opening new doors - corporativo soriana...in soriana we continue opening doors towards new...

A N N U A L R E P O R T 2 0 1 4

OPENINGNEW DOORS

towards newopportunities02_ IntroductIon

04_SorIana today 05_FInancIal HIgHlIgHtS06_corporate proFIle07_Vision & Mission / Values08_letter From ceo10_Store FormatS12_company FootprInt14_FResHness aT HanD / CusToMeRs16_ConsTanT KinDness / CollaboRaToRs18_RenoVaTeD CusToMeR saTisFaCTion / CoMMeRCial sTRaTegy20_Reliable PRoFiTabiliTy / FinanCial PeRFoRManCe22_susTainable gRoWTH / CoRPoRaTe ResPonsibiliTy 24_boaRD oF DiReCToRs_exeCuTiVe oFFiCeRs27_FInancIal reSultS

in soRiana We ConTinue oPening DooRs ToWaRDs neW

oPPoRTuniTies. in THe lasT 3 yeaRs We HaVe CaRRieD ouT a seRies

oF sTRaTegiC CHanges anD aCTions aiMeD aT a Full business

RenoVaTion suPPoRTeD by ouR TRansFoRMaTion PRogRaM. THis

PRogRaM seeKs an enTiRe CHange in THe Way We oPeRaTe anD aCT in

order to FocuS on tHe cuStomer.

in 2014 all THose eFFoRTs MaTeRializeD WiTH a seRies oF CHanges

to our organIzatIonal culture, commercIal Strategy and

corporate Image. tHIS laSt, IS a clear reFlectIon oF tHe

tranSFormatIon tHat SeekS to poSItIon and dIStInguISH ourSelveS

in THe MinDs oF ConsuMeRs by ouR KinDness, ouR exCellenT

seRViCe, oFFeRing THe besT qualiTy anD VaRieTy oF PRoDuCTs anD

seRViCes WiTH ouR DisTinCTiVe besT PRiCe guaRanTee.

5SORIANA ANNUAL REPORT 20144

2010* 2011** 2012** 2013** 2014**TOTAL REVENUES (1) 93,700 96,197 104,611 105,028 101,829% oF IncreaSe total StoreS 5.7 4.9 8.7 0.4 -3.0% oF IncreaSe Same StoreS 2.5 1.6 4.5 -2.2 -4.8Gross profit 19,562 20,423 21,552 22,229 22,491% groSS margIn 20.9% 21.2% 20.6% 21.2% 22.1%% oF IncreaSe 6.9 4.4 5.5 3.1 1.2sG&a expenses 12,364 13,258 14,126 14,695 15,431% sg&a exPenses 13.2 13.8 13.5 14.0 15.2% oF IncreaSe 4.5 7.2 6.6 4.0 5.0EBITDA (2) 7,198 7,165 7,426 7,534 7,060% ebiTDa 7.7% 7.4% 7.1% 7.2% 6.9%% oF IncreaSe 11.4 -0.4 3.6 1.5 -6.3operatinG income 5,104 5,224 5,410 5,558 4,977% operatIng Income 5.4% 5.4% 5.2% 5.3% 4.9%% oF IncreaSe 14.0 2.4 3.6 2.7 -10.5net earninGs 3,278 3,217 3,557 3,117 3,704% net earnIngS 3.5 3.3 3.4 3.0 3.6% oF IncreaSe 14.3 -1.9 10.6 -12.4 18.8cash net profit 5,533 5,717 6,129 6,323 5,837% caSH net proFIt 5.9 5.9 5.9 6.0 5.7% oF IncreaSe 5.8 3.3 7.2 3.2 -7.7total assets 69,217 73,828 74,377 78,952 80,720% oF IncreaSe 5.3 6.7 0.7 6.2 2.2total liabilities 34,355 36,593 34,106 35,553 34,319% oF IncreaSe 1.7 6.5 -6.8 4.2 -3.5shareholders’ equity 34,862 37,235 40,271 43,400 46,400% oF IncreaSe 9.2 6.8 8.2 7.8 6.9CUSTOmERS (mILLIONS) 545.0 566.0 585.7 578.9 573.5% oF IncreaSe 2.4 3.9 3.5 -1.2 -0.9EmpLOyEES (ThOUSANDS) 83.8 84.9 85.7 80.9 85.3% oF IncreaSe 9.1 1.3 0.9 -5.6 5.4number of stores 508 558 606 659 674% oF IncreaSe 7.9% 9.8% 8.6% 8.7% 2.3%Sq. FT. OF SALES FLOOR (ThOUSANDS) 2,918.1 3,034.9 3,135.0 3,220.6 3,285.6% oF IncreaSe 3.3 4.0 3.3 2.7 2.0

(In millions of Mexican pesos)

* THe FiguRes PResenTeD in THese FisCal yeaRs aRe unDeR MexiCan FinanCial RePoRTing sTanDaRDs.** THe FiguRes PResenTeD in THese FisCal yeaRs aRe unDeR inTeRnaTional FinanCial RePoRTing sTanDaRDs (iFRs).

(1) FoR CoMPaRabiliTy PuRPoses, THe ReaDeR MusT ConsiDeR THaT THe ResulTs oF FisCal yeaR 2010 isreclaSSIFIed under tHe Standard IFrIc 13 “cuStomer loyalty program,” aS part oF tHe proceSS tHat tHe

CoMPany Has sTaRTeD To aDoPT THe inTeRnaTional FinanCial RePoRTing sTanDaRDs (iFRs).(2) ebiTDa is DeFineD as THe oPeRaTing inCoMe beFoRe DePReCiaTion anD aMoRTizaTion.

total revenues

7SorIana annual report 2014

soriana todaymx$101.829 billion in total revenues.

674 stores + 139 convenience stores super city.

+ 3.2 million sq. mts of sales floor area.

32 states in 261 towns.

LARGEST mEXICAN SELF-SERVICE STORE ChAIN.

6 different stores formats.

+7,400 commercial premises.

14 distribution centers.

+85,000 collaborators.

mx$102.5 million in social investment durinG 2014.

6

Give service every time to a bigger number of communities as a leader, by offering the best shopping experience to our customers and the best workplace to our collaborators, derived from a constant innovation.

vision

Satisfy the needs of products and services of the communities where we are present, promoting in each of us the philosophy and values necessary for guaranteeing a permanent and valuable relationship with our clients, collaborators, suppliers, shareholders, community and environment, obtaining in this manner an adequate profitability and guaranteeing our permanence and growth.

mission

We are correct and polite.

One team with the same goal: Customer satisfaction.

Accomplish results.

We anticipate and innovate.

We are committed to Soriana.

values


corporateprofile

We are a Mexican company from the commercial retail sector, founded in 1968 in the city of Torreon, state of Coahuila. 100% Mexican capital. The company went public in the Mexican Stock Exchange since 1987 under the name SORIANA B.

Following a multi-format strategy, by year-end we operate 674 self-service stores and warehouse clubs, as well as our convenience stores chain known as “Super City”.

Operating different store formats enables us to offer our customers a better shopping experience according to their needs and consumption behavior. Therefore, we offer a great variety of products and services at the best price and quality based on the needs of our customers in every location and city where we are present. We are currently located in the 32 states of the Mexican Republic and our sales area surface exceeds3.2 million square meters distributed throughout our principal store formats.

The logistic network is comprised by 14 distribution centers strategically located in 8 states. In our stores we process more than 11 million transactions per week with a work force integrated by more than 85,000 employees. And our headquarter offices are located in the city of Monterrey, N.L.

8

On the other hand, our IT Department joined this effort aiming efficiency and synergies to enable us to face a complicated consumption environment. In the beginning of 2014, we were able to achieve integration of all the Soriana Mercado and Soriana Express stores into the new SAP platform. We thus achieved efficiencies in handling inventories, reducing shortages, a better managing prices and promotions, among other benefits that significantly contributed to maintain a good level of commercial margins and improvements in managing our working capital, despite the recessive environment. We were also able to improve visibility of the main indicators for business decision making. This effort still continues and at the end of the year, the Soriana Híper and Soriana Súper stores are as well in the process of migrating to the SAP platform. We expect this to be completed by the end of the 2Q 2015 to further generate more savings and benefits.

In the commercial area, we are satisfied with the result obtained in the last months of 2014, through the reaction of our customers to our campaign of reducing the price of more than 15,000 products, the implementation of a new image in all our new and remodeled stores, as well as our operational and commercial efforts to guarantee the quality of our products and services. This initiatives allowed us to see the first clear results in recovering the traffic lost in the last 18 months.

We are sure that with the adjustments made to our price and promotion strategy, together with the multiple efforts focused on the quality of our services, and mainly in the fresh product

categories, they will be soon a distinctive characteristic of Soriana among Mexican families that will allow us to substantially increase the profitability and efficiency of our sales floor area, establishing us as the supermarket chain with the best prices and the one that offers more value to their customers.

Last but not least, I want to also highlight the effort to maintain our social support and sustainability strategy amid a difficult economic scene. In this field, we were able to achieve a social investment record of more than $100 million pesos in the year, with which, through Soriana Fundacion and other support and social charitable organizations, we helped more than 420,000 people in different regions of our country in health care, support to seniors, education and overall child development and also helped people in natural disaster situations.

As you can see, it was the overall effort of the different operational, commercial and support areas of our Organization which allowed us to face a 2014 full of challenges and complications. I am sure that this strength and effort of our team of more than 85,000 direct collaborators and more than 2,000 indirect employees, that will allow us to make a 2015 a better year and to firmly continue in the growth path that we have established for Soriana.

Sincerely yours,

ricardo martín bringasCEO

$3.030BILLION PESOS

CAPEX 2014


Nevertheless, and with a long term vision, the Company did not reduce its annual investments and the continuity of the transformation project, through which we are sure, solid foundations are being built to allow us to replicate for many more decades the success story featured by Soriana for the past 46 years and thus meet our established medium and long term strategic goals.

This year we made investments for more than 3 billion pesos, mainly on opening 16 new stores under the different store formats operated by the Company, which represented an increase of 2% in our sales floor area platform. We also continued with our aggressive store remodeling plan which started in 2013 in order to guarantee the service and quality of our facilities with our customers in mind. During the fiscal year that just ended, we carried out 17 major remodeling projects and more than 450 minor updates.

Likewise, in this 2014, we completed the construction of our new fresh and frozen product Distribution Center in the state of Nuevo León, which required a total investment of more than $450 million pesos. We foresee that, by the beginning of 2Q 2015, this DC will start operations with great benefits and ensuring the quality of fresh and frozen products that we offer to our customers and this will also bring important economic benefits to the Organization, through the distance optimization of trips made by our transportation network.

Fortunately and in addition to the aforementioned investments and despite the complicated economic environment, the Company was able not only to continue with its expansion plans, remodeling program and our transformation project, but to also reduce its total net debt to a zero balance. It was thus able to strengthen its balance sheet, as an introduction to the consolidation of its growth plans through acquisitions, which we are sure, will once again confirm Soriana’s leadership as the largest Mexican self-service store chain, which at this annual report edition closing has become a reality with the acquisition of 160 Comercial Mexicana stores.

