Alsea, S.A.B. de C.V. Annual Report 2007

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FY2007 Annual Report · Alsea, S.A.B. de C.V.

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2007 ANNUAL REPORT

KNoWS

www.alsea.com.mx

Av. Paseo de la Reforma 222 - 3er piso

Torre 1 Corporativo

Col. Juárez, Del. Cuauhtémoc

C.P. 06600, México D.F.

Tel. (5255) 5241 7100

DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S

STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
DOMINO’S
BURGER KING
STARBUCKS
POPEYES•CHILI’S
BURGER KINGDOMINO’S
STARBUCKS
DOMINO’S
BURGER KING
STARBUCKS
POPEYES CHILI’S

POPEYES•CHILI’S

MExICo

565 Domino’s Pizza
195 Starbucks Coffee
107 Burger King
9 Popeyes
23 Chili’s Grill & Bar

LATIN AMERICA

32 Burger King

ARGENTINA
CHILE
bRAZIL

29 Burger King
21 Starbucks Coffee

8 Starbucks Coffee

ALSEA’S
TERRIToRY
989

stores

COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE

STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE

ARBUCKS
OFFEE
ARBUCKS
OFFEE
ARBUCKS
OFFEE
ARBUCKS
OFFEE
ARBUCKS
OFFEE
COFFE
UCKS
BURGER
ARBUCKS
FEE
KING
OFFEE
RGER
GER
ING
NG
STARBUCK
ARBUCKS
COFFE
UCKS
RGER
OFFEE
BURGER
FEE
ING
KING
GER
NG
STARBUCK
RGER
COFFE
ING
UCKS
BURGER
FEE
KING
RGER
GER
ING
NG
STARBUCK
COFFE
RGER
UCKS
BURGER
FEE
ING
KING
GER
RGER
NG
STARBUCK
COFFE
NG
UCKS
BURGER
FEE
RGER
KING
GER
NG
NG
STARBUCK
COFFE
RGER
UCKS
BURGER
NG
FEE
KING
GER
RGER
NG
STARBUCK
NG
COFFEE

COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
KING
STARBUCKS
COFFEE
BURGER
KING
STARBUCKS
COFFEE
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING

KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER

A
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A
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2007 ANNUAL REPORT

KNoWS

www.alsea.com.mx

Av. Paseo de la Reforma 222 - 3er piso

Torre 1 Corporativo

Col. Juárez, Del. Cuauhtémoc

C.P. 06600, México D.F.

Tel. (5255) 5241 7100

DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S

POPEYES•CHILI’S

MExICo

565 Domino’s Pizza
195 Starbucks Coffee
107 Burger King
9 Popeyes
23 Chili’s Grill & Bar

LATIN AMERICA

32 Burger King

ARGENTINA
CHILE
bRAZIL

29 Burger King
21 Starbucks Coffee

8 Starbucks Coffee

ALSEA’S
TERRIToRY
989

stores

COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE

STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE

KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER

oUR
CoMPANY

Corporate Profile

Alsea is the leading restaurant operator in Latin America—

operating brands of proven success such as Domino’s Pizza,

Starbucks Coffee, Burger King, Popeyes and Chili’s Grill &

Bar. The operation of its 989 stores is backed by its Shared

Services Center, including the supply chain through DIA, real

estate and development services, as well as administrative

services such as finances, human resources and technology.

Mission
Our reason for being:

Vision
Where we are headed:

To ensure the success of the
Alsea brands, by employing a
synergy and critical mass model,
based on human talent and social
responsibility

To be the best and largest
restaurant operator with proven
success brands in the countries in
which we participate.

“With people and for
the people”

Values
What makes us great:

• People, our most important

asset

• Customer service
• Respect and loyalty
• Personal excellence
• Commitment
• Oriented to results

Strategic Areas
We work for:

SA1 People are our priority
SA2 To surpass the customer’s

expectations with operating
excellency

SA3 To be the market leader
SA4 To be the best strategic

partner

SA5 To grow while keeping
the company and our
shareholders’ investment safe

SA6 Social responsibility

At Alsea we know:
How to have the best people
How to operate
How to develop brands
How to grow with profitability
How to continue growing
How to be socially responsible

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WE KNoW HoW

INFoRM oUR
To
SHAREHoLDERS

To THANK oUR
SHAREHoLDERS

Investor Relations
Diego Gaxiola Cuevas

Corporate Finance
ri@alsea.com.mx

Tel. (5255) 5241 7158

Mario Padilla Velasquez

Investor Relations
mpadillav@alsea.com.mx

Tel. (5255) 5241 7158

COME HAVE COFFEE WITH US!
Valid in all Starbucks Coffee stores in
Mexico and the United States of America

CoNTENTS

Financial Highlights

Letter of the Chairman of the Board of Directors

We Know How to have the Best People

We Know How to Operate

We Know How to Develop Brands

We Know How to Grow with Profitability

We Know How to Continue Growing

We Know How to be Socially Responsible

Management

Board of Directors

Management Discussion & Analysis

Audit Committee Report

Corporate Practices Committee Report

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Financial Position

Consolidated Statements of Changes in

Stockholders’ Equity

Notes to the Consolidated Financial Statements

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Headquarters
Alsea S.A.B. de C.V.

Av. Paseo de la Reforma 222 - 3er piso
Torre 1 Corporativo

Col. Juárez, Del. Cuauhtémoc

C.P. 06600, México D.F.

Tel. (5255) 5241 7100

Independent Auditors
KPMG Cárdenas Dosal, S.C.

Boulevard Manuel Ávila Camacho # 176

C.P. 11650 México D.F.

Tel. (5255) 5246 8300

Information on Alsea’s Stock
The single series shares of Alsea S.A.B. de C.V. have

been traded on the Mexican Stock Exchange (Bolsa

Mexicana de Valores or BMV) since June 25, 1999.

Ticker Symbol: BMV Alsea*

Alsea’s 2007 Annual Report may include certain expectations regarding the results

of Alsea, S.A.B. de C.V. and its subsidiaries. All such projections, which depend on the

judgment of the Company’s Management, are based on currently known information;

however, expectations may vary as a result of facts, circumstances and events

beyond the control of Alsea and its subsidiaries.

Cert no. SGS-COC-2420

This Annual Report is printed on Sterling Ultra paper,
which contains fiber from well managed forests certified
in accordance with the rules and regulations of the
FSC and with Elemental Chlorine Free (EFC) bleaching
paper making. 100% recycled

ALSEA 2007 ANNUAL REPORT • 1

FINANCIAL
HIGHLIGHTS(1)

% CAGR(6) 2007

2006

2005

2004

2003 %

Net Sales
Gross Profit
Operating Expenses
Operating Income
EBITDA(2)
Consolidated Net Profit

21.8 7,047,270 100.0

6,026,444 100.0

4,665,253 100.0

4,003,998 100.0 3,203,454 100.0

27.0 4,685,201 66.5

3,959,929 65.7

2,896,186

62.1

2,307,507 57.6

1,802,066 56.3

31.3 3,984,657

56.5

3,523,848 58.5

2,406,625

51.6

1,718,607 42.9

1,338,857 41.8

25.4 700,544

9.9

436,081

7.2

489,561

10.5

391,313

9.8

283,084

8.8

25.5

1,149,655

16.3

1,007,439

16.7

708,429

15.2

588,900

14.7

463,210

14.5

37.4

489,141

6.9

228,629

3.8

285,220

6.1

187,993

4.7

137,402 4.3

Total Assets
Cash
Liabilities with Cost
Major Shareholder’s Equity

5,300,132 100.0
3.9

209,327

832,748

15.7
2,997,484 56.6

4,040,466 100.0

3,365,885 100.0

2,381,742 100.0

2,006,113 100.0

244,262

6.0

171,261

5.1

158,920

610,868

15.1

798,262 23.7

106,570

6.7

4.5

229,592

167,700

11.4

8.4

2,653,876 65.7

1,833,956 54.5

1,538,924 64.6

1,352,057 67.4

ROIC(3)
ROE(4)
ROA(5)

Stock Price(7)
Earnings per Share(7)
Dividend paid per Share(7)
Book Value per Share(7)
Shares Outstanding (millions)(7)

58.9

27.1

14.9%

16.5%

10.3%

15.30

0.77

0.11

4.88

618.8

9.6%

9.1%

5.9%

14.72

0.38

0.28

4.26

623.2

18.7%

16.9%

9.9%

6.94

0.51

0.19

3.24

546.4

18.6%

13.0%

8.6%

5.99

0.33

0.16

2.98

496.8

Number of Total Stores
Employees

989

19,200

865

16,797

728

13,629

626

10,483

14.9%
10.5%
7.0%

2.40

0.30
0.10
2.79
467.2

560

7,336

(1) Figures in thousands of pesos, expressed in purchasing power as of December

(4) ROE is defined as net profit divided by major shareholder’s equity.

31, 2007, except per share data, number of stores and employees.

(5) ROA is defined as net profit divided by total assets.

(2) EBITDA: Operating income before depreciation and amortization.

(6) Compound annual growth rate from 2003 to 2007.

(3) ROIC is defined as the operating income after taxes divided by the invested

(7) For comparative purposes, the number of shares was

capital – net (total assets – cash and cash equivalents – liabilities without cost).

adjusted based on the split of 4 to 1 carried out in 2007.

Total Assets

EBITDA(2)

Consolidated
Net Profit

ROIC(3)

Major Shareholder’s
Equity

4
5
4
3
0
2
3

8
9
9
3
0
0
4

3
5
2
5
6
6
4

4
4
4
6
2
0
6

0
7
2
7
4
0
7

1
2
3
6
4

0
0
9
8
8
5

9
2
4
8
0
7

9
3
4
7
0
0

,
1

5
5
6
9
4
1
,
1

2
0
4
7
3
1

3
9
9
7
8
1

0
2
2
5
8
2

9
2
6
8
2
2

3
4
1
,
9
8
4

%
9
4
1

%
6
8
1

%
7
8
1

%
6
9

%
9
4
1

7
5
0
2
5
3
,
1

4
2
9
8
3
5
,
1

6
5
9
3
3
8
,
1

6
7
8
3
5
6
2

4
8
4
7
9
9
2

03 04 05 06 07

2 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 3

LETTER
OF THE
CHAIRMAN
OF THE BOARD OF
DIRECTORS

One of our main objectives at the start of 2007 was to
open 100 more stores than the amount we had at the end
of last year

To our Shareholders,

Thank you so much for taking
the time to read this annual
report, in which we will discuss
Alsea’s results as well as our
accomplishments, objectives and
the business strategy used to
achieve them.

Alsea grew significantly in
2007, not only in terms of
financial results but also in the
institutionalization process we
have undertaken as well as the
consolidation of our human team,
which already totals more than
19,000 employees. Additionally,
we have strengthened our senior
management team with which
Alsea’s future growth will be
insured in alignment with our
goals.

When our team questioned the
concept that governs this 2007
Annual Report, many ideas were
opened up for discussion. We
finally agreed that the phrase
“Alsea Knows How” is what

best defines us as a team and
as a company. In 2007, our sales
totaled slightly over 7 billion
pesos, accounting for a 16.9%
increase year over year. Our net
income went up to 489 million
pesos, accounting for earnings
per share of 0.7690 pesos. These
results prove that we know how
to use all our experience and
talent in businesses that are well
focused, profitable and with an
extraordinary projection moving
forward.

One of our main objectives at the
start of 2007 was to open a 100
more stores than the amount we
had at the end of last year. This
objective was surpassed, since we
opened a total of 117 corporate
stores in 2007, totaling 989 stores
in Mexico and Latin America at
year-end. This is a clear example
of the pace at which Alsea grows
and of the conditions we have
been able to maintain within the
company at present, so that all
our processes, plans and business
strategies are in alignment with

our vision and can be operated
expeditiously.

This has been possible thanks
to the experience we have
gained—since our beginnings—in
managing and growing successful
brands in the QSR (quick service
restaurant) segment and recently
in the casual-dining segment.
Now, more than 17 years after
Alsea started up operations, it
has developed a business model
of proven success that has not
only allowed us to maintain
growth rates with the expected
profitability, but has also led the
owners of such brands to place
their trust in Alsea in order for it
to operate them and make them
grow in other markets within
the region. Proof of this is that a
considerable portion of our annual
growth already derives from
our operations in Latin America,
where we are currently present in
Argentina, Chile and Brazil.

Alsea’s financial position at
year-end 2007 provides us

spirit that have led Alsea
to occupy the indisputable
leadership within its category,
while working to provide our
shareholders with the return they
expect and offering our clientele
the products we are already
proud of.

Sincerely,

Cosme Alberto Torrado
Chairman of the Board of Directors

Alberto Torrado
Executive President

with the necessary solidity to
take advantage of the growth
opportunities within the QSR and
casual-dining segments both in
Mexico as well as in Latin America.
By continuing to develop our
portfolio’s existing brands and
adding other successful brands,
we will consolidate our position as
the leading restaurant operator in
Latin America.

