now is
the time
2008 Annual Report
s
e
r
o
t
s
5
3
1
1
,
• We achieved presence in the 5 latin american
countries we had determined in our expansion
strategy
• Latin American markets represent a great growth
opportunity: 117,700,000 potential customers
• Increase of 123 corporate stores
• 11.5% growth in sales
Mexico
• 584 domino’s pizza
• 258 starbucks coffee
• 107 Burger King
• 10 popeyes
• 27 chili’s grill & Bar
• 4 california pizza Kitchen
argentina
• 41 Burger King
• 3 starbucks coffee
chile
• 32 Burger King
• 29 starbucks coffee
coloMBia
• 21 domino’s pizza
• 1 Burger King
Brazil
• 18 starbucks coffee
Because of our wide variety of options
and Because we Belong to a sector that
has great growth opportunities, owing
to its characteristics, now is the time to
invest in AlseA.
Contents
Financial highlights 02 • Messages from our Directors 04 • Day by day we form the best team 06
• Every second counts in our operation 10 • We develop our brands every minute 14 • Another
year of growth 18 • Committed at all times 22 • To our Shareholders 24 • Letter from Independent
Board Members 26 • Board of Directors 27 • Management’s discussion and analysis 28 • Internal
Audit Committee Report 33 • Corporate Governance Committee Report 35 • Independent Auditors’
Report 37 • Consolidated Balance Sheets 38 • Consolidated Statements of Income 40 • Consolidated
Statements of changes in Stockholders’ Equity 42 • Consolidated Statement of Cash Flows 44 •
Consolidated Statements of Change in Financial Position 45 • Notes to Consolidated Financial
Statements 46
time is a very important value for alsea, Both in the operation of each of our Brands as well as
in the daily tasK of shared services. in the course of time and thanKs to the experience we have
gained, we have created a Business model that produces returns second By second.
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AlseA is the leADinG QuiCK seRviCe RestAuRAnt (QsR) AnD CAsuAl
DininG oPeRAtoR in lAtin AmeRiCA, oPERATING BRANDS oF PRoVEN SuCCESS
SuCH AS DoMINo’S PIZZA, STARBuCKS CoFFEE, BuRGER KING, CHILI’S GRILL & BAR AND
CALIFoRNIA PIZZA KITCHEN. ITS MuLTI-uNIT oPERATIoN 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.
01: PEoPLE: ouR MoST IMPoRTANT VALuE
our operation is founded on human talent
02: SuRPASSING CuSToMER ExPECTATIoNS WITH
oPERATING ExCELLENCE
serving one person at a time, while creating
a full customer experience
03: BEING THE MARKET LEADER
operating the largest numBer of restaurants
04: BEING THE BEST STRATEGIC PARTNER
creating long-term sustainaBle
Business relationships
05: GRoWTH, WHILE KEEPING THE CoMPANy AND
ouR SHAREHoLDERS’ EQuITy SAFE
attaining profitaBility through our
value drivers
06: SoCIAL RESPoNSIBILITy
positively impacting our environment
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7,786.8
6,985.4
6,026.4
4,665.3
4,004.0
1,032.1
1,153.0
1,007.4
708.4
588.9
139.5
489.1
228.6
285.2
188.0
9.6%
14.9%
9.6%
18.7%
18.6%
1,135
989
865
728
626
finanCial highlights (1)
CAGR (6)
2008
%
2007
%
2006
%
2005
%
2004
%
Net Sales
Gross Profit
18.1
7,786.8 100.0
6,985.4 100.0
6,026.4 100.0
4,665.3 100.0
4,004.0 100.0
21.4
5,005.5
64.3
4,661.7
66.7
3,959.9
65.7
2,896.2
62.1
2,307.5
57.6
operating Expenses
24.1
4,546.4
58.4
3,946.0
56.5
3,523.8
58.5
2,406.6
51.6
1,916.2
47.9
operating Income
4.1
459.1
5.9
715.7
10.2
436.1
7.2
489.6
10.5
391.3
9.8
EBITDA(2)
15.1
1,032.1
13.3
1,153.0
16.5
1,007.4
16.7
708.4
15.2
588.9
14.7
Consolidated Net Profit
-7.2
139.5
1.8
489.1
7.0
228.6
3.8
285.2
6.1
188.0
4.7
Total Assets
Cash
6,399.7 100.0
5,295.7 100.0
4,040.5 100.0
3,365.9 100.0
2,381.7 100.0
538.5
8.4
209.3
4.0
244.3
6.0
171.3
5.1
158.9
Liabilities with Cost
1,790.2
28.0
1,033.5
19.5
610.9
15.1
798.3
23.7
106.6
6.7
4.5
Major Sharejolde’s Equity
2,997.1
46.8
2,997.5
56.6
2,653.9
65.7
1,834.0
54.5
1,538.9
64.6
RoIC(3)
RoE(4)
RoA(5)
Stock Price(7)
Earnings per Share(7)
1.0
-10.7
Dividend paid per Share(7)
Book Value per Share(7)
12.9
Shares outstanding
(millions) (7)
9.6%
4.4%
2.4%
6.23
0.21
0.23
4.85
14.9%
16.7%
10.5%
9.6%
9.1%
6.2%
15.30
14.72
0.77
0.11
4.84
0.38
0.28
4.26
18.7%
16.9%
9.9%
6.94
0.51
0.19
3.24
18.6%
13.0%
8.6%
5.99
0.33
0.16
2.98
618.0
618.8
623.2
546.4
496.8
Number of Stores
16.0
1,135
989
865
Employees
19.0
21,024
19,200
16,797
728
13,629
626
10,483
(1) figures in millions of pesos, expressed in nominal pesos for 2008, and purchasing power as of december 31, 2007 for
the other periods; except per share data, number of stores and employees.
(2) eBitda: operating income before depreciation and amortization.
(3) roic is defined as the operating income after taxes divided by the invested capital – net (total assets – cash and
cash equivalents – liabilities without cost).
(4) roe is defined as net profit divided by major shareholder’s equity.
(5) roa is defined as net profit divided by total assets.
(6) compound annual growth rate from 2004 to 2008.
(7) for comparative purposes, the number of shares was adjusted based on the split of 4 to 1 carried out in 2007.
02 : AlseA 2008 annual report
now is the time : 03
Messages froM
our DireCtors:
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now is the time to show our brand’s full strength: its
almost 20-year-long leadership, its having significantly
penetrated more than 130 cities—with almost
600 stores—and its outstanding customer acceptance.
it is the most recalled fast food market and the only
one in mexico that actually delivers on time. domino’s
pizza is essentially a modern and innovative brand;
we constantly prove this by creating ideas and value
for our clients.
[01] leonel Díaz
managing director, domino’s pizza mexico
now is the time to take advantage of alsea’s
impressive growth, bolstered by the opening of
67 new starbucks coffee stores. including these units,
we now have a total of 258 stores nationwide, located
in 40 cities in 26 states, which allows for greater
diversification in our service offer. this likewise
strengthens our human talent’s profile and motivation.
in fact, this year starbucks coffee was awarded the
Best company to work for recognition in mexico,
which reflects the professionalism and warmth of our
people in each cup of coffee we serve.
[02] Gerardo Rojas
managing director, starbucks coffee méxico
now is the time to build up the successes of the
innovative strategies we implemented in Burger King,
both in its value proposals as well as in the launching
of new top quality products throughout the year.
establishing product platforms for each segment
will contribute to sales growth and enable us to
increasingly satisfy consumer needs.
[03] Javier Abarca
managing director, Burger King méxico
now is the time to affirm that alsea strongly
participates in the casual dining segment. the growth
of chili’s—now operating 27 units—has enabled us to
strongly consolidate our position in this brand and the
recent addition of california pizza Kitchen represents
an excellent growth opportunity looking forward, with
which we can increasingly offer customers a variety of
alternatives that will surely guarantee our leadership
in the sector.
[04] Federico tejado
managing director, casual dining
california pizza Kitchen joined alsea in december and,
as a result, now is the time to consolidate this alliance
so that we can continue growing and strengthening
the business, by improving the quality, efficiency
and service we offer our clientele each day. to this
end, it is essential that we have the support and trust
of our shareholders, as well as the commitment and
professionalism of our employees.
[05] saúl Kahan
managing director, california pizza Kitchen
now is the time to gain strength and forge ahead
with our growth objectives so as to improve both
our operating capacity—serving 1,272 units of the
different brands of our portfolio in 142 cities—as well
as the service we provide to the entire supply chain,
while generating economies of scale that will enable
us to optimize the costs of our consumables and
continue growing in alsea.
[06] héctor orrico
managing director, dia
as a result of our having acquired domino’s pizza, we
started up operations in the colombian market. thus
now is the time to focus on making the operation of
the existing domino’s pizza stores more efficient and
on developing Burger King in colombia. i am confident
that the human talent and commitment of the team
members of this project will allow us to achieve the
results we have set for ourselves.
[07] Ricardo ibarra
managing director, domino’s pizza
& Burger King colombia
now is the time to continue growing in argentina.
during our first months of operation, we opened three
starbucks coffee stores. this is the result of the trust
shown by our strategic partners, which once again
reinforces alsea’s good image and the proven success
of its business strategy.
[08] Diego Paolini
managing director, starbucks coffee argentina
now is the time to recognize that not only has alsea’s
business model made it possible for us to continue
growing at the expected profit rate, but to make
inroads as well into new territories, such as our having
opened Burger King in colombia, which strengthens
our presence in argentina, chile and mexico.
[09] Pablo de los heros
managing director, Burger King argentina
at year-end 2008 we had as many as 32 Burger King
stores in chile. as a result, now is the time to begin
to see the benefits of the synergy and critical mass
model. we will continue to work hard to increase our
market share and operating margins.
[10] Juan Petito
managing director, Burger King chile
now is the time to consolidate alsea’s leadership
position in the different categories in which we
participate, taking advantage of our solid financial
position at year-end 2008. having the necessary
liquidity to address commitments going forward and
the ability to carry out our vocation to grow will allow
us to capitalize on future opportunities without risking
the company’s healthy operation.
[11] José Rivera Río
chief financial officer
now is the time to emphasize the quality of alsea’s
personnel, who have gained strength in spite of the
difficult changes surrounding us. we particularly wish
to acknowledge the performance of our leaders, who
daily develop the talent of our people. we would also
like to underline the commitment and dedication of
our more than 20,000 employees, whose professional
performance has contributed to the growth of our
brands, generated value and strengthened the
business throughout 2008.
[12] Rafael Cancino
corporate director, human resources
now is the time for alsea to continue looking ahead,
always from the perspective of a successful future
in its operations, in handling leading brands in the
market, in the quality of the service it offers to its
consumers and in the professionalism of its people.
this vision enables us to define the right path to
succeed in each of the segments and markets in which
we operate.
[13] sergio mirensky
corporate director, strategic planning
now is the time to prove that alsea is a solid
company in terms of policies and procedures,
effective internal control and best practices in its
activities and operations. all these assets serve as a
foundation to support the sustained growth of our
brand portfolio, minimize risks and strictly adhere to
our code of ethics.
[14] mario sánchez
corporate director, internal audit
now is the time to reinforce and standardize key
business processes, increasing their effectiveness
and efficiency through technological support, and
thereby making the company’s transformation and
competitiveness easier. with this we will create new
competitive advantages that will contribute towards
alsea’s leadership and growth and add profit to each
of its brands.
[15] Alejandro wiencke olivares
corporate director, processes & technology
04 : AlseA 2008 annual report
now is the time : 05
DaY BY DaY
We forM the Best teaM
• 21,024 employees
• 41% are women
• 64% are younG people under the age of 25
Starbucks Coffee
was acknowledged
as the best place to
work for in mexico
DIA loads the trucks, which during 2008
traveled 2,300,000 kilometers, delivering
ingredients and food products to the more
than 1,270 stores it serves
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:
The fresh fruit and vegetables that will
be used in the dishes served at California
Pizza Kitchen are selected and picked up
at the Central Supply Market
:
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Tomato planting is begun at the community
greenhouse of Santa María Temaxcaltepec,
oaxaca, financed by Fundación Alsea A.C.
through Fondo para la Paz I.A.P.
0
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Starbucks Coffee Aeropuerto serves the
first Macchiato of the day
:
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3
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06 : AlseA 2008 annual report
now is the time : 07
people are alsea’s most important value.
we focus on having motivated and
committed employees, who are satisfied
with their achievements within the
company. to this end, this year we gave
more than 367,810,000 hours of training,
investing 15,568,163 pesos.
we are aware of the fact that
however, at alsea we also value
motivation and performance
integration and diversity. as a result,
satisfaction are decisive talent
41% of our employees are female
drivers. and since our business
and 182 of our employees have
involves being constantly in touch
special needs, who find a place
with people, one of our priorities
within our company to raise their
is to encourage talent, particularly
quality of life and that of their
because our ability to surpass
families.
customer expectations depends
on this.
we want the common denominator
of our operations to be people with
most of our employees are young,
a vocation of service and assistance
dynamic, highly energized and
excellence, and we aspire for all our
productive, who have a passion for
brands to be recognized as the best
their work. we have the proper
place to work in each of the
structure and strategies to recruit,
countries where we participate.
train and retain the best talent and
are continuously designing human
resources programs that
acknowledge and reward our people
for generating value and service
excellence for our clientele.
