Alsea, S.A.B. de C.V. Annual Report 2013

FY2013 Annual Report · Alsea, S.A.B. de C.V.

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GRI 2.1, 2.2, 2.6

EXPANDING OUR HORIZONS

2013 was a record year in acquisitions,
as well as organic growth. Thanks to our
successful business model and diversification
strategy, we were able to “Expand Our
Horizons” in line with our strategic areas,
which has allowed us to go beyond our
clients’ expectations, drive our employees’
development, and ensure a synergy that
maximizes our critical mass, while also
ensuring the profitable and sustainable
growth of the organization, being recognized
as a socially responsible company.

OUR PROFILE

Alsea is the leading restaurant operator in Latin America
with global leading brands in the Quick Service

Coffee Shop

and Casual Dining

segments.

ALSEA IS LIKE A

It is the strength that aligns and structures the brands,

endowing them with energy and direction to achieve their

goals, driving them to work every day, enriching the life of its

consumers creating special moments for them.

2013 ANNUAL REPORT
EXPANDING OUR

HORIZONS

628

UNITS

590
38

Mexico
Colombia

Coming soon

2014

537

UNITS

413
71
53

Mexico
Argentina
Chile

558

UNITS

436
72
34
16

Mexico
Argentina
Chile
Colombia

Touching people,
enriching moments

UNITS

Mexico

Has 1,862 units
and over 32,000
employees

UNITS

Mexico

UNITS

13
1
1
1

Mexico
Chile
Argentina
Colombia

UNITS
Pei Wei
Mexico

The primary logo lock up

UNITS

Mexico

The secondary logo lock up

GRI 2.2, 2.3, 2.5 2.7, 3.8

GRI 2.8

FINANCIAL
HIGHLIGHTS(1)

INCOME STATEMENT

Net Sales

Gross Profit

Operating Income

EBITDA (2)

Consolidated Net Profit

BALANCE SHEET

Total Assets

Cash

Liabilities with Cost

Major Shareholder’s Equity

PROFITABILITY

ROIC(3)

ROE(4)

STOCK INFORMATION

Share Price

Earnings per Share

Dividend per Share

Book Value per Share

Shares Outstanding (millions)

OPERATION

Number of Units

Employees

CAGR(5)
10 years

Annual
Growth

2013

2012

100.0%

64.8%

5.9%

11.9%

3.0%

100.0%

9.5%

33.9%

46.1%

19.1%

21.2%

16.5%

17.8%

18.9%

100.0%

66.7%

7.1%

13.0%

4.2%

100.0%

5.4%

40.7%

34.5%

16.3%

19.7%

39.9%

26.7%

65.1%

26.4%

(28.9)%

52.0%

(5.5)%

15,718.5

10,490.8

1,115.1

2,038.2

663.3

12,381.7

663.3

5,043.6

4,271.4

3.1%

4.0%

11.7%

14.5%

58.2%

73.0%

0.0%

(5.5)%

0.0%

40.79

0.99

0.5

6.21

687.8

12.8%

16.0%

31.0%

17.2%

1,862

32,362

13,519.5

8,764.2

797.3

1,608.6

401.8

9,797.6

932.6

3,317.2

4,520.7

8.6%

10.5%

25.78

0.57

0.5

6.57

687.8

1,421

27,619

(1) Figures in millions of pesos under IFRS, except per share data per, number of stores and employees.
(2) EBITDA is defined as operating income before depreciation and amortization.
(3) ROIC is defined as operating income after taxes over net operating investment
(total assets - cash and cash equivalents - no-cost liabilities).
(4) ROE is defined as net profit over major shareholders’ equity.
(5) CAGR Compound Annual Growth Rate 2004-2013.

Generating value to
our Shareholders

2013 Alsea Annual Report |

STRATEGIC
PLANNING

BUSINESS MODEL

GRI 2.2, 2.3, 2.5, 2.6, 2.7, 2.10, 4.8

Alsea (BMV: ALSEA*) is the leading restaurant operator in Latin America with leading global brands
in the Quick Service Restaurant (QSR), Coffee Shop and Casual Dining segments. The company has a
multi-brand portfolio including Domino’s Pizza, Starbucks, Burger King, Chili’s, California Pizza Kitchen,
P.F. Chang’s, Pei Wei, Italianni’s and The Cheesecake Factory.

At the end of 2013, the company operated a total of 1,862 units in Mexico, Argentina, Chile, Colombia
and shortly in Brazil. Alsea’s business model includes support for all the units through a Shared
Services and Support Center that provides support in Management and Development Processes, as
well as the Supply Chain. The company has more than 32,000 employees in five countries.

Alsea holds the “Socially Responsible Company” distinction, and is one of the top 20 “Best Places to
Work” in Mexico.

MISSION

To have a team that is committed to exceeding our clients’ expectations.
“Touching people, enriching moments”.

PRINCIPLES

• The customer comes first
To serve our customers with respect and passion for excellence in service.

• Respect and loyalty to our coworkers and the company
To create a unified, respectful and unbiased work environment that is closely tied to the operations.

• Personal excellence and commitment
To always act honestly, austerely and fairly, without putting personal interests first.

• Results oriented
To always make strategic decisions that are for the good of the Company in order to improve results.

STRATEGIC AREAS

• Clients: Exceed our customers´ expectations through an unequalled experience in product, service and image.

• People: Encourage the personal and professional development of our employees.

• Synergy: Ensure synergy, maximizing critical mass in collaboration with our strategic partners.

• Results: Ensure the Company’s profitable and sustainable growth.

• Social Responsibility: Be recognized by our clients and employees as a Socially Responsible Company.

CLIENTS

BRANDS

OPERATIONS

MARKETING

RECRUITMENT
AND TRAINING

SUPPORT

Supply
Chain

Real Estate and
Development

Finance

Human
Resources

Information
Technology

ALSEA UPPER MANAGEMENT
Corporate Strategic Planning

CORPORATE GOVERNANCE
BOARD OF DIRECTORS
Audit Committee Corporate Practices Committee

2013 Alsea Annual Report || 2013 Alsea Annual Report
04

PRESENCE IN THE FIVE
MOST IMPORTANT MARKETS
OF LATIN AMERICA

1,575

Units

144

Units

2014

Business
start-up

Net Sales
million pesos

EBITDA
million pesos

Net Income
million pesos

$15,719

$2,038

$663

$13,520

$10,669

$8,948

$1,609

$1,260

$1,003

$402

$230

$159

SALES PER BRAND
2%

GRI 2.3, 2.5, 2.7, 2.8

32%

17%

28%

CASUAL DINING

Chili’s

Italianni’s

P.F. Chang’s / Pei Wei

California Pizza
Kitchen

QSR

28%

17%

Burger King

Domino’s Pizza

COFFEE SHOPS

32%

Starbucks

DISTRIBUTION AND PRODUCTION

DIA

2013 Alsea Annual Report || 2013 Alsea Annual Report 06

MESSAGE
FROM THE CHIEF
EXECUTIVE OFFICER

Dear
shareholders

It is a pleasure to share with you our results for the year 2013, a year
full of achievements and a high dynamism for Alsea, in which we
managed to expand our horizons, as well as our growth opportunities,
through different organic growth and acquisitions initiatives.

These will allow us to continue increasing the profitability of the
company year after year and generate a greater value for you, our
shareholders.

A record year in terms of acquisitions

• As part of our diversification strategy, we acquired 25% of

Grupo Axo, a company that operates 16 brands in the fashion,
cosmetic and household goods segments in Mexico. As a result,
the company will leverage its strategic capabilities and business
model maximizing synergies in its different processes.

2013 was the year when the acquisitions that we managed to close
led us to expand our horizons, becoming our record year, with
a total Capex investment close to 3.6 billion pesos. The following
acquisitions were closed:

• We achieved an agreement with Burger King to acquire 97

stores and the master franchise rights for Mexico. As a result, we
consolidated Alsea’s business model, gaining control over the
brand in the Mexican market since April.

• We agreed to acquire the stakes of Starbucks in Mexico,

Argentina and Chile, so Alsea now has a 100% stake in those
markets, which positions us as Starbucks´s major business
partner in the region.

Additionally, we reached an agreement with Starbucks for the
development and operation of the brand in Colombia, with P.F.
Chang´s for the development and operation of the brand in Brazil,
as well as an agreement with Walmart Mexico to acquire the VIPS
restaurant business, including a total of 361 units of Vips, El Portón,
Ragazzi and La Finca brands, with which Alsea will be able to reach
more than 2,200 units and almost fifty thousand collaborators.

Last year we were thrilled to close these transactions and
agreements and now we are excited about the growth
opportunities that these projects will give us in the future. We
will manage to capitalize these projects thanks to our employee’s
experience and the successful business model we run, expanding
our horizons.

Profitable Growth

By the end of the year, we operated 1,862 units, representing a net
growth of 441 units, out of which 1,411 are corporate units and 451
are sub-franchises. These units are profitably operated with the
support and assistance of more than 32,000 employees in five
countries. Thanks to their support we obtained very good results
throughout the year.

Facing a challenging macroeconomic environment, especially in the
consumer good segment, in 2013 we achieved a growth of 8.0% in
same-store sales and a net increase of 250 corporate units, which
allowed us to expand our margins and have an important growth in
our profitability.

Financial Results

At the end of 2013, net sales increased 16.3% to 15.7 billion pesos
in comparison to the previous year. This increase is derived from
the increase in the number of units, both due to openings and
acquisitions, as well as the growth in same store sales.

During the year, gross profit increased 1.7 billion pesos to 10.4
billion pesos, with a gross margin of 66.7%. Additionally, EBITDA
grew 26.7% to 2.0 billion pesos at the end of 2013, which resulted
in an increase of 110 basis points, ranging from 11.9% in 2012 to
13.0% during 2013.

GRI 1.1, 1.2, 2.8, 2.9, 3.11

Capex 3.6
billion pesos:
record year in
acquisitions
and organic
growth

15.7

BILLION PESOS IN NET SALES

INCREASE

26.7%

IN EBITDA VS
THE PRIOR YEAR

13.0%

EBITDA MARGIN

8.0%

GROWTH IN
SAME-STORE
SALES

1,862

UNITS

2013 Alsea Annual Report || 2013 Alsea Annual Report 08

GRI 2.9, 2.10, 4.12, EC8, EN5

The best moments
in the best company

Majority net income also increased during the year, increasing
86.6% equivalent to 316 million pesos, closing at 681 million pesos.
Earnings per Share, “EPS”, for the past 12 months increased to 0.99
pesos compared to the previous year, having a growth of 73%.
Also, Alsea managed to have an important improvement in its
profitability metrics, closing 2013 with a Return on Equity, “ROE” of
14.5%, which represents an increase of 400 basis points.

A Promising Future

For 2014, we estimate to invest a total of approximately 1.8 billion
pesos in our organic growth and maintenance capex of our existing
units. Additionally:

• We will carry on with our successful development plan, which

envisages the opening of 130 units of different portfolio brands
for 2014.

• During the next years, Alsea will consolidate the 2013

acquisitions, and in the same regard, for 2014 our brand
P.F. Chang’s, will start operating in Brazil, and so the company
will start expanding in this key market, expanding our potential
of future growth within the Casual Dining segment.

• Also, we will open our first The Cheesecake Factory unit in
Mexico, a prestigious brand which has the highest volumes
per unit in the world. Since we have the rights to develop the
brand in Latin America, this project will represent a new growth
channel in the medium term for Alsea.

• In compliance with the long-term commitment with our

business partners, the first Starbucks unit will start business in
Colombia, helping us to consolidate our growth in South America;
specifically we are strengthening our business model in a market
as important as the Colombian, supporting the project with our
experience with this brand in Mexico, Argentina and Chile.

• Once the process of acquiring VIPS ends, we will accelerate
the growth of the company with the incorporation of the
361 restaurants included in the operation, including the
administrative office in charge of the standardization of products,
bulk purchases, centralization of supplier delivery, as well as the
manufacturing of dressings, soups and desserts. Through the
Vips and El Portón formats, we will manage to supplement our
portfolio offer, seeking to serve the medium-low class, which, we
believe, will have important growth rates in line with the growth
of the Mexican economy.

SHARE - PRICE
PERFORMANCE

$45

$40

$35

$30

$25

$20

$15

$10

Dec-11

Jan-12

Feb-12

M ar-12

Apr-12

M ay-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

M ar-13

Apr-13

M ay-13

Jun-13

Jul-13

Aug-13

Sep-13

AVERAGE VALUE
TRADED IN 2013

$56 MILLION PESOS

58.2%

SHARE PRICE
GROWTH

3RD SHARE

WITH THE HIGHEST
PERFORMANCE IN 2013

Oct-13

Nov-13

Dec-13

Social Responsibility

We are aware of the new challenges in environmental, financial and
social aspects; therefore, we are continuously working to expand
our horizons and go beyond what our stakeholders demand from
us, through our Social Responsibility Committee and our Quality
of Life, Responsible Consumption, Environmental and Community
Support Commissions.

During 2013 we achieved:

• To be honored for the second consecutive year with the Socially

Responsible Company distinction by CEMEFI.

• For the first time we are part of the Mexican Stock Exchange

Sustainability Index.

• Be part –for the third consecutive year- of the United Nations

Global Compact, operating in compliance with the guidelines of
its Principles.

• Celebrate the first anniversary of the “Va por mi cuenta” - “It’s
on me” initiative, a social movement that contributes to ending
child malnutrition in Mexico. We have successfully opened three
children Dining Rooms in the cities of Metepec, Chalco and
Ecatepec in Estado de Mexico, which serve more than 130,000
nourishing meals to children living in extreme poverty. The 4th
“Our Dining Room” is currently under construction in Mexico City,
to serve 330 children more. Our employees donated volunteer
work equivalent to 20,000 hours.

• In terms of Responsible Consumption, we made nutrition facts of
the main Alsea brand products accessible to all our consumers.

• Concerning the Environment, we have included 803

establishments in our energy program, saving almost 12.5 millions
of kWh of electricity.

• Thanks to our Quality of Life programs, Alsea was included in the
Great Place to Work ranking in Mexico as one of the top 20 Best
Places to Work in the category of 5,000+ employees.

We are committed to improving our corporate governance practices,
not only to comply as we do now with all the legal rules of the
Stock Market, but also to excel them.

3RD

YEAR IN THE
IPC INDEX

The future is full of opportunities that we will efficiently leverage by
combining the support and approach of our team, the positioning
and strength of our brands, as well as the flexibility and support
through our business model of shared services.

On behalf of the more than 32,000 employees that are part of
Alsea, we appreciate your trust and support. We will continue being
focused on engaging in initiatives and actions that generate value
to all our shareholders, employees, consumers, strategic partners
and the community in general, always expanding our horizons.

Fabián Gosselin
Chief Executive Officer
March 2014

2013 Alsea Annual Report || 2013 Alsea Annual Report 10

GROWING BEYOND
THE HORIZONS

In 2013, Alsea showed a broad
dynamism, achieving a net
growth of 441 units, out of
which 250 where corporate
units, which represented
greater margins and
profitability for the company.
For 2014, the Company
estimates an organic growth
plan of more than 130 units.

Acquisition of 100% of the Starbucks stakes in Mexico,
Chile and Argentina, to become Starbucks’s major
business partner in the region.

Furthermore, the Company reached an agreement with
Starbucks for the development and operation of the
brand in Colombia.

Acquisition of 97 stores in Mexico
and the master franchise rights in the
country, consolidating thereby Alsea’s
business model.

Record year in
acquisitions
Capex 3.6

billion
pesos

GRI 1.1, 1.2, 2.2, 2.9, 3.11

A PROMISING
FUTURE

Entrance to the Brazilian
market, start of operations
with P.F. Chang’s

Net growth of

441

units

Development of
The Cheesecake Factory
in Mexico

Increase of

250

corporate units

Opening of Starbucks in
Colombia

DIVERSIFICATION

The diversification strategy will originate a
new growth curve in the medium and long
term, expanding the horizons towards
other retail segments.

Alsea acquired 25% of Grupo Axo, leading
company in the merchandising and
distribution of international brands in the
fashion, cosmetics and household goods.

2013 Alsea Annual Report || 2013 Alsea Annual Report 12

GRI 2.8, 2.10, 4.8, LA1, LA13, HR4

UNLIMITED TALENT
AND COMMITMENT

In 2013, as a result of its ongoing
work in favor of its employees’,
quality of life and development, Alsea
was recognized in Mexico as one of
the top 20 “Best Places to Work”.

Alsea always acts ethically and
responsibly, promoting personal
and labor balance in and outside
the company, as well as a culture of
fairness and diversity throughout
the organization. The Code of
Conduct guarantees equality of
opportunities, respect and non-
discrimination.

Percentage of
Men and Women

37%
8,630
Women

63%
14,405
Men

*The information about the percentage of men and women,
permanent employment contract and average age is only for Mexico.

TOTAL
EMPLOYEES
32,362

INCREASE OF

VS PRIOR YEAR

17%

Permanent
employment
contract

Temporary
employment
contract

75%
25%
25

Years of age
on average

25 Years or less
26 to 34
35 to 44
45 to 54
55 or more

57%
28%
11%
3%
1%

2013 Alsea Annual Report || 2013 Alsea Annual Report 14

EXPANDING
THE HORIZONS
OF PROFITABILITY

SHARE
PRICE

$40.79

VAR
58.2%

$25.78

$14.08

$12.93

DEC 10 DEC 11 DEC 12 DEC 13

Third consecutive
year in the
IPC Index

INCREASE IN THE
AVERAGE DAILY
VALUE TRADED

150%

VS 2012

Listed for the first
time in the IPC
Sustainability Index
of the Mexican Stock Exchange

GRI 2.8, 2.9, 2.10

$2.5 BILLION PESOS

LOCAL BONDS ISSUED
TO 5 YEARS

DEBT
STRUCTURE
$5.0

BILLION
PESOS

58%

14%

11%

Sales per
country

20%

73%

26.7% GROWTH

IN EBITDA MARGIN TO 2.0 BILLION PESOS
INCREASE OF 110 PBS

88.6% GROWTH

IN GROSS PROFIT TO 663 MILLION PESOS

ROE
14.5%

ROIC
11.7%

1415162013 Alsea Annual Report || 2013 Alsea Annual Report
16

GRI 2.8

ADDED VALUE
THAT BROADENS THE HORIZONS

6.8%

INCREASE
IN AVERAGE
TICKET

Net sales increased 16.3% to 15.7 billion pesos in
2013 compared with the previous year, as a result of
customer satisfaction, which also results in a growth
of 8.0% in Same-Store Sales.

Starbucks Mexico and Domino’s Colombia had the
highest growth in Same-Store Sales.

8.0%

GROWTH IN
SAME-STORE
SALES

SALES OF 15.7
BILLION PESOS

16.3%

INCREASE

MORE
THAN

260
MILLION

customers served

2013 Alsea Annual Report || 2013 Alsea Annual Report 18

GRI 4.1, 4.2, 4.3, 4.4, 4.5, 4.7, 4.9, 4.10, 4.11

MESSAGE
FROM THE CHAIRMAN
OF THE BOARD

To the Board of Directors of Alsea S.A.B. de C.V.

Dear Shareholders:

Once again, Alsea, through its Board of Directors, reaffirms its commitment to be a
company that fully complies with the Code of Best Practices, to guarantee the highest
standards of Corporate Governance, building greater safety and trust among its
shareholders, as it has been since the initial public offering of our shares in the stock
market. In this manner, Alsea has managed to achieve its ambitious business plans
efficiently and profitably.

In 2013, the share price of Alsea had a positive performance, as the profit per share grew
73% compared to the previous year. During this period, Alsea conducted unprecedented
investment decisions, all in the long term, seeking to guarantee the profitable growth of
the company; to ensure that it has operating capacity to successfully accomplish these
highly important projects.

The Board of Directors, its governance bodies and management, have worked jointly to
prepare the Strategic Plan 2020, to help the company achieve the profitability and growth
expected in the market, protecting the company at all times from the implicit risks of a
challenging management, both because of its size, as well as its geographic and brand
diversification.

Alsea has proven to be a company committed to the community, the environment and the
quality of life of its employees and customers.

Likewise, the company has proven to follow responsible and solid business practices,
which has led it to be part of the Mexican Stock Exchange Sustainability Index as of 2013,
generating thereby value to the business, its employees and shareholders.

Sincerely,

Alberto Torrado Martínez
Chairman of the Board

TRANSCENDING WITH
RESPONSIBILITY
AND ETHICS

CORPORATE GOVERNANCE

Alsea’s solid structure for Corporate Governance
contributes to our development and long-term viability.

CORPORATE GOVERNANCE

10 BOARD MEMBERS

5 INDEPENDENT
BOARD MEMBERS

CHAIRMAN:
PROPRIETARY BOARD MEMBER

CORPORATE PRACTICES
COMMITTEE

AUDIT
COMMITTEE

The Board of Directors is constituted by ten members, ratified or
appointed by the General and Extraordinary Shareholders’ Meetings
held on April 13, 2013. The Board of Directors includes five independent
members and one proprietary board member as chairman.

Concerned about having an impartial approach to strategic
planning, Alsea has appointed Independent Members to the Board
of Directors, 50% of which are Independent Members, exceeding
the percentage of 25% required by the Securities Exchange Act.
The company does not have Alternate Board Members, as it is
considered that a Board Member is failing his/her duty to the rest
of the Board Members by his/her non-attendance. The company
can convene a Shareholders’ Meeting at the request of at least
25% of the Board Members.

In compliance with the Securities Exchange
Act and seeking to assist the Board of
Directors, Alsea has created two committees
acting as intermediary management bodies:
The Corporate Practices Committee and
the Audit Committee, which are made
exclusively by Independent Board Members.

The compensation framework for Alsea´s
Board Members, is fixed, and calculated
based on attendance to Shareholders´
meetings and committees to which each
Member belongs, their participation in
discussions and the effectiveness of
strategic decisions made by them.

For more information
consult the Corporate
Governance and Reports
Center sections of the
Alsea website.

Corporate
Governance

Reports
Center

2013 Alsea Annual Report || 2013 Alsea Annual Report 20

BOARD
OF DIRECTORS

CHAIRMAN
Alberto Torrado Martínez

SHAREHOLDER BOARD
Alberto Torrado Martínez
CHAIRMAN

Cosme Torrado Martínez
SHAREHOLDER

Armando Torrado Martínez
SHAREHOLDER

Fabián Gerardo Gosselin Castro
CHIEF EXECUTIVE OFFICER

Federico Tejado Bárcena
CEO STARBUCKS MEXICO

SECRETARY
Xavier Mangino Dueñas
PARTNER DIAZ RIVERA Y MANGINO, S.C.

AUDIT COMMITTEE
Iván Moguel Kuri
CHAIRMAN

Julio Gutiérrez Mercadillo
MEMBER

Raúl Méndez Segura
MEMBER

Elizabeth Garrido López
SECRETARY

INDEPENDENT BOARD MEMBERS
Marcelo A. Rivero Garza
CHAIRMAN, BRAIN STRATEGIC INSIGHT

Julio Gutiérrez Mercadillo
CHAIRMAN, GRUPO METIS

Raúl Méndez Segura
CHAIRMAN, GRUPO GREEN RIVER

Iván Moguel Kuri
PARTNER CHÉVEZ, RUIZ ZAMARRIPA Y CÍA., S.C.

León Kraig Eskenazi
DIRECTOR AND PARTNER OF IGNIA PARTNERS, LLC.

CORPORATE PRACTICES COMMITTEE
Julio Gutiérrez Mercadillo
CHAIRMAN

Marcelo A. Rivero Garza
MEMBER

León Kraig Eskenazi
DIRECTOR AND PARTNER OF IGNIA PARTNERS, LLC.

Elizabeth Garrido López
SECRETARY

GRI 4.1, 4.2, 4.4, 4.6, 4.8, 4.13, LA13, HR4, SO4, SO5, SO7

PARTICIPATION
IN CHAMBERS AND ASSOCIATIONS

• Consejo de la Comunicación, members of the board, with active participation in social benefits

campaigns.

• American Chamber of Commerce, as a guest member of the Tax Committee and the Real

Estate Development Committee.

• AMCO (Asociación Mexicana de Comunicaciones).

Alsea, contributes to the development of public policies on issues that could have an effect on
our operations, always within the framework of the law and adhering to the highest ethical
standards of each country where we are present.

The Company complies with laws and regulations governing economic competence, anti-trust
practices and the arm’s length principle, therefore it has never been penalized for failing to
adhere to them.

CODE OF ETHICS AND CONDUCT
The Code provides the guidelines through which the
company does its everyday activities, in line with its
strategic planning.

Alsea promotes a fairness and diversity
culture, and any act of discrimination for
reasons of age, color, disability, marital
status, race, religion, gender and sexual
orientation is sanctioned by the Code of
Ethics and Conduct.

Línea Correcta is the open line to receive
reports related with the violation of the
Code of Ethics and Conduct by Alsea’s
employees, as well as to report complaints
related to customer and supplier service.
All the information received is promptly
processed and responded to by the Alsea
Ethics Committee.

For more information consult
the Code of Ethics and
Conduct in Alsea´s website

2013 Alsea Annual Report || 2013 Alsea Annual Report 23

GRI 3.5, 4.14, 4.15, 4.16, 4.17

For Alsea, being socially responsible
means having a positive impact,
both inside and outside the
company. Social Responsibility
is an attitude incorporated into
all aspects of planning and
operation in the business units
that build the Company.

