2015 Annual Report 2015 Annual Report

GRUPO SANBORNS 2015 ANNUAL REPORT 2015 ANNUAL REPORT

2015 ANNUAL REPORT CORPORATE PROFILE Grupo Sanborns is a leading company in the Mexican retail market. The company has a unique portfolio of multiple formats that includes specialized department stores, electronics and entertainment stores, convenience stores, luxury stores and restaurants, with highly- recognized brands such as Sears, Sanborns, iShop-MixUp, EduMac, Dax, Sanborns Café and Saks Fifth Avenue. Grupo Sanborns has a presence in 54 cities in Mexico, 430 stores and a sales area of 1 million thirty thousand square meters, offering a wide value proposition to our clients, which include more than 3 million cardholders.

MISSION, VISION AND VALUES

MISSION: To offer our clients the highest-quality products and services, at fair prices, in an appropriate environment, ensuring the highest satisfaction through attentive personalized service. The client is the reason for our work.

VISION: Consolidate and maintain leadership of our Group in the market, integrating the objectives of clients, personnel, suppliers and shareholders.

VALUES Work: It is only through work that we can meet our needs, grow as persons and serve others, which is why we should seek our work to be a means of personal and professional development as well as emotional satisfaction.

Growth: To grow is to increase and improve our personal knowledge and abilities, so that together with the Group we can increase our capacity to offer more and better products through excellent service to our clients.

Social Responsibility: This responsibility represents doing our work well, reaffirming our values, fulfilling commitments with our clients and suppliers, respecting existing legislation and protecting natural resources and the environment.

Efficiency: Efficiency means being austere, caring for and efficiently utilizing the resources we have. Spend what is necessary and avoid what is useless and excessive.

CONTENT: 1. Key Financial Information 20. iShop/Mixup 2. Formats and Brands 24. Saks/Sanborns Café/ Dax 6. Management’s Discussion 28. Sustainability and Analysis 30. Board of Directors 8. Message to Shareholders 31. Corporate Practices and Audit Committee of Grupo Sanborns S.A.B. de C.V. 12. Sears 33. Financial Statements 16. Sanborns FINANCIAL HIGHLIGHTS (Thousand pesos at December 31 of each year*)

GSANBORNS 2014 2015 Var%

Retail Sales 38,371,290 41,482,002 8.1% Credit Income 2,831,257 2,931,056 4.2% Total Sales 41,202,547 44,413,058 7.8% Gross Profit 16,262,963 17,475,621 7.5% Operating Income 4,428,474 4,907,774 10.8% Operating Margin 10.7% 11.1% 0.3 p.p EBITDA 5,027,548 5,707,369 13.5% EBITDA Margin 12.2% 12.9% 0.6 p.p Controlling Participation in Net Income 2,921,988 3,090,017 5.8% Net Margin 7.1% 7.0% -0.1p.p

Total Assets 40,684,402 41,364,031 1.7% Total Liabilities 11,741,520 11,968,900 1.9% Consolidated Stockholders’ Equity 28,942,882 29,395,131 1.6% Capital Expenditures (CapEx) 2,546,186 2,255,645 -11.4% Total Debt 0 0 NA Net Debt -6,112,239 -4,855,573 -20.6%

Total Area (Sq meters) 1,052,923 1,114,916 5.9% Credit Portfolio 10,304,796 10,824,130 5.0% % Non-Performing Loans 3.5% 3.2% -0.3 Credit Cards issued 3,266,167 3,461,926 6.0%

Net Debt/EBITDA -1.22 -0.85 -30.0% CapEx/Sales 6.2% 5.1% -1.1 Compounded Average number of outstanding Shares (thousand) 2,349,884 2,320,677 1.2% Earnings per Share** 1.24 1.33 7.1% Closing year stock price*** 22.98 26.36 14.7%

* Except outstanding shares, earnings per share and number of credit cards. ** Controlling Participation in Net Income divided by the compounded average number of outstanding shares. ***Started quoting in the MSE on February 8th, 2013. 1 FORMATS AND BRANDS

FORMAT: NUMBER OF SALES AREA % OF SALES PRODUCTS STORES: (SQ METERS) 2014

SEARS 87 744,988 51% • Fashionware, large and small appliances, furniture, home improvement and electronics.

SANBORNS 170 258,983 29% • Books, magazines, health and beauty, pharmacy, electronics, toys, music, videos, jewelry, photography, cellular phones, candy and gifts. • Bar and restaurant service.

ISHOP/MIXUP: 112 37,872 14% • Apple products and accessories, music, EDUMAC videos, movies and video games. • Apple-related products and courses.

*OTHER: 62 73,073 6% • Cosmetics and perfumes. Dax, Sanborns Café, • Accessible traditional Mexican food. Saks Fifth Avenue, • High-quality clothing and accessories. Boutiques, stores in • Shopping malls. Central America and 2 Shopping Centers

TOTAL 431 1,114,916 100%

*Other includes 2 shopping centers totaling 71,225 sqm of leasable area.

SALES BREAKDOWN EBITDA BREAKDOWN BY SUBSIDIARY BY SUBSIDIARY* (Million Pesos) (Million Pesos)

5.8% 20.8% 14.4% SEARS SEARS

SANBORNS SANBORNS 6.6% 51.3% 56.8% PROMUSA PROMUSA 28.5% OTHER 15.7% OTHER

*For the EBITDA calculation in 2014, we did not consider a total of $210 million pesos of extraordinary income per the valuation of investment properties. In 2015 we did not consider $237 million pesos of other income net, of which $178 million come from the appraisal of investment properties and $27 million from impairment of real estate assets.

2 GRUPO SANBORNS has wide geographic coverage with a focus mainly on Mexico. Through our net- work of stores we have a presence in 54 cities throughout the country.

