CAU
SE-E
FFE
CT 2017 Annual Report
the Alsea
effect
the Alsea effect There’s a place where Brands
become market leaders,
where strategic partners find their
fullest potential to develop,
where employees are part of a team
with a shared passion and goals,
where guests adopt our philosophy and
make it part of their way of life,
and where communities can develop
with our support.
it is no coincidence.
It all has a single cause:
the Alsea
effect
ALSEA 2017 1
the Alsea effect a WAY OF
WINNINGseven
strategic
pillars
2 ANNUAL REPORT
ALSEA 2017 3
sevenstrategicpillars 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 the right dose of happiness,
down to the smallest details, to fulfill our purpose:
Igniting
people’s spirit.
Have a
of
portfolio
top Brands
Create and
develop
a winning
team
Our growth model is
the guiding force in
our operation
We are prepared
for the growth
we expect in
the future
Generate
positive impacts
for society and
the environment
F
T
R
O
I O
L
O
1
BEST TALE
2
N
T
Operate at the
highest level of
quality and
service
3
B
E
S
T
O
P
E
R
A
T
O
R
BILITY P
7
A
N
I
A
T
S
U
S
S
Y
N
E
R
G
Y
A
N
D
C
6
R
I
T
I
C
A
L M
5
ASS TECHNOLOGY AND I N N O V
G
E
G
4
CUTTING-ED
N MARKETIN
T I O
A
Make sure our
Brands make a
connection
Attend
to each
restaurant
as if it were
the only one
Make
technology
our best
ally
At Alsea, our culture is grounded in
five guest-focused strategic values, to
guarantee an extraordinary experience
for every visitor to our restaurants.
winning
Attitude
engaged
Leadership
Surprising
service
Emphasis
of collaboration
Attention
to detail
WINNING
ATTITUDE
Proving our passion
for excellence while
meeting increasingly
ambitious goals.
ENGAGED
LEADERSHIP
Passionate about
restaurants and caring
for the business as
our own.
SURPRISING
SERVICE
Constantly raising
standards of
satisfaction to serve
and surprise.
EMPHASIS OF
COLLABORATION
Joining ideas with
talent in a community
that multiplies
results.
4 ANNUAL REPORT
ATTENTION
TO DETAIL
Continuously
improving to enhance
the Alsea Experience
with impeccable
execution.
ALSEA 2017 5
Ignitingpeople’s spirit.
Message from
the Chairman of the Board
Dear friends:
2017 was a year of great challenges and satisfaction. We continued
to consolidate our business model, with Brands positioned as leaders
in the markets where we operate, expanding our reach and attaining
increasingly strong profit margins, where technology is our ally in
responding to our guests’ preferences, and where our employees can
develop and work with passion toward common goals.
We have succeeded in gearing all aspects of our operation toward
creating great experiences for our guests, generating profits for our
shareholders, and contributing to the development of communities
where we operate.
This is “the Alsea effect.”
The past year started out under very difficult circumstances for Alsea,
especially in Mexico. The US presidential election stirred up considerable
exchange-rate volatility and generated a sense of irritation, even rejection,
toward some of our global Brands like Starbucks. We took immediate
action to counter these effects, and ultimately, despite sluggish growth
in Mexico, our team made some remarkable achievements last year.
2017 was also a year of great achievements, in line with our strategy.
Sustained by our focus on the guest experience, our committed team
of employees, and our passion for quality and service, we continued to
provide strong returns for our investors and reiterated our leadership as
the best restaurant operator in Latin America and Spain.
In this 2017 annual report, we will be sharing our economic, social and
environmental results with you and letting you know about everything
we’ve done to continue evolving toward excellence.
During the year, we further strengthened our corporate governance,
with the aim of being the increasingly institutional, growth-oriented
company our environment demands. To this end we welcomed some key
appointments during the year.
2017 was the first year for our new CEO, Renzo Casillo, who has fortified
this company with some important changes. It was also the first year for
our new Chief Administration and Finance Officer, Rafael Contreras. We
are sure that his experience and vision are what Alsea needs to carry its
strategic plan forward to meet the goals we have set for ourselves.
At the same time, we made some adjustments in our Board of Directors,
which now has the valuable participation of Adriana Noreña, Vice
President for Google Spanish Speaking Latin America, as independent
board member with extensive experience in the technology sector. We
are well aware that the future is increasingly digital, and we need to
understand and orient information toward our commercial purposes
in order to continue offering the best service and the most innovative
proposition for our guests.
6 ANNUAL REPORT
ALSEA 2017 7
One reason this business is so successful is its more than 70,000
employees, responsible for “igniting our guests’ spirits,” and this is why
the company strives so hard to ensure that every one of our restaurants
has the best leaders in the industry, committed to caring for our people,
our guests and our businesses. We have made an increasing effort to
create a more attractive work experience that builds closer emotional
ties with and between our associates, and we are continually investing
in more equitable salaries, standardized talent management processes,
and programs to reduce turnover.
In order to support this strategy and continue efficiently executing
our growth plans in the company’s core industry, focus on restaurant
operations in the different geographies where we are present, and
continue to explore new opportunities in that industry, we made the
strategic decision to sell our minority stake in Grupo Axo, where we
received a very good return on the equity we invested in 2013.
In 2017, we started up a new Centro de Operaciones (COA) located in
Mexico State, one of our biggest forward-looking investments. This is
where we will bring together the supply for all our Brands in Mexico,
and integrate our logistics services and production processes. With this,
we can guarantee that every restaurant has the supplies it needs on
time, and improve the efficiency of our costs, labor, production times and
delivery routes.
Another big investment last year was the creation of a new support
center in Mexico City, a new office space designed according to the “keep
it simple” approach, which encourages collaboration and productivity
and brings us closer to our people. This new space fulfills three purposes:
1 Renovation--new forms of work that will remind everyone that the
center of the business is the restaurant and the guest;
2 Evolution--a space with cutting-edge technology and new services
that benefit everyone; and
3 Connection--all areas of the support center operating under a
single roof.
Among our most outstanding actions in the area of sustainability was
the completion of our fifth year supporting the “Va por mi Cuenta”
program, with an investment of more than 100 million pesos that
today support the operation of 10 children’s food pantries in Mexico,
serving more than 3,500 children at risk of malnutrition. Also for the
fifth year in a row, we were once again included in the Mexican Stock
Exchange’s Sustainable IPC Index, positioning ourselves as a company
committed not only to our economic performance but to society and the
environment as well. Furthermore, for the 6th year in a row, we received
the “Socially Responsible Enterprise” distinction for our commitment to
a better future for all, and we continued to adhere to the principles of the
U.N. Global Compact and Sustainable Development Goals.
At Alsea, we cannot conceive of success without sharing it, and we are
not alone on this road. We are a community driven by excellence and
integrity, and we surround ourselves with the best in every sense of
the word. I am grateful to our management for their determination,
our employees for their commitment, and our shareholders for their
confidence. Each one of you has played a part in our present success,
and you will be essential pillars in building our future success.
Alberto Torrado Martínez
Chairman of the Board of Directors
8 ANNUAL REPORT
ALSEA 2017 9
Letter from
the Chief Executive Officer
At Alsea, our way of winning is a dynamic equation involving our Brands, our
employees and a model of synergies and critical mass, combined with marketing
and innovation strategies, all for the purpose of surprising our guests, surpassing
their expectations and fulfilling our strategic plan, which will double Alsea’s size
by the year 2020.
In 2017, net sales rose 12.8% to Ps. 42.53 billion pesos, compared to Ps. 37.70 billion the year
before. The growth was due primarily to a 6.6% jump in same-store sales and the addition of 214
corporate-owned units that brought the total to 2,716 units as of the close of December 2017--an
8.6% increase over the close of 2016.
Also last year, a 14.2% rise in gross earnings and 11.4% increase in operating expenses (excluding
depreciation and amortization) combined for a 25.4% rise in EBITDA to Ps. 6.47 billion as of
the close of 2017, compared to Ps. 5.15 billion one year earlier. This Ps. 1.31 billion increase in
EBITDA can be attributed specifically to the positive contribution of Ps. 609 million from the sale
of all of our minority stake in Grupo Axo, S.A de C.V., which we had acquired in June 2013; along
with same-store sales growth, operating efficiency, and the increased number of units.
At Alsea Mexico, 2017 was a year of great celebrations: besides the 15th anniversary of Starbucks
in this country, we had the chance to celebrate the opening our new Centro de Operaciones Alsea
(COA), the linchpin of our services in central Mexico, bringing together manufacturing, logistical
and distribution operations and generating efficiencies that boost our profitability.
Mexico, the flagship cutting-edge technology development project that recognized our guests for
their preference, already has more than a million registered users, giving it a presence in 5.7% of
Alsea’s sales with a 37% increase in the average ticket.
At Alsea International, last year marked the third anniversary of our acquisition of Grupo Zena
in Spain, during which time we have achieved a compound annual growth rate of 14% in and
21% in sales and EBITDA, respectively. Furthermore, in the second quarter of the year we
signed a contract to develop the Starbucks brand in Uruguay and in August we opened the first
Chili’s unit in Chile, a format that has already gained widespread acceptance in the Andean
market. With these achievements, we fulfilled our strategy of successfully bringing our Brands
to other countries.
The third quarter of the year was an especially difficult one, and put to the test our resilience and
response capacity when a number of strong earthquakes hit central Mexico. The events affected
our financial performance, most concretely our sales, and we had to close some establishments
temporarily while pitching in to help communities deal with the damage. To assist in this
emergency, we equipped more than 900 restaurants as centers for the collection of food, basic
supplies and personal hygiene items, and also offered support to 280 employees whose homes
were damaged in the quakes, through an internal assistance plan organized by the Emergency
Committee in all the countries that part of the Alsea Family.
In keeping with our sustainability pillars, we continued to work along our four guiding axes: support
for the community, responsible consumption, quality of life, and environment.
Speaking of our commitment to the community, in 2017 we met our goal of operating 10 children’s
food pantries, part of the “Va por mi Cuenta” movement, opening one in the community of Santa
Úrsula, Mexico City, and another in Oaxaca. With these we expanded our coverage, providing
food to more than 3,500 children every day. Among our employees, we continue working one on
one to offer better benefits, opportunities for growth, training and a workplace where their full
development is guaranteed, along with their health and safety. Another sustainability achievement
consistent with our commitment to responsible consumption was our creation of a food safety
and quality policy and standard applicable to all the countries where Alsea operates. Committed
to the environment, we began the purchase of 3.5 million Kilowatt/hours of wind energy, avoiding
the emission of 1,620 metric tons of CO2, and collected 916,000 liters of cooking oil, avoiding the
contamination of 916 million liters of water in 2017.
All of this signals a sea change in the way in which we conceive of our business, incorporating
the cooperation and collaboration of everyone that makes up the Alsea Family to meet the multi-
cultural demands of all of our guests.
We are taking great strides toward strengthening ties with each of you: our investors, employees,
guests, suppliers and society, to whom we express our gratitude for your confidence and trust. We
invite you to peruse this report for more details about who we are, and why Alsea is the leading
restaurant industry company in Latin America and Spain.
As part of our innovation strategy, we incorporated purchasing solutions that are more accessible
and in tune with our guests’ lifestyles. One of these is the Starbucks Rewards program for Mexico,
which already has 1.3 million members, and the new Dominos Mx app, which accounted for
18% of the total brand sales last year. Finally, Wow Rewards, our multi-brand loyalty program in
Renzo Casillo Nielsen
Chief Executive Officer
10 ANNUAL REPORT
ALSEA 2017 11
Financial1
highlights
Income Statement
Net Sales
Gross Profit
Operating Income
EBITDA2
Consolidated Net Income
Balance Sheet
Total Assets
Cash
Cost-bearing liabilities
Majority Shareholders' Equity
Profitability
ROIC3
ROE4
Market Information
Stock Price
Earnings per share
Dividends per share
Book value per share
Shares outstanding6
Operations
Number of Units
Employees
5Y
CAGR5
Annual
growth
2017
%
2016
%
28%
30%
35%
33%
17%
12.8% 42,529.1 100.0
37,701.9 100.0
14.2% 29,605.9
69.6
25,922.2
68.8
34.2%
25.4%
11.2%
3,714.6
8.7
2,767.0
7.3
6,466.3
15.2
5,155.2
13.7
1,252.1
2.9
1,126.5
3.0
3.8% 39,659.3
(39.5)%
1,540.4
(0.5)% 14,761.4
3.8%
9,460.4
15.6%
6.8%
12.6%
12.5%
8.5%
10.1%
(11.7)%
6.4%
(0.2)%
64.37
1.31
0.68
11.36
832.8
17%
22%
7.6%
7.6%
3,438
72,434
38,198.5
2,547.8
14,839.9
9,114.0
10.9%
11.7%
59.33
1.19
0.77
10.68
834.3
3,195
67,340
1 Figures in millions of Mexican pesos (MXN) under IFRS standards, except per share data, number of units, and employees.
2 EBITDA: earnings before interest, taxes, depreciation and amortization.
3 ROIC: operating income after taxes over net operating investment. (total assets - cash and cash equivalents - no cost liabilities).
4 ROE: net profit over mayor shareholders’ equity.
5 CAGR: Compound Annual Growth Rate between 2013 and 2017.
6 Millions of shares
7 SSS: Same-store sales
UNITS
CORPORATE 2,716 21% SUBFRANCHISES 722 79%
UNITS
MEXICO 2,346 32% 1,092 INTERNATIONAL 68%
2013
2014
2015
2016
2017
15,698
22,787
32,288
37,702
42,529
2,040
2,802
4,302
5,155
6,466
SALES
EBITDA(2)
663
624
1,033
1,126
1,252
NET
INCOME
14.5
7.5
10.4
11.7
12.5
8.0
4.5
9.3
8.9
6.6
1,862
2,784
2,954
3,195
3,438
ROE %(4)
SSS %(7)
UNITS
12 ANNUAL REPORT
ALSEA 2017 13
highlights Growthmodel
REVENUES AND RESTAURANTS
PROFITABILITY
ORGANIC GROWTH
NON ORGANIC GROWTH
OPERATIONS
BUSINESS MIX
SYNERGY AND CRITICAL MASS
• Opening current brand and
model restaurants
• Remodeling
• Same-store sales
• New countries
• New segments
• New Brands
• Same-store sales
• Expense control
• COGS control
• Brand portfolio management
• Purchase and investment
• Country portfolio
management
synergies
• Reduced APR
• Own store-franchise mix
• Lower investment
• New sales channels
• Exporting current Brands
• Labor productivity
• Currency mix
• Overhead absorption
• New dining opportunities
• Alsea finance
• New restaurant models
• Finished product sales
• Current revenue flow
• New revenue flows
• Restaurant portfolio
management
• Price strategy
• Menu strategy
• Non-restaurant sales channels
• New revenue sources
• Real estate
14 ANNUAL REPORT
ALSEA 2017 15
BRAND
PORTFOLIO
lea
ding
Brands
Our Portfolio includes
all the top Brands.
Our Brands have a widespread
global presence and tremendous
potential to keep growing.
16 ANNUAL REPORT
ALSEA 2017 17
BrandsBESTTALENTCUTTING-EDGE MARKETINGTECHNOLOGY AND INNOVATIONSUSTAINABILITYBEST OPERATORSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t
Leadership
3,438
restaurants
18 ANNUAL REPORT
ALSEA 2017 19
restaurantsThe Alsea effect Our brand portfolio contains the hottest and most
profitable restaurant Brands, with global expansion
potential. Alsea is the best strategic partner.
We have achieved steady economic growth and
now have a presence in Mexico, Spain, Argentina,
Chile, Colombia and Brazil.
UNITS
2,716
corporate
722
subfranchises
6 countries
4 segments
UNITS / % OF SALES
14Brands
< GLOBAL OWN
BRANDS >
UNITS
Mexico
2,346
Spain
549
Argentina
235
Colombia
154
Chile
150
Brazil
4
QUICK SERVICE
RESTAURANTS
1,692 / 49%
COFFEE SHOPS
901 / 26%
CASUAL DINING
RESTAURANTS
570 / 16%
FAMILY
RESTAURANTS
275 / 9%
20 ANNUAL REPORT
ALSEA 2017 21
6 countries4 segments
win
ning
team
BEST
TALENT
We recruit, develop and
train the best talent.
At Alsea, our team is
committed and passionate
about quality and service.
22 ANNUAL REPORT
ALSEA 2017 23
teamCUTTING-EDGE MARKETINGTECHNOLOGY AND INNOVATIONSUSTAINABILITYBEST OPERATORBRAND PORTFOLIOSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t
Excellence
72,434
employees
24 ANNUAL REPORT
ALSEA 2017 25
employeesThe Alsea effect The best talent
Alsea is convinced that our people are the heart of our
business: it is our employees who captivate guests with
their service and bring our Brands to life.
The Company has a strategy that aims at doubling its size
every five years, so we need to make sure we have committed
leaders who care for their people, their guests and their
business, to generate sustainable, rapid and profitable growth.
58
MEN
42
WOMEN
% by gender
% by position
Directors
(Support and Operations Center)
91.16
Subdirectors
Managers and specialists
Coordinators
Analysts
Store managers
75
62.5
52.63
47.61
53.84
8.84
25
37.5
47.37
52.39
46.16
82
<30 YEARS
% by age
17
31 - 50 YEARS
1
>51 YEARS
% employees
by brand
22
16
18
No. of employees
by country
Mexico
46,292
4
1
Spain
11,897
Argentina
7,891
2
0.6
5
Chile
3,178
17
4
4
Colombia
2,943
Brazil
233
0.2
1
0.2
We have strategies focused
on developing and retaining
the best talent in the
industry.
* Employee data as of December 31, 2017, for Alsea Global.
* Information on percentage by position is for Mexico;
percentage by gender is global.
26 ANNUAL REPORT
ALSEA 2017 27
Alsea is continually
strengthening its Human
Resource strategy to
have the best employees
in the industry, through
programs and projects
that support their
advancement. We are
convinced that this is the
way to positively impact
our business indicators
by offering guests an
exceptional experience
with every visit.
OWNER-MANAGER PROGRAM
For Alsea, the Store Manager is the most important leader, the one who
watches out for the team day in and day out, to ensure sustainable profitable
development and provide unbeatable experiences for guests at every one of
our establishments.
Our Owner-Manager program helps these leaders to strengthen their
qualifications and develop the skills needed to improve business decision-
making, promote growth opportunities and earn the kind of compensation
given to winners, with a holistic, more humane focus.
This program’s efforts in 2017 prepared the groundwork for projects that will
begin in 2018, to help regional directors and district managers adopt to their
new roles and to make them developers of comprehensive leaders who can in
turn take Alsea to the next level, strengthening the culture of ownership to face
new challenges ahead for the company.
Manager of the year
We make recognition a pillar of our culture, and regularly distinguish members of our
operating team for their service to guests. The “Manager of the Year” prize in 2016
went to Florencia Zapata, and in 2017 to Miguel Ángel González–managers of the
Starbucks Galería Güemes in Argentina and the Burger King Plaza Alameda in Chile,
respectively. Together with their teams, these individuals achieved outstanding
results in terms of same-store sales, EBITDA, order growth, turnover reduction,
improved guest satisfaction and quality audit.
2016Florencia
Zapata
2017
Miguel Ángel
González
TRAINING AND GENDER EQUITY
To ensure the fullest development of their skills and build a world-class
team, we provide an average of 35.14 hours of training and preparation to
each employee per year.
We began a “talent seedbed” program with 49 trainees who today hold
the position of restaurant managers, after receiving specialized training in
leadership and operation skills.
We succeeded in reducing the time to fill managerial vacancies from 5% to
2.5%, guaranteeing that our restaurants fill vacancies in less than a month,
by developing managers-in-training.
Some of the most outstanding projects at Alsea International are: the
Development 2.0 program in Spain, where employees obtain certification in
various positions until becoming restaurant managers, and the Equality Plan,
which involves a gender equity course for new hires. Project Management
in Argentina, a joint program with Universidad Austral, assists in training
Project and Process managers; Alsea College in Chile is a program aimed at
Support Center employees and store managers, helping them do their jobs
better and prepare them for the future, in courses given by leaders at Alsea
Chile who have been trained to empower their skills as facilitators.
For Alsea, an environment of equal opportunities and fair working conditions
is a priority. For this reason, we have a Gender Equity Program that promotes
the recruitment and retention of the best talent on the market and works to
increase the proportion of women in managerial positions, offering benefits
consistent with industry standards to facilitate development and support
the professional careers of women employees.
An average of 35 hours
of operating leadership
and personal training a
year per employee,
including the support
and operation center.
15 in Mexico
25 in Argentina
66 in Chile
19 in Colombia
62 in Brazil
23 in Spain
28 ANNUAL REPORT
ALSEA 2017 29
Manager of the year We work to close
the wage gap by
offering competitive
compensation to our
people, and ensure
that every employee is
compensated under a
model that encourages
high performance and
promotes the retention
of key talent.
Ps.47
billion
invested in
additional
compensation
for our
employees
Managerial stability (%)
54 Mexico
56 Argentina
49 Chile
56 Colombia
3 Brazil
79 Spain
TALENT RETENTION AND DEVELOPMENT
At Alsea, we are committed to our employees’ development, and we design
inter-brand career paths that promote their development and encourage the
filling of vacancies internally, taking advantage of the experience accumulated
by our own employees while encouraging them to grow and adopt long-term
career plans.
This year we began a strategy of standardizing benefits for our managers,
a process we expect to complete within the next 3 years. The program
encompasses benefits such as grocery vouchers, vacation time, annual bonus,
savings fund and vacation bonus.
In order to make sure we are offering the most attractive benefits to our team
and ensure they are the first to receive the best experience in our Brands,
this year we introduced food-and-beverage discounts in all our markets, with
a permanent 30% discount given to all employees who had been with the
company for more than three months.
The Únete Recruitment and Talent center gave jobs to more than 39,000
candidates seeking managerial and operating positions in 23 states of Mexico.
For the first time, we drafted formal succession plans for the first and second
lines of command at the Support Center, which ensures continuity of the
company’s strategy.
In Colombia, the “Field” human resources model was introduced to facilitate
human resource area presence in the stores and improve key business indicators.
Finally, we made considerable progress in our goal of retaining the best talent
in the market. Proof of this is the reduction in Alsea’s turnover index, compared
to the industry average. Turnover among our supply chain employees in Mexico
was lowered from 39% in 206 to 32% in 2017. In 2018, the area is aiming
for a further reduction of 7%. This has been made possible through constant
communication, an attractive salary and benefits package, and the impeccable
execution of our Plan 0-90 for new hires, promotion of leadership with a human
approach, inter-brand career paths, and the constant pursuit of competitive
compensation.
At Alsea Mexico, out of 94 million work hours in the year, 73,000 hours were
lost to accidents. At the support center there was an average of 0.08 work
hours lost for every 1 million worked. Alsea reports all this data to the Mexican
Social Security institute (IMSS) and makes sure it keeps track of the information
continuously and effectively.
CULTURE AND COMMITMENT
We are constantly working to build closer emotional ties between our
employees and Alsea, through the experience of our culture, a better quality
of life, and a strategy of commitment. Following a company-wide analysis
in 2016, each company leader brought together his or her work teams to
communicate the results and analyze them, in order to jointly come up with
actions for improvement. The result was the creation of 4,659 Effective Impact
Plans around the world, 67.6% of which were followed in 2017, laying the
groundwork for a stronger team commitment and closer relationships between
employees and their superiors.
According to the methodology we use at Alsea, the goal for 2018 is to reach a
commitment of between 3.8 and 4.04 (on a scale of 1 to 5), which will mean a
closer emotional connection between employees and their superiors.