Quality of Life
Commission

Community
Support
Commission

Responsible
Consumption
Commission

Social
Responsibility
Committee

Environmental
Commission

RESPONSIBLE
MANAGEMENT

Alsea succeeds in its Social Responsibility
management through its Social Responsibility
structure. The Company has 70 representatives
from areas, led by the Chairman of the
Board and the Chief Executive Officer, who
meet periodically to assess the relevance of
internal and external matters and to respond
to stakeholders’ concerns, determined by the
Social Responsibility Committee.

In order to comply with our programs and initiatives, the
Committee has four Commissions: Community Support,
Responsible Consumption, Quality of Life and Environment.
This structure is already consolidated and currently has a
five-year development plan for Mexico.

The main challenge is to create specific plans and programs
for Latin America, strengthening the Social Responsibility
Strategy of Alsea.

GROUPS OF INTEREST

S
R
E
D
L
O
H
E
R
A
H
S

S
T
N
E
L
C

S
R
O
T
A
R
O
B
A
L
L
O
C

S
R
E
L
P
P
U
S

Y
T
N
U
M
M
O
C

DIALOGUE WITH
STAKEHOLDERS

Shareholders’ Meeting

Relations with Investors

Portfolio of Internal Means of Communication

Dialogue with our Communities

Electronic Media

Organizational Climate Surveys

Focus Groups

Línea Correcta*

* Phone line for complaints

ANNUAL PERMANENT

2013 Alsea Annual Report || 2013 Alsea Annual Report 24

GRI LA1, LA2, LA3, LA7, LA10, LA13

7,667

employees
internally promoted

8,222
direct
employment
contracts
created

86 hours

of training per year for
collaborators who serve
customers daily

In order to strengthen our
employees’ physical and financial
health, Alsea organized:

• Health City
• Weight challenge
• Financial Health Week
• Creation of the Maximiza

savings account

It also strengthened quality
life through:

• The alignment of the Variable

Compensation Plan for
Managers, of all brands

• The strengthening of the
“Monthly weekend off for
managers”

QUALITY
OF LIFE

Alsea is an inclusive company, where
minorities have access to the same
opportunities and possibilities for personal,
labor and financial development. As a result
it expands the horizons by incorporating
people with disabilities and the elderly to
the operations.

EMPLOYEES WITH DISABILITIES IN ALSEA

136 VS 90 IN 2012

Employees Breakdown

Staff

Operating
Staff

SUCCESS
STORY

For Salvador Torres
“Chavita”, Lobby
Manager, Burger King
is his second home
and he is proud to
have worked here
for 10 years.

93%

Number of employees

STAFF

Mexico

Latam

OPERATING STAFF

Mexico

Latam

ALSEA TOTAL

1,742

351

21,293

8,976

32, 362

2013 Alsea Annual Report || 2013 Alsea Annual Report OBJECTIVES
• Activate the Mexican youth.
• Promote physical activity.
• Stimulate through social

networks.

The wellness
program
includes three
basic pillars:

Physical
activity

OBJECTIVES
• Comply with regulatory
and standard guidelines
for quality.

• Meet clients’ needs.
• Define brand standards

and processes.

GRI PR2, PR3, PR4, PR5, PR6, PR7, PR8

ACTIONS
• Starbucks Mexico Race
(22,000 participants).
• 444,000 activations that

promote an active lifestyle
through Domino’s Pizza’s
social networks.

• Chili’s Cup (446 people).

OBJECTIVES
Guidelines for
communication
and dissemination
of programs and
advertising campaigns.

Product

Communication

ACTIONS
• Publication of nutritional

facts of products in websites.
• Innovation and improvement

of products.

ACTIONS
• Advertising and communication

at the points of purchase.

• Dissemination strategy.
• Adherence to the PABI Code

and marketing codes.

RESPONSIBLE
CONSUMPTION

Alsea expands its horizons by
contributing to consumers’
wellbeing, promoting healthy
lifestyles and a balanced
nutrition that combines
physical activity and a healthy
diet. Likewise, and voluntarily
consumers are provided with
nutritional facts of Alsea’s
main Food and Beverages
products through the brands
and Company’s websites, as
a sign of our concern for our
customers’ wellbeing.

SATISFIED CUSTOMERS

MEXICO
83.8%

MEXICO
97.1%
ARGENTINA
97.0%

MEXICO
79.4%

The primary logo lock up

MEXICO
85.8%
ARGENTINA
86.6%

CHILE
96.8%

COLOMBIA
92.4%

The secondary logo lock up

MEXICO
84.9%

MEXICO
75.0%

MEXICO
78.8%

MEXICO
82.8%
ARGENTINA
86.6%

THE CHALLENGE
FOR THE NEXT YEARS,
AS OF 2014, IS TO STRENGTHEN
OUR BRANDS’ POSITIONING IN
TERMS OF THE THREE BASIC
PILLARS ABOVE.

For more information consult the
living a balance life of Alsea’s
website

CUSTOMER
SATISFACTION
All the brands have a program that measures
customers’ level of satisfaction, in addition to
having proven customer-service and
complaint-solving procedures.

CLIENTS
No incidents involving the failure to
comply with product labeling or marketing
communications regulations, including
advertising, promotion, and sponsorship.
No complaints related to improper use of
consumers’ personal data.

2013 Alsea Annual Report || 2013 Alsea Annual Report 28

VALUE
CHAIN

SUPPLIERS
Alsea’s Procurement Department works hard
to supply the company with excellent quality
products at competitive prices, as well as to
develop and oversee our suppliers’ financial,
social and environmental practices.

80%

OF TOTAL PURCHASE IN
MEXICO COMES FROM
LOCAL SUPPLIERS

Alsea invites its suppliers to commit to
social responsibility and the chain of value,
by signing the “Letter of Compliance with
Laws and Regulations”, as part of its requi-
rements to register procurement suppliers
through which they are committed to:

• Human Rights.
• Workers’ Rights, Safety and Health.
• Civil Protection Law.
• Federal Environmental Regulations.
• Anticorruption Practices.

For more information consult
the Procurement Policy on
Alsea´s website

SUCCESS
STORY

Campo Vivo was created in 2007,
after working for many years with
organic farmers.

Alsea and Endeavor
Mexico launched
a program for the
development and
growth of suppliers.

Campo Vivo was
chosen to take part
in the program.

GRI EC6, EC9, HR1

The mission of Campo Vivo is to develop
organic farming through a strong brand
and efficient production and distribution.
Alsea helped them to obtain funding
and provided training and support on
marketing and communication.

Generating
value to our
suppliers

Launch of
product
MAY
2010

In May 2010, Campo Vivo products
were launched. These are organic,
certified products free of synthetic
chemicals, the production of
which has a lower impact on the
environment.

Direct and
Indirect Impact:

• Global sales of juice grew

more than 120%.

• Positive impact on farming,
by privileging local fruit
producers in the area.
• Creation of an important
source of employment.
• Empower women from
Jungapeo, Michoacán.

“To sum up, we could say that the global impact of Alsea
over a SME like Campo Vivo and its employees has been
strong and beneficial. We have been able to increase
our global volume, improve our product image, as well
as the credibility of our other customers, increase our
sales at self-service stores, have training activities,
increase our production capacity and be able to develop
a top HACCP control system that has allowed us to sell
our products to new clients”.

Mateo Dornier
Owner of Campo Vivo

2013 Alsea Annual Report || 2013 Alsea Annual Report 30

ENVIRONMENT

By sustainably operating its stores, Alsea expands the
horizons of environmental care, assuring profitability
through innovation and leadership on four lines of
action of its Environmental Sustainability Plan:

• Energy: Seeking to reduce energy consumption and promote

the use of renewable energy.

• Water: Optimizing water consumption by implementing better

practices.

• Waste: Minimizing the amount of waste sent to landfills,

promoting recycling and correct waste segregation.

• Inputs: Promoting the use of eco-friendly materials that
promote an eco-friendly lifestyle among consumers,
employees and suppliers.

ENERGY

ESTABLISHMENTS
HAVE HIGH
EFFICIENCY
EQUIPMENT

OF CONTROL
AND AUTOMATION

SAVING OF

762,234 L

OF LP GAS PER YEAR

12,463,577 kWh

ENERGY SAVING

*The figures mentioned in this section only
include results for Mexico.

OBJECTIVES 2013
achieved per Unit

Total
QSR

Total
Coffee
Shops

Total
Casual
Dining

Others

0.00%

-1.00%

-2.00%

-3.00%

-4.00%

-5.00%

-6.00%

-7.00%

-8.00%

-9.00%

-2.00%

-2.90%

-7.90%

-8.30%

kWh per
unit

T CO2 unit

Note: Only considers power: 87% of information calculated based on
actual consumption and 13% of estimated information based on averages
by brand. Only stores operating through November 2013 are considered
because of billing timing from CFE.-Comisión Federal de Electricidad-.

Savings in water
consumption.

Urban Context
Accessibility

Natural ventilation,
to prevent using air
conditioning inside of
the store.

Low-water
consumption toilets
and faucets.

Low-voltage
lighting

GRI 1.2, 2.10, 3.9, EN3, EN4, EN5, EN6, EN7, EN16, EN22, EN26, PR1

Eco-friendly materials
such as painting sealers
and recycled materials,
were used to build
the building and the
furniture.

SUCCESS
STORY

The Starbucks store located in
Bosque de Chapultepec is the
first Starbucks store awarded
a LEED® SILVER certification in
Mexico. It was designed and built
in compliance with the guidelines
established by the Green Building
Certification Institute (GBCI).

Efficient equipment
to save energy and
improve the quality of
the environment inside
of the store.

LEED® STORES

Besides, the company
was able to meet with
specific guidelines for the
certification of three more
stores in 2012:

• Costanera Center
• Ariztia Building
• Plaza San Carlos

LEED®, and its related logo, is a trademark owned by the U.S. Green Building Council® and is used with permission.

Alsea was recognized by the Ministry of the Environment of Mexico City for taking part in the
“Ponte las Pilas con tu Ciudad” program, and collecting batteries for the first time in the offices.

INPUTS

WASTE AND WATER

ENERGY
EFFICIENCY
INITIATIVES

•166 heaters were replaced in our
restaurants, switching to more
efficient equipments.

• 10 Domino’s Pizza and Burger King
establishments now use natural
gas instead of LP gas.

• Signing of the first contract with a
photovoltaic park through which
200 establishments in Mexico will
be supplied with green energy.

Alsea is involved with its products life cycles and
strives to minimize the impact on the environment
due to their consumption. Therefore, we promote the
use of inputs that:

• Have post-consumption or post-industrial

materials.

• Reduce associated emissions.
• Reduce to a minimum the use of packaging
and use the lower percentage of natural or
non-renewable raw materials.

We also promote the use of
• Recyclable products.
• Reused durable goods.
• FSC1 certified products.
• Electric equipment certified by Energy Star.
• Paint and sealers with a low VOC2 content and

low-mercury lamps.

1 Forest Stewardship Council.
2 Volatile Organic Compounds

COLLECTION OF

462,682 L

OF USED OIL

PREVENTING THE
POLLUTION OF

463MM

L OF WATER

2018 GOALS

REDUCTION OF

10%

ELECTRICITY
CONSUMPTION

75%

COMING FROM
RENEWABLE SOURCES

Zero
wastes

TO SANITARY
LANDFILL IN THE
PRINCIPAL CITIES

8035832013 Alsea Annual Report || 2013 Alsea Annual Report 32

COMMUNITY
SUPPORT

Alsea goes beyond the horizons by
supporting the growth and wellbeing of the
communities where it operates through:

• Community Service/ volunteering.
• Financial donations.
• Donations in kind.

DURING 2013 THE COMPANY ACHIEVED:

20,000

VOLUNTEERED HOURS

19,828

PIECES OF FOOD DONATED

21,611 KG

OF GRAINS COLLECTED
THROUGH THE CAMPAIGN
“SEMILLAS QUE
LLENAN VIDA”,
ORGANIZED BY
DOMINO´S PIZZA

AFTER THE NATURAL DISASTERS IN ACAPULCO,
GUERRERO IN 2013, ALSEA COMMITTED TO
SUPPORT THE DAMAGED COMMUNITIES, DONATING
MORE THAN 1 MILLION PESOS DESTINED TO:

• Housing reconstruction
• Food and household

goods purchase

Fundación Alsea, A.C.
reaffirms its commitment
to ensuring food security
in vulnerable communities
and promoting human
development through
education.

For more information, visit the website
www.movimientovapormicuenta.org

COMMUNITY
DEVELOPMENT

GRI 4.12, EC8

Through the alliance with Fondo para la Paz, I.A.P.,
Fundación Alsea, A.C., combats extreme poverty in
12 communities of the State of Oaxaca, providing
access to basic services, caring for and preserving
the environment, as well as developing social capital,
empowering women and reducing child malnutrition.

Celebration of the 1st
ANNIVERSARY
More than
$23 million pesos

donated

Operation of three
“OUR DINING ROOMS”
in Metepec, Chalco and Ecatepec

800 CHILDREN,
are served meals daily, as of today,
73%

of these children
have overcome
malnourishment

More than

130,000

nutritious meals served

The 4th “Our Dining Room” is
now under construction, it will serve

330 MORE CHILDREN

FOOD
SECURITY

Alsea has strengthened
its relationship with
Comedor Santa María, A.C.
consolidating the brand
“Nuestro Comedor” whose
operational model assures
that thousands of children
in extreme poverty have
access to a good daily
nutrition.

EDUCATION

Fundación Alsea, A.C., has given a 100% scholarship
for nine years, to 136 middle-school students from the
Federación Mano Amiga Chalco, A.C., who thanks to
this support are now about to complete their studies.

Also, thanks to yearly talks by Alsea leaders who
share salient life and professional stories, the
company has managed to help young people and
their families gain awareness of the fact that a
combination of hard work, study and perseverance
can help them reach their goals.

2013 Alsea Annual Report || 2013 Alsea Annual Report
34

SOCIAL
RESPONSIBILITY
CHALLENGES

To engage Latin American leaders in Social Responsibility
Management, to consolidate plans in the rest of the
countries where Alsea operates, as well as to strengthen
the actions in which the company is currently engaged.

QUALITY OF LIFE
• Consolidate the “Monthly weekend off for managers”program.
• Increase the number of disabled or elderly people in our staff.
• Keep promoting actions that guarantee that Alsea continues to be one of the

best places to work.

RESPONSIBLE CONSUMPTION
• Exceed new nutrition regulations to become industry leaders in this field.

• Strengthen activation of Alsea and its brands’ wellness approach in three basic

aspects:

- Product
- Physical Activity
- Communication

ENVIRONMENT
• Second stage of Renewable Energy Consumption.
• 1st Sustainability Exhibition for employees.
• Pilot test of Integrated Waste Management (Starbucks Mexico).
• Strengthen the waste kitchen oil collection and recycling program.

COMMUNITY SUPPORT
• Build and operate the 4th “Nuestro Comedor” located in Mexico City.
• Take “Nuestro Comedor” to other states of Mexico.
• Promote social investment programs in the countries where the company

has presence.

GRI 3.12

3.1 GRI
INDEX

Fully

Partially

GRI
Indicator

Description

Level of
reporting

Global
Compact
Principles

Page

GRI
Indicator

Description

Level of
reporting

Global
Compact
Principles

Page

Strategy and Analysis

3.4

Contact point for questions regar-
ding the report or its contents.

1.1

1.2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

Statement from the most senior
decision maker of the organization
about the relevance of sustainability
to the organization and its strategy.

Description of key impacts, risks,
and opportunities.

Organizational Profile

Name of the organization.

Primary brands, products, and/
or services.

Operational structure of the
organization, including main
divisions, operating companies,
subsidiaries, and joint ventures.

Location of organization’s
headquarters.

Number of countries where the
organization operates, and names
of countries with either major
operations or that are specifically
relevant to the sustainability
issues covered in the report.

Nature of ownership and legal form.

Markets served (including geographic
breakdown, sectors served, and types
of customers/beneficiaries).

Scale of the reporting organization
(Number of employees, operations,
net sales, total capitalization, etc.).

Significant changes during the
reporting period regarding size,
structure, or ownership.

2.10

Awards received in the reporting
period.

Report parameters

Report profile

3.1

3.2

3.3

Reporting period for information
provided.

Date of most recent previous
report.

Reporting cycle (annual, biennial, etc.).

–

7, 11, 39

7, 11, 31, 39

Foldout

Foldout,
Inside front
cover, 3, 11

Inside front
cover, 3, 5

Inside back
cover

Inside front
cover, 3, 5

Foldout, 3

Inside front
cover, 3, 5

1, 5, 7, 13, 15,
17, 39

7, 9, 11, 15

3, 9, 13, 15, 31

Inside back
cover

Report scope and boundary

Process for defining report
content (determining materiality,
prioritizing topics within the re-
port; and identifying stakeholders
the organization expects to use
the report).

Boundary of the report.

State any specific limitations on the
scope or boundary of the report.

Basis for reporting on joint ventures,
subsidiaries, leased facilities,
outsourced operations, and other
entities that can significantly affect
comparability from period to period
and/or between organizations.

Data measurement techniques and
the bases of calculations, including
assumptions and techniques un-
derlying estimations applied to the
compilation of the Indicators and
other information in the report.

Explanation of the effect of any
re-statements of information
provided in earlier reports, and the
reasons for such re-statement.

Significant changes from previous
reporting periods in the scope,
boundary, or measurement me-
thods applied in the report.

GRI Content Index

Table identifying the location
of the Standard Disclosures in
the report

Assurance

Policy and current practice with re-
gard to seeking external assurance
for the report.

3.5

3.6

3.7

3.8

3.9

3.10

3.11

3.12

3.13

–

Inside back
cover

Inside front
cover

Inside back
cover

7, 11

Inside back
cover

Governance, commitments and engagement

Governance

4.1

Governance structure of the
organization.

1-10

19, 21

2013 Alsea Annual Report || 2013 Alsea Annual Report Description

Level of
reporting

Global
Compact
Principles

Page

1-10

19, 21

1-10

4.17

Indicate whether the Chair of the
highest governance body is also
an executive officer.

For organizations that have a
unitary board structure, state
the number of members of the
highest governance body that are
independent and/or non-executi-
ve members.

Mechanisms for shareholders and
employees to provide recommen-
dations or direction to the highest
governance body.

Linkage between compensation
for members of the highest gover-
nance body, senior managers, and
executives, and the organization’s
performance.

Processes in place for the highest
governance body to ensure con-
flicts of interest are avoided.

Process for determining the
composition, qualifications, and
expertise of the members of the
highest governance body and its
committees.

Internally developed statements
of mission or values, codes of
conduct, and principles relevant
to economic, environmental, and
social performance and the status
of their implementation.

Procedures of the highest
governance body for overseeing
the organization’s identification
and management of economic,
environmental, and social perfor-
mance, including relevant risks
and opportunities, and adherence
or compliance with internatio-
nally agreed standards, codes of
conduct, and principles.

Processes for evaluating the
highest governance body’s own
performance, particularly with res-
pect to economic, environmental,
and social performance.

GRI
Indicator

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

Commitments to external initiatives

Explanation of whether and how
the precautionary approach or
principle is addressed by the
organization.

Externally developed economic,
environmental, and social charters,
principles, or other initiatives to
which the organization subscribes
or endorses.

Memberships in associations
(such as industry associations)
and/or national/international
advocacy organizations in which
the organization: has positions in
governance bodies; participates in
projects or committees; Provides
substantive funding beyond rou-
tine membership dues; or views
membership as strategic.

Stakeholder Engagement

1-10

19, 21

1-10

3, 13, 21

1-10

19, 49

19, 47

1-10

9, 33, 39,
Inside back
cover

GRI
Indicator

4.16

EC6

EC8

EC9

EN3

EN4

EN5

EN6

EN7

EN16

EN22

EN26

Description

Level of
reporting

Global
Compact
Principles

Page

Approaches to stakeholder
engagement, including frequency
of engagement by type and by
stakeholder group.

Key topics and concerns that have
been raised through stakeholder
engagement, and how the orga-
nization has responded to those
key topics and concerns, including
through its reporting.

–

Economic Performance Indicators

Aspect: Market presence

Policy, practices, and proportion
of spending on locally-based
suppliers at significant locations
of operation.

–

Aspect: Indirect economic impacts

Development and impact of
infrastructure investments and
services provided primarily for
public benefit through commercial,
in-kind, or pro bono engagement.

Understanding and describing
significant indirect economic
impacts, including the extent of
impacts.

–

Environmental Performance Indicators

Aspect: Energy

Direct energy consumption by
primary energy source.

Indirect energy consumption by
primary source.

Energy saved due to conservation
and efficiency improvements.

Initiatives to provide energy-effi-
cient or renewable energy based
products and services, and reduc-
tions in energy requirements as a
result of these initiatives.

Initiatives to reduce indirect ener-
gy consumption and reductions
achieved.

Aspect: Emissions, effluents and waste

Total direct and indirect greenhou-
se gas emissions by weight.

Total weight of waste by type and
disposal method.

Aspect: Products and services

Initiatives to mitigate environ-
mental impacts of products and
services, and extent of impact
mitigation.

Aspect: Compliance

9, 33

8-9

9, 31

8-9

7-9

1-10

EN28

Monetary value of significant fines
and total number of non-monetary
sanctions for noncompliance with
environmental laws and regulations.

Labor practices and decent work Performance Indicators

Aspect: Employment

4.14

List of stakeholder groups enga-
ged by the organization.

4.15

Basis for identification and selec-
tion of stakeholders with whom
to engage.

–

LA1

LA2

Total workforce by employment
type, employment contract, and
region, broken down by gender.

Total number and rate of new
employee hires and employee
turnover by age group, gender,
and region.

–

13, 25

Description

Level of
reporting

Global
Compact
Principles

Page

GRI
Indicator

Description

Level of
reporting

Global
Compact
Principles

Page

Aspect: Product and service labeling

Type of product and service infor-
mation required by procedures, and
percentage of significant products
and services subject to such infor-
mation requirements.

Total number of incidents of
non-compliance with regulations
and voluntary codes concerning
product and service information
and labeling, by type of outcomes.

Practices related to customer
satisfaction, including results
of surveys measuring customer
satisfaction.

–

Aspect: Marketing communications

Programs for adherence to laws,
standards, and voluntary codes
related to marketing commu-
nications, including advertising,
promotion, and sponsorship.

Total number of incidents of
non-compliance with regulations
and voluntary codes concerning
marketing communications, inclu-
ding advertising, promotion, and
sponsorship by type of outcomes.

Aspect: Customer privacy

Total number of substantiated
complaints regarding breaches
of customer privacy and losses of
customer data.

Aspect: Compliance

Monetary value of significant
fines for noncompliance with laws
and regulations concerning the
provision and use of products and
services.

–

PR3

PR4

PR5

PR6

PR7

PR8

PR9

GRI
Indicator

LA3

Benefits provided to full-time
employees that are not provided
to temporary or part-time emplo-
yees, by significant locations of
operation.

–

Aspect: Occupational health and safety

LA7

Rates of injury, occupational disea-
ses, lost days, and absenteeism,
and total number of work-related
fatalities, by region and by gender.

Aspect: Training and education

LA10

Average hours of training per year
per employee by gender, and by
employee category.

–

Aspect: Diversity and equal opportunity

LA13

Composition of governance bodies
and breakdown of employees per
employee category according to
gender, age group, minority group
membership, and other indicators
of diversity.

1, 6

13, 21, 25

Human Rights Performance Indicators

Aspect: Investment and procurement practices

HR1

Percentage and total number of
significant investment agreements
and contracts that include clauses
incorporating human rights
concerns, or that have undergone
human rights screening.

1, 6

Aspect: Non-discrimination

HR4

Total number of incidents of
discrimination and corrective
actions taken.

1-2, 6

13, 21

Society Performance Indicators

Aspect: Communities

SO4

Actions taken in response to
incidents of corruption.

Aspect: Public policy

SO5

Public policy positions and
participation in public policy
development and lobbying.

1-10

Aspect: Anti-competitive behavior

SO7

SO8

PR1

PR2

Total number of legal actions
for anticompetitive behavior,
anti-trust, and monopoly practices
and their outcomes.

Aspect: Compliance

Monetary value of significant fines
and total number of non-mone-
tary sanctions for noncompliance
with laws and regulations.

–

Product Responsibility Performance Indicators

Aspect: Customer health and safety

Life cycle stages in which health
and safety impacts of products
and services are assessed for
improvement, and percentage of
significant products and services
categories subject to such pro-
cedures.

Total number of incidents of
non-compliance with regulations
and voluntary codes concerning
health and safety impacts of
products and services during their
life cycle, by type of outcomes.

2013 Alsea Annual Report || 2013 Alsea Annual Report 39

GRI 1.1, 1.2, 2.8

THE UN GLOBAL
COMPACT’S
TEN PRINCIPLES

AREA

PRINCIPLES

Human
Rights

PRINCIPLE 1:
Businesses should support and respect the protection of internationally proclaimed human rights.

PRINCIPLE 2:
Make sure that they are not complicit in human rights abuses.

PRINCIPLE 3:
Businesses should uphold the freedom of association and the effective recognition of the right to
collective bargaining.

Labour

PRINCIPLE 4:
The elimination of all forms of forced and compulsory labour.

PRINCIPLE 5:
The effective abolition of child labour.