TOTAL SALES GROSS PROFIT OPERATING INCOME EBITDA* (Million pesos) (Million pesos) (Million pesos) (Million pesos) Gross Margin % Operating Margin % EBITDA Margin % 44,413 5.707 4,908 41,202 4,428 17,476 16,263 5,028 12.9% 11.1% 39.3% 10.7% 12.2% 39.5%

14 15 14 15 14 15 14 15

3 87 170 STORES STORES

58 2 STORES STORES

4 eduMac DIGITAL ARTS SCHOOL

51 26 STORES CAFETERIAS

3 EDUCATION 25 STORES CENTERS

5 GRUPO SANBORNS 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS

During 2015, Grupo Sanborns sales in the mix of total payments. Simi- ii) Other net income for Ps. 237 mil- totaled Ps. 44,413 million, which larly, the credit portfolio grew 5.0% lion were recorded, which included represented Ps. 3,211 million more to reach Ps. 10,824 million, while Ps. 178 million from the valuation or a 7.8% increase against the pre- credit revenues expanded 3.5%, to- of investment properties and Ps. vious year. This reflected the good taling Ps. 2,931 million against the 27 million from the deterioration performance of Sears, Sanborns Ps. 2,831 million figure recorded of real estate. and Promusa with 51.3%, 28.5% in the previous year. Moreover, the and 14.4% contribution to sales, re- percentage of non-performing loans EBITDA at Grupo Sanborns increased spectively. Without considering the over 90 days was 3.2% at the year- by 13.5% to Ps. 5,707 million, regard- change in the scheme of products end, thus representing a ratio that less of the effect derived from the and services of phone business, stood below the industry and mar- valuation of investment properties the comparable figure of Group ket indicators. and the deterioration of real estate as Sanborns sales increased by 9.0% previously mentioned. EBITDA mar- amounting to Ps. 44,904 million. Grupo Sanborns operating income gin improved 70 basis points to reach increased by 10.8% in 2015 to reach 12.9% in the year. Same-store sales grew 6.1% on a con- Ps. 4,908 million. This improve- solidated basis. In the same way, Sears ment in profitability is the result of As to financial results, the compre- reported an increase of 3.4%, or 5.2% the following: hensive cost of financing decreased if the effect derived from stores under i) A reduction of 70 basis points in op- 29.2% in the year. This effect was remodeling is not taken into consider- erating and administrative expens- mainly derived from a lower net in- ation for analysis. es, which accounted for 28.8% of terest gain because of the allocation total sales against 29.5% observed of resources under the expansion As for credit card operation in Sears, in 2014. Similarly, energy and oth- plan (twelve new stores for the three more than 195 thousand proprietary er over all expenses decreased main formats), as well as the growth cards were issued during the year, due to stricter control, despite the observed in the credit portfolio as which represented a 6.0% growth to openings of stores and remodel- previously mentioned. reach 3.46 million cards at the end ing works carried out at certain of the year. As a result, the propri- units. Consequently, depreciation Net controlling income grew 5.8% to etary card penetration rose to 58% increased in the year. reach Ps. 3,090 million against the

6 During 2015 the sales of Grupo Sanborns increased 7.8% reaching $44,413 million pesos, which represented $3,211 million pesos more. This increase reflected the good performance of all the formats where Sears, Sanborns and Promusa contributed with 51.3%, 28.5% and 14.4% of sales, respectively.

Ps. 2,922 million figure recorded in was 11.4% lower than 2014 since vestments amounted to Ps. 4,856 million the previous year; a change that re- a part of the investments for new against the Ps. 6,112 million figure at the flected the improvements observed stores that opened in 2015 was car- close of 2014. This decrease of Ps. 1,256 in the operating results. ried out in the previous year. million in the cash position was due to the financing of the Company’s expan- The Company’s expansion plan in- Considering all the retail brands of sion plan, as well as the growth ob- cluded the opening of four Sears, the Group, 431 units were already op- served in the credit portfolio, payment of two Sanborns, and four iShop stores erating at the end of December 2015. dividends, and the repurchase of shares. as well as two boutiques. According During the year, the commercial area to scheduled, the remodeling works expanded by 5.9%, totaling one million Sincerely, at 13 Sears stores were expedited, 115 thousand square meters. and ten were concluded in 2015. Patrick Slim Domit The Group’s capital expenditures Grupo Sanborns reported no debt at Chief Executive Officer of amounted to Ps. 2,256 million that year-end, while cash and short-term in- Grupo Sanborns S.A.B. de C.V.

7 MESSAGE TO SHAREHOLDERS OF GRUPO SANBORNS

2015 ECONOMIC OUTLOOK and 25% in Mexican pesos, higher transferred partially in April 2016 to During 2015, the world economy con- wages and low inflation translated in the Ministry of Treasury and Public tinued showing moderate growth. a rise in consumption. Credit (SHCP), strengthen the coun- Global markets were impacted by fall- try at international scenarios of un- ing prices of oil and commodities, the Inflation in Mexico stood at 2.13% certainty and volatility. strengthening of the U.S. dollar and during the year. The balance of trade nervousness about the slowdown in was affected by the decline in the oil GRUPO SANBORNS China’s growth. price and presented a U.S.D 14 billion During 2015, we took advantage of deficit. Due to the continuous vola- the dynamism observed in consump- The sharp fall in the prices of oil tility of the Mexican peso against the tion in Mexico where all our formats and other commodities affected U.S. dollar, Mexico’s central bank de- recorded positive figures. As a result, major oil exporting countries, while cided to intervene in the market with Grupo Sanborns sales increased by benefiting net importing econo- auctions of dollars. Year-round For- 7.8% amounting to Ps. 44,413 million. mies, industries via lower energy eign-exchange reserves diminished costs, and consumers. U.S.D 24 billion. During the year, Sears total sales increased by 5.5%, which repre- In Mexico, the growth of the Gross The cut on public expenditures an- sented the contribution of four new Domestic Product stood at 2.5%, driv- nounced for 2016, adjustments in stores that were inaugurated in en by trade and the manufacturing the financial structure of PEMEX, this same period, namely Zacate- industries, which expanded by 4.5% the acquisition of financial coverag- cas, Monterrey-Esfera, Tlalnepant- and 2.9%, respectively. The fall in the es on the price of oil set at U.S.D. la, and Coacalo-Cosmopol. All of volume and price of oil affected neg- 49.00 per barrel, the intervention of them were designed with modern atively the evolution of the Mexican Mexico´s Central Bank in the mon- facades and interiors and a bet- economy, which would have grown etary policy and its operation sur- ter display of brands at the point 3%. On the other hand, the increase plus generated by the revaluation of sale, with special emphasis on in remittances of 5% in U.S. dollars of reserves in pesos, which will be higher value-added categories. In

