Audit and corporate
practices committee

Mr. José Kuri Harfush
Mr. Juan Antonio Pérez Simón
Mr. Antonio Cosío Pando

Annual Report

To the Board of Directors:

I, the undersigned, in my capacity as Chairman of the Audit and Corporate Practices Committee of Grupo Sanborns, S.A.B. de C.V., (the “Committee”), hereby submit the following annual activity report for the fiscal year 2016.

Functions of Corporate Practices, Evaluation and Compensation

The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V., (the “Company”) and the relevant executives of the entities the Company controls, complied satisfactorily with their objectives and responsibilities.

On April 22, 2015 Grupo Sanborns, S.A.B. de C.V. decreed dividends in the amount of Ps. 1,982,905,929.34, of which 50% were paid on May 30, 2016 and the remainder on December 19, 2016.

The subsidiaries Sanborns Hermanos, S.A. and Sears Operadora México, S.A. de C.V., also decreed dividends in the amount of Ps. 300 million and Ps. 500 million, respectively.

After consideration by the Committee, purchase and sale transactions with related parties were authorized in the amount of Ps. 582.5 million for sales, Ps. 622.4 million for purchases and Ps. 1,642.5 million for others and for general expenses.

The main operations were conducted with Radiomóvil Dipsa, S.A. de C.V., and America Móvil, S.A.B. de C.V., for the purchase of mobile equipment, rate plans and memory cards for phones, and other items from the Company and its subsidiaries, Teléfonos de Mexico, S.A.B. de C.V., for call center services, telephone installation and the sale of telephony items, and dining room services. Seguros Inbursa, S.A., for insurance on the Company’s vehicles and insurance on its own and on its subsidiaries’ real estate; commissions, and dining room 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, food and beverage sale, as well as dining room services provided to other companies.

All transactions with related parties were reviewed by Galaz, Yamazaki, Ruiz Urquiza, S.C., and a summary thereof has been recorded in a note included in the audited financial statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries as of December 31, 2016.

The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V. receives no remuneration for the performance of its activities. The Company has no employees, and concerning the total compensation received by the executive officers of the companies controlled by the Company, we make sure that the policies adopted in regard to this matter, by the Board of Directors have been complied with.

Audit Functions

The internal control and internal audit system of Grupo Sanborns, S.A.B. de C.V., and of the entities it controls is satisfactory and meet with the guidelines approved by the Board of Directors, according to the information provided to the Committee by the Management of the Company and the independent auditor’s report.

We had no knowledge of any noncompliance with any guidelines or policies concerning the operation or accounting rules of the Company, or concerning the entities it controls, and consequently, there was no application of a preventive or corrective action whatsoever.

The performance of the accounting firm Galaz, Yamazaki, Ruiz Urquiza, S.C., the entity that conducted the audit of the financial statements of Grupo Sanborns, S.A.B. de C.V., subsidiaries as of December 31, 2016, and the performance of the independent auditor in charge of the aforementioned audit, were satisfactory and the objectives set at the time of contracting the stated entities were achieved. Moreover, according to the information provided by the said firm to the Management of the Company, its fees for the independent audit represented a percentage of 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 its subsidiaries as of December 31, 2016, it was determined that there are no significant errors caused by fraud, and the major adjustments proposed originated from excess funds in reserves for doubtful accounts, excess funds in reserves for provisions, and insufficient funds in deferred taxes.

In accordance with information we received from the Company’s Board of Directors and during the meetings we had with the independent and internal auditors, which were carried out without the presence of officers of the Company, as far as we know, there were no relevant comments from shareholders, directors, relevant officers or employees or, in general, from any third party, regarding accounting, internal controls or other issues related to internal or external audits, or complaints made by those persons on irregularities in the administration of the Company.

During the reporting period, we verified that resolutions adopted by the Shareholders’ Meeting and the Board of Directors of the Company were complied with. In addition, according to the information provided to us by the Company’s Board of Directors, we verified the existence of controls designed to determine compliance with the provisions applicable in terms of financial markets and that the legal department reviews such compliance at least once a year. There were no comments concerning this point or any adverse change in the Company’s legal status.

Regarding the financial information that the Company prepares and submits to the Mexican Stock Exchange and the National Securities and Exchange Commission, we have verified that this information was prepared under the same principles, criteria and practices with which the annual information was prepared.

Finance and Planning Functions

During fiscal year 2016, the Company and some of the entities it controls made significant investments. In this regard, we made sure that any financing that was undertaken was made in a manner consistent with the strategic medium- and long-term plan of the Company. In addition, we ensured that the strategic position of the Company was in alignment with the plan. We also reviewed and evaluated the budget for the fiscal year 2016 together with the financial projections that were considered for its construction, including major investments and financing transactions of the Company, which we considered feasible and consistent with investment and financing policies and the Company’s strategic vision.

The contingencies of labor, civil, commercial and administrative nature up to December 31, 2016, showed a behavioral trend similar to previous years, so that the resolution of these claims will not affect the financial position and economic stability of the companies involved.

During 2016, the Company carried out the repurchase of Company shares at the amount of Ps. 235,891 thousand.

Income from the revaluation of investment property (Malls) in the amount of Ps. 121,718,000 was recorded in 2016.

The provisions entered in the books as accrued expenses must meet the criteria of a liability under International Financial Reporting Standards, so that only provisions on commitments or expenses that have already been accrued can be recorded.

Concerning matters related to fraud, breach of laws, regulations and undue influence over the manner on which the audit was conducted, the pertinent investigations were made with management, and various procedures were applied, without discovering any irregularity.

In preparing this report, the Corporate Practices and Audit Committee relied on information that was provided by the Chief Executive Officer of the Company, the relevant officers of the entities it controls, and by the independent auditor.

Mr. José Kuri Harfush