braskem idesa, s. a. p. i. and subsidiary (subsidiary of...

Braskem Idesa, S. A. P. I. and subsidiary (Subsidiary of Braskem Netherlands, B. V.) Consolidated financial statements December 31, 2019 and 2018 (With the Independent Auditors’ Report)

Braskem Idesa, S. A. P. I. and subsidiary Contents

Independent auditors’ report 2 Consolidated financial statements Consolidated statements of financial position 5 Consolidated statements of comprehensive income 6 Consolidated statements of changes in equity 7 Consolidated statements of cash flows 8 Notes to the consolidated financial statements 9

(1) Reporting entity 9 (2) Financial statement authorization and presentation 10 (3) Significant accounting polices 12 (4) Changes in significant accounting policies and reclassifications 25 (5) Financial risk management 27 (6) Cash and cash equivalents 32 (7) Inventory 32 (8) Other recordable taxes 32 (9) Related-party transactions and balances 33 (10) Property, plant and equipment 39 (11) Intangible 40 (12) Leases 40 (13) Financial instruments by category 42 (14) Bank loans 43 (15) Derivative financial instruments 45 (16) Accounts payable and other accrued expenses 50 (17) Employee benefits 50 (18) Shareholders’ equity 52 (19) Revenue 52 (20) Costs and expenses by nature 54 (21) Financial results 54 (22) Income tax 55 (23) Insurance coverage 57 (24) Commitments and contingencies 58 (25) Statements of cash flows 62 (26) Subsequent events 62 (27) Standards issued but not yet effective 63

Independent Auditors’ Report

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The General Shareholders´ Meeting Braskem Idesa, S. A. P. I. (Subsidiary of Braskem Netherlands, B. V.) In thousands of Mexican pesos Opinion We have audited the consolidated financial statements of Braskem Idesa, S. A. P. I. and subsidiary (the Company), which comprise the consolidated statement of financial position as at December 31, 2019 and 2018, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Mexico, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matters a) As mentioned in note 24, the Company has entered into a long-term supply agreement to purchase

ethane (main raw material of the Company) with a state-owned Mexican entity, with whom carried out 100% of ethane purchases in 2019 and 2018. Our opinion is not modified in respect of this matter.

b) We draw attention to Notes 1 and 14 to the consolidated financial statements, which indicate that the

Company is not in compliance with certain covenants provided by the bank loan agreement, whereby on the consolidated statement of financial position as of December 31, 2019. As mentioned in note 1, in relation to the default of covenants, the Company obtained a consent and waiver, dated as of October 9, 2019, issued by the lender with respect to the breach in the covenants. Our opinion is not modified in respect of this matter.

c) As mentioned in note 4 and 12, as a result of initially applying IFRS 16, in relation to the leases that

were previously classified as operating leases, the Company recognized $1,386,152 of right-of-use assets and $1,360,655 of lease liabilities as at December 31, 2019. Also, in relation to those leases under IFRS 16, the Company has recognized depreciation and interest costs, instead of operating lease expense. Our opinion is not modified in respect of this matter.

(Continued)

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Other Matters Our audit was made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The supplementary information described as “Convenience translation of financial statements” in Note 2 and disclosed in the consolidated statements of financial position and comprehensive income is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information as of and for the year ended December 31, 2019, has been subjected to the auditing procedures applied in the context of the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, 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. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

(Continued)

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• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. KPMG CÁRDENAS DOSAL, S. C. Eduardo López Partner Mexico City, April 21, 2020.

Braskem Idesa, S. A. P. I. and subsidiary Consolidated statements of financial position In thousands of Mexican pesos and US Dollars (USD) unless otherwise stated

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Note December 31, 2019

December 31, 2019

December 31, 2018

Assets

Current assets:

Cash and cash equivalents 6 USD 252,945 $ 4,766,801 4,885,178 Accounts receivable, net 5 -III

74,896 1,411,421 2,505,195

Inventories 7

148,305 2,794,832 2,936,097 Income taxes

1,723 32,475 27,108

Other recoverable taxes 8

34,254 645,518 507,331 Prepaid expenses

3,224 60,748 253,832

Related parties 9

7,886 148,606 678,217 Other assets 24 80,813 1,522,936 1,357,579 Current assets 604,046 11,383,337 13,150,537 Non-current assets:

Property, plant and equipment, net 10

4,406,170 83,035,161 88,707,631 Right of use 12 73,555 1,386,152 -

Intangible assets 11

48,261 909,483 906,100 Derivative financial instruments 15 - - 343,121

Other assets 142 2,675 6,654 Non-current assets: 4,528,128 85,333,471 89,963,506

Total assets USD 5,132,174 $ 96,716,808 103,114,043

Liabilities

Current liabilities:

Suppliers

USD 52,004 $ 980,021 1,425,447 Bank loans, current portion 14

185,104 3,488,321 53,268,724

Derivative financial instruments 15

1,434 27,029 - Related parties 9

20,616 388,508 392,145

Payroll and related charges

6,360 119,849 143,597 Accounts payable and other accrued expenses 16

27,511 518,476 770,277

Lease liability 4 14,192 267,449 1,358 Current liabilities 307,221 5,789,653 56,001,548

Non-current liabilities:

Employee benefits 17

2,837 53,458 39,775

Bank loans 14 2,296,946 43,286,403 - Derivate financial instruments 15 5,207 98,120 -

Related parties 9

2,250,774 42,416,281 41,963,221 Deferred income tax 22

150,655 2,839,116 2,780,899

Lease liability 4 58,010 1,093,206 3,785 Non-current liabilities 4,764,429 89,786,584 44,787,680 Total liabilities USD 5,071,650 95,576,237 100,789,228

Equity

Capital stock 18

306,419 5,774,518 5,774,518

Other comprehensive results

606,915 11,437,428 8,551,412 Accumulated losses (852,810) (16,071,375) (12,001,115) Total equity 60,524 1,140,571 2,324,815 Total liabilities and equity USD 5,132,174 $ 96,716,808 103,114,043

See accompanying notes to consolidated financial statements.

Braskem Idesa, S. A. P. I. and subsidiary Consolidated statements of comprehensive income In thousands of Mexican pesos and US Dollars (USD) unless otherwise stated

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For the year ended 31 December 2019

Note December 31,

2019 December 31,

2019 December 31,

2018

Revenue 19 USD 790,150 14,890,528 19,830,545

Cost of goods sold 20 (736,773) (13,884,636) (13,310,553)

Gross profit 53,377 1,005,892 6,519,992

Operating (expenses) income: Selling expenses 20 (49,457) (932,021) (906,081)

Administrative expenses 20 (44,995) (847,945) (855,268) Other income 20 92,920 1,751,100 1,967,442

Other expenses 20 (8,125) (153,124) (276,522)

Total operating expenses (9,657) (181,990) (70,429)

Operating income 43,720 823,902 6,449,563

Financial results: Financial expenses 21 (380,658) (7,173,579) (5,733,917)

Financial income 21 12,118 228,372 157,479

Exchange rate effect 21 86,498 1,630,067 (1,149,625)

Net finance costs (282,042) (5,315,140) (6,726,063)

Loss before expense tax (238,322) (4,491,238) (276,500)

Income tax (expense) benefit 22 22,339

420,978 (595,783)

Net loss for the year USD (215,983) (4,070,260) (872,283)

Other comprehensive results -

Items that may be reclassified to profit or loss:

Fair value of cash flow hedge 179,271 3,378,399 1,900,907 Income tax from hedging (53,781) (1,013,520) (570,272)

125,490 2,364,879 1,330,635

Items that may not be reclassified to profit or loss:

Income on revaluation of fixed assets 10 - - 8,730,798

Income tax from revaluation of fixed assets 27,431 516,948 (2,252,580)

Actuarial losses (194) (3,650) 10,973

Income tax from actuarial losses 58 1,095 (3,292)

Long term incentive 358 6,744 2,592

27,653 521,137 6,488,491

Other comprehensive income for the period, net of tax 153,143 2,886,016 7,819,126

Total comprehensive income for the period USD (62,840) (1,184,244) 6,946,843


Braskem Idesa, S. A. P. I. and subsidiary Consolidated statements of changes in equity In thousands of Mexican pesos unless otherwise stated

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Note

Capital Stock

Other Comprehensive

Results

Accumulated losses

Shareholder Equity

Balances as for December 31, 2017 18 5,774,518 732,286 (11,205,914) (4,699,110) Fair value of cash flow hedge - 412,438 - 412,438 Future sales, cash flow hedge - 1,488,469 - 1,488,469 Income tax from hedging - (570,272) - (570,272) Revaluation of fixed assets - 8,730,798 - 8,730,798 Income tax from revaluation of fixed

assets

- (2,252,580) - (2,252,580)

Actuarial gains - 10,973 - 10,973 Income tax from actuarial losses - (3,292) - (3,292) Long term Incentive - 2,592 - 2,592 Deferred income tax from the previous

year's - - 77,082 77,082

Net loss for the year - - (872,283) (872,283) At December 31, 2018 18 $ 5,774,518 8,551,412 (12,001,115) 2,324,815

Comprehensive loss for the year: Fair value of cash flow hedge - (143,255) - (143,255) Future sales, cash flow hedge - 3,521,654 - 3,521,654 Income tax from hedging - (1,013,520) - (1,013,520) Income tax from revaluation of fixed assets - 516,948 - 516,948 Actuarial losses - (3,650) - (3,650) Income tax from actuarial losses - 1,095 - 1,095 Long term Incentive - 6,744 - 6,744 Net loss for the year - - (4,070,260) (4,070,260) At December 31, 2019 18 $ 5,774,518 11,437,428 (16,071,375) 1,140,571

At December 31, 2019 in USD 306,419 606,915 (852,810) 60,524


Braskem Idesa, S. A. P. I. and subsidiary Consolidated statements of cash flows In thousands of Mexican pesos unless otherwise stated

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Note December 31,

2019 December 31,

2018

Cash flows from operating activities Profit (loss) before income tax $ (4,491,238) (276,500) Adjustments for reconciliation of profit (loss): Depreciation and amortization 10,11 6,158,445 5,660,506

Right of use amortization 260,902 -

Employees' benefits cost 11,128 5,994

Borrowing accrued interest 21 3,024,911 3,162,598

Unrealized exchange rate fluctuations - Net (3,961,949) (741,163)

Donation of property, plant and equipment 2,280 -

Derivative financial instruments 2,833,149 1,143,533

Deferred Income tax 996,143 547,657

4,833,771 9,502,625 Changes in working capital: Accounts receivable 1,110,736 604,088

Inventories 141,265 (873,526)

Recoverable taxes (143,554) (216,067)

Prepaid expenses 193,084 (181,080)

Related parties 2,830,558 1,956,292

Other assets (194,043) (1,174,294)

Suppliers (442,877) 737,062

Accounts payable and other liabilities (249,838) 471,574

Net cash flows from operating activities $ 8,079,102 10,826,674

Cash flows from investing activities

Acquisition of property, plant and equipment and intangible assets

$ (495,983) (345,988)

Proceeds associated with sales of property, plant and equipment

4,344 -

Net cash flows from investing activities $ (491,639) (345,988)

Cash flows from financing activities: Bank loans paid 25 $ (4,439,987) (4,244,705)

Interest paid 25 (3,037,014) (3,103,841)

Payments for the principal portion of the lease liabilities

(156,297) -

Leasing interest paid (72,542) -

Proceeds from Bonds issued 25 17,649,000 -

Prepayment of senior debt 25 (15,600,413) -

Origination expenses of Bonds issued 25 (2,048,587) -

Net cash flows from financing activities $ (7,705,840) (7,348,546)

Increase in cash and cash equivalents $ (118,377) 3,132,140

Cash and cash equivalents at the beginning for the year 4,885,178 1,753,038

Cash and cash equivalents at the end for the year $ 4,766,801 4,885,178


Braskem Idesa, S. A. P. I. and subsidiary Notes to the consolidated financial statements For the years ended December 31, 2019 and 2018 In thousands of Mexican pesos unless otherwise stated

