 Okay. I think we're ready to start. Sorry for some of the technical difficulties. Good afternoon, everyone. My name is Ryan Oklowitz. I'm the Global Marketing Manager with PMMI. On behalf of PMMI and the Global Marketing Committee, I want to thank you for joining the webinar today. Today's webinar is one in a series of webinars, seminars, and events that we've planned this year to help PMMI members grow their export sales. To find out what other events we have in the pipeline, including events and services at the upcoming ExpoPAC Mexico Show, I encourage you to take a moment today and visit PMMI.org backslashglobal. Today's webinar explores the Mexican market for packaging and processing machinery. Mexico has been a very interesting story over the past 15 years or so. It's interesting because Mexico has made strides to reform its economy by embracing openness and financial stability. Mexico is now outpacing Brazil in terms of GDP growth for the past four years. And many analysts now predict Mexico will surpass Brazil as the number one economy in Latin America by 2022. All of this can be seen in the takeoff and factories of investments over particularly the last two years. Just last month, Constellation Brands, which is the owner of Negro Medello and Corona announced they're going to invest $1 billion in their Mexican factories to ramp up Corona exports to the U.S. And last year, we saw Nestle, PepsiCo, and Coca-Cola FEMSA all announce $1 billion investments in Mexico, with PepsiCo perhaps making the largest announcement, stating that they will invest $5 billion over the next five years in Mexico. There's a lot of business to be had. And this optimism is translated over to our industry as well. We had 10,000 attendees visit ExpoPAC Guadalajara last March, and we are expecting another 25 to 30,000 buyers at ExpoPAC Mexico in two weeks in Mexico City. To help us tap into the growing opportunities in Mexico, with us today is Luis Dominic, partner at Mila Consulting Group based in Mexico City. Luis has extensive experience analyzing the packaging machinery and capital goods sectors in Mexico, conducting many market research reports for PMMA members over the past 15 years. He is here today to share his findings of a newly released report, which is available for download on PMMI.org. Before we get started, some quick housekeeping items. I want to bring to your attention you have entered the webinar in muted mode. And if you'd like to ask a question at any time during the presentation, to please enter it in the chat box on the lower left-hand portion of the screen. All questions will be read at the end of the presentation. Also, this webinar is being recorded, so we will share both the presentation and audio with you after we conclude here today. So without further ado, I will happily turn the presentation over to Mr. Dominic. Luis, all yours. Thank you very much, Ryan, and welcome everyone. As Ryan indicated, my name is Luis Dominic. I work for Market Intelligence Latin America, a Mexico City-based consulting firm specialized in assisting international companies to grow their presence and their success in Mexico. We have been working with PMMI for the past 12 years, and every two years we have developed a market research report focused in demand, where we interview packaging machinery users and try to identify opportunities within those users and in the market as a whole. So the latest packaging machinery market report was just released. We interviewed 40 end users who have purchasing plans. 22 of them are from the food industry, five are beverage companies, seven are personal care companies, and six are pharmaceuticals. We also interviewed packaging machinery distributors, associations, government institutions, et cetera, and reviewed the trade statistics on packaging machinery imports into Mexico, compare those to previous years, and try to identify patterns or changes in the Mexican market. Our market research report identified specific opportunities worth over $23.7 million worth of packaging machinery purchasing plans. It identified the key trends and customer preferences, and provides PMMI members with tools and information on how to successfully compete in the Mexican market. So we developed this presentation in six different chapters. We will cover first a quick overview of Mexico's macro environment. As you know, Mexico has 120 million people. That doesn't mean that the country is a market worth 100 million customers, because large part of that population lives in poverty. Our GDP per capita is $11,000. This figure has been improving over the past years, but still far from GDP per capita of industrialized countries or other OECD members. Our economy has been growing in a moderate way in recent years. Part of the reason for this moderate growth is that President Peña, who took office almost three years ago, has been changing Mexico to make it a faster-growing and more competitive country. He made imports to a series of reforms in sectors such as oil and gas, telecommunications, education, financial, fiscal, etc. And the effects of those reforms are expected to be seen beginning mostly by the end of 2015, but most of the impact will begin to be perceived in 2016 and 2017, that is where the telecom and oil and gas reforms will be fully implemented. The labor force in Mexico is 60 million people. The unemployment rate is very low according to Mexican government statistics. It's 4.3%. However, 59% of what is considered for the Mexican government as labor force works in the informal economy. In Mexico, they measure one person that sells gifts or sodas in a red light in the streets as employed. So if we consider this 59% labor force working in the informal economy, our actual unemployment rate would be around 9% to 10%. Last year, we exported $397 billion worth of goods and imported $400 billion. The great majority of our trade is with the United States. However, Mexico is a very open economy. We have free trade agreements with 45 countries that represent 1 billion customers and 60% of the global GDP. Most packaging machinery imports come from free trade countries. Those, they don't pay import duties. There are very few countries that remain paying duties for imported packaging machinery. Such as China, such as India. But if we import packaging machinery from the leading countries in those the United States, Italy and Germany, those can enter Mexico free of duties. So there is no more NAFTA advantage if we compare with the leading countries. As I mentioned, Mexico has been imposing some key reforms in energy, the communications, fiscal, financial education and political arenas, which are looking to make the country a faster growing country to have more competitiveness by having lower energy costs and also lower telecommunication costs. Some of the effects of these reforms have already begun to be perceived. Energy and telecommunication costs were among the main inhibitors for competitiveness in Mexican industries. So with the reforms and eliminating those barriers, manufacturing in Mexico will become even more competitive. Mexico has been, the reforms also seek to bring wider foreign direct investment attraction and to create additional jobs. Mexico is right now entering into a very favorable demographic cycle where in the coming years the working age population will outpace the number of dependents. 