Alsea, S.A.B. de C.V.
Annual Report 2014

Plain-text annual report

1 ALSEA MENU ANNUAL REPORT 2014 ALSEA ANNUAL REPORT 20142 2 GRI 2.1 | 2.2 | 2.3 | 2.5 | 2.7 | 3.6 Welcome to ALSEA’S MENU Domino’s Pizza All of Alsea’s ingredients are portrayed in it. 2014 was a record year for the Company regarding growth, due to the integration to the menu of Vips and El Portón brands in Mexico. Likewise, Grupo Zena in Spain, was incorporated. Alsea’s Specials include the expansion in the Colombian market with Starbucks and the entry to the Brazilian one with P.F. Chang’s; the first opening of The Cheesecake Factory in Mexico; as well as the constant development of the organic growth strategy. Furthermore, it contains International Recipes, Sustainable Recipes with Social and Environmental Value and the Menu with Quality and Talent, as well as our dishes to share. Starbucks ALSEA ANNUAL REPORT 2014 1 Chili’s California Pizza Kitchen P.F. Chang’s Italianni’s The Cheesecake Factory Vips El Portón Foster’s Hollywood La Vaca Argentina Alsea is the leading restaurant operator in Latin America and Spain of leading brands in the Quick Service, Coffee Shop, Casual Dining and Family Dining segments. Burger King Cañas y Tapas Its business model includes all units’ backup through a Support and Shared Services Center, providing aid in Management, Development and Supply Chain processes. ALSEA ANNUAL REPORT 2014 2 2 GRI 2.7 | 2.8 | 2.9 | 3.6 | 3.8 | 3.11 Alsea’s Specialties Highlights Close of the acquisition and incorporation process of Vips and El Portón to Alsea’s business model: • Acquisition of Grupo Zena in Spain: • 6 brands, 442 units • 259 units • 85 units Expansion in the casual dining segment in Latin America, through the entry to the Brazilian market with the opening of two P.F. Chang’s units Expansion in the Colombian market with the opening of the first Starbucks in this country; ending the year with six units Opening of the first The Cheesecake Factory in Mexico Capital issuance 150.8 million shares at 45.75 pesos per share 3 GRI 2.7 | 2.8 | 2.9 | EC1 2,784 Units 2,161 Corporate 623 Sub-franchises 15 brands in 6 countries Growth of 49.5% in number of units vs prior year 922 Net Openings 136 Organic 786 Acquisitions Growth of 4.5% in Same-Store Sales Mexico (0.4%) South America 20.0% 258 million customers served Spain 6.5% 2014 Results Net Sales EBITDA 7 8 7 2 2 , 8 9 6 5 1 , 0 2 5 , 3 1 2 1 0 2 3 1 0 2 4 1 0 2 9 9 6 0 1 , 1 1 0 2 8 4 9 8 , 0 1 0 2 0 4 0 2 , 3 1 0 2 9 0 6 , 1 2 1 0 2 3 0 0 , 1 0 1 0 2 3 2 1 , 1 1 1 0 2 2 0 8 2 , 4 1 0 2 Figures in millions of nominal pesos Figures in millions of nominal pesos Annual Growth CAGR* 45.2% Annual Growth 26.3% CAGR* 37.4% 29.3% *Compound Annual Growth Rate 2010-2014 Consolidated Net Income 624 million pesos CAPEX (excluding acquisitions) 2.05 billion pesos Capital issuance of 6.9 billion pesos 8.0% ROIC 7.5% ROE ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 20144 4 Alsea’s Specialties 5 GRI 2.8 | 2.10 | LA10 Share price performance Social Responsibility Results $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 0 1 0 2 n a J 0 1 0 2 h c r a M 0 1 0 2 e n u J 0 1 0 2 t p e S 0 1 0 2 c e D 1 1 0 2 h c r a M 1 1 0 2 e n u J 1 1 0 2 t p e S 1 1 0 2 c e D 2 1 0 2 h c r a M 2 1 0 2 e n u J 2 1 0 2 t p e S 2 1 0 2 c e D 3 1 0 2 h c r a M 3 1 0 2 e n u J 3 1 0 2 t p e S 3 1 0 2 c e D 4 1 0 2 h c r a M 4 1 0 2 e n u J 4 1 0 2 t p e S 4 1 0 2 c e D Share price year ended 2014 $40.77 pesos Shares outstanding 837.6 million Average Value Traded 107 million pesos Debt Structure Year 2015 2016 2017 2018 2019 2020 % 12% 16% 17% 36% 9% 10% Expiration $1,377 $1,750 $1,949 $4,055 $992 $1,117 Total Debt 11.2 billion pesos $24,106,880 Fundraising by Fundación Alsea, A.C. • 3rd consecutive year with the ESR Distinction Fundraising composition 3% 14% • 2nd consecutive year in the Mexican Stock Exchange Sustainability Index • 2nd consecutive year in the GPTW ranking 27% 56% • Caloric information diffusion through the menu boards “It’s on me” Campaign (customers) Alsea’s profit* Employees’ contribution Founding Partners’ contribution *According to the Board’s mandate, Alsea donates 1% of its profits to the Foundation • Energy savings 13,001 GJ • Collection of 679,727 L of burned oil • Two new children dining rooms • 815,340 Training hours ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 6 6 GRI 2.5 | 2.8 | 3.6 | 3.9 | 3.11 Alsea’s Specialties 7 GRI 2.2 | 2.3 | 2.7 | 3.8 Business Units and Segments Menu Quick Service Units 1,428 2,784 Units 799 246 sub-franchises Sales per Segment 5% 629 221 sub-franchises 17% 35% Alsea’s Presence 6 countries Units per country Employees per country 2 78 101 162 442 158 1,481 2,509 5,705 7,741 1,999 42,457 Mexico Spain Argentina Chile Colombia Brazil Employees 60,051 increase 85.6% Coffee Shops Casual Dining 18% 609 609 403 47 25% Quick Service Coffee Shop Family Dining Casual Dining DIA (Distribution and Production) *Including Vips, El Portón and all Grupo Zena’s brands from the corresponding months of their incorporation to the Company Sales per brand 7% 5% 25% 5% 5% 22 2 sub-franchises 24 2 66 11 sub-franchises 1 198 120 sub-franchises 13 15% 20% 19 13 sub-franchises 11 6 sub-franchises 18% Starbucks Burger King Vips Domino’s Italianni’s Chili’s DIA Other Family Dining 344 259 5 sub-franchises 85 * Vips information includes El Portón ** Other includes: P.F. Chang’s, Foster’s Hollywood, California Pizza Kitchen, The Cheescake Factory, Cañas y Tapas, La Vaca Argentina and Il Tempietto ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 20148 8 GRI EC1 | EC8 | EC9 | EN5 | EN26 | EN27 | EN30 Results Menu Financial, Social and Environmental Social and Environmental Value Operating children dining rooms Number of direct beneficiaries from the “It’s on me” Movement Number of indirect beneficiaries from the “It’s on me” Movement 2013 3 777 2014 5 1,268 5,439 8,876 Number of nutritious meals served 113,092 203,350 Hours of the Human and Warmth Formation program 3,806 6,298 Dining rooms’ operation and construction expenses $8,977,404 $12,663,102 Economic donations In kind donations Volunteered hours Collection of burned oil Energy savings $11,730,345 $16,227,182 21,611 kg 96,000 kg 20,000 23,841 466,682 L 679,727 L 44,869 GJ 13,001 GJ 9 GRI 2.8 | EC1 Financial Results Financial Highlights (1) CAGR(5) Annual Growth 2014 % 2013 % Income Statement Net Sales Gross Profit Operating Income EBITDA(2) 26.3% 28.0% 45.5% 29.3% 45.2% 22,787.4 100.0% 15,697.7 100.0% 48.1% 15,515.1 68.1% 10,476.9 66.7% 31.2% 1,468.5 6.4% 1,119.6 7.1% 37.4% 2,801.8 12.3% 2,039.9 13.0% Consolidated Net Profit 40.8% -5.9% 624.1 2.7% 663.3 4.2% Balance Sheet Total Assets Cash 135.9% 29,337.5 100.0% 12,435.6 100.0% 67.8% 1,112.9 3.8% 663.3 5.3% Liabilities with Cost 122.8% 11,239.2 38.7% 5,043.6 40.6% 106.0% 8,800.1 30.3% 4,271.4 34.4% Major Shareholders’ Equity Profitability ROIC(3) ROE(4) Stock Information Share Price Earnings per Share Dividend per Share -32.2% -48.6% 8.0% 7.5% 0.0% 40.77 -14.5% 0.85 NA 0 Book Value per Share 69.2% 10.51 Shares Outstanding (millions) Operation 21.9% 838.6 Number of Units 23.3% 49.5% 2,784 Employees 28.4% 85.6% 60,051 (1) Figures in millions of nominal pesos under IFRS standards, except data per share, number of units 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 2010-2014. 11.8% 14.6% 40.79 0.99 0.5 6.21 687.8 1,862 32,362 ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201410 10 GRI 1.1 | 1.2 | 4.4 | 4.17 | EC8 A la Carte Menu Message from the Chief Executive Officer To our shareholders, Highlights of our menu We share with pleasure our 2014 accomplish- ments. This year we exceeded our expectations and those of our stakeholders, with outstanding results and increasing the Company’s diversifica- tion and strength. During this year, we concluded important acqui- sitions, expanding further in Latin America and branching out into the Spanish market, through the procurement of the leading restaurant opera- tor in the country. Likewise, we placed over 150 million shares, worth 6.9 billion pesos. Thus, for the first time more than 50% of the Company’s shares are in possession of the investor public. We are confident in Alsea’s strength and our business model, through which we will achieve the successful growth of our most recent ac- quisitions. In this manner we reiterate the Com- pany’s commitment to its local and foreign shareholders, consequently continuing to sur- pass their expectations. During 2014, we increased our units to 2,784 in six countries, which implies a net growth of 922 units throughout the year; 750 of them are cor- porate and 172, franchises. In Mexico, we closed the acquisition process of the restaurant chains Vips and El Portón; in the future, this will represent around 20% of Alsea’s total sales. Furthermore, we opened in Guadala- jara the first unit of our brand The Cheesecake Factory in Latin America, a brand with impres- sive reputation in the Food Industry worldwide. We settled the acquisition of 71.76% of Grupo Zena, leading restaurant operator in Spain. This transaction is an unequalled growth and consoli- dation opportunity for our business model in a new geographic zone. Our inorganic growth amounted to 786 units, 259 are Vips, 85 El Portón and 442 units to Grupo Zena in Spain, with Domino’s Pizza, Burg- er King, Foster’s Hollywood, Cañas y Tapas, La Vaca Argentina and Il Tempietto. Sales 22.8 EBITDA 2.8 billion pesos billion pesos EBITDA margin 12.3% Units 2,784 11 CAPEX* 2.05 billion pesos * Excluding acquisitions We continue with our expansion strategy in the casual dining segment in the South American market. Therefore, this year we inaugurated two P.F. Chang’s units in Brazil, one of Latin America’s most important economies. With these openings we reacted 24 units in Mexico, Argentina, Chile, Colombia and Brazil. Moreover, as part of the development and expan- sion strategy in South America, in midyear we opened the first Starbucks in Colombia. This is a significant step for Alsea and our growth plans, due to the high potential of the coffee market in this country. The aforementioned reflects the Company’s ca- pacity to acquire and integrate new businesses, reaffirming the geography and brand diversifi- cation strategy, which combined with organic growth, allowed us to maintain important growth rates throughout