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(1) Reporting entity-

Braskem Idesa, S. A. P. I. and subsidiary (herein after referred to as Braskem Idesa or the Company) is a company incorporated under the laws of Mexico in May 2010 with indefinite duration. The address of the Company is Boulevard Manuel Ávila Camacho 36 interior 24, Lomas de Chapultepec Seccion II, Miguel Hidalgo, Mexico City. Braskem Idesa is a petrochemical company. The Company is primarily involved in the production of polyethylene and other basic chemical. The Company has built a petrochemical complex in Nanchital, Veracruz (Etileno XXI Project), with yearly capacity to produce 1,050 kton (thousands of tons) of ethylene, 750 kton of high-density polyethylene and 300 kton of low-density polyethylene using ethane as feedstock. In December 2015, the Company began the start-up process of its petrochemical complex, putting into operation the utilities area, followed by the gas cracker (ethylene production) in March 2016. In April 2016 the Company produced the first lot of polyethylene (PE). The complex houses a gas-based ethylene cracker and three polyethylene plants - two high-density and one low-density - with combined annual production capacity of 1.05 million tons of PE. After its operational start-up, the Company started to sell its own production of PE, a feedstock for the construction, consumer, automotive and agricultural industries, among others. Ethane is the main raw material for the production of polyethylene, and the Company has entered into a long-term supply contract to purchase ethane from Pemex Transformación Industrial (PTI) a state-owned Mexican entity. See Note 24. Braskem Idesa is a 75% owned subsidiary of Braskem Netherlands B. V., directly controlled by Braskem S. A., which is directly controlled by Odebrecht, S. A. (ultimate controlling entity) that holds, directly and indirectly, 38,32% of its total capital and 50,11% of its voting capital, (ultimate controlling party). The remaining 25% interest in the Company is held by Etileno XXI, S. A. de C. V., which is controlled by Grupo Idesa, S. A. de C. V. Net current liabilities In November 2019 the Company issued a ten year bond in the international capital market for the amount of $900 million of USD. The proceeds were used to repay in full the debts of senior lenders Nacional Financiera de México (NAFIN), Banco Nacional de Comercio Exterior de México (BANCOMEXT) and Banco Nacional de Desenvolvimento Econômico e Social de Brasil (BNDES), and the excess amount was used to prepay proportionally to the remaining Lenders under the existing Project Finance (as defined in Note14). The repayment of the bond is bullet at the maturity date. (See note 14). In relation to the default loan obligations mentioned in the below paragraph, the Company obtained a consent and waiver, dated as of October 9, 2019, which is effective until December 31, 2020, that is being granted to Braskem Idesa, S. A. P. I. by Deutsche Bank Trust Company Americas, a banking corporation organized and existing under the laws of the State of New York. As agent for the Senior Creditors (in such capacity, the “Intercreditor Agent”); therefore, the non-current portion of the bank loans as of December 31, 2019 has been adjusted and presented in the statement of financial position in accordance with its original maturity dates.


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On December 31, 2018, in compliance with IAS 1 - “Presentation of Financial Statements”, the Company adjusted as current liabilities $48,450,688, of its non-current portion of the bank loan obligations (which original maturity were long-term), since certain contractual obligations (covenants) as of December 31, 2018 were in default (see Note 14). Consequently, working capital (current assets less current liabilities) was negative in the amount of $42,851,011.

(2) Financial statement authorization and presentation-

Authorization

These consolidated financial statements and their notes were authorized for issuance on April 21, 2020 by Mr. Danilo Dias Garcez de Castro Doria, Finance Director.

Basis of preparation

The accompanying consolidated financial statements at December 31, 2019 and 2018, have been prepared in accordance with International Financial Reporting Standards (IFRS) and their Interpretations (IFRIC, for its initials in English) issued by the International Accounting Standard Board (IASB).

This is the first set of the Company’s annual financial statements in which IFRS 16 Leases has been applied.

The related changes to significant accounting policies are described in Note 4.

Convenience translation in to U.S. dollars

The presentation currency of the consolidated financial statements is the Mexican (Peso). The U.S. dollar (USD) amounts disclosed in the accompanying consolidated financial statements are presented solely for the convenience of the reader, converting the Peso amounts using the exchange rate of $18.8452 per USD1.00, which is the market exchange rate as of December 31, 2019, as reported by the Bank of Mexico (Banco de México). The use of this methodology in converting Peso to USD is referred to as the “U.S. dollar translation methodology,” and should not be construed as a representation that peso amounts represent, have been, or could be, converted into USD at that rate or at any other rate.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for items at fair value through profit or loss, as explained in Note 15 and the present value of the defined benefit obligation. The consolidated financial statements have been prepared under the going concern basis.

Use of estimates and judgments

In preparing these consolidated financial statements, management has made judgements and estimates that affect the application of the Company’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.


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Judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements is included in the following notes: - Note 3 (n) – revenue recognition: whether revenue from products is recognized over time or at a point

in time; - Note 24 (a) – lease classification: whether is reasonably certain to exercise extension options. Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties at December 31, 2019 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in following notes: – Note 17 – measurement of defined benefit obligations: key actuarial assumptions; – Note 22 – recognition of deferred tax assets: availability of future taxable profit against which

deductible temporary differences and tax losses carried forward can be utilized; – Notes 16 and 24 – recognition and measurement of provisions and contingencies: key assumptions

about the likelihood and magnitude of an outflow of resources; – Note 3(d) – measurement of ‘Expected Credit Loss’ (ECL) allowance for trade receivables: key

assumptions in determining the weighted‑average loss rate Measurement of fair values A number of the Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non‑financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: – Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. – Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). – Level 3: inputs for the asset or liability that are not based on observable market data (unobservable

inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.


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The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes: – Note 10 – Property Plant and Equipment; and – Note 13 – Financial instruments, by category. (3) Significant accounting policies-

(a) Basis of consolidation The Company’s relevant details of its consolidated subsidiary, Braskem Idesa Servicios, S. A. de C. V., at December 31, 2019 and 2018 are as follows:

Functional Total Activity Country currency 2019 2018

Provides personnel services to Braskem Idesa, S. A. P. I. Mexico Mexican pesos 100% 100%

1. Subsidiary

A subsidiary is an entity in which the Company holds control of its financial and operating policies, generally accompanied by control of more than half of the voting rights. The Company controls another entity when it is exposed or has rights to variable returns arising from its relationship with the entity and it is able to affect those returns through its control thereon. The financial statements of the Subsidiary are incorporated into the consolidated financial statements as from the date on which control is first exercised until the date on which it ends.

2. Eliminations

Inter-company transactions, balances, income and expenses were eliminated. Unrealized gains (losses) are also eliminated. The accounting policies of the subsidiary has been changed where necessary to align them with the policies adopted by the Company.

3. Disposal of subsidiary

When the Company ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in the carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income or loss in respect of that entity are accounted for as if the Company had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive results are reclassified to profit or loss.


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(b) Functional and presentation currency The items included in the Company’s consolidated financial statements are measured in the currency of the main economic environment in which it operates that is, the “functional currency”. The Mexican peso is the Company’s presentation and functional currency. Foreign currency transactions and exchange fluctuation gains (losses) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated results of the year, except when deferred in other comprehensive income or loss as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the consolidated results of the year within “finance income or expenses” except for exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings. (c) Financial instruments i. Recognition and initial measurement Cash and cash equivalents include cash-in-hand, deposits with banks and highly liquid investments with maturities of three months or less and are convertible into a known amount and subject to an immaterial risk of change in value (see Note 6). Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at 'Fair Value Though Profit or Loss (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

ii. Classification and subsequent measurement Financial assets –

On initial recognition, a financial asset is classified as measured at: amortized cost; Fair Value though Other Comprehensive Income (FVOCI) – debt investment; FVOCI – equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:


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– it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

– its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

– it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

– its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment‑by‑investment basis. All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets – Business model assessment: The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: – the stated policies and objectives for the portfolio and the operation of those policies in practice. These

include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

– how the performance of the portfolio is evaluated and reported to the Company’s management;

– the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

– how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

– the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Company‘s continuing recognition of the assets.


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Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL. Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest: For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers:

– contingent events that would change the amount or timing of cash flows;

– terms that may adjust the contractual coupon rate, including variable‑rate features;

– prepayment and extension features; and

– terms that limit the Company’s claim to cash flows from specified assets (e.g. non‑recourse features). A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. Financial assets – Subsequent measurement and gains and losses:

Financial assets at FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. However, see Note 15 for derivatives designated as hedging instruments.

Financial assets at amortized cost

These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.


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Financial liabilities – Classification, subsequent measurement and gains and losses.

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held‑for‑trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

iii. Derecognition

Financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Company enters into transactions whereby it transfers assets recognized in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognized. Financial liabilities The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non‑cash assets transferred or liabilities assumed) is recognized in profit or loss.

iv. Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

v. Derivative financial instruments and hedge accounting

The Company elected the transitional provision to account for derivative instruments and hedge accounting as per the provisions of IAS 39 and not to adopt IFRS 9. Derivatives are recognized at fair value on an ongoing basis. The recognition of the gain or loss in profit or loss depends on whether the derivative is designated as a hedging instrument.


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Designated as hedge accounting Management may designate certain derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. It may also designate non-derivative financial instruments as hedge for highly probable future sales in foreign currency (cash flow hedge). The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk Management objectives and strategy for undertaking various hedging transactions. It also documents its assessment, on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion: i) of the changes in the fair value of hedge derivatives, and ii) of the exchange variation of financial liabilities designated and qualified as sales flow hedge is recognized in equity, under “other comprehensive income”. These amounts are transferred to profit or loss for the periods in which the hedged item affects the financial results. The ineffective portion is recognized immediately in the statement of comprehensive income. When the hedge instrument matures or is sold or when it no longer meets the criteria for hedge accounting, it is prospectively discontinued and any cumulative gain or loss in equity remains in equity and is recognized in profit or loss when the hedged item or transaction affects profit or loss. If the hedged item or transaction is settled in advance, discontinued or is not expected to occur, the cumulative gain or loss in equity is immediately transferred to “the statement of comprehensive income ”. The cash flow hedge transactions carried out by the Company are described in Note 15. (d) Impairment Currently, the Company considers as expected loss of a portfolio the amount of the Allowance for Expected Credit Losses (ECL) of a receivables portfolio. Until December 2017, the ECL was calculated based on the IAS 39, which considers securities that are outstanding with a maturity of more than 90 days. The other customers’ receivables are not provisioned, unless such receivables are past due more than 90 days or those that the legal department considers unrecoverable. From 2018 on, the Company adjusted its methodology based on the IFRS 9. Some aspects of this methodology are yearly updated with respect to the metrics considering the 5 previous closed years in the calculations. In the case of those aspects, it is possible to see below the percentage calculated depending on the year when the receivable was created. The provision is calculated as follows: (i) 100% of the amount of receivables past due for over 180 days; (ii) 50% of the amount of receivables past due between 90 and 180 days; (iii) 100% of the amount of receivables under legal collection; (iv) 24% (2019) or 12% (2018) of all the receivables from the first renegotiation maturing in less than 24

months; (v) 100% (2019) or 91% (2018) of all the receivables from the first renegotiation maturing in more than

24 months; (vi) 100% (2019) or 91% (2018) of the receivables arising from a second renegotiation with customers;


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(vii) 0.24% (2019) or 0.27% (2018) of the amount of receivables due or past due up to 90 days with Operational Risk 3;

(viii) 0.57% (2019) or 0.63% (2018) of the amount of receivables due or past due up to 90 days with Operational Risk 4; and

(ix) 100% of the amount of receivables with Operational Risk 5. (e) Inventories Raw materials and finished goods are stated at the lower of cost and net realizable value. Cost comprises direct materials, direct labor and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of average costs. Costs of purchased inventory are determined after deducting rebates and discounts. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(f) Prepaid expenses Represent such expenditures made by the Company where the risks and benefits inherent to the goods to be acquired or services to be received have not been transferred. Prepaid expenses are recorded at their cost and presented in the consolidated statements of the financial position as current or non-current assets, depending on the destination item. Prepaid expenses in foreign currency are recognized at the exchange rate of the date of the transaction, without modification by subsequent exchange rate fluctuations between currencies. (g) Property, plant and equipment Items of property, plant and equipment are initially measured at cost (which includes capitalized borrowing costs and expenditures that are directly attributable to the acquisition of the items) less accumulated depreciation and any accumulated impairment losses. According to IAS 16 - “Property, plant and equipment”, the Company decided as of December 31, 2019 and 2018, respectively, to adopt the revaluation model as its accounting policy for some classes of properties (lands, buildings, machinery and equipment), based on valuations by external independent appraisers, less subsequent depreciation for buildings and Machinery and equipment. Revaluation does not apply to all class of assets (the rest of fixed assets are shown at historical costs). Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset (computers, office equipment and improvements are stated at historical cost less depreciation). Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.