56% of the population in Mexico is younger than 30 years old. And these in countries where the number of people in working age outpaces the number of dependents, usually those economies grow faster than those that have more dependents. The challenge here is to create enough jobs to sustain these growth. And in large part the structural reforms have that goal to create additional jobs. So this young population that is entering into working age can find employment in Mexico. Our GDP, as you can see, we suffered a strong contraction in 2009 due to the global crisis. But Mexico recovered very, very fast. Just in 2010 we recovered all the GDP contraction that we suffered in 2009. Since then, Mexico was growing at 4% over 2011 and 2012. And since the new administration took office, growth has been more moderate, 1.1 in 2013, 2.1 in 2014. And we're expecting to grow 3% in 2015. There are some estimations that growth for 2015 will be slightly lower than 3%. But everything points that we will be growing between 2.8 and 3.2% for 2015. And beginning in 2016 the forecasts are more optimistic as we will begin seeing the effects of the reforms. In foreign direct investment, Mexico has been attracting an average of $20 billion per year. A large portion of that comes from food and beverage companies. And especially in 2013 where you see the large peak where investment was $43 billion, the main reason behind that was the acquisition of Grupo Modelo by INVEF. Now, not everything is good news in the macroeconomic scenario. As you know, the US dollar has been appreciating against most international currencies. And that is creating that European packaging machinery becomes significantly more price competitive than American packaging machinery. If you see this graph, it's just the difference between the euro compared to the Mexican peso against the US dollar compared to the Mexican peso. And in 2014, in January 2014, the difference just in comparing $1 versus 1 euro was 36%. This originally I did this presentation on March 10th. And the difference there was 6.9%. The difference between the US dollar and the euro right now, it's 9%. So it has recovered a little bit, but still is very, very far from that 36% that we experienced from January 2014 and earlier. So that price difference in Mexican pesos caused by currency fluctuations is making European packaging machinery significantly more price competitive. Regarding the market size, in 2014, the packaging machinery market in Mexico was valued in $748.7 million. It was 2% lower than the 2013 value, which is the record value that the industry has reached. In 2013, it was $766 million. And the industry packaging machinery demand has been growing at an average growth rate of 4.6% per year. Approximately 80% of the market is supplied by imported machinery. In 2014, we imported almost $600 million, $599 million. As mentioned, tariffs have been eliminated from most countries. So there are very few countries that still pay anywhere from 5% to 15% in Portuguese. Germany, USA, and Italy are the largest packaging machinery suppliers with 75% share. And we have been some interesting changes in share among the three leading countries in recent years, which I will talk about later. These are the imports, the packaging machinery imports from 2005 to 2014. As you can see, the markets offered the effects of the global crisis way beyond 2009. The Mexican economy recovered very fast in 2010, but packaging machinery imports did not recover until 2011. There's a question there that says, if I'm saying that the United States exported $600 million of the $748 million total market. No, that's not correct. Mexico imported $600 million of packaging machinery from all countries. So out of the $748 million that we estimate as market size, $600 million are imported machinery, regardless of its origin. And the remaining, the $148 million remaining were supplied by local packaging machinery manufacturers. So the market took slightly more than the overall economy to recover, but in 2013 and 2014, demand for imported packaging machinery has been amongst the highest ever. We are expecting that this trend will continue in the positive way in the following years. We compare packaging machinery imports versus many, many indicators, versus GDP growth, where we see that packaging machinery imports take a little longer to recover than GDP growth when there's a crisis or something like that. But there's one indicator out of all that seems to be the most accurate for seeing where packaging machinery demand will go in the future. And this is customer confidence. Customer confidence has little to do with packaging machinery, but if we compare customer confidence versus packaging machinery imports over the past years, we see that there's almost a perfect correlation. And customer confidence in 2015 has been improving, and the perception is that in the coming years will be even better. So we are expecting that this correlation is maintained for the following years. We will see packaging machinery imports beat the highest record again, either in 2015 or 2016, the latest. So we see many demand drivers. One is improving customer confidence. Also we see the industrial production index improving. Companies are moving forward with investment plans to increase capacity in new plants and also to differentiate products. We see lower interest rates that are allowing companies to use credits for capital investments. Mexico is increasingly attracting investments from European companies that are targeting both the domestic and aftermarket. Mexico is becoming more competitive for manufacturing, which is also contributing to bring larger foreign direct investment and the favorable demographics and growing middle class that we already talked about. There are also some inhibitors. One is the depreciation of the Mexican peso in front of the US dollar, making imported machinery more expensive in peso terms, and this is making some companies to reconsider if they should move forward with investments. There are some that they expect the peso to recover some value against the US dollar, so they are holding on those investments, but the majority are moving forward with investments. The euro, as I mentioned, losing value to the US dollar makes European machinery more price competitive. And also European companies, as they see slow demand in their local markets, they are aggressively pursuing sales in Latin America. We have seen several European manufacturers strengthen their presence and their promotional efforts in Mexico. In general terms, users perceive European machinery more flexible and better suited for Mexico's production volumes. There are several companies that we interviewed that they mentioned that American machinery is designed for very, very large volumes, and European machinery is designed for more flexible volumes. And also