2016
A nnual Report
The WINNING
Recipe
Focus on GUESTS
Ingredients:Brand PortfolioBest TalentBest OperatorCutting-Edge Marketing Innovation and TechnologySynergy and Critical MassSustainability Summary
2
7
8
10
14
Focus on GUESTS, our winning recipe
2016 Financial Highlights
Message from the Chairman of the Board
Message from the CEO
Operating results
18 Brand Portfolio
24 Best Talent
34 Best Operator
38 Cutting-Edge Marketing
42 Innovation and Technology
44 Synergy and Critical Mass
48 Sustainability
64
78
82
90
Ethics and Corporate Governance
About this report
Analysis of results
Audited Financial Statements
216
GRI Index
At Alsea, we care about selecting the best ingredients
to prepare a recipe centered on our deep industry
knowledge and focused on creating exceptional GUEST
experiences and thanks to this strategic combination
we have achieved to create our winning recipe.
Our winning recipe
The definition of this strategy allows us to set specific indicators
for each ingredient, with clear goals and results to achieve
sustainable growth.
2 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 3
Focus on GUESTSBrand PortfolioBest TalentFocus on GUESTS:Focused culture on our deep industry knowledge focused on creating exceptional GUEST experiencesSustainabilityBest OperatorSynergy and Critical MassCutting-Edge Marketing Innovation and Technology About Us
[G4-9]
We are the leading Restaurant
operator in Latin America and Spain,
with recognized Brands in the Quick
Service, Coffee Shop, Casual and
Family Dining segments.
14 Brands
3,195 Units
67,340 Employees
Our business strategy includes a Global Support Center that provides
Administrative, Development, and Supply Chain processes for all our Units.
Presence
[G4-6, G4-8, G4-9]
Our consistent growth allows us to have
a presence in Mexico, Spain, Argentina,
Colombia, Chile, and Brazil.
2,215Mexico 499Spain
Alsea's World
Strategic approach
[G4-56]
204Argentina
143Colombia
Each goal we set for ourselves is centered on enhancing our
GUESTS’ experience and satisfaction. Our strategy is built on
five Values and the seven ingredients that make up our winning
recipe that allows us to fulfill our:
131Chile
3Brazil
Purpose
Ignite People’s
Spirit.
4 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 5
Value proposition
We are a determined community committed to excellence and
integrity, we maximize synergies to deliver a surprising offer to
our GUESTS and to make sure that our Restaurants generate
extraordinary results, contributing with doses of happiness even in
the smallest details, to fulfill our purpose of igniting people’s spirit.
The Alsea Culture
Focused on deep knowledge and an exceptional GUEST experience.
Winning
Attitude
Engaged
Leadership
Surprising
Service
Collaborative
Spirit
Attention
to Detail
2016 Financial Highlights
[G4-9, G4-EC1]
Income Statement
Net Sales
Gross Profit
Operating Income
EBITDA(2)
Consolidated Net Profit
Balance Sheet
Total Assets
Cash
Liabilities with Cost
Major Shareholders' Equity
Profibility
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
Financial Highlights(1)
CAGR(5)
Annual
Growth
2016
%
2015
%
29%
30%
44%
36%
37%
16.8% 37,701.9
100.0% 32,288.4
100.0%
17.1% 25,922.2
68.8% 22,139.1
68.6%
17.6%
2,767.0
7.3%
2,353.8
19.8%
5,155.2
13.7%
4,301.7
9.1%
1,126.5
3.0%
1,032.8
7.3%
13.3%
3.2%
15.7% 37,995.1
113.1%
2,547.8
21.3% 14,839.9
-0.4%
8,910.6
17.2%
12.5%
-0.9%
1.7%
54.0%
-
-0.4%
10.9%
11.7%
59.33
1.19
0.77
10.68
834.3
20%
24%
8.2%
8.9%
3,195
67,340
32,853.5
1,195.8
12,233.3
8,948.2
9.3%
10.4%
59.85
1.17
0.50
10.68
837.5
2,954
61,822
(1) Figures in millions of Mexican pesos (MXN) under IFRS standards, except per share data, the number
of units, and employees.
(2) EBITDA means earnings before interest, taxes, 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 mayor shareholders’ equity.
(5) CAGR means our Compound Annual Growth Rate between 2011 and 2016.
6 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 7
Message from
the Chairman of
the Board
[G4-1, G4-2, G4-13, G4-EC7, G4-EC8]
Dear Shareholders,
On behalf of our Board of Directors and
our more than 67,000 employees, I want
to thank you for your continued trust and
confidence in Alsea. 2016 was another
great year for Alsea, despite the complex
global outlook that affected our businesses
in Mexico, we managed to achieve an
EBITDA margin of 13.7%, wich represent a
record figure for the last nine years.
During 2016, we continue with our
commitment to making Alsea a more
institutional Company, complying with the
Code of Best Practices with the highest
standards of Corporate Governance,
generating for you, our shareholders,
greater security and confidence, just as
we have been doing since our IPO on the
Mexican Stock Exchange.
A t Alsea, we have the winning recipe that
cont inues to drive our profitable growth.
At Alsea, we have the right recipe to
maintain our history of growth, which
has positioned our Company as the
leader in the Restaurant industry in
Mexico, for the last 26 years. Our unique
business model, which has helped us
identify the seven pillars that build up
the basis for our success, will help the
Company achieve the profitable growth
forecast we announced as part of our
goals presented at our Analyst and
Investors Day on March 8, 2017.
In 2016, we continued to invest in
programs that benefit society, our
employees, GUESTS and the environment
through a Sustainability Model covering
four key areas, including Quality of Life,
Responsible Consumption, Environment,
and Community Support.
Some of our main social programs
include the "Its on me" Movement
(Movimiento Va por mi Cuenta), where
the Alsea Foundation and Brands join
forces to build and operate dining centers
for children living in food poverty under
the “Our Diner” concept.
In 2016, we built another dining center for
children and served more than 365,000
meals at our six dining centers in Mexico,
benefiting more than 2,200 children every
day, with the help of more than 20,000 of
our employees and more than MXN 20.5
million raised for this effort.
We have demonstrated a responsible
and solid business behavior, we continue
being part of the Sustainability Index
of the Mexican Stock Exchange for the
fourth yer in a row. This year, we also
joined the Movement for a Healthy Life
(Movimiento por una Vida Saludable),
creating value for our business,
employees, and shareholders alike.
We will face the challenges and
opportunities that 2017 brings with the
same passion and collaborative spirit
that has led Alsea to its market leader
position. We will continue working with
our employees to generate the returns
expected by our shareholders and offer our
GUESTS experiences that make us proud.
Sincerely yours,
Alberto Torrado Martínez
Chairman of the Board of Directors
8 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 9
Message from the
CEO
[G4-1, G4-2, G4-13, G4-EC7, G4-EC8]
Dear Shareholders,
2016 was another great year for
Alsea, as we exceeded our sales and
profitability goals despite the exchange
rate fluctuations effects produced during
the second half of the year. These results
were solid and consistent across our
Brands and countries we serve, noting
the progress we continue to make with
our leadership and team development
programs. During 2016, we served a
record number of GUESTS, offering
them better value proposals and further
consolidating our leadership position.
Global sales grew to MXN 37.702 billion
for a 16.8% increase, exceeding our
minimum target of 15%. This is the
result of the 8.9% growth in store sales
and 241 new units, for a total of 3,195
Restaurants, representing 8.2% growth
year-over-year. Gross profit was up
17.1%, and our EBITDA margin grew
19.8% to MXN 5.155 billion at the end of
2016, a 40-basis point increase reaching
13.7%. These results led to an ROIC of
10.9% and a ROE of 11.7%.
Alberto Torrado Mart ínez
Chairman of t he B oard of D irector s
We currently have more than 67,000
employees, who are a key factor in Alsea’s
progress and success, and the reason
why we have consolidated our human
resources strategy and culture while
improving our training and compensation
programs by giving them the best work
tools to improve the GUEST experience
and our Restaurant operations.
2017 will be a special year for Alsea,
given that the Board of Directors
appointed Renzo Casillo as our new
CEO at the end of 2016, as a strategic
decision that will consolidate our
structure and accelerate our Company’s
institutionalization process. Alsea is ready
to open a new chapter, and Renzo is the
right person to guide us into this bright
future. We are certain that our team,
coordinated by Renzo, will maintain Alsea’s
growth, improving margins and helping us
achieve our goal of being the number one
Company in the global Restaurant industry.
We will continue with our saving of
administrative costs and operating
efficiencies plan in order to through these
actions we achieve to compensate part
of the pressure in margins derived from
the effects we estimated for the year; as
we face a more volatile and uncertain
market, we are keeping a very close eye
on the variables that could impact our
results, such as exchange rates, interest
rates, and consumer environment. We
will also continue to focus on continued
operational improvements in all our
establishments, creating value for our
shareholders and providing the best
service and value to our GUESTS.
All this will help us achieve the goals
we have set for 2021, which include a
compound annual growth rate above 15%
in terms of total sales, which will allow us
to ensure an EBITDA margin above 15%.
I am pleased to welcome Renzo and ask
that he share his vision and outlook for
Alsea looking forward.
10 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 11
I am very proud to have joined the Alsea's
family, a Company with a winning culture,
a team that is passionate about success
and has a long history of consistent
achievements. This is the basis that witll
help us to achieve the objectives we have
laid out for the future.
During 2017, we will increase our
focus on GUESTS by consolidating and
applying the use of our recipe with
the seven ingredients comprising our
winning culture:
1. Together with our partners,
strengthen and accelerate the
development of the best and
most profitable Brands in the
countries where we participate.
2. Have the Best Talent in the
market, as we focus on attracting,
maintaining, and developing the
best human capital.
3.
Be the Best Operator, redefining
the GUESTS' experience and
becoming even more productive
and effective.
4.
Implement the best Cutting-Edge Marketing strategies, focused on increasing
GUESTS' loyalty and frequency and becoming the Company that has the best
knowledge of the industry, competition, and consumer.
5. Use cutting-edge Innovation and Technology tools to facilitate operations
and provide access to up-to-date information to enhance our decision-making
processes and forge a closer and more effective relationship with our GUESTS.
6. Capitalize the Synergy and Critical Mass that we achieve with our solid
business model.
7. Align our Sustainability objectives with our operations based on the four
pillars that characterize our Company: COMMUNITY SUPPORT, RESPONSIBLE
CONSUMPTION, QUALITY OF LIFE, AND THE ENVIRONMENT.
Our “Alsea's Culture” will continue to play a fundamental role in driving our
commitment to our employees who are responsible for ensuring that our GUESTS have
the best experience.
We want to thank all our GUEST and employees for their trust and preference.
We have the winning recipe, and we will continue using it to reinforce our role as the
industry leader.
Very best regards,
Alberto Torrado Martínez
Chairman of the Board of Directors
Renzo Casillo Nielsen
CEO
Renzo Casillo Niels en
CEO of Als ea
12 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 13
Annual Sales
In 2016, we
successfully
increased our sales
by 16.8% compared
to the previous year.
14 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 15
Operating ResultsFY16FY1432,28822,78715,698FY13FY1537,70229% CAGR13,520FY12 EBITDA
Growth Model
Growth
Organic
Growth
• Same Store Sales
+
Inorganic
Growth
• Acquisitions
• Store Openings
• Current Brands
• Current Markets
• New Brands
• New Markets
Margin
expansions
Operating
Leverage
• Same Store Sales
• Units
+
Business
Mix
• Corporate
• Franchised
+
Operating
Efficiencies
• Cost of Sales
• Pricing Strategy
• Sub-franchised
• Expenses
• Brands
• Segments
• Geographies
• Synergies
• Best practices
ROE
* Without considering the effects of the Put / Call options.
16 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 17
FY16FY144,30213.3%2,80212.3%13.0%FY13FY155,15513.7%34% CAGR1,60911.9%FY122,040EBITDAEBITDA MarginFY16*FY1411.4%7.5%FY13FY15*480 bpsFY1214.5%10.5%15.3% To have the best relevant and profitable
Brand Portfolio, with the best strategic
partners, optimizing the global expansion
potential for each one of these.
Global Brands
Own Brands
4
segments
3,195
total units
2,502
corporate
693
subfranchises
241
net openings
+415million GUESTS
served.
Quick Service Restaurants
1,590
803Coffee Shops
541
261
Casual Dining Restaurants
Family Dining Restaurants
18 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 19
Brand Portfolio [G4-4, G4-9] Our Restaurant Distribution
Presence [G4-9]
4% 4% 0.1%
6%
16%
69%
By Country*
Mexico
Spain
Argentina
Colombia
Chile
Brazil
* Percentages may not sum to total due to rounding.
10%
7%
8%
29%
21%
25%
By Brand
Domino’s
Starbucks
Burger King
Vips
Foster’s Hollywood
Others*
* Others include: Italianni's (2%), El Portón (2%), Chili's (2%), Archie's (1%), P.F. Chang's (1%),
California Pizza Kitchen, Cañas y Tapas, LAVACA, The Cheesecake Factory, II Tempietto (2%).
This year, we opened a record number
of 158 corporate units.
Mexico
Spain
Argentina
Colombia
Chile
Brazil
Sales by Segment [G4-9]
4%
4%
13%
13%
22%
22%
38%
38%
Quick Service
Servicio Rápido
Casual Dining
Comida Casual
Coffee Shops
Cafeterías
Family Dining Restaurants
Restaurantes Familiares
Supply Chain
Cadena de Suministro
22%
23%
23%
22%
20 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 21
Sales by geography
EBITDA by geography
37.702
billion pesos in total
sales in 2016
22%
20%
58%
Mexico
Spain
Latin America*
* Includes: Argentina,
Colombia, Chile and Brazil
11%
21%
68%
5.155billion pesos
Mexico
Spain
Latin America*
* Includes: Argentina,
Colombia, Chile and Brazil
Sales by Brand [G4-9]
4%
4%
7%
4%
8%
Starbucks
Burger King
Domino’s
Vips
Foster’s Hollywood
Cadena de Suministro
Chili’s
Italianni’s
Others
4%
4%
4%
7%
13%
17%
4%
4%
4%
7%
8%
8%
13%
13%
21%
17%
21%
Starbucks
Burger King
Domino’s
Vips
Foster’s Hollywood
Cadena de Suministro
Chili’s
Italianni’s
Others
21%
Starbucks
Burger King
Domino’s
Vips
Foster’s Hollywood
Cadena de Suministro
Chili’s
Italianni’s
Others
17%
22 Alsea | 2016 ANNUAL REPORT
* Others include: El Portón (2%), P.F. Chang's (2%), California Pizza Kitchen (1%), Archie's (1%),
Cañas y Tapas, LAVACA, The Cheesecake Factory, II Tempietto (1%).
9%
Adjusted EBITDA by Brand
5%
5%
5%
25%
8%
9%
12%
25%
5%
5%
5%
16%
15%
Starbucks
Domino’s
Vips
Burger King
Foster’s Hollywood
Supply Chain
Italianni’s
Chili’s
Others
Starbucks
Domino’s
16%
Vips
Burger King
Foster’s Hollywood
Supply Chain
Italianni’s
Chili’s
Others
12%
16%
15%
* Others include: P.F. Chang's (2%), El Portón (2%),
California Pizza Kitchen, Archie's, Cañas y Tapas, LAVACA,
The Cheesecake Factory, II Tempietto (1%).
In 2016, our EBITDA
margin was 13.7%,
a record year for us
compared to the last
nine years.
Starbucks
Domino’s
Vips
Burger King
Foster’s Hollywood
Supply Chain
Italianni’s
Chili’s
Others
Challenges:
• Guarantee our growth model
with the right portfolio of
Brands.
• Accelerate participation in
the different markets where
we have a presence.
• Identify countries,
segments, and Brands that
complement our portfolio.
2016 ANNUAL REPORT | Alsea 23
5%
5%
5%
8%
9%
25%
8%
12%
15%
We attract, retain and develop the best
talent in the industry.
In 2016, we employed
67,340
people from the different
regions in which we operate.
One of the main
ingredients in our
winning recipe is
making sure we
have the best talent
available, as our
employees create the
GUEST experience.
Employees
[G4-9, G4-10]
The Collaborative Spirit is part of our success since we use it
to bring our ideas and talent together to multiply our results.
Just like every ingredient is special and essential in a recipe,
so is the contribution of each one of our employees to the
Company’s growth.
Total Employees by Region
4% 0%
4%
10%
16%
Mexico: 44,352
Spain: 10,474
Argentina: 6,863
Colombia: 2,794
Chile: 2,684
Brazil: 173
Total Employees by Brand
2% 2% 2%1%
2%
4%
4%
4%
5%
16%
18%
22%
18%
Domino’s
Vips
Burger King
Starbucks
Italianni’s
Foster’s Hollywood
Chili’s
El Portón
P.F. Chang’s
Centro de soporte
Archie’s
California Pizza
Kitchen
Others*
* Others Include: Cañas y Tapas, LAVACA, The Cheesecake Factory,
Supply Chain, II Tempietto.
24 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 25
Best Talent We offer job opportunities to everyone with a
spirit of learning and collaboration.
Talent Attraction
We have programs that guarantee an effective selection process to ensure our
sustainable, accelerated and profitable business growth.
In Mexico, we created Únete, the Alsea Talent Attraction Center that helps
Restaurant Managers to implement the process for each establishment and
making sure all vacancies are filled.
The Únete Center also provides the following support:
• Mass recruitment drives for critical establishments and zones
• Promoting job vacancies on social networks and job sites
New Talent
[G4-LA1]
New Hires by Age Group
Under 30
31-50
Over 51
In 2016, the growth
Mexico
Spain
Argentina
Colombia
Chile
Brazil
Total
83%
85%
99%
74%
94%
45%
84%
16%
14%
1%
25%
6%
48%
15%
1%
0%
0%
1%
1%
7%
1%
Internal Promotions
One of the greatest benefits our Company offers is the
opportunity for multi-Brand growth, providing learning
opportunities across all operations.
of our operations
created more than
3,000 new jobs.
We seek to help young
people access the job
market, which is why
84%
of our new hires were
under age 30.
In 2016, we promoted
9%
employees.
of our
• Institutional partnerships
Internal Promotions
• Branding for Alsea and its Brands to attract talent to the Restaurants
In Spain, El trabajo que se adapta a ti (The Job That Best Fits You)
program helps hire and retain young employees under age 25 for the
Company, promoting benefits that are attractive to this segment, such as
offering flexible work schedules so they can work and go to school at the
same time, ensuring a workplace that is close to their homes, and developing
skills and talent to help them grow in the business.
Mexico
Spain
Argentina
Colombia
Chile
Brazil
Total
4,488
667
42
252
430
32
5,911
%
11%
7%
1%
9%
15%
18%
9%
We filled 5,911 vacancies with
internal talent in 2016
26 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 27
We develop
our employees’
talent by nurturin g
t heir per sonal an d
profe ssional gr owt h.
In 2016, we reported a
63%
management stability rate
Training
[G4-LA9]
We are committed to the well-being
of our employees, which is why we
implement strategies that help nurture
their growth through training and
career development plans, focused on
maximizing their skills and abilities by
providing the tools they need to reach
their full potential.
We care about our people’s development
and stability, which is why we offer our
managers:
• Training courses and workshops
• Career development plans
• Enhanced compensation plans
aligning incentives with results
We define our training program based
on each Brand’s Training Needs Analysis
(TNA) to offer operational, technical,
leadership, and personal courses. We also
apply satisfaction studies to understand
the impact the training produced on each
employee in his or her daily activities,
while also providing suggestions about
room for improvement.
1,578,113
hours of training
32.7 hours
of training per
employee
A verage Hours of Training taught by the Support Center
Mexico
Spain
Argentina
Colombia
Chile
Brazil
Average per employee
Women
28.5
25
33.68
6.12
19.5
4
34
30
38.45
6.72
25
4
A verage Hours of Training in Operations
Average per employee
Women
Mexico
Spain
Argentina
Colombia
Chile
Brazil
249.5
9
1.35
5.5
9
2
266
9
1.59
7
9
2
Men
23
20
28.91
5.52
14
4
Men
233
9
1.12
4
9
2
Preparing the Team of the Future
High potential employees
Support Center
Mexico
Spain
Argentina
Colombia
Chile
Brazil
* Not Available
219
35
16
2
17
3
%
14%
12%
5%
1%
9%
60%
Operation
1,900
101
NA*
12
251
12
%
4%
1%
NA*
1%
10%
7%
28 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 29
Culture
The Alsea´s World comprises 14 Brands whose cultures guide the daily
activities of our Restaurants. Our Brands are embodied in the five Culture
Values that characterize Alsea, which exemplifies the day-to-day activities
of our employees and constitute a competitive advantage for the Company,
reflecting how we look after the business, drive the development of our
employees and exceed our GUESTS’ expectations.
Winning Attitude:
Showing our passion for excellence to reach even higher goals.
Involved Leadership:
Driving the success of our Restaurants and looking after the business as if it
were our own.
Surprising Service:
Consistently increasing our standards of satisfaction to serve and surprise.
Collaborative Spirit:
Pooling ideas and talent to create a community that multiplies results.
Attention to Detail:
Continuously improve to consolidate the Alsea experience through
impeccable execution.
These Values show how we embody our
Winning Culture that consistently challenges us
to do a better job, never settle for second best,
and always exceed our GUESTS’ expectations.
We held the Alsea Ganar es lo Nuestro (Winning is what we do) Convention
to announce this cultural shift that will help us meet our new goals and the
course the Company has charted for the next five years. The Convention,
which was held in Acapulco, Guerrero and presided by the Chairman of the
Board of Directors and the Alsea Mexico and Alsea International Divisions,
was attended by the best Restaurant Managers that the Company brought in
as recognition of their outstanding management skills.
2016 Employee
Commitment
(ECO) Survey
At Alsea, we have always been known
for our focus on our employees. Just as
we cater to our GUESTS, we also focus
our attention on our more than 67,000
employees who are at the heart of this
organization. In order to ensure an
exceptional workplace experience, during
2016 we applied the ECO Survey to
measure their Commitment; that is, their
engagement and enthusiasm levels, and
their emotional connection with Alsea.
The questions on the Engagement Survey
are directly related to our business
indicators, such as turnover, product
quality, GUEST Service, productivity and
profitability, among others.
We know that commitment comes
with time and as a process, leading to
higher levels of organizational wellness
producing better results.
% participation
Commitment
Mexico
Spain
Argentina
Colombia
Chile
Brazil
Global
92%
84%
91%
90%
90%
91%
92%
4.03
3.68
3.75
3.72
3.89
3.74
3.92
We achieved 92% global participation and a 3.92
score (on a scale of 1 to 5). Since this is the first time we’ve
applied the survey, we will use these results as the baseline to
set our goals and improve our score with Effective Impact Plans.
30 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 31
3,054
leaders with access to
a results report with
their teams’ commitment
indicators.
The ECO methodology allows every leader within the Company,
from Restaurant Managers on up, to see their teams’
Commitment level.
According to the ECO methodology, leaders are responsible for
a 70% commitment level, which is a clear example of how we
consistently empower Managers to make sure they are applying
the right leadership skills, in addition to nurturing stronger
employee engagement levels.
Over the coming year, leaders will be responsible for working
with their teams to create an Effective Impact Plan to drive
employee commitment.
Recognition
At Alsea, we value each one of our
employee’s contributions, and consistently
create recognition programs to thank
them for their hard work. These plans
include the “Best Manager” award for each
one of our Brands and countries, based on
the results obtained in Same Store Sales,
EBITDA, Turnover, GUEST Service, and
Quality Audits.
The winners of the Best Manager awards
receive a cash prize and a training trip to
an Alsea market.
Alsea’s Manager of the Year
Matías Medina
Burger King Argentina,
with Pablo de los Heros, Country Manager
for Alsea Argentina
We also select the best of the best who are
presented with the “Alsea Manager” award
and a larger cash prize.
Both the Company and our Brands believe that it is vitally
important to nurture our Brands’ core Values, which is why
we have specific award programs to thank our employees and
recognize their hard work.
We also encourage our employees to come up with innovative
ideas, helping us to constantly import new concepts from one
country to another. For example, Brazil implemented the Mexico
“Wok Master” plan, encouraging P.F. Chang’s employees to come
up with new dishes, which are submitted to votes, with the
winner being included in the Restaurant menu.
Challenges:
• Cont inue to consolidate t he
Als ea Culture.
• Create new compens at ion
models to attract and retain
t he best talent available.
• Open academies to
inst itut ionalize knowledge
in operat ions, market ing,
acquisit ions, and real estate.
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2016 ANNUAL REPORT | Alsea 33
To be the Best Operator, redefining the
GUEST' experience, and becoming even
more productive and effective, to offer the
best products, service, image, and value
in the industry.
"Enlace"
In 2016, we decided to capitalize on the knowledge of our
Brands by implementing the Liaison or Enlace System, to make
sure that our Restaurants meet the highest operation and
experience standards.
This support system for our Restaurants facilitates coordination
between the strategic departments that have the greatest
impact on our operations, including the Supply Chain,
Maintenance, Information, Marketing, Teams, Technology,
Quality Assurance, and Human Resources.
We offer the highest
quality standards at
all our Restaurants
to make sure our
customers feel like
invited GUESTS.
Cloud
Reports
Formats
Activity
Direct Boss
District Manager
GPS
Evidence upload
Regional Director
KPI
Support Areas
Feedback + Interaction = Continuous improvement
Help our Brands reach its full potential
34 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 35
Best Operator How to be the best operator
By Having the
Best Talent
Operating the
Best Store
Offering the
Best Service
Providing the
Best Experience
All our Restaurants use
operational evaluations
that allow us to conduct
exhaustive health and
safety analyses. We also
have a tool to evaluate
GUEST satisfaction
by listening to their
comments.
Challenges:
• Drive traffic by consistently
redefining and improving
our GUEST experience.
• Compare and optimize
productivity and GUEST
satisfaction metrics.
• Optimize and expand the
Restaurant supervision
process and tracking system.
36 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 37
To implement the best Marketing strategies centerd on
GUEST loyalty by increasing visit frequency, making
us the Company that has the best knowledge of the
industry, the competition, and our GUESTS.
One of the strongest pillars of our
winning recipe consists of optimizing
resources through simple, efficient,
and effective management activities.
Our Marketing department implements
innovative advertising, promotion, and
public relations programs targeting
each one of our Brand’s key audiences.
These measures contributes to maintain
the GUEST loyalty, consequently, to our
solid Same Store Sales growth.
Right equipment and tools
Well-Timed and
Reliable Information
Decision-Making
Support
Business
Intelligence
Improve
Strategy
Spot New
Opportunities
2016 ANNUAL REPORT | Alsea 39
38 Alsea | 2016 ANNUAL REPORT
Cutting-Edge Marketing Shared
Services
Media
Digital
Strategic
Alliances
Public
Relations
Market
Research
GUEST Experience
& Call Center
CRM
(administration based on the relationship with our GUEST)
& GUEST Technology
Goals:
• Become the Company that has the best knowledge of the industry, the
competition, and GUESTS.
• Build a culture, team, skills, and superior information analysis tools,
resulting in more effective programs to attract and retain GUESTS.
• Develop digital and technological tools (CRM) to leverage the Alsea
portfolio and create an ecosystem that promotes loyalty, frequent visits,
and sales in and among our Brands.
• Build up our Centers of Expertise in Media, Public Relations, Market
Research, and Strategic Alliances to add more value to our Brands.
CRM & Customer Technology
We use our loyalty programs to obtain information about our GUESTS’ behavior, our products, and our
Restaurants.
We have powerful analytical tools that have helped us segment our GUESTS, offering targeted
communications, according to their individual profiles.
We have developed a multidisciplinary team that involves technological and analytical staff (Customer
Technology), strategy (Brand and GUEST Communication) and operational (communication with the Staff of
the Restaurants) that allows us to have a 360° vision and impact.
Loyalty Programs
In Mexico, we continue to develop our
Wow Rewards loyalty program, which
we featured in Vips, El Portón, and The
Cheesecake Factory in 2016, which
means that nine of our Brands are now
part of the program.
Wow Rewards is now part of 5% of
Alsea’s total transactions and has
successfully increased the average bill at
our Brands by more than 30%.
My Starbucks Rewards has one million
users in Mexico and is present in 25%
of the Brand’s transactions nationwide,
with more than 38,000 users in Chile
impacting 14% of all transactions.
By the end of 2016,
we had a base of
500,000
Wow Rewards loyalty
program users.
Challenges:
• To be the Company with the
best knowledge about our
GUESTS, the market, and the
competition.
• Have the best loyalty and
analytical skills program.
• Have an experience center that
adds value to our Brands.
40 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 41
Use next generation Technology and
Innovation tools to facilitate the operation
and provide access to timely information to
best support our decision-making processes.
Technology
Tools
Our goal is to become the digital
communication leaders as this is a
priority communication channel for
many of our GUESTS. We also use
technology to facilitate Restaurant
operations and management.
Restaurants
At Alsea, we work hard to ensure that our Restaurants have
technological tools that contribute with our GUESTS to having
an experience that exceeds your expectations.
Management
We provide ongoing management tools and information to our
brands team to facilitate the analysis and decision making.
Challenges:
• To provide our Restaurants
with technology to ensure the
best operation and GUEST
experience.
• Be the leader in mobile and
digital strategies.
• Develop systems that
optimize and simplify our
Restaurants’ management and
support processes.
2016 Achievements
• We migrated from the Oracle suite
to Version 12, ensuring our global
consolidation in a single process.
• We released the Enlace mobile tool to
support our operations “Management
Model.”
• We released a tool to promote and
manage “Digital Coupon” campaigns.
• We implemented the My Starbucks
Rewards program in Chile.
• We added Vips, El Portón and The
Cheesecake Factory Brands into WOW
Rewards loyalty program in Mexico.
42 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 43
Innovation and Technology Resources, efficiencies, and best practices
to ensure competitive advantages for each
Brand in our portfolio, capitalizing on the
Synergies and Critical Mass we will reach
with our solid business model.
Our commitments: provide
the service Restaurants need
to ensure the proper supply
of inputs, guaranteeing
the quality and food safety
of our products, at the
best cost, through skilled
staff members engaged
in efficient and effective
operations, supported with
the best technology by
building synergies between
our Brands.
Value Chain
[G4-12, G4-LA14, G4-LA15, G4-HR5, G4-HR6, G4-HR10, G4-HR11,
G4-SO3, G4-SO9, G4-SO10]
At Alsea, we work closely with our supply chain to ensure that
the products we offer our GUESTS come from reliable suppliers
who are committed to sustainability activities that are relevant
to our business.
We also comply with matters related to human rights as a
priority for everyone who is part of this Company, given that
these actions produce an impact on all our stakeholders.
We work hard to
guarantee that our
support departments
create real value by
providing on-going
The Legal Charter is a document for our suppliers that aims
to identify risks and establish courses of action to be taken
regarding legal issues.
support for our
Restaurants.
44 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 45
Synergy and Critical Mass Furthermore, our Purchasing Department has created Supplier Rights and
Obligations guidelines in which we state that any supplier who violates our
code of ethics will be declared ineligible for working with the Company and
subject to the corresponding process.
At the end of 2016, we released our Anti-Corruption Policy, which clarifies
everything relating to child labor and forced labor.
