To the Board of Directors:
In my capacity as Chairman of the Grupo Sanborns, S.A.B. de C.V. Audit and Corporate Practices Committee (the “Committee”), I am pleased to submit the following annual report of activities for the 2017 fiscal period.
Functions regarding Corporate Practices,
Evaluation and Compensation
The Chief Executive Officer of Grupo Sanborns, S.A.B. de C.V., (the “Corporation”) and the relevant executives of the entities controlled thereby, satisfactorily complied with the goals entrusted to them and their responsibilities.
On April 26, 2017 Grupo Sanborns, S.A.B. de C.V. decreed dividends for $2,022,277,906.00, 50% of which was paid on June 20, 2017 and the balance on December 20, 2017.
Dividends were also decreed for the subsidiaries Sanborn Hermanos, S.A. for $300.0 million and Sears Operadora México, S.A. de C.V., for $600.0 million.
Purchase and sales transactions with related parties were approved, which were submitted for consideration by the Committee for a total of: income transactions for $561.5 million, purchase transactions for $243.0 million and expense and other transactions for $1,864.7 million.
The main transactions 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 cards for telephones and other items, by the Corporation and the subsidiaries thereof; Teléfonos de México, S.A.B. de C.V., for call center services, telephone installation services and sales of telephony items, cafeteria services; Seguros Inbursa, S.A, for car fleet insurance and real property insurance for the corporation and subsidiaries thereof; commissions, cafeteria services to the subsidiaries of Inmuebles Borgru, S.A. de C.V. and Inmuebles SROM, S.A. de C.V., on real property leases; Banco Inbursa, S.A. for leases, commissions, food sales as well as cafeteria services, offered to all the other companies.
All transactions with related parties took place at market values and were reviewed by Galaz, Yamazaki, Ruiz Urquiza, S.C., and a summary thereof has been included in a note to the audited Financial Statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries as at December 31, 2017.
The Grupo Sanborns, S.A. B. de C.V. Chief Executive Officer does not receive any compensation for the performance of his activities as such. The Corporation has no employees and as regards overall compensation for the relevant executives of the companies held by the Corporation, we have assured ourselves of the full performance of the policies approved by the Board of Directors in that respect.
The Board of Directors of the Corporation did not grant any dispensation whatsoever for any board member, relevant executive or individual empowered to act to take advantage of any business opportunities for himself or in favor of third parties, pertaining to the Corporation or to the entities controlled thereby or having significant influence therein. In turn, the Committee did not grant any dispensation for any transactions referred to in paragraph c), section III, article 28 of the Stock Exchange Law.
The internal control system and internal audit of Grupo Sanborns, S.A.B. de C.V., and of the entities controlled thereby, is satisfactory and complies with the guidelines approved by the Board of Directors, as evidenced by the information provided to the Committee by the management of the Corporation and the independent audit report.
We had no knowledge of any relevant non-performance as regards the guidelines and policies for the operation and accounting records of the Corporation or of the entities controlled thereby and, consequently, no preventative or corrective measures were implemented in connection therewith.
The performance by the accounting firm of Galaz, Yamazaki, Ruiz Urquiza, S.C., which firm carried out the audit to the Financial Statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries at December 31, 2017, and the independent auditor in charge of said audit, have been satisfactory and the goals fixed at the time they were retained, were duly achieved. Further, and in accordance with the information provided by said firm to the management of the Corporation, their fees for performing the independent audit do not represent over 10% of their total earnings.
As a result of the review to the Financial Statements of Grupo Sanborns, S.A.B. de C.V. and subsidiaries thereof at December 31, 2017, it was determined that there are no major errors due to fraud, and the major adjustments proposed resulted from surpluses and insufficiencies in the reserves.
In accordance with the information provided by the management of the Corporation and the meetings we held with the independent and internal auditors, without the presence of any officers of the Corporation, and to the best of our knowledge and belief, there were no relevant remarks made by the stockholders, board members, relevant executives and, in general, any third party, in connection with the accounting, internal controls and issues regarding the internal or independent audit, nor any denunciations made by said individuals on irregular acts in the administration of the Corporation.
During the period reported, we have assured ourselves that due compliance was given to the resolutions adopted by the stockholders’ meetings and by the Board of Directors of the Corporation. Furthermore, and in accordance with the information provided by the management of the Corporation, we have verified that it has the controls in place that allow it to determine compliance with the applicable provisions on stock exchange matters and which compliance is reviewed by the legal division at least once a year, without there being any remarks in that respect or any adverse change in the legal position thereof.
In connection with the financial information that the Corporation prepares and submits to the Mexican Stock Exchange [Bolsa Mexicana de Valores, S.A.B. de C.V.] and to the National Banking and Securities Commission [Comisión Nacional Bancaria y de Valores], we have made certain that said information is prepared under the same principles, criteria and accounting practices as those under which the annual information is to be prepared.
Finance and Planning Functions
During the 2017 fiscal period, the Corporation and some of the entities controlled thereby made major investments congruently with the medium and long-term strategic plan of the Corporation. Also, we periodically evaluate the strategic position of the corporation to be in line with said plan and in accordance with the budget for the 2017 fiscal period, together with the financial forecasts taken into account for the preparation thereof, which included the major investments and financial transactions of the Corporation, which we have considered viable and congruent with the investment and financial policies and the strategic vision thereof.
The labor, civil, business and administrative contingencies at December 31, 2017, showed a behavior similar to that of preceding fiscal periods, so that the resolution of said claims shall not affect the financial position and economic stability of the companies involved.
During the year 2017, the repurchase of own shares of the Corporation took place, which amounted to $424,063 thousand.
Income was recorded for the revaluation of investment property (Shopping Malls) in the 2017 year, for $115,955 thousand.
The reserves recorded in accrued expenses must comply with the criteria of a liability, in accordance with IFRS, so that only reserves for acquired commitments or expenses disbursed may be recorded.
As regards matters in connection with fraud, non-performance of laws, regulations and undue influence in the direction of the audit, the pertinent investigations were made with the management, and various procedures were applied, without any of this representing any non-performance.
For the preparation of this report, the Audit and Corporate Practices Committee based itself on the information provided to it by the Chief Executive Officer of the Corporation, the relevant executives of the entities controlled thereby and by the independent auditor.
José Kuri Harfush
Juan Antonio Pérez Simón
Antonio Cosío Pando