We are convinced that the transformation path that we have chosen for our Company is the correct one. That is why investments aligned to this new business strategy, culture and image renewal were not only channeled outside our Company. But we also have invested in the growth and training of our people in an important and comprehensive manner. We are convinced that the changes applied to the exterior, is generated first inside Soriana. Thus, throughout 2014, we invested more than 350,000 man-hours of training, through a value crusade program of our Organization, seeking to create and guide in all that are part of this great company, a passion and total orientation to exceed our customers’ expectations, working as one same team with the same goals.

It is a pleasure to present the 2014 Annual Report of our Company. Undoubtedly, it has been a difficult year, marked by a strong reduction in consumption nationwide and by an economic slowdown that did not foster the growth in our sector, thus testing our capability to face a complex environment of high competitiveness.

dear shareholders

101010

more for less It is our most recent store format, which is focused on meeting a wide range of consumption needs through a 1,500sq. mts average sales floor area, carrying more than 8,200 SKUs distributed in an efficient and optimized stock in all categories.

always betterIt is our membership club, which offers our clients the best value for their membership, offering different products in institutional and multi-packaging sizes, perfect for businesses or high consumption families. This format has a sales floor area of approximately 8,000sq. mts.

IT’S BEST FOR YOUIt’s an innovative program of convenience stores that offer their customers the largest variety of brands and products with the purpose of meeting the needs of last minute purchases. It offers a different option in convenience stores with its own personality and characteristics.

closer to youIt was created with the objective of giving a better solution for the daily family purchases in a practical way, thanks to the efficient distribution of all its departments. It has a 2,500sq.mts which is optimum to find quality products; personalized customer service in an agile and pleasant environment.

126 105

139

STORES

STORES

STORES


store formats

more for less It is aimed to the population segment that seeks a shopping option focused on low prices on basic commodities. We offer the families a high competitive scheme in prices and promotions on a 4,500sq.mts average sales floor area. It has an efficient and optimized product variety in all its departments.

34

139

VARIETY AT THE BEST PRICE It is a store aimed to all the community. It operates under the scheme of hypermarkets with a 7,000sq. mts average sales floor area. Its main objective is to meet the consumption needs of our customers at a competitive price, where they can find all the products, services and novelties that will give them more variety and better assortment at a fair price in just one visit.

270STORES

STORES

STORES

12

STORES

674CenteR

36%SOUtH

19%nORtH

45%

southeast71

south55metropolitan

area

100west67

NORTh-pACIFIC95

north68 northeast

62

monterrey81

center75


presenceSoriana has lived an important development history for over 46 years. Nowadays, we have the opportunity to continue expanding the presence of our stores and reinforcing a leadership position in the Mexican retail sector. 2014 closed with a total of 674 stores in operation distributed throughout the Mexican Republic. The largest sales floor area concentration is located in the northern region of the country as it represents 51% from total coverage.

Sales floor area in 2014 increased by 2% with the opening of 16 new stores, besides incorporating the presence of our Company in one new city. With these openings we are currently present in 261 cities in the 32 states of the country.In the last 5 year the Company has managed to increase sales floor area by 12.6%.

Standing out from among relevant events in the year is the inauguration of the first hypermarket in the state of Morelos with which the format achieved total coverage in all the states of the Mexican Republic. We also inaugurated the first City Club in the state of Guanajuato, designating the city of Leon for such project.

2.3%inCRease in neW sToRes

2%IncreaSe In SaleS Floor area

261cItIeS

14

freshness at hand


WE OFFER FRESH AND FIRST-QUALITy PRODUCTS, SEEKING TO OPEN THE DOORS OF SATISFACTION TO ALL OUR CUSTOMERSStrategic actions and changes implemented in 2014 are supported by our transformation program which seeks to create a new corporate culture focused on satisfying our customers, building new technological capacities through the implementation of SAP system in all our business platform, to align strategic objectives and to invest in the renovation of the sales floor platform, particularly in operating equipment focused on guaranteeing the freshness and quality of the products.

As an action to achieve the foregoing, we started the construction in the north part of the country the new Distribution Center (CEDIS) for fresh and frozen products.

This DC will consist of first-world facility and infrastructure besides the most advance system technologies in refrigeration and fresh product handling.

Additionally, our DCs received ISO 9001 certifications, an international standard that seeks to meet all quality management elements with which a company must have in order to have an effective quality management system. Our DCs for Fresh Products are certified under the quality management system applicable to “Strategic Planning and Operational Improvement Processes for Receiving, Storing, Distributing and Delivering Fruits, Vegetables, Fresh Products, Frozen Products and Processed Meals”. Likewise, our DCs for Dry Products also obtained certification on quality management system applicable to “Strategic and Operational Processes for Receiving, Storing, Distributing and Delivering General Merchandise”.

These actions without a doubt shaped the new face of the Company and became part of the “Customer Satisfaction” work culture supported by the basic values of making customers visits to our stores to have a more enjoyable shopping experience, one-stop shopping with a well-stocked inventory of high quality products, a pleasant store environment and an excellent customer service.

DisTRibuTion centerS14

16

constant Kindness

46%oF our employeeS

aRe WoMen


OPENING THE DOORS OF TRUST THROUGH A FRIENDLy AND POLITE SERvICE AS A RESULT OF STRENGTHENING OUR VALUES PROGRAM

corporate changeIn 2014 we kicked off a transcendental corporate culture change by which we renovate ourselves in order to strengthen the 5 values of our Organization with the fundamental purpose of becoming role models of these values.

We held 3 out of 6 workshops through a “Crusade of values” with a total of 350,000 training hours as part of the program for all the organization throughout all hierarchical levels with the purpose of producing culture change, focusing actions on customers’ satisfaction, seeking better results and guaranteeing commitment with our Company.

committed to soriana With the purpose of encouraging our employees to continue accomplishing results and to impulse their commitment to the Company, we filled out more than 40% vacant positions in central offices with internal promotions. Likewise, we aligned efforts to boost several projects that contribute to the growth and development of our more than 80,000 employees. Each year we recognize the effort, commitment and loyalty of our employees to our Organization. By the end of 2014 we gave recognitions to over 5,800 collaborators for their 5 to even 45 years of service in the Company.

developing our peopleBy year end we held over 3 million 670 thousand hours of training to stores collaborators. Moreover, we supported over 460 employees through ‘Soriana University’ to start or resume their academic studies, making a total of 162 graduates in several academic levels.

83.884.9

85.780.9

85.3

COLLABOLATORS (ThOUSANDS)

2014

2012

2011

2010

18

2013

renovated customer satisfaction

+12 millionregular cuStomerS IdentIFIed tHrougH our loyalty card


OPENING THE WAy TO CUSTOMER SATISFACTION THROUGH THE DEVELOPMENT OF INNOVATIVE STRATEGIES

2014 marked a transcendental period in the history of Soriana. Part of our renewal process, which started 3 years ago, is now reflected to the exterior with our corporate image change and principal store formats.

This change responds to the need of reflecting the Company’s strategy to invest in positioning in the mind of the consumer as store known for its kind and warm collaborators and the offering of high quality products and services. We began the first stage of this makeover with the new stores of the year by changing their main front and in-door environment. These will continue with future growth plans. Likewise, current stores will be subjected to an image refurbishing process in line with the annual remodeling plans.

The first store inaugurated under this new image was “San Agustin” in Tlajomulco de Zuñiga municipality in the state of Jalisco. The new image is represented by the symbol of the heart with an S-shaped gap at the center which suggests the name of Soriana. The font used is friendlier and the red and green colors represent the values of our people and quality of the products and services we offer.

Our commercial efforts in the year included a campaign to reduce prices in over 15,000 products. This initiative seeks to support family expenses by offering greater product variety at more affordable prices.

The campaign was supported by our private brand products, which have been developed for over 24 years and today we have more than 2,300 exclusive brand products such as: Soriana, valley Foods, Alway Save, Pro Selection, Old Style, Quality Day, Auto vid, Borque, Maria 1926, among others.

Our loyalty program is a commercial and promotional strategy seeking to earn the preference of customers by giving them experiences and rewards favoring family economy in every visit. Besides product promotions offering additional points, in 2014 we worked on enhancing these benefits by increasing the number of products that can be purchased at no cost in exchange for the points accumulated in past purchases. Additionally, we offer exclusive promotions every day to customers who use our loyalty program so that they can constantly obtain savings.

Finally, with the purpose of offering better service and purchasing experience, we renovated the system of our current Home Delivery Service platform by improving its image and functionality with a friendlier browsing and easier description of conditions, brochure inquiry, along with other improvements.

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reliable profitability


ALL EFFORTS WE HAvE SUSTAINED IN THE LAST yEARS CONFIRM THE LONG-TERM vISION OF OUR BUSINESS STRATEGy, ENABLING US TO OPEN NEW WAyS TOWARD THE CONSOLIDATION AND FUTURE GROWTH OF SORIANA AS A LEADING, HIGHLy-COMPETITIvE AND PROFITABLE COMPANy IN THE COUNTRy

This year without a doubt was year full of challenges and learning since the generalized consumption cutback in the country was one of the main factors affecting performance not only of the Company but the retail sector in general.

However, despite the complicated economic environment and aggressive increase of the commercial offering from the competition, today we are convinced of the strength of our price strategy and appropriate management of the promotional investment which we seek to always be accompanied by an adequate response to the elasticity of demand of the products we offer.

The foregoing enabled us to gradually regain customer traffic in our stores. Together with a better promotional management, it enabled gross margin increase by 90 basis points which in part compensated the negative deleverage effect due to a decrease in same store sales indicator.

Total CAPEX of the year amounted to $3.030 billion pesos and was mainly invested to the opening 16 stores: 9 hypermarket units, 4 supermarkets, 2 Soriana Express and 1 City Club. Likewise, we had a major refurbishing of 17 units and an upgrade of over 450 stores nationwide. We also invested in improving the distribution network and technological infrastructure with the purpose of supporting the future growth of Soriana.

Additionally, we should point out the decrease to zero balance of the net debt of the Company which equals to a Net Debt/EBITDA ratio of -0.38 x. Enabling us to have a better financial position to continue with the growth and consolidation plans the Organization is currently carrying out.

16 neW sToRes durIng 2014 $0 balanCe in THe CoMPany

neT DebT

22

Growthsustainable

34%oF our StoreS receIve ReneWable eneRgy

10 yearsoF soCial ResPonsibiliTy aCTions In SorIana FundacIon

$102.5$87.5

$92.8$74.0

$88.8

SOCIAL INVESTmENT (mILLIONS)

2014

2013

2012

2011

2010


UNDER THE ONGOING vISION TO POSITIvELy TRANSFORM OUR ENVIRONMENT, WE OPENED NEW FUTURE GROWTH POSSIBILITIESIn Organizacion Soriana we are committed to the community and the environment. We know that the way we live, work and relate to each other determines our quality of life and the effect we cause to the environment. As part of our Sustainability Policy we executed an important number of actions that contribute every day to achieve defined goals. Some of them are: the integration of 173 stores to wind power supply provided by wind farms located in the states of Tamaulipas and Oaxaca; the installation of solar panels in 7 stores in the state of Baja California; replacement of current lighting in store parking lots with LED technology, installation of intelligent meters with remote communication capacity to monitor operation from central offices and obtain power and water consumption information to implement energy-efficient strategies. The implementation of pilot tests for rainwater harvesting in Mexico City stores, among other actions.

