Financial Highlights

Report from the Chief Executive Officer

Liverpool Santa Anita

Some of the most important changes made during the year were:

• Adoption of a truly omnichannel culture, where employees in every area—from commercial planning to purchasing, logistics and above all, operations—have the customer in mind, regardless of the channel through which they decide to contact us. This was evident in the improvements made to the store stocking process, the speed of same-store delivery through Click & Collect and the reduction in delivery days, which create competitive advantages that are difficult to replicate.
• Transformation of all the Fábricas de Francia stores into Liverpool or Suburbia formats. Even though the Fábricas de Francia brand will always be a part of the life of El Puerto de Liverpool, in the interests of efficiency, cost reduction, and above all the customer, we came to the conclusion that the best thing for the company was to focus on just two commercial brands. We achieved this change in 2019.
• Many changes at Suburbia: full migration of system to SAP® S/4HANA; a modification of our webpage from purely informational to transactional; and now, beginning the shift toward omnichannel culture. After establishing the foundations that will allow Suburbia to achieve its growth potential, this year we already saw the first fruits, opening 18 stores and transforming 14 Fábricas de Francia, to end the year with a total of 157 Suburbia stores operating.
• Logistics is a fundamental part of this new omnichannel world. Within our efforts to strengthen the business, this year we began work on the Arco Norte logistics platform, the first phase of which will open in 2021, a distribution center focused on Big-Ticket items. The facility will cover more than 200 thousand square meters and will be used for customer deliveries and re-stocking stores. The total project will involve several more phases at Arco Norte as well as a series of regional distribution centers, keeping our merchandise closer to our customers.

• We introduced processes, systems and artificial intelligence in our credit line opening and maintenance systems, and the first results were seen in a reduction of past-due accounts in 2019.
• Our project on personalization and customer experience continues, while using a considerable amount of data on hand to provide personalized and better-quality service to customers at every point of contact with the company.
• In our mission to make a deeper mark on society, El Puerto de Liverpool is focusing on three areas of social responsibility. The first, our internal mark, is intended to give, the almost 80,000 employees who are part of the Liverpool family, the best organizational climate for working, which promotes internal development, individual respect, diversity, personal savings and innovation, with a special focus on education. This year, 611 employees earned their primary, junior high, high-school, undergraduate and master’s degrees from Liverpool Virtual University. The second area is the environment. By 2020, more than 80% of the electrical energy consumed by the group will be clean energy. Additionally, we installed four biodigesters to reduce our organic contaminants. The third is ensuring that labor conditions are appropriate throughout our supply chain. We certify our suppliers for compliance with laws and regulations on workplace safety, child labor, etc.

Suburbia Coapa

Through actions such as these, El Puerto de Liverpool closed 2019 being a stronger company, with an optimistic view of the changing future that lies ahead. We believe that the omnichannel business model, based on data analysis and focused on mobile devices, is the richest source of benefits for our customers today. We believe Mexico’s economic future is bright, but above all we believe in the people that make up El Puerto de Liverpool and their ability to constantly reinvent themselves. The future of El Puerto de Liverpool is one of a constantly changing, endlessly challenging tomorrow. The future of a young company with more than 170 years of experience, a tomorrow of technological innovation, but always aware of what has made us successful thus far: at El Puerto de Liverpool, we serve the CUSTOMER, everywhere, every day, every time.

Thank you,

Graciano F. Guichard G.
Chief Executive Officer
December 31, 2019

Report of the Board of Directors to the Shareholders’ meeting

Serving the customer everywhere, every day, every time is the mission of El Puerto de Liverpool.

To do this, we have created “Experiences that Make a Mark,” a comprehensive program based on cultural values and three pillars that identify us: being the best place to work in Mexico, retaining and building the best talent, and promoting healthy workplaces.

We strengthened our brand as an employer by focusing on digital recruitment platforms, structured along five axes: economic benefits, emotional salary, life and career planning, social responsibility, and organizational culture.

