TO THE BOARD OF DIRECTORS ON THE RESULTS OF THE 2020 FISCAL YEAR
In the difficult year of 2020, the consolidated sales of Grupo Carso reached $94,684 million pesos, 7.6% below 2019. This reduction is explained principally by the performance of Grupo Sanborns, which represents 41.8% of the total revenue and which fell by 25.7%, due primarily to the temporary closure of stores in order to address the COVID-19 pandemic. These results were offset by greater sales in the rest of the divisions, such as Grupo Condumex, which saw a recovery in the demand for automotive harnesses and cables after the temporary shutdowns caused by the pandemic, and which contributed 34.8% of the total revenue. In Carso Infraestructura y Construcción sales increased by 25.6%, mainly from the construction of offshore platforms, drilling services, the completion of the Samalayuca-Sásabe gas pipeline, and the reopening of highway projects, representing 25.9% of the Company’s total revenue. Additionally, the Carso Energy division, which represents 1% of the revenue, grew by 1,668.0% from the acquisition of Ideal Panamá.
The income from operations fell from $11,453 million in 2019 to $8,916 million in 2020. The main reason for this reduction was due to a drop of 25.7% in Grupo Sanborns’ operations income, caused by the closure of its stores and the drop in sales due to the pandemic. At the same time, the Industrial, Infrastructure and Construction and Energy Divisions increased their operating income by 7.3%, 39.9% and 955%, respectively.
Accumulated EBITDA totaled $11,206 million pesos, a reduction of 22.6%. For purposes of this calculation, extraordinary items or items that do not imply cash flow, such as the reappraisal of investment properties, are not considered. The corresponding EBITDA margin was 11.8%, compared to 14.1% for the previous year.
A gain from Exchange rates during 2020, added to a lower loss from coverage operations, are the reason the integral financing result (RIF) is $587 million, compared to a cost of $1,097 million for the same item in 2019.
The net controlling income was $5,706 million pesos, a decrease of 24.4%, compared to the income of $7,547 million reached in 2019.
Total debt on December 31, 2020, was $24,111 million pesos, consisting basically of the financing for the Samalayuca-Sásabe gas pipeline, the debt of USD $400 million of Ideal Panama, acquired in February of 2020, and the two stock certificates for $3,000 y $3,500 million pesos, issued in 2018 and 2020, respectively, compared to the debt at the end of the previous year, which was $12,600 million pesos.
The net indebtedness was $9,705 million pesos, compared to the net indebtedness of $2,741 million pesos on December 31 of 2019. The cash and cash equivalents totaled $14,406 million pesos, compared to $9,859 million pesos at the end of December of 2019.
The Grupo Carso financial situation shows a 12-month net indebtedness-EBITDA ratio of 0.87 times, compared to 0.19 in 2019. The coverage of interest index, measured as interest paid/EBITDA was 0.20 times.
At the present time, since 2017, the Company has a dual stock market certificates program for $10,000 million pesos, with an issuance of $3,000 million pesos on March 16 of 2018, and one for $3,500 million pesos on March 13 of 2020, both of them with expiration dates of 3 years.
Total Debt
(million pesos)Capital Expenditures
(million pesos)Net Debt/EBITDA
(times)COMMERCIAL AND CONSUMER DIVISION
Sales
(million pesos)Operating Income
(million pesos)EBITDA
(million pesos)Sales by format
GRUPO SANBORNS
During the year 2020, the commercial and consumer division sales totaled $39,613 million pesos, which is $13,676 million pesos less than in 2019, representing a drop of 25.7%. This was due to the extraordinary actions taken to address the health emergency brought about by the COVID-19 pandemic, in which the mitigation and prevention measures to protect our clients, employees, providers and the public in general implied the temporary closure – from March 31 to June 15 of 2020 – of all 97 Sears and Saks Fifth Avenue stores, 96 Sanborns stores and 22 Sanborns Cafés. The rest of the Sanborns stores stayed open and continued to provide essential products and services in the pharmacy and telecommunications departments. Most of the iShop stores and Dax stores continued open, since they are self-service, as well as the digital stores and distribution centers.
The revenue from credit decreased by 9.8%, totaling $3,586.9 million pesos, compared to $3,975 million pesos recorded in 2019. Given the fact of the health emergency, payments by credit cards were received digitally and the granting of controlled credit and timely support to debtors continued.
The operating income fell from $4,699 million pesos in 2019 to $1,681 million pesos in 2020, which was a drop of 64.2%. This reduction was due to less sales and a greater proportion of electronic, telephony, computers, and technological items in the mix of sales. At the same time, the operating and administration expenses were reduced by 15.9%, with savings related to lesser rental payments, consumption of electricity, banking fees and advertising expenses.