We intend to continue working to train our leaders to stay close to their people,
supporting them, developing them, giving them feedback and increasing their
sense of emotional connection with Alsea.
In 2016 we conducted our first corporate commitment survey, and will do
so again in 2018. The first survey was answered by 92% of employees, and
we hope to do better in 2018, because this is the best way to listen to our
employees.
30 ANNUAL REPORT
ALSEA 2017 31
ST A I N A BILITY
A
L
S
E
A
U
S
Q
u
ality o f
L ife
We know that
performance on
the job depends
on persona and
family wellness and
good quality of life.
That’s why we take
initiatives to help our
employees enjoy a
balanced lifestyle.
WELLNESS AND QUALITY OF LIFE
The inclusion of the Wellness pillar in our human resource strategy entails a
series of actions that benefit our employees and is just another way Alsea
strives to be a great place to work.
Other initiatives at Alsea Mexico:
• Two consecutives days off for managers
• Relocation of managers to units closer to their home.
Some of the key actions in our markets have been:
• Scholarships for managers who are completing professional studies.
• In Mexico, creation of an Occupational Wellness service where employees
have access to a medical clinic for dealing with accidents or emergencies,
along with preventive medicine, health fairs, vaccination campaigns and
medical checkups.
• In Chile, the Starbucks brand received the “Wellness Revolution” distinction for
its promotion of holistic wellness, physical activity, proper eating, health and
recreational benefits for its employees.
• Alsea Columbia organized a Health Week in which medical and eye exams
were given, along with activities like active breaks.
• In Spain, a “flexible office” plan permits employees of the Support Center to
request work at home on certain days, so they can arrange aspects of the
personal life that might otherwise conflict with work time.
• In Argentina, we offer additional vacation days of 100% of our employees,
giving them an extra day after three years and two more after the fourth year.
We also introduced adoptive parents’ leave, giving employees 45 days to be
close to their new families.
• Agreement with SportsWorld, the leading sports club chain in Mexico, to
encourage employees to attend a fitness center and achieve a healthier,
more balanced lifestyle.
• Keep It Simple, a work system introduced at the Support Center to
encourage productivity and cooperation. It includes activities like a
effective time planning, which can also be applied to various aspects of
daily life.
• Keep it Simple proposes a series of steps--hear, clarify, organize, reflect
and act--by which the employee can better organize and plan their
time, focusing on actions and projects that really generate value for the
business, and thus make decisions more confidently.
• Opening of new offices for the Mexico City Support Center. This new
space encourages collaborate work in pleasant surroundings equipped
with cutting-edge technology. The project consists of a Training Center
for 500 employees, a Talent Recruitment Center that receives more than
100 candidates a day, and a dining room offering nutritious, balanced
food, supervised by an expert, at preferential costs to employees. The
building has Gold-level LEED certification (Leadership in Energy and
Environmental Design), because it is a sustainable building designed to
meet key criteria such as accessibility to public transportation, water
efficiency, lighting system efficiency, use of renewable materials and
resources, proper air quality inside the building, and innovative design,
among other qualities. All of this provides employees with a space that
promotes teamwork, in a climate of respect and care for the environment.
32 ANNUAL REPORT
ALSEA 2017 33
ope
ra
ting
efficiency
BEST
0OPERATOR
Service
is our specialty.
We work for top-quality operation
and focus on the Guest experience,
with extraordinary results.
34 ANNUAL REPORT
ALSEA 2017 35
efficiencyBESTTALENTCUTTING-EDGE MARKETINGTECHNOLOGY AND INNOVATIONSUSTAINABILITYBRAND PORTFOLIOSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t
Profitability
6,466mdp
EB I T DA
36 ANNUAL REPORT
ALSEA 2017 37
EBITDAThe Alsea effect Being the best operator
means being more
productive, focusing our
efforts on reshaping the
Guest experience, offering
the best products with
the best service, and
making every visit an
unforgettable experience.
EL PORTÓN: PRIDE OF MEXICAN CUISINE
In 2017 we began to remodel these restaurants around a more modern concept
based on Mexican cuisine.
As part of this renovation, we introduced a menu of genuine Mexican dishes
into more than 30 units, with recipes that reflect the original preparation, only
the necessary ingredients, and meticulous preparation of each dish.
We signed an alliance with the Mexican Conservatory of Gastronomic Culture,
an institution created to preserve, promote and protect Mexican culinary
culture–which makes El Portón a worthy representative of Mexican cuisine,
recognized as intangible heritage of humanity by UNESCO.
We have also begun training and developing local suppliers who can offer the
highest-quality, local ingredients for our recipes, for example coffee from a
cooperative of producers in the El Triunfo Biosphere.
VIPS: BRAND TRANSFORMATION
The VIPS brand transformation project, which began in May 2017, is well
under way. Part of the process has been to optimize real-estate locations by
combining VIPS restaurants with another brand format, like Starbucks, taking
advantage of areas where guest traffic is heavier.
Another important changes is an overhaul of menu style and content. The new
design is very attractive and offers meals and desserts on the same menu-before,
they were shown separately, which inhibited guests from ordering.
Finally, the restaurants’ identity and layout have been revamped, and their
space has been optimized with more two-person tables and sections designed
to attend to the various types of guests who visit:
Kitchen: For casual, quick visits near the bar
Dining: For frequent visitors looking for a pleasant space
Family: For larger groups and families with children
38 ANNUAL REPORT
ALSEA 2017 39
ENLACE
The best Way to Win at Alsea is staying close to operations and using “Enlace,”
our store supervision tool introduced in 2016. Enlace gives us information on
store visits, helps us develop and administer metrics and keep track of action
plans for each business unit. We evolved the website to an easily accessible
app for more than 2,233 registered users in 15 different areas of the various
countries where we are present.
The system was developed to support our restaurants in managing areas like
supply chain, maintenance, information, marketing, technology, quality assurance
and human resources.
The platform enables us to offer higher quality standards at every restaurant
and helps our Brands to achieve their fullest potential to improve guests’
experience in every visit.
BURGER KING
As a different, innovative service within Burger King operations, we created
a new floor staff position called the Lovbyist, in charge of making each visit a
“hosted” experience.
The Lovbyist helps Clients when ordering at the counter, brings additional
orders to their table and even helps them clear their service trays.
The initiative has increased the average ticket by 20% and the program has
been adopted internationally, even in countries where Alsea is not present.
ARCHIES
Archies has also undergone a service evolution, and focuses on highlighting the
Italian side of its culture, involving the entire team.
Our employees have a service protocol that covers everything from the welcome
greeting to serving the order and overseeing the experience in the restaurant,
through final payment and seeing our guests off at the end of the meal.
We also reformulated the Archies menu, offering a wider selection of Italian
dishes and greater cost efficiency. We set standards of gastronomy and food
safety and received SERVSAFE certification with a 99% participation by store
and district managers.
40 ANNUAL REPORT
ALSEA 2017 41
We use every means possible to
ensure our Brands provide the best
experiences to our guests.
We become a part of their lifestyle,
and we take the lead in every market
where we operate.
cut
ting
edgemarketing
CUTTING-EDGE
MARKETING
42 ANNUAL REPORT
ALSEA 2017 43
marketingBESTTALENTTECHNOLOGY AND INNOVATIONSUSTAINABILITYBEST OPERATORBRAND PORTFOLIOSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t Brand
44 ANNUAL REPORT
ALSEA 2017 45
Connection
The Alsea effectConnection We have cutting-edge
marketing strategies that
build our Brands’ value
while bringing us closer
to guests to offer them
experiences, products and
PROMOTIONS that meet
their needs.
WOW REWARDS
A loyalty program that encompassed most of our Brands in Mexico with a
single rewards card, where guests can earn points for every purchase and use
them to pay for future purchases at our more than 1,300 Alsea establishments
in this country.
Wow Rewards gives us valuable insights into the consumption habits and
preferences of the guests of each brand. More importantly, we can generate
a profile of the “Alsea Guest,” giving them incentives to visit the rest of our
brand portfolio.
Thanks to the business intelligence behind this program, we have information
on more than a million registered users, whose average ticket is 37% higher
than that of users who are not yet members.
For 2018, the model will achieve maximum inter-brand synergies by offering
personalized promotions and generating new lines of business through strategic
alliances with other companies that could give the card to their employees as
a benefit or incentive.
MY STARBUCKS REWARDS
This Starbucks loyalty program rewards Clients with benefits and options
consistent with their tastes and preferences, enriching their Starbucks
experience.
The program requires online registration and a minimum initial credit on the
card. From that point on, guests accumulate “stars” with every purchase, and
receive benefits and special offers.
In 2017, we launched the program in Argentina to great success and widespread
acceptance, and in Mexico we released a new version of the mobile app
and updated our web page to continue bringing a variety of benefits to our
Customers. The program already has more than 1,453,174 members in Mexico
and Argentina.
FOSTERIANOS
At Foster’s Hollywood, one of our leading Brands in Spain, we continued the
“Fosterianos” program, a promotion-based loyalty program that aims to
increase visits to the restaurant and boost group consumption for our guests.
The program has a growing-rewards system, meaning the more frequent the
visit, the greater the benefits. The program includes a smartphone app, which
is the primary communication support, and more than 1.5 million members.
In 2017, we evolved and optimized the program improved the offering of
promotions with new segmentation variables and a more emotional approach,
to create a closer connection with our guests.
ARCHIES
At Archies, our brand in Colombia, inspired by Italian cuisine and traditions,
guests can enjoy the characteristic flavors of this cuisine and come together
with their families to share meals. We re-launched the brand with a focus on
the following:
Service evolution: Focused on promoting Italian culture and involving the
whole team.
Menu restructuring: We returned to our Italian roots to create authentic recipes
and a new assortment of dishes.
Brand essence: we define aspects associated with the brand: territory,
personality, distinguishing features, values, essence and image.
Image: we introduced changes to the store structure, menus, uniforms and all
the graphic elements that make up the Archies identity.
46 ANNUAL REPORT
ALSEA 2017 47
STARBUCKS MERMAID FRAPPUCCINO
At Starbucks Mexico, we created our first locally developed beverage. Inspired
by the iconic and mythological two-tailed mermaid, an emblem of the brand,
the Starbucks Mexico innovation team created an original recipe based on
green melon cream and blue whipped cream, decorated with edible pearls and
dust that highlight the striking colors of the beverage.
Since its launch, the brand reports 120,000 additional transactions and a two-
point growth in total traffic. The results in digital media was a 1,200% increase
in positive sentiment and 2.4 million hits.
SHARED MARKETING SERVICES
At Alsea, we have a Shared Marketing Services area by which we generate
capacities, benefits and synergies between Brands, by consolidating media,
strategic alliances, public relations, loyalty programs, market research and
strategic projects. Some examples of these benefits are:
Media: By consolidating our media services into a central area that attends to
all our Brands in Mexico, we have saved 50% on the purchase of advertising in
both traditional and digital media.
Strategic alliances: We developed a network of alliances with other companies
to boost sales and generate more transactions in our establishments, through
loyalty programs, market intelligence and brand construction. Some of our
partners in these alliances are Banco Santander, Citibanamex, Bancomer,
Pepsi, Heineken, Disney and Grupo Expansion, among others.
Public relations: Responsible for stewardship of Alsea’s reputation and Brands.
We generate response protocols for crisis and emergency situations, establish
strategies, procedures and paths of action for every scenario. We assembled
a Crisis Committee, which developed a plan that covers every aspects from
detection to evaluation of the damages. Our goal is to minimize potential
damage for the business and restore the credibility and good image of Alsea
and its Brands.
BLACK LABEL BURGER FOSTER HOLLYWOOD
In Spain, Fosters Hollywood launched this premium burger, served on truffle-
flavored bread, with cheddar cheese and port-caramelized red onion. Since its
launch, the brand had increased sales by 6.7%.
“Stacker Day” at BURGER KING ARGENTINA
Burger King Argentina joined in the fundraising drive to support Atomic Lab,
an innovation company create by Gino Tubaro, a young inventor who created a
machine that can make artificial arms and hands through a 3D printing process.
The brand offered a 50% discount on all Stacker combos and sold more than
50,000 units per store per day, donating half the proceeds to this effort. With
the funds raised, Atomic Lab provided around 800 3D-printed prosthetic hands
for people in need, at no charge.
48 ANNUAL REPORT
ALSEA 2017 49
We make technology
our closest ally.
We redefine the industry through
business intelligence and stay one
step ahead of the competition.
inno
va
TION
and
technology
TECHNOLOGY
AND INNOVATION
50 ANNUAL REPORT
ALSEA 2017 51
and technologyBESTTALENTCUTTING-EDGE MARKETINGSUSTAINABILITYBEST OPERATORBRAND PORTFOLIOSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t
Business
Intelligence
52 ANNUAL REPORT
ALSEA 2017 53
The Alsea effectIntelligence The effects of innovation
directly affect the
positive experience of our
guests. We develop new
technological tools, not
just to promote our Brands
and sell new products,
but to achieve higher
standards of efficiency
and profitability in our
operations.
RE-LAUNCH OF THE DOMINO’S APP IN MEXICO
In 2017 we successfully re-launched our mobile Domino’s app, through which
guests can place an order without having to know where the closest Domino’s
is; it also has an integration for registry with Facebook or Twitter.
The app uses geo-location technology to find the user, store information on
their profile and program orders up to 7 days in advance. It is integrated with
payment systems and a module for tracking the status of the order.
Since its launch, the app has been downloaded 21 million times and has
increased brand sales as follows:
+21% sales
increase in
corporate
store sales
+37% sales
increase in
delivery
channel
+58%
increase in the
average ticket vs.
in-store credit
card payment.
INTERNAL MANAGEMENT SYSTEMS
ERP
Our business resource planning system is intended to provide support for Alsea
International’s strategic growth plan through a technological transformation
and disruptive evolution of the operational model we had been using. One of
the biggest benefits has been substantial savings on the total cost of belonging,
meaning the costs involved in purchase and maintenance of the system.
The transformation will position us an international benchmark in our industry,
thanks to a global model we will adopt to increase efficiency, standardize and
expedite all the processes that support our operations in every country where
we operate.
BI
Our Business Intelligence project is an information management tool. Under
this initiative, we can assemble, purge and transform the data obtained in daily
transactions, turning it into a structured base of information ready for direct
exploitation through analysis and conversion in to knowledge that will support
business decisions.
With the support of the Human Resources area, we defined a structure to
consolidate the BI Excellence Center, called CIA.
To support this entire management system, we have big data infrastructure
in the cloud, which will be populated, in the first phase, with information
from Mexico, from the systems, loyalty programs and VIPS “Customer Voice”
information areas.
CRM
As part of our program of renovation and technological innovation, we
began restructuring two customer relationship management systems in
2017: Starbucks Rewards and Wow Rewards.
In both cases, our aim is to bolster systems for optimizing commercial
management, marketing platform and post-sale service, so we can
provide our guests with a better brand experience, custom-designed
loyalty programs and even inter-brand benefit programs, such as Wow
Rewards, which is also in the process of integrating Domino’s operations
during 2018.
HCM
In the Human Resources area, we are introducing Oracle HCM Cloud, a
platform that will enable us to align HR processes to manage the entire
personnel cycle, from selection and hiring of candidates to professional
development, training and succession planning.
54 ANNUAL REPORT
ALSEA 2017 55
We attend to every restaurant
as if it were the only one.
We bring them all the inputs they
need, 24/7. We are prepared to handle
future growth.
inte
gra
TIONand
support
SYNERGY AND
CRITICAL MASS
56 ANNUAL REPORT
ALSEA 2017 57
and supportBESTTALENTCUTTING-EDGE MARKETINGTECHNOLOGY AND INNOVATIONSUSTAINABILITYBEST OPERATORBRAND PORTFOLIO T h e A l s e a
e f f e c t
Efficiency
2,390
Stores served
58 ANNUAL REPORT
ALSEA 2017 59
Stores servedThe Alsea effect Our Synergy and Critical Mass
model details the way we
support our operations with
resources, efficiency and best
practices to create competitive
advantages for every brand
in our portfolio. We optimize
response time in restaurants,
lower costs and broaden our
profit margins. We are prepared
to handle future growth in our
operations.
COA installed
capacity
45,000m2
2,390 stores
18,000 rack
50 gates
470 routes
92 routes
300 trucks
floor space
served
positions
for loading and unloading
for all Brands
for Domino’s
handled daily
Alsea Operations Center
In 2017, we opened our new Alsea Operations Center (the COA), with an area
of 45,000 m2 and an investment of more than 1.1 billion pesos. The Center
incorporates warehousing, distribution and manufacturing facilities under
one roof.
The COA has state-of-the-art technology in refrigeration systems, automated
meet conservation processes and a wastewater treatment plant.
This new center brings substantial benefits, like improved product quality,
optimized response time to restaurants, lower costs, broader profit margins
and absolute control over food hygiene.
The plant received the highest rating in a quality audit by Domino’s
International (5 stars) for its quality guarantee, food safety and cold chain
process for pizza dough.
COA employees receive all the necessary training and certification in each of
the processes they handle.
Some of the actions that benefit COA employees and the surrounding
neighborhood are: the hiring of employees from areas near the facility, locker
rooms, dining room, leisure area, parking lot shuttle, and others.
In keeping with our environmental commitment, the COA also introduced
initiatives like installation of LED lighting systems, temperature and movement
sensors, cutting-edge technology for cooling and freezing areas that require
special temperatures, and maximum control of fluctuations, plus fuel-saving
equipment, a water capture system, etc.
60 ANNUAL REPORT
ALSEA 2017 61
capacity Our chain
supply
CONECTA
Is our supply chain cycle. It encompasses
all phases involved in the planning,
production, distribution and management
of resources to connect and resolve the
needs of our stores, and thus to satisfy
our guests.
Our processes are fully synchronized
toward a common purpose: Bringing all
the necessary supplies to each store so
the manager can focus on meeting and
exceeding guests’ expectations, making
every visit an unforgettable experience.
Financial
Planning
Purchasing
Human
resources
Safety and
hygiene
Planning and
Development
Manufacturing
Distribution and
logistics
Quality and
development
Maintenance
and engineering
62 ANNUAL REPORT
ALSEA 2017 63
We connect with
Alsea’s Brands,
helping to “Ignite
our guests’ spirits”
We contribute to the development
of the communities where we operate….
… through successful community
support programs and environmentally
responsible operations.
POSI
TIVE
impact
SUSTAINABILITY
64 ANNUAL REPORT
ALSEA 2017 65
impactBESTTALENTCUTTING-EDGE MARKETINGTECHNOLOGY AND INNOVATIONBEST OPERATORBRAND PORTFOLIOSYNERGY AND CRITICAL MASS T h e A l s e a
e f f e c t
Shared value
29,427
hours of volunteer work
66 ANNUAL REPORT
ALSEA 2017 67
hours of volunteer workThe Alsea effect Our global model
Sustainability
Is one of Alsea’s ways of winning, and a fundamental
value for the business. We want to contribute to sustainable
economic development and the interests of society at
large. We assume responsibility for the direct and indirect
impact of our activities on various stakeholders.
Our sustainability management model involves four
commissions that report to the Sustainability Committee,
which is made up of members of the company’s top
management. The Committee identifies stakeholder needs,
defines the sustainability strategy and oversees compliance
with the initiatives proposed by the commissions.
y
p l o
s E m
t
s
e
u
G
I
n
S
v
U
e
s
S
t
T
o
r
s
A
I
N
e e s Vendo
r
s
C
o
m
m
u
n
i
t
y
E
E
T
T
I
Os
M
M
d i a NG
G
o
v
A
BI L I T Y
ernment
O
C
M e
Commissions
zero
hunger
reducing
inequality
Community
support
Our management, action plans and targets are aligned
with our business goals, and with the priority aspects
identified in our materiality analysis, incorporating the
ten principles of the UN Global Compact, which we signed
in 2011, and the UN Sustainable Development Objectives.
Stakeholders
accessible, non-
polluting energy
climate
action
Environment
gender
equality
Decent work
and economic
growth
health and
wellness
responsible
production and
consumption
Quality
of life
Responsible
consumption
We pursue food security for
vulnerable communities and
promote human development
through initiatives that favor
education and employability.
For more details about our Sustainability strategy, visit:
https://www.alsea.net/sustentabilidad
68 ANNUAL REPORT
We support the holistic advancement
of our employees, providing them
with conditions to harmonize their
personal and professional lives and
offering occupational safety and
health programs.
We promote a balanced lifestyle,
integrating the pleasure of a high quality
meal and healthy togetherness with
physical activity.
We promote environmental
care through efficient use of
resources: energy, water,
inputs and waste.
ALSEA 2017 69
Our
materiality
Our 2017 annual report was prepared in accordance with the Core option
of the Global Reporting Initiative Standards, and the information presented
corresponds to the period from January 1 to December 31, 2017.
In 2017, we strengthened our commitment to stakeholders with a new materiality
study in Mexico. This study helped us to identify the aspects that are most
transcendent to Alsea, and the expectations of our stakeholders regarding each
of those aspects. To conduct this materiality study we followed the Standards
methodology provided by the Global Reporting Initiative (GRI).
In carrying out the study we identified and prioritized material aspects that
affect our various stakeholders, considering the maturity and risk of industry
and social specifiers; we then checked this information through dialogue with
some of our stakeholders, and finally related these data with the results of the
maturity and risks analysis, obtaining the material issues that had been validated
by stakeholders.
The materiality analysis is used as a basis for defining the strategic priorities of
our four Sustainability pillars.
The chart below shows our updated materiality matrix, as well as the listing of
material aspects for the company.
Necessary
Risk management
Environmental policy
Energy
eco-efficiency
Water management
Waste management
Product and
service development
CSR Management
Operations
Human capital
development
Client
management
Materials
Financial
Issues
Brand
management
SSC
Human rights
Corruption
Climate
change
Vendor
standards
Ethics
Social
impact
Talent
recruitment/
retention
Biodiversity
Diversity
and equal
opportunity
Corporate governance
Urgent
100
s
r
e
fi
i
c
e
p
s
l
a
i
c
o
s
+
s
r
e
fi
i
c
e
p
s
y
r
t
s
u
d
n
i
+
y
t
i
r
u
t
a
m
y
r
t
s
u
d
n
I
50
In the process of updating our materiality matrix,
we were particularly interested in hearing from our
employees and our guests, and we learned that the
priority aspects of each of these were:
Employees:
Labor practices
• Equal pay for equal work
• Human capital development
• Occupational safety and health
Human rights
• Compliance with international labor standards
• Follow-up on cases of discrimination
and measures taken
Training
• Labor aspects
• Health and safety
• Ethics
Guests:
Brand management/products
• Quality
• Price
• Compliance with quality standards
The resulting material aspects for Alsea were:
• Corporate Social Responsibility Management
• Risk management
• Ethics and integrity
• Corruption/bribery/transparency
• Brand management
• Financial issues
• Operations
• Product and service development, product
responsibility
• Customer relationship management
• Environmental policy/environmental management
system
• Materials
• Energy eco-efficiency
• Climate change and atmospheric emissions
• Talent recruitment and retention
• Human capital development
• Occupational safety and health
• Human rights
• Social impact
• Vendor standards
The resulting areas of opportunity–urgent issues–on
which we must work to reduce risk factors, are waste
management and water resource management.
The generalized issues, are those that should be
kept in mind even though Alsea ranks about average
in these matters, because they may become more
important, and the company needs to be ready to
deal with future requirements. These issues are
corporate governance and diversity and equal
opportunity.
In 2018 we will focus our sustainability strategy
on actions to address issues that were found to be
material in this study.
0
Emerging
50
70 ANNUAL REPORT
Alsea + stakeholders
100
Generalized
ALSEA 2017 71
materiality
Communications
stakeholder
At Alsea, we promote direct,
clear, timely and constant
communication with our various
stakeholders.
