A N N U A L R E P O R T
18
A year of major challenges and better opportunities
for Alsea. Today we connect with more customers and
brands and new markets with a clear purpose:
“Igniting people’s spirit”
connects BRAND
PORTFOLIO
BEST
TALENT
BEST
OPERATOR
CUTTING EDGE
MARKETING
SUSTAINABILITY
TECHNOLOGY AND
INNOVATION
SYNERGY AND
CRITICAL MASS
In Alsea we know that the heart of the business is the store and the
customer, and therefore through the values of our culture we take care of our
restaurants, down to the minutest detail, taking charge of the challenges and
celebrating together all the achievements. This dedication and passion are
reflected in each dish we serve, in each guest we serve, in each employee that
grows with us, and in each community we touch.
2
M E S S A G E
F R O M T H E C E O
D e a r f r i e n d s ,
e m p l o y e e s , a n d
s h a r e h o l d e r s
It is with great pleasure that I present our Annual Report for
2018, a year of great challenges and better opportunities
for Alsea. Today we connect to more customers, new
brands, and new markets with a clear objective in mind:
“Ignite people’s spirits.”
This past 2018 was a year of growth for Alsea: on the
one hand we continued consolidating our leadership as a
restaurant operator in Latin America, through our business
model that focuses on customer experience and on the other
hand, in keeping with our growth strategy, on Dec. 27th we
successfully concluded the aquisition of Grupo Vips in Spain
and Portugal, totaling 454 stores, of which 362 are corporate
and 92 are sub-franchises; and the aquisition of Starbucks
France and Benelux, the aquisition of which was concluded
in early 2019, including 285 stores in total, 82 corporate and
203 sub-franchises.
At the close of the year we had a total of 3,688 units, of which
2,947 are corporate and 741 sub-franchises (not including the
aquisition of Grupo Vips in Spain and Portugal and Starbucks
in France and Benelux) representing 7.3% of organic growth
as compared to 2017. Our net sales grew 8.5%, totaling some
$46.1 billion pesos; 4.9% growth in Same-Store Sales; 9.4%
growth in EBITDA, reaching $6.4 billion pesos; and 39.8%
growth in net earnings, equaling $1.1 billion pesos. These
figures exclude the benefit of the sale of a minority share
in Grupo Axo, and the restatement due to hyperinflation in
Argentina.
To improve the operation and management of the business
through an organizational structure that is effective and
close to the operation, where decisions are agile and always
focus directly on the satisfaction of our customers, we have
made changes to our structure as follows:
[102-1, 102-14, 102-50]
3
Federico Tejado, who previously headed Alsea International,
will now be leading Alsea Europe operations from Spain,
incorporating, Alsea Zena, Grupo Vips and Starbucks France
and Benelux, ensuring integration, cultural assimilation, and
the use of synergies in these business units. Gerardo Rojas
will continue heading the operation in Mexico; Armando
Torrado, who was previously the Director for Real Estate
Development, will now lead the operations for Alsea South
America; and I shall serve as Executive President of the
Company of the Company.
vacant positions were covered with internal talent, whereas
we promoted almost 10,000 of our operations employees
during 2018. “District Coach” is one of the development
programs that makes us the proudest. It is aimed at improving
the quality of leadership of operations middle management.
District Managers teach, accompany, challenge and guide
their people, ensuring the success of their store managers.
This year, 91% of district managers in Mexico will be certified,
and we will continue extending the program to the rest of our
operations.
This reorganization stems from the commitment to meet the
business objectives established in the strategic plan, with
an effective organization close to the operation, generating
market and brand independence so decisions can be quicker
and closer to the customer. It is important to stress that this
Executive team has a sum total of over 100 years experience
in the Company, and therefore in the industry.
Convinced as we are that our Company’s growth is only
possible thanks to the passion and commitment of over
85,000 employees who make up the Alsea family, this year
we launched the "Voice of the Manager", a program that will
bring us even closer to our restaurant managers. This program
has helped identify opportunities for further support of our
operators regarding filling headcount, maintenance, systems,
and product delivery. In addition, we have invested over $21
million pesos to improve benefits and to offer competitive
wages to our management and operations teams.
These efforts allow us to achieve significant progress in
talent retention worldwide, and in the emotional ties we
have with our people. An example is the result obtained in
the measurement of Work Atmosphere -ECO- where we
accomplished a significant improvement of 3.92 to 4.07 out
of a maximum score of 5.0. Insofar as personnel turnover
is concerned, during the last four years we have achieved a
significant improvement of an average of 26.6 percentage
points in Mexico, Argentina, Chile, and Colombia.
We shall continue working to incorporate not only sector
specialists, but also people with experience in international
markets, technological development, market strategies, and
other areas that favor Alsea’s progress and connection to
different stakeholders. We shall also continue working hand in
hand with new technologies, enhancing our ability to become
familiarized with the preferences of our customers and offer
them the best experience possible in our establishments.
As part of our philosophy of providing growth opportunities
for our best people, we continue offering development
alternatives that favor leadership and recognition for our
high performance teams. An example of this is that 47% of all
Another goal for 2018 was to reiterate our commitment
to sustainability by driving the four pillars that uphold our
business model for all the brands and countries where we
4
operate: Quality of Life, where we continued with initiatives
aimed at benefitting our employees, such as transportation
assistance for our operation employees; health campaigns;
scholarships; well-being workshops; diversity and inclusion;
education; and work-life balance. On the other hand, we
are committed to driving Responsible Consumerism by
incorporating information on our menus that give our
customers alternatives when choosing what to order, in
addition to including on all menus for all our brands the
calorie count for the different dishes, thereby allowing them
to make the choices they prefer in terms of their lifestyle.
Moreover, Alsea is a member of MOVISA (Movement for a
Healthy Life), an organization that focuses on rendering
assistance and support for the implementation of nutrition
education projects, and to promote sports among children
aged 6 to 12.
in environmental-related matters, we continue
Lastly,
working on specific initiatives to mitigate climate change.
In 2018 we reduced CO2 emissions by 22,875 tons through
our project to purchase clean energy; we contributed to the
lessening of aquifer contamination by collecting 919,292
liters of oil used in running our brands; 2,066 tons of waste
were recycled in our Operations Center; and we treated over
28,000 m3 of water.
In the field of community development, we continue with our
work to combat nutritional poverty in children, through our
movement “Va por Mi Cuenta” (It’s on Me) an initiative we
are very proud of since it was put into motion six years ago.
In 2018, we surpassed the goal for our collection drive by
obtaining over $26,000,000 pesos through three initiatives:
a product with a cause in each of our brands; direct
contributions from our employees and collection drives with
our customers. In addition, there are now 11 dining rooms for
children, with a new one located in Ixtapaluca, in the State
of Mexico, with a new operation model -a school lunchroom-
with a greater impact at a lower cost. Some 4,300 children
are benefitted annually, serving over 552,000 meals per year;
we also performed 7,730 hours of volunteerism in diverse
activities.
The recognitions and certifications we have been bestowed
are a reflection of our efforts in this field. Among these are
our first-time participation in the regional index evaluation
of the Dow Jones Sustainability Index -DJSI- for the MILA
-the Integrated Latin American Market-; our participation in
the Mexican Center for Philanthropy, in its CSR evaluation
(Corporate Social Responsibility), where we have been given
this distinction for the 7th consecutive year; our participation
since 2011 in the Mexican Stock Exchange Sustainability
Index; and the ratification of our commitment to future
generations by adhering to the Principles of the World
Pact and the Sustainable Development Objectives (SDO)
sponsored by the United Nations.
To improve the focus on service for our store managers,
we will continue reinforcing efficiency and synergies in the
COA, where we achieved optimum levels of supply metrics
for our stores during the last quarter of the year, in addition
to reducing personnel turnover rates throughout our entire
supply chain worldwide.
5
Looking forward, we reiterate our commitment to successfully
achieve our objectives:
• An agile and profitable operation focused on increasing
Same-Store Sales and operational margins.
• Generating a greater cash flow to reduce our leverage
level
• Maximizing efficiencies and synergies throughout all our
operations
• Prioritizing the allocation of resources to our most
profitable businesses
• Developing operations and administrative talent, and
• Continuing with our Manager-Owner program
I wish to express my profound gratitude to all our employees,
partners, investors, and members of the Board of Directors
for your active participation in making Alsea a leading
company that goes increasingly further and connects to
new customers and new markets with leading brands of
restaurants throughout the world.
Growth involves challenges and opportunities. Today, more
than ever, we must focus on our strengths and our dynamics,
which translate to the ability to adapt and into the talent of
all of us who are part of the Alsea family. Let us continue
working with our characteristic feature: how passionate we
are about ensuring that each experience in our restaurants
becomes… an unforgettable moment!
Alberto Torrado Martínez
Executive President Alsea
April 2019
6
F I N A N C I A L
H I G H L I G H T S
NET SALES
EBITDA(2)
NET INCOME
2014
2015
2016
2017*
2018
22,787
32,288
37,702
42,529
46,157
2,802
4,302
5,155
5,858
6,408
624
1,033
1,126
815
1,140
ROE %(4)
SSS %(7)
UNITS
2014
2015
2016
2017*
2018
7.5
10.4
11.7
12.5
12.3
4.5
9.3
8.9
6.6
4.9
2,784
2,954
3,195
3,438
3,688
Figures in millions of Mexican pesos (MXN) under IFRS standards, except per share data, number of units and employees
* 2017 figures exclude the benefit of the sale of a minority share in Grupo Axo
[201-1, 203-1, 203-2]
7
F I N A N C I A L
H I G H L I G H T S 1
Results
Net sales
Gross Profit
Operating Income
EBITDA(2)
Consolidated Net Income
Balance
Total Assets
Cash
Liabilities with cost
Majority Net Worth
Profitability
ROIC (3)
ROE (4)
Stock Market Data on Shares
Price
Earnings per share
Dividend
Book Value per Share
Outstanding shares (Millions)
Operation
Total Number of Units
Employees
[102-45, 201-1, 203-1, 203-2]
CAGR (5)
2013-2018
Annual
Growth
2018
%
2017 (6)
%
46,156.6
100.0%
42,529.1
100.0%
31,969.1
69.3%
29,605.9
69.6%
24%
25%
24%
26%
11%
8.5%
8.0%
6.0%
9.4%
3,293.6
7.1%
6,408.3
13.9%
39.8%
1,139.3
2.5%
37.4%
29.0%
73.5%
22.1%
(16.7%)
(1.6%)
(20.5%)
(13.0%)
5.9%
21.7%
0.3%
54,342.3
1,987.9
25,609.9
11,573.2
10.5%
12.3%
51.15
1.14
0.72
13.85
835.6
15%
18%
7.3%
4.0%
3,688
71,621
3,105.8
5,857.5
814.7
7.3%
13.8%
1.9%
39,551.6
1,540.4
14,761.4
9,481.6
12.6%
12.5%
64.37
1.31
0.68
11.38
832.8
3,438
72,434
(1) Figures in millions of nominal pesos
and under IFRS rules, except for
data on shares, number of units, and
employees.
(2) EBITDA is defined as earnings
before depreciation and
amortization.
(3) ROIC is defined as earnings after taxes
for net operating investment (total
assets-cash and temporary investment
– liability without cost).
(4) ROE is defined as net earnings
regarding net worth.
(5) TACC Compound Annual Growth Rate
for 2013 to 2018.
(6) Figures for 2017 excluding the benefits
from the sale of minority interest in
Grupo Axo.
8
Our culture is based on five strategic values that focus on the
customer to achieve an extraordinary experience each time they
visit our restaurants.
WINNING
ATTITUDE
Being passionate about
excellence, reaching
ever higher goals.
ENGAGED
LEADERSHIP
Passionate about our
restaurants and about
taking care of the
business as if it were
their own.
SURPRISING
SERVICE
Constantly raising
satisfaction standards
to serve and amaze.
EMPHASIS OF
COLLABORATION
The adding of ideas
and talent to create
a community that
multiplies the results.
ATTENTION
TO DETAIL
Continuous
improvement to
reinforce the Alsea
Experience with
impeccable execution.
[102-16, PM 10]
9
G R O W T H
M O D E L
ORGANIC GROWTH
NON-ORGANIC GROWTH
• Restaurant Openings
(Current brands/models)
• Remodels
• Same-Store Sales
• New sales channels
• New consumption occasions
• New restaurant models
• Current income flows
INCOME AND
RESTAURANT
GROWTH
CURRENT COUNTRIES
• Acquiring existing brands (current or new segments)
• Importing new brands (startup, the #1 or #2 brand in the market or
country of origin
• Sales channel for non-restaurants (dining halls, products ready to eat, etc.)
NEW COUNTRIES
• Expanding current brands
• Acquiring existing brands
• Joint Ventures with leading restaurant operators
NEW INCOME FLOWS
• Intellectual property, services, financing, etc.
OPERATIONS
BUSINESS MIX
SYNERGY AND CRITICAL MASS
PROFITABILITY
• Same Store Sales
• Cost control
• COGS control
• Labor productivity
• Managing restaurant portfolio
• Price strategy
• Menu strategy
• Managing brand portfolio
• Managing country portfolio
• Corporate /Franchise store mix
• Currency mix
• Synergies with procurement and
investment
• CAT reduction
• Investment reduction
• Absorbing fixed assets
• New income flows
• Real Estate
10
S U S TA I N A B I L I T Y
M O D E L
Sustainability is a fundamental business model. In this way,
we contribute to sustainable economic development within
society, assuming responsibility for direct and indirect impact
stemming from our activity with different stakeholders to
which we relate.
Our Sustainability Management Model comprises four
commissions who report to the Sustainability Committee
which includes the company’s Top Management.
The Committee identifies stakeholder needs, defines the
sustainability strategy, and supervises compliance with the
initiatives proposed by the commissions.
Our management, action plans, and goals are in line with our
business objectives and the priority aspects that are result of
our materiality.
Likewise, as part of our commitment to achieve a better
future for all, we remain aligned with the Principles of the
World Pact and the Sustainable Development Objectives
established by the United Nations.
COMMUNITY SUPPORT
We ensure food safety for vulnerable
communities and promote human
development through initiatives that
favor education and employability.
QUALITY OF LIFE
We foster the overall development
of our collaborators, facilitating
conditions that harmonize their
personal and professional lives and
provide occupational health and
safety programs.
RESPONSIBLE CONSUMPTION
A balanced lifestyle is encouraged by
promoting the enjoyment of quality
meals in the company of loved ones,
in combination with physical activity.
ENVIRONMENT
The importance we give the
environment is witnessed through
the efficient use of energy, water, raw
materials and wastes.
[103-1, 103-2]
11
ALSEA CONNECTS
T O T H E W O R L D
W I T H L E A D I N G B R A N D S
We drive the presence of our brands
in the world and there is significant
potential for further growth.
S E G M E N T S
u n i t s / % T O TA L
QUICK SERVICE
RESTAURANTS
1,805 / 48.9%
COFFEE SHOPS
1,024 / 27.8%
CASUAL DINING
RESTAURANTS
573 / 15.5%
FAMILY
RESTAURANTS
286 / 7.8%
Figures as of december, 2018
[102-1, 102-2]
3,688
U N I T S
67%
MEXICO
33%
INTERNATIONAL
12
During 2018, we continued consolidating our leadership as the top
restaurant operator in Latin America and Europe through our business
model and in line with our growth strategy.
35
3
95
16
76
Mexico
Argentina
Colombia
Chile
Uruguay
Brazil
UNITS
2,467
265
181
173
5
4
666
México
1,024
1,139
286
64
229
UNITS
UNIDADES
Spain
593
19
4
32
7
C O U N T R I E S
14
B R A N D S
+3,600
R E S T A U R A N T S
+71,000
E M P L O Y E E S
2,947
CORPORATE
BEFORE
AQUISITIONS
741
SUBFRANCHISES
FIGURES AS OF DECEMBER, 2018
13
On December 27th we successfully completed the aquisition of
Grupo Vips in Spain and Portugal; in early 2019 we obtained
operating rights for Starbucks in France and Benelux, thereby
making our operation more robust in Europe.
4
35
95
286
64
230
18
77
661
16
Mexico
Argentina
Colombia
Chile
Uruguay
Brazil
UNITS
2,477
264
183
175
5
4
1,498
1,154
4
32
UNITS
1,036
22
182
28
82
3
Spain
Portugal
France
Belgium
The Netherlands
Luxemburg
105
34
18
6
124
12
C O U N T R I E S
19
B R A N D S
+4,400
R E S T A U R A N T S
+85,000
E M P L O Y E E S
[102-2, 102-4, 102-6, 102-7, 102-10]
3,409
CORPORATE
AFTER
AQUISITIONS
1,052
SUBFRANCHISES
FIGURES AS OF MARCH, 2019
14
A L S E A
E U R O P E
+
Zena
+
This year, Alsea has significantly reinforced its presence in Europe with the purchase
of Grupo Vips in Spain and Portugal, and once again, with the acquisition of
operating rights of Starbucks in France, the Netherlands, Belgium and Luxemburg.
Grupo Vips adds 454 stores (362 corporate and 92 franchises) to the Company
portfolio and with the incorporation of Grupo Vips and Zena-Alsea in Spain and
Portugal, Alsea we became one of the major restaurant companies in Iberia, with
over 1,000 stores and restaurants and a total of 10 brands throughout the region.
In this manner we consolidated our long-term project in the region, having brands
that generated greater value for the Company.
This strategic operation represents a great opportunity to consolidate our presence
in the European market because Grupo Vips has over 50 years of experience and
a portfolio of consolidated brands with enormous growth potential, in addition to
being an important opportunity for synergy in the region.
Moreover, Alsea has acquired the rights to operate Starbucks in France, the
Netherlands, Belgium and Luxemburg, totaling 285 stores, of which 82 are
corporate 203 are sub-franchises. Through this transition, Alsea will expand
its presence with Starbucks in Europe, a brand that enjoys great acceptance
throughout Europe and with which Alsea has considerable experience regarding
operations and strategic plans.
[102-10, 102-49]
15
• Leading concept in the casual dining sector in Spain,
• A Fast Casual chain that combines the best of a VIPS
with 50 years of experience
restaurant-cafeteria with the agility of fast food
• A restaurant-cafeteria with an extensive culinary offering
• VIPS Smart is the sum of Smart Service + Smart Food +
that fits all tastes and moments of the day
Smart Price + Smart Place
• The very first VIPS restaurant opened it doors in Madrid
in 1969, and quickly became an iconic brand in Spain
• The first VIPS Smart restaurant opened its doors in 2016
• A chain specializing in Italian-Mediterranean cuisine
• Its customers enjoy freshly made dishes with ingredients
straight from Italy, a hospitable, warm and cosmopolitan
atmosphere that entices one and all to share the
experience
in Madrid and today it has over 30 establishments
• Created in the late 80’s, the brand has over 120
restaurants throughout Spain and in Lisbon, Portugal
• One of the most important casual dining chains in the
world, with 870 restaurants present in 29 countries
• Fridays offers its customers the experience of the
authentic American Bar & Grill, in an atmosphere full
of energy and excitement
• The ideal place to socialize and celebrate the spirt of
being Friday, every day of the week
• A brand present in Spain since 1992, with 18
restaurants
• Wagamama is a well-known brand with over 25 years of
• Starbucks arrived in Spain in 2002 and 2008 in
history, inspired in the fast-paced Japanese ramen bars. It
offers a menu of Asian dishes that are organic, nutritional
and made on the spot.
• A great way to feed the soul, in addition to the body
• The brand arrived in Spain in 2017, with 6 restaurants
currently in operation in Madrid
Portugal
• Thanks to its broad acceptance and the loyalty of its
customers, it now has over 140 stores throughout the
main cities and airports of Spain and Portugal
16
ALSEA CONECTS
L E A D I N G B R A N D S
A N D TA L E N T
We have strategies focused on
training and retaining the best
talent in the industry
+10,000
PROMOTIONS
28.26
AVERAGE
TRAINNING HOURS
PER EMPLOYEE
+71,000
EMPLOYEES
53%
MEN
47%
WOMEN
17
W I N N I N G
T E A M
We are convinced the growth of the Company, the positioning of
our brands, and the rapport with our customers is only possible
thanks to the passion and commitment of the employees who
are part of the great Alsea family.
This year we launched different initiatives that allowed us
to have greater contact with our manager and provide the
support needed to increase team productivity and enhance
customer experience. Initiatives aimed at improving leadership
quality among middle management and reinforcing the
competitiveness of our compensation teams were put into
place, thus significantly raising talent retention worldwide.
A team
committed
TO QUALITY
AND SERVICE
EXCELLENCE
[102-8, PM6]
71,621
EMPLOYEES
Mexico
Argentina
Chile
Colombia
Spain
Total
M
43,715 23,352
3,236
1,816
1,998
7,243
7,860
3,869
3,408
12,769
W
20,363
4,624
2,053
1,410
5,526
45% of women
occupy management positions
85%
-30
years
13.8%
31-50
years
0.90%
+51
years
18
Emotional commitment
Throughout last year, 100% of our employees were given the
opportunity to participate in the Engagement Survey -ECO-
that has been conducted for two years now. With this tool we
can listen to the opinions and feelings of our people, identify
their needs, and define the way to offer an enhanced work
experience in coordination with the leaders.
Talent development
Developing our employees is one of the most important
strategic pillars we have. Our proiority is to drive their growth
and offer them a long-term career path. In keeping with this,
we constantly develop programs aimed at training the best
leaders in the industry who in turn become drivers of the
development of new generations of leaders.
We proudly achieved 92.41% participation by our employees
in this process, with an increase of 0.15 in the engagement
indicator, as compared to the score recorded for 2016,
thereby achieving a result of 4.07 on a scale of 0 to 5.
These results are a reflection of the quality of leadership in
Alsea, proof of the concern our store managers and support
center leaders have worldwide, regarding their desire to
connect with their people and establish effective plans that
improve the integration of their teams.
ENGAGEMENT RESULTS BY COUNTRY
Mexico
Argentina
Brazil
Chile
Colombia
Spain
Uruguay
4.07
global
engagement
score on a scale
of 0 to 5
2018
2016 Variación
4.18
3.82
3.74
4.14
3.97
3.81
4.3
4.03
3.75
3.74
3.89
3.72
3.68
-
+0.15
+0.07
0
+0.25
+0.25
+0.13
-
Inter-brand career paths
We continue working on designing inter-brand paths and we
contribute actively to the development of our employees. This
program consists of covering vacant positions in one brand
with candidates from another brand, thereby leveraging their
experience and fostering long-term careers. As of 2019, we
will change the way we measure things and be much more
objective, with an increasingly more robust procedure.
Mentoring
This constitutes a mentoring skills-development program,
accompanied by an external coach. Mentors are assigned
according to their areas of competency and the specific needs
of the mentees. Together, they then define work objectives
and they meet monthly to work in confidential sessions.
Each mentee develops a new skill or competency, and the
corresponding mentor becomes a role model within the
organization to develop key competencies for the business
and to network outside the sector.
Through this program, Alsea develops the potential of its
people, improves performance, promotes greater profitability
for the business, generates synergies among areas and
brands, and reinforces the organizational culture.
[401-1, 404-2, PM6]
19
Mentoring circle
This program seeks to broaden the vision of the business
from an overall perspective, supporting the development of
its employees through mentoring circles whereby experiences
are shared, and personal and professional competencies are
reinforced.
The circle encounters take place every two months. The
participants break up into pairs and each one oversees the
preparing of a case dealing with business and leadership
subjects. The purpose of the program is to consolidate the
Mentor as a role model and reinforce his/her position within
the organization. There are currently 12 participants enrolled
-1 mentor and 11 mentees.
Significant improvements in turnover rates
Personnel turnover
improved by 26.6
indicators have
percentage points in Mexico, Argentina, Chile and Colombia
in the last four years. This is largely due to the initiatives
employed to improve the work experience of our people,
the continuous investment in training and education, and
improvements to the wage competitiveness of our people.
Average hours of training
per collaborator per country
• Chile: 25
• Argentina: 36
• Spain: 4.9
• Mexico: 35.61
• Colombia: 7.38
28.26 average hours trainning per employee
Diversity and Inclusion
• The 2nd generation for the Reach High program, with 16
participants worldwide was successfully concluded this
year. The aim of this program is to accelerate the personal
and professional development of high-potential women
to drive their career path in Alsea. The program consists
of selecting women holding positions from Manager up
to Director; eight sessions are held in multicultural teams
where case studies are analyzed and resolved. One of
the greatest values of this program lies in the synergy of
experiences and collaborative learning at a high level.
• We implemented the Diversity and Inclusion policy that
promotes a culture of respect for diversity, labor equality,
non-discrimination and inclusion of vulnerable groups.
This policy ensures compliance with equal opportunity
guarantees for all members of the Company. Globally we
have 237 employees with disabilities.
• Workshops on Diversity and Inclusion were held for the
Human Resource departments, who are in charge of
permeating this philosophy into our culture.
• In Mexico and Argentina, 80% of our employees are
unionized.
Flex Time and Flex Friday
This applies to all personnel in the support centers of Mexico,
Colombia, and Spain. The objective is to promote a work-life
balance by offering the benefit of 9-hour work schedule from
Monday to Thursday, where personnel may start work at 7, 8
or 9 a.m., and therefore on Fridays work 6 hours straight and
leave at 1, 2 or 3 p.m., respectively.
This policy establishes that the flex schedule may be applied
providing it does not affect support for Operations; accounting
closes; payroll management; novelties; previously established
commitments; meetings, and the like.
[401-3, 405-1, 406-1, PM6]
20
M E X I C O
District Coach
To meet the goal set for growth, we must continue consolidating
a world-class team and therefore developing our people takes
on a crucial role. The need for leaders who develop leaders
is fundamental, and more so than ever before they must not
only support Company growth by achieving results, but also
recognize valuable contributions, be genuinely interested in
developing others and, above all, provide the resources needed
for proper management.
Thus, in keeping with our philosophy of Manager-Owner, we
have developed District Manager-Coach, a program that seeks
to further evolve the profile of our District Managers and help
them reach the next level. This also stems from the awareness
that they are the most important leaders in the Company and
that it is they who lead the operation.
The profile of District Manager was redefined in 2018, adding
the dimension of Coach and providing the necessary training for
the deployment of the program. The initiative was launched in
Mexico with training workshops and follow-up for the new role
of District Manager, supervised by the support center.
Circle of Leaders
At the Alsea Center of Operations (which in Mexico
incorporates our operation of Logistics, Manufacturing and
Transportation) we launched the Circle of Leaders I, a review
of Culture and Leadership focused on middle management
with the support of the team of Directors, to solve the
challenges faced by the Center of Operations in the field
of People. Through weekly seminars and group dynamics
attended by 90 leaders, we were able reduce turnover rates
by 50%, thus helping to stabilize the overall team and
improve service for operations. Going forward, phase II of
the Circle of Leaders will take place, and the objective will
be to build a store-centric production team.
The program shall be extended to other Alsea markets.
21
The Voice of the Manager
We know our managers are the fundamental pillar of our
operations, and therefore their opinions and comments
are very important to the establishing of programs that
contribute to continuous improvement and value generation
for the organization. It it with this premise in mind that the
Voice of the Manager program was developed in Mexico,
whose purpose is to establish direct contact with store
managers and obtain first-hand information from them on
their operation needs and the assistance they expect from
the support areas.
With this program we seek to reinforce and develop the
talent of our work teams and generate enhanced results for
the business and for our customers.
This program is meant for store managers with proven
commitment and potential, as noted in their performance
and result indicators.
There are dialogue sessions with the CEO and managers, in
periodically scheduled meetings to listen to their colleagues
and express their opinions and viewpoints regarding
operations. There is also support from other areas that
contribute to operational excellence and provide follow-up on
solutions for identified issues.
14 store managers participated.
• 2 Domino’s Pizza
• 3 Starbucks
• 1 Italianni's
• 2 Vips
• 1 Burger King
• 1 California Pizza Kitchen
• 1 P.F. Chang’s
• 1 El Portón
• 1 Chili's
• 1 The Cheesecake Factory
The program shall be extended to other Alsea markets.
22
A work atmosphere that incorporates work-life balance
contributes to the ideal performance of our people. As
a result, at Alsea we continuously develop programs
that encourage practices for their general well-being.
Agreements and benefits
• We reviewed the rules governing the 30%-discount that
our employees have with our brands, representing $21.4
million pesos in savings for 53,000 Alsea employees
throughout 18 months
• A policy for transportation assistance was defined with the
purpose of protecting the safety of employees traveling to
or from work, under three conditions:
a) Anyone in charge of opening a unit prior to 6 a.m., or
closing after 10 p.m.
b) If the restaurant is found in a dangerous area
c) If there is no public transportation nearby, prior to the
opening or after the closing of any Alsea establishment
• Once again, we held the multi-brand Health Fair that
offered free lab tests for weight control, vision analysis,
and dental check
[401-2, 401-3, PM6]
23
A R G E N T I N A
Diversity and Inclusion
• In México, our maternity and paternity policy exceeds
that required by law, thereby allowing us to grant benefits
during initial maternity and paternity period, in the case of
childbirth and/or adoption, as follows:
• Paternity:
- 7 days straight, with pay
• Maternity:
Leading for success
This is an In-Company training program at the prestigious
Torcuato Di Tella University. It consists of 60 hours of
classroom training that culminates with the presentation
of an integration project. The purpose is to train District
Managers in three fundamental business lines: leadership and
commitment, strategic thinking, and a vision of the business.