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Historical cost includes expenditures that are directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Increases in the carrying amount arising on revaluation of lands, buildings and equipment are credited to other comprehensive income and shown as other reserves in equity. Decreases that offset previous increases of the same asset are charged to other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the income statement. A Depreciation of property, plant and equipment items is calculated based on the straight-line method, which is applied to the cost of an asset without including the residual value and considering their estimated useful lives, which are described below: Rate Buildings 5.7 % Machinery & equipment 6.6 % Office furniture 10 % Computer equipment 30 % Automobile 25 % Improvements 5 %

The residual values and useful lives of assets are reviewed and adjusted, if necessary, at the closing date of each year. The residual values are not significant. When the carrying value of an asset exceeds its estimated recoverable value, an impairment loss is recognized to reduce the carrying value to its recoverable value.

When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings. (h) Intangible assets Intangible assets are comprised by: software, patents and trademarks, leased assets, rights to use water and electrical facilities. Intangible assets with definite useful lives are amortized during 2019 and 2018, are described below: Rate Software 30% Leased assets 20% Rights to use water and electrical facilities 5%

Intangible assets with indefinite useful lives are patents and trademarks and are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.


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(i) Impairment of non-financial assets Assets that are subject to depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). Prior impairments of non-financial assets are reviewed for possible reversal at each reporting date. (j) Suppliers This item includes obligations with suppliers for purchases of goods or services acquired in the normal course of Company's operations. When collection is expected in a period of one year or less from the closing date (or in the normal operating cycle of the business if this cycle exceeds this period), they are presented as current liabilities. If the above is not complied, they are presented as non-current liabilities. (k) Current and deferred income tax The expense for income taxes include both the tax incurred and deferred taxes. Tax is recognized in the results of the year, except when it relates to items recognized directly in other comprehensive income or in equity. In the case at hand, the tax is also recognized in other comprehensive income items or directly in equity. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using enacted tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets are recognized on deductible temporary differences arising from the investment in subsidiary, only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.


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The charge for income tax incurred is computed based on tax laws approved in Mexico at the date of the consolidated statements of financial position. The income tax rate for 2019 and 2018 was 30%. (l) Employee benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Company recognizes termination benefits at the earlier of the following dates: (a) when the Company can no longer withdraw the offer of those benefits; and (b) when the Company recognizes costs for a restructuring that is within the scope of IAS 37 - “Provisions, contingent liabilities and contingent assets” and involves the payment of termination benefits.

The cost of providing defined benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (if applicable), excluding interest, is reflected immediately in the statements of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorized as follows: • Service cost (including current service cost, past service cost, as well as gains and losses on

curtailments and settlements). • Net interest expense or income, and • Remeasurement. The charges to profit and loss for the periods ended December 31, 2019 and 2018 were $13,683 and ($1,687), respectively. Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service. (m) Shareholders’ equity Capital stock, other comprehensive loss and accumulated losses are expressed at their historical cost. (n) Revenue recognition The Company has initially applied IFRS 15 from January 1, 2018. Information about the Company’s accounting policies relating to contracts with customers are described as follows:

• Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control over a good to a customer.


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The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies.

Type of product/ service

Nature and timing of satisfaction of performance

obligations, including significant payment terms

Revenue recognition policies under IFRS 15

Sale of materials - Polyethylene

Customers obtain control of polyethylene when it is delivered to and have been accepted by the customer, depending on delivery conditions. Invoices are generated at that point in time. Invoices are usually payable within 60-90 days. No discounts are provided for except for a prompt payment discount and rebates based on volume.

Contracts permit the customer to return the materials if they do not fulfil the agreed upon conditions. Returned materials are exchanged only for new materials – i.e. no cash refunds are offered.

Revenue is recognized when the materials are delivered and have been accepted by customers as per the agreed delivery conditions.

In the case the customer returns the materials, revenue is recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on the historical data for specific polyethylene grades. In these circumstances, a refund liability and a right to recover returned goods asset are recognized.

The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recover materials. The refund liability is included in other payables (see Note 16) and the right to recover returned materials is included in inventory (see Note 7). The Company reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly.

(o) Leases

Policy applicable before January 1, 2018.

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

Conversely, assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financial expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on borrowing costs.


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Policy applicable from 1 January 2019. The Company has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in IFRS 16. This policy is applied to contracts entered into, on or after January 1, 2019. As a lessee:

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. Lease payments included in the measurement of the lease liability comprise the following: – fixed payments, including in-substance fixed payments; – variable lease payments that depend on an index or a rate, initially measured using the index or

rate as at the commencement date;


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– amounts expected to be payable under a residual value guarantee; and – the exercise price under a purchase option that the Company is reasonably certain to exercise, lease

payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Short-term leases and leases of low-value assets The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. For contracts entered into before 1 January 2019, the Company determined whether the arrangement was or contained a lease based on the assessment of whether: – fulfilment of the arrangement was dependent on the use of a specific asset or assets; and – the arrangement had conveyed a right to use the asset. An arrangement conveyed the right to use

the asset if one of the following was met: - the purchaser had the ability or right to operate the asset while obtaining or controlling more than an

insignificant amount of the output; - the purchaser had the ability or right to control physical access to the asset while obtaining or

controlling more than an insignificant amount of the output; or - facts and circumstances indicated that it was remote that other parties would take more than an

insignificant amount of the output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.

In the comparative period, as a lessee the Company classified leases that transferred substantially all of the risks and rewards of ownership as finance leases. When this was the case, the leased assets were measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Minimum lease payments were the payments over the lease term that the lessee was required to make, excluding any contingent rent. Subsequent to initial recognition, the assets were accounted for in accordance with the accounting policy applicable to that asset.


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(4) Changes in significant accounting policies- IFRS 16 Leases

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. The right-of-use asset is initially measured at cost, and subsequently measured at fair value, in accordance with the Company's accounting policies.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease.

The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

The Company has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized.

Transition

Previously, the Company classified property leases as operating leases under IAS 17. These include external logistic warehouse, the leases typically run for a period of 10 years. Some leases include an option to renew the lease for an additional five years after the end of the non-cancellable period. Some leases provide for additional rent payments that are based on changes in local price indices.

At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company's incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at either:

- their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the lessee's incremental borrowing rate at the date of initial application - the applied this approach to its largest property lease; or

- an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments - the Company applied this approach to all other leases.

The Company used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.

- Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of lease term.

- Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.

- Opted not to separate non-lease components from lease components, considering them, as a single lease component;


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- Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

The Company leases a number of items of production equipment. These leases were classified as finance leases under IAS 17. For these finance leases, the carrying amount of the right-of-use asset and the lease liability at January 1, 2019 were determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date. Impacts on financial statements

i. Impacts on transition

On transition to IFRS 16, the Company recognized additional right-of-use assets. The impact on transition is summarized below.

January 1, 2019

Right-of-use assets 1,619,722 Lease liabilities 1,619,722

When measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is 0.38%.

January 1, 2019

Operating lease commitment at 31 December 2018 as disclosed in the Company's consolidated financial statements

1,619,722

Operating leasing adjustment 293,842 Discounted using the incremental borrowing rate at January 1, 2019 finance lease liabilities recognized as at 31 December 2018

(291,426)

Recognition exemption for leases of low-value assets - Recognition exemption for leases with less than 12 months of lease term at the commencement dates

(2,416)

Extension options reasonably certain to be exercised - Lease liabilities recognized at January 1, 2019 1,619,722 Impacts for the period

As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Company recognized $1,386,152 of right-of-use assets and $1,360,655 of lease liabilities as at December 31, 2019.

Also in relation to those leases under IFRS 16, the Company has recognized depreciation and interest costs, instead of operating lease expense. During the period ended December 31, 2019, the Company recognized $260,902 of depreciation charges and $72,542 of interest costs from these leases.


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(5) Financial risk management- The Company has exposure to the following risks arising from financial instruments: I. market risks; II. liquidity risks; III. credit risks The Company’s overall risk management focuses on preparing the Company in light of the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses derivatives and financial instruments to hedge certain risk exposures. This note contains information regarding the Company’s exposure to each of the aforementioned risks, and the objectives, policies and procedures to measure and manage risks. Management Framework The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the Finance and Compliance Committees, which are responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Finance and Compliance Committees are assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the management. I. Market risks

Market risk is the risk that changes in market prices – e.g. foreign exchange rates and interest rates – will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The Company uses derivatives to manage market risks. All such transactions are carried out within the guidelines set by the risk management committee. Generally, the Company seeks to apply hedge accounting to manage volatility in profit or loss.


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On December 31, 2019, the market risks that can affect the value of Company’s financial instruments are:

• Mexican peso / U.S. dollar exchange rate; and

• LIBOR floating interest rate.

Currency exchange rate risk The Company operates internationally and is exposed to foreign exchange variations, primarily U.S. dollar. Additionally, the Company has long-term loans, future commercial transactions, financial investments, accounts receivables, and other assets and liabilities which are denominated in U.S. dollar and expose the Company’s financial performance to variations in the exchange rate between foreign currencies (mainly U.S. dollar) and Mexican Peso. At December 31, 2019, the Company prepared a sensitivity analysis for exchange rate fluctuation of the U.S. dollar (sensitivity analysis below). Effect of foreign exchange variation The Company is exposed to foreign exchange variations on the balances and transactions made in currencies other than its functional currency, particularly in U.S. dollar, such as Shareholders’ loans (see Note 9) and the bank loans (see Note 14). For the purpose of the risk sensitivity analysis, the Company presents the exposures to currencies as if they were independent, that is, without reflecting in the exposure to a foreign exchange rate the risks of the variation in other foreign exchange rates that could be directly influenced by it. Sensitivity analysis A reasonably possible strengthening (weakening) of the US dollar against the Mexican peso at December 31 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below:

Profir or Loss Equity Strengthening Weakening Strengthening Weakening December 31, 2019 (20%) Project finance 9,620,123 (9,620,123) 38,480,493 57,720,739 Related parties (Shareholder loan) 8,483,257 (8,483,257) 33,933,029 50,899,543 Suppliers 71,050 (71,050) 284,201 426,301 Cash and cash equivalents (401,193) 401,193 1,604,773 2,407,160 Accounts receivable (282,286) 282,286 1,129,144 1,693,716

17,490,951 (17,490,951) 75,431,640 113,147,459


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Profit or loss Equity

Strengthening Weakening Strengthening Weakening

December 31, 2018 (5%)

Project finance 3,281,339 (3,281,339). 50,446,505 57,009,184 Related parties (Shareholder loan) 2,538,681 (2,538,681) 39,029,055 44,106,417 Suppliers 47,491 (47,491) 730,119 825,102 Cash and cash equivalents (259,780) 259,780 3,993,792 4,513,352 Accounts receivable (212,934) 212,934 3,273,591 3,699,458 5,394,797 (5,394,797) 97,473,062 110,153,513

Interest rate risk The Company is exposed to a variation of LIBOR (London Interbank Offered Rate) over a portion of its bank debt, representing a risk that interest expenses payable in the future may increase. On December 31, 2019, the Company prepared the sensitivity analysis shown below for the exposure to the floating interest LIBOR (see interest rate swap linked to LIBOR in Note 14). Financial instruments, including derivatives, may be subject to changes in their fair value as a result of the variation in foreign exchange rates and interest rates. The sensitivity of the derivative and non-derivative financial instruments to these variables are presented as are shown as follows: Sensitivity analysis

A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Profit or loss Equity

Effect in thousands of dollar

50 bp

increase

50 bp decrease

50 bp increase

50 bp decrease

December 31, 2019

Senior debt interest (32,343) 32,343 - - Interest rate swaps - - 10,442 (10,881)

December 31, 2018

Senior debt interest (36,099) 36,099 - - Interest rate swaps - - 12,724 (12,289)

II. Liquidity risk Liquidity risk is the risk that the Company will not be able to cover its financial obligations. The Company’s Management has established policies, procedures and limits of authority that govern the Treasury function.