our history. Specialties We exceeded widely our previous year’s growth, with a 45.1% increase in sales, totaling to 22.8 billion pesos. This is due mainly to our brands’ great value and the Company’s suc- cessful business model, which allows to incor- porate new brands easily and develop the ones we currently own. Our gross profit closed at 15.51 billion pesos, with a gross margin of 68.1%. EBITDA grew 37.4% to 2.8 billion pesos at the year’s end 2014. Our Capex, excluding acquisitions, amounted to 2.05 billion pesos. Extra ingredient We are aware of the existing challenges in our environment, therefore we know that now more than ever we must be ready to face them with a flexible and open attitude, able to respond to so- ciety’s demands and always take one step further. Diego Gaxiola Administration and Finance Federico Tejado Alsea Mexico José Luis Portela Alsea Chile Cory Guajardo Human Resources Fabián Gosselin Chief Executive Officer Pablo de los Heros Alsea Argentina Rodrigo Riveroll Alsea Colombia Miguel Ibarrola Grupo Zena | Alsea Spain ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 12 12 A la Carte Menu 13 Our achievements during 2014 regarding Cor- porate Social Responsibility prove our actions’ strength, nonetheless we know there is always an opportunity to do more. Consequently, the Social Responsibility Committee and Commissions will continue working systematically on the reinforce- ment of the already implemented initiatives and the development of new programs, which will al- low us to improve our stakeholder engagement. In 2014, we implemented the Social Responsibility management model in Argentina; our challenge now is conveying it to the rest of the countries where we operate; thus, reaching our medium and long term goals. We are proud of the recognition and acknowledge- ment of these actions. For second consecutive year, we are listed in the Mexican Stock Exchange Sustainability Index; and for the third consecutive year we have obtained the Socially Responsible Company (ESR, for its initials in Spanish) distinc- tion. Furthermore, we continue to align our opera- tions to the United Nations Global Compact. 2014 was a celebration year, since Fundación Al- sea, A.C., our corporate foundation, commemo- rated its 10th anniversary working to ensure food security, human development and education in vulnerable communities. Likewise, the “It’s on me” Movement continues progressing towards its purpose to contribute with the eradication of children malnutrition in Mexico. During this year, it opened two new chil- dren’s dining rooms, which have the capacity to serve daily 1,460 boys and girls in extreme poverty daily, reaffirming our commitment with society and the country. Future Entrees In 2015, we will focus our efforts on Alsea’s portfo- lio growth and consolidation in all countries where we operate, which will allow a solid and profitable growth in the future. Moreover, due to our organ- ic expansion plan, we will be able to increase our market share. We will continue to strengthen our business model and support center to meet future growth, maintaining a successful development plan which will include openings objectives in every market where we have presence, with leading brands and innovative concepts. plans, focusing on profitability and operational ef- ficiency, supported by the effort and commitment of all employees in Alsea. As well, it will be a consolidation year; we will look for higher efficiency and productivity levels, fo- cused on each unit’s profitability. Our commitment with our people’s development places us once more among the top 15 in the Great Place to Work ranking –based on the five dimen- sion model: credibility, respect, fairness, pride and camaraderie– a highly remarkable distinction which we will strive to maintain every year. I am completely confident that with the support of all our employees, customers and shareholders, Alsea will achieve the strength and development of all its brands and plans, creating value and ob- taining superior results year after year. During 2015, aiming to support more children and young adults in extreme poverty conditions, we intend to improve our operating capacity in the existing dining rooms and open two new children dinning rooms. This year we will be faced with several challenges, but furthermore, with opportunities to secure our leading position in the countries where we oper- ate. We will continue our brands’ organic growth Fabián Gosselin Chief Executive Officer April, 2015 ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201414 GRI 4.8 14 Strategic Menu Strategic Planning Purpose To be the best and largest restaurant operator, assuring an outstanding experience for each customer, with the best brand portfolio and profitability. Mission To have a team that is committed to exceeding our clients’ expectations. “Touching people, enriching moments” Culture At Alsea we are dedicated to serve our clients with passion and integrity, having fun and innovating to assure a great experience for each customer. Hi demand and strong service vocation team focused on achieving results. Strategic Areas Clients Exceed our clients’ expectations with 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 sus- tained growth. Social Responsibility Be recognized by our clients and employees as a socially responsible company. 15 GRI 2.3 Principles The client comes first To serve our clients with respect and with passion to ensure a great experience and excellent service. Personal excellence and commitment Always act honestly, precisely and fairly, without putting personal interests first. Respect and loyalty to our partners and to the Company Create a unified, respectful and unbiased working environment that is closely tied to the operation. Focus on results Always make strategic decisions that are for the good of the Company in order to improve results, and share them with our team, and to look for opportunities and ideas that improve the restaurants’ results. Business Model Clients Brands Operations Marketing Human Resources Support areas Finance Information Technology Real Estate and Development Supply Chain Human Resources Social Responsibility Strategic Planning Upper Management Corporate Governance Board of Directors Audit Committee Corporate Practices Committee ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201416 GRI 2.8 | 3.5 16 Strategic Menu 17 GRI 4.1 | 4.14 | 4.15 | 4.16 Board of Directors Mission and Values - Code of Conduct Social Responsibility Committee Strategic Objectives Quality of Life and Business Ethics Commission Strive for Alsea’s employees’ satisfaction and pride in their work, promoting their comprehensive development and life balance Responsible Consumption Commission Contribute to society’s well-being, encouraging a better nutrition and balanced lifestyles Environment Commission Promote the Environment’s care through sustainable operations in Alsea’s stores Community Support Commission Support the growth and well-being of the communities where Alsea operates Support Team Social Responsibility Plan , s r o t s e v n I , y t i n u m m o C , s r e i l p p u S , s e e y o p m E l , s r e m o t s u C , l s r e d o h e r a h S l : s r e d o h e k a t S n o i t i t e p m o C d n a i a d e M n o i t a c n u m m o C i , s O G N , t n e m n r e v o G Social Responsibility Management Social Responsibility at Alsea –strategic area in the Company– is managed through the following pillars’ work: Employees’ Quality of Life and Business Ethics, Responsible Consumption, Environment and Community Support; all of them aimed to meet stakeholders’ needs and exceed their expectations. As management system and constant improvement, the Social Responsibility Committee and Commissions continue working systematically on the reinforcement of the already implemented initiatives and the development of new programs, which will allow the Company to reach short, medium and long term goals. Likewise, Alsea looks for more synergy from the inside. Recent acquisitions force the Company to become more efficient, to align all new brands and drive Social Responsibility actions in each region where it operates. Stakeholder Engagement Mechanisms • Shareholders’ Meeting / Annual • Investor Relations / Permanent • Internal communication media portfolio / Permanent • Community engagement / Permanent • Electronic media / Permanent • Organizational environment survey / Annual • Focus groups / Permanent • The right way (a transparent complaint procedure) / Permanent ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 19 INTERNATIONAL RECIPES ALSEA ANNUAL REPORT 2014International Recipes 21 GRI 2.8 | EC1 Sales Adjusted EBITDA* $20,655 $3,873 $14,681 $2,673 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 Variation 41% $5.97 billion pesos 73% of Alsea’s consolidated sales Variation 40% $1.11 billion pesos Adjusted EBITDA Margin* 18.8% 2013 2014 Variation 18.7% (10) bps *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA” 20 20 GRI 2.5 | 2.7 | 2.8 | 2.9 Mexico Growth in a new segment 42,457 employees 1,999 units vs 1,575 in 2013 Growth of 27% • Acquisition and incorporation of Vips and El Portón to the business model • Increase of 404 corporate units of all brands • The Cheesecake Factory’s operations startup in Guadalajara, Jalisco • Mexico represents 70% of Alsea’s total served customers Units 604 438 456 47 22 19 2 66 1 259 85 ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201422 22 GRI 2.5 | 2.7 | 2.9 South America Growth in the region 9,853 employees 343 corporate units vs 287 in 2013 Growth of 20% • Expansion in the casual dining segment in South America, through the entry to the Brazilian market with the opening of two P.F. Chang’s units • Growth in the Colombian market with the opening of the first Starbucks in this country • Operation of over 100 units in Chile • Inauguration of the fresh dough Distribution and Production Center in Colombia • South America represents 26% of Alsea’s total served customers International Recipes Chile 2,509 employees 101 units Colombia 1,481 employees 78 units Brazil 158 employees 2 units Sales $4,621 $4,219 3 1 0 2 4 1 0 2 23 GRI 2.8 | EC1 Units 66 34 1 Units 55 16 6 1 Units 2 Adjusted EBITDA* $679 $583 3 1 0 2 4 1 0 2 Argentina 5,705 employees 162 units Units 81 80 1 Variation 10% $402 million pesos Variation 17% $96 million pesos Adjusted EBITDA Margin* 20% of Alsea’s consolidated sales 2013 2014 Variation 13.8% 14.7% 90 bps *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA”. ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201424 24 GRI 2.5 | 2.7 | 2.9 Spain International Recipes 25 GRI 2.8 | EC1 New own brands Growth in a new market 7,741 employees 442 units • Through Grupo Zena’s acquisition in Spain, the Company branches out into the Spanish market with the leading restaurant operator in this country • Thus, soundly supplementing Alsea’s growth and diversification strategy • Spain represents 4% of Alsea’s total served customers 2014 6.5% 442 $1,468 $290 19.8% Units 198 Same-store sales Number of units 140 Sales Adjusted EBITDA* Adjusted EBITDA Margin* *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA” 7% of Alsea’s consolidated sales 61 19 13 11 ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 26 26 Message form the Chairman of the Board Corporate Governance 27 GRI 4.1 | 4.2 | 4.3 | 4.10 To the Board of Directors of Alsea, S.A.B. de C.V. Dear Shareholders: In 2014 Alsea celebrated 15 years of being a public company, it was in 1999 when the Com- pany and its shareholders decided to trade on the Mexican Stock Exchange with the intention of building a great company in the restaurant industry. The capital for this purpose was ob- tained, in order to create an institutional Alsea that could be an example for Mexico and also give its shareholders a good return for their in- vestment with security and liquidity. Today we can confirm that the goals have been fulfilled; in these 15 years Alsea has achieved a compound annual growth in its share price of 20.4% compared to the initial public offe- ring date, closing 2014 at a price of $ 40.77 pesos. Likewise two subsequent share offers outstand, in November 2012 and June 2014, reaching a total of 837.6 million outstanding shares as of December 31, 2014, of which over 50% are held by the investing public. In addi- tion to the Company´s organic and inorganic growth throughout its history, it is noteworthy that we have not set aside the retribution to our shareholders through dividends, repre- senting approximately $1.5 billion pesos in the last ten years. No doubt 2014 has been the most important year for the Company, being the year with the highest growth, reaching 2,784 units in six countries and over 60,000 employees, achie- ving sales of $22.7 billion, with an EBITDA of $2.8 billion. Additionally the Company was able to place 150 million shares in the amount of 6.9 billion pesos, with an oversubscription of more than 6.5 times; this places Alsea as a fully ins- titutional Company with the perfect combina- tion for the founding shareholders to be able to continue maintaining a profitable growth, and ensure the best operation of the restaurants in each opportunity to serve a customer. in Latin America and entering the Spanish mar- ket through the purchase of Grupo Zena, the leading restaurant operator in that country. With this, the Company reflects its capacity to purchase and integrate new businesses, rea- ffirming the brands and geography diversifi- cation strategy and allowing Alsea to maintain strong growth rates along its history. The Board of Directors, its governing bodies and management, continue working all together in order to bring Alsea to achieve the growth and profitability expected by the market, taking care at all times of the inherent risks of a cha- llenging management, even more now that the Company has such a huge geographical cove- rage, being aware of the task this implies. With the aim of strengthening its commitment to be a Company fully attached to the Code of Best Business Practices; through its Board of Directors, Alsea ensures the highest standards of corporate governance; generating greater security and confidence to its shareholders. The Company has achieved outstanding re- sults in terms of profitability and efficiency, increasing its diversification and strength. and solid The Company reaffirms its commitment to society, environment, employees’ quality of life and customer satisfaction, showing a responsible be- havior, managing to be part of the Mexican Stock Exchange Sustainability Index for the second successive year, as well as obtaining the Socially Responsible Distinctive for the third year, generating value for the business, their employees and shareholders. business Continuing with the long-term vision to ensure profitable growth, during 2014 major acquisi- tions were completed, expanding the brands Alberto Torrado Martínez Chairman of the Board Corporate Governance 10 Board Members 5 Independent Members Chairman: Proprietary Board Member Corporate Practices Committee Audit Committee The Board of Directors is comprised by ten members, ratified or appointed by the General and Extraordinary Shareholders’ Meetings held on March 14, 2014. The Board 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, which today represent 50% of the total Board Members, exceeding the percentage of 25% required by the Securities Exchange Act. The Company does not have Alternate Board Members, since it is considered that a Proprietary Member is failing his/her obligations towards 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 comprised exclusively by Independent Board Members. ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201428 28 GRI 4.5 | 4.6 | 4.7 | 4.8 | 4.9 | 4.10 | 4.11 | HR5 | HR6 | HR7 | SO4 Corporate Governance 29 GRI 4.2 Corporate Practices Committee General occupations: I. To present observations on the performance of relevant directors. II. To monitor and report operations with related companies, detailing the characteristics of significant operations. III. To establish and revise bonuses or comprehensive remuneration packages. IV. To review and present the expenses granted by the Board of Directors. Audit Committee General occupations: I. To monitor and report the state of the Company’s internal control system and internal audit system, and the companies that it controls, and where applicable, a description of their deficiencies and deviations, as well as the aspects that require improvement. For this, opinions, reports, press releases and the external auditor’s report will be considered, as well as the reports issued by independent experts who have provided their services during the period covered by the report. II. . To review, report and follow up on the preventive and corrective measures implemented based on the results from the investigations performed regarding non-compliance with guidelines and operating policies, and accounting records; whether for the Company itself or companies that it controls. III. To report and evaluate the performance of the company that provides external auditing services. IV. To report the reviews’ main results of the Company’s financial statements and the companies that it controls. V. To report the description and effects of modifications to the approved accounting policies. VI. To report the measures adopted pursuant to the observations made by shareholders, Board Members, relevant directives, employees and in general any third party with respect to accounting, internal controls and matters related to the internal or external audit or even matters arising from complaints made regarding events that are seen irregular in management. VII. To report and follow up on the agreements reached at the Shareholders’ meetings and the Board of Directors. Furthermore, striving to strengthen Alsea’s positive reputation with a high sense of Social Responsibility, the Company has constituted a Social Responsibility Committee with four commissions: Quality of Life and Business Ethics Commission, Responsible Consumption Commission, Environment Commission and Community Support Commission. Such Committee has representation in the Board of Directors. 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 please go to the Corporate Governance and Reports Center sections of the Alsea website. For more information on Alsea’s Code of Conduct, please visit: http://www. alsea.net/relacion-con-inversionistas/ codigo-de-conducta Board of Directors Chairman Alberto Torrado Martínez Proprietary Members Alberto Torrado Martínez Chairman Independent Board Members Marcelo A. Rivero Garza Chairman, Brain Strategic Insight Cosme Torrado Martínez Member Julio Gutiérrez Mercadillo Chairman, Grupo Metis Armando Torrado Martínez Member Raúl Méndez Segura Chairman, Grupo Green River Fabián Gerardo Gosselin Castro Chief Executive Officer Iván Moguel Kuri Partner of Chévez Ruiz Zamarripa y Cía., S.C. Federico Tejado Bárcena Alsea Mexico León Kraig Eskenazi Director and Partner of Ignia Partners, LLC Secretary Xavier Mangino Dueñas Partner of Diaz Rivera y Mangino, S.C. Audit Committee Iván Moguel Kuri Chairman Corporate Practices Committee Julio Gutiérrez Mercadillo Chairman Julio Gutiérrez Mercadillo Member Marcelo A. Rivero Garza Member Raúl Méndez Segura Member León Kraig Eskenazi Member Elizabeth Garrido López Secretary Elizabeth Garrido López Secretary ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 EXTRA INGREDIENT 31 ALSEA ANNUAL REPORT 201432 GRI PR3 32 Options that fit your lifestyle Extra Ingredient 33 GRI PR1 Exceeding the customers’ expectations Alsea, convinced that food and beverages match perfectly with the pleasure of a healthy responsible consumption, strives daily to offer the best tasting and prime quality products. The Company is committed to a balanced lifestyle, so it promotes the sharing experience, physical activity, hydration and a moderate consumption. For this purpose, Alsea carries out activities such as: withdraw salt shakers form tables, eliminate sweeteners from its lemonades and orange juices and use low-fat milk in coffees, besides manufacturing all products with natural and fresh ingredients. The Company has the responsibility to provide its customers all the nutritional facts they need of the food they ingest, as well as how to combine them and in what proportion and quantities they should be consumed. All together with new options to satisfy all needs and tastes. 