MANAGEMENT
DISCUSSION & ANALYSIS

CONSOLIDATED RESULTS FOR THE FULL YEAR 2013

The following table shows a condensed Income Statement in millions of Pesos (excluding
EPS), the margin of net sales that each item represents, as well as the percentage change
for the year ended on December 31, 2013, in comparison with the same period of 2012. The
information is presented according to the International Financial Reporting Standards (IFRS)
and is presented in nominal terms.

NET SALES

GROSS INCOME

EBITDA(1)

OPERATING INCOME

NET INCOME

EPS(2)

2013

Margin %

2012

Margin %

Change %

$15,718.5

10,490.8

2,038.2

1,115.1

$663.3

0.9905

100.0%

$13,519.5

100.0%

66.7%

13.0%

7.1%

4.2%

N.A.

8,764.2

1,608.6

797.3

$401.8

0.5726

64.8%

11.9%

5.9%

3.0%

N.A.

16.3%

19.7%

26.7%

39.9%

65.1%

73.0%

PRINCIPLE 6:
The elimination of discrimination in respect of employment and occupation.

PRINCIPLE 7:
Businesses should support a precautionary approach to environmental challenges.

1 EBITDA is defined as operating income before depreciation and amortization.
2 EPS is earnings per share for the last 12 months.

Sales

Environment

PRINCIPLE 8:
Undertake initiatives to promote greater environmental responsibility.

PRINCIPLE 9:
Encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

PRINCIPLE 10:
Businesses should work against corruption in all its forms, including extortion and bribery.

Net sales increased 16.3% to 15.7 billion pesos in 2013, in comparison with 13.5 billion pesos
in the previous year. This increase reflects the growth in sales of the food and beverages
segments in Mexico and South America, mainly resulting from the increase in the number
of units, both due to openings and acquisitions, as well as a growth of 8.0% in same-store
sales. These effects were partly offset by a decrease of 15.2% in the revenues with third
parties from the distribution and production segment, mainly due to the merger of Burger
King in Mexico and the decrease in same-store sales of the Burger King system.

16.3%

INCREASE IN
NET SALES

THE MILLENNIUM DEVELOPMENT GOALS

With actions developed by Alsea, the Company contributes to
the fulfillment of the following Millennium Goals:

GOAL 1: Eradicate extreme poverty and hunger.
GOAL 2: Achieve universal elementary education.
GOAL 3: Promote gender equality and empower women.
GOAL 7: Ensure environmental sustainability.
GOAL 8: Develop a global partnership for development.

Growth in brand sales was derived from the net increase of 250 corporate units in the last
twelve months, as well as the growth in same-store sales from operations in Mexico and
South America, mainly as a result of an increase in the average ticket of our brands thanks
to different commercial and price strategies implemented, as well as a higher volume of
transactions.

Cost of Sales

Cost of sales decreased during the 12 months of 2013 in comparison with 2012. The variation
of 190 basis points vs. the previous year (2012) is mainly accountable to the sales mix, i.e.
the growth of brands at a lower cost percentage, as well as the fact that the sales of DIA to
Burger King in property of third parties decreased as a result of the joint venture with Burger
King Worldwide.

NET
INCREASE OF

250

CORPORATE
UNITS

2013 Alsea Annual Report || 2013 Alsea Annual Report

GROSS INCOME OF

66.7%

EBITDA
INCREASE

26.7%

EBITDA MARGIN

13.0%

CONSOLIDATED
NET INCOME

658.5
million pesos

Gross Profit

During the full-year 2013, gross income increased 1.7 billion pesos to 10.5 billion pesos, with
a gross margin of 66.7% compared to 64.8% recorded in the previous year. The increase
of 1.9 percentage points in the gross margin is attributable to the effect on costs due to the
appreciation of the peso against dollar in the past 12 months, the price-increase strategy and
promotion of key products in some brands, as well as the business mix generated.

Operating Expenses

Operating Expenses (excluding depreciation and amortization) increased 0.9 percentage points
as a sales percentage, ranging from 52.9% during the 12 months of 2012 to 53.8% during the
same period in 2013. This increase is mainly attributed to the business mix mentioned above,
where the units with the highest sales growth are the ones that have a higher expenditure
as a percentage of sales, as well as to the increase in the operating cost of the stores, and
to a lesser extent to the increase of pre-operating expenses related to the expansion plan.
This effect was partially offset by the margin from growth in same-store sales, the operating
efficiencies achieved during the year and the increase in the number of units in operation.

EBITDA

EBITDA increased 26.7% to 2.0 billion pesos at the end of 2013, in comparison with 1.6 billion
pesos during the full-year 2012. The increase of 430 million pesos in EBITDA can be mainly
attributed to the increase of 19.7% in gross income, higher same-store sales, the increase
in number of units, an improvement in the cost of sales and operating expenses efficiencies.
EBITDA margin increased 1.1 basis points as a percentage of sales, rising from 11.9% in 2012
to 13.0% throughout 2013. This improvement in margin is attributable to higher same-store
sales, the business mix –in which the units with the highest growth also have a higher EBITDA
margin as a percentage of sales–, a higher gross margin thanks to the commercial initiatives
and price-strategies implemented by the brands in the portfolio, as well as to the resulting
operating improvements and the rise in the exchange rate.

Operating Income

During the twelve months ended on December 31, 2013, the operating income increased
40% equivalent to 317.8 million pesos, closing in 1.1 billion pesos in comparison with 797.3
million pesos in the same period of 2012.

Consolidated Net Profit

Mayority net income for 2013 increased 311 million Pesos to reach 676 million pesos in
comparison with 365 million pesos of the previous year. This increase is mainly attributable
to an increase of 318 million pesos in operating income, as well as the positive variation of 26
million pesos in the results of associated companies. Such variations were partially offset by
the increase of 21 million pesos in the all-in cost of financing and the increase of 66 million
pesos in tax on earnings. Likewise, consolidated net profit for 2013 increased considerably
in comparison with 2012, rising from 401.8 million pesos to 658.5 million pesos.

Earnings per Share

Earnings per Share, “EPS”, for the twelve months ended on December 31, 2013, increased
to 0.99 pesos in comparison with 0.57 pesos for the twelve months ended on December
31, 2012.

Results by Segment

Net sales and EBITDA are shown below by business segment in millions of pesos for the
full-years of 2013 and 2012.

Net sales by segment

2013

% Cont.

2012

% Cont.

% Var.

Food and Beverages Mexico

$10,371.3

66.0%

$8,752.2

64.7%

18.5%

Food and Beverages South America

4,219.3

26.8%

3,416.3

25.3%

23.5%

Distribution and Production

4,330.0

27.5%

4,032.4

29.8%

7.4%

Intercompany operations(3)

(3,202.1)

(20.4)%

(2,681.4)

(19.8)%

19.4%

SALES PER SEGMENT

27%

66%

Food and Beverages Mexico
Food and Beverages South America
Distribution and Production

EBITDA by segment

2013

%
Cont.

Margin

2012

%
Cont.

Margin % Var.

EBITDA PER SEGMENT

9.8%

13.6%

76.6%

Food and Beverages Mexico
Food and Beverages South America
Distribution and Production

Food and Beverages Mexico

$1,562.0

76.6%

15.1% $1,374.2

85.4%

15.7%

13.7%

Food and Beverages
South America

277.5

13.6%

6.6%

214.3

13.3%

6.3%

29.5%

Distribution and Production

253.8

12.5%

5.9%

206.8

12.9%

5.1%

22.7%

Others(3)

(55.1)

(2.7)%

N.A.

(186.7)

(11.6)%

N.A.

(70.5)%

Consolidated EBITDA

2,038.2

100.0%

13.0%

1,608.6

100.0%

11.9%

26.7%

(3) For the purposes of presenting comparable information by segment, these operations were included in each of the relevant segments.

Food and Beverages Mexico

Full-year sales ending on December 31, 2013 increased 18.5% to 10.4 billion pesos, in
comparison with 8.8 billion pesos for the same period of the previous year. The increase of
1.6 billion pesos is attributable mainly to the growth of same-store sales for the segment in
Mexico and the opening of 175 corporate units from different brands over the last 12 months.

EBITDA increased 13.7% over the past 12 months ended on December 31, 2013, to 1.6
billion pesos, in comparison with 1.4 billion pesos for the same period of the previous year.
This increase is attributable to the margin generated by the increase in same-store sales
and the cost improvement derived from the initiatives, commercial and price strategies
implemented in different brands, and to a lesser extent, to the effect due to the above-
mentioned business mix.

2013 Alsea Annual Report || 2013 Alsea Annual Report 43

CAPITAL
INVESTMENTS FOR

3.6

BILLION PESOS

Food and Beverages South America

Tax on Earnings

The Food and Beverages Division of South America represented 26.8% of Alsea’s consolidated
sales and at the end of the fourth quarter of 2013 was comprised of the operations of
Burger King in Argentina, Chile and Colombia, as well as Domino’s Pizza Colombia, Starbucks
Argentina and Chile, as well as P.F. Chang’s in Chile, Argentina and Colombia. At the end of
the period there were 283 corporate units and 4 sub-franchise units. This segment had an
increase of 23.5% in sales, generating 4.2 billion pesos in comparison with 3.4 billion pesos
in the previous year. This increase of 803 million pesos mainly resulted from the opening
of 75 corporate units and 4 sub-franchise units in that segment, as well as the increase in
same-store sales of some brands in South America, and, to a lesser extent, the inclusion of
operations in Starbucks Chile, as of September 2013. These variations were partially offset by
the effect of the devaluation of the Argentinean peso.

The Food and Beverages EBITDA for South America for the full-year 2013 increased 29.5%
to 278 million pesos, in comparison with 214 million pesos in the same period of 2012. The
EBITDA margin for the last 12 months ended on December 31, 2013 showed an increase
of 0.3 percentage points in comparison with the same period of the previous year. This
increase is attributable to a higher same-store sales margin, economies of scale resulting
from the growth in the number of corporate units, operating improvements and efficiencies
and, to a lesser extent, a better business mix derived from the acquisition of Starbucks
Chile. The above variations were partially offset by the increase in labor expenses at store
level and the effect of the devaluation of the Argentinean Peso.

Distribution and Production

Net sales ending on December 31, 2013 increased 7.4% to 4.3 billion pesos, in comparison
with 4.0 million pesos for the same period of the previous year. This is attributable to the
growth in same-store sales of the brands in Mexico and the growth in the number of units
served over the past 12 months, supplying a total of 1,570 units at December 31, 2013, in
comparison with 1,474 units in the same period of the previous year, which represented an
increase of 6.5%. Sales to third parties decreased 15.2% to 1.1 billion pesos, mainly due to the
merger of Burger King in Mexico, the decrease of same-store sales of the Burger King system,
and, to a lesser extent, to the appreciation of the exchange rate.

EBITDA at the end of the full-year 2013 grew 22.7%. This variation is attributable to the
higher margins in the bakery business, resulting from higher volume and lower production
costs, as well as operating efficiencies in logistics expenses, in combination with the
effect of accessories of the credit balance retrieved related to the VAT of Distribuidora e
Importadora Alsea, S.A. de C.V. These variations were partially offset by the negative effect of
the appreciation of the Mexican Peso, in comparison with the previous year.

Non-operating Results

The tax on earnings for the full-year 2013 was 285 million pesos, which represents an
increase of 66 million pesos in comparison with the previous year, mainly due to the growth
of 322 million pesos in the earnings before taxes at December 31, 2013.

Balance Sheet

Store Equipment, Improvements to Leased Locations and Properties and Pre-Operations

The increase of 2.0 billion pesos in this item resulted from the acquisition of assets, the
opening of new units as part of the expansion program over the past 12 months, as well
as the acquisitions closed during this period. These effects were partially offset by the
amortization and depreciation of assets.

During the twelve months ended on December 31, 2013, Alsea made capital investments of
3.6 billion pesos, from which 3.5 billion pesos, representing 97.4% of the total investments,
were earmarked for acquisitions, unit openings, equipment refurbishing and remodeling
existing stores for the different brands in the company portfolio.

The remaining 94 million pesos were destined for other items, notably the lighting and
automation project to reduce energy costs, logistics and improvement projects, as well as
software licenses, among other items.

Inventory

Inventories increased 642 million pesos at December 31, 2013. This increase of 91 million
pesos, equivalent to 2.7 inventory days, is mainly attributable to the operations of collection
of inputs in Argentina, as well as the collection of some inputs as part of the strategy to
optimize costs.

Taxes Payable – Net

The decrease in the account Taxes Payable – Net of Taxes Recoverable of 93 million pesos at
December 31, 2013 is mainly attributable to the increase in the VAT retrievable.

Suppliers

Our suppliers increased from 1.1 billion pesos at December 31, 2012 to 1.4 billion pesos
at December 31, 2013. This variation of millions of pesos mainly resulted from a better
negotiation process, which translated into an increase of eight supplier days, which rose
from 38 to 46 days over the past 12 months, and to a lesser extent, due to a larger number
of units in operation.

All-in Cost of Financing

Bank Debt and Local Bonds

The all-in cost of financing for the twelve months ended on December 31, 2013 increased to
210 million pesos, in comparison with 189 million pesos in the same period of the previous
year. This increase of 21 million pesos is accountable to the negative variation of 17 million
pesos due to exchange rate result, as well as the increase of 4 million pesos in net interest
paid derived from a higher leverage.

The company’s consolidated net debt rose 2.6 billion pesos in comparison with December
31, 2012, closing at 5.0 billion pesos at December 31, 2013, in comparison with 2.5 billion
pesos in the same period of the previous year. The company’s consolidated net debt rose
2.8 billion pesos in comparison with December 31, 2012, closing at 4.4 billion pesos at
December 31, 2013, in comparison with 1.5 billion pesos in the same period of the previous

2013 Alsea Annual Report || 2013 Alsea Annual Report 44

Stock Market Indicators

Book Value per Share

EPS (12 months)

Outstanding shares at the close
of the period (millions)

Price per share at close

Hedge Profile

2013

6.21

0.9905

687.8

40.79

Var %

-5.5%

73.0%

58.2%

2012

6.57

0.5726

687.8

25.78

The Chief Financial Officer, jointly with the Treasury Manager, manages risk seeking to:
mitigate present and future risks, not to divert operating resources and expansion plans, and
have certainty regarding the Company’s future cash flows, to envisage a debt cost strategy.
The instruments will only be used for hedging purposes.

During 2013, hedge derivatives in foreign exchange matured for $146.1 million dollars, at an
average exchange rate of 12.76 pesos per dollar. This hedging resulted in an exchange rate
profit of $28.1 million Mexican pesos. At December 31, 2013, Alsea has hedges to purchase
US Dollars in 2014 for an approximate amount of $16.3 million US dollars, at an average
exchange rate of 12.60 pesos per dollar. The foregoing is estimated at an average exchange
rate of 13.00 pesos per dollar.

92.3%

OF THE DEBT
WAS LONG TERM

ROIC INCREASED
FROM 8.6% TO

11.7%

year. This increase is mainly due to the debt required to face the acquisition of 100% of
Starbucks Mexico, Argentina and Chile, Burger King Mexico, and 25% of Grupo Axo, and to
a lesser extent, the company’s capital investment requirements. At December 31, 2013,
92.3% of the debt was long term, and to the same date 98.9% was denominated in
Mexican peso, 0.9% in Argentinean Peso and 0.2% in Chilean Peso.

The following table shows the structure and balance of total debt in millions of pesos at
December 31, 2013.

(Figures in million
pesos)

Balance to
Dec-13

TIIE

Spread

Maturity

Bancomer

$660.00

28-day TIIE

Bancomer

$615.00

28-day TIIE

1.15%

1.10%

06/04/2018

10/07/2018

Santander

$265.00

28-day TIIE

0.90%

07/05/2018

Santander

$100.00

4.32%

0.00%

28/02/2014

Banamex

$97.50

28-day TIIE

$770.00

28-day TIIE

Share certificates

$2,488.85

28-day TIIE

Argentinean debt

$48.15

22%

Chilean debt

$8.96

0.68%

TOTAL

5,043.61

Share Repurchase Program

0.95%

0.75%

N/A

12/07/2018

11/07/2018

23/05/2014

17/12/2014

13/01/2014

At December 31, 2013, Alsea closed the year with a balance of zero shares in the repurchase
fund. During the 12 months ended on December 31, 2013, we conducted purchase and sale
operations totaling 4,044,968 shares, for an approximate amount of 140.9 million pesos.

Financial Ratios

ROE WAS

14.5%

At December 2013, the covenants established in the Company’s credit contracts were as
follows: the Net Debt to EBITDA ratio for the past 12 months was 2.1x and the twelve-
month EBITDA to twelve-month interest paid ratio was 8.4x. ROIC increased from 8.6% to
11.7% over the past 12 months ended on December 31, 2013. ROE for the 12 month ended
on December 31, 2013 was 14.5% in comparison with 10.5% for the same period of the
previous year.

2013 Alsea Annual Report || 2013 Alsea Annual Report 46

AUDIT COMMITTEE´S
ANNUAL REPORT

To the Board of Directors of Alsea S.A.B de C.V.

MEXICO CITY, FEBRUARY 11, 2014

In compliance with the provisions of Sections 42 and 43 of the Securities Exchange Act and the Rules of the Audit
Committee, I hereby inform you about our activities during the year ending on December 31, 2013. During the
performance of our work, we have taken into account the recommendations set out in the Code of Best Practices on
Corporate Governance and, in accordance with a work program developed from the Committee Rules, we met at least
once every quarter to perform the following activities:

Risk assessment
We reviewed, jointly with the Administration and External and Internal Auditors, critical risk factors that could affect
the Company’s operations, and determined that they have been adequately identified and managed.

Internal control
We ensured that the Administration, in fulfillment of its responsibilities regarding internal control, had established
adequate policies and processes. In addition, we followed up on the comments and observations in this respect made
by the External and Internal Auditors in the performance of their work.

External Audit
We recommended that the Board of Directors hire the external auditors for the Group and subsidiaries for the fiscal
year 2013. To this end, we made sure of their independence and compliance with the requirements established by
law. We jointly analyze their approach and work program.

We maintained ongoing and direct communication to stay informed on the progress of their work, and take note of
their comments on their review and the annual financial statement. We were promptly informed of their conclusions
and reports on the annual financial statement and implemented their observations and recommendations resulting
from their work.

We authorized the fees paid to external auditors for auditing services and other authorized services, making sure
that these would not interfere with their independence from the company. Taking into account the Administration’s
point of view, we evaluated its services for the previous year and stated an evaluation process for the year 2013.

Internal audit
In order to maintain its independence and objectivity, the Internal Audit area reports functionally to the Audit
Committee.

In due course, we reviewed and approved its annual program of activities. To that end, Internal Audit participated in
the process of identifying risks, determining controls and verifying them.

We received periodic reports regarding the progress of the approved work program, changes that might have occurred
and the reasons that caused them.

We followed up on the observations and suggestions made by this area and implemented them appropriately.

Financial Information, Accounting Policies and Third Party Reports
We reviewed together with the people responsible, the process of preparation of quarterly and annual financial
statements for the Company and recommended the Board of Directors approving and authorizing their dissemination.
As part of this process we took into consideration external auditors’ opinions and observations and made sure that

GRI 4.11, EN28, SO8, PR9

the criteria, accounting and information policies used by the Administration to prepare the financial information
were adequate and sufficient and had been applied consistently with those for the previous year. As a consequence,
the information presented by the Administration reasonably reflects Alsea’s financial situation, operating results and
changes in its financial status for the year that ended on December 31, 2013.

We also reviewed the quarterly reports prepared by the Administration to be presented to the shareholders and the
general public, verifying that they were prepared using the same accounting criteria used to prepare the annual
information. We verified that there is a comprehensive process that provides reasonable confidence as to its contents.
In conclusion, we recommend that the Board authorize its publication.

Our review also included reports and any other financial information required by Mexican Regulatory Bodies.

We reviewed and confirmed that during the year 2013 Alsea continued using and implementing the International
Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) to prepare its
Financial Statements.

Compliance with regulations, legal aspects and contingencies
We confirm the existence and reliability of the controls established by the Company, to ensure compliance with any
various mandatory legal provisions, making sure that they were properly disclosed in the financial information.

We periodically reviewed the various tax, legal and labor contingencies faced by the company, monitoring the
efficiency of the identification and follow-up procedure, as well as their proper disclosure and recording.

Administrative Aspects
We held regular meetings with the Administration, to keep informed about the operations of the Company, its
relevant and unusual activities and events. We also met with internal and external auditors to discuss their progress
of their work and any constrains they might have encountered, and to facilitate any private communications they
wished to have with the Committee.

Whenever we deemed it advisable, we requested independent experts to provide support and opinions. Similarly, we
had no knowledge of any significant lack of compliance with the operating policies, internal control systems, and
accounting records policies.

We held executive meetings with the exclusive participation of Committee Members, during which we reached
agreements with and made recommendations to the Administration.

The Chairman of the Audit Committee reported our activities to the Board of Directors on a quarterly basis.

Our work was duly documented in records and prepared for each meeting, which were appropriately reviewed and
approved by Committee Members.

Sincerely,

C.P. Ivan Moguel Kuri
Chairman of the Audit Committee

2013 Alsea Annual Report || 2013 Alsea Annual Report
48

GRI 4.10

CORPORATE PRACTICES COMMITTEE’S
ANNUAL REPORT

To the Board of Directors of Alsea S.A.B de C.V.

MEXICO CITY, FEBRUARY 11, 2014

In compliance with Sections 42 and 43 of the Securities Exchange Act and in the name of the Corporate Practices
Committee, I present to you our report on the activities we carried out during the year ended December 31, 2013.
In the development of our work, we observed the recommendations contained in the Code of Best Practices on
Corporate Governance.

To analyze the relevant results of the Company, the Committee held meetings to ensure the adequate follow-up on
the agreements reached during the performance of their duties, inviting any company officers deemed advisable.

To comply with the responsibilities of this committee, we carried out the following activities:

• During this period we did not receive any request for dispensation according to Section 28, subsection III, paragraph

f) of the Securities Exchange Act; hence, it was not necessary to make any recommendation in this regard.

• This committee presented and approved the Strategic Plan of Domino’s Pizza Mexico, which we recommended to

be presented to the Board of Directors for its ratification.

• This committee presented and approved the Business Plan of Starbucks Colombia, which we recommended to be

presented to the Board of Directors for its ratification.

• This committee presented and approved the proposal to issue stock certificates, which we recommended to be

presented to the Board of Directors for its ratification.

• This committee presented and approved the Investment Plan to acquire 25% of Grupo Axo, S.A.P.I. de C.V.’s equity,

which we recommended to be presented to the Board of Directors for its ratification.

• This committee presented and approved the Investment Plan to acquire 100% of Starbucks Argentina and Chile,

which we recommended presenting to the Board of Directors for its approval.

• This committee presented and approved the project to acquire Vips, which we recommended to be presented to

the Board of Directors for its approval.

• We presented quarterly and accrued results of the Stock Exchange Plan for the year 2013.

• We were presented with the update of the shareholder cost applicable at the end of each quarter of 2013, according

to methodology authorized by the Board of Directors.

• We were presented on a quarterly basis with a summary of the risk management operations through “forwards
of the exchange rate” (Peso-Dollar) conducted over the year. These operations were executed as authorized;
that is, in compliance with the objective of covering the exchange rate risk of the operation based on the
authorized budget.

• We were presented with the Strategic Plan 2013-2018, which we recommended to be presented to the Board of

Directors for its approval.

• We were presented the 2014 Budget, which we recommended to be presented to the Board of Directors for its

approval.

• We were presented with the Compensation Plan for the CEO’s Reporting Line, which we recommended to be

presented to the Board of Directors for its approval.

• We were presented with the Succession and Talent Development Plans, which we reviewed.

• We were presented with the results of the evaluation of relevant executives in 2013.

• The Corporate Division of Human Resources presented the Compensation Strategy for relevant executives for the

year 2014. This Committee recommended the approval of the strategy.

• We were presented with the organizational structure of Alsea 2014, which we recommended to be presented to

the Board of Directors for its approval.

• In each and every meeting of the Board of Directors, we presented a report of the activities of the Corporate

Practices Committee for its consideration and recommended its ratification and/or approval.

Finally, I would like to mention that as part of our activities, including the preparation of this report, we have always
listened to and taken into account the viewpoint of relevant executives, without identifying any notable difference
of opinion.

Sincerely,

Corporate Practices Committee
Julio Gutiérrez Mercadillo
Chairman

2013 Alsea Annual Report || 2013 Alsea Annual Report
FINANCIAL
STATEMENTS

ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES

Consolidated financial statements
for the years ended December 31,
2013 and 2012, and Independent Auditors’
Report dated February 21, 2014

Contents

51
Independent auditors’ report
52
Consolidated statements of financial position
Consolidated statements of income
54
Consolidated statements of income and other comprehensive income 55
56
Consolidated statements of changes in stockholders’ equity
58
Consolidated statements of cash flows
60
Notes to the consolidated financial statements

Independent auditors’ report
To the Board of Directors and Shareholders

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

We have audited the accompanying consolidated financial statements of Alsea, S.A.B. de C.V. and Subsidiaries (the Entity), which comprise the

consolidated statements of financial position at December 31, 2013 and 2012, and the consolidated statements of income, of income and other

comprehensive income, of changes in stockholders’ equity and of cash flows for the years then ended, as well as a summary of the significant

accounting policies and other explanatory information.