We know that in order to reach
our growth objectives, we need
to make sure that each of our
stores has the right and properly
trained personnel, while offering
the best customer service at all
times as well as having adequate
facilities to provide our clientele
with the best experience ever.
We also need to make sure
that the quality of our products
surpasses the expectations of our
consumers. Thus, in line with these
convictions, during 2007 we made
important investments in stores,
training centers and offices, so as
to improve the development and
work conditions of our personnel,
which in turn enables us to boost
productivity.

Without a doubt, 2008 will be
a year of challenges: on the one
hand, we have set growth goals
that are even more aggressive

than those of 2007, such as our
objective to open more than 135
total stores of the different brands
that we operate. In addition
to this organic growth of our
existing brands, we will invest in
consolidating our participation
in the casual dining segment and
continue to develop some of our
brands in Latin America. To do so,
we must continue to surpass the
expectations of our consumers, by
having the best trained personnel
and by being innovative, which
has enabled us to position several
of our brands as market leaders.

At Alsea we are aware of the
responsibilities of our company
in an ever-changing country
with great social inequalities,
such as Mexico. It is for this
reason that social responsibility
is one of our strategic work lines
and represents the pursuit of
excellence in each of our actions.

Within our company we do not
do business without taking social
responsibility into account, since
this allows us to be closer to
people and their needs, and this is
how we work for Mexico.

We will address the opportunities
that will arrive in 2008 with the
same passion and entrepreneurial

4 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 5

WE KNOW

HOW
TO HAVE
THE BEST
PEOPLE

During 2007, Alsea decreased its turnover rate by 18
percentage points thanks to the focus we have on our
people, one of the core strategies of our business.

quality of life and that of their
families. At year-end, 118 people
with different capacities and 21
senior citizens were part of our
human team; additionally, 48% of
our employees are women.

At Alsea, we know that the
talent of our personnel is the
driving force that has led and
will continue to lead us down the
path of success. Our business is a
people business, and it is through
our employees that we always
strive to surpass the expectations
of our consumers.

We focus all our efforts and
strategies on identifying,
recruiting, training and retaining
the very best talents.

We are continuously designing
human resources programs that
acknowledge and reward our
people for generating value and

excellent service for our external
and internal clients. We have
created total compensation
concepts in which, in addition to
paying competitive salaries, we
have also established training
programs that support our
people with skill development
opportunities, career plans and
quality of life.

Because we value diversity, we
have implemented an equal
opportunity and employment
program through which we hire
people with different capacities
and senior citizens, so as to
actively integrate them into
society and help them raise their

6 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 7

During 2007, our headcount totaled 19,200 people,
positioning Alsea as one of the largest generators of
employment in Mexico and Latin America.

In tune with our strategic plan,
2007 was a year in which
we implemented our new
organizational structure, which
ensures our ability to achieve
expected future growth and
allows us to take advantage of the
opportunities.

Alsea is the entry door into the
labor market for many young
Mexicans; the average age of our
employees is less than 25 years.

We have comprehensive training
and career plans that contribute
to the growth of our people,
enabling us to develop in-house
the talent required to accomplish
our growth plans.

During 2007, Alsea generated
more than 2,400 new jobs in
Mexico and Latin America.

19,200

employees and 2,400 new jobs
in 2007

In order to have the best prepared talent, we invested approximately 20
million pesos and gave more than 39,000 hours of training.

At Alsea, we know
that our people are
the competitive
advantage that makes
us winners and, thanks
to the commitment and
success mentality of
all our employees, we
have consolidated our
leadership position. In
2008, we are aiming
even higher…

8 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 9

WE KNOW

HOW

TO OPERATE

In 2007, through
the different brands
we operate, we had
a total of more than
88 million satisfied
customers.

The experience and commitment of all our employees
make it possible for us to offer top-quality products,
satisfying the needs and surpassing the expectations
of our customers.

We know how to operate the
different brands of our portfolio,
while maintaining quality
standards and the expected level
of customer service.

units by 117, both in Mexico as well
as in Latin America, totaling 806
corporate stores. It has operations
in three countries and in more
than 140 cities.

We know how to generate
economies of scale, which enable
us to obtain the best prices of the
different consumables used by
our brands.

At year-end 2007, Alsea had
989 stores in the four countries
in which it operates, thereby
reinforcing its position as the
leading restaurant operator in
Latin America.

During the year, the company
increased its number of corporate

Our delivery commitment for the
1,157 stores serviced by DIA—
which comprise 745 corporate
stores in Mexico, 154 stores of
Domino’s Pizza subfranchisees,
and 258 Burger King stores of
other franchisees—is “complete
and on time”.

During 2007, we traveled 9,241,569 kilometers.

In 2007, DIA produced
a total of 16.6 million
kilograms of dough
for the Domino’s Pizza
Mexico system.

10 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 11

WE KNOW

HOW
TO DEVELOP
BRANDS

Thanks to the results
of Starbucks Coffee in
Mexico, we have become
Starbuck’s strategic
partner in the region.

At year-end, Domino’s Pizza Mexico had 565 units, of
which 411 are corporate stores and 154 subfranchisee
stores.

Domino’s Pizza
In terms of number of stores, we
continue to be the most important
country for Domino’s Pizza after
the United States of America.

During 2007, we consolidated
several initiatives at Domino’s,
such as renewing the menu,
accepting credit cards at all our
stores and conducting successful
promotions, with which we
reaffirmed our position as market
leader.

Thanks to our good results, we
continue to expand our store
remodeling program and, at
year-end, 64 units were already
operating under the new “20/20
store” format.

of 195 units in Mexico, with 78
openings during the year.

At year-end 2007, Starbucks
was present in only 23 cities of
the 15 states in Mexico, which
clearly proves the outstanding
growth opportunities that exist
nationwide.

In 2008, we plan to open 111
Starbucks stores in Mexico and
Latin America to consolidate our
leadership in this category.

Burger King
Burger King Mexico surpassed the
100-unit benchmark, by opening
13 new units. Thus at year-end we
had 107 stores.

Starbucks Coffee
After five years of operation, in
2007 Starbucks Coffee had a total

In less than two years, Alsea
consolidated its development
team for Latin America, as a
result of which in 2007 it opened

11 units, six of which were Burger
King stores in Chile and five of
which were Burger King stores in
Argentina.

Thanks to the development of
new units and to the growth of
same-store sales, Burger King
Latin America’s contribution to
the consolidated income of Alsea
increased 9.1%.

Chili’s
Slightly over two years after
Chili’s was acquired, the size of
the brand has more than doubled,
from 10 to 23 units, accounting for
4.6% of Alsea’s consolidated sales.

In 2007, Alsea opened 6
new Chili’s units.

12 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 13

WE KNOW

HOW
TO GROW
WITH

PROFITABILITY

Alsea’s profitability increased, achieving a ROIC(1)
of 14.9% during 2007, compared to 9.6% last year.

In 2007, Alsea invested a total
of slightly over 1 billion pesos, of
which approximately 95% were
allotted to the expansion plan, the
refurbishment of existing stores
and the renewal of assets.

Share liquidity increased to an
average of 1.4 million pesos per
day, as a result of which Alsea
achieved its objective of being
included in the Mexican Stock
Exchange Index sample.

In 2007, sales grew

16.9%

Income grew 16.9%, with which
sales were in excess of 7 billion
pesos.

In the last five years, Alsea’s
EBITDA has grown at a compound
annual rate of more than 25%.

During 2007, net income grew
113.9%.

Earnings per share increased
104.9%, to 0.7690 pesos per share.

Alsea has the necessary capital
structure to face its organic
growth plans, continue making
acquisitions, and meet its dividend
policy of 30% of net income.

In 2007, a dividend of
0.1061 pesos per share
was declared and paid.

(1) ROIC is defined as the operating income

after taxes divided by the invested capital

- net (total assets - cash and temporary

investments - liabilities without cost).

14 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 15

WE KNOW

HOW

TO CONTINUE
GROWING

The organic growth
plan estimates a 13.7%
compound annual
growth rate to arrive
at 1,800 stores in
five years.

To ensure Alsea’s profitable growth moving forward, our
business strategy is founded on five pillars.

Organic Expansion Plan

In 2007, we opened 124 total
stores, 78 of which were opened
by Starbucks Coffee in Mexico.

From 2003 to 2007, we increased
our number of total stores at a
compound annual growth rate of
more than 15%.

In 2008, Alsea plans to open
more than 135 units of its different
brands to total more than 1,120
total stores by year-end.

Same-store Sales Increase

innovating products, optimizing
supply-chain processes and
training our employees on an
ongoing basis.

franchisee and all the Burger
King stores in Argentina and
Chile—as well as an 18% interest in
Starbucks Chile.

Every day, the commercial
departments of each brand grow
closer to their consumers, in
order to provide them with the
product offer that best matches
their preferences with quality and
promptness.

We will continue to pursue
opportunities to acquire
successfully developed brands
that will enable us to continue
generating value for our
shareholders, as has been the
case of the Chili’s results.

Potential Acquisitions

In 2007, we acquired seven
Domino’s Pizza subfranchisee
stores.

Alsea coordinates a series of
continuous improvement projects
and services for our points of
sale, based on customer service,
by adopting better practices,

During the last three years we
acquired 114 stores—including
the units of Domino’s Pizza
subfranchisees, Burger King
franchisees in Mexico, a Chili’s

During 2007, we
achieved a 1.3% same-
store sales increase in
real terms.

“La Florida” Burger King store, Buenos Aires, Argentina

“Isidora” Starbucks Coffee store, Santiago de Chile

16 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 17

In November of 2007, Alsea signed a definite agreement
with Starbucks Coffee International, Inc. to operate and
develop the Starbucks Coffee brand in Argentina and to
participate in the operation of the brand in Chile.

In 2008, we will begin to develop
the Starbucks Coffee brand in
Argentina, and thus plan to open
the first store in Buenos Aires
during the first half of the year.

Adding New Brands

We are aware of the potential of
the casual-dining segment, and
have thus implemented a strategy
to develop a multi-brand portfolio
in this segment.

We can add new brands either by
acquiring an existing brand or by
beginning to develop new brands.

Expansion towards Latin America

Alsea’s strategy for expanding
into Latin America considers
participating only in the four

major economies of the region,
namely Brazil, Argentina, Chile
and Colombia.

Latin American markets represent
a huge growth potential for Alsea.
In fact, in less than two years,
more than 9.1% of the company’s
net sales are attributable to
the Burger King operations in
Argentina and Chile.

At year-end 2007, Starbucks Chile
operated 21 stores and Starbucks
Brazil 8 units; also, our objective is
to further strengthen the presence
of the brand in these countries
with 13 openings during 2008.

“Tecnoparque” Starbucks Coffee store, Mexico City

We will continue
to analyze future
opportunities to develop
brands of proven
success in Mexico both
in the fast-food as well
as in the casual-dining
segments.

18 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 19

WE KNOW

HOW
TO BE
SOCIALLY
RESPONSIBLE

Since it was created, Alsea’s foundation has contributed
more than 13 million pesos to improve the quality of life
of more than 15,000 people.

Alsea’s everyday concerns include
improving each of its internal and
external processes, complying
with existing regulations and
legislation, offering its employees
the best work conditions, and
maintaining the highest quality
and service standards.

Every day, we work with the
firm commitment to support
and build a more competitive
domestic economy. At Alsea
we are aware of our role in
community development. We are
therefore clearly committed to
the building of a more fair and
equitable Mexico, through solid
entrepreneurial performance and
above all by being responsible

towards our people, shareholders,
suppliers, clients and the
community.

Today, we do not do business
without taking social responsibility
into account in each and every
one of our decisions. To this
end, we created a specific Social
Responsibility Department
that regulates, coordinates
and structures all the social
responsibility endeavors of Alsea
and its brands.

The social responsibility and
community outreach efforts of
Alsea are conducted through
Fundación Alsea, A.C. and the
brands.

Fundación Alsea A.C. was
incorporated in June of 2004 and
focuses its efforts on building
a more balanced Mexico, while
helping a greater number of
people to develop under more
egalitarian conditions.

Fundación Alsea A.C. obtains its
resources from the brands, which
as a result of an institutional
policy requested by the Board
of Directors, donate 1% of their
net income of the previous year.
Other sources of income include
the donations given by founding
partners, voluntary employee
donations given through the
company’s payroll, Domino’s

Pizza subfranchisees and Alsea
suppliers.

The highlights of 2007 nationwide
are:
• 47,403 people benefited
• 42 institutions that were
supported
• 4,500 volunteers
• 68,329 toys donated
• 26,605 trees planted in Chiapas,
Mexico City, Guadalajara,
Oaxaca, Puebla, Tabasco and
Veracruz
• 72 tons of donations in kind
• 8,859 individual pizzas that
were donated
• 83% of our suppliers are Mexican
companies

• Support was given to the
flood victims in Tabasco and
Chiapas:

• Through donation stations at
our offices, distribution centers
and 84 Starbucks.
• 30 tons of food items
delivered to the Mexican Red

Cross, directly in Tabasco,

•

thanks to DIA.
$1 million pesos donated to
the Mexican Red Cross, thanks
to Domino’s Pizza and its
clients.