- Days off and reincorporation to work schedule
- Compressed shift: 4 hours/day of work, increasing
one hour of work as of the 5th month of birth
- Flex time: 3 days at the office, and 2 days of home
We currently have 38 employees enrolled (31 District
Managers and 7 support area employees) in this program and
their actions are recorded and evaluated on a scorecard upon
finalizing each module.
office
- Additional time off: up to 90 days off without pay for
childcare purposes
- Breast feeding rooms with the proper conditions for
milk extraction and conservation for those mothers
who have already used their maternity leave
• Inclusion analysis was begun for people with different
capacities to promote talent selection beyond physical,
social or mental abilities. This diagnostic instrument
determines the compatibility of the position as pertains to
the limitation or abilities of the candidates. We currently
have 237 employees who are part of this program.
• The headquarters in Mexico City are LEED Gold certified,
with spaces suitable for working more efficiently, better
lighting, ventilation system and less noise. This certification
allows us to have a more ergonomic work space.
Training pass
This consists of a series of courses lasting between 20 and 48
hours of executive training in the aforementioned prestigious
university. These courses are offered to personnel with good
performance and potential. The programs were chosen based
on the developments needs of each participant. The subjects
covered include:
• Negotiation
• Creativity
• Emotional Intelligence
• Mindfulness
• Neurosciences
24
Individual development plan
The program includes a 4-hour workshop that was internally
designed and offered to Company employees, with the
purpose of providing personal development tools, whereby
they identify their strengths and opportunities and then
clearly and assertively work on them in their individual
development plans. Some 115 employees participated in a
total of 7 workshops.
C O L O M B I A
Unisabana Scholarship for Excellence
The purpose is to recognize the professional competency
of those who, due to their performance in the company, are
suited to hold top positions of responsibility, acknowledged
for the quality their work and social commitment. This year
the program was aimed at 180 support center employees, of
which five candidates registered.
The scholarship
is applicable for nine Management
specialization programs under the Postgraduate Studies
Department of the International School of Economic and
Administrative Sciences.
25
Alsea Contigo
A communication system whereby employees of brands
operated in Colombia may keep up to date with all novelties,
events, changes, and activities taking place in the Company.
The system has two principal sections: Recognitions GO,
where employees receive mention for being outstanding in
any of the corporate values -Winning Attitude, Involved and
Benefits GO, where employees have access to the broadest
network of agreements and incentives, personal and for
family members, with over 120 recognized regional and local
brands in almost Leadership, Amazing Service, Collaborative
Service, and Attention to Detail- 20 different categories.
Agreements with educational institutions
for higher learning
An assistance program with discounts for Alsea personnel
and their family members –relatives of up to 3rd degree-
during their higher education process. It is currently available
for 3,200 employees. Each employee may approach the
institutions and present the employment
participating
certificate of the Company to request said discounts.
Among some of the institutions with which the Company
has obtained educational assistance agreements are the
following:
• Universidad Santo Tomás
• Fundación Universitaria Unipanamericana
• Fundación Nueva América
Program for Epidemiological Surveillance
(bones and muscles)
This program pertains to the department of Occupational
Health and Safety, having the purpose of detecting,
preventing, controlling or eradicating osteo-muscular
disease. In 2018 we were able to make this program available
to 100% of our employees.
26
S P A I N
Popular races
Three races evaluated in 2018 to foster healthy habits among
our personnel. Some 243 runners participated, running a total
of 1,211 km, with purposes of solidarity in favor of cardiac
health and in support of associations fighting against cancer.
243
runners
1,211KM
WITH SOLIDARITY
PURPOSES
27
ALSEA CONECTS
TA L E N T
T O O P E R AT I O N S
We work with the maximum level of
efficiency and we are fully focused on
the preferences of our customers to
create the best experience each time
they visit our restaurants
Enlace
3,566
USERS
optimizing
response
times
28
B E S T
O P E R AT O R
The best experience in our restaurants goes beyond flavor.
We operate each store with the utmost attention to detail,
offering exceptional service and innovative, top quality,
products.
During 2018 we celebrated the opening of our 1,000th
Domino’s restaurant, announcing a 5-year development
plan, with the goal of 550 openings (350 corporate and 200
franchises) together with an investment of over 195 million
dollars. This expansion plan will create 9,000 new jobs in
Mexico, Spain and Colombia.
A team
committed
TO QUALITY
AND SERVICE
EXCELLENCE
29
E N L A C E
A powerful technological platform that provides support to
restaurants in solving operation needs and ensures service
continuity. It is a point of encounter between district and
regional managers and the different support areas such as
maintenance, quality, audit, and human resources.
Moreover, connected to the Alsea database, Enlace displays
a window with financial indicators to provide operators
with visibility of indicators regarding sales, productivity,
profitability, and human resources in real time.
Through this platform, managers can create requests that
become action plans monitored in real time, until the moment
of completion.
The platform has reached a total of 3,566 users throughout
the different countries where we operate, and it has helped
reduce the workload of the District Manager Coach in Mexico
by 30% within the corresponding supervision model.
Stemming from the use of this platform, response times
have been optimized in addition to achieving considerable
reductions-savings in the use of paper.
R E S P O N S I B L E C O N S U M P T I O N
Our commitment to our customers is to offer the best flavor
and quality in each product as well as to promote a healthy
lifestyle. Therefore, in 2018, we consolidated an independent
team of Research & Development, to work with our brands
according to their needs and collaborate in the publication of
the nutritional content of our menus.
This information helps consumers make the best choices, in
keeping with their lifestyle and complying with nutritional
goals. It is also available on our website for immediate
reference.
[417-1]
30
M E X I C O
V I P S : P R O D U C T I V I T Y A N D E F F I C I E N C Y
Vips has undergone a transformation with the purpose of
complying with our promise to provide our customers with
the best experience.
This transformation should not only be noticed in the
appearance of the restaurants, but also in the quality of the
ingredients, and the service received by our guests, therefore
we have set in motion a series of actions aimed at improving
our operation and increasing the productivity of the work
team:
Vipster network
This is a recently launched inhouse platform aimed at making
available all necessary information to restaurant managers
regarding their duties, thus avoiding time lost in seeking or
requesting relevant data, optimizing their daily schedule by
almost 15 percent
+10,399
VIPSTERS IN
THE NETWORK
The platform has benefitted over 10,399 Vipsters and it has
all the documents and processes needed by the brand for
optimum operation:
• Recipes
• Protocols
• Processes
• Videos
• Bulletins
• Communiqués
Project Scanner
A system developed especially for points of sale where
discounts are applied before reaching the register and having
issued the bill. This project has managed to reduce by 40%
the time our customers have to wait in line at the register.
Manager Agenda
The Manager Agenda program was launched with the
purpose of improving the quality of life and operational
management of restaurant managers. The program seeks to
reduce the administrative tasks performed and help to make
time for managers more efficient through delegation and a
40%-reduction in duties. Some of the advantages offered by
the program are:
• Reduced and structured schedule for administrative tasks
• Greater focus on core activities of the business
• More time for customers, employees and for themselves
40%
FUNCTIONS
OPTIMIZED
31
Chef and Omega Manager
A Vips training program in which Omega Chefs and Managers
train their colleagues to ensure that quality, hygiene and
service standards are being met properly and in the right time,
with a service attitude and fully in keeping with operational
manuals.
The primary functions of the program are to:
• Provide support to the operation
• Train and certify employees
• Ensure training of chefs and managers in all units
• Develop exemplary employees who comply with our values,
and who drive the Vips culture
T.A.C.T.O.S
A food testing standardization program to guarantee the
best quality in iconic Vips products.
Service Leader
This program is aimed at reducing unsolved complaints in
restaurants and to enhance our customer service. Ever since
its launch in January 2018, the program has reduced the
number of complaints by 50 percent.
Training of kitchen staff
This initiative seeks to improve the making of food and
beverages. The results have been positive. We have achieved
a 5-percentage point improvement in ISA surveys (Alsea
Satisfaction Index) regarding our food products.
32
S T A R B U C K S , C L O S E R T H A N E V E R
T O O U R C U S T O M E R S
Coffee Master
The program for training Coffee Masters is in keeping with
the strategy of being leaders in coffee and in customer
satisfaction. We closed the year with +50% of certified
Coffee Masters, thereby improving connection and quality of
beverage KPIs. The result obtained to date is 85% of the KPIs.
internal
Make My Day Challenge
An
initiative meant to reduce service-related
complaints, and at the close of 2018 there were 50% less
complaints filed. The program, launched in October 2018,
allows our baristas to amaze our customers with actions that
connect to them, such as:
The indicators measured with this program include:
1. Training and experience
2. Coffee quality
3. Coffee sales
+50%
COFFEE MASTERS
CERTIFIED
• A comment
• An action in particular that could be registered at their
coffee cup
• Special words when the customer pays
• Actions upon handing the product to the customer
• A message said in chorus by all the baristas
• A sketch
• A question
Reusable containers
In 2018, we began to produce the cups locally, thus achieving
a 44%-reduction in costs. In addition, the lead time was
reduced from 5 months to 3 weeks.
Lastly, as of September 2017 we began a new offering with
seasonal cups, producing $2,000,000 pesos in incremental
growth.
33
A R G E N T I N A
S TA R B U C K S
Playbook Certifications
With the purpose of improving back orders and the cafeteria
bar, we recertified all stores nationwide in the use of Playbook.
This tool is a planning guide that allows our baristas to
manage their operation and routine schedules in a more
efficient manner, thus providing customers with enhanced
service.
Review of consumption and delivery days
Operations, together with Supply work together to reduce
frequency of deliveries from the Distribution Center. As a
result of the strategy on estimating orders, the back orders
and logistics runs allowed us to reduce deliveries by 24 per
week.
Labor management
We follow different strategies to make the work of our people
more efficient, as follows:
• We reviewed the ideal headcount of employees, according
to the needs of each store with the purpose of not
exceeding budgets for salaries and benefits. This strategy
has allowed us to close activities in keeping with these two
line items.
• The design and implementation of the Part Time Shift
Supervisor ensures compliance with 6-hour shifts
• Modification of assigned breaks schedules
• The Mystery Shopper tool was recalibrated to continue
34
enhancing customer service levels
P. F. C H A N G ' S
Latam Costs
A cost control and management program focused on
increasing efficiency and control of raw materials and orders
per store. Thanks to this program, costs were made efficient
regarding budgeting for the last quarter of 2018.
LST / Geo Victoria
These two programs seek to efficiently schedule production
times and better plan the hours available for operating in
stores, in addition to managing arrival and departure times,
as well as work schedules for business partners.
Delivery
This sales channel was opened together with the best
operators on the market: Uber, Glovo and Rappi. With this
channel, we have been able to create a greater connection to
our customers and arrive when and where they need.
Fanatics for Coffee
With the purpose of increasing the culture of coffee drinking
among our customers, we implemented a program known as
Fanatics for Coffee. Through this program, our expert baristas
and Coffee Masters share all their expertise and knowledge,
from the different coffee-growing regions in the world, types
of coffee beans, blends and roasting, to the ritual involved in
preparing a beverage of excellence. The goal is to enhance
the experience of the partner and the customer regarding
our cups of coffee.
We initiated cross-training at the operations level, making
the Tongshis cross-functional. Simultaneously, we began a
manager level cross-functional program to develop chefs in
service-related matters, and vice versa.
B U R G E R K I N G
Alsea College
We reinforced operational areas through training and
communication programs with Alsea College, through
leadership workshops.
Manager Training
The Manager Training model was restructured (Asst. Manager
for BK), limiting locations, providing more in-depth training,
and reinforcing the position of Manager Owner.
Delivery
Delivery was incorporated as a new sales channel with the
four operators still found in the market (Uber, Rappi, Glovo
and Pedidos Ya) with an organized plan and a scaled launch
schedule.
QR Codes
QR Code readers were installed in all stores to speed up and
improve the experience of our customers when paying their
check.
35
E N V I R O N M E N T
In Alsea, our commitment is overall, therefore we promote
environmental protection through programs and initiatives
whose purpose is efficient resource use wherever we operate.
M E X I C O
Energy Use
The growth we experienced in stores and operations required
greater use of energy, thereby producing a marginal increase
of 4%. This result stems from our efforts to curb energy use
in our establishments.
On the other hand, by centralizing the Distribution Center,
Commissary, and Bakery, we experienced a marginal
improvement in diesel and gasoline consumption nationwide;
that is, approximately 0.5%. This includes routes due to new
openings.
ENERGY USE
Fuel
2017
2018
Electricity (kWh)
264,479,889
239,468,796
Wind energy (kWh)
3,570,313
43,406,881
LP Gas (liters)
Natural Gas (m3)
Diesel (liters)
Gasoline (liters)
Total
30,345,434
31,947,297
8,786,520
5,383,415
3,008,206
8,480,990
5,358,779
2,966,965
315,573,777
331,629,707
Our growth in stores enabled us to achieve a minimum
reduction of 0.1% in greenhouse gas emission due to the use
of fossil fuels, which is equivalent to 2,748 tons of CO2eq,
that is without the reduction achieved in renewable energy,
which is equivalent to 22,875 tons of CO2eq.
Tons of CO2eq
Fuel
Electricity (kWh)
LP Gas (liters)
Natural Gas (m3)
Diesel (liters)
Gasoline (liters)
2017
139,380.90
49,711
20,245
14,101
6,732
2018
126,200
52,493
19,687
14,047
6,662
On the other hand, the emission value of CO2 in 2017 per
electricity use (indirect) is reestimated at 9% due to changes
to the domestic emission factor, which dropped from 0.582
to 0.527 in 2018, corresponding to 14,546 tons of CO2eq.
EMISIONS IN TONS OF CO2eq
Scope 1: Direct Emissions
Scope 2: Indirect Emissions
Total
2017
90,789
139,381
2018
92,890
126,200
230,170
219,090
Total contributions to emissions of tons of CO2eq both
direct and indirect, are proof of the 2.3%-increase in
energy use, and the 9.5%-decrease in use of the traditional
electricity grid.
[302-1, 302-3, 302-4, 302-5, 305-1 , 305-4, 305-5, PM7, PM8, PM9]
36
During this period, with the purpose to reduce our impact
of atmospheric emissions, we considerably increased the
acquisition of wind energy, growing our consumption from
3,570,313 kWh to 43,406,881 kWh, which represents
a reduction of 22,875 tons of CO2eq. This consumption
represents 15% electricity use from renewable sources.
Likewise, and despite the growth in the number of stores,
we were able to reduce the use of energy sources thanks to
good operating practices. Throughout 2018, we added 149
new facilities in Mexico that use LED lighting and efficient
water heating equipment, thereby reducing CO2 by 822 tons.
Thanks to the results obtained we are replicating this practice
in all existing stores.
Fuel
2017
2018
Electricity (kWh)
264,479,889
239,468,796
LP Gas (liters)
Demand (kWh)
3,570,313
43,406,881
268,050,202
282,875,677
TON CO2eq
Fuel
Electricity
LP Gas
Natural Gas
Diesel
Gasoline
Total
2017
2018
Reduction
139,380.90
126,200
49,711
20,245
14,101
6,732
52,493
19,687
14,047
6,662
-9.5%
5.6%
-2.8%
-0.5%
-1%
230,170
219,090
-4.8%
This represents a total reduction of 5% of tons of CO2eq.
Water
Water is a highly valued resource in our operations and,
therefore, we continue implementing specific strategies and
metrics to regulate its use and treatment though controls on
machinery and equipment, the use of meters in our restaurants,
and by sensitizing personnel on best practices for rational use
and consumption.
On the other hand, we continue applying demand management
and monitoring strategies to the energy baseline. This year
we achieved an energy intensity of 135,293 kWh/restaurant
in our establishments.
This year 2,673,269.32 m3 were consumed, representing a
9%-increase over last year due to an increase in the number of
stores. Alsea operations treated 28,212.96 m3 in the COA.
We reduced our energy use in our Starbucks restaurants by
renewing lighting fixtures, improving heating, ventilation and
air conditioning systems and by optimizing the efficiency of
other machinery and equipment.
At Starbucks we installed continuous flow systems to wash
utensils and water savings technology were included for
washing equipment, the bar, and coffee machines. Likewise,
we trained baristas in the cleaning of equipment and how to
maintain the refrigeration grills and ice machines in optimum
operating conditions.
At Chili’s and El Portón we evaluated two different technological
devices for savings in kitchen equipment and sanitary facilities.
[303-3, PM8]
37
Wastes
Throughout 2018, some 919,292 liters of burned vegetable
oil was collected from our restaurants for conversion into
biodiesel. We continue with our garbage separation program
in all our stores in Mexico City, and we have put into place
waste reduction campaigns to diminish the generation of
wastes:
STARBUCKS
With our customers we promote the use of their own
containers to reduce the use of disposable cups, through
awareness campaigns and discounts. The sale of reusable
containers has grown 7.3% as compared to figures for last
year.
• Plastic straws have been replaced with paper straws in
stores
• Cold foam caps for cold drinks are provided, thus avoiding
the use of straws
• Plans are in place for the worldwide elimination of single-
use plastic straws by 2020, with a new cap for frozen,
straw-free beverages, and bio-degradable straws.
At the COA, programs have been put into place for the
separation and evaluation of wastes, thereby needing less
waste disposal and promoting recycling practices for wood,
cardboard, shrink-wrap, plastic, and scrap. This year 2,006
tons of waste were recycled:
WASTES
Wood (pallets)
Cardboard
Shrink-wrap
Plastic
Scrap
Total kg
Total kg
1,409,742
485,680
132,174
29,167
9,350
%
68
24
6
1.5
0.5
2,066,113
100
Raw Materials
In 2018, we conducted a significant change to the carboard
process for our Domino’s pizza boxes, changing from white
liner to Kraft liner, thereby eliminating the chemical bleaching
of cellulose fiber with which the boxes are manufactured.
Through this change we have considerably lessened to impact
of water pollution resulting from the use of chemicals.
This year, Alsea used 9,000 tons of paper and, in keeping with
our sustainability strategy, the raw materials we purchase
are 100% recyclable.
[301-2, 306-2, PM 7, PM 8]
38
S P A I N
C O L O M B I A
The opening of 40 Domino’s restaurants throughout the
year increased energy use by 24 percent. We currently
have an agreement in force which consists of a system
indexed to the daily auctioning process to obtain better
invicing costs for regulated concepts, and a K coefficient
per kW we pay the marketer.
Fuel
2017
2018
Electricity (kWh)
59,078,354
73,500,589
In order to improve performance we have been working on
consumption recording systems to have greater accuracy
regarding consumption in our establishments; this is through
monthly invoicing control and we continue with efficient
energy use programs aimed at reducing power, such as
replacing old weatherization machinery with more efficient
units; substituting equipment and fuel (electricity to natural
gas); reducing reactive loads; and changing fixtures for LED
lighting.
In Colombia, we had a marginal increase of 2% in energy use,
primarily due to the opening of Domino’s Pizza and Starbucks
units.
Fuel
Natural Gas (m3)
Electricity (kWh)
2017
64,712
12,017
2018
73,800
12,226
Nevertheless, we conduct several initiatives aimed at
improving performance by:
• Changing our energy marketer, thus reducing costs 11%
per kWh
• Changing fluorescent fixtures for LED lighting in new units
and POS in operation over 2 years.
• Creating a diagnostic system for load balancing in
production plants and old stores, where loads that increase
intensity demand have been detected.
On the other hand, we want to explore the use of clean and
photovoltaic energy sources to improve consumption on our
terraces and in production plants.
We generated 2,728.40 tons of CO2 this year, 2% higher than
in 2017.
39
Raw Materials
In Colombia we developed various sustainability plans with
suppliers, with the purpose of reducing our environmental
impact on different fronts such as water, waste generation,
the use of chemicals, and more efficient equipment.
Some of the more representative cases are as follows:
• Straws: We have incorporated the use of an oxo-biodegradable
product made with technology that can break down in the
presence of oxygen, pursuant to the European standard
CEN/TR15351, thereby providing our customers with a more
environmentally friendly consumption, fostering recycling, and
reducing overall environmental impact.
• Hygiene products: We established an alliance to to supply
products made with environmentally sustainable materials.
Through this alliance we are participating in Eco-sustainability,
aimed at reducing water and energy use in paper mills,
recovering solid wastes, and reducing packaging materials per
ton of product.
• Vegetable oil: We are conducting a program designed for the
responsible use of Used Cooking Oil (UCO) through Greenfuel,
who collects the oil at the store for the proper disposal of this
by-product, thereby reducing the pollution of urban water
sources and enabling traceability of wastes, in addition to
guaranteeing its conversion to biodiesel, ensuring that these
waste products are not reused for human consumption or as
raw materials for balanced meals.
• Fruits and vegetables: We achieved the goal of handling these
inputs with certified GAP suppliers and have made the change
in the brands Domino´s and Burger King with a new supplier,
who has good agricultural practices and clean agriculture
processes that it guarantees from the crops, products with
certified manipulation.
Additionally, we conduct internal initiatives that promote
improved environmental performance with our employees:
• Starbucks: We promote the use of coffee residues as
composting material, either as whole beans or ground
coffee.
• Archies, P.F. Chang's and Burger King: We have connected
with a recycling service supplier through talks on raising
awareness with our stores and coordinated through
our Quality department, with the goal of developing
proper disposal methods for wastes at the point of sale,
separating organic matter from recycled material. This
initiative is currently underway, and the goal is to take it
to the rest of the Alsea Colombia brands.
40
C H I L E
STARBUCKS
LEED certification was accomplished for 3 stores, thus
ratifying our commitment with the environment, in addition
to conveying the philosophy of environmental protection to
our employees, customers and suppliers.
This initiative also contributes to the efficient design,
construction operation and maintenance of our units,
seeking the minimum impact possible in energy use, water
consumption, waste production, etc.
During 2018, we eliminated the use of cardboard and plastic
cups in our stores and we encourage our consumers to join
this initiative by giving them a reusable container for cold
and hot beverages alike. During the term of this campaign, as
reinforcement we invited our customers to personalize their
containers with three of our partners.
In addition, we switched from plastic straws to paper ones
and we use cold foam caps for cold beverages, in the aim to
reduce the impact of plastic waste with our products.
CASUAL DINING
We promote the use of reusable and recyclable packaging for
food products and eliminated the use of plastic bags in all our
restaurants.
P.F. CHANG'S
At the Isidora Goyenechea branch we started the recycling
project for cardboard, thereby having increased control over
the separation of wastes.
BURGER KING
Plastic containers were replaced by cardboard ones, with the
purpose of reducing our plastic waste footprint.
SUPPORT CENTER
We contribute with and promote the use of compostable
utensils, that is, organically degradable to avoid disposal the
increase of inorganic wastes in our Support Center.
Moreover, we were able to collect 90% of the cooked oil
that comes from our Burger King, P.F. Chang's and Chili's
restaurants, equivalent to 99,082 liters, thereby avoiding the
contamination of almost 100 m3 of water.
41
ALSEA CONNECTS
O P E R AT I O N
T O S E R V I C E
Maximizing efficiencies and synergies
throughout our entire supply chain is a
fundamental objective for our growth
strategy
65%
O F R A W
M AT E R I A L S A N D
S U P P L I E R S A R E
M E X I C A N
610
ROUTES PER
WEEK
233
CITIES
42
S Y N E R G Y A N D
C R I T I C A L M A S S
Supporting our operation with resources, efficiencies
and best practices is our way of providing competitive
advantages for our brands. Response times to the
restaurants are optimized, costs are reduced, and profit
margins extended. We are prepared to manage the future
growth of our operation.
The Conecta Model
It is the supply chain cycle where we integrate all phases
involved in planning, producing, distributing and managing
the resources to connect and meet the needs of our stores,
and as a result achieve customer satisfaction.
Financial
Planning
Purchasing
Human
Resources
Safety
and Hygiene
Distribution and
Logistics
Maintainance &
Engineering
Quality and
development
Planning of
Demand
Manufacturing
43
Supply Chain
Our support center is the heart of our processes. It is
precisely here where suppliers are selected, raw materials
and basic food products are received, stored, and
manufactured; orders are filled; product shipping processes
and distribution take place.
The following are the processes that comprise the supply chain:
• Planning and logistics: In charge of organizing all phases
of the chain to guarantee that processes are properly
followed in a timely manner
• Procurement: Analyzes the commodities market; chooses
supply sources; acquires assets; and implements supplier
development programs
• Manufacturing: Prepares fresh and parbaked pizza
dough; bakery; buns; pastries; sandwiches; soups; sauces;
cooked dishes; and different cuts of meat
• Distribution and logistics: In charge of receiving, filling
and transporting orders from the brands to the different
restaurants
• Quality: Ensures product safety and quality, starting with
the design, purchase, all the way to our customers’ tables
• Human Resources, Finance, and Technology: Provide
full time support and service to the 4 distribution centers
In this manner our processes are interrelated in full
synchronization with a common goal: Provide all the
necessary supplies to each store so the manager can focus
on meeting and exceeding the expectations of each and
every one of our customers.
[102-9]
44
Distribuidora and Importadora Alsea (DIA)
DIA is a fundamental part of the Shared Services Center.
Through it, Alsea manages the supply chain for the brands
and establishments it operates, allowing them to concentrate
their efforts and attention on optimizing its operations and
customer service.
in purchasing,
DIA specializes
importing, transporting,
storing and distributing food products nationwide, whether
frozen, refrigerated or dry, thus supplying all brands and
establishments.
In addition to intercompany operations, ALSEA maintains
manufacturing agreements and exclusive distribution with
Starbucks, Vips, Italianni’s, El Portón and the Domino’s Pizza
system in Mexico, operated by franchisees, from which we
obtain additional income for the services we provide in the
those agreements.
Likewise, the DIA, through inspection procedures at product
receiving and ongoing audits of supplier manufacturing and
distribution, we verifies that raw materials used to prepare,
sell, and distribute food products comply with the highest
quality standards.
The supply to our stores in Mexico and Latin America is
performed through 7 distribution center in the following
strategic locations:
• 4 in Mexico
• 1 in Argentina
• 1 in Chile
• 1 in Colombia
The distribution centers in Mexico and Colombia belong to
Alsea; the one in Argentina and Chile are operated by third
parties.
• MEXICO
Mexico City
Hermosillo
Monterrey
Cancun
• ARGENTINA
• CHILE
• COLOMBIA
[102-4]
45
Human Resources
We continue committed to a safe and responsible operation
with our employees, through different hygiene and safety
programs and campaigns. There is a vaccination campaign
for all our employees, and we maintain an ongoing training
and communication program on occupational safety whose
purpose is to meet the goal of “Zero Accidents”.
In this item we have made considerable improvements
with a downward trend in serious accidents, dropping
from 42 to 32, with immediate follow up to prevent further
cases and we have attended the inspections made by the
Secretary of Labor.
Quality
This year all our Distribution Centers in Mexico have achieved
the maximum score granted by Domino’s Pizza International:
5 stars. In addition to this and as part of our strategy for
continuous improvement to the food safety and quality
programs, this year two of our four distribution centers
obtained level 2 SQF certification (Safe Quality Food) which
is a Food Safety Management System designed to supply
organizations with a solid tool for managing food safety
risks, and at the same time ensure the safety of the products
for consumers through a recognized certification system for
food safety.
http://seguridad-alimentaria-global.com/que-es-sqf.html
IN A
SINGLE
WEEK...
610
ROUTES
233
CITIES
DELIVERIES
MADE TO
1,929
POINTS
OF SALE
4,920
DELIVERIES
+15
million
KILOMETERS
THROUGHOUT
2018
[403-2]
46
On the other hand, we have been recognized by Walmart with
our recertification as suppliers because of our quality, safety,
and social responsibility.
We have established new metrics to evaluate critical operation
processes, such as the cold chain, where we accomplished
97.5% of the established goal; the control and approval of
suppliers, which surpassed the goal by 4%; and global quality
performance of our suppliers in Mexico, which exceeded the
annual goal by two percent.
Supplier relations have improved, and as a result, the claims
in PPM (defects per million opportunities, or pieces, or parts
per million) for Manufacturing and Suppliers are now less.
For the first time, our restaurants and stores were audited
as of the second quarter, as per the new Food Safety and
Quality Index for Alsea (ICA), exceeding the goal originally
established by brand in the annual plan.
Planning
Our brands rose to the challenge of assertive annual
forecasting, surpassing the goals in general, with the
exception of Domino’s and Starbucks. We have worked on
managing SKUs to define strategies among the brands to
help reduce inventory and we reinforced information systems
per delivery point, thereby achieving an 8.4% of total SKUs.
We achieved a reduction of 10 days of inventory for Alsea
as a whole, compared to figures recorded for 2017, due to
improvements in working capital.
Procurement
Excellent results were achieved this year regarding inflation
in prices, due to savings in food SKUs, accomplishing a benefit
of 2.72 percentage points, which is equal to $214 billion, as
pertains to total estimated price inflation.
Negotiation and procurement strategies for raw materials
produced benefits amounting to $66 million annually, despite
the increase in import tariffs. We accomplished the objective
of the Vendor Agreement with 81% of our vendors, and we
witnessed the results of the first global negotiation of soft
drinks, as well as the negotiations with Alpura and Heineken,
representing a benefit of an additional $313 million to
previous agreements.
