UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549








FORM 20-F/A



(Amendment
No. 2)



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the year ended December 31, 2011



Commission file number 1-12632



Grupo Casa Saba, S.A.B. de C.V.

(Exact name of Registrant as specified in
its charter)



N/A(Translation of Registrant’s name into English)



Mexico(Jurisdiction of Incorporation or Organization)



Paseo de la Reforma, No. 215
Colonia Lomas de Chapultepec, Mexico, D.F. 11000



Mexico(Address of Principal Executive Offices)



Sandra Yatsko

+(52 55) 5284-6672
+(52 55) 5284-6633



syatsko@casasaba.com
Paseo de la Reforma, No. 215
Colonia Lomas de Chapultepec, Mexico, D.F. 11000(Name, Telephone, E-mail and/or facsimile number and address of contact person)










SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT
TO SECTION 12(b)

OF THE ACT:



|Title of Each Class                                                                       | Name of Each Exchange
        on Which Registered                          
|----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|                                                                                          |                                                                            
|American
    Depositary Shares, each representing 
ten Ordinary Shares, without par value | New
    York Stock Exchange                                                
|                                                                                          |                                                                            
|Ordinary
    Shares, without par value                                                    | New
        York Stock Exchange
        (for
        listing purposes only)



Securities registered or to be registered
pursuant to Section 12(g) of the Act: None



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act: None



The number of outstanding shares of each
class of capital or common stock as of December 31, 2011 was:



265,419,360 Ordinary Shares, without par
value.



Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.



Yes  ̈No
x



If this report is an annual or transition
report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.



Yes  ̈No
x



Note - Checking the box above will not relieve
any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.



Yes xNo
  ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).Not applicable



Yes  ̈No
x



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):



|Large accelerated filer  ̈ | Accelerated filer  x | Non-accelerated filer  ̈
|------------------------- | -------------------- | -----------------------



Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:



|U.S. GAAP  ̈ | International Financial Reporting Standards as issued by the International Accounting Standards Board  ̈ |  | Other x
|----------- | ------------------------------------------------------------------------------------------------------- |  | -------



If “Other” has been checked
in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.



Item 17  ̈Item
18 x



If this is an annual report, indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes  ̈No
x
















EXPLANATORY NOTE



This Amendment No.
2 to the Annual Report on Form 20-F/A (“Amendment No. 2”) amends the Annual Report on Form 20-F of Grupo Casa
Saba, S.A.B. de C.V. (the “Group”) for the fiscal year ended December 31, 2011 (the “Original
Filing”), originally filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2012.



This Amendment No.2 is
being filed to amend “Item 3A. Selected Financial Data”, “Item 5. Operating and Financial Review and Prospects,”
“Item 15. Controls and Procedures,” “Item 18. Financial Statements,” and “Item 19. Exhibits”of
the Form 20-F to (i) restate the Group’s previously filed consolidated financial statements and related financial statement
schedule for the fiscal years ended December 31, 2011, 2010 and 2009, (ii) attach an unqualified audit report on the financial
statements issued under the standards of the Public Company Accounting Oversight Board (U.S.) by our independent registered public
accounting firm, Salles Sainz-Grant Thornton (SS-GT), (iii) amend management’s controls and procedures disclosures, including
management’s assessments of disclosure controls and procedures and internal control over financial reporting as of December
31, 2011 and iv) amend SS-GT’s attestation of the effectiveness of the Company’s internal control over financial reporting
as of December 31, 2011 (collectively, the “Restatement). The restatement of financial statements resulted from errors
to the Group’s previously filed consolidated financial statements as of December 31, 2011 and 2010 and for the three fiscal
years in the period ended December 31, 2011.



This Amendment also reflects
the changes to “Item 16F. Change in Registrant’s Certifying Accountant” which were included in Amendment No.
1 to the Original Filing, as filed with the SEC on May 18, 2012 (“Amendment No. 1”).



As required by Rule 12b-15
of the U.S. Securities Exchange Act of 1934, we are including currently-dated certifications by our principal executive officer
and our principal financial officer as exhibits to this Amendment No. 2 under “Item 19. Exhibits” hereof.



The Amendment No. 2 does
not reflect events occurring after the filing of Amendment No. 1. Accordingly, the Amendment should be read in conjunction with
the Original Filing and Amendment No. 1, as well as the Company’s other filings made with the SEC subsequent to the filing
of Amendment No. 1.



i







TABLE OF CONTENTS



|PART I    |                                                                              |    
|--------- | ---------------------------------------------------------------------------- | ---
|          |                                                                              |    
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 6  
|          |                                                                              |    
|Item 2.   | Offer Statistics and Expected Timetable                                      | 6  
|          |                                                                              |    
|Item 3.   | Key Information                                                              | 6  
|          |                                                                              |    
|Item 4.   | Information on the Company                                                   | 27 
|          |                                                                              |    
|Item 4A.  | Unresolved Staff Comments                                                    | 76 
|          |                                                                              |    
|Item 5.   | Operating and Financial Review and Prospects                                 | 76 
|          |                                                                              |    
|Item 6.   | Directors, Senior Management and Employees                                   | 109
|          |                                                                              |    
|Item 7.   | Major Shareholders and Related Party Transactions                            | 114
|          |                                                                              |    
|Item 8.   | Financial Information                                                        | 117
|          |                                                                              |    
|Item 9.   | Offer and Listing Details                                                    | 119
|          |                                                                              |    
|Item 10.  | Additional Information                                                       | 122
|          |                                                                              |    
|Item 11.  | Quantitative and Qualitative Disclosure about Market Risk                    | 144
|          |                                                                              |    
|Item 12.  | Description of Securities Other than Equity Securities                       | 146
|          |                                                                              |    
|Item 12A. | Debt Securities                                                              | 146
|          |                                                                              |    
|Item 12B. | Warrants and Rights                                                          | 146
|          |                                                                              |    
|Item 12C. | Other Securities                                                             | 146
|          |                                                                              |    
|Item 12D. | American Depositary Shares                                                   | 146
|          |                                                                              |    
|PART II   |                                                                              |    
|          |                                                                              |    
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 147
|          |                                                                              |    
|Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 147
|          |                                                                              |    
|Item 15.  | Controls and Procedures                                                      | 147
|          |                                                                              |    
|Item 16.  | [Reserved]                                                                   | 148
|          |                                                                              |    
|Item 16A. | Audit Committee Financial Expert                                             | 148
|          |                                                                              |    
|Item 16B. | Code of Ethics                                                               | 149
|          |                                                                              |    
|Item 16C. | Principal Accountant Fees and Services                                       | 149
|          |                                                                              |    
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 149
|          |                                                                              |    
|Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 149
|          |                                                                              |    
|Item 16F. | Change in Registrant’s Certifying Accountant                                 | 149
|          |                                                                              |    
|Item 16G. | Corporate Governance                                                         | 150
|          |                                                                              |    
|Item 16H. | Mine Safety. (Dodd-Frank 1503)                                               | 152






Table of Contents




|PART III |                      |    
|-------- | -------------------- | ---
|         |                      |    
|Item 17. | Financial Statements | 153
|         |                      |    
|Item 18. | Financial Statements | 153
|         |                      |    
|Item 19. | Exhibits             | 153






Table of Contents




INTRODUCTION



Grupo Casa Saba, S.A.B. de
C.V. is a limited liability stock corporation with variable capital, or sociedad anónima bursátil de capital variable,
organized under the laws of the United Mexican States, or Mexico, and is a holding company that conducts substantially all of its
operations through subsidiaries. In this annual report, except when indicated or the context otherwise requires, the words “Grupo
Casa Saba”, “the Group”, “the Company”, “we”, “us”, “our” and
“ours” refer to Grupo Casa Saba, S.A.B. de C.V. and its consolidated subsidiaries. Each subsidiary of Grupo Casa Saba
is an independent legal entity with its own accounting, corporate structure and records, executives and employees. References in
this annual report to divisions are to combinations of various subsidiaries that have been grouped together for management and
presentation purposes.



This annual report contains
translations of certain constant Mexican Peso amounts into U.S. Dollars at specified rates solely for the convenience of the reader.
These convenience translations should not be construed as representations that the constant Peso amounts actually represent such
U.S. Dollar amounts or could be converted into U.S. Dollars at the rate indicated or at all. The exchange rates used in preparing
our consolidated financial statements and in preparing convenience translations of such information into U.S. Dollars are determined
by reference as of the specified date to the rate of Mexican Pesos per U.S. Dollar reported by the Banco de México,
or the Mexican Central Bank, in the Diario Oficial de la Federación, or the Official Gazette of the Federation. As
of December 31, 2011, the Mexican Pesos per U.S. Dollar exchange rate, as reported by the Mexican Central Bank in the Official
Gazette of the Federation, was Ps. 13.9787 to one U.S. Dollar. See “Item 3. Key Information—Exchange Rate Information”.



Unless otherwise specified,
information included in this annual report is as of December 31, 2011. References to “Ps.” or “Pesos” in
this annual report are Mexican Pesos, references to “$CLP” are to Chilean pesos, references to Soles are to Peruvian
Soles, references to “R$” or “Reais” are to Brazilian Reais, and references to “Dollars”, “U.S.
Dollars”, “$” or “U.S.$” are to United States Dollars. Certain amounts included in this annual report
may not sum due to rounding.



MARKET SHARE AND OTHER INFORMATION



Market share information
for our private sector pharmaceutical sales is based on statistics provided exclusively to us by IMS A.G., known internationally
as IMS Health, and our own Company estimates.



INTELLECTUAL PROPERTY



This annual report includes
names of certain products, trade names and brand names which constitute trademarks that we own or license. This annual report also
contains other brand names, trade names, trademarks or service marks of other companies, and these brand names, trade names, trademarks
or service marks are the property of those companies.






Table of Contents




FORWARD-LOOKING STATEMENTS



Some written information
and oral statements made or incorporated by reference from time to time by us or our representatives in this annual report, other
reports, filings with the Securities and Exchange Commission, or the SEC, press releases, conferences, or otherwise, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which
are subject to various risks and uncertainties, include, without limitation, any statement that may predict, forecast, indicate,
or imply future results, performance, or achievement, and may contain forward-looking terminology such as “anticipate”,
“believe”, “continue”, “expect”, “estimate”, “project”, “potential”,
“should”, “could”, “assume”, “intend”, “will”, “will likely result”,
“may”, “plan”, or words or phrases of similar meaning that are predictions, estimates, expectations or
indications of future events and future trends. These statements are contained in the sections entitled “Item 3. Key Information—Risk
Factors”, “Item 4. Information on the Company”, “Item 5. Operating Financial Review and Prospects”
and other sections of this annual report.



Forward-looking statements
reflect our best assessment or estimate at the time and thus involve risks and uncertainties because they relate to events and
depend on circumstances that may or may not occur in the future.



We caution you that forward-looking
statements are not guarantees of future performance and that our actual results of operation, financial condition and the development
of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements.
Therefore, these forward-looking statements are qualified by reference to the cautionary statements set forth in this annual report.



The risks and uncertainties
involved in the forward-looking statements are detailed from time to time in reports we file with the SEC and include, among others,
the following:



| | · | International, national and local general economic, financial and market conditions, inflation
and interest rate movements;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | The overall size and growth of the Mexican, Brazilian, and Chilean pharmaceutical markets;
| | - | ------------------------------------------------------------------------------------------



| | · | The level of competition among distributors, suppliers and sellers of pharmaceuticals;
| | - | --------------------------------------------------------------------------------------



| | · | Fluctuations and difficulty in forecasting operating results;
| | - | -------------------------------------------------------------



| | · | Our ability to integrate acquisitions and expansion into new markets;
| | - | ---------------------------------------------------------------------



| | · | Our ability to operate our retail pharmacy business efficiently;
| | - | ----------------------------------------------------------------



| | · | Dependence on suppliers and clients;
| | - | ------------------------------------



| | · | General risks associated with doing business in Mexico, Brazil and Chile including political and
economic instability and changes in government regulations; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Other factors referenced in this annual report.
| | - | -----------------------------------------------



5


Table of Contents




The risks summarized above
are not exhaustive. Other sections of this annual report may include additional factors that could adversely impact our business
and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge
from time to time and it is not possible for our management to predict all of these risk factors, nor can it assess the impact
of all of these risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors and
analysts should not place undue reliance on forward-looking statements as a prediction of actual results. Accordingly, when considering
forward-looking statements, investors and analysts should bear in mind the factors described in “Item 3. Key Information—Risk
Factors” and other cautionary statements appearing in “Item 5. Operating and Financial Review and Prospects”
and elsewhere in this annual report.



The predictive and forward-looking
statements in this annual report may never materialize and are made under the SEC’s safe harbor disclosure. Forward-looking
statements speak only as of the date they are made and we do not undertake any obligation to update them in light of new information
or future developments.



PART I



Item 1.            Identity
of Directors, Senior Management and Advisers

Notapplicable.



Item 2.           Offer
Statistics and Expected Timetable

Notapplicable.



Item 3.           Key Information



(a)  Selected Financial
Data



Our audited consolidated
financial statements are prepared in accordance with Mexican Financial Reporting Standards, or Mexican FRS, which differ in some
significant respects from U.S. GAAP. Note 22 to our audited consolidated financial statements provides a description of the principal
differences between Mexican FRS and U.S. GAAP as they relate to us. Note 23 to our audited consolidated financial statements provides
a reconciliation to U.S. GAAP of net income and stockholders’ equity.



We publish our consolidated
financial statements in Mexican Pesos.



Through the end of 2007,
Bulletin B-10, “Recognition of the impact of inflation on the financial information (integrated document)” required
us to recognize certain effects of inflation in our consolidated financial statements, including the requirement to restate financial
statements from prior periods to constant Pesos as of the end of the most recent period presented. The method of restatement required
us to calculate a restatement factor using a weighted average rate based upon the Mexican National Consumer Price Index, or NCPI.
The recognition of the effects of inflation through December 31, 2007 principally resulted in the recognition of gains and losses
for inflation on monetary and non-monetary items, which were presented in the financial statements. See Note 3(e) to our consolidated
financial statements.



Effective January 1, 2008,
FRS B-10 “Impact of inflation”, no longerrequires us to recognize the effects of inflation unless the economic
environment qualifies as “inflationary”. An economic environment is considered inflationary if the cumulative inflation
rate equals or exceeds an aggregate of 26% over the three preceding years (equivalent to an average of 8% in each year). Because
of the relatively low levels of inflation in Mexico during recent years (3.8% in 2011, 4.4% in 2010, 3.6% in 2009, 6.5% in 2008,
and 3.8% in 2007), the cumulative inflation rate in Mexico over the three-year period prior to December 31, 2011 does not qualify
the economic environment as inflationary. Moreover, the economic environments in other countries where we operate do not qualify
as inflationary. Additionally, based on current forecasts, we do not expect the economic environment of Mexico or any other country
where we operate to qualify as inflationary in 2012. These expectations could change depending on actual economic performance.



6


Table of Contents




As a result, the Group has
not recognized the impact of inflation effective January 1, 2008, due to the non-inflationary economic environment existing in
Mexico, Chile and Brazil. Consequently, the amounts of statements of income and cash flows are presented in nominal Mexican pesos.
Financial information for dates and periods prior to January 1, 2008 continue to be expressed in constant Pesos as of December
31, 2007, in accordance with Mexican FRS. The impact of inflation accounting under Mexican FRS has not been reversed in our reconciliation
to U.S. GAAP. See Notes 22 and 23 to our audited consolidated financial statements. The information set forth in the following
table has been selected from our audited consolidated financial statements for the periods indicated. This information should be
read together with, and it is qualified in its entirety by reference to, our audited consolidated financial statements, the notes
to such financial statements and the information under the section entitled “Item 5. Operating and Financial Review and Prospects”.



As discussed in Note 3 a)
“Accounting error corrections” subparagraphs i) and ii) to our audited consolidated financial statements, the Group ́s
2011 and 2010 consolidated financial statements have been restated to correct certain accounting errors. As a result, there are
some differences in the figures and items that are presented in this table from the original filing. Please see Note 3 a) to our
audited consolidated financial statements for an explanation of the items that were affected by the restatement.



|Year ended December 31                                          |  | 2011 Restated                                                             |            |   | 2010 Restated |  |            | 2009 |  |  | 2008       |   |  | 2007 |            |  | 2011 (1) Restated | 
|--------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ---------- | - | ------------- |  | ---------- | ---- |  |  | ---------- | - |  | ---- | ---------- |  | ----------------- | 
|                                                                |  | (in thousands of Pesos and U.S. Dollars, except share and per share data) |           
|Income Statement                                                |  |                                                                           |            |   |               |  |            |      |  |  |            |   |  |      |            |  |                   | 
|Mexican FRS:                                                    |  |                                                                           |            |   |               |  |            |      |  |  |            |   |  |      |            |  |                   | 
|Net sales                                                       |  |                                                                           | 46,568,226 |   |               |  | 33,840,754 |      |  |  | 29,791,657 |   |  |      | 28,400,059 |  |                   | 
|Gross profit                                                    |  |                                                                           | 8,683,513  |   |               |  | 4,527,791  |      |  |  | 3,225,855  |   |  |      | 3,065,588  |  |                   | 
|Operating expenses                                              |  |                                                                           | 7,303,345  |   |               |  | 3,853,139  |      |  |  | 2,335,130  |   |  |      | 2,104,883  |  |                   | 
|Operating income                                                |  |                                                                           | 1,380,168  |   |               |  | 674,652    |      |  |  | 890,725    |   |  |      | 960,705    |  |                   | 
|Comprehensive cost of financing, net                            |  |                                                                           | 1,040,060  |   |               |  | 262,240    |      |  |  | 262,243    |   |  |      | 181,118    |  |                   | 
|Other income (expense) (2)                                      |  |                                                                           | (535,538   | ) |               |  | (97,131    | )    |  |  | (136,307   | ) |  |      | 58,189     |  |                   | 
|Income (loss) before taxes on earnings                          |  |                                                                           | (189,268   | ) |               |  | 318,181    |      |  |  | 492,175    |   |  |      | 897,567    |  |                   | 
|Controlling interest net income (loss)                          |  |                                                                           | (516,798   | ) |               |  | 276,934    |      |  |  | 280,278    |   |  |      | 595,118    |  |                   | 
|Non-controlling interest net income (loss)                      |  |                                                                           | 4,346      |   |               |  | (6,864     | )    |  |  |            |   |  |      |            |  |                   | 
|Net income (loss) per Ordinary Share (3)                        |  |                                                                           | (1.89      | ) |               |  | 1.01       |      |  |  | 1.05       |   |  |      | 2.24       |  |                   | 
|Weighted average Ordinary Shares outstanding (in thousands) (3) |  |                                                                           | 265,419    |   |               |  | 265,419    |      |  |  | 265,419    |   |  |      | 265,419    |  |                   | 
|U.S. GAAP (4):                                                  |  |                                                                           |            |   |               |  |            |      |  |  |            |   |  |      |            |  |                   | 
|Net sales                                                       |  |                                                                           | 46,568,226 |   |               |  | 33,840,754 |      |  |  | 29,791,657 |   |  |      | 28,400,059 |  |                   | 
|Gross profit                                                    |  |                                                                           | 8,683,513  |   |               |  | 4,527,791  |      |  |  | 3,225,855  |   |  |      | 3,065,588  |  |                   | 
|Operating income                                                |  |                                                                           | 845,909    |   |               |  | 646,426    |      |  |  | 857,029    |   |  |      | 963,648    |  |                   | 
|Income (loss) before taxes on earnings                          |  |                                                                           | (185,508   | ) |               |  | 289,955    |      |  |  | 458,479    |   |  |      | 900,510    |  |                   | 
|Controlling interest net income (loss) (4)                      |  |                                                                           | (513,038   | ) |               |  | 248,708    |      |  |  | 246,582    |   |  |      | 598,061    |  |                   | 



7


Table of Contents




|Year ended December 31                                          |  | 2011 Restated                                                                 |            |   | 2010 Restated |  |            | 2009 |  |  | 2008       |  |  | 2007 |            |  | 2011 (1) Restated | 
|--------------------------------------------------------------- |  | ----------------------------------------------------------------------------- | ---------- | - | ------------- |  | ---------- | ---- |  |  | ---------- |  |  | ---- | ---------- |  | ----------------- | 
|                                                                |  | (in thousands of Pesos and U.S. Dollars, except share
    and per share data) |           
|Income Statement                                                |  |                                                                               |            |   |               |  |            |      |  |  |            |  |  |      |            |  |                   | 
|Non-controlling interest net income (loss)                      |  |                                                                               | 4,346      |   |               |  | (6,864     | )    |  |  |            |  |  |      |            |  |                   | 
|Net income (loss) per Ordinary Share (3)                        |  |                                                                               | (1.92      | ) |               |  | 0.91       |      |  |  | 0.93       |  |  |      | 2.25       |  |                   | 
|Weighted average Ordinary Shares outstanding (in thousands) (3) |  |                                                                               | 265,419    |   |               |  | 265,419    |      |  |  | 265,419    |  |  |      | 265,419    |  |                   | 
|Balance Sheet Data                                              |  |                                                                               |            |   |               |  |            |      |  |  |            |  |  |      |            |  |                   | 
|Mexican FRS:                                                    |  |                                                                               |            |   |               |  |            |      |  |  |            |  |  |      |            |  |                   | 
|Property and equipment, net                                     |  |                                                                               | 3,406,855  |   |               |  | 3,534,551  |      |  |  | 1,400,188  |  |  |      | 1,404,985  |  |                   | 
|Total assets                                                    |  |                                                                               | 31,600,215 |   |               |  | 31,312,711 |      |  |  | 15,087,669 |  |  |      | 14,647,532 |  |                   | 
|Short-term debt                                                 |  |                                                                               | 3,050,826  |   |               |  | 9,195,340  |      |  |  | 1,491,126  |  |  |      | 271,824    |  |                   | 
|Long-term debt                                                  |  |                                                                               | 9,505,715  |   |               |  | 2,289,346  |      |  |  | 891,644    |  |  |      | 1,053,000  |  |                   | 
|Capital stock                                                   |  |                                                                               | 1,123,764  |   |               |  | 1,123,764  |      |  |  | 1,123,764  |  |  |      | 1,123,764  |  |                   | 
|Controlling interest stockholders’ equity (4)                   |  |                                                                               | 6,362,589  |   |               |  | 6,931,453  |      |  |  | 6,651,209  |  |  |      | 6,609,761  |  |                   | 
|Non-controlling interest stockholders equity                    |  |                                                                               | 155,741    |   |               |  | 151,395    |      |  |  |            |  |  |      |            |  |                   | 
|U.S. GAAP (4):                                                  |  |                                                                               |            |   |               |  |            |      |  |  |            |  |  |      |            |  |                   | 
|Property and equipment, net                                     |  |                                                                               | 3,406,855  |   |               |  | 3,534,551  |      |  |  | 1,400,188  |  |  |      | 1,404,985  |  |                   | 
|Total assets                                                    |  |                                                                               | 31,774,253 |   |               |  | 31,614,639 |      |  |  | 15,215,597 |  |  |      | 14,674,460 |  |                   | 
|Short-term debt                                                 |  |                                                                               | 3,050,826  |   |               |  | 9,195,340  |      |  |  | 1,491,126  |  |  |      | 271,824    |  |                   | 
|Long-term debt                                                  |  |                                                                               | 9,505,715  |   |               |  | 2,289,346  |      |  |  | 891,644    |  |  |      | 1,053,000  |  |                   | 
|Capital stock                                                   |  |                                                                               | 1,123,764  |   |               |  | 1,123,764  |      |  |  | 1,123,764  |  |  |      | 1,123,764  |  |                   | 
|Controlling interest stockholders’ equity (4)                   |  |                                                                               | 6,415,210  |   |               |  | 6,980,314  |      |  |  | 6,728,296  |  |  |      | 6,586,925  |  |                   | 
|Non-controlling interest stockholders equity                    |  |                                                                               | 155,741    |   |               |  | 151,395    |      |  |  |            |  |  |      |            |  |                   | 










| | (1) | Peso amounts have been translated into U.S. Dollars solely for the reader’s convenience,
at the rate of Ps. 13.9787 per U.S. $1.00, which was the Peso to U.S. Dollar exchange rate as of December 31, 2011, as reported
by the Mexican Central Bank in the Official Gazette of the Federation.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Other income consists of fees on returned checks, miscellaneous articles and non-taxable items
adjustments and services. See Note 3(n) and Note 22(g) to our audited consolidated financial statements for a description of impairment
of intangible assets included as other expenses.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Based on the weighted average number of Ordinary Shares outstanding during each year.
| | --- | -------------------------------------------------------------------------------------



| | (4) | For a discussion of the principal differences between U.S. GAAP and Mexican FRS concerning net
income and total stockholders’ equity as well as a partial reconciliation to U.S. GAAP of net income and total stockholders’
equity, see Notes 22 and 23 to our audited consolidated financial statements.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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(b) Dividends



Under Mexico’s Ley
General de Sociedades Mercantiles, or General Corporations Law, 5% of our net income in a given year must be allocated annually
to a legal reserve. This legal reserve must be increased annually until it reaches 20% of our capital stock. After this allocation
is made, it is then possible to make additional allocations, such as a contribution of funds for the payment of dividends or the
creation of special reserves, generally, but not necessarily, upon the recommendation of our Board of Directors. We cannot pay
dividends on our shares of capital stock, which we refer to as Ordinary Shares, unless these allocations are previously made.
Additionally, the credit facility agreement entered into by the Company on August 30, 2010, as borrower, with HSBC México,
S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, or HSBC Mexico, and Banco Mercantil del Norte,
S.A., Institución de Banca Múltiple, Grupo Financiero Banorte, as lenders, for the amounts of Ps. 5,773,857,695
and Ps. 1,950,000,000, respectively (the “Acquisition Loan”) provides for a series of covenants which, among other
things, restrict the ability of the Company to pay dividends on our capital stock or redeem, repurchase or retire our capital
stock; and to create any consensual limitation on the ability of the Company’s subsidiaries to pay dividends, make loans
or transfer any distribution, among other customary covenants and provisions. These limitations will be effective until the Company’s
obligations under the Acquisition Loan are fully paid. As of December 31, 2011, we had a legal reserve of approximately Ps. 252.0
million, which represented approximately 22.4% of our capital stock as of that date. See Note 17 to our audited consolidated financial
statements. Five percent of our net income for the year ended December 31, 2007 was applied to the legal reserve, and thus our
annual shareholder’s meeting held on April 29, 2008 approved the payment of a dividend in the amount of Ps. 170.0 million
(U.S$16.6 million),1 the equivalent of Ps. 0.6405 (U.S$0.06) per Ordinary Share. Five percent of our net income for
the year ended December 31, 2008 was applied to the legal reserve, and thus our annual shareholder’s meeting held on April
30, 2009 approved the payment of a dividend in the amount of Ps. 170.0 million (U.S$12.7 million),1the equivalent of Ps. 0.6405 (U.S$0.05) per Ordinary Share. Five percent of our net income for the year ended December
31, 2009 was applied to the legal reserve. At our annual shareholder’s meeting, held on April 30, 2010, our shareholders
resolved not to declare a dividend given the strategic growth alternatives being considered, which required the use of the Company’s
resources. Five percent of our net income for the year ended December 31, 2010 was applied to the legal reserve. At our annual
shareholder’s meeting, held on April 29, 2011, our shareholders resolved not to declare a dividend given the restrictive
covenants established in the Acquisition Loan. At our annual shareholder’s meeting, held on April 27, 2012, our shareholders
once again resolved not to declare a dividend given the restrictive covenants established in the Acquisition Loan used to purchase
FASA in October 2010. See “Item 4. Information on the Company—History and Development of the Company.” Our controlling
shareholder has the ability to determine, by means of a shareholder vote, whether we will declare and pay dividends, in cash or
otherwise. See “Item 3. Key Information—Risk Factors—Risk Factors Relating to Our Securities—Our Controlling
Shareholder Has the Ability to Restrict the Payment and Amount of Dividends”. A determination to declare and pay dividends
may depend on the following factors, among others:



| | · | the resolution by our shareholders in light of our results of operations, financial condition,
cash requirements, future prospects and other factors deemed relevant by our shareholders for this purpose;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the extent to which we receive cash dividends, advances and other payments from our subsidiaries.
We are a holding company with no significant operating assets other than the ones we own through our subsidiaries. Given the fact
that we receive substantially all of our operating income from our subsidiaries, our ability to meet our financial obligations,
including the payment of dividends, depends significantly on the dividend payments we receive from our subsidiaries; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------










1 U.S.
dollar conversions were calculated using the applicable exchange rate on the day that the
dividend was paid. In 2008, the exchange rate used was Ps. 10.2721:1 USD and for 2009, the exchange rate was Ps. 13.39:1 USD.



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| | · | the extent to which we have cash available for distribution after funding our working capital needs,
capital expenditures and investments.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



To the extent that we declare
and pay dividends on our Ordinary Shares, these dividends are payable to the holders of our American Depositary Shares, or ADSs.
Owners of our ADSs are entitled to receive any dividends payable on the Ordinary Shares underlying their ADSs. We pay all cash
dividends in Pesos, to the depositary of our ADSs, The Bank of New York. Except as otherwise provided in the Amended and Restated
Deposit Agreement pursuant to which our ADSs are issued, cash dividends received by the depositary are converted by the depositary
from Pesos into U.S. Dollars and, after the deduction or upon payment of the depositary’s expenses, are paid to the holders
of ADSs in U.S. Dollars. No withholding tax applies to dividends on our ADSs paid to individuals and non-residents of Mexico. See
“Item 10. Additional Information—Mexican Tax Considerations—Dividends.”



(c) Exchange Rate Information



The following table sets
forth, for the periods indicated, the high, low, average and period-end free market exchange rates, as reported by the Board of
Governors of the U.S. Federal Reserve Bank of New York for the purchase of U.S. Dollars, expressed in nominal Pesos per $1.00 U.S.
Dollar. The noon buying rate for Pesos on April 13, 2012 was Ps. 13.15 per U.S. Dollar.



|                        |  | Exchange Rate(1) |      
|----------------------- |  | ---------------- | -----
|Year ended December 31, |  | High             |      
|                        |  |                  |      
|2011                    |  |                  | 14.25
|2010                    |  |                  | 13.19
|2009                    |  |                  | 15.41
|2008                    |  |                  | 13.94
|2007                    |  | Ps.              | 11.27
|                        |  |                  |      
|Month ended             |  |                  |      
|April 13, 2012          |  | Ps.              | 13.18
|March 31, 2012          |  |                  | 12.99
|February 28, 2012       |  |                  | 12.95
|January 30, 2012        |  |                  | 13.75
|December 31, 2011       |  |                  | 13.99
|November 30, 2011       |  |                  | 14.25
|October 31, 2011        |  |                  | 13.93










| | (1) | The free market exchange rate is the Noon Buying Rate for Mexican
Pesos, as reported by the Board of Governors of the U.S. Federal Reserve Bank of New York.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Annual average rates reflect the average of month-end rates. Monthly average rates reflect the
average of daily rates.
| | --- | ----------------------------------------------------------------------------------------------------------------------



According to the U.S. Federal Reserve
Board, during 2011, the Brazilian Real reached a high of $1.8865 Brazilian Reais per U.S. $1.00 on November 25, 2011, and a low
of $1.5375 Brazilian Reais per U.S. $1.00 on July 26, 2011. On December 31, 2011, the exchange rate was Ps. 7.47 per $1.00 Brazilian
Real and CLP 37.11 per $1.00 Mexican Peso as published by Mexico’s Central Bank, Banco de México



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(d) Risk Factors



For purposes of this section,
when we state that a risk, uncertainty or problem may, could or would have an “adverse effect” on us, we mean that
the risk, uncertainty or problem may, could or would have an adverse effect on our business, financial condition, liquidity, operating
revenues, results of operations or prospects, except where otherwise indicated or as the context may otherwise require.



The risks described below
are intended to highlight risks that are specific to us, but are not the only risks that we face. Additional risks and uncertainties,
including those generally affecting the industries in which we operate and the countries where we have a presence, risks that we
currently deem immaterial or other unforeseeable risks, may also impair our business.



The information in this
annual report includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of numerous factors, including, without limitation, those
described in this section, under the sections entitled “Item 4. Information on the Company” and “Item 5. Operating
and Financial Review and Prospects” or elsewhere in this annual report. Please see “Forward-Looking Statements”.



Risk Factors Related to the Company



Material Weaknesses
Related To Group’s Brazilian Subsidiary caused The Reissuance Of The Group’s 2011 Consolidated Financial Statements.Material weaknesses related to the internal control over financial reporting by the Group ́s Brazilian subsidiary
CSB Drogarias, S.A. (as further described in “Item 15 Controls and Procedures”) caused the restatement of the Group ́s
2011 consolidated financial statements. As a result of our management team ́s constant effort and work, we have established
certain programs and activities to root out immediately these material weaknesses in our internal control over financial reporting.
Nevertheless, because of the inherent limitations of the internal control over financial reporting we cannot guarantee that our
new internal control policies put in place may prevent or detect material misstatements in the future.



We Participate in
Competitive Markets and Increased Competition May Adversely Affect Our Business. We face competition in the distribution
of pharmaceuticals, health, beauty aids and consumer goods, publications, general merchandise and other products. In our Pharmaceutical
Products business division, we face competition primarily from Mexico’s only other national distributor, Nacional de Drogas,
S.A. de C.V., or Nadro, and several regional distributors. In our Health, Beauty Aids and Consumer Goods, Publications and General
Merchandise and Other Products business divisions, we compete with many manufacturers, wholesalers and distributors that target
the same markets that we do.



The retail pharmacy markets
in Mexico and Brazil are very fragmented. In Mexico, we face competition from other large pharmacy chains, such as Farmacias
Guadalajara, Farmacias Fénix as well as Farmacias del Ahorro and supercenter chains, such as Wal-Mart. In Brazil,
we face competition from other pharmacy chains such as Drogaria São Paulo, Pague Menosand Drogasil, in the
states of Rio de Janeiro and São Paulo. In addition, we face competition from supermarkets, mass merchandisers, discount
stores, independently owned pharmacies, e-commerce and other smaller participants. In Chile, we face competition from Farmacias
Cruz Verde, S.A. and Salcobrand, S.A., both of which are chain pharmacies.



Our ability to achieve profitability
in our retail and distribution businesses depends on our ability to attract and retain loyal, repeat customers. Loss of existing
or future market share to competitors may adversely affect our performance and, to the extent that one or more of our competitors
becomes more successful than us with respect to any key competitive factors, our operating margins and profitability could be adversely
affected.



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Our Results of Operations
May Suffer Upon the Bankruptcy, Insolvency or Other Credit Failure of Our Suppliers.Our relationships with pharmaceutical
suppliers and manufacturers give rise to substantial amounts that are due to us from time to time, including amounts owed to us
for returned or defective goods and for services provided. The continued volatility of the capital and credit markets may adversely
affect the solvency or creditworthiness of our suppliers. The bankruptcy, insolvency or other credit failure of any supplier or
group of suppliers at a time when such suppliers have a substantial account payable balance due to us could have a material adverse
affect on us.



Our Total Revenue and
Results of Operations May Suffer Upon the Bankruptcy, Insolvency or Other Credit Failure of Our Customers.Most of our
customers in our distribution business buy pharmaceuticals and other products and services from us on credit that is short-term
in nature and generally unsecured. Credit is extended based on evaluation of a customer’s financial condition. The continued
volatility of the capital and credit markets may adversely affect the solvency or creditworthiness of our customers. Any adverse
change in general economic conditions can adversely reduce sales to our customers, affect consumer buying practices or cause our
customers to delay or be unable to pay accounts receivable owed to us, which would reduce our revenue growth and cause a decrease
in our profitability and cash flow. The bankruptcy, insolvency or other credit failure of any customer or group of customers that
in the aggregate have a substantial amount owed to us could have an adverse affect on our results of operation.



Our Distribution Business
is Dependent upon Sophisticated Information Systems. The Implementation Delay, Malfunction or Failure of These Systems for Any
Extended Period of Time Could Adversely Affect Our Business.We rely on sophisticated information systems in our distribution
business to obtain, rapidly process, analyze and manage data to (i) facilitate the purchase and distribution of thousands of inventory
items from numerous distribution centers, (ii) receive, process and ship orders on a timely basis, (iii) manage the accurate billing
and collections for thousands of customers and (iv) process payments to suppliers. If any such system is interrupted, damaged by
unforeseen events or fails for any extended period of time, we could suffer an adverse effect on our results of operations.



We Provide Remote Hosting
Services That Involve Operating Both Our Software and the Software of Third-Party Vendors for Our Customers.The ability
to access the systems and the data, including inventory, purchasing management, price updates and advisory services that we provide
to our customers, including data provided through our proprietary point-of sale system, www.farmaservicios.pdv, is critical
to them. Our operations and facilities are vulnerable to interruption and/or damage from a number of sources, many of which are
beyond our control, including, without limitation (i) power loss and telecommunications failures, (ii) fire, flood, hurricane and
other natural disasters and (iii) software and hardware errors, failures or crashes. We attempt to mitigate these risks through
various means including disaster recovery plans and test systems but our precautions may not protect against all problems. Any
significant instances of system downtime could adversely affect our reputation and ability to sell our remote hosting services.



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The intrusion of unauthorized
parties into our computer systems, as well as any other interruption or cyber-attack could jeopardize the confidentiality of our
information and the continuity of our processes.



Grupo Casa Saba and its subsidiaries
collect and store highly sensitive information within servers and private networks, such as: (i) business information, (ii) intellectual
property rights (unpublished), (iii) information of our customers and suppliers, and (iv) personal information of our employees
and executives. The processes related to the transmission, maintenance and security of this information are critical for our transactions
and business strategies. Regardless of the security measures adopted by Grupo Casa Saba and its subsidiaries, our information and
technological infrastructure may be exposed to cyber-attacks, failures caused by errors performed by our employees, or any other
unauthorized intrusion into our technological infrastructure.



Any attack or failure in
our systems, could jeopardize the information that we store and expose it to theft or losses, which could result in lawsuits and
legal proceedings against Grupo Casa Saba and / or any of its subsidiaries, due to the violation of confidentiality agreements
executed with our customers, suppliers, employees or business partners, in addition to the reputational damage that the Company
could suffer. This could adversely affect our operations and our market position.



Our Results of Operation
May be Negatively Affected if We are Unable to Operate our Retail Pharmacy Business Efficiently.A portion of our future
operations and cash flow will depend upon our ability to operate our retail pharmacy business efficiently, achieve the strategic
operating objectives for our business and realize significant cost savings and synergies. Our management team may encounter unforeseen
difficulties in managing the integration of the retail pharmacy business. The retail pharmacy business entails different risks,
strategies and models to which our management must adapt. Any substantial diversion of management’s attention or any difficulties
in operating the retail pharmacy business together with the distribution business could affect our sales and ability to achieve
operational, financial and strategic objectives.



Our Retail Pharmacy
Business is Subject to Additional Risks That May Impede Our Desired Growth Plan.Our ability to grow our retail pharmacy
business may be constrained if suitable new store locations cannot be identified with lease terms or purchase prices that are acceptable
to us. We compete with other retailers and businesses for suitable locations for our stores. Local land use and other regulations
applicable to the types of stores we may seek to lease or construct could impact our ability to find suitable locations and influence
the cost of leasing, constructing and refurbishing our pharmacies. The expiration of leases at existing store locations may adversely
affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores. Further, changing
local demographics at existing store locations may adversely affect revenue and profitability levels at those stores.



Our retail pharmacy sales
and profit margins are affected by the introduction of new brand name and generic drugs. New brand name drugs can result in increased
drug utilization and associated sales revenues, while the introduction of lower priced generic alternatives typically result in
higher gross profit margins. Accordingly, a decrease in the number of significant new drugs or generics successfully introduced
could adversely affect our results of operation.



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If We Fail to Offer
Products and Services that are Attractive to our Customers, the Sales of our Retail Pharmacy Business may be Adversely Affected.
The success of our retail operations depends on our ability to offer a superior shopping experience, quality assortment of available
merchandise and excellent customer service. We must identify, obtain supplies of, and offer to our customers, attractive, innovative
and high quality products on a continuous basis. Our products and services must satisfy the desires of our customers, whose preferences
may change in the future. If we misjudge either the demand for products and services we sell or our customers’ purchasing
habits and tastes, we may be faced with excess inventories of some products and missed opportunities for products and services
we chose not to offer. As a consequence, our sales may decline or we may be required to sell the merchandise we have obtained at
lower prices, which would adversely affect our business and results of operations.



There are Differences
in Corporate Disclosure and Accounting Standards for Mexican Companies and This May Cause Our Financial Statements to Differ in
Certain Respects from U.S. Issuers. One of the primary objectives of the United States, Mexico and other countries’
securities laws is to promote full and fair disclosure of all material corporate information. However, there may be less publicly
available information about foreign private issuers of securities listed in the United States than is regularly published by or
about domestic issuers of listed securities. Corporate governance standards applicable to companies listed in Mexico and the United
States differ. See “Item 16G. Corporate Governance.” In January of 2009, the Mexican National Banking and Securities
Commission published certain amendments to the regulations applicable to pubic companies, which included the obligation to prepare
and present financial statements based on IFRS as of 2012. Our financial statements as of December 31, 2011 were prepared based
on the applicable Mexican FRS. Note 21 to the audited consolidated financial statements describes the migration from MFRS to IFRS
and the effects that the transition may have on the preparation of the consolidated financial statements.



For the year concluded
on December 31, 2012, the Company will be reporting its financial information pursuant to IFRS, with its official adoption as
of January 1st, 2012. IFRS differ in certain significant aspects from Mexican FRS. An analysis of the principal differences
between IFRS and Mexican FRS, along with an estimation of the application of IFRS in the General Balance of the Company for
March 30 of 2012 is presented in Item 5 — Operating and Financial Review and Prospects— Accounting Pronouncements
and Related Effects. As a result of the adoption of IFRS, our financial consolidated information under the terms established
by IFRS for fiscal year 2012 may not be comparable to our financial information of previous periods prepared under the terms
provided by Mexican FRS.



Risks related with
the publicity control applicable to the so called  ̈Miracle Products”.The recent amendments to theRegulation
of the General Health Law in Publicity Matters (Reglamento de la Ley General de Salud en Materia de Publicidad) and the
strict measures carried out by the Mexican health authorities in order to withdraw from the market the so called “miracle
products” could adversely affect the Group. The “Miracle Products”, are those products consisting of herbal remedies,
dietary supplements and cosmetic products that are advertised or commercialized as drugs or products with therapeutic qualities
or effective for preventive treatment, rehabilitation or the healing of one or more conditions. Some of the products distributed
and commercialized by the Company, through its subsidiaries, may be considered miracle products; therefore there is a risk that
the sale of said products could be adversely affected as a result of the measures adopted by the Mexican health authorities.



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We Are Controlled by
One Controlling Shareholder. Eighty-five percent of our outstanding Ordinary Shares are directly owned by our controlling
shareholder. See “Item 7. Major Shareholders and Related Party Transactions—Principal Shareholders”. Our controlling
shareholder controls our business and has the power to elect the majority of our Board of Directors, as well as to determine the
outcome of all actions that require shareholder approval, including the determination to declare and pay dividends, in cash or
otherwise.



We Rely on Certain
Key Managers and Other Personnel, and Our Business Could Be Adversely Affected If We Are Not Able to Retain These Key Personnel
or Find Suitable Replacements. Our growth and success depend on our ability to retain skilled, qualified and experienced
managerial and technical personnel. Any loss or interruption ofthe services of key senior personnel, or the inability to
timely recruit sufficient qualified personnel, could adversely affect our business, results of operations and financial condition.



We Are a Holding Company;
Therefore, Our Ability to Pay Dividends, Repay Our Indebtedness and Finance Our Operations Is Dependent on Cash Flow Generated
by Our Subsidiaries and Their Ability to Make Distributions to Us.We are a holding company with no significant operations
or material assets other than the capital stock of our subsidiaries. As a result, our ability to pay dividends is dependent on
the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividends, debt repayments
or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to pay dividends or make
payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances,
legal and contractual restrictions, as well as their financial condition and operating requirements, may limit our ability to obtain
cash from our subsidiaries. In addition, our right to receive assets from our subsidiaries or shareholders of our subsidiaries,
in the case of a liquidation or corporate reorganization, is subordinated to the rights of the creditors of such subsidiaries,
including suppliers.



Continuity in the Consolidation
of FASA within Grupo Casa Saba.We have continued with the strengthening of our retail pharmaceutical business and we hope
to acquire more pharmaceutical chains as well as individual drugstores in the future. As part of the integration of FASA and its
subsidiaries, we began the implementation of an integration plan during fiscal year 2011. Integration of acquisitions involves
a number of risks including the diversion of management’s attention to the assimilation of the operations of businesses we
acquire, difficulties in the integration of operations and systems, the realization of potential operating synergies, the assimilation
and retention of the personnel of the acquired companies, challenges in retaining the customers of the combined businesses and
potential adverse effects on operating results.



We May Not Be Able
to Pay Dividends in the Immediate Future as a Result of the Acquisition.Pursuant to Mexican law, decisions regarding the
payment and amount of dividends are subject to approval of the Company’s shareholders. Depending on the results and condition
of our business, dividends for any specific year may be paid to the extent that such payment is approved by our shareholders and
would not impair our ability to invest and grow. Therefore, any dividend payment would depend on the cash that the Company generates
in a given year as well as on the market conditions of our business and on our subsidiaries’ ability to make cash available
to us. The Acquisition Loan provides for a series of covenants which, among other things, restrict the ability of the Company to
pay dividends on our capital stock or redeem, repurchase or retire our capital stock and to create any consensual limitation on
the ability of the Company’s subsidiaries to pay dividends, make loans or transfer any distribution, among other customary
covenants and provisions. These limitations will be effective until the Company’s obligations under the Acquisition Loan
are fully paid.



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In Connection with
the Acquisition, the Company has incurred a Significant Amount of Debt, Which May Result in an Adverse Effect on the Price of Our
Shares and an Increase Our Interest Costs.For purposes of completing the Acquisition, in 2010 we incurred significant
amounts of debt, which may have an adverse effect on the price of our outstanding shares. In August 2011, the Company restructured
this loan at more favorable terms. Such financing could, likewise, have important consequences to the Company, including an increase
in our interest expense.



Restrictive Covenants
in Our Finance Documents Related to the Acquisition May Restrict the Manner in Which We Can Operate Our Business.The agreements
governing our and our subsidiary guarantors’ outstanding indebtedness in connection with the Acquisition limit, among other
things, limit our ability and the ability of certain subsidiaries to: (i) incur, assume or allow the existence of indebtedness,
(ii) create liens, (iii) consolidate, merge or transfer assets, (iv) sell assets, including capital stock of our subsidiaries,
(v) make loans, (vi) modify the nature of our business, (vii) pay dividends on our capital stock or redeem, repurchase or retire
our capital stock, (viii) make investments, and (ix) create any consensual limitation on the ability of our subsidiaries to pay
dividends, make loans or transfer any distribution to us, among other customary covenants and provisions.



If we fail to comply with
these covenants, we would be in default under the loan agreement related to the Acquisition, and the principal and accrued interest
of such loan or other outstanding indebtedness may become due and payable. These restrictions could limit our ability to seize
attractive growth opportunities for our businesses that are currently unforeseeable, particularly if we are unable to incur financing
or make investments to take advantage of these opportunities. This could have an adverse effect on us.



The Instruments Governing
the Debt Incurred in Connection with the Acquisition Contain Cross-Default Provisions that May Cause All of the Amounts Owed under
Such Loan, to Become Immediately Due and Payable as a result of a Default under an Unrelated Debt Instrument.The instruments
governing the debt incurred in connection with the Acquisition contain numerous restrictive covenants. Instruments governing our
other indebtedness also contain certain affirmative and negative covenants and require us and our subsidiaries to meet certain
financial ratios and tests. Our failure to comply with the obligations contained in any instrument governing our indebtedness could
result in an event of default under the applicable instrument, which could then result in the related debt and the debt issued
under other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources,
which may not be available to us on favorable terms, on a timely basis or at all. Alternatively, such default could require us
to sell our assets and otherwise curtail operations in order to pay our creditors.



FASA Could Be Subject
of Further Claims by Cruz Verde and Salcobrand in the Process that Is Currently Being Held Against Them before the Chilean Antitrust
Authority.On December 9, 2008, the Chilean Antitrust Authority, or Fiscalía Nacional Económica,initiated
a proceeding against FASA before the Chilean Antitrust Court, or Tribunal de Defensa de la Libre Competencia, which intended,
among other things, to prove that FASA had agreed with its competitors, Farmacias Cruz Verde S.A. (“Cruz Verde”) and
Farmacias Salcobrand S.A. (“Salcobrand”) to fix the price of medicines, to impose certain fines on FASA and to end
the alleged agreement. On March 23, 2009, the Chilean Antitrust Authority and FASA filed a settlement agreement before the Chilean
Antitrust Court, which was approved on April 13, 2009. Although the investigation is now over with respect to FASA due to the approval
of the settlement agreement, this proceeding continued in 2011 with respect to Cruz Verde and Salcobrand.



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On January 31, 2012, Cruz
Verde and Salcobrand were convicted by the Chilean Antitrust Court and both companies appealed the judgment to the Supreme Court
Justice of Chile.



Prior to the notification
of the judgment against Cruz Verde and Salcobrand, on August 17, 2011, Cruz Verde instituted a civil action in order to obtain
from FASA the payment of damages and lost profits, derived from the so-called antitrust acts related to the settlement agreement.
However, it is important to point out that in this agreement FASA only acknowledged its own acts and did not make any accusations
against Cruz Verde and/or Salcobrand. Therefore, it is unlikely that either of these parties would win a lawsuit against FASA.



In the event that Cruz Verde
and Salcobrand obtain the reversal of the judgement against them, Salcobrand could also sue FASA claiming the payment of consequential
damages arising from the antitrust process that both were a party to. An adverse judgment in any of these actions could have an
adverse effect on our business and our financial results.



Risk Factors Related To the Sale of Operations in Peru



Temporary Restrictions
to Compete in the Local Markets of Peru and Bolivia. After operating for more than one year in Peru, on January 12, 2012
Grupo Casa Saba ended its operations in this country after selling its participation held through FASA in the capital stock of
Farmacias Peruanas, S.A. and Droguería La Víctoria S.A., companies that were indirectly acquired by
Grupo Casa Saba after the purchase of FASA in 2010. The company that will continue with the operations of these Peruvian companies
is Quitafex S.A. As a consequence of the sale of operations in Peru, several agreements were executed with Quitafex S.A. and its
parent company, one of which established a non-compete restriction for Grupo Casa Saba and its subsidiaries in the market for drug
distribution, which prevents them from developing operations in the markets of Peru and Bolivia for a period of five years.



Today, the markets in Peru
and Bolivia are not contemplated as places for expansion in our business plan. However, once the restriction imposed on Grupo Casa
Saba expires, if the Company intends to venture into such markets, it may find a strong and consolidated competitor that may impede
our development in the drug distribution market.



Risk Factors Related to Our Securities



Our Controlling Shareholder
Has the Ability to Restrict the Payment and Amount of Dividends. Under Mexico’s Ley General de Sociedades Mercantiles,
or General Corporations Law, decisions regarding the payment and amount of dividends are subject to the approval of our shareholders,
generally, but not necessarily, based on the Board of Directors’ recommendation. Our controlling shareholder owns 85% of
our outstanding Ordinary Shares and, so long as it continues to own a majority of our outstanding shares, it will have the ability
to determine whether or not we will declare and pay dividends, in cash or otherwise. See “Item 3. Key Information—Dividends”
and “Item 7. Major Shareholders and Related Party Transactions—Principal Shareholders”.



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Preemptive Rights May
Be Unavailable to Holders of Our ADSs.Under Mexican law, our shareholders are afforded preemptive rights. In the event
that we issue new Ordinary Shares for cash, our shareholders will have the right to purchase the number of Ordinary Shares necessary
to maintain their existing share participation. U.S. holders of our ADSs cannot exercise their preemptive rights unless we register
newly issued Ordinary Shares under the Securities Act of 1933 or qualify for an exemption from registration. If U.S. holders of
our ADSs cannot exercise their preemptive rights, the interests of these holders would be diluted in the event that we issue new
Ordinary Shares for cash. We intend to evaluate, at the time of any offering of preemptive rights, the costs and potential liabilities
associated with registering any additional Ordinary Shares under the Securities Act of 1933. We cannot assure you that we will
register any new Ordinary Shares that we issue for cash. In addition, although the deposit agreement provides that the Depositary
may, after consulting with us, sell preemptive rights in Mexico or elsewhere outside the United States and distribute the proceeds
to holders of ADSs, such sales are not allowed under current Mexican law.



The Protections Afforded
to Minority Shareholders in Mexico are Different from those in the United States. Under Mexican law, the protections afforded
to minority shareholders are different from those in the United States. In particular, the law concerning fiduciary duties of directors
is not fully developed, there is no procedure for class actions or shareholder derivative action, and there are different procedural
requirements for bringing shareholder lawsuits. As a result, in practice, it may be more difficult for our minority shareholders
to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company.
In accordance with the Ley del Mercado de Valores, or the Mexican Securities Market Law, as amended, we amended our bylaws
to increase the protections afforded to our minority shareholders in an effort to try to ensure that our corporate governance procedures
are substantially similar to international standards. See “Item 10. Additional Information—Amendments to the Mexican
Securities Market Law—Bylaws”.



You May Be Unable to
Enforce Judgments Against Us.We are a corporation with variable capital (sociedad anónima bursátil de
capital variable) organized under the laws of Mexico. A majority of our assets and operations are located, and a majority of
our revenues are derived from sources, outside of the United States. All of our directors and officers reside outside of the United
States and all, or a significant portion of, the assets of these persons and of our Company are located outside of the United States.
As a result, it may not be possible for shareholders to effect service of process within the United States upon such persons or
upon us, or to enforce against them or against us judgments by U.S. courts predicated upon the civil liability provisions of the
U.S. federal securities laws or otherwise. As of this date, there is no effective treaty between the United States and Mexico for
the reciprocal enforcement of judgments issued in the other country. Generally, Mexican courts would enforce final judgments rendered
in the United States if certain requirements are met, including the review in Mexico of the U.S. judgment to ascertain compliance
with certain basic principles of due process and the non-violation of Mexican law or public policy, provided that U.S. courts would
grant reciprocal treatment to Mexican judgments. Additionally, we have been advised by our Mexican counsel that there is doubt
as to the enforceability, in original actions in Mexican courts, of liabilities predicated in whole or in part on U.S. federal
securities laws as well as to the enforceability in Mexican courts of judgments of U.S. courts obtained in actions predicated upon
the civil liability provisions of U.S. federal securities laws.



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Risk Factors Relating to Economic and Political Developments



Economic and Political
Developments in Mexico May Adversely Affect Our Business. We are a Mexican company and the vast majority of our business
operations take place in Mexico. Approximately 78% of our consolidated net sales for the year ended December 31, 2011 derived from
sales made in Mexico. Consequently, our business, financial condition and results of operations are affected by economic, political
or social developments in Mexico, including, among others, any political or social instability, changes in the rate of economic
growth or contraction, changes in the exchange rate between the Peso and the U.S. Dollar, an increase in Mexican inflation or interest
rates, changes in Mexican taxation and any amendments to existing Mexican laws and regulations. Accordingly, Mexican governmental
actions and policies concerning the economy in general and healthcare policy in particular could have a significant impact on us,
as well as more generally on market conditions, prices and returns on Mexican equity securities. We cannot assure you that changes
in governmental policies in Mexico will not adversely affect our business, results of operations, financial condition and prospects.



Social and political instability
in Mexico or other adverse social or political developments in or affecting the countries in which we have operations could adversely
affect us and our ability to obtain financing. We cannot provide any assurance that the current political situation or any future
developments in Mexico will not have a material adverse effect on our financial condition or results of operations. The presidential
election in Mexico will take place in July 2012, and the elected president will take office in December 2012. In response to his
or her election, diverse social and political changes could arise as consequence of the significant policy differences between
the principal political parties in Mexico, which could, in turn, have an adverse effect on our financial condition or our results
of operation.



Our business may be adversely
affected by economic conditions in Mexico. Mexico has experienced both prolonged periods of weak economic conditions and deterioration
in economic conditions that have had an adverse effect on our company. During 2011, Mexico’s gross domestic product, or GDP,
grew by 3.9%. Mexico has also experienced high levels of inflation and high domestic interest rates in the past, which significantly
lowered the purchasing power of consumers and businesses. The annual rate of inflation, as measured by changes in the NCPI, as
published by the Banco de México, was 3.8% for 2011 and the average interest rate on 28-day Mexican government treasury
securities, or “CETES”, averaged 4.2%. In addition, the Mexican government’s efforts to control inflation by
tightening the monetary supply have historically resulted in higher financing costs, as real interest rates have increased. High
inflation rates may also lead to Peso devaluations. Inflation itself, as well as governmental efforts to reduce inflation, has
had significant negative effects on the Mexican economy in general and on Mexican companies, including ours. Such policies have
had and could in the future have an adverse effect on us. Future economic slowdowns or developments in or affecting Mexico could
adversely affect our business, results of operations, financial condition, prospects and ability to obtain financing.





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In addition, international
events affecting Mexico may also have an adverse effect on our business.





Mexico Has Experienced
a Period of Increasing Criminal Activity and Such Activities Could Adversely Affect Our Financing Costs and Exposure to Our Customers
and Counterparts.Recently, Mexico has experienced a period of increasing criminal activity and violence, primarily due
to organized crime. These activities, their possible escalation and the violence associated with them may have an adverse effect
on the business environment in which we operate and, therefore, on our financial condition and the results of operation.



Devaluation of the
Peso Against the U.S. Dollar Could Adversely Affect Our Financial Condition and Results of Operations. We are affected
by fluctuations in the value of the Peso against the U.S. Dollar. In 2004, high oil prices, higher remittance levels and a recovery
in the U.S. economy led to a slight appreciation of the Peso against the U.S. Dollar of 0.8%. During 2005, this trend continued
in that the peso appreciated 4.7% against the U.S. Dollar. In 2006, however, the peso depreciated 1.6% with respect to the U.S.
Dollar due to higher inflation levels in Mexico. The combination of more moderate GDP growth and a slightly lower level of inflation
led to a 1.0% depreciation of the Peso against the U.S. Dollar in 2007. As a result of the global economic crisis that began in
2008 and has lead to a significant increase in inflation as well as slowdown in GDP growth, the Peso depreciated by 26.7% versus
the U.S. Dollar in 2008. In 2009, the Peso appreciated 5.6% against the U.S. Dollar as a result of lower inflation levels and,
in 2010 the Peso appreciated an additional 5.2% against the U.S. Dollar, driven in large part by the increase in GDP as well as
a relatively low inflation rate. During 2011, the pesos depreciated 12.7% against the U.S. Dollar primarily as a result of lower
GDP growth brought on by a record drought that has fueled increases in farm prices as well as the failure of the U.S. and other
major economies to fully recover from the economic crisis, and concerns regarding the potential for economic contagion stemming
from the sovereign debt crisis and material weaknesses in several European countries.



Any future depreciation or
devaluation of the Peso will most likely result in price increases from our suppliers. If this were to happen, it would, in turn,
impact the purchasing capacity of the final consumers. This, in turn, would lead to a reduction in our sales. A severe devaluation
or depreciation of the Peso may also disrupt international foreign exchange markets and, as such, may limit our ability to transfer
or to convert Pesos into U.S. Dollars and other currencies for the purpose of obtaining imported goods. A devaluation or depreciation
of the Peso against the U.S. Dollar may also adversely affect the U.S. Dollar prices of our securities on the Mexican Stock Exchange,
including the Ordinary Shares and, as a result, will likely affect the market price of the ADSs. Such fluctuations would also impact
the conversion value of any cash dividends paid on the Ordinary Shares in Pesos into U.S. Dollars in order to pay such dividend
to the holders of our ADSs.



High Levels of Inflation
and High Interest Rates in Mexico Could Adversely Affect Our Financial Condition and Results of Operations. In recent years,
Mexico has experienced high levels of inflation. The annual rate of inflation, as measured by changes in the NCPI, was, 3.8% for
2007, 6.5% for 2008, 3.6% in 2009, 4.4% in 2010 and 3.8% in 2011. High inflation rates can adversely affect our business and our
results of operations in the following ways:



| | · | inflation can adversely affect consumer purchasing power, thereby adversely affecting consumer
demand for the products we sell and/or distribute; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | to the extent that inflation exceeds price increases, our prices and revenues will be adversely
affected in “real” terms.
| | - | -------------------------------------------------------------------------------------------------------------------------



Mexico also has, and could
continue to have, high nominal interest rates. The interest rates on 28-day CETES averaged approximately, 7.7% in 2008, 5.4% in
2009, 4.4% in 2010, 4.2% during 2011, and by March 2012 the CETE remained stable, averaging 4.2% for the quarter. Accordingly,
we may be subject to high interest rates in the event we incur Peso-denominated debt in the future.



If Foreign Currency
Exchange Controls and Restrictions Are Imposed, Investors would be Exposed to Foreign Currency Exchange Rate Risk. In the
past, the Mexican economy has experienced balance of payments deficits, shortages in foreign currency reserves and other issues
that have affected the availability of foreign currencies in Mexico. The Mexican government does not currently restrict or regulate
the ability of persons or entities to convert Pesos into U.S. Dollars. However, it has done so in the past and could do so again
in the future. We cannot assure you that the Mexican government will not institute a restrictive foreign currency exchange control
policy in the future. Any such restrictive foreign currency exchange control policy could (i) affect the ability of the depositary
of our ADSs to convert dividends, which are payable in Pesos, into U.S. Dollars for purposes of making distributions to the holders
of our ADSs, (ii) prevent or restrict access to U.S. Dollars, (iii) should we incur any U.S. Dollar-denominated debt in the future,
affect our ability to service such debt and (iv) have an adverse effect on our business and financial condition.



Risks Related to Our
Operations in Brazil May Adversely Affect Our Business. As a result of our acquisition of Drogasmil in May 2008, we are
exposed to a variety of risks and uncertainties related to our operations in Brazil including political, economic or social upheaval,
devaluations in the Real, high levels of inflation and interest rates, the introduction of import, investment or currency restrictions,
including pricing regulation on pharmaceutical products, restrictions on the repatriation of earnings and capital, as well as tariffs
and import quotas that may indirectly increase the cost of the products that we sell. These disruptions can affect our ability
to sell products and to repatriate funds, affecting the levels of consumer demand, and therefore our levels of sales and profitability.



The Brazilian monetary unit,
the Real, has been devalued frequently over the past four decades. Throughout this period, the Brazilian government has implemented
various economic plans and exchange rate policies, including sudden devaluations, exchange controls, dual exchange rate markets
and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the
Brazilian currency and the U.S. Dollar and other currencies. For example, the Real depreciated against the U.S. Dollar, on average,
by 22.3% in 2001, 19.6% in 2002 and 4.8% in 2003. In 2004, 2005, 2006 and 2007 the Real appreciated 8.8%, 13.4%, 9.5% and 16.3%,
respectively, against the U.S. Dollar. In 2008, the Real depreciated 31.9% against the U.S. Dollar, in 2009 the Real appreciated
24.7% against the U.S. Dollar and in 2010, the Real appreciated an additional 3.3% against the U.S. dollar. However, the Real depreciated
12.0% against the U.S. dollar in 2011. In general, devaluations decrease consumers’ purchasing power, which could have a
negative effect on our business should a devaluation occur.



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Our business could be affected
by high rates of inflation and interest rates in Brazil, which historically has experienced such high rates. According to the Brazilian
Central Bank’sÍndice Nacional de Preços Ao Consumidor Amplo(National Consumer Price Index), or “IPCA,”
the inflation rates in Brazil were, 4.5% in 2007, 5.9% in 2008, 4.3% in 2009, 5.9% in 2010 and 6.5% in 2011. Periods of higher
inflation may slow the rate of growth of the Brazilian economy, which could lead to a reduced demand for our products in Brazil
and decreased net sales. Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass
on to our customers and, as a result, may reduce our profit margins and net income.



In addition, high inflation
generally leads to higher domestic interest rates and, as a result, the costs of servicing any Real-denominated debt that we may
incur in the future may increase, resulting in lower net income. The Sistema Especial de Liquidação e Custodia
rate (SELIC) is the Brazilian Central Bank’s overnight lending rate. In 2004 and 2005, the Brazilian interest rate was higher
than 16% (17.8% in 2004 and 18.0% in 2005). In 2006, interest rates decreased to 13.3% and in 2007, the SELIC decreased further,
to 11.3% only to increase to 13.8% in 2008. During 2009, the SELIC averaged 10.0%, and by the end of 2010, the SELIC averaged 9.8%.
During 2011, the SELIC averaged 11.7%. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity
in the domestic capital and lending markets, which could affect our ability to refinance any indebtedness that we may incur in
the future in those markets.



Brazil has also implemented
exchange controls in the past, as well as restrictions on repatriation of capital. We cannot guarantee that such types of policies
will not be adopted by Brazil in the future, which would have an adverse effect on our dividend flow to Grupo Casa Saba, which
depends on dividends from its subsidiaries as a source of income.



Risks Related to Our
Operations in Chile May Adversely Affect Our Business.As a result of our acquisition of FASA and Benavides in 2010, we
are exposed to a variety of risks and uncertainties related to our operations in Chile, including political, economic or social
upheaval, devaluations in the Chilean peso (CLP), high levels of inflation and interest rates, the introduction of import, investment
or currency restrictions, including pricing regulation on pharmaceutical products, restrictions on the repatriation of earnings
and capital, as well as tariffs and import quotas that may indirectly increase the cost of the products that we sell. These disruptions
can affect our ability to sell products and to repatriate funds, as well as affecting the levels of consumer demand, and therefore
our levels of sales and profitability.



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Developments in Other
Emerging Market Countries May Adversely Affect Our Business or the Market Price of Our Securities. The market price of
securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other emerging market countries.
Although economic conditions in such countries may differ significantly from economic conditions in Mexico, investors’ reactions
to developments in such countries may have an adverse effect on the market price of securities of Mexican companies, including
ours. In late October of 1997, prices of Mexican securities dropped substantially, precipitated by a sharp drop in the price of
securities traded in the Asian markets. Likewise, prices of Mexican securities were adversely affected by the economic crises in
Russia and Brazil in the second half of 1998 and, to a lesser extent, the economic crisis in Argentina in 2002. During 2005, the
Mexican Stock Exchange Index increased by 37.8%, as did the average index for emerging markets, including Latin America, Asia and
Emerging Europe. The considerable growth of the Mexican exchange was supported by high economic growth worldwide and low interest
rates. During 2007, the index of the Mexican Stock Exchange increased by 11.7%, somewhat lower than the last four years, but still
positive as a result of strong economic growth of emerging economies such as China and Brazil, as well as solid internal economic
activity. During 2008, the index of the Mexican Stock Exchange declined by 24.2%, mainly due to the volatility brought on by the
financial crisis that began during the second half of 2008 in the United States and which had a negative effect on both developed
and developing countries worldwide. During 2009, the Mexican Stock Exchange Index recovered, posting a gain of 43.5%. By the end
of 2010, the Mexican Stock Exchange as measured by the IPyC recovered, posting a gain of 20.0%, in line with the positive performance
of both emerging and developed markets worldwide. An increase in liquidity following the world economic crisis as well as positive
outlooks for emerging markets, including Mexico, contributed to this increase. During 2011 the Mexican Stock Exchange Index declined
3.8% due to a combination of investor uncertainty over the likelihood of a recovery of the U.S. economy as well as additional uncertainties
brought on by a series of events including the Japanese earthquake and tsunami which sparked a nuclear energy crisis in that country,
the Middle East political crisis in several countries including Egypt, and continuing concerns over the European debt crisis in
countries such as Greece, Ireland, Spain and Portugal. By March 31, 2012 the IPyC recuperated some of its losses, gaining 6.6%
versus the end of 2011, mainly as a result of the efforts of the Europen Union to come to the aid of some of the weaker member
economies, which is boosting confidence in the region. There can be no assurance that the market price of our securities will not
be adversely affected by future events elsewhere in the world, particularly in other emerging market countries.



Risk Factors Relating to Regulations to Which Our Business
is Subject



Mexican Antitrust Law
and Regulations May Affect Our Ability to do Business. Mexico’s Federal Antitrust Law, or Ley Federal de Competencia
Económica, and its Regulations, or Reglamento de la Ley Federal de Competencia Económica, may affect some
of our activities. In particular, such laws and regulations may adversely affect our ability to acquire and sell businesses or
to enter into joint ventures with competitors due to our market share in some of the industries in which we operate and the reduced
number of participants in those markets.



The most recent amendments
to Mexico’s Federal Antitrust Law are in full force as of May 11, 2011. Such amendments, among other things, have significantly
increased monetary fines and provided for changes in the actions to be taken by the Mexican Antitrust Commission or Comision
Federal de Competencia, with respect to illegal conduct. In addition, Mexico ́s Federal Antitrust Law and related regulations
or conditions imposed by the Mexican Antitrust Commission may adversely affect our ability to determine the manner in which we
provide our products and services. Approval of the Mexican Antitrust Commission is required for us to acquire certain businesses
or enter into certain joint ventures. There can be no assurance that in the future the Mexican Antitrust Commission will authorize
certain acquisitions or joint ventures related to our businesses, the denial of which may adversely affect our business strategy,
financial condition and results of operations.



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Changes in Mexican
Legislation May Adversely Affect Our Operations and Revenue. Existing laws and regulations could be amended, the manner
in which laws and regulations are enforced or interpreted could change, and new laws or regulations could be adopted. The implementation
of such amendments or changes in interpretation or enforcement of existing Mexican laws and regulations or any other future laws
or regulations could materially and adversely affect our operations and revenue. During 2011 and the first quarter of 2012, different
reforms were implemented to the General Health Law in Mexico. As a result of these reforms, as of June 2011 cosmetic products are
goods regulated by the General Health Law. The regulation of the cosmetic products impacts its marketers due to the imposition
of requirements on the importation and exportation processes, and publicity. In addition, as of September 2011, all cosmetics products
that contain hormones, vitamins and in general, substances with a therapeutic effect are considered as drugs, therefore its producers,
distributors and marketers must comply with the dispositions and legal requirements applicable to drugs.



At the beginning of 2012,
the General Health Law was modified in order to implement the term “orphan drugs”, which are defined as those medicines
intended for the prevention, diagnosis or treatment of uncommon conditions. Such conditions have a frequency of no more than 5
persons per each 10,000 people. The scarcity of these products is a concern to the Ministry of Health, the legislative reform allowed
said authority to implement the necessary measures and actions to boost and promote the availability of orphan drugs.



In addition, on January 19,
2012, the Regulations of the General Health Law were amended to regulate the publicity of “Miracle Products”. Miracle
products were a controversial topic during 2011 due to the strict measures adopted by the authorities in order to withdraw different
herbal remedies, dietary supplements and cosmetic products that were publicized and commercialized as drugs or products with a
therapeutic quality or effective for preventive treatments, rehabilitation or healing of one or more conditions from the market.



As a consequence of amendments
to the federal Income Tax Law (Ley del Impuesto Sobre la Renta), Grupo Casa Saba decided to drop out of the tax consolidation
regime and during the fiscal year 2010 filed the relevant application. Therefore, the Company and its subsidiaries filed its tax
return for the Single Rate Business Tax (Impuesto Empresarial a Tasa Única) and the Income Tax, individually. For
2011, the Company once again received the approval of the Mexican tax authorities to determine its consolidated taxable income
solely for the companies that are considered to be controlled companies, as set forth by the Mexican Income Tax Law.



Our Ability to Increase
the Prices of Some Products is Regulated by the Mexican Government. Our historical operating performance has been adversely
affected by price controls imposed by the Mexican government in the pharmaceutical sector. Prices of pharmaceuticals continue to
be subject to approval by the Mexican government. As a result, neither our suppliers nor we may be able to increase pharmaceutical
prices at or above the rate of inflation, which would substantially limit the growth of our pharmaceutical-related revenues. Since
1990, the Mexican government has deregulated pharmaceutical prices to some extent, and prices have increased in the Mexican pharmaceutical
market as a result of this deregulation. However, we cannot assure you that the Mexican government will continue to deregulate
pharmaceutical prices, or if they do, that our ability to increase prices will continue, or that these increases will result in
an improvement in our operating performance.



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Any Value-Added Tax
Imposed on Prescription Drugs May Adversely Affect Our Business, Financial Condition and Results of Operations. Unlike
the Health, Beauty and Consumer Goods (HBCG), entertainment products, general merchandise and other products that we distribute,
the prescription drugs and over-the-counter drugs that we distribute are not currently subject to a 16% value-added tax. In April
2001, a proposal was filed with the Mexican congress requesting a substantial amendment to Mexican tax laws. One of the reforms
contemplated by this proposal was an increase in the value-added tax on prescription drugs and over-the-counter drugs from 0% to
15%. Although that bill was not passed by the Mexican Congress, the current government may file similar proposals. If prescription
drugs and over-the-counter drugs become subject to a value-added tax in excess of the currently applicable 0% rate, the prices
paid by consumers for prescription drugs and over-the-counter drugs would likely increase by the percentage amount of the value-added
tax rate. While any price increases resulting from the imposition of a higher value-added tax would be non-recurring, we still
believe that these price increases would have an adverse effect on consumer demand for these products and result in a decrease
in related revenues. To the extent that any of these price increases adversely impact revenues related to prescription and over-the-counter
drugs, our business, financial condition and results of operations could be adversely affected. We cannot assure you that the proposal
containing this request or other similar proposals will not be filed again with the Mexican congress and, if such proposal were
enacted into law, will not adversely affect our business, financial condition or results of operations.



Changes to Retail Pharmacy
Regulation in Mexico May Adversely Affect Our Business. Our retail pharmacy business operations are subject to health and
safety laws and regulations, including those concerning the commercialization of controlled medicines, commercialization and storage
of controlled substances used in pharmaceutical products and the sale and distribution of cigarettes, among others. The enactment
of more stringent laws and regulations, or a change in the interpretation of such existing laws and regulations, could entail new
obligations for us, restrictions or result in our having to invest additional amounts in health control matters, all of which could
have an adverse effect on our results of operations and financial condition.



Changes in Brazilian
Regulations Relating to the Sale of Pharmaceutical Products and Retail Pharmacy Operations May Adversely Affect Our Business.Pharmacies
are required to obtain a number of permits and operating licenses from federal, state and local authorities in Brazil, including
from the Secretaria de Vigilância em Saúde, Health Surveillance Secretariat of the Ministry of Health, or SVS,
in order to engage in the handling, distribution, transport, repackaging, import and export of the substances determined by the
SVS, as well as the medicines that contain such substances. Changes in the type of permits that are required or our failure to
obtain such permits may adversely affect our results of operations in Brazil.



Our operating performance
in Brazil may also be affected by the price controls on pharmaceutical products and certain non-pharmaceutical products imposed
by the Brazilian government through the Câmara de Regulação do Mercado de Medicamentos, the Chamber
for Regulation of Medicine Market, or CMED, with the oversight of the Agência Nacional de Vigilância Sanitária,
the National Health Surveillance Agency, or ANVISA. As a result neither our suppliers nor we may be able to increase prices above
the maximums established by the relevant Brazilian authorities. Price controls are governed through regulatory mechanisms that
allow for controlled percentage increases in prices due to fluctuations in the exchange rate, inflation rate and raw material costs,
among other factors. Adjustments to price controls take place on an annual basis, on March 31 of each year. The CMED established
a maximum drug price adjustment of 5.85% for the year commencing on March 31, 2012. We cannot assure you that more stringent measures
will not be implemented by the Brazilian government in respect of price controls. Changes to the manner in which price controls
are implemented in Brazil may adversely affect our results of operations in Brazil.



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In August 2009, ANVISA adopted
new rules for the sale of products in pharmacies in an effort to curb self-medication. Resolution RDC 44/09 prohibits the sale
of convenience products and other services not related to health and personal hygiene. In addition, pursuant to the new rules,
pharmacies will be required to place several products, including common over-the-counter drugs like analgesics and antacids, behind
the counter. The new rules came into effect on February 18, 2010. We believe such rules are not legal and that ANVISA went beyond
its powers in issuing them. Based on the foregoing, Abrafarma, the Brazilian Association of Pharmacy and Drugstore Networks of
which our subsidiary Drogarias is a member, has filed for an injunction for the benefit of its members against the application
of the new rules. In January 2010, a federal court in the Federal District granted the injunction to Abrafarma and its members,
including Drogarias, against the application of the above-mentioned rules. If such new rules were to be applied to Drogarias, its
business, results of operation and financial condition may be adversely affected.



Currently, Brazil’s
Federal Pharmaceutical Council, Conselho Federal de Farmacia, is considering a draft resolution that would require that
over-the-counter medications, such as analgesics and antacids, may only be sold if prescribed by a pharmacist. If approved, we
believe such regulation could have an adverse effect on the operations of our subsidiary Drogarias.



The sale of pharmaceutical
products in Brazil is subject to a tax rate of up to 19%, one of the highest in Latin America. Further increases in the taxes applicable
to the sale of the products we sell may adversely affect our results of operation and our margins in Brazil to the extent that
we are not able to pass on such costs to the end-consumer, for example, as a result of price controls.



Changes in Chilean
Regulations Relating to the Sale of Pharmaceutical Products and Retail Pharmacy Operations May Adversely Affect Our Business.The
Chilean National Congress is currently discussing a bill by means of which the Chilean Sanitary Code intends to be modified in
order to regulate several aspects of the pharmaceutical industry: including, among other, the (i) prohibition on giving any type
of incentive to the sellers of pharmaceutical establishments, (ii) banning vertical integration between pharmaceutical chains and
laboratories, (iii) regulatory requirements on price information for medicines, and (iv) authorization of the retail sale of certain
drugs in stores different from pharmacies or drugstores. We cannot predict the effects of such amendments, nor assure that more
stringent measures will not be implemented by the Chilean government. Changes to the manner in which the pharmaceutical industry,
as well as the sale of pharmaceutical products and retail pharmacy operations are regulated in Chile may adversely affect our results
of operations.



In response to the devastating
earthquake that struck Chile in 2010, in 2011 the Post-Earthquake Country Reconstruction Financing Law (Ley de Financiamiento
para la Reconstrucción del País Post-Terremoto) (Law No. 20.455) was enacted. As a result, the first category
income tax rate was temporarily raised from 17% to 20%. Although this change had a negative impact on the results for the period,
it did not adversely affect us from an accounting and taxation perspective, given that it is a deferred tax that can be compensated
with tax losses.



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The Chilean Health Institute
(Instituto de Salud Pública de Chile) issued a resolution by means of which certain bioequivalence analysis were
required to be filed with respect to some pharmaceutical products called monodrugs (monodrogas), on January 31, 2012 at
the latest. Such analyses will be considered as a registration requirement for some generic medicines, and the lack of such analyses
may give rise to cancelation from the sanitary registrar for generic medicines. The performance of the bioequivalence analysis
does not depend entirely on us, so if the Company’s subsidiaries fail to comply with the ruling, it may cause shortages in
the supply of certain medicines.