• Starbucks Coffee ranks 2nd in
Mexico among the best
companies that work with the
Special Fellowship Award

20 • ALSEA 2007 ANNUAL REPORT

MANAGEMENT

WE KNOW HOW TO SERVE OUR CLIENTS

Federico Tejado
Managing Director,
Domino’s Pizza

Gerardo Rojas
Managing Director,
Starbucks Coffee

Fabián Gosselin
Managing Director,
Burger King

Pablo de los Heros
Managing Director,
Burger King
Latin America

Martín Santos
Managing Director,
Popeyes

Armando Torrado
Casual Dining Director

Héctor Orrico
Managing Director, DIA

WE KNOW HOW TO SUPPORT OUR BRANDS

Cosme Torrado
Chairman of the Board
of Directors

Arturo Barahona
Chief Executive Officer

Alberto Torrado
Executive President

José Rivera Río
Chief Financial Officer

Sergio Mirensky
Corporate Director,
Strategic Planning

Rafael Cancino
Corporate Director,
Human Resources

Mario Sánchez
Corporate Director,
Internal Audit

ALSEA 2007 ANNUAL REPORT • 21

BOARD

OF DIRECTORS

Chairman

Independent Board Members

Cosme Alberto Torrado Martínez
Chairman of the Board of Alsea

José Manuel Canal Hernando
Independent Consultant

Shareholder Board and
Staff Members

Marcelo Rivero Garza
Grupo Jumex, Chief Executive Officer

Alberto Torrado Martínez
Executive President of Alsea

Salvador Cerón Aguilar
STF Consulting Group, President

Armando Torrado Martínez
Casual Dining Director

Sergio Mario Larraguivel Cuervo
Anesla, S.A. de C.V., Founder Senior Manager

Fabián Gerardo Gosselin Castro
Managing Director, Burger King

Secretaries

Federico Tejado Bárcena
Managing Director,
Domino’s Pizza

Xavier Mangino Dueñas
Gutiérrez, Díaz de Rivera y Mangino, S.C.,
Partner

Arturo Barahona Oyervides
Chief Executive Officer of Alsea

Guillermo Díaz de Rivera Álvarez
Gutiérrez, Díaz de Rivera y Mangino, S.C.,
Partner

Audit Committee

Corporate Governance Committee

José Manuel Canal Hernando
Chairman

Salvador Cerón Aguilar
Chairman

Marcelo Rivero Garza
Member

Sergio Mario Larraguivel Cuervo
Member

José Rivera Río Rocha
Secretary

Mario Sánchez Martínez
Secretary

22 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 23

Management Discussion & Analysis

RESULTS BY SEGMENT

Sales

Net sales increased 16.9% to 7,047.3 million pesos in 2007, compared to 6,026.4 million pesos during the last year. This

increase was attributable to revenue growth in all our brands and, to a lesser extent, to the increase in food distribution

sales made to third parties.

The sales growth in all our brands was due to the opening of 117 corporate stores (including the acquisition of 6 Domino’s

Pizza units) and to the 1.3% same-store sales growth for the entire year of 2007, thanks to the favorable performance of this

indicator in the Starbucks Coffee Mexico stores, and to the successful remodeling program of existing stores in Mexico and

Latin America, as well as to the launching of several promotions in the different brands that make up our portfolio.

Gross Profit

Gross profit increased 0.8 percentage points, as a result of the revenue mix in Alsea’s portfolio, owing to the fact that the

business units with the highest growth in sales at present are the units with the lowest cost as a percentage of sales. This

was partially offset by the price hike of some of our main raw materials and the effect of the price strategy related to the

launching of different promotions among some of our brands.

Operating Expenses

Operating expenses (excluding depreciation and amortization) increased 1.2 percentage points as a percentage of sales,

from 49.0% in 2006 to 50.2% in the last twelve months ended December 31, 2007. This was mainly attributable to the

aforementioned revenue mix, as well as to the increase in advertising expenses; expenses related to the judicial proceeding

we have opened to obtain the proper compliance with the Constitutional Relief (“Amparo”) Sentence regarding the 0%

Value Added Tax rate on the food sales of our Domino’s Pizza, Burger King and Popeyes stores; and, to a lesser extent, to the

increase in expenses resulting from the changes in Alsea’s organizational structure. These variations were partially offset by

the marginality that was generated as a result of the increase in the number of units and the growth in same-store sales.

EBITDA

As a result of the aforementioned variations, EBITDA grew 14.1% to 1,149.7 million pesos in 2007, compared to 1,007.5 million

pesos in 2006. The EBITDA margin declined 0.4 percentage points, from 16.7% in 2006 to 16.3% during the last twelve

months ended December 31, 2007.

Operating Income

The operating income of 2007 increased 264.5 million pesos or 60.6%, mainly due to the fact that during the fourth quarter

of the previous year the change in the useful life of certain fixed assets was recognized, and to the increase in EBITDA, which

was partially offset by the increase in depreciation and amortization as a result of having acquired the assets related to the

expansion plan as well as the acquisitions made in the last twelve months.

Net Income

Consolidated net income increased 260.5 million pesos, mostly due to the 264.5-million-peso increase in operating

income, the positive variation of 18.7 million pesos in discontinued operations, and the 11.7-million-peso decrease in the

comprehensive cost of financing. These variations were partially offset by the 19.2-million-peso increase in other expenses,

the 12.5-million-peso increase in the income tax provision, and the negative variation of 2.7 million pesos in the interest in

associated companies.

Earnings per Share (EPS) of the last twelve months ended December 31, 2007 increased 104.9% to 0.7690 pesos, compared

to 0.3753 pesos of the last twelve months ended December 31, 2006.

The following table sets forth the net sales and EBITDA by business segment, in millions of Mexican pesos, for the entire

year of 2007 and 2006.

Net Sales by Segment

2007

Contr. %

2006

Contr. %

% Var.

Food & Beverages Mexico

$ 5,450.7

77.3%

$ 4,747.0

78.8%

14.8%

Food & Beverages Latin America

Distribution
Intercompany Operations(1)

641.8

2,620.2

9.1

37.2

346.6

2,329.4

5.8

38.7

(1,665.4)

(23.6)

(1,396.6)

(23.2)

85.2

12.5

19.2

Consolidated Sales

7,047.3

100.0%

$ 6,026.4

100.0%

16.9%

EBITDA by Segment

2007 Contr. % Margin

2006 Contr. % Margin

% Var.

Food & Beverages Mexico

833.8

72.5%

15.3%

731.6

72.6%

15.4%

14.0%

Food & Beverages Latin America

Distribution
Other Businesses(2)

73.5

214.6

6.4

18.7

11.5

8.2

39.3

3.9

202.3

20.1

11.4

8.7

86.8

6.1

27.8

2.4

N/A

34.2

3.4

N/A (18.8)

Consolidated EBITDA

1,149.7 100.0%

16.3%

1,007.5 100.0%

16.7%

14.1%

(1) For segment reporting purposes, intercompany operations are included in each of the segment operations.

(2) Other Businesses includes the real estate and service companies, as well as the operations of the holding company.

Sales per Brand

2007

2006

Change %

Domino´s Pizza

Starbucks Coffee

Burger King Mexico

Burger King Latin America

Popeyes

Chili´s

Total

Food and Beverages Mexico

$ 2,869.3

47.1%

$ 2,800.3

55.0%

2.5%

1,125.6

1,070.3

641.8

61.1

324.4

18.5

17.6

10.5

1.0

5.3

679.6

974.2

346.6

43.7

249.2

13.3

19.1

6.8

0.9

4.9

65.6

9.9

85.2

39.8

30.2

$ 6,092.5

100.0%

$ 5,093.6

100.0%

19.6%

2007 sales increased 14.8% to 5,450.7 million pesos, compared to 4,747.0 million pesos year over year. This increase of 703.7

million pesos is attributable to unit growth and to the growth in same-store sales.

EBITDA increased 14.0% during 2007, totaling 833.8 million pesos, which accounted for an EBITDA margin of 15.3%. This

increase is the result of the growth in revenues and the marginality generated as a result of the foregoing.

Food and Beverages Latin America

The Food & Beverages Latin America Division increased revenues 85.2%, totaling 641.8 million pesos compared to 346.6

million pesos in 2006, which was partially due to the fact that these operations began to consolidate starting in May of

2006, to the growth in same-store sales and to the opening of eleven units during the last twelve months.

EBITDA increased 86.8%, totaling 73.5 million pesos, which accounted for an EBITDA margin of 11.5%, i.e. 0.1 percentage

points more than in the year-ago period. This is attributable to the marginality effect generated by the same-store sales

growth and the increase in the number of units.

24 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 25

Distribution

BALANCE SHEET

During 2007, distribution sales increased 12.5% to 2,620.2 million pesos, compared to 2,329.4 million pesos in 2006. This is

attributable to the increase of 141 stores served, totaling 1,156 units at year-end 2007. Third-party revenues increased 2.4%,

Equipment, Leasehold Improvements and Property, Net

amounting to 967.1 million pesos.

The 541.6-million-peso variation is the result of the expansion plan and the acquisitions made in the last twelve months.

EBITDA reached 214.6 million pesos compared to 202.3 million pesos in the year-ago period, which accounted for an

During the twelve months of 2007, Alsea invested a total of 1,081.4 million pesos, of which 1,021.0 million pesos were

EBITDA margin of 8.2%, i.e. 0.5 percentage points less than in the last year, mainly due to the price hike of some of the raw

invested in store openings, renovation of equipment and the remodeling of the existing stores of all our brands, including the

materials, as well as to the effect in the revenue mix, owing to the fact that the fastest-growing brands are the brands with

acquisition of the assets of Dopisin (a sub-franchisee of Domino’s Pizza). The remaining 60.4 million pesos were invested,

lower margins for DIA.

among other items, in the new production line of DIA, software and hardware equipment, as well as in the training facilities

NON-OPERATING RESULTS

Comprehensive Cost of Financing

and the new corporate offices.

Recoverable Taxes - Net

The 339.8-million-peso increase in recoverable taxes – net of taxes payable, as of December 31, 2007, was mostly attributable

to the Value Added Tax balance in favor of Operadora de Franquicias Alsea, S.A. de C.V. (“OFA”), which has not been

The comprehensive cost of financing in the entire year of 2007 declined 38.1 million pesos, compared to 49.7 million pesos

refunded.

during the same period of last year. This is attributable to the positive variation of 7.4 million pesos and 3.7 million pesos,

respectively, in the foreign exchange result and the monetary position result and, to a lesser extent, to the 0.6-million-peso

Deferred Income Tax

decrease in interest paid – net, owing to a lower level of average leverage.

The Deferred Income Tax went from 89.0 million pesos as of December 31, 2006 to 214.4 million pesos at year-end 2007.

This increase of 125.3 million pesos was mostly due to the recognition of the tax losses and, to a lesser extent, to the effect

Other Expenses - Net

of the growth in accounts payable.

This item increased 19.2 million pesos in 2007, mainly due to the recognition of the impairment of long-term assets used

in Popeyes’ operations, which was partially offset by the profit obtained from the sale of fixed assets related to the non-

Suppliers

strategic asset sale program aimed at boosting the company’s profitability.

The 58.5-million-peso increase in suppliers was due to the growth in the company’s volume of operations, partially offset by

the one-day decrease in accounts payable to suppliers, which at December 31, 2007 was 39 days.

Income Taxes

The Income Tax of 162.3 million pesos increased 12.5 million pesos during the twelve months ended December 31, 2007,

Accounts Payable

compared to the year-earlier period, mostly due to the increase of 256.9 million pesos in earnings before taxes, which was

The 168.1-million-peso increase in accounts payable is mainly attributable to unpaid balances related to the 0% Value Added

offset by the application of tax losses.

Interest in Associated Companies

Tax rate on food sales, as well as the recognition of expenses related to the judicial proceeding we have opened to obtain

the proper compliance with the Constitutional Relief (“Amparo”) Sentence and, to a lesser extent, to the increase in the

provisions for expenses, such as the executive bonus and other operating expenses related to the company’s growth.

The interested in associated companies had a negative variation of 2.7 million pesos, mostly due to the net loss of Starbucks

Coffee Brazil during the last twelve months ended December 31, 2007.

Debt

Discontinued Operations

As of December 31, 2007, Alsea’s total debt increased 536.2 million pesos to 1,033.4 million pesos, compared to 497.3 million

pesos on the same date last year. This increase is mainly attributable to the development plan of the company’s brands, as

The 18.7-million-peso positive variation in discontinued operations was mostly due to the effect of having reclassified the

well as to the acquisitions made in the last twelve months.

Domino’s Pizza Brazil operations within this item, as well as to the income obtained from the proceeds of the sale of the

stock ownership of 50% of Cool Cargo’s capital stock.

