WITH SOLID STEPS 2019 ANNUAL REPORT 2019 Annual Report 21,615 million pesos 3,097,628 in revenues subscribers in the Internet segment 3,934 2,130,538 million pesos in subscribers in the Corporate Telecom telephony segment Segment revenues 4,290 3,224,798 million pesos subscribers in the in net income MEGACABLE Video segment 8.5 million revenue 2019 generating units (RGUs); 2.33 RGUs per unique subscriber 62,210 network kilometers 21,262 employees; 7.3% 3,628,105 more with respect unique subscribers to the previous year 1 2019 Annual Report RESULTS HIGHLIGHTS Operating Results 2019 2018 2019 vs 2018 Homes Passed 8,836,675 8,427,917 5% Figures in millions of pesos as of December 31, 2019. Network kilometers 62,210 58,819 6% Two-way Network Percentage 98% 98% Video Subscribers 3,224,798 3,202,184 1% Digital Video Subscribers 2,614,287 2,586,603 1% Video Penetration Rate/Homes Passed 36.5% 38.0% Audited and Consolidated Financial Results 2019 2018 2019 vs 2018 HSD Internet Subscribers 3,097,628 2,942,403 5.3% Service Revenues $21,615 $19,534 11% Penetration Rate/Video Subscribers 96.9% 91.9% Service Costs $5,895 $5,044 17% Telephony Subscribers 2,130,538 1,812,881 17.5% OPEX $9,601 $8,363 15% Penetration Rate/Video Subscribers 66.1% 56.6% Consolidated EBITDA $10,257 $9,422 9% Unique Subscribers 3,628,105 3,593,392 1% Consolidated EBITDA Margin 47.5% 48.2% Revenue Generating Units 8,452,963 7,957,468 6% Adjusted EBITDA for Cable Operations $9,535 $8,920 6% RGUs per unique Subscriber 2.33 2.21 5% Adjusted EBITDA Margin for Cable Operations 49.7% 50.6% Net Profit (Controlling Interest) $4,290 $4,542 (5%) Total Assets $43,243 $39,596 9% Cash and Cash Equivalents $2,210 $3,330 (34%) Total Liabilities $12,293 $10,955 13% Stockholders’ Equity $30,950 $28,641 8% Soundness of strategy 2 21,615 2019 Annual Report 19,534 17,238 CONSOLIDATED EBITDA 10,257 2017 2018 2019 9,422 7,643* SERVICE REVENUES 2017 2018 2019 * Under previous capitalization policy. RGUS PER UNIQUE SUBSCRIBER 2.33 2.21 3,628* 3,593* 2.09 3,405* 2017 2018 2019 * Millions of unique subscribers. 3 2019 Annual Report FINANCIAL RESULTS PER SEGMENT Figures in millions of pesos as of December 31, 2019 cable internet telephony 2018 $8,137 2018 $6,080 2018 $1,669 INCOME 2019 $8,962 INCOME 2019 $6,622 INCOME 2019 $1,599 Corporate Segment Metrocarrier MCM Ho1a PCTV INCOME INCOME INCOME INCOME 2018 $1,548 2018 $960 2018 $639 2018 $300 2019 $1,838 2019 $1,047 2019 $1,049 2019 $322 4 2019 Annual Report To the Megacable Holdings S.A.B. de C.V. General Ordinary Shareholders’ Meeting Dear Shareholders: For Megacable, 2019 was a year of surmounting available hours, increasing the number of views challenges largely due to the country’s econom- and improving the platform’s contribution to the ic recession, which was reflected in the nega- Company’s revenues. In 2020, we will continue to tive growth of the GDP during the year and had work on the next generation of Xview powered a strong impact on the growth of the markets in by Android TV, a platform that promises to be a which we participate in the Video, Internet and decisive step in terms of product differentiation Telephony segments. from other options in the market, allowing us to continue to attract subscribers. To overcome these challenges, we worked on the design and implementation of new strategies, fo- cusing on improving ARPU and achieving a more stable subscriber base; this allowed us to achieve WITH THE STRATEGIES positive results while retaining our leading status and the highest margins in the industry. IMPLEMENTED IN THE THREE MASS Our positive results have been made possible by MARKET SEGMENTS WE ACHIEVED LETTER a number of factors which include: our ability to adapt to market demand, the new video platforms HEALTHY MARGINS, MAINTAINING we have developed and implemented in line with the evolution of how subscribers view content, OUR POSITION IN THE MARKET. and our decision to efficiently adopt new tech- FROM THE nologies to meet the demand for higher Internet speeds. We have demonstrated, once again, that In the corporate market, we have sustained growth we are a company capable of adapting to the chal- in both connectivity solutions and infrastructure lenges of the marketplace in order to grow both and innovation products, and very significantly in operationally and financially. security services. At the end of 2019 we completed CHAIRMAN the construction of our Data Center, which will Our next generation platform, Xview, was strengthen our offer of key services and upgrades launched in 2017 and continues to be a great suc- in the coming years. Moreover, during the year we cess. In 2019 we continued to improve this service strengthened our infrastructure through the ex- by adding new content through a greater num- pansion of our network, building new routes with OF THE BOARD ber of partner agreements in order to offer more the aim of providing a better service. 