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, 2019.

Economic Overview
In 2019, global economic activity slowed across the board, partly because of uncertainty surrounding trade relations between the United States and China.

The U.S. economy grew by 2.3% in 2019, supported by consumption of goods, which rose 3.7%, but offset by a slower growth of 1.8% in gross fixed investment, compared to 5.1% in 2018. In this context, the Federal Reserve lowered its benchmark interest rate three times to close the year in a range of 1.75% to 2.00%.

In Mexico, Gross Domestic Product shrank by -0.1%, hurt by a -4.9% reduction in gross fixed capital formation, cutbacks in government spending (-1.5%) and sluggish private consumption, which gained a scant 0.6%, compared to 2.3% the year before.

The Mexican peso closed the year at 18.93 against the dollar, gaining 72 centavos in value during the year, after reaching a 18.75 high point. The interest rate spread between risk-free bonds of Mexico and the United States, and the passage of the new USCMA by the House of Representatives in December spurred the appreciation of the Mexican currency.

Inflation in Mexico was 2.83% in 2019, compared to 4.83% in 2018. Non-core inflation was 0.59%, fueled mainly by a slight 0.2% advance in the price of low-octane gasoline, compared to a 15.4% increase the year before. Core inflation grew 3.59%.

The trade balance was a surplus of USD 5.82 billion, compared to a deficit of USD 13.62 billion the year before. The oil trade balance was a deficit of USD 21.22 billion, which is 1.94 billion less than in 2018, while the non-oil surplus increased by USD 17.5 million and closed the year at USD 27.04 billion. Within exports, manufacturing - the most important category in this indicator - grew 3.4% and imports dropped for all sectors, particularly capital goods, down 8.9%, the result of a decline in investment in Mexico.

The federal budget balance had a 398.36 billion pesos (-1.6% of GDP) deficit, and budget revenues were 1.6% higher in real terms than the year before, against a -0.1% reduction in budget spending in real terms, product of cuts to current spending. The primary balance was a surplus of 1.1% of GDP. During the year the government applied 121.23 billion pesos (0.5% of GDP) from the Budget Revenue Stabilization Fund to offset lower-than-expected tax revenues resulting from the slowdown of the Mexican economy.

The start of 2020 was heavily affected by the global COVID-19 pandemic that began in China and then spread to the rest of the world, triggering jitters in financial markets and putting the brakes on the world economy, which is likely heading in to a recession. The dollar appreciated significantly against other currencies, and the price of oil dropped to 18-year lows.

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 close of 2019, which are attached to this report, including the opinion of the Independent Auditor.

Telesites started out 2019 with a portfolio of 16,053 revenuegenerating sites. During the year it added 1,198 new sites in Mexico and 9 new sites in Costa Rica, ending the year with 17,260 sites in total, a portfolio growth of 7.52% compared to the previous year. During the year, another 611 sites were completed but had not yet begun to generate revenues as of the close of December, primarily because they had not been connected to the electrical network. These sites have been incorporated to the revenue stream in the early months of 2020. Note that 612 of the sites built in 2019 were low-cost sites aimed at covering new territory.

During the year 2019, 188 new client co-locations were added to revenues, while one minor client cancelled all of its contracts for 72 sites. We closed the year with 101 more co-locations than the year before.

The company reported total revenues of 7.3 billion pesos, a 10.5% year-to-year growth. EBITDA totaled 6.9 billion pesos, an 11.04% growth over the pro forma figure from the previous year, while our EBITDA margin improved to 94.7% on the strength of investments in previous periods and the application of the new IFRS 16 accounting standard. With this new rule we no longer include floor rental expense on our Income Statement, and we included additional expenses for depreciation and interest. Additionally, EBITDA was higher because of our investment of 2.1 billion pesos in towers in Mexico and Costa Rica.

Our company’s strategy continues to focus on the growth of its business, sustained by our clients’ demand for new sites, and the increased potential for colocations with the addition of each site to our portfolio. Additionally, Telesites remains alert to new growth opportunities, while ensuring optimum use of our resources at all times. Keeping this focus in mind, 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.

 

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