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Treasury is responsible for ensuring liquidity and managing the effects of working capital variations, ensuring payments to suppliers and lenders to cover operating costs, expenses and debt service.

Exposure to liquidity risk The following are the remaining maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted, and include contractual interest payments and exclude the impact of netting agreements:

At December 31, 2019

Carrying amount Total Up to

1 year Between

1 and 5 years More than 5 years

Suppliers $ 980,021 980,021 980,021 - - Borrowings1 46,774,724 130,120,676 46,774,724 54,523,857 28,822,095 Accounts payable and other accrued expenses

518,476 518,476 518,476 - -

Payroll and related charges 119,849 119,849 119,849 - - Related parties 388,508 388,508 388,508 - - Related parties (Shareholder loan plus interest) 1

42,416,281 133,306,049 - 20,261,910 113,044,139

Leases 1,360,655 1,360,655 267,449 1,003,307 89,899 At December 31, 2019 $ 92,558,514 266,794,234 49,049,027 75,789,074 141,956,133

1 The amounts are related to the projected remaining payments (including interests) to settle in future periods.

At December 31, 2018

Carrying amount Total Up to

1 year Between

1 and 5 years More than 5 years

Suppliers $ 1,425,447 1,425,447 1,425,447 - - Borrowings 53,268,724 129,574,467 53,268,724 58,357,658 17,948,085 Accounts payable and other accrued expenses 770,277 770,277 770,277 - -

Payroll and related charges 143,597 143,597 143,597 - - Related parties 392,145 392,145 392,145 - - Related parties (Shareholder loan plus interest)

41,963,221. 123,372,602. - 18,286,389 105,086,213

Leases - 1,617,191. 253,777. 876,656 486,758 At December 31, 2018 $ 97,963,411 257,295,726 56,253,967 77,520,703 123,521,056

III. Credit risk - quality risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investments in debt securities. The Company generally uses the rating classification from international credit rating agencies (Standard & Poor’s, Moody’s and Fitch Ratings) to identify the risk assessment of counterparties of financial assets such as cash & cash equivalents, and derivative financial instruments.


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To assess the risk of accounts receivables, the Company prepares internal assessments of its clients using its own methodology, and the majority of its accounts receivable (domestic and external markets) are covered by a credit risk insurance issued by Atradius (European insurance company). The maximum exposition of the credit risk is represented by cash, trade receivable and related parties recognized in the separate statement of financial position.

Instruments 2019 2018

Cash and equivalents:

A- $ 1,961,781 716,765 BBB+ 2,805,020 4,168,413

Cash at bank and short-term bank deposits $ 4,766,801 4,885,178

Accounts receivable: Counterparties without external credit rating - Group 1 1,417,598 2,511,320

Accounts receivable, net-

Accounts receivable balance as of December 31, 2019 and 2018, is comprised of:

2019 2018

For sale of goods $ 1,417,598 2,511,320

Less allowance for doubtful accounts

(6,177) (6,125)

Total accounts receivable $ 1,411,421 2,505,195

Accounts receivable are amounts payable by customers of goods sold in the ordinary course of the Company’s business. If collection of the amounts is expected in one year or less, they are classified as current assets. Otherwise, they are presented as non-current assets. Trade receivables are generally due for settlement within 60 days, and therefore are all classified as current assets. As of December 31, 2019, and 2018, the vast majority of the Company’s accounts receivable were covered by an insurance policy issued by Atradius Seguros de Crédito (rated A by A.M. Best and A2 by Moody’s), mitigating the collection risk.

The maturity analysis of trade accounts receivable is as follows:

2019 2018

Accounts receivable

(Less allowances)

Accounts receivable

(Less allowances)

1 – 30 days past due $ 653,877 (59) 1,039,215 (153) 31 – 60 days past due 552,519 (52) 906,341 (173) 61 – 90 days past due 137,187 (42) 402,818 (103) More than 91 days past due 74,015 (6,024) 162,946 (5,696)

$ 1,417,598 (6,177) 2,511,320 (6,125)


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The integration of the provision for impairment of accounts receivable has been recorded in the consolidated statements of comprehensive income under selling expenses, and the amounts charged to the provision are written off from accounts receivable when recovery is not expected. Openning

balance IFRS 9 (*) Accrual Cancelation Ending balance

Less allowance for doubtful accounts 2018 $ (1,641) (56,319) (18,842) 70,677 (6,125) Less allowance for doubtful accounts 2019 $ (6,125) - (37,885) 37,833 (6,177)

(*) Effect of initially applying IFRS 9 (6) Cash and cash equivalents-

The cash and cash equivalents at December 31, 2019 and 2018, is comprised of:

2019 2018

Cash and banks $ 2,805,020 4,885,178 Cash equivalents 1,961,781 -

Cash and cash equivalents $ 4,766,801 4,885,178

(7) Inventory-

The inventory as of December 31, 2019 and 2018, is comprised of:

2019 2018

Finished goods $ 1,375,295 1,614,214 Raw materials 1,356,420 1,146,676 Goods in-transit 58,198 149,846 Advance payments to suppliers 4,919 25,361

$ 2,794,832 2,936,097

The write down adjustments to the inventory net realizable value in 2019 and 2018 were $805 and $14,517, respectively. (8) Other recoverable taxes-

Other recoverable taxes at December 31, 2019 and 2018, is comprised of:

2019 2018

Recoverable pending value-added tax $ 631,100 501,854 Other (Banks Income tax) 14,418 5,477

Total other receivable $ 645,518 507,331


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(9) Related-party transactions and balances – Key management personnel compensation Key management personnel compensation comprised the following: 2019 2018 Short-term employee benefits $ 65,810 71,700 Post-employment benefits 2,540 1,060 Other long-term benefits 6,744 2,592

$ 75,094 75,352

Compensation of the Company’s key management personnel includes salaries, non‑cash benefits and contributions to a post‑employment defined benefit plan. Related party transactions During 2019 and 2018, the following transactions were held with related parties, which were set at the same prices and conditions as those that would have been used in comparable operations by independent parties: 2019 2018

Sales to: Direct Holding – Braskem Netherlands, B. V. (e)

$

1,733,399

1,866,684

Affiliated – Braskem America, Inc. (e)

1,422,094

1,116,124

Braskem Petroquímica Chile, LTD. (e) 46,607 - Ultimate Holding – Braskem, S. A. (e)

16,926

57,511

Sales of services to: Ultimate Holding – Braskem, S. A. (l) $ 7,904 -

Other: Affiliated – Braskem México Servicios, S. de R. L. de C. V. (k) $ -

6,191 Purchases of raw materials to: Ultimate Holding – Braskem, S. A. (a) (f)

$

15,263

80,240

Direct Holding – Braskem Netherlands, B. V. (f) 22,510 - Affiliated – Reter Comercializadora de Productos, S. A. de C. V. (f)

-

-

Braskem America Inc. (e) 124,911 -


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2019 2018 Purchase of services and utilities to: Ultimate Holding – Braskem, S. A. (g) (b) $

47,402

78,159

Affiliates – Etileno XXI Contractors, S. A. P. I. de C. V. (d)

-

33,649

Etileno XXI Services, B. V. (d) 101,568 14,855 Braskem México Proyectos, S. A. de C. V. SOFOM ENR (g) 600 - Braskem America, Inc. (i) 4,121 6,135 Excellence Freights de México, S. A. de C. V. (j) 17,037 3,429 Reter Comercializadora de Productos, S. A. de C. V. (j) - 40 Braskem México Servicios, S. de R. L. de C. V. (c) - -

Interest expense to: Affiliates – Braskem México Proyectos, S. A. de C. V. SOFOM ENR (h) $

1,650,987

1,647,112

Grupo Idesa, S. A. de C. V. (h) 424,501 423,522 Associated - Etileno XXI, S. A. de C. V. (h)

125,829

125,686

The term “affiliates” refers to related parties which are not parent, joint arrangements, subsidiaries, associates or key management personnel. These entities are mainly represented by subsidiaries of the holdings companies. a) The Company purchased inventories (finished goods) from its related parties to be sold in the local

market. b) The Company received administrative services from its holding company, Braskem, S. A., whereby

it receives personnel, administration and planning services, among others, required to perform its operations.

c) The Company received administrative services from Braskem México Servicios, S. de R. L. de C. V.,

whereby it receives personnel, administration and planning services, among others, required to carry out its operations.

d) The Company received engineering services related to the Etileno XXI Project. e) The Company sold inventories (finished products) to its related parties. f) The Company purchased inventories (raw materials) from its related parties, which are used in its

manufacturing process. g) The Company paid reimbursement as of staff expenses regarding to related parties. h) Financial expenses are accrued interest on loans held with related parties. Interests are generated

on a monthly basis. i) Payroll expenses.


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j) The Company received freight services. k) Administration services. l) Sales commissions. Accounts receivable and payable At December 31, 2019 and 2018, the accounts receivable and payable with related parties refer to current account operations that do not generate interest, without specific maturity and due to their nature are presented in the short term, except for the loans payable with related parties as follows: 2019 2018 Receivable: Direct Holding – Braskem Netherlands, B. V. $ 79,256 305,050 Affiliated - Braskem America, Inc. 52,155 320,953 Ultimate Holding – Braskem, S. A. 8,758 46,172 Affiliated - Constructora Norberto Odebrecht, S. A. 5,785 6,042 Affiliated - Braskem Petroquimica Chile LTDA 2,652 -

$ 148,606 678,217

2019 2018 Payables: Affiliated - Braskem México, S. de R. L. de C. V. $ 270,269 282,282 Ultimate Holding – Braskem, S. A. 70,044 51,508 Affiliated - Braskem America, Inc. 25,470 951 Direct Holding – Braskem Netherlands, B. V. 21,733 - Affiliated - Excellence Freights de México, S. A. de C. V. 992 2,595 Affiliated - Etileno XXI Contractors, S. A. P. I. de C. V. - 38,169 Affiliated - Etileno XXI Services, B. V. - 16,640

$ 388,508 392,145 Loans payable to related parties are as follows:

2019 2018 Loans payables: Affiliated - Braskem Mexico Proyectos, S. A. de C. V. SOFOM ENR (1) $ 31,463,148 31,175,294 Affiliated - Grupo Idesa, S. A. de C. V. (2) 7,882,810 7,730,218 Associated - Etileno XXI, S. A. de C. V. (3) 3,070,323 3,057,709

$ 42,416,281 41,963,221


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1) Braskem México Proyectos, S. A. de C. V. SOFOM ENR

December 31, 2019 2018

Financing Start Interest

rate Amounts in U.S. Dollar

Equivalent in Mexican pesos

Amounts in U.S. Dollar


Financing 11

August 13, 2015

7% 1,189,887 $ 22,423,651

1,130,714 $ 22,255,734

Financing 12

August 14, 2015

7% 55,067 1,037,742

52,086

1,025,200

Financing 13

September 9, 2015

7% 23,509 443,032

22,231

437,580

Financing 14

October 1, 2015

7% 42,959 809,565

40,617

799,452

Financing 15

November 3, 2015

7% 69,950 1,318,212

66,117

1,301,374

Financing 16

December 1, 2015

7% 34,828 656,336

32,912

647,794

Financing 17

January 5, 2016

7% 53,891 1,015,580

50,910

1,002,053

Financing 18

February 2nd, 2016

7% 58,979 1,111,469

55,703

1,096,391

Financing 19

March 1st, 2016

7% 19,083 359,629

18,019

354,661

Financing 20

April 1st, 2016 7% 37,986 715,851

35,857

705,763

Financing 21

May 12, 2016 7% 67,944 1,280,418

64,112

1,261,902

Financing 22

June 1st, 2016 7% 15,477 291,663

14,601

287,390

$1,669,560 $ 31,463,148 1,583,879 $ 31,175,294


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2) Grupo Idesa, S. A. de C. V. December 31, 2019 2018






Financing 1

October 1st, 2015

7% 8,989 $ 169,395

8,499 $

167,279

Financing 2

November 3, 2015

7% 23,317 439,404

22,039

433,791

Financing 3

December 1st, 2015

7% 11,609 218,779

10,971

215,931

Financing 4

January 5, 2016

7% 17,964 338,527

16,970

334,018

Financing 5

February 2nd, 2016

7% 19,660 370,490

18,568

365,464

Financing 6

March 1st, 2016

7% 6,361 119,876

6,006

118,220

Financing 7

April 1st, 2016 7% 12,662 238,617

11,952

235,254

Financing 8

May 13, 2016 7% 22,645 426,740

21,367

420,565

Financing 9

June 1st, 2016

7% 5,159 97,220

4,867

95,797

Financing 10

August 21, 2015

7% 275,048 5,183,325

260,143

5,120,375

Value Added

Tax related to interests

14,881 280,437

11,356

223,524

$418,295 $ 7,882,810 392,738 $ 7,730,218


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3) Etileno XXI, S. A. de C. V.