8 During 2015, we took advantage of the dynamism observed in consumption in Mexico where all our formats recorded positive figures. Our retail and operating activities included a continuous improvement in the quality of service and providing a greater assortment of products, with their availability in the right store and for the right client.

addition, we carried out remod- careful selection of inventory. We Operating income and EBITDA in- eling works at 13 Sears stores at rationalized products, expanded creased 10.8% and 13.5%, respec- main locations such as Insurgen- service and retail areas such as tively, while margins increased 40 tes and Lindavista, and for the chocolates, restaurant-bar and oth- to 70 basis points, being of 11.1% expansion of the Satélite and An- er categories of higher profitability. and 12.9% in that order. At the same gelópolis stores. At the close of the From consolidated procurement, time, net income grew 5.8% and net year, 31% of the Sears stores have we have improved our offer of fra- earnings per share were Ps. 1.34 a new image in terms of units and grances, accessories, cosmetics, against Ps. 1.25 observed in the renovations. These actions led to jewelry and novelties. As for restau- previous year. an average expansion rate in sales rants, we launched menus repre- of 13% after reopening occurred. senting various States in order to The financial position of Grupo San- increase the knowledge of the Mex- borns remains healthy. In this re- Our Sears credit card continued to be ican culinary variety. With respect gard, total assets were Ps. 41,364 the preferred choice for our customers, to new locations, in this period we million; total liabilities stood at Ps. with a participation of more than 58% opened Tlalnepantla and Coacal- 11,969 million and the Company’s in sales transactions. We continue with co-Cosmopol. stockholders’ equity amounted to activities such as reactivation of cus- Ps. 29,395 million at year-end. tomers, increase in lines of credit, and Promotora Musical sales expanded by offers with different payment terms. 32.9% which was the result of launch- The financial structure of Grupo ing of new technology models and the Sanborns meets the Company’s With regard to Sanborns, we opening of four iShop units, as well future growth and continually cre- achieved a recovery in sales, with as the change of image of five stores. ates value for our shareholders. In an increase of 2.0% after overcom- Similarly, MixUp continued with the the year, net cash flow from oper- ing various challenges in 2014. This change in its product mix and closed ations was Ps. 3,474 million, while was the result of a further develop- six shops, to maintain the positive net debt was negative in the order ing of suppliers and maintaining a contribution to sales. of Ps. 4,856 million with the Net

9 Debt to LTM EBITDA ratio stood at during 2015. Philosophy, our first In addition, we believe the site will a negative 0.85 times. During June stand-alone, proprietary brand of develop our distribution channels and December 2015, Grupo San- fast fashion boutique for women, for delivery of products. Further- borns paid an ordinary dividend of opened in the Tlalnepantla shop- more, we will continue improving Ps. 0.84 from the balance of the net ping mall, thus complementing the quality of service and providing tax profit account. Regarding cap- in-store boutiques operating at a greater assortment of products, ital expenditures, Grupo Sanborns Sears department stores. Simi- with their availability in the right allocated Ps. 2,256 million for in- larly, the site ClaroShop.com was store and for the right client. vestments in fixed assets. strategically launched in the year to improve our customer’s purchas- With regard to sustainability, we In addition to serve our current ing and payment experience on a expanded the “Social Welfare” clients, we carried out two initia- unique manner and optimize the program, which benefits a greater tives to attract young customers Company’s technology platform. number of employees from all di-

In 2015 we carried out two initiatives to attract young customers: we opened our first stand- alone of the Philosophy brand and we launched the ClaroShop.com marketplace.

10 visions of the Group; and continued We feel motivated to improve the working on actions in favor of en- results obtained in 2015. Again, I vironmental care, as it is attested express my appreciation to cus- in the “Carso Environment” report tomers and suppliers for their where results of savings reached support, as well as to all employ- in energy, water, fuel, emissions ees, whom I also thank for their of carbon dioxide and solid waste, effort, commitment and dedication are published. With a high sense of along the year. social responsibility, efficiency and timeliness, the Carlos Slim Founda- tion develops programs in the fields We will continue of education, employment, health, nutrition, social justice, culture, improving service and human development. It also encompasses natural disasters, and offering a economic development, protection wider assortment and conservation of the environment, thus improving the quality of Sincerely, of products, to be life of people of all ages, promoting available in the right the formation of human capital and Carlos Slim Domit creating opportunities that foster Chairman of the place and for the the integral development of individ- Board of Directors of right customer. uals and their communities. Grupo Sanborns, S.A.B. de C.V.

11 12 During 2015, Sears sales amounted to Ps. 22,804 million, which represented 51% of the total sales and 57% of the consolidated EBITDA of Grupo Sanborns in the period. Important activities included the opening of four Sears stores, namely Zacatecas, Monterrey-Esfera, Tlalnepantla and Coacalco-Cosmopol.