Natural Events that
May Occur as a result of Climate Change in Regions where we Operate could have Adverse Effects on the Company, such as the Temporary
Cessation of Operations,Grupo Casa Saba and its subsidiaries have operations in Mexico, Chile and Brazil, countries which,
like many others, have experienced natural disasters such as hurricanes, earthquakes, floods, volcanic eruptions, etc. As a consequence
of the drastic climate changes that have been identified by the scientific community in recent years, the risk of natural disasters
caused by climate change may increase in number or intensity, which could adversely affect the Company.



Mexico City, the seat of
our headquarters, has been affected by unusual and continuous seismic activity during the first months of 2012. Also, in late March
2012, a magnitude 7.1 earthquake struck central Chile and subsequent quakes have followed. Some of our most important business
operations are concentrated in Mexico City and Santiago, Chile. Therefore, if such strategic locations were subject to a natural
disaster, our employees, customers and suppliers could be exposed to the cessation of operations, which could adversely affect
the Company.



|Item 4. | Information on the Company
|------- | --------------------------



History and Development
of the Company



Grupo Casa Saba, S.A.B. de
C.V. is a sociedad anónima bursátil de capital variable, or stock corporation with variable capital, which
was organized under the laws of Mexico on November 16, 1982. Our deed of incorporation was registered with the Public Registry
of Commerce in Mexico City on January 10, 1983 under Commercial Folio Number 55,635. Pursuant to the terms of our estatutos
sociales, or bylaws, our corporate existence is indefinite. Our principal executive offices are located at Paseo de la Reforma,
No. 215, Colonia Lomas de Chapultepec, C.P. 11000, D.F., Mexico. Our telephone number at that address is (52 55) 5284-6600. Grupo
Casa Saba’s authorized representative in the United States is Puglisi & Associates and is located at 850 Library Avenue,
Suite 204, P.O. Box 885, Newark, Delaware 19714. Their telephone number is (302) 738-6680.



Grupo Casa Saba was founded
as a pharmacy in 1892, and is currently one of the leading multi-channel, multi-product national wholesale distributors in Mexico,
operating through one of Mexico’s largest nationwide distribution networks of its type. We distribute pharmaceutical products,
health, beauty aids and consumer goods, general merchandise, publications and other products. The majority of these products are
distributed on a non-exclusive basis. With over 115 years of experience, we serve a significant number of Mexico’s pharmacies,
mass merchandisers, retail and convenience stores, supermarkets and other specialized channels.



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In February 2000, Mr. Isaac
Saba y Raffoul, also known as Isaac Saba Raffoul, acquired 225,606,456 of our Ordinary Shares. In 2008, he contributed them to
Trust F-709, of which he was the sole beneficiary. Upon his death on July 27, 2008, Manuel Saba Ades and Alberto Saba Ades, sons
of Isaac Saba Raffoul, are the sole beneficiaries, on an equal basis, of the Ordinary Shares held by Trust F-709. References in
this annual report to “our controlling shareholder” are to Trust F-709, as the direct holder of 225,606,456 Ordinary
Shares for the benefit of Manuel Saba Ades and Alberto Saba Ades.



By the end of 2007, we had
no interest-bearing liabilities and our net debt by year-end was Ps. 684 million. As of December 31, 2008, our interest-bearing
liabilities were Ps. 1,324.8 million and our net debt was Ps. 723 million, primarily as a result of the acquisition of Drogasmil,
a Brazilian pharmacy chain. Our interest-bearing liabilities at the close of the 2009 fiscal year totaled Ps. 2,382.7 million and
our net debt was Ps. 1,719 million. At the end of 2010, our interest-bearing liabilities totaled Ps. 11,484.7 million and our net
debt was Ps. 10,249.0 million. As of December 31, 2011, our interest-bearing liabilities were Ps. 12,556.5 million and our net
debt was Ps. 10.246.1 million, primarily as a result of the acquisition of FASA, a Chilean-based pharmacy chain.



See “Item 5. Operating
and Financial Review and Prospects—Indebtedness” and Note 12 to our consolidated financial statements.



During 2008, as part of our
growth strategy, we expanded our retail pharmacy operations in Mexico and overseas. We experienced significant growth in the retail
pharmacy chain that we operate through our subsidiary Farmacias ABC de Mexico, S.A. de C.V., or Farmacias ABC, which at the time
was based in Guadalajara, Jalisco. We acquired Farmacias ABC in November 2007 with 40 pharmacies and grew to over 150 pharmacies
by the end of 2008 through a series of small acquisitions of retail pharmacy assets (primarily inventory and store locations) in
the metropolitan area of Mexico City and in the states of Guanajuato, Michoacan, Jalisco and Coahuila. In May 2008, we expanded
into the Brazilian retail pharmacy market. We acquired 100% of the shares of Drogasmil, a closely-held company, for a transaction
price of approximately $155 million Reais. We financed the acquisition by obtaining a long-term loan for an aggregate amount of
up to Ps. 1,210 million from a Mexican financial institution, of which we had drawn Ps. 1,210 million as of December 31, 2009.
As of December 31, 2011, Drogasmil operated pharmacies in the states of Rio de Janeiro and São Paulo. In 2008, we incorporated
Casa Saba Brasil Holdings Ltda., or Casa Saba Brasil, as a holding company for our operations in Brazil. References in this annual
report to Casa Saba Brasil include any of its subsidiaries, including Drogasmil.



In April of 2008, we continued
to open new lines of business through the acquisition of 50.1% of Controladora de Clínicas Ambulatorias y de Rehabilitación,
S.A. de C.V., or Controladora de Clínicas Ambulatorias, a company that operates two full-service clinics under
the name “Sport Clinic” specializing in orthopedics, trauma, sports medicine, nutrition, otorhinolaryngology and plastic
surgery for short-stay patients. Each clinic is staffed with highly-trained, specialized personnel that conduct out-patient surgeries
and provide rehabilitative therapy. Both clinics are located in Mexico City. With this acquisition, we were seeking to diversify
and increase our participation in the healthcare sector. In 2008, we began construction of a new clinic in Tampico, Tamaulipas,
which opened to the public in November 2009. In addition, in 2009 we continued our expansion in the healthcare sector and opened
Perfect Image in Mexico City, a clinic specializing in plastic surgery as well as health and beauty treatments. However,
in accordance with our business plan, during 2011 we began the process of divestiting Sports Clinic.



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On March 25, 2010 our subsidiary
Casa Saba entered into a new credit agreement with Scotiabank Inverlat, S.A. to liquidate the bank loans related to Drogarias,
which was prepaid on October 3, 2010.



As part of our strategy to
expand our retail pharmacy operations, on May 17, 2010 we entered into a Stock Purchase and Sale Agreement, or the FASA Agreement,
with a group of entities controlled by Mr. Jose Codner Chijner to acquire up to 100% of the capital stock of Farmacias Ahumada,
S.A., or FASA, for a total price of approximately $637 million, including the assumption of net debt that, as of March 31, 2010,
was $162 million. FASA is the largest retail pharmacy chain in Latin America, with annual sales of approximately $1,691 million
in 2010 and over 1,260 pharmacies in Chile, Mexico and Peru. The transaction was subject to the completion of a tender offer for
all of the outstanding shares of FASA on the Santiago Stock Market, at a price of 1,642 Chilean Pesos per share and the validity
of such offer was conditioned upon the acquisition of at least fifty percent plus one of the outstanding shares of FASA. The Acquisition
was also subject to the approval of our general shareholders’ meeting and the Mexican Antitrust Commission, Comision Federal
de Competencia.



On July 21, 2010, our shareholders
approved the Acquisition by ratifying the execution of the FASA Agreement. Additionally, our shareholders authorized the Company
to launch a tender offer, directly or indirectly through one of its subsidiaries, for up to all of the shares that represented
the capital stock of FASA, and to carry out all necessary acts, including the granting of collateral, in order for the Company
to obtain the necessary resources to finance the Acquisition.



On August 30, 2010, the Company
entered into a credit facility agreement, as borrower, with HSBC México, S.A., Institución de Banca Múltiple,
Grupo Financiero HSBC or HSBC Mexico and Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero
Banorte, as lenders, for the amounts of Ps.5,773.9 million and Ps.1,950.0 million, respectively (the “Acquisition Loan”).
Certain subsidiaries of the Company executed the Acquisition Loan as joint obligors. HSBC Mexico and HSBC Bank (Chile) were appointed
as collateral agents in their respective countries. The Acquisition Loan provides for a series of covenants which, among other
things, restrict the ability of the Company and the joint obligors to: (i) incur, assume or allow the existence of indebtedness,
(ii) create liens, (iii) consolidate, merge or transfer assets, (iv) sell assets, including capital stock of our subsidiaries,
(v) make loans, (vi) modify the nature of our business, (vii) pay dividends on our capital stock or redeem, repurchase or retire
our capital stock, (viii) make investments, and (ix) create any consensual limitation on the ability of our subsidiaries to pay
dividends, make loans or transfer any distribution to us, among other customary covenants and provisions.



On September 28, 2010, the
Company and certain subsidiaries entered into an irrevocable guaranty trust as trustors and second beneficiaries with The Bank
of New York Mellon, S.A., Institución de Banca Múltiple, as trustee, pursuant to which the trustors transferred
the property of certain shares to the trustee in favor of HSBC Mexico as first beneficiary and acting as Mexican collateral agent,
in order to secure its obligations under the Acquisition Loan. In case of execution on the collateral, the Company has agreed that
the beneficiary is entitled to instruct the sale of the trust estate to the trustee, in order to obtain the necessary resources
to pay the Acquisition Loan. In this case, the trustee shall follow the procedure established in the trust agreement for the sale
of the trust estate. Among other customary covenants, the trustors have agreed to immediately transfer to the trustee any additional
shares that each trustor acquires from time to time, and to abstain from creating or allowing the existence of any lien over the
trust estate.



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On the same date and in addition
to the aforesaid guaranty trust, the Company entered into a non-possessory pledge agreement as pledgor with HSBC Mexico as pledgee
and acting as Mexican collateral agent pursuant to which the Company pledged (i) all its inventory, including raw materials and
products, finished and in process, and general assets that are used for the ordinary course of business of the Company, and (ii)
all the present and future account receivables related to the Company’s preponderant activity. Among other customary covenants,
the Company agreed not to sell, transfer or in any way dispose the pledged assets, except when the sale or property transmission
takes place in the ordinary course of business or in any of the exceptions established in the Acquisition Loan. In accordance with
Mexican applicable law, the Company is bound to maintain the inventories located in the warehouse.



On August 31, 2010, the Company
announced that it had obtained final approval of the Acquisition from the Mexican Antitrust Commission, and published the announcement
for the initiation of the tender offer period to acquire up to 100% of FASA’s outstanding shares on the Santiago Stock Exchange.



On September 30, 2010, the
Company announced that the period to participate in the tender offer launched to acquire up to 100% shares of FASA’s outstanding
shares on the Santiago Stock Exchange, which began on August 31, 2010, had expired. As a result of the tender offer, the Company,
through Inversiones GCS Limitada, a wholly owned subsidiary incorporated under the laws of Chile, acquired 146,693,539 of the 150
million outstanding shares, or 97.8% of FASA’s capital stock. The transaction totaled $240,870,791,038 Chilean pesos or approximately
Ps. 6,201,240,000, based on an exchange rate of $39 Chilean pesos: Ps.1 Mexican peso. FASA owns approximately 95.62% of the outstanding
shares of the capital stock of Farmacias Benavides, S.A.B. de C.V. or Farmacias Benavides. Therefore, as a result of the Acquisition
the Company indirectly acquired a controlling share in Farmacias Benavides, the operator of FASA’s pharmacy network in Mexico.



Payment for the shares resulting
from the above-mentioned tender offer took place on October 3, 2010 and was made with the proceeds of the Acquisition Loan.



As publicly disclosed by
GCS on August 10, 2011, on such date GCS entered into an Amendment Agreement with regard to the Credit Agreement dated August 30,
2010, by means of which GCS had obtained the necessary funds to complete the acquisition of Farmacias Ahumada, S.A. in Chile. The
effectiveness of such agreement was subject to the satisfaction of certain conditions precedent, all of which were satisfied by
GCS in September 2011. The Amended and Restated Credit Agreement includes the affirmative and negative covenants that are customary
for this type of transactions. As result of the execution of this document, the non-possessory pledge agreement and the irrevocable
trust agreement over shares No. F/00756 were amended, both were guaranties of the Credit Agreement granted for the acquisition
of FASA. For a description of the Amended and Restated Credit Agreement and its ancillary documents, see “Exhibits 4.2, 4.4
and 4.6”.



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As part of the evolution
process of our business model, Grupo Casa Saba has decided to concentrate its efforts in its expansion in Mexico, Chile and Brazil.
As a result, in early 2012 it completed a series of negotiations with Quitafex, SA and its parent company, which resulted in the
sale of our operations in Peru through the disposal of the equity of our subsidiaries in Farmacias Peruana S.A. and Droguería
La Victoria S.A., vehicles through which we developed our operations in Peru. Part of the agreements reached with Quitafex, S.A.
and its parent company resulted in a 5 year non-competition period for Grupo Casa Saba and its subsidiaries to develop operations
related to the supply of drugs in Peru and Bolivia, countries that, for the moment, are not part of our strategic expansion plan.



The Acquisition has increased
the position of our retail pharmacy division in cities where it did not previously have coverage and has increased its presence
in cities where it previously was minor. We consider ourselves to be the largest retail pharmacy chain in Latin America, with a
platform of approximately 1,300 pharmacies across Mexico, Brazil and Chile as of December 31, 2011. We believe that the Acquisition
creates value for our shareholders through the projected benefits of the synergies that were created. The synergies and economies
of scale that the Company is obtaining through this Acquisition include, but are not limited to, operating efficiencies, a greater
supply and penetration of product for customers as well as savings in terms of administrative and sales expenses.



History of FASA



FASA was founded in Chile
1968 by Mr. José Codner Chijner and, from there, the company expanded its operations into Peru and then, in 2002, Mexico.
The individual history of each company is as follows:



Chile



1968Mr. Jose Codner Chijner acquires
the first pharmacy.



1969The first drugstore of the FASA
chain is established.



1992The national expansion process
begins with the opening of the first pharmacy in the region of Arica and Parinacota in Chile.



1996The development of the Peruvian
market begins and Boticas Fasa, S.A. is incorporated.



1997On December 4, FASA carries out
its initial public offering for an amount of approximately U.S.$21 million becoming a publicly traded company in the Stock Exchange
of Santiago in Chile (“BCS”), and increasing the number of shareholders from 11 to 256.



1998The affiliate company Administradora
de Beneficios Farmacéuticos, ABF S.A. is incorporated, providing medicine coverage to institutions, corporations and
insurance companies.



1999Falabella S.A.C.I. and the American
fund Latin Health Care Fund become shareholders of FASA, acquiring 20% and 7.7%, respectively, of the shares representing FASA’s
capital stock. Such transaction was made in the BCS through a capital increase of approximately U.S.$49 million.



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2000FASA acquires 50% of the company
named Compañía Nutrición General in order to merchandise the GNC products. FASA and AIG Capital acquire
77% of Drogamed, Brasil.



2001An additional 15% of the capital
stock of Boticas Fasa is acquired, obtaining the control of such company and another 17% of GNC Chile.



2002The rest of the capital stock of
Compañía Nutrición General is acquired by Fasa, turning the Said company into a wholly owned subsidiary. On
December 23, FASA assumes the control of Farmacias Benavides.



2004FASA successfully carried out the
offer of two series of notes.



2005FASA incorporates 26 pharmacies
from Droguería y Farmacias El Fénix, S.A. de C.V.



2006On January 26, FASA completed its
exit of the Brazilian market by selling 100% of Drogamed.



FASA and Laboratorio Volta associate
to incorporate a new company named Pharma Genexx S.A. dedicated to the commercialization of generic pharmaceutical products as
well as medical and hospital supplies within Chile and other foreign countries.



On December 15, FASA closed its Alliance with
Distribución y Servicio D&S S.A. to operate 68 stores of the Farmalíder chain.



2007On April 10, FASA increased its
participation in Benavides resulting in a 71.076% interest. On June 28, FASA closes the strategic alliance with Grupo Euroamérica
for the creation of a new real estate company named Inmobiliaria Avantuen, FASA holds a 49% interest while Grupo Euroamérica
holds a 51% interest. The main purpose of this alliance is to develop commercial centers, strip centers and stores in which the
FASA chain may have an important presence.



2008In January, FASA acquired an additional
24.55% of Farmacias Benavides, resulting in a 95.62% participation. On May 15 and 19, respectively, the offer of the series E and
F notes was successfully carried out. The proceeds of such offer were used to refinance the series C and D notes and the acquisition
of the additional interest in Benavides.



2009On October 2, 2009, FASA sold its
interest in Pharma Genexx to Inversiones Opko Limitada.



2010On May 17, 2010, the Company signed
a purchase agreement, under the terms of which Grupo Casa Saba was bound to carry out a tender offer on the Santiago Stock Exchange,
in Chile, for all of FASA’s outstanding shares of capital stock once it had obtained the necessary corporate and governmental
authorizations. FASA owns approximately 95.62% of the outstanding shares of the capital stock of Farmacias Benavides; therefore,
as a result of the acquisition of FASA’s shares, Grupo Casa Saba indirectly acquired a controlling participation in Farmacias
Benavides.



On August 31, Grupo Casa Saba announced that
it had received final approval from the Federal Competition Commission (Cofeco by its Spanish acronym), Mexico’s anti-trust
authority, to acquire control of FASA, including Farmacias Benavides. In addition, the Company signed certain contracts with both
HSBC, S.A. and Banorte, S.A. to finance the transaction and published the announcement of the initiation of the tender offer period
to acquire up to 100% of FASA’s outstanding shares on the BCS.



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2011In April, the shareholders of FASA
held an ordinary and extraordinary shareholder meeting by means of which it approved, amongst others: (i) the financial statements
for year 2010; (ii) the appointment of Surlatino Auditores Limitada (member of Grant Thornton International Ltd) as external
auditors for year 2011; (iii) the reduction of members in the Board of Directors from 7 to 5; (iii) the composition of the Board
of Directors as follows: Manuel Saba Ades, Alberto Saba Ades, Gabriel Saba D ́Jamus, Pedro Alejandro Sadurni Gomez and Jorge
Manuel Sanchez Lanzilotti; (iv) the appointment of Manuel Saba Ades as President of the Board of Directors.



In connection with the judgment issued by the
Chilean Antitrust Court against Salcobrand and Cruz Verde, in August, Cruz Verde instituted a civil action in order to obtain from
FASA the payment of damages and lost profits, derived from so-called antitrust acts performed by FASA.



2012 In January, FASA reached a definitive
agreement to sell 100% of its Peruvian operations to Quitafex, S.A. and its parent company for US$50,500,000 including its
shares of the Peruvian subsidiaries: (i) Farmacias Peruanas, S.A. and (ii) Droguerías La Victoria, S.A.C.
As part of the transaction, FASA simultaneously agreed to the sale and long-term licensing of several brands, which are owned by
FASA. As part of the agreement, FASA agreed to a non-compete restriction in the drug distribution market, which prevents FASA and
its related parties from developing operations in Peru and Bolivia for a period of five years.



In addition, in January, Inmobiliaria Avantuen,
S.A., a subsidiary of FASA, executed and closed an asset purchase agreement by means of which it transferred all of its assets
to Seguros Corpvida, S.A.



Mexico



Farmacias Benavides was incorporated on January
1, 1963 under the name of Servicios Comerciales y Contables, S.A.



On October 1991 the corporate name was changed
to Far-Ben S.A. de C.V.



On September 19, 2003 a general extraordinary
shareholders meeting was held. Among other resolutions which were passed, it was decided to change the corporate name from Far-Ben,
S.A. de C.V. to Farmacias Benavides, S.A. de C.V. and to concentrate the operation of all the pharmacies.



Amendments to the Mexican Securities Market
Law were published on December 30, 2005 due to those amendments and in order to comply with such law, Benavides adopted the expression
“Bursátil” in its corporate name, resulting in the current corporate name Farmacias Benavides, S.A.B.
de C.V.



1917.Mr. Felipe de Jesus Benavides
Guerra acquires the existent “Botica del Carmen” in Monterrey, State of Nuevo Leon, Mexico, a drugstore mainly dedicated
to the manufacture of medicines. In this year, the retail and wholesale distribution of medicines was initiated.



1935.In order to strengthen the wholesale
distribution, Droguería Benavides, S.A. was created.



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1940.Commercial deployment begins with
the opening of pharmacies, one in the city of Monterrey, State of Nuevo Leon, and in Torreon, State of Coahuila, both in Mexico
under the commercial name of Farmacias Benavides, the name which will later distinguish the pharmacies operated by Farmacias Benavides.



1942.Pharmacies are opened in five
major locations within Mexico, Matamoros, Reynosa and Tampico in the State of Tamaulipas, in Saltillo, State of Coahuila and the
State of Durango.



1947.Farmacias Benavides introduces
the coffee shop concept, as a business diversification and customer service.



1956.The convenience store concept
that started developing in previous years is strengthenedas a complement to the pharmacy, offering consumers a wide range
of products such as perfumes, cosmetics, photography, groceries, personal hygiene, toys and sweets, among others.



1960-1970.The participation in new
markets increases, mainly in the northwest of Mexico, through the acquisition of Boticas Moebius, Farmacia San Rafael and Boticas
Moderna, S.A.



1987.The sale of medical equipment
and supplies for hospitals is initiated with the acquisition of Diamedic, S.A. de C.V.



1988.Boticas La Palma, S.A. de C.V.
another pharmacy operator with 30 stores is acquired by Farmacias Benavides, consolidating its presence in the cities of Torreon,
State of Coahuila, Gomez Palacio, Lerdo and Durango in the State of Durango.



1989.Farmacias Benavides buys Farmacias
Levi, S.A. de C.V., entering the western region of Mexico, mainly in the cities of Guadalajara, State of Jalisco, Tepic, State
of Nayarit and Leon, in the State of Guanajuato.



1990.The marketing expansion of photographic
materials and service is initiated, upon the purchase of Foto Viza, S.A. de C.V. and Cámaras y Películas,
S.A. de C.V., offering photo developing and printing, as well as related products.



1992.60 new pharmacies are opened.
At the end of the year, the pharmacies under the commercial name “Farmacias Benavides” totaled 309. In October the
authorization for recording the shares representing its capital stock in the National Securities Registry, and to carry out the
initial public offering of such shares, was obtained.



1993.Farmacias Benavides makes an initial
and secondary public offering with the ticker symbol “BEVIDES”. As a result of such offerings, the 24% of the capital
stock of the company was acquired by the public. At the end of the year, Farmacias Benavides operated 371 pharmacies, distributed
along 86 cities within 15 Mexican States.



1994.During this period 76 new selling
spots were developed in order to be as close as the customers needed, reaching 447 pharmacies among 16 Mexican States.



1995.With the closure of a limited
number of stores that did not operate according to the standards of Farmacias Benavides, 10 stores were relocated and other 12
were redesigned as “convenience stores”, including perishable goods for the first time.



1996.Farmacias Benavides reinitiates
its expansion process by acquiring the “Del Paseo” drugstore chain, with 10 pharmacies located alongside hospitals
and clinics, seeking greater proximity to consumers. The number of stores increases up to 470 with the traditional pharmacy form
and 218 of them with photo developing laboratories. At the end of the year the number of stores totals 522.



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1997.At the beginning of the year Farmacias
Benavides acquired 50% of the capital stock of another drugstore chain called Droguería y Farmacia el Fénix,
based in the city of Tampico, State of Tamaulipas, Mexico, with 124 years in existence and with 54 pharmacies. In May, a bond issuance
was carried out whereby 2,250,000 convertible bonds were publicly offered with a face value of 100 Unidades de Inversión,due June 13, 2002.



1998.A distribution agreement is entered
into by Farmacias Benavides and the Company, by means of which the supply of pharmaceutical and non-pharmaceutical products is
guaranteed, allowing Farmacias Benavides to operate a more efficient supply chain and focus on its core business of selling products,
reducing its costs and, additionally, closing its three distribution centers located in Monterrey, Guadalajara y Hermosillo.



2000.As part of an administrative improvement
process, the number of subsidiaries is reduced in order to improve the efficiency of the group.



2001.Farmacias Benavides initiates
an integral reorganization process, consolidating the operations base and focusing on five important aspects: new merchandising
and costs system, alignment of strategies, organizational productivity improvement of the capital structure and a more adequate
presentation of the financial information.



2002.During this year, Farmacias Benavides
concluded its search for a strategic partner. In August Farmacias Benavides executed an agreement with Farmacias Ahumada, S.A.
(“FASA”) that enabled FASA to acquire its control. The operation consisted of a capital contribution made by
FASA and the Benavides family, as well as the restructuring of Farmacias Benavides’ stock market debt.



In November, Farmacias Benavides increased
the variable portion of its capital stock in an amount of Ps. 737 million through the issuance of 368.5 series “B”
shares, and Mr. Alvaro Rodriguez Arregui is appointed as the new chief executive officer.



On December 23, Benavides successfully concluded
a capitalization process, receiving total cash contributions for Ps. 512,117,056. FASA contributed Ps. 450,000,000 while the shareholders
of Benavides contributed with Ps. 60,000,000 and the public investors contributed Ps.2,117,056, exercising their right of first
refusal.



Once this capitalization process was concluded,
FASA, one of the ten best drugstore chains in the world, acquires control of Benavides with 68% participation.



2003.The efforts of Benavides focused
on the financial and operational reorganization of its business, in order to achieve a competitive price strategy and a renewed
variety of products.



On January 9, after concluding the capitalization
process, the new board of directors held its first meeting.



On February, the store remodeling program is
initiated to implement the new corporate image of Benavides in the stores of the chain. This program represented one of the most
important measures adopted to transform the business of Benavides and redirect it to the needs of its customers.



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286 pharmacies were remodeled in the west and
northeast region, which represent more than half of the total stores of the chain, with an investment of more than Ps.120,000,000.



This same program also contemplated the closing
of 50 sales spots, including 7 coffee shops operating under the commercial name “Ben’s” and 19 photo shops, as
such business areas were not part of the main business of Benavides, and concentrating on the operation of the pharmacies in order
to satisfy the needs of the customers.



On August, Mr. Alvaro Rodriguez Arregui resigns
as chief executive officer, and Mr. Jaime Poblete Stambuk assumes such position temporarily.



On September 19, 2003 a general extraordinary
shareholders meeting was held and in this meeting the following resolutions were adopted, among others: Benavides changes its corporate
name from Far-Ben, S.A. de C.V. to Farmacias Benavides, S.A. de C.V., concentrating the operation of all the pharmacies, the spinoff
of a new subsidiary, the incorporation of two new services companies and the liquidation of two subsidiaries.



On October 2003 real estate sales begins, from
operating pharmacies to assets that are not strictly part of Benavides’ business, as a way to optimize the asset structure
of the company and invest in more productive areas, looking to improve the company’s profitability.



The 17,500 meters distribution center, located
in the municipality of Guadalupe in the estate of Nuevo Leon, Mexico, started to operate utilizing the best logistic and distribution
practices implemented by FASA in Chile, with the purpose of improving the merchandise supply.



The project started on November 2003, mainly
provisioning the pharmacies located in the west and north region of the country.



The total investment in this distribution project
amounted to Ps.31,000,000.



2004.In January Mr. Walteer Westphal
Urrieta was appointed as chief executive officer.



In February, Benavides opens its new offices
in their current location.



With the incorporation of FASA and the new
administration, Benavides paid a dividend of Ps. 0.00792 per share to its shareholders, which was approved by the general ordinary
shareholders meeting that was held on April 1, 2004.



The pharmacies remodeling program was successfully
concluded with 506 remodeled sales spots and the programmed growing process for 2005 began.



2005.In March, Benavides ended its
50% participation in the company Droguería y Farmacias El Fénix, S.A. de C.V. maintained in 1997 (“El Fénix”).
Under the termination agreement, Benavides assumed as of May 21 the control of 30 sales spots out of the total 59 operated by El
Fénix. The pharmacies that were incorporated to the chain are located in Matamoros and Rio Bravo in the state of Tamaulipas;
Ciudad Juarez and Chihuahua in the state of Chihuahua; San Luis Potosi; Uruapan in the state of Michoacan; Aguascalientes; and
Tuxpan, Tempoal and Poza Rica in the state of Veracruz.



For the second consecutive year the general
ordinary shareholders meeting, held on April 21, 2005 resolved to pay the shareholders of Benavides a dividend of Ps. 0.165 per
share.



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In May Mr. Enrique Mendoza Diaz resigns as
operations officer and Mr. Jose Ramiro Garza Elizondo assumes its charge. The real estate development department is created, its
main purpose is to manage the expansion plans of Benavides, Mr. Fernando Benavides Sauceda was appointed as head of the said department.



In May 2005, Farmacias Benavides finalized
the liquidation process for two of its subsidiaries, Droguería Benavides, S.A. de C.V. and Benavides de Monterrey, S.A.
de C.V.



In October, the general ordinary shareholders
meeting resolved to pay a dividend of Ps. 0.191 per share to the shareholders of Benavides, resulting in a total amount of Ps.
78,089,278.49



In 2005, 14 new branches were open in Monterrey,
Guadalajara, Torreon, Reynosa and Tampico with an investment of Ps. 94.6 million. This investment was made in addition to the operational
infrastructure and preventive maintenance investment programs for the existing drugstores. Therefore, the 26 pharmacies that were
incorporated to the chain as a result of the separation from El Fénix were remodeled and 21 low performance stores were
closed.



Farmacias Benavides closed 2005 with a base
of 529 pharmacies, 23 more stores that the ones owned on the closing of 2004. The total pharmacies are the result of 14 openings,
30 stores incorporated from El Fénix in May and 21 closed stores.



2006.During 2006 Farmacias Benavides
focused its efforts to consolidate its participation in the market. Thanks to the coordination of the different areas of Benavides,
this efforts were realized through successful stores with and innovative design that identify Farmacias Benavides in the different
markets where it operates; providing ample spaces and adequate exhibition space of the products for a more comfortable and uniform
experience for the customer, as well as a suitable environment for the employees.



63 new stores were opened and 79 were
totally remodeled.



2007.During 2007 Benavides opened 74
new pharmacies, closing the year with a total of 641. These pharmacies have an average size of 243.2 square meters of store space,
resulting in a total of 155,955 square meters, which represents a 13.5% growth with respect to 2006.



During July 2007, Farmacias Benavides, along
with Grupo Elektra, incorporated its pharmacies into the money transferring service network, providing among its services the delivery
of money transfers from the United States to Mexico, continuing the strategy of providing valuable service to its customers in
order to satisfy their needs in one place.



2008.Farmacias Benavides opened 82
new pharmacies, finalizing the year with 716 stores in operation and 176,547 square meters of store space, representing an increase
of 13.2%. This important growth allowed Benavides to offer the consumer an accessible and attractive store network which provides
a uniform purchase experience for the customer in 113 cities and municipalities.



During 2008, Farmacias Benavides was able to
open 3 new stores, closing the year with 710 operating drugstores and 175,103 square meters of store space, maintaining its market
leadership in the 113 cities and municipalities where Benavides has a presence.



The postponement of the expansion plan allowed
Benavides to take advantage of its financial health. In December 2009, all of the financial debt of Farmacias Benavides was cancelled,
payments were made for a total amount of Ps. 472 million. This was made possible by the strict control of investments and operational
expenses.



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2010.At the end of the first quarter,
Benavides reported its financial results using International Financial Reporting Standards (“IFRS”) for the
first time, being one of the first companies in Mexico to conform its financial information to this standard.



Benavides closed the first quarter with 708
stores, 174,671 square meters of store space and 6,594 employees.



On May 17, 2010 the Company signed a purchase
agreement, under the terms of which Grupo Casa Saba was bound to carry out a tender offer on the Santiago Stock Exchange in Chile,
for all of FASA’s outstanding shares of capital stock once it had obtained the necessary corporate and governmental authorizations.
FASA owns approximately 95.62% of the outstanding shares of the capital stock of Farmacias Benavides; therefore, as a result of
the acquisition of FASA’s shares, Grupo Casa Saba indirectly acquired a controlling participation in Farmacias Benavides.



2011.During the year, Farmacias Benavides
inaugurated 31 stores, closed 8 stores and incorporated two chains, Provee de Especialidades and CMQ. Both chains are located primarily
in the western part of the country, thus strengthening the chain’s growth. With the combination of these chains’ stores
along with 11 other store openings, the Company ended the period with 746 pharmacies in operation and 179,446 m2 of sales floor
space. As a result of the increase in sales floor space, Farmacias Benavides was able to maintain its market position in the 119
cities and 17 states where it offers its products and services.



In November, Fernando Benavides Sauceda resigned
as Farmacias Benavides’ Chief Executive Officer and José Luis Rojas Toledo was named in his place. Mr. Rojas was the
Company’s previous Operations Director.



At our annual general ordinary
shareholders’ meeting, it was approved that the Company implement the stock option and/or purchase plan for employees, officers
and/or directors of the Company or its subsidiaries.



As a result, it was also
approved to increase the variable portion of the Company’s capital stock, for an amount up to Ps.84,999,982.50, through the
issuance of 3,777,777 ordinary shares, nominative, without par value, which will be maintained in the Company’s treasury,
to be used later, in the implementation of the aforesaid plan.



Additionally, it was approved
that the Board of Directors shall establish the terms and conditions of the stock option and/or purchase plan, as well as the characteristics
under which the shares subject to the capital increase will be subscribed and paid, including, without limitation, the form and
term. When such terms and conditions are defined, the necessary notices will be published in order for the shareholders to exercise
their preemptive rights.



Finally, it was approved
that, in the event that after the specified time frame in the relevant notice, the shares that remain unsubscribed by the shareholders
may be offered for subscription and payment to whomever the Company’s Board of Directors determines to that effect, including
one or more of the Company ́s shareholders, pursuant to the applicable laws, at a price that should be no less than the subscription
price to be included in said notice.



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Capital Expenditures



The table below sets forth
our capital expenditures for the years ended December 31, 2009, 2010 and 2011. Our capital expenditure program is primarily focused
on new investments in vehicles for our distribution fleet, information technology and computer equipment as well as new store construction
and in-store projects for our Retail Pharmacy business. For a discussion of how we funded our capital expenditures in 2011, as
well as a more detailed description of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects—Liquidity
and Capital Resources—Overview” and “—Capital Expenditures”.



|                                                 |  | Year ended December 31, |      
|------------------------------------------------ |  | ----------------------- | -----
|                                                 |  | 2011                    |      
|                                                 |  |                         |      
|Distribution fleet                               |  | Ps.                     | 0    
|Technology and computer equipment                |  |                         | 37.1 
|Other general capital expenditures               |  |                         | 72.5 
|Total capital expenditures Distribution Division |  | Ps.                     | 109.6
|                                                 |  |                         |      
|Pharmacies                                       |  | Ps.                     | 231.9
|Infrastructure                                   |  |                         | 35.6 
|Distribution                                     |  |                         | 7.0  
|                                                 |  |                         |      
|Total capital expenditures Retail Division       |  | Ps.                     | 274.5
|Total capital expenditures                       |  | Ps.                     | 384.1










| | (1) | In 2010, we are including FASA’s full-year CAPEX.
| | --- | -------------------------------------------------



Our capital expenditures
during 2009 were approximately Ps. 76.1 million, which consisted of Ps. 19.4 million for the purchase of transport and delivery
equipment, Ps. 12.3 million for technology and computer equipment and Ps. 30.7 million for other general expenditures. Our retail
pharmacy-related expenses totaled Ps. 13.7, of which Ps. 0.5 million were for pharmacy-related projects, Ps. 9.9 million were spent
on infrastructure related expenses and Ps. 3.3 million for distribution-related capital expenditures. These expenditures were mainly
funded with working capital.



The capital expenditures
for our Distribution Division during 2010 were approximately Ps. 36.6 million, which consisted of Ps. 10.3 million for the purchase
of transport and delivery equipment, Ps. 11.6 million for technology and computer equipment and Ps. 14.7 million for other general
expenditures. Our Retail Division’s 2010 capital expenditures consisted of Ps. 322.3 million for pharmacy-related projects,
such as new store openings and store remodeling, Ps. 41.3 million in infrastructure projects and Ps. 20.6 million for distribution-related
investments for a total of Ps. 384.2 million. These expenditures are generally funded with cash from our operations. In the event
that we need additional funds, we can use our available credit lines.



Our distribution related
capital expenditures during 2011 were approximately Ps. 109.6 million, which consisted of Ps. 37.1 million for technology and computer
equipment and Ps. 72.5 million for other general expenditures. Our Retail Division’s 2011 capital expenditures consisted
of Ps. 231.9 million for pharmacy-related projects, primarily for new store openings and store remodeling, Ps. 35.6 million in
infrastructure projects, such as IT systems and Ps. 7.0 million for distribution-related investments for a total of Ps. 274.5 million.
These expenditures are usually funded with cash from our operations. In the event that we need additional funds, we can use our
available credit lines.



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See “—Information
and Technology Systems” and “Item 5. Operating and Financial Review and Prospects—Overview”.



In 2012, we expect that our
main capital expenditures will be related primarily to IT investments and developments, as well as to the renewal of our distribution
fleet for our distribution division while our 2012 retail related capital expenditures will be used mainly for new store openings
as well as the remodeling of existing stores, merchandising projects and IT investments in our core markets. We expect to continue
to fund our capital expenditures needs with cash from our operations. However, in the event that we need additional funds, we can
use our available credit lines.



Public Takeover Offers by Third Parties



Not applicable



Business Overview



Grupo Casa Saba was founded
as a pharmacy in 1892 and is currently one of the leading multi-channel, multi-product national wholesale distributors in Mexico,
operating through one of Mexico’s largest distribution networks of its type. We distribute pharmaceutical products, health,
beauty aids and consumer goods, publications, general merchandise and other products. We distribute the majority of these products
on a non-exclusive basis. With over 115 years of experience, we supply a significant number of Mexico’s pharmacies, mass
merchandisers, retail and convenience stores, supermarkets and other specialized channels nationwide.



In our Distribution Division,
we currently distribute over 15,000 different products, including approximately:



| | · | 6,400 pharmaceutical products;
| | - | ------------------------------



| | · | 5,400 health and beauty products;
| | - | ---------------------------------



| | · | 700 general merchandise and other products, such as food and toiletries; and
| | - | ----------------------------------------------------------------------------



| | · | 3,000 publications.
| | - | -------------------



We distribute these products
throughout Mexico through our nationwide distribution network to customers in the following segments:



| | · | approximately 14,000 pharmacies owned by private individuals;
| | - | -------------------------------------------------------------



| | · | over 5,100 privately-owned pharmacy chains and around 620 government pharmacies;
| | - | --------------------------------------------------------------------------------



| | · | approximately 3,500 regional and national supermarkets;
| | - | -------------------------------------------------------



| | · | approximately 600 racks and 110 nationwide agents;
| | - | --------------------------------------------------



| | · | over 160 department stores; and
| | - | -------------------------------



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| | · | approximately 330 major wholesalers and 3,100 convenience stores.
| | - | -----------------------------------------------------------------



In addition, we are also
one of the largest pharmacy retailers in Latin America, where in 2011 we operated over 900 pharmacies in 19 Mexican states, and
the metropolitan area of Mexico City, more than 350 pharmacies throughout Chile and 85 pharmacies in the states of Rio de Janeiro
and São Paulo in Brazil through which we sell pharmaceutical products as well as health and beauty aids and other related
consumer goods.



Our consolidated net sales
for the year ended on December 31, 2011 totaled Ps. 46,568.2 million, approximately 78% of which were made in Mexico. As of the
end of 2011, our total assets were Ps. 31,600,215 million and we owned 22 distribution centers in Mexico, one distribution center
in Santiago, Chile and the Sports Clinic facility in Tampico, Tamaulipas. Our operations outside of Mexico represented 22% of our
consolidated net sales for the year ended on December 31, 2011.



Our operations are currently
organized into five operative business divisions: the Private Pharmaceutical Products business division, which we refer to as “Private
Pharma” (46.16% of our consolidated net sales in 2011); the “Retail Pharmacy” Division which includes results
from our retail pharmacies business (44.34% of our consolidated nets sales in 2011); the Government Pharmaceutical business division,
which we refer to as “Government Pharma” (2.60% of our consolidated net sales in 2011); the Health, Beauty Aids, Consumer
Goods, General Merchandise and Other Products business division, which we refer to as the “HBCG/Other Products” business
division (5.20% of our consolidated net sales in 2011); and the Publications business division (1.70% of our consolidated net sales
in 2011). The following table shows our sales by business division, as a percentage of consolidated net sales for the last three
years:





|                                                                     |  | Year ended December 31, |      
|-------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                     |  | 2011                    |      
|                                                                     |  |                         |      
|Pharmaceuticals(1)(2):                                               |  |                         |      
|- Private                                                            |  |                         | 46.16
|- Government                                                         |  |                         | 2.60 
|Health, Beauty, Consumer Goods, General Merchandise & Other Products |  |                         | 5.20 
|Publications                                                         |  |                         | 1.70 
|Retail Pharmacy                                                      |  |                         | 44.34
|Total                                                                |  |                         | 100  














| | (1) | For a brief description of the types of products included within the term “pharmaceutical
products” for purposes of this annual report, as well as a discussion of the differences between the pharmaceutical markets
in Mexico and the United States, see “—Pharmaceutical Industry,” below in this item.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In 2009, the operations of Casa Saba Brasil and our retail pharmacy business in Mexico were consolidated
and reflected in the Private Pharmaceuticals business division. For the year ended December 31, 2010 and thereafter the results
of our retail pharmacy business will be reported separately as the “Retail Pharmacy” division.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Distribution Business Overview



We seek to distribute pharmaceutical
products on a “full-line/full-service” basis. We distribute a wide array of pharmaceutical and other products of the
kinds listed above, as well as provide our clients with a range of value-added services, including multiple daily deliveries and
emergency product replacement services. In our HBCG/Other Products business division we distribute certain products on an exclusive
basis while also providing our clients with specialized value-added services on a product-by-product basis, including merchandising,
marketing support and other customer counseling services.



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We purchase the products
we distribute from a wide variety of suppliers, the majority of which are located in Mexico. We place purchase orders on an ongoing
basis, negotiating quantity and price periodically rather than committing to contractual terms. By distributing pharmaceutical
products, our role is generally not that of a “demand creator,” given that we do not advertise products, nor do we
suggest or provide substitute products for those ordered.



Our principal strengths are
our nationwide distribution network, through which we are able to deliver products within 12 to 24 hours from the time of order,
our state-of-the-art technology, our commitment to customer service and our well-trained and experienced personnel. In addition,
as a result of our continued use of new technologies since the early 1990s, we have increased our operating efficiency and distribution
capacity.



Mexico’s vast and mountainous
terrain and old road network connecting small towns present a difficult environment for distribution. This is further complicated
in Mexico City and the surrounding areas by traffic congestion. We believe that we will continue to overcome these constraints
with our strategically located distribution centers near Mexico’s major population centers.



As of December 31, 2011,
we distributed products to our clients nationwide through a distribution network consisting of 22 active distribution centers.
Grupo Casa Saba’s warehouses have more than 100,000 square meters of warehouse space. Using a fleet of over 800 vans, trucks
and cars, we filled more than 7.1 million orders in 2011, averaging more than 598,000 orders per month. For a list of our distribution
centers and their locations, see “—Property, Plant and Equipment,” below in this item.



Retail Business Overview



Consistent with our business
strategy, we have continued to strengthen our retail pharmacy business. In Mexico, we sell pharmaceutical products through both
the Farmacias ABC pharmacy chain and the Farmacias Benavides chain. Through Farmacias ABC, we operated over 150 pharmacies in
2011, mainly in the metropolitan area of Guadalajara, Jalisco, which is Mexico’s second most populous city, as well as in
the Mexico City metropolitan area and in the states of Guanajuato, Michoacan, Coahuila and Tamaulipas. Farmacias Benavides is
based in Monterrey, Nuevo Leon and as of December 31, 2011 operated more than 740 pharmacies in 17 of the 32 Mexican states2.
We currently lease all of the locations where the pharmacies are located. See “—Property, Plant and Equipment”.



Our Brazilian operations
are focused on the operation of retail pharmacies. We purchase the pharmaceutical products we sell from Brazil’s three main
pharmaceutical wholesale distributors while the majority of our non-pharmaceutical products are purchased from a wide range of
distributors, manufacturers and suppliers. We place purchase orders on an ongoing basis, depending on market needs, pricing and
payment terms rather than committing to contractual terms. Our presence in the states of Rio de Janeiro and São Paulo, through
85 pharmacies, allows us access to a wide range of customers. Our customers are primarily individual clients, although we do maintain
corporate arrangements, which are generally longer-term in nature, with several healthcare providers and corporate clients. Since
acquiring Drogasmil in the second quarter of 2008, we have carried out an ongoing process of integrating and raising its operational
standards to those of our Mexican operations which has enabled the chain to improve its sales and profitability levels.










2 As of 2011, our 8 Farmacias Provee
stores are being operated by Farmacias Benavides. However, they will continue to focus on the provision of specialty medicines.



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In our stores, we sell pharmaceutical
products and a wide assortment of other merchandise. In fiscal year 2011, pharmaceutical product sales, which for purposes of this
annual report include prescription drugs as well as over-the-counter medications, accounted for approximately 54% of our retail
pharmacy business sales in Mexico. We believe that our pharmacy operations will continue to contribute significantly to our overall
sales due to favorable industry trends, including an aging population, increased life expectancy and the discovery of new and better
drug therapies. We offer a wide variety of non-pharmaceutical products, including health and beauty aids and other merchandise,
which accounted for approximately 46% of our Mexican retail pharmacy business sales in 2011. Non-pharmaceutical products include
health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, seasonal merchandise and
numerous other everyday and convenience products. In Brazil, 60% of the products that we sold in 2011 were pharmaceutical products
while the remaining 40% were non-pharmaceutical items.



FASA has an established business
model that it has applied in each of the markets where it operates, although it does make adjustments based on the particular conditions
in each of the countries. This model consists of developing attractive drugstore type formats that are located close to its client
base and that offer a wide assortment of medicines as well as health, beauty and personal care items. In our Farmacias Ahumada
chain in Chile approximately 67% of our total 2011 sales corresponded to pharmaceutical products and 33% to non-pharmaceutical
items, including health and beauty care items as well as other merchandise.



Business Strategy



Under the direction of our
current management, we are focused on enhancing the value of Grupo Casa Saba by:



| | · | Strengthening our retail pharmacy business in Mexico and Latin America;
| | - | -----------------------------------------------------------------------
| |   |                                                                        

| | · | Strengthening the company’s financial position
| | - | ----------------------------------------------



| | · | Improving the efficiency of our retail operations and strengthening customer loyalty;
| | - | -------------------------------------------------------------------------------------



| | · | Identifying opportunities in both our distribution and retail divisions to increase our market
penetration in sectors with high growth potential
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Maintaining continuous contact with clients and suppliers to enhance the supply chains in which
we participate;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | Analyzing the efficiency of our existing distribution centers and implementing IT solutions and
internal savings programs that will increase our operational efficiency and maximize profitability;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Offering our clients both value-added and internet solutions for facilitating commercial transactions
and promoting higher sales; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | Continuing to focus on internal savings and operating efficiencies programs that will maximize
our operations’ profitability.
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | As a result of these measures, as of December 31, 2011, we:
| | - | -----------------------------------------------------------



| | · | Successfully completed the integration of Farmacias Ahumada, S.A., a Chilean-based retail pharmacy
chain and Farmacias Benavides, its Mexican based subsidiary, into our Group;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Restructured the bridge loan that was obtained to acquire FASA with more favorable terms for the
Company;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | Negotiated the divestiture of our Peruvian operations, and completed the sale of this subsidiary
in January 2012;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | Increased the efficiency of our retail pharmacy operations by improving our product offering as
well as the level of service that we provide at the point-of-sale;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Developed and launched new private label and controlled (exclusive) brand products in our pharmacies;
| | - | -----------------------------------------------------------------------------------------------------



| | · | Launched a new concept of “Solution Centers” in some of our Chilean and Mexican Pharmacies;
| | - | -------------------------------------------------------------------------------------------



| | · | Began offering medical consultations in some of our Mexican pharmacies to increase the level of
service that we offer to our customers;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | Had commercial operations with almost all of the clients and suppliers of the private pharmaceutical
market in all of the countries where we currently operate;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Developed and installed state-of-the-art Business Intelligence and Point-of-Sale systems for some
of our government clients;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | Continued with the second phase of the launch of GPRS mobile devices for our sales force;
| | - | -----------------------------------------------------------------------------------------



| | · | Successfully migrated the telecommunications network in Mexico to a new Multiprotocal Label Switching
(MPLS) format, which offers faster, safer and a more economic communications protocol with improved data quality
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Offered value-added services to our distribution clients such as targeted publications, special
discount programs and an electronic procurement portal that helps facilitate purchasing for our clients; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Reviewed and, in some cases, changed the commercial terms of several of our clients and suppliers
and, when required, discontinued unprofitable operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Strengthen our Retail Pharmacy Business in Mexico and
Latin America



We intend to grow our retail
pharmacy market share in the countries where we have operations as well as to penetrate into new geographical markets in Latin
America, through new store growth and strategic acquisitions. We believe that this will allow us to continue creating synergies
with our existing distribution network, and increase our margins in the long term.



Prior to 2008, the Group
acquired several small regional pharmacy chains in Mexico and in May 2008, Grupo Casa Saba acquired Drogasmil, a Brazilian pharmacy
chain that currently operates in the states of São Paulo and Río de Janeiro. This acquisition was the Company’s
first outside of Mexico.



On September 30, 2010, we
successfully completed the Tender Offer through which we acquired 97.8% of Farmacias Ahumada’s capital stock. Given that
FASA owns 95.62% of Farmacias Benavides’s outstanding capital stock, once we acquired FASA’s shares, the Group indirectly
acquired a controlling participation in Farmacias Benavides. We consider that by means of this transaction we are now the largest
drugstore chain in Latin America and one of the largest distributors of consumer and pharmaceutical products in the region, with
a platform of more than 1,500 pharmacies across Mexico, Brazil, Chile and Peru at the end of 2011. See “—History and
Development of the Company” and “Item 10. Additional Information—Material Contracts”.



We believe the Acquisition
is creating value for our shareholders. These synergies provide added strength to the Company by significantly increasing its size
as one of the main distributors and vendors of pharmaceutical, health, beauty, personal care and general merchandise products and
giving us a larger international presence. As a result of the Acquisition, we also seek to reinforce our regional growth strategy
through a proven and wide multi-country platform.



We believe that, although
the initial costs of growing our retail operations, may be high and our profitability and financial structure may be temporarily
affected, the retail pharmacy business will contribute to our long-term growth in both the retail and distribution markets.



By the end of 2011, we had
successfully completed the integration of FASA into our corporate structure, although there are still opportunities to continue
increasing our efficiency levels going forward. In 2012, we seek to improve both the efficiency and our profitability of our Retail
division though a significant expansion plan in Mexico, Chile and Brazil, followed by the application of strict cost control measures
and intelligent purchasing methodologies.



In order to concentrate our
efforts on the expansion in Mexico, Brazil and Chile, on January 19, 2012, FASA Investment Limitada, a subsidiary of Grupo
Casa Saba, sold its shareholding in the social capital of Famacias Peruanas, S.A. and Droguería La Victoria, S.A.C., subsidiary
companies of FASA through which a chain of drugstores was operated in Peru.



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In line with our strategy,
this year, we increased the number of stores in our two main markets, Chile and Mexico. In Chile, we added several new stores in
key areas, which will help us, compete more effectively in the marketplace. In Mexico, we grew the number of stores in the Benavides
chain and entered the State of Mexico and Mexico City markets. This expansion will enable us to widen our overall client base and
increase our presence in this market.



Strengthening the Company’s Financial Position



By the end of 2011, our interest-bearing
liabilities totaled Ps. 12,556.5 million and our net debt was Ps. 10,246.1 million, a large part of which was related to the acquisition
of FASA in the fourth quarter of 2010.



On August 11, 2011, Grupo
Casa Saba successfully refinanced the bridge loan that was executed on August 30, 2010 in the amount of Ps. 7,723.9 million in
order to acquire FASA, as well as the collateral package that was executed to guarantee its obligations under the loan. The loan
term was extended for seven years, and is divided into two tranches. The shorter average life tranche has an average margin of
TIIE (the Mexican Interbank Balance Interest Rate) + 2.25% while the longer average life tranche’s margin is TIIE + 2.76%,
which are more favorable terms than those that were negotiated in the original credit agreement.



In order to reduce our debt,
in January 2012, we completed a series of negotiations with Quitafex, S.A., which resulted in the sale of the capital stock of
our Peruvian subsidiaries, Farmacias Peruana, S.A. and Droguería la Victoria, S.A. The proceeds from this sale will be used
to pre-pay the debt and to strengthen our retail pharmacy operations in our core markets, Chile and Mexico.



Improve the Efficiency of Our Retail Operations and
Strengthening Customer Loyalty



We seek to focus our efforts
on improving the efficiency of our retail operations, by offering pharmaceutical products as well as health, beauty care and general
merchandise products at competitive prices while providing excellent service to our customers at the point-of-sale. In Mexico,
this product offering will exist not only in the larger cities, but also in smaller cities and rural populations, thus benefiting
regions that today do not have access to a wide range of such products at competitive prices.



As part of Benavides’
ongoing commercial strategy, in 2011 we continued to improve our home delivery service by widening our delivery zones and by waiving
the charges for this service. In addition, we continued to develop the Benefits Administration Program, which allows us to enter
into commercial agreements with large corporations to provide them with our services and established a structured pharmaceutical
benefits program for senior citizens, which we expect will help create customer loyalty among our older clients.



In Latin America, we are
integrating the experience that we have accumulated in Mexico as one of the leading distributors of pharmaceutical products with
FASA’s knowledge as one of the leading participants in the pharmacy segment in various countries. As a result, we offer customers
a high quality service and a wide range of products at competitive prices at the point-of-sale.



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In 2011, FASA adjusted its
business model to include the introduction of new value-added services, including the development and launch of private label products
and exclusive brands, which offer customers greater diversity in their product selection and which also contributes to improving
the Company’s profitability levels. In addition, this division launched a new in-store concept that seeks to improve our
customers’ shopping experience by creating “solution centers”, in which trained staff members offer customers
personalized service geared towards their individual needs. In Mexico, as of March 31, 2012 over 140 of our pharmacies are now
staffed by a certified physician who provides on-site medical consultations to our clients. We expect that each of these efforts
will help us to increase the level of service that we provide to our customers and, therefore, will result in increased customer
loyalty.



In addition, the Chilean
pharmacies were able to improve their productivity through the installation of WorkForce Management software, which tracks employee’s
daily activities in order to identify areas of opportunity for more effective time management. In 2011, Farmacias Ahumada also
renovated their Point-of-Service (POS) software, which included a new promotions system that facilitates the identification of
promotions and special offers that the sales staff can then recommend to the customer at check out, thus helping to increase overall
ticket sales. Finally, in Mexico, the purchasing module of the SAP system was modified in order to allow the purchasing agents
to identify the best commercial terms offered by suppliers for each product, thus making the process more efficient and cost-effective.



Identifying Opportunities to Increase our Market Penetration
in High Growth Potential Sectors



The generics segment has
been growing steadily throughout Latin America over the past several years and we believe that the development of private and exclusive
label brands will help us improve our profitability and meet the growing demand for these products in the region. Therefore, in
order to compete with other pharmacy chains, our Retail Division is working to introduce generic based OTC, prescription drugs,
beauty care products and items for babies. In addition, we expect that the introduction of well-known, exclusive labels will also
help strengthen our value proposition for our clients by increasing our overall product selection. Our goal is to offer high quality
brands in all three countries where we operate that will improve the health and well-being of our clients while offering cost savings.



To date, we have a network
of more than 150 specialized providers with operations worldwide. Our private and exclusive label brands are currently manufactured
in various parts of the world, including Chile, Mexico, Argentina, China, the U.S. and the UK. As a result of this diverse sourcing
methodology, we are able to achieve economies of scale, which in turn enables us to offer attractively priced products to our customers.



In 2011, we continued to
develop, launch and promote new products. To date, our private label offerings include personal care and hygiene products as well
as shampoos, deodorants, body lotions and baby care items such as accessories, diapers and wipes. During the year, we also launched
a new line of baby formulas in various countries.



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In addition to our private
label brands, the Company is also focused on offering high quality, international name brands that are available exclusively in
our stores. Currently, we offers brands such as “GNC” (a leader in the vitamin and mineral category); Prudence (condoms);
“Sally Hansen/La Cross” (U.S. market leader in products for the treatment and care of hands and nails); “ROC”
(internationally recognized dermo-cosmetics that include anti-aging and anti-cellulite products), “John Frieda” (a
leader in innovative hair care products in the U.S.); “Lumene” (a brand that is the first of its kind to develop an
innovative line of cosmetics and skin care items); “Phyto” (a French capillary dermo-cosmetic); Jergens (a U.S. brand
with over a century of experience in the skin care industry); Scunci (the market leader in hair accessories); and Bonawell, Igora
and Palette de Schwarzkopf (all of which are a part of Henkel’s product portfolio). We expect that the increased variety
of name-brand products will make us an even more attractive option for our customers and help foster customer loyalty.



In the Distribution division,
we are also working to increase the number of generic products in our catalog in order to meet our clients’ growing demand
for these items.



In recent years, our Group
has also noted a potential opportunity to increase its participation in the government sector. In 2011, we secured several projects
with state and federal government institutions, including Petróleos Méxicanos (PEMEX).



To better serve several of
our government customers, this year we developed a complex on-line order processing applications and data sharing services that
utilize the latest in web-service technology. These solutions allow our customers to manage their inventory more efficiently and
to process orders faster, which improves their product availability at the sales counter. We believe that this innovative new software
solution may serve as a valuable tool for helping to secure contracts with other governmental entities in the future, given that
it is customizable and completely browser-based, with no additional hardware or software needed to run the programs.



Maintaining Continuous Contact with Clients and Suppliers



We are well aware that continuous
contact with our clients and a solid knowledge of the markets in which we operate are key to finding new ways to increase our sales
and further develop our core pharmaceutical business. Therefore, in 2011, we continued to focus our efforts on working closely
with our clients and suppliers in order to identify their specific needs and customize our services to meet their requirements,
including improving our product catalog. All of these efforts were accomplished under our minimum profitability parameters. In
terms of our suppliers, we worked closely with them to determine the market’s needs and to create innovative commercial schemes.



Analyzing the Efficiency of Our Distribution Centers
and Implementing IT Solutions that Increase Our Operational Efficiency



At Grupo Casa Saba we manage
over 15,000 products, which requires a high level of efficiency and systematization in terms of order fulfillment and delivery.
Grupo Casa Saba analyzes the geographic location and efficiency of its distribution centers in order to identify facilities that
are not operating at maximum efficiency levels. To assure the optimal operation of its infrastructure and distribution network,
Grupo Casa Saba continuously renews its distribution fleet and invests in upgrading its logistics and information systems.



The investments made since
2006 in terms of the IBM hardware and middleware platform have been highly beneficial for the Company. Over the course of the last
two years, our Total Cost of Ownership, or the total cost of administering our IT processes, has dropped, despite an increase in
the number of transactions processed. During this time, our applications have become more complex, thus requiring more computing
power, which has been successfully supplied by the IBM platform.



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In 2009, our IT efforts were
focused primarily on general computer and communication systems updates and maintenance, including the purchase of new computer
equipment, the replacement of critical servers for our central site with state-of-the-art hardware and the implementation of a
digital voice and data network in all of our distribution centers as well as our corporate headquarters. We believe that these
upgrades helped reduce operating costs and improved system availability.



In addition, we significantly
reduced the use of paper in several of our warehouses through the use of radio frequency terminals. This measure is intended to
decrease paper consumption and improve the accuracy of our order processing. We also updated our software and connectivity with
various clients in order to improve on-line order processing and product availability.



In 2010, our IT efforts were
focused primarily on general computer systems upgrades and maintenance, including the replacement of critical servers for our central
site with state-of-the-art hardware and software. We believe that these upgrades reduced operating costs and improved system availability.
Specifically, we updated the company’s critical mission platform by installing IBM’s Power (mr) technology in order
to enhance the performance and increase our Disaster Recovery platform’s capacity in the event of an emergency. In addition,
we improved the technology used by our sales force by introducing the first series of wireless handheld PDA units equipped with
the latest in GPRS technology. This technology enables our sales representatives to transmit their orders remotely, utilizing cellular
signals. We expect these units to help us increase productivity by eliminating the need to connect to a landline in order to transmit
customers’ orders, resulting in time savings. We consider that all of these features will ensure the quality with which we
process client transactions and increase the overall security of our network.



The year 2011 was one of
operational excellence in that our record of on-time processing averaged approximately 98% per month, despite an increase in the
amount of information services being used. Throughout the year, we continued updating our Operating Systems and Applications versions
to keep pace with the speed of technological innovations. This year, we completely renovated all of our Citrix servers, upgraded
our Websphere Application Server and deployed improved application balancing features. In addition, we conducted several drills
of our Disaster Recovery Planning processes nationwide, in order to ensure that the system that was implemented in 2010 continues
to operate at its optimum capacity.



In terms of our communications
technology, this year we successfully migrated the existing telecommunications network to a Multiprotocal Label Switching (MPLS)
format. This format offers a faster, economical and more secure communications protocol with improved data quality that will benefit
virtually all of our back office processes. In our warehouses we continued with the second phase of the launch of GPRS mobile devices
for our sales force. These units have had a positive effect in terms of sales agility, by providing up-to-the-minute information
for our sales representatives. Today, these devices operate using a Windows mobile platform, although we expect that an open platform,
such as Android, will be available in the near future. Once this technology is available, it will put downward pressure on prices
and we are prepared to take advantage of the opportunity to lower costs.



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In our Retail Division we
are also always looking for ways in which to improve the productivity of our warehouses. During the year, we made improvements
to our systems so that the release of the orders in each sector can be timed in a manner that optimizes the flow among the various
picking areas, eliminating bottlenecks and reducing wait times for the orders to be completed. In addition, we also modified our
packaging systems in order to decrease the amount of empty space within each individual box. As a result, we were able to reduce
the amount of boxes shipped for each customer order, which helps lower our transportation costs.



Offering Our Clients Value-Added and Internet Solutions
to Facilitate Commercial Decision-Making and Promoting Higher Sales



In an increasingly competitive
business environment, service is key. Therefore, we do our best to go one step further to provide value-added services to our clients.
In 2011, we continued to use an online distribution and information website, www.farmaservicios.com, which we currently
make available to our clients free of charge. Clients that log on to www.farmaservicios.comare able to communicate directly
with us, as well as place and track their orders and shipments on-line. In addition, these clients have access to a wide range
of additional services including news and industry information, business advice and a variety of special promotions. We believe
that www.farmaservicios.comis a value-added service that provides our clients with a faster, more convenient way to link
their demand to our system, given that they can place and track their orders, unlike with other traditional distribution channels.



To better serve some of our
government customers, this year we developed highly complex on-line order processing applications and data sharing services that
utilize the latest in web-service technology. These solutions allow our customers to manage their inventory more efficiently and
to process orders faster, which improves their product availability at the sales counter.



See “— Information
Technology Systems” below in this section. We will continue with our efforts to develop internet-based solutions for our
clients and suppliers as we believe that doing so will allow us to provide a value-added service that complements our existing
business.



Developing Internal Savings and Operating Efficiencies
Programs to Maximize our Operations’ Profitability



During 2011, in our Distribution
Division we continued implementing our profitability-focused strategy, which involved the ongoing review and negotiation of commercial
terms with our suppliers and clients to obtain better profitability levels, even if, upon occasion, this resulted in our Company
deciding not to make certain sales that did not meet our minimum profitability parameters.



Likewise, diverse efficiency
and continuous cost-savings programs were successfully implemented, such as ongoing reengineering of routes, the optimization of
distribution centers, adapting the fuel used in our distribution vehicles to be more cost-effective and paper waste reduction.
In our Mexican retail division, we were able to negotiate the direct delivery of large sized merchandise to our cross-dock facility
in Hermosillo, Sonora with some of our providers, saving us significant transportation time and expenses. In addition, we modified
our order packing procedures in order to separate liquid products from non-liquid products, thus limiting losses due to accidental
leakage during shipment.



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Operations



Prior to this year, our operations
were organized into four operating business divisions: the Private Pharma business division (which includes our retail pharmacy
business), the Government Pharma business division, the HBCG/Other Products Division and the Publications business division. However,
as of the fourth quarter of 2010, the Group created a fifth business division, known as the “Retail Pharmacy Division,”
where it reports the results of its retail pharmacy business. Please see “Item 5. Operating and Financial Review and Prospects—Results
of Operations” for a breakdown of our consolidated net sales by business division for the three year period ended on December
31, 2011.



Private Sector Pharmaceutical Distribution (Private
Pharma)



Our private sector customers
consist primarily of approximately 14,000 privately owned pharmacies, as well as national and regional pharmaceutical and supermarket
chains (comprising more than 8,600 stores) and the pharmacies associated with private hospitals. We were the first nationwide wholesale
pharmaceutical distributor to enter the private sector market in Mexico and, since the 1960s we have been one of only two wholesalers
providing national coverage. We believe that our customer coverage is one of the highest in the industry and that we cater to a
majority of retailers nationwide.



According to IMS Health,
A.G. and our estimates, in 2009, 2010 and 2011, Grupo Casa Saba and Nadro, Mexico’s only other nationwide pharmaceutical
distributor, together accounted for nearly 50% of prescription and over-the-counter drug sales throughout the private sector wholesale
pharmaceutical channels in Mexico (this figure does not include the sale of similar and generic products). Mexico has adopted individual
dosage packaging whereby pharmaceuticals are distributed in pre-packaged dosages rather than in bulk. Retail customers demand a
rapid and continuous supply of pharmaceutical products. As a result, inventory turnover is high. Consequently, shortages and stock-outs
are common and pharmacies are forced to rely on multiple suppliers. We seek to overcome these market constraints by maintaining
a superior distribution network. Through our more than 115 years of experience, we have developed a highly sophisticated transportation
and inventory logistics system, which enables us to distribute our products between 12 and 24 hours from the time of order nationwide.
We believe that we are able to fill the highest rate of orders in the industry and plan to maintain a state-of-the-art distribution
network to continue improving our distribution capabilities.



Public Sector Pharmaceutical Distribution (Government
Pharma)



Our public sector customers
consist of Mexican government institutions. The Mexican government has a vast network of hospitals, clinics and pharmacies on a
national level, as well as specialized health institutions, that we serve. The government institutions that purchase products from
us include:



| | · | “ISSSTE” – TheInstituto de Seguridad y Servicios Sociales para los Trabajadores
del Estado, the health and social security institution for Mexican federal government employees;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “PEMEX” – The hospitals and pharmacies operated byPetróleos Mexicanos,
the Mexican national oil company and one of the largest employers in Mexico;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | “IMSS” – The hospitals and pharmacies of the Instituto Mexicano del Seguro
Social, the health and social security institution for Mexican employees of private companies; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “State Health Institutions” – The hospitals, clinics and pharmacies of each of
the States of Mexico. The government employees of the States of Mexico have the right to go to these institutions for their healthcare
needs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Since the Mexican government
generally buys directly from manufacturers through IMSS and ISSSTE, it is able to purchase at prices that are substantially lower
than those paid by private entities. Our sales to IMSS, ISSSTE hospitals, State Health Institutions, and PEMEX are not in bulk
and, therefore, are not offered at bulk prices. In addition, we deliver pharmaceutical products to ISSSTE Tiendas, the supermarket
pharmacies operated by ISSSTE, at prices comparable to those prices we charge our large private sector customers. We are able to
sell our pharmaceutical products to approximately 240 ISSSTE Tiendas at private sector prices because we can provide them with
additional services and increased efficiency. Since our sales to ISSSTE Tiendas are not through the usual public sector channels,
we classify them as private sector sales. Sales to PEMEX are at prices substantially lower than those for the private sector. Sales
to IMSS are made also at prices substantially lower than those for the private sector and, in many cases, depend on the negotiations
conducted with the laboratories for each specific product.



The sales of our Government
Pharma business division depend greatly on the contracts that we are able to obtain from our government institution clients, particularly
ISSSTE, IMSS, PEMEX and other State Health Institutions. Our sales by the Government Pharma business division have tended to fluctuate
from year to year since most of these government contracts are awarded through bidding processes on an annual basis.



In the last three fiscal
years we have experienced the following trends in our Government Pharma division. Sales for our Government Pharma division decreased
by 12.4% in 2009, mainly as a result of a reduction in our sales to PEMEX. This reduction was primarily due to a lower participation
in the bidding processes. In 2010, sales from this division increased 5.9%, primarily as a result of increased sales to IMSS as
well as various state government health institutions. During 2011, sales from this division grew 26.0% due to a higher participation
in bidding processes during the period with various federal and state government health institutions. We cannot assure that we
will participate in future PEMEX (or other government) auction processes or that we will be awarded contracts with PEMEX or other
governmental institutions similar to those we have had in previous years.



Health, Beauty Aids, Consumer Goods, General Merchandise
and Other



Prior to 2004, we had separate
divisions for General Merchandise and Other Products and Office Products. In 2004, however, as part of a strategic business decision,
the Group decided to combine all three divisions under the name of “Health, Beauty Aids, Consumer Goods, General Merchandise
and Other, or HBCG/Other Products.” The decision was made due to the diminishing sales of the General Merchandise and Other
products, which together accounted for less than 1% of the Group’s total net sales.



We distribute health and
beauty aids as well as various consumer products that are typically sold through supermarkets, convenience stores, specialty stores
and pharmacies in Mexico. The products distributed in this division consist principally of basic toiletries, food products and
consumer goods, some of which are distributed on an exclusive basis, such as:



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| | · | Mexsana talcum powders from Schering Plough (since 1999);
| | - | ---------------------------------------------------------



| | · | The Sensual Tea (since 2004);
| | - | -----------------------------



| | · | Mustela products (since 2007);
| | - | ------------------------------



| | · | Costalitos, trash bags (since 2007);
| | - | ------------------------------------



| | · | Aquanet, hair sprays and hair care products (since 2009);
| | - | ---------------------------------------------------------



| | · | Jergen’s, hand and body creams (since 2009);
| | - | --------------------------------------------



| | · | Bioré, facial cleansing products (since 2009);
| | - | ----------------------------------------------



| | · | John Frieda, hair care products (since 2009);
| | - | ---------------------------------------------



| | · | Nature Made, dietary supplements and herbal products (since 2010);
| | - | ------------------------------------------------------------------



| | · | ACTII, microwaveable popcorn (since 2010);
| | - | ------------------------------------------



| | · | D’Stevia, natural sweetners (since 2010);
| | - | -----------------------------------------



| | · | CUREL (since 2011);
| | - | -------------------



| | · | Xiomega, Chia seed based nutritional supplements (since 2011);
| | - | --------------------------------------------------------------



| | · | Xtraviril, (since 2011);
| | - | ------------------------



| | · | Dream Water (since 2011);
| | - | -------------------------



| | · | VuduShot, pheromone perfumes (since 2011);
| | - | ------------------------------------------



| | · | Finesse, shampoos (since 2011);
| | - | -------------------------------



| | · | Ardell, false eyelashes (since 2011);
| | - | -------------------------------------



| | · | Nutrigomitas, children’s nutritional supplements (since 2011); and
| | - | ------------------------------------------------------------------



| | · | 2Life, toothbrushes, baby wipes and razors (since 2011).
| | - | --------------------------------------------------------



During 2011, we stopped distributing
the Vanart lines of products, Maxell Xbatteries and computer accessories and Alcachofivida, a line of artichoke-based dietary supplements.
In addition, we incorporated several additional brands into our product catalog, including Xiomega chia seed based nutritional
supplements, Xtraviril energy pills for men, Dream Water natural sleep aid, Vudu Shot pheromone perfumes, the Finesse line of shampoos,
Nutrigomitas children’s nutritional supplement and the 2Life line of basic toiletries. During the first quarter of 2012 we
added CMD, a new line of herbal-based vitamins and remedies.



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At times, we enter into short-term
exclusive distribution agreements on a preliminary, experimental basis, in order to test the real demand for specific products.
If upon the termination of these agreements we conclude that there is no significant demand for a specific product, we cease the
distribution of such product. For this reason, in the normal course of business, products we distribute one year may not be distributed
the next year. We are always seeking suppliers with whom we can enter into distribution agreements to distribute health and beauty
aids, consumer goods, general merchandise and other products, so long as they provide acceptable margins. We cannot assure you
that we will enter into distribution agreements to distribute any or all of these products at acceptable margin levels.



In the HBCG/Other Products
business division, in some cases, we provide manufacturers with highly specialized integrated services. These services range from
purchasing, planning, centralized sales, merchandising, collections, execution of promotions and product information.



We anticipate that the market
in Mexico for health and beauty aids, consumer goods, general merchandise and other products will continue to grow due to the young
profile of the Mexican population. We believe that as the Mexican population continues to grow and consumers’ disposable
income increases, consumer demand for our products in this division could increase. However, we are uncertain how the effects of
the global economic downturn may affect our sales of health and beauty aids, consumer goods, general merchandise and other products.
If there is a prolonged recession and consumers’ disposable income decreases, our results of operations for this division
may be affected.



We distribute general merchandise
and other products that are generally sold through grocery stores, supermarkets, convenience stores, major warehouses and pharmacies
in Mexico. The general merchandise products that we distribute consist primarily of packaged foods, beverages, vitamins and nutritional
supplements as well as personal care products. The other products that we distribute consist of over-the-counter products, household
items and toiletries. The general merchandise and other products that we distribute are mostly products sold on an exclusive basis
in specified geographic areas pursuant to contractual arrangements.



In 2009, sales in our HBCG/Other
Products Division increased by 0.4% while in 2010, sales from this division decreased 14.1%. During 2011, our HBCG/Other sales
grew by 11.4% primarily due to a higher demand for these types of products in the different markets where we offer them.



Publications



We distribute books and magazines,
a large majority of which we distribute on an exclusive basis through our publishing subsidiary, Publicaciones Citem, S.A. de C.V.,
or Citem, which we believe is one of the leading distributors of magazines in Mexico. We are also one of the leading suppliers
of self-service store chains, as well as the exclusive supplier of Wal-Mart Mexico’s VIPS and Portón restaurant chains
in Mexico City. We sell primarily through approximately 110 nationwide agents and one firm affiliated with the Union de Voceadores,
or Union of Newspaper Boys, in Mexico City. Citem also distributes entertainment products to other establishments, including supermarkets,
convenience stores, racks and magazine newsstands in airports, libraries and hotel magazine stores. In addition, Citem offers one
of the most efficient forces of rack-jobbers, or shelf-keeping merchandisers, to the VIPS and Portón restaurant chains.
These merchandisers keep the shelves of more than 600 stores across Mexico duly organized.



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In the second half of 2002,
Citem started an administrative and operational restructuring to achieve higher levels of profitability. This process has involved
changes in Citem’s product catalog, client base, personnel and distribution units and methods, among other changes. As a
result of the restructuring process our sales were affected in 2002 and 2003 but a positive trend of increases in sales started
in the last quarter of 2003 and carried on through 2007. During 2009, sales in the Publication division increased 0.6%, aided by
the reincorporation of various publications to the catalog as well as strong year-end specialty title and collector’s item
sales. Publication sales for 2010 rose 10.9%, driven primarily by increased sales of albums, stamp books, guides and magazines
related to the World Cup sporting event that took place in June 2010 as well as the inclusion of new, more profitable publications
in the product catalog. In 2011, sales from our Publications division posted a decline of 5.2%, primarily as a result of a downward
adjustment in the number of publications we received from various publishers as well as the fact that several special title items
were released last year and no similar items were released this year.



In terms of our export sales,
in 2008, we decided to discontinue distributing our publication products outside of Mexico. This decision was made due to our intention
to focus on domestic distribution where we benefit from our proprietary distribution network, as well as to the reduced margins
of our export sales caused by fluctuations in currency exchange rates that were brought on by the worldwide economic crisis. Given
that we did not reinitiate our international business during the 2011 fiscal year, we did not register any export sales during
the period.



Payments and Collections



Most of our distribution
sales are made on credit, with customers signing promissory notes for each invoice indicating the delivery of a product. Cash-on-delivery
terms are mainly used with new clients or those whose credit has been temporarily suspended. We negotiate the number of days of
credit that we will extend to our clients on a case-by-case basis. The determination of the number of days that we will extend
credit to a particular client depends on a number of factors, including the client’s creditworthiness, as well as the length
and nature of the client’s relationship with us. The determination of the number of days that we will extend credit to a
particular client also depends on our current business strategy. For example, in connection with our efforts to increase sales
to particular sectors of the market, in some cases we extend credit to clients in these sectors on more favorable terms than those
offered to our overall client base and, as a result, the maturity of accounts receivable due from clients in these sectors increases
slightly. We are constantly adapting our collection methods to market and general economic conditions. The average maturity of
accounts receivable due from our overall client base was 63.2 days in 2009, 73.6 days in 2010 and 41.6 days in 2011.



Although we are continuously
seeking to reduce the average maturity of our accounts receivable and maintain an aggressive collection policy for delinquent accounts
receivable in conjunction with our efforts to improve our financial results and the efficiency of our operations, we could, in
the future, decide to extend credit to clients in particular sectors on more favorable terms than those offered to our overall
client base.



The following chart sets
forth the average contracted maturity of accounts receivable due from various types of clients.



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|Credit terms                       |  | Days |    
|---------------------------------- |  | ---- | ---
|Pharmacies                         |  |      | 60 
|Supermarkets and local wholesalers |  |      | 60 
|Government                         |  |      | 100
|Publications to wholesalers        |  |      | 60 
|Publications to retailers (1)      |  |      | 60 








| | (1) | National retail chains are centralized.
| | --- | ---------------------------------------



Purchasing



We order all of our products
for the distribution business on an ongoing basis, negotiating quantity and price periodically, rather than committing to contractual
terms. While the majority of our suppliers are Mexican companies, we do purchase some products from international manufacturers.
We negotiate exchange risks by purchasing these products in Pesos or setting a limit on our exchange risk exposure.



In previous years, each of
our distribution centers placed its own orders on a weekly basis, directly to suppliers. These orders were placed through our computerized
order system, Electronic Document Interchange, or EDI, which we have implemented to communicate efficiently with clients and suppliers
through a platform supporting different electronic communication protocols. Suppliers typically deliver bulk orders directly to
the distribution warehouse that placed the order. In the second half of 2000, we centralized our purchasing to improve our financial
results and increase the efficiency of our operations. As a result, all of our orders for all of our distribution centers are placed
through our centralized system. Deliveries of non-Mexican products are handled by Mexican customs near the U.S. border or the port
town of Manzanillo, and are typically made directly from the supplier to a Mexican customs agent. Once the customs agent completes
the importation procedure, the products are then sent to our distribution center via ground transportation.



Marproa is a common carrier
that also provides freight services to third parties at market rates. From Marproa, we make deliveries several times a week to
each of our distribution centers.



