High Credit Quality

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Liverpool, a high credit quality company with sufficient operating cash flow to cover working capital needs, expansion program, and financial liabilities payments without having to incur in additional indebtedness

1. Buy Fundamentals HIGH CREDIT We initiate debt coverage for Liverpool (“The Company”), with a HIGH CREDIT QUALITY opinion. The company has been substantially increasing its cash flow in QUALITY the last years, funding all operations and investments with its own generated cash flow; having no need to incur in additional indebtedness and therefore reducing its PUERTO DE LIVERPOOL leverage ratio. Fitch S&P i. When performing relative valuation of the bonds in regard to other Long term Long term issuances, bonds LIVEPOL 08 and LIVEPOL12 appear blow the curve and AAA(mex) mx AAA might be considered expensive with respect to their comparables. Nevertheless, we consider all of the company’s bonds to be of high credit quality based on its solid capacity to meet all financial obligations, Table 1.Liverpool: Outstanding bonds inclusive, with own generated flow and without the renewal of bank credit Recommendation Maturity Rate lines. for Credit Rating ii. We specifically recommend buying bonds LIVEPOL 08 and LIVEPOL 10 LIVEPOL08 aug-18 Fixed: 9.36% BUY LIVEPOL10 may-20 Fixed: 8.53% BUY due to high coupons, medium term and low credit risk. LIVEPOL10U may-20 UDIS: 4.22% BUY LIVEPOL12 mar-17 TIIE 28 + 0.35% BUY  In 1Q15 total revenues, net profit, and EBITDA increased 11.1%, 14.8%, and 19.7% LIVEPOL12-2 mar-22 Fixed:7.64% BUY respectively vs. the same period in 2014. Below are the company’s results in the LIVEPL 3.95% 2024* oct-24 Fixed: 3.95% BUY *in USD previous years and our estimates for the next three years:

Summary of Financial Results and Estimates 2015-2018 M P millio n 2011 2012 2013 2014 2015 E 2016 E 2017 E 2018 E Sales 58,648 66,247 74,105 81,027 90,996 100,920 112,769 124,676

Grow th 13.0% 11.9% 9.3% 12.3% 10.9% 11.7% 10.6% Cost 49,421 55,940 63,269 69,914 78,268 86,650 97,014 107,014 Operating Profit 9,228 10,306 10,836 11,113 12,951 14,486 15,967 17,873 EBITDA 10,511 11,769 12,536 13,024 15,140 16,997 18,870 21,099 Content: Margi 17.9% 17.8% 16.9% 16.1% 16.6% 16.8% 16.7% 16.9% 1. Company Fundamentals and Risks Net Profit 6,543 7,198 7,702 7,763 9,053 10,249 11,527 13,423 2. Liverpool, the company Margin 11.2% 10.9% 10.4% 9.6% 9.9% 10.2% 10.2% 10.8% 3. Financial indicators 4. Company and bond ratings Revenues before taxes 8,905 9,949 10,401 10,562 12,788 14,641 16,467 19,176 5. Funding sources Operating cash flow 2,053 3,187 3,019 7,583 9,810 13,052 14,816 17,344 6. Main features of bonds Cash increase 373 (76) (96) (34) 3,042 5,402 4,615 9,863 7. Cash flow analysis Cash at end of period* 775 699 603 570 3,614 9,011 13,641 23,513 8. Industry analysis Total debt 8,921 12,921 14,933 13,344 13,382 13,307 13,369 13,399 9. Bond valuation 10. Relative value  It is estimated that Liverpool will have a greater organic growth than the retail industry in 2015 once again. Strong sales are expected for department stores and a broadened Annexes: scope with the opening of Fabricas de Francia stores. Same store sales are projected Financial projections to grow 7.4% while floor sales are expected to expand by 6% in 2015. However, recently opened stores (4 during 2S14 and 2 in 1Q15) could boost sales as these stores are just beginning to have positive results.

 Debt level is considerably lower than cash flow generation; in addition, the Company was able to increase notably its cash levels during the adverse economic period of 2014. For the upcoming years, we consider the Company will generate a stable cash Raúl Márquez Pardinas flow; enough to cover most of its working capital needs, expansion program, dividend Análisis de Renta Fija payments and financial liabilities payments, while reducing even more its leverage [email protected] levels.

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

 Regarding the Company’s real estate business, Liverpool’s malls have had an occupation level of 97%. Currently, the real estate business contributes 3% of company’s total revenues; nevertheless, the opening of a new shopping mall at the end of the year could increase this figure.

 Same store sales (SSS) for 2014 were for 6.2%; above ANTAD’s average for department stores of 0.9%. During 1Q15, Liverpool’s SSS was 7.5%, compared to 5.2% of ANTAD’s average for total stores. This positive difference is due to the strong performance of Liverpool’s credit portfolio.

 Company maintains a strong negotiation power with suppliers as well as favorable locations of new and existing stores, favoring business continuity for the following years. Liverpool will continue with its strategy to increase loan granting and exclusive benefits to clients, allowing the company to reinforce its market share.

 The company is under a comfortable amortization calendar as it does not have any debt maturities during 2015 and 2016. In fact, based on our projections and current performance of the company, principal redemption in 2017 could be paid with own generated cash flow (See Maturity profile section).

 Below is a list of macroeconomic and political factors that could and have affected the Company in the short and medium term:

Positive Negative  Wage and employment increase  Taxes – main products such as generates higher acquisition power. As medicines and food will suffer an of May 2015, unemployment rate increase in taxes, reducing consumer’s reached its lowest level of the past 7 acquisition power. years reaching 4.45%

 High correlation of consumption with  Fiscal reform – triggered a reduction in GDP; GDP growth expected for 2015 is use of credit cards 2.0%-3.0% and 2.5%-3.5% in 2016  Remittances – Upward tendency  Exchange rate – costs of imported expected merchandise increased and therefore a possible increase in price of products

offered to consumer

 Exchange rate – Peso devaluation  Political elections – Political elections boost more remittances and increases tend to reduce consumer expenses due amount at the moment of conversion; to uncertainty and a decrease of

higher acquisition power confidence

 Increase in the consumer confidence index – with a slight upward trend in the past months

 Increase of segment A/B, C, C+ in the following years – which are company’s target

(See section Market Analysis for a detailed analysis)

 2012, 2013 and 2014 were years in which consumption was affected by recessions, macroeconomic and political conditions. Nevertheless, during the first 2015, company’s results have been higher than the market average, even with the decrease in the consumer confidence index because of the elections. A major part of the company’s

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

growth was correlated to unemployment decrease and wage increase, counteracting the effect that political elections in Mexico usually have.

Risks associated to investment:

 The company holds a diversified portfolio in regard to products and geographical distribution, nevertheless all income sources are concentrated within Mexico which leads to certain risks. Population consumption is highly correlated to Mexican economy growth, meaning that when there is a recession, acquisition power and consumer confidence could be reduced and so, impact company’s sales. GDP growth, consumer confidence, reforms or laws, employment generation, FX markets, economic cycles

linked to political events, etc., have high effects on domestic consumption and therefore the company’s revenues (See section Market analysis).