The Domino’s Pizza stores receive from DIA
part of the seven tons of cheese that they
used throughout 2008
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The day’s first peak hour begins at
Starbucks Coffee; 42,100,000 cups of
coffee were sold in 2008
0
3
7
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:
The Teamwork Training Course
commences, one of more than
2,950 courses we give our employees
at the Training Center
:
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At this time on Thursdays we begin to
receive supplier invoices at the Tláhuac
SCA (Alsea’s Shared Services Center)
:
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08 : AlseA 2008 annual report
now is the time : 09
• we supply 1,272 unitS on 369 RouteS
• 3,529 deliveRieS per weeK in 142 cities
• 2.3 million Kilometers traveled
eVerY seConD Counts
in our oPeration
Safe Delivery Specialists at Domino´s
Pizza make the first of approximately
40,000 daily deliveries
:
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3
9
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The Starbucks Coffee Mexico stores prepare
their café du jour, using part of the almost
6,000 kg of coffee they consume each week
0
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:
1
Burger King Reforma 222 makes its checklist
to start up operations and contribute to
the sale of 16,310 hamburgers that Alsea’s
Burger King stores sell per day
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:
1
Alsea reports to the Mexican Stock
Exchange that during 2008 it opened
146 total stores of its different brands
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1
10 : AlseA 2008 annual report
now is the time : 11
18 million kilograms
of dough were
delivered to
584 domino’s pizza
establishments
operating the brands of our portfolio is a
complex process, which dia takes charge
of through administrative processes as
well as processes that develop increasingly
efficient products and quality.
all the activities performed at dia
even though the cost of supplies
(distribuidora e importadora alsea
drastically went up during the year
s.a. de c.v.) are linked to defined
owing to different reasons—such
time schedules, as they are part
as certain products depending
of a logistics chain that is focused
on the exchange rate and the
on delivering the “full product on
pressure in general on the price of
time” at our 1,272 stores, on pre-
commodities—thanks to our excellent
established days and at specific
relationship with suppliers and the
hours. dia’s sales to third parties
successful negotiations we had with
increased 11.5% to 1.06 billion
them, we obtained benefits for all
pesos in 2008.
our brands and part of this effect
was offset by the cost of meals.
to this end, the construction
and kickoff of the hermosillo
distribution center, in addition
to the other four that are already
operating in the country, will allow
for even prompter delivery and an
enhanced service for our stores.
As many as 640 Starbucks Coffee volunteers
participate in the reforestation of the national
park, Bosque de los Remedios, where part of the
45,000 trees that we planted in 2008 were rooted
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The last truck leaves the DIA Hermosillo
Distribution Center, which has eight trucks
that travel 252 delivery routes daily
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:
1
California Pizza Kitchen Santa Fe gets
ready to serve the first of over 214 salads
that will be sold that day
0
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2
:
1
our 27 Chili’s restaurants open their
doors to the public
0
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3
:
1
12 : AlseA 2008 annual report
now is the time : 13
We DeVeloP our BranDs
eVerY Minute
• 91 million clients served throughout the year
• 40 million pizzas sold at domino’s pizza
• 42 millions of coffees sold at starBucKs
coffee mexico
Domino´s Pizza donated 80 pizzas for a
get-together offered to the beneficiaries of
the foundation Pro Zona Mazahua A.C.
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1
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DIA delivers 4 tons, part of the 32 tons of
food that it donated in kind in 2008
Chili´s universidad is at 100% of its
capacity, assisting part of the almost
2,300,000 clients it received during 2008
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1
Domino´s Pizza Mexico distributes more
than 100,000 pizzas daily, and this is the
time of day with the greatest demand for
delivery
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:
1
14 : AlseA 2008 annual report
now is the time : 15
29,053,205
clients served at
Burger King
the increase in the number of customers
served, which this year totaled 91
million—16.6% more compared to last
year—is the result of our intense efforts to
improve each of the brands that make up
our portfolio.
at year-end, domino’s pizza mexico
the growth of our latin american
had 584 units, 425 of which are
operations was one of our 2008
corporate stores, and was operating
success stories, which we will
in 136 cities throughout the country.
consolidate in the years to come.
we now have a total of 98 units in
Burger King mexico is all ready
four countries that we had defined in
able to appreciate the results of
our strategic plan: argentina, chile,
its promotional strategies, the
colombia and Brazil.
launching of new items, as well as
the implementation of customer
on the other hand, chili’s continued
service programs. we opened our
to have an upward trend in sales
first Burger King colombia store in
and at year-end had 27 stores. the
the city of Bogota.
results of chili’s during the entire
year of 2008 as well as those of
sixty-three starbucks coffee mexico
california pizza Kitchen in december
stores were opened throughout the
confirm the great opportunity that
year, with which we now have a
exists for us in mexico in the casual
total of 258 units. we made inroads
dining category.
into 17 new markets: los cabos,
villahermosa, tepic and others,
in general, and in spite of the difficult
with which we are now present in
economic environment, we will
40 cities and 26 states.
continue growing and developing
the brands, with which we will
consolidate our leadership position.
0
3
5
:
1
The four managers that run each
California Pizza Kitchen restaurant in
order to serve 670 diners a day are
making sure that their customers are
being waited on well
Starbucks Coffee Nuevo León prepares
Green Tea Frapuccino, one of the more than
87,000 coffee/tea combinations the brand
offers worldwide
0
0
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Chili’s and Fundación Alsea A.C. deliver a donation
to the more than 2,000 children of the free meal
foundation, Comedor Santa María A.C., who
are part of the 79,823 people that have been
benefited by their social responsibility programs
0
0
7
:
1
Burger King Chile serves a Combo Whopper,
part of the 5,000,000 hamburgers it sold
during 2008
16 : AlseA 2008 annual report
now is the time : 17
• 11.5% SAleS GRowth in 2008
• 123 new corporate stores
• acquisition of 25 domino’s pizza colomBia and
california pizza Kitchen units
another Year
of groWth
The higher abundance of the more than
51 million clinets that Starbucks Coffee
México attended during 2008, starts now
0
3
7
:
1
SCA (Alsea’s Shared Services Center)
releases the brands’ financial information
0
0
8
:
1
The new Domino’s Pizza commercial is aired on
national television. The brand invested 5.7% of
its income in advertising during 2008
0
3
8
:
1
California Pizza Kitchen Masaryk gets
ready for the next CPKids Tour, in which
Mexico City elementary school students
participate
0
3
9
:
1
18 : AlseA 2008 annual report
now is the time : 19
43,717 people were
served during the first
month of operation of
Starbucks Coffee Alto
palermo in Buenos
Aires, Argentina
in 2008, alsea reported net sales of
we started up operations in
7.8 billion pesos, 11.5% higher than
starbucks coffee in argentina
last year’s. this increment is mainly
and Burger King in colombia, and
attributable to the addition of
acquired domino’s pizza colombia.
123 corporate stores in the last
at year-end, this segment had a
twelve months, including the
total of 98 units, with operations
acquisitions of domino’s pizza
in argentina, chile, colombia and
colombia and—to a lesser extent—
Brazil—the four countries we had
california pizza Kitchen in mexico,
defined in our strategic plan.
as well as the startup of the
starbucks coffee argentina and
during the year, we invested almost
Burger King colombia operations.
1.1 billion pesos—mostly in unit
alsea had a record year in terms of
existing stores and in renewing
store openings, both in mexico as
assets.
growth, in the remodeling of our
well as in latin america. in mexico,
we achieved our expansion goal: by
year-end we had 1,104 Qsr stores.
our sound financial position at year-end,
with a record cash level of more than
530 million pesos, gives us the solidity
and certainty to face our debt maturity
dates and continue to make progress with
our growth plans.
The Alto Palermo Starbucks Coffee store in
Argentina posted a new sales record:
83 transactions in half an hour
:
0
0
0
2
:
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Burger King Minerva serves its combo
number 100 of the day at its Auto King
A group of friends get together on the terrace
of CPK Masaryk with a BBQ Chicken Pizza.
They form part of the 93,000 customers who
have dined at that branch since April of 2008
0
0
:
1
2
:
0
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2
Starbucks Coffee reports that more than
8,600,000 customers log on to the Internet
at its stores
20 : AlseA 2008 annual report
now is the time : 21
CoMMitteD
at all tiMes
Alsea’s Social Responsibility is everyone’s
the mission of fundación alsea a.c. is to: Contribute towards
responsibility. We devote time and effort to it every
improving the quality of life of people in need through
day, every hour and every second to help future
comprehensive community development programs.
generations inherit a better country.
• 45,228 trees were planted
• 61,867 toys were delivered
• 8,033 individual pizzas were donated
• 81,823 total Beneficiaries
• 74 institutions were supported nationwide
• $8,227,919 pesos in donations were channeled
to different programs
• 9,988 volunteers participated in community
outreach activities
we will continue to work for mexico and starting in 2009 we
will focus our efforts on nutrition projects.
the friends & family event of the
starbucks coffee guanajuato store is held,
one of the 17 new cities in mexico that the
brand entered into during 2008
0
0
3
2
:
:
0
3
3
2
domino´s pizza finishes its delivery day
after approximately 4,000 pizzas are
delivered every 30 minutes in the country
starbucks coffee pilares—the store that
produces the most sales for the brand on
a daily basis—serves the last coffees of
the day
0
0
4
2
:
Burger King checks its meat purchase
inventories, which in 2008 amounted
to 1,900,000 kg
:
0
3
0
0
22 : AlseA 2008 annual report
now is the time : 23
to our
shareholDers:
now is the time to take a pause and analyze our results in these circumstances of great challenges.
as a result of the programs we implemented throughout the year to adjust the company to the
in a year marked by an international financial crisis, a notorious increase in basic supplies, the effects
world’s economic situation, at year-end our financial situation was solid, with a record cash position
of a devaluation and the beginning of a retraction in consumption and in the economic liquidity of
of over 530 million pesos and a leverage level of 34%, which provides us with the solidity and
the countries in which we operate, alsea had a record year in terms of openings and consolidating its
certainty we need to forge ahead with our plans of a healthy operation and growth.
operations—both in mexico as well as in latin america—with an increase of 123 corporate stores.
in mexico alone, we consolidated our expansion strategy totaling 1,104 establishments.
in view of the foregoing, we are able to confirm that now is alsea’s time, because the company is
well positioned to achieve its expansion, leadership and customer services goals. we will face the
this was not an easy task, as it required the support of all our people; innovating processes and
challenges of 2009 with optimism and trust and put all our creativity, perseverance and diligence to
products; and making quick adjustments in all the items of our cost and expense structure. we also
work to continue making progress and obtain the best return for you, our shareholders.
implemented a model to better plan our human resources at the senior management level and, as a
result, we consolidated our leadership and decision-making processes to strengthen the company’s
strategic areas. foremost in our minds, however, was to never forget the needs and tastes of all the
sincerely,
people who visited our establishments and consumed our products throughout the year.
our latin american operations continued to present positive results in terms of sales and
development plans. thanks to the trust of our strategic partners, we started up starbucks coffee
operations in argentina and Burger King in colombia, as well as having acquired domino’s pizza
colombia. at year-end, our latin american division had a total of 98 units, with operations in
argentina, chile, colombia and Brazil—the four countries that we defined in our strategic plan.
Alberto torrado
Arturo Barahona
chairman of the Board of directors
chief executive officer
1 of the 186 tons of residue
delivered by Alsea to be recycled
is transported
0
0
:
1
0
The dough production line of
the DIA Mexico City Distribution
Center is producing the pre-cooked
dough for the D4 pizza
:
0
0
2
0
The La Florida Starbucks Argentina store
wraps up the day
0
0
3
0
:
Carlos wakes up to go to his training sessions as
a Domino´s Pizza Specialist in Safe Delivery. This
brand gave more than 162,000 hours of training
to its delivery boys during 2008
0
3
4
0
:
24 : AlseA 2008 annual report
now is the time : 25
letter froM
inDePenDent BoarD MeMBers
BoarD of DireCtors
At Alsea we believe that it is an excellent idea for our Independent Board Members to write
a message in the company’s Annual Report, as our Managing Directors do as well. They also
have a lot to say about what Alsea is experiencing at present, and we wish to share their
opinion with you.
it is important to identify alsea’s current status: well-positioned brands in the process of being
institutionalized, as a result of changes in management; a distribution and administrative services
infrastructure that guarantees growth; operating knowledge of practically any segment of the
restaurant business; and knowledge of today’s food market and future trends. additionally,
the company has a managerial team with proven experience and, above all, with a permanent
entrepreneurial approach. we can affirm that we have the ability to consolidate the company
as the most important restaurant business in latin america, and our aspirations also include
participating in the north american market. lastly, the time is ripe for us to strengthen our
leadership in the markets in which we operate.
sergio mario larraguivel
today’s economic and financial environment presents challenges for companies that are putting
their ability to respond, their business vision and their responsibility for employees, business
partners, investors and society to the test.
at alsea—both as a group as well as on an individual basis—we have made a commitment to
sustain the leadership of our company, with social responsibility and with a corporate governance
that instills trust among all the agents with whom we do business and who have believed in the
potential of the company, its senior management and, above all, its people.
salvador Cerón
times like these motivate us to think about the future: how we can better serve our customers, by
better identifying their expectations; and how to broaden our geographic coverage and get more
people to know our service and brand offer.
manuel Canal
as independent members of the Board, we assume our responsibilities vis-à-vis investors by
making sure that decisions are made with absolute impartiality and only after having analyzed
in depth the related problems and opportunities. it is in this way that we support the company’s
management so that it can follow through with the strategic plans that give the company life
and projection going forward, particularly in times like these in which alsea’s development and
operating capacity will enable it to move faster than other domestic and international players in
the business arena.
marcelo Rivero
ChAiRmAn
alberto torrado martínez
CHAIRMAN oF THE BoARD oF DIRECToRS
shareholder Board and staff memBers
alberto torrado martínez
CHAIRMAN oF THE BoARD oF DIRECToRS
cosme alberto torrado martínez
APPoINTED DIRECToR, LATIN AMERICA
armando torrado martínez
SHAREHoLDER
fabián gerardo gosselin castro
SHAREHoLDER
federico tejado Bárcena
MANAGING DIRECToR, CASuAL DINING
arturo Barahona oyervides
CHIEF ExECuTIVE oFFICER
independent BoARd memBeRS
José manuel canal hernando
INDEPENDENT CoNSuLTANT
marcelo rivero garza
CHIEF ExECuTIVE oFFICER, GRuPo JuMEx
salvador cerón aguilar
PRESIDENT, STF CoNSuLTING GRouP
sergio mario larraguivel cuervo
CHIEF ExECuTIVE oFFICER, ANESLA S.A. DE C.V.