Minority Interest

As of December 31, 2007, 67.6% of the debt was long term, compared to 72.3% at year-end 2006. On the same date, 94.8%

of the debt was denominated in Mexican pesos and 5.2% in Chilean pesos. The Company’s consolidated net debt—compared

to 2006—increased 571.1 million pesos, totaling 824.1 million pesos at year-end 2007 compared to 253.0 million pesos at

Minority Interest reached 10.7 million pesos in the twelve months ended December 31, 2007, compared to 6.5 million pesos

year-end 2006.

in the year-ago period. This increase of 4.2 million pesos mostly reflects the increase in the net income of Starbucks Coffee

Mexico.

Share By-back Program

As of December 31, 2007, the company had a balance in the fund set aside for the 4,518,124 share by-back, equal to

approximately 71.6 million pesos in nominal terms. During the twelve months ended December 31, 2007, the company

bought back 4,448,400 shares (net), equal to 69.5 million pesos.

Financial Ratios

At year-end 2007, the company had complied with all the financial restrictions established in the long-term credit agreements.

The net debt/EBITDA ratio was 0.72 times, the total liabilities/stockholders’ equity ratio was 0.69 times, and the EBITDA/

interest paid net ratio was 24.4 times.

The Return on Invested Capital (ROIC)(3) increased from 9.6% to 14.9% during the last twelve months ended December 31,
2007. The Return on Equity (ROE)(4) of the twelve months ended December 31, 2007 was 16.5% compared to 9.1% year over

year. The increase in the aforementioned financial ratios is mostly due to the impact on results of the change in the useful

life of certain assets that we recognized in the fourth quarter of 2006, as well as to the company’s improved financial results

during the last twelve months ended December 31, 2007. These effects were partially offset by the increase in recoverable

taxes.

26 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 27

RELEVANT FIGURES

Brand

Domino´s Pizza Mexico

Starbucks Coffee Mexico

Burger King Mexico

Burger King Argentina

Burger King Chile

Popeyes

Chili’s Grill & Bar

Total Corporate

Domino´s Pizza Brazil

Starbucks Coffee Chile

Starbucks Coffee Brazil
Total Associates(7)

Domino´s Pizza Mexico

Total Sub-Franchisees

TOTAL STORES

Stores

2007

Stores

2006

Variation

% Annual

Variation

411

195

107

806

N/A

154

989

402

117

689

N/A

151

865

117

(23)

124

2.2%

66.7

13.8

18.5

26.1

0.0

35.3

17.0%

N/A

310.0%

16.0%

2.0%

14.3%

Financial Ratios

2007

2006

Change

EBITDA/Interests paid

Net debt/EBITDA

Total liabilities/Stockholders’ equity
ROIC(3)
ROE(4)

24.4 x

0.72 x

0.69 x

14.9%

16.5%

21.0 x

0.25 x

0.49 x

9.6%

9.1%

N/A

530 bps

740 bps

Audit Committee Report

In compliance with the provisions of Articles 42 and 43 of Mexico’s new Securities Market Law and the Audit Committee

Regulation, I hereby inform you of the activities we carried out during the year ended December 31, 2007. While performing

our work, we have kept in mind the recommendations established in the Code of Best Corporate Practices. We got together

at least once every quarter and followed a work schedule to perform the activities described below.

Internal Control

We made sure that Management, while complying with its internal control responsibilities, had established general

guidelines and the processes needed to apply and comply with such guidelines. Additionally, we followed up on the

related comments and observations made by the External and Internal Auditors in the performance of their work.

II. External Audit

We recommended to the Board of Directors the engagement of the Group’s and its subsidiaries’ external auditors. In

this regard, we verified their independence and the compliance with the personnel turnover requirements established

by law. Jointly, we analyzed with them their focus and work schedule, as well as their coordination with the Internal

Audit Department.

We constantly and directly stayed in touch to be informed of the progress they were making in their work, of any

observations they might have and to take note of their comments on their revision of the quarterly and annual financial

statements. We were promptly informed of their conclusions and reports on the annual financial statements.

We authorized the fees paid to the external auditors for their auditing services and other services that are allowed,

making sure that they did not interfere with their independence with respect to the company.

While taking into account Management’s viewpoints, we evaluated its services corresponding to last year.

Stock Ratios

2007

2006

Change

III. Internal Audit

Book value per share(6)
EPS(6)
EV(5)/EBITDA
Shares outstanding (millions)(6)

Float
Stock price(6)

4.88

0.7690

9.1 x

618.8

37.1%

15.30

4.26

0.3753

9.4 x

623.3

36.0%

14.72

14.6%

104.9%

N/A

(0.72)%

110 bps

3.9%

(3) ROIC is defined as operating income after taxes divided by operating investment, net (total assets – cash and temporary investments – non-

interest bearing liabilities).

(4) ROE is defined as net income divided by stockholders’ equity.

(5) EV is defined as market value plus net debt plus minority interest, and considers the price per share at the closing of each quarter.

(6) To make information comparable, the number of shares of 2006 has been adjusted based on the 4 to 1 split carried out in 2007.

(7) Associate Stores refers to the stores that are recognized under the equity participation method.

With the purpose of maintaining its independence and objectivity, the Internal Audit Department functionally reports

to the Audit Committee. Accordingly:

1. We revised and approved in a timely manner its schedule and annual activity budget.

2. We received periodical reports on the progress of the approved work schedule, any changes they might have had

as well as the causes that brought on such changes.

3. We followed up on the observations and suggestions that they developed, as well as their timely implementation.

IV. Financial Information, Accounting Policies and Reports Delivered to Third Parties

We revised the quarterly and annual financial statements of the company with the persons in charge of preparing them,

and recommended to the Board of Directors their approval and authorization to be published. As part of this process,

we took into account the opinion and observations of the external auditors.

Upon issuing our opinion on the financial statements, we made sure that the criteria, and accounting and information

policies used by Management to prepare the financial information were adequate and sufficient, and that they were

applied consistent with the previous fiscal year. As a result, the information presented by Management reasonably

reflects the financial situation, operating results and changes in the company’s financial situation for the year ended

December 31, 2007.

Our review also included the quarterly reports that are prepared by Management and presented to the stockholders

and public in general, as well as any other financial information required by existing regulations. We made sure that

such information was prepared based on the same accounting criteria that are used to prepare the annual information.

To conclude, we recommended to the Board that the publication of this information be authorized.

28 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 29

V. Compliance with Regulations, Legal Aspects and Contingencies

We confirmed the existence and reliability of the controls established by the company to ensure compliance with the

different legal provisions it is subject to, and made sure that these provisions were properly disclosed in the financial

information.

We periodically revised the company’s tax, legal and labor contingencies and supervised the effectiveness of the

procedure that was established to identify and follow up on such contingencies, as well as their proper disclosure and

recording.

VI. Code of Conduct

With the support of the Internal Audit Department, we made sure that the personnel was complying with the Code of

Conduct in effect in the Group, and that the corresponding sanctions were being applied in cases in which breaches

were found.

VII. Administrative Issues

We conducted the Committee’s regular meetings with Management to be informed of the company’s performance as

well as of the relevant and unusual activities and events.

We also met with the external and internal auditors, without the presence of Management members, to comment on the

development of their work and any limitations they might have had, as well as to facilitate any private communication

they might want to have with the Committee.

When deemed advisable, we requested the support and opinion of independent experts. Likewise, no significant

possible non-compliances with operating policies, the internal control system and the accounting recording policies

came to our knowledge.

We held executive meetings with the exclusive participation of the Committee members, and during such meetings

agreements and recommendations for Management were established.

The Chairman of the Audit Committee reported to the Board of Directors on a quarterly basis the activities that were

carried out.

Corporate Practices Committee Report

February 19, 2008

To the Board of Directors of ALSEA, S.A.B. DE C.V.:

In compliance with Articles 42 and 43 of Mexico’s new Securities Market Law, and on behalf of the Corporate Governance

Committee, I am pleased to present you with my report on the activities we carried out during the year ended December

31, 2007. While performing our work, we have kept in mind the recommendations contained in the Code of Best Corporate

Practices.

In order to comply with the responsibilities of this Committee, we performed the following activities:

During this period, we did not receive any request for exemption in accordance with the provisions of Article 28, paragraph

III, section f) of the new Securities Market Law. It was therefore not necessary for us to make any recommendation in this

regard.

For the first time we revised the Related Parties Operations Report, as a result of which we asked Management to

present this report to us on a quarterly basis, following a methodology and an order that will allow us to ensure the

transparency of this type of operations as they occur. The report shall at all times include the approval of the Internal

Audit Department and, when necessary depending on the pre-established methodology, the intervention of a third party

backing the market prices. As we received the reports prepared in accordance with this methodology, the pertinent

recommendations were made.

The work we performed was duly documented in minutes that were prepared after each meeting, and which were

revised and approved in a timely manner by the members of the Committee.

Twice a year we revised the 2007 Performance Evaluation of relevant executives, as well as Management’s proposal to pay

their variable compensation depending on this same evaluation. In both cases we issued the proper recommendations.

Sincerely,

Chairman of the Audit Committee

José Manuel Canal Hernando

February 18, 2008

We analyzed a proposal to grant the “2007 Deferred Bonus Plan” for up to a maximum amount of four months’ salary,

depending on the personal evaluation of all the participants, in view of the fact that the 2007 financial results were as

expected in spite of the share price during this fiscal year not having performed as well as was forecasted. We suggested

authorizing this proposal, subject to the result of the judicial process involving the subject of 0% Value Added Tax on

the sale of food items. We were likewise asked to review the policies so that the Plan that was designed to align the

company’s results with the executives’ compensation is not affected by events that may not be directly in correlation

with performance.

On a quarterly basis, we were presented with the Control Board that allowed us to follow up on the strategic objectives.

Additionally, we performed a first review of the 2008-2012 Strategic Plan, which was prepared as per the procedure

established in the “Alsea Model” project. The complete analysis was presented at the Board of Directors’ Meeting of

December 13, 2007, and the Board asked for a Strategic Planning meeting to be held in April of 2008.

6. On a quarterly basis, we followed up on the progress made in the “Alsea Model” Processes Project.

We established the general premises to prepare the 2008 budget. The 2008 budgets of each of Alsea’s divisions were

revised in order to validate them and be able to make a recommendation to the Board of Directors. The budget and all

its components were approved by the Board of Directors in its meeting held January 9, 2008.

We revised the CEO’s report with the changes vs. budget for each quarter of 2007 and the entire fiscal year 2007,

with the effects of each of Alsea’s companies, in order to validate them and be aware of the main variations before

presenting them to the Board of Directors. In all cases we recommended the authorization of such reports and of the

financial reports.

30 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 31

All of the acquisition initiatives that were presented to us by Management were evaluated; during this period the

acquisition of seven Domino’s Pizza units of the “Dopisin” subfranchisee in the state of Sinaloa was authorized. In this

case, the corresponding budget was revised and added.

Independent Auditors’ Report

(Translation from original issued in Spanish)

10. We recommended the authorization of the dividend payment as per the established policy, i.e. 30% of the 2007 net

income. On this occasion we suggested that the type of payment be optional, that is to say either shares or money, in

view of the attractive share price in the Securities Market as well as the cash flow analysis for 2008.

11.

The Trading Plan results were presented quarterly; thanks to these results Alsea is now a part of the Mexican Stock

Exchange Index. We recommended that a special recognition be given to Management, when the time is right,

specifically for its performance, management and results obtained in all the activities related to the Training Plan that

was implemented.

12. Management presented us with the stock market indicators goals it suggests for the four quarters of 2008, which we

presented to the Board of Directors and which we suggested be accepted as indicative, subject to review, and adjusted

quarterly—as the case may be—during fiscal year 2008.

13. We were presented with the restatement of the Shareholder’s Cost applied at the end of each quarter of 2007, using

the methodology authorized by the Board of Directors, and we suggested that a rate of 16.5% be used at the end of the

period.

14. On a quarterly basis we were presented with a summary of the risk management operations through “Foreign Exchange

Forwards” (MXN/USD) carried out during the year. These operations have been conducted as authorized, i.e. in alignment

with the objective of covering the foreign exchange risk of the operation in accordance with the authorized budget.

Lastly, I would like to mention that as part of the activities we have carried out, including the preparation of this report, we

have at all times listened to and taken into account the viewpoint of all the relevant senior managers, and no significant

differences of opinion existed.

Sincerely,

Chairman of the Corporate Practices Committee

Salvador Cerón Aguilar

To the Board of Directors and Stockholders

Alsea, S. A. B. de C. V.:

(Thousands of Mexican pesos)

We have examined the accompanying consolidated balance sheets of Alsea, S. A. B. de C. V. and subsidiaries as of December

31, 2007 and 2006 and the related consolidated statements of income, of changes in stockholders’ equity and of changes in

financial position for the years then ended. These consolidated financial statements are the responsibility of the Company’s

management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement and are prepared in accordance with Mexican Financial Reporting Standards. An audit includes examining, on

a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes examining, on

a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing

the reporting standards 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.

As mentioned in note 17(f) to the consolidated financial statements, in 2007, a subsidiary company of Alsea filed an appeal

to obtain compliance with the injunction sentence (“Amparo”) related to Valued Added Tax, with no final resolution yet

issued.