2014 Actions • Nutrition signal advance of all Alsea’s brands • Caloric information diffusion through the menu boards • Nutrition audits to all the Company’s brands, as well as advances per ingredient The innocuousness and confidence of all the products Alsea offers its customers is of the upmost importance. Therefore, the Company has several evaluation processes to measure their quality and safety. It is Alsea’s responsibility to guarantee its customers’ health and safety, so it carries out constant improvement processes along its products life cycles, including their packaging manufacture, storage, distribution and supply. Certification to a total of 93% of 275 national foods and direct contact packaging materials’ suppliers Vips Commissariat Monthly annual production 750 Tonnes: 85% Processed, 15% Pastries Monthly shifted volume: 130,000 boxes 70% of the production capacity installed Quality assurance • TIF Plant Certification • SQF Certification Level 1 • Internal Laboratory ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201434 GRI 2.8 | LA1 34 Extra Ingredient 35 GRI LA3 | LA4 | LA6 | LA10 | LA12 | LA14 | HR3 | HR5 | SO3 Menu with Quality and Talent Equal Opportunities Alsea’s Code of Conduct regulates the guidelines for an ethic and responsible behavior in the Company, ensuring equal opportunities, no discrimination, diversity, anticorruption and respect. Likewise, Alsea supports gender equity and provides salaries based on employees performance and responsibility level. Salaries are market competitive in all regions where the Company operates, according to the employees’ assignments and knowledge. Alsea strives constantly to improve the employees’ quality of life, so it offers several benefits and compensations; complying with each country’s law, and in many cases, surpassing it. Examples are the special licenses for direct family member’s decease, as well as the possibility of additional vacations based on certain criteria. The employees’ right and processes for collective agreements are respected and conducted conveniently, transparently and upholding the law; as well as Freedom of Association and Collective Negotiation always observing each country’s regulation and within a respectful and orderly frame. Health and Safety 100% of Alsea’s employees are represented in the Joint Health and Safety Commission Training and Development It is essential for Alsea that all its employees have empowerment initiative and innovation, individual talent and teamwork, all of which allows the Company to achieve its objectives. Training hours 815,340 Of which 467,368 men 347,972 women Some of the benefits and compensations offered all employees are the following: Directors and Subdirectors: 6,948 • Life insurance • Additional days off with pay • Groceries coupons • Discounts for all of Alsea’s brands • Invalidity or disability coverage • Maternity or paternity leave Managers and middle management: 59,500 Coordinators, analysts and operative personnel in stores: 748,892 All employees received training in anticorruption, through the Code of Conduct 100% of Alsea’s employees received a performance review (Mexico Staff) 41% women 59% men Employees’ comprehensive development Alsea holds the best employees to always offer the highest quality in Alsea Menu’s service and products. The Company strives for its employees’ satisfaction and pride in their work, promoting their comprehensive development and life balance. Alsea’s total employees: 60,051 2014 Achievements regarding quality of life • Launch of the Recognition Program for the academic excellence of the operative employees’ children in Mexico. Distribution of school supplies to 100% of the children with 9.5 or superior GPA Increase of 85.6% vs 2013 Approximately 6,000 promoted employees in the year • Implementation of tiered schedule program in offices. 65% of administrative employees were benefited 28,618 Women • Economic and in-kind support to all employees affected by the Odile hurricane 31,433 Men ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 36 36 GRI LA10 | LA12 | SO3 • Provide development opportunities for employees. • Strengthen a high performance culture. During 2014 the Alsea Leadership Model (MLA, for its initials in Spanish) was re-launched. Its objectives are the following: • Quality and transparency in conversations on career projection and employees’ promotions. • Assure talent for the Company, which is in constant growth. • A deeper and wider talent pool, which in addition is diverse in gender and brands. Extra Ingredient 37 GRI 3.10 | 3.11 | EN3 | EN4 | EN8 Sustainable Menu For Alsea, the Environment’s care and commitment with the efficient use of natural resources represents an essential value to achieve solid growth. Therefore, it promotes the sustainable operation in its stores, procuring profitability through innovation and leadership in its four action lines: Energy, Water, Waste and Inputs. As an awareness effort and to spread a Sustainability culture among its employees, during 2014 the Company developed a website intended to create consciousness among society on the importance of this subject. http://www.tipsdesustentabilidad.com/ Water Aligned to the 2018 strategic sustainability plan, Alsea remains with the objective of optimizing water consumption within its facilities. During 2014, the total water consumption was: 598,890 m3 of potable water from municipal water supply and supplier companies January-December 2014, all brands included *51% is estimated information Energy The use of best practices and technologies allows a reduction of energy consumption in Alsea’s processes. The improvement in energy efficiency permits the equipment’s correct operation and promotes the environment’s care within and outside the facilities. 544,654 GJ Indirect energy consumption * January-December 2014 2,050,378 GJ Direct energy consumption * January-December 2014 * The direct energy consumption calculation includes LP Gas and Natural Gas for Burger King, California Pizza Kitchen, Domino’s Pizza, Italianni’s, The Cheesecake Factory, P.F. Chang’s, Pei Wei, DIA and Chili´s The first Alsea Talent Base was created, according to the employees’ performance and potential. Reviewed audience: 455 employees, distributed as follows: 142 women and 313 men (31% and 69%, respectively) High Potential: 101 employees were identified as high potential, all of whom are ready to assume superior responsibility levels. During 2015, the MLA will be further implemented for 100% of Mexico, Argentina, Chile and Colombia’s staff; even reaching store managers in Mexico. ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201438 38 GRI EN4 | EN5 | EN6 | EN16 | EN18 | EN30 Extra Ingredient 39 GRI EN2 | EN22 | EN26 | EN27 Renewable and non-renewable indirect sources: 2014 Consumption Consumption (GJ) $5,237,605 pesos invested in energy saving projects Source Electric energy LP Gas 151,292,872 kWh 544,654 GJ 44,137,620 Lt 1,575,713 GJ Natural Gas 1,735,074 m3 65,495 GJ *Estimated information: 50% LP Gas, 7% Natural Gas, 6% Electric energy Alsea has accomplished savings and the efficient use of electric energy through the implementation of saving initiatives, such as: • Change of lighting to LED type • Installation of efficient lamps, which reduce 70% of consumption and increase 40% illumination, promoting a more favorable work environment • Installation of equipment that examines energy consumption in real time, allowing swift problem identifications and avoiding unnecessary energy consumption Emissions Starting in 2015, a record will be implemented for the calculation of Greenhouse Gasses derived from the refill of cooling gas in air conditioning and refrigeration equipment. During 2014 the CO2 emissions generated were: Direct emissions: 132,414 CO2 tonnes Indirect emissions: 75,631 CO2 tonnes • Installation of control and automation projects, achieving energy savings *Source for CO2 equivalent factor: Contributions to the “Cero waste to sanitary landfill in main cities for 2018” goal: Classification 4% Savings 13,001 GJ Alsea is currently evaluating the use of biodiesel in the Supply Chain transportation (DIA); during 2015 a pilot test will be conducted in DIA trucks that will define the use of such biofuel in Alsea’s facilities. Likewise, the Company will commence using Green Energy, once the current process of “regulations’ changes” is completed. http://www.geimexico.org/factor.html http://www.semarnat.gob.mx/ http://www.inecc.gob.mx/descargas/cclimatico/elab_ inventarios.pdf Inputs and Waste Alsea has a Sustainable Inputs policy which promotes the acquisition of materials and products with sustainable characteristics, for example: electric equipment of low-energy consumption, local inputs that reduce the GHG emissions involved in their transport, products with post-consumption or post-industrial materials, low VOC content, recyclable inputs that reduce to a minimum the use of packaging materials and furnishings with recycled materials, among others. 2015’s goal is to integrate a sustainable procurement indicator that considers purchasing a higher percentage of sustainable products. • Pilot test in Starbucks Jalisco, Mexico branches, implementing a comprehensive and sustainable waste management under the concept “Single Stream” for recyclable residues. These will be shipped to a separation plant for their subsequent recycling, compost for organic waste and correct disposal in sanitary landfill for non-recyclable residues in an early phase. 37% The results of this first stage show that waste in the screened branches behaves as follows: 679,727 L of used oil collected for its proper disposal, preventing the pollution of 679 million liters of water 59% Recyclable Non-Recyclable Organic The information contained in this section only considers Mexico, and does not include information of Vips, El Portón, and Commissariat ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 40 GRI EC1 | EC8 40 Menu for Sharing 41 GRI 4.12 | EC1 | EC8 | EC9 Supporting vulnerable communities Contributing to eradicate children malnourishment Alsea supports the growth, development and wellbeing of the communities where it operates through: • Volunteering • In-kind donations • Economic donations 10 years supporting vulnerable communities in Mexico with over $60,000,000 pesos invested in social causes and over 450,000 beneficiaries 23,841 volunteered hours Over 96 tonnes of donated food Alsea annually assigns 1% of all business units’ profits to the Foundation. Furthermore, it carries out internal and external fundraising campaigns to increase the resources used in initiatives in favor of food security. $24,106,880 pesos collected during 2014 Fundación Alsea, A.C. Through the Foundation’s efforts, Alsea reaffirms its commitment to ensure food security in vulnerable communities and promote human development supporting initiatives in favor of education. “It’s on me” Movement In 2014, Alsea fulfilled its commitment to inaugurate the first “Our Dining Room” in Mexico City and one more in Municipio de García, in the State of Nuevo León, Mexico. 