Management’s responsibility for the financial statements

The Entity’s Management is responsible for the preparation and fair presentation of the accompanying consolidated financial statements in

accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board and for such internal control

as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to

fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance

with International Standards on Auditing. Those standards require that we comply with ethical requirements, and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures

selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Entity’s preparation and fair

presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the Entity’s internal control. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the

consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Alsea, S. A.B. de C. V. and its

subsidiaries as of December 31, 2013 and 2012, and its financial performance and its cash flows for the years then ended, in accordance with

International Financial Reporting Standards as issued by the International Accounting Standards Board.

Galaz, Yamazaki, Ruiz Urquiza, S. C.

A member of Deloitte Touche Tohmatsu Limited

C. P. C. Francisco Torres Uruchurtu

February 21, 2014

Annual Report Alsea 2013 |52

Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated statements of financial position
At December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

ASSETS

Current assets

Cash and cash equivalents

Customers, net

Value–added tax and other recoverable taxes

Other accounts receivable

Inventories, net

Advance payments

Total current assets

Long–term assets

Guarantee deposits

Investment in shares of associated companies

Store equipment, leasehold improvements and property, net

Notes

2013

2012

Notes

2013

2012

663,270

360,104

369,350

268,714

641,880

304,323

932,594

339,481

272,254

196,450

550,394

184,201

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Current maturities of long–term debt

Suppliers

Accounts payable and accrued liabilities

Provisions

Income taxes

Taxes arising from tax consolidation

2,607,641

2,475,374

Total current liabilities

128,108

110,020

788,665

40,296

4,610,942

3,924,108

Long–term liabilities

Long–term debt, not including current maturities

Debt instruments

Other liabilities

Taxes arising from tax consolidation

Employee retirement benefits

Total long–term liabilities

Total liabilities

Stockholders’ equity

Capital stock

Premium on share issue

Retained earnings

Reserve for repurchase of shares

Other comprehensive income items

388,486

1,408,565

170,862

730,727

360,947

10,111

396,647

1,129,612

209,669

661,735

189,749

6,885

3,069,698

2,594,297

2,166,281

2,488,850

64,721

15,923

72,884

2,077,833

–

58,787

186,569

51,210

4,808,659

2,374,399

7,878,357

4,968,696

403,339

2,037,390

1,512,464

569,271

(251,037)

4,271,427

231,875

4,503,302

403,339

2,466,822

1,173,693

564,201

(87,347)

4,520,708

308,189

4,828,897

Intangible assets, net

Deferred income taxes

12 and 17

3,263,896

2,418,830

982,407

828,965

Total long–term assets

9,774,018

7,322,219

Stockholders’ equity attributable to the controlling interest

Non–controlling interest

Total stockholders’ equity

Total assets

12,381,659

9,797,593

Total liabilities and stockholders’ equity

12,381,659

9,797,593

See accompanying notes to the consolidated financial statements.

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

General Director

Administration and Financial Director

Corporate Controller

Annual Report Alsea 2013 || Annual Report Alsea 2013

Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated statements of income
For the years ended December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

Net sales

Cost of sales

Leases

Depreciation and amortization

Other operating costs and expenses

Other income, net

Interest income

Exchange loss (gain), net

Interest expenses

Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated statements of income and other comprehensive income
For the years ended December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

Note

2013

2012

2013

2012

15,718,543

13,519,506

Consolidated net income

663,320

401,798

5,227,739

1,262,533

923,121

7,212,874

(22,799)

(39,044)

8,125

241,389

904,605

4,755,290

1,066,583

811,298

6,098,830

(9,804)

(47,043)

(8,719)

245,104

607,967

Items that may be reclassified subsequently to income:

Valuation of financial instruments, net of income taxes

–

(9,963)

Exchange differences on translating foreign operations

(164,487)

(114,134)

Total comprehensive income for the period, net of income taxes

498,833

277,701

(164,487)

(124,097)

Equity in results of associated companies

43,582

12,978

Comprehensive income (loss) for the year attributable to:

Income before income taxes

948,187

620,945

Controlling interest

Income taxes

284,867

219,147

Non–controlling interest

516,527

240,821

(17,694)

36,880

Consolidated net income

663,320

401,798

Net income (loss) for the year attributable to:

Controlling interest

Non–controlling interest

Basic and diluted net earnings per share (cents per share)

681,014

364,918

(17,694)

36,880

0.99

0.57

See accompanying notes to the consolidated financial statements.

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

General Director

Administration and Financial Director

Corporate Controller

General Director

Administration and Financial Director

Corporate Controller

Annual Report Alsea 2013 || Annual Report Alsea 2013

Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated statements of changes in stockholders’ equity
For the years ended December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

Contributed capital

Retained earnings

Other comprehensive income items

Capital
stock

Premium on
issuance of
share

Repurchased
shares

Reserve for
repurchase of
shares

Legal
reserve

Retained
earnings

Valuation
financial
instruments

Effect of
conversion
of foreign
operations

Total
controlling
interest

Non–controlling
interest

Total
stockholders’
equity

Balances at January 1, 2012

368,362

1,092,047

(5,901)

383,903

93,611

1,025,156

9,166

27,584

2,993,928

298,803

3,292,731

Repurchase of shares (Note 24)

Sales of shares (Note 24)

Transfer of legal reserve (Note 24)

Purchase of non–controlling interest (Note 1j, 16 and 25)

Stock dividends declared (Note 24)

Dividends declared in cash by a subsidiary (Note 24)

Placement of shares (notes 3h and 24)

Comprehensive income

Balances at December 31, 2012

Repurchase of shares (Note 24)

Sales of shares (Note 24)

Purchase of non–controlling interest (Note 25)

Dividends declared in cash (Note 24)

Other movements

Comprehensive income

1,090

(291)

–

(15,262)

8,233

300,669

–

26,744

1,088,278

–

403,339

2,466,822

–

(429,262)

–

(170)

–

6,192

–

(1,011)

1,011

–

(12,860)

193,158

–

(1,090)

–

7,125

(7,125)

–

(308,902)

–

(13,151)

199,350

–

(13,151)

199,350

–

(15,262)

(494)

(15,756)

–

(27,000)

1,115,022

–

1,115,022

364,918

(9,963)

(114,134)

240,821

36,880

277,701

564,201

100,736

1,072,957

(797)

(86,550)

4,520,708

308,189

4,828,897

(67,927)

72,997

–

(343,880)

1,637

681,014

–

797

–

(68,938)

74,008

–

(68,938)

74,008

(429,262)

(28,020)

(457,282)

(343,880)

(30,600)

(374,480)

2,264

–

2,264

(164,487)

516,527

(17,694)

498,833

569,271

100,736

1,411,728

–

(251,037) $

4,271,427

231,875

$ 4,503,302

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

General Director

Administration and Financial Director

Corporate Controller

Balances at December 31, 2013

403,339

2,037,390

See accompanying notes to the consolidated financial statements.

Annual Report Alsea 2013 || Annual Report Alsea 2013

Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated statements of cash flows
For the years ended December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

Operating activities:

Consolidated net income

Adjustment for:

Income taxes

Equity in results of associated companies

Interest expense

Interest income

Loss on disposal of store equipment and property

Provisions

Depreciation and amortization

Cost of purchase of non–controlling interest

Effect of valuation of financial instruments

Changes in working capital

Customers

Recoverable taxes

Other accounts receivable

Inventories

Advance payments

Guarantee deposits

Suppliers

Taxes paid

Other liabilities

Labor obligations

Note

2013

2012

Note

2013

2012

663,320

401,798

Bank loans

Cash flows from financing activities:

284,867

(43,582)

241,389

(39,044)

24,386

68,993

923,121

–

219,147

(12,978)

245,104

(47,043)

64,200

90,005

811,298

(11,748)

(9,963)

2,123,450

1,749,820

(15,629)

–

(84,317)

(82,506)

(102,645)

(18,088)

264,222

(456,397)

(41,453)

21,674

(79,917)

(758)

(23,263)

(100,418)

(38,332)

(23,029)

80,640

(220,337)

85,066

19,460

Repayments of loans

Issuance of debt instruments

Repayments of debt instrument

Increase in capital stock

Interest paid

Dividends paid

Other items

Acquisition of non–controlling interest

Repurchase of shares

Sales of shares

1 and 19

2,538,686

(2,449,815)

2,488,850

–

(241,389)

(343,880)

–

(683,441)

(67,927)

72,997

75,092

(750,168)

–

(1,000,000)

1,115,022

(245,104)

–

(27,000)

(15,262)

(13,151)

199,350

Net cash flows provided by (used in) by financing activities

1,314,081

(661,221)

Net (decrease) increase in cash and cash equivalents

(270,048)

190,889

Exchange effects on value of cash

Cash and cash equivalents:

At the beginning of the year

At end of year

724

2,326

932,594

739,379

663,270

932,594

Net cash flows provided by operating activities

1,608,311

1,448,932

See accompanying notes to the consolidated financial statements.

Cash flows from investing activities:

Interest collected

Store equipment, leasehold improvements and property

Intangible assets

Reimbursement of guarantee deposit

Acquisitions of business, net of cash acquired

39,044

(1,127,548)

(339,428)

47,043

(921,123)

(220,542)

–

2,262,800

1 and 16

(1,764,508)

(1,765,000)

Net cash flows used in investing activities

(3,192,440)

(596,822)

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

General Director

Administration and Financial Director

Corporate Controller

Annual Report Alsea 2013 || Annual Report Alsea 2013

Alsea, S.A.B. de C.V. and Subsidiaries
Notes to the consolidated financial statements
For the years ended December 31, 2013 and 2012
(Figures in thousands of Mexican pesos)

1. Activity, main operations and significant events

Placement of debt instruments in the amount of $2,500,000.– In June 2013, Alsea concluded the placement of debt instruments worth

$2,500,000. Those debt instruments are for a five–year term, maturing in June 2018, and bear interest at the 28–day TIIE rate (Mexican

Alsea, S.A.B. de C.V. and Subsidiaries (Alsea or the Entity) was incorporated as a variable income stock company on May 16, 1997 in Mexico. The

Interbank Offering rate) plus 0.75 percentage points.

Entity’s domicile is Paseo de la Reforma No. 222, tercer piso, Col. Juárez, Delegación Cuauhtémoc C.P. 06600, México, D.F.

The Entity was incorporated for a period of 99 years, starting as from the date on which the respective deed was signed, which was April 7, 1997.

$3,500 million.

This is the first issue under the debt instrument program, which was approved on April 25, 2013 by the Board of Directors for issuances up to

For disclosure purposes in the notes to the consolidated financial statements, reference made to pesos, “$” or MXP is for thousands of Mexican

Acquisition of the master franchise of Burger King in Mexico.– In April 2013, Alsea acquired the master franchise rights to the Burger King

pesos, and reference made to dollars is for US dollars.

Operations

restaurants in México, S.A. de C.V. (“BKM”), pursuant to a strategic association agreement signed between Alsea and Burger King Worldwide Inc.

(“BKW”). BKM, a subsidiary of BKW in Mexico was merged with Operadora de Franquicias Alsea S.A. de C.V. (“OFA”), a subsidiary of Alsea, a result

of which Alsea holds an 80% stake in OFS with the remaining 20% held by BKW. The Entity’s management has assessed the terms of the above

agreement and strategic partnership concluding that it continues to exercise control over OFA, both before and after the transaction, such that

Alsea is mainly engaged in operating fast food restaurants or “QSR” and cafeteria and casual dining units or “Casual Dining”. The brands operated

the financial information of BKM has been consolidated in the accompanying consolidated financial statements, as from the closing date of

in Mexico by the Entity are Domino’s Pizza, Starbucks, Burger King, Chili’s Grill & Bar, California Pizza Kitchen, P.F Chang’s and Pei Wei Asian Diner,

transaction.

and it has operated the Italianni’s brand beginning in March 2012. In order to operate its multi–units, the Entity has the support of its shared

service center, which includes the supply chain through Distribuidora e Importadora Alsea, S.A. de C.V. (DIA), real property and development

Additionally, as part of the master plan for development of the franchise, Alsea committed to a plan for new openings that contemplates opening

services, as well as administrative services (financial, human resources and technology). The Entity operates the Burger King and Starbucks.

175 units the next five years. The parties agreed to review the continuity of a contractual expansion plan after that period has elapsed (see

brands in Chile and Argentina. In Colombia, it has operated the Domino’s Pizza and Burger King brands since 2008. In May 2011, Alsea entered

accounting effects in Note 16).

into an agreement with PFCCB International, Inc. for the exclusive development and operation of P.F. Chang’s China bistro in Argentina, Colombia

and Chile, the latter country in which it opened its first P.F. Chang’s unit in 2012.

Significant events

Acquisition of Starbucks operations in Mexico, Chile and Argentina.– As part of its expansion plan, in July 2013 Alsea entered into an agreement

Acquisition of VIPS.– In September 2013, Alsea reached an agreement with Wal–Mart de México, S.A.B. de C.V. (Grupo Wal–Mart) to acquire

100% of VIPS, the Grupo Wal–Mart restaurant division, for a total of $8,200,000, which will be financed with debt.

VIPS operations include a total of 362 restaurants, of which 263 are of the “Vips” brand, 90 are “El Portón” brand, 7 are “Ragazzi” brand and

two are “La Finca” brand. Those operations also include: I) the rights to intellectual property over the four brands, the menus, development of

to acquire 100% of the operations of the Starbucks coffee chain in Chile and Argentina. Such acquisition comprises the remaining 82% of

the product, the operating processes and other items; II) the acquisition of 18 real property assets; III) the buildings of 214 units; and IV) an

Starbucks Coffee Chile and the remaining 18% of Starbucks Coffee Argentina. With such acquisition, Alsea will control the 66 Starbucks stores in

administrative office dedicated to the standardization of products, bulk purchases, the centralization of deliveries by suppliers and the production

Argentina and the 44 stores in Chile (see Note 16 and 25). In September 2013, Alsea finalized the acquisition of the remaining shares of Starbucks

of desserts, sauces and food dressings. The transaction included the acquisition of Operadora VIPS, S. de R.L. de C.V. (OVI) and Arrendadora de

Coffee Chile, S.A. de C.V., as from which date it has consolidated the financial information.

Restaurantes, S. de R.L. de C.V. (ARE), as well as the transfer of personnel who provide services to VIPS and that at the date of the transaction

worked in different Grupo Wal–Mart service companies; the transfer became effective as of August 2013 and the personnel were transferred

Additionally, in April 2013, Alsea acquired from Starbucks Coffee International (“SCI”, an affiliate of the Starbucks Coffee Company) the remaining

to Servicios Ejecutivos de Restaurantes, S. de R.L. de C.V. (SER) and Holding de Restaurantes, S. de R.L. de C.V. (HRE), which are newly created

18% of Café Sirena, S.A. de C.V. (Café Sirena), a subsidiary created by both entities in Mexico. As a result of that acquisition, Alsea will control

companies. On October 28, 2013, the Alsea shareholders approved the acquisition of VIPS and the close of such transaction is subject to receiving

100% of operations in Mexico (see Note 25). Additionally, Alsea committed to a new openings plan that contemplates approximately 50 units

the respective regulatory authorizations and to meeting certain closing conditions. At December 31, 2013 no accounting effects have arisen in

per year over the next five years. The parties agreed to review continuity of a contractual expansion plan after that period has elapsed.

relation to that transaction.

In June 2013, SCI signed an agreement to develop the brand in the Colombian market through an association between Alsea (70%) and Nutressa

Acquisition of the exclusive rights to develop the P.F. Chang’s China Bistro in Brazil – In January 2013, the Entity signed a Development and

(a Colombian company – 30%), whereby a commitment is made to open 51 stores in the following 5 years.

Acquisition of 25% of Grupo Axo, S.A.P.I de C.V.– In June 2013, the Entity formalized the acquisition of 25% of the shares of Grupo Axo, S.A.P.I. de

C.V. (Grupo Axo), a leader in sales of international brands of clothes, cosmetics and household appliances.

Operation agreement for the exclusive rights to develop the P.F. Chang’s China Bistro brand in Brazil. The agreements contemplate the opening of

30 units in the next 10 years. P.F. Chang’s is the leading brand in the Casual Asian Food segment in the US with more than 225 operating units.

It currently has points of sale in Mexico, Puerto Rico, Canada, Kuwait, Beirut, Chile, Hawaii, the Philippines and the United Arab Emirates. In order

to enter the Brazilian market with the P.F. Chang’s China Bistro brand, a development and expansion strategy has been designed based on the

successful business model used to operate the brand portfolio in South America. That model has made it possible to position Alsea as the leading

Grupo Axo has more than 2,200 points of sale inside a number of department stores in Mexico. It has 116 of its own stores and it carries the

Casual and Fast–food operator in Latin America. With Brazil operations as the new path for growth, the Entity will work towards generating

following brands: Tommy Hilfiger, Coach, Guess, Rapsodia, Thomas Pink, Brooks Brothers, Marc Jacobs, Etro, Emporio Armani, Brunello Cucinelli,

greater diversification and profitability of its portfolio.

Theory, Kate Spade Express, Crate & Barrel and VSBA (Victoria’s Secret Bath Accessories (see Note 15)).

Annual Report Alsea 2013 || Annual Report Alsea 2013

Signing of the exclusive rights to develop and operate the Cheesecake Factory® restaurants in Mexico – Alsea signed an agreement to the

2. Bases for presentation

exclusive rights to develop and operate the The Cheesecake Factory® restaurants in Mexico and Chile, which also contemplates the option for

Argentina, Brazil, Colombia and Peru, thus becoming the strategic partner of the prestigious brand in the entire region.

a. New and revised IFRSs affecting amounts reported and/or disclosures in the financial statements

The agreement initially contemplates 12 openings between Mexico and Chile in the following eight years with 10–year agreements per restaurant,

In the current year, the Entity has applied a number of new and revised International Financial Reporting Standards (IFRS) issued by the

and the right to extend that period for an additional 10 years.

International Accounting Standards Board (IASB), that are mandatorily effective beginning on January 1, 2013.

The Cheesecake Factory® chain is considered the best seller per unit in its category. The brand focuses on providing customers with top quality

New and revised Standards on consolidation, joint arrangements, associates and disclosures.

products and services. Its operations include 162 restaurants under the The Cheesecake Factory® brand in over 35 states of the US operating

under a franchise license.

Capital issue.– In December 2012, Alsea issued stock worth $1,150 million pesos, which included the over–allotment option. The issue was carried

In May 2011, a package of five standards on consolidation, joint arrangements, associates and disclosures was issued comprising IFRS 10

Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 (as revised in 2011)

Separate Financial Statements and IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures. Subsequent to the issue

out in the Mexican market through the Mexican Stock Exchange (MSE) and in foreign markets through a private offer made in accordance with

of these standards, amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional guidance on the first–time

Regulation “S” of the US Securities Act of 1933. The final placement price according to the book closing was 21.50 pesos per share, which resulted

application of the standards.

in the placement of approximately 53.49 million shares. As a result of the issue and the exercise of the over–allotment option, Alsea’s subscribed

and paid in capital was comprised of 687,759,054 (six hundred and eighty seven million, seven hundred and fifty nine thousand, fifty four) Class I,

Those standards had no significant effects at December 31, 2013, except the requirement to make additional disclosures, which are included in

single series, common shares, with no par value. The Entity used the resources derived from this issue to prepay the debt instrument with ticker

the accompanying consolidated financial statements. However, the standards that are applicable to the Entity are as follows:

code ALSEA’11, which matures in 2014, as a result of which the Entity’s leverage decreased (Net Debt to EBITDA) from 1.9x to 1.2x based on figures

at September 2012 (see Note 24).

IFRS 10 Consolidated financial statements

Early full amortization of the “ALSEA 11” debt instrument.– In May 2011, Alsea placed debt instruments for a total of $1,000 million in the Mexican

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC–12

market (the “ALSEA 11” debt instrument). The resources obtained from that issue were used mainly to prepay the debt instruments issued in

Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control such that an investor has control over an investee when a)

December 2009 and March 2010 for $300 million and $400 million, respectively.

it has power over the investee, b) it is exposed, or has rights, to variable returns from its involvement with the investee and c) has the ability to

use its power to affect its returns. All three of these criteria must be met for an investor to have control over an investee. Previously, control was

In December 2012, the Entity prepaid the total amount the ALSEA 11 debt instrument. The payment was for approximately $1,004.7 million, which

defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Additional guidance

included accrued interest. Payment was made using part of the resources obtained from a capital issuance carried out by the Entity, which helped

has been included in IFRS 10 to explain when an investor has control over an investee. Some guidance included in IFRS 10 that deals with whether

to improve the cost of the debt and the maturity profile (see Note 19).

or not an investor that owns less than 50% of the voting rights in an investee has control over the investee is relevant to the entity.

Acquisition of 35% of Grupo Calpik, S.A.P.I. de C.V. and of 10.64% of Panadería y Alimentos para Food Service, S.A de C.V..– On June 2012, the

At December 31, 2013, the transition provisions set forth in IFRS 10 gave rise to no significant changes in the Entity.

Entity formalized the acquisition of the remaining 35% of shares of Grupo Calpik, a company that holds the exclusive rights to develop and

operate California Pizza Kitchen restaurants in Mexico. The transaction gave rise to a charge to stockholders’ equity of $15,262. Additionally, in

IFRS 12 Disclosure of Interests in Other Entities

October 2012, Alsea acquired the remaining 10.64% of the shares of Panadería y Alimentos para Food Service, a company that distributes food

brands mainly to Café Sirena, S de R.L. de C.V., which operates Starbucks in Mexico. The transaction gave rise to a decrease in the Entity’s non–

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/

controlling interest of $15,172 and $11,748, respectively (see Note 25).

or unconsolidated structured entities. In general, the application of IFRS 12 has resulted in more extensive disclosures in the consolidated

Agreement to acquire Italianni’s restaurants and the exclusive rights to develop and operate that brand of restaurants in Mexico.– The Italianni’s

acquisition concluded in February 2012 at a final price of $1,765 million.

financial statements.

IFRS 13 Fair Value Measurement

Italianni’s is the leading Italian food chain in Mexico with more than 52 units in over 20 states. The brand is known for offering top quality

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The scope of IFRS 13

products and services thanks to its experienced operating team and a philosophy based on high service values (see Note 16).

is broad; the fair value measurement requirements of IFRS 13 apply to both financial instrument items and non–financial instrument items for

which other IFRSs require or permit fair value measurements and disclosures about fair value measurements, except for share–based payment

transactions that are within the scope of IFRS 2 Share–based Payment, leasing transactions that are within the scope of IAS 17 Leases, and

measurements that have some similarities to fair value but are not fair value (e.g. net realizable value for the purposes of measuring inventories

or value in use for impairment assessment purposes).

Annual Report Alsea 2013 || Annual Report Alsea 2013

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the

principal (or most advantageous) market at the measurement date under current market conditions. Fair value under IFRS 13 is an exit price

regardless of whether that price is directly observable or estimated using another valuation technique. Also, IFRS 13 includes extensive

1 Effective for annual periods beginning on or after January 1, 2014, with earlier application permitted.
2 Effective for annual periods beginning on or after January 1, 2015, with earlier application permitted.
3 Effective for annual periods beginning on or after January 1, 2016, with earlier application permitted.

disclosure requirements.

The Entity’s management estimates that application of those new and revised standards will have no effects on the consolidated financial

IFRS 13 requires prospective application from January 1, 2013. In addition, specific transitional provisions were given to entities such that they

statements.

need not apply the disclosure requirements set out in the Standard in comparative information provided for periods before the initial application

of the Standard. In accordance with these transitional provisions, the Entity has not made any new disclosures required by IFRS 13 for the 2012

comparative period.

3. Significant accounting policies

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income

Statement of compliance

The amendments to IAS 1 Presentation of Items of Other Comprehensive Income introduce new terminology, whose use is not mandatory, for

The Entity’s consolidated financial statements have been prepared in accordance with the IFRS issued by the IASB.

the statement of comprehensive income and income statement. Under the amendments to IAS 1, the ‘statement of comprehensive income’ is

renamed as the ‘statement of profit or loss and other comprehensive income’. The amendments to IAS 1 retain the option to present profit or loss

b. Basis of measurement

and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS

1 require items of other comprehensive income to be grouped into two categories in the other comprehensive income section: (a) items that will

The Entity’s consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are

not be reclassified subsequently to profit or loss and (b) items that may be reclassified subsequently to profit or loss when specific conditions

valued at fair value, as explained in further detail within the significant accounting policies.

are met. Income tax on items of other comprehensive income is required to be allocated on the same basis – the amendments do not change

the option to present items of other comprehensive income either before tax or net of tax. The amendments have been applied retrospectively,

Historical cost

and hence the presentation of items of other comprehensive income has been modified to reflect the changes. Other than the above mentioned

The historical cost is generally based on the fair value of the consideration paid in exchange for goods or services.

presentation changes, the application of the amendments to IAS 1 does not result in any impact on profit or loss, other comprehensive income

and total comprehensive income.

IAS 19 Employee benefits – (revised in 2011)

ii.

Fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation

technique. In estimating the fair value of an asset or a liability, the Entity takes into account the characteristics of the asset or liability if

In the current year, the Entity applied IAS 19, Employee Benefits – (revised in 2011) and the related amendments for the first time.

market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for

measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share–based

IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the

payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that

accounting for changes in defined benefit obligations and plan assets.

have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 or value in use in IAS 36.