[414-1]
47
Alsea Operations Center
The Center of Operations Alsea (COA) encompasses storage,
distribution, and manufacturing services, all in a single place,
with the purpose of optimizing restaurant operations and
preserving quality and profitability.
We mitigated the impact of new import tariffs, (for key
products such as cheese, pepperoni, potatoes, and prepared
foods); and we surpassed working capital results through
inventory reduction and production chain programs for
suppliers.
Activities conducted during 2018:
Supply Chain priorities for 2019:
• Training: Improvements to the training and support
program for brands, to capitalize on operating experience
• Structure: Increases to the number of supervisors, and
implementation of the “Circle of Leaders” program, to
reduce personnel turnover rates
• Operations: Reestablish and guarantee service to stores,
reduce expenses, and generate productivity. Meetings on
status, with immediate attention given to opportunities;
24/7 IT service; operational continuity; support for route
movement and definition; compliance with inventory
production and recovery plan; and warehouse assortment,
with an improvement index of 25%
• Consolidate operation and guarantee consistent service
• Generate productivity and budget savings
• Maintain turnover rates of less than 5% per month, and
continue with Zero Accidents strategy
• Accelerate centralized product manufacturing project
• Define service network and necessary capacities for the
following five years
• Continue going forward with the Safety and Quality
system
• Optimize and improve working capital
• Ensure succession planning for Directors
• Diminish effects of inflation through effective procurement
strategies
• Improve S&OP (Sales & Operations Planning) • Ensure
compliance with requirements to achieve DJSI certification
(Dow Jones Sustainability Index) • Obtain TIF certification
(Federal Inspection Type)
48
ALSEA CONNECTS
S E R V I C E W I T H
I N N O V AT I O N
Technology and innovation are two
of our competitive advantages and
the basis of our leadership position,
enabling us to be increasingly closer to
the needs of our customers.
new
brands
new
products
new
channels
49
I N N O V AT I O N
A N D T E C H N O L O G Y
At Alsea we work each day on renewal, to connect
with our customers, and go beyond simple
consumption. Today, hand-in-hand with technology,
we listen to their preferences, we know what they
want and how they want it, and we convert this into
innovative products and services that are in line with
their lifestyles.
Knowing our customer profile allows us to make benefits
available through different apps and electronic devices, thus
reinforcing the connection between them and our brands.
Likewise, we plan on continuing to renew our products,
formats, and services to adapt them to industry trends. Our
objective is to continue amazing our customers with new
flavors and new proposals aimed at their preferences.
Nowadays, thanks to digital apps, we are at the vanguard
of taking offerings and promotions to our customers, with
agility and efficiency, and therefore we continue investing
in these communication tools and platforms, which have
been benefitted by increasing numbers in registration and
membership.
50
M E X I C O
STARBUCKS
Reserve Bar
In April we opened our first Reserve Bar in Mexico, which was
also the first to open in a coffee-producing country anywhere
in the world. For the first time we offered coffee from a
different coffee region in our country: Starbucks Reserve
Mexico, Oaxaca, La Pluma.
The store was designed to celebrate the Mexican culture with
elements produced in and inspired by the country, but without
losing its natural connection with the Starbucks Reserve
Roasteries. It is designed to be the stage for the Coffee Masters,
representing the broadest range of knowledge regarding
coffee in Starbucks, with a hands-on experience that brings to
life our reserves of exquisite limited-edition coffee beans. We
offer our customers the opportunity to explore coffee through
taste-testing and educational seminars prepared by our Coffee
Master. At this store we use traditional preparation methods
that are designed exclusively to highlight the coffee reserve.
It is the first establishment in Mexico to offer Nitro Cold Brew
and exclusive beverages inspired by cocktails.
.
Baked in Store
In addition to providing the best experience in coffee drinking,
in 2018 we ventured into the project of baking bread in our
stores, with the goal of enhancing the food-eating experience.
We introduced freshly baked products, made on the spot, with
simple yet top quality products that have an exceptional flavor.
With this concept in mind, we now offer the following variety:
• Croissant with ham and cheese, cured ham, or butter
• Chocolate filled pastry
• Fruit pastry
• Chocolate bretzel
This program began in October 2018, with the first 19 stores
in Greater Mexico City, and in December, 21 stores were
opened in Monterrey.
The aroma
of "recently
baked bread"
IN OUR STORES
SEDUCES OUR
CUSTOMERS
51
Back to Flavor
Do you remember what it tastes like?
With this innovation in beverages, we created an experience
that creates moments of nostalgia through a 360°
communication campaign.
VIPS
Vips changed its appearance and menu, optimizing its
offering of dishes, obtaining a more fluid and comfortable
design for our guests.
People recalled special moments from their childhood and
shared them with their family and friends, helping us to
create digital engagement and a better connection with our
consumers.
The menu design seeks to convey the brand experience and
personality through the newer and easier to read format. We
included new photographs depicting families, histories, and
brand formats.
Implementation of Delivery
In 2018, we were able to extend our home delivery sales
channel through the use of digital platforms (APPs) managed
by companies devoted to technological development. We
created a strategic alliance with Rappi in early October.
• We innovated and improved certain dishes, in keeping
with our customers’ preferences
• We looked to establish product consistency in all our
stores
• We also added 12 new dishes
With this initiative 140 stores incorporated this service
through add-ons.
Moreover, in 2018 we launched our Vips Digital Loyalty Card,
obtaining 56,315 sign-ups and over 16,000 transactions
throughout the year.
140
units
IN ME XICO
STARTED TO OFFER
DELIVERY SERVICE
52
DOMINO'S
This year we made great strides in innovation and technology
through different updates to our digital platforms, in addition
to the incorporation of our WOW Rewards loyalty program.
We also joined the efforts of third parties, as is the case of
the Alexa app.
In 2018, over 3 million downloads of the app were made in iOS
and Android, and the volume of sales from these platforms
totaled 25 percent.
P.F. CHANG'S
In November, our menu was improved with the launching
of Asian Bowls, which consists of 23 options of bowls and
ramen.
The ordering of sushi was driven with our Sushiology
campaign, which combines sushi with cocktails to provide a
new experience and flavor for our customers.
THE CHEESECAKE FACTORY
We created the perfect dessert for any type of celebration:
The Celebration Cheesecake. This delicious dessert is inspired
by funfetti cupcakes, in addition to combining the flavor of
original cheesecake with layers of vanilla cake and three
tasty layers of strawberry, vanilla, and chocolate; on top is
a layer of cream cheese and confetti. It is undoubtedly the
most festive-looking cake you’ve ever seen, a must during
any celebration.
+3 million
DOWNLOADS
OF THE APP
53
S P A I N
FOSTER'S HOLLYWOOD
Foster's has been renewed and it takes on a new corporate
identity. This project was a comprehensive development,
achieving a strategic brand platform and new codes and
shades of communication, aimed primarily and young
consumers who are the target audience for the brand.
The change in image applies to all brand areas and
support, maintaining brand essence within a modern and
renewed format.
The stores will change their décor and ambiance,
incorporating the new image with its visual codes. In 2018,
one restaurant underwent the change in décor and opened
its doors in July, obtaining the positive result of double-digit
growth in sales.
New products
We have continued promoting new hamburgers, whose
differential value is based on new ways to make them,
providing a greater level of aspiration to the products through
smoking processes or valued ingredients in the blend:
• Smoked Burger: Smoky flavors
• Truffle Burger: Beef combined with truffle oil, sautéed
bletus mushrooms and other related elements
The promotional campaign was both on TV and digital, with
the message "Our Foster’s Hollywood Bacon & Cheese Fries
are second to none".
Developing Alexa skill orders
The purpose of incorporating our platform to Alexa is to
increase the notoriety and innovation of the brand in the
casual dining sector.
54
DOMINO’S
The greatest launch of the year was American Legends, a line of
pizzas with three specialties and an abundance of proteins and
cheddar cheese on the edge. This launch was supported by a
360º media campaign.
BURGER KING
This brand introduced order kiosks in 34 restaurants,
producing a 5% increase in sales at the counter.
34
units introduced
order kiosks
CAÑAS Y TAPAS
The brand is repositioned in the market with strategies that
entice consumers to experience the art of tapas, but with the
values from always.
Adjustments were made to the décor, giving the brand its
unique Spanish personality.
Insofar as the products are concerned, our traditional
scrambled eggs dish now has the possibility of being
personalized with traditional recipes from different regions
in Spain.
We conducted publicity with news on openings and ad hoc
events held in the restaurants, generating notoriety for the
brand and communication opportunities.
Likewise, we reinforced the value of the brand with social
responsibility initiatives, such as Tapa Solidarity, which
involves not only our employees in the creation of the tapa,
but also our guests who, with their consumption, are helping
infant villages.
55
C H I L E
STARBUCKS
New products
• Cookies & Cream Frappuccino: We have brought our
customers back to this delicious beverage, but this time
with a new ingredient, that is, ground cookie over the drink.
• Beverages: We launched S’more Frappuccino, Butterscotch
and Cáscara Latte, three innovative drinks accompanied by
some storytelling to woo our customers over.
• Spark: Three beverages were developed, and they
appealed to our younger consumers through a tasty
proposal in sweetness and an attractive appearance:
Mermaid, Galaxy, and Zombie.
P.F. CHANG'S
In 2018 we conducted different programs that contributed
to an improved menu and to promoting the brand in Chile.
They consisted of relaunching the sushi menu. The products
were adapted to local preferences and better positioned the
category, resulting in an increase in share.
In addition, we started a mass communication campaign that
allowed us to reach double-digit sales, increase the ordering
of sushi, and confirmed the preference for products such as
ceviche roll, guacamole and white maki.
C O L O M B I A
ARCHIES
The "Pizza Tour: Taste, Vote and Win” program was
implemented for the launch of four new flavors: Dolci
Prosciutto, Funghi Toscana, Mexicana, and Mozzarella
Prosciutto. Likewise, we worked on improving recipes for
two products from the current menu.
4
NEW
FL AVOURS
56
WE INNOVATE TO ENHANCE
THE EXPERIENCE
OF OUR CUSTOMERS
57
ALSEA CONNECTS
I N N O VAT I O N
T O O U R V I S I O N
Cutting edge marketing that contributes value
to our brands and positions us as leaders in the
market where we operate. Connecting to our
customers means being part of their lifestyle.
+316,000
ACTIVE
MEMBERS
+14%
TOTAL
SALES
+20%
ORDERS
OVER 2017
58
C U T T I N G E D G E
M A R K E T I N G
At Alsea, we consider marketing one of the primary
motors for driving the growth of our brands by defining
and focusing on our value propositions and by obtaining
in-depth knowledge on the preferences of our customers.
Our priority is to have our customer fully enjoy the products
we offer and to have unique experiences during their visit
to our establishments, in keeping with their preferences.
Therefore, we continually seek to renovate our marketing
strategies in order to maintain the fresh spirit of our brands.
We define programs that allow us to hear the voice of our
customers, learn of their desires and needs, and then act
with promotions and products that make a difference, thus
contributing to the meeting of our business objectives.
App's
59
L O Y A L T Y P R O G R A M S
M E X I C O
WOW Rewards
Seeking to generate fidelity with our brands, we offer
preferential promotions that accumulate points for having
eaten with us, and they can be redeemed during the next visit
to any of our Alsea Mexico units.
Through this program we obtain detailed information on
the eating habits and the preferences of our customers, and
therefore we generate a profile and personalize our benefits
to motivate consuming in all our brands.
During this period, we accomplished the highest sales and
orders within the program, with 13.9% total sales and 20.3%
in orders, as compared to 2017. Moreover, we grew our active
member-base by 50 percent.
This growth is due to changes made to the program, such
as implementing our digital card and simplifying the process
used to unify points of sale and segmentations, thereby
personalizing dialogue with our customers and focusing on
their preferences.
By late 2018, we began to redesign our app and website, to
offer better response time to our members when loading,
accessing promotions and looking for information on the
benefits offered. With these initiatives, we closed 2018 with
316,000 active users and recorded 35% growth over 2017.
60
My Starbucks Rewards
We continue with our loyalty program -currently with 550,000
registered users- where stars are accumulated, and offerings
and benefits are provided in keeping with their profile.
Globally, the program ranks 8th in sales in Starbucks markets;
it shares positions with the US, China, South Korea, Japan,
Taiwan, Thailand, and England. It ranks #1 in Latin America,
having the greatest number of active members.
Digital Coupons
This year we decided to evolve the way we issue discount
coupons and launch the digital version, a strategy that
encompassed all brands and with which each one has total
autonomy in issuing its own promotions.
The coupon book is distributed via digital means and helps
obtain considerable economic savings, and in the use of paper.
It reached a greater number of users, with a acomplishment
of 49.6 million.
The advantage of the digital format is that smartphone users
have immediate access to the promotion, and therefore the
probabilities of redeeming increases. By the close of the
year, we recorded $108 million in total sales with the digital
coupon system.
Marketing Shared Services
Alsea created its Shared Marketing Services with the purpose
of creating synergies in operating areas. MSS oversees
obtaining alliances and following through on special projects
with those suppliers who provide similar services to different
brands. Among the activities they conduct are:
Media: We centralized media services for all brands in Mexico,
and we achieved savings through integrated management of
advertising in traditional and digital media.
Public Relations: The purpose of this activity is to protect
Alsea’s reputation and that of its brands. Consequently, we
defined complaint handling procedures and guidelines for
what to do in cases of crisis and/or contingencies so as to
act promptly in any of these cases. These mechanisms are
headed by the Crisis Committee, who analyzes the damage
and acts rapidly, clear to the final solving of the incident.
Strategic Alliances: Work is done in coordination with
other companies to promote our products and brands, thereby
generating greater transactions in stores, through the loyalty
and market intelligence programs. The list of companies
includes Banco Santander, Citibanamex, Bancomer, Pepsi,
Heineken, Disney, and Grupo Expansión, among others.
$108
M I L L I O N S
O F S A L E S
61
Christmas Season Dishes
From October through December we offer traditional
Christmas fare, such as turkey, romeritos and codfish. During
this season, the purpose was to “glorify” the craving for these
dishes, thus achieving growth in sales over numbers for 2017.
Breakfast for $75
The most important time for Vips is breakfast; so, we offered
promotions for a complete breakfast at just $75 pesos each,
growing traffic, average ticket, and sales.
VIPS
Choose your Burger
For the second consecutive year, we launched four new
flavors of hamburgers to attract a young target audience,
primarily millennials.
Vips Classics
Mexican consumers
list classic dishes among their
favorites, something proven in the three campaigns
conducted in 2018. We generated new and frequent traffic
to our stores. This promotion has become a consolidation
platform for our iconic Vips dishes.
Either you win, or you win
The goal of this promotion was to increase the average ticket
in our restaurants. We offered tickets to participate in the
raffling of eight cars and millions in cash prizes, for each $139
pesos spent.
Independence Day Dishes
Vips is where the most chiles en nogada (stuffed chiles in a
creamy nut sauce) are sold in Mexico during the month of
September. In addition, through advertising strategies, we
highlight certain traditional dishes of the season by showing
our innovation and how tasty these seasonal dishes truly are.
62
EL PORTÓN
The Mayora
A campaign used to improve the image of El Portón, using
the traditional position of Mayora in Mexican kitchens. The
good-humored messages alluded to popular expressions
used in Mexico. With the message "El Portón is a restaurant
that offers authentic Mexican dishes” the campaign improved
brand perception, gained credibility, and optimized the
experience at the point of sale.
DOMINO’S
Pizza
We defined a new proposal for Deep-Dish Pizza dough,
available in medium size, improved the price, and made it
available in the different sales channels.
Dominator pizza was promoted as the ideal product for
parties and gatherings. We promoted it during April (when
Children’s Day is celebrated) and during World Cup soccer
matches.
THE CHEESECAKE FACTORY
The Cheesecake week
For a week in the summer, we offered all cheesecake slices
at half price and we also had a special promotion for
Celebration Cheesecake, thus positioning this dessert as
No. 1 in the preferences of our customers.
63
C H I L E
CHILI'S
The brand was positioned with a promotion for ribs, burgers,
fajitas, and with Chili’s Stadium dishes, increasing same-
stores sales. We further reinforced our brand presence with
three new openings: Arauco, Maipu and Plaza Oeste.
The Art of the Burger
A flavor creation based on five different types of hamburgers:
the Bacon Perfection Burger, Pico Pork & Pickles Burger,
Sunrise Burger, Pork Pineapple & Passion Burger, and the
Magnificent Beef & Shrimp Burger. It became an option for all
burger lovers and for those who like an ambience like Chili’s.
With this campaign we increased the sale of hamburgers to
more than 30%, supporting the positioning of the brand in its
primary categories.
STARBUCKS
15 years of history together
To celebrate our 15th anniversary of Starbucks in Chile, our
stores were dressed in green to invite our customers to come
and share their stories with Starbucks in social medial. The
best stories of the day received a month of coffees and the
top three winners got a cup with their story designed by
Chilean artists.
Service month – Starbucks Run
A new version of the race for organ donation was conducted.
During 2018, our stores were the starting point, including the
regions. Considerable work and effort were performed with
digital influencers, who helped to spread the word and invite
one and all to this event.
Cyberbullying
With this campaign we aimed to raise awareness on the
impact that cyberbullying can cause, an issue strongly felt
today in Chile. Different videos were made, becoming viral
in social media and the press. Known personalities lent their
image and mentioned what is going on at present and of
which many parents are unaware. Also, conversions with
subject-matter experts were held in our stores and they were
streamed to broaden our audience.
64
S P A I N
Starbucks Talks
During 2018, there were four dialogue sessions held on
subjects such as Personal Branding and Fashion Marketing,
all of which were held in our stores. They were transmitted
via streaming in our social media to promote our facilities as
meeting points for the exchange of ideas.
Domino’s FEST
During the months of May and November we conducted
Domino's FEST, in which all online purchases were offered at
50% discount. This campaign was aimed at a young audience
to attract customers in the digital channel, via this appealing
price offering.
BOG and Digital BOG
A couponing and customer attraction system. We received
over 2,500 coupons in a period of three months, increasing
our coupon redeeming by 5%; our accomplishment was
150,000 people, with 2,300 downloads.
BURGER KING
We retrofitted the "menu board" so our screens can be more
accessible and efficient for our customers.
Three of our stores were remodeled and we had six new
openings, all of them with the garden grill format, with
background music and Wi-Fi. It has proven very appealing
to our customers. We feel that these initiatives considerably
enhance the customer experience.
We redefined our connection strategy with our customers,
placing greater emphasis on digital systems through different
brand activation and contingency campaigns. We improved
our positioning from 5th place to 3rd in fast-food preference
in Chile.
65
ALSEA CONNECTS
T H E V I S I O N W I T H
T H E C O M M U N I T Y
Due to our commitment to the
community, we enacted programs
that have a positive impact on the
environment and make a difference.
+2 millions
NUTRITIONAL
MEALS SERVED
11
DINING
HALLS
1,800
FAMILIES
BENEFITED
66
O U R
C O M M U N I T Y
Alsea is committed to having a positive impact on our community,
beyond our operations. We therefore put into practice programs
aimed at combating child malnutrition, promoting employability, and
driving productive projects for disadvantaged groups.
+10,600
HOURS OF
VOLUNTEERISM
In the awareness of our role as a Socially Responsible
Enterprise, we invite our employees and suppliers to become
involved in actions benefiting our community. All of us who are
part of the Alsea family have made great strides in nutrition,
assistance during natural disasters, community development,
education, and the fostering of Mexican cuisine. There is still
much to be done, but we are confident we are on the right
path.
$52,493,378
TOTAL INCOME
$50,344,476
TOTAL EXPENDITURES
DONATIONS COLLECTED 2018 (%)
Va por mi Cuenta Campaign
Alsea and Subsidiaries
Employee Campaign
Other brands campaigns
Founding members
Other allies Va por mi Cuenta
43.43
31.12
14.38
8.89
1.71
0.47
Additionally, in 2018 we received a donation of $7,354,431 million pesos,
raised by the campaign One day for Mexico, as well as the contribution by the
film "Lo que de verdad importa " for $4,771,752 million pesos
CAUSES / EARMARKED RESOURCES (%)
Nutrition
Community development
Community participation
Education and employability
Fostering mexican cuisine
Emergencies
70.95
13.90
5.63
5.08
4.00
0.27
+35NGOs
SUPPORTED
+4,600
CHILDREN
BENEFITED
+113tons
OF IN-KIND
DONATIONS
GLOBAL FIGURES
67
Va por mi Cuenta Colombia
The movement Va por mi Cuenta continues operating
in Colombia, where 306 children have been benefitted
through 6 institutions located in Medellín, Bogotá, Soacha,
Bucaramanga, Cartagena and Cali, in alliance with Fundación
Éxito and its program Gen Cero in the following institutions:
Misioneras de Cristo Maestro, Fundación Ximena Rico
Llano, Fundación Semilla y Fruto, Abc Prodein, Asociación
de Mujeres Artesanas Luz y Vida, and Funsodelpo.
M E X I C O
V A P O R M I C U E N T A M O V E M E N T
The movement Va por mi Cuenta, supported by the Alsea
Foundation, inaugurated its 11th children’s dining hall, the
first to operate under a scholastic model. The dining hall is
operated in collaboration with SEDAC I.A.P. and Comedor
Santa María A.C., with the goal of providing nutritional meals
for 740 children per day, between the ages of 3 and 12, who
attend preschool and elementary school.
Beginning in 2012, It’s on Me has been devoted to building
and operating dining halls for children, called “Our Dining
Hall”; the movement has served over 2,000,000 nutritional
meals, benefitting more than 4,300 children each day. There
have been marked improvements in their size, performance
in school, and emotional aptitude thanks to the benefits of
eating balanced meals suited to their age and requirements.
The results to date and our commitment to combating
child malnutrition serve as motivators to continue with this
program, reinforce it, obtain greater donations, and provide
support to other organizations.
+4,300
CHILDREN
BENEFITED
DAILY
68
S O C I A L I N V E S T M E N T / E D U C A T I O N
Senior Citizens Program
In August 2018, Starbucks celebrated the opening of its first
store in Mexico operated 100% by a team of senior citizens
between the ages of 60 and 65. This store is located in the
Coyoacán Corporate Offices, in Mexico City. This initiative
represents an opportunity for senior citizens to become part
of the labor market.
Since 2011, Starbucks has worked hand-in-hand with INAPAM
-the National Institute for Senior Citizens- on the design of a
pilot program to provide suitable working conditions for this
age group.
"Head
to
head"
Sustainable Coffee Challenge
Beginning in 2017, Alsea participated in the international
Sustainable Coffee Challenge, whose purpose is to make coffee
the primary agricultural product worldwide. Ever since then,
we have developed different projects to promote the drinking
of Mexican coffee and thereby help local coffee growers,
protect the environment, reduce carbon footprints, and provide
new coffee plants for reforestation purposes.
We also promote consuming our brands, and in 2018 all
branches of El Portón incorporated into their menu organic
coffee products from CESMACH, a cooperative from Chiapas,
which is a regional organization with 619 small growers.
Our purchases from this cooperative represent 16% of their
total income.
Mexican Cuisine
With the aim to continue supporting, promoting, safeguarding
and rescuing Mexican cuisine, in 2018 we initiated “Head to
Head between traditional cooks and mayoras from El Portón”.
It consisted of an exchange of knowledge and it also generated
an atmosphere suitable to the pride of sharing what it feels
like to be someone who completed a majestic creation.
As a result of this effort, the book “Mujeres de Humo”
was published, With the secrets of our kitchens and the
legacy of our ancestors, over 200 traditional cooks from
Totonacapan, Veracruz share their work. This book is an
example of our actions as a promoter and leader in the
revaluing of Mexican cuisine.
69
Academic Excellence Program
Alsea presented the children of our employees and the
beneficiaries of the Alsea Foundation with 1,174 kits with
school supplies, in recognition of their excellent academic
performance and in support of their education.
INTEGRA Program
This initiative is a source of great pride for us as its goal
is to provide educational opportunities and employability
for talented young people living in tenuous circumstances,
beneficiaries of the Alsea Foundation.
Opportunities and Employability Fund
The Alsea Foundation and Starbucks International continue
rendering support to this program with the goal of helping
young people in tenuous circumstances so they can have
better living conditions, provide motivation for their skills,
and to help them in their employability. During 2018, some
seven organization were supported, benefitting more than
1,000 young people.
Welcome to
the second
generation of
Aprendices
Integra
With this we seek to develop values and key competencies that
favor growth on the job for young people, thereby creating a
seedbed of valuable talent committed to the future of Alsea,
and at the same time helping to reinforce the leadership of
its members by guiding and training young people.
Three fundamental roles have been defined: the role of
trainee, who is the candidate; the integrator, who has the
trainee as his charge and is responsible for his/her training;
and lastly, the integrator sponsor, who is in charge of the
overall development of the trainee, as well as his/her
integration with Alsea and its brands.
The trainee participates for four years with the organization,
during which said trainee collaborates in different areas
that are suitable to his/her profile, career, and experience. In
addition, during this time the trainees will learn Alsea values
and develop different labor competencies that are highly
valued on the market.
Trainees also receive a 100% scholarship to one of several
prestigious universities in the county. We have currently
achieved the participation of two generations, which totals
17 trainees.
70
Our Materiality
Each year we develop our overall report where we consolidate
information for the period comprising January 1st to December
31st. This year we used the Global Reporting Initiative -GRI-
as a reporting standard.
The content is based on a materiality analysis that Alsea
conducted in 2017, and which is valid for two years. Said
analysis identified stakeholders for our organization, as well
as the interests and relevant expectations for both parties.
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
0
Emerging
50
Alsea + Stakeholders
100
Generalized
[102-31, 102-33, 102-34, 102-44, 102-46, 102-47, 102-50, 102-51, 102-52, 103-1]
71
Based on GRI guidelines, a determination was made regarding
subjects that qualify as material aspects and which were
considered when preparing this annual report, and also to
define action programs within our Sustainability Model.
The graph illustrates the material aspects as per their
importance, the maturity of the stakeholders with regards
to the sector, and the classification of said stakeholders as
regards Alsea.
Those aspects deemed material for Alsea are as follows:
• Corporate Social Responsibility Management
• Risk management
• Ethics and integrity
• Corruption / bribery / transparency
• Brand management
• Financial matters
• Operations
• Product development / services / product responsibility
• Customer relations management
• Environmental policies / Environmental management
system
• Materials
• Energy ecoefficiency
• Climate change and other atmospheric emissions
• Talent attraction and retention
• Human capital development
• Occupational health and safety
• Human rights
• Social impact
• Supplier standards
The evaluation considered those aspects which could
represent a risk for the organization, which are defined as
urgent issues and which receive immediate attention to
mitigate the risk. These aspects include waste management
and water resource management, receiving constant
attention since 2017.
Corporate governance and diversity and equal
opportunities are subjects that Alsea must always keep in
mind and never ignore due to the level of importance they
represent for the organization.
As a complement to the analysis of materiality, we consulted
with two of our primary stakeholders:
Employees: from whom we received satisfactory feedback,
conveying their interest in the following subjects:
• Labor practices
• Equal pay for men and women alike
• Human capital development
• Occupational health and safety
• Human rights
• Compliance with international labor standards
• Follow up on cases of discrimination and the measures
taken
• Training
• Labor environment
• Health and safety
• Ethics
Customers: who expressed an interest in the
following subjects:
• Brand / product management
• Quality
• Price
• Compliance with quality standards
72
Our stakeholders
Alsea is committed to its stakeholders because they are the
base of our growth in the market. We keep our eyes and ears
open to knowing their needs and expectations in common
and serving them. That is why we implement different
mechanisms to know their opinions, directly, clearly, and in a
timely manner.
It is very important for us to maintain open communication
with our customers, suppliers, employees, investors, the
government, the authorities, the community, and any other
organization which Alsea can impact, either positively or
negatively. Connecting with our stakeholders is an important
element to building a solid future.
Weekly
Monthly
Permanent
Quarterly
Annual
Seasonaly
Letters
Fundraising campaign
Visits
Integrated report
E-mail and website
Shareholders' meeting
Results call
Social media
Phone conversations
Integrated report
E-mail and website
Meetings
Conferences
Investor and Analyst Days
Vendors
Investors
Guests
Government
Media
Participación in events
Social media
Reports and control
meetings
Integrated report
E-mail and website
Integrated report
E-mail and website
Community
Evaluation visits
Participative diagnostics
Work meetings
Reports and control meetings
Integrated report
E-mail and website
NGOs
Evaluation visits
Participative diagnostics
Work meetings
Reports and control
meetings
Integrated report
E-mail and website
73
Communication
in Restaurants
Fundraising campaign
Social media
Mass media
Integrated report
E-mail and website
Employees
Internal newsletters
Communication
Scorecards
Yammer- Partnet
Intranet- Red Alsea
Communiqués from
the CEO
Internal communication
campaigns
Screens
Integrated report
E-mail and website
[102-21, 102-40, 102-42, 102-43, 102-44]
E T H I C S A N D
C O R P O R AT E G O V E R N A N C E
At Alsea we know that acting ethically and responsibly is part of
our Culture and the foundation so our business can generate value
for our shareholders, employees, customers, and communities
where we operate. Our corporate governance follows the very
best standards in ethics and operating policies to ensure the
correct performance by our Committees and Board of Directors,
and we supervise effectiveness and always keep informed of
any regulatory changes and demands made by our stakeholders
regarding transparency and accountability.