we have seen that Mexican food and beverage companies continue increasing their investments in the US. There are companies like Maseca that have invested heavily in production facilities in the US, and now, believe it or not, more tortillas are being sold in the US market than in Mexico. Companies such as Sigma Alimentos, they have also invested in establishing manufacturing presence in the US, and lately they acquired Barres Foods, which also contributed. And these acquisitions or these investments in the US, while they're positive for the companies as a whole, they are not always positive for packaging machinery demanding in Mexico because those companies focusing their investments in the US, they invest a little bit less in packaging machinery here in the local market in Mexico. Our forecasts are positive for the coming years. We believe that packaging machinery demand will reach, imports will reach $616 million or $670 million for 2015 and $647 million for 2016. To make these forecasts, we put a series of variables like GDP growth, like customer confidence, and even in the most pessimistic scenarios, we don't see strong contraction in the following years. And on the opposite, for 2016, we expect that even in the pessimistic scenario the market will grow. So we consider these forecasts somewhat conservative and we expect the packaging machinery market to continue growing fast in coming years. Now, by country of origin, as mentioned, we have seen interesting changes in recent years. Before 2014, if you see from 2013 all the way to 2005, Italy, the green line, is the largest... was the largest supplier of packaging machinery into Mexico. The Italians, they became number one in the early 2000s because they began offering government-supported financing, adequate machinery that suited different volumes, very high and strong flexibility, and several Italian packaging machinery manufacturers grouped to offer complete solutions. These factors helped Italy to become the leading supplier and they were the leading supplier for over 10 years until 2013. In 2014, we see very strong changes in the structure. We see Italy losing considerable market share, particularly to Germany and to the United States. The explanation of why Germany became number one in 2014 is because in that year there was a very strong demand for beverage packaging machinery and German brands lead in that segment. But also the euro was trading very high compared to the US dollar. So many large number of companies, they compared European alternatives versus American and they preferred to go with Americans mostly because of costs. So in 2014, Germany was the leading supplier followed by the United States and Italy fell to the third place. For the coming years and with the appreciation of the US dollar, we expect to see larger share of European packaging manufacturers unless American packaging machinery suppliers can adjust their pricing to be more price competitive in peso terms. We see here some of the recent trends as mentioned after a decade of leading the packaging machinery market, Italy not only lost the leading position but fell to third place. And the share that they lost was split mostly among Germany and the United States. And in the following suppliers, Spain is the fourth, China is the fifth. China has not become a relevant player and from the packaging machinery companies that we interviewed, some have tried Chinese packaging machinery and the majority has told us that they will never use it again. But we see a constant growth, almost constant growth in Chinese packaging machinery into Mexico. They passed from practically not supplying anything in 2003 to supplying 17 million US dollars in 2014. So who are importing, who are the importers? Traditionally in the market we have seen that the food sector has been the largest importer of packaging machinery into Mexico. This last year we made an analysis of the top 200 packaging machinery packaging machinery importers, which added 79% of the total import value. Among these 200 importers, 36% of the imports were made by packaging machinery companies. So this means either companies who have established local representation in the country by distributors or by representatives. This is the first importer who imports the packaging machinery. There are several cases where the importer is a company and end-users such as Procter and Gamble or PepsiCo. But we see a very important trend of an increase in importers being packaging machinery companies. So companies who have established local presence like Carones de Mexico are now importing the machinery into Mexico and selling it to the end-users. And we have seen this figure increase considerably. 25 years ago this was lower than 20%. Now it's 36%. So that's a clear indication that having local presence is a must. Last year the largest buyer among the end-user segments was the beverage sector, followed by the food sector. Then the personal care industry imported 14% of the packaging machinery and the pharmaceutical sector 8%. Here I have a question where they're asking about who other countries are representing in slide 14. The mix of countries is very large where we group others. This is out of the top 12 suppliers which are the ones listed in this chart. All the other countries. And among these we have seen increases for example in South Korea. We have also seen increases from Argentina. But these countries are not very representative in value terms. They are far from the top 10 suppliers. So making the analysis of these 200 importers we saw that there was one company who imported 34.7 million dollars of packaging machinery. One company imported 26.1. But the bulk of the demand is concentrated in this area. Companies that are importing anywhere from half a million dollars worth of packaging machinery to $20,000. There's where most of the importers are. The ones on the top are large companies that they either establish a new plant or develop a project that has strong impact on the market. Here we have the largest importers in 2014. The largest company who invested in packaging machinery last year was in BEV. After the acquisition of Grupo Modelo they have been renewing several of their processes including new packaging lines and they're also investing in new plants. Procter & Gamble also made considerable investments last year. And other companies like PepsiCo, like Colgate, Nestle, mostly multinational names have been the largest investors in the market. In terms of how end users perceive packaging machinery by origin here we saw important changes. In technology the results have been consistent with the previous years where they perceive German and Italian machinery of offering better technology than American. However, American offer good technology. They don't see them as bad packaging machinery. It's considered good but most perceived German packaging machinery is very good. In flexibilities where we saw most of the change in previous reports we could qualify American packaging machinery as being considerably less flexible than German or Italian machinery and this year the perception