 The new fiscal reform has produced a deceleration in the use of credit cards. Although credit operations continue growing; it is not doing so with the same pace as before. By the end of 1Q15, the nationwide balance of credit cards increased only by 1% vs. 1Q14. In 2012, consumption had increased 17% vs. 2011, while in 2013 it increased by 9% and in 2014 to 2.5%. This deceleration has affected the company, mainly its credit

business, in which the average ticket has decreased as well as their total loan portfolio and therefore increasing the past due portfolio. Past due portfolio index reached 4.2% of total portfolio, vs. 3.9% in 2014 while, Liverpool’s card participation ended the first quarter at 44.5%, 1.3% below 2014. If this trend continues, merchandise sales could severely be reduced, mainly due to the fact that many clients’ purchases depend on loans and payment programs.

 Annual past due portfolio levels are estimated to continue to be relatively stable below

the recorded levels of 2008 (5.2%). Nevertheless, an increase in 1Q15 has been reported as it went from 4.0% at the end of 2014 to 4.2% in 1Q15. This augment can be attributed to the decrease in total portfolio in regards to last period and not because the number of past due clients grew. By the end of 2014, Liverpool’s portfolio amounted to MP $25,540 million; an increase 0.6% against the same period a year ago, but an 11% reduction against closure of the previous year.

 The company is exposed to exchange rate risks associated to Mexican pesos against

US dollar and Euro because of merchandise it imports from Europe and Asia. Purchases in currencies different from Mexican peso represent approximately 18% of total merchandise, and not having operations or an income source in these currencies, increasing FX risk significantly. In fact, prices of certain imported merchandise will increase during the year as a consequence of currency devaluation of past months. The company could see a consumer reduction of imported brands, as the consumers usually substitute these with more accessible local brands, and not necessarily through the Company; meaning, an increase of international merchandise cost could lead to

lower profitability margins.

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

2. El Puerto de Liverpool, S.A.B. de C.V., the company

Liverpool is the largest complete department store in the country with 103 operating units under two brands: Liverpool and Fábricas de Francia; it has 4 Duty Free stores and 64 boutiques of different specialized brands in different sectors and products. It has a sales area of more than 1.5 million square meters and presence in 58 cities in the country. Currently the company is the brand with the biggest market share:

Evolution of market partition

Graph 1. Income by business (Dec 2014) 62% 63% 63% 62% 63% 63% 64% 65%

Loans 8% 20% 20% 21% 21% 20% 18% 20% 19% Real Estate 3% 18% 17% 17% 17% 17% 18% 17% 17%

2006 2007 2008 2009 2010 2011 2012 2013

Palacio de Hierro Sears Liverpool Commercial 89%

The company is the third biggest issuer of credit cards in Mexico with more than 3.8

million cards, financing clients for purchases within its stores exclusively. Graph 2. Evolution – Composition sales Additionally, the company operates “Liverpool Premium Card” credit card, by which by business cardholders can acquire goods and services both in stores and boutiques of the

chain as well as in affiliated establishments. 3.10% 3.04% 2.97% 2.95% 3.19% 3.48% 3.37% 5.86% 4.73% The company also performs real estate operations, leasing commercial space in 24 7.43% 7.77% 8.08% 7.84% 7.61% malls located in 15 different cities in the country and has 477 thousand square meters of gross leasable areas (GLA).

91.05% 92.23% Below are the main features of the company’s businesses, as well as income 89.59% 89.28% 88.73% 88.68% 89.01% distribution, annual evolution of income composition and client’s loan portfolio (Graphs 1, 2 and 3, respectively).

Main features of the three businesses 2008 2009 2010 2011 2012 2013 2014 División Inmobiliaria División Crédito Divisón Comercial

Commercial Sales Liverpool Credit Leasing Graph 3. Client Loan Portfolio (million)  Same store growth of 7.5%.  First non-banking credit card  Properties distributed in 30 Generated mainly due of 60% issued. states and 52 cities. 3,768 higher traffic and the  Third credit card with more  Ownership/Coownership of 24 3,485 outstanding due to average users, 3.5 million. malls. 3,119 2,903 ticket increase. 2,690  Market share: 52.5%.  2,249 commercial spaces. 2,586 2,701  More than 4,500 suppliers.  Average balance: $7,000  Revenue growth of 17.3% in  Top 10 suppliers are less than  Past due portfolio: 0.7x to 1Q15 vs. 1Q14 – mainly due to 20% of total sales. 1Q15. the opening of two malls at the  18% of imported goods from end of 2014. USA, Europe and Asia.  Mall occupancy higher than 97%.

2008 2009 2010 2011 2012 2013 2014

Source: 1Q15 Report The company attends almost all population segments through Liverpool and Análisis de Renta Fija Actinver - Creando Ideas con Valor 4

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Fabricas de Francia:

Source: Liverpool Annual Presentation Store Openings:

During 2015, 5.4% of store space will be added, 0.6% of GLA in malls and 20% more sqm for specialty boutiques in comparison to last year. The planned openings for 2015 are:

Almacenes Liverpool:  Tlalnepantla, Mexico State  Coacalco, Mexico State  La Fe Monterrey, Nuevo León

Fábricas De Francia:  Cuautla, Morelos (April 2015)  Chimalhuacán, Mexico State (April 2015)  Texcoco, Mexico State  Salamanca, Guanajuato  Zumpango, Mexico State

Malls:

 Galerías Polanco

Boutiques: 18 of several brands including the incorporation of Williams Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teens and West Elm.

3. Key financial indicators of the company 2014 vs. 2013

Total revenues of the company had a 9.3% increase reaching MP 81,027 million by 2014 closure. The total is composed by:

 Retail sales and services totaling MP $72,122 million, an increase of 9.7% of total stores and 6.2% same stores vs. previous year.  Revenues due to client’s financing grew 6.2% while the portfolio grew 1.8%. To year end, 48.2% of commercial sales were made through financing by the company.  Income related to leasing activities of commercial space recorded a 6.0% increase vs. the previous year, totaling MP 2,735 million.