1,268 children served daily $12,663,102 pesos donated to Comedor Santa María, A.C., for the operation of five children dining rooms “Our Dining Room” Education Community Development Support to Mano Amiga School, in Chalco, State of Mexico, providing scholarships to ensure the education of young adults in vulnerable conditions. Through the alliance with Fondo para la Paz, I.A.P., Alsea Foundation battles extreme poverty in 12 communities in the State of Oaxaca, Mexico, with initiatives such as: Alsea Generation: 136 high school students with scholarships • Access facility to basic services • Development of social capital • Women’s empowerment • Reduction of children malnutrition ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201442 GRI EC8 | EC9 42 Menu for Sharing GRI Index GRI Indicators Level of reporting Strategy and Analysis 1.1 1.2 Fully Fully Organizational Profile 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Fully Fully Fully Fully Fully Fully Fully Fully Fully Fully Report Parameters Report Profile 3.1 3.2 3.3 3.4 Fully Fully Fully Fully Report Scope and Boundary 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Fully Fully Fully Fully Fully Fully Fully GRI Content Index 3.12 Fully Assurance 3.13 Fully Global Compact Principles Page GRI Indicators Level of reporting Global Compact Principles 43 GRI 3.12 Page 40 43 Dust jacket inside flap 19 19 19 12-15 12-15 2 2,9 2,9,17 Dust jacket inside flap 2, 8, 22, 24, 26 Dust jacket inside flap 2, 4, 5, 9, 22, 24, 26 4, 5, 7, 8, 11, 23 , 25, 27, 32 4, 5, 22, 24, 26 7 Dust jacket inside flap Dust jacket inside flap Dust jacket inside flap Dust jacket inside flap 18 4, 8, Dust jacket inside flap 8 4, 9 In prior years results were reported by brand. Today they’re reported by region 35 4, 8, 35 45 Dust jacket inside flap Commitments to External Initiatives 4.11 4.12 4.13 Fully Fully Fully 7 1-10 1-10 Stakeholder Engagement 4.14 4.15 4.16 4.17 Fully Partially Partially Partially 8 12-15 Economic Performance Indicators Aspect: Economic Performance EC1 Fully EC4 Fully Aspect: Indirect Economic Impacts EC8 EC9 Fully Fully Environmental Performance Indicators 5, 10, 11, 23, 25, 27, 42, 43 Alsea does not receive any help from the government 10, 12-15, 42, 44 10, 42-44 Aspect: Materials EN2 Partially Aspect: Energy EN3 EN4 EN5 EN6 Partially Fully Fully Fully 8 8 8-9 8-9 Aspect: Water EN8 Partially 08-sep Aspect: Emissions, Effluents and Waste EN16 EN18 EN22 Fully Partially Partially 8 8 8 Aspect: Products and Services EN26 EN27 Partially Partially 8, 9 8, 9 Aspect: Overall EN30 Fully 37 35 35, 36 10, 36 36 35 36 36 37 10, 37 10, 37 10, 36 Labor practices and decent work performance indicators Aspect: Employment LA1 LA3 Partially Fully Aspect: Labor/Management Relations LA4 Fully 6 LA5 Fully 32 33 33 There is no minnimun notice period in collective agreements Todos Sembramos Café This is an initiative created with the purpose of supporting coffee producers from Chiapas, Mexico, who lost their crops due to rust, causing the loss of 70% of the expected production volume for 2014. Starbucks contributed by donating all profits form the Mexico Shade Grown sale for the acquisition of coffee plants that were delivered to the affected producers. 2015 Social Responsibility Initiatives 180,000 coffee plants donated to coffee producers in Chiapas 60 coffee producers benefited with 3,000 plants each Responsible Consumption Environment • Products’ KPIs to three years • Follow up of the diffusion plan for Caloric Menus in sale points • Life in balance posture and plan • Energy efficiency • Water consumption efficiency • Comprehensive Waste Management Program • Environmental Management System Governance Quality of Life and Business Ethics • Employees’ healthy diet program • Measurement of the initiative One weekend off for operative managers • Additional benefits in compensations and flexible work schemes Community Support • Extension of operational capacity in the existing dining rooms and ope- ning of two new “Our Dining Room” 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 Fully Fully Fully Partially Fully Fully Fully Fully Fully Fully 1-10 1-10 1-10 1-10 1-10 1-10 1-10 1-10 1-10 1-10 19, 39 39, 41 39 12-15 40 40 40 16, 40 40 39, 40 Governance, Commitments and Engagement ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 44 44 45 GRI Indicators Level of reporting Global Compact Principles Page GRI Indicators Level of reporting Global Compact Principles Page Aspect: Occupational health and safety Aspect: Security practices LA6 Fully LA9 Fully Aspect: Training and education LA10 LA12 Fully Fully 33 There are no security and health issues covered in formal agreements with unions 7, 33, 34 12, 33, 34 HR8 Fully Aspect: Indigenous rights HR9 Fully Aspect: Assessment Aspect: Equal remuneration for women and men HR10 Fully LA13 Partially LA14 Partially A woman is part of The Corporate Practices and Audit Committees 33 Human Rights Performance Indicators Aspect: Investment and procurement practices HR1 Fully HR3 Partially Aspect: Non discrimination HR4 Fully Alsea holds no invesment agreements with human rights clauses 33 There are no complaints for discrimination incidents. Aspect: Freedom of association and collective bargaining HR5 Fully 33, 40 Aspect: Child labor Aspect: Remediation HR11 Fully Society Performance Indicators Aspect: Corruption SO3 SO4 Fully Fully Aspect: Public policy SO6 Fully 10 10 33, 34 40 Alsea does not contribute to any political party Product Responsibility Performance Indicators Aspect: Customer health and safety PR1 Fully 1 Aspect: Product and service labeling PR3 Partially HR6 Fully 1-6 Aspect: Forced and compulsory labor HR7 Fully 1-6 40 Alsea supports child labor erradication 40 Alsea rejects forced labor PR4 Fully PR5 Partially Security is outsourcing personnel There are no incidents regarding indigenous rights Alsea does not analyze operations regarding human rights No complains regarding human rights were presented 31 30 There are no non- compliances regarding this subject Alsea has complaints modules for clients Employee Turnover Actives average 12 months Total leaves 12 months December Turnover Total Alsea 46,806 29,714 63% United Nations Global Compact Principles Human Rights 1. Businesses should support and respect the protection of internationally proclaimed human rights. 2. Make sure that they are not complicit in human rights abuses. Labor 3. Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining. 4. The elimination of all forms of forced and compulsory labor. 5. The effective abolition of child labor. 6. The elimination of discrimination in respect of employment and occupation. Environment 7. Businesses should support a precautionary approach to environmental challenges. 8. Undertake initiatives to promote greater environmental responsibility. 9. Encourage the development and diffusion of environmentally friendly technologies. Anti-Corruption 10. Businesses should work against corruption in all its forms, including extortion and bribery. Millennium Development Goals The Company contributes to the compliance of the following objectives through all its internally developed actions. 1. Eradicate extreme poverty and hunger 2. Achieve universal primary education 3. Promote gender equality and empower women 7. Ensure environmental sustainability 8. Global partnership and development Annexes Commitments to External Initiatives Participation in Chambers and Associations GRI 4.13 • Consejo de la Comunicación, members of the Board with active participation in campaigns to generate social benefits. • Participation in the Asociación Mexicana de Comunicadores (AMCO). • American Chamber of Commerce, as itine- rant member in the Fiscal Committee and the Real Estate Development Committee. Labor practices and decent work performance Indicators Aspect: Employment Total workforce by employment type, employment contract, and region. GRI LA1 Employment type Operative Staff Administrative Staff 40974 5,448 2,342 1,369 50133 1483 257 167 112 2019 42457 5,705 2,509 1,481 52,152 Mexico Argentina Chile Colombia Alsea’s total employees *Spain not included Mexico Argentina Chile Colombia Alsea’s total employees *Spain not included Employment Contract Unlimited time 42457 5705 2509 1481 52152 GRI LA2 GRI LA3 All administrative employees enjoy additional benefits to those required by law, which are the following: • Savings fund • Grocery coupons • Savings account (Applicable for all business units) • Life insurance • Mayor medical expenses insurance (Applicable for managing team) • Discounts for all of Alsea’s brands Aspect: Training and Education Training hours Staff Directors and Deputy Directors Managers or Middle Management Coordinators, analysts or operative staff in store GRI LA10 Training hours 1,288 hours 45,268 hours 587,802 hours ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 46 46 47 Academic support Granting criteria: GRI LA11 GRI LA12 The performance review process is executed in three stages: a) Goals setting: the employee meets with his immediate supervisor to clarify which goals to establish and determine the achievable targets. Objectives must be specific, measurable, attai- nable, result oriented and completed within a certain time. b) Six months review: during this stage, the pro- gress of each objective is reviewed. The emplo- yee meets with his immediate supervisor and they outline strategies to ensure the planned goal’s achievement. c) Performance Review: during this stage, su- pervisor and employee meet to register the goal’s closure and determine if the defined tar- gets were achieved or not. A feedback session is held regarding the employee’s performance. Strengths and opportunities are highlighted and action plans are created to improve and drive the employee’s development. Environmental performance Indicators - Mexico Aspect: Materials EN1, EN2 One of Alsea’s goals in the sustainable area is to incorporate materials with features that help the Environment’s protection. Therefore, the Com- pany has a Sustainable Inputs policy which pro- motes the acquisition of materials and products with environmental friendly characteristics, such as: electric equipment of low-energy consump- tion, local inputs that reduce the GHG emis- sions involved in their transport, products with post-consumption or post-industrial materials, low VOC content, recyclable inputs that reduce to a minimum the use of packaging materials, furnishings with recycled materials, low mercury content lamps, among others. Furthermore, in 2015 Alsea will integrate a sustainable procure- ment indicator that considers purchasing a hi- gher percentage of sustainable products. 