December 31, 2019 2018






Financing 1

April 12, 2013 7% 2,930 $ 55,213

2,930 $

57,667

Financing 2

May 2, 2013 7% 4,088 77,043

4,088

80,468

Financing 3

May 15, 2013 7% 1,208 22,756

1,208

23,767

Financing 4

June 3, 2013 7% 1,171 22,067

1,171

23,048

Financing 5

July 5, 2013 7% 5,641 106,311

5,641

111,037

Financing 6

October 17, 2013 7% 7,668 144,510

7,668

150,933

Financing 7

January 17, 2014 7% 0.28 5

0.28

6

Financing 8

February 27, 2014 7% 5,231 98,581

5,231

102,963

Financing 9

July 11, 2014 7% 1,999 37,664

1,999

39,338

Financing 10

July 24, 2014 7% 1,902 35,842

1,902

37,436

Financing 11

December 30, 2014 7% 2,193 41,319

2,193

43,156

Financing 12

August 24, 2015 7% 267 5,027

267

5,251

Financing 13

September 9, 2015 7% 96 1,803

96

1,883

Financing 14

October 1, 2015 7% 48 900

48

940

Financing 15

November 15, 2015 7% 118,701 2,236,951

112,171

2,207,856

Value Added

Tax related to interests 7% 9,781 184,331

8,737

171,960

$162,924 $ 3,070,323 155,350 $ 3,057,709


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(10) Property, plant and equipment- With effective date at December 31, 2019 and 2018, the Company reevaluated at their fair value the items of land, buildings and machinery which are comprised of:

Land Buildings and improvements

Machinery, equipment

and facilities Projects in progress Others Total

Balance as of December 31, 2017 $ 336,260 26,574,913 58,117,948 246,567 17,957 85,293,645 Acquisitions - (2,579) 4,338 328,987 3,692 334,438 Depreciation - (1,609,756) (2,812,694) - (6,603) (4,429,053) Revaluation surplus 626,668 2,638,607 5,465,522 - - 8,730,797 Depreciation Revaluation - (433,204) (788,992) - - (1,222,196) Balance as of December 31, 2018 $ 962,928 27,167,981 59,986,122 575,554 15,046 88,707,631 Acquisitions - 7,379 65,399 398,348 1,607 472,733 Depreciation - (1,609,891) (2,810,892) - (1,260) (4,422,043) Depreciation Revaluation - (626,588) (1,096,572) - - (1,723,160) Balance as of December 31, 2019 $ 962,928 24,938,881 56,144,057 973,902 15,393 83,035,161

The acquisitions of 2019 include the following others assets disposals:

Asset Amount Concept

IT Equipment 1,430 Donation Office furniture 850 Donation Automobile 4,344 Sale The depreciation expense in 2019 and 2018 was $6,145,203 and $5,651,249 in 2018, respectively, and has been charged to administration expenses. Items of property, plant and equipment are initially measured at cost (which includes capitalized borrowing costs and expenditures that are directly attributable to the acquisition of the items) less accumulated depreciation and any accumulated impairment losses. If lands, buildings and equipment were stated at the historical cost basis, the amounts would have been as follows:

2019 2018

Cost $ 73,136,441 73,063,664

Accumulated depreciation (15,713,245) (11,292,462)

Total $ 57,423,196 61,771,202


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2019

Cost Cost Depreciation Total

Buildings and improvements $ 23,450,968 (5,690,706) 17,760,262

Machinery, equipment and facilities $ 49,685,474 (10,022,538) 39,662,936

$ 73,136,442 (15,713,244) 57,423,198

2018

Cost Cost Depreciation Total

Buildings and improvements $ 23,443,589 (4,080,815) 19,362,774

Machinery, equipment and facilities 49,620,074 (7,211,647) 42,408,427

$ 73,063,663 (11,292,462) 61,771,201 (11) Intangible-

Intangible assets include the following:

Patents Extension, Right to And Electrical use System Leased Trademarks Software Sub MINA II System PB3 Assets Total Balance as of December 31, 2017 $ 792,701 6,112 38,680 66,316 - 903,809 Acquisitions (40) 8,923 - - 2,665 11,548 Amortization - (3,008) (2,110) (3,617) (522) (9,257) Balance as of December 31, 2018 $ 792,661 12,027 36,570 62,699 2,143 906,100 Acquisitions - 16,293 - - - 16,293 Amortization - (6,647) (2,110) (3,617) (536) (12,910) Balance as of December 31, 2019 792,661 21,673 34,460 59,082 1,607 909,483

The amortization expense in 2019 was of $12,910 ($9,257 in 2018) and has been charged to administration expenses. (12) Leases- The Company leases the following assets:

Asset Average leasing years

remaining Railcars 7 IT Equipment (Servers) 7 Facilities 5 Cars 3 Machinery (Forklifts) 3


- 41 -

Lease payments are renegotiated every five years to reflect market rentals. Some leases provide for additional rent payments that are based on changes in local price indices. For certain leases, the Company is restricted from entering into any sub-lease arrangements. Information about leases for which the Company is a lessee is presented below.

Right of use

Railcars

Corporate

Building Machinery Vehicles

IT Equipment Total

Acquisitions $ 1,550,797 46,326 27,981 18,931 3,019 1,647,054

Depreciation (232,761) (10,489) (9,207) (7,704) (741) (260,902)

Balance at December 31, 2019

$

1,318,036

35,837

18,774

11,227

2,278

1,386,152

The lease liability recognized as of December 31, 2019, is as follows: Current $ 267,449 Non-current $1,093,206 I. Amounts recognized in profit or loss 2019 – Leases under IFRS 16 2019

Interest on lease liabilities $ 72,542 Expenses related to short term leases 2,416 2018 – Operating leases under IAS17 2019

Lease expense $ 1,233 II. Amounts recognized in statement of cash flows $72,542. Total cash outflow for leases

III. Extension options Some property leases contain extension options exercisable by the Company up to one year before the end of the non-cancellable contract period. Currently the Company has no intention to exercise the extension option for the current contracts, this situation is reassessed once each contract is about to end.


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(13) Financial Instruments by category- Accounting classifications and fair values The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value: Fair value

December 31, 2019 Carrying amount Level 1 Level 2 Level 3

e Financial assets not measured at fair value Cash and cash equivalents $ 4,766,801 - - - Accounts receivable 1,411,421 - - - Related parties 148,606 - - - $ 6,326,828 - - - Financial liabilities measured at fair value Derivate financial instruments (see Note 15) $ 98,120 - 98,120 - .

Financial liabilities not measured at fair value Bank loans $ 46,774,724 - - - Suppliers 980,021 - - - Related parties 42,804,789 - - - Payroll and related charges 119,849 - - - Accounts payable 518,476 - - - $ 91,197,859 - - -

Fair value

December 31, 2018 Carrying amount Level 1 Level 2 Level 3

Financial assets measured at fair value Derivate financial instruments (see Note 15) $ 343,121 - 343,121 - . E

Financial assets not measured at fair value Cash and cash equivalents $ 4,885,178 - - - Accounts receivable 2,505,195 - - - Related parties 678,217 - - - $ 8,068,590 - - - Financial liabilities not measured at fair value Bank loans $ 53,268,724 - - - Suppliers 1,425,447 - - - Related parties 42,355,366 - - - Payroll and related charges 143,597 - - - Accounts payable 770,277 - - - $ 97,963,411 - - -


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(14) Bank loans-

Project Finance

On December 19, 2012, the Company executed an agreement to finance the Etileno XXI Project (see Note 1), which amounted to USD 3,193,095 (Project Finance). The parties to the financing agreement (Common Terms Agreement) are Nacional Financiera de México (NAFIN), Banco Nacional de Comercio Exterior de México (BANCOMEXT), Banco Nacional de Desenvolvimento Econômico e Social de Brasil (BNDES), SACE the Exportation Credit Office of Italy, Export Development Canada (EDC), Inter-American Development Bank (IDB), International Finance Corporation (IFC) of the World Bank, and ten commercial banks that participate either in the tranche secured by SACE or the B-loan tranches of IFC and IDB. The average overall financing cost was 3.39% p.a. over LIBOR, including transaction cost, at the time of the execution of the financing agreement.

The Company´s investment was financed under a “Project Finance structure”, whereby the borrower (Braskem Idesa) must pay the whole financing exclusively with its own generated cash, counting on limited guarantees from the Shareholders (limited recourse Project Finance). According to the Common Term Agreement (CTA), the Project Finance is guaranteed through instruments common for this type of transaction, such as the Company’s general assets, receivables, cash generation and other rights from the project, as well as a limited commitment by the Shareholders to inject a limited amount of capital in case it is needed by Braskem Idesa. See the affirmative and negative covenants related to the Project Finance in Note 24.

In November 2019 the Company issued a ten year bond in the international capital market for the amount of $900 million of USD whose resources were used to repay in full the debts of the senior lenders Nacional Financiera de México (NAFIN), Banco Nacional de Comercio Exterior de México (BANCOMEXT) and Banco Nacional de Desenvolvimento Econômico e Social de Brasil (BNDES), and the excess amount was used to prepay proportionally the remaining Lenders under the existing Project Finance. The repayment of the bond is bullet at the maturity date.

The breakdown of charges and final maturities are as follows:

Current portion.

Identification

Contract value U.S.

dollar Value received

U.S. dollar Maturity Charges/ efective rate (% per

year) 2019 2018

Project finance I 700,000 700,000 February-2027 U.S. dollar exchange variation + quarterly Libor + 3.25

$ 1,254,939 11,844,956

Project finance II 210,000 210,000 February-2027 U.S. dollar exchange variation + 6.17

370,476 3,527,371

Project finance III 600,000 600,000 February-2029 U.S. dollar exchange variation + 4.33

940,354 10,056,352

Project finance IV 660,000 660,000 February-2029 U.S. dollar exchange variation + quarterly Libor + 3.88

1,018,711 11,090,939

Project finance V 400,000 400,000 February-2029 U.S. dollar exchange variation + quarterly Libor + 4.65

- 6,728,708

Project finance VI 90,000 89,994 February-2029 U.S. dollar exchange variation + quarterly Libor + 2.73

- 1,506,885

Project finance VII 533,095 533,095 February-2029 U.S. dollar exchange variation + quarterly Libor + 4.64

- 8,967,491

Bond 900,000 900,000 November-2029 Us dollar exchange variation + fixed Rate 7.45%

98,279 -

Transactions costs (194,438) (453,978)

Total 4,093,095 4,093,089 3,488,321 53,268,724

Current liabilities $ 3,488,321 53,268,724


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Non-current portion.

