/Message from the Chairman of the Board of Directors
2014 was a year of challenges met for Pochteca as evidenced by the strong results we are reporting. Although economic growth was stronger than in 2013, we have yet to see a frank recovery in demand. Just like in 2013, the prices of many raw materials decreased substantially. Another adverse development was the collapse of oil prices, which by year’s end had plunged more than 50% from their mid-year high.
Successful integration of Coremal
During 2014 Pochteca integrated the operations of Coremal, which accounted for 26% of consolidated sales and 19% of EBITDA. We believe Coremal’s contribution can grow in the future. Our priority is to implement Pochteca’s management model and harmonize processes in both countries and to grow the sale of Pochteca’s products that Coremal does not sell at present.
One-stop-shop service proposal and diversification into blends
We believe our one-stop-shop approach paid off in 2014 as it offset the impact of falling prices and allowed us to expand gross margins. We offer a broad portfolio in a single channel, developing products tailored to meet our clients’ needs, and with both pre- and post-sales professional technical support. Another factor that has helped us to boost profitability in an adverse environment is our diversification into higher-margin and less-volatile products such as blends and sales of packaged products.
Focus on customer and product diversification
Risk diversification remains a company priority. We cater to a great number of customers in different industries by offering a broad range of products while keeping dependency to a minimum. No client or product accounted for more than 3% of 2014 sales.
Net debt totaled Ps 628 million at the end of 2014, practically in line with that of 2013. We successfully refinanced a Ps 610 million syndicated loan during the fourth quarter that was scheduled to mature in June 2015. The new credit is for four years with a one year grace period.
Our debt metrics reflect a strong financial position. Thanks to our solid results and the successful consolidation of Coremal, at the end of 2014 net debt to EBITDA was 2.0 times, which is exactly in line with our policy of keeping it to a maximum of 2 times. Following the acquisition of Coremal, net debt to EBITDA rose to 2.8 times, but we managed to bring it back down to 2 times thanks to an efficient generation of EBITDA.
We are optimistic regarding the company’s prospects for 2015. We do not anticipate a sudden reactivation of the economy or of demand for our products. Moreover, we expect the prices of most of our products to remain depressed. Nevertheless, we are confident that our one-stop-shop proposal will continue to help us penetrate new businesses and expand market share.
We see export manufacturing and energy reform as key growth drivers in Mexico. Manufacturing remains one of the brightest spots in the Mexican economy and our exposure to export manufacturing is a great source of strength for the company. We expect Mexico’s energy reform will further bolster manufacturing and that more foreign firms will look to Mexico to supply the US market as the competitive gap relative to China continues to close.
Looking ahead, we are confident that we are well positioned to benefit from the increased oil exploration and drilling that the energy reform is expected to bring; close to 8% of our sales are geared directly to those industries.
And despite the complicated situation Brazil is experiencing, we believe that Pochteca enjoys major growth opportunities in that country. The chemicals market is much larger than that of Mexico and Coremal’s market share is as yet quite small. We continue to strengthen Coremal’s operations, processes and management model in order to achieve a more efficient and profitable operation. We will also continue to do everything in our power to assure that Coremal begins to sell products in Brazil with which Pochteca has vast experience such as chemicals for the food industry and for oil exploration and drilling.
Pochteca is well prepared to deal with the challenges we encounter in 2015 and to continue to grow by taking advantage of each opportunity as it arises. We are armed with capable personnel, solid cash flows and a strong financial position, factors that underpin our optimism regarding the business’ future prospects.
I wish to recognize and thank our shareholders, colleagues, clients, suppliers, and financial institutions for the support they gave us in 2014.