Quality:
Certification of plants and distribution
centers audited in SQF2*and AIB*.
Cost:
We generate organizational productivity of more
than MXN 50 Million, optimizing 20% of the
positions, and eliminating one organizational level.
Total absorption of inflation in the cost
per operating box, achieving deflation in
current pesos against 2015.
Service:
We improved Restaurant service by more
than 10 pp. We guarantee the service.
At Alsea, we believe that we still have a long way to go. We are working on
a Unified Supplier Contract that includes our sustainability standards, which
will be reviewed by the corresponding area.
We strive to
implement and be
recognized as the
best Supply Chain in
the Industry.
We are in a constant process of
consolidation, forging synergies and best
practices to benefit operations.
We have invested in the Alsea Operations
Center (COA), which will start operations
in Mexico City during the second half
of 2017. This will help us consolidate
distribution and manufacturing
operations to guarantee future growth,
improving service and driving productivity
and efficiency.
The new COA will have cutting-edge
technology to drive the integration and
efficiency of production processes, food
manufacturing, bakery products, food
handling quality and control, logistics,
storage, planning, and supply.
It will also offer support systems to
guarantee operational continuity and
reduce the use of non-renewable energy.
*Safe Quality Food Institute.
*AIB (American Institute of Baking)
International provides audits, inspections
and certifications in food safety.
46 Alsea | 2016 ANNUAL REPORT
Challenges:
• Consolidate Alsea’s synergies
and infrastructure as a
competitive advantage for
the Brands.
• Implement a global and
consistent sharing of best
practices.
• Obtain better skills to
optimize purchases between
Brands and countries.
2016 ANNUAL REPORT | Alsea 47
Positively impact our surroundings
through actions that make a difference
and contribute to social, economic and
environmental development in the countries
we operate in.
This is one of Alsea’s five strategic areas, and represent a
fundamental value for our business. This is how we guarantee
our contributions to the sustainable economic development
and social interests, assuming responsibility for the direct and
indirect impact of our activities on our stakeholders.
The management model has four commissions, which guarantee
the implementation, compliance, and evaluation of the
sustainability plan's objectives, spearheaded by the Company’s
leaders. Each one of these commissions responds to the needs
of Alsea’s major stakeholders.
We determine these stakeholders as a result of the impact we
have on them and vice-versa, considering teamwork to be an
essential element in driving shared value.
We have created diverse communication channels we use to know
their needs and expectations, counting on with constant feedback
to identify improvement opportunities and work on them.
In 2016, we migrated
from our Social
Responsibility strategy
to our Sustainability
strategy given the
need to globalize our
structure and ensure
that, in 2017, our
market plans follow
the same management
model.
E mployees
st s
ue
G
n i
t e p eople’s spirit
I g
Su
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lie
r
s
ors
petit
m
Co
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e
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’
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h
S
munity S
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p p o r t
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y
Su s t a inabilit
y
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o
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R e s p o
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m
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M
edia
te people’s spirit
ni
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G ov e r n
NGO’s
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it
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’
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irit
m ent
Sustainability Structure:
Sustainability Committee and
Commissions (Quality of Life,
Responsible Consumption,
Enviroment and Community Support)
Stakeholders
ALSEA’s Purpose
48 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 49
Sustainability[G4-15, G4-24, G4-25, G4-26, G4-35, G4-36, G4-37, G4-47, G4-49, G4-50]
Below are some of the actions and their results from 2016 plans:
We promote the development of our
employees, offering them conditions
to help them find the right balance
between their personal and
professional life.
Education and Development
Fully aware of the important role education plays in the
development of our employees, we promote a range of
programs to help incentivize them to continue their studies.
Alsea's scholarship
This year we offered to our operations talent, Restaurant
Managers and Assistant Managers who are classified as high
potential, the chance to finish their undergraduate studies by
offering them financial support. Alsea covers 67% of the tuition
fees, and the employee covers the remaining 33%.
Quality
of Life
[G4-LA2, G4-LA10]
During 2016, we offered
scholarships to
10%
of our High-Potential
Managers.
900
school kits donated.
Academic Excellence
For the third consecutive year, we have rewarded the academic
excellence of our employees’ children by helping them to acquire
school supplies for their return to class.
Work-Personal Life integration
Through a range of workplace practices and programs, we offer our employees the opportunity to find the right
balance between their personal and professional lifes, helping to ensure we contribute to their well-being by
offering them time to spend with their loved ones and/or for personal issues.
• Día A+ (Mexico)
Break Off (Argentina)
This consists of an additional day of leave every semester for operations employees.
• Two consecutive rest days once a month for Restaurant Managers.
• Staggered schedules, Store Office, maternity, paternity or adoption leaves and birthdays.
50 Alsea | 2016 ANNUAL REPORT
Wellness
With the objective to protect our
employees, we offer them flexible
benefits, occupational health programs,
alliances with healthcare institutions,
physical activities, and disease
prevention. Some of the programs
implemented during this year include:
The Argentina´s team launched the Alsea
al Máximo program, as an online benefits
program featured as a smartphone app
available to 100% of our employees in
Argentina to offer entertainment, food,
shopping and other benefits.
Results:
• 3,243 downloads of
the smartphone app
• 24,038 visits
• 3,152 discount
coupons requested
Furthermore, we made an effort to
promote the importance of ensuring a
healthy emotional balance for Restaurant
Managers through tools and awareness
campaigns to improve their quality of
life. In Argentina, the Wellness program
focused on reducing workplace stress
levels and transforming teams into
high-performance establishments. The
program includes a health check-up for
each Manager and the implementation of
specific steps for their benefit.
Investing in people today means
great results in the future.
In Mexico, during 2016, two high-value programs were
implemented: the Caja de Ahorro Maximiza, which offers our
employees access to more attractive rates than those offered by
individual savings plans or banks, benefitting 1,974 employees with
a net annual rate of 7.45%.
We also launched Financiera Alsea, a program to offer loans for
our Restaurant, District and Division Managers, as well as Support
Center employees:
• Cash Loans: Loans that can be used to cover debts, credit
cards, unforeseen expenses and personal issues (up to 1
month’s salary).
• Car Loans: Loans that can be used to purchase new or used
cars (up to 6 month’s salary).
* Programs can vary by Region and Brand.
2016 ANNUAL REPORT | Alsea 51
Diversity and
inclusion
We believe that gender equality and labor
inclusion are an important part of our
growth as a Company, which is why we
promote programs that help us achieve
the goals we have set in this area.
Gender equality
• 48% of our employees
are women
Inclusion
• 209 employees with
disabilities
• 70 elderly employees
Health and Safety
[G4-LA3, G4-LA5, G4-LA6]
We are in the process of structuring a safety management
system, aligned with the ISO 18001 standards. In order
to achieve this goal, our supply chain area, developed the
documentary structure that outlines the most relevant indicators
on the subject matter.
We report all incidents in accordance with
the regulations stipulated by the Mexican
Ministry of Labor (STPS) and the Mexican
Institute of Social Security (IMSS).
We also have:
• An annual training program that considers topics such as
workplace safety.
• A medical program based on requirements for the food
industry and applicable for our operational area
• A healthcare campaign which offers treatment to those who
need it.
• Internal health and safety brigades based on legal
requirements and regulations.
• A medical team for healthcare programs.
Most common injuries:
• Contusions
• Contractures
• Sprains
We expect to reach
our zero-accident
goal by 2020.
We promote a balanced lifestyle
that encompasses the enjoyment
of quality food that not only meets
people’s needs but also has positive
social, environmental and economic
implications within its lifecycle.
We promote healthy interactions in
combination with physical activity.
The nutritional values of
our main products can be
found on our website.
Responsible
Consumpt ion
Responsible
Communication
Given how important it is for our guests
to know where the food they are eating
came from, we ensure that Brand's
operational strategies guarantee a
nutritional information transparency, in
order to offer them products that meet
their nutritional and wellness needs.
Product, Service,
Image and Value
[G4-PR4, G4-PR6, G4-PR9, G4-PR7]
At Alsea, we comply with all applicable
local regulations in terms of safety,
quality, and labeling of our products.
We are committed to exceed the
expectations of our consumers and the
requirements of the countries in which
we operate.
52 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 53
Our goals for 2017 are:
1. Increase the compliance scope for our
imported products used as ingredients
at our Restaurants.
2. Maintain compliance of all pre-
packaged products sold by Alsea.
3. Continue the training to operational
and marketing collaborators in the
interpretation of the applicable
legislation.
4. Keep the nutritional information of
the major products from our Brands
up-to-date on our website.
In 2016, we made the labeling review and compliance process
faster and more efficient by integrating it into the new product
development process, guaranteeing that 100% of the pre-
packaged products sold at our Restaurants comply with all
applicable regulations.
Quality, Security and Food Safety
[G4-PR1, G4-PR2]
At Alsea, our commitment is to meet the needs and expectations
of our consumers, ensuring compliance with the highest food
safety standards and product quality at our Restaurants.
We use suppliers who meet international safety standards
recognized by the Global Food Safety Initiative (GFSI).
Our production and distribution operations use standardized,
documented and managed systems to guarantee the quality and
safety of our products.
We have an annual
food safety training
program to ensure
the quality of our
products throughout
Achievements in 2016:
the value chain.
• One of our manufacturing plants (Comisariato) was awarded
with the SQF certification (Safety Quality Food), which is one
of the food safety systems recognized by the Global Food
Safety Initiative.
• Three Distribution Centers were certified by the AIB (American
Institute of Bakery) for complying with best manufacturing and
distribution practices.
Our goals for 2017:
1. Standardize the quality and safety
management system.
2. Increase the scope of certifications
recognized by GFSI in our manufacturing
and distribution operations.
3. Standardize hygiene practices for
operations employees and food
handling control. at our Restaurants.
Promotion of
Balanced Lifestyles
Each Brand develops a range of programs
based on their segment and consumer
profile, including:
• Substitution of soft drink
for water in children’s menus at
Burger King.
• P.F. Chang’s offers a gluten-
free menu.
• Vips in conjunction with Disney,
launched a healthy children’s
menu that meets international
child nutrition regulations.
• Alsea also joined the
“Movimiento por una Vida
Saludable” (MOVISA).
Our suppliers and manufacturing and
distribution operations are audited
annually by external companies and
by our international partners.
In terms of inclusion, Vips is
the first Alsea Brand to offer a
Braille menu.
54 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 55
Responsible Suppliers
We drive the development of responsible suppliers.
We are currently working with Flor
de la Paz on a project to buy organic,
loose-leaf tea that is offered at Vips,
with 100% of profits being reinvested in
the community where it is produced.
This project is located in the State of Mexico, helping to heal
the soil using advanced organic production techniques, free
from agrochemicals and pesticides, preventing exploitation and
respecting the life cycles of the plants produced.
Animal Welfare
At Alsea, we fully understand the importance of promoting animal
welfare and protection, which is why we are working alongside
our egg suppliers to promote the transition to eggs that come
from cage free hens by 2025. This commitment requires the
participation of the major egg suppliers in each country in which
we operate, ensuring that the cage free egg supply meets the
market demand, in addition to ensuring accessible economic
conditions for GUESTS.
Fair Trade
[G4-SO7]
We ensure that our operations meet fair
trade standards in every country in which
we operate through Procurement Policies
that outline the steps that must be
followed and the parties responsible for
authorizing transactions.
We promote equal opportunities and the
fair and transparent treatment of our
suppliers. Furthermore, we guarantee that
they meet standards set by our Company,
in keeping with our Code of Ethics and our
policies. We implement on-going auditing
processes to ensure compliance.
En vironment
[G4-EN31]
We promote environmental
conservation through the efficient use
of resources.
We develop a range of environmental programs to help
ensure more efficient processes that use fewer resources,
thus ensuring we protect the areas in which we operate.
Energy and Emissions
[G4-EN3, G4-EN5, G4-EN6, G4-EN15, G4-EN16, G4-EN18, G4-EN19]
Through our Energy and Sustainability Department, we implement
energy saving projects. In 2016, we replaced boilers with high-
efficiency heaters at 189 branches, representing a 60% advance in
our goal.
We are subject to the regulations and policies of the Registro
Nacional de Emisiones (RENE), where we report our greenhouse
gas and other emissions. In this report, we identify each chemical
substance by means of an internationally-accepted abbreviation,
defined by associations specializing in this area.
Internal Energy Consumption
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
1,144,942
951,630
286,545 352,075
150,994
Gasoline
Diesel Natural Gas
L.P. Gas
Electricity
We saved
53,970 GJ
by implementing these
energy saving projects.
* Numbers in GJ.
** The information contained herein refers only to
Mexico.
***We do not currently use fuel from renewable sources.
**** The calculation was made based on real
consumption as invoiced by the suppliers of the
different fuels.
***** To calculate conversion factors, we used the
following sources:
• http://www.semarnat.gob.mx/sites/default/files/
documentos/cicc/20150915_guia_rene.pdf
• IPCC, 2006. “2006 IPCC Guidelines for National
Greenhouse Gas Inventories”, Volume 2.
[Chapter 2 – Stationary Combustion. Table 2.2]
56 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 57
We decreased our
C02 emissions by
3,401 tons thanks
to the substitution
of boilers.
In 2016, our energy intensity was 155,678.28 kWh, taking into
account electrical energy alone. For the calculations, we divided the
kWh billed by the Restaurants by the number of Restaurants.
Direct Greenhouse Gas Emissions (Scope 1)
Indirect Greenhouse Gas Emissions from
Energy Generation (Scope 2)
Intensity of Greenhouse Gas Emissions
Reduction of Greenhouse Gas Emissions
123,595 tons of
CO2/year*
120,540 tons of
CO2/year
144 tons of
CO2/year
3,401 tons of
CO2/year
The information contained herein refers only to Mexico.
*RENE Methodology used for calculation.
**We consider 2015 to be our base year as it is when the RENE methodology
requirements were implemented.
We measure the advances we have made by comparing the
consumption of the current and previous years, thus enabling us
to establish our goals for the future, including:
• Decrease emissions by using
renewable electrical energy at 80%
of our establishments in Mexico.
• Ensuring the lowest possible
emissions while driving efficiency
in new Restaurant openings
by leveraging experience from
previous projects, in areas such as
illumination, water heaters, and
water pumps.
• Continue search for equipment or
programs to help reduce emissions.
Water
[G4-EN8, G4-EN9, G4-EN10]
Part of our environmental strategy is to
use this resource efficiently, which is why
the first step lies in having clear goals
and indicators. In 2016, we estimated
46.3% of the water consumption at our
base line. We are continuing to work to
achieve 90% real measurements and only
10% estimations.
Waste
[G4-EN1, G4-EN2, G4-EN28]
Fully aware of the impact that our Restaurants have in terms of
waste, we added 68 Restaurants to the waste collection program,
recycling 14,123 kg of cardboard. We also collected 950,319 liters
of used vegetable oil, which is used to create biodiesel.
Our goal is to implement the separation of Tetra Brik, plastic,
newspaper, magazines and paper, in addition to including newly-
opened branches in the oil collection program.
We collected
950,319
liters of used vegetable oil.
Supplies
[G4-EN27]
It is exceedingly important for us to work with suppliers that
offer environmentally-friendly products, which is why 49.8%
of the napkins used at Domino's Pizza and Starbucks are
recycled, while 50.2% are napkins made from completely
biodegradable components.
49.8%
of napkins are recycled.
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2016 ANNUAL REPORT | Alsea 59
Community
Support
[G4-EC3, G4-EC4, GA-SO1]
We promote food security in
vulnerable communities, in
addition to driving human
development through education and
employability initiatives.
Donations from Fundación Alsea A.C. totaling MXN 32.3 million
3.0%
3.3%
6.4%
6.2%
15.5%
65.7%
Institution
Comedor Santa María A.C.
Productor de Café de Conservación /
Programa "Todos Sembramos Café"
Mexicanos vs Corrupción e Impunidad A.C.
Federación Mano Amiga A.C.
Fondo para la Paz I.A.P.
Social investment projects
The rest of the revenue has been
used to create a reserve fund to
guarantee the operations of the
existing dining centers.
During the year,
Fundación Alsea
A.C. registered
donations
totaling MXN
44.4 million.
Total Fundraising Fundación Alsea A.C. (%)
2%
2%
1%
1%
12%
12%
11%
11%
4%
4%
1%
1%
25%
25%
11%
11%
10%
10%
11%
11%
Founding Partners: 1%
Founding Partners: 1%
Alsea
Alsea
[1% s/Net Profit]: 23%
[1% s/Net Profit]: 23%
Va por mi Cuenta Day: 11%
Va por mi Cuenta Day: 11%
Guests Donations:10%
Guests Donations:10%
Products for charity: 25%
Products for charity: 25%
Franchises: 1%
Franchises: 1%
Internal campaign (Employees): 12%
Internal campaign (Employees): 12%
HSBC: 2%
HSBC: 2%
Other Campaigns: 11%
Other Campaigns: 11%
Other Va por mi Cuenta
Other Va por mi Cuenta
Partners: 4%
Partners: 4%
It's on me Movement
Through this program, we guarantee that children
in situations of food poverty have access to healthy
food through the construction and operation of dining
centers called Our Diner, coordinated by our strategic
partner, Comedor Santa María, A.C.
Given the nature of our Company, we have invested
most of our resources in creating this program that
supports children from the ages of 4 months to 16
years old, as well as pregnant and nursing mothers.
60 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 61
This program brings together employees, consumers, and
suppliers, who offer in-kind donations.
Social Investment
+20,000
employees are
supporting the cause.
For the first time,
we exported the It's
On Me Movement to
Colombia!
Va por mi Cuenta GUEST Campaign:
$20,726,741 MXN
$39,770,720 COP
% of employees who support
the cause with financial
contributions
Mexico:
46%
Colombia:
15%
Meals Served
Mexico:
365,231 meals
2,231 children
1 new dining center
Colombia:
15,908 meals
In 2016, we opened a new dining
center in Ecatepec, Estado de
México, benefitting 500 children.
Volunteering Hours
24,255 hours
In-Kind Donations
260 tons
On October 16, we rolled
out Va por mi Cuenta
Day, celebrating
World Food Day by
donating 100% of the
net profit for the day
to this campaign, the
equivalent of 140,000
nutritious meals!
www.movimientovapormicuenta.org
Challenges:
• To reaffirm our commitment
to provide food safety in the
most vulnerable communities.
• Consolidate the four pillars
of our Sustainability strategy
and guarantee positive impact
in all our stakeholders.
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Ethics
United by a
commitment culture
The Alsea Culture is fundamentally important in
driving our performance and consolidating our goals,
in addition to achieving our objectives and being
successful. This is why we consistently embody the
values that characterize who we are: Winning Attitude,
Engaged Leadership, Surprising Service, Collaborative
Spirit and Attention to Detail.
Every single day, we strive to deliver outstanding
products and unrivalled experiences for our GUESTS, in
addition to driving the development and training of our
employees. This is how we achieve our purpose: “Ignite
People’s Spirit”.
Our Code of Ethics is a guide for individual and collective
behavior and is aligned with the Company’s Strategic
Plan. This Code is implemented around the world, in
every country in which we operate, with our staff, our
GUESTS, and our suppliers.
We also have an Ethics Committee, the goal of which is
to monitor situations that could have a negative impact
on our employees, Brands or the Company in general and
which may violate our Code of Ethics.
The ethical guidelines of our Code of Ethics are:
Conflicts of interest
Equality of
opportunities
Our GUEST
service
Safeguarding of our
private and confidential
information
Harrassment-
free workplace
Preservation of
workplace equipment
Code of
Ethics
Environmental
conservation and responsible
use of resources
Measures to avoid
incidences of fraud
Workplace
safety
Compliance with legal
requirements, regulations and external
and internal standards
No gift policy
Transparent
business practices,
free from bribery
Ethics and Corporate
Governance
At Alsea, we are committed to each and every one of our ethical,
accountability and transparency guidelines in every country
in which we operate. Our Corporate Governance guarantees
compliance with these guidelines.
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[G4-34, G4-35, G4-38, G4-39, G4-40, G4-41, G4-42, G4-43, G4-44, G4-45, G4-46, G4-51, G4-52, G4-53, G4-56, G4-57, G4-58] "Línea Correcta" (Whistleblower program)
At Alsea, we are all part of the same family, and we look after one other
just like a family does. In keeping with our culture of ethics, we offer Línea
Correcta (the Right Line), a program that gives our employees a means of
confidentially reporting any abuse they may have been a victim of or any acts
of dishonesty that they have detected in their workplace.
In 2016, 837 grievances were filed, covering
the 6 markets in which we operate, representing
a 4.5% increase compared to 2015.
For further information about the Code of Ethics, please visit:
http://www.alsea.net/relacion-con-inversionistas/codigo-de-etica
Anti-Corruption Culture
[G4-SO4, G4-SO5]
In order to consolidate our commitment to eradicating corruption, we have
an Internal Control department that focuses on Risk Management. This area
monitors activities in order to minimize corruption, in addition to coordinating
our confidential whistleblower hotline.
We implemented an internal communication program to provide training to
everyone at Alsea regarding the areas included in the Code of Conduct and
anti-corruption measures. This was achieved through an online course, where
employees also signed the updated Code of Ethics.
Our goal is to support the anti-corruption plan and expand it to encompass all
of our Brands, plants, distribution centers and corporate offices.
Data Protection
We implemented security measures covering personal
information in order to understand the potential risks
regarding information confidentiality, integrity, and
availability, in addition to complying with all applicable
legislation regarding data privacy.
We protect the privacy of our GUESTS’ information
by appointing coordinators at each of our points of
contact, in addition to offering on-going training
and orientation through continuous improvement
processes for our Brands.
We have a number of procedures in place regarding
how we protect our GUESTS’ information, and
thanks to these procedures, we have experienced no
problems in this area. However, we will continue to
strive to improve the monitoring of the personal data
protection management system at our Brands, plants,
distribution centers and corporate offices.
Corporate Governance
• 12 Board Members
• 6 Related Board Members
• 6 Independent Board Members
• Corporate Practices Committee
• Audit Committee
We strictly comply
with our Values and
ethical principles in
order to guarantee
transparent Corporate
Governance.
Organizational Structure
Audit
Committee
Mario Sánchez
Internal Audit
BOARD OF DIRECTORS
Alberto Torrado
Chairman
Renzo Casillo
CEO
Corporate
Practices
Committee
Federico Tejado
Alsea Mexico
Diego Gaxiola
CFO
Cory Guajardo
HR
Fabián Gosselin
Alsea International
Daniel González
Strategic Planning
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2016 ANNUAL REPORT | Alsea 67
Board of Directors
Our Board of Directors is composed of 12 members,
6 of whom are Independent. When a meeting of the
Board of Directors is convened, at least 25% of its
members must be present.
The compensation system for Board Members is
fixed and is based on their attendance at meetings
of the Board and of the Committees of which they
are members, in addition to their participation in
deliberations and the efficiency of the decisions taken.
There are two Board Committees, integrated by
Independent Board Members, who can attend
Board Meetings in their roles as members of
these Committees. The Chairman of the Board
of Directors is Alberto Torrado, who is a Related
Regular Board Member.
Board of Directors
Alberto Torrado
Chairman
Proprietary Members
Alberto Torrado
Presidente
Fabián Gosselin
Member
Cosme Torrado
Member
Federico Tejado
Member
Armando Torrado
Member
Diego Gaxiola
Member
Independent Board Members
Raúl Méndez
Chairman, Grupo Green
River
Iván Moguel
Partner of Chévez Ruiz
Zamarripa y Cía, S.C.
León Kraig
Director and Partner,
Ignia Partners, LLC
Julio Gutiérrez
Chairman, Grupo Metis
Carlos Piedrahita
Global Reporting Initiative (GRI)
for Latin America
Independent Proprietary Member
Steven J. Quamme
Chairman, Cartica Capital
Secretary
Xavier Mangino
Partner of Diaz de Rivera y Mangino, S.C.
Corporate Practices Committee
Members
Julio Gutiérrez
Chairman
Cosme Torrado
Member
Carlos Piedrahita
Member
León Kraig
Member
Elizabeth Garrido
Secretary
Functions and Responsibilities
• Suggest to the Board of Directors criteria for
• Study and present to the Board of Directors the
appointing or removing the CEO and high-level
Company’s strategic vision to ensure stability and
directors.
continuity over time.
• Propose to the Board of Directors criteria for
evaluating and compensating the CEO and high-
• Analyze the general guidelines presented by
the senior management team to determine
level directors.
the Company’s strategic plan and monitor its
• Recommend to the Board of Directors criteria for
implementation.
determining severance payments to be made to the
• Evaluate the Company’s investment and financing
CEO and high-level directors.
plan proposed by the senior management team and
• Recommend criteria for compensating members of
issue an opinion to the Board of Directors.
the Board of Directors.
• Analyze proposals made by the CEO regarding
employee compensation structure and criteria.
• Analyze and present to the Board of Directors for
its approval the Company’s social responsibility
• Issue an opinion regarding the propositions for the
annual budget presented by the CEO and monitor
their application and the control system.
• Evaluate the mechanisms presented by the senior
management team to identify, analyze, manage
manifesto, the code of ethics and the information
and control the risks to which the Company is
system for protecting informants and reporting
subject, in addition to issuing an opinion to the
illegal acts.
Board of Directors.
• Analyze and propose to the Board of Directors
for its approval the formal succession process for
• Evaluate the criteria presented by the CEO to disclose
the risks to which the Company is subject, in addition
the CEO and high-level directors, in addition to
to issuing an opinion to the Board of Directors.
ensuring its compliance.
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Mexico City, February 20th, 2017
Annual Report from the Corporate Practices Committee to the Board
of Directors of Alsea, S.A.B. de C.V.:
In compliance with that stipulated in Articles 42 and 43 of the Securities Market Law and on behalf of
the Corporate Practices Committee, I wish to inform you of the activities that we undertook to the end of
December 31st, 2016. In the course of our operations, we have focused on the recommendations set out by
the Code of Best Corporate Practices.
In order to analyze all relevant results for the Company, the Committee organized sessions to ensure the
adequate monitoring of the agreements reached, inviting those officers of the Company it deemed necessary
to participate:
1. During this period, we received no requests in accordance with that stipulated in Article 28, Section III,
Sub-Section F of the Securities Market Law, which is why no recommendations were issued.
9. We were presented the Compensation Plan for relevant executives, which we recommended be
presented to the Board of Directors for its approval.
10. We were presented and we reviewed the Succession and Talent Development plans for senior
executives.
11. The results of the 2016 Performance Evaluations for relevant directors were presented.
12. The Corporate Human Resources Department presented the 2016 Compensation Strategy for
directors. This Committee recommended the Board of Directors authorize this strategy.
13. At the request of the Board, we participated actively in the process to find and select the Company’s
2. The acquisition of 100% of the stock of Gastronomía Italiana en Colombia S.A.S., owner of the Archie’s
new CEO.
Brand in Colombia, was presented and approved.
3. The proposal to acquire stock from the franchisees of the Domino’s Pizza Mexico system was
presented and approved: Alimentos a tiempo S.A. de C.V., Pizzas Monza S.A. de C.V., Grupo Alimenticio
Marzab S.A. de C.V.
4. The quarterly and cumulative results of the 2016 Marketability Plan were presented.
5. We were presented the Shareholder Cost at the end of each quarter of 2016, using the methodology
authorized by the Board of Directors.
6. We were presented, on a quarterly basis, a summary of risk management operations through
Exchange-Rate Forwards (Peso-Dollar) that were undertaken throughout the year. These operations
were executed in accordance with the proper authorization, complying with the goal of covering
operational risk based on exchange rates, in accordance with the authorized budget.
7. We were presented the 2017-2021 Strategic Plan, which we recommended be presented to the Board
of Directors for its approval.
8. The 2017 Budget was presented, which we recommended be presented to the Board of Directors for
its approval.
14. 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.
In conclusion, I would like to mention that, as part of the activities we are involved in, including the
preparation of this report, we have, at all times, listened to and taken into account the points of view of the
relevant directors, without identifying any notable difference of opinion.
Corporate Practices Committee
Julio Gutiérrez Mercadillo
Chairman
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Audit Committee
Members
Iván Moguel
Chairman
Raúl Méndez
Member
Julio Gutiérrez
Member
Elizabeth Garrido
Secretary
Functions and Responsibilities
• Recommend candidates to externally audit the
• Verify the risk control measures established to
Company, as well as hiring conditions and the scope
protect the Company.
of the professional services, in addition to ensuring
• Coordinate the duties of the internal auditor and, if
their compliance, to the Board of Directors.
applicable, the commissioner.
• Function as the communication channel between
the Board of Directors and the external auditors,
• Contribute to establishing operational policies with
relevant parties.
in addition to ensuring the latter’s independence
• Analyze and evaluate operations with relevant
and objectivity.
parties in order to issue recommendations to the
• Review the working agenda, letters of observation
and internal and external audit reports, in addition
to informing the Board of Directors of the results.
• Meet regularly with the internal and external
auditors, without any of the Company’s directors
being present, to listen to their comments and
observations regarding the advances being made.
• Provide the Board of Directors with their opinion of
the policies and criteria used to prepare financial
information, in addition to the process for the
Board of Directors.
• Hire third-party experts to issue opinions regarding
operations with relevant parties or in any other area,
ensuring the proper execution of their functions.
• Verify compliance with the Code of Ethics and
measures to protect informants and report
illegal acts.
• Support the Board of Directors in analyzing
information recovery and contingency plans.
• Verify the implementation of the measures
publication of information, ensuring its reliability,
necessary to ensure the Company complies with all
quality, and transparency.
applicable legal obligations.
• Help define the general guidelines for internal
control, internal audit and evaluate their
effectiveness.
Mexico City, February 20th, 2017
Annual Report from the Audit Committee to the Board of Directors of
Alsea, S.A.B. de C.V.:
In compliance with that stipulated in Articles 42 and 43 of the Securities Market Law and the Regulations
of the Audit Committee, I wish to inform you of the activities that we undertook to the end of December
31st, 2016. In the course of our operations, we have focused on the recommendations set out by the Code
of Best Corporate Practices. Based on a working agenda created in compliance with the Regulations of the
Committee, we met at least once a quarter to implement the activities described below:
1. RISK EVALUATION.
We reviewed, in conjunction with the Board of Directors and the External Auditors, critical risk
factors that could affect the Company’s operations, ensuring that said risks were adequately
identified and managed.
2.
INTERNAL CONTROL.
We ensured that the Board of Directors, in accordance with its responsibilities in terms of internal
control, established all necessary processes and policies. Furthermore, we monitored the comments and
observations made by the Internal and External Auditors.
3. EXTERNAL AUDITS.
We recommended that the Board of Directors hired External Auditors from within the Group and its
subsidiaries for the 2016 fiscal year. As such, we ensured their independence and compliance with all
legal requirements. We analyzed, in conjunction with the Auditors, their approach and working agenda.
We maintained constant and direct communication with them in order to fully understand the advances
they were making and the observations and comments they had regarding their review of the annual
financial statements. We ensured opportune access to their conclusions and reports regarding
the annual financial statements, and we monitored the implementation of the observations and
recommendations they made during the auditing process.
We authorized the payment for the auditing services provided by the External Auditors, in addition to
other authorized services, ensuring that we, in no way, interfered with their independence from the
Company. Taking the points of view of the Board of Directors into consideration, we evaluated their
services corresponding to the previous year, and we began the evaluation process corresponding to the
2016 fiscal year.