74
E T H I C S
The values we hold in the Alsea Culture allow us to instill in
our employees the value of commitment and service for our
customers, achieving success in their daily performance. This
is accomplished with a Winning Attitude, Involved Leadership,
Amazing Service, Collaborative Spirit, and Attention to
Details.
Through our Code of Ethics, we define lines of conduct that
are followed by our employees in their daily activities, in any
geographic location where they work. This extends to our
customers and suppliers according to the Strategic Plan that
Alsea uses to generate value.
Each time someone joins our team, we present the tools
developed by Alsea to ensure ethical compliance and the
building of our value-based Culture. During the onboarding
sessions we present and have them sign the Code of
Ethics and the use of the Hotline for claims, our policies on
anticorruption, conflict of interests, and the prevention of
money laundering.
Alsea has an Ethics Committee whose mission is to attend to
events or conditions that represent conflicts or any violation
by our employees, brands, or the Company itself, or any type
of noncompliance regarding the guidelines found in our Code
of Ethics.
Given our position of neutrality regarding politics, Alsea does
not provide any type of funding to political parties and/or
their supporting agencies.
CODE OF
ETHICS
Equal opportunities for all
Prohibited to accept gifts
Confidential information management
Harassment-free work environment
Care of our tools
Compliance with rules and regulations
Conflict of interests
The way we treat customers
Care for the environment
Measures for not committing fraud
Transparent business practices
Occupational safety
[102-16, 102-17, 410-1, 412-2, 415-1, PM1, PM10]
75
A L S E A H O T L I N E
A N T I C O R R U P T I O N C U L T U R E
In our awareness of the need to identify conducts or situations
that place our customers, employees, and suppliers at risk,
we have implemented the Hotline program, which is operated
by Deloitte, and offers the opportunity to make confidential
reports to this independent third party, who in turn provides
objectivity and transparency for the process of attending to
and solving the situations reported.
Our customers also have the opportunity through this
program of reporting service deficiencies regarding any
of our brands, all with the purpose of improving customer
experience and earning their preference.
In 2018, we received 1,180 claims, of which 10 were suppliers,
94 from customers, and the rest anonymous. At the close
of the year, 90% of the claims were served, two are still
under investigation, and one was discarded due to lack of
information.
The percentage of claims increased 20.65% as compared to
the previous year. This is due to acquisition transition and
operation stabilization processes regarding Archies. Other
reports had to do with coercion, conflict of interests, breach
of trust, fraud, and theft. Alsea defines programs to reinforce
communication options with customers, communication
campaigns to stress the Hotline system with employees
and suppliers, thus channeling and attending to complaints
quickly and objectively.
In keeping with our process standardization worldwide, we
are relaunching our Hotline system in Brazil.
For greater information on the Code of Ethics, visit this
website: http://www.alsea.net/relacion-con-inversionistas/
codigo-de-etica
Alsea is firmly committed to performing and doing business
based on ethics, integrity, transparency, and honesty. We
categorically prohibit any form of corruption or bribery, in
both the private and public sectors.
Our Internal Control department oversees compliance with
anticorruption obligations. It is in charge of risk management,
attending to and preventing acts of corruption, and following
up on our claims hotline.
In 2018 we created the Anticorruption Policy for Alsea;
dissemination was conducted via the eLearning platform.
Currently, 82% of support center employees have completed
the program online, and in 2019 the course will be made
available to 100% of our employees.
To reinforce the subject of anticorruption and the Code of
Ethics guidelines, our employees reiterate their commitment
to the Company by signing their acceptance of and
adherence to the Code and the anticorruption policy when
hired, promoted, or when said code or policy undergoes any
changes.
Throughout the year we send communication reinforcing the
Anticorruption policy and the use of the Hotline system, and
during certain times of the year, like Christmas, we reinforce
the policy on the prohibition of accepting gifts from suppliers.
The Code of Ethics will be extended to all other countries
where we operate. It is currently in force only in Spain.
[201-1, 205-1, 205-2, 205-3, 418-1 PM 10]
76
D A T A P R O T E C T I O N
We are fully aware of the existing risks posed by the use
of personal data, and therefore we implemented security
measures pursuant to current legislation, which prevent the
risk of confidentiality, integrity, and information availability.
The privacy control and management for our customers is
overseen by those directly responsible for the internal points
of contact. In addition, we provide ongoing training on the
subject to our employees via work plans and the continuous
improvement process of the organization.
As of yet we have received no complaints for noncompliance;
however, we continue reinforcing data protection monitoring
and management practices within our brands, plants, DCs,
and corporate offices.
Alsea recognizes how important it is to properly handle and
protect the personal information obtained from individuals,
regardless of whether they are customers, suppliers, legal
representatives or even our own employees. We are also
aware of the risks and responsibility inherent to the use of
this data.
Consequently, we are continuously working on
the
implementation of security measures aligned with current
legislation and full compliance with principles and duties
regarding the protection of personal data.
Privacy control and management is overseen by an internal
area known as the Department of Personal Data Privacy, and
through our notice on privacy we inform our customers of
everything pertaining to the handling of their data and their
right to exercise ARCO (access, amend, cancel, and oppose).
Moreover, we provide ongoing training each year to our
employees, both in operation and stores and in our Support
Center. This training is based on work plans and constant
processes aimed at continuous
improvement for the
organization.
These actions are currently reflected in our compliance levels
and the reputation of the organization. To date, no cases of
noncompliance have been filed. However, we are constantly
reinforcing our practices on data protection monitoring and
management, for our brands, plants, DCs and corporate
offices.
https://www.alsea.net/aviso-de-privacidad
https://www.alsea.net/inversionistas/contacto
https://www.alsea.net/sustentabilidad/contacto
https://www.alsea.net/sala-de-prensa/contacto
http://www.alsea.net/haz-carrera-en-alsea
https://www.alsea.net/uploads/es/documents/general_
documents/aviso_privacidad_integral_candidatos_es.pdf
http://www.alsea.net/linea-correcta
https://www.alsea.net/uploads/es/documents/general_
d o c u m e n t s / A V I S O _ D E _ P R I V A C I D A D _ I N T E G R A L _
FRANQUICIAS_es.pdf
https://www.alsea.net/franquicias/contacto
[415-1, 418-1, PM10]
77
B O A R D O F D I R E C T O R S
Our Board is known for its actions and soundness. It consists
of 11 members, of which one is a woman. We have opened
the doors to a new generation with the addition of Pablo
Torrado who, with his experience in Starbucks Corporation,
will contribute with a fresh vision on the preferences and
demands of the younger generations.
For the Board of Directors to be able to meet, a minimum
of 25% of the Directors must be present; compensation for
the members of the board is fixed, based on attendance to
Board meetings and Committees to which they may belong,
in addition to involvement in deliberations and efficiently
made decisions.
In support of the Board of Directors and pursuant to the new
Securities Market Law, we have intermediary bodies -the
Audit Committee and the Corporate Practices Committee-
whose members are Independent Directors and whose
responsibility is to assist the Board of Directors in the
performance of its duties. The Chairman of the Board is
Alberto Torrado Martínez, who is a statutory related Director.
The makeup of the Board of Directors is as follows:
Alberto Torrado
CEO
Statutory Directors
Alberto Torrado
Chairman of the Board
Cosme Torrado
Armando Torrado
Fabián Gosselin Castro
Federico Tejado Bárcena
Independent Directors
Julio Gutiérrez Mercadillo
Raúl Méndez Segura
Iván Mogel Kuri
León Kraig Eskenazi
Adriana Noreña
Related Directors
Pablo Torrado
Related Member
Technical Secretary
Xavier Mangino
Díaz de Rivera y Mangino, S.C.
[102-5, 102-18, 102-19, 102-20, 102-22, 102-23]
78
O R G A N I Z A T I O N A L S T R U C T U R E
B O A R D O F D I R E C T O R S
A U D I T C O M M I T T E E
C H A I R M A N
A L B E R T O T O R R A D O
C O R P O R A T E P R A C T I C E S
C O M M I T T E E
I N T E R N A L A U D I T I N G
M A R I O S Á N C H E Z
A L S E A E U R O P E
S P A I N , P O R T U G A L ,
F R A N C E & B E N E L U X
A L S E A M E X I C O
A L S E A L A T A M
A R G E N T I N A , B R A Z I L , C H I L E ,
C O L O M B I A , U R U G U AY
F E D E R I C O T E J A D O
G E R A R D O R O J A S
A R M A N D O T O R R A D O
[102-18, 102-19, 102-20, 102-22, 102-23]
79
A U D I T C O M M I T T E E
Duties and Responsibilities include:
• Making recommendations to the Board of Directors
regarding candidates for independent auditors of the
Company, hiring conditions, scope of professional work to
be done, and overseeing the same.
• Being the channel of communication between the Board
of Directors and the independent auditors, as well as
ensuring the independence and objectivity of the latter.
• Reviewing the work program, letters of observations,
the reports from internal and independent auditors, and
informing the Board on the results.
• Meeting periodically with the internal and independent
auditors without the presence of Company officials, to
know their comments and observations regarding the
status of the audits.
• Providing an opinion to the Board of Directors on the
policies and criteria used in preparing financial information
and the issuing process, assuring its reliability, quality, and
transparency.
• Contributing to the defining of overall internal control
guidelines, those of internal audit, and evaluating its
effectiveness.
• Verifying adherence to mechanisms established for control
of any risks which the Company may face.
• Coordinating the work of the internal auditor, and that of
the Statutory auditor, if the case.
• Assisting in the creation of policies governing transactions
with related parties.
• Analyzing and evaluating transactions with related parties,
to make recommendations to the Board of Directors.
• Deciding on the hiring of third-party experts who issue
their opinion on transactions with related parties or any
other matters that enable the proper execution of their
duties.
• Verifying compliance with the Code of Ethics and with the
use of the system for reporting incorrect actions and the
proper protection of any informants.
• Assisting the Board of Directors for the analysis of
contingency plans and data recovery.
• Verifying the existence of proper mechanisms needed to
ensure that the Company is in full compliance with all legal
provisions.
A U D I T C O M M I T T E E
I V Á N M O G U E L
P R E S I D E N T
J U L I O G U T I É R R E Z
M E M B E R
R A Ú L M É N D E Z
M E M B E R
[102-18, 102-19, 102-22]
E L I Z A B E T H G A R R I D O
S E C R E T A R Y
(NON M EM BER)
80
C O R P O R A T E P R A C T I C E S C O M M I T T E E
Duties and Responsibilities include:
• Making suggestions to the Board of Directors on criteria
for appointing or removing the CEO and/or any top-level
executives.
• Advising the Board of Directors on evaluation and
compensation criteria for the CEO and top-level executives.
• Recommending to the Board of Directors the criteria for
determining separation pay for the CEO and/or any top-
level executives.
• Recommending compensation criteria for the Directors.
• Analyzing any proposal made by the CEO on the structure
and compensation criteria for Company personnel.
• Analyzing and presenting to the Board of Directors, for
their approval, the declaration for deeming the Company
socially responsible, the Code of Ethics, and the system for
reporting incorrect actions and the proper protection of
any informants.
• Analyzing and suggesting to the Board of Directors its
approval of the formal succession system of the CEO and
any top-level executives, and verifying compliance with
the same.
• Reviewing and suggesting to the Board of Directors the
strategic vision for the Company, to ensure its stability
and permanence through time.
• Analyzing overall guidelines presented by the CEO on
determining the strategic plan for the Company and
following up on its implementation.
• Evaluating any investment and funding policies suggested
by the CEO and providing an opinion to the Board of
Directors.
• Giving an opinion on the premises for the annual budget
present by the CEO and following up on its use and
corresponding control system.
• Evaluating mechanisms presented by the CEO on the
identification, management, and control of any risks the
Company may face, and present an opinion to the Board
of Directors.
• Evaluating criteria presented by the CEO on revealing any
risks faced by the Company, and present an opinion to the
Board of Directors.
C O R P O R A T E P R E C T I C E S
C O M M I T T E E
J U L I O G U T I É R R E Z
P R E S I D E N T
C O S M E T O R R A D O
M E M B E R
L E Ó N K R A I G
M E M B E R
A D R I A N A N O R E Ñ A
M E M B E R
[102-18, 102-22, 102-27]
E L I Z A B E T H G A R R I D O
S E C R E T A R Y
(NON M EM BER)
81
G R I
C O N T E N T
Standard
Disclosure
GRI 102: General Disclosures
Company Profile
Global Compact
Principle
Page
102-1
102-2
102-4
102-5
102-6
102-7
102-8
102-9
102-10
Estrategy
102-14
Name of the organization
Activities, brands, products, and services
Location of operations
Ownership and legal form
Markets served
Scale of the organization
Information on employees and other workers
GC 6
Supply chain
Significant changes to the organization and its supply chain
Statement from senior decision maker
Ethics and integrity
3
14
14, 45
78
14
14
18
44
14
3
102-16
102-17
Gobernance
102-18
102-19
102-20
102-21
102-22
102-23
102-27
102-31
102-33
102-34
Values, principles, standards, and norms of behavior
Mechanisms for advice and concerns about ethics
GC 10
GC 10
9, 75
75
Governance structure
Delegating authority
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
Collective knowledge of highest governance body
Review of economic, environmental, and social topics
Communicating critical concerns
Nature and total number of critical concerns
78, 79, 80, 81
78,79, 80
78, 79
73
78, 79, 80, 81
78, 79
81
71
71
71
82
G R I
C O N T E N T
Global Compact
Principle
Standard
Disclosure
Stakeholder engagement
102-40
102-42
102-43
102-44
List of stakeholder groups
Identifying and selecting stakeholders
Approach to stakeholder engagement
Key topics and concerns raised
Reporting practice
102-45
102-46
102-47
102-50
102-51
102-52
Entities included in the consolidated financial statements
Defining report content and topic Boundaries
List of material topics
Reporting period
Date of most recent report
Reporting cycle
ECONOMICS
GRI 201: Economic performance
201-1
Direct economic value generated and distributed
GRI 203: Indirect economic impacts
203-1
203-2
Infrastructure investments and services supported
Significant indirect economic impacts
GRI 205: Anti-corruption
205-1
205-2
205-3
Operations assessed for risks related to corruption
Communication and training about anti-corruption policies and procedures
Confirmed incidents of corruption and actions taken
GC 10
GC 10
GC 10
Page
73
73
73
71, 73
8
71
71
3, 71
71
71
7, 8
7, 8
7, 8
76
76
76
83
G R I
C O N T E N T
Standard
Disclosure
ENVIRONMENTAL
GRI 301: Material
301-2
Recycled input materials used
GRI 302: Energy
302-1
302-3
302-4
302-5
Energy consumption within the organization
Energy intensity
Reduction of energy consumption
Reductions in energy requirements of products and services
GRI 303: Water
303-3
Water recycled and reused
GRI 305: Emissions
305-1
305-2
305-4
305-5
Direct (Scope 1) GHG emissions
Energy indirect (Scope 2) GHG emissions
GHG emissions intensity
Reduction of GHG emissions
GRI 306: Effluents and waste
306-2
SOCIAL
Waste by type and disposal method
GRI 401: Employment
401-1
401-2
401-3
New employee hires and employee turnover
Benefits provided to full-time employees that are not provided to temporary or
part-time employees
Parental leave
Global Compact
Principle
Page
GC 7, 8
GC 7, 8
GC 8
GC 8, 9
GC 8, 9
GC 8
GC 7, 8
GC 7, 8
GC 8
GC 8, 9
GC7, 8
GC 6
GC 6
38
36
36
36
36
37
36
36
36
36
38
19
23
23
84
G R I
C O N T E N T
Standard
Disclosure
GRI 403: Occupational Health and Safety
403-2
Types of injury and rates of injury, occupational diseases, lost days, and
absenteeism, and number of work-related fatalities
GRI 404: Training and Education
404-2
Programs for upgrading employee skills and transition assisyance programs
GRI 405: Diversity and Equal Opportunity
405-1
Diversity of governance bodies and employees
GRI 406: Non-discrimination
406-1
Incidents of discrimination and corrective actions taken
GRI 410: Security Practices
410-1
Security personnel trained in human rights policies or procedures
GRI 412: Human Rights Assessment
412-2
Employee training on human rights policies or procedures
GRI 414: Supplier Social Assessment
414-1
New suppliers that were screened using social criteria
GRI 415: Public Policy
415-1
Political contributions
GRI 417: Marketing and Labeling
417-1
Requirements for product and service information and labeling
GRI 418: Customer Privacy
Global Compact
Principle
Page
46,48
GC 6
GC 6
GC 1
GC 1
GC 2
GC 10
19
20
20
75
75
47
75
30
418-1
Substantiated complaints concerning breaches of customer
privacy and losses of customer data
GC 10
76, 77
85
Alsea, S.A.B. de C.V. and Subsidiaries
Independent Auditors’ Report and Consolidated
Financial Statements for 2018, 2017 and 2016
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
87
92
93
94
95
96
98
86
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, 2018, 2017 and 2016, 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, 2018, 2017 and 2016, 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.
87
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, 2018, 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.
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.
88
Acquisition of Sigla
In December 2018, the Entity concluded the acquisition of Sigla, S.A. for which Food Service Project, S.L. (Grupo Zena)
(operator in Spain) acquired 100% of the common stock of Sigla, S.A., an entity established under the laws of Spain, which
together with its subsidiaries is known as Grupo VIPS. The consideration paid for the acquisition was €500 million after
debt payable in cash (equivalent to MX $11,411,369 (thousand)). At the same time, the previous shareholders of Grupo VIPS,
the Arango family and ProA Capital, reinvested €75 million (equivalent to MX $1,711,703 (thousand)), through a capital
increase in Grupo Zena, after which they became minority shareholders. There is a risk that the Entity may not adequately
record the initial allocation of the acquisition cost of the values of the net assets acquired and they are in a measurement
phase according to IFRS 3, Business Combination.
Our audit procedures to cover the risk derived from the acquisition of Sigla, included:
Reviewing the support documentation for the acquisition; reviewing the cash flow from this transaction; reviewing the
preliminary allocation of the acquisition cost of the values of the net assets acquired and the fact they are in a measurement
phase according to IFRS 3, and reviewing the disclosures included in Note 19 to the consolidated financial statements. The
results of our audit tests were reasonable.
Option to sell the noncontrolling interest of Grupo Zena
We assumed a risk of material misstatement related to recognition and valuation of the options to sell the noncontrolling
interest of Grupo Zena which give rise to such risks.
In October 2014, the Entity acquired Grupo Zena; as a result, Grupo Zena has the right to sell its noncontrolling interest, for
which the deadline to perform the sale is October 2018, which was terminated and formalized through a new agreement
to be made in April 2019. In compliance with IFRS 9, Financial Instruments, the present value of the estimated debt that
will be liquidated at the time the sale option is exercised should be recorded according to the clauses of the new contract.
As discussed in the key matter Acquisition of Sigla, the majority stockholders of Grupo Zena have the right to sell their
noncontrolling interest, with a deadline to complete the sale in 2025, which will take place through the delivery of a variable
number of shares of Alsea. In compliance with IFRS 9, Financial Instruments, it should be recorded as a financial derivative.
Our audit procedures to cover the risk derived from the option to sell the noncontrolling interest included:
Reviewing the new agreements established between the investors; reviewing the correct accounting record to recognize
the revaluation of the financial liability, and recognition of the financial derivative and reviewing the disclosures included in
Note 19 to the consolidated financial statements, transactions originated from such acquisitions. The results of our audit
tests 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.
89
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.
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.
90
- 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.
- 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
April 1, 2019
91
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Financial Position
At December 31, 2018, 2017 and 2016
(Figures in thousands of Mexican pesos)
Assets
Current assets
Cash and cash equivalents
Customers, net
Value-added tax and other
recoverable taxes
Other accounts receivable
Inventories, net
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
improvements and property, net
Notes
2018
2017
2016
6
7
8
9
14
10
$ 1,987,857 $ 1,540,403 $ 2,547,842
708,380
814,032
920,264
286,360
358,222
363,120
211,086
2,120,208
330,324
2,009,779
245,258
1,575,363
70,340
87,236
-
404,969
5,894,852
411,563
5,657,791
402,190
5,842,153
678,260
414,909
362,618
14,296
-
1,035,975
19,167,225
15,772,479
13,673,445
Intangible assets, net
Deferred income taxes
11 and 16
20
Total long-term assets
Total assets
25,822,831
2,764,884
48,447,496
15,215,336
2,068,996
32,356,370
$ 54,342,348 $ 39,551,619 $ 38,198,523
15,358,006
2,348,434
33,893,828
See accompanying notes to the consolidated financial statements.
Liabilities and stockholders’ equity
Current liabilities
Current maturities of long-term debt
Current maturities of financial lease liabilities
Suppliers
Factoring of suppliers
Accounts payable and accrued liabilities
Accrued expenses and employee benefits
Option to sell the noncontrolling 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
Repurchased shares
Retained earnings
Reserve for repurchase of shares
Reserve for obligation under put option of
non-controlling interest
Other comprehensive income items
Stockholders' equity attributable to the
controlling interest
Non-controlling interest
Total stockholders’ equity
Total liabilities and stockholders’ equity
Notes
2018
2017
2016
17 $
12
19
20
17
12
19
18
20
20
21
23
2,588,266 $
6,799
4,457,901
757,976
679,767
3,087,617
2,506,006
472,175
-
14,556,507
1,087,466 $
6,799
3,960,806
573,097
445,594
3,195,217
3,280,064
125,512
19,892
12,694,447
16,038,416
284,375
-
6,983,244
802,211
-
2,073,713
151,988
26,333,947
40,890,454
478,749
8,625,720
(1,469)
3,906,447
480,169
6,693,454
294,644
-
6,980,452
122,711
-
1,966,100
196,685
16,254,046
28,948,493
478,749
8,625,720
(2,880)
3,607,287
260,384
1,107,238
6,799
3,901,972
239,907
669,249
2,531,885
-
289,484
22,946
8,769,480
9,743,806
300,835
3,185,096
3,988,845
67,524
18,846
1,887,473
109,166
19,301,591
28,071,071
478,749
8,625,720
(2,150)
3,123,193
320,231
19 and 23
(2,013,801)
(2,673,053)
(2,673,053)
97,337
(814,647)
(758,686)
11,573,152
9,481,560
9,114,004
24
$
1,878,742
13,451,894
54,342,348 $
1,121,566
10,603,126
39,551,619 $
1,013,448
10,127,452
38,198,523
92
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended December 31, 2018, 2017 and 2016
(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
Equity in results of associated companies
Income before income taxes
Income tax expense
Consolidated net income from continuing operations
Net income for the year attributable to:
Controlling interest
Non-controlling interest
Earnings per share:
Notes
2018
2017
2016
26
27
12
28
29
19
14
20
$
46,156,590
$
42,529,121
$
37,701,867
14,187,508
12,923,189
11,779,630
3,944,744
3,114,728
4,031,877
2,751,675
3,274,251
2,388,235
21,648,748
19,635,132
17,382,096
(32,724)
(56,526)
1,627,938
(114,806)
(636)
1,837,616
-
1,837,616
698,294
(527,348)
(44,925)
1,307,406
94,968
269,133
110,651
(37,060)
881,643
407,768
(73,193)
2,088,014
1,587,846
(437)
2,087,577
835,428
67,877
1,655,723
529,233
$
$
$
1,139,322
$
1,252,149
$
1,126,490
953,251
$
1,089,498
$
996,471
186,071
$
162,651
$
130,019
Basic and diluted net earnings per share from
continuing (cents per share)
25
$
1.14
$
1.31
$
1.19
Basic and diluted net earnings per share from continuing
operations (cents per share)
25
$
1.14
$
1.31
$
1.19
See accompanying notes to the consolidated financial statements.
93
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income
For the years ended December 31, 2018, 2017 and 2016
(Figures in thousands of Mexican pesos)
Consolidated net income
$
1,139,322
$
1,252,149
$
1,126,490
2018
2017
2016
Items that may be reclassified subsequently to income:
Valuation of financial instruments, net of income taxes
149,109
(29,243)
(94,821)
Remeasurement of defined benefit obligation, net of income taxes
26,887
(64,213)
Inflation effect, net of income taxes
545,766
-
-
-
Cumulative translation adjustment, net of income taxes
190,222
911,984
37,495
(55,961)
72,739
(22,082)
Total comprehensive income, net of income taxes
$
2,051,306
$
1,196,188
$
1,104,408
Comprehensive income for the year attributable to:
Controlling interest
Non-controlling interest
$
$
1,865,235
$
1,033,537
$
974,389
186,071
$
162,651
$
130,019
See accompanying notes to the consolidated financial statements.
94
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2018, 2017 and 2016
(Figures in thousands of Mexican pesos)
Contributed capital
Retained earnings
Other comprehensive income items
Premium
on
issuance
of share
Capital
stock
Repurchased
shares
Reserve for
repurchase
of shares
Reserve for
obligation under
put option of
non-controlling
interest
Legal
reserve
Retained
earnings
Inflation
effect
Valuation
of financial
instruments
Cumulative
translation
adjustment
Remeasurement
of defined
benefit
obligation
Total
controlling
interest
Non-
controlling
interest
Total
stockholders’
equity
$
478,749 $
8,613,587 $
(546) $
517,629 $
(2,673,053) $
100,736 $
2,647,733 $
- $
(87,702) $
(648,902) $
- $
8,948,231 $
899,920 $
9,848,151
-
-
-
-
-
-
-
-
(1,995)
(248,503)
12,133
391
51,105
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(644,771)
57,888
(34,761)
(103)
996,471
478,749
8,625,720
(2,150)
320,231
(2,673,053)
100,736
3,022,457
-
-
-
-
-
-
-
-
-
-
(2,880)
(338,644)
2,150
278,797
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(567,763)
(37,641)
1,089,498
478,749
8,625,720
(2,880)
260,384
(2,673,053)
100,736
3,506,551
-
-
-
-
-
-
-
-
-
-
-
-
(1,469)
(150,735)
2,880
370,520
-
-
-
-
-
-
-
-
-
-
-
659,252
-
-
-
-
-
-
-
-
-
-
(654,091)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(94,821)
72,739
(182,523)
(576,163)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(29,243)
37,495
(64,213)
(250,498)
63,629
(644,771)
57,888
(34,761)
(103)
974,389
-
-
(250,498)
63,629
(45,178)
(689,949)
-
-
28,687
130,019
57,888
(34,761)
28,584
1,104,408
9,114,004
1,013,448
10,127,452
(341,524)
280,947
(567,763)
(37,641)
1,033,537
-
-
(159,616)
105,083
162,651
(341,524)
280,947
(727,379)
67,442
1,196,188
(211,766)
(538,668)
(64,213)
9,481,560
1,121,566
10,603,126
-
-
-
(152,204)
-
-
-
-
-
-
-
-
-
-
-
-
373,400
(654,091)
-
-
(66,052)
(152,204)
373,400
(720,143)
659,252
613,029
1,272,281
-
24,128
186,071
24,128
2,051,306
$
478,749 $
8,625,720 $
(1,469) $
480,169 $
(2,013,801) $
100,736 $
3,805,711 $
545,766 $
(62,657) $
(348,446) $
(37,326) $
11,573,152 $
1,878,742 $
13,451,894
953,251
545,766
149,109
190,222
26,887
1,865,235
Balances at January
1, 2016
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
Repurchase of shares
(Note 23a)
Sales of shares (Note 23a)
Dividend paid (Note 23a)
Other movements
Comprehensive income
Balances at December
31, 2017
Repurchase of shares
(Note 23a)
Sales of shares (Note 23a)
Dividend paid (Note 23a)
Acquisition of business
and sale option for
uncontrolled participation
(Note 23)
Other movements
Comprehensive income
Balances at December
31, 2018
See accompanying notes to the consolidated financial statements.
95
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2018, 2017 and 2016
(Figures in thousands of Mexican pesos)
Cash flows from operating activities:
Consolidated net income
Adjustment for:
Income taxes
Equity in results of associated companies
Interest expense
Interest income
Notes
2018
2017
2016
$
1,139,322
$
1,252,149
$
1,126,490
698,294
-
1,627,938
(56,526)
835,428
437
1,307,406
(44,925)
529,233
(67,877)
881,643
(37,060)
87,674
181,099
14,490
-
(70,374)
-
(114,806)
3,114,727
6,426,249
217,292
57,151
57,253
(102,897)
(1,822)
184,879
343,403
(709,011)
539,551
(6,287)
3,647
-
(608,817)
94,968
2,751,675
5,773,067
(211,884)
(85,066)
(434,416)
(61,664)
58,834
333,190
(75,192)
(731,587)
46,794
23,306
-
-
-
407,768
2,388,235
5,242,922
(16,072)
24,027
(145,375)
(38,902)
696,528
239,907
744,117
(967,746)
(55,514)
580
Disposal of store equipment, leasehold improvements
and property
Impairment goodwill
Profit on sale of fixed assets
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
Factoring of suppliers
Accrued expenses and employee benefits
Income taxes paid
Other liabilities
Labor obligations
Net cash flows provided by operating activities
7,005,761
4,635,382
5,724,472
See accompanying notes to the consolidated financial statements.