SeCRetARieS
guillermo díaz de rivera Álvarez
PARTNER, DíAZ DE RIVERA y MANGINo, S.C.
xavier mangino dueñas
PARTNER, DíAZ DE RIVERA y MANGINo, S.C.
Audit Committee
CoRpoRAte GoveRnAnCe Committee
José manuel canal hernando
salvador cerón aguilar
CHAIRMAN
marcelo rivero garza
MEMBER
CHAIRMAN
sergio mario larraguivel cuervo
MEMBER
sergio mario larraguivel cuervo
sergio enrique mirensky montefiore
MEMBER
mario sánchez martínez
TECHNICAL SECRETARy
TECHNICAL SECRETARy
26 : AlseA 2008 annual report
now is the time : 27
ManageMent’s DisCussion
anD analYsis
CoNSoLIDATED RESuLTS oF THE FuLL yEAR 2008
the following table provides a condensed income statement of alsea during 2008, in millions of mexican pesos
(with the exception of earnings per share or “eps”), the percentage of net sales that each line represents, and the
change in percentage for the full year 2008 when compared with the same period of 2007:
net sales
gross profit
ebitda(1)
operating income
consolidated net income
eps(2)
2008
Margin %
2007
Margin %
Change %
$7,786.8
100.0%
$6,985.4
100.0%
5,005.5
1,032.1
459.1
138.5
0.2078
64.3%
13.3%
5.9%
1.8%
n.a.
4,661.7
1,153.0
715.7
489.1
0.7690
66.7%
16.5%
10.2%
7.0%
n.a.
11.5%
7.4%
(10.5)%
(35.9)%
(71.5)%
(73.0)%
(1) eBitda: operating income before depreciation and amortization.
(2) eps refers to the earnings per share of the last twelve months
net Sales
net sales increased 11.5% to 7,786.8 million pesos during 2008, compared to 6,985.4 million pesos in the previous
operating income
the operating income of the third quarter decreased 256.6 million pesos, mostly due to a lower ebitda and to the
increase in depreciation and amortization as a result of our having acquired the assets related to the expansion plan.
net income
consolidated net income declined 349.6 million pesos, mostly due to the 256.6-million-peso decrease in operating
income, the 157.3-million-peso increase in the comprehensive cost of financing, the 39.5-million-peso increase in
other expenses, and the 12.1-million-peso negative effect in discontinued operations. these effects were partially
compensated with the 115.3-million-peso decrease in income taxes.
RESuLTS By SEGMENT
the following table sets forth the net sales and ebitda by business segment, in millions of mexican pesos, for the
full year 2008 and 2007; the contribution and margin that each line represents; as well as the change in percentage
for the year ended december 31, 2008, when compared to the same period of 2007:
Net Sales by Segment
2008
% Cont.
2007
% Cont.
% Change
food & Beverages mexico
$5,738.7
73.7%
$5,388.7
77.1%
food & Beverages latin america
972.0
12.5%
641.8
9.2%
distribution
2,955.1
37.9%
2,620.2
37.5%
6.5%
51.4%
12.8%
12.8%
11.5%
year. this increase was attributable to revenue growth in our brands in mexico and latin america, as well as to the
intercompany operations(3)
(1,878.9)
(24.1)%
(1,665.3)
(23.8)%
increase in food distribution sales made to third parties.
consolidated sales
$7,786.8
100.0%
$6,985.4
100.0%
the sales growth in our brands was mostly due to the unit expansion, which represented an increase of 123
corporate stores, including the acquisition of 21 domino´s pizza in colombia and the 4 california pizza Kitchen.
EBITDA by Segment
2008
% Cont.
Margin
2007
% Cont.
Margin % Change
this was partially offset by the decline in same-store sales, mainly due to the vat change effect, and to a lower
extent the consumption contraction at the end of the year.
Gross profit
during the last twelve months of 2008, gross income increased 343.8 million pesos, totaling 5,005.5 million pesos,
with a gross margin of 64.3% compared to 66.7% in the year-ago period. the decrease in gross margin was mostly
attributable to the change in the aforementioned vat rate and to the hike in the cost of the company’s main raw
materials due to higher commodity prices and the devaluation of the peso in the fourth quarter of 2008. these
effects were partially offset by the strategy of promotions and raising prices among our different brands.
operating expenses
operating expenses (excluding depreciation and amortization) increased 0.8 percentage points as a percentage
of sales, from 50.2% during the twelve months of 2007, to 51.0% in the same period of 2008. this was mainly
attributable to the operating leverage as a consequence of having lower same store sales, the above-inflation
rise in expenses related to the cost of electric power and gas, the payment of office and store leases after the
company sold certain assets in late 2007, the changes in the organizational structure to support future growth and
the change in revenue mix. such effects were partially offset by operating efficiencies and the operating leverage
generated by the growth in units.
eBitdA
food & Beverages mexico
$714.4
69.2%
12.4%
$837.1
72.6%
15.5%
(14.7)%
food & Beverages latin america
72.9
7.1%
distribution
other Businesses(3)
203.0
19.7%
41.8
4.1%
7.5%
6.9%
n.a.
73.5
6.4%
11.5%
(0.8)%
214.6
18.6%
8.2%
(5.4)%
27.8
2.4%
n.a.
n.a.
consolidated eBitda
$1,032.1
100.0%
13.3% $1,153.0
100.0%
16.5%
(10.5)%
(3) for segment reporting purposes, intersegment operations are included in each of the segment operations.
food and Beverages mexico
during the full year of 2008, sales increased 6.5% to 5,738.7 million pesos, compared to 5,388.7 million pesos in
the same period of 2007. this increase of 349.9 million pesos is attributable to the unit expansion during the last
twelve months, which was partially offset by the decrease in same-store sales.
ebitda dropped 14.7% during 2008, to 714.4 million pesos, compared to 837.1 million pesos in the year-ago period.
this decline is mostly due to the decrease in same store sales, the price hike in our main raw materials due to the
increase in commodities prices during the first half of the year and the depreciation of the peso during the fourth
quarter, as well as to a lower extent the above-inflation rise in expenses related to the cost of electric power and
gas. this was partially offset by operating efficiencies and the strategy of promotions and price increases among
as a result of the aforementioned variations, ebitda dropped 10.5% to 1,032.1 million pesos in 2008, compared to
the different brands.
1,153.0 million pesos in the previous year. the ebitda margin declined 3.2 percentage points, from 16.5% in 2007
to 13.3% during the full year of 2008.
28 : AlseA 2008 annual report
now is the time : 29
Food and Beverages Latin America
stores of all our brands, including the acquisition of Domino’s Pizza Colombia and California Pizza Kitchen, as well
The Food & Beverages Latin America Division, presented an increase of 51.4% during the full year 2008, reaching
as the startup of Starbucks Coffee Argentina and Burger King Colombia. The remaining 110.8 million pesos were
972.0 million pesos compared to 641.8 million pesos of the previous year. This was mostly due to the growth in
invested in other items, particularly in the hermosillo distribution center.
same-store sales as well as to the opening and acquisition of 37 units during the last twelve months, including the
operations of Starbucks Coffee Argentina and Burger King Colombia.
Recoverable Taxes - Net
Ebitda of the Food & Beverages Latin America Division decreased 0.8%, totaling 72.9 million pesos. This decrease
mostly attributable to the Value Added Tax balances in favor of Distribuidora e Importadora Alsea, S.A. de C.V.
was mostly attributable to the start-up operations of Starbucks Coffee Argentina and Burger King Colombia, as well
(“DIA” – Distribution segment), as well as the positive balance of profit taxes derived from the 2008 fiscal period.
The 144.4-million-peso increase in recoverable taxes - net of taxes payable, as of December 31, 2008, was
as to the price hike in our main raw materials as consequence of the depreciation of the various local currencies in
relation to the U.S. dollar. These effects were partially offset with the increase in same store sales.
Deferred Income Taxes
Distribution
The Deferred Income Tax went up from 197.9 million pesos as of December 31, 2007 to 293.0 million pesos as of
year end 2008. This increase of 95.1 million pesos was mostly due to the recognition of tax losses, to the effect
During the year 2008, distribution sales rose by 12.8% to 2,955.1 million pesos, compared to 2,620.2 million pesos
of larger provisions for liabilities and to the tax on assets pending recovery.
in the same period of 2007. This is attributable to a higher number of stores served, totaling 1,272 units as of
December 31, 2008, compared to 1,156 units in the same period of last year, which represented a 10.0% increase.
Accounts Payable
Third-party revenues increased 11.5% to 1,064.8 million pesos and represented 13.7% of consolidated revenues.
The 210.8-million-peso increase during the last 12 months in accounts payable is mainly attributable to unpaid
Ebitda reached 203.0 million pesos compared to 214.6 million pesos in the year-ago period, which accounted
balances related to the acquisition of California Pizza Kitchen outperformed in December of 2008, as well as to
for a margin of 6.9%, and presented a 1.3 percentage points margin decrease as compared to same period of last
larger provisions related with the growth of operations.
year. The decreased margin is mostly attributable to the change in the revenue mix, in view of the fact that the
fastest-growing brands are the ones with the lowest margin for DIA, as well as to the increase in costs due to the
Discontinued Operations
depreciation of the Mexican peso, and to a lower extent higher distribution expenses due to the increase in the
The net decrease of assets minus liabilities is 24.4 million pesos, which is attributable to the reclassification of the
price of Diesel and the redefinition for recovering corporate expenses.
Popeyes brand in 2008 and 2007 as a discontinued operation, as well as to the recognition of the brand’s valuation.
NON-OPERATING RESULTS
Comprehensive Cost of Financing
Debt
As of December 31, 2008, Alsea’s total debt increased 756.7 million pesos to 1,790.2 million pesos, compared to
1,033.4 million pesos on the same date last year. This increase is mainly attributable to the development plan of
The comprehensive cost of financing in 2008 went up to 194.4 million pesos, compared to 37.1 million pesos
the company’s brands, acquisitions made in the last twelve months, as well as to working capital needs and by-
during the previous year. This is attributable to the 89.0-million-peso increase in the foreign exchange loss, as a
back fund operations.
result of the depreciation of the local currencies vis-à-vis the US dollar, as well as to the 68.2-million-peso increase
in interest paid - net, owing to more leverage and higher interest rates.
Other Expenses - Net
As of December 31, 2008, 63.1% of the debt was long term, compared to 67.6% in the year-earlier period. On
the same date, 83.7% of the debt was denominated in Mexican pesos, 11.2% in US dollars, 4.8% in Chilean pesos,
0.2% in Argentine pesos and 0.1% in Colombian pesos. The company’s consolidated net debt—compared to 2007—
This item increased 39.5 million pesos in 2008 compared to the previous year, mainly due to the write-off of
increased 427.6 million pesos, totaling 1,251.7 million pesos as of December 31, 2008 compared to 824.1 million
assets due to the closing of stores of the different brands, and severance payments as part of the restructuring
pesos as of December 31, 2007.
program to reduce operating expenses. Theses effects were partially offset with the profit obtained from selling the
remaining real state assets.
Taxes on Earnings
Share By-back Program
As of December 31, 2008, the company had a balance in the fund set aside for the 15.3-million share by-back,
equal to approximately 193.9 million pesos in nominal terms. During the three months ended December 31,
The tax on earnings of 53.1 million pesos decreased 115.3 million pesos in twelve months ended December
2008, the company bought back 725 thousand shares, equal to 4.6 million pesos.
31 of 2008, mostly as a result of the 452.8-million-peso decrease in earnings before taxes and the effect of
deferred taxes.