The amendments require the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the

eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. All actuarial

inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which

gains and losses are recognized immediately through other comprehensive income in order for the net pension asset or liability recognized in

are described as follows:

the consolidated statement of financial position to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected

return on plan assets used in the previous version of IAS 19 are replaced with a ‘net interest’ amount under IAS 19, which is calculated by applying

•

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the

the discount rate to the net defined benefit liability or asset. Those changes have not given rise to significant effects.

measurement date;

b. New and revised IFRS in issue but not yet effective

The Entity has not applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9, Financial Instruments 3
Amendments to IFRS 9 and IFRS 7, Mandatory effective date of IFRS 9 and Transition Disclosures 2
Amendments to IFRS 10 and IFRS 12 and IAS 27, Investment Entities 1
Amendments to IAS 32, – Offsetting Financial Assets and Financial Liabilities 1

•

Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or

indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

Annual Report Alsea 2013 || Annual Report Alsea 2013

Basis of consolidation

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:

The consolidated financial statements include those of the Entity and the subsidiaries over which it holds control. Control is obtained when

–

Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in

the Entity:

• Has power over the investment

accordance with IAS 12 Income Taxes and IAS 19 respectively;

–

Liabilities or equity instruments related to share–based payment arrangements of the acquiree or share–based payment arrangements

• Is exposed, or has rights, to variable returns from its involvement with the investee; and

of the Entity entered into to replace share–based payment arrangements of the acquireeare measured in accordance with IFRS 2 at the

• Has the ability to use its power to affect its returns.

acquisition date; and

The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the

–

Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non–current Assets Held for Sale and Discontinued

three elements of control listed above.

Operations are measured in accordance with that standard.

Consolidation of a subsidiary begins when the Entity obtains control over the subsidiary and ceases when the Entity loses control of the

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non–controlling interests in the acquiree,

subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement

and the fair value of the acquirer’s previously held equity interest in the acquire (if any) over the net of the acquisition–date amounts of the

of profit or loss and other comprehensive income from the date the Entity gains control until the date when the Entity ceases to control the

identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition–date amounts of the identifiable

subsidiary.

assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non–controlling interests in the

acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or

Net income (loss) and each component of other comprehensive income are attributed to the owners of the Entity and to the non–controlling

loss as a bargain purchase gain.

interests. Total comprehensive income of subsidiaries is attributed to the owners of the Entity and to the non–controlling interests even if this

results in the non–controlling interests having a deficit balance.

Non–controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in

the event of liquidation may be initially measured either at fair value or at the non–controlling interests’ proportionate share of the recognized

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Entity’s

amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction–by–transaction basis. Other types

accounting policies.

of non–controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS.

All intercompany balances and operations have been eliminated in the consolidation.

Changes in the Entity’s ownership interest in existing subsidiaries

When the consideration transferred by the Entity in a business combination includes assets or liabilities resulting from a contingent consideration

arrangement, the contingent consideration is measured at its acquisition–date fair value and included as part of the consideration transferred in

a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted

retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional

Changes in the Entity’s ownership interests in subsidiaries that do not result in the Entity losing control over the subsidiaries are accounted for

information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances

as equity transactions. The carrying amounts of the Entity’s interests and the non–controlling interests are adjusted to reflect the changes in

that existed at the acquisition date.

their relative interests in the subsidiaries. Any difference between the amount by which the non–controlling interests are adjusted and the fair

value of the consideration paid or received is recognized directly in equity and attributed to owners of Entity.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments

When the Entity loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the

reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability

aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of

is remeasured at subsequent reporting dates in accordance with IAS 39, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as

the assets (including goodwill), and liabilities of the subsidiary and any non–controlling interests. All amounts previously recognized in other

appropriate, with the corresponding gain or loss being recognized in profit or loss.

comprehensive income in relation to that subsidiary are accounted for as if the Entity had directly disposed of the related assets or liabilities of

the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair

When a business combination is achieved in stages, the Entity’s previously held equity interest in the acquiree is remeasured to its acquisition–

value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for

date fair value and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the

subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment

depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent

would be appropriate if that interest were disposed of.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured

reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement

at fair value, which is calculated as the sum of the acquisition–date fair values of the assets transferred by the Entity, liabilities incurred by the

period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that

Entity to the former owners of the acquiree and the equity interests issued by the Entity in exchange for control of the acquiree. Acquisition–

existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Entity

related costs are generally recognized in profit or loss as incurred.

Annual Report Alsea 2013 || Annual Report Alsea 2013

e. Goodwill

The Entity discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or

when the investment is classified as held for sale. When the Entity retains an interest in the former associate or joint venture and the retained

Goodwill arising from on a acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated

interest is a financial asset, the Entity measures the retained interest at fair value at that date and the fair value is regarded as its fair value

impairment losses, if any.

on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate or joint venture at the date

the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the

For the purposes of impairment testing, goodwill is allocated to each of the Entity’s cash–generating units that is expected to benefit from the

associate or joint venture is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the

synergies of the combination.

Entity accounts for all amounts previously recognized in other comprehensive income in relation to that associate or joint venture on the

same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain

A cash–generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication

or loss previously recognized in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the

that the unit may be impaired. If the recoverable amount of the cash–generating unit is less than its carrying amount, the impairment loss is

disposal of the related assets or liabilities, the Entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment)

allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the

when the equity method is discontinued.

carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized

for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash–generating unit, the attributable amount of goodwill is included in the determination of the profit or loss on

disposal.

Investment in associates and joint businesses

The Entity continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment

in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests.

When the Entity reduces its ownership interest in an associate or a joint venture but the Entity continues to use the equity method, the Entity

reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that

reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

An associate is an entity over which the Entity has significant influence. Significant influence is the power to participate in the financial and

When a group entity transacts with an associate or a joint venture of the Entity, profits and losses resulting from the transactions with the

operating policies decisions of the investee, but is not control or joint control over those policies.

associate or joint venture are recognized in the Entity’s consolidated financial statements only to the extent of interests in the associate or joint

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint

arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant

Revenue recognition

activities require unanimous consent of the parties sharing control.

venture that are not related to the Entity.

The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the

can be measured reliably, irrespective of the moment in which payment is made. Income is measured based on the fair value of the consideration

equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for

received or receivable, bearing in mind the payment conditions specified in the respective agreement, without including taxes or tariffs.

Income generated from ordinary operations is recorded to the extent that future economic benefits are likely to flow into the Entity and income

in accordance with IFRS 5. Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated

statement of financial position at cost and adjusted thereafter to recognize the Entity’s share of the profit or loss and other comprehensive

Sale of goods

income of the associate or joint venture. When the Entity’s share of losses of an associate or a joint venture exceeds the Entity’s interest in that

associate or joint venture (which includes any long–term interests that, in substance, form part of the Entity’s net investment in the associate or

joint venture), the Entity discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Entity

has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

Revenues from the sale of food and beverages is recognized when they are delivered to and/or consumed by customers.

Provision of services

Revenues from services are recognized by reference to the stage of completion, which is generally when the services have been rendered and

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an

associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the

Entity’s share of the net fair value of the identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the

carrying amount of the investment. Any excess of the Entity’s share of the net fair value of the identifiable assets and liabilities over the cost of

the investment, after reassessment, is recognized immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Entity’s

investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for

impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and

fair value less costs to sell) with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment.

Any reversal of that impairment loss is recognized in accordance with IAS 36 to the extent that the recoverable amount of the investment

subsequently increases.

accepted by customers.

Dividends

Dividend income is recognized when the Entity’s right to collect dividends has been established.

Royalties

Royalty income is recorded as it is earned, based on a fixed percentage of sub–franchise sales.

Annual Report Alsea 2013 || Annual Report Alsea 2013

Foreign currency transactions

–

Deferred income tax

In order to consolidate the financial statements of foreign operations carried out independently from the Entity (located in Argentina, Chile and

Until December 31, 2013, in recognizing deferred taxes, the Entity determines whether or not, based on its financial projections, it will incur

Colombia) and that comprise 27% and 25% of consolidated net income and 21% and 16% of the total consolidated assets at December 31, 2013

ISR or IETU and it recognizes deferred taxes on that basis (see Note 20). Deferred tax is recognized on temporary differences between the

and 2012, respectively, companies apply the policies followed by the Entity. The financial statements of consolidating foreign operations are

carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation

converted to the reporting currency by initially identifying whether or not the functional and recording currency of foreign operations is different,

of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally

and subsequently converting the functional currency to the reporting currency.

recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those

deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference

In order to convert the financial statements of subsidiaries resident abroad from the functional currency to the reporting currency at the

arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the

reporting date, the following steps are carried out:

taxable profit nor the accounting profit.

–

Assets and liabilities, both monetary and non–monetary, are converted at the closing exchange rates in effect at the reporting date of each

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and

statement of financial position.

interests in joint ventures, except where the Entity is able to control the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated

–

Income, cost and expense items of the statement of income are converted at the average exchange rates for the period, unless those

with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against

exchange rates will fluctuate significantly over the year, in which case operations are converted at the exchange rates prevailing at the date

which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

on which the related operations were carried out.

–

Stockholders’ equity is converted at historical exchange rates, i.e., at the rates in effect on the date on which capital contributions were

probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer

made or earnings were incurred.

–

All conversion differences are recognized as a separate component under stockholders’ equity and form part of other comprehensive

the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or

income items.

Employee benefits

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Entity

expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities

Direct employee benefits are valued in proportion to the services rendered, considering current salaries, and they are recognized under liabilities

Deferred tax assets and liabilities are offset when there is a legal right to offset short–term assets vs. short–term liabilities and when

as they accrue. This item includes mainly employees statutory profit sharing (PTU) payable, paid absences, such as vacations and vacation

they relate to income taxes payable to the same tax authorities and the Entity has the intention of liquidating its assets and liabilities

premiums, and incentives.

on net bases.

Other compensation to which personnel is entitled is recognized in income in the year in which it accrues.

– Current and deferred tax for the year

Statutory employee profit sharing is recorded in income in the year in which it accrues and it is shown under operating expenses in the statement

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive

of income.

income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in

equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included

Statutory employee profit sharing is determined based on the tax profit in accordance with Section I of article 10 of the Mexican Income Tax Law.

in the accounting for the business combination.

Income taxes

The income tax expense represents the sum of tax currently payable and deferred tax.

– Current tax

Current income taxes, calculated as the higher of the regular Mexican income tax (“ISR”) and, through December 31, 2013, the Business Flat

Tax (“IETU”), are recorded in the results of the year in which they are incurred.

Annual Report Alsea 2013 || Annual Report Alsea 2013

k. Store equipment, leasehold improvements and property

Intangible assets acquired separately

Store equipment, leasehold improvements and property are recorded at acquisition cost.

Other intangible assets represent payments made to third parties for the rights to use the brands with which the Entity operates its

establishments under the respective franchise or association agreements. Amortization is calculated by the straight line method based on

Depreciation of store equipment, leasehold improvements and property is calculated by the straight line method, based on the useful lives

the use period of each brand, including renewals considered to be certain, which are generally for 10 to 20 years. The terms of brand rights

estimated by the Entity’s Management. Annual depreciation rates of the main groups of assets are as follows:

Store equipment

Transportation equipment

Production equipment

Buildings

Leasehold improvements

Computer equipment

Office furniture and equipment

Rates

5% to 30%

25%

10% to 20%

7% to 20%

30%

10%

Any significant components of store equipment, leasehold improvements and property that must be replaced periodically are depreciated as

separate components of the asset and to the extent they are not fully depreciated at the time of their replacement, are written off by the Entity

are as follows:

Brands

Domino’s Pizza

Starbucks Coffee

Burger King

Chili’s Grill & Bar

California Pizza Kitchen

P.F. Chang’s

and replaced by the new component, considering its respective useful life and depreciation. Likewise, when major maintenance is performed, the

cost is recognized as a replacement of a component provided that all recognition requirements are met. All other routine repair and maintenance

Pei Wei

Italianni’s

costs are recorded as an expense in the period as they are incurred.

Country

Mexico

Colombia

Mexico

Argentina

Colombia

Chile

Year of expiration

2025

2016

2037

2027

2033

2027

Mexico, Argentina, Chile and Colombia

Depending on opening dates

Mexico

Mexico
Argentina, Chile and Colombia (2)
Mexico (3)
Mexico (1)

2015

2022

2019

2021

2031

Financing costs directly attributable to the acquisition, construction or production of an asset that necessarily requires a substantial period of

time to get it ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other financing costs are accounted

for as expenses for the period in which they are incurred. Financing costs include interest and other costs incurred in relation to loan agreements

(1) The term for each store under this brand is 20 years as of the opening date, with the right to a 10 year extension.
(2) The term for each store under this brand is 10 years as of the opening date, with the right to an additional 10 year extension.
(3) Term of 10 years with the right to an extension.

signed by the Entity. In the years ended December 31, 2013 and 2012, the Entity has not capitalized financing costs under the value of assets,

The Entity has affirmative and negative covenants under the aforementioned agreements, the most important of which are carrying out capital

since did not have any qualifying assets or financing for purchase or construction of assets.

investments and opening establishments. At December 31, 2013 and 2012, the Entity has fully complied with those obligations.

The Entity does not maintain a policy of selling fixed assets at the end of their useful lives. Instead, in order to protect its image and the

Amortization of intangible assets is included in the depreciation and amortization accounts in the statement of income.

Alsea brands, those assets are destroyed or in some cases sold as scrap. The use or lease of equipment outside the provisions of the franchise

agreements is subject to sanctions. Additionally, given the high costs of maintenance or storage required, those assets are not used as spare

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising

parts for other brand stores.

Intangible assets

Intangible assets acquired in a business combination

from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset,

are recognized in profit or loss when the asset is derecognized.

m. Impairment in the y value of long–lived assets, equipment, leasehold improvements, properties, and other intangible assets

At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is

Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at

any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated

the acquisition date (which is regarded as their cost).

in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual

asset, the Entity estimates the recoverable amount of the cash–generating unit to which the asset belongs. When a reasonable and consistent

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization

basis of allocation can be identified, corporate assets are also allocated to individual cash–generating units, or otherwise they are allocated to

and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

the smallest group of cash–generating units for which a reasonable and consistent allocation basis can be identified.

Annual Report Alsea 2013 || Annual Report Alsea 2013

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are

The amount recorded as a provision is the best estimation of the amount required to settle the present obligation at the end of the period being

discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the

reported, considering the risks and uncertainties surrounding the obligation. When a provision is valued using the cash flows estimated to settle

risks specific to the asset for which the estimates of future cash flows have not been adjusted.

the present obligation, the carrying value is shown at the present value of those cash flows.

If it is estimated that the recoverable amount of an asset (or cash generating unit) is lower than its carrying value, the carrying value of the asset

When some or all of the economic benefits required to settle a provision are expected to be recovered by a third party, an account receivable

(or cash generating unit) is reduced to its recoverable amount. Impairment losses are immediately recognized in income. The Entity performs

is recorded as an asset provided that it is virtually certain that the payment will be received and the amount of the account receivable can be

annual impairment tests to identify indications of impairment.

reliably measured.

Inventories and cost of sales

Provisions are classified as current or non–current based on the estimated period of time estimated for settling the related obligations.

Inventories are valued at the lower of cost or net realizable value. Costs, including a portion of fixed and variable indirect costs, are assigned to

inventories through the most appropriate method for the specific type of inventory. In assigning the unit cost of inventories, the Entity uses the

Contingent liabilities acquired as part of a business combination

average cost method (AC).

Cost of sales represents the cost of inventories at the time of sale, increased, when applicable, by reductions in the value of inventory during the

year to its net realizable value.

The Entity records the necessary estimations to recognize reductions in the value of its inventories due to impairment, obsolescence, slow

movement and other causes that indicate that utilization or realization of the items comprising the inventories will be below the recorded value.

o. Leases

Determination of whether an agreement constitutes or includes a lease is based on the substance of the agreement at the date on which it is

signed, if compliance with such agreement depends on the use of one or more specific assets, or if the agreement awards the right to use such

assets, even when such right is not explicitly specified in the agreement.

Financial leases whereby substantially all risks and benefits inherent to ownership of the leased good are transferred to the Entity are capitalized

at the start of the lease period, at the lower of the fair value of the leased property or the present value of the minimum lease payments. Lease

payments are distributed between the financial charges and the reduction of the lease obligation so that a constant ratio of interest is incurred

on the balance of the lease obligation. Financial charges are recognized as interest expense in the statement of income.

Leased assets are depreciated over their useful lives. However, if there is no reasonable certainty that the Entity will obtain ownership at the end

of the lease term, the asset is depreciated over the lower of its estimated useful life or the lease term.

Operating lease payments are recognized as operating expenses using the straight line method over the lease term, except when another

systematic apportionment base is more appropriate for showing the pattern of lease benefits for the user. Contingent lease payments are

recognized as expenses in the periods in which they are incurred.

p. Advance payments

Contingent liabilities acquired in a business combination are initially measured at fair value at the acquisition date. At the end of subsequent

reporting periods, such contingent liabilities are measured at the higher of the amount that would be recognized in accordance with IAS 37 and

the amount initially recognized less cumulative amortization recognized in accordance with IAS 18 Revenue.

Financial instruments

Financial assets and financial liabilities are recognized when the Entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue

of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or

deducted from the fair value of financial assets and financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable

to the acquisition of financial assets and financial liabilities at fair value through profit or loss are recognize immediately in profit or loss.

s. Financial assets

Financial assets are classified into the following specific categories: financial assets “at fair value through profit or loss” (FVTPL), “held–to–

maturity” investments, “available–for–sale” (AFS) and financial assets and “loans and receivables”. The classification depends on the nature

and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets

are recognized and derecognized on the trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require

delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the

relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid

or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected

life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Advance payments include advances for purchase of inventories, property, store equipment, leasehold improvements and services that are

received in the twelve months after the date of the statement of financial position and are incurred in course of regular operations.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as of FVTPL.

q. Provisions

Financial assets at FVTPL

Provisions are recorded when the Entity has a present obligation (be it legal or assumed) as a result of a past event, and it is probable that the

Financial assets are classified as of FVTPL when the financial asset is either held for trading or it is designated as of FVTPL.

Entity will have to settle the obligation and it is possible to prepare a reliable estimation of the total amount.

Annual Report Alsea 2013 || Annual Report Alsea 2013

A financial asset is classified as held for trading if :

5. Derecognition of financial assets

•

It has been acquired principally for the purpose of selling it in the near term; or

The Entity stops recognizing a financial asset only when the contractual rights over the cash flows of the financial asset expire and the risks

On initial recognition it is part of a portfolio of identified financial instruments that the Entity manages together and has a recent actual

and rewards of ownership of the financial asset are transferred.

pattern of short–term profit–taking; or

•

It is a derivative that is not designated and effective as a hedging instrument

A financial asset other that a financial asset held for trading may be designated as of FVTPL upon initial recognition, if:

•

Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is

evaluated on a fair value basis, in accordance with the Entity’s documented risk management or investment strategy, and information

about the grouping is provided internally on that basis; or

•

It forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be

designated as of FVTPL.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration

received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity

is recognized in profit or loss.

t. Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the

substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net

gain or loss recognized in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the “other

2. Equity instruments

income and expenses” in the statement of income.

3. Loans and receivables

Loans and receivables are non–derivative financial assets with fixed or determinable payments that are not traded on an active market

are classified as loans and receivables. Loans and receivables are valued at amortized cost using the effective interest method, less

impairment identified.

Interest income is recognized by applying the effective interest rate, except for short term receivables when the effect of discounting is

inmmaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial

assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying

amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade

receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered

uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against

the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease

can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed

through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what

the amortized cost would have been had the impairment not been recognized.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity

instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Entity’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss

on the purchase, sale, issue or cancellation of the Entity’s own equity instruments.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

4. Other financial liabilities

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortized cost using the

effective interest method.

5. Derecognition of financial liabilities

The Entity derecognizes financial liabilities when, and only when, the Entity’s obligations are discharged, cancelled or they expire. The

difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in

profit or loss.

Derivative financial instruments

Alsea uses derivative financial instruments (DFI) known as forwards or swaps, in order to a) mitigate present and future risks of adverse

fluctuations in exchange and interest rates, b) avoid distracting resources from its operations and the expansion plan, and c) have certainty over

its future cash flows, which also helps to maintain a cost of debt strategy. DFI’s used are only held for economic hedge purposes, through which

the Entity agrees to the trade cash flows at future fixed dates, at the nominal or reference value, and they are valued at fair value.

Annual Report Alsea 2013 || Annual Report Alsea 2013

Embedded derivatives: The Entity reviews all signed contracts to identify the existence of embedded derivatives. Identified embedded

Markets and counterparties: Derivative financial instruments are contracted in the local market under the over the counter (OTC) mode.

derivatives are subject to evaluation to determine whether or not they comply with the provisions of the applicable regulations; if so, they

Following are the financial entities that are eligible to close operations in relation to the Entity’s risk management: BBVA Bancomer S.A.,

are separated from the host contract and are valued at fair value. If an embedded derivative is classified as trading instruments, changes in

Banco Nacional de México, S. A., Banco Santander, S. A., Barclays Bank México S. A., Deutsche Bank AG, Goldman, Sachs Paris Inc. Etcie., HSBC

their fair value are recognized in income for the period.

México S. A., Merril Lynch Capital Services Inc., Morgan Stanley Capital Services Inc., and UBS AG.

Changes in the fair value of embedded derivatives designated for hedging recognize in based on the type of hedging: (1) when they relate to fair

The Corporate Financial Director is empowered to select other participants, provided that they are regulated institutions authorized to carry

value hedges, fluctuations in the embedded derivative and in the hedged item they are valued at fair value and are recorded in income; (2) when

out this type of operations, and that they can offer the guarantees required by the Entity.

they relate to cash flows hedges, the effective portion of the embedded derivative is temporarily recorded under other comprehensive income,

and it is recycled to income when the hedged item affects results. The ineffective portion is immediately recorded in income.

Accounting of hedging: DFI’s are initially recorded at their fair value, which is represented by the transaction cost. After initial recognition,

DFI’s are valued at each reporting period at their fair value and changes in such value are recognized in the statement of income, except

Strategy for contracting DFI’s: Every month, the Corporate Finance Director’s office must define the price levels at which the Corporate

if those derivative instruments have been formally designated as and they meet the requirements to be considered hedge instruments

Treasury must operate the different hedging instruments. Under no circumstances should amounts above the monthly resource requirements

associated to a hedge relation.

be operated, thus ensuring that operations are always carried out for hedging and not for speculation purposes. Given the variety of

derivative instruments available to hedge risks, Management is empowered to define the operations for which such instruments are to be

Polices for designating calculation and valuation agents

contracted, provided they are held for hedging and not for speculative purposes.

Processes and authorization levels: The Corporate Treasury Manager must quantify and report to the Financial Director the monthly

the instrument is contracted, who is asked to issue the respective reports at the month–end closing dates specified by the Entity.

requirements of operating resources. The Corporate Financial Director may operate at his discretion up to 50% of the needs for the resources

being hedged, and the Administration and Financial Management may cover up to 75% of the exposure risk. Under no circumstances may

Likewise, as established in the master agreements (ISDA) that cover derivative financial operations, the respective calculations and

amounts above the limits authorized by the Entity’s General Management be operated, in order to ensure that operations are always for

valuations are presented in the quarterly report. The designated calculation agents are the corresponding counterparties. Nevertheless, the

hedging and not for speculation purposes. The foregoing is applicable to interest rates with respect to the amount of debt contracted at

Entity validates all calculations and valuations received by each counterparty.

The fair value of DFIs is reviewed monthly. The calculation or valuation agent used is the same counterparty or financial entity with whom

variable rates and the exchange rate with respect to currency requirements. If it becomes necessary to sell positions for the purpose of

making a profit and/or incurring a “stop loss”, the Administration and Finance Director must first authorize the operation.

Internal control processes: With the assistance of the Corporate Treasury Manager, the Corporate Financial Director must issue a report the

4. Critical accounting judgments and key sources for estimating uncertainties

following working day, specifying the Entity’s resource requirements for the period and the percentage covered by the Administration and

In applying the Entity’s accounting policies, which are described in Note 3, Management is required to make certain judgments, estimates and

Financial Manager. Every month, the Corporate Treasury Manager will provide the Accounting department with the necessary documentation

assumptions on the amounts of the carrying value of assets and liabilities included in the financial statements. The related estimates and

to properly record such operations. The Administration and Finance Director will submit to the Corporate Practices Committee a quarterly

assumptions are based on experience and other factors considered to be relevant. Actual results could differ materially from those estimates.

report on the balance of positions taken.

Estimations and assumptions are reviewed on a regular basis. Changes to the accounting estimations are recognized in the period in which

The actions to be taken in the event that the identified risks associated with exchange rate and interest rate fluctuations materialize, are

changes are made, or in future periods if the changes affect the current period and other subsequent periods.

to be carried out by the Internal Risk Management and Investment Committee, of which the Alsea General Director and the main Entity’s

directors form part.

a. Critical judgments for applying the accounting policies

Main terms and conditions of the agreements: Operations with DFI’s are carried out under a master agreement on an ISDA (International

The following are the critical judgments, apart from those involving estimations, that the Entity’s management has made in the process of

Swap Dealers Association) form, which must be standardized and duly formalized by the legal representatives of the Entity and the financial

applying the Entity’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial

institutions.

statements.

Margins, collateral and credit line policies: In certain cases, the Entity and the financial institutions have signed an agreement enclosed to

Control over Operadora de Franquicias Alsea, S.A. de C.V. (OFA)

the ISDA master agreement, which stipulates conditions that require them to offer guarantees for margin calls in the event that the mark–

to–market value exceeds certain established credit limits.

