Message
from the President

To our stockholders:

For Grupo Famsa, 2017 was a year of progress in which key strategic projects we have implemented to strengthen the company’s financial position and operating efficiency bore fruit, improving results and driving competitiveness and future perspectives.

During the year, we focused our efforts on monetizing the assets given in guarantee in 2015, reducing the balance of consolidated gross debt and its exposure in U.S. dollars, and extending average debt maturity.

In 2017, we obtained resources of Ps.1,127 million from asset monetization, which were mainly used for the payment of short-term liabilities. In parallel, we subscribed to a credit facility of Ps.2,634 million with Bancomext (Mexican Exim Bank) under excellent economic conditions. As a result, in September, we redeemed a total of USD$110 million corresponding to senior notes with a maturity date in September 2020.

It also gives me pleasure to inform you that, as a result of these initiatives, Grupo Famsa ended 2017 with a more robust financial position and improved leverage. At year-end, the balance of consolidated debt totaled Ps.9,026 million, 9.7% below that of the previous year, with an average debt maturity close to four years. We also significantly lowered the company’s exposure to foreign exchange fluctuations, reducing the percent of the balance of our liabilities in U.S. dollars from 55.6% in December 2016 to 34.5% in December 2017.

We strengthened institutional channels and also grew our presence and operations on digital platforms, with particular success in the Appliance category.

In combination with this financial strategy, we enforced specific key projects at the operational level to maximize results on the sales floor. We made progress with the consolidation of a mixture of high-quality customers through precise criteria for credit origination, and also established goals aimed at growing the efficiency of our different traditional and on-line sales platforms.

It is important to note Grupo Famsa’s focus on assuring a customer base with the right credit profile and, as a result, risk profile, expanding the participation of customers in Mexico belonging to the formal sector of the economy from 61% in 2016 to 64% in 2017. This improvement largely reflects the origination of loans discounted via payroll, and the strengthening of the door-to-door channel.

In the commercial area, we strengthened institutional channels and also grew our presence and operations on digital platforms, with particular success in the Appliance category, where demand remained stable, increasing 8% in 2017.

During the year, we finished an important phase of our strategy to boost the efficiency and productivity of our store network and reduce operating and administrative costs, with results that had a favorable effect on the allocation of financial resources and enhanced the responsiveness of our operations.

Our commercial network optimization initiative included the closing of five stores in Mexico, as well as four stores and two personal loan branches in the United States, while we maintained our high level of service in the territories we serve. Additionally, Banco Famsa closed 13 bank branches and 20 pawnshop branches in Mexico.

In 2017, our associates continued to work as a united team committed to offering excellent service and continuing to strengthen activities across our operations. As a result, consolidated Net Sales for the year totaled Ps.17,554 million, basically driven by the performance of operations in Mexico.

Banco Famsa’s financial services continued to be well received during the year, with bank deposits rising a significant 18.7% annually, to Ps.24,994 million as of December 31, 2017.

The Non-performing Loans Ratio (IMOR) also continued to improve during the year, falling to 8.4%, a figure that ranks among historic lows. This positive trend reflects our actions to enhance the quality of our loan portfolio and raise credit-granting requirements.

In the United States, despite diverse market pressures, we made progress with: redefining our market objective, adjusting the structure of operations to the current sales level and optimizing our expense strategy. Thus, we stabilized operations there and foresee a more dynamic future.

Nevertheless, annual Net Sales in this specific market contracted 19.2% in pesos in 2017, but we are confident that results will recover in 2018 as we capitalize on the targeted strategies we have implemented.

At the group level, consolidated EBITDA, driven by our improved performance and operating efficiencies, grew 29.2% year-over-year in 2017, reaching Ps.1,824 million, while the consolidated EBITDA Margin was 10.4%, 240 basis points more than in 2016.

Finally, it is important to emphasize that Grupo Famsa continues its great commitment to social responsibility. In 2017, we implemented programs to support the comprehensive development of our staff, offering training and risk-mitigating courses, as well as highlighting programs to promote the wellbeing of the communities where we operate.

Focused on consolidating Grupo Famsa as an increasingly productive and profitable company, in 2018 we will continue our commitment to leveraging the operating, commercial and financial strategies we have already established to drive sales and profitability. We will focus particularly on Mexico, where during the first months of the year we have seen a positive trend at the point of sale, but also on the United States, where we are optimistic about a recovery during 2018.

Today, we are evolving the company to adapt it to the changing market conditions and current challenges. We are making significant progress as we focus on refining our operating performance and customer service with the financial flexibility we need to capitalize on new opportunities and generate value.

We would like to thank the members of Grupo Famsa’s Board of Directors, who, with their unconditional support, have helped to assure the positive evolution of the organization despite the challenges we have faced.

Our appreciation also goes to our stockholders, personnel, customers and suppliers for their trust and support.

Regards,

Humberto Garza González

President

Humberto Garza Valdéz

Chief Executive Officer