From among the savings obtained form the stores in relation to power, water and pollution emissions we should point out we had a 4.61% saving in power consumption, taking the year 2011 as reference. Power saved is equivalent to the power required to supply 15,943 homes in 1 year. In relation to water, we had a 6.62% consumption decrease equivalent to the water required to supply 354 families of 5 members in a year. Finally, regarding pollution emissions, we prevented the emission of 174,440 tons of CO

2 equivalent to 22.66% decrease with respect to 2011 baseline.

With reference to the recycling program “ReSiCla” implemented in stores, we collected more than 236 thousand kilos of material such as paper, aluminum, plastic and glass. Concerning the certified recycling program, we recycled 73,862 tons of solid waste thus prevented 1,148,868 trees from being cut down, burning 97,653 barrels of oil, using 372,426m3 of landfill and consuming 378,506 Mw-hr of electric power. Likewise, we collected in the year more than 3,653,000 batteries through our Used Batteries Drop-Off Locations in-stores.

We performed great actions through “Soriana Fundacion” to strengthen social responsibility activities of the Company and our commitment to the community. Social investment this year amounted to $102.5 million pesos and benefitted 427,813 persons through 410 charity institutions located in 238 cities where Soriana is present. Allocation of the foregoing funds was mainly intended to contribute to improving and enhancing the health and education sectors, support seniors citizens, promote culture, give aid upon natural disasters and promote integral development of children in Mexico.

PROPIETARY SECRETARY Gustavo Armando Robles Luque

ALTERNATE SECRETARY María Enriqueta García Farfán

AUDIT AND CORPORATE COVERNANCE COMMITTEE

PRESIDENT Ernesto Icazbalceta Lerma*

SECRETARY Guillermo Torre López*

MEMBER Gerardo José Maldonado Rodríguez*

25SORIANA ANNuAl RepORt 2014

EXECUTIVE OFFICERS

RICARDO MARTíN BRINgASChief Executive Officer

CHAIRMAN Francisco Javier Martín Bringas

ALTERNATE CHAIRMAN Ricardo Martín Bringas

BOARD OF DIRECTORS

DIRECTORS Francisco Javier Martín BringasCarlos Eduardo Martín BringasGerardo Martín SoberónAlberto Martín Soberón +Roberto Tohmé Valenzuela*Guillermo Torre López*María Rosa Martín SoberónAna María Martín Bringas

ALTERNATE DIRECTORS Ricardo Martín BringasMaría Teresa Martín BringasPedro Luis Martín Bringas Armando Martín SoberónGerardo José Maldonado Rodríguez*Alejandro Córdoba Ruíz*Juan José Martín BringasErnesto Icazbalceta Lerma*

ISMAEL HUMBERTO FAYAD WOLFFDirector, Hypermarkets & Supermarkets

FRANCISCO RAMíREz DíAzDirector, Markets & Express

YUSEF ATIYEH NAVARRODirector, Real Estate

LUIS gIRARD DE LA LASTRADirector Logistics, Distribution & T Proyect

FEDERICO gUITARTE DELgADODirector, Human Resources

* Independent Board Members+ Deceased in March, 2015. RIP.

24

SERgIO FERNANDO MARTíNEz SAN gERMáNChief Information Technology and Administration Officer

RICARDO PERERA TORRES SEPTIENDirector, City Club & Super City

AURELIO OSCAR ADáN HERNáNDEzChief Financial Officer

RODRIgO JESúS BENET CóRDOVADirector, Strategic Planning and Communications

JOSé LUIS gONzáLEz FLORESDirector, Audit

As of December 31, 2014 and 2013.

OrganizaciOn SOriana, S. a. B. de c. V. and SuBSidiarieS

TaBle Of cOnTenTSIndependent AudItors’ report 31

ConsolIdAted stAtements of fInAnCIAl posItIon 32

ConsolIdAted stAtements of profIt And other ComprehensIve InCome 33

ConsolIdAted stAtements of ChAnges In stoCkholders’ equIty 34

ConsolIdAted stAtements of CAsh flows 36

notes to ConsolIdAted fInAnCIAl stAtements 37

cOnSOlidaTed financial STaTemenTS

26


SORIANA RepORt ANNUAL 2014

auditing and corporate Practices committee report

march 6, 2015

BOard Of direcTOrS OfOrganización SOriana, S. a. B. de c. V.

In my capacity as Chairman of the Auditing and Corporate practices Committee and in compliance with the duties set forth in Article 43 of the securities exchange Act relative to issuing an annual report about the activities carried out by this Committee, (the Committee), focused on achieving a better performance of organización soriana, s.A.B. de C.v, (the Company), for the year ending on the 31st of december 2014, I would like to present the following summary of the activities performed:

I. AudIt-relAted ActIvItIesa) the activities carried out by the Committee were performed in a complete independent manner, in strict compliance

with provisions set forth in the securities exchange Act, as well as with the recommendations provided for in the Best Corporate practices Code.

b) we reviewed the internal control system status, and we thoroughly analyzed the reports issued by the internal audit based on their work program, as well as the outcome of the activities carried out by the external auditor, reporting and following-up the implemented preventive and corrective measures, ratifying that the Company works under adequate control and auditing systems.

c) we evaluated the performance of the external auditors, galaz, yamazaki, ruiz urquiza, s. C. (member of deloitte Touche Tohmatsu), who are responsible for issuing an opinion on the reasonableness of the figures included in the financial statements of the entity and that they were written based on the IFRS (International Financial Reporting standard). Considering their proven technical capacity, as well as their acceptable professional and independent performance, we recommend that the Board of Directors assigns them to audit and issue the report on the financial statements of the Company and its subsidiaries for fiscal year 2014. Likewise, in such assessment we analyzed and recommended respective approval of fee proposal for the 2014 audit presented by galaz, yamazaki, ruiz urquiza, s. C. (member of deloitte touche tohmatsu limited) for the fy 2014 external audit services.

d) In compliance with provisions of Article 343 of the securities market Act and Article 83 paragraph X of the general provisions applicable to securities issuers, we approved the appointment of the new member from galaz, yamazaki, ruiz urquiza, s. C. (member of deloitte touche tohmatsu limited) to be in charge of performing the external audit to the Company for fy 2014.

e) We reviewed the financial statements for the year ending on December 31, 2014 of Organización Soriana, S.A.B. de C.V. and its subsidiaries and analyzed the opinion issued on said financial statements and comments thereof with the external auditors of the Company.

f) follow-up to the implementation and correction of the items observed by galaz, yamazaki, ruiz urquiza, s. C. (mem-ber of Deloitte Touche Tohmatsu Limited) was provided in regard to the findings for improvement in the internal control of the Corporation corresponding to the fy 2013 audit observation report.

g) We held several meetings to review the financial information of the quarters to be issued to the Mexican Stock Exchange and the annual financial information. We checked for consistency with accounting policies and criteria as well as compliance with new amendments to Ifrs during the year, provided comments we deemed necessary and authorized the publication of said financial information.

h) follow-up to the implementation of the procurement and Commercial modules of the sAp It system was assessed in order to guarantee its correct integration to the administration modules, making sure that the Company did not have incidents during its management, and that the internal controls were duly guaranteed with solid accounting records and financial data.

29

OrganizaciOn SOriana, S. a. B. de c. V. and SuBSidiarieS OrganizaciOn SOriana, S. a. B. de c. V. and SuBSidiarieS


We have audited the accompanying consolidated financial statements of Organización Soriana, S. A. B. de C. V. and Subsidiaries (the Company), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the consolidated statements of profit and other comprehensive income, changes in stockholders’ equity and of cash flows for the years ended December 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory information.

managemenT’S reSPOnSiBiliTy fOr The cOnSOlidaTed financial STaTemenTSManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International financial reporting standards, as issued by the International Accounting standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated finan-cial statements that are free from material misstatement, whether due to fraud or error.

audiTOr´S reSPOnSiBiliTyOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with International standards on Auditing. those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company´s preparation and fair presentation of the consolidated financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPiniOnIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Or-ganización Soriana, S. A. B. de C. V. and Subsidiaries as of December 31, 2014 and 2013, and their financial performance and their cash flows for the years ended, in accordance with International Financial Reporting Standards, as issued by the International Accounting standards Board.

OTher maTTerThe accompanying consolidated financial statements have been translated into English for the convenience of readers.

galaz, yamazaki, ruiz urquiza, S. c.member of deloitte touche tohmatsu limited

c.P.c. agustín martínez Tamezmarch 6, 2015

independent auditors’ report to the Board of directors and Stockholders of Organización Soriana, S. a. B. de c. V.

i) We held several meetings to analyze and evaluate the long term business strategy and the main investment and finan-cing policies, highlighting the most relevant items assessed by this Committee, the analysis of the project to acquire a substantial part of Controladora Comercial mexicana, s.A.B. de C.v., assessing on a parallel basis possible alternatives of sources of financing for such operation.

j) We took a close monitoring to the resolutions made at the Shareholders’ and members of the Board meetings.

k) we assessed the Company has the internal and external mechanisms that allow to ensure and comply with the laws and regulations that apply.

l) Were identified and followed up the contingencies and legal proceedings as well as trials and litigation that are in process, and the result of the concluded ones.

m) were reviewed the procedures in order to receiving and handle complaints regarding accounting, administrative, internal control and audit aspects, including the presentation of confidential complaints of the personnel regarding doubtable accounting or auditing practices.

ii. acTiViTieS relaTed TO cOrPOraTe PracTiceS1. we requested and were informed about the processes to evaluate the performance of relevant directors.

2. we were informed about the operations performed with related parties, monitoring their transparency in strict com-pliance with the normal operational business practices, and that they were properly shown in the audited financial statements of the Company.

3. we reviewed the policies regarding the use of Company assets.

4. We analyzed proposals and final results of reviews to Union Agreements with the several unions in the cities with unionized personnel.

5. We reviewed the emolument package of the Chief Executive Officer, as well as those of relevant directors and mana-gers, according to what is described in the audited financial statements of the Company.

6. there were no dispensations granted by the Board of directors in regard to the provisions set forth in Article 28, paragraph III, subsection f) of the securities exchange law.

7. we followed up to the resolutions adopted at the general shareholders’ meetings and in the session of the Board of directors.

Based on the above statements and based on the report issued by the external auditors, the Committee has determi-ned that organización soriana, s. A. B. de C. v. and its subsidiaries have performed their duties in an adequate corpora-te governance environment and that its financial information is presented in a reasonable manner, and so we strongly make the recommendation to the Board of Directors that the financial statements of the fiscal year ending on the 31st of december 2014 be submitted to the Annual shareholders’ Assembly for their approval.

