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2021 ANNUAL REPORT
OF Grupo Sanborns, S.A.B. de C.V.
In my capacity as Chairman of the Auditing and Company Practices Committee of Grupo Sanborns, S.A.B. de C.V., (the “Committee”), I hereby submit the following annual report of activities for the fiscal year of 2021.
The Director General of Grupo Sanborns, S.A.B. de C.V., (the “Company”) and the relevant directors of the juridical persons controlled by it have satisfactorily met the objectives with which they were entrusted and complied with their responsibilities.
The purchase/sale operations with related parties that were submitted to the consideration of the Committee, totaling $901.7 million pesos for revenue operations, $388.7 million pesos for purchase operations and $1,825.9 million pesos in expenses and other items, were approved.
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 equipment, rate plans, and memory chips for telephones and other concepts of the Company and its subsidiaries; Teléfonos de México, S.A.B. de C.V., for the concept of a call center, telephone installation services, the sale of telephone items and dining room services; Seguros Inbursa, S.A, for the concept of insurance for an automobile fleet and insurance on the real estate belonging to the Company and its subsidiaries; commissions and dining room services; 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, the sale of food, the dining room services it provides to the other companies, and with the Carlos Slim Foundation for the sale of food provided to COVID hospitals.
All the operations with related parties were carried out at market prices and they were examined by the accounting firm Galaz, Yamazaki, Ruiz Urquiza, S.C. A summary of the said operations is found in a note to the opinion on the financial statements of Grupo Sanborns, S.A.B. de C.V. and its subsidiaries up to December 31, 2021.
The director general of the Company does not receive any remuneration for the performance of his functions as such. The Company does not have employees, and as for the integral remuneration of the directors of the companies controlled by the Company, we have ascertained that the said remuneration was in compliance with the policies that were approved by the Board of Directors in that respect.
The Company’s Board of Directors did not confer any dispensation that would allow a director, officer or any other person with authority to take advantage, for himself or for any third party, of business opportunities pertaining to the Company or to the juridical persons that it controls or in which it has a significant influence. The Committee has not granted any dispensation for the transactions referred to in subparagraph c), fraction III of Article 28 of the Stock Market Law.
The internal control system and the internal auditing system of Grupo Sanborns, S.A.B. de C.V. and of the juridical persons it controls are satisfactory and meet the guidelines approved by the Board of Directors, as can be gathered from the information provided to the Committee by the Company’s Administrators and from the opinion of the external auditors.
We had no knowledge of any noncompliance with the operational and accounting policies of the Company or by the juridical persons controlled by it, and therefore 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 that carried out the audit of the financial statements of Grupo Sanborns, S.A.B. de C.V. and its subsidiaries up to 31 December of 2021 was satisfactory, as well as the performance of the external auditor responsible for the audit, and the objectives that were established when the firm was contracted were achieved. In accordance with the information that it provided to the Company’s administrators, its fees for the external audit did not represent more than 10% of its total revenue.
After an examination of the financial statements of Grupo Sanborns, S.A.B. de C.V. and its subsidiaries up to 31 December 2021, it was determined that there were no significant errors due to fraud, and the principal adjustments proposed were caused by excesses or insufficiencies in the reserves.
In conformance with the information provided to us by the Administration and the meetings we held with the external and internal auditors, without the presence of Company officers, and as far as we are aware, there were no relevant observations made by shareholders, Directors or employees or by any third party in general in regard to the accounting, the internal controls or matters related to the internal or external audit, nor any denunciation by the said persons in regard to irregularities carried out in the Company’s administration.
We ensured that the accords adopted by the shareholder assemblies and by the Board of Directors during the reporting period were duly complied with. Likewise, in accordance with the information provided to us by the Company’s administration, we verified that it has controls in place to ensure that it complies with the regulations applicable to the Company in regard to the stock market, that the legal department reviews the said compliance at least once a year, and that there have been no violations in that respect or any adverse change in the Company’s legal situation.
Regarding the financial information that the Company prepares for submission to the Bolsa Mexicana de Valores, S.A.B. de C.V. (the Mexican Stock Market) and to the National Banking and Securities Commission, we have ensured that the said information is elaborated under the same policies, criteria and accounting practices as the information used for the annual report.
In response to the health emergency caused by the COVID-19 pandemic, Grupo Sanborns established extraordinary actions and implemented various prevention and mitigation measures to safeguard the health of our customers, employees, suppliers, and the public in general, while also endeavoring to minimize the economic impact.
As a short-term strategy to address the emergency, the Company’s online business was promoted, offering all the products that a customer could find in a physical store, in order to thereby face the health emergency that was affecting all the other formats, which were forced to temporarily close their doors in order to ensure the social distancing objectives.
Sales and services to our customers continued through the online stores: www.sears.com.mx, www.sanborns.com.mx, www.ishopmixup.com and www.claroshop.com. Our distribution centers and stores are presently operating in compliance with all the protocols established by the health authorities.
Operations have been maintained in a limited manner, always following the protocols indicated by the respective authority, making logistical changes and adjustments to ensure the appropriate health conditions in the stores and thereby be able to once more receive customers while continuing to promote sales through digital channels.
The foregoing procedures mitigate the risks associated to the concentration on one particular format, thereby providing stability to the cash flow.
The Company continued to face its obligations to all its creditors, including the payment of complete salaries even during the complete closure of some of its stores, maintaining the labor force but without renewing temporary contracts.
In response to the COVID-19 health emergency, investments were halted, and the payment of dividends was not decreed. A control of expenditures was carried out without affecting our image and services, thereby obtaining a reduction in administrative expenses and sales. The inventory was optimized by reducing purchases.
According to our estimates and the behavior of the economy, the Company will become profitable and begin to generate positive cash flows from its operations after the return to a “new normalcy.”
The contingencies of a labor, civil, mercantile, and administrative nature up to December 31 of 2021, showed a behavior similar to their behavior during the previous fiscal years, and therefore the resolution of those contingencies should not affect the financial position and economic stability of the companies involved.
During the year of 2021 the Company carried out the buy-back of Company shares in the amount of $243,723 thousands of pesos.
A capital gain was recorded from the appraisal of investment properties (Commercial Markets) in 2021, in the amount of $33,287 thousands of pesos.
The accounting provisions recorded within the accumulated expenses must comply with the criteria of a liability, in conformance with the IFRS, in such a manner so that only provisions for commitments acquired or expenditures that have already been compensated are recorded.
As for matters related to fraud, the violation of laws and regulations and undue influence in the execution of the audit, the pertinent investigations were carried out with the administration, and various procedures were applied without finding any noncompliance.
For the elaboration of this report, the Auditing and Company Practices Committee relied on the information provided to it by the Director General of the Company, the directors of the juridical persons that it controls and by the external auditor.
Engr. Juan Rodríguez Torres
President
Engr. Antonio Cosío Pando
Lic. Santiago Cosío Pando