REPORT OF THE CHIEF EXECUTIVE OFFICER TO THE BOARD OF DIRECTORS ON THE RESULTS OF FISCAL YEAR 2018

During 2018, Grupo Carso’s consolidated sales increased 3.3% adding up to $96.640 billion pesos, i.e., $3.047 billion pesos more than in the previous year. This increase results mainly from the performance of the Business and Industrial divisions, which grew by 4.0% and 7.5%, respectively. On the other hand, sales by the Infrastructure and Construction division decreased 10.2% due to the completion of significant projects during the period.

In the year, Grupo Carso recognized profits for $53 million pesos in the Other Expenses and Income account, a figure which unfavorably compares with the result of $1.641 billion pesos observed in 2017, of which, $1.246 billion pesos were for profits obtained from the dilution and sale of shares of associated companies (Grupo México Transportes, S.A. de C.V.). Further, the Company recorded $373 million pesos for the impairment of investments made on the exploration of oil fields in Colombia.

Operating profit was $10.559 billion pesos in 2018, a figure which is compared to $12.942 billion pesos observed in the previous year; this account being affected by the extraordinary entries previously mentioned. The profitability of the Business, Industrial and Construction and Infrastructure divisions decreased 7.0%, 9.6% and 22.8%, respectively, in the year. The foregoing is the result of lower margins in Grupo Sanborns due both to expenses incurred on the closure of some stores, and the increase in unrecoverable credit and reserve account. Further, the Condumex automotive division recorded lower margins produced by offsets in the platforms on the start-up of new harness models, while at CICSA, various infrastructure projects were completed, or the level of activity in them was reduced.

Accrued EBITDA decreased by 6.1% getting to $13.023 billion pesos in 2018, which indicator does not take into consideration the aforesaid extraordinary entries, nor other entries implying the use of cash. In turn, the EBITDA margin was 13.5% for the year, 130 basis points lower than the EBITDA margin observed in 2017.

In the year, the Comprehensive Financing Result was positive at $215 million pesos, a figure which is compared to Comprehensive Financing Cost of $669 million pesos recognized in 2017.

For the period, the net controlling profit was $9.008 billion pesos, 10.2% less than the figure observed in 2017.

As of December 31, 2018, total debt was $13.187 billion pesos, i.e., 28.9% more than the indebtedness level recognized at the close of the previous year, where such increase results mainly from financing obtained for the construction of the Samalayuca – Sásabe gas duct. In turn, Grupo Carso net debt at the close of 2018 stood at $4.269 billion pesos, which is compared to a net debt for $5.118 billion pesos recorded as of December 31, 2017.

The Group is maintaining a healthy financial position, where the net debt to 12-month EBITDA ratio is 0.33 times, which ratio is compared to 0.37 times observed in 2017. In turn, interest coverage ratio measured as the index between the 12-month EBITDA and interest paid was 23.0 times.

On February 17, 2017 the Company was authorized to issue short- and long-term notes, through a specific program for such purposes, up to an amount of $10 billion pesos. As a result, Grupo Carso issued debt for $3 billion pesos last March 16, 2018, maturing in three years from the issuance date.