*Figures in millions of Mexican pesos.

Letter from the
Chairman of the Board

To the stockholders:
El Puerto de Liverpool continues to show great vitality. In 2018, it succeeded in completing its expansion plan with five new Liverpool stores and seven Suburbia stores.

Income reached $135,534 million pesos (10.9% growth); sales totaled $120,276 million pesos (10.8% above the preceding year); profits were $11,704 million pesos and EBITDA was $20,236 million pesos. The net debt/EBITDA ratio is less than 1.

Looking into the future, we will continue investing responsibly, placing particular care on not exceeding conservative debt levels. Three Liverpool stores, 18 Suburbia stores and one Shopping Center are slated to open in 2019.

The Group’s most important project is the development of new logistics processes, including the construction of a large distribution center, which are expected to significantly improve the level of services involved in deliveries to clients.

The Divisions comprising the Group and each of us individually are committed to serve the customer everywhere, every day, anytime. We will strengthen our omnichannel culture and client service programs while improving our customer’s individual knowledge.

The effort made by all the personnel is doubtless what drives success. We will make even further efforts to: attract talent, their training and human and technical development via the Virtual Liverpool University (UVL), aside from building an excellent working environment.

The advancement of the company and its Divisions has been possible thanks to the support of its stockholders, collaborators, suppliers, tenants, financial institutions, business partners, authorities and clients. We send our sincere appreciation to all.

Sincerely,

Max David
Chairman of the Board
Mexico City, March 7, 2019

The Board of Directors’
Report to the Shareholders’ Meeting

El Puerto de Liverpool is a socially responsible business. We understand sustainability to be the ability to maintain our operations over the long term, generating a positive impact on our associates, the communities in which we operate and the environment in general. We continue to pursue our mission to serve our customers everywhere, every day, at all times, while we promote the development and education of our associates and their families, maintaining responsible purchasing processes and decreasing our impact on the environment.

Our priority, in terms of our social responsibility strategy, is the development and education of our associates and the surrounding communities, which generate the best talent. We wish to point out that at year end, our workforce is made up of nearly 75 thousand associates. As part of the model of inclusive culture, we recognize the importance of our women and of the youth collaborators that currently comprise more than 60% of our workforce. This year, we offered more than one million eighty thousand hours of specialized training to over 37 thousand associates through the Liverpool Virtual University (91% in the virtual mode).

We promote a savings culture among our staff via attractive plans tailored to their needs and to those of their families. In 2018, we reached a level of over 60 thousand savers, a 4% increase over the prior year.

In order to promote balance between work and personal life, we have established a three-pillar operating model: proper and safe physical space, health and wellbeing, and proper time management between personal needs and those of the organization.

The second axis is the process for responsible purchasing. We understand that the value of decisions made in terms of investment in our chain of supply is fundamental in order to continue being the best option in service, variety and value. This year, we published the El Puerto de Liverpool Code of Conduct, which is supplementary to certifications and audits in effect. These certifications ensure compliance with the conventions of the International Labor Organization, human rights at the work place, environmental standards, Social Security for workers and occupational safety and health conditions.

Environmental protection is the third axis, which is why this year, we have committed to reducing our carbon footprint by signing solar and wind power contracts. At the year-end closing, 8% of our energy is provided by renewable sources. There are plans in place to ensure that this percentage reaches 50% by mid 2019. With this commitment, we prevented emissions of more than 30 thousand tons of CO₂ in 2018, as we join the fight against global climate change.

Lastly, we are aware of the fact that investing in our communities is key to business permanence and to increasing customer loyalty. Forty nine civil organizations benefited during the year and through our volunteer program, we invested more than two thousand hours of service in the communities.

Liverpool remains at the forefront of the Large Department Store market in Mexico, developing new concepts, continuing its plan for new stores and strengthening omnichannel retailing. We opened five new stores during the year.

The Women’s department was modernized, incorporating new environments and space flexibility tailored to our customers’ lifestyles. Contemporary Woman offers spaces that showcase new trends, which serve as a fashion reference in Mexico. The Urban Zone section was created based on current lifestyles, paying particular attention to the Athleisure and Sneaker Wall concepts.

In order to continue developing experiences, the BX (Beauty Experience) concept was implemented at the Santa Fe store. An increase in acceptance was immediately noticed among our customers, and consequently, we have implemented BX experience at six of our stores.

New store openings this year included Liverpool Parque Antenas in Mexico City; Fresnillo, Zacatecas; Paseo Querétaro, Querétaro; Atlixco, Puebla and Mérida Cabo Norte in Yucatán.

Liverpool Coapa reopened on October 31, now that the damage resulting from the September 19, 2017 earthquake has been repaired and the facilities have been modernized.

Digital channels accounted for 5% of retail sales. For the Apparel, Footwear and Accessories categories, liverpool.com.mx has become a relevant player, securing 50% click share in the Mexican market.

