and 25 3,729,968 3,152,748 Investment in shares of associated entity 4l 64,304 33,381 Other assets, Net 79,143 72,639 Deferred income taxes 22b 169, ,357 Intangible assets, Net 15a 1,407,964 1,208,186 Goodwill 15b 692, ,513 Total non-current assets 6,142,771 5,128,824 Total assets $ 8,726,245 $ 8,181,802 Liabilities and Equity Current liabilities: Bank loans and current portion of long-term debt 16 $ 61,736 $ 62,121 Suppliers 678, ,696 Credit letters of suppliers 451, ,451 Due to related parties 20a 32,546 1,610 Other accounts payable and accrued liabilities 489, ,754 Provisions 18 22,183 25,963 Employee benefits 9,272 7,934 Short term finance lease 24 52,695 41,668 Derivative financial instruments 12 and 13 10,399 - Liabilities associated with assets held for sale 7,343 22,748 Total current liabilities 1,816,431 1,514,945 Non-current liabilities: Bank loans and long-term debt 16 2,366,457 2,103,086 Employee benefits ,533 80,196 Long term provisions 18 34,262 49,621 Long term other liabilities 34,341 24,937 Derivative financial instruments 12 and 13 61,765 74,689 Deferred income taxes 22b 481, ,913 Long term finance lease , ,564 Long term income tax 22 49,943 45,794 Total non-current liabilities 3,420,075 3,075,800 Total liabilities 5,236,506 4,590,745 Stockholders equity: Paid-in capital - Nominal 19a 256, ,482 Additional paid-in capital 1,474,827 1,708,376 Cumulative effect of restatement 23,948 23,948 1,755,257 1,988,806 Earned capital - Retained earnings 795, ,173 Other comprehensive income 368, ,265 Buy back shares program reserve 19b 126,663 56,312 1,290,774 1,309,750 Controlling interest 3,046,031 3,298,556 Non-controlling interest 443, ,501 Total stockholders equity 3,489,739 3,591,057 Total liabilities and stockholders equity $ 8,726,245 $ 8,181,

5 consolidated statements of profit or loss and other comprehensive income For the years ended December 31, 2014 and 2013 (Thousands of U.S. dollars, except earnings per share expressed in U.S. dollars) Notes Continuing operations: Net sales 25 $ 5,582,699 $ 5,176,999 Cost of sales 21a 4,192,765 3,647,114 1,389,934 1,529,885 Net sales of finished goods purchased - 124,793 Cost of sales - 124, Gross profit 1,389,934 1,530,248 Selling and development expenses 21b 645, ,372 Administrative expenses 21c 269, ,148 Depreciation and amortization 114, ,632 Other income 21d (42,833) (50,210) Exchange gain (79,101) (29,424) Exchange loss 170,414 81,252 Interest expense 195, ,892 Interest income (34,542) (65,810) Monetary position loss 6,381 13,831 Equity in income of associated entity (2,729) (705) Profit before income taxes 147, ,270 Income tax expense 22d 42, ,800 Profit for the year from continuing operations 105, ,470 Discontinued operations: Gain (loss) from discontinued operations, Net 23 9,289 (148,415) Consolidated profit for the year 114,613 83,055 Other comprehensive income (loss): Items that will not be reclassified subsequently to profit or loss: Property, plant and equipment revaluation 10, ,308 Impairment of fixed assets (1,088) - Actuarial losses recognized during the year (57,944) (2,866) Income taxes 11,361 (101,438) (37,553) 206,004 Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (239,926) (9,735) Valuation of financial instruments 46,531 (49,047) Income taxes (13,959) 15,115 (207,354) (43,667) Other comprehensive income for the year (244,907) 162,337 Consolidated comprehensive (loss) income for the year $ (130,294) $ 245,392 Consolidated net income (loss) for the year: Owners of the Entity $ 124,559 $ 80,603 Non-controlling interests (9,946) 2,452 $ 114,613 $ 83,055 Comprehensive (loss) income applicable to: Owners of the Entity $ (117,981) $ 233,269 Non-controlling interests (12,313) 12,123 $ (130,294) $ 245,392 Earnings (loss) per share attributable to owners of the Entity: From continuing operations $ 0.05 $ 0.11 From discontinued operations $ - $ (0.07) Basic earnings per share $ 0.05 $ 0.04 Weighted average common shares outstanding 2,100,000,000 2,100,000,