13 MORE THAN 195 THOUSAND NEW CARDHOLDERS REACHING 3 MILLION 462 THOUSAND CREDIT CARDS ISSUED

The complete remodeling of six gy platform and the commercial phy boutique, as well as on other stores and the partial renovation strategy of the Group will be op- international brands and modern of seven units were carried out in timized. This way, our custom- appliances and electronics. In the the year. In addition, we continued ers have a unique Omni-channel year, Sears remains as the second the remodeling of three stores that solution that includes different largest department store chain started in 2015 and will be again in payment options. Furthermore, in the country and stands as one operation by mid-2016. Sears stores are renewing in order largest non-bank player in Mexi- to offer a more modern image to co. During 2015, the format issued In addition to our online store, its customers and a greater focus 195 thousand new credit card cli- we launched www.ClaroShop. on its proprietary brands, such as ents to reach 3,462,000 plastics. com with which the technolo- the recently inaugurated Philoso-

14 SALES BREAKDOWN BY CATEGORY

11 HARDLINES

SOFTLINES CREDIT SERVICES

TOTAL SALES SALES BY SQ METER NUMBER OF (Million Pesos) COMPOUNDED PRIVATE LABEL CARDS (Million Pesos) (Million) 3.46 3.27 29.68 22,804 28.81 21,623

14 15 14 15 14 15

15 Sanborns reported sales of Ps. 12,639 million in the year, that represented a 29% contribution to Grupo Sanborns’ total sales and impacted 16% of its consolidated EBITDA. In the period, two new stores were opened, namely Tlal- nepantla and Coacalco-Cosmopol, which are now part of the 170 units in operation. This represents a commercial area of 258,983 square meters at the end of the year.

16 17 TOTAL SALES SALES BY SQ METER (Million Pesos) COMPOUNDED (Thousand Pesos) 12,639 12,396 56.73 54.62

14 15 14 15

18 SALES BREAKDOWN BY CATEGORY

FOOD AND BEVERAGE

RETAIL 1 OTHER

TWO NEW STORES WERE OPENED, NAMELY TLALNEPANTLA AND COACALCO-COSMOPOL, WHICH ARE NOW PART OF THE 170 UNITS IN OPERATION.

During 2015, many activities were seller of multiple products and ser- carried out, such as rationalization vices categories, including books, of products, focus on categories of photography, mobile, perfumes and a greater profitability, and reduction cosmetics. In addition, it is the sec- of spaces of lower value per square ond largest bar and restaurant op- meter. Sanborns is recognized by its erator in the Mexican market. unique, highly successful concept of retail in Mexico. It is the leading

19 20 eduMac

MixUp is the largest retailer of music and video products in Mexico. On the other hand, iShop is the leading chain in the sale of Apple brand products and accessories in Mexico. Similarly, it is the only authorized service center for the brand and trainer for EduMac. Both retail formats are op- erated by Promotora Musical S.A. de C.V. (Promusa).

21 ISHOP INAUGURATED 2 UNITS DURING THE YEAR 2015: COACALCO-COSMPOL, TLALNEPANTLA, OASIS AND MONTERREY ESFERA.

Promotora Musical contributed 14% ducted works on five stores in order to total sales and 7% to the consol- to change their images and opened idated EBITDA for Grupo Sanborns. four new branches, namely Coacal- During 2015, MixUp changed the co-Cosmopol, Tlalnepantla, Oasis mix of sales to higher value-added and Monterrey-Esfera. At year-end, products and closed six unprofitable total commercial area was 37,872 stores. On the other hand, iShop con- square meters.

22 SALES CONTRIBUTION BY FORMAT

ISHOP

MIXUP

ISHOP

TOTAL SALES SALES PER SQ METER (Million Pesos) (Thousand Pesos) 168.9 6,398 121.6 4,813

14 15 14 15

23 Two boutiques were opened in the year. A Palacio de los Per- fumes Otay shop was inaugurated in the city of Tijuana in the State of Baja California, and a new Philosophy store, with a retail area of one thousand square meters, began operations in Tlalnepantla. Philosophy is a brand of fast-fashion focused on women’s clothes. Considering all the above, the commercial area of these two formats totaled 73,073 square meters.

24 25 TOTAL SALES (Million Pesos) 2,572 2,371

14 15

26 SAKS FIFTH AVENUE HAS 2 LUXURY DEPARTMENT STORES OFFERING INTERNATIONAL DESIGNERS FASHION.

In order to complement the formats Avenue, with two luxury department above mentioned, Grupo Sanborns stores offering international design- develops and operates additional for- ers fashion mats that complement a diversified • Plaza Loreto and Plaza Inbursa, portfolio under this business catego- two well-known shopping malls ry. Among them: • One Sears and three Sanborns • Sanborns Café, operating in 27 stores, and five boutiques in Cen- states in Mexico City and the country tral America • Dax, a regional retailer chain of cosmetics and perfumes Saks Fifth

