INDEPENDENT AUDITORS’ REPORT

 

to the Board of Directors and Stockholders of Grupo Lamosa, S. A. B. de C.V.

Opinion
We have audited the accompanying consolidated financial statements of Grupo Lamosa, S. A. B. de C. V. and Subsidiaries (the Company), which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, and the related consolidated statements of income, consolidated statements of other comprehensive income, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all the material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and their consolidated financial performance and their consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”), issued by the International Accounting Standards Board (“IASB”).

Basis for Opinion
We conducted our audits in accordance with International Standards on Auditing (“ISA”). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for professional Accountants (IESBA Code) and with the Ethics Code issued by the Mexican Institute of Public Accountants (“IMCP Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code and IMCP Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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

Emphasis of Matter
As mentioned in Note 2, on October 1, 2020, the Company acquired control of Eurocerámica, S.A., located in Medellin, Colombia. This acquisition qualifies as a business combination and, therefore, to account for the purchase price allocation, the Company is applying the “Purchase method” as required by IFRS 3 - Business Combinations. As part of the recognition of the net assets acquired, a preliminary goodwill of $67 million Mexican pesos has been recorded as of December 31, 2020. However, the Company is within the twelve-month period to obtain the fair values of certain tangible and intangible assets with the support of independent expert appraisers; therefore, these items and goodwill should be considered preliminary and may be changed in accordance with the guidelines permitted by IFRS.

Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were more important in our audit of the consolidated financial statements of the current period. These matters have been addressed in the context of our audit of the consolidated financial statements as a whole and in the disclosure of our opinion thereon; therefore we did not express a separate opinion on those audit matters. We have determined that the matters described below are the key audit matters to be disclosed in our report:

• Bank debt
  As mentioned in Note 19.i, the Company’s management assesses the level of leverage and the structure of its capital as part of the achievement of its financial risk management objectives. Therefore, the bank debt of $6,913 million Mexican pesos is relevant for the analysis of the consolidated financial statements.
  
  Our audit procedures included, among others:
  • Assessment of the Company’s level of indebtedness, including reviewing compliance with such restrictions as well as the do and do not commitments set forth in the bank debt agreements.
  • Obtaining confirmations from financial institutions to validate the principal’s balances and their correct valuation in Mexican pesos, as well as the amount and valuation of accrued and unpaid interest in Mexican pesos.

With respect to the audit procedures mentioned above, the results were reasonable.

• Unamortized intangible assets
  

  Given the significance of unamortized intangible assets (Note 13), it is important to ensure that the impairment tests thereof are made each year in compliance with the IFRS, under an adequate methodology to identify potential impairment, where necessary.

  Determining whether the carrying amount of unamortized intangible assets is recoverable requires the Company’s management to make significant estimates related to cash flows, discount rates and their growth, based on the point of view of management about future business prospects.

Our audit procedures primarily were:

• We reviewed whether the identification of the Cash Generating Units (CGU) made by the Company was appropriate.
• We assessed whether the valuation techniques are appropriate in the current business circumstances, and whether the techniques used to determine the fair value are applied in conformity with prior years.
• We assessed the reasonableness of the valuation assumptions used in the fair value analysis, and whether the valuation assumptions are consistent with what a market participant would use to determine the recoverable value for the cash generating units.
• We carried out a sensitivity analysis to compare the Company’s recoverable value estimate.
• We verified the completeness and accuracy of the information used by Management to project the cash flows used in the calculation, and compared key assumptions to external information of the industry.

The results of our audit tests were reasonable and we agree with the assumptions used, including the discount rate and the impairment amount of the recoverable value for the unamortized intangible assets.

• Assessment of the recoverability of deferred income tax assets derived from tax losses, and deductible interest
  

  The Company recognizes deferred income tax assets derived from tax-loss carryforwards and deductible interest. For this purpose, Management estimates the probability of applying such deferred income tax assets to generate a future economic benefit and support the recognition of such asset in its consolidated financial statements.

  Due to the significance of the balance of the deferred income tax asset derived from tax losses and deductible interest as of December 31, 2020, amounting to $1,178 million of Mexican pesos, which in its determination considers significant judgments and estimates to determine future projections of the Company’s taxable income, we focused on this line item, among others, and performed the following procedures:

  • We verified the reasonableness of the projections used to determine future taxable income.
  • We reviewed the projections used by comparing them to the business performance and historical trends, verifying the explanations of the variations with management.
  • With the support of tax experts, we assessed the processes used to determine the projected taxable income, and the assumptions used by Management in preparing tax projections, and discussed with Management the sensitivity of the projections.

The results of our audit procedures were satisfactory. The Company’s accounting policy for the recording of deferred income taxes, as well as the detail of their disclosure are included in Notes 4 and 22, respectively, to the accompanying consolidated financial statements.

Other Information
The Company’s management is responsible for the other information. The other information will include the information that will be incorporated in the Annual Report that the Company must prepare pursuant to Article 33, Section I, Subsection b) of the Fourth Title, First Chapter of the General Provisions Applicable to Issuers and other Participants in the Mexican Stock Exchange and the Instructions attached to these provisions (the Provisions). The Annual Report will be available for our reading after the date of this audit report.

Our opinion on the consolidated financial statements will not cover the other information, and we will not express any form of assurance about it.

In connection with our audit of the consolidated financial statements, our responsibility will be to read the Annual Report, when available, and when we do so, to consider whether the other information contained therein is materially inconsistent with the consolidated financial statements or with our knowledge obtained during the audit, or it appears to contain a material error. When we read the Annual Report, we will issue the legend on the reading of the annual report required by Article 33, Section I, Subsection b), number 1.2 of the Provisions. If, based on the work we have performed, we conclude that there is a material error in the information, we would have to report this fact. At the date of this report, we have nothing to report on this matter.

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

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

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

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

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

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

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

We will also provide those responsible for the Company’s government with a statement on our fulfillment of relevant ethical requirements regarding independence, and will communicate any relationship and other matters that might be thought to affect our independence and, when applicable, the related safeguards.

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

Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited

C. P. C. Carlos Iván Pólito Ruiz
February 2, 2021

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of December 31, 2020 and 2019
(In thousands of Mexican pesos)

See accompanying notes to these consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2020 and 2019.
(In thousands of Mexican pesos, except for the earning per share, which is in Mexican pesos)

See accompanying notes to these consolidated financial statements

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

For the years ended December 31, 2020 and 2019
(In thousands of Mexican pesos)

See accompanying notes to these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the years ended December 31, 2020 and 2019.
(In thousands of Mexican pesos)

See accompanying notes to these consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2020 and 2019
(In thousands of Mexican pesos)

See accompanying notes to consolidated financial statements.