Three main factors led to the weakening of our results, especially on the levels of gross income (-3%), gross margin (-70bp), operating income (-48%) and EBITDA (-27%).
The first one is the deterioration of industrial activity in Brazil, which in each of the past three years decreased at 12 month rates of: 3.2% in 2014, 8% in 2015, and 6.6% in 2016. This situation has adversely affected Pochteca’s operations in Brazil and led to a sharp reduction in demand for our products given that industrial activity is the main sales driver of our Brazil business.
It is also important to note that Brazil’s GDP weakened considerably after Pochteca acquired Coremal in December 2013. The country’s economy grew a mere 0.5% in 2014 and then fell 3.8% in 2015 and by 3.5% in 2016.
Secondly, there is the recession in the oil and gas industry that extends to both Mexico and Brazil. According to data published on line by Baker Hughes, the number of active rigs in the United States, Mexico and Brazil continued to fall significantly during 2016 with declines of 18%, 51% and 66%, respectively.
Moreover, the number of active rigs in Mexico has fallen from a peak of 120 at the beginning of 2013 by almost 84%, leaving only 19 operating at the end of 2016. During that same period the contraction was 82% in Brazil and 63% in the USA. Oil exploration and drilling activity is a key sector for Pochteca, and we do not foresee a recovery in either the near or intermediate terms.
The third negative factor has been price deflation in the case of most of the products we sell.
However, amid the continuing complexities of the environment we are faced with, one favorable development was the recovery of oil prices, which increased 45% between 2015 and 2016 from US37.04 to USD53.72 per barrel. It is important to mention that we have witnessed recently upward movement in the prices of some products, including petroleum derivatives.