In a project intended to expand the range of goods offered, we launched an omnichannel initiative (Marketplace), which seeks to develop a broad-based catalog that complements current supply. Marketplace products are available, along with Liverpool products, through liverpool.com.mx, the App, and at stores through the Sales Associate’s App.

The Call Center (CAT Morelia), with a 1,150-person workforce, continued its development. Seven million customers were served there during the year.

The Unique Customer model was implemented at all El Puerto de Liverpool Divisions. We created a dynamic segmentation platform through analytical, descriptive and predictive models; machine learning is now a reality at Liverpool.

Also, after learning the results of market studies, which showed that our customers better identify the Liverpool and Suburbia brands, we have announced the conversion of 41 Fábricas de Francia stores. In 2019, two thirds of these locations will be converted into Liverpool stores and the rest into Suburbia stores. Our priority is to take into account each of our associates currently employed at Fábricas de Francia, so we will duly consider their labor preferences.

This year, the Liverpool Credit Card exceeded 4.1 million accounts, and continues to be the preferred form of payment at our stores and omnichannel points of sale. Due to multiple actions taken to manage credit risks and collections, the past-due portfolio index was maintained at 4.5%. We have adjusted our origination models, with strict rules for approving new cards. Additionally, we renewed some predictability models, which has made it possible to generate accounts with better risk indicators. We have especially reinforced pre-collections and financial education on informal profiles and have increased specialization of collection entities.

In turn, the Premium Card has reached 700 thousand holders. Promotion of this card demonstrates the multiple benefits of its points program and the fact that they can be easily redeemed at Liverpool stores.

In line with the Group’s omnichannel strategy, a specific credit section was launched for the Liverpool mobile application; that section was also re-designed at liverpool.com.mx. At present, more than 1.8 million customers consult their balance, their available line of credit, transactions and statements of account online. We will continue to enable more digital features.

The Liverpool Insurance Center has initiated a new growth strategy based on product diversification and expansion of the digital channel. New alliances were established, that will enhance new protection programs, such as novel home insurance. Service and value will continue to be our competitive advantage in this operation.

The logistics network has achieved important advances, by reducing shipping time. During the year, we made more than four million home deliveries through our three distribution centers and 41 regional warehouses. Additionally, we have started work on construction of the new logistics center, which will be located in Arco Norte adjoining the Mexico-Querétaro highway. Its operating principles are flexibility, scalability and sustainability, and our target is that, from stage one, our customers will receive great benefits from implementation of the latest technology and automation systems.

Suburbia is a leading chain of stores offering apparel for the whole family at affordable prices. Sales reached Ps. 17 billion in 2018. During the first quarter of the year, we completed implementation of all technological platforms in the El Puerto de Liverpool ecosystem, with no interruptions in our daily operations or significant effects for our customers.

We have achieved the permanence of our Suburbia associates throughout the implementation. We focused on building our talent base and on promoting a culture of leadership characterized by passion, trust and communication, which are critical to achieving our goals.

We focused on the following initiatives:

Strengthening private labels leadership (Weekend, Contempo and Non Stop), with a greater value proposition than that offered by our competitors, efficient operations and discipline in the chain of supply and the running of our stores. Additionally, we have identified categories where El Puerto de Liverpool knowledge can boost growth. One example is technology, particularly cell phone technology. In this category, we have re-designed the supply of goods and the schedule and implementation of promotions at stores. By strengthening the Suburbia business model, we hope to increase same-store sales consistently, above inflation, while at the same time increasing our margins and securing a greater market share.

We opened seven new stores during the year: Patio Tlalpan and Parque Antenas in Mexico City; Ámbar in Tuxtla Gutiérrez, Chiapas; Sentura in Zamora, Michoacán; Plaza Atlacomulco in the State of Mexico; Galerías San Juan del Río in Querétaro and Parque Puebla, in Puebla. Suburbia stores currently total 131 units.

In July, we launched the Suburbia credit card with two completely new products: a closed departmental card and an open card backed by Visa, aside from a number of insurance products. Design of these cards is tailored to the customer’s profile, offering exclusive benefits, different payment schedules and credit assessment according to the target market.

Through CAT Morelia, new services are provided at Suburbia that support credit card placement, and processing in under fifteen minutes.

On October 2, we re-launched the suburbia.com.mx web page to allow for online purchases, taking advantage of El Puerto de Liverpool’s technical know-how. This model offers home delivery as well as the Click and Collect service for in-store pick up. The Suburbia web page offers a broad selection of apparel for the entire family, as well as an extensive catalog of general goods such as multimedia, household goods, home, sports, etc. We expect e-commerce to generate an increase in sales and boost traffic at our physical stores.

Lastly, we are implementing a new technological platform to replace Suburbia’s critical systems. This ambitious project includes merchandise, promotions, private label development, purchases, finance, e-commerce, logistics, CRM, credit and business intelligence.