As mentioned in note 7 to the consolidated financial statements, in accordance with management’s new market strategy,

which involves image renewal of the trademarks that Alsea operates, during 2006, the useful life of the assets mentioned

in said note was adapted to the current conditions of business operations. The effect of this change generated a charge of

$253,085 to operating expenses and a credit to the deferred tax provision of $58,815 in income for 2006.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial

position of Alsea, S. A. B de C. V. and Subsidiaries as of December 31, 2007 and 2006, and the results of their operations,

the changes in their stockholders’ equity and the changes in their financial position for the years then ended in conformity

with Mexican Financial Reporting Standards.

KPMG CARDENAS DOSAL, S. C.

C.P. Javier Morales Ríos

February 19, 2008.

32 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 33

Alsea, S. A. B. de C. V. and Subsidiaries

Consolidated Balance Sheets

December 31, 2007 and 2006

(Thousands of Mexican pesos of constant purchasing power of December 31, 2007)

2007

2006

2007

2006

Asset

Current assets

Cash

Accounts receivable:

Clients less allowance for doubtful accounts

of $4,456 in 2007 and $6,784 in 2006

Valued added tax and other recoverable taxes (note 17(f))

Other

Inventories, net (note 5)

Prepaid expenses

Liabilities and Stockholders’ Equity

Short-term liabilities

209,327

244,262

Current installments of long-term debt (note 10)

334,550

137,875

214,514

594,897

95,410

235,252

79,072

170,719

197,116

39,798

226,386

62,793

Suppliers

Associated companies (note 4)

Accounts payable and accrued liabilities

Accruals (note 11)

Taxes payable and employees’ statutory profit sharing

487,560

429,084

42,790

47,799

376,806

140,134

16,596

51,738

204,741

82,120

Total short-term liabilities

1,429,639

922,154

Total current assets

1,428,472

941,074

Long- term debt, excluding current installments (note 10)

Investment in shares of associated companies (note 6)

22,874

3,515

Labor obligations (note 14)

Other liabilities

698,900

359,401

15,656

23,848

17,663

18,678

Equipment, leasehold improvements and property, net (note 7)

2,786,389

2,244,790

Total liabilities

2,168,043

1,317,896

Goodwill of subsidiary companies, net (note 8)

217,612

Stockholders’ (note 16):

Intangible assets, less accumulated amortization of $411,956

in 2007 and $354,858 in 2006 (note 9)

625,993

527,626

Majority stockholders’ equity

Capital stock

Additional paid- in capital

Retained earnings

Deferred income tax and long-term taxes on retained earnings (note 15)

214,381

89,037

Reserve for repurchase of shares

Cumulative translation effect from foreign entities

534,365

536,624

1,090,334

1,226,657

906,062

140,739

5,389

118,738

2,118

Intangible assets for labor obligations (note 14)

4,411

6,194

Discontinued operations

–

10,618

Majority stockholders’ equity

2,997,484

2,653,876

Minority interest

134,605

68,694

Total stockholders’ equity

3,132,089

2,722,570

Commitments and contingencies (note 17)

See accompanying notes to the consolidated financial statements.

5,300,132

4,040,466

5,300,132

4,040,466

Mr. José Rivera Río Rocha

Mr. Alberto Torrado Martínez

Mr. Abel Barrera Fermín

Chief Financial Officer

Chief Executive Officer

Corporate Comptroller

34 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 35

Alsea, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Income

Years ended December 31, 2007 and 2006

(Thousands of Mexican pesos of constant purchasing power as of December 31, 2007)

Consolidated Statements of Changes in Financial Position

Years ended December 31, 2007 and 2006

(Thousands of Mexican pesos of constant purchasing power as of December 31, 2007)

Net sales

Cost of sales

Gross profit

Operating expenses

2007

2006

2007

2006

7,047,270

6,026,444

Operating activities:

2,362,069

2,066,515

Income before minority interest

489,141 $

228,629

4,685,201

3,959,929

Depreciation and amortization

Labor obligations

3,984,657

3,523,848

Equity interest in associated companies

449,111

6,953

2,653

571,358

4,833

–

Add charges (deduct credits) to income not requiring (providing) funds:

Operating income

700,544

436,081

Deferred income tax and employees’ statutory profit sharing

(125,344)

(134,928)

Funds provided by operations

822,514

669,892

Other expenses, net (note 13)

(19,293)

(24,486)

Net financing from (investing in) operating accounts:

Comprehensive financing result (note 12)

(38,059)

(49,722)

Equity interest in associated companies (note 6)

(2,653)

Clients, net and prepaid expenses

Inventories

Associated companies

Suppliers, accounts payable, accrued liabilities and other accounts payable

Taxes payable and employees’ statutory profit sharing

(115,690)

(8,866)

26,194

222,829

(339,767)

93,605

(61,858)

26,903

107,817

113,201

Income from continuing operations, before income taxes

640,539

361,873

Funds (used in) provided by operating activities

(215,300)

279,668

Income tax (note 15)

162,305

125,469

Financing activities:

Income before discontinued operations

478,234

236,404

Income (loss) from discontinued operations, net (note 2(c))

10,907

(7,775)

Income before minority interest

489,141

228,629

Minority interest

Net income

10,706

6,452

478,435

222,177

Net earnings per share (note 2(w))

0.77

0.38

See accompanying notes to the consolidated financial statements.

Increase in capital stock and minority interest, net

Repurchase of shares

Loans, net

Dividends declared

Funds provided by financing activities

Investing activities:

55,205

727,689

(70,258)

13,355

536,174

(332,047)

(67,840)

(167,677)

453,281

241,320

Acquisition of equipment, leasehold improvements and property

(706,985)

(368,363)

Acquisition of subsidiary and associated companies

Comulative translation effect from foreign entity

Intangible and other assets

(9,624)

(378,764)

3,271

(4,727)

(382,092)

(366,016)

Funds used in investing activities

(1,095,430)

(1,117,870)

(Decrease) increase in cash

(34,935)

73,010

Cash:

At beginning of year

At end of year

See accompanying notes to the consolidated financial statements.

244,262

171,252

209,327

244,262

Mr. José Rivera Río Rocha

Mr. Alberto Torrado Martínez

Mr. Abel Barrera Fermín

Mr. José Rivera Río Rocha

Mr. Alberto Torrado Martínez

Mr. Abel Barrera Fermín

Chief Financial Officer

Chief Executive Officer

Corporate Comptroller

Chief Financial Officer

Chief Executive Officer

Corporate Comptroller

36 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 37

Alsea, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Years ended December 31, 2007 and 2006

(Thousands of Mexican pesos of constant purchasing power as of December 31, 2007)

Capital

stock

Additional

paid-in

capital

Legal

reserve

Retained earnings

Cumulative

Total

Retained

earnings

Stock

Translation

majority

Total

repurchase

effect from

stockholders’

Minority

stockholders’

Total

reserve

foreign entities

equity

interest

equity

Balances as of December 31, 2005

495,335

380,435

32,207

819,355

851,562

105,932

393

1,833,657

85,192

1,918,849

Decrease in minority interest

Increase in equity (note 16)

Repurchase of shares (note 16)

Appropriation to legal reserve

Dividends declared ($0.29 per share) (note 16)

Comprehensive income

–

40,740

709,899

549

–

13,365

–

(13,365)

–

(167,677)

222,177

–

12,806

–

(22,950)

750,639

13,355

–

(167,677)

–

750,639

13,355

–

(167,677)

1,725

223,902

6,452

230,354

Balances as of December 31, 2006

536,624

1,090,334

45,572

860,490

906,062

118,738

2,118

2,653,876

68,694

2,722,570

Increase in minority interest

Repurchase of shares (note 16)

Appropriation to legal reserve

Increase stock repurchase reserve (note 16)

Dividends declared ($0.30 per share) (note 16)

Comprehensive income

–

(2,259)

–

10,988

–

(10,988)

–

(67,999)

–

(90,000)

90,000

(67,840)

478,435

–

55,205

(70,258)

–

(67,840)

–

(70,258)

–

(67,840)

3,271

481,706

10,706

492,412

Balances as of December 31, 2007

534,365

1,090,334

56,560

1,170,097

1,226,657

140,739

5,389

2,997,484

134,605

3,132,089

See accompanying notes to the consolidated financial statements.

Mr. José Rivera Río Rocha

Mr. Alberto Torrado Martínez

Mr. Abel Barrera Fermín

Chief Financial Officer

Chief Executive Officer

Corporate Comptroller

38 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 39

Alsea, S. A. B. de C. V. and Subsidiaries

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

(Thousands of constant Mexican pesos as of December 31, 2007)
(Translation from original issued in Spanish)

These financial statements have been translated from the Spanish language original only for the convenience of foreign

English speaking readers.

On February 19, 2008, the Board of Directors authorized the issuance of the accompanying consolidated financial statements

and notes thereto. In accordance with the General Corporations Law and the Company’s bylaws, the Stockholders are

empowered to modify the financial statements after their issuance. The accompanying financial statements will be submitted

for approval at the following Stockholders’ Meeting.

1. Description of business and significant transactions–

Alsea, S. A. B. de C. V. and Subsidiaries (Alsea or the Company) are mainly engaged in operating fast-food stores and

casual restaurants. In Mexico, Alsea operates Domino’s Pizza, Starbucks Coffee, Burger King, Popeyes and Chili’s Grill &

Bar. The operation of its multi-units is supported by its Shared Service Centre, which includes a supply chain through

its distribution division (DIA), real estate and development services, as well as administrative services such as finance,

human resources and technology. Since 2006, the Company operates Starbucks Coffee in Brazil in association with Café

Sereia do Brasil Participações, S. A. and Starbucks Coffee International. In Chile and Argentina, Alsea operates Burger

King and as from 2007, Starbucks Coffee in those countries in association with Starbucks Coffee International.

Significant transactions–

Share split and Primary public offering – In February 2007, having carried out the necessary procedures and updated its
share registration at the National Securities Registry, Alsea’s four-to-one share split became effective, without modifying

the capital stock.

In April 2006, Alsea increased its capital stock, issuing 65,028,800 Class II common shares. The net resources provided

by this primary public offering increased the stockholders’ equity, as mentioned in note 16.

Acquisitions – Continuing with the market positioning of fast-food and casual restaurants, Alsea mainly carried out the
following acquisitions during 2006:

In May 2006, Alsea reached a 100% interest in the equity of Gastrosur S. A de C. V (Gastrosur), by acquiring 40%

of the minority interest shares. Gastrosur has exclusive rights to the use of the Chili’s Grill & Bar trademark in some

Mexican states. (see note 16).

In April 2006, Alsea acquired 100% of the shares representing the capital stock of Restaurants Sudamericana, L. C.,

the holding entity of Fast Food Sudamericana, S. A de C. V (Burger King Argentina), Fast Food Chile S. A (Burger

King Chile) and RS Management, Inc. (see note 9). On December 3, 2007, Restaurants Sudamericana, L.C. was

liquidated, transferring almost its entire stockholding to its holding company (Operadora Internacional Alsea, S.A

de C.V.), a subsidiary of Alsea.

The business acquisitions were recognized under the purchase method. The cost of entities acquired was determined
based on the cash paid, with no contingent consideration at the date of each acquisition. Furthermore, the excess of
the cost of the units acquired over net assets acquired and liabilities assumed was reassigned to the fair value of the net
assets.

The operating income of the acquired companies is included in the consolidated financial statements as of the date of
acquisition.

Joint venture involving the development of Starbucks Coffee in Brazil, Chile and Argentina – In October 2007, Alsea
entered into a joint venture agreement to operate and develop the Starbucks Coffee trademark in Argentina and
participate in the operation of Starbucks Coffee in Chile. In Chile, the Company entered into a joint venture agreement
with Starbucks Coffee International, acquiring 18% of the shares of Starbucks Coffee Chile, S.A. (Starbucks Chile), with 21
stores in operation at the time of this agreement. While in Argentina, Alsea acquired 82% of Starbucks Coffee Argentina,
L.L.C. (Starbucks Argentina) shares, operations are not to begin until 2008. These acquisitions went into effect on
December 31, 2007, thus no balance sheet has been included for said acquired businesses.

In May 2006, Alsea entered into a joint venture agreement to develop the Starbucks Coffee trademark in Brazil with Cafés
Sereia do Brasil Participações, S. A. and Starbucks Coffee International, by incorporating Starbucks Brasil Comércio de
Cafés, Ltda. (Joint Venture Company), and beginning operations in November 2006.

Merger – In August 2007, Distribuidor Internacional de Alimentos, S.A. de C.V was merged into Distribuidora e
Importadora Alsea, S.A. de C.V., with the latter as the surviving company.

2. Summary of significant accounting policies–

Financial statement presentation and disclosure – The accompanying consolidated financial statements have been
prepared in conformity with Mexican Financial Reporting Standards (FRS), which require recognition of the effects of
inflation on the financial information, and are stated in thousands of Mexican pesos of constant purchasing power as of
December 2007, based on the Mexican National Consumer Price Index (NCPI) Published by Banco de México.