Internal newsletters
Communication scorecards
Yammer-Partnet
Intranet-Red Alsea
Communiqués from the CEO
Internal communication campaigns
Screens
Integrated report
E-mail and web page
Communication in restaurants
Fundraising campaign
Social network
Mass media
Integrated report
E-mail and webpage
Letters
Fundraising campaigns
Visits
Integrated report
E-mail and webpage
s E m
t
s
e
u
G
V
e
n
d
o
r
s
e e s Investo
r
s
U N I C A T IO
N
W
I
T
H
y
p l o
M
M
O
C
Shareholders’ meeting
Results call
Social networks
Phone conversations
Integrated report
E-mail and webpage
Meetings
Conferences
Investor and Analyst Days
C
o
m
m
u
n
i
t
y
Evaluation visits
Participative diagnostics
Work meetings
Reports and control meetings
Integrated report
E-mail and webpage
S
TAKEH O L D E
S
R
G
o
vernment M e d i
Participation in events
Reports and control meetings
Integrated report
E-mail and webpage
Weekly
Monthly
Continuous
Quarterly
Annually
Occasionally
72 ANNUAL REPORT
Os
a NG
Evaluation visits
Participative diagnostics
Work meetings
Reports and control meetings
Integrated report
E-mail and webpage
Social networks
Integrated report
E-mail and webpage
Learning about their opinions,
suggestions and expectations
enables us to anticipate possible
risks and take advantage of
opportunities that arise around us.
ALSEA 2017 73
stakeholder
Support for the
community
Ps.41mn
Ps.59mn
RAISED IN
DONATIONS (%)
MAIN
CAUSESS (%)
35
27
16
16
4
2
“Va por mi
cuenta” campaign
Alsea and
subsidiaries
Employee
campaign
Other brand
campaigns
Founding
partners
Other “Va por mi
cuenta” allies
Hunger and
nutrition
Emergencies and
natural disasters
Community
development
Education
Civic
participation
Mexican
gastronomy
48
26
13
5
5
3
We introduced large-scale
programs to promote
healthy lifestyles, support
our vendors, create
job opportunities, and
actively participate in
the communities where
we operate by involving
ourselves in product projects
and fighting childhood
malnutrition.
“Va por mi cuenta” movement
In 2012, Fundación Alsea A.C. committed to build and operate 10 children’s food
pantries over a five-year period, to help poor children with serious food needs.
We are proud to say that in 2017 we met that target, opening two more food
pantries in Mexico City and one in Santa Rosa de Lima, Oaxaca, our tenth in the
country. We began operating a new socially, economically and environmentally
sustainable mode that provides service to rural children and ensures them
better dietary conditions. We also fortified our commitment to the Sustainable
Coffee Challenge, directly benefiting a coffee-farming community.
In Colombia, the program benefited 239 children through 4 institutions located
in Medellín, Bogotá, Soacha and Cali, in an alliance with Fundación Éxito and its
“Gen Cero” program, in the following institutions: Misioneras de Cristo Maestro,
Fundación Ximena Rico Llano, Fundación Semilla and Fruto ABC Prodein.
Main
achievements
29,427
hours of volunteer
time in Mexico
466,046
nutritious meals served
at 10 food pantries
in Mexicoo
+ 61,000
nutritious meals served
in Colombia
3,500
children with serious food
needs helped
260 mtons
of product donations channeled
through food banks
Ps.16.6 mn
in support to families affected
by earthquakes in Mexico
74 ANNUAL REPORT
ALSEA 2017 75
communityachievements 5
institutions
supporting
more than 1,200
beneficiaries in
Mexico
ST A I N A BILITY
A
L
U
S
S
u
p
S
E
A
y
t
p
o
rt the c o m m uni
Fondo de Oportunidades y Empleabilidad
The Opportunities and Employability Fund is a program sponsored by backed by
Starbucks International and Fundación Alsea, A.C., with the goal of supporting
disadvantaged youth and giving them access to better living conditions by
encouraging their skills and providing them tools so they can find jobs.
Mexican Gastronomy
On November 16, 2010, the world’s highest cultural authority, the United
Nations Education, Science and Culture Organization (UNESCO) declared
Mexican traditional cuisine heritage of humanity.
Fundación Alsea, A.C. recognizes the commitment that this implies, and in
2017 it decided to open new lines of action: promoting the preservation and
revival of Mexican traditional cooking, safeguarding its uses, customs, cultural
practices and flavors.
This past year we sponsored the Fifth World Forum on Mexican Gastronomy,
in close collaboration with the Conservatory for Mexican Gastronomic Culture,
presenting the first Alsea Merit Award for Traditional Mexican Gastronomy in
2017 to the Grupo de Mujeres de Copoya, from Tuxtla Gutiérrez, Chiapas.
900
restaurants
turned into
donation centers,
with 12 metric
tons of food
collected
+50,000
volunteers
received prepared
foods from
Alsea Brands
Sustainable Coffee Challenge
In September 2017, Alsea joined the Sustainable Coffee Challenge, a global
challenge to make coffee the world’s first fully sustainable agricultural product.
The challenge is promoted by Conservation International in collaboration with
the Starbucks Coffee Company. With this, Alsea commits to:
1. Improving living conditions for coffee producing communities
2. Promoting environmental care
3. Increasing the availability and purchase of sustainable coffee
Through the “We all plant Starbucks Mexico” coffee initiative, more than 1.6
million plants were donated, and in 2018 we have committed to donating
another 70,000.
September 7 and 19 earthquakes in Mexico
With the solidarity of thousands of guests and commercial partners, Fundación
Alsea A.C. succeeded in raising more than 16.6 million pesos in support for
Mexican families affected by the September 7 and 19 earthquakes.
This was possible thanks to:
• 3,545,371 pesos in donations from guests at Alsea establishments, which the
company matched one-for-one.
• 794,000 pesos raised through the purchase of participating Brands that
donated a portion of their proceeds.
• 3.76 million pesos in donations from commercial partners.
• 5 million pesos in an initial contribution from Fundación Alsea, A.C. to the
Carlos Slim Foundation.
• We held a fundraising campaign called “One Day for Mexico,” in which we
invited employees to donate a day of their salary, which would be matched
three-for-one by Fundación Alsea, A.C.. With this initiative we raised a total
of Ps. 8,886,698.
This contribution was not just economic: Alsea employees participated in a
number of activities to expand the positive impact in affected areas. During
the rescue efforts, Alsea Brands provided prepared foods to more than 50,000
volunteers.
After the earthquakes, Alsea worked to help the nation rebuild after this
earthquake and reactivate the economy by pursuing three simultaneous
priorities: ensuring the safety of our employees, support in volunteer work, and
build housing for the poor. We believe our company has a responsibility to
procure the safety and growth of the communities where we operate.
Lines of action during the emergency:
1. Support volunteer work, dealing with the national emergency and help
reactivate the Mexican economy.
2. Contact all employees to check that they were safe, and provide economic
assistance to those who suffered material losses.
3. Help communities whose homes were damaged by helping to build 139
homes together with the National Center for Support in Epidemiological
Contingencies and Disasters, which will be built in 2018.
76 ANNUAL REPORT
ALSEA 2017 77
Responsible
consumption
At Alsea, aware of the
importance of promoting
healthy lifestyles, we
have programs to offer our
guests the best flavors and
highest quality in every
dish. For this reason,
we have introduced a
process of continuous
improvement with our
vendors to ensure the
highest standards of food
safety and input quality
for the products used in
our restaurants.
ST A I N A BILITY
A
L
U
S
R
e
s
p
o
n
sible c o n s
u
S
E
A
n
o
m pti
Nutritional values and food safety in our products
In recent years, we have made a considerable effort to obtain nutritional values
for each of our products, and make them available to our guests in order to
inform them of the caloric value of our dishes and help them make decisions
according to their lifestyle.
Today, we have this information for 85% of our Brands, and our goal is to
reach 100% by June 2018. In line with this commitment, we are engaged in
various initiatives, like the “Vips Kids” children’s menu, developed in an alliance
with Disney, which meets the intake requirements recommended for children
by the World Health Organization. The menu takes into account portion size,
food processing, and the amount of calories, fats, sugars and sodium, and is
supported by the power of Disney stories and characters to attract children to
healthier options, proving that eating right can be fun and delicious!
In 2017 we created an internal food safety and quality standard called ICA
(Inocuidad y Calidad Alsea), the purpose of which is to standardize guidelines
and requirements for ensuring that all the food in our restaurants is handled
hygienically. This standard combines the best practices of all our Brands
with Mexican official standards and the international “ServSafe” standard, in
widespread use across the restaurant industry.
Responsible procurement
In 2017 we drafted a new Vendor Agreement and completed the process of
communicating it to 30% of our vendors. The goal for the close of 2018 is to
reach 70%. This agreement includes Alsea’s commercial conditions, its Code of
Ethics, its expectations of vendors as regards social responsibility, food safety,
quality, service and conditions for receiving products at our facilities.
The ICA standard for vendors is intended to ensure that all of these have
obtained certification from some system recognized by the Global Food Safety
Initiative (GFSI), and international standard intended to ensure food safety
across the entire supply chain. To help our small and mid-sized vendors to
achieve this, we are offering them the Global Markets tool (also recognized
by the GFSI) as a way to develop Safety Systems and gradually improve their
processes until obtaining certification.
In line with the commitment Alsea assumed in 2015 regarding humane
treatment of animals, in 2017 Alsea Spain used 100% cage-free eggs in its
Foster Hollywood, La Vaca and Cañas y Tapas restaurants. This remains a goal
for the other countries where we operate, and we will continue to seek out and
select the best local vendors for this purpose.
For Alsea, developing local vendors is a priority. Therefore, this year we approved
a coffee vendor from the state of Oaxaca: Campesinos Ecológicos de la Sierra
Madre de Chiapas (CESMACH), a regional organization of small producers who
will supply coffee for the El Portón brand at 10 of its restaurants.
78 ANNUAL REPORT
ALSEA 2017 79
Responsible
Integrating
sustainability
into our
supply chain
Alsea considers a
sustainability risk to be
any effect or situation that
blocks or disrupts supply to
our stores in keeping with
our food safety, quality and
sustainability criteria.
To ensure the sustainability of our processes:
1. We identify our critical vendors based on:
• The volume of inputs they supply
• How critical their products are
• Ease of substitution
• Restrictions due to food safety criteria
2. We work with vendors to ensure they comply with the Vendor Approval
and Development Program. In 2017, we obtained a 91% approval rate
for more than 700 vendors active in Mexico, and in 2018 we intend to
reach 94%.
3. We set stricter demands for our restaurants in Mexico, requiring that
in 2018 they achieve a minimum 70% Alsea Food Safety and Quality
(ICA) score.
In addition, in 2018 we re-launched the ICA standard for manufacturing and
distribution operations adopting it to processes at the Alsea Operations
Center in Mexico and introducing similar programs to the rest of our
international operations.
We will continue to work on strengthening and standardizing performance
criteria throughout the supply chain for Alsea Global.
80 ANNUAL REPORT
ALSEA 2017 81
Integrating Environment
In 2017, we began to
purchase clean energy,
and starting in November,
211 stores in Mexico were
powered by wind energy.
We also continued
installing energy-saving
LED lighting systems in
135 new openings and 58
remodeled stores.
ECO-EFFICIENCY
[G4-EN3, G4-EN5, G4-EN6, G4-EN15, G4-EN16, G4-EN18, G4-EN19]
Committed to responsibly managing the energy we consume and controlling our
emissions, we evaluated internal energy consumption based on the information
we report to the National Emissions Registry (RENE), pursuant to the Climate
Change Law. All of our new stores in Mexico are equipped with energy-saving
LED lighting.
ENERGY CONSUMPTION (Gj)
1,164,888
Non-renewable energy
787,136
360,525
189,677
166,066
12,853
LP Gas
Natural gas
Diesel
Gasoline*
Renewable energy
* Total gasoline consumed in utility vehicles, corporate cars and motorcycles used
for distribution by our Brands.
Environmental data correspond to operations in Mexico, or 68% of our total operations,
with the exception of non-renewable energy and scope 2 emissions, which include our
stores in Spain, or 84% of global operations.
In just two
months, we
reduced our
emissions by
2,077
mtons
of CO2
by acquiring
clean energy
82 ANNUAL REPORT
Since the year 2016 we have substantially reduced our consumption of
diesel fuel and kept our energy consumption steady in total store terms,
counting new openings, which shows that the change of habits in stores and
distribution facilities is having a positive impact.
Energy [Gj]
Natural gas
LP Gas
Gasoline
Diesel
Renewable energy
Non-renewable energy
Total
2016
352,075
1,144,942
150,994
286,545
-
2017
360,525
787,136
166,006
189,677
12,853
1,156,575
1,164,888
2,886,186
2,468,325
CO2 emissions from consumption of electricity (indirect) rose 27% in 2017,
equivalent to 471.28 metric tons of Co2e, attributable to the new emissions
factor introduced by the Energy Regulation Commission (CRE), from 0.458 to
0.582 mtons of CO2 per MWh.
METRIC TONS OF CO2 BY ACTIVITY
170,764
Non-renewable energy
We reduced
emissions by
460
mtons
of CO2
by installing
LED lighting in
new stores and
remodeled units
Emissions [mtons of CO2]
Scope 1: Direct
Scope 2: Indirect
Total
Emission factor
mtons Co2/MWh (CRE)
Emission factor
mtons Co2/MWh (SPAIN)
49,711
20,245
14,101
11,972
2016
120,540
137,357
257,897
0.458
LP Gas
Natural gas
Diesel
Gasoline*
2017
96,030
170,764
266,794
0.582
0.285
0.285
ALSEA 2017 83
Environment
Our commitment is to
improve energy
consumption metrics and
reduce the impact of our
operations on the
environment, by
supplying 1,300 stores
(50% of global
operations) with clean
energy. We will also work
on reducing the energy
base line with
administration strategies
of demand and
monitoring.
ST A I N A B ILITY
A
L
S
E
A
U
S
E
nviro n m e
n t
916,000
liters
of vegetable oil
channeled for
conversion to
biodiesel
WASTE
[G4-EN1, G4-EN2, G4-EN28]
We introduced a waste separation program to our stores in Mexico City,
complying with Environmental Standard 024, which requires sorting waste into
organic, non-organic recyclables, and non-organic non-recyclables.
We collected 100% of the used vegetable oil from our restaurants in Mexico
for recycling, and saw that it was properly disposed of. In 2017, we collected
916,000 liters of used vegetable oil for conversion to biodiesel, avoiding the
contamination of 916 million liters of water.
WATER*
[G4-EN8, G4-EN9, G4-EN10]
We continued the process of rectifying meters and consumption in our restaurants
in order to obtain a more well-defined baseline for measuring our consumption.
We were constantly in communication with operations to keep our employees
aware of the importance of rational water use.
In 2016 we consumed 2.75 million cubic meters of water, and reduced this to
2.91million cubic meters in 2017.
INPUTS
[G4-EN27]
We are making an effort to build awareness among our vendors about the
importance of reducing energy consumption and emissions in manufacturing
and logistics processes, asking them to conduct a lifecycle analysis. These
actions are being counted in the energy performance evaluation and in the
implementation of sustainable best practices in the year 2018.
* Data on water management performance corresponds to our operations in Mexico
and Spain, equivalent to 84% of total operations.
84 ANNUAL REPORT
ALSEA 2017 85
Ethics and
corporate
governance
At Alsea, we are committed to our vision and our purpose of creating
value for our shareholders, employees, guests and the communities where
we operate. To achieve this, we follow the strictest guidelines on ethics,
accountability, corporate governance and protection of human rights.
Ethics
Creating an extraordinary experience for our guests and promoting the
advancement of our employees is an everyday task for Alsea. I doing so we
operate in accordance with our values: Winning Attitude, Engaged Leadership,
Surprising Service, Emphasis on Collaboration, and Attention to Detail.
The basis of this conduct is our Code of Ethics which, in line with Alsea’s strategic
proposal, is our highest guide for making decisions aimed at value creation.
The Code of Ethics applies across all of our operations and around the world,
in other words, in every country where we are present, and extending to all our
stakeholders: guests, employees and vendors.
In our onboarding program, all employees learn about our Code of Ethics and
how the “Right Line” hotline works.
We also have an Ethics Committee created to keep track of possible situations
that might endanger our employees, Brands or the company in general, resulting
from violations of the established laws and regulations.
Alsea has a principle of political neutrality, and we therefore do not make
donations or provide any sort of funding to political parties.
Equal
opportunities
Conflicts of
Interest
Policy against
gifts
Guest treat-
ment
Confidentiality
Harass-
ment-free
workplace
Care for
our tools
C o de of
Environ-
mental
care
Anti-fraud
measures
E
TH I
S
C
Transparent
business
practices
Compliance with
laws and
regulations
Job security
Línea Correcta
In keeping with our ethical culture, we have a whistleblowers’ hotline called
“Línea Correcta” (right line), where we receive confidential complaints from our
employees and vendors who feel they have witnessed or experienced an unfair
or dishonest treatment in their relationship with the company.
In 2017, we received 784 complaints and addressed 92% of them in the year,
18.5% more than the cases we handled in 2016.
For more information on our Code of Ethics, visit:
http://www.alsea.net/relacion-con-inversionistas/codigo-de-etica
Anti-corruption culture
We have an Internal Control area that handles risk management responsibilities
and keeps track of activities to avoid any acts of corruption and ensure that
hotline complaints are heard and addressed.
We have a training program for our employees that reinforces their understanding
of the Code of Ethics and anti-corruption issues. The program is an online course
at the end of which each participant must sign in agreement.
Data protection
We introduced security measures for handling personal data, aware of the
potential risks to its confidentiality, integrity and availability, in keeping with
current laws and regulations on this matter.
We manage these measures by assigning someone to be responsible for every
external point of contact, and we keep them trained through work plans and
continuous improvement processes.
Thanks to these measures, we have had no problems with situations of this
kind; we will nevertheless continue working to complement and improve our
monitoring of the personal data protection management systems for our Brands,
plants, distribution centers and corporate offices.
Organizational structure
Audit
Committee
Board of Directors
Alberto Torrado
Chairman
Corporate Practices
Committee
Mario Sánchez
Director of
Internal Auditing
Renzo Casillo
Chief Executive Officer
Alsea
Gerardo Rojas
Director
Alsea Mexico
Daniel González
Director de
Planeación Estratégica
Federico Tejado
Director
Alsea Internacional
Salvador Aponte
Director
of Technology
Rafael Contreras
Director of
Administration
and Finance
María del Socorro
Guajardo
Director of Human
Resources
Santiago Blanco
Director of Share
Services and
Marketing
Cesáreo Carvajal
Director of Security
and Government
Relations
86 ANNUAL REPORT
ALSEA 2017 87
Ethics and Board of Directors
Corporate Practices Committee
Our Board of Directors has 12 members, six of which are outside members, and
this year we welcomed our first woman to the board as an outside member.
Meetings of the Board of Directors may be called to order with a quorum of at
least 25% of members present.
The Board Member compensation system is fixed, and is calculated on the basis
of meetings attended and committees to which the member belongs, in addition
to his or her participation in deliberations and the efficiency of decisions made.
There are two intermediate administrative bodies, made up of outside Board
Members, who assist the Board of Directors in its duties. The Executive chairman
of the Board is Alberto Torrado Martínez, a related equity board member.
Julio Gutiérrez
Chairman
Cosme Torrado
Member
León Kraig
Member
Adriana Noreña
Member
Elizabeth Garrido
Secretary (non member)
Alberto Torrado
Executive Chairman
Equity Board Members
Alberto Torrado
Chairman of the Board
Cosme Torrado
Member
Armando Torrado
Member
Fabián Gosselin
Member
Federico Tejado
Member
León Kraig
Director and Partner,
Ignia Partners, LLC
Adriana Noreña
Vice President, Google Spanish
Speaking Latin America
Raúl Méndez
President of Green River
Group
Julio Gutiérrez
President,
Grupo Metis
Consejeros Independientes
Iván Moguel
Partner, Chévez Ruiz
Zamarripa y Cía, S.C.
Steven J. Quamme
Co-founder,
Cartica
Related Board Member
Pablo Torrado
Project Manager, Starbucks
Coffee Company
Technical Secretary
Xavier Mangino
Díaz de Rivera
y Mangino, S.C.
Duties and responsibilities
• Suggest criteria to the Board of Directors for
appointing or dismissing the Chief Executive
Officer or other senior executives of the company.
• Propose to the Board of Directors the criteria for
evaluating and compensating the Chief Executive
Officer and other senior executives of the company.
• Recommend criteria to the Board of Directors
for severance payments to made to the Chief
Executive Officer or other senior executives of the
company.
• Recommend criteria for compensation to Board
Members.
• Analyze the Chief Executive Officer’s proposal
for
structure and
criteria
regarding
compensating employees.
the
• Analyze and present to the Board for its approval
the statement that the company is a socially
responsible corporation, the Code of Ethics, and
the whistleblower system and principle of non-
reprisal.
• Analyze and propose to the Board of Directors
a formal succession plan for the Chief Executive
Officer or other senior executives of the company,
and ensure that the plan is followed.
• Study and propose to the Board of Directors a
strategic vision for the company to ensure its
stability and permanence over time.
• Analyze the general guidelines presented by the
CEO to determine the company’s strategic plan
and follow up on its implementation.
• Evaluate
investment and financing policies
proposed by the CEO and provide an opinion to the
Board of Directors.
• Provide an opinion on the premises for the annual
budget presented by the CEO and follow up on its
application, as well as the control system.
• Evaluate the mechanisms presented by the general
identify, analyze, administer
management to
and control the risks affecting the company and
provide an opinion to the Board of Directors.
• Evaluate the criteria given by the CEO for
disclosing the risks affecting the company and
provide an opinion to the Board of Directors.
* Consejo de Administración y Comités conformados a Diciembre de 2017
88 ANNUAL REPORT
ALSEA 2017 89
Audit Committee
Iván Moguel
Chairman
Julio Gutiérrez
Member
Raúl Méndez
Member
Elizabeth Garrido
Secretary
Duties and responsibilities
• Recommend candidates to the Board of Directors
for external auditors of the company, hiring
conditions and scope of their professional work,
and oversee their execution
• Serve as a channel for communication between
the Board of Directors and the external auditors,
and ensure the independent and objectivity of the
latter.
• Review the work program, letter of observations
and internal and external audit reports and inform
the Board of Directors of the results.
• Meet regularly with internal and external auditors
without the presence of company executives to
hear their comments and observations on the
progress of their work.
• Provide an opinion to the Board of Directors
regarding the policies and criteria used
in
preparing the financial
information, and the
process of issuing it, ensuring its reliability, quality
and transparency.
• Help define the general guidelines for internal
control and internal audit and evaluate their
effectiveness.
• Check that the mechanisms established to control
the risks affecting the company are duly followed.
• Coordinate the work of the internal auditor and
statutory auditor, if one is appointed.
• Help establish policies for transactions with
related parties.
• Analyze and evaluate transactions with related
parties and provide a recommendation to the
Board of Directors.
• Decide on the hiring of outside experts to provide
an opinion on the transactions with related
parties or other matters that may be useful to the
committee in its duties.
• Verify compliance with the Code of Ethics and the
whistleblower system and principle of non-reprisal.
in analyzing
• Assist the Board of Directors
contingency and data recovery plans.
• Ensure that the necessary mechanisms are in
place to ensure that the company complies with
various legal provisions.
Institutions in which
Alsea participates
American Chamber of Commerce of Mexico
Asociación Mexicana de Comunicadores Organizacionales, A.C.
