To the Board of Directors:
In my capacity as Chairman of the Audit and Corporate Practices Committee of Grupo Sanborns, S.A.B. de C.V., (the “Committee”), I wish to deliver the following annual report of the Company’s activities for the year of 2018.

Evaluation and Compensation Functions
The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V. (the “Company”) and the corresponding directors of the juridical persons controlled by the Company satisfactorily completed the objectives with which they were entrusted and fulfilled their responsibilities.

On April 26 of 2018 Grupo Sanborns, S.A.B. de C.V. declared dividends in the amount of $2,042,833,446.00 pesos, 50% of which were paid on June 20 of 2018 and the remainder on December 20 of 2018.

The subsidiary Sanborn Hermanos, S.A. also declared dividends in the amount of $300 million pesos, and the subsidiary Sears Operadora México, S.A. de C.V., declared dividends in the amount of $600 million pesos.

The following purchase/sale related party transactions that were submitted to the Committee were approved, as follows: revenue operations for the amount of $617.4 million pesos; purchase operations in the amount of $227.3 million pesos; and expense and other operations in the amount of $1.9062 billion pesos.

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 cell phone equipment, rate plans and memory cards for telephones and other concepts for the Company and its subsidiaries; Teléfonos de Mexico, S.A.B. de C.V., for a call center; telephone installation services and the sale of telephony items; dining hall services; Seguros Inbursa, S.A. for insurance for the automobile fleet and for insurance for the property owned by the Company and its subsidiaries; for commissions, dining hall services for the subsidiaries of Inmuebles Borgru, S.A. de C.V. and Inmuebles SROM, S.A. de C.V. for the lease of properties; Banco Inbursa, S.A. for leases; commissions; the purchase of food; as well as for the dining hall services that it provides to the other subsidiaries.

All the transactions with related parties were carried out at market prices and they were reviewed by the accounting firm Galaz, Yamazaki, and Ruiz Urquiza, S.C. A summary of these transactions appears in a Note in the December 31, 2018 financial statement of Grupo Sanborns, S.A.B. de C.V. and Subsidiaries.

The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V. does not receive any remuneration for the performance of his activities in this respect. The Company does not have employees, and in regard to the integral remuneration of the directors of the companies that the Company controls, we have ascertained that it complies with the policies that were approved by the Board of Directors.

The Company’s Board of Directors has not granted any dispensation so that any councilor, director or person with a mandate can take advantage of his position in order to carry out, to his own benefit or to the benefit of any third party, any business transaction corresponding to the Company or to the juridical persons it controls or over whom it has a significant influence. Nor has the Committee granted any dispensation for the transactions referred to in subparagraph c), Fraction III, Article 28 of the Stock Market Law.

 

Audit Functions
The internal control and internal auditing system of Grupo Sanborns, S.A.B. de C.V. and of the juridical persons controlled by it is satisfactory and meets the guidelines approved by the Board of Directors, as can be gathered from the information provided to the Committee by the Company’s Management and from the opinion issued by the external auditor.

We have no knowledge of any violation in regard to the Company’s operational guidelines and policies or in regard to its accounting practices or in regard to the juridical persons controlled by the Company. Consequently, no preventive or corrective measures were implemented in that respect.

The performance of the accounting firm of Galaz, Yamazaki, Ruiz Urquiza, S.C., the juridical person who carried out the audit of the financial statement by Grupo Sanborns, S.A.B. de C.V. and Subsidiaries as of December 31, 2018 and the performance of the external auditor in charge of the said audit was satisfactory, and the objectives that were established at the time they were contracted were accomplished. Additionally, according to the information that the said auditing firm provided to the Company’s Management, its fee for the external audit does not represent more than 10.0% of its total income.

As a result of the review of the financial statement by Grupo Sanborns, S.A.B. de C.V. and Subsidiaries as of December 31, 2018, it was determined that there were no important errors or fraud and that the principal adjustments proposed were due to excessive or insufficient provisions.

As far as we know, according to the information given to us by the Company’s Management and from what we learned in the meetings we attended with the external and internal auditors, without the presence of Company’s officials, there were no relevant observations made by shareholders or councilors, and there were no relevant directives or objections by any third party in general in regard to the accounting, internal controls or other matters related to the internal or external accounting, nor have there been any denunciations realized by the said persons in regard to irregular acts in the administration of the Company.

During the period that was reported, we ascertained that the accords adopted in the shareholder meetings and by the Company’s Board of Directors had been complied with. Likewise, and in accordance with the information provided to us by the Company’s Management, we verified that the Company has controls in place that allow for the verification that it is complying with the provisions it is subject to under stock market rules, and that its legal department reviews its compliance therewith at least once a year. We found no adverse information in this regard, and no change in the Company’s legal situation.

In respect to the financial information that the Company prepares and submits to the Mexican Stock Exchange and to the National Banking and Stock Market Commission, we ascertained that the said information was elaborated under the same accounting principles, criteria and practices with which the annual report was elaborated.

Finance and Planning Functions
During the fiscal year of 2018, the Company and some of the juridical persons it controls made some important investments in keeping with the Company’s intermediate- and long-term strategy. The Company’s strategic position is evaluated periodically to ensure that it is in accordance with the said strategy and in accordance with its budget for the fiscal year and with the financial projections that were taken into account for its elaboration, which include the Company’s principal investments and financing transactions that we consider to be viable, in keeping with the investment and financing policies and with the same strategic outlook.

The contingencies of a labor, civil, mercantile and administrative nature as of December 31, 2018 showed a behavioral tendency similar to previous periods, and the resolution of those demands will not affect the financial position and economic stability of the companies involved.

In 2018, the Company bought back some of the Company’s stock, in the amount of $300,967,000 pesos.

In 2018 there was a gain from the revaluation of investment property (shopping malls) in the amount of $91,652,000 pesos.

The provisions recorded in the accumulated expenses must meet the criteria of a liability, in conformance with the International Financial Reporting Standards (IFRS), so that only provisions on acquired commitments or expenses that have already been incurred may be recorded.

As for matters related to fraud, the noncompliance with laws, regulations and an undue influence in the execution of the audit, the pertinent investigations were made in the Administration and various investigative procedures were applied without the discovery of any violation.

For the elaboration of this report, the Audit and Corporate Practices Committee based its procedures on the information that was provided to the Committee by the Chief Executive Officer of the Company and by the corresponding managers of the juridical persons controlled by the Company, as well as on the information provided by the external auditor.

 

José Kuri Harfush
Chairman

Antonio Cosío Pando
Alberto José Slim Rivera Torres