TO OUR SHAREHOLDERS

Mexico City, April 5, 2017

Over the course of 2016, a series of events stirred up volatility in the financial markets, including the referendum in the United Kingdom in which British voters decided to withdraw from the European Union, and the presidential elections in the U.S., which strengthened the dollar, particularly against the peso.

The U.S. economy grew 1.6% during the year, spurred on by a 5.77% increase in consumer durables and limited by a 1.55% reduction in private investment. The Federal Reserve reacted to high employment and inflation that exceeded its target by beginning a monetary policy normalization, consisting of a 25 basis points hike in the benchmark rate during the year.

For Mexico, Gross Domestic Product grew by 2.3%, and formal employment expanded by 4.10%. Service sector activities were strong enough to offset lower oil production and the modest advance in the manufacturing industry. The rise in remittances—which reached record highs—combined with low interest rates and higher real wages favored domestic consumption. Inflation reached 3.4% in the year, driven by higher electricity and energy prices and the peso’s depreciation toward the end of the year.

The peso lost 18% of its value against the dollar in 2016, and was highly volatile amid the uncertainty over the results of the U.S. presidential election, particularly its implications for NAFTA. The devaluation helped sharply reduce our country’s trade deficit in the last months of 2016. In response to the peso’s depreciation, Banco de México modified the monetary policy, hiking the benchmark rate five times, from 3.25% to 5.75%.

The operating surplus generated by the revaluation of Banco de México’s international reserves, the monetization of public assets, Mexico’s solid export industry, tourism, domestic industry and other competitive advantages, along with expectations of economic growth in the United States, which will mean higher demand for goods and jobs, all put our country on stronger footing to face new global challenges.

One of last year’s main events for the telecommunications industry was the successful conclusion of the public tender for the Red Compartida project, which was awarded to the Altán Redes consortium (Altán). The consortium is now responsible for installing a wireless telecommunications network using two bands of the 700MHz spectrum contributed by the federal government, with a targeted coverage of 92% of the population by the year 2023.

Report on operating and financial results

At the beginning of 2016, Telesites had a portfolio of 12,874 towers. Over the course of the year, we grew our portfolio of towers by a record 16.3% a year, closing December of last year with 14,974 towers installed—14,756 of them in Mexico and 218 in Costa Rica.

In the Mexican market, we built 1,882 new towers, bringing the total to 14,756 at the end of the year. Backed by a reference offer, our company signed Master Lease Agreements with Telcel, Telefónica, AT&T and Altán, the last of which was recently awarded the Red Compartida project. Together with this, we continue to increase the number of new contracts, based on the exceptional service we have always provided, totaling 244 contracts with AT&T and 29 with Telefónica at the end of the year.

In addition to the impressive growth achieved in Mexico during the year, Telesites took the first step in its international expansion, starting up operations in Costa Rica. By the end of the year, it had built and rented 218 new towers in that country.

Telesites earned revenues of Ps.5.4 billion in 2016, a year-to-year growth of 14.3%, and with a margin of 56.3%, we generated Ps.3.0 billion in EBITDA. Our investment during the year totaled Ps.2.8 billion, destined to building 2,100 towers in Mexico and abroad.

As we announced in the Informational Brochure for the subscription of company shares, in April 2016, a shareholders’ meeting was held to vote on unifying the Company’s stock series so that all shareholders had the same economic and corporate rights. The resolution was approved, and on July 16, the listing of this company’s shares on the Mexican Stock Exchange and in the National Securities Registry of the National Banking and Securities Commission was updated to convert all AA, A, and L series shares into a single B-1 series with full voting rights.

In 2017, Telesites will continue growing its portfolio, and will remain closely focused on collocations.

Our company continues to direct its efforts toward creating value by: i) focusing on colocations with our clients; ii) seeking out new opportunities for organic and non-organic growth in the regions where we operate; iii) ensuring efficient resource management; iv) forging closer ties with our clients, suppliers and employees; and v) continuously improving our planning, construction and maintenance processes.

Telesites remains Mexico’s top tower company, not just in terms of the number of sites in our portfolio but because of our capacity to respond to the growing demand for telecommunications in our country and in Latin America, providing tailor-made solutions that adapt to the continuous pace of technological change.

Sincerely,

Ing. Gerardo Kuri Kaufmann
Chief Executive Officer
Telesites, S.A.B. de C.V.