Maintaining good relationships
with our suppliers and publishers is important to our competitive success because of the tight inventory policies that are common
in the Mexican pharmaceutical industry. We are committed to making rapid and timely deliveries to our customers.



Pharmaceutical Products



We purchase pharmaceutical
products from over 150 laboratories and manufacturers. Most of these suppliers are located in Mexico City and its surrounding areas.
Purchases are made through purchase orders from time to time, on an as-needed basis. More than two-thirds of the suppliers that
manufacture pharmaceuticals products in Mexico are owned by large multinational companies. Purchases made from these suppliers
represent more than 80% of our Private Pharma and Government Pharma business divisions’ purchases. Companies such as Sanofi-Aventis,
Pfizer, Merck Sharpe Dohme, Roche, Astrazeneca, Boehringer, Bayer, Novartis, Eli Lilly, Genomma Labs, Janssen Cilag, Merck and
Bristol-Myers Squibb are among our major suppliers.



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Health, Beauty, Consumer Goods, General Merchandise
and Other Products



We purchase health, beauty
and consumer goods from more than 150 suppliers, located primarily in Mexico City. We purchased our catalog of approximately 700
general merchandise and other products from a wide range of suppliers including, Plastoza (maker of Costalitos), Laboratorios Expanscience
(Mustela), Schering Plough (Mexsana), Herbamedica (The Sensual Tea), Kao Brands (Jergens, Bioré and John Frieda), Conagra
Foods (ACTIII), Pharmavite (Nature Made), Aquabeauty (Aqua Net), Pronatural (Xtraviril, Xiomega and Nutrigomas), Lonarmed (Finesse)
and INT’L Business (2Life). In some cases, we negotiate directly with our suppliers in other countries and directly import
the products through a customs agent. The customs agent delivers imported products to our warehouses after complying with all the
legal requirements, which in some cases depends on the type of product.



Publications



Our Publications business
division distributes, through Citem, magazines, books, albums and stickers from leading licensors and publishers in the market.
Nearly all of the products purchased as of today may be returned to the publisher. During 2009, Citem’s clients included
over 250 publishers for whom it distributed more than 4,000 publications. For the year 2010, Citem worked with more than 200 publishers
and distributed more than 3,500 of their publications. In 2011, we distributed more than 3,000 publications from more than 200
publishers. Purchases are made through our centralized administration.



Retail



In Brazil, we purchase pharmaceutical
products mainly from the three largest wholesale distributors, which deliver the products directly to our stores using a “just-in-time”
system, enabling us to receive our products promptly and to minimize stock-outs. Approximately 90% of our non-pharmaceutical products
are purchased directly from our suppliers while the remaining 10% are purchased from local distributors. We centralize our purchases
of new non-pharmaceutical products through a distribution center that provides logistics support to our pharmacies.



In Mexico, we purchase merchandise
from a various wholesalers as well as directly from some providers, the combination of which depends on the chain’s commercial
strategy. Our pharmacies obtain some of the products we sell from our own distribution channels although approximately 65% of the
products are purchased from third parties including other large wholesalers. Some of our main providers include: Unilever, Kimberly
Clark, Procter & Gamble, Nestlé, Genomma Lab, Pfizer and Glaxo Smithkline.



In Chile, our pharmacies
maintain comercial relations with all of the national and foreign laboratories for both pharmaceutical and non-pharmaceutical products.
The products that we purchase are delivered to our distribution center in Santiago, Chile, the nation’s capital city.



Information Technology Systems



Overview



We periodically acquire and
use new technologies to increase our efficiency and distribution capabilities as well as to improve our operative efficiency in
our pharmacies. All dealings with suppliers, lessors, banks and insurance companies, as well as our treasury, are centralized in
both GCS and our subsidiaries. We believe that our information technology systems have been, and will continue to be, instrumental
in our ability to provide value-added services to our clients.



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Retail Order Computers



In our wholesale distribution
division, all of our sales representatives use portable hand-held computer terminals to take and process orders. These orders are
transmitted via Internet to a mirrored and redundant data center. The orders are then printed and separated by route and filled
according to a departure schedule. We continually upgrade our systems to increase the effectiveness of our order system, install
individual workstations in a greater number of locations, and track customer and supplier orders in the system’s network
to ensure the accurate fulfillment of those orders. In our retail division, orders to wholesalers are transmitted electronically
from our replenishment and inventory management systems. The reception of merchandise is also controlled through the inventory
management system.



Pharmacy Personal Point-of-Sale Computers



In our distribution division,
we have developed a point-of-sale software known as www.farmaservicios.pdv., which is a PC-based application that has been
designed to meet the needs of our pharmacy customers. www.farmaservicios.pdv has point-of-sale, inventory control and Internet
capabilities to update and synchronize data using web-based technology. Clients that use www.farmaservicios.pdv can access
and synchronize point-of-sale data through our website. Pharmacies that use our system are automatically linked to our order placement
systems, which allow these pharmacies to order items electronically, view current product prices and track promotional discounts
and pending orders. Additionally, through this system, we can also assist customers with their own inventory control and business
management. The www.farmaservicios.pdv application can operate on a stand-alone PC or in a network environment, depending
on the customer’s particular needs. The pharmacy owners purchase the PCs and related hardware and we provide the software
package. Management believes that www.farmaservicios.pdv will continue to be an important factor in developing customer
loyalty and improving overall customer service to pharmacies, which are our primary client base. As of December 31, 2011, we had
more than 4,580 registered users, 3% more than we did at the end of 2010.



Automatic Picking Technology



We use automated pickers
in some of our distribution centers. An automated picker is a computerized robot that matches an order number with an order number
previously submitted by one of our sales representatives, selects the appropriate item(s) ordered and deposits the item(s) in a
box for delivery. Each automated picker processes, in some cases, approximately 50% of the total units sold out of each distribution
center where one is located and is significantly more efficient than a team of experienced workers. The automated pickers operate
at high speed with extremely high accuracy and include error correction features. In our retail division, we have state-of-the-art
distribution centers in Monterrey, Nuevo Leon, Mexico and Santiago, Chile. These centers’ technologies enable us to replenish
our pharmacy’s stock of pharmaceutical and non-pharmaceutical products more accurately.



As of December 31, 2011,
6 of our 25 distribution centers had automated pickers. The installation of additional automated pickers in our remaining manual
pick distribution centers will depend upon whether or not we deem the cost to be justifiable.



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Computerized Purchase Order Placement System



In our distribution division,
we have developed and continue to update an automatic inventory control and order placement system. This system utilizes inventory
optimization software to track historic demand for products and to forecast future demand. The system also seeks to optimize inventory
levels and order sizes at each distribution center through a “just-in-time” inventory approach.



Back-Office and Accounting Services



Our back-office information
systems for our distribution division operate using a software program called BaaN, an Infor Software Company product. The database
provides us with a strong analytical tool for decision-making that affects all aspects of our operations. BaaN is an integrated
back-office and accounting system that currently manages our General Ledger, Accounts Receivable, Accounts Payable and Treasury,
as well as other financial information. In our retail division, our back-office information systems operate with SAP technology
that allows us to have access to both management and executive reports on-line.



Retail Pharmacy Business



With the acquisition of FASA,
as of December 31, 2011 our retail pharmacy business consisted of over 150 pharmacies in the states of Jalisco, Mexico, Guanajuato,
Michoacan, Coahuila, Tamaulipas and Mexico City, through Farmacias ABC, over 740 Farmacias Benavides stores located in 17 Mexican
states and 85 pharmacies in the states of Rio de Janeiro and São Paulo in Brazil, through Drogasmil. In Chile, we operate
over 350 pharmacies spanning 15 regions of the country. For the year ended December 31, 2011, net sales by our retail pharmacy
business amounted to Ps. 20.7 million, which represented 44.3% of our total consolidated net sales.



In Mexico, our Benavides
pharmacies obtain some of the products they sell from our own distribution channels. However, approximately 65% of the products
purchased in 2011 came from third parties. In Farmacias ABC, around 60% of our stocked items were sourced from third parties in
fiscal year 2011. On average, our Benavides stores stock over 15,000 items while the ABC chain stocks over 9,500 items, on average.



Through our 85 pharmacies
located in Sao Paulo and Rio de Janeiro, Brazil, two of the countries largest population centers, we sell approximately 11,000
items, including health and beauty aids, generic drugs, prescription drugs, over-the-counter drugs and other consumer goods. We
operate a call center through which we channel the delivery of products to our customer’s home or office in one hour’s
time. We have entered into partnerships with providers of health care plans and corporate clients that allow us to gain access
to a wider customer base. In addition, we participate in the Popular Pharmacy Program, a government sponsored program through which
we grant discounts to low-income customers and then we obtain a refund of the discount amount from the government.



FASA has an established business
model that it has applied in each of the markets where it operates, although it does make adjustments based on the particular conditions
in each of the countries. This model consists of developing attractive drugstore-type formats that are located close to its client
base and that offer a wide assortment of medicines as well as health, beauty and personal care items, including baby items, wellness
products, photography and general merchandise goods.



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We sell many different types
of non-pharmaceutical products, from health and beauty aids to consumer goods such as magazines, candies and other food products.
The types and number of non-pharmaceutical products in each store vary, and selections are based on customer needs and preferences
and available space. In our Farmacias Ahumada chain, each store stocks an average of 15,600 items, although this figure varies
by store format. No single non-pharmaceutical product category contributed significantly to our sales during 2011.



In 2011, our main classes
of products were prescription drugs and over-the-counter medications and non-pharmaceutical products, including health and beauty
aids and other merchandise. In Mexico, at our Farmacias ABC chain, approximately 62% of the sales were derived from pharmaceutical
products and the remaining 38% was derived from health and beauty aids and other merchandise. In Farmacias Benavides, pharmaceutical
products represented 52% of total sales while health and beauty aids, consumer goods and other merchandise accounted for the remaining
48% of items sold. The customer base of our retail pharmacy business is well diversified; therefore the loss of any one customer
would not have a material adverse impact on our results of operations. In our Farmacias Ahumada chain in Chile 67% of total sale
corresponded to pharmaceutical products and 33% to no-pharmaceutical items, including health and beauty care items as well as other
merchandise while in Peru, 62% of total sales were pharmaceutical products and the remaining 38% were non-pharmaceutical products.



In addition to these products,
our Retail Division is working to introduce generic based OTC products, prescription drugs, beauty care products and items for
babies that are effective yet reasonably priced for our customers. In addition, we expect that the introduction of well-known,
exclusive labels will also help strengthen our value proposition for our clients by increasing our overall product selection.



To date, we have a network
of more than 150 specialized providers with operations worldwide. Our private and exclusive label brands are currently manufactured
in various parts of the world, including Chile, Mexico, Argentina, China, the U.S. and the UK. As a result of this diverse sourcing
methodology, we are able to achieve economies of scale, which in turn enables us to offer attractively priced products to our customers.



In 2011, we continued to
develop, launch and promote new products. To date, our private label offerings include personal care and hygiene products as well
as shampoos, deodorants, body lotions and baby care items such as accessories, diapers and wipes. During the year, we also launched
a new line of baby formulas in various countries.



In addition to our private
label brands, the Company is also focused on offering high quality name brands that are available exclusively in our stores. Currently,
we offers brands such as “GNC” (a leader in the vitamin and mineral category); Prudence (condoms); “Sally Hansen/La
Cross” (U.S. market leader in products for the treatment and care of hands and nails); “ROC” (internationally
recognized dermo-cosmetics that include anti-aging and anti-cellulite products), “John Frieda” (a leader in innovative
hair care products in the U.S.); “Lumene” (a brand that is the first of its kind to develop an innovative line of cosmetics
and skin care items); “Phyto” (a French capillary dermo-cosmetic); Jergens (a U.S. brand with over a century of experience
in the skin care industry); Scunci (the market leader in hair accessories); and Bonawell, Igora and Palette de Schwarzkopf (all
of which are a part of Henkel’s product portfolio).



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We expect that the increased
variety, name-brand and lower cost products will make us an even more attractive option for our customers and help foster customer
loyalty.



In 2011, FASA also introduced
several new value-added services including a new concept known as “Solution Centers,” in which trained staff members
offer customers personalized service geared towards their individual needs. In Mexico, some of our pharmacies are staffed by a
certified physician who provides on-site medical consultations to our clients. We expect that both of these projects will help
us to increase the level of service that we provide to our customers and, therefore, will result in higher sales as well as increased
customer loyalty.



We believe that the retail
pharmacy markets in the countries where we now operate will continue to grow due to the growing population, the stable demand for
pharmaceutical products, an increase in the amount of senior citizens with access to health care and social security coverage and
the growing market of over-the-counter products and other health and beauty aids and consumer goods that are sold at our retail
pharmacies. However, we cannot assure you that the retail pharmacy market will not experience decreases in growth or that our results
of operations will not be adversely affected, should the countries where we have operations fail to recover fully from the global
economic crisis.



Business Divisions



|                                                                       |  | Year Ended December 31, |         
|---------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                       |  | 2011                    |         
|                                                                       |  |                         |         
|Pharmaceuticals:                                                       |  |                         |         
|Private sector                                                         |  |                         | 21,497.2
|% Growth                                                               |  |                         | (11.7   
|Government                                                             |  |                         | 1,209.1 
|% Growth                                                               |  |                         | 26.0    
|Health, Beauty, Consumer Goods, General Merchandise and Other Products |  |                         | 2,421.8 
|% Growth                                                               |  |                         | 11.4    
|Publications                                                           |  |                         | 792.6   
|% Growth                                                               |  |                         | (5.2    
|Retail Pharmacy                                                        |  |                         | 20,647.5
|% Growth                                                               |  |                         | 272.9   
|Total                                                                  |  |                         | 46,568.2
|Total % Growth                                                         |  |                         | 37.6    



Mexican Pharmaceutical Industry Overview



In Mexico, pharmaceuticals
are available to the public through both private and government distribution channels. The Mexican government plays a significant
role in the market for pharmaceuticals. In Mexico, pharmaceutical products consist of prescription drugs that may be sold only
in licensed pharmacies and “over-the-counter” pharmaceutical products that may be sold without a prescription in licensed
pharmacies. For the purposes of this annual report, pharmaceutical products include “over-the-counter” pharmaceuticals.



The Secretaría
de Salud, or the Mexican Ministry of Health, oversees the provision of public health care through hospitals in Mexico, pharmacies
and clinics operated by various governmental agencies and state-owned institutions. Distribution of pharmaceuticals within the
public sector is largely undertaken by each governmental agency through direct purchases from manufacturers during yearly bidding
programs based primarily on price.



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Based on information from
IMS Health, A.G. and our internal data, we estimate that approximately 75% of private sector pharmaceutical sales are placed through
wholesalers, which in turn sell primarily to retail pharmacies. The remaining 25% of private sector pharmaceutical sales are placed
directly by manufacturers to a few large pharmaceutical retail chains that purchase sufficiently large volumes to have direct access
to the laboratories. Most manufacturers have adopted a “wholesaler only” policy because it is the most cost-efficient
method of distributing their products. Nearly all of the individual pharmaceutical purchases take place at retail pharmacies and
are either paid for by individuals or through private health insurance.



The following table shows
annual sales and average unit prices in U.S. Dollars and growth rates for the private sector of the Mexican pharmaceutical market:



|                                 |  | Year Ended December 31,(1) |        
|-------------------------------- |  | -------------------------- | -------
|                                 |  | 2011                       |        
|Sales in millions(2)             |  | U.S.$                      | 9,836.7
|Sales in millions of units(3)(4) |  |                            | 966.0  
|Average unit price(3)            |  | U.S.$                      | 10.18  
|Growth in average unit price     |  |                            | 1.40   








| | (1) | Statistics based on information made publicly available by IMS Health,
A.G. for private sector data and our estimates.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (2) | Revenues based on prices charged by wholesalers to retailers.
| | --- | -------------------------------------------------------------



| | (3) | In Mexico, pharmaceutical products are distributed in pre-packaged doses or units, which may vary in size from year to year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | (4) | To calculate U.S. dollar amounts, IMS Health uses a semester average based on the daily interbank rate published by OANDA Corporation
(based on data from Banco de México, the Mexican Central Bank). The U.S. Dollar rate used for conversion in 2011 was Ps.
12.40 per U.S.$1.00.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Competition



Pharmaceutical Products



Our primary competitor in
the private pharmaceutical distribution business is Nadro, Mexico’s only other national pharmaceutical distributor. According
to IMS Health, A.G. and our estimates, in 2009, 2010 and 2011, Grupo Casa Saba and Nadro together accounted for nearly 50% of prescription
and over-the-counter pharmaceutical sales through private sector wholesale pharmaceutical channels in Mexico (this figure does
not include the sale of similar and generic products, which if included would increase that percentage). Our other primary competitor
is Casa Marzam, S.A. de C.V., a large Mexican regional distributor. Our other competitors include approximately twelve regional
distributors, some of which own pharmacy chains. We believe that our distribution services are superior to those of the regional
distributors due to the speed with which we distribute our products, as well as the quality, product catalog and value-added services
that we provide.



In the government pharmaceutical
distribution business, government entities acquire products through bidding programs in which wholesalers and laboratories participate
directly. These bidding processes are open to the public and, therefore, we face competition in this division just as we do in
the private sector.



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Health, Beauty, Consumer Goods, General Merchandise
and Other Products



Our competition in the Health,
Beauty, Consumer Goods, General Merchandise and Other Products business division is similar to the competition that we face in
our pharmaceutical products distribution business unit. We compete primarily with manufacturers that deliver directly to supermarkets,
some pharmaceutical chains and with various regional distributors. In addition, Nadro and other regional wholesalers also distribute
health, beauty, consumer goods, general merchandise and other products. This holds true in our retail pharmacy business as well,
in that we compete with other major pharmacy chains that offer similar products.



Our principal competitors
in the general merchandise and other products market segment are manufacturers that deliver directly to supermarkets and some regional
distributors. We compete directly with many middle and product-specialized wholesalers that distribute to convenience stores, independent
grocery stores and “mom and pop” stores. In terms of the lines that we distribute exclusively, we face no competition
from other wholesalers.



Publications



| | · | In Mexico, our principal competitors in our publications product line include:
| | - | ------------------------------------------------------------------------------



| | · | Intermex, a company owned by Televisa, which primarily distributes its own publications;
| | - | ----------------------------------------------------------------------------------------



| | · | Codyplirsa, which primarily distributes popular magazines nationwide; and
| | - | -------------------------------------------------------------------------



| | · | DIMSA, which distributes primarily English-language publications.
| | - | -----------------------------------------------------------------



Retail Pharmacy



In Mexico, the retail pharmacy
market is highly fragmented, with independent pharmacies making up nearly 45% of the total market. As a result, our Farmacias ABC
and Benavides pharmacies face competition from large pharmacy chains, such as Farmacias Guadalajara, Farmacias del Ahorro, Farmacias
Fénix as well as from Wal-Mart supercenters and smaller players.



Brazilian Pharmaceutical Industry Overview



The following table shows annual sales and average
unit prices in U.S. Dollars and growth rates for the private sector of the Brazilian pharmaceutical market:





|                                 |  | Year Ended December 31,(1) |         
|-------------------------------- |  | -------------------------- | --------
|                                 |  | 2011                       |         
|Sales in millions(2)             |  | U.S.$                      | 25,780.0
|Sales in millions of units(3)(4) |  |                            | 2,343.7 
|Average unit price(3)            |  | U.S.$                      | 11.00   
|Growth in average unit price     |  |                            | 10.3    






| | (1) | Statistics based on information made publicly available by IMS Health, A.G. for private sector
data and our estimates.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (2) | Revenues based on prices charged by wholesalers to retailers (based on list prices).
| | --- | ------------------------------------------------------------------------------------



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| | (3) | In Brazil, pharmaceutical products are distributed in pre-packaged doses or units, which may vary in size from year to year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------



| | (4) | To calculate U.S. dollar amounts, IMS Health uses a semester average based on the daily interbank rate published by OANDA Corporation
(based on data from the Brazilian Central Bank). The U.S. Dollar rate used for conversion in 2011 was $R1.838 per U.S.$1.00.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Brazilian pharmaceutical
market has been growing steadily since 2000, driven, in large part, by improvements in socio-demographic indicators, and is projected
to continue growing at rates of between eight and ten percent over the next five years.



Like Mexico, the Brazilian
retail pharmacy market is also very fragmented. We face competition from companies such as Drogarias Pacheco, Raia, Drogaria
Sao Paulo, Venancio and Drogasil, which operate large pharmacy chains, as well as from supermarkets and retailers that
sell pharmaceutical products, such as Carrefour, Walmart and Pão de Açúcar. In addition, we
compete with, among others, independently owned drugstores, supermarkets, mass merchandisers, discount stores, e-commerce sites
that specialize in drugstore items and other small market participants.



Chilean Pharmaceutical Industry Overview



The following table shows
annual sales and average unit prices in U.S. Dollars and growth rates for the private sector of the Chilean pharmaceutical market:



|                                 |  | Year Ended December 31,(1) |        
|-------------------------------- |  | -------------------------- | -------
|                                 |  | 2011                       |        
|Sales in millions(2)             |  | U.S.$                      | 1,397.9
|Sales in millions of units(3)(4) |  |                            | 227.5  
|Average unit price(3)            |  | U.S.$                      | 6.14   
|Growth in average unit price     |  |                            | 13.5   






| | (1) | Statistics based on information made publicly available by IMS Health, A.G. for private sector
data and our estimates.
| | --- | ----------------------------------------------------------------------------------------------------------------------



| | (2) | Revenues based on prices charged by wholesalers to retailers.
| | --- | -------------------------------------------------------------



| | (3) | In Chile, pharmaceutical products are distributed in pre-packaged doses or units, which may vary
in size from year to year.
| | --- | ---------------------------------------------------------------------------------------------------------------------------



| | (4) | To calculate U.S. dollar amounts, IMS Health used the annual average based on the daily interbank
rate published by OANDA Corporation (based on data from Banco Central de Chile, the Chilean Central Bank). The U.S. Dollar rate
used for conversion in 2011 was CLP 483.01 per U.S.$1.00.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In Chile, national laboratories
represent around 57% of the total market and international laboratories the remaining 43%. Together, they sell approximately 70%
of their product lines through the retail pharmacy segment while the remaining 30% is sold to both Private and Public Institutions
as well as directly to physicians and individual patients.



Unlike Mexico and Brazil,
the Chilean retail pharmacy market is a highly consolidated and, therefore, a highly competitive market with three main drugstore
chains making up approximately 90% of the playing field. As a result, our primary competitors are the other two major chains: Salco-Brand
and Cruz Verde.



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In general, our retail pharmacies
compete on the basis of store location and convenient access, customer service, product selection and price. We believe continued
consolidation of the drugstore industry in Mexico and Brazil, the aggressive discounting of generic drugs by supermarkets, specialized
generic drug pharmacies and mass merchandisers and the increase of promotional incentives to drive prescription sales will further
increase competitive pressures in the retail pharmacy market of the countries.



Seasonality



Both our distribution and
retail business are subject to seasonal fluctuations and related market conditions. For example, during the winter months (which
is from November – February in Mexico and May – August in Chile), we stock additional cold and flu care products to
meet the seasonal demand for these items. During the warmer months, the population tends to consume larger quantities of alimentary
tract aids and antibiotic products and, on the front-end, we feature personal care items such as sun tan lotions and deodorants.
Allergy season also requires us to supply greater quantities of these remedies.



Socio-economic factors also
dictate spending patterns linked to specific seasons. The back-to-school period means that the average household incurs higher
out-of-pocket expenditures, leaving them less disposable income to spend elsewhere. In December, employers are required to give
their employees a holiday bonus, so disposable income is typically higher at the end of the year.



During vacation periods such
as Holy Week (March – April depending on the Easter break) and summer break, children are less likely to contract illnesses
from their fellow schoolmates and there is also generally less traffic in the points-of-sale.



Our cash flows are also subject
to seasonal fluctuations and market conditions. To maintain a larger winter inventory and to ensure adequate inventory levels for
the two or more weeks of holidays in December, during which suppliers in Mexico and Chile do not make sales or deliveries, our
accounts payable and inventories typically increase at year-end for both our distribution and Mexican retail divisions. After reaching
their highest levels in November/December our inventories gradually decrease to what we estimate is a normal operational level
of approximately 50 inventory days. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital
Resources—Overview”.



Marketing Channels



In our Mexican Distribution
Division, we deliver both pharmaceutical and non-pharmaceutical products to over 22,000 clients throughout the country that a range
from small mom and pop stores, to national and regional pharmacy chains, government institutions, both private and public sector
hospitals, supermarkets and self-service chains such as Wal-Mart as well as specialty and convenience stores.



Special Sales Methodologies



Exclusive Distribution Agreements



In the areas of HBCG/Other
Products and Publications, exclusive distribution agreements are typically limited to specific products, channels and geographic
areas. Some of our exclusive distribution agreements can be terminated without cause, by means of proper notice, given by either
party. We do not anticipate the imminent termination of any of these agreements, other than those that we decide to terminate if
the products distributed are not sufficiently profitable. Before entering into exclusive distribution arrangements, we require
that each prospective supplier agrees to advertise its services and offer a specific number of promotions and trade discounts to
ensure that the supplier is seeking to take a leading position in the Mexican market. We provide manufacturers with highly specialized
integrated services, ranging from purchasing, planning, centralized sales, merchandising, collections, execution of promotions
and the provision of information.



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We are currently seeking
to enter into exclusive distribution agreements that will allow us to distribute products, particularly in our HBCG/Other Products
business division, at acceptable margins. We cannot assure you that we will enter into distribution agreements to distribute any
or all of these products at acceptable margins.



Call Centers



To better serve our private
sector clients who purchase specialty medicines and vaccines, we have installed a dedicated Call Center that provides nationwide
coverage. Given that the direct sale of vaccines to the public is prohibited by Mexican law, our vaccine clients are primarily
physicians, private hospitals and clinics as well as secondary distributors. Our specialty medicine clients are generally physicians,
large pharmacy chains, national supermarket chains as well as individuals. Products are delivered to the client’s home or
office from one of our centralized distribution centers. The Call Center offers a range of services that include customer service,
order taking (in-bound calls) and direct sales (out-bound calls) as well as the coordination of special projects. Sales are conducted
by trained staff members and special projects include conducting vaccination campaigns with private sector clients.



Pharmacies



In our pharmacies we have
at times entered into partnerships with providers of health care plans, corporate clients, governmental institutions and non-profit
organizations, which allow us to gain access to a wider customer base.



In addition, we participate
in government sponsored program such as the Popular Pharmacy Program in Brazil.



Value-Added Pharmaceutical Services



We believe that we distinguish
ourselves from our distribution competitors, in part, by the wide range of value-added services we provide our customers in addition
to our products. For example, we provide pharmacies with suggested retail price lists that are updated immediately upon notice
of price changes from our suppliers. These price lists are the only notices used by pharmacies to adjust their prices. We also
provide purchasing management, price updates and advisory services to our customers through direct personal computer links between
us and individual pharmacies using www.farmaservicios.pdv, our proprietary point-of-sale system. See “—Technology Information
Systems—Pharmacy Personal Point-of-Sale Computers” above in this item.



We also offer our customers
a series of specialized services, including training, conferences and trade fairs. Some customer services are supported by a monthly
pharmaceutical publication, “Farmservicios Editorial,” formerly “Correo Farmacéutico,”
a monthly magazine and product catalog. We have already established an online distribution and information site for our clients
and suppliers, www.farmaservicios.com, which we currently make available to them free of charge. Clients that log on to
www.farmaservicios.com are able to communicate directly with us, and can place and track their orders and shipments on-line.
These clients also have access to a wide range of additional services, including news and industry information, free e-mail, business
advice and a variety of special promotions. www.farmaservicios.com also links to www.farmaservicios.pdv. See “—Information
Technology Systems” above in this item.



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Patents and Licenses



Due to the nature of our
business, we do not currently have any type of patent. In terms of licenses, we have a sanitary license to operate each of our
distribution centers as well as every one of our pharmacies. In addition, we have licenses that enable us to import products, although
they are not material in terms of our sales at this time.



As a result of our broad
client and supplier base and the general nature of our business, neither our retail nor distribution business is particularly dependent
on any type of industrial or commercial contract.



Regulation



In Mexico, both our distribution
and pharmacy businesses are primarily regulated by the Ley General de Salud, or General Health Law, and the accompanying
regulations. Two federal agencies that pertain to the executive branch of the Mexican government, the Mexican Ministry of Health
and the Mexican Ministry of Economy, mainly regulate the pharmaceutical industry. We are required to obtain authorization from
the Mexican Ministry of Health to distribute prescription drugs and over-the-counter pharmaceuticals on the wholesale level. Similarly,
the retail sales of pharmaceutical products, health and beauty aids and other merchandise is subject to the General Health Law
and its regulations, state and local health rules and regulations, the Ley Federal de Proteccíon al Consumidor, or
Federal Consumer Protection Law, and Normas Oficiales Mexicanas, or Mexican Official Norms. We are required to obtain a
license for each pharmacy to commercialize controlled medicines that contain certain substances. Such medicines cannot be sold
without prescription and sales must be registered in accordance with specific requirements set forth in applicable regulations
in control books. We are required to appoint a pharmacist who must be present at the pharmacy during business hours and who is
responsible for compliance with the applicable health regulations in such pharmacy. Such appointment must be notified to the Mexican
Ministry of Health. We believe that we have obtained all necessary authorization and permits required for the operation of our
distribution and retail businesses and we do not foresee any revocation, cancellation or termination of such authorizations and/or
permits.



The Ministry of Economy regulates
both the wholesale and retail prices of prescription and over-the-counter pharmaceutical products. Mexican law requires us to sell
all prescription and over-the-counter drugs at a price that is equal to or lower than the price approved by the Ministry of Economy
for each product. The Ministry of Economy periodically receives and, if appropriate, approves revised price lists submitted by
manufacturers on a product-by-product basis.



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The pharmaceutical industry
in Brazil operates in highly regulated environment. The pharmaceutical industry is regulated at the federal, state and municipal
levels. Federal laws and regulations provide a regulatory framework. Enforcement and specific regulation is implemented through
state and municipal rules and regulations through agencies such as the Conselho Regional de Farmacia, or Pharmaceutical
Regional Council. Pharmacies in Brazil are required to obtain an operating license from the Secretaria de Vigilância em
Saúde, Health Surveillance Secretariat of the Ministry of Health, or SVS, in order to engage in the handling, distribution,
transport, repackaging, import and export of the substances regulated by the SVS, as well as the medicines that contain such substances.
In addition, operating permits, certificates and authorizations must be obtained periodically from relevant local authorities.
All pharmaceutical products and certain non-pharmaceutical products, including certain health and beauty aids, are required to
be registered with the Agência Nacional de Vigilância Sanitária, the National Health Surveillance Agency
or ANVISA. Although retail pharmacies are not responsible for obtaining registration of the products sold, pharmacies must check
that products offered are duly registered with the appropriate authorities. We believe that we have obtained all the necessary
licenses and permits necessary to operate our business in Brazil.



The pricing of certain pharmaceutical
and non-pharmaceutical products sold through pharmacies in Brazil are controlled and monitored by the Brazilian government through
the Câmara de Regulação do Mercado de Medicamentos, the Chamber for Regulation of Medicine Market or
CMED, with general oversight from ANVISA. ANVISA establishes regulatory mechanisms that allow for controlled percentage increases
in prices due to fluctuations in the exchange rate, inflation rate and raw material costs. Adjustments to price controls take place
on an annual basis, on March 31st of each year. The CMED established a maximum drug price adjustment of 5.85% for the year commencing
on March 31, 2012. Most over-the-counter drugs are not subject to such price controls.



In Chile, the pharmaceutical
industry is controlled under the Sanitary Code, which regulates everything related to the promotion, protection and restoration
of its residents’ health, except for those matters subject to special laws. The authority responsible for sanitary control
of pharmaceutical products is the Chilean Public Health Institute (“CPHI”) (Instituto de Salud Pública de Chile).
In order to commercialize and distribute a pharmaceutical or cosmetic product in Chile, it must be previously recorded before the
sanitary registry office maintained by the Institute. However, in Chile, in order to install and operate a drugstore, authorization
from the Chilean Health Service (Servicio de Salud Chileno) is required, who is likewise responsible for its supervision and monitoring.



As a general rule, in Chile,
the retail sale of pharmaceutical products for human use can only be made in drugstores, which must have a pharmaceutical chemist
in charge. Notwithstanding the foregoing, the authority may allow the retail sale of pharmaceutical products by other establishments.



Chilean law provides that
in establishments in which the manufacturing, distribution and retail sale of pharmaceutical products is carried out, advertising
may only be made through posters, billboards and flyers, which indicate their official name and approved container, information
contained in the label, as well as the trademark or trade name of the producer or the distributor, if any. Likewise, the use of
advertising which may lead to consumption and self-medication or encourage the sale through incentives of any nature to the drugstore
staff, is prohibited.



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Industry Prices



As a result of government
regulation, Mexican pharmaceutical prices are lower than in other countries such as the United States. We believe that price increases
of pharmaceutical and over-the-counter products in Mexico continue to represent an area of possible future revenue growth for us.
Prior to 1990, the Mexican government was responsible for determining pharmaceutical prices and did not increase pharmaceutical
prices at the rate of inflation, thereby limiting the growth of our revenues from the distribution of these products. As of 1990,
the Mexican government, acting through the Secretaría de Comercio y Fomento Industrial, or Ministry of Commerce and
Industrial Promotion, now known as the Secretaría de Economía, or Ministry of Economy, and the Cámara
Nacional de la Industria Farmacéutica, or National Chamber of the Pharmaceutical Industry, known as Canifarma, entered
into a series of agreements to deregulate the prices of domestically manufactured pharmaceutical products, which constitute most
of the pharmaceutical products we sell. In order to obtain the benefits of these agreements, many Mexican pharmaceutical manufacturers
have agreed, in conjunction with Canifarma, to continue submitting price increase proposals for approval by the Ministry of Economy.
Under current practice, any manufacturer seeking a price increase must file a request before the Ministry of Economy, outlining
the reasons for the price increase. The most important factors considered by the Ministry of Economy are: the minimum wage increase,
the inflation rate, the exchange rate and the amount of foreign direct investment that the manufacturer commits to its Mexican
facilities. If the Ministry of Economy does not respond within 30 days, the increase is automatically granted. Canifarma and the
Ministry of Economy continuously engage in negotiations regarding the level of price increases for individual products and for
the pharmaceutical sector as a whole. In the case of new pharmaceutical products, the manufacturer is required to file a request
for a price increase before the Ministry of Economy, which outlines the price for the new product and the rationale behind the
chosen price. Since 1990, prices have increased above the rate of inflation. However, this trend has subsided in recent years,
with average prices coming back into line with the annual inflation rate. In 2009, the average unit price increased by 3.2% in
Peso terms, below the rate of inflation of 3.6% and during 2010, the average unit price rose by 2.1%, below the annual inflation
rate of 4.40%. During 2011, the average unit price increased 2.5% in Peso terms, somewhat lower than the annual inflation rate
of 3.8%.



The devaluation of the Peso
may affect our ability to increase the prices of some of our products. See “Item 3. Key Information—Risk Factors—Risk
Factors Relating to Political and Economic Developments”.



In Brazil, the pricing of
certain pharmaceutical and non-pharmaceutical products sold through pharmacies are controlled and monitored by the Brazilian government
through the Câmara de Regulação do Mercado de Medicamentos, the Chamber for Regulation of the Medicine
Market or CMED, with the general oversight of the Agência Nacional de Vigilância Sanitária, the National
Health Surveillance Agency or ANVISA. ANVISA is linked to the Ministry of Health and was founded in 1999. CMED was founded in 2003.
The foundation of both entities was an attempt to curtail spiraling costs associated with existing drug products that resulted
from nearly a decade of deregulation and unchecked commercial practices. During the time of deregulation, drug manufacturers set
retail prices that were marked-up to cover wholesale and retail activities, as well as tax liabilities, which inflated prices for
the consumer. In such an environment, the prices paid by the consumer included a pharmacy mark-up as high as 30% of a medication’s
total price. Moreover, a federal tax of 6% and a state tax of approximately 18% were imposed, making the products costly as retailers
passed on much of the cost to the consumer. In 2002, the retail pharmacy market in Brazil suffered drastic declines due to a devaluation
of the Brazilian currency. Nevertheless, prices in local currency continued to rise. In October 2003, legislation was enacted that
re-established price controls and empowered ANVISA and CMED to monitor the prices, set a maximum sales price and determine maximum
annual price adjustments, thus limiting the degree to which pharmaceutical companies and pharmacies can set their own prices. Price
controls are governed through regulatory mechanisms that allow for controlled percentage increases due to fluctuations in the exchange
rate, inflation rate and raw material costs, among other factors. Adjustments to price controls take place on an annual basis,
on March 31st of each year. The CMED established a maximum drug price adjustment of 5.85% for the year commencing on March 31,
2012.



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In 1980, the Chilean government
lifted its price controls on pharmaceutical products in both the private and public sectors, leaving the market to set the price.



Organizational Structure



Grupo Casa Saba is a holding
company that has an ownership interest in the subsidiaries through which we operate. Grupo Casa Saba and all of our significant
subsidiaries listed below are organized under the laws of Mexico, except where otherwise indicated.



The following table sets
forth our significant subsidiaries and our direct or indirect percentage equity ownership in such subsidiaries as of December
31, 2011:



|Name of Subsidiary (1)                                                                    |  |                            |             |      | Economic Interest (Direct or Indirect) (2) |      
|----------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | ---- | ------------------------------------------ | -----
|Mexican
    Subsidiaries                                                                  |  |                            |             | 2011 |                                            |      
|Direct
    Interest                                                                       |  |                            |             |      |                                            |      
|Casa Saba, S.A. de C.V.(3)                                                                |  |                            | (Casa Saba) |      |                                            | 48.21
|Distribuidora Casa Saba, S.A. de C.V. (4)                                                 |  | (Dicasa)                   |             |      | 99.9                                       | %    
|Publicaciones Citem, S.A. de C.V.(5)                                                      |  | (Citem)                    |             |      | 99.9                                       | %    
|Transportes Marproa, S.A. de C.V. (6)                                                     |  | (Marproa)                  |             |      | 99.9                                       | %    
|Farmacias ABC de México, S.A. de C.V. (7)                                                 |  | (Farmacias ABC)            |             |      | 99.9                                       | %    
|Controladora de Clínicas Ambulatorias y de Rehabilitación Sports Clinic, S.A. de C.V. (8) |  | (Controladora de Clínicas) |             |      | 50.005                                     | %    
|Centennial, S.A. de C.V. (9)                                                              |  | (Centennial)               |             |      | 99.9                                       | %    
|Grupo Mexatar, S.A. de C.V. (10)                                                          |  | (Mexatar)                  |             |      | 99.9                                       | %    
|Controladora Casa Saba, S.A. de C.V.(28)                                                  |  | (Controladora Casa Saba)   |             |      | 99.9                                       | %    
|Real estate and other service companies (27)                                              |  | (23 subsidiaries)          |             |      | 99.9                                       | %    



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|Name of Subsidiary (1)                                  |  |                    |  |      | Economic Interest (Direct or Indirect) (2) |  
|------------------------------------------------------- |  | ------------------ |  | ---- | ------------------------------------------ | -
|Mexican Subsidiaries                                    |  |                    |  | 2011 |                                            |  
|Indirect Interest                                       |  |                    |  |      |                                            |  
|Casa Saba, S.A. de C.V. (3)                             |  | (Casa Saba)        |  |      | 51.79                                      | %
|Distribuidora Drogueros, S.A. de C.V. (11)              |  | (Didrosa)          |  |      | 99.9                                       | %
|Daltem Provee Norte, S.A. de C.V. (12)                  |  | (Daltem Norte)     |  |      | 99.9                                       | %
|Drogueros, S.A. de C.V. (13)                            |  | (Drogueros)        |  |      | 99.9                                       | %
|Farmacias Provee de Especialidades, S.A. de C.V. (14)   |  | (Farmacias Provee) |  |      | 99.9                                       | %
|Servicios Corporativos Drogueros, S.A. de C.V. (15)     |  | (Secodro)          |  |      | 99.9                                       | %
|Inmuebles Visosil, S.A. de C.V. (16)                    |  | (Visosil)          |  |      | 99.9                                       | %
|Servicios Corporativos Saba, S.A. de C.V. (17)          |  | (Secosa)           |  |      | 99.9                                       | %
|                                                        |  |                    |  |      |                                            |  
|Other companies (27)                                    |  | (2 Subsidiaries)   |  |      | 99.9                                       | %
|                                                        |  |                    |  |      |                                            |  
|Indirect Foreign Subsidiaries:                          |  |                    |  |      |                                            |  
|                                                        |  |                    |  |      |                                            |  
|Casa Saba Brasil Holdings Ltda. (Brazil*) (18)          |  | (CS Brasil)        |  |      | 100.0                                      | %
|Farmacias Ahumada, S.A. (Chile**) (19)                  |  | (FASA)             |  |      | 97.8                                       | %
|                                                        |  |                    |  |      |                                            |  
|Associates:                                             |  |                    |  |      |                                            |  
|                                                        |  |                    |  |      |                                            |  
|Lomas Sports Clinic Ambulatorias, S.A. de C.V. (20)     |  |                    |  |      | 36.2                                       | %
|WTC Sports Clinic Ambulatorias, S.A. de C.V. (21)       |  |                    |  |      | 47.0                                       | %
|Resonancia Sports Clinic, S.A. de C.V. (22)             |  |                    |  |      | 49.9                                       | %
|Servicios Corporativos Sports Clinic, S.A. de C.V. (23) |  |                    |  |      | 49.9                                       | %
|Tampico Sports Clinic Ambulatorias, S.A. de C.V. (24)   |  |                    |  |      | 49.6                                       | %
|Inmobilaria Avantuen, S.A. (***)(25)                    |  |                    |  |      | 49.0                                       | %
|Inmobilaria Faster (***)(26)                            |  |                    |  |      | 49.0                                       | %






| | (*) | As of December 31, 2011 CS Brasil held 100 percent of the issued and outstanding capital stock
of CSB Drogarias, S.A. (CSB Drogarias) in Brasil.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (**) | Farmacias Ahumada, S.A. (FASA) is an entity incorporated in accordance with the laws of Chile,
which was acquired by the Company on October 3, 2010. FASA is registered in the Securities Registry of the Superintendence of Securities
and Insurance (SVC-Spanish acronym) of Chile, and it trades its shares on the Chilean securities market. FASA holds 99.9 percent
of the shares representative of the capital stock of Fasa Chile, S.A. and its subsidiaries (9 Chilean and one Uruguayan), as well
as 99.9 percent of the shares of Fasa Investment, Ltda. In turn, Fasa Investments, Ltda. holds 100 percent of the shares of Farmacias
Peruanas, S.A. and its subsidiary, as well as 95.6 percent of the shares of Farmacias Benavides, S.A.B. de C.V. and three subsidiaries.
Farmacias Benavides is a company listed on the Bolsa Mexicana de Valores, S.A.B. de C.V.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (***) | Associates with shareholdings held by FASA.
| | ----- | -------------------------------------------



| | (1) | With the exception of Casa Saba, S.A. de C.V. and CSB Drogarias, S.A., none of our operating subsidiaries
is a “significant subsidiary” within the meaning of Rule 1-02(w) of Regulation S-X of the Securities Act of 1933.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Percentage of equity owned by us directly or indirectly through subsidiaries or affiliates.
| | --- | -------------------------------------------------------------------------------------------



| | (3) | We directly own 48.21% of the shares of Casa Saba and the remaining 51.79% is held through our
subsidiary Transporte Marproa, S.A. de C.V. Through this subsidiary we distribute pharmaceutical products to private and government
clients.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Subsidiary that provides logistical and transportation services to Casa Saba, S.A de C.V.
| | --- | -----------------------------------------------------------------------------------------



| | (5) | Subsidiary through which we distribute publications.
| | --- | ----------------------------------------------------



| | (6) | Subsidiary through which we deliver products to our distribution centers throughout Mexico. We
place centralized purchase orders for all of our distribution centers directly with suppliers, who deliver these centralized purchase
orders to Transportes Marproa, S.A. de C.V., or Marproa. Marproa then distributes customized orders to our distribution centers
throughout Mexico. Marproa also provides freight services to third parties at market rates.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Subsidiary through which we sell pharmaceutical products.
| | --- | ---------------------------------------------------------



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| | (8) | Subsidiary through which we operate medical clinics.
| | --- | ----------------------------------------------------



| | (9) | Subsidiary through which we distribute general merchandise and other products.
| | --- | ------------------------------------------------------------------------------



| | (10) | Subsidiary through which we own Casa Saba Brasil Holdings Ltda.
| | ---- | ---------------------------------------------------------------



| | (11) | Subsidiary through which we distribute pharmaceutical products to private and government clients.
| | ---- | -------------------------------------------------------------------------------------------------



| | (12) | Subsidiary through which we distribute pharmaceutical products to private and government clients.
| | ---- | -------------------------------------------------------------------------------------------------



| | (13) | Subsidiary through which we distribute pharmaceutical products to private and government clients.
| | ---- | -------------------------------------------------------------------------------------------------



| | (14) | Subsidiary through which we sell pharmaceutical products.
| | ---- | ---------------------------------------------------------



| | (15) | Subsidiary that provides administrative, legal, accounting, tax planning, financial counseling
and other professional services to Drogueros, S.A. de C.V.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | (16) | Subsidiary through which we lease real estate to our other subsidiaries. Inmuebles Visosil, S.A.
de C.V. owns substantially all of the capital stock of Drogueros, S.A. de C.V.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (17) | Subsidiary that provides administrative, legal, accounting, tax planning, financial counseling
and other professional services to Casa Saba, S.A de C.V.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | Subsidiary, organized under Brazilian laws, through which we own and operate subsidiaries in Brazil,
including Drogasmil.
| | ---- | -------------------------------------------------------------------------------------------------------------------------



| | (19) | Subsidiary, organized under Chilean laws, through which we sell pharmaceutical products.
| | ---- | ----------------------------------------------------------------------------------------



| | (20) | Subsidiary through which we provide specialized medical, rehabilitation and surgical services for
short-stay patients.
| | ---- | ----------------------------------------------------------------------------------------------------------------------



| | (21) | Subsidiary through which we provide specialized medical, rehabilitation and surgical services for
short-stay patients.
| | ---- | ----------------------------------------------------------------------------------------------------------------------



| | (22) | Subsidiary through which we purchase medical equipment.
| | ---- | -------------------------------------------------------



| | (23) | Subsidiary that provides administrative, legal, accounting, tax planning, financial counseling
and other professional services to Lomas Sports Clinic Ambulatorias., S.A. de C.V. and WTC Sports Clinic Ambulatorias, S.A. de
C.V.
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (24) | Subsidiary through which we provide specialized medical, rehabilitation and surgical services for
short-stay patients.
| | ---- | ----------------------------------------------------------------------------------------------------------------------



| | (25) | A Chilean real estate and Service company.
| | ---- | ------------------------------------------



| | (26) | Chilean real estate and Service company.
| | ---- | ----------------------------------------



| | (27) | Real estate and Service companies (25 subsidiaries).
| | ---- | ----------------------------------------------------



Property, Plant and Equipment



As of December 31, 2011,
our principal properties in Mexico consisted of 22 strategically located distribution centers that represent more than 100,000
square meters of warehouse space, complete with all of the equipment necessary to operate these centers. From these centers, we
filled more than 7.1 million orders in 2011, averaging more than 598,000 orders per month. The majority of our fixed assets are
wholly owned.  However, as part of the Acquisition Loan with HSBC and Banorte, these assets were granted in guarantee under
the Documents of Guarantee (as such term is defined in the Acquisition Loan)  We also own a fleet of over 800 vans, trucks
and cars, which we use to distribute products to our customers.



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In addition, FASA owns its
Chilean distribution center as well the equipment needed to operate this facility. This distribution center provides service to
our local pharmacy stores. Some of the movable assets of FASA also form part of the guarantee for the above-mentioned credit as
provided in the Documents of Guarantee.  The facility is strategically located in the nation’s capital city in order
to optimize transport to and from the points-of-sale.



The following table shows
our current distribution centers and their locations, as of April 15, 2012:



|    | Distribution Center Name       | Location (City, State)        
|--- | ------------------------------ | ------------------------------
|1.  | Taxqueña                       | Mexico, Distrito Federal      
|2.  | Chihuahua                      | Chihuahua, Chihuahua          
|3.  | Coatzacoalcos                  | Coatzacoalcos, Veracruz       
|4.  | Culiacan                       | Culiacan, Sinaloa             
|5.  | Guadalajara                    | Guadalajara, Jalisco          
|6.  | Hermosillo                     | Hermosillo, Sonora            
|7.  | Juarez                         | Ciudad Juarez, Chihuahua      
|8.  | La Laguna                      | Gomez Palacio, Durango        
|9.  | Leon                           | Leon, Guanajuato              
|10. | Centennial                     | Tlalnepantla, Mexico          
|11. | Monterrey                      | Monterrey, Nuevo Leon         
|12. | Peninsular                     | Merida, Yucatan               
|13. | Citem                          | Tlalnepantla, Mexico          
|14. | Reynosa                        | Reynosa, Tamaulipas           
|15. | Tampico                        | Tampico, Tamaulipas           
|16. | Tijuana                        | Tijuana, Baja California      
|17. | Drogueros, S.A. de C.V.        | Mexico City , Distrito Federal
|18. | Tuxtla                         | Tuxtla Gutierrez, Chiapas     
|19. | Vallejo                        | Mexico  City, Distrito Federal
|20. | Veracruz                       | Veracruz, Veracruz            
|21. | Daltem Norte                   | Monterrey, Nuevo Leon         
|22. | Daltem Nacional                | Mexico City , Distrito Federal
|23. | Drogueria y Distribuidora FASA | Santiago, Chile               



In January 2009 we started
operations in our new distribution center in Hermosillo, Sonora. The new facility quadrupled the storage capacity of the previous
center and features semi-automatic picking capabilities, thus allowing for more efficient distribution to the surrounding region.



In Brazil, we lease all of
the properties where our retail pharmacies are located, as well as one distribution center in São João de Meriti,
which has approximately 5,000 square meters of storage space and is used to provide local logistics support to our pharmacies.
In Mexico and Chile, we currently lease all of the properties where our retail pharmacies are located as well as the 48,750 square
meter Mexican distribution center that is located in Guadalupe, Nuevo Leon and that provides service to Benavides. All of the properties,
equipment and our inventory are covered by insurance policies. The insurance program includes coverage against a variety of risks
such as fire and theft, as well as third party liability and the temporary shutdown of the business due to natural disasters.



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In addition to our distribution
centers, we also own the approximately 3,500 square meter site (2,548 square meters of construction) of the Sports Clinic facility
located in Tampico, Tamaulipas, as well as all of the necessary equipment for its operation.



The following table shows
our pharmacy locations in Mexico, Brazil, Chile and Peru as of December 31, 2011:



|Brand                               |  | Location                                  |  | Number of Pharmacies
|----------------------------------- |  | ----------------------------------------- |  | --------------------
|Farmacias ABC                       |  | Jalisco                                   |  | 74                  
|Farmacias ABC                       |  | Michoacan                                 |  | 26                  
|Farmacias ABC                       |  | Mexico City and State of Mexico           |  | 27                  
|Farmacias ABC                       |  | Guanajuato                                |  | 21                  
|Farmacias ABC                       |  | Tampico, Tamaulipas                       |  | 1                   
|Farmacias ABC                       |  | Saltillo, Coahuila                        |  | 5                   
|                                    |  |                                           |  |                     
|Drogasmil                           |  | Rio de Janeiro                            |  | 85                  
|Drogasmil                           |  | Sao Paulo                                 |  | 3                   
|                                    |  |                                           |  |                     
|Farmacias Ahumada, S.A.             |  | Tarapaca                                  |  | 6                   
|Farmacias Ahumada, S.A.             |  | Antofagasta                               |  | 10                  
|Farmacias Ahumada, S.A.             |  | Atacama                                   |  | 7                   
|Farmacias Ahumada, S.A.             |  | Coquimbo                                  |  | 16                  
|Farmacias Ahumada, S.A.             |  | La Aranucania                             |  | 11                  
|Farmacias Ahumada, S.A.             |  | Metropolitana de Santiago                 |  | 189                 
|Farmacias Ahumada, S.A.             |  | Valparaiso                                |  | 39                  
|Farmacias Ahumada, S.A.             |  | Libertador General Bernardo O’Higgins     |  | 11                  
|Farmacias Ahumada, S.A.             |  | Maule                                     |  | 14                  
|Farmacias Ahumada, S.A.             |  | Bio Bio                                   |  | 29                  
|Farmacias Ahumada, S.A.             |  | Los Lagos                                 |  | 8                   
|Farmacias Ahumada, S.A.             |  | Aysen del General Carlos Ibañez del Campo |  | 2                   
|Farmacias Ahumada, S.A.             |  | Magallanes y de la Antartica Chilena      |  | 4                   
|Farmacias Ahumada, S.A.             |  | Los Rios                                  |  | 5                   
|Farmacias Ahumada, S.A.             |  | Arica y Parinacota                        |  | 5                   
|Farmacias Benavides, S.A.B. de C.V. |  | Aguascalientes                            |  | 14                  
|Farmacias Benavides, S.A.B. de C.V. |  | Baja California Norte                     |  | 47                  
|Farmacias Benavides, S.A.B. de C.V. |  | Baja California Sur                       |  | 2                   
|Farmacias Benavides, S.A.B. de C.V. |  | Coahuila                                  |  | 62                  
|Farmacias Benavides, S.A.B. de C.V. |  | Chihuahua                                 |  | 52                  
|Farmacias Benavides, S.A.B. de C.V. |  | Durango                                   |  | 9                   



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|Brand                               |  | Location                      |  | Number of Pharmacies
|----------------------------------- |  | ----------------------------- |  | --------------------
|Farmacias Benavides, S.A.B. de C.V. |  | Guanajuato                    |  | 18                  
|Farmacias Benavides, S.A.B. de C.V. |  | Jalisco                       |  | 79                  
|Farmacias Benavides, S.A.B. de C.V. |  | Nayarit                       |  | 16                  
|Farmacias Benavides, S.A.B. de C.V. |  | Nuevo Leon                    |  | 202                 
|Farmacias Benavides, S.A.B. de C.V. |  | San Luis Potosi               |  | 8                   
|Farmacias Benavides, S.A.B. de C.V. |  | Sinaloa                       |  | 29                  
|Farmacias Benavides, S.A.B. de C.V. |  | Sonora                        |  | 73                  
|Farmacias Benavides, S.A.B. de C.V. |  | Tamaulipas                    |  | 117                 
|Farmacias Benavides, S.A.B. de C.V. |  | Veracruz                      |  | 10                  
|Farmacias Benavides, S.A.B. de C.V. |  | Zacatecas                     |  | 3                   
|Farmacias Benavides, S.A.B. de C.V. |  | Mexico City, Distrito Federal |  | 5                   
|                                    |  |                               |  |                     
|Boticas Fasa                        |  | Lima Metropolitana            |  | 110                 
|Boticas Fasa                        |  | Barranca                      |  | 1                   
|Boticas Fasa                        |  | Cajamarca                     |  | 2                   
|Boticas Fasa                        |  | Chiclayo                      |  | 8                   
|Boticas Fasa                        |  | Chimbote                      |  | 4                   
|Boticas Fasa                        |  | Huacho                        |  | 2                   
|Boticas Fasa                        |  | Huaral                        |  | 1                   
|Boticas Fasa                        |  | Huanuco                       |  | 2                   
|Boticas Fasa                        |  | Huaraz                        |  | 2                   
|Boticas Fasa                        |  | Piura                         |  | 6                   
|Boticas Fasa                        |  | Talara                        |  | 2                   
|Boticas Fasa                        |  | Trujillo                      |  | 9                   
|Boticas Fasa                        |  | Tumbes                        |  | 1                   
|Boticas Fasa                        |  | Huancayo                      |  | 4                   
|Boticas Fasa                        |  | Apurimac                      |  | 2                   
|Boticas Fasa                        |  | Arequipa                      |  | 12                  
|Boticas Fasa                        |  | Caсete                        |  | 1                   
|Boticas Fasa                        |  | Cayma                         |  | 2                   
|Boticas Fasa                        |  | Chincha                       |  | 2                   
|Boticas Fasa                        |  | Cusco                         |  | 5                   
|Boticas Fasa                        |  | Ica                           |  | 4                   
|Boticas Fasa                        |  | Moquegua                      |  | 2                   
|Boticas Fasa                        |  | Pisco                         |  | 2                   
|Boticas Fasa                        |  | Tacna                         |  | 3                   
|Boticas Fasa                        |  | Tarapoto                      |  | 1                   



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In our Retail Pharmacy division,
we have an established annual expansion plan. For 2012, we estimate that we will build more than 100 new pharmacies in two of our
main markets, Mexico and Chile. We believe that these additional points-of-service will help stimulate our growth in these regions
and we expect that the funds used to construct these facilities will come from cash generated by our operations. As a result, the
actual number of pharmacies that we build will be subject to the amount of cash that we have available at the time.



Both our distribution and
retail pharmacy businesses are highly diversified, both geographically and in terms of the size of our operations.



In our Mexican Distribution
division, we have 22 distribution centers that provide nationwide coverage as well as over 800 transportation units located throughout
the country. Due to the strategic locations of our distribution centers, in the event that any of these properties or units was
damaged as the result of a natural disaster, we would most likely be able to reroute replacement vehicles to cover the affected
routes or service our clients from a nearby Distribution Center, if necessary.



In terms of our Retail Pharmacy
business, we have over 900 stores in the 19 Mexican states where we currently operate, more than 350 stores in 15 Chilean regions
and 88 stores that offer service in two Brazilian states. In the event that any of these properties were negatively affected due
to adverse climate conditions, we believe that we would still have adequate coverage and that the overall effect on our business
would be minimal.



While there have been some
natural occurrences in several of the countries where we operate in recent years, to date they have had a minimal effect on our
overall operations. The earthquake that occurred in southern Chile in 2010 caused us to temporarily close down 11 stores. However,
eight of these stores were reopened within less than 5 months of the incident, on average. Mexico has also experienced several
large earthquakes as well as some hurricane activity which could potential reoccur in the future. While the impact on our installations
has been minimal thus far, we cannot guarantee that we will not be affected by climate-related or other environmental issues in
the future. However, we believe that the geographic diversity and the ample coverage that we have in the majority of the countries
where we operate would help mitigate the negative affects of these environmental occurrences, should they transpire.



| | Item 4A. | Unresolved Staff Comments
| | -------- | -------------------------



Notapplicable



| | Item 5. | Operating and Financial Review and Prospects
| | ------- | --------------------------------------------



The following discussion
should be read in conjunction with our audited consolidated financial statements and the accompanying notes included in this annual
report starting on page F-1. Our audited consolidated financial statements have been prepared in accordance with Mexican FRS, which
differ in some respects from U.S. GAAP. Note 22 to our audited consolidated financial statements provides a description of the
primary differences between Mexican FRS and U.S. GAAP. Note 23 also provides a partial reconciliation of consolidated net income
for each of the three years in the period ended December 31, 2011 and consolidated stockholders’ equity as of December 31,
2010 and 2011 from Mexican FRS to U.S. GAAP.



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Overview



As part of our strategy to
expand our retail pharmacy operations, on May 17, 2010 we entered into a Stock Purchase and Sale Agreement, or the FASA Agreement,
with a group of entities controlled by Mr. Jose Codner Chijner to acquire up to 100% of the capital stock of Farmacias Ahumada,
S.A., or FASA, for a total price of approximately $637 million, including the assumption of net debt that, as of March 31, 2010
was $162 million. FASA is the largest retail pharmacy chain in Latin America, with annual sales of approximately U.S.$1,691 million
in 2010 and over 1,260 pharmacies in Chile, Mexico and Peru. The transaction was subject to the completion of a tender offer for
all of the outstanding shares of FASA on the Santiago Stock Market, at a price of 1,642 Chilean Pesos per share, and the validity
of such offer was conditioned upon the acquisition of at least 50% plus one of the outstanding shares of FASA. The Acquisition
was also subject to the approval of our general shareholders meeting and the Mexican Antitrust Commission, Comision Federal de
Competencia.



On July 21st, 2010, our shareholders
approved the Acquisition by ratifying the execution of the FASA Agreement. Additionally, our shareholders authorized the Company
to launch a tender offer, directly or indirectly through one of its subsidiaries, for up to all of the shares that represented
the capital stock of FASA, and to carry out all necessary acts, including the granting of collateral, in order for the Company
to obtain the necessary resources to finance the Acquisition.



On August 30, 2010, the Company
entered into the Acquisition Loan. Certain subsidiaries of the Company executed the Acquisition Loan as joint obligors. HSBC Mexico
and HSBC Bank (Chile) were appointed as collateral agents in their respective countries. The Acquisition Loan provides for a series
of covenants which, among other things, restrict the ability of the Company and the joint obligors to: (i) incur, assume or allow
the existence of indebtedness, (ii) create liens, (iii) consolidate, merge or transfer assets, (iv) sell assets, including capital
stock, of our subsidiaries, (v) make loans, (vi) modify the nature of our business, (vii) pay dividends on our capital stock or
redeem, repurchase or retire our capital stock, (viii) make investments; and (ix) create any consensual limitation on the ability
of our subsidiaries to pay dividends, make loans or transfer any distribution to us; among other customary covenants and provisions.
See “Item 4. Information on the Company—History and Development of the Company.”



As publicly disclosed by
the Company on August 10, 2011, we entered into an Amendment Agreement with regard to the Acquisition Loan dated August 30, 2010,
by means of which Grupo Casa Saba had secured the requisite funds to complete the Acquisition. The effectiveness of such agreement
was subject to the satisfaction of certain conditions precedent, all of which were satisfied by GCS in September 2011. The Amended
and Restated Acquisition Loan includes the affirmative and negative covenants that are customary for this type of transaction.



As part of the evolution
of our business model, Grupo Casa Saba has decided to concentrate its efforts on its expansion in Mexico, Chile and Brazil. As
a result, in early 2012 it completed a series of negotiations with Quitafex, SA, which resulted in the sale of our operations in
Peru through the disposal of the equity of our subsidiaries in Farmacias Peruana S.A. and Droguería La Victoria S.A., vehicles
through which we conducted our operations in Peru. Part of the agreements reached with Quitafex, S.A. resulted in a 5 year non-competition
period for Grupo Casa Saba and its subsidiaries to develop operations related to the supply of drugs in Peru and Bolivia, countries
that, for the moment, are not part of our strategic expansion plan.



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In 2011, the Group’s
consolidated net sales were Ps. 46,568.2 million compared to Ps. 33,840.8 million in 2010. This increase was primarily the result
of the consolidation of FASA’s sales into our Group. However, given that we purchased FASA in October 2010, only its fourth
quarter sales were reflected in our 2010 net sales. Therefore, this figure is not comparable with our 2011 sales, when a full twelve
months of FASA’s sales were consolidated into the Group’s total sales.



Inflation and Interest Rates



Through the end of 2007,
Bulletin B-10, “Recognition of the impact of inflation on the financial information (integrated document)” required
us to recognize certain effects of inflation in our consolidated financial statements, including the requirement to restate financial
statements from prior periods to constant pesos as of the end of the most recent period presented. The method of restatement required
us to calculate a restatement factor using a weighted average rate based upon the Mexican National Consumer Price Index, or NCPI.
The recognition of the effects of inflation through December 31, 2007 principally resulted in the recognition of gains and losses
for inflation on monetary and non-monetary items, which were presented in the financial statements. See Note 3 to our consolidated
financial statements.



Effective January 1, 2008,
FRS B-10, “Impact of inflation”, no longerrequires us to recognize the effects of inflation unless the economic
environment qualifies as “inflationary”. An economic environment is considered inflationary if the cumulative inflation
rate equals or exceeds an aggregate of 26% over the three preceding years (equivalent to an average of 8% in each year). Because
of the relatively low level of inflation in Mexico in recent years (3.8% in 2011, 4.4% in 2010, 3.6% in 2009 and 6.5% in 2008),
the cumulative inflation rate in Mexico over the three-year period preceding December 31, 2010 does not qualify the economic environment
as inflationary. Moreover, the economic environment in the other countries where we operate does not qualify as inflationary. Additionally,
based on current forecasts, we do not expect the economic environment of Mexico or any other country where we operate to qualify
as inflationary in 2012. These expectations could change depending on actual economic performance.



As a result, the Group has
not recognized the impact of inflation effective January 1, 2008, due to the non-inflationary economic environment existing in
Mexico, Chile and Brazil. Consequently, the amounts in our statements of income and cash flows are presented in nominal Mexican
pesos. Financial information for dates and periods prior to January 1, 2008 continue to be expressed in constant Pesos as of December
31, 2007, in accordance with Mexican FRS. The impact of inflation accounting under Mexican FRS has not been reversed in our reconciliation
to U.S. GAAP. See Notes 22 and 23 to our audited consolidated financial statements.



In recent years, Mexico has
experienced lower levels of inflation than in the past. The rate of inflation on an annualized basis, as measured by changes in
NCPI, was 3.6% for 2009, 4.4% for 2010, and 3.8% in 2011. High inflation rates can adversely affect our business and our results
of operations by adversely affecting consumer purchasing power, thereby adversely lowering the demand for the products that we
distribute. In addition, to the extent that inflation exceeds our price increases or to the extent that we do not increase our
prices, high inflation rates can adversely affect our revenues by adversely affecting our prices in “real” terms.



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Mexico has had, and is expected
to continue to have, competitive nominal interest rates. The interest rates on 28-day Mexican government treasury bonds averaged
approximately 5.4%, 4.40% and 4.2% for 2009, 2010 and 2011, respectively. In the first quarter of 2012, the 28-day Mexican CETES
averaged 4.2%.



Brazil and, to a lesser extent,
Chile have historically had high inflation and interest rates. The impact of high inflation rates and high interest could have
adverse effects in our operations in these countries. Consumer demand could decrease as purchasing power declines and access to
the respective credit markets could become more difficult and at high interest rates.



Currency Fluctuations



As a result of our recent
acquisition in Chile, we have incurred debt that is denominated in several foreign currencies. Therefore, we could be adversely
affected by decreases in the value of the Peso against the respective currency, which would most likely result in net foreign exchange
losses. Nevertheless, a significant portion of our revenues is, and will continue to be, Peso-denominated.



A portion of the debt is
U.S. dollar denominated. Based on the change in the Noon Buying Rate as reported by the Board of Governors of the U.S. Federal
Reserve Bank of New York, the Mexican Peso depreciated by approximately 12.7% against the U.S. Dollar in 2011 to reach $13.98 pesos
per dollar. During the first quarter of 2012, the Peso regained some ground, appreciating 8.4% against the U.S. Dollar to reach
$12.81 pesos per dollar. Any future depreciation of the Peso could result in price increases from our suppliers, which in turn
could impact the purchasing capacity of the final consumers, and cause a reduction in our net sales.



In addition to the U.S. Dollar,
we now face currency exchange risk versus the Chilean peso (CLP), the Euro and the Chilean Development Unit (or UF by its Spanish
acronym). As part of the acquisition, we assumed certain CLP, Euro and UF-denominated liabilities by which we could be adversely
affected in the event that any of these currencies appreciate against the Peso. Nonetheless, the asset accounts and future revenues
would have the opposite effect under such a scenario. In the event that any of these currencies depreciates against the Peso, the
opposite would hold true. For the year ended December 31, 2011, 89.1% of our total debt that is subject to foreign exchange fluctuations
was CLP-denominated, 9.8% was denominated in UFs, 1.1% was U.S. dollar-denominated and 0.1% was denominated in Euros. We cannot
assure you that fluctuations in any of the currencies used in the countries where we have operations will not adversely affect
our financial results in the future.



Severe devaluation or depreciation
of the Peso may also result in the disruption of the international foreign exchange markets. This may limit our ability to transfer
or to convert Pesos into U.S. Dollars and other currencies for the purpose of making timely payments of principal and interest
on any non-Peso-denominated debt we may incur in the future, which could, in turn, affect our ability to obtain foreign services
and products. Devaluation or depreciation of the Peso against the U.S. Dollar may also adversely affect U.S. Dollar prices for
our securities on the Mexican Stock Exchange, including the Ordinary Shares and, as a result, will likely affect the market price
of the ADSs. Such fluctuations would also affect the conversion value of any cash dividends paid on the Ordinary Shares in Pesos
into U.S. Dollars.



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Effects of Economic and Governmental Factors on Our
Results of Operations



The majority of our operations
and assets are located in Mexico. As a consequence, our results of operations may be significantly affected by the general condition
of the Mexican economy, Mexican inflation, interest rates and political developments in Mexico. With the acquisition of Drogasmil
and FASA, our operations in the countries where we now have a presence may be significantly affected by the general conditions
of these economies. See “Item 3. Key Information—Risk Factors Relating to Economic and Political Developments”.



Economic Situation



In 2005, the Mexican economy
benefited from sharp increases in oil prices and global economic recovery. As a result, the Mexico’s GDP for the year grew
by 3.0%, annual inflation was 3.3% and the interest rate on 28-day CETES averaged 9.2%. During 2006, Mexico’s GDP grew 4.8%
mainly as a result of presidential, congressional and state elections, which enhanced extraordinary spending and a continued increase
in oil prices. Inflation was 4.1% and the interest rate on 28-day CETES averaged 7.2%. During 2007, the Mexican economy proved
resilient in the face of a downturn in the U.S. economy. GDP growth was 3.3%, inflation was 3.8% and the interest rate on 28-day
CETES averaged 7.2%. In response to the worldwide economic downturn, in 2008 Mexico’s GDP growth was cut in half, declining
to 1.6%, inflation rose to 6.5% and the interest rate on 28-day CETES averaged 7.7%. In 2009, the Mexican economy continued to
be affected by the global economic crisis. GDP declined by 6.5% while the average interest rate on the 28-day CETES fell to 5.4%.
Inflation, however, decreased to 3.6%. In 2010, the Mexican economy gained strength, posting a GDP growth of 5.5% stemming from
increased production and the demand for exports brought on in large part by increased industrial activity in the United States.
The interest rate on 28-day CETES averaged 4.40% as a result of national monetary policies that were in line with the trends in
the global economy, and the inflation rate was 4.40%. During 2011, despite lower GDP growth of 3.9%, a record drought that has
fueled farm prices and greater volatility in the peso/dollar exchange rate, the Mexican economy was relatively stable given that
overall annual inflation rate fell to 3.8% and the interest rate for the 28-day CETE averaged 4.2%.



For each of the years ended
on December 31, 2006 and 2007 approximately 99% of our consolidated net sales resulted from sales to parties located within Mexico.



With the acquisition of Drogasmil
in Brazil in May 2008 and the subsequent purchase of FASA in October 2010, approximately 22% of our consolidated net sales in 2011
resulted from sales to parties located outside of Mexico. In the past, inflation has led to high interest rates and devaluations
of the Peso. Inflation itself, as well as governmental efforts to reduce inflation, has had significant negative effects on the
Mexican economy in general and on Mexican companies, including us, in particular. One result of inflation in Mexico is the decrease
in the real purchasing power of the Mexican population, which can lead to a decrease in the demand for the products that we distribute
and/or sell. In addition, the Mexican government’s efforts to control inflation by tightening the monetary supply have historically
resulted in higher financing costs as real interest rates have increased. Such policies have had and could have an adverse effect
on our business, financial condition and results of operations.



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Brazil and, to a lesser extent,
Chile have historically had high inflation and interest rates. The impact of high inflation rates and high interest in these countries
could have adverse effects in our operations in such country. Consumer demand could decrease as purchasing power declines and access
to their respective credit markets could become more difficult and at high interest rates.



In Brazil, the annual inflation
rate was 6.5% in 2011, somewhat higher than the 4.5% target set by the Central Bank while annual GDP growth was 2.7%, stimulated
primarily by agriculture and internal demand which was driven by the country’s robust labor market, lower bowering costs
and a reduction in the industrial production tax on select consumer goods. Lower GDP growth can be attributed to a combination
of external factors such as the Eurozone crisis as well as internal factors such as rising inflation. In 2011, the Selic averaged
11.67%, down from its peak of 12.5% in July.



In 2011, the Chilean economy
posted an annual GDP growth of 6.3%, its fastest pace since 1997 and annual inflation was 4.4%. The labor market is tight as the
unemployment rate dropped to 6.6% at the end of December, which could potentially put pressure on prices in the future, causing
inflation to rise.



Introduction to Our Operations



The following table sets
forth the real price increases and unit volume growth for our Private Pharma division for the years indicated:



|                                               |  | Year Ended December 31, |     
|---------------------------------------------- |  | ----------------------- | ----
|                                               |  | 2011                    |     
|                                               |  |                         |     
|Total Mexican Private Pharmaceuticals Market:  |  |                         |     
|Real Unit Price Increases                      |  |                         | (4.2
|Growth in Units                                |  |                         | 5.5 
|                                               |  |                         |     
|Casa Saba Private Pharmaceutical Distribution: |  |                         |     
|Real Unit Price Increases                      |  |                         | 2.3 
|Growth in Units                                |  |                         | (6.7
|                                               |  |                         |     
|Market Share of Grupo Casa Saba(1):            |  |                         | 20.9
|Inflation:(2)                                  |  |                         | 3.8 






| | (1) | Based on information from IMS Health, A.G. (Mexico) and Grupo Casa
Saba’s own estimates. This market share does not include purchases made by government institutions and sales in the private
pharmaceutical market related to pharmaceutical products with the same active ingredient but are not branded by any particular
laboratory (similares), generics and,generic products that are recommended to clients by pharmacy employees at the
point-of-sale or by the dispensing physician(impulse). Also includes an IMS estimate of sales through non-wholesalers.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Based on the changes in the NCPI.
| | --- | ---------------------------------



For a more detailed description
of the Mexican private pharmaceutical market and our private pharmaceutical business, see “Item 4. Information on the Company—Business
Overview—Pharmaceutical Industry”.



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The following table sets
forth our net sales by division and the corresponding growth rates for each of our business divisions for the years indicated.



|                                                                       |  | Year Ended December 31, |         
|---------------------------------------------------------------------- |  | ----------------------- | --------
|                                                                       |  | 2011 Restated           |         
|                                                                       |  |                         |         
|Pharmaceuticals:                                                       |  |                         |         
|Private sector                                                         |  |                         | 21,497.2
|% Growth                                                               |  |                         | (11.7   
|Government                                                             |  |                         | 1,209.1 
|% Growth                                                               |  |                         | 26.0    
|Health, Beauty, Consumer Goods, General Merchandise and Other Products |  |                         | 2,421.8 
|% Growth                                                               |  |                         | 11.4    
|Publications                                                           |  |                         | 792.6   
|% Growth                                                               |  |                         | (5.2    
|Retail Pharmacy                                                        |  |                         | 20,647.5
|% Growth                                                               |  |                         | 272.9   
|Total                                                                  |  |                         | 46,568.2
|Total % Growth                                                         |  |                         | 37.6    



The following table sets
forth the net sales for each of our business divisions and our results of operations as a percentage of our total net sales for
the years indicated:



|                                                                     |  | Year Ended December 31, |      
|-------------------------------------------------------------------- |  | ----------------------- | -----
|                                                                     |  | 2011 Restated           |      
|                                                                     |  |                         |      
|Pharmaceuticals:                                                     |  |                         |      
|- Private                                                            |  |                         | 46.16
|- Government                                                         |  |                         | 2.60 
|Health, Beauty, Consumer Goods, General Merchandise & Other Products |  |                         | 5.20 
|Publications                                                         |  |                         | 1.70 
|Retail Pharmacy                                                      |  |                         | 44.34
|Total                                                                |  |                         | 100  
|                                                                     |  |                         |      
|Cost of Sales                                                        |  |                         | 81.4 
|Gross Profit                                                         |  |                         | 18.7 
|Operating expenses:                                                  |  |                         |      
|- Selling expenses                                                   |  |                         | 2.9  
|- Administrative expenses                                            |  |                         | 12.8 
|                                                                     |  |                         | 15.7 
|Operating income                                                     |  |                         | 3.0  
|Comprehensive cost of financing, net                                 |  |                         | 2.2  
|Other income                                                         |  |                         | 1.2  
|Income tax and employee profit sharing                               |  |                         | 0.7  
|Net income                                                           |  |                         | (1.1 



For a more detailed description
of each of our divisions, see “Item 4. Information on the Company—Operations”.



Results of Operations



In accordance with Mexican
FRS, Peso amounts presented below are expressed in nominal terms.



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Given that the Group’s
auditors issued a qualified audit opinion on the financial statements for the year ended December 31, 2011 and its applicable period,
the Company was asked to resolve the pending issues and restate its consolidated financial statements for the year then ended and
its related period. As described in Note 3 a) subparagraph ii) to our audited, consolidated financial statements, the Group concluded
the clearing and adjusting of inventories and determined the appropriate liabilities resulting from certain contingencies derived
from the subsidiary CSB Drogaria, S.A., a Brazilian company, which lacked adequate accounting records. As of this date,
the Company has concluded its work to overturn the qualification and, as a result, the Group is presenting the modifications resulting
from this restatement. Below is a revised discussion and analysis of GCS’s results based on the restated numbers.



As a result of the incorporation
of FASA’s sales as of October 2010, the Group’s overall sales have increased. In 2011, the retail division posted gains
versus its 2010 sales. This increase was primarily the result of an increase in the number of stores in Mexico and Chile as well
as improvements in our efficiency at the store level.



Year Ended December 31, 2011 Compared
to Year Ended December 31, 2010



In September 2010, the Company
acquired 97.8% of Farmacias Ahumada, S.A. (FASA), a chain of more than 1,260 pharmacies with operations in Chile, Mexico and Peru.
Therefore, GCS consolidated figures for 2010 incorporate three months figures of FASA. In 2011 the Company consolidated 12 months
of FASA, thus, comparison for the full year are not comparable. The majority of the 2011 figures are not comparable with those
that were reported in previous years. The following chart describes the figures for GCS and FASA and the consolidated net amount
for 2011:



|                 |  | Consolidated Group                     |          |  | FASA |     |          | Net amount | 
|---------------- |  | -------------------------------------- | -------- |  | ---- | --- | -------- | ---------- | 
|                 |  | (Amounts in millions of Mexican pesos) |         
|                 |  |                                        |          |  |      |     |          |            | 
|Net sales        |  | Ps.                                    | 46,568.2 |  |      | Ps. | 19,139.8 |            | 
|Gross Profit     |  |                                        | 8,683.5  |  |      |     | 4,711.8  |            | 
|Operating income |  |                                        | 1,380.2  |  |      |     | 522.0    |            | 



Total Net Sales.
Grupo Casa Saba’s total net sales amounted to Ps. 46,568.2 million for the year ended December 31, 2011, an increase of 37.6%
as compared to the same period of 2010. The increase was primarily due to the addition of FASA’s sales. Excluding FASA, sales
for GCS would have decreased 8.5%, due to lower sales to some supermarket chains, some regional and traditional clients, as well
as lower sales from our publication division, Citem. This decrease was also affected by the elimination of the sales from Casa
Saba to Benavides (a subsidiary of FASA), which during 2011 accounted for $2,996.9 million and in 2010 for $723.9 (please note
that this figure only reflects sales from Oct - December). However, this decrease was partially offset by an increase of 26% in
sales from our Government Pharma business division due to a higher participation in bidding processes.