96
Cash flows from investing activities:
Interest collected
Store equipment, leasehold improvements and property
Intangible assets
10
11
Disposal of investment of associated - Grupo Axo
Acquisition in investment in shares of associated companies
Acquisitions of business, net of cash acquired
1 and 15
(10,997,653)
Net cash flows used in investing activities
$
(15,565,576)
$
(3,555,052)
$
(4,855,209)
(Continued)
Notes
2018
2017
2016
56,526
44,925
37,060
(4,253,224)
(4,695,671)
(4,048,244)
(356,929)
-
(14,296)
(511,716)
1,607,410
-
-
(550,998)
-
-
(293,027)
$
21,515,017
$
1,160,197
$
5,820,156
(9,470,775)
(4,230,321)
(1,036,032)
1 and 18
-
-
3,000,000
-
-
(2,500,000)
(1,627,938)
(1,307,406)
(720,143)
637,157
(10,269)
(152,204)
(1,690,050)
373,400
(727,379)
-
(6,191)
(341,524)
-
280,947
(881,643)
(689,949)
-
(128,767)
(250,498)
-
63,629
396,896
Cash flows from financing activities:
Bank loans
Repayments of loans
Issuance of debt instruments
Payments for debt instruments
Interest paid
Dividends paid
Cash received non-controlling stake
Payments for financial leasing
Repurchase of shares
Sigla debt payment
Sales of shares
Net cash flows (used in) provided by financing activities
8,854,195
(2,171,677)
Net increase (decrease) in cash and cash equivalents
294,380
(1,091,347)
1,266,159
Exchange effects on value of cash
Cash and cash equivalents:
At the beginning of the year
At end of year
153,074
83,908
85,869
1,540,403
2,547,842
1,195,814
$
1,987,857
$
1,540,403
$
2,547,842
See accompanying notes to the consolidated financial statements.
(Concluded)
97
ALSEA, S.A.B. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2017 and 2016
(Figures in thousands of Mexican pesos)
1. Activity, main operations and significant events
Operations
Alsea, S.A.B. de C.V. and Subsidiaries (Alsea or the Entity) was incorporated as a variable income stock company on May 16, 1997 in Mexico.
The Entity’s domicile is Av. Revolución 1267 Int. 20 and 21,
Col. Alpes, Delegación Álvaro Obregón, C.P. 01040, Mexico City, Mexico.
The Entity was incorporated for a period of 99 years, beginning on the date in which the deed was signed, which was April 7, 1997.
For disclosure purposes in the notes to the consolidated financial statements, reference made to pesos, “$” or MXP is for thousands of
Mexican pesos, and reference made to dollars is for US dollars.
Alsea is mainly engaged in operating fast food restaurants “QSR” cafes and casual dining “Casual Dining”. The brands operated in Mexico
are Domino’s Pizza, Starbucks, Burger King, Chili’s Grill & Bar, California Pizza Kitchen, P.F. Chang’s, Italianni’s, The Cheese Cake Factory,
Vips, 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 development 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 2017 it operates the Archie’s brand. In Brazil, the P.F brand operates. Chang’s.
In Spain, Alsea operates the brands Foster’s Hollywood, Cañas and Tapas, Il Tempietto, La Vaca Argentina, Burger King and Domino’s Pizza
and as of December 31, 2018, Alsea operates VIPS, VIPS Smart, Starbucks, GINOS, Fridays, and Wagamama.
Significant events
a. Acquisition of Sigla, S.A. - In October 2018, through its subsidiary Food Service Project, S.L. (Grupo Zena), Alsea entered into a
purchase and sale agreement whereby, subject to the conditions contained therein, it acquired from the majority stockholders and
founders, led by the Arango family and ProA Capital Iberian Buyout Fund II, F.C.R., a Spanish company, 100% of the common stock of
the company known as Sigla, S.A., established under the laws of Spain and which, in conjunction with its subsidiaries is known as Grupo
VIPS, and is engaged in the exploitation of multibrand restaurant establishments in Spain, of the brands VIPS, VIPS Smart, Starbucks,
GINOS, Fridays, and Wagamama, for the price of €500 billion after debt (equivalent to MX $11,411,369) (hereinafter the acquisition
price). Alsea consolidates the financial information of Grupo VIPS as of December 27, 2018, when the acquisition was formalized (see
accounting effects in Note 15).
The business of Grupo VIPS comprises more than 400 establishments between corporate and franchises, including a total of six brands,
which address the segments of Casual Meals, Fast-Casual, Family Restaurants and Cafeterias in Spain, Portugal and Andorra.
98
b. Development of the Starbucks brand in France - In December 2018, Alsea entered into a development contract with Starbucks
Coffee Company to obtain the total license and acquire the operations of Starbucks corporate and stores in France. This transaction
resulted in Alsea acquiring 170 units (70 corporate and 100 franchises), and the rights to operate, sub-franchise and generate expansion
opportunities for Starbucks stores in France. Alsea concluded the purchase process on January 27, 2019.
c. Development of the Burger King brand in Mexico - In March 2018, Alsea ceased to be the master franchisee of the Burger King
brand in Mexico. Alsea will continue operating 181 Burger King stores in Mexico, as the biggest franchisee in the country, enhancing
the brand’s ongoing improvement process. Alsea will actively continue with its development plans for Burger King in the other countries
where it operates (Argentina, Chile, Colombia and Spain).
d. 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.
e. Placement of debt instruments - On October 4, 2017, Alsea concluded the placement 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 October 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.
f. 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, beginning operations in early 2018.
g. 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 obtained two bilateral loans
with Bank of America, N.A. and Grupo Financiero Santander Mexico within five years for a total of $2,684,000, resources to pay in
advance the $2,500,000 of the debt instruments issued in June 2013 maturing in June 2018, and the remaining $173,617 was used to
capital investment purposes as part of the store expansion program of the different brands of the Entity’s portfolio.
h. Acquisition of Sub-franchisee assets of Domino’s Pizza Mexico - On September 2, 2016, Alsea concluded the acquisition of
100% of the assets of 22 Domino’s Pizza stores from a sub-franchisee who prior to this acquisition had exclusive rights to develop and
operate the brand in certain areas of the State of Mexico, within the metropolitan area of Mexico City and the State of Hidalgo. This
purchase consisted of the acquisition of all the assets of the 22 units, as well as the rights and obligations that derive from the sub-
franchise agreements for the operation of said establishments.
i. 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.
99
j. 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.
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, 2018.
New and amended IFRS Standards that are effective for the current year
Impact of initial application of IFRS 9, Financial Instruments
In the current year, the Entity has applied IFRS 9, Financial Instruments, (as revised in July 2014) and the related consequential
amendments to other IFRS Standards that are effective for an annual period that begins on or after January 1, 2018. The transition
provisions of IFRS 9 allow an entity not to restate comparatives.
IFRS 9 introduced new requirements for:
1. The classification and measurement of financial assets and financial liabilities,
2. Impairment of financial assets, and
3. General hedge accounting.
Details of these new requirements as well as their impact on the Entity’s consolidated financial statements are described below.
The Entity has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9.
(a) Classification and measurement of financial assets
The date of initial application (i.e. the date on which the Entity has assessed its existing financial assets and financial liabilities
in terms of the requirements of IFRS 9) is January 1, 2018. Accordingly, the Entity has applied the requirements of IFRS 9 to
instruments that continue to be recognized as at January 1, 2018 and has not applied the requirements to instruments that have
already been derecognized as at January 1, 2018.
All recognized financial assets that are within the scope of IFRS 9 are required to be measured subsequently at amortized cost or fair value on
the basis of the Entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.
Specifically:
• Debt instruments 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 amount outstanding, are measured
subsequently at amortized cost;
100
• Debt instruments that are held within a business model whose objective is both to collect the contractual cash flows and to sell
the debt instruments, and that have contractual cash flows that are solely payments of principal and interest on the principal
amount outstanding, are measured subsequently at fair value through other comprehensive income (FVTOCI);
• All other debt investments and equity investments are measured subsequently at fair value through profit or loss (FVTPL).
Despite a foregoing, the Entity may make the following irrevocable election / designation at initial recognition of a financial asset:
• The Entity may irrevocably elect to present subsequent changes in fair value of an equity investment that is neither held for
trading nor contingent consideration recognized by an acquirer in a business combination in other comprehensive income; and
• The Entity may irrevocably designate a debt investment that meets the amortized cost or FVTOCI criteria as measured at
FVTPL if doing so eliminates or significantly reduces an accounting mismatch.
In the current year, the Entity has not designated any debt investments that meet the amortized cost or FVTOCI criteria as
measured at FVTPL.
When a debt investment measured at FVTOCI is derecognized, the cumulative gain or loss previously recognized in other
comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. When an equity investment
designated as measured at FVTOCI is derecognized, the cumulative gain or loss previously recognized in other comprehensive
income is subsequently transferred to retained earnings.
Debt instruments that are measured subsequently at amortized cost or at FVTOCI are subject to impairment. See (b) below.
Reviewed and assessed the Entity’s existing financial assets as at 1 January 2018 based on the facts and circumstances that
existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Entity’s financial
assets as regards their classification and measurement.
• The Entity’s investments in redeemable notes were classified as available-for-sale financial assets under IAS 39, Financial
Instruments: Recognition and Measurement. The notes have been reclassified as financial assets at amortized cost because
they are held within a business model whose objective is to collect the contractual cash flows and they have contractual cash
flows that are solely payments of principal and interest on the principal amount outstanding;
• The Entity’s investment in corporate bonds that were classified as available-for-sale financial assets under IAS 39 have been
classified as financial assets at FVTOCI because they are held within a business model whose objective is both to collect
contractual cash flows and to sell the bonds, and they have contractual cash flows that are solely payments of principal and
interest on principal outstanding. The change in the fair value on these redeemable notes continues to accumulate in the
investment revaluation reserve until they are derecognized or reclassified;
• There is no change in the measurement of the Entity’s investments in equity instruments that are held for trading; those
instruments were and continue to be measured at FVTPL;
101
• Financial assets classified as held-to-maturity and loans and receivables under IAS 39 that were measured at amortized cost
continue to be measured at amortized cost under IFRS 9 as they are held within a business model to collect contractual cash
flows and these cash flows consist solely of payments of principal and interest on the principal amount outstanding.
None of the other reclassifications of financial assets has had an impact on the Entity’s financial position, gains or losses, other
comprehensive income or total other integrated results in that year.
(b) Impairment of financial assets
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 the 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 of the financial assets.
In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.
Specifically, IFRS 9 requires the Entity to recognize a loss allowance for expected credit losses on:
(1) Debt investments measured subsequently at amortized cost or at FVTOCI,
(2) Lease receivables,
(3) Trade receivables and contract assets, and
(4) Financial guarantee contracts to which the impairment requirements of IFRS 9 apply
In particular, IFRS 9 requires the Entity to measure the loss allowance for a financial instrument at an amount equal to the lifetime
expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or
if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial
instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial
asset), the Entity is required to measure the loss allowance for that financial instrument at an amount equal to 12-months
ECL. IFRS 9 also requires a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade
receivables, contract assets and lease receivables in certain circumstances.
The consequential amendments to IFRS 7 have also resulted in more extensive disclosures about the Entity’s exposure to credit
risk in the consolidated financial statements.
(c) Classification and measurement of financial liabilities
A significant change introduced by IFRS 9 in the classification and measurement of financial liabilities relates to the accounting
for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the issue.
Specifically, IFRS 9 requires that the changes in the fair value of the financial liability that is attributable to changes in the credit
risk of that liability be 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 profit or loss. Changes in fair value
attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss, but are instead transferred to
retained earnings when the financial liability is derecognized. Previously, under IAS 39, the entire amount of the change in the
fair value of the financial liability designated as at FVTPL was presented in profit or loss.
102
This change in accounting policy has affected the Entity’s accounting for changes in the fair value of redeemable cumulative
preference shares issued by the Entity in the current year that were designated by the Entity on initial recognition as financial
liabilities at FVTPL.
Apart from the above, the application of IFRS 9 has had no impact on the classification and measurement of the Entity’s
financial liabilities.
Please refer to (e) below and (f) below for further details regarding the change in classification upon the application of IFRS 9.
(d) General hedge accounting
The new general hedge accounting requirements retain the three types of hedge accounting. However, 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 replaced with the principle of an ‘economic relationship’. Retrospective assessment of
hedge effectiveness is also no longer required. Enhanced disclosure requirements about the Entity’s risk management activities
have also been introduced.
In accordance with IFRS 9’s transition provisions for hedge accounting, the Entity has applied the IFRS 9 hedge accounting
requirements prospectively from the date of initial application on January 1, 2018. The Entity’s qualifying hedging relationships in
place as at January 1, 2018 also qualify for hedge accounting in accordance with IFRS 9 and were therefore regarded as continuing
hedging relationships. No rebalancing of any of the hedging relationships was necessary on January 1, 2018. As the critical terms
of the hedging instruments match those of their corresponding hedged items, all hedging relationships continue to be effective
under IFRS 9’s effectiveness assessment requirements. The Entity has also not designated any hedging relationships under IFRS
9 that would not have met the qualifying hedge accounting criteria under IAS 39.
IFRS 9 requires hedging gains and losses to be recognized as an adjustment to the initial carrying amount of non-financial
hedged items (basis adjustment). In addition, transfers from the hedging reserve to the initial carrying amount of the hedged
item are not reclassification adjustments under IAS 1 Presentation of Financial Statements and hence they do not affect other
comprehensive income. Hedging gains and losses subject to basis adjustments are categorized as amounts that will not be
subsequently reclassified to profit or loss in other comprehensive income. This is consistent with the Entity’s practice prior to the
adoption of IFRS 9.
Consistent with prior periods, when a forward contract is used in a cash flow hedge or fair value hedge relationship, the Entity has
designated the change in fair value of the entire forward contract, i.e. including the forward element, as the hedging instrument.
When the option contracts are used to hedge the forecast transactions, the Entity designates only the intrinsic value of the options
as the hedging instrument. Under IAS 39 the changes in the fair value of time value of option (i.e. non-designated component)
were recognized immediately in profit or loss. Under IFRS 9, the changes in the time value of the options that relate to the hedged
item (‘aligned time value’) are recognized in other comprehensive income and accumulated in the cost of hedging reserve within
equity. The amounts accumulated in equity are either reclassified to profit or loss when the hedged item affects profit or loss or
removed directly from equity and included in the carrying amount of non-financial item. IFRS 9 requires that the accounting for
non-designated time value of option should be applied retrospectively. This only applies to hedging relationships that existed at
January 1, 2017 or were designated thereafter.
103
Apart from this, the application of the IFRS 9 hedge accounting requirements has had no other impact on the results and financial
position of the Entity for the current and/or prior years. Please refer to Note 22 (c) for detailed disclosures regarding the Entity’s
risk management activities.
(e) Disclosures in relation to the initial application of IFRS 9
There were no financial assets or financial liabilities which the Entity had previously designated as at FVTPL under IAS 39 that were
subject to reclassification or which the Entity has elected to reclassify upon the application of IFRS 9. There were no financial assets or
financial liabilities which the Entity has elected to designate as at FVTPL at the date of initial application of IFRS 9.
(f) Impact of initial application of IFRS 9 on financial performance
The application of IFRS 9 has had no impact on the consolidated cash flows of the Entity.
Impact of application of IFRS 15, Revenue from Contracts with Customers
In the current year, the Entity has applied IFRS 15, Revenue from Contracts with Customers (as amended in April 2016), which is
effective for an annual period that begins on or after January 1, 2018. IFRS 15 introduced a 5-step approach to revenue recognition.
Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of the new requirements as well
as their impact on the Entity’s consolidated financial statements are described below.
IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what might more commonly be known as ‘accrued
revenue’ and ‘deferred revenue’, however the Standard does not prohibit an entity from using alternative descriptions in the
consolidated statement of financial position.
The Entity’s accounting policies for its revenue streams are disclosed in detail in note 3 below. Apart from providing more extensive
disclosures for the Entity’s revenue transactions, the application of IFRS 15 has not had a significant impact on the consolidated
financial position and/or financial performance of the Entity.
Impact of application of Other amendments to IFRS Standards and Interpretations
In the current year, the Entity has applied a number of amendments to IFRS Standards and Interpretations issued by the International
Accounting Standards Board (IASB) that are effective for an annual period that begins on or after January 1, 2018. Their adoption has
not had any material impact on the disclosures or on the amounts reported in these consolidated financial statements.
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 (for example, a non-refundable
deposit or deferred revenue).
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.
104
b. New and revised IFRS Standards in issue but not yet effective
The Entity has not applied the following new and revised IFRS Standards that have been issued but are not yet effective.
IFRS 16
Leases
Annual Improvements to IFRS Standards
2015-2017 Cycle
Amendments to IFRS 3, Business Combinations, IFRS 11, Joint
Arrangements, IAS 12, Income Taxes, and IAS 23, Borrowing Costs
Amendments to IAS 19, Employee Benefits
IFRIC 23
Plan Amendment, Curtailment or Settlement
Uncertainty over Income Tax Treatments
The directors do not expect that the adoption of the Standards listed above will have a material impact on the consolidated
financial statements of the Entity in future periods, except as noted below:
IFRS 16, Leases
General impact of application of IFRS 16, Leases
IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the consolidated
financial statements for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17, Leases, and
the related Interpretations when it becomes effective for accounting periods beginning on or after January 1, 2019. The date of
initial application of IFRS 16 for the Entity will be January 1, 2019.
In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Impact of the new definition of a lease
The Entity will make use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases
entered or modified before January 1, 2019.
The change in definition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts
on the basis of whether the use of an identified asset is controlled by the customer. Control is considered to exist if the customer has:
• The right to obtain substantially all of the economic benefits from the use of an identified asset; and
• The right to direct the use of that asset.
The Entity will apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified
on or after January 1, 2019 (whether it is a lessor or a lessee in the lease contract). In preparation for the first-time application of
IFRS 16, the Entity has carried out an implementation project. The project has shown that the new definition in IFRS 16 will not
change significantly the scope of contracts that meet the definition of a lease for the Entity.
Impact on Lessee Accounting
Operating leases
IFRS 16 will change how the Entity accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet.
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On initial application of IFRS 16, for all leases (except as noted below), the Entity will:
a) Recognize right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at
the present value of the future lease payments;
b) Recognize depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
c) Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented
within operating activities) in the consolidated cash flow statement.
Lease incentives (e.g. rent-free period) will be recognized as part of the measurement of the right-of-use assets and lease liabilities
whereas under IAS 17 they resulted in the recognition of a lease liability incentive, amortized as a reduction of rental expenses
on a straight-line basis.
Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace
the previous requirement to recognize a provision for onerous lease contracts.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office
furniture), the Entity will opt to recognize a lease expense on a straight-line basis as permitted by IFRS 16.
As at December 31, 2018, the Entity has non-cancellable operating lease commitments of $29,330,022.
A preliminary assessment indicates that $29,330,022 of these agreements relates to leases other than short-term leases and
leases of low-value assets, and therefore the Entity will recognize an asset for the right of use of $ 24,250,668 and a corresponding
lease liability of $24,250,668 with respect to all these leases.
Finance leases
The main differences between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement
of the residual value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Entity recognizes as part of its lease
liability only the amount expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed
as required by IAS 17. On initial application the Entity will present equipment previously included in property, plant and equipment
within the line item for right-of-use assets and the lease liability, previously presented within borrowing, will be presented in a
separate line for lease liabilities.
Impact on Lessor Accounting
Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types
of leases differently. However, IFRS 16 has changed and expanded the disclosures required, in particular regarding how a lessor
manages the risks arising from its residual interest in leased assets.
Under IFRS 16, an intermediate lessor accounts for the head lease and the sublease as two separate contracts. The intermediate
lessor is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the
head lease (and not by reference to the underlying asset as was the case under IAS 17).
Because of this change the Entity will reclassify certain of its sublease agreements as finance leases. As required by IFRS 9, an
allowance for expected credit losses will be recognized on the finance lease receivables. The leased assets will be derecognized
and finance lease asset receivables recognized. This change in accounting will change the timing of recognition of the related
revenue (recognized in finance income).
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Annual Improvements to IFRS Standards 2015-2017 Cycle Amendments to IFRS 3, Business Combinations, IFRS 11,
Joint Arrangements, IAS 12, Income Taxes, and IAS 23, Borrowing Costs
The Annual Improvements include amendments to four Standards
IAS 12, Income Taxes
The amendments clarify that an entity should recognize the income tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where the entity originally recognized the transactions that generated the
distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.
IAS 23, Borrowing Costs
The amendments 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 rate on
general borrowings.
IFRS 3, Business Combinations
The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, the entity applies the
requirements for a business combination achieved in stages, including remeasuring its previously held interest (PHI) in the joint operation
at fair value. The PHI to be remeasured includes any unrecognized assets, liabilities and goodwill relating to the joint operation.
IFRS 11, Joint Arrangements
The amendments to IFRS 11 clarify that when a party that participates in, but does not have joint control of, a joint operation that
is a business obtains joint control of such a joint operation, the entity does not remeasure its PHI in the joint operation.
All the amendments are effective for annual periods beginning on or after January 1, 2019 and generally require prospective
application. Earlier application is permitted.
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.
Amendments to IAS 19, Employee Benefits Plan Amendment, Curtailment or Settlement
The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit
liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the plan amendment (or
curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in a surplus
position). IAS 19 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment
or settlement) is determined in a second step and is recognized in the normal manner in other comprehensive income.
The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset)
have also been amended. An entity will now be required to use the updated assumptions from this remeasurement to determine
current service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of the net
interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the
net defined benefit liability (asset) as remeasured under IAS 19.99 with the discount rate used in the remeasurement (also taking
into account the effect of contributions and benefit payments on the net defined benefit liability (asset)).
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The amendments are applied prospectively. They apply only to plan amendments, curtailments or settlements that occur on or
after the beginning of the annual period in which the amendments to IAS 19 are first applied. The amendments to IAS 19 must be
applied to annual periods beginning on or after January 1, 2019, but they can be applied earlier if an entity elects to do so.
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.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The
Interpretation requires an entity to:
• Determine whether uncertain tax positions are assessed separately or as an entity; and
• Assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an
entity in its income tax filings:
- If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used
in its income tax filings.
- If no, the entity should reflect the effect of uncertainty in determining its accounting tax position.
The Interpretation is effective for annual periods beginning on or after January 1, 2019. Entities can apply the Interpretation with either
full retrospective application or modified retrospective application without restatement of comparatives retrospectively or prospectively.
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.
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 consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain properties
and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the
accounting policies below.
i.
Historical cost
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
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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.
iii. Re-expression of financial statements
As of July 1, 2018, accumulated inflation of the last three years in Argentina exceeded levels of 100%, for which reason the
Argentine peso was classified as a currency in a hyperinflationary economic environment. As a result, the financial statements
of the subsidiaries in that country, whose functional currency is the Argentine peso, have been re-expressed to adopt the
requirements of International Accounting Standard 29, Financial Information in Hyperinflationary Economies, (IAS 29) and have
been consolidated in accordance with the requirements of IAS 21, Effects of Variances in the Exchange Rates of the Foreign
Currency. The purpose of applying such requirements is to consider the changes in the general purchasing power of the Argentine
peso and thus present the financial statements in the current measurement unit at the date of the statement of financial position.
Argentina, for purposes of its financial reporting, updated its figures using the country’s inflation rate based on official indexes.
The financial statements before the re-expression were prepared using the historical costs method.
c. Basis of consolidation of financial statements
The consolidated financial statements incorporate the financial statements of Alsea, S.A.B. de C.V. and entities controlled by the Entity.
Control is obtained when the Entity:
• Has power over the investee;
•
• Has the ability to use its power to affect its returns.
Is exposed, or has rights, to variable returns from its involvement with the investee; and
The Entity reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more
of the 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.
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The Entity considers all relevant facts and circumstances in assessing whether or not the Entity’s voting rights in an investee are
sufficient to give it power, including:
• The size of the Entity’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
• Potential voting rights held by the Entity, other vote holders or other parties;
• Rights arising from other contractual arrangements; and
• Any additional facts and circumstances that indicate that the Entity has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Consolidation of a subsidiary begins when the Entity obtains control over the subsidiary and ceases when the Entity loses control of the
subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements
of income and other comprehensive income from the date the Entity gains control until the date when the Entity ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Entity and to the non-controlling
interests. Total comprehensive income of subsidiaries is attributed to the owners of the Entity and to the non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the
Entity’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Entity
are eliminated in full on consolidation.
Changes in the Entity’s ownership interests in existing subsidiaries
Changes in the Entity’s ownership interests in subsidiaries that do not result in the Entity losing control over the subsidiaries are accounted
for as equity transactions. The carrying amounts of the Entity’s interests and the non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Entity.
When the Entity loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between
(i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying
amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests.
All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Entity had
directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category
of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date
when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the
cost on initial recognition of an investment in an associate or a joint venture.
d. Financial instruments
Financial assets and financial liabilities are recognized when the Entity becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value.
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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.
e. Financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a 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.
All recognized financial assets are measured subsequently in their entirety at either amortized cost or fair value, depending on the
classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortized cost:
•
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash
flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive
income (FVTOCI):
•
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
By default, all other financial assets are measured subsequently at fair value through profit or loss (FVTPL).
Despite the foregoing, the Entity may make the following irrevocable election / designation at initial recognition of a financial asset:
•
•
the Entity may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive
income if certain criteria are met (see (iii) below); and
the Entity may irrevocably designate a debt investment that meets the amortized cost or FVTOCI criteria as measured at FVTPL
if doing so eliminates or significantly reduces an accounting mismatch (see (iv) below).
(i) Amortized cost and 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.
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For financial assets other than purchased or originated credit-impaired financial assets (i.e. assets that are credit-impaired on
initial recognition), 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) excluding expected credit losses, through the expected life of the debt instrument, or, where appropriate, a shorter
period, to the gross carrying amount of the debt instrument on initial recognition. For purchased or originated credit-impaired
financial assets, a credit-adjusted effective interest rate is calculated by discounting the estimated future cash flows, including
expected credit losses, to the amortized cost of the debt instrument on initial recognition.
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the
principal repayments, plus the cumulative amortization using the effective interest method of any difference between that
initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the
amortized cost of a financial asset before adjusting for any loss allowance.
Interest income is recognized using the effective interest method for debt instruments measured subsequently at amortized cost and
at FVTOCI. For financial assets other than purchased or originated credit-impaired financial assets, interest income is calculated by
applying the effective interest rate to the gross carrying amount of a financial asset, except for financial assets that have subsequently
become credit-impaired (see below). For financial assets that have subsequently become credit-impaired, interest income is recognized
by applying the effective interest rate to the amortized cost of the financial asset. If, in subsequent reporting periods, the credit risk on
the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired, interest income is recognized
by applying the effective interest rate to the gross carrying amount of the financial asset.
For purchased or originated credit-impaired financial assets, the Entity recognizes interest income by applying the credit-
adjusted effective interest rate to the amortized cost of the financial asset from initial recognition. The calculation does not
revert to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset is no
longer credit-impaired.
Interest income is recognized in profit or loss and is included in the “finance income - interest income” line item.
(ii) Debt instruments classified as at FVTOCI
The corporate bonds held by the Entity are classified as at FVTOCI. Fair value. The corporate bonds are initially measured at fair value plus
transaction costs. Subsequently, changes in the carrying amount of these corporate bonds as a result of foreign exchange gains and losses
(see below), impairment gains or losses (see below), and interest income calculated using the effective interest method (see (i) above) are
recognized in profit or loss. The amounts that are recognized in profit or loss are the same as the amounts that would have been recognized
in profit or loss if these corporate bonds had been measured at amortized cost. All other changes in the carrying amount of these corporate
bonds are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve.
When these corporate bonds are derecognized, the cumulative gains or losses previously recognized in other comprehensive
income are reclassified to profit or loss.
(iii) Equity instruments designated as at FVTOCI
On initial recognition, the Entity may make an irrevocable election (on an instrument-by-instrument basis) to designate
investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted if the equity investment is held for
trading or if it is contingent consideration recognized by an acquirer in a business combination.
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A financial asset is held for trading if:
It has been acquired principally for the purpose of selling it in the near term; or
•
• On initial recognition it is part of a portfolio of identified financial instruments that the Entity manages together and has
evidence of a recent actual pattern of short-term profit-taking; or
It is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
•
Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are
measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and
accumulated in the investments revaluation reserve. The cumulative gain or loss is not being reclassified to profit or loss on
disposal of the equity investments, instead, it is transferred to retained earnings.
Dividends on these investments in equity instruments are recognized in profit or loss in accordance with IFRS 9, unless the
dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the ‘finance income’ line
item in profit or loss.
The Entity has designated all investments in equity instruments that are not held for trading as at FVTOCI on initial application of IFRS 9.
(iv) Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI (see (i) to (iii) above) are measured
at FVTPL. Specifically:
•
Investments in equity instruments are classified as at FVTPL, unless the Entity designates an equity investment that is neither held
for trading nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition (see (iii) above).
• Debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria (see (i) and (ii) above) are classified as
at FVTPL. In addition, debt instruments that meet either the amortized cost criteria or the FVTOCI criteria may be designated
as at FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition
inconsistency (so called ‘accounting mismatch’) that would arise from measuring assets or liabilities or recognizing the gains
and losses on them on different bases. The Entity has not designated any debt instruments as at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses
recognized in profit or loss to the extent they are not part of a designated hedging relationship (see hedge accounting policy).