The Mexican Financial Reporting Standards Board (CINIF from its name in Spanish) issued the following statements,
effective as from 2007, FRS B-3 “Statement of Income”, modifying the general rules for presentation of the statement
of income, FRS B-13 “Subsequent Events”, which establishes the accounting treatment when such events should be
recognized and when they should only be disclosed. FRS C-13 “Related Parties”, establishing the minimum disclosure
rules applicable to operations with related parties and FRS D-6 “Capitalization of Comprehensive Financing Results”,
establishing mandatory capitalization of the comprehensive financing result related to fixed asset acquisitions.

The aforementioned FRS had no important effect on the financial information shown, except as concerns FRS B-3,
which modifies the general rules for presentation of the statement of income, eliminating special and extraordinary
items, and requiring that employees’ statutory profit sharing (ESPS) be recorder under other expenses and income,
rather than in a row after income tax, and requiring that income, costs and expenses be classified as i) ordinary and
ii) non ordinary. Consequently, in 2006, the ESPS was reclassified for comparative purposes.

Furthermore, FRS B-3 requires that ordinary costs and expenses be classified according to their function, nature, or a
combination of both. Due to the fact that Alsea is a trade company, its ordinary costs and expenses are shown based on
their function, which allows for knowing the related gross profit margin.

Principles of consolidation – The consolidated financial statements include the financial statements of Alsea, S. A. de
C. V. and of the subsidiary companies in which it holds a majority interest (over 50%) and/or over which it has control.
All significant intercompany balances and transactions have been eliminated in consolidation.

Below is a condensed balance sheet at December 31, 2006 of the businesses acquired:

The principal operating subsidiaries are as follows:

Condensed balance sheet

Current assets

Store equipment, leasehold improvements and property

Franchisee rights

Deferred income tax

Short-term liabilities

Long-term liabilities

Majority stockholders’ equity

90,975

182,459

66,716

20,079

360,229

70,629

41,940

247,660

360,229

Shareholding percentage

2007

2006

Activity

Operating companies:
Café Sirena, S. de R. L. de C. V.
Operadora de Franquicias Alsea, S. A. de C. V.

82.00%
99.99%

Gastrosur, S. A. de C. V.
Operadora Internacional Alsea, S. A. de C. V.

99.99%
99.99%

Distribuidora e Importadora Alsea, S. A. de C. V.

99.99%

Starbucks Coffee stores
Domino’s Pizza, Burger King
and Popeyes stores
Chili’s Restaurants
Burger King and Starbucks
Coffee stores in South America
Food distribution

Associated companies:
Starbucks Coffee Chile, S. A.
Starbucks Brasil Comércio of Cafes, Ltda.
Cool Cargo, S. A. de C. V.
De Libra, Ltda.

18.00%
11.06%
–
–

–
11.06%
50.00%
50.00%

Starbucks Coffee stores
Starbucks Coffee stores
Transportation services
Domino’s Pizza stores in Brazil

The investment in shares of associated companies is valued by the equity method (see note 6).

40 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 41

Discontinued operations – In November 2007, Alsea sold its 50% ownership of Cool Cargo, S.A. de C.V, a company
engaged in providing transportation services to Distribuidora e Importadora Alsea, S.A. de C. V. This operation generated

a gain of $5,447.

Intangible assets – Trademarks represent payments made to third parties for the right to use trademarks under which
the Company operates its stores, pursuant to franchisee or association agreements. Adjusted for inflation by applying

NCPI factors to the historical cost; amortization is calculated using the straight line method at annual rates from 5% to

15%. The rights to the use of these trademarks expire as follows:

In April 2007, the remaining 50% ownership of DeLibra, Ltda. was sold, which as from December 2006, was recognized

as a discontinued operation. This operation generated a gain of $5,460.

Trademark

Expiration date

In October 2006, Alsea sold its shares of Rio con Pasta, S.A. de C.V., a subsidiary engaged in operating the Spoleto

trademark in Mexico.

The effects of the above operations were shown as discontinued operations in the Statement of Income.

Due to the above, the equity in income of these associated companies recorded in 2006 was reclassified as discontinued

Domino’s Pizza

Starbucks Coffee

Burger King (Mexico) (*)

Popeyes Chicken & Seafood

Chili’s Grill & Bar

2025

2021

2024

2042

2015

operations.

(*) Each of this trademark’s stores is valid for a 20-year term, as from the date on which each point of sale begins

operations.

Currency translations of foreign subsidiaries – The financial statements of foreign subsidiaries operating on an
independent basis (located in Argentina, Chile and Brazil, and representing 9% and 5% of consolidated net sales in 2007

The Company has certain obligations, under said agreements, among others, investments in capital and opening of new

and 2006, respectively) were consolidated applying the same accounting policies, and have been adjusted applying the

points of sale.

rate of inflation of the country in which they operate and are stated in local currency at the constant purchasing power

of those countries and, subsequently, translated into Mexican pesos at the exchange rate prevailing at year end (balance

The association agreement signed between Starbucks Coffee International (SCI) and Alsea allows SCI to increase its

sheet and income statement accounts). The effects of translation are shown under stockholders’ equity.

capital stock in Café Sirena, until it reaches 50%. This option can be exercised in 2007 and/or 2008 in the event of failure

Presentation of prior year’s figures – The figures of prior years’ financial statements are expressed in pesos of a constant
purchasing power, using factors derived from the NCPI. The factors used in 2007 and 2006 were 1.0375 and 1.0405,

respectively.

Cash – Cash includes deposits in checking accounts, foreign currency and investments and other highly liquid
instruments. At the date of the consolidated financial statements, interest income and expenses, and foreign exchange

gains and losses are included in operating income, under the comprehensive financing result.

Inventories and the cost of sales – Valued by the last-in-first-out method; therefore the replacement cost of inventories
is restated to the cost of the last purchase. Inventory values so determined do not exceed market values. Cost of sales

to meet certain goals, mainly the opening of new points of sale. As from 2009, SCI can increase its participation up to

50% irrespective of whether or not said goals were met.

Pre-operating expenses and leasehold improvements relate to the opening of new points of sale in various areas, and

are reported at adjusted values using NCPI factors. Amortization over the carrying amount is computed by the straight-

line method over one year, from the date on which each point of sale begins operations.

Impairment of long-lived assets, equipment, leasehold improvements, property, goodwill and other intangible
assets – The Company periodically evaluates the restated values of long-lived assets, (equipment, leasehold
improvements, property, goodwill and other intangible assets), to determine whether there are indications of potential

impairment. The recovery value represents the present value of the cash flows related to the cash generating unit,

represents the replacement cost of inventories at the time of their sale and is expressed in constant pesos as of the most

applying an appropriate discount rate, expected to be generated as a result of assets used or disposed of. If the carrying

recent year-end.

amount of an asset exceeds its estimated net revenues, an impairment charge is recognized in the amount by which the

carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported in the balance

The Company records the necessary allowances for inventory impairment arising from inventory damage, obsolescence,

sheets at the lower of the carrying amount or realization value.

slow-movement or other causes, evidence that realization of goods will be below their cost.

Equipment, leasehold improvements and property – Equipment, leasehold improvements and property are initially
recorded at their acquisition cost and adjusted for inflation by applying NCPI factors. Depreciation of equipment,

Accruals – The accruals recognized in the balance sheet represent present obligations, in which the use of economic
resources or the rendering of services is virtually assured and arises as a consequence of past events, mainly supplies

and other amounts payable to employees. These provisions have been recorded, based on management’s best estimate

leasehold improvements and property is calculated by management using the straight-line method over the estimated

of the amount needed to settle present obligation; however, actual results could differ from the provisions recognized

useful lives of the assets, at the annual rates shown below:

(see note 11).

Buildings

Store equipment

Leasehold improvements

Transportation equipment

Computer equipment
Production equipment

Office furniture and equipment

Rates

6% to 33%

10% to 20%

25%

30%
10% to 20%

10%

Goodwill of subsidiary and associated companies – Goodwill represents the excess of cost over the fair value of net
assets acquired. In determining these amounts, intangible assets acquired with no recoverable value are eliminated, and

the remainder is adjusted using NCPI factors. In accordance with the accounting pronouncements, goodwill is no longer

amortizable and must be tested for impairment.

m) Income tax (IT), asset tax (AT), and employees’ statutory profit sharing (ESPS) – Provisions for IT and ESPS are charged
to income for the year as incurred. Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to differences between financial statement carrying amounts of existing assets and liabilities and their

respective tax bases, as well as tax loss carryforwards and unused tax credits (AT). Deferred tax assets and liabilities are

calculated using enacted tax rates expected to apply to taxable income in the years in which those temporary differences

are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is

recognized in income in the period in which such changes are enacted.

Deferred ESPS is recognized only for temporary differences arising from the reconciliation between book income for the

year and the ESPS tax base, from which it may be reasonably estimated that a future liability or benefit will arise and

there is no indication that the liabilities or benefits will not materialize.

Labor obligations – Post employment compensation (seniority premiums and severance) due to reasons other than
restructuring, to which employees are entitled in accordance with the law, are charged to income for the year in which

such services are rendered, based on actuarial computations using the projected unit credit method (see note 14).

Other compensation, to which employees are entitled, are charged to income for the year in which they are paid.

Restatement of capital stock, other stockholder contributions and retained earnings – This adjustment is determined
by multiplying stockholder contributions and retained earnings by factors derived from the NCPI, which measure

accumulated inflation from the dates on which the contributions are made or generated to the most recent year end.

The resulting amounts represent the constant value of stockholders’ equity.

42 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 43

Additional paid-in capital – This premium represents the excess of the payments for subscribed shares over their par
value, less expenses related to the placement of shares.

Cumulative effect of deferred income tax – Represents the effect of recognition of cumulative deferred taxes as of the
date on which the related accounting standard was adopted, shown under retained earnings.

Revenue recognition – The Company recognizes revenue from the sale of food when the products are delivered to the
customers; service revenue is recognized as the services are rendered. The Company provides reserves for returns and

discounts, which are deducted from sales.

Derivative financial instruments – Alsea uses derivative financial instruments (forwards and swaps) to reduce the risk
of adverse fluctuations in exchange rates and interests. These derivatives are valued at fair value and require that the

Company exchange cash flows at their underlying value on given future dates.

Fair value changes in derivatives are temporarily recognized under comprehensive income and reclassified to income

FRS B-10 “Inflation effects”. This FRS sets forth the provisions for recognition of the effects of inflation under an
inflationary environment in the country. This FRS incorporates, among other, the following changes: i) the option to

choose the use of the NCPI or the value of Investments Units, ii) eliminates the use of the method of valuation of assets of

foreign origin, iii) that the initial accumulated gain or loss from holding nonmonetary assets and the initial accumulated

gain or loss from monetary position be reclassified to retained earnings or maintained in stockholders’ equity, only as

concerns the affects derived from items which have not been charged or credited to the income statement.

FRS B-15 “Translation of foreign currency”. This FRS supersedes current Statement B-15 and establishes, among other,
the elimination of the classification of foreign integrated operation and foreign entity. It also establishes the procedures

to translate financial information from a foreign operation such as: i) from the posting currency to the functional

currency; and ii) from the functional currency to the reporting currency, and also allows an entity to express its financial

statements in a currency other than its functional currency.

FRS D-3 “Employee benefits”. This FRS supersedes current Standard D-3. The most important changes are the reduction
to a maximum of a five-year period to amortize prior years’ items, the effects of the salary growth in the determination

when the hedged items are realized. The ineffective portion of the fair value of derivatives is immediately applied to

of Defined Benefit Obligations (formerly known as Projected Benefit Obligations), the elimination of the accounting

income, under comprehensive financing income.

treatment for the additional liability and its corresponding counter entries, such as intangible assets and separate equity

At December 31, 2007, the company had contracted the following financial instruments

components.

Institution

Merrill Lynch

Santander

Average exchange rate

FRS D-4 “Income tax”. This FRS requires recognition of asset tax as a tax liability and therefore, as a deferred income
tax asset. This standard eliminates the term “permanent difference” and also requires the reclassification to retained

Thousands of dollars

at realization date

Maturing in

earnings of the initial effects of the deferred income tax recorded in equity, unless the timing differences which gave rise

49,200

9,000

11.04

10.98

2008

to them have not been realized.

3. Foreign currency exposure–

During 2007 and 2006, the Company recorded a charge (credit) in income of $1.871 and ($854), respectively,

Monetary assets and liabilities denominated in U.S. dollars (dollars) as of December 31, 2007 and 2006 were as

corresponding to fluctuations in exchange and interest rates from the date on which transactions were entered into to

follows:

the settlement date.

Comprehensive financing result (CFR) – The CFR includes interest income and expenses, foreign exchange gains and
losses, the effect of derivate financial instruments and monetary gains and losses.

Transactions in foreign currency are recorded at the exchange rate prevailing on the date on which such transactions are

entered into or settled. Foreign currency assets and liabilities are translated at the exchange rate in effect at the balance

Assets

Liabilities

sheet date. Exchange differences arising from assets and liabilities denominated in foreign currencies are reported in

Net liability position

operations for the year.