1. The employee’s need to take the elected study program specifying its business application or impact (specify a performance indicator). 2. Be identified as High Potential in the talent Nine Box. 3. Have at least one year in the Company. 4. Have and meet the program’s cost, previously considered in the UEN budget and/or soliciting area, managed by Corporate HR. 5. Execute them with the suppliers or institu- tions validated by Corporate HR. There is also the possibility to study any langua- ge, according to the corresponding policy. The granting and support definition is carried out considering the following criteria: 1. The employee’s need for the chosen langua- ge, specifying its business application or impact (specify a performance indicator, for example, telephone calls number, emails, conferences, tra- vels, etc.). 2. Be identified as High Potential or Main Poten- tial in the talent Nine Box. For high potentials applies a 100% support and for main potential a 50% support. The language program’s financing will be deter- mined with an initial diagnosis to consider the current state and plan a program, which will be united to the participant’s follow-up file, kept by the Training Coordinator. During the program’s length, an audit on the language’s application on the position will be carried out in order to verify its application in regards to the indicator stipula- ted at the beginning of the program. Once the program is concluded, the employee cannot request support for a second time until the next calibration and confirming its position on the Grid. The participant will have to sign and comply with the regulations. Also, Alsea has early retirement planning pro- grams for those employees thinking of retiring, as well as severance payments for dismissal. Besides, during 2015 Alsea will incorporate a re- cycled materials record that indicates the type and amount of recycled or reused materials; this will contribute to the Cero waste to sanitary lan- dfill for 2018 goal in Mexico’s main cities. Aspect: Energy EN3, EN4, EN5, EN6 The basic energy sources used within the organi- zation are: Natural Gas, LP Gas and Electric Ener- gy. The Company is working to consolidate the information regarding gasoline and diesel con- sumption. During 2014, several strategies were implemented to reduce Electric Energy con- sumption, achieving a 13,001 GJ savings. Such initiatives consisted of change of conventional lighting to LED technology, installation of equip- ment that examines energy consumption in real time, allowing swift problem identifications and avoiding unnecessary energy consumption, and installation of control and automation projects, achieving energy savings. The amount invested in energy saving programs was $5,237,605 pe- sos. Alsea’s purpose is to promote sustainable prac- tices and processes within the organization, so it will evaluate the use of biodiesel in the Supply Chain transportation (DIA), besides green ener- gy consumption (Photovoltaic, Wind and Coge- neration energy) within its facilities. During 2015 the evaluation to use renewable energy will be completed, however, it is noteworthy that such process will be mainly influenced by the current process of “regulations’ changes”. Indirect and Direct energy consumption 2014 Non-renewable indirect and direct sources Source Consumption Consumption (GJ) Electric Energy 151,292,872 kWh 544,654 GJ LP Gas 9,388,373 m3 913,736 GJ Natural Gas 1,722,912 m3 65,919 GJ * Estimated information 50% LP Gas, 7% Natural Gas, 6% Electric energy * Energy consumption corresponding to Alsea’s facilities located in Mexico **Conversion factor Units Conversion factor Comments GJ to KWH KWH to GJ 1GJ = 277.778 kWh 1kWh = 0.0036 GJ m3 to Kcal ( Gas LP) 1m3 = 23,246 Kcal m3 to GJ ( Gas Natural) 1GJ = 26.137 m3 Environmental conditions Standard: 15°C, 101.325KPa Direct energy consumption Reported year: 2014 Reported unit: Mexico 2014 Gas Report 2014 Data Base Line – Normalized by m3 of Gas # Units Natural Gas (m3) LP Gas (m3) CO2 ton (Gas/ton) CO2 (LP Gas) CO2 ton / # Units Fast food Coffee Shops Casual Dining Total 595 387 109 1,091 810,011 7,068,040 - 13,548 912,901 2,306,785 1,523 - 1,716 10,814,101 20,728 3,529,380 18,178 54 32,395 1,722,912 9,388,373 3,239 14,364,210 12,657 Notes: *The Portfolio increased against 2013: 24 - “Burger King”, 7 - “Chilis”, 6 – “CPK”, 214 “Dominos”, 8 – “Italiannis”, 7 – “PF Changs”, 53 – “Starbucks”. * Regarding LP Gas, 50% of the information corresponds to billing data and the remaining 50% is estimated information; regarding Natural Gas, 93% is real information and 7% is estimated. * The displayed information corresponds to the January – December 2014 period. *The previous data does not include plants nor 354 units belonging to Vips, Portón and La Finca ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201448 48 49 Fast Food Coffee Shops Casual Dining Others Total Fast Food Coffee Shops Casual Dining Others Total 2013 Data Base Line – Normalized by # of units #Units Energy (kWh) CO2 (ton) kWh/# Units 595 387 108 19 1,109 58,055,952 41,970,165 30,569,677 13,476,153 144,071,947 29,022 20,981 15,282 6,737 72,022 108,201 108,450 278,593 1,483,991 494,809 CO2 ton/# Units 54 54 139 742 247 2013 Data Base Line – Normalized by # of units #Units Energy (kWh) CO2 (ton) kWh/# Units 613 430 132 21 1,196 57,072,907 44,249,430 36,213,332 13,757,203 151,292,872 28,531 22,120 18,103 6,877 75,631 101,911 102,906 274,343 1,491,476 492,659 CO2 ton/# Units 51 51 137 746 246 Energy Savings 2014 Goals Achievement (by units) kWh/ # Units ton CO2/# Units Fast Food Total Coffee Shops Total Casual Dining Total Others Total -5.8% -5.1% -3.3% 0.5% -0.4% -5.8% -5.1% -3.3% 0.5% -0.4% Notes: *The electricity emission factor value [tCO2e/MWh] corresponding to 2013 was modified from 0.45483 to 0.4999. * The Portfolio increased against 2013: 24 - “Burger King”, 7 - “Chilis”, 6 – “CPK”, 214 “Dominos”, 8 – “Italiannis”, 7 – “PF Changs”, 53 – “Starbucks”. * 94% of all information is provided by the CFE and 6% is estimated. Regarding clean technologies, Alsea considers that such elements have allowed the transfor- mation towards a low carbon consumption and efficient use of resources economy. As this transformation accelerates, Alsea is aware of the impact of clean technologies within its facilities; therefore, it is developing strategic planes to adapt to this modification and fulfill its environ- mental goals. Aspect: Water EN8 During 2014, potable water consumption co- ming from municipal entities and/or water su- pplier companies was of 598,890 m3. Such amount considers the potable water consump- tion in Burger King, Chili´s, California Pizza Kit- chen, Domino´s, Italianni´s, P.F. Chang´s and Pei Wei; located throughout Mexico. Aspect: Emissions, Effluents and Waste EN16, EN18, EN22 Starting in 2015, a record will be implemented for the calculation of Greenhouse Gasses deri- ved from the refill of cooling gas in air condi- tioning and refrigeration equipment to reduce atmospheric pollution. During 2014, the CO2 emissions generated were: Indirect emissions: 75,631 CO2 ton Direct emissions: 14,367,449 CO2 ton *Source for CO2 equivalent factor: http://www.geimexico.org/factor.html http://www.semarnat.gob.mx/ http://www.inecc.gob.mx/descargas/cclimatico/elab_inventarios.pdf **Conversion Factor Units Conversion Factor Comments Society Performance Indicators Aspect: Public Policy SO5 Alsea does not participate in any activity that allows the Company to influence government policies’ formulations. Alsea contributes to the development of public policies in certain issues that may affect ope- rations, always within the law’s framework and upholding the highest ethical standards in every country where it has presence. Aspect: Anti-competitive Behavior SO7 The Company respects all regulations regarding economic competition, monopoly practices and free market participation, so it has never recei- ved a sanction for acting against them. The emission factor value of CO2 equivalent derived from electric energy consumption was considered from the official source: http://www. geimexico.org/ factor.html kWh to TCO2equivalent (Electric Energy) 1 MWh= 1000KWh 1MWh= 0.4999 TCO2e m3 of Natural Gas to TCO2equivalent m3 of LP Gas to TCO2equivalent 1,880 g CO2 / m3 Natural Gas 1 m3 = 1000L 1L= 1,530 g CO2 0.001 Ton CO2 = 1000 g CO2 Aspect: Products and Services EN26 Contributions to the “Cero waste to sa- nitary landfill in main cities for 2018” goal: In order to understand the amount and kind of waste generated in Starbucks Coffee Shops in Mexico, a pilot test was carried out in Jalisco sta- te. It included a Waste Audit with the purpose of identifying volumes and types of generated materials, among other aspects, to implement improvements and projects which allow the re- duction of waste sent to sanitary landfill. The results of this first stage show that waste in the screened branches behaves as follows: 4% 37% 59% Recyclable Non-Recyclable Organic ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 50 50 51 Management Discussion and Analysis Consolidated results for the full year 2014 The following table shows a condensed Income Statement in millions of pesos (excluding EPS), the margin of net sales that each item repre- sents, as well as the percentage change for the year ended on December 31, 2014, in comparison with the same period of 2013. 