Sincerely yours,

ernesto icazbalceta lerma Chairman of the Auditing and Corporate practices Committee

3130



2014 2013

aSSeTScurrenT aSSeTS:

CASh AnD CASh EqUIVALEnTS (nOTE 6) $ 2,672,849 $ 1,665,950

TRADE ACCOUnTS RECEIVABLE, nET (nOTE 7) 2,843,959 4,037,724

OThER ACCOUnTS RECEIVABLE (nOTE 7) 2,917,190 3,001,853

InVEnTORIES (nOTE 8) 16,144,564 15,003,130

TOTal currenT aSSeTS 24,578,562 23,708,657PROPERTy, FURnITURE AnD EqUIPMEnT, nET (nOTE 9) 44,648,398 43,768,910

InTAngIBLE ASSETS, nET (nOTE 10) 10,543,692 10,567,846

Investments In shAres 866,633 820,246

other Assets 82,556 86,722

TOTal aSSeTS $ 80,719,841 $ 78,952,381

liaBiliTieS and STOcKhOlderS’ eQuiTy short-term lIAbIlItIes:

trAde ACCounts pAyABle $ 19,807,305 $ 18,907,587

DEBT SECURITIES AnD ShORT-TERM DEBT (nOTE 14) 1,948,391

OThER ACCOUnTS PAyABLE (nOTE 15) 2,485,144 2,708,251

totAl short-term lIAbIlItIes 22,292,449 23,564,229NoN-curreNt lIAbIlItIes:

LOng-TERM DEBT (nOTE 14) 1,130,528 1,005,426

EMPLOyEE BEnEFITS (nOTE 16) 365,839 333,395

DEFERRED InCOME TAx (nOTE 20) 8,605,826 8,684,233

OThER LIABILITIES (nOTE 11) 1,924,717 1,965,395

totAl loNg-term lIAbIlItIes 12,026,910 11,988,449

TOTal liaBiliTieS 34,319,359 35,552,678

COMMITMEnTS AnD COnTIngEnCIES (nOTE 21)

stockholders’ equIty (Note 17):

CApItAl stoCk 1,253,121 1,253,121

ADDITIOnAL PAID-In CAPITAL 976,729 976,684

PAId-IN cAPItAl 2,229,850 2,229,805reserve for repurChAse of shAres 550,201 550,201

retAIned eArnIngs 39,938,200 37,520,781

ConsolIdAted net InCome of the yeAr 3,703,663 3,117,193

other ComprehensIve InCome (21,432) (18,277)

TOTal STOcKhOlderS’ eQuiTy 46,400,482 43,399,703

TOTal liaBiliTieS and STOcKhOlderS’ eQuiTy $ 80,719,841 $ 78,952,381

the ACCompAnyIng notes Are An IntegrAl pArt of these ConsolIdAted fInAnCIAl stAtements.

lic. Sergio fernando martínez San germán Chief Administrative Officer

c.P. Jorge alberto reyes mora Chief Controller

2014 2013net sAles $ 99,617,002 $ 102,853,412

OThER REVEnUES (nOTE 18) 2,212,044 2,174,329

totAl revenues 101,829,046 105,027,741

Cost of sAles (79,338,411) (82,798,987)

grOSS PrOfiT 22,490,635 22,228,754

generAl eXpenses (17,513,749) (16,670,643)

OPeraTing PrOfiT 4,976,886 5,558,111

InTEREST ExPEnSE, nET (nOTE 19) (463,733) (276,257)

equIty In InCome of AssoCIAtes And joInt ventures 65,104 43,839

incOme BefOre Tax PrOViSiOnS 4,578,257 5,325,693

InCOME TAx PROVISIOn (nOTE 20):

Current InCome tAX eXpense (953,001) (984,100)

DEFERRED InCOME TAx BEnEFIT (ExPEnSE) 78,407 (1,224,400)

(874,594) (2,208,500)

cOnSOlidaTed neT incOme fOr The year 3,703,663 3,117,193

other ComprehensIve InCome:

Item thAt wIll not Be reClAssIfIed to ConsolIdAted net InCome:

remeAsurement of defIned BenefIt oBlIgAtIon (3,155) 12,223

TOTal cOnSOlidaTed cOmPrehenSiVe incOme $ 3,700,508 $ 3,129,416eArNINgs Per shAre IN mexIcAN Pesos (Note 4N ANd Note 17) $ 2.06 $ 1.74




cOnSOlidaTed STaTemenTS Of financial POSiTiOn As of December 31, 2014 AnD 2013(In thousands of Mexican pesos)

cOnSOlidaTed STaTemenTS Of PrOfiT and OTher cOmPrehenSiVe incOmefor the yeArs enDeD December 31, 2014 AnD 2013(In thousands of Mexican pesos)

3332



capital Stock additional Paid-in capital

reserve for repurchase of Shares retained earnings consolidated net

income of the year Other comprehensive income Total Shockholders’ equity

BAlAnCes As of jAnuAry 1, 2013 $ 1,253,121 $ 977,269 $ 550,201 $ 33,963,364 $ 3,557,417 ($ 30,500) $ 40,270,872

trAnsfer of prIor yeAr’s result 3,557,417 (3,557,417)

ComprehensIve net InCome 3,117,193 12,223 3,129,416

other stoCkholders’ equIty ACCounts (585) (585)

BalanceS aS Of decemBer 31, 2013 1,253,121 976,684 550,201 37,520,781 3,117,193 (18,277) 43,399,703

trAnsfer of prIor yeAr’s result 3,117,193 (3,117,193)

ComprehensIve net InCome 3,703,663 (3,155) 3,700,508

dIvIdends pAId (699,774) (699,774)

other stoCkholders’ equIty ACCounts 45 45

bAlANces As of december 31, 2014 (Note17) $ 1,253,121 $ 976,729 $ 550,201 $ 39,938,200 $ 3,703,663 ($ 21,432) $ 46,400,482




cOnSOlidaTed STaTemenTS Of changeS in STOcKhOlderS’ eQuiTy for the yeArs enDeD December 31, 2014 AnD 2013(In thousands of Mexican pesos)

3534



1. acTiViTieSorganización soriana, s. A. B. de C. v. and subsidiaries (soriana or the Company), is a commercial retail in mexico with 100% mexican capital. founded in 1968, soriana operates several formats of supermarket stores and markets a wide variety of food, clothing, general merchandise, health products and basic household services under retail, medium who-lesale and wholesale schemes. the shares representing soriana’s capital stock are listed on the mexican stock exchange (BMV) since 1987, under the ticker symbol SORIAnA. The address of Soriana´s corporate headquartes is Alejandro de rodas. 3102-A, Col. Cumbres 8° sector, C.p. 64610, monterrey, n.l., mexico.

In order to consolidate its position, soriana has an ongoing growth program and is considered one of mexico’s largest employers. soriana ended 2014 with a presence in 261 cities among the 32 states of mexico and 3.2 million square meters of sales floor distributed through its five store formats. As of the close of 2014, Soriana has a total of 674 stores in the following formats: 270 hyper, 139 markets, 126 super, 105 express and 34 City Club.

soriana also operates 139 convenience stores under the name of super City in a combined regime of own stores and franchises; furthermore, the Company performs real estate business activities comprising leases of commercial premi-ses adjacent to each store as part of the commercial area, and conducts commercial developments.

soriana maintains a strategic alliance with Banamex in servicios financieros soriana, s.A.p.I. de C.v., sociedad financiera de Objeto Múltiple, a regulated company, called SORIBAn, and owns 50% minus one share of its capital stock. SORIBAn is a financial institution that provides various financial products of added value to customers visiting Soriana`s stores. Currently, the product portfolio of sorIBAn includes basically credit cards.

the term the “Company” as used herein, refers to soriana together with its consolidated subsidiaries.

2. SuBSeQuenT eVenTon january 28, 2015, the Company announced that it had reached an agreement with Controladora Comercial mexi-cana, s.A.B. de C.v. (CCm) in order to acquire a substantial part of CCm´s operations, which would include 160 stores, related to the formats Comercial mexicana, mega, Bodega Comercial mexicana and Alprecio. the agreed price for this transaction is $39,193.7 million Mexican pesos. It has also been agreed that CCM`s labor force of more than 21,300 employees would become employees of soriana.

This transaction is subject to certain contractual conditions, corporate approvals and also approvals from the Federal Competition Commission, (CofeCe) and the national Banking and securities Commission (CnBv). these authorizations will define the precise date on which the transaction could be performed.

3. BaSiS Of PreSenTaTiOna. BaSiS Of PreSenTaTiOn new and revised ifrSs affecting amounts reported and/or disclosures in the financial statementsIn the current year, the Company has applied a number of new and revised International financial reporting standards (IFRSs) issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after january 1, 2014. amendments to ifrS 10, ifrS 12 and iaS 27 Investment Entities amendments to iaS 32 Offsetting Financial Assets and Financial Liabilities amendments to iaS 36 Recoverable Amount Disclosures for Non-Financial Assets amendments to iaS 39 Novation of Derivatives and Continuation of Hedge Accounting ifric 21 Levies The application of these amendments did not have an impact on the Company´s consolidated financial statements.

2014 2013

caSh flOWS frOm OPeraTing acTiViTieS:InCome Before InCome tAXes provIsIons $ 4,578,257 $ 5,325,693

adJuSTmenT fOr:

depreCIAtIon And AmortIzAtIon 2,083,414 1,975,744

loss on sAle of furnIture And equIpment (91,332) 35,674

equIty InCome of AssoCIAtes And joInt ventures (65,104) (43,839)

other 255,427 7,615

Interest eXpense 312,912 450,908

7,073,574 7,751,795

changeS in WOrKing caPiTal:

trAde ACCounts reCeIvABle 1,193,765 (867,524)

InventorIes (1,141,434) (1,488,089)

trAde ACCounts pAyABle 769,226 1,073,787

other ACCounts reCeIvABle And AdvAnCe pAyments (870,426) (1,249,430)

other ACCounts pAyABle 1,137,126 956,403

InCome tAXes pAId (1,357,992) (954,575)

neT caSh PrOVided By OPeraTing acTiViTieS 6,803,839 5,222,367

caSh flOWS frOm inVeSTing acTiViTieS:ACquIsItIon of property, furnIture And equIpment, And IntAngIBle Assets

(3,030,080) (3,656,673)

proCeeds from sAle of furnIture And equIpment 182,664 39,304

Investment In shAres 18,716 (23,951)

neT caSh uSed in inVeSTing acTiViTieS (2,828,700) (3,641,320)

caSh flOWS frOm financing acTiViTieS:proCeeds from BorrowIngs 36,230,000 65,240,699

repAyment of BorrowIngs (38,180,000) (66,036,609)

Interest pAId (90,490) (219,667)

other (2,988) (4,103)

pAyments for ACquIsItIon of property under fInAnCe leAses (224,988) (230,424)

dIvIdends pAId (699,774)

neT caSh uSed in financing acTiViTieS (2,968,240) (1,250,104)

neT increaSe in caSh and caSh eQuiValenTS 1,006,899 330,943

CAsh And CAsh equIvAlents At the BegInnIng of the yeAr 1,665,950 1,335,007

caSh and caSh eQuiValenTS aT The end Of The year $ 2,672,849 $ 1,665,950

the AccompAnying notes Are An integrAl pArt of these consoliDAteD finAnciAl stAtements.

nOTeS TO cOnSOlidaTed financial STaTemenTSfor the yeArs enDeD December 31, 2014 AnD 2013(In thousands of Mexican pesos)

cOnSOlidaTed STaTemenTS Of caSh flOWS for the yeArs enDeD December 31, 2014 AnD 2013 (In thousands of Mexican pesos)



3736



f. funcTiOnal currency The amounts included in the financial statements of each one of the Companies composing Soriana are measured using the primary economic environment currency where each entity operates; i.e. their functional currency. the consolidated financial statements are presented in Mexican pesos and have been rounded up to thousands, unless the contrary is specified. The Company’s functional currency is the Mexican peso.