Asociación Nacional de Tiendas de Autoservicio y Departamentales, A.C, (ANTAD)
Cámara Nacional de la Industria de Restaurantes y Alimentos Condimentados (CANIRAC)
Centro Mexicano para la Filantropía, A.C. (CEMEFI)
Confederación Patronal de la República Mexicana (COPARMEX)
ConMéxico
Consejo Coordinador Empresarial (CEE)
Consejo de la Comunicación, A.C. (CC)
Consejo Mexicano de Negocios, A.C.
Grupo Dicares, A.C.
Mexicanos vs Corrupción e Impunidad, A.C.
Movimiento por una Vida Saludable (MOVISA)
United Nations Global Compact
As part of our
commitment to a better
future for all, we adhere
to the Principles of the
UN Global Compact and
Sustainable
Development Goals.
Principles of the United Nations
Global Compact
Human
Rights
Labor
Aspects
Environment
Anti-Corruption
Principle 1:
Companies should
support and respect
the protection of
internationally
proclaimed human
rights within their area
of influence.
Principle 3:
Businesses should
uphold the freedom of
association and the
effective recognition of
the right to collective
bargaining.
Principle 7:
Businesses
should maintain a
precautionary approach
to environmental
challenges.
Principle 10:
Businesses should work
against corruption in
all its forms, including
extortion and bribery.
Principle 2:
Companies should make
sure that they are not
complicit in human
rights abuses.
Principle 4:
Business should support
the elimination of all
forms of forced and
compulsory labor.
Principle 8:
Businesses should
undertake initiatives
to promote greater
environmental
responsibility.
Principle 9:
Businesses should
encourage the
development
and diffusion of
environmentally friendly
technologies.
Principle 5:
Business should support
the effective abolition
of child labor.
Principle 6:
Business should
support the elimination
of discrimination
in employment and
occupation.
90 ANNUAL REPORT
ALSEA 2017 91
Annual Report
of the Corporate Practices Committee
to the Board of Directors of Alsea, S.A.B. de C.B.:
Mexico City, February 26, 2018
In keeping with Articles 42 and 43 of the Securities Market Act, and on behalf of the Corporate
Practices Committee, I hereby present the report on the Committee’s activities during the year
ended December 31, 2017. In carrying out our work, we have followed the recommendations of
the Code of Best Corporate Practices.
To analyze the material results of the Company, the Committee held meetings as necessary to
ensure proper follow-up on the agreements reached in pursuit of its duties, inviting any officers of
the Company it deemed appropriate to attend.
To fulfill its responsibilities, this Committee carried out the following activities:
1. During the period covered by this report, we received no requests for exemption as established
in article 8, section III point f) of the Securities Market Act, so no recommendation in this
regard was necessary.
2. The quarterly and year-to-date results of the 2017 Market Liquidity Plan were presented.
3. We received the updated shareholder cost calculation for the close of each quarter of 2017,
using the methodology authorized by the Board of Directors.
4. We received a quarterly summary of transactions that were carried out to hedge risk through
exchange-rate forwards (peso-dollar) during the year. These transactions were performed as
authorized, in other words, in order to hedge the exchange-rate risk of Company operations
based on the authorized budget.
5. We received the 2018-2022 Strategic Plan and recommended that it be presented to the
Board for approval.
6. Together with management, we reviewed the bank financing strategy, the corresponding
hedging of long-term loans, and compliance with any covenants assumed by the Company.
7. We reviewed the draft of the 2017 budget and recommended that it be presented to the
Board for approval.
8. We supervised the compensation plan for key executives, and recommended that it be
presented to the Board for approval.
9. We were informed of the succession and talent development plans for senior executives.
10. We received the results of the performance evaluations of key executives in 2017.
11. We received the 2017 compensation strategy prepared by the Corporate Human Resource
Department for the various levels of management, and recommended that the Board approve it.
12. The Office of the Chief Executive Officer informed us of adjustments to the company’s
organizational structure.
13. In each and every meeting of the Board of Directors, we presented a report on the activities
of the Corporate Practices Committee and recommended it to the Board for ratification and/
or approval, as necessary.
Finally, I would like to comment that during the activities carried out by this committee, including
preparation of this report, we have at all times been informed of and taken into consideration the
viewpoint of key executives, which did not differ from our own to any material extent.
Corporate Practices Committee
Julio Gutiérrez Mercadillo
Chairman
92 ANNUAL REPORT
ALSEA 2017 93
Annual Report by
the Audit Committee
to the Board of Directors of Alsea, S.A.B. de C.V.:
Mexico City, February 26th, 2018
In keeping with Articles 42 and 43 of the Securities Market Act and the Audit Committee Regula-
tions, I hereby present this report of this committee’s activities during the year ended December
31, 2017. In carrying out our work, we have followed the recommendations of the Code of Best
Corporate Practices and the work program that was drawn up based on the Committee Regula-
tions. We met at least each quarter to carry out the following activities:
I. 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 these risks were appropri-
ately identified and managed.
II. INTERNAL CONTROL.
We ascertained that the Board of Directors, in accordance with its responsibilities in the area
of internal control, had established all the necessary processes and policies. We also followed
up on the comments and observations made by the Internal and External Auditors during the
course of their work.
III. EXTERNAL AUDITS.
We recommended that the Board of Directors hire Auditors that were independent of the
Group and its subsidiaries for the 2016 fiscal year. To this end, we ascertained the indepen-
dence of the auditors hired as well as their compliance with all legal requirements. We ana-
lyzed, in conjunction with the Auditors, their approach and their audit program.
We maintained constant and direct communication with them in order to learn of their prog-
ress and any observations and comments they might have regarding their review of the annual
financial statements. We were informed promptly of their conclusions and reports regarding
the annual financial statements, and followed up on the observations and recommendations
they made during the audit process.
We authorized the fees paid to the external auditors for the audit and other permitted ser-
vices, ensuring that these payments did not compromise the firm’s independence. Taking into
account the opinion of the Board of Directors, we evaluated their services in the previous
year, and we began the evaluation process corresponding to fiscal year 2017.
IV. INTERNAL AUDIT
In order to maintain its independence and objectivity, the Internal Auditing area reports func-
tionally to the Audit Committee.
At the appropriate time, we reviewed and authorized the annual work program. To draft this
program, the Internal Auditing area assisted in identifying risks, setting up and verifying con-
trol measures.
We received regular reports regarding progress against the working agenda, in addition to
any changes that may have been made, and the reason for said changes.
We followed up on observations and suggestions presented, and ensured they were promptly
addressed.
V. FINANCIAL INFORMATION, ACCOUNTING POLICIES AND THIRD PARTY REPORTS
We reviewed the process for preparing the company’s quarterly and annual financial state-
ments together with the persons responsible for this process, and recommend that the Board
of Directors approve and authorize publication of these statements. As part of this process,
we took into account the opinion and observations of the independent auditors and ascer-
tained that the accounting and reporting criteria and policies used by Management in prepar-
ing the financial formation were appropriate and sufficient and had been applied in a manner
consistent with the preceding fiscal year. As a result, the information presented by Manage-
ment reasonably reflects the financial position, operating results, cash flow and changes in
financial position for the Company, in the year ended December 31, 2017.
We also reviewed the quarterly reports prepared by Management for presentation to share-
holders and the general public, ensuring that they were prepared in accordance with Interna-
tional Financial Reporting Standards (IFRS) and using the same accounting criteria applied to
prepare the annual information. We were able to verify that there is a comprehensive process
in place that provides reasonable certainty as to their content. In each case, we concluded
with a recommendation that the Board authorize these reports for publication.
VI. COMPLIANCE, LEGAL ISSUES AND CONTINGENCIES
We confirmed the existence and reliability of the control measures established by the Compa-
ny in order to ensure compliance with the various legal provisions governing it, ensuring that
they were adequately disclosed in the financial report.
We regularly reviewed the Company’s tax, legal and labor contingencies; the efficacy of the
procedure for identifying and tracking these contingencies; and their appropriate disclosure
and recording. Four tax contingencies were identified, along with 2 legal matters that were
initiated in and have been reported since (2014 and 2015), and one new tax issue. All of these
were monitored closely and on a timely basis in fiscal year 2017:
94 ANNUAL REPORT
ALSEA 2017 95
a)
b)
c)
d)
e)
In 2014, the Mexico City Ministry of Finance ruled that Italcafé S.A. de C.V. was liable for
back taxes in fiscal year 2010 stemming from deposits made to its bank accounts as a
result of the operation of a number of restaurants owned by Grupo Amigos de San Ángel,
S.A. de C.V.; even though that income was generated by this latter company, which should
assume all all corresponding fiscal obligations. This case is currently being studied by the
District Attorney’s Office in Mexico City.
In 2014, the federal tax authorities (SAT) initiated two procedures to establish onerous
effect and thus 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 fiscal years 2010, 2011, 2012 and 2013). The Sixth
Collegiate court in Administrative Matters of the First Circuit, which was assigned the
Café Sirena case for studying and drafting the proposed ruling, estimates that given the
complexity of the matter, it may still take a number of months more to reach a conclusion.
f)
In October 2015, the Federal Economic Competition Commission (COFECE) imposed a
fine of MXN 25,694,356.95 on Alsea, stating that it should have been notified Alsea’s
acquisition of 25% of Grupo Axo before that transaction was closed.
Alsea appealed this ruling, with the resolution and obtained a writ of constitutional
protection (amparo) in December 2016. The ruling of the amparo judge was in turn
appealed, a process which is still on-going.
In November 2015, COFECE imposed a fine of MXN $20,461,393.65 on Alsea, arguing
non-compliance with the obligation to include a non-exclusivity clause in some lease
contracts in shopping malls.
g)
Alsea also appealed this ruling, and in December 2017 the final ruling was handed down in
this case, confirming the original decision in Alsea’s favor and requiring COFECE to issue
a new ruling.
A ruling against the company in the DIA case was handed down by the Plenary Session
of the Federal Court of Administrative Justice on November 15, 2017, but the Company
intends to file the appropriate appeals.
The new ruling issued by COFECE imposed a lower fine of MXN 13.6 million pesos. Alsea
does not believe this new ruling complies with the order of the Collegiate Court, and his
filed for a new writ of amparo against it.
In 2015, the federal tax authorities (SAT) began a review of the Company’s 2013 tax
return in order to verify the Group’s Fiscal Consolidation. In October 2016, the SAT issued
observations, on which the Company sought the appropriate clarifications. The applicable
observations included some relating to subsidiary companies’ tax losses. The necessary
corrections were made in the month of May 2017 and the SAT issued its final opinion with
no further observations.
In March 2016, the SAT conducted an on-site audit of the business addresses of Grupo
Amigos de San Ángel, S.A. de C.V. (GASA) and Italcafe S.A. de C.V. (Italcafe) for information
on fiscal years 2010 and 2011, respectively. In November, the last partial reports were
issued, finding outstanding tax charges of MXN 55.2 million pesos, relating to unidentified
deposits, in the opinion of the authorities. Additional information was submitted in
December in order to clarify and refute those findings. In addition, a Conclusive Ruling
was requested from the Taxpayer Advocacy Agency (PRODECON), a proceeding that is
still under way.
In December 2017, the federal tax authorities (SAT) began a new audit of Alsea, S.A. de
C.B. (Alsea) in connection with its tax returns for fiscal year 2015. This was the product of
a sequential inspection begun against the Public Accountant who audited those results for
tax purposes. An official notice was received from the SAT advising the company that the
information presented by that Public Accountant regarding his review was insufficient
to complete the review. The company promptly and fully responded to the request for
additional information.
VII. ADMINISTRATIVE ASPECTS.
We organized regular meetings with Management, to remain abreast of the Company’s prog-
ress, its activities and all relevant and unusual events. We also met with the internal and
external Auditors to discuss their progress and learn of any limitations they may have en-
countered and facilitate any private communication they wish to have with the Committee.
In cases where we deemed appropriate, we requested the support and opinion of independent
experts. We were not made aware of any possible significant acts of non-compliance with
operational policies, the internal control system or financial reporting policies.
We held executive meetings exclusively with Committee members, during which we developed
agreements and recommendations for the Board of Directors.
The Chairman of the Audit Committee issued quarterly reports on the Committee’s activities
to the Board of Directors.
The work we carried out was duly documented in minutes prepared during each meeting,
which were then promptly reviewed and authorized by the members of the Committee.
Sincerely,
Ivan Moguel Kuri, C.P.A.
Chairman of the Audit Committee
96 ANNUAL REPORT
ALSEA 2017 97
Alsea, S.A.B. de C.V. and Subsidiaries
Independent Auditors’ Report
and Consolidated Financial Statements
for 2017, 2016 and 2015
Contents
Independent 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
Page
100
106
108
109
110
112
114
98 ANNUAL REPORT
ALSEA 2017 99
Independent
Auditors’ Report
to the Board of Directors and Stockholders
of Alsea, S.A.B. de C.V.
Opinion
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, 2017, 2016 and 2015, 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 notes to the
financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying 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, 2017, 2016 and 2015, and their financial performance and their cash flows for the
years then ended in accordance with International Financial Reporting Standards (IFRSs), issued
by the International Accounting Standards Board.
Basis for Opinion
We conducted our audits in accordance with International Standards on Auditing (ISA). Our
responsibilities under those standards are further described in the Auditors’ responsibilities for
the audit of the 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) together with the Code of Ethics 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 with the 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.
Impairment of Long-Lived Assets
The Entity has determined that the smallest cash generating units are its stores. 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, 2017, 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.
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.
100 ANNUAL REPORT
ALSEA 2017 101
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.
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.
As discussed in Notes 3l and Note 16 to the consolidated financial statements, the Entity has
identified impairment effects on La Vaca Argentina and Il Tempietto Brands as of December
31, 2017, which have required adjustments to the values of long-lived assets for an amount of
$3,270, and $377, respectively.
Noncontrolling Interest Purchase Option
In October 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.
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.
Other Matter
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 IFRSs, 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.
102 ANNUAL REPORT
ALSEA 2017 103
As part of an audit in accordance with ISA’s, we exercise professional judgment 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.
-
-
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 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.
- Obtenemos evidencia suficiente y adecuada en relación con la información financiera de
las entidades o actividades empresariales dentro de la Entidad para expresar una opinión
sobre los estados financieros consolidados. Somos responsables de la dirección, supervisión
y realización de la auditoría de la Entidad. Somos los únicos responsables de nuestra opinión
de auditoría.
-
Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Entity to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
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 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.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
C.P.C. Juan Carlos Reynoso Degollado
Mexico City, Mexico
March 9, 2018
104 ANNUAL REPORT
ALSEA 2017 105
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Financial Position
At December 31, 2017, 2016 and 2015
(Figures in thousands of Mexican pesos)
Assets
Current assets
NotEs
2017
2016
2015
Cash and cash equivalents
Customers, net
Value-added tax and other recoverable
6 $
7
1,540,403 $
920,264
358,222
2,547,842 $
708,380
363,120
1,195,814
639,943
205,453
264,910
1,377,981
-
322,386
4,006,487
330,324
2,009,779
87,236
411,563
5,657,791
245,258
1,575,363
-
402,190
5,842,153
taxes
Other accounts receivable
Inventories, net
Non-current assets classified as held
for sale
Advance payments
Total current assets
Long-term assets
Guarantee deposits
Investment in shares of associated
companies
Store equipment, leasehold improve-
ments and property, net
Intangible assets, net
Deferred income taxes
Total long-term assets
Total assets
8
9
14
10
414,909
-
362,618
1,035,975
384,328
922,962
15,772,479
13,673,445
11,137,776
11 and 16
20
15,358,006
2,348,434
33,893,828
39,551,619 $
15,215,336
2,068,996
32,356,370
38,198,523 $
14,691,004
1,710,943
28,847,013
32,853,500
$
Liabilities and stockholders’ equity
Current liabilities
NotEs
2017
2016
2015
Current maturities of long-term debt
Current maturities of financial lease
17 $
12
1,087,466
6,799
$
1,107,238
6,799
$
734,824
7,190
liabilities
Suppliers
Accounts payable and accrued liabil-
ities
3,960,806
1,018,691
3,901,972
909,156
3,013,091
635,802
Accrued expenses and employee
3,195,217
2,531,885
1,713,496
19
20
17
12
19
18
20
20
21
23
19 and 23
benefits
Put option of non-controlling interest
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 op-
tion of non-controlling interest
Other comprehensive income items
Stockholders' equity attributable to
the controlling interest
Non-controlling interest
Total stockholders’ equity
3,280,064
125,512
19,892
12,694,447
-
289,484
22,946
8,769,480
-
139,118
31,893
6,275,414
6,693,454
9,743,806
5,018,722
294,644
-
6,980,452
122,711
-
1,966,100
196,685
16,254,046
28,948,493
475,869
8,625,720
3,607,287
260,384
(2,673,053)
(814,647)
9,481,560
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
24
1,121,566
10,603,126
1,013,448
10,127,452
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
(2,673,053)
(736,604)
8,948,231
899,920
9,848,151
See accompanying notes to the consolidated financial statements.
Total liabilities and stockholders’ equity
$
39,551,619
$
38,198,523
$
32,853,500
106 ANNUAL REPORT
ALSEA 2017 107
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Income
For the years ended December 31, 2017, 2016 and 2015
(Figures in thousands of Mexican pesos)
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements
of Other Comprehensive Income
For the years ended December 31, 2017, 2016 and 2015
(Figures in thousands of Mexican pesos)
Continuing operations
Net sales
Cost of sales
Leases
Depreciation and amortization
Other operating costs and expenses
Other (income) expenses, net
Interest income
Interest expenses
Changes in the fair value of financial
instruments
Exchange (gain) loss, net
NotEs
2017
2016
2015
26 $
27
12
28
29
19
$
$
42,529,121
12,923,189
4,031,877
2,751,675
19,635,132
(527,348)
(44,925)
1,307,406
94,968
269,133
2,088,014
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
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
Equity in results of associated com-
panies
14
(437)
67,877
27,703
Consolidated net income
Items that may be reclassified subsequently
to income:
2017
1,252,149
$
2016
1,126,490
$
2015
1,032,751
$
Valuation of financial instruments, net of
income taxes
(29,243)
(94,821)
(80,460)
Remeasurement of defined benefit obligation,
net of income taxes
(64,213)
-
-
Cumulative translation adjustment, net of
income taxes
37,495
(55,961)
72,739
(22,082)
(276,566)
(357,026)
Total comprehensive income, net of income taxes
$
1,196,188
$
1,104,408
$
675,725
Income before income taxes
2,087,577
1,655,723
1,522,670
Comprehensive income for the year
attributable to:
Controlling interest
Non-controlling interest
$
$
1,033,537
162,651
$
$
974,389
130,019
$
$
624,189
51,536
Income tax expense
20
835,428
529,233
489,919
Consolidated net income from con-
tinuing operations
Net income for the year attributable to:
Controlling interest
Non-controlling interest
Earnings per share:
Basic and diluted net earnings
per share from continuing
(cents per share)
Basic and diluted net earnings per
share from continuing operations
(cents per share)
$
$
$
1,252,149
$
1,126,490
$
1,032,751
1,089,498
162,651
$
$
996,471
130,019
$
$
981,215
51,536
25 $
1.31
$
1.19
$
1.17
25 $
1.31
$
1.19
$
1.17
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements.
108 ANNUAL REPORT
ALSEA 2017 109
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2017, 2016 and 2015
(Figures in thousands of Mexican pesos)
Contributed capital
Retained earnings
Other comprehensive income items
Capital
stock
Premium
on issuance
of share
Repurchased
shares
Reserve for
repurchase
of shares
Reserve for
obligation
under
put option
of non-con-
trolling
interest
Legal reserve
Retained
earnings
Valuation of
financial
instruments
Cumulative
translation
adjustment
Remeasurement
of defined
benefit
obligation
Balances at January 1, 2015
$
478,749 $ 8,613,587 $
(478) $
531,406 $ (2,673,053)
$
100,736 $ 2,086,591
$
(7,242) $
(372,336) $
Repurchase of shares (Note 23a)
Sales of shares (Note 23a)
Dividend paid (Note 23a)
Business acquisitions and obligation under put
option of non-controlling
Other movements
Comprehensive income
-
-
-
-
-
-
-
-
-
-
-
-
(965)
897
(93,422)
79,645
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(419,173)
(900)
-
981,215
Balances at December 31, 2015
478,749
8,613,587
(546)
517,629
(2,673,053)
100,736
2,647,733
-
-
-
-
-
-
-
-
-
-
(80,460)
(87,702)
(276,566)
(648,902)
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
-
-
-
-
-
-
-
Balances at December 31, 2016
478,749
8,625,720
Repurchase of shares (Note 23a)
Sales of shares (Note 23a)
Dividend paid (Note 23a)
Other movements
Comprehensive income
-
-
-
-
-
-
-
-
-
-
-
(1,995)
(248,503)
12,133
391
51,105
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(644,771)
57,888
(34,761)
(103)
-
-
-
-
-
-
-
-
-
-
-
-
996,471
(94,821)
72,739
-
-
-
-
-
320,231
(2,673,053)
100,736
3,022,457
(182,523)
(576,163)
(338,644)
278,797
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(567,763)
(37,641)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(2,150)
(2,880)
2,150
-
-
-
Total
controlling
interest
Non-con-
trolling
interest
Total stock-
holders’
equity
$ 8,757,960 $
833,213
$ 9,591,173
(94,387)
80,542
(419,173)
(900)
-
624,189
-
-
-
5,015
10,156
51,536
(94,387)
80,542
(419,173)
4,115
10,156
675,725
8,948,231
899,920
9,848,151
(250,498)
63,629
-
-
(250,498)
63,629
(644,771)
(45,178)
(689,949)
57,888
(34,761)
-
-
(103)
28,687
57,888
(34,761)
28,584
974,389
130,019
1,104,408
9,114,004
1,013,448
10,127,452
(341,524)
280,947
-
-
(341,524)
280,947
(567,763)
(159,616)
(727,379)
(37,641)
105,083
162,651
67,442
1,196,188
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balances at December 31, 2017
$
478,749 $ 8,625,720 $
(2,880) $ 260,384
$ (2,673,053)
$
100,736 $ 3,506,551
$
(211,766) $
(538,668) $
(64,213) $ 9,481,560
$ 1,121,566
$ 10,603,126
See accompanying notes to the consolidated financial statements.