of flexibility for the United States has improved significantly. In terms of service it's very similar among the four leading suppliers. Also here we have seen that the U.S. has improved significantly compared to previous reports and in pricing they see American packaging machinery as better priced or more competitively priced than German or Italian. This perception was for 2014. Now with the price difference with the euro and the U.S. dollar this might change a little bit and probably the perception of price of Italian and German and Spanish machinery becomes somewhat more competitive. Here there's a picture of comments received from packaging machinery users on how they perceive packaging machinery by origin. They see pros and cons in everyone. However, we have seen that the perception of American packaging machinery has improved in terms of technology, in terms of engineering availability of spare parts and the response to avoid down times when something goes wrong with the machinery. They perceive American machinery as fairly priced and areas where packaging machinery suppliers could improve is making them more flexible. They still perceive packaging machinery as offering rigid formats, requiring tooling and important down times for adapting the machinery to pack different products. As mentioned, they see them more suited for high volume production rather than small volumes. This comment is important. They see American manufacturers as being rigid with their sales policies and not always willing to negotiate terms. And last, Americans are losing price competitiveness due to exchange rate fluctuations. Those are the areas where American packaging machinery suppliers could continue improving. They perceive other perceptions that packaging machinery from Japan and South Korea is more energy efficient than American brands. We saw several companies caring more about energy efficient machinery compared to previous years. In recent years, the European packaging machinery has become very expensive or became very expensive because of the Euro exchange rates. But now, American packaging machinery is becoming more expensive. So in years before, several companies that were only favoring American began considering American packaging machinery due to costs. They tested American packaging machinery and now that prices have become closer, it will be a matter of seeing if Americans were able to offer adequate technology, service, support, etc. to remain as suppliers or if the Europeans will take some share again. Large companies are willing to pay premiums for German packaging machinery. They see it as more technologically advanced and long lasting. They have seen Italian packaging machinery increase pricing and offering now comparable prices to those of German competitors. And also, Mexican packaging machinery companies are winning share among the small and medium-sized companies. So now let's take a look at the key demand sectors the food and beverage industry, the largest packaging machinery buyer in Mexico. Mexico ranks 8 worldwide in food production. It's the third largest food producer in the Americas after the United States and Brazil. It's a sector value of $140 billion or 10.3% of the GDP. The food industry has been growing at 3.8% per year over the past five years and the forecasted growth is 4.3% per year. Mexico is a key market for large food companies. Nine of the ten largest global food companies have manufacturing presence in Mexico. These companies have invested $23.7 billion from 2000 to 2013, averaging $1.8 billion per year. American companies are increasing their investments in Mexico and also European companies are investing more in Mexico to target both the Mexican market but also the North and Central American markets. Barrage companies have also seen Mexico as a key market for manufacturing. Barrage companies invested $22.9 billion averaging $1.76 billion per year from 2000 to 2013. We see strong industry consolidation where the large companies are acquiring smaller players and also very large international acquisitions like Invev acquiring Grupo Modelo and Heineken acquiring Femmesas Beer Business Unit. Other companies not being these ten large multinational companies have also increased investments in Mexico. Some examples are Ferreiro who recently invested $200 million in a chocolate candy plant in Mexico to sell both in the Mexican and North American markets. Hershey's who relocated a large part of its production into Mexico in 2008 and since then has been increasing capacity not also in the production and packaging factory but also has been investing cocoa producers in Mexico. Barry Calderbouts, a Swiss company established its first production facility in 2008 following with an investment on a second plant in 2012 and in 2013 acquired Petra Foods who have the cocoa division of Petra Foods who had a cocoa plant in Mexico. So just between 2008 and 2013 Barry Calderbouts passed from having nothing in Mexico to have three chocolate production plants. Kuala is another good example of international companies investing in Mexico. They entered the Mexican market in 2004. It's a Colombian company. Since then they have been growing and diversifying their presence in the country in an explosive way. Today Kuala has four plants, a distribution center, nine regional offices and participates in the food, beverage and personal care markets in Mexico. Some large investments as Ryan indicated at the beginning of the presentation are expected in the coming years. These are some of the recent foreign direct foreign investment announcements made by global companies. Coca-Cola announced 8.2 billion in new investments in Mexico between 2014 and 2020. PepsiCo is investing five million dollars from 2014 to 2018. Nestle is right now building two new plants plus expanding an existing plant in Mexico. Other companies like Mondelez, Heineken, Keken which is a Mexican company, Mars are building new plants in Mexico and Kellogg's is investing 50 million in a plant expansion between 2015 and 2017. So where this international company is so interested in the Mexican market? It's a market with 120 million people and increasing number of people is living poverty and beginning to purchase packets or processed foods. It's a country with young population where migration from rural to urban areas continues. There's an increasing number of women working so women are not cooking home as some years ago. Families are relying more in rent to eat foods and processed foods. The economic outlook for coming years is positive. Companies manufacturing food and beverage products in Mexico can easily supply the US market and take advantage of NAFTA and not only of NAFTA but also to low logistical costs. So good examples are Ferrero for example that instead of exporting from Italy their chocolates now they're producing in Mexico and exporting to the US market from their Mexican manufacturing plant. The free trade agreements of Mexico have allowed not only selling products without duties but also importing raw materials from several countries to produce in Mexico for the local and export