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Sales by Division:
Net Private Pharma Sales. Net sales from our Private Pharma business division went from Ps. 24,335.4 million for the year
ended December 31, 2010 to Ps. 21,497.2 million for the year ended December 31, 2011, a decrease of 11.7%, due to lower sales to
some supermarket chains and some regional and traditional clients. This decline was the result of a change within the industry
related to the way in which products are distributed by channel (fee-for-service). While our sales to some channels are negatively
affected by this new scheme, the benefit is that it leads to improvements in our gross margin. It is important to mention that
this decrease was also affected, in part, by the elimination of the sales from Casas Saba to Benavides (a subsidiary of FASA),
which during 2011 accounted for $2,996.9 million and in 2010 for $723.9 (please note that this figure only reflects sales from
Oct - December). As a result, this division’s sales represented 46.2% of the Group’s total net sales.



Net Government Pharma
Sales. Net sales from our Government Pharma business division rose 26% with respect to 2010, increasing from Ps. 959.3
million for the year ended December 31, 2010 to Ps. 1,209.1 million for the year ended December 31, 2011. The increase in sales
reflects a higher participation in bidding processes during the period to various federal and state government health institutions.
Government Pharma sales represented 2.6% of the Group’s total net sales in 2011.



Net Health, Beauty,
Consumer Goods, General Merchandise and Other Sales. Net sales from our Health, Beauty, Consumer Goods, General Merchandise
and Other business division were Ps. 2,421.8 million for the year ended December 31, 2011 compared to Ps. 2,173.6 million for the
year ended December 31, 2010. This increase was mainly due to a higher demand for these types of products in the different markets
where we offer them, particularly in the Benavides pharmacy chain, a Company belonging to the Group. Prior to becoming a part of
the Group, Benavides purchased these types of items from third parties. However, once it became a part of the Group, it began purchasing
a higher percentage of these products from our distribution division, which had a positive affect on this division’s sales.
The higher purchases of Benavides from our distribution division derived in higher volume in sell to third parties in that subsidiary.
Net sales by this division represented 5.2% of our total 2011 net sales.



Net Publication Sales.
Net sales from our Publications business division decreased 5.2% due to the fact that several of our publishers withdrew some of
their magazines from the market during the period, which led to a reduction in the overall number of publications distributed.
Sales went from Ps. 835.5 million for the year ended December 31, 2010 to Ps. 792.6 million for the year ended December 31, 2011
and accounted for 1.7% of our total net sales.



Retail Pharmacy Sales.
This division was created as a result of the FASA acquisition given that, due to its size and scope, our retail pharmacy operations
became much more significant than they were in previous years.



Net sales from our Retail
Pharmacy business division totaled Ps. 20,647.5 million in 2011, and are not comparable with the 2010 figures given that, in that
year, we consolidated only three months of FASA. Our sales by country are as follows: in Mexico, our “Benavides” chain
increased its sales 5.2% in 2011 with respect to 2010, as a result of new commercial strategies that were put into place since
the acquisition of FASA. In addition our “Farmacias ABC” chain’s sales decreased 2.5%, mainly due to lower sales
to institutional clients in Mexico. In Chile, “Farmacias Ahumada” sales decreased 0.4% reflecting a highly competitive
environment and a delayed expansion program that took effect in the fourth quarter of 2011. In Peru, “Boticas Fasa”
was deconsolidated given that it was sold during the first quarter of 2012. Finally, in Brazil “Drogasmil” sales grew
26.2%, as a result of new store openings and a new and more aggressive commercial strategy. The Retail Pharmacy division accounted
for 44.3% of total 2011 net sales.



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Gross Profit.Grupo
Casa Saba’s gross profit totaled Ps. 8,683.5 million for the year ended December 31, 2011, an increase of 91.8% as compared
to Ps. 4,527.8 million for the same period of 2010. The increase reflects a full 12 months consolidating FASA, compared to 2010
when we only consolidated three months of FASA. The previously mentioned 2011 gross profit led to an improvement in the gross margin,
which was 18.65% for the year ended December 31, 2011, compared to the margin of 13.38%, registered in 2010. The higher gross margin
was the result of the sales from our Retail Pharmacy operations, which, due to the nature of the business, is higher than the margins
obtained in the distribution businesses.



Operating Expenses.
Our operating expenses totaled Ps. 7,303.3 million for the year ended December 31, 2011, an increase of 89.5% as compared to Ps.
3,853.1 million for the year ended December 31, 2010. This was mainly the result of the incorporation of FASA and, therefore, is
not comparable. Operating expenses in FASA, due to the nature of its retail business, are higher than in the wholesale business.
As a result, this figure is also not comparable with the previous year. Excluding FASA, operating expenses were 9.4% higher than
in 2010, primarily as a result of the ajustments that were made for liabilities and reserves in Brazil as well as salary increases.
However, operating efficiencies partially offset this increase. Consequently, operating expenses represented 15.7% of our total
net sales for the year ended December 31, 2011.



Operating Income.
Operating income for the year ended December 31, 2011 was Ps. 1,380.2 million, an increase of 104.6% as compared to Ps. 674.7 million
for the year ended December 31, 2010. As a result, our operating margin for the year ended December 31, 2011 was 2.96%, compared
to a margin of 1.99% for the year ended December 31, 2010.



Comprehensive Financing
Cost, Net. Pursuant to Mexican FRS, we report four items within this line item: interest expense, interest income, foreign
exchange (gain) loss and the (gain) loss on net monetary position. Foreign exchange losses (or gains) arise primarily from U.S.
Dollar-denominated position or loans as the Peso devalues or appreciates against the U.S. Dollar. The gain or loss on the net monetary
position reflects the effect of inflation on monetary assets and liabilities. Monetary gains arise from holding a net monetary
liability position during periods of inflation, while monetary losses arise from holding a net monetary asset position during periods
of inflation. Since January 1, 2008 we ceased inflation accounting pursuant to Mexican FRS.



Our 2011 comprehensive financing
cost was Ps. 1,040.1 million, 296.6% higher than the $262.2 million reported during the 2010 fiscal year. This increase was mainly
the result of the increase in our interest expense, which totaled Ps. 1,028.6 million in 2011, and is related to the loan for the
acquisition of FASA. In 2010, interest expenses totaled Ps. 493.0 million.



Tax Provisions.
Provisions for taxes for the year ended December 31, 2011 were Ps. 312.4 million, an increase of 547.5%, as compared to Ps. 48.3
million for the year ended December 31, 2010. Income tax for the year ended December 31, 2011 amounted to Ps. 744.7 million, which
was partially offset by a deferred income tax of Ps. 432.3 million.



Net Income (Loss).
The Group’s net loss for the year ended December 31, 2011 totaled Ps. (512.5) million, compared to Ps. 270.1 million for
the period ended December 31, 2010. This decline was primarily due to the goodwill impairment charge in the amount of Ps. 538.0
million, related to the acquisition of the Group ́s Brazilian subsidiary, which was recognized in the “Other expenses,
net” line item, as well as an increase in interest paid and higher income tax payments.



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Year Ended December
31, 2010 Compared to Year Ended December 31, 2009



Prior to 2010, Grupo Casa
Saba entered an expansionary stage as part of its strategy to increase the Company’s profitability. Since then, the Group
has completed acquisitions in several South American countries, beginning in May 2008 with the acquisition of the Brazilian pharmacy
chain Drogasmil (currently known as Casa Saba Brasil). In September, 2010, the Company acquired 97.8% of Farmacias Ahumada, S.A.
(FASA), a chain of more than 1,260 pharmacies with operations in Chile, Mexico and Peru and, as a result, has reclassified its
divisions in accordance with this strategy, creating a new division known as “Retail Pharmacy.” As a result, the majority
of the 2010 figures are not comparable with those that were reported in previous years. The impact of the acquisition in 2010 was
as follows:



|                 |  | Consolidated Group                     |          |  | FASA |     |         | Net amount | 
|---------------- |  | -------------------------------------- | -------- |  | ---- | --- | ------- | ---------- | 
|                 |  | (Amounts in millions of Mexican pesos) |         
|                 |  |                                        |          |  |      |     |         |            | 
|Net sales        |  | Ps.                                    | 33,840.8 |  |      | Ps. | 4,280.9 |            | 
|Gross Profit     |  |                                        | 4,527.8  |  |      |     | 1091.8  |            | 
|Operating income |  |                                        | 674.7    |  |      |     | 83.7    |            | 



Total Net Sales.
Grupo Casa Saba’s total net sales amounted to Ps. 33,840.8 million for the year ended December 31, 2010, an increase of 13.59%
as compared to the same period of 2009. The increase was primarily due to the addition of the sales of FASA.



Sales by Division:
Net Private Pharma Sales. Net sales from our Private Pharma business division went from Ps. 22,377.4 million for the year
ended December 31, 2009 to Ps. 24,335.4 million for the year ended December 31, 2010, an increase of 8.8%.



Net Government Pharma
Sales. Net sales from our Government Pharma business division increased during 2010, from Ps. 906.1 million for the year
ended December 31, 2009 to Ps. 959.3 million for the year ended December 31, 2010. The increase in sales reflects a higher participation
in bidding processes during the period to the IMSS as well as various state government health institutions. As a result, this division’s
sales represented 2.83% of the Group’s total net sales.



Net Health, Beauty,
Consumer Goods, General Merchandise and Other Sales. Net sales from our Health, Beauty, Consumer Goods, General Merchandise
and Other business division were Ps. 2,530.4 million for the year ended December 31, 2009 compared to Ps. 2,173.6 million for the
year ended December 31, 2010. Net sales by this division represented 6.4% of our total net sales compared to 8.5% in 2009.



Net Publication Sales.
Net sales from our Publications business division also posted strong gains, from Ps. 753.4 million for the year ended December
31, 2009 to Ps. 835.5 million for the year ended December 31, 2010 and accounted for 2.5% of our total net sales for the year ended
December 31, 2010. This result was primarily due to the increase in sales in specialty title and collector’s item sales related
to the World Cup sporting event.



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Retail Pharmacy Sales.
This division was created as a result of the FASA acquisition given that, due to its size and scope, our retail pharmacy operations
became much more significant than they were in previous years.



Net sales from our Retail
Pharmacy business division totaled Ps. 5,536.9 million in 2010, an increase of 71.7% versus the Ps. 3,224.3 million in 2009. The
increase in sales was due to the acquisition of FASA.



This division represented
16.4% of the Company’s net sales in the 2010 fiscal year.



Gross Profit.Grupo
Casa Saba’s gross profit totaled Ps. 4,527.8 million for the year ended December 31, 2010, an increase of 40.4% as compared
to Ps. 3,225.9 million for the same period in 2009. The improvement in the gross margin, which was 13.4% for the year ended December
31, 2010, as compared to 10.8% registered during the previous year, was primarily the result of higher margin sales from our Retail
Pharmacy operations. FASA’s gross margin for 2010 was 24.7%, which, due to the nature of the business, is higher than the
margins in the distribution business.



Operating Expenses.
Our operating expenses totaled Ps. 3,853.1 million for the year ended December 31, 2010, an increase of 65.0% as compared to Ps.
2,335.1 million for the year ended December 31, 2009. This was mainly the result of the incorporation of FASA into our retail operations
given that operating expenses, such as store rents, are generally higher in the retail business than they are in distribution due
to the nature of the operations. Therefore, this figure is not comparable with the previous year. Consequently, operating expenses
represented 11.4% of our total net sales for the year ended December 31, 2010.



Operating Income.
Operating income for the year ended December 31, 2010 was Ps. 674.7 million, a decrease of 24.3% as compared to Ps. 890.7 million
for the year ended December 31, 2009. This was due to the increase in our operating expenses, as described above. As a result,
our operating margin for year ended December 31, 2010 was 2.0%, compared to the margin of 3.0% for the year ended December 31,
2009.



Comprehensive Financing
Cost, Net. Pursuant to Mexican FRS, we report four items within this line item: interest expense, interest income, foreign
exchange (gain) loss and the (gain) loss on net monetary position, when the inflationary economic environment is applied. As of
January 1, 2008 we ceased inflation accounting pursuant to Mexican FRS.



Foreign exchange losses (or
gains) arise primarily from U.S. Dollar-denominated position or loans as the Peso devalues or appreciates against the U.S. Dollar.



Our 2010 comprehensive financing
cost, net remained the same as the previous year, at Ps. 262.2 million for both the year ended December 31, 2009 and for the year
ended December 31, 2010. This was the result of the rise in our interest expense, which totaled Ps. 493.0 million in 2010, related
to the acquisition of FASA compared to Ps. 264.5 million in 2009. However, this increase was partially offset by higher interest
income earned, in the amount of Ps. 199.4 million, compared to Ps. 5.1 million in 2009, as well as an exchange rate gain of 31.4
million as discussed in our consolidated statement of income.



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Tax Provisions.
Provisions for income taxes for the year ended December 31, 2010 was Ps. 48.3 million, a decrease of 77.2% as compared to Ps. 211.9
million for the year ended December 31, 2009. Income tax liability for the year ended December 31, 2010 amounted to Ps. 386.4 million,
12.4% greater than the income tax provisions for the year ended December 31, 2009, and which was partially offset by the deferred
income tax asset of Ps. 338.0 million.



Net Income.The
Group’s net income for the year ended December 31, 2010 amounted to Ps. 270.0 million, a decrease of 3.6% as compared to
Ps. 280.3 million for the year ended December 31, 2009. This decline was primarily due to the increase in our operating expenses,
which was not offset by the higher gross profit.



Liquidity and Capital Resources



In May 2008, to finance the
acquisition of Drogasmil, we entered into a long-term loan with Scotiabank Inverlat for an aggregate amount of up to Ps. 1,210
million, which has to be repaid monthly at the TIIE rate plus 0.75 percentage points for a term of seven years, with a grace period
of 12 months. As of December 31, 2009, we had drawn the full amount under the loan. The obligations under such agreement were guaranteed
by the Company and our subsidiary, Drogueros, S.A. de C.V.



On March 25, 2010, Casa Saba
entered into a credit agreement with Scotiabank Inverlat, S. A. to liquidate the bank loans payable by Drogarias. On March 26,
2010, Casa Saba drew down this credit in the amount of Ps. 520 million and on October 3, 2010 Casa Saba prepaid this loan with
part of the proceeds from the Acquisition Loan.



On August 30, 2010, the Company
entered into the Acquisition Loan. Certain subsidiaries of the Company executed the Acquisition Loan as joint obligors. HSBC Mexico
and HSBC Bank (Chile) were appointed as collateral agents in the respective countries. The Acquisition Loan bears interest at the
TIIE rate plus a margin. However, under the Acquisition Loan the Company had to pay each Lender the principal amount of the Acquisition
Loan, in a single payment, twelve (12) months after the disbursement date, unless the Acquisition Loan term was extended to an
additional seven year period. The obligations under the credit agreement are guaranteed by the Company and the majority of the
subsidiaries. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” and Note 12) of our consolidated
financial statements.



As publicly disclosed by
the Company on August 10, 2011, we entered into an Amendment Agreement with regard to the Acquisition Loan, which extended the
loan term for seven years. The effectiveness of such Amendment Agreement was subject to the satisfaction of certain conditions
precedent, all of which were satisfied by GCS in September 2011. The Amended and Restated Acquisition Loan includes the affirmative
and negative covenants that are customary for this type of transactions.



As of December 31, 2011,
the Distribution Division had arranged for short-term revolving credit lines for a total aggregate principal amount of Ps. 1,060.0
million with the following lenders: Banco Santander S.A. Institución de Banca Múltiple, Grupo Financiero Santander,
BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer and Banco Autofín
México, S.A. Institución de Banca (Mi Banco).



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See “Item 11. Quantitative
and Qualitative Disclosures about Market Risk.” and Note 23(f) to our consolidated financial statements for additional information
regarding market risks.



See Note 12 to our consolidated
financial statements for further description of our indebtedness.



Overview Cash Flows



Historically, our cash and
capital requirements have been satisfied through cash from operations and bank loans. We plan to continue to satisfy our cash and
capital expenditure requirements primarily through cash from our operations. If deemed necessary, we can access our revolving credit
facilities totaling an aggregate principal amount of up to Ps. 1,060.0 million. Net working capital (current assets minus current
liabilities) as of December 31, 2011 was Ps. 4,087.5 million compared to (Ps. 2,971.7) million as of December 31, 2010.



Our inventories, net as of
December 31, 2011, were Ps. 8,614.3 million or 1.0% higher than the Ps. 8,526.2 million on December 31, 2010. For the year ended
December 31, 2011, our inventory days were 81.9 days, 2.9 days higher than the 79.0 days registered for the year ended December
31, 2010. As of December 31, 2010, our inventory days were 79.0 days, 9.3 days higher than the 69.7 days for the year ended December
31, 2009. Accounts payable were 84.1, 85.7 and 68.5 days for the years ended December 31, 2011, 2010 and 2009, respectively.



Our cash flows are also subject
to seasonal fluctuations and market conditions. To maintain a larger winter inventory and to ensure adequate inventory levels for
the two or more weeks of holidays in December, during which suppliers in Mexico and Chile do not make sales or deliveries, our
accounts payable and inventories typically increase at year-end for both our distribution and Mexican retail divisions. After reaching
their highest levels in November/December our inventories gradually decrease to what we estimate is a normal operational level
of approximately 50 inventory days. The Retail Division also increases its inventory of both pharmaceutical and non-pharmaceutical
products during the winter months when the demand for these products is generally at its peak.



Accounts Receivable



As of December 31, 2011,
our accounts receivable net decreased to Ps. 5,381.0 million, 22.2% lower than the Ps. 6,920.4 million as of December 31, 2010.
This decline was largely due to the fact that our retail division sales are primarily cash transactions. Accounts receivable days
as of December 31, 2011 decreased 31.3 days to 41.6 days from 73.6 days in 2010. As of December 31, 2009, accounts receivable days
were 63.2.



For a description of the
nature and amounts of accounts receivable due from current and former related parties, see “Item 7. Major Shareholders and
Related Party Transactions—Related Party Transactions” and Note 11 to our audited consolidated financial statements.



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Trade Accounts Payable



As of December 31, 2011,
trade accounts payable decreased to Ps. 8,848.8 million or 4.7% lower compared to Ps. 9,288.8 million as of December 31, 2010.
The decrease was the result of an increase in payments to the Company’s providers due to certain additional agreements with
supplier to obtain in proper time pharmaceutical products, as well as instant liquidity in account banks As a result, our trade
accounts payable days decreased to 84.1 in 2011 compared to 85.7 days for the year ended December 31, 2010. As of December 31,
2009, our trade accounts payable days were 68.5. Beginning in 2010, this calculation takes into account FASA’s total accounts
payable balance with its suppliers; therefore, the figures are not comparable with previous years.



For a description of the
nature and amounts of trade accounts payable owed to current and former related parties, see “Item 7. Major Shareholders
and Related Party Transactions—Related Party Transactions” and Note 11 to our audited consolidated financial statements.



Grupo Casa Saba is a company
with no significant operations or material assets other than the capital stock of our subsidiaries and some of our direct subsidiaries
have other subsidiaries. As a result, our subsidiaries’ ability to make cash available to us, by dividend, royalties or otherwise
is important for our shareholders. Please note that there are certain legal, tax and economic restrictions and formalities for
our subsidiaries in order to transfer funds to us in the form of cash dividends, loans, capital reductions, royalties or advances;
the legal and tax restrictions and formalities depend on the applicable law in the country of domicile of each of our subsidiaries.



Economic Restrictions



Each of our subsidiaries
is a distinct legal entity and, under certain circumstances, as their financial condition and operating requirements, may limit
our ability to obtain cash from our subsidiaries. In addition, our right to receive assets from our subsidiaries or shareholders
of our subsidiaries, in the case of a liquidation or corporate reorganization, is subordinated to the rights of the creditors of
such subsidiaries, including suppliers.



Legal Restrictions



Mexico



Dividends. The General
Law of Commercial Companies establishes certain restrictions and formalities applicable to Mexican companies in order to make payment
of dividends. These restrictions apply to all of our Mexican Subsidiaries. 5% of our net income in a given year must be allocated
annually to a legal reserve. This legal reserve must be increased annually until it reaches 20% of our capital stock. After this
allocation is made, it is then possible to make additional allocations, such as a contribution of funds for the payment of dividends
or the creation of special reserves, generally, but not necessarily, upon the recommendation of the Board of Directors of each
of our subsidiaries. Our subsidiaries cannot pay dividends, unless these allocations are previously made.



From a tax perspective, the
dividends paid by our Mexican subsidiaries must come from the net tax profit account of each our Subsidiaries (which is a tax account
comprised of financial profits which have been subject to taxation in Mexico at a corporate level). Dividends paid from distributable
earnings that have not been subject to taxation at the corporate level are subject to a dividend tax at an effective rate of 42.86%
from 2010 to 2012 (40.85% for 2013 and 38.89% for 2014 and following years) at the corporate level. The corporate-level dividend
tax on the distribution of earnings is not final and may be credited against income tax payable during the fiscal year in which
the dividend tax was paid and in the following two years. Dividends paid from distributable earnings, after corporate income tax
has been paid with respect to these earnings, are not subject to this corporate-level dividend tax.



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Chile



Pursuant to Chilean law,
public companies, like FASA, must yearly allocate 30% of its profits to be distributed pro-rata among its shareholders unless the
by-laws provide otherwise. Despite the above, most of the Chilean subsidiaries of the Group are non-public companies so they are
not required to allocate the above-mentioned percentage of dividends and are regulated solely by their by-laws. The payment of
dividends takes place five days after the date that such payment was approved.



From a tax perspective, under
the provisions of the Chilean Income Tax Law (Ley del Impuesto Sobre la Renta), dividends paid to resident holders with
respect to the Chilean shares shall be subject to Chilean income tax. Dividends allocated to a non-resident shareholder or as remittances
to a foreign entity, shall be subject to a Withholding tax, unless the distributed profits are exempt earnings or exempt of the
Additional Tax.



Indebtedness



As of December 31, 2011 the
Group’s interest-bearing liabilities were Ps. 12,556.5 million and our net debt was Ps. 10,246.1 million.



Since the majority of our
debt is acquisition-related, our borrowing requirements are not particularly seasonal in nature. In August 2011, the Company renegotiated
the bridge loan that was executed on August 30, 2010 in the amount of Ps. 7,723.9 million. The loan term was extended for seven
years, thus converting it into a long-term loan, which is now divided into two tranches. The shorter average life tranche has an
average margin of TIIE + 2.25% while the longer average life tranche’s margin is TIIE+2.76%.



Treasury Policies and Objectives



Each of the three countries
in which we have a presence operates its treasury independently and is responsible for meeting its established budgetary objectives.
The Group has established corporate policies that vary, depending on the company’s needs and are in effect as long as they
do not contradict the budgetary objectives for each country.



Grupo Casa Saba’s Treasury
departments operate under strict controls that include maintaining joint checking and electronic banking accounts (two signatures
required), both of which operate with security measures, such as codes, and an accounting matching systems for check cashing in
each of their respective systems (RP BaaN for Casa Saba and SAP for the Retail Division). In addition, payments made to providers
and employee payroll are automated for electronic transfers as well as for account and payment amount reconciliation. The Group’s
trade accounts payable departments are dependent on the Treasury department. Therefore, its information and the generation of payments
originate from our BaaN and SAP systems, which enable us to maintain consistency between our established policies and procedures
for our treasury and accounting departments.



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In terms of resource management,
GCS’s considers its treasury policies to be conservative. Our investment policies require us to invest excess resources solely
in local currency and highly liquid government instruments. In addition, the cash and credit lines that we have with a variety
of banks are also strictly short-term, local currency denominated instruments that can then be used to meet our working capital
needs.



The Use of Financial Instruments for Hedging Purposes



Within the course of its
normal operations, the Company, through its subsidiaries Farmacias Benavides, S.A.B, de C.V and Farmacias Ahumada, engages in foreign
currency transactions in which it is exposed to exchange rate risk. Therefore, these companies are permitted to use forward contract
hedges to reduce these risks by establishing a fixed exchange rate for future transactions at a known cost. The subsidiaries are
only allowed to hedge against exchange rate risks that are related to liabilities that are recognized on the balance sheet, firm
contractual commitments and transactions that are highly likely to occur. These instruments are negotiated in the Over-the-Counter
(OTC) market with nationally and internationally recognized banks and/or their affiliates.



In the event that there was
a margin call, the Company would cover it by using cash generated from its normal business operations. To date, the Group has not
received a margin call, although it does have and established credit line granted to it by the bank in order to cover any type
of variation in the market value of current financial derivative instruments.



In May 2007, Farmacias Benavides
contracted eight USD-Euro forward contracts. In January and May 2009, the company entered into an additional five USD-MXP contracts
and in December 2009 it contacted 12 more like contracts. In 2010, this subsidiary negotiated 12 more USD-MXP contracts and in
February 2011 it contracted one USD-MXP forward. To date, Benavides has covered all of its financial derivative instruments in
a timely manner. As of December 31, 2011, only one forward contract was still active as it came due in January 2012.



Farmacias Ahumada, S.A. currently
has 8 outstanding short-term forward contracts, all of which will come due during 2012 and one forward contract that is due in
November 2013.



Capital Expenditures



Our distribution-related
capital expenditures during 2011 were approximately Ps. 109.6 million, which consisted of Ps. 37.1 million for technology and computer
equipment, and Ps. 72.5 million for other general expenditures. These expenditures are usually funded with cash from our operations.
In the event that we need additional funds, we can use our available credit lines.



Of the Ps. 274.5 million
in capital expenditures that we used in the retail division throughout the course of 2011, Ps. 231.9 million were utilized for
projects at the point-of-sale while Ps. 35.6 million were used for infrastructure projects. An additional Ps. 7.0 million was spent
on improvements to the distribution centers. These projects are generally funded with cash from our operations.



Research and Development, Patents and Licenses



Not applicable



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Industry Trend Information



Production/Products



Since 2010, the loss of patent
protection has begun to facilitate the entry of a greater number of generic products into the Mexican market. In 2011 alone, three
of the five highest selling products in the world lost their patent protection and by the end of 2012, a total of 60 products will
be eligible for generic production in Mexico.



Several multinational laboratories
have implemented a variety of strategies in an attempt to counter the competition by national generic drug producers. Some, such
as Pfizer, are trying to offset their losses by formulating their own generic versions of the original branded product while others,
such as Novartis and Sanofi-Aventis, have purchased companies that specialize in generic drug production.



The Mexican government’s
decision to lift the restriction that required drug makers to operate plants in the country in order to sell their products has
also had an effect on pharmaceutical production trends in Mexico. As the demand for generics continues to grow, it has also begun
to attract foreign companies specializing in this segment. In 2011, Hetero Drugs, an Indian-based pharmaceutical company, entered
the Mexican market and has begun working with private sector clients to produce their controlled and private label brands. Brazilian
generic drug maker, Medley (which was purchased by Sanofi-Aventis in 2009), has announced that it would be entering the Mexican
market in 2012 with an initial portfolio of 32 low-cost generic drugs, which will provide further competition for this sector.



Another trend that may have
an impact on future drug production and sales is the increase in the number of patients worldwide who are being diagnosed with
diseases such as diabetes. The number of people who have been diagnosed with diabetes in Mexico, particularly type II diabetes,
has grown significantly over the past several years and it is believed that more than half of the population that has this disease
has still not been diagnosed. Pharmaceutical companies have therefore begun forming long-term commercial alliances to develop new
diabetes products to meet the growing demand. Generics producers are also gaining ground in this area, especially with government
health providers who seek lower-cost options.



Sales and Inventory



In general, the Latin American
pharmaceutical market has grown steadily over the last several years and is projected to continue growing due to a combination
of factors that include: generally stable economic conditions, ageing populations and the efforts being made by governments within
the region to increase access to healthcare among the overall population.



The Mexican private pharmaceutical
market has solid growth fundamentals, which lead us to expect sustained annual growth over the coming years. The main factors supporting
this expected growth are Mexico’s demographic structure (adults represent an increasing proportion of Mexico’s total
population), the increase in chronic illnesses such as diabetes and the increase in the life expectancy of the Mexican population.
The combination of these factors has generated growth in the demand for healthcare services and pharmaceutical products. In addition,
the government’s Seguro Popular Program has been instrumental in granting health care access to nearly 100% of the
Mexican population.



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Despite the overall growth
that we expect to continue in the pharmaceutical market, which generally benefits our wholesale distribution business, in recent
years there has been a shift in the percentage of private sector pharmaceutical sales from those that are placed through wholesalers,
like us, to sales that are placed directly by the manufacturers to large retail pharmacy chains and supermarket supercenters that
purchase sufficiently large volumes to have direct access to the laboratories. According to IMS Health, A.G. and our internal data,
private sector pharmaceutical sales that are placed through wholesalers have declined from 90% in 2007 to around 75% in 2011. A
continued increase in direct sales by manufacturers to retail pharmacy chains could have a material adverse effect on our results
of operation in this division.



Grupo Casa Saba has always
considered Information Systems to be a key competitive factor in current competing markets. Therefore, we believe that we have
been successful in using technology to help us optimize both our sales and our inventory days. Our record of on-time deliveries
is in the range of 98%, which we believe is one of the best rates in the business. The use of GPRS mobile devices for our sales
force has also had a positive effect in terms of sales agility and more up-to-the minute information for our sales representatives.
Today, these devices work under a Windows Mobile platform. Nevertheless, we believe that in the near future a more open platform
such as Android will be available, which will put downward pressure on prices that we are preparing to take advantage of.



We have also recently completed
the development of a new version of our Point-of-Sale System focused on government pharmacy operations. We believe that this new
software solution may be one of the best in the business today, given that it has been developed with open standards that allow
it to be very slim, web based, and easy to modify. We expect this to be an excellent tool for improving our position in the Government
market segment in the near future.



Although electronic data
interchange (EDI) has been available in our market for many years, it was only recently that Government regulations for EDI have
been fully implemented. This regulation not only regulates electronic transactions but it will require all Mexican business to
adopt Electronic Invoicing between 2011 and 2012. Grupo Casa Saba fully complies with this regulation and has been active in the
discussions related to its implementation.



With respect to our non-pharmaceutical
or HBCG/other products related business divisions, we believe that higher levels of economic growth are necessary to increase the
demand for these products; therefore, our ability to generate positive results in the coming years will depend on the improvement
of general economic conditions and increases in consumer purchasing power.



Socio-demographic trends
have helped fuel the growth of the retail market in Brazil. As is the case in Mexico, Brazil is also experiencing similar trends
in terms of the growth of the adult population, prompted by an increase in overall life expectancy. Brazilians’ average life
expectancy has increased, from 68.5 years in 1995 to 72.3 years in 2009. As a result, the over-60 population in the country has
increased significantly over the course of the last ten years and it is this group that is most likely to stimulate the demand
for both healthcare services and pharmaceutical products in the future. In addition, older consumers are generally more affluent
and have larger discretionary incomes, making them a target demographic for many manufacturers, including for over-the-counter
healthcare products. Government programs, such as the “Bolsa Familia” and the “Farmacias Popular” which
offer subsidized medicines have also helped stimulate demand for these products. From a socio-economic standpoint, we would also
expect that the decrease in the unemployment in Brazil from 12.3% in 2004 to less than 4.7% in December 2011, combined with an
increase in the average salary in the last ten years, will stimulate the consumption of ethical drugs, HBCG and Other products
as the middle class continues to expand. The increase in the number people who are formally employed also means that more Brazilians
are covered by private insurance. As a result, they are more likely to consult physicians when they are ill, thus broadening access
to pharmaceutical products. However, as is the case in Mexico, the continued demand for these products will require a continued
stable economic environment.



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The Chilean public health
system covered nearly three quarters of the population in 2011, with health care expenditures representing 4.4% of the country’s
overall GDP. As the population continues to grow and more workers are incorporated into the formal sector, government health spending
is expected to keep pace with the increase. The country’s strong economic growth projections are also expected to have a
positive effect on the pharmaceutical industry, which has been growing steadily since 1996.



Selling prices since the latest financial year



As distributors, we do not
establish selling prices. In Mexico, the Secretaria de Salud establishes a maximum public sales price at the point-of-sale
that cannot be exceeded without penalty. In Brazil, the CMED authorizes a maximum price increase once a year. Therefore the increase
in selling prices is limited in these markets. In Chile, the government lifted its price controls on pharmaceutical products in
both the private and public sectors, leaving the market to set the price.



Since 1998, when the production
of generic medicines was first approved in Mexico, generic penetration in Mexico has been minimal. However, several factors, including
the loss of patent protection beginning in 2010, and the lack of a full-scale economic recovery, are contributing to an increase
in the demand for these products. As a result, generics are gaining market share in Mexico and are poised for significant growth
in the coming years. While their lower prices generate lower overall sales for both our retail and distribution businesses, the
margins on generic products are generally higher than branded products, which help strengthen our results.



In 2011, generic products
had a market penetration of over 40% in Brazil. As is the case in Mexico, the demand for generics has been growing steadily in
recent years and is projected to continue to grow at rates above that of other types of products. Should this occur, their lower
prices will contribute less to our overall sales but should have a positive effect on our overall results. In addition, the recent
consolidation among pharmacy chains in this country has been partly responsible for driving up discounts, which helps lower costs
for pharmacy patrons.



In Chile, beginning in 2008,
the sale of branded generics as well as private label products has gained ground in the marketplace. Nevertheless, the higher price
of branded (originator) drugs and branded generics compared to unbranded generics and private label brands, continues to exert
pressure on the market’s average price. In an effort to help increase awareness and stimulate the demand for these products
among the populace, the Chilean Health Ministry has begun conducting campaigns to promote generics. Our strategy of increasing
our private label and exclusive brands is in line with this strategy and should, therefore, enable us to benefit from any future
growth in this sector.



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During 2011, we also continued
with our strategy of profitable growth and implemented a number of operating efficiency programs to maximize the profitability
of our operations. We applied profitability requirements to our clients and suppliers, even when this meant discontinuing operations
with certain clients and suppliers that did not meet the minimum parameters that we requested from them. In terms of our cost-saving
programs, we successfully reengineered routes and optimized our distribution centers. We believe that our profitability strategy
will allow us to continue growing our divisions with acceptable margin levels and we will continue to focus our efforts on increasing
profitability in the different markets in which we operate.



In connection with the FASA
Acquisition, we have incurred a significant amount of debt, which may have an adverse effect on the price of our outstanding shares.
Such financing could, likewise, have important consequences to the Company, including an increase in our interest costs. The Acquisition
Loan provides for a series of covenants which, among other things, restrict the ability of the Company to pay dividends on the
capital stock or redeem, repurchase or retire our capital stock; and to create any consensual limitation on the ability of the
Company’s subsidiaries to pay dividends, make loans or transfer any distribution, among other customary covenants and provisions.
In August 2011, we successfully refinanced the bridge loan as well as the collateral package executed to guarantee its obligation
under the loan into a long-term loan with more favorable terms for the Company.



On December 9, 2008, the
Chilean Antitrust Authority or Fiscalía Nacional Económicainitiated a procedure against FASA before the Chilean
Antitrust Court or Tribunal de Defensa de la Libre Competencia, such procedure intended, among others, to prove that FASA
had agreed with its competitors, Cruz Verde and Salcobran a mechanism to fix the price of medicines, to impose certain fines to
FASA and to end the alleged agreement. On March 23, 2009, the Chilean Antitrust Authority and FASA filed a settlement agreement
before the Chilean Antitrust Court, which was approved on April 13, 2009. Although the investigation is now over with respect to
FASA due to the approval of the settlement agreement, this process continued in 2011 with respect to FASA’s aforesaid competitors.
On January 31, 2012, Cruz Verde and Salcobrand were convicted by the Chilean Antitrust Court and both companies challenged the
applicable judgment; the Supreme Court Justice of Chile shall resolve this lawsuit.



Prior to the notification
of the judgment against Cruz Verde and Salcobrand, on August 17, 2011, Cruz Verde instituted a civil action in order to obtain
from FASA the payment of damages and lost profits, derived from the so-called antitrust acts related to the settlement agreement.
However, in this agreement FASA only acknowledged its own acts and did not make any accusations against Cruz Verde and/or Salcobrand.
Therefore, it is unlikely that either of these parties would win a lawsuit against FASA. In the event that Cruz Verde and Salcobrand
obtain the amendment of the judgment against them, Salcobrand could also sue FASA claiming the payment of consequential damages
arising from the antitrust process that they were a party to. If FASA is unable to address such suits and win the processes that
may be initiated against it, the occurrence of any of these factors could have a material adverse impact on our business and our
financial results.



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The trends described in this
section and expectations of Grupo Casa Saba may be affected by the relatively slow economic recovery, both globally and locally,
in the markets where we have operations. See “Item 3. Key Information—Risk Factors—Risk Factors Relating to Economic
and Political Developments”.



Non-Exchange Traded Contracts Accounted for at Fair
Value



All financial assets and
financial liabilities derived from any type of financial instrument are recognized in our balance sheet and assessed at fair value.
The valuation effect, as well as costs and returns generated by financial instruments, form part of the comprehensive gain or loss
on financing when incurred or earned.



As of December 31, 2010 and
2011 the carrying value of financial instruments approximates their value due to their short-term nature. Long-term debt incurred
through bank loans with similar terms and due dates accrues interest at variable prevailing financing rates.



Off-Balance Sheet Arrangements



The Group currently does
not have any off-balance sheet arrangement that has or is reasonably likely to have a current or future effect on the financial
statements, changes in liquidity, capital expenditures or capital resources that are material to investors.



Aggregate Contractual Obligations



Below is a table containing
a description of Grupo Casa Saba’s aggregate contractual obligations as of December 31, 2011.



Tabular Presentation of Aggregate Contractual Obligations



|Contractual Obligations                                                                                                      |  | Payments due by period |         
|---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --------
|(Millions of Pesos)                                                                                                          |  |                        |         
|                                                                                                                             |  | Total                  |         
|                                                                                                                             |  |                        |         
|Long-Term Debt (1)                                                                                                           |  |                        | 7,524.8 
|Capital Lease Obligations (2)                                                                                                |  |                        |         
|Operating Leases (3)                                                                                                         |  |                        |         
|Other long-term debt (4)                                                                                                     |  |                        | 1,980.9 
|Other Long-Term Liabilities (deferred income tax and other liabilities) reflected on our Balance Sheet under Mexican FRS (5) |  |                        | 264.0   
|Short-term debt (6)                                                                                                          |  |                        | 3,050.8 
|                                                                                                                             |  |                        |         
|Total (7)                                                                                                                    |  |                        | 12,820.5






| | (1) | Includes non-current maturities of long-term debt (see Note 12 to our audited consolidated financial statements).
| | --- | -----------------------------------------------------------------------------------------------------------------

| | (2) | Not applicable.
| | --- | ---------------

| | (3) | Our operating leases are primarily related to our retail pharmacy business. These leases, which amounted to Ps. 1,273.5 million
in 2011, are entered into in the ordinary course of business and their term varies from one-year to a longer term of up to ten
years, depending on the circumstances and location.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | FASA’s bond obligations. (see Note 12 to our audited consolidated financial statements).
| | --- | ----------------------------------------------------------------------------------------

(5)            Includes reserve for retirement pensions
and seniority premiums. The maturity of this obligation will occur in accordance with the disclosure in Note 3(q) to our audited
consolidated financial statements. (See Note 3(q) and 1(a) to our audited consolidated financial statements.)

(6) Current maturities of short-term debt (see
Note 12 to our audited consolidated financial statements).



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(7) Amounts include interest paid
as of the date of the consolidated financial statements (see Note 25(a) to our audited consolidated financial statements)



Critical Accounting Policies



Application of critical accounting policies



Preparing our consolidated financial statements
requires that we make certain estimates and use certain assumptions to determine the valuation of certain assets and liabilities,
disclose our contingent assets and liabilities at the date of our financial statements, and the reported amount of revenues and
expenses incurred during the reporting periods. We base our estimates and judgments on our experience and on various other reasonable
factors that together form the basis for making judgments about the carrying values of our assets and liabilities. Our actual results
may differ from these estimates under different assumptions or conditions. We evaluate our estimates on an ongoing basis and they
are continuously reviewed by using the available information. Our significant accounting policies are described in Note 3 to our
audited consolidated financial statements. We believe that our most critical accounting policies that imply the application of
estimates and/or judgments are:



Allowance for doubtful accounts



The allowance for doubtful accounts represents
our estimate of the probable loss inherent in all trade receivables by considering the general historical trend of customers’
payment performance and factors surrounding the specific customer’s credit risk. On a periodic basis, we analyze the recoverability
of our accounts receivable in order to determine whether due to credit risk or other factors, some receivables may not be recovered.
If we determine that such a situation exists, book value related to the non-recoverable assets is adjusted and expensed through
an increase in the allowance for doubtful accounts provision. This determination requires substantial judgment by our management.
Final losses from doubtful accounts may differ from our estimated reserve.



Estimate for slow-moving inventory



Periodically, we analyze the recoverability
of our inventories (basically pharmaceutical products) in order to determine whether due to certain factors or conditions related
to occurrence of adverse events such as physical damage, obsolescence expiration, etc, certain products in our inventories may
not be available or useable for sale purposes. If such a situation exists, book value related to the non-recoverable assets is
adjusted and expensed through an increase in the estimate for slow-moving inventory. As a result, final losses from slow-moving
inventory could differ from our estimated reserves.



Property and equipment



Our balance sheets reflect significant amounts
of long-lived assets (mainly property and equipment, goodwill and other intangible assets) associated with our operations throughout
Mexico, Brazil and, effective October 2010, Chile and Peru. Many of these assets have resulted from past acquisitions, which have
required us to report these assets at their fair value at the acquisition date. In accordance with to their characteristics and
specific treatment, we assess the recoverability of our long-lived assets at least once a year, normally during the fourth quarter,
as is the case for goodwill, or whenever events arise that we believe trigger a review such carrying values, as is the case with
property and equipment and intangible assets of definite life. Property and equipment to be disposed of are assessed on the date
on which the sale plan is approved at the lower of its net carrying value and its fair value less associated sale costs. Moreover,
we monitor the lives assigned to these long-lived assets for purposes of depreciation. This analysis is subjective and form part
to the determination of whether impairment has occurred.



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Property and equipment are initially recorded
at acquisition cost. Effective January 1, 2008, when inflationary accounting is applied in high inflationary periods, those assets
are restated by using INPC factors applicable to the country where those assets are established, as discussed in Note 3 e) to our
financial statements.



While we believe that our estimates are reasonable,
different assumptions could materially affect our evaluations. Our evaluations for 2011 and 2010 and up to the date of this annual
report did not lead to any impairment of property and equipment. Accordingly, fair value of property and equipment was equivalent
to or greater than the carrying value thereof at that date. We can give no assurance that our expectations will not change as a
result of new information or developments.



In addition, in March 2013, Management quantified
an accounting error in the previously financial statements of 2011, regarding the inadequate recognition of the carrying value
of goodwill from the acquisition of subsidiary Drogarias., The new consideration took into account additional assumptions for the
determination of “value in use” of the cash generating unit, which existed at the date on which the 2011 financial
statemens were prepared and discovered on a subsequent date, as well as failures in gathering reliable financial information to
complete the preparation of the annual impairment test.



In accordance with the foregoing, after evaluating
the existence of events and circumstances referred to above, Management determined it was more likely than not that fair value
of a reporting unit was less than its carrying value, as described in the following paragraphs.



Business acquisitions, intangible assets and goodwill



Business acquisitions are recognized by using
the purchase method to allocate the purchase price to the net assets acquired and the noncontrolling interest. Therefore: (i) intangible
assets acquired are recognized at its estimated fair value at acquisition date; (ii) the unallocated portion of the purchase price
that is not identifiable is included as goodwill, which is allocated to the cash flow generating unit in order to periodically
evaluate the impairment. The goodwill value is adjusted for any correction to the preliminary value allocated to the net assets
acquired and the noncontrolling interest within the twelve months subsequent to the acquisition date.



Intangible assets with indefinite useful life,
including goodwill, are subject to periodic impairment tests by determining the recoverable amount of the reporting units, which
consists of higher the value in use represented by the discounted amount of estimated future cash flows to be generated by such
reporting units to which goodwill relates and the net selling price. Management takes into account a horizon whose projections
do not establish growth rates beyond five years, unless a greater period is justified. We determine the fair value by using methodologies
generally accepted in the market to determine the value of entities.



Moreover, we monitor the lives assigned to
other long-lived assets with definite useful life for purposes of amortization. This analysis is subjective and form part to the
determination of whether impairment has occurred.



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Significant judgment is required to appropriately
assess the recoverable amount. Management considers that the value in use through its cash flow projections is the best estimate
of future cash flows from continued use of the cash generating unit. Therefore, the cash flows projections models recognize medium
and long-term economic variables fairly at the time of the financial statements. These projections are related to future estimated
price of products, changes in operating expenses, industry economic trend, the growth expectation in the market, as well as the
discount and growth rates applied in perpetuity.



Under U.S. GAAP, the excess of the fair value
of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. That allocation
process is performed only for purposes of testing goodwill for impairment. If the carrying amount exceeds the implied fair value,
an impairment loss is recognized in an amount equal to that excess. Under Mexican FRS “perpetuity value” is applied.



The procedures referred to above, in addition
to differences in the determination of the “value in use” by applying the “perpetuity value” (Note 3 n)
to our financial statements) under Mexican FRS as compared to U.S. GAAP, as well as differences in the reporting units’ carrying
amounts between Mexican FRS and U.S. GAAP generate, when applicable, different amounts of impairment losses. In addition, under
US GAAP subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss
is completed, while MFRS allows the reversal of the recognition of impairment under certain circumstances.



Based on the results of goodwill impairment
testing at December 31, 2009 under U.S. GAAP, the Group recorded an estimated impairment loss in connection with its reporting
unit in the Brazil in the amount of Ps. 109,000, which differs from impairment loss under Mexican FRS due to referred to above.
Under Mexican FRS, goodwill impairment loss was determined in the amount of Ps. 210,000. In 2010, the Group determined the fair
value of a reporting unit exceeds its carrying amount of goodwill and indefinite-lived intangible assets, under USGAAP and Mexican
FRS. Therefore, it was not necessary to record impairment. In 2011 under USGAAP, the Group recorded an estimated impairment loss
in connection with its reporting units in Drogueros, Citem and Brazil in the amount of Ps.46,210, Ps. 8,289 and Ps. 473,835, respectively.
Under Mexican FRS, goodwill impairment loss was determined in the amount of Ps. 78,425, Ps. 56,456 and Ps. 403,138, respectively.



This impairment loss concurred with the generalized
crisis in the economic environment that had a negative impact on the pharmaceutical industry. In determining whether it is more
likely than not that a goodwill impairment exists, the Group will consider whether there are any adverse qualitative factors indicating
that an impairment may exist.



While we believe that our estimates are reasonable,
different assumptions could affect our evaluation. We can give no assurance that our expectations will not change as a result of
new information or developments.



As explained in Note 25) to our financial statements,
the Company sold the total equity in the capital stock of the subsidiary Drogarias. The estimated amount of the consideration amounts
to equivalent of Ps.650,016, subject to certain adjustment, related to the determination of the “Confirmed Equity Value”.
The closing of the operation will conclude with the certain performance of clauses precedent and the approval of the Brazilian
authorities. Therefore, we can give no assurance that we are not generate any potential loss by considering the factors referred.



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Employee Benefits



Our labor liabilities include obligations for
defined benefits for retirement pensions and seniority premiums, as well as severance benefits to employees for the termination
of the employment relationship when they complete the employment relationship prior to retirement age, which is not associated
with a restructuring event. Costs are recognized in income as employees render their services. Toward that end, actuarial computations
are applied to the present value of labor obligations using long-term assumptions.



Defined benefit obligations, unamortized items,
and the net periodic cost applicable to labor obligations referred to above are determined by using the “projected unit credit
method”. We evaluate our assumptions at least annually. Those assumptions include the discount rate, expected long-term rate
of return on plan assets, rates of increase in compensation costs and certain employee-related factors, such as turnover, retirement
age and mortality rate. Actual results that differ from our assumptions are accumulated and amortized over future periods and,
therefore, generally affect our recognized expenses and recorded obligations in such future periods. While we believe that our
estimates are reasonable, different assumptions could affect our evaluation. We can give no assurance that our expectations will
not change as a result of new information or developments.



The following table is a summary of the three
key assumptions used in determining 2011 annual labor cost:



|Assumptions:          |  |  |      |  
|--------------------- |  |  | ---- | -
|México                |  |  |      |  
|Discount rate         |  |  | 7.75 | %
|Salary increase rate  |  |  | 4.00 | %
|Return of plan assets |  |  | 9.25 | %
|Chile                 |  |  |      |  
|Discount rate         |  |  | 7.5  | %
|Salary increase rate  |  |  | 4.0  | %



Income Tax, Single Rate Business Tax



Our operations are subject to taxation on Mexico,
Chile and Brazil. Taxes on earnings represent the sum of the income tax due and the deferred income tax effect determined in accordance
with currently enacted tax legislation applicable in the different jurisdictions in which each entity operates. Effective January
1, 2008, the Mexican tax authorities enacted the Ley del Impuesto Empresarial a Tasa Unica, Single Rate Business Tax Law,
or IETU Law, which co-exists with the Income Tax Law.



In 2011 and 2010, Management determined that
the taxes on earnings that will normally be paid by its Mexican subsidiaries will be that which is obtained from the taxable income
base of income tax, which the Management estimates will exceed the taxable income base of IETU, in accordance with a projection
based on reasonable assumptions.



Deferred income tax is determined by applying
the “asset and liability method” which requires a determination of the temporary differences between the financial
statements carrying amount and the tax basis of assets and liabilities. Significant judgments are required to appropriately assess
the amounts of tax assets and liabilities. We record deferred income tax asset when we believe that the recoverability of the asset
is determined to be probable by considering the “more likely than not” criteria. If this determination cannot be made,
a valuation allowance is established to reduce the carrying value of the asset. The more-likely-than-not threshold represents a
positive assertion by management that the Group is entitled to the economic benefits of a tax position. If a tax position is not
considered more-likely-than-not to be sustained, no benefits of the position are to be recognized in the financial statements.



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For the recognition of deferred income tax
asset derived from net operating losses and their corresponding valuation reserve, we make an assessment of:



(a)       the aggregate amount of the tax loss
carryforwards included in our income tax returns that we consider that the tax authorities would not reject such tax loss carryforwards
based on available evidence; and



(b)       the likelihood of the recoverability
of such tax loss carryforwards prior to their expiration through an analysis of estimated future taxable income.



More-likely-than-not is based on its technical
merits (legislation and statutes, legislative intent, regulations, rulings, and case law) at the reporting date. For this assessment,
the Group assumes that the tax authorities will examine and have full knowledge of all relevant information for each position.



If during any period after recognition the
threshold ceases to be met, the previously recorded benefit must be derecognized. Moreover, the benefit of a tax position that
initially fails to meet the more-likely-than-not threshold should be recognized in a subsequent period if changing facts and circumstances
enable to meet the threshold, the matter is effectively settled through litigation with the tax authorities, or the statute of
limitations has expired.



Tax examinations may involve complex issues
and their resolution may carry multiple years, if subject to negotiation or litigation. The Group believes its estimates of the
unrecognized tax benefits are reasonable, however uncertainties could affect the amount of unrecognized tax benefits in the future
periods. It is difficult to estimate the timing and range of possible change related to the uncertain tax positions, as finalizing
audits with the authorities may involve administrative and legal proceedings. Therefore, any settlements or statute expirations
may result in a significant increase or decrease in the total unrecognized tax benefits, including those positions related to tax
examinations being currently conducted.



Every reporting period, we analyze our actual
results versus our estimates and adjust our deferred income tax asset valuations as necessary. If actual results vary from our
estimates, the deferred income tax asset and/or valuations may be affected and necessary adjustments will be made based on relevant
information. Any adjustments recorded will affect our net income in such period.



Tax and legal contingencies



We are subject to various claims and contingencies
related to tax and legal proceedings as described in Note 20 to our consolidated financial statements. Due to their nature, such
tax and legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected
parties and governmental actions. Management periodically assesses the probability of loss for such contingencies and accounts
for a liability and/or discloses the relevant circumstances, as appropriate. If the potential loss from any claim or tax and legal
proceedings are considered probable and the amount can be reasonably estimated, we account for a liability for the estimated loss.



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Our tax strategies are complex and involve
interpretations of tax laws and regulations and are subject to review by the tax authorities. It is possible that the tax authorities
could challenge our application of these regulations. The tax authorities have challenged interpretations that we have made and
have assessed additional taxes. Although we have, from time to time, paid some of these additional assessments, in general, we
believe we have been successful in sustaining our positions. No assurance can be given, however, that we will continue to be as
successful as we have been in the past or that pending appeals of current tax assessments will be judged in our favor.



Foreign operations



The Group’s foreign operation operates
in a non-inflationary economic environment and its functional currency is the Brazilian real, and effective October 3, 2010, Chilean
peso and Peruvian peso.



We are exposed a variety of risks and uncertainties
related to operating in Brazil, Chile and Peru, including political, economic or social upheaval, devaluations in the Brazilian
Real, Chilean peso and Peruvian peso, high levels of inflation and interest rates, the introduction of import, investment or currency
restrictions, including pricing regulation on pharmaceutical products, restrictions on the repatriation of earnings and capital.



Related parties



In accordance with the Mexican Income Tax Law,
companies that carry out related party transactions are subject to tax obligations, with respect to the determination of prices
agreed upon. Such prices should be comparable to prices that would be used with or among independent parties at arm’s length
transactions. The tax authorities could reject the amounts determined and demand payment of taxes. Management estimates that all
related party transactions were agreed upon at arm’s length basis and, therefore, there is no contingency in its charge.



Fair Value of Derivatives



Our transactions are contracted to hedge the
associated risks with changes exchange rate. Our hedges is documented by describing the strategy and objective of management of
risks, hedged risks, identification of the hedged primary position, its accounting recognition, and how its effectiveness is measured.
We estimate that the changes in cash flows of the derivative financial instrument maintain high effectiveness in offsetting the
changes in cash flows of the primary position, both at the beginning and throughout the relationship of the designated hedge.



Our derivative financial instruments are traded
on recognized markets and with high creditworthy and reputable counterparties.



The estimated fair values of derivative financial
instruments fluctuate over time determined by assessing the effect of future relevant economic variables as of the reporting date.
These values should be viewed in relation to the fair values of the underlying instruments or transactions, and as part of our
overall exposure to fluctuations in foreign exchange rates.



Revenue recognition



Our consolidated revenues represent the value,
before tax on sales, of products sold by consolidated subsidiaries as a result of ordinary activities, after the elimination of
related party transactions. Revenues are quantified at the fair value of the consideration received or receivable, decreased by
any trade discounts or volume rebates granted to customers.



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Revenue from the sale of goods is recognized
when goods are delivered or services are rendered to customers, there is no condition or uncertainty implying a reversal thereof,
and they have assumed the subsequently we sell the goods to another third party, are recognized on a gross basis, considering that
we assume the total risk of property on the goods purchased and we are not acting as agent or commissioner.



Accounting Pronouncements and Related Effects



Under Mexican FRS



New Accounting Pronouncements



In 2009 and 2010, the CINIF issued the following
Mexican FRS that will go into effect as of January 1, 2011 and 2012:



MFRS B-2. “Statement of Cash Flows”.
Unrealized accrued foreign exchange fluctuations and the effects of fair value recognition are excluded from the cash balance on
the statement of cash flows. In addition, the concept “Adjustment to cash from foreign exchange fluctuations and inflation
levels” is changed to “Effects from cash value changes,” which includes effects from translation of foreign operations,
inflation, foreign exchange fluctuation and fair value of cash balances. Its application is retrospective.



MFRS B-7, “Business acquisitions.”
It requires that in the acquisition of a business containing an operating lease as lessee, an intangible asset is recognized segregated
when agreement conditions are favorable or a provision when such conditions are unfavorable. Its application is prospective.



MFRS C-7, “Investments in associates
and other long-term investments.” Capital contributions by the holding company to the associate that increases its equity
percentage are to be recognized based on the net fair value of identifiable assets and liabilities. For that purpose, the valuation
must be in proportion to the increase. Its application is prospective.



FRS B-5. “Financial information by segment” (FRS B-5)



This accounting standard substitutes Bulletin
B-5 with the same name. Effective 2011, the main changes are: (i) companies should disclose information by operating segment that
is used regularly by executive management, in addition to the information about products or services and geographic areas reported
in accordance with Mexican Bulletin B-5; (ii) disclosure of information by primary and secondary segments is eliminated; (iii)
for qualifying as operating segments, it is not required for business areas to be subject to distinct risks between each other;
(iv) it allows for considering a business in a pre-operating stage as an operating segment; and (v) it requires that the components
of the RIF be disclosed as well as liabilities by operating segment. This pronouncement was applied retrospectively for comparative
purposes. It had no impact on the key segments disclosed in our Note 19) to our consolidated financial statements.



FRS B-9. “Interim financial reporting” (FRS B-9)



This accounting standard substitutes Mexican
Bulletin B-9 (Bulletin B-9) with the same name. This pronouncement establishes the content to be included in a complete or condensed
set of financial statements for an interim period. Adoption of FRS 9 did not impact the Group’s consolidated financial statements.



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FRS C-4. “Inventories” (FRS C-4)



This accounting standard substitutes Mexican
Bulletin C-4 with the same name. Effective 2011, the main changes are: (i) the direct costing system is eliminated; (ii) the allocation
formula of the “last-in/first-out” cost of inventories is eliminated; (iii) inventory valuation should consider the
lower of acquisition cost or its net realizable value; (iv) impairment losses are recorded in the cost of sales and reversed by
decreasing the cost of sales when the circumstances that generate it no longer exist. The Group adopted retrospectively the new
FRS C-4, “Inventories”. That adoption had no impact on the consolidated financial statements.



FRS C-5. “Prepaid expenses” (FRS C-5)



This accounting standard substitutes Mexican
Bulletin C-5 with the same name. Effective 2011, the Group adopted retrospectively the new Mexican FRS C-5, “Prepaid expenses”.
Accordingly, prepaid expenses are presented as a current asset when the period in which their benefits are expected to be obtained
is equal to or less than one year. Prepaid expenses for goods are presented in the short-term or long-term, depending on the classification
of the item intended (e.g.: inventory or property and equipment). That adoption had no impact on the consolidated financial statements.



FRS C-6. “Property, plant and equipment” (FRS C-6)



This accounting standard replaces Mexican Bulletin
C-6 with the same name. Effective January 1, 2011, the main changes, whose application is prospective, are: (i) it sets forth the
guidelines for recognizing the exchange of nonmonetary assets at fair value and the bases for determining the residual value of
a component; and (ii) the unused component should be depreciated, unless depreciation is determined based on the activity of the
component.



Effective 2011, the Group adopted, retrospectively,
other additional provisions set forth by the new Mexican FRS C-6, “Property, plant and equipment.” That adoption had
no impact on the consolidated financial statements.



“Improvements to 2011 Financial Information Standards”



Effective January 1, 2011, the main changes are as follows:



FRS B-1. “Accounting changes and error
corrections” for presenting the opening statement of financial position if adjustments are retrospective. In our Note 3 a)
subparagraph i) to our financial statements, we determined various events or circumstances existing at the acquisition date of
FASA, which required an adjustment to the recognized amounts of the acquisition. As a result, the Company recorded certain liabilities
incurred, as well as the impairment of some long-lived assets retrospectively to the date of completion of the business acquisition.



In our Note 3a), subparagraphs ii) and iii),
we describe the Group concluded the clearing and adjusting the caption of inventories as well as the valuation of certain liabilities
related to some contingencies, which resulted in the booking of additional entries of present obligations as of December 31, 2011
in the subsidiary, Drogarias. Consequently, the Group’s consolidated financial statements as of December 31, 2011 and for
the period then ended, previously issued, were reissued to recognize those effects.



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Moreover, in March 2013,
the Group concluded the correction of accounting errors in the previously issued 2011 consolidated financial statements, which
was related to the inadequate recognition, measurement and disclosure of the carrying value of goodwill from the acquisition of
the subsidiary Drogarias. Consequently, the Group’s consolidated financial statements as of December 31, 2011 and for the
period then ended, previously issued, were reissued to correct that accounting error.



Implementation of IFRS.



As described in our Note 21 to our audited
consolidated financial statements, we have adopted IFRS such as those issued by the International Accounting Standards Board (IASB)
for the preparation of our financial information beginning January 1, 2012. Pursuant to current SEC reporting requirements, foreign
private issuers may provide in their SEC filings financial statements prepared in accordance with IFRS, without reconciliation
to U.S. GAAP.



The consolidated financial statements that
we will issue for the year ending December 31, 2012 will be our first annual financial statements prepared in accordance with IFRS.
Our IFRS transition date is January 1, 2011. In order to determine its opening IFRS statement of financial positions at January
1, 2011, the Group will adjust the previously reported amounts in its financial statements prepared under Mexican FRS, in accordance
with IFRS 1, “First-time adoption of IFRS” (IFRS 1). We have therefore applied all mandatory exemptions and certain
optional exemptions from the retrospective application of IFRS provided by IFRS 1.



The mandatory exceptions on which we relied are those relating to:
IFRS: (i) accounting estimates; (ii) the application of derecognition of financial assets and liabilities; (iii) hedge accounting;
and (iv) non-controlling interest, in accordance with IAS 27 (amended) “Consolidated and separate financial statements,”
related to the non-controlling interest prospectively. Consequently, the Group will not adopt the retroactive application required
by IFRS 3.



Below we describe the optional exceptions on which we relied:



Deemed cost



At the transition date, the Group adopted the following criteria:



| | · | For real property, the Group uses a revaluation under previous generally accepted accounting principals (previous GAAP) at
transition date as deemed cost as the revaluation date as if this was at that date substantially comparable at fair value;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | For minor property and equipment and certain intangibles, the Company uses their values restated in accordance with previous
GAAP at a date prior to the transition as a deemed cost.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | For indefinite-lived intangible assets (trademarks), the Company uses the fair value related to the acquisition of FASA, which
was completed in October 2010, as a deemed cost.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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As a result, beginning on January 1, 2011, the Group will increase
the net carrying value of its property, plant and equipment in the amount approximating Ps. 747,611, which will be recorded against
retained earnings in the opening balance sheet under IFRS. Subsequent to the transition date, the Group will adopt the policy of
the cost or depreciated cost for its property, plant and equipment, in accordance with IFRS.



Employee Benefits



The Mexican FRS D-3 “Employee Benefit”, a severance
provision and the corresponding expense, must be recognized based on the experience of the Group in terminating the employment
relationship before the retirement date, or if the Group deems to pay benefits as a result of an offer made to employees to encourage
a voluntary termination. For IFRS purposes, this provision was eliminated as it does not meet the definition of a termination benefit
pursuant to IAS 19 “Employee Benefits”. Accordingly, at the transition date, the Group derecognized its severance indemnity
recorded under D-3 “Employee Benefit” against retained earnings given that no obligation exists.



At the transition date, the Group will apply IAS 19 "Employee
benefits" (revised), which eliminates the use of the "corridor method" that trends to defer actuarial gains and
losses, and it is required to be recorded in other items of comprehensive income. Therefore, the Group will recognize actuarial
gains and losses existing at the date of transition against the opening balance of retained earnings, As a result, accumulated
net actuarial loss carryforwards at January 1, 2011, under MFRS in the amount of Ps. 69,660 will be recognized by increasing the
liability of employee benefits against retained earnings of the opening balance sheet under IFRS. As of the transition date, the
Group will recognize the effect of all actuarial gain and losses in "other comprehensive income" when accrued.



Accumulated translation differences



At the transition date, the Group will reverse the accumulated effect
of translation gains or losses generated under Mexican FRS. Therefore, the Goup will transfer the balance of the "Accumulated
translation effect" against the opening balance of retained earnings as of the transition date in the amount of Ps. 140,895.
This reclassification would not affect the balance of stockholders equity. Subsequent to the transition date, the Group will determine
the translation effect prospectively, according to IAS 21, “Effects of changes in foreign currency exchange rates.”



Investments in subsidiaries, jointly controlled entities and
associates



At the transition date, the Group will recognize its investments
in subsidiaries and associates in its individual financial statements at their carrying value under previous GAAP. Subsequently,
the Group will adopt the policy of recognizing its investments in subsidiaries, joint ventures and associates in its individual
financial statements at cost.



Assets and liabilities of subsidiaries, jointly controlled entities
and associates

At the transition date, the Group will value the asets and liabilities
of its subsidiaries in Brazil and Chile, which adopted IFRS before the holding company did, at the carrying values that those subsidiaries
have in the financial statements under IFRS, after consolidation adjustments, equity method adjustments and for the effects of
business combination.



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Business combinations



The Group will apply IFRS 3, “Business combinations”
prospectively to business combinations that occur as of the transition date. Therefore, the business combinations agreed upon prior
to the transition date will not be reestablished. That is, the Group: (i) will keep the same classification as an acquisition by
the legal acquirer, as in its previous GAAP, and (ii) it will recognize all its assets and liabilities at the date of transition
to IFRS that were acquired or assumed in a past business combination. As a result, the goodwill balance determined in accordance
with previous GAAP at the transition date was not affected by the migration.



Tax criteria



For IFRS, that effect is recognized under the confidence level that
a tax position acquires or expects to acquire. Therefore, the tax effect of an adopted position should be recognized only if it
meets the “more likely than not” standard limit to be admitted based on its technical merits (laws, regulations, rules,
etc.) at the transition date. If a tax position is not considered as “more likely than not,” no benefit of the position
will be recognized in the financial statements.



Deferred taxes



The Group has recognized the deferred income tax effect of the adjustments
required for the transition to IFRS against retained earnings in the opening balance sheet under IFRS as of January 1, 2011.



Under U.S. GAAP



There are no significant new accounting pronouncements
effective in year 2011 impacting the Group.



New ASU applicable to the Company are as follows:



ASU 2011-05 “Comprehensive
Income (Topic 220): Presentation of Comprehensive Income” issued in June 2011 (ASU 2011-05)



Under ASU 2011-05 an entity has the option
to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either
in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity
is required to present each component of net income along with total net income, each component of other comprehensive income along
with a total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the
entity is required to present the components of net income and total net income, the components of other comprehensive income and
a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach,
an entity is required to present components of net income and total net income in the statement of net income. The statement of
other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive
income and a total for other comprehensive income, along with a total for comprehensive income.



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ASU 2011-05 should be applied retrospectively.
For public entities it is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted.



ASU 2011-08 “Intangible-Goodwill
and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08)



Under ASU 2011-08, an entity has the option
to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality
of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less
than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise,
then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit
and comparing the fair value with the carrying amount of the reporting unit, as described in paragraph 350-20-35-4. If the carrying
amount of a reporting unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment
test to measure the amount of the impairment loss, if any, as described in paragraph 350-20-35-9. Under ASU 2011-08, an entity
has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the
first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent
period.



ASU 2011-08 is effective for annual and interim
goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.



|Item 6. | Directors, Senior Management and Employees
|------- | ------------------------------------------



Board of Directors



The following table sets
forth the names of our directors, their dates of birth, their principal occupations, their business experience, including other
directorships, and the number of years of service they have as directors. All of these individuals were elected by our shareholders
at our annual shareholders’ meeting, which was held on April 27, 2012.



Directors



|Name and Date of Birth                         |  | Principal Occupation                          |  | Business Experience                                                                                                                                                        |  | First Elected
|---------------------------------------------- |  | --------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Manuel Saba Ades
        (11/03/67)            |  | Chairman of the Board                         |  | Director – Xtra Inmuebles, S.A. de C.V. and of Grupo Casa Saba, S.A.B. de C.V. Member of the Board of Grupo Xtra S.A., de C.V. and of Ixe Grupo Financiero, S.A.B. de C.V. |  | April 2009   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Alberto Saba Ades
        (07/09/65)           |  | Vice Chairman of the Board                    |  | Director – Xtra Inmuebles, S.A. de C.V. Chairman of the Board of Grupo Xtra, S.A. de C.V.                                                                                  |  | February 2000
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Gabriel Saba D’jamus
        (07/27/69)        |  | Chief Executive Officer                       |  | Executive Director – Grupo Comercial Hotelera, S.A. de C.V. and Grupo Casa Saba, S.A.B. de C.V.                                                                            |  | April 2009   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Juan Carlos Peralta del Rio
        (24/09/75) |  | Vice President                                |  | Vice President — IUSA Footwear International S.A. de C.V                                                                                                                   |  | April 2008   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Pedro Alejandro Sadurni Gomez
 (10/8/59)       |  | Executive Vice President, Retail Division GCS |  | Former Chief Financial and Administration Officer– Grupo Casa Saba, S.A.B de C.V.                                                                                          |  | April 2009   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Julio Emilio Madrazo Garcia
        (07/07/66) |  | Partner                                       |  | De la Calle Madrazo Mancera, CMM and Director-Zimat Golin Harris                                                                                                           |  | April 2009   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Miguel Aleman Magnani
        (04/25/66)       |  | President                                     |  | Grupo Aleman                                                                                                                                                               |  | April 2009   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Gabriel Alarcon Velazquez
        (02/23/37)   |  | Director                                      |  | Banco de Comercio                                                                                                                                                          |  | April 2006   
|                                               |  |                                               |  |                                                                                                                                                                            |  |              
|Enrique Castillo Sanchez-Mejorada (13/08/56)   |  | CEO of Wholesale Banking                      |  | Grupo Financiero Banorte S.A.B. de C.V.                                                                                                                                    |  | April 2010   



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Francisco Fuentes Ostos is
the Secretary of our Board of Directors, without being a member of the Board. Alberto Saba Ades and Manuel Saba Ades are brothers.
Manuel Saba Ades and Alberto Saba Ades are cousins of Gabriel Saba D’jamus. Alberto Saba Ades is the Chairman of the Board
of Directors of Grupo Xtra, S.A. de C.V. and Manuel Saba Ades is a regular member of the same Board. In addition, Manuel Saba Ades
was elected as a member of the Board of Directors of Grupo Financiero Banorte, S.A.B. de C.V. and Alberto Saba Ades continues to
serve as an alternate member of this same Board. Our directors are not party to a service contract with us, and there are no arrangements
pursuant to which any of them was elected as a director of the Company. On April 27, 2012 at the annual shareholders’ meeting
the resignation of Ivan Moguel Kuri as the alternate independent board member was accepted.



Executive Officers



The following table sets
forth the names of our executive officers, their dates of birth, their position as of December 31, 2011, their prior business experience,
and the year in which they were first appointed to their position.



|Name and Date of Birth                    |  | Current Position                              |  | Business Experience                                                                             |  | First Appointed
|----------------------------------------- |  | --------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ---------------
|                                          |  |                                               |  |                                                                                                 |  |                
|Gabriel Saba D’jamus
        (07/27/69)   |  | Chief Executive Officer                       |  | Executive Director – Grupo Comercial Hotelera, S.A. de C.V. and Grupo Casa Saba, S.A.B. de C.V. |  | April 2009     
|                                          |  |                                               |  |                                                                                                 |  |                
|Juan Roberto Juarez
        (01/31/59)    |  | Chief Administrative Officer /Comptroller     |  | Former Comptroller of Grupo Casa Saba, S.A.B. de C.V.                                           |  | November 2011  
|                                          |  |                                               |  |                                                                                                 |  |                
|Jorge Sanchez Lanzilotti
 (03/23/70)      |  | Chief Strategic Planning & Finance Officer    |  | Former Chief Administrative & Financial Officer of Farmacias Benavides,, S.A.B de C.V.          |  | November 2011  
|                                          |  |                                               |  |                                                                                                 |  |                
|Hector Manzano de la Torre
 (04/21/67)    |  | Sales Director                                |  | Former Manager of Citem, S.A. de C.V.                                                           |  | September 1991 
|                                          |  |                                               |  |                                                                                                 |  |                
|Oscar Gutierrez Melgar
        (17/04/67) |  | Purchasing Director                           |  | Former Manager of Drogueros, S.A. de C.V.                                                       |  | November 1985  
|                                          |  |                                               |  |                                                                                                 |  |                
|Jesus Guerra de Luna
        (05/29/61)   |  | General Counsel                               |  | Legal Manager – Grupo Casa Autrey, S.A. de C.V.                                                 |  | June 1995      
|                                          |  |                                               |  |                                                                                                 |  |                
|Ricardo Rios Cardenas
        (02/01/55)  |  | Human Resources Director                      |  | Director of Sales & Operations, Northern Region – Grupo Casa Saba, S.A.B. de C.V.               |  | March 2009     
|                                          |  |                                               |  |                                                                                                 |  |                
|Pedro Canton y Figueroa
 (08/05/49)       |  | Sales Director                                |  | Director of National Warehouse Operations                                                       |  | December 2008  
|                                          |  |                                               |  |                                                                                                 |  |                
|Jorge Luis Garcia
        (09/12/61)      |  | Chief Information Officer                     |  | Former Manager – Grupo Casa Autrey, S.A. de C.V.                                                |  | May 1992       
|                                          |  |                                               |  |                                                                                                 |  |                
|Efrain Yañez Gonzalez
        (10/26/70)  |  | Special Accounts Director                     |  | Former Director of Collections— Grupo Casa Saba, S.A.B. de C.V.                                 |  | February 2011  
|                                          |  |                                               |  |                                                                                                 |  |                
|Pedro Alejandro Sadurni Gomez
 (10/08/59) |  | Executive Vice President, Retail Division GCS |  | Former Chief Financial and Administration Officer– Grupo Casa Saba, S.A.B de C.V.               |  | November, 2011 



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Compensation



Pursuant to our bylaws, all
executive compensation must be approved by our Board of Directors on a yearly basis. For the year ended December 31, 2011, the
aggregate compensation paid by us to key management personnel and/or our executive officers in all three of the countries where
we had operations in 2011 for services rendered in all capacities was approximately Ps. 81.1 million. At the ordinary annual shareholders’
meeting held on April 27, 2012, it was resolved to pay the members of the Board of Directors, without withholding income tax, a
fifty peso coin known as a “Centenario” as compensation or to grant them the equivalent value of one “Centenario”
for each Board of Director’s meeting attended.



Employee Profit Sharing



Under Mexican law, we are
required to contribute 10% of our yearly taxable profits, as adjusted, to our employees. This contribution is distributed in May
of each year. In addition, in the past we have customarily paid an annual Christmas bonus to our employees in an amount equal to
between two (the minimum required by law) and five weeks’ salary, depending on seniority.



The Pension Fund



We recognize the labor obligations
for retirement pensions and seniority premiums derived from defined benefit plans for all their employees in accordance with Mexico’s
Federal Labor Law, as well as the schemes that have been established for each plan. Seniority premiums are granted for a voluntary
separation of personnel who have completed at least fifteen years of service and are calculated based on the number of years worked.
Retirement pensions are granted to all personnel who have completed at least ten years of service and reached 65 years of age.
We are required to pay certain severance benefits to employees that are dismissed without proper cause. These payments are expensed
when paid.



Projected benefit obligations,
unamortized items and the net periodic cost applicable to labor obligations referred to above are determined by using the “projected
unit credit method”, in conformity with Bulletin D-3, “Labor obligations” of Mexican FRS. Severance benefits
which arise from restructuring causes, should continue to follow the guidelines of Bulletin C-9, “Liability, provisions,
contingent assets and liabilities, and commitments” of Mexican FRS.



We have created a fund placed
in irrevocable trusts at a financial institution to meet the labor obligations referred to above. Contributions to these funds
are determined annually by an actuarial calculation approved by our Board of Directors. We believe that obligations under these
trusts are closely monitored by their trustee.



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During 2009 and 2010 contributions
to the fund amounted to Ps. 20.6 million and Ps. 9.7 million, respectively. In 2011, no contributions were made to this fund. As
of December 31, 2009, 2010 and 2011, fund assets consisted primarily of investments in equity securities as well as in fixed income
securities issued by Mexican companies that are traded on the Mexican Stock Exchange.



Board Practices



The management of our business
is vested in our Board of Directors and the Chief Executive Officer. Our bylaws provide that the number of seats on our Board of
Directors shall be determined by our shareholders at a general ordinary shareholders’ meeting held for the purpose of appointing
and electing directors, which at any time may be formed by at least six but no more than twenty-one members of the Board of Directors.
Directors and alternate directors are elected for one-year terms by our shareholders at each annual shareholders’ meeting,
and each serves until a successor is elected and takes office. In order to have a quorum for a meeting of the Board of Directors,
a majority of the directors must be present.



According to the Mexican
Securities Market Law, the Board of Directors may have up to 21 members and each member may have its alternate. The members of
the Board of Directors shall be appointed by the shareholders’ meeting and shareholders controlling 10% of the capital stock
of the company may appoint or revoke in the shareholders’ meeting a member of the Board of Directors.



In accordance with the Mexican
Securities Market Law and our bylaws, 25% of the members of our Board of Directors must qualify as “independent directors”.
Under Mexican law, a person will not qualify as an “independent director” if he or she is, among other things:



| | · | one of our employees or managers;
| | - | ---------------------------------



| | · | a controlling shareholder;
| | - | --------------------------



| | · | a director, executive officer or relative of a controlling shareholder, or entities controlled
or managed by a controlling shareholder; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | · | a significant client, supplier, debtor or creditor, or member of the board of directors or executive
officer of any of these entities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



Our bylaws also provide that
the Chairman of the Board of Directors shall have the casting vote in the event of a tie. The Board of Directors is required to
meet at least once a quarter. The Chairman, 25% of the directors or the Chairman of the Audit and Corporate Practices Committee
may call for a meeting of the Board of Directors. Also, our bylaws provide that the Board of Directors must approve with input
from the Audit and Corporate Practices Committee, on an individual basis (i) any transaction with related parties, subject to certain
limited exceptions, (ii) the appointment of our Chief Executive Officer, his compensation and removal for justified causes, (iii)
our financial statements and those of our subsidiaries, (iv) unusual or non-recurrent transactions and any transactions or series
of related transactions during any calendar year that involve (a) the acquisition or sale of assets with a value equal to or exceeding
5% of our consolidated assets or (b) providing collateral or guarantees or the assumption of liabilities, equal to or exceeding
5% of our consolidated assets, (v) agreements with our external auditors and (vi) accounting policies, within GAAP.



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In addition, pursuant to
the Mexican Securities Market Law and our bylaws, holders of at least 10% of our voting stock are also entitled to appoint a director
and a corresponding alternate director.