4. SignificanT accOunTing POlicieSThe most significant accounting policies followed by the Company are summarized as follows:

a. caSh and caSh eQuiValenTS

Cash equivalents consist mainly of short-term bank deposits and investments that are readily convertible to cash, subject to a low risk of material changes in value. Cash is stated at nominal value and cash equivalents are valued at fair value. the differences between the value at the date of the investment and at the date of the consolidated statement of financial position are recognized in the consolidated statements of profit and other comprehensive income as financial income.

B. financial inSTrumenTS financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabili-ties, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

financial assetsFinancial assets are initially classified, depending on the nature and purpose of the financial assets, into the following categories and it is determined at initial recognition: i) financial assets ‘at fair value with changes through profit or loss’ (FVTPL), ii) ‘held-to-maturity’ investments, iii) ‘available-for-sale’ (AFS) financial assets, and iv) ‘loans and receivables’.

The Company only has financial assets classified as trade accounts receivable, based on fixed or determinable payments, which are not traded in an active market. They are valued at amortized cost using the effective interest method, less any impairment. Interest income is recognized applying the effective interest rate, except for short-term accounts receiva-ble in case the interest recognition is insignificant.

The effective interest method is a method to calculate the amortized cost of a financial instrument and to allocate fi-nancial income or cost during the relevant period. The effective interest rate is the rate that discounts estimated future cash inflows (including all fees and basis points paid or received that are a comprehensive part of the effective interest rate, transaction costs and other premiums or discounts) during the expected life of the financial asset or liability or, where appropriate, a shorter period. such amount represents the carrying amount upon initial recognition.

Financial assets are subject to impairment tests at the end of each reporting period. The impairment of trade accou-nts receivable is recognized reducing the asset value through an allowance for doubtful accounts. when an account receivable is deemed uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

derecognition of financial assetsThe Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

new and revised ifrSs in issue but not yet effectiveThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective: Ifrs 9 financial Instruments Ifrs 15 revenue from Contracts with Customers Amendments to Ifrs 11 Accounting for Acquisitions of Interests in joint operations Amendments to IAS 16 IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization

From the listing of IFRSs mentioned above, Company`s management is in the process of evaluating the potential im-pacts arising from the adoption of the applicable standards described below.

ifrS 9 financial instrumentsIFRS 9 was issued in July 2014 mainly to include a) impairment requirements for financial assets and b) limited amend-ments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (fvtoCI) measurement category for certain simple debt instruments.

ifrS 15 revenue from contracts with customers In may 2014, Ifrs 15 was issued which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Ifrs 15 will supersede the current revenue recognition guidance inclu-ding IAS 18 revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

Under IFRS 15, a Company recognizes revenue when a performance obligation is satisfied, when control of the goods or services underlying the particular performance obligation is transferred to the costumer.

B. STaTemenT Of cOmPliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Stan-dardsas issued by the IAsB and that are mandatory at december 31, 2014.

c. BaSiS Of meaSuremenT The consolidated financial statements of the company have been prepared on the historical cost basis. i. historical cost historical cost is generally based on the fair value of the consideration given in exchange for assets.

ii. fair valuefair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction bet-ween market participants at the measurement date, regardless of whether that price is directly observable or estima-ted using another valuation technique.

d. claSSificaTiOn Of cOSTS and exPenSeS Costs and expenses presented in the consolidated statements of profit and other comprehensive income were classi-fied based on their function; therefore, cost of sales was separated from the remaining general costs and expenses as well as the operating income, which allows a better understanding of the operational performance of the business.

e. BaSiS Of cOnSOlidaTiOn The consolidated financial statements incorporate the financial statements of the Soriana and its subsidiaries contro-lled by it. Control in compliance with Ifrs 10 Consolidated financial statements, is achieved when soriana:• has power over the investee;• Is exposed, or has rights, to variable returns from its involvement with the investee; and• has the ability to use its power to affect its returns.

the Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are chan-ges to one or more of the three elements of control listed above.

the main subsidiaries of soriana are:• Tiendas Soriana, S. A. de C. V. (operator of retail stores)• Service companies that group several entities.• Companies in the real estate sector that comprise several entities.

For consolidation purposes, all balance and transaction between affiliated companies have been eliminated.

3938



financial liabilities are initially valued at fair value. the transaction costs that are directly attributable to the acquisition or issuance of financial liabilities (other than financial liabilities at fair value with changes in earnings) are added to or deduc-ted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributa-ble to the acquisition of financial liabilities at fair value with changes in earnings are immediately recognized in earnings.

the Company’s financial liabilities include trade accounts payable, other accounts payable, debt, and financial lease obligations.

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position if, and only if the Company: i) has a legal right to offset such amounts, and ii) intends to settle upon realizing the asset and liability simultaneously.

derecognition of financial liabilitiesThe Company derecognizes financial liabilities when, and only when, the Company obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the considera-tion paid and payable is recognized in profit or loss.

c. inVenTOrieS and cOST Of SaleS Inventories are recorded at acquisition cost and are valued at average cost determined through the perpetual inventory method.

Cost of sales is stated at average cost of the dates on which the sales were made.

purchase allowances obtained from suppliers are recognized as part of the value of the inventory and recorded as a reduction in cost of sales as the goods for which the allowance is earned are sold.

d. PrOPerTy, furniTure and eQuiPmenT, neT the Company records its property, furniture and equipment at historical cost and is presented net of its accumulated depreciation and any accumulated loss for impairment.

depreciation is calculated using the straight-line method considering the residual value based on the useful lives of the assets estimated by the Company, in order to depreciate separately each of the items of property, furniture and equipment that have a significant cost in relation to the total cost of the item (components). The estimated useful lives for the Company’s assets are as follows:

BuildingS:

structure 80 years

hydro-sanitary and electric installations and data network 25 years

finishing work 15 years

furniture and equipment 3 to 15 years

vehicles 3 to 12 years

leasehold improvements the shorter of either the useful life of the assets or the related lease term.

The estimated useful lives, residual values and depreciation method are reviewed at year, and the effect of any change in the allowance recorded is recognized prospectively.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are as-sets that necessarily take a substantial period of time to get ready for their intended use are added to the cost of those assets during the construction stage and until their operation and / or exploitation commences. Income earned on the temporary investment of specific borrowings to be used in qualifying assets is deducted from the borrowing costs eligible to be qualified. All other borrowing costs are recognized in earnings in the period in which they are incurred.

Assets held under finance leases are depreciated according to the related lease term considering the existing renewals in the contract.

the gain or loss arising from the sale or retirement of an item of property, furniture and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the results of the period.

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties are measured initially at historical cost, including transaction costs and are implicit in the items of land and buildings, as the same historical cost policy is used in both cases.

e. inVeSTmenTS in aSSOciaTeS and JOinT VenTureS An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an inter-est in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but it does not imply control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results, assets and liabilities of associates and joint ventures are incorporated to the Company’s consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates and joint ventures are initially recognized in the consolidated statement of financial position at cost, adjusted for changes subsequent to the acquisition for the Company’s interest in the associate company and joint ventures net assets, less any impairment in the individual value of the investments. losses of an associate company in excess of the Company’s interest therein are recognized provided the Company has incurred any legal or constructive obligations or has made payments on behalf of the associate and joint ventures.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized and joint ventures at the acquisition date is recognized as good-will. goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in earnings.

the requirements of IAs 39, Recognition and Measurement, are applied to determine whether it is necessary to recogni-ze any impairment loss with respect to the Company’s investment in an associate and joint ventures. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAs 36 Impairment of Assets as a single asset, comparing its recoverable amount (higher of value in use and fair value less costs of sale) with its carrying amount. Any impairment loss recognized is part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with IAs 36 to the extent that the recoverable amount of the investment subsequently increases.

When the Company conducts transactions with an associated company and joint ventures, unrealized profits and losses are eliminated to the proportion of the Company’s interests in such associated company and joint ventures.

The share of the profit or loss of the joint venture SORIBAn for the year ended December 31, 2014 and 2013 amounts to a profit of $65,104 and a loss of $43,839, respectively.

f. inTangiBle aSSeTS The Company classifies intangible assets according to their estimated useful life in two types: indefinite and defined lives.

Intangible assets with in definitive useful live are recorded at acquisition cost. The rights on lease contracts have been classified as intangible assets with indefinite useful life.

The Company records intangible assets with definite useful lives at cost less accumulated amortization. Acquired software is measured at cost less accumulated amortization. expenditures for software acquisition and development are capitalized when classified as development activities and generate future economic benefits for the Company and can be measured reliably otherwise they are recognized in the consolidated statement of profit and other comprehensive income when in-curred. The amortization related to intangible assets is included in operating expenses. Intangible assets with defined lives are amortized using the straight-line method over the estimated useful lives determined by the Company. such amortiza-tion is recorded under general expenses.

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For purposes of impairment tests, intangible assets with indefinite useful lives mainly represented by the assignment of lease agreement rights were allocated to the segment of supermarket stores. the following factors are considered in the evaluation of the recoverable value for purposes of impairment tests:

• Perpetual growth rate estimated based on the inflation of the economy where the Company operates.• The discount rate based on the weighted capital cost and the market participants’ variables to be considered.• Size of the market where the supermarket stores operates for recoverable value estimate purposes. • Behavior of primary costs of raw materials and input, and the necessary expenses to maintain fixed assets in condi-tions to be used. • Future cash flows discounted at present value based on financial projection of a perpetuity value, considering estima-tes at the valuation date based on the budged approved by the Company´s management, which include the last trends known in supermarket stores and in the industry.

g. imPairmenT Of TangiBle and inTangiBle aSSeTS the Company reviews the carrying amounts of long-lived assets in use when an impairment indicator suggests that such amounts might not be recoverable, considering the greater of the present value of future net cash flows or the net sa-les price upon disposal. Impairment is recorded when the carrying amounts exceed the greater of the aforementioned amounts of the Company’s cash generating units.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is a sign that the asset may be impaired.

recoverable amount is the higher of fair value less costs to sell it and the value in use. In assessing value in use, the esti-mated future cash flows are discounted at their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in earnings.

when an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increa-sed to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in earnings.

under IAs 36, Impairment of Assets, the Company identifies the possible impairment of intangible assets with indefinite useful lives using the present value methodology, considering the cash generating unit at the operating segment level established by the Company in accordance with Ifrs 8, Operating Segments.

h. leaSingLease agreements are classified as financial leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

under IAs 17, Leases, the Company classifies its property leases as financial or operating, mainly assessing the principles established in such standard. the most relevant guidelines in the Company’s leases are as follows:

i. the lease term covers most of the economic life of the asset, even if ownership is not transferred at the end of the transaction;

ii. At the inception of the lease agreement, the present value of the minimum lease payments is substantially equivalent to the fair value of the leased asset;

iii. If the lessee can cancel the lease agreement, and the lessor’s losses associated with the cancellation are borne by the lessee. The company as a lessee:Assets held under finance leases are recognized as assets of the Company at the lower of the fair value at the inception of the lease or the present value of the minimum lease payments determined using the interest rate implicit in the lea-se if it is feasible to be determined or the incremental rate of a loan with similar conditions, amortized and depreciated according to the term of the lease agreement considering its respective renewals.