110 ANNUAL REPORT
ALSEA 2017 111
1,089,498
(29,243)
37,495
(64,213)
1,033,537
Alsea, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2017, 2016 and 2015
(Figures in thousands of Mexican pesos)
Note
2017
2016
2015
Note
2017
2016
2015
$
1,252,149
$
1,126,490
$
1,032,751
835,428
529,233
489,919
437
1,307,406
(44,925)
181,099
3,647
(67,877)
881,643
(37,060)
14,490
-
(27,703)
710,901
(30,512)
162,734
-
(608,817)
-
-
94,968
2,751,675
5,773,067
407,768
2,388,235
5,242,922
104,275
1,947,897
4,390,262
(211,884)
(85,066)
(434,416)
(61,664)
58,834
257,998
(731,587)
46,794
23,306
(16,072)
24,027
(145,375)
(38,902)
696,528
984,024
(967,746)
(55,514)
580
18,847
(48,207)
(352,815)
3,932
344,836
285,807
(818,934)
(93,336)
6,041
4,635,382
5,724,472
3,736,433
1 and 18
Cash flows from financing
activities:
Bank loans
Repayments of loans
Issuance of debt instruments
Payments for debt instruments
Interest paid
Dividends paid
Payments for financial leasing
Acquisition of non-controlling interest
Repurchase of shares
Sales of shares
Net cash flows (used in) provided by
financing activities
Net (decrease) increase in cash and
cash equivalents
1,160,197
(4,230,321)
3,000,000
-
(1,307,406)
(727,379)
(6,191)
-
(341,524)
280,947
5,820,156
(1,036,032)
-
(2,500,000)
(881,643)
(689,949)
(128,767)
-
(250,498)
63,629
4,272,000
(7,389,420)
4,000,000
-
(710,901)
(419,173)
(7,890)
(27,265)
(94,387)
80,542
(2,171,677)
396,896
(296,494)
(1,091,347)
1,266,159
74,161
Exchange effects on value of cash
83,908
85,869
8,803
Cash and cash equivalents:
At the beginning of the year
2,547,842
1,195,814
1,112,850
At end of year
$
1,540,403
$
2,547,842
$
1,195,814
Cash flows from operating
activities:
Consolidated net income
Adjustment for:
Income taxes
Equity in results of associated
companies
Interest expense
Interest income
Disposal of store equipment, leasehold
improvements and property
Impairment goodwill
Gain on disposal of investment of
associated - Grupo Axo
Changes in the fair value of financial
instruments
16
29
Depreciation and amortization
10 and 11
Changes in working capital:
Customers
Other accounts receivable
Inventories
Advance payments
Suppliers
Accrued expenses and employee
benefits
Income taxes paid
Other liabilities
Labor obligations
Net cash flows provided by operating
activities
Cash flows from investing
activities:
Interest collected
Store equipment, leasehold improve-
ments and property
Intangible assets
Disposal of investment of associated
- Grupo Axo
Acquisitions of business, net of cash
44,925
37,060
30,512
10
11
(4,695,671)
(511,716)
(4,048,244)
(550,998)
(2,984,818)
(411,472)
1,607,410
-
-
-
acquired
1 y 15
-
(293,027)
Net cash flows used in investing
activities
(3,555,052)
(4,855,209)
(3,365,778)
See accompanying notes to the consolidated financial statements.
112 ANNUAL REPORT
ALSEA 2017 113
Alsea, S.A.B. de C.V. and Subsidiaries
Notes to the Consolidated Financial Statements
For the years ended December 31, 2017, 2016 and 2015
(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. Revolu-
ción 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, La Finca and El Portón. 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 devel-
opment services, as well as administrative services (financial, human resources and
technology). The Entity operates the Burger King, P.F. Chang’s, Chili’s Grill & Bar and
Starbucks Brands in Chile. In Argentina, Alsea operates the Burger King, P.F. Chang’s
and Starbucks Brands. 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 2015, 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
a. Disposal of investment of associated - Grupo Axo – On May 30, 2017, Alsea
signed an agreement with General Atlantic for the sale of the total of non-controlling
interest of stockholder’s equity of Grupo Axo, S.A.P.I. de C.V. (Grupo Axo) which was
acquired in June 2013, the purchase also includes the non-controlling interest of the
subsidiaries of Grupo Axo in Chile (Blue Stripes Chile, SPA and Stripes Chile SPA).
On October 19, 2017, Alsea concluded the process of selling of the total of
its investment in the capital stock of Grupo Axo and Axo Group subsidiaries in
Chile, both transactions totaled $1,607 million; the resources obtained were
used for the advance payment of debt and/or other growth projects.
b. Placement of debt instruments - On October 4, 2017, Alsea concluded the place-
ment of debt instruments worth $1,000,000, maturing in October 2022, and bearing
interest at the 28-day TIIE rate (Mexican Interbank Offering rate) plus 0.90 percentage
points; and other the placement of debt instrument worth $2,000,000, maturing in Oc-
tober 2027, bearing interest at a fixed rate of 8.85%; this placement received a rating
of “A+” for local currency debt by Fitch Rating & “AA-“ by HR Ratings.
c. Signing of Starbucks Development Contract in Uruguay - On June 26, 2017,
Alsea signed the development agreement with Starbucks Coffee International, Inc.
to exclusively operate and develop Starbucks brand establishments in Uruguay. This
agreement represents the expansion of Alsea in a new South American market, be-
ginning operations in early 2018.
d. Refinancing and pre-payment of debt certificates - On September 8, 2016,
Alsea 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 ob-
tained two bilateral loans with Bank of America, N.A. and Grupo Financiero Santand-
er 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.
e. Acquisition of Sub-franchisee assets of Domino’s Pizza Mexico - On Septem-
ber 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 obliga-
tions that derive from the sub-franchise agreements for the operation of said estab-
lishments.
f. Signing of Chili’s Grill & Bar Development Contract in Chile - On June 7, 2016,
Alsea signed an exclusive development agreement to operate and develop Chili’s Grill
& Bar 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.
114 ANNUAL REPORT
ALSEA 2017 115
g. 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), Archie’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. Archie’s currently operates 41 restaurants in
7 of the main cities of Colombia, and has presence in the main shopping centers of
the country.
h. 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.
i. 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 Febru-
ary 2012, Alsea maintained 89.77% of the shares of GASA. (See effects in Note 24b).
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 issued by
the International Accounting Standards Board (“IASB”) that are mandatorily effective
for an accounting period that begins on or after January 1, 2017.
Amendments to IAS 7, Disclosure Initiative
The Entity has applied these amendments for the first time in the current year.
The amendments require an entity to provide disclosures that enable users of
consolidated financial statements to evaluate changes in liabilities arising from
financing activities, including both cash and non-cash changes.
The Entity’s liabilities arising from financing activities consist of borrowings (note
17) and debt instruments (note 18). Consistent with the transition provisions of the
amendments, the Entity has not disclosed comparative information for the prior
period, the application of these amendments has had no impact on the Entity’s
consolidated financial statements.
Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealized
Losses
The Entity has applied these amendments for the first time in the current year. The
amendments clarify how an entity should evaluate whether there will be sufficient
future taxable profits against which it can utilize a deductible temporary difference.
The application of these amendments has had no impact on the Entity’s consolidated
financial statements as the Entity already assesses the sufficiency of future taxable
profits in a way that is consistent with these amendments.
Annual Improvements to IFRSs 2014-2016 Cycle
The Entity has applied the amendments to IFRS 12 included in the Annual
Improvements to IFRSs 2014-2016 Cycle for the first time in the current year. The
other amendments included in this package are not yet mandatorily effective and
they have not been early adopted by the Entity (see note 2b).
IFRS 12 states that an entity need not provide summarized financial information
for interests in subsidiaries, associates or joint ventures that are classified (or
included in a disposal group that is classified) as held for sale. The amendments
clarify that this is the only concession from the disclosure requirements of IFRS 12
for such interests.
The application of these amendments has had no effect on the Entity’s consolidated
financial statements as none of the Entity’s interests in these entities are classified,
or included in a disposal group that is classified, as held for sale.
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 IFRS 2
Amendments to IFRSs
Amendments to IFRSs
IFRIC 22
Financial Instruments1
Revenue from Contracts with Customers1
Leases2
Classification and measurement of share-based
payments1
Annual Improvements to IFRS Standards 2014-2016
Cycle1 and 2
Annual Improvements to IFRS Standards 2015-2017
Cycle2
Foreign Currency Transactions and Advance
Consideration1
1 Effective for annual periods beginning on or after January 1, 2018, with earlier
application permitted.
2 Effective for annual periods beginning on or after January 1, 2019, with earlier
application permitted.
116 ANNUAL REPORT
ALSEA 2017 117
IFRS 9, Financial Instruments
IFRS 9 issued in November 2009 introduced new requirements for the classification
and measurement of financial assets. IFRS 9 was subsequently amended in
October 2010 to include requirements for the classification and measurement of
financial liabilities and for derecognition and in November 2014 to include the new
requirements for general hedge accounting. Another revised version of IFRS 9 was
issued in July 2014 mainly to include a) impairment requirements for financial assets
and b) limited amendments to the classification and measurement requirements by
introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement
category for certain simple debt instruments
Key requirements of IFRS 9:
• All recognized financial assets that are within the scope of IFRS 9, Financial
Instruments, are required to be subsequently measured at amortized cost or fair
value. Specifically, debt investments that are held within a business model whose
objective is to collect the contractual cash flows, and that have contractual
cash flows that are solely payments of principal and interest on the principal
outstanding are generally measured at amortized cost at the end of subsequent
accounting periods. Debt instruments that are held within a business model
whose objective is achieved both by collecting contractual cash flows and selling
financial assets, and that have contractual terms that give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding, are generally measured at FVTOCI. All other debt
investments and equity investments are measured at their fair value at the end of
subsequent accounting periods. In addition, under IFRS 9, entities may make an
irrevocable election to present subsequent changes in the fair value of an equity
investment (that is not held for trading nor contingent consideration recognized
by an acquirer in a business combination) in other comprehensive income, with
only dividend income generally recognized in consolidated net income.
• With regard to the measurement of financial liabilities designated as of fair
value through profit or loss, IFRS 9 requires that the amount of change in
the fair value of the financial liability that is attributable to changes in the
credit risk of that liability is presented in other comprehensive income, unless
the recognition of the effects of changes in the liability’s credit risk in other
comprehensive income would create or enlarge an accounting mismatch in
the consolidated statements of income. Changes in fair value attributable to
a financial liability’s credit risk are not subsequently reclassified to profit or
loss. Under IAS 39, the entire amount of the change in the fair value of the
financial liability designated as fair value through profit or loss is presented in
the consolidated statements of income.
• Previously, in accordance with IAS 39, the full amount of the change in the fair
value of the financial liability designated as at fair value through profit or loss
was presented in the consolidated statement of income.
•
In relation to the impairment of financial assets, IFRS 9 requires an expected
credit loss model, as opposed to an incurred credit loss model under IAS 39.
The expected credit loss model requires an entity to account for expected
credit losses and changes in those expected credit losses at each reporting
date to reflect changes in credit risk since initial recognition. In other words, it
is no longer necessary for a credit event to have occurred before credit losses
are recognized.
• The new general hedge accounting requirements retain the three types of hedge
accounting mechanisms currently available in IAS 39. Under IFRS 9, greater
flexibility has been introduced to the types of transactions eligible for hedge
accounting, specifically broadening the types of instruments that qualify for
hedging instruments and the types of risk components of non-financial items
that are eligible for hedge accounting. In addition, the effectiveness test has
been overhauled and replaced with the principle of an ‘economic relationship’.
Retrospective assessment of hedge effectiveness is also no longer required.
Enhanced disclosure requirements about an entity’s risk management activities
have also been introduced.
The Entity is in the process of concluding its analysis of financial assets and financial
liabilities as of December 31, 2017. Apart from the above, it is not practicable to
provide the estimated impact of the adoption of IFRS 9 on the Entity’s consolidated
financial statements.
IFRS 15, Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers. IFRS 15 will supersede the
current revenue recognition guidance including IAS 18 Revenue, IAS 11, Construction
Contracts, and the related Interpretations when it becomes effective.
The core principle of IFRS 15 is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods
or services. Specifically, the Standard introduces a 5-step approach to revenue
recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation
is satisfied, i.e. when ‘control’ of the goods or services underlying the particular
performance obligation is transferred to the customer. Far more prescriptive
guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore,
extensive disclosures are required by IFRS 15.
118 ANNUAL REPORT
ALSEA 2017 119
In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification
of performance obligations, principal versus agent considerations, as well as
licensing application guidance.
The Entity recognizes revenue from the following major sources:
• Sale of goods and beverages are recognized when they are delivered to and/or
consumed by customers.
• Provision of services are recognized given the stage of completion, which is
generally when the services have been rendered and accepted by customers.
• Dividends is recognized when the Entity’s right to collect dividends has been
established.
• Royalties is recorded as it is earned, based on a fixed percentage of sub-franchise
sales.
Apart from providing more extensive disclosures on the Entity’s revenue transactions,
the directors do not anticipate that the application of IFRS 15 will have a significant
impact on the financial position and/or financial performance of the Entity.
IFRS 16, Leases
IFRS 16 introduces a comprehensive model for the identification of lease
arrangements and accounting treatments for both lessors and lessees. IFRS 16 was
issued in January 2017 and will supersede the current lease guidance including IAS
17, Leases, and the related interpretations when it becomes effective.
IFRS 16 distinguishes leases and service contracts on the basis of whether an identified
asset is controlled by a customer. “Distinctions of operating leases (off balance
sheet) and finance leases (on balance sheet) are removed for lessee accounting and
is replaced by a model where a right-of –use asset and a corresponding liability have
to recognized for all leases by lessees (i.e. all on balance sheet) except for short-
term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at
cost (subject to certain exceptions) less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease liability. The lease liability is
initially measured at the present value of the lease payment as well as the impact
of lease modifications, among the others.
Furthermore, the classification of cash flows will also affect operating lease
payments under IAS 17 are presented as operating cash flows, whereas under the
IFRS 16 model, the lease payments will be split into a principal and interest portion
which will be presented as financing and operating cash flows respectively.
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).
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor
accounting requirements in IAS 17, and continues to require a lessor to classify a
lease either as an operating lease or a finance lease.
Furthermore, extensive disclosures are required by IFRS 16.
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.
Amendments to IFRS 2, Classification and Measurement of Share-based
Payment Transactions
The amendments clarify the following:
1. In estimating the fair value of a cash-settled share-based payment, the
accounting for the effects of vesting and non-vesting conditions should follow
the same approach as for equity-settled share-based payments.
2. Where tax law or regulation requires an entity to withhold a specified number of
equity instruments equal to the monetary value of the employee’s tax obligation
to meet the employee’s tax liability which is then remitted to the tax authority,
i.e. the share-based payment arrangement has a ‘net settlement feature’, such
an arrangement should be classified as equity-settled in its entirety, provided
that the share-based payment would have been classified as equity-settled had
it not included the net settlement feature.
120 ANNUAL REPORT
ALSEA 2017 121
3. A modification of a share-based payment that changes the transaction from
cash-settled to equity-settled should be accounted for as follows:
(i) The original liability is derecognized;
(ii) The equity-settled share-based payment is recognized at the modification
date fair value of the equity instrument granted to the extent that services
have been rendered up to the modification date; and
(iii) Any difference between the carrying amount of the liability at the modification
date and the amount recognized in equity should be recognized in profit or
loss immediately.
The amendments are effective for annual reporting periods beginning on or after 1
January 2018 with earlier application permitted. Specific transition provisions apply.
The directors of the Entity do not anticipate that the application of the amendments
in the future will have a significant impact on the Entity’s consolidated financial
statements as the Entity does not have any cash-settled share-based payment
arrangements or any withholding tax arrangements with tax authorities in relation
to share-based payments.
Annual Improvements to IFRSs 2014 - 2016 Cycle
The Annual Improvements include amendments to IFRS 1, IFRS 9 and IAS 28
which are not yet mandatorily effective for the Entity. The package also includes
amendments to IFRS 12 which is mandatorily effective for the Entity in the current
year - see note 2.as for details of application.
The amendments to IAS 28 are two, the first one clarify that the option for a venture
capital organization and other similar entities to measure investments in associates
and joint ventures at FVTPL is available separately for each associate or joint
venture, and that election should be made at initial recognition of the associate or
joint venture. In respect of the option for an entity that is not an investment entity
(IE) to retain the fair value measurement applied by its associates and joint ventures
that are IEs when applying the equity method, the amendments make a similar
clarification that this choice is available for each IE associate or IE joint venture. The
amendments apply retrospectively with earlier application permitted.
The second amendment to IAS 28 in long term interest in associates and joint
ventures clarifies that an entity applies IFRS 9 Financial Instruments to long term
interest in an associate or joint venture that form part of the net investment in
the associate or joint venture but to which the equity method is not applied. The
amendments apply retrospectively with earlier application permitted.
Prepayment features with negative compensation amends the existing requirements
in IFRS 9 regarding termination rights in order to allow measurement at amortized
cost (or, depending on the business model, at fair value through other comprehensive
income) even in the case of negative compensation payments.
Amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on
or after January 1, 2018. The directors of the Entity do not anticipate that the
application of the amendments in the future will have any impact on the Entity
consolidated financial statements as the Entity is neither a first-time adopter of
IFRS nor a venture capital organization. Furthermore, the Entity does not have any
associate or joint venture that is an investment entity.
Amendments to IFRS 9 and IAS 28 (long-term interest in associates and joint ventures)
are effective for annual periods beginning on or after 1 January 2019. The Entity is in
the process of determining the potential impacts that will derive from the adoption of
these amendments in its consolidated financial statements, although given the nature
of its operations it would not expect significant impacts.
Annual Improvements to IFRSs 2015 - 2017 Cycle
The Annual Improvements include amendments to IFRS 3 and IFRS 11, IAS 12 and
IAS 23.
Amendments to IFRS 3 clarify that when an entity obtains control of a business
that is a joint operation, it remeasures previously held interest in that business. The
amendments to IFRS 11clarify that when an entity obtains control of a business
that in not a joint operation the entity does not remeasure previously held interest
in that business.
Amendments to IAS 12 clarify that all income tax consequences of dividends (i.e.
distribution of profits) should be recognized in profit or loss, regarding of how the
tax arises.
Amendments to IAS 23 clarify that if any specific borrowing remains outstanding
after the related asset is ready for its intended use or sale, that borrowing becomes
part of the funds that an entity borrows generally when calculating the capitalization
on general borrowings.
IFRIC 22, Foreign Currency Transactions and Advance Consideration
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of
determining the exchange rate to use on initial recognition of an asset, expense or
income, when consideration for that item has been paid or received in advance in a
foreign currency which resulted in the recognition of a non-monetary asset or non-
monetary liability (e.g. a non-refundable deposit or deferred revenue).
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The Interpretation specifies that the date of transaction is the date on which the
entity initially recognizes the non-monetary asset or non-monetary liability arising
from the payment or receipt of advance consideration. If there are multiple payments
or receipts in advance, the Interpretation requires an entity to determine the date of
transaction for each payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after 1 January
2018 with earlier application permitted. Entities can apply the Interpretation either
retrospectively or prospectively. Specific transition provisions apply to prospective
application.
The directors of the Entity do not anticipate that the application of the amendments
in the future will have an impact on the Entity’s consolidated financial statements.
This is because the Entity already accounts for transactions involving the payment
or receipt of advance consideration in a foreign currency in a way that is consistent
with the amendments.
3. Significant accounting policies
a. Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards 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.
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.
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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.
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.
When necessary, adjustments are made to the financial statements of subsidiaries
to bring their accounting policies into line with the Entity’s accounting policies.
e. Financial assets
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.
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
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A financial asset is classified as held for trading if:
4. Impairment of financial assets
•
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 than a financial asset held for trading or contingent
consideration that may be paid by an acquirer as part of a business combination
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.
Financial assets, other than those at FVTPL, are assessed for indicators
of impairment at the end of each reporting period. Financial assets are
considered to be impaired when there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows of the investment have been affected.
For all other financial assets, objective evidence of impairment could include:
• 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.
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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.
5. Derecognition of financial assets
The Entity derecognizes a financial asset when the contractual rights to the
cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
party. If the Entity neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred asset, the Entity
recognizes its retained interest in the asset and an associated liability for
amounts it may have to pay. If the Entity retains substantially all the risks and
rewards of ownership of a transferred financial asset, the Entity continues to
recognize the financial asset and also recognizes a collateralize borrowing for
the proceeds received.
On derecognition of a financial asset in its entirety, the difference between the
asset’s carrying amount and the sum of the consideration received and receivable
and the cumulative gain or loss that had been recognized in other comprehensive
income and accumulated in equity is recognized in profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when the
Entity retains an option to repurchase part of a transferred asset), the Entity
allocates the previous carrying amount of the financial asset between the part
it continues to recognize under continuing involvement, and the part it no longer
recognizes on the basis of the relative fair values of those parts on the date of
the transfer.
The difference between the carrying amount allocated to the part that is no
longer recognized and the sum of the consideration received for the part no
longer recognized and any cumulative gain or loss allocated to it that had been
recognized in other comprehensive income is recognized in profit or loss. A
cumulative gain or loss that had been recognized in other comprehensive income
is allocated between the part that continues to be recognized and the part that
is no longer recognized on the basis of the relative fair values of those parts.
f. Inventories and cost of sales
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.
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.
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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
Intangible assets acquired separately
2.
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 (3)
Depending on
opening dates
Mexico
Colombia
Chile
Mexico
Mexico (2)
Argentina, Chile,
Brazil and Colombia (2)
2018
2026
2016
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 renewed its 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, 2017, 2016 and 2015, the Entity has fully
complied with those obligations.
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.
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j. Impairment in the value of long-lived assets, equipment, leasehold
k. Business combinations
improvements, properties, and other intangible assets
At the end of each reporting period, the Entity reviews the carrying amounts of its
tangible and intangible assets to determine whether there is 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.
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.
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.
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.
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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. At December 31, 2017, the Entity has identified
impairment effects on its La Vaca Argentina and Il Tempietto Brands for an amount
of $3,270, and $377, respectively.
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 the extent that the Entity has
incurred legal or constructive obligations or made payments on behalf of the
associate or joint venture.
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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.
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 44%, 42% and 38% of consolidated net income and 31%,
25% and 22% of the total consolidated assets at December 31, 2017, 2016 and
2015, 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.
138 ANNUAL REPORT
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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:
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.
- 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.
Statutory employee profit sharing (PTU)
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, 2017, 2016 and 2015,
PTU is determined based on taxable income, according to Section I of Article 9 of
the that Law.
- All conversion differences are recognized as a separate component under
stockholders’ equity and form part of other comprehensive income items.
The income tax expense represents the sum of the tax currently payable and
deferred tax.
q. Income taxes
p. Employee benefits
Retirement benefits costs from termination benefits
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.
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.
1. Current tax
Current income tax (ISR) is recognized in the results of the year in which
is incurred.
2. Deferred income tax
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.
140 ANNUAL REPORT
ALSEA 2017 141
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.
3. Current and deferred tax for the year
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.
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.
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.
4. Derecognition of financial liabilities
The Entity derecognizes financial liabilities when, and only when, the Entity’s
obligations are discharged, cancelled or have expired. The difference between
the carrying amount of the financial liability derecognized and the consideration
paid and payable is recognized in profit or loss.
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.
142 ANNUAL REPORT
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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: EWith 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.
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.
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.
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.
Hedge accounting: 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.
144 ANNUAL REPORT
ALSEA 2017 145
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.
u. Revenue recognition
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
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 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.
Details of this liability can be consulted in Note 19.
Royalty income is recorded as it is earned, based on a fixed percentage of
sub-franchise sales.
Control over Operadora de Franquicias Alsea, S.A. de C.V. (OFA)
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.
146 ANNUAL REPORT
ALSEA 2017 147
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.
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
ASome 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.
148 ANNUAL REPORT
ALSEA 2017 149
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
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:
In October 2015, the Entity 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).
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, 2017,
2016 and 2015 is comprised as follows:
7. Customers, net
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, 2017, 2016 and 2015, the customer balance is comprised as follows:
Franchises
Credit card
Other
$
$
2017
247,118
304,419
530,920
1,082,457
$
2016
315,864
105,115
419,059
840,038
2015
332,485
163,584
261,971
758,040
Allowance for doubtful accounts (1)
(162,193)
(131,658)
(118,097)
$
920,264
$
708,380
$
639,943
(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
$162,193, $131,658, $118,097 in 2017, 2016 and 2015, 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.
Cash
Investments with original maturities of under
three months
2017
1,453,537 $
2016
1,878,770 $
$
2015
632,628
86,866
669,072
563,186
Following is the aging of past due but unimpaired accounts receivable:
Total cash and cash equivalents
$
1,540,403 $
2,547,842 $
1,195,814
The Entity maintains its cash and cash equivalents with accepted financial entities and
it has not historically experienced losses due to credit risk concentration.