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4.
INTERNAL AUDITING.
In order to maintain their independence and objectivity, the Internal Auditing area reports functionally
to the Audit Committee.
In due time, we reviewed and authorized their annual working agenda. To create this agenda, the Internal
Auditing area was involved in identifying risks, setting up control measures and verifying said measures.
We received periodic reports regarding the advances being made in the working agenda, in addition to
any changes implemented and the reason for said changes.
We monitored the observations and suggestions presented and ensured their opportune implementation.
5. FINANCIAL INFORMATION, ACCOUNTING POLICIES AND THIRD PARTY REPORTS.
We reviewed, with the parties responsible, the process for preparing the Company’s quarterly and
annual financial statements, and we recommended their approval and authorization for publication to
the Board of Directors. As part of this process, we took the opinions and observations of the External
Auditors into account, and we ensured that the accounting and reporting policies and criteria used
by the Board of Directors when preparing the financial statements were adequate and consistent
with those used during the previous fiscal year. As such, the information presented by the Board of
Directors reasonably reflects the financial situation, the operational results, cashflows and changes to
the Company’s financial situation to the end of December 31st, 2016.
We also reviewed the quarterly reports prepared by the Board of Directors and presented to shareholders
and the general public, verifying that they were prepared in compliance with International Financial
Reporting Standards (IFRS) and using the same accounting criteria used to prepare the annual report.
We were able to verify that there is a comprehensive process that provides reasonable assurance of its
content. In conclusion, we recommended that the Board of Directors authorize its publication.
6. COMPLIANCE, LEGAL ISSUES AND CONTINGENCIES.
We confirmed the existence and reliability of the control measures established by the Company in order
to ensure compliance with the legal aspects to which it is subject, ensuring that they were adequately
disclosed in the financial report.
We periodically reviewed the Company’s tax, legal and labor contingencies, the effectiveness of
the procedure to identify and monitor them, and their adequate disclosure and registration. Four
tax contingencies were identified, three of which are issues that were detected, were reported and
reviewed in 2014 and 2015, and monitored during this tax year, in addition to one new tax issue. Two
legal issues were also identified:
a.
b.
c.
d.
e.
In 2014, the Ministry of Finance in Mexico City determined that Italcafé S.A. de C.V. was
responsible for taxable income stemming from deposits made to its bank accounts as a result of
the operation of a number of Restaurants pertaining to Grupo Amigos de San Ángel, S.A. de C.V.;
despite the fact that said income was generated by the latter, meaning it should be responsible
for all corresponding fiscal obligations. This case is currently being investigated by the District
Attorney’s Office in Mexico City.
In 2014, the Tax Administration Service (SAT) initiated two procedures to repeal rulings issued
in favor of Distribuidora e Importadora Alsea, S.A. de C.V. (DIA) and Café Sirena, S. de R.L. de C.V.
(Café Sirena), authorizing the application of a 0% VAT rate on sandwiches (during the 2010, 2011,
2012 and 2013 tax years). In November 2016, the Federal Court of Tax and Administrative Justice
declared the annulment of the ruling for Café Sirena. An appeal was launched to overturn this
ruling. The DIA case is still being considered by the Special Court in this area.
In 2015, the Tax Administration Service (SAT) began reviewing the 2013 tax year in order to
verify the Group’s Fiscal Consolidation. In October 2016, the Tax Administration Service (SAT)
issued observations, for which the corresponding clarifications were made. To date, the Tax
Administration Service (SAT) is currently reviewing said clarifications.
In March 2016, the SAT visited the business addresses of Grupo Amigos de San Ángel, S.A. de C.V.
(GASA) and Italcafe S.A. de C.V. (Italcafe) regarding the 2010 and 2011 tax years, respectively.
These companies are currently providing the authorities with the information they have requested.
In October 2015, the Federal Competition Commission (COFECE) fined Alsea MXN
$25,694,356.95, stating that Alsea’s acquisition of 25% of Grupo Axo should have been notified
prior to being executed.
Alsea appealed against this ruling, with the resolution for amparo proceedings being issued in
December 2016. The judge’s ruling was submitted to a review process, which is still on-going.
f.
In November 2015, COFECE imposed a fine of MXN $20,461,393.65, stating non-compliance with
the obligation to include a non-exclusivity clause in some lease contracts in shopping malls.
Alsea appealed against this ruling, with the resolution for amparo proceedings being issued in
May 2016, which was emitted in favor of Alsea. In the amparo ruling, it was determined that
COFECE’s resolution was disproportionate and that it should issue a new resolution.
The judge’s ruling was submitted to a review process, which is still on-going.
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Corporate Citizenship
[G4-16]
We work in conjunction with associations to drive
growth within our sector and to create a more
sustainable world. Some of these organizations
include:
• American Chamber (AmCham).
• Consejo Coordinador Empresarial (CCE).
• Consejo de la Comunicación (CC).
• Consejo Mexicano de Negocios (CMN).
• Confederación Patronal de la República Mexicana
• Asociación Nacional de Tiendas de Autoservicio y
(COPARMEX).
Departamentales (ANTAD).
• Dicares- AMR.
• Cámara Nacional de la Industria de Restaurantes
y Alimentos Condimentados (CANIRAC).
• Mexicanos Contra La Corrupción.
• Centro Mexicano para la Filantropía (CEMEFI).
• Movimiento Por Una Vida Saludable.
• Consejo Mexicano de la Industria de Productos de
• United Nations Global Compact.
Consumo (ConMéxico).
7. ADMINISTRATIVE ASPECTS.
We organized regular meetings with the Board of Directors, to keep them informed about the
Company’s progress and all relevant and unusual events. We also met with the Internal and External
Auditors to discuss their progress, talk about any limitations they may have encountered and facilitate
any private communication with the Committee.
Where we deemed necessary, we requested the support and opinion of independent experts.
Furthermore, we were unaware of any possible significant acts of non-compliance with regard to the
operational policies, internal control system and financial reporting policies.
We held executive meetings exclusively with members of the Committee, establishing during these
meetings agreements and recommendations for the Board of Directors.
The Chairman of the Audit Committee reported, on a quarterly basis, the activities being undertaken to
the Board of Directors.
The work we carried out was duly documented in minutes prepared during each meeting, which were
then reviewed and authorized by the members of the Committee.
Sincerely,
Ivan Moguel Kuri
Chairman of the Audit Committee
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2 0 16
A nn u al Re p or t
The WINNING
Recipe
Focus on GUESTS
About this Report
“The winning recipe” contains seven ingredients that allow us
to offer our GUESTS the best possible experience.
Following up on the 2015 report, we
have presented the most relevant results
and advances in terms of the social,
environmental, economic and ethical
areas of our operations in Mexico, Spain,
Argentina, Colombia, Chile, and Brazil.
Our 5th annual report was created using
the core conformity option stipulated
by the Global Reporting Initiative (GRI)
for drafting G4 sustainability reports,
covering the period from January 1, 2015,
to December 31, 2016.
To determine the content of the report,
we take into consideration the Company’s
sustainability framework, in addition to
considering the most relevant areas for
our stakeholders and their expectations.
To guarantee the quality of the
information, the following principles were
taken into consideration:
Balance
We report our achievements, as well
as our areas of opportunity and future
challenges, throughout the year.
Punctuality
We make our annual report available to
our stakeholders in order for them to
consult it whenever they want.
Comparability
Our stakeholders can see for themselves
the advances we have made in different
indicators and compare them to year-on-
year results.
Clarity
We present the results to our
different stakeholders in a clear and
understandable way.
Accuracy
We describe in detail each program we
implement to offer accurate information.
Reliability
We prepare the information and report it
using a specific methodology to ensure
the veracity of the information and
subject it to external auditing.
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Ingredients:Brand PortfolioBest TalentBest OperatorCutting-Edge Marketing Innovation and TechnologySynergy and Critical MassSustainability[G4-22, G4-23, G4-28, G4-29, G4-30, G4-32] Materiality
[G4-18, G4-19, G4-20, G4-21, G4-27, G4-48]
Committed to sustainability, in 2015 we commissioned a materiality assessment in which we identified the most
important material aspects for our stakeholders and for the Company. In 2016, we updated this assessment by
interviewing strategic employees from the Company and reviewing the results and advances of GRI indicators and
material areas.
We identify material aspects that have an impact our different stakeholders.
We prioritize them based on the degree of maturity and the risk or opportunity they represent.
We validate the information with the corresponding areas.
We review all the data reported, identifying the areas of opportunity in which we need to continue working.
Urgent
100%
Environmental
policy
Energy
eco-efficiency
Materials
Talent
recruitment
Supplier
staandards
Human
rights
Water resources
management
Health
and Safety
Climate
change
50%
Necessary
Product development
Corporate
responsibility
management
Customer
management
Social
impact
Ethics
Human Capital
Financial issues
Corruption
0%
50%
Emerging
Alsea + Stakeholders
100%
General
s
r
o
t
a
v
i
t
o
m
l
a
i
c
o
S
+
s
r
o
t
a
v
i
t
o
m
l
a
i
r
o
t
c
e
S
+
y
t
i
r
u
t
a
m
y
r
t
s
u
d
n
I
Material aspect
Corporate Social Responsibility
Management
Economic performance
General
Guest health and safety
Product and service labeling
Marketing communications
Guest privacy
Regulatory compliance
Ethics and integrity
Anti-corruption
Public policy
Anti-competitive practices
Training and education
Investment
Jobs
Local communities
Coverage
Internal External
Scope
Shareholders, guests, employees, suppliers, community,
investors, government, NGOs, media, competitors
Shareholders, guests, employees, suppliers, investors, media
and competitors
Investors, NGOs and media
Guests, employees, investors, authorities, media
Guests, authorities and competitors
Guests, authorities and media
Guests, employees and authorities
Shareholders, guests, employees, investors, authorities and
media
Shareholders, guests, employees, suppliers, community,
investors, authorities, NGOs, media and competitors
Shareholders, guests, employees, suppliers, community,
investors, authorities and media
Authorities
Guests, employees, investors, authorities, media and
competitors
Employees
Employees, suppliers, community and NGOs
Employees and communities
Employees, community and NGOs
Indirect economic repercussions
Guests, employees, suppliers, community and NGOs
Non-discrimination
Child labor
Forced labor
Procurement practices
Shareholders, guests, employees, suppliers, community,
investors, authorities, NGOs, media and competitors
Employees, suppliers, community, authorities, NGOs, media
Employees, suppliers, community, authorities, NGOs, media
Suppliers
Environmental evaluation of suppliers
Suppliers, investors and authorities
Labor practices evaluation of suppliers
Suppliers, investors and authorities
Human rights evaluation of suppliers
Suppliers, investors and authorities
Social repercussions analysis of suppliers
Suppliers, investors and authorities
Products and services
Regulatory compliance
General
Materials
Health and Safety
Emissions
Energy
Water
Investors, authorities and NGOs
Shareholders, investors, authorities, NGOs and media
NGOs
Suppliers and NGOs
Employees and authorities
Community, authorities and NGOs
Community, authorities and NGOs
Community, authorities and NGOs
80 Alsea | 2016 ANNUAL REPORT
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Consolidated results for full-year 2016
The following table shows a condensed Income Statement in millions of pesos (except EPS). The margin for
each item represents net sales, as well as the percentage change for the year ended December 31, 2016, in
comparison with the same period of 2015:
Net Sales
Gross Income
EBITDA(1)
Operating Income
Net Income
EPS(2)
2016
% Margin
2015 % Margin % Change
$37,702
25,922
5,155
2,767
$1,126
1.19
100.0%
$32,288
100.0%
68.8%
13.7%
7.3%
3.0%
N.A.
22,139
4,302
2,354
$1,033
1.17
68.6%
13.3%
7.3%
3.2%
N.A.
16.8%
17.1%
19.8%
17.6%
9.1%
1.7%
(1) EBITDA is defined as operating income before depreciation and amortization.
(2) EPS is earnings per share for the last 12 months.
Sales
Net sales increased 16.8% to 37,702 million pesos in 2016, compared to 32,288 million pesos during
the prior year. This increase was mainly due to the growth of 8.9% in same-store sales, revenues from
the distribution and production segment, and to the increase of 219 corporate units, for a total of 2,502
corporate stores at the end of December 2016, which is growth of 9.6% over the same period of the prior
year. This increase in sales was partially offset by the negative effect of the devaluation of the Argentinean
peso which was offset by the appreciation of the euro against the Mexican peso.
Net Sales 2016 vs. 2015
$32,288
(0.8)%
0.4%
1%
8%
$37,702
8%
2015
FX
Supply
Archie’s
Openings
+ Run rate
SSS*
2016
* The percentage of SSS contribution is the effect on the total revenue base.
Analysis of results
82 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 83
The business portfolio in Mexico reported a growth of 5.9% in same-store sales at the end of 2016, and our
Brands in South America presented growth of 23.5% in same-store sales, achieving a slightly below mid-
single digit growth in transactions. Likewise, our Brands in Spain posted positive results in the year, with
growth of 4.3% in same-store sales, in comparison with the same period of the prior year.
EBITDA
As a result of the 17.1% growth in gross income and the 16.4% increase in operating expenses (excluding
depreciation and amortization), EBITDA rose 19.8% to 5,155 million pesos at the close of 2016, compared to
4,302 million pesos in the same period of the prior year. The 854 million-peso increase in EBITDA is mainly
attributable to same-store sales growth, operating efficiencies, and the increase in the number of units
and the positive contribution from incorporating Archie’s in Colombia into our portfolio. That increase was
partially offset by the impact on results due to depreciation of the Mexican peso against the dollar, as well as
to the increase in expenses related to the strategy of improving the compensation of store personnel and to
the increase in tariffs for energy services. EBITDA margin increased 40 basis points as a percentage of sales,
rising from 13.3% in 2015, to 13.7% in 2016.
Net Income
Net income in the year increased 94 million pesos over the same period in the prior year, closing at 1,126
million pesos, compared with 1,033 million pesos in the prior year, mainly due to the 413 million-peso
increase in operating income. This variation was partially offset by the increase of 320 million pesos in the
all-in cost of financing, as a consequence of the negative variation caused by revaluation of the liability
related to the call and put options of the remaining 28.24% of Grupo Zena, due to depreciation of the
Mexican peso against the euro, as well as to the increase of 164 million pesos in interest paid – net and to a
lesser extent to the increase of 39 million pesos in income tax.
Earnings per share (“EPS”)(2) for the 12 months ended December 31, 2016, increased to 1.19 pesos, compared
with 1.17 pesos for the 12 months ended December 31, 2015.
Net Income 2016 vs. 2015
$1,032,751
(440,338)
(303,493)
(39,314)
(16,799)
40,174
853,507
$1,126,489
2015
D&A
PUT
Grupo Zena
Taxes
All-in cost
of financing
Associated
Companies
EBITDA
2016
Results by segment for full year 2016
Mex ico
Food and Beverages
Distribution and Production
Total
2016
2015
Var.
Same-Store
Sales
5.9%
4.4%
Number of Units
2,215
2,092
150
pbs
123
%
Var.
-
6%
2016 2015 Var.
%
Var.
-
-
-
-
-
-
-
-
2016 2015
Var.
5.9%
4.4%
150
pbs
%
Var.
-
2,215
2,092
123
6%
Sales
20,628 18,672 $1,956
10% 7,258
6,375
$883
14% 21,986 19,896 $2,090
10%
Adjusted EBITDA*
Adjusted EBITDA
Margin*
4,545
4,091
$453
11%
660
582
$78
13% 5,205
4,674
$531
11%
22.0% 21.9%
10
pbs
-
9.1% 9.1%
-
-
23.7% 23.5%
20
pbs
-
* Adjusted EBITDA does not include administrative expenses, thus it represents the “Store EBITDA.”
Sales at Alsea Mexico during the year ended December 31, 2016, increased 10% to 21,986 million pesos,
compared to 19,896 million pesos in the same period of 2015. This favorable variation of 2,090 million pesos
is mainly attributable to the incorporation of 104 corporate units of the different Brands over the last 12
months, the 5.9% growth in same-store sales, as well as the increase of 13.2% in sales to third parties in the
distribution and production segment in comparison with 2015. This can be attributed to the growth in the
number of units served over the last 12 months, supplying a total of 2,136 units at December 31, 2016, in
comparison with 2,097 units for the same period in the previous year, which was a 1.9% increase.
Adjusted EBITDA increased 11.4% during the 12 months ended December 31, 2016, closing at 5,205 million
pesos, compared with 4,674 million pesos reported in the same period of the prior year. This increase is
attributable to the 5.9% growth in same-store sales, in addition to the margin created by the higher number
of units in operation and to the business mix. The foregoing was partially offset by the impact from the
devaluation of the peso against the dollar, to the increase in expenses related to the strategy of improving
the compensation of store personnel, with the objective of reducing rotation, and to the increase in tariffs for
energy services in Mexico.
Spain
Same-Store Sales
Number of Units
Sales
Adjusted EBITDA*
Adjusted EBITDA Margin*
2016
4.3%
499
$7,591
$1,500
19.8%
2015
7.2%
467
$5,674
$1,082
19.1%
Var.
% Var.
(290) pbs
32
$1,917
$418
70 pbs
-
7%
34%
39%
-
* Adjusted EBITDA does not include administrative expenses,
thus it represents the “Store EBITDA.”
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Sales at Alsea Spain represented 20% of Alsea’s consolidated sales and at the end of 2016 included the
operations of Foster’s Hollywood, Domino’s Pizza, Burger King, LAVACA, Cañas y Tapas and Il Tempietto. Sales
in this segment increased 33.8% to 7,591 million pesos, in comparison with 5,674 million pesos in 2015.
This positive variation of 1,917 million pesos was mainly due to the 4.3% growth in same-store sales, driven
principally by product innovation at Domino’s Pizza and by the solid performance of Foster’s Hollywood in
Spain. At the end of the period there were a total of 344 corporate units and 155 sub-franchised units.
Adjusted EBITDA at Alsea Spain at the end of 2016 was 1,500 million pesos, in comparison with 1,082 million
pesos in 2015. EBITDA margin at year end 2016 showed a positive variation of 70 basis points over the same
period of the prior year. This increase is attributable to the growth in same-store sales, as well as to a drop in
the price of some inputs in comparison with 2015.
South America
Same-Store Sales
Number of Units
Sales
Adjusted EBITDA*
Adjusted EBITDA Margin*
2016
23.5%
481
$8,124
$1,228
15.1%
2015
25.5%
395
$6,718
$1,021
15.2%
Var.
% Var.
(200) pbs
86
$1,406
$207
(10) pbs
-
22%
21%
20%
-
* Adjusted EBITDA does not include administrative expenses,
thus it represents the “Store EBITDA.”
Sales at Alsea South America represented 22% of Alsea’s consolidated sales, and at year end 2016 included
Burger King operations in Argentina, Chile and Colombia, Domino's Pizza Colombia, Starbucks Argentina, Chile
and Colombia, Archie’s in Colombia and P.F. Chang’s in Chile, Argentina, Colombia and Brazil. At the end of the
period there were a total of 460 corporate units and 21 sub-franchised units. Sales in this segment increased
20.9% to 8,124 million pesos, in comparison with 6,718 million pesos in 2015. This positive variation of
1,406 million pesos was mainly due to the increase of 84 corporate units and 2 sub-franchised units, which
variation was partially offset by the devaluation of the Argentinean peso.
Adjusted EBITDA at Alsea South America at the end of full year 2016 increased by 20.2%, closing at 1,228
million pesos, in comparison with 1,021 million pesos in the same period in 2015. EBITDA margin at the close
of the year ended December 31, 2016 decreased 10 basis points over the same period of the prior year. This
reduction is partially attributable to the effect of the devaluation of the Argentinean currency, as well as to
the increase in rates of energy, water and gas services in Argentina. This variation was partially offset by the
economies of scale arising from the aforementioned increase in number of corporate units.
Non-operating results
All-In Cost of Financing
The all-in cost of financing of 2016 increased to 1,179 million pesos, compared with 859 million pesos
in the prior year. This variation is mainly attributable to the negative effect from the revaluation of the
liability related to the call and put options of the remaining 28.24% of Grupo Zena, due to depreciation of
the Mexican peso against the euro during the year, coupled with the increase interest paid net, which was
partially offset by the exchange rate gains reported in 2016.
Balance Sheet
During the twelve months ended December 31, 2016, Alsea made capital investments of 4,341 million pesos,
excluding the acquisition of Archie’s in Colombia and the 22 units of Domino’s Pizza in Mexico, of which 2,793
million pesos, equal to 64% of total investments, were earmarked for store openings, equipment refurbishing and
remodeling existing stores for the different Brands that the Company operates. The remaining 1,548 million pesos
were mainly earmarked for the acquisition of new corporate offices, replacement of equipment (maintenance
capex), improvement projects and the new Alsea’s Operations Center (“COA”), as well as to software licenses,
among other items.
Other Long-Term Liabilities
The Other Long-Term Liabilities account increased 396 million pesos, due to recognition of the liability related to the
call and put options that were agreed with Britania Investments, S.A.R.L. (“Alia”), the local partner of Grupo Zena, for
its entire stake in the company of 28.24%.
Bank Debt and Fixed-Rate Bonds
As of December 31, 2016, Alsea's total bank debt had increased by 2,607 million pesos, closing at 14,840
million pesos, in comparison with 12,233 million pesos on the same date of the previous year. The Company's
consolidated net debt in comparison with the fourth quarter of 2015 increased 1,255 million pesos, closing on
December 31, 2016 at 12,292 million pesos, in comparison with 11,038 million pesos.
As of December 31, 2016, 93% of the debt was long term, and on that same date 81% of the debt was
denominated in Mexican pesos, 15% was in euros, and the remaining 4% was in Argentinean and Chilean pesos.
The following table shows the balance of total debt in millions of pesos at December 31, 2016, as well as the
maturity dates for the subsequent years:
Balance
Maturities
4T 16 2017 % 2018 % 2019 % 2020 % 2021 % 2022 % 2023 % 2024 % 2025 %
$14,840 $1,107 7 $1,690 11 $2,774 19 $4,979 34 $2,769 19 $130 1 $174 1 $217 1 $1,000 7
Total
Debt
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The following table shows the balance and structure of total debt in millions of pesos at December 31, 2016.
I nst itut ion
Bank of America
Bank of America
Socotiabank
Bank of Tokyo
Scotiabank
Scotiabank
Scotiabank
Banamex
Santander
Bancomext
Bancomext
Bancomext
Cebur Alsea´15
Cebur Alsea´15
Argentina
Chile
Zena España
Tasa ref.
Spread
6.11%
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
TIIE 28 D
8.07%
25.0%
4.02%
1.89%
NA
1.19%
1.18%
0.95%
0.90%
0.80%
1.00%
0.75%
1.00%
1.32%
1.35%
1.35%
Bank Debt
1.10%
NA
Bond Debt
NA
NA
NA
Maturities
date
18-sep-19
31-ago-21
08-apr-19
24-jun-21
30-sep-19
07-jul-19
17-mar-21
02-jun-20
02-sep-21
14-nov-24
14-nov-24
14-nov-24
20-mar-20
14-mar-25
Dic 2016
1,000,000.00
1,884,000.00
589,429.17
996,078.00
269,516.94
700,000.00
398,607.14
430,769.67
796,266.76
500,496.25
150,551.66
215,351.56
7,931,067.15
2,988,845.00
1,000,000.00
3,988,845.00
562,217.85
83,696.00
31-dic-20
2,274,063.00
Total Latin America and Spain
2,919,976.85
Total Debt
14,839,889
Shares Repurchase Program
At year ended, Alsea closed with a balance of 4,299,526 shares in the repurchase fund. During the 12 months
ended December 31, 2016, the Company conducted purchase and sale operations amounting approximately
to 302 million pesos.
Financial Ratios
At December 31, 2016, the financial restrictions established in the Company’s credit contracts were as
follows: The ratio of: (i) Total Debt to EBITDA (last 12 months) was 2.9x; (ii) Net Debt to EBITDA (last 12
months) was 2.4x; and (iii) EBITDA (last 12 months) to interest paid over the last 12 months was 5.8x.
The Return on Net Invested Capital (“ROIC”)(2) increased from 9.3% to 10.9% during the 12 months ended
December 31, 2016. The Return on Equity (“ROE”)(3) for the 12 months ended December 31, 2016 was 11.7%,
in comparison with 10.4% in the same period of the prior year.
Key Information
Financial Indicators
EBITDA(1) / Interest Paid
Total Debt / EBITDA(1)
Net Debt / EBITDA(1)
ROIC(2)
ROE(3)
Adjusted ROE(4)
Stock Market Indicators
Book Value per Share
EPS (12 months)(5)
Shares in circulation at the close
of the period (millions)
Price per share at close
4Q 16
4Q 15
Variation
5.8 x
2.9 x
2.4 x
10.9%
11.7%
16.0%
$10.68
1.19
834.3
$59.33
6.1 x
2.8 x
2.6 x
9.3%
10.4%
11.6%
$10.68
1.17
837.5
$59.85
N.A.
N.A.
N.A.
160 bps
130 bps
439 bps
-
1.7%
(0.4)%
(0.9)%
(1) EBITDA pro forma for the last 12 months.
(2) ROIC is defined as operating income after taxes (last 12 months) by net operating investment (total
assets – cash and short-term investments – no-cost liabilities).
(Total assets – cash and temporary investments – non-interest-bearing liabilities).
(3) ROE is defined as net earnings (last 12 months) over shareholders' equity.
(4) Adjusted ROE excludes the effect of the liability related to the call and put options of the remaining
28.24% of Grupo Zena.
(5) EPS is earnings per share for the last 12 months.
Hedge Profile
The Finance Direction, joint with the Treasury Management, shall manage risks seeking to: mitigate present
and future risks; not deviate resources from the operation and the expansion plan and hold the certainty of
the Company’s future ows, along with a strategy regarding the debt’s cost. All instruments will only be used
for hedging purposes.
During 2015 hedge derivatives in foreign exchange matured for $204.5 million dollars, at an average
exchange rate of 18.21 pesos per dollar. This hedging resulted in an exchange rate pro t of $114.9 million
Mexican pesos. At December 31, 2016 Alsea holds hedges to purchase US dollars in the next 12 months for
an approximate amount of $98 million US dollars, at an average exchange rate of 19.21 pesos per dollar.
The foregoing is estimated at an average exchange rate of 20.75 pesos per dollar.
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Alsea, S.A.B. de C.V. and Subsidiaries
Independent Auditors’ Report and
Consolidated Financial Statements for
2016, 2015 and 2014
Contents
Page
Auditors' Report
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Other Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
92
98
100
101
102
104
106
Audited Financial
Statements
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Financial Statements for the Years Ended
December 31, 2016, 2015 and 2014, and Independent Auditors’
Report Dated March 28, 2017
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[G4-17] Independent Auditors' Report to the
Board of Directors and Stockholders of
Alsea, S.A.B. de C.V.
Opinion
Impairment of long-lived assets
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 as of December 31, 2016, 2015
and 2014, and the consolidated statements of income, consolidated statements of other comprehensive income,
consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows for the
years then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of Alsea, S.A.B. de C. V. and subsidiaries as of December 31, 2016, 2015 and 2014, and their
consolidated financial performance and their consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board.
Basis for Opinion
We conducted our audits in accordance with International Standards on Auditing (ISAs). Our responsibilities
under those standards are further described in the Auditors’ Responsibilities for the Audit of Consolidated
Financial Statements section of our report. We are independent of the Entity in accordance with the
International Ethics Standards Board for Accountants’ Code of Ethics for professional Accountants (IESBA
Code) and with the Ethics Code issued by the Mexican Institute of Public Accountants (IMCP Code), and we
have fulfilled our other ethical responsibilities in accordance with the IESBA Code and IMCP Code. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those which, according to our professional judgment, have the greatest significance
for our audit of the consolidated financial statements of the current period. They have been handled within
the context of our audit of the consolidated financial statements taken as a whole and the formation of our
opinion in this regard. Accordingly, we do not express a separate opinion on these matters. We have decided
that the issues described below constitute the key audit matters that must be included in our report.
The Entity has determined that the smallest cash generating units are its Brands. It has developed financial
and operating performance indicators for each of its stores and performs an annual study to identify
indications of impairment. If necessary, it also performs an impairment analysis according to IAS 36,
Impairment of Assets (“IAS 36”), in which discounted future cash flows are calculated to ascertain whether
the value of assets has become impaired. However, a risk exists whereby the assumptions utilized by
management to calculate future cash flows may not be fair based on current conditions and those prevailing
in the foreseeable future.
The audit procedures we applied to cover the risk of the impairment of long-lived assets include the following:
The application of internal control and substantive tests, in which we performed a detailed review of
projected income and expenses and, on this basis, discounted future cash flows. We also verified, according
to our knowledge of the business and historical audited information, the regularization of any nonrecurring
effect, so as to avoid considering these effects in the projections. We evaluated the fairness of the discount
rate utilized by management, for which purpose we requested support from our firm’s experts. The results
derived from the application of our audit tests were reasonable.
As discussed in Note 3j to the consolidated financial statements, the Entity has not identified impairment
effects which, at December 31, 2016, might have required adjustments to the values of long-lived assets.
Goodwill and other intangible assets
Given the importance of the goodwill balance and continued economic uncertainty, when necessary, it is
important to ensure that goodwill is adequately reviewed to identify potential impairment.
The determination as to whether the book value of goodwill is recoverable requires the Entity’s management
to make significant estimates regarding future cash flows, discount rates and growth based on its opinion
regarding future business perspectives.
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In our capacity as auditors, we have analyzed the assumptions utilized in the impairment model, specifically
including cash flow projections, discount rates and long-term rate growth. The key assumptions used to
estimate cash flows in the Entity’s impairment tests are those related to the growth of revenues and the
operating margin.
In relation to our audit of the consolidated financial statements, our responsibility involves reading the other
information and considering whether it is materially inconsistent with the consolidated financial statements, the
knowledge we obtained during the audit or whether it appears to contain material misstatement. If, based on
the work we perform, we conclude that the other information contains material misstatement, we would have to
report the situation. However, we have nothing to report in this regard.
Our fair value valuation specialists assisted us by preparing an independent evaluation of the discount rates
and methodology used to prepare the impairment testing model, together with the utilized market multiple
estimates. We also tested the completeness and accuracy of the impairment model.
Other matter
The results of our audit tests were reasonable and we agree that the utilized assumptions, including the
discount rate and the goodwill impairment amount recorded for the year, are appropriate.
Noncontrolling interest purchase option
As explained in Note 1i, in 2014 the Entity acquired Grupo Zena. As a result of this transaction, it is entitled to
acquire the noncontrolling interest held by other investors four years after the acquisition date. In conformity with
IAS 32, Financial instruments, the current value of the estimated debt that will be settled when the purchase
option is exercised according to contractual clauses must be recorded. The initial recognition of this debt must be
applied to a supplementary capital account; each year, its revaluation affects the result of the year.
The audit procedures we applied to cover the risk derived from the noncontrolling interest purchase option
included the following:
Review the determination of the current value of the estimated debt prepared by management; confirm that
this amount is correctly recorded in accounting so as to recognize the revaluation of the financial liability, and
review the disclosures included in Note 19 to the consolidated financial statements. The results of our audit
rests were reasonable.