Thousands of dollars

2007

2006

4,594
17,331

10,471

15,622

(12,737)

(5,151)

Gains or losses on monetary position are determined by multiplying the difference between monetary assets and

The exchange rate of the peso to the dollar, as of December 31, 2007 and 2006, was $10.86 and $10.87, respectively. At

liabilities at the beginning of each month, including deferred taxes, applying inflation factors at year end. The resulting

February 19, 2008, the exchange rate was $10.73.

amount represents the monetary gain or loss for the year arising from inflation, applied to income for the year.

As of December 31, 2007 and 2006, the Company’s position on non-monetary assets and liabilities of foreign origin or

whose replacement cost may only be determined in dollars corresponds mainly to store equipment and inventories.

Use of estimates – Preparation of the financial statements requires that management make estimates and assumptions
affecting the amounts reported for assets and liabilities, disclosure of contingent assets and liabilities at the date of

the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates and assumptions.

Contingencies – Significant contingency-related liabilities or losses are recorded when a liability has likely been incurred
and there are reasonable elements for their quantification. When a reasonable estimation cannot be made, qualitative
disclosure is provided in the notes to the consolidated financial statements. Contingent revenues, earnings and assets

are not recognized until their realization is assured.

w) Earnings per share – Earnings per share equal the year’s net income divided by the weighted average of shares in

circulation during the year.

Comprehensive income – Represents the result from the Company’s overall activities during the year and is comprised
of net income and the cumulative translation effect of foreign entities applied directly to stockholders’ equity.

New accounting pronouncements – During the last quarter of 2007, the Mexican Financial Reporting Standards Board
(CINIF, from its name in Spanish) issued a number of Financial Reporting Standards (FRS) and Interpretations thereto

(IFRS), in effect as from January 1, 2008. It is estimated that these FRS and IFRS will not have a significant effect on the

Company’s financial information.

FRS B-2 “Cash flow statement”. This FRS sets forth the provisions for the presentation, the structure and the preparation
of cash flow statements, as per the provisions of the FRS B-10. FRS B-2 supersedes Statement B-12, “Statement of

changes in the financial position”, and also requires showing gross amount of collections and payments; requiring, in

very specific cases, that net cash flow movements be shown, as well as the items comprising the cash balance.

44 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 45

Following is a summary of transactions carried out with foreign entities, for the years ended December 31, 2007

7. Equipment, leasehold improvements and property–

and 2006:

Food purchases

Equipment purchases

Royalties

Thousands of dollars

2007

2006

65,378
6,955
22,759

63,313

3,118

17,843

4. Balances and transactions with associated companies –

Accounts payable to associated companies as of December 31, 2007 and 2006 as follows:

Accounts payable:

Starbucks Coffee International (*)

2007

2006

42,790

16,596

(*) This balance is due mainly to inventories and fixed asset acquisitions, and payments for the rights to open “Starbucks

Coffee” stores.

Freight services contracted from Cool Cargo amounted to $15,542 in 2007 and $15,526 in 2006 (see note 2(c)).

5. Inventories–

Include the following:

Food and beverages

Containers and packaging

Other

Less allowance for obsolete items

6. Investment in shares of associated companies–

Includes direct interest in the capital stock of the companies listed below:

2007

2006

218,068

10,069

10,029
(2,914)

213,190

10,758

7,607

(5,169)

235,252

226,386

Include the following:

Buildings

Store equipment

Leasehold improvements

Transportation equipment

Computer equipment

Production equipment

Office furniture and equipment

2007

2006

157,059
1,391,934
1,689,738
120,300
172,814
163,243
57,395

159,394

1,156,082

1,253,244

111,384

185,987

151,831

46,311

3,752,483

3,064,233

Less accumulated depreciation

(1,527,657)

(1,293,556)

Land

Constructions in progress (*)

2,224,826

1,770,677

99,442
462,121

74,022

400,091

2,786,389

2,244,790

(*) Relates primarily to the opening of stores and restaurants, to be completed in 2008.

As a consequence of the low profitability of the Popeyes’ trademark, at December 31, 2007 Alsea recognized an

allowance for impairment of long-lived assets used in Popeyes’ operations. This allowance gave rise to other expenses

in the amount of $23,302 and an increase of $6,525 to the deferred income tax asset. Once this effect was recognized,

fixed assets were shown at their fair value, which was determined applying an appropriate discount rate, expected to be

generated as a result of the use of these assets.

Alsea kicked off a program to sell non-strategic assets, the purpose of which is to increase the company’s profitability

by investing the resulting resources obtained in the expansion plan of its portfolio’s different trademarks both in Mexico

and in South America. As part of this program, the Company concluded the sale of Alsea’s former main offices, as well

as the definite sale and long-term lease agreements of the new corporate offices. These transactions were carried out

to market value, which generated again of $5,613 recorded in other expenses.

In accordance with management’s new market strategy, which involves image renewal of the trademarks operated

by Alsea, during 2006, the useful life of leasehold improvements, store equipment and pre-operating expenses was

adapted to the current conditions of business operations. The effect of this change generated a charge of $253,085 to

operating expenses and a credit to the deferred tax provision of $58,815 in income for 2006.

Equity

Equity in

income

for 2007

2007

2006

2007

8. Goodwill of subsidiary companies–

As of December 31, 2007 and 2006, the goodwill of subsidiary companies is comprised as follows:

Starbucks Brasil Comércio de Cafés, Ltda.

Starbucks Coffee Chile, S. A.

11,182
11,692

3,515

–

(2,578)

(75)

22,874

3,515

(2,653)

Alsea, S. A. B. de C. V.

West Alimentos, S. A. de C. V.

Operadora D. P. de México, S. A. de C. V.

Less accumulated amortization

2007

2006

124,912
90,061
19,619

124,912

90,061

19,619

234,592
(16,980)

234,592

(16,980)

217,612

46 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 47

9. Intangible assets–

12. Comprehensive financing result–

Intangible assets as of December 31, 2007 and 2006 include the following:

This item is comprised as follows:

Franchisee

rights and

rights to the use

Pre-operating of commercial

Licenses and

Trademarks

expenses

facilities

developments

Total

Balances as of December 31, 2006

Acquisitions

516,858

28,289

150,240

39,656

139,902

49,849

75,484

37,671

882,484

155,465

Less accumulated amortization

(222,789)

(118,726)

(23,567)

(46,874)

(411,956)

Balances as of December 31, 2007

322,358

71,170

166,184

66,281

625,993

During 2007, Alsea increased its investment in franchisee rights mainly due to the acquisition of Domino’s Pizza stores

in Mexico and Starbucks Coffee in Chile and to the rights to open “Starbucks Coffee” stores in Mexico. Pre-operating

expenses are directly related to the opening of new points of sale.

10. Long-term debt–

Unsecured long-term debts in Mexican pesos are as follows:

Unsecured loans

Less current installments

Long-term debt

Average annual

Maturing in

interest rate

2007

2006

2007 - 2012

6.50% - 8.05%

1,033,450
334,550

497,276

137,875

Interest expenses, net

Foreign exchange gain (loss), net

Gain on monetary position

13. Other expenses, net –

Allowance for impairment of long-lived assets

Gain (loss) on fixed asset disposals

ESPS

Other income (expense), net

14. Labor obligations–

2007

2006

(47,419)
5,101
4,259

(47,982)

(2,268)

528

(38,059)

(49,722)

2007

2006

(23,302)
7,728
(3,899)
180

–

(16,985)

(2,876)

(4,625)

(19,293)

(24,486)

Liabilities pertaining to seniority premiums and severance upon termination of employment for reasons other than

restructuring, to which employees are entitled in accordance with the law, are charged to operations for the year in

which such services are rendered, based on actuarial computations.

698,900

359,401

The Company has not set up a trust to cover these benefits. The actuarial calculations are summarized below:

Maturities of long-term debt as of December 31, 2007 are as follows:

Year

2009

2010

2011

2012

Amount

209,050

224,050

167,800

98,000

698,900

Seniority premiums

Severance

Total

2007

2006

2007

2006

2007

2006

Accumulated benefit obligations

4,187

3,361

20,147

15,731

24,334

19,092

Transition obligation and

unamortized items

477

300

(5,374)

(6,908)

(4,897)

(6,608)

Projected benefit obligation

Additional liability

4,664
82

3,661

144

14,773
4,329

8,823

6,050

19,437
4,411

12,484

6,194

Accrued liability

4,746

3,805

19,102

14,873

23,848

18,678

Bank loans establish certain obligations to do and not to do, the most significant of which refer to compliance with

certain financial ratios. As of the date of the financial statements, all such obligations had been complied with.

The net cost for the period is comprised as follows:

11. Accruals–

Accruals are comprised as follows:

Salaries and

other employee

Seniority premiums

Severance

Total

2007

2006

2007

2006

2007

2006

Labor cost

Interest cost

Amortization of transitory obligation

902
135
(83)

755

107

(102)

8,969
550
917

9,291

410

1,089

9,871
685
834

10,046

517

987

benefits

Other

Total

Net cost for the period

954

760

10,436

10,790

11,390

11,550

Balances as of December 31, 2006

Increases charged to operations

Payments

73,309

30,719

(21,457)

131,432

274,529

(111,726)

204,741

305,248

(133,183)

Balances as of December 31, 2007

82,571

294,235

376,806

The main assumptions used in the determination of the net cost for the period of said plans were as follows:

Discount rate

Salary increase rate

Amortization period of average

transitory obligation (years)

4.5%
0.5%

4.5%

0.5%

4.5%

7.3

7.1

6.1

7.2

48 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 49

15. Income tax (IT), asset tax (AT), employees’ statutory profit sharing (ESPS) and tax loss

The amendments to the AT Law, in effect as from January 1, 2007, provide a reduction in the tax rate from 1.8% to 1.25%,

carryforwards–

without deducting liabilities from the AT tax base.

The Company determines IT and AT on a consolidated basis. In conformity with the IT Law, tax consolidation was

determined at 100% of the equity interest subject to consolidation of Mexican controlled companies including the

holding company.

For the years ended December 31, 2007 and 2006, the Company determined a net consolidated taxable income of

$601,065 and $730,047, respectively.

The tax expense attributable to income before IT differed from the amount that would have been computed by applying

the Mexican rate of 28% and 29% in 2007 and 2006, respectively, as a result of the following items:

Expected IT rate

Non-deductible expenses

Effects of inflation, net

Effects of enacted changes in tax laws and rates

Valuation allowance changes

Other, net

Effective consolidated IT rate

2007

2006

28%
2%
1%
1%
(8%)
1%

25%

29%

–

34%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred

tax liabilities, as of December 31, 2007 and 2006, are shown below:

Deferred tax (assets) liabilities:

Allowance for doubtful accounts

Accruals

Advance payments from clients

Net operating tax loss carryforward, net of the valuation allowance

Recoverable AT

Inventories

Equipment, leasehold improvements and property

Other assets

Prepaid expenses

Net deferred tax asset

ISR

2007

2006

(1,248)
(118,827)
(64)
(63,124)
(43,536)

–

(71,524)
79,830
3,646

(1,899)

(58,032)

(1,305)

(55,484)

(18,529)

22,142

(67,884)

83,641

7,829

(214,847)

(89,521)

Income tax payable on retained earnings

466

484

Asset recognized in the balance sheets

(214,381)

(89,037)

The valuation allowance amounted to $161,009 and $115,172 in 2007 and 2006, respectively.

IT charged to income is analyzed as follow:

Current

Deferred

Total

2007

2006

287,649
(125,344)

239,124

(113,655)

162,305

125,469

Alsea and some of its subsidiaries show unamortized tax losses of $224,133, which, restated for inflation, may be carried

forward to offset taxable income in the ten following years. The Company will generate enough taxable income to

achieve the deferred income tax benefits and amortize the tax losses before their expiration. If current conditions

change and not enough taxable income is generated through the operation; the valuation allowance will be increased.

The IT rates were changed to 29% for 2006, and 28% for 2007. As a result of these changes, during the years ended

December 31, 2007 and 2006, the Company recognized a decrease in net deferred taxes of $2,085 and $2,537,

respectively, which was charged to income for each year.

Published on October 1, 2007, the tax amendments in effect as from January 1, 2008, repeal asset tax and set forth the

new Flat Tax Law (IETU from its initials in Spanish) and the Tax on Cash Deposits Law (IDE from its initials in Spanish),

the latter of which is to go into effect on July 1, 2008. Following are the main changes that could have an impact on the

presentation of the Company’s financial information:

Flat Tax (IETU) The IETU tax base is determined according to cash flows and certain restrictions on authorized

deductions. The IETU rate is 17.5% (16.5% in 2008 and 17% in 2009). Taxpayers are required to pay the greater of IETU

and income tax, considering the IETU as a maximum tax against which income tax actually paid in the same period can

be credited. As a result of the elimination of asset tax, a procedure is established for the determination of asset tax

paid up to December 2007 to be recovered as from 2008. In general terms, recovery of approximately 65% asset tax is

allowed. As a result, at the closing of the 2007 period, 35% of the asset tax included in the calculation of deferred taxes

was cancelled.

