MANAGEMENT´S DISCUSSION AND ANALYSIS

 

In 2013, Grupo Sanborns consolidated revenue was $40.514 billion pesos, a 2.8%, or $1.103 billion pesos more than last year. The increase was the result of:
i) A 3.4% increase in total Sears revenue,
ii) A 0.7% increase in Sanborns revenue, which reflected mainly good performance of the restaurant, and to a lesser degree various categories within the store and,
iii) A 5.0% revenue increase from iShop/MixUp from the launch of new versions of Apple products.

Same store sales at Sears increased 1.4%, Sanborns decreased 0.7% and iShop/MixUp increased 0.6% in the year.

As for the credit business, the portfolio of our own cards continued to be a great tool, driving sales in an environment of weak consumption and generating loyalty among our consumers who received additional discounts of 5% and 10% through promotions. The number of own cards issued was 3.1 million at the close of December 2013, compared to 2.9 million at the close of the prior year, a 6.9% increase.

The credit portfolio was $9.661 billion pesos at December 31, 2013, growing 9.1%, in line with credit income, which was $2.695 billion pesos compared to $2.473 billion reported the prior year. The percentage of loans more than 90 days overdue was 2.9%.

Operating profit was $5.006 billion pesos, with a margin of 12.4%, which represented an increase of 80 basis points. This was due to the increase in sales and greater income from credit as mentioned previously, as well as the register of other income, where $210 million came from the appraisal of investment properties. The cost of sales reported a slight reduction that was diluted by the increase in general expenses, mainly caused by the opening of new stores

EBITDA increased 5.3% to $5.500 billion pesos, compared to $5.226 billion in 2012. The amount of the appraisal of investment properties was not included for purposes of calculation of this indicator. EBITDA margin was 13.6%, an improvement of 30 basis points.

IN TOTAL WITH ALL THE RETAIL FORMATS OF THE PORTFOLIO, GRUPO SANBORNS CLOSED THE YEAR OPERATING 423 UNITS AND ACUMULATING AN AREA OF 1,005,410 SQ METERS, WHICH MEANT AN INCREASE OF 3.2% IN THE RETAIL SPACE AND 54,822 SEATS AT THE RESTAURANTS.

Due to the recording of $248 million pesos as Net Accrued Interest, there was a positive comprehensive financing result (CFR) of $251 million pesos, which was 341.1% greater than the positive CFR of 2012.

Controlling net income grew 9.0% in 2013 to $3.233 billion pesos. This was mainly due to the register of Other Income, as well as the increase in the gross margin and the CFR mentioned above.

As of December 31, 2013, Grupo Sanborns had no debt, compared to total debt of $5.273 billion pesos and net debt of $2.945 billion pesos at the close of the prior year. The financial situation of the Group continues to be healthy, with a net debt to 12-month EBITDA ratio of -1.4 times and interest rate coverage measured as EBITDA/Financial Expenses of 24.4 times.

Grupo Sanborns capital investment was $1.675 billion pesos, which included remodeling and the opening of 4 Sears stores: Santa Fe, Colima, Durango and Nuevo Veracruz. Sanborns opened 4 restaurant-stores: 2 stores in Santa Fe in the Samara and Garden shopping malls, one store in Playa del Carmen and another in Nuevo Veracruz. With respect to iShop, 5 new stores were opened: Parque Delta, Merida, Pachuca, Arcos Bosques and La Isla in Cancun. Of other formats, two Dax stores were opened in Baja California (La Paz and Tijuana).

We began the remodeling process this year of 6 Sears stores: Universidad, Forjadores, Tangamanga, Mérida Plaza, Ensenada and Veracruz Américas.

For Sanborns, there are 4 stores being remodeled: Hermosillo, Veracruz Américas, Toluca and Pedregal.

In total with all the retail formats of the portfolio, Grupo Sanborns closed the year operating 423 units and acumulating an area of 1,005,410 sq meters, which meant an increase of 3.2% in the retail space and 54,822 seats at the restaurants.

Sincerely,

 

Patrick Slim Domit

Chief Executive Officer of Grupo Sanborns S.A.B. de C.V..