27 SUSTAINABILITY

SOCIAL PERFORMANCE through the Mexican Confederation out. Another initiative implemented We work through the Carlos Slim Foun- of Organizations in favor of the Per- during the year was “Your Read - dation. With a high sense of social re- son with Disabilities (CONFE), the ing Corner”, a space adapted with sponsibility, efficiency and timeliness, Center of Multiple Attention (CAM), a collection of books for reference it develops programs in the fields of Young Men’s Christian Association and loan at home, with the purpose education, employment, health, nutri- (YMCA) and the National System for of promoting reading habits among tion, social justice, culture, and human Integral Family Development (DIF), employees of Sears and Sanborn lo - development. It also encompasses • Implementation of the Certificate cated at Plaza Carso. natural disasters, economic develop- of Quality and Social Responsibility ment, protection and conservation of (CRESE) at Sears, a set of processes ENVIRONMENTAL PERFORMANCE the environment, thus improving the that keep track of all the programs The Carso Environment report is pub- quality of life of people of all ages, pro- that are intended to improve the lished annually and includes the Carso moting the formation of human capital quality of life of staff and their fami- Environmental policy, general indica- and creating opportunities that foster lies with a humanistic vision, tors by industry and/or company proj- the integral development of individuals • Free courses on the “Training for job” ects, and measurable results in vol- and their communities. platform of the Carlos Slim Founda- ume and in economic terms on issues For more information, please visit: tion, with access to the job including such as: www.fundacioncarlosslim.org recruitment processes at Sears, • Energy savings In addition to the activities of the • Sports and family events, work - • Water saving Carlos Slim Foundation, there were shops and courses of self-im - • Management of urban, hazardous investments in education, health, and provement through the Social waste and special handling infrastructure and community develop- Welfare program. • Reduction of carbon dioxide ment through the following initiatives: emissions • Participación en campañas an- The primary commitment of the So- • Care of trees and flora uales de prevención y control de cial Welfare program is to provide • Optimization of routes for padecimientos médicos en colabo- continuously activities of human de- fuel-saving ración con el Instituto Carlos Slim velopment that lives of employees de la Salud. and their family, covering three key The last March, Sears participat- • Participation in annual campaigns aspects: ed for the second time in Ecofest, an of prevention and control of medical • Health event to promote sustainable culture conditions in collaboration with the • Training in Mexico, attended by more than 150 Carlos Slim Institute of Health, • Culture and recreation. thousand participants. Sears and • Rescue program of Sanborns Grupo Sanborns promoted the dis- buildings, In the year, 21,026 Sears em - tinctive “Green Point” under six cat- • Program of hiring people with dis- ployees and their families benefited egories of Green technologies: Light- abilities in Sanborns and Sears from some of the activities carried ing, air conditioning, water saving,

28 21,029 EMPLOYEES OF SEARS AND THEIR FAMILIES WERE BENEFITED WITH THE SOCIAL WELFARE ACTIVITIES IN 2015.

water heating, energy efficiency, and than in 2014. Sears maintains a pro - courses are mandatory under water purification. These products gram of ongoing training for admin - the talent attraction and hiring at and sustainable services are offered istrative and operational personnel. Sears stores. For other Grupo San - in partnership with other companies During 2015, an average of 19.29 borns formats, such as Dax and and available to suppliers, customers courses per employee took place, Saks Fifth Avenue, 1,374 training and the public to encourage savings, highlighting sales techniques, cli- courses were taught, correspond - reduce power consumption, and help ent customer service, knowledge of ing to induction of personnel to improve the environment. products and the ASUME program. knowledge of the business and op - Eight seminars for middle manag - erating procedures and systems, For more information, please visit: ers and 69 showrooms were carried product knowledge and manage - http://www.carso.com.mx/ES/respons- out. The use of simulators, virtu - ment development programs. abilidad-social/Paginas/carso-me- al classrooms, and asynchronous dio-ambiente.aspx training, was promoted by making Some of the fringe benefits carried out use of eTraining. in Grupo Sanborns include: WORK PERFORMANCE, • Digital scholarship HEALTH AND SAFETY The Diploma in Leadership • Scholarships for children of employ- Grupo Sanborns is the source of opened in three locations with four ees and immediate family members employment for more than 48 thou - new groups in 2015, which was at - • Annual programs of preventive health sand permanent and temporary tended by 86 supervisors, store • Flexi time for mothers and fathers, workers in Mexico and some Cen - managers and sales support areas. financial support for funeral expens- tral American countries. Members The Business Strategy Game Simu - es and work absence with pay of the group have wages paid in lator, which was attended by 50 par - • Personal development program accordance with the laws, market, ticipants, included the participation through the Association for the performance, and the level of re - of top-level and deputy managers. Growth of Mexico (ASUME) sponsibility within the work area They started and concluded six new • Training programs to which they belong. In addition, groups of the Management train - • Prevention campaigns on health with fringe benefits are provided to the ing school at six different locations, the collaboration of the Mexican So- compensation in accordance with which included 142 employees from cial Security Institute (IMSS) and the the business sector and location. the sales area with growth poten - Ministry of Health (SSA). tial. Coaching was provided to nine • Two centers and 89 classroom for Sears has two training centers store managers. training (Sears employees). in the Mexico City area, as well as one located in the city of Tijuana, During 2015, 19 courses of the For more information and details, Baja California, in addition to 89 “Training for job” platform took visit: http://www.gsanborns.com.mx/ spaces located within the opera - place to strengthen the skills and responsabilidad-social.html tional units, that is 11 rooms more knowledge of employees. Some

29 BOARD OF DIRECTORS

PROPRIETARY DIRECTORS POSITION* YEARS AS TYPE OF DIRECTOR** MEMBER***

Carlos Slim Domit COB - Grupo Sanborns Three Patrimonial COB - Grupo Carso Related Co-Chairman - América Móvil COB - Teléfonos de México COB - Promotora Musical

Carlos Slim Helú COB - Carlos Slim Foundation Three Patrimonial COB – Telmex Foundation Related COB - Carso Infraestructura y Construcción

Patrick Slim Domit CEO - Grupo Sanborns Three Patrimonial Vice-Chairman - Grupo Carso Related Co-Chairman - América Móvil Commercial Director of Massive Market - Teléfonos de México COB - Grupo Telvista COB - Sears Operadora México

Johanna Monique Slim Domit Head of the Early Childhood Education Three Patrimonial Program at the Carlos Slim Foundation Related

Isac Mark Massry Nakash CEO - Promotora Musical Three Related Alternate Board Member - Sears Operadora México