markets. Mexico has slow manufacturing costs. The food manufacturing net profits are significantly higher in Mexico than in comparable economies. The retail sector is well-developed with multiple formats. I would invite you if you're coming to ExpoPak to visit retail store chains in Mexico you will be impressed of the variety and quality that we have. Every time I bring American companies to visit the high-end retail store chains in Mexico they get impressed. Whole Foods is for the low-end market. We have very, very fancy, elegant and well-stocked supermarkets in Mexico targeting the high-level income people in Mexico and every time we have more of those. And also the Mexican dietary habits which are changing as mentioned from foods that are prepared at home more towards processed foods. This is a graph from the Postal Consulting Group on the story they did Shifting Economics of Global Manufacturing where they list the manufacturing costs among the 25 export economies and if you see here in Mexico it ranks among the most competitive Mexico here shows that the cost is 91 only surpassed by countries such as India and Indonesia. So if you have the logistical costs for exporting into the U.S. and compare manufacturing in Mexico versus manufacturing in countries such as India or Indonesia Mexico becomes a very, very competitive option. Mexico has been experiencing fast processed foods export growth. Actually last year in 2013 was the first year where we exported more processed foods than what we imported and in 2014 the gap became even higher. In consumer trends as I mentioned at the beginning of the presentation in Mexico as a market worth 120 million people. Large part of the population lives in poverty but the distribution among the income levels has been changing in recent years. We still have 50% of the population who has a monthly family income of less than $369. But also in Mexico you have an increasing portion of the population in the middle class. You can derive the consumer trends in high income people. There are like 3 million people in this segment they have service at home usually these families have maids at home. They purchase their food in high end grocery stores in gourmet shops or go to restaurants and they look for products such as organic foods premium meats, cold cuts, fish and seafood imported cheeses. So this segment of the population they look for products that are symbol of status. They look for products that are unique. In moderate income we have 20 million people it's a growing segment. These people purchase their food in mass grocery stores in convenience stores in street markets or fast food restaurants. And they look for food that offers convenience and low price. Fast foods ready to eat meals, snacks, protein, soups, pastas, rice, etc. This segment of the population consumes less fruits and vegetables and they purchase some imported products as a treat. It's not common that they are buying imported products but they buy some. Low income we have 30 million people these people sources their food in street markets in wholesale markets, hyper markets or convenience stores. They look for low cost most of them eat food at work. It's a diet rich in carbohydrates and grains, tortillas, beans, rice, etc. and few proteins. The proteins that they consume are mostly poultry and eggs and they consume practically no imported foods. And then 52 million people who live in poverty many they self-consume they grow their own food but they also purchase processed foods from convenience stores or street markets. Their diet is full of tortillas, beans, rice, corn, few proteins and in rural areas they trade some of the products that they grow for other products. You can see here the big contrast among the high-end retail store chains in Mexico, as I mentioned very elegant with the best products on the shelves and relatively expensive versus the central de abastos where most of the population go and source their fresh products and things like that and they look for price only. So passing to the pharmaceutical industry is the second largest pharmaceutical Mexico is the second largest pharmaceutical producer in Latin America the production is valued at 11 billion and consumption is 13.5 billion we consume more pharmaceutical products than what we produce locally. The forecasted growth for the industry is 4.3% per year exports accounted for 1.9 billion while imports reached 4.7 billion the FDI into the sector has been 3.2 billion in the period 2005 to 2013 the industry employs 65,000 people 74.7% are patent medicines 12% are generics and 13% are OTC and these figures are changing very, very fast Mexico is increasingly manufacturing generics and OTC while patent medicines are decreasing in share 14 of the top 15 global authorities have manufacturing presence in Mexico and there are 678 pharmaceutical manufacturing plants in the country You see the industry is highly concentrated in Mexico City the state of Jalisco and the state of Mexico in those three states there are 90% of the manufacturing pharmaceutical manufacturing plants in Mexico and we have big international names in the market we saw mixed results among the companies that we covered in this latest market research report some companies are investing in new plants while others are closing facilities they are shutting down facilities in Mexico local and international generics and OTC companies are considering new investments while the large multinational companies are being very cautious with further investments in Mexico Roche for example has announced shutting down their largest plant in Mexico Bayer is increasingly subcontracting production so AstraZeneca announced downsizing and others other of the large pharmaceutical laboratories in Mexico have very conservative or newly investment plans for 2015 Usually when we do this research every two years we have four or five multinational companies sharing their investment plans and saying we plan to add a new line this year was difficult to find opportunities within those large multinational companies but we found demand growth and we found investment plans within smaller OTC or OTC or generics companies German packaging machinery dominates the market in the pharmaceutical industry followed by American machinery and other countries such as Italy, Spain supply mostly secondary packaging machinery generics as I mentioned is the fastest growing segment it is estimated that by 2016 generics will win 2.7 shares and will represent 14.8% of the market give me one second please the personal care industry Mexico is the second largest personal care producer in Latin America after Brazil the production value is worth 15.2 billion so it's almost the same size of the pharmaceutical industry the cosmetics segment has grown 4.9% grew back in 2013 and the personal home care segment grew 4.7% in 2013 the exports of cosmetics were 2.95 billion up 13% and personal home care products were 886 million up 5.8% making Mexico the 11th and 12th largest exporter respectively in 2013 we imported 1.4 million dollars of cosmetics products and 451 million of personal care