15-60 days
60-90 days
More than 90 days
Total
2017
13,371 $
13,044
153,900
2016
29,052 $
6,126
129,561
2015
43,648
9,230
95,161
180,315 $
164,739 $
148,039
$
$
Average time overdue (days)
95
93
60
150 ANNUAL REPORT
ALSEA 2017 151
(1)
In others are concepts such as toys, uniforms, cleaning utensils, kitchen appliances and souvenirs.
Acquisitions
152,336
1,828,314
2,649,953
December 31, 2016
867,293
6,326,164
8,677,497
288,428
213,639
881,089
207,480
989,451
375,763
2,507,007
21,126,331
29,461
139,597
(365,730)
4,695,671
54,260
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.
Inventories, net
8.
At December 31, 2017, 2016 and 2015, inventories are as follows:
Food and beverages
Containers and packaging
Other (1)
Obsolescence allowance
$
$
2017
1,869,134
65,759
82,591
(7,705)
$
2016
1,383,029
55,001
145,237
(7,904)
2015
1,083,807
84,235
214,983
(5,044)
Total
$
2,009,779
$
1,575,363
$
1,377,981
Inventories recognized under cost of sales for inventory consumption in the period
related to continuous operations totaled $12,923,189, $11,779,630 and $10,149,276
for the years ended December 31, 2017, 2016 and 2015, respectively.
9. Advance payments
Advance payments were made for the acquisition of:
Insurance and other services
Inventories
Lease of locales
Total
2017
288,458 $
91,029
32,076
2016
287,426 $
80,529
34,235
2015
220,783
62,249
39,354
411,563 $
402,190 $
322,386
$
$
10. Store equipment, leasehold improvements and property, net
Store equipment, leasehold improvements and properties are as follows:
Cost
Buildings
Store
equipment
Leasehold
improvements
Capital
lease
Transportation
equipment
Computer
equipment
Production
equipment
Office
furniture and
equipment
Construction
in process
Total
Balance at January
1, 2015
Acquisitions
Disposals
Adjustment for
currency conversion
Balance as of
$ 797,139
$ 4,109,295
$ 6,190,457
$ 288,428 $
172,027
$ 552,255
$ 940,450
$ 277,415
$ 1,145,279
$ 14,472,745
14,783
1,153,047
1,239,062
-
(183,125)
(335,952)
(5,617)
(58,817)
(98,739)
-
-
-
41,315
205,232
41,196
36,161
254,022
2,984,818
(23,113)
(23,962)
(5,903)
(163)
-
(572,218)
(1,826)
(4,945)
(1,076)
(4,649)
(11,976)
(187,645)
December 31, 2015
806,305
5,020,400
6,994,828
288,428
188,403
Acquisitions
13,795
1,198,304
1,481,780
Business acquisition
37,360
28,963
26,726
Disposals
(1,712)
(182,068)
(289,267)
Adjustment for
currency conversion
Balance as of
11,545
260,565
463,430
-
-
-
-
Reclassified of
financial leases
Disposals
Adjustment for
currency conversion
Balance as of
(89,873)
-
(58,867)
(29,910)
(198,285)
(357,784)
17,096
46,570
92,533
-
-
-
-
728,580
157,539
554
55,179
113
(38,362)
(55,780)
974,667
308,764
1,387,325
16,697,700
14,795
33,612
1,093,240
4,048,244
-
-
14,039
(17,656)
-
-
107,755
(584,845)
8,306
50,196
(11)
37,004
26,442
857,477
-
-
-
-
(34,583)
(51,942)
(9,645)
(45,294)
4,136
17,388
-
22,981
-
-
-
(148,740)
(727,443)
200,704
December 31, 2017
$ 916,942
$ 8,002,763
$ 11,003,332
$ 288,428 $
237,452
$ 1,054,015
$ 1,009,267
$ 493,047
$ 2,141,277
$ 25,146,523
Depreciation
Buildings
Balance at January
Store
equipment
Leasehold
improvements
Capital
lease
Transportation
equipment
Computer
equipment
Production
equipment
Office
furniture and
equipment
Construction
in process
Total
1, 2015
$
84,871
$ 1,423,669
$ 1,959,787
$
(5,181) $
85,894
$ 328,698
$ 522,531
$
51,439
$
- $ 4,451,708
Charge for
depreciation for
the year
Adjustment for
currency conversion
Disposals
Balance as of
8,743
633,620
727,164
14,708
33,161
112,523
45,595
20,827
-
-
(22,824)
(42,948)
(141,946)
(229,691)
-
-
(1,094)
(3,406)
(20,106)
(22,056)
(1,490)
(2,421)
3
(146)
December 31, 2015
93,614
1,892,519
2,414,312
9,527
97,855
415,759
564,215
72,123
Charge for
depreciation for
the year
Adjustment for
currency conversion
Disposals
Balance as of
4,115
783,655
958,511
13,061
35,639
142,494
23,946
28,253
904
-
156,143
229,462
(148,666)
(286,532)
-
-
3,240
38,240
(36,610)
(57,654)
23
(737)
22,497
(17,022)
December 31, 2016
98,633
2,683,651
3,315,753
22,588
100,124
538,839
587,447
105,851
Charge for
depreciation for
the year
Reclassified as held
for sale
Adjustment
for currency
conversion
Disposals
Balance as of
49,040
902,852
1,131,063
12,624
39,257
160,583
36,848
36,182
(41,628)
-
(19,876)
7,364
69,706
67,637
(15,522)
(169,725)
(266,354)
-
-
-
-
-
1,255
15,223
-
-
-
13,696
(25,870)
(42,555)
(5,074)
(35,568)
-
-
-
-
-
-
-
-
-
-
-
-
1,596,341
(71,759)
(416,366)
5,559,924
1,989,674
450,509
(547,221)
7,452,886
2,368,449
(61,504)
174,881
(560,668)
December 31, 2017
$
97,887
$ 3,486,484
$ 4,228,223
$
35,212 $
114,766
$
672,090
$
619,221
$
120,161
$
- $ 9,374,044
152 ANNUAL REPORT
Net cost
ALSEA 2017 153
Balance as of
December 31, 2015
$
712,691 $ 3,127,881 $ 4,580,516 $
278,901 $
90,548 $
312,821 $
410,452 $
236,641 $ 1,387,325 $ 11,137,776
Balance as of
December 31, 2016
$
768,660 $ 3,642,513 $ 5,361,744 $
265,840 $
113,515 $
342,250 $
402,004 $
269,912 $ 2,507,007 $ 13,673,445
Amortization
Brand
rights
Commissions
for store
opening
Franchise
and use
of locale
rights
Licenses and
developments
Goodwill
Total
Balance as of
December 31, 2017
$
819,055 $ 4,516,279 $ 6,775,109 $
253,216 $
122,686 $
381,925 $
390,046 $
372,886 $ 2,141,277 $ 15,772,479
11. Intangible assets, net
Intangible assets are comprised as follows:
Balance at January 1, 2015
$
811,015
$
371,126
$
279,982
$
418,058
$
16,953
$
1,897,134
Amortization
Adjustment for currency
128,657
(593)
9,693
(3,243)
95,598
(3,243)
conversion
Disposals
(3,880)
(10,472)
(1,732)
117,608
(357)
(68)
-
-
-
351,556
(7,436)
(16,152)
Balance as of December 31,
935,199
367,104
370,605
535,241
16,953
2,225,102
Cost
Brand
rights
Commissions
for store
opening
Franchise and
use of locale
rights
Licenses and
developments
Goodwill
Total
Adjustment for currency
2015
Amortization
Balance at January 1, 2015
$
7,813,255
$
378,644
$
875,130
$
572,461
$
6,881,265
$ 16,520,755
Acquisitions
Adjustment for currency conversion
Disposals
94,601
15,359
(9,313)
Balance as of December 31, 2015
7,913,902
Acquisitions
Business acquisition
Adjustment for currency conversion
Disposals
201,442
245,156
90,006
(4,503)
603
(1,031)
(8,227)
369,989
6,829
-
14,810
(7,060)
Balance as of December 31, 2016
8,446,003
384,568
Acquisitions
Adjustment for currency conversion
Disposals
Impairment losses
93,578
35,585
(12,668)
-
-
3,551
(11,025)
-
173,013
143,255
(6,574)
(5,219)
1,036,350
139,489
-
5,519
(2,785)
1,178,573
216,519
(2,806)
(29,078)
-
(841)
(275)
714,600
203,238
-
38,493
(1,835)
954,496
201,619
25,001
(4,870)
-
-
-
-
411,472
6,913
(23,034)
6,881,265
16,916,106
-
-
-
-
550,998
245,156
148,828
(16,183)
6,881,265
17,844,905
-
-
-
(3,647)
511,716
61,331
(57,641)
(3,647)
Balance as of December 31, 2017
$
8,562,498
$
377,094
$
1,363,208
$
1,176,246
$
6,877,618
$ 18,356,664
conversion
Disposals
173,917
10,144
8,571
12,887
77,295
138,778
515
34,738
(37,901)
(7,390)
(3,477)
(3,610)
-
-
-
398,561
58,284
(52,378)
Balance as of December 31,
1,081,359
381,172
444,938
705,147
16,953
2,629,569
2016
Amortization
Adjustment for currency
conversion
Disposals
137,481
3,922
3,235
3,412
110,381
567
132,129
21,279
(4,689)
(10,761)
(21,867)
(6,000)
-
-
-
383,226
29,180
(43,317)
Balance as of December 31,
$ 1,218,073
$
377,058
$
534,019
$
852,555
$
16,953
$
2,998,658
2017
Net cost
Balance as of December 31,
2015
$ 6,978,703
$
2,885
$
665,745
$
179,359
$ 6,864,312
$ 14,691,004
Balance as of December 31,
$ 7,364,644
$
3,396
$
733,635
$
249,349
$ 6,864,312
$ 15,215,336
2016
Balance as of December 31,
$ 7,344,425
$
36
$
829,189
$
323,691
$ 6,860,665
$ 15,358,006
2017
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.
154 ANNUAL REPORT
ALSEA 2017 155
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:
Minimum lease payments
2017
4,031,877 $
2016
3,274,251 $
2015
2,851,083
$
b. Commitments non-cancellable operating leases
Less than a year
Between one and five years
$
2017
2,845,064 $
11,524,706
2016
1,924,672 $
8,662,305
2015
1,744,166
7,833,383
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:
Less than a year
Between one and five years
More than five years
Less future finance charges
Minimum payments of leases
$
$
2017
32,398
115,009
490,185
637,592
(336,149)
$
2016
32,398
97,195
536,997
666,590
(358,956)
2015
32,789
97,195
566,261
696,245
(381,915)
Minimum lease payments
$
301,443
$
307,634
$
314,330
Less than a year
Between one and five years
More than five years
Present value of minimum payments of leases
$
2017
6,799 $
25,086
269,558
2016
6,799 $
20,398
280,437
2015
7,190
20,398
286,742
Present value of minimum lease payments
$
301,443 $
307,634 $
314,330
Included in the consolidated financial
statements as:
Short-term financial liability
Long-term financial liability
$
$
6,799 $
6,799 $
294,644
300,835
7,190
307,140
301,443 $
307,634 $
314,330
13. Investment in subsidiaries
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.
Principal activity
Distribution of Alsea
brand foods
Operator of the Starbucks
brand in Mexico
2017
2016
2015
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Operadora de Franquicias
Alsea, S.A. de C.V.
Operator of the Burger
King brand in Mexico
Operadora y Procesadora de
Productos de Panificación,
S.A. de C.V.
Gastrosur, S.A. de C.V.
Operator of the
Domino's Pizza brand
in Mexico
Operator of the Chili’s Grill
& Bar brand in Mexico
Fast Food Sudamericana, S.A.
Operator of the Burger King
80.00%
80.00%
80.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Fast Food Chile, S.A.
Operator of the Burger King
brand in Chile
100.00%
100.00%
100.00%
brand in Argentina
100.00%
100.00%
100.00%
Starbucks Coffee Argentina,
Operator of the Starbucks
S.R.L.
Dominalco, S.A. (1)
Servicios Múltiples
Empresariales ACD, S.A. de
C.V. (before SOFOM E.N.R.)
Asian Bistro Colombia, S.A.S.
brand in Argentina
100.00%
100.00%
100.00%
Operator of the Domino’s
Pizza brand in Colombia
Operator of Factoring
and Financial Leasing in
Mexico
Operator of the P.F. Chang's
-
93.30%
93.25%
100.00%
100.00%
100.00%
brand in Colombia
100.00%
100.00%
100.00%
Asian Bistro Argentina, S.R.L.
Operator of the P.F. Chang's
Operadora Alsea en
Colombia, S.A.
Operator of the Burger
King brand in Colombia
94.94%
94.94%
94.91%
brand in Argentina
100.00%
100.00%
100.00%
156 ANNUAL REPORT
ALSEA 2017 157
14. Investment in shares of associated companies
Investment in the non-controlling interest of Blue Stripes Chile
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.
At December 31, 2017, 2016 and 2015, the investment in shares of associated companies
is comprised of the Entity’s direct interest in the capital stock of the companies listed
below:
Interest in associated company
2017
-
%
2015
2016
25.00% 25.00%
-
-
33.33% 33.33%
33.33% 33.33%
$
Main operations
Sales of prestigious
Brands of clothes and
accessories in Mexico
Sales of prestigious
Brands of clothes and
accessories in Chile
Sales of prestigious
Brands of clothes and
accessories in Chile
2017
2016
2015
- $ 995,596 $ 892,169
-
-
9,717
6,511
30,662
24,282
$
- $ 1,035,975 $ 922,962
Grupo Axo,
S.A.P.I. de
C.V. (2) (4) (5)
Blue Stripes
Chile SPA (5)
Stripes Chile
SPA (1) (3) (5)
Total
Name of Subsidiary
Asian Food, Ltda.
Principal activity
Operator of the P.F. Chang's
2017
2016
2015
brand in Chile
100.00%
100.00%
100.00%
Grupo Calpik, S.A.P.I. de C.V.
Operator of the California
Pizza Kitchen brand in
Mexico
Especialista en Restaurantes
Operator of the P.F. Chang’s
de Comida Estilo Asiática, S.A.
de C.V.
Distribuidora e Importadora
Distributor of foods and
Alsea, S.A. de C.V.
production materials for
the Alsea and related
Brands
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Italcafe, S.A. de C.V.
Operator of Italianni's
brand
100.00%
100.00%
100.00%
Grupo Amigos de San Ángel,
Operator of Italianni's
S.A. de C.V.
brand
100.00%
100.00%
100.00%
Grupo Amigos de Torreón, S.A.
Operator of Italianni's
de C.V.
brand
100.00%
100.00%
100.00%
Grupo Amigos de Perisur, S.A.
Operator of Italianni's
de C.V. (2)
brand
Starbucks Coffee Chile, S.A.
Operator of the Starbucks
-
-
100.00%
brand in Chile
100.00%
100.00%
100.00%
Distribuidora e Importadora
Alsea Colombia, S.A.S. (1)
Distributor of food and
supplies for Alsea Brands
in Colombia
Estrella Andina, S.A.S.
Operator of the Starbucks
Operadora Vips, S. de R.L.
de C.V.
brand in Colombia
Operator of Vips brand
OPQR, S.A de C.V.
Operator Brand Cheesecake
Food Service Project, S.L.
(Grupo Zena)
Factory in Mexico
Operator of Spain
-
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%
Gastrococina Sur, S.P.A.
Operator of Chili’s Grill &
Gastronomía Italiana en
Operator of Archie´s brand
Colombia, S.A.S. (1)
in Colombia
97.60%
100.00%
Bar in Chile
100.00%
100.00%
Operadora GB Sur, S.A. de C.V.
Operator of the Burger King
and Domino’s Pizza brand
in Mexico
70.90%
-
-
-
-
(1) On July 19, 2017, the merger project between Distribuidora e Importadora Alsea Colombia, S.A.S. and Dominalco,
S.A. as merged companies and designating as a merging company Gastronomía Italiana en Colombia, S.A.S.
assuming the latter, all the rights and obligations of the merger.
(2) 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.
158 ANNUAL REPORT
ALSEA 2017 159
Equity in results
1/1/2017 to
10/19/2017
$
2015
2016
(3,487) $ 65,989 $ 27,396
Blue Stripes Chile SPA
Total assets, liabilities, equity and profit and losses of the associated entity are as
follows:
1,892
1,506
2
Current assets
2017
25.00%
%
2015
2016
25.00% 25.00%
33.33%
33.33% 33.33%
33.33%
33.33% 33.33%
Main operations
Sales of prestigious
Brands of clothes and
accessories in Mexico
Sales of prestigious
Brands of clothes and
accessories in Chile
Sales of prestigious
Brands of clothes and
accessories in Chile
Subsidiaria
Grupo Axo,
S.A.P.I. de C.V.
Blue Stripes
Chile SPA (1)
Stripes Chile
SPA
Total
1,158
382
305
$
(437) $ 67,877 $ 27,703
(1) Stripes Chile SPA is a direct subsidiary of Grupo Axo together with another subsidiary of the Entity.
(2)
(3)
(4)
In 2015, contributions were made to increase the capital in Grupo Axo, by $38,706.
In 2015, the contribution to the capital increase of $20,220 in Stripes Chile made.
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.
(5) As mentioned in Note 1a, on October 19, 2017, Alsea concluded the process of selling the investment in an associate
- Grupo Axo, S.A.P.I. de C.V. which generated a gain on sale of shares for $608,817, accounted for under other
(income) expense in the consolidated statements of income.
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
Income
Net profit for the period
2017
- $
2016
70,058 $
2015
43,621
- $
60,025 $
55,315
- $
38,088 $
26,081
1/01/2017
to
10/19/2017
87,228 $
2016
132,312 $
2015
85,486
3,474 $
1,146 $
915
$
$
$
$
$
Non-current assets
Current liabilities
Income
Net profit for the period
2017
- $
2016
40,512 $
2015
16,478
- $
33,548 $
9,531
- $
44,906 $
6,475
1/01/2017
to
19/10/2017
98,874 $
06/01/2015
to
12/31/2015
11,904
2016
63,642 $
5,677 $
4,518 $
5
$
$
$
$
$
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
Non-current liabilities
Revenues
Net (loss) profit for the period
2017
- $
2016
3,656,612 $
2015
2,380,902
- $
3,182,682 $
3,169,338
- $
2,168,965 $
1,733,052
- $
2,927,493 $
2,488,060
01/01/2017
to
10/19/2017
5,769,233 $
2016
6,144,101 $
2015
4,504,291
(13,948) $
263,956 $
109,584
$
$
$
$
$
$
160 ANNUAL REPORT
ALSEA 2017 161
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
Entity's interest in Grupo Axo
Plus: goodwill
$
$
2017
- $
- $
-
2016
1,742,836 $
2015
1,329,128
435,709 $
559,887
332,282
559,887
Carrying value of the Entity's interest in Grupo Axo
$
- $
995,596 $
892,169
Concept
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
15. Business combination
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:
Fair value of net assets
Total consideration paid
Goodwill
March 2016
$
10,197
107,755
245,156
(68,764)
(1,317)
293,027
293,027
-
$
i. Recognize and value the assets, liabilities and non-controlling interest.
ii.
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.
iii. 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, S.A.S. (previously Archie’s Colombia, S.A.S.).
The following is an analysis of the allocation of the acquisition cost over the fair values
of the net assets acquired. Given that the total value of the consideration paid was equal
to the fair value of the net assets acquired, there were no changes in the preliminary
accounting of the acquisition:
From the date of acquisition until December 31, 2016, Archie’s contributed $332,652 to
sales and ($15,688) to net income.
Acquisition of Grupo Zena
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).
162 ANNUAL REPORT
ALSEA 2017 163
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:
Preliminary
book entry
Adjustment
for
valuation
Fair
value
Cash and cash equivalents
Accounts receivable and other accounts
$
89,287
245,968
$
$
-
-
89,287
245,968
receivable
Non-current assets:
Store equipment, leasehold improvements and
1,231,979
261,998
1,493,977
property, net
Intangible assets
Reassigning Goodwill included in Grupo Zena
Deferred income taxes
Current liabilities:
470,473
1,313,786
174,859
1,222,642
(1,313,786)
-
1,693,115
-
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
-
(1,845,132)
(165,459)
236,533
1,794,245
706,098
(445,393)
-
-
(274,539)
-
(101,521)
(445,393)
(1,845,132)
(165,459)
(38,006)
1,794,245
604,577
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
Accounts receivable and other accounts
$
605,400
304,964
$
$
-
-
605,400
304,964
receivable
Non-current assets:
Total consideration paid
2,500,343
(101,521)
2,398,822
Store equipment, leasehold improvements and
2,935,630
(45,260)
2,890,370
Goodwill
$
2,263,810
$
173,018
$
2,436,828
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.
property, net
Intangible assets
Deferred income taxes
Current liabilities:
365,944
201,845
3,573,000
16,427
3,938,944
218,272
Accrued expenses and employee benefits
(700,918)
(22,872)
(723,790)
Non-current liabilities:
Deferred income taxes
Other long-term liabilities
-
(366,651)
(1,209,453)
-
(1,209,453)
(366,651)
Fair value of net assets
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
164 ANNUAL REPORT
ALSEA 2017 165
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.
As of December 31, 2017, 2016 and 2015, the studies carried out on the impairment
tests concluded that the goodwill has no impairment, with the exception of the goodwill
assigned to the Brands mentioned in the previous paragraph.
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.
17. Long-term debt
Long-term debt at December 31, 2017, 2016 and 2015 is comprised of unsecured
loans, as shown below:
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.
16. Goodwill
Assignment of goodwill to cash generating units
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 (1)
Il Tempietto (1)
Cañas y Tapas
$
2017
1,336,967 $
1,078,622
26,614
785,816
3,058,697
368,513
198,598
-
-
6,838
2016
1,336,967 $
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
6,838
2015
1,336,967
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
6,838
Type of
credit
Simple credit
Currency
Euros
Rate
1.89% (Fixed rate)
Maturity
2020
$
2017
2,338,640
$
Simple credit
Mexican pesos
Bank
Sindicado
Scotiabank
Inverlat, S.A.
Bank of America
Simple credit
Mexican pesos
Bank of America
Simple credit
Mexican pesos
6.11% (Fixed rate)
2016
2,274,063 $
1,957,553
2015
2,027,154
2,032,790
1,884,000
1,000,000
996,078
-
1,000,000
574,063
-
-
1,000,000
-
7.08% (Variable rate
TIIE +0.97% )
7.30% (Variable rate
TIIE +1.19% )
7.06% (Variable rate
TIIE +1.35% )
7.06% (Variable rate
TIIE +0.95% )
7.45% (Variable rate
TIIE +1.34% )
7.11% (Variable rate
TIIE +1.00% )
6.86% (Variable rate
TIIE +0.75% )
Variable rate TIIE
+0.90%
Variable rate TIIE
+0.80%
Variable rate TIIE
+1.00%
Variable rate TIIE
+1.00%
2019
2021
2019
2021
2021
2024
2021
2020
2019
2019
2021
2022
2017
2017
2017
2018
2018
2018
2018
Bank of Tokyo
Simple credit
Mexican pesos
Bank of Tokyo
Simple credit
Mexican pesos
Banco Nacional de
Comercio Exterior
S.N.C. (Bancomext)
Simple credit
Mexican pesos
Banco Santander,
Simple credit
Mexican pesos
S.A.
Banco Nacional de
Simple credit
Mexican pesos
México, S.A.
Scotiabank Inverlat,
Simple credit
Mexican pesos
S.A.
Scotiabank Inverlat,
Simple credit
Mexican pesos
S.A.