Juan Antonio Pérez Simón COB - Sanborn Hermanos, S.A. Three Independent Vice-Chairman - Teléfonos de México

José Kuri Harfush COB – Janel Three Independent

Antonio Cosío Pando General Manager - Cía. Industrial de Tepeji del Río Three Independent

Pablo Roberto González Guajardo CEO - Kimberly Clark de México Three Independent Board Member: Acciones y Valores de México Founding Partner at Mexicanos Primero

Juan Rodríguez Torres Advisor Three Independent

Angel Eduardo Peralta Rosado Board Member at Sanborn Hermanos Three Independent Alternate Board Member at Sears Operadora México

ALTERNATE BOARD MEMBERS POSITION*

José Manuel Campo y Menéndez Chief Operations Officer - Sanborn Hermanos Three Related Alternate Board Member at Sears Operadora México

Edgar Smolensky Kirchner Commercial Director and Purchasing Director Three Related Fashion Division - Sears Operadora México

SECRETARY

Arturo Martínez Bengoa

* Based on information from the board members ** Seniority as board member was considered since 2013, year when the shares of Grupo Sanborns, S.A.B de C.V. were listed in the Mexican Stock Exchange. *** Based on information from the board members. COB: Chairman of the Board CEO: Chief Executive Officer Independent directors in accordance with the definition of the Mexican Securities Market Law.

30 AUDIT AND CORPORATE PRACTICES COMMITTEE GRUPO SANBORNS, S.A.B. DE C.V.

Jose Kuri Harfush The main operations were con- respect by the Board of Directors Chairman ducted with Radiomóvil Dipsa, S.A. have been complied with. Juan Antonio Pérez Simón de C.V. and America Móvil, S.A.B. Antonio Cosío Pando de C.V., for the purchase of mobile Audit Functions equipment, rate plans and memory The internal control and internal au- Annual Report cards for phones, and other items dit system of Grupo Sanborns, S.A.B. from the Company and its subsid- de C.V., and of the entities it controls To the Board of Directors: iaries; Teléfonos de Mexico, S.A.B. is satisfactory and meet with the I, the undersigned, in my capacity as de C.V., for call center services, guidelines approved by the Board of Chairman of the Audit and Corporate telephone installation and the sale Directors, according to the informa- Practices Committee of Grupo San- of telephony items, and dining tion provided to the Committee by the borns, S.A.B. de C.V., (the “Committee”), room services. Seguros Inbursa, Management of the Company and the hereby submit the following annual ac- S.A., for insurance on the Compa- independent auditor’s report. tivity report for the fiscal year 2015. ny’s vehicles and insurance on its We had no knowledge of any non- own and on its subsidiaries’ real compliance with any guidelines or Functions of Corporate Practices, Evalu- estate; commissions, and dining policies concerning the operation or ation and Compensation room services; to the subsidiaries accounting rules of the Company, or The Chief Executive Officer of Grupo of Inmuebles Borgru, S.A. de C.V. concerning the entities it controls, Sanborns, S.A.B. de C.V., (the “Com- and Inmuebles SROM, S.A. de C.V., and consequently, no preventive or pany”) and the relevant executives of for the lease of real estate; Banco corrective action was implemented. the entities the Company controls, Inbursa, S.A. for leases, commis- The performance of the account- complied satisfactorily with their ob- sions, food and beverage sale, as ing firm Galaz, Yamazaki, Ruiz jectives and responsibilities. well as dining room services pro- Urquiza, S.C. the entity that con- On April 27, 2015 Grupo Sanborns, vided to other companies. ducted the audit of the financial S.A.B. de C.V. decreed dividends in All transactions with related par- statements of Grupo Sanborns, the amount of Ps. 1,955,646,102.48, ties were reviewed by Galaz, Ya- S.A.B. de C.V. and subsidiaries as of which 50% were paid on June 19, mazaki, Ruiz Urquiza, S.C., and a of December 31, 2015, and the per- 2015 and the remainder on Decem- summary thereof has been record- formance of the independent audi- ber 18, 2015. ed in a note included in the audited tor in charge of the said audit, were The subsidiaries Sanborns Her- financial statements of Grupo San- satisfactory and the objectives set manos, S.A. and Sears Operadora borns, S.A.B. de C.V. and subsidiar- at the time of contracting the said México, S.A. de C.V., also decreed div- ies as of December 31, 2015. entities were achieved. Also, ac- idends in the amount of Ps. 300 mil- The Chief Executive Officer of Gru- cording to the information provid- lion and Ps. 500 million, respectively. po Sanborns, S.A.B. de C.V. receives ed by the said firm to the Manage- After consideration by the Commit- no remuneration for the performance ment of the Company, its fees for tee, purchase and sale transactions of its activities. The Company has the independent audit represented with related parties were authorized no employees, and concerning the a percentage of less than 10% of in the amount of Ps. 445.4 million total compensation received by the their total revenue. for sales, Ps. 1,750.8 million for pur- executive officers of the companies As a result of the review of the chases and Ps. 1,579.0 million for controlled by the Company, we make financial statements of Grupo San- others and for general expenses. sure that the policies adopted in this borns, S.A.B. de C.V. and its sub-