personal home care products the FBI into the sector from 2005 2013 has been 6.3 billion again very similar to the pharmaceutical industry and the industry has 253,000 direct and indirect employees plus an estimate 1.5 million people who are dedicated to direct sales those are mothers or people who have who sell personal care products as a secondary income the sales channels are shifting retail represents 39.1% of the personal care industry demand direct sales which is growing very fast now represents 20.3% 17.2% are salons and professionals 10.9% are distributors and 12.5% are others just an overview of the exports of the personal care industry in Mexico most of our exports go to the United States they represent almost half of the personal care exports of Mexico followed by countries in Latin America and we import products mostly from the United States but also from France Spain several European countries and also some from Brazil, Colombia, Argentina and Canada in the Americas two of the five largest packaging machinery importers of 2014 were personal care companies Proctor and Gamble and Colgate these companies will continue producing packaging machinery in the following years and they source from a mix of countries being mostly Italy 36% USA 25% and Germany 24% there are large companies consolidating their production for the global market for certain products some companies are now manufacturing cosmetic in Mexico that is that plant exports to the whole world but also some are closing facilities because that manufacturing is being sent to other parts where they will manufacture for the world the direct sales market is valued 5.3 billion and it's growing at a compound growth rate of 7% per year and the market is experiencing strong diversification with products targeted to different segments and income levels so what are the main trends or the main opportunities and challenges for PMMI members in terms of packaging the key trends most are related to sustainability companies are increasingly investing in flexible packaging now flexible packaging represents 63% of the food products flexible packaging is having growth rates superior to 10% per year and companies are moving away from packing in cans or rigid materials and moving towards pouches or more flexible materials also there are some initiatives in Mexico to move to biodegradable materials for packaging Bimbo for example is now using biodegradable plastic for most of their products and they plan to increase the use of these materials for other snacks and products like that Coca-Cola in Mexico they launched a very innovative lightened glass bottle in Mexico there's people that consider that a coke in the traditional glass bottle is the real coke so Coca-Cola launched a very innovative glass bottle which is made of a material called a lightened glass it's a mix of glass and plastic so it has the feel and the look of a glass bottle but its weight is more comparable to a plastic lightweight bottle also another trend is personalized packaging in several countries Coca-Cola launched a campaign where they put names on the bottles and people were looking for a coke just because it has their name in the can people were not going to the grocery store to buy a coke but if they saw a can with my name if I see a can that says Louis I would buy a coke only because the can says Louis some companies are moving towards resealing or re-use of packaging like type C-block or having convenient ways to repackage the to reseal the package and some people they talk about smart packaging as a trend I have not seen this in grocery stores or in production facilities but several of the people who we interviewed said that trends are moving towards smart packaging with thermochromatic inks, color changing levels etc so people can identify if the product is still good or not by just looking at the color of the cap for example so we see strong investments expected from multinationals we see Mexican companies increasing investments in the US and Europe and the number of Mexican global players is increasing a few years ago there were no global Mexican food companies today we have companies like Maseca and Mbo who compete in the global markets South American companies are expanding to Mexico to target the Mexican and North American markets we see companies caring more for energy efficient and sustainable machinery we see the pace of evaluation making important machinery more expensive and especially American packaging machinery being less price competitive versus American machinery due to currency fluctuations and we see Asian machinery losing share expected to lose share due to bad experiences among some of the industry players some recommendations for doing business in Mexico local presence is not only highly appreciated now it's a must if you do not have local presence in Mexico it will be very hard for you to compete in the local market companies are increasingly looking to buy packaging machinery from someone who can respond to service inquiries by a local phone call they don't want to wait for a week to the packaging machinery manufacturers send a technician and charge expenses for their travel from the United States or from Germany or from Italy they want to have someone local who can solve problems post-sale service is a need lacking of post-sale service means losing the sale so this goes together with the previous point years ago I was saying that the Mexican buyers were appreciating the packaging machinery manufacturers have local presence or a local representation now it's a must face-to-face negotiations have better results so it's very important either to have your local visit customers on a constant basis or that you travel to Mexico together with your representative and visit customers face-to-face personal relationships in Mexico are very valuable but when you exhibit at the trade show be ready to provide price references some people go to I've seen customers go to a booth and ask a machine like this like the one you have already explained what is its cost the worst answer that you need to that you can provide to a Mexican is well it depends on the configuration and in order to give you a cost they will have to quote you that's it's upsetting for a Mexican you should be able to say well one machine like the one we're displaying it's usually 45 or $50,000 but the price can change significantly depending on the configuration the size, the speed, etc so tell me about your production volumes and I can tell you a rough number of this machine for the volume that you're expecting Mexicans have preference to attend local trade shows among the 40 companies that we interviewed practically all visit expo pack in Mexico and few visit pack expo in Las Vegas or Chicago and fewer visit interpacking Germany so the local trade shows are the key points where local packaging machinery buyers learn about new potential suppliers the market is full of demanding customers as mentioned they are increasingly looking to have local supplies with local presence they want to make sure that per parts do not take long periods to be delivered