The Entity has the policy of monitoring the volume of operations contracted with each institution, in order to avoid as much as possible

Note 16 indicates that OFA is one of the Entity’s subsidiaries. Based on the contractual agreements signed by the Entity and other investors, the

Entity is empowered to appoint and remove most of the members of the board of directors of OFA, which has the power to control the relevant

operations of OFA. Therefore, the Entity’s management concluded that the Entity has the capacity to unilaterally control the relevant activities of

margin calls and diversify its counterparty risks.

OFA and therefore it has control over OFA.

Identified risks are those related to variations in exchange rate and interest rate. Derivative instruments are contracted under the Entity’s

policies and no risks are expected to occur that differ from the purpose for which those instruments are contracted.

Annual Report Alsea 2013 || Annual Report Alsea 2013

b. Key sources of estimation uncertainty

In estimating the fair value of an asset or liability, the Entity uses market–observable data to the extent it is available. When level 1 inputs

are not available, the Entity engages third party qualified appraisers to perform the valuation. The valuation committee works closely with

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period,

the qualified external appraiser to establish the appropriate valuation techniques and inputs to the model. Every three months, the Financial

that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Director reports the findings of the valuation committee to the Entity’s board of directors to explain the causes of fluctuations in the fair

Impairment of long–lived assets

value of assets and liabilities.

Information about the valuation techniques and inputs used in the determining the fair value of various assets and liabilities are disclosed

The Entity annually evaluates whether or not there is indication of impairment in long–lived assets and calculates the recoverable amount

Note 23 i.

when indicators are present. Impairment occurs when the net carrying value of a long–lived asset exceeds its recoverable amount, which is

the higher of the fair value of the asset less costs to sell and the value in–use of the asset. Calculation of the value in–use is based on the

6. Contingencies

discounted cash flow model, using the Entity’s projections of its operating results for the near future. The recoverable amount of long–lived

assets is subject to uncertainties inherent to the preparation of projections and the discount rate used for the calculation.

Given their nature, contingencies are only resolved when one or more future events occur or cease to occur. The evaluation of contingencies

inherently includes the use of significant judgment and estimations of the outcomes of future events.

2. Useful life of store equipment, leasehold improvements and properties

Fixed assets acquired separately are recognized at cost less accumulated depreciation and amortization and accrued losses for impairment.

5. Non–monetary transactions

Depreciation is calculated based the straight–line method over the estimated useful life of assets. The estimated useful life and the

depreciation method are reviewed at the end of each reporting period, and the effect of any changes in the estimation recorded is recognized

In the year, the Entity carried out the following activities which did not generate or utilize cash, for which reason, they are not shown in the

prospectively.

Income tax valuation

consolidated statements of cash flows:

As mentioned in Note 24, in April 2012, Alsea declared a dividend payment of $308,902 in shares by capitalizing the corresponding amount of

the after–tax earnings account.

The Entity recognizes net future tax benefits associated with deferred income tax assets based on the probability that future taxable income

will be generated against which the deferred income tax assets can be utilized. Evaluating the recoverability of deferred income tax assets

The Entity acquired 82% of Starbucks Coffee Chile, S.A. (Starbucks Chile) and formalized the merger of OFA and Burger King Mexicana, S.A de C.V.

requires the Entity to prepare significant estimates related to the possibility of generating future taxable income. Future taxable income

(“BKM”), whereby the Entity also acquired 28.1% of the shares of OFA held by BKW, with which Alsea’s final shareholding in OFA is 80% and in

estimates are based on projected cash flows from the Entity’s operations and the application of the existing tax laws in Mexico. The Entity’s

BKW is 20%. The breakdown of those acquisitions and the consideration paid in shares and assumed liabilities are shown in Note 16.

capacity to realize the net deferred tax assets recorded at any reporting date could be negatively affected to the extent that future cash

flows and taxable income differ significantly from the Entity’s estimates.

Additionally, future changes in Mexico’s tax laws could limit the capacity to obtain tax deductions in future periods.

Cash and cash equivalents

Intangible assets

For the purpose of the consolidated statements of cash flows, the cash and cash equivalents caption includes cash, banks and investments in

money market instruments. The cash and cash equivalents balance included in the statement of financial position and the statement of cash

flows at December 31, 2013 and 2012 is comprised as follows:

The period and amortization method of an intangible asset with a defined life is reviewed at a minimum at each reporting date. Changes to

the expected useful life or the expected pattern of consumption of future economic benefits are made changing the period or amortization

method, as the case may be, and are treated as changes in the accounting estimations. Amortization expenses of an intangible asset with

a definite useful life are recorded in income under the expense caption in accordance with the function of the intangible asset.

Cash

Investments with original maturities of under three months

2013

2012

545,708

117,562

329,841

602,753

5. Fair value measurements and valuation processes

Some of the Entity’s assets and liabilities are measured at fair value for financial reporting purposes. The Entity’s Board of Directors has

set up a valuation committee, which is headed up by the Entity’s Financial Director, to determine the appropriate valuation techniques and

The Entity maintains its cash and cash equivalents with accepted financial entities and it has not historically experienced losses due to credit

inputs for fair value measurements.

risk concentration.

Total cash and cash equivalents

663,270

932,594

Annual Report Alsea 2013 || Annual Report Alsea 2013

7. Accounts receivable from customers

Inventories

The accounts receivable from customers disclosed in the consolidated statements of financial position are classified as loans and accounts

At December 31, 2013 and 2012, inventories are as follows:

receivable and therefore they are valued at their amortized cost.

At December 31, 2013 and 2012, the customer balance is comprised as follows:

Franchises

Credit card

Other

Allowance for doubtful accounts

2013

2012

213,231

110,442

90,505

414,178

(54,074)

164,053

101,310

100,442

365,805

(26,324)

360,104

339,481

Food and beverages

Containers and packaging

Other

Obsolescence allowance

Total

2013

2012

491,256

455,960

57,682

99,403

(6,461)

46,265

56,251

(8,082)

641,880

550,394

Inventories recognized under cost of sales for inventory consumption in the period related to continuous operations totaled $5,227,739 and

$4,755,290 for the years ended December 31, 2013 and 2012, respectively.

The average credit term for the sale of food, beverages, containers, packaging, royalties and other items to owners of sub–franchises is from

eight to 14 days. No interest charges are made on accounts receivable to customers in the first 14 days after billing is issued. After that date,

9. Advance payments

late–payment interest is calculated at the the Mexican Interbank Equilibrium Rate (TIIE) plus 5 points x 2% per year on the unpaid balance at

Advance payments were made for the acquisition of:

the date of settlement.

Following is the aging of past due but unimpaired accounts receivable:

15–60 days

60–90 days

More than 90 days

Total

2013

37,376

12,327

73,615

2012

36,540

7,118

55,844

123,318

99,502

Insurance and other services

Inventories

Lease of locales

Total

10. Non–current guarantee deposits

Guarantee deposits are comprised as follows:

Average time overdue (days)

2013

2012

136,796

134,459

33,068

50,990

102,821

30,390

304,323

184,201

2013

2012

The allowance for doubtful account balances relates to amounts owed by franchisees. Amounts recognized primarily for this item amount to

$54,074 and $26,324 in 2013 and 2012, respectively.

Non–current guarantee deposits for leased properties

128,108

110,020

Credit risk concentration is limited because the customer base is large and dispersed, and the risk of default by customers in relation to services

and supply of food is controlled and supported by a service and/or master franchise agreement.

Annual Report Alsea 2013 || Annual Report Alsea 2013

11. Store equipment, leasehold improvements and property

12.

Intangible assets

a. Store equipment, leasehold improvements and properties are as follows:

Intangible assets are comprised as follows:

Buildings

Store
equipment

Leasehold
improvements

Transportation
equipment

Computer
equipment

Production
equipment

furniture and Construction
equipment

in process

Total

Office

Brand
rights

Commissions
for store
opening

Franchise
and use of
locale rights

Licenses
and
developments

Goodwill

Total

Cost

Balance as of January 1, 2012

206,437 $

1,873,480 $ 2,926,312 $

114,623 $

303,690 $

568,650 $

71,203 $

411,166 $ 6,475,561

Balance as of January 1, 2012

717,473 $

410,514 $

318,428 $

285,720 $

206,932 $ 1,939,067

Acquisitions

Business acquisition

Disposals

6,956

328,707

–

164,741

351,879

162,073

15,119

2,178

74,444

15,357

20,726

14,726

108,565

–

302

(553)

(91,043)

(80,501)

(32,361)

(20,306)

(912)

(1,751)

921,122

344,651

(227,427)

Acquisitions

Business acquisition

Adjustment for currency conversion

–

Adjustment for currency conversion

(43,907)

(99,489)

(880)

(8,436)

–

(1,667)

(12,897)

(167,261)

Disposals

67,839

803,447

8,330

77,133

67,239

–

220,541

–

785,816

1,589,263

(12,725)

(12,011)

(1,376)

–

(9,506)

(20,090)

(6,565)

(4,676) –

(26,023)

(40,837)

Balance as of December 31, 2012

212,855

2,231,978

3,260,274

Acquisitions

Business acquisition

Disposals

93,449

263,512

375,472

91,529

264,705

–

98,679

27,091

180

364,749

588,464

94,508

194,299

4,690

–

82,813

10,533

1,408

506,834

7,346,646

68,684

31,860

1,127,548

394,372

Balance as of December 31, 2012

Acquisitions

Business acquisition

1,566,528

386,743

387,620

9,789

11,489

17,985 –

212,177

18,366

348,372

105,973

–

113

789,877

992,748

3,682,011

Adjustment for currency conversion

(7,139)

(60,775)

(116,515)

(2,100)

(13,206)

–

(4,269)

(18,560)

(222,564)

Disposals

(70,620)

(25,561)

(10,519)

(10,750)

(2,096)

(176)

–

(119,722)

Adjustment for currency conversion

(24,015)

(14,239)

(3,441)

(838) –

(649)

(2,860)

(110)

(66) –

339,428

826,341

(42,533)

(3,685)

Balance as of December 31, 2013

299,165 $

2,455,624 $ 3,758,375 $

113,331 $

439,991 $

780,667 $

90,309 $

588,818 $ 8,526,280

Balance as of December 31, 2013

1,569,638 $

381,133 $

614,612 $

453,554 $ 1,782,625 $ 4,801,562

Depreciation

Amortization

Balance as of January 1, 2012

60,027 $

792,519 $ 1,390,338 $

72,909 $

212,609 $

434,824 $

39,915 $

– $ 3,003,141

Balance as of January 1, 2012

301,982 $

339,346 $

140,204 $

211,887 $

16,953 $

1,010,372

Charge for depreciation for the year

10,038

227,427

212,405

39,546

19,603

Business acquisition

Adjustment for currency conversion

–

53,142

57,350

7,631

(10,852)

(31,410)

(484)

(5,789)

–

15,913

1,636

9,449

1,018

(1,371)

Disposals

(325)

(79,006)

(54,789)

(26,542)

(18,496)

(1,119)

(5,581)

Balance as of December 31, 2012

69,743

983,230

1,573,894

Charge for depreciation for the year

7,296

240,616

270,246

63,432

16,271

235,501

453,308

57,799

28,014

43,430

4,748

Adjustment for currency conversion

Disposals

(16)

–

(21,057)

–

(879)

(10,602)

–

(1,989)

(65,424)

(13,323)

(7,628)

(9,498)

(1,622)

(152)

–

534,381

120,777

(49,903)

(185,858)

3,422,538

624,990

(34,543)

(97,647)

Amortization

Business acquisition

Adjustment for currency conversion

Disposals

Balance as of December 31, 2012

Amortization

Adjustment for currency conversion

Disposals

136,488

46,321

41,928

52,180

–

8,500

–

(2,414)

(11,436)

(573)

–

(5,608)

(7,703)

(3,144)

(1,752) –

276,917

8,500

(14,401)

(18,207)

438,948

166,703

366,528

178,415

262,337

16,953

1,263,181

17,916

41,756

71,756

–

(6,182)

(13,946)

(252)

(652)

(1,414)

(951)

(207) –

(42) –

298,131

(21,749)

(1,897)

Balance as of December 31, 2013

77,023 $

1,137,365 $

1,830,817 $

71,196 $

273,200 $

479,700 $

46,037 $

– $ 3,915,338

Balance as of December 31, 2013

599,217 $

369,846 $

217,806 $

333,844 $

16,953 $

1,537,667

Net cost

Balance as of December 31, 2012

143,112 $

1,248,748 $ 1,686,380 $

35,247 $

129,248 $

135,156 $

39,383 $

506,834 $ 3,924,108

Balance as of December 31, 2012

1,127,580 $

20,215 $

209,205 $

86,035 $

975,795 $ 2,418,830

Balance as of December 31, 2013

222,142 $

1,318,259 $

1,927,558 $

42,135 $

166,791 $

300,967 $

44,272 $

588,818 $ 4,610,942

Balance as of December 31, 2013

970,421 $

11,287 $

396,806 $

119,710 $ 1,765,672 $ 3,263,896

Annual Report Alsea 2013 || Annual Report Alsea 2013

13. Operating lease agreements

Subsidiary and/or associate

Operations

2013

2012

The locales housing the stores of Alsea are leased from third parties. In general terms, lease agreements signed for the operations of the Entity’s

Grupo Calpik, S.A.P.I. de C.V.

Operator of the California Pizza Kitchen

establishments are for a term of between five and ten years, with fixed rates set in pesos. Lease payments are generally revised annually and

brand in Mexico

99.99%

they increase on the basis of inflation. As an exception, lease payments for certain establishments are agreed in US dollars, and in some cases,

Especialista en Restaurantes

Operator of the P.F. Chang’s Chang’s y

they may include a variable component, which is determined on the basis of net sales of the respective establishment. Alsea considers that it

de Comida Estilo Asiática, S.A. de C.V.

Pei Wei en México

99.99%

depends on no specific lessor and there are no restrictions for the entity as a result of having signed such agreements.

Some of the Entity’s subsidiaries have signed operating leases for company vehicles and computer equipment.

In the event of breach of any of the lease agreements, the Entity is required to settle in advance all its obligations, including payments and

penalties for early termination, and it must immediately return all vehicles to a location specified by the lessor.

Rental expense derived from operating lease agreements related to the locales housing the stores of the different Alsea brands are as follows:

Distribuidora e Importadora

Distributor of foods and production materials

Alsea, S.A. de C.V.

Italcafe, S.A. de C.V.

for the Alsea and related brands

Operator of Italianni’s brand

Grupo Amigos de San Ángel, S.A. de C.V.

Operator of Italianni’s brand

Grupo Amigos de Torreón, S.A. de C.V.

Operator of Italianni’s brand

Grupo Amigos de Perisur, S.A. de C.V.
Starbucks Coffee Chile, S.A. (1)

Operator of Italianni’s brand

Operator of the Starbucks brand in Chile

99.99%

100.00%

89.77%

93.86%

94.88%

100.00%

99.99%

100.00%

89.77%

93.86%

94.88%

18.00%

2013

2012

the financial information. Before that date, the Entity recognized the equity method (see Note 1a and 16).

(1)

In September 2013, Alsea acquired the entirety of the shares of Starbucks Coffee Chile, S.A. de C.V., as from which date it has consolidated

Rental expense

1,262,533

1,066,583

14.

Investment in subsidiaries

a. The Entity’s shareholding in the capital stock of its main subsidiaries is as follows:

Subsidiary and/or associate

Operations

2013

2012

Panadería y Alimentos para Food Service

Distribution of Alsea brand foods

Café Sirena, S. de R.L de C.V.

Operator of the Starbucks brand in Chile

Operadora de Franquicias Alsea, S.A. de C.V.

Operator of the Burger King brand in Mexico

Operadora y Procesadora de Productos

Operator of the Domino’s Pizza brand in Mexico

de Panificación S.A. de C.V.

Gastrosur, S.A. de C.V.

Operator of the Chili’s Grill & Bar brand in Mexico

Fast Food Sudamericana, S.A.

Operator of the Burger King brand in Argentina

Fast Food Chile, S.A.

Operator of the Burger King brand in Chile

Starbucks Coffee Argentina, S.R.L

Operator of the Starbucks brand in Argentina

Dominalco, S.A.

Operator of the Domino’s Pizza brand in Colombia

Servicios Múltiples Empresariales

Operator of Factoring and Financial Leasing

ACD S.A. de C.V. SOFOM E.N.R

in Mexico

Asian Bistro Colombia, S.A.S

Asian Bistro Argentina S.R.L.

Operator of the P.F. Chang’s brand in Colombia

Operator of the P.F. Chang’s brand in Argentina

Operadora Alsea en Colombia, S.A.

Operator of the Burger King brand in Colombia

Asian Food Ltda.

Operator of the P.F. Chang’s brand in Chile

100.00%

80.00%

99.99%

100.00%

95.00%

99.99%

100.00%

95.00%

100.00%

82.00%

99.99%

82.00%

95.00%

99.99%

100.00%

95.00%

100.00%

15. Investment in associated companies

Acquisition of the non–controlling interest of Grupo Axo

In June 2013, Alsea reached an agreement to acquire 25% of the capital stock of Grupo Axo. The respective carrying entry was made in

the consolidated statement of financial position as investments in shares of associated companies, and that operation gave rise goodwill of

$559,887, which is included in the balance of the investment.

Goodwill arising from the acquisition of Grupo Axo resulted from the consideration paid, which included the amounts of the benefits of new

businesses, mainly the sale of international brands of clothes and cosmetics, from which growth is expected through a development plan. Those

benefits are recognized separately in goodwill because they fail to meet the recognition criteria for identifiable intangible assets.

At December 31, 2013 and 2012, the investment in shares of associated companies is comprised of the Entity’s direct interest in the capital stock

of the companies listed below:

Starbucks Coffee

Chile, S.A.

Grupo Axo,

2013

–

25%

(%)

2012

Main operations

Interest in associated company

12/31/2013

12/31/2012

18%

Operator of the Starbucks

–

40,296

brand in Chile

–

Sales of prestigious brands

788,665

–

of clothes and

accessories

Total

788,665

40,296

Annual Report Alsea 2013 || Annual Report Alsea 2013

Starbucks Coffee

Chile, S.A.

Grupo Axo,

2013

–

25%

(%)

Equity in results

2012

Main operations

12/31/2013

12/31/2012

18%

Operator of the Starbucks

–

12,978

brand in Chile

–

Company engaged in sales

43,582

–

of prestigious brands of

clothes and accessories

Total

43,582

12,978

Starbucks Coffee Chile, S.A.

The Entity’s interest in equity as of December 31, 2012, as well as in the income and expenses for the year ended December 31, 2012 was 18%.

The associated company’s total assets, liabilities and equity and its results are as follows:

Current assets

Non–current assets

Current liabilities

Non–current liabilities

Equity

Income

Costs

Net profit for the period

Grupo Axo, S.A.P.I. de C.V.

12/31/2012

207,660

136,399

99,908

20,287

223,864

12/31/2012

536,655

464,555

72,100

Revenues

Costs

Profit for the period

01/08/2013 to 31/12/2013

1,207,860

1,033,532

174,328

The reconciliation of the financial information summarized above regarding the carrying value of the interest in Grupo Axo is as follows:

Net assets of the associated company

Entity’s interest in Grupo Axo (25%)

Plus: goodwill

2013

915,114

228,778

559,887

Carrying value of the Entity’s interest in Grupo Axo

788,665

16. Business combination

Acquisition of the controlling interest of Starbucks Coffee Chile

In September 2013, Alsea acquired 82% of Starbucks Coffee Chile, S.A. (Starbucks Chile), which operates the Starbucks stores in Chile, as a result

of which Alsea’s shareholding in that entity increased from 18% to 100%, thus constituting a business combination that is currently undergoing

valuation by the purchase method in accordance with the IFRS.

The following steps are required in acquisition accounting:

•

Recognize and measure the respective assets acquired and liabilities assumed.

In a business combination performed in phases, the purchaser reassesses its previous interest in the acquired entity at date of acquisition

using the fair value and recognize the resulting gain or loss, if any, in income.

•

Determine the respective franchise right or goodwill, if any.

Following is an analysis of the preliminary assignment of acquisition cost to the fair values of acquired net assets. Given that the accounting for the

acquisition is in the measurement period, which is expected to conclude in September 2014, the following preliminary figures are subject to change:

The Entity’s interest in assets and liabilities as of December 31, 2013, and in the income and expenses for the period from the date of acquisition

to December 31, 2013 is 25%. The associated company’s total assets, liabilities and equity and its results are as follows:

Current assets

Non–current assets

Current liabilities

Non–current liabilities

Equity

Non–controlling equity

12/31/2013

1,435,557

911,862

997,003

416,473

915,114

18,829

Item

Current assets

Equipment and intangible assets

Current and long–term liabilities

Fair value of net assets

Fair value of prior interest

Price paid in cash

Total value of consideration paid

Goodwill

August 2013

218,083

148,125

(101,807)

264,401

47,593

860,014

907,607

643,206

Annual Report Alsea 2013 || Annual Report Alsea 2013

Goodwill arising from the acquisition of Starbucks Coffee Chile derives from the price paid, which included amounts in relation to the benefits

The consideration paid in OFA shares, which is in the measurement phase, totals $217,534 and comprises 20% of its stockholders’ equity.

of operating 44 stores for which market growth is expected based on a development plan over the next five years in Chile, as well the adjacent

benefits, mainly the growth in income, operating synergies and the purchase of supplies. Those benefits are recognized separately in goodwill

Goodwill arising from the acquisition of Burger King Mexicana derives from the price paid, which included amounts related to the benefits of

because they fail to meet the recognition criteria for identifiable intangible assets.

operating 204 stores (97 acquired and 107 own stores), for which market growth is expected based on a development plan over the next five

years, as well the adjacent benefits, mainly the growth in income, operating synergies and the purchase of supplies resulting from the merger

As from the acquisition date, Starbucks Chile has contributed $231,131 to consolidated revenues and $32,772 to the profit before income taxes

of the Burger King brand in Mexico. Those benefits are recognized separately in goodwill because they fail to meet the recognition criteria for

for the period. If the acquisition had occurred on January 1, 2013, Alsea’s consolidated net profit for the period would have been $694,362 and

identifiable intangible assets.

revenues would have been $16,087,950. The acquisition price did not include any a contingent consideration. Acquisition expenses related to this

transaction amounted to $1,028, which is shown under other expenses.

As from the acquisition date, Burger King Mexicana has contributed $564,376 to revenues and $3,756 to the profit before income taxes for the

period. If the acquisition had occurred on January 1, 2013, Alsea’s consolidated net profit for the period would have been $647,842 and revenues

Net cash flows related to the acquisition of the subsidiary total $731,358, corresponding to the consideration paid in cash of $860,014, less cash

would have been $15,893,611. Acquisition expenses related to this transaction amounted to $1,101, which is shown under other expenses.

and cash and cash equivalent balances acquired in the amount of $128,656.

Net cash flows related to the acquisition of the subsidiary total $288,067, corresponding to the consideration paid in cash of $333,895, less cash

Acquisition of Burger King Mexicana

and cash and cash equivalents balances acquired totaling $47,828.

In April 2013, the acquisition of the BURGER KING® master franchise in Mexico concluded. According to the strategic association egreement

Acquisition of Italianni’s

signed by Alsea and Burger King Worldwide Inc. (BKW), the BKW subsidiary in Mexico, Burger King Mexicana, S.A. de C.V. (BKM) was merged with

OFA, a subsidiary of Alsea, with the latter as the surviving company and operator of 204 BURGER KING® restaurants in Mexico. After the merger

The acquisition of Italianni’s concluded in February 2012. The final price was $1,765 million.

concluded, Alsea also acquired 28.1% of the shares of OFA held by BKW, after which Alsea’s final shareholding in OFA is 80% and BKW’s final

shareholding in OFA is 20%.

Alsea acquired 8,168,161 shares comprising 100% of the shares of Italcafé, SA. de C.V., which owns: i.– Eight Italianni’s units and the exclusive

rights to develop, expand and sell subfranchises of the Italianni’s brand throughout Mexico, and ii.– 89.7682% of the capital stock of Grupo

Given that the operation was considered the acquisition of is business, the related acquisition accounting was applied as of the acquisition date.

Amigos de San Ángel, S.A. de C.V. (“GASA”), a company that owns 34 Italianni’s units. The purpose of the acquisition is to consolidate the

The acquisition price did not include any contingent consideration.

expansion plans of the Casual Dinning segment.

The following steps are required in acquisition accounting:

i.– Recognize and measure the respective assets acquired and liabilities assumed

ii.– Determine the respective franchise right or goodwill, if any.

Franchise license agreements, other rights and assets assigned to third parties were paid to the holders of those rights and goods as part of the

transaction.

Following is an analysis of the preliminary assignment of acquisition cost to the fair values of acquired net assets. Given that the accounting for

the acquisition is in the measurement period, which is expected to conclude in April 2014, the following preliminary figures are subject to change:

a) The exclusive operation of the Italianni’s brand restaurants in Mexico for a maximum term of 30 years.

Additionally, the final agreement contemplates the following, among other matters:

Item

March 2013

b) Alsea will pay no royalties, opening fees or commissions for the use of the brand or the franchise model.