Identification

Contract value U.S.

dollar Value received

U.S. dollar Maturity Charges/ efective rate (% per

year) 2019 2018

Project finance I 700,000 700,000 February-2027 U.S. dollar exchange variation + quarterly Libor + 3.25

$ 8,815,360 -

Project finance II 210,000 210,000 February-2027 U.S. dollar exchange variation + 6.17

2,479,854 -

Project finance III

600,000 600,000 February-2029 U.S. dollar exchange variation + 4.33

7,728,323 -

Project finance IV

660,000 660,000 February-2029 U.S. dollar exchange variation + quarterly Libor + 3.88

8,721,425 -

Bond 900,000 900,000 November-2029 Us dollar exchange variation + fixed Rate 7.45%

16,960,680 -

Transactions costs

(1,419,239) -

- Total 4,093,095 4,093,089 43,286,403 Non Current liabilities

$ 43,286,403 -

This kind of Project Finance includes restrictive contractual clauses (covenants), customary in contracts of this nature (see Note 24). As of December 31, 2018, the Company was not in compliance with part of these restrictive contractual clauses, which among others, are the following: i. The Company was unable to achieve Physical Completion on or before their respective guaranteed

dates (November 30, 2016); ii. The Company was unable to achieve Financial Completion on or before their respective guaranteed

dates (December 31, 2016); The aforementioned breaches originated events of default that provided lenders of the Project Finance the right to accelerate the repayment of the debt. Although, lenders did not exercise such right during 2018 nor 2019, the entire balance of the long-term portion of the Project Finance, an amount equal to $48,450,688 as of December 31, 2018 was reclassified from non-current to current liabilities as a consequence of the events of default, in accordance with accounting standard IAS 1. The events of default mentioned in the paragraph above, were waived by the Senior Creditors under the Project Finance. On October 9, 2019 the Company obtained a consent and waiver, which effectiveness remains until December 31, 2020, by Deutsche Bank Trust Company Americas, a banking corporation organized and existing under the laws of the State of New York. As agent for the Senior Creditors (in such capacity, the “Intercreditor Agent”); therefore, the non-current portion of the bank loans as of December 31, 2019 has been adjusted and presented in the statement of financial position in accordance with its original maturity dates. The payment schedule shows the original long-term maturities solely, excluding the reclassification to current liabilities arising from the breach of contractual covenants, as of December 31, 2018, previously mentioned:


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2019 2018

2020 $ - 5,239,335 2021 3,939,711 5,960,292 2022 3,456,496 4,974,318 2023 4,355,409 6,543,746 2024 4,749,344 7,063,652 2025 4,294,731 7,031,145 2026 3,632,450 6,075,133 2027 1,688,075 2,960,679 2028 1,345,440 2,447,518

2029 and thereafter 17,243,985 517,901

Total $ 44,705,641 48,813,719

In accordance with the Company’s risk management strategy and based on its financial policy, Management contracted and designated derivative operations in order to offset the change in future debt-related financial expenses caused by the fluctuation of the LIBOR (see Note 15). (15) Derivative financial instruments-

Operation characteristics Identification Fair value

hierarchy Principal exposure

Derivatives Accumulate in OCI

Balance at 2018

Change in fair value

Financial settlement

Balance at 2019

Hedge transactions

Interest rate swaps

Level 2 LIBOR Fixed rate $ (1,046,409) (343,121) 391,547 76,723 125,149

Derivatives operations

(1,046,409) (343,121) 391,547 76,723 125,149

Current assets:

Non-current assets

$ (185,492) (106,489)

Current liabilities

183,809 (236,632)

27,029

Non-current liabilities

98,120

$ (1,683) (343,121) 125,149


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(a) Fair value hierarchy-

The Company follows IFRS 7 “Financial instruments: Disclosures” for financial instruments that are measured in the consolidated statements of financial position, that requires disclosure of measurements by level of the following fair value measurement hierarchy:

Level 1 - fair value obtained through prices quoted (without adjustments) in active markets for identical assets or liabilities, such as the stock exchange; and Level 2 - fair value obtained from discounted cash flow models, when the instrument is a forward purchase or sale or a swap contract, or valuation models of option contracts, such as the Black-Scholes model, when the derivative has the characteristics of an option. Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). At December 31, 2019 the Company does not have instruments of level 3. (b) Interest rate swap linked to LIBOR-

On December 31, 2019 and 2018, the Company held six interest rate swap contracts for a nominal value of thousands USD 703,708, aiming to mitigate a potential adverse effect of a floating rate variation (i.e. LIBOR 3m) over financial obligations). In these interest rates swaps, the Company receives floating rates (LIBOR 3m) and pays fixed rates periodically, coinciding with the financing cash flows. The term, amount, settlement dates and floating interest rates are the same critical terms that the Project Finance.

Nominal value Hedge

Identification: U.S. dollar (interest rate) Maturity 2019 2018

Swap LIBOR I - VI 703,708 LIBOR 3m Aug-2025 $ 125,149 (343,121)

Total $ 125,149 (343,121) Derivatives operations:

Non-current assets $ - (106,489) Current liabilities 27,029 (236,632) Non-current liabilities 98,120 -

Total $ 125,149 (343,121) (c) Financial instruments designated for hedge accounting-

Financial instruments designated for hedge accounting are presented in the consolidated statements of financial position at their fair value in an asset or liability account depending on whether the fair value represents a positive or a negative balance to the Company, respectively. The changes in the fair value are recognized as financial income or expense in the period in which they occur, except when designated and qualified for hedge accounting.


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The Company provides a continuous assessment of foreign exchange rate risks arising from its operations and from its financial assets and liabilities, addressing identified risks through hedging in the analysis of prospective transactions, seeking to customize the hedge accounting for each applicable transaction. The election of items for the application of hedge accounting follows IAS 39 and IFRS 7 - “Financial instruments: disclosures”. The hedge designation is not mandatory. In general, the Company will elect to designate financial instruments as hedge accounting when the application is expected to provide a significant improvement in the presentation of the offsetting effect on the changes in the hedged items. On October 1, 2014, the Company designated its liabilities related to Project Finance and on December 2, 2019, designated its liabilities related to bond issuance (see Note 14), both denominated in USD, as hedge instruments to protect highly probably future sales flows. Denominated in USD, as hedge instruments to protect highly probably future sales flows. Therefore, the impact of exchange variation on future cash flows in U.S. dollar derived from these sales in such currency will be offset by the exchange variation on the designated liabilities, partially eliminating the volatility in the results of the Company, without cash effect. Management of the Company believes these sales are highly probable, based on the following: • The hedged flow corresponds to less than 20% of the planned revenue flow of the project over the

designated period. The current amount of sales already meets the volume of designated hedge, which confirms the highly probable nature of the designated cash flow.

• The financing, obtained under a Project Finance structure and the bond issuance, will be settled

exclusively through the cash generation of the project (see Note 15). Therefore, the existence of the debt is directly associated with the highly probable nature of the future sales in U.S. dollar (in 2019, the Company exported its final products to more than 30 countries).

On December 31, 2019 and 2018, hedged sales amounted to USD 2,552,407 ($48,100,620) and USD 2,720,272 ($53,542,842), respectively, and were distributed as follows:

Exportation Total nominal value U.S. dollar year 2019 2018

2019 $ - 229,270 2020 179,982 266,690 2021 208,901 303,392 2022 183,300 253,204 2023 230,967 333,093 2024 251,869 359,559 2025 227,716 357,903 2026 192,592 309,240 2027 89,963 152,103 2028 71,898 124,654 2029 15,219 31,164 2030 225,000 - 2031 225,000 - 2032 225,000 - 2033 225,000 - Total $ 2,552,407 2,720,272


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The following table shows the changes in financial instruments designated for this hedge in the year:

Sales in discontinued (U.S. dollar)

December

2017 The year Hedge December

2018 The year

Realizations from

discontinued hedge Hedge

December 2019

Designated balance $ 2,930,246 (221,790) 400 2,708,856 (1,056,869)

420 900,000 2,552,407

On December 31, 2019 and 2018, the maturities of designated financial liabilities were distributed as follows:

Total nominal value U.S. dollar 2019 2018

2019 $ - 228,850 2020 179,982 266,187 2021 208,901 302,816 2022 183,300 252,723 2023 230,967 332,458 2024 251,869 358,873 2025 227,716 357,221 2026 192,592 308,650 2027 89,963 150,419 2028 71,898 124,347 2029 15,219 26,312 2030 225,000 - 2031 225,000 - 2032 225,000 - 2033 225,000 -

Total $ 2,552,407 2,708,856

The following table provides the balance of exchange variation of the discontinued amount net of realization already occurred in the year, which is recorded in Company’s Shareholders’ equity under “Other comprehensive income” and will be transferred to financial income (expense) according to the schedule of future hedged sales as they occur:

Total nominal

value U.S dollar

Conversion rate at inception Mexican pesos / U.S. dollar

Defined rate Mexican

pesos / U.S. dollar

Total nominal value

Mexican pesos

Hedge discontinued 10/12/19 32,066 13.4541 19.3247 $ 188,247

Hedge discontinued 02/12/19 795,533 13.6663 19.6113 4,729,444

Hedge discontinued 15/05/16 10,996 13.4541 17.9915 49,893

838,595 4,967,584


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The following table provides the balances of exchange variation recognized in Company’s financial income (expense) due to the realization of sales designated for this hedge in the year.

Total nominal value U.S

dollar

Conversion rate at inception Mexican pesos

/ U.S. dollar

Closing rate Mexican pesos/

U.S. dollar

Total nominal value Mexican

pesos

2019: First quarter

56,383 13.6544 19.2153 $ 313,540

Second quarter

56,383 13.6544 19.0768 305,731

Third quarter

57,629 13.6547 19.6178 343,647

Fourth quarter

58,875 13.6549 19.3564 335,676

* Total 229,270 1,298,594

Total nominal value U.S

dollar

Conversion rate at inception Mexican pesos

/ U.S. dollar

Closing rate Mexican pesos/

U.S. dollar

Total nominal value Mexican

pesos

2018: First quarter

53,889 13.6649 18.6631 $ 269,348

Second quarter

55,136 13.6560 19.4484 319,370

Third quarter

56,383 13.6536 18.8320 291,974

Fourth quarter

56,382 13.6537 20.2473 371,760

* Total 221,790 1,252,452

The changes in foreign exchange fluctuation and Income Tax under “Other comprehensive income” (OCI) are as follows:

Exchange Fluctuation

Income tax Net effect

At December 31, 2017 $ (17,867,895) 5,360,369 (12,507,526) Exchange fluctuation recorded in the period on OCI $ 235,612 (70,684) 164,928 Exchange fluctuation transferred to profit or loss / income tax 1,252,856 (375,857) 876,999 At December 31, 2018 $ (16,379,427) 4,913,828 (11,465,599)


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Exchange

Fluctuation Income

tax Net effect Exchange fluctuation recorded in the period on OCI $ 2,223,054 (666,916) 1,556,138 Exchange fluctuation transferred to profit or loss / income tax 1,298,594 (389,580) 909,014

At December 31, 2019 $ (12,857,779) 3,857,332 (9,000,447)

For the purposes of analyzing the prospective and retroactive effectiveness of the transactions, the Company used the U.S. dollar offset and volatility reduction coefficient methods, respectively. The realizations expected for 2020 will occur in accordance with the payments under the Project finance, and the exchange fluctuation recorded in OCI will be written off to the financial results. Below is the quarterly schedule of hedged sales in U.S. dollar in 2020:

Nominal value U.S. dollar

First quarter $ 61,369 Second quarter 65,612 Third quarter 69,855 Fourth quarter 69,855

Total $ 266,691 (16) Accounts payable and other accrued expenses-

2019 2018

Accruals $ 122,423 405,355 Royalties 165,648 228,608 Taxes 26,783 36,265 Others 4,770 3,993 Advance payments from clients 198,852 96,056

Total $ 518,476 770,277 (17) Employee benefits-

(a) Reconciliation between the DBO (Defined Benefit Obligation) present value and the NPL (Net Projected Liability) as recognized in the consolidated statement of financial position is presented as are shown as follows:

Seniority Severance premium termination Total

December 31, 2019

Liability recognized in the consolidated statement of financial position at the beginning of the year $ 2,160 37,615 39,775 Expense recognized in profit and loss 717 9,316 10,033


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Actual net benefits paid out - - - OCI liabilities losses 2,078 1,572 3,650 Liability recognized in the consolidated statement of financial position at year end $ 4,955 48,503 53,458 Seniority Severance premium termination Total December 31, 2018 Liability recognized in the consolidated statement of financial position at the beginning of the year $ 1,851 39,612 41,463 Expense recognized in profit and loss 674 10,761 11,435 Actual net benefits paid out (135) (2,015) (2,150) OCI liabilities losses (230) (10,743) (10,973) Liability recognized in the consolidated statement of financial position at year end $ 2,160 37,615 39,775

An analysis of the Period Net Cost (PNC) by plan type is presented as follows:


December 31, 2019: Current net service cost $ 526 6,221 6,747 Interest cost 191 3,095 3,286 OCI remeasurement gains 2,078 1,572 3,650 Actual net benefits paid out - - - Total amount expense recognized in profit & losses $ 2,795 10,888 13,683

Seniority Severance premium termination Total December 31, 2018: Current net service cost $ 543 8,447 8,990 Interest cost 132 2,314 2,446 OCI remeasurement losses (230) (10,743) (10,973) Actual net benefits paid out (135) (2,015) (2,150) Total amount expense recognized in profit & losses $ 310 (1,997) (1,687)


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Actuarial assumptions

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

2019 2018

Discount rate 7.25% 7.5% Rate of increase minimum Wage 5% 4% Rate of increases in pensionable salaries 3.5% 5% (18) Shareholders' equity-

The Company’s capital stock at December 31, 2019 is represented by 301,192 common, registered shares, paid in cash, of which the shares were subscribed by the stockholders. The shares are divided into two classes: Class “A” and Class “B”, as follows:

Ordinary shares Share capital 2019 2018 2019 2018

Class “A” (Braskem Netherlands B. V.) 225,892 225,892 $ 4,330,850 4,330,850 Class “A” (Braskem S. A.) 1 1 19 19 Class “B” (Etileno XXI, S. A. de C. V.) 75,299 75,299 1,443,649 1,443,649

301,192 301,192 $ 5,774,518 5,774,518 All rights attached to the Company’s shares are entitled to vote per share at general meetings of the Company and are entitled to ordinary economic rights. Net income is subject to the legal requirement that at least 5% of the income for each year is intended to increase the legal reserve until it is equal to one fifth of the amount of the capital stock.

Dividends paid are not subject to income tax if paid from the Net Tax Profit Account (CUFIN by its Spanish acronym). Any dividends paid in excess of this account will cause a tax equivalent to 42.86% if paid in 2019. The current tax is payable by the Company and may be credited against its income tax in the same year or the following two years. Dividends paid coming from profits previously taxed by Income tax are not subject to tax withholding or additional tax payment. As of December 31, 2019 and 2018 there is no CUFIN, therefore any dividend is subject to income tax. By December 31, 2019, the Company had lost more than two thirds of its capital stock, as a result of non-cash foreign exchange fluctuations, accrued interest of loans and pre-operational expenses due to the complex building, according to the company financial policy, Braskem Idesa, S. A. P. I. maintain most of its liabilities in US dollars. The loss of capital stock, according to the General Law of Commercial Societies, should be reported as it could increases the risk of a corporate dissolution.

(19) Revenue-

Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control – at a point in time or over time – requires judgment.


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Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it transfers control over a good to a customer.

Sale of materials – Polyethylene

Revenue recognition under IFRS 15

Revenue is recognized when the materials are delivered and have been accepted by customers as per the agreed delivery conditions. For contracts that permit the customer to return the materials, revenue is recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on the historical data for specific types of polyethylene. In these circumstances, a refund liability and a right to recover returned goods asset are recognized.

The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recover materials. The refund liability is included in other payables (see Note 16) and the right to recover returned materials is included in inventory (see Note 7). The Company reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly. In the following table, revenue from contracts with customers is disaggregated by primary geographical market, major products and service lines and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue presenting primary geographical markets as follows:

2019 2018 Primary geographical markets: Domestic Market $ 8,796,698 13,741,221 External Market: USA 1,449,417 1,113,150 Europe 1,307,533 1,285,453 Central America, Caribbean and South America 1,774,017 2,283,553 Overseas 1,562,863 1,407,168 $ 14,890,528 19,830,545

Major products lines: High density Polyethylene $ 9,987,834 13,545,501 Low density Polyethylene 4,700,533 5,727,024 Polypropylene 38,120 - Others 164,041 558,020

$ 14,890,528 19,830,545


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(20) Costs and other expenses (income) by nature-

2019 2018 Raw material, costs and depreciation $ 12,920,358 12,451,375 Outsourced services and personnel costs 889,208 1,137,028 Other operating expenses 341,685 359,568 Taxes, other than income taxes 19,346 17,814 Depreciation 527,262 243,717 Freights 964,278 859,178 Insurance 2,465 3,222 Other (income) (1) (1,597,976) (1,690,920)

$ 14,066,626 13,380,982

(1) Compensations of damages (received) paid in accordance with the purchases/sales agreement describe in Note 24. (21) Financial results- 2019 2018 Financial income: Interest $ 146,770 122,926 Derivatives 79,298 34,184 Other 2,304 369

$ 228,372 157,479

Financial expenses: Interest – Borrowings $ (3,024,911) (3,162,598) Interest - Related parties (2,201,317) (2,195,508) Amortization interest (228,516) (98,895) Derivatives (1,623,616) (257,192) Other (95,219) (19,724)

$ (7,173,579) (5,733,917)

Exchange rate effect $ 1,630,067 (1,149,625)

Net total $ (5,315,140) (6,726,063) - Financial income primarily consists on (a) interest income of short-term investments mainly invested

in (i) commercial papers of a corporations with the highest credit rating obtainable from S&P or Moody´s and (ii) US Treasury Bills, both investments with an average maturity of 30 days, and (b) interest rate swap (IRS) linked to Libor, the floating rate was higher than the fixed rate (1.98%)

- Financial expenses primarily consist of accrual and amortization of interest for borrowings, related

party non-cash interests, and, losses from hedge accounting and others.


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(22) Income tax-

(a) Income Tax (ISR, for its initials in Spanish)-

i. Income tax of the year is calculated by applying a 30% rate on the taxable profit. In 2019 and 2018, the Company determined an expected tax (benefit) expense profit of $(1,347,371) and $(82,950), respectively. The taxable result differs from the accounting result mainly in such items cumulative in time and deducted differently for accounting and taxes purposes, by the recognition of inflation effects for tax purposes, as well as such items only affecting either the accounting or taxable income.

ii. The analysis of deferred tax assets and (liabilities) is as follows:

2019 2018 Deferred tax asset: Deferred tax recoverable within the following 12 months $ 9,555,557 9,740,059 Deferred tax recoverable after 12 months 269,253 155,872

9,824,810 9,895,931

Deferred tax liability: Deferred tax recoverable within the following 12 months $ (901,426) (420,462) Deferred tax recoverable after 12 months (11,762,500) (12,256,368)

(12,663,926) (12,676,830)

Deferred (liability) tax asset – Net $ (2,839,116) (2,780,899) iii. The income tax (expense) benefit is analyzed as follows:

2019 2018 Income tax (expense) benefit: Current income tax $ 16,282 (25,906) Deferred income tax (437,260) (569,877)

(420,978) (595,783)

iv. The income tax recognized directly in equity as of December 31, 2019 and 2018 is as are shown as

follows:

2019 2018 Deferred tax arising in the reporting period and not recognized in net loss or other comprehensive income but directly debited or credited to equity:

Income tax from revaluation of fixed assets $ (516,948) (2,252,580) Income tax from hedging 5,184,774 (570,272) Income tax from actuarial gain (loss) (1,095) (3,292)

$ 4,666,731 (2,826,144)


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v. At December 31, 2019 and 2018, the main temporary differences on which the deferred income tax was recognized are analyzed as follows:

2019 2018 Deferred tax asset: Tax losses $ 31,851,858 32,308,041 Allowance for doubtful accounts 6,177 6,125 Accruals 578,248 633,265 Others 313,084 38,262

$ 32,749,367 32,985,693

Deferred tax liability: Property, plant and equipment $ (39,359,133) (40,853,817) Prepaid expenses (1,150,142) (1,008,965) Other (1,703,811) (392,575)

(42,213,086) (42,255,357)

(9,463,719) (9,269,664) Applicable statutory tax rate 30% 30% Deferred tax (liabilities) asset – Net $ (2,839,116) (2,780,899)

vi. At December 31, 2019 and 2018 the Company had accumulated tax loss carryforwards for a total of

$31,851,858 and $32,308,042, respectively, whose right to be amortized against future taxable income is subject to certain conditions and expires as follows:

At December 31,

Year of loss 2019 2018 Year of expiration

2015 $ 10,095,923 11,148,797 2025 2016 21,755,935 21,159,245 2026

$ 31,851,858 32,308,042

In 2019, the Company will expect to amortize $1,044,076 and in 2018 amortized $5,370,603 respectively against taxable income.

vii. The net movements of the items comprising the deferred tax asset balances as of December 31, 2019 and 2018 are as follows:

Tax Furniture and

equipment Accrued

for liabilities Other Total

Balance at December 31, 2017 $ 10,510,705 (10,013,631) 75,546 (34,580) 538,040 Deferred income tax from the previous year's - - - 77,082 77,082 Tax charged or credit in consolidated statement of income

(818,293) 10,067 59,712 178,637 (569,877)

Tax charged or credited in other comprehensive income - (2,252,580) - (573,564) (2,826,144)

Balance at December 31, 2018 9,692,412 (12,256,144) 135,258 (352,425) (2,780,899)


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Tax Furniture and equipment

Accrued for liabilities Other Total

Deferred income tax from the previous year's - - - - - Tax charged or credit in consolidated statement of income (136,855) (68,543) 101,569 541,089 437,260 Tax charged or credited in other comprehensive income - 516,948 - (1,012,425) (495,477)

Balance at December 31, 2019 $ 9,555,557 (11,807,739) 236,827 (823,761) (2,839,116) Income tax expense (benefit) attributable to income (loss) from continuing operations before income taxes and OCI, differed from the amounts computed by applying the Mexican statutory rates of 30% IT to income (loss) before income taxes and OCI, as a result of the items shown below:

2019 2018

Computed “expected” tax expense (benefit) $ (1,347,371) (82,950) Increase (reduction) resulting from: Effects of inflation, net 640,271 1,149,320 Non-deductible expenses 32,703 32,760 Other income (9,346) (2,954) Employee benefits (3,030) (3,292) Excess in beginning balance of deferred taxes asset - (71,728) Other, net 265,795 (425,373) IT expense (benefit) $ (420,978) 595,783

(23) Insurance coverage-

In compliance with the Project Finance requirements, the Company maintains a broad risk and insurance management program. Specifically, with regards to risk management, the risk assessment and loss control practices in place follow the guidelines adopted by Braskem, S. A. The information on the (all risks) Property and Terrorism policies in effect is presented below:

Acquisition Year Maturity

Effectiveness (in days)

Maximun Property Indemnity

Limit U.S. Dollar (million)

Terrorism indemnity limit U.S.

Dollar (million) Amount Insured

2018 April 9, 2020 548 2,836 1,273 4,109

Additionally, the Company carries General Liability, Pollution Liability, Cargo, and Vehicle insurance.