The net gain or loss recognized in profit or loss includes any dividend or interest earned on the financial asset and is included in
the ‘other gains and losses’.
Foreign exchange gains and losses
The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and
translated at the spot rate at the end of each reporting period. Specifically;
•
•
for financial assets measured at amortized cost that are not part of a designated hedging relationship, exchange differences
are recognized in profit or loss in the ‘other gains and losses’;
for debt instruments measured at FVTOCI that are not part of a designated hedging relationship, exchange differences on
the amortized cost of the debt instrument are recognized in profit or loss in the ‘other gains and losses’. Other exchange
differences are recognized in other comprehensive income in the investments revaluation reserve;
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• For financial assets measured at FVTPL that are not part of a designated hedging relationship, exchange differences are
recognized in profit or loss in the ‘other gains and losses’ line item; and
• For equity instruments measured at FVTOCI, exchange differences are recognized in other comprehensive income in the
investments revaluation reserve.
See hedge accounting policy regarding the recognition of exchange differences where the foreign currency risk component of a
financial asset is designated as a hedging instrument for a hedge of foreign currency risk.
Impairment of financial assets
The Entity recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured
at amortized cost or at FVTOCI, lease receivables, trade receivables and contract assets, as well as on financial guarantee
contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Entity always recognizes lifetime ECL for trade receivables, contract assets and lease receivables. The expected credit
losses on these financial assets are estimated using a provision matrix based on the Entity’s historical credit loss experience,
adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well
as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
For all other financial instruments, the Entity recognizes lifetime ECL when there has been a significant increase in credit
risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial
recognition, the Entity measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.
Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a
financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default
events on a financial instrument that are possible within 12 months after the reporting date.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Entity
compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on
the financial instrument at the date of initial recognition. In making this assessment, the Entity considers both quantitative and
qualitative information that is reasonable and supportable, including historical experience and forward-looking information that
is available without undue cost or effort. Forward-looking information considered includes the future prospects of the industries
in which the Entity’s debtors operate, obtained from economic expert reports, financial analysts, governmental bodies, relevant
think-tanks and other similar organizations, as well as consideration of various external sources of actual and forecast economic
information that relate to the Entity’s core operations.
In particular, the following information is taken into account when assessing whether credit risk has increased significantly since
initial recognition.
• An actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;
• Significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant
increase in the credit spread, the credit default swap prices for the debtor, or the length of time or the extent to which the fair
value of a financial asset has been less than its amortized cost;
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• Existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant
decrease in the debtor’s ability to meet its debt obligations;
• An actual or expected significant deterioration in the operating results of the debtor;
• Significant increases in credit risk on other financial instruments of the same debtor;
• An actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that
results in a significant decrease in the debtor’s ability to meet its debt obligations.
Irrespective of the outcome of the above assessment, the Entity presumes that the credit risk on a financial asset has increased
significantly since initial recognition when contractual payments are more than 30 days past due, unless the Entity has reasonable
and supportable information that demonstrates otherwise.
Despite the foregoing, the Entity assumes that the credit risk on a financial instrument has not increased significantly since
initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument
is determined to have low credit risk if:
(1) The financial instrument has a low risk of default,
(2) The debtor has a strong capacity to meet its contractual cash flow obligations in the near term, and
(3) Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of
the borrower to fulfil its contractual cash flow obligations.
The Entity considers a financial asset to have low credit risk when the asset has external credit rating of ‘investment grade’ in
accordance with the globally understood definition or if an external rating is not available, the asset has an internal rating of
‘performing’. Performing means that the counterparty has a strong financial position and there are no past due amounts.
For financial guarantee contracts, the date that the Entity becomes a party to the irrevocable commitment is considered to be
the date of initial recognition for the purposes of assessing the financial instrument for impairment. In assessing whether there
has been a significant increase in the credit risk since initial recognition of a financial guarantee contracts, the Entity considers
the changes in the risk that the specified debtor will default on the contract.
The Entity regularly monitors the effectiveness of the criteria used to identify whether there has been a significant increase in
credit risk and revises them as appropriate to ensure that the criteria are capable of identifying significant increase in credit risk
before the amount becomes past due.
(ii) Definition of default
The Entity considers the following as constituting an event of default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the following criteria are generally not recoverable:
• When there is a breach of financial covenants by the debtor; or
•
Information developed internally or obtain…ed from external sources indicates that the debtor is unlikely to pay its creditors,
including the Entity, in full (without taking into account any collateral held by the Entity).
Irrespective of the above analysis, the Entity considers that default has occurred when a financial asset is more than 90 days
past due unless the Entity has reasonable and supportable information to demonstrate that a more lagging default criterion is
more appropriate.
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(iii) Credit-impaired financial assets
A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows
of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the
following events:
(a) Significant financial difficulty of the issuer or the borrower;
(b) A breach of contract, such as a default or past due event (see (ii) above);
(c) The lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having
granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
(d) It is becoming probable that the borrower will enter bankruptcy or other financial reorganization; or
(e) The disappearance of an active market for that financial asset because of financial difficulties.
(iv) Write-off policy
The Entity writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and
there is no realistic prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy
proceedings, or in the case of trade receivables, when the amounts are over two years past due, whichever occurs sooner.
Financial assets written off may still be subject to enforcement activities under the Entity’s recovery procedures, taking into
account legal advice where appropriate. Any recoveries made are recognized in profit or loss.
(v) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of
the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default
is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for
financial assets, this is represented by the assets’ gross carrying amount at the reporting date; for financial guarantee contracts,
the exposure includes the amount drawn down as at the reporting date, together with any additional amounts expected to be
drawn down in the future by default date determined based on historical trend, the Entity’s understanding of the specific future
financing needs of the debtors, and other relevant forward-looking information.
For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to
the Entity in accordance with the contract and all the cash flows that the Entity expects to receive, discounted at the original
effective interest rate. For a lease receivable, the cash flows used for determining the expected credit losses is consistent with
the cash flows used in measuring the lease receivable in accordance with IAS 17, Leases.
For a financial guarantee contract, as the Entity is required to make payments only in the event of a default by the debtor in
accordance with the terms of the instrument that is guaranteed, the expected loss allowance is the expected payments to
reimburse the holder for a credit loss that it incurs less any amounts that the Entity expects to receive from the holder, the
debtor or any other party.
If the Entity has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous
reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Entity
measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which
simplified approach was used.
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The Entity recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment
to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured
at FVTOCI, for which the loss allowance is recognized in other comprehensive income and accumulated in the investment
revaluation reserve, and does not reduce the carrying amount of the financial asset in the statement of financial position.
Derecognition of financial assets
The Entity derecognizes a financial asset only 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 entity. 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
collateralized borrowing for the proceeds received.
On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum
of the consideration received and receivable is recognized in profit or loss. In addition, on derecognition of an investment in a debt
instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is
reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Entity has elected on initial
recognition to measure at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not
reclassified to profit or loss, but is transferred to retained earnings.
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
20 to 30
10 to 20
10
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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.
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
Vips
Ginos
Country
Colombia
Spain
Spain
Spain
Spain
Mexico
Mexico
Mexico
Spain
Spain
Own brand
Own brand
Own brand
Own brand
Own brand
Own brand
Own brand
Own brand
Own brand
Own brand
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2. Intangible assets acquired separately
Other intangible assets represent payments made to third parties for the rights to use the brands with which the Entity operates
its establishments under the respective franchise or association agreements. Amortization is calculated by the straight line
method based on the use period of each brand, including renewals considered to be certain, which are generally for 10 to 20
years. The terms of brand rights are as follows:
Brands
Domino’s Pizza
Starbucks Coffee
Fridays
Wagamama
Burger King
Chili’s Grill & Bar
California Pizza Kitchen
P.F. Chang’s
The Cheesecake Factory
Italianni’s
Country
Mexico
Colombia
Spain (3)
Mexico
Argentina
Colombia
Chile
Spain
Portugal
Andorra
Spain
Portugal
Andorra
Spain
Portugal
Andorra
Mexico, Argentina,
Chile, Colombia
and Spain (3)
Mexico
Colombia
Chile
Mexico
Mexico (2)
Argentina, Chile, Brazil
and Colombia (2)
Mexico and Chile (2)
Mexico (1)
Year of expiration
2025
2026
2019
2037
2027
2033
2027
2030
2030
2030
2030
2030
2030
2036
2036
2036
Depending on
opening dates
2023
2026
2026
2022
2019
2021
Depending on
opening dates
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.
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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, 2018, 2017 and 2016, 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.
j. Impairment in the value of long-lived assets, equipment, leasehold improvements, properties, and other intangible assets
At the end of each reporting period, the Entity reviews the carrying amounts of its tangible and intangible assets to determine whether
there is 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. As of December 31, 2018, 2017 and 2016, there were no
impairment effects that required adjustments to the values of its long-lived assets.
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.
k. Business combinations
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.
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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 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.
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.
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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. As of December 31, 2018 and 2016, there were no impairment effects on goodwill. 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 36 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.
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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.
Payments for leases of operating leases are charged to income using the straight-line method, during the term corresponding to the lease.
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,
Uruguay, Chile, Colombia, Brazil and Spain), which comprise 45%, 44% and 42% of consolidated net income and 52%, 31% and 25% of
the total consolidated assets at December 31, 2018, 2017 and 2016, respectively, companies apply the policies followed by the Entity.
The financial statements of consolidating foreign operations are converted to the reporting currency by initially identifying whether or
not the functional and recording currency of foreign operations is different, and subsequently converting the functional currency to the
reporting currency. The functional currency is equal to recording currency of foreign operations, but different to the reporting currency.
In order to convert the financial statements of subsidiaries resident abroad from the functional currency to the reporting currency at
the reporting date, the following steps are carried out:
- Assets and liabilities, both monetary and non-monetary, are converted at the closing exchange rates in effect at the reporting date
-
of each consolidated statements of financial position.
Income, cost and expense items of the consolidated statements of income are converted at the average exchange rates for the
period, unless those exchange rates will fluctuate significantly over the year, in which case operations are converted at the exchange
rates prevailing at the date on which the related operations were carried out.
- All conversion differences are recognized as a separate component under stockholders’ equity and form part of other comprehensive
income items.
p. Employee benefits
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.
The defined benefit plan includes retirement. The other benefits correspond to the legal seniority premium in Mexico. Its cost is
determined using the projected unit credit method, with actuarial valuations that are made at the end of each 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.
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Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to
profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying
the discount rate at the beginning of the period to the net defined benefit liability or asset.
A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination
benefit and when the entity recognizes any related restructuring costs.
Short-term employee benefits
A liability is recognized for benefits accruing to employees in respect of wages and salaries, annual leave and sick leave in the period
the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected
to be paid in exchange for the related service.
Statutory employee profit sharing (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, 2018, 2017 and 2016, PTU is determined based on taxable income, according
to Section I of Article 9 of the that Law.
q. Income taxes
The income tax expense represents the sum of the tax currently payable and deferred tax.
1. Current tax
Current income tax (ISR) is recognized in the results of the year in which is incurred.
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.
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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 IFRS 15.
s. Financial liabilities and equity instruments
1. Classification as debt or equity
Debt and / or equity instruments are classified as financial liabilities or as capital in accordance with the substance of the contractual
agreement and the definitions of liabilities and capital.
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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.
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.
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Processes and authorization levels: The Corporate Treasury Manager must quantify and report to the Financial Director the monthly
requirements of operating resources. The Corporate Financial Director may operate at his discretion up to 50% of the needs for the resources
being hedged, and the Administration and Financial Management may cover up to 75% of the exposure risk. Under no circumstances may
amounts above the limits authorized by the Entity’s General Management be operated, in order to ensure that operations are always for
hedging and not for speculation purposes. The foregoing is applicable to interest rates with respect to the amount of debt contracted at
variable rates and the exchange rate with respect to currency requirements. If it becomes necessary to sell positions for the purpose of
making a profit and/or incurring a “stop loss”, the Administration and Finance Director must first authorize the operation.
Internal control processes: With the assistance of the Corporate Treasury Manager, the Corporate Financial Director must issue
a report the following working day, specifying the Entity’s resource requirements for the period and the percentage covered by the
Administration and Financial Manager. Every month, the Corporate Treasury Manager will provide the Accounting department with
the necessary documentation to properly record such operations.
The Administration and Finance Director will submit to the Corporate Practices Committee a quarterly report on the balance of
positions taken.
The actions to be taken in the event that the identified risks associated with exchange rate and interest rate fluctuations materialize,
are to be carried out by the Internal Risk Management and Investment Committee, of which the Alsea General Director and the main
Entity’s directors form part.
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.
128
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
The Entity recognizes income from the following sources:
Sale of goods
Provision of services
Royalties
Sale of goods
Beverages and food sold by Alsea are transferred to the customer at the time they are delivered and/or consumed by them. For all sales
of goods, the payment method is cash and is recorded at the time they are delivered to the customer.
Provision of services
The income is recognized according to the percentage of termination. Every month the Entity receives from the clients a fixed agreed
payment and the recording is made when the services have been accrued and generally accepted in time.
Royalties
Revenue from royalties is based on a fixed percentage on sales of subfranchises. Alsea has two revenues from the sale of the
subfranchises. At the beginning of the contract, the subfranchisee pays an amount depending on the franchise, which is recorded as
income in the period of the duration of the contract. The other royalties are through a fixed monthly fee.
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.
129
Control over Food Service Project, S.L. (Zena Group) and sale option of the non-controlling interest
Note 15 mentions that Grupo Zena is a subsidiary of Alsea, over which it owns 66.24%. Based on the contractual agreements between the
Entity and other investors, Alsea has the power to appoint and dismiss the majority of the members of the board of directors, executive
committee and management positions of Grupo Zena, which have the power to direct the activities of the Zena Group. Therefore, the Entity’s
management concluded that Alsea has the ability to direct the relevant activities of Grupo Zena and therefore has control over that entity.
Similarly, Grupo Zena has the right to sell Alsea its uncontrolled participation (put option). The sale option may be exercised no later
than April 19, 2019, in accordance with the addendum to the shareholder’s agreement dated December 27, 2018.
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.
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.
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.
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.
130
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
Some of the Entity’s assets and liabilities are measured at fair value for financial reporting purposes. The Entity’s Board of Directors
has set up a valuation committee, which is headed up by the Entity’s Financial Director, to determine the appropriate valuation
techniques and inputs for fair value measurements.
In estimating the fair value of an asset or liability, the Entity uses market-observable data to the extent it is available. When level 1
inputs are not available, the Entity engages third party qualified appraisers to perform the valuation.
The valuation committee works closely with the qualified external appraiser to establish the appropriate valuation techniques and
inputs to the model. Every three months, the Financial Director reports the findings of the valuation committee to the Entity’s board
of directors to explain the causes of fluctuations in the fair value of assets and liabilities.
Information about the valuation techniques and inputs used in the determining the fair value of various assets and liabilities are
disclosed Note 22 i.
6. Contingencies
Given their nature, contingencies are only resolved when one or more future events occur or cease to occur. The evaluation of
contingencies inherently includes the use of significant judgment and estimations of the outcomes of future events.
131
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:
As discussed in Note 19, Grupo Zena has the option of selling the noncontrolling interest of Alsea. On October 30, 2018, Alsea and the
investors of Grupo Zena signed a new agreement for purchase and sale options, termination of the stockholders’ agreement and a
commitment to enter into a new stockholders’ agreement, which was ratified on December 27, 2018, stipulating the termination of the
original stockholders’ agreement and the formalization of this new agreement, whereby Grupo Zena has the right to sell to Alsea its
noncontrolling interest in other investors for 21.06% of the equity of Grupo Zena, the net amount between termination of the original
agreement and recognition of the new right was recorded net in the consolidated statement of changes in stockholders’ equity under
Reserve for purchase of noncontrolling interest, in the amount of $659,252.
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, 2018, 2017 and 2016 is comprised as follows:
Cash
Investments with original maturities of under three months
Total cash and cash equivalents
$
$
2018
1,769,871
217,986
1,987,857
$
$
2017
1,453,537
86,866
1,540,403
$
$
2016
1,878,770
669,072
2,547,842
The Entity maintains its cash and cash equivalents with accepted financial entities and it has not historically experienced losses due to credit
risk concentration.
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, 2018, 2017 and 2016, the customer balance is comprised as follows:
Franchises
Credit card
Other
Allowance for doubtful accounts (1)
$
$
2018
241,825
10,897
658,565
911,287
(97,255)
814,032
$
$
2017
247,118
304,419
530,920
1,082,457
(162,193)
920,264
$
$
2016
315,864
105,115
419,059
840,038
(131,658)
708,380
132
Accounts receivable
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.
The Entity has chosen to consider probabilities of default for each bucket of delay, as well as estimated recovery rates based on the internal
recovery information of its accounts receivable in the one-year window, derived from this, the Entity records 100% of the significant
customers, given their legal status and does not apply the severity of loss since it does not have high expectations of recovery.
The reserve is then composed of the part of the general and significant customers which follows a procedure of credit losses expected
according to the provisions of the standard. Additionally, it incorporates a criterion to be followed, either quantitative or qualitative, to consider
a significant increase in the credit risk of the account receivable and follow up to prepare the estimate of its reserves on a quarterly basis.
Before accepting any new client, the Entity uses an external credit rating system to evaluate the credit quality of the potential client and
defines the credit limits per client.
As mentioned in Note 2b, for the determination of the estimation of doubtful accounts, the Entity performs an analysis of balances seniority
per client and is assigned based on the experience an estimation percentage. This first analysis gives an indication of deterioration;
subsequently, an analysis of the financial situation of all the included clients is carried out to determine which are the accounts that present
an impairment according to the expected credit loss model and on these the corresponding estimate is recorded.
Following is the aging of past due but unimpaired accounts receivable:
15-60 days
60-90 days
More than 90 days
Total
Average time overdue (days)
$
$
2018
95,469
24,213
123,622
243,304
59
$
$
2017
13,371
13,044
153,900
180,315
95
$
$
2016
29,052
6,126
129,561
164,739
93
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.
8. Inventories, net
At December 31, 2018, 2017 and 2016, inventories are as follows:
Food and beverages
Containers and packaging
Other (1)
Obsolescence allowance
Total
(1) In others are concepts such as toys, uniforms, cleaning utensils, kitchen appliances and souvenirs.
$
$
2018
1,727,214
101,768
299,203
(7,977)
2,120,208
$
$
2017
1,869,134
65,759
82,591
(7,705)
2,009,779
$
$
2016
1,383,029
55,001
145,237
(7,904)
1,575,363
133
Inventories recognized under cost of sales for inventory consumption in the period related to continuous operations totaled $14,187,508,
$12,923,189 and $11,779,630 for the years ended December 31, 2018, 2017 and 2016, respectively.
9. Advance payments
Advance payments were made for the acquisition of: Advance payments were made for the acquisition of:
Insurance and other services
Inventories
Lease of locales
Total
$
$
2018
153,978
207,633
43,358
404,969
$
$
2017
288,458
91,029
32,076
411,563
$
$
2016
287,426
80,529
34,235
402,190
10. Store equipment, leasehold improvements and property, net
Store equipment, leasehold improvements and properties are as follows:
Leasehold
improvements
Transportation
equipment
Computer
equipment
Production
equipment
Office furniture
and equipment
Capital
lease
288,428 $
Cost
Balance at January 1, 2016
Acquisitions
Business acquisition
Disposals
Adjustment for currency conversion
Balance as of December 31, 2016
Acquisitions
Reclassified of financial leases
Disposals
Adjustment for currency conversion
Balance as of December 31, 2017
Acquisitions
Business acquisitions
Reclassified of financial leases
Disposals
Restatement
Adjustment for currency conversion
Buildings
$ 806,305 $
13,795
37,360
(1,712)
11,545
867,293
152,336
(89,873)
(29,910)
17,096
916,942
20,574
22,466
-
(3,864)
-
(9,030)
Store
equipment
5,020,400 $
1,198,304
28,963
(182,068)
260,565
6,326,164
1,828,314
-
(198,285)
46,570
8,002,763
1,444,910
1,325,362
-
(292,142)
442,442
(506,850)
6,994,828 $
1,481,780
26,726
(289,267)
463,430
8,677,497
2,649,953
(58,867)
(357,784)
92,533
11,003,332
1,637,413
4,664,288
-
(806,468)
652,277
(817,171)
16,333,671 $
-
-
-
-
288,428
-
-
-
-
288,428
-
-
-
(5,569)
-
-
188,403 $
55,179
113
(38,362)
8,306
213,639
54,260
-
(34,583)
4,136
237,452
59,699
-
-
(20,931)
2,696
(9,016)
728,580 $
157,539
554
(55,780)
50,196
881,089
207,480
-
(51,942)
17,388
1,054,015
179,854
166,143
-
(79,828)
12,192
(61,474)
974,667 $
14,795
-
-
(11)
989,451
29,461
-
(9,645)
-
1,009,267
105,192
-
-
(126,940)
-
-
Construction
Total
in process
1,387,325 $ 16,697,700
4,048,244
1,093,240
107,755
-
(584,845)
-
857,477
26,442
21,126,331
2,507,007
4,695,671
(365,730)
(148,740)
-
(727,443)
-
200,704
-
25,146,523
2,141,277
4,253,226
734,877
6,200,973
22,714
-
-
(1,785,181)
(328,265)
7,787
1,124,889
(1,567,918)
(141,614)
2,436,776 $ 33,372,512
308,764 $
33,612
14,039
(17,656)
37,004
375,763
139,597
-
(45,294)
22,981
493,047
70,707
-
-
(121,174)
7,495
(22,763)
427,312 $
Balance as of December 31, 2018
$ 947,088 $ 10,416,485 $
282,859 $
269,900 $ 1,270,902 $
987,519 $
134
Transportation
equipment
Computer
equipment
Production
equipment
Office furniture
and equipment
Construction
in process
Depreciation
Buildings
Store
equipment
Leasehold
improvements
$
Balance at January 1, 2016
Charge for depreciation for the year
Adjustment for currency conversion
Disposals
Balance as of December 31, 2016
Charge for depreciation for the year
Reclassified as held for sale
Adjustment for currency conversion
Disposals
Balance as of December 31, 2017
Charge for depreciation for the year
Business acquisitions
Reclassified as held for sale
Disposals
Restatement
Adjustment for currency conversion
Balance as of December 31, 2018
$
93,614 $
4,115
904
-
98,633
49,040
(41,628)
7,364
(15,522)
97,887
7,381
12,597
-
(2,276)
-
(1,670)
113,919 $
1,892,519 $
783,655
156,143
(148,666)
2,683,651
902,852
-
69,706
(169,725)
3,486,484
1,118,145
781,075
-
(256,816)
205,740
(200,931)
5,133,697 $
2,414,312 $
958,511
229,462
(286,532)
3,315,753
1,131,063
(19,876)
67,637
(266,354)
4,228,223
1,235,739
2,564,125
-
(774,794)
324,183
(338,264)
7,239,212 $
Capital
lease
9,527 $
13,061
-
-
22,588
12,624
-
-
-
35,212
12,422
-
-
(1,804)
-
-
45,830 $
97,855 $
35,639
3,240
(36,610)
100,124
39,257
-
1,255
(25,870)
114,766
45,978
-
-
(23,836)
2,220
(5,489)
133,639 $
415,759 $
142,494
38,240
(57,654)
538,839
160,583
-
15,223
(42,555)
672,090
172,107
135,204
-
(69,284)
5,879
(41,723)
874,273 $
564,215 $
23,946
23
(737)
587,447
36,848
-
-
(5,074)
619,221
48,079
-
-
(109,575)
-
-
557,725 $
72,123 $
28,253
22,497
(17,022)
105,851
36,182
-
13,696
(35,568)
120,161
38,010
-
-
(42,944)
4,576
(12,811)
106,992 $
Total
5,559,924
- $
1,989,674
-
450,509
-
(547,221)
-
7,452,886
-
2,368,449
-
(61,504)
-
174,881
-
(560,668)
-
9,374,044
-
2,677,861
-
3,493,001
-
-
-
(1,281,329)
-
542,598
-
-
(600,888)
- $ 14,205,287
Net cost
Balance as of December 31, 2016
Balance as of December 31, 2017
Balance as of December 31, 2018
$ 768,660 $
$ 819,055 $
$ 833,169 $
3,642,513 $
4,516,279 $
5,282,788 $
5,361,744 $
6,775,109 $
9,686,781 $
265,840 $
253,216 $
237,029 $
113,515 $
122,686 $
136,261 $
342,250 $
381,925 $
396,629 $
402,004 $
390,046 $
429,794 $
269,912 $ 2,507,007 $ 13,673,445
372,886 $
2,141,277 $ 15,772,479
320,320 $ 1,844,454 $ 19,167,225
11. Intangible assets, net
Intangible assets are comprised as follows::
$
Cost
Balance at January 1, 2016
Acquisitions
Business acquisition
Adjustment for currency conversion
Disposals
Balance as of December 31, 2016
Acquisitions
Adjustment for currency conversion
Disposals
Impairment losses
Balance as of December 31, 2017
Acquisitions
Business acquisition
Adjustment for currency conversion
Disposals
Restatement
Balance as of December 31, 2018
$
Brand rights
Commissions for
store opening
Franchise and use
of locale rights
Licenses and
developments
Goodwill
Total
7,913,902 $
201,442
245,156
90,006
(4,503)
8,446,003
93,578
35,585
(12,668)
-
8,562,498
83,689
125,986
(119,397)
(86,706)
107,519
8,673,589 $
369,989 $
6,829
-
14,810
(7,060)
384,568
-
3,551
(11,025)
-
377,094
839
162,944
(15,365)
(8,716)
8,796
525,592 $
1,036,350 $
139,489
-
5,519
(2,785)
1,178,573
216,519
(2,806)
(29,078)
-
1,363,208
173,840
-
(19,309)
(74,158)
-
1,443,581 $
714,600 $
203,238
-
38,493
(1,835)
954,496
201,619
25,001
(4,870)
-
1,176,246
98,561
344,635
(36,135)
(49,012)
-
6,881,265 $
-
-
-
-
6,881,265
-
-
-
(3,647)
6,877,618
-
10,561,055
-
-
-
1,534,295 $
17,438,673 $
16,916,106
550,998
245,156
148,828
(16,183)
17,844,905
511,716
61,331
(57,641)
(3,647)
18,356,664
356,929
11,194,620
(190,206)
(218,592)
116,315
29,615,730
135
Amortization
Balance at January 1, 2016
Amortization
Adjustment for currency conversion
Disposals
Balance as of December 31, 2016
Amortization
Adjustment for currency conversion
Disposals
Balance as of December 31, 2017
Amortization
Business acquisition
Adjustment for currency conversion
Disposals
Restatement
Balance as of December 31, 2018
Balance as of December 31, 2016
Net cost
Balance as of December 31, 2017
Balance as of December 31, 2018
$
$
$
$
$
Brand rights
Commissions for
store opening
Franchise and use
of locale rights
Licenses and
developments
935,199 $
173,917
10,144
(37,901)
1,081,359
137,481
3,922
(4,689)
1,218,073
209,717
81,821
(19,724)
(48,545)
42,509
1,483,851 $
367,104 $
8,571
12,887
(7,390)
381,172
3,235
3,412
(10,761)
377,058
(421)
136,128
(15,081)
(8,608)
2
489,078 $
370,605 $
77,295
515
(3,477)
444,938
110,381
567
(21,867)
534,019
99,028
-
(7,387)
(28,369)
-
597,291 $
535,241 $
138,778
34,738
(3,610)
705,147
132,129
21,279
(6,000)
852,555
128,542
290,531
(20,506)
(45,396)
-
Goodwill
16,953 $
-
-
-
16,953
-
-
-
16,953
-
-
-
-
-
Total
2,225,102
398,561
58,284
(52,378)
2,629,569
383,226
29,180
(43,317)
2,998,658
436,866
508,480
(62,698)
(130,918)
42,511
3,792,899
1,205,726 $
16,953 $
7,364,644 $
3,396 $
733,635 $
249,349 $
6,864,312 $
15,215,336
7,344,425 $
7,189,738 $
36 $
36,514 $
829,189 $
846,290 $
323,691 $
6,860,665 $
15,358,006
328,569 $
17,421,720 $
25,822,831
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.
136
Some of the Entity’s subsidiaries have signed operating leases for company vehicles and computer equipment.
In the event of breach of any of the lease agreements, the Entity is required to settle in advance all its obligations, including payments
and penalties for early termination, and it must immediately return all vehicles to a location specified by the lessor.
The amounts of the lease payments derived from the operating leases related to the premises where the stores of the different Alsea
brands are located are presented below.