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) 2014 $22,787 15,515 2,802 1,469 $624 0.847 Margin % 100.0% 68.1% 12.3% 6.4% 2.7% N.A. 2013 $15,698 10,477 2,040 1,120 $663 0.991 (1) EBITDA is defined as operating income before depreciation and amortization. (2) EPS is earnings per share for the last 12 months Margin % Change % 100.0% 66.7% 13.0% 7.1% 4.2% N.A. 45.2% 48.1% 37.4% 31.2% (5.9)% (14.5)% Sales Net sales increased 45.2% to 22.78 billion pesos in 2014, compared to 15.69 billion pesos during the prior year. This increase reflects the sales growth in the Alsea Mexico, Alsea South America, and Al- sea Spain segments, mainly due to the increase in sales from the incorporation of Vips and the brands of Grupo Zena in Spain, the expansion in the number of units, and growth of 4.5% in same- store sales during 2014; this was partially offset by the impact of devaluation of the Argentine peso and the effects of the tax reform in Mexico. Alsea’s brands in South America grew in same- store sales; due to the brands and geography’s portfolio diversification, the Company achieved a consolidated growth of 4.5%. Likewise, the recent acquired brands in Spain showed positive re- sults in the year’s last quarter, period in which for the first time they merged with the Company’s results, with a same-store sale growth of 8.9% compared to the same period the previous year. This is in consequence mainly to the commercial strategies combined with the economic recuper- ation environment the country is going through. EBITDA As a result of the 48.1% growth in gross income and the 50.7% increase in operating expenses (ex- cluding depreciation and amortization), EBITDA grew 37.4% to 2.8 billion pesos at the end of 2014, compared to 2.04 billion pesos in the same period of the previous year. The 762 million pe- sos increase in EBITDA is mainly attributable to the positive contribution from incorporating the brands in Grupo Zena in Spain into the portfolio, as well as Vips and El Portón brands in Mexico, integrating Starbucks Chile and increasing the number of units. EBITDA margin decreased 70 ba- sis points as a percentage of sales, dropping from 13.0% in 2013, to 12.3% in 2014, mainly due to the decrease in same-store sales in Mexico, especially during the second half of the year, the impact of the business start-ups on results, as well as the transition, integration and extraordinary expenses of Vips, the drop in consumption in Argentina, and the increase in the cost of some of the main inputs, particularly during the second quarter of 2014. Operating Income Net Income Net income for the year decreased 39 million pe- sos, closing at 624 million pesos, in comparison with 663 million pesos from the prior year, mainly due to an increase of 283 million pesos in the all- in cost of financing, higher net interest expenses and an increase of 80 million pesos in taxes. Those variations offset the increase of 349 million pesos in operating income. Earnings per Share Earnings per share (“EPS”) for the 12 months ended December 31, 2014, decreased to 0.847 pesos, compared with 0.991 pesos for the 12 months ended December 31, 2013. Results by Segments Mexico Alsea Mexico Food and Beverages Distribution and Production Total Same- store sales Number of units Sales Adjusted EBITDA* Adjusted EBITDA* margin 2014 2013 Var. % Var. 2014 2013 Var. % Var. 2014 2013 Var. % Var. (0.4)% 4.0% (440) bps - 1,999 1,575 424 27% - - - - - - - - (0.4)% 4.0% (440) bps - 1,999 1,575 424 27% 15,591 10,351 $5,240 51% 5,064 4,330 $734 17% 20,655 14,681 5,974 41% 3,395 2,363 $1,032 44% 478 400 $78 20% 3,873 2,763 $1,110 40% 21.8% 22.8% (100) bps - 9.4% 9.2% 20 bps - 18.7% 18.8% (10) bps - *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA”. Sales at Alsea Mexico for the full year 2014 in- creased 40.7% to 20.65 billion pesos, compared to 14.68 billion pesos in the same period of 2013, and represented 73% of Alsea’s consolidated sales during the year. This favorable variation of 5.97 billion pesos is mainly attributable to the in- corporation of the Vips brand into the portfolio, the increase of 404 corporate units among the different brands over the last 12 months and the increase in sales to third parties in the Distribution and Production segment, due to the growth in the number of units served over the last 12 months. A total of 2,028 units were being served at Decem- ber 31, 2014, in comparison with 1,570 units in the same period of the prior year, representing an in- crease of 29.2%. This increase was partially offset by the decrease in same-store sales in the Mexico segment during the year. Adjusted EBITDA increased 40.1% during the 12 months ended December 31, 2014, closing at 3.87 billion pesos, compared with 2.76 billion pesos re- ported in the same period of the previous year. This increase is attributable to the margin gener- ated by the higher number of units in operation, in addition to the business mix. This was partially offset by the performance of Burger King Mexico, which was impacted by the contraction in con- sumption, the results related to the start of ope- rations of The Cheesecake Factory and expenses related to the integration of Vips. Furthermore, EBITDA during 2014 was affected by the increase in the cost of some of the main inputs, the divest- ment of some units from the portfolio and the de- valuation of the Mexican peso. Spain Alsea Spain 2014 2013 Same-store sales Number of units Sales Adjusted EBITDA* Adjusted EBITDA* margin 6.5% 442 $1,468 $290 19.8% - - - - - *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA”. Sales at Alsea Spain represented 6% of Alsea’s consolidated sales during the year, and at the end of 2014 included the operations of Foster’s Hollywood, Domino’s Pizza, Burger King, La Vaca Argentina, Cañas y Tapas and Il Tempietto. At the end of the period there were a total of 302 corpo- rate units and 140 sub-franchised units. Adjusted EBITDA for Alsea Spain at the end of full-year 2014, was 290 million pesos, which represented a margin of 19.8%. ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 201452 52 South America Alsea South America 2014 2013 Var. % Var. Same-store sales Number of units Sales Adjusted EBITDA* Adjusted EBITDA* margin 20.0% 343 $4,621 $679 14.7% 21.1% 287 $4,219 $583 13.8% (110) bps 56 $402 $96 90 bps - 20% 10% 17% - *Adjusted EBITDA does not consider management costs, therefore it represents the “store level EBITDA”. Sales at Alsea South America represented 20% of Alsea’s consolidated sales, and at the end of 2014 included Burger King operations in Argen- tina, Chile and Colombia, Domino’s Pizza Colom- bia, Starbucks Argentina, Chile and Colombia and P.F. Chang’s in Chile, Argentina, Colombia and Brazil. At December 31, 2014, there were a to- tal of 327 corporate units and 16 sub-franchised units. Sales in this segment increased 9.5% to 4.62 billion pesos, in comparison with 4.219 billion pe- sos in 2013. This positive change of 402 million pesos was mainly due to the addition of 44 cor- porate units and 12 sub-franchised ones, and was partially offset by the decrease in same-store sales and to the impact from the 48.8% devaluation of the Argentine peso compared to the end of 2013. Adjusted EBITDA at Alsea South America for the year ended 31 December 2014 increased 16.5%, closing at 679 million pesos, in comparison with 583 million pesos in the same period in 2013. EBITDA margin at the end of 2014 improved 90 basis points compared to the same period of the previous year. This increase can be attributed in part to the margin generated by the growth in same-store sales and the economies of scale ari- sing from the aforementioned increase in corpo- rate units, as well as a better business mix derived from the acquisition of Starbucks Chile. This was partially offset by the pre-operating expenses regarding Alsea’s entry into the Brazilian market with the opening of P.F. Chang’s and the start of operations of Starbucks in Colombia, as well as to the impact of devaluation of the Argentine peso. Non-operating results During the 12 months ended December 31, 2014, Alsea made capital investments, excluding acquisitions, of 2.05 billion pesos, of which 1.69 billion pesos –82.5% of total investments– were earmarked for unit openings, equipment refur- bishing and remodeling of existing stores for the different brands that the Company operates. The remaining 360 million pesos were destined for other items, highlighting improvement and logis- tics projects, as well as software licenses, among other items. Other Long-Term Liabilities The other long-term liabilities account shows an increase of 3.02 billion pesos, derived from the recognition from liabilities related to the call and put options that were agreed with Britania Invest- ments, S.A.R.L. (“Alia”), the local partner of Grupo Zena, for its entire stake in the company which is 28.24%. These options have a four year term, meaning they can be executed from October 2018, and the price agreed for both options (call and put) shall be determined by multiplying by 8.7 times EBITDA for the last 12 months minus the net debt at the end of such period. Bank Debt and Fixed-Rate Bonds At December 31, 2014, Alsea’s total bank debt in- creased 6.19 billion pesos, closing at 11.23 billion pesos, in comparison with 5.04 billion pesos on the same date of the previous year. The Compa- ny’s consolidated net debt in comparison with the close of 2013 increased 5.74 billion pesos, closing on December 31, 2014 at 10.12 billion pesos, in com- parison with 4.38 billion pesos. At December 31, 2014, 87.7% of the debt was long term, and on that date 81% of the debt was denominated in Mexican pesos, 18.6% was in euros and the remaining 0.5% was in Argentine pesos. The following table shows the balance and structure of total debt in millions of pesos at De- cember 31, 2014. 