Information other than the consolidated financial statements and auditors’ report
Management is responsible for the other information, which is composed by the data forming part of the annual
report, which includes the consolidated financial statements and our audit report.
Our opinion regarding the consolidated financial statements does not cover the other information and we do not
give any assurance in this regard.
The accompanying consolidated financial statements have been translated into English for the convenience
of readers.
Responsibilities of Management and Those Charged with Governance for the
Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the accompanying consolidated
financial statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Entity´s
ability to continue as a going concern, disclosing, as applicable, matters, related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity´s financial reporting process.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
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As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional
skepticism throughout the audit. We also:
• Identify and asses the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or override of
internal control.
• Obtain an understanding of internal control relevant to the audit 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.
We also provided the Entity’s corporate governance officers with a declaration to the effect that we have
fulfilled applicable ethical requirements regarding our independence and have reported all the relations and
other issues that could be reasonably be expected to affect our independence and, when applicable, the
respective safeguards.
The issues we have reported to the Entity’s governance officers include the matters that we consider to have
the greatest significance for the audit of the consolidated financial statements of the current period and which,
accordingly, are classified as key audit matters. We have described these matters in this audit report, unless
legal or regulatory provisions prevent them from being disclosed or, under extremely infrequent circumstances,
we conclude that a given matter should be excluded from our report because we can fairly expect that the
resulting adverse consequences will exceed any possible benefits as regards the public interest.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
• Conclude on the appropriateness of management´s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions
that may cast significant doubt on the Entity’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our auditors’ report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report.
However, future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
C.P.C. Francisco Torres Uruchurtu
Mexico City, Mexico
March 28, 2017
96 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 97
Notes
2016
2015
2014
Liabilities and stockholders’ equity
Notes
2016
2015
2014
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Financial Position
At December 31, 2016, 2015 and 2014
(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
6
7
8
9
$ 2,547,842
708,380
363,120
245,258
1,575,363
402,190
5,842,153
$ 1,195,814
639,943
205,453
264,910
1,377,981
322,386
4,006,487
$ 1,112,850
673,749
218,301
221,794
1,055,174
503,219
3,785,087
Long-term assets
Guarantee deposits
362,618
384,328
291,139
Investment in shares of associated companies
14
1,035,975
922,962
829,824
Store equipment, leasehold improvements
and property, net
10
13,673,445
11,137,776
10,021,037
Intangible assets, net
11 y 16
15,215,336
14,691,004
14,623,621
Deferred income taxes
20
Total long-term assets
2,068,996
32,356,370
1,710,943
28,847,013
1,320,881
27,086,502
Current liabilities
Current maturities of long-term debt
Current maturities of financial lease liabilities
Suppliers
Accounts payable and accrued liabilities
Accrued expenses and employee benefits
Income taxes
Taxes arising from tax consolidation
Total current liabilities
Long-term liabilities
Long-term debt, not including current maturities
Non-current financial lease liabilities
Obligation under put option of non-controlling
interest
Debt instruments
Other liabilities
Taxes arising from tax consolidation
Deferred income taxes
Employee retirement benefits
Total long-term liabilities
Total liabilities
Stockholders’ equity
Capital stock
Premium on share issue
Retained earnings
Reserve for repurchase of shares
Reserve for obligation under put option of
non-controlling interest
Other comprehensive income items
Stockholders' equity attributable to the
controlling interest
Non-controlling interest
Total stockholders’ equity
17
12
20
17
12
19
18
20
20
21
23
19 y 23
24
$ 1,107,238
6,799
3,901,972
909,156
2,531,885
289,484
22,946
8,769,480
$ 734,824
7,190
3,013,091
635,802
1,713,496
139,118
31,893
6,275,414
$ 1,377,157
7,878
2,694,015
601,854
1,292,606
232,780
38,983
6,245,273
9,743,806
300,835
3,185,096
3,988,845
67,524
18,846
1,887,473
109,166
19,301,591
28,071,071
476,599
8,625,720
3,123,193
320,231
(2,673,053)
(758,686)
9,114,004
1,013,448
10,127,452
5,018,722
307,140
2,777,328
6,479,795
73,272
39,755
1,925,337
108,586
16,729,935
23,005,349
478,203
8,613,587
2,748,469
517,629
7,370,666
314,342
2,673,053
2,491,356
69,035
70,093
1,944,053
102,545
15,035,143
21,280,416
478,271
8,613,587
2,187,327
531,406
(2,673,053)
(736,604)
(2,673,053)
(379,578)
8,948,231
899,920
9,848,151
8,757,960
833,213
9,591,173
Total assets
$ 38,198,523
$ 32,853,500
$ 30,871,589
Total liabilities and stockholders’ equity
$ 38,198,523
$ 32,853,500
$ 30,871,589
See accompanying notes to the consolidated financial statements.
98 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 99
Alsea, S.A.B. de C.V. and Subsidiaries
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2016, 2015 and 2014
(Figures in thousands of Mexican pesos)
Consolidated Statements of Other Comprehensive
Income
For the years ended December 31, 2016, 2015 and 2014
(Figures in thousands of Mexican pesos)
Note
2016
2015
2014
2016
2015
2014
Continuing operations
Net sales
Cost of sales
Leases
Depreciation and amortization
Other operating costs and expenses
Other expenses, net
Interest income
Interest expenses
Changes in the fair value of financial instruments
Exchange (gain) loss, net
Equity in results of associated companies
Income before income taxes
Income tax expense
Consolidated net income from
continuing operations
Discontinued operations:
Loss from discontinued operations - net of
26
27
28
29
19
14
20
$ 37,701,867
11,779,630
3,274,251
2,388,235
17,382,096
110,651
(37,060)
881,643
407,768
(73,193)
1,587,846
67,877
$ 32,288,376
10,149,276
2,851,083
1,947,897
14,930,621
55,666
(30,512)
710,901
104,275
74,202
1,494,967
27,703
$ 22,787,368
7,272,274
1,805,853
1,333,320
10,705,673
201,731
(33,257)
527,281
-
(562)
975,055
32,253
1,655,723
1,522,670
1,007,308
529,233
489,919
364,593
1,126,490
1,032,751
642,715
Consolidated net income
$ 1,126,490
$ 1,032,751
$ 624,094
Items that may be reclassified subsequently to
income:
Valuation of financial instruments, net of
income taxes
Exchange difference on translating foreign
operations, net of income taxes
(94,821)
(80,460)
(7,242)
72,739
(22,082)
(276,566)
(357,026)
(121,299)
(128,541)
Total comprehensive income, net of
income taxes
$ 1,104,408
$ 675,725
$ 495,553
Comprehensive income (loss) for the year
attributable to:
Controlling interest
$ 974,389
$ 624,189
$ 538,125
Non-controlling interest
$ 130,019
$ 51,536
$ (42,572)
income taxes
29
-
-
(18,621)
See accompanying notes to the consolidated financial statements.
Consolidated net income
$ 1,126,490
$ 1,032,751
$ 624,094
Net income for the year attributable to:
Controlling interest
$ 996,471
$ 981,215
$ 666,666
Non-controlling interest
$ 130,019
$ 51,536
$ (42,572)
Earnings per share:
Basic and diluted net earnings per share from
continuing and discontinued operations
(cents per share)
Basic and diluted net earnings per share from
25
$ 1.19
$ 1.17
$ 0.85
continuing operations (cents per share)
25
$ 1.19
$ 1.17
$ 0.87
See accompanying notes to the consolidated financial statements.
100 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 101
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Changes in
Stockholders’ Equity
For the years ended December 31, 2016, 2015 and 2014
(Figures in thousands of Mexican pesos)
Contributed capital
Retained earnings
Other comprehensive income items
Balances at January 1, 2014
Repurchase of shares (Note 23a)
Sales of shares (Note 23a)
Capital
stock
Premium on
issuance of
share
Repurchased
shares
$ 403,339
$ 2,037,390
$ -
-
-
-
-
(498)
20
Placement of shares, net of issuance expenses (Note 1c and 23a)
75,410
6,576,197
Business acquisitions and obligation under put option of non-controlling
(Note 19 and 24a)
Valuation adjustment (Note 2a)
Other movements (Note 24a)
Comprehensive income
Balances at December 31, 2014
Repurchase of shares (Note 23a)
Sales of shares (Note 23a)
Dividend paid
Business acquisitions and obligation under put option of non-controlling
(Note 24a)
Other movements
Comprehensive income
Balances at December 31, 2015
Repurchase of shares (Note 23a)
Sales of shares (Note 23a)
Dividend paid (Note 23a)
Effect of acquisition of business in associated entity
Business acquisitions and obligation under put option of
non-controlling
Other movements
Comprehensive income
-
-
-
-
-
-
-
-
478,749
8,613,587
-
-
-
-
-
-
-
-
-
-
-
-
478,749
8,613,587
-
-
-
-
-
-
-
12,133
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(478)
(965)
897
(546)
(1,995)
391
-
-
-
-
-
Valuation of
financial
instruments
Effect of
translation
of foreign
operations
Total
controlling
interest
Non-
controlling
interest
Total
stockholders’
equity
$ (251,037)
$ 4,271,427
$ 239,504
$ 4,510,931
Reserve for
obligation under
put option of
non-controlling
interest
-
-
-
-
(2,673,053)
-
-
-
Legal
reserve
Retained
earnings
$ 100,736
$ 1,411,728
-
-
-
-
-
-
-
-
-
-
-
-
8,197
666,666
(2,673,053)
100,736
2,086,591
-
-
-
-
-
-
-
-
-
-
-
-
-
(419,173)
(900)
-
981,215
Reserve for
repurchase
of shares
$ 569,271
(39,566)
1,701
-
-
-
-
-
531,406
(93,422)
79,645
-
-
-
-
517,629
(2,673,053)
100,736
2,647,733
-
-
-
-
-
-
-
-
-
-
-
-
-
(7,242)
(7,242)
(121,299)
(372,336)
-
-
-
-
-
-
-
-
-
-
(80,460)
(87,702)
(276,566)
(648,902)
(248,503)
51,105
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(644,771)
57,888
(34,761)
(103)
-
-
-
-
-
-
-
-
-
-
-
-
996,471
(94,821)
72,739
974,389
(40,064)
1,721
6,651,607
-
-
-
(40,064)
1,721
6,651,607
(2,673,053)
736,456
(1,936,597)
-
(101,520)
(101,520)
8,197
538,125
8,757,960
(94,387)
80,542
(419,173)
(900)
-
624,189
8,948,231
(250,498)
63,629
1,345
(42,572)
833,213
-
-
-
5,015
10,156
51,536
899,920
-
-
9,542
495,553
9,591,173
(94,387)
80,542
(419,173)
4,115
10,156
675,725
9,848,151
(250,498)
63,629
(644,771)
(45,178)
(689,949)
57,888
(34,761)
(103)
-
-
28,687
130,019
57,888
(34,761)
28,584
1,104,408
Balances at December 31, 2016
$ 478,749
$ 8,625,720
$ (2,150)
$ 320,231
$ (2,673,053)
$ 100,736
$ 3,022,457
$ (182,523)
$ (576,163)
$ 9,114,004
$ 1,013,448
$ 10,127,452
See accompanying notes to the consolidated financial statements.
102 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 103
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2016, 2015 and 2014
(Figures in thousands of Mexican pesos)
Note
2016
2015
2014
Note
2016
2015
2014
Operating activities:
Consolidated net income
Adjustment for:
Income taxes
Equity in results of associated companies
Interest expense
Interest income
Disposal of store equipment and property
Discontinued operations
Changes in the fair value of financial instruments
Depreciation and amortization
Changes in working capital
Customers
Other accounts receivable
Inventories
Advance payments
Suppliers
Accrued expenses and employee benefits
Income taxes paid
Other liabilities
Labor obligations
Discontinued operations
Net cash flows provided by operating
activities
10 y 11
$ 1,126,490
$ 1,032,751
$ 642,715
529,233
(67,877)
881,643
(37,060)
14,490
-
407,768
2,388,235
5,242,922
(16,072)
24,027
(145,375)
(38,902)
696,528
984,024
(967,746)
(55,514)
580
-
489,919
(27,703)
710,901
(30,512)
162,734
-
104,275
1,947,897
4,390,262
18,847
(48,207)
(352,815)
3,932
344,836
285,807
(818,934)
(93,336)
6,041
-
364,593
(32,253)
527,281
(33,257)
60,418
3,219
-
1,333,320
2,866,036
(188,430)
(23,803)
(159,470)
(270,678)
259,932
512,160
(384,787)
(240,515)
(5,240)
(21,840)
5,724,472
3,736,433
2,343,365
Cash flows from investing activities:
Interest collected
Store equipment, leasehold improvements
and property
Intangible assets
Acquisitions of business, net of cash acquired
Net cash flows used in investing activities
10
11
1 y 16
37,060
30,512
33,257
(4,048,244)
(550,998)
(293,027)
(4,855,209)
(2,984,818)
(411,472)
-
(3,365,778)
(1,996,173)
(393,984)
(9,816,311)
(12,173,211)
Cash flows from financing activities:
Bank loans
Repayments of loans
Repayments of financial leases
Issuance of debt instruments
Payments for debt instruments
Increase in capital stock from placement of shares,
22
5,820,156
(1,036,032)
(6,696)
1 and 18
-
(2,500,000)
net of premium and issuance expenses
23
-
Interest paid
Dividends paid
Payments for financial leasing
Acquisition of non-controlling interest
Other capital movements of associated companies
Repurchase of shares
Sales of shares
Net cash flows provided by (used in)
financing activities
4,272,000
(7,389,420)
(7,890)
4,000,000
-
-
(710,901)
(419,173)
-
(27,265)
-
(94,387)
80,542
12,230,892
(8,042,822)
(9,679)
-
-
6,651,607
(527,281)
-
-
-
-
(40,064)
1,721
(881,643)
(689,949)
(122,071)
-
23,127
(250,498)
63,629
420,023
(296,494)
10,264,374
Net increase in cash and cash equivalents
1,289,286
74,161
434,528
Exchange effects on value of cash
62,742
8,803
15,052
Cash and cash equivalents:
At the beginning of the year
1,195,814
1,112,850
663,270
At end of year
$2,547,842
$1,195,814
$1,112,850
See accompanying notes to the consolidated financial statements.
104 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 105
Alsea, S.A.B. de C.V. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2016, 2015 and 2014
(Figures in thousands of Mexican pesos)
1. Activity, main operations and significant events
Operations
Alsea, S.A.B. de C.V. and Subsidiaries (Alsea or the Entity) was incorporated as a variable income stock
company on May 16, 1997 in Mexico. The Entity's domicile is Av. Revolución 1267 Int. 20 and 21,
Col. Alpes, Delegación Álvaro Obregón, C.P. 01040, Mexico City, Mexico.
The Entity was incorporated for a period of 99 years, beginning on the date in which the deed was
signed, which was April 7, 1997.
For disclosure purposes in the notes to the consolidated financial statements, reference made to pesos,
"$" or MXP is for thousands of Mexican pesos, and reference made to dollars is for US dollars.
Alsea is mainly engaged in operating fast food Restaurants "QSR" cafes and casual dining "Casual
Dining". The Brands operated in Mexico are Domino’s Pizza, Starbucks, Burger King, Chili’s Grill &
Bar, California Pizza Kitchen, P.F. Chang’s, Italianni’s, The Cheese Cake Factory, VIPS and El Porton. 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 services, as well as administrative services (financial, human resources and technology).
The Entity operates the Burger King, P.F. Chang’s and Starbucks Brands in Chile and Argentina. In
Colombia, Alsea operates the Domino's Pizza, Burger King, Starbucks, P.F. Chang’s Brands and from
2016 it operates the Archie’s Brand. Starting in 2014, the P.F. Chang’s Brand operates in Brazil. And
starting October 2014, Alsea operates in Spain the Brands Foster's Hollywood, Cañas y Tapas, Il
Tempietto, La Vaca Argentina, Burger King and Domino's Pizza.
Significant events
b. Acquisition of Sub-franchisee assets of Domino's Pizza Mexico - On September 2, 2016,
Alsea concluded the acquisition of 100% of the assets of 22 Domino's Pizza stores from a sub-
franchisee who prior to this acquisition had exclusive rights to develop and operate the Brand in
certain areas of the State of Mexico, within the metropolitan area of Mexico City and the State
of Hidalgo. This purchase consisted of the acquisition of all the assets of the 22 units, as well as
the rights and obligations that derive from the sub-franchise agreements for the operation of
said establishments.
c. Signing of Chili's Development Contract in Chile - On June 7, 2016, Alsea signed an exclusive
development agreement to operate and develop Chili's Restaurants in Chile. With this new
development contract, Alsea agrees to have a minimum of 15 Chili's Restaurants operating in the
Andean country over a period of 10 years.
d. Acquisition of Archie's, S.A.S. In Colombia - On March 3, 2016, Alsea was the winner of
the asset divestment process of the Italian Restaurant chain Archie's Colombia, S.A.S. (Archie's),
Archies's is a 100% Colombian concept that has grown and developed its format to the measure
of the national market; the business was founded in 1993 and is the largest Restaurant chain of
Italian food in Colombia and one of the main chains of that country. Archies's currently operates
41 Restaurants in 7 of the main cities of Colombia, and has presence in the main shopping
centers of the country.
e. Placement of debt instruments - In March 2015, Alsea concluded the placement of debt
instruments worth $3,000,000, maturing in March 2020, and bear interest at the 28-day TIIE rate
(Mexican Interbank Offering rate) plus 1.10 percentage points; and other the placement of debt
instrument worth $1,000,000, maturing in March 2025, bearing interest at a fixed rate of 8.07%;
this placement received a rating of “A+” for local currency debt by Fitch Rating & HR Ratings.
f. Acquisition of the non-controlling interest of Grupo Amigos de San Angel - In July 2015,
Alsea completed the acquisition of the remaining 10.23% of Grupo Amigos de San Angel S.A.
de C.V. ("GASA"); the company owns 29 Italianni's units. Since February 2012, Alsea maintained
89.77% of the shares of GASA. (see effects in Note 24b).
a. Refinancing and pre-payment of debt certificates - On September 8, 2016, Alsea
g. Primary offering to subscribe and pay shares for the amount of $5,999,999 - In June
successfully concluded the refinancing of debt with costs in the amount of $2,500,000 and
$10,383 of accrued interest. As part of this transaction Alsea obtained two bilateral loans with
Bank of America, N.A. and Grupo Financiero Santander Mexico within five years for a total of
$2,684,000, resources to pay in advance the $2,500,000 of the debt instruments issued in
June 2013 maturing in June 2018, and the remaining $173.617 was used to capital investment
purposes as part of the store expansion program of the different Brands of the Entity's portfolio.
2014, Alsea made a share placement of $5,999,999 on the Mexican and international markets
(without considering an overallotment option for the total amount of $6,899,999). In Mexico, the
offering amount is up to $2,881,043, while the international offering amount is up to $3,118,956.
The global offering was made for 131,147,540 shares (without considering the overallotment
option of 150,819,671 shares); a total of 62,973,627 shares were placed in Mexico, together
with 68,173,913 shares on the international market. The placement price was $45.75 per share.
Issuance expenses of $248,392 were incurred to make the public offering.
106 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 107
h. 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. On April 30, 2014, the regulatory authorities approved the
transaction, becoming effective as of such date; Alsea consolidates the financial information
of VIPS since such date. (see effects in note 15). VIPS’ operations include a total of 360
Restaurants, of which 262 are of the "Vips" Brand, 90 are of the "El Portón" Brand, 6 are of the
"Ragazzi" Brand and two are of the "La Finca" Brand. Those operations also include: I) the rights
to intellectual property over the four Brands, menus, development of the product, operating
processes and other items; II) the acquisition of 18 real property assets; III) the buildings which
total 214 units; and IV) an administrative office dedicated to the standardization of products,
bulk purchases, the centralization of deliveries by suppliers and the production 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 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 in August 2013 and
the personnel were transferred 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 companies.
i. Acquisition of Grupo Zena - In October 2014, Alsea reached an agreement with the
Food Service Group, S.A. and Tuera 16, S.A., S.C.R., incorporated in Luxemburgo and Spain,
respectively, to acquire 71.76% of the capital stock of the entity Food Service Project, S.L.
(“FSP”), incorporated in Spain and which is denominated, together with its subsidiaries “Grupo
Zena”, and which is engaged in the operation of Restaurants of the Brands “Foster’s Hollywood”,
“Cañas y Tapas”, “Il Tempietto”, “La Vaca Argentina”, “Burger King” and “Domino’s Pizza”, for a
total of 107,445 Euros (equivalent to $1,934,023) (“Acquisition Price”). Alsea consolidates the
financial information of Grupo Zena beginning in October 2014, date in which the transaction was
formalized. (see effects in Note 15).
Grupo Zena’s operations include a total of 427 Restaurant, of which 195 are of the “Foster’s
Hollywood” Brand, 127 are of the “Domino’s Pizza” Brand, 60 are of the “Burger King” Brand,
13 are of the “La Vaca Argentina” Brand, 21 are of the “Cañas y Tapas” Brand and 11 are of the
“Il Tempietto” Brand. Also, Grupo Zena has given two subfranchises of the Domino’s Brand, 122
subfranchises of the Foster’s Hollywood Brand, 13 subfranchises of the Cañas y Tapas Brand, and
6 subfranchises of the Il Tempietto Brand to another parties.
2. Application of new and revised International Financial Reporting Standards
a. Application of new and revised International Financing Reporting Standards (“IFRSs”
or “IAS”) and interpretations that are mandatorily effective for the current year
In the current year, the Entity has applied a number of amendments to IFRSs and new
Interpretation issued by the International Accounting Standards Board (“IASB”) that are
mandatorily effective for an accounting period that begins on or after January 1, 2016.
Amendments to IAS 1, Disclosure Initiative
The amendments to IAS 1 give some guidance on how to apply the concept of materiality in practice.
The application of these amendments to IAS 1 did not have impacts on the Entity’s consolidated
financial statements.
Amendments to IFRS 11, Accounting for Acquisitions of Interests in Joint Operations
The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint
operation that constitutes a business as defined in IFRS 3, Business Combinations. Specifically,
the amendments state that the relevant principles on accounting for business combinations in
IFRS 3 and other standards (e.g. IAS 12, Income Taxes regarding the recognition of deferred taxes
at the time of acquisition and IAS 36, Impairment of Assets regarding impairment testing of a
cash-generating unit to which goodwill on acquisition of a joint operation has been allocated)
should be applied. The same requirements should be applied to the formation of a joint operation
if and only if an existing business is contributed to the joint operation by one of the parties that
participate in the joint operation.
A joint operator is also required to disclose the relevant information required by IFRS 3 and other
standards for business combinations.
The amendments are applied prospectively to acquisitions of interests in joint operations (in
which the activities of the joint operations constitute businesses as defined in IFRS 3) occurring
from the beginning of annual periods beginning on or after January 1, 2016.
The application of these amendments to IFRS 11 did not have an impact on the Entity’s
consolidated financial statements.
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Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation
and Amortization
Annual Improvements to IFRSs 2012-2014 Cycle
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method
for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable
presumption that revenue is not an appropriate basis for amortization of an intangible asset. This
presumption can only be rebutted in the following two limited circumstances:
a) When the intangible asset is expressed as a measure of revenue; or
b) When it can be demonstrated that revenue and consumption of the economic benefits of the
intangible asset are highly correlated.
The amendments apply prospectively for annual periods beginning on or after January 1, 2016.
Currently, the Entity uses the straight-line method for depreciation and amortization for its property,
plant and equipment, and intangible assets respectively. The management of the Entity believes that
the straight-line method is the most appropriate method to reflect the consumption of economic
benefits inherent in the respective assets and accordingly, the application of these amendments to
IAS 16 and IAS 38 did not have an impact on the Entity’s consolidated financial statements.
Amendments to IFRS 10 and IAS 28, Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution
of assets between an investor and its associate or joint venture. Specifically, the amendments
state that gains or losses resulting from the loss of control of a subsidiary that does not contain
a business in a transaction with an associate or a joint venture that is accounted for using the
equity method, are recognized in the parent’s profit or loss only to the extent of the unrelated
investors’ interests in that associate or joint venture.
Similarly, gains and losses resulting from the remeasurement of investments retained in any
former subsidiary (that has become an associate or a joint venture that is accounted for using the
equity method) to fair value are recognized in the former parent’s profit or loss only to the extent
of the unrelated investors’ interests in the new associate or joint venture.
The amendments should be applied prospectively to transactions occurring in annual periods
beginning on or after January 1, 2016.
The application of these amendments to IFRS 10 and IAS 28 may had no impact on the Entity’s
consolidated financial statements.
The Annual Improvements to IFRSs 2012-2014 Cycle include a number of amendments to various
IFRSs, which are summarised below.
The amendments to IFRS 5 introduce specific guidance in IFRS 5 for when an entity reclassifies an
asset (or disposal group) from held for sale to held for distribution to owners (or vice versa). The
amendments clarify that such a change should be considered as a continuation of the original plan of
disposal and hence requirements set out in IFRS 5 regarding the change of sale plan do not apply.
The amendments also clarifies the guidance for when held-for-distribution accounting is discontinued.
The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is
continuing involvement in a transferred asset for the purpose of the disclosures required in relation to
transferred assets.
The amendments to IAS 19, Employee Benefit, clarify that the rate used to discount post-
employment benefit obligations should be determined by reference to market yields at the end of
the reporting period on high quality corporate bonds. The assessment of the depth of a market for
high qualify corporate bonds should be at the currency level (i.e. the same currency as the benefits
are to be paid). For currencies for which there is no deep market in such high quality corporate
bonds, the market yields at the end of the reporting period on government bonds denominated in
that currency should be used instead.
The application of these amendments had no material effect on the Entity’s consolidated financial
statements.
b. New and revised IFRSs 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
IFRS 15
IFRS 16
Amendments to IAS 12
Amendments to IAS 7
Amendments to IFRS 2
Financial Instruments2
Revenue from Contracts with Customers2
Leases3
Income taxes1
Statements of Cash Flows1
Classification and measurement of share-based payments1
1 Effective for annual periods beginning on or after January 1, 2017, with earlier application
permitted.
² Effective for annual periods beginning on or after January 1, 2018, with earlier application
permitted.
³ Effective for annual periods beginning on or after January 1, 2019, with earlier application
permitted.
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The directors of the Entity do not anticipate that the application of these amendments will have a
material effect on the Entity’s consolidated financial statements, except for the application of IFRS
16, which is expected to have material effects on the consolidated financial statements.
Under IFRS 16 a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is
treated similarly to other non-financial assets and depreciated accordingly and the liability accrues
interest. This will typically produce a front-loaded expense profile (whereas operating leases under
IAS 17 would typically have had straight-line expenses) as an assumed linear depreciation of the
right-of-use asset and the decreasing interest on the liability will lead to an overall decrease of
expense over the reporting period.
The lease liability is initially measured at the present value of the lease payments payable over the
lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate
cannot be readily determined, the lessee shall use their incremental borrowing rate.
However, a lessee may elect to account for lease payments as an expense on a straight-line basis
over the lease term for leases with a lease term of 12 months or less and containing no purchase
options (this election is made by class of underlying asset); and leases where the underlying asset
has a low value when new, such as personal computers or small items of office furniture (this
election can be made on a lease-by-lease basis).
IFRS 16 establishes different transitional provisions, including retrospective application or the
modified retrospective application where the comparative period is not restated.
The Entity is in the process of determining the potential impacts that will derive from the adoption
of this standard in its consolidated financial statements, although given the nature of its operations
it would expect significant impacts.
3. Significant accounting policies
a. Statement of compliance
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) released by IASB.
b. Basis of preparation
The Entity's consolidated financial statements have been prepared on the historical cost basis,
except for certain financial instruments that are valued at fair value, as explained in further detail
within the significant accounting policies.
i.
Historical cost
Historical cost is generally based on the fair value of the consideration given in exchange
for goods and services.
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 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 payment transactions that are within the
scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements
that 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.
In addition, for financial reporting purposes, fair value measurements are categorized into
Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value measurement in its entirety,
which are described as follows:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date;
• 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.
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c. Basis of consolidation of financial statements
The consolidated financial statements incorporate the financial statements of the Entity and
entities controlled by the Entity and its subsidiaries. Control is obtained when the Entity:
• Has power over the investee;
• Is exposed, or has rights, to variable returns from its involvement with the investee; and
• Has the ability to use its power to affect its returns.
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 three elements of control listed above.
When the Entity has less than a majority of the voting rights of an investee, it has power over the
investee when the voting rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally.
The Entity considers all relevant facts and circumstances in assessing whether or not the Entity’s
voting rights in an investee are sufficient to give it power, including:
• The size of the Entity’s holding of voting rights relative to the size and dispersion of holdings
of the other vote holders;
• Potential voting rights held by the Entity, other vote holders or other parties;
• Rights arising from other contractual arrangements; and
• Any additional facts and circumstances that indicate that the Entity has, or does not have,
the current ability to direct the relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Entity obtains control over the subsidiary and
ceases when the Entity loses control of the subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated statements
of income and other comprehensive income from the date the Entity gains control until the date
when the Entity ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the
Entity and to the non-controlling 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.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Entity’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Entity are eliminated in full on consolidation.
Changes in the Entity’s ownership interests in existing subsidiaries
Changes in the Entity’s ownership interests in subsidiaries that do not result in the Entity losing
control over the subsidiaries are accounted for as equity transactions. The carrying amounts
of the Entity’s interests and the non-controlling interests are adjusted to reflect the changes
in 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 the Entity.
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 aggregate of the fair value of the consideration
received and the fair value of any retained interest and (ii) the previous carrying amount of the
assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognized in other 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 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 subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an
investment in an associate or a joint venture.
d. 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.
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e. 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 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.
1.
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.
Income is recognized on an effective interest basis for debt instruments other than those
financial assets classified as of FVTPL.
2.
Financial assets at FVTPL
Financial assets are classified as of FVTPL when the financial asset is (i) contingent
consideration that may be paid by an acquirer as part of a business combination to which
IFRS 3 applies, (ii) held for trading, or (iii) it is designated as of FVTPL
A financial asset is classified as held for trading if:
• It has been acquired principally for the purpose of selling it in the near term; or
• On initial recognition it is part of a portfolio of identified financial instruments that the
Entity manages together and has a recent actual 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.
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 income and expenses" in the consolidated statements 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 immaterial.
4.
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.
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For all other financial assets, objective evidence of impairment could include:
f.
Inventories and cost of sales
• Significant financial difficulty of the issuer or counterparty; or
• Breach of contract, such as a default or delinquency in interest or principal payments; or
• It becoming probable that the borrower will enter bankruptcy or financial re-
organization; or
• The disappearance of an active market for that financial asset because of financial
difficulties.
For certain categories of financial assets, such as trade receivables, assets are assessed for
impairment on a collective basis even if they were assessed not to be impaired individually.
Objective evidence of impairment for a portfolio of receivables could include the Entity’s
past experience of collecting payments, an increase in the number of delayed payments in
the portfolio past the average credit period of 15 days, as well as observable changes in
national or local economic conditions that correlate with default on receivables.
For financial assets carried at amortized cost, the amount of the impairment loss recognized
is the difference between the asset’s carrying amount and the present value of estimated
future cash flows, discounted at the financial asset’s original effective interest rate.