Rental expense derived from operating lease agreements related to the real estate housing the stores of the different Alsea brands are as follows:
Minimum lease payments
b. Commitments non-cancellable operating leases
Less than a year
Between one and five years
c. Financial lease liabilities
$
$
2018
3,944,744
2018
4,598,153
24,731,869
$
$
2017
4,031,877
2017
2,845,064
11,524,706
$
$
2016
3,274,251
2016
1,924,672
8,662,305
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 lease payments
Minimum payments of leases
2018
32,398
113,295
456,633
602,326
(311,152)
291,174
$
$
2017
32,398
115,009
490,185
637,592
(336,149)
301,443
$
$
2016
32,398
97,195
536,997
666,590
(358,956)
307,634
$
$
137
Less than a year
Between one and five years
More than five years
Present value of minimum lease payments
Included in the consolidated financial statements as:
Short-term financial liability
Long-term financial liability
Present value of minimum payments of leases
2018
6,799
23,898
260,477
291,174
6,799
284,375
291,174
$
$
$
$
2017
6,799
25,086
269,558
301,443
6,799
294,644
301,443
$
$
$
$
2016
6,799
20,398
280,437
307,634
6,799
300,835
307,634
$
$
$
$
13. Investment in subsidiaries
The Entity’s shareholding in the capital stock of its main subsidiaries is as follows:
Name of subsidiary
Principal activity
2018
2017
2016
Panadería y Alimentos para Food Service, S.A. de C.V. Distribution of Alsea brand foods
100.00% 100.00% 100.00%
Café Sirena, S. de R.L. de C.V.
Operator of the Starbucks brand in Mexico
100.00% 100.00% 100.00%
Operadora de Franquicias Alsea, S.A. de C.V.
Operator of the Burger King brand in Mexico
80.00% 80.00% 80.00%
Operadora y Procesadora de Productos
de Panificación, S.A. de C.V.
Operator of the Domino's Pizza brand in Mexico
100.00% 100.00% 100.00%
Gastrosur, S.A. de C.V.
Operator of the Chili’s Grill & Bar brand in Mexico
100.00% 100.00% 100.00%
Fast Food Sudamericana, S.A.
Operator of the Burger King brand in Argentina
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%
Starbucks Coffee Argentina, S.R.L.
Operator of the Starbucks brand in Argentina
100.00% 100.00% 100.00%
Dominalco, S.A. (1)
Operator of the Domino’s Pizza brand in Colombia
-
-
93.30%
Servicios Múltiples Empresariales ACD,
S.A. de C.V. (antes SOFOM E.N.R)
Operator of Factoring and Financial Leasing in
Mexico
100.00% 100.00% 100.00%
Asian Bistro Colombia, S.A.S.
Asian Bistro Argentina, S.R.L.
Operator of the P.F. Chang's brand in Colombia
100.00% 100.00% 100.00%
Operator of the P.F. Chang's brand in Argentina
100.00% 100.00% 100.00%
Operadora Alsea en Colombia, S.A.
Operator of the Burger King brand in Colombia
94.94% 94.94% 94.94%
Asian Food, Ltda.
Operator of the P.F. Chang's 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
100.00% 100.00% 100.00%
138
Name of subsidiary
Principal activity
2018
2017
2016
Especialista en Restaurantes de
Comida Estilo Asiática, S.A. de C.V.
Distributor of foods and production materials
100.00% 100.00% 100.00%
for the Alsea and related brands
Distribuidora e Importadora Alsea, S.A. de C.V.
Operator of Italianni's brand
Italcafé, S.A. de C.V.
Operator of Italianni's brand
Grupo Amigos de San Ángel, S.A. de C.V.
Operator of Italianni's brand
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
100.00% 100.00% 100.00%
Grupo Amigos de Torreón, S.A. de C.V.
Operator of the Starbucks brand in Chile
100.00% 100.00% 100.00%
Starbucks Coffee Chile, S.A.
Distributor of food and supplies for Alsea
100.00% 100.00% 100.00%
brands in Colombia
Distribuidora e Importadora Alsea Colombia, S.A.S. (1) Operator of the Starbucks brand in Colombia
-
- 100.00%
Estrella Andina, S.A.S.
Operator of Vips brand
70.00% 70.00% 70.00%
Operadora Vips, S. de R.L. de C.V.
Operator Brand Cheesecake Factory in Mexico
100.00% 100.00% 100.00%
OPQR, S.A. de C.V.
Operator of Spain
100.00% 100.00% 100.00%
Food Service Project, S.L. (Grupo Zena)
Operator of Chili’s Grill & Bar in Chile
66.24%
71.76% 71.76%
Gastrococina Sur, S.P.A.
Operator of Archie´s brand in Colombia
100.00% 100.00% 100.00%
Gastronomía Italiana en Colombia, S.A.S. (1)
Operator of the VIPS, VIPS Smart, Starbucks, GINOS,
97.60% 97.60% 100.00%
Fridays and Wagamama brands in Spain
Sigla, S.A. (Grupo VIPS) (ver Nota 1a)
Operator of Starbucks brand in Uruguay
100.00%
-
Café Sirena Uruguay, S.A.
Operator of the Burger King and Domino’s Pizza
100.00% 100.00%
Operadora GB Sur, S.A. de C.V.
brand in Mexico
Operadora de las marcas Vips y
Domino’s Pizza en México
70.90% 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.
14. Investment in shares of associated companies
At December 31, 2018, 2017 and 2016, the investment in shares of associated companies is comprised of the Entity’s direct interest in the
capital stock of the companies listed below:
(%)
2018
2017
2016
Main operations
Interest in associated company
2018
2017
Operadora de Restaurantes AYB
Polanco, S.A. de C.V. (4)
30.00%
Grupo Axo, S.A.P.I. de C.V. (2) (3)
-
-
-
-
Operator of restaurants of the EF Entre Fuegos
brand and EF Entre Fuegos Elite Steak House that
operates in Mexico
$
14,296
$
25.00%
Sales of prestigious brands of clothes and
accessories in Mexico
-
$
-
-
2016
-
995,596
139
(%)
2018
2017
2016
Main operations
Interest in associated company
2018
2017
Blue Stripes Chile SPA (3)
Stripes Chile SPA (1) (3)
Total
-
-
-
-
33.33%
Sales of prestigious brands of clothes and accessories
in Chile
33.33%
Sales of prestigious brands of clothes and accessories
in Chile
-
-
$
14,296
$
-
-
-
2016
9,717
30,662
$
1,035,975
Grupo Axo, S.A.P.I. de C.V.
Blue Stripes Chile SPA (1)
Stripes Chile SPA
Total
(%)
Equity in results
2018
2017
2016
Main operations
2018
2017
2016
-
-
-
25.00%
25.00%
Sales of prestigious brands of clothes and
accessories in Mexico
33.33%
33.33%
Sales of prestigious brands of clothes and
accessories in Chile
33.33%
33.33%
Sales of prestigious brands of clothes and
accessories in Chile
$
$
-
-
-
-
$
(3,487)
$
65,989
1,892
1,158
1,506
382
$
(437)
$
67,877
(1) Stripes Chile SPA is a direct subsidiary of Grupo Axo together with another subsidiary of the Entity.
(2) 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.
(3) As mentioned in Note 1d, 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.
(4) On September 12, 2018, AFP Asesores de Franquicias, S.A. of C.V. (subsidiary of Alsea), signed an investment contract for $14,296 that represents 30% of the shareholding of Restaurant Operator AYB
Polanco, S.A. of C.V., as of December 31, 2018, the associate has not formally commenced operations
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
$
$
$
2018
-
-
-
$
$
$
2017
-
-
-
$
$
$
2016
70,058
60,025
38,088
140
Income
Net profit for the period
Blue Stripes Chile SPA
$
$
2018
-
-
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
Grupo Axo, S.A.P.I. de C.V.
$
$
$
$
$
2018
-
-
-
2018
-
-
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
$
$
$
$
$
$
2018
-
-
-
-
2018
-
-
1/01/2017 to
19/10/2017
87,228
3,474
2017
-
-
-
1/01/2017 to
19/10/2017
98,874
5,677
2017
-
-
-
-
1/01/2017 to
19/10/2017
5,769,233
(13,948)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016
132,312
1,146
2016
40,512
33,548
44,906
2016
63,642
4,518
2016
3,656,612
3,182,682
2,168,965
2,927,493
2016
6,144,101
263,956
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
Carrying value of the Entity's interest in Grupo Axo
2018
2017
$
$
$
-
-
-
-
$
$
$
-
-
-
-
$
$
$
2016
1,742,836
435,709
559,887
995,596
141
15. Business combination
Subsidiaries acquired
Entity name
Sigla, S.A.
Archie’s Colombia, S.A.S.
Main activity
Operator of the VIPS, VIPS Smart, Starbucks,
GINOS, Fridays and Wagamama brands in Spain
Operator of the Archie’s brand in Colombia
Acquisition
date
December 27,
2018
April 2016
Proportion of
shares acquired
(%)
Consideration
transferred
100% $
11,411,369
100% $
293,027
The following transactions classify as a business combination and have been recognized by utilizing the purchase method as of the
acquisition date based on the following steps:
i.
ii.
iii.
Recognize and value the assets, liabilities and non-controlling interest.
In a business combination performed by stages, the buyer revalues its equity in the acquired entity prior to the acquisition date at
face value to recognize the resulting profit or loss, as the case may be in results.
Identify intangible assets and determine goodwill.
Acquisition of Sigla
On December 27, 2018, the acquisition process was concluded for the majority stockholders and founders, led by the Arango family and
ProA Capital Iberian Buyout Fund II, F.C.R., a Spanish company, whereby 100% of the common stock of the company known as Sigla, S.A.,
established under the laws of Spain and which, in conjunction with its subsidiaries is known as Grupo VIPS was acquired by Grupo Zena.
The consideration paid for the acquisition was €500 million after debt payable in cash (equivalent to MX $11,411,369).
The acquisition does not contemplate any contingent consideration. This transaction establishes a purchase and sale option for 12.70% of the
share capital during the 7-year period as of the acquisition date, which was recorded under IFRS 9, Financial Instruments: Presentation (Note 19).
The following is an analysis of the preliminary allocation of the cost of acquisition over the values of the net assets acquired and that are
in the measurement stage according to IFRS 3. Since it is in the measurement period, which is estimated which will end in December 2019,
the preliminary amounts below are subject to change:
Concept
Current assets:
Cash and cash equivalents
Accounts receivable and other accounts receivable
Inventories
Long-term assets:
Store equipment and leasehold improvements
Intangible assets
Deferred income taxes
Current liabilities:
Accounts payable to suppliers and other accounts payable
Current maturities of long-term debt
December 31, 2018
$
413,716
431,694
369,541
2,707,972
125,085
457,679
(1,802,471)
(1,713)
142
Concept
Long-term liabilities:
Long-term debt
Deferred income taxes
Other long-term liabilities
Fair value of net assets acquired
Total value of the consideration paid
Goodwill
December 31, 2018
(1,688,337)
(12,198)
(150,654)
850,314
11,411,369
$
10,561,055
The initial recording for the acquisition of Grupo VIPS was only provisionally determined at the end of the period. As of the date of
termination of these consolidated financial statements, the necessary market valuations and other calculations have not been completed
and therefore have been determined provisionally based on the best estimate of the administration.
The goodwill that arises from the acquisition of Grupo VIPS, derives from the paid consideration that included amounts related to the benefits of
operating more than 400 establishments between corporate and franchisees, expecting a market growth with a development plan for the next
five years in the market, likewise the adjacent benefits mainly income growth, synergies expected in the operation and in the purchase of inputs.
These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
Net cash flows related to the acquisition of the subsidiary total $10,997,653, corresponding to the consideration paid in cash of $11,411,369,
less cash and cash and cash equivalent balances acquired for $413,716.
If the acquisition had occurred at beginning of year, Alsea’s consolidated net profit for the period would have been $682,777 and revenues
would have been $54,849,482. Acquisition expenses related to this transaction amounted to $54,172, which is shown within other expenses.
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.
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
Fair value of net assets
Total consideration paid
Goodwill
$
$
From the date of acquisition until December 31, 2016, Archie’s contributed $332,652 to sales and ($15,688) to net income.
March 2016
10,197
107,755
245,156
(68,764)
(1,317)
293,027
293,027
-
143
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::
Brand
Burger King
Domino’s Pizza
Chili’s
Italianni’s
Vips
Starbucks Coffee
Foster’s Hollywood
La Vaca Argentina (1)
Il Tempietto (1)
Sigla, S.A. (ver Nota 15)
Cañas y Tapas
2018
1,336,967
1,078,622
26,614
785,816
3,058,697
368,513
198,598
-
-
10,561,055
6,838
17,421,720
$
$
$
$
2017
1,336,967
1,078,622
26,614
785,816
3,058,697
368,513
198,598
-
-
-
6,838
6,860,665
$
$
2016
1,336,967
1,078,622
26,614
785,816
3,058,697
368,513
198,598
3,270
377
-
6,838
6,864,312
(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.
As of December 31, 2018, 2017 and 2016, 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.
144
17. Long-term debt
Long-term debt at December 31, 2018, 2017 and 2016 is comprised of unsecured loans, as shown below:
Bank
Sindicado
Sindicado
Sindicado
Scotiabank Inverlat, S.A.
Bank of América
Bank of América
Bank of Tokyo
Bank of Tokyo
Banco Nacional de Comercio
Exterior S.N.C. (Bancomext)
Banco Santander, S.A.
Banco Nacional de México, S.A.
Scotiabank Inverlat, S.A.
Scotiabank Inverlat, S.A.
Scotiabank Inverlat, S.A.
Banco Santander, S.A.
Banco Santander, S.A.
Banco Santander, S.A.
Banco Santander, S.A.
Scotiabank Inverlat, S.A.
Scotiabank Inverlat, S.A.
BBVA Bancomer, S.A.
Banco Unión Argentina
Banco Unión Argentina
Banco Citibank Argentina
BBVA Francés
Banco HSBC, S.A.
Santander Chile, S.A.
BBVA Francés
Banco HSBC, S.A.
Banco Citibank
Banco Citibank Argentina
Banco Citibank Argentina
Santander Chile, S.A.
Santander Chile, S.A.
Helm Bank USA
Type of credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Currency
Mexican pesos
Euros
Euros
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Rate
Variable rate TIIE +1.25%
Variable rate Euribor +1.25%
1.89% (Fixed rate)
Variable rate TIIE +0.97%
Variable rate TIIE +1.19%
6.11% (Fixed rate)
Variable rate TIIE +1.35%
Variable rate TIIE +0.95%
Maturity
2023
2023
2020
2019
2021
2019
2021
2021
$
Simple credit
Mexican pesos
Variable rate TIIE +1.32%
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Simple credit
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Mexican pesos
Argentine pesos
Argentine pesos
Argentine pesos
Argentine pesos
Colombian pesos
Chilean pesos
Argentine pesos
Argentine pesos
Argentine pesos
Argentine pesos
Argentine pesos
Chilean pesos
Chilean pesos
Variable rate TIIE +1.00%
Variable rate TIIE +0.75%
Variable rate TIIE +0.90%
Variable rate TIIE +0.80%
Variable rate TIIE +0.93%
Variable rate TIIE +1.00%
Variable rate TIIE +0.65%
Variable rate TIIE +0.50%
Variable rate TIIE +0.65%
Variable rate TIIE +0.45%
Variable rate TIIE +0.45%
Variable rate TIIE +1.00%
29% (Fixed rate)
29.25% (Fixed rate)
27% (Fixed rate)
22% (Fixed rate)
24.5% (Fixed rate)
4.02% (Fixed rate)
23.25% (Fixed rate)
29% (Fixed rate)
29.25% (Fixed rate)
29.50% (Fixed rate)
29.25% (Fixed rate)
3.6% (Fixed rate)
3.6% (Fixed rate)
Colombian pesos 12.29% (Variable rate DTF +5.30% )
2025
2021
2020
2019
2019
2021
2022
2019
2019
2019
2019
2019
2019
2019
2019
2017
2017
2017
2017
2018
2019
2019
2019
2018
2020
2018
2020
Less - current portion
Long-term debt maturities
$
2018
3,681,937
9,712,018
-
-
-
1,000,000
-
-
1,661,002
152,893
-
-
-
400,000
285,369
200,000
120,000
130,000
200,000
200,000
400,000
19,466
27,253
-
-
-
-
-
106,157
107,079
71,628
-
151,880
-
-
18,626,682
(2,588,266)
16,038,416
$
$
2017
-
-
2,338,640
-
-
1,000,000
-
900,000
600,000
260,000
432,000
270,000
700,000
400,000
485,310
-
-
-
-
-
-
-
-
-
-
-
-
103,096
110,442
3,553
19,638
72,323
-
85,918
-
7,780,920
(1,087,466)
6,693,454
$
2016
-
2,274,063
1,957,553
1,884,000
1,000,000
996,078
-
866,400
796,267
430,770
-
-
-
-
-
-
-
-
-
-
-
-
303,355
146,200
97,740
83,696
-
-
-
-
-
-
-
14,922
10,851,044
(1,107,238)
9,743,806
145
$
Annual long-term debt maturities at December 31, 2018 are as follows:
Year
2021
2022
2023
2025
$
$
Amount
555,000
369,898
13,445,107
1,668,411
16,038,416
Bank loans include certain affirmative and negative covenants, such as maintaining certain financial ratios. At December 31, 2018, 2017
and 2016, 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 2025. Those instruments will accrue interest at a fixed rate of 8.07%.
The balance at December 31, 2018, 2017 and 2016 amounts to $6,983,244, $6,980,452 and $3,988,845, respectively.
Year
2020
2022
2025
2027
$
$
Amount
2,983,244
1,000,000
1,000,000
2,000,000
6,983,244
19. Long-term liabilities, option to sell noncontrolling interest
In October 2014 the Entity acquired Grupo Zena; as a result, it has the right to sell to Alsea its noncontrolling interest for 28.24% in other investors,
upon completion of the fourth year after the acquisition (original agreement). In compliance with IFRS 9, Financial Instruments, the present value of
the estimated debt that will be liquidated at the time the sale option is exercised should be recognized in accordance with the clauses of the contract.
The initial recognition of such debt is recognized as a supplemental equity account and every year its revaluation affects the result for the year.
On October 30, 2018, an agreement was signed for purchase and sale options, termination of the stockholders’ agreement and a
commitment to sign a new stockholders’ agreement, ratified on December 27, 2018, whereby the following agreements were reached:
1. Terminate the original stockholders’ agreement and formalize this new agreement.
2. The minority stockholders invested €75 million in Grupo Zena, which resulted in the acquisition of 7.7% of the common stock of Grupo
Zena by such minority stockholders.
146
3. Grupo Zena has the right to sell to Alsea its noncontrolling interest in other investors equal to 21.06%, in April 2019. In compliance with
IFRS 9, Financial Instruments, the present value of the estimated debt that will be liquidated at the time the sale option is exercised
should be recorded in accordance with the contract clauses. The net amount between termination of the agreement mentioned in
the first point and recognition of the new right was recorded net in the consolidated statement of changes in stockholders’ equity
under Reserve for purchase of noncontrolling interest, for the amount of $659,252.
4. In the new agreement Grupo Zena has the right to sell to Alsea 12.7% of its noncontrolling interest in other investors upon completion of the
seventh year after the acquisition; such right will be liquidated through delivery of the variable number of shares of Alsea. Consequently, in
accordance with IFRS 9, it is accounted for as a financial derivative that will be settled at the time the sale option is exercised in accordance
with the contract clauses. The liability will be restated every year up to the date on which the option is exercised, and the effects generated
subsequently will be recognized in the statement of income. The financial liability derived from the sale option as of December 31, 2018 is $11,977.
20. Income taxes
The Entity is subject to ISR. Under the ISR Law the rate for 2018, 2017 and 2016 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 2016 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.
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 24% in
2016, 25.5% to 2017, 27% to 2018 and to 2019 will be of 27%, based taxation system chose for the years 2018 and 2018. The change in
the First Category Tax was pronounced in July 2010.
In Colombia, the applicable tax provisions stipulate that the rate applicable to income tax for taxable years 2018 and 2019 is 33%, 32%
for 2020, 31% for 2021 and 30% as of taxable year 2022. Likewise, for taxable bases over $800,000 Colombian pesos, you must pay a
4% surcharge for the year 2018, which will not be applicable as of 2019. In any case, as of the taxable year 2018, the taxable base of the
tax Income may not be less than 3.5% of the liquid assets of the immediately previous one, this percentage will be reduced to 1.5% for the
taxable years 2019 and 2020 and to 0% from the taxable year 2021.
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, which include the reduction of this tax rate 25% in 2018, 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.
147
a.Income taxes recognized in income
Current
Deferred
$
$
2018
836,509
(138,215)
698,294
$
$
2017
985,351
(149,923)
835,428
$
$
2016
825,874
(296,641)
529,233
The tax expense attributable to income before ISR differs from that arrived at by applying the 30% statutory rate in 2018, 2017 and
2016 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
2018
30%
6%
11%
(7%)
(2%)
38%
2017
30%
8%
9%
(6%)
(1%)
40%
2016
30%
7%
5%
(6%)
(4%)
32%
b. Deferred taxes in the statement of financial position
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
2018
2017
2016
$
$
(28,802)
(743,666)
(38,180)
(586,659)
-
632,843
73,293
-
(691,171)
$
$
(2,347)
(623,225)
(164,635)
(186,952)
-
471,310
123,515
-
(382,334)
$
$
(15,698)
(740,365)
(16,176)
(82,078)
(12,269)
769,288
(84,223)
(2)
(181,523)
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
2018
2,764,884
2,073,713
(691,171)
$
$
2017
2,348,434
1,966,100
(382,334)
$
$
$
$
2016
2,068,996
1,887,473
(181,523)
148
d. Deferred income tax balances
2018
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’ equity
Acquisitions
Temporary differences
Estimation for doubtful accounts and inventory obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold improvements and property
Prepaid expenses
Other assets
Tax loss carryforwards and unused tax credits
Tax loss carryforwards
2017
Temporary differences
Estimation for doubtful accounts and inventory obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold improvements and property
Prepaid expenses
Other assets
Tax loss carryforwards and unused tax credits
Tax loss carryforwards
Recoverable tax on assets (IMPAC)
2016
Temporary differences
Estimation for doubtful accounts and inventory obsolescence
Liability provisions
Advances from customers
Store equipment, leasehold improvements and property
Prepaid expenses
Other assets
Tax loss carryforwards and unused tax credits
Tax loss carryforwards
Recoverable IMPAC
$
(2,347) $
(623,225)
(164,635)
471,310
123,515
-
(195,382)
$
(26,455)
(125,079)
126,455
30,044
(50,222)
-
(45,257)
(186,952)
(382,334) $
(92,958)
(138,215)
$
-
78,030
-
196,829
-
-
274,859
-
274,859
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’ equity
(15,698) $
(740,365)
(16,176)
769,288
(84,223)
(2)
(87,176)
(82,078)
(12,269)
(94,347)
(181,523) $
13,351
153,907
(148,459)
(283,857)
207,738
2
(57,318)
(104,874)
12,269
(92,605)
(149,923)
$
$
-
(36,767)
-
(14,121)
-
-
(50,888)
-
-
-
(50,888)
$
$
$
$
$
$
$
-
(73,392)
-
(65,340)
-
-
(138,732)
(306,749)
(445,481)
Acquisitions
-
-
-
-
-
-
-
-
-
-
-
$
$
$
$
Beginning
balance
Recognized in
profit or loss
Recognized in
stockholders’ equity
Acquisitions
$
(36,942) $
(488,383)
(105,167)
882,625
71,418
5,752
329,303
(102,640)
(12,269)
(114,909)
$
214,394 $
21,244
(196,680)
88,991
(69,363)
(155,641)
(5,754)
(317,203)
20,562
-
20,562
(296,641)
$
$
-
(55,302)
-
(43,974)
-
-
(99,276)
-
-
-
(99,276)
$
$
-
-
-
-
-
-
-
-
-
-
-
$
$
Ending
balance
(28,802)
(743,666)
(38,180)
632,843
73,293
-
(104,512)
(586,659)
(691,171)
Ending
balance
(2,347)
(623,225)
(164,635)
471,310
123,515
-
(195,382)
(186,952)
-
(186,952)
(382,334)
Ending
balance
(15,698)
(740,365)
(16,176)
769,288
(84,223)
(2)
(87,176)
(82,078)
(12,269)
(94,347)
(181,523)
149
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, 2018, are:
Year of maturity
2023
2024
2025
2026
2027
2028
Losses of entities abroad without expiration
Losses of entities abroad without expiration
Losses of entities abroad without expiration
Losses of entities abroad without expiration
Amortizable losses
76,806
78,921
289,433
121,240
121,403
298,802
1,500,860
153,838
31,679
53,323
2,726,309
$
$
Country
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Spain
Chile
Argentina
Colombia
21. Employee retirement benefits
Defined contribution plans
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 revenue recognized in the consolidated statements of income and other comprehensive income is $35,411 in 2018.
The expense for employee benefits as of December 31, 2018, 2017 and 2016 was $11,557,626, $10,650,386 and $9,506,774, respectively, not
including the cost defined benefit described below.
The net cost for the period related to obligations derived from seniority premiums amounted to ($522), $9,251 and $580 in 2018, 2017 and 2016, 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 2017.
The Entity’s capital structure consists of the net debt (the loans described in Note 17, compensated by cash balances and banks) and
the Entity’s capital (made up of issued capital stock, reserves and retained earnings, as shown in Note 23).
The Entity is not subject to external requirements to manage its capital.
The main purpose for managing the Entity’s capital risk is to ensure that it maintains a solid credit rating and sound equity ratios to
support its business and maximize value to its shareholders.
150
The Entity manages its capital structure and makes any necessary adjustments based on changes in economic conditions. In order to
maintain and adjust its capital structure, the Entity can modify the dividend payments to the shareholders, reimburse capital to them
or issue new shares. For the years ended December 31, 2018, 2017 and 2016, there were no modifications to the objectives, policies or
processes pertaining to capital management.
The following ratio is used by the Entity and by different rating agencies and banks to measure credit risk.
- Net Debt to EBITDA = Net Debt / EBITDA ltm.
At December 31, 2018, 2017 and 2016, 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
Factoring of 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
c. Objectives of managing financial risks
2018
2017
2016
$
1,987,857
1,025,118
$
1,540,403
1,250,588
$
4,457,901
757,976
679,767
2,588,266
6,799
16,038,416
284,375
6,983,244
3,960,806
573,097
445,594
1,087,466
6,799
6,693,454
294,644
6,980,452
2,547,842
953,638
3,901,972
239,907
669,249
1,107,238
6,799
9,743,806
300,835
3,988,845
Among the main associated financial risks that the Entity has identified and to which it is exposed are: (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.
151
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.
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 consolidated financial position.
The Entity currently has a risk management policy aimed at mitigating present and future risks involving those variables, which arise
mainly from purchases of inventories, payments in foreign currencies and public debt contracted at a floating rate. The contracting of
derivative financial instruments is intended to cover or mitigate a primary position representing some type of identified or associated
risk for the Entity. Instruments used are merely for economic hedging purposes, not for speculation or negotiation.
The types of derivative financial instruments approved by the Entity for the purpose of mitigating exchange fluctuation and interest
rate risk are as follows:
- USD/MXN exchange-rate forwards contracts
- USD/MXN exchange-rate options
-
- 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, 2018, 2017 and 2016. It also shows the exchange rates in effect at those dates.
USD hedging and its requirements are determined based on the cash flow budgeted by the Entity, and it is aligned to the current
Risk Management Policy approved by the Corporate Practices Committee, the General Director’s office and the Administration and
Financial Director’s office. The policy is overseen by the Internal Audit Department.
The exchange rate risk expressed in a foreign currency (USD) is internally monitored on a weekly basis with the positions or hedges
approximating maturity at market exchange rates. The agent calculating or valuing the derivative financial instruments is in all
cases the counterparty designated under the master agreement.
The purpose of the internal review is to identify any significant changes in exchange rates that could pose a risk or cause the Entity to incur
in non-compliance with its obligations. If a significant risk position is identified, the Corporate Treasury Manager informs the Corporate
Financial Director’s office.
152
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, 2018, 2017 and 2016.
Type of derivative,
security or contract
Forwards
Position
Long
Objective of
the hedging
Economic
Options
Long
Economic
Underlying / reference variable
31/12/2018
current
19.6512
USDMXN
31/12/2017
previous
19.7354
USDMXN
31/12/2016
previous
20.73
USDMXN
19.6512
USDMXN
19.7354
USDMXN
20.73
USDMXN
Notional amount/face value
(thousands of USD)
Fair value
(thousands of USD)
31/12/2018
current
62,650
31/12/2017
previous
50,050
31/12/2016
previous
31/12/2018
current
31/12/2017
previous
56,125 $
147 $
(46) $
31/12/2016
previous
(2,122)
Amounts of
maturities
(thousands of
USD)
62,650
56,400
75,950
42,100 $
18,880 $
(1,016) $
4,909
56,400
1. Foreign currency sensitivity analysis
At December 31, 2018, 2017 and 2016, the Entity has contracted hedging in order to purchase US dollars for the next 12 months,
a total of $119, $126 and $98 million dollars, respectively, at the average exchange rate of $19.16, $18.82 and $19.21 pesos per
US dollar, respectively the valuation is based on an average exchange rate of $19.65, $18.50 and $20.75, pesos per US dollar,
respectively, over the next 12 months as of December 31, 2018, 2017 and 2016. The initial price of currency derivatives is $-19.0,
$48.5 and $46.4 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, 2018 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, 2018 closing.