Items not considered for the calculation of annual EBITDA were: Other Net Income in the amount of $1,470 MM in 2020, consisting of a -$45 MM reduction in the value of investment properties, $1,489 MM in labor obligations from the updating of the employee pension plan, and $26 MM from the reversion of depreciation. The EBITDA for 2020 was $2,041 MM, with a margin of 5.2%.
The net controlling income of Grupo Sanborns was reduced by 75.3% for a total of $727 million pesos, compared to $2,949 million pesos in 2019. This reduction was due to the above results, as well as to the comprehensive financing result, which represented an expense of $472 million pesos and which was greater than the $377 million pesos for the previous year, due mainly to the Group’s dollar position in 2020, which caused an exchange loss that year, whereas there was a gain in 2019.
Grupo Sanborns’ capital investments totaled $467 million pesos, consisting of an investment in expansion carried out during the first quarter of the year. During the final days of December there were 439 units in operation of all the formats, with a sales floor area of 1,200,799 square meters.
439 units operating at the end of December
INDUSTRIAL AND MANUFACTURING DIVISION
GRUPO CONDUMEX
During 2020 the sales of Grupo Condumex increased by 3.7% to a total of $32,937 million pesos, compared to a total of $31,747 million pesos recorded the previous year. This increase was because a favorable exchange rate, combined with a significant recovery of volumes after the shutdowns caused by the pandemic, which affected the greater part of production plants in the industrial sector.
The deleterious effects of the pandemic began towards the end of March. However, after the renewal of activities beginning on June 15 of 2020, a significant recovery in Grupo Condumex was observed, with good volume levels in its various sectors, a favorable adjustment of prices from the effect of the appreciation of metal prices and the exchange rate; as well as a better performance in automotive cables and harnesses -which returned to production in order to replace inventory and to meet demand- principally for exportation. There was also an increase in the sale of copper cables, fiber optics, coaxial cables, and telecom installation services. In the construction division there was less dynamism in the national construction markets and exportation due to the contraction of the economy.
Operating income and EBITDA totaled $4,117 and $4,654 million pesos, representing increases of 7.3% and 9.7%, respectively, compared to the figures for 2019.
Controlling net income for Grupo Condumex improved by 42.3%, totaling $2,606 million pesos, compared against $1,832 million pesos in 2019.
Grupo Condumex’s capital investments during the year totaled $365 million pesos. These investments were mainly for the purpose of maintaining the Group’s industrial plant in good conditions and for the updating of its technology.
Sales
(million pesos)Operating Income
(million pesos)EBITDA
(million pesos)40% Growth in the controlling net income
INFRASTRUCTURE AND CONSTRUCTION DIVISION
Sales
(million pesos)Operating Income
(million pesos)EBITDA
(million pesos)Anual Backlog*
(million pesos)*Amounts of contracts for works pending construction.
CARSO INFRAESTRUCTURA Y CONSTRUCCIÓN
The sales of Carso Infraestructura y Construcción increased by 25.6% to the amount of $24,542 million pesos during 2020, compared against $19,538 million pesos for the previous year. This increase is explained primarily by the Group’s Manufacturing and Services for the Oil and Chemical Industry sector, and the progress in the construction of the Maloob E-I platforms for Pemex and three UIM (Unidad de Infraestructura Marina) platforms. The income from the drilling of land wells also increased, with the reactivation of the contract for the reworking of wells. The Installation of Pipelines sector improved its revenue from the increase in the volumes of various Telecommunications projects and the progress and completion in the construction of the Samalayuca-Sásabe gas pipeline. The infrastructure segment improved due to various highway projects, both in Mexico and abroad, as well as from the inclusion of the Tren Maya Section II project. On the other hand, the civil construction and housing division reported a decrease, due to the health contingency.
Greater profitability in the Infrastructure, Manufacturing and Services for the Oil and Chemical Industry sectors, as well as in the Installation of Pipelines, was reflected in the operating income and EBITDA during the year, with solid increases of 39.9% and 34.7%, respectively.
Controlling net income rose from $1,556 million pesos in 2019 to $2,211 million pesos in 2020, for an increase of 42.1%.
The projects at the end of 2020 included the construction of the Las Varas-Vallarta Highway, the Mitla-Tehuantepec Highway, various real estate projects, the installation services for Telecommunications, the Maloob E-I platforms, and various oil industry services and rigs, as well as the initiation of construction of the 2nd section of the Escarcega-Calkini platform and bed for the Tren Maya railroad.
On December 30 of 2020 Carso Infraestructura had a backlog totaling $48,313 MM, compared to $21,043 MM in the same period of the preceding year.