Committees of Our Board of Directors



In accordance with the Mexican
Securities Market Law, we have an Audit and Corporate Practices Committee. As of April 27, 2012, the Audit and Corporate Practices
Committee is formed by Messrs. Julio Madrazo Garcia (chairman), Gabriel Alarcon Velazquez and Juan Carlos Peralta del Rio, all
independent members of the Board of Directors. As required by the Mexican Securities Market Law, both the chairman and a majority
of the members of the Audit and Corporate Practices Committee are independent directors. Among other duties and responsibilities,
the Audit and Corporate Practices Committee must:



| | · | supervise our external auditors and analyze their report;
| | - | ---------------------------------------------------------



| | · | analyze and supervise the preparation of our financial statements;
| | - | ------------------------------------------------------------------



| | · | inform the Board of Directors of our internal controls and their adequacy;
| | - | --------------------------------------------------------------------------



| | · | request reports of our Board of Directs and executive officers whenever it deems appropriate;
| | - | ---------------------------------------------------------------------------------------------



| | · | inform the Board of any irregularities that it may encounter;
| | - | -------------------------------------------------------------



| | · | receive and analyze recommendations and observations made by the stockholders’ meetings;
| | - | ----------------------------------------------------------------------------------------



| | · | supervise the activities of our Chief Executive Officer;
| | - | --------------------------------------------------------



| | · | provide an annual report to the Board of Directors;
| | - | ---------------------------------------------------



| | · | provide opinions to our Board of Directors;
| | - | -------------------------------------------



| | · | request and obtain opinions from independent third parties; and
| | - | ---------------------------------------------------------------



| | · | assist the Board in the preparation of annual reports and other reporting obligations.
| | - | --------------------------------------------------------------------------------------



The Chairman of the Audit
and Corporate Practices Committee shall prepare an annual report to our Board of Directors with respect to the findings of the
Audit and Corporate Practices Committee, which shall include among others: (i) the status of the internal controls and internal
audits and any deviations and deficiencies thereof, taking into consideration the reports of external auditors and independent
experts; (ii) the results of any preventive and corrective measures taken based on results of investigations in respect of non-compliance
of operating and accounting policies; (iii) the evaluation of external auditors; (iv) the main results from the review of our financial
statements and those of our subsidiaries; (v) the description and effects of changes to accounting policies; (vi) the measures
adopted as a result of recommendations and observations of stockholders, directors, executive officers and third parties relating
to accounting, internal controls, and internal or external audits; (vii) compliance with stockholders’ and directors’
resolutions; (viii) observations with respect to relevant directors and officers; (ix) the transactions entered into with related
parties; and (x) the remunerations paid to directors and officers.



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Employees



|                              |  | 2011 |        |  | 2010 |  |        | % Change |  |  | 2009 |    |  | % Change |      
|----------------------------- |  | ---- | ------ |  | ---- |  | ------ | -------- |  |  | ---- | -- |  | -------- | -----
|Total Employees               |  |      | 19,702 |  |      |  | 20,579 |          |  |  | (4.3 | )% |  |          | 8,454
|Total No. Employees in Mexico |  |      | 13,251 |  |      |  | 14,069 |          |  |  | (5.8 | )% |  |          | 7,257
|Total No. Employees in Brazil |  |      | 1,401  |  |      |  | 1,545  |          |  |  | (9.3 | )% |  |          | 1,197
|Total No. Employees Chile     |  |      | 3,402  |  |      |  | 3,619  |          |  |  | (6.0 | )% |  |          | -    
|Total No. Employees in Peru   |  |      | 1,648  |  |      |  | 1,346  |          |  |  | 22.4 | %  |  |          | -    



As of December 31, 2010,
we had 19,702 employees. In Mexico we had 13,251 employees, 5,689 of which are part of the distribution business and 7,562 are
part of the retail pharmacy business. On the distribution side, 2,452 are sales representatives for our Pharmaceutical and HBCG/Other
Products businesses and other divisions, 929 are administrative employees and 2,308 are operational employees. On the retail pharmacy
side, 302 are administrative employees, 355 are operational employees and 6,905 are in sales. In Brazil we had a total of 1,401
employees of which 104 were administrative employees, 153 were operational employees and 1,144 were in sales. In Chile, we had
3,402 employees at the end of fiscal year 2011. Of these, 230 carried out administrative functions, 3,120 held sales positions
and 52 were on the operational side.



A significant majority of
our employees in Mexico, 83.6% as of December 2009, 72.0% as of December 2010 and 75.5% as of December 31, 2011, were represented
by unions. Almost all of our employees in Brazil, 99.9% as of December 31, 2010 and 99.9% as of December 31, 2011, were unionized.
In Chile 28.4% of our employees were represented by union as of December 31, 2010 and 27.0% were represented by unions at the end
of 2011.



We believe that our relations
with our employees and the unions with which they are affiliated are good. In 2011, the total number of employees declined by 4.3%
compared to 2010, primarily as a result of programs aimed at improving our operating efficiency and controlling costs and expenses.



Share Ownership of Directors and Officers



Share ownership of our directors
and executive officers is set forth in the table under the caption “Item 7. Major Shareholders and Related Party Transactions”.
Except as set forth in the table, none of our directors or executive officers is the beneficial owner of more than 1% of any class
of our capital stock or options representing the right to purchase more than 1% of any class of our capital stock.



|Item 7. | Major Shareholders and Related Party Transactions
|------- | -------------------------------------------------



We are not directly or indirectly
owned or controlled by another corporation or by any foreign government.



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Principal Shareholders



All information presented
in this section regarding beneficial ownership of our capital stock is based on the number of Ordinary Shares outstanding as of
March 31, 2012, which was 265,419,360. As required by Mexican law, the number of Ordinary Shares outstanding is presented net of
the number of repurchased Ordinary Shares held in our treasury as of March 31, 2012, which was 14,729,720. We repurchased these
Ordinary Shares in the open market pursuant to our share repurchase program, as described under the caption “Item 9. Offer
and Listing Details—Share Repurchases”. Currently, there are no arrangements known to us that could result in a change
of control of the Company.



On May 6, 2008, Mr. Isaac
Saba Raffoul, as settler and beneficiary “A”, executed a trust agreement with Ixe Banco, S.A., Institución
de Banca Múltiple, Grupo Financiero Banorte, as trustee, Mrs. Beki Ades Tawil, as beneficiary “B”, and Mr.
Manuel Saba Ades and Mr. Alberto Saba Ades both as beneficiaries “C”. In addition to other assets, the 225,606,456
Ordinary Shares directly owned by Mr. Isaac Saba Raffoul were deposited into Trust F-709. Upon the death of Isaac Saba Raffoul
on July 27, 2008, Manuel Saba Ades and Alberto Saba Ades, sons of Isaac Saba Raffoul became, on an equal basis, the sole beneficiaries
of the 225,606,456 Ordinary Shares held by Trust F-709. References in this annual report to “our controlling shareholder”
is to Trust F-709, as direct holder of 225,606,456 Ordinary Shares for the benefit of Manuel Saba Ades and Alberto Saba Ades.



As of March 31, 2012, our
controlling shareholder directly held 225,606,456 Ordinary Shares, representing 85% of our issued and outstanding capital stock.
As of April 19, 2012, approximately 11.3% of our Ordinary Shares were held through ADSs by 26 registered holders.



The following table shows
information, as of March 31, 2012, regarding the ownership of our capital stock by each person known by us to own or beneficially
own more than 5% of our outstanding capital stock and by each of our directors, executive officers and key employees.



|Name            |  | Number of Ordinary Shares Owned |             |  | Percentage Stake | 
|--------------- |  | ------------------------------- | ----------- |  | ---------------- | 
|                |  |                                 |             |  |                  | 
|Trust F-709 (1) |  |                                 | 225,606,456 |  |                  | 
|                |  |                                 |             |  |                  | 
|Total           |  |                                 | 225,606,456 |  |                  | 






| | (1) | Manuel Saba Ades and Alberto Saba Ades, both of whom are directors of the Company, are the sole beneficial owners, on an equal
basis, of the Ordinary Shares held directly by Trust F-709. The trustee of Trust F-709 is Ixe Banco, S.A. Institución
de Banca Múltiple, Grupo Financiero Banorte, División Fiduciaria.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although minority shareholders
have separate minority shareholders rights, provided in our By-Laws and the Mexican General Corporation Law, in general terms,
all shares entitle their holders to the same rights and impose the same obligations on them. For a description of the nature of
the minority shareholders rights, see “Item 10. Additional Information,” which is includes a summary of our By-laws.



Related Party Transactions



In 2011, we engaged in, and
we may continue to engage in, transactions with related parties, including, without limitation, the transactions described below.
Exclusively for purposes of this discussion, the term “related party” includes our affiliates, associates, directors,
officers and principal shareholders, as well as affiliates of our directors, officers and principal shareholders, but does not
include our consolidated subsidiaries. Conflicts of interest are inherent in transactions with related parties. See Note 11 to
our audited consolidated financial statements for all of the information that we must make publicly available in Mexico regarding
related party transactions.



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All related party transactions
we engage in are submitted in advance to the Audit and Corporate Practices Committee, and are subject to thorough evaluation, which
results in the determination of the terms and conditions under which the transactions shall be carried out. During this evaluation
period, the Audit and Corporate Practices Committee makes relevant market research and obtains quotations from several different
non-related parties that render the exact or similar services to those intended to be performed by the related party with which
the transaction is intended to be conducted. Once the research is concluded, the Audit and Corporate Practices Committee prepares
the guidelines that must be observed in establishing the terms of the related party transactions and submits its evaluation to
the Board of Directors and to our shareholders. This procedure enables the Company to obtain objective information as to competitive
market prices and conditions and, therefore, guarantees that the transactions entered with related parties are at all times entered
into on an arm’s-length basis.



Principal Transactions and Arrangements with Affiliates and Related
Parties of Our Directors, Officers and Principal Shareholders Effective During 2011



Leases. In 2001, we
entered into a lease for office space with Xtra Inmuebles, S.A. de C.V., an entity owned and controlled by our controlling
shareholder. During 2011, we maintained our lease for office space with Xtra Inmuebles and do not have plans to terminate this
agreement. In 2011, we expensed Ps. 5.5 million as compared to Ps. 5.2 million in 2010 and Ps. 4.3 million in 2009 with respect
to this lease. In 2008, we entered into a lease for storage space with Administradora Inmas, S.A. de C.V., a company that
is also owned and controlled by our controlling shareholder. In 2011, we expensed Ps. 1.5 million compared to Ps. 0.4 million in
2010 and Ps. 1.2 million in 2009. We believe that both leases were entered into in the ordinary course of business, were made on
an arm’s-length basis and are on terms no less favorable than those that could have been obtained from unaffiliated third
parties.



Services. In 2002,
one of our subsidiaries, Servicios Corporativos Casa Saba, S.A. de C.V., entered into an air transport service agreement
with Aero Xtra, S.A. de C.V. an entity indirectly owned and controlled by our controlling shareholder. Services pursuant
to this agreement were also provided to us in 2009, 2010 and 2011. During 2011, we expensed a total amount of Ps. 28.0 million
as compared to Ps. 18.0 million in 2010 and Ps. 17.7 million in 2009 related to the services rendered by Aero Xtra, S.A. de
C.V. This contract was entered into in the ordinary course of business, and was made on an arm’s-length basis on terms
no less favorable than those that could have been obtained from unaffiliated third parties.



As of December 31, 2009,
2010 and 2011, the receivable balances from Aero Xtra, S.A. de C.V.were Ps. 4.5 million, Ps. 0 and Ps. 2.0 million, respectively.
For Xtra Inmuebles, S.A. de C.V., they were Ps. 0, Ps. 0 and Ps. 11.6 million, respectively. The receivable balance from
Aero Xtra, S.A. de C.V. and Xtra Inmuebles, S.A. de C.V. represented prepaid flight services and the leasing of real
estate, respectively. In addition, we had receivable balances from Tenedora Farmacéutica de México, S.A. de C.V.
in the amount of Ps. 9.6 million in 2009, 2010 and in 2011. The account receivable balances from Tenedora de Farmacias Morelianas,
S.A. de C.V. were Ps.18.6 million in 2009, Ps. 20.6 million in 2010 and Ps. 20.6 million in 2011. In 2011, our accounts receivable
balances from Grupo Xtra were Ps. 10.5 million compared to Ps. 11.6 million in 2010 and Ps. 8.6 million in 2009. The receivables
balances from Sports Clinic totaled Ps. 0 in 2011 compared to Ps. 6.7 in 2010 and Ps. 0 in 2009. As of December 31, 2009, 2010
and 2011, the receivable balances from Comercializadora Lundedeq, S.A. de C.V. were Ps. 0, Ps. 0.1 million and Ps. 0, respectively
while those from Farmaprice, S.A. de C.V. were Ps. 0 in 2009, Ps. 0.1 million in 2010 and Ps. 0 in 2011. Finally, the receivable
balances from Administradora Inmas, S.A. de C.V. were Ps. 0 in 2009, Ps. 0.3 million in 2010 and Ps. 0 in 2011, while the
receivable balances from Inversiones Turísticas Cancun, S.A. de C.V.were Ps. 0 in 2009 and 2010, respectively, and
Ps. 626.1 million in 2011.



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As of December 31, 2009,
2010 and 2011, the accounts payable balances with Administradora Inmas, S.A. de C.V. were Ps. 0.4 million, Ps. 0 and Ps. 0 million,
respectively.



See Note 11 to our consolidated
financial statements for a summary table of our related party transactions.



Legal and Advisory Services.
During 2011, Mijares, Angoitia, Cortés y Fuentes, S.C., a Mexican law firm, provided us with legal and advisory services,
and we expect that this will continue to be the case in the future. Francisco Fuentes Ostos, a partner from the law firm of Mijares,
Angoitia, Cortés y Fuentes, S.C., is the secretary of our Board of Directors, without being a member of such Board. We believe
that the fees we paid for these services were comparable to those that we would have had to pay a third-party law firm for similar
services.



Tax Advisory Services.
During 2011, Chevez, Ruiz, Zamarripa y Cia, S.C., a tax advisory firm, provided us with tax advisory services, and we expect
that this will continue to be the case in the future. We believe that the fees we paid for these services were comparable to those
that we would have had to pay a third party for similar services.



During 2011, we had no other
related party agreements, except for the balances and transactions referred to above. We believe that all related party transactions
were agreed upon on an arm’s-length basis.



|Item 8. | Financial Information
|------- | ---------------------



See “Item 18. Financial
Statements” and “Item 19. Exhibits—Index to Consolidated Financial Statements,” which are incorporated
herein by reference.



Material Legal Proceedings



As of December 31, 2011,
except for the lawsuit filed by Farmacias Cruz Verde, S.A. against FASA and as otherwise disclosed in Note 20 of the consolidated
financial statements, there were no existing material legal proceedings that could have an adverse effect on the Company’s
financial position or profitability.



On December 9, 2008, the
Chilean Antitrust Authority or Fiscalía Nacional Económic,a initiated a procedure against FASA before the
Chilean Antitrust Court or Tribunal de Defensa de la Libre Competencia, such procedure intended, among others, to prove that FASA
had agreed with its competitors, Farmacias Cruz Verde S.A. (“Cruz Verde”) y Farmacias Salcobrand S.A. (“Salcobrand”)
a mechanism to fix the price of medicines, to impose certain fines to FASA and to end the alleged agreement. On March 23, 2009,
The Chilean Antitrust Authority and FASA filed a settlement agreement before the Chilean Antitrust Court, which was approved on
April 13, 2009. Although the investigation is now over with respect to FASA due to the approval of the settlement agreement, this
process continued in 2011 with respect to FASA’s aforesaid competitors. Last January 31, 2012, Cruz Verde and Salcobrand
were condemned by the Chilean Antitrust Court and both companies challenged the applicable judgment; the Supreme Court Justice
of Chile shall resolve this lawsuit.



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Prior to the notification
of the judgment against Cruz Verde and Salcobrand, on August 17, 2011, Cruz Verde instituted a civil action in order to obtain
from FASA the payment of damages and lost profits, derived from the so-called antitrust acts related to the settlement agreement.
However, in this agreement FASA only acknowledged its own acts and did not make any accusations against Cruz Verde and/or Salcobrand.
Therefore, it is unlikely that either of these parties would win a lawsuit against FASA.



In case Cruz Verde and Salcobrand
obtain the amendment of the judgment against them, Salcobrand could also sue FASA claiming the payment of consequential damages
arising from the antitrust process such competitors were a party to. If FASA is unable to address such suits and win the processes
that may be initiated against it, the occurrence of any of these factors could have a material adverse impact on our business and
our financial results.



Dividend Policy



Pursuant to Mexican law,
decisions regarding the payment and amount of dividends are subject to approval of our shareholders, generally, but not necessarily,
on the recommendation of the Board of Directors. Our controlling shareholder owns 85% of our outstanding Ordinary Shares and, so
long as it continues to own a majority of our outstanding shares, it will have the ability to determine whether we will declare
and pay dividends, in cash or otherwise. See “Item 3. Key Information—Risk Factors—Risk Factors Related to our
Securities—Our Controlling Shareholder Has the Ability to Restrict the Payment and Amount of Dividends”. We do not
have a specific dividend policy. Depending on the results and condition of our business, dividends for a specific year would be
paid to the extent that such payment would not impair our ability to invest and grow. Therefore, any dividend payment would depend
on the cash that the Company generates in a specific year and the Company’s liquidity and capital requirements as well as
on the market conditions of our business.



Significant Changes



Since the date of our annual
financial statements, no significant change in our financial information has occurred, other than those changes described in “Item
5. Operating and Financial Review and Prospects—Trend Information”.



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|Item 9. | Offer and Listing Details
|------- | -------------------------



Trading on the New
York Stock Exchange



Since December 7, 1993, our
ADSs have been listed on the NYSE. Each ADS represents 10 Ordinary Shares. The ADSs are evidenced by American Depositary Receipts,
or ADRs. ADRs evidencing ADSs may be issued by The Bank of New York, as depositary, pursuant to the Amended and Restated Deposit
Agreement dated as of December 11, 2002 among Grupo Casa Saba, The Bank of New York and all registered holders, from time to time,
of the ADRs issued thereunder. An ADR may evidence any number of ADSs.



As of April 19, 2012 approximately
11.3% of the Ordinary Shares were publicly held through ADRs on the NYSE. Holders of ADRs have voting rights with respect to the
underlying shares. In accordance with the ADR Amended and Restated Deposit Agreement, ADR holders must instruct the Depositary
as to the manner in which the underlying shares are to be voted.



Trading History of
Ordinary Shares and ADSs



Since December 7, 1993, our
Ordinary Shares have been listed and traded on the Mexican Stock Exchange under the symbol “SAB” and our American Depositary
Shares, or ADSs, have been listed and traded on the New York Stock Exchange, or NYSE, also under the symbol “SAB”.
The ADSs were issued pursuant to a Deposit Agreement, dated December 1, 1993, as amended, among us, Morgan Guaranty Trust Company
of New York, as depositary, and the holders from time to time of our ADSs. Each ADS represents 10 Ordinary Shares. On December
11, 2002, we entered into an Amended and Restated Deposit Agreement pursuant to which The Bank of New York was appointed as successor
depositary to Morgan Guaranty Trust Company of New York.



The table below shows the
high and low sales prices in U.S. Dollars for our ADSs on the NYSE for the five most recent full financial years ending December
31, 2011, each month in the six-month period ending March 31, 2012 and the first half of April 2012.



|               |  | U.S. Dollar per ADS(1) |      
|-------------- |  | ---------------------- | -----
|Year           |  | High                   |      
|               |  |                        |      
|2012           |  | U.S.$                  | 10.25
|First Quarter  |  | U.S.$                  | 10.25
|2011           |  | U.S.$                  | 23.71
|First Quarter  |  |                        | 23.71
|Second Quarter |  |                        | 19.78
|Third Quarter  |  |                        | 16.99
|Fourth Quarter |  |                        | 12.24
|2010           |  | U.S.$                  | 21.39
|First Quarter  |  |                        | 21.39
|Second Quarter |  |                        | 17.90
|Third Quarter  |  |                        | 12.62
|Fourth Quarter |  |                        | 14.96
|2009           |  | U.S.$                  | 20.50
|2008           |  | U.S.$                  | 39.00
|2007           |  | U.S.$                  | 42.85
|               |  |                        |      
|Month          |  |                        |      
|April 13, 2012 |  | U.S.$                  | 9.92 
|March 2012     |  |                        | 10.25
|February 2012  |  |                        | 8.82 
|January 2012   |  |                        | 9.23 
|December 2011  |  |                        | 9.85 
|November 2011  |  |                        | 12.24
|October 2011   |  |                        | 10.80










| | (1) | Source: Infosel and Economatica.
| | --- | --------------------------------



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Trading prices of our Ordinary
Shares and our ADSs will be influenced by our results of operations, financial condition, cash requirements, future prospects,
economic, financial and other factors and market conditions. See “Item 3. Key Information—Risk Factors—Risk Factors
Relating to Economic and Political Developments”. There can be no assurance that prices of our Ordinary Shares and our ADSs
will, in the future, be within the ranges set forth above. As of December 31, 2011, there were 265,419,360 Ordinary Shares issued
and outstanding. As of April 19, 2012, approximately 11.3% of the outstanding shares were held in the form of ADSs.



Trading on the Mexican
Stock Exchange



Overview



The Mexican Stock Exchange,
located in Mexico City, is the only stock exchange in Mexico. Operating continuously since 1907, the Mexican Stock Exchange is
organized as a corporation with variable capital, or sociedad anónima bursátil de capital variable. Securities
are traded on the Mexican Stock Exchange from 8:30 am to 3:00 pm Mexico City time, each business day. Since January 1999, all trading
on the Mexican Stock Exchange has been conducted electronically. The Mexican Stock Exchange may impose a number of measures to
promote the orderly and transparent trading price of securities, including the operation of a system of automatic suspension of
trading in shares of a particular issuer when price fluctuations exceed certain limits. The Mexican Stock Exchange may also suspend
trading of shares of a particular issuer as a result of the disclosure of a material event, or when the change in the volume traded
or the share price is not consistent with either the historic performance or publicly available information. The Mexican Stock
Exchange may also suspend trading if it is not disclosed as a material event that the financial statements of a company are subject
to scope qualification. The Mexican Stock Exchange may resume trading of the shares when it deems that the material events have
been adequately disclosed to public investors or when it deems that the issuer had adequately explained the reasons for the changes
in the volume traded or prevailing share price. Under current regulations, this system applies to the ADSs. However, the Mexican
Stock Exchange may take into account any suspension measures that may or may not have been taken by the New York Stock Exchange
in respect of the ADSs, and may resolve not to impose a suspension of trading of our shares.



Settlement is effected two
trading days after a share transaction on the Mexican Stock Exchange. Deferred settlement, even by mutual agreement, is not permitted
without the approval of the CNBV. Most securities traded on the Mexican Stock Exchange are on deposit with S.D. Indeval, Institución
para el Depósito de Valores, S.A. de C.V., or Indeval, a privately owned securities depositary that acts as a clearinghouse,
depositary and custodian, as well as a settlement, transfer and registration agent for Mexican Stock Exchange transactions, eliminating
the need for physical transfer of securities.



Although the Mexican Securities
Market Law provides for the existence of an over-the-counter market, no such market for securities in Mexico currently exists.



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The table below shows, for
the five most recent full financial years ending December 31, 2011 and each month, the six-month period ending March 31, 2012 and
the first half of April 2012 the reported annual highest and lowest market prices in nominal Pesos for our Ordinary Shares on the
Mexican Stock Exchange:



|               |  | Pesos per ordinary share(1) |      
|-------------- |  | --------------------------- | -----
|Year           |  | High                        |      
|               |  |                             |      
|2012           |  | Ps.                         | 12.50
|First Quarter  |  |                             | 12.50
|2011           |  | Ps.                         | 25.60
|First Quarter  |  |                             | 25.60
|Second Quarter |  |                             | 22.50
|Third Quarter  |  |                             | 22.50
|Fourth Quarter |  |                             | 16.00
|               |  |                             |      
|2010           |  | Ps.                         | 25.50
|First Quarter  |  |                             | 25.50
|Second Quarter |  |                             | 22.00
|Third Quarter  |  |                             | 16.10
|Fourth Quarter |  |                             | 17.51
|2009           |  | Ps.                         | 26.60
|2008           |  | Ps.                         | 41.68
|2007           |  | Ps.                         | 44.50
|               |  |                             |      
|Month          |  |                             |      
|               |  |                             |      
|April 13, 2012 |  | Ps.                         | 12.00
|March 2012     |  |                             | 12.50
|February 2012  |  |                             | 11.00
|January 2012   |  |                             | 11.30
|December 2011  |  |                             | 13.70
|November 2011  |  |                             | 16.00
|October 2011   |  |                             | 13.50








| | (1) | Source: Infosel and Economatica.
| | --- | --------------------------------



Share Repurchases



At our annual shareholders’
meeting, which was held on April 27, 2012, our shareholders did not approve the allocation of any amounts from retained earnings
for share repurchases. Our share repurchase program has been authorized by the CNBV and all repurchases have been conducted in
full compliance with Mexican law and the rules and regulations of the CNBV.



Pursuant to our share repurchase
program, we may repurchase Ordinary Shares on the Mexican Stock Exchange at the prevailing market price. Upon the repurchase of
Ordinary Shares, we must reduce the number of Ordinary Shares outstanding by the number of Ordinary Shares repurchased. Pursuant
to our share repurchase program, we repurchased 13,433,000 Ordinary Shares during 1998 and 3,003,720 Ordinary Shares during 1999.
Since then, we have not repurchased any additional Ordinary Shares.



When we resell repurchased
Ordinary Shares on the Mexican Stock Exchange, we must increase the number of Ordinary Shares outstanding by the corresponding
number of Ordinary Shares sold. We resold 1,438,000 Ordinary Shares during 1998 and 269,000 Ordinary Shares in 1999. As of December
31, 2011, 14,729,720 repurchased Ordinary Shares were held in our treasury. We are currently in the process of evaluating various
alternatives regarding the resale or redemption of these Ordinary Shares.



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We have amended our bylaws
to reflect certain changes to the Mexican Securities Market Law affecting share repurchases. For a description of the amendments
relating to share repurchases, see “Item 10. Additional Information—Share Repurchases”.



|Item 10. | Additional Information
|-------- | ----------------------



Market Regulation and
Registration Standards



In 1946, the Comisión
Nacional de Valores, or the National Securities Commission, commonly known as the CNV, was established to regulate stock market
activity. In 1995, the CNV and the Comisión Nacional Bancaria, or the National Banking Commission, were merged to
form the CNBV. The Mexican Securities Market Law, which took effect in 1975, introduced important structural changes to the Mexican
financial system, including the organization of brokerage firms as corporations with variable capital, or sociedades anónimas
de capital variable. The Mexican Securities Market Law sets standards for authorizing companies to operate as brokerage firms,
which authorization is granted at the discretion of the Ministry of Finance upon the recommendation of the CNBV. In addition to
setting standards for brokerage firms, the Mexican Securities Market Law empowers the CNBV, among other things, to regulate the
public offering and trading of securities and to impose sanctions for the illegal use of insider information. The CNBV regulates
the Mexican securities market, the Mexican Stock Exchange and brokerage firms through a board of governors composed of thirteen
members, five of which are appointed by the Ministry of Finance.



In June 2001, the Mexican
Securities Market Law required issuers to increase the protections offered to minority stockholders and to impose corporate governance
controls on Mexican-listed companies in line with international standards. The Mexican Securities Market Law then in effect expressly
permitted Mexican-listed companies, with prior authorization from the CNBV, to include in their bylaws anti-takeover defenses,
such as stockholder rights plans or poison pills.



To offer securities to the
public in Mexico, an issuer must meet specific qualitative and quantitative requirements, and generally only securities for which
an application for registration in the National Registry of Securities, or NRS, maintained by the CNBV has been approved by the
CNBV may be listed on the Mexican Stock Exchange. This approval does not imply any kind of certification or assurance related to
the merits or the quality of the securities or the solvency of the issuer.



In March 2003, the CNBV issued
general rules, or General CNBV Rules, applicable to issuers and other securities market participants. The General CNBV Rules, which
repealed several previously enacted rules, or circulares, of the CNBV, now provide a single set of rules governing issuers and
issuer activity, among other things.



The General CNBV Rules have
mandated that the Mexican Stock Exchange adopt minimum requirements for issuers to be registered with the CNBV and have their securities
listed on the Mexican Stock Exchange. To be registered, issuers will be required to have, among other things:



| | § | a minimum price for the securities to be offered;
| | - | -------------------------------------------------



| | § | a minimum of 15% of the capital stock placed among public investors;
| | - | --------------------------------------------------------------------



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| | § | a minimum of 200 holders of shares or of shares represented by ADRs, who are deemed to be public
investors under the General CNBV Rules, upon the completion of the offering;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | the following distribution of the securities offered pursuant to an offering in Mexico: (i) at
least 50% of the total number of securities offered must be placed among investors who acquire less than 5% of the total number
of securities offered; and (ii) no investor may acquire more than 40% of the total number of securities offered; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | complied with certain corporate governance requirements.
| | - | --------------------------------------------------------



| | § | To maintain its registration, an issuer will be required to have, among other things:
| | - | -------------------------------------------------------------------------------------



| | § | a minimum financial condition;
| | - | ------------------------------



| | § | minimum operating conditions, including a minimum number of trades;
| | - | -------------------------------------------------------------------



| | § | a minimum trading price of its securities;
| | - | ------------------------------------------



| | § | a minimum of 12% of the capital stock held by public investors;
| | - | ---------------------------------------------------------------



| | § | a minimum of 100 holders of shares or of shares represented by ADRs who are deemed to be public
investors under the General CNBV Rules; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | § | complied with certain corporate governance requirements.
| | - | --------------------------------------------------------



| | § | The CNBV has the authority to waive some of these requirements in some circumstances.
| | - | -------------------------------------------------------------------------------------



Last year, the General CNBV
Rules were amended in order to include the obligation to disclose only to this authority the names and number of shares of the
stockholders of a security market participant.



The Mexican Stock Exchange
will review annually compliance with the foregoing and other requirements, some of which may be further reviewed on a quarterly
or semi-annual basis. The Mexican Stock Exchange must inform the CNBV of the results of its review and this information must, in
turn, be disclosed to investors. If an issuer fails to comply with any of the foregoing requirements, the Mexican Stock Exchange
will request that the issuer propose a plan to cure the violation. If the issuer fails to propose such plan, if the plan is not
satisfactory to the Mexican Stock Exchange or if the issuer does not make substantial progress with respect to the corrective measures,
trading of the relevant series of shares on the Mexican Stock Exchange will be temporarily suspended until the situation is corrected.
In addition, if the issuer fails to propose the plan or ceases to follow such plan once proposed, the CNBV may suspend or cancel
the registration of the shares. In such event, the issuer must evidence the mechanisms to protect the rights of public investors
and market in general.



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Issuers of listed securities
are required to file unaudited quarterly financial statements and audited annual financial statements as well as various periodic
reports with the CNBV and the Mexican Stock Exchange. Pursuant to the General CNBV Rules, the internal regulations of the Mexican
Stock Exchange must be amended to include, among other things, the implementation of the Sistema Electrónico de
Envío y Difusión de Información, or the SEDI, an automated system for the electronic transfer of the information
required to be filed with the Mexican Stock Exchange, which will be similar to, but will replace, the existing Sistema Electrónico
de Comunicación con Emisores de Valores, or EMISNET. Issuers of listed securities must prepare and disclose their financial
information by a Mexican Stock Exchange-approved system known as the Sistema de Información Financiera Computarizada,
or Computerized Financial Information System, commonly known as the SIFIC. Immediately upon its receipt, the Mexican Stock Exchange
makes that information available to the public.



The General CNBV Rules and
the internal regulations of the Mexican Stock Exchange require issuers of listed securities to file through the SEDI information
on the occurrence of material events affecting the relevant issuer. Material events include, but are not limited to:



| | · | the entering into or termination of joint venture agreements or agreements with key suppliers;
| | - | ----------------------------------------------------------------------------------------------



| | · | the creation of new lines of businesses or services;
| | - | ----------------------------------------------------



| | · | significant deviations in expected or projected operating performance;
| | - | ----------------------------------------------------------------------



| | · | the restructuring or payment of significant indebtedness;
| | - | ---------------------------------------------------------



| | · | material litigation or labor conflicts;
| | - | ---------------------------------------



| | · | changes in dividend policy;
| | - | ---------------------------



| | · | the commencement of any insolvency, suspension or bankruptcy proceedings;
| | - | -------------------------------------------------------------------------



| | · | changes in the directors; and
| | - | -----------------------------



| | · | any other event that may have a material adverse effect on the results, financial condition or
operations of the relevant issuer.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



If there is unusual price
volatility of the securities listed, the Mexican Stock Exchange must immediately request that the issuer inform the public as to
the causes of such volatility or, if the issuer is unaware of such causes, make a statement to that effect. In addition, the Mexican
Stock Exchange must immediately request that issuers disclose any information relating to relevant material events, when it deems
the information currently disclosed to be insufficient, as well as instruct issuers to clarify such information when it deems the
information to be confusing. The Mexican Stock Exchange may request issuers to confirm or deny any material events that have been
disclosed to the public by third parties when it deems that the material event may affect or influence the securities being traded.
The Mexican Stock Exchange must immediately inform the CNBV of any requests made to issuers. The CNBV may also make any of these
requests directly to issuers. An issuer may delay the disclosure of material events under some circumstances, including where the
information being offered is not related to transactions that have been completed.



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The CNBV and the Mexican
Stock Exchange may suspend the dealing in securities of an issuer:



| | · | if the issuer does not adequately disclose a material event; or
| | - | ---------------------------------------------------------------



| | · | upon price or volume volatility or changes in the offer or demand in respect of the relevant securities,
which are not consistent with the historic performance of the securities and could not be explained solely by the information made
publicly available under the General CNBV Rules.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Mexican Stock Exchange
may also suspend trading if the Company does not disclose, as a material event, that the financial statements of such company are
subject to scope qualifications. The Mexican Stock Exchange must immediately inform the CNBV and the general public of any such
suspension. An issuer may request that the CNBV or the Mexican Stock Exchange resume trading, provided it demonstrates that the
causes triggering the suspension have been resolved and that it is in full compliance with the periodic reporting requirements
under the applicable law. If its request has been granted, the Mexican Stock Exchange will determine the appropriate mechanism
to resume trading in its securities. If trading of an issuer is suspended for more than 20 business days and the issuer is authorized
to resume trading without conducting a public offering, the issuer must disclose through the SEDI, before trading resumes, a description
of the causes that resulted in the suspension and reasons why it is now authorized to resume trading.



Likewise, if the securities
of an issuer are traded on both the Mexican Stock Exchange and a foreign securities market, that issuer must file with the CNBV
and the Mexican Stock Exchange on a simultaneous basis the information that it is required to file pursuant to the laws and regulations
of the relevant other jurisdiction.



Pursuant to the Mexican Securities
Market Law, stockholders of issuers listed on the Mexican Stock Exchange must disclose any transactions through or outside of the
Mexican Stock Exchange that result in exceeding 10% ownership stake of an issuer’s capital stock. These stockholders must
also inform the CNBV of the results of these transactions the day after their completion.



Additionally, related parties
of an issuer who increase or decrease their ownership stake, in one or more transactions, by 5% or more shall disclose such transactions.
The Mexican Securities Market Law also requires stockholders holding 10% or more of the capital stock of companies listed in the
registry to notify the CNBV of any ownership changes in shares of the company.



Amendments to Mexican Securities Market Law



On December 30, 2005, a new
Securities Market Law was enacted and published in the Official Gazette. The Mexican Securities Market Law became effective on
June 28, 2006 and, in some cases, it allowed an additional period of 180 days (after December 2006) for issuers to incorporate
in their bylaws the new corporate governance and other requirements derived from the new law. The new Mexican Securities Market
Law changed the Mexican securities law in various material respects. In particular, the new law includes with respect to public
companies:



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| | · | their identification as sociedad anónima bursátil (a stock corporation with stock
registered in the CNBV and listed on the Mexican Stock Exchange) and a new set of corporate governance requirements;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the redefinition of the functions and structure of the Board of Directors, including (i) the number
of members of the Board of Directors, up to 21 with at least 25% of these being independent members, and (ii) the independence
status of the independent members of the Board of Directors will be qualified at the shareholders’ meeting and the CNBV will
have the authority to challenge such independence;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the introduction of the general manager and senior management positions as a means for the Board
of Directors to conduct the business;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | a clear definition of fiduciary duties for members of the Board of Directors and its secretary,
the chief executive officer and other executive officers, including duty of care and duty of loyalty;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the increase of liability standards for members of the Board of Directors and its secretary with
respect to the operations and performance of the company, including (i) the payment of damages and losses caused as result of their
lack of care or loyalty and (ii) criminal sanctions of up to ten years for damages caused to the company as a result of certain
illegal acts involving willful misconducts. The liability actions may be exercised by the company or by shareholders that represent
5% or more of the capital stock of the company;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the inclusion of sanctions applicable to senior management, shareholders that hold 10% or more
of the capital stock of an issuer and external auditors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the replacement of the statutory auditor by the audit committee, the corporate governance committee
and the external auditors, assigning to each of these specific obligations of surveillance and corporate governance;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the attribution of independent status to all the members of the audit and corporate governance
committees, except in companies with controlling shareholder(s) with 50% of the capital stock, such as the Company;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the increase of functions and responsibilities of the audit committee, including (i) the evaluation
of the performance of the external auditors, (ii) the review and discussion of the financial statements of the company and advising
the Board of Directors on the approval of such financial statements, (iii) the surveillance of internal controls and internal audit
procedures of the company, (iv) the receipt and analysis of recommendations and observations made by the shareholders, members
of the Board of Directors and senior management, and the authority to take the necessary actions, (v) the authority to call a shareholders’
meeting and include the items to be discussed in the meeting’s agenda and (vi) the surveillance of the performance of the
general manager; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | the requirement that the shareholders’ meeting approve transactions that represent 20% or
more of the consolidated assets of the company within one fiscal year; and the inclusion of a new set of rules to obtain authorization
from the CNBV to execute public offerings.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Mexican Securities Market
Law does not substantially modify the reporting obligations of issuers of equity securities listed on the Mexican Stock Exchange.
The Mexican Securities Market Law reinforces insider trading restrictions and specifically includes, with such restrictions, trading
in options and derivatives the underlying security of which is issued by such entity. Among other changes, the Mexican Securities
Market Law provides for a course of action available to anyone who trades (as a counterparty) with someone in possession of privileged
information to seek the appropriate indemnification. In addition, under this law insiders must abstain from purchasing or selling
securities of the issuer within 90 days from the last sale or purchase.



The Mexican Securities Market
Law has, in some respects, modified the rules governing tender offers conducted in Mexico. Under the current law, tender offers
may be voluntary or mandatory. All tenders offers must be open for at least 20 business days and purchases thereunder are required
to be made pro-rata to all tendering shareholders. Any intended purchase resulting in a 30% or greater holding requires the tender
to be made for the greater of 10% of the company’s capital stock or the share capital intended to be acquired; if the purchase
is aimed at obtaining control, the tender must be made for 100% of the outstanding shares. In calculating the intended purchase
amount, convertible securities, warrants and derivatives, the underlying security of which are such shares, must be considered.
The Mexican Securities Market Law also permits the payment of certain amounts to controlling shareholders over and above the offering
price if these amounts are fully disclosed, approved by the Board of Directors and paid in connection with non-compete or similar
obligations. The law also introduces exceptions to the mandatory tender offer requirements and specifically provides for the consequences,
to a purchaser, of not complying with these tender offer rules (lack of voting rights, possible annulment of purchases, etc.) and
other rights available to prior shareholders of the issuer.



The Mexican Securities Market
Law ratifies that public companies may insert provisions in their bylaws pursuant to which the acquisition of control of the company,
by the company’s shareholders or third parties, may be prevented, if such provisions: (i) are approved by shareholders without
the negative vote of shareholders representing 5% or more of the outstanding shares; (ii) do not exclude any shareholders or group
of shareholders; and (iii) do not restrict, in an absolute manner, the change of control.



Bylaws



In 2006, a new Mexican Securities
Market Law became effective, therefore all listed companies were required to incorporate certain provisions into their corporate
bylaws. As a consequence, in December 2006, our shareholders approved the amendment of the bylaws of Grupo Casa Saba in order to
comply with the new provisions. Most of the changes were related to corporate governance provisions and focused on the need to
have independent directors.



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Our current bylaws include
most of the above-mentioned provisions. This description does not purport to be complete, and is qualified by reference in its
entirety to our bylaws, which have been filed as an exhibit to this annual report and to Mexican law. For a description of the
provisions of our bylaws relating to our Board of Directors, Executive Committee and statutory auditors, see “Item 6. Directors,
Senior Management and Employees.”



Organization and Register



Grupo Casa Saba, S.A.B. de
C.V., is a sociedad anónima bursátil de capital variable, or limited liability stock corporation with variable
capital, which was organized under the laws of the United Mexican States in accordance with the Mexican Corporations Law on November
11, 1982. Our deed of incorporation was registered with the Public Registry of Commerce of Mexico City, D.F., under Commercial
Page (folio mercantil) Number 55,635. We have a general corporate purpose, the specifics of which can be found in Article
Four of our bylaws, which includes, among others, the following: (i) to promote, incorporate, organize, exploit and participate
in the capital stock and assets of all types of commercial or civil companies, associations or industrial, commercial, service
or other concerns, both domestic and foreign, and participate in the management or liquidation thereof; (ii) to manufacture, produce,
purchase, sell, process, distribute, export and import all types of products permitted by law and, generally, all types of domestic
or foreign goods or merchandise, whether in the form of raw materials, semi-finished or finished products and whether pre-assembled
or unassembled, and to trade them in any manner whatsoever either for our account or the account of others; (iii) to acquire, transfer
and, generally, negotiate with all types of shares of stock, partnership interests and securities; (iv) provide, contract and receive
all types of technical, consulting and advisory services, and enter into contracts or agreements in connection therewith; (v) to
enter into all types of agreements with the federal government or any local governments or public or private entities, individuals
or corporations, whether domestic or foreign; (vi) to issue, subscribe, accept, endorse and guarantee credit instruments, securities
and other instruments permitted by law; (vii) to acquire, transfer, lease, sublease and permit the use, enjoyment, disposition
of generally, and exploitation of all types of personal and real property, including their parts or appurtenances; (viii) to provide
or receive all types of technical and professional assistance and services; (ix) to obtain and grant all types of loans, providing
and receiving specific guarantees thereof; issue debentures and notes; accept, draw, endorse or guarantee all types of credit instruments
and other documents evidencing credit rights; and grant all types of bonds or guarantees with regard to the obligations assumed
or the instruments issued or accepted by third parties; and (x) generally, to carry out all types of commercial transactions and
enter into all types of contracts, agreements and transactions of any nature whatsoever, in accordance with the law.



Directors



Under the Mexican Securities
Market Law, any shareholder or director that votes on a transaction in which his interests conflict may abstain from voting. In
addition, any member of our Board of Directors that votes on a transaction in which his interests conflict with our interests may
be liable for damages. The Mexican Securities Market Law provides the increase of liability standards for members of the Board
of Directors and its secretary with respect to the operations and performance of the Company, including (i) the payment of damages
and losses caused as result of their lack of care or loyalty and (ii) criminal sanctions of up to ten years for damages caused
to the Company as a result of certain illegal acts involving willful misconduct. The liability actions may be exercised by the
Company or by shareholders that represent 5% or more of the capital stock of the Company.



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We have amended our bylaws
in order to submit, among others, the following matters to the Board of Directors: (i) our general strategy; (ii) with input from
the Audit and Corporate Practices Committee, on an individual basis (a) any transaction with related parties, subject to certain
limited exceptions and (b) the appointment of our Chief Executive Officer, his compensation and removal for justified causes; (iii)
our financial statements and those of our subsidiaries; (iv) unusual or non-recurrent transactions and any transactions or series
of related transactions during any calendar year that involve (a) the acquisition or sale of assets with a value equal to or exceeding
5% of our consolidated assets or (b) the giving of collateral or guarantees or the assumption of liabilities, equal to or exceeding
5% of our consolidated assets; (v) agreements with our external auditors; (vi) creation of special committees and granting them
the power and authority; (vii) matters related to anti-takeover provisions provided for in our bylaws; and (viii) the exercise
of our general powers in order to comply with our corporate purpose.



Voting Rights and Shareholders’ Meetings



Holders of Ordinary Shares
have the right to vote on all matters subject to shareholder approval at any general shareholders’ meeting and have the right
to appoint our Board of Directors.



General shareholders’
meetings may be ordinary general meetings or extraordinary general meetings. Extraordinary general meetings are those called to
consider specific matters listed in Article 182 of the Mexican General Corporations Law and our bylaws, including the extension
of the Company’s duration, changes to the corporate purpose, change of the Company’s jurisdiction of incorporation,
amendments to the corporate bylaws, dissolution, liquidation or spin-offs, issuance of securities, mergers and transformations
of our mercantile regime and increases and reductions in the fixed portion of our capital stock. In addition, our bylaws require
an extraordinary general meeting to approve the cancellation of the Ordinary Shares’ listing with the securities section
of the NRS, as the case may be, and with any other Mexican or foreign stock exchange in which our Ordinary Shares or securities
representing our Ordinary Shares, such as our ADSs, are registered. General meetings called to consider all other matters are ordinary
meetings that are held at least once each year within four months following the end of each year.



The procedure that must be
followed in order to call a shareholders’ meeting is provided for in the General Corporations Law, the Securities Market
Law and the Company’s bylaws, which provisions are set forth in the mentioned laws.



In terms of the above-mentioned
regulations and our bylaws, the shareholders’ meetings shall be called by our Board of Directors, the secretary of the Board
or the Audit and Corporate Practices Committee. Any shareholder or group of shareholders representing at least 10% of the capital
stock may request that a shareholders’ meeting be called. If after 15 days following the request such call has not been made,
the shareholder or shareholders may appear before a judge within the Company’s jurisdiction, who shall call such meeting
as requested by the shareholder(s).



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Calls for the general ordinary
shareholders’ meetings must be published in the Official Federal Gazette or in one major newspaper sold within our corporate
domicile at least 15 days prior to the date in which the meeting is to be held. Extraordinary shareholders’ meetings may
be called as described above, although calls for such meetings may be published at least eight days prior to the meeting.



In order for any shareholder
to attend a shareholders’ meeting, a shareholder must demonstrate his title to the shares, and only such persons registered
as shareholders in the Company’s stock registry book shall be deemed shareholders. Once the shareholder of record demonstrates
his title to the shares, he shall obtain an admission pass for the meeting, which shall be required in order to be admitted to
the corresponding meeting. The admission pass shall be delivered to such shareholders that request the pass in writing to the secretary
of the Board of Directors at least 24 hours prior to the meeting. The shareholder must then deliver their share certificates or
the corresponding certificate from the depositary of the shares, as may be the case, to the Secretary.



Holders of ADRs have the
same rights as holders of Ordinary Shares. They are entitled to direct the vote of the shares underlying their ADRs by means of
instructing the ADRs Depositary, who must ensure that the requirements relating to attendance at shareholders’ meetings,
which are set forth in the paragraph above, are met. ADR holders also have all of the economic rights inherent to the Ordinary
Shares that underlie their respective ADRs, such as the right to receive dividends.



Dividend Rights



At our annual ordinary general
shareholders’ meeting, our Board of Directors submits our financial statements from the previous year to the holders of our
Ordinary Shares for their approval. Once our shareholders approve these financial statements, they must then allocate our net profits
for the previous year. Under Mexican law, at least 5% of our net profits must be allocated to a legal reserve, until the amount
of this reserve equals 20% of our paid-in capital stock. Thereafter, our shareholders may allocate our net profits to any special
reserve. After this allocation, the remainder of our net profits would be available for distribution as dividends. Additionally
and prior to the distribution of dividends, Mexican companies are required to contribute 10% of their yearly taxable profits to
their employees. However, please note that the Company has no direct employees as of this date, only its subsidiaries. See “Item
3. Key Information—Dividends”. The Acquisition Loan provides for a series of covenants which, among other things, restrict
the ability of the Company to pay dividends on the capital stock or redeem, repurchase or retire our capital stock, and to create
any consensual limitation on the ability of the Company’s subsidiaries to pay dividends, make loans or transfer any distribution,
among other customary covenants and provisions.



Decisions regarding the payment
and amount of dividends are subject to approval by the holders of our Ordinary Shares, generally, but not necessarily, on the recommendation
of our Board of Directors. Our controlling shareholder owns 85% of the authorized, issued and outstanding Ordinary Shares, and
as long as he continues to do so, he will have, as a result of such ownership, the ability to determine whether dividends are to
be paid and the amount of such dividends. See “Item 3. Key Information—Dividends” and “Item 3. Key Information—Risk
Factors—Risk Factors Relating to Our Securities—Our Controlling Shareholder Has the Ability to Restrict the Payment
and Amount of Dividends”.



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Limitation on Capital Increases



Our bylaws require that any
capital increase is represented by new shares of each series of our capital stock in proportion to the number of each series’
outstanding shares. All increases in the capital stock of the Company must be approved at the general shareholders’ meeting.
When the increase is to the fixed portion of the capital stock, then the general extraordinary shareholders’ meeting must
approve it. If the increase is to the variable portion of the capital stock, then the general ordinary shareholders’ meeting
must approve it.



Preemptive Rights



In the event of a capital
increase, a holder of Ordinary Shares has a preferential right to subscribe to a sufficient number of Ordinary Shares in order
to maintain his existing proportionate holdings of Ordinary Shares. Shareholders must exercise their preemptive rights within the
time period established by our shareholders at the meeting approving the issuance of additional Ordinary Shares. This period must
continue for at least 15 days following the publication of notice of the issuance in the Diario Oficial de la Federación,
Mexico’s official newspaper, and in a newspaper of general circulation in Mexico City. Under Mexican law, shareholders cannot
waive their preemptive rights in advance or be represented by an instrument that is negotiable separately from the corresponding
Ordinary Share. U.S. holders of ADSs may exercise preemptive rights only if we register any newly issued Ordinary Shares under
the Securities Act of 1933 or qualify for an exemption from registration. We intend to evaluate, at the time of any offering of
preemptive rights, the costs and potential liabilities associated with registering additional Ordinary Shares. See “Item
3. Key Information—Risk Factors—Risk Factors Relating to Our Securities—Preemptive Rights May Be Unavailable
to Holders of Our ADSs”.



Forfeiture of Shares



As required by Mexican law,
our bylaws for Ordinary Shares provide that our non-Mexican shareholders formally agree with the Foreign Affairs Ministry:



| | · | to be considered as Mexicans with respect to Ordinary Shares that they acquire or hold as well
as to the property, rights, concessions, participations or interests owned by us or to the rights and obligations derived from
any agreements we have with the Mexican government; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | not to invoke the protection of their own governments. Failure to comply is subject to a penalty
of forfeiture of such a shareholder’s capital interest in favor of Mexico.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the opinion of Mijares,
Angoitia, Cortés y Fuentes, S.C., our Mexican counsel, under this provision a non-Mexican shareholder is deemed to have
agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the
Mexican government with respect to the shareholder’s rights as a shareholder, but is not deemed to have waived any other
rights he or she may have, including any rights under the United States securities laws, with respect to his or her investment
in our Company. If the shareholder should invoke governmental protection, in violation of this agreement, his or her shares could
be forfeited to the Mexican government.



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Exclusive Jurisdiction.Our bylaws provide that legal action relating to the execution, interpretation or performance of the bylaws shall be brought
only in courts located in Mexico City.



Duration. Our
corporate existence under our bylaws shall be indefinite.



Dissolution or Liquidation.Upon any dissolution, liquidation or split-up of our Company, our shareholders will appoint one or more liquidators at an extraordinary
general shareholders’ meeting to wind up our affairs. In the event of a surplus upon dissolution, liquidation or split-up,
a prorata payment per Ordinary Share will be made to each of our shareholders.



Redemption.Our
bylaws provide that we may redeem our Ordinary Shares with distributable profits without reducing our capital stock by shareholder
resolution at an extraordinary shareholders’ meeting. In accordance with Mexican law:



| | · | any redemption shall be made on a pro-rata basis among all of our shareholders;
| | - | -------------------------------------------------------------------------------



| | · | to the extent that a redemption is effected through a public tender offer on the Mexican Stock
Exchange, the shareholders’ resolution approving the redemption may empower the Board of Directors to specify the number
of shares to be redeemed and appoint the related intermediary or purchase agent; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any redeemed shares must be cancelled.
| | - | --------------------------------------



Share Repurchases.As required by Mexican law, our bylaws provide that we may repurchase our shares on the Mexican Stock Exchange at the prevailing
market prices. Under our bylaws, the repurchase shall be subject to the prior approval of the Board of Directors, who shall appoint
the person or individuals responsible for effecting share repurchases. The amount of capital stock allocated to share repurchases
is determined by our shareholders at a general ordinary shareholders’ meeting. Share repurchases must be charged to our net
worth if the repurchased shares remain in our possession and to our capital stock if the repurchased shares are converted into
treasury shares. The aggregate amount of resources allocated to share repurchases in any given year cannot exceed the total amount
of our net profits in any given year. In addition, any repurchased shares may not be represented or voted in any kind of shareholders’
meeting, nor can they exercise any corporate or economic rights of any kind.



Delisting.In
the event that we decide to cancel the registration of our shares with the Mexican Securities Registry, or if the CNBV orders this
deregistration, our shareholders who are deemed to have control will be required to make a tender offer to purchase the shares
held by minority shareholders prior to such cancellation. Shareholders deemed to have control are those that own a majority of
our common shares, have the ability to control our shareholders’ meetings or have the ability to appoint a majority of the
members of our Board of Directors. The price of the offer to purchase will generally be the higher of (x) the average trading price
on the Mexican Stock Exchange during the last 30 days on which the shares were quoted prior to the date on which the tender offer
is made and (y) the book value of the shares as reflected in our latest quarterly financial information filed with the CNBV and
the Mexican Stock Exchange.



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In accordance with the applicable
regulations, in the event that our controlling shareholders are unable to purchase all of our outstanding shares pursuant to a
tender offer, they must form a trust and contribute to it the amount required to secure payment of the purchase price offered pursuant
to the tender offer to all of our shareholders that did not sell their shares pursuant to the tender offer. The trust may not exist
for a period longer than six months.



Modification of Shareholders’
Rights.The rights appurtenant to our Ordinary Shares may only be modified through a resolution adopted by at least 50%
of our outstanding Ordinary Shareholders acting at a general extraordinary shareholders’ meeting.



Appraisal Rights and
Other Minority Protections.Whenever our shareholders approve an amendment to our corporate purpose, jurisdiction of organization
or the transformation of our corporate form, any dissenting shareholder is entitled, under the terms of the General Corporations
Law, to request to withdraw from the Company and receive the amount of his share participation in the Company through the reimbursement
of his shares. The dissenting shareholder must exercise his appraisal rights 15 days following the conclusion of the shareholder’s
meeting in which the matter was approved.



The protections afforded
to minority shareholders under Mexican law are generally different from those in the United States and many other jurisdictions.
Substantive Mexican law concerning fiduciary duties of directors has not been subject to extensive judicial interpretation in Mexico,
unlike many states in the United States where duties of care and loyalty elaborated by judicial decisions helped to define the
rights of minority shareholders. Mexican civil procedure does not contemplate class actions or shareholder derivative actions,
which permit shareholders in U.S. courts to file actions on behalf of other shareholders or to enforce rights of the corporation
itself. Shareholders cannot challenge corporate actions taken at shareholders’ meetings unless they meet stringent procedural
requirements.



As a result of these factors,
it is generally more difficult for our minority shareholders to enforce rights against us, our directors or principal shareholders
than it is for shareholders of a U.S. issuer.



In addition, under U.S. securities
laws, as a foreign private issuer we are exempt from certain rules that apply to domestic U.S. issuers with equity securities registered
under the U.S. Securities Exchange Act of 1934, including the proxy solicitation rules. We are also exempt from some of the corporate
governance requirements of the New York Stock Exchange.



Under our current bylaws,
if we decide to cancel, or the CNBV requires us to cancel, the registration of our Ordinary Shares in the NRS, our controlling
shareholder will be required to initiate a tender offer for all Ordinary Shares held by minority stockholders at a price equal
to the higher of the average trading price of the Ordinary Shares on the Mexican Stock Exchange during the 30-day period prior
to the commencement of the tender offer or the book value of the Ordinary Shares. If any Ordinary Shares held by minority shareholders
are not tendered pursuant to the tender offer, a trust will be established, into which our controlling shareholder would be required
to contribute cash in an amount equal to the consideration for these remaining Ordinary Shares. Those minority shareholders who
did not tender their Ordinary Shares in the tender offer have the right to tender their Ordinary Shares to the trust at the tender
offer price for up to two years following the completion of the tender offer.



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We are organized under the
laws of Mexico. Substantially all of our directors and executive officers reside outside of the United States, all or a significant
portion of the assets of our directors and executive officers are located outside of the United States and substantially all of
our assets are located outside of the United States. As a result, it may be difficult for investors to effect service of process
within the United States upon these individuals. It may also be difficult for investors to enforce against these individuals, either
inside or outside the United States, judgments obtained against them in U.S. courts, or to enforce in U.S. courts judgments obtained
against them in courts in jurisdictions outside the United States, in any action based on civil liabilities under the U.S. federal
securities laws.



There is doubt as to the
enforceability against these individuals in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts,
of liabilities predicated solely on U.S. federal securities laws. We have been advised by our Mexican counsel, Mijares, Angoitia,
Cortés y Fuentes, S.C., that there is doubt as to the enforceability, in original actions in Mexican courts, of liabilities
predicated solely on U.S. federal securities laws and as to the enforceability in Mexican courts of judgments of U.S. courts obtained
in actions predicated upon the civil liability provisions of the U.S. federal securities laws.



Material Contracts



Acquisition of FASA.
As part of our strategy to expand our retail pharmacy operations, on May 17, 2010 we entered into a Stock Purchase and Sale Agreement,
or the FASA Agreement, with a group of entities controlled by Mr. Jose Codner Chijner to acquire up to 100% of the capital stock
of Farmacias Ahumada, S.A., or FASA, for a total price of approximately $637 million, including the assumption of net debt that,
as of March 31, 2010 was $162 million. At the time, FASA was the largest retail pharmacy chain in Latin America, with annual sales
of approximately $1,691 million in 2010 and over 1,260 pharmacies in Chile, Mexico and Peru. The transaction was subject to the
completion of a tender offer for all of the outstanding shares of FASA on the Santiago Stock Market at a price equal or greater
than 1,642 Chilean Pesos per share, and the validity of such offer was conditioned upon the sale of at least 50% plus one of the
outstanding shares of FASA. The Acquisition was also subject to the approval of our general shareholders’ meeting and of
the Mexican Antitrust Commission.



On August 30, 2010, the Company
entered into the Acquisition Loan. Certain subsidiaries of the Company executed the Acquisition Loan as joint obligors. HSBC Mexico
and HSBC Bank (Chile), were appointed as collateral agents in their respective countries. The Acquisition Loan provides a series
of covenants which, among other things, restrict the ability of the Company and the joint obligors to (i) incur, assume or allow
the existence of indebtedness, (ii) create liens, (iii) consolidate, merge or transfer assets, (iv) sell assets, including capital
stock, of our subsidiaries, (v) make loans, (vi) modify the nature of our business, (vii) pay dividends on our capital stock or
redeem, repurchase or retire our capital stock, (viii) make investments and (ix) create any consensual limitation on the ability
of our subsidiaries to pay dividends, make loans or transfer any distribution to us, among other customary covenants and provisions.



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On September 28, 2010, the
Company and certain subsidiaries entered into an irrevocable guarantee trust as trustors and second beneficiaries, with The
Bank of New York Mellon, S.A., Institución de Banca Múltiple, as trustee, pursuant to which the trustors transferred
the property of certain shares to the trustee in favor of HSBC Mexico as first beneficiary and acting as Mexican collateral agent,
in order to secure its obligations under the Acquisition Loan. In case of an execution scenario, the Company has agreed that the
beneficiary is entitled to instruct the sale of the trust estate to the trustee, in order to obtain the necessary resources to
pay the Acquisition Loan. In this case, the trustee shall follow the procedure established in the trust agreement for the sale
of the trust estate. Among other customary covenants, the trustors have agreed to immediately transfer to the trustee any additional
shares that each trustor acquires from time to time, and to abstain from creating or allowing the existence of any lien over the
trust estate.



On the same date and in addition
to the aforesaid guaranty trust, the Company entered into a non-possessory pledge agreement as pledgor, with HSBC Mexico as pledgee
and acting as Mexican collateral agent pursuant to which the Company pledged (i) all its inventory, including raw materials and
products, finished and in process, and general assets that are used for the ordinary course of business of the Company and (ii)
all the present and future account receivables related to the Company’s preponderant activity. Among other customary covenants,
the Company agreed not to sell, transfer or in any way dispose the pledged assets, except, when the sale or property transmission
takes place in the ordinary course of business or in any of the exceptions established in the Acquisition Loan. In accordance with
Mexican applicable law, the Company is bound to maintain the inventories located in the warehouse described therein. As publicly
disclosed by GCS on August 10, 2011, on such date GCS entered into an Amendment Agreement with regard to the Credit Agreement dated
August 30, 2010, by means of which GCS had secured the requisite funds to complete the acquisition of Farmacias Ahumada, S.A. in
Chile. The effectiveness of such agreement was subject to the satisfaction of certain conditions precedent, all of which were satisfied
by GCS in September 2011. The Amended and Restated Credit Agreement includes the affirmative and negative covenants that are customary
for this type of transaction. As result of the execution of this document, the non-possessory pledge agreement and the irrevocable
trust agreement over shares No. F/00756 were amended, both were guaranties of the Credit Agreement granted for the acquisition
of FASA. For a description of the Amended and Restated Credit Agreement and its ancillary documents, see “Exhibits 4.2, 4.4
and 4.6”.



As a result of the FASA Acquisition
and the financing that we obtained in connection therewith, we faced a potential exchange rate risk against the Chilean Peso, given
that the financings obtained to fund the purchase price were denominated in Pesos and Dollars and the payment of the purchase price
was in Chilean Pesos. In order to hedge the risk of changes in the exchange rate of the Peso versus the Chilean Peso, on May 20,
2010 we entered into a currency forward transaction with HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC,
which was liquidated prior to the payment date.



On January 12, 2012 FASA,
the Chilean subsidiary of Grupo Casa Saba reached a definitive agreement to sell 100% of its Peruvian operations to Quitafex,
S.A. for US$50,500,000, including its shares of the Peruvian subsidiaries: (i) Farmacias Peruanas, S.A. and (ii) Droguerías
La Victoria, S.A.C. As part of the transaction, FASA simultaneously agreed to the sale and long-term licensing of several brands
which are owned by FASA. As part of the agreement, FASA agreed to customary penalties, which are standard for these types of transactions.
In addition, the parent companies of both groups have reached cooperative agreements that include negative covenants with respect
to their operations, such as a non-compete restriction in the drug distribution market, which prevents FASA and its related parties
from developing operations in Peru and Bolivia for a period of 5 years.



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Exchange Controls and Restrictions on Foreign Investment



In the past, the Mexican
economy has experienced balance of payments deficits, shortages in foreign currency reserves and other problems that have affected
the availability of foreign currencies in Mexico. The Mexican government does not currently regulate the ability of persons or
entities to convert Pesos into U.S. Dollars or other currencies. However, it has done so in the past and could do so again in the
future. We cannot assure you that the Mexican government will not institute a restrictive foreign currency exchange control policy
in the future. For a description of exchange rate information, see “Item 3. Key Information—Exchange Rate Information”.



Ownership by non-Mexicans
of securities issued by Mexican Corporations is regulated by the Ley de Inversión Extranjera, or the Foreign Investment
Law, and the Reglamento de la Ley de Inversión Extranjera y del Registro Nacional de Inversiones Extranjeras, or
the Foreign Investment Regulations. The Comisión Nacional de Inversiones Extranjeras, or the Foreign Investment Commission,
is responsible for the administration of the Foreign Investment Law and the Foreign Investment Regulations. The Foreign Investment
Law, as amended, provides that the Company may have up to 100% of foreign participation without requiring any government authorizations.
The Foreign Investment Law also requires us to register any foreign owner of our Ordinary Shares, including the depositary for
our ADSs, with the National Registry of Foreign Investment, or the NRFI. We have registered The Bank of New York, the depositary
for our ADSs, for this purpose.



In addition, as required
by Mexican law, our bylaws provide that non-Mexican holders of our Ordinary Shares, including those held in the form of ADSs, formally
agree with the Foreign Affairs Ministry:



| | · | to be considered as Mexicans with respect to the Ordinary Shares that they acquire or hold, as
well as to the property, rights, concessions, participation or interests owned by us or to the rights and obligations derived from
any agreements we have with the Mexican government; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | not to invoke the protection of their own governments. If a holder of our Ordinary Shares invokes
the protection of its own government, the holder’s Ordinary Shares will be forfeited to the Mexican government.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mexican Tax Considerations



General.The
following is a summary of the anticipated material Mexican tax consequences of the purchase, ownership and disposition of ADSs
or Ordinary Shares by a person that is not a resident of Mexico, as defined below. The term “U.S. Holder” shall have
the meaning ascribed below under the section “—U.S. Federal Income Tax Considerations”.



U.S. Holders should consult
with their own tax advisors as to their entitlement to benefits afforded by the tax treaty between the United States and Mexico.
Mexico has also entered into and is negotiating with various countries regarding other tax treaties that may have an effect on
the tax treatment of ADSs or Ordinary Shares. Holders should consult with their tax advisors as to their entitlement to the benefits
afforded by these treaties.



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This discussion does not
constitute, and shall not be considered as, legal or tax advice to holders. This discussion is for general information purposes
only and is based upon the tax laws of Mexico as in effect on the date of this annual report, which are subject to change, including:



| | § | the Income Tax Law;
| | - | -------------------



| | § | the Federal Tax Code; and
| | - | -------------------------



| | § | The Convention for the Avoidance of Double Taxation entered into and between Mexico and the U.S.,
which we refer to as the Tax Treaty.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | § | Holders should consult their own tax advisors as to U.S., Mexican or other tax consequences of
the purchase, ownership and disposition of ADSs or Ordinary Shares.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | For Mexican income tax purposes, the following principles apply regarding residency:
| | - | ------------------------------------------------------------------------------------



| | § | Individuals are residents of Mexico if they have established their home or habitual abode in Mexico
or, if they have established their principal place of residence outside Mexico, if their core of vital interests (centro de
intereses vitales) is located in Mexico. Individuals’ core of vital interests will be deemed to be located in Mexico
if, among other things:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | at least 50% of the individual’s aggregate annual income derives from Mexican sources; or
| | - | -----------------------------------------------------------------------------------------



| | · | the individual’s principal center of professional activities is located in Mexico.
| | - | ----------------------------------------------------------------------------------



| | § | Individuals are residents of Mexico if they are state employees, regardless of the location of
the individuals’ core of vital interests.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | § | Mexican nationals who filed a change of tax residence to a country or jurisdiction that does not
have a comprehensive exchange of information agreement with Mexico in which his/her income is subject to a preferred tax regime
pursuant to the provisions of the Mexican Income Tax Law, will be considered Mexican residents for tax purposes during the year
of filing of the notice of such residence change and during the following three years.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Unless otherwise proven, a Mexican national is deemed a resident of Mexico for tax purposes.
| | - | --------------------------------------------------------------------------------------------



| | § | Legal entities are residents of Mexico if they maintain their principal place of business or their
place of effective management in Mexico.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | § | If non-residents of Mexico are deemed to have a permanent establishment in Mexico for tax purposes,
all income attributable to the permanent establishment will be subject to Mexican taxes, in accordance with applicable Mexican
tax law.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The applicable corporate
income tax rate was 30% in 2011. The income tax rate applicable from 2010 to 2012 is 30%, 29% for 2013 and 28% for 2014 and following
years.



Dividends.
Under the provisions of the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta), dividends paid to non-resident holders
with respect to the ADSs or Ordinary Shares will not be subject to Mexican withholding tax.



Dividends paid from distributable
earnings that have not been subject to taxation at the corporate level were subject to a dividend tax at an effective rate of 42.86%
from 2010 to 2012 (40.85% for 2013 and 38.89% for 2014 and following years) at the corporate level. The corporate-level dividend
tax on the distribution of earnings is not final and may be credited against income tax payable during the fiscal year in which
the dividend tax was paid and in the following two years. Dividends paid from distributable earnings, after corporate income tax
has been paid with respect to these earnings, are not subject to this corporate-level dividend tax.



Sales or Other Dispositions.Gain on the sale or other disposition of ADSs or Ordinary Shares by a non-resident holder will generally not be subject to
Mexican tax. Deposits and withdrawals of Ordinary Shares in exchange for ADSs will not give rise to Mexican tax or transfer duties.



| | § | Gain on the sale of ADSs or Ordinary Shares by a non-resident holder will not be subject to any
Mexican tax if the transaction is carried out through the Mexican Stock Exchange or other stock exchange or securities markets
approved by the Mexican Ministry of Finance and Public Credit. Such exemption shall not apply to a person or group of persons that
directly or indirectly holds 10% or more of the shares if, in a period of 24 months, such person sells 10% or more of the shares,
through one transaction or through more than one simultaneous or successive transactions. In addition, such exemption will not
apply to a person or group of persons who control the issuing company and sell their control through one or more transactions within
a 24-month period.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | § | Gain on sales or other dispositions of the Ordinary Shares made in other circumstances generally
would be subject to Mexican tax at a rate of 25% based on the total amount of the transaction or, subject to certain requirements
applicable to the seller, at a rate of 30% from 2010 to 2012, (29% in 2013 and 28% in 2014 and the following years), of gains realized
from the disposition, regardless of the nationality or residence of the transferor, provided that the transferor is not a resident
of a country with a preferred or territorial tax regime.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the Tax Treaty, a holder
that is eligible to claim the benefits of the Tax Treaty and proves such eligibility will be exempt from Mexican tax on gains realized
on a sale or other disposition of the Ordinary Shares, in a transaction that is not carried out through the Mexican Stock Exchange
or such other approved securities markets, so long as the holder did not own, directly or indirectly, 25% or more of our share
capital (including ADSs) during the 12-month period preceding the sale or other disposition, as long as certain formal requirements
are met.



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Other Mexican Taxes.There are no estate, gift, or succession taxes applicable to the ownership, transfer or disposition of ADSs or Ordinary Shares.
However, a gratuitous transfer of ADSs or Ordinary Shares may, in some circumstances, result in the imposition of a Mexican federal
tax upon the recipient.



There is no Mexican stamp,
issue, registration, or similar taxes or duties payable by non-resident holders of the ADSs.



U.S. Federal Income Tax Considerations



General.The
following summary of U.S. Federal income taxes is based on U.S. Federal income tax laws in force on the date of this Form 20-F,
which laws are subject to change, possibly with retroactive effect. It describes the principal U.S. Federal income tax consequences
of the purchase, ownership and sale of ADSs or Ordinary Shares, as the case may be, by U.S. Holders. A “U.S. Holder”
is a beneficial owner of ADSs or Ordinary Shares that, for U.S. Federal income tax purposes is:



| | · | an individual who is a citizen or resident of the United States;
| | - | ----------------------------------------------------------------



| | · | a corporation or other entity taxable as a corporation organized or created under the laws of the
United States or any political subdivision thereof, as the case may be;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate, the income of which is subject to U.S. Federal income tax, regardless of its source;
or
| | - | --------------------------------------------------------------------------------------------------



| | · | a trust, if (i) a court within the United States is able to exercise primary supervision over its
administration and one or more United States persons have the authority to control all substantial decisions of such trust or (ii)
it has a valid election in effect to be treated as a United States person.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This section applies only
to U.S. Holders who hold ADSs or Ordinary Shares as capital assets (generally, property held for investment) under the Internal
Revenue Code of 1986, as amended (the “Code”). This section does not provide a complete analysis, listing or other
description of all of the possible tax consequences of the purchase, ownership, sale or other disposition of ADSs or Ordinary Shares,
as the case may be, and does not address tax consequences to persons with a special tax status, such as dealers or traders in securities
or currencies, U.S. Holders whose functional currency is not the U.S. Dollar, persons holding ADSs or Ordinary Shares as part of
a hedge, straddle, conversion of other integrated transaction, certain U.S. expatriates, banks, insurance companies, real estate
investment trust (REITs), regulated investment companies (RICs), tax-exempt entities or persons owning at least 10% of the total
combined voting power of our stock.



If a partnership holds ADSs
or Ordinary Shares, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and
the activities of the partnership. A partner of a partnership holding ADSs or Ordinary Shares should consult his, her or its own
tax advisor.



Investors should consult
their tax advisors with respect to the tax consequences of the purchase, ownership, sale or other disposition of ADSs or Ordinary
Shares, including consequences under foreign, state and local tax laws.



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For U.S. Federal income tax
purposes, a U.S. Holder of an ADS generally will be treated as the beneficial owner of 10 Ordinary Shares.



Taxation of Cash Distributions
and Distributions of Stock.The gross amount of any distribution (other than in liquidation), including the fair market
value of all distributions of ADSs or Ordinary Shares whenever a U.S. Holder may elect to receive cash distributions in lieu of
distributions of ADSs or Ordinary Shares, that a U.S. Holder receives with respect to our ADSs or Ordinary Shares (before reduction
for any Mexican tax, if any, withheld from such distributions) generally will be included in such holder’s gross income on
the day on which the Depositary receives such distribution on behalf of the holder of the applicable ADSs or Ordinary Shares. Depending
on the amount of the dividend and the amount of the U.S. Holder’s tax basis in the applicable ADSs or Ordinary Shares, distributions
will be taxed in the following manner: to the extent that distributions paid by us with respect to the underlying Ordinary Shares
do not exceed our current and accumulated earnings and profits (“E&P”), as calculated for U.S. Federal income tax
purposes, such distributions will be taxed as dividends. To the extent that distributions by us exceed our current and accumulated
E&P, such distributions will be treated as a tax-free return of capital, by both individual and corporate U.S. Holders, to
the extent of each such U.S. Holder’s basis in his, her or its ADSs or Ordinary Shares, and will reduce such U.S. Holder’s
basis in the ADSs or Ordinary Shares (thereby increasing any gain or decreasing any loss on a disposition of the ADSs or Ordinary
Shares). To the extent that distributions by us exceed the U.S. Holder’s basis in the ADSs or Ordinary Shares, each such
individual or corporate U.S. Holder will be taxed as having recognized capital gain of such excess amounts on the sale or disposition
of the ADSs or Ordinary Shares in the amount of such excess (see “Taxation of Sale or Other Disposition”, below).



Subject to certain exceptions
for short-term and hedged positions, and provided that we are not a passive foreign investment company (“PFIC”) (as
discussed below), dividends received by certain U.S. Holders (including individuals) prior to January 1, 2013 with respect to the
Shares or ADSs will be subject to U.S. federal income taxation at a maximum rate of 15.0% (the “Reduced Rate”) if such
dividends represent “qualified dividend income.” Dividends paid on the ADSs and Ordinary Shares will be treated as
qualified dividend income if (i) we are eligible for the benefits of the United States-Mexico income tax treaty or the ADSs and
Ordinary Shares are readily tradable on an established securities market in the United States, (ii) we were not in the year prior
to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a PFIC and (iii) certain holding
period requirements are met. We expect to be eligible for the benefits of the United States-Mexico income tax treaty. We believe
that we are not, and will not become, a PFIC. In addition, under current guidance recently issued by the Internal Revenue Service
(“IRS”), the ADSs also qualify as readily tradable on an established securities market in the United States because
they are listed on the New York Stock Exchange. As a result, dividends paid prior to January 1, 2013 to individual U.S. Holders
of ADSs and Ordinary Shares will generally constitute qualified dividend income for U.S. Federal income tax purposes and will be
taxable at the Reduced Rate, provided that certain holding period and other requirements are satisfied.



There can be no assurance,
that we will not be classified as a PFIC in the future. Thus, there can be no assurance that our dividends will continue to be
eligible for the Reduced Rate. Moreover, it is unclear whether the Reduced Rate will be repealed or extended prior to January 1,
2013 or, in the absence of legislative action, whether it will expire on such date. Special rules apply for purposes of determining
the recipient’s investment income (which may limit deductions for investment interest) and foreign income (which may affect
the amount of foreign tax credit) and to certain extraordinary dividends. U.S. Holders of ADSs or Ordinary Shares are urged to
consult their own tax advisors regarding the availability of the Reduced Rate and the related restrictions and special rules.



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Because we are not a U.S.
corporation, dividends paid by us will not be eligible for the dividends received deduction generally allowable to corporations
under the Code.



We anticipate that any cash
distributions on the ADSs and Ordinary Shares will be made in Pesos, and any dividends so paid generally will be included in a
U.S. Holder’s gross income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the day you
or the Depositary, as applicable, receives the dividend. It is expected that the ADS Depositary will, in the ordinary course, convert
Pesos received by it as distributions into U.S. Dollars. To the extent that the Depositary does not convert the Pesos into U.S.
Dollars at the time that such U.S. Holder is required to take the distribution into gross income for U.S. Federal income tax purposes,
such U.S. Holder may recognize foreign exchange gain or loss, taxable as ordinary income or loss, on the later conversion of the
Pesos into U.S. Dollars. The gain or loss recognized will generally be based upon the difference between the exchange rate in effect
when the Pesos are actually converted and the “spot” exchange rate in effect at the time the distribution is taken
into account. Any foreign currency gain or loss will generally be treated as U.S.-source income or loss for U.S. foreign tax credit
limitation purposes. U.S. Holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss,
if any, on any Pesos received which are converted to U.S. dollars on a date subsequent to receipt.



Dividends paid by us will
generally be treated as foreign source income for U.S. foreign tax credit limitation purposes. Subject to certain limitations,
U.S. Holders may elect to claim a foreign tax credit against their U.S. Federal income tax liability for foreign tax withheld (if
any) from dividends received in respect of the ADSs or Ordinary Shares, as applicable. The limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid in respect of
our ADSs or Ordinary Shares, as applicable, generally will be “passive income”, and therefore any U.S. Federal income
tax imposed on these dividends cannot be offset by excess foreign tax credits that such U.S. Holders may have from foreign source
income not qualifying as passive income. U.S. Holders who do not elect to claim a foreign tax credit may instead claim a deduction
for foreign tax withheld (if any).



Distributions of Ordinary
Shares and ADSs to U.S. Holders with respect to their holdings of Ordinary Shares and ADSs, as the case may be (such previously
held ADSs or Ordinary Shares being “Old Stock”), that are prorata with respect to their holdings of Old Stock (and
whenever a holder may not elect to receive cash distributions in lieu of distributions of ADSs or Ordinary Shares) will generally
not be subject to U.S. Federal income tax (except with respect to cash received in lieu of fractional Ordinary Shares and ADSs,
if any). The basis of the Ordinary Shares and ADSs so received will be determined by allocating the U.S. Holder’s adjusted
basis in the Old Stock between the Old Stock and the Ordinary Shares and ADSs so received.