Management considers that in the event of a stress scenario as the one described above, the Entity’s liquidity capacity would not be
affected, there would be no negative effects on its operations, nor would compliance with the commitments assumed in relation to
contracted derivative financial instruments be at risk.
2. Foreign currency forwards and options contracts
At December 31, 2018, 2017 and 2016, a total of 465, 1,066 and 534,220 derivative financial instrument operations (forwards and
options) were carried out, respectively, for a total of 275.6, 402.6, and 68.6 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, 2018, 2017 and 2016, Alsea has contracted DFI’s to purchase US dollars in the next twelve months for a total of
approximately $119, $126 and $98 million USD, at the average exchange rate of $19.16, $18.82 and $19.21 pesos to the dollar, respectively.
At December 31, 2018, 2017 and 2016, the Entity had contracted the financial instruments shown in the table above.
153
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.
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.
At December 31, 2018, the Entity has a total debt of $25,610 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 36% is fixed at a weighted rate of 7.67%, and 64% at a variable rate, this strategy has generated
a positive result for the Entity.
- 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.
154
Type of derivative,
security or
contract
Objective of
the
hedging
Position
IRS Plain Vanilla
Long
Coverage
IRS Plain Vanilla
Long
Economic
KO Out IRS
Long
Economic
Limited IRS
Long
Economic
Capped IRS
Long
Economic
IRS Plain Vanilla
Long
Coverage
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, 2018, 2017 and 2016.
Underlying / reference variable
Notional amount/face value
(thousands of USD)
Fair value
(thousands of USD)
Amounts of
maturities
31/12/2018
current
31/12/2017
previous
31/12/2016
previous
31/12/2018
current
31/12/2017
previous
31/12/2016
previous
31/12/2018
current
31/12/2017
previous
31/12/2016
previous
(thousands
of USD)
8.5956% -
TIIE 28 d
8.5956% -
TIIE 28 d
8.5956% -
TIIE 28 d
8.5956% -
TIIE 28 d
8.5956% -
TIIE 28 d
8.5956% -
TIIE 28 d
7.62% -
TIIE 28 d
7.62% -
TIIE 28 d
7.62% -
TIIE 28 d
7.62% -
TIIE 28 d
7.62% -
TIIE 28 d
7.62% -
TIIE 28 d
6.11% -
TIIE 28 d
6.11% -
TIIE 28 d
6.11% -
TIIE 28 d
6.11% -
TIIE 28 d
6.11% -
TIIE 28 d
EURIBOR
1M
1. Analysis of interest rate sensitivity
187,853
199,046
119,011 $
20,413 $
20,650 $
20,216
187,853
107,326
113,337
37,928 $
(7,251) $
(5,160) $
(2,295)
107,326
-
-
-
-
- $
10,453 $
- $
- $
- $
- $
-
-
-
-
33,263
35,469
14,905 $
(53) $
402 $
138.6
33,263
-
60,161
39,427 $
- $
(189) $
(27)
-
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, 2018 close, the increase in financial costs is of approximately $512 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 64% coverage of the debt.
• A 150 bps increase in the 28-day TIIE rate represents an increase in the financial cost of approximately $384 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 $256 million.
The previous scenarios were carried out on the bank and stock market debt contracted in Mexican pesos with 28-day TIIE floating
rate, which represents about 73% of the total debt contracted by the Entity.
155
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, 2018, 2017 and 2016 closing, the Entity has incurred in 13 margin calls just in 2018, and holds 10. 2 million US
dollars securities pledged as a guarantee by a counterparty with which it may have carried out interest rate hedging operations.
156
At December 31, 2018, 2017 and 2016, 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, 2018, 2017
and 2016, that risk amounts to $3,012,975, $2,790,991 and $3,501,480, 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 Entity
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.
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.
Average effective
interest rate
9.53%
9.18%
4.00%
Average effective
interest rate
8.25%
8.65%
4.00%
Up to 1 year
Up to 2 years
Up to 3 years
Up to 4 years
$
$
$
$
3,093,379
640,446
32,398
10,361
4,457,901
757,976
8,992,461
Up to 1 year
1,744,175
589,150
32,398
48,516
3,960,806
573,097
6,948,142
$
$
$
$
1,090,172
3,397,887
32,398
-
-
-
4,520,457
Up to 2 years
3,998,021
589,150
32,398
-
-
-
4,619,569
$
$
$
$
2,726,458
353,787
32,398
-
-
-
3,112,643
Up to 3 years
2,158,034
3,569,602
32,398
-
-
-
5,760,034
$
$
$
$
6,358,985
1,325,103
32,398
-
-
-
7,716,486
Up to 4 years
781,261
337,600
32,398
-
-
-
1,151,259
Up to 5 years or
more
8,070,444
3,789,577
472,734
-
-
-
12,332,755
Up to 5 years
or more
772,635
4,337,600
508,000
-
-
-
5,618,235
$
$
$
$
$
$
$
$
Total
21,339,438
9,506,800
602,326
10,361
4,457,901
757,976
36,674,802
Total
9,454,126
9,423,102
637,592
48,516
3,960,806
573,097
24,097,239
157
As of December 31, 2018
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Factoring of suppliers (1)
Total
As of December 31, 2017
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Factoring of suppliers (1)
Total
As of December 31, 2016
Long-term debt
Debt instruments
Financial leasing
Derivatives
Suppliers
Factoring of suppliers (1)
Total
Average effective
interest rate
6.76%
7.16%
4.00%
Up to 1 year
Up to 2 years
Up to 3 years
Up to 4 years
$
$
1,623,664
283,920
32,398
44,403
3,901,972
239,907
6,126,264
$
$
1,410,100
283,920
32,398
-
-
-
1,726,418
$
$
3,239,806
283,920
32,398
-
-
-
3,556,124
$
$
1,534,114
3,128,287
32,398
-
-
-
4,694,799
Up to 5 years
or more
5,045,053
1,367,185
536,998
-
-
-
6,949,236
$
$
$
$
Total
12,852,737
5,347,232
666,590
44,403
3,901,972
239,907
23,052,841
(1) The policy of payment to suppliers is 90 days, for which the Entity signed financial factoring contracts backed by credit lines with financial institutions, through which a supplier can contact the
financial institution to collect the any invoice in particular, previously approved by Alsea, before the payment date, which ends the payment obligation of Alsea to the supplier; in turn, Alsea will
settle the balance to the financial institution on the due date for the invoice, in accordance with the terms previously agreed with the supplier. This transaction has no cost to Alsea, provided that
the balances are liquidated in a timely manner, the balances not settled in a timely manner will be subject to a default interest that will be determined by the financial institution; Additionally, Alsea
receives a commission for the balances discounted by the suppliers. These amounts have been classified as factoring of suppliers in the statement of financial position.
i. Fair value of financial instruments
This notes provides information on the manner in which the Entity determines the fair values of the different financial assets and liabilities.
Some of the Entity’s financial assets and liabilities are valued at fair value at each reporting period. The following table contains
information on the procedure for determining the fair values of financial assets and financial liabilities (specifically the valuation
technique(s) and input data used).
Financial assets/liabilities
1) Forwards and currency options agreements
Valuation technique(s) and main input data
Fair value (1)(2)
Figures in thousands of USD
Fair value hierarchy
12/31/2018
147
$
12/31/2017
(46)
$
12/31/2016
2,787
$
Level 2
Plain vanilla forwards are calculated based on discounted cash flows on forward
exchange type bases. The main input data are the Spot, the risk-free rates in MXN and
USD + a rate that reflects the credit risk of counterparties. In the case of options, the
methods used are Black and Scholes and Montecarlo digital and/or binary algorithms.
2) Interest rate swaps
$
18,880
$
15,703
$
18,032
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.
158
During the period there were no transfers between level 1 and 3
(1) The fair value is presented from a bank’s perspective, which means that a negative amount represents a favorable result for the Entity.
(2) The calculation or valuation agent used is the same counterparty or financial entity with whom the instrument is contracted, who
is asked to issue the respective reports at the month-end closing dates specified by the Entity.
(3) Techniques and valuations applied are those generally used by financial entities, with official price sources from banks such as
Banxico for exchange rates, Proveedor Integral de Precios (PIP) and Valmer for supply and databases of rate prices, volatility, etc.
In order to reduce to a minimum, the credit risk associated with counterparties, the Entity contracts its financial instruments with
domestic and foreign institutions that are duly authorized to engage in those operations.
In the case of derivative financial instruments, a standard contract approved by the International Swaps and Derivatives Association
Inc. (ISDA) is executed with each counterparty; the standard confirmation forms required for each transaction are also completed.
Likewise, bilateral guarantee agreements are executed with each counterparty to determine policies for the margins, collateral and
credit lines to be granted.
This type of agreement is usually known as a “Credit Support Annex”; it establishes the credit limits that financial institutions grant to
the company and which are applicable in the event of negative scenarios or fluctuations that affect the fair value of the open positions
of derivative financial instruments. These agreements establish the margin calls to be implemented if credit line limits are exceeded.
Aside from the bilateral agreements attached to the ISDA outline agreement known as the Credit Support Annex (CSA), the Entity
monthly monitors the fair value of payable or receivable amounts. If the result is positive for the Entity and is considered relevant due
to its amount, a CDS can be contracted to reduce the risk of counterparty noncompliance.
The Entity has the policy of monitoring the number of operations contracted with each of these institutions so as to avoid margin calls
and mitigate the counterparty credit risk.
At December 31, 2018, 2017 and 2016, 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.
159
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:
Financial liabilities
Financial liabilities maintained at amortized cost:
Suppliers
Factoring of suppliers
Accounts payable and accrued liabilities
Bank loans
Current maturities of financial lease liabilities
Long-term bank loans
Non-current financial lease liabilities
Debt instruments
Total
12/31/2018
12/31/2017
12/31/2016
Carrying avalue
Fair value
Carrying value
Fair value
Carrying value
Fair value
$
$
4,457,901 $
757,976
679,767
2,588,266
6,799
16,038,416
284,375
6,983,244
31,796,744 $
4,457,901 $
757,976
679,767
2,702,880
6,799
16,038,416
284,375
6,809,099
31,737,213 $
3,960,806
573,097
445,594
1,087,466
6,799
6,693,454
294,644
6,980,452
20,042,312
$
$
3,960,806
573,097
445,594
1,095,114
6,799
6,693,454
294,644
6,843,439
19,912,947
$
$
3,901,972
239,907
669,249
1,107,238
6,799
9,743,806
300,835
3,988,845
19,958,651
$
$
Financial liabilities 2018
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 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
Total
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
$
$
$
$
$
$
3,901,972
239,907
669,249
1,115,556
6,799
9,743,806
300,835
4,037,222
20,015,346
Level 2
2,588,266
6,799
16,038,416
284,375
6,983,244
25,901,100
Level 2
1,087,466
6,799
6,693,454
294,644
6,980,452
15,062,815
Level 2
1,107,238
6,799
9,743,806
300,835
3,988,845
15,147,523
160
Valuation
a) Description of valuation techniques, policies and frequency:
The derivative financial instruments used by Alsea (forwards and swaps) are contracted to reduce the risk of adverse fluctuations in
exchange and interest rates. Those instruments require the Entity to exchange cash flows at future fixed dates on the face value or
reference value and are valued at fair value.
b) Liquidity in derivative financial operations:
1. The resources used to meet the requirements related to financial instruments, will come from the resources generated by Alsea.
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:
a. Capital stock structure
The movements in capital stock and premium on share issue are shown below:
Figures as of January 1, 2016
Placement of actions
Figures as of December 31, 20166
Placement of actions
Figures as of December 31, 2017
Placement of actions
Figures as of December 31, 2018
Number
of actions
837,486,444
(3,207,245)
834,279,199
(1,461,008)
832,818,191
2,821,991
835,640,182
Thousands of pesos
social capital
478,203
(1,604)
476,599
(730)
475,869
1,411
477,280
$
$
Premium in
issuance of shares
8,613,587
12,133
8,625,720
-
8,625,720
-
8,625,720
$
$
As discussed in Note 19, Grupo Zena has the sale option of the noncontrolling interest of Alsea. On October 30, 2018, Alsea and the
investors of Grupo Zena entered into a new agreement for purchase and sale options, termination of the stockholders’ agreement and
a commitment to sign a new stockholders’ agreement, which was ratified on December 27, 2018, and stipulates the termination of the
original stockholders’ agreement and the formalization of this new agreement, whereby Grupo Zena has the right to sell to Alsea its
noncontrolling interest in other investors equal to 21.06% of the equity of Grupo Zena. The net amount between the termination of the
original agreement and recognition of the new right was recorded net in the consolidated statement of changes in stockholders’ equity
under Reserve for purchase of noncontrolling interest, in the amount of $659,252.
161
In April 2018, Alsea declared a dividend payment of $654,091 with a charge to the after-tax earnings account, which is to be paid against net
earnings at $0.78 (zero pesos seventy and eight cents) per share. The Treasury society must make payment on April 23, 2018 for $654,091.
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, 2018 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, 2017 for $644,771.
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, 2018, 2017 and 2016, the legal reserve amounted to $100,736, which amount does not reach the required 20%.
II. Dividends paid out of accumulated profits will be free of ISR if they come from the CUFIN and for the surplus 30% will be paid on the
result of multiplying the dividend paid by the update factor. The tax arising from the payment of the dividend that does not come
from the CUFIN will be charged to the Entity and may be credited against the corporate ISR for the following two years.
162
24. Non-controlling interest
a. Following is a detail of the non-controlling interest.
Balances at January 1, 2016
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
Ending balance at December 31, 2017
Equity in results for the year ended December 31, 2018
Capital Reimbursement of Food Project, S.L.
Capital contributions in Food Service Project, S.L
Capital contributions in subsidiaries
Other movements in capital
Ending balance at December 31, 2018
$
$
Amount
899,920
130,019
(45,178)
28,687
1,013,448
162,651
(159,616)
42,682
62,401
1,121,566
186,071
(66,052)
613,029
21,627
2,501
1,878,742
(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. Following is the detail of the Non-Controlling interest of the main subsidiaries of the Entity:
Country
Spain
31/12/2018
33.76%
Percentages of the
non-controlling interest
31/12/2017
28.24%
Income (loss) attributable
to the non-controlling interest
Accumulated non-controlling interest
31/12/2016
31/12/2018
31/12/2017
31/12/2016
31/12/2018
31/12/2017
28.24% $
200,690 $
192,660 $
163,838 $
1,704,079 $
978,346 $
31/12/2016
866,843
Mexico
20.00%
20.00%
20.00%
(8,350)
(18,915)
(30,924)
63,718
68,446
86,042
Subsidiaria
Food Service Project,
S.L. (Grupo Zena)
Operadora de
Franquicias Alsea,
S.A. de C.V.
Estrella Andina, S.A.S.
Colombia
30.00%
30.00%
30.00%
(10,936)
(6,606)
(2,705)
65,114
62,236
40,193
163
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.
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, 2018, 2017 and 2016, 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):
Attributable to shareholders
Shares (in thousands of shares):
Weighted average of shares outstanding
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)
26. Revenues
Revenues from the sale of goods
Services
Royalties
Total
$
$
$
$
$
2018
2017
2016
953,251
$
1,089,498
$
996,471
835,640
832,818
834,279
1.14
1.14
$
$
1.31
1.31
$
$
1.19
1.19
2018
44,991,698
742,915
421,977
46,156,590
$
$
2017
41,378,982
767,169
382,970
42,529,121
$
$
2016
36,682,433
652,106
367,328
37,701,867
164
27. Cost of sales
The costs and expenses included in other operating costs and expenses in the consolidated statements of income are as follows:
Food and beverage of costs
Royalties of costs
Other costs
Total
28. Other operating costs and expenses
Employee benefits
Advertising
Services
Royalties
Pre-operative
Other
Total
29. Other (income) expenses, net
It is integrated as follows:
Legal expenses
(Gain) loss on fixed asset disposals, net
PTU on tax base
Inflation, interest on tax refund and other income not taxable
Gain on disposal of investment of associated - Grupo Axo
Group VIPS and Clover acquisition expenses
Other expenses (income), net
$
$
$
$
$
2018
13,438,000
158,930
590,578
14,187,508
2018
11,557,626
1,644,825
2,533,938
1,460,437
185,288
4,266,634
21,648,748
$
$
$
$
2017
12,467,682
145,000
310,507
12,923,189
2017
10,650,386
1,614,118
2,033,239
1,389,122
178,108
3,770,159
19,635,132
$
$
$
$
2016
11,406,404
146,036
227,190
11,779,630
2016
9,506,774
1,449,137
1,705,631
1,183,173
122,959
3,414,422
17,382,096
2018
3,305
$
2017
42,505
$
(70,374)
22,205
1,301
-
5,144
5,695
79,378
29,691
(52,534)
(608,817)
-
(17,571)
2016
53,487
3,885
23,347
26,517
-
-
3,415
110,651
165
Total
$
(32,724)
$
(527,348)
$
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, 2018,
2017 and 2016 was of approximately $185,740, $183,820 and $231,750, 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, Uruguay and Brazil) and Spain, 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) par-
ticipates are as follows:
Fast Food: This segment has the following features: i) fixed and restricted menus, ii) food for immediate consumption, iii) strict control over
individual portions of each ingredient and finished product, and
iv) individual packages, among others. This type of segment can be easily accessed and therefore penetration is feasible at any location.
Coffee Shops: Specialized shops where coffee is the main item on the menu. The distinguishing aspects are top quality services and
competitive prices, and the image/ambiance is aimed at attracting all types of customers.
Casual Dining: This segment comprises service restaurants where orders are taken from customers and there are also to-go and home
delivery services. The image/ambiance of these restaurants is aimed at attracting all types of customers. This segment covers fast food
and gourmet restaurants.
The main features of casual dining stores are i) easy access, ii) informal dress code, iii) casual atmosphere, iv) modern ambiance, v) simple
decor, vi) top quality services, and vii) reasonable prices. Alcoholic beverages are usually sold at those establishments.
166
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.
Fast Casual Dining: This is a combination of the fast food and casual dining segments.
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, 2018, 2017 and 2016 is as follows:
(figures in millions of pesos).
Figures in millions of pesos as of December 31, division:
Food and beverages Mexico
Food and beverages LATAM
Food and beverages Spain
Consolidated
2018
2017
2016
2018
2017
2016
2018
2017
2016
2018
2017
2016
$ 25,462 $ 23,676 $ 21,986 $ 10,832 $ 10,283 $
21,986
7,137
9,701
5,148
1,757
1,643
1,748
25,462
8,032
11,530
5,900
2,123
1,553
2,224
10,832
3,430
5,906
1,496
572
803
121
10,283
3,179
5,541
1,563
463
862
238
23,676
7,392
10,759
5,525
1,966
1,033
2,526
Income
From third parties
Income
Costs
Operating costs
EBITDA store
Depreciation and amortization
Non-operating expenses
Utility operation
Interest paid
Earned interests
Other financial expenses
Participation in associates
Income taxes
Consolidated net income for the year
Noncontrolling interest
Majority net income
8,124 $
8,124
2,566
4,331
1,227
331
641
255
9,862 $
9,862
2,726
5,220
1,916
419
549
948
8,570 $
8,570
2,352
4,492
1,726
323
452
951
7,591 $ 46,156 $ 42,529 $ 37,701
37,701
7,591
11,779
2,076
18,047
4,015
7,875
1,500
2,388
300
2,721
437
2,766
763
882
(37)
335
1,180
68
529
1,126
130
996
46,156
14,188
22,656
9,312
3,114
2,905
3,293
1,628
(57)
(115)
1,456
-
698
1,139
186
953 $
42,529
12,923
20,792
8,814
2,752
2,347
3,715
1,307
(45)
364
1,626
-
835
1,253
163
1,090 $
$
167
Assets
Investment in productive assets
Investment in associates
Investment in Fixed Assets
and Intangible
Food and beverages Mexico
Food and beverages LATAM
Food and beverages Spain
Consolidated
2018
2017
$ 23,610 $ 24,377 $ 24,400 $
2016
2018
5,469 $
2017
5,135 $
2016
3,772 $
2018
6,652 $
2017
5,265 $
2016
2016
4,441 $ 35,731 $ 34,777 $ 32,613
2018
2017
14
-
3,014
3,136
1,036
3,185
-
1,155
-
985
-
-
577
14,428
-
653
-
14
-
787
18,597
4,774
1,036
4,549
Total assets
$ 26,638 $ 27,513 $ 28,621 $
6,624 $
6,120 $
4,349 $ 21,080 $
5,918 $
5,228 $ 54,342 $ 39,551 $ 38,198
Total liability
$ 25,315 $ 20,347 $ 20,928 $
1,638 $
4,244 $ 3,080 $ 13,938 $
4,358 $
4,063 $ 40,890 $ 28,949 $ 28,071
32. Foreign currency position
Assets and liabilities expressed in US dollars, shown in the reporting currency at December 31, 2018, 2017 and 2016, are as follows:
Assets
Liabilities
Net monetary liability position
Thousands
of dollars
2018
2,331,077
(14,955,348)
(12,624,271)
$
$
$
$
Thousands
of dollars
2017
1,575,514
(6,307,317)
(4,731,803)
$
$
Thousands
of dollars
2016
1,776,641
(5,891,935)
(4,115,294)
The exchange rate to the US dollar at December 31, 2018, 2017 and 2016 was $19.65, $19.74 and $20.66, respectively. At April 1, 2019, date
of issuance of the consolidated financial statements, the exchange rate was $19.37 to the US dollar.
The exchange rates used in the different conversions to the reporting currency at December 31, 2018, 2017 and 2016 and at the date of
issuance of these consolidated financial statements are shown below:
Country of origin
2018
Argentina
Chile
Colombia
Spain
Country of origin
2017
Argentina
Chile
Colombia
Spain
Currency
Closing exchange rate
Issuance April 1, 2019
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
0.5192
0.0283
0.0061
22.5340
0.4481
0.0285
0.0061
21.7624
Currency
Closing exchange rate
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
1.0509
0.0321
0.0066
23.6587
168
Country of origin
2016
Argentina
Chile
Colombia
Spain
Currency
Closing exchange rate
Argentinian peso (ARP)
Chilean peso (CLP)
Colombian peso (COP)
Euro (EUR)
1.3012
0.0308
0.0067
21.7323
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,
Gastronomía Italiana en Colombia, S.A.S.
Operadora Alsea en Colombia, S.A.
Asian Bistro Colombia, S.A.S.
Food Service Project, S.L.
Country of origin Currency Recording
ARP
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
Argentina
Argentina
Argentina
Chile
Chile
Colombia
Colombia
Colombia
Spain
Functional
ARP
ARP
ARP
CLP
CLP
COP
COP
COP
EUR
Presentation
MXP
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 normal 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, 2018, 2017 and 2016, these obligations have
been met.
169
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. Subsequent events
On February 18, 2019, Alsea entered into a development contract with Starbucks Coffee Company to obtain the total license and acquire
operations of stores and corporate operations of Starbucks in Holland, Belgium and Luxembourg. This transaction resulted in the acquisition
by Alsea of 13 corporate units in Holland, and the rights to provide services to licensed operators in these countries (95 stores licensed
in these countries), and also to operate and generate expansion opportunities for Starbucks stores in such countries. Alsea concluded the
purchase process on February 25, 2019.
35. Consolidated financial statement authorization
The consolidated financial statements were authorized for issuance on April 1, 2019 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.
170
Fundación Alsea, A. C
Financial Statements for the Years Ended December
31, 2018 and 2017, and Independent Auditors’ Report
Dated March 15, 2019
171
Fundación Alsea, A. C
Independent Auditors’ Report and
Financial Statements for 2018 and 2017
Table of contents
Independent Auditors’ Report
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to Financial Statements
Page
173
176
177
178
179
172
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, 2018 and 2017, and the related statements of activities and statements
of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of
Fundación Alsea, A. C. as of December 31, 2018 and 2017, and its financial performance and its cash flows, for the years
then ended in accordance with Mexican Financial Reporting Standards (“MFRS”).
Bases of Opinion
We conducted our audits in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section
of our report. We are independent of the Foundation in accordance with the International Ethics Standards Board
for Accountants’ Code of Ethics for professional Accountants (“IESBA Code”) and with the Ethics Code issued by
the Mexican Institute of Public Accountants (“IMCP Code”), and we have fulfilled our other ethical responsibilities in
accordance with the IESBA Code and IMCP Code. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Responsibilities of Management and Those Responsible for Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the accompanying financial statements in
accordance with NIF and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
173
In preparing the financial statements, management is responsible for assessing the Foundation’s ability to continue
as a going concern, disclosing, as applicable, matters, related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Foundation or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Foundation’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance 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 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 ISAs, we exercise professional judgement and maintain professional skepticism
throughout the audit. We also:
- Identify and asses the risks of material misstatement of the 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 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.
174
- 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 of the Foundation 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.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Juan Carlos Reynoso Degollado
March 15, 2019
175
FUNDACIÓN ALSEA, A. C.
Statements of Financial Position
As of December 31, 2018 and 2017
(In thousands of Mexican pesos)
ASSETS
2018
2017
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
$
53,577
$
55,139
1,993
659
56,229
659
50
55,848
-
27
$
56,229
$
55,875
$
292
$
767
1,059
1,521
13,911
15,432
Unrestricted patrimony
55,170
40,443
Total
$
56,229
$
55,875
See accompanying notes to financial statements.
176
FUNDACIÓN ALSEA, A. C.
Statements of Activities
For the years ended December 31, 2018 and 2017
(In thousands of Mexican pesos)
Revenues:
Cash donations income
Interest income
Expenses:
General expenses
Value added tax
Administrative expenses
2018
2017
$
64,770
$
3,283
68,053
51,963
-
1,781
53,744
41,050
3,776
44,826
61,502
587
1,302
63,391
Other (expenses) – net
418
(34)
Net changes in patrimony
14,727
(18,599)
Income taxes
-
(307)
Unrestricted patrimony at beginning of the year
40,443
59,349
Unrestricted patrimony at end of the year
$
55,170
$
40,443
See accompanying notes to financial statements.
177
FUNDACIÓN ALSEA, A. C.
Statements of Cash Flows
For the years ended December 31, 2018 and 2017
(In thousands of Mexican pesos)
Operating activities:
Net changes in patrimony before income taxes
$
14,727
$
(18,599)
2018
2017
Items related to investing activities:
Amortization of other assets
(Increase) decrease in:
Accounts receivable
Recoverable taxes
Increase (decrease) in:
Trade accounts payable
Taxes and accrued expenses
Income taxes
Net cash flows used in operating activities
27
(1,334)
(609)
(1,229)
(13,144)
-
(1,562)
80
978
(1)
1,504
12,863
(307)
(3,482)
Net increase in cash and cash equivalents
(1,562)
(3,482)
Cash and cash equivalents at beginning of the year
55,139
58,621
Cash and cash equivalents at end of the year
$
53,577
$
55,139
See accompanying notes to financial statements.
178
FUNDACIÓN ALSEA, A. C.
Notes to Financial Statements
For the years ended December 31, 2018 and 2017
(In thousands of Mexican pesos)
1. Activities
Fundación Alsea, A. C. (the “Foundation”), whose main objective is to contribute to food safety of vulnerable 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 authorization of the Mexican Secretariat
of Finance and Public Credit (Servicio de Administración Tributaria, for its name in Spanish – “SAT”). 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, 2018 and was granted by Official Letter No. 325-SAT-IV-E-76214 and 600-04-02 -2013-16480.
The Foundation does not have any employees, and therefore it is not subject to labor obligations. All personnel services are provided by a
related party.
2. Basis of presentation
a. Explanation for translation into English - The accompanying financial statements have 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 NIF A-2 “Basic
Postulates”, B-16 “Financial 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 profitable entities.
c. Monetary unit of the financial statements - The financial statements and notes as of December 31, 2018 and 2017 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, 2018 and 2017 were 12.71% and 9.87% % in each period. Accordingly,
the economic environment is not inflationary in either such period and no inflationary effects were recognized in the accompanying
financial statements. Inflation rates for the years ended December 31, 2018 and 2017 were 4.83% and 6.77%, 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.
179
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.
f. Net change in patrimony – Net change in patrimony is the change in patrimony during an accounting period for a foundation arising
from its revenues, costs and expenses.
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. Recognition of the effects of inflation – Beginning on January 1, 2008, the Foundation discontinued recognition of the effects
of inflation in its financial statements; however, non-monetary assets and liabilities and patrimony include the restatement effects
recognized through December 31, 2007.
b. 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.
c. 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.
d. Provisions - Provisions are recognized for current obligations that arise from a past event, that are probable to result in the use of
economic resources, and that can be reasonably estimated.
e. Income from cash donations and interest – Income from donations received are recognized at the time the cash is received.
Interest income are recognized as they accrue.
180
4. Cash and cash equivalents
Cash
Cash equivalents – Money market funds
2018
2017
$
$
- $
53,577
331
54,808
53,577 $
55,139
5. Income taxes
Being a non-profit association in accordance with the provisions of the Income Tax Law (“ISR” for its acronym in Spanish), 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 March 15, 2019, 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.
181
• Cotizamos en el IPC Sustentable de la BMV desde 2013.
• CEMEFI nos ha reconocido por ocho años consecutivos
como Empresa Socialmente Responsable
• Estamos adheridos al Pacto Mundial de las Naciones
Unidas desde 2011.
• Este año, ingresamos al Dow Jones Sustainability Index.
182