BALANCE SHEET
Financial Ratios
As of December 31, 2008, the company had complied with all the financial restrictions established in the
long-term credit agreements. The Net Debt to Ebitda ratio of the last 12 months was 1.21 times, the total
Liabilities to Stockholders’ Equity ratio was 0.98 times, and the Ebitda to Interest Paid ratio of the last 12
Store Equipment, Leasehold Improvements and Property, Trademarks, Goodwill and Pre-operatives.
months was 8.32 times.
The 469.6-million-peso variation in this line was attributable to the expansion program and to the acquisitions
made during 2008.
The Return on Invested Capital (“ROIC”)(4) decreased from 15.8% to 9.6% during the last twelve months ended
December 31, 2008. The Return on Equity (“ROE”)(5) of the last 12 months ended December 31, 2008 was
During the twelve months ended December 31, 2008, Alsea invested a total of 1,097.5 million pesos, of which
4.4% compared to 16.7% year over year.
986.7 million pesos were invested in store openings, renovation of equipment and the remodeling of the existing
30 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 31
RELEVANT FIGURES
February 16, 2009
Internal audIt
CommIttee report
BRAND
Stores 2008
Stores 2007
Change
% Annual Change
411
0
195
0
107
32
29
0
9
23
0
806
21
8
29
154
989
14
21
63
3
0
9
3
1
1
4
4
123
8
10
18
5
146
3.4%
N.A.
32.3%
N.A.
0.0%
28.1%
10.3%
N.A.
11.1%
17.4%
N.A.
15.3%
38.1%
125.0%
62.1%
3.2%
14.8%
2007
Change
425
21
258
3
107
41
32
1
10
27
4
929
29
18
47
159
1,135
2008
8.32 x
1.21 x
0.98 x
9.6%
4.4%
2008
$4.85
Domino’s Pizza Mexico
Domino’s Pizza Colombia
Starbucks Coffee Mexico
Starbucks Coffee Argentina
Burger King Mexico
Burger King Argentina
Burger King Chile
Burger King Colombia
Popeyes
Chili’s Grill & Bar
California Pizza Kitchen
Total Corporate
Starbucks Coffee Chile
Starbucks Coffee Brazil
Total Associates (7)
Sub-Franchisees Domino´s Pizza Mexico
TOTAL STORES
Financial Ratios
EBITDA(1)/Interests paid
Net debt/EBITDA(1)
Total liabilities/Stockholders’ equity
ROIC(4)
ROE(5)
Stock Ratios
Book value per share
EPS (ttm)(2)
EV(6)/EBITDA(1) (ttm)
Shares outstanding as of
Float
Stock Price as of quarter end
19.29 x
0.72 x
0.69 x
15.8%
16.7%
2007
$4.84
N.A
N.A
N.A
620 bps
1230 bps
Change
0.1%
(73.0)%
N.A.
(0.1)%
130 bps
(59.3)%
$0.2078
$0.7690
5.2 x
618.0
35.8%
$6.23
9.1 x
618.8
37.1%
$15.30
In compliance with the provisions of Articles 42 and 43 of Mexico’s Securities Market Law and the Audit Committee
Regulation, I hereby inform you of the activities we carried out during the year ended December 31, 2008. 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.
I. 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.
III. INTERNAL AUDIT
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.
4. The proposal of hiring an External Consultant was approved to support Internal Audit functions.
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
(4) ROIC is defined as operating income after taxes (ttm) divided by operating investment, net (total assets – cash and
situation for the year ended December 31, 2008.
temporary investments – non-interest bearing liabilities.
(5) ROE is defined as net income (ttm) divided by stockholders’ equity.
(6) EV is defined as market value plus net debt plus minority interest, and considers the price per share at the closing of
each quarter.
(7) Associated stores are defined as any operation that is recognized by means of the equity method.
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.
32 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 33
Corporate GovernanCe
CommIttee report
We verified the proper accounting recording of the purchase of Domino’s Colombia and the sale of Popeyes that
February 16, 2009
will take place during the first quarter of 2009.
To the Board of Directors of ALSEA, S.A. DE C.V.:
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.
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, 2008. While performing our work, we have kept in mind the recommendations contained in
the Code of Best Corporate Practices.
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
In order to comply with the responsibilities of this Committee, we performed the following activities:
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.
1. During this period, we did not receive any requests for exemption in accordance with the provisions of Article
28, fraction III, section f) of the new Securities Market Law. It was therefore not necessary for us to make any
recommendation in this regard.
2. Likewise, during this period, we did not receive any requests for exemption in accordance with the provisions
of Article 28, fraction III, section f) of the new Securities Market Law. It is therefore not necessary for us to
make any recommendation in this regard.
3. Twice a year we revised the 2008 Performance Evaluation of relevant executives, as well as Management’s
proposal to pay their variable compensation.
4.
In the Board of Directors’ Meeting it was agreed to send the 2005 SOP proposal to the Stockholders’ Meeting to
set a new maturity date for December 2009.
5. We analyzed a proposal to grant the “2008 Deferred Bonus Plan” (PILA), depending on the personal evaluation
of all the participants. We recommended that this proposal be authorized.
6. We presented an annual 4% salary raise for store personnel and no raise for the staff personnel of our Business
Units and Corporate Areas.
We held executive meetings with the exclusive participation of the Committee members, and during such meetings
7. We were presented with a hR Planning proposal for implementation in all our Business Units and Corporate
agreements and recommendations for Management were established.
Areas. The proposal was approved.
The Chairman of the Audit Committee reported to the Board of Directors on a quarterly basis the activities that
were carried out.
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.
Sincerely,
Chairman of the Audit Committee
José Manuel Canal Hernando
8. 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 2009-2013 Strategic Plan, which also includes brand
guidelines. The complete analysis was presented at the Board of Directors’ Meeting of December 11, 2008, and
it was requested that we made sure that the financial forecasts complied with the stockholders’ orders.
9. On a quarterly basis, we followed up on the progress made in the “Alsea Model” Processes Project, which is
already at the implementation stage.
10. We established the general premises to prepare the 2009 budget. The 2009 budgets of each of Alsea’s
divisions were revised in order to validate them and so that we could 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
December 11, 2008.
11. We revised the CEO’s report with the changes vs. budget for each quarter of 2008 and the entire fiscal year
2008, 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 results.
34 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 35
Independent audItors’ report
12. All the acquisition initiatives that were presented to us by Management were evaluated; during this period the
acquisition of Domino’s Pizza Colombia and California Pizza Kitchen was authorized, since it was considered
that they were in alignment with Alsea’s growth strategy. The association with PF Changs was also approved,
and Management was requested to present the 2009 budget for approval purposes once the contract has been
signed.
13. We recommended the authorization of the dividend payment as per the established policy, i.e. 30%.
To the Board of Directors and Stockholders
Alsea, S. A. B. de C. V.:
14. The Stock Trading Plan results were presented quarterly and during the fourth-quarter meeting the 2009-2011
We have examined the accompanying consolidated balance sheets of Alsea, S. A. B. de C. V. and subsidiaries as of
Stock Trading Plan was approved with its respective quarterly metrics for 2009 and annual metrics for the
December 31, 2008 and 2007 and the related consolidated statements of income and of changes in stockholders’
periods of 2010 and 2011. The quarterly metrics shall be revised and adjusted, if necessary, on a quarterly
equity for the years then ended and the consolidated statements of cash flows and changes in financial position
basis during fiscal year 2009.
for the years ended December 31, 2008 and 2007, respectively. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
15. We were presented with the restatement of the Shareholder’s Cost applied at the end of each quarter of 2008,
using the methodology authorized by the Board of Directors, and we suggested that a rate of 17.5% be used at
financial statements based on our audits.
the end of the period.
16. On a quarterly basis we were presented with a summary of the risk management operations through “Forward
Exchange Rates” (peso/dollar) 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 have existed.
Corporate Governance Committee
Salvador Cerón Aguilar
Chairman
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 that they are prepared in accordance with Mexican Financial Reporting
Standards. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures contained
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 comply with the injunction sentence (“Amparo”) related to Valued Added Tax, with no final resolution
yet issued. Additionally, there are certain contingencies that are disclosed in the subparagraphs (e) and (g) of the
same note.
During 2008, accounting changes were made as disclosed in note 2(y) to the consolidated financial statements.
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, 2008 and 2007, and the results of
their operations and the changes in their stockholders’ equity for the years then ended and their cash flows and
changes in their financial position for the years ended December 31, 2008 and 2007, respectively, in conformity
with Mexican Financial Reporting Standards.
KPMG CARDENAS DOSAL, S. C.
Jaime Sanchez Mejorada Fernández
February 17, 2009.
36 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 37
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
ConsolIdated BalanCe sheets
December 31, 2008 and 2007
(Thousands of Mexican pesos- note 2(y))
ASSETS
Current assets:
Cash
Accounts receivable, net:
Customers less allowance for doubtful accounts of $11,932
in 2008 and $4,456 in 2007
Recoverable valued added-tax and other recoverable taxes
Other
Inventories, net (note 5)
Prepaid expenses
261,896
664,340
44,360
361,524
111,083
214,514
593,487
95,272
235,252
79,052
2008
2007
2008
2007
$
538,480
209,327
Current installments of long-term debt (note 10)
$
LIABILITIES AND STOCkHOLDERS’ EqUITy
Short-term liabilities:
Supliers
Associated companies (note 4)
Accounts payable and accrued liabilities
Accruals (note 11)
Income tax payable and employees’ statutory profit sharing
660,080
536,729
67,939
162,045
473,041
65,860
334,550
487,032
42,790
47,473
376,806
139,420
Total current liabilities
1,965,694
1,428,071
Total current assets
1,981,683
1,426,904
Long-term debt, excluding current installments (note 10)
1,130,098
698,900
Investment in shares of associated companies (note 6)
28,884
22,874
Store equipment, leasehold improvements and property, net (note 7)
3,044,911
2,748,352
Goodwill of subsidiary companies, net (note 8)
219,979
217,612
Intangible assets, less accumulated amortization of $551,500 in
2008 and $ 411,958 in 2007 (note 9)
782,325
611,618
Deferred income taxes and employee statutory profit sharing and
related to reinvestment of profits (note 15)
Discontinued operations (note 2 (c))
292,989
48,962
197,920
70,441
Other liabilities
Employee benefits (note14)
Discontinued operations (note 2(c))
43,028
26,445
4,675
15,425
19,437
1,800
Total liabilities
3,169,940
2,163,633
Stockholders’ equity (note 16):
Majority stockholder’s equity
Capital stock
Additional paid-in capital
Retained earnings
Reserve for repurchased shares
534,017
1,228,880
1,121,906
110,322
534,364
1,090,334
1,226,657
140,739
Currency translation adjustment in foreing subsidiaries
and associated companies
1,946
5,389
Majority stockholders’ equity
2,997,071
2,997,483
Minority interest
232,722
134,605
Total stockholders’ equity
3,229,793
3,132,088
Commitments and contigencies (note 17)
See accompanying notes to consolidated financial statements.
$
6,399,733
5,295,721
$
6,399,733
5,295,721
38 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 39
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
ConsolIdated statements of InCome
Years ended December 31, 2008 and 2007
(Thousands of Mexican pesos- note 2(y))
Net sales
Cost of sales
Gross profit
Operating expenses
Operating income
Other (expenses) income, net (note 13)
Comprehensive financing result (note 12)
Equity in the results of operations of associated companies (note 6)
Income from continuing operations, before income tax
Income tax (note 15)
Income before discontinued operations
Loss from discontinued operations, net (note 2(c))
Consolidated net income
Minority interest
Majority net income
Net earning per share (note 2 (w))
See accompanying notes to consolidated financial statements.
2008
2007
$
7,786,843
2,781,324
6,985,403
2,323,697
5,005,519
4,661,706
4,546,432
3,946,010
459,087
715,696
(34,973)
4,500
(194,400)
(37,065)
(2,027)
(2,653)
227,687
680,478
53,148
168,409
174,539
512,069
(35,008)
(22,928)
139,531
489,141
10,752
10,706
128,779
478,435
0.21
0.77
$
$
40 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 41
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
ConsolIdated statements of ChanGes
In stoCkholders’ equIty
Years ended December 31, 2008 and 2007
(Thousands of Mexican pesos- note 2(y))
Capital Stock
Additional
paid-in capital
Legal reserve
Retained earnings
Retained
earnings
Total
Reserve for
repurchased
shares
translation
effect from
foreing entities
majority
stockholder’s
equity
Minority
Interest
Total
stockholders’
equity
Balance as of December 31, 2006
$
536,623
1,090,334
45,572
860,490
906,062
118,738
2,118
2,653,875
68,694
2,722,569
Increase in minority interest
Repurchase of shares (note 16)
Appropriation to legal reserve
Increase in reserve for repurchased shares (note 16)
Dividends declared ($0.30 per share) (note 16)
Comprehensive income
-
(2,259)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,988
(10,988)
-
-
-
-
(67,999)
-
-
-
-
(90,000)
(90,000)
90,000
(67,840)
(67,840)
478,435
478,435
-
-
-
-
-
-
-
-
55,205
55,205
(70,258)
-
-
(67,840)
-
-
-
-
(70,258)
-
-
(67,840)
3,271
481,706
10,706
492,412
Balance as of December 31, 2007
534,364
1,090,334
56,560
1,170,097
1,226,657
140,739
5,389
2,997,483
134,605
3,132,088
Increase in minority interest
Repurchase of shares (note 16)
Appropriation to legal reserve
Increase in reserve for repurchased shares (note 16)
Dividends declared in shares ($0.23 per share) (note 16)
Comprehensive income
-
(5,331)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,922
(23,922)
-
-
-
-
(120,417)
-
(90,000)
(90,000)
90,000
-
-
-
-
-
87,365
87,365
(125,748)
-
-
-
-
-
(125,748)
-
-
128,779
128,779
-
(3,443)
125,336
10,752
136,088
Balance as of December 31, 2008
$
534,017
1,228,880
80,482
1,041,424
1,121,906
110,322
1,946
2,997,071
232,722
3,229,793
See accompanying notes to consolidated financial statements.