Current assets

Equipment and intangible assets

Deferred taxes

Current and long–term liabilities

Fair value of net assets

Consideration paid in shares

Price paid in cash

Total value of price paid

Goodwill

106,128

309,374

62,803

(73,547)

404,758

217,534

333,895

551,429

146,671

c) There is no obligation to comply with an openings plan.

d) The assignment of franchise agreements to existing third parties.

e) The power to award new franchises to third parties.

The rights to distribute all raw materials to the brand’s restaurants.

Annual Report Alsea 2013 || Annual Report Alsea 2013

The measurement period concluded in February 2013. Following is an analysis of fair value to the net assets acquired as of the date of acquisition.

Assignment of goodwill to cash generating units

No changes arose to the preliminary recognition of the acquisition.

In order to carry out impairment tests, goodwill was assigned to the following cash generating units:

Item

Current assets

Store equipment and properties, net

Intangible assets, net

Short–term and long–term debts

Fair value net assets

Price paid in cash

Non–controlling interest

Total value of price paid

Goodwill

February 2012

173,961

242,241

740,619

(204,063)

952,758

1,765,000

(26,426)

1,738,574

785,816

Burger King Mexicana

Domino’s Pizza

Chili’s

Italianni’s

Starbucks Coffee Chile

2013

2012

239,756

93,085

70,280

26,614

785,816

643,206

70,280

26,614

785,816

–

1,765,672

975,795

At December 31, 2013 and 2012, studies performed on impairment testing concluded that goodwill shows no signs of impairment.

The non–controlling interest recognized at the acquisition date was valued based in proportion to identifiable net assets.

18. Long–term debt

Goodwill arising from the acquisition of Italianni’s derives from the consideration paid, which included amounts related to the benefits of

operating the Italian food brand, for which market growth is expected based on a development plan over the next five years, as well the adjacent

benefits, mainly the growth in income and the expected operating synergies. Those benefits are recognized separately in goodwill because they

fail to meet the recognition criteria for identifiable intangible assets.

As from the acquisition date and until December 31, 2012, Italinanni’s has contributed $742,466 to revenues and $43,622 to the profit before

income taxes for the period. If the acquisition had occurred on January 1, 2013, Alsea’s consolidated net profit for the period would have been

$413,001 and revenues would have been $13,652,912.

Acquisition expenses related to this transaction amounted to $3,234, which is shown under other expenses.

Long–term debt at December 31, 2013 and 2012 is comprised of unsecured loans, as shown below:

Maturities

Average annual interest rate

2013

2012

2014–2018

4.50%

8.00%

Single loans

Less current maturities

Long–term maturities

2,554,767

2,474,480

388,486

396,647

2,166,281

2,077,833

Net cash flows related to the acquisition of the subsidiary total $1,758,181, corresponding to the consideration paid in cash of $1,765,000, less

the acquired cash and cash and cash equivalents balances acquired for a total of $6,819.

Annual long–term debt maturities at December 31, 2013 are as follows:

17. Goodwill

Goodwill is comprised as follows:

Item

Balance as of January 01, 2012

Italianni’s

Balance as of December 31, 2012

Burger King Mexicana

Starbucks Coffee Chile

Balance as of December 31, 2013

Amount

189,979

785,816

975,795

146,671

643,206

1,765,672

Year

2014

2015

2016

2017

2018

Amount

388,486

472,598

549,098

702,098

442,487

2,554,767

Bank loans include certain affirmative and negative covenants, such as maintaining certain financial ratios. At December 31, 2013 and 2012, all

such obligations have been duly met.

Annual Report Alsea 2013 || Annual Report Alsea 2013

19. Debt instruments

In June 2013, the Entity decided to issue debt instruments for a total of $2,500,000 over 5 years as from the issue date, maturing in June 2018.

Those instruments will accrue interest at the 28–day TIIE rate plus 0.75 percentage points. The balance at December 31, 2013 is $2,488,850.

Based on the debt instrument program established by Alsea, in May 2011, the Entity concluded the placement of debt instruments for a total of

In Colombia, i– Income tax is determined on the basis of taxable income. The tax rate is 32%, ii.– The percentage for determining presumptive

income is 3% of the liquid equity of the preceding year.

In Argentina i.– Tax on income The Entity applies the deferred tax method to recognize the accounting effects of taxes on earnings at the 30%

rate. ii.– Tax on presumptive minimum earnings (IGMP for its acronym in Spanish), the Entity determines IGMP applying the current 1% rate to

assets computable at each year–end closing, iii.– Tax on personal goods of individuals or business entities residing abroad, the tax is determined

$1,000 million on the Mexican market (ALSEA11). The intermediaries that participated in placing the offer were HSBC Casa de Bolsa, S. A. de C. V.,

applying the 0.5% to the proportional value of equity at the year–end closing and it is considered a single and final payment.

Grupo Financiero HSBC, Actinver Casa de Bolsa, S. A. de C. V. and Grupo Financiero Actinver.

Income taxes recognized in income

The debt instruments in question are for a term of three years as from their issue date, they mature in May 2014 and are subject to the 28–day TIIE

rate plus 1.30 percentage points.

In December 2012, the Entity decided to prepay the entirety of the debt instrument. Therefore, at December 31, 2012, no amounts are outstanding

under ALSEA 11. At December 2012, the balance of expenses related to such issue, such as legal fees, issue costs, and printing and placement

Income tax (tax basis)

Deferred income tax

expenses, were recognized in the consolidated statement of income for the year subsequent to the prepayment.

2013

2012

422,573

(137,706)

326,795

(107,648)

284,867

219,147

20. Income taxes

The Entity is subject to income tax and through December 31, 2013, to flat tax.

Income tax – The rate was 30% in 2013 and 2012 and as a result of the new 2014 income tax law (2012 tax law), the rate will continue at 30%

in 2014 and thereafter. The Entity incurred income tax on a consolidated basis up to 2013 with its Mexican subsidiaries. As a result of the 2014

tax reform, the tax consolidation regime was eliminated, and the Entity and its subsidiaries have the obligation to pay the deferred income tax

determined as of that date during the subsequent five years beginning in 2014, as illustrated below.

Pursuant to Transitory Article 9, section XV, subsection d) of the 2014 Law, given that as of December 31, 2013 the Entity was considered to be

a holding company and was subject to the payment scheme contained in Article 4, Section VI of the transitory provisions of the income tax law

published in the Federal Official Gazette on December 7, 2009, or article 70–A of the income tax law of 2013 which was repealed, it must continue

to pay the tax that it deferred under the tax consolidation scheme in 2007 and previous years based on the aforementioned provisions, until such

payment is concluded.

Flat tax – Flat tax was eliminated as of 2014; therefore, up to December 31, 2013, this tax was incurred both on revenues and deductions and

certain tax credits based on cash flows from each year. The respective rate was 17.5%.

As of 2008, the Asset Tax Law (LIMPAC) was eliminated, but under certain provisions of the income tax law, the amount of this tax paid in the 10

years immediately prior to that in which income tax is first paid may be recovered in accordance with applicable tax provisions.

The current income tax is the grater of ISR and IETU up to 2013.

In Chile, in April 2010, the Chilean government announced the 2010–2013 financing plan for the reconstruction of Chile after the February 2010

earthquake. Such financing plan includes a temporary increase in the First Category Interest rate of the historical rate of 17% to 20% in 2011,

18.5% in 2012 and reduces it back to 17% in 2013. The change in the First Category Tax was pronounced in July 2010.

The tax expense attributable to income before income tax differs from that arrived at by applying the 30% statutory rate in 2013 and 2012 due

to the following items:

Statutory income tax rate

Non–deductible expenses, effects of inflation and others

Change in unrecognized tax benefits

2013

30%

(3%)

2012

30%

10%

(5%)

Effective consolidated income tax rate

30%

35%

b. Deferred taxes – balance sheet

Following is an analysis of deferred tax assets shown in the consolidated statement of financial position:

Deferred (assets) liabilities:

Estimation for doubtful accounts and inventory obsolescence

(10,863)

(5,997)

2013

2012

Liability provisions

Advances from customers

Unamortized tax losses

Recoverable asset tax

Store equipment, leasehold improvements and property

Other assets

Advance payments

(368,176)

(18,565)

(166,337)

(12,269)

(471,470)

12,224

53,049

(220,682)

(30,072)

(201,465)

(12,269)

(380,473)

807

21,186

(982,407)

(828,965)

Annual Report Alsea 2013 || Annual Report Alsea 2013

Timing differences

Beginning balance

Recognized in income

Acquisition

Recognized directly in capital

2013

2012

21. Provisions

(828,965)

(692,420)

Provisions at December 31, 2013 and 2012 are comprised as follows:

(137,706)

(11,024)

(4,712)

(107,648)

(24,628)

(4,269)

(982,407)

(828,965)

Compensation

and other personnel

Supplies

payments

and others

Total

Deferred assets not recognized at December 31, 2013 and 2012 totaled $28,384 and $159,594, respectively. The net change in deferred assets

not recognized at December 31, 2013 and 2012 resulted in a decrease of $28,446 and $30,626, respectively, arising mainly from accumulated

tax losses.

January 1, 2012

103,631

468,099

571,730

Increases charged to income

Payments and cancellations

434,582

(400,509)

728,559

(672,627)

1,163,141

(1,073,136)

At December 31, 2013, unamortized tax losses expire as shown below:

December 31, 2012

137,704

524,031

661,735

Year of maturity

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Amortizable losses

266,624

14,315

26,664

39,028

30,346

1,581

28,877

22,692

51,342

72,987

At December 31, 2013 and 2012, income tax payable balances related to the Entity’s consolidated tax regime before and after the enactment

of the 2011 tax amendments correspond to unamortized tax losses arising under consolidation at the controlling and the controlled companies

amounting to $26,034 and $193,454, respectively.

Following is the yearly schedule of payments contemplated by the Entity to cover income tax liabilities arising under tax consolidation resulting

from the 2014 tax amendments:

Year of maturity

2014

2015

2016

2017

Payment

10,111

7,229

5,801

2,893

26,034

Increases charged to income

Payments and cancellations

545,424

(532,121)

426,466

(370,777)

971,890

902,898

December 31, 2013

151,007

579,720

730,727

22. Employee retirement benefits

The net cost for the period related to obligations derived from the pension plan and those related to seniority premiums and termination benefits

totals $21,674 and $17,102 in 2013 and 2012. Other disclosures required by the accounting provisions are not considered significant.

23. Financial instruments

a. Capital risk management

The Entity manages its capital to ensure that the companies that it controls are able to continue operating as a going concern while they

maximize the yield for their shareholders by streamlining the debt and equity balances. The Entity’s general strategy has not changed in relation

to 2012.

The Entity’s capital structure consists of the net debt (the loans described in Note 18, compensated by cash balances and banks) and the Entity’s

capital (made up of issued capital stock, reserves and retained earnings, as shown in Note 24).

The Entity is not subject to external requirements to manage its capital.

The main purpose for managing the Entity’s capital risk is to ensure that it maintains a solid credit rating and sound equity ratios to support its

business and maximize value to its shareholders.

Annual Report Alsea 2013 || Annual Report Alsea 2013

The Entity manages its capital structure and makes any necessary adjustments based on changes in economic conditions. In order to maintain

Exchange fluctuations and devaluation or depreciation of the local currency in the countries in which Alsea participates could limit the

and adjust its capital structure, the Entity can modify the dividend payments to the shareholders, reimburse capital to them or issue new shares.

Entity’s capacity to convert local currency to US dollars or to other foreign currency, thus affecting their operations, results of operations and

In the years ended December 31, 2013 and 2012, there were no modifications to the objectives, policies or processes pertaining to capital

management.

financial position.

The Entity currently has a risk management policy aimed at mitigating present and future risks involving those variables, which arise mainly from

purchases of inventories, payments in foreign currencies and public debt contracted at a floating rate. The contracting of derivative financial

The following ratio is used by the Entity and by different rating agencies and banks to measure credit risk.

instruments is intended to cover or mitigate a primary position representing some type of identified or associated risk for the Entity. Instruments

– Net Debt to EBITDA = Net Debt / EBITDA ltm

used are merely for economic hedging purposes, not for speculation or negotiation.

The types of derivative financial instruments approved by the Entity for the purpose of mitigating exchange fluctuation and intereset rate risk

At December 31, 2013 and 2012, the financial restriction established in the Entity’s loan agreements relates to the Net Debt to EBITDA ratio for

are as follows:

the last twelve months. The Entity complied with the established ratio, which was slightly below 1.0 and 2.6, respectively.

b. Financial instrument categories

Financial assets

Cash and cash equivalents

Loans and accounts receivable at amortized cost

Financial liabilities at amortized cost

Bank loans

Long–term bank loans

Debt securities

Other accounts payable and others

Objectives of managing financial risks

2013

2012

663,270

628,818

932,594

535,931

388,486

2,166,281

2,488,850

901,589

396,647

2,077,533

–

871,404

Alsea is mainly exposed to the following financial risks: (i) market (foreign currency and interest rate), (ii) credit and (iii) liquidity.

– USD/MXN exchange–rate forwards contracts

– USD/MXN exchange–rate options

–

Interest Rate Swaps and Swaptions

Cross Currency Swaps

Given the variety of possible derivative financial instruments for hedging the risks identified by the Entity, the Director of Corporate Finance is

authorized to select such instruments and determine how they are to be operated.

Exposure to market risk is valued by the value at risk (VaR), which is supplemented with a sensitivity analysis.

There have been no changes in the Entity’s exposure to market risks or in the way in which those risks are managed and valued.

e. Currency exchange risk management

The Entity carries out transactions in foreign currency and therefore it is exposed to exchange rate fluctuations. Exposure to exchange rate

fluctuations is managed within the parameters of approved policies, using foreign currency forwards contracts.

Note 32 shows foreign currency positions at December 31, 2013 and 2012. It also shows the exchange rates in effect at those dates.

USD hedging and its requirements are determined based on the cash flow budgeted by the Entity, and it is aligned to the current Risk Management

The Entity seeks to minimize the potential negative effects of the aforementioned risks on its financial performance by applying different

Policy approved by the Corporate Practices Committee, the General Director’s office and the Administration and Financial Director’s office. The

strategies. The first involves securing risk coverage through derivative financial instruments.

policy is overseen by the Internal Audit Department.

Derivative instruments are only traded with well–established institutions and limits have been set for each financial institution. The Entity has

The exchange rate risk expressed in a foreign currency (USD) is internally monitored on a weekly basis with the positions or hedges approximating

the policy of not carrying out operations with derivative financial instruments for speculative purposes.

maturity at market exchange rates. The agent calculating or valuing the derivative financial instruments is in all cases the counterparty designated

d. Market risk

The Entity is exposed to market risks resulting from changes in exchange and interest rates. Variations in exchange and interest rates may arise

as a result of changes in domestic and international economic conditions, tax and monetary policies, market liquidity, political events and natural

catastrophes or disasters, among others.

under the master agreement. The purpose of the internal review is to identify any significant changes in exchange rates that could pose a risk

or cause the Entity to incur in non–compliance with its obligations. If a significant risk position is identified, the Corporate Treasury Manager

informs the Corporate Financial Director’s office.

Annual Report Alsea 2013 || Annual Report Alsea 2013

100

101

The following table shows a quantitative description of exposure to exchange risk based on foreign currency forwards and options agreements

At December 31, 2012 and 2011, the Entity had contracted the following financial instruments:

contracted by the Entity in USD/MXN, in effect as of December 31, 2013.

Figures in thousands of US dollars at 2013

Underlying
/ reference
variable

Notional amount/
face value (thousands of USD)

Fair value
(thousands of USD)

Type of derivative,
security or contract

Position

Objective
of the
hedging

Current
quarter

Previous
quarter

Current
quarter

Previous
quarter

Current
quarter

Previous
quarter

Amounts
of maturities
(thousands of
USD)

Underlying /
reference
variable

Notional amount /
face value (USD)

Fair value
(USD)

Type of derivative,
security or
contract

Position

Objective of
the hedging

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Amounts of
maturities
(USD)

Forwards

Long

Economic

USD/MXN

2,500

1,500

(16)

(8)

2,500

Forwards

Long

Economic

USD/MXN

2,500

1,500

(16)

(8)

2,500

13.06

13.01

13.06

13.01

Options

Long

Economic

USD/MXN

13,750

4,500

(9)

(76)

13,750

Options

Long

Economic

USD/MXN

13,750

4,500

(9)

(76)

13,750

13.06

13.01

13.06

13.01

Foreign currency sensitivity analysis

Figures in thousands of US dollars at 2012

At December 31, 2013, the Entity has contracted hedging in order to purchase US dollars for the next 12 months at the average exchange

rate of 12.60 for a total of $16.3 million dollars. The fair value of currency derivative financial instruments is $0.3 million pesos.

Considering the USD/MXN exchange rate at 13.06 for the 2013 closing, the Entity’s current portfolio and the net long position between

forwards and options, Management assumes that a stress scenario affecting its income for the year ended December 31, 2013 would have

resulted in appreciation of 1.00 to the US dollar, which would result in the purchase of forwards agreements above the market price and the

activation of options with a barrier, thus increasing the notional amount covered and the fair value thereof.

The effect on the derivative financial instrument portfolio at the exchange rate with appreciation of 8% would result in an increase in

financing costs of approximately $15.6 million pesos. The net position of assets vs. financial liabilities expressed in US dollars is not being

considered because it is not representative or material to the Entity. The analysis shows only the effect on hedging for purchases of US

dollars contracted and in effect at the December 31, 2013 closing.

Management considers that in the event of a stress scenario as the one described above, the Entity’s liquidity capacity would not be affected,

there would be no negative effects on its operations, nor would compliance with the commitments assumed in relation to contracted

derivative financial instruments be at risk.

Foreign currency forwards and options contracts

At December 31, 2013 and 2012, a total of 309 and 387 derivative financial instrument operations (forwards and options) were carried out,

respectively, for a total of 146.1 and 103.3 million US dollars, respectively. The absolute value of the fair value of the derivative financial

instruments entered into per quarter over the year does not comprise more than 5% of assets, liabilities or total consolidated capital, or

otherwise 3% of the total consolidated sales for the last quarter. Therefore, the risk for the Entity of exchange rate fluctuations will have

no negative effects, nor will it affect its capacity to carry out derivative financial instrument operations.

At December 31, 2013 and 2012, Alsea has contracted DFI’s to purchase US dollars in the next twelve months for a total of approximately

$16.3 and $45 million USD, at the average exchange rate of $12.6 and $12.84 pesos to the dollar, respectively.

Underlying /
reference
variable

Notional amount /
face value (USD)

Fair value
(USD)

Type of derivative,
security or
contract

Position

Objective of
the hedging

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Amounts of
maturities
(USD)

Forwards

Long

Economic

USD/MXN

18,250

18,500

251

18,250

13.01

12.85

Options

Long

Economic

USD/MXN

26,500

43,500

(63)

332

26,500

13.01

12.85

Interest Rate Risk Management

The Entity faces certain exposure to the volatility of interest rates as a result of contracting bank and public stock exchange debt at fixed and

variable interest rates. The respective risks are monitored and evaluated monthly on the basis of:

–

Cash flow requirements

– Budget reviews

–

Observation of the market and interest rate trends in the local market and in the countries in which Alsea operates (Mexico, Argentina, Chile

and Colombia)

– Differences between negative and positive market rates

The aforementioned evaluation is intended to mitigate the Entity’s risk concerning debt subject to floating rates or indicators, to streamline the

respective prices and to determine the most advisable mix of fixed and variable rates.

Annual Report Alsea 2013 || Annual Report Alsea 2013

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103

The Corporate Treasury Manager is responsible for monitoring and reporting to the Administration and Financial Director any events or

Figures in thousands of US dollars at 2012

contingencies of importance that could affect the hedging, liquidity, maturities, etc. of DFI’s. He in turn informs Alsea’s General Management of

any identified risks that might materialize.

The type of derivative products utilized and the hedged amounts are in line with the internal risk management policy defined by the Entity’s

Corporate Practices Committee, which contemplates an approach to cover foreign currency needs without the possibility to carry out speculative

operations.

Interest rate swap contracts

According to the interest rate contracts in place, the Entity agrees to exchange the difference between the amounts of the fixed and variable

rates calculated on the agreed notional amount. Such contracts allow the Entity to mitigate interest rate change risks on the fair value of the debt

issued at a fixed interest rate and the exposure to cash flows on the debt issued at a variable interest rate. The fair value of interest rate swaps

at the end of the period being reported is determined by discounting future cash flows using the curves at the end of the period being reported

and the credit risk inherent to the contract, as described further on in these consolidated financial statements. The average interest rate is based

on current balances at the end of the period being reported.

Type of derivative,
security or
contract

Interest

Underlying /
reference
variable

Notional amount /
face value (USD)

Fair value
(USD)

Position

Objective of
the hedging

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Amounts of
Expiration
(USD)

rate swap

Long

Economic

Knock Out

swap

Long

Economic

Limited

swap

Long

Economic

4.84% –

TIIE 28 d

4.84% –

TIIE 28 d

4.84% –

TIIE 28 d

4.81 –

TIIE d

4.81 –

TIIE d

4.81 –

TIIE d

30,888

31,008

151

167

30,888

11,583

11,628

(48)

(173)

11,583

11,628

(70)

150

11,583

The following table shows a quantitative description of exposure to interest rate risk based on interest rate forwards and options agreements

contracted by the Entity, in effect as of December 31, 2013.

1. Analysis of interest rate sensitivity

Underlying /
reference
variable

Notional amount /
face value (USD)

Fair value
(USD)

Position

Objective of
the hedging

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Current
Quarter

Prior
Quarter

Amounts of
Expiration
(USD)

The following sensitivity analysis has been determined on the basis of the exposure to interest rates of derivative instruments and of non–

derivative instruments at the end of the period being reported. In the case of variable rate liabilities, an analysis is prepared assuming that

the amount of the liability held at the end of the period being reported has been the amount of the liability throughout the year.

•

The first stress scenario considered by Management is a 200 bps increase in the 28–day TIIE reference rate while the rest of the

variables remain constant. With the mix in the hedging portfolio of plain vanilla interest rate swaps and the swaptions contracted at

the December 31, 2013 close, the increase in financial costs is of approximately $43,000. The above effect arises because the barriers

protecting the increase in the interest rates are exceeded, which leaves the Entity exposed to market rates.

3.79% –

TIIE 28 d

3.79% –

TIIE 28 d

3.79% –

TIIE 28 d

3.79% –

TIIE 28 d

4.03 –

TIIE d

4.03 –

TIIE d

4.03 –

TIIE d

4.03 –

TIIE d

38,270

38,426

315

424

38,270

the Entity’s liquidity nor gives rise to a negative effect on the business’s operations or in assuming commitments for contracting interest

•

A 150 bps increase in the 28–day TIIE rate represents an increase in the financial cost of approximately $15,000, which poses no risk to

rate derivative financial instruments.

11,481

11,528

11,481

•

Lastly, the scenario with a 100 bps increase in the 28–day TIIE reference rate would have a positive effect on the financial cost of

approximately $1,500. The foregoing is due to the fact that plain vanilla swaps and swaptions hedging would be active, thus improving

the level of exchange from a variable to a fixed rate.

11,481

11,528

11,481

7,654

7,685

7,654

Figures in thousands of US dollars at 2013

Type of derivative,
security or
contract

IRS Plain

Vanilla

Knock Out

Long

Economic

IRS

Long

Economic

Limited

IRS

Capped

IRS

Long

Economic

Long

Economic

Annual Report Alsea 2013 || Annual Report Alsea 2013

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105

g. Credit risk management

h. Liquidity risk management

Credit risk refers to the uncertainty of whether one or several of the counterparties will comply with their contractual obligations, which would

The ultimate responsibility for managing liquidity lies in the Financial Director, for which purpose the Entity has established policies to control

result in a financial loss for the Entity. The Entity has adopted the policy of only operating with solvent institutions and obtaining sufficient

and follow up on working capital, thus making it possible to manage the Entity’s short–term and long–term financing requirements. In keeping

collateral, when deemed necessary, as a way to mitigate the risk of financial loss caused by non–compliance.

this type of control, cash flows are prepared periodically to manage risk and maintain proper reserves, credit lines are contracted and investments

The Entity’s exposure and the credit ratings of its counterparties are supervised on a regular basis. The maximum credit exposure levels allowed

are established in the Entity’s risk management internal policies. Credit risk over liquid funds and derivative financial instruments is limited

The Entity’s main source of liquidity is the cash earned from its operations.

because the counterparties are banks with high credit ratings issued by accepted rating agencies.

are planned.

In order to reduce to a minimum the credit risk associated to counterparties, the Entity contracts its financial instruments with domestic and

been designed based on undiscounted, projected cash flows and financial liabilities considering the respective payment dates. The table includes

foreign institutions that are duly authorized to engage in those operations and which form part of the Mexican Financial System.

the projected interest rate flows and the capital disbursements made towards the financial debt included in the statement of financial position.

If interest is agreed at variable rates, the undiscounted amount is calculated based on the interest rate curves at the end of the period being

Investment surpluses are managed based on the Entity’s policy in place, which has been designed to mitigate the credit risk of counterparties

reported. Contractual maturities are based on the minimum date on which the Entity must make the respective payments.

The following table describes the contractual maturities of the Entity’s financial liabilities considering agreed payment periods. The table has

and streamline its resources. The policies include certain guidelines, such as maximum amounts per counterparty, instruments and terms. All

operations carried out in both local and foreign currencies are covered under a stock–exchange intermediation master agreement, which has

been signed by both parties with regulated institutions that form part of the Mexican Financial System and that have all the guarantees required

Average effective Up to

by the Entity and have been awarded high credit ratings. The instruments authorized for temporary investments are only those issued by the

As of December 31, 2013,

interest rate

1 year

federal government, corporations and banks, all under repurchase agreements.