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Total revenues Annual EBITDA (Million Pesos) (Million Pesos) $13,023 $81,027 $12,536 $11,769 $74,105 $10,511 $66,247 $8,940 $58,657 $52,160 $6,883 $45,409 $47,004 $6,526

2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

Operating Profit Net Profit (Million Pesos) (Million Pesos)

10,836 11,113 10,306 $7,763 9,228 $7,702 $7,198 7,727 $6,543 $5,155 5,631 5,671 $3,787 $3,528

2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

EBITDA margin Net Debt/EBITDA

17.9% 17.8% 1.4 17.1% 16.9% 1.3 16.1% 1.2 14.4% 14.6% 1.1

0.8

0.6

2008 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Source: 1Q15 Report

Past due portfolio

To first quarter of 2015, delinquency portfolio levels of more than 90 days represented a 4.2% of total portfolio. In 2014 the delinquency index increased and therefore led to additional reserves of cost structure, nevertheless, it is estimated that during 2015 past due index will not only stabilize, but also reduce at year end. One of the main reasons past due portfolio increased in the first quarter vs. the 2014 closure was that the total portfolio decreased from MP 23 million (4Q14), to MP 20 million in 1Q15 (even though the number of clients increased). One must keep in mind business seasonality, in which the Análisis de Renta Fija Actinver - Creando Ideas con Valor 6

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

first three quarters of the year usually have an increase in index and then a notable improvement in the last quarter. Below is a chart illustrating past due quarterly seasonality

Quarterly Past Due Portfolio Evolution

4.9%

4.4% 4.2% 4.0%

3.7% 3.6% 3.3% 3.3% 3.0%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Financial limitations related to debt issuance of Liverpool – Covenants

• Interest-bearing Debt must not exceed 15% of total assets. • Most of debt must be under a fixed interest rate

Covenants were fulfilled as of December 31, 2014.

4. Credit ratings

Company qualification

Fitch Fitch S&P S&P Long term Short term Long term Short term

Liverpool AAA(mex) F1+(mex) mx AAA mxA-1

Bond ratings

Fitch Ratings S&P LIVEPOL 08 AAA (mex) mxAAA LIVEPOL 10 AAA (mex) mxAAA LIVEPOL 10U AAA (mex) mxAAA

LIVEPOL 12 AAA (mex) mxAAA

LIVEPOL 08 AAA (mex) mxAAA LIVEPL 3.95% 2024 BBB+ BBB+

Positive Rating Considerations

 Strong position in highly fragmented and very competitive retail industry in Mexico.  Very low leverage levels allowing the company to have a higher maneuver margin with cash flow generated.  Maintains a solid negotiation power with suppliers and favorable locations of new and existing stores.  Company growth is above average growth for department stores nationwide (as per ANTAD).  Cost structure with stables gross margins and expenses as a portion of total

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

sales.  Growth expectations of consumer confidence index, reflecting an increase in purchases.

On the other hand, the rating also considers the following factors as negative indicators of the issuance that could affect the rating and credit quality of bonds:

 Rating could be reduced if in the following two years if the expansion program turns more aggressive and the company increases debt levels considerably, weakening cash flow generation and liquidity.  Past due portfolio increase to level substantially higher than those of the last two years.  Significant loss of market share.  Higher proportion of leased assets in regard to own.  The company continues to have a high geographical concentration in the metropolitan area of Mexico, which upon an unexpected event could affect the Graph 4. Financing sources (1Q15) company’s profitability.

5. Financing Sources CB's Dollars Company faces working capital needs through generated flow, as well as credit lines 33% (short and long term) and also financing in the local debt market, however, the company has indebtedness limitations imposed by itself (See financial limitations). At 2014 closure and 1Q15, the company is in line with its financial limitations and up to Bank loan date with liabilities payment; interest payments is covered more than 8x by operating 7% profit. Financing source distribution and respective rates as of 1Q15 are seen in graphs 4 and 5 respectively. CB's 60% Based on the company’s needs and flow generated, we believe the company will not incur in any additional bank loans or debt through the capital markets. In the following

2 to 3 years an additional debt issuance would not be convenient for the company.

By the end of the first quarter, total debt amounted to MP $13,343 million, 13% less Graph 5. Financing rate type (1Q15) vs. the same date of previous year. This derived primarily because of less need of working capital and that the company did not acquire additional debt. All working capital and investments were made with own flow derived from operation. Floating UDIS 17% 6% Evolution Net Debt/EBITDA ratio

1.2 1.2 1.1 1.0 1.0 1.0 1.0 Fixed 0.9 0.9 0.9 77%

0.7 0.7

0.6 0.6

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14 4Q14 1Q15

Except for the bond issued in dollars, the company carries out all of its funding in local currency. Nevertheless, the company is exposed to an Exchange rate risk vs. dollar and euro due to merchandise imports mainly from Europe and Asia. Purchases in different currencies to Mexican peso represent approximately 18% of total purchases. Source: 1Q15 Report Análisis de Renta Fija Actinver - Creando Ideas con Valor 8

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

UDIS coverage: The company holds a debt issuance in UDIS (indexed inflation rate) so it has contracted a “swap” coverage to mitigate risk exposure to a strong hike of inflation

rate in Mexico.

Maturity Profile

The company has a confortable debt maturity profile scenario as it has no maturities during the next two years. In fact, based on projections and current performance of the company, the amount due in 2017 can be paid with the company’s own

generated cash flow from operations.

Debt Maturity profile (MP million)

4,422

921.4 3,000

2,100 1,900

1,000

2017 2018 2020 2022 2024

CB's Bank loan CB's Dollars

6. Main Features of Bonds

LIVEPOL08 LIVEPOL10 LIVEPOL10U LIVEPOL12 LIVEPOL12-2 LIVEPL 3.95% 2024

Amount (MP million) $1,000 $2,250 $750 $2,100 $1,900 $300 Currency Mexican pesos Mexican pesos Mexican pesos Mexican pesos Mexican pesos USA-Dollars

Issue Date sep-08 jun-10 jun-10 mar-12 mar-12 oct-14

Maturity Date aug-18 may-20 may-20 mar-17 mar-22 oct-24

Term 10.1 10.1 10.1 5.1 10.1 10.1

Rate type FIXED FIXED UDIS FLOATING FIXED FIXED Rate 9.36% 8.53% UDIS + 4.22% TIIE28 + 0.35% 7.64% 3.95%

Collateral Unsecured Unsecured Unsecured Unsecured Unsecured Unsecured

Redemption Bullet Bullet Bullet Bullet Bullet Bullet

Voluntary anticipated No No No No No No redemption

Interest payment 182 days 182 days 182 days 28 days 182 days 182 days

Rating

Fitch AAA AAA AAA AAA AAA BBB+

S&P AAA AAA AAA AAA AAA BBB+

Pay debt/working Working capital / Loan Working capital / Loan Working capital / Loan Working capital / Loan Working capital / Loan Use of proceeds capital portfolio / Payment to portfolio / Payment to portfolio / Payment to portfolio / Payment to portfolio / Payment to suppliers suppliers suppliers suppliers suppliers

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

7. Estimate of cash flow and loan quality analysis

Financial structure of the company has allowed it to execute all operations with its own cash flow, even when taking in consideration some significant investments for the opening of new stores and malls. Cash flow derived from operating activities has increased in past years, adding considerable liquidity that have allowed the company to reduce leverage levels and continue business operation without the need to incur in additional debt.

Based on financial projections, it is estimated the company will generate a stable cash flow; sufficient to cover part of the needs of working capital, expansion program, dividend and financial obligation payments, reducing even more leverage levels.

