CORPORATE AND AUDITING PRACTICES 
COMMITTEE OF GRUPO SANBORNS,
S.A.B. DE C.V.

 

José Kuri Harfush

Chairman

Juan Antonio Pérez Simón

Antonio Cosío Pando

Annual Report

To the Board of Directors:

As the chairman of the Corporate and Auditing Practices Committee of Grupo Sanborns, S.A.B. de C.V. (the “Committee”), I submit the following report of activities for the 2013 fiscal year.

Corporate Practices, Evaluation and Compensation Functions

The Chief Executive Officer (CEO) of Grupo Sanborns, S.A.B. de C.V., (the “Company”) and the executives of the corporate entities controlled by the Company, satisfactorily complied with the stated goals and their responsibilities.

In February of 2013 Grupo Carso S.A.B. de C.V. carried out a public offering of shares of its subsidiary Grupo Sanborns, S.A.B. de C.V. in Mexico and abroad. Of the total issue, 40.5% was subscribed abroad and the remaining 59.5% was subscribed in Mexico.

The percentage of equity issued considering the over-allotment was 18.1%.
he total amount received from the public offering was $11.348 billion pesos, less the expenses incurred from the placement ($186 million pesos), leaving net resources to shareholders’ capital of $11.162 billion pesos.

In regard to significant unusual operations, fair-value appraisals were carried out for the investment properties and an adjustment of $210 million pesos was determined, which was registered as Other Income and caused a tax deferral of $63 million pesos.

On April 29, 2013, Grupo Sanborns declared dividends for $1.7898 billion pesos, of which 50% was paid on June 20, 2013 and the remainder on December 19, 2013.
The subsidiaries Sanborn Hermanos, S.A. and Sears Operadora México, S.A. de C.V. also declared dividends for $500 million pesos in each company.

An increase in capital was declared by Grupo Inmobilario Sanborns, S.A. de C.V. on July 1 and December 2 of 2013 for $300 million pesos, respectively. The capital increase was authorized to be subscribed and paid by the shareholders proportional to the rights corresponded to them, leaving $248 million pesos of capital at the end of the year. The increase will be paid according to the need for resources to develop the expansion plans of the Company.

The transactions with related parties submitted to the consideration of the Committee were approved, totaling $2.150 billion pesos in purchases and $229 million pesos in sales.

The principal operations were with Radiomóvil Dipsa, S.A. de C.V. and América Móvil, S.A.B. de C.V. for the purchase of cellular handsets, rate plans and memory cards for telephones, and other concepts, from the Company and its subsidiaries; Teléfonos de México, S.A.B. de C.V. for its call center, telephone installations services and sales of telephony items, and food service. Seguros Inbursa, S.A. for automobile fleet insurance and insurance for the real estate of the Company and its subsidiaries, commissions, and food service; the subsidiaries of Inmuebles Borgru, S.A. de C.V. and Inmuebles SROM, S.A. de C.V. for real estate leasing; Banco Inbursa, S.A. for leasing, commissions, and the sale of food, as well as food service that is offered to the other companies.

All transactions with related parties were reviewed by Galaz, Yamazaki, Ruiz Urquiza, S.C., and a summary of them is contained in a note of the certified financial statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries at December 31, 2013.

The CEO of Grupo Sanborns, S.A.B. de C.V. receives no remuneration for his activity. The Company does not have employees, and as to remuneration of the relevant executives of the companies controlled by the Company, we verify that they complied with the policies approved by the Board of Directors.

The Board of Directors of the Company granted no exemption to any members of the Board, relevant executives or anyone in an executive position to take advantage of business opportunities, either for himself or for third parties, that correspond to the Company or to the corporate entities it controls or in which it has a significant influence. The Committee, for its part, granted no exemptions for the operations referred to in paragraph c), Section III, Article 28 of the Securities Market Law

Auditing Functions

The internal control and internal auditing of Grupo Sanborns, S.A.B. de C.V. and of the corporate entities controlled by it are satisfactory and comply with the guidelines approved by the Board of Directors, as observed in the information provided to the Committee by management of the Company and in the external audit certification.

Modifications to the accounting policies of the Company were approved for the Company to prepare its financial information based on the International Financial Reporting Standards (IFRS) as of the 2013 fiscal year.

