Independent
Auditors’ Report

To the stockholders and board members of El Puerto de Liverpool, S. A. B. de C. V.:

Opinion

We have audited the consolidated financial statements of El Puerto de Liverpool, S. A. B. de C. V. and its subsidiaries (the Company) which comprise the consolidated statement of financial position as at December 31, 2019, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the year then ended and the notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019, and its financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

Basis of opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s “Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are independent of the Company in accordance with the Ethics Standards of Mexican Institute of Public Accountants together with other requirements applicable to our audit of the consolidated financial statements in Mexico. We have fulfilled our other ethical responsibilities in accordance with these requirements and standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Adoption IFRS 16 "Leases"

As described in Notes 2.1.3 and 18 to the consolidated financial statements, the Company adopted as of January 1, 2019 the new “Leases” standard (IFRS 16). As a result of the adoption, the Company recognized right-of-use assets and lease liabilities in relation to the contracts concluded under the figure of lessee, which had been classified as “operating leases” under the previous standard. These assets and liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate.

During our audit, we focused on this item mainly because of the importance of the value of the right-of-use of assets and lease liabilities recognized at the date of adoption for an amount of $11,492 million, and because the calculation of the present value of the lease payments involves the application of significant judgments by Management.

In particular, we focus our audit efforts on:

1. The process followed by Management for the identification of lease contracts and their key data such as: a) the date of commencement of the contract, b) the amount of fixed and variable payments, and c) the term of the lease and its renewal options;
2. The key assumptions used to calculate lease liabilities, such as: a) the determination of discount rates, b) the reasonable certainty of the lease term of each contract;
3. The disclosures required as part of the adoption process.

We evaluate the process followed by Management for the adoption and calculation of the impact of IFRS 16.

We evaluate the integrity of the lease agreements by reconciling the existing lease commitments disclosed in the notes to the financial statements of the previous year, with the data used in the calculation of the lease liability.

On a test basis of the service contracts, we evaluate the management's analysis of whether said contracts contain a lease based on IFRS 16.

On a test basis, we evaluate the accuracy of the data of the lease contracts included in the calculation of the corresponding liability, through match a sample against the original contract which included; a) the commencement date of the contract, b) the amount of fixed and variable payments, and c) the term of the lease and its renewal options.

We have evaluated based on selective evidence of contracts, the accuracy of the calculation for the determination of the lease liability and the right of use of assets in accordance with the provisions of IFRS 16.

On a test basis, we evaluate the key assumptions in the following way:

1. With the support of our valuation experts, we evaluate that the discount rates applicable to the lease contracts used were appropriate according to the guidelines established in IFRS 16.
2. We assess the reasonable certainty of exercising the lease term option according to the conditions and circumstances of each contract.

Additionally, we evaluate the consistency of the information disclosed in the notes to the financial statements with the information provided by Management in accordance with the requirements established in IFRS 16.

Provision for credit losses

As described in Notes 3.3.2 and 8 to the financial statements, the loan portfolio for an amount of $42,557 million is resulting from credit sales of goods and services acquired by the cardholders of the Company. The recoverability of the portfolio is periodically evaluated by recognizing the provision for impairment based on expected credit losses; criteria established in the “Financial instruments” standard (IFRS 9). This criterion implies identifying, for the portfolio, the probability of default, the severity of the loss and the exposure to default.

During our audit, we focused on this item mainly because of the importance of the value of the loan portfolio and the provision for credit losses, since for the definition of the calculation parameters used, significant judgments by management are required.

In particular, we focus our audit efforts on: 1) the methodology used by management, 2) the key input data: portfolio segmentation, cardholder historical behavior, portfolio classification, credit behavior score, credit limit granted and balance receivable or capital amount at the date of calculation and 3) the following key assumptions: prospecting economic scenarios (forward looking).

With the support of our systems specialists, we understood and evaluated the design and operational effectiveness of the controls implemented by Management in the cycle of credit revenues by type of portfolio, as well as the credit system; mainly those related to the accuracy and completeness of the key input data used to calculate this provision.

With the support of our valuation experts, we evaluate the methodology used by Management to calculate the provision for credit losses, in accordance to the provisions of IFRS 9.

On a test basis, we evaluate the key input data, as follows:

• Portfolio segmentation. We compare it to the respective credit files; depending on the type of card (Liverpool and Liverpool Premium Card (LPC)).
• Historical cardholder behavior, portfolio classification and credit behavior rating (behavior score). We compare them to the credit system.
• Credit limit granted and the balance receivable or principal amount as of December 31. We compare to the credit system and the cardholder's statement.