We also advanced in the implementation of a management system that empowers creativity and change at all levels of the organization, setting individual and team targets, using the Total Alignment methodology. With this we can strengthen individual development plans to guarantee retention and assure succession in strategic positions.

We have focused on goals for maximizing our business development impact: sales force, digital, data mining, logistics and teamwork.

In social responsibility, we generate social, environmental and economic value through sustainable actions, in order to leave a positive mark on customers, employees, suppliers, shareholders, communities, the environment, supply chain and authorities.

We believe developing new models for employability of people joining the work force is of fundamental importance, in order to promote fair and equal development for all. The Liverpool Virtual University platform offers training plans for employees, their families, and the general public.

Click & Collect represents half of the digital sales, this is indicative that our omni-Customers’ interest to visit our stores is stronger than ever.

Our mobile app, Liverpool Pocket, has become our most active digital channel, and the extended catalog, available through Liverpool Pocket, has more than 10,000 mobile points of sale in bricks-and-mortar stores. Through our website at liverpool.com.mx we continue to develop our omnichannel capacities, while Click & Collect now accounts for half of our digital sales. This confirms a lively interest on the part of our omni-Customers in visiting our stores.

We launched Marketplace, a significant growth opportunity. Its strategy is to complement the merchandise available through Liverpool’s extended catalog with advantages that none of our competitors have developed, including service and merchandise returns, from home or at any of our stores.

Suburbia, our retail business focused at the middle-low end of the market, launched a line of electronic products, appliances, toys and furniture at accessible prices. In the third quarter of 2019 a new SAP® S/4HANA technological platform started up operations, that will provide real-time inventory information at the store level. In the future, this platform should enable us to support the omni-Customer mode and deliver e-commerce merchandise out of store inventories.

Our Liverpool Departamental, Liverpool Premium Card and Suburbia cards now have more than 5.5 million accounts, and remain the most popular form of payment in our stores, accounting for half of Liverpool sales and more than 20% of Suburbia’s. We continue to promote the use of the credit function in mobile apps.

To mitigate the risk of past-due accounts, we maintained a cautious policy of new credit opening. At the close of the year our non-performing loan rate was 4.5%.

A new shopping center opened in the south of Guadalajara in the fourth quarter of 2019, called Galerías Santa Anita. Families in that part of town now have closer access to retail shopping and entertainment. We also completed the first phase of expansion at the Perisur shopping mall in Mexico City.

The Arco Norte Logistical Platform (called PLAN) remains under construction. When complete, it will be the distribution center for El Puerto de Liverpool, providing support to all the Group’s brands. We are confident that it will improve the shopping experience of the numerous customers who interact with us on a daily basis. PLAN will begin operating in the second quarter of 2021 with a warehouse section dedicated to Big-Ticket merchandise.

Total revenue was Ps 144 billion, a growth of 6.4% compared with 2018.

Consolidated operating expenses grew 3.4%; operating income was Ps. 19.2 billion, a 13.3% increase. Net interest expense came to Ps. 2.9 billion, and income tax was Ps. 4.6 billion, growing 13.9%. Net income, including Unicomer and Sfera, was negatively affected by the new IFRS 9 and 16 standards, which subtracted Ps. 440 million, bringing the total to Ps. 12.4 billion, a 5.8% growth. Consolidated EBITDA was Ps. 23.9 billion, an 18.0% advance over 2018.

Other data and material events
Grupo Unicomer, a company that markets furniture, electronics, housewares, eyewear and consumer credit in 26 countries of Latin America and the Caribbean, reports net income of Ps. 1.3 billion, out if which Ps. 647 million are consolidated into El Puerto de Liverpool’s results, an 11.6% increase. It currently has 1,193 locations, 181 franchised Radio Shack stores and more than 15,000 employees.

On November 14, El Puerto de Liverpool, S.A.B. de C.V. placed an issue of LIVEPOL19 securities certificates for Ps. 5 billion and a term of 10 years. We ended the year with a cash position of Ps. 18.6 billion. We maintain a conservative approach to liquidity, debt maturity profile and financial risk management, which translates into increasing cash flow and low debt levels.

Board of Directors
and Top Management