LIVEPOL1 UNDERPERFORM. Hold Your Horses Downgrading to Underperform (08/01/07) CURRENT PRICE: US$5.61/M$61.40 TARGET PRICE: US$4.80/M$54.

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1 Latin American Equity Research Mexico City, August 2, 2007 LIVERPOOL Hold Your Horses Downgrading to Underperform Joaquin Ley* Company Report Mexico Retail UNDERPERFORM Vivian Salomon* Mexico: Banco Santander, S.A. Mexico: Banco Santander, S.A. (5255) (5255) (08/01/07) CURRENT PRICE: US$5.61/M$61.40 TARGET PRICE: US$4.80/M$54.00 What s Changed Rating: From Buy to Underperform Price Target: Introducing YE08 at US$4.80 EBITDA Estimates (US$): 07 From 612Mn to 622 Mn 08 From 697Mn to 713 Mn 09 Introducing 804 Mn Company Statistics Bloomberg LIVEPOL1 52-Week Range (US$) E P/E Rel to the IPC Index (x) E P/E Rel to the Retail Sector (x) 0.8 Index (US$) 2,738 3-Yr CAGR (06-09E) 15% Market Capitalization (US$ Mn) 7,527 Float (%) Mth Avg Daily Vol (US$000) 2 Shares Outst (Mn) 1,342 Net Debt/Equity (x) 0.2 Book Value per Share (US$) 1.84 Estimates and Valuation Ratios E 2008E 2009E Net Earn (M$ Mn) 3,467 4,120 4,796 5,698 Current EPS Net Earn (US$ Mn) Current EPS P/E (x) P/Sales (x) P/CE (x) FV/EBITDA (x) FV/Sales (x) FCF Yield (%) Div per Share (US$) Div Yield (%) Sources: Bloomberg, Company reports, and Santander Investment estimates. Investment Thesis: Liverpool s share price has appreciated 55% yearto-date in U.S. dollars, making it one of the best-performing names in the Latin American retail sector. Growing earnings and the steep valuation discount that Liverpool presented in late 2006 when compared with the sector are the main factors that, in our opinion, explain the recent outperformance in share price. The company s 1H07 results were in line with our expectations and management has not altered its guidance significantly. Thus, our U.S. dollar EBITDA estimates for 2007 and 2008 have not changed materially. While Liverpool used to trade at a discount of close to 60% to the sector barely a year ago, this has narrowed to about 16% on a 2008E P/E basis. We view this discount as possibly too narrow, since our forecast calls for a net profit growth for Liverpool of 13% in U.S. dollars for 2008, almost half of what we anticipate for the Latin American retail sector average. As far as this issue is concerned, we believe that Liverpool s respective current 2007E and 2008E P/E multiples of 20 times and 18 times may well be overestimating the company s earnings growth potential. We are introducing our year-end 2008 target price of US$4.80 per share we will no longer refer to our 2007 year-end target price of US$2.85 -, which implies a 14% downside potential in U.S. dollars, and consequently, we are downgrading our rating on shares in Liverpool to Underperform from Buy. We see no major fundamental changes for the company, as we still expect to see a decent earnings growth rates on the back of a fast-selling floor expansion both in the retail and shopping malls divisions, growing financial revenues on the back of increased portion of the portfolio generating interest, growing same-store sales (SSS) and an increased weighting of the credit and real estate divisions in the company s consolidated figures, which should support margin expansion, in our view. Our estimates call for U.S. dollar EBITDA growth rates of 15%, 15% and 13% for 2007, 2008 and 2009 respectively. Valuation and Risks to Investment Thesis: Our year-end 2008 target price is based on a DCF analysis which implies a target 12MF P/E multiple of 13.2 times. Risks to our investment thesis include betterthan-expected SSS, a faster-than-anticipated store base expansion and a sounder-than-projected working capital structure. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212) * Employed by a non-us affiliate of Santander Investment Securities, Inc. and is not registered/qualified as a research analyst under NASD rules.