We have no knowledge of any relevant default on the guidelines and operation and accounting registry policies of the Company or of the corporate entities controlled by it and, consequently, no preventive or corrective measures were implemented.

The performance of the Galaz, Yamazaki, Ruiz Urquiza, S.C. accounting firm, the corporate entity that conducted the audit of the financial statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries at December 31, 2013, and of the external auditor in charge of said audit, was satisfactory and the objectives agreed at the time they were retained were achieved. In addition, according to the information provided by said firms to the management of the Company, their fees for the external audit represented a percentage less than 10% of their total revenue.

As a result of the review of the financial statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries at December 31, 2013, it was determined that there were no significant errors caused by fraud and the principal changes proposed originated from excessive allowances for uncollectable accounts, excessive provisions and inadequacies in deferred taxes.

Pursuant to the information provided to us by the management of the Company and the meetings we held with the external and internal auditors without the presence of the Company’s officers, and to the best of our knowledge, there were no relevant comments from shareholders, members of the Board, relevant executives, employees or, in general, any third party, related to the accounting, internal control and matters related to the internal or external audit, nor claims by said persons regarding any irregularity in the management of the Company.

During the period to which this report refers, we verified that the resolutions adopted by shareholders’ meetings and the Board of Directors of the Company were duly complied with. In addition, according to the information provided to us by the management of the Company, we verified that it has controls that allow for determining that it complies with provisions applicable to the stock market and that the legal department conducts a review at least once a year to verify said compliance, and there were no comments in this respect or any adverse change in the legal situation.

With respect to financial information prepared by the Company and filed with the Bolsa Mexicana de Valores, S.A.B. de C.V. (Mexican Stock Exchange) and the Comisión Nacional Bancaria y de Valores (National Banking and Securities Commission), we verified that the information was prepared under the same principles, criteria and accounting practices with which the annual information is prepared.

Finance and Planning Functions

During the 2013 fiscal year, the Company and some of the entities under its control effected significant investments. In this regard, we verified that the financing was carried out in accordance with the strategic plan of the Company over the medium and long terms. In addition, we evaluated from time to time that the strategic position of the Company conformed to said plan. We also reviewed and evaluated the budget for the 2013 fiscal year together with financial projects that were taken into account for its preparation, which include the principal investments and financial transactions of the Company, which we consider are viable and congruent with investment and financing policies and with the strategic vision of the Company.

On December 3, 2013 the short-term Certificado Busátil (senior bond) program that Sears Operadora México, S.A. de C.V. registered was cancelled, according to document no. 153/7717/2013 of June 17, 2013, the cancellation of the registry in the National Securities Registry of the said securities. The authorized amount of the program was $2.000 billion pesos.

The labor, civil, mercantile and administrative contingencies on December 31, 2013 showed similar behavior to that of prior years, for which the resolution of said lawsuits will not affect the financial position and economic stability of the companies involved.

Comercializadora de Tiendas Internacionales, S.A. de C.V., a subsidiary of the Company, benefitted from various legal proceedings from the cancellation of a contingency of $300 million pesos from a fiscal credit that was determined by the Finance Ministry in the area of foreign trade.

In excessive provisions: in some of the subsidiaries, provisions have been identified for concepts such as water rights, remodeling and improvements, maintenance, among others, that do not represent a present liability or that correspond to services that are not due.

The amount in excess is $71 million pesos. It should be mentioned that these excesses had been detected in prior years, for which management adjusted its accounts and discharged $235 million pesos in the 2013 fiscal year.

Management indicated that it will revise and if necessary adjust the corresponding reserves in 2014.

The provisions registered in accrued expenses should comply with the criteria of a liability according to the IFRS so that only provisions for acquired commitments or expenses are registered that have already been accrued.

Regarding issues related to fraud, legal and regulatory non-compliance, and undue influence in the auditing process, there were relevant investigations of the administration and the application of various procedures without any incompliance.

For the preparation of this report, the Committee for Corporate and Auditing Practices evaluated information provided by the director general of the Company, the relevant executives of the corporate persons controlled by the Company and by the external auditor.

José Kuri Harfush

Chairman