LETTER TO THE GRUPO CARSO SHAREHOLDERS BY THE CHAIRMAN
OF THE BOARD OF DIRECTORS
Economic Panorama
In the year of 2023, the world economy had a Gross Domestic Product (GDP) growth of 3.1%; the United States maintained a stable economy, with steady employment and sustained consumption in the face of high interest rates. China also observed a good recovery, advancing from a growth rate of 3.0% in 2022 to 5.2% in 2023, aided by governmental fiscal stimulus measures. The United States experienced a growth of 2.5% during the same period, attributable to an increase of 4.2% in the consumption of durable goods and 2.3% in services, compensating for the 10.6% contraction in the housing industry caused by the increase of interest rates.
The Mexican economy, on its part, expanded by 3.2% in 2023, with the construction sector leading this growth with an increase of 15.5%, largely as a result of the infrastructure projects and the attraction of investments originating from nearshoring projects. Private consumption maintained a rising tendency, as shown by a growth of 4.0% in commerce, driven by an increase of 6.3% in the real average wage of workers registered in the Mexican Social Security Institute (IMSS) and an increase in remittances from abroad, which reached the historic record of 63,283 million dollars.
The Mexican peso ended the year at $16.97 against the dollar, an appreciation of 13.0%, with a fluctuation ranging from a minimum of $16.62 in July of 2023. This appreciation is attributed mainly to the difference in interest rates between Mexico and the United States, as well as to a positive net flow in the balance of payments, driven by the remittances and direct foreign investment.
The Bank of Mexico increased the reference rate twice in 2023, going from 10.50% to 11.25%, while the Federal Reserve of the United States (the Fed) raised it from 4.50% to 5.50%.
On a global level, the year was characterized by a normalization of inflation following the significant impact caused by the outbreak of the Russian-Ukrainian conflict in 2022, which raised the prices of food and energy. Mexico ended the year with an inflation rate of 4.7%, a reduction from the 7.8% rate in 2022, with core inflation at 5.1 and non-core inflation at 3.4%. The United States ended the year with an inflation rate of 3.4%, dropping from the 6.5% of the previous year, with the inflationary pressure mainly affecting the services sector, at 5.3%.
In 2023 Mexico became the principal exporter to the United States for the first time, according to the United States Census Office, with exportations valued at 475,607 million dollars, surpassing China and Canada.
Nevertheless, Mexico recorded a commercial deficit of 5,464 million dollars, with an oil deficit of 18,536 million dollars, not completely compensated by the non-petroleum surplus of 13,073 million dollars. Automotive exportations were marked by an increase of 14.3% during the year.
The country’s public finances remained stable; the public debt, as a percentage of the GDP, closed the year at 46.8%, with a primary deficit of 0.1% and the financial requirements of the public sector at -4.3%. For 2024. The Ministry of the Treasury and Public Credit anticipates a primary deficit of 1.2% and a fiscal deficit of 5.4%.
México is presently facing the possibility of an unprecedented investment opportunity and advancement towards development, driven by its strategic geographic position and the juncture of international commerce and the quality and capacity of its labor force. These elements place Mexico in an attractive position as a manufacturing and services center for businesses seeking to optimize their logistics and reduce costs without compromising quality.
Investment as a percentage of GDP reached 24.4% in 2023, one of the highest levels ever obtained in the country. If we can reach an investment level of 28 to 30% of GDP, the country’s economy could grow from 5 to 6% annually.
Grupo Carso
In the setting of an economic panorama in Mexico of high interest rates and the strength of its currency, Grupo Carso confirms its vision of sustained long-term growth by continued investment in our various divisions, generating value in our activities, and realizing social support activities and activities oriented towards the care of the environment in the countries in which we operate.
We have increased the capital investments we are realizing in the country. Two years ago we invested $1,431 million pesos, while in 2023 our capital investments reached the amount of $5,551 million pesos, more than triple the amount of the previous period.
On a Corporate level, 2023 sales reached the amount of $198,455 million pesos, which, although this includes the incorporation of Elementia and Fortaleza in the year’s results, shows that Grupo Carso has increased its sales since five years ago at an annually compounded rate of 20%.
In regard to profitability, the operating income and EBITDA were affected by a contraction of the sales that are made in dollars, given the strength of the peso that was observed during the year, as well as by extraordinary items such as the valuation of the Elementia and Fortaleza shares last year and the increase of reserves for credit accounts in the results of the commercial division. Without considering the extraordinary revenue, the accumulated operating income of Grupo Carso grew by 10.1%.