2 Hold Your Horses Downgrading to Underperform Liverpool is the largest Mexican department store chain. The company ended 2006 with 61 stores for a total selling space over 760,000 square meters. Liverpool operates three divisions: retailing (91% of revenues), credit (6% of revenues) and real estate (3% of revenues). The Michel, David, Guichard and Bremond families hold 78% of the total outstanding shares, while Bancomer and Banamex hold some 18%, while only 4% could be considered as free float. DOWNGRADING SHARES OF LIVERPOOL TO UNDERPERFORM FROM BUY. We are downgrading our rating on shares in Liverpool to Underperform from Buy as, even though the company s fundamentals are still solid, we believe they are more than fairly reflected in the valuation levels achieved following the year-to-date stock price rally (55% in U.S. dollar terms). Although trading at a 2008E P/E of almost 18 times, the share would not appear as expensive, we believe it is adjusted by growth, as we anticipate Liverpool s net earnings should expand by roughly half of that we are anticipating for the Latin American retail sector. Figure 1. Liverpool s Share Performance Compared to IPC Index and Latin American Retail & Consumer Index January August , Base 100 = January /01/ /01/ /01/ /01/ /01/ /02/ /02/ /02/ /02/ /03/ /03/ /03/ /03/ /04/ /04/ /04/ /04/ /05/ /05/ /05/ /05/ /05/ /06/ /06/ /06/ /06/ /07/ /07/ /07/ /07/ /07/2007 Liverpool IPC Retail&Consumer Latam Sources: Bloomberg, Mexican Bolsa, Santander Investment. Our DCF model suggests a target price for year-end 2008 of US$4.80 per share. We calculated a WACC of 10.3%. The cost of equity is 10.4% following an equity risk premium of 5.5%, a beta of 0.80 and a risk free rate of 6.0%. The after tax cost of debt is 9.6%. The capital structure assumed is 81% equity and 19% debt. The perpetuity growth rate considered is 2.5% per year. 2 U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

3 Figure 2. Liverpool Free Cash Flow 2009E-2018E (U.S. Dollars in Millions) 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E EBIT , , , , ,238.9 Tax Rate 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% 28.0% NOPLAT Depreciation Changes in WC CAPEX Deferred Liabilities FCF WC: Working Capital. Source: Santander Investment. Figure 3. Liverpool Discounted Cash Flow 2009E 2018E (U.S. Dollars in Millions) 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E Residual Discount Rate 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% 10.3% Discounted cash flows ,952 NPV of Cash Flows 3,034 Additions 26 Deductions 571 Target Market Cap 6,442 Current Market Cap 7,528 Target Price 4.80 Current Price 5.61 Additions include cash and investments in non consolidated subsidiaries. Deductions include debt and minorities. Source: Santander Investment. Trading at a 2008E P/E of almost 18 times, Liverpool shows a narrow discount of barely 16% to the sector average, compared with almost 60% a year ago. In our opinion, this discount could be viewed as narrow, considering we expect Liverpool s net profit to grow 13% in 2008, almost half the average we expect for the Latin American retail sector. Figure 4. Latin American Retailers Valuation Table. Prices as of August 1, Current Target Market FV/EBITDA PE 06A-08E CAGR Rating Price Price Cap 06 07E 08E 06 07E 08E EBITDA Net Profit Alsea Buy , Comerci Hold , Famsa Buy , Gigante Uperf , Liverpool Uperf , Soriana Hold , Walmex Buy , Mexico 52, Cencosud Buy , D&S Hold , Falabella Hold , La Polar Buy , Ripley Hold , Chile 27, Dufry Buy , Guararapes Buy , L Americanas Buy , Lojas Renner Hold , CBD Hold , B2W Buy , Brazil 97, Latam Source: Santander Investment estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

