Sanborns Palmas
Sanborns Palmas
Letter
to Shareholders
Economic Outlook
During 2017, although it involved some uncertain times, such as the renegotiation of the North America Free Trade Agreement, inflation and interest rates in the United States of America and Mexico, the financial environment world-wide was less volatile than in the preceding year.
U.S. economy grew by 2.3% during 2017, triggered by a 6.7% increase in the consumption of durable goods, due to an increase in real wages and a low unemployment level, as well as to an increase in private investment by 3.2%. The Federal Reserve continued stabilizing its monetary policies increasing its rate by 75 basis points during 2017, closing the reference rate at 1.50%, forecasting that the strength of the U.S. internal economy and a tax reform, will exert pressure on inflation.
In Mexico, Gross Domestic Product grew by 2.0%, slightly below 2016. Primary activities and services were able to counteract the marginal decrease in industrial activities, resulting mainly from a decreased oil production. The 3.8% growth of formal employment and of 7.5% in remittances expressed in Mexican pesos terms, fostered the growth of domestic consumption by over 3%. Inflation was at 6.8% during the year, due to increased oil and gas prices, as well as foodstuffs during the year.
The Mexican peso revalued against the U.S. dollar by 5.2% in 2017 closing at $19.70, touching a maximum of $22.00 at the beginning of that year.
The trade deficit reduced due to the impulse in exports to the United States of America, which increased by 8.1% and were able to compensate a higher oil deficit of U.S. $18,402 million in 2017. In turn, Banco de Mexico continued its restrictive monetary policy to control inflation, increasing five times the reference rate during 2017, going from 5.75% to 7.25%.
The manufacturing platform, which is fundamental for our exports, the expected investments in coming years in the energy sector, infrastructure and the expectation of a reasonable renegotiation of the NAFTA (TLCAN), strengthen the country in the face of the coming domestic and international challenges, but all of this might change in view of the uncertainty of Mexico’s political times.
A higher participation in associated companies was reflected in an increase of 6.4% in the net income, while earnings per share totaled $4.42 pesos
Emisor Oriente Tunnel
A higher participation in associated companies was reflected in an increase of 6.4% in the net income, while earnings per share totaled $4.42 pesos
Emisor Oriente Tunnel
Emisor Oriente Tunnel
A higher participation in associated companies was reflected in an increase of 6.4% in the net income, while earnings per share totaled $4.42 pesos
Grupo Carso
In 2017, we were able to maintain good performance in spite of decreased economic activity associated with public works, Petroleos Mexicanos (PEMEX) and Comisión Federal de Electricidad (CFE), in view of the diversity of the areas of activity in which we participate. Grupo Carso sales amounted to a total of $93,593 million, compared to $95,188 million in the preceding year. Operating income and EBITDA were $12,941 and $13,872 million, decreasing 5.7% and 4.8%, respectively. On the other hand, an increased participation in associated companies resulted in an increase in net income of 5.3% and the net income per share was $4.42, compared to $4.20 in the previous year.
In Grupo Sanborns, although having faced the temporary closure of several units after the Mexico City earthquake, as well as the permanent closure of Sanborns and Sears Galerías Coapa –the latter being our fourth major store– sales increased by 4.6% thanks to the product mix of all formats. We continued with the credit strategy and development of own brands policies in Sears and began integrated sales and improving space efficiency in Sanborns. Our sales strategy for e-commerce is being complemented by the development of a marketplace in ClaroShop, to increase product volume and on-line purchase services with the possibility of click-and-collect.
Grupo Condumex sales for 2017 were practically the same as the preceding year, decreasing only by 0.9%, when 2016 represented a record year in sales. The automotive business continued supplying parts for the domestic and international markets, showing solid performance thanks to a reduced cost structure and high quality and efficiency levels. During the year, one of our major customers, General Motors, granted the “2016 GM Supplier Quality Excellence Award” to three of our assembly plants: Apaseo el Grande for the third time, San Felipe for the fourth time and San Diego de la Unión for the first time, as suppliers with the highest quality and performance levels. On the other hand, our partner APTIV (formerly known as Delphi) granted the Cordaflex plant the “2016 Pinnacle Award for Supplier Excellence”, as well as the “2016 Above & Beyond” award, to acknowledge the plant’s commitment to quality, value and cost performance.