The investments in fixed assets made by Carso Infraestructura y Construcción during 2020 totaled $509 million pesos.
42.1% increase in the controlling net income
THE ENERGY DIVISION
CARSO ENERGY
Carso Energy sales were $912 million pesos, an increase of 1,668.0%, including the income from the two hydroelectric plants in Panama, which were acquired in February of 2020.
Accumulated EBITDA was $561 million pesos, an improvement versus 2019, given the incorporation of the operating results of Panama.
During the year, the effects of the deterioration of exploration investments in Colombia were felt, which explains the operating loss of $183 million pesos, compared to a loss of $17 million pesos in the previous year.
The Waha-Presidio and Waha-San Elizario gas pipelines, both in Texas and in which we hold a participation of 51%, reported significant revenue and profits during 2020, but they are not consolidated and therefore they are not reflected in operational results of this division, but rather in the results of associated companies.
The net results of the energy sector, consolidated in the Carso Energy controller, was $735 MM, compared to $634 MM in 2019, increasing by 16.0% due to the results of the participation in the gas pipelines in Texas, in addition to the extraordinary revenue from the effects of the exchange rate.
The construction of the Samalayuca-Sásabe gas pipeline, located between the states of Chihuahua and Sonora, was concluded in 2020. Grupo Carso has a participation of 100% in the project, and it became available for gas transportation services for the Federal Electricity Commission (CFE) in February of 2021, in conformance with the contract subscribed with the said Commission.
The exploration of the two geothermal energy fields in the states of Baja California and Guanajuato, in which Carso has a participation of 70% of the capital, was suspended for several months of the year because of the pandemic.
The investments in fixed assets carried out by Carso Energy during 2020 were in the amount of $3,304 million pesos, in addition to the acquisition of the hydroelectric plants, representing an increase of $11,143 million pesos in assets.
Sales
(million pesos)Note: Beginning in 2017 Carso Energy does not reflect the income generated by the Jack-UP rig “Independencia I”, but instead the income from the production and sale of oil through Tabasco Oil Company. In 2018 Other Expenses in the amount of $373 million pesos in exploration investments in Colombian oil fields were recorded. In 2020, through its indirect subsidiary Carso Energy Corp., Carso Energy acquired from Promotora del Desarrollo de América Latina, S. A. de C. V., 100% of the shares representing the company capital of Ideal Panamá, S. A. (Ideal Panama), thus obtaining the control of that entity. The principal activities of Ideal Panama consist in the generation and marketing of electricity, as well as the operation and maintenance of hydroelectric plants.
Operating Income
(million pesos)EBITDA
(million pesos)During the year of 2020 Carso Energy invested 67.1% more in fixed assets than in 2019
ASSOCIATED COMPANIES
Grupo Carso maintains significant investments in companies of different industries, such as 36.5% of Elementia, S.A.B. de C.V. (construction cement and materials); 15.5.% of GMéxico Transportes, S.A.B. de C.V. (a railroad Company); 51% of the shares of Transpecos Pipeline L.L.C. and Comanche Trail Pipeline L.L.C., which manage the Waha–San Elizario and Waha–Presidio gas pipelines in Texas, US.A., as well as 14.4% of the shares of Inmuebles SROM, S.A. de C.V. company which owns real estate properties in several shopping centers in Mexico.
The sales and EBITDA of the above-named companies that would proportionately correspond to Grupo Carso are $19,532 and $6,085 million pesos, respectively.
Sincerely,
Engr. Antonio Gómez García
Chief Executive Officer
LOCATION AND FEATURES OF THE GAS PIPELINES
The Waha-Presidio and Waha-San Elizario gas pipelines located in Texas, U.S.A., have been generating income from the transportation of gas to the Federal Electricity Commission (CFE) since 2017.
Waha-Presidio
- 51% owned by Carso Energy
- Length: 238 km, with a diameter of 42 inches
- Revenue from a 25-year contract in USD for the transmission of gas.
Waha San Elizario
- 51% owned by Carso Energy
- Length: 313 Km and a diameter of 42 inches,
- Revenue from a 25-year contract in USD for the transmission of gas
In September of 2015, the CFE selected Carso Electric, a subsidiary of Carso Energy S.A., for the construction and operation of a gas pipeline in the state of Chihuahua, Mexico. Towards the end of 2020 construction of the Samalayuca-Sásabe gas pipeline was completed and it was placed into service for the transportation of natural gas.
Samalayuca-Sásabe
- 100% owned by Carso (Consolidated with Grupo Carso)
- $471 USD was offered as VPN
- Length: 624 Kms and a diameter of 36 inches
- Contract for the transportation of gas
- 25 years of revenue in USD
- IEstimated initiation of operations: 2021.