Scotiabank Inverlat,
Simple credit
Mexican pesos
S.A.
Banco Santander,
Simple credit
Mexican pesos
S.A.
Banco Citibank
Argentina
Banco Citibank
Argentina
Banco Citibank
Argentina
Simple credit
Argentine pesos
27% (Fixed rate)
2017
BBVA Francés
Simple credit
Argentine pesos
22% (Fixed rate)
Banco HSBC, S.A.
Simple credit
Colombian pesos
24.5% (Fixed rate)
Santander Chile, S.A. Simple credit
Chilean pesos
4.02% (Fixed rate)
BBVA Francés
Simple credit
Argentine pesos
23.25% (Fixed rate)
Banco HSBC, S.A.
Simple credit
Argentine pesos
29% (Fixed rate)
Banco Citibank
Simple credit
Argentine pesos
29.25% (Fixed rate)
Simple credit
Argentine pesos
29.50% (Fixed rate)
Simple credit
Argentine pesos
29.25% (Fixed rate)
2018
900,000
-
600,000
866,400
260,000
796,267
432,000
430,770
-
-
-
-
-
-
-
-
-
-
-
-
303,355
47,974
146,200
97,740
83,696
1,788
-
69,777
-
-
-
-
-
-
14,922
-
-
-
-
-
-
-
270,000
700,000
400,000
485,310
-
-
-
-
103,096
110,442
3,553
19,638
72,323
85,918
-
$
6,860,665 $
6,864,312 $
6,864,312
Santander Chile, S.A. Simple credit
Chilean pesos
3.6% (Fixed rate)
Helm Bank USA
Simple credit
Colombian pesos
12.29% (Variable rate
DTF +5.30% )
2018
2020
(1) At December 31, 2017, the goodwill assigned to the La Vaca Argentina and Il Tempietto Brands was impaired by
$3,270 and $377, respectively.
7,780,920
10,851,044
5,753,546
Less – current portion
(1,087,466)
(1,107,238)
(734,824)
Long-term debt maturities
$
6,693,454
$
9,743,806 $
5,018,722
166 ANNUAL REPORT
ALSEA 2017 167
Annual long-term debt maturities at December 31, 2017 are as follows:
Year
2019
2020
2021-2027
Amount
3,433,094
$
1,882,860
1,377,500
$
6,693,454
Bank loans include certain affirmative and negative covenants, such as maintaining
certain financial ratios. At December 31, 2017, 2016 and 2015, all such obligations have
been duly met.
18. Debt instruments
In October 2017, the Entity placed of debt instruments worth $1,000,000 over 5 years
as from the issuance date, maturing in September 2022. Those instruments will accrue
interest at the 28-day TIIE rate plus 0.90 percentage points; and other debt instrument
worth $2,000,000 over 10 years as from the issue date, maturing in September 2027.
Those instruments will accrue interest at a fixed rate of 8.85%.
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, the Entity 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 2017. Those
instruments will accrue interest at a fixed rate of 8.07%.
The balance at December 31, 2017, 2016 and 2015 amounts to $6,980,452, $3,988,845
and $6,479,795, respectively.
Year
2020
2022
2025
2027
Amount
2,980,452
$
1,000,000
1,000,000
2,000,000
$
6,980,452
19. Obligation over put option
In October 2014, 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 $3,280,064, $3,185,096 and $2,777,328 at December 31, 2017, 2016 and
2015, respectively. The revaluation of this option as of December 31, 2017, 2016 and
2015 generated a loss in results by $94,968, $407,768 and $104,275, respectively, and
is included in ‘Changes in the fair value of financial instruments’ in the consolidated
statements of income.
20. Income taxes
The Entity is subject to ISR. Under the ISR Law the rate for 2017, 2016 and 2015 was
30% and will continue to 30% and thereafter. The Entity incurred ISR on a consolidated
basis until 2013 with its Mexican subsidiaries. As a result of the 2014 Tax Law, the
tax consolidation regime was eliminated, and the Entity and its subsidiaries have the
obligation to pay the long-term 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 Assets Tax Law (LIMPAC) was eliminated, but under certain the amount
of this paid in the 10 years immediately prior to that in which ISR is first paid may be
recovered in accordance with applicable tax provisions.
The ISR liability as of December 31, 2017 is $19,892 related to the effects for benefits
and fiscal deconsolidation which will be paid in 2018.
In Chile, in September 2014, the government promulgates in its tax reform increased the
rate gradually according to the following 22.5% in 2015, 24% to 2016, 25.5% to 2017,
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.
168 ANNUAL REPORT
ALSEA 2017 169
In Colombia, the tax applicable provide that the rate applicable to income tax for 2017
is 34% and for the year 2018 and 33% thereafter. Likewise, for taxable bases higher
than $800,000, you must pay a 6% surcharge for 2017 and 4% for the year 2018. In any
case, as of the taxable year 2017, the taxable base of the income tax can not be less
than 3.5% of the liquid assets of the immediately previous one.
Additionally, the fiscal losses determined as of 2017 may be compensated with liquid
income obtained within the following twelve (12) years. The term to compensate for
excess presumptive income will continue to be five (5) years. These tax credits may not
be readjusted fiscally.
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 0.25% 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 2017 and 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
2017
985,351
(149,923)
$
2016
825,874
(296,641)
$
2015
691,060
(201,141)
835,428
$
529,233
$
489,919
$
$
The tax expense attributable to income before ISR differs from that arrived at by
applying the 30% statutory rate in 2017, 2016 and 2015 due to the following items:
Statutory income tax rate
Non-deductible expenses
Effects of inflation and others
Fixed asset update
Others
Effective consolidated income tax rate
2017
30%
8%
9%
(6%)
(1%)
40%
2016
30%
7%
5%
(6%)
(4%)
32%
2015
30%
4%
5%
(5%)
(2%)
32%
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
Liability provisions
Advances from customers
Unamortized tax losses
Recoverable asset tax
Store equipment, leasehold
improvements and property
Advance payments
Other assets
2017
2016
2015
$
(2,347) $
(15,698) $
(623,225)
(164,635)
(186,952)
-
471,310
-
123,515
(740,365)
(16,176)
(82,078)
(12,269)
769,288
(84,223)
(2)
(36,942)
(488,383)
(105,167)
(102,640)
(12,269)
882,625
71,418
5,752
$
(382,334) $
(181,523) $
214,394
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:
Deferred tax assets
Deferred tax liabilities
2017
2,348,434
1,966,100
$
2016
2,068,996
1,887,473
$
2015
1,710,943
1,925,337
(382,334) $
(181,523) $
214,394
$
$
170 ANNUAL REPORT
ALSEA 2017 171
d. Deferred income tax balances
Begin-
ning
balance
Recog-
nized in
profit or
loss
Recog-
nized in
stock-
holders’
equity
Acquisi-
tions
Ending
balance
2017
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
$
(15,698)
$
13,351
$
-
$
Liability provisions
(740,365)
153,907
(36,767)
Advances from customers
(16,176)
(148,459)
-
Store equipment, leasehold
improvements and property
769,288
(283,857)
(14,121)
Prepaid expenses
Other assets
Tax loss carryforwards
and unused tax credits
Tax loss carryforwards
Recoverable IMPAC
(84,223)
207,738
(2)
2
-
-
(87,176)
(57,318)
(50,888)
(82,078)
(12,269)
(94,347)
(104,874)
12,269
(92,605)
-
-
-
$ (181,523)
$ (149,923)
$
(50,888)
$
-
-
-
-
-
-
-
-
-
-
-
$
(2,347)
(623,225)
(164,635)
471,310
123,515
-
(195,382)
(186,952)
-
(186,952)
$ (382,334)
Begin-
ning
balance
Recog-
nized in
profit or
loss
Recog-
nized in
stock-
holders’
equity
Acquisi-
tions
Ending
balance
2016
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
$
(36,942)
$
21,244
$
-
$
Liability provisions
(488,383)
(196,680)
(55,302)
Advances from customers
(105,167)
88,991
-
Store equipment, leasehold
improvements and property
882,625
(69,363)
(43,974)
Prepaid expenses
Other assets
71,418
(155,641)
5,752
(5,754)
-
-
329,303
(317,203)
(99,276)
Tax loss carryforwards
and unused tax credits
Tax loss carryforwards
(102,640)
20,562
Recoverable IMPAC
(12,269)
-
(114,909)
20,562
-
-
-
$ 214,394
$ (296,641)
$
(99,276)
$
-
-
-
-
-
-
-
-
-
-
-
$
(15,698)
(740,365)
(16,176)
769,288
(84,223)
(2)
(87,176)
(82,078)
(12,269)
(94,347)
$ (181,523)
Begin-
ning
balance
Recog-
nized in
profit or
loss
Recog-
nized in
stock-
holders’
equity
Acquisi-
tions
Ending
balance
2015
Temporary differences
Estimation for doubtful
accounts and inventory
obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold
$
(34,028)
$
(2,914)
$
-
$
(447,253)
(70,341)
(14,330)
(34,826)
(26,800)
-
improvements and property
1,208,752
(145,290)
(180,837)
Prepaid expenses
Other assets
47,013
7,172
24,405
(1,420)
-
-
711,315
(174,375)
(207,637)
Tax loss carryforwards
and unused tax credits
Tax loss carryforwards
Recoverable IMPAC
(75,874)
(12,269)
(88,143)
(26,766)
-
(26,766)
-
-
-
$ 623,172
$ (201,141)
$
(207,637)
$
-
-
-
-
-
-
-
-
-
-
-
$
(36,942)
(488,383)
(105,167)
882,625
71,418
5,752
329,303
(102,640)
(12,269)
(114,909)
$ 214,394
The benefits of restated tax loss carryforwards 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, 2017, are:
Year of maturity
2023
2024
2025
2026
2027
Losses entities abroad without due
Amortizable
losses
Country
$
71,246
88,044
319,613
195,404
76,478
51,605
Mexico
Mexico
Mexico
Mexico
Mexico
Chile
Losses entities abroad with due
54,639
Colombia
$
857,029
172 ANNUAL REPORT
ALSEA 2017 173
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.
The total expense recognized in profit or loss and other comprehensive income is
$37,147 in 2017.
The expense for employee benefits as of December 31, 2017, 2016 and 2015 was
$10,650,386, $9,506,774 and $8,177,096, respectively, not including the cost defined
benefit described below.
The net cost for the period related to obligations derived from seniority premiums
amounted to $9,251, $580 and $6,041 in 2017, 2016 and 2015, 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 2016.
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 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, 2017, 2016 and 2015, 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.
b. Financial instrument categories
Financial assets
Cash and cash equivalents
Loans and accounts receivable at
amortized cost
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
2017
2016
2015
$
1,540,403 $
2,547,842 $
1,195,814
1,250,588
953,638
904,853
3,960,806
1,018,691
1,087,466
6,799
6,693,454
294,644
6,980,452
3,901,972
909,156
1,107,238
6,799
9,743,806
300,835
3,988,845
3,013,091
635,802
734,824
7,190
5,018,722
307,140
6,479,795
The Entity is not subject to external requirements to manage its capital.
c. Objectives of managing financial risks
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.
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.
For the years ended December 31, 2017, 2016 and 2015, there were no modifications
to the objectives, policies or processes pertaining to capital management.
d. Market risk
The Entity is exposed to market risks resulting from changes in exchange and interest
rates. Variations in exchange and interest rates may arise as a result of changes in
domestic and international economic conditions, tax and monetary policies, market
liquidity, political events and natural catastrophes or disasters, among others.
174 ANNUAL REPORT
ALSEA 2017 175
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 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 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
-
- Cross Currency Swaps
Interest Rate Swaps and Swaptions
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.
e. Currency exchange risk management
The Entity carries out transactions in foreign currency and therefore it is exposed to
exchange rate fluctuations. Exposure to exchange rate fluctuations is managed within
the parameters of approved policies, using foreign currency forwards contracts.
Note 32 shows foreign currency positions at December 31, 2017, 2016 and 2015. 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 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.
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, 2017, 2016 and 2015.
Underlying / reference variable
Notional amount/
face value (thousands of USD)
Fair value
(thousands of USD)
Type of
derivative,
security or
contract
Objective
of the
hedging
Position
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
Amounts of
maturities
(thousands of
USD)
Forwards
Long
Economic
19.7354
USDMXN
20.73
USDMXN
17.34
USDMXN
50,050
56,125
14,000
$
(46) $
(2,122) $
(306)
50,050
Options
Long
Economic
19.7354
USDMXN
20.73
USDMXN
17.34
USDMXN
75,950
42,100
14,500
$
(1,016) $
4,909 $
(9)
75,950
Forwards
Short
Economic
NA
NA
1.09
EURUSD
-
-
900
$
- $
- $
0.1
-
1. Foreign currency sensitivity analysis
At December 31, 2017, 2016 and 2015, the Entity has contracted hedging
in order to purchase US dollars for the next 12 months, a total of $126, $98
and $28 million dollars, respectively, at the average exchange rate of $18.82,
$19.21 and $16.26 pesos per US dollar, respectively the valuation is based on
an average exchange rate of $18.50, $20.75 and $16.50, pesos per US dollar,
respectively, over the next 12 months as of December 31, 2017, 2016 and
2015. The initial price of currency derivatives is $48.5, $46.4 and $7.6 million
Mexican pesos, respectively, 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, 2017 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,
2017 closing.
Management considers that in the event of a stress scenario as the one
176 ANNUAL REPORT
ALSEA 2017 177
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.
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.
2. Foreign currency forwards and options contracts
At December 31, 2017, 2016 and 2015, a total of 1,066, 534,220 and 212
derivative financial instrument operations (forwards and options) were carried out,
respectively, for a total of 402.6, 68.6, and 41.5 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, 2017, 2016 and 2015, Alsea has contracted DFI’s to purchase
US dollars in the next twelve months for a total of approximately $126, $98 and
$28 million USD, at the average exchange rate of $18.81, $19.21 and $16.26
pesos to the dollar, respectively.
At December 31, 2017, 2016 and 2015, the Entity had contracted the financial
instruments shown in the table above.
f. Interest rate risk management
The Entity faces certain exposure to the volatility of interest rates as a result of
contracting bank and public stock exchange debt at fixed and variable interest rates.
The respective risks are monitored and evaluated monthly on the basis of:
- Cash flow requirements
- Budget reviews
- Observation of the market and interest rate trends in the local market and in the
countries in which Alsea operates (Mexico, Argentina, Chile and Colombia).
- Differences between negative and positive market rates
The aforementioned evaluation is intended to mitigate the Entity’s risk concerning
debt subject to floating rates or indicators, to streamline the respective prices and to
determine the most advisable mix of fixed and variable rates.
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.
At the end of December 31, 2017, the Entity has a total debt of $ 14,761 million
pesos, this debt was contracted at a fixed rate and a variable rate, in addition to the
above, it was decided to apply a risk management strategy in order to you mitigate
the fluctuations of the interest rate staying in a mix of rates where 71% is fixed at
a weighted rate of 7.43%, and 29% at a variable rate, this strategy has generated a
positive result for the company.
-
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.
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, 2017, 2016 and 2015.
Underlying / reference variable
Notional amount/ face value (USD)
Fair value (USD)
Objective
of the
hedging
Position
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
31/12/2017
current
31/12/2016
previous
31/12/2015
previous
Amounts of
expiration
(thousands of
USD)
Long
Coverage
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
3.34% -
TIIE 28 d
199,046
119,011
99,158 $ 20,650 $ 20,216 $
5,650
199,046
Long
Economic
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
3.34% -
TIIE 28 d
113,337
37,928
15,420 $
(5,160) $
(2,295) $
32
113,337
Type of
derivative,
security or
contract
IRS Plain
Vanilla
IRS Plain
Vanilla
Knock Out
IRS
Long
Economic
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
3.34% -
TIIE 28 d
Limited IRS Long
Economic
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
3.34% -
TIIE 28 d
-
-
-
2,941 $
- $
- $
11
10,453
2,941 $
- $
- $
15
-
-
Capped IRS Long
Economic
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
3.34% -
TIIE 28 d
35,469
14,905
2,553 $
402 $
138.6 $
0.4
35,469
IRS Plain
Vanilla
Long
Coverage
7.62% -
TIIE 28 d
EURIBOR
1M
EURIBOR
1M
60,161
39,427
87,391 $
(189) $
(27) $
(549)
60,161
178 ANNUAL REPORT
ALSEA 2017 179
1. Analysis of interest rate sensitivity
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, 2017 close, the increase in
financial costs is of approximately $159.4 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, with approximately 46% coverage of
the debt.
• A 150 bps increase in the 28-day TIIE rate represents an increase in the financial
cost of approximately $221.4 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 $147.6 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.
g. Credit risk management
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.
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.- Credit Default Swap, 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.
2.- 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.
3.- 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, 2017, 2016 and 2015 closing, the Entity has incurred in 37
margin calls just in 2017, and holds 12 million US dollars securities pledged as
a guarantee by a counterparty with which it may have carried out interest rate
hedging operations.
180 ANNUAL REPORT
ALSEA 2017 181
At December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015, that risk amounts to
$2,790,991, $3,501,480 and $2,100,657, 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.
As of December 31,
2017
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable (1)
Average
effective
interest rate
8.25%
8.65%
4.00%
$
Up to 1
year
1,744,175 $
589,150
32,398
48,516
3,960,806
1,018,691
Up to 2
years
3,998,021 $
589,150
32,398
-
-
-
Up to 3
years
2,158,034 $
3,569,602
32,398
-
-
-
Up to 4
years
781,261 $
337,600
32,398
-
-
-
Up to 5
years or
more
772,635 $
4,337,600
508,000
-
-
-
Total
9,454,126
9,423,102
637,592
48,516
3,960,806
1,018,691
Total
$
7,393,736 $
4,619,569 $
5,760,034 $
1,151,259 $
5,618,235 $ 24,542,833
As of December 31,
2016
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable (1)
Average
effective
interest rate
6.76%
7.16%
4.00%
$
Up to 1
year
1,623,664 $
283,920
32,398
44,403
3,901,972
909,156
Up to 2
years
1,410,100 $
283,920
32,398
-
-
-
Up to 3
years
3,239,806 $
283,920
32,398
-
-
-
Up to 4
years
1,534,114 $
3,128,287
32,398
-
-
-
Total
Up to 5
years or
more
5,045,053 $ 12,852,737
5,347,232
1,367,185
666,590
536,998
44,403
-
3,901,972
-
909,156
-
Total
$
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
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Accounts payable
Average
effective
interest rate
5.49%
4.70%
4.00%
$
Up to 1
year
1,000,986 $
321,818
32,789
97,806
3,013,091
635,802
Up to 2
years
1,048,079 $
331,341
32,789
-
-
-
Up to 3
years
717,767 $
2,772,813
32,789
-
-
-
Up to 4
years
2,669,308 $
222,647
32,789
-
-
-
Up to 5
years or
more
1,471,296 $
4,481,332
565,089
-
-
-
Total
6,907,436
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
182 ANNUAL REPORT
ALSEA 2017 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.
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.
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).
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.
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
12/31/2016
12/31/2017
12/31/2015
Fair value
hierarchy
$
(46) $
2,787 $
(315)
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
$
15,703 $
18,032 $
5,159
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.
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, 2017, 2016 and 2015, 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 ANNUAL REPORT
ALSEA 2017 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:
12/31/2017
12/31/2016
Carrying
value
Fair
value
Carrying
value
Fair
value
12/31/2015
Carrying
value
Fair
value
$
3,960,806 $
Financial liabilities
Financial liabilities maintained at amortized cost:
Suppliers
Accounts payable
and accrued
liabilities
Bank loans
Current maturities
of financial lease
liabilities
1,018,691
1,095,114
1,018,691
1,087,466
3,960,806 $
6,799
6,799
909,156
1,107,238
6,799
3,901,972 $
909,156
1,115,556
635,802
734,824
635,802
766,303
6,799
7,190
7,190
6,693,454
6,693,454
9,743,806
9,743,806
5,018,722
5,018,722
Long-term bank
loans
Non-current financial
lease liabilities
Debt instruments
3,901,972 $
3,013,091 $
3,013,091
the resources generated by the issuer.
1. The resources used to address financial instrument requirements will derive from
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:
2. External sources of liquidity: No external sources of financing will be used to
address requirements pertaining to derivative financial instruments.
23. Stockholders’ equity
Following is a description of the principal features of the stockholders’ equity accounts:
294,644
6,980,452
294,644
6,843,439
300,835
3,988,845
300,835
4,037,222
307,140
6,479,795
307,140
6,539,804
a. Capital stock structure
The movements in capital stock and premium on share issue are shown below:
Total
$ 20,042,312 $ 19,912,947 $ 19,958,651 $ 20,015,346 $ 16,196,564 $ 16,288,052
Financial liabilities 2017
Financial liabilities maintained at amortized cost:
Bank loans
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
$
Level 1
1,087,466
6,799
6,693,454
294,644
6,980,452
Figures as of January 1, 2015
Number of
actions
837,622,524 $
Thousands
of pesos so-
cial capital
478,271 $
Premium in
issuance of
shares
8,613,587
Placement of actions
(136,080)
(68)
-
Figures as of December 31, 2015
837,486,444
478,203
8,613,587
Placement of actions
(3,207,245)
(1,604)
12,133
Total
$
15,062,815
Figures as of December 31, 2016
834,279,199
476,599
8,625,720
Financial liabilities 2016
Financial liabilities maintained at amortized cost:
Bank loans
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
Total
Financial liabilities 2015
Financial liabilities maintained at amortized cost:
Bank loans
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
Total
186 ANNUAL REPORT
Level 1
$ 1,107,238
6,799
9,743,806
300,835
3,988,845
$ 15,147,523
Level 1
$
734,824
7,190
5,018,722
307,140
6,479,795
$ 12,547,671
Placement of actions
(1,461,008)
(730)
-
Figures as of December 31, 2017
832,818,191 $
475,869 $
8,625,720
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.
In June 2017, Alsea declared a dividend payment of $570,234 with a charge to the
after-tax earnings account, which is to be paid against net earnings at $0.68 (zero
pesos sixty and eight cents) per share. The Treasury society must make payment on
May 31, 2017 for $567,763.
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 $0.77 (zero
pesos fifty cents) per share. The Treasury society must make payment on May 13,
2016 for $644,771.
ALSEA 2017 187
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 $0.50 (zero
pesos fifty cents) per share. The Treasury society must make payment on May 29,
2015 for $419,173.
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. 5% of net earnings for the period must be set aside to create the legal reserve
until it reaches 20% of the capital stock. At December 31, 2017, 2016 and 2015,
the legal reserve amounted to $100,736, which amount does not reach the
required 20%.
II. Dividends paid from retained earnings are not subject to ISR if paid from the after-tax
earnings account (CUFIN), and 30% must be paid on the excess, i.e., the result arrived
at by multiplying the dividend paid by a factor of 1.0667. 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.
24. Non-controlling interest
a. Following is a detail of the non-controlling interest.
Balances at January 1, 2015
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
Capital Reimbursement of Food Project, S.L. (1)
Other movements in capital
Ending balance at December 31, 2016
Equity in results for the year ended December 31, 2017
Capital Reimbursement of Food Project, S.L.
Capital contributions in subsidiaries
Other movements in capital
$
Amount
833,213
51,536
10,156
31,380
(26,365)
899,920
130,019
(45,178)
28,687
1,013,448
162,651
(159,616)
42,682
62,401
Ending balance at December 31, 2017
$ 1,121,566
(1) On January 20, 2016, Food Project, S.L., 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.
b. Acquisition of the non-controlling interest of Grupo Amigos de San Ángel
In 2015, the Entity acquired the 10.23% that it did not hold in Grupo Amigos de
San Angel, S.A. de C.V. (GASA), 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 GASA, 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 GASA 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.