The sales of Carso Infraestructura y Construcción (CICSA) decreased 9.8% mainly due to the completion of major projects and fewer bids submitted for construction, infrastructure and petroleum projects; in addition to the fact that the projects we were able to win in consortium with third parties do not consolidate the operational figures. In CICSA, we have adapted to the complex macroeconomic and industry dynamics, where despite a major reduction in public projects, we have sought business diversification. We participated in the construction of the terminal building and Landing Strip 3 of the mega infrastructure project which is the new Mexico International Airport (NAIM being the Spanish acronym), in association with other corporations. Together with FCC, we began the six-lane expansion project for the Corredor de Las Playas Tramo 1 Chorrera Santa Cruz in Panamá and the improvement of the Los Chinamos-El Ayote road in Nicaragua.
$93,593
million pesos in sales of Grupo Carso in 2017
Automotive Cable at Arcomex Plant
$93,593
million pesos in sales of Grupo Carso in 2017
Automotive Cable at Arcomex Plant
Automotive Cable at Arcomex Plant
$93,593
million pesos in sales of Grupo Carso in 2017
The Carso Energy Division began recording revenues during 2017, both on petroleum production and sales through our corporation, Tabasco Oil Company in Colombia, as well as from the yields for gas transportation to the CFE using the two gas ducts in Texas, in the U.S., where we have a 51% economic interest, although we do not consolidate the operational results. On the other hand, construction of the Samalayuca-Sásabe gas duct between the States of Chihuahua and Sonoria is continuing. At Carso Energy, we continue to seek business opportunities, as is the case of alternate energies, where we have partnered up for exploration and further generation of energy in two geo-thermal fields.
Grupo Carso participates in various associated corporations, such as Elementia, GMéxico Transportes, Trans-Pecos Pipeline LLC, Comanche Pipeline LLC, Constructora Terminal del Valle de Mexico, Cargi-Propen e Inmuebles SROM, which are not consolidated, but if sales were considered as well as EBITDA pro rata of these corporations, Grupo Carso would record $17,470 and $5,260 million pesos, respectively.
Grupo Carso’s financial position continues to be solid: total assets increased 8.5% amounting to $118,848 million and consolidated capital and reserves increased 13.1%, at $80,932 million. Total liabilities were $37,916 million.
To date, Grupo Carso maintains a corporate structure and a financial strength that will allow us to benefit from future opportunities. The net cash flow generated by operational activities was $9,650 million and total debt decreased 12.7%, to $10,227 million. During June and November 2017, Grupo Carso paid an ordinary dividend for a total of $0.90 per share in cash or with Series A-1 shares or a combination of both, at the election of each stockholder. Capital Expenditures amounted to $5,831 million in the year.
“Independencia I” Jack-Up Rig
“Independencia I” Jack-Up Rig
“Independencia I” Jack-Up Rig
On sustainability, Fundación Carlos Slim develops over 90 programs and projects in 13 different areas, among them: education, employment, health, sports, culture and the environment, with in excess of 45 million beneficiaries in Mexico and other Latin American countries. Particularly relevant for the Foundation was in 2017, the initiative “México Unido” [“Mexico United”] for taking care of the damages resulting from the September earthquakes. During the emergency stage, the Group as a whole, with outstanding cooperation from its corporations and volunteers, responded immediately to the basic needs of thousands of affected individuals, by supplying basic staples, camping tents, blankets and sleeping mats, water purifiers and telecommunication services.
For the reconstruction and transformation stages, we launched a fund-raising campaign where for each Mexican peso received, the Foundation would pay five more. We had a response from over 217 thousand donors, who placed their trust in ourselves: we received donations amounting to $412.4 million pesos plus $2,061.8 million pesos provided by the Foundation. The resources have been destined to housing reconstruction, infrastructure for health and education and the rescue of our cultural heritage. As we established since the beginning, we have accounted for such funds on a monthly basis, with full transparency regarding the acts and application of resources in the Foundation webpage.
Finally, on behalf of the Board of Directors, I thank the Stockholders, our clients and suppliers for the trust they have placed in us. Thanks to all our human team. I am inviting you to continue being motivated, enabling Grupo Carso to attain the goals that we have defined and to continue improving your performance every year, thereby valuably contributing to Mexico’s development.
Sincerely yours,
Carlos Slim Domit
Chairman of the Board of Directors