42 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 43
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
ConsolIdated statement of Cash flows
Years ended December 31, 2008
(Thousands of Mexican pesos- note 2(y))
Operating activities:
Income from continuing operations, before income tax
$
227,687
2008
Items relating to investing activities:
Depreciation and amortization
Effects from associated companies, net
Gain or loss on sale of fixed assets
Interest income
Valuation effects of financial instruments
Items relating to financing activities:
Interest expense
Subtotal
Customers
Inventories
Suppliers
Income taxes payable
Other assets and liabilities
Net cash provided by operating activities
Investing activities:
Interest received
Store equipment, leasehold improvements and property
Trademark rights and preoperating items
Investment in shares of subsidiaries and associated companies
Disincorporation of subsidiary
Acquisition of subsidiary
Net cash used in investment activities
Cash to be obtained from financing activities
Financing activities:
Bank loans received and payment of loans, net
Interest paid
Minority interest contribution
Repurchase of shares
Net cash provided by financing activities
Net increase in cash
Adjustments to cash flow to reflect foreing exchange fluctuations
Cash:
At beginning of year
At end of year
See accompanying notes to consolidated financial statements.
572,980
2,027
79,143
8,634
5,535
124,078
1,020,084
(45,819)
(123,803)
85,848
(293,359)
213,425
856,376
(8,634)
(569,812)
(399,168)
(8,037)
(15,523)
(93,806)
(1,094,980)
(238,604)
739,929
(120,864)
87,363
(125,748)
580,680
342,076
(12,923)
209,327
$
538,480
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
ConsolIdated statements of ChanGe
In fInanCIal posItIon
Years ended December 31, 2007
(Thousands of Mexican pesos- note 2(y))
Operating activities:
Consolidated net income
Add charges (deduct credits) to operations not requiring (providing) funds:
Depreciation and amortization
Labor obligations
Equity interest in associated companies
Deferred income tax and employees’ statutory profit sharing
Funds provided by operations
(Net investing in) net financing from operating accounts:
Customers, net and prepaid expenses
Inventories
Associated companies
Suppliers, accounts payable, accrued liabilities and other liabilities
Taxes payable and employees’ statutory profit sharing
Funds used in operating activities
Financing activities:
Increase in capital stock and minority interest, net
Repurchase of shares
Loans, net
Dividends declared
Funds provided by financing activities
Investing activities:
Acquisition of store equipment, leasehold improvements and property
Acquisition and disincorporation of subsidiary and associated companies, net
Cumulative translation effect from foreing entities
Intangible and other assets
Funds used in investing activities
Decrease in cash
Cash:
At beginning of year
At end of year
See accompanying notes to consolidated financial statements.
2007
$
489,141
437,253
6,953
2,653
(119,018)
816,982
(116,397)
(8,943)
26,194
222,646
(335,552)
(212,052)
55,205
(70,258)
536,174
(67,840)
453,281
(720,477)
8,476
3,271
(383,114)
(1,091,844)
(33,633)
242,960
$
209,327
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
44 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 45
ALSEA, S. A. B. DE C. V. AND SUBSIDIARIES
notes to ConsolIdated fInanCIal statements
December 31, 2008 and 2007
(Thousands of Mexican pesos- note 2(y))
(Translation from original issued in Spanish)
These financial statements have been translated from the original Spanish language for the convenience of foreign
English-speaking readers only.
The operating income of the acquired companies is included in the consolidated financial statements as of the date of
acquisition.
On February 17, 2009, 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 next Stockholders’ Meeting. The financial statements have been
prepared in accordance with Mexican Financial Reporting Standard (FRS) in force at the balance sheet date (note 2 (y)).
b) Development of the Burger King trademark in Colombia-
In October 2008, continuing with the expansion strategy in Latin America through a subsidiary in which Alsea will
participate with 84.9%, an agreement has been reached with Burger King Corp. to develop the Burger King brand in
Bogota, Colombia . The current partners of Alsea in Domino’s Pizza Colombia will participate with the remaining 15.1%.
The agreement contemplates a plan to develop 20 stores over the next 5 years.
(1) Description of business and significant transactions-
Description of business-
Alsea, S. A. B. de C. V. and Subsidiaries (Alsea or the Company), are mainly engaged in operating fast-food stores,
“QSR”, and casual restaurants, “Casual Dining”. In Mexico, Alsea operates Domino’s Pizza, Starbucks Coffee, Burger
King, Popeyes (on discontinued operation) and Chili’s Grill & Bar, and since December 2008, it operates California
Pizza Kitchen. The operation of its multi-units is supported by its Shared Service Center, 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 Participaçoes, S. A. and Starbucks Coffee International. In Chile and Argentina,
Alsea operates Burger King and since 2007, Starbucks Coffee in those countries in association with Starbucks Coffee
International. In Colombia, it operates Domino’s Pizza and Burguer King since June and November 2008, respectively.
Significant transactions-
a) Acquisitions
- Acquisition of 65% of California Pizza Kitchen-
In December 2008, through a subsidiary, the Company acquired 65% of Grupo Calpik, S.A.P.I, de C.V. (Grupo Calpik), a
company which forms part of Grupo BGM. Grupo Calpik currently has four units of California Pizza Kitchen and is the
exclusive developer and franchiser of the brand for the Mexican territory.
- Acquisition of Domino´s Pizza Colombia-
In June 2008, the acquisition was arranged with 75% of the capital stock of Dominalco, S.A. (Domino´s Pizza Colombia
or Dominalco). Domino´s Pizza Colombia has a presence in that country for 20 years and today has 21 stores
operating in four cities, Bogota, Medellin, Cali and Pereira.
A condensed balance sheet of the businesses acquired is shown as follows:
Condensed balance sheet
Current assets
Store equipment, leasehold improvements and property
Franchise rights
Current liabilities
Stockholders’ equity
$
$
$
$
84,835
93,359
50,129
228,323
111,908
116,415
228,323
The business acquisitions were recognized under the purchase method. The cost of entities acquired was determined
based on the cash paid. 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. There is a contingent price for the acquisition of
Dominalco, which is subject to certain rules that require, mainly, obtain direct benefits from future Dominalco profits
in a one-year period as of the date of acquisition.
c) Agreement for the termination of the contract of the master franchise of “Popeye’s” trademark-
In September, 2008, the Company entered into an agreement with AFC Enterprises, Inc. Popeyes Chicken & Buscuits,
to terminate the master franchise contract for operation of the “Popeyes” trademark in Mexico. The agreement
establishes the conditions to disincorporate the 10 stores in operation in a period of no more than six months. AFC
Enterprises, Inc. will continue to operate the “Popeyes” trademark in Mexico and will assist the Company in the
transfer of the 10 stores to a new franchiser, in order to continue with the growth of the trademark in Mexico (note 2
(c)).
d) Starbucks joint venture (2007), 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
the shares of Starbucks Coffee Argentina, S.R.L. (Starbucks Argentina).
e) 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.
f) Share split
In February 2007, having carried out all 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.
(2) Summary of significant accounting policies-
The preparation of financial statements requires management to make a number of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant items subject to such estimates and assumptions include, but are no limited to, the carrying amount
of property, plant and equipment, intangible assets and goodwill; valuation allowances for accounts receivable,
inventories, deferred income tax assets; valuation of financial instruments; and assets and obligations related to
employee benefits. Actual results could differ from those estimates and assumptions.
For disclosure purposes, “pesos”, “$” or MXP means Mexican pesos, and “dollars” or “US$” means U.S. dollars.
The financial statements for the year ended on December 31, 2007 were reclassified in order to conform them to the
presentation of 2008, mainly for the discontinued operations specified in note 2(c).
Following are the significant accounting policies applied in the preparation of the accompanying financial statements:
(a) Recognition of the effects of inflation-
The accompanying consolidated financial statements have been prepared in accordance with Mexican Financial
Reporting Standards (FRS) in effect as of the balance sheet date and include the recognition of the effects of inflation
on the financial information through December 31, 2007, based on the National Consumer Price Index (NCPI)
published by Banco de México. Cumulative inflation percentage and index of the three preceding years at December
31, 2008 and 2007 are presented in the next page.
46 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 47
December 31
NCPI
Inflation
2008
2007
2006
2005
133.761
125.564
121.115
116.301
Yearly
Cumulative
6.53%
3.67%
4.14%
3.33%
15.01%
11.56%
7.61%
3.33%
(b) Principles of consolidation-
The consolidated financial statements include the financial statements of Alsea, S. A. B. 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. The consolidation was based on the
financial statements of the subsidiary companies.
The principal operating subsidiaries are as follows:
Shareholding
percentage
2008
2007
Activity
Operating companies:
Café Sirena, S. de R. L. de C. V.
82.00%
82.00% Starbucks Coffee stores
Operadora de Franquicias Alsea, S. A. de C. V.
99.99%
99.99%
Domino’s Pizza stores Burger King
and Popeye’s
Gastrosur, S. A. de C. V.
99.99%
99.99% Chili’s Grill & Bar restaurants
Fast Food Sudamericana, S. A.
99.99%
99.99% Burger King stores in Argentina
Café Sirena S.R.L
Fast Food Chile, S. A.
Dominalco, S.A.
Operadora Alsea en Colombia, S. A.
Grupo Calpik, S.A.P.I de C.V.
82.00%
- Starbucks Coffee stores in Argentina
99.99%
99.99% Burger King stores in Chile
75.00%
84.99%
65.00%
- Domino’ Pizza stores in Colombia
- Burger King stores in Colombia
- California Pizza Kitchen restaurants
Distribuidora e Importadora Alsea, S. A. de C. V.
99.99%
99.99% Food distribution
Associated companies:
Starbucks Coffee Chile, S.A.
18.00%
18.00% Starbucks Coffee stores in Chile.
Starbucks Brasil Comércio de Cafés, Ltda.
11.06%
11.06% Starbucks Coffee Stores in Brasil.
The investment in shares of associated companies is valued by the equity method (see note 6).
(c) Discontinued operations-
In September 2008 Operadora y Procesadora de Pollo, S. A. de C. V. was discontinued for which purposes a formal
disinvestment plan was designed. At December 31, 2008, the consolidated net result for discontinued operations
amounts to $(35,008).
Condensed financial information on the discontinued operation is shown below:
As consequence of the low profitability of the Popeyes´ trademark, at December 31, 2007 Alsea recognized an
impairment loss of long-lived assets used in Popeyes´ operations. This impairtment loss generated an expense of
$23,302, recognized in other expenses and an increase of $6,525 to the deferred income tax provision. In 2008, as a
consequence of the agreement for the termination of master trademark contract to determine the new recoverable
value of long-lived assets, it was opted to calculate that value through the sales price, and therefore no impairment
was determined (note 1(c)).
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.
In April 2007, the remaining 50% ownership of DeLibra, Ltda. associated company, was sold, which as from December
2006, was recognized as a discontinued operation. This operation generated a gain of $5,460.
The effects of the above operations were included as discontinued operations in the Statement of Income.
(d) Currency translation of foreign subsidiaries-
To consolidate the financial statements of foreign subsidiaries that operate on an independently of the Company
(located in Argentina, Chile, Brazil and Colombia, which represent 12% and 5% of consolidated net income in 2008 and
2007, respectively) were consolidated applying the Company’s same accounting policies.
As from 2008, the financial statements of consolidated foreign operations are translated into the reporting currency
by initially determining if the functional currency and the currency for recording the foreign operations are different
and then translating the functional currency to the reporting currency, using the historical exchange rate or the
exchange rate in force at the year end and the inflation index for the country of origin, depending on whether the
information derives from an inflationary or non-inflationary economy.
Through 2007, the financial statements of consolidated foreign subsidiaries were adjusted for inflation in their
currency of origin based on the inflation of each country and expressed in the currency of purchasing power at
the end of the year, and were subsequently translated to Mexican pesos at the exchange rate in force at the end of
the year for balance sheet and statement of income. The effects of currency translation are shown in stockholders’
equity.
(e) Cash equivalents-
Cash equivalents includes deposits in checking accounts, foreign currencies 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.
(f) Derivative financial instruments-
Alsea uses derivative financial instruments (DFI) denominated forwards and swaps in order to reduce the future and
present risks and adverse fluctuations in exchange and interest rates, not diverting resources from the operations
and the expansion plan and to have the certainty under the future cash flows of the Company, which also helps to
keep a strategy for debt costs. DFI are used only for hedging purposes through which it undertakes to exchange
cash flows at predetermined future dates, on the nominal value of reference and are valued at the fair value.