The corresponding liability to the lessee is included in the consolidated statement of financial position as a finance lease obligation, and is presented under the item of other long-term liabilities.

Lease payments are apportioned between financial expenses and the reduction of the lease obligations so as to achieve a constant interest rate on the remaining balance of the liability. financial expenses are directly charged to results, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company´s policy on borrowing costs (see note 4d). Contingent rentals related to sale percentages or adjustments for inflation are recognized as expenses in the periods in which they are incurred.

operating lease payments are charged to results using the straight-line method during the lease term, except where another systematic apportionment basis is more representative to reflect the pattern of the lease benefits for the user more adequately.

Currently, the Company does not recognize leases of land as finance leases.

The company as lessor:rental income from operating leases is recognized using the straight-line method during the term of the relevant lease. Initial direct costs incurred in the negotiation and agreement of an operating lease are added to the carrying amount of the leased asset and recognized using the straight-line method during the lease term.

i. emPlOyee BenefiTS defined contribution benefit plan Benefit associated with retirement benefit plans are recognized as an expense when employees have rendered service entitling them to such benefit.

defined benefit planFor defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial calculations being carried out at the end of each reporting period. Actuarial remeasurements are recognized within comprehensive income and are not be reclassified to earnings. Past service costs are recognized immediately in earnings. the Company presents service costs within cost of sales and operating expenses in the consolidated state-ments of profit and comprehensive income, and presents net interest cost within interest cost in the statements of profit and other comprehensive income. Employee retirement benefits are recognized in the consolidated statement of financial position and represent the present value of the defined benefit obligation less the fair value of the plan assets.

A subsidiary of the Company has a pension plan with defined benefits that consists of a lump payment based on their remuneration, according to their age and years of service.

Actuarial gains and losses arising from adjustments based on experience and changes in actuarial assumptions are debi-ted or credited to stockholders’ equity in other comprehensive income items in the period in which they arise.

Any liability for labor settlement is recorded by the Company when the offer of settlement can not be cancelled and when the Company recognizes the related restructuring cost.

direct employee benefits Direct employee benefits are valued in proportion to the services rendered, considering current salaries and recogni-zing the liability as incurred. This includes primarily statutory employee profit sharing payable, compensated absences, such as vacation and vacation premiums, and incentives.

Statutory employee profit sharing (PTu)ptu is recorded in the results of the year in which it is incurred and presented under general expenses in the consolida-ted statements of profit and other comprehensive income. PTU is determined based on the taxable income in accor-dance with section I of Article 9 of the Income tax law.

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J. PrOViSiOnS provisions are recognized when the Company has a present obligation (legal or constructive) that arise from a past event, that will probably result in the use of economic resources, and that can be reasonably estimated.

the amount recognized as a provision is the best estimate of the expense necessary to settle the present obliga-tion at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. when a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount represents the present value of those cash flows.

when some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, an account receivable is recognized as an asset if it is virtually certain that a reimbursement will be received and the amount of the account receivable can be measured reliably.

provisions are classified as either current or non-current according to the estimated period of time to meet the covered obligations.

K. fOreign currency TranSacTiOnS and exchange differenceS monetary assets and liabilities denominated in foreign currencies, mainly u.s. dollars, are expressed in national currency at the exchange rate in effect at the close date. Exchange differences arising from fluctuations in the exchange rate between the date the transactions were conducted and the date of settlement or valuation at the date of the consoli-dated statements of financial position, are recorded in net financial cost.

l. reVenue recOgniTiOn In accordance with IAs 18, Revenues, revenues from the sale of goods are recognized at the time the risks and rewards derived from ownership of the goods are transferred to the customer, which generally coincides when they are delive-red on the sales floor; other income is recognized when it is earned.

revenues are calculated at the fair value of the consideration received or receivable, taking into account the amount of customer returns, rebates and other similar allowances.

through its loyalty program, the Company performs certain promotions whereby it provides incentives for customers, whose value is linked to either a percentage of the sales price (e.g. electronic money) or by granting points for merchan-dise purchases made. points or electronic money can be used by customers to settle future purchases within stores that are operated by soriana. the sale of merchandise and rendering of points or electronic money according to the loyalty program are recorded as revenue transactions whit multiple elements and the fair value of the consideration received (points or electronic money granted) is distributed among the merchandise that generated them. the consideration allocated to the program’s benefits is valued by reference to its fair value (the amount by which such credits by incenti-ves could be sold separately). such consideration is not recognized as revenue at the time of the initial sale transaction; rather it is deferred and recognized as revenues when the points or electronic money have been used by the customer.

the Company recognized the commissions from transactions related to the sale of airtime on cell phones as an agent.

m. incOme TaxeS Income tax expense represents the sum of current tax and deferred income tax.

current taxesIncome tax (“ISR”) and the business flat tax (“IETU”) are recognized in profit or loss of the period in which they are incurred.

deferred taxTo recognize deferred income tax, based on its financial projections, the Company determines whether it expects to in-cur Isr and recognizes deferred tax based on the tax it will pay. deferred tax are recognized by applying the correspon-ding tax rate to temporary differences resulting from comparing the accounting and tax bases assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and including, if any, future benefits from tax loss carryforwards and certain tax credits. Deferred tax assets are generally recognized for all temporary tax differences. Deferred tax assets are recorded only when their recovery is considered probable. These assets and liabilities are not recognized if the accounting-tax differences arise from goodwill or from the initial recognition (other than through a business combination) of other assets and liabilities in a transaction that does not affect either the tax or accounting results.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not be reversed in the foreseeable future. Deferred tax assets arising from deducti-ble temporary differences associated with such investments and interests are recognized solely to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to be reversed in the foreseeable future.

the carrying amount of deferred tax assets is reviewed at the end of each reporting period and must be reduced to the extent that it is not probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted at the end of the repor-ting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would arise from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and deferred tax liabilities are offset when there is a legal right to offset short-term assets with short-term liabilities and when they refer to income tax relating to the same tax authority and the Company intends to settle its assets and liabilities on a net basis.

current and deferred taxCurrent and deferred tax are recognized as income or expense in earnings, except when they refer to items that are recognized outside earnings, either in other comprehensive income or directly in stockholders’ equity, in which case, the tax is also recognized outside earnings, or when they arise from the initial recognition of a business combination.

the asset tax (ImpAC) expected to be recovered in future periods is recorded as an income tax credit and is presented in the consolidated statement of financial position as a net amount in the balance of deferred income tax.

n. earningS Per Share earnings per share are calculated by dividing the consolidated net income by the weighted average number of shares outstanding during the year. The Company has no effects arising from potentially dilutive shares.

5. criTical accOunTing eSTimaTeS and JudgemenTS the Company’s management uses certain estimates and assumptions based on historical experience and other factors that are considered to be relevant for the preparation of the consolidated financial statements. Actual results may differ from these estimates.

the estimates and assumptions are continuously reviewed. Amendments to accounting estimates are recognized in the period in which the amendment is performed and future periods if the amendment affects both current and subse-quent periods.

Below are the estimates performed by management in the application of the Company’s accounting policies, and that-may have a significant effect on the consolidated financial statements.

i. recognition of revenues related to the loyalty program, see note 4l.ii. Determination of finance leases, mainly including the term based on the extension clauses, discount rates, allocation

of building components of the total agreement, see notes 4g. and 11.iii. Recoverability of intangible assets with indefinite useful lives, see notes 4f. and 10.iv. Impairment of fixed assets, see note 4g.v. useful lives of property, furnishings and equipment, see notes 4d. and 9.

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6. caSh and caSh eQuiValenTSCash and cash equivalents at the end of the reporting period are as follows:

2014 2013

Cash and banks $ 1,282,681 $ 1,199,850

Cash equivalents 1,390,168 466,100

$ 2,672,849 $ 1,665,950

7. Trade accOunTS and OTher accOunTS receiVaBle trade and other accounts receivable are as follows:

2014 2013

trade accounts receivable, net $ 2,843,959 $ 4,037,724

sundry debtors 288,761 182,239

recoverable tax 559,724 967,229

Creditable tax 2,014,174 1,808,736

other accounts receivable 54,531 43,649

other accounts receivable 2,917,190 3,001,853

$ 5,761,149 $ 7,039,577

Trade accOunTS receiVaBleTrade accounts receivable are classified as accounts receivable; therefore, they are valued at amortized cost.

In determining the recoverability of accounts receivable, the Company’s management considers any change in the cre-dit quality of the account from the date at which the credit was initially granted to the end of the reporting period.

trade accounts receivable disclosed above include past-due amounts at the end of the reporting period (see below for ageing analysis). the Company has recognized an allowance for doubtful accounts for some customers related to leases of commercial premises.

the analysis of the age of non-impaired accounts receivable as of december 31, 2014 and 2013 is as follows:

2014 2013

Current balance $ 432,565 $ 1,128,567

30 days 54,114 233,881

31 to 60 days 121,172 216,038

over 61 days 2,236,108 2,459,238

Trade accounts receivable, net $ 2,843,959 $ 4,037,724

the movement in the allowance for impairment and other accounts receivable is analyzed as follows:

2014 2013

Balance at beginning of the year $ 12,122 $ 11,248

Allowance for customer impairment and other accounts receivable

5,400 5,400

Accounts receivable write-offs (15,083) (4,526)

final balance as of december 31, $ 2,439 $ 12,122

recoverable taxRecoverable tax balances mainly consist of value added tax and income tax resulting from filing estimated tax pay-ments pursuant to the tax provisions in effect. During 2014 the Company collected the favorable tax on cash deposits recognized as of december 31, 2013. this tax was eliminated as of 2014.

creditable taxthe Company’s main creditable tax arise from value added tax and special tax on production and services, and for such tax to be creditable, they must have been effectively paid.