so it's a market that has become more demanding and being flexible to customer demands is key so finally consider that there's no more NAFTA advantage as Mexico has free trade agreements with the European Union and today most packaging machinery regardless of its origin can enter Mexico free of duties factors such as service, flexibility and reliability are more important than price now that the US dollar has made American machinery less price competitive offering additional service capabilities, additional flexibility and making sure that your machinery is reliable for the customer can represent key competitive advantages so it's recommended to invest in having local presence have local service as well as a country-wide service network offering local service solutions that better feed production scales financing options and flexibility in payment schedules are key elements to strengthen proposals the US has a Exit Bank who can provide a competitive advantage versus the Italians that are not offering government-supported credit so explore offering credit to Exit Bank to your customers as these are additional key sales drivers to the Mexican market also when making proposals save some margin for negotiation as that is highly approved by buyers develop equipment services packages at professional pricing or include them in the price of the equipment that can also make a difference for selecting one supplier over another so the machinery can be 90% of the sale in the US however in Mexico relationships are very important or are as important as the solution investing developing relationships with the clients either directly or through your local representatives services programs allow for developing relationships with plant managers constant visits where you can visit the plants and see if they are investing in something new and have continuous presence within those plants that became clients so you can ensure that they remain clients for future purchases financing logistics and setup should be the manufacturer's problem and not the client's problem the most you can solve these issues, the financing issue the logistics and the setup issue for your customers the most competitive and the more appreciated you will be so offering a complete solution can be a key differentiator versus competitors as mentioned, help your clients to access XIM or other sources of financing marketing and promotion are increasingly important due to the ground competition participating in trade shows is the most as packaging machinery buyers visit those regularly to select new potential suppliers and developing an efficient and professional presence in the Mexican market to honor warranties or offer equipment services is fundamental the number of companies willing to purchase from suppliers without presence in Mexico is fast disappearing and that's it that's my presentation on the Mexican market I really recommend you to download the report that we prepared on the Mexican packaging packaging machinery market besides including this information more in detail it includes company profiles of 40 packaging machinery buyers what their purchasing plans are and the most valuable thing the contact information of the person responsible for packaging machinery within those companies so thank you very much and I'm open to any questions you might have great, great thank you Luis for that that was a very insightful presentation that report that Luis was referencing is on our website www.pmmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org www.pmi.org members is using sales agents and distributors to access the Mexican market. And as somebody who's helped many people, my members find agents in Mexico and advise them on how to work with agents in Mexico, I often hear some members say their agents aren't fulfilling their end of the bargain and I'm always curious about the reputability of these agents and when I ask their other principals how their relationship is with said agent, they usually say it couldn't be better. So, assuming there isn't an issue with the product, what can PMI members do to ensure that they have successful win-win relationships with their channel partners in Mexico or their best practices that they should adhere to? What kind of cultural norms should they be aware of when dealing with agents in Mexico? Well, there are several ways to find agents or representatives in Mexico. PMI can help you to find some adequate potential distributors or reps in Mexico. Also, many states in Mexico, they have trade offices in the country who can help you to find market potential and to find local partners. I would say that the recipe here for success is to find the, first to find distributors or reps in Mexico that share your goals. There are several reps in Mexico who carry a large variety of brands. They don't make proactive efforts in promoting those brands. So, basically, they are order takers and they put your machinery in a catalog and when they receive an inquiry is when they work, but they don't do proactive promotion of a particular brand over another. I believe it's better to have an agent or a rep who has fewer brands in the country and who is really going to make a commitment with your brand. Since those agents or reps are smaller in many cases, they will need support from you to do traveling, to do effective marketing campaigns, et cetera. I believe that if you support these reps at the beginning, you will see results coming in the long term. So, the more support you provide to your reps, the more success you will see in the Mexican market. Also, for Mexican packaging machinery buyers, they like to receive visits from the manufacturers themselves. So, basically, it's curious because they want to deal directly with the manufacturer, but they want someone local to be there to respond to inquiries and to provide local service. So, the most effective way to combine those two and offer what the customers are demanding is to tell your agent for rep, hey, let's do a road trip and let's visit the 10 largest potential customers together and travel to Mexico, join your rep and together go and visit the key accounts that could be potential buyers. We have seen that that provides a very good turnaround, very good results. And it's exactly what buyers are expecting to see the manufacturer supporting its local rep and the local rep speaking the same language and supporting the clients with everything they might need in Mexico. Very good advice, very good advice. Again, we're still waiting on some questions to come in. If anybody has a question, go ahead and enter in that lower left chat window there and you can direct it to Louise, myself or the audience. While we're waiting, I have one more question. Watching your presentation, a couple of things popped out. We have a strong dollar environment right now. We have low cost to produce goods in Mexico. Obviously, it's now almost cheaper to produce goods in Mexico than it is in China, according to Boston Consulting, group of the graph that you showed there. And you're also saying that local presence is a huge factor in being successful