To the Board of Directors:
In my role as Chairman of the Audit and Corporate Practices Committee of Grupo Sanborns, S.A.B. de C.V. (the “Committee”), I present the following annual activity report for the 2019 fiscal year.
Functions of Corporate Practices; Evaluation and Compensation
The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V. (the “Society” or the “Company”) and the relevant directors of the juridical persons that the Group controls satisfactorily fulfilled the objectives entrusted to them and the duties for which they are responsible.
On April 29, 2019, Grupo Sanborns, S.A.B. de C.V. decreed dividends of Ps. 2,083,000,000.00, of which 50% were paid on June 20, 2019, with the remainder paid on December 20, 2019.
Sanborn Hermanos, S.A. subsidiaries decreed dividends for Ps. 100 million and Sears Operadora México, S.A. de C.V., for Ps. 700 million.
Purchasing and selling operations with related parties that were submitted to the Committee were approved, which meant revenues of Ps. 752.7 million, purchases of Ps. 380.5 million, and expenses and other items of Ps. 1.9763 billion.
The main operations with related parties were with Radiomóvil Dipsa, S.A. de C.V. and América Móvil, S.A.B. de C.V., for the purchase of cellular equipment, telephony plans and memory cards for cell phones and other concepts for the benefit of the Company and its subsidiaries; Teléfonos de Mexico, S.A.B. de C.V., for call center services, telephone installation, sale of telephone items, and dining services; Seguros Inbursa, S.A., for car fleet insurance and real estate insurance of the Company and its subsidiaries, miscellaneous commissions, and dining services; to the subsidiaries of Inmuebles Borgru, S.A. de C.V. and Inmuebles SROM, S.A. de C.V., for the lease of real estate; Banco Inbursa, S.A., for leases, commissions, sale of food and beverages, as well as dining services that it provides to other companies.
All transactions with related parties were carried out at market value and were reviewed by the firm Galaz, Yamazaki, Ruiz Urquiza, S.C. A summary of such transactions is presented in a note to the financial statements issued by Grupo Sanborns, S.A.B. de C.V. and Subsidiaries as of December 31, 2019.
The Chief Executive Officer of Grupo Sanborns, S.A. B. de C.V. receives no remuneration for the performance of his functions. The Company has no employees, and in regard to the comprehensive remuneration of the relevant directors of the entities that the Company controls, we verify that the policies that the Board of Directors approved in this regard, were complied with.
The Company’s Board of Directors did not grant any waiver for any director, relevant manager or person with commanding power to take advantage of – for their own benefit or that of third parties – business opportunities that corresponded to the Company or to juridical persons that the Company controls or in which it has significant influence. The Committee also did not grant any waiver for the transactions referred to in Article 28, section (c), Paragraph III, of the Securities Market Act.
Audit Functions
The internal control and audit systems of Grupo Sanborns, S.A.B. de C.V. and the juridical persons that it controls, are satisfactory and complys with the guidelines approved by the Board of Directors, as is apparent from the information provided to the Committee by the Administration of the Company and the external audit opinion.
We were not aware of any relevant non-compliance with the guidelines and policies of operation and accounting record of the Company or of the juridical persons that it controls, and consequently, no preventive or corrective action was implemented in this regard.
The performance of the accounting firm Galaz, Yamazaki, Ruiz Urquiza, S.C., a juridical person who carried out the audit of the financial statements of Grupo Sanborns, S.A.B. de C.V. and Subsidiaries as of December 31, 2019, and who acts as the external auditor in charge of such audit, was satisfactory, achieving the objectives that were established at the time the firm was contracted.
In addition, and according to the information that such firm provided to the Company’s Administration, the firm’s external audit fees do not represent more than 10% of its total revenue. As a result of the review of the financial statements of Grupo Sanborns, S.A.B. de C.V. and its subsidiaries as of December 31, 2019, it was determined that there are no major errors caused by fraud and that the main proposed adjustments were caused by excesses and inadequacies in provisions.
In accordance with what was reported to us by the Company’s Administration and in the meetings we held with the external and internal auditors, at which officials of the Company were not present, and to the extent of our knowledge, there were no relevant comments made by shareholders, directors, relevant managers and, in general, by any third party, with respect to accounting, internal controls and issues related to internal or external auditing, nor were any complaints made by such persons in relation to irregular acts in the Administration of the Company.
We ensured that the agreements adopted by the shareholders’ meetings and the Company’s Board of Directors during the reporting period were complied with. In addition, and in accordance with the information provided to us by the Administration, we verified that the Company has controls that allow it to determine that it is in compliance with the provisions that apply to it in the securities market. We also ensured that the legal area was reviewing, at least once a year, such compliance, and found no adverse facts in this regard or any adverse change in the Legal Status of the Company.
With regard to the financial information that the Company prepares and submits to the Bolsa Mexicana de Valores, S.A.B. de C.V. (Mexican Stock Exchange) and the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores), we confirm that this information was prepared under the same accounting principles, criteria and practices with which the annual information was prepared.
Finance and Planning Functions
During the 2019 fiscal year, the Company and some of the juridical persons it controls made significant investments consistent with the Company’s medium- and long-term strategic plan, periodically evaluating that the strategic position of the Company was in accordance with this plan and in line with the budget for the 2019 fiscal year together with the financial projections that were taken into account for its elaboration, which included the Company’s main investments and financing transactions, which we consider viable and consistent with investment and financing policies and the Company’s strategic vision.
The contingencies of a labor, civil, commercial and administrative nature as of December 31, 2019, showed similar behavior to that of the previous years, so the resolution of such claims will not affect the financial position and economic performance of the companies involved.
During the year 2019, the repurchase of Company shares in the amount of Ps. 81,815 (thousand pesos) was carried out.
In the period, a revaluation income of Ps. 91,718 (thousand pesos) was recorded in the investment property account (shopping malls).
Provisions recorded within accrued expenses must meet the criteria applicable to liabilities. This is in accordance with the International Financial Reporting Standards, so that only provisions on commitments made or expenses that have already been accrued are recorded.
As regards matters relating to fraud, non-compliance with laws and regulations, and undue influence on the execution of the audit, investigations relevant to the Administration involving the application of various procedures were carried out. No non-compliance was discovered.
For the preparation of this report, the Audit and Corporate Practices Committee relied on the information provided to it by the Chief Executive Officer of the Company, the relevant managers of the juridical persons it controls and by the external auditor of the Company.
Audit and Corporate Practices Committee
José Kuri Harfush
President
Antonio Cosío Pando
Juan Rodríguez Torres