8. inVenTOrieS 2014 2013

merchandise for sale $ 15,191,491 $ 14,008,929

merchandise in transit 953,073 994,201

inventories $ 16,144,564 $ 15,003,130

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9. PrOPerTy, furniTure and eQuiPmenT, neT Balance as of

december 31, 2013 additions retirements Balance as of december 31, 2014

Investment:

land $ 13,628,790 $ 184,550 ($ 118,481) $ 13,694,859

Buildings and constructions 26,366,035 1,440,698 (136,367) 27,670,366

Furniture and office equipment 17,964,598 1,405,898 (318,667) 19,051,829

work in progress 88,285 103,337 191,622

Total investment 58,047,708 3,134,483 (573,515) 60,608,676

depreciation:

Building and construction (4,748,550) (539,029) 16,763 (5,270,816)

Furniture and office equipment (9,530,248) (1,302,566) 143,352 (10,689,462)

total accumulated depreciation (14,278,798) (1,841,595) 160,115 (15,960,278)

net investment $ 43,768,910 $ 1,292,888 ($ 413,400) $ 44,648,398

Balance as of december 31, 2012 additions retirements Balance as of

december 31, 2013

Investment:

land $ 13,115,788 $ 559,687 ($ 46,685) $ 13,628,790

Buildings and construction 24,681,880 1,733,735 (49,580) 26,366,035

Furniture and office equipment 16,927,564 1,088,199 (51,165) 17,964,598

work in progress 163,277 (74,992) 88,285

Total investment 54,888,509 3,381,621 (222,422) 58,047,708

depreciation:

Building and construction (4,248,136) (522,751) 22,338 (4,748,550)

Furniture and office equipment (8,348,535) (1,294,597) 112,882 (9,530,248)

total accumulated depreciation (12,596,671) (1,817,348) 135,220 (14,278,798)

net investment $ 42,291,838 $ 1,564,273 ($ 87,202) $ 43,768,910

depreciation expense for the years ended as of december 31, 2014 and 2013, amounted to $1,841,595 and $1,817,348, respectively.

The balance of buildings and construction include the recognized portion of finance leases and their related accu-mulated depreciation, which amounted to $2,019,601 and ($639,331) as of december 31, 2014 and $2,092,818 and ($561,022) as of december 31, 2013, respectively.

10. inTangiBle aSSeTS2014 2013

Assignment of lease agreement rights (1) $ 8,834,205 $ 8,812,405

non-compete agreement (2) 2,108,892 2,108,892

other intangible assets (2) 1,149,247 953,382

12,092,344 11,874,679

Accumulated amortization (1,548,652) (1,306,833)

intangible assets, net $ 10,543,692 $ 10,567,846

(1) Intangible assets with indefinite useful lives.

(2) Intangible assets with defined useful lives.

the useful lives used for the calculation of amortization in respect of the non-compete agreement are 10 years.

As part of its information technology transformation project, the Company made disbursements for the acquisition and development of its sAp computer system, which became operational on january 1, 2013, the date it began to amortize the related intangible asset.

The Company concluded that no impairment adjustments existed according to the impairment calculations on its intangi-ble assets as of december 31, 2014 and 2013.

the assignment of lease agreement rights as of december 31, 2014 and 2013, represent the rights acquired by soriana to lease for an indefinite period of time, 176 points of sale located in different geographical areas of the country.

there were no borrowing costs for capitalized loans related to qualifying intangible assets for the years ended december 31, 2014 and 2013.

The discount and perpetual growth rates used to assess the possible impairment of intangible assets with indefinite use-ful lives for the periods ended december 31, 2014 and 2013 are as follows:

2014 2013

discount rate 10.1% 10.5%

perpetual growth rate 3.3% 5.0%

for purposes of the calculation of the recoverable value of supermarket stores, discount rates before tax are used and applied to cash flows before tax.

the Company’s management believes that any reasonable possible change in the factors used in the evaluation of the recoverable value will not cause the value of supermarket stores to exceed their recoverable value.

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11. OTher lOng-Term liaBiliTieS Balances of other long-term liabilities consist mainly of finance leases.

the Company has entered into real property lease agreements with third parties, which have binding terms from 5 to 20 years extendable or renewable for at least a similar period. payments for these agreements include fixed mi-nimum payments as well as in certain cases variable terms based on a percentage of sales of the Company’s stores.

the amounts of minimum rentals that will be paid during the following years for finance leases, and the present value thereof which represents a recognized financial lease liability, are as follows:

finance leases minimum rental payments

2015 37,957 218,729

2016 39,274 216,049

2017 40,918 213,707

2018 42,491 211,124

2019 37,996 202,513

2020 40,133 200,818

2021 and thereafter 1,586,943 3,795,558

$ 1,825,712 $ 5,058,498

the amounts charged to profit or loss related to payments for leases of property as of december 31, 2014 and 2013 amounted to $ 358,025 and $ 401,750, respectively, which include depreciation, interest expense and contin-gent lease payments.

during 2014, the Company did not have any acquisitions of property, furniture and equipment under finance lea-ses. during 2013 the Company recognized a finance lease related to a building of $ 19,600, which are not reflected in the consolidated statement of cash flows as they did not involve cash flows.

12. TranSacTiOnS and BalanceS WiTh relaTed ParTieSBalances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated in consolidation.

The remuneration and benefits for key management personnel during the year ended December 31, 2014 and 2013 were $110,742 and $129,391, respectively, which comprise of base salaries and others benefits. There is no agree-ment or program to involve employees in soriana’s equity.

the Company conducted transactions with related parties, mainly stockholders which resulted in lease income of $ 30,521 and $ 31,307 for the years ended december 31, 2014 and 2013, respectively, and purchases of merchandise for sale and freight services of $ 465,485 and $ 458,518 for de years ended december 31, 2014 and 2013, respecti-vely. the balances payable to related parties as of december 31, 2014 and 2013 were $53,377 and $15,378 respecti-vely , are included in trade accounts payable in the consolidated statements of financial position.

13. financial inSTrumenT riSK managemenTThe Company is exposed to different financial risks inherent to its operation, which are mainly: a) market risk (foreign exchange and interest rates, b) liquidity risk and c) credit risk, for which it seeks to manage the potential negative effects thereof in its financial performance. These risks are evaluated through a risk management program according to the valuation of these risks and internal guidelines. the Company does not conduct transactions with derivative financial instruments.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, finan-cial obligations, and finance lease liabilities. The carrying amounts of these financial assets and liabilities approximate their fair value due to their short-term maturities.

A) mArket rIski. exchange risk As of december 31, 2014 and 2013, the exchange rate was $ 14.73 and $ 13.06 nominal pesos per u.s. dollar, respectively.

the amounts shown in this note are stated in millions of u.s. dollars (us$), as it is the prevailing currency for the Company’s foreign currency transactions. As of December 31, the Company’s financial assets and liabilities in foreign currency are as follows:

2014 2013

Current financial assets us$ 3.9 us$ 1.7

Short-term financial liabilities (120.5) (80.8)

Long-term financial liabilities (76.7) (76.9)

net liability position of financial instruments (us$ 193.3) (us$ 156.0)

equivalent in thousands of mexican pesos ($ 2,847,309) ($ 2,037,360)

the Company’s main foreign currency transactions are:

2014 2013

purchases us$ 328.2 us$ 290.4

equivalent in thousands of mexican pesos $ 3,387,946 $ 3,724,339

A substantial devaluation of the Mexican peso against the U.S. dollar exchange rate may affect the economic perfor-mance of the country, which could have an impact of a lower level of consumption and consequently the Company’s revenues would be affected. however, the main operation of the Company does not have a close relationship with fluctuations of the Mexican peso against the U.S. dollar exchange rate; therefore, the potential risk derived from this factor is of a minor impact to the Company’s current operations. Considering the net liability position in u.s. dollars as of december 31, 2014 shown in the above table, if a movement of 0.50 mexican pesos arises at the exchange rate of the U.S. dollar, where the other assumptions remain constant, there would be a favorable or unfavorable net effect of tax in the Company’s income $67,655.

ii. interest rate riskThrough the Company’s debt securities program (CEBURES for its term in Spanish) currently in effect, (see note 13), the Company issues debt at an interest rate based on the 28-day Interbank Offering Rate in Mexico (TIIE). Also, Soriana during 2014 and 2013 had a short term promissory note with a mexican bank, bearing interest based on 28 days tIIe. therefore, the exposure to interest rate risk of the Company’s debt is related to the tIIe evolution.

In recent years, the tIIe rate has remained stable derived from the consistency and continuity in the country’s ma-croeconomic policies, for which the Company’s management believes that the risk in that variable is relatively low. A variation of the TIIE rate could cause a change in the results of the financial expense associated with debt levels.

As of december 31, 2014, the Company does not have CeBures or short term promissory notes outstanding.

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b) lIquIdIty rIskthe Company currently issues debt through its debt securities program as needed, for which it may gain access to the domestic debt market; additionally, soriana had a short term promissory note with a mexican bank. to date, the Company has been able to successfully place its debt securities in the Mexican market over the past five years and to obtain uncommitted credit lines with mexican banks; however, the Company cannot guarantee to obtain or have future access to new such resources in the future, which could lead to a negative impact on its operating results and financial position.

In addition, the Company has authorized uncommitted credit lines with different Banks, which allow it to possibly ad-dress any additional liquidity requirements.

The Company, through its Treasury and Finance departaments, performs cash flow projections, monitoring their beha-vior and treasury levels on a daily basis, which allows anticipating any event that may jeopardize its liquidity levels to be able to meet different payment obligations. In addition, such cash flow projections and the daily treasury monitoring allow the Company to be able to plan and anticipate the required actions to cover any cash flow needs that the Com-pany may require in the future.

c) credIt rIskthe concentration of credit risk with respect to accounts receivable is very limited, as sales are mainly conducted through its supermarket stores with the general public in cash; therefore, it has a diversified customer base, which allows the reduction of any credit risk.

the Company considers that the allowance for doubtful accounts adequately covers accounts receivable that could represent a risk of recovery, which is reviewed regularly for such allowance to be adjusted, if necessary.

capital managementthe Company manages its capital to ensure it will be able to continue as a going concern, seeking for balancing the re-turn to its stockholders at a low level of risk, through the optimization of its debt and equity structure. historically, the Company’s strategy has been to reinvest in general terms its earnings allocating resources to generate further organic growth, in pursuit of maintaining a financial structure without debt, except for the financing it utilized for the acquisi-tion of gigante’s supermarket stores.

the Board of directors annually reviews the capital structure of the Company.

the Company’s capital structure consists of net debt (debt generated through the debt securities program and the short term promissory note reduced by cash and bank balances, as needed) and the capital of the Company (including issued capital stock, capital reserves and retained earnings). The Company is not subject to external requirements for its capital management.

14. deBT SecuriTieS and ShOrT and lOng – Term deBT In may 2013, the Company’s management obtained the authorization to begin a short-term and long-term debt securi-ties program on a revolving basis, from the national Banking and securities Commission. the term for issuances under the program is five years, and the authorized amount is up to fifteen billion Mexican pesos, or its equivalent in inves-tment units (udI).

As of december 31, 2014 and 2013, the short and long-term debt of the Company includes the following:

2014 Tasa de interés (*) 2013 Tasa de interés (*)

Short-term debt:

debt securities $ 1,098,391 3.67%

short-term debt (BBvA Bancomer) 850,000 3.81%

Total short-term $ 1,948,391

non-interest bearing liability (1) $1,130,528 1,005,426

Total long-term debt $ 1,130,528 $ 1,005,426

(*) Weighted average of rates effective as of December 31, 2013.

