TO OUR
SHAREHOLDERS

Mexico City, April 24, 2019
To the General Shareholders’
Meeting and Board of Directors
TELESITES, S.A.B. de C.V.

In accordance with article 44 section XI of the Mexican Securities Market Act, in correlation with article 172 of the General Business Corporations Law, and in my capacity as Chief Executive Officer of Telesites, S.A.B. de C.V. (the “Company” or “Telesites”), I am pleased to present this report on the Company’s operations during the fiscal year ended December 31, 2018.

Economic Overview
In 2018, the global economic climate benefited from U.S. economic expansion, despite higher interest rates and trade tensions with China arising from the mutual imposition of international trade tariffs, part of their respective negotiation strategies.

The U.S. economy grew by 2.9% in 2018, supported by a tax reform that cut the corporate tax rate to 21% from 35%, spurring company profits and promoting non-residential investment, which grew 7.0% during the year. Domestic demand continued to rise, and durable goods consumption expanded by 5.7%. In response, the Federal Reserve continued its monetary policy normalization, raising the benchmark rate to 2.50%, from 1.50% at the close of 2017. At the start of 2019, however, it took a more cautious stance, signaling that the pace of normalization would be slower going forward.

In Mexico, Gross Domestic Product grew 2.0%, supported by the tertiary sector, led particularly by retail, telecommunications and the financial industry, which outperformed the rest of the economy, making up for the continuing weakness of the secondary sector, evident in the reduction of the oil production platform to 1.7 million barrels a day.

Mexican peso went from 19.66 per dollar at the close of 2017 to 19.65 at the close of 2018, but was rather volatile during the year, reaching highs of 20.96. The renegotiation of the USMCA concluded at the end of the year, easing some of the uncertainty that had prevailed since the last U.S. election. The new terms are expected to be approved by each Congresses in 2019. The existence of this agreement, particularly given U.S. trade conflicts with other countries, strengthen Mexico’s appeal as a site for industry and exports to the north of the continent.

Inflation in Mexico was 4.83% in 2018, down from 6.77% the year before, a reduction attributed primarily to lower gasoline price hikes during the year.

The trade balance presented a deficit of USD 13.70 billion, 2.74 billion more than the year before. The oil trade balance was a deficit of USD 23.19 billion, which is 4.88 billion higher than in 2017, while the non-oil surplus increased by 26.7% and closed the year at USD 9.48 billion, driven by a 9.1% growth in manufacturing exports.

The new presidential administration has made austerity, transparency, and prudent management of public finances its priorities. Its core focus is fighting corruption, crime and poverty, which it sees as the main obstacles for creating more and better jobs, and to Mexico’s economic growth potential.

To achieve the proposed annual expansion rate of 4.0%, more investment is needed; the Ministry of Finance has said public investment must be increased from only 2.6% of GDP in 2018 to at least 5.0%, and private-sector investment must be more than 20% of GDP.

REPORT ON THE COMPANY’S OPERATING AND FINANCIAL RESULTS
The following are some remarks on the key figures reported in our financial statements for the end of 2018, which are attached to this report, including the opinion of the Independent Auditor.

Telesites started out 2018 with a portfolio of 15,334 revenue-generating sites. During the year it added 697 new sites in Mexico and 22 new sites in Costa Rica, ending the year with 16,053 sites in total, a portfolio growth of 4.69% compared to the previous year.

During the year 2018, 221 co-locations were added to the revenue stream (excluding Telcel).

The company reported total revenues of 6.7 billion pesos, a 15.5% year-to-year growth. EBITDA was up 21.3%, while our EBITDA margin improved to 62.5% on the strength of investments in previous periods, as well as 1.3 billon pesos invested in 2018 in the construction of towers in Mexico and Costa Rica.

Our company maintains its strategic focus on growing the business, sustained by clients’ demand for new sites, as well as the potential for co-locations, which rises with the addition of every new site to our portfolio. Additionally, Telesites remains alert to new growth opportunities, while ensuring optimum use of its resources at all times. To this end we work tirelessly to strengthen relations with clients, suppliers and employees, all of which are pillars for our solid growth.

FELLOW SHAREHOLDERS:
I am grateful for the trust you have placed in us, and I reiterate the commitment of the entire team that makes up Telesites to continue improving the performance of this company’s activities.

SINCERELY

 

GERARDO KURI KAUFMANN
CHIEF EXECUTIVE OFFICER
Telesites, S.A.B. de C.V.