/Market outlook for Mexico and Brazil

Market outlook for Mexico and Brazil


Challenges surpassed in 2014, environment remains complicated for 2015

2014 proved to be a complicated year, one full of challenges both at home and abroad that we managed to successfully overcome. We were able to clear the hurdles posed by plunging prices for oil - 46% in 2014 - and the petroleum derivatives we sell, whose prices decreased between 10% and 30%. Other products that account for a significant share of our sales such as dairy and corn derivatives and mining inputs also experienced significant price drops. Much of the oil exploration and drilling sector remains illiquid, making it impossible so far to normalize the recovery of accounts receivable from many of its players, a situation that has forced us to limit sales to that sector.

Successful integration of Coremal

2014 was the first year in which Grupo Pochteca incorporated the operations of Coremal, a family owned company with 62 years of experience in the business of distributing chemicals in Brazil. We are optimistic on Coremal’s prospects despite the obstacles the Brazilian economy is currently facing. We see various factors that can help to offset the effects of an adverse business environment. The chemicals market in Brazil is significantly larger than that of Mexico and Coremal’s market share remains very small. There are many products that Coremal has yet to offer in Brazil with which Pochteca has vast experience such as chemicals for the food and oil exploration and drilling industries. Both Pochteca and Coremal stand to benefit greatly from cross selling between the two countries.

Export manufacturing and energy reform: key growth drivers

Manufacturing is a bright spot of the Mexican economy. In the past two years it has been strong and it remains strong. We view our exposure to export manufacturing as a great source of strength for Pochteca. 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.

We also believe that our company is well positioned to benefit from the growth Mexico’s energy reform is expected to attract in exploration and drilling activities as close to 8% of our sales are directly geared toward those sectors.

There are multiple products that Coremal does not sell in Brazil and in which Pochteca has vast experience

In some ways the sharp drop in oil prices in 2014 overshadowed the significance energy reform holds for Mexico. However, we are confident the benefits Mexico’s energy reform was expected to bring are in no way eliminated though they may take longer to come to fruition and prove less pronounced in some regions than originally projected.

We have placed greater emphasis on personnel training

Looking forward, we expect all of our operations will benefit once we begin to see an end to the periodic gas shortages that affect a significant share of our customers (and force entire industries to suspend operations), and the supply of electric energy becomes more constant and the prices of both electric power and natural gas gradually decrease.

We do not anticipate a sudden reactivation of the economy or of demand for our products in 2015. In fact 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 in those that we already attend to.

Pochteca Monterrey