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Taxation of Sale or
Other Disposition.Unless a non-recognition provision applies, a U.S. Holder will recognize capital gain or loss upon a
sale or other disposition of ADSs or Ordinary Shares in an amount equal to the difference between the amount realized on their
disposition and such U.S. Holder’s basis in the ADSs or Ordinary Shares. Under current law, capital gains realized by corporate
and individual taxpayers are generally subject to U.S. Federal income taxes at the same rate as ordinary income, except that long-term
capital gains (i.e., where the U.S. Holder has a holding period greater than one year) realized by individuals, trusts and estates
are subject to U.S. Federal income taxes at a reduced rate. Certain limitations exist on the deductibility of capital losses by
both corporate and individual taxpayers. Capital gains and losses on the sale or other disposition by a U.S. Holder of ADSs or
Ordinary Shares generally should constitute gains or losses from U.S. source income.



For cash basis U.S. Holders
who receive foreign currency in connection with a sale or other taxable disposition of ADSs or Ordinary Shares, as applicable,
the amount realized will be based on the U.S. Dollar value of the foreign currency received with respect to such ADSs or Ordinary
Shares as determined on the settlement date of such sale or other taxable disposition.



Accrual basis U.S. Holders
may elect the same treatment required of cash basis taxpayers with respect to a sale or other taxable disposition of ADSs or Ordinary
Shares, as applicable, provided that the election is applied consistently from year to year. Such election may not be changed without
the consent of the U.S. Internal Revenue Service. Accrual basis U.S. Holders who do not elect to be treated as cash basis taxpayers
(pursuant to the U.S. Treasury Regulations applicable to foreign currency transactions) for this purpose may have a foreign currency
gain or loss for U.S. Federal income tax purposes because of differences between the U.S. Dollar value of the foreign currency
received prevailing on the date of the sale or other taxable disposition of ADSs or Ordinary Shares, as applicable, and the date
of payment. Any such foreign currency gain or loss generally will constitute a gain or loss from sources within the U.S. and generally
will be treated as ordinary income or loss and would be in addition to gain or loss, if any, recognized on the sale or other taxable
disposition of ADS or Ordinary Shares, as applicable.



Deposits, Withdrawals
and Pre-Releases.Deposits and withdrawals by U.S. Holders of Ordinary Shares in exchange for ADSs and of ADSs in exchange
for Ordinary Shares will not be subject to any U.S. Federal income tax. The U.S. Treasury Department, however, has expressed concerns
that parties involved in transactions where depositary shares are pre-released may be taking actions that are not consistent with
the claiming of foreign tax credits by the holders of the applicable ADSs. Accordingly, the analysis of the credibility of Mexican
taxes described above could be affected by future actions that may be taken by the U.S. Treasury Department.



United States Backup
Withholding and Information Reporting.In general, information reporting requirements will apply to payments of dividends
on ADSs or Ordinary Shares and the proceeds of certain sales of ADSs or Ordinary Shares in respect of U.S. Holders other than certain
exempt persons. Backup withholding will apply to such payments if the U.S. Holder fails to provide a correct taxpayer identification
number or other certification of exempt status or, with respect to certain payments, the U.S. Holder fails to report in full all
dividend and interest income and the U.S. Internal Revenue Service notifies the payer of such under-reporting. Amounts withheld
under the backup withholding rules are not an additional tax and may be credited against a holder’s U.S. Federal tax liability,
and a refund of any excess amounts withheld under the backup withholding rules may be obtained by filing the appropriate claim
form with the U.S. Internal Revenue Service.



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Pursuant to the Hiring Incentives
to Restore Employment Act enacted on March 18, 2010, an individual U.S. Holder may be required to submit to the IRS certain information
with respect to his or her beneficial ownership of Ordinary Shares or ADSs, unless such Ordinary Shares or ADSs are held on his
or her behalf by a U.S. financial institution. The new law also imposes penalties if an individual U.S Holder is required to submit
such information to the IRS and fails to do so. U.S. Holders should consult their tax advisors regarding the application of the
new law in their particular circumstances.



Passive Foreign Investment
Company Considerations.We believe that we are not currently, and we do not expect to become, a PFIC for U.S. Federal income
tax purposes. Because this determination is made annually at the end of each of our taxable years and is dependent upon a number
of factors, some of which are beyond our control, including the value of our assets and the amount and type of our income, there
can be no assurance that we will not become a PFIC. In general, a corporation organized outside the United States will be treated
as a PFIC for U.S. Federal income tax purposes in any taxable year in which either (a) at least 75% of its gross income is “passive
income” or (b) at least 50% of the average value of its assets during the taxable year is attributable to assets that produce
passive income or are held for the production of passive income. If a U.S. Holder owns our ADSs or Ordinary Shares at a time when
we become a PFIC and is not eligible to make or does not make certain elections with respect to our ADSs or Ordinary Shares, such
U.S. Holder could be liable for additional taxes and interest charges upon certain distributions by us or upon a sale, exchange
or other disposition of such shares at a gain, whether or not we continue to be a PFIC. In addition, if we become a PFIC all U.S.
Holders would be required to file an annual report with respect to their ADSs or Ordinary Shares.



Documents on Display



For further information pertaining
to us and our Ordinary Shares and ADSs, please consult the filings we have made with the SEC. Statements contained in this annual
report concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has
been filed as an exhibit to any filing we have made with the SEC, we refer you to the copy of the contract or document that has
been filed. Each statement in this annual report relating to a contract or document filed as an exhibit to any filing we have made
with the SEC is qualified in its entirety by the filed exhibit.



We are subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance with these requirements, we file reports and other information
with the SEC. These reports and other information, as well as any related exhibits and schedules, may be inspected, without charge,
at the public reference facility maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of these reports and other information may also be obtained from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C., 20549, at prescribed rates. These reports and other information may also be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.



We furnish The Bank of New
York, the depositary for our ADSs, with annual reports in English. These reports contain audited consolidated financial statements
that have been prepared in accordance with Mexican FRS, and include reconciliations of net income and stockholders’ equity
to U.S. GAAP. These reports have been examined and reported on, with an opinion expressed by, an independent auditor. The depositary
is required to mail our annual reports to all holders of record of our ADSs. The deposit agreement for the ADSs also requires us
to furnish the depositary with English translations of all notices of shareholders’ meetings and other reports and communications
that we send to holders of our Ordinary Shares. The depositary is required to mail these notices, reports and communications to
holders of record of our ADSs.



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As a foreign private issuer,
we are not required to furnish proxy statements to holders of our ADSs in the United States.



|Item 11. | Quantitative and Qualitative Disclosure about Market Risk
|-------- | ---------------------------------------------------------



The Group is subject to certain
market risks due to interest rate and exchange rate fluctuations as well as variations in the market value of its investments.



Throughout the normal course
of its operations, the Group applies the established policies and procedures in order to mitigate its exposure to these fluctuations
through the use of various financial instruments.



Interest Rate Risk



The interest rate fluctuations
affect the fair value of the assets and liabilities that are subject to fixed interest rates as well the future cash flows of the
portion of the debt that is subject to variable interest rates.



The purpose of managing the
interest rates is to balance the debt structure in order to minimize the cost of the debt in the long term. Depending on the Group’s
estimations and its debt structure objectives, it manages its interest rate risks considering the available financing rates in
the market by entering into hedging transactions, through the use of derivative contracts that mitigate these risks.



In terms of the portion of
our debt that is subject to interest rate risk, as of December 31, 2011, 96% of this financial debt was subject to fixed interest
rates and the remaining 4% to variable interest rates.



Foreign Exchange Rate Risk



As a result of the FASA Acquisition
and the financing that we obtained in connection therewith, we faced a potential exchange rate risk against the Chilean Peso, given
that the financings obtained to fund the purchase price were denominated in Pesos and Dollars and the payment of the purchase price
was in Chilean Pesos. In order to hedge the risk of changes in the exchange rate of the Peso versus the Chilean Peso, on May 20,
2010 we entered into a currency forward transaction with HSBC Mexico, S.A., Institucion de Banca Multiple, Grupo Financiero HSBC,
which was liquidated prior to the payment date.



The exchange rate risks that
we face are primarily the result of the recognition of the investments made by our foreign affiliates, whose effects are related
to the variation in their total value with respect to the original currency and which directly impacts the Group’s net profit.



The Group, therefore, enters
into derivative contracts that enable it to protect against variations in the exchange rate of its assets and liabilities. These
contracts are renewed periodically, depending on the hedging needs of each one.



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As of December 31, 2011,
the Company’s derivative instruments included:



Firmly committed transactions

(In thousands of Mexican pesos)



|                                |  | Expected Maturity Date |  
|------------------------------- |  | ---------------------- | -
|Type of Contract                |  | Thereafter             |  
|                                |  |                        |  
|Forward purchase contract (CLP) |  |                        | —
|                                |  |                        |  
|Forward purchase contract (CLP) |  |                        | —
|                                |  |                        |  
|Forward purchase contract (CLP) |  |                        | —
|                                |  |                        |  
|Option contract (CLP)           |  |                        | —
|                                |  |                        |  
|Option contract (CLP)           |  |                        | —



Forward Exchange Agreements

(In thousands of Mexican pesos)



|                                                     |  | Expected Maturity Date |  
|---------------------------------------------------- |  | ---------------------- | -
|Type of Contract                                     |  | Thereafter             |  
|                                                     |  |                        |  
|Contract CLP$51,775 million-Avg interest rate 2.6%   |  |                        | —
|                                                     |  |                        |  
|Contract CLP$12,278 million – Avg interest rate 0.4% |  |                        | —
|                                                     |  |                        |  
|Contract CLP$12.743 million – Avg interest rate 0.4% |  |                        | —
|                                                     |  |                        |  
|Contract CLP$12,403 million – Avg interest rate 0.4% |  |                        | —
|                                                     |  |                        |  
|Contract CLP$12,403 million – Avg interest rate 0.4% |  |                        | —



Our Group, through its subsidiary,
Farmacias Ahumada, S.A., uses long-term financing in order to maintain a financial structure that is in line with the liquidity
of its assets and in which the due dates are compatible with its cash flow.



On-Balance Sheet Financial Instruments

(In thousands of Mexican pesos)



|                                                  |  | Expected Maturity Date |        
|------------------------------------------------- |  | ---------------------- | -------
|Fixed Rate                                        |  | Therefore              |        
|                                                  |  |                        |        
|Bonds CLP$85,603 million-Avg interest rate 5.11%  |  |                        | 920,104
|Loans CLP$9,174 million – Avg interest rate 7.14% |  |                        | 62,612 



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|Item 12. | Description of Securities Other than Equity Securities
|-------- | ------------------------------------------------------



|Item 12A. | Debt Securities
|--------- | ---------------

Not applicable.



|Item 12B. | Warrants and Rights
|--------- | -------------------

Not applicable.



|Item 12C. | Other Securities
|--------- | ----------------

Not applicable.



|Item 12D. | American Depositary Shares
|--------- | --------------------------



The Bank of New York Mellon,
or the Depositary, serves as the depositary for our ADSs. ADS holders are required to pay various fees to the Depositary, and the
Depositary may refuse to provide any services for which a fee is assessed until the applicable fee has been paid. Our depositary’s
main office is located at: One Wall Street, New York, NY 10286 and their ADR office is located at: 101 Barclay Street, New York,
New York 10286.



ADS holders are required
to pay the Depositary amounts in respect of expenses incurred by the Depositary or its agents on behalf of ADS holders, including
expenses arising from compliance with applicable law, taxes or other governmental charges, facsimile transmission, or conversion
of foreign currency into U.S. Dollars. In both cases, the Depositary may decide in its sole discretion to seek payment by either
billing holders or by deducting the fee from one or more cash dividends or cash distributions.



ADS holders are also required
to pay additional fees for certain services provided by the Depositary, as set forth in the table below:



|Fees Payable by ADS holders:                          |  | Depositary Service:                                                                                            
|----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------
|                                                      |  |                                                                                                                
|$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) |  | 1.    Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
|                                                      |  |                                                                                                                
|                                                      |  | Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates              
|                                                      |  |                                                                                                                
|$.02 (or less) per ADS                                |  | 2.    Any cash distribution to ADS registered holders                                                          
|                                                      |  |                                                                                                                
|$.02 (or less) per ADS per calendar year              |  | 3.    Depositary services                                                                                      



The Depositary pays us an
agreed amount, which includes reimbursements for certain expenses we incur in connection with the ADS program. These reimbursable
expenses include legal and accounting fees, listing fees, investor relations expenses and fees payable to service providers for
the distribution of material to ADR holders. For the year ended December 31, 2011, this amount was $117,222.00 after taxes.



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PART II



|Item 13. | Defaults, Dividend Arrearages and Delinquencies
|-------- | -----------------------------------------------

Not applicable.



|Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds
|-------- | ----------------------------------------------------------------------------

Not applicable.



|Item 15. | Controls and Procedures
|-------- | -----------------------



(a) Disclosure Controls
and Procedures



As of the end of the period
covered by this report, the Company’s management (with the participation of our Chief Executive Officer and Chief Administrative
Officer and Comptroller) conducted an evaluation pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) on the effectiveness of the design and operation of the Company’s disclosure
controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.



Based on such evaluation,
such officers have concluded that, as at the end of the period covered by this report, the Company ́s disclosure controls
and procedures (which include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company ́s
management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding
required disclosure) are not effective to provide reasonable assurance that information required to be disclosed by the Company
(including its consolidated subsidiaries) in the reports it files or submits under the Exchange Act is i) recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC or ii) accumulated and communicated
to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure. This conclusion is due to material weaknesses in internal control over financial reporting
as described in management ́s annual report on internal control over financial reporting contained in Item 18 of this form.



In addition, there is an inadequate procedure
for meeting certain requirements for the presentation of the annual report on Form 20 F for the SEC.



(b) Management’s
Annual Report on Internal Control over Financial Reporting



Management’s Annual
Report on Internal Control over Financial Reporting is included under Item 18 on page F-2.



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(c) Report of the Registered
Public Accounting Firm



The report of Salles,
Sainz-Grant Thorton, S.C., an independent registered public accounting firm, on management’s assessment of our internal
control over financial reporting is included under Item 18 on page F-4.



(d) Changes to Internal
Control over Financial Reporting and Remediation Activities



Our management team has
continued working to address and correct the deficiencies that aggregated into material weaknesses and that are identified in
management’s annual report on internal control over financial reporting.  The Group has performed the clearing
and adjusting of inventories and determined the sufficiency of the liabilities derived from certain contingencies. As a result,
consolidated net income previously reported was reduced in the amount of Ps.186,299. Moreover, the Group carried out the correction
of an accounting error in the previously issued consolidated financial statements of 2011, which is related to inadequate carrying
value of goodwill from the acquisition of the Brazilian subsidiary Drogarias. The correction resulted in an impairment loss in
the carrying value of goodwill in the amount of Ps.403,138. (See Note 3 a) subparagraphs ii) and iii) to our consolidated financial
statements).



The Company, at the holding
company level, is currently reviewing and will revise, its internal controls over financial reporting to ensure that it is in
a position to react promptly to deficiencies that may arise in the future for the accurate preparation of consolidated financial
statements in conformity with accounting principles generally accepted.  Management is also taking certain steps to
improve operating and accounting systems which generates inaccurate inventories report, train accounting personnel regarding specialized
captions, revise and implement additional accounting and internal control processes and procedures which includes at the holding
company level and Drogarias.



During the review and remediation
process we may also find other deficiencies or material weaknesses, in addition to the ones already identified.  Our
management is devoting considerable efforts to resolving these deficiencies.



Item 16.          [Reserved]



Item 16A.       Audit Committee
Financial Expert



At our annual ordinary shareholders’
meeting held on April 27, 2012, our shareholders ratified the following individuals as members of the Audit Committee: Mr. Julio
Madrazo Garcia, Mr. Gabriel Alarcon Velazquez and Mr. Juan Carlos Peralta del Rio. Our Board of Directors has ratified Mr. Julio
Madrazo Garcia as Chairman of the audit committee. Our Board of Directors determined that Mr. Julio Madrazo Garcia, Mr. Gabriel
Alarcon Velazquez and Mr. Juan Carlos Peralta del Rio are “financial experts” in accordance with the Mexican Securities
Market Law and the Mexican Stock Exchange. We believe that Mr. Gabriel Alarcon Velazquez qualifies as an “audit committee
financial expert” within the meaning of this Item 16A.



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Item 16B.       Code of Ethics



We have adopted a code of
ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, and persons performing
similar functions, as well as to our directors and other officers and employees. On December 2, 2009, our code of ethics was amended
in its entirety in order to conform it to amendments to the legal framework adopted in recent years, as well as to implement formal
improvements to the text. Our code of ethics is available on our website at www.casasaba.com. Since its adoption, our code of
ethics has not been amended and no waivers have been granted thereunder; however, any amendment to the code of ethics or waiver
thereto shall be disclosed on our website at the same address.



Item 16C.       Principal
Accountant Fees and Services



|                   |  | For the year ended December
    31, |     
|------------------ |  | ----------------------------------- | ----
|                   |  | 2011                                |     
|                   |  | (Ps. Millions)                      |     
|Audit Fees         |  |                                     | 15.4
|Audit-Related Fees |  |                                     | 0.7 
|Tax-Related Fees   |  |                                     |     
|Other Fees         |  |                                     | 0   
|Total              |  |                                     | 16.1



Audit Fees.The
amount set forth as Audit Fees in the table above represents fees billed to us by Salles, Sainz-Grant Thornton, S.C., our independent
auditor. The firm was appointed at the shareholders meeting and was hired to render tax and financial audit.



Audit-Related Fees.The amount set forth as Audit-Related Fees in the table above represents fees billed to us by Salles, Sainz-Grant Thornton,
S.C. in connection with their review of our tax report on social security purposes and local taxes.



Pre-Approval Policies
and Procedures.Our Audit Committee has not adopted pre-approval policies and procedures under which all non-audit services
provided by our external auditors must be pre-approved by the Audit Committee. However, any matter that is submitted to the Audit
Committee for approval must be approved at a meeting and the members of the Board of Directors must be informed.



Item 16D.      Exemptions from
the Listing Standards for Audit Committees

Not applicable.



Item 16E.       Purchases
of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable.



Item 16F.       Change in
Registrant’s Certifying Accountant



KPMG Auditores Consultores, Ltda (“KPMG
Chile”) was previously the principal accountants for Farmacias Ahumada, S.A. and its subsidiaries, or FASA, a Chilean wholly
owned significant subsidiary acquired by the Group in October 2010. On April 29, 2011, that firm was dismissed effective January
1, 2011 and Surlatina Auditores Ltda., Member of Grant Thornton International Ltd., was engaged as principal accountants of FASA.
The decision to change accountants was approved by our Board of Directors and at the General Annual Shareholders Meeting held
on April 29, 2011.



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Since the acquisition of FASA by the Group
on October 3, 2010, and the subsequent interim period through April 29, 2011, there were no (1) disagreements with KPMG Chile
on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements
if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject
matter of the disagreement, or (2) reportable events.



The audit report of KPMG Chile on the consolidated
financial statements of FASA as of December 31, 2010 and 2009 and for the periods from October 3, 2010 (the date of acquisition)
to December 31, 2010 and from October 3, 2009 to December 31, 2009 did not contain any adverse opinion or a disclaimer of opinion,
or was qualified or modified as to uncertainty, audit scope, or accounting principles, except that (i) in their audit report dated
June 30, 2011, they expressed a qualified opinion on FASA’s consolidated financial statements due to the omission of the
comparative financial statements and related notes as required by Mexican Financial Reporting Standards and (ii) in their audit
report dated January 13, 2012, they expressed an audit scope modification relative to the restatement of FASA’s consolidated
financial statements derived from the adjustments for the correction of errors described in note 4 to such financial statements.



A letter from KPMG Chile is attached as an
Exhibit to this report on Form 20-F/A2.



Item 16G.       Corporate
Governance



Significant Differences in Corporate Governance Standards



Pursuant to Rule 303A.11
of the Listed Company Manual of the NYSE, we are required to provide a brief summary of the significant ways in which our corporate
governance practices differ from those required for U.S. companies under the NYSE listing standards.



Since we are Mexican corporation
with shares listed on the Mexican Stock Exchange, our corporate governance standards are governed by our corporate bylaws, the
Mexican Securities Market Law and the regulations issued by the Mexican Banking and Securities Commission. In order to comply
with the above-mentioned laws and regulations, as a public company listed on the Mexican Stock Exchange since December 2003, we
are required by the Mexican Banking and Securities Commission to disclose annually the extent to which our corporate governance
practices comply with those issued by the Mexican Banking and Securities Commission as general guidelines and which are collected
in the Mexican Code of Enhanced Corporate Practices (Código de Mejores Prácticas Corporativas), or the Code.
This Code was originally created by a group of Mexican business leaders and was acknowledged by the Mexican Banking and Securities
Commission in December 2003. Under Mexican legislation, we are not compelled to comply with the guidelines contained in the Code,
although compliance is highly recommended by the authorities and disclosure as to the degree of our compliance therewith is mandatory.



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|NYSE Standards                                                                                                                                                                   |  | Our Corporate
    Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|A majority of the Board of Directors must be independent. Exception for “controlled companies,” which would
    include our Company if we were a U.S. issuer.                    |  | The Mexican Securities Market Law requires that listed companies have at least 25% of independent directors. The 25% of
    the members of our Board are independent under the Mexican Stock Exchange Law. Our Board of Directors is not required to make
    a determination as to the independence of our directors. The applicable definition of independence, which differs in certain
    respects from the definition applicable to U.S. issuers under the NYSE standard, prohibits, among other relationships, an
    independent director from being an employee or officer of the Company or an independent director from being a shareholder
    that may have influence over the Company. It also prohibits certain relationships between the Company and the independent
    director, entities with which the independent director is associated and family members of the independent director.
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Non-management directors must meet at executive sessions without management.                                                                                                     |  | Our non-management directors are not required to meet in executive sessions. Executive sessions are not recommended by
    the Mexican Code of Enhanced Corporate Practices. Our Chief Executive Officer is a member of our Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Nominating/corporate governance committee of independent directors required. Exception for “controlled companies,”
    which would include our Company if we were a U.S. issuer. |  | We are not required to have a nominating corporate governance committee, and such committee is not recommended by the
    Mexican Code of Enhanced Corporate Practices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Compensation committee of independent directors required. Exception for “controlled companies,” which would
    include our Company if we were a U.S. issuer.                    |  | We are not required to have a compensation committee, and currently we do not have one.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the NYSE
    independence standards.                                 |  | We have a three-member audit committee, which is independent under applicable Mexican standards and for Rule 10A-3. Members
    of our audit committee do not need to satisfy the NYSE independence standards that are not required by Rule 10A-3. Our audit
    committee does not have a written charter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



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|NYSE Standards                                                                                                                                                                                                                                                                                                                       |  | Our Corporate
    Governance Practice                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Equity compensation plans require shareholder approval, subject to limited exemptions.                                                                                                                                                                                                                                               |  | Shareholder approval is not required under Mexican law or our bylaws for the adoption and amendment of an equity-compensation
    plan. However, regulations of the Mexican Banking and Securities Commission require shareholder approval under certain circumstances.                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Corporate governance guidelines and code of conduct and ethics required, with disclosure of any waiver for directors
    or executive officers.                                                                                                                                                                                      |  | The practices for our Board of Directors, including committees and compensation of directors, are described in this annual
    report. We have adopted a code of ethics applicable to all of our directors and executive officers, which is available http:/www.casasaba.com.                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|CEO Certifications must certify to the NYSE each year that the CEO is not aware of any violation by the Company of
    the NYSE corporate governance listing standards. Additionally CEO’s must notify the NYSE in writing if any executive
    officer becomes aware of any material non-compliance with the new listing standards. |  | We are required to disclose each year our degree of compliance with the Code of Enhanced Corporate Governance Practices,
    and the truthfulness of such disclosure must be certified by the Chairman of the Board of Directors; however there is no such
    concept as a violation of the Code of Enhanced Corporate Governance Practices since compliance with these is not mandatory.
    Furthermore, other than the disclosure provided by our CEO in this annual report, the CEO is not required to provide notification
    of any non-compliance of which he may be aware of.



Item 16H.       Mine Safety.
(Dodd-Frank 1503)

Not applicable.



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PART III



Item 17.          Financial
Statements

We are furnishing financial
statements pursuant to the instructions to Item 18 of Form 20-F.



Item 18.          Financial
Statements

The following financial
statements, together with the related reports of Salles Sáinz-Grant Thornton, S.C. and KPMG, Ltda.* thereon, are filed
as part of this Annual Report.



|Consolidated Financial Statements of Grupo Casa Saba, S.A.B. de
    C.V.                             | Page
|---------------------------------------------------------------------------------------------------- | ----
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                           | F-1 
|                                                                                                     |     
|Management’s Annual Report on Internal Control over Financial Reporting                              | F-2 
|                                                                                                     |     
|Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | F-4 
|                                                                                                     |     
|Reports of Independent Registered Public Accounting Firms                                            | F-6 
|                                                                                                     |     
|Consolidated Balance Sheets as of December 31, 2010 and 2011                                         | F-10
|                                                                                                     |     
|Consolidated Statements of (Operations) Income for the years ended December 31, 2009, 2010 and 2011  | F-11
|                                                                                                     |     
|Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2010 and 2011 | F-12
|                                                                                                     |     
|Consolidated Cash Flows Statements for the years ended December 31, 2010 and 2011                    | F-13
|                                                                                                     |     
|Notes to Consolidated Financial Statements                                                           | F-14



All supplementary schedules
relating to the Company are omitted because they are not required or because the required information, where material, is contained
in our audited consolidated financial statements or the notes thereto.



|* |  | The consolidated financial statements of Farmacias Ahumada S.A. and the corresponding notes
                                                                                are                                                                                 not
                                                                                required therefore, these are not                                                                                 included in
                                                                                this document.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Item 19.          Exhibits

Documents filed as an exhibit
to this annual report are as follows:



|Exhibit
    Number |  | Description
    of Exhibits                                                                                                                                                                                                                        
|------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                                                                                                                    
|1.1                |  | Amended and Restated Bylaws (English translation) (incorporated by reference to the annual report on Form 20-F for the
    year ended December 31, 2008 (File No. 1-12632) filed on July 15, 2009).                                                
|                   |  |                                                                                                                                                                                                                                                    
|4.1                |  | Copy of the translation of the credit facility agreement entered into by the Company, as borrower, with HSBC Mexico and
    Banco Mercantil del Norte, as lenders, dated August 30, 2010.*                                                         
|                   |  |                                                                                                                                                                                                                                                    
|4.2                |  | Summary of the amended and restated credit facility agreement entered into by the Company, as borrower, with HSBC Mexico
    and Banco Mercantil del Norte, as lenders and HSBC Mexico and HSBC Chile as collateral agents, dated August 10, 2011.*



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|ExhibitNumber |  | Description
    of Exhibits                                                                                                                                                                                                                                                                                                               
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              |  |                                                                                                                                                                                                                                                                                                                                           
|4.3           |  | Summary of the irrevocable guarantee trust entered into by the Company and certain subsidiaries as trustors and second
    beneficiaries, with the Bank of New York Mellon, S.A., Institución de Banca Múltiple, as trustee.*                                                                                                             
|              |  |                                                                                                                                                                                                                                                                                                                                           
|4.4           |  | Summary of the amendment to the irrevocable guarantee trust entered into by the Company and certain subsidiaries as trustors
    and HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, División Fiduciaria,
    as beneficiaries and The Bank of New York Mellon, S.A., Institución de Banca Múltiple, as trustee.*
|              |  |                                                                                                                                                                                                                                                                                                                                           
|4.5           |  | Summary of the non-possessory pledge agreement entered into by the Company as pledgor, with HSBC Mexico as pledgee.*                                                                                                                                                                                                                      
|              |  |                                                                                                                                                                                                                                                                                                                                           
|4.6           |  | Summary of the amendment to the non-possessory pledge agreement entered into by and between Casa Saba, S.A. de C.V.as
    pledgor and HSBC México, S.A., Institución de Banca Múltiple, GrupoFinanciero HSBC, trust division, in
    its capacity of Mexican Collateral Agent as pledgee.*                                                
|              |  |                                                                                                                                                                                                                                                                                                                                           
|8.1           |  | List of Subsidiaries of the Registrant.*                                                                                                                                                                                                                                                                                                  
|              |  |                                                                                                                                                                                                                                                                                                                                           
|12.1          |  | Certification of the Principal Executive Officer of Grupo Casa Saba, S.A.B. de C.V. pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.*                                                                                                                                                                                       
|              |  |                                                                                                                                                                                                                                                                                                                                           
|12.2          |  | Certification of the Principal Administrative Officer and Comptroller of Grupo Casa Saba, S.A.B. de C.V. pursuant to Section
    302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                  
|              |  |                                                                                                                                                                                                                                                                                                                                           
|13.1          |  | Certification of the Principal Executive and Administrative Officer and Comptroller of Grupo Casa Saba, S.A.B. de C.V.
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                     
|              |  |                                                                                                                                                                                                                                                                                                                                           
|15.1          |  | Letter from KPMG Auditores Consultores, Ltda. *                                                                                                                                                                                                                                                                                           



* Filed herewith.



SIGNATURE



GRUPO CASA SABA, S.A.B.
DE C.V., hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.



|Dated:   September 16, 2013 | GRUPO CASA SABA, S.A.B. DE C.V.
|--------------------------- | -------------------------------
|                            |                                
|                            | By:                            
|                            | Name: Manuel Saba Ades         
|                            |                                
|                            | Title: Chief Executive Officer 



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Consolidated Financial Statements of Grupo Casa Saba, S.A.B. de
C.V.



|                                                                                                     | Page
|---------------------------------------------------------------------------------------------------- | ----
|                                                                                                     |     
|Management’s Annual Report on Internal Control over Financial Reporting                              | F-2 
|                                                                                                     |     
|Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | F-4 
|                                                                                                     |     
|Reports of Independent Registered Public Accounting Firms                                            | F-6 
|                                                                                                     |     
|Consolidated Balance Sheets as of December 31, 2010 and 2011                                         | F-10
|                                                                                                     |     
|Consolidated Statements of (Operations) Income for the years ended December 31, 2009, 2010 and 2011  | F-11
|                                                                                                     |     
|Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2010 and 2011 | F-12
|                                                                                                     |     
|Consolidated Cash Flows Statements for the years ended December 31, 2009, 2010 and 2011              | F-13
|                                                                                                     |     
|Notes to Consolidated Financial Statements                                                           | F-14



F-1


Table of Contents






MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROLOVER FINANCIAL REPORTING



Our management is responsible
for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Administrative Officer and Comptroller, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based on the framework in the 1992 Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



Our internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only
in accordance with the authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company ́s assets that could have
a material effect on the financial statements.



Because of its inherent
limitations, internal control over financial reporting is not intended to provide absolute assurance that misstatement of our
financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Based on our evaluation under the framework in the 1992 Internal Control-Integrated
Framework, our management has concluded that the Company’s internal control over financial reporting was not effective
as of December 31, 2011 due to the identification of the following material weaknesses related to the Company ́s subsidiary
CSB Drogarias, S.A. (the Subsidiary):



a)                     The
Subsidiary determined internal control weaknesses on the inventory account. The following controls are not properly documented:
(i) controls to assure the integrity, accuracy, and journalization of inventories; (ii) controls on the physical count and reconciliation
with the accounting records; and (iii) controls on the valuation of stock on hand and cost of goods sold.



b)                     The
Company identified an internal control weakness related to the impairment test of goodwill. The factors that contribute to this
weakness are the Company's inability to gather reliable information for completing the impairment test, the lack of internal experts
with the appropriate level and experience for the treatment of these operations, as well as the failure to establish procedures
that assure their preparation and comprehensive review.



F-2


Table of Contents






c)The Subsidiary did not maintain sufficient controls for reviewing, monitoring, and reconciling balances that assure the
accuracy and journalization of certain accounts payable, which taken as a whole constitute a material weakness.



d)The
Subsidiary determined failures in the design of the processes, as well as in the monitoring of controls to assure that the information
that supports the recording of revenues is gathered comprehensively, reliably, and on a timely basis.



Management is committed
to continuing to work to ensure that the processes that have been put in place and the steps that have been taken to remedy the
above-mentioned weaknesses are adequate in order to maintain internal control over financial reporting at this subsidiary. Our
intention is to closely monitor all aspects of the process in order to be able to identify and correct any irregularities, should
they arise, as quickly as possible.



The effectiveness of the
Company’s internal control over financial reporting as of December 31, 2011 has been audited by Salles Sainz-Grant Thornton,
S.C., an independent registered public accounting firm, as stated in its report, which can be found on page F-4 of Item 18.



Due to the material weaknesses
described above, the consolidated financial statements of the Company as at December 31, 2011 and for the period then ended were
restated and the auditor ́s opinion was reissued. Therefore, the Subsidiary recorded the effect of the clearing and adjusting
of inventories and determined the sufficiency of the liabilities derived from certain contingencies. Moreover, the Company carried
out the correction of an inadvertently accounting error in the previously issued consolidated financial statements of 2011, which
is related to inadequate recognition, measurement, and disclosure of the carrying value of goodwill from the acquisition of the
Brazilian subsidiary Drogarias. See report by our independent registered public accounting firm on page F-6.



As a consequence, the audit
report by our independent auditors on the Company ́s internal control over financial reporting as at December, 31, 2011,
was reissued. That report discloses the additional material weaknesses in greater detail. See Report of Independent Registered
Public Accounting Firm On Internal Control Over Financial Reporting F-4.



|By: /s/ Manuel Saba Ades          |  | By: /s/ Juan Roberto Juarez Gutierrez                 
|--------------------------------- |  | ------------------------------------------------------
|                                  |  |                                                       
|Name:  Manuel Saba Ades           |  | Name: Juan Roberto Juarez Gutierrez                   
|Title:    Chief Executive Officer |  | Title:    Chief Administrative Officer and Comptroller
|                                  |  |                                                       
|September 16, 2013                |  |                                                       



F-3


Table of Contents




REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING



Board of Directors and Stockholders

Grupo Casa Saba, S.A.B. de C.V.:



We have audited the internal control over financial reporting
of Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries (the “Group”) as of December 31, 2011, based on criteria established
in the 1992 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Group’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal
control over financial reporting based on our audit.



We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.



A Company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A Company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.



A material weakness is a deficiency, or combination of control
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the Group’s annual or interim financial statements will not be prevented or detected on a timely basis. The following
material weaknesses related to the Group’s subsidiary CSB Drogarias, S.A. (“Drogarias”), a Brazilian company,
have been identified and included in management’s assessment:



| | · | Inadequate
                                                                                                             inventory control
                                                                                                             information technology
                                                                                                             system that contains
                                                                                                             deficient controls
                                                                                                             over inventory transactions
                                                                                                             and generates inaccurate
                                                                                                             reports
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-4


Table of Contents




| | · | Inadequate
                                                                                                             preparation and review
                                                                                                             of goodwill impairment
                                                                                                             testing and lack
                                                                                                             of personnel with
                                                                                                             the requisite expertise
                                                                                                             and experience as
                                                                                                             it relates to goodwill
                                                                                                             testing
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Insufficient
                                                                                                             monitoring, review,
                                                                                                             and reconciliation
                                                                                                             procedures related
                                                                                                             to accounts payable
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Failure
                                                                                                             to design appropriate
                                                                                                             controls and inadequate
                                                                                                             monitoring of controls
                                                                                                             related to recording
                                                                                                             revenue transactions
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In our opinion, because of the effect of the material weaknesses
described above on the achievement of the objectives of the control criteria, the Group has not maintained effective internal
control over financial reporting as of December 31, 2011, based on criteria established in the 1992 Internal Control—Integrated
Framework issued by COSO.



We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board(United States), the consolidated financial statements of the Group as of
and for the year ended December 31, 2011. The material weaknesses identified above were considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2011 consolidated financial statements, and this report does not
affect our report dated September 16, 2013, which expressed an unqualified opinion on those financial statements.



/s/ Salles Sainz-Grant
Thornton, S.C.



Mexico City, Mexico

September 16, 2013



F-5


Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM



Board of Directors and Stockholders

Grupo Casa Saba, S.A.B. de C.V.:



We have audited the accompanying consolidated balance sheets
of Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries (the “Group”) as of December 31, 2011 and 2010, and the related
consolidated statements of income (loss), changes in stockholders’ equity, and cash flows for the years ended December 31,
2011, 2010, and 2009. These financial statements are the responsibility of the Group’s management. Our responsibility is
to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements
of Farmacias Ahumada, S.A. and Subsidiaries (“FASA”), a majority-owned subsidiary, as of December 31, 2010 and for
the period from October 3 to December 31, 2010, other than with respect to auditing adjustments that were applied to restate FASA’s
2010 consolidated financial statements to correct errors. Those statements, before the effects of the adjustments to restate FASA’s
2010 consolidated financial statements to correct errors, were audited by other auditors whose report was furnished to us, and
our opinion, insofar as it relates to the amounts included for FASA, prior to these adjustments, is based solely on the report
of the other auditors. FASA’s 2010 consolidated financial statements reflect total assets constituting 31 percent of the
Group’s consolidated total assets as of December 31, 2010 and total revenues constituting 13 percent of the Group’s
consolidated total revenues for the year ended December 31, 2010.



We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.



In
our report dated May 15, 2012, we expressed an opinion that the Group’s consolidated financial statements as of December
31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 fairly presented the Group’s financial
position, results of operations, and cash flows in conformity with Mexican Financial Reporting Standards, except for the effect
of such adjustments, if any, as might have been determined to be necessary had we been able to audit the following: (a) the inventories
balance in the amount of Ps. 76,000 (thousands of Mexican pesos) as of December 31, 2011 at the Group’s subsidiary CSB Drogarias,
S.A. (“Drogarias”), a Brazilian company, which lacked adequate accounting records related thereto, and  (b)
certain contingencies at Drogarias that might result in present obligations that were not properly quantified as of December 31,
2011. As described in Note 3 a) subparagraph ii) to the consolidated financial statements, the Group concluded the clearing and
adjusting of these inventories and determined the appropriate liabilities resulting from these contingencies. Consequently, the
Group’s 2011 consolidated financial statements have been restated to recognize
the correction of errors related to these matters. Accordingly, our present opinion on the Group’s
consolidated financial statements, as presented herein, is different from that we expressed in our previous report.



F-6


Table of Contents




In our opinion, based on our audits and the report of the
other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with Mexican Financial Reporting
Standards.



Mexican
Financial Reporting Standards (“MFRS”)
vary, in certain material respects, from accounting principles generally accepted in the United States of America (U.S. GAAP).
A summary of these differences and a partial reconciliation of consolidated net income (loss) for each of the three years in the
period ended December 31, 2011 and consolidated stockholders’equity as
of December 31, 2011 and 2010 from MFRS to U.S. GAAP, as permitted by Form 20-F of the Securities and Exchange Commission of the
United States, are set forth in Notes 22 and 23.



As
discussed in Note 3 a) subparagraphs i) and ii), the Group’s 2011 and 2010
consolidated financial statements have been restated to correct errors in addition to, and including, those referred to above.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States), the
Group’s internal control over financial reporting as of December 31, 2011,
based on criteria established in the 1992 Internal Control—-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated September 16, 2013 expressed an adverse opinion on the effectiveness
of the Group’s internal control over financial reporting.



/s/ Salles, Sainz-Grant Thornton, S.C.



Mexico City, Mexico

September 16, 2013



F-7


Table of Contents








Report of Independent Registered Public Accounting
Firm



The Board of Directors and Stockholders

Farmacias Ahumada
S.A.





We
have audited, before the effects of the adjustments for the correction of the errors described in Note 4 (not contained herein), the
consolidated balance sheets of Farmacias Ahumada S.A. and subsidiaries as of December 31, 2010 and 2009 and the related
consolidated statements of income, changes in stockholders’ equity and cash flows for the periods from October 3, 2010
(the date of acquisition) to December 31, 2010 and from October 3, 2009 to December 31, 2009. The 2010 and 2009 financial
statements before the effects of the adjustments discussed in Note 4 (not contained herein) to the consolidated financial statements have been
withdrawn and are not presented herein. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our report
dated June 30, 2011, we expressed a qualified opinion on the Company’s 2010 consolidated financial statements due to the
omission of the 2009 comparative financial statements and their related notes as required by Mexican Financial Reporting Standards.
As described in Note 1 to the accompanying consolidated financial statements, the Company has included the 2009 comparative financial
statements and their related notes to correct the previous omission. Accordingly, our present opinion on the 2010 consolidated
financial statements, as presented herein, is different from that expressed in our previous report.



In our opinion,
except for the restatement described in Note 4 (not contained herein) to correct the errors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Farmacias Ahumada S.A. and subsidiaries as of December 31,
2010 and 2009, and the results of their operations and their cash flows for the periods from October 3, 2010 (the date of acquisition)
to December 31, 2010 and from October 3, 2009 to December 31, 2009, in conformity with Mexican Financial Reporting Standards.



We were not
engaged to audit, review, or apply any procedures to the adjustments for the correction of the errors described in Note 4 and,
accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have
been properly applied. Those adjustments were audited by the Company’s parent entity’s auditor.





F-8


Table of Contents






Mexican Financial Reporting Standards vary
in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect
of such differences is presented in notes 26 and 27 (not contained herein) to the consolidated financial statements.









|/s/ |  | Cristián Bastián E. | KPMG Ltda.
|--- |  | ------------------- | ----------





Santiago, Chile



January 13, 2012





F-9


Table of Contents




Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries



Consolidated balance sheets
(Amounts stated in thousands of Mexican pesos (Ps.)
and thousands of U.S. dollars ($))



|                                                       |  |              |  | AS OF DECEMBER 31, |            |  | Convenience translation |    
|------------------------------------------------------ |  | ------------ |  | ------------------ | ---------- |  | ----------------------- | ---
|                                                       |  | Notes        |  | 2011  (Restated)   |            |  | 2010 (Restated)         |    
|CURRENT ASSETS:                                        |  |              |  |                    |            |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Cash and cash equivalents                              |  | (3.g)        |  | Ps.                | 2,310,401  |  |                         | Ps.
|                                                       |  |              |  |                    |            |  |                         |    
|Trade receivables less allowance for doubtful accounts |  | (3.k and 4)  |  |                    | 5,381,006  |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Other accounts receivable                              |  | (5)          |  |                    | 2,481,587  |  |                         |    
|Inventories, net                                       |  | (3.l and 6)  |  |                    | 8,614,273  |  |                         |    
|Other current assets                                   |  | (3.h and 7)  |  |                    | 212,057    |  |                         |    
|Current assets of discontinued operations              |  | (1.c)        |  |                    | 400,067    |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Total current assets                                   |  |              |  |                    | 19,399,391 |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|NONCURRENT ASSETS:                                     |  |              |  |                    |            |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Property and equipment, net                            |  | (3.m and 9)  |  |                    | 3,406,855  |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Investment in associates                               |  | (3.c)        |  |                    | 55,180     |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Other assets, net                                      |  |              |  |                    | 130,739    |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Goodwill, intangible assets, and deferred charges, net |  | (3.n and 10) |  |                    | 7,898,443  |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Noncurrent assets of discontinued operations           |  | (1.c)        |  |                    | 709,607    |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Total noncurrent assets                                |  |              |  |                    | 12,200,824 |  |                         |    
|                                                       |  |              |  |                    |            |  |                         |    
|Total assets                                           |  |              |  | Ps.                | 31,600,215 |  |                         | Ps.



|                                                             |  |        |  | AS OF DECEMBER 31, |            |  | Convenience translation |    
|------------------------------------------------------------ |  | ------ |  | ------------------ | ---------- |  | ----------------------- | ---
|                                                             |  | Notes  |  | 2011  (Restated)   |            |  | 2010 (Restated)         |    
|CURRENT LIABILITIES:                                         |  |        |  |                    |            |  |                         |    
|Short-term debt including current maturity of long-term debt |  | (12)   |  | Ps.                | 3,050,826  |  |                         | Ps.
|Trade accounts payable                                       |  |        |  |                    | 8,848,790  |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Other payables and accrued liabilities                       |  | (13)   |  |                    | 2,938,660  |  |                         |    
|Current liabilities of discontinued operations               |  | (1.c)  |  |                    | 473,663    |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Total current liabilities                                    |  |        |  |                    | 15,311,939 |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|NONCURRENT LIABILITIES:                                      |  |        |  |                    |            |  |                         |    
|Long - term debt                                             |  | (12)   |  |                    | 9,505,715  |  |                         |    
|Employee benefits                                            |  | (3.q)  |  |                    | 209,084    |  |                         |    
|Other payables                                               |  |        |  |                    | 54,355     |  |                         |    
|Long-term liabilities of discontinued operations             |  | (1.c)  |  |                    | 792        |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Total noncurrent liabilities                                 |  |        |  |                    | 9,769,946  |  |                         |    
|Total liabilities                                            |  |        |  |                    | 25,081,885 |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|STOCKHOLDERS’ EQUITY:                                        |  |        |  |                    |            |  |                         |    
|Controlling interest:                                        |  |        |  |                    |            |  |                         |    
|Capital stock                                                |  | (17.a) |  |                    | 1,123,764  |  |                         |    
|Premium on stock sold                                        |  |        |  |                    | 869,878    |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Reserve for share repurchases                                |  | (17.a) |  |                    | 1,062,201  |  |                         |    
|Retained earnings                                            |  |        |  |                    | 3,217,917  |  |                         |    
|Accumulated translation effect                               |  | (3.f)  |  |                    | 88,829     |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Total controlling interest                                   |  |        |  |                    | 6,362,589  |  |                         |    
|Noncontrolling interest                                      |  |        |  |                    | 155,741    |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Total stockholders’ equity                                   |  |        |  |                    | 6,518,330  |  |                         |    
|                                                             |  |        |  |                    |            |  |                         |    
|Total liabilities and stockholders’ equity                   |  |        |  | Ps.                | 31,600,215 |  |                         | Ps.



The accompanying notes are an integral
part of these consolidated financial statements



F-10


Table of Contents




Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries



Consolidated statements of income (loss)
(Amounts stated in thousands of Mexican pesos (Ps.)
and thousands of U.S. dollars ($))



|                                                             |  | FOR THE YEARS ENDED DECEMBER
    31,
|------------------------------------------------------------ |  | ------------------------------------
|                                                             |  | Notes                               
|                                                             |  |                                     
|Net sales                                                    |  | (3.v)                               
|Cost of sales                                                |  |                                     
|Gross profit                                                 |  |                                     
|                                                             |  |                                     
|Operating expenses:                                          |  |                                     
|Selling                                                      |  |                                     
|Administrative                                               |  |                                     
|                                                             |  |                                     
|                                                             |  |                                     
|Operating income                                             |  |                                     
|                                                             |  |                                     
|Other expenses, net                                          |  | (16)                                
|                                                             |  |                                     
|Comprehensive loss on financing,
    net:                    |  | (3.s)                               
|Interest income                                              |  |                                     
|Interest expense                                             |  |                                     
|Exchange loss (gain), net                                    |  |                                     
|                                                             |  |                                     
|                                                             |  |                                     
|Equity in income of associates                               |  | (3.c)                               
|(Loss) income before taxes on earnings                       |  |                                     
|                                                             |  |                                     
|Provisions for income tax                                    |  | (3.r and 14)                        
|(Loss) income before discontinued
    operations             |  |                                     
|Discontinued operations                                      |  | (1.c)                               
|Consolidated net (loss) income                               |  |                                     
|                                                             |  |                                     
|Controlling interest net (loss)
    income                   |  |                                     
|Noncontrolling interest net income
    (loss)                |  |                                     
|Consolidated net (loss) income                               |  |                                     
|Net (loss) earnings per share
    of continuing operations   |  | (3.u)                               
|Net (loss) earnings per share
    of discontinued operations |  | (3.u)                               
|                                                             |  |                                     
|Weighted average shares outstanding (in thousands)           |  |                                     



The accompanying notes are an integral
part of these consolidated financial statements



F-11


Table of Contents




Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries



Consolidated statements of changes in stockholders’
equity
for the years ended December 31, 2011, 2010 and 2009
(Amounts stated in thousands of Mexican pesos (Ps.)
and thousands of U.S. dollars ($))



|                                                            |  | Capital stock |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     |           |                            |  |     |                         |  
|----------------------------------------------------------- |  | ------------- | ------- |  | ----------- | --- | ------- | --------------------- |  | --- | ----------------------------- |  |  | ----------------- | --------- |  | ------------------------------ | --- | --------- | -------------------------- |  | --- | ----------------------- | -
|                                                            |  | Historical    |         |  | Restatement |     |         | Premium on stock sold |  |     | Reserve for share repurchases |  |  | Retained earnings |           |  | Accumulated translation effect |     |           | Total controlling interest |  |     | Noncontrolling interest |  
|Balances as of  January 1, 2009                             |  | Ps.           | 167,903 |  |             | Ps. | 955,861 |                       |  | Ps. | 869,878                       |  |  | Ps.               | 1,062,201 |  |                                | Ps. | 3,481,122 |                            |  | Ps. | 72,796                  |  
|Dividends paid (Note 17.c)                                  |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | (170,000  | )                          |  |     |                         |  
|New financial reporting standard adopted MFRS 18 (Note 3.r) |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | (133,619  | )                          |  |     |                         |  
|Effect of translation of foreign
    subsidiaries (3.f)     |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     |           |                            |  |     | 64,789                  |  
|Net income                                                  |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | 280,278   |                            |  |     |                         |  
|Comprehensive income (Note
    3.t)                         |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | 146,659   |                            |  |     | 64,789                  |  
|Balances as of December 31, 2009                            |  |               | 167,903 |  |             |     | 955,861 |                       |  |     | 869,878                       |  |  |                   | 1,062,201 |  |                                |     | 3,457,781 |                            |  |     | 137,585                 |  
|Effect of translation of foreign subsidiaries (3.f)         |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     |           |                            |  |     | 3,310                   |  
|Net income                                                  |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | 276,934   |                            |  |     |                         |  
|Comprehensive income (Note 3.t)                             |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | 276,934   |                            |  |     | 3,310                   |  
|Changes in noncontrolling interest                          |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     |           |                            |  |     |                         |  
|Balances as of December 31, 2010 (restated)                 |  |               | 167,903 |  |             |     | 955,861 |                       |  |     | 869,878                       |  |  |                   | 1,062,201 |  |                                |     | 3,734,715 |                            |  |     | 140,895                 |  
|Effect of translation of foreign subsidiaries (3.f)         |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     |           |                            |  |     | (52,066                 | )
|Net loss                                                    |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | (516,798  | )                          |  |     |                         |  
|Comprehensive income (Note
    3.t)                         |  |               |         |  |             |     |         |                       |  |     |                               |  |  |                   |           |  |                                |     | (516,798  | )                          |  |     | (52,066                 | )
|Balances as of December 31, 2011 (restated)                 |  | Ps.           | 167,903 |  |             | Ps. | 955,861 |                       |  | Ps. | 869,878                       |  |  | Ps.               | 1,062,201 |  |                                | Ps. | 3,217,917 |                            |  | Ps. | 88,829                  |  



The accompanying notes are an integral
part of these consolidated financial statements



F-12


Table of Contents




Grupo Casa Saba, S.A.B. de C.V. and Subsidiaries



Consolidated statements of cash flows
(Amounts stated in thousands of Mexican pesos (Ps.)
and thousands of U.S. dollars ($))



|                                                                                           |  | YEARS ENDED DECEMBER 31, |           
|------------------------------------------------------------------------------------------ |  | ------------------------ | ----------
|                                                                                           |  | 2011 (Restated)          |           
|OPERATING ACTIVITIES:                                                                      |  |                          |           
|(Loss) income before
    taxes on earnings                                                 |  | Ps.                      | (189,268  
|Discontinued operations                                                                    |  |                          | 10,750    
|                                                                                           |  |                          | (200,018  
|Items relating to investing activities:                                                    |  |                          |           
|Depreciation and amortization                                                              |  |                          | 449,435   
|Interest earned                                                                            |  |                          | (57,031   
|(Income) loss on sale of property and equipment                                            |  |                          | (26,634   
|Impairment loss                                                                            |  |                          | 538,019   
|Equity in income of associates                                                             |  |                          | (6,162    
|Items relating to financing activities:                                                    |  |                          |           
|Interest expense                                                                           |  |                          | 1,028,559 
|Provision for employee benefits                                                            |  |                          | 52,119    
|Allowance for doubtful accounts                                                            |  |                          | 274,522   
|                                                                                           |  |                          | 2,052,809 
|Adjustments due to changes in:                                                             |  |                          |           
|Accounts receivable                                                                        |  |                          | 1,264,885 
|Other accounts receivable                                                                  |  |                          | (1,094,561
|Inventories                                                                                |  |                          | (88,072   
|Other current assets                                                                       |  |                          | (44,744   
|Trade accounts payable                                                                     |  |                          | (439,991  
|Other payables and accrued liabilities                                                     |  |                          | (379,138  
|Deferred income tax                                                                        |  |                          | 432,253   
|Other payables                                                                             |  |                          | (51,389   
|Net cash flow (used in)  provided
    by operating activities from discontinued operations |  |                          | (93,040   
|Net cash flow provided by (used
    in) operating activities                               |  |                          | 1,559,012 
|INVESTING ACTIVITIES:                                                                      |  |                          |           
|Property and equipment                                                                     |  |                          | 247,370   
|Investment in associates                                                                   |  |                          | (2,159    
|Other assets                                                                               |  |                          | (93,949   
|Acquisition of business                                                                    |  |                          |           
|Goodwill, intangible assets and deferred charges                                           |  |                          | 355,953   
|Interest earned                                                                            |  |                          | (57,031   
|Net cash flow used in investing
    activities from discontinued operations                |  |                          | 29,749    
|Net cash flow used in (provided by) investing activities                                   |  |                          | 479,933   
|FINANCING ACTIVITIES:                                                                      |  |                          |           
|Short-term and long-term debt                                                              |  |                          | 1,071,855 
|Employee benefits                                                                          |  |                          | (11,296   
|Interest paid                                                                              |  |                          | (1,028,559
|Dividends paid                                                                             |  |                          |           
|Net cash flow provided by financing
    activities from discontinued operations            |  |                          | 15,709    
|Net cash flow provided by financing activities                                             |  |                          | 47,709    
|Effect of changes in cash value                                                            |  |                          | (52,066   
|Increase in cash and cash equivalents                                                      |  |                          | 1,074,722 
|Cash and cash equivalents at
    beginning of year                                         |  |                          | 1,235,679 
|Cash and cash equivalents
    at end of year                                               |  | Ps.                      | 2,310,401 



The accompanying notes are an integral part
of these consolidated financial statements



F-13


Table of Contents




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011, 2010 AND 2009

(AMOUNTS STATED IN THOUSANDS OF MEXICAN PESOS (PS.) AND THOUSANDS

OF U.S. DOLLARS ($), EXCEPT AS INDICATED OTHERWISE)



1.         Description of business:



Grupo Casa Saba, S.A.B. de C.V. is a Mexican controlling
company, which mainly distributes pharmaceutical products, as well as health and beauty aids/other products, entertainment products
(including magazines and books), food/non-perishable products through its operating subsidiaries (grouped in controlling subsidiaries
directly or indirectly). The Group, as an economic unit, distributes these product lines through its distribution network to supermarket
chains, pharmacies (private and governmental) and retail customers throughout Mexico, Sao Paulo and Rio de Janeiro in Brazil and,
effective 2010, Chile and Peru.



The shares of Grupo Casa Saba, S.A.B. de C.V. are listed
on the Mexican Stock Exchange as Ordinary Shares, as well as on the New York Stock Exchange as American Depositary Shares (ADS).
Each ADS represents ten Ordinary Shares.



When the terms “the Company” or “the Holding
Company” are used in the notes to the financial statements, they refer to Grupo Casa Saba, S.A.B. de C.V. without its consolidated
subsidiaries. When the term “the Group” is used, it refers to Grupo Casa Saba, S.A.B. de C.V. together with its consolidated
subsidiaries.



The 2011 individual and consolidated financial statements
were restated to recognize the effects described in the following Note 3 a), subparagraphs ii) and iii). Therefore, those financial
statements and their pertinent notes were authorized to be reissued by the Board of Directors on August 22, 2013, and they were
approved by the Stockholders’ Meeting on August 26, 2013. The stockholders have the power to amend the financial statements
subsequently issued, as provided for in the General Corporate Law and the Company’s bylaws.



Main subsidiaries and associates

The Company holds the issued and outstanding capital stock
of the following subsidiaries that are members of the Group:



|                                                                                      |  |                            |  | Economic Interest        |       
|------------------------------------------------------------------------------------- |  | -------------------------- |  | ------------------------ | ------
|                                                                                      |  |                            |  | (Direct or
    indirect) |       
|                                                                                      |  |                            |  | 2011                     |       
|Domestic subsidiaries:                                                                |  |                            |  |                          |       
|Direct interest                                                                       |  |                            |  |                          |       
|Casa Saba, S.A. de C.V.                                                               |  | (Casa Saba)                |  |                          | 48.21 
|Distribuidora Casa Saba, S.A. de C.V.                                                 |  | (Dicasa)                   |  |                          | 99.9  
|Publicaciones Citem, S.A. de C.V.                                                     |  | (Citem)                    |  |                          | 99.9  
|Transportes Marproa, S.A. de C.V.                                                     |  | (Marproa)                  |  |                          | 99.9  
|Farmacias ABC de Mexico, S.A. de C.V.                                                 |  | (Farmacias ABC)            |  |                          | 99.9  
|Controladora de Clinicas Ambulatorias y de Rehabilitacion Sports Clinic, S.A. de C.V. |  | (Controladora de Clinicas) |  |                          | 50.005
|Centennial, S.A. de C.V.                                                              |  | (Centennial)               |  |                          | 99.9  
|Grupo Mexatar, S.A. de C.V.                                                           |  | (Mexatar)                  |  |                          | 99.9  



F-14


Table of Contents




|                                                   |  |                          |  | Economic Interest        |      
|-------------------------------------------------- |  | ------------------------ |  | ------------------------ | -----
|                                                   |  |                          |  | (Direct or
    indirect) |      
|                                                   |  |                          |  | 2011                     |      
|                                                   |  |                          |  |                          |      
|Controladora Casa Saba, S.A. de C.V.               |  | (Controladora Casa Saba) |  |                          | 99.9 
|Real estates and other service companies           |  | (23 subsidiaries)        |  |                          | 99.9 
|                                                   |  |                          |  |                          |      
|Indirect interest                                  |  |                          |  |                          |      
|Casa Saba                                          |  |                          |  |                          | 51.79
|Distribuidora Drogueros, S.A. de C.V.              |  | (Didrosa)                |  |                          | 99.9 
|Daltem Provee Norte, S.A. de C.V.                  |  | (Daltem Norte)           |  |                          | 99.9 
|Drogueros, S.A. de C.V.                            |  | (Drogueros)              |  |                          | 99.9 
|Farmacias Provee de Especialidades, S.A. de C.V.   |  | (Farmacias Provee)       |  |                          | 99.9 
|Servicios Corporativos Drogueros, S.A. de C.V.     |  | (Secodro)                |  |                          | 99.9 
|Inmuebles Visosil, S.A. de C.V.                    |  | (Visosil)                |  |                          | 99.9 
|Servicios Corporativos Saba, S.A. de  C.V.         |  | (Secosa)                 |  |                          | 99.9 
|Other service companies                            |  | (2 subsidiaries)         |  |                          | 99.9 
|                                                   |  |                          |  |                          |      
|Interest indirect in foreign subsidiaries:         |  |                          |  |                          |      
|Casa Saba Brasil Holdings Ltda. (Brasil *)         |  | (CS Brasil)              |  |                          | 100.0
|Farmacias Ahumada, S.A. (Chile **)                 |  | (FASA)                   |  |                          | 97.8 
|                                                   |  |                          |  |                          |      
|Associates:                                        |  |                          |  |                          |      
|Lomas Sports Clinic Ambulatorias, S.A. de C.V.     |  |                          |  |                          | 36.2 
|WTC Sports Clinic Ambulatorias, S.A. de C.V.       |  |                          |  |                          | 47.0 
|Resonancia Sports Clinic, S.A. de C.V.             |  |                          |  |                          | 49.9 
|Servicios Corporativos Sports Clinic, S.A. de C.V. |  |                          |  |                          | 49.9 
|Tampico Sports Clinic Ambulatorias, S.A. de C.V.   |  |                          |  |                          | 49.6 
|Inmobiliaria Avantuen, S.A. (***)                  |  |                          |  |                          | 49.0 
|Inmobiliaria Faster (***)                          |  |                          |  |                          | 49.0 



(*)        CS Brasil
holds 100 percent of the issued and outstanding capital stock of CSB Drogarias, S.A. in Brazil (Drogarias).



(**)      FASA is an entity
incorporated in accordance with the laws of Chile, which was acquired by the Company on October 3, 2010. FASA is registered in
the Securities Registry of the Superintendence of Securities and Insurance of Chile, and it trades its shares on the Chilean securities
market. FASA holds 99.9 percent of the shares representative of the capital stock of Fasa Chile, S. A. and its subsidiaries (9
Chilean and one Uruguayan), as well as 99.9 percent of the shares of Fasa Investment, Ltda. In turn, Fasa Investments, Ltda. holds
100 percent of the shares of Farmacias Peruanas, S. A. and its subsidiary, as well as 95.6 percent of the shares of Farmacias
Benavides, S.A.B. de C.V. and three subsidiaries. Farmacias Benavides is a company listed on the Mexican Stock Exchange (BMV-Spanish
acronym).



(***)     Associates with shareholdings held by FASA.



During 2011 and 2010, the Company ́s management and
its stockholders approved the following agreements to strengthen its corporate structure, as well as to facilitate its consolidated
operations. Management constantly reviews its strategies to adapt to any economic changes that may arise.



F-15


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a)         Through
an assignment agreement of documents pending collection dated November 30, 2010, the subsidiaries Casa Saba and Drogueros sold
certain collection rights applicable to individuals and legal entities to the Company at a discount in the amount of Ps. 488,441
and Ps. 30,994, respectively. The sales price amounted to Ps. 340,444 and Ps. 20,188, respectively.



b)        Through
a stock purchase and sale promise agreement dated May 17, 2010, amended by private instruments of June 16 and August 9, 2010,
the Company bound itself to acquire 97.8 percent of the shares issued and outstanding representative of the capital stock of FASA
through a Public Offering of Acquisition and Control. The Company obtained control thereof effective October 3, 2010. The acquisition
was carried out through Controladora Casa Saba, which operates mainly as a controlling company of companies that sell pharmaceutical
products through retail pharmacies. The agreed upon sales price amounted to$240,870,791
thousand of Chilean pesos (Ps. 6,201,240, approximately).



At the acquisition date, the Company recorded the purchase
price allocation based on the estimated fair value of the net assets identified and noncontrolling interest in the business acquired,
in accordance with Mexican FRS B-7, “Business acquisitions”(MFRS B-7),which recognizes the “purchase
method” as the sole valuation standard. As a result, the Company determined certain identifiable intangible assets related
to trademarks that will generate expected future economic benefits that will be controlled by the Company. Management considers
that the value of those intangible assets is included in the fair value of the transaction, which had not been recognized by FASA
since it was not permitted by accounting standards. Those assets with indefinite economically useful lives were valued by independent
experts, which amounted to approximately Ps. 3,971,000, (Note 10). Therefore, an excess of the cost of acquisition over the estimated
fair value of the net assets acquired and the noncontrolling interest was determined preliminary in the amount of Ps. 2,590,378
(Note 10), which represented the amount of unidentifiable or inseparable intangible assets, in accordance with MFRS B-7.



Subsequent to the acquisition of FASA, new information was
uncovered that assisted management in determining that various events and circumstances existed at the acquisition date that represented
an adjustment to the amounts of the acquired net assets and noncontrolling interest and, therefore, an amendment to the goodwill
preliminarily recorded. Accordingly, during the "allocation period", Management determined various liabilities incurred,
as well as the reduction in fair value of some long-lived assets at the date of completion of the business acquisition in the
amount of Ps. 114,239. Consequently, the goodwill that emerged in this acquisition finally amounted to Ps. 2,704,617. Adjustments
were recognized retroactively at the acquisition date, in conformity with Mexican FRS B-1, "Accounting changes and error
corrections"(MFRS-1). Therefore, the Group ́s consolidated financial statements has been restated at December
31, 2010. The final allocation of purchase price of FASA at the acquisition date of October 3, 2010 was as follows:



|                               |  | FASA October 3, 2010 Restated |           
|------------------------------ |  | ----------------------------- | ----------
|Current asset                  |  | Ps.                           | 4,214,275 
|Property and equipment         |  |                               | 2,361,306 
|Deferred charges               |  |                               | 443,123   
|Other assets                   |  |                               | 206,041   
|Intangible assets (trademarks) |  |                               | 3,971,000 
|Goodwill                       |  |                               | 2,704,617 
|Total acquired assets          |  | Ps.                           | 13,900,362



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Table of Contents




|                          |  | FASA
    October 3, 2010 Restated |          
|------------------------- |  | --------------------------------- | ---------
|                          |  |                                   |          
|Current liability         |  | Ps.                               | 5,112,369
|Noncurrent liability      |  |                                   | 2,447,256
|Total assumed liabilities |  | Ps.                               | 7,559,625



As a result of this acquisition, the consolidated financial
statements of the Company at December 31, 2011 and 2010 include the balance sheet of FASA at those dates, as well as its results
of operations as of the date on which the Company took control over FASA. At December 31, 2010, the audited consolidated balance
sheet of FASA and its subsidiaries, which includes the adjustments discussed in Note 3 a), subparagraph i), to restate the 2010
financial statements, reflected the following condensed financial information, translated in accordance with Mexican FRS.



|                                            |  | December 31, 2010 Restated |          
|------------------------------------------- |  | -------------------------- | ---------
|Current assets                              |  | Ps.                        | 4,954,691
|Property and equipment, net                 |  |                            | 2,135,057
|Deferred charges                            |  |                            | 279,830  
|Other assets                                |  |                            | 577,833  
|Intangible assets                           |  |                            | 1,836,709
|Total assets                                |  | Ps.                        | 9,784,120
|                                            |  |                            |          
|Current liability                           |  | Ps.                        | 5,985,221
|Noncurrent liability                        |  |                            | 2,370,489
|Stockholders’s equity                       |  |                            | 1,428,410
|Total liabilities and stockholders’s equity |  | Ps.                        | 9,784,120



The condensed results of operations of FASA from the acquisition
date to December 31, 2010, translated in accordance with Mexican FRS were as follows:



|                              |  | Amounts |          
|----------------------------- |  | ------- | ---------
|Net sales                     |  | Ps.     | 4,280,919
|Operating income              |  |         | 83,763   
|Loss before taxes on earnings |  |         | (125,351 
|Net loss                      |  |         | (125,578 



The acquisition of FASA is a strategy of the Company to invest
in the pharmaceutical product distribution industry through retailers. FASA sells personal care and hygiene products, beauty products,
products for babies and photography developing services, among other products and services. FASA operates in Chile, Mexico, and
Peru through Farmacias Ahumada, S. A., Farmacias Benavides, S.A.B. de C. V., and Farmacias Peruanas, S.A., respectively.



Pro forma condensed financial information of results

In accordance with Mexican FRS (MFRS), the Group presents
pro forma condensed statements of income at December 31, 2010, whereby the acquisition of FASA goes into effect as if it had occurred
on January 1, 2010. This is based on the information available which is considered reasonable. The pro forma financial information
presented is not a reflection of the results that would have been obtained if the transactions had occurred effectively at the
beginning of the year, and it should not be construed as representative of future results.



F-17


Table of Contents




|                                     |  | December 31, 2010 |           
|------------------------------------ |  | ----------------- | ----------
|                                     |  | Grupo Casa Saba   |           
|Net sales                            |  | Ps.               | 28,933,851
|Cost of sales                        |  |                   | 25,395,827
|Operating expenses                   |  |                   | 2,937,189 
|Other expenses, net                  |  |                   | (58,048   
|Comprehensive loss on financing, net |  |                   | 221,350   
|Equity on income of associates       |  |                   |           
|Taxes on earnings                    |  |                   | 65,983    
|Net income (loss)                    |  | Ps.               | 371,550   



The pro forma condensed statement of income referred to above
includes the discontinued operation of FASA Peru which was sold as explain in the following paragraph.



c)     On January 12, 2012, the
Company sold the total shares representative of the capital stock of Farmacias Peruanas, S.A. and Drogueria La Victoria, S.A.C.
(jointly FASA Peru), which represented 100 percent of the shares issued and outstanding of those Companies. The sale was made
through FASA Investment, Ltda. and ABF Administradora de Beneficios Farmaceuticos, S.A. The selling price amounted to USD $13,000
(equivalent to Ps. 181,723). In addition, on January 12 and 13, 2012, the Company finalized the following agreements: (i) FASA
transferred the patent rights of certain trademarks names, whose consideration amounted to USD $8,000 (equivalent to Ps. 111,830);
and (ii) the entities of the Group assumed the obligation of not carrying out business activities related to the distribution
of pharmaceutical products to the general public in Peru and Bolivia for a five year period, beginning January 20, 2012. The consideration
on this agreement amounted to USD $29,500 (equivalent to Ps. 412,372).



In the determination of this significant sale, Management
considered all qualitative and quantitative circumstances that encompass the business activity of FASA Peru. Consequently, the
assets and liabilities of FASA Peru are presented in the balance sheet at December 31, 2011 and 2010 as "discontinued operations"
in current and noncurrent assets and liabilities, as the case may be. Moreover, the operations of FASA Peru included in the statements
of income for the periods extending from January 1 up to December 31, 2011 and from October 3, 2010 (acquisition date of FASA
Peru) up to December 31, 2010 were reclassified to the line item "discontinued operations".



The condensed information of the balance sheets of the discontinued
operation of FASA Peru was as follows:



|                                            |  | 2011 |           |  | 2010 | 
|------------------------------------------- |  | ---- | --------- |  | ---- | 
|Current assets                              |  | Ps.  | 400,067   |  |      | 
|Property and equipment, net                 |  |      | 211,484   |  |      | 
|Other noncurrent assets                     |  |      | 14,115    |  |      | 
|Goodwill                                    |  |      | 239,008   |  |      | 
|Trademarks                                  |  |      | 245,000   |  |      | 
|Total noncurrent assets                     |  |      | 709,607   |  |      | 
|Total assets of discontinued operation      |  | Ps.  | 1,109,674 |  |      | 
|                                            |  |      |           |  |      | 
|                                            |  | 2011 |           |  | 2010 | 
|Current liabilities                         |  | Ps.  | 473,663   |  |      | 
|Long-term liabilities                       |  |      | 792       |  |      | 
|Total liabilities of discontinued operation |  |      | 474,455   |  |      | 
|Net assets of discontinued operation        |  | Ps.  | 635,219   |  |      | 



F-18


Table of Contents




The condensed information of the statements of income of
the discontinued operation of FASA Peru for the year ended December 31, 2011 and the three months ended December 31, 2010, was
as follows:



|                                        |  | 2011 |           |   | 2010 | 
|--------------------------------------- |  | ---- | --------- | - | ---- | 
|Net sales                               |  | Ps.  | 1,561,833 |   |      | 
|Cost of sales and operating expenses    |  |      | 1,564,315 |   |      | 
|Operating (loss) income                 |  |      | (2,482    | ) |      | 
|Other expenses                          |  |      | 3,454     |   |      | 
|Comprehensive gain or loss on financing |  |      | 6,348     |   |      | 
|Taxes on earnings                       |  |      | (1,534    | ) |      | 
|Net income (loss)                       |  | Ps.  | (10,750   | ) |      | 



d)        In accordance
with the "Accounts receivable assignment agreement for valuable consideration" dated December 31, 2011, Casa Saba sold
certain collection rights applicable to legal entities generated during 2011 to Inversiones Turisticas Cancun, S.A. de C.V. at
a face value in an amount of Ps. 626,079 (Note 11). With this, Casa Saba transferred its control over accounts receivable, and
there is neither a guarantee nor an obligation to reacquire those assets, nor is Casa Saba involved in any way that leads to retaining
any risk or benefit associated with the assets transferred. The transaction was documented with a promissory note due in one year
(See Note 25).



| | 2. | Basis of presentation:
| | -- | ----------------------



The accompanying financial statements have been prepared
based on Mexican Financial Reporting Standards (Mexican FRS and/or MFRS), in effect at the date of the financial statements, issued
by the Mexican Board of Financial Reporting Standards (CINIF-Spanish acronym). As explained in Note 21, these are the last consolidated
financial statements of the Company prepared in accordance with MFRS. Effective January 1, 2012, the Company adopted International
Financial Reporting Standards (IFRS). The Company’s transition date is January 1, 2011.



Certain accounting principles applied by the Group in accordance
with MFRS differ in certain material respects to U.S. GAAP, as discussed in Note 22. A partial reconciliation of the consolidated
net income (loss) and stockholders ́ equity from MFRS to U.S. GAAP is included in Note 23. The most significant MFRS followed
by the Group is described in Note 3) below.



Convenience translation

The accompanying consolidated financial statements have been
translated from Spanish into English for the convenience of readers outside of Mexico. The consolidated financial statements are
stated in Mexican pesos. U.S. dollar amounts shown in the accompanying financial statements were calculated based on the amounts
in Mexican pesos at December 31, 2011. They have been included solely for the convenience of the reader and are translated from
Mexican pesos as a matter of arithmetic computation only by using the rate of Ps. 13.9787 (pesos) per U.S. dollar as quoted by
Banco de Mexico in the Official Daily Gazette at December 31, 2011. The convenience translation should not be construed as a representation
that the Mexican peso amounts have been, could have been, or in the future could be translated into U.S. dollars at this or any
other exchange rate.



3.         Significant
accounting policies:



MFRS indicated below, issued by the CINIF, became effective
for the year beginning on January 1, 2010, specifying in each case its prospective or retrospective application:



·          MFRS
C-1. “Cash and cash equivalents”. It supersedes Bulletin C-1. “Cash” and became effective on January 1,
2010. This MFRS: (a) requires the presentation within the caption “Cash and cash equivalents” in the balance sheet,
of restricted cash and cash equivalents; (b) the term “temporary demand investments” is replaced by “available
on-demand investments”; (c) it includes the definition of the terms: acquisition cost, cash equivalents, restricted cash
and cash equivalents, available demand investments, net realizable value, nominal value and fair value. Its application is retrospective.



F-19


Table of Contents




·Improvements
to the 2010 MFRS:



In December 2009, the CINIF issued the “2010 MFRS Revisions”
setting forth the following accounting changes beginning January 1, 2010:



MFRS B-2. “Statement of Cash Flows”. Unrealized
accrued foreign exchange fluctuations and the effects of fair value recognition are excluded from the cash balance on the statement
of cash flows. In addition, the concept “Adjustment to cash from foreign exchange fluctuations and inflation levels”
is changed to “Effects of changes in cash value”, which includes effects from translation of foreign operations, inflation,
foreign exchange fluctuation and fair value of cash balances. Its application is retrospective.



MFRS B-7. “Business acquisitions”. It requires
that in the acquisition of a business containing an operating lease as lessee, an intangible asset is recognized segregated when
agreement conditions are favorable or a provision when such conditions are unfavorable. Its application is prospective.



MFRS C-7. “Investments in associates and other long-term
investments”. Capital contributions by the holding company to the associate that increase its equity percentage are to be
recognize based on the net fair value of identifiable assets and liabilities. For that purposes, the valuation must be in proportion
to the increase. Its application is prospective.



Adoption
of the provisions abovementioned had no impact on the Group ́s consolidated
financial statements.



MFRS B-1. “Accounting changes and error corrections”.
This adds financial statements disclosures in the event of an accounting change or the correction of an error (subparagraph a)
below). Its application is retrospective.



a)         Accounting
error corrections



i)          As
explained in Note 1 b), during fiscal 2011, subsequent to the acquisition date of FASA, new information and documentation was
uncovered that assisted management in determining additional liabilities as well as the reduction in fair value of some long-lived
assets existing at the date of business acquisition. Therefore, management determined an adjustment to the recognized amounts
of the acquisition. As a result, the Company recorded certain liabilities incurred (labor liabilities), as well as the reduction
in fair value of some long-lived assets (leasehold improvements and income tax asset not recoverable), retrospectively to the
date of completion of the business acquisition in the amount of Ps. 114,239, in conformity with MFRS B-1, "Accounting
changes and error corrections"(MFRS B-1). Therefore, the Group ́s consolidated financial statements has
been restated at December 31, 2010.