Profit Before Taxes 9,949 10,401 10,562 12,788 14,641 16,467 19,176 Non Cash Items 3,935 4,401 5,254 1,419 0 0 0 Investment Activity Related Items (2,369) (2,410) (2,813) 1,208 3,138 3,671 3,993 Financing Activities 977 1,048 682 76 0 0 0 Pre-Tax Cash Flow 12,493 13,440 13,684 15,492 17,779 20,138 23,169

Working Capital Changes (9,306) (10,422) (6,101) (5,682) (4,728) (5,322) (5,825) Decr. (Inc.) in Accounts Receivable (4,284) (5,864) (2,649) (2,558) (3,126) (3,721) (3,676) Decr. (Inc.) in Inventories (1,148) (1,321) (874) (761) (1,358) (1,641) (1,635) Decr. (Inc.) en Other Accounts Rec. and Other Assets (128) (427) (1,870) (408) (223) (266) (267) Incr. (Decr.) in Suppliers 704 1,166 1,496 2,390 1,704 2,060 2,052 Incr. (Decr.) in Other Liabilities (1,803) (1,785) (362) (1,282) 1,054 1,363 1,358 Taxes Paid or Accrued (2,646) (2,191) (1,842) (3,062) (2,779) (3,116) (3,657) Cash Flow from Operations 3,187 3,019 7,583 9,810 13,052 14,816 17,344 Cash Flow from Investment (5,436) (1,487) (4,918) (4,932) (5,322) (7,584) (4,585) Cash Flow from Financing 2,174 (1,627) (2,699) (1,836) (2,327) (2,617) (2,895) Incr. in Bank Loans 0 2,011 0 0 0 0 0 Incr. in Debt Securities 4,000 0 4,422 157 0 0 0 Incr. in Other Financing 0 0 0 0 0 0 0 Decr. in Bank Loans 0 0 (2,011) 0 0 0 0 Decr. in Debt Securities 0 0 (4,000) 0 0 0 0 Decr. in Other Financing 0 0 0 0 0 0 0 Incr. in Social Capital 0 0 0 0 0 0 0 Dividends Paid (899) (2,590) (0) (1,087) (1,358) (1,537) (1,729) Share Premium 0 0 0 0 0 0 0 Future Capital Increases 0 0 0 0 0 0 0 Interests Paid (927) (1,048) (1,111) (905) (969) (1,080) (1,166) Share Buyback 0 0 0 0 0 0 0 Other Items 0 0 0 0 0 0 0 Net Incr. (Decr.) in Cash and T.I. (76) (96) (34) 3,042 5,402 4,615 9,863 FX Gain (Loss) in Cash and T.I. 0 0 0 2 (6) 15 9 Net Cash and T.I. Beginning of Period 775 699 603 570 3,614 9,011 13,641 Net Cash and T.I. End of Period 699 603 570 3,614 9,011 13,641 23,513

8. Industry analysis

Liverpool belongs to a sector naturally exposed to variations on consumption patterns. The commercial sector (self-service, credit, and department stores) is one of the most impacted by diverse macro and micro economic variables.

Consumptions indexes and trends have had a poor in past years, having generated relevant changes of strategy by the big companies, both commercially as well as in investment programs. In fact, one of the most important changes undergone in such complicated economic scenario is the continuity through consolidation among the most important players. Liverpool is the best example; after several continuous months of downward macroeconomic indicators, the company has consolidated as the main department store and the third granting credits nationwide.

While the main indicators (consumption, confidence, sales, loan credits, etc.) show a downward trend (with a slight recovery in 1Q15), Liverpool has shown an increase in revenues. Among the main reasons of this growth is the opening of new stores located in strategic points to target a segment not attended before, and with less competition.

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Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Graph 6. Population growth by segment Another factor leading the company’s growth is the inclusion of well-known brands in

its department stores. While other smaller stores or boutiques have faced a reduction 7% 8%

in their sales, department stores continue attracting the majority of clients in malls 14% guaranteeing their merchandise purchases. This primarily due to the fact that a 17% department store offers an all-in visit as opposed to multi-store shopping 17% AB 30% C Growth of object segments: C+ 35% D+ 25% The company services almost all segments of the population low A/Bs, Cs and D+, D/E however, the most important source of income comes the Cs segment: 26% 20%

2010 2025

Graph 7. Consumer confidence trend

120 Liverpool has opened 24 malls and 101 stores focused on servicing the medium 110 segments of population. This strategy has delivered good results and presumably it will 100 continue as estimates for segments A/B and mainly C+ will grow substantially by 2025 90 (Graph 6). Furthermore, if an economy growth (GDP) estimated at 2.5%-3.0% is taken into consideration for 2015; we could see a boost in private expenses (families, private 80 companies and institutions without seeking profit) and general consumption nationwide. 70 Private consumption index has continued with an upward trend since 2010, recovering 60

after the 2009 worldwide recession when it dropped by 6.2% and rebounding 5.5%

jul-03

jul-06

jul-09

jul-12

oct-02

oct-05

oct-08

oct-11

oct-14

abr-01

abr-04

abr-07

abr-10

abr-13

ene-02

ene-05

ene-08 ene-11 afterwards (Graph 7). For 2013 and 2014, moderate annual growth rates of 2.1% and ene-14 2.2% were registered respectively; also, at year end the trend began showing Graph 8. GDP growth vs. consumption improvements so we expect growth levels of 3.0% for 2015. % PIB PIB % consumo Department and self-service stores growth: 10.0% 8.0%

6.0% Self-service and department stores show had a drop after several years of relative stability 4.0% however the trend seems to start reversing in the last months of 2014. The main reason of 2.0% this drop is the slowdown of GDP due to 2009 global crisis as well as instability generated 0.0% -2.0% by the change in the presidency with its reforms and restructures it entails, its effect on -4.0% consumer confidence, and private consumption, as well as fiscal reforms and its -6.0% implication on expenses through credit loans. -8.0% -10.0% Self-service and department stores - % annual -12.0%

III01

III04

III07

III10

IT00

IT03

IT06

IT09

IV00

IV03

IV06

IV09

IIT02

IIT05

IIT08

IIT11

1T12

4T12 3T13 2T14

Graph 9. Private consumption growth % quarter

10%

-5%

-10%

-15%

GDP vs. consumption growth

2014/10 2008/10 2009/07 2010/04 2011/01 2011/10 2012/07 2013/04 2014/01 2008/01 Consumption in Mexico shows a movement highly correlated to that of the GDP growth. Source:: ANTAD, INEGI, Actinver This is mainly due to the fact that it depends on factors such as employment generation, minimum wage levels, acquisition power, and fiscal changes among other issues of public Análisis de Renta Fija Actinver - Creando Ideas con Valor 11

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

expenditures based on a six year cycle. Table 1. Annual private consumption growth