We trust that with this new platform, along with our growth engines, we will accelerate Suburbia’s profitable growth.

Galerías is a network of shopping malls located throughout Mexico. With 27 units and more than 600 thousand square meters of leasing space. These shopping malls offer our customers spaces for culinary, cultural and entertainment experiences, while they shop for goods at the different stores, including Liverpool.

Our shopping malls house a great variety of businesses, a minimum turnover, occupancy at 96% and sound collection levels.

We ensure a proper mix of tenants engaged in retail, entertainment and services.

Experiences at Galerías include a broad selection of artistic presentations, Christmas events and Go Fashion. The latter is a fashion event showcasing the most recent trends for the different seasons.

As per our continued growth plan, Galerías Santa Anita in Guadalajara, Jalisco is currently under construction and is scheduled to open in the last quarter of 2019.

Moreover, in order to keep current with concepts of variety and space, the Perisur, Plaza Satélite, Galerías Monterrey and Galerías Insurgentes malls are being remodeled and expanded.

On October 31, Galerías Coapa re-opened after repairs of damage from the September 19, 2017 earthquake and extensive remodeling.

Operating
Summary

In 2018, revenue totaled $135.53 billion, for a 10.9% increase over the prior year.

Retail sales and services totaled $120.27 billion, for a 10.8% increase on a total-stores basis, whereas same-store sales increased by 6.5%, both with respect to the prior year. The fact that the Liverpool Coapa store re-opened on October 31 and that the Suburbia Coapa store remains closed after the September 19, 2017 earthquake were taken into account when calculating these figures.

Credit card income grew 12.5%, and the portfolio increased by 5.2%. During the year, 45.4% of Liverpool retail sales were conducted via financing provided by the company.

Special attention has been paid to granting new credit, as well as to adjusting interest rates to market conditions. In order to mitigate the risks related to growth of the past-due portfolio, certain measures were taken, particularly as concerns credit granting and collections. At the year-end close, doubtful accounts were down to 4.5%.

Williams Sonoma, a chain that offers high-quality novelty home items through its Pottery Barn, PB Kids, PB Teen, West Elm and Williams Sonoma formats, operates 35 stores throughout the country. This year’s restructuring allowed for positive EBITDA levels, a greater profit margin and renewed handling of inventory stock.

Income related to real estate activities underwent an 11.9% increase with respect to 2017 for a total of Ps. 3.47 billion, while occupancy remained at 96%. As mentioned, the Galerías Coapa shopping center reopened on October 31, after remaining closed since the September 19, 2017 earthquake.

During the period, we received payment from our insurance companies for 100% of the claims related to earthquake damages, as well as from interruption of operations.

As a result of the company’s growth, the incorporation of Suburbia, and particular effects in the year, operating expenses increased by 10.3%.

Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled Ps. 20.23 billion, for 10.3% growth over 2017.

The 2018 net financial expense totaled Ps. 1.80 billion.

Grupo Unicomer and affiliates, an operation in which we have an interest, is engaged in the sale of furniture, motorcycles, optics, household goods and consumer credit in 26 countries in Central and South America, and the Caribbean. Grupo Unicomer reached 1,141 locations. There are also 170 Radio Shack stores franchised to third parties.

Sfera apparel boutiques, with 46 stores in Mexico, reports positive results, consolidating an attractive and profitable operation in Mexico.

Income taxes totaled Ps. 4.03 billion, for a 35.1% increase over the prior year. All other taxes withheld or paid, import duties, as well as Social Security (IMSS), Retirement Savings System (SAR) and Workers’ Housing Fund (INFONAVIT) dues totaled Ps.11.89 billion.

Net earnings totaled Ps.11.70 billion, exceeding prior year net income by 18.4%.

A Ps. 921 million bank loan was paid back in June 2018, and the Ps. 1,000 million LIVEPOL08 bond was settled on August 24.

The four-year Ps 5.0 billion peso syndicated loan drawn down in March 2017 used to finance growth activities was prepaid in June.

REPURCHASE OF SHARES
The share repurchase program was launched in November 2017 by acquiring 666,257 LIVEPOL C-1 titles and using Ps. 79 million from the repurchase fund.

DIVIDENDS
Dividends of Ps. 1.29 billion were declared at the March 15, 2018 Ordinary Shareholders’ Meeting.

FINAL CONSIDERATIONS
2018 was significant for our organization due to the following events: consolidation of this conglomerate of companies, a record number of openings of new stores (five Liverpool stores and seven Suburbia stores), and continued growth of the omnichannel strategy.

We greatly appreciate our stockholders’ support as well as the loyalty of our customers, suppliers, tenants and associates for one more year, in which El Puerto de Liverpool continued to grow profitably.

Yours sincerely,

Board of Directors
Mexico City, December 31, 2018