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Message to shareholders

Economic Outlook

During 2015, the world economy continued showing moderate growth. Moreover, global markets featured high volatility due to various economic and political factors, such as falling prices of oil and commodities, the strengthening of the U.S. dollar and the slowdown in China’s growth, jointly with Greek financial crisis.

In the United States, the Federal Reserve announced its intention to tighten the monetary policy. In contrast, the benchmark interest rates of the European Central Bank and China witnessed a decrease, while Japan maintained its rate at 0% for the fifth consecutive year.

The sharp fall in the price of oil affected major oil exporting countries, while benefiting net importing economies and industries by providing them with lower energy costs. It also benefited the consumption in countries where the price of fuels is linked to international prices, such as the United States.

In Mexico, the growth of the gross domestic product stood at 2.5%, driven by trade and the manufacturing industries, which expanded by 4.5% and 2.9%, respectively. Nonetheless, the abovementioned fall in the volume and price of oil affected negatively the evolution of the country’s economy. Regardless of the performance of this sector, the economy would have grown 3%. On the other hand, remittances increased by 5% in U.S. dollars and 25% in Mexican pesos. Similarly, the Mexican economy recorded a greater base of job positions and a low inflation rate, which translated into a rise in consumption.

Inflation in Mexico stood at 2.13% during the year, which is the lowest rate observed since 1969. The balance of trade was affected by the decline in the oil price and presented a Ps. 14 billion deficit. Due to the continuous volatility of the Mexican peso against the U.S. dollar, Mexico’s central bank decided to intervene in the market with auctions of dollars. Year-round Foreign-exchange reserves diminished U.S. 24 billion.

The impact on the Mexican economy provoked by the uncertainties and volatility in the international scenario were diminished by cuts on the public expenditures in 2016, adjustments made in the financial structure of PEMEX, jointly with the acquisition of financial coverages on the price of oil set at U.S. 49.00 per barrel. Moreover, Mexico’s central bank tightened the country’s monetary policy as an effort to restrain the monetary gains produced by a higher value of the international reserves in foreign currencies, which will be transferred to the Ministry of Treasury and Public Credit.

Grupo Carso

Although there were challenges presented in the economy during the year, Grupo Carso registered an increase in revenues at its main business divisions.

Since consumption in Mexico remained dynamic, Grupo Sanborns recorded a growth of 7.8% in revenues. This was mainly the result of the good performance of all commercial brands, a greater loan portfolio and the opening of 12 new stores under our expansion plan. At the end of the year, we managed to achieve 431 units and one million 115 thousand square meters of commercial areas. Moreover, we carried out refurbishment works at 13 Sears stores, including strategic locations such as Satélite, Lindavista, Angelópolis and Insurgentes.

Another initiative to boost future organic growth was the launch of ClaroShop. com in November 2015, with which we are now able to optimize the technology platform and the commercial strategy of Grupo Sanborns thus offering our clients a comprehensive shopping experience at our various channels.

In the industrial sector, revenues at Grupo Condumex increased 3.8%, with a remarkable recovery rate of 52.2% in profitability taking place in the year. Moreover, we decided to focus on our main product lines, such as those where we are leaders and add value to the market. At the same time, we divested from small, non-strategic businesses, worked in the consolidation of commercial alliances established with cable distributors, and expanded our base of customers in the telecommunications sector. On the other hand, the strength observed in the automotive sector reflected the higher level of activity of the sector in the year. In this regard, we were awarded the “GM Supplier Quality Excellence Award” by General Motors, a recognition to suppliers that demonstrate the highest level of quality and performance. Similarly, our partner awarded us the “Delphi Pinnacle Award for Supplier Excellence”, in recognition of our commitment to quality, value and cost performance.

Revenues in Carso Infraestructura y Construcción increased by 11.4%, which was mainly the result of operations carried out in the infrastructure, gas pipeline and housing businesses. Despite the lack of injection of resources observed in Pemex, we diversified the services offered for the chemical and oil industries, getting positive figures in the division that gives service to that sector. Some of the projects on which we participated and finished during the year included the Tlalnepantla Shopping Mall, Mazatlán and Tepic beltways, and the final phase of the Atotonilco’s Wastewater Treatment Plant. Similarly, we are participating in the installation of gas pipelines both in Mexico and abroad. On the other hand, preliminary works for the construction of the Samalayuca-Sasabe gas pipeline began in the year. In addition, projects whose construction works were carried out in the year and are expected to continue in 2016 included the Eastern Discharge Tunnel, Mitla-Tehuantepec and South of Guadalajara beltways, Acapulco tunnel, El Caminero second-floor viaduct tunnel, jointly with various commercial and Housing developments in Nuevo Veracruz.

We took advantage of the opportunities generated by the energy reform during 2015. In that regard, our subsidiary Carso Energy won three tenders of the Federal Electricity Commission for the construction and operation of pipelines for gas transportation, two of them located in the State of Texas, and the other one between the Mexican states of Chihuahua and Sonora. It is worth mentioning that the initial phase for the construction works have already taken place. It includes all procedures related with rights of way, permits, and social and environmental impact, jointly with the technical studies and procurement of materials for the pipelines construction beginning along 2016.

Grupo Carso instalaciones

Our participation and contract assignment demonstrates the active participation we have in the biddings processes the Federal Electricity Commission conducted, as well as the interest we have in participating in the energy industry in the country.

The combination of the results in the four sectors brought an increase of 7.1% in net revenues to reach Ps. 88,224 million. Operating income and EBITDA increased 13.6% and 18.5%, respectively, while margins expanded 70 and 130 basis points from 11.7% and 14.2% obtained in the previous year, respectively. At the same time, net income grew by 9.0% and the net income per share grew to Ps. 2.72 if compared with Ps. 2.48 recorded in 2014.

The financial position of Grupo Carso remains solid. In that regard, total assets amounted to Ps. 94,185 million and the consolidated stockholders’ equity stood at Ps. 63,794 million. On the other hand, total liabilities decreased by 0.4% to reach Ps. 30,391 million.

The current corporate structure and financial feasibility of Grupo Carso allow us to cope with growth derived from the energy reform in the country, jointly with the generation of value in benefit of our shareholders. In the year, net cash flow from our operations was Ps. 6,553 million, net debt was negative in the order of Ps. 3,351 million, while the Net Debt to LTM EBITDA ratio stood at a negative 0.3 times. During May and October 2015, Grupo Carso paid in cash an ordinary dividend of Ps. 0.84 from the balance of the net tax profit account. Regarding capital expenditures, our company allocated Ps. 3,926 million for investments in fixed assets.

In terms of sustainability, a greater number of employees of all divisions of the group benefited from our Welfare program in the year. Similarly, important savings on energy, water, fuel, emissions of carbon dioxide and solid waste were reached and stated in the “Carso Environment” report.

On the other hand, the Carlos Slim Foundation, with a high sense of social responsibility, efficiency and timeliness, developed programs in the fields of education, employment, health, nutrition, social justice, culture, and human development. It also took a significant role in the areas of natural disasters and economic development, as well as in the environment protection and conservation. Its contribution helped improving the quality of life of people of all ages, promoting the formation of human capital and creating opportunities that foster the integral development of individuals and their communities.

Finally, on behalf of the Board of Directors, I thank our shareholders, customers and suppliers for the confidence they have placed on us. To the entire team, I want to thank and invite to continue showing with that sense of motivation, which enables Grupo Carso to achieve our goals and to continue improving the performance of our businesses every year, thus contributing to the development of our country.

Sincerely,

Mr. Carlos Slim Domit
Chairman of the Board of Directors