On a test basis, we evaluate the key assumptions, as follows:

Prospecting economic scenarios. We evaluate the changes in the calculation parameters in comparison to changes in the economic variables in order to identify the variables of significant impact, such as the consumer confidence index, gross domestic product and the interbank equilibrium interest rate (TIIE). We also compare these variables against public and recognized sources in this industry.

With the support of our experts, we reprocess the parameters and the provision for credit losses according to the methodology established by Management.

Other Information

Management is responsible for the other information. The other information comprises the annual report presented to Comisión Nacional Bancaria y de Valores (CNBV) and the annual information presented to shareholders, (but does not include the consolidated financial statements and our auditor’s report thereon), which are expected to be made available to us after the date of this report.

Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the other information not yet received, we will issue the report required by the CNBV and if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and, if required, describe the issue in our report.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor´s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
• Conclude on the appropriateness of Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company and subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Company and subsidiaries audit. We remain solely responsible for our audit opinion.

We communicated with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicated whit them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is stated below.

 

PricewaterhouseCoopers, S. C.

 

C.P.C. José Luis Guzmán
Audit Partner
Mexico City, March 11, 2020

Report of the
Audit and Corporate Practices Committee

Mexico City, February 18, 2020

To the Board of Directors of
El Puerto de Liverpool, S.A.B. de C.V.

We, the undersigned, appointed as members of the Audit and Corporate Practices Committee of this company, present the report on the activities carried out pursuant to article 43 of the Securities Market Act.

The Committee met four times during the year, addressing, among others, the following points:

1. The General Shareholders’ Meeting held March 7, 2019, appointed Mr. Jorge Antonio Salgado Martínez chairman of the Audit and Corporate Practices Committee for fiscal year 2019.

2. On audit matters:
   1. We evaluated the external auditing plan and proposal for professional services accepted by Management, and recommended to the Board of Directors that the firm PricewaterhouseCoopers be hired as external auditor to audit the financial statements of the Company and its Subsidiaries for the fiscal year ended December 31, 2019. The Committee also learned of the additional services this firm supplies and mechanisms for safeguarding its independence and avoiding self-review, and concluded that these mechanisms are appropriate.
   2. We evaluated and found that the Company has internal and external mechanisms that provide reasonable certainty of compliance with the Laws and Regulations applicable to it.
   3. We were apprised of the Company’s bookkeeping policies as well as their impact on the figures contained in the financial statements as of December 31, 2019 and 2018, ensuring that the financial information was duly presented.
   4. We followed up on the organization and functions of the Company’s Internal Audit Department; received its annual report of activities for the year 2019, the relevant findings, and its audit plan for the year 2020.
   5. We evaluated and found that the company has operating systems, policies and procedures by which it may be considered to have an appropriate climate of internal control and bookkeeping.
   6. We were apprised of the Company’s degree of adherence to the Code of Best Corporate Practices, recommended by the Mexican Stock Exchange, per the report with information at December 31, 2018, filed on May 24, 2019.
   7. We were informed of any lawsuits and litigations in progress, as well as the results of those concluded during the period in question.
   8. We reviewed the audited consolidated financial statements as of December 31, 2019 and the notes thereto.
   9. We were apprised of the status of the reserves and estimates included in the financial statements at December 31, 2019.
   10. We were informed of the observations and recommendations of the External Auditors, related to their examination of the consolidated financial statements as of December 31, 2018.
   11. We reviewed the statistics on transactions reported to the authorities in pursuant to anti-money laundering regulations.
3. On the matter of corporate practices:
   1. We consider the performance of senior management to have been appropriate and efficient, taking into account the circumstances under which they have discharged their responsibilities.
   2. We were informed of transactions with related parties, and found that the amounts thereof were not significant with respect to the Company’s operations, and that they were conducted in accordance with market conditions.
   3. We performed an overall review of the criteria by which overall remuneration is determined for key Company’s directors; we consider such remuneration to be reasonable and consistent with market conditions.

As a result of the activities carried out by this Committee, and having heard the opinion of the Company’s Independent Auditors, we hereby recommend that the Board of Directors submit the financial statements of El Puerto de Liverpool, S.A.B. de C.V. and Subsidiaries as of December 31, 2019, in the terms in which such statements have been prepared and presented by Company management to the General Shareholders’ Meeting for its approval.

 

Sincerely.

 

The Audit and Corporate Practices Committee

 

Consolidated Statements of
Financial Position

(Notes 1, 2 and 3)
Thousands of pesos

 

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Comprehensive Income, expenses classified by functions

(Notes 1, 2 and 3)
Thousands of pesos, except earnings per share

 

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of
Changes in Stockholders’ Equity

(Notes 1, 2, 3 and 20)
Thousands of pesos; unless dividends paid per share

 

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated
Cash Flow Statements

(Notes 1, 2, and 3)
Thousands of pesos

 

The accompanying notes are an integral part of these consolidated financial statements.