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.
Inventories are valued at the lower of cost or net realizable value. Costs of inventories are
determined using the average cost method. Net realizable value represents the estimated selling
price for inventories less all estimated cost of completion and costs necessary to make the sale.
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.
g. Store equipment, leasehold improvements and property
Store equipment, leasehold improvements and property are recorded at acquisition cost.
Depreciation of store equipment, leasehold improvements and property is calculated by the
straight line method, based on the useful lives estimated by the Entity's management. Annual
depreciation rates of the main groups of assets are as follows:
Buildings
Store equipment
Leasehold improvements
Transportation equipment
Computer equipment
Production equipment
Office furniture and equipment
Rates
5
5 to 30
7 to 20
25
30
10 to 20
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 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 costs
are recorded as an expense in the period as they are incurred.
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Buildings, furniture and equipment held under finance leases are depreciated based on their
estimated useful life as own assets. However, when there is no reasonable certainty that the
property is obtained at the end of the lease term, the assets are depreciated over the shorter of the
lease life and life period.
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 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 parts for other Brand stores.
h. Advance payments
Advance payments include advances for purchase of inventories, leasehold improvements and
services that are received in the twelve months subsequent to the date of the consolidated
statements of financial position and are incurred in the course of regular operations.
i.
Intangible assets
1.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from
goodwill are initially recognized at their fair value at the acquisition date (which is
regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are
reported at cost less accumulated amortization and accumulated impairment losses, on the
same basis as intangible assets that are acquired separately.
Brands owned by Alsea included under intangibles assets are the following:
Brand
Archie’s
Foster’s Hollywood
Cañas y Tapas
La Vaca Argentina
Il Tempietto
VIPS
El Portón
La Finca
Country
Colombia
Spain
Spain
Spain
Spain
Mexico
Mexico
Mexico
Own Brand
Own Brand
Own Brand
Own Brand
Own Brand
Own Brand
Own Brand
Own Brand
2.
Intangible assets acquired separately
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 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 are as follows:
Brands
Domino’s Pizza
Starbucks Coffee
Burger King
Chili’s Grill & Bar
California Pizza Kitchen
P.F. Chang’s
Country
Mexico
Colombia
Spain (3)
Mexico
Argentina
Colombia
Chile
Year of expiration
2025
2026
2019
2037
2027
2033
2027
Mexico, Argentina, Chile,
Colombia and Spain
Depending on opening
dates
Mexico
Colombia
Mexico
Mexico (2)
Argentina, Chile, Brazil,
Colombia (2)
2018
2026
2022
2019
2021
The Cheesecake Factory
Mexico and Chile (2)
Depending on opening
dates
Italianni’s
Mexico (1)
2031
(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 a 10 year extension.
(3) Term of 10 years with the right to an extension.
Domino’s Pizza Spain renew his contract in 2018, Burger King Spain is valid for 20 years.
The Entity has affirmative and negative covenants under the aforementioned agreements, the
most important of which are carrying out capital investments and opening establishments. At
December 31, 2016, 2015 and 2014, the Entity has fully complied with those obligations.
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Amortization of intangible assets is included in the depreciation and amortization accounts in
the consolidated statements of income.
An intangible asset is derecognized on disposal, or when no future economic benefits are
expected from use or disposal. Gains or losses arising 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.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-
generating unit) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the asset (or cash generating unit) in prior years.
A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant
asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated
as a revaluation increase.
j.
Impairment in the value of long-lived assets, equipment, leasehold improvements,
properties, and other intangible assets
k. Business combinations
At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated 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 basis
of allocation can be identified, corporate assets are also allocated to individual cash-generating
units, or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested
for impairment at least annually, and whenever there is an indication that the asset may be impaired.
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 discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the
relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a
revaluation decrease. The Entity performs impairment test annually to identify any indication.
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured 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 Entity to
the former owners of the acquire and the equity interests issued by the Entity in exchange for control
of the acquire. Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at
their fair value, except that:
• Deferred tax assets or liabilities, and assets or liabilities related to employee benefit
arrangements are recognized and measured in accordance with IAS 12, Income Taxes and IAS
19, respectively;
• Liabilities or equity instruments related to share-based payment arrangements of the acquire
or share-based payment arrangements of the Entity entered into to replace share-based
payment arrangements of the acquire are measured in accordance with IFRS 2, Share-based
Payments at the acquisition date;
• Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, Non-
current Assets Held for Sale and Discontinued Operations are measured in accordance with
that standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquire, 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 identifiable assets
acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts
of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquire and the fair value of the
acquirer’s previously held interest in the acquire (if any), the excess is recognized immediately in
profit or loss as a bargain purchase gain.
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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
amounts of the acquirer’s identifiable net assets. The choice of measurement basis is made on
a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair
value or, when applicable, on the basis specified in another IFRS.
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
information obtained during the ‘measurement period’ (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do
not qualify as measurement period adjustments depends on how the contingent consideration is
classified. Contingent consideration that is classified as equity is not remeasured at subsequent
reporting dates and its subsequent settlement is accounted for within equity. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting
dates in accordance with IAS 39, or IAS 37, Provisions, Contingent Liabilities and Contingent
Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss.
When a business combination is achieved in stages, the Entity’s previously held equity interest in
the acquire is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is
recognized in profit or loss. Amounts arising from interests in the acquire prior to the acquisition
date that have previously been recognized in other comprehensive income are reclassified to
profit or loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting
period in which the combination occurs, the Entity reports provisional amounts for the items for
which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see above), or
additional assets or liabilities are recognized, to reflect new information obtained about facts
and circumstances that existed at the acquisition date that, if known, would have affected the
amounts recognized at that date.
l. Goodwill
Goodwill arising from an acquisition of a business is carried at cost as established at the date of
acquisition of the business less accumulated impairment losses, if any.
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 synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually,
or more frequently when there is an indication 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
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 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.
m. Investment in shares of associated companies and joint venture
An associate is an entity over which the Entity has significant influence. Significant influence is
the power to participate in the financial and operating policies decisions of the investee, but is not
control or joint control over those policies.
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 activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or joint ventures are incorporated in these
consolidated financial statements using the 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
in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations.
Under the equity method, an investment in an associate or a joint venture is initially recognized
in the consolidated statements of financial position at cost and adjusted thereafter to recognize
the Entity’s share of the profit or loss and other comprehensive 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
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the extent that the Entity has incurred legal or constructive obligations or made payments on
behalf of the associate or joint venture. When the Entity´s share of losses of an associate or
join 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.
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.
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 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 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 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 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 or loss previously recognized in other
comprehensive income by that associate or joint venture would be reclassified to profit or loss on
the disposal of the related assets or liabilities, the Entity reclassifies the gain or loss from equity
to profit or loss (as a reclassification adjustment) when the equity method is discontinued.
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.
When a group entity transacts with an associate or a joint venture of the Entity, profits and losses
resulting from the transactions with the associate or joint venture are recognized in the Entity’s
consolidated financial statements only to the extent of interests in the associate or joint venture
that are not related to the Entity.
n. Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of the Entity at their fair value
at the inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the consolidated statements of financial position
as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
expenses are recognized immediately in profit or loss.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
Lessors of leased properties require deposits equivalent guarantee of 1 to 2 months’ rent. The
deposits are classified as noncurrent.
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o. Foreign currency transactions
In order to consolidate the financial statements of foreign operations carried out independently from
the Entity (located in Argentina, Chile, Colombia, Brazil and Spain), which comprise 42%, 38% and 27%
of consolidated net income and 25%, 22% and 23% of the total consolidated assets at December 31,
2016, 2015 and 2014, respectively, companies apply the policies followed by the Entity.
The financial statements of consolidating foreign operations are converted to the reporting currency
by initially identifying whether or not the functional and recording currency of foreign operations is
different, and subsequently converting the functional currency to the reporting currency. The functional
currency is equal to recording currency of foreign operations, but different to the reporting currency.
In order to convert the financial statements of subsidiaries resident abroad from the functional
currency to the reporting currency at the reporting date, the following steps are carried out:
• Assets and liabilities, both monetary and non-monetary, are converted at the closing exchange
rates in effect at the reporting date of each consolidated statements of financial position.
• Income, cost and expense items of the consolidated statements of income are converted
at the average exchange rates for the period, unless those exchange rates will fluctuate
significantly over the year, in which case operations are converted at the exchange rates
prevailing at the date on which the related operations were carried out.
• All conversion differences are recognized as a separate component under stockholders’ equity
and form part of other comprehensive income items.
p. Employee benefits
Remeasurement recognized in other comprehensive income is reflected immediately in retained
earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or
loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at
the beginning of the period to the net defined benefit liability or asset.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer
withdraw the offer of the termination benefit and when the entity recognizes any related
restructuring costs.
Short-term employee benefits
A liability is recognized for benefits accruing to employees in respect of wages and salaries,
annual leave and sick leave in the period the related service is rendered at the undiscounted
amount of the benefits expected to be paid in exchange for that service.
Liabilities recognized in respect of short-term employee benefits are measured at the
undiscounted amount of the benefits expected to be paid in exchange for the related service.
Statutory employee profit sharing
As result of the PTU is recorded in the results of the year in which it is incurred and is presented
in other expenses and other income.
As result of the 2014 Income Tax Law, as of December 31, 2016, 2015 and 2014, PTU is
determined based on taxable income, according to Section I of Article 9 of the that Law.
Retirement benefits costs from termination benefits
q.
Income taxes
Payments to defined contribution retirement benefit plans are recognized as an expense when
employees have rendered service entitling them to the contributions.
For defined benefit retirement benefit plans, the cost of providing benefits is determined using
the projected unit credit method, with actuarial valuations being carried out at the end of each
annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the
changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is
reflected immediately in the statement of financial position with a charge or credit recognized in
other comprehensive income in the period in which they occur.
The income tax expense represents the sum of the tax currently payable and deferred tax.
1.
Current tax
Current income tax (ISR) is recognized in the results of the year in which is incurred.
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2.
Deferred income tax
3.
Current and deferred tax for the year
Deferred tax is recognized on temporary differences between the carrying amounts of
assets and liabilities in the consolidated financial statements and the corresponding tax
bases used in the computation of taxable profit. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets are generally
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 arises from the initial recognition (other than in a business combination)
of assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognized for taxable temporary differences associated with
investments in subsidiaries and associates, and 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 with such investments and
interests are only recognized to the extent that it is probable that there will be sufficient
taxable profits against which to utilize the benefits of the temporary differences and they
are expected to reverse in the foreseeable future.
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 probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
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 the asset realized, based on tax rates (and tax
laws) that have been enacted or substantively enacted by the end of the reporting period.
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.
Current and deferred tax are recognized in profit or loss, except when they relate to items that
are recognized in other comprehensive 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 in the accounting for the business combination.
4.
Tax on assets
The tax on assets (“IMPAC” for its name in Spanish) expected to be recoverable is recorded as
a tax credit and is presented in the consolidated balance sheet in the deferred taxes line item.
r. Provisions
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 Entity will have to settle the obligation and it is
possible to prepare a reliable estimation of the total amount.
The amount recognized as a provision is the best estimate of the consideration required to settle the
present obligation at the end of the reporting period, taking into account the risks and uncertainties
surrounding the obligation. When a provision is measured using the cash flows estimated to settle
the present obligation, its carrying amount is the present value of those cash flow.
When some or all of the economic benefits required to settle a provision are expected to be
recovered by a third party, a receivable is recognized as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
Provisions are classified as current or non-current based on the estimated period of time
estimated for settling the related obligations.
Contingent liabilities acquired as part of a business combination
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.
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s. Financial liabilities and equity instruments
1.
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.
2.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial
liabilities’.
3.
Other financial liabilities
Other financial liabilities (including borrowings and trade and other payables) are
subsequently measured at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial
liability and of allocating interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments (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
financial liability, or (where appropriate) a shorter period, to the net carrying amount on
initial recognition.
t. 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.
Embedded derivatives: The Entity reviews all signed contracts to identify the existence of
embedded derivatives. Identified embedded derivatives are subject to evaluation to determine
whether or not they comply with the provisions of the applicable regulations; if so, they are
separated from the host contract and are valued at fair value. If an embedded derivative is classified
as trading instruments, changes in their fair value are recognized in income for the period.
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 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 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.
Strategy for contracting DFI's: Every month, the Corporate Finance Director's office must
define the price levels at which the Corporate Treasury must operate the different hedging
instruments. Under no circumstances should amounts above the monthly resource requirements
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
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 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 amounts above the limits authorized by the Entity's General
Management be operated, in order to ensure that operations are always for hedging and not for
speculation purposes. The foregoing is applicable to interest rates with respect to the amount of
debt contracted at 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 following working day, specifying the Entity's
resource requirements for the period and the percentage covered by the Administration and
Financial Manager. Every month, the Corporate Treasury Manager will provide the Accounting
department with the necessary documentation to properly record such operations. The
Administration and Finance Director will submit to the Corporate Practices Committee a quarterly
report on the balance of positions taken.
The actions to be taken in the event that the identified risks associated with exchange rate and
interest rate fluctuations materialize, are 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.
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Main terms and conditions of the agreements: Operations with DFI's are carried out under
a master agreement on an ISDA (International Swap Dealers Association) form, which must be
standardized and duly formalized by the legal representatives of the Entity and the financial institutions.
Margins, collateral and credit line policies: In certain cases, the Entity and the financial
institutions have signed an agreement enclosed to 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.
Polices for designating calculation and valuation agents: The fair value of DFIs is
reviewed monthly. 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.
Likewise, as established in the master agreements (ISDA) that cover derivative financial
operations, the respective calculations and valuations are presented in the quarterly report. The
designated calculation agents are the corresponding counterparties. Nevertheless, the Entity
validates all calculations and valuations received by each counterparty.
The Entity has the policy of monitoring the volume of operations contracted with each institution,
in order to avoid as much as possible margin calls and diversify its counterparty risks.
u. Revenue recognition
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.
Markets and counterparties: Derivative financial instruments are contracted in the local
market under the over the counter (OTC) mode. Following are the financial entities that are
eligible to close operations in relation to the Entity's risk management: BBVA Bancomer S.A.,
Banco Santander, S. A., Barclays Bank México S. A., UBS AG Actinver Casa De Bolsa, Banorte-
Ixe, BTG Pactual, Citi, Credit Suisse, Grupo Bursátil Mexicano GBM Casa De Bolsa, HSBC Global
Research, Interacciones Casa de Bolsa, Intercam Casa de Bolsa, Invex, Itau BBA, Monex Casa de
Bolsa, UBS Investment Research, Grupo Financiero BX+, and Vector Casa de Bolsa.
The Corporate Financial Director is empowered to select other participants, provided that they are
regulated institutions authorized to carry out this type of operations, and that they can offer the
guarantees required by the Entity.
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 consolidated statements of income,
except if those derivative instruments have been formally designated as and they meet the
requirements to be considered hedge instruments associated to a hedge relation.
Income generated from ordinary operations is recorded to the extent that future economic
benefits are likely to flow into the Entity and income can be measured reliably, irrespective
of the moment in which payment is made. Income is measured based on the fair value of the
consideration received or receivable, bearing in mind the payment conditions specified in the
respective agreement, without including taxes or tariffs.
Sale of goods
Revenues from the sale of food and beverages are recognized when they are delivered to and/or
consumed by customers.
Provision of services
Revenues from services are recognized given the stage of completion, which is generally when the
services have been rendered and 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.
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4. Critical accounting judgments and key sources for estimating uncertainties
In the application of the Entity's accounting policies, which are described in Note 3, the Entity’s
management is required to make certain judgments, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other sources. The estimates and
assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
Estimations and assumptions are reviewed on a regular basis. Changes to the accounting estimations are
recognized in the period in which changes are made, or in future periods if the changes affect the current
period and other subsequent periods.
a. Critical judgments for applying the accounting policies
There are critical judgments, apart from those involving estimations, that the Entity’s
management has made in the process of applying the Entity´s accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statements.
Control over Food Service Project, S.L. (Grupo Zena) and obligation under put option of non-
controlling interest
Note 1 and 15 indicates that Grupo Zena is a 71.76% owned subsidiary of Alsea. Based on the
contractual agreements executed between the Entity and other investors, Alsea is empowered to
appoint or remove the majority of the members of the board of directors, executive commission
and management positions of Grupo Zena, which manage the relevant activities of Grupo Zena.
Consequently, the Entity’s management concluded that Alsea has the capacity to manage the
relevant activities of Grupo Zena and therefore has control over it.
Similarly, Alsea has the obligation under the put option to acquire the non-controlling interest of
the other investors (purchase option). This purchase option can be exercised four years after the
acquisition date of Grupo Zena. Alsea’s management has calculated the financial liability derived
from the contractual requirements in effect at the purchase option date, as well as the current
value of the financial liability according to the requirements of IAS 32, Financial Instruments.
Details of this liability can be consulted in Note 19.
Control over Operadora de Franquicias Alsea, S.A. de C.V. (OFA)
Note 15 indicates that OFA is an 80% owned subsidiary of the Entity. 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 OFA and therefore it has control over OFA.
Certain significant decisions, including the following are subject to the unanimous consent of the
two stockholders: 1) the approval or modification of the budget of the year, and 2) changes to the
development schedule, which do not modify the Entity’s control over the subsidiary, as established
in the master franchise contract.
b. Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
1.
Impairment of long-lived assets
The Entity annually evaluates whether or not there is indication of impairment in long-lived
assets and calculates the recoverable amount 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 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.
2.
Useful life of store equipment, leasehold improvements and property
Fixed assets acquired separately are recognized at cost less accumulated depreciation
and amortization and accrued losses for impairment. 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 prospectively.
3.
Income tax valuation
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 requires the Entity to prepare significant estimates related to the possibility of
generating future taxable income. Future taxable income 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 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.
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Additionally, future changes in Mexico's tax laws could limit the capacity to obtain tax
deductions in future periods.
4.
Intangible assets
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.
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 inputs for fair value measurements.
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 qualified external appraiser to establish the appropriate valuation techniques and
inputs to the model.
Every three months, the Financial Director reports the findings of the valuation committee
to the Entity's board of directors to explain the causes of fluctuations in the fair 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 Note 22 i.
6.
Contingencies
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.
5. Non-monetary transactions
During 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 consolidated statements of cash flows:
a. During October 2015, Alsea acquired 71.76% of the capital stock of Food Service Project, S.L. (“FSP”),
incorporated in Spain, and which, together with its subsidiaries, is denominated “Grupo Zena”. Under
the terms of this transaction, in this transaction an option to purchase and sale was recorded in
accordance with IAS 32, Financial Instruments: Presentation, is established (see Note 19).
b. During 2014, the Entity acquired 82% of Starbucks Coffee Chile, S.A. (Starbucks Chile) and
formalized the mergers of OFA and Burger King Mexicana, S.A de C.V. ("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 BKW is 20%. The breakdown of those acquisitions and the consideration paid
in shares and assumed liabilities are shown in Note 15.
6. Cash and cash equivalents
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 consolidated statements of financial position and the consolidated statements
of cash flows at December 31, 2016, 2015 and 2014 is comprised as follows:
2016
2015
2014
Cash
$ 1,878,770
$ 632,628
$ 589,565
Investments with original maturities of
under three months
669,072
563,186
523,285
Total cash and cash equivalents
$ 2,547,842
$ 1,195,814
$ 1,112,850
The Entity maintains its cash and cash equivalents with accepted financial entities and it has not
historically experienced losses due to credit risk concentration.
138 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 139
7. Customers
The accounts receivable from customers disclosed in the consolidated statements of financial position
are classified as loans and accounts receivable and therefore they are valued at their amortized cost.
At December 31, 2016, 2015 and 2014, the customer balance is comprised as follows:
Franchises
Credit card
Other
2016
2015
2014
$ 315,864
$ 332,485
$ 359,008
105,115
419,059
840,038
163,584
261,971
758,040
188,456
233,084
780,548
Allowance for doubtful accounts (1)
(131,658)
(118,097)
(106,799)
$ 708,380
$ 639,943
$ 673,749
(1) The estimates presented in the consolidated statements of financial position refer to the
balances of doubtful accounts aged more than 90 days involving franchisees. The estimates
recognized mainly for the concept are $131,658, $118,097, $118,097 and $106,799 in 2016,
2015 and 2014, respectively. These estimates plus certain guarantees cover the overdue amount.
The recognized impairment represents the difference between the book values of these customer
account receivables and the current value of the resources expected from their settlement. The
Entity does not hold any collateral for these balances.
The average credit term for the sale of food, beverages, containers, packaging, royalties and other
items to owners of sub-franchises is from 8-30 days. Starting from the day next dates of the
contractual maturity are generated interests on the defeated balance at moment of settlement. The
rate comprises the Mexican Interbank Equilibrium Rate (TIIE) plus 5 points and is multiplied by 2.
8.
Inventories
At December 31, 2016, 2015 and 2014, inventories are as follows:
Food and beverages
Containers and packaging
Other (1)
Obsolescence allowance
2016
2015
2014
$ 1,383,029
$ 1,083,807
$ 836,993
55,001
145,237
(7,904)
84,235
214,983
(5,044)
78,966
145,850
(6,635)
Total
$ 1,575,363
$ 1,377,981
$ 1,055,174
(1) Concepts are o.
(2) Ftoys, uniforms, cleaning utensils, kitchen appliances and souvenirs.
Inventories recognized under cost of sales for inventory consumption in the period related to
continuous operations totaled $11,779,630, $10,149,276 and $7,277,438 for the years ended
December 31, 2016, 2015 and 2014, respectively. The balances in 2015 and 2014 do not include
information from discontinued operations, referred to in Note 29.
9. Advance payments
Following is the aging of past due but unimpaired accounts receivable:
Advance payments were made for the acquisition of:
15-60 days
60-90 days
More than 90 days
2016
2015
2014
$ 29,052
$ 43,648
$ 28,739
6,126
129,561
9,230
95,161
11,443
97,270
Total
$ 164,739
$ 148,039
$ 137,452
Average time overdue (days)
93
60
65
The concentration of credit risk is limited because the balance is composed of franchisees which are
supported or controlled by a service contract and / or master franchise; likewise consists of balances
with from financial institutions cards, which are recovered within from 15 days.
2016
2015
2014
Insurance and other services
$ 287,426
$ 220,783
$ 267,635
Inventories
Lease of locales
80,529
34,235
62,249
39,354
202,051
33,533
Total
$ 402,190
$ 322,386
$ 503,219
140 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 141
10. Store equipment, leasehold improvements and property
a. Store equipment, leasehold improvements and properties are as follows:
Buildings
Store equipment
Leasehold
improvements
Capital lease
Transportation
equipment
Computer
equipment
Production
equipment
Office furniture
and equipment
Construction in
process
Total
Cost
Balance at January 1, 2014
Acquisitions
Business acquisition
Disposals
Adjustment for currency conversion
$ 299,165
65,708
432,266
-
-
$ 2,555,560
746,674
1,069,050
(239,161)
(22,828)
$ 3,796,577
659,201
1,965,702
(134,656)
(96,367)
$ -
-
321,351
(32,923)
-
Balance as of December 31, 2014
Acquisitions
Disposals
Adjustment for currency conversion
Balance as of December 31, 2015
Acquisitions
Business acquisition
Disposals
Adjustment for currency conversion
797,139
14,783
-
(5,617)
806,305
13,795
37,360
(1,712)
11,545
4,109,295
1,153,047
(183,125)
(58,817)
5,020,400
1,198,304
28,963
(182,068)
260,565
6,190,457
1,239,062
(335,952)
(98,739)
6,994,828
1,481,780
26,726
(289,267)
463,430
288,428
-
-
-
288,428
-
-
-
-
$ 113,331
36,228
42,120
(18,912)
(740)
$ 439,991
74,360
57,281
(13,098)
(6,279)
$ 780,667
72,332
97,969
(8,588)
(1,930)
$ 105,625
107,857
72,672
(3,720)
(5,019)
$ 588,818
233,813
325,936
-
(3,288)
$ 8,679,734
1,996,173
4,384,347
(451,058)
(136,451)
172,027
41,315
(23,113)
(1,826)
188,403
55,179
113
(38,362)
8,306
552,255
205,232
(23,962)
(4,945)
728,580
157,539
554
(55,780)
50,196
940,450
41,196
(5,903)
(1,076)
974,667
14,795
-
-
(11)
277,415
36,161
(163)
(4,649)
308,764
33,612
14,039
(17,656)
37,004
1,145,279
254,022
-
(11,976)
1,387,325
1,093,240
-
-
26,442
14,472,745
2,984,818
(572,218)
(187,645)
16,697,700
4,048,244
107,755
(584,845)
857,477
Balance as of December 31, 2016
$ 867,293
$ 6,326,164
$ 8,677,497
$ 288,428
$ 213,639
$ 881,089
$ 989,451
$ 375,763
$ 2,507,007
$ 21,126,331
Depreciation
Balance at January 1, 2014
Charge for depreciation for the year
Adjustment for currency conversion
Disposals
Balance as of December 31, 2014
Charge for depreciation for the year
Adjustment for currency conversion
Disposals
Balance as of December 31, 2015
Charge for depreciation for the year
Adjustment for currency conversion
Disposals
$ 77,023
7,848
-
-
84,871
8,743
-
-
93,614
4,115
904
-
$ 1,137,365
400,780
(15,678)
(98,798)
$ 1,830,817
399,389
(22,622)
(247,797)
1,423,669
633,620
(22,824)
(141,946)
1,892,519
783,655
156,143
(148,666)
1,959,787
727,164
(42,948)
(229,691)
2,414,312
958,511
229,462
(286,532)
$ -
11,031
-
(16,212)
(5,181)
14,708
-
-
9,527
13,061
-
-
$ 71,196
29,075
(444)
(13,933)
$ 273,200
72,539
(5,504)
(11,537)
$ 479,700
48,654
(1,496)
(4,327)
$ 46,036
9,560
(3,737)
(420)
$ -
-
-
-
$ 3,915,337
978,876
(49,481)
(393,024)
85,894
33,161
(1,094)
(20,106)
97,855
35,639
3,240
(36,610)
328,698
112,523
(3,406)
(22,056)
415,759
142,494
38,240
(57,654)
522,531
45,595
(1,490)
(2,421)
564,215
23,946
23
(737)
51,439
20,827
3
(146)
72,123
28,253
22,497
(17,022)
-
-
-
-
-
-
-
-
4,451,708
1,596,341
(71,759)
(416,366)
5,559,924
1,989,674
450,509
(547,221)
Balance as of December 31, 2016
$ 98,633
$ 2,683,651
$ 3,315,753
$ 22,588
$ 100,124
$ 538,839
$ 587,447
$ 105,851
$ -
$ 7,452,886
Net cost
Balance as of December 31, 2014
Balance as of December 31, 2015
Balance as of December 31, 2016
$ 712,268
$ 712,691
$ 768,660
$ 2,685,626
$ 3,127,881
$ 3,642,513
$ 4,230,670
$ 4,580,516
$ 5,361,744
$ 293,609
$ 278,901
$ 265,840
$ 86,133
$ 90,548
$ 113,515
$ 223,557
$ 312,821
$ 342,250
$ 417,919
$ 410,452
$ 402,004
$ 225,976
$ 236,641
$ 269,912
$ 1,145,279
$ 1,387,325
$ 2,507,007
$ 10,021,037
$ 11,137,776
$ 13,673,445
142 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 143
11. Intangible assets
a.
Intangible assets are comprised as follows:
Cost
Balance at January 1, 2014
Acquisitions
Business acquisition
Adjustment for currency conversion
Valuation adjustment (note 2a)
Disposals
Balance as of December 31, 2014
Acquisitions
Adjustment for currency conversion
Disposals
Balance as of December 31, 2015
Acquisitions
Business acquisition
Adjustment for currency conversion
Disposals
Brand rights
$ 2,134,298
94,824
782,103
8,986
4,795,642
(2,598)
7,813,255
94,601
15,359
(9,313)
7,913,902
201,442
245,156
90,006
(4,503)
Commissions for store
opening
$ 381,133
243
-
-
-
143
(2,875)
378,644
603
(1,031)
(8,227)
369,989
6,829
14,810
(7,060)
Franchise and use of locale
rights
$ 701,620
158,933
16,241
2,577
-
-
(4,241)
875,130
173,013
(6,574)
(5,219)
1,036,350
139,489
5,519
(2,785)
Licenses and developments
$ 452,182
77,308
38,072
5,258
-
Goodwill
$ 1,254,476
62,676
9,016,715
42,175
(3,494,777)
(359)
572,461
143,255
(841)
(275)
714,600
203,238
-
38,493
(1,835)
6,881,265
6,881,265
-
-
-
-
-
-
-
-
Total
$ 4,923,709
393,984
9,853,131
59,139
1,300,865
(10,073)
16,520,755
411,472
6,913
(23,034)
16,916,106
550,998
245,156
148,828
(16,183)
Balance as of December 31, 2016
$ 8,446,003
$ 384,568
$ 1,178,573
$ 954,496
$ 6,881,265
$ 17,844,905
Amortization
Balance at January 1, 2014
Amortization
Adjustment for currency conversion
Disposals
Balance as of December 31, 2014 as adjusted
Amortization
Adjustment for currency conversion
Disposals
Balance as of December 31, 2015
Amortization
Adjustment for currency conversion
Disposals
$ 599,217
206,596
6,514
(1,312)
$ 369,846
3,800
114
(2,634)
$ 217,806
65,861
7
(3,692)
$ 333,844
78,187
6,078
(51)
$ 16,953
-
-
-
$ 1,537,666
354,444
12,713
(7,689)
811,015
128,657
(593)
(3,880)
935,199
173,917
10,144
(37,901)
371,126
9,693
(3,243)
(10,472)
367,104
8,571
12,887
(7,390)
279,982
95,598
(3,243)
(1,732)
370,605
77,295
515
(3,477)
418,058
117,608
(357)
(68)
535,241
138,778
34,738
(3,610)
16,953
16,953
-
-
-
-
-
-
1,897,134
351,556
(7,436)
(16,152)
2,225,102
398,561
58,284
(52,378)
Balance as of December 31, 2016
$ 1,081,359
$ 381,172
$ 444,938
$ 705,147
$ 16,953
$ 2,629,569
Net cost
Balance as of December 31, 2014
Balance as of December 31, 2015
Balance as of December 31, 2016
144 Alsea | 2016 ANNUAL REPORT
$ 7,002,240
$ 6,978,703
$ 7,364,644
$ 7,518
$ 2,885
$ 3,396
$ 595,148
$ 665,745
$ 733,635
$ 154,403
$ 179,359
$ 249,349
$ 6,864,312
$ 6,864,312
$ 6,864,312
$ 14,623,621
$ 14,691,004
$ 15,215,336
2016 ANNUAL REPORT | Alsea 145
12. Operating lease agreements
a. Operating leases
The real estate housing the majority of the stores of Alsea are leased from third parties. In general
terms, lease agreements signed for the operations of the Entity's establishments are for a term
of between five and ten years, with fixed rates set in pesos. Lease payments are generally revised
annually and they increase on the basis of inflation. Alsea considers that it 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.
The amounts of the lease payments derived from the operating leases related to the premises
where the stores of the different Alsea brands are located are presented below.