DFI operations are carried out under a master agreement in a format standardized by ISDA (International Swap Dealers
Association) form, which is duly formalized by legal representatives of the Company and of the financial institutions.
In some cases, the Company has entered into agreements with financial institutions in line with the requirements of
the ISDA, which agreements specify the conditions that require offering guarantees for marging calls if the market
value (mark-to-market) exceeds certain established credit limits. The Company has the policy to monitor the volume of
operations contracted with each institution in order to avoid the marging calls.
Balance sheet
Current assets
Fixed assets
Other assets
Liabilities
Results
Income
Costs
Operating expenses
Loss before income tax
2008
2007
DFIs are contracted on the local market with the following financial entities: Banco Nacional de Mexico, S.A., Banco
Santander, S.A., Merril Lynch Capital Services, INC, UBS Bank Mexico y BBVA Bancomer, S.A.
$
$
$
$
7,394
30,221
11,347
(4,675)
44,287
53,597
19,984
47,603
1,569
38,037
30,835
(1,800)
68,641
61,866
21,431
55,587
(18,548)
(39,938)
Valuation
In the case of cash flow hedging, the effective portion of gains or losses on hedging instruments is recognized under
comprehensive income or loss in stockholders’ equity and is reclassified into income in the same period or periods
in which the predicted transaction affects them. The ineffective portion is recorded immediately in the results of the
period under comprehensive financing result.
The valuation of the effective portion generated from the aforementioned instruments is recorded every month in the
Company’s financial statements.
Positions in derivative financial operations
At December 31, 2008, the Company has hedges to purchase US dollars for an amount of US$ 2,635 thousand, with
an average exchange rate of MXP$ 10.56 for each US dollar. The type and the amount of derivative products covered
are aligned with management’s internal policy specified by the Company’s Practice Societary Committee, which
provides an approach to meet the needs for covering foreign currency without carrying out speculative operations.
48 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 49
At December 31, 2008, the Company had contracted the following financial instruments:
Institution
Thousands of US dollars
Average exchange rate at
settlement date
Maturing in
Merrill Lynch
UBS
1,500 $
2,135
10.3400
10.7078
2009
2009
During the years 2008 and 2007, the Company recorded an expense (income) in the results of $18,067 and $1,871,
respectively, corresponding to fluctuations in exchange and interest rates from the date on which transactions were
entered into to the settlement date.
(g) Embeded derivatives-
The Company reviews the contracts it enters into to identify the existence of embeded derivatives. Identified
embeded derivatives are subject to assessment for determining compliance with the required conditions. If conditions
are met, they are segregated from the host contract and valued at its fair value. Where the embeded derivative is
classified as being for trading purposes, the gain or loss from changes in fair value is recognized in the year’s income.
Embeded derivatives designated for hedging purposes recognize changes in fair value according to the type of hedge
as follows: (1) for fair value hedges, fluctuations of both embeded derivative and the hedged item are reflected at fair
value and recognized in the year’s income; (2) for cash flows hedges, the effective portion of the embeded derivative
is temporarily recognized in comprehensive income and reclassified into income when the hedged item affects them;
the ineffective portion is immediately recognized in income.
(h) Inventories and cost of sales-
At December 31, 2008 inventories are stated at the historical cost determined by the last-in-first-out method.
Inventory values so determined do not exceed market values and are not below realizable value. Inventories
at December 31, 2007 are shown at their original cost updated through such date based on NCPI factors, or at
replacement cost of inventories at sales’ date.
Cost of sales represents the replacement cost of inventories at the time of their sale, increased, as applicable,
for reductions in the replacement cost or net realization value of inventories during the year and, through 2007
expressed in constant pesos of purchasing power at December 31, 2007.
(k) Intangible assets-
Represent payments made to third parties for the right to use brands under which the Company operates its stores,
pursuant to franchisee or association agreements. Amortization is calculated by the straight-line method at annual
rates ranging from 5% to 15%. The rights to use of these brands expire as follows:
Brands
Domino’s Pizza
(Mexico)
(Colombia)
Starbucks Coffee (Mexico)
(Mexico)
(Argentina)
(Mexico) (*)
(Argentina)
(Chile)
Burger King
Popeye’s (discontinued)
Chili’s Grill & Bar
California Pizza Kitchen
Expiration date
2025
2016
2021
2012
2024
2012
2028
2042
2015
2017
(*) Each of the above trademark stores is valid for a 20-year term, as from the date on which each point of sale begins
operations.
Under said agreements, the Company has certain obligations to do and not to do, including investments in capital and
opening of new points of sale.
The association agreement signed by Starbucks Coffee International (SCI) and Alsea in 2008, allows SCI to increase
its equity in the capital stock in Café Sirena, until it reaches 50%, only in the event a number of Starbucks Coffe
stores are not opened. That option was not exercised at December 31, 2008, but may be exercised as from 2009,
irrespective of whether or not those goals are met.
The Company records the necessary allowances for inventory impairment arising from inventory damage,
obsolescence, slow-movement or other causes, indicating that realization of goods will be below their cost.
Pre-operating and installation expenses are related to the opening of new points of sale in various zones. Amortization
is computed by the straight-line method over one year, from the date on which each point of sale begins operations.
(i) Store equipment, leasehold improvements and property-
Store equipment, leasehold improvements and property are initially recorded at their acquisition cost, and through
December 31, 2007 adjusted for inflation by using factors derived from NCPI. Depreciation of store equipment,
leasehold improvements and property is determined by management using the straight-line method over the
estimated useful lives of the assets, at the annual rates shown below:
Buildings
Store equipment
Leasehold improvements
Transportation equipment
Computer equipment
Production equipment
Office furniture and equipment
Rates
5%
6% to 33%
10% to 20%
25%
30%
10% to 20%
10%
The maintenance expenses and small repairs are expensed as incurred.
(j) Goodwill of subsidiary and associated companies-
Goodwill represents the excess of the purchase price of businesses acquired over the fair value of net assets acquired.
In determining these amounts, intangible assets acquired with no recoverable value are eliminated. Goodwill must be
tested for impairment at least annually.
(l) Impairment of long-lived assets, store equipment, leasehold improvements, property, goodwill and other intangible
assets-
The Company periodically evaluates the values of long-lived assets, (store equipment, leasehold improvements,
property, goodwill and other intangible assets), to determine whether there is indication of potential impairment. The
recovery value represents the amount of potential net income expected to be generated as a result of assets used or
disposed of. If the restated values are deemed excessive the Company records the necessary estimations to reduce
them to the recovery value. Assets to be disposed are reported in the balance sheets at the lower of the carrying
amount or realization value. Assets and liabilities of a group classified as available for sale are shown separately in
the balance sheet.
(m) Accruals-
Based on management estimates, the Company recognizes liability provisions for present obligations in which the
transfer of assets or rendering of services is virtually inevitable and an arises as a consequence of past events,
mainly for supplies and other personnel payments These provisions have been recorded based on management’s best
estimate of the amount needed to settle the present obligation; however, actual results may differ from the provisions
recognized (see note 11).
(n) Employee benefits-
Termination benefits for reasons other than restructuring and retirement to which employees are entitled are recorded
in the results of the year, based on actuarial computations using the projected unit credit method, considering
projected salaries or the projected cost of those benefits (see note 14).
The actuarial gain or loss is directly recorded in the results for the period as accrued.
Other compensation to which employees may be entitled are expensed in the year in which it becomes payable.
50 : AlseA 2008 ANNUAL REPORT
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(o) Income Taxes (Income Tax (IT), Asset Tax (AT), Flat Rate Business Tax (IETU)), and Employee’s Statutory Profit
Sharing (ESPS)-
IT, IETU and ESPS payable for the year are determined in conformity with the tax provisions in effect.
(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.
The provisions for IT or IETU, and as from January 1, 2008 deferred ESPS, are charged to income for the year as
incurred. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to timing
differences between financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and in the case of income taxes, for operating loss and asset tax (AT) carryforwards, and tax credits.
Deferred tax and ESPS assets and liabilities are measured 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 and ESPS assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
In order to determine if deferred IT or deferred IETU should be recorded, entities must identify the bases used to
be reverse in the future all differences arising from deferred taxes, and must evaluate the likelihood of payment or
recovery of each tax.
In the case of ESPS, through December 31, 2007, deferred ESPS was recognized only for timing differences arising
from the reconciliation of book income to income for profit sharing purposes, for which it was reasonably estimated
that a future liability or benefit would arise and there was no indication that the liabilities or benefits would not
materialize.
(p) Inflation adjustment of capital stock, other stockholder contributions and retained earnings-
Through December 31, 2007, the inflation adjustment of capital stock, other stockholder contributions and retained
earnings, was determined by multiplying stockholder contributions and retained earnings by factors derived from the
NCPI, which measure accumulated inflation from the dates such contributions were made or such retained earnings
arose through year end 2007, date on which change was effected to a non-inflationary economy in accordance with
FRS B-10 “Effects of Inflation”. The amounts thus obtained represented the constant value of stockholders’ equity.
(q) Additional paid in capital-
Represents the excess difference between payment of subscribed shares and the nominal value of those shares, less
expenses related to the placement of shares.
(r) Cumulative effect of deferred income tax-
Until December 31, 2007, this item represented the effect of recognition of cumulative deferred taxes as of the date
on which the respective FRS was adopted, and was shown under retained earnings from inception.
(s) 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 recognizes estimations for losses from recovery of
accounts receivable included in operating expenses and returns and discounts, which are deducted from sales.
(t) Comprehensive financing result (CFR)-
The CFR includes interest, foreign exchange gains and losses, the effect of derivate financial instruments, and until
December 31, 2007 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 sheet date. Exchange differences arising from assets and liabilities denominated in foreign currencies are
charged to income for the year.
Monetary position in 2007 was determined by multiplying the difference between monetary assets and liabilities at
the beginning of each month, including deferred taxes, by inflation at year end. The resulting amount represents the
monetary gain or loss for the year arising from inflation, applied to for the results of the year.
(u) Use of estimates-
Preparation of the financial statements requires management to 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, as well as the reported amounts of revenue and expenses for the year. Actual
results may differ from those estimates and assumptions.
(v) Contingencies-
Significant contingency-related liabilities or losses are recorded when a liability has likely been incurred and there
are reasonable elements for its quantification. When a reasonable estimation cannot be made, qualitative disclosure
is provided in the notes to the consolidated financial statements. Contingent revenue, earnings and assets are not
recognized until their realization is assured.
(x) Comprehensive income-
Represents the result of the Company’s overall activities in the year and it is comprised of net income and the
cumulative translation effect of foreign entities applied directly to stockholders’ equity.
(y) Accounting changes-
The Mexican Board for Research and Development of Financial Reporting Standards (Consejo Mexicano para la
Investigación y Desarrollo de Normas de Información Financiera or CINIF) has issued the following FRS effective for
years beginning after December 31, 2007. Early application is not permitted.
FRS B-10 “Effects of inflation”-
FRS B-10 supersedes Statement B-10 “Recognition of the effects of inflation on the financial information” and its five
amendment documents, as well as the related circulars and Interpretation of Financial Reporting Standards (IFRS) 2.
The principal considerations established by this FRS are described on the next page.
(I) Recognition of the effects of inflation – An entity operates in a) an inflationary economic environment when
cumulative inflation over the immediately preceding 3-year period is equal to or greater than 26%; and b) non-
inflationary economic environment, when inflation over the aforementioned period is less than 26%.
For case a), comprehensive recognition of the effects of inflation is required, (as with superseded Statement
B-10). For case b), the effects of inflation are not recognized; however, at the effective date of this FRS and when
an entity ceases to operate in an inflationary economic environment, the restatement effects determined through
the last period in which the entity operated in an inflationary economic environment (in this case 2008), must
be kept and shall be reclassified on the same date and using the same procedure as that of the corresponding
assets, liabilities and stockholders’ equity. Should the entity once more operate in an inflationary economic
environment, the cumulative effects of inflation not recognized in the periods where the environment was
deemed as non-inflationary should be recognized retrospectively.
(II) Price index – the use of the National Consumer Price Index (NCPI) or the change in the value of the Investment
Unit (UDI) may be used for determining the inflation for a given period.
(III) Valuation of inventories and of foreign machinery and equipment – The option to use replacement costs for
inventories and specific indexation for foreign machinery and equipment is no longer allowed.
(Iv) Equity adjustment for non-monetary assets (RETANM from Spanish) - As from the date of enactment of this FRS,
the unrealized portion of the equity adjustment for non monetary assets, which is maintained in stockholders’
equity, should be identified to be reclassified to income (loss) for the year when the originating item is realized.
The realized portion, or the total when it is not practical to identify the unrealized portion, should be reclassified
to retained earnings.
(v) Monetary Position Gains or Losses (included in Deficit/Excess in Equity Restatement - REPOMO from Spanish) is
reclassified to retained earnings on the effective date of this FRS.
The consolidated financial statements at 2007 are expressed in constant pesos of December 31, 2007, on which date
the comprehensive method for recognition of the effects of inflation was applied for the last time.
FRS D-3 “Employee benefits”-
FRS D-3 supersedes Statement D-3, “Labor Obligations”, the sections applicable to Employee Statutory Profit Sharing
(ESPS) of Statement D-4 and IFRS 4. The principal considerations established by this FRS are:
(I) Elimination of recognition of an additional liability and the related intangible asset or any comprehensive item as
a separate element of stockholders’ equity.