in Mexico. It kind of sounds like it would be who members to look at maybe making an investment in either a service facility or doing some small scale production or fabrication in Mexico. Are you noticing more and more machinery OEMs coming to Mexico, whether they're European or US, in setting up facilities there? Yes, we have seen, as mentioned in the patterns of who's importing packaging machinery in Mexico, we have seen the number of packaging machinery companies increasing significantly. And especially large players, such as Coronis, EMA, and companies like that, have established local presence in the country. We see that today 36% of the imports are made not directly by end users, but by packaging machinery companies. And we see this share increasing. So, I would not consider that it's absolutely necessary to establish a local presence in Mexico. There are companies in Mexico who can offer very good customer support. They have technicians who can solve minor problems. They can replace spare parts, et cetera. So, it's not absolutely necessary to establish your own presence in the Mexican market. There are companies in Mexico capable of becoming your reps or your agents here, not only for the sales portion, but also for the servicing portion. What we see is that increasingly packaging machinery manufacturers have to become price competitive. We saw the market shifting first from the United States to Italy because the Italians were offering the combination of flexibility, price, and financing. Now that the Italians became more expensive, we saw the market go back to American and German packaging machinery. And now with a strong US dollar, we are expecting to see several of those who stopped purchasing Italian to go back to Italian because there is no cost advantage anymore of buying American versus Italian. So, the only way to compete against that is to offer lower prices. And to offer lower prices, you can either reduce your margins, which is not a desirable thing, but also you can source some components or some parts for your packaging machinery from Mexico and try to lower your production costs so you can maintain the same margins. We have seen in the north of Mexico, there are very strong companies, very strong workshops who have the capability of manufacturing low volumes of high quality parts like castings and metal parts and gearboxes and things like that, that are highly priced, competitive and of very good quality. So packaging machinery manufacturers could consider increasing the sourcing of those components from Mexico and lowering the cost of their machinery. Very interesting. Again, we have about two more minutes for one more question if anyone has one in waiting for that question to come. I have one more for you, Luis. In the US, sustainability is a big deal and all our members are having to change operations and meet sustainability initiatives that come all the way up the supply chain from Walmart and now a lot of the end users of the equipment directly. What are Mexicans, and I was surprised, a couple of weeks ago I read an article that Mexico is one of the biggest recyclers in the world and I wasn't aware of that, but what are some of the Mexican CPGs? Are they announcing any sustainability initiatives? Are they looking to upgrade current lines to meet some of the sustainability requirements that are in even food safety requirements that we're starting to see in the United States? Is that trend taking hold as well with Mexican CPGs? Yes, as I mentioned in the presentation, most of the trends that we see in Mexico's packaging market they go around sustainability. They all the way from looking for more energy-efficient machinery all the way to using more sustainable materials for the packaging or more lightweight materials that allow saving in, not in the packaging itself, the packaging can be more expensive, but by having lightweight packaging, you save all throughout the distribution chain. We, I mean, probably some people travel to Mexico and they see some areas of the country that are not very clean and they see that we have pollution in the area in Mexico City, but Mexico in several areas has taken the lead in environmental practices. One good example is Walmart, for example. Walmart, Mexico became the leader in sustainable practices among all Walmart in the United States and the head for sustainability of Walmart, Mexico, was now named the vice president for sustainability for Walmart gloves because of all the environmental initiatives that he promoted in Walmart, Mexico and that now they want him to replicate in other Walmart in the world, including the United States. In addition to specific companies initiatives, which I would say in Mexico, especially among multinationals, are as strong as in other developed markets. We have seen the government putting sustainability on top of the agendas in several areas. Mexico made the commitment to reduce its CO2 emissions in 50% by 2050. Mexico was a signatory of the Kyoto Protocol and in the reforms that the Mexican government passed, they are including a requirement of 35% of the power usage has to come from renewable energy sources by 2025, which is around the corner. Companies not sourcing their power from renewable, 35% of their power from renewable sources, they will have to purchase clean energy certificates which will represent an additional expense. Now, only companies consuming certain volume of energy will be required for this mandate and there are options to lower the expenses that they have to inquire, like one of those is reducing their energy consumption and to reduce their energy consumption, they can either invest in more efficient machinery or invest in installing machinery to reduce their consumption within the facility. I've mentioned some years ago, the sustainability issue was absent from the conversations with packaging machinery buyers and in these last research report that we did was very constant. Companies were saying we're looking for energy efficient machinery. So I would say it's a very, very important factor that could help you to win your safe. Great. Great, I think we're about close to finishing up here. Thank you again, Luis. We'll be emailing everyone a recorded webinar. Also, if you'll be at ExpoPAC Mexico, Luis will be assisting with buyer matchmaking that you can register for here by the end of the week and you have his contact details if you'd like any more information on that. Also, please stop by the PMI Pavilion. We're in booth number 1900, you can't miss us. We'll have a number of events and services to take advantage of from our really popular happy hours to our end user breakfast on Wednesday before the show opens. Please take advantage of all those services that PMMI offers. Of course, they're free of charge to members. If you need any more information, please feel free to email me. My email is ryanatpmmi.org. Thanks again, everybody, for joining today. Best of luck on your future endeavors in Mexico and at ExpoPAC Mexico in a couple of weeks. Thanks again, everyone. Thanks again, Luis. Have a good day, everyone. Thank you. Bye-bye. Bye.