Graph 8 shows the evolution of GDP and the annualized consumption rate from 2000, Año IMCP % % Nacional % bienes % servicios % importados showing the 2009 worldwide economic recession as well as the downward trend from 2008 2.0% 1.1% 0.0% 2.3% 11.4% presidency elections and its restructures. The graph shows how consumption follows the 2009 -6.2% -3.7% -6.8% -0.4% -28.7% economic growth tendencies. The company could benefit from this, as GDP growth 2010 5.5% 3.7% 4.2% 3.1% 27.8% 2011 4.6% 4.7% 6.5% 3.0% 4.1% estimates for 2015 is between 2.0%-3.0% while 2.5%-3.5% for 2016. 2012 5.0% 5.0% 4.4% 5.6% 5.4% 2013 2.1% 1.8% 0.9% 2.6% 5.8% Private consumption index has continued with an upward trend since 2010, recovering 2014 2.2% 2.2% 2.9% 1.6% 1.9% after the 2009 worldwide recession when it dropped by 6.2% and rebounding 5.5% Esp. 2015 3.0% 3.0% 3.6% 2.2% 2.5% afterwards (Graph 7). For 2013 and 2014, moderate annual growth rates of 2.1% and 2.2% were registered respectively; also, at year end the trend began showing Graph 10. Evolution retail sales improvements so we expect growth levels of 3.0% for 2015, highlighting goods commerce sector with a 3.6% growth rate. 4.30% 2.70% Retail sales

1.70% Recession lead to an annual average contraction of 3.6% in retail sales during 2009 and 1.00% continued during 2010 only improving in 2011 reaching its maximum in 2012 (Graph 10). 2009 2010 2011 2012 2013 2014 Nevertheless, upon the change in the presidency, as well as the speculation related to -1% new reforms, sales decelerated and only by the end of 2014 the rate grew again. For 2015 retails sales growth expected will be lower than 2014, mainly due to the new fiscal reforms. -3.60%

Fiscal reform and consumer credit Graph 11. Commercial banking loans– Fiscal reform implemented in Mexico in 2014, among other things, seeks the fiscal Percentage growth discrepancy on cardholders, which has provoked a fall on consumption. While the Finance 30% Ministry seeks to reduce illicit activities, consumers have been affected and they now are 20% requested to backup all expense with an income. The reform impact can be appreciated in the use of credit cards. By 1Q15 balance of bank credit cards increased to 303 billion, 10% which meant only an increase of 1% vs. 301 billion in the same period of 2014. Although 0% -10% credit cards show an upward trend, growth has decelerated since the fiscal reform; in the Sector servicios Consumo same period of 2014 vs.1Q13 recorded an increase of 7.2% (Graph 11). -20% -30%

The application of the new reform and the subsequent decrease of credit use as a result

ene-08

ene-09

ene-10

ene-11

ene-12

ene-13 ene-14 had a negative impact on general consumption; however this was offset by higher fiscal ene-15 expenditures on investments, higher employment generation, and remittances.

Employment generation and salary volume Graph 12. IMSS Salary Based Quote, Variation Employment generation and wage growth are factors that have a big impact on % annual consumption nationwide. In 2005 total employment recorded was 41.1 million while for

2014, 49.8 million, while the average wage (based on IMSS rate) recorded an increase of 49.8% going from MP180 to MP269, or an increase of 4.4% annually (Graph 12). This 5.6% 5.3% translates in a salary volume of MP 3,450 billion in 2008 to MP 3,450 billion in 2014 and 5.1% an upward trend with an expectation over MP $5,000 billion to by the end of 2015 (Graph 4.4% 4.2% 13). 4.0%

Based on these premises, wages and employment increase will generate higher 4.0% acquisition power for the population and therefore consumer confidence could recover 3.4% and boost consumption. Also, having the certainty of a stable income could cause a reactivation of the use of credit cards or other methods for the acquisition of goods. The 1.6% companies with commercial and retail businesses, such as Liverpool, could offset other negative macroeconomic factors if the employment and salary generation trend continues 2006 2007 2008 2009 2010 2011 2012 2013 2014 upward. Sources: ANTAD, INEGI, Actinver

Análisis de Renta Fija Actinver - Creando Ideas con Valor 12

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Remittances Graph 13. Salary Volume 5,000 Remittances are an important source of income for many families which in turn increase 4,500 national consumption. During 2009 and 2012 remittances recorded a moderate 4,000 3,500 deceleration (Graph 14); nevertheless, this trend seems to be reverting as in 2014 the 3,000 amount increased 8.0% and estimates for 2015 are greater. This increase in remittances 2,500 is due in part to the generation of new jobs in USA and certain industries that have 2,000 1,500 boosted the country’s economy. Additionally, we must consider the Mexican Peso 1,000 devaluation which has increased the value of remittances. There is a possibility that the 500 currency valuation/devaluation has incentivized an increase in remittances, as many seek 0 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV to take advantage of the market circumstances. 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14

While peso devaluation has a negative impact on many companies that depend on or maintain foreign operations, remittances represent around 2% of GDP, offsetting the FX Graph 14. Annual remittances effect as the exchange rate has provided higher acquisition power to the families. This

acquisition power and consumption increase is shown in certain states of the country that $26,059

depend highly on remittances, such as the northern states and some from the bajío area. $25,567

$25,145

$25,045

$23,645 $22,803

$21,892

$21,688

$21,306

$21,304 $20,932

ANTAD sales $18,332

In the past 9 years, ANTAD (National association of self service and departmental stores, $15,139

for its Spanish acronym) sales recorded three complicated years (2009, 2013 and 2014) $9,814 $8,895 with low growth levels following the national economy trend. 2013 recorded its lowest nominal growth rate at only 0.1% and a 3.7% real rate drop, while 2014 was a better year having a 1.1% nominal growth rate a real rate drop of 2.9% (Graph 15). Nonetheless, we

could be looking at a new acceleration cycle in sales for which we expect a nominal

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 2014 growth in sales of 3.1% in 2015. 2015

As for Liverpool, it has maintained its sales rates above ANTAD’s, therefore we believe it Graph 15. Same Store and Total Stores nominal sales, % annual real rate will take advantage of the market progression and will report a growth higher than ANTAD sales once again in 2015. 19%

14% 11% 12% 11% 9% 9% 8.1% 7% 5% 5% 5.4% 5.3% 5.0% 5.0% 4.4% 3.7% 0.1% 0.7% 1.1% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est. 2015 SSS Total Sales Source: ANTAD, INEGI, Actinver

9. Liverpool bonds valuation Oustanding Ticker Type Issue rate Yield Coupon Maturity date Term Fitch S&P Dirty price Recommendation* amount LIVEPOL08 Unsecured - Bullet Fixed: 9.36% 5.51 9.36% ago-18 2.74 AAA (mex) mxAAA 114.1 $1,000 BUY LIVEPOL10 Unsecured - Bullet Fixed: 8.53% 6.50 8.53% may-20 4.06 AAA (mex) mxAAA 109.0 $2,250 BUY LIVEPOL10U Unsecured - Bullet UDIS: 4.22% 3.33 4.22% may-20 4.48 AAA (mex) mxAAA 550.0 $750 BUY LIVEPOL12 Unsecured - Bullet TIIE 28 + 0.35% 3.45 3.64% mar-17 1.73 AAA (mex) mxAAA 100.6 $2,100 BUY LIVEPOL12-2 Unsecured - Bullet Fixed: 7.64% 7.04 7.64% mar-22 5.21 AAA (mex) mxAAA 104.9 $1,900 BUY LIVEPL 3.95% 2024 USD Unsecured - Bullet Fixed: 3.95% 3.95% oct-24 7.78 BBB+ BBB+ USD $300 BUY