53 Institution Reference Rate Spread Due Date Balance at Dec. 2014 Bancomer Bancomer Santander Santander Santander Banamex Banamex Scotiabank Banamex / BBVA / HSBC TIIE 28 D TIIE 28 D TIIE 28 D 3.98% 3.98% TIIE 28 D TIIE 28 D TIIE 28 D TIIE 28 D 1.50% 1.50% 0.90% April 6, 2018 July 10, 2018 May 6, 2018 N.A January 12, 2015 N.A February 18, 2015 1.50% 1.50% 1.18% July 12, 2018 July 11, 2018 July 8, 2019 604,662 588,034 205,721 82,000 300,000 89,338 705,485 1’013,775 1.75% May 29, 2017 1’276,533 Banamex / BBVA / HSBC / Santander TIIE 28 D 1.25% September 26, 2019 1’741,580 CEBUR Alsea’13 Argentina Spain Total TIIE 28 D 0.75% June 14, 2018 2’491,356 22.14% 2.89% 52,362 2’088,333 11’239,180 Shares Repurchase Program At year ended, Alsea closed with a balance of 856,201 shares in the repurchase fund. During the 12 months ended December 31, 2014, the Com- pany conducted purchase and sale operations amounting approximately to 34 million pesos. Financial Ratios At December 31, 2014, the financial restrictions established in the Company’s credit contracts were as follows: the ratio of: i) Total Debt to EBITDA (pro-forma for the last 12 months) was 3.3x; ii) Net Debt to EBITDA (pro-forma for the last 12 months) was 2.9x; and iii) EBITDA (pro- forma for the last 12 months) to interest paid over the last 12 months was 6.2x. The Return on Invested Capital (“ROIC”) de- creased from 11.7% to 8.0% during the 12 months ended December 31, 2014. The Return on Equity (“ROE”) for the 12 months ended December 31, 2014 was 7.5%, compared with 14.5% in the previ- ous year. Stock Market Indicators 4T14 4T13 Variation Book value per Share EPS (12 months)(1) Shares in circulation at the close of the period (millions) Price per share at close (1) EPS is earnings per share for the last 12 months. $10.51 $0.847 837.6 $40.77 $6.21 0.991 687.8 $40.79 69.2% (14.5)% 21.8% - Hedge Profile The Finance Direction, joint with the Treasury Management, shall manage risks seeking to: mitigate present and future risks; not deviate re- sources from the operation and the expansion plan and hold the certainty of the Company’s future flows, along with a strategy regarding the debt’s cost. All instruments will only be used for hedging purposes. During 2014, hedge derivatives in foreign exchange matured for $82.5 million dollars, at an average ex- change rate of 12.91 pesos per dollar. This hedging resulted in an exchange rate profit of $20.8 mil- lion Mexican pesos. At December 31, 2014 Alsea holds hedges to purchase US dollars in the next 12 months for an approximate amount of $8 million US dollars, at an average exchange rate of 13.80 pesos per dollar. The foregoing is estimated at an average exchange rate of 14.50 pesos per dollar. ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 54 Management Discussion and Analysis 54 55 Mexico City, February 25, 2015 Audit Committee’s Annual Report to the Board of Directors of Alsea, S.A.B. de C.V. 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 end- ing on December 31, 2014. During the perfor- mance 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: I. Risk assessment We reviewed, jointly with the Administration and External and Internal Auditors, critical risk fac- tors that could affect the Company’s operations, and determined that they have been adequately identified and managed. II. Internal control We ensured that the Administration, in fulfillment of its responsibilities regarding internal control, had established adequate policies and proce- sses. In addition, we followed up on the comments and observations in this respect made by the External and Internal Auditors in the perfor- mance of their work. III. External audit We recommended that the Board of Directors hire the external auditors for the Group and sub- sidiaries for the fiscal year 2014. 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 communica- tion 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 recommen- dations resulting from their work. AWe authorized the fees paid to external audi- tors for auditing services and other authorized services, making sure that these would not inter- fere 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 2014. IV. Internal audit In order to maintain its independence and ob- jectivity, the Internal Audit area reports func- tionally 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, chan- ges that might have occurred and the reasons that caused them. We followed up on the observations and su- ggestions made by this area and implemented them appropriately. V. Financial information, accounting policies and third party reports We reviewed together with the people respon- sible, the process of preparation of quarterly and annual financial statements for the Com- pany and recommended the Board of Directors approving and authorizing their dissemination. As part of this process we took into consider- ation external auditors’ opinions and observa- tions and made sure that the criteria, accounting and information policies used by the Adminis- tration 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 chan- ges in its financial status for the year that ended on December 31, 2014. We also reviewed the quarterly reports pre- pared by the Administration to be presented to the shareholders and the general public, veri- fying that they were prepared using the same accounting criteria used to prepare the annual information. We verified that there is a compre- hensive process that provides reasonable confi- dence as to its contents. In conclusion, we rec- ommend that the Board authorize its publication. de R.L. de C.V., through which it had authorized the application of 0% VAT rate on sandwiches (during the years 2010, 2011, 2012 and 2013); such procedures are currently under review by the authorities. Our review also included reports and any other financial information required by Mexican Regu- latory Bodies. We reviewed and confirmed that during the year 2014 Alsea continued using and implementing the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) to prepare its Financial Statements. VI. 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. There were two tax issues in the year to highlight: a) The Ministry of Finance of Mexico City de- termined to the society Italcafé S.A. de C.V. tax- able income over deposits made to their bank accounts derived from the operation of several restaurants owned by Grupo Amigos de San Angel, S.A. de C.V., nonetheless, such revenues were accumulated by the latter company, giv- ing it all related tax effects. If such determination proceeds, the responsibility of payment of the aforementioned tax credit, although charged to Itlacafe SA de CV, will have to be paid by the former owners of the society. b) The “Servicio de Administración Tributaria” (SAT) initiated two legal procedures in order to cancel the trades in favor of Distribuidora e Im- portadora Alsea, S.A. de C.V. and Café Sirena, S. VII. Administrative aspects We held regular meetings with the Administra- tion, to keep informed about the operations of the Company, its relevant and unusual activities and events. We also met with internal and ex- ternal auditors to discuss their progress of their work and any constrains they might have en- countered, and to facilitate any private communi- cations they wished to have with the Committee. Whenever we deemed it advisable, we reques- ted 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 report- ed 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 appro- priately reviewed and approved by Committee Members. Sincerely, C.P. Iván Moguel Kuri Chairman of the Audit Committee ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 56 56 57 Corporate Practices Committee’s Annual Report to the Board of Directors of Alsea, S.A.B. de C.V. Mexico City, February 25, 2015 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, 2014. In the development of our work, we observed the recommendations contained in the Code of Best Practices on Corporate Governance. 7. 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. 8. We presented quarterly and accrued results of the Stock Exchange Plan for the year 2014. To analyze the relevant results of the Compa- ny, 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 com- mittee, we carried out the following activities: 1. During this period we did not receive any re- quest for dispensation according to Section 28, subsection III, paragraph f) of the Securities Ex- change Act; hence, it was not necessary to make any recommendation in this regard. 2. This committee presented and approved the Strategic Plan of The Cheesecake Factory, which we recommended to be presented to the Board of Directors for its ratification. 3. This committee presented and reviewed the report about Grupo Zena’s acquisition, which we recommended to be presented to the Board of Directors for its ratification. 4. This committee presented and approved the Strategic Plan of Starbucks Colombia, which we recommended to be presented to the Board of Directors for its ratification. 5. This committee presented and approved the Strategic Plan of P.F. Chang’s Brazil, which we recommended to be presented to the Board of Directors for its ratification. 6. This committee presented and approved the divestiture proposal of Pei Wei, which we recommended to be presented to the Board of Directors for its ratification. 9. We were presented with the update of the shareholder cost applicable at the end of each quarter of 2014, according to methodology authorized by the Board of Directors. 10. We were presented on a quarterly basis with a summary of the risk management opera- tions 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. 11. We were presented with the Strategic Plan 2015 - 2019, which we recommended to be pre- sented to the Board of Directors for its approval. 12. We were presented the 2015 Budget, which we recommended to be presented to the Board of Directors for its approval. 13. 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. 14. We were presented with the Succession and Talent Development Plans, which we reviewed. 15. We were presented with the results of the evaluation of relevant executives in 2014. 16. The Corporate Division of Human Resources presented the Compensation Strategy for rele- vant executives for the year 2015. This Committee recommended the approval of the strategy. 17. We were presented with the organizational structure of Alsea 2015, which we recommended to be presented to the Board of Directors for its approval. 18. In each and every meeting of the Board of Directors, we presented a report of the activi- ties 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 execu- tives, without identifying any notable difference of opinion. Sincerely, Corporate Practices Committee Julio Gutiérrez Mercadillo Chairman ALSEA ANNUAL REPORT 2014ALSEA ANNUAL REPORT 2014 

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