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(24) Commitments and contingencies- (a) Leases The Company leases facilities for administrative offices and warehouses, as well as certain computer and transportation equipment, under defined term lease agreements. Total rental expense, reported under expenses, aggregated $261,122 in 2019 and $302,270 in 2018. Total rents payable through 2027 under these agreements are as follows:

2020 $ 222,306 2021 214,077 2022 213,613 2023 216,167

2024 and thereafter 551,661

$ 1,417,824 (b) Liquidated Damages On February 19, 2010, the Company entered into a 20-year ethane supply agreement (“ESA”) with the predecessor entity of Pemex Transformation Industrial (PEMEX). The ESA started on June 2015 and ends on June 2035. The ESA establishes, among others things, the following terms: - PEMEX has the obligation to deliver and the Company has the obligation to take the Contract Volume

of ethane, which is defined by the ESA as an average of 66,000 barrels per day. - In the event of a failure to deliver the Contract Volume during such month, Pemex may compensate

the shortfall through deliveries of additional ethane during the subsequent two consecutive Quarters. Any failure to do so will require PEMEX to pay Liquidated Damages to the Company, whose calculation were agreed between the parties based on the average price of ethane during the period when the breach occurred, multiplied by the volume of the shortfall.

- In the event of a failure to take the Contract Volume during such month, the Company may

compensate the shortfall through taking additional ethane during the subsequent two consecutive Quarters. Any failure to do so will require the Company to pay Liquidated Damages to PEMEX, whose calculation were agreed between the parties based on the average price of ethane during the period when the breach occurred, multiplied by the volume of the shortfall.

- The payment of the Liquidated Damages is performed through the delivery of Notes of credit notes

of Debit, as established in the ESA; for such purposes, the parties schedule a meeting for purposes of calculating the volume of ethane effectively delivered during the corresponding quarter and the determine amount of Liquidated Damages allocated.

As of the date of this financial statements: • The issuance of the credit note corresponding to the shortfall of ethane supply for the first and second

quarter of 2019 are still pending of issuance for amount of $444 million and $293 million, respectively.


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• The shortfall for the third quarter of 2019 and fourth quarter of 2019 are still subject to the compensation period described above.

The Liquidated Damages above mentioned, as of and for the years ended on December 31, 2019 and December 31, 2018, were booked as Other Assets and in Other Income (Expenses), in the statements of financial position and comprehensive income, respectively. The volume of ethane received and paid by the Company in 2019 and 2018 was 1,017 and 1,014 ktons, at an average price of 124 USD and 171 USD per ton, respectively. (c) Covenants In conformity with the “Common Term Agreement” (bank loans agreements, see note 14) between the Company and the lenders, the Company should comply with the following covenants: Affirmative covenants Use of proceeds - The Company shall cause the proceeds of the disbursements to be applied only to fund the Project Finance costs to the extent permitted and otherwise as contemplated by the finance documents. Existence, conduct of business - The Company shall maintain and preserve its existence as a Mexican Sociedad Anónima Promotora de Inversión (S. A. P. I.) and maintain and preserve all entity rights, privileges and franchises necessary for the maintenance of its corporate existence and the normal conduct of its permitted business. Execution of the Project - (a) The Company shall cause the Project to be designed, constructed, operated, maintained and repaired in all material respects in accordance with (i) Prudent industry practices, (ii) the material transaction documents, (iii) all applicable legal requirements and project governmental authorizations, (iv) any warranty provisions provided in any project document or by any subcontractor, manufacturer or licensor of any equipment or process incorporated into the Project (v) the requirements of, and so as not to vitiate in any material respect, all insurance policies, (vi) all environmental and social requirements, and (vii) the conflict of interest policy and related parties transactions policy. (b) The Company shall take or cause to be taken all action reasonably necessary to (i) execute the Project in accordance with the EPC Contracts, and (ii) cause the Physical Completion Date and the Financial Completion Date to occur not later than the Guaranteed Physical Completion Date and the Guaranteed Financial Completion Date. Insurance - Keep its properties and business insured and maintain or cause to be maintained all other insurance that is required by any applicable legal requirement. Hedging - The Company shall (i) enter into the required hedging agreements and cause each hedge counterparty thereto to execute and deliver an inter creditor accession agreement, and (ii) maintain all hedging agreements in full force and effect. Preservation of collateral - The Company shall, at its own expense, undertake all actions that are necessary or determined by the collateral representatives to be reasonably advisable and requested by the inter-creditor agent or any secured party, to: (i) establish, maintain, preserve, protect, renew, register and perfect the liens on the collateral in full force and effect at all times in accordance with the security documents (ii) preserve and protect the collateral and protect and enforce the Company's and any other obligor's rights, interests and title in and to, and the collateral representatives’ lien on, the collateral in accordance with the


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security documents (iii) ensure that the lien on such collateral, will, to the extent possible under the applicable legal requirements, be a valid and effective first priority security interest pursuant to, and in accordance with, the terms of the security documents (iv) ensure that the payment obligations of the Company under the finance documents in priority of payment with all other senior and unsecured unsubordinated debt of the Company, and (v) enable the collateral representatives and the other secured parties to exercise and enforce their rights, powers, remedies and privileges under the security documents without limiting the generality of the foregoing. Accounts - The Company shall (a) establish, fund and maintain all Accounts as required in accordance with the Trust Agreements and (b) ensure that at all times after May 15, 2016, the amount then standing to the credit of the Debt Service Reserve Account is not less than the then-applicable Required Balance for this Account. Negative covenants Debt -The Company shall not, and shall not agree to, incur, create, assume, permit, endorse or be liable directly or indirectly for any debt, except for permitted debt; provided, however, that upon the incurrence of such permitted debt, no default or event of default shall have occurred and be continuing. Restricted payments - The Company shall not make any restricted payment unless such payment (i) is a distribution or an off taker restricted payment made, (ii) is an off taker subordinated payment made, (iii) is made from funds standing to the credit of an unrestricted account or (iv) is made to reimburse any replaceable base equity contributions with proceeds of replacement debt or shortfall debt; provided, however, that the Company shall not apply any funds standing to the credit of the unrestricted USD account to the payment of any Shareholder loan unless the leverage ratio. Distributions and off-taker restricted payments - The Company shall not make any distribution or off-taker restricted payments unless made within a distribution period and unless each of the following conditions has been satisfied: (a) the financial completion date shall have occurred; (b) the Company shall have repaid the first installment of principal of the Senior debt due on the initial repayment date, (c) the first mandatory prepayment shall have been made in full, and all other mandatory and voluntary prepayments that are then due and payable, (d) (i) no default or event of default shall have occurred and be continuing, (ii) no default or event of default could reasonably be expected to occur as a result of such distribution or off-taker restricted payment being made, and (iii) such distribution or off-taker restricted payment complies in all other respects with applicable legal requirements. Liens - The Company shall not, and shall not agree to, create, assume or permit to exist any lien upon any of the properties of the Company, whether now owned or hereafter acquired, other than permitted liens. Disposition of Assets - The Company shall not dispose of all or any part of its property, including its interest in the project, whether now owned or hereafter acquired, except for permitted dispositions. Waivers, modifications and reserved discretions - The Company shall not, without the prior written consent of the inter-creditor agent, directly or indirectly. Permit or issue any notice or take any other action, or omit to take any action that could reasonably be expected to prejudice the validity, enforceability, priority or effectiveness of, or lead to, the revocation, avoidance, cancellation, suspension, rescission or termination of any material transaction document.


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Investments - The Company shall not make or own any investments or assume any liability in respect of any investment, or otherwise become obliged, actually or contingently, in respect of any investment of any other person, except for the permitted investments defined in the project contracts. Bank accounts - The Company shall not open or maintain any bank accounts or security accounts other than (a) the accounts, (b) the unrestricted accounts and any sub-account thereof. Affiliate transactions - The Company shall not, directly or indirectly, enter into any activity, business, arrangement or transaction, or series of related transactions, with any affiliate of the Company, except in the ordinary course of business, on commercially reasonable terms at least as favorable to the Company as would be obtainable by the Company at the time in a comparable arm's-length transaction and either pursuant to an affiliate project document delivered pursuant or with the prior written consent of the inter-creditor agent. Abandonment - The Company shall not (i) abandon the project or any material part thereof, (ii) discontinue construction or operation of the project or suspend all or substantially all of its activities in connection with the project for a period of thirty (30) consecutive days or ninety days in the aggregate. Merger, consolidation, liquidation, dissolution - The Company shall not, merge, consolidate with or into any other person or enter into any amalgamation, joint venture, partnership or analogous relationship with any person or liquidate, wind up, dissolve, or otherwise dispose of all or substantially all its property, nor agree to any such transaction or action. Immunity - In any judicial or arbitral proceedings, the Company shall not, claim or assert for itself, its respective property or the project any immunity as against any secured party from suit, execution, attachment or other legal process, whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution, sovereign immunity or otherwise. Corrupt practices - The Company shall not, directly or indirectly, make any payment to or take any payment from any official or any governmental instrumentality in order to influence the decision of such official or such governmental instrumentality, or to gain any other advantage, in connection with the project, or engage in any sanction able practice. As mentioned in Note 14, as of December 31, 2018, the Company was not in compliance with certain of the Common Term Agreement obligations. On October 9, 2019, the Company obtained a consent and waiver, which effectiveness remains until December 31, 2020, by Deutsche Bank Trust Company Americas, a banking corporation organized and existing under the laws of the State of New York, as agent for the Senior Creditors (in such capacity, the “Intercreditor Agent”). Therefore, the non-current portion of the bank loans as of December 31, 2019 has been adjusted and presented in the statement of financial position in accordance with its original maturity dates. Financial Ratios The Company shall be deemed to have satisfied the Debt Service Coverage Ratio (DSCR) covenant with respect to any Calculation Date as of which the average DSCR for the most recently ended two consecutive fiscal quarters was less than 1.05:1.00. At the date of this report the Company is not subject to the fulfillment of this financial ratio, since it has not achieved Financial Completion.


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(25) Statements of cash flows-

At December 31, 2019 and 2018 the bank loans analysis are shown below: 2019 2018 Balance at January 1 $ 53,268,724 57,652,887 Borrowing interest 3,024,911 3,155,907 Interest paid (3,037,014) (3,103,841) Bank loans paid (4,439,987) (4,244,705) Bond issue 17,649,000 - Prepayment senior debt (15,600,413) - Bond issue expenses (2,048,587) - Unrealized exchange rate loss (2,041,910) (191,524)

Balance at December 31 $ 46,774,724 53,268,724 At December 31, 2019 and 2018 the related parties analysis are shown below:

2019 2018 Balance at January 1 $ 41,963,221 39,424,023 Borrowing interest 2,201,317 2,589,189 Unrealized exchange rate loss (1,748,257) (49,991)

Balance at December 31 $ 42,416,281 41,963,221

(26) Subsequent events-

I. From January 1, 2020 and up to the date of our report, the Company has made payments relating to the Project Finance of USD $ 63,832.

II. The Company has invested in a solution to import ethane, aiming a supply volume of 12,8 kbpd at full

capacity, through the support of experienced private operators. Operation started reception of the first imported ethane ship on February 6th, 2020. The operation consists on importing ethane from US to a port in Coatzacoalcos (API) and transportation from port to our Plant using trucks. The total investment was around US$ 4.5 MM. As of January 31st, 2020, the Company has invested US$4.3 MM. While the rest will be registered and paid during the first quarter of 2020.

III. Based on the best internal information and available external sources, the Company does not see any

impact on and the ability to continue as a going concern. However, it is monitoring the situation and making all the efforts to ensure the safety of its staff as well as to adapt its processes to continue services and operations without disruption. Oil prices decreasing trend, even before COVID-19 and worldwide demand may affect negatively our sales prices and results (EBITDA) nevertheless the company is looking forward to maintaining its competitiveness compared to other producers.


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Recently Fitch Ratings and Standard & Poor´s have both reduced the rating of Pemex from ‘BB+’ to ‘BB’ and from ‘BBB+’ to ‘BBB’ with a negative outlook, respectively. At this stage, the company does not expect material adjustments for credit notes to be received from Pemex due to the change in Pemex ratings.

(27) Standards issued but not yet effective- A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Company’s consolidated financial statements. – Amendments to References to Conceptual Framework in IFRS Standards. – Definition of a Business (Amendments to IFRS 3). – Definition of Material (Amendments to IAS 1 and IAS 8). –– IFRS 17 Insurance Contracts.

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