Up to

2 year

Up to

3 year

Up to

4 year

Up to 5 years

or more

Total

With respect to derivative financial instruments, the Entity signs a standard agreement approved by the International Swapws and Derivatives

Association Inc. with each counterparty along with the standard confirmation forms for each operation.

Additionally, the Entity signs bilateral guarantee agreements with each counterparty that establish the margin, collateral and credit line policies to

Long–term debt

Debt instruments

Suppliers

Other accounts payable and others

4.79%

520,240 $ 581,546 $ 629,085 $

748,952 $ 451,006 $ 2,930,829

4.54%

115,014

123,861

106,167

123,861

2,541,933

3,010,836

1,408,565

901,589

–

1,408,565

901,589

be followed. Such agreements, commonly known as “Credit Support Annexes”, establish the credit limits offered by credit institutions that would

Total

$ 2,945,408 $ 705,407 $ 735,252 $

872,813 $ 2,992,939 $ 8,251,819

apply in the event of negative scenarios or fluctuations that might affect the fair value of open positions of derivative financial instruments. Such

agreements establish the margin calls for instances in which credit facility limits are exceeded.

In addition to the bilateral agreements signed further to the ISDA maser agreement, known as Credit Support Annexes (CSA), the Entity monitors

the favorable or negative fair value on a monthly basis. Should the Entity incur a positive result, and that result be considered material in light of

the amount, a CDS could be contracted to reduce the risk of breach by counterparties.

The Entity has the policy of monitoring the volume of operations contracted with each institution, in order to avoid margin calls and mitigate

credit risks with counterparties.

At the December 31, 2013 and 2012 closing, the Entity has incurred no margin calls, nor does it hold any type of securities pledged as a guarantee

by a counterparty with which it may have carried out interest rate hedging operations.

At December 31, 2013 and 2012, the Entity has recorded no breaches to the agreements signed with different financial entities for exchange rate

hedging operations.

The Entity’s maximum exposure to credit risk is represented by the carrying value of its financial assets. At December 31, 2013, that risk amounts

to $1,292,088.

As of December 31, 2012,

interest rate

1 year

Average effective Up to

Up to

2 year

Up to

3 year

Up to

4 year

Up to 5 years

or more

Total

Long–term debt

Suppliers

Other accounts payable and others

6.18%

537,967 $ 625,666 $ 753,496 $ 918,868 $

– $ 2,835,997

1,129,612

871,404

–

1,129,612

871,404

Total

$ 2,538,983 $ 625,666 $ 753,496 $ 918,868 $

– $ 4,837,013

Annual Report Alsea 2013 || Annual Report Alsea 2013

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107

Fair value of financial instruments

a. Fair value of financial assets and liabilities that are not valued at fair value on a recurring basis (but that require fair value disclosure)

This notes provides information on the manner in which the Entity determines the fair values of the different financial assets and liabilities.

Except for the matter described in the following table, Management considers that the carrying values of financial assets and liabilities recognized

at amortized cost in the financial statements approximate their fair value.

1. Fair value of the Entity’s financial assets and liabilities measured at fair value on recurring bases.

Some of the Entity’s financial assets and liabilities are valued at fair value at each reporting period. The following table contains information

on the procedure for determining the fair values of financial assets and financial liabilities (specifically the valuation technique(s) and input

data used).

Financial assets/liabilities

Fair value (1) (2)
Figures in USD

Fair value
hierarchy

Valuation technique(s) and
main input data

12/31/2013

12/31/2012

Forwards and currency

(25)

(44)

Level 2

Plain vanilla forwards are calculated based

options agreements

on discounted cash flows on forward

exchange type bases. The main input data

are the Spot, the risk–free rates in MXN and

USD + a rate that reflects the credit risk of

counterparties.

In the case of options, the methods used are

Black and Scholes and Montecarlo digital

and/or binary algorithms.

Interest rate swaps

482

Level 2

Discounted cash flows are estimated based

12/31/2013

12/31/2012

Carrying value

Fair value

Carrying value

Fair value

Financial liabilities

Financial liabilities maintained at amortized cost:

Bank loans

Long–term bank loans

Debt instruments

388,486

395,680

396,647

2,166,281

2,488,850

2,166,281

2,507,550

2,077,533

–

396,647

2,077,533

–

Total

5,043,617

5,069,511

2,474,180

Financial liabilities

Level 1

Level 2

Financial liabilities maintained at amortized cost:

Bank loans

Long–term bank loans

Debt instruments

–

395,680

2,166,281

2,507,550

–

5,069,511

on forwards interest rates (using the

observable yield curves at the end of the

period being reported) and the contractual

rates, discounted at a rate that reflects the

credit risk of the counterparties.

Total

Valuation

No transfers were made during the period between levels.

a. Description of valuation techniques, policies and frequency:

(1) The fair value is presented from a bank’s perspective, which means that a negative amount represents a favorable result for the Entity.

The derivative financial instruments used by Alsea (forwards and swaps) are contracted to reduce the risk of adverse fluctuations in exchange

and interest rates. Those instruments require the Entity to exchange cash flows at future fixed dates on the face value or reference value and are

(2)

The calculation or valuation agent used is the same counterparty or financial entity with whom the instrument is contracted, who is asked

to issue the respective reports at the month–end closing dates specified by the Entity.

Techniques and valuations applied are those generally used by financial entities, with official price sources from banks such as Banxico for

exchange rates, Proveedor Integral de Precios (PIP) and Valmer for supply and databases of rate prices, volatility, etc.

In order to reduce to a minimum the credit risk associated with counterparties, the Entity contracts its financial instruments with domestic and

foreign institutions that are duly authorized to engage in those operations.

valued at fair value.

b. Liquidity in Derivative Financial Operations:

The resources used to address financial instrument requirements will derive from the resources generated by the issuer.

External sources of liquidity: No external sources of financing will be used to address requirements pertaining to derivative financial

instruments.

Annual Report Alsea 2013 || Annual Report Alsea 2013

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109

24. Stockholders’ equity

Following is a description of the principal features of the stockholders’ equity accounts:

a. Capital stock structure

The movements in capital stock and premium on share issue are shown below:

Figures at January 1, 2012

Repurchased shares

Dividends declared in shares

Purchase of non–controlling interest

Placement of shares

Figures at December 31, 2012

Purchase of non–controlling interest

Placement of shares

Number

Capital stock

of shares

(thousands of pesos)

Premium on

issuance

of share

606,001,924

362,461

1,092,047

11,802,800

16,465,957

–

53,488,373

5,901

8,233

–

26,744

1,090

300,669

(15,262)

1,088,278

687,759,054

403,339

2,466,822

–

(429,262)

(170)

Figures at December 31, 2013

687,759,054

403,339

2,037,390

In December 2012, Alsea issued 46,511,628 shares with an overallotment of 6,976,745 shares, which was issued at the offering price of 21.50

(twenty one pesos and fifty cents) per share. The issue was recorded net of placement expenses (see Note 1h.)

In April 2012, Alsea declared dividends in shares of $308,902 by capitalizing the amount corresponding to the after–tax earnings account,

in order to cover the subscription value of 16,465,957 shares to be issued and used as payment of the declared dividend in proportion to the

37.52 shares. In order to determine the number of shares to be declared, the price per share was authorized based on the closing price of share

of $18.76 (eighteen pesos and 76 cents), of which $0.50 (zero pesos fifty cents) corresponds to the notional amount, and the difference to a

premium on share subscription.

In April 2013, Alsea declared a dividend payment of $343,880 with a charge to the after–tax earnings account, which is to be paid against net

earnings at the $0.50 (zero pesos fifty cents) per share.

The fixed minimum capital with no withdrawal rights is comprised of Class I shares, while the variable portion is represented by Class II shares,

and it must in no case exceed 10 times the value of the minimum capital with no withdrawal rights.

At December 31, 2013 and December 31, 2012, subscribed fixed and variable capital stock is comprised of 687,759,054 common nominative shares

with no par value, as shown below:

Description

Number of shares

Amount

Fixed portion of capital stock at December 31, 2013

Fixed portion of capital stock at December 31, 2012

Fixed capital stock

Variable capital stock

Repurchased shares (par value)

Capital stock at January 1, 2012

687,759,054

489,157,480

128,647,244

(11,802,800)

403,339

304,038

64,324

(5,901)

606,001,924

362,461

The National Banking and Securities Commission has established a mechanism that allows the Entity to acquire its own shares in the market,

for which purpose a reserve for repurchase of shares must be created and charged to retained earnings, which Alsea has created as of

December 31, 2013.

Total repurchased shares must not exceed 5% of total issued shares; they must be replaced in no more than one year, and they are not considered

in the payment of dividends.

The premium on the issuance of shares is the difference between the payment for subscribed shares and the par value of those same shares,

or their notional value (paid–in capital stock divided by the number of outstanding shares) in the case of shares with no par value, including

inflation, at December 31, 2012. Available repurchased shares are reclassified to contributed capital.

In January 2012, Café Sirena, S. de R.L. de C.V. declared a cash dividend of $150,000, paid in proportion to the value of each of the equity

participation units comprising the company’s capital stock. The amount corresponding to the non–controlling interest totaled $27,000.

In February 2013, Café Sirena, S. de R.L. de C.V. declared a cash dividend of $170,000, which was paid in proportion to the value of each of the

equity participation units comprising capital stock. The amount corresponding to the non–controlling interest was $30,600.

In August 2012, it was agreed to convert variable capital stock to fixed minimum capital stock, by converting 145,113,201 single series, Class II

shares currently comprising the variable portion of the capital stock to the same number of single series, Class I shares comprising the minimum

fixed portion, after which the shareholders continue to hold the same number of shares.

b. Stockholders’ equity restrictions

Five percent of net earnings for the period must be set aside to create the legal reserve until it reaches 20 percent of the capital stock. At

December 31, 2013, the legal reserve amounted to $100,736, which amount does not cover the required 20%.

II.

Dividends paid from retained earnings are not subject to ISR if paid from the after–tax earnings account (CUFIN), and 30% must be paid

on the excess, i.e., the result arrived at by multiplying the dividend paid by a factor of 1.4286. The tax accrued on the dividend payment not

arising from the CUFIN must be paid by the Entity and may be credited against corporate IT in the following two years.

Annual Report Alsea 2013 || Annual Report Alsea 2013

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111

25. Non–controlling interest

Following is a deatil of the non–controlling interest:

Beginning balance at January 1, 2012

Equity in results for the year ended December 31, 2012

Café Sirena dividends declared in 2012

Acquisition of the non–controlling interest of Grupo Calpik

Acquisition of the non–controlling interest of Panadería y Alimentos para Food Service

Non–controlling interest resulting from acquisition of Italianni’s

Ending balance at December 31, 2012

Equity in results for the year ended December 31, 2013

Café Sirena dividends declared in 2013

Non–controlling interest resulting from the acquisition of Burger King Mexicana

Purchase of non–controlling interest of Café Sirena

Purchase of non–controlling interest of Starbucks Coffee Argentina

Amount

298,803

36,880

(27,000)

(15,172)

(11,748)

26,426

308,189

(17,694)

(30,600)

217,534

(201,445)

(44,109)

b. Acquisition of the non–controlling interest of Starbucks Coffee Mexico

In April 2013, the Entity acquired from SCI the 18% that it did not hold in Café Sirena, a subsidiary of Alsea that operates in the different

Starbucks® stores in Mexico.

For consolidation purposes, the transaction did not constitute a change in control over Café Sirena prior to the purchase of the non–controlling

interest. As the Entity had been previously consolidating the subsidiary, such accounting remained unchanged.

The change of interest in Café Sirena by Alsea upon acquisition of the non–controlling interest (from 82% to 100%) qualified as an equity

transaction. Accordingly, the difference between the carrying value of the non–controlling interest at the time of acquisition and the fair value

of amount paid was recorded directly in stockholders’equity.

The accounting entry gave rise to a decrease in the non–controlling interest of $201,445.

26. Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to the controlling interest holders of ordinary capital

by the average weighted number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the net profit attributable to controlling interest holders of ordinary capital (after adjusting

for interest on the convertible preferential shares, if any) by the average weighted ordinary shares outstanding during the year plus average

weighted ordinary shares issued when converting all potentially ordinary diluted shares to ordinary shares. For the years ended December 31,

Ending balance at December 31, 2013

231,875

2013 and 2012, the Entity has no potentially dilutive shares, for which reason diluted earnings per share is equal to basic earnings per share.

a. Acquisition of the non–controlling interest of Starbucks Coffee Argentina–

The following table contains data on income and shares used in calculating basic and diluted earnings per share:

The Entity acquired from Starbucks Coffe International (an affiliate of Starbucks Coffee Company) the remaining 18% of Starbucks Coffee

Argentina, S.R.L. (Starbucks Argentina), a subsidiary of Alsea that operates the Starbucks Coffee stores in Argentina.

For accounting purposes, the transaction did not constitute a change in control over Starbucks Coffee Argentina prior to the purchase of the

non–controlling interest. As the Entity had been previously consolidating with the subsidiary, such accounting remained unchanged.

Net profit (in thousands of pesos):
Attributable to shareholders
Shares (in thousands of shares):
Weighted average of shares outstanding

The change of interest in Starbucks Coffee Argentina by Alsea upon acquisition of the non–controlling interest (from 82% to 100%) qualified

Basic earnings per share

as a equity transaction.

Accordingly, the difference between the carrying of the non–controlling interest at the time of acquisition and the fair value of the amount paid

27. Revenues

was recorded directly in stockholders’ equity.

The accounting entry gave rise to a $44,109 decrease in the non–controlling interest.

Revenues from the sale of goods
Services
Royalties

Total

2013

2012

681,014

364,918

687,514

637,329

0.99

0.57

2013

2012

15,305,418
249,174
163,951

13,202,516
223,685
93,305

15,718,543

13,519,506

Annual Report Alsea 2013 || Annual Report Alsea 2013

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113

28. Employee benefit expenses

31. Financial information by segments

Following are the expenses incurred for employee benefits included under other operating costs and expenses in the consolidated statements of

The Entity is organized into three large operating divisions comprised of sales of food and beverages in Mexico andn South America and

income.

Wages and salaries

Social Security costs

Retirement benefits

Total

29. Other income

In 2013 and 2012, this caption is comprised as follows:

2013

2012

The accounting policies of the segments are the same as those of the Entity’s described in Note 3.

distribution services, all headed by the same management.

2,837,545

2,552,834

The Food and Beverages segments in which Alsea in Mexico and Latin America (LATAM) participates are as follows:

517,627

27,678

309,891

21,923

Fast Food: This segment has the following features: i) fixed and restricted menus, ii) food for immediate consumption, iii) strict control over

individual portions of each ingredient and finished product, and iv) individual packages, among others. This type of segment can be easily

3,382,850

2,884,648

accessed and therefore penetration is feasible at any location.

Coffee Shops: Specialized shops where coffee is the main item on the menu. The distinguishing aspects are top quality services and competitive

prices, and the image/ambiance is aimed at attracting all types of customers.

2013

2012

restaurants. The main features of casual dining stores are i) easy access, ii) informal dress code, iii) casual atmosphere, iv) modern ambiance, v)

simple decor, vi) top quality services, and vii) reasonable prices. Alcoholic beverages are usually sold at those establishments.

Casual Dining: This segment comprises service restaurants where orders are taken from customers and there are also to–go and home delivery

services. The image/ambiance of these restaurants is aimed at attracting all types of customers. This segment covers fast food and gourmet

Legal expenses

Loss on fixed assets disposals, net

PTU on tax base

Inflation and interest on tax refund

Other (income) expenses, net

18,552

24,386

3,920

(24,347)

(45,310)

1,425

64,200

4,782

(2,220)

(77,991)

Fast Casual Dining: This is a combination of the fast food and casual dining segments.

The Distribution and Production segment is defined as follows:

Total

(22,799)

(9,804)

refrigerated and dry food products to supply all Domino’s Pizza, Burger King, Starbucks, Chilis Grill & Bar, P.F. Chang’s China Bistro, Pei Wei and

Distribuidora e Importadora Alsea, S.A. de C.V. (DIA) specializes in domestic purchase, importation, transporting, storage and distribution of frozen,

Italianni’s establishments in Mexico.

30. Balances and transactions with related parties

Additionally, DIA is responsible for preparing and distributing pizza dough to the entire Domino’s Pizza System in Mexico.

Officer Compensations and Benefits

Panadería y Alimentos para Food Service, S.A. de C.V. This plant produces sandwiches and bread that are supplied to Starbucks and the other

Alsea brands. The business model contemplates a central plant located in Lerma, in the State of Mexico, where the Pastry and Bakery products

The total amount of compensation paid by the Entity to its main advisors and officers for the nine–month period ended December 31, 2013 and

and sandwiches are prepared.

2012 was of approximately $159,000 and $109,000, respectively. That amount includes payments determined at a General Stockholders’ Meeting

for performance of their duties during that year, as well as for salaries and wages.

The definition of the operating segments is based on the financial information provided by General Management and it is reported on the

same bases as those used internally by each operating segment. Likewise, the performance evaluations of the operating segments are

The Entity continuously reviews salaries, bonuses and other compensation plans in order to ensure more competitive employee compensation

periodically reviewed.

conditions.

Annual Report Alsea 2013 || Annual Report Alsea 2013

114

115

Information on the segments for the years ended December 31, 2013 and 2012 is as follows: (figures in millions of pesos)

32. Foreign currency position

Figures in millions of pesos at December 31, 2013

Assets and liabilities expressed in US dollars, shown in the reporting currency at December 31, 2013 and 2012, are as follows:

Food and beverages –
Mexico segment

Food and beverages –
LATAM segment

Distribution and
production segment

Eliminations

Consolidated

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

Revenues

From third parties

10,346

8,752 $

4,219 $

3,416 $

1,130

1,331 $

24 $

15,719 $

13,519

Between segments

Revenues

Costs

Other operating

costs and expenses

Depreciation and amortization

Interest paid

Interest earned

Other financial expenses

Equity in results of

associated companies

Income taxes

Results of segments

Non–controlling interest

10,371

3,378

5,431

637

156

(123)

890

–

201

689

–

8,752

2,957

4,421

558

122

(76)

757

–

182

575

–

4,219

1,440

–

3,416

1,129

3,200

4,330

3,615

2,701

4,032

3,366

(3,225)

(3,201)

(3,205)

(2,701)

(2,681)

(2,696)

–

15,719

5,228

–

13,519

4,756

2,501

2,073

178

(26)

–

(17)

–

168

(6)

(27)

–

461

(2)

–

184

–

154

–

459

–

113

–

(8)

121

–

112

(12)

(223)

(17)

(163)

–

202

(57)

(285)

(1)

(4)

(282)

–

8,452

7,155

924

241

(39)

905

285

663

(18)

811

245

(47)

(8)

607

219

400

Controlling interest

689

575 $

(17) $

(27) $

154

121 $

(163) $

(282) $

681 $

363

Assets:

10,564

12,200 $

2,388 $

1,294 $

2,022

1,674 $

(4,562) $

(6,396) $

10,412 $

8,772

Investment in

performing assets

(Investment in associated

companies)

–

(Investment in fixed

assets and Int. Assets)

1,031

628

216

277

–

789

(20)

–

789

1,258

986

Assets
Liabilities

Thousands
of dollars
2013

Thousands
of dollars
2012

621,813
(742,732)

484,233
(390,432)

Net monetary asset (liability) position

(120,919)

93,802

The exchange rate to the US dollar at December 31, 2013 and 2012 was $13.05 and $13.01, respectively. At February 21, 2014, date of issuance of
the financial statements, the exchange rate was $12.3438 to the US dollar.

The exchange rates used in the different conversions to the reporting currency at December 31, 2013 and 2012 and at the date of issuance of
these financial statements are shown below:

Country of origin

Currency

Closing exchange
rate

Issue
February 21, 2014

2013
Argentina
Chile
Colombia

Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)

2.0108
0.0248
0.0067

1.7091
0.0240
0.0065

Country of origin

Currency

Closing exchange
rate

Issue
March 29, 2013

2012
Argentina
Chile
Colombia

Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)

2.6486
0.0271
0.0074

2.4088
0.0261
0.0067

Total assets

11,595

12,828 $

2,604 $

1,611 $

2,053

1,708 $

(3,793) $

(6,349) $

12,459 $

9,798

Total liabilities

6,449

6,556 $

2,371 $

1,137 $

1,335

1,003 $

(2,277) $

(3,727) $

7,878 $

4,969

In converting the figures, the Entity used the following exchange rates:

Foreign transaction

Country of origin

Currency Recording

Functional

Presentation

Fast Food Sudamericana, S. A.
Starbucks Coffee Argentina, S. R. L.
Asian Bistro Argentina, S.R.L.
Fast Food Chile, S. A.
Asian Food Ltda,
Dominalco, S. A.
Operadora Alsea en Colombia, S. A.
Asian Bistro Colombia, S.A.S

Argentina
Argentina
Argentina
Chile
Chile
Colombia
Colombia
Colombia

ARP
ARP
ARP
CLP
CLP
COP
COP
COP

MXP
MXP
MXP
MXP
MXP
MXP
MXP
MXP

Annual Report Alsea 2013 || Annual Report Alsea 2013

116

33. Commitments and contingent liabilities

Commitments:

The Entity leases locales to house its stores and distribution centers, as well as certain equipment further to the lease agreements entered into

for defined periods (see Note 13).

Operating lease agreements cannot be canceled. Future minimum lease payments are as follows:

1 year or less

More than 1 to 5 years

2013

2012

917,838

1,049,809

4,061,677

3,577,643

The Entity has acquired several commitments with respect to the arrangements established in the agreements for purchase of the brands.

In the regular course of operations, the Entity acquires commitments derived from supply agreements, which in some cases establish contractual

penalties in the event of breach of such agreements.

Contingent liabilities:

In August 2012, Italcafé received an order for an on–site official review by the tax authorities. Such visit concluded in August 2013 with certain

observations regarding income that the authorities considered had not been declared and differences in VAT paid. Italcafé is currently in the

phase for submitting additional documentation in order to clarify the aforementioned differences. The authorities have a six–month term, that

concludes in February 2014, to assess a tax debt of approximately $146 million.

On the basis of the foregoing, Alsea will file an appeal against a possible tax debt. It is important to mention that the former owners of Italcafé

will assume the economic effects arising from such tax debt in light of the terms and conditions set forth in the agreements signed by Alsea and

the sellers.

Italcafé is entitled to request the intervention of PRODECON (Taxpayer Protection Bureau) to support the Entity with this issue at the Federal

District Treasury, which matter is being analyzed and processed by the Entity’s external advisors.

34. Financial statement authorization

The enclosed consolidated financial statements were authorized for issuance on February 21, 2014 by Mr. Diego Gaxiola Cuevas, Administration

and Financial Director, and therefore they do not reflect any facts that might occur after that date and are subject to the approval of the audit

committee and the Entity’s stockholders, who can decide to modify them in accordance with the provisions of the Corporations Law.

Mr. Fabián Gosselin Castro

Mr. Diego Gaxiola Cuevas

Mr. Alejandro Villarruel Morales

General Director

Administration and Financial Director

Corporate Controller

| Annual Report Alsea 2013

INVESTOR
INFORMATION

INVESTOR RELATIONS
Diego Gaxiola Cuevas
Chief Financial Officer
ri@alsea.com.mx
Phone: +52 (55) 5241-7151

HEADQUARTERS
Alsea, S.A.B. de C.V.
Av. Paseo de la Reforma #222
3th. Floor, Tower 1 Corporate Building
Col. Juárez, Del. Cuauhtémoc
ZIP Code 06600, Mexico City
Phone: +52 (55) 5241-7100

INDEPENDENT AUDITORS
Deloitte
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Av. Paseo de la Reforma #489, 6th Floor
Col. Cuauhtémoc, Del. Cuauhtémoc
ZIP Code 06500, Mexico City
Phone: +52 (55) 5080-6000

SOCIAL RESPONSIBILITY
Ivonne Madrid Canudas
responsabilidad-social@alsea.com.mx
Phone: +52 (55) 5241-7100, ext. 7335

GRI 2.4, 3.1, 3.2, 3.3, 3.4, 3.6, 3.7, 3.10, 3.13, 4.12

INFORMATION ABOUT ALSEA’S SHARES

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) as of
June 25, 1999. Ticker Symbol: BMV ALSEA*

Alsea Annual Report 2013 (BMV: ALSEA*) 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 out of control of Alsea and its subsidiaries.

ABOUT THIS REPORT

Alsea’s 2013 Annual Report, “Expanding Our Horizons”, is the
second Company’s integrated report, which reflects Alsea’s
economic, social and environmental results of the period between
January 1st and December 31st, 2013. The results shown are global,
unless otherwise specified.

Annually and for the third time, the report is prepared in accordance
with the Global Reporting Initiative G3.1 Guidelines. It holds a Self-
Declared B Application Level; it does not include external assurance,
nor information restatements regarding previous years.

The Company is committed to respect the UN Global Compact’s Ten
Principles in all of its operations; therefore this report displays the
initiatives supporting them, as well as for aligning such operations
and strategies to the Millennium Development Goals.

Available on
iTunes Store
“Alsea 2013”

This report is
available on:
www.alsea.net/
annualreport2013

Our previous reports
are available on:
www.alsea.com.mx

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