31 sidiaries as of December 31, 2015 were no comments concerning this claims will not affect the financial po- it was determined that there are no point or any adverse change in the sition and economic stability of the significant errors caused by fraud, Company’s legal status. companies involved. and the major adjustments pro- Regarding the financial infor- During 2015, the Company car- posed originated from excess funds mation that the Company prepares ried out the repurchase of Com- in reserves for doubtful accounts, and submits to the Mexican Stock pany shares in the amount of Ps. excess funds in reserves for provi- Exchange and the National Secu- 647,315 thousand. sions, and insufficient funds in de- rities and Exchange Commission, Income from the revaluation of ferred taxes. we have verified that this informa- investment property (Malls) in the In accordance with information tion was prepared under the same amount of Ps. 177,624 thousand was we received from the Company’s principles, criteria and practices recorded in 2015. Board of Directors and during the with which the annual information The provisions entered in the books meetings which we had with the was prepared. as accrued expenses must meet the independent and internal audi- criteria of a liability under Interna- tors and which were carried out Finance and Planning Functions tional Financial Reporting Standards, without the presence of officers of During fiscal year 2015, the Compa- so that only provisions on commit- the Company; as far as we know, ny and some of the entities it con- ments or expenses that have already there were no relevant comments trols made significant investments. been accrued can be recorded. from shareholders, directors, rel- In this regard, we made sure that Concerning matters related to evant officers and employees and, any financing that was undertaken fraud, breach of laws, regulations and in general, from any third par- was made in a manner consistent undue influence over the manner on ty, regarding accounting, internal with the strategic medium- and which the audit was conducted, the controls or other issues related to long-term plan of the Company. In pertinent investigations were made internal or external audits, or com- addition, we ensured that the stra- with management, and various proce- plaints made by those persons on tegic position of the Company was dures were applied, without discover- irregularities in the administration in alignment with the plan. We also ing any irregularity. of the Company. reviewed and evaluated the budget In preparing this report, the Corpo- During the reporting period, we for the fiscal year 2015 together rate Practices and Audit Committee verified that resolutions adopted with the financial projections that relied on information that was provid- by the Shareholders’ Meeting and were considered for its construc- ed by the Chief Executive Officer of the the Board of Directors of the Com- tion, including major investments Company, the relevant officers of the pany were complied with. In addi- and financing transactions of the entities it controls, and by the inde- tion, according to the information Company, which we considered pendent auditor. provided to us by the Company’s feasible and consistent with invest- Board of Directors, we verified the ment and financing policies and the existence of controls designed to Company’s strategic vision. determine compliance with the The contingencies of labor, civil, provisions applicable in terms of commercial and administrative nature financial markets and that the le- up to December 31, 2015, showed a gal department reviews such com- behavioral trend similar to previous Chairman pliance at least once a year. There years, so that the resolution of these Mr. José Kuri Harfush

32 INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR 2015, 2014 AND 2013 GRUPO SANBORNS, S.A.B. DE C.V. AND SUBSIDIARIES (SUBSIDIARY OF GRUPO CARSO, S.A.B. DE C.V.)

TABLE OF CONTENTS PAGE

INDEPENDENT AUDITORS’ REPORT 34

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 36

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 37

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY 38

CONSOLIDATED STATEMENTS OF CASH FLOWS 40

NOTE TO THE CONSOLIDATED FINANCIAL STATEMENTS 41

33 Galaz, Yamazaki, Ruiz Urquiza, S.C. Paseo de la Reforma 489 piso 6 Colonia Cuauhtémoc 06500 México, D.F. México

Tel: + 52 (55) 5080 6000 Fax: + 52 (55) 5080 6001 www.deloitte.com/mx

INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF GRUPO SANBORNS, S.A.B. DE C.V.

We have audited the accompanying consolidated financial statements of Grupo Sanborns, S.A.B. de C.V. and Subsidiaries ( the “Entity”), which comprise the consolidated statements of financial position as of December 31, 2015, 2014 and 2013, and the consolidated statements of profit or loss and other comprehensive income, consolidated statement of changes in stockholders’ equity and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

INDEPENDENT AUDITORS’ RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

34 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Grupo Sanborns, S.A.B. de C.V. and Subsidiaries as of December 31, 2015, 2014 and 2013 and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

OTHER MATTER

The accompanying consolidated financial statements have been translated into English for the convenience of readers.

Galaz, Yamazaki, Ruiz Urquiza, S. C. Member of Deloitte Touche Tohmatsu Limited

C. P. C. Luis Javier Fernández Barragán

March 15, 2016

35 Grupo Sanborns, S.A.B. de C.V. and Subsidiaries (Subsidiary of Grupo Carso, S.A.B. de C.V.) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION As of December 31, 2015, 2014 and 2013. (In thousands of Mexican pesos)

Note 2015 2014 2013

ASSETS Current assets: Cash and cash equivalents 7 $ 3,904,546 $ 3,572,499 $ 5,092,804 Other cash equivalents 951,027 2,539,740 2,622,189 Accounts receivable, Net 8 11,472,026 11,026,902 10,131,258 Inventories, Net 9 9,204,568 8,966,031 9,070,572 Prepaid expenses 126,857 88,710 61,060 Total current assets 25,659,024 26,193,882 26,977,883

Non-current assets: Long-term accounts receivable 27,479 46,000 57,500 Property, machinery and equipment, Net 12 12,608,487 11,358,677 9,733,195 Investment property 13 2,086,228 1,908,604 1,687,705 Investment in shares 1,317 1,351 1,351 Employee retirement benefits 17 582,889 942,910 821,022 Deferred income taxes 23b 362,882 200,369 173,605 Other assets, Net 35,725 32,609 29,548 Total non-current assets 15,705,007 14,490,520 12,503,926 Total assets $ 41,364,031 $ 40,684,402 $ 39,481,809

LIABILITIES Current liabilities: Trade accounts payable $ 6,049,697 $ 6,158,554 $ 6,321,806 Other accounts payable and accrued liabilities 15 3,602,990 3,286,137 2,834,785 Due to related parties 19 216,930 265,181 207,315 Provisions 16 59,663 85,744 90,548 Direct employee benefits 431,067 414,933 390,713 Income tax payable 391,380 229,483 84,691 Total current liabilities 10,751,727 10,440,032 9,929,858