6 consolidated statements of changes in stockholders equity For the years ended December 31, 2014 and 2013 (Thousands of U.S. dollars) Paid-in capital Additional Cumulative Common paid-in effect of Retained stock capital restatement earnings Balances as of December 31, 2012 $ 256,482 $ 1,708,376 $ 23,948 $ 776,838 Dividends declared in cash (79,599) Purchase - sale of shares ,252 Increase in buy back shares program reserve (81,454) No controlling equity derived from business acquisition (12,486) Other comprehensive profit (loss) of the year (1,981) Consolidated profit for the year ,603 Balances as of December 31, ,482 1,708,376 23, ,173 Dividends declared in cash (76,520) Purchase - sale of shares (170) Increase in buy back shares program reserve (141,838) Transfer of equity accounts - (233,549) - 233,549 Partial cancellation of the buy back shares program reserve ,000 No controlling equity derived from business acquisition Other comprehensive profit (loss) of the year (43,455) Consolidated profit for the year ,559 Balances as of December 31, 2014 $ 256,482 $ 1,474,827 $ 23,948 $ 795,298 Cumulative Property, plant, translation effects Valuation of Total and equipment of foreign financial Buy back shares Controlling Non-controlling stockholders revaluation Operations instruments program reserve interest interest equity $ 287,762 $ 127,856 $ - $ 38,609 $ 3,219,871 $ 18,339 $ 3,238, (79,599) (1,142) (80,741) (63,751) (62,499) - (62,499) , (12,486) 263, , ,562 (8,983) (33,932) - 152,666 9, , ,603 2,452 83, , ,873 (33,932) 56,312 3,298, ,501 3,591, (76,520) - (76,520) (55,487) (55,657) - (55,657) , (16,000) , ,520 5,902 (239,926) 32,572 - (244,907) (2,367) (247,274) ,559 (9,946) 114,613 $ 491,226 $ (121,053) $ (1,360) $ 126,663 $ 3,046,031 $ 443,708 $ 3,489,

7 consolidated statements of cash flows For the years ended December 31, 2014 and 2013 (Thousands of U.S. dollars) Cash flows from operating activities: Consolidated profit for the year $ 114,613 $ 83,055 Adjustments for: Income tax expense 42, ,800 (Gain) loss from discontinued operations (9,289) 148,415 Net labor obligation cost (gain) 11,989 (5,029) Depreciation and amortization 415, ,586 Gain on sale of fixed assets (1,302) (1,371) Net loss derived from financial liabilities valued at fair value through results - 8,146 Unrealized exchange (gain) loss (55,787) 29,710 Impairment of fixed assets 1,088 - Equity in income of associated entity (2,729) (705) Interest received (34,542) (65,810) Interest expense 195, , , ,689 Changes in working capital: (Increase) decrease in: Accounts receivable 89,535 40,790 Inventories 38,465 3,525 Other assets (54,455) (51,655) Increase (decrease) in: Suppliers 43,243 6,254 Related parties 38,046 (38,395) Other liabilities (51,983) (80,167) Interest received 34,542 65,810 Net cash provided by operating activities 813, ,851 Cash flows from investing activities: Acquisition of machinery and equipment (517,700) (420,294) Proceeds from sale of machinery and equipment 17,738 43,147 Trade investments - 250,000 Investments in other assets (5,735) (19,265) Acquisition of subsidiaries, net of cash acquired (831,045) (250,154) Net cash used in investing activities (1,336,742) (396,566) Cash flows from financing activities: Borrowings 842, ,586 Loan repayments (479,235) (490,158) Interest paid (187,025) (182,622) Dividends paid - (158,607) Purchase - sale of shares (55,657) (62,499) Net cash provided by (used in) financing activities 120,096 (557,300) Adjustment to cash flows due to exchange rate fluctuations (210,313) (19,621) Net decrease in cash and cash equivalents (613,036) (162,636) Cash and cash equivalents at beginning of year 1,232,561 1,395,197 Cash and cash equivalents at end of year $ 619,525 $ 1,232,561 46