Rental expense derived from operating lease agreements related to the real estate housing the
stores of the different Alsea Brands are as follows:
Rental expense
$ 3,274,251
$ 2,851,083
$ 1,805,853
2016
2015
2014
b. Commitments non-cancellable operating leases
Less than a year
Between one and five years
2016
2015
2014
$ 1,924,672
$ 1,744,166
$ 1,533,805
8,662,305
7,833,383
6,888,298
c. Financial lease liabilities
From 2014, the Entity has entered into leases that qualify as finance in the VIPS Brand, which
are recorded at present value of minimum lease payments or the market value of the property,
whichever is less, and are amortized over the period of the lease renewals considering them.
Future minimum lease payments and the present value of the minimum lease payments are
summarized below:
No more than one year
$ 32,398
$ 32,789
$ 33,723
Minimum payments of leases
2016
2015
2014
More than one year and not more
than five years
More than five years
97,195
536,997
666,590
97,195
566,261
696,245
162,569
533,685
729,977
Less future finance charges
(358,956)
(381,915)
(407,757)
Minimum lease payments
$ 307,634
$ 314,330
$ 322,220
No more than one year
$ 6,799
$ 7,190
$ 7,878
Present value of minimum payments of leases
2016
2015
2014
More than one year and not more
than five years
More than five years
Present value of minimum lease
20,398
280,437
20,398
286,742
33,651
280,691
payments
$ 307,634
$ 314,330
$ 322,220
2016
2015
2014
Included in the consolidated
financial statements as:
Short-term financial liability
$ 6,799
$ 7,190
$ 7,878
Long-term financial liability
300,835
307,140
314,342
$ 307,634
$ 314,330
$ 322,220
146 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 147
13. Investment in subsidiaries
a. The Entity's shareholding in the capital stock of its main subsidiaries is as follows:
Name of Subsidiary
Panadería y Alimentos para Food
Service, S.A. de C.V.
Café Sirena, S. de R.L de C.V.
Operadora de Franquicias Alsea,
Principal activity
2016
2015
2014
14. Investment in shares of associated companies
Distribution of Alsea Brand foods
Operator of the Starbucks Brand in Mexico
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
Investment in the non-controlling interest of Blue Stripes Chile
S.A. de C.V.
Operator of the Burger King Brand in Mexico
80.00% 80.00% 80.00%
Operadora y Procesadora
de Productos de Panificación,
S.A. de C.V.
Gastrosur, S.A. de C.V.
Fast Food Sudamericana, S.A.
Fast Food Chile, S.A.
Starbucks Coffee Argentina, S.R.L
Dominalco, S.A.
Servicios Múltiples
Empresariales ACD S.A. de C.V.
SOFOM E.N.R
Asian Bistro Colombia, S.A.S
Asian Bistro Argentina, S.R.L.
Operadora Alsea en Colombia, S.A.
Asian Food Ltda.
Grupo Calpik, S.A.P.I. de C.V.
Operator of the Domino's Pizza Brand in Mexico
Operator of the Chili’s Grill & Bar Brand in Mexico
Operator of the Burger King Brand in Argentina
Operator of the Burger King Brand in Chile
Operator of the Starbucks Brand in Argentina
Operator of the Domino’s Pizza Brand in Colombia
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
93.30% 93.25% 95.00%
Operator of Factoring and Financial Leasing
in Mexico
Operator of the P.F. Chang's Brand in Colombia
Operator of the P.F. Chang's Brand in Argentina
Operator of the Burger King Brand in Colombia
Operator of the P.F. Chang's Brand in Chile
Operator of the California Pizza Kitchen
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
94.94% 94.91% 95.00%
100.00% 100.00% 100.00%
Especialista en Restaurantes de
Operator of the P.F. Chang's Chang´s and
Comida Estilo Asiática, S.A. de C.V.
Pei Wei in Mexico
100.00% 100.00% 100.00%
Brand in Mexico
100.00% 100.00% 100.00%
Distribuidora e Importadora Alsea,
Distributor of foods and production materials
S.A. de C.V.
for the Alsea and related Brands
Operator of Italianni's Brand
Italcafe, S.A. de C.V.
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. (1) Operator of Italianni's Brand
Starbucks Coffee Chile, S.A.
Distribuidora e Importadora Alsea
Operator of the Starbucks Brand in Chile
Distributor of food and supplies for Alsea
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 89.77%
100.00% 100.00% 100.00%
100.00% 100.00%
100.00% 100.00% 100.00%
-
Brands in Colombia
Colombia, S.A.S.
Estrella Andina, S.A.S.
Operadora Vips, S. de R.L. de C.V.
OPQR, S.A de C.V.
Food Service Project, S.L (Grupo Zena) Operator of Spain
Gastrococina Sur, S.P.A.
Gastronomía Italiana en Colombia S.A.S. Operator of Archie´s Brand in Colombia
Operator of the Starbucks Brand in Colombia
Operator of Vips Brand
Operator Brand Cheesecake Factory in Mexico
Operator of Chili’s Grill & Bar Brand in Chile
100.00% 100.00% 100.00%
70.00% 70.00% 70.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
71.76% 71.76% 71.76%
-
-
100.00%
100.00%
-
-
During May 2015, Alsea reached an agreement to contribute 33% of the capital stock of Blue Stripes
Chile, entity incorporated in Chile. Initial contribution by Alsea amounted to $6,477, recognized in the
consolidated statements of financial position as investment in shares of associated companies. The
remaining 67% was contributed by Grupo Axo, associated company. In accordance with the bylaws,
Alsea will not have control over such operation.
Investment in the non-controlling interest of Stripes Chile
During August 2014, Alsea reached an agreement to contribute 33% of the capital stock of Stripes
Chile, entity incorporated in Chile. Initial contribution by Alsea amounted to $4,041, recognized in the
consolidated statements of financial position as investment in associated companies. The remaining
64% was contributed by Grupo Axo, associated company. In accordance with the bylaws, Alsea will not
have control over such operation.
At December 31, 2016, 2015 and 2014, the investment in shares of associated companies is
comprised of the Entity's direct interest in the capital stock of the companies listed below:
(%)
2015
2016
2014
Main operations
12/31/2016
12/31/2015
12/31/2015
Interest in associated company
Grupo Axo,
S.A.P.I. de
C.V. (2) (4) 25.00% 25.00% 25.00%
Sales of prestigious
Brands of clothes
and accessories in
Mexico
Sales of prestigious
Brands of clothes
and accessories in
Chile
Sales of prestigious
33.33% 33.33%
-
33.33% 33.33% 33.33%
brands of clothes and
accessories in Chile
Blue Stripes
Chile SPA
(1)
Stripes
Chile SPA
(3)
Total
$ 995,596
$ 892,169
$ 826,067
9,717
6,511
-
30,662
24,282
3,757
$1,035,975
$ 922,962
$ 829,824
(1) On December 18, 2015, the Extraordinary General Shareholders' Meeting approved the merger
between Amigos de Perisur, S.A. de C.V. (APE) as a merged company and the entity Amigos de Torreón,
S.A. de C.V. as merging entity, assuming the latter, all the rights and obligations of APE. This merger
had effects between the parties as of December 31, 2015.
148 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 149
Equity in results
Blue Stripes Chile SPA
(%)
2015
2016
Grupo Axo,
S.A.P.I. de
C.V.
Blue Stripes
Chile SPA
(1)
Stripes
2014
Main operations
12/31/2016
12/31/2015
12/31/2015
25.00% 25.00% 25.00%
Sales of prestigious
Brands of clothes and
accessories in Mexico $ 65,989
$ 27,396
$ 32,663
33.33% 33.33%
-
Chile SPA 33.33% 33.33% 33.33%
Total
Sales of prestigious
Brands of clothes and
accessories in Chile
Sales of prestigious
Brands of clothes and
accessories in Chile
1,506
2
-
382
305
(410)
$ 67,877
$ 27,703
$ 32,253
(1) Stripes Chile SPA is a direct subsidiary of Grupo Axo together with another subsidiary of the Entity.
(2) In 2015 and 2014, contributions were made to increase the capital in Grupo Axo, by $38,706 and
$4,739, respectively.
(3) In 2015, the contribution to the capital increase of $20,935 in Stripes Chile made.
(4) In 2016, Grupo Axo presents movements in its stockholders' equity resulting from the acquisition
of businesses, the option to purchase unincorporated interests in associates and hedging financial
instruments for $37,438, which are presented in the Consolidated Statement of Changes in
Stockholders’ Equity.
Stripes Chile SPA
Total assets, liabilities, equity and profit and losses of the associated entity are as follows:
Current assets
Non-current assets
Current liabilities
2016
2015
2014
$ 70,058
$ 43,621
$ 15,609
$ 60,025
$ 55,315
$ 4,731
$ 38,088
$ 26,081
$ 9,068
Income
$ 132,312
$ 85,486
$ 10,764
Net profit (loss) for the period
$ 1,146
$ 915
$ (1,230)
2016
2015
01/08/2014 to
31/12/2014
Total assets, liabilities, equity and profit and losses of the associated entity are as follows:
Current assets
Non-current assets
Current liabilities
2016
2015
$ 40,512
$ 16,478
$ 33,548
$ 9,531
$ 44,906
$ 6,475
Income
$ 63,642
$ 11,904
Net profit for the period
$ 4,518
$ 5
2016
01/06/2015 to
31/12/2015
Grupo Axo, S.A.P.I. de C.V.
The associated company's total assets, liabilities and equity and its results are as follows:
Current assets
Non-current assets
Current liabilities
2016
2015
2014
$ 3,656,612
$ 2,380,902
$ 1,551,287
$ 3,182,682
$ 3,169,338
$ 1,276,883
$ 2,168,965
$ 1,733,052
$ 752,650
Non-current liabilities
$ 2,927,493
$ 2,488,060
$ 1,010,797
Revenues
$ 6,144,101
$ 4,504,291
$ 2,531,914
Net profit for the period
$ 263,956
$ 109,584
$ 130,654
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 entity
$ 1,742,836
$ 1,329,128
$ 1,064,723
2016
2015
2014
Entity's interest in Grupo Axo
$ 435,709
$ 332,282
$ 266,180
Plus: goodwill
559,887
559,887
559,887
Carrying value of the Entity's
interest in Grupo Axo
$ 995,596
$ 892,169
$ 826,067
150 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 151
15. Business combination
Acquisition of Grupo Zena
The following transactions classify as a business combination and have been recognized by utilizing
the purchase method as of the acquisition date based on the following steps:
i.
ii.
iii.
Recognize and value the assets, liabilities and non-controlling interest.
In a business combination performed by stages, the buyer revalues its equity in the
acquired entity prior to the acquisition date at face value to recognize the resulting profit
or loss, as the case may be in results.
Identify intangible assets and determine goodwill.
Acquisition of Archie´s
In April 2016, the acquisition of 100% of Archie's (described in Note 1) was completed, the
final price of the consideration paid for the acquisition was $51,275,000,000 Colombian pesos
(equivalent to $293,027), in an agreement between Alsea e Inversiones Vesubio Colombia, SAS
(Formerly Archie's Colombia, S.A.S.).
Below is an analysis of the preliminary allocation of the acquisition cost over the fair values of
the net assets acquired and that are in the measurement stage. Since it is in the measurement
period, which is estimated to be completed in April 2017, the preliminary amounts below are
subject to change:
Concept
March 2016
Current assets:
Inventories
Non-current assets:
Store equipment and leasehold improvements
Intangible assets
Current liabilities:
Accounts payable to suppliers and other accounts
Taxes to pay
Fair value of net assets
Total consideration paid
Goodwill
$ 10,197
107,755
245,156
(68,764)
(1,317)
293,027
293,027
$ -
From the date of acquisition until December 31, 2016, Archie's contributed $332,652 to sales and
($15,688) to net income.
In October 2014, the process to acquire of Food Service Group, S.A. and Tuera 16, S.A., S.C.R.,
entities resident in Luxembourg and Spain, respectively, was concluded. The acquisition involved
71.76% of the common stock of the company denominated as Food Service Project, S.L.
(“FSP”), an entity incorporated according to the laws of Spain and which, in conjunction with its
subsidiaries, is known as “Grupo Zena”.
The acquisition amount was $102,872 thousand Euros, payable in cash (equal to $1,794,245).
The acquisition does not consider any contingent payment. The transaction establishes an
obligation under put option involving 28.24% of common stock four years after the acquisition
date, which was recorded according to IAS 32, Financial Instruments: Presentation (Note 19).
In October 2015, the acquisition measurement period concluded. An analysis of the assignment of
the acquisition cost based on the fair values of the acquired net assets at the acquisition date is
presented below. Certain interim accounting changes were made to the acquisition at that date,
as detailed below:
Concept
Current assets:
Cash and cash equivalents
Preliminary
book entry
Adjustment for
valuation
Fair
value
$ 89,287
$ -
$ 89,287
Accounts receivable and other accounts receivable
245,968
-
245,968
Non-current assets:
Store equipment, leasehold improvements
and property, net
Intangible assets
Reassigning Goodwill included in Grupo Zena
Deferred income taxes
Current liabilities:
1,231,979
261,998
1,493,977
470,473
1,222,642
1,693,115
1,313,786
174,859
(1,313,786)
-
-
174,859
Suppliers and other accounts payable
(1,279,228)
-
(1,279,228)
Non-current liabilities:
Deferred income taxes
Long-term debt
Other long-term liabilities
Fair value of net assets
Considerations paid in cash
Fair value of non-controlling interest
Total consideration paid
-
(445,393)
(445,393)
(1,845,132)
(165,459)
236,533
1,794,245
706,098
2,500,343
-
-
(274,540)
-
(101,521)
(101,521)
(1,845,132)
(165,459)
(38,007)
1,794,245
604,577
2,398,822
Goodwill
$ 2,263,810
$ 173,018
$ 2,436,829
152 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 153
Goodwill arising from the acquisition of Grupo Zena derives from the price paid, which includes
amounts in relation to the benefits of operating 427 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. 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, 2014, Grupo Zena has contributed
$1,468,036 to revenues and $118,487 to the profit for the period. If the acquisition had occurred
at beginning of year, Alsea's consolidated net profit for the period, according to IFRS, would have
been $496,005 and revenues would have been $26,464,123. Acquisition expenses related to this
transaction amounted to $12,096, which is shown within other expenses.
None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.
Net cash flows related to the acquisition of the subsidiary total $1,704,958, corresponding to
the consideration paid in cash of $1,794,245, less cash and cash and cash equivalent balances
acquired in the amount of $89,287.
Acquisition of VIPS
In April 2014, the process to acquire 100% of the equity of VIPS (the Restaurant division of Grupo
Wal-Mart, described in Note 1) was concluded. Based on the agreement executed between Alsea
and Wal-Mart de México, S.A.B. de C.V., the final acquisition price was $8,200,000. Additional
expenses of $516,753 were incurred by the parties, thereby resulting in a total price of $8,716,753.
The acquisition does not consider any contingent payment.
In March 2015, the acquisition measurement period concluded. An analysis of the assignment of
the acquisition cost based on the fair values of the acquired net assets at the acquisition date is
presented below. Certain interim accounting changes were made to the acquisition at that date,
as detailed below:
Concept
Current assets:
Preliminary
book entry
Adjustment
for valuation
Fair
Value
Cash and cash equivalents
$ 605,400
$ ,-
$ 605,400
Accounts receivable and other accounts receivable
304,964
-
304,964
Non-current assets:
Store equipment, leasehold improvements
and property, net
Intangible assets
Deferred income taxes
Current liabilities:
2,935,630
(45,260)
2,890,370
365,944
201,845
3,573,000
3,938,944
16,427
218,272
Accrued expenses and employee benefits
(700,918)
(22,872)
(723,790)
Non-current liabilities:
Deferred income taxes
Other long-term liabilities
Fair value of net assets
-
(1,209,453)
(1,209,453)
(366,651)
3,346,214
-
-
2,311,842
5,658,056
Considerations paid in cash
8,716,753
-
8,716,753
Goodwill
$ 5,370,539
$(2,311,842)
$ 3,058,697
Goodwill arising from the acquisition of VIPS derives from the price paid, which includes amounts
in relation to the benefits of operating 360 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.
Those benefits are recognized separately in goodwill because they fail to meet the recognition
criteria for identifiable intangible assets. None of the goodwill arising on these acquisitions is
expected to be deductible for tax purposes.
Net cash flows related to the acquisition of the subsidiary total $8,111,353, corresponding to
the consideration paid in cash of $8,716,753, less cash and cash and cash equivalent balances
acquired for $605,400.
As from the acquisition date and until December 31, 2014, VIPS has contributed $4,016,325
to consolidated revenues and $111,628 to the profit before income taxes for the period. If the
acquisition had occurred at beginning of year, Alsea's consolidated net profit for the period would
have been $683,119 and revenues would have been $24,723,880. Acquisition expenses related to
this transaction amounted to $9,357, which is shown within other expenses.
154 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 155
Acquisition of the controlling interest in Starbucks Coffee Chile
In September 2013, Alsea acquired 82% of Starbucks Coffee Chile, S.A. (Starbucks Chile), which
operates the Starbucks Restaurants in Chile. Through this transaction, the shareholding and voting
rights of Alsea increased from 18% to 100%, thus allowing the Entity to acquire control, while
constituting a business combination recorded by means of the purchase method according to IFRS.
In August 2014, the acquisition measurement period concluded. An analysis of the assignment of
the acquisition cost based on the fair values of the acquired net assets at the acquisition date is
presented below. Certain interim accounting changes were made to the acquisition at that date,
as detailed below:
Concept
Current assets
Preliminary
book entry
Adjustment for
valuation
Fair
value
Cash and cash equivalents
$ 128,656
$ -
$ 128,656
Accounts receivable and other accounts
receivable
Non-current assets:
Store equipment, leasehold improvements
and property, net
Intangible assets
Deferred income taxes
Current liabilities:
89,427
-
89,427
141,993
21,758
163,751
6,132
-
558,180
(173,981)
564,312
(173,981)
Suppliers and other accounts payable
(88,683)
Non-current liabilities:
Other long-term liabilities
Fair value of net assets
Fair value of non-controlling interest
Consideration paid in cash
Total consideration paid
(13,124)
264,401
47,593
928,595
976,188
-
-
405,957
62,683
-
(88,683)
(13,124)
670,358
110,276
928,595
62,683
1,038,871
Goodwill
$ 711,787
$ (343,274)
$ 368,513
Goodwill arising from the acquisition of Starbucks Coffee Chile derives from the price paid,
which included amounts in relation to the benefits 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 because they fail to meet the
recognition criteria for identifiable intangible assets.
As from the acquisition date, Starbucks Chile has contributed $231,131 to consolidated
revenues and $32,772 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
$694,362 and revenues would have been $16,087,950. Acquisition expenses related to this
transaction amounted to $1,028, which is shown under other expenses.
Net cash flows related to the acquisition of the subsidiary total $799,939, corresponding to
the consideration paid in cash of $928,595, less cash and cash and cash equivalent balances
acquired for $128,656.
Acquisition of Burger King Mexicana
In April 2013, the acquisition of the BURGER KING® master franchise in Mexico concluded.
According to the strategic association agreement 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 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%.
Given that the operation was considered the acquisition of is business, the related acquisition
accounting was applied as of the acquisition date and according to IFRS. The acquisition price
did not include any contingent consideration.
156 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 157
283,531
131,697
415,228
Assignment of goodwill to cash generating units
In April 2014, the acquisition measurement period concluded. An analysis of the assignment of
the acquisition cost based on the fair values of the acquired net assets at the acquisition date is
presented below. Certain interim accounting changes were made to the acquisition at that date,
as detailed below:
Concept
Current assets
Preliminary
book entry
Adjustment for
valuation
Fair
value
Cash and cash equivalents
$ 47,828
$ -
$ 47,828
Accounts receivable and other accounts receivable
58,300
Non-current assets:
Store equipment, leasehold improvements
and property, net
Intangible assets
Deferred income taxes
Non-current liabilities:
Other long-term liabilities
Fair value of net assets
Consideration paid in actions
Consideration paid in cash
Total consideration paid
25,843
62,803
(73,547)
404,758
217,534
333,895
551,429
92,116
(67,144)
(26,847)
129,822
7,629
-
7,629
117,959
(4,341)
(100,394)
534,580
225,163
333,895
559,058
Goodwill
$ 146,671
$ ,(122,193)
$ 24,478
The consideration paid in OFA shares, which is in the measurement phase, totals $225,163 and
comprises 20% of its stockholders’ equity.
Goodwill arising from the acquisition of Burger King Mexicana derives from the price paid, which included
amounts related to the benefits of 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 of the Burger King Brand in Mexico. Those benefits are recognized separately in goodwill
because they fail to meet the recognition criteria for identifiable intangible assets.
During 2013, as from the acquisition date, Burger King Mexicana 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, 2014, Alsea's consolidated net profit for the period would have been $647,842 and revenues would
have been $15,893,611. Acquisition expenses related to this transaction amounted to $1,101, which is
shown under other expenses.
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 and cash and cash equivalents balances acquired
totaling $47,828.
16. Goodwill
In order to carry out impairment tests, goodwill was assigned to the following cash generating units:
Burger King
Domino’s Pizza
Chili’s
Italianni’s
VIPS
Starbucks Coffee
Foster’s Hollywood
La Vaca Argentina
Il Tempietto
Cañas y Tapas
2016
2015
2014
$ 1,336,967
$ 1,336,967
$ 1,336,967
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
6,838
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
6,838
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
6,838
$ 6,864,312
$ 6,864,312
$ 6,864,312
At December 31, 2016, 2015 and 2014, studies performed on impairment testing concluded that
goodwill shows no signs of impairment.
158 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 159
17. Long-term debt
Long-term debt at December 31, 2016, 2015 and 2014 is comprised of unsecured loans, as shown below:
Bank
Type of credit
Currency
Rate
Maturity
2016
2015
2014
Sindicado
Simple credit
Euros
1.89% (Fixed rate)
Scotiabank Inverlat, S.A.
Simple credit
Mexican pesos
7.08% (Variable rate TIIE +0.97% )
Bank of América
Bank of América
Bank of Tokyo
Banco Nacional de Comercio
Exterior S.N.C. (Bancomext)
Simple credit
Mexican pesos
7.30% (Variable rate TIIE +1.19% )
Simple credit
Mexican pesos
6.11% (Fixed rate)
Simple credit
Mexican pesos
7.06% (Variable rate TIIE +1.35% )
Simple credit
Mexican pesos
7.45% (Variable rate TIIE +1.34% )
Banco Santander, S.A.
Simple credit
Mexican pesos
7.11% (Variable rate TIIE +1.00% )
Banamex
Simple credit
Mexican pesos
6.86% (Variable rate TIIE +0.75% )
Banco Citibank Argentina
Simple credit
Mexican pesos
BBVA Francés
Banco HSBC, S.A.
Simple credit
Mexican pesos
Simple credit
Mexican pesos
Santander Chile, S.A.
Simple credit
Mexican pesos
27% (Fixed rate)
22% (Fixed rate)
24.5% (Fixed rate)
4.02% (Fixed rate)
Helm Bank USA
Simple credit
Mexican pesos
12.29% (Variable rate DTF +5.30%)
BBVA Bancomer, S.A.
Simple credit
Mexican pesos
4.57% (Variable rate TIIE +1.25% )
Banco Nacional de México, S.A.
Simple credit
Mexican pesos
5.07% (Variable rate TIIE +1.75% )
Scotiabank Inverlat, S.A.
Simple credit
Mexican pesos
4.50% (Variable rate TIIE +1.18% )
Banco Nacional de México, S.A.
Simple credit
Mexican pesos
4.82% (Variable rate TIIE +1.50% )
BBVA Bancomer, S.A.
BBVA Bancomer, S.A.
Simple credit
Mexican pesos
4.82% (Variable rate TIIE +1.50% )
Simple credit
Mexican pesos
4.82% (Variable rate TIIE +1.50% )
Banco Santander (México), S.A.,
Simple credit
Mexican pesos
3,93% (Fixed rate)
Banco Santander (México), S.A.,
Simple credit
Mexican pesos
4.22% (Variable rate TIIE +0.90% )
Banco Nacional de México, S.A.
Simple credit
Mexican pesos
4.82% (Variable rate TIIE +1.50% )
Banco Santander (México), S.A.,
Simple credit
Mexican pesos
3.98% (Fixed rate)
Less – current portion
Long-term debt maturities
2020
2019
2021
2019
2021
2024
2021
2020
2016
2016
2017
2017
2020
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
$ 2,274,063
$ 2,027,154
$ 2,088,334
1,957,553
1,884,000
1,000,000
996,078
866,400
796,267
430,770
303,355
146,200
97,740
83,696
14,922
-
-
-
-
-
-
-
-
-
-
2,032,790
-
1,000,000
574,063
47,974
1,788
-
69,777
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,851,044
(1,107,238)
5,753,546
(734,824)
-
-
-
-
-
-
-
-
-
48,533
3,829
1,741,580
1,276,533
1,013,775
705,484
604,666
588,032
300,000
205,721
89,336
82,000
8,747,823
(1,377,157)
$ 9,743,806
$ 5,018,722
$ 7,370,666
160 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 161
Annual long-term debt maturities at December 31, 2016 are as follows:
Year
2018
2019
2020-2024
Amount
$ 919,605
2,815,815
6,008,386
$ 9,743,806
19. Obligation over put option
As mentioned in Note 1i, the Entity acquired Grupo Zena; Alsea has the obligation over put option to
purchase the non-controlling interest of the other investors (call option) starting in the fourth year since
the date of acquisition. The amount represents the present value of the estimated debt that will be paid
at the time of exercising the put option under the terms of the contract. The liability will be updated each
year until the option date, and the effects will be recognized in the consolidated statements of income,
as stated by IAS 32, Financial instruments: Presentation. The financial liability of the put option amounts
to $3,185,096, $2,777,328 and $2,673,053, at December 31, 2016, 2015 and 2014, respectively.
The revaluation of this option as of December 31, 2016, generated a loss in results by $407,768 and
$104,275, respectively and is included in ‘Changes in the fair value of financial instruments’ in the
consolidated statements of income.
Bank loans include certain affirmative and negative covenants, such as maintaining certain financial
ratios. At December 31, 2016, 2015 and 2014, all such obligations have been duly met.
20. Income taxes
18. Debt instruments
In September 2016, the Entity made an advance payment for $ 2,500,400, considering accrued
interest, of the stock certificate issued in 2013.
In March 2015, Alsea placed of debt instruments worth $3,000,000 over 5 years as from the issuance
date, maturing in March 2020. Those instruments will accrue interest at the 28-day TIIE rate plus 1.10
percentage points; and other debt instrument worth $1,000,000 over 10 years as from the issue date,
maturing in March 2016. Those instruments will accrue interest at a fixed rate of 8.07%.
The balance at December 31, 2016, 2015 and 2014 amounts to $3,988,845, $6,479,795 y $2,491,356,
respectively.
Year
2019
2025
Amount
$ 2,988,845
1,000,000
$ 3,988,845
The income tax rate in Mexico is 30%. The Entity incurred ISR on a consolidated basis until 2016 with
its Mexican subsidiaries. As a result of the 2013 Tax Law, the tax consolidation regime was eliminated,
and the Entity and its subsidiaries have the obligation to pay the deferred income tax benefit
calculated as of that date over a five-year period beginning in 2014, as illustrated below.
Pursuant to Transitory Article 9, section XV, subsection d) of the 2015 Tax Law, given that as of
December 31, 2014, 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 ISR law published
in the Federal Official Gazette on December 7, 2009, or article 70-A of the ISR 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.
As of 2008, the Asset Tax Law (LIMPAC) was eliminated, but under certain the amount of this tax paid
in the 10 years immediately prior to that in which ISR is first paid may be recovered in accordance with
applicable tax provisions.
At December 31, 2016, the ISR liability derived from the effects of benefits and tax deconsolidation will
be paid in the following years.
Year of expiration
Amount
2017
2018
$ 22,946
18,846
$ 41,792
162 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 163
In Chile, in September 2014, the government promulgates in its tax reform increased the rate gradually
according to the following 21% in 2014, 22.5% to 2015, 24% to 2016, 25.5% to 2017 and to 2018
will be of 27%, based taxation system chose for the years 2017 and 2018. The change in the First
Category Tax was pronounced in July 2010.
In Colombia, the tax provisions provide that the rate applicable to income tax for the years 2014 and
2015 is 25% and the income tax for equity –CREE is 9%, respectively. Also, a surtax CREE 5% for
companies whose profit is equal to or greater than 800 million sets.
In Argentina i.- Tax on income The Entity applies the deferred tax method to recognize the accounting
effects of taxes on earnings at the 35% 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 applying the 0.5% to the proportional value of equity at the year-end closing and
it is considered a single and final payment.
In Spain, tax reforms were approved for 2015, which include the reduction of this tax rate to 28% and
25% in 2016, with the exception of credit institutions and entities engaged in hydrocarbon exploration,
research and exploration. Newly-created companies will pay tax at the 15% rate during the first tax
period in which their tax basis is positive and in the following period. Similarly, as part of these tax
reforms, tax losses will be applicable without a time limitation; until 2015, the right to apply such
losses expired after 18 years.
a.
