Technology , innovation, service and growth in line

Anual Report 2014
Report of the Chief Executive Officer to Ordinary General Shareholders’ Meeting of Megacable Holdings S.A.B. De C.V.
Dear Shareholders and Members of the Board of Directors

It is a great pleasure for me to present to our Operating Results, as well as the most representative actions completed during fiscal year 2014.

Throughout the year, we achieved a significant increase in RGUs of 21% 4,458,106; Among our most relevant Operating Results, we must emphasize that in the period, the number of sole subscribers grew by 14% and the RGU per sole subscriber increased to 1.74, which represents a 7% increase. This improvement was driven by the impressive growth of 40% in Internet services, whereas in the video and telephony services, the increases were also outstanding with 12% and 25%, respectively, which are well above the industry averages, thereby enabling us to increase our market share.

The efforts made to increase our presence and share of the Corporate, business and government markets have borne fruit. We achieved an increase of 59% in the revenues of this business unit, which already represents 16% of the total revenues of the Company. We hope to continue growing at an accelerated rate in the future, since we have all already seen that our investment in Ho1a, our technological and solutions arm managed by this segment, has produced magnificent results and that the synergy achieved together with our Metrocarrier business unit was not 1+1=2, but much more, and we hope that this equation will continue to improve.

At Megacable, consistent with the quality of service that we offer to our customers, it is essential for the achievement of results that we continue to implement strategies that enable us to increase the satisfaction levels of our subscribers. Among our main initiatives implemented, the most outstanding are our centralization of our signal reception and distribution into two locations, an ambitious and aggressive maintenance plan, the detection of faults using state-of-the-art technology and the on-going training of our personnel. All of this has allowed us to overcome network problems before they affect our users.

In addition to these great actions and results, I must also mention the Operating Results by business unit:


The year on-year growth in this service was 12% , to reach 2,406,050 subscribers and achieve an Average Revenue Per User (ARPU) of Ps. 230.4. Our revenue in this business unit increased by 5% in the period.

We are continuing with our digitalization plan, which is very advanced with 1,648,599 digital subscribers who represent 69% of the total of the base and a total of 3,556,093 digital receivers have been installed including the additional TVs in subscribers’ homes. Our digitalization process has contributed to capturing more customers and to growing our market share. Digitalization enables us to offer subscribers VOD, HD and Premium channel services.

We are continuing with the implementation of a new generation of video services, that include the launch of Megacable Play, our OTT service that will allow users to enjoy movies, programs and live TV in all their devices, such as Smartphones, Tablets and PCs. We will also launch cloud services, such as “Time Shift TV” interactive recordings and services, which will allow subscribers to time shift the programming.

The migration of our HD (High Definition)-format channels has continued to grow in order to be able to provide our customers with the best quality products. We ended 2014 with more than 60 HD channels, in 2015, we expect to reach more than 90 HD channels.


We achieved an impressive growth in subscribers of 40% compared to 2013, by reaching the figure of 1,330,614 , while revenues in the segment increased by 22%compared to 2013, with an average income per subscriber of Ps. 191.5.

The penetration of the Internet service in our country has increased significantly and consumers have demonstrated their preference for Megacable by finding a better price-speed ratio at our Company. Megacable will continue to offer the fastest connection speed at the most competitive prices on the market.

In 2014, we concentrated our investments on the deployment of fiber optics, increasing the capacity of our transportation network, the division of nodes and all elements necessary to support more users at greater speeds.


At year-end of 2014, we had 721,442 subscribers, which represent an increase of 25% compared to 2013. The revenues of this service also increased by 6%.

We completed the total refurbishment and change of the technological telephony platform, which enables us to offer our customers the integration services of its fixed line with its cellular telephone lines, based on the IMS (IP Multimedia Subsystem) network architecture. In 2014, most of our customers had already migrated to this platform and all of them had done so by the beginning of 2015.

Our telephony service offers different unlimited local call tariff plans to cell phones and long-distance that meet the needs of each one of our customers and enables us to achieve an ever greater market share and penetration.


2014 was a relevant work for the growth of the Business and Corporate Segment, which consists of the Megacable Companies, Metrocarrier, MCM, Ho1a and the PCTV business units. At December 31, there was a 59% growth in revenues compared to 2013, which represents 16% of the Company’s total revenues.

The segment is responsible for developing commercial customers, which consists of micro, small and medium-sized companies to corporate carriers, to which we offer transportation, connectivity, equipment and administrative services.

Metrocarrier is Megacable’s division is responsible for providing comprehensive telecommunications and information technology solutions to companies of all sizes. It has world-renowned technological partners with whom it has been able to create a first-level network. Through Metrocarrier, the maintained our growth in the corporate segment thanks to our service and connection speeds, which offer 400 megabytes per second and we have the infrastructure of up to 2.5 gigabytes per second.

The video, internet and telephony services business segment includes services for hotels, hospitals, schools, universities and other users. This segment reflected a growth of 32% compared to 2013 and represents 6% of the Company’s total revenues.


Our average monthly disconnection rate in the video and internet segments decreased; by 50 base points in video from 3.0% to 2.6% year-on-year, 60 base points in internet, from 3.2% to 2.6% year-on-year while in telephony, it increased by 20 base points from 3.8% to 4%. In the case of telephony, the increase in the disconnection rate is due to the aggressive promotion of three free months in the contracting of any internet service..


Service revenues reached 11,476 million pesos, representing a 14% growth compared to the prior year, mainly due to the preference of subscribers and our accurate commercial strategies.