(1) non-interest bearing liability derived from agreement with Banamex of us$76.7 and us$76.9 million u.s. dollars as of December 31, 2014 and 2013, respectively. The term and full payment of the financial liability is subject to the opera-ting results of SORIBAn for the first ten years of operation which it began in 2007.

15. OTher accOunTS PayaBle2014 2013

tax payable $ 1,262,008 $ 1,599,126

other accounts payable 1,223,136 1,109,125

Total other accounts payable $ 2,485,144 $ 2,708,251

16. emPlOyee BenefiTS Defined and vested benefit obligations, and seniority and retirement premiums are detailed below:

As of december 31, 2014

retirement premium Seniority premium Total

Defined benefit obligations ($ 1,431) ($ 311,750) ($ 313,181)

plan assets 2,765 34,400 37,165

Unfunded defined contribution (89,823) (89,823)

recognized liability for the year ($ 88,489) ($ 277,350) ($ 365,839)

As of december 31, 2013

retirement premium Seniority premium Total

Defined benefit obligations ($ 1,370) ($ 266,407) ($ 267,777)

plan assets 2,797 34,041 36,838

Unfunded defined contribution (102,456) (102,456)

recognized liability for the year ($ 101,029) ($ 232,366) ($ 333,395)

the nominal economic hypothesis used were: december 31,

2014 2013

discount rate 6.75% 7.50%

salary growth rate 5.49% 5.64%

minimum wage growth rate 3.91% 4.32%

return on plan assets 6.75% 7.50%

Defined benefit obligations are detailed as follows:

2014 2013

Benefit plan for:

Defined benefit retirement plan ($ 1,431) ($ 1,370)

seniority premium (311,750) (266,407)

recognized liability for the year ($ 313,181) ($ 267,777)

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The status of the defined benefit pension plan is detailed as follows:

2014 2013

Defined benefit obligation ($ 1,431) ($ 1,370)

plan assets 2,765 2,797

recognized asset for the year $ 1,334 $ 1,427

the reconciliation of the plan asset is detailed as follows:

As of december 31,

2014 2013

opening balance as of january 1 $ 1,427 $ 1,241

net interest on defined benefit asset 107 81

Actuarial remeasurements (200) 105

recognized asset at the end of the year $ 1,334 $ 1,427

The reconciliation of defined benefit seniority premium liability/asset is detailed as follows:

As of december 31,

2014 2013

opening balance as of january 1 ($ 232,366) ($ 231,414)

service cost (24,615) (23,674)

net interest on defined benefit liability (17,423) (14,279)

Actuarial remeasurements (31,843) 12,165

payments made 28,897 24,836

recognized liability at the end of the year ($ 277,350) ($ 232,366)

Below is a sensitivity analysis of the financial hypothesis which the Company’s actuary considers can generate the most probable impacts on the defined benefit obligation, namely the discount rate. The sensitivity analysis is performed with 0.5% above/below the discount rate.

(%) amount differences

discount rate: 6.25% $ 1,470 $ 39

6.75% 1,431 -

7.25% 1,389 42

Below is a sensitivity analysis of the financial hypothesis which the Company’s considers can generate the most proba-ble impacts on the defined benefit obligation, namely the discount rate and minimum wage growth rate. The sensitivity analysis is performed with 0.5% above and below related to the discount rate, for the minimum increase rate sensitivity analysis is made with 0.25%.


wage increase rate (3.66%): 6.25% $ 318,501 $ 6,751

6.75% 305,315 6,435

7.25% 293,087 18,663


wage increase rate (4.16%): 6.25% $332,548 $ 20,798

6.75% 318,374 6,624

7.25% 305,246 6,504

Estimated benefit payments in the following years are as follows:

Seniority premium defined benefit retirement plan

2015 29,082 183

2016 28,137 163

2017 28,107 161

2018 28,708 158

2019 29,859 153

2020 to 2024 192,205 667

17. STOcKhOlderS’ eQuiTy As of december 31, 2014 and 2013, the Company’s capital stock is comprised of 1,800,000,000 no par value shares, fully subscribed and paid; which correspond to series B and represent the minimum fixed capital, without right of withdrawal.

pursuant to a general ordinary stockholders’ meeting on April 29, 2014, a cash dividend equivalent to $0.3888 mexican pesos (nominal value) per share was declared, which was paid in one payment during August 2014.

net income for the year is subject to the statutory provision that requires that 5% of the profits of each year be trans-ferred to the legal reserve, until such reserve equals 20% of capital stock. As of december 31, 2014 and 2013 the legal reserve amounts to $413,488 and is included in retained earnings.

stockholders’ equity, except for restated paid-in capital (CuCA for its acronym in spanish) and tax retained earnings from the net tax income account (CUFIn for its acronym in Spanish) will be subject to ISR payable by the Company at the rate in effect upon distribution when it does not arise from such account. Any tax paid on such distribution may be credited against annual and estimated ISR of the year in which the tax on dividends is paid and the following two fiscal years. The balance of CuCA and CufIn as of december 31, 2014 amounted to $11,648,317 and $19,833,373, respectively.

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18. OTher reVenueS 2014 2013

lease income $ 1,075,762 $ 1,065,411

service revenues 729,001 729,927

other income 407,281 378,991

$ 2,212,044 $ 2,174,329

19. inTereST cOST, neT 2014 2013

Interest expenses ($ 321,803) ($ 475,768)

Interest income 139,972 184,122

loss in exchange rate, net (290,793) (9,471)

(472,624) (301,117)

Interest capitalized in property, furniture and equipment 8,891 24,860

($ 463,733) ($ 276,257)

20. incOme TaxSoriana and its subsidiaries are subject to ISR and through December 31, 2013 to ISR and IETU.

Isr -the rate was 30% in 2014 and 2013 and as a result of the new 2014 Isr law (2014 tax law) the rate will continue at 30% in 2015 and thereafter.

Ietu – Ietu was eliminated as of 2014. up to december 31, 2013, this tax was incurred both on revenues and deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%. In addition, the Asset Tax law (ImpAC) was repealed upon enactment of the Ietu law; however, under certain circumstances, ImpAC paid in the ten years prior to the year in which ISR is paid for the first time, may be recovered, according to the terms of the law.

Income tax incurred was the higher of Isr and Ietu through 2013.

The reconciliation of the statutory and effective ISR rates for the years ended December 31, 2014 and 2013 is as follows:

2014 2013

Income before income tax $ 4,578,257 $ 5,325,693

statutory income tax rate (30% for 2014 and 2013) $ 1,373,771 $ 1,597,708

Add (less) effect on income tax for:

Comprehensive financing income base differences 170,900 207,593

non-deductible expenses and non-taxable income, net 192,306 41,520

Increase in tax value of property, furniture and equipment (219,716) (240,333)

Change in tax rates 585,675

Permanent differences from tax resolutions (706,321)

Other permanent differences, net 63,654 16,337

total income tax in expense $ 874,594 $ 2,208,500

effective rate 19.1% 41.5%

the main items that give rise to the deferred income tax liability are:

2014 2013

property, furniture and equipment $ 4,677,814 $ 4,627,451

Inventories 144,631 706,321

other (*) 3,783,381 3,350,461

deferred income tax provision $ 8,605,826 $ 8,684,233

* Includes benefit from tax loss carry forwards and IMPAC.

recorded deferred income tax as of december 31, was credited to the following accounts:

2014 2013

deferred tax opening balance $ 8,684,233 $ 7,459,833

provision of the year (78,407) 1,224,400

deferred income tax provision $ 8,605,826 $ 8,684,233

tax loss carryforwards are recoverable under certain requirements. As of december 31, 2014, years of expiration and restated amounts are as follows:

year imPac recoverable Tax loss carry forwards

2015 to 2017 $ 26,585 $ 9,267

2018 8,198 3,301

2019 8,198 18,694

2020 20,468

2021 13,090

2022 55,188

2023 109,289

2024 53,561

Total $ 42,981 $ 282,858

Tax loss carry forwards and IMPAC may be used solely to offset tax of each company that generated them.

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investors relationsaurelio adán h. [email protected]

rodrigo Benet c. [email protected]

arturo ledesma m. [email protected]

independets auditorsgalaz, yamazaki, ruiz urquiza, s.C. lázaro Cárdenas 2321 poniente, pB Col. residencial san Agustín san pedro garza garcia, n.l.mexico, C.p. 66260

corporate OfficesAlejandro de Rodas 3102-ACol. Cumbres 8° sectormonterrey, n.l.mexico, C.p. 64610

ThIS 2014 AnnUAL REPORT OF ORgAnIzACIOn SORIAnA CAn COnTAIn CERTAIn FORWARD-LOOkIng InFORMATIOn RELATIng TO ThE performAnCe of the CompAny And Its suBsIdIArIes, wICh should Be ConsIdered As estImAtes mAde In good fAIth. these eXpeCtAtIons refleCt mAnAgement’s opInIons, BAsed on Current AvAIlABle InformAtIon. results Are suBjeCt to future An unCertAIn events, whICh Could hAve An mAterIAl ImpACt on the CompAny’s ACtuAl performAnCe.D

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21. cOmmiTmenTS and cOnTingencieS a. cOmmiTmenTSthe Company has commitments for operating leases of real property for average terms of 15 years, which are renewa-ble for a similar period, some of which have a fixed portion and a variable portion determined based on percentages of sales of its stores. such commitments amount to $6,848,466.

B. cOnTingencieSsome subsidiaries are currently defendants in agricultural lawsuits regarding the acquisition of land, and commercial lawsuits, which are mainly in the stage of presenting evidence. these contingencies amount to approximately $275,250 (nominal value). the Company has not recorded any provision with respect to these contingencies, since its legal advi-sors believe there are high possibilities of obtaining a favorable ruling.

during the year ended december 31, 2014, the Company’s management followed the practice of contracting third par-ty liabilities, merchandise transportation, and car and truck fleet insurance policies. In relation to real estate coverage, the Company contracted an insurance policy with basic fire and hydro meteorological coverage for leased properties and certain of real properties owned by soriana.

22. SegmenT financial infOrmaTiOnThe segment financial information determined by the Company has been prepared according to IFRS 8, Operating Segments. the Company prepares the information for senior management and for their decision-making based on supermarket stores, which are its main line of business; therefore, it considers it as its only operating segment.

the Company’s main business is the sale of grocery products, perishable goods, clothing, and general merchandise to the general public through its supermarket stores. the Company operates solely in mexico; therefore, it is considered its only geographical market.

23. auThOrizaTiOn TO iSSue The cOnSOlidaTed financial STaTemenTS The issuance of the accompanying consolidated financial statements was authorized on March 6, 2015, by Lic. Sergio Fernando Martínez San germán, Chief Administrative Officer, and C.P. Jorge Alberto Reyes Mora, Chief Controller. The-se consolidated financial statements are subject to the approval of the ordinary stockholders meeting, where they may be modified, based on provisions set forth in the Mexican general Corporate Law.



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O rg a n i z ac i O n S O r i a n aA L E J A n D R O D E R O D A S 3 1 0 2 -A / C O L . C U M B R E S 8 v o S EC T O R / M O n T E R R E y, n . L . / C . P. 6 4 6 1 0 , M E x I C O

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