In accordance with IFRS 8 issued by the CINIF in December 2007 regarding the effects of the IETU, management

prepared financial and tax projections, determining that in the future, the Company will be subject to payment of

income tax, thus only recording the effect of deferred IETU for two subsidiaries at the year-end close.

Tax on Cash Deposits (IDE). This tax is determined at the rate of 2% on cash deposits made by both individuals and

entities in bank accounts, when the accumulated amount per month exceeds $25. IDE is creditable against own income

tax payable and/or withheld from third parties. The remainder, if any, can be offset against other federal taxes. Refund

of favorable balances can be requested.

Value Added Tax (VAT). The last paragraph of section I of article 2-A of the Value Added Tax Law was modified to

establish the application of the 10% and 15% rates, as applicable, on the sale of food prepared for consumption at the

location where it is sold.

16. Stockholders’ equity-

The principal characteristics of stockholders’ equity are described below:

Structure of capital stock – In November 2006, the stockholders agreed to carry out a share restructuring, dividing the
minimum fixed (Class I) and variable (Class II) portions of the capital stock. The Company executed a four-to-one split,

without modifying the capital stock. This split went into effect in February 2007, when registration of Alsea shares was

updated at the National Securities Registry.

Capital stock and additional paid-in capital are shown below (see notes 1(a) and 1 (b)):

Number of

Capital

stock

Amount

Additional

paid-in

capital

Balances as of December 31, 2005

546,291,528

495,332

380,394

April 2006, primary public offering

increased

the stockholders’ equity. Related expenses of

$32,955 were offset in the additional paid-in

capital

April 2006, stock option plan for executives

May 2006, acquisition of minority interest of

Gastrosur

Shares repurchased in 2006

65,028,800

5,886,524

5,042,344

1,012,000

34,897

3,144

2,702

549

673,953

1,271

34,716

–

Balance as of December 31, 2006

623,261,196

536,624

1,090,334

Shares repurchased in 2007

(4,448,400)

(2,259)

–

Balances of December 31, 2007

618,812,796

534,365

1,090,334

In April 2007 and 2006, dividends were declared in the amount of $67,840 and $167,677, respectively.

50 • ALSEA 2007 ANNUAL REPORT

ALSEA 2007 ANNUAL REPORT • 51

The minimum fixed portion of capital stock is represented by Class I shares, and the variable capital stock is represented

As a result of a service agreement, up until December 31, 2007, the Company was required to pay compensation based

by Class II shares, which shall, at no time, exceed ten times the minimum capital stock with no withdrawal rights.

on net food sales. This compensation ranges from 2.5% to 5.25%.

As of December 31, 2007, the subscribed fixed and variable capital stock, represented by 618,812,796 common, registered

Contingent liabilities:

shares with no par value, are as follows:

Number of shares

Description

Amount

position.

Alsea and subsidiaries are involved in a number of lawsuits and claims arising from the ordinary course of business.

The final outcome of these matters is not expected to have a significant adverse effect on the Company’s financial

489,157,480

134,103,716

(4,448,400)

Fixed capital stock

Variable capital stock

Repurchased shares (nominal value)

618,812,796

Nominal capital stock

Increase for inflation adjustments (note 2(o))

244,578

Through its subsidiary Operadora de Franquicias Alsea, S. A. de C. V. (OFA), Alsea filed, in 2007 and 2008, an appeal for

67,087

(2,259)

309,406

224,959

due compliance with the injunction sentence relative to application of the 0% value added tax rate (VAT) on the sale of

food products. Application of this rate generated a favorable VAT balances for OFA, refund of which is expected.

18. Financial information per segment–

Capital stock as of December 31, 2007

534,365

Alsea organizes its business segments into three operating divisions namely: the sale of food and bervarages in Mexico

and South America, and distribution services. These divisions share the same management.

The National Banking and Insurance Commission established a procedure enabling companies to repurchase their own

Segment information is as follows (amounts in millions of pesos):

shares in the market. Accordingly, a “stock repurchase reserve”, chargeable to retained earnings, must be provided for.

In 2007 and 2006, the Company repurchased 4,448,400 and 1,012,000 shares amounting to ($70,258) and $13,355,

respectively.

The Company’s own available repurchased shares are reclassified to capital contributions.

Stock option plan for executives – Alsea established a stock option plan for its executives. The plan started in 2005
and expires on December 31, 2009. The executives obtained the benefit of receiving the appreciation rights for certain

shares (the difference between the price of shares at the beginning of the plan ($5.70) and the fair value of the option

($8.48) payable in shares. At the General Stockholders’ Meeting, the Board agreed to assign 5,886,524 shares to this

plan, to be managed through a trust.

At the 2006 year end, the executives exercised 20% of the rights acquired at that date ($1.05 per share) and the

remaining 80% can only be exercised at the end of the plan.

Food and Beverages

Mexico

South America

Distribution

Eliminations

Consolidated

2007

2006

2007

2006

2007

2006

2007

2006

2007

2006

Revenue from:

Third parties

Inter-business

5,451

4,743

642

347

955

923

–

7,048

6,026

–

1,665

1,406

(1,665)

(1,410)

– –

5,451

4,747

642

347

2,620

2,329

(1,665)

(1,397)

7,048

6,026

Operating costs and expenses

4,617

4,015

568

307

2,406

2,127

(1,693)

(1,431)

5,898

5,018

Depreciation and amortization

371

518

185

177

449

571

701

437

(223)

(215)

$ 478

222

For the years ended December 31, of 2007 and 2006, Alsea modified the stock option plan for executives, replacing it

Operating income

463

214

with a deferred compensation paid in cash.

As of December 31, 2007, the total liability regarding deferred compensation for the years ended December 31, 2007

and 2006 and the amount of stock option plan totaling $26,715, $20,837 and $7,719, respectively, were recorded under

Other income statement items

Net consolidated income

provisions.

c) Restrictions on stockholders’ equity –

Five percent of net income for the year must be appropriated to the legal reserve, until it reaches one-fifth of the

Company’s capital stock. As of December 31, 2007, the legal reserve amounts to $56,560

II) Dividends paid out of retained earnings are tax-free to the extent those dividends arise from the CUFIN (after tax

earnings account). Distributions in excess of these amounts are subject to a 28% income tax rate on the amount

resulting from multiplying the dividend paid by a factor of 1.3889. The tax incurred on non-CUFIN dividends will

be payable by the Company and may be offset against the corporate IT for the year in which it is paid or the two
subsequent years.

17. Commitments and contingencies–

Commitments:

The Company leases the facilities that house its stores and distribution centers, as well as certain equipment under

limited-term lease agreements. Rental expenses amounted to $464,862 and $340,566 in 2007 and 2006, respectively.

Rental expenses for 2008 are estimated to amount to $ 603,000. The aforementioned expenses were established at

fixed prices and increase annually based on the NCPI.

b) The Company has commitments under the agreements supporting the trademarks acquired (note 2(j)).

The Company has commitments arising in the normal course of business as a result of agreements signed for the supply

of raw materials, some of which establish contractual penalties for noncompliance.

Assets

4,471

2,891

269

552

589

656

(1,134)

(825)

4,195

3,274

Investment in associated companies

–

Investment in fixed assets and intangibles

884

685

140

–

23 3

(3)

1,082

763

Total assets

5,355

3,576

432

560

650

682

(1,137)

(778)

5,300 4,040

19. Pro forma information on business acquisitions–

Condensed pro forma consolidated financial information is shown below as if the acquisitions had been completed in

early 2006 (see note 1(b)).

Income

Income from continuing operations

Consolidated net income

Minority interest

Majority interest net income

Base figures

6,026,502

237,859

228,633

6,452

222,181

Net earnings per share

0.37

December 31, 2006

Pro forma

adjustments

(unaudited

amounts)

155,804

(4,192)

–

(4,192)

Pro forma

figures

(unaudited

amounts)

6,182,306

233,667

228,633

6,452

217,989

0.36

52 • ALSEA 2007 ANNUAL REPORT

20. Subsequent events–

On January 23, 2008, Alsea entered into a number of agreements with the companies that hold the development rights

of the “Italiannís” trademark in Mexico, as well as the operating rights of most of these restaurants, which could result in

their acquisition.

The agreements entered into do not constitute a definitive acquisition agreement. Once the Evaluation stage, which is

estimated to last 90 days, has concluded, the parties will determine the final terms and conditions for the agreements

that will formalize this operation.

On January 24, 2008, Alsea entered into an agreement for the acquisition of 85% of the capital stock of Dominalco, S. A.

(Domino’s Pizza Colombia). Within the next 60 days, the company is expecting to sign the purchase & sale agreement

and other contracts related to the closing of the deal.

Mr. José Rivera Río Rocha

Mr. Alberto Torrado Martínez

Mr. Abel Barrera Fermín

Chief Financial Officer

Chief Executive Officer

Corporate Comptroller

oUR
CoMPANY

Corporate Profile

Alsea is the leading restaurant operator in Latin America—

operating brands of proven success such as Domino’s Pizza,

Starbucks Coffee, Burger King, Popeyes and Chili’s Grill &

Bar. The operation of its 989 stores is backed by its Shared

Services Center, including the supply chain through DIA, real

estate and development services, as well as administrative

services such as finances, human resources and technology.

Mission
Our reason for being:

Vision
Where we are headed:

To ensure the success of the
Alsea brands, by employing a
synergy and critical mass model,
based on human talent and social
responsibility

To be the best and largest
restaurant operator with proven
success brands in the countries in
which we participate.

“With people and for
the people”

Values
What makes us great:

• People, our most important

asset

• Customer service
• Respect and loyalty
• Personal excellence
• Commitment
• Oriented to results

Strategic Areas
We work for:

SA1 People are our priority
SA2 To surpass the customer’s

expectations with operating
excellency

SA3 To be the market leader
SA4 To be the best strategic

partner

SA5 To grow while keeping
the company and our
shareholders’ investment safe

SA6 Social responsibility

At Alsea we know:
How to have the best people
How to operate
How to develop brands
How to grow with profitability
How to continue growing
How to be socially responsible

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WE KNoW HoW

INFoRM oUR
To
SHAREHoLDERS

To THANK oUR
SHAREHoLDERS

Investor Relations
Diego Gaxiola Cuevas

Corporate Finance
ri@alsea.com.mx

Tel. (5255) 5241 7158

Mario Padilla Velasquez

Investor Relations
mpadillav@alsea.com.mx

Tel. (5255) 5241 7158

COME HAVE COFFEE WITH US!
Valid in all Starbucks Coffee stores in
Mexico and the United States of America

CoNTENTS

Financial Highlights

Letter of the Chairman of the Board of Directors

We Know How to have the Best People

We Know How to Operate

We Know How to Develop Brands

We Know How to Grow with Profitability

We Know How to Continue Growing

We Know How to be Socially Responsible

Management

Board of Directors

Management Discussion & Analysis

Audit Committee Report

Corporate Practices Committee Report

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in Financial Position

Consolidated Statements of Changes in

Stockholders’ Equity

Notes to the Consolidated Financial Statements

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Headquarters
Alsea S.A.B. de C.V.

Av. Paseo de la Reforma 222 - 3er piso
Torre 1 Corporativo

Col. Juárez, Del. Cuauhtémoc

C.P. 06600, México D.F.

Tel. (5255) 5241 7100

Independent Auditors
KPMG Cárdenas Dosal, S.C.

Boulevard Manuel Ávila Camacho # 176

C.P. 11650 México D.F.

Tel. (5255) 5246 8300

Information on Alsea’s Stock
The single series shares of Alsea S.A.B. de C.V. have

been traded on the Mexican Stock Exchange (Bolsa

Mexicana de Valores or BMV) since June 25, 1999.

Ticker Symbol: BMV Alsea*

Alsea’s 2007 Annual Report may include certain expectations regarding the results

of Alsea, S.A.B. de C.V. and its subsidiaries. All such projections, which depend on the

judgment of the Company’s Management, are based on currently known information;

however, expectations may vary as a result of facts, circumstances and events

beyond the control of Alsea and its subsidiaries.

Cert no. SGS-COC-2420

A
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2007 ANNUAL REPORT

KNoWS

www.alsea.com.mx

Av. Paseo de la Reforma 222 - 3er piso

Torre 1 Corporativo

Col. Juárez, Del. Cuauhtémoc

C.P. 06600, México D.F.

Tel. (5255) 5241 7100

DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S
DOMINO’S
STARBUCKS
BURGER KING
POPEYES•CHILI’S

POPEYES•CHILI’S

MExICo

565 Domino’s Pizza
195 Starbucks Coffee
107 Burger King
9 Popeyes
23 Chili’s Grill & Bar

LATIN AMERICA

32 Burger King

ARGENTINA
CHILE
bRAZIL

29 Burger King
21 Starbucks Coffee

8 Starbucks Coffee

ALSEA’S
TERRIToRY
989

stores

COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE
STARBUCK
COFFE

STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE
STARBUCKS
COFFEE

KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER
KING
BURGER