Our financial stability has allowed us to maintain a high cash flow, which in turn allows us to take advantage of opportunities for growth and to explore new business initiatives that we know of but that represent a new focus, such as the recently announced investments in oil and gas, which are the acquisition of the Talos Energy México 7 business, which holds 17.4% of the deposit called Zama, and of the Petrobal Operaciones Upstream company, holder of 50.0% of the Ichalkil and Pokoch deposits, both of which are located in the Southeast Basin, in addition to the agreement signed with the Federal Electricity Commission for the construction of the Centauro del Norte Gas Pipeline, which is the continuation of our Samalayuca-Sásabe pipeline to Mexicali.
With these actions in Grupo Carso we have focused on the drive for profitable growth through a diversification of projects, but mostly our actions have been guided by our goal of seizing opportunities and creating synergies in the existing business divisions and innovation in processes and products for a greater operational and services efficiency.
In the Grupo Sanborns Commercial division the growth of new formats has been promoted, such as in the opening of ten new Dax stores in 2023. In the commercial division we had a growth of 13.3% in sales, arising from the reactivation of sales of formal dresses and footwear in the Sears Department Stores, as well as from a greater flow of customers in the restaurants and a greater volume of credit revenue, which helped us to improve our added value. We improved our e-commerce business, with an emphasis on the reduction of the average delivery time for online sales and of the online sales that are retrieved in the stores. As a consequence of Hurricane Otis that struck Acapulco, six of our stores were closed temporarily, two of which have since reopened. Through the Telmex-Telcel Foundation, the Carlos Slim Foundation and the Inbursa Foundation we sent various aid shipments to the affecte population, such as groceries, supplies and potable plants, among other items.
In the Industrial division, Grupo Condumex, saw a decrease of 10% in its sales and14.7% in its EBITDA mainly because its results are very sensitive to variations in the exchange rate. Nevertheless, in terms of volumes we increased the sale of construction cables as well as of automotive cables and harnesses. During 2023 Cordaflex, S.A. de C.V. received the “Best Quality Supplier” Recognition 2022 and 2023 YTD” from Fujikura Automotive, and we are very proud
to have also received the General Motors “2022 Supplier Quality Excellence Award” for eight of our automotive parts plants for being the providers who surpassed a series of strict quality requirements. During the year we obtained the certification of cables with automotive communication protocols for hybrid and electric automobiles, which enabled us to subscribe new contracts with international clients and to continue to enjoy the opportunities offered by nearshoring.
On its part, Carso Infraestructura y Construcción recorded a solid growth of 16.0% in sales. This growth was mainly due to the greater volumes of the various projects we were engaged in, the conclusion of the platform and railroad for Tren Maya, section II of the Escárcega-Calkiní railroad, the workover and drilling of wells, and the construction of oil platforms. As for civil construction projects, we continued the construction of various works, such as the Star Medica hospital and the remodeling of commercial malls.
Carso Energy had a decrease in sales of 15.5% due principally to variations in the exchange rate, since its income is in dollars. The Samalayuca-Sásabe gas pipeline and the two gas pipelines we have in Waha, Texas, USA, increased their revenue in dollars for the transmission of gas to the CFE (Comision Federal de Energia) and other parties, while the compression station of the first-named, which we completed this year and that will significantly increase its capacity in April, 2024, is in a pre-commissioning stage. The two hydroelectric plants we have in Panama were also affected by the strength of the peso, since all their transactions are in dollars. In clean energy from geothermal wells we continue to carry out the procedures necessary for obtaining the concession in two fields, in which we have made important progress in the exploration phase.
Elementia/Fortaleza also had a decrease in sales, likewise impacted by the variations in the exchange rate, since their income is also in dollars. Nevertheless, in terms of profitability, the growth of their EBITDA margin is notable, increasing from 15.9% to 19.1%. In this division we carried out modernizations in the cement plant to increase its production going forward, to
take advantage of the positive tendency in the construction industry. We also improved the distribution chain of the Construsistemas products.
In regard to sustainability, in Grupo Carso we reinforced the corporate governance by the creation of the Ethics Committee. We participated in ESG (Environmental, Social and Governance) evaluations as providers of automotive parts and we maintained a consumption of energy based on efficient cogeneration sources with a lower emissions factor. In matters of social performance we promoted better.
practices and technical support that favor the equality of opportunity. Finally, in the name of the Board of Directors, I express my appreciation to our shareholders, clients and providers for the confidence they continue to show us. To all our collaborators, besides my appreciation I wish to ask them to continue their commitment to our objectives, making it possible for Grupo Carso to surpass its goals and to continue our contribution to the development of our country.
Sincerely,
Lic. Carlos Slim Domit Chairman of the Board of Directors