Income taxes recognized in income
Income tax (tax basis)
Deferred income tax
2016
2015
2014
$ 825,874
$ 691,060
$ 597,045
(296,641)
(201,141)
(232,452)
$ 529,233
$ 489,919
$ 364,593
b. Deferred taxes - balance sheet
Following is an analysis of deferred tax assets shown in the consolidated statements of
financial position:
Deferred (assets) liabilities:
Estimation for doubtful accounts and
inventory obsolescence
$ (15,698)
$ (36,942)
$ (34,028)
2016
2015
2014
Liability provisions
Advances from customers
Unamortized tax losses
Recoverable asset tax
Store equipment, leasehold
improvements and property
Other assets
Advance payments
(740,365)
(16,176)
(82,078)
(12,269)
769,288
(2)
(84,223)
(488,383)
(105,167)
(102,640)
(12,269)
882,625
5,752
71,418
(447,253)
(70,341)
(75,874)
(12,269)
1,208,752
7,172
623,172
$ (181,523)
$ 214,394
$ 623,172
c. Deferred tax in statement of financial position
The following is the analysis of deferred tax assets (liabilities) presented in the consolidated
statements of financial position:
The tax expense attributable to income before ISR differs from that arrived at by applying the 30%
statutory rate in 2016, 2015 and 2014 due to the following items:
Deferred tax assets
Deferred tax liabilities
Statutory income tax rate
Non-deductible expenses
Effects of inflation and others
Estimation for unamortized tax losses
Effective consolidated income tax rate
2016
30%
3%
2%
(3%)
32%
2015
30%
8%
2%
(8%)
32%
2014
30%
7%
(1%)
-
36%
2016
2015
2014
$ 2,068,996
$ 1,710,943
$ 1,320,881
1,887,473
1,925,337
1,944,053
$ (181,523)
$ ,214,394
$ ,623,172
164 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 165
d. Deferred income tax balances
2016
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’
equity
Acquisitions
Ending
balance
2014
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’
equity
Acquisitions/
disposals
Ending
balance
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold
improvements and property
Prepaid expenses
Other assets
Tax loss carryforwards and
unused tax credits
Tax loss carryforwards
Recoverable IMPAC
$ (36,942)
(488,383)
(105,167)
$ 21,244
(196,680)
88,991
882,625
71,418
5,752
329,303
(54,559)
(149,883)
(5,754)
(296,641)
(102,640)
(12,269
(114,909)
-
-
-
$ -
(55,302)
-
(58,778)
(5,758)
-
(119,838)
20,562
-
20,562
$ -
-
-
$ (15,698)
(740,365)
(16,176)
-
-
-
-
-
-
-
769,288
(84,223)
(2)
(87,176)
(82,078)
(12,269)
(94,347)
$ 214,394
$ ,(296,641)
$ (99,276)
$ -
$ (181,523)
2015
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’
equity
Acquisitions
Ending
balancel
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold
improvements and property
Prepaid expenses
Other assets
Tax loss carryforwards and
unused tax credits
Tax loss carryforwards
Recoverable IMPAC
$ (34,028)
(447,253)
(70,341)
$ (2,914)
(14,330)
(34,826)
1,208,752
47,013
7,172
711,315
(316,476)
168,825
(1,420)
(201,141)
(75,874)
(12,269)
(88,143)
-
-
-
$ -
(26,800)
-
(9,651)
(144,420)
-
(180,871)
(26,766)
-
(26,766)
$ -
-
-
$ (36,942)
(488,383)
(105,167)
-
-
-
-
-
-
-
882,625
71,418
5,752
329,303
(102,640)
(12,269)
(114,909)
$ 623,172
$ (201,141)
$ (207,637)
$ -
$ 214,394
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold
$ (10,863)
$ (23,165)
$ -
$ -
$ (34,028)
(368,176)
(18,565)
(71,488)
(51,776)
(79,877)
(1,094)
(5,052)
(7,589)
-
16,135
(4,942)
-
-
-
-
-
(447,253)
(70,341)
1,502,839
1,208,752
improvements and property
(230,345)
Prepaid expenses
Other assets
53,049
12,224
Tax loss carryforwards and
unused tax credits
Tax loss carryforwards
Recoverable IMPAC
(562,676)
(232,452)
3,604
1,502,839
(166,337)
(12,269)
(178,606)
-
-
-
90,463
-
90,463
-
-
-
47,013
7,172
711,315
(75,874)
(12,269)
(88,143)
$ (741,282)
$ (232,452)
$ 94,067
$ 1,502,839
$ 623,172
The benefits of restated tax loss carryforwards and recoverable IMPAC for which the deferred ISR
asset and tax credit, respectively, have been (in such case partially) recognized, can be recovered
subject to certain conditions. Expiration dates and restated amounts as of December 31, 2016, are:
Year of maturity
Amortizable losses
2020
2023
2024
2025
2026
$ 45,549
106,662
91,387
372,433
163,759
$ 779,789
166 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 167
21. Employee retirement benefits
Retirement plan is established with the objective of offering benefits in addition to and complementary
to those provided by other public retirement plans.
b. Financial instrument categories
The total expense recognized in profit or loss and other comprehensive income is $83,815 in 2016.
The expense for employee benefits as of December 31, 2016, 2015 and 2014 was $9,465,461,
$8,171,055 and $5,332,897, respectively, not including the cost defined benefit described below.
The net cost for the period related to obligations derived from seniority premiums amounted to $580,
$6,041 and $29,661 in 2016, 2015 and 2014, respectively.
22. 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 2015.
The Entity's capital structure consists of the net debt (the loans described in Note 17,
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 23).
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.
The Entity manages its capital structure and makes any necessary adjustments based on changes
in economic conditions. In order to maintain and adjust its capital structure, the Entity can modify
the dividend payments to the shareholders, reimburse capital to them or issue new shares.
For the years ended December 31, 2016, 2015 and 2014, there were no modifications to the
objectives, policies or processes pertaining to capital management.
The following ratio is used by the Entity and by different rating agencies and banks to measure
credit risk.
• Net Debt to EBITDA = Net Debt / EBITDA ltm.
At December 31, 2016, 2015 and 2014, the financial restriction established in the Entity's loan
agreements relates to the Net Debt to EBITDA ratio for the last twelve months. The Entity
complied with the established ratio.
2016
2015
2014
Financial assets
Cash and cash equivalents
$ 2,547,842 $ 1,195,814 $ 1,112,850
Loans and accounts receivable at
amortized cost
953,638
904,853
895,543
Financial liabilities at amortized cost
Suppliers
Accounts payable and accrued liabilities
Current maturities of long-term debt
Current maturities of financial lease
liabilities
Long-term debt, not including current
maturities
Non-current financial lease liabilities
Debt instruments
3,901,972
909,156
1,107,238
3,013,091
635,802
734,824
2,694,015
601,854
1,377,157
6,799
7,190
7,878
9,743,806
300,835
3,988,845
5,018,722
307,140
6,479,795
7,370,666
314,342
2,491,356
c. Objectives of managing financial risks
Alsea is mainly exposed to the following financial risks: (i) market (foreign currency and interest rate),
(ii) credit and (iii) liquidity.
The Entity seeks to minimize the potential negative effects of the aforementioned risks on its financial
performance by applying different strategies. The first involves securing risk coverage through
derivative financial instruments.
Derivative instruments are only traded with well-established institutions and limits have been set
for each financial institution. The Entity has the policy of not carrying out operations with derivative
financial instruments for speculative purposes.
168 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 169
d. Market risk
e. Currency exchange risk management
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.
Exchange fluctuations and devaluation or depreciation of the local currency in the countries in which
Alsea participates could limit the Entity's capacity to convert local currency to US dollars or to other
foreign currency, thus affecting their operations, results of operations and 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
instruments is intended to cover or mitigate a primary position representing some type of
identified or associated risk for the Entity. Instruments 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 interest rate risk are as follows:
• 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.
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, 2016, 2015 and 2014. 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 Policy approved by the Corporate Practices
Committee, the General Director's office and the Administration and Financial Director's office.
The policy is overseen by the Internal Audit Department.
The exchange rate risk expressed in a foreign currency (USD) is internally monitored on a weekly
basis with the positions or hedges approximating maturity at market exchange rates. The
agent calculating or valuing the derivative financial instruments is in all cases the counterparty
designated 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.
170 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 171
The following table shows a quantitative description of exposure to exchange risk based on
foreign currency forwards and options agreements contracted by the Entity in USD/MXN, in effect
as of December 31, 2016, 2015 and 2014.
Type of
derivative,
security or
contract
Position
Objective of
the
hedging
Forwards
Long
Economic
Options
Long
Economic
Forwards
Short
Economic
NA
Underlying / reference variable
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
20.73
USDMXN
20.73
USDMXN
17.34
USDMXN
17.34
USDMXN
1.09
EURUSD
14.74
USDMXN
14.74
USDMXN
NA
Notional amount/
face value (thousands of USD)
Fair value (thousands of USD)
Amounts of
maturities
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
(thousands of
USD)
56,125
14,000
1,000 $ (2,122) $ (306) $ (117)
14,000
42,100
14,500
6,500 $ 4,909 $ (9) $ (19)
14,500
-
900
-
$ -
$ 0.1 $ -
900
172 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 173
1.
Foreign currency sensitivity analysis
f.
Interest rate risk management
At December 31, 2016, the Entity has contracted hedging in order to purchase US dollars for
the next 12 months at the average exchange rate of $19.21 for a total of $98 million dollars,
the valuation is based on an average exchange rate of $20.75 pesos per US dollar over the
next 12 months as of December 31, 2016. The initial price of currency derivatives is $44.4
million Mexican pesos payable to the Entity.
Given the values and amounts of exchange rate hedges, management does not foresee a
significant risk that could affect its results at the December 31, 2016 close or the obligations
contracted under current operations that will expire during the next 12 months. The Entity
does not match its net asset position with financial liabilities denominated in US dollars
because it is not representative or material. The analysis shows only the effect on hedging for
purchases of US dollars contracted and in effect at the December 31, 2016 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.
2.
Foreign currency forwards and options contracts
At December 31, 2016, 2015 and 2014, a total of 534, 220 and 212 derivative financial
instrument operations (forwards and options) were carried out, respectively, for a total of
68.6, 41.5 and 82.5 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, 2016, 2015 and 2014, Alsea has contracted DFI's to purchase US dollars
in the next twelve months for a total of approximately $98, $28 and $7.5 million USD, at
the average exchange rate of $19.21, $16.26 and $13.80 pesos to the dollar, respectively.
At December 31, 2016, 2015 and 2014, the Entity had contracted the financial instruments
shown in the table above.
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.
The Corporate Treasury Manager is responsible for monitoring and reporting to the
Administration and Financial Director any events or 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 contracts for swaps of interest (Interest Rate Swap – ISR), 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 starting price of the swaps of interest 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.
174 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 175
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, 2016, 2015 and 2014.
Type of
derivative,
security or
contract
Objective of
the
hedging
Position
Underlying / reference variable
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
IRS Plain Vanilla
Long
Coverage
IRS Plain Vanilla
Long
Economic
Knock Out
IRS
Long
Economic
Limited IRS
Long
Economic
Capped IRS
Long
Economic
6.11% - TIIE
28 d
6.11% - TIIE
28 d
6.11% - TIIE
28 d
6.11% - TIIE
28 d
6.11% - TIIE
28 d
3.34% - TIIE
28 d
3.34% - TIIE
28 d
3.34% - TIIE
28 d
3.34% - TIIE
28 d
3.34% - TIIE
28 d
3.31% -
TIIE 28 d
3.31% -
TIIE 28 d
3.31% -
TIIE 28 d
3.31% -
TIIE 28 d
3.31% -
TIIE 28 d
Notional amount / face value (USD)
Fair value (USD)
Amounts of
expiration
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
31/12/2016
current
31/12/2015
previous
31/12/2014
previous
(thousands of
USD)
119,011
99,158
51,842 $ 20,216 $ 5,650
$ (307)
37,928
15,420
21,545 $ (2,295) $ 32
$ (13)
-
2,941
6,210 $ -
$ 11
$ 43
10,453
2,941
6,210 $ -
$ 15
$ 53
14,905
2,553
4,265 $ 138.6 $ ,0.4
$ 79
99,158
15,420
2,941
2,941
2,553
IRS Plain
Vanilla
Long
Coverage
EURIBOR 1M EURIBOR 1M EURIBOR 1M
39,427
87,391
100,521 $ (27) $ (549)
$ 741
87,391
176 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 177
1.
Analysis of interest rate sensitivity
g. Credit risk management
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 the Entity’s 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, 2016 close, the increase in financial costs is of approximately $127
million. The above effect arises because the barriers protecting the increase in the interest
rates are exceeded, which leaves the Entity exposed to market rates.
• A 150 bps increase in the 28-day TIIE rate represents an increase in the financial cost
of approximately $95 million, which poses no risk to the Entity's liquidity nor gives
rise to a negative effect on the business's operations or in assuming commitments for
contracting interest rate derivative financial instruments.
• 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 $64 million.
The above scenarios were performed on bank and market debt contracted in Mexican pesos
with floating reference rate TIIE 28 days, which represents about 80% of the total debt
contracted by the Bank. The bank debt denominated in euros is covered at a fixed rate by
70%, so an increase or decrease in rates would not represent a material or significant risk to
the company, offsetting effectively in the starting price and value the underlying liabilities.
Credit risk refers to the uncertainty of whether one or several of the counterparties will comply
with their contractual obligations, which would result in a financial loss for the Entity. The Entity
has adopted the policy of only operating with solvent institutions and obtaining sufficient collateral,
when deemed necessary, as a way to mitigate the risk of financial loss caused by non-compliance.
The Entity has identified in its portfolio a credit risk among its derivative financial instruments
designed as cash flow hedges, since are measured at fair value.
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 because
the counterparties are banks with high credit ratings issued by accepted rating agencies.
In order to reduce to a minimum the credit risk associated to counterparties, the Entity contracts
its financial instruments with domestic and foreign institutions that are duly authorized to engage
in those operations and which form part of the Mexican Financial System.
With respect to derivative financial instruments, the Entity signs a standard agreement approved
by the International Swaps 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 be
followed. Such agreements, commonly known as "Credit Support Annexes", establish the credit limits
offered by credit institutions that would 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.
178 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 179
The methodologies and practices generally accepted in the market and which are applied by the
Entity to quantify the credit risk related to a given financial agent are detailed below.
1.
2.
3.
Credit Default Swap (CDS), the credit risk is quantified based on the quoted market price. The
CDS is the additional premium that an investor is willing to pay to cover a credit position,
meaning that the risk quantification is equal to this premium. This practice is utilized as long
as quoted CDS are available on the market.
Issuance Credit Spread, if issuances are available for quotation on different financial
markets, the credit risk can be quantified as the difference between the internal rate of
return of the bonds and the risk-free rate.
Comparable items, if the risk cannot be quantified by using the above methodologies, the
use of comparable items is generally accepted; i.e., the use of entities or bonds of the
sector that the company wishes to analyze as a reference.
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, 2016, 2015 and 2014 closing, the Entity has incurred in 25 margin calls just
in 2016, and holds 5.4 millions of US dollars securities pledged as a guarantee by a counterparty
with which it may have carried out interest rate hedging operations.
At December 31, 2016, 2015 and 2014, 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, 2016, 2015 and 2014, that risk amounts to $3,501,480, $2,100,657 and
$2,088,393, respectively.
The credit risk generated by the management of the Entity’s temporary investments reflects its
current investment policy, which has the following objectives: I) enhance resource efficiency, and
II) mitigate the credit risk. In order to fulfill these objectives, certain guidelines and maximum
amounts were established for counterparties, instruments and periods within the Entity’s policies.
All transactions performed in Mexican pesos and foreign currency are supported by an outline
brokerage agreement duly executed by both parties with regulated institutions belonging to the
Mexican Financial System, which have the guarantees required by the company and recognized
credit ratings. The only instruments authorized for temporary investments are those issued by
the federal government, corporate and banking institutions under the repurchase modality. As
the Entity does not consider its credit risk to be material or significant, it does not perform a
measurement for temporary investments
h. Liquidity risk management
The ultimate responsibility for managing liquidity lies in the Financial Director, for which purpose
the Entity has established policies to control and follow up on working capital, thus making it
possible to manage the Entity's short-term and long-term financing requirements. In keeping this
type of control, cash flows are prepared periodically to manage risk and maintain proper reserves,
credit lines are contracted and investments are planned.
The Entity's main source of liquidity is the cash earned from its operations.
The following table describes the contractual maturities of the Entity's financial liabilities
considering agreed payment periods. The table has been designed based on undiscounted, projected
cash flows and financial liabilities considering the respective payment dates. The table includes
the projected interest rate flows and the capital disbursements made towards the financial debt
included in the consolidated statements 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 reported. Contractual maturities are based on the minimum date on which the Entity must
make the respective payments.
180 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 181
As of
December 31, 2016
Average effective
interest rate
Up to 1 year
Up to 2 years
Up to 3 years
Up to 4 years
Up to 5 years or more
Total
6.76%
7.16%
4.00%
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable (1)
Total
$ 1,623,664
$ 1,410,100
$ 3,239,806
$ 1,534,114
$ 5,045,053
$ 12,852,737
283,920
32,398
44,403
3,901,972
909,156
283,920
32,398
-
-
-
283,920
32,398
3,128,287
32,398
1,367,185
536,998
-
-
-
-
-
-
-
-
-
5,347,232
666,590
44,403
3,901,972
909,156
$ 6,795,513
$ 1,726,418
$ 3,556,124
$ 4,694,799
$ 6,949,236
$ 23,722,090
(1) Starting 2016 the new payment term to suppliers is 90 days; the Entity signed financial
factoring contracts with financial institutions that allows suppliers to collect form the financial
institutions the invoices approved by the Entity before the payment terms matures and Alsea will
pay the financial institution at maturity of the payment term. These transactions do not generate
a cost to Alsea and are classified as accounts payable since are consider as a substitute creditor.
As of
December 31, 2015
Average effective
interest rate
Up to 1 year
Up to 2 years
Up to 3 years
Up to 4 years
Up to 5 years or more
Total
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable
5.49%
4.70%
4.00%
$ 1,000,986
$ 1,048,079
$ 717,767
$ 2,669,308
$ 1,471,296
$ 6,907,436
321,818
32,789
97,806
3,013,091
635,802
331,341
32,789
-
-
-
2,772,813
32,789
222,647
32,789
4,481,332
565,089
-
-
-
-
-
-
-
-
-
8,129,951
696,245
97,806
3,013,091
635,802
Total
$ 5,102,292
$ 1,412,209
$ 3,523,369
$ 2,924,744
$ 6,517,717
$ 19,480,331
As of
December 31, 2014
Average effective
interest rate
Up to 1 year
Up to 2 years
Up to 3 years
Up to 4 years
Up to 5 years or more
Total
4.97%
4.05%
4.00%
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable
Total
$ 1,751,434
$ 1,946,208
$ 2,152,688
$ 1,945,586
$ 2,217,377
$ 10,013,293
102,346
33,723
6,146
2,694,015
601,854
102,628
33,723
-
-
-
102,628
33,723
2,547,367
33,723
-
-
-
-
-
-
595,085
-
-
-
-
2,854,969
729,977
6,146
2,694,015
601,854
$ 5,189,518
$ 2,082,559
$ 2,289,039
$ 4,526,676
$ 2,812,462
$ 16,900,254
182 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 183
i.
Fair value of financial instruments
This notes provides information on the manner in which the Entity determines the fair values of
the different financial assets and liabilities.
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
1) Forwards and currency
options agreements
Valuation technique(s) and main
input data
Fair value (1)(2) Figures in thousands of USD
31.dic.16
31.dic.15
31.dic14
Fair value
hierarchy
$ 2,787 $ (315) $ (136)
Level 2
Plain vanilla forwards are calculated based 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.
2) Interest rate swaps
$ 18,032 $ 5,159 $ 552
Level 2
Valuation technique(s) and main
input data
Discounted cash flows are estimated based 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.
During the period there were no transfers between level 1 and 3
(1) The fair value is presented from a bank's perspective, which means that a negative amount
represents a favorable result for the Entity.
(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.
(3) 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.
In the case of derivative financial instruments, a standard contract approved by the International
Swaps and Derivatives Association Inc. (“ISDA”) is executed with each counterparty; the standard
confirmation forms required for each transaction are also completed.
Likewise, bilateral guarantee agreements are executed with each counterparty to determine
policies for the margins, collateral and credit lines to be granted.
This type of agreement is usually known as a “Credit Support Annex”; it establishes the credit
limits that financial institutions grant to the company and which are applicable in the event of
negative scenarios or fluctuations that affect the fair value of the open positions of derivative
financial instruments. These agreements establish the margin calls to be implemented if credit
line limits are exceeded.
Aside from the bilateral agreements attached to the ISDA outline agreement known as the Credit
Support Annex (CSA), the Entity monthly monitors the fair value of payable or receivable amounts.
If the result is positive for the Entity and is considered relevant due to its amount, a CDS can be
contracted to reduce the risk of counterparty noncompliance.
The Entity has the policy of monitoring the number of operations contracted with each of these
institutions so as to avoid margin calls and mitigate the counterparty credit risk.
At December 31, 2016, 2015 and 2014, the Entity has not received any margin calls and does
not have any securities given as a guarantee with counterparties as interest rate hedges.
Furthermore, it did not record any instances of noncompliance with the contracts executed with
different financial institutions for operations involving interest rate hedges.
184 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 185
j.
Fair value of financial assets and liabilities that are not valued at fair value on a
recurring basis (but that require fair value disclosure)
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 consolidated financial
statements approximate their fair value.
12/31/2016
12/31/2015
12/31/2014
Carrying
value
Fair
value
Carrying
value
Fair
value
Carrying
value
Fair
value
Financial liabilities
Financial liabilities
maintained at
amortized cost:
Suppliers
$ 3,901,972
$ 3,901,972
$ 3,013,091
$ 3,013,091
$ 2,694,015
$ 2,694,015
Accounts payable and
accrued liabilities
909,156
909,156
Bank loans
1,107,238
1,115,556
635,802
734,824
635,802
766,303
601,854
601,854
1,377,157
1,403,930
Current maturities
of financial lease
liabilities
6,799
6,799
7,190
7,190
7,878
7,878
Long-term bank loans
9,743,806
9,743,806
5,018,722
5,018,722
7,370,666
7,370,666
Financial liabilities 2016
Level 1
Financial liabilities maintained at amortized cost:
Bank loans
$ 1,107,238
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
6,799
9,743,806
300,835
3,988,845
Total
$ 15,147,523
Financial liabilities 2015
Level 1
Financial liabilities maintained at amortized cost:
Bank loans
$ 734,824
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
7,190
5,018,722
307,140
6,479,795
Non-current financial
lease liabilities
300,835
300,835
307,140
307,140
314,342
314,342
Total
$ 12,547,671
Debt instruments
3,988,845
4,037,222
6,479,795
6,539,804
2,491,356
2,498,969
Total
$ 19,958,651
$ 20,015,346
$ 16,196,564
$ 16,288,052
$ 14,857,268
$ 14,891,654
Financial liabilities 2014
Level 1
Financial liabilities maintained at amortized cost:
Bank loans
$ 1,377,157
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
7,878
7,370,666
314,342
2,491,356
Total
$ 11,561,399
186 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 187
Valuation
a.
Description of valuation techniques, policies and frequency:
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 valued at fair value.
b.
Liquidity in derivative financial operations:
1. The resources used to address financial instrument requirements will derive from the
resources generated by the issuer.
In April 2016, Alsea declared a dividend payment of $645,706 with a charge to the after-tax earnings
account, which is to be paid against net earnings at the $0.77 (zero pesos fifty cents) per share. It
authorizes the Treasury society make payment on May 13, 2016 for an amount of $644,771.
In April 2015, Alsea declared a dividend payment of $419,289 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. It
authorizes the Treasury society make payment on May 29, 2015 for an amount of $419,173.
In June 2014, Alsea issued 131,147,540 shares with an overallotment of 19,672,131, which was
exercised with an asking price of $45.75 (forty-five Mexican pesos and 75/100 centavos) per
share. The issuance was recorded net of placement expenses (see Note 1c).
2. External sources of liquidity: No external sources of financing will be used to address
requirements pertaining to derivative financial instruments.
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.
23. 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:
Number of
shares
Capital stock
(thousands of
pesos)
Premium on
issuance of share
Figures at January 1, 2014
687,759,054
$ 403,339
$ 2,037,390
Repurchase of shares
Placement of shares (note 1c)
Figures at December 31, 2014
Placement of shares
Figures at December 31, 2015
Placement of shares
(956,201)
150,819,671
837,622,524
(136,080)
Number of
shares
837,486,444
(3,207,245)
(478)
75,410
478,271
(68)
-
6,576,197
8,613,587
-
Capital stock
(thousands of
pesos)
Premium on
issuance of share
478,203
(1,604)
8,613,587
-
Figures at December 31, 2016
834,279,199
$ 476,599
$ 8,613,587
As discussed in Note 19, the Entity has the put option of acquiring the non-controlling interest of
Grupo Zena, this effect resulted in the application of a charge of $2,673,053 to net worth.
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.
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, 2015.
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 contribute capital.
b. Stockholders’ equity restrictions
I.
II.
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, 2016, 2015 and 2014, the
legal reserve amounted to $100,736, which amount does not reach the required 20%.
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 1.0408. 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.
188 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 189
24. Non-controlling interest
a. Following is a detail of the non-controlling interest.
b. Acquisition of the non-controlling interest of Grupo Amigos de San Ángel-
Balances at January 1, 2014
Amount
$ 239,504
Equity in results for the year ended December 31, 2014
Other movements in capital
Contributions of Capital in Estrella Andina, S.A.S. (1)
Fair value of the non-controlling interest in Grupo Zena (note 15) (3)
Ending balance at December 31, 2014
Equity in results for the year ended December 31, 2015
Other movements in capital
Capital contributions in subsidiaries
Acquisition of the non-controlling interest of GASA
Ending balance at December 31, 2015
Equity in results for the year ended December 31, 2016
Equity in results for the year ended December 31, 2016
Other movements in capital
(42,572)
1,345
27,904
607,032
833,213
51,536
10,156
31,380
(26,365)
899,920
130,019
(45,178)
28,687
Ending balance at December 31, 2016
$ 1,013,448
(1) In 2014, the Entity executed an agreement with Starbucks Coffee International, Inc. (SCI) to
develop and operate Starbucks® in Colombia in conjunction with Grupo Nutresa. The strategic
partnership of Alsea and Grupo Nutresa to develop the Brand in Colombia was implemented
through a joint venture in which Alsea holds 70% equity, while Nutresa holds the remaining 30%.
In 2015, the Entity acquired the 10.23% that it did not hold in Grupo Amigos de San Ángel, a
subsidiary of Alsea that operates in the different Italiani´s stores in Mexico.
For consolidation purposes, the transaction did not constitute a change in control over Grupo
Amigos de San Ángel, 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 Grupo Amigos de San Ángel by Alsea upon acquisition of the non-
controlling interest (from 89.77% 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 $26,365.
c. Acquisition of the non-controlling interest of Starbucks Coffee Argentina-
In 2013, the Entity acquired from Starbucks Coffee 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.
The change of interest in Starbucks Coffee Argentina by Alsea upon acquisition of the non-
controlling interest (from 82% to 100%) qualified as an 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 was recorded directly in stockholders’ equity.
The accounting entry gave rise to a $44,109 decrease in the non-controlling interest.
(2) The balance includes the restatement adjustment of $101,520 (see Notes 2a).
d. Acquisition of the non-controlling interest of Starbucks Coffee Mexico
(3) On January 20, 2016, Food Project, SL, decreed a capital repayment of 8,000 thousand euros,
granted in proportion to the value of each of the social shares in which the share capital of the
entity is divided, Resulting in a decrease in non-controlling interest in the amount of $45,178.
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.
190 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 191
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.
e. Following is the detail of the Non-Controlling interest of the subsidiaries of the Entity:
Subsidiary
Country
31/12/2016
31/12/2015
31/12/2014
31/12/2016
31/12/2015
31/12/2014
31/12/2016
31/12/2015
31/12/2014
Percentages of the non-controlling interest
Income (loss)
attributable to the non-controlling interest
Accumulated non-controlling interest
Food Service Project, S.L (Grupo Zena)
Spain
Operadora de Franquicias Alsea, S.A. de C.V.
Mexico
Estrella Andina, S.A.S.
Colombia
28,24%
20.00%
30.00%
28.24%
20.00%
30.00%
28.24%
20.00%
30.00%
$ 163,838 $ 86,131 $ 25,132 $ 866,843 $ 1,187,814 $ 708,552
(30,924)
(2,705)
(28,676)
(5,480)
(59,326)
(6,749)
86,042
40,193
116,966
35,157
225,163
27,904
192 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 193
25. Earnings per share
27. Cost of sales
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, 2016, 2015 and 2014, the Entity has no potentially dilutive shares, for which
reason diluted earnings per share is equal to basic earnings per share.
The costs and expenses included in other operating costs and expenses in the consolidated statements
of income are as follows:
Food and beverage of costs
$ 11,406,404
$ 9,769,021
$ 6,866,889
Royalties of costs
Other costs
146,036
227,190
133,471
246,784
130,568
274,817
2016
2015
2014
Total
$ 11,779,630
$ 10,149,276
$ 7,272,274
The following table contains data on income and shares used in calculating basic and diluted earnings
per share:
28. Other operating costs and expenses
2016
2015
2014
Employee benefits
$ 9,506,774
$ 8,177,096
$ 5,358,546
2016
2015
2014
Net profit (in thousands of Mexican pesos):
Attributable to shareholders
Shares (in thousands of shares):
Weighted average of shares outstanding
Basic earnings per share
$ 996,471
$ 981,215
$ 666,666
836,728
837,486
837,623
$ 1.19
$ 1.17
$ 0.85
Basic earnings per share continuing operations
$ 1.19
$ 1.17
$ 0.87
Advertising
Services
Royalties
Pre-operative
Other
1,449,137
1,705,631
1,183,173
122,959
3,414,422
1,211,830
1,637,801
990,348
109,802
809,172
1,463,794
739,479
118,915
2,803,744
2,215,767
Total
$ 17,382,096
$ 14,930,621
$ 10,705,673
26. Revenues
29. Other expenses
2016
2015
2014
In 2016, 2015 and 2014, this caption is comprised as follows:
Revenues from the sale of goods
$ 36,682,433
$ 31,471,313
$ 22,178,483
Services
Royalties
652,106
367,328
487,346
329,717
378,654
230,231
Total
$ 37,701,867
$ 32,288,376
$ 22,787,368
Legal expenses
$ 53,487
$ 25,019
$ 23,118
2016
2015
2014
Loss on fixed asset disposals, net
PTU on tax base
Inflation and interest on tax refund
Other income, net
3,885
23,347
26,517
3,415
40,227
6,371
(32,649)
16,698
189,306
20,371
(10,035)
(21,029)
Total
$ 110,651
$ 55,666
$ 201,731
194 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 195
30. Discontinued operations
a. Disposal of operations related to the Pei Wei Asian Dinner Brand
At the end of 2014, the Entity’s management decided to discontinue the operations of the Pei Wei
Asian Dinner Brand in Mexico: The stores of such Brand will end its operation at the beginning of
2016, consequently such operations are presented as discontinued operations in the consolidated
financial statements.
b. Analysis of the results for the year from discontinued operations
The comparative results of discontinued operations included in the consolidated statements of
income are detailed below.
Results for the year from discontinued operations
Income
Costs
Expenses
2014
$ 15,676
5,164
29,133
Loss for the year of the discontinued operations
$ (18,621)
The Food and Beverages segments in which Alsea in Mexico, Spain and Latin America
(LATAM) participates are as follows:
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 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.
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 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.
Restaurant – cafeteria - (VIPS): Is a familiar-type segment and its main characteristic is the hospitality,
and be close to the client. These Restaurants have a wide variety of menus.
Cash flows are presented in the consolidated statements of cash flows.
Fast Casual Dining: This is a combination of the fast food and casual dining segments.
31. Balances and transactions with related parties
The distribution and Production segment is defined as follows:
Officer compensations and benefits
The total amount of compensation paid by the Entity to its main advisors and officers for the nine-
month period ended December 31, 2016, 2015 and 2014 was of approximately $231,750, $121,800 and
$98,400, 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 Entity continuously reviews salaries, bonuses and other compensation plans in order to ensure more
competitive employee compensation conditions.
32. Financial information by segments
Distribuidora e Importadora Alsea, S.A. de C.V. (DIA) specializes in domestic purchase, importation,
transporting, storage and distribution of frozen, refrigerated and dry food products to supply all
Domino’s Pizza, Burger King, Starbucks, Chili’s Grill & Bar, P.F. Chang’s China Bistro, Pei Wei and
Italianni’s establishments in Mexico.
Additionally, DIA is responsible for preparing and distributing pizza dough to the entire Domino's Pizza
System in Mexico.
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 and sandwiches are prepared.
The Entity is organized into four large operating divisions comprised of sales of food and beverages in
Mexico and South America (LATAM – Argentina, Chile, Colombia and Brazil) and distribution services,
all headed by the same management.
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 periodically reviewed.
The accounting policies of the segments are the same as those of the Entity's described in Note 3.
196 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 197
Information on the segments for the years ended December 31, 2016, 2015 and 2014 is as follows:
(figures in millions of pesos).