4 Hold Your Horses Downgrading to Underperform EXPECTED PERFORMANCE BY DIVISION RETAIL BUSINESS (91% OF 2006 SALES) Liverpool s retail business has performed relatively well so far in 2007, considering the difficult comps it has faced, and the lackluster consumption environment to date. The company has maintained its aggressive organic expansion program, consisting of opening 7 units per year in 2007, 2008 and 2009, representing selling floor expansion rates of 13%, 12% and 10% respectively. Same-store sales (SSS) for 1H07 have grown 2.5% in real peso terms, although to some extent at the expense of a lower gross margin following more aggressive promotions. We expect the pace of growth in SSS to be maintained in the remainder of 2007, although the pressures on gross margin should ease, based on our expectation for a more dynamic consumption environment. We believe SSS should increase by 4.0% per year in 2008 and 2009, supported by the maturity process of the stores opened during 2006 and 2007, as well as a relatively healthy consumption growth. Gross margin pressure might also affect the company s operating margin in 2007, although for 2008 and 2009 we expect some margin expansion on the back of a more stable gross margin and increased operating leverage. CREDIT BUSINESS (6% OF 2006 SALES) Liverpool has continued to replace interest-free credit promotions with fixed-installment credit facilities over up to 48 months, which has had a notable positive impact on sales, as 1H07 revenues in this division grew 31% YoY in real peso terms. Currently some 59% of Liverpool s retail sales are made using Liverpool s own brand card, and 55% of this generates interest. Twelve months ago, 57% of sales were made using the Liverpool card, and not even 50% of that generated interest. We believe there is further room for improvement in this regard. Taking Chilean department stores as a benchmark, some 65% of their sales are made using their own credit cards, and over 60% of these sales generate interest. However, past-due loans have increased from less than 2.0% of the total accounts last year to almost 2.5% currently, negatively affecting this division s margins despite the solid top line growth. REAL ESTATE (3% OF 2006 SALES) We believe revenue growth in this division should accelerate on the back of increased installed capacity. For 2007, the company should see a 19% increase in floor selling space through the opening of two new shopping malls in Mérida and Puerto Vallarta, adding 32,000 new square meters of space to lease. The company plans to expand its shopping mall capacity by some additional 45,000 square meters between 2008 and As a result of all these factors, we expect sales growth rates for 2007, 2008 and 2009 of 12%, 17% and 13%, respectively, with a stable EBIT margin in the range of 65%. 4 U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

5 Figure 5. Liverpool Estimates by Division E. Figures in Millions of Nominal Pesos % 2007E % 2008E % 2009E % Revenues 38, % 43, % 49, % 55, % Retail 34, % 39, % 44, % 50, % Credit 2, % 3, % 3, % 4, % Real Estate 1, % 1, % 1, % 1, % Gross Profit 17, % 19, % 22, % 22, % EBIT 5, % 7, % 8, % 8, % EBITDA 5, % 6, % 8, % 9, % Sources: Liverpool, Santander Investment estimates. Positives Decent earnings growth. Solid market position. High ROE. Concerns Very thin stock liquidity. High invested capital. Entrance of Sacks Fifth Av in Mexico to step up competition within the high end customer segment. High valuation levels. MACROECONOMIC ASSUMPTIONS Figure 6. Mexico Select Economic Projections, E E 2008E Real GDP (%) 2.8% 4.8% 3.3% 3.8% CPI Inflation (%) 3.3% 4.1% 3.7% 3.5% US$ Exchange Rate (Year-End) US$ Exchange Rate (Average) Interest Rate (Year-End) 8.2% 7.0% 7.3% 7.0% Interest Rate (Average) 9.2% 7.2% 7.2% 7.1% Fiscal Balance (% of GDP) -0.2% 0.0% 0.0% 0.0% Current Account Balance (% of GDP) -0.7% -0.3% -1.5% -0.8% International Reserves (US$ Bn) Total External Debt (% of GDP) 16.8% 13.2% 13.0% 12.4% Source: Santander Investment historicals and forecasts. EARNINGS REVISIONS Figure 7. Liverpool Changes to 2007 and 2008 Estimates (Figures in Millions of U.S. Dollars). 2007E 2008E 2009E Current Previous Var % Current Previous Var % Current Previous Var % Revenues 3,961 3,921 1% 4,375 4,405-1% 4,759 NA NA EBITDA % % 804 NA NA EBITDA Mg 15.7% 15.6% 1% 16.3% 15.8% 3% 16.9% NA NA Net Income % % 486 NA NA EPS % % 0.36 NA NA NA not available. Source: Santander Investment estimates. Our 2007 and 2008 U.S. dollar estimates have not changed significantly and we are introducing our 2009 estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