Non-current liabilities: Income tax payable long-term 23f 245,884 313,539 - Employee retirement benefits 17 161,911 70,582 91,290 Deferred income taxes 23b 809,378 917,367 1,449,246 Total non-current liabilities 1,217,173 1,301,488 1,540,536 Total liabilities 11,968,900 11,741,520 11,470,394

Stockholders’ equity Stockholders’ equity: Capital stock 18 2,010,544 2,028,107 2,039,678 Additional paid – in capital 10,896,604 10,896,604 10,896,604 Accumulated earnings 14,797,155 14,285,028 13,626,312 Other comprehensive loss items (352,409) (66,078) (169,026)

Controlling interest 27,351,894 27,143,661 26,393,568 Non-controlling interest 2,043,237 1,799,221 1,617,847

Total stockholders’ equity 29,395,131 28,942,882 28,011,415

Total liabilities and stockholders’ equity $ 41,364,031 $ 40,684,402 $ 39,481,809

See accompanying notes to consolidated financial statements.

36 Grupo Sanborns, S.A.B. de C.V. and Subsidiaries (Subsidiary of Grupo Carso, S.A.B. de C.V.) CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the years ended December 31, 2015, 2014 and 2013. (In thousands of Mexican pesos, except for basic earnings per commons share data)en pesos)

Note 2015 2014 2013

Income 20 $ 44,413,058 $ 41,202,547 $ 40,514,434 Costs of sales and services 21 26,937,437 24,939,584 24,426,130 Gross profit 17,475,621 16,262,963 16,088,304

Selling and distribution expenses 21 9,687,429 9,255,910 8,920,272 Administrative expenses 21 2,201,349 2,103,156 1,932,187 Depreciation 21 916,450 793,681 677,362 Other income, Net 22 (237,381) (318,258) (447,743) Interest expense 101,411 103,470 121,746 Interest income (289,026) (345,128) (369,538) Exchange gain (69,125) (45,566) (106,795) Exchange loss 109,351 78,964 103,326 Income before income taxes 5,055,163 4,636,734 5,257,487

Income taxes 23 1,596,746 1,432,036 1,709,964

Consolidated net income for the year 3,458,417 3,204,698 3,547,523

Other comprehensive income, net of income tax: Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations 45,136 32,566 (1,688)

Item that will not be reclassified subsequently to profit or loss: Actuarial gain (losses) (489,364) 100,063 18,866

Deferred income taxes 157,897 (29,681) (5,660)

Consolidated comprehensive income of the year $ 3,172,086 $ 3,307,646 $ 3,559,041

Consolidated net income attributable to: Controlling interest $ 3,090,017 $ 2,921,988 $ 3,232,549 Non-controlling interest 368,400 282,710 314,974

$ 3,458,417 $ 3,204,698 $ 3,547,523

Consolidate comprehensive income attributable to: Controlling interest $ 2,803,686 $ 3,024,936 $ 3,244,067 Non-controlling interest 368,400 282,710 314,974

$ 3,172,086 $ 3,307,646 $ 3,559,041 Basic earnings per common share attributable to controlling interest $ 1.33 $ 1.24 $ 1.47

Weighted average number of shares 2,320,676,543 2,349,883,558 2,202,405,000

See accompanying notes to consolidated financial statements.

37 Grupo Sanborns, S.A.B. de C.V. and Subsidiaries (Subsidiary of Grupo Carso, S.A.B. de C.V.) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY For the years ended December 31, 2015, 2014 and 2013. (In thousands of Mexican pesos)

Translation Additional effects of Total Total Capital paid –in Accumulated foreign Actuarial controlling Non- controlling Stockholder’s stock capital earnings operations (loss) gain interest interest Equity

Balances as of January 1, 2013 $ 1,634,370 $ 140,043 $ 12,183,563 $ (7,964) $ (172,580) $ 13,777,432 $ 1,451,358 $ 15,228,790

Issuance of common stock 405,308 - - - - 405,308 - 405,308

Net stock issuance premium - 10,756,561 - - - 10,756,561 - 10,756,561

Dividends paid to controlling interest and non-controlling interest - - (1,789,800) - - (1,789,800) (148,485) (1,938,285)

Consolidated comprehensive income of the year - - 3,232,549 (1,688) 13,206 3,244,067 314,974 3,559,041

Balances as of December 31, 2013 2,039,678 10,896,604 13,626,312 (9,652) (159,374) 26,393,568 1,617,847 28,011,415

Dividends paid to controlling interest and non-controlling interest - - (1,884,000) - - (1,884,000) (101,336) (1,985,336)

Repurchase of shares, net of dividends (11,571) - (379,272) - - (390,843) - (390,843)

Consolidated comprehensive income of the year - - 2,921,988 32,566 70,382 3,024,936 282,710 3,307,646

Balances as of December 31, 2014 2,028,107 10,896,604 14,285,028 22,914 (88,992) 27,143,661 1,799,221 28,942,882

Dividends paid to controlling interest and non-controlling interest - - (1,955,646) - - (1,955,646) (124,384) (2,080,030)

Repurchase of shares, net of dividends (17,563) - (622,244) - - (639,807) - (639,807)

Consolidated comprehensive income of the year - - 3,090,017 45,136 (331,467) 2,803,686 368,400 3,172,086

Balances as of December 31, 2015 $ 2,010,544 $ 10,896,604 $ 14,797,155 $ 68,050 $ (420,459) $ 27,351,894 $ 2,043,237 $ 29,395,131

See accompanying notes to consolidated financial statements. Las notas adjuntas son parte de los estados financieros consolidados.

38 Translation Additional effects of Total Total Capital paid –in Accumulated foreign Actuarial controlling Non- controlling Stockholder’s stock capital earnings operations (loss) gain interest interest Equity