Figures in millions of pesos as of December 31, division:
Food and beverages -
Mexican segment
Food and beverages -
LATAM Segment
Food and beverages -
Spain Division
Distribution and
production segment
Eliminations
Consolidated
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
Revenues from third parties
$ 20,552
$ 18,629
$ 15,533
$ 8,124
$ 6,718
$ 4,621
$7,591
$5,674
$1,468
$1,398
$1,235
$1,132
$ 37
$ 32
$ 34
$37,702
$32,288
$22,788
Between segments
Revenues
76
43
58
-
-
-
20,628
18,672
15,591
8,124
6,718
4,621
Costs
7,010
Other operating costs and expenses
10,421
6,244
9,683
5,078
8,397
2,566
4,972
2,132
4,103
1,563
2,790
Depreciation and amortization
1,544
1,283
1,007
Interest paid
Interest earned
Other financial expenses
Equity in results of associated
companies
Income taxes
Results of segments
Discontinued operations
Non-controlling interest
192
(77)
8
300
(51)
7
1,530
1,206
-
233
1,297
-
-
246
960
-
-
-
304
(68)
5
868
186
682
-
-
-
331
199
(20)
(2)
78
35
43
-
-
-
237
139
(25)
16
116
(28)
144
-
-
-
174
104
(28)
2
16
55
(39)
-
-
-
-
-
-
7,591
5,674
1,468
2,076
4,452
1,581
3,358
300
88
-
-
239
94
-
-
410
854
55
30
-
-
675
402
119
-
94
581
-
-
-
97
305
-
-
29
90
-
-
-
5,859
7,257
6,029
777
75
2
(21)
71
324
-
63
261
-
-
5,139
6,374
5,344
668
72
4
(7)
66
3,932
5,064
(5,935)
(5,898)
(5,182)
(5,150)
(3,990)
(3,956)
-
-
-
37,702
32,288
22,788
4,218
(5,901)
(5,152)
(3,997)
533
146
24
139
11,780
20,768
10,149
17,836
7,272
12,713
69
14
(5)
12
139
400
80
257
117
174
53
90
227
223
(1,019)
(456)
-
50
177
-
-
-
17
206
-
-
68
105
(1,056)
28
125
(553)
-
52
130
-
28
75
68
(19)
(250)
32
78
(296)
(19)
(43)
2,389
1,948
1,333
881
(38)
334
711
(30)
179
1,588
1,495
68
28
530
1,126
-
130
490
1,033
-
52
527
(33)
-
976
32
365
643
(19)
(43)
Controlling interest
$ 1,297
$ 960
$ 682
$ 43
$ 144
$ (39)
$ 581
$ 305
$ 90
$ 261
$ 177
$ 206
$(1,186)
$ (605)
$ (272)
$ 996
$ 981
$ 667
Assets:
$ 18,590
$ 18,205
$ 12,440
$ 3,772
$ 2,605
$ 2,524
4,441
3,437
3,338
2,729
2,303
2,188
3,082
1,940
7,072
32,614
28,490
27,562
Investment in performing assets
(Investment in associated
companies)
(Investment in fixed assets and
Intangible assets)
-
-
-
-
-
-
-
-
-
-
-
-
1,036
2,312
2,072
1,644
577
417
493
787
476
198
280
29
76
593
923
446
830
1,036
923
830
69
4,549
3,440
2,480
Total assets
$ 20,902
$ 20,277
$ 14,084
$ 4,349
$ 3,022
$ 3,017
$5,228
$3,913
$3,536
$3,009
$2,332
$2,264
$4,711
$3,309
$7,971
$38,199
$32,853
$30,872
Total liabilities
$ 6,885
$ 7,270
$ 8,940
$ 3,080
$ 2,566
$ 2,535
$4,063
$3,805
$3,694
$1,898
$1,477
$1,461
$12,145
$7,887
$4,650
$28,071
$23,005
$21,280
198 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 199
33. Foreign currency position
Assets and liabilities expressed in US dollars, shown in the reporting currency at December 31, 2016,
2015 and 2014, are as follows:
Assets
Liabilities
Thousands of
dollars
2016
Thousands of
dollars
2015
Thousands of
dollars
2014
$ 1,776,641
$ 1,300,457
$ 1,371,033
(5,891,935)
(4,379,546)
(4,273,402)
Net monetary liability position $ (4,115,294)
$ (3,079,089)
$ (2,902,369)
The exchange rate to the US dollar at December 31, 2016, 2015 and 2014 was $20.66, $17.25 and
$14.74, respectively. At March 31, 2016, date of issuance of the consolidated financial statements, the
exchange rate was $18.86 to the US dollar.
The exchange rates used in the different conversions to the reporting currency at December 31, 2016,
2015 and 2014 and at the date of issuance of these consolidated financial statements are shown below:
Country of origin
Currency
Closing exchange
rate
Issuance
March 28, 2017
2016
Argentina
Chile
Colombia
Spain
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
1.3012
0.0308
0.0067
21.7323
1.2154
0.0283
0.0064
20.4747
Country of origin
Currency
Closing exchange
rate
Issue
March 31, 2016
2015
Argentina
Chile
Colombia
Spain
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
1.3408
0.0244
0.0054
18.8344
1.1862
0.0252
0.0057
19.5332
Country of origin
Currency
Closing exchange
rate
Issue
February 29, 2015
2014
Argentina
Chile
Colombia
Spain
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
1.7235
0.0240
0.0062
17.6926
1.7108
0.0241
0.0059
16.8876
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.
Argentina
Starbucks Coffee Argentina, S. R. L.
Argentina
Asian Bistro Argentina, S.R.L.
Argentina
Fast Food Chile, S. A.
Asian Food Ltda,
Dominalco, S. A.
Chile
Chile
Colombia
Operadora Alsea en Colombia, S. A.
Colombia
Asian Bistro Colombia, S.A.S
Food Service Project S.L.
Colombia
Spain
ARP
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
ARP
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
MXP
MXP
MXP
MXP
MXP
MXP
MXP
MXP
MXP
200 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 201
34. Commitments and contingent liabilities
35. Financial statement authorization
The consolidated financial statements were authorized for issuance on March 28, 2017 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.
* * * * * *
Commitments:
a. 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 12).
b. The Entity has acquired several commitments with respect to the arrangements established in the
agreements for purchase of the Brands.
c.
d.
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.
In the signed contracts with third parties, the Entity is entitled to comply with certain
mandatory clauses; some of the main mandatory clauses are related to capital investments and
opening of Restaurants.
Contingent liabilities:
In August 2012, Italcafé received an order for an on-site official review by the tax authorities.
Such visit concluded in August 2014 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 2015, 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.
On November 3, 2015, the Entity filed a Motion for Reconsideration with the Tax Inspection Office
of the Federal District against the tax liability determined by the Finance Department of the
Federal District. On February 13, 2016, the Tax Inspection Office issued a request for additional
information, which was provided on February 20 of that year. This Motion for Reconsideration
is currently being studied by the Tax Inspection Office of the Federal District. In the event of an
unfavorable ruling, the Entity will file a Ruling for Annulment. The attorneys of the vendor and
Alsea consider that they have a good chance of success. During the 2 to 3 years that this legal
action will take, the tax liability will not be considered as definitive.
202 Alsea | 2016 ANNUAL REPORT
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Fundación Alsea, A. C.
Independent Auditors’ Report and
Financial Statements for 2016 and 2015
Table of contents
Independent Auditors’ Report
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to Financial Statements
Page
206
209
210
211
212
Financial Statements
Fundación Alsea, A. C.
Financial Statements for the Years Ended December 31,
2016 and 2015, and Independent Auditors’ Report Dated
March 17, 2017
204 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 205
Independent Auditors’ Report to the Board
of Directors of Fundación Alsea, A. C.
Opinion
Auditors´ Responsibilities for the Audit of the Financial Statements
We have audited the accompanying financial statements of Fundación Alsea, A. C., (the “Foundation”) which
comprise the statements of financial position as of December 31, 2016 and 2015, and the related statements
of activities and statements of cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of Fundación Alsea, AC, as of December 31, 2016 and 2015, and its financial performance and its
cash flows, for the years then ended in accordance with Mexican Financial Reporting Standards (NIF).
Bases of Opinion
We conducted our audits in accordance with International Standards on Auditing (ISAs). Our responsibilities
under those standards are further described in the Auditor´s Responsibilities for the Audit of Financial
Statements section of our report. We are independent of the Foundation in accordance with the International
Ethics Standards Board for Accountants’ Code of Ethics for professional Accountants (IESBA Code) and with
the Ethics Code issued by the Mexican Institute of Public Accountants (IMCP Code), and we have fulfilled our
other ethical responsibilities in accordance with the IESBA Code and IMCP Code.
Other matter
The accompanying financial statements have been translated into English for the convenience of readers.
Responsibilities of Management and Those Responsible for Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the accompanying financial
statements in accordance with NIF 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.
In preparing the financial statements, management is responsible for assessing the Foundation's ability
to continue as a going concern, disclosing, as applicable, matters, related to going concern and using the
going concern basis of accounting unless management either intends to liquidate the Foundation or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Foundation´s financial reporting process.
Our objectives are to obtain reasonable assurance that the about whether financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor´s report that
includes our opinion. Reasonable assurance is a high is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
As part of an audit in accordance with ISA’s, we exercise professional judgement and maintain professional
skepticism throughout the audit. We also:
• Identify and asses the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Foundation’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management´s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Foundation’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report
to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors´ report. However, future events or conditions may cause the Foundation to cease to continue as
a going concern.
206 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 207
Fundación Alsea, A. C.
Statements of Financial Position
As of December 31, 2016 and 2015
(In thousands of Mexican pesos)
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have met the applicable ethics
requirements in relation to independence and have communicated to them all of the relationships and other
issues that can reasonably be expected to affect our Independence and, where appropriate, the corresponding
safeguards.
Assets
2016
2015
Current assets:
Cash and cash equivalents
Accounts receivable
Recoverable taxes
Total current assets
Other assets, net of accumulated amortization of $81 and $54
$ 58,621
$ 38,503
1,637
49
60,307
107
10,765
49
60,307
188
Total
$ 60,414
$ 49,505
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Francisco Torres Uruchurtu
March 17, 2017
Liabilities and patrimony
Current liabilities:
Trade accounts payable
Taxes and accrued expenses
Total liabilities
Patrimony
Total
See accompanying notes to financial statements.
$ 16
$ 191
1,049
1,065
30
221
59,349
49,284
$ 60,414
$ 49,505
208 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 209
Fundación Alsea, A. C.
Statements of Activities
For the years ended December 31, 2016 and 2015
(In thousands of Mexican pesos)
Fundación Alsea, A. C.
Statements of Cash Flows
For the years ended December 31, 2016 and 2015
(In thousands of Mexican pesos)
2016
2015
2016
2015
Revenues:
Cash donations income
Interest income
Expenses:
General expenses
Value added tax
Administrative expenses
Net changes in patrimony
Patrimony at beginning of year
$ 44,407
$ 42,450
1,652
46,059
34,646
473
875
35,994
10,065
49,284
627
43,077
25,066
183
88
25,337
17,740
31,544
Operating activities:
Net changes in patrimony
Items related to investing activities:
Amortization
(Increase) decrease in:
Accounts receivable
Prepaid expenses
Increase (decrease) in:
Trade accounts payable
Taxes and accrued expenses
Net cash flows from operating activities
Patrimony at end of year
$ 59,349
$ 49,284
Investing activities – Other assets
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
$ 10,065
$ 17,740
81
54
9,128
(10,299)
-
-
(175)
1,019
20,118
20,118
38,503
75
89
(192)
7,467
(130)
7,337
31,166
See accompanying notes to financial statements.
Cash and cash equivalents at end of year
$ 58,621
$ 38,503
See accompanying notes to financial statements.
210 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 211
Fundación Alsea, A. C.
Notes to Financial Statements
For the years ended December 31, 2016 and 2015
(In thousands of Mexican pesos)
1. Activities
Fundación Alsea, A. C. (the “Foundation”), whose main objective is to contribute to food security of
vulnerable communities and to promote human development by supporting initiatives for education.
d. Net change in patrimony – Net change in patrimony is the change in patrimony during an
accounting period for a not-for-profit foundation arising from its revenues, costs and expenses.
To accomplish its goals, the Foundation receives donations from individuals and entities, with the
authorization of the Mexican Secretariat of Finance and Public Credit (Secretaría de Hacienda y
Crédito Público - "SHCP"). Accordingly, donations are tax deductible to the donor; the list of entities
eligible to receive donations was published in the Official Gazette on January 12, March 9, May and July
15, 2016 and was granted by Official Letter No. 325-SAT-IV-E-76214 and 600-04-02 -2013-16480.
The Foundation does not have any employees, and therefore it is not subject to labor obligations. All
personnel services are provided by a related party.
2. Basis of presentation
a. Explanation for translation into English - The accompanying financial statements has been
translated from Spanish into English for use outside of Mexico. These financial statements are
presented on the basis of Mexican Financial Reporting Standards (“MFRS”), which are comprised
of accounting standards that are individually referred to as Normas de Información Financiera, or
“NIFs”). Certain accounting practices applied by the Foundation that conform with MFRS may not
conform with accounting principles generally accepted in the country of use.
b. Monetary unit of the financial statements – The financial statements and notes as of
December 31, 2016 and 2015 and for the years then ended include balances and transactions
denominated in Mexican pesos of different purchasing power. Cumulative inflation rates over the
three-year periods ended December 31, 2016 and 2015 were 10.52% and 12.08%, in each period.
Accordingly, the economic environment is not inflationary in either such period and no inflationary
effects were recognized in the accompanying financial statements. Inflation rates for the years
ended December 31, 2016 and 2015 were 3.36% and 2.13%, respectively.
c. Classification of costs and expenses – Costs and expenses are presented according to their nature
because the administration considers that it is more useful to the users of the financial information.
e. Patrimony – Patrimony is classified according to the restrictions that the donors established on
the assets donated.
f. Donations - Donations are revenues that increase the recorded patrimony when contributions
are received in cash, goods or services are canceled.
g. Financial Statements of Entities for Non-Profit Purposes – The Foundation has adopted
the provisions of Mexican Financial Reporting Standards (NIF) A-2 "Basic Postulates", B-16
"Financial Statements of Nonprofit Purposes" and E-2 "Income and contributions received by
entities with non-profit purposes", in force and mandatory application
3. Summary of significant accounting policies
The accompanying financial statements have been prepared in conformity with MFRS, which require
that management make certain estimates and use certain assumptions that affect the amounts
reported in the financial statements and their related disclosures; however, actual results may differ
from such estimates. The Foundation’s management, upon applying professional judgment, considers
that estimates made and assumptions used were adequate under the circumstances. The significant
accounting policies of the Foundation are as follows:
1.
2.
Recognition of the effects of inflation - Beginning on January 1, 2008, the Foundation
discontinued recognition of the effects of inflation in its financial statements; However,
non-monetary assets and liabilities and patrimony include the restatement effects
recognized throught December 31, 2007.
Cash and cash equivalents - Cash and cash equivalents consist mainly of bank deposits
in checking accounts and short-term investments that a) are highly liquid and easily
convertible into cash, b) mature within three months from their acquisition date and c)
are subject to low risk of material changes in value. Cash is stated at nominal value and
cash equivalents are valued at fair value. Cash equivalents are comprised mainly of money
market funds.
212 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 213
Provisions - Provisions are recognized for current obligations that arise from a past
event, that are probable to result in the use of economic resources, and that can be
reasonably estimated.
6.
Income taxes
Being a non-profit association in accordance with the provisions of the Law on income tax ("ISR"), the
Foundation is not subject to income tax, provided that it complies with the requirements regarding
distributable surplus, omissions income, purchases not made and improperly registered and expenses
that may be incurred and are not deductible, as provided in the law.
Income from cash donations - Income from donations received are recognized at the
time the cash is received.
7. Authorization to issue the financial statements
3.
4.
4. Cash and cash equivalents
Cash
Cash equivalents – Money market funds
$ 2,231
$ 7
56,390
38,496
2016
2015
On March 17, 2017, the issuance of the accompanying financial statements was authorized by C. P.
Alejandro Villarruel Morales, Corporate Controller Foundation; consequently, they do not reflect events
occurred after that date. These financial statements are subject to the approval of the Foundation’s,
where they may be modified, based on provisions set forth in the Mexican General Corporate Law.
$ 58,621
$ 38,503
* * * * * *
5. Patrimony
As of December 31 2016 and 2015, the patrimony of the Foundation is comprised of the net changes
in patrimony derived from its activities.
214 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 215
GRI Index
General Standard Disclosures
Indicator Description
Strategy and analysis
Page / Direct answer
Omission
G4-1
Provide a statement from the most senior decisionmaker of the
organization (such as CEO, chair, or equivalent senior position) about
the relevance of sustainability to the organization and the organization’s
strategy for addressing sustainability.
G4-2
Provide a description of key impacts, risks, and opportunities.
8-13
8-13
Organizational profile
G4-3
Report the name of the organization.
G4-4
Report the primary Brands, products, and services.
Inside back cover
18-20
G4-5
Report the location of the organization’s headquarters.
Inside back cover
G4-6
Report the number of countries where the organization operates,
and names of countries where either the organization has significant
operations or that are specifically relevant to the sustainability topics
covered in the report.
5
G4-7
Report the nature of ownership and legal form.
Inside back cover
G4-8
Report the markets served (including geographic breakdown, sectors
served, and types of customers and beneficiaries).
5
G4-9
Report the scale of the organization.
4, 5, 7, 19-22, 25
G4-10
Report the total number of employees by employment contract and gender.
25
G4-11
Report the percentage of total employees covered by collective
bargaining agreements.
Information not
available.
G4-12
Describe the organization’s supply chain.
Report any significant changes during the reporting period regarding the
organization’s size, structure, ownership, or its supply chain.
45-47
8-13
Report whether and how the precautionary approach or principle is
addressed by the organization.
Does not apply.
G4-13
G4-14
Indicator Description
Page / Direct answer
Omission
List externally developed economic, environmental and social charters,
principles, or other initiatives to which the organization subscribes or
which it endorses.
List memberships of associations (such as industry associations) and
national or international advocacy organizations in which the organization
is involved.
48-63
77
G4-15
G4-16
G4-17
G4-18
G4-19
G4-20
G4-21
G4-22
G4-23
Identified material aspects and boundaries
a. List all entities included in the organization’s consolidated financial
statements or equivalent documents.
b. Report whether any entity included in the organization’s consolidated
financial statements or equivalent documents is not covered by the report.
a. Explain the process for defining the report content and the Aspect
Boundaries.
b. Explain how the organization has implemented the Reporting
Principles for Defining Report Content.
List all the material Aspects identified in the process for defining report
content.
For each material Aspect, report the Aspect Boundary within the
organization.
For each material Aspect, report the Aspect Boundary outside the
organization.
Effect of any restatements of information provided in previous reports,
and the reasons for such restatements.
Significant changes from previous reporting periods in the Scope and
Aspect Boundaries.
Stakeholder engagement
G4-24
List of stakeholder groups engaged by the organization.
G4-25
Basis for identification and selection of stakeholders with whom to
engage.
G4-26
G4-27
Organization’s approach to stakeholder engagement, including frequency
of engagement by type and by stakeholder group, and an indication of
whether any of the engagement was undertaken specifically as part of
the report preparation process.
Key topics and concerns that have been raised through stakeholder
engagement, and how the organization has responded to those key topics
and concerns, including through its reporting. Report the stakeholder
groups that raised each of the key topics and concerns.
92-97, 106-108
80-81
80-81
80-81
80-81
78-79
78-79
49
49
49
80-81
216 Alsea | 2016 ANNUAL REPORT
2016 ANNUAL REPORT | Alsea 217
Page / Direct answer
Omission
Indicator Description
Page / Direct answer
Omission
Indicator Description
Report profile
G4-28
Reporting period (such as fiscal or calendar year) for information provided.
G4-29
Date of most recent previous report (if any).
G4-30
Reporting cycle (such as annual, biennial).
79
79
79
G4-31
Contact point for questions regarding the report or its contents.
Inside back cover
a. ‘In accordance’ option the organization has chosen.
b. GRI Content Index for the chosen option (see tables below).
G4-32
79
c. Reference to the External Assurance Report, if the report has been
externally assured. GRI recommends the use of external assurance but
it is not a requirement to be ‘in accordance’ with the Guidelines.
G4-33
Organization’s policy and current practice with regard to seeking external
assurance for the report.
The report is not
externally audited.
Governance
G4-34
Governance structure of the organization, including committees of
the highest governance body. Identify any committees responsible for
decision-making on economic, environmental, and social impacts.
G4-35
Process for delegating authority for economic, environmental and social
topics.
G4-36
Whether the organization has appointed an executivelevel position or
positions with responsibility for economic, environmental, and social topics,
and whether post holders report directly to the highest governance body.
G4-37
"Processes for consultation between stakeholders and the highest
governance body on economic,
G4-38
environmental and social topics."
G4-39
Composition of the highest governance body and its committees.
G4-40
G4-41
G4-42
Whether the Chair of the highest governance body is also an executive
officer (and, if so, his or her function within the organization’s
management and the reasons for this arrangement).
Report the nomination and selection processes for the highest
governance body and its committees, and the criteria used for nominating
and selecting highest governance body members.
Processes for the highest governance body to ensure conflicts of interest
are avoided and managed. Whether conflicts of interest are disclosed to
stakeholders.
67-77
49, 67-77
49
49
67-77
67-77
67-77
67-77
67-77
G4-43
Highest governance body’s and senior executives’ roles in the
development, approval, and updating of the organization’s purpose, value
or mission statements, strategies, policies, and goals related to economic,
environmental, and social impacts.
a. Processes for evaluation of the highest governance body’s
performance with respect to governance of economic, environmental,
and social topics. Report whether such evaluation is independent
or not, and its frequency. Report whether such evaluation is a
selfassessment.
b. Actions taken in response to evaluation of the highest governance
body’s performance with respect to governance of economic,
environmental, and social topics, including, as a minimum, changes in
membership and organizational practice.
a. Highest governance body’s role in the identification and management
of economic, environmental, and social impacts, risks, and
opportunities. Include the highest governance body’s role in the
implementation of due diligence processes.
G4-44
G4-45
b. Whether stakeholder consultation is used to support the highest
governance body’s identification and management of economic,
environmental, and social impacts, risks, and opportunities.
G4-46
Highest governance body’s role in reviewing the effectiveness of the
organization’s risk management processes for economic, environmental,
and social topics.
G4-47
Frequency of the highest governance body’s review of economic,
environmental, and social impacts, risks, and opportunities.
G4-48
Highest committee or position that formally reviews and approves the
organization’s sustainability report and ensures that all material Aspects
are covered.
G4-49
Process for communicating critical concerns to the highest governance body.
G4-50
Concerns that were communicated to the highest governance body.
a. Remuneration policies for the highest governance body and senior
executives.
G4-51
G4-52
b. How performance criteria in the remuneration policy relate to
the highest governance body’s and senior executives’ economic,
environmental, and social objectives
Process for determining remuneration. Report whether remuneration
consultants are involved in determining remuneration and whether they
are independent of management. Report any other relationships which the
remuneration consultants have with the organization.
67-77
67-77
67-77
67-77
49
80-81
49
48-63
67-77
67-77
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Indicator Description
Page / Direct answer
Omission
G4-53
How stakeholders’ views are sought and taken into account regarding
remuneration.
67-77
Ethics and integrity
G4-56
Organization’s values, principles, standards, and norms of behavior such
as codes of conduct and codes of ethics.
5-6, 65-67
G4-57
G4-58
Internal and external mechanisms for seeking advice on ethical and lawful
behavior, and matters related to organizational integrity, such as helplines or
advice lines.
Internal and external mechanisms for reporting concerns about unethical
or unlawful behavior, and matters related to organizational integrity, such
as escalation through line management, whistleblowing mechanisms or
hotlines.
65-67
65-67
Specific Standard Dosclosures
Indicator Description
ECONOMIC
Economic performance
G4-EC1
Report the direct economic value generated and distributed.
Indirect economic impacts
G4-EC7
G4-EC8
Extent of development of significant infrastructure investments and services
supported.
Examples of the significant identified positive and negative indirect
economic impacts the organization has.
ENVIRONMENTAL
Energy
G4-EN3
Energy consumption.
G4-EN5
Energy intensity.
G4-EN6
Reduction of energy consumption.
Emissions
G4-EN15 Direct greenhouse gas (GHG) emissions (scope 1).
G4-EN16 Energy indirect greenhouse gas (GHG) emissions (scope 2).
G4-EN18 Greenhouse gas (GHG) emissions intensity.
G4-EN19 Reduction of GHG emissions.
Products and services
G4-EN27 Mitigation of environmental impacts of products and services.
G4-EN28
Percentage of products sold and their packaging materials that are
reclaimed by category.
Overall
Page / Direct answer
Omission
7
8-13
8-13
57
57
57
58
58
58
58
59
59
G4-EN31 Total environmental protection expenditures and investments by type.
57-59
SOCIAL. LABOR PRACTICES AND DECENT WORK
Employment
G4-LA1
Total number and rate of new employee hires and employee turnover
during the reporting period, by age group, gender, and region.
G4-LA2
Benefits which are standard for full-time employees of the organization
but are not provided to temporary or part-time
employees, by significant locations of operation.
Occupational health and safety
G4-LA5
Percentage of total workforce represented in formal joint management–
worker health and safety committees that help monitor and advice on
occupational health and safety programs.
27
50-52
52
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Indicator Description
Page / Direct answer
Omission
Indicator Description
Page / Direct answer
Omission
G4-LA6
Type of injury and rates of injury, occupational diseases, lost days, and
absenteeism, and total number of work-related fatalities, by region and
by gender.
Trainiing and education
G4-LA9
Average hours of training per year per employee by gender, and by
employee category.
G4-LA10
Programs for skills management and lifelong learning that support the
continued employability of employees and assist them in managing
career endings.
Supplier assessment for labor practices
G4-LA14 Suppliers that were screened using labor practices criteria.
G4-LA15 Actual and potential negative impacts for labor practices in the supply chain.
SOCIAL. HUMAN RIGHTS
Child labor
G4-HR5
Operations and suppliers identified as having significant risk for incidents
of child labor, and measures taken to contribute to the effective abolition
of child labor.
Forced or compulsory labor
G4-HR6
Operations and suppliers identified as having significant risk for incidents
of forced or compulsory labor, and measures to contribute to the
elimination of all forms of forced or compulsory labor.
Supplier human rights assessment
G4-HR10 New suppliers that were screened using human rights criteria.
G4-HR11
Actual and potential negative human rights impacts in the supply chain
and actions taken.
SOCIAL. SOCIETY
Local communities
G4-SO1
Percentage of operations with implemented local community engagement,
impact assessments, and development programs.
Anti-corruption
G4-SO3
Total number and percentage of operations assessed for risks related to
corruption.
G4-SO4
Total number and percentage of governance body members that
the organization’s anticorruption policies and procedures have been
communicated to, broken down by region.
G4-SO5
Total number and nature of confirmed incidents of corruption.
52
28-29
50-52
45-47
45-47
45-47
45-47
45-47
45-47
60-63
45-47
66-67
66-67
G4-SO7
Total number of legal actions pending or completed during the reporting
period regarding anti-competitive behavior and violations of anti-trust
and monopoly legislation in which the organization has been identified as
a participant.
Supplier assessment for impacts on society
G4-SO9
New suppliers that were screened using criteria for impacts on society.
G4-SO10
Actual and potential negative impacts on society in the supply chain and
actions taken.
SOCIAL. PRODUCT RESPONSIBILITY
Guest health and safety
G4-PR1
Significant product and service categories for which health and safety impacts
are assessed.
G4-PR2
Total number of incidents of non-compliance with regulations and
voluntary codes concerning the health and safety impacts of products and
services within the reporting period.
Product and service labeling
56
45-47
45-47
54-56
54-56
G4-PR3
Product and service information and labeling.
G4-PR4
Total number of incidents of non-compliance with regulations and
voluntary codes concerning product and service information and labeling.
Marketing communications
G4-PR6
Sale of banned or disputed products.
G4-PR7
Incidents of non-compliance concerning marketing communications.
G4-PR8
Substantiated complaints regarding breaches of customer privacy.
Components origin,
security instructions
, product elimination
and enviromental or
social impact.
53
53-56
53-56
To date, there has
not been a complain
or identity robbery or
personal informartion
leak of our clients data
base.
Compliance
G4-PR9
Monetary value of significant fines for non-compliance with laws and
regulations concerning the provision and use of products and services.
53-56
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As part of our commitment to ensuring a better future for all,
and have adopted United Nations (UN) Global Compact and
Development Goals.
Area
The Ten Principles of the UN Global Compact
GRI 4 Indicator
Page
Human Rights
Principle 1 - Businesses should support and respect the
protection of internationally proclaimed human rights; and
G4-SO1
60-63
Principle 2 - make sure that they are not complicit in human
rights abuses.
G4-HR10, G4-HR11
45-47
Principle 3 - Businesses should uphold the freedom of
association and the effective recognition of the right to
collective bargaining;
G4-11
205
Labor
Principle 4 - the elimination of all forms of forced and
compulsory labor;
G4-HR6
45-47
Principle 5 - the effective abolition of child labor; and
G4- HR5
Principle 6 - the elimination of discrimination in respect of
employment and occupation.
G4-10, G4-LA1,
G4-LA9
Principle 7 - Businesses should support a precautionary
approach to environmental challenges;
Environment
Principle 8 - undertake initiatives to promote greater
environmental responsibility; and
Principle 9 - encourage the development and diffusion of
environmentally friendly technologies.
G4-EN3, G4-EN5,
G4-EN6, G4-EN15,
G4-EN16, G4-EN18,
G4-EN19, G4-EN27,
G4-EN28, G4-EN31
45-47
24-33,
50-52
57-59
Anti-Corruption
Principle 10 - Businesses should work against corruption in all
its forms, including extortion and bribery.
G4-56, G4-57,G4-58,
G4-SO3, G4-SO4,
G4-SO5
5-6, 45-47,
56, 65-67
Sustainable Development Goals
224 Alsea | 2016 ANNUAL REPORT
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I n vestor
I n format ion
[G4-3, G4-5, G4-7, G4-31]
Finance
Diego Gaxiola Cuevas
CFO
+52(55) 5241-7151
Investor Relations
Salvador Villaseñor Barragán
ri@alsea.com.mx
+52(55) 5241-7035
Headquarters
Alsea, S.A.B. de C.V.
Av. Paseo de la Reforma #222
3er. piso, Torre 1 Corporativo,
Colonia Juárez, Del. Cuauhtémoc,
C.P. 06600, Ciudad de México
+52(55) 5241-7100
Sustainability
Ivonne Madrid Canudas
responsabilidad-social@alsea.com.mx
+52(55) 5241-7100 ext. 7335
Corporate Communications
and Public Relations
Selene González Serrato
rp@alsea.com.mx
+52(55) 5241-7134
Independent Auditors
Deloitte
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Av. Paseo de la Reforma #489
6º piso, Col. Cuauhtémoc
C.P. 06500, Ciudad de México
+52(55) 5080-6000
"Ignite People’s Spirit"
www.alsea.net