5 2019 Annual Report In November, we launched a new FTTH (Fiber To Our aim is to continue being one of the most im- The Home) infrastructure construction project portant players in telecommunications in Mex- with GPON (Giga Passive Optical Network) tech- ico and a benchmark for the efficient evolution nology to be deployed in the main cities where of networks towards new technologies. This will we are present. allow us to continue offering high quality prod- ucts and services which, together with our focus on customer service, will guarantee that we will DURING 2019 WE CONTINUED remain in the preference of our subscribers while continuing to generate value for our shareholders. THE OPTIMIZATION OF OUR To our investors, management team, Board of Di- rectors, and our more than 21 thousand employ- XVIEW PLATFORM. ees, my deepest appreciation for your support and commitment in a difficult year in which, thanks to your hard work and effort, we achieved the re- We estimate that in approximately two years we sults that allowed us to continue being the leading will complete the migration of subscribers whose company in the cities in which we are present. service is currently through HFC (Hybrid Fiber and Coaxial) to the new network. It is important to men- tion that the HFC equipment will be reused in other locations allowing us to increase our bandwidth capacity in all the regions in which we operate. In addition, at the end of November we started our mobile virtual operator service with very competi- tive rates and packages which have been very well accepted by the market. Francisco Javier R. Bours Castelo CHAIRMAN OF THE BOARD Manuel Urquijo Beltrán SECRETARY OF THE BOARD 6 2019 Annual Report To the Megacable Holdings S.A.B. de C.V. Ordinary Annual Shareholders’ Meeting Dear Shareholders and Members of the Board of Directors: I am pleased to present the results of Megacable the network beyond market demand, and adding in 2019; a year in which we have once again kilometers of fiber with new alternate and propri- demonstrated our capacity to manage and adapt etary routes in order to deliver better services to to market challenges, which on this occasion the markets we serve. came in the form of a marked economic slow- down on a national level and a negative rate of Regarding unique subscribers, in 2019 we reached GDP growth, which affected consumption levels a total of 3,628,105, while revenue-generating units and the purchasing power of the markets in which (RGUs) grew to more than 8.4 million, an increase we participate. of 6% compared to the previous year, resulting in 2.33 per unique subscriber. The Video, Internet and Despite the difficult economic outlook, and thanks Telephony segments showed an increase of 1%, 5% to our successful business strategy, we managed to and 18%, respectively. meet the challenges, achieving positive growth in both financial and operational results in all three of In 2019, we achieved a single ARPU per subscriber our mass market services. In addition, it was a year of of Ps. 410.3, a growth of 6%, driven by increased consolidation of projects that will be realized in 2020. revenue-generating units, rate adjustments for ex- isting customers, and the contribution of additional We continued to work on our competitive advan- services. Moreover, we sustained our profit margins LETTER tages: innovation and technology. Throughout 2019 within the best ranges in the industry, making us we strengthened our infrastructure by expanding one of the most profitable and efficient companies. FROM THE CEO 7 2019 Annual Report BREAKDOWN BY BUSINESS SEGMENT With respect to the Company’s financial results, we reached our projected revenue target for 2019, VIDEO which grew 11% compared to the previous year 21% to reach Ps. 21,615 million. Consolidated EBITDA reached Ps. 10,257 million, an increase of 9% com- CORPORATE At the end of 2019, the Video segment pared to 2018 at a margin of 47.5%, while EBITDA for MARKET grew by 1% (23 thousand net adds) clos- cable operations was Ps. 9,535 million, an increase ing the period with a total of 3,224,798 of 7% compared to 2018 at a margin of 49.7%. subscribers. Segment revenues increased 10% to close at Ps. 8.962 billion, while ser- vice ARPU grew 8% compared to the end of 2018.