Our buy recommendation for all bonds is due to the fact that the company has strong capacity to face all financial obligations with own cash flow generated by operations and without the need to renew bank credit lines or additional debt issuances. It is important to mention that when performing the relative valuation (See section Relative Value), the bonds LIVEPOL 08 and LIVEPOL 12 are below the comparable curve; this means that there are similar bonds with more attractive features (terms and

Análisis de Renta Fija Actinver - Creando Ideas con Valor 13

Liverpool: Debt Coverage Initiation of Fixed Income Research July 9, 2015 Secondary Market Bonds

Próximas Colocaciones de Deuda en el Mercado Local Análisis de Deuda deudacorporativa@[email protected] +52 (55) 1103 6641 / 6649

rates). Nevertheless, this does not imply Liverpool bonds are bad instruments for investment as it still pays an attractive coupon and offers a very low risk instrument

10. Relative Value

El Puerto de Liverpool, S. A. B. de C. V. Ticker: LIVEPOL 08 Amount: $1,600 million.

Date of issue: September 5, 2008

- 2 Maturity date: August 24, 2018. AAA FIXED -

9.00

3 -

Period: 10.0 years - FUNO15

Coupon: FIXED: 9.36% 8.00 FUNO13

AC13 FERROMX14

Spread: 0.00% LIVEPOL12

ARCA10

FERROMX11

5 -

7.00 LIVEPOL10 -

S&P/Fitch/Moody’s/HR: mxAAA / AAA(mex) / nd / nd HOLCIM12 3

Collateral: Unsecured. -

6.00 2

GAP15 2

Redemption type: Bullet. KOF13

ARCA09

2 -

Voluntary early redemption: Not covered. -

AC11 KIMBER13

5.00 ARCA09

Premiun/Protection: Not covered. 2 KOF11

TLEVISA10 AMX10

Use of proceeds: Pay debt, working capital and other general (%) Yield to Maturity 4.00 KIMBER10

corporate use. KIMBER09 LIVEPOL08

Comments: In accordance to the relative value analysis of 3.00 KIMBER09 LIVEPOL 12-2 and LIVEPOL 10 issuances are 2.00 located above the comparable curve, this is the 0.00 2.50 5.00 7.50 10.00 reason why we consider them attractive, while Maturity LIVEPOL 8 issue is located below the comparable y = 1.407ln(x) + 4.1343 curve, considering it expensive (nonetheless, still attracrive).

El Puerto de Liverpool, S. A. B. de C. V. Ticker: LIVEPOL 10 Amount: $2,250 million.

Date of issue: June 1, 2010

- 2 Maturity date: May 19, 2020. AAA FIXED -

9.00

3 -

Period: 10.0 years - FUNO15

Coupon: FIXED: 8.53% 8.00 FUNO13

AC13 FERROMX14

Spread: 0.00% LIVEPOL12

ARCA10

FERROMX11

5 -

7.00 LIVEPOL10 -

S&P/Fitch/Moody’s/HR: mxAAA / AAA(mex) / nd / nd HOLCIM12 3

Collateral: Unsecured -

6.00 2

GAP15 2

Redemption type: Bullet. KOF13

ARCA09

2 -

Voluntary early redemption: Not covered. -

AC11 KIMBER13

5.00 ARCA09

Premiun/Protection: Not covered. 2 KOF11

TLEVISA10 AMX10

Use of proceeds: Working capital, loan portfolio financing, payment Yield (%) Maturity to 4.00 KIMBER10

to suppliers with capital investments. KIMBER09 LIVEPOL08

Análisis de Renta Fija Actinver - Creando Ideas con Valor 14

Liverpool: Debt Coverage Initiation of Fixed Income Research July 9, 2015 Secondary Market Bonds

Análisis de Deuda [email protected] +52 (55) 1103 6641 / 6649

El Puerto de Liverpool, S. A. B. de C. V. Ticker: LIVEPOL 10U Amount: $750 million. AAA UDIS Date of issue: June 1, 2010 Maturity date: Mayo 19, 2020. 6.00 Period: 10.0 years Coupon: UDIS: 4.22% 5.00 Spread: 0.00% AMX10U 4.00 S&P/Fitch/Moody’s/HR: mxAAA / AAA(mex) / nd / nd LIVEPOL10U

Collateral: Unsecured FUNO13U 3.00 Redemption type: Bullet. Voluntary early redemption: Not covered. 2.00 FEMSA07U

Premiun/Protection: Not covered. Yield Maturity (%) to BACOMER07U Use of proceeds: Working capital, loan portfolio financing, payment 1.00

to suppliers with capital investments. BACOMER10U Comments: In accordance to the relative value analysis of 0.00 LIVEPOL 10U issuance is located above the 0.00 2.50 5.00 7.50 10.00 12.50 15.00 comparable curve, this is the reason why we Maturity y = 1.8096ln(x) - 0.0065

consider it attractive.

El Puerto de Liverpool, S. A. B. de C. V. Ticker: LIVEPOL 12 Amount: $2,100 million. Date of issue: March 29, 2012 AAA TIIE28 0.50

Maturity date: March 23, 2017.

2 - Period: 5.0 years HOLCIM15

Coupon: TIIE 28+ 0.35% 0.40 TLEVISA15

Spread: 0.00% TLEVISA14

HOLCIM14 HOLCIM12 S&P/Fitch/Moody’s/HR: mxAAA / AAA(mex) / nd / nd 0.30

Collateral: With a collateral from Distribuidora Liverpool, S. FUNO13 A. de C. V. Spread 0.20

Redemption type: Bullet. LIVEPOL12

- AC11

Voluntary early redemption: Not covered. GAP15

Premiun/Protection: Not covered. 0.10 KOF11

ARCA10

AC13 4

Use of proceeds: Working capital, loan portfolio financing, payment - to suppliers with capital investments. 0.00

Comments: In accordance to the relative value analysis of 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00

KIMBER13 KIMBER07

LIVEPOL 12 issuance is located below the TELMEX09 Maturity y = 0.109ln(x) + 0.1212 comparable curve, considering it expensive KIMBER10 (nonetheless, still attracrive)..

Análisis de Renta Fija Actinver - Creando Ideas con Valor 15

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Puerto de Liverpool, S. A. B. de C. V.