The EBITDA margin of cable operations was 43.7% and the consolidated EBITDA margin was 41.9%, one of the highest in the industry thanks to the Company’s costs and expenditure controls. The ARPU per single subscriber reached Ps. 398.3 in 2014 due to the additional services contracted by our customers.


Net income amounted to Ps. 2,478 million with a margin of 22%. The income reflected a growth of 28% compared to 2013 due mainly to the excellent operating results achieved by the Company, the benefits of the Reform to the Telecommunications Law and the reduction in the fiscal burden in deferred taxes.


The Company’s balance sheet reflects great strength that is evidenced by the on-going improvement in the financial indicators, in which an increase of 38% in current assets can be observed, as well as a 54% growth in the cash and temporary investments account.

Total assets reached 25,353 million pesos at year- end 2014, observing an increase of 15%, mainly as a result of an improved generation of the amount of $1,400 million pesos of free cash, an increase in our investments in networks and fixed assets.

Short-term assets amounted to 2,386 million pesos, a figure 35% above that observed in 2013. This is as a result of an increase in short-term bank loans and the suppliers’ account.

Total liabilities reflected an increase of 11% to close in the amount of 7,327 million pesos. This increase can be explained mainly by the increase in the aforementioned short-term liabilities.

The Company’s capital stock increased year-on-year by 16%, due mainly to the increase in cumulative income.


In 2014, a CAPEX investment was recorded in the amount of 2,336 million pesos, which represents an increase of 17% compared with the prior year. This investment was mainly focused on productive assets to support the increase in subscribers seen throughout the year. Other relevant investments were allocated to the construction of more than 2,000 kilometers of the network for the digitalization process and the purchase of terminal equipment for subscribers.

The investments in the technical infrastructure we have made throughout the year have played a very important role for our growth and development and have contradicted and has contributed to us being able to position ourselves as leaders in the telecommunications sector.

We maintain a leadership position as the company that has the most modern and extensive fiber optic and coaxial cable network in the country, in which increased to almost 7 million homes and an extension of almost 50,000 kilometers, figures that represent an increase of 9% in homes served compared to the prior year.

Even so, our capital investment ratio against the revenues in one of the lowest in the industry. On average, over the last three years this figure has been 20%, which demonstrates our efficiency and enables us to generate a significant amount of free cash flow.


In 2014, we completed several investments and acquisitions in productive assets, infrastructure and technology in order to continue to offer a network of services focused on different population segments.

The acquisition of the Ho1a (a company, as an alliance of Metrocarrier, has favored the unification of technologies and network infrastructure to group the communication solutions that we offer our customers. The division has produced excellent results for the organization and represents 24% of revenues within the Business Sector.

We acquired shares in the company PCTV (Productora y Comercializadora de Televisión), with which Megacable obtained the largest stockholding. This company produces, distributes and sells five signals and represents the signals of the main international broadcasters in Mexico. ESPN/Disney, Discovery, MTV/Viacom and AMC, to mention a few.

PCTV’s infrastructure has enabled us to strengthen our content generation capacity and our offer of unique content to obtain a competitive differential advantage within the industry.

Continuing with our objective to create an efficient network and reduce our operating costs, we consolidated our reception and distribution heads of video signals into two main points, located in Guadalajara and Veracruz.

These two points will replace the more than 100 points we had nationality, only remaining the additional population centers to which we do not have a connection point to our own fiber-optic network, which are small towns, which we will eventually reach.

Since technology and innovation are fundamental parts of our business, we are continuing to work on the IMS (IP Multimedia System) platform, which will allow us to link calls from fixed telephone lines to cellular telephones. Moreover, the migration of the IPV6 network architecture shows our commitment to offer the best availability and directioning of services to each one of our customers.


The CPO price at December 31, 2014 was Ps. 57.54. Earnings per share were Ps. 1.40, equivalent to Ps. 0.70 per CPO, which represent an increase of 25% compared to the earnings achieved in 2013.

Megacable has a total of 1,721,355,673 series “A” shares, of which 1,717,935,789 were outstanding at December 31, 2014.

Megacable has a free float of 35% because the general investing public holds 600,237,186 shares through 300,118,593 CPOs (2 share each).

The total amount authorized for the share buy-back fund is Ps. 300,000,000, At year-end, there are 3,419,884 shares (1,709,942 CPOs) held in Treasury and surplus resources of Ps. 206,146,213.

Megacable has a total of 1,721,355 673 series “A” shares, of which 1,717,935,789 are outstanding at December 31, 2014. The general investing public holds 600,237,186 shares through 300,118,593 CPOs (two shares each) of which 3,419,884 shares (1,709,942 CPOs) were held in Treasury.

The resources remaining at year-end amount to 206,146,213 with a free float of 35%.

Earnings per share reached Ps. 1.40, equivalent to Ps. 0.70 per CPO, which represents an increase of 25% compared to the figure reported the prior year.


Our employees play a fundamental role in our growth; therefore, throughout 2014, we reinforced our plans and programs focused on their development and training and on the search for and the implementation of actions that improve customer service, keeping in mind at all times the main objective of quality assurance. At year-end 2014, the Company had 14,477 employees, and we created 1,821 jobs in that year.

All these significant actions will lead to the growth and strengthening of Megacable, preparing it to face the challenges in this highly competitive industry with significant changes in consumer habits and in a dynamic regulatory ambit. Our commitment is to be the best telecommunications company in Mexico and we are working daily to achieve this vision.


Enrique Yamuni Robles
Chief Executive Officer

Manuel Urquijo Beltrán
Secretary of the Board of Director