F-20


Table of Contents




Changes
for accounting error corrections that affected the 2010 Group ́s consolidated
financial statements retrospectively were as follows:



|                                                       |  | Previously  reported  
    amounts |           |  | Error  corrections |  |         | Restated  amounts | 
|------------------------------------------------------ |  | ---------------------------------- | --------- |  | ------------------ |  | ------- | ----------------- | 
|Other accounts receivable                              |  | Ps.                                | 1,434,792 |  |                    |  | (17,165 | )                 | 
|Property and equipment, net                            |  |                                    | 3,726,889 |  |                    |  | (12,788 | )                 | 
|Goodwill, intangible assets, and deferred charges, net |  |                                    | 8,513,021 |  |                    |  | 107,561 |                   | 
|Other payables and accrued liabilities                 |  |                                    | 2,797,003 |  |                    |  | 56,448  |                   | 
|Employee benefits                                      |  |                                    | 147,710   |  |                    |  | 21,160  |                   | 



Likewise, changes for accounting errors to the consolidated
financial statements affecting retrospectively FASA and subsidiaries at December 31, 2010 were as follows:



|                                         |  |     |  | Previously  reported  amounts |           |  | Error  corrections |  |          | Restated  amounts | 
|---------------------------------------- |  | --- |  | ----------------------------- | --------- |  | ------------------ |  | -------- | ----------------- | 
|Other receivables                        |  | (1) |  | Ps.                           | 585,729   |  |                    |  | (17,165  | )                 | 
|Property, furniture and equipment, net   |  | (2) |  |                               | 2,327,395 |  |                    |  | (12,788  | )                 | 
|Income taxes and employee profit sharing |  | (3) |  |                               | 290,200   |  |                    |  | (6,678   | )                 | 
|Suppliers                                |  | (4) |  |                               | 3,056,018 |  |                    |  | 5,474    |                   | 
|Other accruals                           |  | (5) |  |                               | 247,910   |  |                    |  | 53,175   |                   | 
|Employee benefits                        |  | (6) |  |                               | 59,098    |  |                    |  | 18,959   |                   | 
|Retained earnings                        |  | (7) |  |                               | 167,654   |  |                    |  | (114,239 | )                 | 



Changes for accounting errors to the consolidated financial
statements affecting retrospectively to FASA and subsidiaries at October 3, 2010 were as follows:



|                                         |  |     |  | Previously  reported  amounts |           |  | Error  corrections |  |          | Restated  amounts | 
|---------------------------------------- |  | --- |  | ----------------------------- | --------- |  | ------------------ |  | -------- | ----------------- | 
|Other receivables                        |  | (1) |  | Ps.                           | 583,785   |  |                    |  | (17,165  | )                 | 
|Property, furniture and equipment, net   |  | (2) |  |                               | 2,374,094 |  |                    |  | (12,788  | )                 | 
|Income taxes and employee profit sharing |  | (3) |  |                               | 282,423   |  |                    |  | (6,678   | )                 | 
|Suppliers                                |  | (4) |  |                               | 3,660,555 |  |                    |  | 5,474    |                   | 
|Other accruals                           |  | (5) |  |                               | 366,769   |  |                    |  | 53,175   |                   | 
|Employee benefits                        |  | (6) |  |                               | 58,781    |  |                    |  | 18,959   |                   | 
|Retained earnings                        |  | (7) |  |                               | 269,133   |  |                    |  | (114,239 | )                 | 
|                                         |  |     |  |                               |           |  |                    |  |          |                   | 
|Total acquired assets                    |  |     |  | Ps.                           | 2,957,879 |  |                    |  | (29,953  | )                 | 
|Total assumed liabilities                |  |     |  | Ps.                           | 4,368,528 |  |                    |  | 70,930   |                   | 



| | (1) | Due to changes at December 31, 2008 on
    tax law, FASA will not recover the taxes paid on dividend from its subsidiaries in Mexico.                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                          
| | (2) | FASA recognized leasehold improvements as assets.  In
    accordance with MFRS C-6. “Property, plant and equipment”, the Company shouldn ́t recognize these leasehold
    improvements as assets, because such improvements were expenses.
| |     |                                                                                                                                                                                                                                          
| | (3) | The Mexican subsidiary recognized income taxes related
    with the error calculate employee benefits.                                                                                                                                   
| |     |                                                                                                                                                                                                                                          
| | (4) | Farmacias Benavides, S.A.B. de C.V., Mexican subsidiary
    deducted from account payable the return goods amounts which were not accepted by the supplier.                                                                              



F-21


Table of Contents




| | (5) | In accordance to MFRS C-9. “Liability,
    provisions, contingent assets and liabilities, and commitments”, the provisions should be recognized when present,
    legal or assumed obligations are unavoidable and will require the disbursement of economic resources or can be reasonably
    estimated.  The Company registered at December 31, 2009 and 2008 Other Accruals as following: (i) register of employee
    indemnizations; (ii) Expenses for completions fine coming from Peru subsidiary.  In accordance with MFRS C-9, the
    adjustment does accomplish with the standards.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (6) | FASA recognized an error on the estimation in employee
    benefits related with benefits retirement pensions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (7) | All accounting errors were recognized in retained
    earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



ii)         Due
to a lack of adequate internal controls over inventory at the Brazilian subsidiary Drogarias, the Group conducted and, in March
2013, completed a detailed review of the inventory quantities and pricing and concluded that inventories, as previously stated,
contained material errors. The Group also identified inadequate internal controls over accounting for contingencies and completed
a detailed review of contingencies and related accruals. As a result of this process, the Group identified material errors to
the accruals previously reported in connection with contingencies that existed at Drogarias. Consequently, the consolidated financial
statements of the Group as of December 31, 2011 and for the period then ended, previously issued, were reissued to recognize those
effects, as follows:



|Caption                                |  |     |  | Previously  reported  amounts |            |  | Error  correction |  |          | Restated  amounts | 
|-------------------------------------- |  | --- |  | ----------------------------- | ---------- |  | ----------------- |  | -------- | ----------------- | 
|Inventories                            |  | (1) |  | Ps.                           | 8,704,979  |  |                   |  | (90,706  | )                 | 
|Other payables and accrued liabilities |  | (2) |  |                               | 2,843,067  |  |                   |  | 95,593   |                   | 
|Cost of sales                          |  | (1) |  |                               | 37,794,007 |  |                   |  | 90,706   |                   | 
|Operating expenses                     |  | (2) |  |                               | 5,871,111  |  |                   |  | 95,593   |                   | 
|Consolidated net income (loss)         |  | (3) |  |                               | 76,985     |  |                   |  | (186,299 | )                 | 



| | (1) | Drogarias (CS Brasil ́s subsidiary)
                                                                cleared and adjusted the caption of inventories due to count and
                                                                valuation errors
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Drogarias recorded certain liabilities
                                                                related to contingencies, which resulted in additional booking
                                                                entries of present obligations
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | All accounting errors were recognized
                                                                in net loss for the period
| | --- | --------------------------------------------------------------------------------------------------------------------------------



iii)        Subsequent
to the original date of the auditors' opinion dated May 15, 2012 on the consolidated financial statements of the Group as of December
31, 2011 and 2010, the Company determined the existence of an inadvertently accounting error in the previously issued consolidated
financial statements of 2011. That error refers to the inadequate recognition, measurement, and disclosure of the carrying value
of goodwill from the acquisition of the Brazilian subsidiary Drogarias in 2008. The factors that contributed to this error consisted
of the unintended misuse of certain facts and assumptions for the determination of "value in use" of the cash generating
unit, which existed at the date on which the 2011 financial statements were prepared and that were discovered on a subsequent
date, as well as failures in gathering reliable financial information to complete the preparation and review of the annual impairment
test.



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In
March 2013, the Company concluded the process for quantifying the materiality of the error in the financial statements, in accordance
with Mexican Bulletin C-15,“Impairment of the value of long-lived assets
and their related disposalof the CINIF. The error correction represented
a change from an accounting principle that is not accepted to an accounting principle that is acceptable. As a result, an impairment
loss on the carrying value of goodwill was recognized in“Other expenses,
net”in the amount of Ps. 403,138, in accordance with Mexican Bulletin
referred to above. Consequently, the consolidated financial statements of the Group as of December 31, 2011 and for the period
then ended, previously issued, were reissued to correct that accounting error.



b)        Use of
estimates



Preparing the accompanying financial statements requires
the Group’s management to make certain estimates and use certain assumptions to determine the valuation of certain assets
and liabilities, disclose contingent assets and liabilities at the date of the financial statements, and the reported amount of
revenues and expenses incurred during the periods. Those estimates and assumptions are made on a going concern basis and they
are continuously reviewed by using the available information.



The most significant line items subject to the above mentioned
estimates and assumptions apply mainly to the allowance for doubtful accounts, allowance for slow-moving inventories, financial
instruments, property and equipment, investments in stock of subsidiaries and associates, intangibles assets and goodwill, certain
provisions, labor obligations derived from defined benefits, taxes on earnings and valuation of contingencies. Actual results
may differ from these estimates and assumptions.



c)         Basis
of consolidation



The accompanying financial statements are presented on a
consolidated basis, which include those of the Company and all of its subsidiaries (held directly or through its controlling subsidiaries)
in which the Company holds more than 50 percent of the common shares and/or has administrative control, as well as Special Purpose
Entities. Control exists when there is power, directly or indirectly, to govern the financial and operating policies of an entity
to obtain benefits from its activities. The accounting consolidation is made from the date on which the subsidiaries are acquired,
incorporated and/or the control is held up to the date when they are disposed of and/or at the fiscal year end of the last year
reported. For that purpose, the Company uses the subsidiaries’ audited financial statements, prepared in accordance with
MFRS. The consolidated financial statements are prepared at the same date and for the same period. All significant intercompany
balances and transactions are eliminated from the Group’s consolidated financial statements.



Investments in associates are initially recorded at acquisition
cost. They are subsequently valued by using the equity method when the Company has significant influence. The Company uses audited
financial statements of the associates for that purpose, prepared in accordance with MFRS. Consequently, the Company records in
income the proportionate share of the gains or losses reported by the associates and in stockholders’ equity the variations
of the other stockholders’ equity accounts. Significant influence is presumed to exist when equity ranges between 10 percent
and 50 percent in public companies, and between 25 percent and 50 percent in non-public companies, unless it is proven that the
Company has significant influence with a lower percentage.



At December 31, 2011 and 2010, the Company incorporated the
entity named Sociedad Fondo de Inversion Privado Retail Chile into the accounting consolidation. This entity exclusively invests
in negotiable instruments of FASA or its FASA’s subsidiaries.



The Company does not recognize additional losses when its
equity in losses in a subsidiary or associate exceeds its shareholdings, unless there are obligations or commitments that are
legal or assumed by the Company.



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d)         Statements
of income (loss) and statements of cash flows



The accompanying statements of income (loss) present costs
and expenses based on their function, which are presented in generic captions in connection with their contribution to the different
levels of income or loss. The cost of sales is separated from the other costs and expenses to present the level of gross profit.



The statements of cash flows, prepared under the indirect
method in a non-inflationary economic environment, present the cash inflows and outflows of the period in nominal monetary units
therefore, they exclude the unrealized exchange rate fluctuation.



e)         Recognition
of the impact of inflation on the financial information



i)          In
accordance with MFRS B-10, “Impact of Inflation” (MFRS B-10), the financial statements that recognize the impact
of inflation under “comprehensive method” are those relative to an entity whose functional currency applies to a country
in which there is an inflationary economic environment. MFRS B-10 recognizes two economic environments, one results in the recognition
of the impact of inflation (inflation equal to or higher than 26 percent accumulated in the three annual prior years) and the
other does not (inflation lower that percentage in the period referred to above). The percentage of inflation of the year and
accumulated inflation of the three annual prior years applicable in each country in which the Company operates, is as follows:



|Country |  | Inflation 2011 |     |  | Accumulated  inflation |  |      | Type of  economy | 
|------- |  | -------------- | --- |  | ---------------------- |  | ---- | ---------------- | 
|Mexico  |  |                | 3.8 |  |                        |  | 15.4 |                  | 
|Brasil  |  |                | 6.5 |  |                        |  | 16.7 |                  | 
|Chile   |  |                | 3.9 |  |                        |  | 6.0  |                  | 
|Peru    |  |                | 4.7 |  |                        |  | 13.5 |                  | 



ii)         Pursuant
to the foregoing, the Group has not recognized the impact of inflation effective January 1, 2008. Consequently, the accompanying
financial statements of income (loss) and cash flows are presented in nominal Mexican pesos. Through December 31, 2007, the Group
recognized the effect of restatement regardless of the level of inflation. Toward that end, it applied the factor derived from
the National Consumer Price Index (NCPI) published by the Banco de Mexico for domestic companies and, if applicable, the NCPI
of the country of origin for those that operate abroad. That effect is maintained in the financial statements. Should the economic
environment change to inflationary, the Group will retrospectively recognize the impact of inflation not recognized in the periods
in which the economic environment was non-inflationary, in accordance with MFRS B-10.



Through December 31, 2007, stockholders’ equity was
restated based on the NCPI factor. The stockholders’ equity restatement represents the amount necessary to maintain shareholders’
investment in terms of the 2007 fiscal year purchasing power of the currency.



f)         Translation
of financial statements of foreign operations



The accounting records of the foreign subsidiaries and associates
are maintained in the recording currency of the country where those entities are established. Their financial statements are prepared
in conformity with International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB).
Therefore, those financial statements are adjusted to MFRS prior to their translation and accounting consolidation. The translation
is carried out in accordance with MFRS B-15, “Foreign currency translation” (MFRS B-15). Toward that end, those
financial statements are determined in their functional currency and restated by applying rate of inflation at which the foreign
operation operates, depending upon whether the information comes from an inflationary or non-inflationary economic environment,
in accordance with MFRS B-10. Subsequently, they are translated into the reporting currency as discussed in the following paragraph.



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The Group’s foreign operations operate in a non-inflationary
economic environment and its functional currencies are the Brazilian real, Chilean peso and Peruvian peso. Accordingly: (i) monetary
and nonmonetary assets and liabilities were translated at the year-end exchange rate published by Banco de Mexico, and, the stockholders'
equity at the historical exchange rate; and (ii) revenues and expenses were translated at the average exchange rate for the period.
The translation adjustment is included in the “Accumulated translation effect” and forms part of comprehensive income.
Moreover, it is recycled to income at the date of its availability. That line item includes, if applicable, foreign exchange fluctuations
(subparagraph s) below).



At December 31, 2011 and 2010, the translation effect amounted
to Ps. 88,829 and Ps. 140,895, respectively, net of income tax. The year end and average exchange rates used in the translation
process were as follows:



|               |  | 2011     |       |  | 2010    | 
|-------------- |  | -------- | ----- |  | ------- | 
|Currency       |  | Year end |       |  | Average | 
|Chilean peso   |  |          | 37.11 |  |         | 
|Brazilean real |  |          | 7.47  |  |         | 
|Peruvian Soles |  |          | 2.69  |  |         | 



g)         Cash
and cash equivalents



The balance of this line item consists of amounts available
in cash and cash equivalents available for the Group’s operations. Cash equivalents consist of investments in highly liquid
securities. When such securities are acquired, they have a maturity date of ninety days or less. They are payable on demand at
market variable interest rates, and they are not subject to significant foreign exchange risks in their values. Those investments
are valued at cost plus accrued interest. Interests and exchange fluctuations form part of the comprehensive gain or loss on financing.



h)         Other
current assets



Other current assets consist of: (i) payments for goods and
services whose risks and benefits will be transferred to the Group in the following twelve months; (ii) fair value of the derivative
financial instruments that mature in less than one year; (iii) prepaid expenses that consist mainly of rents, insurance, and surety
bonds that are expensed when the services or benefits are received; and (iv) available-for-sale assets.



Effective
2011, the Group adopted retrospectively the new MFRS C-5, "Prepaid expenses" that supersedes the Bulletin with
the same name. Accordingly, prepaid expenses are presented as a current asset when the period in which their benefits are expected
to be obtained is equal to or less than one year. Prepaid expenses for goods are presented in the short-term or long-term, depending
on the classification of the item intended (e.g.: inventory or property and equipment). That adoption had no impact on the Group’s
consolidated financial statements.



i)          Financial
instruments



All financial assets and financial liabilities derived from
any type of financial instrument are assessed at their estimated fair value and recognized in the balance sheet. The valuation
effect, as well as costs and returns generated by financial instruments form part of the comprehensive gain or loss on financing
when incurred or earned.



At December 31, 2011 and 2010, the carrying value of financial
instruments (cash, receivables, other accounts receivable, trade accounts payable, other payables and accrued liabilities, as
well as short-term debt) approximates their estimated fair value due to their short-term nature. The valuation of the long-term
debt incurred through bank loans and market bonds considers estimated values for financial instruments with similar terms and
due dates existing on the market, as well as variable financing rates in effect on the market.



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j)          Derivative
financial instruments



These transactions are contracted to hedge the associated
risks with changes in interest rate, exchange rate or inflation. The designation of hedges is documented by describing the strategy
and objective of management of risks, hedged risks, identification of the hedged primary position, its accounting recognition,
and how its effectiveness is measured. Management estimates that the changes in cash flows of the derivative financial instrument
maintain high effectiveness in offsetting the changes in cash flows of the primary position, both at the beginning and throughout
the relationship of the designated hedge.



The assets and liabilities that apply to derivative financial
instruments are presented in the balance sheet at their estimated fair value determined based on exchange rate quotes recognized
on the market. The effective portion of gains or losses on the cash flow hedging financial instrument is recognized temporarily
in the comprehensive income account in stockholders’ equity, and it is subsequently reclassified to income as the amount
of the hedge is exercised.



k)         Allowance
for doubtful accounts



The allowance for doubtful accounts represents the Group’s
estimate of the probable loss in all trade receivables by considering the historical trend of payment performance of customers
and factors surrounding the specific credit risk.



l)          Inventories



Inventories are valued at the lower of acquisition cost or
net realizable value. During high inflationary periods, inventories are restated by using NCPI factors, by considering MFRS B-10.
The Group analyzes its inventory balances to determine if any portion of their balance requires the need for an adjustment to
the allowance or if it should be increased, due to the occurrence of adverse events such as physical damage, obsolescence, expiration,
etc. The cost of sales represents the inventories acquisition cost in a non-inflationary environment.



Effective 2011, the Group adopted retrospectively the new
MFRS C-4, “Inventories”. This standard supersedes the Bulletin with the same name. That adoption had no impact
on the Group’s consolidated financial statements.



m)        Property
and equipment



Property and equipment are initially recorded at acquisition
cost. During high inflationary periods, those assets are restated by using NCPI factors applicable to the country where those
assets are established, in accordance with MFRS B-10. Through December 31, 2007, the last date on which the Group operated in
an inflationary economic environment, the value of those assets was restated by using the applicable NCPI factors.



Depreciation is calculated on the value of property and equipment
restated when the economic environment is inflationary, as well as on the acquisition cost when the economic environment is not
inflationary, in accordance with MFRS B-10, by applying the straight-line method based on the remaining economic useful life thereof.
The carrying value of leasehold improvements are amortized on a straight-line method, in accordance with the period set forth
in the agreement.



The Group periodically assesses the carrying value of long-lived
tangible and intangible assets, including goodwill and permanent investments in associates to establish whether significant adverse
events, changes in the operating business environment and/or changes in expectations regarding operating income for each cash
generating unit, indicate that the carrying value of those assets may not be recoverable, in accordance with Mexican Bulletin
C-15, "Impairment of the value of long-lived assets and their related disposal” (Bulletin C-15). In such event,
an impairment loss is determined by the excess of the carrying value of long-lived assets over the “value in use”,
which consists of determining the net present value of estimated cash flows to which those assets relate. The impairment loss,
if any, is recorded as a charge to operations in “Other expenses, net” in the period when such an assessment is carried
out, unless indications noted are of a temporary nature. Mexican Bulletin allows the reversal of the recognition of impairment
under certain circumstances. At December 31, 2011 and 2010, Management determined that there were no impairment indications on
the carrying value of property and equipment and investments in associates.



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Property and equipment available-for-sale are included in
“Other current assets” and assessed on the date on which the sales plan is approved at the lower of its net carrying
value and its fair value, less associated sales costs. Those assets are not subject to depreciation.



Effective
2011, the Group adopted retrospectively MFRS C-6, "Property, plant and equipment" that supersedes Bulletin C-6,
"Property, machinery and equipment". That adoption had no impact on the Group’s
consolidated financial statements.



n)         Business
acquisitions, intangible assets and goodwill



i)          Business
acquisitions



The Company recognizes business acquisitions based on MFRS
B-7, “Business acquisitions” (MFRS B-7). Consequently: (i) the purchase method is used as the sole valuation
standard by allocating the purchase price to the net assets acquired and the noncontrolling interest based on their estimated
fair value at the acquisition date; (ii) intangible assets acquired are identified and recognized at their estimated fair value;
(iii) the unallocated portion of the purchase price that is not identifiable is included as goodwill, which is allocated to the
cash flow generating unit in order to periodically evaluate the impairment. If applicable, the goodwill value is adjusted for
any correction to the preliminary value allocated to the net assets acquired and the noncontrolling interest, within the twelve
months subsequent to the acquisition date; and (iv) valuation is performed at fair value with certain exceptions, in which case
the pertinent MFRS is applied. Acquisition and/or restructuring costs and expenses are expensed when incurred.



The Company recognizes the excess fair value of net assets
acquired over the consideration paid as a bargain that is recognized by the acquiring entity by considering: (i) reduction to
the value of the assets of the business acquired until they are exhausted, and (ii) the remaining balance is recognized as a non-ordinary
gain at the acquisition date.



ii)         Intangible
assets



Intangible assets are identifiable nonmonetary assets, with
no physical substance that represent costs incurred or rights acquired, which will generate future economic benefits controlled
by the Group. Intangible assets are initially recorded at acquisition cost represented by cash or cash equivalents paid and/or
at their estimated fair value at acquisition date if they are from a business acquisition. They are classified as definite lived
or indefinite lived intangible assets, in accordance with the period in which benefits are expected to be received. During high
inflationary periods, those assets are restated by using NCPI factors applicable to the country where those assets are established.
Through December 31, 2007, the last date on which the Group operated in an inflationary economic environment, the value of those
assets was restated by using the applicable NCPI factors.



Intangible assets with definite useful life



These assets are amortized on their restated value when the
economic environment is inflationary, as well as on the acquisition cost when the economic environment is not inflationary, in
accordance with MFRS B-10. Toward that end, the straight-line method is applied based on its remaining economic useful life. These
assets are represented mainly by licenses related to the technological platform with which the Group operates. Development expenses
are recorded as intangible assets provided that their technical viability and economic profitability are reasonably assured.



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Intangible assets with indefinite useful life



These intangible assets, including goodwill, are subject
to periodic impairment tests, in the event of impairment indicators or at least once a year by applying the “value in use”
method of the cash generating units and taking into account a horizon whose projections do not establish growth rates beyond five
years, unless a greater period is justified in accordance with Mexican Bulletin C-15 referred to above. Toward that end, “perpetuity
value” is applied which considers two stages: (i) generation of excess of value in use of assets other than intangible assets
with indefinite useful life and goodwill (“excess value in use”); and (ii) the recovery of carrying value of intangible
assets and goodwill referred through perpetuity. Therefore, the impairment loss is generated by the excess of carrying value over
perpetuity value referred to above. If goodwill and another intangible asset with indefinite useful life are subject to impairment
at the same time, the resulting loss is applied to goodwill first.



As explained in Note 3 a), subparagraph iii), subsequent
to the original date of the auditor’s opinion dated May 15, 2012, the Company determined a material accounting error referred
to the inadequate recognition, measurement, and disclosure of the carrying value of goodwill from the acquisition of the Brazilian
subsidiary Drogarias. In March 2013, the Company concluded the process for quantifying the materiality of the error. As a result,
there was a restatement subsequent to initial issuance and goodwill has been impaired (Note 10 a).



The Group considers that the value in use through its cash
flow projections is the best estimate of future cash flows from continued use of the cash generating unit. Therefore, the cash
flow projection models fairly recognize medium and long-term economic variables existing at the date of the financial statements,
which are related to the future estimated price of products, changes in operating expenses, industry economic trend, and discount
and growth rates applied in perpetuity.



o)         Lease



Operating lease



This transaction is classified as an operating lease when
the risks and benefits inherent to the ownership of the leased asset remain substantially with the lessor. Total payments are
charged to operating income for the period.



Capitalized lease



The
capitalized lease is recognized when all the risks and benefits associated with the ownership of the assets leased are retained
substantially by the Group. Accordingly: (i) ownership of the asset is transferred to the Group upon termination of the term;
(ii) the price for acquiring the asset upon termination of the term is deemed to be a bargain purchase option; (iii) the lease
term covers the majority of the asset’s economic life; and (iv) the present
value of the minimum lease payments substantially represents the fair value of the asset at the inception of the lease. Financial
leasing is capitalized at the inception of the lease at the lower of fair value of the property under the lease agreement or the
present value of future minimum payments. During high inflationary periods, those assets are restated by using NCPI factors applicable
to the country where those assets are established, in accordance with MFRS B-10.



Obligations under financial leasing arrangements are included
in other short or long-term payables. The financial cost is expensed during the lease term. The asset acquired is depreciated
in accordance with the Group's depreciation policies.



p)         Provisions,
contingent assets and liabilities and commitments



The Group recognizes the liabilities of present obligations
on which the transfer of assets or the future servicing are unavoidable, and arise as a consequence of past transactions or events.
Provisions are recognized when present, legal or assumed, obligations are unavoidable and will require the disbursement of economic
resources or can be reasonably estimated.



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Significant obligations or losses related to contingencies
are periodically evaluated. They are accounted for when it is likely that present obligations will require the disbursement of
economic resources, and there are reasonable elements for their quantification. If there are no such reasonable elements, the
contingencies are disclosed in the notes to the financial statements. Contingent revenues, income or assets are only recognized
when their realization is practically certain.



Commitments are not recognized unless they result in a loss.
Commitments are disclosed when they represent significant additions of fixed assets, goods or services contracted that substantially
exceed the immediate needs of the Group or represent contractual obligations.



q)         Employee
benefits



i)          In accordance with MFRS D-3, “Employee Benefits”(MFRS D-3), the Group recognizes the labor obligations derived from defined benefits for retirement pensions and seniority
premiums, as well as severance benefits to employees for termination of the employment relationship (legal ordinary indemnifications)
when they complete the employment relationship prior to the retirement age which is not associated to a restructuring event. Costs
are expensed as employees render their services. Toward that end, actuarial computations are applied to the present value of labor
obligations. Retirement pensions are granted to all personnel that have completed at least ten years of pension service and have
reached sixty-five years of age. Seniority premiums are granted for a voluntary separation of personnel after completing fifteen
years of service and then calculated based on the number of years worked. Severance benefits for termination of the employment
relationship are granted by the Labor Law in the event of a dismissal, based on the years of service and last salary of personnel.



Defined benefit obligations, unamortized items, and the net
periodic cost applicable to labor obligations referred to above are determined by using the "projected unit credit method".
Severance benefits which arise from restructuring causes should continue to follow the Mexican Bulletin C-9, “Liability,
provisions, contingent assets and liabilities, and commitments”.



The Group has created a fund placed in an irrevocable trust
with a financial institution to meet the labor obligations derived from defined benefits. During 2010, the contributions to the
fund amounted to Ps. 9,668. In 2011, there were not any contributions. Fund assets consisted of investments in equity securities
and investments in fixed income securities that are traded on the Mexican Stock Market. Those investments are valued at estimated
fair value at the date of the financial statements.



ii)         The
relevant information of the actuarial computation on labor obligations derived from defined benefits is summarized below. Interest
rates and actuarial assumptions used for reflecting the present value of obligations and expected returns on assets discussed
herein below consider the use of nominal rates, due to the non-inflationary economic environment in which the Group operates.



|                                                                                             |  | 2011 |          |   | 2010 | 
|-------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | 
|Labor liability                                                                              |  |      |          |   |      | 
|Accumulated benefit obligation                                                               |  | Ps.  | 230,939  |   |      | 
|Additional benefit related to future compensation increases                                  |  |      | 179,681  |   |      | 
|Defined benefit obligation                                                                   |  |      | 410,620  |   |      | 
|Fair value of plan assets                                                                    |  |      | 80,119   |   |      | 
|Funded status                                                                                |  |      | 330,501  |   |      | 
|Unrecognized net transition obligation                                                       |  |      | (6,509   | ) |      | 
|Negative plan amendments                                                                     |  |      | 11,346   |   |      | 
|Unrecognized net loss                                                                        |  |      | (126,254 | ) |      | 
|Unfunded accrued pension cost, seniority premium and severance benefits
    to be recognized |  | Ps.  | 209,084  |   |      | 
|                                                                                             |  |      |          |   |      | 
|Net periodic cost                                                                            |  |      |          |   |      | 
|Service cost                                                                                 |  | Ps.  | 22,089   |   |      | 
|Interest cost                                                                                |  |      | 27,432   |   |      | 
|Expected return on plan assets                                                               |  |      | (8,548   | ) |      | 
|Amortization of unrecognized net transition obligation                                       |  |      | 6,667    |   |      | 
|Amortization of plan amendments                                                              |  |      | (543     | ) |      | 
|Amortization of unrecognized net loss                                                        |  |      | 5,022    |   |      | 
|Net periodic cost                                                                            |  | Ps.  | 52,119   |   |      | 



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|                                                                                             |  | 2011 |          |   | 2010 | 
|-------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | 
|Assumptions:                                                                                 |  |      |          |   |      | 
|Mexico                                                                                       |  |      |          |   |      | 
|Discount rate                                                                                |  |      | 7.75     | % |      | 
|Salary increase rate                                                                         |  |      | 4.00     | % |      | 
|Return of plan assets                                                                        |  |      | 9.25     | % |      | 
|Chile                                                                                        |  |      |          |   |      | 
|Discount rate                                                                                |  |      | 7.50     | % |      | 
|Salary increase rate                                                                         |  |      | 4.00     | % |      | 
|                                                                                             |  |      |          |   |      | 
|Change in defined benefit obligation                                                         |  |      |          |   |      | 
|Actual defined benefit obligation at beginning of year                                       |  | Ps.  | 376,283  |   |      | 
|Service cost                                                                                 |  |      | 22,062   |   |      | 
|Interest cost                                                                                |  |      | 27,262   |   |      | 
|Actuarial loss                                                                               |  |      | 27,620   |   |      | 
|Benefits paid                                                                                |  |      | (32,779  | ) |      | 
|Effect on curtailment on benefit obligation                                                  |  |      | (9,297   | ) |      | 
|Effect on settlement on benefit obligation                                                   |  |      | (531     | ) |      | 
|Defined benefit obligation at end of year                                                    |  | Ps.  | 410,620  |   |      | 
|                                                                                             |  |      |          |   |      | 
|Change in plan assets                                                                        |  |      |          |   |      | 
|Fair value of plan assets at beginning of year                                               |  | Ps.  | 96,323   |   |      | 
|Actual return on plan assets                                                                 |  |      | 8,548    |   |      | 
|Actuarial loss                                                                               |  |      | (7,945   | ) |      | 
|Employer contributions                                                                       |  |      |          |   |      | 
|Early liquidation of obligations                                                             |  |      | (2,694   | ) |      | 
|Benefits paid                                                                                |  |      | (14,113  | ) |      | 
|Fair value of plan assets at end of year                                                     |  | Ps.  | 80,119   |   |      | 
|                                                                                             |  |      |          |   |      | 
|Funded status                                                                                |  | Ps.  | 330,501  |   |      | 
|Unrecognized net transition obligation                                                       |  |      | (6,509   | ) |      | 
|Negative amendments (unrecognized prior service cost)                                        |  |      | 11,346   |   |      | 
|Actuarial loss                                                                               |  |      | (126,254 | ) |      | 
|Unfunded accrued pension cost, seniority
    premium and severance benefits to be recognized |  | Ps.  | 209,084  |   |      | 



iii)         The
Company has a liability for other retirement benefits in favor of eighteen workers of the subsidiary Farmacias Benavides in accordance
with a specific plan established in January 1987, and in effect up to December 31, 2004. No new beneficiaries of the Plan have
been incorporated since that date. The liability is recorded by considering assumptions as future permanence, discount rate, and
interest rate, mortality, and future salary increases, determined by actuarial computations. That liability will be liquidated
in the medium-term. At December 31, 2011 and 2010, the liability amounted to Ps. 28,856 and Ps. 29,854, respectively.



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iv)        At December
31, 2011 and 2010, the amount of the direct short-term benefit due to compensated absences (vacations, sickness, provisional disability,
maternity leave, etc.), cumulative and non-cumulative, was recorded.



v)         For
MFRS D-3 purposes, the unrecognized net transition obligation, unrecognized prior service cost, and accrued net actuarial gain/loss
at December 31, 2007, should be amortized to the income statement over a maximum period of five years, while the actuarial
results generated as of January 1, 2008, are amortized over the employees’ estimated active service lives following the
“corridor method”, which requires the actuarial gains and losses in excess of the range between the higher of 10 percent
of the plan assets and 10 percent of the defined benefits obligation balance be: (i) amortized to operating income during the
remaining labor life of employees who will receive the benefits; and (ii) expensed as accrued. At December
31, 2011 and 2010, the amortized amount of that item was not material.



The amount of actuarial gains or losses and the prior service
benefits for termination of the employment relationship due to causes other than restructuring are recognized in income. At December
31, 2011 and 2010, that amount was immaterial.



Employee profit sharing due is recorded based on the amount
payable, determined on taxable income that is obtained as provided for in the Mexican currently enacted tax legislation by applying
a 10 percent rate. Deferred employee profit sharing is determined by using the “asset and liability method” by applying
a 10 percent rate to the temporary differences between book and tax values of assets and liabilities for employee profit sharing
purposes. At December 31, 2011 and 2010, the deferred employee profit sharing asset amounted to Ps. 7,107 and Ps. 7,868, respectively.
Those amounts were offset by a similar valuation allowance, in accordance with MFRS. Employee profit sharing is recognized in
income in “Other expenses, net”.



r)          Income
Tax and Corporate Flat Tax (IETU-Spanish acronym)



i)          Consolidated
taxes on earnings represent the sum of the taxes or earning due, as well the effect of the deferred taxes on earnings by taking
into account currently enacted tax legislation applicable in the different jurisdictions in which each entity operates. In accordance
with currently enacted tax legislation in Mexico, the IETU Law co-exists with the Income Tax Law for determining the taxes on
earnings for the period. Taxes on earnings due in the period are recorded in income.



ii)         In
order to recognize the deferred taxes on earnings effect, Management performs a periodic analysis based on reasonable assumptions
to determine the tax base on which the Group will assess its operations when there is more than one tax base in the same jurisdiction.
Pursuant to the foregoing, the Group recognizes deferred taxes on earnings based on the tax regime that is expected to prevail
in the future. At December 31, 2011 and 2010, Management determined that income tax will be the tax on earnings that will be paid
by the Mexican entities in the medium-term, instead of IETU. If the Group determines that IETU will be due based on their estimates
and that event will qualify as permanent, the deferred income tax balance will be adjusted to the resulting amount of IETU. If
the event is circumstantial, the Group will account for deferred income tax, even though IETU will be due in the period.



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iii)        The deferred
income tax effect is determined by applying the “asset and liability method”. It further considers the tax losses
effect and tax credits. Therefore, the deferred income tax liability is recorded for all temporary differences, whereas the deferred
income tax asset is only recorded if it meets the “more likely than not” criteria. The deferred income tax effect
is determined by applying tax laws and income tax rates which are enacted or substantially enacted at the closing date of the
financial statements by considering the time it is estimated that the temporary differences are realized. In addition, the Group
recognizes deferred income tax generated by its investments in associates. Deferred income tax assets and/or liabilities are classified
as a non-current item, regardless of the term in which temporary differences are expected to be reverse and materialize. Deferred
income tax assets and liabilities applicable to different tax jurisdictions are not offset. The deferred income tax effect of
the year is recorded in income statement as a component of “provisions for income tax”, except for the deferred income
tax effect that may be generated by temporary differences attributable to other stockholders’ equity accounts. In that event,
the deferred income tax effect is applied to the specific stockholders’ equity account that generates it, without being
applied to income.



The Group performs a periodic valuation allowance review
to determine the amount of the deferred asset (income tax and/or employee profit sharing) that “more likely than not”
will be realized and recorded based on the available information of each entity. The deferred asset amount that is not realized
is recorded in the results of operations and/or stockholders’ equity, by considering the nature of the temporary item. At
December 31, 2011 and 2010, the Group determined there was no need for a valuation allowance to be recognized as the deferred
income tax asset was deemed to be fully recoverable.



iv)        The Group
does not recognize a deferred income tax effect related to its investments in subsidiaries, since it considers that it is in control
of the materialization of the temporary differences that arise from these investments, and it is likely that they will not materialize
in the foreseeable future.



v)         Effective
2009, Management decided that some of its Mexican controlled entities of the Group were no longer included in consolidation for
tax purposes. On June 25, 2010, Management filed an additional notice in order for the Company to no longer consolidate its taxable
income with the rest of its Mexican controlled subsidiaries for fiscal 2010. Therefore, The Company and those subsidiaries met
their tax obligations individually for that year.



Notwithstanding the foregoing, due to business reasons, on
December 21, 2010, the Company again was approved by the Mexican tax authorities to determine its consolidated taxable income
only with the companies that are considered as controlled companies, as set forth by the Mexican Income Tax Law. That approval
goes into effect beginning the fiscal year extending from January 1 to December 31, 2011.



vi)        In December
2009, CINIF issued Mexican Interpretation MFRS 18, "Recognition of the effects of the 2010 tax reform on taxes on earnings"(MFRS-18) effective December 2009. MFRS 18 sets forth the accounting treatment of the income tax liability derived from the
change to the tax consolidation regime in effect beginning January 1, 2010. Therefore, the Company determined income tax payable
at December 31, 2009 as if the tax consolidation provisions had not existed since 1999 and henceforth. In accordance with MFRS-18:
(i) the income tax liability derived from intercompany dividends is recognized with a charge to retained earnings, without preparing
the restatement of prior year financial statements; and (ii) the liability related to the tax losses of subsidiaries and losses
on the sale of shares, used in tax consolidation should not be offset by the income tax asset associated with the same items.
Accordingly, at December 31, 2009, the Company recognized a liability charged to retained earnings in the amount of Ps. 133,619.



s)         Comprehensive
gain or loss on financing (RIF - Spanish acronym)



RIF represents the expense or income derived from financing
activities during the period. RIF consists of interest, the exchange rate fluctuation effect, changes in fair value of financial
instruments and derivatives and, when the inflationary economic environment is applied, the gain or loss on monetary position.
The RIF effect is recorded in income, except if the RIF attributable to “qualified assets” is capitalized in accordance
with MFRS D-6, “Capitalization of the comprehensive gain or loss on financing”.



Foreign currency transactions are recorded at the current
exchange rate at the date on which they are entered into or paid. Foreign currency monetary assets and liabilities are translated
to Mexican pesos by using the current exchange rate at the date of the balance sheet. The exchange rate is published by the Banco
de Mexico. Resulting exchange fluctuations are included in statement of income, except for those generated by: (i) foreign currency
debt related to the acquisition of foreign entities, and (ii) foreign currency related party balances that do not foresee their
liquidation in foreseeable future; therefore, their nature is that of long-term. When admissible, these effects are recognized,
along with the applicable monetary position in the “Accumulated translation effect” if the environment is inflationary.



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t)          Comprehensive
income



Comprehensive income consists of the net income for the period,
plus/less other results for the same period reflected in the stockholders’ equity pursuant to specific accounting provisions.
Accordingly, stockholders’ equity discloses the components of comprehensive income, which does not include capital contributions
or reductions.



u)         Earnings
per share



Earnings per share are determined based on the weighted average
common shares outstanding during the years and earnings for common shareholders, in conformity with Mexican Bulletin B-14, "Earnings
per share" (Bulletin B-14). The Group has not carried out any transactions that may cause it to issue any potential shares
with a dilutive effect on earnings per share. Dilutive earnings per share are not determined if the continued operations result
is a loss, in accordance with Bulletin 14.



v)         Revenue
recognition



Revenues are recognized at the fair value of the consideration
received or receivable, reduced from returns, rebates, and discounts granted to customers in the period in which risks and benefits
are transferred to customers, which generally coincides with: (i) persuasive evidence that an arrangement exists, (ii) delivery
has occurred to the satisfaction of customer’s orders, (iii) the collection is reasonably assured, and (iv) there is no
condition or uncertainty that might imply their reversal and, therefore, the customer assumes the risk of loss. Due to the nature
of its operations, the Group assumes total risk of ownership of the products purchased from third parties, and it does not act
as an agent or commission agent.



w)        Concentration
of risk



The Group sells its products to a large number of customers
in the countries in which it operates. Accordingly, no individual customer accounted for a significant amount of sales or receivables
in fiscal 2011 and 2010. Furthermore, there are no significant concentrations related to suppliers to the Group that provide it
with inventories in those years.



4.         Receivables:



|                                |  | 2011 |            |   | 2010 | 
|------------------------------- |  | ---- | ---------- | - | ---- | 
|Trade receivables               |  | Ps.  | 6,548,122  |   |      | 
|Allowance for doubtful accounts |  |      | (1,167,116 | ) |      | 
|                                |  | Ps.  | 5,381,006  |   |      | 



5.         Other accounts receivable:



|                            |  | 2011 |           |  | 2010 Restated | 
|--------------------------- |  | ---- | --------- |  | ------------- | 
|Other receivables           |  | Ps.  | 625,977   |  |               | 
|Related parties             |  |      | 680,396   |  |               | 
|Value added tax recoverable |  |      | 84,202    |  |               | 
|Income tax recoverable      |  |      | 326,417   |  |               | 
|Other taxes recoverable     |  |      | 764,595   |  |               | 
|                            |  | Ps.  | 2,481,587 |  |               | 



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Other receivables consist mainly of payments in advance to
acquire new points of sell, as well as new operations segments.



6.         Inventories:



|                                  |  | 2011 Restated |           |   | 2010 | 
|--------------------------------- |  | ------------- | --------- | - | ---- | 
|Pharmaceutical products           |  | Ps.           | 7,700,049 |   |      | 
|Beauty care products              |  |               | 675,911   |   |      | 
|Books and magazines               |  |               | 267,867   |   |      | 
|Electric appliances               |  |               | 4,031     |   |      | 
|Groceries                         |  |               | 12,886    |   |      | 
|Other                             |  |               | 19,753    |   |      | 
|                                  |  |               | 8,680,497 |   |      | 
|Estimate for reserve of inventory |  |               | (66,224   | ) |      | 
|                                  |  |               | 8,614,273 |   |      | 
|Merchandise-in-transit            |  |               |           |   |      | 
|                                  |  | Ps.           | 8,614,273 |   |      | 



Merchandise-in-transit represents pharmaceutical products
for which title and risk of loss has been transferred to the Group.



7.         Other current assets:



|                                 |  | 2011 |         |  | 2010 | 
|-------------------------------- |  | ---- | ------- |  | ---- | 
|Prepaid expenses                 |  | Ps.  | 35,737  |  |      | 
|Derivative financial instruments |  |      | 5,666   |  |      | 
|Assets available-for-sale        |  |      | 29,341  |  |      | 
|Other assets                     |  |      | 141,313 |  |      | 
|                                 |  | Ps.  | 212,057 |  |      | 



Available-for-sale assets are presented at their estimated
realizable value and are comprised of real property received in payment of accounts receivable.



8.         Derivative
financial instruments:



Cash flow hedges

The Company agreed upon these transactions in different months
of the year to look for a future US dollar purchase price on different dates, and to be able to meet its U.S. dollar-denominated
commitments. Forwards have a different agreed upon price on each date of maturity. The assumed risk is depreciation of the U.S.
dollar in connection with the Mexican peso below the agreed upon prices, given the long profile in U.S. dollars that the Company
has. At December 31, 2011 and 2010, the characteristics and fair value of derivative financial instruments were as follows:



|2011     |  | Asset/(liability) |           |  |          |     
|-------- |  | ----------------- | --------- |  | -------- | ----
|Contract |  | Contractvalue     |           |  | Due date |     
|Forward  |  | Ps.               | 343,367   |  |          | 2012
|Options  |  |                   | 334,211   |  |          | 2012
|Forward  |  |                   | 330,869   |  |          | 2012
|Options  |  |                   | 334,211   |  |          | 2012
|Forward  |  |                   | 1,394,594 |  |          | 2013



The current liability and the short-term asset in the amount
of Ps. 4,258 and Ps. 5,666 are included in the consolidated balance sheet in the line items “Other payables and accrued
liabilities” and “Other current assets”, respectively.



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|2010     |  | Asset/(liability) |         |  | Effect on income (loss) |     
|-------- |  | ----------------- | ------- |  | ----------------------- | ----
|Contract |  | Contractvalue     |         |  | Due date                |     
|Forward  |  | Ps.               | 114,816 |  |                         | 2011
|Forward  |  |                   | 318,567 |  |                         | 2011
|Forward  |  |                   | 395,204 |  |                         | 2011
|Swap     |  |                   | 897,954 |  |                         | 2015
|Swap     |  |                   | 894,254 |  |                         | 2015



The current liability and the short-term asset in the amount
of Ps. 12,709 and Ps. 4,388 are included in the consolidated balance sheet in the line items “Other payables and accrued
liabilities” and “Other current assets, net”, respectively.



The Company manages the credit risk of its derivative financial
instruments which are traded on recognized markets and with high creditworthy and reputable counterparties. The Company recognizes
a hedge provision that applies to the difference between the “spot price” market value and the fair value of the cash
flow hedging instruments, which are determined as highly effective hedges, in accordance with MFRS. At December 31, 2011 and 2010,
the amount of the hedge provision was immaterial.



9.         Property and equipment:



|                                                |  | 2011 |            |   | 2010 Restated | 
|----------------------------------------------- |  | ---- | ---------- | - | ------------- | 
|Buildings                                       |  | Ps.  | 1,307,801  |   |               | 
|Machinery and equipment                         |  |      | 2,050,507  |   |               | 
|Transportation equipment                        |  |      | 226,436    |   |               | 
|Office equipment                                |  |      | 240,945    |   |               | 
|Computer equipment                              |  |      | 1,753,991  |   |               | 
|Leasehold improvements                          |  |      | 2,309,053  |   |               | 
|                                                |  |      | 7,888,733  |   |               | 
|Less- accumulated depreciation and amortization |  |      | (4,965,096 | ) |               | 
|                                                |  |      | 2,923,637  |   |               | 
|Land                                            |  |      | 482,686    |   |               | 
|Construction in progress                        |  |      | 532        |   |               | 
|                                                |  | Ps.  | 3,406,855  |   |               | 



The changes in the period of property and equipment are as follows:



|                                                          |  | 2011 |           |   | 2010 |    
|--------------------------------------------------------- |  | ---- | --------- | - | ---- | ---
|Opening balance                                           |  | Ps.  | 3,746,035 |   |      | Ps.
|Less: reclassification for discontinued operations        |  |      | (211,484  | ) |      |    
|Balance after reclassifcation for discontinued operations |  |      | 3,534,551 |   |      |    
|Additions for business acquisitions                       |  |      |           |   |      |    
|Add: additions                                            |  |      | 443,261   |   |      |    
|Less: retirements                                         |  |      | (171,763  | ) |      |    
|Subtotal                                                  |  |      | 3,806,049 |   |      |    
|Depreciation for the year                                 |  |      | (399,194  | ) |      |    
|Net carrying value at end of period                       |  | Ps.  | 3,406,855 |   |      | Ps.



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The average annual depreciation and amortization rates for
2011 and 2010 were as follows:



|                           |  | Mexico |      |  | Chile |  |     | Brazil | 
|-------------------------- |  | ------ | ---- |  | ----- |  | --- | ------ | 
|                           |  | %      |      |  | %     |  |     | %      | 
|Buildings and construction |  |        | 2.1  |  |       |  | 5   |        | 
|Machinery and equipment    |  |        | 6.1  |  |       |  |     |        | 
|Transportation equipment   |  |        | 10.2 |  |       |  | 20  |        | 
|Office equipment           |  |        | 6.5  |  |       |  | 10  |        | 
|Computer equipment         |  |        | 11.2 |  |       |  | 25  |        | 
|Leasehold improvements     |  |        | 5    |  |       |  | 6.7 |        | 
|Selling equipment          |  |        | 25   |  |       |  | 25  |        | 



At December 31, 2011 and 2010, the Company maintains various
financial lease agreements, which are for commercial locales, computer equipment, and photography laboratories, as follows:



|                        |  | 2011 |        |  | 2010 | 
|----------------------- |  | ---- | ------ |  | ---- | 
|Land                    |  | Ps.  | 53,374 |  |      | 
|Buildings               |  |      | 18,539 |  |      | 
|Machinery and equipment |  |      | 3,156  |  |      | 
|Computer equipment      |  |      | 10,549 |  |      | 
|                        |  | Ps.  | 85,618 |  |      | 



10.        Goodwill,
intangible assets and deferred charges:



|                                               |  |     |  | 2011 Restated |           |   | 2010 Restated | 
|---------------------------------------------- |  | --- |  | ------------- | --------- | - | ------------- | 
|Goodwill:                                      |  |     |  |               |           |   |               | 
|Drogueros                                      |  |     |  | Ps.           | 128,370   |   |               | 
|Farmacias ABC                                  |  |     |  |               | 32,551    |   |               | 
|Citem                                          |  |     |  |               | 56,456    |   |               | 
|CS Brasil                                      |  |     |  |               | 1,398,360 |   |               | 
|FASA                                           |  |     |  |               | 2,488,190 |   |               | 
|                                               |  |     |  |               | 4,103,927 |   |               | 
|Accumulated impairment loss                    |  | (a) |  |               | (746,047  | ) |               | 
|                                               |  |     |  | Ps.           | 3,357,880 |   |               | 
|                                               |  |     |  |               |           |   |               | 
|Intangible assets with indefinite useful life: |  |     |  |               |           |   |               | 
|Commercial trademarks                          |  | (b) |  | Ps.           | 3,800,072 |   |               | 
|Intangible assets with definite useful life:   |  |     |  |               |           |   |               | 
|Patents and other rights                       |  |     |  |               | 61,716    |   |               | 
|Development costs                              |  |     |  |               | 40,412    |   |               | 
|Software                                       |  |     |  |               | 151,006   |   |               | 
|Licences                                       |  |     |  |               | 159,170   |   |               | 
|Other intangible assets                        |  |     |  |               | 226,572   |   |               | 
|                                               |  |     |  |               | 638,876   |   |               | 
|Less- accumulated amortization                 |  |     |  |               | (425,365  | ) |               | 
|                                               |  |     |  | Ps.           | 213,511   |   |               | 



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|                                     |  | 2011 Restated |           |   | 2010 Restated | 
|------------------------------------ |  | ------------- | --------- | - | ------------- | 
|Deferred charges:                    |  |               |           |   |               | 
|Organizing and installation expenses |  | Ps.           | 289,349   |   |               | 
|Less – accumulated amortization      |  |               | (155,646  | ) |               | 
|                                     |  |               | 133,703   |   |               | 
|Deferred income tax                  |  |               | 393,277   |   |               | 
|                                     |  |               | 526,980   |   |               | 
|                                     |  | Ps.           | 7,898,443 |   |               | 



The changes in the period of goodwill, intangible assets
and deferred charges, were as follows:



|                                                      |  | 2011 Restated |           |   | 2010 Restated | 
|----------------------------------------------------- |  | ------------- | --------- | - | ------------- | 
|Balance at beginning of the period                    |  | Ps.           | 8,612,252 |   |               | 
|Less: reclassification for discontinued operations    |  |               | (484,008  | ) |               | 
|Balance after retirements for discontinued operations |  |               | 8,128,244 |   |               | 
|Additions for business acquisitions                   |  |               |           |   |               | 
|Add: additions                                        |  |               | 66,711    |   |               | 
|Less: retirements                                     |  |               | (19,065   | ) |               | 
|Translation effect                                    |  |               | (7,723    | ) |               | 
|Deferred income tax                                   |  |               | 316,770   |   |               | 
|Impairment loss                                       |  |               | (538,019  | ) |               | 
|Amortization of the year                              |  |               | (48,475   | ) |               | 
|Balance at end of the period                          |  | Ps.           | 7,898,443 |   |               | 



a)         As
a result of the goodwill impairment test carried out by the Management, an impairment loss was recognized in statement of income
(loss) in the line item “Other expenses, net”, since the net carrying value of the cash generating units Drogueros,
Citem and CS Brasil exceeded their “value in use” in the amount of Ps. 78,425, Ps.56,456 and Ps.403,138, respectively,
for fiscal 2011. Impairment loss concurred with the generalized crisis in the economic environment that had a negative impact
on the pharmaceutical industry in that year.



As explained in Note 3 a) subparagraph iii) above, the Company
determined the existence of an inadvertently accounting error in the financial statements. In this respect, the impairment evaluation
is sensitive to the estimate of future prices of the products, the evolution of operating expenses, the economic trend in the
pharmaceutical industry, and the growth expectations in the medium and long-term. Pursuant to the foregoing, the "value in
use" initially determined by Management was affected by discount rates and growth rates in the perpetuity estimated incorrectly.



In
March 2013, Management concluded the process for quantifying the materiality of the error in the financial statements. Toward
that end, Management performed new studies to correct the discount rates and growth rates discussed above, in accordance with
Bulletin C-15,“Impairment of the value of long-lived assets and their
related disposal”of the CINIF. The correction generated an impairment
loss on the carrying value of goodwill associated with the subsidiary Drogarias in the amount of Ps.403,138.



With the abovementioned, Management considers that fair value
determined by considering the value in use through its cash flow projections is the best estimate of future cash flows from continued
use of the cash generating units.



Based on a goodwill impairment test carried out during the
last quarter of fiscal 2010, the Group determined an impairment loss was not incurred for 2010, by considering value in use exceeded
the carrying value of cash generating units.



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b)         As
a result of the acquisition of FASA, the Company recognized various commercial trademarks previously acquired independently by
FASA as identifiable intangible assets. Those commercial trademarks were recorded at fair value at the acquisition date in the
amount of Ps. 3,971,000 (Note 1 b).



As explained in Note 1 c), the assets and liabilities of
FASA Peru are presented in the balance sheet as of December 31, 2011 and 2010, as "discontinued operations". Therefore,
the amounts applicable to the acquisition of FASA Peru, relative to the goodwill and trademarks as of December 31, 2011 and 2010,
were reclassified to "Noncurrent assets for discontinued operations" in the balance sheet in the amount of Ps.239,008
and Ps.245,000, respectively.



At December 31, 2011 and 2010, the trademarks are summarized
as shown below:



|                    |  | 2011 |           |  | 2010 | 
|------------------- |  | ---- | --------- |  | ---- | 
|Farmacias Ahumada   |  | Ps.  | 1,809,000 |  |      | 
|Farmacias Benavides |  |      | 1,917,000 |  |      | 
|                    |  |      | 3,726,000 |  |      | 
|Translation effect  |  |      | 74,072    |  |      | 
|                    |  | Ps.  | 3,800,072 |  |      | 



11.       Related party balances and transactions:



All significant balances and transactions between the entities
that form part of the Group have been eliminated in the accounting consolidation in connection with: (i) the sale and purchase
of merchandise; (ii) trading shares; (iii) billing of administrative services, rents, and other services rendered; and (iv) loans.



In accordance with the accounting standard, related party
transactions also include individuals or entities outside of Group, which pursuant to their relationship with the Group, might
have a privileged situation or the Group might take advantage of these relationships and obtain a benefit in its financial position
or operating results. At December 31, 2011 and 2010, the Group has identified the following related party transactions:



|                                                        |  | Accounts receivable |        
|------------------------------------------------------- |  | ------------------- | -------
|                                                        |  | 2011                |        
|Aeroxtra, S.A. de C.V.                                  |  | Ps.                 | 2,000  
|Xtra Inmuebles, S.A. de C.V.                            |  |                     | 11,630 
|Tenedora Farmaceutica de Mexico, S.A. de C.V.           |  |                     | 9,590  
|Tenedora de Farmacias Morelianas, S.A. de C.V.          |  |                     | 20,582 
|Grupo Xtra, S.A. de C.V.                                |  |                     | 10,515 
|Sports Clinic, S.A. de C.V.                             |  |                     |        
|Comercializadora Lundedeq, S.A. de C.V.                 |  |                     |        
|Farmaprice, S.A. de C.V.                                |  |                     |        
|Administradora Inmas, S.A. de C.V.                      |  |                     |        
|Inversiones Turisticas Cancun, S.A. de C.V.  (Note 1 d) |  |                     | 626,079
|                                                        |  | Ps.                 | 680,396



During 2011 and 2010, the related party transactions were
as follows:



|                                   |  | 2011 |        |  | 2010 | 
|---------------------------------- |  | ---- | ------ |  | ---- | 
|Aeroxtra, S.A. de C.V.             |  | Ps.  | 28,012 |  |      | 
|Xtra Inmuebles, S.A. de C.V.       |  |      | 5,539  |  |      | 
|Administradora Inmas, S.A. de C.V. |  |      | 1,460  |  |      | 
|                                   |  | Ps.  | 35,011 |  |      | 



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The Group considers that the related parties referred to
above are not “Special Purpose Entities”, in accordance with MFRS B-8, “Consolidated or combined financial
statements” and, therefore, at December 31, 2011 and 2010, the Group has not consolidated the assets, liabilities, and
operating income of those entities. These transactions were conducted on arm's length terms based on market prices and conditions.
During 2011, and 2010, the Group had no other significant agreements with related parties.



At December 31, 2011 and 2010, the total benefits granted
to key management personnel or and top management executive are summarized as shown below:



|       |  | 2011 |        |  | 2010 | 
|------ |  | ---- | ------ |  | ---- | 
|Mexico |  | Ps.  | 45,367 |  |      | 
|Chile  |  |      | 35,716 |  |      | 
|       |  | Ps.  | 81,083 |  |      | 



12.       Short and long-term debt:



At December 31, 2011 and 2010, the consolidated debt by currency
type, translated to Mexican pesos, is as follows:



|               |  | 2011            |           |  | 2010      | 
|-------------- |  | --------------- | --------- |  | --------- | 
|Currency       |  | Short-
    term |           |  | Long-term | 
|Mexican pesos  |  | Ps.             | 2,394,166 |  |           | 
|Brazilian real |  |                 | 112,121   |  |           | 
|Chilean pesos  |  |                 | 544,539   |  |           | 
|               |  | Ps.             | 3,050,826 |  |           | 



i)          Amending
Agreement to the Credit Opening Agreement (Amending Agreement)



On
August 10, 2011, the Company concluded the“Amending Agreement to the Credit
Opening Agreement”dated August 30, 2010 with its creditors (Banco Mercantil
del Norte (Banorte) and HSBC Mexico, S.A. (HSBC Mexico)). In accordance with the Original Contract, the funds granted by Banorte
were used to prepay credits from another bank creditor, and for general corporate purposes. The funds from HSBC Mexico were used
to finance the acquisition of the shares of the capital stock of FASA.



In accordance with the Amending Agreement, the total amount
of the credits is summarized as follows:



|            |  | Tranch I |           |  | Tranch II |  |           | Total | 
|----------- |  | -------- | --------- |  | --------- |  | --------- | ----- | 
|Banorte     |  | Ps.      | 994,500   |  |           |  | 955,500   |       | 
|HSBC México |  |          | 2,944,667 |  |           |  | 2,829,190 |       | 
|Total       |  | Ps.      | 3,939,167 |  |           |  | 3,784,690 |       | 



Tranch I and Tranch II will be paid in 72 and 24 monthly
payments, respectively, beginning September 10, 2011 for Tranch I, and beginning September 10, 2016 for Tranch II. Interest is
payable monthly at the Equilibrium Interbank Interest Rate (EIIR) applicable to each interest period, plus the spread set forth
in the Agreement. At December 31, 2011, the short and long-term payable amounted to Ps. 357,019 and Ps. 7,277,584, respectively.



The credit is secured by the Company, as the borrower, and
the operating subsidiaries, Casa Saba, Drogueros, Farmacias ABC, Daltem Provee Nacional, Publicaciones Citem, Daltem Provee Norte,
Centennial, and Controladora Casa Saba, as joint and several obligors, in the terms of the “Guarantee Documents”.



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The Company and joint and several obligors should meet conditions
related to the maintenance of insurance, inspection rights, operations with affiliates at market value, payment of taxes, and
share structure, among other things. Moreover, the negative covenants are related to certain levels of indebtedness, encumbrances
on the assets, unauthorized consolidations or mergers, disposal of assets, payment of dividends, among other things.



Financial covenants

The Company must comply with the following financial ratios
on a consolidated basis:



a)          Net
debt to UAFIDA (*):

| | · | A
                                                                                                             ratio that does not
                                                                                                             exceed 5.5 to 1,
                                                                                                             as of the date of
                                                                                                             the Amending Agreement
                                                                                                             within 24 months
                                                                                                             subsequent to the
                                                                                                             drawdown date.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A
                                                                                                             ratio that does not
                                                                                                             exceed 2.5 to 1,
                                                                                                             as of the date that
                                                                                                             occurs 24 months
                                                                                                             subsequent to the
                                                                                                             drawdown date.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



b)
        UAFIDA to gross financial expenses:

| | · | A
                                                                                                             ratio that is not
                                                                                                             lower than 2 to 1,
                                                                                                             as of the date of
                                                                                                             the Amending Agreement
                                                                                                             within 24 months
                                                                                                             subsequent to the
                                                                                                             drawdown date.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A
                                                                                                             ratio that is not
                                                                                                             lower than 3 to 1,
                                                                                                             as of the date that
                                                                                                             occurs 24 months
                                                                                                             subsequent to the
                                                                                                             drawdown date.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



c)     
   Minimum stockholders’equity of Ps. 7,082,848. For
2011, the amount of the allowance for doubtful accounts will be aggregated.



d)  
      Capital investment that does not exceed 29 percent of the UAFIDA.



e)   
     Maintain the following percentages of the“target
balance of the reserve” in the“reserve
of the debt service” as defined in Amending Agreement in
available funds: (i) 15 percent effective September 30, 2011; (ii) 45 percent effective December 31, 2011; (iii) 75 percent
effective March 31, 2012; and (iv) an amount equal to the target balance of the reserve effective July 1, 2012.



At December 31, 2011, the main financial ratios were as follows:



|Financial ratios                         |  | Required                              |  | Calculated |           |  | Status
|---------------------------------------- |  | ------------------------------------- |  | ---------- | --------- |  | ------
|Net debt ratio to UAFIDA                 |  | Equal or lower than 5.50              |  |            | 4.14      |  |       
|                                         |  |                                       |  |            |           |  |       
|UAFIDA ratio to gross financial expenses |  | Equal or higher  than 2.0             |  |            | 2.26      |  |       
|                                         |  |                                       |  |            |           |  |       
|Minimum stockholders' equity             |  | Equal or higherthan
    Ps. 7,082,848 |  | Ps.        | 7,458,527 |  |       
|                                         |  |                                       |  |            |           |  |       
|Capital investments                      |  | Equal or lowerthan
    Ps. 2,127,000  |  | Ps.        | 123,968   |  |       



(*)        UAFIDA
means operating income before: (a) taxes on earnings, interest expenses, and extraordinary or unusual items; and (b) depreciation
and amortization expenses determined in accordance with MFRS.



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The bank creditors may terminate the debt term early in any
of the following events of nonperformance: (a) payment of the debt on the due date agreed upon; (b) the financial ratios described
in the affirmative and/or negative covenants; (c) with governmental authorities; (d) guarantees, among other reasons, and in the
lack of waivers by the bank creditors. In those circumstances, the Group would classify this debt in the short-term in the balance
sheet. This classification might have an adverse material effect on the liquidity and financial position of the Group.



| | ii) | FASA debts:
| | --- | -----------



At December 31, 2011, FASA has debts in marketable bonds
translated to Mexican pesos as follows:



|Share 
    series |  | Amount
    in  development  units |           |  | Short-term |     |         | Long-term |  |  | Total     |  |  | Due date |           | Guarantee
|----------------- |  | --------------------------------- | --------- |  | ---------- | --- | ------- | --------- |  |  | --------- |  |  | -------- | --------- | ---------
|E                 |  |                                   | 1,800,000 |  |            | Ps. | 222,400 |           |  |  | 727,545   |  |  |          | 949,945   |          
|F                 |  |                                   | 2,200,000 |  |            |     | 8,185   |           |  |  | 1,253,370 |  |  |          | 1,261,555 |          
|                  |  |                                   |           |  |            | Ps. | 230,585 |           |  |  | 1,980,915 |  |  |          | 2,211,500 |          



| | iii) | Other credits:
| | ---- | --------------



The
Group has entered into various contracts with financial institutions to access factoring and electronic discounts of documents
(“productive chains”),
working capital and financial leasing. At December 31, 2011, the amount of those short-term loans translated to Mexican pesos
is summarized as shown below:



|Currency       |  | Productive
    chains |           |  | Working capital |  |           | Financial leasing |  |  | Total  | 
|-------------- |  | --------------------- | --------- |  | --------------- |  | --------- | ----------------- |  |  | ------ | 
|Mexican pesos  |  | Ps.                   | 1,044,101 |  |                 |  | 993,046   |                   |  |  |        | 
|Brazilian real |  |                       |           |  |                 |  | 112,121   |                   |  |  |        | 
|Chilean pesos  |  |                       |           |  |                 |  | 302,275   |                   |  |  | 11,679 | 
|               |  | Ps.                   | 1,044,101 |  |                 |  | 1,407,442 |                   |  |  | 11,679 | 



At December 31, 2011, the balance of long-term loans translated
to Mexican pesos is summarized as follows:



|Currency      |  | Working capital |         |  | Financial Leasing |  |        | Total | 
|------------- |  | --------------- | ------- |  | ----------------- |  | ------ | ----- | 
|Chilean pesos |  | Ps.             | 203,766 |  |                   |  | 43,450 |       | 



At December 31, 2011, the maturities of consolidated long-term
debt, were as follows:



|Year                 |  | Amount |          
|-------------------- |  | ------ | ---------
|2013 to 2017         |  | Ps.    | 6,439,345
|More than five years |  |        | 1,813,000
|2029                 |  |        | 1,253,370
|                     |  | Ps.    | 9,505,715



Interest rates are adjusted monthly in accordance with the
prevailing market rates. Consequently, at December 31, 2011 and 2010, the carrying value of the bank debt was equivalent to its
fair value.



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At December 31, 2011, the Group has the following facility lines from banking
institutions:



|Banking Institution            |  | Country |  | Total facility
     lines |           |  | Amount used
     at December  31, 2011 |  |         | Available 
    amount at  December 31, 2011 | 
|------------------------------ |  | ------- |  | ------------------------- | --------- |  | -------------------------------------- |  | ------- | ------------------------------------------- | 
|Banco Santander Mexicano, S.A. |  | Mexico  |  | Ps.                       | 50,000    |  |                                        |  |         |                                             | 
|Banco Santander Mexicano, S.A. |  | Mexico  |  |                           | 490,000   |  |                                        |  | 490,000 |                                             | 
|BBVA Bancomer, S.A.            |  | Mexico  |  |                           | 20,000    |  |                                        |  |         |                                             | 
|BBVA Bancomer, S.A.            |  | Mexico  |  |                           | 350,000   |  |                                        |  | 350,000 |                                             | 
|Mi Banco, S.A.                 |  | Mexico  |  |                           | 150,000   |  |                                        |  | 150,000 |                                             | 
|                               |  |         |  | Ps.                       | 1,060,000 |  |                                        |  | 990,000 |                                             | 



13.       Other payables and accrued liabilities



At December 31, 2011 and 2010, the other payables and accrued liabilities balance
were as follows:



|                        |  | 2011 Restated |           |  | 2010 Restated | 
|----------------------- |  | ------------- | --------- |  | ------------- | 
|Other payables          |  | Ps.           | 1,273,720 |  |               | 
|Provisions              |  |               | 726,503   |  |               | 
|Tax payables            |  |               | 569,407   |  |               | 
|Document payables       |  |               | 230,585   |  |               | 
|Withheld taxes          |  |               | 134,735   |  |               | 
|Employee profit sharing |  |               | 3,710     |  |               | 
|                        |  | Ps.           | 2,938,660 |  |               | 



Current provisions and other payables referred to above primarily
consist of the best estimate of the Management on bonuses and incentive plans for employee benefits, retaining officers, severance
benefits derived from restructuring causes, administrative expenses, fees, marketing insurance and surety bonds, rents of locales,
and certain contingencies from legal procedures. These amounts and concepts are revolving in nature and are expected to be settled
and replaced by similar amounts within the next 12 months.



14.       Deferred taxes on earnings and employee
profit sharing effect:



At December 31, 2011 and 2010, the deferred income tax effect
was as follows:



|                                                                           |  | 2011 |          |   | 2010 | 
|-------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | 
|Cumulative inventory                                                       |  | Ps.  | 155,896  |   |      | 
|Allowance for doubtful accounts and estimate for slow-moving
    inventory |  |      | (339,850 | ) |      | 
|Property and equipment                                                     |  |      | (22,377  | ) |      | 
|Other                                                                      |  |      | 27,734   |   |      | 
|Tax loss carryforwards                                                     |  |      | (275,423 | ) |      | 
|Income tax due to translation effect of
    foreign operations             |  |      | 59,111   |   |      | 
|                                                                           |  |      | (394,909 | ) |      | 
|Valuation allowance                                                        |  |      | 1,632    |   |      | 
|Deferred income tax asset, net                                             |  | Ps.  | (393,277 | ) |      | 



i)          At
December 31, 2011 and 2010, Management determined that income tax will be the tax on earnings that will normally be paid in future
years by the Group’s Mexican entities. Therefore, the Mexican entities recognized deferred income tax.



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The
deferred income tax asset is realized when: (i) taxable income is generated and its effect offsets the reversal of deductible
temporary differences, including the tax loss carryforwards effect; and (ii) there are sufficient taxable temporary differences
whose reversal occurs in the reversal period of the deductible temporary differences. At December 31, 2011, Management recorded
a deferred income tax asset valuation allowance which it estimates will not be realized in the amount ofPs.1,632. Management estimates that the rest of the deferred income tax asset
will be realized considering its business plan, and no IETU will be generated in the short-term. Toward that end, Management takes
into account expansion plans, expiration of tax loss carryforward, projected taxable income, tax planning strategies, etc.



ii)         At December 31, 2011, 2010, 2009, the amounts for income taxes included in
the income statements are summarized as follows:



|                            |  | 2011 |           |   | 2010 |  |          | 2009 | 
|--------------------------- |  | ---- | --------- | - | ---- |  | -------- | ---- | 
|Current
    income taxes:   |  |      |           |   |      |  |          |      | 
|Mexican
    operations:     |  |      |           |   |      |  |          |      | 
|Income tax                  |  | Ps.  | 500,838   |   |      |  | 281,633  |      | 
|IETU                        |  |      | 9,037     |   |      |  | 13,517   |      | 
|Foreign
    operations      |  |      | 234,812   |   |      |  | 91,202   |      | 
|                            |  | Ps.  | 744,687   |   |      |  | 386,352  |      | 
|Deferred
    income taxes:  |  |      |           |   |      |  |          |      | 
|Mexican
    operations      |  | Ps.  | (282,474) |   |      |  | (202,755 | )    | 
|Foreign
    operations      |  |      | (149,779  | ) |      |  | (135,342 | )    | 
|                            |  |      | (432,253  | ) |      |  | (338,097 | )    | 
|Income
    tax expense, net |  | Ps.  | 312,434   |   |      |  | 48,255   |      | 



At December 31, 2011, 2010 and 2009, IETU due in the amount
of Ps. 9,037, Ps. 13,517, and Ps. 19,826, respectively, applies to tax on earnings paid individually by certain subsidiaries,
as well as by the Company. Moreover, in those years, the amount of deferred employee profit sharing applied to income statement
amounted to Ps. 156, Ps. 1,317 and Ps. 254, respectively.



The change in consolidated deferred income taxes during 2011, 2010 and 2009 were
as follows:



|                                                                                    |  | 2011 |          |   | 2010 |     |          | 2009 | 
|----------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | --- | -------- | ---- | 
|Deferred income tax credited to the income
    statement for the year               |  | Ps.  | (432,253 | ) |      | Ps. | (338,097 | )    | 
|Deferred income tax (credited)
    charged to the stockholders’ equity for the year |  |      | (17,649  | ) |      |     | 1,419    |      | 
|Total                                                                               |  | Ps.  | (449,902 | ) |      | Ps. | (336,678 | )    | 



iii)        Effective tax rate



The differences between book and tax bases of assets and
liabilities and the different tax rates and laws that apply to the Mexican and foreign subsidiaries that comprise the Group, among
other things, generate differences between the statutory tax rate applicable in Mexico and the effective tax rate presented in
the consolidated statements of income, as follows:



|                                                 |  | 2011 Restated |       |   | 2010 Restated |  |       | 2009 | 
|------------------------------------------------ |  | ------------- | ----- | - | ------------- |  | ----- | ---- | 
|                                                 |  | %             |       |   | %             |  |       | %    | 
|Mexican consolidated statutory tax rate          |  |               | (30.0 | ) |               |  | (30.0 | )    | 
|Other non-taxable income
    (*)                 |  |               | (0.2  | ) |               |  | 0.4   |      | 
|Expenses and other non-deductible
    items (**) |  |               | 119.6 |   |               |  | (2.6  | )    | 
|Difference between book
    and tax inflation    |  |               | 45.4  |   |               |  | 1.4   |      | 
|Other accounting benefits
    non taxable        |  |               | 30.3  |   |               |  | 18.2  |      | 
|                                                 |  |               |       |   |               |  |       |      | 
|Consolidated
    effective tax rate              |  |               | 165.1 |   |               |  | (12.6 | )    | 



(*)        This
line item includes the effect of the different income tax rates in the countries where the Group operates.



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(**)      This line
item includes mainly the effect of the goodwill impairment loss.



15.        Foreign currency position:



At December 31, 2011 and 2010, assets and liabilities denominated
in foreign currencies, translated into reporting currency, were as follows:



|                             |  | 2011 |            |  | 2010 | 
|---------------------------- |  | ---- | ---------- |  | ---- | 
|Assets:                      |  |      |            |  |      | 
|Current assets               |  | Ps.  | 5,899,648  |  |      | 
|Long-term assets             |  |      | 6,173,373  |  |      | 
|                             |  |      | 12,073,021 |  |      | 
|Liabilities:                 |  |      |            |  |      | 
|Current liabilities          |  |      | 6,897,100  |  |      | 
|Long-term liabilities        |  |      | 3,304,024  |  |      | 
|                             |  |      | 10,201,124 |  |      | 
|Lending (borrowing) position |  | Ps.  | 1,871,897  |  |      | 



At December 31, 2011 and 2010, the exchange rates used in
the process of translation to the reporting currency, published by the Banco de Mexico, are as follows:



|               |  | 2011              |       |  | 2010                | 
|-------------- |  | ----------------- | ----- |  | ------------------- | 
|Currency       |  | Balance sheetdate |       |  | Report issuancedate | 
|U.S. dollar    |  | Ps.               | 13.98 |  |                     | 
|Brazilian real |  | Ps.               | 7.47  |  |                     | 
|Chilean peso   |  | Ps.               | 0.03  |  |                     | 



16.       Other expenses, net



At December 31, 2011, 2010 and 2009, the other expenses,
net were as follows:



|                                              |  | 2011 |         |   | 2010 |  |        | 2009 | 
|--------------------------------------------- |  | ---- | ------- | - | ---- |  | ------ | ---- | 
|Deferred employee profit sharing              |  | Ps.  | 2,597   |   |      |  | 3,620  |      | 
|(Gain) loss on sale of property and equipment |  |      | (26,634 | ) |      |  | 28,174 |      | 
|Impairment losses                             |  |      | 538,019 |   |      |  |        |      | 
|Others                                        |  |      | 21,556  |   |      |  | 65,337 |      | 
|                                              |  | Ps.  | 535,538 |   |      |  | 97,131 |      | 



17.        Stockholders’
equity:



a)          Capital
structure



At December 31, 2011 and 2010, paid-in capital stock was
as follows:



|                                               |  | Number of |             |  | Par value |    
|---------------------------------------------- |  | --------- | ----------- |  | --------- | ---
|                                               |  | Shares    |             |  | 2011      |    
|Fixed capital shares without retirement rights |  |           | 265,149,080 |  |           | Ps.
|Variable capital shares                        |  |           | 270,280     |  |           |    
|Historical capital stock                       |  |           | 265,419,360 |  |           | Ps.
|Restated capital stock                         |  |           |             |  |           | Ps.



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At December 31, 2011 and 2010, capital stock comprised of
Series Sole common shares, fully subscribed for and paid, with no par value shown. Variable capital stock has no limits.



Repurchase and resale of own shares (restricted earnings)



The Company may acquire the shares representative of its capital
stock with a charge to stockholders’ equity, without reducing capital stock, or with a charge to capital stock. In this last
event, they become treasury shares, without requiring a resolution adopted by the stockholders’ meeting. The General Ordinary
Stockholders’ Meeting determines the amount that should be allocated toward share repurchases for each year. Those funds
may not exceed the balance of the Company’s net earnings, including retained earnings. The amount of the reserve for own
share repurchases is appropriated from retained earnings.



At the General Ordinary Stockholders’ Meeting held on
April 22, 2003, the stockholders resolved that the maximum amount geared toward the Company’s own share repurchases should
be equivalent to 15 percent of the Company’s stockholders’ equity at December 31, 2002, without exceeding retained
earnings at that date. During 2011 and 2010, the Stockholders’ Meetings resolved to maintain the same level of reserve approved
by its similar on April 22, 2003. During 2011 and 2010, the stockholders resolved not to agree a specific number of shares and
Mexican peso amounts for repurchase of its own shares.



| | b) | Legal reserve
| | -- | -------------



Net income generated by the Company is subject to the legal
provision that requires appropriating 5 percent of the Company’s income to a legal reserve until that reserve equals 20 percent
of the Company’s capital stock. Equity in earnings of subsidiaries and associates is not considered for this purpose. Amounts
from this reserve may not be distributed to the Company’s stockholders, except as stock dividends. At December 31, 2011 and
2010, the Company’s legal reserve amounted to Ps. 251,995 and Ps. 238,491, respectively, which is included in "retained
earnings".



| | c) | Distribution of earnings and capital reductions
| | -- | -----------------------------------------------



Any dividends distributed to stockholders must be paid out
of the “Net taxable income account” (CUFIN-Spanish acronym). Any dividends paid out in excess of CUFIN are subject
to a 42.9 percent tax rate payable by the Company and its subsidiaries. The resulting income tax may be offset against income tax
due in the same year and the subsequent two years and/or IETU of the same period. At December 31, 2011 and 2010, the balance of
CUFIN amounted to Ps. 4,325,797 and Ps. 3,990,781, respectively. Effective 2011, the balance of CUFIN was determined in a consolidated
manner due to the Company again was approved by the Mexican tax authorities to determine its consolidated taxable income as discussed
in Note 3 r). In 2010, the Company determined the balance of CUFIN individually for each entity due to the deconsolidation tax
carried out in that year.



In April 2009, dividends were declared at the Company’s
Stockholders’ Meeting in the amount of Ps. 170,000 to be paid out of retained earnings. Dividends paid did not exceed the
consolidated CUFIN balance at that date. Therefore, no income tax was due.



The excess of capital reimbursement per share paid to stockholders
over the balance of the "Restated contributed capital per share account" should be treated as a distributed dividend.
The excess will be assessable as provided for in the Income Tax Law. The resulting income tax may be offset as referred to above.
Effective 2011, the balance of CUCA is determined in a consolidated manner by considering the new tax approval referred to above.



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| | d) | Dividends among companies of the Group
| | -- | --------------------------------------



Dividends paid out of the CUFIN among companies of the Group
are subject to the provisions sets forth by the 2010 tax reform (Note 18 d).



On December 18, 2009, the Casa Saba’s General Ordinary
Stockholders’ Meeting, declared the payment of dividends in the amount of Ps 1,140,000, in favor of the Company, as well
as Ps. 1 (peso) in favor of Inmuebles Visosil, S.A. de C.V.



On December 2009, the General Ordinary Stockholders’
Meeting of Drogueros, Estrella del Este, Secosa and Secodro declared the payment of dividens in the amount of Ps. 320,000, Ps.
1,200, Ps. 24,500 and Ps. 1,700, respectively, in favor of Inmuebles Visosil, S.A. de C.V. Moreover, in December 2009, the General
Ordinary Stockholders’ Meeting of Inmuebles Visosil, S.A. de C.V. declared the payment of dividends in the amount of Ps.
367,000 in favor of Casa Saba.



| | e) | Noncontrolling interest
| | -- | -----------------------



Noncontrolling interest
reflects the equity of third-party shareholders in capital and earnings (losses) of consolidated subsidiaries.



18.         Tax
system:



| | a) | Income tax due
| | -- | --------------



i)           The
Company and its Mexican subsidiaries pay income tax or IETU, the higher, in accordance with the currently enacted tax legislation.
The annual income tax rate in jurisdictions in which the Group operates, is as shown below:



|       |  | 2011 |    |   | 2010 | 
|------ |  | ---- | -- | - | ---- | 
|Mexico |  |      | 30 | % |      | 
|Brasil |  |      | 34 | % |      | 
|Chile  |  |      | 20 | % |      | 
|Peru   |  |      | 30 | % |      | 



ii)          Through December
31, 2009, the Holding Company and some of its Mexican controlled entities determined the income tax amount on a consolidated basis.
For this purpose, the Holding Company included the amount of taxable income/tax loss generated in the year by its controlled entities
in tax consolidation at 100 percent of the equity stake that the Holding Company held in the capital stock of its controlled entities.
In addition, the Holding Company also included at 100 percent its individual taxable income/tax loss generated in the same year
in tax consolidation.



iii)         Effective December
18, 2009, Management decided that some significant Mexican controlled entities were no longer included in tax consolidation. As
a result of this deconsolidation, the Holding Company paid income tax in the amount of Ps. 188,768 which was subsequently credited
in accordance with the Income Tax Law. Moreover, on June 25, 2010, Management filed an additional notice with the Mexican tax authorities
that the Company was no longer going determine its consolidated taxable income along with the rest of its controlled entities for
2010. This way, those entities and the Holding Company met their tax obligations individually for that year. As a result of this
new tax deconsolidation, the Company paid income tax in the amount of Ps. 132,629.



