Report of the Chief Executive Officer to the Board of Directors on the results of fiscal year 2016.
During 2016, Grupo Carso’s consolidated sales increased 7.9% to Ps. 95,188 million, which represented Ps. 6,964 million more than the sales recorded in the previous year. This increase was mainly the result of the good performance shown by the four divisions of the Group. In this regard, Sales in the commercial sector expanded by 7.2%, while sales of the industrial, infrastructure and construction, and energy divisions grew 7.8%, 12.2% and 3.2%, respectively, in the year.
Consolidated operating income showed a solid increase of 32.9% in the year to reach Ps. 13,726 million. This effect was a result of higher profitability in all divisions, mainly in Grupo Sanborns and Grupo Condumex, and, to a lesser extent, at Carso Infraestructura y Construcción and Carso Energy. This reflected both the initiatives undertaken to reduce costs, as well as a mix of services and higher value-added products, together with the recognition of a Ps. 1,141 million effect in Grupo Sanborns. This item arose from the acquisition of 14% of the capital stock of Inmuebles SROM, S.A. de C.V. Without considering this extraordinary effect, operating income would have increased 21.8% in the year compared to 2015
Accumulated EBITDA for the year was Ps. 14,578 million, an increase of 16.0% against 2015. (This figure does not include Other Expenses of Ps. 44 million resulting from the impairment of assets, nor Other Revenues for Ps. 1,286 million from the valuation of real estate, as it excludes the extraordinary item generated in Grupo Sanborns previously mentioned). The EBITDA margin stood at 15.3% in 2016, or 110 basis points higher than the EBITDA margin achieved in the previous year.
Comprehensive financing result in the year was Ps. 715 million, which compares with a financing cost of Ps. 927 million in 2015.
In 2016, net operating income increased 53.7% to reach Ps. 9,525 million, which compares favorably with the net income of Ps. 6,196 million recorded in 2015. This was a result of better operating and financial results in the period, as well as the extraordinary effect previously mentioned. Similarly, the net margin, expressed as a percentage of sales, went from 7.0% in 2015 to 10.0% in the year.
As of December 31, 2016, total debt increased 58.1% to reach Ps. 11,721 million, which was mainly the result of the bridge loan obtained to finance the construction of the Samalayuca - Sásabe gas pipeline. The total debt matures in the short term, while 51% is denominated in Mexican pesos. In particular, the Group’s net debt was Ps. 5,365 million. This includes a reduction of 40.9% in cash and temporary investments derived from the payment of dividends, the repurchase of shares, and contributions made by Carso Energy for the construction of gas pipelines, as well as the opening and remodeling of Grupo Sanborns stores. In addition, the reduction in cash position is explained by the acquisition of 14% of the shares of Sears Operadora México and Inmuebles SROM, S.A. de C.V. As a result, the net debt to LTM EBITDA ratio stood at 0.37 times, and interest coverage ratio, explained as the ratio between LTM EBITDA and interest paid, was 28.1 times. Noteworthy is the fact that the Company’s dual program of notes for up to Ps. 5,000 million changed. In this respect, long-term issuances now mature in March 2017 from which are now classified in the short term.