6 Hold Your Horses Downgrading to Underperform RISKS TO INVESTMENT THESIS A better-than-expected SSS performance would have a positive impact on our top-line growth estimate, and would also likely have a positive impact on the EBITDA margin following an increase in of the company s operating leverage. We are expecting the company to expand its floor selling space by 13% in 2007, 12% in 2008 and 10% in Expanding the store base at a faster-than-projected pace might have a positive impact on our estimates. A stronger-than-anticipated working capital structure could positively affect both our target price and rating through lower invested capital and higher cash flow generation. 6 U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

7 FINANCIAL STATEMENTS Figure 8. Liverpool Income Statement, Balance Sheet, and CF Statement, E (U.S. Dollars in Millions) Income Statement E 2008E 2009E Sales 3, , , , Cost of Sales -2, , , , Gross Profit 1, , , , Oper. and Adm. Expenses , , , Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet E 2008E 2009E Assets 3, , , , Short-Term Assets 1, , , , Cash and Equivalents Accounts Receivable 1, , , , Inventories Other Short-Term Assets Long-Term Assets Fixed Assets 1, , , , Deferred Assets Other Assets Liabilities 1, , , , Short-T. Liabilities 1, , , , Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth 2, , , , Net Worth 2, , , , Minority Interest Cash Flow E 2008E 2009E Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury Sources: Company reports and Santander Investment estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

8 Hold Your Horses Downgrading to Underperform Figure 9. Liverpool Income Statement, Balance Sheet, and CF Statement, E (Millions of Nominal Pesos) Income Statement E 2008E 2009E Sales 38, , , , Cost of Sales -23, , , , Gross Profit 15, , , , Oper. and Adm. Expenses -10, , , , Operating Profit 5, , , , Depreciation , , EBITDA 5, , , , Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes 4, , , , Tax Provision -1, , , , Profit after Taxes 3, , , , Subsidiaries Extraordinary Items Minority Interest Net Profit 3, , , , Balance Sheet E 2008E 2009E Assets 41, , , , Short-Term Assets 19, , , , Cash and Equivalents Accounts Receivable 14, , , , Inventories 4, , , , Other Short-Term Assets Long-Term Assets Fixed Assets 20, , , , Deferred Assets Other Assets Liabilities 18, , , , Short-T. Liabilities 11, , , , Suppliers 5, , , , Short-Term Loans 1, Other ST Liabilities 4, , , , Long-Term Loans 3, , , , Deferred Liabilities Other Liabilities 4, , , , Majority Net Worth 22, , , , Net Worth 22, , , , Minority Interest Cash Flow E 2008E 2009E Net Majority Earnings 3, , , ,697.8 Non-Cash Items , , ,811.5 Changes in Working Capital , , ,641.7 Capital Increases/Dividends Change in Debt , Capital Expenditures -3, , , ,592.8 Net Cash Flow Beginning Treasury Ending Treasury Sources: Company reports and Santander Investment estimates. 8 U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) / (212)

9 IMPORTANT DISCLOSURES Liverpool 12-Month Relative Performance (U.S. Dollars) LIVEPOL IPC Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jun-07 Jul-07 Sources: Bloomberg and Santander Investment. Liverpool Three-Year Stock Performance (U.S. Dollars) SB $1.60 4/15/04 B $ /19/04 UP $1.60 5/19/05 UP $ /21/05 3,000 2,500 2,000 1,500 Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review B $ /24/06 1, M-04 J-04 S-04 D-04 M-05 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M Liverpool (L Axis) IPC (R Axis) Source: Santander Investment. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

10 Key to Investment Codes IMPORTANT DISCLOSURES (CONTINUED) Rating Definition % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Buy Expected to outperform the local market benchmark by more than 5.0% % 80.00% Hold Expected to perform within a range of 5.0% above or below the local market benchmark % 20.00% Underperform/Sell Expected to underperform the local market benchmark by more than 5.0% % The numbers above reflect our Latin American universe as of Friday, July 6, For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2007 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53 rd Street, 17 th Floor (Attn: Research Disclosures), New York, NY USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus or minus the 5% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) This report has been prepared by Santander Investment Securities Inc. ( SIS ) (a subsidiary of Santander Investment S.A., which is wholly owned by Banco Santander Central Hispano, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Santander Central Hispano S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SIS, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Joaquin Ley and Vivian Salomon. Grupo Santander receives non-investment banking revenue from the subject company. In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Liverpool. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. All Rights Reserved. 2007