MESSAGE
FROM CHAIRMAN

Dear shareholders:

During 2018, Grupo Famsa made steady progress in consolidating a robust operational and financial front. The Company focused on pushing forward the initiatives launched in 2017 and timely implementing marketing strategies aimed at enhancing its competitiveness, sales dynamism and profitability. Consequently, Grupo Famsa achieved a 13.9% annual growth in Consolidated Net Sales, totaling Ps.19,886 million. Similarly, Consolidated EBITDA posted a year- over-year increase, from Ps.1,231 million to Ps.1,565 million at year-end.

Regarding our operations in Mexico, these were exposed to the prevailing uncertainty generated by, among other factors, the NAFTA renegotiation, the Mexican general elections, and the multiple interest rate increases throughout the year. Despite this challenging environment, Grupo Famsa achieved solid results, largely driven by the strong dynamism in overall sales of core durable goods categories on credit, as well as personal loans origination.

GRUPO FAMSA ACHIEVED A 13.9% ANNUAL GROWTH IN CONSOLIDATED NET SALES, TOTALLING PS.19,886 MILLION

The harnessing of synergies between Famsa Mexico and Banco Famsa, by offering a wide range of consumer financing options, coupled with the support of the canvass channel, which allow us to expand our commercial outreach beyond existing store network, contributed to the 16.4% year- over-year growth in Famsa Mexico’s Net Sales Volume during 2018.

16.4% YEAR-OVER-YEAR GROWTH
IN NET SALES

These initiatives were supplemented by the timely execution of advertising campaigns, allowing us to fully capitalize on the most relevant holydays and shopping events in 2018. As a result, Computing sales increased by approximately 17% year-over-year, while Electronics, Appliances and Mobile Phone sales posted an average annual growth of around 12% during 2018. Additionally, personal loans origination, particularly under the payroll deduction scheme, stood out with an annual increase of about 27% in 2018.

Furthermore, seeking to enhance Banco Famsa’s SME loan origination, the Company signed a commercial agreement with Pitchbull in June 2018, making it the first strategic alliance between a traditional bank and a Fintech platform in Mexico. This agreement paves the way for Banco Famsa to amplify the benefits provided by this type of technology through more agile credit granting procedures and broader geographic presence in markets not covered by the Company current branch network. As of December 31, 2018, SME loan portfolio expanded 24.9% compared to 2017.

30,689 MILLION BANK
DEPOSITS OF PS.

Parallelly to credit activities, Banco Famsa strengthened its investment product portfolio in 2018, by achieving a 45.7% growth in Bank Deposits compared to the balance recorded at the end of 2016, amounting to Ps.30,689 million. As of December 31, 2018, Bank Deposits were Grupo Famsa’s main funding source, accounting for 77.8% of the consolidated funding, 10 percentage points higher than the figure registered at year-end 2016.

In the United States, amidst a challenging context for the Hispanic population in this country, progress was made in revitalizing the commercial dynamism of the store network. For the first time since 2015, Same-Store Sales, as of the second quarter of 2018, increased on an annual basis. This performance was attributed to the launch of intensive marketing campaigns and the strengthening of the business unit’s institutional image in digital and traditional media, as well as the broadening of its portfolio of services and brands in core categories of durable goods.

8,757 MILLION
CONSOLIDATED
GROSS DEBT OF Ps.

Moving on to the financial front, we moved forward in the execution of the asset monetization plan, as well as in the search for new funding options under more favorable conditions.

During 2018, the sale of 8 properties was completed for Ps.694 million, which were used for both the amortization of short-term debt and for Banco Famsa’s capitalization. The latter contributed to the strengthening of the financial front, to the origination of consumer credit and, therefore, to the harnessing of synergies between our retail and banking operations.

Furthermore, we arranged a second credit facility with Bancomext for Ps.1,000 million, obtaining better conditions, both in rate and term. The resources were primarily used to refinance short- term liabilities, thus improving debt maturity profile, as well as the credit conditions of Grupo Famsa’s consolidated debt.

Consequently, we followed up on the efforts implemented since 2017 towards enhancing the Company’s financial structure, as, at year-end 2018, 22.1% of total consolidated debt was short- term compared to 40.3% in 2016, thus extending the average term of debt. As of December 31, 2018, the consolidated gross debt balance was Ps.8,757 million, decreasing 12.4% when compared to Ps.10,001 million in 2016. In 2019, we will continue to pursue the creation of greater operating efficiencies and the achievement of a better financial position, through the execution of initiatives aimed at attaining a more dynamic sales performance in Mexico, while strengthening banking operations and further accelerating the consolidation of our business in the United States.

firma

Humberto Garza González
Chairman

firma

Humberto Garza Valdéz
CEO