Ticker: LIVEPOL 12-2 2

- 2

AAA FIXED -

Amount: $1,900 million. 9.00

3 -

Date of issue: March 29, 2012 - FUNO15

Maturity date: March 17, 2022. 8.00 FUNO13

AC13 FERROMX14

Period: 10.0 years LIVEPOL12

ARCA10

FERROMX11

5 -

7.00 LIVEPOL10 -

Coupon: FIXED: 7.64%. HOLCIM12 3 Spread: 0.00% -

6.00 2

GAP15

KOF13

- ARCA09

S&P/Fitch/Moody’s/HR: mxAAA / AAA(mex) / nd / nd -

AC11 KIMBER13

Collateral: With a collateral from Distribuidora Liverpool, S. 5.00 ARCA09

2 KOF11

A. de C. V. -

TLEVISA10 AMX10

(%) Yield (%) Yield to Maturity 4.00

Tipo Amortización: Bullet. KIMBER10 KIMBER09

Amortización Ant. Not covered. LIVEPOL08 3.00

Voluntaria: KIMBER09 Prima/Protección: Not covered. 2.00 Use of proceeds: Working capital, loan portfolio financing, payment 0.00 2.50 5.00 7.50 10.00 to suppliers with capital investments. Maturity y = 1.407ln(x) + 4.1343 Comments In accordance to the relative value analysis of LIVEPOL 12-2 and LIVEPOL 10 issuances are located above the comparable curve, this is the reason why we consider them attractive, while LIVEPOL 8 issue is located below the comparable curve, considering it expensive.

Puerto de Liverpool, S. A. B. de C. V. Ticker: LIVEPL 3.95% 2024 BBB+ / Fixed Rate Amount: USD $300 million 7.00 Date of issue: Oct-14 Maturity date: Oct-24 6.00 TELVIS '32 Period: 10 years Coupon: 3.95% 5.00 BSANTM '22 TELVIS '40

TELVIS '25 TELVIS '45 Spread: 0.00% LIVEPL '24 S&P/Fitch/Moody’s/HR: BBB+/BBB+/nd/nd 4.00 Collateral: Not covered 3.00 TELVIS '18 Redemption type: Bullet

Voluntary early redemption: Not covered. 2.00 (%) Yield (%) Yield to Maturity Premiun/Protection: Not covered. BINBUR '24 Use of proceeds: Working capital, loan portfolio financing, payment 1.00 to suppliers with capital investments. 0.00 Comments In accordance to the relative value analysis of the 0.0 5.0 10.0 15.0 20.0 25.0 30.0 issue it is located below the comparable curve, this Maturity y = 1.3736ln(x) + 1.095 is the reason why we consider them less expensive.

Análisis de Renta Fija Actinver - Creando Ideas con Valor 16

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Annex – Financial projections

1Q14 YoY 4Q14 YoY 1Q15 YoY 2011 2012 2013 2014 2015 E 2016 E 2017 E 2018 E Income Statement Revenues 15,279 8.4% 28,712 9.9% 16,963 11.0% 58,648 66,247 74,105 81,027 90,996 100,920 112,769 124,676 Cost of Sales 8,970 5.9% 17,029 9.9% 9,718 8.3% 34,933 39,527 44,134 48,194 53,797 59,774 66,999 74,194 Operating Expenses 5,009 13.9% 6,139 9.4% 5,600 11.8% 14,701 16,756 19,431 21,906 24,359 26,768 29,909 32,714 Other Income (Expense) 68 53.0% (28) -125.0% 19 -71.6% (213) (342) (296) (186) 111 108 106 105 Operating Profit 1,369 7.6% 5,516 7.5% 1,664 21.5% 9,228 10,306 10,836 11,113 12,951 14,486 15,967 17,873 Margin 9.0% 19.2% 9.8% 15.7% 15.6% 14.6% 13.7% 14.2% 14.4% 14.2% 14.3% EBITDA 1,831 8.5% 6,015 7.9% 2,191 19.7% 10,511 11,769 12,536 13,024 15,140 16,997 18,870 21,099 Margin 12.0% 20.9% 12.9% 17.9% 17.8% 16.9% 16.1% 16.6% 16.8% 16.7% 16.9%

Net Financial Expenses (220) 17.5% (348) 37.5% (179) -18.7% (628) (772) (945) (1,048) (837) (542) (220) 556 Financial Income 24 -60.1% 123 82.3% 60 156.7% 227 213 182 202 140 479 980 1,773 Interest Gain 24 -49.7% 123 108.7% 60 156.7% 227 201 182 202 18 367 914 1,752 Financial Expenses 244 -1.1% 471 46.9% 240 -1.7% 855 985 1,127 1,249 976 1,021 1,200 1,217 Interest Paid 242 -1.2% 390 36.1% 233 -3.5% 834 977 1,048 1,157 964 969 1,080 1,166

Results form JVs 71 -50.5% 152 8.6% 233 229.1% 305 415 510 496 673 697 721 746 Profit Before Taxes 1,220 -0.7% 5,320 6.0% 1,718 40.9% 8,905 9,949 10,401 10,562 12,788 14,641 16,467 19,176 Taxes 270 2.3% 1,430 4.1% 413 53.1% 2,361 2,751 2,698 2,797 3,734 4,392 4,940 5,753 Profit from Continuing Operations 950 -1.5% 3,890 6.7% 1,305 37.4% 6,544 7,199 7,703 7,764 9,054 10,249 11,527 13,423 Minority Participation 2 429.9% (1) -275.5% 1 -34.3% 1 1 1 1 1 0 0 0 Net Profit 948 -1.7% 3,891 6.7% 1,304 37.5% 6,543 7,198 7,702 7,763 9,053 10,249 11,527 13,423 Margin 6.2% 13.6% 7.7% 11.2% 10.9% 10.4% 9.6% 9.9% 10.2% 10.2% 10.8%