Notwithstanding the foregoing, for business reasons, the Holding
Company again was approved by the Mexican tax authorities on December 21, 2010, in order for it to determine its consolidated income
tax as a controlling company along with its entities that meet the characteristics of controlled entities for tax purposes. The
approval is effective as of January 1, 2011. The rest of the subsidiaries that do not conform to the characteristics of controlled
entities met their tax obligations individually, in accordance with the Income Tax Law.



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The subsidiary Transportes Marproa is authorized to pay the
higher of income tax or IETU separately from the Group under a tax regime known as the “administrative facilities”.
This regime grants benefits regarding ascertainment of disbursements made, as well as other relative to credit “consumption
taxes”.



In conformity with the Mexican Income Tax Law, subsidiaries
residing abroad do not consolidate for tax purposes. In addition, Mexican entities that are incorporated into the Group subsequent
to the date on which the approval of tax consolidation goes into effect will do so as of the fiscal year subsequent to that in
which ownership is acquired of more than 50 percent of the shares.



iv)         In 2005,
the Company and its Mexican subsidiaries chose to deduct the cost of sales of the “base inventory” determined at December
31, 2004 for tax purposes. Therefore, those entities determined the “cumulative inventory” value which is treated as
taxable income for tax purposes. At December 31, 2004, cumulative inventory amounted to Ps. 3,184,264. Its accumulation is annual,
effective 2005 through fiscal year 2012. At December 31, 2011 and 2010, the cumulative inventory amount added to the taxable income
amounted to Ps. 851,086 and Ps. 285,274, respectively.



v)          Income tax due is determined by taking into account
the depreciation on the restated fixed assets value, annual inflationary adjustment on monetary items, benefit of tax loss carryforwards,
and the cumulative inventory effect of the year.



vi)
        In 2010 and 2009, the Government of
Brazil approved certain tax amnesty that allows for: (i) paying debts on taxes on earnings and excise taxes in less strict
conditions than those that normally apply; and (ii) offsetting tax loss carryforwards against taxes on earnings debts and
excise taxes. During the years ended December 31, 2011 and 2010, the Company did not apply the tax
amnesty program.



| | b) | Corporate Flat Tax Law (IETU-Spanish acronym)
| | -- | ---------------------------------------------



The annual IETU tax rate for 2011 and 2010 is 17.5 percent,
whereas for 2009 the tax rate is 17 percent.



The IETU Law does not recognize a regime for tax consolidation
purposes. Accordingly, the Company and its Mexican subsidiaries should pay IETU individually. In terms of the Income Tax Law, each
controlled entity may consider the amount of income tax that has been delivered to the Holding Company as its own income tax, which
may be credited against IETU. At December 31, 2011, 2010 and 2009 some controlled entities generated IETU higher than income tax,
therefore IETU was the annual tax due. In those years, annual IETU paid by the entities amounted to Ps.9,037, Ps. 13,517 and Ps.
19,826, respectively, which is included in income statement in “Provisions for income tax”. Payment of that tax is
considered final.



While IETU co-exists with income tax, entities will pay IETU
if it is greater than income tax of the same period. IETU of the period is reduced by the amount of income tax paid in the same
period due to taxable income and by the income tax paid on dividends distributed. If IETU is lower than income tax, entities are
not subject to IETU. Moreover, if deductions for IETU purposes exceed their taxable income, entities are not subject to IETU.



At December 31, 2011, 2010 and 2009, the Company and its Mexican
subsidiaries determined the tax credits permitted for the IETU Law. The amount of those tax credits does not exceed certain percentages,
and their offset cannot exceed ten years as of fiscal year 2008.



| | c) | Tax loss carryforwards for income tax and negative base for IETU
| | -- | ----------------------------------------------------------------



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i)          In accordance with Mexican Income Tax Law, loss carryforwards can be offset against taxable income that may be
generated in the future over a ten year term by Mexican entities. Tax loss carryforwards can be restated based on the
NCPI factor from the date incurred through the sixth month of the year in which they can be offset against taxable income.
At December 31, 2011, the Group had incurred in tax loss carryforwards as follows:



|Year incurred |  | Group (Except FASA and subsidiaries) |         |  | Farmacias Ahumada and subsidiaries |  |         | Expired Date | 
|------------- |  | ------------------------------------ | ------- |  | ---------------------------------- |  | ------- | ------------ | 
|2002          |  | Ps.                                  | 769     |  |                                    |  |         |              | 
|2003          |  |                                      | 2,775   |  |                                    |  |         |              | 
|2004          |  |                                      | 3,204   |  |                                    |  |         |              | 
|2005          |  |                                      | 95,098  |  |                                    |  | 172,975 |              | 
|2006          |  |                                      | 99,356  |  |                                    |  | 11,340  |              | 
|2007          |  |                                      | 14,980  |  |                                    |  | 236,594 |              | 
|2008          |  |                                      | 118,247 |  |                                    |  | 188,723 |              | 
|2009          |  |                                      | 76,883  |  |                                    |  |         |              | 
|2010          |  |                                      | 66,337  |  |                                    |  |         |              | 
|2011          |  |                                      | 39,254  |  |                                    |  |         |              | 
|              |  | Ps.                                  | 516,903 |  |                                    |  | 609,632 |              | 



At December 31, 2011,
the tax losses incurred by the Brazilian subsidiaries amounted to Ps. 697,858. Those tax losses are not restated and can be applied
for an undefined period without exceeding 30 percent of the taxable income for the year.



ii)        The negative
IETU base generates a tax credit that results from applying the currently enacted IETU rate to that negative base. The resulting
amount may be credited against IETU in the following ten fiscal years until it is exhausted. The negative base can be restated
as explained in paragraph i) hereinabove. At December 31, 2011, the IETU negative base generated by some Mexican subsidiaries was
as follows:



|Year incurred |  | Negative base |        
|------------- |  | ------------- | -------
|2008          |  | Ps.           | 2,661  
|2009          |  |               | 13,544 
|2010          |  |               | 169,335
|2011          |  |               | 67,430 
|              |  | Ps.           | 252,970



| | d) | 2010 Mexican Tax Reform
| | -- | -----------------------



i)        
 Effective January 1, 2010, the Income Tax Law sets forth that the annual
income tax rate is 30 percent for the years included in the 2010 to 2012 period. That tax rate is reduced to 29 percent for
2013 and 28 percent for 2014 and henceforth.



ii)           Change in the tax
consolidation regime which required for determining at December 31, 2009 annual income tax as if tax consolidation
rules had not existed since 1999 and henceforth. Therefore, the restated income tax that is related to the benefits of tax
consolidation obtained as of that year, is paid for: (a) operating tax losses and losses on sale of stock used in tax
consolidation that would have not been carried forward individually by the entity that incurred them; (b)
special consolidation items for transactions among entities of the Group; and (c) dividends paid among entities of the Group
that are paid out of earnings not taxed for income tax purposes in the past.



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As a result of tax deconsolidation
and the resulting payments of income taxes discussed in the paragraph a) in this same Note, the reversal process of tax benefits
generated up to December 31, 2009 referred in the paragraph above, is no longer applicable to the Group.



Effective 2011,the Company
again adopted the tax consolidation regime, therefore, the benefits that can be generated in tax consolidation will be reversed
by considering the terms and percentages set forth in the Income Tax Law.



| | 19. | Operating
segments:
| | --- | -------------------



Effective
January 1, 2011, the Group adopted MFRS B-5, “Financial information by segment”(MFRS B-5), which superseded
Bulletin B-5 with the same name. That adoption had no impact on the Group’s
consolidated financial statements.



Operating segments are the components of an entity geared
toward production and sale of goods, as well as rendering services. The Group operates on a regional basis by considering the distribution
segment and retail pharmacy segment. Each regional director supervises and is responsible for all the business activities in each
unit. These activities refer to the distribution of pharmaceutical products, as well as health and beauty aids/other products,
entertainment products, food/non-perishable products through its operating subsidiaries. The Group distributes these product lines
through its distribution network, as well as retail pharmacies throughout Mexico, as well as Sao Paulo and Rio de Janeiro, Brazil
and, effective 2010, Chile and Peru.



The regional director, who is one level below the chief financial
officer and chief executive officer in the organizational structure, reports to such officers the operating results of the business
unit. The Group’s management internally evaluates the results and performance of each business unit for decision-making purposes.



The main indicator used by Group’s management to evaluate
the performance of each entity is operating EBITDA, which the Group defines as operating income plus depreciation, amortization
and impairment loss. This indicator, which is presented in the selected financial information, is consistent with the information
used by Group’s management for decision-making purposes. The accounting policies applied to determine the financial information
by operating segment are consistent with those described in Note 3).



All significant transactions between related parties have
been eliminated in the preparation of the information by operating segments. At December 31, 2011, 2010 and 2009 the information
was as follows:



|                                               |  | 2011              |            |  | 2010                  |  |            | 2009  | 
|---------------------------------------------- |  | ----------------- | ---------- |  | --------------------- |  | ---------- | ----- | 
|Item                                           |  | Retail pharmacies |            |  | Distribution business |  |            | Total | 
|                                               |  |                   |            |  |                       |  |            |       | 
|Net sales                                      |  | Ps.               | 20,647,625 |  |                       |  | 25,920,601 |       | 
|Operating income                               |  |                   | 240,662    |  |                       |  | 1,139,506  |       | 
|Depreciation, amortization and impairment loss |  |                   | 379,818    |  |                       |  | 69,617     |       | 
|EBITDA                                         |  |                   | 620,480    |  |                       |  | 1,209,123  |       | 



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At December 31, 2011, and 2010, the selected information of balance sheet by eliminating
intercompany balances was as follows:



|                  |  | 2011                |            |  | 2010                  | 
|----------------- |  | ------------------- | ---------- |  | --------------------- | 
|                  |  | Retailer pharmacies |            |  | Business distribution | 
|Current assets    |  | Ps.                 | 6,121,812  |  |                       | 
|Noncurrent assets |  |                     | 5,581,177  |  |                       | 
|Total liabilities |  |                     | 10,318,474 |  |                       | 



| | 20. | Contingencies
and commitments:
| | --- | ------------------------------



a)          On February 12, 2007, the Group filed appeals for constitutional
relief with the Mexican Federal Tax Court against the tax reform that binds taxpayers to determine asset tax by applying the 1.25
percent annual rate to the average value of net assets without reducing the value of debts contracted from the taxable base, effective
January 1, 2007. In September 2011, the Mexican Federal Tax Court handed down a favorable ruling in favor of the Group.



b)          On March 28, 2008, the Mexican tax authorities issued
an “invitation” to the Company to file an amended tax return of consolidated income tax for fiscal year 2005 and prove
that it added the amount of certain prior year tax losses to consolidated taxable income for the same year. Previously, those tax
losses had been reduced by the Group to determine cumulative inventory, in accordance with the Income Tax Law. In May 2008 and
March 2009, Management filed the amended income tax return that met with that invitation. Accordingly, there is no contingency
payable by the Company. However, Management would carry out actions that would imply adoption of a criterion other than that of
the tax authorities, which could have this matter solved in the Federal Tax Court. In Management’s opinion, the Company is
not bound to comply with the criterion set forth by the tax authorities as the Group has reasonable arguments to sustain its interpretation.



In September 2009, the Company filed a claim for a refund
of the consolidated income tax payment improperly made in the amount of Ps. 149,294, due to the invitation abovementioned. On November
12, 2009, the tax authorities made a partial refund in the amount of Ps. 26,420. Subsequently, the tax authority rejected to refund
the remaining amount. In February 2010, Management filed an appeal for annulment against that resolution.



In the Mexican tax authority’s opinion, the Company
failed to perform the provision of aggregating the amount of tax losses discussed above to the taxable income, therefore, the tax
authority determined a tax liability in the amount of Ps. 160,692 that included related charges amounting to Ps. 98,609, in September
2011. Subsequently, in December 2011, Management rejected the observations made by the tax authority and filed a motion for reconsideration.
Management estimates that there are reasonable elements for obtaining a ruling favorable to the Company's interests, therefore,
it considers that there is no present obligation that can be estimated and recorded in accordance with MFRS. Therefore, it is not
possible to foresee or anticipate any result due to it is a litigation matter.



c)          Through
official letters dated October 7, 2011 and April 20, 2012, the Mexican tax authorities notified Casa Saba and Drogueros had omitted
accruing income for income tax purposes of fiscal 2005 in the amount of Ps.531,279 and Ps.59,204, respectively, for“cumulative
inventory”.



In June and July 2012, Casa Saba and Drogueros filed a motion
for reconsideration against the ruling issued by the tax authority in April 2012. At the date of the auditor ́s report the
final resolution is pending to be issued. Management estimates that there are reasonable elements for obtaining a ruling favorable
to the Company's interests, therefore, it considers that there is no present obligation that can be estimated and recorded in accordance
with MFRS.



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d)          In February 2010, the Company filed an appeal for constitutional
relief against the provisions that amend the consolidation regime, effective beginning January 1, 2010. In August 2010, the Mexican
Federal Tax Court handed down a ruling in favor of the Company to not pay deferred income tax in fiscal years 1999 to 2009, as
set forth in the reform mentioned. In November 2010, the tax authorities challenged the ruling. However, Management estimates that
there is no contingency charged to the Company, as the provisions whose unconstitutionality was challenged were applied by the
Company.



e)          In
November 2011, the Company filed a notification of "claims on inaccuracies or misrepresentations of the representations and
guarantees contained in the Promise Stock Purchase Agreement of Farmacias Ahumada, S.A.", with the sellers dated May 17, 2010.
Accordingly, the Company requested an indemnification payment in the amount of USD $22,335 (Ps. 268,026, approximately). At the
date of the auditors’report,the resolution of these matters is in a preliminary stage and their conclusion
might not be short-term.



In accordance with the contract, the sellers drew up certain
representations regarding FASA in favor of the Company, which guaranteed the Company the effectiveness thereof, and assumed the
obligation of indemnifying the damages caused as a result of any misrepresentation or inaccuracy in connection with certain representations
and captions of the financial statements.



f)InAugust 2011, FASA was
notified of action brought against it by its competitor Cruz Verde, S.A., which claims presumed damages related to
monopolistic practices. The figure claimed amounts to USD $23,000. The preliminary report of the external advisors engaged
by FASA indicates that it is not very likely that there will be a negative effect on the Company’s
consolidated financial statements.



g)          In
January 2009, Farmacias Benavides filed a claim for a refund with the Mexican tax authorities of an income tax paid in excess in
the amount ofPs.
15,000, derived from 2002 and 2003. In April 2010, the authority rejected that claim, therefore, the subsidiary filed a motion
for reconsideration against that resolution, and it is waiting for a ruling to be handed down.



h)          Due
to the sale of the stock of FASA Peru, the buyer may claim an indemnification for the possible inaccuracy in representations and/or
nonperformance of the obligations assumed in an amount equal to higher than USD $500 without exceeding USD $10,000. The term for
petitioning the indemnification expired on April 20, 2013. At the date of the auditors’report, Management considers that there is no present obligation that can be estimated and recorded in accordance with MFRS.



On December 7, 2010, the Technical Ministry of the Commission
of Free Competition notified Farmacias Peruanas, S.A. of the beginning of a proceeding for presumed monopolistic practices. Such
proceedings are a normal occurrence in the industry in which the Company operates.The presumed violation amounted to USD
$1,291, should the setting of prices be evidenced. The preliminary report of the external advisors engaged
by FASA indicates that it is not very likely that there will be a negative effect on the Company's consolidated financial statements.



i)      
   Farmacias Peruanas, S.A. filed a lawsuit against a liquidation issued by the Peruvian tax authority (SUNAT)
for a presumed difference in criterion for determining the tax base of 2001 and 2003 for$7,170,000
and$1,827,000 Peruvian Soles,
respectively (Ps. 31,600 and Ps. 8,052, respectively). In November 2010, the Company disputed the rejection notified by the
SUNAT. Management estimates that it is not very likely that there will be a negative effect on the
Company's consolidated financial statements.



At December 31, 2011, and 2010, Management maintains a provision
in the amount of Ps. 3,534 which, based on the opinion of its legal advisors, it considers that it is sufficient to cover a possible
liquidation. However, Management has reasonable arguments to obtain a ruling handed down in its favor. At the date of the auditors’
report, the SUNAT had not handed down the final ruling.



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j)      
   As part of the agreements related to the purchase of the stock of Drogasmil (now CSB Drogarias), the
Company maintains a contingent liability that will be paid if certain events occur in the future. The liability recorded
amounts to R$9,585 thousand, which is
included in the caption "other long-term liabilities" in the consolidated balance sheet.



k)          The
subsidiary Drogarias maintains a provision to cover possible labor and tax suits, classified as a likely loss risk, taking into
account the opinion of its legal advisors. At December 31, 2011 and 2010, the liability recorded this item amounted to R$2,980,000
and R$1,619,000 respectively (Ps.22,052 and
Ps. 12,013), which is included in the caption "other long-term payables".



l)   
      In accordance with Note 3 a) subparagraph ii) above, Drogarias concluded the valuation of
certain contingencies that resulted in an additional entry booked of present obligations as of December 31, 2011, which refer
to the different forms of remuneration to its management in Brasil, which have been suspended. For the valuation of the
contingencies, Drogarias took into account the opinion of its legal advisors, as well as the subsequent discovery of existing
events at December 31, 2011. As a result, the estimated liability of these contingencies amounts to R$12,794,000 (Ps. 95,593)
at December 31, 2011, which is included in the caption “accrued long-term liabilities” in the consolidated
balance sheet.



m)        The
Company and its subsidiaries have entered into various service contracts among them, related to the purchase, storage, and
transportation of products, as well as administrative, legal, financing, and electronic data processing services.



In accordance with the Mexican Income Tax Law, companies that
carry out related party transactions are subject to tax obligations, with respect to the determination of prices agreed upon. Such
prices should be comparable to prices that would be used with or among independent parties at arm’s length transactions.
Management believes that all related party transactions were agreed upon at arm’s length basis and, therefore, there is no
contingency in its charge.



n)          The Company and its subsidiaries may be involved in
various lawsuits and claims derived from the normal course of its operations. Management believes that these matters will not have
a significant impact on the Group’s consolidated financial position or results of its operations.



o)     
   In accordance with Mexican, Chilean and Brazilian tax legislation, the respective tax
authorities can exercise their inspection powers in the normal course of the Group’s operations. In Mexico and Chile
tax authorities have the power to review up to five years, whereas in Brasil is for six fiscal years. The Group can not
foresee if the reviews discussed will give rise to future contingencies. However, they will be disclosed and/or
recognized when they are known.



p)     
   At December 31, 2011 and 2010, the Group has operating lease commitments for locales leasing, as well
as capitalized leasing for computer equipment and laboratory equipment, as follows:



|                           |  | 2011 |           |  | 2010 |    
|-------------------------- |  | ---- | --------- |  | ---- | ---
|Commitments at one year    |  | Ps.  | 961,319   |  |      | Ps.
|Between one and five years |  |      | 3,478,399 |  |      |    
|More than five years       |  |      | 2,357,492 |  |      |    
|Operating lease            |  |      | 961,918   |  |      |    
|                           |  | Ps.  | 7,759,128 |  |      | Ps.



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| | 21. | Migration from MFRS to International Financial Reporting Standards (IFRS):
| | --- | --------------------------------------------------------------------------



The Comision Nacional Bancaria
y de Valores (Mexican National Banking and Securities Commission or “CNBV”) required companies listed on the
Mexican Stock Exchange to adopt IFRS, such as those issued by the International Accounting Standards Board (“IASB”),
beginning January 1, 2012, which permits its early adoption. Therefore, the accompanying financial statements are the last financial
statements under MFRS. The Group’s transition date is January 1, 2011 (the “transition date”). Moreover, the
CINIF issued Interpretation MINIF 19, in order for companies to disclose the obligation and/or decision to adopt IFRS in the notes
to the financial statements, the estimated date of adoption and the estimated effect on the financial statements.



In order to determine its opening IFRS statement of financial
position at January 1, 2011, the Group will adjust the amounts previously reported in its financial statements prepared under MFRS,
in conformity with IFRS 1, "First-time adoption of IFRS" (“IFRS 1”).



Management has concluded the quantification of the estimated
differences between MFRS and IFRS. The information presentedin this Notehas been prepared in conformity with the IFRS that the Group considers that will be in effect or will be adopted early at December
31, 2012. The accounting policies selected by the Group might be modified as a result of changes in the economic environment or
in trends in the industry that are observable, subsequent to the issue of these consolidated financial statements. Accordingly,
the information disclosed in this Note is subject to changes.



| | 1) | Mandatory exemptions
| | -- | --------------------



IFRS 1 prohibits the retroactive application of some aspects
of other IFRS, except for the following:



| | a) | Estimates
| | -- | ---------



The estimates conducted by the
Group under IFRS 1 as of the transition date should be consistent with the estimates previously recorded under MFRS at the same
date, at least there is objective proof that these estimates were erroneous.



| | b) | Derecognition of financial assets and financial liabilities
| | -- | -----------------------------------------------------------



On the transition date, the Group might apply the derecognition
requirements of IAS 39. “Financial instruments: recognition and measurement”(IAS 39) retroactively from a date
chosen by the entity provided that the information for applying IAS 39 to financial assets and financial liabilities derecognized
as the result of past transactions has been obtained at the time when these transactions are recognized initially.



| | c) | Hedge accounting
| | -- | ----------------



On the transition date, the Group estimated the fair value
of derivative financial instruments as required by IAS 39, which is consistent with MFRS.



| | d) | Non-controlling interests
| | -- | -------------------------



The Group applied the requirements in accordance with IAS
27 (amended). “Consolidated and separate financial statements”, related to the non-controlling interests prospectively,
as of the transition date. Consequently, the Group will not adopt the retroactive application required by IFRS 3, in conformity
with this exception.



Adoption of the exceptions discussed above had no impact on
the consolidated financial statements of the Group.



| | 2) | Optional exceptions
| | -- | -------------------



| | a) | Property, plant and equipment
| | -- | -----------------------------



IFRS 1 allows for measuring an item of property, plant and
equipment, as well as certain intangible assets: (i) for their fair value and using this value as the deemed cost; or (ii) using
a revaluation under previous generally accepted accounting principles (“previous GAAP”) of an item of property, plant
and equipment at the transition date or prior thereto, as an deemed cost at the revaluation date if this was at that date substantially
comparable: (a) at fair value; or (b) at cost or cost depreciated under IFRS adjusted to reflect changes in a general or specific
price index. At the transition date, the Group will adopt the following criteria:



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| | · | For real property, the Group uses a revaluation under
previous GAAP at transition date as deemed cost;
| | - | ------------------------------------------------------------------------------------------------------

| | · | for minor property and equipment and certain intangibles,
the Group uses their values restated in accordance with previous GAAP at a date prior to the transition as an deemed cost.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | for indefinite-lived intangible assets (trademarks),
the Group uses the fair value related to the acquisition of FASA, which was completed in October 2010.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the issue discussed above, beginning January
1, 2011, the Group will recognize a valuation effect that will increase the net carrying value of its property, plant and equipment
in the amount approximating Ps.747,611, which will be recorded against retained earnings in the opening balance sheet under IFRS.
Subsequent to the transition date, the Group will adopt the policy of the cost or depreciated cost for its property, plant and
equipment, in accordance with IFRS.



| | b) | Employee benefits
| | -- | -----------------



At the transition date, the Group will apply IAS 19, “Employee
benefits” (revised), which eliminates the use of the "corridor method” that trends to defer actuarial gains
and losses, and it is required to be recorded in other items of comprehensive income. Therefore, the Group will recognize actuarial
gains and losses existing at the date of transition against the opening balance of retained earnings. As a result, accumulated
net actuarial loss carryforwards at January 1, 2011 under MFRS in the amount of Ps.69,660, will be recognized by increasing the
liability of employee benefits against retained earnings of the opening balance sheet under IFRS. In addition, as of the transition
date, the Group will recognize the effect of all actuarial gains and losses in "other comprehensive income" in the period
in which they are accrued.



Moreover, for MFRS D-3 purposes, a severance provision and
the related expenditure must be recognized as the Group intends to: (i) terminate the employment relationship before the retirement
date, or (ii) pay benefits as a result of an offer to encourage a voluntary termination. For IFRS, this provision is recorded under
IAS 19 (revised), when the Group has demonstrated commitment to end the employment relationship or a bid to encourage voluntary
retirement. Therefore, a formal plan is required that describes the characteristics of the termination of employment. At the transition
date, the Group had not a formal plan.



| | c) | Accumulated translation differences
| | -- | -----------------------------------



IFRS 1 allows for writing off all accumulated losses and gains
in the translation and consolidation of the financial statements of foreign subsidiaries and investments abroad recorded under
the equity method that were generated under MFRS. This exception allows for not determining the effect for translation under IAS
21,"Effects of changes in foreign currency exchange rates"(IAS 21), from the date on which the subsidiary or
the investment accounted for by the equity method were incorporated or acquired. Consequently, at the transition date, the Group
will reverse the accumulated effect of translation gains or losses generated under MFRS. That is, the Group will transfer the balance
of the "Accumulated translation effect" against the opening balance of retained earnings as of the transition date in
the amount of Ps.140,895. This reclassification would not affect the balance of stockholders’ equity. Effective January 1,
2011, the Group will determine the translation effect prospectively according to IAS 21.



| | d) | Investments in subsidiaries, jointly controlled entities and associates
| | -- | -----------------------------------------------------------------------



IFRS 1 allows for valuing these investments as of the transition
date as indicated below, provided that the entity selects the “cost model” instead of fair value for valuing those
investments in their separate financial statements:



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| | · | at cost, determined in accordance with IAS 27, "Consolidated
and individual financial statements"; or
| | - | -----------------------------------------------------------------------------------------------------

| | · | at the deemed cost that can be: (i) fair value under
IAS 39, "Financial Instruments: Recognition and Measurement" as of the transition date in the individual financial
statements of the entity; or (ii) carrying value on that date under previous GAAP.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At the transition date, the Group will recognize its investments
in subsidiaries and associates in its individual financial statements at their carrying value under previous GAAP. Subsequently,
the Group will adopt the policy of recognizing its investments in subsidiaries, joint ventures, and associates in its individual
financial statements at cost.



| | e) | Assets and liabilities of subsidiaries, jointly controlled entities and associates
| | -- | ----------------------------------------------------------------------------------



IFRS 1 allows that if a holding company becomes a first-time
adopter later than its subsidiary, in its consolidated financial statement, the holding company should measure the assets and liabilities
of the subsidiary on the date of transition at the same carrying values as in the IFRS financial statements of the subsidiary,
after consolidation adjustments, equity method adjustments and for the effects of the business combination.



Pursuant to the foregoing, the Group will value the assets
and liabilities of its subsidiaries in Brasil and Chile which adopted IFRS before the holding company did at the carrying values
that those subsidiaries have in the financial statements under IFRS, after the adjustments discussed above.



| | f) | Business combinations
| | -- | ---------------------



IFRS 1 allows IFRS 3, "Business combinations"
(IFRS 3) to be applied prospectively, as of the transition date or from a specific date prior to the transition date.



The Group will apply IFRS 3 prospectively to business combinations
that occur as of the transition date. Therefore, the business combinations agreed upon prior to the transition date will not be
reestablished. That is, the Group: (i) will keep the same classification, as an acquisition by the legal acquirer, as in its previous
GAAP, and (ii) it will recognize all its assets and liabilities at the date of transition to IFRS that were acquired or assumed
in a past business combination. As a result, the goodwill balance determined in accordance with previous GAAP at the transition
date was not affected by the migration. Consequently, the carrying amount of the assets acquired and liabilities assumed in the
business combination will be their deemed cost, in accordance with IFRS on that date.



| | g) | Tax criteria
| | -- | ------------



Under MFRS, the tax effect related to the adoption of a tax
criterion is determined in accordance with a model of accumulated likelihoods. Therefore, an entity is not required to record a
tax liability, unless a disbursement of economic resources is likely or when the obligation can be estimated reasonably.



For IFRS, that effect is recognized under the confidence level
that a tax position acquires or expects to acquire. Therefore, the tax effect of an adopted position should be recognized only
if it meets the "more likely than not" standard limit to be admitted based on its technical merits (laws, regulations,
rules, etc.) at the transition date. Toward this end, the Group assumes that the tax authorities will examine and they will have
all the relevant information for each tax position adopted by the Group. If a tax position is not considered as "more likely
than not", no benefit of the position will be recognized in the financial statements.



As a result of the above, in the quantification and recognition
of the effects associated with uncertain tax criteria between MFRS and IFRS, in the consolidated opening balance sheet of the Group
under IFRS as of January 1, 2011, the Group decided to increase the provision for taxes payable for uncertain tax criteria in the
amount of Ps.94,330 against the balance of retained earnings by considering an invitation issued by the Mexican tax authorities
to file an amended tax return for fiscal year 2005 (Note 20 b) and c)).



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| | h) | Deferred taxes
| | -- | --------------



The deferred income tax effect of the adjustments required
for the transition to IFRS resulted in an increase in the deferred income tax liability recognized under MFRS approximating Ps.162,353,
against retained earnings in the opening balance sheet under IFRS as of January 1, 2011.



| | i) | Retained earnings
| | -- | -----------------



All the adjustments arising from the Company’s translation
to IFRS as of the transition date were recorded in retained earnings.The effects of the foregoing are as follow:



|                        |  | MFRS |            |  | IFRS transition effect |  |         | Preliminary IFRS | 
|----------------------- |  | ---- | ---------- |  | ---------------------- |  | ------- | ---------------- | 
|                        |  |      |            |  |                        |  |         |                  | 
|Current assets          |  | Ps.  | 18,694,193 |  |                        |  |         |                  | 
|Non-current assets      |  |      | 12,618,518 |  |                        |  | 671,103 |                  | 
|Total assets            |  |      | 31,312,711 |  |                        |  | 671,103 |                  | 
|                        |  |      |            |  |                        |  |         |                  | 
|Current liabilities     |  |      | 21,665,903 |  |                        |  |         |                  | 
|Non-current liabilities |  |      | 2,563,960  |  |                        |  | 249,835 |                  | 
|Total liabilities       |  |      | 24,229,863 |  |                        |  | 249,835 |                  | 
|Total equity            |  | Ps.  | 7,082,848  |  |                        |  | 421,268 |                  | 



The above IFRS figures should be construed as “preliminary
IFRS” as the Group will be adopting the same accounting policies in its opening IFRS statement of financial position and
throughout all periods presented in its first IFRS financial statements. The accounting policies defined by the Group will comply
with each IFRS effective at the end of its first IFRS reporting period, with certain exception as described to above. The information
presented above, does not intend to comply with IFRS as only one set of financial statements comprising the balance sheet, comprehensive
income statement, statement of changes in equity and cash flow, along with comparative information and explanatory notes can provide
a fair presentation of the financial statements taken as a whole. Not all such information is presented above.



| | 22. | Differences between MFRS and U.S. GAAP:
| | --- | ---------------------------------------



Basis of presentation under U.S. GAAP



The Group’s consolidated financial statements are prepared
based on MFRS, which differ in certain material respects from generally accepted accounting principles applicable in the United
States (“U.S. GAAP”). The term “SFAS” as used herein refers to U.S. Statements of Financial Accounting
Standards. In addition, the term “FASB” refers to the U.S. Financial Accounting Standards Board.



On July 1, 2009, the FASB changed the manner in which accounting
standards were organized by the implementation of the FASB Accounting Standards Codification (“ASC”). Therefore, ASC
105, “Generally Accepted Accounting Principles” (“ASC 105”) was issued. Effective that date, ASC
105 is the single official source of authoritative nongovernmental U.S. GAAP, except for Securities and Exchange Commission rules and
interpretive releases, which are sources of authoritative U.S. GAAP for SEC registrants. The standard is effective for interim
and annual periods ending after September 15, 2009. The Group adopted the provisions of the standard on September 30,
2009, which did not have a material impact on its audited consolidated financial statements.



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| | a) | Impact of inflation
| | -- | -------------------



As discussed in Note 3 e) above, through December 31, 2007,
the last date on which the Group operated in an inflationary economic environment, the inflation impact was recognized in accordance
with Mexican Bulletin B-10, “Recognition of the impact of inflation on the financial information (Integrated document)”(“Bulletin B-10”), regardless of the level of inflation. The inflation adjustments effect previously recognized
is maintained in the financial statements, in accordance with MFRS B-10, which superseded Bulletin B-10. MFRS B-10 requires that
the restated amounts of nonmonetary assets as reported at December 31, 2007 become the carrying amounts for those assets effective
January 1, 2008. Therefore, those carrying amounts affected the net income of 2011, 2010, and 2009. For instance, depreciation
expense is based on carrying amounts of fixed assets that include inflation adjustments.



Effective January 1, 2008, the Group adopted MFRS B-10 which
sets forth the financial statements that recognize the inflation impact are those relative to an entity whose functional currency
applies to a country in which there is an inflationary economic environment (inflation equal to or higher than 26 percent accumulated
in the three annual prior years). Therefore, the Group has not recognized the impact of inflation for the years ended December
31, 2011, 2010, and 2009 due to the non-inflationary economic environment existing in the countries where the Group operates.



The reconciliation of the reported net income and stockholders’
equity from MFRS to U.S. GAAP does not include the reversal of inflation accounting adjustments as of and for the years ended December
31, 2011, 2010 and 2009 as permitted by the Form 20-F of the Securities and Exchange Commission of the United States of America.
Nevertheless, the inflationary effect of economic environment that is inflationary under MFRS but not hyperinflationary under US
GAAP which arises as of 2008 and henceforth represents a difference that should be reconciled for U.S. GAAP purposes.



Other than inflation accounting, the principal differences
between MFRS and U.S. GAAP that affect the Group’s consolidated financial statements are described below along with an explanation,
where appropriate, of the method used to determine the adjustments between MFRS and U.S. GAAP.



| | b) | Statement of cash flows
| | -- | -----------------------



At December 31, 2011, 2010, and 2009, the statements of cash
flows prepared under the indirect method in a non-inflationary economic environment, presents cash inflows and outflows of the
period which do not include the impact of inflation of the period, and therefore, the amounts of statements of cash flows are presented
in nominal Mexican pesos. Accordingly, the statements of cash flows prepared in accordance with MFRS presents substantially the
same information as required under U.S. GAAP as interpreted by ASC 230. “Statement of Cash Flows”, except for
the recognition in operating, financing and investing activities of the U.S. GAAP adjustments which are not material. Therefore,
the Group considers that no reconciliation is needed.



For MFRS, Should the economic environment change to inflationary,
the Group will retrospectively recognize the impact of inflation not recognized in the periods in which the economic environment
was non-inflationary. Accordingly, the statements of cash flows will recognize its appropriate presentation when the financial
statements are restated to constant Mexican pesos. Under ASC 230, a statement of cash flows presents only cash movement and excludes
non-cash items. This standard does not provide guidance on inflation-adjusted statements of cash flows.



| | c) | Deferred income tax
| | -- | -------------------



i)  
       Mexican tax legislation requires the IETU Law co-exists with the Income Tax Law for
determining the taxes on earnings for the period. Therefore, the Mexican entities pay Income Tax or IETU, whichever is
higher. Accordingly, the Group recognizes deferred taxes on earnings based on the tax regime that is expected to prevail in
the future. At December 31, 2011, Management determined that income tax will be the tax on earnings that will be paid by in
the short and medium-term, instead of IETU. Accordingly, the companies accounted for the deferred income tax effect, in
accordance with MFRS D-4, “Taxes on earnings” and its related MIFRS-8, “Effect of Corporate Flat
Tax”.



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The Group determines the deferred income tax effect under
MFRS similarly to U.S. GAAP by using the “asset and liability method”, by applying tax laws and income tax rates which
are enacted or substantially enacted at the closing date of the financial statements to the total temporary differences, including
tax loss carryforwards and tax credits.



Nevertheless the foregoing, there are specific differences
as compared to the calculation under ASC 740. “Accounting for Income Taxes”, as follows: (a) under MFRS, inflation
effect on the balance of deferred taxes generated by monetary items are recognized in the income statement as part of the monetary
position result when entities operate in an inflationary economic environment. Under U.S. GAAP, the deferred taxes balance is classified
as a nonmonetary item; (b) should the economic environment change to inflationary, the Group will retrospectively recognize the
impact of inflation on the deferred income tax not recognized in the periods in which the economic environment was non-inflationary;
and (c) the effects of deferred income tax on the reconciling items between MFRS and U.S. GAAP.



ii)      
   Under MFRS, the deferred income tax assets and/or liabilities are classified as a non-current item,
regardless of the term in which temporary differences are expected to be reversed and materialized. Under US GAAP, deferred
tax assets and/or liabilities should be classified as short-term or long-term items depending on the nature of the line item
that gives rise to such deferred tax assets and liabilities. A deferred tax asset or liability that is not related to an
asset or liability for financial reporting purposes, including the deferred income tax asset related to tax loss
carryforwards, is classified in accordance to its expected reversal date. At December 31, 2011 and 2010, the deferred income
tax effect under MFRS and US GAAP was classified as follows:



|           |  | Constant Mexican pesos |         
|---------- |  | ---------------------- | --------
|           |  | Mexican GAAP           |         
|           |  | 2011                   |         
|           |  |                        |         
|Current    |  | Ps.                    |         
|Noncurrent |  |                        | (393,277
|           |  | Ps.                    | (393,277



The effect of deferred income tax on the reconciling items
between MFRS and U.S. GAAP (basically the funded status), for 2011 and 2010 amounted to Ps. 36,425 and Ps. 33,887, respectively,
as a noncurrent deferred income tax asset for U.S. GAAP purposes.



Under U.S. GAAP, for a particular tax-paying component and
within a particular tax jurisdiction all current and noncurrent deferred tax assets and liabilities are offset and presented
as a single amount. However, deferred tax assets and liabilities attributable to different tax-paying components of the enterprise
or to different tax jurisdictions are not offset.



At December 31, 2011, the deferred income tax asset consisted
of Mexican deferred income tax asset in the amount of Ps. (86,350) and Chilean deferred income tax asset in the amount of Ps. (306,927).
At December 31, 2010, the net amount of deferred income tax asset consisted of Mexican income tax liability in the amount of Ps.213,692
and Chilean income tax asset in the amount of Ps. (290,200).



iii)        Effective
January 1, 2010, the Mexican tax authorities approved the tax consolidation regime change which required for determining at
December 31, 2009 annual income tax as if tax consolidation rules had not existed since 1999 and henceforth by applying the
provisions discussed in Note 18 d) subparagraph ii). Under MFRS, based on Interpretation 18, “Recognition of the
effects of the tax reform of 2010 on taxes on earnings”, this change was recognized against retained earnings in
the amount of Ps. 133,619.Under US GAAP a change in tax status that results from a change
in tax law is recognized on the enactment date. Consequently, the effect of recognizing or eliminating the deferred tax
liability or asset shall be included in income from continuing operations. Therefore a reconciliation line item is shown in
Note 23).



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| | d) | Accounting for uncertainty in income taxes
| | -- | ------------------------------------------



Under MFRS, there are no specific guidelines for recording
uncertain tax positions. Therefore, the Group is not required to record an income tax liability unless the Group expects that a
cash disbursement is probable and quantifiable. For U.S. GAAP, the Group adopted ASC 740. “Accounting for Uncertainty
in Income Taxes” effective January 1, 2007 (“ASC 7402). This standard defines the confidence level that a tax position
has taken or is expected to be taken in a tax return to be recognized in the financial statements. The evaluation is a two-step
process: recognition and measurement of a tax position. The tax effect of a position must be recognized only if it is “more-likely-than-not”
to be sustained based on its technical merits (legislation and statutes, legislative intent, regulations, rulings, and case law)
at the reporting date. For this assessment, the Group assumes that the tax authorities will examine and have full knowledge of
all relevant information for each position.



The more-likely-than-not threshold represents a positive assertion
by management that the Group is entitled to the economic benefits of a tax position. If a tax position is not considered more-likely-than-not
to be sustained, no benefits of the position are to be recognized in the financial statements. The more-likely-than-not threshold
must continue to be met in each reporting period to support continued recognition of a benefit.



If during any period after recognition the threshold ceases
to be met, the previously recorded benefit must be derecognized. Moreover, the benefit of a tax position that initially fails to
meet the more-likely-than-not threshold should be recognized in a subsequent period if changing facts and circumstances enable
to meet the threshold, the matter is effectively settled through litigation with the tax authorities, or the statute of limitations
has expired.



At December 31, 2011, 2010 and 2009, Management determined
that there is no any reconciling item between MFRS and U.S. GAAP related to uncertain tax position.



| | e) | Deferred employee profit sharing
| | -- | --------------------------------



The Companies established in Mexico are obligated to pay profit
sharing to its employees. Profit sharing is calculated by applying a 10 percent annual rate to taxable income determined for each
Group’s subsidiary as provided for in the Income Tax Law. Deferred employee profit sharing is determined by applying the
“asset and liability method”. Employee profit sharing is classified as an operating expense for U.S. GAAP purposes,
whereas for MFRS is classified in “other expenses, net”. At December 31, 2011 and 2010, the amount of deferred employee
profit sharing asset was not material, and its effect is included with a related valuation allowance, in accordance with MFRS and
U.S. GAAP.



| | f) | Employee
benefits
| | -- | -----------------



i)           Effective January 1, 2008, the Group adopted MFRS D-3, “Employee Benefits”
(MFRS D-3). For this purpose,the balance of unrecognized net transition obligation,
unrecognized prior service cost, and net gain/loss accrued through December 31, 2007, should be amortized in income over
a maximum period of five years, while the new actuarial results generated after the adoption of MFRS D-3 are amortized
normally over the employees’ estimated active service lives and following the “corridor method” for net
gain/loss accrued purpose. At December 31, 2011, 2010, and 2009, the effect of these differences was no material.



ii)          The adoption of MFRS B-10 requires the application
of real rates for actuarial calculations for entities that operate in inflationary economic environments and nominal rates for
those that operate in non-inflationary economic environments. The Group uses those same criteria under U.S. GAAP. Nevertheless,
the economic environment effect that is inflationary under MFRS, but not hyperinflationary under US GAAP arising as of 2008 and
henceforth represents a difference that should be reconciled for U.S. GAAP purposes.



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iii)        For U.S. GAAP, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans” (ASC 715, “Compensation-Retirement
Benefits”) requires employers to recognize the funded status of their defined benefit pension and
other postretirement plans on their balance sheet and recognize as a component of other comprehensive income, net of tax, the
gains or losses and prior service costs or credits that arise during the period but are not recognized as components of
net periodic benefit costs. Accordingly, Under U.S. GAAP the Company is required to fully
recognize as an asset or liability for the overfunded or underfunded status of defined benefit pension and other
postretirement benefit plans.



At December 31, 2011, 2010 and 2009, the funded status (benefits’
obligation less fair value of plan assets) of the defined benefit pension and other postretirement plans that considers the unrecognized
net transition obligation, negative plan amendments and unrecognized net loss (gain) amounted to Ps.121,417, Ps. 112,954 and Ps.
66,115, respectively, which was recorded in other comprehensive income, net of income tax. Therefore a reconciliation line item
is shown in Note 23).



| | g) | Goodwill
| | -- | --------



Goodwill recognized under MFRS has been adjusted for U.S.
GAAP purposes because beginning January 1, 2002, goodwill is not amortized under U.S. GAAP, while under MFRS goodwill was amortized
until December 31, 2004. Therefore a reconciliation line item is shown in Note 23).



In addition, under U.S. GAAP, the Group assesses goodwill
and indefinite-lived intangible assets for impairment annually unless events occur that require more frequent reviews. Discounted
cash flows analyses considering the use of market considerations are applied to assess the possible impairment of goodwill and
indefinite life intangible assets. If an assessment indicates impairment, the impaired asset is written down to its fair value
based on the best information available. Considerable judgment is necessary to estimate discounted future cash flows. Assumptions
used for cash flows are consistent with internal forecasts and industry practices. In addition, the growth and discount rates in
determining its projected future cash flows are used by the Group. All these provisions are virtually identical to MFRS and U.S.
GAAP. Differences in other factors explained below led to different impairment loss or impairment testing results between MFRS
and U.S. GAAP.



Under U.S. GAAP, the first step of the goodwill impairment
test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill.
If the carrying amount of the reporting unit exceeds its fair value, the “second step” of the goodwill impairment test
discussed below is applied by the Group to measure the amount of impairment loss, if any. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment
test is unnecessary.



The second step consists of comparing the “implied fair
value” of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair
value, an impairment loss is recognized in an amount equal to that excess. The implied fair value is determined by allocating the
fair value of a reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets)
as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid
to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities
is the implied fair value of goodwill. That allocation process is performed only for purposes of testing goodwill for impairment.



The procedures referred to above, in addition to differences
in the determination of the “value in use” by applying the “perpetuity value” under MFRS as compared to
U.S. GAAP, as well as differences in the reporting units ́ carrying amounts between MFRS and U.S. GAAP, generate, when applicable,
different amounts of impairment losses. In addition, under U.S. GAAP subsequent reversal of a previously recognized goodwill impairment
loss is prohibited once the measurement of that loss is completed, while MFRS allows the reversal of the recognition of impairment
under certain circumstances. Moreover, impairment loss under U.S. GAAP is included in operating income. Under MFRS, this item is
part of “Other expenses, net”.



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Based on the results of goodwill impairment testing at December
31, 2009 under U.S. GAAP, the Group recorded an estimated impairment loss in connection with its reporting unit in Brasil in the
amount of Ps.109,000 which differs from impairment loss under MFRS due to referred to above. Under MFRS, goodwill impairment loss
was determined in the amount of Ps. 210,000. Therefore a reconciliation line item is shown in Note 23).



During the last 2010 quarter, based on the results of the
goodwill and indefinite-lived intangible assets testing for impairment, the Group determined the fair value of a reporting unit
exceeds its carrying amount of goodwill and indefinite-lived intangible assets, under U.S. GAAP and MFRS.



During 2011, under U.S. GAAP, the Group recorded an estimated
impairment loss in connection with its reporting units in Drogueros, Citem and CS Brasil in the amount of Ps. 46,210, Ps. 8,289,
Ps. 473,835, respectively. This estimate differs from impairment loss under MFRS due to the factors referred to above. Under MFRS,
goodwill impairment loss was determined in the amount of Ps. 78,425, Ps. 56,456, and Ps. 403,138 respectively. Therefore a reconciliation
line item is shown in Note 23).



| | h) | Other classification differences
| | -- | --------------------------------



Certain items require a different classification in the balance
sheet or income statement under U.S. GAAP. A description of these different classifications is as follows:



Under MFRS, several unusual or non-recurring transactions,
such as restructuring costs (severance payments), gain or losses on the disposal of fixed assets, as well as financial expenses
from labor liabilities and employee profit sharing are include in “Other expenses, net”. Under U.S. GAAP these items
are recorded in operating expenses. At December 31, 2011, 2010 and 2009, the effect of these unusual or non-recurring transactions
was not material.



At December 31, 2011, the amount of long-lived assets classified
as held for sale for Ps. 29,341, was classified as “other current assets” under MFRS, whereas under U.S. GAAP such
amount is presented separately in the statement of financial position.



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| | 23. | Reconciliation from MFRS to U.S. GAAP:
| | --- | --------------------------------------



Net income and stockholder’s equity, adjusted to take
into account the significant differences between MFRS and U.S. GAAP, except for the comprehensive effect of price-level changes
as required by MFRS, were as follows:



|                                                              |  | Thousands of Mexican pesos (Ps.) and thousands of U.S. dollars ($), |         
|------------------------------------------------------------- |  | ------------------------------------------------------------------- | --------
|                                                              |  | except per share                                                    |         
|                                                              |  |                                                                     |         
|                                                              |  | Year                                                                |         
|                                                              |  | 2011                                                                |         
|NET INCOME:                                                   |  |                                                                     |         
|                                                              |  |                                                                     |         
|Controlling interest net (loss) income under MFRS             |  | Ps.                                                                 | (516,798
|Additional employee retirement liability
 (Note 22.f)         |  |                                                                     | (5,925  
|Unrecognized net transition obligation
 (Note 22.f)           |  |                                                                     |         
|Impairment loss (Note 22.g)                                   |  |                                                                     | 9,685   
|A change in the tax status of the Group
 (Note 22.c)          |  |                                                                     |         
|                                                              |  |                                                                     | 3,760   
|Controlling interest net (loss) Income (loss) under U.S. GAAP |  | Ps.                                                                 | (513,038
|                                                              |  |                                                                     |         
|Noncontrolling interest net income (loss) under U.S. GAAP     |  | Ps.                                                                 | 4,346   
|Weighted average common shares outstanding (thousands)        |  |                                                                     | 265,419 
|                                                              |  |                                                                     |         
|Basic and diluted (loss) earnings per share under U.S. GAAP   |  | Ps.                                                                 | (1.93   



|STOCKHOLDERS’ EQUITY:                    |  |      |           |   |      |  |           | Convenience
 translation | 
|---------------------------------------- |  | ---- | --------- | - | ---- |  | --------- | ------------------------ | 
|                                         |  | 2011 |           |   | 2010 |  |           | 2011                     | 
|Stockholders’ equity under MFRS          |  | Ps.  | 6,518,330 |   |      |  | 7,082,848 |                          | 
|Additional employee retirement liability |  |      | (84,992   | ) |      |  | (79,067   | )                        | 
|Amortization and impairment of goodwill  |  |      | 137,613   |   |      |  | 127,928   |                          | 
|                                         |  |      | 52,621    |   |      |  | 48,861    |                          | 
|Stockholders’ equity under U.S. GAAP     |  | Ps.  | 6,570,951 |   |      |  | 7,131,709 |                          | 
|Noncontrolling interest                  |  | Ps.  | 155,741   |   |      |  | 151,395   |                          | 
|Stockholders’ equity under U.S. GAAP     |  |      |           |   |      |  |           |                          | 



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|Changes in stockholders’ equity under U.S. GAAP:              |  |      |           |   |      |  |           | Convenience | 
|------------------------------------------------------------- |  | ---- | --------- | - | ---- |  | --------- | ----------- | 
|                                                              |  |      |           |   |      |  |           | Translation | 
|                                                              |  | 2011 |           |   | 2010 |  |           | 2011        | 
|Stockholders’ equity under U.S. GAAP at beginning of the year |  | Ps.  | 7,131,709 |   |      |  | 6,728,296 |             | 
|Comprehensive (loss) income under U.S. GAAP                   |  |      | (560,758  | ) |      |  | 403,413   |             | 
|Stockholders’ equity under U.S. GAAP at year end              |  | Ps.  | 6,570,951 |   |      |  | 7,131,709 |             | 
|                                                              |  |      |           |   |      |  |           |             | 
|Comprehensive income under U.S. GAAP:                         |  |      |           |   |      |  |           | Convenience | 
|                                                              |  |      |           |   |      |  |           | translation | 
|                                                              |  | 2011 |           |   | 2010 |  |           | 2011        | 
|Controlling interest net (loss) income under U.S. GAAP        |  | Ps.  | (513,038  | ) |      |  | 248,708   |             | 
|Accumulated effect on translation                             |  |      | (52,066   | ) |      |  | 3,310     |             | 
|Noncontrolling interest                                       |  |      | 4,346     |   |      |  | 151,395   |             | 
|Comprehensive (loss) income                                   |  | Ps.  | (560,758  | ) |      |  | 403,413   |             | 



| | 24. | Supplementary U.S. GAAP disclosures:
| | --- | ------------------------------------



| | a) | Financial instruments with off-balance-sheet risk
| | -- | -------------------------------------------------



Under ASC 825, "Disclosure of information about financial
instruments with off-balance sheet risk and financial instruments with concentrations of credit risk”, the Group sells
its products mainly to distributors including supermarket chains, pharmacies and retail customers throughout Mexico, as well as
Rio de Janeiro and Sao Paulo in Brasil, and effective October 2010, Chile and Peru. No single customer accounted for a significant
amount of the Group’s sales in fiscal 2011, 2010 and 2009, and there were no significant accounts receivable from a single
customer for the same years. Moreover, there is no significant concentration of a specific supplier relating to the purchase of
inventories.



The Group currently does not have any off-balance sheet arrangements
that has or is reasonably likely to have a current or future material effect on the financial statements, changes in liquidity,
capital expenditures or capital resources that are material to investors.



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| | b) | Accounts receivable
| | -- | -------------------



The Group’s accounts receivable is due from companies
in the pharmaceutical products activities. Credit is extended based on evaluation of a customer’s financial condition, and
generally, collateral is not required. Accounts receivable are due within a 60-120 day term and are stated at amounts due from
customers net of an allowance for doubtful accounts. Accounts outstanding longer than the agreed upon payment term are considered
past due. The Group determines its allowance by considering a number of factors, including the length of time trade accounts receivable
are past due, the Group’s previous loss history, the customer’s current ability to pay its obligation to the Group,
and the condition of the general economy and the industry as a whole. The Group writes off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to income.



| | c) | Business combinations
| | -- | ---------------------



ASC 805, “Business Combinations and Reorganizations”(ASC 805) sets forth guidelines to accounting for the acquisition of business by using the “purchase method”. This
guidance requires acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed, and noncontrolling
interests in the acquiree.



The measurement requirements results in the recognition of
the amount of acquisition-date goodwill, which includes amounts attributable to noncontrolling interests. Neither the direct costs
incurred nor the costs the acquirer expects to incur under a plan to restructure an acquired business are included as part of the
business combination accounting. Those costs are charged to expense when incurred, except for debt or equity issuance costs, which
are accounted for in accordance with other generally accepted accounting principles.



ASC 805 changes the accounting for contingent consideration
in process research and development, contingencies, and restructuring costs. In addition, changes in deferred income tax asset
valuation allowance and acquired income tax uncertainties in a business combination that occur after the measurement period will
impact income taxes. At December 31, 2011, 2010 and 2009, Management determined that there is no any reconciling item between MFRS
and U.S. GAAP related to the accounting changes referred to above.



MFRS B-7, “Business acquisitions” (FRS
B-7), effective January 1, 2009, is virtually identical to U.S. GAAP under ASC 805.



| | d) | Income taxes effect in a business combination
| | -- | ---------------------------------------------



The Group records all changes to a valuation allowance for
acquired deferred income tax assets or the effect of changes in an acquired tax position that occur after the acquisition date
by initially reducing the related goodwill to zero, next by reducing other noncurrent intangible assets related to the acquisition
to zero, and lastly by affecting income tax expense. However, ASC 805, “Business Combinations and Reorganizations”
amends ASC 740, “Income Taxes” to require the Company to recognize changes to the valuation allowance for an
acquired deferred income tax asset or the effect of changes in an acquired tax position as adjustments to income tax expense or
contributed capital, as appropriate, and not as adjustments to goodwill. This accounting is required effective January 1, 2009
for the Group and applies to valuation allowances and tax positions related to all acquisitions. At December 31, 2011 and 2010,
the Group does not have a valuation allowance related to deferred tax assets acquired in the business combination.



| | e) | Variable interest entities
| | -- | --------------------------



Under U.S. GAAP, the Group applies ASC 810, “Consolidation”
(formerly Interpretation 46R, “Consolidation of Variable Interest Entities, an interpretation”) (ASC 810). The
interpretation addresses the consolidation of variable interest entities (VIE) which have one or more of the following characteristics:
(i) entities in which the equity investment at risk is not sufficient to finance their operations without requiring additional
financing support provided by any parties, including the equity holders; and (ii) the equity investors lack one or more of the
following attributes: a) the ability to make decisions about the entity’s activities through voting or similar rights, b)
the obligation to absorb the expected losses of the entity, and c) the right to receive the expected residual returns of the entity.



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A primary beneficiary is the entity that assumes the variable
interests of a VIE, or the majority of them in the case of partnerships, directly or jointly with related parties, and is the entity
that should consolidate the VIE. In connection with its related parties, the Group considers that related parties are not VIEs
under the scope of ASC 810, and, therefore, as of and for the years ended December 31, 2011 and 2010, the Group has not consolidated
any assets, liabilities or operating results of such entities.



| | f) | Quantitative and qualitative disclosures about market risk
| | -- | ----------------------------------------------------------



The Group is subject to market risks due to interest rate
fluctuations that prevail in Mexico, Brasil and Chile. Those fluctuations impact the long-term debt incurred from loans obtained
from Chilean and Mexican banks, as well as marketable bonds incurred by the Group. In addition, the Group obtained various secured
and unsecured loans for financing its operations and acquiring the shares of the capital stock of FASA.



The Group manages its interest rate risks by considering the
available financing rates in the market. In addition, the Group had entered into cash flows hedges contracts (Dollar / Peso Forwards).
The Group agreed upon these transactions to look for a future U.S. dollar purchase price on different dates, and to be able to
meet its U.S. dollar denominated commitments. Management estimates that the changes in cash flows of these instruments maintain
high effectiveness in offsetting the changes in cash flows of the primary position, both at the beginning and throughout the relationship
of the designated hedge. The Group does not carry out derivative instruments trading.



| | g) | Fair value measurements
| | -- | -----------------------



ASC 820, “Fair Value Measurements and disclosures”(ASC 820) redefines the concept of fair value and establishes a framework for the measurement of fair value, and enhances disclosures
about fair value measurements. This guidance does not eliminate practicability exceptions that exist in accounting pronouncements
amended by this guidance when measuring fair value.



Under MFRS, in addition to certain investments in trading
securities which are recorded at their quoted market prices, the Group recognizes its derivative financial instruments at their
estimated fair value. Under U.S. GAAP, the fair value is an “Exit Value,” which is the price that would be received
to sell an asset or pay a liability in an orderly transaction between market participants at the measurement date. Under MFRS,
fair value is equivalent a settlement amount at the balance sheet date while the Exit Value under U.S. GAAP considers the counterparty’s
credit risk in the valuation.



The concept of Exit Value works under the premise that there
is a market and market participants for the specific asset or liability. When there is no market and/or market participants willing
to make a market, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The three levels of the fair value hierarchy are as follows: (1) unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted assets or liabilities; (2) inputs that are observable, either directly
or indirectly, but do not qualify as level (1) inputs and (3) prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable.



| | h) | Effective date of ASC 820
| | -- | -------------------------



ASC 820-10-50 sets forth a three-level fair value hierarchy
to prioritize the inputs used to measure the fair value of its financial instruments. The three input levels are as follows:



• Level 1:quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Group has the ability to access at the measurement date.



• Level 2:inputs other than quoted prices included
within level 1 that are observable for the asset or liability, either directly or indirectly.



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• Level 3:are unobservable inputs for the asset
or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.



The following table shows the fair value of our financial
assets and financial liabilities that are required to be measured at fair value on a recurring basis as of December 31, 2011 and
2010, which are classified as cash and cash equivalente, other current assets, other current liabilities, and other non-currant
liabilities in our consolidated balance sheets. We currently do not have non-financial assets and non-financial liabilities that
are required to be measured at fair value on a recurring basis.



|                                            |  | 2011    |        |  | 2010    | 
|------------------------------------------- |  | ------- | ------ |  | ------- | 
|                                            |  | Level 1 |        |  | Level 1 | 
|                                            |  |         |        |  |         | 
|Derivative financial instrument (asset)     |  | Ps.     | 5,666  |  |         | 
|Derivative financial instrument (liability) |  |         | 4,258  |  |         | 
|Trust assets of labor obligation            |  |         | 80,119 |  |         | 



On January 1, 2009, the Group adopted ASC Topic 820,
for fair value measurements of non-financial assets and non-financial liabilities that are recognized or disclosed at fair value
in the financial statements on a non-recurring basis. Examples of items within the scope of ASC 820 are nonfinancial assets and
nonfinancial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent
periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment
assessment under the accounting for the impairment or disposal of long lived assets.



The following table shows the fair value of our non-financial
assets that were required to be measured at fair value on a non-recurring basis during the years ended December 31, 2011 and 2010.
These non-financial assets, which included the goodwill and trademarks associated with FASA’s reporting unit, were required
to be measured at fair value in connection with the annual impairment test we performed on our goodwill in the fouth quarter of
2011 and 2010 (see Note 10 – Goodwill, intangible assets and deferred charges). For that purpose, the Group considerd the
level 3 of the fair value hieratchy.



|                      |  | 2011    |           |  |      |  |         | 2010    |  |  |           | 
|--------------------- |  | ------- | --------- |  | ---- |  | ------- | ------- |  |  | --------- | 
|                      |  | Level 3 |           |  | Loss |  |         | Level 3 |  |  | Loss      | 
|Goodwill              |  |         | 3,357,880 |  |      |  | 528,334 |         |  |  | 3,925,165 | 
|Commercial trademarks |  |         | 3,800,072 |  |      |  | -       |         |  |  | 3,780,503 | 



| | i) | Noncontrolling interests
| | -- | ------------------------



On January 1, 2009, the Group adopted ASC 810, “Noncontrolling
Interests in Consolidated Financial Statements”. ASC 810 changes the accounting for, and the financial statement presentation
of, noncontrolling equity interests in a consolidated subsidiary. The new standard defines a new term—noncontrolling interests—to
replace what were previously called “minority interest”. ASC 810 establishes non-controlling interestsas a
separate component within the equity of a consolidated entity. Also, ASC 810 requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the non-controlling interest. The Groups’s adoption
of this provision did not have an impact on its consolidated financial position and results of operation.



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| | j) | Employers Disclosures about Postretirement Benefit Plan Assets
| | -- | --------------------------------------------------------------



On January 1, 2010, the Group adopted ASC 715, “Compensation-Retirement,
20”, “Defined Benefits Plans- General, 50”. This standard provides additional guidance regarding employers'
disclosures about plan assets of a defined benefit pension or other postretirement plan. The adoption of this interpretation increases
the disclosures in the Group’s consolidated financial statements.



| | k) | Recently Issued Accounting Pronouncements
| | -- | -----------------------------------------



·          On
January 1, 2010, the Group adopted the Accounting Standard Update (ASU) 2009 16, “Transfers and Servicing (ASC 860: Accounting
for Transfers of Financial Assets (FASB Statement No. 166, Accounting for Transfers of Financial Assets – an amendment
of FASB Statement No. 140))”.



ASU 2009 16 removes the concept of a qualifying special purpose
entity (QSPE), and the exception from applying ASC 810 10 (the variable interest entity accounting to qualifying special purposes
entity) thereby, requiring transferors of financial assets to evaluate whether to consolidate transferees that previously were
considered qualifying special purposes entities. Transferor imposed constraints on transferees whose sole purpose is to engage
in securitization or asset backed financing activities.



ASC 860 limits the circumstances in which a financial asset,
or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset
to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor
has continuing involvement with the transferred financial asset. ASC 860 also defines the term participating interest to establish
specific conditions for reporting a transfer of a portion of a financial asset as a sale. ASC 860 requires that a transferor recognize
and initially measure at fair value all assets obtained (including a transferor’s beneficial interest) and liabilities incurred
as a result of a transfer of financial assets accounted for as a sale. Enhanced disclosures are also required by ASC 860. Adoption
of this provision did not have an impact on the consolidated financial position and results of operation.



·          In
June 2009, ASC 810, “Consolidation”, was issued. ASC 810 is intended to improve financial reporting by providing
additional guidance to companies involved with variable interest entities and by requiring additional disclosures about a company’s
involvement in variable interest entities. The Group’s adoption of this provision had not an impact on its consolidated financial
position and results of operation.



·           In
October 2009, ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” was issued by allowing the use of the
“best estimate of a selling price” in addition to Vendor Specific Objective Evidence and Third Party Evidence for determining
the selling price of a deliverable. ASU 2009-13 changes the requirements for establishing separate units of accounting in a multiple
element arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling
price. ASU 2009-13 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Adoption of this provision did not have an impact on the consolidated financial position and results of operation.



·           In
February 2010, the FASB issued ASU 2010-09, “Subsequent Events, Amendments to Certain Recognition and Disclosure
Requirements”. This update addresses certain implementation issues related to an entity’s requirement to perform
and disclose subsequent-events procedures, and removes the requirement that public companies disclose the dates of their financial
statements in both issued and revised financial statements. According to the FASB, the revised statements include those that have
been changed to correct an error or conform to a retrospective application of U.S. GAAP.



U.S. GAAP



There are no significant new accounting pronouncements effective
in year 2011 impacting the Group.



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New ASU applicable to the Company are as follows:



·           ASU
2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” issued in June 2011 (ASU 2011-05)



Under ASU 2011-05 an entity has the option to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required
to present each component of net income along with total net income, each component of other comprehensive income along with a
total for other comprehensive income, and a total amount for comprehensive income. In a single continuous statement, the entity
is required to present the components of net income and total net income, the components of other comprehensive income and a total
for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach,
an entity is required to present components of net income and total net income in the statement of net income. The statement of
other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive
income and a total for other comprehensive income, along with a total for comprehensive income.



ASU 2011-05 should be applied retrospectively. For public
entities is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted. Management is in the process
of evaluating the impact that adopting ASU 2011-15 will have on the Group's financial statements.



·           ASU
2011-08 “Intangible-Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08)



Under ASU 2011-08, an entity has the option to first assess
qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or
circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying
amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required
to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the
fair value with the carrying amount of the reporting unit, as described in paragraph 350-20-35-4. If the carrying amount of a reporting
unit exceeds its fair value, then the entity is required to perform the second step of the goodwill impairment test to measure
the amount of the impairment loss, if any, as described in paragraph 350-20-35-9. Under ASU 2011-08, an entity has the option to
bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the
two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period.



ASU 2011-08 is effective for annual and interim goodwill impairment
tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. Management is in the process of
evaluating the impact that adopting ASU 2011-15 will have on the Group's financial statements.



| | 25. | Subsequent events:
| | --- | ------------------



The subsequent events that took place between the original
issue date of the financial statements and the date of their reissue are described below:



a)          On
January 25 and February 2, 2012, the Company applied for (the“Petition
for Consent”) and obtained the consent of its bank creditors to carry out
the following corporate acts, among others, which were refined on February 16, 2012:



| | · | Incorporate a new legal entity (The “Subholding).
| | - | -------------------------------------------------

| | · | Sale of various real properties among the Group’s
subsidiaries in the amount of Ps. 147,776.
| | - | --------------------------------------------------------------------------------------------



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| | · | The endorsement of the shares sold to the Subholding
in order for them to continue to form part of the trust assets created in accordance with the“Trust
Deed Agreement”.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The extinction of certain debts in favor of the Company
by issuing and delivering shares of Publicaciones Citem. These shares were endorsed to the trustee in order for them to form part
of the trust deed referred to above.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Company declared dividends payable in cash or in
kind (through the endorsement of shares of the Subholding) in the amount of Ps. 13,000.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Subholding is a joint and several obligor in accordance
with the“Credit Agreement”.
| | - | ---------------------------------------------------------------------------------------

| | · | All the legal acts of the "Petition for Consent"
were carried out in the six months subsequent to the date of authorization of that petition.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| | · | As a result of the sale of FASA Peru (Note 1 c), the
Company made the partial prepayment set forth in the Credit Agreement on April 30, 2012. The prepayment amounted to Ps. 656,497.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Considering
the“Credit Opening Agreement”,
the“Amending Agreement”,
as well as the“Petition for Consent”,
and the Second Amending Agreement, the Company and its subsidiaries complied with the financial covenants of its credit agreement.



| | a) | Amending Agreement with creditor banks-
| | -- | ---------------------------------------



On
August 28, 2012, the Company agreed upon the“Second Amending Agreement
to the Credit Opening Agreement”("Second Amending Agreement")
with the creditor banks Banorte and HSBC Mexico. That amending agreement amends the agreements adopted in the original agreement
dated August 30, 2010, as well as the first amending agreement dated August 10, 2011 (Note 12, paragraph i).



At the date of the Second Amending Agreement, the amount of
the credit was summarized as follows:



|            |  | Tranche 1 |           |  | Tranche 2 |  |           | Total | 
|----------- |  | --------- | --------- |  | --------- |  | --------- | ----- | 
|Banorte     |  | Ps.       | 641,124   |  |           |  | 955,500   |       | 
|HSBC Mexico |  |           | 1,893,458 |  |           |  | 2,829,190 |       | 
|Total       |  | Ps.       | 2,534,582 |  |           |  | 3,784,690 |       | 



Tranche 1 will be paid in 40 monthly installments beginning
February 2014 and up to May 2017. Tranche 2 will be paid in 24 monthly installments beginning September 2016 and up to August 2018.
Interest is payable monthly, by applying the Equilibrium Interbank Interest Rate (EIIR) for each period plus 4.0 percent for Tranche
1 and 2.76 percent for Tranche 2.



The agreements of the Second Amending Agreement are secured
by the Company (borrower), and the subsidiaries Casa Saba, Drogueros, Farmacias ABC, Daltem Provee Nacional, Publicaciones Citem,
Daltem Provee Norte, Centennial, Controladora Casa Saba, and Controladora de Inmuebles Drogsab (altogether the joint and several
obligors) in the terms of the "Guarantee Documents".



The Company and joint and several obligors should meet affirmative
covenants related to the maintenance of insurance, inspection rights, operations with affiliates at market value, payment of taxes,
share structure, among other things. Moreover, the negative covenants are related to certain levels of indebtedness, encumbrances
on the assets, unauthorized consolidations or mergers, disposal of assets, payment of dividends, among other things.



Financial covenants



In accordance with the Second Amending Agreement, beginning
August 2012 (date of perfecting the Second Agreement), the Company should comply with the following financial ratios on a consolidated
basis:



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| | (i) | Ratio of debt to UAFIDA as follows:
| | --- | -----------------------------------



|Fiscal year   |  | Ratio no higher than:
|------------- |  | ---------------------
|2012 and 2013 |  | 7.5 to 1             
|2014          |  | 7.0 to 1             
|2015          |  | 6.0 to 1             
|2016          |  | 5.5 to 1             
|2017          |  | 4.5 to 1             
|2018          |  | 4.0 to 1             



During the following 24 months counted as of August 2012,
Management should present the plan to the creditor banks about the manner and terms in which Tranche 2 will be paid.



| | (ii) | UAFIDA to gross financial expenses. Ratio not less than 1.5 to 1, as of the date of perfecting
the Second Amending Agreement
| | ---- | ----------------------------------------------------------------------------------------------------------------------------



| | (iii) | Minimum stockholders' equity of Ps. 6,400,000
| | ----- | ---------------------------------------------



| | (iv) | Capital investment not exceeding the lower amount of Ps. 550,000 or not exceeding 25 percent of
the UAFIDA
| | ---- | ----------------------------------------------------------------------------------------------------------



| | (v) | FASA is bound to the following:
| | --- | -------------------------------



| | · | Debt to UAFIDA: Ratio no higher than: (a) 5.0 to 1 for
fiscal years from 2012 to 2015, and (b) 4.7 to 1 for fiscal years from 2016 to 2018
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | · | UAFIDA to gross financial expenses. Ratio not less than
3.0 to 1, as of the date of perfecting the Second Amending Agreement
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | · | Minimum stockholders' equity of Ps. 1,800,000
| | - | ---------------------------------------------



| | (vi) | Maintain funds available in the "debt service provision",
the higher amount of: (a)Ps.197,000, or (b)
an equivalent amount to the sum of the following three monthly installments scheduled in accordance with the Second Amending Agreement,
plus the result of multiplying interest accrued in the period by three in which the calculation of the provision is made.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



UAFIDA means operating income before: (a) taxes, interest
expenses, and extraordinary or unusual items; and (b) depreciation and amortization expenses determined in accordance with MFRS.
The result obtained was aggregated to the amount of the allowance for doubtful accounts in 2011.



Creditor banks may mature the term of the debt in advance
if the Group fails to perform the following: (a) payment of the debt on the due date; (b) financial ratios described in the affirmative
covenants and negative covenants; (c) governmental authorities; (d) lack of waivers by the creditor banks. In those circumstances,
the Group would classify the debt in the short-term in the balance sheet. This classification might have an adverse material impact
on the liquidity and financial position of the Group.



| | b) | Other corporate agreement-
| | -- | --------------------------



In order to strengthen the corporate structure and facilitate
the consolidated operations of the Group, Management has carried out the following activities:



| | i) | New subsidiaries incorporated-
| | -- | ------------------------------



|Date            |  | Subsidiary                                                |  | Corporate purpose                                                          
|--------------- |  | --------------------------------------------------------- |  | ---------------------------------------------------------------------------
|                |  |                                                           |  |                                                                            
|April/27/2012   |  | Controladora de Inmuebles Drogsab, S.A. de C.V. (Drogsab) |  | Trading of shares and/or partnership shares representative of capital stock
|October/30/2012 |  | Farma Comercio Saba, S.A. de C.V.                         |  | Personnel services rendered                                                
|October/30/2012 |  | Distribuidora Profarm Saba, S.A. de C.V.                  |  | Personnel services rendered                                                
|October/31/2012 |  | Farma Logistica Saba, S.A. de C.V.                        |  | Personnel services rendered                                                



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To date, the operations of those subsidiaries were no material.



| | ii) | Minutes of the Ordinary and Extraordinary Meeting-
| | --- | --------------------------------------------------



On August 17, 2012, the stockholder ́s Company adopted
the following resolutions:



| | · | Capital stock increase in the amount of Ps.600,000, by
issuing registered common shares, with no par value shown. The increase was subscribed for and paid in October 2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Dividends paid amounting to Ps.13,000. One part was paid
with shares representative of the capital stock of the subsidiary Drogsab, at the rate of one share representative of the capital
stock of Drogsab for each Ps.1.00 (peso) of dividends that the Company's stockholder was entitled to receive. The stockholders
and holders of ADRs received the payment in cash, since the stock of Drogsab has neither been nor will be registered in accordance
with the applicable laws in the U.S.A.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii) | Changes in capital stock of subsidiary companies-
| | ---- | -------------------------------------------------



| | · | Through a Minutes of the Ordinary and Extraordinary Meeting
held on May 22, 2012, the stockholders of Controladora de Clinicas increased capital stock in the amount of Ps.27,569, by issuing
registered common shares, with no par value shown. The increase was subscribed for and paid by the Company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
August 14, 2012, Controladora de Clinicas sold shares representative of the capital stock of Tampico Sports Clinic Ambulatorias,
S. A. de C. V. to the Company. The consideration amounted toPs.4,825.
As a result, beginning August 2012, the Company holds 57.4 percent of the capital stock of that entity.



| | · | On August 27, 2012, the stockholders of CS Brasil increased
the capital stock of that entity in the amount of R$116,896 (thousands of Brazilian reales, equivalent to Ps.771,086), by issuing
shares with a par value of R$1.00 (one Brazilian real). The increase was subscribed for and paid by the Company by capitalizing
liabilities. As of that date, the Company holds 39.6 percent of the capital stock of CS Brasil.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Through a resolution adopted outside of the Meetings
dated September 7, 2012, the stockholders of the subsidiaries listed below resolved the following:
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



Citem increased its capital stock in the amount
of Ps.86,000, by issuing registered common shares, with par value of Ps.1 (peso). The increase was subscribed for and paid by the
Company by capitalizing liabilities.



Drogsab increased its capital stock in the amount
of Ps.13,000, by issuing registered common shares, with no par value shown. The increase was subscribed for and paid by the Company
by capitalizing liabilities.



Casa
Saba approved: (a) payment of cash dividends in the amount ofPs.900,000;
(b) capital stock decrease amounting toPs.1,820,000,
with the redemption of shares held by Marproa; and (c) capital stock increase amountingPs.2,641,000,
by issuing registered common shares, with no par value shown. The increase was subscribed for and paid by the Company.



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Marproa
approved payment of cash dividends in the amount ofPs.400,000,
and variable capital stock decrease of Marproa in the amount ofPs.1,800,000.



| | iv) | Stock trading among subsidiaries of the Company-
| | --- | ------------------------------------------------



·Through
a buy and sell contract dated August 15, 2012, the Company sold the shares applicable to its equity in the capital stock of Citem
to the subsidiary Drogsab. The consideration amounted toPs.13,000.



·Through
a "buy and sell contract subject to conditions precedent" dated August 28, 2012, the Company would sell to Farmacias
Benavides, S.A.B. de C.V. (Farmacias Benavides), the total shares applicable to its equity in the capital stock of Farmacias ABC,
which represent 100 percent of the shares outstanding issued of that subsidiary. This buy and sell operation would be formalized
no later than August 30, 2013.



·Through a buy and sell contract dated August 28, 2012, the Company and the subsidiaries Mexatar y Distribuidora
Citem, S.A. de C.V. sold the total shares applicable to their equity in the capital stock of CS Brasil which represented 100 percent
of the shares outstanding issued of that subsidiary to Inversiones Internacionales Inverfar, S.A. (subsidiary of FASA). The consideration
amounted to USD$30,000,000.



| | v) | Stock trading of subsidiaries with third parties-
| | -- | -------------------------------------------------



·Through a buy and sell contract dated May 25, 2012, the Company sold the total shares applicable to its equity in the
capital stock of Controladora de Clinicas, which represented 99.8 percent of the shares outstanding issued of that subsidiary
to an individual. The consideration amounted toPs.55,649,
with the following collection due dates: (i)Ps.11,130
on February 26, 2013; (ii)Ps.16,695 on
May 26, 2013; and (iii)Ps.27,824 on May
26, 2014.



·Through
a buy and sell contract dated January 17, 2013, the subsidiary CS Brasil sold its total equity in the capital stock of the subsidiary
Drogarias, which represented 100 percent of the shares outstanding issued of that entity to a third party named Nice RJ Participacoes,
S.A., an affiliate of the company named Brasileña Profarma Distribuidora
de Productos Farmaceuticos, S.A.



The
estimated amount of the consideration amounts R$87,000,000
(equivalent to Ps.650,016), subject to certain adjustment factors, related to the determination of the“Confirmed
Equity Value", which takes into account the confirmation of the Debts payable by Drogarias, the confirmation of cash equivalents
balance, as well as the confirmation of the working capital at the“date
of execution”, in conformity with the provisions in the contract. The closing
of the operation will conclude with the certain performance of clauses precedent, as well as the approval of the respective Brazilian
authorities.



| | vi) | Delisting of the Company on the New York Stock Exchange
| | --- | -------------------------------------------------------



On October 1, 2012, through a Unanimous Resolutions Adopted
Outside of the Board of Directors Meeting, the Directors resolved to delist the Company from the New York Stock Exchange. On November
27, 2012, the Company reported its delisting to the United States Securities and Exchange Commission. On December 7, 2012, the
Company confirmed that the delisting of the ADRs from the New York Stock Exchange will be effective as of that date.



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vii)   
   In accordance with the "Accounts receivable assignment
agreement for valuable consideration" dated December 31, 2011, referred in Note 1 d), at date of the
auditor ́s report the amount for collecting to Inversiones Turisticas
Cancun, S.A. de C.V. amounted to Ps.304,360, which was documented with a new promissory note due on October 28,
2013



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