188 ANNUAL REPORT
ALSEA 2017 189
c. Following is the detail of the Non-Controlling interest of the main
26. Revenues
subsidiaries of the Entity:
Percentages of the
non-controlling interest
31/12/2016
28.24%
31/12/2015
28.24%
31/12/2017
28.24%
Income (loss) attributable
to the non-controlling interest
31/12/2015
31/12/2016
31/12/2017
$ 86,131
$ 163,838
$ 192,660
Accumulated non-controlling
interest
31/12/2016
31/12/2017
$ 978,346 $ 866,843 $
31/12/2015
Revenues from the sale of goods
Services
Royalties
$
2017
41,378,982 $
382,970
767,169
2016
36,682,433 $
652,106
367,328
2015
31,471,313
487,346
329,717
Country
Spain
Mexico
20.00%
20.00%
20.00%
(18,915)
(30,924)
(28,676)
68,446
86,042 116,966
1,187,814
Total
$
42,529,121 $
37,701,867 $
32,288,376
Estrella
Colombia 30.00%
30.00%
30.00%
(6,606)
(2,705)
(5,480)
62,236
40,193
35,157
Andina, S.A.S.
27. Cost of sales
The costs and expenses included in other operating costs and expenses in the consolidated
statements of income are as follows:
Subsidiary
Food Service
Project, S.L.
(Grupo Zena)
Operadora de
Franquicias
Alsea, S.A.
de C.V.
25. Earnings per share
Basic earnings per share is calculated by dividing the net profit for the period attributable
to the controlling interest holders of ordinary capital by the average weighted number of
ordinary shares outstanding during the period.
Food and beverage of costs
Royalties of costs
Other costs
$
2017
12,467,682 $
145,000
310,507
2016
11,406,404 $
146,036
227,190
2015
9,769,021
133,471
246,784
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, 2017, 2016
and 2015, the Entity has no potentially dilutive shares, for which reason diluted earnings
per share is equal to basic earnings per share.
The following table contains data on income and shares used in calculating basic and
diluted earnings per share:
Net profit (in thousands of Mexican pesos):
2017
2016
2015
Total
$
12,923,189 $
11,779,630 $
10,149,276
28. Other operating costs and expenses
Employee benefits
Advertising
Services
Royalties
Pre-operative
Other
2017
10,650,386 $
$
1,614,118
2,033,239
1,389,122
178,108
3,770,159
2016
9,506,774 $
1,449,137
1,705,631
1,183,173
122,959
3,414,422
2015
8,177,096
1,211,830
1,637,801
990,348
109,802
2,803,744
Attributable to shareholders
$
1,089,498 $
996,471 $
981,215
Total
$
19,635,132 $
17,382,096 $
14,930,621
Shares (in thousands of shares):
Weighted average of shares outstanding
832,818
834,279
837,486
Basic and diluted net income per share of
continuous and discontinued operations (cents
per share)
Basic and diluted net income per share of
continuous operations (cents per share)
$
$
1.31 $
1.19 $
1.17
1.31 $
1.19 $
1.17
190 ANNUAL REPORT
ALSEA 2017 191
29. Other (income) expenses, net
It is integrated as follows:
Legal expenses
Loss on fixed asset disposals, net
PTU on tax base
Inflation, interest on tax refund and other income
$
2017
42,505
79,378
29,691
$
2016
53,487 $
3,885
23,347
2015
25,019
40,227
6,371
not tax
(52,534)
26,517
(32,649)
Gain on disposal of investment of associated -
Grupo Axo
Other income, net
(608,817)
(17,571)
-
3,415
16,698
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.
Total
$
(527,348) $
110,651 $
55,666
Fast Casual Dining: This is a combination of the fast food and casual dining segments.
30. Balances and transactions with related parties
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, 2017, 2016 and 2015 was of approximately
$183,820, $231,750 and $121,800, respectively. This amount includes emoluments
determined by the General Assembly of Shareholders of the Entity for the performance
of their positions during said fiscal year, as well as salaries and salaries.
The Entity continuously reviews salaries, bonuses and other compensation plans in order
to ensure more competitive employee compensation conditions.
31. Financial information by segments
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 accounting policies of the segments are the same as those of the Entity’s described
in Note 3.
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.
The distribution and Production segment is defined as follows:
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, Starbucks, Chili’s Grill & Bar, P.F. Chang’s China
Bistro, Vips, El Portón, La Finca 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 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.
Information on the segments for the years ended December 31, 2017, 2016 and 2015 is
as follows: (figures in millions of pesos).
192 ANNUAL REPORT
ALSEA 2017 193
Figures in millions of pesos as of December 31, division:
FFood and bev-
erages Mexican
segment
Food and bever-
ages
LATAM segment
Food and bev-
erages Spain
Division
Distribution
and Production
segment
Eliminations
Consolidated
32. Foreign currency position
Assets and liabilities expressed in US dollars, shown in the reporting currency at December
31, 2017, 2016 and 2015, are as follows:
Number of units
Income
From third parties
2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015
2954
2346
3438
3195
2215
2092
467
481
543
395
549
499
-
-
-
-
-
-
$ 22,545 $ 20,552 $ 18,629 $ 10,283 $ 8,124 $ 6,718 $ 8,570 $ 7,591 $ 5,674 $ 1,046 $ 1,398 $ 1,235 $
85 $
37 $
32 $ 42,529 $ 37,702 $
32,288
Between segments
88
76
43
-
-
-
-
-
-
5,980
5,859
5,139
(6,068)
(5,935)
(5,182)
-
-
-
Income
22,633
20,628
18,672
10,283
8,124
6,718
8,570
7,591
5,674
7,026
7,257
6,374
(5,983)
(5,898)
(5,150)
42,529
37,702
32,288
Assets
Liabilities
Thousands
of dollars
Thousands
of dollars
Thousands
of dollars
$
2017
1,575,514
(6,307,317)
$
2016
1,776,641
(5,891,935)
$
2015
1,300,457
(4,379,546)
Costs
7,747
7,010
6,244
3,179
2,566
2,132
2,352
2,076
1,581
5,622
6,029
5,344
(5,977)
(5,901)
(5,152)
12,923
11,780
Operating costs
10,112
9,157
8,416
5,541
4,331
3,564
4,492
4,015
3,011
Adjusted EBITDA
4,774
4,461
4,012
1,563
1,227
1,022
1,726
1,500
1,082
648
756
569
659
448
582
-
(6)
(26)
29
(21)
20,793
18,046
23
8,813
7,876
Adjusted EBITDA margin
21.1% 21.6% 21.5% 15.2% 15.1% 15.2% 20.1% 19.8% 19.1% 10.8%
9.1%
9.1%
0.1% (0.5%)
(0.4%)
20.7% 20.9%
Depreciation and
amortization
1,701
1,544
1,283
Non-operating expenses
1,266
1,264
1,267
Utility operation
1,807
1,653
1,462
463
862
238
331
641
255
237
539
246
323
452
951
300
437
763
239
347
496
58
306
392
75
208
376
72
220
290
207
(539)
139
172
117
2,752
2,389
45
2,347
2,722
326
(282)
(139)
3,714
2,765
10,149
15,418
6,721
20.8%
1,948
2,418
2,355
711
(30)
179
1,495
28
1,307
(45)
365
881
(38)
334
2,087
1,588
-
68
835
530
490
1,252
1,126
1,033
163
130
52
$ 1,089 $
996 $
981
Food and bev-
erages Mexican
segment
Food and bev-
erages LATAM
segment
Food and bever-
ages
Spain segment
Distribution
and
Production
Eliminations
Consolidated
2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015
$ 20,656 $ 18,590 $ 18,205 $ 5,135 $ 3,772 $ 2,605 $ 5,265 $ 4,441 $ 3,437 $ 2,650 $ 2,729 $ 2,303 $ 1,071 $ 3,082 $ 1,940 $ 34,777 $ 32,614 $ 28,490
Interest paid
Earned interests
Other financial expenses
Participation in
associates
Income taxes
Consolidated net income
for the year
Noncontrolling interest
Majority net income
Assets
Investment in productive
assets
Investment in associates
-
-
-
-
-
-
-
-
-
-
-
-
-
1,036
923
-
1,036
923
Investment in Fixed
Assets and Intangible
2,030
2,312
2,072
985
577
417
760
787
476
902
280
29
205
593
446
4,882
4,549
3,440
Total assets
$ 22,686 $ 20,902 $ 20,277 $ 6,120 $ 4,349 $ 3,022 $ 6,025 $ 5,228 $ 3,913 $ 3,552 $ 3,009 $ 2,332 $ 1,276 $ 4,711 $ 3,309 $ 39,659 $ 38,199 $ 32,853
Total liability
$ 8,338 $ 6,885 $ 7,270 $ 4,244 $ 3,080 $ 2,566 $ 4,466 $ 4,063 $ 3,805 $ 2,237 $ 1,898 $ 1,477 $ 9,771 $ 12,145 $ 7,887 $ 29,056 $ 28,071 $ 23,005
Net monetary liability position
$
(4,731,803) $
(4,115,294) $
(3,079,089)
The exchange rate to the US dollar at December 31, 2017, 2016 and 2015 was $19.74,
$20.66 and $17.25, respectively. At March 9, 2018, date of issuance of the consolidated
financial statements, the exchange rate was $18.71 to the US dollar.
The exchange rates used in the different conversions to the reporting currency at
December 31, 2017, 2016 and 2015 and at the date of issuance of these consolidated
financial statements are shown below:
Country of origin
2017
Argentina
Chile
Colombia
Spain
Country of origin
2016
Argentina
Chile
Colombia
Spain
Currency
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
Closing exchange
rate
1.0509
Issuance
March 9, 2018
0.9191
0.0321
0.0066
23.6587
0.0308
0.0065
23.0435
Currency
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
Closing exchange
rate
1.3012
Issue
March 28, 2017
1.2154
0.0308
0.0067
21.7323
0.0283
0.0064
20.4747
194 ANNUAL REPORT
ALSEA 2017 195
Contingent liabilities:
In September 2014, the Secretary of Finance of Mexico City determined the company
Italcafé S.A. of C.V. taxable income with respect to deposits made to their bank
accounts derived from the operation of several restaurants owned by Grupo Amigos
de San Ángel, S.A. of C.V., notwithstanding that said income was accumulated by this
last company giving it all the corresponding tax effects. Currently the subject is under
study at the Attorney General’s Office of Mexico City.
It is important to mention that the previous owners of Italcafé would assume the
economic effects derived from the aforementioned tax credit, under the terms
and conditions established in the agreements that Alsea entered into with the
aforementioned sellers.
34. Financial statement authorization
The consolidated financial statements were authorized for issuance on March 9, 2018 by
Mr. Rafael Contreras Grosskelwing, 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.
Country of origin
2015
Argentina
Chile
Colombia
Spain
Currency
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
Closing exchange
rate
1.3408
Issue
March 31, 2016
1.1862
0.0244
0.0054
18.8344
0.0252
0.0057
19.5332
In converting the figures, the Entity used the following exchange rates:
Foreign transaction
Fast Food Sudamericana, S.A.
Starbucks Coffee Argentina, S.R.L.
Asian Bistro Argentina, S.R.L.
Fast Food Chile, S.A.
Asian Food Ltda,
Country of
origin
Argentina
Argentina
Argentina
Chile
Chile
Gastronomía Italiana en Colombia, S.A.S.
Colombia
Operadora Alsea en Colombia, S.A.
Asian Bistro Colombia, S.A.S.
Food Service Project, S.L.
Colombia
Colombia
Spain
Currency
Recording
ARP
Functional
ARP
Presentation
MXP
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
MXP
MXP
MXP
MXP
MXP
MXP
MXP
33. Commitments and contingent liabilities
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) 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.
d) 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. As of December 31, 2017, 2016 and 2015,
these obligations have been met.
196 ANNUAL REPORT
ALSEA 2017 197
Fundación Alsea, A. C.
FINANCIAL STATEMENTES FOR THE YEARS ENDED
DECEMBER 31, 2017 AND 2016,
AND INDEPENDENT AUDITORS’ REPORT DATED APRIL 2, 2018
Table of contents
Independent Auditors’ Report
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to Financial Statements
Page
200
202
203
204
205
198 ANNUAL REPORT
ALSEA 2017 199
Independent Auditors’ Report
to the Board of Directors of Fundación Alsea, A. C.
Opinion
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, 2017 and 2016, and the related state-
ments 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, A. C. as of December 31, 2017 and 2016, 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 responsibili-
ties 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 Interna-
tional 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.
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 state-
ments 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 go-
ing 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.
Auditors’ Responsibilities for the Audit of the Financial Statements
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.
•
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 con-
trol that we identify during our audit.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Juan Carlos Reynoso Degollado
April 2, 2018
200 ANNUAL REPORT
ALSEA 2017 201
Fundación Alsea, A.C.
Statements of Financial Position
As of December 31, 2017 and 2016
(In thousands of Mexican pesos)
Fundación Alsea, A.C.
Statements of Activities
For the years ended December 31, 2017 and 2016
(In thousands of Mexican pesos)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Recoverable taxes
Total current assets
Other assets, net
Total
Liabilities and patrimony
Current liabilities
Trade accounts payable
Taxes and accrued expenses
Total liabilities
Unrestricted patrimony
Total
2017
55,139 $
659
50
55,848
27
55,875 $
1,521
13,911
15,432
40,443
55,875 $
2016
58,621
1,637
49
60,307
107
60,414
16
1,049
1,065
59,349
60,414
$
$
$
$
Revenues
Cash donations income
Interest income
Expenses
General expenses
Value added tax
Administrative expenses
Other (expenses) – net
Net changes in patrimony
Income taxes
Unrestricted patrimony at beginning of the year
Unrestricted patrimony at end of the year
2017
$
41,050 $
3,776
44,826
61,502
587
1,302
63,391
(34)
(18,599)
(307)
59,349
40,443
2016
44,407
1,652
46,059
34,646
473
875
35,994
-
10,065
-
49,284
59,349
See accompanying notes to financial statements.
See accompanying notes to financial statements.
202 ANNUAL REPORT
ALSEA 2017 203
Fundación Alsea, A.C.
Statements of Cash Flows
For the years ended December 31, 2017 and 2016
(In thousands of Mexican pesos)
Fundación Alsea, A.C.
Notes to Financial Statements
For the years ended December 31, 2017 and 2016
(In thousands of Mexican pesos)
Operating activities:
Net changes in patrimony
Items related to investing activities:
Amortization of other assets
(Increase) decrease in:
Accounts receivable
Prepaid expenses
Increase (decrease) in:
Trade accounts payable
Taxes and accrued expenses
Income taxes
Net cash flows from operating activities
Net increase in cash and cash equivalents
2017
2016
$
(18,599) $
10,065
80
978
(1)
1,504
12,863
(307)
(3,482) $
(3,482)
81
9,128
-
(175)
1,019
-
20,118
20,118
Cash and cash equivalents at beginning of the year
58,621
38,503
Cash and cash equivalents at end of the year
$
55,139
58,621
1. Activities
Fundación Alsea, A. C. (the “Foundation”), whose main objective is to contribute to food security of vulner-
able communities and to promote human development by supporting initiatives for education.
To accomplish its goals, the Foundation receives donations from individuals and entities, with the au-
thorization of the Mexican Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito
Público, for its name in Spanish – “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 9, March 16, July
21 and October 12, 2017 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 per-
sonnel 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. 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 “Finan-
cial Statements of Nonprofit Purposes” and E-2 “Donations received and granted by entities for
non-profit purposes”; consequently, it may not be comparable with financial statements of profit-
able entities.
c. Monetary unit of the financial statements - The financial statements and notes as of December
31, 2017 and 2016 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, 2017 and 2016 were 9.87% and 10.52% %in each period. Ac-
cordingly, 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, 2017 and 2016 were 6.77% and 3.36%, respectively.
d.
Income from donations - Donations received must be recognized as revenue for the period, in
addition to recognizing increase in assets or decreases in liabilities depending on how donations
were received.
The donations received in cash are recognized at the value of cash or cash equivalents received, or at the
amount of the unconditional donation pledges received that are accrued and are due. Donations in assets
and the cancellation of liabilities are recognized at their fair value.
e. Classification of costs and expenses - Costs and expenses are presented according to their
function because management considers that it provides useful information to the users of the
financial statements.
See accompanying notes to financial statements.
204 ANNUAL REPORT
ALSEA 2017 205
f. Net change in patrimony – Net change in patrimony is the change in patrimony during an ac-
counting period for a foundation arising from its revenues, costs and expenses.
4. Cash and cash equivalents
g. Patrimony - Patrimony is classified according to the restrictions that the donors established on
the assets donated.
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:
a) 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.
b) Other assets – Represent the costs incurred by third parties for licensing and software development
and that give rise to future economic benefits because they meet certain requirements for recognition as
assets.
Amortization of intangible assets is calculated on a straight line basis over the term of the rights that are
four years and is included in the depreciation and amortization of the activity statement.
c) Provision - 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.
d) Income from cash donations - Income from donations received are recognized at the time the cash
is received.
Los ingresos por intereses se reconocen cuando se devengan.
Cash
Cash equivalents – Money market funds
5.
Income taxes
2017
331 $
54,808
55,139
2016
2,231
56,390
58,621
$
$
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.
In fiscal year 2017, the Foundation made a non-deductible payment, which caused a tax of $307.
6. Authorization to issue the financial statements
On April 2, 2018, 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.
206 ANNUAL REPORT
ALSEA 2017 207
GRI Index
Standard Disclosure
Page or direct response
Omissions
Standard Disclosure
Page or direct response
Omissions
GRI 102: GENERAL DISCLOSURES 2016
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
Name of the organization
Alsea, S.A.B. de C.V.
Activities, Brands, products,
and services
Location of headquarters
Location of operations
Ownership and legal form
20-21
213
20
Alsea is a publicly-traded limited-liability corporation of
variable capital (sociedad anónima bursátil de capital
variable), organized and incorporated under the laws of
Mexico.
Markets served
Scale of the organization
20-21
20-21
Information on employees and
other workers
26-33
We are implementing a HCM system where Human
Resources will concentrate all the information of
the employees
102-9
Supply chain
60-63
102-12
External initiatives
70
Alsea presents this report and endorses the economic,
environmental and social principles developed externally
by the Global Reporting Initiative.
102-13 Membership of associations
90
102-14
102-15
102-16
Statement from senior
decision-maker
Key impacts, risks, and
opportunities
87-90
70-71,
Values, principles, standards,
and norms of behavior
4-5, 68-69, 86-87, 91
102-18
Governance structure
87-90
https://www.alsea.net/investors/directivos
https://www.alsea.net/inversionistas/gobierno-
corporativo
The breakdown
by type of
contract is not
reported.
Reason for
omission:
Unconsolidated
information
102-19
Delegating authority
102-20
102-21
102-22
102-23
102-24
Executive-level responsibility
for economic, environmental,
and social topics
Consulting stakeholders on
economic, environmental,
and social topics
Composition of the highest
governance body and its
committees
Chair of the highest
governance body
Nominating and selecting the
highest governance body
68-69
68-69
68-69
68-69, 89-90
88
89
102-26
Role of highest governance
body in setting purpose, values,
and strategy
Alsea website
https://www.alsea.net/uploads/es/documents/general_
documents/alsea_compulsa_estatutos2014.pdf
102-28
102-29
102-33
102-36
Evaluating the highest
governance body’s performance
89
Identifying and managing
economic, environmental,
and social impacts
Communicating critical
concerns
Process for determining
remuneration
70-71
71, 80-81
89
102-40
List of stakeholder groups
68-69, 72-73
102-42
102-43
Identifying and selecting
stakeholders
Approach to stakeholder
engagement
68-69, 72-73
68-69, 72-73
102-44
Key topics and concerns raised 70-71
102-45
Entities included in the
consolidated financial
statements
99
102-46
Defining report content and
topic Boundaries
70-71
We have applied the reporting Principles regarding the
definition of quality.
Principle of sustainability context, materiality,
stakeholder engagement, accuracy, balance and
timeliness
102-47
List of material topics
102-50
Reporting period
70-71
70
102-51
Date of most recent report
Published June 31, 2017 and covering the period from
January 1 to January 31, 2016.
102-52
Reporting cycle
102-53
102-54
Contact point for questions
regarding the report
Claims of reporting in
accordance with the GRI
Standards
102-55
GRI content index
Anual
3rd cover
70
208
208 ANNUAL REPORT
ALSEA 2017 209
Standard Disclosure
Page or direct response
Omissions
Standard Disclosure
Page or direct response
Omissions
GRI 103 MANAGEMENT APPROACH 2016
103-1
103-2
Explanation of the material
topic and its Boundary
The management approach
and its components
70-71
70-71
SPECIFIC TOPICS
GRI 200 ECONOMIC 2016
201-1
201-4
203-1
203-2
205-2
205-3
206-1
Direct economic value
generated and distributed
10-13
Financial assistance received
from government
The company did not receive any financial assistance
from the government.
Infrastructure investments and
services supported
9, 12-13, 60, 106, 112
Significant indirect economic
impacts
Communication and training
about anti-corruption policies
and procedures
Confirmed incidents of
corruption and actions taken
Legal actions for anti-
competitive behavior,
anti-trust, and monopoly
practices
9, 12-13, 60, 106, 112
87
87
There were no incidents of monopoly practices
GRI 300 ENVIRONMENTAL 2016
302-1
302-3
304-2
305-1
305-2
305-5
306-2
Energy consumption within the
organization
Energy intensity
Significant impacts of
activities, products, and
services on biodiversity
82
83
None of our operations are located in protected areas.
Direct (Scope 1) GHG emissions 83
Energy indirect (Scope 2) GHG
emissions
83
Reduction of GHG emissions
83
Waste by type and disposal
method
84-85
306-3
Significant spills
None of our operations present the risk of spills.
307-1
Non-compliance with
environmental laws and
regulations
GRI 400 SOCIAL 2016
None of our operations violated environmental laws
and regulations.
401-1
401-2
403-2
404-1
404-2
405-1
408-1
413-1
415-1
416-1
417-1
30
30-33
30
New employee hires and
employee turnover
Benefits provided to full-time
employees that are not
provided to temporary or
part-time employees
Types of injury and rates of
injury, occupational diseases,
lost days, and absenteeism,
and number of work-related
fatalities
Average hours of training per
year per employee
29
Programs for upgrading
employee skills and transition
assistance programs
29, 33, 39, 61, 87
Diversity of governance bodies
and employees
7, 26, 87
Operations and suppliers at
significant risk for incidents
of child labor
Operations with local
community engagement,
impact assessments, and
development programs
Political contributions
Assessment of the health and
safety impacts of product
and service categories
Requirements for product and
service information and
labeling
Alsea does not employ minors.
74-77
86
78-79
77-78
210 ANNUAL REPORT
ALSEA 2017 211
Investor
information
and contact data
Finance
Rafael Contreras
CFO
+52(55) 7583-2000
Investor Relations
Salvador Villaseñor Barragán
ri@alsea.com.mx
+52(55) 7583-2000
Sustainability
Ivonne Madrid Canudas
responsabilidad-social@alsea.com.mx
+52(55) 7583-2000
Corporate Communications
and Public Relations
Selene González Serrato
rp@alsea.com.mx
+52(55) 7583-2000
Independen 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
Headquarters
Alsea, S.A.B. de C.V.
Avenida Revolución N° 1267,
Torre Corporativa, Piso 21,
Colonia Los Alpes,
Delegación Álvaro Obregón,
Código Postal 01040
+52(55) 7583-2000
212 ANNUAL REPORT
ALSEA 2017 213
information wwwalsea.net
alsea.net