1Q14 YoY 4Q14 YoY 1Q15 YoY 2011 2012 2013 2014 2015 E 2016 E 2017 E 2018 E Balance Sheet Total Assets 93,078 9.4% 103,438 9.0% 101,084 8.6% 73,023 85,110 94,937 103,438 114,427 128,419 144,654 162,812 Current Assets 35,268 6.2% 40,786 9.8% 38,324 8.7% 30,623 33,537 37,140 40,786 44,420 53,596 62,748 77,086 Cash & Equivalents 388 -57.7% 570 -5.6% 282 -27.3% 775 699 603 570 3,614 9,011 13,641 23,513 Receivables 18,974 12.7% 21,050 -1.8% 18,385 -3.1% 15,990 17,562 21,437 21,050 22,393 24,559 27,133 29,656 Other Receivables 2,415 12.1% 1,818 -26.0% 1,973 -18.3% 1,770 2,318 2,455 1,818 2,041 2,264 2,530 2,797 Inventories 13,113 12.0% 11,754 2.9% 13,563 3.4% 10,109 10,558 11,422 11,754 12,222 13,580 15,222 16,857 Long Term Assets 57,810 11.5% 62,652 8.4% 62,760 8.6% 42,400 51,573 57,797 62,652 70,008 74,824 81,906 85,726 Investment in Associated Companies 4,696 8.9% 5,028 8.9% 5,269 12.2% 3,569 4,007 4,617 5,028 5,269 5,269 5,269 5,269 Property, Plant & Equipment 29,366 9.1% 30,390 4.6% 30,545 4.0% 22,319 26,491 29,054 30,390 36,545 41,045 47,795 51,545 Total Liabilities 37,245 4.8% 40,772 1.7% 38,125 2.4% 29,764 35,580 40,110 40,772 44,517 48,813 54,122 59,658 Current Liabilities 23,026 31.1% 23,521 -8.2% 20,980 -8.9% 16,598 17,716 25,626 23,521 26,328 29,168 32,688 36,196 Bank Loans (ST) 1,790 n.a. 0 -100.0% 0 -100.0% 0 0 2,011 0 0 0 0 0 Debt Securities (ST) 4,800 n.a. 0 -100.0% 0 -100.0% 0 0 4,000 0 0 0 0 0 0 9,336 -3.8% 12,950 13.1% 10,595 13.5% 9,584 10,288 11,454 12,950 15,340 17,044 19,104 21,156 Long Term Liabilities 14,220 -20.9% 17,251 19.1% 17,145 20.6% 13,166 17,864 14,483 17,251 18,189 19,645 21,434 23,462 Bank Loans (LT) 921 0.0% 921 0.0% 921 0.0% 921 921 921 921 913 908 912 915 Debt Securities (LT) 8,000 -33.3% 12,422 55.3% 12,579 57.2% 8,000 12,000 8,000 12,422 12,469 12,399 12,456 12,485 Consolidated Equity 55,833 12.7% 62,666 14.3% 62,960 12.8% 43,259 49,530 54,827 62,666 69,911 79,606 90,532 103,153

1Q14 YoY 4Q14 YoY 1Q15 YoY 2011 2012 2013 2014 2015 E 2016 E 2017 E 2018 E Cash Flow Statement Profit Before Taxes 1,220 -0.7% 5,320 6.0% 1,718 40.9% 8,905 9,949 10,401 10,562 12,788 14,641 16,467 19,176 Pre-Tax Cash Flow 2,145 8.7% 5,374 -1.8% 2,441 13.8% 11,303 12,493 13,440 13,684 15,492 17,779 20,138 23,169 Working Capital Changes (3,375) 56.6% 932 -175.2% (4,483) 32.8% (9,250) (9,306) (10,422) (6,101) (5,682) (4,728) (5,322) (5,825) Cash Flow from Operations (1,231) 576.1% 6,306 49.0% (2,041) 65.9% 2,053 3,187 3,019 7,583 9,810 13,052 14,816 17,344 Cash Flow from Investment 723 28.7% (5,671) 396.2% 1,772 145.2% 2,133 (5,436) (1,487) (4,918) (4,932) (5,322) (7,584) (4,585) Cash Flow from Financing 293 -276.3% (398) -85.7% (18) -106.3% (3,813) 2,174 (1,627) (2,699) (1,836) (2,327) (2,617) (2,895) Net Incr. (Decr.) in Cash and T.I. (215) -200.8% 236 -21.7% (287) 33.6% 373 (76) (96) (34) 3,042 5,402 4,615 9,863 FX Gain (Loss) in Cash and T.I. 0 n.a. 0 n.a. 0 n.a. 0 0 0 0 2 (6) 15 9

Total Debt 15,512 20.0% 13,344 -10.6% 13,501 -13.0% 8,921 12,921 14,933 13,344 13,382 13,307 13,369 13,399

Análisis de Renta Fija Actinver - Creando Ideas con Valor 17

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Fixed Income, Equity, Economic, Quantitative Research Departments

Fixed Income Research

Araceli Espinosa Elguea Head of Fixed Income Research (52) 55 1103-6600 x6641 [email protected]

Roberto Ramírez Ramírez Fixed Income Research (52) 55 1103-6600 x1672 [email protected]

Jesús Viveros Hernández Fixed Income Research (52) 55 1103-6600 x6649 [email protected]

Raúl Márquez Pardinas Fixed Income Research (52) 55 1103-6600 x1110 [email protected] Equity Research Head of EquityResearch Senior Analysts Martín Lara Telecommunications, Media and Financials (52) 55 1103-6600 x1840 [email protected]

Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected] Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected]

Pablo Abraham Peregrina Mining, Metals, Paper & Conglomerates (52) 55 1103-6600 x1395 [email protected]

Ramón Ortiz Reyes Cement, Construction and Concessions (52) 55 1103-6600 x1835 [email protected]

Federico Robinson Bours Carrillo Energy, Conglomerates, Industrial and Mining (52) 55 1103-6600 x4127 [email protected]

Junior Analysts

Juan Enrique Ponce Luiña Telecommunications, Media and Financials (52) 55 1103-6600 x1693 jponce@actinver,com.mx

Enrique Octavio Camargo Delgado Energy, Conglomerates, Industrial and Mining (52) 55 1103-6600 x1836 [email protected]

José Antonio Cebeira González Consumption (52) 55 1103-6600 x1394 [email protected]

Mauricio Arellano Sampson Mining, Metal, Paper, Conglomerates, Cement, Construction & Concessions (52) 55 1103-6600 x1835 [email protected]

Laura Elena Bosch Ramírez FIBRAs (REITs) (52) 55 1103-6600 x4136 [email protected] Economic and Quantitative Research Ismael Capistrán Bolio Head of Economic and Quantitative Research (52) 55 1103-6600 x6636 [email protected]

Jaime Ascencio Aguirre Economy and Markets (52) 55 1103-6600 x1100 [email protected]

Santiago Hernández Morales Quantitative Research (52) 55 1103-6600 x4133 [email protected]

Roberto Galván González Technical Research (52) 55 1103-6600 x1837 [email protected]

Análisis de Renta Fija Actinver - Creando Ideas con Valor 18

Liverpool: Debt Coverage Initiation of Fixed Income Research Secondary Market Bonds July 9, 2015

Disclaimer

Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock Exchange main Price Index (IPC)

 Buy. The stock’s total return is expected to exceed the total return of the IPC index in the current year.  Neutral. The stock’s total return is expected to be in line with the total return of the IPC index in the current year.  Sell. The stock’s total return is expected to be below the total return of the IPC index in the current year. Important Statements a) Of theAnalysts:

“The analysts in charge of producing the Analysis Reports:

Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Jesús Viveros Hernández, declare”:

1. "All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services. 2. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuer’s under his coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position during the twelve months prior to the preparation of this report. " 3. "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation" 4. "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ACTINVR, ALFA, ALPEK, ALSEA, AMX, AZTECA, CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL, MEXCHEM, OHLMEX, PEÑOLES, POCHTEC, TLEVISA, SORIANA, SPORTS, VESTA, and WALMEX.

b) On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver

1. Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations contained in the reports of analysis to ensure future business relationship.

2. All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. 3. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AMXL, AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. 4. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP, and FUNO. This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.

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Análisis de Renta Fija Actinver - Creando Ideas con Valor 19