(II) Employee benefits are classified in four principal categories; direct short-term and long term, termination and
post-employment benefits. FRS D-3 establishes a maximum five-year period for recognizing unamortized
items while actuarial gains or losses may be recognized as earned or incurred. Unlike termination benefits,
post-employment benefits actuarial gains or losses may be immediately recognized in results of operations or
amortized over the expected service life of the employees.
(III) The use of nominal rates and the incorporation of the term salary increases due to promotions.
52 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 53
(Iv) ESPS, including deferred ESPS, is presented in the statement of income as ordinary operations, preferably under
Management considers that the initial effects of this new FRS will not give rise to significant effects.
“other income and expenses”. Furthermore, FRS D-3 establishes that the asset and liability method should be used
for determining deferred ESPS; any effects arising from the change in method are recognized in retained earnings,
without restatement of prior years’ financial statements.
As a result of adopting this FRS in 2008, intangible assets of $4,411 shown in the balance sheet at December 31, 2007
were eliminated against additional liabilities recorded. Additionally, amortization of unamortized items as from 2008
was changed to a profit of approximately $7,131.
FRS D-4 “Income Tax”-
FRS D-4 supersedes Statement D-4, “Accounting for income and asset taxes and employees’ statutory profit sharing”
and Circulars 53 and 54. The principal considerations established by this FRS are:
b) FRS B-8, “Consolidated and combined financial statements” – This FRS replaces Bulletin B-8, “Consolidated and
Combined Financial statements and valuation of permanent investment in shares”, and establishes the general rules
for preparing and presenting consolidated and combined financial statements, as well as for the disclosures included
in those financial statements, including:
(I) The obligation to consolidate companies with specific purposes (EPE from Spanish) when an entity has control.
(II) The option, under certain rules, to file non-consolidated financial statements when the controlling company
is a subsidiary with no minority interest or when the minority shareholders do not object to the fact that
consolidated financial statements are not being issued.
(III) Considers the existence of the right to potential votes that can be exercised or transferred to the entity as holder
(I) The balance of the cumulative IT effects resulting from the initial adoption of Statement D-4 in 2000 is
and that can change its participation in decision making at the time of evaluating the existence of control.
reclassified to retained earnings at January 1, 2008, unless identified with any other comprehensive item
pending reclassification. The effect totaling $78,868 was originally included into to retained earnings.
(Iv) Additionally, the regulations related to valuation of permanent investments are transferred to another statement.
(II) The accounting treatment of ESPS (current and deferred) is transferred to FRS D-3. .
Management considers that the initial effects of this new FRS will not give rise to significant effects.
FRS B-2 “Statement of cash flows”-
FRS B-2 supersedes Statement B-12, “Statement of changes in financial position” and paragraph 33 of Statement B-16.
The principal considerations established by this FRS are as follows.
(I)
Instead of the statement of changes in financial position, the financial statements shall include the statements
of cash flows for all the periods presented comparatively with those of the current year, except for financial
statements of periods prior to 2008.
(II) Cash inflows and cash outflows are reported in nominal currency units, thus not including the effects of inflation.
c) FRS C-7, “Investment in associated companies and other permanent investments” – This FRS establishes the rules
for recognition of investments in associated companies, and of other permanent investments over which there is no
control, joint control or significant influence. The main changes with respect to the former standard are:
(I)
It establishes the obligation to value Especial Purposes Entities (EPE) with significant influence through the equity
method.
(II) Considers the existence of the right to potential votes that can be exercised or transferred to the entity as holder
and that can change its participation in decision making at the time of evaluating the existence of significant
influence.
(III) Two alternative preparation methods (direct and indirect) are established, without stating preference for either
method. Furthermore, cash flows from operating activities are to be reported first, followed by cash flows from
investing activities and lastly by cash flows from financing activities.
(III) It establishes a specific procedure and a limit to recognize the losses of its associated company.
Management considers that the initial effects of this new FRS will not give rise to significant effects.
(Iv) Captions of principal items are to be reported gross, with certain exceptions; this FRS requires disclosure of the
composition of items considered cash equivalents.
Accordingly, the Company presents the statement of changes in financial position for 2007 as issued and the
statement of cash flows for 2008 under the indirect method.
FRS B-15 “Translation of foreign currencies”-
FRS B-15 supersedes Statement B-15, “Foreign currency transactions and translation of financial statements of foreign
operations”. The principal considerations established by this FRS are:
d) FRS C-8, “Intangible Assets” – Replaces Bulletin C-8 and establishes the general rules for initial and subsequent
recognition of intangible assets acquired individually through the acquisition of a business or that are generated
internally in the regular course of the company’s operations. The main changes in this standard are:
(I)
It includes the definition of intangible assets, establishing that the separation condition is not the only condition
required for an asset to be identifiable.
(II)
It specifies that subsequent expenses for research and development projects in progress should be recorded as
expenses as accrued, if they form part of the research phase, or as intangible assets, if they meet the criteria in
place to be recognized as such.
(I) Replaces integrated foreign operation and foreign entity concepts for those of recording, functional and reporting
(III) It describes in further detail the treatment for the exchange of an asset, in conformity with the provisions of
currencies, requiring that translation be made based on the economic environment in which the entity operates,
regardless of its dependency on the holding company.
international regulations and of other FRS’s.
(II)
Includes translation procedures for instances where the recording and reporting currencies differ from the
functional currency and provides for the option not to conduct such translation in companies not subject to
consolidation or valuation based on the equity method.
(III) Requires recognizing the accounting changes produced by the initial application of this standard based on the
prospective method; that is, in a non-inflationary economic environment, without modifying the translation
already recognized in the consolidated financial statements of prior periods, at the time of issue.
(z) New accounting pronouncements-
The CINIF has established the FRS specified below, in effect for years starting on January 1, 2009, without the option
for early application.
a) FRS B-7, “Acquisitions of Businesses” – Replaces Bulletin B-7 and establishes the general valuation and disclosure
rules for initial recording at the acquisition date of net assets acquired as a result of a business acquisition, reiterating
that acquisitions of businesses must be recorded through the purchase method.
(Iv) It eliminates the assumption that the useful life of an intangible asset may not exceed a period of twenty years.
Management considers that the initial effects of this new FRS will not give rise to significant effects.
(3) Foreign currency position-
Monetary assets and liabilities denominated in dollars from the United States of America (dollars) as of December 31,
2008 and 2007 were as follows:
Thousands of dollars
Assets
Liabilities
Net liability position
2008
9,205
44,238
2007
4,594
17,331
(35,033)
(12,737)
The foreing exchange rate in relation with the dollar as of December 31, 2008 and 2007 was $13.31 and $10.86,
respectively. At February 17, 2009, date of issuance of these financial statements, the exchange rate was $14.52.
54 : AlseA 2008 ANNUAL REPORT
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The exchange rates used in the different foreing currency translation processes with respect to the reporting currency
at December 31, 2008 and at the date of issuance of the financial statements, are as follows:
(7) Store equipment, leasehold improvements and property-
This item includes the following:
Country of origin
Currency
Exchange rate
Argentina
Chile
Colombia
Argentinian Peso (ARP)
Chilean Peso (CLP)
Colombian Peso (COP)
The following currencies were used for translation purposes:
At the year end
Issuance
4.09
0.02
0.006
3.86
0.02
0.006
Currency
Foreign operation (*)
Country of Origin
Recording
Functional
Reporting
Fast Food Sudamericana, S. A
Café Sirena, S. R. L.
Fast Food Chile, S. A.
Dominalco, S. A.
Operadora Alsea en Colombia, S. A.
Argentina
Argentina
Chile
Colombia
Colombia
ARP
ARP
CLP
COP
COP
ARP
ARP
CLP
COP
COP
MXP
MXP
MXP
MXP
MXP
The Company’s functional currency is the Mexican peso. The Company has investments in subsidiaries resident abroad,
whose functional currency is not the Mexican peso; therefore, in order to incorporate the results and financial position
of foreign operations into consolidation, those figures are translated into MXP.
Buildings
Store equipment
Leasehold improvements
Transportation equipment
Computer equipment
Production equipment
Office furniture and equipment
$
2008
133,452
1,550,891
2,022,795
129,260
225,086
185,140
2007
157,059
1,370,577
1,665,546
120,165
170,021
163,243
92,098
57,395
4,338,722
3,704,006
Less accumulated depreciation
(1,775,698)
(1,509,295)
Land
Construction in progress (*)
2,563,024
2,194,711
61,864
99,442
420,023
454,199
$
3,044,911
2,748,352
(4) Balances and transactions with associated companies-
(*) Relates primarily to the opening of stores and restaurants to be completed in 2009.
Accounts payable to associated companies as of December 31, 2008 and 2007 are as follows:
Accounts payable:
Starbucks Coffee International (*)
$ 67,939
$ 42,790
2008
2007
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 Latin America.
As part of this program in 2007, Alsea concluded the sale of its former main offices, as well as the final sale and
long-term lease agreements of the new corporate offices. These transactions gave rise to a gain of $5,613 which were
recorded in other expenses.
(*) This balance is mainly due to the acquisition of inventories and fixed assets and payments for the right to open
“Starbucks Coffee” stores in Mexico.
(8) Goodwill of subsidiaries companies -
As mentioned in note 2 (c), in 2007, Cool Cargo, S.A. de C.V. is no longer included as an associated company; in that
same year, the services contracted with that company amounted to $15,542.
As of December 31, 2008 and 2007, goodwill is comprised as follows:
(5) Inventories-
This item includes the following:
Food and beverages
Containers and packaging
Other
Obsolescence allowance
2008
235,900
42,748
88,056
2007
218,068
10,069
10,029
(5,180)
(2,914)
Alsea, S. A. B. de C. V.
West Alimentos, S. A. de C. V.
Operadora DP de México, S. A. de C. V.
Dominalco, S.A.
Less accumulated amortization
361,524
235,252
(9) Intangible assets-
$
$
$
2008
124,912
90,061
19,619
2,367
236,959
(16,980)
2007
124,912
90,061
19,619
-
234,592
(16,980)
$
219,979
217,612
(6) Investment in shares of associated companies-
Intangible assets as of December 31, 2008 and 2007 include the following:
At December 31, 2008 and 2007, this caption is represented by of direct equity participation in the capital stock of
the companies listed below:
Starbucks Brasil Comércio de Cafés, Ltda.
Starbucks Coffee Chile, S. A.
Equity in stockholders’ equity
2008
2007
Equity in income
for 2008
$
$
18,140
10,744
28,884
11,182
11,692
22,874
(1,079)
(948)
(2,027)
Trademarks
Pre-operating
expenses
Franchise
rights and
rights to
the use of
commercial
facilities
Licenses and
developments
Total
Balances as of December 31, 2007
$
532,757
189,669
188,266
112,884
1,023,576
Acquisitions
70,843
127,811
66,505
45,090
310,249
Less accumulated amortization
(216,240)
(167,219)
(92,067)
(75,974)
(551,500)
Balances as of December 31, 2008
$
387,360
150,261
162,704
82,000
782,325
During 2008, Alsea increased its investment in franchise rights mainly due to the acquisition of the Domino’s Pizza
56 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 57
stores in Mexico and Colombia, for the rights to open “Starbucks Coffee” stores in Mexico and Argentina and Burger
King in Colombia, as well as for the acquisition of California Pizza Kitchen. Pre-operating expenses are directly related
to the opening of new points of sale.
(13) Other expenses, net-
This item is comprised as follows:
(10) Long-term debt-
Unsecured long-term loans in Mexican pesos are as follows:
Unsecured loans
2008-2012
8.81%-12.71% $
1,790,178
1,033,450
Maturing in
Average annual
interest rate
2008
2007
(Loss) gain on fixed asset disposals, net
ESPS
Other expenses, net
Organizational restructuring accrual
2008
(32,759)*
6,820
3,894
(12,928)
(34,973)
$
$
2007
8,210
(3,899)
189
-
4,500
Less current installments
Long-term debt
660,080
334,550
$
1,130,098
698,900
* Includes an accrual for early leasehold improvements amortization amounting to $28,743.
Annual maturities of long-term debt are as follows:
(14) Labor obligations-
year
2010
2011
2012
Amount
$
$
667,348
168,750
294,000
1,130,098
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 income for the year in which
such services are rendered, based on actuarial computations.
The Company has not set up a trust to cover those benefits. The actuarial calculations are summarized below:
Benefits 2008
Termination
Retirement
Total
Bank loans establish certain obligations to do and not to do, and to keep certain financial ratios. As of the date of the
financial statements, all such obligations had been complied with.
Defined benefit obligations (projected in 2007)
$
Transition obligation and unamortized items
24,848
6,745
18,933
10,591
43,781
17,336
24,334
4,897
(11) Accruals-
Accruals are comprised as follows:
Salaries and other
employee payments
Supplies and others
Total
Balances as of December 31, 2007
Increases charged to operations
Payments
Balances as of December 31, 2008
$
$
82,571
63,412
(89,504)
294,235
387,402
(265,075)
376,806
450,814
(354,579)
56,479
416,562
473,041
(12) Comprehensive financing result-
This item is comprised as follows:
Interest expenses, net
Foreign exchange (loss) gain, net
Favorable monetary effect (1)
2008
(115,444)
(83,914)
4,958
2007
(47,225)
5,097
5,063
(194,400)
(37,065)
$
$
(1) In 2008, it corresponds to the favorable effect on monetary position arising from the subsidiaries established in
Argentina, which, in conformity with FRS B-10 and the inflation level accumulated in the preceding three years, are
considered to be operating in an inflationary economic environment.
Current net liability
$
18,103
8,342
26,445
19,437
The net cost for the period is comprised as follows:
Labor cost
Financial cost
Amortization of transitory obligation
Net cost for the period
Benefits 2008
Termination
Retirement
Total
$
$
14,745
1,331
(8,980)
4,022
1,151
1,849
18,767
2,482
9,871
685
(7,131)
835
7,096
7,022
14,118
11,391
Following is a reconciliation of defined benefit obligations (DBO) at the beginning of 2008 and at the end of that year:
Initial DBO balance
Labor cost of current services
Financial cost
Actuarial gains and losses for the period
Advance reductions and severance payments
Benefits paid
Other
Final DBO balance
At December 31, 2008, vested obligations total $351.
Benefits 2008
Termination
Retirement
$
$
20,125
14,745
1,331
(21,087)
16,771
(7,108)
71
24,848
14,383
4,052
1,151
(651)
-
(2)
-
18,933
58 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 59
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
Average expected labor life (years)
* Includes future compensation levels.
Benefits
2008
8.0%
9.4%*
7.4
2007
9.0%
0.5%
7.3
(15) Income Tax (IT), Asset Tax (AT), Flat Rate Business Tax (IETU) and Employees’ Statutory Profit Sharing (ESPS)-
On October 1, 2007, new laws were published a number of tax loss were revised, and a presidential decree was issued
on November 5, 2007, all of which came into effect as from January 1, 2008, the most important change are: (i) the
derogation of the AT Law and (ii) the introduction of a new tax (Flat Rate Business Tax or IETU) which is based on cash
flows and limits certain deductions, as well tax credits are granted mainly with respect to inventories, salaries, taxed
for IT and social security contributions, tax losses arising from accelerate deduction, recoverable AT and deductions
related to investments in fixed assets, expenses and deferred charges and expenses.
On the basis of the foregoing, as from 2008, companies must pay the higher of IETU and IT. When IETU is payable,
said payment is considered final and not subject to recovery in subsequent years. The IETU rate is 16.5% for 2008,
17% for 2009 and 17.5% for 2010 and subsequent years.
Under tax legislation in effect at December 31, 2007, companies were required to pay the higher of IT and AT. Both
taxes recognize the effects of inflation. The Company determines IT on a consolidated basis.
Given that in accordance with Company estimates that the tax payable in the following years is the IT, deferred tax at
December 31, 2008 and 2007 was calculated on the basis of IT.
The expense for income tax is comprised as follows:
IT on tax bases
Deferred IT
2008
2007
$
$
160,180
287,649
(107,032)
(119,240)
53,148
168,409
The tax expense attributable to income before IT differed from the amount that would have been computed by
applying the Mexican rate of 28% in 2008 and 2007, 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
2008
2007
28%
8%
(9%)
0%
(9%)
5 %
23%
28%
2%
1%
1%
(8%)
1%
25%
Deferred tax (assets) liabilities:
Allowance for doubtful accounts
Liability accruals
Advance payments from customers
Net operating tax loss carryforward, net of
valuation allowance
Recoverable AT
Store equipment, leasehold improvements and property
Other assets
Prepaid expenses
IT
2008
2007
$
(3,152)
(1,248)
(139,954)
(118,736)
(301)
(1)
(70,268)
(42,415)
(70,169)
21,597
11,175
(52,632)
(42,388)
(65,284)
78,257
3,646
Net deferred tax (asset) liability
(293,487)
(198,386)
Income tax payable on reinvested earnings
498
466
Asset recognized in the balance sheet
$
(292,989)
(197,920)
The valuation allowance at December 31, 2008 and 2007 was of $159,196 and $161,009, respectively. The net
change in the valuation reserve at December 31, 2008 and 2007 was a reduction of $1,813 and an increase of
$49,837, respectively.
At December 31, 2008 and 2007, the Company generated a deferred ESPS asset, which was fully reserved by
management due to of the uncertainty of its realization.
The Company has not recorded a deferred tax liability related to the undistributed profits of its subsidiaries, recorded
by the equity method, arising in 2008 and previous years, since it currently does not expect said undistributed profits
to revert and become taxable in the near future. Said deferred liability will be recognized at the date on which the
Company expects to receive said undistributed profits and when they are taxable, as in the case of the sale or disposal
of its investment in shares.
(16) Stockholders’ equity-
The main features of stockholders’ equity are described below:
(a) Capital stock structure-
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)):
Balances as of December 31, 2006
623,105,196 $
536,623
1,090,334
Thousands of pesos
Number of
shares
Capital stock
Additional paid -
in capital
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, 2008 and 2007 are shown below:
Shares repurchased in 2007
(4,448,400)
(2,259)
-
Balance as of December 31, 2007
618,656,796
534,364
1,090,334
Shares repurchased in 2008
(10,662,200)
(5,331)
-
April 2008, decree and payment of dividends in shares
9,967,388
4,984
138,546
Balances of December 31, 2008
617,961,984 $
534,017
1,228,880
In April 2008 and 2007, dividends were declared in the amount of $143,530 and $67,840, respectively.
60 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 61
The minimum fixed portion of capital stock is comprised of Class I shares, and the variable capital stock is comprised
of Class II shares, which shall, at no time, exceed ten times the minimum capital stock with no withdrawal rights.
(d) As a result of a service agreement, until December 31, 2007, the Company was required to pay compensation
based on net food sales. That compensation ranges from 2.5% to 5.25% (note 17(f)).
As of December 31, 2008, the subscribed fixed and variable capital stock are comprised of 617,961,984 common,
nominative shares with no par value, are shown below:
Number of shares
Description
Amount
489,157,480
Fixed capital stock
144,140,828
Variable capital stock
(15,336,324)
Repurchased shares (nominal value)
617,961,984
Nominal capital stock
Increase for inflation adjustments (note 2(p))
Capital stock as of December 31, 2008
$
$
244,578
72,070
(7,668)
308,980
225,037
534,017
The National Banking and Insurance Commission established a procedure enabling companies to repurchase their
own shares, for which a “stock repurchase reserve” should be set up, and chargeable to retained earnings. The total
of repurchased shares should not exceed 5% of the total released shares, and these shares must be replaced in a
maximum period of one year and will not be included in the dividend payment. In 2008 and 2007, the Company
repurchased 10,662,200 and 4,448,400 shares amounting to ($125,748) and ($70,258), respectively.
Contingent liabilities:
(e) Alsea is 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 position.
(f) Through its subsidiary Operadora de Franquicias Alsea, S. A. de C. V. (OFA), Alsea filed in 2007 and 2008 an
appeal compliance with the injuction sentence relative to application of the 0% value added tax (VAT) rate to the
sale of food products. Application of this rate generated a favorable VAT balances for OFA, for which a refund is
expected (note 17(d)).
(g)
In September 2008, Alsea was notified of a law suit related to the acquisition of Italiannis, which did not take
place because the seller failed to comply with the respective conditions and obligations. The suit basically seeks
compulsory compliance with the terms of the agreement. Alsea considers this stance to be invalid, and has filed a
countersuit and started the necessary legal procedures to defend itself. The consequences of the litigation cannot
be determined presently by the Company and its legal advisors, and therefore no reserve has been recorded in
the financial statements at December 31, 2008.
(18) Financial information per segment-
Alsea organizes its business segments into three operating divisions, namely the sale of food and beverages in Mexico
and South America, and distribution services. These divisions share the same management.
The Company’s own available repurchased shares are reclassified to capital contributions.
Segment information is as follows (amounts in millions of pesos):
(b) 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, and consists of offering Company’s officers the right to receive the appreciation rights on 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 a 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 officers 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.
For the year ended December 31, 2007, Alsea modified the stock option plan for its executives, replacing it with a
deferred compensation paid in cash.
At December 31, 2008, total provision for the 2005 share purchase plan totaling $7,719 is recorded under the
“provisions” caption.
(c) Restrictions on stockholders’ equity-
I)
Five percent of net income for the year must be appropiated to the the legal reserve, until it reaches one-fifth of
the Company’s capital stock. As of December 31, 2008, the legal reserve amounts to $80,482.
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 28% income tax rate on the amount
resulting from multiplying the dividend paid by the factor of 1.3889. The tax arising from dividends not paid
from CUFIN is payable by the Company and may be offset against the IT for the year in which it is paid or the
two subsequent years.
(17) Commitments and contingencies-
Commitments:
(a) The Company leases the facilities that house its stores and distribution centers, as well as certain equipment
under limited-term lease agreements. In December 2007, was concluded the definitive agreements of sale and
long-term lease, of their corporate offices. Rental expenses amounted to $601,941 and $459,175 in 2008 and
2007, respectively. Rental expenses for 2009 are estimated to amount $748,105. 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(k)).
(c) 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.
Food and Beverages
Mexico
South America
Distribution
Eliminations
Consolidated
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
External income
$5,738
5,389
972
642
1,065
955
11
- $7,786 $6,986
-
-
-
-
1,890
1,665 (1,890)
(1,665)
-
-
5,738
5,389
972
642
2,955
2,620 (1,879)
(1,665)
7,786
6,986
5,024
4,552
899
569
2,752
2,406 (1,921)
(1,693)
6,754
5,834
Inter-business
income
Operating costs
and expenses
Depreciation and
amortization
450
359
Operating income
$264
478
Other income
statement items
Majority net
income
69
4
40
33
28
29
175
185
26
16
8
573
436
20
$459
$716
(330)
(238)
$129
$478
Assets
$5,093
4,423
672
269
961
589 (1,274)
(1,076)
$5,452 $4,205
Investment
in associated
companies
Investment in
fixed assets and
intangibles
-
-
29
23
-
-
-
-
29
23
628
869
223
140
69
61
(2)
(3)
918
1,067
Total assets
$5,721
5,292
924
432
1,030
650 (1,276)
(1,079)
$6,399 $5,295
The result for discontinuation of Food and Beverages is ( $34,134) and the net consolidated result for discontinuation
is ($35,008).
62 : AlseA 2008 ANNUAL REPORT
Now IS ThE TIME : 63
(19) Pro forma information on business acquisitions-
Condensed pro forma consolidated financial information is shown below as if the acquisitions of Domino´s Pizza
Colombia and Calpik had been completed in 2008 and 2007 (see note 1(a)).
December 31, 2008
Pro forma
adjustments
(unaudited amounts)
Pro forma figures
(unaudited amounts)
96,977
(8,977)
(8,977)
(711)
(8,266)
7,883,820
165,562
130,554
10,041
120,513
0.20
December 31, 2007
Pro forma
adjustments
(unaudited amounts)
Pro forma figures
(unaudited amounts)
90,748
(16,266)
(16,345)
(1,347)
(14,998)
7,076,151
495,803
472,796
9,359
463,437
0.75
Base figures
7,786,843
174,539
139,531
10,752
128,779
0.21
Base figures
6,985,403
512,069
489,141
10,706
478,435
0.77
$
$
$
$
Income
Income from continuous operations
Consolidated net income
Minority interest
Majority net income
Net earnings per share
Income
Income from continuous operations
Consolidated net income
Minority interest
Majority net income
Net earnings per share
(20) Subsequent events-
In January 2009, Starbucks Coffee International “SCI” confirmed that it would not take the purchase option this
year, for which it has the right to increase its participation in Starbucks Coffee México from 18% to 50%. Under the
agreement, the effective date for SCI to exercise that option is September 2012.
INVESTOR INFORMATION
INvESTOR RELATIONS
Diego Gaxiola Cuevas
Corporate Finance
ri@alsea.com.mx
Tel. (5255) 5241 7158
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 2008 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.
SEIzE THE MOMENT
COME HAvE COFFEE WITH US!
Valid in all Starbucks Coffee stores in
Mexico and the United States of America
All efforts are important, and
although the press run of this report
is relatively small, we reiterate our
commitment to the environment by
using environmentally-safe materials.
The following are savings resulting
from the use of recycled fiber. We
used 617.4 lb of paper -meaning 10%
recycled material- thereby allowing
us to:
1 tree preserved for
the future
252 gal wastewater
flow saved
28 lbs solid waste
not generated
7,656,800 BTUs energy
not consumed
This report was printed
on Cougar paper, FSC
certified, elementally
chlorine and acid-free.
PhOTOGRAPh:
DESIGN:
Frank Lynen
Mr. José Rivera Río Rocha
Chief Financial Officer
Mr. Arturo A. Barahona Oyervides
Chief Executive Officer
Mr. Abel Barrera Fermín
Corporate Comptroller
64 : AlseA 2008 ANNUAL REPORT
www.alsea.com.mx
Av. Paseo de la Reforma 222-3er piso
Torre 1 Corporativo
Col. Juárez, Del.Cuahtémoc
C.P. 06600, México D.F.
Tel. (5255) 5241 7100